TAXULIT

RAFAEL ARSENIO S. DIZON,

- versus -

COURT OF TAX APPEALS and COMMISSIONER

OF INTERNAL REVENUE,

G.R. No. 140944

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on

Certiorari[1] under Rule 45 of the Rules of Civil

Procedure seeking the reversal of the Court of Appeals

(CA) Decision[2] dated April 30, 1999 which affirmed

the Decision[3] of the Court of Tax Appeals (CTA)

dated June 17, 1997.[4]

The Facts

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

died. Thereafter, a petition for the probate of his will[5]

was filed with Branch 51 of the Regional Trial Court

(RTC) of Manila (probate court).[6] The probate court

then appointed retired Supreme Court Justice Arsenio P.

Dizon (Justice Dizon) and petitioner, Atty. Rafael

Arsenio P. Dizon (petitioner) as Special and Assistant

Special Administrator, respectively, of the Estate of Jose

(Estate). In a letter[7] dated October 13, 1988, Justice

Dizon informed respondent Commissioner of the

Bureau of Internal Revenue (BIR) of the special

proceedings for the Estate.

Petitioner alleged that several requests for

extension of the period to file the required estate tax

return were granted by the BIR since the assets of the

estate, as well as the claims against it, had yet to be

collated, determined and identified. Thus, in a letter[8]

dated March 14, 1990, Justice Dizon authorized Atty.

Jesus M. Gonzales (Atty. Gonzales) to sign and file on

behalf of the Estate the required estate tax return and to

represent the same in securing a Certificate of Tax

Clearance. Eventually, on April 17, 1990, Atty.

Gonzales wrote a letter[9] addressed to the BIR Regional

Director for San Pablo City and filed the estate tax

return[10] with the same BIR Regional Office, showing

therein a NIL estate tax liability, computed as follows:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1)

P10,855,020.00

Conjugal Personal Property (Sch.2)

3,460,591.34

Taxable Transfer (Sch. 3)

Gross Conjugal Estate

14,315,611.34

Less: Deductions (Sch. 4)

187,822,576.06

Net Conjugal Estate

NIL

Less: Share of Surviving Spouse

NIL .

Net Share in Conjugal Estate

NIL

x x x

Net Taxable Estate

NIL .

Estate Tax Due NIL

.[11]

On April 27, 1990, BIR Regional Director for San Pablo

City, Osmundo G. Umali issued Certification Nos.

2052[12] and 2053[13] stating that the taxes due on the

transfer of real and personal properties[14] of Jose had

been fully paid and said properties may be transferred to

his heirs. Sometime in August 1990, Justice Dizon

passed away. Thus, on October 22, 1990, the probate

court appointed petitioner as the administrator of the

Estate.[15]

Petitioner requested the probate court's authority to sell

several properties forming part of the Estate, for the

purpose of paying its creditors, namely: Equitable

Banking Corporation (P19,756,428.31), Banque de

L'Indochine et. de Suez (US$4,828,905.90 as of January

31, 1988), Manila Banking Corporation (P84,199,160.46

as of February 28, 1989) and State Investment House,

Inc. (P6,280,006.21). Petitioner manifested that Manila

Bank, a major creditor of the Estate was not included, as

it did not file a claim with the probate court since it had

security over several real estate properties forming part

of the Estate.[16]

However, on November 26, 1991, the Assistant

Commissioner for Collection of the BIR, Themistocles

Montalban, issued Estate Tax Assessment Notice No.

FAS-E-87-91-003269,[17] demanding the payment of

P66,973,985.40 as deficiency estate tax, itemized as

follows:

Deficiency Estate Tax- 1987

Estate tax

P31,868,414.48

25% surcharge- late filing

7,967,103.62

late payment

7,967,103.62

Interest

19,121,048.68

Compromise-non filing

25,000.00

non payment

25,000.00

no notice of death

15.00

no CPA Certificate

300.00

Total amount due & collectible

P66,973,985.40[18]

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

Gonzales moved for the reconsideration of the said

estate tax assessment. However, in her letter[20] dated

April 12, 1994, the BIR Commissioner denied the

request and reiterated that the estate is liable for the

payment of P66,973,985.40 as deficiency estate tax. On

May 3, 1994, petitioner received the letter of denial. On

June 2, 1994, petitioner filed a petition for review[21]

before respondent CTA. Trial on the merits ensued.

As found by the CTA, the respective parties

presented the following pieces of evidence, to wit:

In the hearings conducted, petitioner did not

present testimonial evidence but merely documentary

evidence consisting of the following:

Nature of Document (sic)

Exhibits

1. Letter dated October 13, 1988

from Arsenio P. Dizon addressed

to the Commissioner of Internal

Revenue informing the latter of

the special proceedings for the

settlement of the estate (p. 126,

BIR records); "A"

2. Petition for the probate of the

will and issuance of letter of

administration filed with the

Regional Trial Court (RTC) of

Manila, docketed as Sp. Proc.

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

records); "B"

& "B-1”

3. Pleading entitled "Compliance"

filed with the probate Court

submitting the final inventory

of all the properties of the

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

4. Attachment to Exh. "C" which

is the detailed and complete

listing of the properties of

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

1" to "C-17"

5. Claims against the estate filed

by Equitable Banking Corp. with

the probate Court in the amount

of P19,756,428.31 as of March 31,

1988, together with the Annexes

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

24"

6. Claim filed by Banque de L'

Indochine et de Suez with the

probate Court in the amount of

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

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

to "E-3"

7. Claim of the Manila Banking

Corporation (MBC) which as of

November 7, 1987 amounts to

P65,158,023.54, but recomputed

as of February 28, 1989 at a

total amount of P84,199,160.46;

together with the demand letter

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

BIR records); "F"

to "F-3"

8. Demand letter of Manila Banking

Corporation prepared by Asedillo,

Ramos and Associates Law Offices

addressed to Fernandez Hermanos,

Inc., represented by Jose P.

Fernandez, as mortgagors, in the

total amount of P240,479,693.17

as of February 28, 1989

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

& "G-1"

9. Claim of State Investment

House, Inc. filed with the

RTC, Branch VII of Manila,

docketed as Civil Case No.

86-38599 entitled "State

Investment House, Inc.,

Plaintiff, versus Maritime

Company Overseas, Inc. and/or

Jose P. Fernandez, Defendants,"

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

to "H-16"

10. Letter dated March 14, 1990

of Arsenio P. Dizon addressed

to Atty. Jesus M. Gonzales,

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

11. Letter dated April 17, 1990

from J.M. Gonzales addressed

to the Regional Director of

BIR in San Pablo City

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

12. Estate Tax Return filed by

the estate of the late Jose P.

Fernandez through its authorized

representative, Atty. Jesus M.

Gonzales, for Arsenio P. Dizon,

with attachments (pp. 177-182,

BIR records); "K"

to "K-5"

13. Certified true copy of the

Letter of Administration

issued by RTC Manila, Branch

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

appointing Atty. Rafael S.

Dizon as Judicial Administrator

of the estate of Jose P.

Fernandez; (p. 102, CTA records)

and "L"

14. Certification of Payment of

estate taxes Nos. 2052 and

2053, both dated April 27, 1990,

issued by the Office of the

Regional Director, Revenue

Region No. 4-C, San Pablo

City, with attachments

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

to "M-5"

Respondent's [BIR] counsel presented on June

26, 1995 one witness in the person of Alberto Enriquez,

who was one of the revenue examiners who conducted

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

Fernandez. In the course of the direct examination of the

witness, he identified the following:

Documents/

Signatures

BIR Record

1. Estate Tax Return prepared by

the BIR; p.

138

2. Signatures of Ma. Anabella

Abuloc and Alberto Enriquez,

Jr. appearing at the lower

Portion of Exh. "1"; -

do-

3. Memorandum for the Commissioner,

dated July 19, 1991, prepared by

revenue examiners, Ma. Anabella A.

Abuloc, Alberto S. Enriquez and

Raymund S. Gallardo; Reviewed by

Maximino V. Tagle

pp. 143-144

4. Signature of Alberto S.

Enriquez appearing at the

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

do-

5. Signature of Ma. Anabella A.

Abuloc appearing at the

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

do-

6. Signature of Raymund S.

Gallardo appearing at the

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

do-

7. Signature of Maximino V.

Tagle also appearing on

p. 2 of Exh. "2"; -

do-

8. Summary of revenue

Enforcement Officers Audit

Report, dated July 19, 1991; p.

139

9. Signature of Alberto

Enriquez at the lower

portion of Exh. "3"; -

do-

10. Signature of Ma. Anabella A.

Abuloc at the lower

portion of Exh. "3"; -

do-

11. Signature of Raymond S.

Gallardo at the lower

portion of Exh. "3"; -

do-

12. Signature of Maximino

V. Tagle at the lower

portion of Exh. "3"; -

do-

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

signed by the Asst. Commissioner

for Collection for the Commissioner

of Internal Revenue, demanding

payment of the amount of

P66,973,985.40; and p.

169

14. Assessment Notice FAS-E-87-91-00 pp.

169-170[22]

The CTA's Ruling

On June 17, 1997, the CTA denied the said

petition for review. Citing this Court's ruling in Vda. de

Oñate v. Court of Appeals,[23] the CTA opined that the

aforementioned pieces of evidence introduced by the

BIR were admissible in evidence. The CTA ratiocinated:

Although the above-mentioned documents were not

formally offered as evidence for respondent, considering

that respondent has been declared to have waived the

presentation thereof during the hearing on March 20,

1996, still they could be considered as evidence for

respondent since they were properly identified during

the presentation of respondent's witness, whose

testimony was duly recorded as part of the records of

this case. Besides, the documents marked as respondent's

exhibits formed part of the BIR records of the case.[24]

Nevertheless, the CTA did not fully adopt the

assessment made by the BIR and it came up with its own

computation of the deficiency estate tax, to wit:

Conjugal Real Property P

5,062,016.00

Conjugal Personal Prop.

33,021,999.93

Gross Conjugal Estate

38,084,015.93

Less: Deductions

26,250,000.00

Net Conjugal Estate P

11,834,015.93

Less: Share of Surviving Spouse

5,917,007.96

Net Share in Conjugal Estate P

5,917,007.96

Add: Capital/Paraphernal

Properties – P44,652,813.66

Less: Capital/Paraphernal

Deductions

44,652,813.66

Net Taxable Estate P

50,569,821.62

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

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing

7,483,835.74

Add: Penalties for-No notice of death

15.00

No CPA certificate

300.00

Total deficiency estate tax P

37,419,493.71

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

exclusive of 20% interest from due date of its payment

until full payment thereof

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

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

WHEREFORE, viewed from all the foregoing,

the Court finds the petition unmeritorious and denies the

same. Petitioner and/or the heirs of Jose P. Fernandez

are hereby ordered to pay to respondent the amount of

P37,419,493.71 plus 20% interest from the due date of

its payment until full payment thereof as estate tax

liability of the estate of Jose P. Fernandez who died on

November 7, 1987.

SO ORDERED.[26]

Aggrieved, petitioner, on March 2, 1998, went to

the CA via a petition for review.[27]

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's

ruling. Adopting in full the CTA's findings, the CA ruled

that the petitioner's act of filing an estate tax return with

the BIR and the issuance of BIR Certification Nos. 2052

and 2053 did not deprive the BIR Commissioner of her

authority to re-examine or re-assess the said return filed

on behalf of the Estate.[28]

On May 31, 1999, petitioner filed a Motion for

Reconsideration[29] which the CA denied in its

Resolution[30] dated November 3, 1999.

Hence, the instant Petition raising the following

issues:

1. Whether or not the admission of evidence which

were not formally offered by the respondent BIR by the

Court of Tax Appeals which was subsequently upheld by

the Court of Appeals is contrary to the Rules of Court

and rulings of this Honorable Court;

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

Court of Appeals erred in recognizing/considering the

estate tax return prepared and filed by respondent BIR

knowing that the probate court appointed administrator

of the estate of Jose P. Fernandez had previously filed

one as in fact, BIR Certification Clearance Nos. 2052

and 2053 had been issued in the estate's favor;

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

Court of Appeals erred in disallowing the valid and

enforceable claims of creditors against the estate, as

lawful deductions despite clear and convincing evidence

thereof; and

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

Court of Appeals erred in validating erroneous double

imputation of values on the very same estate properties

in the estate tax return it prepared and filed which

effectively bloated the estate's assets.[31]

The petitioner claims that in as much as the valid

claims of creditors against the Estate are in excess of the

gross estate, no estate tax was due; that the lack of a

formal offer of evidence is fatal to BIR's cause; that the

doctrine laid down in Vda. de Oñate has already been

abandoned in a long line of cases in which the Court

held that evidence not formally offered is without any

weight or value; that Section 34 of Rule 132 of the Rules

on Evidence requiring a formal offer of evidence is

mandatory in character; that, while BIR's witness

Alberto Enriquez (Alberto) in his testimony before the

CTA identified the pieces of evidence aforementioned

such that the same were marked, BIR's failure to

formally offer said pieces of evidence and depriving

petitioner the opportunity to cross-examine Alberto,

render the same inadmissible in evidence; that assuming

arguendo that the ruling in Vda. de Oñate is still

applicable, BIR failed to comply with the doctrine's

requisites because the documents herein remained

simply part of the BIR records and were not duly

incorporated in the court records; that the BIR failed to

consider that although the actual payments made to the

Estate creditors were lower than their respective claims,

such were compromise agreements reached long after

the Estate's liability had been settled by the filing of its

estate tax return and the issuance of BIR Certification

Nos. 2052 and 2053; and that the reckoning date of the

claims against the Estate and the settlement of the estate

tax due should be at the time the estate tax return was

filed by the judicial administrator and the issuance of

said BIR Certifications and not at the time the

aforementioned Compromise Agreements were entered

into with the Estate's creditors.[32]

On the other hand, respondent counters that the

documents, being part of the records of the case and duly

identified in a duly recorded testimony are considered

evidence even if the same were not formally offered; that

the filing of the estate tax return by the Estate and the

issuance of BIR Certification Nos. 2052 and 2053 did

not deprive the BIR of its authority to examine the return

and assess the estate tax; and that the factual findings of

the CTA as affirmed by the CA may no longer be

reviewed by this Court via a petition for review.[33]

The Issues

There are two ultimate issues which require

resolution in this case:

First. Whether or not the CTA and the CA gravely

erred in allowing the admission of the pieces of evidence

which were not formally offered by the BIR; and

Second. Whether or not the CA erred in affirming

the CTA in the latter's determination of the deficiency

estate tax imposed against the Estate.

The Court’s Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is

categorically described as a court of record. As cases

filed before it are litigated de novo, party-litigants shall

prove every minute aspect of their cases. Indubitably, no

evidentiary value can be given the pieces of evidence

submitted by the BIR, as the rules on documentary

evidence require that these documents must be formally

offered before the CTA.[34] Pertinent is Section 34,

Rule 132 of the Revised Rules on Evidence which reads:

SEC. 34. Offer of evidence. — The court shall

consider no evidence which has not been formally

offered. The purpose for which the evidence is offered

must be specified.

The CTA and the CA rely solely on the case of Vda. de

Oñate, which reiterated this Court's previous rulings in

People v. Napat-a[35] and People v. Mate[36] on the

admission and consideration of exhibits which were not

formally offered during the trial. Although in a long line

of cases many of which were decided after Vda. de

Oñate, we held that courts cannot consider evidence

which has not been formally offered,[37] nevertheless,

petitioner cannot validly assume that the doctrine laid

down in Vda. de Oñate has already been abandoned.

Recently, in Ramos v. Dizon,[38] this Court, applying

the said doctrine, ruled that the trial court judge therein

committed no error when he admitted and considered the

respondents' exhibits in the resolution of the case,

notwithstanding the fact that the same

were not formally offered. Likewise, in Far East Bank &

Trust Company v. Commissioner of Internal

Revenue,[39] the Court made reference to said doctrine

in resolving the issues therein. Indubitably, the doctrine

laid down in Vda. De Oñate still subsists in this

jurisdiction. In Vda. de Oñate, we held that:

From the foregoing provision, it is clear that for

evidence to be considered, the same must be formally

offered. Corollarily, the mere fact that a particular

document is identified and marked as an exhibit does not

mean that it has already been offered as part of the

evidence of a party. In Interpacific Transit, Inc. v. Aviles

[186 SCRA 385], we had the occasion to make a

distinction between identification of documentary

evidence and its formal offer as an exhibit. We said that

the first is done in the course of the trial and is

accompanied by the marking of the evidence as an

exhibit while the second is done only when the party

rests its case and not before. A party, therefore, may opt

to formally offer his evidence if he believes that it will

advance his cause or not to do so at all. In the event he

chooses to do the latter, the trial court is not authorized

by the Rules to consider the same.

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

citing People v. Mate [103 SCRA 484], we relaxed the

foregoing rule and allowed evidence not formally

offered to be admitted and considered by the trial court

provided the following requirements are present, viz.:

first, the same must have been duly identified by

testimony duly recorded and, second, the same must

have been incorporated in the records of the case.[40]

From the foregoing declaration, however, it is clear that

Vda. de Oñate is merely an exception to the general rule.

Being an exception, it may be applied only when there is

strict compliance with the requisites mentioned therein;

otherwise, the general rule in Section 34 of Rule 132 of

the Rules of Court should prevail.

In this case, we find that these requirements have

not been satisfied. The assailed pieces of evidence were

presented and marked during the trial particularly when

Alberto took the witness stand. Alberto identified these

pieces of evidence in his direct testimony.[41] He was

also subjected to cross-examination and re-cross

examination by petitioner.[42] But Alberto’s account

and the exchanges between Alberto and petitioner did

not sufficiently describe the contents of the said pieces

of evidence presented by the BIR. In fact, petitioner

sought that the lead examiner, one Ma. Anabella A.

Abuloc, be summoned to testify, inasmuch as Alberto

was incompetent to answer questions relative to the

working papers.[43] The lead examiner never testified.

Moreover, while Alberto's testimony identifying the

BIR's evidence was duly recorded, the BIR documents

themselves were not incorporated in the records of the

case.

A common fact threads through Vda. de Oñate and

Ramos that does not exist at all in the instant case. In

the aforementioned cases, the exhibits were marked at

the pre-trial proceedings to warrant the pronouncement

that the same were duly incorporated in the records of

the case. Thus, we held in Ramos:

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

have been satisfied. The exhibits in question were

presented and marked during the pre-trial of the case

thus, they have been incorporated into the records.

Further, Elpidio himself explained the contents of these

exhibits when he was interrogated by respondents'

counsel...

x x x x

But what further defeats petitioner's cause on this issue

is that respondents' exhibits were marked and admitted

during the pre-trial stage as shown by the Pre-Trial

Order quoted earlier.[44]

While the CTA is not governed strictly by technical

rules of evidence,[45] as rules of procedure are not ends

in themselves and are primarily intended as tools in the

administration of justice, the presentation of the BIR's

evidence is not a mere procedural technicality which

may be disregarded considering that it is the only means

by which the CTA may ascertain and verify the truth of

BIR's claims against the Estate.[46] The BIR's failure to

formally offer these pieces of evidence, despite CTA's

directives, is fatal to its cause.[47] Such failure is

aggravated by the fact that not even a single reason was

advanced by the BIR to justify such fatal omission. This,

we take against the BIR.

Per the records of this case, the BIR was directed to

present its evidence[48] in the hearing of February 21,

1996, but BIR's counsel failed to appear.[49] The CTA

denied petitioner's motion to consider BIR's presentation

of evidence as waived, with a warning to BIR that such

presentation would be considered waived if BIR's

evidence would not be presented at the next hearing.

Again, in the hearing of March 20, 1996, BIR's counsel

failed to appear.[50] Thus, in its Resolution[51] dated

March 21, 1996, the CTA considered the BIR to have

waived presentation of its evidence. In the same

Resolution, the parties were directed to file their

respective memorandum. Petitioner complied but BIR

failed to do so.[52] In all of these proceedings, BIR was

duly notified. Hence, in this case, we are constrained to

apply our ruling in Heirs of Pedro Pasag v. Parocha:[53]

A formal offer is necessary because judges are mandated

to rest their findings of facts and their judgment only and

strictly upon the evidence offered by the parties at the

trial. Its function is to enable the trial judge to know the

purpose or purposes for which the proponent is

presenting the evidence. On the other hand, this allows

opposing parties to examine the evidence and object to

its admissibility. Moreover, it facilitates review as the

appellate court will not be required to review documents

not previously scrutinized by the trial court.

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

The Court in Constantino v. Court of Appeals ruled that

the formal offer of one's evidence is deemed waived

after failing to submit it within a considerable period of

time. It explained that the court cannot admit an offer of

evidence made after a lapse of three (3) months because

to do so would "condone an inexcusable laxity if not

non-compliance with a court order which, in effect,

would encourage needless delays and derail the speedy

administration of justice."

Applying the aforementioned principle in this

case, we find that the trial court had reasonable ground

to consider that petitioners had waived their right to

make a formal offer of documentary or object evidence.

Despite several extensions of time to make their formal

offer, petitioners failed to comply with their commitment

and allowed almost five months to lapse before finally

submitting it. Petitioners' failure to comply with the rule

on admissibility of evidence is anathema to the efficient,

effective, and expeditious dispensation of justice.

Having disposed of the foregoing procedural

issue, we proceed to discuss the merits of the case.

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

are entitled to the highest respect and will not be

disturbed on appeal unless it is shown that the lower

courts committed gross error in the appreciation of

facts.[54] In this case, however, we find the decision of

the CA affirming that of the CTA tainted with palpable

error.

It is admitted that the claims of the Estate's

aforementioned creditors have been condoned. As a

mode of extinguishing an obligation,[55] condonation or

remission of debt[56] is defined as:

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

any equivalent, the creditor renounces the enforcement

of the obligation, which is extinguished in its entirety or

in that part or aspect of the same to which the remission

refers. It is an essential characteristic of remission that it

be gratuitous, that there is no equivalent received for the

benefit given; once such equivalent exists, the nature of

the act changes. It may become dation in payment when

the creditor receives a thing different from that

stipulated; or novation, when the object or principal

conditions of the obligation should be changed; or

compromise, when the matter renounced is in litigation

or dispute and in exchange of some concession which

the creditor receives.[57]

Verily, the second issue in this case involves the

construction of Section 79[58] of the National Internal

Revenue Code[59] (Tax Code) which provides for the

allowable deductions from the gross estate of the

decedent. The specific question is whether the actual

claims of the aforementioned creditors may be fully

allowed as deductions from the gross estate of Jose

despite the fact that the said claims were reduced or

condoned through compromise agreements entered into

by the Estate with its creditors.

“Claims against the estate,” as allowable

deductions from the gross estate under Section 79 of the

Tax Code, are basically a reproduction of the deductions

allowed under Section 89 (a) (1) (C) and (E) of

Commonwealth Act No. 466 (CA 466), otherwise

known as the National Internal Revenue Code of 1939,

and which was the first codification of Philippine tax

laws. Philippine tax laws were, in turn, based on the

federal tax laws of the United States. Thus, pursuant to

established rules of statutory construction, the decisions

of American courts construing the federal tax code are

entitled to great weight in the interpretation of our own

tax laws.[60]

It is noteworthy that even in the United States,

there is some dispute as to whether the deductible

amount for a claim against the estate is fixed as of the

decedent's death which is the general rule, or the same

should be adjusted to reflect post-death developments,

such as where a settlement between the parties results in

the reduction of the amount actually paid.[61] On one

hand, the U.S. court ruled that the appropriate deduction

is the “value” that the claim had at the date of the

decedent's death.[62] Also, as held in Propstra v. U.S.,

[63] where a lien claimed against the estate was certain

and enforceable on the date of the decedent's death, the

fact that the claimant subsequently settled for lesser

amount did not preclude the estate from deducting the

entire amount of the claim for estate tax purposes. These

pronouncements essentially confirm the general

principle that post-death developments are not material

in determining the amount of the deduction.

On the other hand, the Internal Revenue Service

(Service) opines that post-death settlement should be

taken into consideration and the claim should be allowed

as a deduction only to the extent of the amount actually

paid.[64] Recognizing the dispute, the Service released

Proposed Regulations in 2007 mandating that the

deduction would be limited to the actual amount

paid.[65]

In announcing its agreement with Propstra,[66] the U.S.

5th Circuit Court of Appeals held:

We are persuaded that the Ninth Circuit's decision...in

Propstra correctly apply the Ithaca Trust date-of-death

valuation principle to enforceable claims against the

estate. As we interpret Ithaca Trust, when the Supreme

Court announced the date-of-death valuation principle, it

was making a judgment about the nature of the federal

estate tax specifically, that it is a tax imposed on the act

of transferring property by will or intestacy and, because

the act on which the tax is levied occurs at a discrete

time, i.e., the instance of death, the net value of the

property transferred should be ascertained, as nearly as

possible, as of that time. This analysis supports broad

application of the date-of-death valuation rule.[67]

We express our agreement with the date-of-death

valuation rule, made pursuant to the ruling of the U.S.

Supreme Court in Ithaca Trust Co. v. United States.[68]

First. There is no law, nor do we discern any legislative

intent in our tax laws, which disregards the date-of-death

valuation principle and particularly provides that post-

death developments must be considered in determining

the net value of the estate. It bears emphasis that tax

burdens are not to be imposed, nor presumed to be

imposed, beyond what the statute expressly and clearly

imports, tax statutes being construed strictissimi juris

against the government.[69] Any doubt on whether a

person, article or activity is taxable is generally resolved

against taxation.[70] Second. Such construction finds

relevance and consistency in our Rules on Special

Proceedings wherein the term "claims" required to be

presented against a decedent's estate is generally

construed to mean debts or demands of a pecuniary

nature which could have been enforced against the

deceased in his lifetime, or liability contracted by the

deceased before his death.[71] Therefore, the claims

existing at the time of death are significant to, and

should be made the basis of, the determination of

allowable deductions.

WHEREFORE, the instant Petition is GRANTED.

Accordingly, the assailed Decision dated April 30,

1999 and the Resolution dated November 3, 1999 of the

Court of Appeals in CA-G.R. S.P. No. 46947 are

REVERSED and SET ASIDE. The Bureau of Internal

Revenue's deficiency estate tax assessment against the

Estate of Jose P. Fernandez is hereby NULLIFIED. No

costs.

SO ORDERED.

JARABINI G. DEL ROSARIO, G.R.

No. 187056 Petitioner,

ASUNCION G. FERRER,

ABAD, J.:

This case pertains to a gift, otherwise denominated as a

donation mortis causa, which in reality is a

donation inter vivos made effective upon its execution

by the donors and acceptance thereof by the donees, and

immediately transmitting ownership of the donated

property to the latter, thus precluding a subsequent

assignment thereof by one of the donors.

The Facts and the Case

On August 27, 1968 the spouses Leopoldo and

Guadalupe Gonzales executed a document entitled

“Donation Mortis Causa”[1] in favor of their two

children, Asuncion and Emiliano, and their

granddaughter, Jarabini (daughter of their predeceased

son, Zoilo) covering the spouses’ 126-square meter lot

and the house on it in Pandacan, Manila[2] in equal

shares. The deed of donation reads:

It is our will that this Donation Mortis Causa shall be

irrevocable and shall be respected by the surviving

spouse.

It is our will that Jarabini Gonzales-del Rosario and

Emiliano Gonzales will continue to occupy the

portions now occupied by them.

It is further our will that this DONATION MORTIS

CAUSA shall not in any way affect any other

distribution of other properties belonging to any of us

donors whether testate or intestate and where ever

situated.

It is our further will that any one surviving spouse

reserves the right, ownership, possession and

administration of this property herein donated and

accepted and this Disposition and Donation shall be

operative and effective upon the death of the

DONORS.[3]

Although denominated as a donation mortis causa,

which in law is the equivalent of a will, the deed had no

attestation clause and was witnessed by only two

persons. The named donees, however, signified their

acceptance of the donation on the face of the document.

Guadalupe, the donor wife, died in September 1968. A

few months later or on December 19, 1968, Leopoldo,

the donor husband, executed a deed of assignment of his

rights and interests in subject property to their

daughter Asuncion. Leopoldo died in June 1972.

In 1998 Jarabini filed a “petition for the probate of the

August 27, 1968 deed of donation mortis causa” before

the Regional Trial Court (RTC) of Manila in Sp. Proc.

98-90589.[4] Asuncion opposed the petition, invoking his

father Leopoldo’s assignment of his rights and interests

in the property to her.

After trial, the RTC rendered a decision dated June 20,

2003,[5] finding that the donation was in fact one

made inter vivos, the donors’ intention being to transfer

title over the property to the donees during the donors’

lifetime, given its irrevocability. Consequently, said the

RTC, Leopoldo’s subsequent assignment of his rights

and interest in the property was void since he had

nothing to assign. The RTC thus directed the

registration of the property in the name of the donees in

equal shares.[6]

On Asuncion’s appeal to the Court of Appeals (CA), the

latter rendered a decision on December 23,

2008,[7] reversing that of the RTC. The CA held that

Jarabini cannot, through her petition for the probate of

the deed of donation mortis causa, collaterally attack

Leopoldo’s deed of assignment in Asuncion’s

favor. The CA further held that, since no proceeding

exists for the allowance of what Jarabini claimed was

actually a donation inter vivos, the RTC erred in

deciding the case the way it did. Finally, the CA held

that the donation, being one given mortis causa, did not

comply with the requirements of a notarial

will,[8] rendering the same void. Following the CA’s

denial of Jarabini’s motion for reconsideration,[9] she

filed the present petition with this Court.

Issue Presented

The key issue in this case is whether or not the spouses

Leopoldo and Guadalupe’s donation to Asuncion,

Emiliano, and Jarabini was a donation mortis causa, as it

was denominated, or in fact a donation inter vivos.

The Court’s Ruling

That the document in question in this case was captioned

“Donation Mortis Causa” is not controlling. This Court

has held that, if a donation by its terms is inter vivos, this

character is not altered by the fact that the donor styles

it mortis causa.[10]

In Austria-Magat v. Court of Appeals,[11] the Court held

that “irrevocability” is a quality absolutely incompatible

with the idea of conveyances mortis causa, where

“revocability” is precisely the essence of the act. A

donation mortis causa has the following characteristics:

1. It conveys no title or ownership to the

transferee before the death of the transferor; or,

what amounts to the same thing, that the transferor

should retain the ownership (full or naked) and

control of the property while alive;

2. That before his death, the transfer should be

revocable by the transferor at will, ad nutum; but

revocability may be provided for indirectly by means

of a reserved power in the donor to dispose of the

properties conveyed; and

3. That the transfer should be void if the

transferor should survive the

transferee.[12] (Underscoring supplied)

The Court thus said in Austria-Magat that the express

“irrevocability” of the donation is the “distinctive

standard that identifies the document as a donation inter

vivos.” Here, the donors plainly said that it is “our will

that this Donation Mortis Causa shall be irrevocable and

shall be respected by the surviving spouse.” The intent

to make the donation irrevocable becomes even clearer

by the proviso that a surviving donor shall respect the

irrevocability of the donation. Consequently, the

donation was in reality a donation inter vivos.

The donors in this case of course reserved the “right,

ownership, possession, and administration of the

property” and made the donation operative upon their

death. But this Court has consistently held that such

reservation (reddendum) in the context of an irrevocable

donation simply means that the donors parted with their

naked title, maintaining only beneficialownership of the

donated property while they lived.[13]

Notably, the three donees signed their acceptance of the

donation, which acceptance the deed required.[14] This

Court has held that an acceptance clause indicates that

the donation is inter vivos, since acceptance is a

requirement only for such kind of

donations. Donations mortis causa, being in the form of

a will, need not be accepted by the donee during the

donor’s lifetime.[15]

Finally, as Justice J. B. L. Reyes said in Puig v.

Peñaflorida,[16] in case of doubt, the conveyance should

be deemed a donation inter vivos rather than mortis

causa, in order to avoid uncertainty as to the ownership

of the property subject of the deed.

Since the donation in this case was one made inter vivos,

it was immediately operative and final. The reason is

that such kind of donation is deemed perfected from the

moment the donor learned of the donee’s acceptance of

the donation. The acceptance makes the donee the

absolute owner of the property donated.[17]

Given that the donation in this case was irrevocable or

one given inter vivos, Leopoldo’s subsequent assignment

of his rights and interests in the property

to Asuncion should be regarded as void for, by then, he

had no more rights to assign. He could not give what he

no longer had. Nemo dat quod non habet.[18]

The trial court cannot be faulted for passing upon, in a

petition for probate of what was initially supposed to be

a donation mortis causa, the validity of the document as

a donationinter vivos and the nullity of one of the

donor’s subsequent assignment of his rights and interests

in the property. The Court has held before that the rule

on probate is not inflexible and absolute.[19] Moreover,

in opposing the petition for probate and in putting the

validity of the deed of assignment squarely in

issue, Asuncion or those who substituted her may not

now claim that the trial court improperly allowed a

collateral attack on such assignment.

WHEREFORE, the Court GRANTS the

petition, SETS ASIDE the assailed December 23, 2008

Decision and March 6, 2009 Resolution of the Court of

Appeals in CA-G.R. CV 80549, and REINSTATES in

toto the June 20, 2003 Decision of the Regional Trial

Court of Manila, Branch 19, in Sp. Proc. 98-90589.

SO ORDERED.

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.

GONZAGA-REYES, J.: Supr-ema

Assailed in this petition for review on certiorari is the

December 21, 1995 Decision[1] of the Court of

Appeals[2] in CA-G.R. Sp. No. 34399 affirming the 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.[3] Jur-is

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.[4] The case was docketed as CTA 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.[6]Juri-ssc

On June 15, 1993, the Commissioner of Internal

Revenue filed a motion for reconsideration[7] of the

CTA's May 6, 1993 decision asserting, among others,

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[8] ordering the 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[10] of the National Internal Revenue

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

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, 10th Ed. (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.[13] However, the tax 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,[16] and which was the first

codification of Philippine tax laws. Section 89 (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.[17] In accord

with established rules of statutory construction, the

decisions of American courts construing the federal tax

code are entitled to great weight in the interpretation of

our own tax laws.[18] Scc-alr

Judicial expenses are expenses of

administration.[19] Administration expenses, as an

allowable deduction from the gross estate of the

decedent for purposes of arriving at the value of the net

estate, have been construed by the federal and state

courts of the United States 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."[20] In other words, the expenses must be

essential to the proper settlement of the estate.

Expenditures incurred for the individual benefit of the

heirs, devisees or legatees are not deductible.[21] This

distinction has been carried over to our jurisdiction.

Thus, in Lorenzo v. Posadas[22] the Court construed the

phrase "judicial expenses of the testamentary or intestate

proceedings" as not including the compensation paid to a

trustee of the decedent's estate when it appeared that

such trustee was appointed for the purpose of managing

the decedent's real estate for the benefit of the

testamentary heir. In another case, the Court disallowed

the premiums paid on the bond filed by the administrator

as an expense of administration since the giving of a

bond is in the nature of a qualification for the office, and

not necessary in the settlement of the estate.[23] Neither

may attorney's fees incident to litigation incurred by the

heirs in asserting their respective rights be claimed as a

deduction from the gross estate.[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.

FELISA L. VDA. DE SAN AGUSTIN, in substitution

of JOSE Y. FERIA, in his capacity as Executor of

the Estate of JOSE SAN AGUSTIN, petitioner,

vs.COMMISSIONER OF INTERNAL

REVENUE, respondent.

D E C I S I O N

VITUG, J.:

Before the Court is a petition for review seeking to set

aside the decision of 24 February 1999 of the Court of

Appeals, as well as its resolution of 27 April 1999, in

CA-G.R. SP No. 34156, which has reversed that of the

Court of Tax Appeals in CTA Case No. 4956, entitled

“Jose Y. Feria, in his capacity as Executor of the Estate

of Jose San Agustin versus Commissioner of Internal

Revenue.” The tax court’s decision has modified the

deficiency assessment of the Commission of Internal

Revenue for surcharge, interests and other penalties

imposed against the estate of the late Jose San Agustin.

The facts of the case narrated by the appellate court

would appear, by and large, to be uncontroverted;

thus viz:

“Atty. Jose San Agustin of 2904 Kakarong St., Olympia,

Makati died on June 27, 1990 leaving his wife Dra.

Felisa L. San Agustin as sole heir. He left a holographic

will executed on April 21, 1980 giving all his estate to

his widow, and naming retired Justice Jose Y. Feria as

Executor thereof.

“Probate proceedings were instituted on August 22,

1990, in the Regional Trial Court (RTC) of Makati,

Branch 139, docketed as Sp. Proc. No. M-

2554. Pursuantly, notice of decedent’s death was sent to

the Commissioner of Internal Revenue on August 30,

1990.

“On September 3, 1990, an estate tax return reporting an

estate tax due of P1,676,432.00 was filed on behalf of

the estate, with a request for an extension of two years

for the payment of the tax, inasmuch as the decedent’s

widow (did) not personally have sufficient funds, and

that the payment (would) have to come from the estate.

“In his letter/answer, dated September 4, 1990, BIR

Deputy Commissioner Victor A. Deoferio, Jr., granted

the heirs an extension of only six (6) months, subject to

the imposition of penalties and interests under Sections

248 and 249 of the National Internal Revenue Code, as

amended.

“In the probate proceedings, on October 11, 1990, the

RTC allowed the will and appointed Jose Feria as

Executor of the estate. On December 5, 1990, the

executor submitted to the probate court an inventory of

the estate with a motion for authority to withdraw funds

for the payment of the estate tax. Such authority was

granted by the probate court on March 5,

1991. Thereafter, on March 8, 1991, the executor paid

the estate tax in the amount of P1,676,432 as reported in

the Tax Return filed with the BIR. This was well within

the six (6) months extension period granted by the BIR.

“On September 23, 1991, the widow of the deceased,

Felisa L. San Agustin, received a Pre-Assessment Notice

from the BIR, dated August 29, 1991, showing a

deficiency estate tax of P538,509.50, which, including

surcharge, interest and penalties, amounted to

P976,540.00.

“On October 1, 1991, within the ten-day period given in

the pre-assessment notice, the executor filed a letter with

the petitioner Commissioner expressing readiness to pay

the basic deficiency estate tax of P538,509.50 as soon as

the Regional Trial Court approves withdrawal thereof,

but, requesting that the surcharge, interest, and other

penalties, amounting to P438,040.38 be waived,

considering that the assessed deficiency arose only on

account of the difference in zonal valuation used by the

Estate and the BIR, and that the estate tax due per return

of P1,676,432.00 was already paid in due time within the

extension period.

“On October 4, 1991, the Commissioner issued an

Assessment Notice reiterating the demand in the pre-

assessment notice and requesting payment on or before

thirty (30) days upon receipt thereof.

“In a letter, dated October 31, 1991, the executor

requested the Commissioner a reconsideration of the

assessment of P976,549.00 and waiver of the surcharge,

interest, etc.

“On December 18, 1991, the Commissioner accepted

payment of the basic deficiency tax in the amount of

P538,509.50 through its Receivable Accounts Billing

Division.

“The request for reconsideration was not acted upon

until January 21, 1993, when the executor received a

letter, dated September 21, 1992, signed by the

Commissioner, stating that there is no legal justification

for the waiver of the interests, surcharge and

compromise penalty in this case, and requiring full

payment of P438,040.38 representing such charges

within ten (10) days from receipt thereof.

“In view thereof, the respondent estate paid the amount

of P438,040.38 under protest on January 25, 1993.

“On February 18, 1993, a Petition for Review was filed

by the executor with the CTA with the prayer that the

Commissioner’s letter/decision, dated September 21,

1992 be reversed and that a refund of the amount of

P438,040.38 be ordered.

“The Commissioner opposed the said petition, alleging

that the CTA’s jurisdiction was not properly invoked

inasmuch as no claim for a tax refund of the deficiency

tax collected was filed with the Bureau of Internal

Revenue before the petition was filed, in violation of

Sections 204 and 230 of the National Internal Revenue

Code. Moreover, there is no statutory basis for the

refund of the deficiency surcharges, interests and

penalties charged by the Commissioner upon the estate

of the decedent.

“Upholding its jurisdiction over the dispute, the CTA

rendered its Decision, dated April 21, 1994, modifying

the CIR’s assessment for surcharge, interests and other

penalties from P438,040.38 to P13,462.74, representing

interest on the deficiency estate tax, for which reason the

CTA ordered the reimbursement to the respondent estate

the balance of P423,577.64, to wit:

“`WHEREFORE, respondent’s deficiency assessment

for surcharge, interests, and other penalties is hereby

modified and since petitioner has clearly paid the full

amount of P438,040.38, respondent is hereby ordered to

refund to the Estate of Jose San Agustin the

overpayment amounting to P423,577.64.”[1]

On 30 May 1994, the decision of the Court of Tax

Appeals was appealed by the Commissioner of Internal

Revenue to the Court of Appeals. There, the petition for

review raised the following issues:

“1. Whether respondent Tax Court has jurisdiction to

take cognizance of the case considering the failure of

private respondent to comply with the mandatory

requirements of Sections 204 and 230 of the National

Internal Revenue Code.

“2. Whether or not respondent Tax Court was

correct in ordering the refund to the Estate of Jose San

Agustin the reduced amount of P423,577.64 as alleged

overpaid surcharge, interests and compromise penalty

imposed on the basic deficiency estate tax of

P538,509.50 due on the transmission of the said Estate

to the sole heir in 1990.”[2]

In its decision of 24 February 1999, the Court of

Appeals granted the petition of the Commissioner of

Internal Revenue and held that the Court of Tax Appeals

did not acquire jurisdiction over the subject matter and

that, accordingly, its decision was null and void.

Hence, the instant petition where petitioner submits that

-

“1. The filing of a claim for refund [is] not essential

before the filing of the petition for review.

“2. The imposition by the respondent of surcharge,

interest and penalties on the deficiency estate tax is not

in accord with the law and therefore illegal.”[3]

The Court finds the petition partly meritorious.

The case has a striking resemblance to the controversy in

Roman Catholic Archbishop of Cebu vs. Collector of

Internal Revenue.[4]

The petitioner in that case paid under protest the sum of

P5,201.52 by way of income tax, surcharge and interest

and, forthwith, filed a petition for review before the

Court of Tax Appeals. Then respondent Collector (now

Commissioner) of Internal Revenue set up several

defenses, one of which was that petitioner had failed to

first file a written claim for refund, pursuant to Section

306 of the Tax Code, of the amounts paid. Convinced

that the lack of a written claim for refund was fatal to

petitioner’s recourse to it, the Court of Tax Appeals

dismissed the petition for lack of jurisdiction. On appeal

to this Court, the tax court’s ruling was reversed; the

Court held:

“We agree with petitioner that Section 7 of Republic Act

No. 1125, creating the Court of Tax Appeals, in

providing for appeals from -

`(1) Decisions of the Collector of Internal Revenue in

cases involving disputed assessments, refunds of internal

revenue taxes, fees or other charges, penalties imposed

in relation thereto, or other matters arising under the

National Internal Revenue Code or other law or part of

the law administered by the Bureau of Internal Revenue

-

allows an appeal from a decision of the Collector in

cases involving `disputed assessments’ as distinguished

from cases involving `refunds of internal revenue taxes,

fees or other charges, x x x’; that the present action

involves a disputed assessment’; because from the time

petitioner received assessments Nos. 17-EC-00301-55

and 17-AC-600107-56 disallowing certain deductions

claimed by him in his income tax returns for the years

1955 and 1956, he already protested and refused to pay

the same, questioning the correctness and legality of

such assessments; and that the petitioner paid the

disputed assessments under protest before filing his

petition for review with the Court a quo, only to forestall

the sale of his properties that had been placed under

distraint by the respondent Collector since December 4,

1957. To hold that the taxpayer has now lost the right to

appeal from the ruling on the disputed assessment but

must prosecute his appeal under section 306 of the Tax

Code, which requires a taxpayer to file a claim for

refund of the taxes paid as a condition precedent to his

right to appeal, would in effect require of him to go

through a useless and needless ceremony that would

only delay the disposition of the case, for the Collector

(now Commissioner) would certainly disallow the claim

for refund in the same way as he disallowed the protest

against the assessment. The law, should not be

interpreted as to result in absurdities.”[5]

The Court sees no cogent reason to abandon the

above dictum and to require a useless formality that can

serve the interest of neither the government nor the

taxpayer. The tax court has aptly acted in taking

cognizance of the taxpayer’s appeal to it.

On the second issue, the National Internal Revenue

Code, relative to the imposition of surcharges, interests,

and penalties, provides thusly:

“Sec. 248. Civil Penalties. -

“(a) There shall be imposed, in addition to the tax

required to be paid, a penalty equivalent to twenty-five

percent (25%) of the amount due, in the following cases:

“(1) Failure to file any return and pay the tax due

thereon as required under the provisions of this Code or

rules and regulations on the date prescribed; or

“(2) Unless otherwise authorized by the

Commissioner, filing a return with an internal revenue

officer other than those with whom the return is required

to be filed; or

“(3) Failure to pay the deficiency tax within the

time prescribed for its payment in the notice of

assessment; or

“(4) Failure to pay the full or part of the amount of

tax shown on any return required to be filed under the

provisions of this Code or rules and regulations, or the

full amount of tax due for which no return is required to

be filed, on or before the date prescribed for its

payment.”

“Sec. 249. Interest. -

“(A) In General. - There shall be assessed and

collected on any unpaid amount of tax, interest at the

rate of twenty percent (20%) per annum, or such higher

rate as may be prescribed by rules and regulations, from

the date prescribed for payment until the amount is fully

paid.

“(B) Deficiency Interest. - Any deficiency in the

tax due, as the term is defined in this Code, shall be

subject to the interest prescribed in Subsection (A)

hereof, which interest shall be assessed and collected

from the date prescribed for its payment until the full

payment thereof.

“(C) Delinquency Interest. - In case of failure to

pay:

“(1) The amount of the tax due on any return to be

filed, or

“(2) The amount of the tax due for which no return

is required, or

“(3) A deficiency tax, or any surcharge or interest

thereon on the due date appearing in the notice and

demand of the Commissioner, there shall be assessed

and collected on the unpaid amount, interest at the rate

prescribed in Subsection (A) hereof until the amount is

fully paid, which interest shall form part of the tax.

“(D) Interest on Extended Payment. - If any person

required to pay the tax is qualified and elects to pay the

tax on installment under the provisions of this Code, but

fails to pay the tax or any installment hereof, or any part

of such amount or installment on or before the date

prescribed for its payment, or where the Commissioner

has authorized an extension of time within which to pay

a tax or a deficiency tax or any part thereof, there shall

be assessed and collected interest at the rate hereinabove

prescribed on the tax or deficiency tax or any part

thereof unpaid from the date of notice and demand until

it is paid.”

It would appear that, as early as 23 September 1991, the

estate already received a pre-assessment notice

indicating a deficiency estate tax of

P538,509.50. Within the ten-day period given in the

pre-assessment notice, respondent Commissioner

received a letter from petitioner expressing the latter’s

readiness to pay the basic deficiency estate tax of

P538,509.50 as soon as the trial court would have

approved the withdrawal of that sum from the estate but

requesting that the surcharge, interests and penalties be

waived. On 04 October 1991, however, petitioner

received from the Commissioner notice insisting

payment of the tax due on or before the lapse of thirty

(30) days from receipt thereof. The deficiency estate tax

of P538,509.50 was not paid until 19 December 1991.[6]

The delay in the payment of the deficiency tax within the

time prescribed for its payment in the notice of

assessment justifies the imposition of a 25% surcharge in

consonance with Section 248A(3) of the Tax Code. The

basic deficiency tax in this case being P538,509.50, the

twenty-five percent thereof comes to P134,627.37.

Section 249 of the Tax Code states that any deficiency in

the tax due would be subject to interest at the rate of

twenty percent (20%) per annum, which interest shall be

assessed and collected from the date prescribed for its

payment until full payment is made. The computation of

interest by the Court of Tax Appeals -

“Deficiency estate tax x Interest

Rate x Terms

P538,509.50 20% per annum 11/2

mo./12 mos

(

11/04/91 to 12/19/91)

= P13,462.74”[7]

conforms with the law, i.e., computed on the deficiency

tax from the date prescribed for its payment until it is

paid.

The Court of Tax Appeals correctly held that the

compromise penalty of P20,000.00 could not be imposed

on petitioner, a compromise being, by its nature, mutual

in essence. The payment made under protest by

petitioner could only signify that there was no agreement

that had effectively been reached between the parties.

Regrettably for petitioner, the need for an authority from

the probate court in the payment of the deficiency estate

tax, over which respondent Commissioner has hardly

any control, is not one that can negate the application of

the Tax Code provisions aforequoted. Taxes, the

lifeblood of the government, are meant to be paid

without delay and often oblivious to contingencies or

conditions.

In sum, the tax liability of the estate includes a surcharge

of P134,627.37 and interest of P13,462.74 or a total of

P148,090.00.

WHEREFORE, the instant petition is partly

GRANTED. The deficiency assessment for surcharge,

interest and penalties is modified and recomputed to be

in the amount of P148,090.00 surcharge of P134,627.37

and interest of P13,462.74. Petitioner estate having

since paid the sum of P438,040.38, respondent

Commissioner is hereby ordered to refund to the Estate

of Jose San Agustin the overpaid amount of

P289,950.38. No costs.

SO ORDERED.

FERDINAND R. MARCOS II, petitioner, vs. COURT

OF APPEALS, THE COMMISSIONER OF

THE BUREAU OF INTERNAL REVENUE

and HERMINIA D. DE

GUZMAN, respondents.

D E C I S I O N

TORRES, JR., J.:

In this Petition for Review

on Certiorari, Government action is once again assailed

as precipitate and unfair, suffering the basic and oftly

implored requisites of due process of law. Specifically,

the petition assails the Decision[1] of the Court of Appeals

dated November 29, 1994 in CA-G.R. SP No. 31363,

where the said court held:

"In view of all the foregoing, we rule that the deficiency

income tax assessments and estate tax assessment, are

already final and (u)nappealable -and- the subsequent

levy of real properties is a tax remedy resorted to by the

government, sanctioned by Section 213 and 218 of the

National Internal Revenue Code. This summary tax

remedy is distinct and separate from the other tax

remedies (such as Judicial Civil actions and Criminal

actions), and is not affected or precluded by the

pendency of any other tax remedies instituted by the

government.

WHEREFORE, premises considered, judgment is

hereby rendered DISMISSING the petition for certiorari

with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late

Ferdinand E. Marcos, the former President of the

Republic of the Philippines, the matter of the settlement

of his estate, and its dues to the government in estate

taxes, are still unresolved, the latter issue being now

before this Court for resolution. Specifically, petitioner

Ferdinand R. Marcos II, the eldest son of the decedent,

questions the actuations of the respondent Commissioner

of Internal Revenue in assessing, and collecting through

the summary remedy of Levy on Real Properties, estate

and income tax delinquencies upon the estate and

properties of his father, despite the pendency of the

proceedings on probate of the will of the late president,

which is docketed as Sp. Proc. No. 10279 in the Regional

Trial Court of Pasig, Branch 156.

Petitioner had filed with the respondent Court of

Appeals a Petition for Certiorari and Prohibition with an

application for writ of preliminary injunction and/or

temporary restraining order on June 28, 1993, seeking to

-

I. Annul and set aside the Notices of Levy on real

property dated February 22, 1993 and May 20, 1993,

issued by respondent Commissioner of Internal

Revenue;

II. Annul and set aside the Notices of Sale dated May

26, 1993;

III. Enjoin the Head Revenue Executive Assistant

Director II (Collection Service), from proceeding with

the Auction of the real properties covered by Notices

of Sale.

After the parties had pleaded their case, the Court of

Appeals rendered its Decision[2] on November 29, 1994,

ruling that the deficiency assessments for estate and

income tax made upon the petitioner and the estate of the

deceased President Marcos have already become final and

unappealable, and may thus be enforced by the summary

remedy of levying upon the properties of the late

President, as was done by the respondent Commissioner

of Internal Revenue.

"WHEREFORE, premises considered judgment is

hereby rendered DISMISSING the petition for Certiorari

with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED."

Unperturbed, petitioner is now before us assailing

the validity of the appellate court's decision, assigning the

following as errors:

A. RESPONDENT COURT MANIFESTLY

ERRED IN RULING THAT THE SUMMARY TAX

REMEDIES RESORTED TO BY THE GOVERNMENT

ARE NOT AFFECTED AND PRECLUDED BY THE

PENDENCY OF THE SPECIAL PROCEEDING FOR

THE ALLOWANCE OF THE LATE PRESIDENT'S

ALLEGED WILL. TO THE CONTRARY, THIS

PROBATE PROCEEDING PRECISELY PLACED ALL

PROPERTIES WHICH FORM PART OF THE LATE

PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF

THE PROBATE COURT TO THE EXCLUSION OF

ALL OTHER COURTS AND ADMINISTRATIVE

AGENCIES.

B. RESPONDENT COURT ARBITRARILY

ERRED IN SWEEPINGLY DECIDING THAT SINCE

THE TAX ASSESSMENTS OF PETITIONER AND HIS

PARENTS HAD ALREADY BECOME FINAL AND

UNAPPEALABLE, THERE WAS NO NEED TO GO

INTO THE MERITS OF THE GROUNDS CITED IN

THE PETITION. INDEPENDENT OF WHETHER THE

TAX ASSESSMENTS HAD ALREADY BECOME

FINAL, HOWEVER, PETITIONER HAS THE RIGHT

TO QUESTION THE UNLAWFUL MANNER AND

METHOD IN WHICH TAX COLLECTION IS

SOUGHT TO BE ENFORCED BY RESPONDENTS

COMMISSIONER AND DE GUZMAN. THUS,

RESPONDENT COURT SHOULD HAVE

FAVORABLY CONSIDERED THE MERITS OF THE

FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were

issued beyond the period provided in the Revenue

Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases

questioning the late President's ownership or

interests in several properties (both personal and

real) make the total value of his estate, and the

consequent estate tax due, incapable of exact

pecuniary determination at this time. Thus,

respondents’ assessment of the estate tax and their

issuance of the Notices of Levy and Sale are

premature, confiscatory and oppressive.

[b] Petitioner, as one of the late President's

compulsory heirs, was never notified, much less

served with copies of the Notices of Levy, contrary

to the mandate of Section 213 of the NIRC. As

such, petitioner was never given an opportunity to

contest the Notices in violation of his right to due

process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF

THE PETITION, RESPONDENT COURT

MANIFESTLY ERRED IN RULING THAT IT HAD

NO POWER TO GRANT INJUNCTIVE RELIEF TO

PETITIONER. SECTION 219 OF THE NIRC

NOTWITHSTANDING, COURTS POSSESS THE

POWER TO ISSUE A WRIT OF PRELIMINARY

INJUNCTION TO RESTRAIN RESPONDENTS

COMMISSIONER'S AND DE GUZMAN'S

ARBITRARY METHOD OF COLLECTING THE

ALLEGED DEFICIENCY ESTATE AND INCOME

TAXES BY MEANS OF LEVY.

The facts as found by the appellate court are

undisputed, and are hereby adopted:

"On September 29, 1989, former President Ferdinand

Marcos died in Honolulu, Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was

created to conduct investigations and examinations of

the tax liabilities and obligations of the late president, as

well as that of his family, associates and "cronies". Said

audit team concluded its investigation with a

Memorandum dated July 26, 1991. The investigation

disclosed that the Marcoses failed to file a written notice

of the death of the decedent, an estate tax returns [sic], as

well as several income tax returns covering the years

1982 to 1986, -all in violation of the National Internal

Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs.

Imelda R. Marcos before the Regional Trial of Quezon

City for violations of Sections 82, 83 and 84 (has

penalized under Sections 253 and 254 in relation to

Section 252- a & b) of the National Internal Revenue

Code (NIRC).

The Commissioner of Internal Revenue thereby caused

the preparation and filing of the Estate Tax Return for

the estate of the late president, the Income Tax Returns

of the Spouses Marcos for the years 1985 to 1986, and

the Income Tax Returns of petitioner Ferdinand

'Bongbong' Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1)

Deficiency estate tax assessment no. FAC-2-89-91-

002464 (against the estate of the late president Ferdinand

Marcos in the amount of P23,293,607,638.00 Pesos); (2)

Deficiency income tax assessment no. FAC-1-85-91-

002452 and Deficiency income tax assessment no. FAC-

1-86-91-002451 (against the Spouses Ferdinand and

Imelda Marcos in the amounts of P149,551.70 and

P184,009,737.40 representing deficiency income tax for

the years 1985 and 1986); (3) Deficiency income tax

assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-

002463 (against petitioner Ferdinand 'Bongbong' Marcos

II in the amounts of P258.70 pesos; P9,386.40

Pesos; P4,388.30 Pesos; and P6,376.60 Pesos

representing his deficiency income taxes for the years

1982 to 1985).

The Commissioner of Internal Revenue avers that copies

of the deficiency estate and income tax assessments were

all personally and constructively served on August 26,

1991 and September 12, 1991 upon Mrs. Imelda Marcos

(through her caretaker Mr. Martinez) at her last known

address at No. 204 Ortega St., San Juan, M.M.

(Annexes 'D' and 'E' of the Petition). Likewise, copies of

the deficiency tax assessments issued against petitioner

Ferdinand 'Bongbong' Marcos II were also personally

and constructively served upon him (through his

caretaker) on September 12, 1991, at his last known

address at Don Mariano Marcos St. corner P. Guevarra

St., San Juan, M.M. (Annexes 'J' and 'J-1' of the

Petition). Thereafter, Formal Assessment notices were

served on October 20, 1992, upon Mrs. Marcos c/o

petitioner, at his office, House of Representatives,

Batasan Pambansa, Quezon City. Moreover, a notice to

Taxpayer inviting Mrs. Marcos (or her duly authorized

representative or counsel), to a conference, was

furnished the counsel of Mrs. Marcos, Dean Antonio

Coronel - but to no avail.

The deficiency tax assessments were not protested

administratively, by Mrs. Marcos and the other heirs of

the late president, within 30 days from service of said

assessments.

On February 22, 1993, the BIR Commissioner issued

twenty-two notices of levy on real property against

certain parcels of land owned by the Marcoses - to

satisfy the alleged estate tax and deficiency income taxes

of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real

property were issued for the purpose of satisfying the

deficiency income taxes.

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

real property were again issued. The foregoing tax

remedies were resorted to pursuant to Sections 205 and

213 of the National Internal Revenue Code (NIRC).

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

Atty. Loreto Ata (counsel of herein petitioner) calling

the attention of the BIR and requesting that they be duly

notified of any action taken by the BIR affecting the

interest of their client Ferdinand 'Bongbong’ Marcos II,

as well as the interest of the late president - copies of the

aforesaid notices were served on April 7, 1993 and on

June 10, 1993, upon Mrs. Imelda Marcos, the petitioner,

and their counsel of record, 'De Borja, Medialdea, Ata,

Bello, Guevarra and Serapio Law Office'.

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

1993, at the lobby of the City Hall of Tacloban

City. The public auction for the sale of the eleven (11)

parcels of land took place on July 5, 1993. There being

no bidder, the lots were declared forfeited in favor of the

government.

On June 25, 1993, petitioner Ferdinand 'Bongbong'

Marcos II filed the instant petition for certiorari and

prohibition under Rule 65 of the Rules of Court, with

prayer for temporary restraining order and/or writ of

preliminary injunction."

It has been repeatedly observed, and not without

merit, that the enforcement of tax laws and the collection

of taxes, is of paramount importance for the sustenance of

government. Taxes are the lifeblood of the government

and should be collected without unnecessary

hindrance. However, such collection should be made in

accordance with law as any arbitrariness will negate the

very reason for government itself. It is therefore

necessary to reconcile the apparently conflicting interests

of the authorities and the taxpayers so that the real

purpose of taxation, which is the promotion of the

common good, may be achieved."[3]

Whether or not the proper avenues of assessment and

collection of the said tax obligations were taken by the

respondent Bureau is now the subject of the Court's

inquiry.

Petitioner posits that notices of levy, notices of sale,

and subsequent sale of properties of the late President

Marcos effected by the BIR are null and void for

disregarding the established procedure for the

enforcement of taxes due upon the estate of the

deceased. The case of Domingo vs. Garlitos[4] is

specifically cited to bolster the argument that "the

ordinary procedure by which to settle claims of

indebtedness against the estate of a deceased, person, as

in an inheritance (estate) tax, is for the claimant to present

a claim before the probate court so that said court may

order the administrator to pay the amount therefor." This

remedy is allegedly, exclusive, and cannot be effected

through any other means.

Petitioner goes further, submitting that the probate

court is not precluded from denying a request by the

government for the immediate payment of taxes, and

should order the payment of the same only within the

period fixed by the probate court for the payment of all

the debts of the decedent. In this regard, petitioner cites

the case of Collector of Internal Revenue vs. The

Administratrix of the Estate of Echarri (67 Phil 502),

where it was held that:

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

Tayabas and Collector of Internal Revenue (52 Phil

803), relied upon by the petitioner-appellant is good

authority on the proposition that the court having control

over the administration proceedings has jurisdiction to

entertain the claim presented by the government for

taxes due and to order the administrator to pay the tax

should it find that the assessment was proper, and that

the tax was legal, due and collectible. And the rule laid

down in that case must be understood in relation to the

case of Collector of Customs vs. Haygood, supra., as to

the procedure to be followed in a given case by the

government to effectuate the collection of the

tax. Categorically stated, where during the pendency of

judicial administration over the estate of a deceased

person a claim for taxes is presented by the government,

the court has the authority to order payment by the

administrator; but, in the same way that it has authority

to order payment or satisfaction, it also has the negative

authority to deny the same. While there are cases where

courts are required to perform certain duties mandatory

and ministerial in character, the function of the court in a

case of the present character is not one of them; and

here, the court cannot be an organism endowed

with latitude of judgment in one direction, and

converted into a mere mechanical contrivance in another

direction."

On the other hand, it is argued by the BIR, that the

state's authority to collect internal revenue taxes is

paramount. Thus, the pendency of probate proceedings

over the estate of the deceased does not preclude the

assessment and collection, through summary remedies, of

estate taxes over the same. According to the respondent,

claims for payment of estate and income taxes due and

assessed after the death of the decedent need not be

presented in the form of a claim against the estate. These

can and should be paid immediately. The probate court is

not the government agency to decide whether an estate is

liable for payment of estate of income taxes. Well-settled

is the rule that the probate court is a court with special and

limited jurisdiction.

Concededly, the authority of the Regional Trial

Court, sitting, albeit with limited jurisdiction, as a probate

court over estate of deceased individual, is not a trifling

thing. The court's jurisdiction, once invoked, and made

effective, cannot be treated with indifference nor should

it be ignored with impunity by the very parties invoking

its authority.

In testament to this, it has been held that it is within

the jurisdiction of the probate court to approve the sale of

properties of a deceased person by his prospective heirs

before final adjudication;[5] to determine who are the heirs

of the decedent;[6] the recognition of a natural child;[7] the

status of a woman claiming to be the legal wife of the

decedent;[8] the legality of disinheritance of an heir by the

testator;[9] and to pass upon the validity of a waiver of

hereditary rights.[10]

The pivotal question the court is tasked to resolve

refers to the authority of the Bureau of Internal Revenue

to collect by the summary remedy of levying upon, and

sale of real properties of the decedent, estate tax

deficiencies, without the cognition and authority of the

court sitting in probate over the supposed will of the

deceased.

The nature of the process of estate tax collection has

been described as follows:

"Strictly speaking, the assessment of an inheritance tax

does not directly involve the administration of a

decedent's estate, although it may be viewed as an

incident to the complete settlement of an estate, and,

under some statutes, it is made the duty of the probate

court to make the amount of the inheritance tax a part of

the final decree of distribution of the estate. It is not

against the property of decedent, nor is it a claim against

the estate as such, but it is against the interest or property

right which the heir, legatee, devisee, etc., has in the

property formerly held by decedent. Further, under

some statutes, it has been held that it is not a suit or

controversy between the parties, nor is it an adversary

proceeding between the state and the person who owes

the tax on the inheritance. However, under other

statutes it has been held that the hearing and

determination of the cash value of the assets and the

determination of the tax are adversary proceedings. The

proceeding has been held to be necessarily a proceeding

in rem.[11]

In the Philippine experience, the enforcement and

collection of estate tax, is executive in character, as the

legislature has seen it fit to ascribe this task to the Bureau

of Internal Revenue. Section 3 of the National Internal

Revenue Code attests to this:

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

and duties of the Bureau of Internal Revenue shall

comprehend the assessment and collection of all national

internal revenue taxes, fees, and charges, and the

enforcement of all forfeitures, penalties, and fines

connected therewith, including the execution of

judgments in all cases decided in its favor by the Court

of Tax Appeals and the ordinary courts. Said Bureau

shall also give effect to and administer the supervisory

and police power conferred to it by this Code or other

laws."

Thus, it was in Vera vs. Fernandez[12] that the court

recognized the liberal treatment of claims for taxes

charged against the estate of the decedent. Such taxes, we

said, were exempted from the application of the statute of

non-claims, and this is justified by the necessity of

government funding, immortalized in the maxim that

taxes are the lifeblood of the

government. Vectigalia nervi sunt reipublicae - taxes are

the sinews of the state.

"Taxes assessed against the estate of a deceased person,

after administration is opened, need not be submitted to

the committee on claims in the ordinary course of

administration. In the exercise of its control over the

administrator, the court may direct the payment of such

taxes upon motion showing that the taxes have been

assessed against the estate."

Such liberal treatment of internal revenue taxes in the

probate proceedings extends so far, even to allowing the

enforcement of tax obligations against the heirs of the

decedent, even after distribution of the estate's properties.

"Claims for taxes, whether assessed before or after the

death of the deceased, can be collected from the heirs

even after the distribution of the properties of the

decedent. They are exempted from the application of the

statute of non-claims. The heirs shall be liable therefor,

in proportion to their share in the inheritance."[13]

"Thus, the Government has two ways of collecting the

taxes in question. One, by going after all the heirs and

collecting from each one of them the amount of the tax

proportionate to the inheritance received. Another

remedy, pursuant to the lien created by Section 315 of

the Tax Code upon all property and rights to property

belong to the taxpayer for unpaid income tax, is by

subjecting said property of the estate which is in the

hands of an heir or transferee to the payment of the tax

due the estate. (Commissioner of Internal Revenue vs.

Pineda, 21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval

of the court, sitting in probate, or as a settlement tribunal

over the deceased is not a mandatory requirement in the

collection of estate taxes. It cannot therefore be argued

that the Tax Bureau erred in proceeding with the levying

and sale of the properties allegedly owned by the late

President, on the ground that it was required to seek first

the probate court's sanction. There is nothing in the Tax

Code, and in the pertinent remedial laws that implies the

necessity of the probate or estate settlement court's

approval of the state's claim for estate taxes, before the

same can be enforced and collected.

On the contrary, under Section 87 of the NIRC, it is

the probate or settlement court which is bidden not to

authorize the executor or judicial administrator of the

decedent's estate to deliver any distributive share to any

party interested in the estate, unless it is shown a

Certification by the Commissioner of Internal Revenue

that the estate taxes have been paid. This provision

disproves the petitioner's contention that it is the probate

court which approves the assessment and collection of the

estate tax.

If there is any issue as to the validity of the BIR's

decision to assess the estate taxes, this should have been

pursued through the proper administrative and judicial

avenues provided for by law.

Section 229 of the NIRC tells us how:

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

Commissioner of Internal Revenue or his duly

authorized representative finds that proper taxes should

be assessed, he shall first notify the taxpayer of his

findings. Within a period to be prescribed by

implementing regulations, the taxpayer shall be required

to respond to said notice. If the taxpayer fails to

respond, the Commissioner shall issue an assessment

based on his findings.

Such assessment may be protested administratively by

filing a request for reconsideration or reinvestigation in

such form and manner as may be prescribed by

implementing regulations within (30) days from receipt

of the assessment; otherwise, the assessment shall

become final and unappealable.

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

association or corporation adversely affected by the

decision on the protest may appeal to the Court of Tax

Appeals within thirty (30) days from receipt of said

decision; otherwise, the decision shall become final,

executory and demandable. (As inserted by P.D. 1773)"

Apart from failing to file the required estate tax

return within the time required for the filing of the same,

petitioner, and the other heirs never questioned the

assessments served upon them, allowing the same to lapse

into finality, and prompting the BIR to collect the said

taxes by levying upon the properties left by President

Marcos.

Petitioner submits, however, that "while the

assessment of taxes may have been validly undertaken by

the Government, collection thereof may have been done

in violation of the law. Thus, the manner and method in

which the latter is enforced may be questioned separately,

and irrespective of the finality of the former, because the

Government does not have the unbridled discretion to

enforce collection without regard to the clear provision of

law."[14]

Petitioner specifically points out that applying

Memorandum Circular No. 38-68, implementing Sections

318 and 324 of the old tax code (Republic Act 5203), the

BIR's Notices of Levy on the Marcos properties, were

issued beyond the allowed period, and are therefore null

and void:

"...the Notices of Levy on Real Property (Annexes 0 to

NN of Annex C of this Petition) in satisfaction of said

assessments were still issued by respondents well

beyond the period mandated in Revenue Memorandum

Circular No. 38-68. These Notices of Levy were issued

only on 22 February 1993 and 20 May 1993 when at

least seventeen (17) months had already lapsed from the

last service of tax assessment on 12 September 1991. As

no notices of distraint of personal property were first

issued by respondents, the latter should have complied

with Revenue Memorandum Circular No. 38-68 and

issued these Notices of Levy not earlier than three (3)

months nor later than six (6) months from 12 September

1991. In accordance with the Circular, respondents only

had until 12 March 1992 (the last day of the sixth

month) within which to issue these Notices of

Levy. The Notices of Levy, having been issued beyond

the period allowed by law, are thus void and of no

effect."[15]

We hold otherwise. The Notices of Levy upon real

property were issued within the prescriptive period and in

accordance with the provisions of the present Tax

Code. The deficiency tax assessment, having already

become final, executory, and demandable, the same can

now be collected through the summary remedy of

distraint or levy pursuant to Section 205 of the NIRC.

The applicable provision in regard to the prescriptive

period for the assessment and collection of tax deficiency

in this instance is Article 223 of the NIRC, which

pertinently provides:

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

assessment and collection of taxes.- (a) In the case of a

false or fraudulent return with intent to evade tax or of a

failure to file a return, the tax may be assessed, or a

proceeding in court for the collection of such tax may be

begun without assessment, at any time within ten (10)

years after the discovery of the falsity, fraud, or

omission: Provided, That, in a fraud assessment which

has become final and executory, the fact of fraud shall be

judicially taken cognizance of in the civil or criminal

action for the collection thereof.

xxx

(c) Any internal revenue tax which has been assessed

within the period of limitation above prescribed, may be

collected by distraint or levy or by a proceeding in court

within three years following the assessment of the tax.

xxx

The omission to file an estate tax return, and the

subsequent failure to contest or appeal the assessment

made by the BIR is fatal to the petitioner's cause, as under

the above-cited provision, in case of failure to file a

return, the tax may be assessed at any time within ten

years after the omission, and any tax so assessed may be

collected by levy upon real property within three years

following the assessment of the tax. Since the estate tax

assessment had become final and unappealable by the

petitioner's default as regards protesting the validity of the

said assessment, there is now no reason why the BIR

cannot continue with the collection of the said tax. Any

objection against the assessment should have been

pursued following the avenue paved in Section 229 of the

NIRC on protests on assessments of internal revenue

taxes.

Petitioner further argues that "the numerous pending

court cases questioning the late president's ownership or

interests in several properties (both real and personal)

make the total value of his estate, and the consequent

estate tax due, incapable of exact pecuniary determination

at this time. Thus, respondents' assessment of the estate

tax and their issuance of the Notices of Levy and sale are

premature and oppressive." He points out the pendency of

Sandiganbayan Civil Case Nos. 0001-0034 and 0141,

which were filed by the government to question the

ownership and interests of the late President in real and

personal properties located within and outside the

Philippines. Petitioner, however, omits to allege whether

the properties levied upon by the BIR in the collection of

estate taxes upon the decedent's estate were among those

involved in the said cases pending in the

Sandiganbayan. Indeed, the court is at a loss as to how

these cases are relevant to the matter at issue. The mere

fact that the decedent has pending cases involving ill-

gotten wealth does not affect the enforcement of tax

assessments over the properties indubitably included in

his estate.

Petitioner also expresses his reservation as to the

propriety of the BIR's total assessment

of P23,292,607,638.00, stating that this amount deviates

from the findings of the Department of Justice's Panel of

Prosecutors as per its resolution of 20 September

1991. Allegedly, this is clear evidence of the uncertainty

on the part of the Government as to the total value of the

estate of the late President.

This is, to our mind, the petitioner's last ditch effort

to assail the assessment of estate tax which had already

become final and unappealable.

It is not the Department of Justice which is the

government agency tasked to determine the amount of

taxes due upon the subject estate, but the Bureau of

Internal Revenue[16] whose determinations and

assessments are presumed correct and made in good

faith.[17] The taxpayer has the duty of proving

otherwise. In the absence of proof of any irregularities in

the performance of official duties, an assessment will not

be disturbed. Even an assessment based on estimates

is prima facie valid and lawful where it does not appear

to have been arrived at arbitrarily or capriciously. The

burden of proof is upon the complaining party to show

clearly that the assessment is erroneous. Failure to

present proof of error in the assessment will justify the

judicial affirmance of said assessment.[18] In this instance,

petitioner has not pointed out one single provision in the

Memorandum of the Special Audit Team which gave rise

to the questioned assessment, which bears a trace of

falsity. Indeed, the petitioner's attack on the assessment

bears mainly on the alleged improbable and

unconscionable amount of the taxes charged. But mere

rhetoric cannot supply the basis for the charge of

impropriety of the assessments made.

Moreover, these objections to the assessments

should have been raised, considering the ample remedies

afforded the taxpayer by the Tax Code, with the Bureau

of Internal Revenue and the Court of Tax Appeals, as

described earlier, and cannot be raised now via Petition

for Certiorari, under the pretext of grave abuse of

discretion. The course of action taken by the petitioner

reflects his disregard or even repugnance of the

established institutions for governance in the scheme of a

well-ordered society. The subject tax assessments having

become final, executory and enforceable, the same can no

longer be contested by means of a disguised protest. In

the main, Certiorari may not be used as a substitute for a

lost appeal or remedy.[19] This judicial policy becomes

more pronounced in view of the absence of sufficient

attack against the actuations of government.

On the matter of sufficiency of service of Notices of

Assessment to the petitioner, we find the respondent

appellate court's pronouncements sound and resilient to

petitioner's attacks.

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

lack of notice - We find, after considering the facts and

circumstances, as well as evidences, that there was

sufficient, constructive and/or actual notice of

assessments, levy and sale, sent to herein petitioner

Ferdinand "Bongbong" Marcos as well as to his mother

Mrs. Imelda Marcos.

Even if we are to rule out the notices of assessments

personally given to the caretaker of Mrs. Marcos at the

latter's last known address, on August 26, 1991 and

September 12, 1991, as well as the notices of

assessment personally given to the caretaker of

petitioner also at his last known address on September

12, 1991 - the subsequent notices given thereafter could

no longer be ignored as they were sent at a time when

petitioner was already here in the Philippines, and at a

place where said notices would surely be called to

petitioner's attention, and received by responsible

persons of sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices

were served upon Mrs. Marcos c/o the petitioner, at his

office, House of Representatives, Batasan Pambansa,

Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,

Comment/Memorandum of OSG). Moreover, a notice

to taxpayer dated October 8, 1992 inviting Mrs. Marcos

to a conference relative to her tax liabilities, was

furnished the counsel of Mrs. Marcos - Dean Antonio

Coronel (Annex "B", p. 211, ibid). Thereafter, copies of

Notices were also served upon Mrs. Imelda Marcos, the

petitioner and their counsel "De Borja, Medialdea, Ata,

Bello, Guevarra and Serapio Law Office", on April 7,

1993 and June 10, 1993. Despite all of these Notices,

petitioner never lifted a finger to protest the assessments,

(upon which the Levy and sale of properties were

based), nor appealed the same to the Court of Tax

Appeals.

There being sufficient service of Notices to herein

petitioner (and his mother) and it appearing that

petitioner continuously ignored said Notices despite

several opportunities given him to file a protest and to

thereafter appeal to the Court of Tax Appeals, - the tax

assessments subject of this case, upon which the levy

and sale of properties were based, could no longer be

contested (directly or indirectly) via this instant petition

for certiorari."[20]

Petitioner argues that all the questioned Notices of

Levy, however, must be nullified for having been issued

without validly serving copies thereof to the

petitioner. As a mandatory heir of the decedent, petitioner

avers that he has an interest in the subject estate, and

notices of levy upon its properties should have been

served upon him.

We do not agree. In the case of notices of levy issued

to satisfy the delinquent estate tax, the delinquent

taxpayer is the Estate of the decedent, and not necessarily,

and exclusively, the petitioner as heir of the deceased. In

the same vein, in the matter of income tax delinquency of

the late president and his spouse, petitioner is not the

taxpayer liable. Thus, it follows that service of notices of

levy in satisfaction of these tax delinquencies upon the

petitioner is not required by law, as under Section 213 of

the NIRC, which pertinently states:

"xxx

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

a description of the property upon which levy is

made. At the same time, written notice of the levy shall

be mailed to or served upon the Register of Deeds of the

province or city where the property is located and upon

the delinquent taxpayer, or if he be absent from the

Philippines, to his agent or the manager of the business

in respect to which the liability arose, or if there be none,

to the occupant of the property in question.

xxx"

The foregoing notwithstanding, the record shows

that notices of warrants of distraint and levy of sale were

furnished the counsel of petitioner on April 7, 1993, and

June 10, 1993, and the petitioner himself on April 12,

1993 at his office at the Batasang Pambansa.[21] We

cannot therefore, countenance petitioner's insistence that

he was denied due process. Where there was an

opportunity to raise objections to government action, and

such opportunity was disregarded, for no justifiable

reason, the party claiming oppression then becomes the

oppressor of the orderly functions of government. He

who comes to court must come with clean

hands. Otherwise, he not only taints his name, but

ridicules the very structure of established authority.

IN VIEW WHEREOF, the Court RESOLVED to

DENY the present petition. The Decision of the Court of

Appeals dated November 29, 1994 is hereby AFFIRMED

in all respects.

SO ORDERED.

G.R. No. L-68385 May 12, 1989

ILDEFONSO O. ELEGADO, as Ancillary

Administrator of the Testate Estate of the late

WARREN TAYLOR GRAHAM, petitioner

vs.

HON. COURT OF TAX APPEALS and

COMMISSIONER OF INTERNAL

REVENUE respondents.

CRUZ, J.:

What the petitioner presents as a rather complicated

problem is in reality a very simple question from the

viewpoint of the Solicitor General. We agree with the

latter. There is actually only one issue to be resolved in

this action. That issue is whether or not the respondent

Court of Tax Appeals erred in dismissing the petitioner's

appeal on grounds of jurisdiction and lack of a cause of

action.

Appeal from what? That indeed is the question.

But first the facts.

On March 14, 1976, Warren Taylor Graham, an

American national formerly resident in the Philippines,

died in Oregon, U.S.A. 1 As he left certain shares of

stock in the Philippines, his son, Ward Graham, filed an

estate tax return on September 16, 1976, with the

Philippine Revenue Representative in San Francisco,

U.S.A. 2

On the basis of this return, the respondent Commissioner

of Internal Revenue assessed the decedent's estate an

estate tax in the amount of P96,509.35 on February 9,

1978. 3 This assessment was protested on March 7, 1978,

by the law firm of Bump, Young and Walker on behalf

of the estate . 4 The protest was denied by the

Commissioner on July 7, 1978. 5 No further action was

taken by the estate in pursuit of that protest.

Meanwhile, on January 18, 1977, the decedent's will had

been admitted to probate in the Circuit Court of

Oregon 6Ward Graham, the designated executor, then

appointed Ildefonso Elegado, the herein petitioner, as his

attorney-in-fact for the allowance of the will in the

Philippines. 7

Pursuant to such authority, the petitioner commenced

probate proceedings in the Court of First Instance of

Rizal. 8The will was allowed on December 18, 1978,

with the petitioner as ancillary administrator. 9 As such,

he filed a second estate tax return with the Bureau of

Internal Revenue on June 4, 1980. 10

On the basis of this second return, the Commissioner

imposed an assessment on the estate in the amount of

P72,948.87. 11 This was protested on behalf of the estate

by the Agrava, Lucero and Gineta Law Office on August

13, 1980. 12

While this protest was pending, the Commissioner filed

in the probate proceedings a motion for the allowance of

the basic estate tax of P96,509.35 as assessed on

February 9, 1978. 13 He said that this liability had not yet

been paid although the assessment had long become

final and executory.

The petitioner regarded this motion as an implied denial

of the protest filed on August 13, 1980, against the

second assessment of P72,948.87. 14 On this

understanding, he filed on September 15, 1981, a

petition for review with the Court of Tax Appeals

challenging the said assessment. 15

The Commissioner did not immediately answer (in fact,

as the petitioner stressed, no answer was filed during a

delay of 195 days) and in the end instead cancelled the

protested assessment in a letter to the decedent's estate

dated March 31, 1982. 16 This cancellation was notified

to the Court of Tax Appeals in a motion to dismiss on

the ground that the protest had become moot and

academic. 17

The motion was granted and the petition dismissed on

April 25, 1984. 18 The petitioner then came to this Court

oncertiorari under Rule 45 of the Rules of Court.

The petitioner raises three basic questions, to wit, (1)

whether the shares of stocks left by the decedent should

be treated as his exclusive, and not conjugal, property;

(2) whether the said stocks should be assessed as of the

time of the owner's death or six months thereafter; and

(3) whether the appeal filed with the respondent court

should be considered moot and academic.

We deal first with the third issue as it is decisive of this

case.

In the letter to the decedent's estate dated March 31,

1982, the Commissioner of Internal Revenue wrote as

follows:

Estate of WARREN T. GRAHAM c/o Mr. ILDEFENSO

O. ELEGADO Ancillary Administrator Philex Building

cor. Brixton & Fairlane Sts. Pasig, Metro Manila

Sir:

This is with regard to the estate of the

late WARREN TAYLOR GRAHAM,

who died a resident of Oregon, U.S.A.

on March 14, 1976. It appears that two

(2) letters of demand were issued by this

Bureau. One is for the amount of

P96,509.35 based on the first return

filed, and the other in the amount of

P72,948.87, based on the second return

filed.

It appears that the first assessment of

P96,509.35 was issued on February 9,

1978 on the basis of the estate tax return

filed on September 16, 1976. The said

assessment was, however, protested in a

letter dated March 7, 1978 but was

denied on July 7, 1978. Since no appeal

was made within the regulatory period,

the same has become final.

In view thereof, it is requested that you

settle the aforesaid assessment for

P96,509.35 within fifteen (15) days

upon receipt hereof to the Receivable

Accounts Division, this Bureau, BIR

National Office Building, Diliman,

Quezon City. The assessment for

P72,949.57 dated July 3, 1980, referred

to above is hereby cancelled.

Very truly yours,

(SGD.) RUBEN B. ANCHETA Acting

Commissioner 19

It is obvious from the express cancellation of the second

assessment for P72,948.87 that the petitioner had been

deprived of a cause of action as it was precisely from

this assessment that he was appealing.

In its decision, the Court of Tax Appeals said that the

petition questioning the assessment of July 3, 1980, was

"premature" since the protest to the assessment had not

yet been resolved. 20 As a matter of fact it had: the said

assessment had been cancelled by virtue of the above-

quoted letter. The respondent court was on surer ground,

however, when it followed with the finding that the said

cancellation had rendered the petition moot and

academic. There was really no more assessment to

review.

The petitioner argues that the issuance of the second

assessment on July 3, 1980, had the effect of canceling

the first assessment of February 9, 1978, and that the

subsequent cancellation of the second assessment did not

have the effect of automatically reviving the first.

Moreover, the first assessment is not binding on him

because it was based on a return filed by foreign lawyers

who had no knowledge of our tax laws or access to the

Court of Tax Appeals.

The petitioner is clutching at straws.

It is noted that in the letter of July 3, 1980, imposing the

second assessment of P72,948.87, the Commissioner

made it clear that "the aforesaid amount is considered

provisional only based on the estate tax return filed

subject to investigation by this Office for final

determination of the correct estate tax due from the

estate. Any amount that may be found due after said

investigation will be assessed and collected later." 21 It is

illogical to suggest that aprovisional assessment can

supersede an earlier assessment which had clearly

become final and executory.

The second contention is no less flimsy. The petitioner

cannot be serious when he argues that the first

assessment was invalid because the foreign lawyers who

filed the return on which it was based were not familiar

with our tax laws and procedure. Is the petitioner

suggesting that they are excused from compliance

therewith because of their ignorance?

If our own lawyers and taxpayers cannot claim a similar

preference because they are not allowed to claim a like

ignorance, it stands to reason that foreigners cannot be

any less bound by our own laws in our own country. A

more obvious and shallow discrimination than that

suggested by the petitioner is indeed difficult to find.

But the most compelling consideration in this case is the

fact that the first assessment is already final and

executory and can no longer be questioned at this late

hour. The assessment was made on February 9, 1978. It

was protested on March 7, 1978. The protest was denied

on July 7, 1978. As no further action was taken thereon

by the decedent's estate, there is no question that the

assessment has become final and executory.

In fact, the law firm that had lodged the protest appears

to have accepted its denial. In his motion with the

probate court, the respondent Commissioner stressed

that "in a letter dated January 29, 1980, the Estate of

Warren Taylor Graham thru the aforesaid foreign law

firm informed claimant that they have paid said tax

liability thru the Agrava, Velarde, Lucero and Puno,

Philippine law firm of 313 Buendia Avenue Ext.,

Makati, Metro Manila that initiated the instant ancillary

proceedings" although he added that such payment had

not yet been received. 22 This letter was an

acknowledgment by the estate of the validity and finality

of the first assessment. Significantly, it has not been

denied by the petitioner.

In view of the finality of the first assessment, the

petitioner cannot now raise the question of its validity

before this Court any more than he could have done so

before the Court of Tax Appeals. What the estate of the

decedent should have done earlier, following the denial

of its protest on July 7, 1978, was to appeal to the Court

of Tax Appeals within the reglementary period of 30

days after it received notice of said denial. It was in such

appeal that the petitioner could then have raised the first

two issues he now raises without basis in the present

petition.

The question of whether or not the shares of stock left by

the decedent should be considered conjugal property or

belonging to him alone is immaterial in these

proceedings. So too is the time at which the assessment

of these shares of stock should have been made by the

BIR. These questions were not resolved by the Court of

Tax Appeals because it had no jurisdiction to act on the

petitioner's appeal from an assessment that had already

been cancelled. The assessment being no longer

controversial or reviewable, there was no justification

for the respondent court to rule on the petition except to

dismiss it.

If indeed the Commissioner of Internal Revenue

committed an error in the computation of the estate tax,

as the petitioner insists, that error can no longer be

rectified because the original assessment has long

become final and executory. If that assessment was not

challenged on time and in accordance with the

prescribed procedure, that error — for error it was —

was committed not by the respondents but by the

decedent's estate itself which the petitioner represents.

So how can he now complain.

WHEREFORE, the petition is DENIED, with costs

against the petitioner. It is so ordered,

APOLINARIA AUSTRIA-MAGAT, petitioner,

vs. HON. COURT OF APPEALS and

FLORENTINO LUMUBOS, DOMINGO

COMIA, TEODORA CARAMPOT,

ERNESTO APOLO, SEGUNDA SUMPELO,

MAMERTO SUMPELO and RICARDO

SUMPELO, respondents.

D E C I S I O N

DE LEON, JR., J.:

Before us is a petition for review of the Decision[1] of

the Court of Appeals,[2] dated June 30, 1989 reversing the

Decision,[3] dated August 15, 1986 of the Regional Trial

Court (RTC) of Cavite, Branch 17. The Decision of the

RTC dismissed Civil Case No. 4426 which is an action

for annulment of title, reconveyance and damages.

The facts of the case are as follows:

Basilisa Comerciante is a mother of five (5) children,

namely, Rosario Austria, Consolacion Austria, herein

petitioner Apolinaria Austria-Magat, Leonardo, and one

of herein respondents, Florentino Lumubos. Leonardo

died in a Japanese concentration camp at Tarlac during

World War II.

In 1953, Basilisa bought a parcel of residential land

together with the improvement thereon covered and

described in Transfer Certificate of Title No. RT-4036 (T-

3268) and known as Lot 1, Block 1, Cavite Beach

Subdivision, with an area of 150 square meters, located in

Bagong Pook, San Antonio, Cavite City.

On December 17, 1975, Basilisa executed a

document designated as “Kasulatan sa Kaloobpala

(Donation)”. The said document which was notarized by

Atty. Carlos Viniegra, reads as follows:

KASULATANG SA KALOOBPALA

(DONATION)

TALASTASIN NG LAHAT AT SINUMAN:

Na ako, si BASELISA COMERCIANTE, may sapat na

gulang, Filipina, balo, at naninirahan sa blg. 809 L.

Javier Bagong Pook, San Antonio, Lungsod ng Kabite,

Filipinas, sa pamamagitan ng kasulatang ito’y

NAGSASALAYSAY

Na alang-alang sa mabuting paglilingkod at pagtingin na

iniukol sa akin ng apat kong mga tunay na anak na sila:

ROSARIO AUSTRIA, Filipina, may sapat na gulang,

balo, naninirahan sa 809 L. Javier, Bagong Pook, San

Antonio, Lungsod ng Kabite;

CONSOLACION AUSTRIA, Filipina, may sapat na

gulang, balo naninirahan sa 809 L. Javier, Bagong

Pook, San Antonio, Lungsod ng Kabite;

APOLINARIA AUSTRIA, Filipina, may sapat na

gulang, may asawa, naninirahan sa Pasong Kawayan,

Hen. Trias, Kabite;

FLORENTINO LUMUBOS, Filipino, may sapat na

gulang, asawa ni Encarnacion Magsino, at naninirahan

din sa 809 L. Javier, Bagong Pook, San Antonio,

Lungsod ng Kabite; ay

Kusang loob na ibinibigay ko at ipinagkakaloob ng

ganap at hindi na mababawi sa naulit ng apat na anak ko

at sa kanilang mga tagamagmana (sic), ang aking isang

lupang residential o tirahan sampu ng aking bahay nahan

ng nakatirik doon na nasa Bagong Pook din, San

Antonio, Lungsod ng Kabite, at nakikilala bilang Lote

no. 7, Block no.1, of Subdivision Plan Psd-12247;

known as Cavite Beach Subdivision, being a portion of

Lot No. 1055, of the Cadastral survey of Cavite, GLRO

Cadastral Rec. no. 9539; may sukat na 150 metros

cuadrados, at nakatala sa pangalan ko sa Titulo Torrens

bilang TCT-T-3268 (RT-4036) ng Lungsod ng Kabite;

Na ang Kaloob palang ito ay magkakabisa lamang

simula sa araw na ako’y pumanaw sa mundo, at sa ilalim

ng kondision na:

Magbubuhat o babawasin sa halaga ng nasabing lupa at

bahay ang anumang magugul o gastos sa aking libing at

nicho at ang anumang matitira ay hahatiin ng APAT na

parte, parepareho isang parte sa bawat anak kong

nasasabi sa itaas nito upang maliwanang (sic) at walang

makakalamang sinoman sa kanila;

At kaming apat na anak na nakalagda o nakadiit sa

kasulatang ito ay TINATANGGAP NAMIN ang

kaloob-palang ito ng aming magulang na si Basilisa

Comerciante, at tuloy pinasasalamatan namin siya ng

taos sa (sic) puso dahil sa kagandahan look (sic) niyang

ito sa amin.

SA KATUNAYAN, ay nilagdaan o diniitan namin ito sa

Nobeleta, Kabite, ngayong ika-17 ng Disyembre taong

1975.

HER

MARK HER

MARK

BASELISA

COMERCIANTE ROSARIO AUSTRIA

Tagakaloobpala

(Sgd.)

APOLINARIA AUSTRIA HER

MARK

Tagatanggap-

pala CONSOLACION AUSTRI

A

(Sgd.)FLORENTINO LUMUBOS

Tagatanggap-pala

(Acknowledgment signed by Notary Public C.T.

Viniegra is omitted).[4]

Basilisa and her said children likewise executed

another notarized document denominated as “Kasulatan”

which is attached to the deed of donation. The said

document states that:

KASULATAN

TALASTASIN NG MADLA:

Na kaming mga nakalagda o nakadiit sa labak nito – sila

Basilisa Comerciante at ang kanyang mga anak na sila:

Rosario Austria, Consolacion Austria, Apolonio Austria,

at Florentino Lumubos, pawang may mga sapat na

gulang, na lumagda o dumiit sa kasulatang kaloob pala,

na sinangayunan namin sa harap ng Notario Publico,

Carlos T. Viniegra, ay nagpapahayag ng sumusunod:

Na ang titulo numero TCT-T-2260 (RT-4036) ng

Lungsod ng Kabite, bahay sa loteng tirahan ng Bagong

Pook na nababanggit sa nasabing kasulatan, ay

mananatili sa poder o possession ng Ina, na si Basilisa

Comerciante habang siya ay nabubuhay at

Gayon din ang nasabing Titulo ay hindi mapapasangla o

maipagbibili ang lupa habang maybuhay ang nasabing

Basilisa Comerciante.

Sa katunayan ang nagsilagda kaming lahat sa labak nito

sa harap ng abogado Carlos T. Viniegra at dalawang

saksi.

Nobeleta, Kabite. Ika-17 ng Disyembre, 1975.[5]

On February 6, 1979, Basilisa executed a Deed of

Absolute Sale of the subject house and lot in favor of

herein petitioner Apolinaria Austria-Magat for Five

Thousand Pesos (P5,000.00). As the result of the

registration of that sale, Transfer Certificate of Title (TCT

for brevity) No. RT-4036 in the name of the donor was

cancelled and in lieu thereof TCT No. T-10434 was

issued by the Register of Deeds of Cavite City in favor of

petitioner Apolinaria Austria-Magat on February 8, 1979.

On September 21, 1983, herein respondents Teodora

Carampot, Domingo Comia, and Ernesto Apolo

(representing their deceased mother Consolacion

Austria), Ricardo, Mamerto and Segunda, all surnamed

Sumpelo (representing their deceased mother Rosario

Austria) and Florentino Lumubos filed before the

Regional Trial Court of Cavite an action, docketed as

Civil Case No. 4426 against the petitioner for annulment

of TCT No. T-10434 and other relevant documents, and

for reconveyance and damages.

On August 15,1986, the trial court dismissed Civil

Case No. 4426 per its Decision, the dispositive portion of

which reads:

WHEREFORE, in view of the foregoing, this Court

hereby renders judgment for defendant dismissing this

case and ordering plaintiffs to pay the amount

of P3,000.00 as attorney’s fees and the costs of suit.

SO ORDERED.[6]

According to the trial court, the donation is a

donation mortis causa pursuant to Article 728 of the New

Civil Code inasmuch as the same expressly provides that

it would take effect upon the death of the donor; that the

provision stating that the donor reserved the right to

revoke the donation is a feature of a donation mortis

causa which must comply with the formalities of a will;

and that inasmuch as the donation did not follow the

formalities pertaining to wills, the same is void and

produced no effect whatsoever. Hence, the sale by the

donor of the said property was valid since she remained

to be the absolute owner thereof during the time of the

said transaction.

On appeal, the decision of the trial court was

reversed by the Court of Appeals in its subject decision,

the dispositive portion of which reads, to wit:

WHEREFORE, in view of the foregoing, the appealed

decision is hereby SET ASIDE and a new one rendered:

1. declaring null and void the Deed of Sale of

Registered Land (Annex B) and Transfer

Certificate of Title No. T-10434 of the

Registry of Deeds of Cavite City (Annex E)

and ordering the cancellation thereof; and

2. declaring appellants and appellee co-owners

of the house and lot in question in

accordance with the deed of donation

executed by Basilisa Comerciante

on December 17, 1975.

No pronouncement as to costs.

SO ORDERED.[7]

The appellate court declared in its decision that:

In the case at bar, the decisive proof that the deed is a

donation inter vivos is in the provision that :

Ibinibigay ko at ipinagkakaloob ng ganap

at hindi mababawi sa naulit na apat na

anak ko at sa kanilang mga tagapagmana,

ang aking lupang residential o tirahan

sampu ng aking bahay nakatirik doon xxx.

(emphasis supplied)

This is a clear expression of the irrevocability of the

conveyance. The irrevocability of the donation is a

characteristic of a donation inter vivos. By the words

“hindi mababawi”, the donor expressly renounced the

right to freely dispose of the house and lot in question.

The right to dispose of a property is a right essential to

full ownership. Hence, ownership of the house and lot

was already with the donees even during the donor’s

lifetime. xxx

xxx

xxx xxx

In the attached document to the deed of donation, the

donor and her children stipulated that:

Gayon din ang nasabing titulo ay hindi mapapasangla o

maipagbibili ang lupa habang may buhay ang nasabing

Basilisa Comerciante.”

The stipulation is a reiteration of the irrevocability of the

dispossession on the part of the donor. On the other

hand, the prohibition to encumber, alienate or sell the

property during the lifetime of the donor is a recognition

of the ownership over the house and lot in issue of the

donees for only in the concept of an owner can one

encumber or dispose a property.[8]

Hence this appeal grounded on the following

assignment of errors:

I

THE RESPONDENT COURT OF APPEALS,

WITH DUE RESPECT, IGNORED THE

RULES OF INTERPRETATION OF

CONTRACTS WHEN IT CONSIDERED

THE DONATION IN QUESTION ASINTER

VIVOS.

II

THE RESPONDENT COURT OF APPEALS,

AGAIN WITH DUE RESPECT, ERRED IN

NOT HOLDING THAT THE PRESENT

ACTION HAS PRESCRIBED UNDER THE

STATUTE OF LIMITATIONS.[9]

Anent the first assignment of error, the petitioner

argues that the Court of Appeals erred in ruling that the

donation was a donation inter vivos. She claims that in

interpreting a document, the other relevant provisions

therein must be read in conjunction with the rest. While

the document indeed stated that the donation was

irrevocable, that must be interpreted in the light of the

provisions providing that the donation cannot be

encumbered, alienated or sold by anyone, that the

property donated shall remain in the possession of the

donor while she is alive, and that the donation shall take

effect only when she dies. Also, the petitioner claims that

the donation is mortis causa for the reason that the

contemporaneous and subsequent acts of the donor,

Basilisa Comerciante, showed such intention. Petitioner

cites the testimony of Atty. Viniegra, who notarized the

deed of donation, that it was the intent of the donor to

maintain control over the property while she was alive;

that such intent was shown when she actually sold the lot

to herein petitioner.

We affirm the appellate court’s decision.

The provisions in the subject deed of donation that

are crucial for the determination of the class to which the

donation belongs are, as follows:

xxx

xxx xxx

xxx(I)binibigay ko at ipinagkakaloob ng ganap at

hindi mababawi sa naulit na apat na anak ko at sa

kanilang mga tagapagmana, ang aking lupang

residential o tirahan sampu ng aking bahay

nakatirik doon na nasa Bagong Pook din, San

Antonio, Lungsod ng Kabite

xxx

xxx xxx

Na ang Kaloob palang ito ay magkakabisa lamang

simula sa araw na ako’y pumanaw sa mundo, xxx.

xxx

xxx xxx

Na ang titulo numero TCT-T-2260 (RT-4036) ng

Lungsod ng Kabite, bahay sa loteng tirahan ng

Bagong Pook na nababanggit sa nasabing

kasulatan, ay mananatili sa poder o possesion ng

Ina, na si Basilisa Comerciante habang siya ay

nabubuhay at

Gayon din ang nasabing Titulo ay hindi

mapapasangla o maipagbibili ang lupa habang

maybuhay ang nasabing Basilisa Comerciante

xxx.

It has been held that whether the donation is inter

vivos or mortis causa depends on whether the donor

intended to transfer ownership over the properties upon

the execution of the deed.[10] In Bonsato v. Court of

Appeals,[11] this Court enumerated the characteristics of a

donation mortis causa, to wit:

(1) It conveys no title or ownership to the

transferee before the death of the transferor;

or, what amounts to the same thing, that the

transferor should retain the ownership (full

or naked) and control of the property while

alive;

(2) That before his death, the transfer

should be revocable by the transferor at

will, ad nutum; but revocability may be

provided for indirectly by means of a

reserved power in the donor to dispose of the

properties conveyed;

(3) That the transfer should be void if the

transferor should survive the transferee.

Significant to the resolution of this issue is the

irrevocable character of the donation in the case at bar.

In Cuevas v. Cuevas,[12] we ruled that when the deed of

donation provides that the donor will not dispose or take

away the property donated (thus making the donation

irrevocable), he in effect is making a donation inter vivos.

He parts away with his naked title but maintains beneficial

ownership while he lives. It remains to be a donation inter

vivos despite an express provision that the donor

continues to be in possession and enjoyment of the

donated property while he is alive. In the Bonsato case,

we held that:

(W)hat is most significant [in determining the type of

donation] is the absence of stipulation that the donor

could revoke the donations; on the contrary, the deeds

expressly declare them to be “irrevocable”, a quality

absolutely incompatible with the idea of

conveyances mortis causa where revocability is of the

essence of the act, to the extent that a testator can not

lawfully waive or restrict his right of revocation (Old

Civil Code, Art.737; New Civil Code, Art. 828).[13]

Construing together the provisions of the deed of

donation, we find and so hold that in the case at bar the

donation is inter vivos. The express irrevocability of the

same (“hindi na mababawi”) is the distinctive standard

that identifies that document as a donation inter vivos. The

other provisions therein which seemingly make the

donation mortis causa do not go against the irrevocable

character of the subject donation. According to the

petitioner, the provisions which state that the same will

only take effect upon the death of the donor and that there

is a prohibition to alienate, encumber, dispose, or sell the

same, are proofs that the donation is mortis causa. We

disagree. The said provisions should be harmonized with

its express irrevocability. In Bonsato where the donation

per the deed of donation would also take effect upon the

death of the donor with reservation for the donor to enjoy

the fruits of the land, the Court held that the said

statements only mean that “after the donor’s death, the

donation will take effect so as to make the donees the

absolute owners of the donated property, free from all

liens and encumbrances; for it must be remembered that

the donor reserved for himself a share of the fruits of the

land donated.”[14]

In Gestopa v. Court of Appeals,[15] this Court held

that the prohibition to alienate does not necessarily defeat

the inter vivos character of the donation. It even highlights

the fact that what remains with the donor is the right of

usufruct and not anymore the naked title of ownership

over the property donated. In the case at bar, the provision

in the deed of donation that the donated property will

remain in the possession of the donor just goes to show

that the donor has given up his naked title of ownership

thereto and has maintained only the right to use (jus

utendi) and possess (jus possidendi) the subject donated

property.

Thus, we arrive at no other conclusion in that the

petitioner’s cited provisions are only necessary

assurances that during the donor’s lifetime, the latter

would still enjoy the right of possession over the property;

but, his naked title of ownership has been passed on to the

donees; and that upon the donor’s death, the donees would

get all the rights of ownership over the same including the

right to use and possess the same.

Furthermore, it also appeared that the provision in

the deed of donation regarding the prohibition to alienate

the subject property is couched in general terms such that

even the donor is deemed included in the said prohibition

(“Gayon din ang nasabing Titulo ay hindi mapapasangla

o maipagbibili ang lupa habang maybuhay ang nasabing

Basilisa Comerciante”). Both the donor and the donees

were prohibited from alienating and encumbering the

property during the lifetime of the donor. If the donor

intended to maintain full ownership over the said property

until her death, she could have expressly stated therein a

reservation of her right to dispose of the same. The

prohibition on the donor to alienate the said property

during her lifetime is proof that naked ownership over the

property has been transferred to the donees. It also

supports the irrevocable nature of the donation

considering that the donor has already divested herself of

the right to dispose of the donated property. On the other

hand, the prohibition on the donees only meant that they

may not mortgage or dispose the donated property while

the donor enjoys and possesses the property during her

lifetime. However, it is clear that the donees were already

the owners of the subject property due to the irrevocable

character of the donation.

The petitioner argues that the subsequent and

contemporaneous acts of the donor would show that her

intention was to maintain control over her properties

while she was still living. We disagree. Respondent

Domingo Comia testified that sometime in 1977 or prior

to the sale of the subject house and lot, his grandmother,

the donor in the case at bar, delivered the title of the said

property to him; and that the act of the donor was a

manifestation that she was acknowledging the ownership

of the donees over the property donated.[16] Moreover,

Atty. Viniegra testified that when the donor sold the lot to

the petitioner herein, she was not doing so in accordance

with the agreement and intent of the parties in the deed of

donation; that she was disregarding the provision in the

deed of donation prohibiting the alienation of the subject

property; and that she knew that the prohibition covers her

as well as the donees.[17]

Another indication in the deed of donation that the

donation is inter vivos is the acceptance clause therein of

the donees. We have ruled that an acceptance clause is a

mark that the donation is inter vivos. Acceptance is a

requirement for donations inter vivos. On the other hand,

donations mortis causa, being in the form of a will, are

not required to be accepted by the donees during the

donor’s lifetime.[18]

We now rule on whether the donor validly revoked

the donation when one of her daughters and donees,

Consolacion Austria, violated the prohibition to

encumber the property. When

Consolacion Austriamortgaged the subject property to a

certain Baby Santos, the donor, Basilisa Comerciante,

asked one of the respondents herein, Domingo Comia, to

redeem the property, which the latter did. After the

petitioner in turn redeemed the property from respondent

Domingo, the donor, Basilisa, sold the property to the

petitioner who is one of the donees.

The act of selling the subject property to the

petitioner herein cannot be considered as a valid act of

revocation of the deed of donation for the reason that a

formal case to revoke the donation must be filed pursuant

to Article 764 of the Civil Code[19] which speaks of

an action that has a prescriptive period of four (4) years

from non-compliance with the condition stated in the deed

of donation. The rule that there can be automatic

revocation without benefit of a court action does not apply

to the case at bar for the reason that the subject deed of

donation is devoid of any provision providing for

automatic revocation in event of non-compliance with the

any of the conditions set forth therein. Thus, a court

action is necessary to be filed within four (4) years from

the non-compliance of the condition violated. As regards

the ground of estoppel, the donor, Basilisa, cannot invoke

the violation of the provision on the prohibition to

encumber the subject property as a basis to revoke the

donation thereof inasmuch as she acknowledged the

validity of the mortgage executed by the donee,

Consolacion Austria, when the said donor asked

respondent Domingo Comia to redeem the same.

Thereafter, the donor, Basilisa likewise asked respondent

Florentino Lumubos and the petitioner herein to redeem

the same.[20] Those acts implied that the donees have the

right of control and naked title of ownership over the

property considering that the donor, Basilisa condoned

and acknowledged the validity of the mortgage executed

by one of the donees, Consolacion Austria.

Anent the second issue, the petitioner asserts that the

action, against the petitioner, for annulment of TCT No.

T-10434 and other relevant documents, for reconveyance

and damages, filed by the respondents on September 21,

1983 on the ground of fraud and/or implied trust has

already prescribed. The sale happened on February 6,

1979 and its registration was made on February 8,

1979 when TCT No. RT-4036 in the name of the donor

was cancelled and in lieu thereof TCT No. T-10434 in

the name of the petitioner was issued. Thus, more than

four (4) years have passed since the sale of the subject real

estate property was registered and the said new title

thereto was issued to the petitioner. The petitioner

contends that an action for reconveyance of property on

the ground of alleged fraud must be filed within four (4)

years from the discovery of fraud which is from the date

of registration of the deed of sale on February 8, 1979;

and that the same prescriptive period also applies to a suit

predicated on a trust relationship that is rooted on fraud of

breach of trust.

When one’s property is registered in another’s name

without the former’s consent, an implied trust is created

by law in favor of the true owner. Article 1144 of the New

Civil Code provides:

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. (n)

Thus, an action for reconveyance of the title to the rightful

owner prescribes in ten (10) years from the issuance of

the title.[21] It is only when fraud has been committed that

the action will be barred after four (4) years.[22]

However, the four-year prescriptive period is not

applicable to the case at bar for the reason that there is no

fraud in this case. The findings of fact of the appellate

court which are entitled to great respect, are devoid of any

finding of fraud. The records do not show that the donor,

Basilisa, and the petitioner ever intended to defraud the

respondents herein with respect to the sale and ownership

of the said property. On the other hand, the sale was

grounded upon their honest but erroneous interpretation

of the deed of donation that it is mortis causa, not inter

vivos; and that the donor still had the rights to sell or

dispose of the donated property and to revoke the

donation.

There being no fraud in the trust relationship

between the donor and the donees including the herein

petitioner, the action for reconveyance prescribes in ten

(10) years. Considering that TCT No. T-10434 in the

name of the petitioner and covering the subject property

was issued only on February 8, 1979, the filing of the

complaint in the case at bar in 1983 was well within the

ten-year prescriptive period.

The Court of Appeals, therefore, committed no

reversible error in its appealed Decision.

WHEREFORE, the appealed Decision dated June

30, 1989 of the Court of Appeals is hereby AFFIRMED.

No pronouncement as to costs.

SO ORDERED.