cases estate tax part 2

8/10/2019 cases estate tax part 2

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

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

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 ThomasHanley, 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, paidby the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interst thereon atthe rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid taxwas [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due onthe tax in question and which was not included in the original assessment. From the decision of the Courtof First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim,

both parties appealed to this court.

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

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 otherwisedisposed of for a period of ten (10) years after my death, and that the same be handled andmanaged by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, atCastlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that thesame 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 mentionedMatthew Hanley to be disposed of in the way he thinks most advantageous.

x x x x x x x x x

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

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to

appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanleyten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore tookhis oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, whenhe resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, allegingthat the estate left by the deceased at the time of his death consisted of realty valued at P27,920 andpersonalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate aninheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in paymentconsisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in thetestamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedingsNo. 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 underprotest, notifying the defendant at the same time that unless the amount was promptly refunded suitwould be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund thesaid amount hausted, plaintiff went to court with the result herein above indicated.

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


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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 latterbecame the owner thereof.

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

III. In holding that the inheritance tax in question be based upon the value of the estate upon thedeath of the testator, and not, as it should have been held, upon the value thereof at theexpiration of the period of ten years after which, according to the testator's will, the property couldbe 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 estatesubject to said tax, the amounts allowed by the court as compensation to the "trustees" and paidto 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 June30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendantagainst the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does theinheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on thebasis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) Indetermining the net value of the estate subject to tax, is it proper to deduct the compensation due totrustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to thetax-payer be given retroactive effect? (e) Has there been deliquency in the payment of the inheritancetax? 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 thecourse of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 asamended, 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 taxtherefore is upon transmission or the transfer or devolution of property of a decedent, made effective byhis 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 operativeat or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a person aretransmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeedimmediately to all of the property of the deceased ancestor. The property belongs to the heirs at themoment of the death of the ancestor as completely as if the ancestor had executed and delivered to thema deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs.Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321;Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & YuchaustiSteamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of theCivil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirsare concerned. But the language of article 657 of the Civil Code is broad and makes no distinctionbetween different classes of heirs. That article does not speak of forced heirs; it does not even use theword "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 awill as a necessary condition to effect transmission of property does not affect the general rule laid downin 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 ofthe 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 heirslegally succeed to the inheritance may differ from the time when the heirs actually receive suchinheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde elfalleimiento del causante, hasta que el heredero o legatario entre en posesion de los bienes de laherencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse almomento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del


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presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May27, 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 obligationto pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section1544 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 betaxed:

(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 orlegatee 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 thanthat 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 intopossession of the property.

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

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

A certified of all letters testamentary or of admisitration shall be furnished the Collector of InternalRevenue 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 theSpanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted,as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should havebeen 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 tenyears from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on thevalue of the estate in 1932, or ten years after the testator's death. The plaintiff introduced evidencetending to show that in 1932 the real properties in question had a reasonable value of only P5,787. Thisamount added to the value of the personal property left by the deceased, which the plaintiff admits isP1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge, wouldamount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes takes itsbeing and if, upon the death of the decedent, succession takes place and the right of the estate to taxvests instantly, the tax should be measured by the vlaue of the estate as it stood at the time of thedecedent's death, regardless of any subsequent contingency value of any subsequent increase ordecrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, InheritanceTaxes, p. 137. See alsoKnowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "Theright of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured


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as to any beneficiary by the value at that time of such property as passes to him. Subsequentappreciation 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 inpossession 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, isby 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 andauthorities that New York has varied and now requires the immediate appraisal of the postponed estate atits clear market value and the payment forthwith of the tax on its out of the corpusof the estatetransferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In reHuber, 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 taxableat 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 transmittedat 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 valueof the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). Inthe case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sumrepresents the expenses and disbursements of the executors until March 10, 1924, among which weretheir fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees ofthe trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also bededucted under section 1539 of the Revised Administrative Code which provides, in part, as follows: "Inorder to determine the net sum which must bear the tax, when an inheritance is concerned, there shall bededucted, 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, 16How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him maylawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in thePhilippines which requires trustees' commissions to be deducted in determining the net value of theestate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has beencreated, it does not appear that the testator intended that the duties of his executors and trustees shouldbe separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard'sEstate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed thedesire that his real estate be handled and managed by his executors until the expiration of the period often years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, inState vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . Thecompensation of a trustee, earned, not in the administration of the estate, but in the management thereoffor the benefit of the legatees or devises, does not come properly within the class or reason for exemptingadministration expenses. . . . Service rendered in that behalf have no reference to closing the estate forthe purpose of a distribution thereof to those entitled to it, and are not required or essential to theperfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before thecourt, are created for the the benefit of those to whom the property ultimately passes, are of voluntarycreation, and intended for the preservation of the estate. No sound reason is given to support thecontention that such expenses should be taken into consideration in fixing the value of the estate for thepurpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley underthe 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 whenthe testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amendedby 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 thedecedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee andought not to be required to guess the outcome of pending measures. Of course, a tax statute may bemade retroactive in its operation. Liability for taxes under retroactive legislation has been "one of theincidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) Butlegislative 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.


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Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered asprospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless thelanguage 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 Financemakes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicableto all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains noprovisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statuteby this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in natureand, therefore, should operate retroactively in conformity with the provisions of article 22 of the RevisedPenal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under ActNo. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and theinterest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice anddemand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only asrequired 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 orprohibit certain acts, and establish penalties for their violation, and even those which, without expresslyprohibiting 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 arenot classed as penal laws, although there are authorities to the contrary. ( See Sutherland, StatutoryConstruction, 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 ofclear 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 bepaid 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 bylaw to make such payment without being subjected to the payment of penalties for fasilure to pay histaxes 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 deliveryof the decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to thetrustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the firstparagraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is welltaken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court inconformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is notmentioned or used in the will but the intention to create one is clear. No particular or technical words arerequired to create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt forthe purpose, are not necessary. In fact, the use of these two words is not conclusive on the question thata trust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will hisintention so to do by using language sufficient to separate the legal from the equitable estate, and withsufficient 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 theremust 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 thatcertain of his properties be kept together undisposed during a fixed period, for a stated purpose. Theprobate court certainly exercised sound judgment in appointment a trustee to carry into effect theprovisions of the will (seesec. 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 inrelation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placedin trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment ofthe 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 theestate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in thiscase. A trustee is but an instrument or agent for thecestui que trust (Shelton vs. King, 299 U. S., 90; 33Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possesson of the trustestate 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


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estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in thebeneficiary (65 C. J., p. 542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to holdthat 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 atbar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period whichdoes not offend the rule against petuities. The collection of the tax would then be left to the will of aprivate individual. The mere suggestion of this result is a sufficient warning against the accpetance of theessential 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; 19Law. 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 paytaxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the governmentbut upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For thisreason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit tohim can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) Whilecourts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn, 280U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose aconstruction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed inFroelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21Phil., 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 beconstrued to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting ininjustice 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 isallowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, RevisedAdministrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47Phil., 461), this court had occassion to demonstrate trenchment adherence to this policy of the law. It heldthat "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, theywere prevented from praying their internal revenue taxes on time and by mutual agreement closed theirhomes and stores and remained therein, does not authorize the Collector of Internal Revenue to extendthe time prescribed for the payment of the taxes or to accept them without the additional penalty of twentyfive per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modesadopted to enforce the taxes levied should be interfered with as little as possible. Any delay in theproceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange theoperations of government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11Wall., 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 taxand, 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. Theinterest due should be computed from that date and it is error on the part of the defendant to compute itone month later. The provisions cases is mandatory ( see and cf. Lim Co Chui vs. Posadas, supra), andneither the Collector of Internal Revenuen or this court may remit or decrease such interest, no matterhow 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 theCollector 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 InternalRevenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date fixed for thepayment 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 becameliable for the payment of the surcharge.

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

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


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At the time of his death, the deceased left real properties valued at P27,920 and personal propertiesworth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representingallowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 asthe 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 theamount 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 tothese two sums an additional two hundred per centum, or P965.16, we have as primary tax, correctlycomputed 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 theRevised Administrative Code. First should be added P1,465.31 which stands for interest at the rate oftwelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, thedate of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interestthus computed should be added the sum of P724.88, representing a surhcarge of 25 per cent on both thetax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand totalof 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 theestate. 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 liableonly 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.

LORENZO V. POSADAS (CASE DIGEST)

StandardLorenzo v. Posadas, G.R. No. L-43082 (64 PHIL 353) June 18, 1937

Facts: Herein petitioner Lorenzo, in his capacity as trustee of the estate of a certain Thomas Hanley,

deceased, brought an action against respondent Posadas, Collector of Internal Revenue. Petitioner alleges

the respondent to have exceeded in its tax collection, which, as assessed by the former, should only be in

the amount of PhP1,434.24 instead of PhP2,052.74. Disregarding the allegation, respondent filed a

motion in the CFI of Zamboanga praying that the trustee be made to pay such tax. The motion was

granted. Petitioner paid the amount in protest, however notified the respondent that until a refund is

prompted, suit would be bought for its recovery. Respondent overruled the protest. Hence, the case at bar.Issue/s:

1. Whether or not the provisions of Act No. 3606 (Tax Law) which is favorable to the taxpayer be given

retroactive effect?

Held and Reasoning:No. The respondent levied and assessed the inheritance tax collected from the

petitioner under the provisions of section 1544 of the Revised Administrative Code as amended by Act

No. 3606. However, the latter only enacted in 1930not the law in force when the testator died in 1922.

Laws cannot be applied retroactively. The Court states that it is a well-settled principle that inheritance

taxation is governed by the statue in force at the time of the death of the decendent. The Court alsoemphasized that a statute should be considered as prospective in its operation, unless the language of

the statute clearly demands or expresses that it shall have retroactive effect Act No. 3606 does not

contain any provisions indicating a legislative intent to give it a retroactive effect. Therefore, the

provisions of Act No. 3606 cannot be applied to the case at bar.


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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-56340 June 24, 1983

SPOUSES ALVARO PASTOR, JR. and MA. ELENA ACHAVAL DE PASTOR, petitioners,vs.THE COURT OF APPEALS, JUAN Y. REYES, JUDGE OF BRANCH I, COURT OF FIRSTINSTANCE OF CEBU and LEWELLYN BARLITO QUEMADA, respondents.

Pelaez, Pelaez, & Pelaez Law Office for petitioners.

Ceniza, Rama & Associates for private respondents.

PLANA, J .:

I. FACTS:

This is a case of hereditary succession.

Alvaro Pastor, Sr. (PASTOR, SR.), a Spanish subject, died in Cebu City on June 5, 1966, survivedby his Spanish wife Sofia Bossio (who also died on October 21, 1966), their two legitimate children

Alvaro Pastor, Jr. (PASTOR, JR.) and Sofia Pastor de Midgely (SOFIA), and an illegitimate child, notnatural, by the name of Lewellyn Barlito Quemada QUEMADA PASTOR, JR. is a Philippine citizen,having been naturalized in 1936. SOFIA is a Spanish subject. QUEMADA is a Filipino by his

mother's citizenship.

On November 13, 1970, QUEMADA filed a petition for the probate and allowance of an allegedholographic will of PASTOR, SR. with the Court of First Instance of Cebu, Branch I (PROBATECOURT), docketed as SP No. 3128-R. The will contained only one testamentary disposition: alegacy in favor of QUEMADA consisting of 30% of PASTOR, SR.'s 42% share in the operation by

Atlas Consolidated Mining and Development Corporation (ATLAS) of some mining claims in Pina-Barot, Cebu.

On November 21, 1970, the PROBATE COURT, upon motion of QUEMADA and after an ex partehearing, appointed him special administrator of the entire estate of PASTOR, SR., whether or notcovered or affected by the holographic will. He assumed office as such on December 4, 1970 after

filing a bond of P 5,000.00.

On December 7, 1970, QUEMADA as special administrator, instituted against PASTOR, JR. and hiswife an action for reconveyance of alleged properties of the estate, which included the propertiessubject of the legacy and which were in the names of the spouses PASTOR, JR. and his wife, MariaElena Achaval de Pastor, who claimed to be the owners thereof in their own rights, and not byinheritance. The action, docketed as Civil Case No. 274-R, was filed with the Court of First Instanceof Cebu, Branch IX.

On February 2, 1971, PASTOR, JR. and his sister SOFIA filed their opposition to the petition forprobate and the order appointing QUEMADA as special administrator.

On December 5, 1972, the PROBATE COURT issued an order allowing the will to probate.Appealed to the Court of Appeals in CA-G.R. No. 52961- R, the order was affirmed in a decisiondated May 9, 1977. On petition for review, the Supreme Court in G.R. No. L-46645 dismissed thepetition in a minute resolution dated November 1, 1977 and remanded the same to the PROBATECOURT after denying reconsideration on January 11, 1978.

For two years after remand of the case to the PROBATE COURT, QUEMADA filed pleading afterpleading asking for payment of his legacy and seizure of the properties subject of said legacy.PASTOR, JR. and SOFIA opposed these pleadings on the ground of pendency of the reconveyance


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suit with another branch of the Cebu Court of First Instance. All pleadings remained unacted upon bythe PROBATE COURT.

On March 5, 1980, the PROBATE COURT set the hearing on the intrinsic validity of the will forMarch 25, 1980, but upon objection of PASTOR, JR. and SOFIA on the e ground of pendency of thereconveyance suit, no hearing was held on March 25. Instead, the PROBATE COURT required the

parties to submit their respective position papers as to how much inheritance QUEMADA wasentitled to receive under the wig. Pursuant thereto, PASTOR. JR. and SOFIA submitted theirMemorandum of authorities dated April 10, which in effect showed that determination of how muchQUEMADA should receive was still premature. QUEMADA submitted his Position paper dated April20, 1980. ATLAS, upon order of the Court, submitted a sworn statement of royalties paid to thePastor Group of tsn from June 1966 (when Pastor, Sr. died) to February 1980. The statementrevealed that of the mining claims being operated by ATLAS, 60% pertained to the Pastor Groupdistributed as follows:

1. A. Pastor, Jr. ...................................40.5%

2. E. Pelaez, Sr. ...................................15.0%

3. B. Quemada .......................................4.5%

On August 20, 1980, while the reconveyance suit was still being litigated in Branch IX of the Court ofFirst Instance of Cebu, the PROBATE COURT issued the now assailed Order of Execution andGarnishment, resolving the question of ownership of the royalties payable by ATLAS and ruling ineffect that the legacy to QUEMADA was not inofficious. [There was absolutely no statement or claimin the Order that the Probate Order of December 5, 1972 had previously resolved the issue ofownership of the mining rights of royalties thereon, nor the intrinsic validity of the holographic will.]

The order of August 20, 1980 found that as per the holographic will and a written acknowledgment ofPASTOR, JR. dated June 17, 1962, of the above 60% interest in the mining claims belonging to thePastor Group, 42% belonged to PASTOR, SR. and only 33% belonged to PASTOR, JR. Theremaining 25% belonged to E. Pelaez, also of the Pastor Group. The PROBATE COURT thusdirected ATLAS to remit directly to QUEMADA the 42% royalties due decedent's estate, of whichQUEMADA was authorized to retain 75% for himself as legatee and to deposit 25% with a reputablebanking institution for payment of the estate taxes and other obligations of the estate. The 33%share of PASTOR, JR. and/or his assignees was ordered garnished to answer for the accumulatedlegacy of QUEMADA from the time of PASTOR, SR.'s death, which amounted to over two millionpesos.

The order being "immediately executory", QUEMADA succeeded in obtaining a Writ of Executionand Garnishment on September 4, 1980, and in serving the same on ATLAS on the same day.Notified of the Order on September 6, 1980, the oppositors sought reconsideration thereof on thesame date primarily on the ground that the PROBATE COURT gravely abused its discretion when it

resolved the question of ownership of the royalties and ordered the payment of QUEMADA's legacyafter prematurely passing upon the intrinsic validity of the will. In the meantime, the PROBATECOURT ordered suspension of payment of all royalties due PASTOR, JR. and/or his assignees untilafter resolution of oppositors' motion for reconsideration.

Before the Motion for Reconsideration could be resolved, however, PASTOR, JR., this time joinedby his wife Ma. ELENA ACHAVAL DE PASTOR, filed with the Court of Appeals a Petition forcertiorari and Prohibition with a prayer for writ of preliminary injunction (CA-G.R. No. SP- 11373-R).They assailed the Order dated August 20, 1980 and the writ of execution and garnishment issuedpursuant thereto. The petition was denied on November 18, 1980 on the grounds (1) that its filingwas premature because the Motion for Reconsideration of the questioned Order was still pendingdetermination by the PROBATE COURT; and (2) that although "the rule that a motion forreconsideration is prerequisite for an action for certiorari is never an absolute rule," the Orderassailed is "legally valid. "

On December 9, 1980, PASTOR, JR. and his wife moved for reconsideration of the Court ofAppeal's decision of November 18, 1980, calling the attention of the appellate court to another orderof the Probate Court dated November 11, 1980 (i.e., while their petition for certiorari was pendingdecision in the appellate court), by which the oppositors' motion for reconsideration of the ProbateCourt's Order of August 20, 1980 was denied. [The November 11 Order declared that the questionsof intrinsic validity of the will and of ownership over the mining claims (not the royalties alone) had


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been finally adjudicated by the final and executory Order of December 5, 1972, as affirmed by theCourt of Appeals and the Supreme Court, thereby rendering moot and academic the suit forreconveyance then pending in the Court of First Instance of Cebu, Branch IX. It clarified that only the33% share of PASTOR, JR. in the royalties (less than 7.5% share which he had assigned toQUEMADA before PASTOR, SR. died) was to be garnished and that as regards PASTOR, SR.'s42% share, what was ordered was just the transfer of its possession to the custody of the PROBATE

COURT through the special administrator. Further, the Order granted QUEMADA 6% interest on hisunpaid legacy from August 1980 until fully paid.] Nonetheless, the Court of Appeals deniedreconsideration.

Hence, this Petition for Review by certiorari with prayer for a writ of pre y injunction, assailing thedecision of the Court of Appeals dated November 18, 1980 as well as the orders of the ProbateCourt dated August 20, 1980, November 11, 1980 and December 17, 1980, Med by petitioners onMarch 26, 1981, followed by a Supplemental Petition with Urgent Prayer for Restraining Order.

In April 1981, the Court (First Division) issued a writ of preliminary injunction, the lifting of which wasdenied in the Resolution of the same Division dated October 18, 1982, although the bond ofpetitioners was increased from P50,000.00 to P100,000.00.

Between December 21, 1981 and October 12, 1982, private respondent filed seven successivemotions for early resolution. Five of these motions expressly prayed for the resolution of the questionas to whether or not the petition should be given due course.

On October 18, 1982, the Court (First Division) adopted a resolution stating that "the petition in factand in effect was given due course when this case was heard on the merits on September 7, (shouldbe October 21, 1981) and concise memoranda in amplification of their oral arguments on the meritsof the case were filed by the parties pursuant to the resolution of October 21, 1981 . . . " and deniedin a resolution dated December 13, 1982, private respondent's "Omnibus motion to set asideresolution dated October 18, 1982 and to submit the matter of due course to the presentmembership of the Division; and to reassign the case to another ponente."

Upon Motion for Reconsideration of the October 18, 1982 and December 13, 1982 Resolutions, theCourt en banc resolved to CONFIRM the questioned resolutions insofar as hey resolved that thepetition in fact and in effect had been given due course.

II. ISSUES:

Assailed by the petitioners in these proceedings is the validity of the Order of execution andgarnishment dated August 20, 1980 as well as the Orders subsequently issued allegedly toimplement the Probate Order of December 5, 1972, to wit: the Order of November 11, 1980declaring that the Probate Order of 1972 indeed resolved the issues of ownership and intrinsicvalidity of the will, and reiterating the Order of Execution dated August 20, 1980; and the Order ofDecember 17, 1980 reducing to P2,251,516.74 the amount payable to QUEMADA representing the

royalties he should have received from the death of PASTOR, SR. in 1966 up to February 1980.

The Probate Order itself, insofar as it merely allowed the holographic will in probate, is notquestioned. But petitioners denounce the Probate Court for having acted beyond its jurisdiction orwith grave abuse of discretion when it issued the assailed Orders. Their argument runs this way:Before the provisions of the holographic win can be implemented, the questions of ownership of themining properties and the intrinsic validity of the holographic will must first be resolved with finality.Now, contrary to the position taken by the Probate Court in 1980i.e., almost eight years after theprobate of the will in 1972the Probate Order did not resolve the two said issues. Therefore, theProbate Order could not have resolved and actually did not decide QUEMADA's entitlement to thelegacy. This being so, the Orders for the payment of the legacy in alleged implementation of theProbate Order of 1972 are unwarranted for lack of basis.

Closely related to the foregoing is the issue raised by QUEMADA The Probate Order of 1972 havingbecome final and executory, how can its implementation (payment of legacy) be restrained? Ofcourse, the question assumes that QUEMADA's entitlement to the legacy was finally adjudged in theProbate Order.

On the merits, therefore, the basic issue is whether the Probate Order of December 5, 1972 resolvedwith finality the questions of ownership and intrinsic validity. A negative finding will necessarilyrender moot and academic the other issues raised by the parties, such as the jurisdiction of the


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Probate Court to conclusively resolve title to property, and the constitutionality and repercussions ofa ruling that the mining properties in dispute, although in the name of PASTOR, JR. and his wife,really belonged to the decedent despite the latter's constitutional disqualification as an alien.

On the procedural aspect, placed in issue is the propriety of certiorari as a means to assail thevalidity of the order of execution and the implementing writ.

III. DISCUSSION:

1. Issue of Ownership

(a) In a special proceeding for the probate of a will, the issue by and large is restricted to theextrinsic validity of the will, i.e., whether the testator, being of sound mind, freely executed the will inaccordance with the formalities prescribed by law. (Rules of Court, Rule 75, Section 1; Rule 76,Section 9.) As a rule, the question of ownership is an extraneous matter which the Probate Courtcannot resolve with finality. Thus, for the purpose of determining whether a certain property shouldor should not be included in the inventory of estate properties, the Probate Court may pass upon thetitle thereto, but such determination is provisional, not conclusive, and is subject to the final decision

in a separate action to resolve title. [3 Moran, Comments on the Rules of Court (1980 ed.), p. 458;Valero Vda. de Rodriguez vs. Court of Appeals, 91 SCRA 540.]

(b) The rule is that execution of a judgment must conform to that decreed in the dispositive part ofthe decision. (Philippine-American Insurance Co. vs. Honorable Flores, 97 SCRA 811.) However, incase of ambiguity or uncertainty, the body of the decision may be scanned for guidance inconstruing the judgment. (Heirs of Presto vs. Galang, 78 SCRA 534; Fabular vs. Court of Appeals,119 SCRA 329; Robles vs. Timario. 107 Phil. 809.)

The Order sought to be executed by the assailed Order of execution is the Probate Order ofDecember 5, 1972 which allegedly resolved the question of ownership of the disputed miningproperties. The said Probate Order enumerated the issues before the Probate Court, thus:

Unmistakably, there are three aspects in these proceedings: (1) the probate of theholographic will (2) the intestate estate aspect; and (3) the administrationproceedings for the purported estate of the decedent in the Philippines.

In its broad and total perspective the whole proceedings are being impugned by theoppositors on jurisdictional grounds, i.e., that the fact of the decedent's residenceand existence of properties in the Philippines have not been established.

Specifically placed in issue with respect to the probate proceedings are: (a) whetheror not the holographic will (Exhibit "J") has lost its efficacy as the last will andtestament upon the death of Alvaro Pastor, Sr. on June 5, 1966, in Cebu City,Philippines; (b) Whether or not the said will has been executed with all the formalities

required by law; and (c) Did the late presentation of the holographic will affect thevalidity of the same?

Issues In the Administration Proceedings are as follows: (1) Was the ex- parteappointment of the petitioner as special administrator valid and proper? (2) Is thereany indispensable necessity for the estate of the decedent to be placed underadministration? (3) Whether or not petition is qualified to be a special administrator ofthe estate; and (4) Whether or not the properties listed in the inventory (submitted bythe special administrator but not approved by the Probate Court) are to be excluded.

Then came what purports to be the dispositive portion:

Upon the foregoing premises, this Court rules on and resolves some of the problemsand issues presented in these proceedings, as follows:

(a) The Court has acquired jurisdiction over the probate proceedings as it herebyallows and approves the so-called holographic willof testator Alvaro Pastor, Sr.,executed on July 31, 1961 with respect to its extrinsic validity, the same having beenduly authenticated pursuant to the requisites or solemnities prescribed by law. Let,therefore, a certificate of its allowance be prepared by the Branch Clerk of this Court


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to be signed by this Presiding Judge, and attested by the seal of the Court, andthereafter attached to the will, and the will and certificate filed and recorded by theclerk. Let attested copies of the will and of the certificate of allowance thereof be sentto Atlas Consolidated Mining & Development Corporation, Goodrich Bldg., Cebu City,and the Register of Deeds of Cebu or of Toledo City, as the case may be, forrecording.

(b) There was a delay in the granting of the letters testamentary or of administrationfor as a matter of fact, no regular executor and/or administrator has been appointedup to this time and - the appointment of a special administrator was, and still is,

justified under the circumstances to take possession and charge of the estateof thedeceased in the Philippines (particularly in Cebu) until the problems causing thedelay are decided and the regular executor and/or administrator appointed.

(c) There is a necessity and propriety of a special administrator and later on anexecutor and/or administrator in these proceedings, in spite of this Court'sdeclaration that the oppositors are the forced heirs and the petitioner is merelyvested with the character of a voluntary heir to the extent of the bounty given to him(under) the will insofar as the same will not prejudice the legitimes of theoppositorfor the following reasons:

1. To submit a complete inventory of the estate of thedecedent-testator Alvaro Pastor, Sr.

2. To administer and to continue to put to prolificutilization of the properties of the decedent;

3. To keep and maintain the houses and otherstructures and belonging to the estate, since theforced heirs are residing in Spain, and prepare themfor delivery to the heirs in good order after partition

and when directed by the Court, but only after thepayment of estate and inheritance taxes;

(d) Subject to the outcome of the suit for reconveyance of ownership and possessionof real and personal propertiesin Civil Case No. 274-T before Branch IX of the Courtof First Instance of Cebu,the intestate estate administration aspect must proceed,unless, however, it is duly provenby the oppositors that debts of the decedent havealready been paid, that there had been an extrajudicial partition or summary onebetween the forced heirs, that the legacy to be given and delivered to the petitionerdoes not exceed the free portion of the estate of the testator, that the respectiveshares of the forced heirs have been fairly apportioned, distributed and delivered tothe two forced heirs of Alvaro Pastor, Sr., after deducting the property willed to the

petitioner, and the estate and inheritance taxes have already been paid to theGovernment thru the Bureau of Internal Revenue.

The suitability and propriety of allowing petitioner to remain as special administratoror administrator of the other properties of the estate of the decedent, whichproperties are not directly or indirectly affected by the provisions of the holographicwill (such as bank deposits, land in Mactan etc.), will be resolved in another order asseparate incident, considering that this order should have been properly issuedsolely as a resolution on the issue of whether or not to allow and approve theaforestated will. (Emphasis supplied.)

Nowhere in the dispositive portion is there a declaration of ownership of specific properties. On thecontrary, it is manifest therein that ownership was not resolved. For it confined itself to the questionof extrinsic validity of the win, and the need for and propriety of appointing a special administrator.Thus it allowed and approved the holographic win "with respect to its extrinsic validity, the samehaving been duly authenticated pursuant to the requisites or solemnities prescribed by law." Itdeclared that the intestate estate administration aspect must proceed " subject to the outcome of thesuit for reconveyance of ownership and possession of real and personal properties in Civil Case274-T before Branch IX of the CFI of Cebu." [Parenthetically, although the statement refers only tothe "intestate" aspect, it defies understanding how ownership by the estate of some properties couldbe deemed finally resolvedfor purposes of testateadministration, but not so for intestatepurposes.


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Can the estate be the owner of a property for testate but not for intestate purposes?] Then again, theProbate Order (while indeed it does not direct the implementation of the legacy) conditionally statedthat the intestate administration aspect must proceed "unless . . . it is proven . . . that the legacy tobe given and delivered to the petitioner does not exceed the free portion of the estate of thetestator," which clearly implies that the issue of impairment of legitime (an aspect of intrinsic validity)was in fact not resolved. Finally, the Probate Order did not rule on the propriety of allowing

QUEMADA to remain as special administrator of estate properties not covered by the holographicwill, "considering that this (Probate) Order should have been properly issued solely as a resolutionon the issue of whether or not to allow and approve the aforestated will. "

(c) That the Probate Order did not resolve the question of ownership of the properties listed in theestate inventory was appropriate, considering that the issue of ownership was the very subject ofcontroversy in the reconveyance suit that was still pending in Branch IX of the Court of First Instanceof Cebu.

(d) What, therefore, the Court of Appeals and, in effect, the Supreme Court affirmed en totowhenthey reviewed the Probable Order were only the matters properly adjudged in the said Order.

(e) In an attempt to justify the issuance of the Order of execution dated August 20, 1980, the ProbateCourt in its Order of November 11, 1980 explained that the basis for its conclusion that the questionof ownership had been formally resolved by the Probate Order of 1972 are the findings in the latterOrder that (1) during the lifetime of the decedent, he was receiving royalties from ATLAS; (2) he hadresided in the Philippines since pre-war days and was engaged in the mine prospecting businesssince 1937 particularly in the City of Toledo; and (3) PASTOR, JR. was only acting as dummy for hisfather because the latter was a Spaniard.

Based on the premises laid, the conclusion is obviously far-fetched.

(f) It was, therefore, error for the assailed implementing Orders to conclude that the Probate Orderadjudged with finality the question of ownership of the mining properties and royalties, and that,premised on this conclusion, the dispositive portion of the said Probate Order directed the special

administrator to pay the legacy in dispute.

2. Issue of Intrinsic Validity of the Holographic Will-

(a) When PASTOR, SR. died in 1966, he was survived by his wife, aside from his two legitimatechildren and one illegitimate son. There is therefore a need to liquidate the conjugal partnership andset apart the share of PASTOR, SR.'s wife in the conjugal partnership preparatory to theadministration and liquidation of the estate of PASTOR, SR. which will include, among others, thedetermination of the extent of the statutory usufructuary right of his wife until her death. *When thedisputed Probate order was issued on December 5, 1972, there had been no liquidation of the community properties of PASTOR, SR. andhis wife.

(b) So, also, as of the same date, there had been no prior definitive determination of the assets ofthe estate of PASTOR, SR. There was an inventory of his properties presumably prepared by thespecial administrator, but it does not appear that it was ever the subject of a hearing or that it was

judicially approved. The reconveyance or recovery of properties allegedly owned but not in the nameof PASTOR, SR. was still being litigated in another court.

(c) There was no appropriate determination, much less payment, of the debts of the decedent andhis estate. Indeed, it was only in the Probate Order of December 5, 1972 where the Probate Courtordered that-

... a notice be issued and published pursuant to the provisions of Rule 86 of theRules of Court, requiring all persons having money claims against the decedent tofile them in the office of the Branch Clerk of this Court."

(d) Nor had the estate tax been determined and paid, or at least provided for, as of December 5,1972.

(e) The net assets of the estate not having been determined, the legitime of the forced heirs inconcrete figures could not be ascertained.


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(f) All the foregoing deficiencies considered, it was not possible to determine whether the legacy ofQUEMADA - a fixed share in a specific property rather than an aliquot part of the entire net estate ofthe deceased - would produce an impairment of the legitime of the compulsory heirs.

(g) Finally, there actually was no determination of the intrinsic validity of the will in other respects. Itwas obviously for this reason that as late as March 5, 1980 - more than 7 years after the Probate

Order was issued the Probate Court scheduled on March 25, 1980 a hearing on the intrinsicvalidityof the will.

3. Propriety of certiorari

Private respondent challenges the propriety of certiorari as a means to assail the validity of thedisputed Order of execution. He contends that the error, if any, is one of judgment, not jurisdiction,and properly correctible only by appeal, not certiorari.

Under the circumstances of the case at bar, the challenge must be rejected. Grave abuse ofdiscretion amounting to lack of jurisdiction is much too evident in the actuations of the probate courtto be overlooked or condoned.

(a) Without a final, authoritative adjudication of the issue as to what properties compose the estate ofPASTOR, SR. in the face of conflicting claims made by heirs and a non-heir (MA. ELENA ACHAVALDE PASTOR) involving properties not in the name of the decedent, and in the absence of aresolution on the intrinsic validity of the will here in question, there was no basis for the ProbateCourt to hold in its Probate Order of 1972, which it did not, that private respondent is entitled to thepayment of the questioned legacy. Therefore, the Order of Execution of August 20, 1980 and thesubsequent implementing orders for the payment of QUEMADA's legacy, in alleged implementationof the dispositive part of the Probate Order of December 5, 1972, must fall for lack of basis.

(b) The ordered payment of legacy would be violative of the rule requiring prior liquidation of theestate of the deceased, i.e., the determination of the assets of the estate and payment of all debtsand expenses, before apportionment and distribution of the residue among the heirs and legatees.(Bernardo vs. Court of Appeals, 7 SCRA 367.)

(c) Neither has the estate tax been paid on the estate of PASTOR, SR. Payment therefore of thelegacy to QUEMADA would collide with the provision of the National Internal Revenue Coderequiring payment of estate tax before delivery to any beneficiary of his distributive share of theestate (Section 107 [c])

(d) The assailed order of execution was unauthorized, having been issued purportedly under Rule88, Section 6 of the Rules of Court which reads:

Sec. 6. Court to fix contributive shares where devisees, legatees, or heirs have beenin possession.Where devisees, legatees, or heirs have entered into possession of

portions of the estate before the debtsand expenses have been settled and paid andhave become liable to contribute for the payment of such debts and expenses, thecourt having jurisdiction of the estate may, by order for that purpose, after hearing,settle the amount of their several liabilities, and order how much and in what mannereach person shall contribute, and may issue execution as circumstances require.

The above provision clearly authorizes execution to enforce payment of debtsof estate. A legacy isnot a debt of the estate; indeed, legatees are among those against whom execution is authorized tobe issued.

... there is merit in the petitioners' contention that the probate court generally cannotissue a writ of execution. It is not supposed to issue a writ of execution because its

orders usually refer to the adjudication of claims against the estate which theexecutor or administrator may satisfy without the necessity of resorting to a writ ofexecution. The probate court, as such, does not render any judgment enforceable byexecution.

The circumstances that the Rules of Court expressly specifies that the probate courtmay issue execution (a) to satisfy (debts of the estate out of) the contributive sharesof devisees, legatees and heirs in possession of the decedent's assets (Sec. 6. Rule


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88), (b) to enforce payment of the expenses of partition (Sec. 3, Rule 90), and (c) tosatisfy the costs when a person is cited for examination in probate proceedings (Sec.13, Rule 142) may mean, under the rule of inclusion unius est exclusion alterius, thatthose are the only instances when it can issue a writ of execution. (Vda. de Valeravs. Ofilada, 59 SCRA 96, 108.)

(d) It is within a court's competence to order the execution of a final judgment; but to order theexecution of a final order (which is not even meant to be executed) by reading into it terms that arenot there and in utter disregard of existing rules and law, is manifest grave abuse of discretiontantamount to lack of jurisdiction. Consequently, the rule that certiorari may not be invoked to defeatthe right of a prevailing party to the execution of a valid and final judgment, is inapplicable. For whenan order of execution is issued with grave abuse of discretion or is at variance with the judgmentsought to be enforced (PVTA vs. Honorable Gonzales, 92 SCRA 172), certiorari will lie to abate theorder of execution.

(e) Aside from the propriety of resorting to certiorari to assail an order of execution which varies theterms of the judgment sought to be executed or does not find support in the dispositive part of thelatter, there are circumstances in the instant case which justify the remedy applied for.

Petitioner MA. ELENA ACHAVAL DE PASTOR, wife of PASTOR, JR., is the holder in her own rightof three mining claims which are one of the objects of conflicting claims of ownership. She is not anheir of PASTOR, SR. and was not a party to the probate proceedings. Therefore, she could notappeal from the Order of execution issued by the Probate Court. On the other hand, after theissuance of the execution order, the urgency of the relief she and her co-petitioner husband seek inthe petition for certiorari states against requiring her to go through the cumbersome procedure ofasking for leave to intervene in the probate proceedings to enable her, if leave is granted, to appealfrom the challenged order of execution which has ordered the immediatetransfer and/orgarnishment of the royalties derived from mineral properties of which she is the duly registeredowner and/or grantee together with her husband. She could not have intervened before the issuanceof the assailed orders because she had no valid ground to intervene. The matter of ownership overthe properties subject of the execution was then still being litigated in another court in a

reconveyance suit filed by the special administrator of the estate of PASTOR, SR.

Likewise, at the time petitioner PASTOR, JR. Med the petition for certiorari with the Court ofAppeals, appeal was not available to him since his motion for reconsideration of the execution orderwas still pending resolution by the Probate Court. But in the face of actual garnishment of their majorsource of income, petitioners could no longer wait for the resolution of their motion forreconsideration. They needed prompt relief from the injurious effects of the execution order. Underthe circumstances, recourse to certiorari was the feasible remedy.

WHEREFORE, the decision of the Court of Appeals in CA G.R. No. SP-11373-R is reversed. TheOrder of execution issued by the probate Court dated August 20, 1980, as well as all the Ordersissued subsequent thereto in alleged implementation of the Probate Order dated December 5, 1972,

particularly the Orders dated November 11, 1980 and December 17, 1980, are hereby set aside; andthis case is remanded to the appropriate Regional Trial Court for proper proceedings, subject to thejudgment to be rendered in Civil Case No. 274-R.

SO ORDERED.


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THIRD DIVISION

RAFAEL ARSENIO S. DIZON, in his capacity as

the Judicial Administrator of the Estate of the

deceased JOSE P. FERNANDEZ,

Petitioner,

- versus -

COURT OF TAX APPEALS

andCOMMISSIONER OF INTERNAL

REVENUE,

Respondents.

G.R. No. 140944

Present:

YNARES-SANTIAGO,J.,Chairperson,

AUSTRIA-MARTINEZ,CHICO-NAZARIO,NACHURA, andREYES,JJ.

Promulgated:

April 30, 2008

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

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1]under Rule 45 of the Rules of

Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision

[2]

dated April 30,1999 which affirmed the Decision[3]of the Court of Tax Appeals (CTA) dated June 17, 1997.[4]

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probateof his will[5]was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probatecourt).[6]The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon(Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special andAssistant Special Administrator, respectively, of the Estate of Jose (Estate). In aletter[7]dated October 13, 1988, Justice Dizon informed respondent Commissioner of theBureau of Internal Revenue (BIR) of the special proceedings for the Estate.

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

COMPUTATION OF TAX

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

Conjugal Personal Property (Sch.2) 3,460,591.34Taxable Transfer (Sch. 3)Gross Conjugal Estate 14,315,611.34Less: Deductions (Sch. 4) 187,822,576.06
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Net Conjugal Estate NILLess: Share of Surviving Spouse NIL .Net Share in Conjugal Estate NIL

x x xNet Taxable Estate NIL .

Estate Tax Due NIL .

[11]

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

Petitioner requested the probate court's authority to sell several properties forming part of

the Estate, for the purpose of paying its creditors, namely: Equitable Banking Corporation(P19,756,428.31), Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988),

Manila Banking Corporation (P84,199,160.46 as of February 28, 1989) and State Investment

House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of

the Estate was not included, as it did not file a claim with the probate court since it had securityover several real estate properties forming part of the Estate.[16]

However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR,Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269,[17]demanding the payment of P66,973,985.40 as deficiency estate tax, itemized as

follows:

Deficiency Estate Tax- 1987

Estate tax P31,868,414.48

25% surcharge- late filing 7,967,103.62late payment 7,967,103.62

Interest 19,121,048.68Compromise-non filing 25,000.00

non payment 25,000.00no notice of death 15.00no CPA Certificate 300.00

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

In his letter[19]dated December 12, 1991, Atty. Gonzales moved for the reconsideration ofthe said estate tax assessment. However, in her letter[20]dated April 12, 1994, the BIRCommissioner denied the request and reiterated that the estate is liable for the paymentof P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner received the letter of

denial. On June 2, 1994, petitioner filed a petition for review[21]before respondent CTA. Trial onthe merits ensued.

As found by the CTA, the respective parties presented the following pieces of evidence, towit:

In the hearings conducted, petitioner did not present testimonial evidencebut merely documentary evidence consisting of the following:
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Nature of Document

(sic) Exhibits

1. Letter dated October 13, 1988

from Arsenio P. Dizon addressedto the Commissioner of InternalRevenue informing the latter ofthe special proceedings for thesettlement of the estate (p. 126,BIR records); "A"

2. Petition for the probate of thewill and issuance of letter ofadministration filed with theRegional Trial Court (RTC) of

Manila, docketed as Sp. Proc.No. 87-42980 (pp. 107-108, BIRrecords); "B" & "B-1

3. Pleading entitled "Compliance"filed with the probate Courtsubmitting the final inventoryof all the properties of thedeceased (p. 106, BIR records); "C"

4. Attachment to Exh. "C" whichis the detailed and completelisting of the properties ofthe deceased (pp. 89-105, BIR rec.); "C-1" to "C-17"

5. Claims against the estate filedby Equitable Banking Corp. withthe probate Court in the amountof P19,756,428.31 as of March 31,

1988, together with the Annexesto the claim (pp. 64-88, BIR records); "D" to "D-24"

6. Claim filed by Banque de L'Indochine et de Suez with the

probate Court in the amount ofUS $4,828,905.90 as of January 31,1988 (pp. 262-265, BIR records); "E" to "E-3"

7. Claim of the Manila BankingCorporation (MBC) which as ofNovember 7, 1987 amounts toP65,158,023.54, but recomputed

as of February 28, 1989 at atotal amount of P84,199,160.46;

together with the demand letterfrom MBC's lawyer (pp. 194-197,BIR records); "F" to "F-3"

8. Demand letter of Manila BankingCorporation prepared by Asedillo,Ramos and Associates Law Offices


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addressed to Fernandez Hermanos,Inc., represented by Jose P.Fernandez, as mortgagors, in thetotal amount of P240,479,693.17

as of February 28, 1989

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

9. Claim of State InvestmentHouse, Inc. filed with theRTC, Branch VII of Manila,docketed as Civil Case No.86-38599 entitled "StateInvestment House, Inc.,Plaintiff, versus MaritimeCompany Overseas, Inc. and/orJose P. Fernandez, Defendants,"

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

10. Letter dated March 14, 1990of Arsenio P. Dizon addressedto Atty. Jesus M. Gonzales,(p. 184, BIR records); "I"

11. Letter dated April 17, 1990from J.M. Gonzales addressedto the Regional Director ofBIR in San Pablo City(p. 183, BIR records); "J"

12. Estate Tax Return filed bythe estate of the late Jose P.Fernandez through its authorizedrepresentative, Atty. Jesus M.Gonzales, for Arsenio P. Dizon,with attachments (pp. 177-182,BIR records); "K" to "K-5"

13. Certified true copy of theLetter of Administrationissued by RTC Manila, Branch51, in Sp. Proc. No. 87-42980appointing Atty. Rafael S.Dizon as Judicial Administratorof the estate of Jose P.Fernandez; (p. 102, CTA records)and "L"

14. Certification of Payment ofestate taxes Nos. 2052 and2053, both dated April 27, 1990,issued by the Office of theRegional Director, RevenueRegion No. 4-C, San PabloCity, with attachments(pp. 103-104, CTA records.). "M" to "M-5"

Respondent's [BIR] counsel presented on June 26, 1995 one witness in

the person of Alberto Enriquez, who was one of the revenue examiners who


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conducted the investigation on the estate tax case of the late Jose P.

Fernandez. In the course of the direct examination of the witness, he

identified the following:

Documents/

Signatures BIR Record

1. Estate Tax Return prepared bythe BIR; p. 138

2. Signatures of Ma. AnabellaAbuloc and Alberto Enriquez,Jr. appearing at the lowerPortion of Exh. "1"; -do-

3. Memorandum for the Commissioner,

dated July 19, 1991, prepared byrevenue examiners, Ma. Anabella A.Abuloc, Alberto S. Enriquez andRaymund S. Gallardo; Reviewed byMaximino V. Tagle pp. 143-144

4. Signature of Alberto S.Enriquez appearing at thelower portion on p. 2 of Exh. "2"; -do-

5. Signature of Ma. Anabella A.Abuloc appearing at thelower portion on p. 2 of Exh. "2"; -do-

6. Signature of Raymund S.Gallardo appearing at theLower portion on p. 2 of Exh. "2"; -do-

7. Signature of Maximino V.Tagle also appearing onp. 2 of Exh. "2"; -do-

8. Summary of revenueEnforcement Officers AuditReport, dated July 19, 1991; p. 139

9. Signature of AlbertoEnriquez at the lowerportion of Exh. "3"; -do-

10. Signature of Ma. Anabella A.Abuloc at the lowerportion of Exh. "3"; -do-

11. Signature of Raymond S.Gallardo at the lowerportion of Exh. "3"; -do-

12. Signature of MaximinoV. Tagle at the lowerportion of Exh. "3"; -do-


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

signed by the Asst. Commissionerfor Collection for the Commissionerof Internal Revenue, demanding

payment of the amount ofP66,973,985.40; and p. 169

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

The CTA' s Ruling

On June 17, 1997, the CTA denied the said petition for review. Citing this Court's rulingin Vda. de Oate v. Court of Appeals,[23]the CTA opined that the aforementioned pieces of

evidence introduced by the BIR were admissible in evidence. The CTA ratiocinated:Although the above-mentioned documents were not formally offered as evidencefor respondent, considering that respondent has been declared to have waived thepresentation thereof during the hearing on March 20, 1996, still they could beconsidered as evidence for respondent since they were properly identified duringthe presentation of respondent's witness, whose testimony was duly recorded aspart of the records of this case. Besides, the documents marked as respondent'sexhibits formed part of the BIR records of the case.[24]

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up withits own computation of the deficiency estate tax, to wit:

Conjugal Real Property P 5,062,016.00

Conjugal Personal Prop. 33,021,999.93Gross Conjugal Estate 38,084,015.93Less: Deductions 26,250,000.00

Net Conjugal Estate P 11,834,015.93

Less: Share of Surviving Spouse 5,917,007.96

Net Share in Conjugal Estate P 5,917,007.96

Add: Capital/ParaphernalPropertiesP44,652,813.66

Less: Capital/ParaphernalDeductions 44,652,813.66

Net Taxable Estate P 50,569,821.62

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

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing 7,483,835.74Add: Penalties for-No notice of death 15.00

No CPA certificate 300.00Total deficiency estate tax P 37,419,493.71

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

exclusive of 20% interest from due date of its payment until full payment thereof[Sec. 283 (b), Tax Code of 1987].[25]

Thus, the CTA disposed of the case in this wise:
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WHEREFORE, viewed from all the foregoing, the Court finds the

petition unmeritorious and denies the same. Petitioner and/or the heirs of Jose P.Fernandez are hereby ordered to pay to respondent the amountofP37,419,493.71 plus 20% interest from the due date of its payment until full

payment thereof as estate tax liability of the estate of Jose P. Fernandez who diedon November 7, 1987.

SO ORDERED.[26]

Aggrieved

cases estate tax part 2

Documents

Transcript of cases estate tax part 2