BY: ABAN RYAN JAMES B.

01. MARCOS v. CA
G.R. No. 120880, June 5, 1997

FACTS:
On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii,
USA. 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.”

The investigation disclosed that the Marcoses failed to file a written notice of the death
of the decedent, an estate tax returns, 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.

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.
Thereafter, the BIR Commissioner issued 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.

Notices of sale at public auction were posted, and the public auction for the sale of the
eleven (11) parcels of land took place. There being no bidder, the lots were declared
forfeited in favor of the government.

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.

After the parties had pleaded their case, the Court of Appeals rendered its Decision
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.

Petitioner’s Contentions:
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 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.
Respondent’s Contentions:
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.

ISSUE:
Whether or not the Bureau of Internal Revenue has the authority 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.

HELD:
YES.

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.

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. Thus, it was in Vera vs. Fernandez 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.

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. Thus, 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.

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.

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 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
Article 223 of the NIRC, 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.

02. RUIZ v. CA
G.R. No. 118671, January 29, 1996

FACTS:
On June 27, 1987, Hilario M. Ruiz executed a holographic will naming as his heirs his
only son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz
Montes, and his three granddaughters, private respondents Maria Cathryn, Candice
Albertine and Maria Angeline, all children of Edmond Ruiz. The testator bequeathed to
his heirs substantial cash, personal and real properties and named Edmond Ruiz
executor of his estate. On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the
cash component of his estate was distributed among Edmond Ruiz and private
respondents in accordance with the decedents will.

One of the properties of the estate - the house and lot at No. 2 Oliva Street, Valle
Verde IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine and
Maria Angeline - was leased out by Edmond Ruiz to third persons. The probate court
ordered Edmond to deposit with the Branch Clerk of Court the rental deposit and
payments totalling P540,000.00 representing the one-year lease of the Valle Verde
property. In compliance, Edmond turned over the amount of P348,583.56, representing
the balance of the rent after deducting P191,416.14 for repair and maintenance
expenses on the estate.

In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate
taxes on the real properties of the estate. The probate court approved the release of
P7,722.006.

On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor, filed an Ex-
Parte Motion for Release of Funds. It prayed for the release of the rent payments
deposited with the Branch Clerk of Court. Respondent Montes opposed the motion and
concurrently filed a Motion for Release of Funds to Certain Heirs and Motion for
Issuance of Certificate of Allowance of Probate Will. Montes prayed for the release of
the said rent payments to Maria Cathryn, Candice Albertine and Maria Angeline and for
the distribution of the testators properties, specifically the Valle Verde property and the
Blue Ridge apartments, in accordance with the provisions of the holographic will.

On August 26, 1993, the probate court denied petitioners motion for release of funds
but granted respondent Montes motion in view of petitioners lack of opposition. It thus
ordered the release of the rent payments to the decedents three granddaughters. It
further ordered the delivery of the titles to and possession of the properties bequeathed
to the three granddaughters and respondent Montes upon the filing of a bond of
P50,000.00. Petitioner moved for reconsideration alleging that he actually filed his
opposition to respondent Montes motion for release of rent payments which opposition
the court failed to consider. Petitioner likewise reiterated his previous motion for release
of funds.

On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing
his motion for release of funds in view of the fact that the lease contract over Valle
Verde property had been renewed for another year. Despite petitioners manifestation, the
probate court, on December 22, 1993, ordered the release of the funds to Edmond but
only such amount as may be necessary to cover the expenses of administration and
allowances for support of the testators three granddaughters subject to collation and
deductible from their share in the inheritance. The court, however, held in abeyance the
release of the titles to respondent Montes and the three granddaughters until the lapse
of six months from the date of first publication of the notice to creditors.

Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of
discretion on the part of respondent judge, the appellate court dismissed the petition and
sustained the probate court’s order.
ISSUES:
Whether or not the probate court, after admitting the will to probate but before payment
of the estates debts and obligations, has the authority:
(1) to grant an allowance from the funds of the estate for the support of the testators
grandchildren;
(2) to order the release of the titles to certain heirs; and,
(3) to grant possession of all properties of the estate to the executor of the will.

HELD:

1. No. Section 3 of Rule 83 of the Revised Rules of Court provides:

Sec. 3. Allowance to widow and family. - The widow and minor or incapacitated children
of a deceased person, during the settlement of the estate, shall receive therefrom under
the direction of the court, such allowance as are provided by law.

It is settled that allowances for support under Section 3 of Rule 83 should not be
limited to the minor or incapacitated children of the deceased. Article 188 of the Civil
Code of the Philippines, the substantive law in force at the time of the testators death,
provides that during the liquidation of the conjugal partnership, the deceased’s legitimate
spouse and children, regardless of their age, civil status or gainful employment, are
entitled to provisional support from the funds of the estate. The law is rooted on the
fact that the right and duty to support, especially the right to education, subsist even
beyond the age of majority. Be that as it may, grandchildren are not entitled to
provisional support from the funds of the decedents estate. The law clearly limits
the allowance to widow and children and does not extend it to the deceased’s
grandchildren, regardless of their minority or incapacity. It was error, therefore, for
the appellate court to sustain the probate courts order granting an allowance to the
grandchildren of the testator pending settlement of his estate.

2. No. An order releasing titles to properties of the estate amounts to an advance

distribution of the estate which is allowed only under the following conditions:

Sec. 2. Advance distribution in special proceedings. - Notwithstanding a pending

controversy or appeal in proceedings to settle the estate of a decedent, the court may,
in its discretion and upon such terms as it may deem proper and just, permit that such
part of the estate as may not be affected by the controversy or appeal be distributed
among the heirs or legatees, upon compliance with the conditions set forth in Rule 90 of
these Rules.

And Rule 90 provides that:

xxx xxx xxx

No distribution shall be allowed until the payment of the obligations above-

mentioned has been made or provided for, unless the distributees, or any of
them, give a bond, in a sum to be fixed by the court, conditioned for the payment
of said obligations within such time as the court directs.
In settlement of estate proceedings, the distribution of the estate properties can only be
made: (1) after all the debts, funeral charges, expenses of administration, allowance to
the widow, and estate tax have been paid; or (2) before payment of said obligations
only if the distributees or any of them gives a bond in a sum fixed by the court
conditioned upon the payment of said obligations within such time as the court directs,
or when provision is made to meet those obligations.

In the case at bar, the probate court ordered the release of the titles to the Valle
Verde property and the Blue Ridge apartments to the private respondents after the lapse
of six months from the date of first publication of the notice to creditors. The questioned
order speaks of notice to creditors, not payment of debts and obligations. Hilario Ruiz
allegedly left no debts when he died but the taxes on his estate had not hitherto been
paid, much less ascertained. The estate tax is one of those obligations that must be
paid before distribution of the estate. If not yet paid, the rule requires that the
distributees post a bond or make such provisions as to meet the said tax obligation in
proportion to their respective shares in the inheritance. Notably, at the time the order
was issued the properties of the estate had not yet been inventoried and
appraised.

It was also too early in the day for the probate court to order the release of the
titles six months after admitting the will to probate. The probate of a will is
conclusive as to its due execution and extrinsic validity and settles only the question of
whether the testator, being of sound mind, freely executed it in accordance with the
formalities prescribed by law. Questions as to the intrinsic validity and efficacy of the
provisions of the will, the legality of any devise or legacy may be raised even after the
will has been authenticated.

The intrinsic validity of Hilarios holographic will was controverted by petitioner before the
probate court in his Reply to Montes Opposition to his motion for release of funds and
his motion for reconsideration of the August 26, 1993 order of the said court. Therein,
petitioner assailed the distributive shares of the devisees and legatees inasmuch as his
fathers will included the estate of his mother and allegedly impaired his legitime as an
intestate heir of his mother. The Rules provide that if there is a controversy as to who
are the lawful heirs of the decedent and their distributive shares in his estate, the
probate court shall proceed to hear and decide the same as in ordinary cases.

3. No. The right of an executor or administrator to the possession and management of

the real and personal properties of the deceased is not absolute and can only be
exercised so long as it is necessary for the payment of the debts and expenses of
administration, Section 3 of Rule 84 of the Revised Rules of Court explicitly provides:

Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer
estate not willed. An executor or administrator shall have the right to the possession
and management of the real as well as the personal estate of the deceased so long as
it is necessary for the payment of the debts and expenses for administration.

It was correct for the probate court to require him to submit an accounting of the
necessary expenses for administration before releasing any further money in his favor. It
was relevantly noted by the probate court that petitioner had deposited with it only a
portion of the one-year rental income from the Valle Verde property. Petitioner did not
deposit its succeeding rents after renewal of the lease. Neither did he render an
accounting of such funds. Petitioner must be reminded that his right of ownership over
the properties of his father is merely inchoate as long as the estate has not been
fully settled and partitioned. As executor, he is a mere trustee of his fathers
estate. The funds of the estate in his hands are trust funds and he is held to the
duties and responsibilities of a trustee of the highest order. He cannot unilaterally assign
to himself and possess all his parents properties and the fruits thereof without first
submitting an inventory and appraisal of all real and personal properties of the
deceased, rendering a true account of his administration, the expenses of administration,
the amount of the obligations and estate tax, all of which are subject to a determination
by the court as to their veracity, propriety and justness.
03. Commissioner of Internal Revenue v. CA
G.R. No. 123206, March 22, 2000

FACTS:
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). 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.

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. The trial court also appointed Josefina Pajonar as the
regular administratrix of Pedro Pajonar's estate.

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 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.

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

The Commissioner of Internal Revenue filed a motion for reconsideration of the CTA's
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.
The CTA issued the assailed Resolution 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.

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. However, the Court of Appeals denied the
Commissioner's petition.
ISSUE:
Whether or not 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.

HELD:
Yes. Judicial expenses are expenses of administration. 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."
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. This distinction has been carried over to our jurisdiction.

Thus, in Lorenzo v. Posadas 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. 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.

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.

04. DIZON v. CTA

G.R. No. 140944, April 30, 2008

FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the
probate of his will was filed with Branch 51 of the Regional Trial Court (RTC) of Manila
(probate court). 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).

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, 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, Atty. Gonzales
wrote a letter the BIR Regional Director for San Pablo City and filed the estate tax
return addressed to with the same BIR Regional Office, showing therein a NIL estate tax
liability.

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued
Certification Nos. 2052 and 2053 stating that the taxes due on the transfer of real and
personal properties 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.

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.

On November 26, 1991, the Assistant Commissioner for Collection of the BIR issued Estate
Tax Assessment Notice demanding the payment of P66,973,985.40 as deficiency estate tax.
(Note: Nothing was mentioned as to the basis of the BIR. However, in the SC ruling, it was
discussed that there were debts of the estate condoned by the creditors.)

Atty. Gonzales moved for the reconsideration of the said estate tax assessment. However,
the BIR Commissioner denied the request and reiterated that the estate is liable for the
payment of P 66,973,985.40 as deficiency estate tax. Petitioner then filed a petition for review
before the respondent CTA. Trial on the merits ensued.

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 (Total deficiency estate tax P 37,419,493.71
exclusive of 20% interest from due date of its payment until full payment thereof.) The CA
affirmed the ruling of the CTA.

ISSUE:
Whether or not the CA erred in affirming the CTA in the latter's determination of the
deficiency estate tax imposed against the Estate.
HELD:

Yes. It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. The second issue in this case involves the construction of Section 79 of the
Internal Revenue Code of the National (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.

The decisions of American courts construing the federal tax code are entitled to great
weight in the interpretation of our own tax laws. 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. 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., 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.

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. 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. Any doubt on whether a person, article or
activity is taxable is generally resolved against taxation. 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. Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of allowable deductions.

BY: ABRAGAN, ROXANNE

5. Commissioner of Internal Revenue vs. Gonzales

(G.R. No. L-19495, November 24, 1966)
Facts:
 Matias Yusay, a resident of Iloilo City, died intestate, leaving two heirs, namely, Jose S.
Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child.
Intestate proceedings for the settlement of his estate were instituted in the Court of First
Instance of Iloilo.
 Jose Yusay was appointed as the administrator. He then filed with the Bureau of Internal
Revenue (BIR) an estate tax return covering several properties. However, the return
mentioned no heir. The BIR made its investigation, finding that the value of the
properties are taxable with estate and inheritance taxes in the sums of P6,849.78 and
P16,970.63, respectively.
 On January 25, 1955 the Bureau of Internal Revenue increased the assessment to
P8,225.89 as estate tax and P22,117.10 as inheritance tax plus delinquency interest and
demanded payment thereof on or before February 28, 1955.
 Meanwhile, on February 16, 1955, the Court of First Instance of Iloilo required Jose S.
Yusay to show proof of payment of said estate and inheritance taxes.
 Jose Yusay asked for an extention of time to pay the tax and filed a surety bond to
guarantee payment but it was denied by the BIR Commissioner. Then he issued a
warrant of distraint and levy which he transmitted to the Municipal Treasurer of Pototan
for execution. This warrant was not enforced because all the personal properties subject
to distraint were located in Iloilo City.
 On May 30, 1956, the commissioner appointed by the Court of First Instance for such
purpose, submitted a reamended project of partition. More than a year later, particularly
on July 12, 1957, an agent of the Bureau of Internal Revenue apprised the
Commissioner of Internal Revenue of the existence of said reamended project of
partition. Whereupon, the Internal Revenue Commissioner caused the estate of Matias
Yusay to be reinvestigated for estate and inheritance tax liability. In the said
reinvestigation, it was assessed that there is due a total estate and inheritance taxes of
P97,723.96.
 CIR: In view of the demise of Jose S. Yusay, said assessment was sent to his widow,
Mrs. Florencia Piccio Vda. de Yusay, who succeeded him in the administration of the
estate of Matias Yusay.No payment has been made, causing the CIR to file a proof of
claim for the estate and inheritance taxes due and a motion for its allowance with the
settlement court in voting priority of lien pursuant to Section 315 of the Tax Code.
 On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an answer to
the proof of claim alleging non-receipt of the assessment of February 13, 1958, the
existence of two other administrators, and her willingness to pay the taxes
corresponding to her share, and praying for deferment of the resolution on the motion for
the payment of taxes until after a new assessment corresponding to her share was
issued.
 On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated
February 13, 1958. She claimed that the right to make the same had prescribed
inasmuch as more than five years had elapsed since the filing of the estate and
inheritance tax return on May 11, 1949. She therefore requested that the assessment be
declared invalid and without force and effect. This request was rejected by the
Commissioner.
  CTA: On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals
assailing the legality of the assessment dated February 13, 1958. After hearing the
parties, said Court declared the right of the Commissioner of Internal Revenue to assess
the estate and inheritance taxes in question to have prescribed. Hence, the
Commissioner of Internal Revenue appealed to this Court.
Issues:
1. Whether or not the right of the Commissioner of Internal Revenue to assess the estate and
inheritance taxes in question prescribed.
2. Whether or not Lilia Yusay is liable only for the one-third of the estate of Matias Yusay.

Ruling and Ratio:

1. No.
 Accordingly, for purposes of determining whether or not the Commissioner's assessment
of February 13, 1958 is barred by prescription, Section 332(a) which is an exception to
Section 331 of the Tax Code finds application. We quote Section 332(a):
SEC. 332. Exceptions as to 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 years after the discovery of
the falsity, fraud or omission.
In the case at bar, the Commissioner came to know of the identity of the heirs on
September 24, 1953 and the huge under declaration in the gross estate on July 12, 1957.
From the latter date, Section 94 of the Tax Code obligated him to make a return or amend
one already filed based on his own knowledge and information obtained through testimony
or otherwise, and subsequently to assess thereon the taxes due. The running of the period
of limitations under Section 332(a) of the Tax Code should therefore be reckoned from
said date for, as aforesaid, it is from that time that the Commissioner was expected by law
to make his return and assess the tax due thereon. From July 12, 1957 to February 13,
1958, the date of the assessment now in dispute, less than ten years have elapsed.
Hence, prescription did not abate the Commissioner's right to issue said assessment.
2. No.
 It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to
the Court of Tax Appeals. Thereupon, the Commissioner of Internal Revenue questioned
her legal capacity to institute the appeal on the ground that she administered only one-
third of the estate of Matias Yusay. In opposition, she espoused the view, which was
sustained by the Tax Court, that in co-administration, the administratrices are regarded
as one person and the acts of one of them in relation to the regular administration of the
estate are deemed to be the acts of all; hence, each administratrix can represent the
whole estate.
 In advancing such proposition, Lilia Yusay Gonzales represented the whole estate and
hoped to benefit from the favorable outcome of the case. For the same reason that she
represented her co-administratrix and the whole estate of Matias Yusay, she risked
being ordered to pay the whole assessment, should the assessment be sustained.
  It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the
estate and will receive as her share only said portion, for her right to the estate comes
after taxes. As an administatrix, she is liable for the entire estate tax. As an heir, she is
liable for the entire inheritance tax although her liability would not exceed the amount of
her share in the estate.

II- ESTATE TAX CASES

1. Pirovano vs. CIR
(G.R. No. L-19865, July 31, 1965)

Facts:
  Sometime in the early part of 1941, De la Rama Steamship Co. insured the life of said
Enrico Pirovano, who was then its President and General Manager until the time of his
death, with various Philippine and American insurance companies for a total sum of one
million pesos, designating itself as the beneficiary of the policies, obtained by it.
 Due to the Japanese occupation of the Philippines during the second World War, the
Company was unable to pay the premiums on the policies issued by its Philippine
insurers and these policies lapsed, while the policies issued by its American insurers
were kept effective and subsisting. During the said Japanese occupation Enrico
Pirovano also died.
 After the liberation from the Japanese forces, the Board of Directors of the company
passed a resolution granting to the heirs of Pirovano his insurance proceeds and waived
the company’s proceeds from the life insurance policies of the American insurers in favor
of said heirs as donation.
 A Memorandum of Agreement was entered into by the Company and the guardian of the
heirs, Estefania to carry out the resolution.
 The Company repeatedly made ratifications on various resolutions as to the payment of
the donation, until March 8, 1951, where the majority stockholders of the Company voted
to revoke the resolution approving the donation in favor of the Pirovano children.
 CFI: Estefania brought an action for the recovery of said amount, plus interest and
damages against De la Rama Steamship Co., in the Court of First Instance of Rizal,
which case ultimately culminated to an appeal to this Court. The Court in the prior case
held that the donation was valid and remunerative in nature. The above decision
became final and executory. The Company made partial payments to the heirs.
 On March 6, 1955, respondent Commissioner of Internal Revenue assessed the
amount of P60,869.67 as donees' gift tax, inclusive of surcharges, interests and other
penalties, against each of the petitioners-appellants, or for the total sum of P243,478.68;
and, on April 23, 1955, a donor's gift tax in the total amount of P34,371.76 was also
assessed against De la Rama Steamship Co., which the latter paid.
 This was contested by the petitioners-appellants where they filed two cases before the
Court of Tax Appeals ( first case- disputing the legality of the assessment of the donor’s
tax; second case- claim for refund for the gift tax already paid).
 CTA: The CTA rendered its decision in the two cases in favor of the petitioners-
appellants. The Court ruled that the BIR erroneously assessed and collected the taxes,
and that they are entitled to the refund.
 The Court ruled that the BIR erroneously assessed and collected the taxes, and that
they are entitled to the refund. Petitioners-appellants herein filed a motion to reconsider
the above decision, which the lower court denied. Hence, this appeal.

Issue: Whether or not the donation made is a taxable gift under the Tax Code.
Ruling: Yes. The decision of the Court of Tax Appeals is affirmed. Costs against petitioners
Pirovano.
Ratio:
 The argument for petitioners-appellants fails to take into account the fact that neither in
Spanish nor in Anglo-American law was it considered that past services, rendered
without relying on a coetaneous promise, express or implied, that such services would
be paid for in the future, constituted cause or consideration that would make a
conveyance of property anything else but a gift or donation. This conclusion flows from
the text of Article 619 of the Code of 1889 (identical with Article 726 of the present Civil
Code of the Philippines):
When a person gives to another a thing ... on account of the latter's merits or of the
services rendered by him to the donor, provided they do not constitute a demandable
debt, ..., there is also a donation. ... .
 There is nothing on record to show that when the late Enrico Pirovano rendered services
as President and General Manager of the De la Rama Steamship Co. he was not fully
compensated for such services, or that, because they were "largely responsible for the
rapid and very successful development of the activities of the company". The fact that
his services contributed in a large measure to the success of the company did not give
rise to a recoverable debt, and the conveyances made by the company to his heirs
remain a gift or donation. That the tax court regarded the conveyance as a simple
donation, instead of a remuneratory one as it was declared to be in our previous
decision, is but an innocuous error; whether remuneratory or simple, the conveyance
remained a gift, taxable under Chapter 2, Title III of the Internal Revenue Code.

 Moreover, then appellants also contend, the entire property or right donated should not
be considered as a gift for taxation purposes; only that portion of the value of the
property or right transferred, if any, which is in excess of the value of the services
rendered should be considered as a taxable gift. They cite in support Section 111 of the
Tax Code which provides that —
“Where property is transferred for less, than an adequate and full consideration in money
or money's worth, then the amount by which the value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift.”
The flaw in this argument lies in the fact that, as copied from American law, the term
consideration used in this section refers to the technical "consideration" defined by the
American Law Institute (Restatement of Contracts) as "anything that is bargained for by
the promisor and given by the promisee in exchange for the promise" (Also, Corbin on
Contracts, Vol. I, p. 359). But, as we have seen, Pirovano's successful activities as
officer of the De la Rama Steamship Co. cannot be deemed such consideration for the
gift to his heirs, since the services were rendered long before the Company ceded the
value of the life policies to said heirs; cession and services were not the result of one
bargain or of a mutual exchange of promises.

2. GESTOPA VS. COURT OF APPEALS

(G.R. No. 111904, October 5, 2000)

Facts:

 Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered
lands. They executed three deeds of donation mortis causa, two of which are dated
March 4, 1965 and another dated October 13, 1966, in favor of private respondent
Mercedes Danlag-Pilapil. All deeds contained the reservation of the rights of the
donors (1) to amend, cancel or revoke the donation during their lifetime, and (2) to
sell, mortgage, or encumber the properties donated during the donors' lifetime, if
deemed necessary.
 Diego, with the consent of his wife, executed a deed of donation inter vivos covering
the aforementioned parcels of land plus two other parcels again in favor of private
respondent Mercedes. This contained two conditions, that (1) the Danlag spouses
shall continue to enjoy the fruits of the land during their lifetime, and that (2) the
donee cannot sell or dispose of the land during the lifetime of the said spouses,
without their prior consent and approval. Mercedes caused the transfer of the
parcels' tax declaration to her name and paid the taxes on them.
 The spouses later on sold parcels 3 and 4 to herein petitioners, Mr. and Mrs.
Agripino Gestopa. They then executed a deed of revocation for the six parcels of
land donated inter vivos.

 On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with the RTC a
petition against the Gestopas and the Danlags, for quieting of title over the above
parcels of land. She alleged that the following:
1. She was an illegitimate daughter of Diego Danlag
2. That she lived and rendered incalculable beneficial services to Diego and
his mother, Maura Danlag, when the latter was still alive.
3. In recognition of the services she rendered, Diego executed a Deed of
Donation on March 20, 1973, conveying to her the six (6) parcels of
land. She accepted the said donation.
4. Through machination, intimidation and undue influence, Diego persuaded
the husband of Mercedes, Eulalio Pilapil, to buy two of the six parcels
covered by the deed of donation. Said donation inter vivos was coupled with
conditions and, according to Mercedes which she faithfully complied with,
not causing any legal grounds to revoke the donation.
 In their opposition, the Gestopas and the Danlags averred that the deed of donation
dated January 16, 1973 was null and void because it was obtained by Mercedes through
machinations and undue influence.
 RTC: The trial court rendered its decision in favor of Diego Danlag. The donations made
were deemed revoked and Danlag was declared by the court as the absolute and
exclusive owner of the six parcels of land. The trial court also ruled that the Deed of Sale
in favor of the spouses Gestopa is enforceable.
  CA: Mercedes appealed to the Court of Appeals, wherein the latter ruled in her favor,
nullifying the deed of revocation and declaring her as the absolute owner of the parcels
of land. The Court of Appeals held that the reservation by the donor of lifetime usufruct
indicated that he transferred to Mercedes the ownership over the donated properties;
that the right to sell belonged to the donee, and the donor's right referred to that of
merely giving consent; that the donor changed his intention by donating inter
vivos properties already donated mortis causa. Hence, this instant petition for review
filed by the Gestopa spouses.
Issue: Whether or not the donation made was inter vivos or mortis causa.

Ruling: The donation was inter vivos. The instant petition for review is DENIED. The assailed
decision of the Court of Appeals dated August 31, 1993, is AFFIRMED.

Ratio:
There are several reasons why the donation in the case at bar may be considered as a donation
inter vivos.
 First, in examining the deed of donation executed by the spouses Danlag, the granting
clause showed that Diego donated the properties out of love and affection for the
donee. This is a mark of a donation inter vivos. Second, the reservation of lifetime
usufruct indicates that the donor intended to transfer the naked ownership over the
properties. Third, the donor reserved sufficient properties for his maintenance in
accordance with his standing in society, indicating that the donor intended to part with
the six parcels of land. Lastly, the donee accepted the donation. In the case
of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an acceptance clause is a
mark that the donation is inter vivos. Acceptance is a requirement for donations inter
vivos. Donations mortis causa, being in the form of a will, are not required to be
accepted by the donees during the donors' lifetime.
 Second, the attending circumstances in the execution of the subject donation also
demonstrated the real intent of the donor to transfer the ownership over the subject
properties upon its execution.Prior to the execution of donation inter vivos, the Danlag
spouses already executed three donations mortis causa. As correctly observed by the
Court of Appeals, the Danlag spouses were aware of the difference between the two
donations. If they did not intend to donate inter vivos, they would not again donate the
four lots already donated mortis causa. Petitioners' counter argument that this
proposition was erroneous because six years after, the spouses changed their intention
with the deed of revocation, is not only disingenious but also fallacious. Petitioners
cannot use the deed of revocation to show the spouses' intent because its validity is one
of the issues in this case.
 Third, Petitioners assert that since private respondent purchased two of the six parcels
of land from the donor, she herself did not believe the donation was inter vivos. As aptly
noted by the Court of Appeals, however, it was private respondent's husband who
purchased the two parcels of land. As a rule, a finding of fact by the appellate court,
especially when it is supported by evidence on record, is binding on the Court. .On the
alleged purchase by her husband of two parcels, it is reasonable to infer that the
 purchase was without private respondent's consent. Purchase by her husband would
make the properties conjugal to her own disadvantage. That the purchase is against her
self-interest, weighs strongly in her favor and gives credence to her claim that her
husband was manipulated and unduly influenced to make the purchase, in the first
place.
 Fourth, another question arising from this case is whether or not the revocation made
was valid. In the case of Vda. de Arceo vs. CA, it was ruled that a valid donation, once
accepted, becomes irrevocable, except on account of officiousness, failure by the
donee to comply with the charges imposed in the donation, or ingratitude. The donor-
spouses did not invoke any of these reasons in the deed of revocation. Thus, they
cannot cause the revocation of their donation due to such failure.
 Finally, the records do not show that the donor-spouses instituted any action to revoke
the donation in accordance with Article 769 of the Civil Code. Consequently, the
supposed revocation on September 29, 1979, had no legal effect.

3. VILLANUEVA VS. BRANOCO

(G.R. No. 172804, January 24, 2011)

Facts:
 Petitioner Gonzalo Villanueva (petitioner), here represented by his heirs, sued
respondents, spouses Froilan and Leonila Branoco (respondents), in the trial court of
 Naval, Biliran to recover a 3,492 square-meter parcel of land and collect damages.
Petitioner claimed ownership over the Property through purchase from Casimiro Vere
(Vere), who, in turn, bought the Property from Alvegia Rodrigo (Rodrigo).Petitioner
declared the Property in his name for tax purposes soon after acquiring it.
 In their Answer, respondents similarly claimed ownership over the Property through
purchase from Eufracia Rodriguez (Rodriguez) to whom Rodrigo donated the Property. It
was evidenced by a two-pages deed of donation. Respondents entered the Property in
1983 and paid taxes afterwards.
 RTC: The trial court ruled for petitioner, declared him owner of the Property, and ordered
respondents to surrender possession to petitioner, and to pay damages, the value of the
Property’s produce since 1982 until petitioner’s repossession and the costs. The trial
court rejected respondents’ claim of ownership after treating the Deed as a
donation mortis causa which Rodrigo effectively cancelled by selling the Property to
Vere in 1970. Thus, by the time Rodriguez sold the Property to respondents in 1983, she
had no title to transfer.
 CA: Respondents appealed to the Court of Appeals (CA), which ruled in its favor, stating
the following:
1. That Rodriguez had been in possession of the Property as owner since 21 May
1962, subject to the delivery of part of the produce to Apoy Alve;
2. the Deed’s consideration was not Rodrigo’s death but her "love and affection"
for Rodriguez, considering the services the latter rendered;
3. Rodrigo waived dominion over the Property in case Rodriguez predeceases her,
implying its inclusion in Rodriguez’s estate; and
4. Rodriguez accepted the donation in the Deed itself, an act necessary to
effectuate donations inter vivos, not devises.
 Accordingly, the CA upheld the sale between Rodriguez and respondents, and,
conversely found the sale between Rodrigo and petitioner’s predecessor-in-interest,
Vere, void for Rodrigo’s lack of title.

Issue: Whether or not the petitioner’s title over the Property is superior to respondents’.
Ruling: No. The Court finds respondents’ title superior, and thus, affirm the decision of the CA.

Ratio:
In the case at bar, naked title had passed from Rodrigo to Rodriguez under a perfected donation
inter vivos.
 First, Rodrigo stipulated that "if the herein Donee predeceases me, the [Property] will
not be reverted to the Donor, but will be inherited by the heirs of x x x Rodriguez,"
signaling the irrevocability of the passage of title to Rodriguez’s estate, waiving
Rodrigo’s right to reclaim title. This transfer of title was perfected the moment Rodrigo
learned of Rodriguez’s acceptance of the disposition which, being reflected in the Deed,
took place on the day of its execution on 3 May 1965. Rodrigo’s acceptance of the
transfer underscores its essence as a gift in presenti, not in futuro, as only
donations inter vivos need acceptance by the recipient.
  Second, what Rodrigo reserved for herself was only the beneficial title to the Property,
evident from Rodriguez’s undertaking to "give one [half] x x x of the produce of the land
to Apoy Alve during her lifetime." Thus, the Deed’s stipulation that "the ownership shall
be vested on [Rodriguez] upon my demise," taking into account the non-reversion
clause, could only refer to Rodrigo’s beneficial title.
 Third, the existence of consideration other than the donor’s death, such as the donor’s
love and affection to the donee and the services the latter rendered, while also true of
devises, nevertheless "corroborates the express irrevocability of x x x [inter vivos]
transfers."21 Thus, the CA committed no error in giving weight to Rodrigo’s statement of
"love and affection" for Rodriguez, her niece, as consideration for the gift, to underscore
its finding.
In consideration of the statements above, it is proved that the respondent in the case at bar has
a superior right over the petitioner due to the perfected donation inter vivos made to him by
Rodrigo.
Maria Therese D. Agcopra

Donor’s Tax Case No. 4

Jarabini Del Rosario v Asuncion Ferrer
G.R. No. 187056
September 20, 2010

Facts:
Spouses Leopoldo and Guadalupe Gonzales executed a document titled Donation Mortis Causa
in favor of their children Asuncion and Emiliano, and their granddaughter, Jarabini, who is the
daughter of their predeceased son, Zoilo. The donation covered a 126-square meter lot and the
house on it, to be divided in equal shares among the donees.
The deed of donation specified that the donation shall be irrevocable and shall be respected by
the surviving donor spouse. The deed had no attestation clause and was witnessed by only 2
persons. The donees also signified their acceptance on the face of the document.
A few months after the death of Guadalupe, Leopoldo assigned his rights and interest in the
subject property to Asuncion.
In 1998, Jarabini filed a petition for probate of the August 27, 1968 deed of donation mortis
causa before the RTC of Manila. Asuncion opposed the petition, contending that Leopoldo had
assigned his rights and interests in the property to her.
RTC held that the donation was in fact one made inter vivos due to the fact that the donors
intended to transfer title over the property to the donees during the donors’ lifetime, given its
irrevocability. RTC further held that Leopoldo’s subsequent assignment was void for he had
nothing to assign.
CA reversed the RTC’s decision. It held that Jarabini cannot, through a petition for probate of the
deed of donation mortis causa, collaterally attack Leopoldo’s deed of assignment.
Issue:
Whether the donation executed by spouses Gonzales in favor of Asuncion, Emiliano, and
Jarabini was a donation mortis causa or donation inter vivos.
Ruling:
It was a donation inter vivos. The court 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. Thus, the caption on the
document is not controlling.
The court held in Austria-Magat v. Court of Appeals that irrevocability is a quality absolutely
incompatible with the idea of conveyances mortis causa, where revocability is precisely the
essence of the act. Furthermore, the court provided the following characteristics for donation
mortis causa:
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

Otherwise stated, express irrevocability of the donation is the distinctive standard that identifies
the document as a donation inter vivos. In the case, the intent to make the donation irrevocable is
evident in the proviso indicating that the surviving donor shall respect the irrevocability of the
donation.
While donors reserve the right, ownership, possession, and administration of the property and
make the donation operative upon their death, the court has consistently held that such
reservation in the context of an irrevocable donation means that only beneficial ownership of the
donated property is retained by the donor while they are alive, but the donors already part with
the naked title of the property.
The fact that the deed has an acceptance clause indicates that the donation is inter vivos, since
acceptance is required only in such donations. Since a donation mortis causa is essentially a will,
it need not be accepted by the donee during the donor’s lifetime to be valid.
Finally in Puig v. Peaflorida, the court held that in case of doubt, the conveyance should be
deemed a donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the
ownership of the property subject of the deed.
The donation being one made inter vivos and therefore immediately operative and final,
Leopoldo’s subsequent assignment of rights and interests in the property in favor of Asuncion is
void for her no more rights and interests to assign.
Donor’s Tax Case No. 5
Mario Siochi v Alfredo Gozon, Winifred Gozon, Inter-Dimensional Realty, Inc., Gil Tabije
G.R. No. 169900
March 18, 2010

Facts:
This case involves a parcel of land covered by TCT No. 5357 situated in Malabon, Manila and
registered in the name of Alfredo Gozon, married to Elvira Gozon.
On December 23, 1991, Elvira filed with the RTC of Cavite a petition for legal separation
against Alfredo. She also filed a notice of lis pendens, which was then annotated on TCT No.
5357.
During the pendency of the legal separation case, Alfredo and petitioner Mario Siochi entered
into an agreement to buy and sell the subject property for P18 Million. Alfredo failed to comply
with the stipulations of the agreement despite repeated demands from Mario. Thus, after paying
the P5 Million earnest money as partial payment, Mario took possession of the property. The
agreement was also annotated on TCT No. 5357.
The RTC of Cavite then decreed the legal separation between Alfredo and Elvira. The subject
property was also deemed part of their conjugal property.
On August 22, 1994, Alfredo executed a deed of donation over the property in favor of their
daughter, Winifred. TCT No. 5357 was cancelled and TCT No. M-10508 was issued in
Winifred’s name. The agreement and notice of lis pendens was not annotated on the new
certificate of title.
By virtue of a special power of attorney executed by Winifred, Alfredo sold the property to Inter-
Dimensional Realty, Inc. (IDRI) for P18 Million. TCT No. M-10508 was cancelled and TCT No.
M-10976 was issued to IDRI.
In its decision, Malabon RTC enjoined defendants from continuing any act of further alienating
or disposing of the subject property. It also held that the sale between Alfredo and Mario is null
and void as it was done without Elvira’s consent.
The CA affirmed the RTC’s decision but with modifications as to other reliefs prayed for.
Issue:
1. Whether or not the sale entered into by Alfredo and Mario is void.

Yes, it is void. Pursuant to Article 124 of the Family Code, in the event that one spouse is
incapacitated or otherwise unable to participate in the administration of the conjugal property,
the other spouse may assume sole powers of administration. In this case, Alfredo was the sole
administrator because as Elvira was separated in fact from Alfredo, she was unable to participate
in the administration of the property. However, even though he is the sole administrator, Alfredo
still cannot sell the property without the written consent of Elvira or the court. The absence of the
consent of one of the spouse renders the entire sale void, including the portion of the conjugal
property pertaining to the spouse who contracted the sale.
Regarding Mario’s contention that the agreement should be considered as a continuing offer
which may be perfected by Elvira’s acceptance before the offer is withdrawn, the same is
untenable since the fact that Alfredo donated the property to Winifred and subsequently sold it to
IDRI already indicates that the offer has been withdrawn.
2. Whether one-half of Alfredo’s undivided share has already been forfeited in favor of Winifred.
No. When legal separation is decreed, the offending spouse would have no right to any share of
the net profits earned by the conjugal partnership. It is only Alfredo’s share in the net profits
which is forfeited in favor of Winifred.
3. Whether or not IDRI is a buyer in good faith.

No. As found by RTC Malabon, IDRI had actual knowledge of facts and circumstances which
should impel a reasonably cautious person to make further inquiries about the vendor’s title to
the property being sold.
IDRI was aware of the existence of the lis pendens on TCT No. 5357 as well as the legal
separation case. Clearly, he was not a buyer in good faith. Moreover, had IDRI been more
prudent, it would have discovered that the property was donated by Alfredo to Winifred without
Elvira’s consent, making it null and void.