Wills & Succession

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THIRD DIVISION

[G.R. No. 146006. February 23, 2004]

JOSE C. LEE AND ALMA AGGABAO, in their capacities as President and Corporate Secretary, respectively, of Philippines Internationl Life Insurance Company, and

FILIPINO LOAN ASSISTANCE GROUP,petitioners, vs. REGIONAL TRIAL COURT OF QUEZON CITY BRANCH 85 presided by JUDGE PEDRO M. AREOLA, BRANCH CLERK

OF COURT JANICE Y. ANTERO, DEPUTY SHERIFFS ADENAUER G. RIVERA and PEDRO L. BORJA, all of the Regional Trial Court of Quezon City Branch 85, MA. DIVINA

ENDERES claiming to be Special Administratrix, and other persons/ public officers acting for and in their behalf,respondents.

D E C I S I O N

CORONA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside the decisio n[1]of the Court of Appeals, FirstDivision, dated July 26, 2000, in CA G.R. 59736, which dismissed the petition for certiorari filed by petitioners Jose C. Lee and Alma Aggabao (in theircapacities as president and secretary, respectively, of Philippine International Life Insurance Company) and Filipino Loan Assistance Group.

The antecedent facts follow.

Dr. Juvencio P. Ortaez incorporated the Philippine International Life Insurance Company, Inc. on July 6, 1956. At the time of the companysincorporation, Dr. Ortaez owned ninety percent (90%) of the subscribed capital stock.

On July 21, 1980, Dr. Ortaez died. He left behind a wife (Juliana Salgado Ortaez), three legitimate children (Rafael, Jose and Antonio Ortaez)and five illegitimate children by Ligaya Novicio (herein private respondent Ma. Divina Ortaez-Enderes and her siblings Jose, Romeo, Enrico Manueland Cesar, all surnamed Ortaez).[2]

On September 24, 1980, Rafael Ortaez filed before the Court of First Instance of Rizal, Quezon City Branch (now Regional Trial Court of QuezonCity) a petition for letters of administration of the intestate estate of Dr. Ortaez, docketed as SP Proc. Q-30884 (which petition to date remains pendingat Branch 85 thereof).

Private respondent Ma. Divina Ortaez-Enderes and her siblings filed an opposition to the petition for letters of administration and, in asubsequent urgent motion, prayed that the intestate court appoint a special administrator.

On March 10, 1982, Judge Ernani Cruz Pao, then presiding judge of Branch 85, appointed Rafael and Jose Ortaez joint special administratorsof their fathers estate. Hearings continued for the appointment of a regular administrator (up to now no regular administrator has been appointed).

As ordered by the intestate court, special administrators Rafael and Jose Ortaez submitted an inventory of the estate of their father whichincluded, among other properties, 2,029[3]shares of stock in Philippine International Life Insurance Company (hereafter Philinterlife), representing50.725% of the companys outstanding capital stock.

On April 15, 1989, the decedents wife, Juliana S. Ortaez, claiming that she owned 1,014[4]Philinterlife shares of stock as her conjugal share in

the estate, sold said shares with right to repurchase in favor of herein petitioner Filipino Loan Assistance Group (FLAG), represented by its president,herein petitioner Jose C. Lee. Juliana Ortaez failed to repurchase the shares of stock within the stipulated period, thus ownership thereof wasconsolidated by petitioner FLAG in its name.

On October 30, 1991, Special Administrator Jose Ortaez, acting in his personal capacity and claiming that he owned the remaining1,011[5]Philinterlife shares of stocks as his inheritance share in the estate, sold said shares with right to repurchase also in favor of herein petitioner

FLAG, represented by its president, herein petitioner Jose C. Lee. After one year, petitioner FLAG consolidated in its name the ownership of thePhilinterlife shares of stock when Jose Ortaez failed to repurchase the same.

It appears that several years before (but already during the pendency of the intestate proceedings at the Regional Trial Court of Quezon City,Branch 85), Juliana Ortaez and her two children, Special Administrators Rafael and Jose Ortaez, entered into a memorandum of agreement datedMarch 4, 1982 for the extrajudicial settlement of the estate of Dr. Juvencio Ortaez, partitioning the estate (including the Philinterlife shares of stock)among themselves. This was the basis of the number of shares separately sold by Juliana Ortaez on April 15, 1989 (1,014 shares) and by JoseOrtaez on October 30, 1991 (1,011 shares) in favor of herein petitioner FLAG.

On July 12, 1995, herein private respondent Ma. Divina OrtaezEnderes and her siblings (hereafter referred to as private respondentsEnderes et al.) filed a motion for appointment of special administrator of Philinterlife shares of stock. This move was opposed by Special AdministratorJose Ortaez.

On November 8, 1995, the intestate court granted the motion of private respondents Enderes et al.and appointed private respondent Enderesspecial administratrix of the Philinterlife shares of stock.

On December 20, 1995, Special Administratrix Enderes filed an urgent motion to declare void ab initiothe memorandum of agreement datedMarch 4, 1982. On January 9, 1996, she filed a motion to declare the partial nullity of the extrajudicial settlement of the decedents estate. Thesemotions were opposed by Special Administrator Jose Ortaez.

On March 22, 1996, Special Administratrix Enderes filed an urgent motion to declare void ab initiothe deeds of sale of Philinterlife shares of stock,which move was again opposed by Special Administrator Jose Ortaez.

On February 4, 1997, Jose Ortaez filed an omnibus motion for (1) the approval of the deeds of sale of the Philinterlife shares of stock and (2) therelease of Ma. Divina Ortaez-Enderes as special administratrix of the Philinterlife shares of stock on the ground that there were no longer any shares ofstock for her to administer.

On August 11, 1997, the intestate court denied the omnibus motion of Special Administrator Jose Ortaez for the approval of the deeds of sale forthe reason that:

Under the Godoycase,supra, it was held in substance that a sale of a property of the estate without an Order of the probate court is void and passes no title to thepurchaser. Since the sales in question were entered into by Juliana S. Ortaez and Jose S. Ortaez in their personal capacity without prior approval of the Court, thesame is not binding upon the Estate.

WHEREFORE, the OMNIBUS MOTION for the approval of the sale of Philinterlife shares of stock and release of Ma. Divina Ortaez-Enderes as SpecialAdministratrix is hereby denied.[6]

On August 29, 1997, the intestate court issued another order granting the motion of Special Administratrix Enderes for the annulment of the March4, 1982 memorandum of agreement or extrajudicial partition of estate. The court reasoned that:

In consonance with the Order of this Court dated August 11, 1997 DENYING the approval of the sale of Philinterlife shares of stocks and release of Ma. DivinaOrtaez-Enderes as Special Administratrix, the Urgent Motion to Declare VoidAb Initio Memorandum of Agreement dated December 19, 1995. . . is herebyimpliedly partially resolved insofar as the transfer/waiver/renunciation of the Philinterlife shares of stock are concerned, in particular, No. 5, 9(c), 10(b) and 11(d)(ii) ofthe Memorandum of Agreement.

WHEREFORE, this Court hereby declares the Memorandum of Agreement dated March 4, 1982 executed by Juliana S. Ortaez, Rafael S. Ortaez and Jose S. Ortaezas partially void ab initioinsofar as the transfer/waiver/renunciation of the Philinterlife shares of stocks are concerned.[7]
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Aggrieved by the above-stated orders of the intestate court, Jose Ortaez filed, on December 22, 1997, a petition for certiorari in the Court ofAppeals. The appellate court denied his petition, however, ruling that there was no legal justification whatsoever for the extrajudicial partition of theestate by Jose Ortaez, his brother Rafael Ortaez and mother Juliana Ortaez during the pendency of the settlement of the estate of Dr. Ortaez,without the requisite approval of the intestate court, when it was clear that there were other heirs to the estate who stood to be prejudiced thereby.Consequently, the sale made by Jose Ortaez and his mother Juliana Ortaez to FLAG of the shares of stock they invalidly appropriated for themselves,without approval of the intestate court, was void.[8]

Special Administrator Jose Ortaez filed a motion for reconsideration of the Court of Appeals decision but it was denied. He elevated the case tothe Supreme Court via petition for review under Rule 45 which the Supreme Court dismissed on October 5, 1998, on a technicality. His motion forreconsideration was denied with finality on January 13, 1999. On February 23, 1999, the resolution of the Supreme Court dismissing the petition ofSpecial Administrator Jose Ortaez became final and was subsequently recorded in the book of entries of judgments.

Meanwhile, herein petitioners Jose Lee and Alma Aggabao, with the rest of the FLAG-controlled board of directors, increased the authorizedcapital stock of Philinterlife, diluting in the process the 50.725% controlling interest of the decedent, Dr. Juvencio Ortaez, in the insurancecompany.[9]This became the subject of a separate action at the Securities and Exchange Commission filed by private respondent-Special AdministratrixEnderes against petitioner Jose Lee and other members of the FLAG-controlled board of Philinterlife on November 7, 1994. Thereafter, various caseswere filed by Jose Lee as president of Philinterlife and Juliana Ortaez and her sons against private respondent-Special Administratrix Enderes in theSEC and civil courts.[10]Somehow, all these cases were connected to the core dispute on the legality of the sale of decedent Dr. Ortaezs Philinterli feshares of stock to petitioner FLAG, represented by its president, herein petitioner Jose Lee who later became the president of Philinterlife after thecontroversial sale.

On May 2, 2000, private respondent-Special Administratrix Enderes and her siblings filed a motion for execution of the Orders of the intestatecourt dated August 11 and August 29, 1997 because the orders of the intestate court nullifying the sale (upheld by the Court of Appeals and theSupreme Court) had long became final. Respondent-Special Administratrix Enderes served a copy of the motion to petitioners Jose Lee and Alma

Aggabao as president and secretary, respectively, of Philinterlife,[11]but petitioners ignored the same.

On July 6, 2000, the intestate court granted the motion for execution, the dispositive portion of which read:

WHEREFORE, premises considered, let a writ of execution issue as follows:

1. Confirming the nullity of the sale of the 2,029 Philinterlife shares in the name of the Estate of Dr. Juvencio Ortaez to FilipinoLoan Assistance Group (FLAG);

2. Commanding the President and the Corporate Secretary of Philinterlife to reinstate in the stock and transfer book of Philinterlifethe 2,029 Philinterlife shares of stock in the name of the Estate of Dr. Juvencio P. Ortaez as the owner thereof withoutprejudice to other claims for violation of pre-emptive rights pertaining to the said 2,029 Philinterlife shares;

3. Directing the President and the Corporate Secretary of Philinterlife to issue stock certificates of Philinterlife for 2,029 shares inthe name of the Estate of Dr. Juvencio P. Ortaez as the owner thereof without prejudice to other claims for violations of pre-emptive rights pertaining to the said 2,029 Philinterlife shares and,

4. Confirming that only the Special Administratrix, Ma. Divina Ortaez-Enderes, has the power to exercise all the rights appurtenantto the said shares, including the right to vote and to receive dividends.

5. Directing Philinterlife and/or any other person or persons claiming to represent it or otherwise, to acknowledge and allow the saidSpecial Administratrix to exercise all the aforesaid rights on the said shares and to refrain from resorting to any action which

may tend directly or indirectly to impede, obstruct or bar the free exercise thereof under pain of contempt.

6. The President, Corporate Secretary, any responsible officer/s of Philinterlife, or any other person or persons claiming torepresent it or otherwise, are hereby directed to comply with this order within three (3) days from receipt hereof under pain ofcontempt.

7. The Deputy Sheriffs Adenauer Rivera and Pedro Borja are hereby directed to implement the writ of execution with dispatch toforestall any and/or further damage to the Estate.

SO ORDERED.[12]

In the several occasions that the sheriff went to the office of petitioners to execute the writ of execution, he was barred by the security guard uponpetitioners instructions. Thus, private respondent-Special Administratrix Enderes filed a motion to cite herein petitioners Jose Lee and Alma Aggabao(president and secretary, respectively, of Philinterlife) in contempt.[13]

Petitioners Lee and Aggabao subsequently filed before the Court of Appeals a petition for certiorari, docketed as CA G.R. SP No. 59736.

Petitioners alleged that the intestate court gravely abused its discretion in (1) declaring that the ownership of FLAG over the Philinterlife shares of stockwas null and void; (2) ordering the execution of its order declaring such nullity and (3) depriving the petitioners of their right to due process.

On July 26, 2000, the Court of Appeals dismissed the petition outright:

We are constrained to DISMISS OUTRIGHT the present petition for certiorari and prohibition with prayer for a temporary restra ining order and/or writ of preliminaryinjunction in the light of the following considerations:

1. The assailed Order dated August 11, 1997 of the respondent judge had long become final and executory;

2. The certification on non-forum shopping is signed by only one (1) of the three (3) petitioners in violation of the Rules; and

3. Except for the assailed orders and writ of execution, deed of sale with right to repurchase, deed of sale of shares of stocks andomnibus motion, the petition is not accompanied by such pleadings, documents and other material portions of the record aswould support the allegations therein in violation of the second paragraph, Rule 65 of the 1997 Rules of Civil Procedure, asamended.

Petition is DISMISSED.

SO ORDERED.[14]

The motion for reconsideration filed by petitioners Lee and Aggabao of the above decision was denied by the Court of Appeals on October 30,2000:

This resolves the urgent motion for reconsideration filed by the petitioners of our resolution of July 26, 2000 dismissing outrightly the above-entitled petition for thereason, among others, that the assailed Order dated August 11, 1997 of the respondent Judge had long become final and executory.

Dura lex, sed lex.
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WHEREFORE, the urgent motion for reconsideration is hereby DENIED, for lack of merit.

SO ORDERED.[15]

On December 4, 2000, petitioners elevated the case to the Supreme Court through a petition for review under Rule 45 but on December 13, 2000,we denied the petition because there was no showing that the Court of Appeals in CA G.R. SP No. 59736 committed any reversible error to warrant theexercise by the Supreme Court of its discretionary appellate jurisdiction.[16]

However, upon motion for reconsideration filed by petitioners Lee and Aggabao, the Supreme Court granted the motion and reinstated theirpetition on September 5, 2001. The parties were then required to submit their respective memoranda.

Meanwhile, private respondent-Special Administratrix Enderes, on July 19, 2000, filed a motion to direct the branch clerk of court in lieu of hereinpetitioners Lee and Aggabao to reinstate the name of Dr. Ortaez in the stock and transfer book of Philinterlife and issue the corresponding stockcertificate pursuant to Section 10, Rule 39 of the Rules of Court which provides that the court may direct the act to be done at the cost of thedisobedient party by some other person appointed by the court and the act when so done shall have the effect as if done by th e party. Petitioners Leeand Aggabao opposed the motion on the ground that the intestate court should refrain from acting on the motion because the issues raised therein weredirectly related to the issues raised by them in their petition for certiorari at the Court of Appeals docketed as CA-G.R. SP No. 59736. On October 30,2000, the intestate court granted the motion, ruling that there was no prohibition for the intestate court to execute its orders inasmuch as the appellatecourt did not issue any TRO or writ of preliminary injunction.

On December 3, 2000, petitioners Lee and Aggabao filed a petition for certiorari in the Court of Appeals, docketed as CA-G.R. SP No. 62461,questioning this time the October 30, 2000 order of the intestate court directing the branch clerk of court to issue the stock certificates. They alsoquestioned in the Court of Appeals the order of the intestate court nullifying the sale made in their favor by Juliana Ortaez and Jose Ortaez. OnNovember 20, 2002, the Court of Appeals denied their petition and upheld the power of the intestate court to execute its order. Petitioners Lee and

Aggabao then filed motion for reconsideration which at present is still pending resolution by the Court of Appeals.

Petitioners Jose Lee and Alma Aggabao (president and secretary, respectively, of Philinterlife) and FLAG now raise the following errors for ourconsideration:

THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR:

A. IN FAILING TO RECONSIDER ITS PREVIOUS RESOLUTION DENYING THE PETITION DESPITE THE FACT THAT THEAPPELLATE COURTS MISTAKE IN APPREHENDING THE FACTS HAD BECOME PATENT AND EVIDENT FROM THE MOTIONFOR RECONSIDERATION AND THE COMMENT OF RESPONDENT ENDERES WHICH HAD ADMITTED THE FACTUALALLEGATIONS OF PETITIONERS IN THE PETITION AS WELL AS IN THE MOTION FOR RECONSIDERATION. MOREOVER,THE RESOLUTION OF THE APPELLATE COURT DENYING THE MOTION FOR RECONSIDERATION WAS CONTAINED INONLY ONE PAGE WITHOUT EVEN TOUCHING ON THE SUBSTANTIVE MERITS OF THE EXHAUSTIVE DISCUSSION OFFACTS AND SUPPORTING LAW IN THE MOTION FOR RECONSIDERATION IN VIOLATION OF THE RULE ONADMINISTRATIVE DUE PROCESS;

B. IN FAILING TO SET ASIDE THE VOID ORDERS OF THE INTESTATE COURT ON THE ERRONEOUS GROUND THAT THEORDERS WERE FINAL AND EXECUTORY WITH REGARD TO PETITIONERS EVEN AS THE LATTER WERE NEVER NOTIFIEDOF THE PROCEEDINGS OR ORDER CANCELING ITS OWNERSHIP;

C. IN NOT FINDING THAT THE INTESTATE COURT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OFJURISDICTION (1) WHEN IT ISSUED THE OMNIBUS ORDER NULLIFYING THE OWNERSHIP OF PETITIONER FLAG OVERSHARES OF STOCK WHICH WERE ALLEGED TO BE PART OF THE ESTATE AND (2) WHEN IT ISSUED A VOID WRIT OFEXECUTION AGAINST PETITIONER FLAG AS PRESENT OWNER TO IMPLEMENT MERELY PROVISIONAL ORDERS,THEREBY VIOLATING FLAGS CONSTITUTIONAL RIGHT AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS;

D. IN FAILING TO DECLARE NULL AND VOID THE ORDERS OF THE INTESTATE COURT WHICH NULLIFIED THE SALE OFSHARES OF STOCK BETWEEN THE LEGITIMATE HEIR JOSE S. ORTAEZ AND PETITIONER FLAG BECAUSE OF SETTLEDLAW AND JURISPRUDENCE, I.E., THAT AN HEIR HAS THE RIGHT TO DISPOSE OF THE DECEDENTS PROPERTY EVEN IFTHE SAME IS UNDER ADMINISTRATION PURSUANT TO CIVIL CODE PROVISION THAT POSSESSION OF HEREDITARYPROPERTY IS TRANSMITTED TO THE HEIR THE MOMENT OF DEATH OF THE DECEDENT (ACEDEBO VS. ABESAMIS, 217SCRA 194);

E. IN DISREGARDING THE FINAL DECISION OF THE SUPREME COURT IN G.R. NO. 128525 DATED DECEMBER 17, 1999INVOLVING SUBSTANTIALLY THE SAME PARTIES, TO WIT, PETITIONERS JOSE C. LEE AND ALMA AGGABAO WERE

RESPONDENTS IN THAT CASE WHILE RESPONDENT MA. DIVINA ENDERES WAS THE PETITIONER THEREIN. THATDECISION, WHICH CAN BE CONSIDERED LAW OF THE CASE, RULED THAT PETITIONERS CANNOT BE ENJOINED BYRESPONDENT ENDERES FROM EXERCISING THEIR POWER AS DIRECTORS AND OFFICERS OF PHILINTERLIFE AND THATTHE INTESTATE COURT IN CHARGE OF THE INTESTATE PROCEEDINGS CANNOT ADJUDICATE TITLE TO PROPERTIESCLAIMED TO BE PART OF THE ESTATE AND WHICH ARE EQUALLY CLAIMED BY PETITIONER FLAG.[17]

The petition has no merit.

Petitioners Jose Lee and Alma Aggabao, representing Philinterlife and FLAG, assail before us not only the validity of the writ of execution issuedby the intestate court dated July 7, 2000 but also the validity of the August 11, 1997 order of the intestate court nullifying the sale of the 2,029 Philinterlifeshares of stock made by Juliana Ortaez and Jose Ortaez, in their personal capacities and without court approval, in favor of petitioner FLAG.

We cannot allow petitioners to reopen the issue of nullity of the sale of the Philinterlife shares of stock in their favor because this was alreadysettled a long time ago by the Court of Appeals in its decision dated June 23, 1998 in CA-G.R. SP No. 46342. This decision was effectively upheld by usin our resolution dated October 9, 1998 in G.R. No. 135177 dismissing the petition for review on a technicality and thereafter denying the motion forreconsideration on January 13, 1999 on the ground that there was no compelling reason to reconsider said denial . [18]Our decision became final on

February 23, 1999 and was accordingly entered in the book of entry of judgments. For all intents and purposes therefore, the nullity of the sale of thePhilinterlife shares of stock made by Juliana Ortaez and Jose Ortaez in favor of petitioner FLAG is already a closed case. To reopen said issue wouldset a bad precedent, opening the door wide open for dissatisfied parties to relitigate unfavorable decisions no end. This is completely inimical to theorderly and efficient administration of justice.

The said decision of the Court of Appeals in CA-G.R. SP No. 46342 affirming the nullity of the sale made by Jose Ortaez and his mother JulianaOrtaez of the Philinterlife shares of stock read:

Petitioners asseverations relative to said [memorandum] agreement were scuttled during the hearing before this Court thus:

JUSTICE AQUINO:

Counsel for petitioner, when the Memorandum of Agreement was executed, did the children of Juliana Salgado know alreadythat there was a claim for share in the inheritance of the children of Novicio?
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ATTY. CALIMAG:

Your Honor please, at that time, Your Honor, it is already known to them.

JUSTICE AQUINO:

What can be your legal justification for extrajudicial settlement of a property subject of intestate proceedings when there is anadverse claim of another set of heirs, alleged heirs? What would be the legal justification for extra-judicially settling a property underadministration without the approval of the intestate court?

ATTY. CALIMAG:

Well, Your Honor please, in that extra-judicial settlement there is an approval of the honorable court as to the propertys

partition x x x. There were as mentioned by the respondents counsel, Your Honor.ATTY. BUYCO:

No

JUSTICE AQUINO:

The point is, there can be no adjudication of a property under intestate proceedings without the approval of the court. That isbasic unless you can present justification on that. In fact, there are two steps: first, you ask leave and then execute the document andthen ask for approval of the document executed. Now, is there any legal justification to exclude this particular transaction from thosesteps?

ATTY. CALIMAG:

None, Your Honor.

ATTY BUYCO:

With that admission that there is no legal justification, Your Honor, we rest the case for the private respondent. How can thelower court be accused of abusing its discretion? (pages 33-35, TSN of January 29, 1998).

Thus, We find merit in the following postulation by private respondent:

What we have here is a situation where some of the heirs of the decedent without securing court approval have appropriated as their own personal property theproperties of [the] Estate, to the exclusion and the extreme prejudice of the other claimant/heirs. In other words, these heirs, without court approval, have distributed theasset of the estate among themselves and proceeded to dispose the same to third parties even in the absence of an order of distribution by the Estate Court. As admitted

by petitioners counsel, there was absolutely no legal justification for this action by the heirs. There being no legal justification, petitioner has no basis for demandingthat public respondent [the intestate court] approve the sale of the Philinterlife shares of the Estate by Juliana and Jose Ortaez in favor of the Filipino Loan AssistanceGroup.

It is an undisputed fact that the parties to the Memorandum of Agreement dated March 4, 1982 (see Annex 7 of the Comment). . . are not the only heirs claiming aninterest in the estate left by Dr. Juvencio P. Ortaez. The records of this case. . . clearly show that as early as March 3, 1981 an Opposition to the Application forIssuance of Letters of Administration was filed by the acknowledged natural children of Dr. Juvencio P. Ortaez with Ligaya Novicio. . . This claim by theacknowledged natural children of Dr. Juvencio P. Ortaez is admittedly known to the parties to the Memorandum of Agreement before they executed the same. Thismuch was admitted by petitioners counsel during the oral argument. xxx

Given the foregoing facts, and the applicable jurisprudence, public respondent can never be faulted for not approving. . . the subsequent sale by the petitioner [JoseOrtaez] and his mother [Juliana Ortaez] of the Philinterlife shares belonging to the Estate of Dr. Juvencio P. Ortaez. (pages 3-4 of Private RespondentsMemorandum; pages 243-244 of the Rollo)

Amidst the foregoing, We found no grave abuse of discretion amounting to excess or want of jurisdiction committed by respondent judge.[19]

From the above decision, it is clear that Juliana Ortaez, and her three sons, Jose, Rafael and Antonio, all surnamed Ortaez, invalidly enteredinto a memorandum of agreement extrajudicially partitioning the intestate estate among themselves, despite their knowledge that there were other heirsor claimants to the estate and before final settlement of the estate by the intestate court. Since the appropriation of the estate properties by JulianaOrtaez and her children (Jose, Rafael and Antonio Ortaez) was invalid, the subsequent sale thereof by Juliana and Jose to a third party (FLAG),without court approval, was likewise void.

An heir can sell his right, interest, or participation in the property under administration under Art. 533 of the Civil Code which provides thatpossession of hereditary property is deemed transmitted to the heir without interruption from the moment of death of the deceden t.[20]However, an heircan only alienate such portion of the estate that may be allotted to him in the division of the estate by the probate or intestate court after finaladjudication, that is, after all debtors shall have been paid or the devisees or legatees shall have been given their shares.[21]This means that an heir mayonly sell his ideal or undivided share in the estate, not any specific property therein. In the present case, Juliana Ortaez and Jose Ortaez sold specificproperties of the estate (1,014 and 1,011 shares of stock in Philinterlife) in favor of petitioner FLAG. This they could not lawfully do pending the finaladjudication of the estate by the intestate court because of the undue prejudice it would cause the other claimants to the estate, as what happened in thepresent case.

Juliana Ortaez and Jose Ortaez sold specific properties of the estate, without court approval. It is well-settled that court approval is necessaryfor the validity of any disposition of the decedents estate. In the early case ofGodoy vs. Orellano,[22]we laid down the rule that the sale of the property ofthe estate by an administrator without the order of the probate court is void and passes no title to the purchaser. And in the case of Dillena vs. Court of

Appeals,[23]we ruled that:

[I]t must be emphasized that the questioned properties (fishpond) were included in the inventory of properties of the estate submitted by then Administratrix FaustaCarreon Herrera on November 14, 1974. Private respondent was appointed as administratrix of the estate on March 3, 1976 in lieu of Fausta Carreon Herrera. On

November 1, 1978, the questioned deed of sale of the fishponds was executed between petitioner and private respondent without notice and approval of the probatecourt. Even after the sale, administratrix Aurora Carreon still included the three fishponds as among the real properties of the estate in her inventory submitted onAugust 13, 1981. In fact, as stated by the Court of Appeals, petitioner, at the time of the sale of the fishponds in question, knew that the same were part of the estateunder administration.

x x x x x x x x x

The subject properties therefore are under the jurisdiction of the probate court which according to our settled jurisprudence has the authority to approve any dispositionregarding properties under administration. . . More emphatic is the declaration We made in Estate of Olave vs. Reyes (123 SCRA 767) where We stated that when theestate of the deceased person is already the subject of a testate or intestate proceeding, the administrator cannot enter into any transaction involving it without priorapproval of the probate court.
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Only recently, in Manotok Realty, Inc. vs. Court of Appeals (149 SCRA 174), We held that the sale of an immovable property belonging to the estate of a decedent, in aspecial proceedings, needs court approval. . . This pronouncement finds support in the previous case of Dolores Vda. De Gil vs. Agustin Cancio (14 SCRA 797)wherein We emphasized that it is within the jurisdiction of a probate court to approve the sale of properties of a deceased person by his prospective heirs before finaladjudication. x x x

It being settled that property under administration needs the approval of the probate court before it can be disposed of, any unauthorized disposition does not bind theestate and is null and void. As early as 1921 in the case of Godoy vs. Orellano (42 Phil 347), We laid down the rule that a sale by an administrator of property of thedeceased, which is not authorized by the probate court is null and void and title does not pass to the purchaser.

There is hardly any doubt that the probate court can declare null and void the disposition of the property under administration, made by private respondent, the samehaving been effected without authority from said court.It is the probate court that has the power to authorize and/or approve the sale (Section 4 and 7, Rule 89), hence,

a fortiori, it is said court that can declare it null and void for as long as the proceedings had not been closed or terminated. To uphold petitioners contention that theprobate court cannot annul the unauthorized sale, would render meaningless the power pertaining to the said court. (Bonga vs. Soler, 2 SCRA 755). (emphasis ours)

Our jurisprudence is therefore clear that (1) any disposition of estate property by an administrator or prospective heir pending final adjudicationrequires court approval and (2) any unauthorized disposition of estate property can be annulled by the probate court, there being no need for a separateaction to annul the unauthorized disposition.

The question now is: can the intestate or probate court execute its order nullifying the invalid sale?

We see no reason why it cannot. The intestate court has the power to execute its order with regard to the nullity of an unauthorized sale of estateproperty, otherwise its power to annul the unauthorized or fraudulent disposition of estate property would be meaningless. In other words, enforcement isa necessary adjunct of the intestate or probate courts power to annul unauthorized or fraudulent transactions to prevent the dissipation of estateproperty before final adjudication.

Moreover, in this case, the order of the intestate court nullifying the sale was affirmed by the appellate courts (the Court of Appeals in CA-G.R. SPNo. 46342 dated June 23, 1998 and subsequently by the Supreme Court in G.R. No. 135177 dated October 9, 1998). The finality of the decision of theSupreme Court was entered in the book of entry of judgments on February 23, 1999. Considering the finality of the order of the intestate court nullifying

the sale, as affirmed by the appellate courts, it was correct for private respondent-Special Administratrix Enderes to thereafter move for a writ ofexecution and for the intestate court to grant it.

Petitioners Jose Lee, Alma Aggabao and FLAG, however, contend that the probate court could not issue a writ of execution with regard to its ordernullifying the sale because said order was merely provisional:

The only authority given by law is for respondent judge to determine provisionally whether said shares are included or excluded in the inventory In ordering theexecution of the orders, respondent judge acted in excess of his jurisdiction and grossly violated settled law and jurisprudence, i.e., that the determination by a probateor intestate court of whether a property is included or excluded in the inventory of the estate being provisional in nature, cannot be the subject of

execution.[24](emphasis ours)

Petitioners argument is misplaced. There is no question, based on the facts of this case, that the Philinterlife shares of stock were part of theestate of Dr. Juvencio Ortaez from the very start as in fact these shares were included in the inventory of the properties of the estate submitted byRafael Ortaez after he and his brother, Jose Ortaez, were appointed special administrators by the intestate court.[25]

The controversy here actually started when, during the pendency of the settlement of the estate of Dr. Ortaez, his wife Juliana Ortaez sold the

1,014 Philinterlife shares of stock in favor petitioner FLAG without the approval of the intestate court. Her son Jose Ortaez later sold the remaining1,011 Philinterlife shares also in favor of FLAG without the approval of the intestate court.

We are not dealing here with the issue of inclusion or exclusion of properties in the inventory of the estate because there is no question that, fromthe very start, the Philinterlife shares of stock were owned by the decedent, Dr. Juvencio Ortaez. Rather, we are concerned here with the effect ofthe sale made by the decedents heirs, Juliana Ortaez and Jose Ortaez, without the required approval of the intestate court .This being so,the contention of petitioners that the determination of the intestate court was merely provisional and should have been threshed out in a separateproceeding is incorrect.

The petitioners Jose Lee and Alma Aggabao next contend that the writ of execution should not be executed against them because they were notnotified, nor they were aware, of the proceedings nullifying the sale of the shares of stock.

We are not persuaded. The title of the purchaser like herein petitioner FLAG can be struck down by the intestate court after a clear showing of thenullity of the alienation. This is the logical consequence of our ruling in Godoy andin several subsequent cases.[26]The sale of any property of theestate by an administrator or prospective heir without order of the probate or intestate court is void and passes no title to thepurchaser. Thus, in Juan Lao et al. vs. Hon. Melencio Geneto, G.R. No. 56451, June 19, 1985, we ordered the probate court to cancel the transfercertificate of title issued to the vendees at the instance of the administrator after finding that the sale of real property under probate proceedings was

made without the prior approval of the court. The dispositive portion of our decision read:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the assailed Order dated February 18, 1981 of the respondent Judge approving the questioned AmicableSettlement is declared NULL and VOID and hereby SET ASIDE. Consequently, the sale in favor of Sotero Dioniosio III and by the latter to William Go is likewisedeclared NULL and VOID. The Transfer Certificate of Title issued to the latter is hereby ordered cancelled.

It goes without saying that the increase in Philinterlifes authorized capital stock, approved on the vote of petitioners non-existent shareholdingsand obviously calculated to make it difficult for Dr. Ortaezs estate to reassume its controlling interest in Philinterlife,was likewise void ab initio.

Petitioners next argue that they were denied due process.

We do not think so.

The facts show that petitioners, for reasons known only to them, did not appeal the decision of the intestate court nullifying the sale of shares ofstock in their favor. Only the vendor, Jose Ortaez, appealed the case. A careful review of the records shows that petitioners had actual knowledge ofthe estate settlement proceedings and that they knew private respondent Enderes was questioning therein the sale to them of the Philinterlife shares of

stock.It must be noted that private respondent-Special Administratrix Enderes filed before the intestate court (RTC of Quezon City, Branch 85) a Motion

to Declare VoidAb InitioDeeds of Sale of Philinterlife Shares of Stock on March 22, 1996. But as early as 1994, petitioners already knew of the pendingsettlement proceedings and that the shares they bought were under the administration by the intestate court because private respondent Ma. DivinaOrtaez-Enderes and her mother Ligaya Novicio had filed a case against them at the Securities and Exchange Commission on November 7, 1994,docketed as SEC No. 11-94-4909, for annulment of transfer of shares of stock, annulment of sale of corporate properties, annulment of subscriptions onincreased capital stocks, accounting, inspection of corporate books and records and damages with prayer for a writ of preliminary injunction and/ortemporary restraining order.[27]In said case, Enderes and her mother questioned the sale of the aforesaid shares of stock to petitioners. The SEChearing officer in fact, in his resolution dated March 24, 1995, deferred to the jurisdiction of the intestate court to rule on the validity of the sale of sharesof stock sold to petitioners by Jose Ortaez and Juliana Ortaez:

Petitioners also averred that. . . the Philinterlife shares of Dr. Juvencio Ortaez who died, in 1980, are part of his estate which is presently the subject matter of anintestate proceeding of the RTC of Quezon City, Branch 85. Although, private respondents [Jose Lee et al.] presented the documents of partition whereby the foregoing
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share of stocks were allegedly partitioned and conveyed to Jose S. Ortaez who allegedly assigned the same to the other private respondents, approval of the Court wasnot presented. Thus, the assignments to the private respondents [Jose Lee et al.] of the subject shares of stocks are void.

x x x x x x x x x

With respect to the alleged extrajudicial partition of the shares of stock owned by the late Dr. Juvencio Ortaez, we rule that the matter properly belongs to thejurisdiction of the regular court where the intestate proceedings are currently pending.[28]

With this resolution of the SEC hearing officer dated as early as March 24, 1995 recognizing the jurisdiction of the intestate court to determine thevalidity of the extrajudicial partition of the estate of Dr. Ortaez and the subsequent sale by the heirs of the decedent of the Philinterlife shares of stock topetitioners, how can petitioners claim that they were not aware of the intestate proceedings?

Futhermore, when the resolution of the SEC hearing officer reached the Supreme Court in 1996 (docketed as G.R. 128525), herein petitionerswho were respondents therein filed their answer which contained statements showing that they knew of the pending intestate proceedings:

[T]he subject matter of the complaint is not within the jurisdiction of the SEC but with the Regional Trial Court; Ligaya Novicio and children represented themselves tobe the common law wife and illegitimate children of the late Ortaez; that on March 4, 1982, the surviving spouse Juliana Ortaez, on her behalf and for her minor sonAntonio, executed a Memorandum of Agreement with her other sons Rafael and Jose, both surnamed Ortaez, dividing the estate of the deceased composed of his one-half (1/2) share in the conjugal properties; that in the said Memorandum of Agreement, Jose S. Ortaez acquired as his share of the estate the 1,329 shares of stock inPhilinterlife; that on March 4, 1982, Juliana and Rafael assigned their respective shares of stock in Philinterlife to Jose; that contrary to the contentions of petitioners,

private respondents Jose Lee, Carlos Lee, Benjamin Lee and Alma Aggabao became stockholders of Philinterlife on March 23, 1983 when Jose S. Ortaez, theprincipal stockholder at that time, executed a deed of sale of his shares of stock to private respondents; and that the right of petitioners to question the Memorandum ofAgreement and the acquisition of shares of stock of private respondent is barred by prescription.[29]

Also, private respondent-Special Administratrix Enderes offered additional proof of actual knowledge of the settlement proceedings by petitionerswhich petitioners never denied: (1) that petitioners were represented by Atty. Ricardo Calimag previously hired by the mother of private respondent

Enderes to initiate cases against petitioners Jose Lee and Alma Aggaboa for the nullification of the sale of the shares of stock but said counsel made aconflicting turn-around and appeared instead as counsel of petitioners, and (2) that the deeds of sale executed between petitioners and the heirs of thedecedent (vendors Juliana Ortaez and Jose Ortaez) were acknowledged before Atty. Ramon Carpio who, during the pendency of the settlementproceedings, filed a motion for the approval of the sale of Philinterlife shares of stock to the Knights of Columbus Fraternal Association, Inc. (whichmotion was, however, later abandoned).[30]All this sufficiently proves that petitioners, through their counsels, knew of the pending settlementproceedings.

Finally, petitioners filed several criminal cases such as libel (Criminal Case No. 97-7179-81), grave coercion (Criminal Case No. 84624) androbbery (Criminal Case No. Q-96-67919) against private respondents mother Ligaya Novicio who was a director of Philinterlife,[31]all of which criminalcases were related to the questionable sale to petitioners of the Philinterlife shares of stock.

Considering these circumstances, we cannot accept petitioners claim of denial of due process. The essence of due process is the reasonableopportunity to be heard. Where the opportunity to be heard has been accorded, there is no denial of due process.[32]In this case, petitioners knew of thepending instestate proceedings for the settlement of Dr. Juvencio Ortaezs estate but for reasons they alone knew, they never intervened. When thecourt declared the nullity of the sale, they did not bother to appeal. And when they were notified of the motion for execution of the Orders of the intestatecourt, they ignored the same. Clearly, petitioners alone should bear the blame.

Petitioners next contend that we are bound by our ruling in G.R. No. 128525 entitled Ma. Divina Ortaez-Enderes vs. Court of Appeals,datedDecember 17, 1999, where we allegedly ruled that the intestate court may not pass upon the title to a certain property for the purpose of determiningwhether the same should or should not be included in the inventory but such determination is not conclusive and is subject to final decision in a separateaction regarding ownership which may be constituted by the parties.

We are not unaware of our decision in G.R. No. 128525. The issue therein was whether the Court of Appeals erred in affirming the resolution ofthe SEC that Enderes et al. were not entitled to the issuance of the writ of preliminary injunction. We ruled that the Court of Appeals was correct inaffirming the resolution of the SEC denying the issuance of the writ of preliminary injunction because injunction is not designed to protect contingentrights. Said case did notrule on the issue of the validity of the sale of shares of stock belonging to the decedents estate without court approval nor ofthe validity of the writ of execution issued by the intestate court. G.R. No. 128525 clearly involved a different issue and i t does not therefore apply to thepresent case.

Petitioners and all parties claiming rights under them are hereby warned not to further delay the execution of the Orders of the intestate courtdated August 11 and August 29, 1997.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R. S.P. No. 59736 dated July 26, 2000, dismissingpetitioners petition forcertiorariand affirming the July 6, 2000 order of the trial court which ordered the execution of its (trial courts) August 11 and 29,1997 orders, is hereby AFFIRMED.

SO ORDERED.
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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

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

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,

vs.

JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this action in the Court of First Instance

of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as

inheritance tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the

date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which

was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's complaint and the

defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal

properties. On june 14, 1922, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of

Zamboanga. The will was admitted to probate. Said will provides, among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my death, and that the

same be handled and managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of

Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brother's children and their descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in the way he thinks most

advantageous.

x x x x x x x x x

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

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a trustee to administer the real properties which, under

the will, were to pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of

office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death

consisted of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the

amount of P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of

payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings

pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government

the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the same time

that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said

amount hausted, plaintiff went to court with the result herein above indicated.

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

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the moment of the death of the former, and that

from the time, the latter became the owner thereof.


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

III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the

value thereof at the expiration of the period of ten years after which, according to the testator's will, the property could be and was to be delivered to the instituted

heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation

to the "trustees" and paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest at the rate of 1 per cent per month

from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b)

Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In determining

the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act

No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the payment of the inheritance tax? If so, should the additional

interest claimed by the defendant in his appeal be paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be touched upon

in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon

"every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is

upon transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax

imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death.

Acording to article 657 of the Civil Code, "the rights to the succession of a person are transmitted from the moment of his death." "In other words", said Arellano, C.

J., ". . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor

as completely as if the ancestor had executed and delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs.

Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil.,

489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil.,

531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article

657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of

the Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of forced heirs; it does not even use the word "heir". It

speaks of the rights of succession and the transmission thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the

authentication and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down in article 657 of the Civil

Code. The authentication of a will implies its due execution but once probated and allowed the transmission is effective as of the death of the testator in accordance

with article 657 of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at themoment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such

inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario

entre en posesion de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo

ordena el articulo 989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died

on May 27, 1922, the inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the

payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same

Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees.


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(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of the property.

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to

the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax

and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per

centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their

issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read "fideicommissary" or "cestui que trust". There was

an obvious mistake in translation from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or

donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir,

Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of

the estate in 1932, or ten years after the testator's death. The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a

reasonable value of only P5,787. This amount added to the value of the personal property left by the deceased, which the plaintiff admits is P1,465, would generate

an inheritance tax which, excluding deductions, interest and surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession

takes place and the right of the estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the time of the decedent's death,

regardless of any subsequent contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft,

Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues atthe moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent appreciation or

depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders,

taxation is postponed until the estate vests in possession or the contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois,

Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the

property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and authorities that New York has varied and

now requires the immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out of the corpus of the estate

transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate

of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L.,

659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the

postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time

regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed

(sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses

and disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the


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compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the

Revised Administrative Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax, when an inheritance is concerned, there

shall be deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow

that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires

trustees' commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary

trust has been created, it does not appear that the testator intended that the duties of his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate,

161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed the desire thathis real estate be handled and managed by his executors until the expiration of the period of ten years therein provided. Judicial expenses are expenses of

administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee,

earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within the class or

reason for exempting administration expenses. . . . Service rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to

those entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the

court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the estate. No

sound reason is given to support the contention that such expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative

Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died

on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th

ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made

retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law.

ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491;

Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered

as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall

have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes section 3 of Act

No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606

itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No.

3031, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code.

This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead

of on both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal

Revenue within which to pay the tax, instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the

power to pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain

acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p.

1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although

there are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A.,

104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the

case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. As stated by this court,

"the mere failure to pay one's tax does not render one delinqent until and unless the entire period has eplased within which the taxpayer is authorized by law to

make such payment without being subjected to the payment of penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent's property to the trustee. Stated

otherwise, the defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first

paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as

trustee was made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is not mentioned or used inthe will but the intention to create one is clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words "trust" and

"trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that a trust is created (69 C. J., p. 714).

"To create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate, and

with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the property or subject matter thereof. Stated

otherwise, to constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3)

a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended to

create a trust. He ordered in his will that certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The probate court certainly

exercised sound judgment in appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil Procedure).


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P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact

that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance

tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already

stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. A trustee is but an

instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took

possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p.

692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and,

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

The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the tax could be postponed or delayed

by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not

delivered to their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty

years, or for a longer period which does not offend the rule against petuities. The collection of the tax would then be left to the will of a private individual. The mere

suggestion of this result is a sufficient warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435;

10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs.

Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests

not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state (Dobbins

vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out.

(Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government's power of taxation (Bromley

vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely

fanciful and insubstantial distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich &

Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai

Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax statute should be construed to avoid the

possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any

internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had

occassion to demonstrate trenchment adherence to this policy of the law. It held that "the fact that on account of riots directed against the Chinese on October 18,

19, and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained

therein, does not authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional

penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the taxes levied should be interfered with

as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of

government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and

surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error

on the part of the defendant to compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector

of Internal Revenuen or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five

per centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon

Moore in a communiction dated October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was November 30, 1931. November 30 being an

official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became liable for the payment of the

surcharge.

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

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

At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth P1,465, or a total of P29,385. Deducting from this amount

the sum of P480.81, representing allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the estate

subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be imposed at the rate of one per centum upon the first ten

thousand pesos and two per centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum


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of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or P965.16, we have as

primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised Administrative Code. First should be added P1,465.31

which stands for interest at the rate of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of payment

under protest, a period covering 8 years, 6 months and 5 days. To the tax a

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