SECOND DIVISION

[G.R. No. 143483. January 31, 2002]

REPUBLIC OF THE PHILIPPINES represented by the REGISTER OF

DEEDS OF PASAY CITY, petitioner, vs. COURT OF APPEALS
(SPECIAL FORMER 3RD DIVISION) AND AMADA H. SOLANO,
assisted by her husband ROMEO SOLANO, respondents.

DECISION
BELLOSILLO , J.:

This petition for certiorari seeks to nullify two (2) Resolutions of the Court
of Appeals dated 12 November 1998 and 4 May 2000 giving due course to the
petition for annulment of judgment filed by private respondent Amada H.
Solano on 3 February 1997 and denying petitioner's motion for
reconsideration.

For more than three (3) decades (from 1952 to 1985) private respondent
Amada Solano served as the all-around personal domestic helper of the late
Elizabeth Hankins, a widow and a French national. During Ms. Hankins'
lifetime and most especially during the waning years of her life, respondent
Solano was her faithful girl Friday and a constant companion since no close
relative was available to tend to her needs.

In recognition of Solano's faithful and dedicated service, Ms. Hankins

executed in her favor two (2) deeds of donation involving two (2) parcels of
land covered by TCT Nos. 7807 and 7808 of the Registry of Deeds. Private
respondent alleged that she misplaced the deeds of donation and were
nowhere to be found.

While the deeds of donation were missing, the Republic filed a petition for
the escheat of the estate of Elizabeth Hankins before
the Regional Trial Court of Pasay City. During the proceedings, a motion for
[1]

intervention was filed by Romeo Solano, spouse of private respondent, and

one Gaudencio Regosa, but on 24 June 1987 the motion was denied by the
trial court for the reason that "they miserably failed to show valid claim or right
to the properties in question." Since it was established that there were no
[2]
known heirs and persons entitled to the properties of decedent Hankins, the
lower court escheated the estate of the decedent in favor
of petitioner Republic of the Philippines.

By virtue of the decision of the trial court, the Registry of Deeds

of Pasay City cancelled TCT Nos. 7807 and 7808 and issued new ones, TCT
Nos. 129551 and 129552, both in the name of Pasay City.

In the meantime, private respondent claimed that she accidentally found

the deeds of donation she had been looking for for a long time. In view of this
development, respondent Amada Solano filed on 28 January 1997 a petition
before the Court of Appeals for the annulment of the lower court's decision
alleging, among other, that -[3]

13.1. The deceased Elizabeth Hankins having donated the subject properties to the
petitioner in 1983 (for TCT No. 7807) and 1984 (for TCT No. 7808), these properties
did not and could not form part of her estate when she died on September 20, 1985.
Consequently, they could not validly be escheated to the Pasay City Government;

13.2. Even assuming arguendo that the properties could be subject of escheat
proceedings, the decision is still legally infirm for escheating the properties to an
entity, the Pasay City Government, which is not authorized by law to be the recipient
thereof. The property should have been escheated in favor of the Republic of the
Philippines under Rule 91, Section 1 of the New Rules of Court x x x x

On 17 March 1997 the Office of the Solicitor General representing public

respondents RTC and the Register of Deeds (herein petitioner) filed an
answer setting forth their affirmative defenses, to wit: (a) lack of jurisdiction
over the nature of the action; and, (b) the cause of action was barred by the
statute of limitations.

Finding no cogent reason to justify the dismissal of the petition for

annulment, the Court of Appeals issued on 12 November 1998 the first of its
assailed Resolutions giving due course to the petition for annulment of
judgment and setting the date for trial on the merits. In upholding the theory of
respondent Solano, the Appeals Court ruled that -

Herein petitioner invokes lack of jurisdiction over the subject matter on the part of
respondent RTC to entertain the escheat proceedings x x x because the parcels of land
have been earlier donated to herein petitioner in 1983 and 1984 prior to the death of
said Hankins; and therefore, respondent court could not have ordered the escheat of
said properties in favor of the Republic of the Philippines, assign them to
respondent Pasay City government, order the cancellation of the old titles in the name
of Hankins and order the properties registered in the name of respondent Pasay City
x x x x The 1997 Rules of Civil Procedure specifically laid down the grounds of
annulment filed before this Court, to wit: extrinsic fraud and lack of
jurisdiction. Jurisdiction over the subject matter is conferred by law and this
jurisdiction is determined by the allegations of the complaint. It is axiomatic that the
averments of the complaint determine the nature of the action and consequently the
jurisdiction of the courts. Thus whether or not the properties in question are no longer
part of the estate of the deceased Hankins at the time of her death; and, whether or not
the alleged donations are valid are issues in the present petition for annulment which
can be resolved only after a full blown trial x x x x

It is for the same reason that respondents espousal of the statute of limitations against
herein petition for annulment cannot prosper at this stage of the proceedings. Indeed,
Section 4, Rule 91 of the Revised Rules of Court expressly provides that a person
entitled to the estate must file his claim with the court a quo within five (5) years from
the date of said judgment. However, it is clear to this Court that herein petitioner is
not claiming anything from the estate of the deceased at the time of her death on
September 20, 1985; rather she is claiming that the subject parcels of land should not
have been included as part of the estate of the said decedent as she is the owner
thereof by virtue of the deeds of donation in her favor.

In effect, herein petitioner, who alleges to be in possession of the premises in

question, is claiming ownership of the properties in question and the
consequent reconveyance thereof in her favor which cause of action prescribes ten
(10) years after the issuance of title in favor of respondent Pasay City on August 7,
1990. Herein petition was seasonably filed on February 3, 1997 under Article 1144, to
wit:

Art. 1144. The following actions must be brought within ten years from the time the
right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by
law; (3) Upon a judgment.

And Article 1456, to wit:

Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is,
by force of law, considered a trustee of an implied trust for the benefit of the person
from whom the property comes. [4]

In its Resolution of 4 May 2000 the Court of Appeals denied the motion for
reconsideration filed by public respondents Register of Deeds of Pasay City
and the Presiding judge of the lower court and set the trial on the merits for
June 15 and 16, 2000.

In its effort to nullify the Resolutions herein before mentioned, petitioner

points out that the Court of Appeals committed grave abuse of discretion
amounting to lack or excess of jurisdiction (a) in denying petitioner's
affirmative defenses set forth in its answer and motion for reconsideration, and
in setting the case for trial and reception of evidence; and, (b) in giving due
course to private respondent's petition for annulment of decision despite the
palpable setting-in of the 5-year statute of limitations within which to file claims
before the court a quo set forth in Rule 91 of the Revised Rules of Court and
Art. 1014 of the Civil Code.

Petitioner argues that the lower court had jurisdiction when it escheated
the properties in question in favor of the city government and the filing of a
petition for annulment of judgment on the ground of subsequent discovery of
the deeds of donation did not divest the lower court of its jurisdiction on the
matter. It further contends that Rule 47 of the 1997 Rules of Civil Procedure
only provides for two (2) grounds for the annulment of judgment,
namely: extrinsic fraud and lack of jurisdiction. As such the discovery of the
deeds of donation seven (7) years after the finality of the escheat proceedings
is an extraneous matter which is clearly not an instance of extrinsic fraud nor
a ground to oust the lower court of its jurisdiction.

Petitioner also insists that notwithstanding the execution of the deeds of

donation in favor of private respondent, the 5-year statute of limitations within
which to file claims before the court a quo as set forth in Rule 91 of the
Revised Rules of Court has set in.

The present controversy revolves around the nature of the parcels of land
purportedly donated to private respondent which will ultimately determine
whether the lower court had jurisdiction to declare the same escheated in
favor of the state.
 We rule for the petitioner. Escheat is a proceeding, unlike that of
succession or assignment, whereby the state, by virtue of its sovereignty,
steps in and claims the real or personal property of a person who dies
intestate leaving no heir. In the absence of a lawful owner, a property is
claimed by the state to forestall an open "invitation to self-service by the first
comers." Since escheat is one of the incidents of sovereignty, the state may,
[5]

and usually does, prescribe the conditions and limits the time within which a
claim to such property may be made. The procedure by which the escheated
property may be recovered is generally prescribed by statue, and a time limit
is imposed within which such action must be brought.

In this jurisdiction, a claimant to an escheated property must file his claim

"within five (5) years from the date of such judgment, such person shall have
possession of and title to the same, or if sold, the municipality or city shall be
accountable to him for the proceeds, after deducting the estate; but a claim
not made shall be barred forever." The 5-year period is not a device
[6]

capriciously conjured by the state to defraud any claimant; on the contrary, it is

decidedly prescribed to encourage would-be claimants to be punctilious in
asserting their claims, otherwise they may lose them forever in a final
judgment.

Incidentally, the question may be asked: Does herein private respondent,

not being an heir but allegedly a donee, have the personality to be a claimant
within the purview of Sec. 4, Rule 91, of the Revised Rules of Court? In this
regard, we agree with the Solicitor General that the case of Municipal Council
of San Pedro, Laguna v. Colegio de San Jose, Inc., is applicable at least
[7]

insofar as it concerns the Court's discussion on who is an "interested party" in

an escheat proceeding -

In a special proceeding for escheat under sections 750 and 751 the petitioner is not the
sole and exclusive interested party. Any person alleging to have a direct right or
interest in the property sought to be escheated is likewise an interested party and may
appear and oppose the petition for escheat. In the present case, the Colegio de San
Jose, Inc. and Carlos Young appeared alleging to have a material interest in the
Hacienda de San Pedro Tunasan; the former because it claims to be the exclusive
owner of the hacienda, and the latter because he claims to be the lessee thereof under
a contract legally entered with the former (underscoring supplied).
 In the instant petition, the escheat judgment was handed down by the
lower court as early as 27 June 1989 but it was only on 28 January 1997,
more or less seven (7) years after, when private respondent decided to
contest the escheat judgment in the guise of a petition for annulment of
judgment before the Court of Appeals. Obviously, private respondent's belated
assertion of her right over the escheated properties militates against recovery.

A judgment in escheat proceedings when rendered by a court of

competent jurisdiction is conclusive against all persons with actual or
constructive notice, but not against those who are not parties or privies
thereto. As held in Hamilton v. Brown, "a judgment of escheat was held
[8]

conclusive upon persons notified by advertisement to all persons

interested. Absolute lack on the part of petitioners of any dishonest intent to
deprive the appellee of any right, or in any way injure him, constitutes due
process of law, proper notice having been observed." With the lapse of the 5-
year period therefore, private respondent has irretrievably lost her right to
claim and the supposed "discovery of the deeds of donation" is not enough
justification to nullify the escheat judgment which has long attained finality.

In the mind of this Court the subject properties were owned by the
decedent during the time that the escheat proceedings were being conducted
and the lower court was not divested of its jurisdiction to escheat them in favor
of Pasay City notwithstanding an allegation that they had been previously
donated. We recall that a motion for intervention was earlier denied by the
escheat court for failure to show "valid claim or right to the properties in
question." Where a person comes into an escheat proceeding as a claimant,
[9]

the burden is on such intervenor to establish his title to the property and his
right to intervene. A fortiori, the certificates of title covering the subject
properties were in the name of the decedent indicating that no transfer of
ownership involving the disputed properties was ever made by the deceased
during her lifetime. In the absence therefore of any clear and convincing proof
showing that the subject lands had been conveyed by Hankins to private
respondent Solano, the same still remained, at least before the escheat, part
of the estate of the decedent and the lower court was right not to assume
otherwise. The Court of Appeals therefore cannot perfunctorily presuppose
that the subject properties were no longer part of the decedent's estate at the
time the lower court handed down its decision on the strength of a belated
allegation that the same had previously been disposed of by the owner. It is
settled that courts decide only after a close scrutiny of every piece of evidence
and analyze each case with deliberate precision and unadulterated
thoroughness, the judgment not being diluted by speculations, conjectures
and unsubstantiated assertions.

WHEREFORE, the petition is GRANTED. The assailed Resolution of the

Court of Appeals dated 12 November 1998 giving due course to the petition
for annulment of judgment, and its Resolution dated 4 May 2000 denying
petitioner's motion for reconsideration, are SET ASIDE. The decision of the
RTC-Br. 114, Pasay City, dated 27 June 1989, is REINSTATED.

SO ORDERED.

THIRD DIVISION

[G.R. No. 123206. March 22, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF

APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.

RESOLUTION

GONZAGA-REYES, J.: Supr-ema

Assailed in this petition for review on certiorari is the December 21, 1995
Decision of the Court of Appeals in CA-G.R. Sp. No. 34399 affirming the
[1] [2]

June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate
of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing
erroneously paid estate taxes for the year 1988.

Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during

the second World War, was a part of the infamous Death March by reason of
which he suffered shock and became insane. His sister Josefina Pajonar
became the guardian over his person, while his property was placed under the
guardianship of the Philippine National Bank (PNB) by the Regional Trial
Court of Dumaguete City, Branch 31, in Special Proceedings No. 1254. He
died on January 10, 1988. He was survived by his two brothers Isidro P.
Pajonar and Gregorio Pajonar, his sister Josefina Pajonar, nephews
Concordio Jandog and Mario Jandog and niece Conchita Jandog.

On May 11, 1988, the PNB filed an accounting of the decedent's property
under guardianship valued at P3,037,672.09 in Special Proceedings No.
1254. However, the PNB did not file an estate tax return, instead it advised
Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the
taxes on his estate. On April 5, 1988, pursuant to the assessment by the
Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes in
the amount of P2,557.

On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial
Court of Dumaguete City for the issuance in her favor of letters of
administration of the estate of her brother. The case was docketed as Special
Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina
Pajonar as the regular administratrix of Pedro Pajonar's estate.

On December 19, 1988, pursuant to a second assessment by the BIR for

deficiency estate tax, the estate of Pedro Pajonar paid estate tax in the
amount of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix
and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with
the BIR praying that the estate tax payment in the amount of P1,527,790.98,
or at least some portion of it, be returned to the heirs. Jur-is
[3]

However, on August 15, 1989, without waiting for her protest to be resolved by
the BIR, Josefina Pajonar filed a petition for review with the Court of Tax
Appeals (CTA), praying for the refund of P1,527,790.98, or in the alternative,
P840,202.06, as erroneously paid estate tax. The case was docketed as CTA
[4]

Case No. 4381.

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to

refund Josefina Pajonar the amount of P252,585.59, representing erroneously
paid estate tax for the year 1988.
[5]

Among the deductions from the gross estate allowed by the CTA were the
amounts of P60,753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50,000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship. Juri-ssc
[6]
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration of the CTA's May 6, 1993 decision asserting, among others,
[7]

that the notarial fee for the Extrajudicial Settlement and the attorney's fees in
the guardianship proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution ordering the
[8]

Commissioner of Internal Revenue to refund Josefina Pajonar, as

administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
representing erroneously paid estate tax for the year 1988. Also, the CTA
upheld the validity of the deduction of the notarial fee for the Extrajudicial
Settlement and the attorney's fees in the guardianship proceedings.

On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTA's May 6, 1993 Decision and its June
7, 1994 Resolution, questioning the validity of the abovementioned
deductions. On December 21, 1995, the Court of Appeals denied the
Commissioner's petition. [9]

Hence, the present appeal by the Commissioner of Internal Revenue.

The sole issue in this case involves the construction of section 79 of the
[10]

National Internal Revenue Code (Tax Code) which provides for the allowable
[11]

deductions from the gross estate of the decedent. More particularly, the
question is whether the notarial fee paid for the extrajudicial settlement in the
amount of P60,753 and the attorney's fees in the guardianship proceedings in
the amount of P50,000 may be allowed as deductions from the gross estate of
decedent in order to arrive at the value of the net estate.

We answer this question in the affirmative, thereby upholding the decisions of

the appellate courts. J-jlex

In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:

Respondent maintains that only judicial expenses of the

testamentary or intestate proceedings are allowed as a deduction
to the gross estate. The amount of P60,753.00 is quite
extraordinary for a mere notarial fee.

This Court adopts the view under American jurisprudence that

expenses incurred in the extrajudicial settlement of the estate
should be allowed as a deduction from the gross estate. "There is
no requirement of formal administration. It is sufficient that the
expense be a necessary contribution toward the settlement of the
case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in
Taxation, 10thEd. (1990), p. 481 ]

xxx.....xxx.....xxx

The attorney's fees of P50,000.00, which were already incurred

but not yet paid, refers to the guardianship proceeding filed by
PNB, as guardian over the ward of Pedro Pajonar, docketed as
Special Proceeding No. 1254 in the RTC (Branch XXXI) of
Dumaguete City. x x x

xxx.....xxx.....xxx

The guardianship proceeding had been terminated upon delivery

of the residuary estate to the heirs entitled thereto. Thereafter,
PNB was discharged of any further responsibility.

Attorney's fees in order to be deductible from the gross estate

must be essential to the collection of assets, payment of debts
or the distribution of the property to the persons entitled to it. The
services for which the fees are charged must relate to the proper
settlement of the estate. [ 34 Am. Jur. 2d 767. ] In this case, the
guardianship proceeding was necessary for the distribution of the
property of the late Pedro Pajonar to his rightful heirs. Sc-juris

xxx.....xxx.....xxx

PNB was appointed as guardian over the assets of the late Pedro
Pajonar, who, even at the time of his death, was incompetent by
reason of insanity. The expenses incurred in the guardianship
proceeding was but a necessary expense in the settlement of the
decedent's estate. Therefore, the attorney's fee incurred in the
guardianship proceedings amounting to P50,000.00 is a
reasonable and necessary business expense deductible from the
gross estate of the decedent. [12]
Upon a motion for reconsideration filed by the Commissioner of Internal
Revenue, the Court of Tax Appeals modified its previous ruling by reducing
the refundable amount to P76,502.43 since it found that a deficiency interest
should be imposed and the compromise penalty excluded. However, the tax
[13]

court upheld its previous ruling regarding the legality of the deductions -

It is significant to note that the inclusion of the estate tax law in the
codification of all our national internal revenue laws with the
enactment of the National Internal Revenue Code in 1939 were
copied from the Federal Law of the United States. [UMALI,
Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code,
promulgated by Presidential Decree No. 1158, effective June 3,
1977, reenacted substantially all the provisions of the old law on
estate and gift taxes, except the sections relating to the meaning
of gross estate and gift. [ Ibid, p. 286. ] Nc-mmis

In the United States, [a]dministrative expenses, executor's

commissions and attorney's fees are considered allowable
deductions from the Gross Estate. Administrative expenses are
limited to such expenses as are actually and necessarily incurred
in the administration of a decedent's estate. [PRENTICE-HALL,
Federal Taxes Estate and Gift Taxes (1936), p. 120, 533. ]
Necessary expenses of administration are such expenses as are
entailed for the preservation and productivity of the estate and for
its management for purposes of liquidation, payment of debts and
distribution of the residue among the persons entitled
thereto. [Lizarraga Hermanos vs. Abada, 40 Phil. 124. ] They must
be incurred for the settlement of the estate as a whole. [34 Am.
Jur. 2d, p. 765. ] Thus, where there were no substantial
community debts and it was unnecessary to convert community
property to cash, the only practical purpose of administration
being the payment of estate taxes, full deduction was allowed for
attorney's fees and miscellaneous expenses charged wholly to
decedent's estate. [ Ibid., citing Estate of Helis, 26 T .C. 143 (A). ]

Petitioner stated in her protest filed with the BIR that "upon the
death of the ward, the PNB, which was still the guardian of the
estate, (Annex 'Z' ), did not file an estate tax return; however, it
advised the heirs to execute an extrajudicial settlement, to pay
 taxes and to post a bond equal to the value of the estate, for
which the estate paid P59,341.40 for the premiums. (See Annex
'K')." [p. 17, CTA record. ] Therefore, it would appear from the
records of the case that the only practical purpose of settling the
estate by means of an extrajudicial settlement pursuant to Section
1 of Rule 74 of the Rules of Court was for the payment of taxes
and the distribution of the estate to the heirs. A fortiori, since our
estate tax laws are of American origin, the interpretation adopted
by American Courts has some persuasive effect on the
interpretation of our own estate tax laws on the subject.

Anent the contention of respondent that the attorney's fees of

P50,000.00 incurred in the guardianship proceeding should not be
deducted from the Gross Estate, We consider the same
unmeritorious. Attorneys' and guardians' fees incurred in a
trustee's accounting of a taxable inter vivos trust attributable to the
usual issues involved in such an accounting was held to be proper
deductions because these are expenses incurred in terminating
an inter vivos trust that was includible in the decedent's estate.
(Prentice Hall, Federal Taxes on Estate and Gift, p.120, 861]
Attorney's fees are allowable deductions if incurred for the
settlement of the estate. It is noteworthy to point that PNB was
appointed the guardian over the assets of the deceased.
Necessarily the assets of the deceased formed part of his gross
estate. Accordingly, all expenses incurred in relation to the estate
of the deceased will be deductible for estate tax purposes
provided these are necessary and ordinary expenses for
administration of the settlement of the estate. [14]

In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the
Court of Appeals held that: Newmiso

2. Although the Tax Code specifies "judicial expenses of the

testamentary or intestate proceedings," there is no reason why
expenses incurred in the administration and settlement of an
estate in extrajudicial proceedings should not be allowed.
However, deduction is limited to such administration expenses as
are actually and necessarily incurred in the collection of the
assets of the estate, payment of the debts, and distribution of the
remainder among those entitled thereto. Such expenses may
include executor's or administrator's fees, attorney's fees, court
fees and charges, appraiser's fees, clerk hire, costs of preserving
and distributing the estate and storing or maintaining it, brokerage
fees or commissions for selling or disposing of the estate, and the
like. Deductible attorney's fees are those incurred by the executor
or administrator in the settlement of the estate or in defending or
prosecuting claims against or due the estate. (Estate and Gift
Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176 ).

xxx.....xxx.....xxx

It is clear then that the extrajudicial settlement was for the

purpose of payment of taxes and the distribution of the estate to
the heirs. The execution of the extrajudicial settlement
necessitated the notarization of the same. Hence the Contract of
Legal Services of March 28, 1988 entered into between
respondent Josefina Pajonar and counsel was presented in
evidence for the purpose of showing that the amount of
P60,753.00 was for the notarization of the Extrajudicial
Settlement. It follows then that the notarial fee of P60,753.00 was
incurred primarily to settle the estate of the deceased Pedro
Pajonar. Said amount should then be considered an
administration expenses actually and necessarily incurred in the
collection of the assets of the estate, payment of debts and
distribution of the remainder among those entitled thereto. Thus,
the notarial fee of P60,753 incurred for the Extrajudicial
Settlement should be allowed as a deduction from the gross
estate.

3. Attorney's fees, on the other hand, in order to be deductible

from the gross estate must be essential to the settlement of the
estate. Acctmis

The amount of P50,000.00 was incurred as attorney's fees in the

guardianship proceedings in Spec. Proc. No. 1254. Petitioner
contends that said amount are not expenses of the testamentary
or intestate proceedings as the guardianship proceeding was
 instituted during the lifetime of the decedent when there was yet
no estate to be settled.

Again , this contention must fail.

The guardianship proceeding in this case was necessary for the

distribution of the property of the deceased Pedro Pajonar. As
correctly pointed out by respondent CTA, the PNB was appointed
guardian over the assets of the deceased, and that necessarily
the assets of the deceased formed part of his gross estate. x x x

xxx.....xxx.....xxx

It is clear therefore that the attorney's fees incurred in the

guardianship proceeding in Spec. Proc. No. 1254 were essential
to the distribution of the property to the persons entitled thereto.
Hence, the attorney's fees incurred in the guardianship
proceedings in the amount of P50,000.00 should be allowed as a
deduction from the gross estate of the decedent. [15]

The deductions from the gross estate permitted under section 79 of the Tax
Code basically reproduced the deductions allowed under Commonwealth Act
No. 466 (CA 466), otherwise known as the National Internal Revenue Code of
1939, and which was the first codification of Philippine tax laws. Section 89
[16]

(a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses
of the testamentary or intestate proceedings" for purposes of determining the
value of the net estate. Philippine tax laws were, in turn, based on the federal
tax laws of the United States. In accord with established rules of statutory
[17]

construction, the decisions of American courts construing the federal tax code
are entitled to great weight in the interpretation of our own tax laws. Scc-alr
[18]

Judicial expenses are expenses of administration. Administration expenses,

[19]

as an allowable deduction from the gross estate of the decedent for purposes
of arriving at the value of the net estate, have been construed by the federal
and state courts of the United States to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to
the persons entitled to it." In other words, the expenses must be essential to
[20]

the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible. This distinction
[21]

has been carried over to our jurisdiction. Thus, in Lorenzo v. Posadas the [22]
Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the
decedent's estate when it appeared that such trustee was appointed for the
purpose of managing the decedent's real estate for the benefit of the
testamentary heir. In another case, the Court disallowed the premiums paid on
the bond filed by the administrator as an expense of administration since the
giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate. Neither may attorney's fees incident
[23]

to litigation incurred by the heirs in asserting their respective rights be claimed

as a deduction from the gross estate. [24]

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement
is clearly a deductible expense since such settlement effected a distribution of
Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to
PNB for acting as the guardian of Pedro Pajonar's property during his lifetime
should also be considered as a deductible administration expense. PNB
provided a detailed accounting of decedent's property and gave advice as to
the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.

We find that the Court of Appeals did not commit reversible error in affirming
the questioned resolution of the Court of Tax Appeals.

WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is

AFFIRMED. The notarial fee for the extrajudicial settlement and the attorney's
fees in the guardianship proceedings are allowable deductions from the gross
estate of Pedro Pajonar.

SO ORDERED.

CECILIO C. HERNANDEZ, G.R. No. 166470

MA. VICTORIA C. HERNANDEZ-
SAGUN, TERESA C. HERNANDEZ-
VILLA ABRILLE[1] and NATIVIDAD Present:
CRUZ-HERNANDEZ,
Petitioners, PUNO, C.J., Chairperson,
CARPIO,
CORONA,
LEONARDO-DE CASTRO and
 - v e r s u s - BERSAMIN, JJ.

JOVITA SAN JUAN-SANTOS,

Respondent.

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

CECILIO C. HERNANDEZ, G.R. No. 169217

MA. VICTORIA C. HERNANDEZ-
SAGUN and TERESA C.
HERNANDEZ-VILLA ABRILLE,
Petitioners,

-versus-

JOVITA SAN JUAN-SANTOS,[2]

Respondent. Promulgated:
August 7, 2009

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

DECISION
CORONA, J.:

Maria Lourdes San Juan Hernandez (or Lulu) was born on February 14, 1947 to
the spouses Felix Hernandez and Maria San Juan Hernandez. Unfortunately, the
latter died due to complications during childbirth. After Maria's death, Felix left
Lulu in the care of her maternal uncle, Sotero C. San Juan.
On December 16, 1951, Felix married Natividad Cruz. The union produced three
children, petitioners Cecilio C. Hernandez, Ma. Victoria C. Hernandez-Sagun and
Teresa C. Hernandez-Villa Abrille.

Meanwhile, as the only child of Maria and the sole testate heir of Sotero, Lulu
inherited valuable real properties from the San Juan family (conservatively
estimated at P50 million in 1997).

Sometime in 1957, Lulu went to live with her father and his new family. She
was then 10 years old and studying at La Consolacion College. However, due to
her violent personality, Lulu stopped schooling when she reached Grade 5.

In 1968, upon reaching the age of majority, Lulu was given full control of
her estate.[3] Nevertheless, because Lulu did not even finish her elementary
education, Felix continued to exercise actual administration of Lulus properties.
Upon Felix's death in 1993, petitioners took over the task of administering Lulu's
properties.

During the period of their informal administration (from 1968 until 1993),
Felix and petitioners undertook various projects involving Lulus real properties. In
1974, Felix allegedly purchased one of Lulus properties for an undisclosed amount
to develop the Marilou Subdivision.[4] In 1995, Ma. Victoria informed Lulu that her
11-hectare Montalban, Rizal property[5] was under litigation. Thus, Lulu signed a
special power of attorney[6] (SPA) believing that she was authorizing Ma. Victoria
to appear in court on her behalf when she was in fact unknowingly authorizing her
half-sister to sell the said property to the Manila Electric Company
for P18,206,400.[7] Thereafter, Cecilio asked Lulu to authorize him to lease her 45-
hectare property in Montalban, Rizal to Oxford Concrete Aggregates for P58,500
per month so that she could have a car and driver at her disposal.

In September 1998, Lulu sought the assistance of her maternal first cousin,
respondent Jovita San Juan-Santos, after learning that petitioners had been
dissipating her estate. She confided to Jovita that she was made to live in the
basement of petitioners Montalban, Rizal home and was receiving a measly daily
allowance of P400 for her food and medication.

Respondent was appalled as Lulu was severely overweight, unkempt and

smelled of urine. She later found out that Lulu was occupying a cramped room lit
by a single fluorescent lamp without running water. Since she had not been given a
proper toilet, Lulu urinated and defecated in the garden. Due to Lulu's poor
hygiene, respondent brought her to several physicians for medical examination.
Lulu was found to be afflicted with tuberculosis, rheumatism and diabetes from
which she was suffering several complications.[8]

Thereafter, the San Juan family demanded an inventory and accounting of

Lulus estate from petitioners.[9] However, the demand was ignored.

On October 2, 1998, respondent filed a petition for guardianship[10] in the

Regional Trial Court (RTC) of San Mateo, Rizal, Branch 76. She alleged that Lulu
was incapable of taking care of herself and managing her estate because she was of
weak mind.

Subsequently, petitioners moved to intervene in the proceedings to oppose

the same.
 Natividad denied that Marilou Subdivision belonged to Lulu. Since she and
her late husband were the registered owners of the said property, it was allegedly
part of their conjugal partnership.

Cecilio, Teresa and Ma. Victoria, for their part, claimed that the issue of
Lulus competency had been settled in 1968 (upon her emancipation) when the
court ordered her legal guardian and maternal uncle, Ciriaco San Juan, to deliver
the properties for her to manage.

They likewise asserted that Lulu was literate and, for that reason, aware of
the consequences of executing an SPA. Furthermore, whether or not Cecilio and
Ma. Victoria acted within the scope of their respective authorities could not be
determined in a guardianship proceeding, such matter being the proper subject of
an ordinary civil action.

Petitioners also admitted that the property developed into the Marilou
Subdivision was among those parcels of land Lulu inherited from the San Juan
family. However, because the sale between Felix and Lulu had taken place in 1974,
questions regarding its legality were already barred by the statute of limitations.
Thus, its validity could no longer be impugned, or so they claimed.
During the hearing, Lulu was presented and asked to testify on her
genealogy and experiences with the San Juan and Hernandez families. Lulu
identified and described her parents, stepmother, half-siblings and maternal
relatives. She claimed inheriting tracts of land from the San Juan family. However,
these properties were dissipated by the Hernandez family as they lived a luxurious
lifestyle. When asked to explain this allegation, Lulu said that her stepmother and
half-siblings rode in cars while she was made to ride a tricycle.
 Medical specialists testified to explain the results of Lulus examinations
which revealed the alarming state of her health.[11] Not only was Lulu severely
afflicted with diabetes mellitus and suffering from its complications, [12] she also had
an existing artheroselorotic cardiovascular disease (which was aggravated by her
obesity). Furthermore, they unanimously opined that in view of Lulus intelligence
level (which was below average) and fragile mental state, she would not be able to
care for herself and self-administer her medications.

In a decision dated September 25, 2001, [13] the RTC concluded that, due to
her weak physical and mental condition, there was a need to appoint a legal
guardian over the person and property of Lulu. Thus, it declared Lulu an
incompetent and appointed respondent as guardian over the person and property of
Lulu on a P1 million bond.
Petitioners moved for reconsideration asserting that the P1 million bond was
grossly insufficient to secure Lulus P50-million estate against fraudulent loss or
dissipation.[14] The motion, however, was denied.[15]

On July 2, 2002, petitioners appealed the September 25, 2001 decision of the
RTC to the Court of Appeals (CA). [16] The appeal was docketed as CA-G.R. CV
No. 75760.

On December 29, 2004, the CA issued a decision affirming the September

25, 2001 decision of the RTC (in the petition for guardianship) in toto.[17] It held
that respondent presented sufficient evidence to prove that Lulu, because of her
illnesses and low educational attainment, needed assistance in taking care of
herself and managing her affairs considering the extent of her estate. With regard
to the respondents appointment as the legal guardian, the CA found that, since Lulu
did not trust petitioners, none of them was qualified to be her legal guardian.
Because guardianship was a trust relationship, the RTC was bound to appoint
someone Lulu clearly trusted.

Petitioners now assail the December 29, 2004 decision of the CA in this
Court in a petition for review on certiorari docketed as G.R. No. 166470.[18]

Meanwhile, Lulu moved into 8 R. Santos St., Marikina City (Marikina

apartment) and was provided with two housemaids tasked to care for her.
Sometime in November 2003, Lulu was abducted from her Marikina apartment.
Jovita immediately sought the assistance of the Police Anti-Crime Emergency
Response (PACER) division of the Philippine National Police.

The PACER subsequently discovered that petitioners were keeping Lulu

somewhere in Rodriguez, Rizal. Despite their initial hostility to the investigation,
Ma. Victoria and Cecilio subsequently contacted the PACER to inform them that
Lulu voluntarily left with Natividad because her guardian had allegedly been
maltreating her.[19]

On December 15, 2003, respondent filed a petition for habeas corpus[20] in

the CA alleging that petitioners abducted Lulu and were holding her captive in an
undisclosed location in Rodriguez, Rizal.

On April 26, 2005, the CA granted the petition for habeas corpus, ruling that
Jovita, as her legal guardian, was entitled to her custody. [21]

Petitioners moved for the reconsideration of the said decision but it was
denied in a resolution dated July 12, 2005.[22] Aggrieved, they filed this petition for
review on certiorari docketed as G.R. No. 169217. This was consolidated with
G.R. No. 166470.
The basic issue in petitions of this nature is whether the person is an
incompetent who requires the appointment of a judicial guardian over her person
and property.

Petitioners claim that the opinions of Lulu's attending physicians [23] regarding
her mental state were inadmissible in evidence as they were not experts in
psychiatry. Respondent therefore failed to prove that Lulu's illnesses rendered her
an incompetent. She should have been presumed to be of sound mind and/or in full
possession of her mental capacity. For this reason, Lulu should be allowed to live
with them since under Articles 194 to 196 of the Family Code, [24] legitimate
brothers and sisters, whether half-blood or full-blood are required to support each
other fully.

Respondent, on the other hand, reiterated her arguments before the courts a
quo. She disclosed that Lulu had been confined in Recovery.com, a psychosocial
rehabilitation center and convalescent home care facility in Quezon City, since
2004 due to violent and destructive behavior. She also had delusions of being
physically and sexually abused by Boy Negro and imaginary pets she called
Michael and Madonna.[25] The November 21, 2005 medical report[26] stated Lulu
had unspecified mental retardation with psychosis but claimed significant
improvements in her behavior.

We find the petition to be without merit.

Under Section 50, Rule 103 of the Rules of Court, an ordinary witness may give
his opinion on the mental sanity of a person with whom he is sufficiently
acquainted.[27] Lulu's attending physicians spoke and interacted with her. Such
occasions allowed them to thoroughly observe her behavior and conclude that her
intelligence level was below average and her mental stage below normal. Their
opinions were admissible in evidence.
Furthermore, where the sanity of a person is at issue, expert opinion is not
necessary.[28] The observations of the trial judge coupled with
evidence[29] establishing the person's state of mental sanity will suffice. [30] Here, the
trial judge was given ample opportunity to observe Lulu personally when she
testified before the RTC.

Under Section 2, Rule 92 of the Rules of Court,[31] persons who, though of sound
mind but by reason of age, disease, weak mind or other similar causes are
incapable of taking care of themselves and their property without outside aid, are
considered as incompetents who may properly be placed under guardianship. The
RTC and the CA both found that Lulu was incapable of taking care of herself and
her properties without outside aid due to her ailments and weak mind. Thus, since
determining whether or not Lulu is in fact an incompetent would require a
reexamination of the evidence presented in the courts a quo, it undoubtedly
involves questions of fact.

As a general rule, this Court only resolves questions of law in a petition for review.
We only take cognizance of questions of fact in exceptional circumstances, none of
which is present in this case.[32]We thus adopt the factual findings of the RTC as
affirmed by the CA.

Similarly, we see no compelling reason to reverse the trial and appellate courts
finding as to the propriety of respondent's appointment as the judicial guardian of
Lulu.[33] We therefore affirm her appointment as such. Consequently, respondent is
tasked to care for and take full custody of Lulu, and manage her estate as well.[34]

Inasmuch as respondents appointment as the judicial guardian of Lulu was proper,

the issuance of a writ of habeas corpus in her favor was also in order.

A writ of habeas corpus extends to all cases of illegal confinement or detention or

by which the rightful custody of person is withheld from the one entitled thereto.
[35]
Respondent, as the judicial guardian of Lulu, was duty-bound to care for and
protect her ward. For her to perform her obligation, respondent must have custody
of Lulu. Thus, she was entitled to a writ of habeas corpus after she was unduly
deprived of the custody of her ward.[36]

WHEREFORE, the petitions are hereby DENIED.

Petitioners are furthermore ordered to render to respondent, Lulus legal guardian,

an accurate and faithful accounting of all the properties and funds they unlawfully
appropriated for themselves from the estate of Maria Lourdes San Juan Hernandez,
within thirty (30) days from receipt of this decision. If warranted, the proper
complaints should also be filed against them for any criminal liability in
connection with the dissipation of Maria Lourdes San Juan Hernandezs estate and
her unlawful abduction from the custody of her legal guardian.
Treble costs against petitioners.
SO ORDERED.