Estate and Donor's Tax Cases

ESTATE AND DONORS TAX
G.R. No. L-33849 August 18, 1977

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

Teodorico Alejandro, ANGEL DIAZ, filipino, may sapat na gulang, kasal kay Catalina
Marcelo, at ANDREA DIAZ, filipina, may sapat na gulang, kasal kay Perfecto
Marcelo, mga naninirahan sa nayon ng Parada, Sta. Maria, Bulacan, na dito'y
kinikilalang PINAGKALOOBAN (DONEES).
PAGPAPATUNAY:
Na ang Nagkaloob (DONORS) ay siyang mayari, at kamayari at namomosision sa
kasalukuyan ng mga parcelang lupa kasama ang mga kagalingan na nasa lugar ng
Parada, Sta. Maria, Bulacan, mapagkikilala sa paraang mga sumusunod (description
and statements as to registration are omitted):
1. TCT No. 7336, Lot No. 2502, 5,678 square meters.
2. TCT No. 10998, Lot No. 2485, 640 square meters.
3. TCT No. 10840, Lot No. 2377,16,600 square meters.
4. TCT No. 10997, Lot No. 2448,12,478 square meters.
7. TCT No. 17961, Lot No. 2521, 715 square meters.
Na dahil at alang-alang sa pagmamahal at masuyong pagtingin na taglay ng
NAGKAKALOOB (DONORS) sa Pinagkakalooban (DONEES) gayun din sa tapat at
mahalagang paglilingkod noong mga lumipas na panahon na ginawa ng huli sa una,
ang nabanggit na nagkakaloob sa pamamagitan ng kasulatang ito ng pagkakaloob
(Donation) ay buong pusong inililipat at lubos na ibinibigay sa nasabing
pinagkakalooban ang lupang binabanggit at makikilala sa unahan nito, laya sa ano
mang sagutin at pagkakautang, katulad nito:
(a) Na ang lupang sinasaysay sa Lote No. 2502 o Titulo No. 7336, (No. 1) sa
unahan nito ay hinati sa dalawang parte ang unang parte (1/2) na nasa bandang
Kanluran (West) ay ipinagkakaloob ng mag-asawang Gabino Diaz at Severa
Mendoza sa kanilang anak na si Angel Diaz, kasal kay Catalina Marcelo; at ang
ikalawang parte (1/2) na nasa 'bandang silangan (East) ay ipinagkakaloob ng magasawang Gabino Diaz at Severa Mendoza sa kanilang anak na si Andrea Diaz, kasal
kay Perfecto Marcelo."

(Note Some dispositions are not reproduced verbatim but are merely summarized
because they are not involved in this case. Paragraph (a) above is the one involved
herein).
(b) Lot No. 2485, TCT No.10998, to Regina Fernando (daughter- in-law of the
donors and widow of their deceased son, Miguel Diaz) and Olimpia Diaz in equal
shares.
(c) Lot No. 2377, TCT No. 10840, 1/3 to Angel Diaz, 1/3 to Andrea Diaz, and 1/3
"ay inilalaan o inihahanda ng mag-asawang Gabino Diaz at Severa Mendoza sa
kanilang sariling kapakanan o mga gastos nila.
(d) Lot No. 2448, TCT No. 10997 to Olimpia Diaz sa condicion na pagkakalooban
ni Olimpia Diaz si Crisanta de la Cruz, asawa ni Alejandro - - - - - (sic) sakaling si
Crisanta ay mamatay ng halagang isang daang piso (P100), bilang gastos sa libing."
(e) Na ang lupang-solar na sinasaysay sa Lote No. 4168 o Titulo No. 2051 (No.
5); lupang-bukid na sinasaysay sa Lote No. 25?2 o Titulo No. 17960 (No. 6); at
lupang-bukid na sinasaysay sa Lote No. 2521 o Titulo No. 17961 (No. 7) sa unahan
nito ay inilalaan o inihahanda ng mag-asawang Gabino Diaz at Severa Mendoza sa
kanilang sariling kapakanan o mga gastos nila.
(f) Lot No. 2643, TCT No. 21453, to Regina Fernando and her children with the
deceased Miguel Diaz in whose name the said Lot was already registered.
Na kaming mga pinagkakalooban (DONEES) na sila Regina Fernando, Olimpia Diaz,
Angel Diaz at Andrea Diaz ay tinatanggap namin ng buong kasiyahang loob ang
pagkakaloob (Donation.) na ito, at sa pamamagitan nito ay kinikilala,
pinahahalagahan, at lubos na pinasasalamatan namin ang kagandahang loob at
paglingap na ipinakita at ginawa ng nagkakaloob (Donors).
AT SA WAKAS, ang pagkakaloob na ito (DONATION), ay sumasailalim sa paraang
mga sumusunod:
1. Ang mga Pinagkakalooban (Donatarios) na sila Regina Fernando, Olimpia Diaz,
Angel Diaz, at Andrea Diaz, siyang nakaaalam sa mga gastos sa pagkakasakit at sa
libing ng NAGKALOOB (DONANTE);
2. Na ang mga Pinagkalooban (DONATARIOS) ay hindi maaaring makapagbili sa
pangatlong tao ng nasabing mga pagaari samantalang ang nagkaloob (Donante) ay
buhay Datapwa't kung ang pagbibiling gagawin ay upang malunasan ang mga
gastos at menitencion ng Nagkaloob (Donante) samakatuwid ang nasabing pagbibili
ay matuwid;
3. Gayun din, samantalang kaming mag-asawang Gabino Diaz at Severa Mendoza
ay buhay, patuloy ang aming pamamahala, karapatan, at pagkamay-ari sa mga

nasabing pagaari na sinasaysay sa unahan nito na pag-aari namin; ngunit sakaling
kami ay bawian ng buhay ng Panginoong Dios at mamatay na ang mga karapatan at
pagkamay-ari ng bawa't Pinagkalooban (Donatarios) sa bawa't pag-aari na nauukol
sa bawa't isa ay may lubos na kapangyarihan."
SA KATUNAYAN NG LAHAT, linagdaan namin ang kasulatang ito, dito sa Sta. Maria,
Bulacan, ngayon ika 20 ng Enero, 1949, sa patibay ng dalawang sacsing
kaharap. Signature Thumbmark SignatureGABINO DIAZ SEVERA MENDOZA
REGINA FERNANDO Thumbmark Signature Signature OLIMPIA DIAZ ANGEL DIAZ
ANDREA DIAZ
(Acknowledgment signed by Notary Celedonio Reyes is omitted)
Gabino Diaz died in 1962. On October 20, 1964 Severa Mendoza and her two children, Andrea Diaz
and Angel Diaz, executed a deed of donation denominated as "Kasulatan ng Pagbibigay na
Magkakabisa Pagkamatay (Donation Mortis causa )" over one-half of Lot No. 2377-A, which is a
portion of Lot No. 2377 of the Lolomboy Friar Lands Estate (which in turn is item 3 or [c] in the 1949
deed of donation already mentioned).
In that deed of donation, Severa Mendoza donated to Andrea Diaz her one-half share in Lot 2377-A,
which one-half share is Identified as Lot 2377-A-1, on condition that Andrea Diaz would bear the
funeral expenses to be incurred after the donor's death. She died in 1964.
It should be noted that the other one-half share in Lot 2377-A or Lot No. 2377-A-2 was previously
adjudicated to Angel Diaz because he defrayed the funeral expenses on the occasion of the death of
Gabino Diaz.
On May 12, 1970 Andrea Diaz sued her brother, Angel Diaz, in the Court of First Instance of
Bulacan, Sta. Maria Branch V for the partition of Lots Nos. 2377-A and 2502 (Civil Case No. SM357). Teodorico Alejandro, the surviving spouse of Olimpia Diaz, and their children intervened in the
said case. They claimed one-third of Lot No. 2502. Angel Diaz alleged in his answer that he had.
been occupying his share of Lot No. 2502 "for more than twenty years". The intervenors claimed that
the 1949 donation was a void mortis causa disposition.
On March 15, 1971 the lower court rendered a partial decision with respect to Lot No. 2377-A. The
case was continued with respect to Lot No. 2502 which is item No. 1 or (a) in the 1949 deed of
donation. The record does not show what happened to the other six lots mentioned in the deed of
donation.
The trial court in its decision of June 30, 1971 held that the said deed of donation was a
donation mortis causabecause the ownership of the properties donated did not pass to the donees
during the donors' lifetime but was transmitted to the donees only "upon the death of the donors".
However, it sustained the division of Lot No. 2502 into two equal parts between Angel Diaz and
Andrea Diaz on the theory that the said deed of donation was effective "as an extra-judicial partition
among the parents and their children. Consequently, the Alejandro intervenors were not given any

share in Lot No. 2502. Angel Diaz and the intervenors were ordered to pay Andrea Diaz "attorney's
fees of P1,000 each or a total of P2,000".
The Alejandro intervenors filed a motion for reconsideration, On July 16, 1971 the trial court denied
that motion but eliminated the attorney's fees.
Andrea Diaz and the Alejandro intervenors filed separate appeals to this Court under Republic Act
No. 5440. Andrea Diaz contends that the 1949 deed of donation is a valid donation inter vivos and
that the trial court erred in deleting the award for attorney's fees. The Alejandro intervenors contend
that the said donation is mortis causa ; that they are entitled to a one-third share in Lot No, 2502,
and that the trial court erred in characterizing the deed as a valid partition. In the ultimate analysis,
the appeal involves the issue of whether the Alejandro intervenors should be awarded one-third of
Lot No. 2502, or 1,892 square meters thereof, as intestate heirs of the Diaz spouses.
To resolve that issue, it is necessary to determine whether the deed of donation is inter
vivos or mortis causa. A brief exposition on the nature of donation inter vivos and mortis causa may
facilitate the resolution of that issue. Many legal battles have been fought on the question of whether
a particular deed is an inter vivos or mortis causadonation. The copious jurisprudence on that point
sheds light on that vexed question. The Civil Code provides:
ART. 728. Donations which are to take effect upon the death of the donor partake of
the nature of testamentary provisions, and shall be governed by the rules established
in the Title on Succession. (620).
ART. 729. When the donor intends that the donation shall take effect during the
lifetime of the donor, though the property shall not be delivered till after the donor's
death, this shall be a donation inter vivos. The fruits of the property from the time of
the acceptance of the donation, shall pertain to the donee, unless the donor provides
otherwise. (n)
ART. 730. The fixing of an event or the imposition of a suspensive condition, which
may take place beyond the natural expectation of life of the donor, does not destroy
the nature of the act as a donationinter vivos unless a contrary intention appears. (n)
ART. 731. When a person donates something subject to the resolutory condition of
the donor's survival, there is a donation inter vivos. (n)
ART. 732. Donations which are to take effect inter vivos shall be governed by the
general provisions on contracts and obligations in all that is not determined in this
Title. (621)."
Nature of donations inter vivos and mortis causa transfers. Before tackling the issues raised in
this appeal, it is necessary to have some familiarization with the distinctions between donations inter
vivos and mortis causabecause the Code prescribes different formalities for the two kinds of
donations. An utter vivos donation of real property must be evidenced by a public document and
should be accepted by the donee in the same deed of donation or in a separate instrument. In the

latter case, the donor should be notified of the acceptance in an authentic form and that step should
be noted in both instruments. (Art. 749, Civil Code. As to inter vivos donation of personal property,
see art. 748).
On the other hand, a transfer mortis causa should be embodied in a last will and testament (Art.
728, supra). It should not be called donation mortis causa . It is in reality a legacy (5 Manresa,
Codigo Civil, 6th Ed., p. 107). If not embodied in a valid will, the donation is void (Narag vs. Cecilio,
109 Phil. 299; Aznar vs. Sucilla 102 Phil. 902; Tuazon vs. Posadas, 54 Phil. 289; Serrano vs.
Solomon, 105 Phil. 998, 1002).
This Court advised notaries to apprise donors of the necessity of clearly specifying whether,
notwithstanding the donation, they wish to retain the right to control and dispose at will of the
property before their death, without the consent or intervention of the beneficiary, since the
reservation of such right would be a conclusive indication that the transfer' would be effective only at
the donor's death, and, therefore, the formalities of testaments should be observed; while, a
converso, the express waiver of the right of free disposition would place the inter vivos character of
the donation beyond dispute (Cuevas vs. Cuevas, 98 Phil. 68,72).
From the aforequoted articles 728 to 732, it is evident that it is the time of effectivity (aside from the
form) which distinguishes a donation inter vivos from a donation mortis causa . And the effectivity is
determined by the time when the full or naked ownership (dominum plenum or dominium directum)
of the donated properties is transmitted to the donees. (See Lopez vs. Olbes, 15 Phil. 540; Gonzales
and Fuster Fabra vs. Gonzales Mondragon, 35 Phil. 105). The execution of a public instrument is a
mode of delivery or tradition (Ortiz vs. Court of Appeals, 97 Phil. 46).
If the donation is made in contemplation of the donor's death, meaning that the full or naked
ownership of the donated properties will pass to the donee only because of the donor's death, then it
is at that time that the donation takes effect, and it is a donation mortis causa which should be
embodied in a last will and testament (Bonsato vs. Court of Appeals, 95 Phil. 481).
But if the donation takes effect during the donor's lifetime or independently of the donor's death,
meaning that the full or naked ownership (nuda proprietas) ) of the donated properties passes to the
donee during the donor's lifetime, not by reason of his death but because of the deed of donation,
then the donation is inter vivos (Castro vs. Court of Appeals, L-20122, April 28, 1969, 27 SCRA
1076).
The effectivity of the donation should be ascertained from the deed of donation and the
circumstances surrounding its execution. Where, for example, it is apparent from the document of
trust that the donee's acquisition of the property or right accrued immediately upon the effectivity of
the instrument and not upon the donor's death, the donation is inter vivos (Kiene vs. Collector of
Internal Revenue, 97 Phil. 352).
There used to be a prevailing notion, spawned by a study of Roman Law, that the Civil Code
recognizes a donation mortis as a juridical act in contraposition to a donation inter vivos. That
impression persisted because the implications of article 620 of the Spanish Civil Code, now article
728, that "las donaciones que hayan de producir sus efectos pro muerte del donante participan de la

naturaleza de las disposiciones de ultima voluntad, y se regiran por las reglas establecidas en el
capitulo de la sucesion testamentaria" had not been fully expounded in the law schools. Notaries
assumed that the donation mortis causa of the Roman Law was incorporated into the Civil Code.
As explained by Justice J. B. L. Reyes in the Bonsato case, supra, article 620 broke away from the
Roman Law tradition and followed the French doctrine that no one may both donate and retain.
Article 620 merged donationsmortis causa with testamentary dispositions and thus suppressed the
said donations as an independent legal concept. Castan Tobenas says:
(b) Subsisten hoy en nuestro Derecho las donaciones mortis causa ? De lo que
acabamos de decir se desprende que las donaciones mortis causa han perdido en el
Codigo civil su caracter distintivo y su naturaleza, y hay que considerarlas hoy como
una institucion suspirimida, refundida en la del legado. ...
La tesis de la desaparicion de las donaciones mortis causa en nuestro Codigo Civil,
acusada ya precedentemente por el projecto de 1851, puede decirse que constituye
una communis opinio entre nuestros expositores, incluso los mas recientes. ...
Garcia Goyena, comentando dicho proyecto, decia que la Comision se habia
adherido al acuerdo de suprimir las donaciones mortis causa , seguido por casi
todos los Codigos modernos. Las donacionesmortis causa a;adia-eran una
especie de montsruo entre los contratos y ultimas voluntades; las algarabia del
Derecho romano y patrio sobre los puntos de semenjanza y disparidad de estas
donaciones con los pactos y legados no podia producir sino dudas, confusion y
pleitos en los rarisimos casos que ocurriesen por la dificuldad de apreciar y fijar sus
verdaderos caracteres' "(4 Derecho Civil Espanol, Comun y Foral, 8th Ed., 1956, pp.
182-3).
Manresa is more explicit. He says that "la disposicion del articulo 620 significa, por lo tanto: (1) que
han desaperacido las llamadas antes donaciones mortis causa , por lo que el Codigo no se ocupa
de ellas en absoluto; (2) que toda disposicion de bienes para despues de la muerte sigue las reglas
establecidas para la sucesion testamentaria" (5 Comentarios al Codigo Civil Espanol, 6th Ed.,
p.107). Note that the Civil Code does not use the term donation mortis causa . ( Section 1536 of the
Revised Administrative Code in imposing the inheritance tax uses the term "gift mortis causa ").
lwphl@it
What are the distinguishing characteristics of a donation mortis causa? Justice Reyes in the Bonsato
case says that in a disposition post mortem (1) the transfer conveys no title or ownership to the
transferee before the death of the tansferor, or the transferor (meaning testator) retains the
ownership, full or naked (domino absoluto or nuda proprietas) (Vidal vs. Posadas, 58 Phil. 108; De
Guzman vs. Ibea, 67 Phil. 633; (2) the transfer is revocable before the transferor's death and
revocabllity may be provided for indirectly by means of a reserved power in the donor to dispose of
the properties conveyed (Bautista vs. Sabiniano, 92 Phil. 244), and (3) the transfer would be void if
the transferor survived the transferee.
In other words, in a donation mortis causa it is the donor's death that determines that acquisition of,
or the right to, the property donated, and the donation is revocable at the donor's will, Where the

donation took effect immediately upon the donee's acceptance thereof and it was subject to the
resolutory condition that the donation would be revoked if the donee did not give the donor a certain
quantity of rice or a sum of money, the donation is inter vivos(Zapanta vs. Posadas, Jr., 52 Phil.
557).
Justice Reyes in the subsequent cast of Puig vs. Penaflorida, L-15939, November 29, 1965, 15
SCRA 276, synthesized the rules as follows:
1. That the Civil Code recognizes only gratuitous transfers of property which are
effected by means of donations inter vivos or by last will and testament executed with
the requisite legal formalities.
2. That in inter vivos donations the act is immediately operative even if the material
or physical deliver (execution) of the property may be deferred until the donor's
death, whereas, in a testamentary disposition, nothing is conveyed to the grantee
and nothing is acquired by him until the death of the grantortestator. The disposition
is ambulatory and not final.
3. That in a mortis causa disposition the conveyance or alienation should be
(expressly or by necessary implication) revocable ad nutum or at the discretion of the
grantor or so called donor if he changes his mind (Bautista vs. Saniniano, 92 Phil.
244).
4. That, consequently, the specification in the deed of the cases whereby the act may
be revoked by the donor indicates that the donation is inter vivos and not a mortis
causa disposition (Zapanta vs. Posadas, 52 Phil. 557).
5. That the designation of the donation as mortis causa , or a provision in the deed to
the effect the donation "is to take effect at the death of the donor", is not a controlling
criterion because those statements are to be construed together with the rest of the
instrument in order to give effect to the real intent of the transferor (Laureta vs. Mata
and Mango, 44 Phil. 668; Concepcion vs. Concepcion, 91 Phil. 823; Cuevas vs.
Cuevas, 98 Phil. 68).
6. That a conveyance for an onerous consideration is governed by the rules of
contracts and not by those of donations or testaments (Carlos vs. Ramil, 20 Phil.
183; Manalo vs. De Mesa, 29 Phil. 495).
7. That in case of doubt the conveyance should be deemed a donation inter
vivos rather than mortis causa , in order to avoid uncertainty as to the ownership of
the property subject of the deed.
It may be added that the fact that the donation is given in consideration of love and affection or past
or future services is not a characteristic of donations inter vivos because transfers mortis causa may
be made also for those reasons. There is difficulty in applying the distinctions to controversial cases
because it is not easy sometimes to ascertain when the donation takes effect or when the full or

naked title passes to the transferee. As Manresa observes, "when the time fixed for the
commencement of the enjoyment of the property donated be at the death of the donor, or when the
suspensive condition is related to his death, confusion might arise" (5 Codigo Civil, 6th Ed., p. 108).
The existence in the deed of donation of conflicting stipulations as to its effectivity may generate
doubt as to the donor's intention and as to the nature of the donation (Concepcion vs. Concepcion,
91 Phil. 823).
Where the donor declared in the deed that the conveyance was mortis causa and forbade the
registration of the deed before her death, the clear inference is that the conveyance was not
intended to produce any definitive effect nor to pass any interest to the grantee except after her
death. In such a case, the grantor's reservation of the right to dispose of the property during her
lifetime means that the transfer is not binding on her until she dies. It does not mean that the title
passed to the grantee during her lifetime. (Ubalde Puig vs. Magbanua Penaflorida, L-15939,
Resolution of January 31, 1966, 16 SCRA 136).
In the following cases, the conveyance was considered a void mortis causa transfer because it was
not cast in the form of a last will and testament as required in article 728, formerly article 620:
(a) Where it was stated in the deed of donation that the donor wanted to give the donee something
"to take effect after his death" and that "this donation shall produce effect only by and because of the
death of the donor, the property herein donated to pass title after the donor's death" (Howard vs.
Padilla, 96 Phil. 983). In the Padilla case the donation was regarded as mortis causa although the
donated property was delivered to the donee upon the execution of the deed and although the
donation was accepted in the same deed.
(b) Where it was provided that the donated properties would be given to the donees after the
expiration of thirty days from the donor's death, the grant was made in the future tense, and the word
"inherit" was used (Carino vs. Abaya, 70 Phil. 182).
(c) Where the donor has the right to dispose of all the donated properties and the products thereof.
Such reservation is tantamount to a reservation of the right to revoke the donation (Bautista vs.
Sabiniano 92 Phil. 244).
(d) Where the circumstances surrounding the execution of the deed of donation reveal that the
donation could not have taken effect before the donor's death and the rights to dispose of the
donated properties and to enjoy the fruits remained with the donor during her lifetime (David vs.
Sison, 76 Phil. 418).
But if the deed of donation makes an actual conveyance of the property to the donee, subject to a
life estate in the donors, the donation is is inter vivos (Guarin vs. De Vera, 100 Phil. 1100).
Articles 729, 730 and 731 have to some extent dissipated the confusion surrounding the two kinds of
donation. The rule in article 729 is a crystallization of the doctrine announced in decided cases.

A clear instance where the donor made an inter vivos donation is found in De Guzman vs. Ibea 67
Phil. 633. In that case, it was provided in the deed that the donor donated to the donee certain
properties so that the donee "may hold the same as her own and always" and that the donee would
administer the lands donated and deliver the fruits thereof to the donor, as long as the donor was
alive, but upon the donor's death the said fruits would belong to the donee. It was held that the
naked ownership was conveyed to the donee upon the execution of the deed of donation and,
therefore, the donation became effective during the donor's lifetime.
In Sambaan vs. Villanueva, 71 Phil. 303, the deed of donation, as in Balaqui vs. Dongso, 53 Phil.
673, contained conflicting provision. It was provided in the deed that the donation was made "en
consideracion al afecto y carino" of the donor for the donee but that the donation "surtira efectos
despues de ocurrida mi muerte (donor's death).
That donation was held to be inter vivos because death was not the consideration for the donation
but rather the donor's love and affection for the donee. The stipulation that the properties would be
delivered only after the donor's death was regarded as a mere modality of the contract which did not
change its inter vivos character. The donor had stated in the deed that he was donating, ceding and
transferring the donated properties to the donee. (See Joya vs. Tiongco, 71 Phil. 379).
In Laureta vs. Mata and Magno, 44 Phil. 668 the deed of donation provided that the donor was
donating mortis causa certain properties as a reward for the donee's services to the donor and as a
token of the donor's affection for him. The donation was made under the condition that "the donee
cannot take possession of the properties donated before the death of the donor"; that the ' donee
should cause to be held annually masses for the repose of the donor's soul, and that he should
defray the expenses for the donor's funeral.
It was held that the said donation was inter vivos despite the statement in the deed that it was mortis
causa . The donation was construed as a conveyance in praesenti ("a present grant of a future
interest") because it conveyed to the donee the title to the properties donated "subject only to the life
estate of the donor" and because the conveyance took effect upon the making and delivery of the
deed. The acceptance of the donation was a circumstance which was taken into account in
characterizing the donation as inter vivos.
In Balacui vs. Dongso, supra, the deed of donation involved was more confusing than that found in
the Lauretacase. In the Balaqui case, it was provided in the deed that the donation was made in
consideration of the services rendered to the donor by the donee; that "title" to the donated
properties would not pass to the donee during the donor's lifetime, and that it would be only upon the
donor's death that the donee would become the "true owner" of the donated properties. However,
there was the stipulation that the donor bound herself to answer to the donee for the property
donated and that she warranted that nobody would disturb or question the donee's right.
Notwithstanding the provision in the deed that it was only after the donor's death when the 'title' to
the donated properties would pass to the donee and when the donee would become the owner
thereof, it was held in the Balaqui case that the donation was inter vivos.

It was noted in that case that the donor, in making a warranty, implied that the title had already been
conveyed to the donee upon the execution of the deed and that the donor merely reserved to herself
the "possesion and usufruct" of the donated properties.
In Concepcion vs. Concepcion, 91 Phil. 823, it was provided in the deed of donation, which was also
styled asmortis causa , that the donation was made in consideration of the services rendered by the
donee to the donor and of the donor's affection for the donee; that the donor had reserved what was
necessary for his maintenance, and that the donation "ha de producir efectos solamente por muerte
de la donante".
It was ruled that the donation was inter vivos because the stipulation that the donation would take
effect only after the donor's death "simply meant that the possession and enjoyment, of the fruits of
the properties donated' should take effect only after the donor's death and not before".
Resolution of the instant case. The donation in the instant case is inter vivos because it took
effect during the lifetime of the donors. It was already effective during the donors' lifetime, or
immediately after the execution of the deed, as shown by the granting, habendum and warranty
clause of the deed (quoted below).
In that clause it is stated that, in consideration of the affection and esteem of the donors for the
donees and the valuable services rendered by the donees to the donors, the latter, by means of the
deed of donation, wholeheartedly transfer and unconditionally give to the donees the lots mentioned
and described in the early part of the deed, free from any kind of liens and debts:
Na dahil at alang-alang sa pagmamahal at masuyong pagtingin na
taglay ng NAGKAKALOOB (DONORS) sa Pinagkakalooban
(DONEES) gayun din sa tapat at mahalagang paglilingkod noong
mga lumipas na panahon na ginawa ng huli sa una ang nabanggit na
nagkakaloob sa pamagitan ng kasulatang ito ng pagkakaloob
(Donation) ay buong pusong inililipat at lubos na ibinibigay sa
nasabing pinagkakalooban ang lupang binabanggit at makikilala sa
unahan nito, laya sa ano mang sagutin at pagkakautang, katulad nito:
Following the above-ousted granting, habendum and warranty clause is the donors' declaration that
they donate (ipinagkakaloob) Lot No. 2502, the property in litigation, in equal shares to their children
Angel Diaz and Andrea Diaz, the western part to Angel and the eastern part to Andrea.
The acceptance clause is another indication that the donation is inter vivos. Donations mortis causa ,
being in the form of a will, are never accepted by the donees during the donors' lifetime. Acceptance
is a requirement for donations inter vivos.
In the acceptance clause herein, the donees declare that they accept the donation to their entire
satisfaction and, by means of the deed, they acknowledge and give importance to the generosity
and solicitude shown by the donors and sincerely thank them.

In the reddendum or reservation clause of the deed of donation, it is stipulated that the donees
would shoulder the expenses for the illness and the funeral of the donors and that the donees
cannot sell to a third person the donated properties during the donors' lifetime but if the sale is
necessary to defray the expenses and support of the donors, then the sale is valid.
The limited right to dispose of the donated lots, which the deed gives to the donees, implies that
ownership had passed to them by means of' the donation and that, therefore, the donation was
already effective during the donors' lifetime. That is a characteristic of a donation inter vivos.
However, paragraph 3 of the reddendum in or reservation clause provides that "also, while we, the
spouses Gabino Diaz and Severa Mendoza, are alive, our administration, right, and ownership of the
lots mentioned earlier as our properties shall continue but, upon our death, the right and ownership
of the donees to each of the properties allocated to each of them shall be fully effective." The
foregoing is the translation of the last paragraph of the deed of donation which reads:
(3) Gayun din samantalang kaming mag-asawang Gabino Diaz at Severa Mendoza
ay buhay, patuloy and aming pamamahala, karapatan, at pagkamayari sa mga
nasabing pagaari na sinasaysay sa unahan nito na pagaari namin; ngunit sakaling
kami ay bawian ng buhay ng Panginoong Dios at mamatay na, ang mga karapatan
at pagkamayari ng bawa't pinagkalooban (Donatorios) sa bawa't pagaari nauukol sa
bawa't isa ay may lubos na kapangyarihan.
Evidently, the draftsman of the deed did not realize the discordant and ambivalent provisions thereof.
Thehabendum clause indicates the transfer of the ownership over the donated properties to the
donees upon the execution of the deed. But the reddendum clause seems to imply that the
ownership was retained by the donors and would be transferred to the donees only after their death.
We have reflected on the meaning of the said contradictory clauses. All the provisions of the deed,
like those of a statute and testament, should be construed together in order to ascertain the intention
of the parties. That task would have been rendered easier if the record shows the conduct of the
donors and the donees after the execution of the deed of donation.
But the record is silent on that point, except for the allegation of Angel Diaz in his answer (already
mentioned) that he received his share of the disputed lot long before the donors' death and that he
had been "openly and adversely occupying" his share "for more than twenty years". (Andrea Diaz on
page 17 of her brief in L-33849 states that the donees took possession of their respective shares as
stipulated in the deed of donation. Pages 3,4,18 and 19, tsn March, 1971).
Our conclusion is that the aforequoted paragraph 3 of the reddendum or reservation clause refers to
the beneficial ownership (dominium utile) and not to the naked title and that what the donors
reserved to themselves, by means of that clause, was the management of the donated lots and the
fruits thereof. But, notwithstanding that reservation, the donation, as shown in the habendum clause,
was already effective during their lifetime and was not made in contemplation of their death because
the deed transferred to the donees the naked ownership of the donated properties.

That conclusion is further supported by the fact that in the deed of donation, out of the eight lots
owned by the donors, only five were donated. Three lots, Lots Nos. 4168, 2522 and 2521 were
superflously reserved for the spouses or donors in addition to one- third of Lot No. 2377. If the deed
of donation in question was intended to be amortis causa disposition, then all the eight lots would
have been donated or devised to the three children and daughter-in-law of the donors.
The trial court's conclusion that the said deed of donation, although void as a donation inter vivos is
valid "as an extrajudicial partition among the parents and their children" is not well-taken. Article
1080 of the Civil Code provides that 46 should a person make a partition of his estate by an act inter
vivos or by will, such partition shall be respected, insofar as it does not prejudice the legitime of the
compulsory heirs."
We have already observed that the said donation was not a partition of the entire estate of the Diaz
spouses since, actually, only five of the eight lots, constituting their estate, were partitioned. Hence,
that partition is not the one contemplated in article 1080.
There is another circumstance which strengthens ' the view that the 1949 deed of donation in
question took effect during the donors' lifetime. It may he noted that in that deed Lot No. 2377 (items
3 and [c]) was divided into three equal parts: one-third was donated to Andrea Diaz and one-third to
Angel Diaz. The remaining one-third was reserved and retained by the donors, the spouses Gabino
Diaz and Severo Mendoza, for their support. That reserved one-third portion came to be known as
Lot No. 2377-A.
In 1964 or after the death of Gabino Diaz, his surviving spouse Severa Mendoza executed a
donation mortis causawherein she conveyed to her daughter, Andrea Diaz (plaintiff-appellant
herein), her one-half share in Lot No. 2377-A, which one-half share is known as Lot No. 2377-A-1,
the other half or Lot No. 2377-A-2 having been already conveyed to Angel Diaz.
That disposition of Lot No. 2377-A-2 clearly implies that the conveyance in the 1949 deed of
donation as to Lot No. 2377 took effect during the lifetime of the donors, Gabino Diaz and Severa
Mendoza, and proves that the 1949 donation was inter vivos.
The instant case has a close similarity to the pre-war cases already cited and to three post-liberation
cases. In theBonsato case, the deed of donation also contained contradictory dispositions which
rendered the deed susceptible of being construed as a donation inter vivos or as a donation causa.
It was stated in one part of the deed that the donor was executing "una donacion perfects e
irrevocable consumada" in favor of the donee in consideration of his past services to the donor; that
at the time of the execution of the deed, the donor "ha entregado" to the donee "dichos terrenos
donados'; that while the donor was alive, he would receive the share of the fruits corresponding to
the owner; and "que en vista de la vejez del donante, el donatario Felipe Bonsato tomara posesion
inmediatamente de dichos terrenos a su favor". These provisions indicate that the donation in
question was inter vivos
However, in the last clause of the deed in the Bonsato case (as in the instant case), it was provided
'que despues de la muerte del donante entrara en vigor dicha donacion y el donatario Felipe

Bonsato tendra todos log derechos de dichos terrernos en concepto de dueno absolute de la
propriedad libre de toda responsabilidad y gravemen y pueda ejercitar su derecho que crea
conveniente". These provisions would seem to show that the donation wasmortis causa .
Nevertheless, it was held in the Bonsato case that the donation was inter vivos because (1) the
ownership of the things donated passed to the donee; (2) it was not provided that the transfer was
revocable before the donor's death, and (3) it was not stated that the transfer would be void if the
transferor should survive the transferee.
It was further held in the Bonsato case that the stipulation "que despues de la muerte del donante
entrara en vigor dicha donacion", should be interpreted together with the prior provision regarding its
irrevocable and consummated character, and that would mean that the charge or condition as to the
donor's share of the fruits would be terminated upon the donor's death.
The Puig case, supra, is even more doubtful and controversial than the instant case. In
the Puig case, the donor, Carmen Ubalde Vda. de Parcon, in a deed entitled "Donacion Mortis
causa dated November 24, 1948 cede y transfiere en concepto de donacion mortis causa to the
donee, Estela Magbanua Penaflorida three parcels of land in consideration of the donee's past
services and the donor's love and affection for the latter.
It was stipulated in the deed that the donor could alienate or mortgage the donated properties
"cuando y si necesita fondos para satisfacer sus proprias necesidades sin que para ello tega que
intervener la Donataria, pues su consentimiento se sobre entiende aqui parte de que la donacion
que aqui se hace es mortis causa , es decir que la donacion surtira sus efectos a la muerte de la
donante". It was repeated in another clause of the deed "que lacesion y transferencia aqui provista
surtira efecto al fallecer la Donante".
It was further stipulated that the donee would defray the medical and funeral expen of the donor
unless the donor had funds in the bank or "haya cosecho levantada or recogida en cual caso dichos
recursos responderan portales gastos a disposicion y direccion de la donataria". Another provision of
the deed was that it would be registered only after the donor's death. In the same deed the donee
accepted the donation.
In the Puig case the donor in another deed entitled Escritura de Donacion mortis causa " dated
December 28, 1949 donated to the same donee, Estela Magbanua Penaflorida three parcels of land
en concepto de una donacionmortis causa " in consideration of past services. It was provided in the
deed "que antes de su nuerte la donante, podra enajenar vender traspasar o hipotecar a
cualesquiera persona o entidades los bienes aqui donados a favor de la donataria en concepto de
una donacion mortis causa ". The donee accepted the donation in the same deed.
After the donor's death both deeds were recorded in the registry of deeds. In the donor's will dated
March 26, 1951, which was duly probated, the donation of a parcel of land in the second deed of
donation was confirmed.
Under these facts, it was held that the 1948 deed of donation mortis causa was inter vivos in
character in spite of repeated expressions therein that it was a mortis causa donation and that it

would take effect only upon the donor's death. Those expressions were not regarded as controlling
because they were contradicted by the provisions that the donee would defray the donor's expenses
even if not connected with her illness and that the donee's husband would assume her obligations
under the deed, should the donee predecease the donor. Moreover, the donor did not reserve in the
deed the absolute right to revoke the donation.
But the 1949 deed of donation was declared void because it was a true conveyance mortis
causa which was not embodied in a last will and testament. The mortis causa character of the
disposition is shown by the donor's reservation of the right to alienate or encumber the donated
properties to any person or entity.
In the Cuevas case, supra, one Antonina Cuevas executed on September 18, 1950 a notarial
conveyance styled as "Donacion Mortis causa " where she ceded to her nephew Crispulo Cuevas a
parcel of unregistered land. Crispulo accepted the donation in the same instrument. Subsequently,
or on May 26, 1952, the donor revoked the donation.
The deed of donation in the Cuevas case contained the following provisions which, as in similar
cases, are susceptible of being construed as making the conveyance an inter vivos or a mortis
causa transfer:
"Dapat maalaman ni Crispulo Cuevas na samantalang ako ay nabubuhay, ang lupa na
ipinagkakaloob ko sa kaniya ay ako pa rin ang patuloy na mamomosecion, makapagpapatrabajo,
makikinabang at ang iba pang karapatan sa pagmamayari ay sa akin pa rin hanggang hindi ako
binabawian ng buhay ng Maykapal at ito naman ay hindi ko nga iyaalis pagkat kung ako ay
mamatay na ay inilalaan ko sa kaniya."
Translation
"Crispulo Cuevas should know that while I am alive, the land which I donated to him will still be
under my continued possession; I will be the one to have it cultivated; I will enjoy its fruits and all the
other rights of ownership until Providence deprives me of life and I cannot take away the property
from him because when I die I reserve the property for him." (sic)
It was held that the donation was inter vivos because the phrase "hindi ko nga iyaalis (I will not take
away the property") meant that the donor expressly renounced the right to freely dispose of the
property in favor of another person and thereby manifested the irrevocability of the conveyance of
the naked title to the donee. The donor retained the beneficial ownership or dominium utile Being
an inter vivos donation, it could be revoked by the donor only on the grounds specified by law. No
such grounds existed. The donee was not guilty of ingratitude. The other point to be disposed of is
the matter of the claim for attorney's fees of Andrea Diaz against the Alejandro intervenors.
The other point to be disposed of is the matter of the claim for attorney's fees of Andrea Diaz against
the Alejandro intervenors.
After a careful consideration of the facts and circumstances of the case, particularly the apparent
good faith of the Alejandro intervenors in asserting a one-third interest in the disputed lot and their

close relationship to Andrea Diaz, we find that it is not proper to require them to pay attorney's fees
(Salao vs. Salao, L-26699, March 16, 1976, 70 SCRA 65). (Andrea Diaz did not implead Angel Diaz
as a respondent in her petition for review.)
WHEREFORE, the trial court's amended decision is reversed insofar as it pronounces that the deed
of donation is void. That donation is declared valid as a donation inter vivos.
The disputed lot should be partitioned in accordance with that deed between Andrea Diaz and Angel
Diaz.
The decision is affirmed insofar as it does not require the Alejandro intervenors to pay attorney's fees
to Andrea Diaz. No costs. SO ORDERED.
Fernando (Chairman), Barredo, Concepcion, Jr. and Santos, JJ., concur.
Separate Opinions
ANTONIO, J., concurring:

I concur. I agree that all the features pointed out by Justice Aquino indicate that the conveyance was
intended to produce definitive effect upon the execution of said instrument. For the important
characteristic of a donation inter vivos is that it takes effect independently of the donor's death. Thus,
when the donor states that he donates the properties subject to the "condition that the donee cannot
take ion of the properties donated until after my death'. 1or the ownership and possession of the
property, as wen as its administration,. were turned over to the donee, but the right to reap and dispose of
the fruits was deferred until after the death of the donor 2 or when it was expressly stated that the donation
would take effect upon acceptance, but would be revoked ipso facto upon the non-fulfillment of certain
conditions, 3it has been held that the donation is inter vivos, and the ownership over the property donated
is transferred to the donee. 4
A donation inter vivos is a gratuitous contract whereby the donor divests himself, at present and
irrevocably, of the thing given in favor of the donee and, therefore, like any other contract, requires
the concurrence of the reciprocal consent of the parties, and does not become perfect until it is
accepted by the donee. 5 As observed by Manresa, 6upon acceptance by the donee, the donor can no
longer withdraw, and he can be compelled to comply with his offering or to deliver the things he wanted to
donate. Consequently, it may not be revoked unilaterally or by the sole and arbitrary will of the donor. The
donation, however, may be made revocable upon the fulfillment of resolutory conditions, 7 or may be
revoked only for the reasons provided in Articles 760, 764 and 765 of the Civil Code. As explained
in Bautista, et al. v. Sabiniano, 8except "in the instances expressly provided by law, such as the
subsequent birth of children of the donor, failure by the donee to comply with the conditions imposed,
ingratitude of the donee and reduction of the donation in the event of inofficiousness thereof, a donation is

irrevocable. If the donor reserves the right to revoke it or if he reserves the right to dispose of all the
properties purportedly donated, there is no donation. If the disposition or conveyance or transfer takes
effect. upon the donor's death and becomes irrevocable only upon his death, it is not inter vivos but
a mortis causa donation." Here, the conveyance or alienation of the properties donated is not
revocable ad nutum
Separate Opinions
ANTONIO, J., concurring:
I concur. I agree that all the features pointed out by Justice Aquino indicate that the conveyance was
intended to produce definitive effect upon the execution of said instrument. For the important
characteristic of a donation inter vivos is that it takes effect independently of the donor's death. Thus,
when the donor states that he donates the properties subject to the "condition that the donee cannot
take ion of the properties donated until after my death'. 1or the ownership and possession of the
property, as wen as its administration,. were turned over to the donee, but the right to reap and dispose of
the fruits was deferred until after the death of the donor 2 or when it was expressly stated that the donation
would take effect upon acceptance, but would be revoked ipso facto upon the non-fulfillment of certain
conditions, 3it has been held that the donation is inter vivos, and the ownership over the property donated
is transferred to the donee. 4
A donation inter vivos is a gratuitous contract whereby the donor divests himself, at present and
irrevocably, of the thing given in favor of the donee and, therefore, like any other contract, requires
the concurrence of the reciprocal consent of the parties, and does not become perfect until it is
accepted by the donee. 5 As observed by Manresa, 6upon acceptance by the donee, the donor can no
longer withdraw, and he can be compelled to comply with his offering or to deliver the things he wanted to
donate. Consequently, it may not be revoked unilaterally or by the sole and arbitrary will of the donor. The
donation, however, may be made revocable upon the fulfillment of resolutory conditions, 7 or may be
revoked only for the reasons provided in Articles 760, 764 and 765 of the Civil Code. As explained
in Bautista, et al. v. Sabiniano, 8except "in the instances expressly provided by law, such as the
subsequent birth of children of the donor, failure by the donee to comply with the conditions imposed,
ingratitude of the donee and reduction of the donation in the event of inofficiousness thereof, a donation is
irrevocable. If the donor reserves the right to revoke it or if he reserves the right to dispose of all the
properties purportedly donated, there is no donation. If the disposition or conveyance or transfer takes
effect. upon the donor's death and becomes irrevocable only upon his death, it is not inter vivos but
a mortis causa donation." Here, the conveyance or alienation of the properties donated is not
revocable ad nutum
G.R. No. L-36770
November 4, 1932

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

The theory of the plaintiff-appellant is that he received and holds the property mentioned by a
consummated gift and that Act No. 2601 (Chapter 40 of the Administrative Code) being the
inheritance tax statute, does not tax gifts. The provision directly here involved is section 1540 of the
Administrative Code which reads as follows:
Additions of Gifts and Advances. After the aforementioned deductions have been made,
there shall be added to the resulting amount the value of all gifts or advances made by the
predecessor to any of those who, after his death, shall prove to be his heirs, devises,
legatees, or donees mortis causa.
The question to be resolved may be stated thus: Does section 1540 of the Administrative Code
subject the plaintiff-appellant to the payment of an inheritance tax?
The appellant argues that there is no evidence in this case to support a finding that the gift was
simulated and that it was an artifice for evading the payment of the inheritance tax, as is intimated in
the decision of the court below and the brief of the Attorney-General. We see no reason why the
court may not go behind the language in which the transaction is masked in order to ascertain its
true character and purpose. In this case the scanty facts before us may not warrant the inference
that the conveyance, acknowledged by the donor five days before his death and accepted by the
donee one day before the donor's death, was fraudulently made for the purpose of evading the
inheritance tax. But the facts, in our opinion, do warrant the inference that the transfer was an
advancement upon the inheritance which the donee, as the sole and forced heir of the donor, would
be entitled to receive upon the death of the donor.
The argument advanced by the appellant that he is not an heir of his deceased father within the
meaning of section 1540 of the Administrative Code because his father in his lifetime had given the
appellant all his property and left no property to be inherited, is so fallacious that the urging of it here
casts a suspicion upon the appellants reason for completing the legal formalities of the transfer on
the eve of the latter's death. We do not know whether or not the father in this case left a will; in any
event, this appellant could not be deprived of his share of the inheritance because the Civil Code
confers upon him the status of a forced heir. We construe the expression in section 1540 "any of
those who, after his death, shall prove to be his heirs", to include those who, by our law, are given
the status and rights of heirs, regardless of the quantity of property they may receive as such heirs.
That the appellant in this case occupies the status of heir to his deceased father cannot be
questioned. Construing the conveyance here in question, under the facts presented, as an advance
made by Felix Dison to his only child, we hold section 1540 to be applicable and the tax to have
been properly assessed by the Collector of Internal Revenue.
This appeal was originally assigned to a Division of five but referred to the court in banc by reason of
the appellant's attack upon the constitutionality of section 1540. This attack is based on the sole
ground that insofar as section 1540 levies a tax upon gifts inter vivos, it violates that provision of
section 3 of the organic Act of the Philippine Islands (39 Stat. L., 545) which reads as follows: "That
no bill which may be enacted into law shall embraced more than one subject, and that subject shall
be expressed in the title of the bill." Neither the title of Act No. 2601 nor chapter 40 of the
Administrative Code makes any reference to a tax on gifts. Perhaps it is enough to say of this
contention that section 1540 plainly does not tax gifts per se but only when those gifts are made to

those who shall prove to be the heirs, devisees, legatees or donees mortis causa of the donor. This
court said in the case of Tuason and Tuason vs. Posadas 954 Phil., 289):
lawphil.net
When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both
the letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is
the tenor of the language which refers to donations that took effect before the donor's death,
and not to mortis causa donations, which can only be made with the formalities of a will, and
can only take effect after the donor's death. Any other construction would virtually change
this provision into:
". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We
cannot give to the law an interpretation that would so vitiate its language. The truth of the matter is
that in this section (1540) the law presumes that such gifts have been made in anticipation of
inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the donor
proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to
prevent this that it provides that they shall be added to the resulting amount." However much
appellant's argument on this point may fit his preconceived notion that the transaction between him
and his father was a consummated gift with no relation to the inheritance, we hold that there is not
merit in this attack upon the constitutionality of section 1540 under our view of the facts. No other
constitutional questions were raised in this case.
The judgment below is affirmed with costs in this instance against the appellant. So ordered.
Avancea, C.J., Street, Malcolm, Ostrand, Abad Santos, Vickers and Imperial, JJ., concur.
G.R. No. L-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 aforementioned
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 Ignaciovs. 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.
Avancea, 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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9374
February 16, 1915
FRANCISCO DEL VAL, ET AL., plaintiffs-appellants,

vs.
ANDRES DEL VAL, defendant-appellee.
Ledesma, Lim and Irureta Goyena for appellants.
O'Brien and DeWitt for appellee.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the city of Manila dismissing the
complaint with costs.
The pleadings set forth that the plaintiffs and defendant are brother and sisters; that they are the
only heirs at law and next of kin of Gregorio Nacianceno del Val, who died in Manila on August 4,
1910, intestate; that an administrator was appointed for the estate of the deceased, and, after a
partial administration, it was closed and the administrator discharged by order of the Court of First
Instance dated December 9, 1911; that during the lifetime of the deceased he took out insurance on
his life for the sum of P40,000 and made it payable to the defendant as sole beneficiary; that after
his death the defendant collected the face of the policy; that of said policy he paid the sum of
P18,365.20 to redeem certain real estate which the decedent had sold to third persons with a right to
repurchase; that the redemption of said premises was made by the attorney of the defendant in the
name of the plaintiff and the defendant as heirs of the deceased vendor; that the redemption of said
premises they have had the use and benefit thereof; that during that time the plaintiffs paid no taxes
and made no repairs.
It further appears from the pleadings that the defendant, on the death of the deceased, took
possession of most of his personal property, which he still has in his possession, and that he has
also the balance on said insurance policy amounting to P21,634.80.
Plaintiffs contend that the amount of the insurance policy belonged to the estate of the deceased
and not to the defendant personally; that, therefore, they are entitled to a partition not only of the real
and personal property, but also of the P40,000 life insurance. The complaint prays a partition of all
the property, both real and personal, left by the deceased; that the defendant account for
P21,634.80, and that that sum be divided equally among the plaintiffs and defendant along with the
other property of deceased.
The defendant denies the material allegations of the complaint and sets up as special defense and
counterclaim that the redemption of the real estate sold by his father was made in the name of the
plaintiffs and himself instead of in his name alone without his knowledge or consent; and that it was
not his intention to use the proceeds of the insurance policy for the benefit of any person but himself,
he alleging that he was and is the sole owner thereof and that it is his individual property. He,

therefore, asks that he be declared the owner of the real estate redeemed by the payment of the
P18,365.20, the owner of the remaining P21,634.80, the balance of the insurance policy, and that
the plaintiff's account for the use and occupation of the premises so redeemed since the date of the
redemption.
The learned trial court refused to give relief to either party and dismissed the action.
It says in its opinion: "This purports to be an action for partition, brought against an heir by his
coheirs. The complaint, however, fails to comply with Code Civ., Pro. sec. 183, in that it does not
'contain an adequate description of the real property of which partition is demanded.' Because of this
defect (which has not been called to our attention and was discovered only after the cause was
submitted) it is more than doubtful whether any relief can be awarded under the complaint, except by
agreement of all the parties."
This alleged defect of the complaint was made one of the two bases for the dismissal of the action.
We do not regard this as sufficient reason for dismissing the action. It is the doctrine of this court, set
down in several decisions, Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504, that, even though
the complaint is defective to the extent of failing in allegations necessary to constitute a cause of
action, if, on the trial of the cause, evidence is offered which establishes the cause of action which
the complaint intended to allege, and such evidence is received without objection, the defect is
thereby cured and cannot be made the ground of a subsequent objection. If, therefore, evidence was
introduced on the trial in this case definitely and clearly describing the real estate sought to be
partitioned, the defect in the complaint was cured in that regard and should not have been used to
dismiss the action. We do not stop to inquire whether such evidence was or was not introduced on
the trial, inasmuch as this case must be turned for a new trial with opportunity to both parties to
present such evidence as is necessary to establish their respective claims.
The court in its decision further says: "It will be noticed that the provision above quoted refers
exclusively to real estate. . . . It is, in other words, an exclusive real property action, and the
institution thereof gives the court no jurisdiction over chattels. . . . But no relief could possibly be
granted in this action as to any property except the last (real estate), for the law contemplated that all
the personal property of an estate be distributed before the administration is closed. Indeed, it is only
in exceptional cases that the partition of the real estate is provided for, and this too is evidently
intended to be effected as a part of the administration, but here the complaint alleges that the estate
was finally closed on December 9, 1911, and we find upon referring to the record in that case that
subsequent motion to reopen the same were denied; so that the matter of the personal property at
least must be considered res judicata (for the final judgment in the administration proceedings must
be treated as concluding not merely what was adjudicated, but what might have been). So far,
therefore, as the personal property at least is concerned, plaintiffs' only remedy was an appeal from
said order."
We do not believe that the law is correctly laid down in this quotation. The courts of the Islands have
jurisdiction to divide personal property between the common owners thereof and that power is as full
and complete as is the power to partition real property. If an actual partition of personal property
cannot be made it will be sold under the direction of the court and the proceeds divided among the
owners after the necessary expenses have been deducted.
The administration of the estate of the decedent consisted simply, so far as the record shows, in the
payment of the debts. No division of the property, either real or personal, seems to have been made.
On the contrary, the property appears, from the record, to have been turned over to the heirs in bulk.
The failure to partition the real property may have been due either to the lack of request to the court

by one or more of the heirs to do so, as the court has no authority to make a partition of the real
estate without such request; or it may have been due to the fact that all the real property of decedent
had been sold under pacto de retro and that, therefore, he was not the owner of any real estate at
the time of his death. As to the personal property, it does not appear that it was disposed of in the
manner provided by law. (Sec. 753, Code of Civil Procedure.) So far as this action is concerned,
however, it is sufficient for us to know that none of the property was actually divided among the heirs
in the administration proceeding and that they remain coowners and tenants-in- common thereof at
the present time. To maintain an action to partition real or personal property it is necessary to show
only that it is owned in common.
The order finally closing the administration and discharging the administrator, referred to in the
opinion of the trial court, has nothing to do with the division of either the real or the personal
property. The heirs have the right to ask the probate court to turn over to them both the real and
personal property without division; and where that request is unanimous it is the duty of the court to
comply with it, and there is nothing in section 753 of the Code of Civil Procedure which prohibits it. In
such case an order finally settling the estate and discharging the administrator would not bar a
subsequent action to require a division of either the real or personal property. If, on the other hand,
an order had been made in the administration proceedings dividing the personal or the real property,
or both, among the heirs, then it is quite possible that, to a subsequent action brought by one of the
heirs for a partition of the real or personal property, or both, there could have been interposed a plea
of res judicata based on such order. As the matter now stands, however, there is no ground on which
to base such a plea. Moreover, no such plea has been made and no evidence offered to support it.
With the finding of the trial court that the proceeds of the life-insurance policy belong exclusively to
the defendant as his individual and separate property, we agree. That the proceeds of an insurance
policy belong exclusively to the beneficiary and not to the estate of the person whose life was
insured, and that such proceeds are the separate and individual property of the beneficiary, and not
of the heirs of the person whose life was insured, is the doctrine in America. We believe that the
same doctrine obtains in these Islands by virtue of section 428 of the Code of Commerce, which
reads:
The amount which the underwriter must deliver to the person insured, in fulfillment of the
contract, shall be the property of the latter, even against the claims of the legitimate heirs or
creditors of any kind whatsoever of the person who effected the insurance in favor of the
former.
It is claimed by the attorney for the plaintiffs that the section just quoted is subordinate to the
provisions of the Civil Code as found in article 1035. This article reads:
An heir by force of law surviving with others of the same character to a succession must
bring into the hereditary estate the property or securities he may have received from the
deceased during the life of the same, by way of dowry, gift, or for any good consideration, in
order to compute it in fixing the legal portions and in the account of the division.
Counsel also claim that the proceeds of the insurance policy were a donation or gift made by the
father during his lifetime to the defendant and that, as such, its ultimate destination is determined by
those provisions of the Civil Code which relate to donations, especially article 819. This article
provides that "gifts made to children which are not betterments shall be considered as part of their
legal portion."
We cannot agree with these contentions. The contract of life insurance is a special contract and the
destination of the proceeds thereof is determined by special laws which deal exclusively with that

subject. The Civil Code has no provisions which relate directly and specifically to life- insurance
contracts or to the destination of life insurance proceeds. That subject is regulated exclusively by the
Code of Commerce which provides for the terms of the contract, the relations of the parties and the
destination of the proceeds of the policy.
The proceeds of the life-insurance policy being the exclusive property of the defendant and he
having used a portion thereof in the repurchase of the real estate sold by the decedent prior to his
death with right to repurchase, and such repurchase having been made and the conveyance taken
in the names of all of the heirs instead of the defendant alone, plaintiffs claim that the property
belongs to the heirs in common and not to the defendant alone.
We are not inclined to agree with this contention unless the fact appear or be shown that the
defendant acted as he did with the intention that the other heirs should enjoy with him the ownership
of the estate in other words, that he proposed, in effect, to make a gift of the real estate to the
other heirs. If it is established by the evidence that that was his intention and that the real estate was
delivered to the plaintiffs with that understanding, then it is probable that their contention is correct
and that they are entitled to share equally with the defendant therein. If, however, it appears from the
evidence in the case that the conveyances were taken in the name of the plaintiffs without his
knowledge or consent, or that it was not his intention to make a gift to them of the real estate, then it
belongs to him. If that facts are as stated, he has two remedies. The one is to compel the plaintiffs to
reconvey to him and the other is to let the title stand with them and to recover from them the sum he
paid on their behalf.
For the complete and proper determination of the questions at issue in this case, we are of the
opinion that the cause should be returned to the trial court with instructions to permit the parties to
frame such issues as will permit the settlement of all the questions involved and to introduce such
evidence as may be necessary for the full determination of the issues framed. Upon such issues and
evidence taken thereunder the court will decide the questions involved according to the evidence,
subordinating his conclusions of law to the rules laid down in this opinion.
We do not wish to be understood as having decided in this opinion any question of fact which will
arise on the trial and be there in controversy. The trial court is left free to find the facts as the
evidence requires. To the facts as so found he will apply the law as herein laid down.
The judgment appealed from is set aside and the cause returned to the Court of First Instance
whence it came for the purpose hereinabove stated. So ordered.
Arellano, C.J., and Carson, J., concur.
Torres, J., concurs in the result.
Separate Opinions
ARAULLO, J., concurring:
I concur in the result and with the reasoning of the foregoing decision, only in so far as concerns the
return of the record to the lower court in order that it fully and correctly decide all the issues raised
therein, allow the parties to raise such questions as may help to decide all those involved in the
case, and to present such evidence as they may deem requisite for a complete resolution of all the

issues in discussion, because it is my opinion that it is inopportune to make, and there should not be
made in the said majority decision the findings therein set forth in connection with articles 428 of the
Code of Commerce and 1035 of the Civil Code, in order to arrive at the conclusion that the amount
of the insurance policy referred to belongs exclusively to the defendant, inasmuch a this is one of the
questions which, according to the decision itself, should be decided by the lower court after an
examination of the evidence introduced by the parties; it is the lower court that should make those
findings, which ought afterwards to be submitted to this court, if any appeal be taken from the
judgment rendered in the case by the trial court in compliance with the foregoing decision.
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, giftmortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code,
"the rights to the succession of a person are transmitted from the moment of his death." "In other
words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely
as if the ancestor had executed and delivered to them a deed for the same before his death."
(Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. ChioTaysan, 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 abovequoted, 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 abovementioned, 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; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking
Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When
proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this
way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court
is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578,
Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this
policy of the law. It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time
and by mutual agreement closed their homes and stores and remained therein, does not authorize
the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to
accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment to the public." (Dows
vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of inheritance
tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease
such interest, no matter how heavily it may burden the taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec.
1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector
of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date
fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that
date, the estate became liable for the payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions we have reached.
At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19
as the net value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax
and interest thus computed should be added the sum of P724.88, representing a surhcarge of 25
per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant
(Exh. 29), giving a grand total of P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.
Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.
EN BANC
G.R. No. L-9271
March 29, 1957
In the matter of the testate estate of the late DA. MARGARITA DAVID. CARLOS MORAN
SISON, Judicial Administrator, petitioner-appellant,
vs.
NARCISA F. TEODORO, heiress, oppositor-appellee.
Teodoro R. Dominguez for appellant.
Manuel O. Chan for appellee.
BAUTISTA ANGELO, J.:

On December 20, 1948, the Court of First Instance of Manila, which has jurisdiction over the estate
of the late Margarita David, issued an order appointing Carlos Moran Sison as judicial administrator,
without compensation, after filing a bond in the amount of P5,000. The next day, Carlos Moran Sison
took his oath of office and put up the requisite bond which was duly approved by the court. On the
same day, letters of administration were issued to him.
On January 19, 1955, the judicial administrator filed an accounting of his administration which
contains, among others, the following disbursement items:
13. Paid to Visayan Surety & Insurance

Corporation on August 6, 1954, as renewal
premiums on the Administrator's bond of Judicial
Administrator Carlos Moran Sison covering the
period from December 20, 1949 to December 20,
1954, inclusive .................................
P380.70
15. Paid to Visayan Surety & Insurance

Corporation on December 21, 1954, for
premiums due on the Administrator's bond of
judicial Administrator Carlos Moran Sison for the
period from December 21, 1954 to December 21,
1955 ...............................................................
76.14
Narcisa F. Teodoro, one of the heirs, objected to the approval of the abovequoted items on the
grounds that they are not necessary expenses of administration and should not be charged against
the estate. On February 25, 1955, the court approved the report of the administrator but disallowed
the items objected to on the ground that they cannot be considered as expenses of administration.
The administrator filed a motion for reconsideration and when the same was denied, he took the
present appeal.
The only issue to be determined is "whether a judicial administrator, serving without compensation,
is entitled to charge as an expense of administration the premiums paid on his bond."
The lower court did not consider the premiums paid on the bond filed by the administrator as an
expense of administration taking into account undoubtedly the ruling laid down in the case of Sulit
vs. Santos, 56 Phil., 626. That is a case which also involves the payment of certain premium on the
bond put up by the judicial administrator and when he asked the court that the same be considered
as an expense of administration, it was disapproved for the same reasons advanced by the trial
court. In sustaining this finding, this Court ruled that the "expense incurred by an executor or
administrator to produce a bond is not a proper charge against the estate. Section 680 of the Code
of Civil Procedure (similar to section 7, Rule 86) does not authorize the executor or administrator to
charge against the estate the money spent for the presentation, filing, and substitution of a bond."
And elaborating on this matter, the Court made the following comment:
The aforementioned cases, in reality, seem superfluous in ascertaining the true principle.
The position of an executor or administrator is one of trust. In fact, the Philippine Code of
Civil Procedure so mentions it. It is proper for the law to safeguard the estate of deceased

persons by requiring the executor or administrator to give a suitable bond. The ability to give
this bond is in the nature of a qualification for the office. The execution and approval of the
bond constitute a condition precedent to acceptance of the responsibilities of the trust. If an
individual does not desire to assume the position of executor of administrator, he may refuse
to do so. On the other hand, when the individual prefers an adequate bond and has it
approved by the probate court, he thereby admits the adequacy of the compensation which
is permitted him pursuant to law. It would be a very far-fetched construction to deduce the
giving of a bond in order to qualify for the office of executor or administrator is a necessary
expense in the care, management, and settlement of the estate within the meaning of
section 680 of the Code of Civil Procedure, for these are expenses incurred after the
executor of administrator has met the requirements of the law and has entered upon the
performance of his duties. (See In re Eby's Estate [1894], 30 Atl., 124.)
We feel that the orders of Judge Mapa in this case rested on a fine sense of official duty,
sometimes lacking in cases of this character, to protect the residue of the estate of a
deceased person from unjustifiable inroads by an executor, and that as these orders conform
to the facts and the law, they are entitled to be fortified by an explicit pronouncement from
this court. We rule that the expense incurred by an execution or administrator to procure a
bond is not a proper charge against the estate, and that section 680 of the Code of Civil
Procedure does not authorize the executor or administrator to charge against the estate the
money spent for the presentation, filing, and substitution of a bond.
It is true that the Sulit case may be differentiated from the present in the sense that, in the former the
administrator accepted the trust with the emolument that the law allows, whereas in the latter the
administrator accepted the same without compensation, but this difference is of no moment, for
there is nothing in the decision that may justify the conclusion that the allowance or disallowance of
premiums paid on the bond of the administrator is made dependent on the receipt of compensation.
On the contrary, a different conclusion may be inferred considering the ratio decidendi on which the
ruling is predicated. Thus, it was there stated that the position of an executor or administrator is one
of trust: that it is proper for the law to safeguard the estates of deceased persons by requiring the
administrator to give a suitable bond, and that the ability to give this bond is in the nature of a
qualification for the office. It is also intimated therein that "If an individual does not desire to assume
the position of executor or administrator, he may refuse to do so," and it is far-fetched to conclude
that the giving of a bond by an administrator is an necessary expense in the care, management and
settlement of the estate within the meaning of the law, because these expenses are incurred "after
the executor or administrator has met the requirement of the law and has entered upon the
performance of his duties." Of course, a person may accept the position of executor or administrator
with all the incident appertaining thereto having in mind the compensation which the law allows for
the purpose, but he may waive this compensation in the same manner as he may refuse to serve
without it. Appellant having waived compensation, he cannot now be heard to complain of the
expenses incident to his qualification.
The orders appealed from are hereby affirmed, without costs.
Paras. C.J., Bengzon, Reyes, A., Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix,
JJ., concur.
EN BANC
G.R. No. L-19153
June 30, 1922

B. E. JOHANNES, as principal administrator of the estate of Carmen Theodora
Johannes, relator,
vs.
CARLOS A. IMPERIAL, as judge of the Court of First Instance, City of Manila, respondent.
Amzi B. Kelly for relator.
Fisher and De Witt and William C. Brady for respondent.
STATEMENT
Case No 18600,1 in which B. E. Johannes, husband of Carmen Theodora Johannes, deceased as
administrator, et al., were relators, and the Honorable George R. Harvey, as judge of the Court of
First Instance of Manila, et al., were respondents was a petition for certiorari and a temporary
injunction, in which the relators prayed for an order this court:
(A) To annul the appointment of Alfred D' Almeida as administrator of said deposit in the
Philippines; and all acts and a proceedings taken by him as said administrator; and,
(B) To issue an order itself, or one to the said Judge George R. Harvey, directing the
manager of the Philippine National Bank,' to place to the credit B. E. Johannes, as
administrator of the estate of Carmen Theodora Johannes, all of the funds of said Carmen D'
Almeida (Johannes), now on deposit, with said bank, subject to the order of said court. And,
as the act of the said Alfred D' Almeida in having himself appointed administrator was in
evident bad faith, as clearly appears from the petition asking his appointment, the court is
requested to grant relators five thousand pesos (P5,000), as damages caused by delay,
expensive and unnecessary litigation, and such other relief as the court may deem in equity
proper.
Upon a hearing, the prayer was denied, and the petition dismissed in an opinion written by Justice
Malcolm and concurred in by all the other members of this court.
After that opinion was rendered, B. E. Johannes, as principal administrator of the estate of Carmen
Theodora Johannes, applied to his Honor Carlos A. Imperial, as judge of the Court of Instance of the
City of Manila, by petition, which, among other things, alleges:
That "he is the duly appointed principal administrator of the estate of his late wife at the place of her
domicile, Singapore, Straits Settlements, as appears from a certified copy of his appointment now on
file . . .
Second. The said Carmen Theodora Johannes, at the time of her death, was a subject and
citizen of Great Britain, domiciled in Singapore, Straits Settlements, and your petitioner, the
said B. E. Johannes, her lawful husband, at the time of her death was a subject and citizen
of Great Britain and resident of Singapore, Straits Settlements.
Third. Under British Law, (22 and 23, Charles II c-10, 29 Charles II c-3, and James II c-17),
the husband of a deceased wife is the sole heir, to the exclusion of all others, of the property
of his wife when she dies intestate, as the said Carmen Theodora Johannes did die.
Fourth. This Honorable Court at a prior date on application of Mr. Alfred D' Almeida, the
brother of the deceased, appointed him as administrator of the property of the deceased

situated within Philippine Islands, in the absence of, and without notice, knowledge or
consent of her husband, your petitioner.
Fifth. Your petitioner is now within the jurisdiction of this court and has come here and
established his residence at "The Manila Hotel," in the City of Manila, for the sole purpose of
taking over from the said Alfred D' Almeida the administration of said estate: and
To relieve the said Alfred D' Almeida as administrator of said estate within the jurisdiction of
this court and appoint in his stead your petitioner, the said B. E. Johannes, and principal
administrator, "the ancillary administrator" of said estate now subject to administration within
the Philippine Islands.
From an order denying and overruling the petition, the relator filed certiorari proceedings in this court
against the respondent, as judge of the Court of First Instance, and later made Alfred D'Almeida, a
brother of the deceased, ancillary administrator, defendant, in which he pray for an order of this
court:
(a) To substitute your petitioner, the principal administrator, the husband of the deceased and
the owner of the deposit, instead of Alfred D'Almeida, as "the ancillary administrator' of said
estate, in this jurisdiction; and
(b) Order the said Judge to disapprove and disallow all of the amounts claimed to have been
paid for attorneys' fees to Messrs. Fisher and DeWit, and cable, amounting to P2,860.05;
and
(c) To disapproved and disallow the amount of P1,093.75, claimed due but proven false; and
(d) To cancel the appointment of the special administrator' appointed by virtue of these false
claims; and
(e) Order the said Judge to order the manager of the Philippine National Bank to place to
credit of the said substituted ancillary administrator, Mr. B. E. Johannes, all of the funds now
on deposit in said bank, the property of the deceased Carmen Theodora Johannes.
The defendant claims that the petition here does not state sufficient facts, and that at the time the
appointment was made, the court had jurisdiction to appoint Alfred D'Almeida as ancillary
administrator of the estate of the deceased Carmen Theodora Johannes, who was then a resident of
the Philippine Islands, and that his appointment is not subject to review in this court.
JOHNS, J.:
The legal questions presented are well stated in the former opinion court in case No. 18600. It
appears that the petitioner is the husband of Carmen Theodora Johannes, deceased, who, at the
time of her death, was a resident of Singapore, Straits Settlements, and a citizen of Great Britain;
that he is also a foreigner and a citizen of Great Britain and an actual resident to Singapore; that
Alfred D'Almeida is a brother of the deceased Carmen Theodora Johannes, and a bona fide resident
of the City of Manila; that at the time of her death Carmen Theodora Johannes had P109,722.55 on

deposit in one of the banks in the City of Manila; and that the petitioner, her surviving husband, was
indebted to a bank in Manila for about P20,000. That the deceased left no will in the absence of
which the petitioner claims to be her sole heir and entitled to all of her estate. That there were no
debts against the estate of the deceased. Upon the death of his wife, the petitioner was duly
appointed as administrator of her estate by the court at Singapore, and qualified and entered upon
the discharge of his duties. After the decision was rendered by this court in case No. 18600, supra,
the petitioner came to Manila and claims to have established a temporary residence at the Manila
Hotel, based upon which, in legal effect, he asked for an order of court that Alfred D'Almeida be
removed as ancillary administrator, and that he be appointed.
From an order of the lower court denying that petition, an original petition was filed here to review
the proceedings of the lower court.
There is a marked legal distinction between the authority of a court to appoint and the authority to
remove an administrator after he is appointed. Here, the appointment was made and the
administrator had qualified and entered upon the discharge of his duties. There was no contest over
the appointment, and the court had jurisdiction of the petition and of the subject-matter. It was not a
case of where two or more petitions were filed, in which each was claiming the right to appointed, or
in which the court decided which one of the petitioners should be appointed. It was a case in which
only one petition was presented to the court, and to which no objections were file and in which it
appeared the petitioner was a brother of the deceased, and that the estate was the owner of
property in the City of Manila. The court, having jurisdiction and the appointment having been made,
the only question here presented is whether Alfred D'Almeida should be removed and the petitioner
substituted as ancillary administrator.
As this court said case No 18600 (Johannes vs. Harvey, supra):
The ancillary administration is proper, whenever a person dies, leaving in a country other
than that of his last domicile, property to be administered in the nature of assets of the
decedent, liable for his individual debts or to be distributed among his heirs.
It is almost a universal rule to give the surviving spouse a preference when and administrator
is to be appointed, unless for strong reason it is deemed advisable to name someone else.
This preference has particular force under Spanish Law precedents. However, the Code of
Civil Procedure, in section 642, while naming the surviving spouse is unsuitable for the
responsibility. . . .
Undoubtedly, if the husband should come into this jurisdiction, the court give consideration to
his petition that he be named the ancillary administrator for local purposes. Ancillary letters
should ordinarily be granted to the domiciliary representative, if he applies therefor, or to his
nominee, or attorney; but in the absence of express statutory requirement the court may in
its discretion appoint some other person.
The real contention of the petitioner is that, because he had the legal right to apply for and be
appointed in the first instance, such right is continuous, and that he could be appointed any time on
his own application. That is not the law. Although it is true that in the first instance everything else
being equal and upon the grounds of comity, in ordinary case, the court would appoint the petitioner
or his nominee as ancillary administrator, but even then, as stated in the above opinion the
appointment is one of more or less legal discretion. But that is not this case. Here, in legal effect, it is
sought to oust an administrator who was appointed without protest or objection where the court had
jurisdiction of the petitioner and of the subject matter.

Again, it appears that Carmen Theodora Johannes died August 21, 1921, and on September 19,
1921, the petitioner was appointed administrator of her estate by Supreme Court of Straits
Settlements on his own petition, and on October 1, 1921, based upon his petition, Alfred D'Almeida,
the brother of the deceased, was appointed administrator of her estate in Manila. The initial
proceeding against the appointment of Alfred D'Almeida, as administrator, was filed in this court on
January 21, 1922.
At time of the appointment here, the court had primary and original jurisdiction, and no objections
were then made. The question as to who should have been appointed ancillary administrator, if
presented at the proper time and in the proper way, is not before this court. Here, the appointment
was made on the 1st day of October, 1921, and no formal objections were made until 21st day of
January, 1922.
The petition is denied, the injunction dissolved and the case dismissed.
It appears that the debts of the state, if any, are nominal, and that the only asset here is the money
on deposit in the bank. Hence, the administration of the estate itself is matter of form only and
should be very simple and inexpensive. Even though it is foreign money, it is the duty of the court to
protect it from any illegal, unjust, or unreasonable charges. All claims against the estate should be
for just debts only, or for the actual expenses of administration, and those should be reasonable. No
other claims should be allowed.
If, as claimed, the real dispute here is whether the brothers and sisters of the deceased are entitled
to share in her estate, or whether the petitioner only, as the surviving husband, is entitle to all of it,
that question is not one of administration, and any expense and attorneys' fees incurred by either
party for the settlement of that question is a personal matter to them, and should not be allowed as
claims against the estate. Claims against the estate should only be for just debts or expense for
administration of the estate itself.
Costs in favor of the respondent. So ordered.
Araullo, C.J., Avancea, Villamor, Ostrand and Romualdez, JJ., concur.
EN BANC
G.R. No. L-11622
January 28, 1961
THE COLLECTOR OF INTERNAL REVENUE, petitioner,

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

vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents.
BARRERA, J.:

This case relates to the determination and settlement of the hereditary estate left by the deceased
Walter G. Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines
on August 9, 1874 of British parents and married in the City of Manila on January 23, 1909 to
Beatrice Mauricia Stevenson another British subject) died on February 22, 1951 in San Francisco,
California, U.S.A. whereto he and his wife moved and established their permanent residence since
May 10, 1945. In his will executed in San Francisco on May 22, 1947, and which was duly probated
in the Superior Court of California on April 11, 1951, Stevenson instituted his wife Beatrice as his
sole heiress to the following real and personal properties acquired by the spouses while residing in
the Philippines, described and preliminary assessed as follows:
Gross Estate
Real Property 2 parcels of land in

Baguio, covered by T.C.T. Nos. 378 and
379
P43,500.00
Personal Property
(1) 177 shares of stock of Canacao Estate

at P10.00 each
1,770.00
(2) 210,000 shares of stock of Mindanao

Mother Lode Mines, Inc. at P0.38 per
share
79,800.00
(3) Cash credit with Canacao Estate Inc.
4,870.88
(4) Cash, with the Chartered Bank of India,

Australia & China
Total Gross Assets
851.97
P130,792.85
On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance
of Manila for the settlement of the estate in the Philippines. In due time Stevenson's will was duly
admitted to probate by our court and Ian Murray Statt was appointed ancillary administrator of the
estate, who on July 11, 1951, filed a preliminary estate and inheritance tax return with the
reservation of having the properties declared therein finally appraised at their values six months after
the death of Stevenson. Preliminary return was made by the ancillary administrator in order to

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

expenses as of August 9, 1952
1,400.05
8,604.39
Real Estate Tax for 1951 on Baguio

real properties (O.R. No. B-1
686836)
Claims against the estate:
652.50
P10,000.00
($5,000.00) P10,000.00
Plus: 4% int. p.a. from Feb. 2 to 22,

1951
Sub-Total
22.47
10,022.47
P21,365.88
In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and
interests in the estate to the spouses, Douglas and Bettina Fisher, respondents herein.
On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance
tax return (Exh. "M-N"). This return declared the same assets of the estate stated in the amended
return of September 22, 1952, except that it contained new claims for additional exemption and
deduction to wit: (1) deduction in the amount of P4,000.00 from the gross estate of the decedent as
provided for in Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary
administrator averred was allowable by way of the reciprocity granted by Section 122 of the National
Internal Revenue Code, as then held by the Board of Tax Appeals in case No. 71 entitled "Housman
vs. Collector," August 14, 1952; and (2) exemption from the imposition of estate and inheritance
taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. also pursuant to the
reciprocity proviso of Section 122 of the National Internal Revenue Code. In this last return, the
estate claimed that it was liable only for the amount of P525.34 for estate tax and P238.06 for
inheritance tax and that, as a consequence, it had overpaid the government. The refund of the
amount of P15,259.83, allegedly overpaid, was accordingly requested by the estate. The Collector
denied the claim. For this reason, action was commenced in the Court of First Instance of Manila by
respondents, as assignees of Beatrice Mauricia Stevenson, for the recovery of said amount.
Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax Appeals which court,
after hearing, rendered decision the dispositive portion of which reads as follows:
In fine, we are of the opinion and so hold that: (a) the one-half () share of the surviving
spouse in the conjugal partnership property as diminished by the obligations properly
chargeable to such property should be deducted from the net estate of the deceased Walter
G. Stevenson, pursuant to Section 89-C of the National Internal Revenue Code; (b) the
intangible personal property belonging to the estate of said Stevenson is exempt from
inheritance tax, pursuant to the provision of section 122 of the National Internal Revenue
Code in relation to the California Inheritance Tax Law but decedent's estate is not entitled to
an exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of estate
and inheritance taxation the Baguio real estate of the spouses should be valued at
P52,200.00, and 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. should
be appraised at P0.38 per share; and (d) the estate shall be entitled to a deduction of
P2,000.00 for funeral expenses and judicial expenses of P8,604.39.
From this decision, both parties appealed.
The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly
committed by the trial court, while the assignees, Douglas and Bettina Fisher hereinafter called

respondents, made six assignments of error. Together, the assigned errors raise the following main
issues for resolution by this Court:
(1) Whether or not, in determining the taxable net estate of the decedent, one-half () of the net
estate should be deducted therefrom as the share of tile surviving spouse in accordance with our law
on conjugal partnership and in relation to section 89 (c) of the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the
National Internal Revenue Code granting exemption from the payment of estate and inheritance
taxes on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc.;
(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S.
Internal Revenue Code in relation to section 122 of the National Internal Revenue Code;
(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000
shares of stock in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower
court;
(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and
administration expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and
P10,0,22.47 representing the amount of indebtedness allegedly incurred by the decedent during his
lifetime; and
(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have
overpaid the government and to be refundable to it.
In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the
absence of any ante-nuptial agreement, the contracting parties are presumed to have adopted the
system of conjugal partnership as to the properties acquired during their marriage. The application of
this doctrine to the instant case is being disputed, however, by petitioner Collector of Internal
Revenue, who contends that pursuant to Article 124 of the New Civil Code, the property relation of
the spouses Stevensons ought not to be determined by the Philippine law, but by the national law of
the decedent husband, in this case, the law of England. It is alleged by petitioner that English laws
do not recognize legal partnership between spouses, and that what obtains in that jurisdiction is
another regime of property relation, wherein all properties acquired during the marriage pertain and
belong Exclusively to the husband. In further support of his stand, petitioner cites Article 16 of the
New Civil Code (Art. 10 of the old) to the effect that in testate and intestate proceedings, the amount
of successional rights, among others, is to be determined by the national law of the decedent.
In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took
place in 1909, the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New
Civil Code which became effective only in 1950. It is true that both articles adhere to the so-called
nationality theory of determining the property relation of spouses where one of them is a foreigner
and they have made no prior agreement as to the administration disposition, and ownership of their
conjugal properties. In such a case, the national law of the husband becomes the dominant law in
determining the property relation of the spouses. There is, however, a difference between the two
articles in that Article 1241 of the new Civil Code expressly provides that it shall be applicable
regardless of whether the marriage was celebrated in the Philippines or abroad while Article 1325 2 of
the old Civil Code is limited to marriages contracted in a foreign land.

It must be noted, however, that what has just been said refers to mixed marriages between a Filipino
citizen and a foreigner. In the instant case, both spouses are foreigners who married in the
Philippines. Manresa,3 in his Commentaries, has this to say on this point:
La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y
entre espanoles. El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges
es espanol. En cuanto a la regla procedente cuando dos extranjeros se casan en Espana, o
dos espanoles en el extranjero hay que atender en el primer caso a la legislacion de pais a
que aquellos pertenezean, y en el segundo, a las reglas generales consignadas en los
articulos 9 y 10 de nuestro Codigo. (Emphasis supplied.)
If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons,
married in 1909, would be the English law even if the marriage was celebrated in the Philippines,
both of them being foreigners. But, as correctly observed by the Tax Court, the pertinent English law
that allegedly vests in the decedent husband full ownership of the properties acquired during the
marriage has not been proven by petitioner. Except for a mere allegation in his answer, which is not
sufficient, the record is bereft of any evidence as to what English law says on the matter. In the
absence of proof, the Court is justified, therefore, in indulging in what Wharton calls "processual
presumption," in presuming that the law of England on this matter is the same as our law.4
Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil
Code) to bolster his stand. A reading of Article 10 of the old Civil Code, which incidentally is the one
applicable, shows that it does not encompass or contemplate to govern the question of property
relation between spouses. Said article distinctly speaks of amount of successional rights and this
term, in speaks in our opinion, properly refers to the extent or amount of property that each heir is
legally entitled to inherit from the estate available for distribution. It needs to be pointed out that
the property relation of spouses, as distinguished from their successional rights, is governed
differently by the specific and express provisions of Title VI, Chapter I of our new Civil Code (Title III,
Chapter I of the old Civil Code.) We, therefore, find that the lower court correctly deducted the half of
the conjugal property in determining the hereditary estate left by the deceased Stevenson.
On the second issue, petitioner disputes the action of the Tax Court in the exempting the
respondents from paying inheritance tax on the 210,000 shares of stock in the Mindanao Mother
Lode Mines, Inc. in virtue of the reciprocity proviso of Section 122 of the National Internal Revenue
Code, in relation to Section 13851 of the California Revenue and Taxation Code, on the ground that:
(1) the said proviso of the California Revenue and Taxation Code has not been duly proven by the
respondents; (2) the reciprocity exemptions granted by section 122 of the National Internal Revenue
Code can only be availed of by residents of foreign countries and not of residents of a state in the
United States; and (3) there is no "total" reciprocity between the Philippines and the state of
California in that while the former exempts payment of both estate and inheritance taxes on
intangible personal properties, the latter only exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified
that as an active member of the California Bar since 1931, he is familiar with the revenue and
taxation laws of the State of California. When asked by the lower court to state the pertinent
California law as regards exemption of intangible personal properties, the witness cited article 4,
section 13851 (a) and (b) of the California Internal and Revenue Code as published in Derring's
California Code, a publication of the Bancroft-Whitney Company inc. And as part of his testimony, a
full quotation of the cited section was offered in evidence as Exhibits "V-2" by the respondents.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them.5 Like any other fact, they must be alleged and proved. 6

Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our
tribunals. However, although we believe it desirable that these laws be proved in accordance with
said rule, we held in the case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a
reading of sections 300 and 301 of our Code of Civil Procedure (now section 41, Rule 123) will
convince one that these sections do not exclude the presentation of other competent evidence to
prove the existence of a foreign law." In that case, we considered the testimony of an attorney-at-law
of San Francisco, California who quoted verbatim a section of California Civil Code and who stated
that the same was in force at the time the obligations were contracted, as sufficient evidence to
establish the existence of said law. In line with this view, we find no error, therefore, on the part of the
Tax Court in considering the pertinent California law as proved by respondents' witness.
We now take up the question of reciprocity in exemption from transfer or death taxes, between the
State of California and the Philippines.F
Section 122 of our National Internal Revenue Code, in pertinent part, provides:
... And, provided, further, That no tax shall be collected under this Title in respect of
intangible personal property (a) if the decedent at the time of his death was a resident of a
foreign country which at the time of his death did not impose a transfer of tax or death tax of
any character in respect of intangible personal property of citizens of the Philippines not
residing in that foreign country, or (b) if the laws of the foreign country of which the decedent
was a resident at the time of his death allow a similar exemption from transfer taxes or death
taxes of every character in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country." (Emphasis supplied).
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.
"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt
from the tax imposed by this part if the decedent at the time of his death was a resident of a
territory or another State of the United States or of a foreign state or country which then
imposed a legacy, succession, or death tax in respect to intangible personal property of its
own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of any character in respect to
intangible personal property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal property of a nonresident was exempt from legacy, succession, or death taxes of every character if the
Territory or other State of the United States or foreign state or country in which the
nonresident resided allowed a similar exemption in respect to intangible personal property of
residents of the Territory or State of the United States or foreign state or country of residence
of the decedent." (Id.)
It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to
transfer or death taxes of any and every character, in the case of the Philippine law, and to legacy,
succession, or death taxes of any and every character, in the case of the California law. Therefore, if
any of the two states collects or imposes and does not exempt any transfer, death, legacy, or
succession tax of any character, the reciprocity does not work. This is the underlying principle of the
reciprocity clauses in both laws.
In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein,
there are imposed upon his estate and its settlement, both an estate and an inheritance tax. Under

the laws of California, only inheritance tax is imposed. On the other hand, the Federal Internal
Revenue Code imposes an estate tax on non-residents not citizens of the United States, 7 but does
not provide for any exemption on the basis of reciprocity. Applying these laws in the manner the
Court of Tax Appeals did in the instant case, we will have a situation where a Californian, who is nonresident in the Philippines but has intangible personal properties here, will the subject to the
payment of an estate tax, although exempt from the payment of the inheritance tax. This being the
case, will a Filipino, non-resident of California, but with intangible personal properties there, be
entitled to the exemption clause of the California law, since the Californian has not been exempted
from every character of legacy, succession, or death tax because he is, under our law, under
obligation to pay an estate tax? Upon the other hand, if we exempt the Californian from paying the
estate tax, we do not thereby entitle a Filipino to be exempt from a similar estate tax in California
because under the Federal Law, which is equally enforceable in California he is bound to pay the
same, there being no reciprocity recognized in respect thereto. In both instances, the Filipino citizen
is always at a disadvantage. We do not believe that our legislature has intended such an unfair
situation to the detriment of our own government and people. We, therefore, find and declare that
the lower court erred in exempting the estate in question from payment of the inheritance tax.
We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L9456 & L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo
H. Miller from payment of the inheritance tax imposed by the Collector of Internal Revenue. It will be
noted, however, that the issue of reciprocity between the pertinent provisions of our tax law and that
of the State of California was not there squarely raised, and the ruling therein cannot control the
determination of the case at bar. Be that as it may, we now declare that in view of the express
provisions of both the Philippine and California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death taxes of every character, there
could not be partial reciprocity. It would have to be total or none at all.
With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S.
Federal Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our
ruling in the Lara case (supra) that the amount of $2,000.00 allowed under the Federal Estate Tax
Law is in the nature of a deduction and not of an exemption regarding which reciprocity cannot be
claimed under the provision of Section 122 of our National Internal Revenue Code. Nor is reciprocity
authorized under the Federal Law. .
On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is
contended that their assessed values, as appearing in the tax rolls 6 months after the death of
Stevenson, ought to have been considered by petitioner as their fair market value, pursuant to
section 91 of the National Internal Revenue Code. It should be pointed out, however, that in
accordance with said proviso the properties are required to be appraised at their fair market value
and the assessed value thereof shall be considered as the fair market value only when evidence to
the contrary has not been shown. After all review of the record, we are satisfied that such evidence
exists to justify the valuation made by petitioner which was sustained by the tax court, for as the tax
court aptly observed:
"The two parcels of land containing 36,264 square meters were valued by the administrator
of the estate in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the
assessed value of said properties. On the other hand, defendant appraised the same at
P52,200.00. It is of common knowledge, and this Court can take judicial notice of it, that
assessments for real estate taxation purposes are very much lower than the true and fair
market value of the properties at a given time and place. In fact one year after decedent's
death or in 1952 the said properties were sold for a price of P72,000.00 and there is no
showing that special or extraordinary circumstances caused the sudden increase from the

price of P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951.
Even more, the counsel for plaintiffs himself admitted in open court that he was willing to
purchase the said properties at P2.00 per square meter. In the light of these facts we believe
and therefore hold that the valuation of P52,200.00 of the real estate in Baguio made by
defendant is fair, reasonable and justified in the premises." (Decision, p. 19).
In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc.,
(a domestic corporation), respondents contend that their value should be fixed on the basis of the
market quotation obtaining at the San Francisco (California) Stock Exchange, on the theory that the
certificates of stocks were then held in that place and registered with the said stock exchange. We
cannot agree with respondents' argument. The situs of the shares of stock, for purposes of taxation,
being located here in the Philippines, as respondents themselves concede and considering that they
are sought to be taxed in this jurisdiction, consistent with the exercise of our government's taxing
authority, their fair market value should be taxed on the basis of the price prevailing in our country.
Upon the other hand, we find merit in respondents' other contention that the said shares of stock
commanded a lesser value at the Manila Stock Exchange six months after the death of Stevenson.
Through Atty. Allison Gibbs, respondents have shown that at that time a share of said stock was bid
for at only P.325 (p. 103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never
been questioned nor refuted by petitioner either before this court or in the court below. In the
absence of evidence to the contrary, we are, therefore, constrained to reverse the Tax Court on this
point and to hold that the value of a share in the said mining company on August 22, 1951 in the
Philippine market was P.325 as claimed by respondents..
It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the
basis of the declaration made by the estate in its preliminary return. Patently, this should not have
been the case, in view of the fact that the ancillary administrator had reserved and availed of his
legal right to have the properties of the estate declared at their fair market value as of six months
from the time the decedent died..
On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of
which by the Tax Court, both petitioner and respondents have appealed..
Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the
sum of P8,604.39 for the following expenses:.
1) Administrator's fee
P1,204.34
2) Attorney's fee
6,000.00
3) Judicial and Administrative expenses
2,052.55
Total Deductions
P8,604.39

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

9, 1952
2,052.55
Total
P9,256.89
added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and
administration expenses approved by the court, making a total of P2,052.55, exactly the same figure
which was arrived at by the Tax Court for judicial and administration expenses. Hence, the difference
between the total of P9,256.98 allowed by the Tax Court as deductions, and the P8,604.39 as found
by the probate court, which is P652.50, the same amount allowed for realty taxes. An evident
oversight has involuntarily been made in omitting the P2,000.00 for funeral expenses in the final
computation. This amount has been expressly allowed by the lower court and there is no reason why
it should not be. .
We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to
section 89(a) (1) (E) and section 89(d), National Internal Revenue Code, the amount of P10,022.47
should have been allowed the estate as a deduction, because it represented an indebtedness of the
decedent incurred during his lifetime. In support thereof, they offered in evidence a duly certified
claim, presented to the probate court in California by the Bank of California National Association,
which it would appear, that while still living, Walter G. Stevenson obtained a loan of $5,000.00
secured by pledge on 140,000 of his shares of stock in the Mindanao Mother Lode Mines, Inc.
(Exhs. "Q-Q4", pp. 53-59, record). The Tax Court disallowed this item on the ground that the local
probate court had not approved the same as a valid claim against the estate and because it

constituted an indebtedness in respect to intangible personal property which the Tax Court held to be
exempt from inheritance tax.
For two reasons, we uphold the action of the lower court in disallowing the deduction.
Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of
the decedent is necessary. This is so although the same, it is averred has been already admitted and
approved by the corresponding probate court in California, situs of the principal or domiciliary
administration. It is true that we have here in the Philippines only an ancillary administration in this
case, but, it has been held, the distinction between domiciliary or principal administration and
ancillary administration serves only to distinguish one administration from the other, for the two
proceedings are separate and independent.8 The reason for the ancillary administration is that, a
grant of administration does not ex proprio vigore, have any effect beyond the limits of the country in
which it was granted. Hence, we have the requirement that before a will duly probated outside of the
Philippines can have effect here, it must first be proved and allowed before our courts, in much the
same manner as wills originally presented for allowance therein. 9 And the estate shall be
administered under letters testamentary, or letters of administration granted by the court, and
disposed of according to the will as probated, after payment of just debts and expenses of
administration.10 In other words, there is a regular administration under the control of the court,
where claims must be presented and approved, and expenses of administration allowed before
deductions from the estate can be authorized. Otherwise, we would have the actuations of our own
probate court, in the settlement and distribution of the estate situated here, subject to the
proceedings before the foreign court over which our courts have no control. We do not believe such
a procedure is countenanced or contemplated in the Rules of Court.
Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions
of Section 89, letter (d), number (1), of the National Internal Revenue Code which reads:
(d) Miscellaneous provisions (1) No deductions shall be allowed in the case of a nonresident not a citizen of the Philippines unless the executor, administrator or anyone of the
heirs, as the case may be, includes in the return required to be filed under section ninetythree the value at the time of his death of that part of the gross estate of the non-resident not
situated in the Philippines."
In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated
in the Philippines appears in the three returns submitted to the court or to the office of the petitioner
Collector of Internal Revenue. The purpose of this requirement is to enable the revenue officer to
determine how much of the indebtedness may be allowed to be deducted, pursuant to (b), number
(1) of the same section 89 of the Internal Revenue Code which provides:
(b) Deductions allowed to non-resident estates. In the case of a non-resident not a citizen
of the Philippines, by deducting from the value of that part of his gross estate which at the
time of his death is situated in the Philippines
(1) Expenses, losses, indebtedness, and taxes. That proportion of the deductions
specified in paragraph (1) of subjection (a) of this section11 which the value of such part bears
the value of his entire gross estate wherever situated;"
In other words, the allowable deduction is only to the extent of the portion of the indebtedness which
is equivalent to the proportion that the estate in the Philippines bears to the total estate wherever
situated. Stated differently, if the properties in the Philippines constitute but 1/5 of the entire assets
wherever situated, then only 1/5 of the indebtedness may be deducted. But since, as heretofore

adverted to, there is no statement of the value of the estate situated outside the Philippines, no part
of the indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d), number (1) of
the Internal Revenue Code.
For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the
alleged indebtedness in the sum of P10,022.47.
In recapitulation, we hold and declare that:
(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership
property constitutes his hereditary estate subject to the estate and inheritance taxes;
(b) the intangible personal property is not exempt from inheritance tax, there existing no
complete total reciprocity as required in section 122 of the National Internal Revenue Code,
nor is the decedent's estate entitled to an exemption of P4,000.00 in the computation of the
estate tax;
(c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and
(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net
asset of the deceased Stevenson.
In all other respects, the decision of the Court of Tax Appeals is affirmed.
Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a
recomputation on the basis of this decision is hereby denied in line with our recent decision
in Collector of Internal Revenue v. St. Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we
held that, "in the absence of a statutory provision clearly or expressly directing or authorizing such
payment, and none has been cited by respondents, the National Government cannot be required to
pay interest."
WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is
hereby affirmed in all other respects not inconsistent herewith. No costs. So ordered.
Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Gutierrez David,
Paredes and Dizon, JJ., concur.
N BANC
G.R. No. L-13250 October 29, 1971

THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
ANTONIO CAMPOS RUEDA, respondent..
Assistant Solicitor General Jose P. Alejandro and Special Attorney Jose G. Azurin, (O.S.G.) for
petitioner.

Ramirez and Ortigas for respondent.
FERNANDO, J.:
The basic issue posed by petitioner Collector of Internal Revenue in this appeal from a decision of
the Court of Tax Appeals as to whether or not the requisites of statehood, or at least so much thereof
as may be necessary for the acquisition of an international personality, must be satisfied for a
"foreign country" to fall within the exemption of Section 122 of the National Internal Revenue
Code 1 is now ripe for adjudication. The Court of Tax Appeals answered the question in the negative, and
thus reversed the action taken by petitioner Collector, who would hold respondent Antonio Campos
Rueda, as administrator of the estate of the late Estrella Soriano Vda. de Cerdeira, liable for the sum of
P161,874.95 as deficiency estate and inheritance taxes for the transfer of intangible personal properties
in the Philippines, the deceased, a Spanish national having been a resident of Tangier, Morocco from
1931 up to the time of her death in 1955. In an earlier resolution promulgated May 30, 1962, this Court on
the assumption that the need for resolving the principal question would be obviated, referred the matter
back to the Court of Tax Appeals to determine whether the alleged law of Tangier did grant the reciprocal
tax exemption required by the aforesaid Section 122. Then came an order from the Court of Tax Appeals
submitting copies of legislation of Tangier that would manifest that the element of reciprocity was not
lacking. It was not until July 29, 1969 that the case was deemed submitted for decision. When the petition
for review was filed on January 2, 1958, the basic issue raised was impressed with an element of novelty.
Four days thereafter, however, on January 6, 1958, it was held by this Court that the aforesaid provision
does not require that the "foreign country" possess an international personality to come within its
terms. 2 Accordingly, we have to affirm.
The decision of the Court of Tax Appeals, now under review, sets forth the background facts as
follows: "This is an appeal interposed by petitioner Antonio Campos Rueda as administrator of the
estate of the deceased Doa Maria de la Estrella Soriano Vda. de Cerdeira, from the decision of the
respondent Collector of Internal Revenue, assessing against and demanding from the former the
sum P161,874.95 as deficiency estate and inheritance taxes, including interest and penalties, on the
transfer of intangible personal properties situated in the Philippines and belonging to said Maria de la
Estrella Soriano Vda. de Cerdeira. Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for
short) is a Spanish national, by reason of her marriage to a Spanish citizen and was a resident of
Tangier, Morocco from 1931 up to her death on January 2, 1955. At the time of her demise she left,
among others, intangible personal properties in the Philippines." 3 Then came this portion: "On
September 29, 1955, petitioner filed a provisional estate and inheritance tax return on all the properties of
the late Maria Cerdeira. On the same date, respondent, pending investigation, issued an assessment for
state and inheritance taxes in the respective amounts of P111,592.48 and P157,791.48, or a total of
P369,383.96 which tax liabilities were paid by petitioner ... . On November 17, 1955, an amended return
was filed ... wherein intangible personal properties with the value of P396,308.90 were claimed as
exempted from taxes. On November 23, 1955, respondent, pending investigation, issued another
assessment for estate and inheritance taxes in the amounts of P202,262.40 and P267,402.84,
respectively, or a total of P469,665.24 ... . In a letter dated January 11, 1956, respondent denied the
request for exemption on the ground that the law of Tangier is not reciprocal to Section 122 of the
National Internal Revenue Code. Hence, respondent demanded the payment of the sums of P239,439.49
representing deficiency estate and inheritance taxes including ad valorem penalties, surcharges, interests
and compromise penalties ... . In a letter dated February 8, 1956, and received by respondent on the

following day, petitioner requested for the reconsideration of the decision denying the claim for tax
exemption of the intangible personal properties and the imposition of the 25% and 5% ad
valorem penalties ... . However, respondent denied request, in his letter dated May 5, 1956 ... and
received by petitioner on May 21, 1956. Respondent premised the denial on the grounds that there was
no reciprocity [with Tangier, which was moreover] a mere principality, not a foreign country. Consequently,
respondent demanded the payment of the sums of P73,851.21 and P88,023.74 respectively, or a total of
P161,874.95 as deficiency estate and inheritance taxes including surcharges, interests and compromise
penalties." 4
The matter was then elevated to the Court of Tax Appeals. As there was no dispute between the
parties regarding the values of the properties and the mathematical correctness of the deficiency
assessments, the principal question as noted dealt with the reciprocity aspect as well as the insisting
by the Collector of Internal Revenue that Tangier was not a foreign country within the meaning of
Section 122. In ruling against the contention of the Collector of Internal Revenue, the appealed
decision states: "In fine, we believe, and so hold, that the expression "foreign country", used in the
last proviso of Section 122 of the National Internal Revenue Code, refers to a government of that
foreign power which, although not an international person in the sense of international law, does not
impose transfer or death upon intangible person properties of our citizens not residing therein, or
whose law allows a similar exemption from such taxes. It is, therefore, not necessary that Tangier
should have been recognized by our Government order to entitle the petitioner to the exemption
benefits of the proviso of Section 122 of our Tax. Code."5
Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as
above indicated, instead of ruling definitely on the question, this Court, on May 30, 1962, resolve to
inquire further into the question of reciprocity and sent back the case to the Court of Tax Appeals for
the motion of evidence thereon. The dispositive portion of such resolution reads as follows: "While
section 122 of the Philippine Tax Code aforequoted speaks of 'intangible personal property' in both
subdivisions (a) and (b); the alleged laws of Tangier refer to 'bienes muebles situados en Tanger',
'bienes muebles radicantes en Tanger', 'movables' and 'movable property'. In order that this Court
may be able to determine whether the alleged laws of Tangier grant the reciprocal tax exemptions
required by Section 122 of the Tax Code, and without, for the time being, going into the merits of the
issues raised by the petitioner-appellant, the case is [remanded] to the Court of Tax Appeals for the
reception of evidence or proof on whether or not the words `bienes muebles', 'movables' and
'movable properties as used in the Tangier laws, include or embrace 'intangible person property', as
used in the Tax Code." 6 In line with the above resolution, the Court of Tax Appeals admitted evidence
submitted by the administrator petitioner Antonio Campos Rueda, consisting of exhibits of laws of Tangier
to the effect that "the transfers by reason of death of movable properties, corporeal or incorporeal,
including furniture and personal effects as well as of securities, bonds, shares, ..., were not subject, on
that date and in said zone, to the payment of any death tax, whatever might have been the nationality of
the deceased or his heirs and legatees." It was further noted in an order of such Court referring the matter
back to us that such were duly admitted in evidence during the hearing of the case on September 9,
1963. Respondent presented no evidence." 7
The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue
Code. It reads thus: "That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the
time of his death did not impose a transfer tax or death tax of any character in respect of intangible

person property of the Philippines not residing in that foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country." 8 The only obstacle therefore to a
definitive ruling is whether or not as vigorously insisted upon by petitioner the acquisition of internal
personality is a condition sine qua non to Tangier being considered a "foreign country". Deference to the
De Lara ruling, as was made clear in the opening paragraph of this opinion, calls for an affirmance of the
decision of the Court of Tax Appeals.
It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line
with Pound's formulation that it be a politically organized sovereign community independent of
outside control bound by penalties of nationhood, legally supreme within its territory, acting through a
government functioning under a regime of
law. 9 It is thus a sovereign person with the people composing it viewed as an organized corporate society
under a government with the legal competence to exact obedience to its commands. 10 It has been
referred to as a body-politic organized by common consent for mutual defense and mutual safety and to
promote the general welfare. 11 Correctly has it been described by Esmein as "the juridical personification
of the nation." 12 This is to view it in the light of its historical development. The stress is on its being a
nation, its people occupying a definite territory, politically organized, exercising by means of its
government its sovereign will over the individuals within it and maintaining its separate international
personality. Laski could speak of it then as a territorial society divided into government and subjects,
claiming within its allotted area a supremacy over all other institutions. 13 McIver similarly would point to
the power entrusted to its government to maintain within its territory the conditions of a legal order and to
enter into international relations. 14 With the latter requisite satisfied, international law do not exact
independence as a condition of statehood. So Hyde did opine. 15
Even on the assumption then that Tangier is bereft of international personality, petitioner has not
successfully made out a case. It bears repeating that four days after the filing of this petition on
January 6, 1958 in Collector of Internal Revenue v. De Lara, 16 it was specifically held by us:
"Considering the State of California as a foreign country in relation to section 122 of our Tax Code we
believe and hold, as did the Tax Court, that the Ancilliary Administrator is entitled the exemption from the
inheritance tax on the intangible personal property found in the Philippines." 17 There can be no doubt that
California as a state in the American Union was in the alleged requisite of international personality.
Nonetheless, it was held to be a foreign country within the meaning of Section 122 of the National Internal
Revenue Code. 18
What is undeniable is that even prior to the De Lara ruling, this Court did commit itself to the doctrine
that even a tiny principality, that of Liechtenstein, hardly an international personality in the sense, did
fall under this exempt category. So it appears in an opinion of the Court by the then Acting Chief
Justicem Bengson who thereafter assumed that position in a permanent capacity, in Kiene v.
Collector of Internal Revenue. 19 As was therein noted: 'The Board found from the documents submitted
to it proof of the laws of Liechtenstein that said country does not impose estate, inheritance and gift
taxes on intangible property of Filipino citizens not residing in that country. Wherefore, the Board declared
that pursuant to the exemption above established, no estate or inheritance taxes were collectible, Ludwig
Kiene being a resident of Liechtestein when he passed away." 20 Then came this definitive ruling: "The
Collector hereafter named the respondent cites decisions of the United States Supreme Court and
of this Court, holding that intangible personal property in the Philippines belonging to a non-resident
foreigner, who died outside of this country is subject to the estate tax, in disregard of the principle 'mobilia

sequuntur personam'. Such property is admittedly taxable here. Without the proviso above quoted, the
shares of stock owned here by the Ludwig Kiene would be concededly subject to estate and inheritance
taxes. Nevertheless our Congress chose to make an exemption where conditions are such that demand
reciprocity as in this case. And the exemption must be honored." 21
WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is affirmed.
Without pronouncement as to costs.
Concepcion, C.J., Makalintal, Zaldivar, Castro, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs in the result.
Teehankee and Barredo, JJ., took no part.
EN BANC
G.R. No. 46242
October 20, 1939
In re estate of the deceased DIEGO DE LA VIA.

JOSE MA. DE LA VIA Y DE LA ROSA, ex-administrator-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, creditor-appellee.
Enrique Medina for appellant.
Raymundo Villanueva for the administrator of the estate of De la Via.
Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee.
VILLA-REAL, J.:
This is an appeal taken by the ex-administrator, Dr. Jose MA. de la Via y de la Rosa, from the order
of the Court of First Instance of Negros Oriental, the dispositive part of which reads:
Wherefore the Court reiterates the order of March 7, 1933, only in so far as the claim of the
Insular Government is concerned, and orders the Administrator herein to pay from whatever
available fund of the estate of the deceased Diego de la Via the sum of P18,420.93 with the
corresponding legal interests from August 20, 1929 plus costs, to the Commonwealth of the
Philippines.
It is also ordered that after the said claim shall have been fully paid, the administrator herein
shall pay to Dr. Jose de la Via y De la Rosa the sum of P19,342.93 and to other claimants
their respective claims in the order established by law out of the residue.
In support of his appeal the appellant assigns three alleged errors committed by the trial court in its
order, to wit:
1. The trial court erred in holding that the income tax claimed by the Collector of Internal
Revenue, should be paid before the administration expenses claimed by the appellant
executor Dr. Jose Ma. de la Via y de la Rosa.

2. The trial court erred in applying article 1923 of the Civil Code and in not holding that the
said article has been repealed by section 735 of the Code of Civil Procedure (Act 190).
3. Granting for the sake of argument that the payment of income tax has preference over the
payment of administration expenses, the trial court erred in holding that said preference has
been abandoned and lost due to the time that has elapsed from 1925 to 1938.
The following are undisputed facts:
On April 8, 1920, after the death of Diego de la Via, his brother, the herein appellant Dr. Jose Ma.
de la Via, was appointed by the Court of First Instance of Negros Oriental as special administrator
of the estate of the deceased; and on the 20th of the same month and year he was appointed
executor.
On January 23, 1926, this Court issued in civil case G.R. No. 23747, entitled "In re estate of Diego
de la Via, deceased, Jose de la Via v. Narcisa Geopano et al.," an order approving the accounts of
the said Dr. Jose de la Via, as outgoing administrator of the estate of Diego de la Via. It appears
from the decision of this Court rendered in said Civil Case G.R. No. 23747 that the following items
were approved:
Special per diems of Jose de la
Via as former
adminstrator ..............................
P12,552.0
0
Legal
Commission ...............................
4,141.33
Total ..............................................
..............
16,693.33
In the bill of exceptions in said case it also appears that the following expenses of Jose de la Via
were approved:
Balance in his favor as
executor ....................
P1,165.
86
Balance on his
aparceria ................................
7,528.6
4
Total .................................................
.....................
8,694.5
0
On July 16, 1927, the said Court of First Instance of Negros Oriental ordered in the present case the
payment to Dr. Jose de la Via of the amount of 146.025 piculs of sugar belonging to him, which
product was applied to the payment of the administration expenses of the estate of Diego de la Via.
The price of said sugar was fixed at P20 per picul by a subsequent order. Adding the sum of P2,925,
the value of said 146.025 piculs of sugar, to the sum of P25,387.83, the result is a total of
P28,312.83. As the amount of P9,228.65 has been paid on account, there remains a balance of
P19,048.18 in favor of the appellant.

It also appears that on February 23, 1932, this Court rendered judgment in G.R. No. 33870, entitled
"The Collector of Internal Revenue vs. Espiridion Villegas, as administrator of the estate of Diego de
la Via", ordering the said administrator to pay the Insular Government, by way of income tax for the
year 1925, the sum of P18,420.93, with interest from August 20, 1939 until fully paid, and the costs.
The estate of Diego de la Via does not have sufficient funds or property to pay fully both judgments.
When the Insular Government attempted to collect the amount of the said judgment in its favor, Dr.
Jose de la Via objected on the ground that the judgments obtained by him are preferred under
section 735 of Act No. 190, and should first be paid. After the corresponding trial, the trial court
overruled the opposition and entered the above-quoted order.
The first question to be decided in this appeal, which is raised by the first assignments of error, is
whether or not the trial court erred in holding that the income tax claimed by the Collector of Internal
Revenue, should be paid before the administration expenses claimed by the ex-executor, Dr. Jose
Ma. de la Via y de la Rosa.
Section 735 of the Code of Civil Procedure, as amended by Act No. 3960, provides as follows:
SEC. 735. Order of payment if estate insolvent. If the assets which can be appropriated
for the payment of debts are not sufficient for that purpose, the executor or administrator
shall, after pay the debts against the estate in the following order:
1. The necessary funeral expenses;
2. The expenses of the last sickness;
3. What is owing to the laborer for salaries and wages earned and for indemnities due to
him, for the last year;
4. Debts due to the United States;
5. Taxes and assessments due to the Government, or any branch or subdivision thereof;
6. Debts due to the province;
7. Debts due to other creditors.
In view of the legal provision just quoted, the question is whether the income tax which an estate
owes the Insular Government partakes of the nature of administration expenses for purposes of the
order of payment established by section 735 of Act No. 190 above quoted. Section 680 of the same
code of Civil Procedure provides as follows:
SEC. 680. How allowed for services. The executor or administrator shall be allowed
necessary expenses in the care, management, and settlement of the estate, and for his
services, two dollars per day for the time actually and necessarily employed, and a
commission of three per cent upon all sums disbursed in the payment of debts, expenses,
and distributive shares, if the amount of such disbursements does not exceed one thousand
dollars. If the amount exceeds one thousand dollars and does not exceed five thousand
dollars and one-half per cent upon the excess, if the whole amount does not exceed five
thousand dollars, then the percentage as above provided, and one per cent on the excess
above five thousand dollars. But in any special case, where the estate is large, and the

settlement has been attended with great difficulty, and has required a high degree of capacity
on the part of the executor or administrator, a greater sum may be allowed. But if objection to
the fees allowed be taken, the allowance may be re-examined by the Supreme Court on
appeal.
When the administrator or executor is a lawyer, he shall not be allowed to charge against the
estate any professional fees, as such, for services rendered by himself. When the deceased
by will makes some other provision for compensation to his executor, the provision shall be
full satisfaction for his services, unless by a written instrument filed in the court he renounces
all claim to the compensation provided by the will.
The legal provision just quoted enumerates the services for which the administrator should be paid
and the commission to which he is entitled for collections and disbursement made by him. Among
these payments, which constitutes the expenses of administration, are not included pending debts of
the estate, whatever may be their nature. According to the said legal provision, only payments which
the executor or administration may have made in the discharge of his office and the commissions to
which he may be entitled, partakes of the nature of administration expenses. the expenses of
administration are due only to the executor or administrator, and he alone, and no other, may collect
them.
The Collector of internal Revenue contends that the tax of P18,420.93 which he seeks to collect,
having been laid on the profits realized in the sale of the properties of the deceased Diego de la
Via, effected on September 29, 1925 by the judicial administrator of the estate, the said tax partake
of the nature of administration expenses. As we have said, the necessary expenses of administration
whose payment is given preference in the said section 735 of the Code of Civil Procedure are those
which the administrator may have incurred in the care, administration and liquidation of the
properties of the estate and the commissions due to him for collections and disbursements which he
may have made, and not those which he cold or might have wished to make out of his own pocket or
but of the funds of the estate. "Administration expenses," says Corpus Juris, volume 24, page 424,
"include expenditures in discovering and preserving assets, attorneys fees incurred in connection
with the administration of the estate, incurred in connection with the administration of the estate, cost
recovered against the representative in an action to recover assets, to established a claim against
the estate, to try title to land, and insurance premiums expended for the protection of the property
and it has even been considered that expenditures in carrying on decedent's business may be
regarded as expenses of administration." And Woerner, volume 2, page 1197, paragraph 362, third
edition, of his work entitled "The American Law of Administration of the Estate," says the following:
It has already been stated, that for the expenses attending the accomplishment of the
purpose of administration growing out of the contract or obligation entered into by the
personal representative he is to be reimbursed out of the estate, and that his claim to
reimbursed must be superior to the rights of the beneficiaries. They are subject only to the
lien of a mortgage executed on specific property by the deceased in his lifetime. The
expenses under this category include those paid for probate of the will, as well in the Probate
court as on appeal, or other proceeding in a contest, if carried on in good faith; and the
executor nominated in such will is entitled to a settlement of his account, and reimbursement
for his expenses in preserving the estate and for the funeral, although the will be finally
pronounced invalid; and, generally, all expenses necessary in the protection and
preservation of the estate, which have been held to include the costs of establishing a claim
against the estate. But the general rule seems rather to be that costs incurred by the
administrator in defense of claims against the estate, or in prosecuting claims in favor of it,
pertain to the administration, and are to be allowed in full; but costs incurred by claimants in
establishing their claims stand on the same footing with the claims themselves. The

allowance of counsel fees and costs is discussed in connection with the subject of
accounting. Repairs necessary upon real estate of which the executor or administrator has
lawful possession also constitute expenses of administration; if the expenses incurred is
general, affecting all the property of the estate, it should be charged generally, but if
attaching to a specific portion or piece of property, it should be charged against such portion
or piece.
The liability of the administrator as such cannot be treated as a continuation of a running
account with the deceased in his lifetime; nor can the defendant in an action by an
administrator upon a contract made by him as such, or to recover assets of the estate, set off
or counterclaim a debt due him from the deceased. And it is held that one who renders
services for a trust has no recourse against the trust, except to subject an equitable demand
of the trustee to the payment of the debt.
The mere fact, therefore, that the income tax claimed by the Collector of Internal Revenue had been
imposed upon the profits obtained by the administrator of the estate in the sale of certain properties
of the deceased Diego de la Via, after the latter's death, does not make the said tax a necessary
expense of administration, unless the administrator had paid it either from his own pocket or out of
the funds of the estate: in the first case the tax paid is converted into an expense of administration
which the administrator may fully recover, plus his commission; in the second case, he may only
collect his commission, which partakes of the nature of an expense of administration.
In the decision promulgated on May 18, 1938, in the Estate of the deceased Claude E. Hoygood,
The Collector of Internal Revenue, claimant and appellee, vs. Annie Laurie Haygood, administratix
and appellant, G.R. No. 44038, this Court said:
In accordance with section 9, paragraph (a) of Act No. 2833, the assessment made by the
Collector of Internal Revenue within three years after the discovery of an erroneous
declaration shall be paid by the maker of the return immediately upon being notified of the
assessment. The procedure prescribed by law is, therefore summary, and collection must be
made from the person liable is already dead, collection must necessarily be made from the
estate of the deceased, either in a state or intestate proceedings instituted before a
competent court, by motion together with the sworn statement of the taxes due filed with said
court, so that it may require the administrator to pay the claim if the latter has funds available
therefor, that is, following the order of preference provided in section 735 of the Code of Civil
Procedure in case the said estate should insolvent. If the testate or intestate is solvent, the
court may order the payment of the claim without necessity of its being substantiated by
evidence since the sworn statement constitutes prima facie evidence of the existence of the
unpaid taxes, and the administrator is under obligation to pay such claim, under protest if he
is not agreeable, without prejudice to his right later to recover the taxes so paid, in the
manner provided by law (Act No. 2711, sec. 1579, as amended by Act No. 3685).
The Collector of Internal Revenue also contends that the income tax in question, being a lien created
by the law superior to any other existing upon the property on which it is imposed, under the
provisions of section 1588 of the Revised Administrative Code, as amended, enjoys preference over
the necessary expenses of administration.
The lien created by the said section 1588 of the Revised Administrative Code, having reference to all
internal revenue taxes, including the income tax here in question, is general in character, and the
order of its payment as a lien is applicable to all properties subject to the payment of internal
revenue tax; whereas the order of payment established by section 735 of the Code of Civil
Procedure, as amended by Act No. 3960, is special in character and is only applicable to properties

of deceased persons; consequently, in accordance with the cardinal rule of statutory construction,
the latter provision of law should prevail over the former. In section last mentioned, the taxes due to
government of any branch or subdivision thereof occupy the fifth place in the order of payment;
wherefore, the indebtedness of the estate of Diego de la Via for income tax not being a necessary
expense of administration, and the claim of the ex-administrator Dr. Jose Ma. de la Via y de la Rosa
being such necessary expense of administration, the latter has preference over the former.
The appellee denies that the first claim for P12,552 for special per diems partakes of the nature of
necessary expenses of administration, for lack of allegation or proof to that effect. Section 680 of the
Code of Civil Procedure already cited provides that "but in any special case, where the estate is
large, and the settlement has been attended with great difficulty, and has required a high decree of
capacity on the part of the executor or administrator, a greater sum may be allowed." There is no
doubt that the estate of Diego de la Via is large. The determination of whether the administration
and liquidation thereof have been attended with great difficulty and have required a high degree of
capacity on the part of the executor or administrator, rests in the sound discretion of the Court which
took cognizance of the said estate. It not appearing that the lower court committed an abuse of
discretion in granting a greater remuneration to the appellant, we do not feel warranted in interfering
with the exercise of said discretion.
In view of the foregoing consideration, we are of the opinion and so hold: (1) that the income tax
which an estate owes to the insular government for profits obtained in the sale of properties
belonging to it, after the death of the testator, does not partake of the nature of necessary expenses
of administration; (2) that the lien created by section 1588 of the Revised Administrative Code for
internal revenue tax on properties subject to it, being general in character, yields to the preference
established by section 735 of the Code of Civil Procedure, as amended by Act No. 3960, in favor of
the necessary expenses of administration of the estate of a deceased person; and, (3) that the claim
of an administrator for the necessary expenses of administration enjoys preference over the claim
for payment of income tax.
Wherefore, the remedy prayed for is granted, the appealed decision is reversed, and it is held that
the claim of the appellant, Dr. Jose Ma. de la Via y de la Rosa, as ex-administrator of the estate of
the deceased Diego de la Via has preference over that of the Collector of Internal Revenue for
income tax, without special pronouncement as to costs. So ordered.
Diaz, Concepcion and Moran, JJ., concur.
Separate Opinions
IMPERIAL, J., dissenting:

This appeal has to do with the order of the Court of First Instance of Negros Oriental of October 6,
1937, rendered in Special Proceedings No. 7, entitled, Testate of the deceased Diego de la Via,
which directed the judicial administrator to pay preferentially out of any funds of the estate the sum

of P18,420.93, with legal interest thereon from August 20, 1929, plus the costs, which the Collector
of Internal Revenue claimed as income tax which the estate should pay on the profit which it
obtained in the sale of certain property of the deceased; and after paying said amount, to pay also
the credits of Dr. Jose Ma. de la Via y de la Rosa Amounting to P19,342.93.
On April 8, 1920, the appellant Dr. Jose Ma. de la Via was appointed special administrator of the
estate of his deceased brother Diego de la Via, Special Proceedings No. 7 of the Court of First
Instance of Negros Oriental, and on the 20th of the same month he discharged the office of
executor. In the decision rendered on January 23, 1926, in G.R. No. 23747 this Court held that Dr.
Jose Ma. de la Via was entitled to collect from the estate the following amounts:
Balance due in his favor as

executor ........
P1,165.8
6
Balance on his
aparceria ...........................
7,528.64
Special per diem

compensation ..............
12,552.0
0
Legal
commission ....................................
..
4,141.33
Total ................................................
.............
25,387.8
3
On July 16, 1927 the Court ordered in the same proceeding that Dr. de la Via be paid the amount of
146.025 piculs of sugar belonging to him, which amount, in money, he paid by way of expenses of
administration of the estate. The price of the sugar was fixed at P20 per picul, the value thereof
amounting to P2,925. Adding this amount to the credit approved in the decision rendered by this
Court, the result is a total of P28,312.83. As Dr. de la Via had been paid on amount of his credit the
sum of P9,228.65, a balance of P19,084.18 remained in his favor. On the other hand, on February
23, 1932 this court rendered judgment in G.R. No. 33870, entitled the Collector on Internal Revenue
vs. Espiridion Villegas, as administrator to pay the Insular government, by way of income tax for the
year 1925, the sum of P18,420.93, with legal interest from August 20, 1929 until fully paid, and the
costs.
The government asked for immediate payment of its credit and as the estate did not have sufficient
funds to meet all the credits admitted and allowed, DR. de la Via filed an opposition on the
allegation that his credit is preferred to that of the Government because it represents expenses of
administration. In the appealed order the Court held that the claim of the Government is preferred
and should be paid before that of Dr. de la Via. This appellant maintains in his brief that the Court
erred: in holding that the tax sought to be revered by the government has preference of his claim
and that it should be paid before the expenses of administration of the estate, such as his credit; in
improperly applying article 1923 of the Civil Code, instead of section 735 of the Code of Civil
Procedure; and not holding that the preference of the credit of the Government has been abandoned
and lost because of the time that has elapsed from 1925 to 1938, supposing that the said credit is
really preferred.

To my mind the priority of the two credits is really depends upon the nature or concept which each
has before the law. The appellant contends that his claim, for expenses of administration of the
estate allowed and approved by the trial court and by this Court, is preferred and would first be paid.
The Government, in turn, argues that its credit, which consists in the tax due upon the profits which
the estate obtained in the sale of one of its properties in 1925, is preferred not only because it has to
do with a tax which constitutes a lien, but also because it partakes of the nature of administration
expenses. As will be seen, independently of the lien, relied upon by the Government, the first
question to be decided is whether both credits should be considered as expenses of administration
under the law.
It is admitted that the appellant's claim partakes of the nature of administration expenses, hence, it
remains to find out whether the credit of the Government is of the same nature. Section 735 of the
Code of Civil Procedure, as amended by Act No. 3960, reads:
SEC. 735. Order of payment if estate insolvent. If the assets which can be appropriated
for the payment of debts are not sufficient for that purpose, the executor or administrator
shall, after paying the necessary expenses of administration, pay the debts against the
estate in the following order:
1. The necessary funeral expenses;

2. The expenses of the last sickness;
3. What is owing to the laborer for salaries and wages earned and for the indemnities due to
him, for the last year;
lwphi1.nt
4. Debts due to the United States;

5. Taxes and assessments due to the Government, or any branch or subdivision thereof;
6. Debts due to the province;
7. Debts due to other creditors.
Under this section, if the properties of a deceased person are insufficient to pay all his obligation,
there shall be paid, in the first place, all the expenses of administration and thereafter his admitted
indebtedness in the order therein mentioned. The said section, or any other section of the Code of
Civil Procedure, does not define what is meant by expenses of administration; but in Lizarraga
Hernamos vs. Abada (40 Phil., 124), it was said that by expense of administration should be
understood the reasonable and necessary expense of caring for the property and managing it till the
debts are paid, as provided by law, and of dividing it, if necessary, so as to partition and deliver it to
the heirs. In this jurisdiction it has been invariably decided that the claims of the Government for
income tax need not be filed with the Committee on claims and should be paid directly by the
executor or administrator out of the funds of the estate of the deceased (Pineda vs. Court of First
Instance of Tayabas, 52 Phil., 803; Government of the Philippine Islands, 60 Phil., 461). And these
claims need not be filed with the committee appointed by the Court because they partake of the
mature of administration expenses. If they were ordinary credits against the estate of a deceased
person, or debts of the latter, there is no doubt that they should be filed with and approved by the
committee on claims. In the first of the cited cases it was held that income taxes due from a

deceased person, assessed during his lifetime or after his death, are claims which not be submitted
to the committee and that they are proper and necessary expenses of administration of the estate of
the deceased. In said case it was said.
To reply to these contentions in turn, we observe that, while there are few courts that have
expressed themselves to the effect that a claim for taxes due to the Government should be
presented like other claims to the committee appointed for the purpose of passing upon
claims, the clear weight of judicial authority is to the effect that claims for taxes and
assessments, whether assessed before or after the death of the decedent, are not required
to be presented to the committee. (24 C.J., 325; People v. Olivera, 43 Cal., 492; Hancock v.
Whittemore, 50 Cal., 522; Findley v. Taylor, 97 Iowa, 420; Bogue v. Laughlin, 149 Wis., 271;
40 L.R. A. [N.S.], 927; Ann. Cas. 1913 C., p. 1367.)
In the case before us the tax now claimed by the Government was not due until it was
assessed; and this assessment was not made until after the individual against whom the tax
was assessed had died. The claim therefore arose during the course administration. The law
imposes on the administrator of a deceased person the duty to pay taxes assessed against
the property of the deceased; and as well known, in case of insolvency, such taxes constitute
a preferential claim in the distribution of assets over ordinary debts, under section 735 of the
Code of Civil procedure. In the case before us it is not suggested that the estate is insolvent,
and there is therefore no danger of imperiling the payment of funeral expenses or expenses
of last sickness by ordering the immediate payment of these taxes.
In the United States the same doctrine governs and incomes taxes have always been considered as
expenses of administration and not as debts of a deceased person which should be presented, for
their approval, to the committee on claims. Thus in People v. Olivera (43 Cal., 492, 494), the
Supreme Court of California said:
Whatever may be the rule when taxes are assessed during the lifetime of the decedentand
we are not called upon to express any opinion in reference to itit is clear that taxes
assessed against the property of an estate, pending administration, and while it is in the
possession and under the management and control of an administrator, are not "claims"
against the estate which must be presented, supported by an affidavit, and allowed or
rejected , under the provisions of sections one hundred and thirty and one hundred and thirty
one of the Probate Act. The undivided property of the deceased person may be listed to
administrators, and the taxes assessed are charges upon the property, which should be paid
as all necessary expenses in the care, management, and settlement of the estate are paid.
And in Brown's Estate v. Hoge, (199 N.W., 320, 323), the Supreme Court of Iowa said the following:
We think the federal tax is a charge or expense for which the estate is liable. We think the
lower court was right in holding that such tax was a part of the expense of administration this
tax should be deducted before computing the state inheritance tax.
xxx
xxx
xxx
. . . The country court, in assessing the state inheritance tax on that property, refused to
deduct the federal estate tax paid by the executor, amounting to P316,432.40. In the ruling
the court erred. The federal estate tax is charge or an expense against the estate of the
decedent rather than against the shares of the legatees or the distributees, and as part of the
expense of administration this tax be deducted before computing the state inheritance tax.

And in Corbin v. Townshend (103 A., 647, 649; 92 Conn., 501), the Supreme Court of Connecticut
said:
The federal tax imposed by Revenue Act Sept. 8, 1916, c. 463, Sec. 201, 39 Stat. 1000, on
the transfer of the net estate of a decedent, being payable out of the estate before
distribution, and inheritance taxes imposed by other states on the same basis, are expenses
of administration, within Succession Act 1915, Sec. 5, providing for deduction of such
expenses, to determine the net estate subject to the succession tax; any expense arising by
operation of law which is a charge against or must be paid out of the estate being an
administration expense.
It may perhaps be argued that if taxes and assessments owing to the Government or to any of its
branches or offices were not debts against a decedent which should be filed with the committee on
claims, section 735 would not have mentioned them as the fifth in the enumeration. The answer to
this is that the taxes and assessments specified in the section are those which are not considered as
administration expenses.
Considering what has already been decided by this Court in Pineda vs. Court of First Instance of
Tayabas, Knowles vs. Government of the Philippine Islands and Government of the Philippine
Islands vs. Pamintuan, supra, and the cited American precedents, I am of the opinion that the credit
of the Government presented in this case partakes of the nature of necessary expenses of the
administration and such enjoys preference; and undersection 1588 of the Revised Administrative
Code providing that an income tax creates a legal lien superior to any other, it should be paid before
that of Dr. de la Via.
Avancea, C. J., Laurel, JJ., concurs in the result.
EN BANC
G.R. No. L-5949
November 19, 1955
TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE, ANTHONY
LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR LEE, SILVINO LEE,
MARY LEE, JOHN LEE, and PETER LEE, for themselves and as heirs of LI SENG GIAP,
deceased, petitioners,
vs.
THE BOARD OF TAX APPEALS and THE COLLECTOR OF INTERNAL REVENUE, respondents.
Ozaeta, Roxas, Lichauco and Picazo for petitioners.
Office of the Solicitor General Juan R. Liwag and Solicitor Jose P. Alejandro for respondents.
REYES, J.B.L., J.:
This is a petition for the review of the petition of the defunct Board of Tax Appeals holding petitioner
Li Seng Giap, et al. liable for gift taxes in accordance with the assessments made by the respondent
Collector of Internal Revenue.
Petitioners Li Seng Giap (who died during the pendency of this appeal) and his wife Tang Ho and
their thirteen children appear to be the stockholder of two close family corporations named Li Seng
Giap & Sons, Inc. and Li Seng Giap & Co. On or about May, 1951, examiners of the Bureau of
Internal Revenue, then detailed to the Allas Committee of the Congress of the Philippines, made an

examination of the books of the two corporation aforementioned and found that each of Li Seng
Giap's 13 children had a total investment therein of approximately P63,195.00, in shares issued to
them by their father Li Seng Giap (who was the manager and controlling stockholder of the two
corporations) in the years 1940, 1942, 1948, 1949, and 1950 in the following amounts:
Donees
1940
1942
1948
1949
1950
William Lee
7,500
12,500
6,750
27,940
7,500
Henry Lee
7,500
12,500
6,750
27,940
7,500
Sofia Lee
7,500
12,500
16,500
26,690
Thomas Lee
7,500
12,500
7,500
28,190
7,500
Anthony Lee
18,000
7,500
28,190
7,500
Julia Lee
20,000
15,000
25,690
2,500
Charles Lee
20,000
7,500
60,690
7,500
Valeriana Lee
63,190
2,500
Victor Lee
63,190
Silvino Lee
63,190
Mary Lee
63,190
John Lee
63,190
Peter Lee
63,190
The Collector of Internal Revenue regarded these transfers as undeclared gifts made in the
respective years, and assessed against Li Seng Giap and his children donor's and donee's taxes in
the total amount of P76,995.31, including penalties, surcharges, interests, and compromise fee due
to the delayed payment of the taxes. The petitioners paid the sum of P53,434.50, representing the
amount of the basic taxes, and put up a surety bond to guarantee payment of the balance
demanded. And on June 25, 1951, they requested the Collector of Internal Revenue for a revision of
their tax assessments, and submitted donor's and donee's gift tax returns showing that each child
received by way of gift inter vivos, every year from 1939 to 1950 (except in 1947 and 1948) P4,000
in cash; that each of the eight children who married during the period aforesaid, were given an
additional P20,000 as dowry or gift propter nuptias; that the unmarried children received roughly
equivalent amount in 1949, also by way of gifts inter vivos, so that the total donations made to each
and every child, as of 1950, stood at P63,190. Appellants admit that these gifts were not reported;
but contend that as the cash donated came from the conjugal funds, they constituted individual
donations by each of the spouses Li Seng Giap and Tang Ho of one half of the amount received by
the donees in each instance, up to a total of P31,505 to each of the thirteen children from each
parent. They further alleged that the children's stockholding in the two family corporations were
purchased by them with savings from the aforesaid cash donations received from their parents.
Claiming the benefit of gift tax exemptions (under section 110 and 112 of the Internal Revenue Code)
at the rate of P2000 a year for each donation, plus P10,000 for each gift propter nuptias made by
either parent, and appellants' aggregate tax liability, according to their returns, would only be
P4,599.94 for the year 1949, and P228,28 for the year 1950, or a total of P4,838.22, computed as
follows:
DONORS
1939-44
1945-46
1949
1950
TOTAL
Li Seng Giap
Exempt
Exempt
P1,110.72
P74.14
P1,184.86
Tang Ho
Exempt
Exempt
1,110.72
74.14
1,184.86
None
None
P2,221.44
P148.28
P2,369.72
Total
William Lee
Exempt
Exempt
P253.80
P30.00
P283.80
Henry Lee
Exempt
Exempt
Exempt
15.00
15.00
Sofia Lee
Exempt
Exempt
P51.90
None
51.90
Thomas Lee
Exempt
Exempt
Exempt
15.00
15.00
Anthony Lee
Exempt
Exempt
Exempt
15.00
15.00
Julia Lee
Exempt
Exempt
26.90
Exempt
26.90
Charles Lee
Exempt
Exempt
Exempt
15.00
15.00
Valeriana Lee
Exempt
Exempt
26.90
Exempt
26.90
Victor Lee
Exempt
Exempt
403.80
None
403.80
Silvino Lee
Exempt
Exempt
403.80
None
403.80
Mary Lee
Exempt
Exempt
403.80
None
403.80
John Lee
Exempt
Exempt
403.80
None
403.80
Peter Lee
Total
Exempt
Exempt
None
None
Grand total liability of Donors and Donees
403.80
None
403.80
P2,378.50
P90.00
P2,468.50
P4,599.94
P238.28
P4,838.22
The Collector refused to revise his original assessments; and the petitioners appealed to the then
Board of Tax Appeals (created by Executive Order 401-A, in 1951) insisting that the entries in the
books of the corporation do not prove donations; that the true amount and date of the donation were
those appearing in their tax returns; and that the donees merely bought stocks in the corporation out
of savings made from the money received from their parents. The Board of Tax Appeals upheld the
decision of the respondent Collector of Internal Revenue; hence, this petition for review.
The questions in this appeal may be summarized as follows:
(1) Whether or not the dates and amounts of the donations taxable against petitioners were as found
by the Collector of Internal Revenue from the books of the corporations Li Seng Giap & Sons, Inc.
and Li Seng Giap & Co., or as set forth in petitioners' gift tax returns;
(2) Whether or not the donations made by petitioner Li Seng Giap to his children from the conjugal
property should be taxed against the husband alone, or against husband and wife; and
(3) Whether or not petitioners should be allowed the tax deduction claimed by them.
On the first question, which is of fact the appellants take the preliminary stand that because of
Collector failed to specifically deny the allegation of their petition in the Tax Board he must be
deemed to have admitted the annual and propter nuptias donations alleged by them, and that he is
estopped from denying their existence. As the proceedings before the Tax Board were administrative
in character, not governed by the Rules of Court (see Sec. 10, Executive Order 401-A),and as the
Collector actually submitted his own version of the transactions, we do not consider that the
Collector's failure to make specific denials should be given the same binding effect as in strict court
pleadings.
Going now to the merits of the issue. The appealed findings of the Board of Tax Appeals and of the
Collector of Internal Revenue (that the stock transfers from Li Seng Giap to his children were
donations) appear supported by the following circumstances:
(1) That the transferor Li Seng Giap (now deceased) had in fact conveyed shares to stock to his 13
children on the dates and in the amounts shown in the table on page 2 of this decision.

(2) That none of the transferees appeared to possess adequate independent means to buy the
shares, so much so that they claim now to have purchased the shares with the cash donations made
to them from time to time.
(3) That the total of the alleged cash donations to each child is practically identical to the value of the
shares supposedly purchased by each donee.
(4) That there is no evidence other than the belated sworn gift tax returns of the spouses Li Seng
Giap and Ang Tang Ho, and their children, appellants herein, to support their contention that the
shares were acquired by purchase. No contracts of sale or other documents were presented, nor
any witnesses introduced; not even the claimants themselves have testified.
(5) The claim that the shares were acquired by the children by purchase was first advanced only
after the assessment of gift taxes and penalties due thereon (in the sum of P76,995.31) had been
made, and after the appellants had paid P53,434.50 on account, and had filed a bond to guarantee
the balance.
(6) That for the parent to donate cash to enable the donee to buy from him shares of equivalent
value is, for all intents and purposes, a donation of such shares to the purchaser donee.
We cannot say, under the circumstances, that there is no sufficient evidence on record to support the
findings of the Tax Board that the stock transfers above indicated were made by way of donation, as
would entitle us to disregard or reverse the Board's finding.
The filing of the gift tax returns only after assessments and part payment of the taxes demanded by
the Collector, and the lack of corroboration of the alleged donations in cash, amply justify the Tax
Board's distrust of the veracity of the appellants' belated tax returns "on or before the first of March
following the close of the calendar year" when the gifts were made (Sec. 115, par. [c]; and besides
the return a written notice to the Collector of each donation of P10,000 or more, must be given within
thirty days after the donation, Sec. 114). These yearly returns and notices are evidently designed to
enable the Collector to verify promptly their truth and correctness, while the gifts are still recent and
proof of the circumstances surrounding the making thereof is still fresh and accessible. On their own
admission, appellants failed to file for ten successive years, the corresponding returns for the alleged
yearly gifts of P4,000 to each child, and likewise failed to give the notices for the P20,000 marriage
gifts to each married child. Hence, they are now scarcely in a position to complain if their contentions
are not accepted as truthful without satisfactory corroboration. Any other view would leave the
collection of taxes at the mercy of explanations concoctedex post facto by evading taxpayers,
drafted to suit any facts disclosed upon investigation, and safe from contradiction because the
passing years have erased all trace of the truth.
The second and third issues in this appeal revolve around appellants' thesis that inasmuch as the
property donated was community property (gananciales), and such property is jointly owned by their
parents, the total amount of the gifts made in each year should be divided between the father and
the mother, as separate donors, and should be taxed separately to each one of them.
In assessing the worth of this contention, it must be ever borne in mind that appellants have not only
failed to prove that the donations were actually made by both spouses, Li Seng Giap and Tang Ho,
but that precisely the contrary appears from their own evidence. In the original claim for tax refund,
filed with the Collector of Internal Revenue, under date of June 25, 1951 (copied in pages 6 and 7 of
the appellants' petition for review addressed to the Board of Tax Appeals), the father, Li Seng Giap,
describes himself as "the undersigned donor" (par. 1) and speaks of "cash donations made by the
undersigned" (par. 3), without in any way mentioning his wife as a co-participant in the donation. The

issue is thus reduced to the following: Is a donation of community property by the father alone
equivalent in law to a donation of one-half of its value by the father and one-half by the mother?
Appellants submit that all such donations of community property are to be regarded, for tax
purposes, as donations by both spouses, for which two separate exemptions may be claimed in
each instance, one for each spouse.
This presentation should be viewed in the light of the provisions of the Spanish Civil Code of 1889,
which was the governing law in the years herein involved, 1939 to 1950. the determinative rule is
that of Arts. 1409 and 1415, reading as follows:
Art. 1409. The conjugal partnership shall also be chargeable with anything which may have
been given or promised by the husband to the children born of the marriage solely in order to
obtain employment for them or give them a profession, or by both spouses by common
consent, should they not have stipulated that such expenditures should be borne in whole or
in part by the separate property of one of them.
ART. 1415, p. 1. The husband may dispone of the property of the conjugal partnership for
the purposes mentioned in Art. 1409.
In effect, these Articles clearly refute the appellants' theory that because the property donated is
community property, the donations should be viewed as made by both spouses. First, because the
law clearly differentiates the donations of such property "by the husband" from the "donations by
both spouses by common consent" ("por el marido . . . o por ambos conyuges de comun acuerdo,"
in the Spanish text).
Next, the wording of Arts. 1409 and 1415 indicates that the lawful donations by the husband to the
common children are valid and are chargeable to the community property, irrespective of whether
the wife agrees or objects thereof. Obviously, should the wife object to the donation, she can not be
regarded as a donor at all.
Even more: Suppose that the husband should make a donation of some community property to a
concubine or paramour. Undeniably, the wife cannot be regarded as joining in any such donation.
Yet under the old Civil Code, the donation would stand, with the only limitation that the wife should
not be prejudiced in the division of the profits after the conjugal partnership affairs are liquidated. So
that if the value of the donation should be found to fit within the limits of the husband's ultimate share
in the conjugal partnership profits, the donation by the husband would remain unassailable, over and
against the non-participation of the wife therein. This Court has so ruled in Baello vs. Villanueva (54
Phil. 213, 214):
According to article 1413 of the Civil Code, any transfer or agreement upon conjugal
property made by the husband in contravention of its provisions, shall not prejudice his wife
or her heirs. As the conjugal property belongs equally to husband and wife, the donation of
this property made by the husband prejudices the wife in so far as it includes a part or the
whole of the wife's half, and is to that extent invalid. Hence article 1419, in providing for the
liquidation of the conjugal partnership, directs that all illegal donations made by the husband
be charged against his estates and deducted from his capital. But it is only then, when the
conjugal partnership is in the process of liquidation, that it can be discovered whether or not
an illegal donation made by the husband prejudices the wife. And inasmuch as these gifts
are only to be held invalid in so far as they prejudice the wife, their nullity cannot be decided
until after the liquidation of the conjugal partnership and it is found that they encroach upon
the wife's portion.

Appellants herein are therefore in error when they contend that it is enough that the property
donated should belong to the conjugal partnership in order that the donation be considered and
taxed as a donation of both husband and wife, even if the husband should appear as the sole donor.
There is no blinking the fact that, under the old Civil Code, to be a donation by both spouses, taxable
to both, the wife must expressly join the husband in making the gift; her participation therein cannot
be implied.
It is true, as appellants stress, that in Gibbs vs. Government of the Philippines, 59 Phil., 293, this
Court ruled that "the wife, upon acquisition of any conjugal property, becomes immediately vested
with an interest and title equal to that of the husband"; but this Court was careful to immediately add,
"subject to the power of management and disposition which the law vests on the husband." As has
been shown, this power of disposition may, within the legal limits, override the objections of the wife
and render the donation of the husband fully effective without need of the wife's joining therein. (Civil
Code of 1889, Arts 1409, 1415.)
It becomes unnecessary to discuss the nature of a conjugal partnership, there being specific rules
on donations of property belonging to it. The consequence of the husband's legal power to donate
community property is that, where made by the husband alone, the donation is taxable as his own
exclusive act. Hence, only one exemption or deduction can be claimed for every such gift, and not
two, as claimed by appellants herein. In thus holding, the Board of Tax Appeals committed no error.
Premises considered, we are of the opinion and so declare:
(a) That the finding of the defunct Board of Tax Appeals to the effect that shares transferred from Li
Seng Giap to his children were conveyed to them by way of donation inter vivos is supported by
adequate evidence, and therefore cannot be reviewed by this Court (Comm. of Internal
Revenue. vs. Court Holding Co., L. Ed. 981; Comm. of Internal Revenue vs. Scottish American
Investment Co., 89 L. Ed. 113; Comm. of Internal Revenue vs. Tower, 90 L. Ed. 670;
Helvering vs. Tax Penn. Oil Co., 81 L. Ed. 755).
(b) That under the old Civil Code, a donation by the husband alone does not become in law a
donation by both spouses merely because it involves property of the conjugal partnership;
(c) That such a donation of property belonging to the conjugal partnership, made during its
existence, by the husband alone in favor of the common children, is taxable to him exclusively as
sole donor.
Wherefore, the decision appealed from is affirmed with costs to the appellants. So ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Jugo, Labrador, and
Concepcion, JJ.,concur.
EN BANC
G.R. No. L-19865
July 31, 1965
MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.

Angel S. Gamboa for petitioners-appellants.
Office of the Solicitor General for respondent-appellee.
REYES, J.B.L., J.:
This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96 Phil. 335.
Briefly, the facts of the aforestated case may be stated as follows:
Enrico Pirovano was the father of the herein petitioners-appellants. Sometime in the early part of
1941, De la Rama Steamship Co. insured the life of said Enrico Pirovano, who was then its
President and General Manager until the time of his death, with various Philippine and American
insurance companies for a total sum of one million pesos, designating itself as the beneficiary of the
policies, obtained by it. Due to the Japanese occupation of the Philippines during the second World
War, the Company was unable to pay the premiums on the policies issued by its Philippine insurers
and these policies lapsed, while the policies issued by its American insurers were kept effective and
subsisting, the New York office of the Company having continued paying its premiums from year to
year.
During the Japanese occupation , or more particularly in the latter part of 1944, said Enrico Pirovano
died.
After the liberation of the Philippines from the Japanese forces, the Board of Directors of De la Rama
Steamship Co. adopted a resolution dated July 10, 1946 granting and setting aside, out of the
proceeds expected to be collected on the insurance policies taken on the life of said Enrico
Pirovano, the sum of P400,000.00 for equal division among the four (4) minor children of the
deceased, said sum of money to be convertible into 4,000 shares of stock of the Company, at par, or
1,000 shares for each child. Shortly thereafter, the Company received the total sum of P643,000.00
as proceeds of the said life insurance policies obtained from American insurers.
Upon receipt of the last stated sum of money, the Board of Directors of the Company modified, on
January 6, 1947, the above-mentioned resolution by renouncing all its rights title, and interest to the
said amount of P643,000.00 in favor of the minor children of the deceased, subject to the express
condition that said amount should be retained by the Company in the nature of a loan to it, drawing
interest at the rate of five per centum (5%) per annum, and payable to the Pirovano children after the
Company shall have first settled in full the balance of its present remaining bonded indebtedness in
the sum of approximately P5,000,000.00. This latter resolution was carried out in a Memorandum
Agreement on January 10, 1947 and June 17, 1947., respectively, executed by the Company and
Mrs. Estefania R. Pirovano, the latter acting in her capacity as guardian of her children (petitionersappellants herein) find pursuant to an express authority granted her by the court.
On June 24, 1947, the Board of Directors of the Company further modified the last mentioned
resolution providing therein that the Company shall pay the proceeds of said life insurance policies
to the heirs of the said Enrico Pirovano after the Company shall have settled in full the balance of its
present remaining bonded indebtedness, but the annual interests accruing on the principal shall be

paid to the heirs of the said Enrico Pirovano, or their duly appointed representative, whenever the
Company is in a position to meet said obligation.
On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her children, executed a public
document formally accepting the donation; and, on the same date, the Company through its Board of
Directors, took official notice of this formal acceptance.
On September 13, 1949, the stockholders of the Company formally ratified the various resolutions
hereinabove mentioned with certain clarifying modifications that the payment of the donation shall
not be effected until such time as the Company shall have first duly liquidated its present bonded
indebtedness in the amount of P3,260,855.77 with the National Development Company, or fully
redeemed the preferred shares of stock in the amount which shall be issued to the National
Development Company in lieu thereof; and that any and all taxes, legal fees, and expenses in any
way connected with the above transaction shall be chargeable and deducted from the proceeds of
the life insurance policies mentioned in the resolutions of the Board of Directors.
On March 8, 1951, however, the majority stockholders of the Company voted to revoke the
resolution approving the donation in favor of the Pirovano children.
As a consequence of this revocation and refusal of the Company to pay the balance of the donation
amounting to P564,980.90 despite demands therefor, the herein petitioners-appellants represented
by their natural guardian, Mrs. Estefania R. Pirovano, brought an action for the recovery of said
amount, plus interest and damages against De la Rama Steamship Co., in the Court of First
Instance of Rizal, which case ultimately culminated to an appeal to this Court. On December 29,
1954, this court rendered its decision in the appealed case (96 Phil. 335) holding that the donation
was valid and remunerative in nature, the dispositive part of which reads:
Wherefore, the decision appealed from should be modified as follows: (a) that the donation
in favor of the children of the late Enrico Pirovano of the proceeds of the insurance policies
taken on his life is valid and binding on the defendant corporation; (b) that said donation,
which amounts to a total of P583,813.59, including interest, as it appears in the books of the
corporation as of August 31, 1951, plus interest thereon at the rate of 5 per cent per annum
from the filing of the complaint, should be paid to the plaintiffs after the defendant corporation
shall have fully redeemed the preferred shares issued to the National Development
Company under the terms and conditions stared in the resolutions of the Board of Directors
of January 6, 1947 and June 24, 1947, as amended by the resolution of the stockholders
adopted on September 13, 1949; and (c) defendant shall pay to plaintiffs an additional
amount equivalent to 10 per cent of said amount of P583,813.59 as damages by way of
attorney's fees, and to pay the costs of action. (Pirovano et al. vs. De la Rama Steamship
Co., 96 Phil. 367-368)
The above decision became final and executory. In compliance therewith, De la Rama Steamship
Co. made, on April 6, 1955, a partial payment on the amount of the judgment and paid the balance
thereof on May 12, 1955.

On March 6, 1955, respondent Commissioner of Internal Revenue assessed the amount of
P60,869.67 as donees' gift tax, inclusive of surcharges, interests and other penalties, against each
of the petitioners-appellants, or for the total sum of P243,478.68; and, on April 23, 1955, a donor's
gift tax in the total amount of P34,371.76 was also assessed against De la Rama Steamship Co.,
which the latter paid.
Petitioners-appellants herein contested respondent Commissioner's assessment and imposition of
the donees' gift taxes and donor's gift tax and also made a claim for refund of the donor's gift tax so
collected. Respondent Commissioner overruled petitioners' claims; hence, the latter presented two
(2) petitions for review against respondent's rulings before the Court of Tax Appeals, said petitions
having been docketed as CTA Cases Nos. 347 and 375. CTA Case No. 347 relates to the petition
disputing the legality of the assessment of donees' gift taxes and donor's gift tax while CTA Case No.
375 refers to the claim for refund of the donor's gift tax already paid.
After the filing of respondent's usual answers to the petitions, the two cases, being interrelated to
each other, were tried jointly and terminated.
On January 31, 1962, the Court of Tax Appeals rendered its decision in the two cases, the
dispositive part of which reads:
In resume, we are of the opinion, that (1) the donor's gift tax in the sum of P34,371.76 was
erroneously assessed and collected, hence, petitioners are entitled to the refund thereof; (2)
the donees' gift taxes were correctly assessed; (3) the imposition of the surcharge of 25% is
not proper; (4) the surcharge of 5% is legally due; and (5) the interest of 1% per month on
the deficiency donees' gift taxes is due from petitioners from March 8, 1955 until the taxes
are paid.
IN LINE WITH THE FOREGOING OPINION, petitioners are hereby ordered to pay the
donees' gift taxes as assessed by respondent, plus 5% surcharge and interest at the rate of
1% per month from March 8, 1955 to the date of payment of said donees' gift taxes.
Respondent is ordered to apply the sum of P34,371.76 which is refundable to petitioners,
against the amount due from petitioners. With costs against petitioners in Case No. 347.
Petitioners-appellants herein filed a motion to reconsider the above decision, which the lower court
denied. Hence, this appeal before us.
In the instant appeal, petitioners-appellants herein question only that portion of the decision of the
lower court ordering the payment of donees' gift taxes as assessed by respondent as well as the
imposition of surcharge and interest on the amount of donees' gift taxes.
In their brief and memorandum, they dispute the factual finding of the lower court that De la Rama
Steamship Company's renunciation of its rights, title, and interest over the proceeds of said life
insurance policies in favor of the Pirovano children "was motivated solely and exclusively by its
sense of gratitude, an act of pure liberality, and not to pay additional compensation for services
inadequately paid for." Petitioners now contend that the lower court's finding was erroneous in
seemingly considering the disputed grant as a simple donation, since our previous decision (96 Phil.

335) had already declared that the transfer to the Pirovano children was a remuneratory donation.
Petitioners further contend that the same was made not for an insufficient or inadequate
consideration but rather it a was made for a full and adequate compensation for the valuable
services rendered by the late Enrico Pirovano to the De la Rama Steamship Co.; hence, the
donation does not constitute a taxable gift under the provisions of Section 108 of the National
Internal Revenue Code.
The argument for petitioners-appellants fails to take into account the fact that neither in Spanish nor
in Anglo-American law was it considered that past services, rendered without relying on a
coetaneous promise, express or implied, that such services would be paid for in the future,
constituted cause or consideration that would make a conveyance of property anything else but a gift
or donation. This conclusion flows from the text of Article 619 of the Code of 1889 (identical with
Article 726 of the present Civil Code of the Philippines):
When a person gives to another a thing ... on account of the latter's merits or of the services
rendered by him to the donor, provided they do not constitute a demandable debt, ..., there is
also a donation. ... .
There is nothing on record to show that when the late Enrico Pirovano rendered services as
President and General Manager of the De la Rama Steamship Co. he was not fully compensated for
such services, or that, because they were "largely responsible for the rapid and very successful
development of the activities of the company" (Res. of July 10, 1946). Pirovano expected or was
promised further compensation over and in addition to his regular emoluments as President and
General Manager. The fact that his services contributed in a large measure to the success of the
company did not give rise to a recoverable debt, and the conveyances made by the company to his
heirs remain a gift or donation. This is emphasized by the directors' Resolution of January 6, 1947,
that "out of gratitude" the company decided to renounce in favor of Pirovano's heirs the proceeds of
the life insurance policies in question. The true consideration for the donation was, therefore, the
company's gratitude for his services, and not the services themselves.
That the tax court regarded the conveyance as a simple donation, instead of a remuneratory one as
it was declared to be in our previous decision, is but an innocuous error; whether remuneratory or
simple, the conveyance remained a gift, taxable under Chapter 2, Title III of the Internal Revenue
Code.
But then appellants contend, the entire property or right donated should not be considered as a gift
for taxation purposes; only that portion of the value of the property or right transferred, if any, which
is in excess of the value of the services rendered should be considered as a taxable gift. They cite in
support Section 111 of the Tax Code which provides that
Where property is transferred for less, than an adequate and full consideration in money or
money's worth, then the amount by which the value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift,
... .

The flaw in this argument lies in the fact that, as copied from American law, the term consideration
used in this section refers to the technical "consideration" defined by the American Law Institute
(Restatement of Contracts) as "anything that is bargained for by the promisor and given by the
promisee in exchange for the promise" (Also, Corbin on Contracts, Vol. I, p. 359). But, as we have
seen, Pirovano's successful activities as officer of the De la Rama Steamship Co. cannot be deemed
such consideration for the gift to his heirs, since the services were rendered long before the
Company ceded the value of the life policies to said heirs; cession and services were not the result
of one bargain or of a mutual exchange of promises.
And the Anglo-American law treats a subsequent promise to pay for past services (like one to pay for
improvements already made without prior request from the promisor) to be a nudum
pactum (Roscorla vs. Thomas, 3 Q.B. 234; Peters vs. Poro, 25 ALR 615; Carson vs. Clark, 25 Am.
Dec. 79; Boston vs. Dodge, 12 Am. Dec. 206), i.e., one that is unenforceable in view of the common
law rule that consideration must consist in a legal benefit to the promisee or some legal detriment to
the promisor.
What is more, the actual consideration for the cession of the policies, as previously shown, was the
Company's gratitude to Pirovano; so that under section 111 of the Code there is no consideration the
value of which can be deducted from that of the property transferred as a gift. Like "love and
affection," gratitude has no economic value and is not "consideration" in the sense that the word is
used in this section of the Tax Code.
As stated by Chief Justice Griffith of the Supreme Court of Mississippi in his well-known book,
"Outlines of the Law" (p. 204)
Love and affection are not considerations of value they are not estimable in terms of value. Nor
are sentiments of gratitude for gratuitous part favors or kindnesses; nor are obligations which are
merely moral. It has been well said that if a moral obligation were alone sufficient it would remove
the necessity for any consideration at all, since the fact of making a promise impose, the moral
obligation to perform it."
It is of course perfectly possible that a donation or gift should at the same time impose a burden or
condition on the donee involving some economic liability for him. A, for example, may donate a
parcel of land to B on condition that the latter assume a mortgage existing on the donated land. In
this case the donee may rightfully insist that the gift tax be computed only on the value of the land
less the value of the mortgage. This, in fact, is contemplated by Article 619 of the Civil Code of 1889
(Art. 726 of the Tax Code) when it provides that there is also a donation "when the gift imposes upon
the donee a burden which is less than the value of the thing given." Section 111 of the Tax Code has
in view situations of this kind, since it also prescribes that "the amount by which the value of the
property exceeded the value of the consideration" shall be deemed a gift for the purpose of the tax. .
Petitioners finally contend that, even assuming that the donation in question is subject to donees' gift
taxes, the imposition of the surcharge of 5% and interest of 1% per month from March 8, 1955 was
not justified because the proceeds of the life insurance policies were actually received on April 6,
1955 and May 12, 1955 only and in accordance with Section 115(c) of the Tax Code; the filing of the
returns of such tax became due on March 1, 1956 and the tax became payable on May 15, 1956, as

provided for in Section 116(a) of the same Code. In other words, petitioners maintain that the
assessment and demand for donees' gift taxes was prematurely made and of no legal effect; hence,
they should not be held liable for such surcharge and interest.
It is well to note, and it is not disputed, that petitioners-donees have failed to file any gift tax return
and that they also failed to pay the amount of the assessment made against them by respondent in
1955. This situation is covered by Section 119(b) (1) and (c) and Section 120 of the Tax Code:
(b) Deficiency.
(1) Payment not extended. Where a deficiency, or any interest assessed in connection
therewith, or any addition to the taxes provided for in section one hundred twenty is not paid
in full within thirty days from the date of the notice and demand from the Commissioner,
there shall be collected as a part of the taxes, interest upon the unpaid amount at the rate of
one per centum a month from the date of such notice and demand until it is paid. (section
119)
(c) Surcharge. If any amount of the taxes included in the notice and demand from the
Commissioner of Internal Revenue is not paid in full within thirty days after such notice and
demand, there shall be collected in addition to the interest prescribed above as a part of the
taxes a surcharge of five per centum of the unpaid amount. (sec. 119)
The failure to file a return was found by the lower court to be due to reasonable cause and not to
willful neglect. On this score, the elimination by the lower court of the 25% surcharge is ad
valorem penalty which respondent Commissioner had imposed pursuant to Section 120 of the Tax
Code was proper, since said Section 120 vests in the Commissioner of Internal Revenue or in the
tax court power and authority to impose or not to impose such penalty depending upon whether or
not reasonable cause has been shown in the non-filing of such return.
On the other hand, unlike said Section 120, Section 119, paragraphs (b) (1) and (c) of the Tax Code,
does not confer on the Commissioner of Internal Revenue or on the courts any power and discretion
not to impose such interest and surcharge. It is likewise provided for by law that an appeal to the
Court of Tax Appeals from a decision of the Commissioner of Internal Revenue shall not suspend the
payment or collection of the tax liability of the taxpayer unless a motion to that effect shall have been
presented to the court and granted by it on the ground that such collection will jeopardize the interest
of the taxpayer (Sec. 11, Republic Act No. 1125; Rule 12, Rules of the Court of Tax Appeals). It
should further be noted that
It has been the uniform holding of this Court that no suit for enjoining the collection of a tax,
disputed or undisputed, can be brought, the remedy being to pay the tax first, formerly under
protest and now without need of protect, file the claim with the Collector, and if he denies it,
bring an action for recovery against him. (David v. Ramos, et al., 90 Phil. 351)
Section 306 of the National Internal Revenue Code ... lays down the procedure to be
followed in those cases wherein a taxpayer entertains some doubt about the correctness of a
tax sought to be collected. Said section provides that the tax, should first be paid and the

taxpayer should sue for its recovery afterwards. The purpose of the law obviously is to
prevent delay in the collection of taxes, upon which the Government depends for its
existence. To allow a taxpayer to first secure a ruling as regards the validity of the tax before
paying it would be to defeat this purpose. (National Dental Supply Co. vs. Meer, 90 Phil. 265)
Petitioners did not file in the lower court any motion for the suspension of payment or collection of
the amount of assessment made against them.
On the basis of the above-stated provisions of law and applicable authorities, it is evident that the
imposition of 1% interest monthly and 5% surcharge is justified and legal. As succinctly stated by the
court below, said imposition is "mandatory and may not be waived by the Commissioner of Internal
Revenue or by the courts" (Resolution on petitioners' motion for reconsideration, Annex XIV,
petition). Hence, said imposition of interest and surcharge by the lower court should be upheld.
WHEREFORE, the decision of the Court of Tax Appeals is affirmed. Costs against petitioners
Pirovano.
Bengzon, C.J., Bautista Angelo, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar,
JJ., concur.
Concepcion, J., took no part.
Barrera, J., is on leave.

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Estate and Donor&#39;s Tax Cases

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ESTATE AND DONORS TAX

G.R. No. L-33849 August 18, 1977