When a particular construction of a statute will occasion great inconvenience or produce inequality and
Knowlton v. Moore, 178 U.S. 41 (1900) injustice, that view is not to be favored if another and more reasonable interpretation is present in the
Argued December 6-7, 1899
Decided May 14, 1900
Syllabus
The plaintiffs in error were the executors of the will of Edwin F. Knowlton, of Brooklyn, New York. The
defendant in error was the United States Collector of Internal Revenue for the First Collection District
for the New York. Mr. Knowlton died at Brooklyn in October, 1898, and his will was duly proved. Under
the portion of the Act of Congress of June 13, 1898, which is printed at length in a note to the opinion of
the Court in this case, the United States Collector of Internal Revenue demanded of the executors a
return showing the amount of the personal estate of the deceased and the legatees and distributees
thereof. This return the executors made under protest, asserting that the Act of June 13 was
unconstitutional. This return showed that the personal estate amounted to over two and a half millions
of dollars, and that there were several legacies, ranging from under $10,000 each to over $1,500,000.
The collector levied the tax on the legacies and distributive shares, but, for the purpose of fixing the
rate of the tax, considered the whole of the personal estate of the deceased as fixing the rate for each,
and not the amount coming to each individual legatee under the will. As the rates under the statute
were progressive from a low rate on legacies amounting to $10,000 to a high rate on those exceeding
$1,000,000, this decision greatly increased the aggregate amount of the taxation. The executors
protested on the grounds (1) that the provisions of the act were unconstitutional, (2) that legacies
amounting to less than $10,000, were not subject to any tax or duty, (3) that a legacy of $100,000, taxed
at the rate of $2.25 per $100, was only subject to the rate of $1.12 1/2. Demand having been made by
the collector for payment, payment was made under protest, and, after the Commissioner of Internal
Revenue had refused to refund any of it, the executors commenced suit to recover the amount so paid.
The circuit court sustained a demurrer upon the ground that no cause of action was alleged, and
dismissed the suit, which was then brought here by writ of error.
Held:
(1) That the statute clearly imposes the duty on the particular legacies or distributive shares, and not on
the whole personal estate
(2) That it makes the rate of the tax depend upon the character of the links connecting those taking
with the deceased, being primarily determined by the classifications, and progressively increased
according to the amount of the legacies or shares.
(3) That the court below erred in denying all relief, and that it should have held the plaintiffs entitled to
recover so much of the tax as resulted from taxing legacies not exceeding ten thousand dollars, and
from increasing the tax rate with reference to the whole amount of the personal estate of the deceased
from which the legacies or distributive shares were derived.
Death duties were established by the Roman and ancient law, and, by the modern laws of France,
Germany, and other continental countries, England and her colonies, and an examination of all shows
that tax laws of this nature rest, in their essence, upon the principle that death is the generating source
from which the particular taxing power takes its being, and that it is the power to transmit or the
transmission from the dead to the living on which such taxes are more immediately vested.
statute.
The provision in Section 8 of Article I of the Constitution that "all duties, imports and excises shall be
uniform throughout the United States" refers purely to a geographical uniformity, and is synonymous
with the expression "to operate generally throughout the United States."
The statute considered in this case embraces the District of Columbia.
The case is stated in the opinion of the Court.
MR. JUSTICE WHITE delivered the opinion of the Court.
The Act of Congress of June, 1898, which is usually spoken of as the War Revenue Act (30 Stat. 448, c.
448), imposes various stamp duties and other taxes. Sections 29 and 30 of the statute, which are
therein prefaced by the heading "Legacies and Distributive Shares of Personal Property," provide for the
assessment and collection of the particular taxes which are described in the sections in question. To
determine the issues which arise on this record, it is necessary to decide whether the taxes imposed are
void because repugnant to the Constitution of the United States, and, if they be valid, to ascertain and
define their true import.
The controversy was thus engendered: Edwin F. Knowlton died in October, 1898, in the Borough of
Brooklyn, State of New York, where he was domiciled. His will was probated, and the executors named
therein were duly qualified. As a preliminary to the assessment of the taxes imposed by the provisions
of the statute, the collector of internal revenue demanded of the executors that they make a return
showing the amount of the personal estate of the deceased and disclosing the legatees and distributees
thereof. The executors, asserting that they were not obliged to make the return because of the
unconstitutionality of sections 29 and 30 of the statute, nevertheless complied under protest. The
report disclosed that the personal estate was appraised at $2,624,029.63, and afforded full information
as to those entitled to take the same. The amount of the tax assessed was the sum of $42,084.67. This
was reached according to the computation shown in the table which is printed on the following page.
It is apparent from the table that the collector, whilst levying the tax on the legacies and distributive
shares, or the right to receive the same, yet, for the purpose of fixing the rate of the tax, took into view
the whole of the personal estate of the deceased. That is, whilst the tax was laid upon the legacies, the
rate thereof was fixed by a separate and distinct right or thing, the entire personal estate of the
deceased. The executors protested against the entire tax, and also as to the method by which it was
assessed. The grounds of the protest were as follows:
"1. The provisions of the act of Congress under which it is sought to impose, assess, and collect the said
tax or duty are in violation of the provisions of Article I, Sections 8 and 9, of the Constitution of the
United States, and are therefore void."
"2. The legacies to George W. Knowlton, Charlotte A. Batchelor, the Unitarian Church of West Upton,
Mass., each amount to less than $10,000, and are not subject to any tax or duty under the said
provisions of the said act of Congress even if such provisions be not unconstitutional and void."
"3. The legacy to Eben J. Knowlton, a brother of the testator, amounts to only $100,000, and under the
said provisions of the said act, should be taxed at the rate of $1.12 1/2 per $100, and not at the rate of
$2.25 per $100, even if said act be not unconstitutional and void."
Demand having been made by the collector for the payment, accompanied with a threat to distrain in
case of refusal, the tax was paid under written protest which repeated the grounds above stated. In the
receipt given, it was recited that the tax had been paid under protest to avoid the use of compulsory
process. A petition for refunding was subsequently presented by the executors in which the grounds of
the protest were reiterated. The commissioner of internal revenue having made an adverse ruling, the
present suit was commenced to recover the amount paid. The facts as to the assessment and collection
of the taxes were averred, and the refusal of the internal revenue commissioner to refund was alleged.
The petition for refunding was made a part of the pleadings. The right to repayment was based upon
the averment that the sections of the statute under authority of which the amount had been assessed
and collected were unconstitutional. The circuit court sustained a demurrer on the ground that no
cause of action was alleged. The claim was rejected, and the suit was dismissed with costs.
The questions which arise on this writ of error to review the judgment of the circuit court are fourfold:
first, that the taxes should have been refunded because they were direct taxes, and not being
apportioned, were hence repugnant to Article I, Section 8, of the Constitution of the United States;
second, if the taxes were not direct, they were levied on rights created solely by state law, depending
for their continued existence on the consent of the several states, a volition which Congres has no
power to control, and as to which it could not, therefore, exercise its taxing authority; third, if the taxes
were not direct, and were not assessed upon objects or rights which were beyond the reach of
Congress, nevertheless the taxes were void because they were not uniform throughout the United
States, as required by Article I, Section 9, of the Constitution of the United States; fourth, because,
although the taxes be held to have been in all respects constitutional, nevertheless they were illegal
since, in their assessment, the rate of the tax was determined by the aggregate amount of the personal
estate of the deceased, and not by the sum of the legacies or distributive shares or the right to take the
same, which were the objects upon which by law the taxes were placed.
Although it may be, in the abstract, an analysis of these questions is logical sequence would require a
consideration of the propositions in the order just stated, we shall not do so for the following reasons:
the inquiry whether the taxes are direct or indirect must involve the prior determination of the objects
or rights upon which by law they are imposed and assessed, since it becomes essential primarily to
know what the law assesses and taxes in order to completely learn the nature of the burden. So also, to
solve the contention as to want of uniformity, it is requisite to understand not only the objects or rights
which are taxed, but the method ordained by the statute for assessing and collecting. This must be the
case, since uniformity, in whatever aspect it be considered, involves knowledge as to the operation of
the taxing law, an understanding of which cannot be arrived at without a clear conception of what the
law commands to be done. For these reasons, we shall first in a general way consider upon what rights
or objects death duties, as they are termed in England, are imposed. Having from a review of the history
of such taxes reached a conclusion on this subject, we shall decide whether Congress has power to levy
such taxes. This being settled, we shall analyze the particular act under review for the purpose of
ascertaining the precise form of tax for which it provides and the mode of assessment which it directs.
These questions being disposed of, we shall determine whether the taxes which the act imposes are
void because not apportioned, or for the want of uniformity.
It is conceded on all sides that the levy and collection of some form of death duty is provided by the
sections of the law in question. Bearing this in mind, the exact form of the tax and the method of its
assessment need not be presently defined, since doing so appropriately belongs to the more specific
interpretation of the statute to which we shall hereafter direct our attention. Taxes of this general
character are universally deemed to relate not to property eo nomine, but to its passage by will or by
descent in cases of intestacy, as distinguished from taxes imposed on property, real or personal, as
such, because of its ownership and possession. In other words, the public contribution which death
duties exact is predicated on the passing of property as the result of death, as distinct from a tax on
property disassociated from its transmission or receipt by will or as the result of intestacy. Such taxes so
considered were known to the Roman law and the ancient law of the continent of Europe, 3 Smith,
Wealth of Nations, London ed. 1811, p. 311. Continuing the rule of the ancient French law at the
present day in France inheritance and legacy taxes are enforced, being collectible as stamp duties. They
are included officially under the general denomination of indirect taxes, for the reason that all
inheritance and legacy taxes are considered as levied on the "occasion of a particular isolated act." This
view of the inheritance and legacy tax conforms to the official definition of indirect taxes, among which
inheritance and legacy taxes are classed, which prevails in France at the present day. The definition is as
follows:
"Direct taxes bear immediately upon persons, upon the possession and enjoyments of rights; indirect
taxes are levied upon the happening of an event or an exchange."
In Germany and other continental countries, in various forms, death duties are enforced, in the main, by
way of stamp duties. They are there, both in theory and in practice, treated as resulting from the
occasion of death, and hence as not legally equivalent with taxes levied on property merely because of
its ownership. Cohn, Science of Finance (Veblen's translation), secs. 282, 283, 350; Dos Passos,
Inheritance Tax Law, sec. 1.
The term "Death Duties," by which inheritance and legacy taxes, in whatever form imposed, are
described in England, indicates the generic nature of such taxes. In Hanson's Death Duties, p. 1, it is
said: "Historically, probate duty is the oldest form of death duty, having been established in 1694." The
probate duty thus referred to was a fixed tax dependent on the sum of the personal estate within the
jurisdiction of the probate court, payable on the grant of letters of probate by means of stamp duties,
and was treated as an expense of administration to be deducted out of the residue of the estate. In
1780, this tax was supplemented by what became known as a legacy tax, at first collected by means of a
stamp affixed to the receipt, evidencing the payment of a legacy or share in the personal property of a
deceased person. It is unnecessary to consider the change in the mere form of this latter tax. The tax
was not deducted as an expense of administration, but was charged and collected upon the passing of
the individual legacies or interests upon which it was imposed. In 1853, the probate duty tax and the
legacy tax, just referred to, were supplemented by a tax known as the succession duty. This law reached
interests in real estate passing or acquired by the death of a person and interests in personal property
not covered by the legacy act. This also was not treated as an expense of administration, but was
charged upon and collected out of the particular interests subjected to the tax.
The nature of the succession duty is shown by the second section of the act defining the same, which is
thus condensed by Hanson at Page 40 of his treatise:
"Succession duty is a tax placed on the gratuitous acquisition of property which passes on the death of
any person by means of a transfer (called either a disposition or a devolution) from one person (called
the predecessor) to another person (called the successor). Property chargeable with this tax is called a
succession."
By the Finance Act of 1894, the probate duty was superseded by what was termed the estate duty. This,
like the probate duty, was a tax distinct from those imposed by the legacy and succession duty acts
upon the receipt of real or personal property, or an interest therein, although in some administrative
features it modified or regulated the subject of a succession duty. This tax is payable out of the general
revenue of the estate. In re Bourne (1893), 1 Ch. 188, cited by Hanson at p. 354.
The principle upon which the tax rests is thus stated by Hanson at p. 63:
"The new duty imposed by the Finance Act, and called estate duty, as has been said above, supersedes
probate duty, but the key to the construction of the Finance Act lies in remembering that the new
estate duty, although it is leviable on property which was left untouched by probate duty, such as real
estate, yet is in substance of the same nature as the old probate duty. What it taxes is not the interest
to which some person succeeds on a death, but the interest which ceased by reason of the death.
Unless this principle is kept clearly in view, the mind is constantly tempted by the wording of the act to
revert to principles of succession duty which have no real connection with the subject."
This summary suffices to indicate the origin, the development, and the theory underlying death duties.
A full analysis thereof will be found in Dowell's History of Taxation, vol. 3, pp. 148 et seq., in Hanson's
Death Duties, and in the treatise of Dos Passos, section 4 and notes, where the various acts are referred
to.
In the colonies of Great Britain, death duties, as a general rule, obtain. Some of the statutes are
modeled upon those of the mother country, and levy taxes on legacies, etc., passing, measured by their
value and on the estate proper. Others, again, have merely the estate tax, without the legacy tax. The
statutes are reviewed in the appendix to Hanson's treatise, beginning at 717.
A retrospective study of the death duty laws enacted in our own country, national and state, will show
that they rest upon the same fundamental conception which has caused the adoption of like statutes in
other countries, and especially in their national development do they substantially conform (to the
extent to which they go) to the evolution of the system in England.
As early as 1797, Congress imposed a legacy tax. Act of July 5, 1797, 1 Stat. 527, c. 11. This act was
probably the outgrowth of a recommendation contained in a report of the committee of ways and
means, presented in the House on Tuesday, March 17, 176. Annals of Congress, Fourth Congress, 1st
sess. pp. 993 et seq. The report recommended, 1, the collection of two million dollars by a direct tax, 2,
the imposition of "a duty of two percentum ad valorem . . . on all testamentary dispositions, descents,
and successions to the estates of intestates, excepting those to parents, husbands, wives, or lineal
descendants," 3, the imposition of various stamp duties, and, 4, an increase of the duty on carriages.
The act of 1797 continued in force until June 30, 1802. 2 Stat. 148, c. 19. In this act, as in the English
legacy duty statute of 1780 and supplementary statutes, the mode of collection provided was by stamp
duties laid on the receipts evidencing the payment of the legacies or distributive shares in personal
property, and the amount was, like the English legacy tax, charged upon the legacies, and not upon the
residue of the personal estate. The text of the statute is printed in the margin.
In sections 111 and 112 of chapter 119, Act of July 1, 1862,12 Stat. 485, c. 119, a legacy tax was again
enacted. Like in character to the act of 1797, this was a tax imposed on legacies or distributive shares of
personal property. But in the same chapter was contained still another form of death duty. By section
194, a probate duty, proportioned to the amount of the estate and to be paid by way of stamps, was
levied. The result of the act of 1862 therefore was to cause the death duties imposed by Congress to
greatly resemble those then existing in England -- that is, first, a legacy tax, chargeable against each
legacy or distributive share, and a probate duty chargeable against the mass of the estate. The only
difference between the system created by the act of 1862 and that existing in England was that the act
of 1862 did not embody the succession tax provided for in England, by which interests in real estate
passing by death were subjected to a duty. A detailed reference to the provisions of the act of 1862
need not be made, because we shall have occasion to do so in considering the legislation which, in
1864, in effect reenacted, although largely increasing the rates, both the probate duty or tax on the
whole estate and the legacy tax on each particular legacy or distributive share. The act of 1864,
however, added, in separate sections, a duty on the passing of real estate, in substantial harmony with
the principle of the succession tax expressed in the English Succession Duty Act. Thus it came to pass
that the system of death duties prevailing in England and that adopted by Congress -- leaving out of
view the differences in rates and the administrative provisions -- were substantially identical, and of a
threefold nature -- that is, a probate duty charged upon the whole estate, a legacy duty charged upon
each legacy or distributive share of personalty, and a succession duty charged against each interest in
real property. The act of 1864 was amended in several particulars by the Act of July 13, 1866, 14 Stat.
140, c. 184. These amendments, however, did not materially modify the system of taxation provided in
the act of 1864.
Whilst the general plan of the act of 1864 shows that its framers had in mind the English law, this fact
was conclusively demonstrated by section 127, wherein the succession or real estate inheritance tax
was defined in substantially similar terms to that contained in the English Succession Duty Act. The
identity of the conception embodied in the act of 1864 with that existing in England was observed by
this Court in Scholey v. Rew, 23 Wall. 349, where, in holding that the subject matter of the assessment
of a succession tax was the devolution of the estate or the right to become beneficially entitled to the
same, etc., the Court said (p. 90 U. S. 349):
"Decided support to the proposition that such is the true theory of the act is derived from the fact that
the act of Parliament from which the particular provision under discussion was largely borrowed has
received substantially the same construction."
In the statute of August 27, 1894, 28 Stat. 509, c. 349, what was in effect a legacy tax was imposed by
the provisions of section 28. Ib.. 553. The tax was eo nomine an income tax, but was in one respect the
legal equivalent of a legacy tax, since among the items going to make up the annual income which was
taxed was "money and the value of all personal property acquired by gift or inheritance." This law was
not enforced. Its constitutionality was assailed on the ground that the income tax, insofar as it included
the income from real estate and personal property, was a direct tax within the meaning of the
Constitution, and was void because it had not been apportioned. The contention was twice considered
by this Court. On the first hearing, in Pollock v. Farmers' Loan & Trust Company, 157 U. S. 429, it was
decided that, to the extent that the income taxes included the rentals from real estate, the tax was a
direct tax on the real estate, and was therefore unconstitutional because not apportioned. Upon the
question of whether the unconstitutionality of the tax on income from real estate rendered it legally
impossible to enforce all the other taxes provided by the statute, the Court was equally divided in
opinion. 157 U. S. 157 U.S.586. On a rehearing ( 158 U. S. 158 U.S. 601), the previous opinion was
adhered to, and it was moreover decided that the tax on income from personal property was likewise
direct, and that the law imposing such tax was therefore void because not providing for apportionment.
The Court said (p. 158 U. S. 637):
"Third. The tax imposed by sections twenty-seven to thirty-seven, inclusive, of the act of 1894, so far as
it falls on the income of real estate and of personal property, being a direct tax within the meaning of
the Constitution, and therefore unconstitutional and void because not apportioned according to
representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid."
The decision that the invalidity of the income tax, in the particulars quoted, carried with it the other and
different taxes which were included in income was not predicated upon the unconstitutionality of such
other taxes, but solely upon the conclusion that, by the statute, there was such an inseparable union
between the elements of income derived from the revenues of real estate and personal property and
the other constituents of income provided in the statute that they could not be divided. The Court said
(p. 158 U. S. 637).
"We do not mean to say that an act laying by apportionment a direct tax on all real estate and personal
property, or the income thereof, might not also lay excise taxes on business, privileges, employments,
and vocations. But this is not such an act, and the scheme must be considered as a whole. Being invalid
as to the greater part, and falling, as the tax would, if any part were held valid, in a direction which
could not have been contemplated except in connection with the taxation considered as an entirety, we
are constrained to conclude that sections twenty-seven to thirty-seven, inclusive, of the act, which
became a law without the signature of the President on August 28, 1894, are wholly inoperative and
void."
An inheritance and legacy tax imposed by one of the states (Louisiana) was considered in Mager v.
Grima, 8 How. 490. The opinion of the Court, delivered by Mr. Chief Justice Taney, upheld the right to
levy such taxes. The same subject was passed on in United States v. Perkins, 163 U. S. 625. The question
was whether property bequeathed to the United States could be lawfully included in a succession tax. It
was decided that it could be. In the opinion, delivered by MR. JUSTICE BROWN, it was said (p. 163 U. S.
628):
"The tax is not upon the property in the ordinary sense of the term, but upon the right to dispose of it,
and it is not until it has yielded its contribution to the state that it becomes the property of the legatee."
Again (p. 168 U. S. 629):
"That the tax is not a tax upon the property itself, but upon its transmission by will or descent, is also
held both in New York and in several other states."
Yet again (p. 168 U. S. 630):
"We think that it follows from this that the act in question is not open to the objection that it is an
attempt to tax the property of the United States, since the tax is imposed upon the legacy before it
reaches the hands of the government. The legacy becomes the property of the United States only after
it has suffered a diminution to the amount of the tax, and it is only upon this condition that the
legislature assents to a bequest of it."
Once more, quite recently, the subject was considered in Magoun v. Illinois Trust & Savings Bank, 170
U. S. 283. The issue for decision was this: a law of the State of Illinois imposed a legacy and inheritance
tax, the rate progressing by the amount of the beneficial interest acquired. This progression of rates was
assailed in the courts of Illinois as being in violation of the Constitution of that state, requiring equal and
uniform taxation. The state court having decided that the progressive feature did not violate the
Constitution of the state, the case came to this Court upon the contention that the establishment of a
progressive rate was a denial both of due process of law and of the equal protection of the laws within
the meaning of the Fourteenth Amendment to the Constitution. These complaints were held to be
untenable. In the course of its opinion the Court, speaking through MR. JUSTICE McKENNA, after briefly
adverting to the history of inheritance and legacy taxes in other countries, referred to their adoption in
many of the states of the Union as follows (pp. 170 U. S. 287-288):
"In the United States, they were enacted in Pennsylvania in 1826; Maryland, 1844; Delaware, 1869;
West Virginia, 1887, and still more recently in Connecticut, New Jersey, Ohio, Maine, Massachusetts,
1891; Tennessee in 1891, chapter 25, now repealed by chapter 174, Acts 1893. They were adopted in
North Carolina in 1846, but repealed in 1883. Were enacted in Virginia in 1844, repealed in 1855,
reenacted in 1863, and repealed in 1884. Other states have also enacted them, Minnesota by
constitutional provision."
"The constitutionality of the taxes have been declared, and the principles upon which they are based
explained in United States v. Perkins, 163 U. S. 625, 163 U. S. 628; Strode v. Commonwealth, 52 Pa.
181; Eyre v. Jacob, 14 Grat. 422; Schoolfield v. Lynchburg, 78 Va. 366; State v. Dalrymple, 70 Md.
294; Clapp v. Mason, 94 U. S. 589; In re Merriam, 141 N.Y. 479; State v. Hamlin, 86 Me. 495; State v.
Alston, 94 Tenn. 674; In re Wilmerding, 117 Cal. 281; Dos Passos Collateral Inheritance Tax 20; Minot v.
Winthrop, 162 Mass. 113; Gelsthorpe v. Furnell, 20 Mont. 299. See also Scholey v. Rew, 23 Wall. 331."
"It is not necessary to review these cases or state at length the reasoning by which they are supported.
They are based on two principles: 1. An inheritance tax is not one on property, but one on the
succession. 2. The right to take property by devise or descent is the creature of the law, and not a
natural right -- a privilege, and therefore the authority which confers it may impose conditions upon it.
From these principles it is deduced that the states may tax the privilege, discriminate between relatives,
and between these and strangers, and grant exemptions, and are not precluded from this power by the
provisions of the respective state constitutions requiring uniformity and equality of taxation."
Thus, looking over the whole field and considering death duties in the order in which we have reviewed
them -- that is, in the Roman and ancient law, in that of modern France, Germany and other continental
countries, in England and those of her colonies where such laws have been enacted, in the legislation of
the United States and the several states of the Union -- the following appears: although different modes
of assessing such duties prevail, and although they have different accidental names, such as probate
duties, stamp duties, taxes on the transaction, or the act of passing of an estate or a succession, legacy
taxes, estate taxes, or privilege taxes, nevertheless tax laws of this nature in all countries rest in their
essence upon the principle that death is the generating source from which the particular taxing power
takes its being, and that it is the power to transmit, or the transmission from the dead to the living, on
which such taxes are more immediately rested.
Having ascertained the nature of death duties, the first question which arises is this: can the Congress of
the United States levy a tax of that character? The proposition that it cannot rests upon the assumption
that, since the transmission of property by death is exclusively subject to the regulating authority of the
several states, therefore the levy by Congress of a tax on inheritances or legacies in any form is beyond
the power of Congress, and is an interference by the national government with a matter which falls
alone within the reach of state legislation. It is to be remarked that this proposition denies to Congress
the right to tax a subject matter which was conceded to be within the scope of its power very early in
the history of the government. The act of 1797, which ordained legacy taxes, was adopted at a time
when the founders of our government and framers of our Constitution were actively participating in
public affairs, thus giving a practical construction to the Constitution which they had helped to
establish. Even the then members of the Congress who had not been delegates to the convention which
framed the Constitution must have had a keen appreciation of the influences which had shaped the
Constitution and the restrictions which it embodied, since all questions which related to the
Constitution and its adoption must have been, at that early date, vividly impressed on their minds. It
would, under these conditions, be indeed surprising if a tax should have been levied without question
upon objects deemed to be beyond the grasp of Congress because exclusively within state authority.
It is, moreover, worthy of remark that similar taxes have at other periods and for a considerable time
been enforced, and, although their constitutionality was assailed on other grounds held unsound by this
Court, the question of the want of authority of Congress to levy a tax on inheritances and legacies was
never urged against the acts in question. Whilst these considerations are of great weight, let us for the
moment put them aside to consider the reasoning upon which the proposition denying the power in
Congress to impose death duties must rest.
Confusion of thought may arise unless it be always remembered that, fundamentally considered, it is
the power to transmit or the transmission or receipt of property by death which is the subject levied
upon by all death duties. The qualification of such taxes as privilege taxes, or describing them as levied
on a privilege, may also produce misconception unless the import of these words be accurately
understood. They have been used where the power of a state government to levy a particular form of
inheritance or legacy tax has in some instances been assailed because of a constitutional limitation on
the taxing power. Under these circumstances, the question has arisen whether, because of the power of
the state to regulate the transmission of property by death, there did not therefore exist a less
trammeled right to tax inheritances and legacies than obtained as to other subject matters of taxation,
and, upon the affirmative view's being adopted, a tax upon inheritances or legacies for this reason has
been spoken of as privilege taxation, or a tax on privileges. The conception, then, as to the privilege,
whilst conceding fully that the occasion of the transmission or receipt of property be death is a usual
subject of the taxing power, yet maintains that a wider discretion or privilege is vested in the states
because of the right to regulate. Courts which maintain this view have therefore treated death duties as
dissenthralled from limitations which would otherwise apply if the privilege of regulation did not exist.
The authorities which maintain this doctrine have been already referred to in the citation which we
have made from Magoun v. Illinois Trust & Savings Bank, 170 U. S. 288. An illustration is found in United
States v. Perkins, 163 U. S. 625, where the right of the State of New York to levy a tax on a legacy
bequeathed to the government of the United States was in part rested on the privilege enjoyed by the
State of New York to regulate successions. Some state courts, on the other hand, have held that,
despite the power of regulation, no greater privilege of taxation exists as to inheritance and legacy taxes
than as to other property. Cope's Appeal, 191 Pa. 1; State v. Ferris, 53 Ohio St. 314; State v. Gorman, 40
Minn. 232; Curry v. Spencer, 61 N.H. 624. In State v. Switzler, 143 Mo. 287, the power of the Legislature
of Missouri to levy a uniform tax upon the succession of estates was conceded, though such tax was
declared not to be a tax upon property in the ordinary sense. The court nevertheless held that the
particular tax in question, which was progressive in rate, was invalid because it violated a provision of
the state constitution, the decision in effect being that, because the legislature had the power to
regulate successions, it was not thereby justified in levying a tax which was not sanctioned by the state
constitution.
All courts and all governments, however, as we have already shown, conceive that the transmission of
property occasioned by death, although differing from the tax on property as such, is, nevertheless, a
usual subject of taxation. Of course, in considering the power of Congress to impose death duties, we
eliminate all thought of a greater privilege to do so than exists as to any other form of taxation, as the
right to regulate successions is vested in the states, and not in Congress.
It is not denied that, subject to a compliance with the limitations in the Constitution, the taxing power
of Congress extends to all usual objects of taxation. Indeed, as said in the License Tax Cases, 5 Wall.
462, 72 U. S. 471, after referring to the limitations expressed in the Constitution, "Thus limited, and thus
only, it [the taxing power of Congress] reaches every subject, and may be exercised at discretion." The
limitation which would exclude from Congress the right to tax inheritances and legacies is made to
depend upon the contention that as the power to regulate successions is lodged solely in the several
states; therefore Congress is without authority to tax the transmission or receipt of property by death.
This proposition is supported by a reference to decisions holding that the several states cannot tax or
otherwise impose burdens on the exclusive powers of the national government or the instrumentalities
employed to carry such powers into execution, and, conversely, that the same limitation rests upon the
national government in relation to the powers of the several states. Weston v. Charleston, 2 Pet.
449; McCulloch v. Maryland, 4 Wheat. 431, 17 U. S. 437; Bank of Commerce v. New York City, 2 Black
620; Collector v. Day, 11 Wall. 124; United States v. Railroad Co., 17 Wall. 327; Railroad Co. v.
Peniston, 18 Wall. 5.
But the fallacy which underlies the proposition contended for is the assumption that the tax on the
transmission or receipt of property occasioned by death is imposed on the exclusive power of the state
to regulate the devolution of property upon death. The thing forming the universal subject of taxation
upon which inheritance and legacy taxes rest is the transmission or receipt, and not the right existing to
regulate. In legal effect, then, the proposition upon which the argument rests is that wherever a right is
subject to exclusive regulation by either the government of the United States, on the one hand, or the
several states, on the other, the exercise of such rights as regulated can alone be taxed by the
government having the mission to regulate. But when it is accurately stated, the proposition denies the
authority of the states to tax objects which are confessedly within the reach of their taxing power, and
also excludes the national government from almost every subject of direct and many acknowledged
objects of indirect taxation. Thus, imports are exclusively within the taxing power of Congress. Can it be
said that the property, when imported and commingled with the goods of the state, cannot be taxed
because it had been at some prior time the subject of exclusive regulation by Congress? Again,
interstate commerce is often within the exclusive regulating power of Congress. Can it be asserted that
the property of all persons or corporations engaged in such commerce is not the subject of taxation by
the several states, because Congress may regulate interstate commerce? Conveyances, mortgages,
leases, pledges, and, indeed, all property and the contracts which arise from its ownership, are subject
more or less to state regulation, exclusive in its nature. If the proposition here contended for be sound,
such property or dealings in relation thereto cannot be taxed by Congress even in the form of a stamp
duty. It cannot be doubted that the argument, when reduced to its essence, demonstrates its own
unsoundness, since it leads to the necessary conclusion that both the national and state governments
are divested of those powers of taxation which from the foundation of the government admittedly have
belonged to them. Certainly a tax placed upon an inheritance or legacy diminishes, to the extent of the
tax, the value of the right to inherit or receive, but this is a burden cast upon the recipient, and not
upon the power of the state to regulate. This distinction shows the inapplicability to the case in hand of
the statement made by Mr. Chief Justice Marshall in McCulloch v. Maryland, 4 Wheat. 431, "that the
power to tax involves the power to destroy." This principle is pertinent only when there is no power to
tax a particular subject, and has no relation to a case where such right exists. In other words, the power
to destroy which may be the consequence of taxation is a reason why the right to tax should be
confined to subjects which may be lawfully embraced therein, even although it happens that in some
particular instance no great harm may be caused by the exercise of the taxing authority as to a subject
which is beyond its scope. But this reasoning has no application to a lawful tax, for if it had, there would
be an end of all taxation -- that is to say, if a lawful tax can be defeated because the power which is
manifested by its imposition may when further exercised be destructive, it would follow that every
lawful tax would become unlawful, and therefore no taxation whatever could be levied. Under our
constitutional system, both the national and the state governments, moving in their respective orbits,
have a common authority to tax many and diverse objects, but this does not cause the exercise of its
lawful attributes by one to be a curtailment of the powers of government of the other, for if it did, there
would practically be an end of the dual system of government which the Constitution established. The
contention was adversely decided in the License Tax Cases, 5 Wall. 462, where (p. 72 U. S. 470) the
Court said:
"We come now to examine a more serious objection to the legislation of Congress in relation to the
dealings in controversy. It was argued for the defendants in error that a license to carry on a particular
business gives an authority to carry it on; that the dealings in controversy were parcel of the internal
trade of the state in which the defendants resided; that the internal trade of a state is not subject in any
respect to legislation by Congress, and can neither be licensed nor prohibited by its authority; that
licenses for such trade, granted under acts of Congress, must therefore be absolutely null and void; and
consequently that penalties for carrying on such trade without such license could not be constitutionally
imposed."
The Court, after thus stating the argument, decided that the license was a mere form of excise taxation,
that it conferred no right to carry on the business (the selling of lottery tickets and the liquor traffic), if
forbidden to be engaged in by the state, but license was applicable whenever under the state law such
business was permitted to be done. Many other opinions of this Court have pointed out the error in the
proposition relied on, and render it unnecessary to do more than refer to them. Lane County v.
Oregon, 7 Wall. 71, 74 U. S. 77; Veazie Bank v. Fenno, 8 Wall. 533, 75 U. S. 547; First Nat. Bank v.
Commonwealth, 9 Wall. 353, 76 U. S. 362; Collector v. Day, 11 Wall. 113, 78 U. S. 127; United States v.
Railroad Co., 17 Wall. 322, 84 U. S. 327; Railroad Co. v. Peniston, 18 Wall. 5, 85 U. S. 36; California v.
Central Pacific Railroad, 127 U. S. 1, 127 U. S. 40.
We are then brought to a consideration of the particular form of death duty which is manifested by the
statute under consideration. The sections embodying it are printed in the margin. [Footnote 3] It is at
the outset obvious that the exact meaning of the statute is not free from perplexity, as there are clauses
in it, when looked at apart from their context, which may give rise to conflicting views. It is plain,
however, that the statute must mean one of three things:
1. The tax which it imposes is on the passing of the whole amount of the personal estate, with a
progressive rate depending upon the sum of the whole personal estate, or,
2. The tax which it levies is placed on the passing of legacies or distributive shares of personal property
at a progressive rate, the amount of such rate being determined, not by the separate sum of each
legacy or distributive share, but by the volume of the whole personal estate. This is the mode in which
the tax was computed by the assessor, and which was sustained by the court below; or,
3. The tax is on the passing of legacies or distributive shares of personalty, with a progressive rate on
each separately determined by the sum of each of such legacies or distributive shares.
On the very threshold, the theory that the tax is not on particular legacies or distributive shares passing
upon a death, but is on the whole amount of the personal property of the deceased, is rebutted by the
heading, which describes what is taxed not as the estates of deceased persons, but as "legacies and
distributive shares of personal property." This, whilst not conclusive, is proper to be considered in
interpreting the statute when ambiguity exists and a literal interpretation will work out wrong or
injury.United States v. Fisher, 2 Cranch 358, 6 U. S. 386; United States v. Palmer, 3 Wheat. 610, 16 U. S.
631; United States v. Union Pacific Railroad, 91 U. S. 72; Smythe v. Fiske, 23 Wall. 374, 90 U. S.
380; Coosaw Mining Co. v. South Carolina, 144 U. S. 550.
The opening words of section 29 may, for clearness, be thus arranged:
"That any person or persons having in charge or trust, as administrators, executors, or trustees, any
legacies or distributive shares arising from personal property, . . . passing, after the passage of this act,
from any person possessed of such property, either by will or by the intestate laws of any state or
territory, . . . shall be, and hereby are, made subject to a duty or tax, to be paid to the United States, as
follows -- that is to say," etc.
Thus collocated, the statute clearly imposes the duty on the particular legacies or distributive shares,
and not on the whole personal estate. It does not say that the tax is levied on the personal estate left by
the deceased person, but it is imposed on legacies or distributive shares arising from such property. This
is made clearer by considering that, in the very same section, the tax is described as being upon any
interest which may have been "transferred by deed, grant, bargain, sale, or gift, made or intended to
take effect in possession or enjoyment after the death of the grantor, bargainor, to any person or
persons," etc. That is to say, whilst the law places the duty on any legacy or distributive share passing by
death, it puts a like burden on gifts which may have been made in contemplation of death and
otherwise than by last will and testament.
Following the paragraph from which the foregoing has been quoted, the statute makes five distinct
classes or enumerations whereby the rate of the tax is varied -- that is, it is made more or less
depending upon the relationship, or want of relationship, of the legatee or distributee to the deceased.
But this enumeration can only be explained upon the hypothesis that the law intended to impose a
greater or less tax upon a legatee or distributee, arising from his degree of relationship or his being a
stranger in blood to the deceased. Thus, it cannot be doubted that, in assessing the tax, the position of
each separate legatee or distributee must be taken into view in order to ascertain the primary rate
which the statute establishes. One of two things must arise. When the rate of tax is thus calculated
upon the particular attitude to the deceased of each of the legatees or distributees, the sum of the tax
must be deducted either from each particular legacy or from the mass of the whole personal estate. If it
is deducted from each particular legacy, then it is manifest that the tax imposed will have been levied,
not upon the mass of the estate, but upon each particular legatee or beneficiary, since the share of such
person will have paid a rate of taxation predicated upon the amount of the legacy and the relationship,
or want of relationship, of the particular recipient thereof to the deceased. This being the case, no room
would be left for the contention that the tax was imposed on the whole estate. On the other hand, if
the whole sum of the taxation on all the shares, calculated on the basis of the relationship of each
beneficiary and the amount received, be deducted from the mass of the estate, then each recipient
would pay only a proportion of the amount without reference to his relationship to the deceased. This
would result in imposing the tax on the whole personal estate, and ratably distribute the burden among
all the beneficiaries. But to reach this the entire classification, grading the rate of the tax by the degrees
of relationship, would have to be disregarded. The dilemma, therefore, which is involved in the
contention that the statute imposes the tax not on each legacy or distributive share, but on the whole
personalty, is this: if the tax is levied and collected according to the classifications in the statute, it is
clearly on the legacy or distributive share. If, on the contrary, it is levied on the entire personal estate,
then the classifications of the statute must be ignored and the construction be upheld which maintains
that the act has classified the rate of tax by the relationship of the beneficiaries to the deceased, and
has then disregarded the classification by collecting the tax wholly without reference to such
relationship. This construction, besides eliminating a large portion of the text of the act, would do
violence to its plain import, which is to make the rate of the tax depend upon the character of the links
connecting those taking with the deceased. This is greatly fortified by other portions of the act. At the
close of the fifth subdivision of section 29, one of the clauses creating a classification with respect to
remote relationship, or want of relationship, to the deceased, it is provided as follows:
"Provided, That all legacies or property passing by will, or by the laws of any state or territory, to
husband or wife of the person who died possessed as aforesaid section hall be exempt from tax or
duty."
Now mark, the word is "passing" by will, etc., which excludes a conception that the whole amount of
the estate, and not the particular portions thereof which passed, is the subject of the tax. And the
exemption from the tax or duty of the legacy, etc., given to the husband or wife of a deceased implies
that the scheme of taxation is of the legacies, etc., and not of the whole personal estate. This must be
so unless it can be said that the statute in terms exempts the legacy to a husband or wife from the
legacy tax otherwise imposed, although no legacy taxes resulted from the statute.
The provisions for the collection of the tax contained in section 30 of the act confirm the construction
that the passing of such legacy or distributive share, and not the entire personal estate of a deceased
person, forms the subject of the tax. Thus, before payment and distribution to the legatees, etc., an
executor, administrator, or trustee is required to pay "the amount of the duty or tax assessed upon such
legacy or distributive share," and to "make and render a schedule," etc., in duplicate, "of the amount of
such legacy or distributive share, together with the amount of duty which has accrued, or shall accrue
thereon," and the schedule is required to "contain the names of each and every person entitled to any
beneficial interest therein."
Whatever be the obscurity, it is illumined when the light of the previous legislation, which we have
already reviewed, is thrown on it. The passing of legacies and distributive shares were the objects taxed
under the English legacy act. They were the subjects taxed under the act of Congress of 1797. By the act
of 1862, as we have seen, the whole estate was reached by a probate duty, whilst a distinct duty was
charged upon legacies and distributive shares in personal property. When the act of 1864 was enacted,
there was added a succession tax on real estate, modeled, as said by this Court and as shown by the act
itself, upon the English Succession Duty Act, which treated each particular gift of real estate as a distinct
succession, separately liable for the duty laid by the act. The legacy tax and the succession tax were thus
correlated, and rested upon the same theory -- that is, both considered, they created a tax on the
passing of each particular gift or distributive share of both the personal and real estate, treated as
separate one from the other, and each as forming a distinct estate subject to taxation. To assume that,
when the succession duty was adopted in 1864, that the legacy tax, which was also reenacted in that
act, lost its character and became a tax levied not on the passing of the legacies and distributive shares,
but upon the whole amount of the estate before passing, would destroy the entire harmony of the
system and lead to a confession that a confusion of thought existed which cannot in reason be
admitted. Indeed, it is difficult to conceive that the act of 1864 contemplated that either the legacy duty
or the succession duty which it imposed should be upon the whole estate, since the tax to be paid by
the whole estate was therein distinctly and separately provided for by means of the probate duty. If the
tax on the whole estate can be, by implication, inserted, the same reasoning would also imply that the
succession duty must be likewise treated. It would thus be that the entire act of 1864 would be in force
despite its repeal and the failure to reenact in the present law either the whole estate or succession
duty.
What it was considered the act of 1864 levied the tax on is also in addition demonstrated by the
amendments made to the act of 1864 in 1866. One of these amendments was:
"That any legacy or share of personal property passing as aforesaid to a minor child of the person who
died possessed as aforesaid shall be exempt from taxation under this section unless such legacy or
share shall exceed the sum of one thousand dollars, in which case the excess only above that sum shall
be liable to said taxation."
Another was that any tax paid under the provisions of sections 124 and 125 of the act of 1864 should
"be deducted from the particular legacy or distributive share on account of which the same is charged."
In other words, the act expressly commanded that to be done which it was impossible should be done
compatibly with any hypothesis that the tax was on the whole personal estate, for, as we have seen,
under that assumption, the deduction of the tax from the whole estate was essential.
That the provisions of the act of 1864 were in mind when the present act was drafted is apparent, since
it is not disputed that the act under review, so far as the tax on legacies and distributive shares is
concerned, is an exact reproduction of the original act of 1864, except to the extent that the present act
contains provisions relating to a progressive increase of rates. We say of the original act because the
present act does not contain in it the amendments to which we have referred, made in 1866, the fair
inference being that the writer of the present act had before him the original text of the act of 1864,
and not that text as amended by the act of 1866.
As the only provisions added to the present law relate to the progressive rate upon the legacies, it
follows that, unless these added clauses provide for a tax on the whole estate, instead of the legacies, it
is a demonstration that the whole estate is not taxed by the present act. That the progressive rate
features inserted in the act now under review have even no tendency to bring about such a result we
proceed now to demonstrate. We reproduce such portions of section 29 as are essential, putting in
brackets the words found in the act of 1898 under review which were not contained in the
corresponding provisions existing in the act of 1864:
"That any person or persons having in charge or trust, as administrators, executors, or trustees, any
legacies or distributive shares arising from personal property where the whole amount of such personal
property as aforesaid shall exceed the sum of one [ten] thousand dollars in actual value, passing, after
the passage of this act, from any person possessed of such property, either by will or by the intestate
laws of any state, or territory, or any personal property or interest therein, transferred by deed, grant,
bargain, sale, or gift, made or intended to take effect in possession or enjoyment after the death of the
grantor or bargainor, to any person or persons, or to any body or bodies, politic or corporate, in trust or
otherwise, shall be, and hereby are, made subject to a duty or tax to be paid to the United States, as
follows, that is to say: [where the whole amount of said personal property shall exceed in value ten
thousand and shall not exceed in value the sum of twenty-five thousand dollars, the tax shall be. . . .]"
Immediately following this are five classifications of beneficiaries, each varying in rate. These are
followed by the progressive rate clause, which is as follows:
"[Where the amount or value of said property shall exceed the sum of twenty-five thousand dollars, but
shall not exceed the sum or value of one hundred thousand dollars, the rates of duty or tax above set
forth shall be multiplied by one and one-half, and where the amount or value of said property shall
exceed the sum of one hundred thousand dollars, but shall not exceed the sum of five hundred
thousand dollars, such rates of duty shall be multiplied by two, and where the amount or value of such
property shall exceed the sum of five hundred thousand dollars, but shall not exceed the sum of one
million dollars, such rates of duty shall be multiplied by two and one-half, and where the amount or
value of such property shall exceed the sum of one million dollars, such rates of duty shall be multiplied
by three.]"
Observing closely the text, it is apparent that the clause therein which points out what is taxed is an
exact copy of the act of 1864, except the substitution of the "ten" for the word "one." The subject
taxed, therefore, under the present act, is the same which was taxed under the act of 1864. This is the
equivalent of a mathematical certainty. Coming, then, to the added provision at the end of the first
paragraph, it says: "Where the whole amount of said personal property shall exceed in value," etc. This,
however, creates no new object of taxation, but simply provides that, where said personal property --
that is, the property previously specified -- exceeds a certain amount, a given rate shall be imposed. So,
in the further addition, pointing out the progressive feature, the law says, "where the amount or value
of said property shall exceed the sum of," etc., thus clearly again referring to the objects of taxation, the
property described in the first part of the act, which was identically the same thing described in the act
of 1864. The demonstration therefore is conclusive that the progressive feature clause added in the
present act creates no new subject of taxation; it simply provides for the progressive rates on the said
property mentioned in the opening sentences, which is described exactly as it was in the act of 1864.
Now as the act of 1864 taxed not the whole estate, but each particular legacy or distributive share, the
conclusion cannot be escaped that the present law does the same thing, except that there is added
thereto a progressive rate.
The tax being then on the legacies and distributive shares, the rate primarily being determined by the
relation of the legatees or distributees to the estate, does the law command that the progressive rate of
tax which it imposes on the legacies or distributive shares shall be measured not separately by the
amount of each particular legacy or distributive share, but by the sum of the whole personal estate?
This, as we have said, is the interpretation of the act which was adopted by the assessor in levying the
taxes under review, and which was sustained by the court below.
The unsoundness of the construction, that the act measures the rate of tax by the whole estate, is fully
shown by what we have already said, for, as under the act of 1864, the legacies and distributive shares
alone were taxed, and as in reenacting it the exact language was retained (omitting the separate
provisions in the act of 1864, taxing the whole estate by a probate duty and taxing successions), and as
the progressive rates only refer to the object taxed, as provided in the act of 1864, it results that under
no reasonable construction can the present act be held to provide for a rate of tax computed on the
whole estate. Even, however, if all the previous history be shut out of view, and even if the omission
from this act of the whole estate duty which obtained under the act of 1864 be for the moment
forgotten, the text of the law, considered alone, would not support the construction that it provides for
a tax upon each legacy and distributive share by a rate of tax measured by the whole estate. In order to
make this clear, we will briefly analyze the text. In doing so, however, we eliminate the attempt made
by counsel in argument to show the significance thereof by expressions used in the course of the debate
by certain members of the Senate. Maxwell v. Dow, 176 U. S. 581, and cases there cited.
The meaning of the act largely turns upon the following words, contained in the opening paragraph of
section 29: "Where the whole amount of such personal property as aforesaid shall exceed the sum of
ten thousand dollars in actual value, passing," etc. If these words refer to the whole amount of the
estate left by a deceased person, then the words added in the act of 1898 to the end of the
paragraph, viz., "where the whole amount of said personal property shall exceed in value ten thousand,
and shall not exceed in value the sum of twenty-five thousand, dollars, the tax shall be," as stated in five
classifications next enumerated, must refer to the same thing. It follows likewise that the progressive
rate clause, which says, "where the amount or value of said property shall exceed the sum of," etc.,
must relate to the same thing -- that is, the whole amount of the estate, as stated in the opening
sentences of section 29. If this view be correct, then all legacies in an estate of $10,000 are exempt, and
all legacies, whatever be their amount, in an estate above $10,000 have the original rate adjusted
according to the classifications, and that rate is increased progressively by the whole amount of the
estate, and not by the amount of the legacy. If, on the other hand, the words "where the whole amount
of such personal property as aforesaid shall exceed the sum of ten thousand dollars," found in the first
sentence of section 29, relate to the whole amount of each legacy, then legacies under $10,000 are not
taxable, and those above $10,000 pay the original rate provided in the classifications, and become
subject to the progressive increase clause according to the amount of the legacy, and not by the whole
amount of the estate.
But the pivotal words in the first sentence are not simply "the whole amount of such personal
property," but the "whole amount of such personal property as aforesaid." This can only refer to the
preceding part of the sentence, where what is contemplated by the words "as aforesaid" is and can
alone be "any legacies or distributive shares arising from personal property . . . passing after the
passage of this act." In other words, the statute itself, by the reference clause, establishes that the
whole amount referred to is the sum or value of each particular legacy, etc., separately considered,
passing from the deceased to the taker thereof. And this construction of the vital words referred to,
derived from what immediately precedes them, is sustained by what immediately follows them -- that
is, the clause imposing the tax on "any personal property or interest therein, transferred by deed," etc.,
interest therein, transferred by deed," etc., or enjoyment after the death of the grantor or bargainor, to
any person or persons," etc. This latter clause treats each item of property given in contemplation of
death otherwise than by last will and testament, as a distinct entity to be considered for the purpose of
levying the tax. Each of such items, therefore, separately considered, becomes, for the purpose of the
tax, the whole amount of such personal property, the statute clearly recognizing that there may be
partial and distinct interests in each item of personal property, such as an interest for life in one person
with a remainder in another. Thus, by the two clauses, which are linked together by the words "the
whole amount of such personal property," it develops that the amount referred to is the separate and
distinct sums or items of personal property passing, and not the whole amount of the entire estate,
which, as has been shown in considering the previous proposition, the act did not purport to tax as
such.
The subsequent provisions of the act lend cogency to this view. Thus, in section 30, it is made the duty
of the executor, etc., to pay over to the collector "the amount of the duty or tax assessed upon such
legacy or distributive share," and he is also commanded to deliver to the collector a schedule "of the
amount of such legacy or distributive share, together with the amount of the duty which has accrued or
shall accrue thereon."
At the risk of repetition, we recur again to a particular feature in the prior legislation, because it very
pertinently points out the error which has given rise to the assumption that the "whole personal estate
as aforesaid" meant in the act of 1864, or means in this act, the whole amount of the personal estate
left by the deceased, and not the whole amount of each legacy considered as a separate estate for the
purpose of taxation. Attention has been called to the fact that, in accordance with the English system,
the act of 1864 engrafted on the provisions of the act of 1862 a succession or real estate inheritance
tax. In doing so, it was unequivocally declared in the law that each separate gift of real property was a
distinct succession or estate. In other words, the statute itself announced the rule that the whole
amount of each estate subject to taxation, under the succession tax, was the whole amount of each
separate item of gift treated as an estate for the purpose of the levy and collection of the taxes thereon.
How, then, can it be supposed that the act of 1864 contemplated that the section relating to the legacy
should have one meaning, whilst the whole amount of the estate in the sections relating to succession
or real estate taxes should have another? Must it not be considered that the statute provided for no
such discordant and unjust discrimination, but that, on the contrary, it harmoniously expressed the rule
obtaining from the beginning -- that is, the levy of a legacy tax on personal estate passing by death to
each particular beneficiary treated separately as the amount subject to taxation and the same rule
applied to the succession tax by treating each item of real estate as the whole amount of an estate
passing separately for the purpose of taxation?
It is true that in the practical execution of the act of 1864, the words "the whole amount of such
personal property . . . shall exceed the sum of one thousand dollars" were administratively construed as
applying to the entire personal estate left by one deceased, and not to the distinct legacies or interests.
It resulted that where an estate did not equal one thousand dollars, no tax was collected upon legacies
or distributive shares therein, and where the estate exceeded one thousand dollars, all legacies and
distributive shares, whatever the amount of each, were taxed. Any force resulting from this
administrative view, however, is weakened by the fact that the contrary construction prevailed as to the
other portions of the act of 1864, the succession duty, where the amount of the tax was determined by
the amount or value of each particular item of real property. The administrative construction,
therefore, of the act of 1864 was contradictory, since it enforced one rule on the one hand and an
absolutely conflicting one on the other. Besides, the whole estate was taxed as such by the probate
duty found in the act of 1864.
As we have said, the act of 1864 was repealed in 1870. 16 Stat. 256, c. 255. After the repeal, the court
was called upon, in Mason v. Sargent, 104 U. S. 689, to consider whether, when one who held a life
estate in a legacy died subsequent to the repeal of the act, the interest of the legatees in remainder was
subject to the inheritance tax. In passing upon this question, this Court said (p. 104 U. S. 690):
"The tax in question was imposed by section 124 of the Act of June 30, 1864, c. 173, 13 Stat. 223, 285,
upon legacies or distributive shares of personal property exceeding the sum of $1,000, passing, after
the passage of the act, from a decedent, either testate or intestate, in the hands of an executor,
administrator, or trustee, varying in rate, as the party beneficially entitled was less or more remote in
consanguinity, or a stranger in blood, to the person from whom it passed, with a proviso that legacies or
distributive interests in intestate estates passing to husband or wife should be exempt from such tax. "
The opinion thus expressed is in conflict with the assumption that the whole estate contemplated not
each legacy or distributive share, but the entire amount of personal property of the deceased, and this
construction may be well considered to have been in effect adopted by the reenactment of the act of
1864, without any change indicating an intention to the contrary.
Granting, however, there is doubt as to the construction, in view of the consequences which must result
from adopting the theory that the act taxes each separate legacy by a rate determined not by the
amount of the legacy, but by the amount of the whole personal estate left by the deceased, we should
be compelled to solve the doubt against the interpretation relied on. The principle on which such
construction rests was thus defended in argument. The tax is on each separate legacy or distributive
share, but the rate is measured by the whole estate. In other words, the construction proceeds upon
the assumption that Congress intended to tax the separate legacies not by their own value, but by that
of a wholly distinct and separate thing. But this is equivalent to saying that the principle underlying the
asserted interpretation is that the house of A, which is only worth $1,000, may be taxed, but that the
rate of the tax is to be determined by attributing to A's house the value of B's house, which may be
worth a hundredfold the amount. The gross inequalities which must inevitably result from the
admission of this theory are readily illustrated. Thus, a person dying and leaving an estate of $10,500
bequeaths to an hospital $10,000. The rate of tax would be five percent, and the amount of tax $500.
Another person dies at the same time, leaves an estate of $1,000,000, and bequeaths $10,000 to the
same institution. The rate of tax would be 12 1/2 percent, and the amount of the tax $1,250. It would
thus come to pass that the same person, occupying the same relation and taking in the same character
two equal sums from two different persons, would pay in the one case more than twice the tax that he
would in the other. In the arguments of counsel, tables are found which show how inevitable and
profound are the inequalities which the construction must produce. Clear as is the demonstration which
they make, they only serve to multiply instances afforded by the one example which we have just given.
We are therefore bound to give heed to the rule that, where a particular construction of a statute will
occasion great inconvenience or produce inequality and injustice, that view is to be avoided if another
and more reasonable interpretation is present in the statute. Bate Refrigerating Co. v. Sulzberger, 157
U. S. 37; Wilson v. Rousseau, 4 How. 646, 45 U. S. 680; Bloomer v. McQuewan, 14 How. 539, 55 U. S.
553; Blake v. National Banks, 23 Wall. 307, 90 U. S. 320; United States v. Kirby, 7 Wall. 482, 74 U. S. 486.
Indeed, the confusion which gives rise to both of the constructions of the statute which we have just
considered comes from the want of insight pointed out by Hanson in a passage which we have
heretofore quoted -- that is, it arises from not keeping in mind the distinction between a tax on the
interest to which some person succeeds on a death and a tax on the interest which ceased by reason of
the death, the two being different objects of taxation.
It may be doubted by some, aside from express constitutional restrictions, whether the taxation by
Congress of the property of one person, accompanied with an arbitrary provision that the rate of tax
shall be fixed with reference to the sum of the property of another, thus bringing about the profound
inequality which we have noticed, would not transcend the limitations arising from those fundamental
conceptions of free government which underlie all constitutional systems. On this question, however, in
any of its aspects, we do not even intimate an opinion, as no occasion for doing so exists, since, as we
understand the law, we are clearly of opinion that it does not sustain the construction which was placed
on it by the court below.
By elimination, the process of reasoning which we have resorted to in order to demonstrate the
unsoundness of the first two contentions as to the meaning of the statute renders it unnecessary to say
anything in elaboration of the significance of the statute as embodied in the third proposition, which is
that the tax is on the legacies and distributive shares, the rate being primarily determined by the
classifications and being progressively increased according to the amount of the legacies or shares. Its
correctness is at once apparent when the other views are disposed of. As the "whole amount of such
personal property as aforesaid" relates to the sum of each legacy or distributive share considered
separately, it follows that all legacies not exceeding $10,000 are not taxed, and that those above that
amount are taxed primarily by the degree of relationship or absence thereof specified in the five
classifications contained in the statute, and that the rate of tax is progressively increased by the amount
of each separate legacy or distributive share. This being the correct interpretation of the statute, it
follows that the court below erroneously maintained a contrary construction, and therefore the tax
assessed and collected was for a larger amount than the sum actually due by law.
The precise meaning of the law being thus determined, the question whether the tax which it imposes
is direct, and hence subject to the requirement of apportionment, arises for consideration. That death
duties generally have been from the beginning in all countries considered as different from taxes levied
on property, real or personal, directly on account of the ownership and possession thereof, is
demonstrated by the review which we have previously made. It has also been established by what we
have heretofore said that such taxes, almost from the beginning of our national life, have been treated
as duties, and not as direct taxes. Of course, they concern the passing of property by death, for if there
was no property to transmit, there would be nothing upon which the tax levied on the occasion of
death could be computed. This legislative and administrative view of such taxes has been directly
upheld by this Court. In Scholey v. Rew, 23 Wall. 349, to which we have heretofore referred, the
question presented was the constitutionality of the provisions of the act of 1864 imposing a succession
duty as to real estate. The assertion was that the duty was repugnant to the Constitution because it was
a direct tax and had not been apportioned. The tax was decided to be constitutional. T he Court said
(p. 90 U. S. 346):
"But it is clear that the tax or duty levied by the act under consideration is not a direct tax within the
meaning of either of these provisions. Instead of that, it is plainly an excise tax or duty, authorized by
section eight of article one, which vests the power in Congress to lay and collect taxes, duties, imposts,
and excises to pay the debts and provide for the common defense and general welfare."
"Whether direct taxes in the sense of the Constitution comprehend any other tax than a capitation tax
and a tax on land is a question not absolutely decided, nor is it necessary to determine it in the present
case, as it is expressly decided that the term does not include the tax on income, which cannot be
distinguished in principle from a succession tax such as the one involved in the present controversy."
This is decisive against the contrary contention here relied on unless it be that the decision in Scholey v.
Rewhas been overruled, and therefore is no longer controlling.
The argument is that the decision in Scholey v. Rew was overruled in Pollock v. Farmers' Loan & Trust
Company,157 U. S. 429, 158 U. S. 158 U.S. 601. This contention is thus supported in argument.
As in the course of the opinion in Scholey v. Rew, the Court said that taxes on successions could not be
distinguished in principle from an income tax, therefore the decision in the Pollock case, which held that
an income tax was direct, it is argued, necessarily decided that an inheritance tax was also direct. But in
the Pollock case, the decision in Scholey v. Rew was not overruled. On the contrary, the correctness of
the decision in the latter case as to the particular matter which it actually decided in effect was
reaffirmed. In consequence of the statement made in Scholey v. Rew, that an income tax and a
succession tax could not be distinguished one from the other, that case was relied on in
the Pollock case, by counsel in argument and by the members of the Court who dissented, as
establishing, for the reason stated, that the income tax was not direct. The Court, however,
treated Scholey v. Rew as inapplicable to an income tax because it considered that whether an income
tax was direct was not actually involved in the latter case, and hence the illustration which was used
in Scholey v. Rew as to an income tax was held not to have been a decision on the question of whether
or not an income tax was direct.
The Court said (157 U.S. 157 U. S. 577):
"Scholey v. Rew, 23 Wall. 331, was the case of a succession tax, which the Court held to be 'plainly an
excise tax or duty' upon the devolution of the estate or the right to become beneficially entitled to the
same, or the income thereof, in possession or expectancy. It was like the succession tax of a state held
constitutional in Mager v. Grima, 8 How. 490, and the distinction between the power of a state and the
power of the United States to regulate the succession of property was not referred to, and does not
appear to have been in the mind of the Court. The opinion stated that the act of Parliament from which
the particular provision under consideration was borrowed had received substantially the same
construction, and cases under that act hold that a succession duty is not a tax upon income or upon
property, but on the actual benefit derived by the individual, determined as prescribed. In re Elwes, 3 H.
& N. 719; Attorney General v. Sefton, 2 H. & C. 362; S.C. (H.L.) 3 H. & C. 1023, 11 H.L.Cas. 257."
The argument now made, therefore, comes to this: although in the Pollock case the doctrine which the
Court considered as having been actually decided in Scholey v. Rew was not overruled, nevertheless,
because an example which was made use of in the course of the opinion in Scholey v. Rew was
disregarded, the Pollockcase therefore overruled Scholey v. Rew. The issue presented in the Pollock case
was whether an income tax was direct within the meaning of the Constitution. The contentions which
the case involved were thus presented. On the one hand, it was argued that only capitation taxes and
taxes on land as such were direct within the meaning of the Constitution, considered as a matter of first
impression, and that previous adjudications had construed the Constitution as having that import. On
the other hand, it was asserted that, in principle, direct taxes in the constitutional sense embraced not
only taxes on land and capitation taxes, but all burdens laid on real or personal property because of its
ownership, which were equivalent to a direct tax on such property, and it was affirmed that the
previous adjudications of this Court had settled nothing to the contrary. The issues which were thus
presented in the Pollock case, it will be observed, had been expressly reserved in Scholey v. Rew, where
it was said (23 Wall. 90 U. S. 346):
"Whether direct taxes in the sense of the Constitution comprehend any other tax than a capitation tax
and a tax on land is a question not absolutely decided, nor is it necessary to determine it in the present
case."
The question which was thus reserved in Scholey v. Rew, and which was presented for decision in
the Pollockcase, was decided in the latter case, the Court holding that taxes on the income of real and
personal property were the legal equivalent of a direct levy on the property from which the income was
derived, and therefore required apportionment. But there was no intimation in the Pollock case that
inheritance taxes -- which had been held in Scholey v. Rew not to be direct, which had from all time
been considered as being imposed, not on property real or personal, as ordinarily understood, but as
being levied on the transmission or receipt of property occasioned by death, and which had from the
foundation of the government been treated as a duty or excise -- were direct taxes within the meaning
of the Constitution. Undoubtedly, in the course of the opinion in the Pollock case, it was said that if a
tax was direct within the constitutional sense, the mere erroneous qualification of it as an excise or duty
would not take it out of the constitutional requirement as to apportionment. But this language related
to the subject matter under consideration, and was but a statement that a tax which was, in itself direct
because imposed upon property solely by reason of its ownership could not be changed by affixing to it
the qualification of excise or duty. Here, we are asked to decide that a tax is a direct tax on property
which has at all times been considered as the antithesis of such a tax -- that is, has ever been treated as
a duty or excise, because of the particular occasion which gives rise to its levy.
But it is asserted that it was decided in the income tax cases that, in order to determine whether a tax
be direct within the meaning of the Constitution, it must be ascertained whether the
Page 178 U. S. 82
one upon whom by law the burden of paying it is first cast can thereafter shift it to another person. If he
cannot, the tax would then be direct in the constitutional sense, and, hence, however obvious in other
respects it might be a duty, impost, or excise, it cannot be levied by the rule of uniformity, and must be
apportioned. From this assumed premise it is argued that death duties cannot be shifted from the one
on whom they are first cast by law, and therefore they are direct taxes requiring apportionment.
The fallacy is in the premise. It is true that, in the income tax cases, the theory of certain economists by
which direct and indirect taxes are classified with reference to the ability to shift the same was adverted
to. But this disputable theory was not the basis of the conclusion of the Court. The constitutional
meaning of the word "direct" was the matter decided. Considering that the constitutional rule of
apportionment had its origin in the purpose to prevent taxes on persons solely because of their general
ownership of property from being levied by any other rule than that of apportionment, two things were
decided by the Court: first, that no sound distinction existed between a tax levied on a person solely
because of his general ownership of real property, and the same tax imposed solely because of his
general ownership of personal property. Secondly, that the tax on the income derived from such
property, real or personal, was the legal equivalent of a direct tax on the property from which said
income was derived, and hence must be apportioned. These conclusions, however, lend no support to
the contention that it was decided that duties, imposts, and excises which are not the essential
equivalent of a tax on property generally, real or personal, solely because of its ownership, must be
converted into direct taxes, because it is conceived that it would be demonstrated by a close analysis
that they could not be shifted from the person upon whom they first fall. The proposition now relied
upon was considered and refuted in Nicol v. Ames, 173 U. S. 509, where the Court said (p. 173 U. S.
515):
"The commands of the Constitution, in this as in all other respects, must be obeyed -- direct taxes must
be apportioned, while indirect taxes must be uniform throughout the United States. But while yielding
implicit obedience to these constitutional requirements, it is no part of the duty of this Court to lessen,
impede, or obstruct the exercise of the taxing power by merely abstruse and subtle distinctions as to
the particular nature of a specified tax where such distinction rests more upon the differing theories of
political economists than upon the practical nature of the tax itself."
"In deciding upon the validity of a tax with reference to these requirements, no microscopic
examination as to the purely economical or theoretical nature of the tax should be indulged in for the
purpose of placing it in a category which would invalidate the tax. As a mere abstract, scientific, or
economical problem, a particular tax might possibly be regarded as a direct tax when, as a practical
matter pertaining to the actual operation of the tax, it might quite plainly appear to be indirect. Under
such circumstances, and while varying and disputable theories might be indulged as to the real nature
of the tax, a court would not be justified, for the purpose of invalidating the tax, in placing it in a class
different from that to which its practical results would consign it. Taxation is eminently practical, and is,
in fact brought to every man's door, and for the purpose of deciding upon its validity, a tax should be
regarded in its actual, practical results, rather than with reference to those theoretical or abstract ideas
whose correctness is the subject of dispute and contradiction among those who are experts in the
science of political economy."
Concluding, then, that the tax under consideration is not direct within the meaning of the Constitution,
but, on the contrary, is a duty or excise, we are brought to consider the question of uniformity.
The contention is that, because the statute exempts legacies and distributive shares in personal
property below $10,000, because it classifies the rate of tax according to the relationship or absence of
the relationship of the taker to the deceased, and provides for a rate progressing by the amount of the
legacy or share, therefore the tax is repugnant to that portion of the first clause of Section 8 of Article I
of the Constitution, which provides that "duties, imposts, and excises shall be uniform throughout the
United States."
The argument to the contrary, whilst conceding that the tax devised by the statute does not fulfill the
requirement of equality and uniformity as those words are construed when found in state constitutions,
asserts that it does not thereby follow that the taxes in question are repugnant to the Constitution of
the United States, since the provision in the Constitution that "duties, imposts, and excises shall be
uniform throughout the United States," it is insisted, has a different meaning from the expression
"equal and uniform" found in state constitutions. In order to decide these respective contentions, it
becomes at the outset necessary to accurately define the theories upon which they rest.
On the one side, the proposition is that the command that duties, imposts, and excises shall be uniform
throughout the United States relates to the inherent and intrinsic character of the tax; that it
contemplates the operation of the tax upon the property of the individual taxpayer, and exacts that
when an impost, duty, or excise is levied, it shall operate precisely in the same manner upon all
individuals -- that is to say, the proposition is that "uniform throughout the United States" commands
that excises, duties, and imposts, when levied, shall be equal and uniform in their operation upon
persons and property in the sense of the meaning of the words equal and uniform, as now found in the
constitutions of most of the states of the Union. The contrary construction is this: that the words
"uniform throughout the United States" do not relate to the inherent character of the tax as respects its
operation on individuals, but simply requires that whatever plan or method Congress adopts for laying
the tax in question, the same plan and the same method must be made operative throughout the
United States -- that is to say that wherever a subject is taxed anywhere, the same must be taxed
everywhere throughout the United States, and at the same rate. The two contentions then may be
summarized by saying that the one asserts that the Constitution prohibits the levy of any duty, impost,
or excise which is not intrinsically equal and uniform in its operations upon individuals, and the other
that the power of Congress in levying the taxes in question is, by the terms of the Constitution,
restrained only by the requirement that such taxes be geographically uniform.
The argument as to intrinsic uniformity is asserted to find support in expressions used by some of the
Justices in the Carriage Tax Case, Hylton v. United States, 3 Dall. 171. The statements thus referred to
are as follows:
Mr. Justice Paterson said (p. 3 U. S. 180):
"Apportionment is an operation on states, and involves valuations and assessments which are arbitrary,
and should not be resorted to but in case of necessity. Uniformity is an instant operation on individuals
without the intervention of assessments or any regard to states, and is at once easy, certain, and
efficacious."
Mr. Justice Iredell said (p 3 U. S. 181):
"If it can be considered as a tax, neither direct within the meaning of the Constitution nor
comprehended within the term 'duty, impost, or excise,' there is no provision in the Constitution one
way or another, and then it must be left to such an operation of the power as if the authority to lay
taxes had been given generally in all instances, without saying whether they should be apportioned or
uniform, and in that case, I should presume, the tax ought to be uniform, because the present
Constitution was particularly intended to affect individuals, and not states, except in particular cases
specified. And this is the leading distinction between the Articles of Confederation and the present
Constitution."
And the following passage from the opinion in United States v. Singer, 15 Wall. 111, 82 U. S. 121, is also
asserted to support the contention that a tax was imposed upon a distiller, in the nature of an excise,
and the question arose whether, in its imposition upon different distillers, the uniformity of the tax was
preserved, and the Court said:
"The law is not in our judgment subject to any constitutional objection. The tax imposed upon the
distiller is in the nature of an excise, and the only limitation upon the power of Congress in the
imposition of taxes of this character is that they shall be 'uniform throughout the United States.' The tax
here is uniform in its operation -- that is, it is assessed equally upon all manufacturers of spirits,
wherever they are. The law does not establish one rule for one distiller and a different rule for another,
but the same rule for all alike."
In opposition to this view, it is urged that the language used by the judges in the Hylton case was not
intended to, and does not, when properly understood, refer to the inherent character of the tax, but
simply called attention to the fact that, differing from the Articles of Confederation, power was given to
Congress by the Constitution to levy duties, imposts, and excises, thus acting upon individuals, and that
the language in the Singer case, whilst it uses the word "equal," clearly referred not to an inherent
uniformity, but to a geographical one. And this, it is argued, is rendered certain by the opinion in
the Head Money Cases, 112 U. S. 580, 112 U. S. 594, where, in considering the objection that a tax
imposed upon the owners of steam vessels for each passenger landed at New York from a foreign port
was void because not levied by any rule of uniformity, the Court, speaking by Justice Miller, said:
"The tax is uniform when it operates with the same force and effect in every place where the subject of
it is found. The tax in this case, which, as far as it can be called a tax, is an excise duty on the business of
bringing passengers from foreign countries into this by ocean navigation, is uniform, and operates
precisely alike in every port of the United States where such passengers can be landed."
To overcome the construction in favor of geographical uniformity asserted by the government to arise
from the language just quoted, it is in the first place argued that, when correctly understood, it does not
sustain the claim so based on it, and in the second place, that if it does, it is not binding as authority,
because the Head Money Cases involved not the uniformity clause of the Constitution, but that portion
of clause 6 of Section 9 of Article I of the Constitution which declares that "no preference shall be given
by any regulation of commerce or revenue to the ports of one state over those of another."
It is conceded that if the preference clause just referred to and the uniform clause have the same
meaning, that of course merely a geographical operation was intended. But it is insisted that the two
clauses are distinct in import, and that the difference in language of the two manifests the distinct
meanings which should be affixed to them. It is apparent that the controversy cannot be disposed of by
a mere reference to prior adjudications, since reliance is, by both sides, in effect, placed upon the same
decisions. But to determine which view of the cited authorities is the correct one, it will become
necessary not only to analyze the facts which were at issue in the decided cases, but also to elucidate
the language of the opinions which have given rise to the conflicting constructions now placed upon
such language, by an examination of the subjects to which the language related. As to do this calls for a
critical consideration of the provisions of the Constitution referred to in the opinions relied on, we shall,
for the moment, put the cases referred to out of mind, and consider the controversy presented as one
of original impression. We are, moreover, impelled to this course from the fact that as the word
"uniform," or the words "equal and uniform," are now generally found in state constitutions, and as
there contained have been with practical unanimity interpreted by state courts as applying to the
intrinsic nature of the tax and its operation upon individuals, if it be that the words "uniform throughout
the United States," as contained in the Constitution of the United States, have a different significance,
the reason for such conclusion should be carefully and accurately stated.
Considering the text, it is apparent that, if the word "uniform" means "equal and uniform" in the sense
now asserted by the opponents of the tax, the words "throughout the United States," are deprived of all
real significance, and sustaining the contention must hence lead to a disregard of the elementary canon
of construction which requires that effect be given to each word of the Constitution.
Taking a wider view, it is to be remembered that the power to tax contained in Section 8 of Article I is to
lay and collect "taxes, duties, imposts, and excises; . . but all duties, imposts, and excises shall be
uniform throughout the United States." Thus, the qualification of uniformity is imposed not upon all
taxes which the Constitution authorizes, but only on duties, imposts, and excises. The conclusion that
inherent equality and uniformity is contemplated involves, therefore, the proposition that the rule of
intrinsic uniformity is applied by the Constitution to taxation by means of duties, imposts, and excises,
and it is not applicable to any other form of taxes. It cannot be doubted that in levying direct taxes,
after apportioning the amount among the several states, as provided in clause 4 of Section 9 of Article I
of the Constitution, Congress has the power to choose the objects of direct taxation, and to levy the
quota as apportioned directly upon the objects so selected. Even then, if the view of inherent
uniformity be the true one, none of the taxes so levied would be subjected to such rule, as the
requirement only relates to duties, imposts, and excises.
But the classes of taxes termed duties, imposts, and excises, to which the rule of uniformity applies, are
those to which the principle of equality and uniformity in the sense claimed is, in the nature of things,
the least applicable and least susceptible of being enforced. Excises usually look to a particular subject,
and levy burdens with reference to the act of manufacturing them, selling them, etc. They are or may
be as varied in form as are the acts or dealings with which the taxes are concerned. Impost duties take
every conceivable form, as may by the legislative authority be deemed best for the general welfare.
They have been at all times often specific. They have sometimes been discriminatory, particularly when
deemed necessary by reason of the tariff legislation of other countries. The claim of intrinsic uniformity
therefore imputes to the framers a restriction as to certain forms of taxes, where the restraint was least
appropriate and the omission where it was most needed. This discord which the construction, if well
founded, would create, suggests at once the unsoundness of the proposition, and gives rise to the
inference that the contrary view by which the unity of the provisions of the Constitution is maintained,
must be the correct one. In fact, it is apparent that, if imposts, duties, and excises are controlled by the
rule of intrinsic uniformity, the methods usually employed at the time of the adoption of the
Constitution in all countries in the levy of such taxes would have to be abandoned in this country, and
therefore whilst nominally having the authority to impose taxes of this character, the power to do so
would be virtually denied to Congress.
Now, that the requirement that direct taxes should be apportioned among the several states,
contemplated the protection of the states, to prevent their being called upon to contribute more than
was deemed their due share of the burden, is clear. Giving to the term uniformity as applied to duties,
imposts, and excises a geographical significance, likewise causes that provision to look to the forbidding
of discrimination as between the states, by the levying of duties, imposts, or excises upon a particular
subject in one state and a different duty, impost, or excise on the same subject in another, and
therefore, as far as may be, is a restriction in the same direction and in harmony with the requirement
of apportionment of direct taxes. And the conclusion that the possible discrimination against one or
more states was the only thing intended to be provided for by the rule which uniformity imposed upon
the power to levy duties, imposts, and excises, is greatly strengthened by considering the state of the
law in the mother country and in the colonies, and the practice of taxation which obtained at or about
the time of the adoption of the Constitution.
In England, nowhere had the conception of a limitation on the power to levy duties, imposts, and
excises by an intrinsic rule of uniformity found utterance, and the practice which had obtained, it may
be said, was commonly to the contrary. Passing without special notice the system of customs (import
and export) duties existing in England from a time long prior to the Revolution, which was replete with
examples of taxation not fulfilling the requirement of intrinsic equality and uniformity, we briefly refer
to a few examples of the same nature afforded by statutes imposing internal taxation in the mother
country.
Internal taxation, in the form of excises, was introduced into England by a Parliamentary resolution
passed on March 28, 1643, and carried into effect by an ordinance of the same date. 2 Dowell, History
of Taxation 9. Many of these excises were imposed with reference to the supposed ability of the party
whose property, office, etc., was assessed to pay the same. Thus, in 1747, a duty of excise was imposed
upon coaches and other carriages kept for personal use. 20 Geo. II, c. 10; 19 Stat. 31. In 1756, a duty of
excise was imposed upon the possessor of plate over a certain weight. 29 Geo. II, c. 14; 7 Stat. 661. In
1758, all offices of profit, other than naval and military, were subjected to the payment of duty when
the salary exceeded one hundred pounds. 30 Geo. II, c. 22. In 1777 , a duty was imposed upon
employers of coachmen and other men servants. 15 Geo. III, c. 39; 13 Stat. 103. In 1779, a duty was
imposed, not upon all forms of locomotion, but upon traveling by post, the usual method of locomotion
among the welthier classes. 19 Geo. III, c. 51; 13 Stat. 414. In 1784, a duty was laid not uniformly with
respect to all horses kept by a person, but in respect to horses kept for the saddle or driving in
carriages. 24 Geo. III, c. 31; 14 Stat. 496.
It is accurate to say that, in the colonies prior to the confederation and in the states prior to the time of
the adoption of the Constitution, the wisdom of restraining the levy of duties, imposts, and excises by
an express requirement of inherent equality and uniformity had likewise nowhere found expression.
The state constitutions of the revolutionary period (except perhaps those of Massachusetts and New
Hampshire) contained no provisions indicating an intent to control the bodies authorized to levy taxes
and raise money in the exercise of a sound discretion as to the mode to be adopted in levying taxation.
The people were content to commit to their representatives the enactment of reasonable and
wholesome laws, being satisfied with the protection afforded by a representative and free government
and by the general principles of the common law protecting the inalienable rights of life, liberty, and
property.
The Massachusetts Constitution of 1780 and that of 1788 of New Hampshire merely required that the
assessments of rates and taxes should be proportional and reasonable and with a view to equality, but
there was no such qualification expressed as to the authority conferred "to impose and levy reasonable
duties and excises upon any produce, goods, wares, merchandise, and commodities whatsoever,
brought into, produced, manufactured, or being within the same."
In taxing laws of the original states prior to the convention of 1787, exemptions were allowed from a
consideration of what was deemed best for the general welfare, and taxes were frequently laid from a
consideration of the presumed ability of the owner to pay the tax. Discriminations and exemptions were
also contained in various state taxing laws, which illustrate the discretion vested in the legislative bodies
of the states in the latter part of the eighteenth century. We print in the margin a few examples.
[Footnote 4]
It cannot be therefore supposed that the framers of the Constitution, in using the words "uniform
throughout the United States," contemplated to confer the power to levy duties, imposts, and excises,
and yet to accompany this grant of authority with a restriction which had never found expression as to
such taxes at that time anywhere, and which was contrary to the practice which had uniformly obtained
both in the mother country and in the colonies and in the states prior to the adoption of the
Constitution. But one of the most satisfactory answers to the argument that the uniformity required by
the Constitution is the same as the equal and uniform clause which has since been embodied in so
many of the state constitutions results from a review of the practice under the Constitution from the
beginning. From the very first Congress down to the present date, in laying duties, imposts, and excises,
the rule of inherent uniformity -- or, in other words, intrinsically equal and uniform taxes -- has been
disregarded, and the principle of geographical uniformity consistently enforced. Take, for a general
example, specific import duties, by which particular specific rates are imposed on enumerated articles
without reference to their value. It is manifest that all such duties are void if intrinsic equality and
uniformity be the rule, and yet in all the great controversies which have arisen over the policy of impost
duties generally, and particularly as to the economic wisdom of specific duties, never has it been
contended that the power to impose them did not exist because of the uniformity clause of the
Constitution. So also mention may be made of the common form of the excises on distilled spirits with
the tax per gallon without reference to the value thereof.
Indeed, tariff duties have not only varied with different articles, but have varied with the different
valuations of the same article. We cite a few instances of the latter character, found in the Tariff Acts of
August 5, 1861, 12 Stat. 293, c. 45, and August 27, 1894, 28 Stat. 530, c. 347, respectively. In the act of
1861 a duty was imposed --
"On all silks valued at not over one dollar per square yard, thirty percentum ad valorem; on all silks
valued over one dollar per square yard, forty percentum ad valorem; on all silk velvets or velvets of
which silk is the component material of chief value, valued at three dollars per square yard or under,
thirty percentum ad valorem; valued at over three dollars per square yard, forty percentum ad
valorem."
In the act of 1894 occurs the following paragraph:
"280. On woolen and worsted yarns made wholly or in part of wool, worsted, the hair of the camel,
goat, alpaca or other animals, valued at not more than forty cents per pound, thirty percentum ad
valorem; valued at more than forty cents per pound, forty percentum ad valorem."
So also a single paragraph of the tariff acts has frequently contained an elaborate system of minimum
classifications and compound duties, as well as exemptions for importations below a certain
value. Seeprovisions discussed in Arthur v. Vietor, 127 U. S. 572, 127 U. S. 575; Hedden v. Robertson, 151
U. S. 520, 151 U. S. 521; Arthur v. Morgan, 112 U. S. 495, 112 U. S. 498.
Nor can it be said that these illustrations relate to legislation enacted long after the adoption of the
Constitution, when by lapse of time an erroneous conception as to the meaning of the Constitution had
arisen, for the examples to which we have just referred are but types of many forms of taxation by way
of duties, imposts, and excises which were enacted without question from the very beginning, and have
continued in an unbroken line to the present time, sanctioned by the founders of our institutions and
approved in practical execution by all the illustrious men who have directed the public destinies of the
nation. Excise taxes were largely used during the administration of President Washington, and again
during and after the war of 1812. It may properly be said of these excises that none of them was
uniform according to the principles now contended for, yet no constitutional question in this regard was
ever raised about them. A partial list of some of the earlier acts is inserted in the margin. [Footnote 5]
We do not cite from the latter revenue acts, because of the numerous and familiar instances of such
legislation which abound therein.
The necessities which gave birth to the Constitution, the controversies which preceded its formation,
and the conflicts of opinion which were settled by its adoption may properly be taken into view for the
purpose of tracing to its source any particular provision of the Constitution in order thereby to be
enabled to correctly interpret its meaning. Pollock v. Farmers' Loan & Trust Co., 157 U. S. 558.
The paralysis which the Articles of Confederation produced upon the Continental Congress because of
the want of power in that body to enforce necessary taxation to sustain the government needs no more
than statement. And the proceedings of the Congress during the confederation afford abundant
evidence of the constant effort which was made to overcome this situation by attempts to obtain
authority from the states for Congress to levy the taxes deemed by it essential, and thus relieve it from
the embarrassment occasioned by the fact that all demands for revenue depended for fulfillment
wholly upon the action of the respective states. Despite the constant agitation as to the subject and the
abundant discussions which took place in relation to it during the period of the confederation, in the
whole of the proceedings not a word can be found which can give rise to even the suggestion that there
was then any thought of restraining the taxing power with reference to the intrinsic operation of a tax
upon individuals. On the contrary, the sole and the only question which was ever present and in every
form was discussed was the operation of any taxing power which might be granted to Congress upon
the respective states -- in other words, the discrimination as regards states which might arise from a
greater or lesser proportion of any tax being paid within the geographical limits of a particular state.
The proceedings of the Continental Congress also make it clear that the words "uniform throughout the
United States," which were afterwards inserted in the Constitution of the United States, had, prior to its
adoption, been frequently used, and always with reference purely to a geographical uniformity and as
synonymous with the expression "to operate generally throughout the United States." The foregoing
situation so thoroughly permeated all the proceedings of the Continental Congress that we might well
rest content with their mere statement. We shall, however, make a few references on the subject.
The view that intrinsic uniformity was not then conceived is well shown by remarks by Mr. Wilson upon
a proposition submitted by him to the Continental Congress on March 18, 1783 (5 Ell.Deb. 67), that
Congress be empowered to lay and impose "a tax of one quarter of a dollar per hundred acres on all
located and surveyed lands within each of the states." He said, speaking of the proposed tax, "that it
was more moderate than had been paid before the Revolution, and it could not be supposed the people
would grudge to pay, as the price of their liberty, what was formerly paid to their oppressors."
As early as February, 1781, a resolution was proposed authorizing Congress to levy certain taxes and
duties, which resolution contained the proviso, "and the same articles shall bear the same duty and
impost throughout the said states without exemption." 1 ib., p. 92.
Though this resolution failed of passage, a report of the committee of the whole was agreed to on the
same day, in the form of a resolution recommended to the several states to levy for the use of the
United States a duty of 5 percent upon imports, with certain exceptions, and a duty of 5 percent upon
all prizes and prize goods. As late as December, 1782, however, some of the states had failed to comply
with this resolution. 5 Ell.Deb. 13.
On January 25, 1783 (5 ib. 31), a resolution was proposed declaring that Congress would "make every
effort in their power to obtain, from the respective states, general and substantial funds adequate to
the object of funding the whole debt of the United States. . . ."
The word "general" was stricken out because susceptible of being considered as implying that every
object of taxation within the states should be embraced. That is to say, in order to remove any
impression that the word "general" might imply the obligation to levy on all articles, the phraseology of
the previous resolution was changed so as to cause the word to have merely a geographical
significance, viz., to require that whatever subject of taxation was assessed, the same subject should be
taxed in every state, or, in other words, that the particular tax should operate generally throughout the
United States. Two days later, a new resolution having been introduced declaring it to be the opinion of
Congress that general funds should be established, to be collected by Congress, the same objection was
repeated (ib., 34), and the proposition was amended so as to read "establishment of permanent and
adequate funds to operate generally throughout the United States." There being controversy as to
whether Congress should be allowed to collect the taxes (ib, 34), the debates record the following
proceedings:
"On the motion of Mr. Madison, the whole proposition was new modeled, as follows:"
" That it is the opinion of Congress that the establishment of permanent and adequate funds to operate
generally throughout the United States is indispensably necessary for doing complete justice to the
creditors of the United States, for restoring public credit, and for providing for the future exigencies of
the war."
"The words 'to be collected under the authority of Congress' were, as a separate question, left to be
added afterwards. " Mr. Madison, after commenting on the demerits of the plans just referred to,
prefaced his subsequent remarks with the following (ib., p. 36):
"It remains to examine the merits of a plan of general revenue operating throughout the United
States, under the superintendence of Congress."
On March 11, 1783 (5 Ell.Deb. 64), a vote was taken upon three questions, the first being: "Shall any
taxes to operate generally throughout the states, be recommended by Congress, other than duties on
foreign commerce?" The matter culminated on April 18, 1783, in the adoption of a resolution by nine
states, recommending to the several states that Congress be vested with the power to levy, for the use
of the United states, certain duties, as well specific as ad valorem, upon goods imported into the states
from any foreign port, island, or plantation. (1 Ell.Deb. 93).
In an address which submitted the resolution to the states, it was observed (ib., 97):
"To render this fund as productive as possible, and at the same time, to narrow the room for collusions
and frauds, it has been judged an improvement of the plan to recommend a liberal duty on such articles
as are most susceptible of a tax according to their quantity, and are of most equal and general
consumption; leaving all other articles, as heretofore proposed, to be taxed according to their value."
It was also stated in the address that "to bring this essential resource [a tax on imposts] into use . . . , a
concerted uniformity was necessary," and "that this uniformity cannot be concerted through any
channel so properly as through Congress."
Thus it is apparent that the expression "uniform throughout the United States" was at that time
considered as purely geographical, as being synonymous with the expression "general operation
throughout the United States," and that no thought of restricting Congress to intrinsic uniformity
obtained, since the powers recommended were absolutely in conflict with such theory.
The reasons advanced by those who opposed the various resolutions to which we have referred are, if
anything, more decisive than are the matters to which we have called attention. Those reasons were
predicated upon the inequality among the states which might arise from the granting to Congress the
power to lay duties, imposts, and excises. That is, if a particular article was levied on generally
throughout the various states by an excise or duty, as a greater quantity of that article might be found
in one state than in other states, it was asserted the burden would be unequal because the former state
would pay a greater proportion of the tax. This form of objection is well illustrated by what was said by
Mr. Rutledge and Mr. Lee against the grant of power to Congress to lay duties or excises to operate
generally throughout the United States. We quote from 5 Ell.Deb., p. 34, as follows:
"Mr. Rutledge objected to the term 'generally,' as implying a degree of uniformity in the tax which
would render it unequal. He had in view particularly a land tax, according to quality (quantity? see note
p. 37), as had been proposed by the office of finance."
"Mr. Lee seconded the opposition to the term 'general.' He contended that the states would never
consent to a uniform tax, because it would be unequal."
Again (ib., p. 37), Mr. Rutledge complained "that those who so strenuously urged the necessity and
competency of a general revenue, operating throughout all the United States at the same time,
declined specifying any general objects from which such a revenue could be drawn."
And the same reason was urged for refusing the authority to lay imposts throughout the United States,
as is shown by the objections made, to which we shall now refer. Thus, with respect to duty on
imported salt, it was argued that it would bear injuriously on the eastern states "on account of salt
consumed in the fisheries, and that, besides, it would be injurious to the national interest by adding to
the cost of fish." 5 Ell.Deb. 61. So also, Rhode Island protested against the grant of the power to impose
duties recommended by the resolution of April 18, 1783, previously referred to, on the ground "that the
proposed duty would be unequal in its operation, bearing hardest upon the most commercial states,
and so would press peculiarly hard upon that state which draws its chief support from commerce." And
the nature of this objection caused it to come to pass that, in the subsequent discussions in Congress,
the claim that it was essential to confer upon Congress the authority to lay duties, imposts, and excises
to be uniform throughout the United States became associated in the discussion with the asserted
necessity that Congress should have the power to establish uniform regulations of commerce to
prevent the discrimination resulting from the laying of duties, imposts, and excises by the respective
states. 1 ib. 112. The association of the two subjects evolved by their natural relation is well shown by a
resolution of Mr. Madison, introduced in the Virginia House of Delegates in 1784 (ib. 114), "wherein it
was proposed that the delegates from the State of Virginia should be instructed to propose in Congress
a recommendation to the states in Union, to authorize that assembly to regulate their trade" on
principles and under qualifications stated in the following paragraphs:
"1st. That the United States in Congress assembled be authorized to prohibit vessels belonging to any
foreign nation from entering any of the ports thereof, or to impose any duties on such vessels and their
cargoes which may be judged necessary; all such prohibitions and duties to be uniform throughout the
United States, and the proceeds of the latter to be carried into the treasury of the state within which
they shall accrue."
"2d. That no state be at liberty to impose duties on any goods, wares, or merchandise, imported, by
land or by water, from any other state, but may altogether prohibit the importation from any State of
any particular species or description of goods, wares, or merchandise, of which the importation is at the
same time prohibited from all other places whatsoever."
It will be noticed that the words "uniform throughout the United States" are the same which were
subsequently adopted in the clause of the Constitution under consideration, and that the term
uniformity, in the resolution of Mr. Madison, was applied not only to duties, but to regulations and
prohibitions respecting external commerce, which were designed to be the same all over the Union.
Though the resolution of Mr. Madison was not adopted, it led to the sending by Virginia of
commissioners to Annapolis to meet commissioners from the other states, the result of which meeting
was the federal convention of 1787.
Considering the proceedings of the convention, the same observation is pertinent which we have
previously made as to the Continental Congress, viz., that, despite the struggles and controversies,
which environed the final adoption of the Constitution, not a single word is found in any of the debates,
or in any of the proceedings or historical documents contemporaneous and concurrent with the
adoption of the Constitution, which give slightest intimation that any suggestion was ever made that
the grant of power to tax was considered from the point of view of its operation upon the individual.
The struggles which were flagrant in the Continental Congress were transferred to the convention. The
question of the undue proportion of taxation which might fall upon one or more states if direct taxes
were laid was solved by the principle of apportionment of direct taxes; duties, imposts, and excises
were only subjected to the requirement of uniformity throughout the United States, these words, as we
have shown, having acquired at that time an unquestioned meaning.
Without going into minute detail, the mention of a few salient particulars will serve to show how the
result of the convention brought together the provisions as to the uniformity of duties, imposts, and
excises throughout the United States and the restriction against discriminating commercial regulations
by Congress, just as they had by the force of circumstances been drawn together in the Continental
Congress, and how their solution in the Constitution was substantially in accord with the resolution of
Mr. Madison, introduced into the Virginia House of Delegates, to which we have referred.
The draft of a federal Constitution, submitted to the convention by Mr. Pinckney, provided in the first
and second paragraphs as follows (5 Ell.Deb. p. 130):
"Art. VI. The Legislature of the United States shall have the power to lay and collect taxes, duties,
imposts, and excises; "
"To regulate commerce with all nations and among the several states;"
"The proportion of direct taxation shall be regulated by the whole number of inhabitants of every
description; which number shall, within ___ years after the first meeting of the legislature, and within
the term of every ___ year after, be taken in the manner to be prescribed by the legislature."
"No tax shall be laid on articles exported from the states; nor capitation tax, but in proportion to the
census before directed."
No other provision was made respecting taxation.
The plan of Mr. Paterson, of New Jersey, provided, in addition to the powers vested in Congress by the
Articles of Confederation (p. 191), that Congress should be authorized "to pass acts for raising a
revenue, by levying a duty or duties on all goods and merchandise of foreign growth or manufacture,
imported into any part of the United States; by stamps on paper, vellum, or parchment, and by a
postage on all letters and packages passing through the general post office -- to be applied to such
federal purposes as they shall deem proper and expedient; to make rules and regulations for the
collection thereof, and the same from time to time to alter and amend, in such manner as they shall
think proper; to pass acts for the regulation of trade and commerce, as well with foreign nations as with
each other."
By another section of the Paterson plan, it was provided that, whenever requisitions upon the states
should be necessary, they should be made by the rule of numbers and not by value of land, as under the
confederation, and the Congress was to be authorized "to devise and pass acts" directing and
authorizing the collection of requisitions when not complied with. It is thus seen that both of the plans
referred to made no provision for uniformity of taxation in the sense contended for by the opponents of
the tax now under consideration. The committee of detail, in the first section of article VII of their draft
of a proposed Constitution, reported the two clauses of the plan of Mr. Pinckney first quoted,
substituting the word "foreign" for the word "all" before the word "nations." 5 Ell.Deb. 378.
On August 25, 1787, the following occurred (ib., 478):
"Mr. Carroll and Mr. L. Martin expressed their apprehensions, and the probable apprehensions of their
constituents, that, under the power of regulating trade, the general legislature might favor the ports of
particular states, by requiring vessels destined to or from other states to enter and clear thereat, as
vessels belonging or bound to Baltimore, to enter and clear at Norfolk, etc. They moved the following
proposition:"
" The legislature of the United States shall not oblige vessels belonging to citizens thereof, or to
foreigners, to enter or pay duties or imposts in any other state than in that to which they may be
bound, or to clear out in any other than the state in which their cargoes may be laden on board; nor
shall any privilege or immunity be granted to any vessel on entering or clearing out, or paying duties or
imposts in one state in preference to another."
On the same day, Mr. McHenry and General Pinckney submitted a proposition (which was
referred nem.con.to a committee) relating to the establishment of new ports in the states for the
collection of duties or imposts, which concluded as follows (p. 479):
"All duties, imposts, and excises, prohibitions or restraints, laid or made by the legislature of the United
States, shall be uniform and equal throughout the United States."
The fourth section of the seventh article of the proposed constitution reported by the committee on
detail on August 6, 1787, read as follows (p. 379):
"SEC. 4. No tax or duty shall be laid by the legislature on articles exported from any state; nor on the
migration or importation of such persons as the several states shall think proper to admit; nor shall such
migration or importation be prohibited."
The committee to whom these propositions were referred made a report on August 28, in effect
embodying both propositions in one paragraph, as follows (ib. 483):
"That there be inserted, after the fourth clause of the seventh section,"
"nor shall any regulation of commerce or revenue give preference to the ports of one state over those of
another, or oblige vessels bound to or from any state to enter, clear, or pay duties, in another, and
all tonnage, duties, imposts, and excises, laid by the legislature, shall be uniform throughout the United
States."
It will be noticed that the committee recommended, not merely that preferences between ports should
be forbidden by "any regulation of commerce," but also that such preferences should not be made by
"any regulation of revenue." This obviously rendered it unnecessary to include, in the latter part of the
clause, "prohibitions or restraints," as proposed by Mr. McHenry and General Pinckney. The substantial
effect of the first clause of the paragraph was to require that all regulations of commerce or of
revenue affecting commerce through the ports of the states should be the same in all ports.
It follows from the collocation of the two clauses that the prohibition as to preferences in regulations of
commerce between ports and the uniformity as to duties, imposts, and excises, though couched in
different language, had absolutely the same significance. The sense in which the word "uniform" was
used is shown by the fact that the committee, whilst adopting in a large measure the proposition of Mr.
McHenry and General Pinckney, "that all duties, imposts, excises, prohibitions, or restraints . . . shall be
uniform and equal throughout the United States," struck out the words "and equal." Undoubtedly this
was done to prevent the implication that taxes should have an equal effect in each state. As we have
seen, the pith of the controversy during the confederation was that, even although the same duty or
the same impost or the same excise was laid all over the United States, it might operate unequally by
reason of the unequal distribution or existence of the article taxed among the respective states.
On August 31, 1797, the report of the committee was acted upon as follows (5 Ell.Deb. 507): The
provision, "Nor shall any regulation of commerce or revenue give preference to the ports of one state
over those of another," was adopted nem.con. After discussion the clause "or oblige state to enter,
clear or pay duties in another" was agreed to. Quoting from the Debates at 503:
"The word 'tonnage' was struck out nem.con. as comprehended in 'duties.'"
"On the question on the clause of the report -- 'and all duties, imposts, and excises, laid by the
legislature, shall be uniform throughout the United States' -- it was agreed to nem.con."
In a footnote, it is said:
"In the printed journal, New Hampshire and South Carolina entered in the negative."
On September 4, 1787, the committee to whom sundry resolutions, etc., had been referred on August
31 recommended, among others, the following addition and alteration to the report before the
convention (pp. 506 to 507):
"1. The first clause of article 7, section 1, to read as follows:"
" The legislature shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts
and provide for the common defense and general welfare of the United States."
"2. At the end of the second clause of article 7, section 1, add, 'and with the Indian tribes.'"
The committee of style, on September 12, 1787, reported a plan of the Constitution (p. 535), the
foregoing provision conferring authority to lay taxes, etc., being designated as section 8 of article 1.
On September 14, 1783, the words "but all such duties, imposts, and excises shall be uniform
throughout the United States," which in their adoption had been associated with and formed but a part
of the clause forbidding a preference in favor of the port of one state over the port of another state -- in
other words, had been a part of another clause -- were shifted, by a unanimous vote, from that
paragraph, and were annexed to the provisions granting the power to tax.
Thus it came to pass that, although the provisions as to preference between ports and that regarding
uniformity of duties, imposts, and excises were one in purpose, one in their adoption, they became
separated only in arranging the Constitution for the purpose of style. The first now stands in the
Constitution as a part of the sixth clause of section 7 of article 1, and the other is a part of the first
clause of section 8 of article 1. By the result, then, of an analysis of the history of the adoption of the
Constitution, it becomes plain that the words "uniform throughout the United States" do not signify an
intrinsic, but simply a geographical, uniformity. And it also results that the assertion to which we at the
outset referred, that the decision in the Head Money Cases, holding that the word "uniform" must be
interpreted in a geographical sense, was not authoritative, because that case in reality solely involved
the clause of the Constitution forbidding preferences between ports, is shown to be unsound, since the
preference clause of the Constitution and the uniformity clause were, in effect, in framing the
Constitution, treated, as respected their operation, as one and the same thing, and embodied the same
conception.
We add that those who opposed the ratification of the Constitution clearly understood that the
uniformity clause as to taxation imported but a geographical uniformity, and made that fact a distinct
ground of complaint. Thus, in the report made to the Legislature of Maryland by Luther Martin,
attorney general of the state, detailing and commenting upon the proceedings of the convention of
1787, of which convention Mr. Martin was a delegate, in the course of comments upon the tax clause of
the Constitution, Mr. Martin said (1 ib., p. 369):
"Though there is a provision that all duties, imposts, and excises shall be uniform -- that is, to be laid to
the same amount on the same articles in each state -- yet this will not prevent Congress from having it
in their power to cause them to fall very unequally and much heavier on some states than on others,
because these duties may be laid on articles but little or not at all used in some other states, and of
absolute necessity for the use and consumption of others, in which case the first would pay little or no
part of the revenue arising therefrom, while the whole or nearly the whole of it would be paid by the
last, to-wit, the states which use and consume the articles on which imposts and excises are laid."
Having disposed of the question of uniformity, we are next brought to consider certain contentions
which relate to that subject. It is argued that, even although it be conceded that the uniformity required
by the Constitution is only a geographical one, the particular law in question does not fulfill the
requirements of even geographical uniformity, since it does not apply to the District of Columbia. We
think this contention is without merit.
The proposition is predicated upon the fact that the statute purports to lay the tax upon legacies and
distributive shares "passing, after the passage of this act, from any person possessed of such property,
either by will or by the intestate laws of any state or territory," and provides that the receipt for the tax
will entitle an administrator, etc., to credit to the amount of the payment made to the collector
"by any tribunal which, by the laws of any state or territory, is, or may be, empowered to decide and
settle the accounts of executors and administrators."
This, it is asserted, does not embrace the District of Columbia. Without attempting to determine
whether the necessary construction of the statute would require the inclusion of the District of
Columbia within its terms, aside from any special provision bearing upon the question, we think the
provisions of section 31 of the act makes the objection untenable. That section provides as follows (30
Stat. 466):
"SEC. 31. That all administrative, special or stamp provisions of law, including the laws in relation to the
assessment of taxes, not heretofore specifically repealed, are hereby made applicable to this act."
Lastly, it is urged that the progressive rate feature of the statute is so repugnant to fundamental
principles of equality and justice that the law should be held to be void even although it transgresses no
express limitation in the Constitution. Without intimating any opinion as to the existence of a right in
the courts to exercise the power which is thus invoked, it is apparent that the argument as to the
enormity of the tax is without merit. It was disposed of in Magoun v. Illinois Trust & Savings Bank, 170
U. S. 293.

The result of this provision is to carry into the law under review the provisions of section 3140 of the The review which we have made exhibits the fact that taxes imposed with reference to the ability of the
Revised Statutes, relating to internal revenue laws generally. It is as follows: person upon whom the burden is placed to bear the same have been levied from the foundation of the
government. So also, some authoritative thinkers, and a number of economic writers, contend that a
progressive tax is more just and equal than a proportional one. In the absence of constitutional
"3140 . The word 'state,' when used in this title, shall be construed to include the territories and the
limitation, the question whether it is or is not is legislative, and not judicial. The grave consequences
District of Columbia, where such construction is necessary to carry out its provisions."
which it is asserted must arise in the future if the right to levy a progressive tax be recognized involves
in its ultimate aspect the mere assertion that free and representative government is a failure, and that
It is yet further asserted that the tax does not fulfill the requirements of geographical uniformity for the the grossest abuses of power are foreshadowed unless the courts usurp a purely legislative function. If a
following reason: as the primary rate of taxation depends upon the degree of relationship or want of case should ever arise where an arbitrary and confiscatory exaction is imposed bearing the guise of a
relationship to a deceased person, it is argued that it cannot operate with geographical uniformity, progressive or any other form of tax, it will be time enough to consider whether the judicial power can
inasmuch as testamentary and intestacy laws may differ in every state. It is certain that the same afford a remedy by applying inherent and fundamental principles for the protection of the individual,
degree of relationship or want of relationship to the deceased, wherever existing, is levied on at the even though there be no express authority in the Constitution to do so. That the law which we have
same rate throughout the United States. The tax is hence uniform throughout the United States, despite construed affords no ground for the contention that the tax imposed is arbitrary and confiscatory is
the fact that different conditions among the states may obtain as to the objects upon which the tax is obvious.
levied. The proposition in substance assumes that the objects taxed by duties, imposts, and excises
must be found in uniform quantities and conditions in the respective states, otherwise the tax levied on
It follows from the foregoing opinion that the court below erred in denying all relief, and that it should
them will not be uniform throughout the United States. But what the Constitution commands is the
have held the plaintiff entitled to recover so much of the tax as resulted from taxing legacies not
imposition of a tax by the rule of geographical uniformity, not that, in order to levy such a tax, objects
exceeding $10,000, and from increasing the tax rate with reference to the whole amount of the
must be selected which exist uniformly in the several states. Indeed, the contention was substantially
personal estate of the deceased from which the legacies or distributive shares were derived. For these
disposed of in the License Tax Cases, 5 Wall. 472, previously referred to. It was there urged that, as the
reasons,
several states had the right to forbid the carrying on of the liquor traffic, therefore Congress had no
power to license such traffic, because it would interfere with the authority of the state. It was held that
the license was validly imposed, that it did not interfere with the power of the states to prevent the The judgment below must be reversed, and the case be remanded with instructions that further
liquor traffic, because in a state where such traffic was forbidden, the license would be inoperative, but proceedings be had according to law and in conformity with this opinion, and it is so ordered.
in the states where such traffic was allowed, the license would be effective. The argument, however, is
additionally fully answered by the review which we have made of the origin and meaning of the
expression "uniform throughout the United States." From that review, it appears that the very objection
upon which the proposition now advanced must rest was urged in the Continental Congress as the
reason why the levy of uniform duties, imposts, and excises throughout the United States should not be
authorized. This is shown by the objection of Mr. Rutledge and the suggestion of Mr. Lee. It is further
shown by the protest of Rhode Island and the reasons advanced why a duty on salt should not be
levied. But it was seem that, if it were required not only that the duties, imposts, and excises should be
uniform throughout the United States, but that, in imposing them, objects should be selected existing in
equal quantity in the several states, the grant of power to levy duties, imposts, and excises would be a
failure. In the convention which framed the Constitution, the same argument was used without success,
and, as we have seen, the only ground upon which the striking out of the words "and equal" after the
word "uniform" in the adoption of the clause as now found in the Constitution can be reasonably
explained is that it was done to prevent the implication that the duties, imposts, and excises which were
to be uniform throughout the United States were to be placed upon rights equally existing in the several
states. To now adopt the proposition relied on would be virtually, then, to nullify the action of the
convention, and would relegate the taxing power of Congress to the impotent condition in which it was
during the Confederation.
 NEW YORK TRUST CO. et al. v. EISNER.
Argued: April 25 and 26, 1921.
Decided: May 16, 1921.
Mr. Justice HOLMES delivered the opinion of the Court.
This is a suit brought by the executors of one Purdy to recover an estate tax levied under the Act of
Congress of September 8, 1916, c. 463, Title II, § 201, 39 Stat. 756, 777 (Comp. St. § 6336 1/2 b), and
paid under duress on December 14, 1917. According to the complaint Purdy died leaving a will and
codicil directing that all succession, inheritance and transfer taxes should be paid out of the residuary
estate, which was bequeathed to the descendants of his brother. The value of the residuary estate was
$427,414.96, subject to some administration expenses. The executors had been required to pay and
had paid inheritance and succession taxes to New York ($32,988.97) and other States ($4,780.91)
amounting in all to $37,769.88. The gross estate as defined in section 202 of the Act of Congress (Comp.
St. § 6336 1/2 c) was $769,799.39; funeral expenses and expenses of administration, except the above
taxes, $61,322.08; leaving a net value for the payment of legacies, except as reduced by the taxes of the
United States, of $670,707.43. The plaintiffs were compelled to pay $23,910.77 to the United States, no
deduction of any part of the above mentioned $37,769.88 being allowed. They allege that the Act of
Congress is unconstitutional, and also that it was misconstrued in not allowing a deduction of state
inheritance and succession taxes as charges within the meaning of section 203 (section 6336 1/2 d). On
demurrer the District Court dismissed the suit.
By section 201 of the Act, 'a tax * * * equal to the following percentages of the value of the net estate,
to be determined as provided in section two hundred and three, is hereby imposed upon the transfer of
the net estate of every decedent dying after the passage of this Act.' with percentages rising from one
per centum of the amount of the net estate not in excess of $50,000 to ten per centum of the amount
in excess of $5,000,000. Section 202 gives the mode of determining the value of the gross estate. Then,
by section 203 it is enacted:
'That for the purpose of the tax the value of the net estate shall be determined—(a) In the case of a
resident, by deducting from the value of the gross estate—(1) Such amounts for funeral expenses,
administration expenses, claims against the estate, unpaid mortgages, losses incurred during the
settlement of the estate arising from fires, storms, shipwreck, or other casualty, and from theft, when
such losses are not compensated for by insurance or otherwise, support during the settlement of the
estate of those dependent upon the decedent, and such other charges against the estate, as are
allowed by the laws of the jurisdiction, whether within or without the United States, under which the
estate is being administered; and (2) an exemption of $50,000.'
The tax is to be due in one year after the decedent's death. Section 204 (section 6336 1/2 e). Within
thirty days after qualifying the executor is to give written notice to the collector and later to make
return of the gross estate, deductions allowed, net estate and the tax payable thereon. Section 205
(section 6336 1/2 f). The executor is to pay the tax. Section 207 (section 6336 1/2 h). The tax is a lien for
ten years on the gross estate except such part as is paid out for allowed charges, section 209 (section
6336 1/2j), and if not paid within sixty days after it is due is to be collected by a suit to subject the
decedent's property to be sold, section 208 (section 6336 1/2 i). In case of collection from some person
other than the executor, the same section provides for contribution from or marshalling of persons
subject to equal or prior liability 'it being the purpose and intent of this title that so far as is practicable
and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before
its distribution.' These provisions are assailed by the plaintiffs in error as an unconstitutional
interference with the rights of the States to regulate descent and distribution, as unequal and as a
direct tax not apportioned as the Constitution requires.
The statement of the constitutional objections urged imports on its face a distinction that, if correct,
evidently hitherto has escaped this Court. See United States v. Field, Feb. 28, 1921, 255 U. S. 257, 41
Sup. Ct. 256, 65 L. Ed. 617. It is admitted, as since Knowlton v. Moore, 178 U. S. 41, 20 Sup. Ct. 747, 44 L.
Ed. 969, it has to be, that the United States has power to tax legacies, but it is said that this tax is cast
upon a transfer while it is being effectuated by the State itself and therefore is an intrusion upon its
processes, whereas a legacy tax is not imposed until the process is complete. An analogy is sought in the
difference between the attempt of a State to tax commerce among the States and its right after the
goods have become mingled with the general stock in the State. A consideration of the parallel is
enough to detect the fallacy. A tax that was directed solely against goods imported into the State and
that was determined by the fact of importation would be no better after the goods were at rest in the
State than before. It would be as much as interference with commerce in one case as in the other. I. M.
Darnell & Son Co. v. Memphis, 208 U. S. 113, 28 Sup. Ct. 247, 52 L. Ed. 413; Welton v. Missouri, 91 U. S.
275, 23 L. Ed. 347. Conversely if a tax on the property distributed by the laws of a State, determined by
the fact that distribution has been accomplished, is valid, a tax determined by the fact that distribution
is about to begin is no greater interference and is equally good.
Knowlton v. Moore, 178 U. S. 41, 20 Sup. Ct. 747, 44 L. Ed. 969, dealt, it is true, with a legacy tax. But
the tax was met with the same objection; that it usurped or interfered with the exercise of state
powers, and the answer to the objection was based upon general considerations and treated the
'power to transmit or the transmission or receipt of property by death' as all standing on the same
footing. 178 U. S. 57, 59, 20 Sup. Ct. 747, 44 L. Ed. 969. After the elaborate discussion that the subject
received in that case we think it unnecessary to dwell upon matters that in principle were disposed of
there. The same may be said of the argument that the tax is direct and therefore is void for want of
apportionment. It is argued that when the tax is on the privilege of receiving the tax is indirect because
it may be avoided, whereas here the tax is inevitable and therefore direct. But that matter also is
disposed of by Knowlton v. Moore, not by an attempt to make some scientific distinction, which would
be at least difficult, but on an interpretion of language by its traditional use—on the practical and
historical ground that this kind of tax always has been regarded as the antithesis of a direct tax; 'has
ever been treated as a duty or excise, because of the particular occasion which gives rise to its levy.' 178
U. S. 81-83, 20 Sup. Ct. 747, 44 L. Ed. 969. Upon this point a page of history is worth a volume of logic.
The inequalities charged upon the statute, if there is an intestacy, are all inequalities in the amounts
that beneficiaries might receive in case of estates of different values, of different proportions between
real and personal estate, and of different numbers of recipients; or if there is a will affect legatees. As to
the inequalities in case of a will they must be taken to be contemplated by the testator. He knows the
law and the consequences of the disposition that he makes. As to intestate successors the tax is not
imposed upon them but precedes them and the fact that they may receive less or different sums
because of the statute does not concern the United States.
There remains only the construction of the Act. The argument against its constitutionality is based upon
a premise that is unfavorable to the contention of the plaintiffs in error upon this point. For if the tax
attaches to the estate before distribution if it is a tax on the right to transmit, or on the transmission at
its beginning, obviously it attaches to the whole estate except so far as the statute sets a limit. 'Charges
against the estate' as pointed out by the Court below are only charges that affect the estate as a whole,
and therefore do not include taxes on the right of individual beneficiaries. This reasoning excludes not
only the New York succession tax but those paid to other States, which can stand no better than that
paid in New York. What amount New York may take as the basis of taxation and questions of priority
between the United States and the State are not open in this case.
Decree affirmed.
 BARBARA C. GREGG vs. COMMISSIONER OF CORPORATIONS AND TAXATION.
315 Mass. 704
April 10, 1942 - March 28, 1944
Insurance as defined in G. L. (Ter. Ed.) c. 175, Section 2, does not include an annuity contract having a
provision for the payment on the death of the annuitant to a designated beneficiary of a benefit
measured by approximately the difference between the amount paid to the company by the annuitant
and the total of the payments made to him by it during his life.
A succession tax properly was assessed under G. L. (Ter. Ed.) c. 65, Section 1, upon a "death benefit"
paid upon the death of the annuitant under a retirement annuity contract providing that, in
consideration of annual payments by the annuitant to the company issuing the contract, it would pay to
him a life annuity commencing upon his reaching a specified age and, in the event of his death before
reaching that age, would pay to a designated beneficiary the "death benefit" in a sum approximately
equal to the total amount paid to the company by the annuitant, and that the annuitant should have
certain options and privileges to change the method of the annuity payments to him, to substitute a life
insurance policy for the contract, to terminate the contract and accept a cash surrender value, and to
change the death beneficiary.
PETITION, filed in the Probate Court for the county of Norfolk on May 17, 1941.
RONAN, J. This is an appeal by Barbara C. Gregg from a decree of the Probate Court of Norfolk County
dismissing her petition filed under G. L. (Ter. Ed.) c. 65, Section 27, seeking an abatement of a
succession tax, assessed by the respondent and paid by her, with respect to the death benefit,
accumulated interest and dividends received by her as the beneficiary under a retirement annuity
contract which her husband, Donald Gregg, had obtained from The Equitable Life Assurance Society of
the United States, hereafter called the society. This contract was issued on February 19, 1932, when
Gregg was fifty-two years of age. The society, in consideration of $2,400 which was to be paid annually
by Gregg until the due date of the first annuity payment or until his death prior thereto, agreed to pay
him a fixed annuity for life when he reached sixty-five years of age or, in case he died before he reached
that age, to pay a death benefit to his wife who had been named as beneficiary in the contract. Gregg
had a choice of receiving the dividends in cash, applying them toward the payment of any premium or
permitting them to accumulate at interest with the society. He also had an option, which could be
exercised before the annuity payments became payable, of securing either a life annuity or a refund
annuity at any age, consisting of monthly payments in the amounts scheduled in the contract. Gregg did
not exercise this option. He reserved the right to change the beneficiary but he did not make any
change. He died in the eighth contract year after having paid the society $19,200 in premiums. The cash
surrender value of the contract was $19,632. The value of the death benefit was $19,680. The amount
of the death benefit depended upon the amount paid in by Gregg, the annuitant.
The question presented is whether the receipt by the beneficiary under this retirement annuity contract
of the death benefit, accumulated dividends and interest is subject to the succession tax provided by G.
L. (Ter. Ed.) c. 65, Section 1. This statute, in so far as material, provides that "All property within the
jurisdiction of the commonwealth, corporeal or incorporeal, and any interest therein, belonging to
inhabitants of the commonwealth, . . . which shall pass . . . by deed, grant or gift, . . . made or intended
to take effect in possession or enjoyment after . . . death . . . shall be subject to a tax."
A succession tax is imposed upon property passing by deed, grant or gift, except in cases of a bona fide
purchase for full consideration, made and intended to take effect in possession or enjoyment at or after
the death of the grantor or donor. The object of the statute is to tax the shifting of the economic
benefits and enjoyment of property from the dead to the living. The fact that the recipient had acquired
an interest in the property by a transfer inter vivos from the owner does not bring the transfer beyond
the reach of the statute if the possession and enjoyment of the property is dependent upon and
brought about by the death of the owner. The full fruition of a transfer or gift by the passing of its use
and enjoyment to the grantee or donee upon the death of the grantor or donor is the event that makes
the transaction subject to the tax.
Our present inquiry is to determine whether the appellant derived any economic benefit from the
annuity contract which resulted from the death of her husband. He was building up a fund at the rate of
$2,400 a year for the primary purpose of acquiring monthly payments during the rest of his life after he
had become sixty-five years of age. He was making an investment for his own personal benefit. It was
made in the expectation of living and not in contemplation of death. It is true that the contract
contained a provision for the payment of a death benefit, but that provision was inserted in order that
the annuitant should not lose all his investment if death came to him before annuity payments became
due from the society. The annuitant had designated his wife as the beneficiary to receive the death
benefit but he also reserved the right to change the beneficiary. The annuitant, however, had the
control of the money which he had paid in to the society to the extent permitted him under the
contract. He could change the method of the payment of annuities to him, and select a life annuity or a
refund annuity beginning at any age, or furnish satisfactory evidence of insurability and substitute a life
insurance policy for the contract, or accept the cash surrender value and terminate the contract. His
control was not substantially different from that exercised by the settlor of a revocable trust. His
position was not unlike that of one depositing a certain amount in a bank which he could withdraw at
the end of a certain period, otherwise it was to be paid to such third person as he should designate. The
receipt, by a beneficiary under such a revocable trust or deposit arrangement, of the trust funds or the
deposit would come within the taxing statute for in neither case was it certain until the death of the
settlor or depositor whether he would revoke the trust or designate a new beneficiary. New England
Trust Co. v. Abbott, 205 Mass. 279. Pratt v. Dean, 246 Mass. 300. Nickerson v. Harding, 267 Mass. 203.
Boston Safe Deposit & Trust Co. v. Commissioner of Corporations & Taxation, 294 Mass. 551.
The appellant relies upon Tyler v. Treasurer & Receiver General, 226 Mass. 306, and Welch v.
Commissioner of Corporations & Taxation, 309 Mass. 293, in which it was held that the receipt by the
beneficiary of the proceeds of a life insurance policy upon the death of the insured was not subject to
the succession tax. She does not contend that the annuity contract was a policy of insurance upon the
life of her husband, but she contends that her right to receive the death benefit was so similar to the
right of a beneficiary under a life insurance policy to receive the proceeds that the receipt of the death
benefit should come within the principle of the two decisions last cited.
The interest of the appellant in the death benefit was materially different from an interest as a
beneficiary in a life policy. The primary form of an annuity contract is one wherein, upon the payment of
a lump sum by one party to the other, the latter promises to pay a fixed amount annually to the other
during his lifetime. This form of contract, however, was not wholly satisfactory, undoubtedly due to the
fact that the contract could be fully performed by the payment of only a small portion of the sum paid
by the annuitant if he should die after a few annual payments had been made. Another form of an
annuity contract was developed to make such contracts more attractive to the public by providing that,
upon the death of the annuitant, the balance of the amount paid in by him and remaining after the
making of the annual payments to him less slight deductions for expenses incurred by the company
issuing the contract should be paid to some person designated by him or paid over as a death benefit to
such person. The annuity contract in the instant case was based not upon the contingency of death but
upon the expectation of living. The appellant's husband did not submit to a physical examination by any
physician before the contract of annuity was executed. The only possible risk that the society took was
that the annuitant might live too long. It took no risk whatever with reference to the death benefit for
in no event was it required to pay more than it had received. It was not bound to pay a certain lump
sum irrespective of the amount paid in as a life company is required to pay upon the death of the
insured. An annuity is not an indemnity against loss by death like a life policy. A man purchases an
annuity for his own benefit but one usually obtains life insurance for the protection of his dependents.
While it may be that the annuitant pays a higher premium to secure a provision for the payment of a
death benefit, and this provision, considered by itself, somewhat resembles life insurance, yet the
annuity contract was not divisible, and the fact that the contract contained such a provision, or any
other similar provision calling for refunded annuities in the event of the death of the annuitant before
he has enjoyed the full benefit of his investment, does not convert the annuity contract into a life
insurance policy or exempt those who receive the death benefit or further annuities subsequent to the
death of the annuitant from a succession tax, either under statutes that expressly exempt the proceeds
of life insurance policies up to a certain amount or in jurisdictions where, in the absence of any mention
of insurance in the taxing statutes, the proceeds of life insurance are not taxed.
The decision in Tyler v. Treasurer & Receiver General, 226 Mass. 306, cannot be extended to relieve
from taxation the receipt of the death benefit by the appellant. The issue there presented, to adopt the
words of the decision, as stated at page 307, was: "The question raised in these cases is whether money
paid to the beneficiary under a policy of life insurance is subject to the succession tax. The policies here
in issue all are well recognized forms of genuine life insurance." The ground of that decision was that
the rights of the beneficiary attached at once by being designated as beneficiary and became vested
and effective and were not dependent for their efficacy upon the happening of any future event. It was
accordingly held that naming one as beneficiary was not making a grant or gift within the descriptive
words of the taxing statute as one "made or intended to take effect in possession or enjoyment after
the death of the grantor." That decision was re‰xamined and affirmed in Welch v. Commissioner of
Corporations & Taxation, 309 Mass. 293.
by G. L. (Ter. Ed.) c. 175, Section 2, which provides that a contract of insurance is an agreement by
which one party for a consideration promises to pay money or its equivalent, or to do an act valuable to
the insured, upon the destruction, loss or injury of something in which the other party has an interest.
This definition first appeared in St. 1887, c. 214, Section 3, and adopted the common law definition of
insurance set forth in Commonwealth v. Wetherbee, 105 Mass. 149. Claflin v. United States Credit
System Co. 165 Mass. 501. Attorney General v. C. E. Osgood Co. 249 Mass. 473. That definition does not
include annuity contracts. Curtis v. New York Life Ins. Co. 217 Mass. 47. Mutual Benefit Life Ins. Co. v.
Commonwealth, 227 Mass. 63. Neither do we think it includes an annuity contract providing for the
payment of a death benefit measured by approximately the difference between the amounts paid in by
the annuitant and the total annuities paid by the company to him. The distinction between an annuity
contract and a life policy has been frequently pointed out.
Indeed no such contract as that in the instant case was involved in the Tyler case. The policies there
were treated as "well recognized forms of genuine life insurance." Neither policy called for any annual
payments to the insured. The statement in that opinion that an annuity was a policy of life insurance
was unnecessary to the decision, inconsistent with our common law and statutory definition of
insurance and contrary to the great weight of authority.
The decision in the Tyler case must be confined to its facts. It cannot rightly be extended to an annuity
contract. The Tyler case was followed but not extended by Welch v. Commissioner of Corporations &
Taxation, 309 Mass. 293.
There was no error in the decree of the Probate Court dismissing the petition.
Decree affirmed.

An examination of the original records in the Tyler case shows that the policies there involved were
"participating endowment" policies which provided for the payment of twenty annual premiums by the
insured and for the payment by the company of the amounts named in the policies to the insured if he
was alive twenty years from the date of their issuance, otherwise they were payable on his death to the
beneficiary named by him. During the course of the opinion it was stated at pages 307-308: "A policy of
life insurance is a contract. It is commonly a tripartite agreement, to which the parties are the insured,
the insurer and the beneficiary. A policy of life insurance is a contract for a consideration paid, usually in
money, in one sum or at different times during the continuance of the risk, which involves the payment
of money or other thing of value by the insurer to the family, kindred, representative, or other
designated beneficiary of the holder of the policy, conditioned upon the continuance or cessation of
human life, or which involves a guaranty, assurance or pledge of an endowment or an annuity.
Commonwealth v. Wetherbee, 105 Mass. 149, 160. See St. 1907, c. 576, Section 66; Curtis v. New York
Life Ins. Co. 217 Mass. 47." The appellant relies upon this sentence. That statement so far as it applied
to an annuity was not a matter to which the attention of the court was then directed and as so applied
would not be accurate. It is, in effect, a paraphrase of the statutory definition of a life insurance
company as set forth in St. 1907, c. 576, Section 66, see now G. L. (Ter. Ed.) c. 175, Section 118. But it
does not follow that all contracts issued by a life insurance company in the ordinary course of business
are contracts of life insurance for they are authorized to issue contracts of annuity. Insurance is defined

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.
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.
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.
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 the moment 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.
(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 at the 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 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 that his 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 in the 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).
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; Muñoz & 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 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 and
interest thus computed should be added the sum of P724.88, representing a surhcarge of 25 per cent
on both the tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving
a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the
estate. This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim.
But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable
only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.
G.R. No. 48122 October 29, 1948
A. W. BEAM, A. W. BEAM, Jr., and EUGENIA BEAM, the latter two assisted by their guardian ad litem,
John W. Haussermann, plaintiffs-appellants,
vs. A. L. YATCO, Collector of Internal Revenue of the Philippines, defendant-appellee.
PERFECTO, J.:
On July 17, 1937, plaintiffs filed a complaint praying that the amount of P343,298.72, paid by them as
inheritance tax, be refunded to them as follows: P40,480 to A. W. Beam, P151,409.36 to A. W. Beam, Jr.
and P151,409.36 to Eugenia Beam.
In March, 1938, the parties entered into a stipulation of facts from which the following can be gathered:
That on or before April 26, 1937, the Collector of Internal Revenue declared and assessed the following
items of property of A. W. Beam and Lydia McKee Beam at the time of the death of the latter on
October 18, 1934, at P8,100,544.91:
15,000 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 2, 15 and 25 issued
to and in the name of Lydia McKee Beam;
88,163 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 11, 23 and 24
issued to and in the name of A. W. Beam;
500 shares of stock of Benguet Consolidated Mining Company, evidenced by Certificate No. 3342 issued
to and in the name of A. W. Beam;
2,080 shares of stock of Balatoc Mining Company, evidenced by Certificates Nos. 600, 614 and 809
issued to and in the name of A. W. Beam;
5,000 shares of stock of Beam Investment Company evidenced by Certificates Nos. 17 and 26 issued to
and in the name of A. W. Beam, Junior;lawphil.net
Deposit of P2,933.18 in Manila Building and Loan Association in the name and to the credit of A. W.
Beam, Junior;
5,000 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 19 and 27 issued to
and in the name of Eugenia Beam;
Deposit of P2,933.18 in Manila Building and Loan Association in the name and to the credit of Eugenia
Beam.
One-half thereof, appraised at P4,050,272.46, was the estate to the deceased Lydia McKee Beam
located in the Philippines and transmitted to plaintiffs and to Syrena McKee and Rose P. McKee by
virtue of inheritance, devise, or bequest, gifts mortis causa or advance in anticipation of inheritance,
and the collector assessed and demanded inheritance taxes thereon as follows:
Heirs Share Tax
A. W. Beam P532,375.00 P40,480.00
A. W. Beam, Jr. 1,749,448.73 151,409.36
Eugenia Beam 1,749,448.73 151,409.36
Syrena McKee 10,000.00 200.00
Rose T. McKee 10,000.00 200.00
P4,050,272.46 P343,698.72
On April 26, 1937, plaintiffs, together with Syrena McKee and Rose T. McKee, both sister of Lydia Mckee
Beam, paid respectively the amounts assessed and demanded by the collector, aggregating
P343,698.72, under protest that was overruled by the collector on May 11, 1937.
A. W. Beam is of age but the other two plaintiffs are minors and are assisted by their guardian ad litem,
John W. Haussermann.
On her death in the State of California on October 8, 1934, Lydia McKee Beam left a last will and
testament which, after due and regular proceedings, was admitted to probate in the superior court of
the State of California for the County of Almeda.
Lydia McKee Beam was the wife of A. W. Beam from their marriage in 1913 until her death, and the
other two plaintiffs are the legitimate children of said marriage. Plaintiffs are, and since birth, have
been, and Lydia McKee Beam was, throughout of her life, citizens of the United States of America. A. W.
Beam was for many years, beginning from year 1902, a resident domiciled in the Philippines.
On April 18, 1934, A. W. Beam, with his wife Lydia and daughter Eugenia, left the Philippines for
California and arrived at San Francisco on May 9, 1934, and since such arrival neither said Lydia nor any
of the plaintiffs have been in the Philippines, except A. W. Beam who was in the Philippines from
December 20, 1936, to January 15, 1937.
At the time of the death of Lydia McKee Beam, she and plaintiffs owned separately and severally,
according to plaintiffs, and jointly with Lydia McKee Beam and A. W. Beam, according to defendant, the
following properties:
LYDIA MCKEE BEAM: 15,000 shares of stock of Beam Investment Company, evidenced by
Certificates Nos. 2, 15 and 25 issued to and in the name of Lydia McKee Beam;
A. W. BEAM: 88,163 shares of stock of Beam Investment Company, evidenced by Certificates
Nos. 11, 23 and 24 issued to and in the name of A. W. Beam; 500 shares of stock of Benguet
Consolidated Mining Company, evidenced by Certificate No. 3342 issued to and in the name
of A. W. Beam; 2,080 shares of stock of Balatoc Mining Company, evidenced by Certificates
Nos. 600, 614 and 809 issued to and in the name of A. W. Beam;
A. W. BEAM, JUNIOR: 5,000 shares of stock of Beam Investment Company evidenced by
Certificates Nos. 17 and 26 issued to and in the name of A. W. Beam, Junior; Deposit of
 P2,933.18 in Manila Building and Loan Association in the name and to the credit of A. W.
Beam, Junior;
EUGENIA BEAM: 5,000 shares of stock of Beam Investment Company, evidenced by
Certificates Nos. 19 and 27 issued to and in the name of Eugenia Beam; Deposit of P2,933.18
in Manila Building and Loan Association in the name and to the credit of Eugenia Beam.
The Beam Investment Company, the Balatoc Mining Company and the Manila Building and Loan
Association are, and were at all times mentioned in the amended complaint, corporations organized
and existing under the laws of the Philippines. The Benguet Consolidated Mining Company is, and was
at all times mentioned in the amended complaint, a sociedad anonima organized and existing under the
laws of the Philippines.
The above-listed properties were acquired in the Philippines during and within the period from the
marriage of A. W. Beam to Lydia McKee Beam in 1913 to April 18, 1934. A. W. Beam has been, and was
up to April 18, 1934, the Vice-President and Assistant General Manager of the Benguet Consolidated
Mining Company and a member of the Board of Directors of said company and of the Balatoc Mining
Company. He was also, and up to the present, is, the President of Beam Investment Company.
Prior to his departure from the Philippines on April 18, 1934, with his wife and his daughter Eugenia, A.
W. Beam filed an application for a tax clearance certificate with the Bureau of Internal Revenue.
On September 30, 1940, the lower court rendered decision dismissing the complaint with costs against
the plaintiffs.
Plaintiffs appealed.
Appellants complain that the lower court dismissed the complaint on factual conclusions dealing with
points not at issue between the parties. They allege that the issue of fact, under the pleadings, was
between the appellants' contention that A. W. Beam and deceased wife were residents and citizens of
California on October 18, 1934, and appellee's contention that their Philippine residence and domicile
extended to October 18, 1934, and sometime later, and there was no issue as to whether or not said A.
W. Beam changed his residence and domicile in 1923 from the Philippines to California and, therefore,
the lower court erred in finding that appellant became a resident and citizen of California in 1923.
Appellee alleges that it has been his original theory from the inception of the action that the plaintiffs
were and continued to be California citizens and that they are not entitled to recover on the ground
that according to California law the property acquired by A. W. Beam in one-half thereof belongs to the
deceased and passed by succession to her heirs subject to the inheritance tax, and said theory is borne
out by the following allegation of the amended answers filed on September 2, 1937:
That under the Inheritance Tax Law, the defendant demanded and collected from the
plaintiffs the sum of P343,698.72 alleged in the complaint, which had been assessed on the
amount of P4,050,272.46, value of the estate of said Lydia McKee, located and having
business situs in the Philippines, and transmitted to the plaintiffs by virtue of inheritance.
(Pages 15, 16, record on appeal; emphasis supplied.)
That the law of the State of California in effect at the time of the death of Lydia McKee Beam
provided that, upon the death of a wife, one-half of the community property shall go to the
surviving spouse, the other half being subject to the testamentary disposition of the
decedent, and that in the absence thereof, that half shall go to the surviving spouse by
inheritance.
The last paragraph reproduces only the penultimate paragraph of the original answer dated October 11,
1937.
The allegations necessarily include by implication the allegation of California citizenship so that the
California law may be invoked as the personal law of the deceased applicable to her personal property
in the Philippines in accordance with article 10 of the Civil Code.
The finding of the lower court is fully supported by the testimonies of A. W. Beam and John W.
Haussermann, wherein the first stated that in 1923 he bought a house in Oakland, California, and used
it as a residence until December, 1930, when he built another in Piedmont, California, which he has
used and occupied as a residence since then, and his children were in school in California and Mrs.
Beam wanted to be with them and made a home for them, and it was his intention to live in California
and from 1923 on, his family spent most of their time in California, where he himself used to take long
vacations, and that he never really intended to live permanently in the Philippines, while Haussermann
testified that A. W. Beam left the Philippines somewhere along 1923 and 1924 when he established a
home for his wife and children on Kenmore Avenue, Oakland, and he went there frequently.
We are of opinion that, upon the pleadings and the evidence, the lower court did not err in finding that
A. W. Beam and wife became residents and citizens of California in 1923.
On the other hand, appellee maintains that, because the burden of proof is on the plaintiffs to establish
their right to recover, in view of the fact that they had failed to establish that right based on their
alleged Utah citizenship, the dismissal of the complaint is fully justified, and the defendant is entitled to
take advantage of the plaintiff's failure to present sufficient proof and of the evidence adduced by
themselves.
Plaintiff pleaded Utah citizenship to invoke the laws of the state which, it is alleged, is to the effect that
properties acquired by the spouses during marriage belong to them separately, and the Utah citizenship
was thus put in issue in view of the general denial of appellee and his special defense predicated on the
California law.
The evidence of the plaintiff on the Utah citizenship consists exclusively in the deposition of A. W. Beam
wherein he states that he was born in Nevada in 1878; he lived with his parents in Nevada until 1883
and then in Utah until 1898, when he enlisted in the army; and that upon his discharge from the army in
San Francisco in 1889 he returned to, and stayed in, Utah, until he came to the Philippines in 1902. As
contended by appellee, the evidence does not sufficiently prove the Utah citizenship claimed by said
appellant. There is no evidence that he ever returned to Utah, or has any interest in that estate, or that
he ever intended to return there.
Where plaintiffs themselves show a state of facts upon which they should not recover, whether
defendant pleaded such fact as a defense or not, their claim should be dismissed. Evidence introduced
without objection becomes property of the case and all the parties are amenable to any favorable or One's personal presence at the new domicile is not necessary when the intent to change has
unfavorable effects resulting from the evidence. been manifested and carried out by sending his wife and family there. (19 C. J., 425.)

Appellants complain that they were not given opportunity to present evidence regarding the fact found
by the lower court that plaintiff A. W. Beam became in 1923 a resident and citizen of California has no
merit, because plaintiffs had in fact the opportunity, and taken advantage of it, to present all the facts
which, according to them, would entitle them to recover and they cannot complain of their failure to
present more evidence than that appearing in the record. As a matter of fact, the evidence upon which
the lower court concluded that A. W. Beam became resident and citizen of California in 1923, consists in
the testimony of A. W. Beam himself and his witness John W. Haussermann.
Appellants contend that no evidence whatsoever has been adduced to prove the California law of
community property and that the trial court should not have taken into consideration the provision of
said law as quoted in the memorandum filed by the Solicitor General. Appellee alleges that there is no
dispute that California is a community property state, citing 31 C. J., 12 and the decision in Osorio vs.
Posadas (56 Phil., 748 and 756). Appellants themselves assert that, in the absence of proof as to what
the California law is, the presumption would militate against them, because when a foreign law is
pleaded and no evidence has been presented as to said law it is presumed that the same is the law of
the forum. (Yan Ka Lim vs. Collector of Customs, 30 Phil., 46; Lim vs. Collector of Internal Revenue, 36
Phil., 472; Miciano vs. Brimo, 50 Phil., 876.)
Accordingly, the properties in question which have been acquired by A.W. Beam and wife during their
marriage, should be considered as community property and upon the death of the wife, the one that
belonged to her passed by succession to her heirs, in accordance with the provisions of articles 1401,
1407 and 1426 of the Civil Code, and therefore is subject to the inheritance tax collected by appellee.
As correctly stated by appellee, even granting appellant's contention that the deceased became a
resident of California only in 1934, she was a citizen of that state at the time of her death and her
national law applicable to the case, in accordance with article 10 of the Civil Code, is the law of
California which, in the absence of contrary evidence, is to be presumed to be the same as the
Philippine law.
The question raised by appellants regarding the situs of the properties in question, has no merit in view
of the express provisions of section 1536 of the Revised Administrative Code, specifying shares issued
by any corporation or sociedad anonima organized in the Philippines among properties subject to
inheritance tax. The pronouncement of the lower court that the actual situs of the shares in question is
in the Philippines is fully supported by the evidence as, according to the testimony of John W.
Haussermann, the corresponding certificates of stock were in the Philippines before and after the death
of Mrs. Beam, the owners were represented by proxy at the stockholders' meetings and their shares
voted by their attorney in fact who had the power to collect dividends corresponding to the share.
The questions raised by appellants that are premised on the Utah citizenship of A. W. Beam and his
deceased wife cannot be countenanced after we have concluded that the lower court declared correctly
that they became California citizens since 1923.
The lower court's decision is affirmed with costs against appellants.

Appellants contended that A. W. Beam has not become a resident and citizen of California since 1923
and that the evidence points out that he changed his residence from the Philippines to California
between the time he left Manila for Piedmont on April 18, 1934, and the time of his wife's death on
October 18, 1934. Appellants point to the testimony of A. W. Beam that his departures before 1934
were without intention of permanently abandoning his home in the Philippines, while when he left on
April 18, 1934, he had no intention of returning, for which reason he brought his car and all his
household belongings with him, and to the testimonies of Robert B. Dell, John W. Haussermann, W. H.
Taylor, W. H. Lawrence. These testimonies, all hearsay, except that A. W. Beam himself,
notwithstanding, cannot change the effect of A. W. Beam's testimony to the effect that in 1923 he
bought a house in Oakland, California, used it as a residence until December 1930, when he built
another house in Piedmont, California, which he used and occupied as a residence from that time to the
present, and that his children were in school in California and Mrs. Beam wanted to be with them and
make a home for them, and from 1923 on his family spent most of their time in California. He also
testified that "he never really intended permanently to live in the Philippines all my life." Under the
provisions of the fourteenth amendment to the Federal Constitution, "all persons born or naturalized in
the United States are subject to the jurisdiction thereof, are citizens of the United States and of the
state wherein they reside."

A. W. Beam became citizen of California in 1923 when he established therein a permanent residence for
him and his family.
 ANN T. WARD & others vs. COMMISSIONER OF CORPORATIONS AND TAXATION.
September 15, 1975 - October 31, 1975
The tax credit under. G. L. c. 65A, Section 3, against inheritance taxes imposed and paid under c. 65,
Section 1, on future interests in a decedent's estate, was not "property" or an "interest therein" and
was not itself subject to tax under c. 65, Section 1, at the time the future interests vested. [6]
BILL IN EQUITY filed in the Probate Court for the county of Worcester on September 19, 1973.
WILKINS, J. The Commissioner of Corporations and Taxation (Commissioner) appeals from a judgment
granting an abatement of certain inheritance taxes assessed by him. At issue is the question whether
the tax credit available under G. L. c. 65A, Section 3, for State estate taxes paid with respect to future
interests, is itself subject to inheritance taxes imposed by G. L. c. 65, Section 1, at the time those future
interests vest. We agree with the ruling below that the tax credit was not subject to inheritance tax
under G. L. c. 65.
The judge made findings of fact which are not challenged. Caro E. Christy (Caro) died in 1967, survived
by her ninety-one year old husband Horace. By her will, substantially all of Caro's probate estate was
poured over into an inter vivos trust which she had created. By its terms Horace was to receive income
from the trust during his life, and at his death the trust assets were to be distributed to the plaintiffs.
The Federal estate tax credit available for any State death taxes paid exceeded the Massachusetts
inheritance taxes payable at Caro's death by $131,032.86, and, accordingly, under G. L. c. 65A, Section
1, her estate was obliged to pay that amount as an estate tax. After Horace died in 1972, the trustee of
the inter vivos trust paid the Massachusetts inheritance taxes due on the future interests which vested
in the plaintiffs at Horace's death, deducting $131, 032.86 as a credit.
The Commissioner did not challenge the availability of the credit, but he did claim that an additional
inheritance tax of $22, 429.62 was payable, asserting that the tax credit of $131,032.86 was includible
as a taxable asset of the trust passing to the plaintiffs. The trustee paid the amount of additional tax,
and the plaintiffs commenced this action to obtain a refund of the taxes. The judge ruled that the tax
credit provided in G. L. c. 65A, Section 3, was not a taxable asset subject to inheritance taxes under G. L.
c. 65, Section 1.
Chapter 65A was enacted in 1927 (see St. 1927, c. 178, Section 1) in response to the obvious desirability
to the Commonwealth of a State estate tax which would absorb the full amount of the estate tax credit
available under the Federal estate tax law to a decedent's estate for State death taxes paid. Such a State
estate tax has been characterized as a "sponge" tax because it is designed to divert death taxes to the
State which otherwise would go to the Federal government. See Frost v. Commissioner of Corps. &
Taxation, 363 Mass. 235 , 236-237 n.2 (1973).
Section 3 of G. L. c. 65A provides that a credit shall be available against future inheritance taxes payable
under G. L. c. 65 as to a future interest in property which generated any portion of an estate tax under
G. L. 65A. The credit is equal to that portion of the State estate tax paid which was attributable to the
future interest, but in no event may it exceed the inheritance tax on that future interest.
The Commissioner claims that such a credit for State estate taxes previously paid is itself taxable under
G. L. c. 65, Section 1, because the credit is "property" or an "interest therein" "belonging to inhabitants
of the commonwealth" and that it is property which "pass[ed] by will, or by laws regulating intestate
succession, or by deed, grant or gift" so as to be subject to an inheritance tax. He argues that G. L. c.
65A, Section 3, created "a fund to be applied against the inheritance tax which would become due at
the time that the taxpayers-remaindermen's right to possession vested."
We believe that the Commissioner's position is untenable. There is, of course, no fund created. Nothing
in G. L. c. 65A, or in its legislative history, indicates that the Legislature intended to collect more
inheritance taxes (as opposed to estate taxes) by enacting G. L. c. 65A. [Note 1] Certainly, on its face,
Section 3 of G. L. c. 65A does nothing more than describe a potential inheritance tax credit. Section 3
seems intended to eliminate, rather than create, discrimination in State death tax consequences among
estates subject to State estate taxation under G. L. c. 65A. [Note 2] Thus, the Commissioner's argument
finds no special aid in the language or apparent purpose of G. L. c. 65A. Having concluded that the
statute under which the tax credit was created gives no support to the Commissioner's position, we
turn to the question whether a tax credit under G. L. c. 65A, Section 3, falls nevertheless within the
character of property subject to inheritance taxation under G. L. c. 65, Section 1.
A credit against an inheritance tax is not "property" or an "interest therein" which might "pass by will,"
by intestate succession, or "by deed, grant or gift." See G. L. c. 65, Section 1. In dealing with the same
substantive language in a prior inheritance tax statute, we described the words "property . . . which
shall pass . . . to any person" as signifying "the property which the legatee actually would get were it not
for the State tax imposed by the sentence in which the words occur." Hooper v. Shaw, 176 Mass. 190 ,
191 (1900). An inheritance tax credit is hardly property which the plaintiffs would get if G. L. c. 65,
Section 1, did not exist. More recently, we said that the object of G. L. c. 65, Section 1, "is to tax the
shifting of the economic benefits and enjoyment of property from the dead to the living." Gregg v.
Commissioner of Corps. & Taxation, 315 Mass. 704 , 706 (1944). The tax credit which did not exist in her
lifetime was not property of Caro, nor did it "pass" or "shift" from her to the plaintiffs. Thus, G. L. c. 65,
Section 1, does not impose an inheritance tax on this tax credit.
At the very most, one might conclude in favor of the Commissioner's position that G. L. c. 65, Section 1,
is ambiguous on this point. If it were ambiguous, the Commissioner's undenied long standing prior
interpretation of G. L. c. 65, Section 1, as to inheritance tax credits under G. L. c. 65A, Section 3, would
be entitled to great weight in resolving any such ambiguity against his present position.
Judgment affirmed.
G.R. No. L-11622 January 28, 1961 deductions claimed by the ancillary administrator for funeral expenses in the amount of P2,000.00 and
THE COLLECTOR OF INTERNAL REVENUE, petitioner, for judicial and administration expenses in the sum of P5,500.00, the Collector assessed the state the
vs. DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF TAX APPEALS, respondents. amount of P5,147.98 for estate tax and P10,875,26 or inheritance tax, or a total of P16,023.23. Both of
x---------------------------------------------------------x these assessments were paid by the estate on June 6, 1952.
G.R. No. L-11668 January 28, 1961.
DOUGLAS FISHER AND BETTINA FISHER, petitioner, On September 27, 1952, the ancillary administrator filed in amended estate and inheritance tax return
vs. in pursuance f his reservation made at the time of filing of the preliminary return and for the purpose of
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF TAX APPEALS, respondents. availing of the right granted by section 91 of the National Internal Revenue Code.

BARRERA, J.: In this amended return the valuation of the 210,000 shares of stock in the Mindanao Mother Lode
Mines, Inc. was reduced from 0.38 per share, as originally declared, to P0.20 per share, or from a total
This case relates to the determination and settlement of the hereditary estate left by the deceased valuation of P79,800.00 to P42,000.00. This change in price per share of stock was based by the ancillary
Walter G. Stevenson, and the laws applicable thereto. Walter G. Stevenson (born in the Philippines on administrator on the market notation of the stock obtaining at the San Francisco California) Stock
August 9, 1874 of British parents and married in the City of Manila on January 23, 1909 to Beatrice Exchange six months from the death of Stevenson, that is, As of August 22, 1931. In addition, the
Mauricia Stevenson another British subject) died on February 22, 1951 in San Francisco, California, ancillary administrator made claim for the following deductions:
U.S.A. whereto he and his wife moved and established their permanent residence since May 10, 1945.
In his will executed in San Francisco on May 22, 1947, and which was duly probated in the Superior
Funeral expenses ($1,04326) P2,086.52
Court of California on April 11, 1951, Stevenson instituted his wife Beatrice as his sole heiress to the
following real and personal properties acquired by the spouses while residing in the Philippines, Judicial Expenses:
described and preliminary assessed as follows: (a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
Gross Estate
(c) Judicial and Administration expenses as of
Real Property — 2 parcels of land in Baguio, covered by August 9, 1952 1,400.05
T.C.T. Nos. 378 and 379 P43,500.00
8,604.39
Personal Property
Real Estate Tax for 1951 on Baguio real
(1) 177 shares of stock of Canacao Estate at P10.00 properties (O.R. No. B-1 686836) 652.50
each 1,770.00
Claims against the estate:
(2) 210,000 shares of stock of Mindanao Mother Lode ($5,000.00) P10,000.00 P10,000.00
Mines, Inc. at P0.38 per share 79,800.00
Plus: 4% int. p.a. from Feb. 2 to 22, 1951 22.47 10,022.47
(3) Cash credit with Canacao Estate Inc. 4,870.88
Sub-Total P21,365.88
(4) Cash, with the Chartered Bank of India, Australia &
China 851.97
In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson assigned all her rights and
Total Gross Assets P130,792.85 interests in the estate to the spouses, Douglas and Bettina Fisher, respondents herein.

On May 22, 1951, ancillary administration proceedings were instituted in the Court of First Instance of
Manila for the settlement of the estate in the Philippines. In due time Stevenson's will was duly
admitted to probate by our court and Ian Murray Statt was appointed ancillary administrator of the
estate, who on July 11, 1951, filed a preliminary estate and inheritance tax return with the reservation
of having the properties declared therein finally appraised at their values six months after the death of
Stevenson. Preliminary return was made by the ancillary administrator in order to secure the waiver of
the Collector of Internal Revenue on the inheritance tax due on the 210,000 shares of stock in the
Mindanao Mother Lode Mines Inc. which the estate then desired to dispose in the United States. Acting
upon said return, the Collector of Internal Revenue accepted the valuation of the personal properties
declared therein, but increased the appraisal of the two parcels of land located in Baguio City by fixing
their fair market value in the amount of P52.200.00, instead of P43,500.00. After allowing the
On September 7, 1953, the ancillary administrator filed a second amended estate and inheritance tax
return (Exh. "M-N"). This return declared the same assets of the estate stated in the amended return of
September 22, 1952, except that it contained new claims for additional exemption and deduction to
wit: (1) deduction in the amount of P4,000.00 from the gross estate of the decedent as provided for in
Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary administrator averred was
allowable by way of the reciprocity granted by Section 122 of the National Internal Revenue Code, as
then held by the Board of Tax Appeals in case No. 71 entitled "Housman vs. Collector," August 14, 1952;
and (2) exemption from the imposition of estate and inheritance taxes on the 210,000 shares of stock in
the Mindanao Mother Lode Mines, Inc. also pursuant to the reciprocity proviso of Section 122 of the
National Internal Revenue Code. In this last return, the estate claimed that it was liable only for the
amount of P525.34 for estate tax and P238.06 for inheritance tax and that, as a consequence, it had
overpaid the government. The refund of the amount of P15,259.83, allegedly overpaid, was accordingly
requested by the estate. The Collector denied the claim. For this reason, action was commenced in the
Court of First Instance of Manila by respondents, as assignees of Beatrice Mauricia Stevenson, for the
recovery of said amount. Pursuant to Republic Act No. 1125, the case was forwarded to the Court of Tax
Appeals which court, after hearing, rendered decision the dispositive portion of which reads as follows:
In fine, we are of the opinion and so hold that: (a) the one-half (½) share of the surviving
spouse in the conjugal partnership property as diminished by the obligations properly
chargeable to such property should be deducted from the net estate of the deceased Walter
G. Stevenson, pursuant to Section 89-C of the National Internal Revenue Code; (b) the
intangible personal property belonging to the estate of said Stevenson is exempt from
inheritance tax, pursuant to the provision of section 122 of the National Internal Revenue
Code in relation to the California Inheritance Tax Law but decedent's estate is not entitled to
an exemption of P4,000.00 in the computation of the estate tax; (c) for purposes of estate and
inheritance taxation the Baguio real estate of the spouses should be valued at P52,200.00,
and 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. should be appraised at
P0.38 per share; and (d) the estate shall be entitled to a deduction of P2,000.00 for funeral
expenses and judicial expenses of P8,604.39.
From this decision, both parties appealed.
The Collector of Internal Revenue, hereinafter called petitioner assigned four errors allegedly
committed by the trial court, while the assignees, Douglas and Bettina Fisher hereinafter called
respondents, made six assignments of error. Together, the assigned errors raise the following main
issues for resolution by this Court:
(1) Whether or not, in determining the taxable net estate of the decedent, one-half (½) of the net estate
should be deducted therefrom as the share of tile surviving spouse in accordance with our law on
conjugal partnership and in relation to section 89 (c) of the National Internal revenue Code;
(2) Whether or not the estate can avail itself of the reciprocity proviso embodied in Section 122 of the
National Internal Revenue Code granting exemption from the payment of estate and inheritance taxes
on the 210,000 shares of stock in the Mindanao Mother Lode Mines Inc.;
(3) Whether or not the estate is entitled to the deduction of P4,000.00 allowed by Section 861, U.S.
Internal Revenue Code in relation to section 122 of the National Internal Revenue Code;
(4) Whether or not the real estate properties of the decedent located in Baguio City and the 210,000
shares of stock in the Mindanao Mother Lode Mines, Inc., were correctly appraised by the lower court;
(5) Whether or not the estate is entitled to the following deductions: P8,604.39 for judicial and
administration expenses; P2,086.52 for funeral expenses; P652.50 for real estate taxes; and P10,0,22.47
representing the amount of indebtedness allegedly incurred by the decedent during his lifetime; and
(6) Whether or not the estate is entitled to the payment of interest on the amount it claims to have
overpaid the government and to be refundable to it.
In deciding the first issue, the lower court applied a well-known doctrine in our civil law that in the
absence of any ante-nuptial agreement, the contracting parties are presumed to have adopted the
system of conjugal partnership as to the properties acquired during their marriage. The application of
this doctrine to the instant case is being disputed, however, by petitioner Collector of Internal Revenue,
who contends that pursuant to Article 124 of the New Civil Code, the property relation of the spouses
Stevensons ought not to be determined by the Philippine law, but by the national law of the decedent
husband, in this case, the law of England. It is alleged by petitioner that English laws do not recognize
legal partnership between spouses, and that what obtains in that jurisdiction is another regime of
property relation, wherein all properties acquired during the marriage pertain and belong Exclusively to
the husband. In further support of his stand, petitioner cites Article 16 of the New Civil Code (Art. 10 of
the old) to the effect that in testate and intestate proceedings, the amount of successional rights,
among others, is to be determined by the national law of the decedent.
In this connection, let it be noted that since the mariage of the Stevensons in the Philippines took place
in 1909, the applicable law is Article 1325 of the old Civil Code and not Article 124 of the New Civil Code
which became effective only in 1950. It is true that both articles adhere to the so-called nationality
theory of determining the property relation of spouses where one of them is a foreigner and they have
made no prior agreement as to the administration disposition, and ownership of their conjugal
properties. In such a case, the national law of the husband becomes the dominant law in determining
the property relation of the spouses. There is, however, a difference between the two articles in that
Article 1241 of the new Civil Code expressly provides that it shall be applicable regardless of whether the
marriage was celebrated in the Philippines or abroad while Article 13252 of the old Civil Code is limited
to marriages contracted in a foreign land.
It must be noted, however, that what has just been said refers to mixed marriages between a Filipino
citizen and a foreigner. In the instant case, both spouses are foreigners who married in the Philippines.
Manresa,3 in his Commentaries, has this to say on this point:
La regla establecida en el art. 1.315, se refiere a las capitulaciones otorgadas en Espana y
entre espanoles. El 1.325, a las celebradas en el extranjero cuando alguno de los conyuges es
espanol. En cuanto a la regla procedente cuando dos extranjeros se casan en Espana, o dos
espanoles en el extranjero hay que atender en el primer caso a la legislacion de pais a que
aquellos pertenezean, y en el segundo, a las reglas generales consignadas en los articulos 9 y
10 de nuestro Codigo. (Emphasis supplied.)
If we adopt the view of Manresa, the law determinative of the property relation of the Stevensons,
married in 1909, would be the English law even if the marriage was celebrated in the Philippines, both
of them being foreigners. But, as correctly observed by the Tax Court, the pertinent English law that
allegedly vests in the decedent husband full ownership of the properties acquired during the marriage
has not been proven by petitioner. Except for a mere allegation in his answer, which is not sufficient,
the record is bereft of any evidence as to what English law says on the matter. In the absence of proof,
the Court is justified, therefore, in indulging in what Wharton calls "processual presumption," in
presuming that the law of England on this matter is the same as our law.4
Nor do we believe petitioner can make use of Article 16 of the New Civil Code (art. 10, old Civil Code) to
bolster his stand. A reading of Article 10 of the old Civil Code, which incidentally is the one applicable,
shows that it does not encompass or contemplate to govern the question of property relation between
spouses. Said article distinctly speaks of amount of successional rights and this term, in speaks in our
opinion, properly refers to the extent or amount of property that each heir is legally entitled to inherit
from the estate available for distribution. It needs to be pointed out that the property relation of
spouses, as distinguished from their successional rights, is governed differently by the specific and
express provisions of Title VI, Chapter I of our new Civil Code (Title III, Chapter I of the old Civil Code.)
We, therefore, find that the lower court correctly deducted the half of the conjugal property in
determining the hereditary estate left by the deceased Stevenson.
On the second issue, petitioner disputes the action of the Tax Court in the exempting the respondents
from paying inheritance tax on the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc. in
virtue of the reciprocity proviso of Section 122 of the National Internal Revenue Code, in relation to
Section 13851 of the California Revenue and Taxation Code, on the ground that: (1) the said proviso of
the California Revenue and Taxation Code has not been duly proven by the respondents; (2) the
reciprocity exemptions granted by section 122 of the National Internal Revenue Code can only be
availed of by residents of foreign countries and not of residents of a state in the United States; and (3)
there is no "total" reciprocity between the Philippines and the state of California in that while the
former exempts payment of both estate and inheritance taxes on intangible personal properties, the
latter only exempts the payment of inheritance tax..
To prove the pertinent California law, Attorney Allison Gibbs, counsel for herein respondents, testified
that as an active member of the California Bar since 1931, he is familiar with the revenue and taxation
laws of the State of California. When asked by the lower court to state the pertinent California law as
regards exemption of intangible personal properties, the witness cited article 4, section 13851 (a) and
(b) of the California Internal and Revenue Code as published in Derring's California Code, a publication
of the Bancroft-Whitney Company inc. And as part of his testimony, a full quotation of the cited section
was offered in evidence as Exhibits "V-2" by the respondents.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them.5 Like any other fact, they must be alleged and proved.6
Section 41, Rule 123 of our Rules of Court prescribes the manner of proving foreign laws before our
tribunals. However, although we believe it desirable that these laws be proved in accordance with said
rule, we held in the case of Willamette Iron and Steel Works v. Muzzal, 61 Phil. 471, that "a reading of
sections 300 and 301 of our Code of Civil Procedure (now section 41, Rule 123) will convince one that
these sections do not exclude the presentation of other competent evidence to prove the existence of a
foreign law." In that case, we considered the testimony of an attorney-at-law of San Francisco,
California who quoted verbatim a section of California Civil Code and who stated that the same was in
force at the time the obligations were contracted, as sufficient evidence to establish the existence of
said law. In line with this view, we find no error, therefore, on the part of the Tax Court in considering
the pertinent California law as proved by respondents' witness.
We now take up the question of reciprocity in exemption from transfer or death taxes, between the
State of California and the Philippines.F
Section 122 of our National Internal Revenue Code, in pertinent part, provides:
... And, provided, further, That no tax shall be collected under this Title in respect of intangible
personal property (a) if the decedent at the time of his death was a resident of a foreign
country which at the time of his death did not impose a transfer of tax or death tax of any
character in respect of intangible personal property of citizens of the Philippines not residing
in that foreign country, or (b) if the laws of the foreign country of which the decedent was a
resident at the time of his death allow a similar exemption from transfer taxes or death taxes
of every character in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country." (Emphasis supplied).
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.
"SEC. 13851, Intangibles of nonresident: Conditions. Intangible personal property is exempt
from the tax imposed by this part if the decedent at the time of his death was a resident of a
territory or another State of the United States or of a foreign state or country which then
imposed a legacy, succession, or death tax in respect to intangible personal property of its
own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible
personal property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal property of a non-
resident was exempt from legacy, succession, or death taxes of every character if the Territory
or other State of the United States or foreign state or country in which the nonresident
resided allowed a similar exemption in respect to intangible personal property of residents of
the Territory or State of the United States or foreign state or country of residence of the
decedent." (Id.)
It is clear from both these quoted provisions that the reciprocity must be total, that is, with respect to
transfer or death taxes of any and every character, in the case of the Philippine law, and to legacy,
succession, or death taxes of any and every character, in the case of the California law. Therefore, if any
of the two states collects or imposes and does not exempt any transfer, death, legacy, or succession tax
of any character, the reciprocity does not work. This is the underlying principle of the reciprocity clauses
in both laws.
In the Philippines, upon the death of any citizen or resident, or non-resident with properties therein,
there are imposed upon his estate and its settlement, both an estate and an inheritance tax. Under the
laws of California, only inheritance tax is imposed. On the other hand, the Federal Internal Revenue
Code imposes an estate tax on non-residents not citizens of the United States,7 but does not provide for
any exemption on the basis of reciprocity. Applying these laws in the manner the Court of Tax Appeals
did in the instant case, we will have a situation where a Californian, who is non-resident in the
Philippines but has intangible personal properties here, will the subject to the payment of an estate tax,
although exempt from the payment of the inheritance tax. This being the case, will a Filipino, non-
resident of California, but with intangible personal properties there, be entitled to the exemption clause
of the California law, since the Californian has not been exempted from every character of legacy,
succession, or death tax because he is, under our law, under obligation to pay an estate tax? Upon the
other hand, if we exempt the Californian from paying the estate tax, we do not thereby entitle a Filipino
to be exempt from a similar estate tax in California because under the Federal Law, which is equally
enforceable in California he is bound to pay the same, there being no reciprocity recognized in respect
thereto. In both instances, the Filipino citizen is always at a disadvantage. We do not believe that our
legislature has intended such an unfair situation to the detriment of our own government and people.
We, therefore, find and declare that the lower court erred in exempting the estate in question from
payment of the inheritance tax.
We are not unaware of our ruling in the case of Collector of Internal Revenue vs. Lara (G.R. Nos. L-9456
& L-9481, prom. January 6, 1958, 54 O.G. 2881) exempting the estate of the deceased Hugo H. Miller
from payment of the inheritance tax imposed by the Collector of Internal Revenue. It will be noted,
however, that the issue of reciprocity between the pertinent provisions of our tax law and that of the
State of California was not there squarely raised, and the ruling therein cannot control the
determination of the case at bar. Be that as it may, we now declare that in view of the express
provisions of both the Philippine and California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death taxes of every character, there could
not be partial reciprocity. It would have to be total or none at all.
With respect to the question of deduction or reduction in the amount of P4,000.00 based on the U.S.
Federal Estate Tax Law which is also being claimed by respondents, we uphold and adhere to our ruling
in the Lara case (supra) that the amount of $2,000.00 allowed under the Federal Estate Tax Law is in the
nature of a deduction and not of an exemption regarding which reciprocity cannot be claimed under the
provision of Section 122 of our National Internal Revenue Code. Nor is reciprocity authorized under the
Federal Law. .
On the issue of the correctness of the appraisal of the two parcels of land situated in Baguio City, it is
contended that their assessed values, as appearing in the tax rolls 6 months after the death of
Stevenson, ought to have been considered by petitioner as their fair market value, pursuant to section
91 of the National Internal Revenue Code. It should be pointed out, however, that in accordance with
said proviso the properties are required to be appraised at their fair market value and the assessed
value thereof shall be considered as the fair market value only when evidence to the contrary has not
been shown. After all review of the record, we are satisfied that such evidence exists to justify the
valuation made by petitioner which was sustained by the tax court, for as the tax court aptly observed:
"The two parcels of land containing 36,264 square meters were valued by the administrator of
the estate in the Estate and Inheritance tax returns filed by him at P43,500.00 which is the
assessed value of said properties. On the other hand, defendant appraised the same at
P52,200.00. It is of common knowledge, and this Court can take judicial notice of it, that
assessments for real estate taxation purposes are very much lower than the true and fair
market value of the properties at a given time and place. In fact one year after decedent's
death or in 1952 the said properties were sold for a price of P72,000.00 and there is no
showing that special or extraordinary circumstances caused the sudden increase from the
price of P43,500.00, if we were to accept this value as a fair and reasonable one as of 1951.
Even more, the counsel for plaintiffs himself admitted in open court that he was willing to
purchase the said properties at P2.00 per square meter. In the light of these facts we believe
and therefore hold that the valuation of P52,200.00 of the real estate in Baguio made by
defendant is fair, reasonable and justified in the premises." (Decision, p. 19).
In respect to the valuation of the 210,000 shares of stock in the Mindanao Mother Lode Mines, Inc., (a
domestic corporation), respondents contend that their value should be fixed on the basis of the market
quotation obtaining at the San Francisco (California) Stock Exchange, on the theory that the certificates
of stocks were then held in that place and registered with the said stock exchange. We cannot agree
with respondents' argument. The situs of the shares of stock, for purposes of taxation, being located
here in the Philippines, as respondents themselves concede and considering that they are sought to be
taxed in this jurisdiction, consistent with the exercise of our government's taxing authority, their fair
market value should be taxed on the basis of the price prevailing in our country.
Upon the other hand, we find merit in respondents' other contention that the said shares of stock
commanded a lesser value at the Manila Stock Exchange six months after the death of Stevenson.
Through Atty. Allison Gibbs, respondents have shown that at that time a share of said stock was bid for
at only P.325 (p. 103, t.s.n.). Significantly, the testimony of Atty. Gibbs in this respect has never been
questioned nor refuted by petitioner either before this court or in the court below. In the absence of
evidence to the contrary, we are, therefore, constrained to reverse the Tax Court on this point and to
hold that the value of a share in the said mining company on August 22, 1951 in the Philippine market
was P.325 as claimed by respondents..
It should be noted that the petitioner and the Tax Court valued each share of stock of P.38 on the basis
of the declaration made by the estate in its preliminary return. Patently, this should not have been the
case, in view of the fact that the ancillary administrator had reserved and availed of his legal right to
have the properties of the estate declared at their fair market value as of six months from the time the
decedent died..
On the fifth issue, we shall consider the various deductions, from the allowance or disallowance of
which by the Tax Court, both petitioner and respondents have appealed..
Petitioner, in this regard, contends that no evidence of record exists to support the allowance of the
sum of P8,604.39 for the following expenses:.
1) Administrator's fee P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administrative expenses 2,052.55
Total Deductions P8,604.39
An examination of the record discloses, however, that the foregoing items were considered deductible
by the Tax Court on the basis of their approval by the probate court to which said expenses, we may
presume, had also been presented for consideration. It is to be supposed that the probate court would
not have approved said items were they not supported by evidence presented by the estate. In allowing
the items in question, the Tax Court had before it the pertinent order of the probate court which was
submitted in evidence by respondents. (Exh. "AA-2", p. 100, record). As the Tax Court said, it found no
basis for departing from the findings of the probate court, as it must have been satisfied that those
expenses were actually incurred. Under the circumstances, we see no ground to reverse this finding of
fact which, under Republic Act of California National Association, which it would appear, that while still
living, Walter G. Stevenson obtained we are not inclined to pass upon the claim of respondents in
respect to the additional amount of P86.52 for funeral expenses which was disapproved by the court a
quo for lack of evidence.
In connection with the deduction of P652.50 representing the amount of realty taxes paid in 1951 on
the decedent's two parcels of land in Baguio City, which respondents claim was disallowed by the Tax
Court, we find that this claim has in fact been allowed. What happened here, which a careful review of
the record will reveal, was that the Tax Court, in itemizing the liabilities of the estate, viz:
1) Administrator's fee P1,204.34
2) Attorney's fee 6,000.00
3) Judicial and Administration expenses as of August 9, 1952 2,052.55
Total P9,256.89
added the P652.50 for realty taxes as a liability of the estate, to the P1,400.05 for judicial and
administration expenses approved by the court, making a total of P2,052.55, exactly the same figure
which was arrived at by the Tax Court for judicial and administration expenses. Hence, the difference
between the total of P9,256.98 allowed by the Tax Court as deductions, and the P8,604.39 as found by
the probate court, which is P652.50, the same amount allowed for realty taxes. An evident oversight
has involuntarily been made in omitting the P2,000.00 for funeral expenses in the final computation.
This amount has been expressly allowed by the lower court and there is no reason why it should not be.
. of the same section 89 of the Internal Revenue Code which provides:
We come now to the other claim of respondents that pursuant to section 89(b) (1) in relation to section
89(a) (1) (E) and section 89(d), National Internal Revenue Code, the amount of P10,022.47 should have
been allowed the estate as a deduction, because it represented an indebtedness of the decedent
incurred during his lifetime. In support thereof, they offered in evidence a duly certified claim,
presented to the probate court in California by the Bank of California National Association, which it
would appear, that while still living, Walter G. Stevenson obtained a loan of $5,000.00 secured by
pledge on 140,000 of his shares of stock in the Mindanao Mother Lode Mines, Inc. (Exhs. "Q-Q4", pp.
53-59, record). The Tax Court disallowed this item on the ground that the local probate court had not
approved the same as a valid claim against the estate and because it constituted an indebtedness in
respect to intangible personal property which the Tax Court held to be exempt from inheritance tax.
For two reasons, we uphold the action of the lower court in disallowing the deduction.
Firstly, we believe that the approval of the Philippine probate court of this particular indebtedness of
the decedent is necessary. This is so although the same, it is averred has been already admitted and
approved by the corresponding probate court in California, situs of the principal or domiciliary
administration. It is true that we have here in the Philippines only an ancillary administration in this
case, but, it has been held, the distinction between domiciliary or principal administration and ancillary
administration serves only to distinguish one administration from the other, for the two proceedings are
separate and independent.8 The reason for the ancillary administration is that, a grant of administration
does not ex proprio vigore, have any effect beyond the limits of the country in which it was granted.
Hence, we have the requirement that before a will duly probated outside of the Philippines can have
effect here, it must first be proved and allowed before our courts, in much the same manner as wills
originally presented for allowance therein. 9 And the estate shall be administered under letters
testamentary, or letters of administration granted by the court, and disposed of according to the will as
probated, after payment of just debts and expenses of administration.10 In other words, there is a
regular administration under the control of the court, where claims must be presented and approved,
and expenses of administration allowed before deductions from the estate can be authorized.
Otherwise, we would have the actuations of our own probate court, in the settlement and distribution
of the estate situated here, subject to the proceedings before the foreign court over which our courts
have no control. We do not believe such a procedure is countenanced or contemplated in the Rules of
Court.
Another reason for the disallowance of this indebtedness as a deduction, springs from the provisions of
Section 89, letter (d), number (1), of the National Internal Revenue Code which reads:
(d) Miscellaneous provisions — (1) No deductions shall be allowed in the case of a non-
resident not a citizen of the Philippines unless the executor, administrator or anyone of the
heirs, as the case may be, includes in the return required to be filed under section ninety-
three the value at the time of his death of that part of the gross estate of the non-resident not
situated in the Philippines."
In the case at bar, no such statement of the gross estate of the non-resident Stevenson not situated in
the Philippines appears in the three returns submitted to the court or to the office of the petitioner
Collector of Internal Revenue. The purpose of this requirement is to enable the revenue officer to
determine how much of the indebtedness may be allowed to be deducted, pursuant to (b), number (1)
(b) Deductions allowed to non-resident estates. — In the case of a non-resident not a citizen of
the Philippines, by deducting from the value of that part of his gross estate which at the time
of his death is situated in the Philippines —
(1) Expenses, losses, indebtedness, and taxes. — That proportion of the deductions specified
in paragraph (1) of subjection (a) of this section 11 which the value of such part bears the value
of his entire gross estate wherever situated;"
In other words, the allowable deduction is only to the extent of the portion of the indebtedness which is
equivalent to the proportion that the estate in the Philippines bears to the total estate wherever
situated. Stated differently, if the properties in the Philippines constitute but 1/5 of the entire assets
wherever situated, then only 1/5 of the indebtedness may be deducted. But since, as heretofore
adverted to, there is no statement of the value of the estate situated outside the Philippines, no part of
the indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d), number (1) of the
Internal Revenue Code.
For the reasons thus stated, we affirm the ruling of the lower court disallowing the deduction of the
alleged indebtedness in the sum of P10,022.47.
In recapitulation, we hold and declare that:
(a) only the one-half (1/2) share of the decedent Stevenson in the conjugal partnership
property constitutes his hereditary estate subject to the estate and inheritance taxes;
(b) the intangible personal property is not exempt from inheritance tax, there existing no
complete total reciprocity as required in section 122 of the National Internal Revenue Code,
nor is the decedent's estate entitled to an exemption of P4,000.00 in the computation of the
estate tax;
 (c) for the purpose of the estate and inheritance taxes, the 210,000 shares of stock in the
Mindanao Mother Lode Mines, Inc. are to be appraised at P0.325 per share; and

(d) the P2,000.00 for funeral expenses should be deducted in the determination of the net
asset of the deceased Stevenson.

In all other respects, the decision of the Court of Tax Appeals is affirmed.

Respondent's claim for interest on the amount allegedly overpaid, if any actually results after a
recomputation on the basis of this decision is hereby denied in line with our recent decision in Collector
of Internal Revenue v. St. Paul's Hospital (G.R. No. L-12127, May 29, 1959) wherein we held that, "in the
absence of a statutory provision clearly or expressly directing or authorizing such payment, and none
has been cited by respondents, the National Government cannot be required to pay interest."

WHEREFORE, as modified in the manner heretofore indicated, the judgment of the lower court is
hereby affirmed in all other respects not inconsistent herewith. No costs. So ordered.
G.R. No. L-13250 October 29, 1971
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.ANTONIO CAMPOS RUEDA, respondent..
FERNANDO, J.:
The basic issue posed by petitioner Collector of Internal Revenue in this appeal from a decision of the
Court of Tax Appeals as to whether or not the requisites of statehood, or at least so much thereof as
may be necessary for the acquisition of an international personality, must be satisfied for a "foreign
country" to fall within the exemption of Section 122 of the National Internal Revenue Code 1 is now ripe
for adjudication. The Court of Tax Appeals answered the question in the negative, and thus reversed the
action taken by petitioner Collector, who would hold respondent Antonio Campos Rueda, as
administrator of the estate of the late Estrella Soriano Vda. de Cerdeira, liable for the sum of
P161,874.95 as deficiency estate and inheritance taxes for the transfer of intangible personal properties
in the Philippines, the deceased, a Spanish national having been a resident of Tangier, Morocco from
1931 up to the time of her death in 1955. In an earlier resolution promulgated May 30, 1962, this Court
on the assumption that the need for resolving the principal question would be obviated, referred the
matter back to the Court of Tax Appeals to determine whether the alleged law of Tangier did grant the
reciprocal tax exemption required by the aforesaid Section 122. Then came an order from the Court of
Tax Appeals submitting copies of legislation of Tangier that would manifest that the element of
reciprocity was not lacking. It was not until July 29, 1969 that the case was deemed submitted for
decision. When the petition for review was filed on January 2, 1958, the basic issue raised was
impressed with an element of novelty. Four days thereafter, however, on January 6, 1958, it was held
by this Court that the aforesaid provision does not require that the "foreign country" possess an
international personality to come within its terms.2 Accordingly, we have to affirm.
The decision of the Court of Tax Appeals, now under review, sets forth the background facts as follows:
"This is an appeal interposed by petitioner Antonio Campos Rueda as administrator of the estate of the
deceased Doña Maria de la Estrella Soriano Vda. de Cerdeira, from the decision of the respondent
Collector of Internal Revenue, assessing against and demanding from the former the sum P161,874.95
as deficiency estate and inheritance taxes, including interest and penalties, on the transfer of intangible
personal properties situated in the Philippines and belonging to said Maria de la Estrella Soriano Vda. de
Cerdeira. Maria de la Estrella Soriano Vda. de Cerdeira (Maria Cerdeira for short) is a Spanish national,
by reason of her marriage to a Spanish citizen and was a resident of Tangier, Morocco from 1931 up to
her death on January 2, 1955. At the time of her demise she left, among others, intangible personal
properties in the Philippines."3 Then came this portion: "On September 29, 1955, petitioner filed a
provisional estate and inheritance tax return on all the properties of the late Maria Cerdeira. On the
same date, respondent, pending investigation, issued an assessment for state and inheritance taxes in
the respective amounts of P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities
were paid by petitioner ... . On November 17, 1955, an amended return was filed ... wherein intangible
personal properties with the value of P396,308.90 were claimed as exempted from taxes. On November
23, 1955, respondent, pending investigation, issued another assessment for estate and inheritance
taxes in the amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 ... . In a
letter dated January 11, 1956, respondent denied the request for exemption on the ground that the law
of Tangier is not reciprocal to Section 122 of the National Internal Revenue Code. Hence, respondent
demanded the payment of the sums of P239,439.49 representing deficiency estate and inheritance
taxes including ad valorem penalties, surcharges, interests and compromise penalties ... . In a letter
dated February 8, 1956, and received by respondent on the following day, petitioner requested for the
reconsideration of the decision denying the claim for tax exemption of the intangible personal
properties and the imposition of the 25% and 5% ad valorem penalties ... . However, respondent denied
request, in his letter dated May 5, 1956 ... and received by petitioner on May 21, 1956. Respondent
premised the denial on the grounds that there was no reciprocity [with Tangier, which was moreover] a
mere principality, not a foreign country. Consequently, respondent demanded the payment of the sums
of P73,851.21 and P88,023.74 respectively, or a total of P161,874.95 as deficiency estate and
inheritance taxes including surcharges, interests and compromise penalties." 4
The matter was then elevated to the Court of Tax Appeals. As there was no dispute between the parties
regarding the values of the properties and the mathematical correctness of the deficiency assessments,
the principal question as noted dealt with the reciprocity aspect as well as the insisting by the Collector
of Internal Revenue that Tangier was not a foreign country within the meaning of Section 122. In ruling
against the contention of the Collector of Internal Revenue, the appealed decision states: "In fine, we
believe, and so hold, that the expression "foreign country", used in the last proviso of Section 122 of the
National Internal Revenue Code, refers to a government of that foreign power which, although not an
international person in the sense of international law, does not impose transfer or death upon
intangible person properties of our citizens not residing therein, or whose law allows a similar
exemption from such taxes. It is, therefore, not necessary that Tangier should have been recognized by
our Government order to entitle the petitioner to the exemption benefits of the proviso of Section 122
of our Tax. Code."5
Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as
above indicated, instead of ruling definitely on the question, this Court, on May 30, 1962, resolve to
inquire further into the question of reciprocity and sent back the case to the Court of Tax Appeals for
the motion of evidence thereon. The dispositive portion of such resolution reads as follows: "While
section 122 of the Philippine Tax Code aforequoted speaks of 'intangible personal property' in both
subdivisions (a) and (b); the alleged laws of Tangier refer to 'bienes muebles situados en Tanger', 'bienes
muebles radicantes en Tanger', 'movables' and 'movable property'. In order that this Court may be able
to determine whether the alleged laws of Tangier grant the reciprocal tax exemptions required by
Section 122 of the Tax Code, and without, for the time being, going into the merits of the issues raised
by the petitioner-appellant, the case is [remanded] to the Court of Tax Appeals for the reception of
evidence or proof on whether or not the words `bienes muebles', 'movables' and 'movable properties as
used in the Tangier laws, include or embrace 'intangible person property', as used in the Tax Code." 6 In
line with the above resolution, the Court of Tax Appeals admitted evidence submitted by the
administrator petitioner Antonio Campos Rueda, consisting of exhibits of laws of Tangier to the effect
that "the transfers by reason of death of movable properties, corporeal or incorporeal, including
furniture and personal effects as well as of securities, bonds, shares, ..., were not subject, on that date
and in said zone, to the payment of any death tax, whatever might have been the nationality of the
deceased or his heirs and legatees." It was further noted in an order of such Court referring the matter
back to us that such were duly admitted in evidence during the hearing of the case on September 9,
1963. Respondent presented no evidence."7
The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue
Code. It reads thus: "That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the
time of his death did not impose a transfer tax or death tax of any character in respect of intangible
person property of the Philippines not residing in that foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country."8 The only obstacle therefore to a
definitive ruling is whether or not as vigorously insisted upon by petitioner the acquisition of internal WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is affirmed.
personality is a condition sine qua non to Tangier being considered a "foreign country". Deference to Without pronouncement as to costs.
the De Lara ruling, as was made clear in the opening paragraph of this opinion, calls for an affirmance of
the decision of the Court of Tax Appeals.

It does not admit of doubt that if a foreign country is to be identified with a state, it is required in line
with Pound's formulation that it be a politically organized sovereign community independent of outside
control bound by penalties of nationhood, legally supreme within its territory, acting through a
government functioning under a regime of
law.9 It is thus a sovereign person with the people composing it viewed as an organized corporate
society under a government with the legal competence to exact obedience to its commands. 10 It has
been referred to as a body-politic organized by common consent for mutual defense and mutual safety
and to promote the general welfare.11Correctly has it been described by Esmein as "the juridical
personification of the nation." 12 This is to view it in the light of its historical development. The stress is
on its being a nation, its people occupying a definite territory, politically organized, exercising by means
of its government its sovereign will over the individuals within it and maintaining its separate
international personality. Laski could speak of it then as a territorial society divided into government
and subjects, claiming within its allotted area a supremacy over all other institutions. 13 McIver similarly
would point to the power entrusted to its government to maintain within its territory the conditions of
a legal order and to enter into international relations. 14 With the latter requisite satisfied, international
law do not exact independence as a condition of statehood. So Hyde did opine. 15

Even on the assumption then that Tangier is bereft of international personality, petitioner has not
successfully made out a case. It bears repeating that four days after the filing of this petition on January
6, 1958 in Collector of Internal Revenue v. De Lara, 16 it was specifically held by us: "Considering the
State of California as a foreign country in relation to section 122 of our Tax Code we believe and hold, as
did the Tax Court, that the Ancilliary Administrator is entitled the exemption from the inheritance tax on
the intangible personal property found in the Philippines." 17 There can be no doubt that California as a
state in the American Union was in the alleged requisite of international personality. Nonetheless, it
was held to be a foreign country within the meaning of Section 122 of the National Internal Revenue
Code. 18

What is undeniable is that even prior to the De Lara ruling, this Court did commit itself to the doctrine
that even a tiny principality, that of Liechtenstein, hardly an international personality in the sense, did
fall under this exempt category. So it appears in an opinion of the Court by the then Acting Chief
Justicem Bengson who thereafter assumed that position in a permanent capacity, in Kiene v. Collector of
Internal Revenue. 19 As was therein noted: 'The Board found from the documents submitted to it —
proof of the laws of Liechtenstein — that said country does not impose estate, inheritance and gift
taxes on intangible property of Filipino citizens not residing in that country. Wherefore, the Board
declared that pursuant to the exemption above established, no estate or inheritance taxes were
collectible, Ludwig Kiene being a resident of Liechtestein when he passed away." 20 Then came this
definitive ruling: "The Collector — hereafter named the respondent — cites decisions of the United
States Supreme Court and of this Court, holding that intangible personal property in the Philippines
belonging to a non-resident foreigner, who died outside of this country is subject to the estate tax, in
disregard of the principle 'mobilia sequuntur personam'. Such property is admittedly taxable here.
Without the proviso above quoted, the shares of stock owned here by the Ludwig Kiene would be
concededly subject to estate and inheritance taxes. Nevertheless our Congress chose to make an
exemption where conditions are such that demand reciprocity — as in this case. And the exemption
must be honored." 21
G.R. Nos. L-9456 and L-9481 January 6, 1958
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs. DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and
the COURT OF TAX APPEALS, respondents.
MONTEMAYOR, J.:
These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the
Collector, and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller,
from the decision of the Court of Tax Appeals of June 25, 1955, with the following dispositive part:
WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the
decedent Hugo H. Miller is hereby modified in accordance with the computation attached as
Annex "A" of this decision. Petitioner is hereby ordered to pay the amount of P2,047.22
representing estate taxes due, together with the interests and other increments. In case of
failure to pay the amount of P2,047.22 within thirty (30) days from the time this decision has
become final, the 5 per cent surcharge and the corresponding interest due thereon shall be
paid as a part of the tax.
The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly
stated as follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883.
In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the public school
system, first as a teacher and later as a division superintendent of schools, later retiring under the
Osmeiia Retirement Act. After his retirement, Miller accepted an executive position in the local branch
of Ginn & Co., book publishers with principal offices in New York and Boston, U.S.A., up to the outbreak
of the Pacific War. From 1922 up to December 7, 1941, he was stationed in the Philippines as Oriental
representative of Ginn & Co., covering not only the Philippines, but also China and Japan. His principal
work was selling books specially written for Philippine schools. In or about the year 1922, Miller lived at
the Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California, but she used
to come to the Philippines for brief visits with Miller, staying three or four months. Miller also used to
visit his wife in California. He never lived in any residential house in the Philippines. After the death of
his wife in 1931, he transferred from the Manila Hotel to the Army and Navy Club, where he was staying
at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and testament in
Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7,
1941, because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of
Censors of the United States Navy. During the war, he was taken prisoner by the Japanese forces in
Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have
been executed by said forces on March 11, 1944, and since then, nothing has been heard from him. At
the time of his death in 1944, Miller owned the following properties:
Real Property situated in Ben-Lomond, Santa Cruz, California valued
at ...................................................................... P 5,000.00
Real property situated in Burlingame, San Mateo, California valued
at ........................................................................................ 16,200.00
Tangible Personal property, worth............................................. 2,140.00
Cash in the banks in the United States.................................... 21,178.20
Accounts Receivable from various persons in the United States
including notes ............................................................... 36,062.74
Stocks in U.S. Corporations and U.S. Savings Bonds, valued at
........................................................................................ 123,637.16
Shares of stock in Philippine Corporations, valued at .......... 51,906.45
Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of
which Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court
subsequently issued an order and decree of settlement of final account and final distribution, wherein it
found that Miller was a "resident of the County of Santa Cruz, State of California" at the time of his
death in 1944. Thereafter ancilliary proceedings were filed by the executors of the will before the Court
of First Instance of Manila, which court by order of November 21, 1946, admitted to probate the will of
Miller was probated in the California court, also found that Miller was a resident of Santa Cruz,
California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and Savings
Association of San Francisco California, co-executor named in Miller's will, filed an estate and
inheritance tax return with the Collector, covering only the shares of stock issued by Philippines
corporations, reporting a liability of P269.43 for taxes and P230.27 for inheritance taxes. After due
investigation, the Collector assessed estate and inheritance taxes, which was received by the said
executor on April 3, 1950. The estate of Miller protested the assessment of the liability for estate and
inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954. This
assessment was appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals, which
appeal was later heard and decided by the Court of Tax Appeals.
In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax
Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the
Philippines at the time of his death. The Collector maintains that under the tax laws, residence and
domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident
and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax
Code; that Miller during his long stay in the Philippines had required a "residence" in this country, and
was a resident thereof at the time of his death, and consequently, his intangible personal properties
situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator,
however, equally maintains that for estate and inheritance tax purposes, the term "residence" is
synonymous with the term domicile.
We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was
promulgated in 1939, the prevailing construction given by the courts to the "residence" was
synonymous with domicile. and that the two were used intercnangeabiy. Cases were cited in support of
this view, paricularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms
"residence" and "domicile" interchangeably and without distinction, the case involving the application
of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of the
Revised Administrative Code), and that consequently, it will be presumed that in using the term
residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is
reason to believe that the Legislature adopted the American (Federal and State) estate and inheritance
tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122-124, cited in I
Dalupan, National Internal Revenue Code Annotated, p. 469-470). In the United States, for estate tax
purposes, a resident is considered one who at the time of his death had his domicile in the United
States, and in American jurisprudence, for purposes of estate and taxation, "residence" is interpreted as
synonymous with domicile, and that—
 The incidence of estate and succession has historically been determined by domicile and situs The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from
and not by the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 the California inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction
AFTR 7498, cert. den (1928) 272 U.S.608). of P4,000 from the estates of non-residents, under the United States Federal Estate Tax Law. Section 6
of the California Inheritance Tax Act of 1935, now reenacted as Section 13851, California Revenue and
We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or Taxation Code, reads as follows:
domicile in Santa Cruz, California. During his country, Miller never acquired a house for residential
purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife SEC. 6. The following exemption from the tax are hereby allowed:
never stayed in the Philippines. The bulk of his savings and properties were in the United States. To his
home in California, he had been sending souvenirs, such as carvings, curios and other similar collections xxx xxx xxx.
from the Philippines and the Far East. In November, 1940, Miller took out a property insurance policy
and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as
(7) The tax imposed by this act in respect of intangible personal property shall not be payable
already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz,
if decedent is a resident of a State or Territory of the United States or a foreign state or
California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties
country which at the time of his death imposed a legacy, succession of death tax in respect of
of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines
intangible personal property within the State or Territory or foreign state or country of
corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the
residents of the States or Territory or foreign state or country of residence of the decedent at
general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of
the time of his death contained a reciprocal provision under which non-residents were
the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his
exempted from legacy or succession taxes or death taxes of every character in respect of
life time,
intangible personal property providing the State or Territory or foreign state or country of
residence of such non-residents allowed a similar exemption to residents of the State,
. . . extended his activities with respect to his intangibles, so as to avail himself of the Territory or foreign state or country of residence of such decedent.
protection and benefits of the laws of the Philippines, in such a way as to bring his person or
property within the reach of the Philippines, the reason for a single place of taxation no longer
Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we
obtains- protection, benefit, and power over the subject matter are no longer confined to
beleive and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from
California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940),
the tax on the intangible personal property found in the Philippines. Incidentally, this exemption
70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the Philippines,
granted to non-residents under the provision of Section 122 of our Tax Code, was to reduce the burden
the corporation being domiciled herein: and besides, the right to vote the certificates at
of multiple taxation, which otherwise would subject a decedent's intangible personal property to the
stockholders' meetings, the right to collect dividends, and the right to dispose of the shares
inheritance tax, both in his place of residence and domicile and the place where those properties are
including the transmission and acquisition thereof by succession, all enjoy the protection of
found. As regards the exemption or reduction of P4,000 based on the reduction under the Federal Tax
the Philippines, so that the right to collect the estate and inheritance taxes cannot be
Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed under the
questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is recognized that the
Federal Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court
state may, consistently with due process, impose a tax upon transfer by death of shares of
observes--.
stock in a domestic corporation owned by a decedent whose domicile was outside of the state
(Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed.
1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80). . . . this exemption is allowed on all gross estate of non-residents of the United States, who
are not citizens thereof, irrespective of whether there is a corresponding or similar exemption
from transfer or death taxes of non-residents of the Philippines, who are citizens of the United
The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax
States; and thirdly, because this exemption is allowed on all gross estates of non-residents
Code, which provides as follows:
irrespective of whether it involves tangible or intangible, real or personal property; so that for
these reasons petitioner cannot claim a reciprocity. . .
. . ."And Provided, however, That no tax shall be collected under this Title in respect of
intangible personal property (a) if the decedent at the time of his death was a resident of a
Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000
foreign country which at the time of his death did not impose a transfer tax or death tax of
under section 85 of the Tax Code, before it was amended, which in part provides as follows:
any character in respect of intangible personal property of citizens of the Philippines not
residing in that country, or (b) if the laws of the foreign country of which the decedent was
resident at the tune of his death allow a similar exemption from transfer taxes or death taxes SEC. 85. Rates of estate tax.—There shall be levied, assessed, collected, and paid upon the
of every character in respect of intangible personal property owned by citizen, of the transfer of the net estate of every decedent, whether a resident or non-resident of the
Philippine not residing in that foreign country. Philippines, a tax equal to the sum of the following percentages of the value of the net estate
determined as provided in sections 88 and 89:
 One per centrum of the amount by which the net estate exceeds three thousand pesos and
does not exceed ten thousand pesos;. . .

It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary
Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together
with interest and other increments. Said Ancilliary Administrator invokes the provisions of Republic Act
No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who
died during the Japanese occupation. The provisions of this Act could not be invoked during the hearing
before the Tax Court for the reason that said Republic Act was approved only on June 10, 1955. We are
satisfied that inasmuch as Miller, not only suffered deprivation of the war, but was killed by the
Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the interests and
other increments provided in the appealed judgment should not be paid by his estate.

With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We
deem it unnecessary to pass upon the other points raised in the appeal. No costs.
 Ithaca Trust Co. v. United States
Argued February 27, 1929
Decided April 8, 1929
279 U.S. 151
Syllabus
1. Where a will makes bequests to charities, to be paid after the death of the testator's wife from a
residuary estate bequeathed to her for life, and allows the wife to use from the principal any sum "that
may be necessary to suitably maintain her in as much comfort as she now enjoys," and the income of
the estate at the death of the testator, after paying specific debts and legacies, is more than sufficient
to maintain the widow as required, her authority to draw on the principal, being thus limited by a
standard fixed in fact and capable of being stated in definite terms of money, does not render the value
of the charitable bequests so uncertain as to prevent their deduction from gross income, under §
403(a)(3) of the Revenue Act of 1918, in computing the estate tax. P. 279 U. S. 154.
2. The estate tax being on the act of the testator, and not on the receipt of property by legatees, the
estate transferred is to be valued as of the time of the testator's death. P. 279 U. S. 155.
3. Therefore, the value of a life estate is to be determined on the basis of life expectancy as of that time,
even though the life tenant died before the time came for computing and returning the tax. Id.
64 Ct.Cls. 686 reversed.
Certiorari, 278 U.S. 589, to review a judgment for the United States in a suit brought by the Trust
Company to recover money collected as estate taxes.
Page 279 U. S. 153
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a suit to recover the amount of taxes alleged to have been illegally collected under the Revenue
Act of 1918, February 24, 1919, c. 18; 40 Stat. 1057, in view of the deductions allowed by § 403(a)(3), 40
Stat. 1098. The Court of Claims denied the claim, 64 Ct.Cls. 686, and a writ of certiorari was granted by
this Court.
Page 279 U. S. 154
On June 15, 1921, Edwin C. Stewart died, appointing his wife and the Ithaca Trust Company executors
and the Ithaca Trust Company trustee of the trusts created by his will. He gave the residue of his estate
to his wife for life, with authority to use from the principal any sum "that may be necessary to suitably
maintain her in as much comfort as she now enjoys." After the death of the wife, there were bequests
in trust for admitted charities. The case presents two questions, the first of which is whether the
provision for the maintenance of the wife made the gifts to charity so uncertain that the deduction of
the amount of those gifts from the gross estate under § 403(a)(3), supra, in order to ascertain the estate
tax cannot be allowed.Humes v. United States, 276 U. S. 487, 276 U. S. 494. This we are of opinion must
be answered in the negative. The principal that could be used was only so much as might be necessary
to continue the comfort then enjoyed. The standard was fixed in fact and capable of being stated in
definite terms of money. It was not left to the widow's discretion. The income of the estate at the death
of the testator, and even after debts and specific legacies had been paid, was more than sufficient to
maintain the widow as required. There was no uncertainty appreciably greater than the general
uncertainty that attends human affairs.
The second question is raised by the accident of the widow's having died within the year granted by the
statute, § 404, and regulations, for filing the return showing the deductions allowed by § 403, the value
of the net estate and the tax paid or payable thereon. By § 403(a)(3), the net estate taxed is ascertained
by deducting, among other things, gifts to charity such as were made in this case. But as those gifts
were subject to the life estate of the widow, of course, their value was diminished by the postponement
that would last while the widow lived. The question is whether the amount of the diminution -- that is,
the length of the postponement -- is to be determined by the event, as it turned out, of the widow's
death within six months, or by mortality tables showing the probabilities as they stood on the day when
the testator died. The first impression is that it is absurd to resort to statistical probabilities when you
know the fact. But this is due to inaccurate thinking. The estate, so far as may be, is settled as of the
date of the testator's death. See Hooper v. Bradford,178 Mass. 95, 97. The tax is on the act of the
testator, not on the receipt of property by the legatees. Young Men's Christian Association v. Davis, 264
U. S. 47, 264 U. S. 50; Knowlton v. Moore, 178 U. S. 41, 178 U. S. 49; and passim; New York Trust Co. v.
Eisner, 256 U. S. 345, 256 U. S. 348-349; Edwards v. Slocum, 264 U. S. 61. Therefore, the value of the
thing to be taxed must be estimated as of the time when the act is done. But the value of property at a
given time depends upon the relative intensity of the social desire for it at that time, expressed in the
money that it would bring in the market. See International Harvester Co. v. Kentucky, 234 U. S. 216, 234
U. S. 222. Like all values, as the word is used by the law, it depends largely on more or less certain
prophecies of the future, and the value is no less real at that time if later the prophecy turns out false
than when it comes out true. See Lewellyn v. Electric Reduction Co., 275 U. S. 243, 275 U. S. 247; City of
New York v. Sage, 239 U. S. 57, 239 U. S. 61. Tempting as it is to correct uncertain probabilities by the
now certain fact, we are of opinion that it cannot be done, but that the value of the wife's life interest
must be estimated by the mortality tables. Our opinion is not changed by the necessary exceptions to
the general rule specifically made by the Act.
Judgment reversed.
G.R. No. 140944 April 30, 2008 Net Taxable Estate NIL.
Estate Tax Due NIL.11
RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased
JOSE P. FERNANDEZ, petitioner,
vs. On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification Nos.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. 2052[12]and 2053[13] stating that the taxes due on the transfer of real and personal properties [14] of Jose
had been fully paid and said properties may be transferred to his heirs. Sometime in August 1990,
Justice Dizon passed away. Thus, on October 22, 1990, the probate court appointed petitioner as the
DECISION
administrator of the Estate.15

NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure
seeking the reversal of the Court of Appeals (CA) Decision2 dated April 30, 1999 which affirmed the
Decision3 of the Court of Tax Appeals (CTA) dated June 17, 1997.4
The Facts
Petitioner requested the probate court's authority to sell several properties forming part of the Estate,
for the purpose of paying its creditors, namely: Equitable Banking Corporation (P19,756,428.31),
Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the Estate was not
included, as it did not file a claim with the probate court since it had security over several real estate
properties forming part of the Estate.16

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles
will5 was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). [6] The probate Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269,17 demanding the payment
court then appointed retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. of P66,973,985.40 as deficiency estate tax, itemized as follows:
Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of the
Estate of Jose (Estate). In a letter7dated October 13, 1988, Justice Dizon informed respondent
Deficiency Estate Tax- 1987
Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the Estate.
Estate tax P31,868,414.48
Petitioner alleged that several requests for extension of the period to file the required estate tax return 25% surcharge- late filing 7,967,103.62
were granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be
late payment 7,967,103.62
collated, determined and identified. Thus, in a letter8 dated March 14, 1990, Justice Dizon authorized
Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax Interest 19,121,048.68
return and to represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17, Compromise-non filing 25,000.00
1990, Atty. Gonzales wrote a letter9 addressed to the BIR Regional Director for San Pablo City and filed
the estate tax return10 with the same BIR Regional Office, showing therein a NIL estate tax liability, non payment 25,000.00
computed as follows: no notice of death 15.00
no CPA Certificate 300.00
COMPUTATION OF TAX Total amount due & collectible P66,973,985.4018
Conjugal Real Property (Sch. 1) P10,855,020.00
Conjugal Personal Property (Sch.2) 3,460,591.34 In his letter19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said estate
Taxable Transfer (Sch. 3) tax assessment. However, in her letter20 dated April 12, 1994, the BIR Commissioner denied the request
and reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On
Gross Conjugal Estate 14,315,611.34 May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a petition for
Less: Deductions (Sch. 4) 187,822,576.06 review21 before respondent CTA. Trial on the merits ensued.
Net Conjugal Estate NIL
As found by the CTA, the respective parties presented the following pieces of evidence, to wit:
Less: Share of Surviving Spouse NIL.
Net Share in Conjugal Estate NIL In the hearings conducted, petitioner did not present testimonial evidence but merely
xxx documentary evidence consisting of the following:
 Nature of Document (sic) Exhibits April 27, 1990, issued by the Office of the Regional Director, Revenue
Region No. 4-C, San Pablo City, with attachments (pp. 103-104, CTA
1. Letter dated October 13, 1988 from Arsenio P. Dizon addressed to the "A" records.).
Commissioner of Internal Revenue informing the latter of the special
proceedings for the settlement of the estate (p. 126, BIR records);
Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto
2. Petition for the probate of the will and issuance of letter of "B" & "B-1"
Enriquez, who was one of the revenue examiners who conducted the investigation on the
administration filed with the Regional Trial Court (RTC) of Manila,
estate tax case of the late Jose P. Fernandez. In the course of the direct examination of the
docketed as Sp. Proc. No. 87-42980 (pp. 107-108, BIR records);
witness, he identified the following:
3. Pleading entitled "Compliance" filed with the probate Court submitting "C"
the final inventory of all the properties of the deceased (p. 106, BIR
Documents/Signatures BIR Record
records);
4. Attachment to Exh. "C" which is the detailed and complete listing of the "C-1" to "C-17" 1. Estate Tax Return prepared by the BIR; p. 138
properties of the deceased (pp. 89-105, BIR rec.); 2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. -do-
5. Claims against the estate filed by Equitable Banking Corp. with the "D" to "D-24" appearing at the lower Portion of Exh. "1";
probate Court in the amount of P19,756,428.31 as of March 31, 1988, 3. Memorandum for the Commissioner, dated July 19, 1991, pp. 143-144
together with the Annexes to the claim (pp. 64-88, BIR records); prepared by revenue examiners, Ma. Anabella A. Abuloc,
6. Claim filed by Banque de L' Indochine et de Suez with the probate Court "E" to "E-3" Alberto S. Enriquez and Raymund S. Gallardo; Reviewed by
in the amount of US $4,828,905.90 as of January 31, 1988 (pp. 262-265, Maximino V. Tagle
BIR records); 4. Signature of Alberto S. Enriquez appearing at the lower -do-
7. Claim of the Manila Banking Corporation (MBC) which as of November 7, "F" to "F-3" portion on p. 2 of Exh. "2";
1987 amounts to P65,158,023.54, but recomputed as of February 28, 5. Signature of Ma. Anabella A. Abuloc appearing at the lower -do-
1989 at a total amount of P84,199,160.46; together with the demand portion on p. 2 of Exh. "2";
letter from MBC's lawyer (pp. 194-197, BIR records);
6. Signature of Raymund S. Gallardo appearing at the Lower -do-
8. Demand letter of Manila Banking Corporation prepared by Asedillo, "G" & "G-1" portion on p. 2 of Exh. "2";
Ramos and Associates Law Offices addressed to Fernandez Hermanos,
Inc., represented by Jose P. Fernandez, as mortgagors, in the total 7. Signature of Maximino V. Tagle also appearing on p. 2 of Exh. -do-
amount of P240,479,693.17 as of February 28, 1989 (pp. 186-187, BIR "2";
records); 8. Summary of revenue Enforcement Officers Audit Report, p. 139
9. Claim of State Investment House, Inc. filed with the RTC, Branch VII of "H" to "H-16" dated July 19, 1991;
Manila, docketed as Civil Case No. 86-38599 entitled "State Investment 9. Signature of Alberto Enriquez at the lower portion of Exh. "3"; -do-
House, Inc., Plaintiff, versus Maritime Company Overseas, Inc. and/or
Jose P. Fernandez, Defendants," (pp. 200-215, BIR records); 10. Signature of Ma. Anabella A. Abuloc at the lower portion of -do-
Exh. "3";
10. Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus "I"
M. Gonzales, (p. 184, BIR records); 11. Signature of Raymond S. Gallardo at the lower portion of Exh. -do-
"3";
11. Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional "J"
Director of BIR in San Pablo City (p. 183, BIR records); 12. Signature of Maximino V. Tagle at the lower portion of Exh. -do-
"3";
12. Estate Tax Return filed by the estate of the late Jose P. Fernandez "K" to "K-5"
through its authorized representative, Atty. Jesus M. Gonzales, for 13. Demand letter (FAS-E-87-91-00), signed by the Asst. p. 169
Arsenio P. Dizon, with attachments (pp. 177-182, BIR records); Commissioner for Collection for the Commissioner of Internal
Revenue, demanding payment of the amount
13. Certified true copy of the Letter of Administration issued by RTC Manila, "L"
of P66,973,985.40; and
Branch 51, in Sp. Proc. No. 87-42980 appointing Atty. Rafael S. Dizon as
Judicial Administrator of the estate of Jose P. Fernandez; (p. 102, CTA 14. Assessment Notice FAS-E-87-91-00 pp. 169-17022
records) and
14. Certification of Payment of estate taxes Nos. 2052 and 2053, both dated "M" to "M-5"
The CTA's Ruling
On June 17, 1997, the CTA denied the said petition for review. Citing this Court's ruling in Vda. de Oñate
v. Court of Appeals,23 the CTA opined that the aforementioned pieces of evidence introduced by the BIR
were admissible in evidence. The CTA ratiocinated:
WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and
denies the same. Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay
to respondent the amount of P37,419,493.71 plus 20% interest from the due date of its
payment until full payment thereof as estate tax liability of the estate of Jose P. Fernandez
who died on November 7, 1987.

Although the above-mentioned documents were not formally offered as evidence for respondent, SO ORDERED.26
considering that respondent has been declared to have waived the presentation thereof during the
hearing on March 20, 1996, still they could be considered as evidence for respondent since they were Aggrieved, petitioner, on March 2, 1998, went to the CA via a petition for review.27
properly identified during the presentation of respondent's witness, whose testimony was duly
recorded as part of the records of this case. Besides, the documents marked as respondent's exhibits The CA's Ruling
formed part of the BIR records of the case.24
On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that
Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own the petitioner's act of filing an estate tax return with the BIR and the issuance of BIR Certification Nos.
computation of the deficiency estate tax, to wit: 2052 and 2053 did not deprive the BIR Commissioner of her authority to re-examine or re-assess the
said return filed on behalf of the Estate.28
Conjugal Real Property P 5,062,016.00
Conjugal Personal Prop. 33,021,999.93 On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA denied in its
Resolution30 dated November 3, 1999.
Gross Conjugal Estate 38,084,015.93
Less: Deductions 26,250,000.00 Hence, the instant Petition raising the following issues:
Net Conjugal Estate P 11,834,015.93
1. Whether or not the admission of evidence which were not formally offered by the
Less: Share of Surviving Spouse 5,917,007.96
respondent BIR by the Court of Tax Appeals which was subsequently upheld by the Court of
Net Share in Conjugal Estate P 5,917,007.96 Appeals is contrary to the Rules of Court and rulings of this Honorable Court;
Add: Capital/Paraphernal
Properties – P44,652,813.66 2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in
recognizing/considering the estate tax return prepared and filed by respondent BIR knowing
Less: Capital/Paraphernal Deductions 44,652,813.66 that the probate court appointed administrator of the estate of Jose P. Fernandez had
Net Taxable Estate P 50,569,821.62 previously filed one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had been issued
============ in the estate's favor;

Estate Tax Due P 29,935,342.97
Add: 25% Surcharge for Late Filing
Add: Penalties for-No notice of death
No CPA certificate
Total deficiency estate tax
exclusive of 20% interest from due date of its payment until full payment thereof
[Sec. 283 (b), Tax Code of 1987].25
Thus, the CTA disposed of the case in this wise:
3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the
valid and enforceable claims of creditors against the estate, as lawful deductions despite clear
7,483,835.74 and convincing evidence thereof; and
15.00
4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating
300.00
erroneous double imputation of values on the very same estate properties in the estate tax
P 37,419,493.71 return it prepared and filed which effectively bloated the estate's assets. 31
============
The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of
the gross estate, no estate tax was due; that the lack of a formal offer of evidence is fatal to BIR's cause;
that the doctrine laid down in Vda. de Oñate has already been abandoned in a long line of cases in
which the Court held that evidence not formally offered is without any weight or value; that Section 34
of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in character;
that, while BIR's witness Alberto Enriquez (Alberto) in his testimony before the CTA identified the pieces
of evidence aforementioned such that the same were marked, BIR's failure to formally offer said pieces
of evidence and depriving petitioner the opportunity to cross-examine Alberto, render the same
inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oñate is still applicable, BIR
failed to comply with the doctrine's requisites because the documents herein remained simply part of
the BIR records and were not duly incorporated in the court records; that the BIR failed to consider that
although the actual payments made to the Estate creditors were lower than their respective claims,
such were compromise agreements reached long after the Estate's liability had been settled by the
filing of its estate tax return and the issuance of BIR Certification Nos. 2052 and 2053; and that the
reckoning date of the claims against the Estate and the settlement of the estate tax due should be at
the time the estate tax return was filed by the judicial administrator and the issuance of said BIR
Certifications and not at the time the aforementioned Compromise Agreements were entered into with
the Estate's creditors.32
On the other hand, respondent counters that the documents, being part of the records of the case and
duly identified in a duly recorded testimony are considered evidence even if the same were not formally
offered; that the filing of the estate tax return by the Estate and the issuance of BIR Certification Nos.
2052 and 2053 did not deprive the BIR of its authority to examine the return and assess the estate tax;
and that the factual findings of the CTA as affirmed by the CA may no longer be reviewed by this Court
via a petition for review.33
The Issues
There are two ultimate issues which require resolution in this case:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of
evidence which were not formally offered by the BIR; and
Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency
estate tax imposed against the Estate.
The Court’s Ruling
The Petition is impressed with merit.
Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before
it are litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no
evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules on
documentary evidence require that these documents must be formally offered before the
CTA.34 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. — The court shall consider no evidence which has not been
formally offered. The purpose for which the evidence is offered must be specified.
The CTA and the CA rely solely on the case of Vda. de Oñate, which reiterated this Court's previous
rulings in People v. Napat-a35 and People v. Mate36 on the admission and consideration of exhibits which
were not formally offered during the trial. Although in a long line of cases many of which were decided
after Vda. de Oñate, we held that courts cannot consider evidence which has not been formally
offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid down in Vda. de
Oñate has already been abandoned. Recently, in Ramos v. Dizon,38this Court, applying the said doctrine,
ruled that the trial court judge therein committed no error when he admitted and considered the
respondents' exhibits in the resolution of the case, notwithstanding the fact that the same were not
formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of Internal Revenue,39 the
Court made reference to said doctrine in resolving the issues therein. Indubitably, the doctrine laid
down in Vda. De Oñate still subsists in this jurisdiction. In Vda. de Oñate, we held that:
From the foregoing provision, it is clear that for evidence to be considered, the same must be
formally offered. Corollarily, the mere fact that a particular document is identified and
marked as an exhibit does not mean that it has already been offered as part of the evidence
of a party. In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to make a
distinction between identification of documentary evidence and its formal offer as an exhibit.
We said that the first is done in the course of the trial and is accompanied by the marking of
the evidence as an exhibit while the second is done only when the party rests its case and not
before. A party, therefore, may opt to formally offer his evidence if he believes that it will
advance his cause or not to do so at all. In the event he chooses to do the latter, the trial court
is not authorized by the Rules to consider the same.
However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we
relaxed the foregoing rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the
same must have been duly identified by testimony duly recorded and, second, the same
must have been incorporated in the records of the case.40
From the foregoing declaration, however, it is clear that Vda. de Oñate is merely an exception to the
general rule. Being an exception, it may be applied only when there is strict compliance with the
requisites mentioned therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court
should prevail.
In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence
were presented and marked during the trial particularly when Alberto took the witness stand. Alberto
identified these pieces of evidence in his direct testimony.41 He was also subjected to cross-examination
and re-cross examination by petitioner.42 But Alberto’s account and the exchanges between Alberto and
petitioner did not sufficiently describe the contents of the said pieces of evidence presented by the BIR.
In fact, petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be summoned to testify,
inasmuch as Alberto was incompetent to answer questions relative to the working papers. 43 The lead
examiner never testified. Moreover, while Alberto's testimony identifying the BIR's evidence was duly
recorded, the BIR documents themselves were not incorporated in the records of the case.
A common fact threads through Vda. de Oñate and Ramos that does not exist at all in the instant case.
In the aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant the
pronouncement that the same were duly incorporated in the records of the case. Thus, we held
in Ramos:
In this case, we find and so rule that these requirements have been satisfied. The exhibits in
question were presented and marked during the pre-trial of the case thus, they have been
incorporated into the records. Further, Elpidio himself explained the contents of these
exhibits when he was interrogated by respondents' counsel...
 xxxx
But what further defeats petitioner's cause on this issue is that respondents' exhibits were
marked and admitted during the pre-trial stage as shown by the Pre-Trial Order quoted
earlier.44
While the CTA is not governed strictly by technical rules of evidence, 45 as rules of procedure are not
ends in themselves and are primarily intended as tools in the administration of justice, the presentation
of the BIR's evidence is not a mere procedural technicality which may be disregarded considering that it
is the only means by which the CTA may ascertain and verify the truth of BIR's claims against the
Estate.46 The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to
its cause.47 Such failure is aggravated by the fact that not even a single reason was advanced by the BIR
to justify such fatal omission. This, we take against the BIR.
Per the records of this case, the BIR was directed to present its evidence 48 in the hearing of February 21,
1996, but BIR's counsel failed to appear.49 The CTA denied petitioner's motion to consider BIR's
presentation of evidence as waived, with a warning to BIR that such presentation would be considered
waived if BIR's evidence would not be presented at the next hearing. Again, in the hearing of March 20,
1996, BIR's counsel failed to appear.50 Thus, in its Resolution51 dated March 21, 1996, the CTA
considered the BIR to have waived presentation of its evidence. In the same Resolution, the parties
were directed to file their respective memorandum. Petitioner complied but BIR failed to do so. 52 In all
of these proceedings, BIR was duly notified. Hence, in this case, we are constrained to apply our ruling
in Heirs of Pedro Pasag v. Parocha:53
A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its
function is to enable the trial judge to know the purpose or purposes for which the proponent
is presenting the evidence. On the other hand, this allows opposing parties to examine the
evidence and object to its admissibility. Moreover, it facilitates review as the appellate court
will not be required to review documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of
Appeals ruled that the formal offer of one's evidence is deemed waived after failing to
submit it within a considerable period of time. It explained that the court cannot admit an
offer of evidence made after a lapse of three (3) months because to do so would "condone
an inexcusable laxity if not non-compliance with a court order which, in effect, would
encourage needless delays and derail the speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable
ground to consider that petitioners had waived their right to make a formal offer of
documentary or object evidence. Despite several extensions of time to make their formal
offer, petitioners failed to comply with their commitment and allowed almost five months to
lapse before finally submitting it. Petitioners' failure to comply with the rule on admissibility
of evidence is anathema to the efficient, effective, and expeditious dispensation of justice.
Having disposed of the foregoing procedural issue, we proceed to discuss the merits of the case.
Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be
disturbed on appeal unless it is shown that the lower courts committed gross error in the appreciation
of facts.54 In this case, however, we find the decision of the CA affirming that of the CTA tainted with
palpable error.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode
of extinguishing an obligation,55 condonation or remission of debt56 is defined as:
an act of liberality, by virtue of which, without receiving any equivalent, the creditor
renounces the enforcement of the obligation, which is extinguished in its entirety or in that
part or aspect of the same to which the remission refers. It is an essential characteristic of
remission that it be gratuitous, that there is no equivalent received for the benefit given; once
such equivalent exists, the nature of the act changes. It may become dation in payment when
the creditor receives a thing different from that stipulated; or novation, when the object or
principal conditions of the obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession which the creditor
receives.57
Verily, the second issue in this case involves the construction of Section 7958 of the National Internal
Revenue Code59 (Tax Code) which provides for the allowable deductions from the gross estate of the
decedent. The specific question is whether the actual claims of the aforementioned creditors may be
fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were
reduced or condoned through compromise agreements entered into by the Estate with its creditors.
"Claims against the estate," as allowable deductions from the gross estate under Section 79 of the Tax
Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of
Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939,
and which was the first codification of Philippine tax laws. Philippine tax laws were, in turn, based on
the federal tax laws of the United States. Thus, pursuant to established rules of statutory construction,
the decisions of American courts construing the federal tax code are entitled to great weight in the
interpretation of our own tax laws.60
It is noteworthy that even in the United States, there is some dispute as to whether the deductible
amount for a claim against the estate is fixed as of the decedent's death which is the general rule, or the
same should be adjusted to reflect post-death developments, such as where a settlement between the
parties results in the reduction of the amount actually paid.61 On one hand, the U.S. court ruled that the
appropriate deduction is the "value" that the claim had at the date of the decedent's death. 62 Also, as
held in Propstra v. U.S., 63 where a lien claimed against the estate was certain and enforceable on the
date of the decedent's death, the fact that the claimant subsequently settled for lesser amount did not
preclude the estate from deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death developments are not
material in determining the amount of the deduction.
On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be
taken into consideration and the claim should be allowed as a deduction only to the extent of the
amount actually paid.64Recognizing the dispute, the Service released Proposed Regulations in 2007
mandating that the deduction would be limited to the actual amount paid.65
In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca
Trust date-of-death valuation principle to enforceable claims against the estate. As we
interpret Ithaca Trust, when the Supreme Court announced the date-of-death valuation
principle, it was making a judgment about the nature of the federal estate tax specifically, that
it is a tax imposed on the act of transferring property by will or intestacy and, because the act
on which the tax is levied occurs at a discrete time, i.e., the instance of death, the net value of
the property transferred should be ascertained, as nearly as possible, as of that time. This
analysis supports broad application of the date-of-death valuation rule.67

We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the
U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First. There is no law, nor do we discern any
legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the net value of the estate.
It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the
government.69 Any doubt on whether a person, article or activity is taxable is generally resolved against
taxation.70 Second. Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased before his
death.71 Therefore, the claims existing at the time of death are significant to, and should be made the
basis of, the determination of allowable deductions.

WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999
and the Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947
are REVERSED and SET ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment
against the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.

SO ORDERED.
G.R. No. L-34937 March 13, 1933
CONCEPCION VIDAL DE ROCES and her husband,
MARCOS ROCES, and ELVIRA VIDAL DE RICHARDS, plaintiff-appellants,
vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
IMPERIAL, J.:
The plaintiffs herein brought this action to recover from the defendant, Collector of Internal Revenue,
certain sums of money paid by them under protest as inheritance tax. They appealed from the
judgment rendered by the Court of First Instance of Manila dismissing the action, without costs.
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain parcels
of land situated in Manila to the plaintiffs herein, who, with their respective husbands, accepted them
in the same public documents, which were duly recorded in the registry of deeds. By virtue of said
donations, the plaintiffs took possession of the said lands, received the fruits thereof and obtained the
corresponding transfer certificates of title.
On January 5, 1926, the donor died in the City of Manila without leaving any forced heir and her will
which was admitted to probate, she bequeathed to each of the donees the sum of P5,000. After the
estate had been distributed among the instituted legatees and before delivery of their respective
shares, the appellee herein, as Collector of Internal Revenue, ruled that the appellants, as donees and
legatees, should pay as inheritance tax the sums of P16,673 and P13,951.45, respectively. Of these sums
P15,191.48 was levied as tax on the donation to Concepcion Vidal de Roces and P1,481.52 on her
legacy, and, likewise, P12,388.95 was imposed upon the donation made to Elvira Vidal de Richards and
P1,462.50 on her legacy. At first the appellants refused to pay the aforementioned taxes but, at the
insistence of the appellee and in order not to delay the adjudication of the legacies, they agreed at last,
to pay them under protest.
The appellee filed a demurrer to the complaint on the ground that the facts alleged therein were not
sufficient to constitute a cause of action. After the legal questions raised therein had been discussed,
the court sustained the demurrer and ordered the amendment of the complaint which the appellants
failed to do, whereupon the trial court dismissed the action on the ground that the afore- mentioned
appellants did not really have a right of action.
In their brief, the appellants assign only one alleged error, to wit: that the demurrer interposed by the
appellee was sustained without sufficient ground.
The judgment appealed from was based on the provisions of section 1540 Administrative Code which
reads as follows:
SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have
been made, there shall be added to the resulting amount the value of all gifts or advances
made by the predecessor to any those who, after his death, shall prove to be his heirs,
devisees, legatees, or donees mortis causa.
The appellants contend that the above-mentioned legal provision does not include donations inter
vivos and if it does, it is unconstitutional, null and void for the following reasons: first, because it
violates section 3 of the Jones Law which provides that no law should embrace more than one subject,
and that subject should be expressed in the title thereof; second that the Legislature has no authority to
impose inheritance tax on donations inter vivos; and third, because a legal provision of this character
contravenes the fundamental rule of uniformity of taxation. The appellee, in turn, contends that the
words "all gifts" refer clearly to donations inter vivos and, in support of his theory, cites the doctrine laid
in the case of Tuason and Tuason vs. Posadas (54 Phil., 289). After a careful study of the law and the
authorities applicable thereto, we are the opinion that neither theory reflects the true spirit of the
aforementioned provision. The gifts referred to in section 1540 of the Revised Administration Code are,
obviously, those donations inter vivos that take effect immediately or during the lifetime of the donor
but are made in consideration or in contemplation of death. Gifts inter vivos, the transmission of which
is not made in contemplation of the donor's death should not be understood as included within the said
legal provision for the reason that it would amount to imposing a direct tax on property and not on the
transmission thereof, which act does not come within the scope of the provisions contained in Article XI
of Chapter 40 of the Administrative Code which deals expressly with the tax on inheritances, legacies
and other acquisitions mortis causa.
Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and Tuason
vs. Posadas, supra. We said therein, as we say now, that the expression "all gifts" refers to gifts inter
vivos inasmuch as the law considers them as advances on inheritance, in the sense that they are
gifts inter vivos made in contemplation or in consideration of death. In that case, it was not held that
that kind of gifts consisted in those made completely independent of death or without regard to it.
Said legal provision is not null and void on the alleged ground that the subject matter thereof is not
embraced in the title of the section under which it is enumerated. On the contrary, its provisions are
perfectly summarized in the heading, "Tax on Inheritance, etc." which is the title of Article XI.
Furthermore, the constitutional provision cited should not be strictly construed as to make it necessary
that the title contain a full index to all the contents of the law. It is sufficient if the language used
therein is expressed in such a way that in case of doubt it would afford a means of determining the
legislators intention. (Lewis' Sutherland Statutory Construction, Vol. II, p. 651.) Lastly, the circumstance
that the Administrative Code was prepared and compiled strictly in accordance with the provisions of
the Jones Law on that matter should not be overlooked and that, in a compilation of laws such as the
Administrative Code, it is but natural and proper that provisions referring to diverse matters should be
found. (Ayson and Ignacio vs. Provincial Board of Rizal and Municipal Council of Navotas, 39 Phil., 931.)
The appellants question the power of the Legislature to impose taxes on the transmission of real estate
that takes effect immediately and during the lifetime of the donor, and allege as their reason that such
tax partakes of the nature of the land tax which the law has already created in another part of the
Administrative Code. Without making express pronouncement on this question, for it is unnecessary,
we wish to state that such is not the case in these instance. The tax collected by the appellee on the
properties donated in 1925 really constitutes an inheritance tax imposed on the transmission of said
properties in contemplation or in consideration of the donor's death and under the circumstance that
the donees were later instituted as the former's legatees. For this reason, the law considers such
transmissions in the form of gifts inter vivos, as advances on inheritance and nothing therein violates
any constitutional provision, inasmuch as said legislation is within the power of the Legislature.
Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies to all property
within the power of the state to reach passing by will or the laws regulating intestate
succession or by gift inter vivos in the manner designated by statute, whether such property
 be real or personal, tangible or intangible, corporeal or incorporeal. (26 R.C.L., p. 208, par.
177.)

In the case of Tuason and Tuason vs. Posadas, supra, it was also held that section 1540 of the
Administrative Code did not violate the constitutional provision regarding uniformity of taxation. It
cannot be null and void on this ground because it equally subjects to the same tax all of those donees
who later become heirs, legatees or donees mortis causa by the will of the donor. There would be a
repugnant and arbitrary exception if the provisions of the law were not applicable to all donees of the
same kind. In the case cited above, it was said: "At any rate the argument adduced against its
constitutionality, which is the lack of Uniformity, does not seem to be well founded. It was said that
under such an interpretation, while a donee inter vivos who, after the predecessor's death proved to be
an heir, a legatee, or a donee mortis causa, would have to pay the tax, another donee inter vivos who
did not prove to he an heir, a legatee, or a donee mortis causa of the predecessor, would be exempt
from such a tax. But as these are two different cases, the principle of uniformity is inapplicable to
them."

The last question of a procedural nature arising from the case at bar, which should be passed upon, is
whether the case, as it now stands, can be decided on the merits or should be remanded to the court a
quo for further proceedings. According to our view of the case, it follows that, if the gifts received by
the appellants would have the right to recover the sums of money claimed by them. Hence the
necessity of ascertaining whether the complaint contains an allegation to that effect. We have
examined said complaint and found nothing of that nature. On the contrary, it be may be inferred from
the allegations contained in paragraphs 2 and 7 thereof that said donations inter vivos were made in
consideration of the donor's death. We refer to the allegations that such transmissions were effected in
the month of March, 1925, that the donor died in January, 1926, and that the donees were instituted
legatees in the donor's will which was admitted to probate. It is from these allegations, especially the
last, that we infer a presumption juris tantum that said donations were made mortis causa and, as such,
are subject to the payment of inheritance tax.

Wherefore, the demurrer interposed by the appellee was well-founded because it appears that the
complaint did not allege fact sufficient to constitute a cause of action. When the appellants refused to
amend the same, spite of the court's order to that effect, they voluntarily waived the opportunity
offered them and they are not now entitled to have the case remanded for further proceedings, which
would serve no purpose altogether in view of the insufficiency of the complaint.

Wherefore, the judgment appealed from is hereby affirmed, with costs of this instance against the
appellants. So ordered.
G.R. No. 111904 October 5, 2000
SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA, petitioners,
vs. COURT OF APPEALS and MERCEDES DANLAG y PILAPIL, respondents.
DECISION
QUISUMBING, J.:
This petition for review,1 under Rule 45 of the Rules of Court, assails the decision 2 of the Court of
Appeals dated August 31, 1993, in CA-G.R. CV No. 38266, which reversed the judgment3 of the Regional
Trial Court of Cebu City, Branch 5.
The facts, as culled from the records, are as follows:
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.4 The first deed pertained to
parcels 1 & 2 with Tax Declaration Nos. 11345 and 11347, respectively. The second deed pertained to
parcel 3, with TD No. 018613. The last deed pertained to parcel 4 with TD No. 016821. 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.
On January 16, 1973, Diego Danlag, with the consent of his wife, Catalina Danlag, executed a deed of
donation inter vivos5 covering the aforementioned parcels of land plus two other parcels with TD Nos.
11351 and 11343, respectively, 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 can not 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.
On June 28, 1979 and August 21, 1979, Diego and Catalina Danlag sold parcels 3 and 4 to herein
petitioners, Mr. and Mrs. Agripino Gestopa. On September 29, 1979, the Danlags executed a deed of
revocation6 recovering the six parcels of land subject of the aforecited deed of donation 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 title7 over the above parcels of land. She alleged that she was
an illegitimate daughter of Diego Danlag; that she lived and rendered incalculable beneficial services to
Diego and his mother, Maura Danlag, when the latter was still alive. 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 donation in the same instrument, openly and publicly exercised rights of
ownership over the donated properties, and caused the transfer of the tax declarations to her name.
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, since its perfection, she had complied
with all of them; that she had not been guilty of any act of ingratitude; and that respondent Diego had
no legal basis in revoking the subject donation and then in selling the two parcels of land to the
Gestopas.
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. Even assuming it was validly executed, the intention was for the donation to take effect upon
the death of the donor. Further, the donation was void for it left the donor, Diego Danlag, without any
property at all.
On December 27, 1991, the trial court rendered its decision, thus:
"WHEREFORE, the foregoing considered, the Court hereby renders judgment in favor of the defendants
and against the plaintiff:
1. Declaring the Donations Mortis Causa and Inter Vivos as revoked, and, therefore, has (sic)
no legal effect and force of law.
2. Declaring Diego Danlag the absolute and exclusive owner of the six (6) parcels of land
mentioned in the Deed of revocation (Exh. P-plaintiff, Exh. 6-defendant Diego Danlag).
3. Declaring the Deeds of Sale executed by Diego Danlag in favor of spouses Agripino Gestopa
and Isabel Gestopa dated June 28, 1979 (Exh. S-plaintiff; Exh. 18-defendant); Deed of Sale
dated December 18, 1979 (Exh. T plaintiff; Exh. 9-defendant); Deed of Sale dated September
14, 1979 (Exh. 8); Deed of Sale dated June 30, 1975 (Exh. U); Deed of Sale dated March 13,
1978 (Exh. X) as valid and enforceable duly executed in accordance with the formalities
required by law.
4. Ordering all tax declaration issued in the name of Mercedes Danlag Y Pilapil covering the
parcel of land donated cancelled and further restoring all the tax declarations previously
cancelled, except parcels nos. 1 and 5 described, in the Deed of Donation Inter Vivos (Exh. "1")
and Deed of Sale (Exh. "2") executed by defendant in favor of plaintiff and her husband.
[5.] With respect to the contract of sale of abovestated parcels of land, vendor Diego Danlag
and spouse or their estate have the alternative remedies of demanding the balance of the
agreed price with legal interest, or rescission of the contract of sale.
SO ORDERED."8
In rendering the above decision, the trial court found that the reservation clause in all the deeds of
donation indicated that Diego Danlag did not make any donation; that the purchase by Mercedes of the
two parcels of land covered by the Deed of Donation Inter Vivos bolstered this conclusion; that
Mercedes failed to rebut the allegations of ingratitude she committed against Diego Danlag; and that
Mercedes committed fraud and machination in preparing all the deeds of donation without explaining
to Diego Danlag their contents.
Mercedes appealed to the Court of Appeals and argued that the trial court erred in (1) declaring the
donation dated January 16, 1973 as mortis causa and that the same was already revoked on the ground
of ingratitude; (2) finding that Mercedes purchased from Diego Danlag the two parcels of land already
covered by the above donation and that she was only able to pay three thousand pesos, out of the total
amount of twenty thousand pesos; (3) failing to declare that Mercedes was an acknowledged natural
child of Diego Danlag.
On August 31, 1993, the appellate court reversed the trial court. It ruled:
"PREMISES CONSIDERED, the decision appealed from is REVERSED and a new judgment is hereby
rendered as follows:
1. Declaring the deed of donation inter vivos dated January 16, 1973 as not having been
revoked and consequently the same remains in full force and effect;
2. Declaring the Revocation of Donation dated June 4, 1979 to be null and void and therefore
of no force and effect;
3. Declaring Mercedes Danlag Pilapil as the absolute and exclusive owner of the six (6) parcels
of land specified in the above-cited deed of donation inter vivos;
4. Declaring the Deed of Sale executed by Diego Danlag in favor of spouses Agripino and Isabel
Gestopa dated June 28, 1979 (Exhibits S and 18), Deed of Sale dated December 18, 1979
(Exhibits T and 19), Deed of Sale dated September 14, 1979 (Exhibit 8), Deed of Sale dated
June 30, 1975 (Exhibit U), Deed of Sale dated March 13, 1978 (Exhibit X) as well as the Deed of
Sale in favor of Eulalio Danlag dated December 27, 1978 (Exhibit 2) not to have been validly
executed;
5. Declaring the above-mentioned deeds of sale to be null and void and therefore of no force
and effect;
6. Ordering spouses Agripino Gestopa and Isabel Silerio Gestopa to reconvey within thirty (30)
days from the finality of the instant judgment to Mercedes Danlag Pilapil the parcels of land
above-specified, regarding which titles have been subsequently fraudulently secured, namely
those covered by O.C.T. T-17836 and O.C.T. No. 17523.
7. Failing to do so, ordering the Branch Clerk of Court of the Regional Trial Court (Branch V) at
Cebu City to effect such reconveyance of the parcels of land covered by O.C.T. T-17836 and
17523.
SO ORDERED."9
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; that the transfer to
Mercedes' name of the tax declarations pertaining to the donated properties implied that the donation
was inter vivos; and that Mercedes did not purchase two of the six parcels of land donated to her.
Hence, this instant petition for review filed by the Gestopa spouses, asserting that:
"THE HONORABLE COURT OF APPEALS, TWELFTH DIVISION, HAS GRAVELY ERRED IN REVERSING THE
DECISION OF THE COURT A QUO."10
Before us, petitioners allege that the appellate court overlooked the fact that the donor did not only
reserve the right to enjoy the fruits of the properties, but also prohibited the donee from selling or
disposing the land without the consent and approval of the Danlag spouses. This implied that the donor
still had control and ownership over the donated properties. Hence, the donation was post mortem.
Crucial in resolving whether the donation was inter vivos or mortis causa is the determination of
whether the donor intended to transfer the ownership over the properties upon the execution of the
deed.11
In ascertaining the intention of the donor, all of the deed's provisions must be read together.12 The deed
of donation dated January 16, 1973, in favor of Mercedes contained the following:
"That for and in consideration of the love and affection which the Donor inspires in the Donee and as an
act of liberality and generosity, the Donor hereby gives, donates, transfer and conveys by way of
donation unto the herein Donee, her heirs, assigns and successors, the above-described parcels of land;
That it is the condition of this donation that the Donor shall continue to enjoy all the fruits of the land
during his lifetime and that of his spouse and that the donee cannot sell or otherwise, dispose of the
lands without the prior consent and approval by the Donor and her spouse during their lifetime.
xxx
That for the same purpose as hereinbefore stated, the Donor further states that he has reserved for
himself sufficient properties in full ownership or in usufruct enough for his maintenance of a decent
livelihood in consonance with his standing in society.
That the Donee hereby accepts the donation and expresses her thanks and gratitude for the kindness
and generosity of the Donor."13
Note first that the granting clause shows that Diego donated the properties out of love and affection for
the donee. This is a mark of a donation inter vivos.14 Second, the reservation of lifetime usufruct
indicates that the donor intended to transfer the naked ownership over the properties. As correctly
posed by the Court of Appeals, what was the need for such reservation if the donor and his spouse
remained the owners of 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.15 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.
Consequently, the Court of Appeals did not err in concluding that the right to dispose of the properties
belonged to the donee. The donor's right to give consent was merely intended to protect his
usufructuary interests. In Alejandro, we ruled that a limitation on the right to sell during the donors'
lifetime implied that ownership had passed to the donees and donation was already effective during the Civil Code.21 Nor does this Article cover respondent's filing of the petition for quieting of title, where she
donors' lifetime. merely asserted what she believed was her right under the law.

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. 16 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.
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.22 Consequently, the supposed revocation on September
29, 1979, had no legal effect.
WHEREFORE, the instant petition for review is DENIED. The assailed decision of the Court of Appeals
dated August 31, 1993, is AFFIRMED.
Costs against petitioners.

SO ORDERED.
Petitioners aver that Mercedes' tax declarations in her name can not be a basis in determining the
donor's intent. They claim that it is easy to get tax declarations from the government offices such that
tax declarations are not considered proofs of ownership. However, unless proven otherwise, there is a
presumption of regularity in the performance of official duties.17 We find that petitioners did not
overcome this presumption of regularity in the issuance of the tax declarations. We also note that the
Court of Appeals did not refer to the tax declarations as proofs of ownership but only as evidence of the
intent by the donor to transfer ownership.

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 us.18 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.1âwphi1

Was the revocation valid? 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.19 The donor-spouses did not invoke any of these reasons in the deed of revocation. The
deed merely stated:

"WHEREAS, while the said donation was a donation Inter Vivos, our intention thereof is that of Mortis
Causa so as we could be sure that in case of our death, the above-described properties will be inherited
and/or succeeded by Mercedes Danlag de Pilapil; and that said intention is clearly shown in paragraph 3
of said donation to the effect that the Donee cannot dispose and/or sell the properties donated during
our life-time, and that we are the one enjoying all the fruits thereof."20

Petitioners cited Mercedes' vehemence in prohibiting the donor to gather coconut trees and her filing
of instant petition for quieting of title. There is nothing on record, however, showing that private
respondent prohibited the donors from gathering coconuts. Even assuming that Mercedes prevented
the donor from gathering coconuts, this could hardly be considered an act covered by Article 765 of the
G.R. No. L-30885 January 23, 1930
ALFONSO TUASON Y ANGELES and MARIANO TUASON Y ANGELES, plaintiffs-appellees,
vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
AVANCEÑA, C.J.:
On September 15, 1922, Esperanza Tuason y Chuajap made a donation inter vivos of certain property to
plaintiff Mariano Tuason y Angeles. On April 30, 1923, she made another donation inter vivos to Alfonso
Tuason y Angeles, the other plaintiff. On January 5, 1926, she died of senile weakness at the age of 73,
leaving a will bequeathing of P5,025 to Mariano Tuason y Angeles. Her judicial administratrix paid the
prescribed inheritance tax on these two bequests.
Furthermore, the defendant collected the sums of P3,809.76 and P6,653.64 from plaintiffs Mariano
Tuason y Angeles and Alfonso Tuason y Angeles against their opposition and over their protest as
inheritance tax upon the gifts inter vivos made to them.
The plaintiffs brought this action against the Collector of Internal Revenue for the recovery of the
amounts of P3,809.76 and P6,653.64 collected from them as inheritance tax.
The judgment appealed from ordered the defendant to return the amounts claimed to the plaintiffs.
The appellant contends that the collection of these amounts as inheritance tax is authorized by the law.
. . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by
the predecessor to those who, after his death, shall prove to be his . . . donees mortis causa."
We cannot give to the law an interpretation that would so vitiate its language. The truth of
the matter is that in this section (1540) the law presumes that such gifts have been made in
anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee, after the
death of the donor proves to be his heir, devisee or donee mortis causa, for the purpose of
evading the tax, and it is to prevent this that it provides that they shall be added to the
resulting amount.
This being so, and it appearing that the appellees after the death of Esperanza Tuason y Chuajap, were
found to be legatees under her will, the donation inter vivos she had made to them in 1922 and 1923,
must be added to the net amount that is to be taxed.
In the course of the deliberations of this court on this case, the question arose as to whether or not that
interpretation of the law would be constitutional. But as the parties did not raise this question in the
court below, nor in this court, we cannot consider it. At any rate the argument adduced against its
constitutionality, which is the lack of uniformity, does not seem to be well-founded. It was said that
under such an interpretation, while a donee inter vivos who, after the predecessor's death prove to be
an heir, a legatee, or a donee mortis causa, would have to pay the tax, another donee inter vivos who
did not prove to be an heir, a legatee, or a donee mortis causa of the predecessor, would be exempt
from such a tax. But as these are two different cases, the principle of uniformity is inapplicable to them.
Aside from this, in regard to other aspects, we see nothing against the constitutionality of the law
(Bromley vs. McCaughn [1929], U. S. Supreme Court Advance Opinions, p. 69).

Section 1536 of the Administrative Code provides: The judgment appealed from is reversed, and the defendant is absolved from the complaint, without
special pronouncement of costs. So ordered.
SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of inheritance,
devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or
bequest shall be subject to the following tax;

xxx xxx xxx

Section 1539 enumerates the deductions to be made in determining the net sum which must bear the
tax.

Section 1540 then provides:

SEC. 1540. Additions of gifts and advances. — After the aforementioned deductions have
been made, there shall be added to the resulting amount the value of all gifts or advances
made by the predecessor to any of those who, after his death, shall prove to be his heirs,
devisees, legatees, or donees mortis causa.

When the law say all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both the letter
and the spirit of the law leave no room for any other interpretation. Such, clearly, is the tenor of the
language which refers to donation that took effect before the donor's death, and not to mortis
causa donations, which can only be made with the formalities of a will, and can only take effect after
the donor's death. Any other construction would virtually change this provision into:
G.R. No. L-36770 November 4, 1932
LUIS W. DISON, plaintiff-appellant,
vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
BUTTE, J.:
This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the defendant
Juan Posadas, Jr., Collector of Internal Revenue, in a suit filed by the plaintiffs, Luis W. Dison, for the
recovery of an inheritance tax in the sum of P2,808.73 paid under protest. The petitioner alleged in his
complaint that the tax is illegal because he received the property, which is the basis of the tax, from his
father before his death by a deed of gift inter vivos which was duly accepted and registered before the
death of his father. The defendant answered with a general denial and with a counterdemand for the
sum of P1,245.56 which it was alleged is a balance still due and unpaid on account of said tax. The
plaintiff replied to the counterdemand with a general denial. The court a quo held that the cause of
action set up in the counterdemand was not proven and dismissed the same. Both sides appealed to
this court, but the cross-complaint and appeal of the Collector of Internal Revenue were dismissed by
this court on March 17, 1932, on motion of the Attorney-General.1awphil.net
The only evidence introduced at the trial of this cause was the proof of payment of the tax under
protest, as stated, and the deed of gift executed by Felix Dison on April 9, 1928, in favor of his sons Luis
W. Dison, the plaintiff-appellant. This deed of gift transferred twenty-two tracts of land to the donee,
reserving to the donor for his life the usufruct of three tracts. This deed was acknowledged by the donor
before a notary public on April 16, 1928. Luis W. Dison, on April 17, 1928, formally accepted said gift by
an instrument in writing which he acknowledged before a notary public on April 20, 1928.
At the trial the parties agreed to and filed the following ingenious stipulation of fact:
1. That Don Felix Dison died on April 21, 1928;
2. That Don Felix Dison, before his death, made a gift inter vivos in favor of the plaintiff Luis W.
Dison of all his property according to a deed of gift (Exhibit D) which includes all the property
of Don Felix Dizon;
3. That the plaintiff did not receive property of any kind of Don Felix Dison upon the death of
the latter;
4. That Don Luis W. Dison was the legitimate and only child of Don Felix Dison.
It is inferred from Exhibit D that Felix Dison was a widower at the time of his death.
The theory of the plaintiff-appellant is that he received and holds the property mentioned by a
consummated gift and that Act No. 2601 (Chapter 40 of the Administrative Code) being the inheritance
tax statute, does not tax gifts. The provision directly here involved is section 1540 of the Administrative
Code which reads as follows:
Additions of Gifts and Advances. — After the aforementioned deductions have been made,
there shall be added to the resulting amount the value of all gifts or advances made by the
predecessor to any of those who, after his death, shall prove to be his heirs, devises, legatees,
or donees mortis causa.
The question to be resolved may be stated thus: Does section 1540 of the Administrative Code subject
the plaintiff-appellant to the payment of an inheritance tax?
The appellant argues that there is no evidence in this case to support a finding that the gift was
simulated and that it was an artifice for evading the payment of the inheritance tax, as is intimated in
the decision of the court below and the brief of the Attorney-General. We see no reason why the court
may not go behind the language in which the transaction is masked in order to ascertain its true
character and purpose. In this case the scanty facts before us may not warrant the inference that the
conveyance, acknowledged by the donor five days before his death and accepted by the donee one day
before the donor's death, was fraudulently made for the purpose of evading the inheritance tax. But the
facts, in our opinion, do warrant the inference that the transfer was an advancement upon the
inheritance which the donee, as the sole and forced heir of the donor, would be entitled to receive
upon the death of the donor.
The argument advanced by the appellant that he is not an heir of his deceased father within the
meaning of section 1540 of the Administrative Code because his father in his lifetime had given the
appellant all his property and left no property to be inherited, is so fallacious that the urging of it here
casts a suspicion upon the appellants reason for completing the legal formalities of the transfer on the
eve of the latter's death. We do not know whether or not the father in this case left a will; in any event,
this appellant could not be deprived of his share of the inheritance because the Civil Code confers upon
him the status of a forced heir. We construe the expression in section 1540 "any of those who, after his
death, shall prove to be his heirs", to include those who, by our law, are given the status and rights of
heirs, regardless of the quantity of property they may receive as such heirs. That the appellant in this
case occupies the status of heir to his deceased father cannot be questioned. Construing the
conveyance here in question, under the facts presented, as an advance made by Felix Dison to his only
child, we hold section 1540 to be applicable and the tax to have been properly assessed by the Collector
of Internal Revenue.
This appeal was originally assigned to a Division of five but referred to the court in banc by reason of the
appellant's attack upon the constitutionality of section 1540. This attack is based on the sole ground
that insofar as section 1540 levies a tax upon gifts inter vivos, it violates that provision of section 3 of
the organic Act of the Philippine Islands (39 Stat. L., 545) which reads as follows: "That no bill which may
be enacted into law shall embraced more than one subject, and that subject shall be expressed in the
title of the bill." Neither the title of Act No. 2601 nor chapter 40 of the Administrative Code makes any
reference to a tax on gifts. Perhaps it is enough to say of this contention that section 1540 plainly does
not tax gifts per se but only when those gifts are made to those who shall prove to be the heirs,
devisees, legatees or donees mortis causa of the donor. This court said in the case of Tuason and
Tuason vs. Posadas 954 Phil., 289):lawphil.net
When the law says all gifts, it doubtless refers to gifts inter vivos, and not mortis causa. Both
the letter and the spirit of the law leave no room for any other interpretation. Such, clearly, is
the tenor of the language which refers to donations that took effect before the donor's death,
and not to mortis causa donations, which can only be made with the formalities of a will, and
 can only take effect after the donor's death. Any other construction would virtually change
this provision into:

". . . there shall be added to the resulting amount the value of all gifts mortis causa . . . made by the
predecessor to those who, after his death, shall prove to be his . . . donees mortis causa." We cannot
give to the law an interpretation that would so vitiate its language. The truth of the matter is that in this
section (1540) the law presumes that such gifts have been made in anticipation of inheritance, devise,
bequest, or gift mortis causa, when the donee, after the death of the donor proves to be his heir,
devisee or donee mortis causa, for the purpose of evading the tax, and it is to prevent this that it
provides that they shall be added to the resulting amount." However much appellant's argument on this
point may fit his preconceived notion that the transaction between him and his father was a
consummated gift with no relation to the inheritance, we hold that there is not merit in this attack upon
the constitutionality of section 1540 under our view of the facts. No other constitutional questions were
raised in this case.

The judgment below is affirmed with costs in this instance against the appellant. So ordered.
G.R. No. L-29204 December 29, 1928 Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or advance in
RUFINA ZAPANTA, ET AL., plaintiffs-appellees, anticipation of inheritance, devise, or bequest of real property located in the Philippine
vs. Islands and real rights in such property; . . .
JUAN POSADAS, JR., ET AL., defendants-appellants.
--------------------------------- The trial court in deciding these six cases, held that the donations to the six plaintiffs made by the
G.R. No. L-29205 December 29, 1928 deceased Father Braulio Pineda are donations inter vivos, and therefore, not subject to the inheritance
ROSARIO PINEDA, plaintiff-appellee, tax, and ordered the defendants to return to each of the plaintiffs the sums paid by the latter.
vs.
JUAN POSADAS, JR., ET AL., defendants-appellants.
The defendants appealed from this judgment.
---------------------------------
G.R. No. L-29206 December 29, 1928
OLIMPIO GUANZON, ET AL., plaintiffs-appellees, The whole quetion involved in this appeal resolves into whether the donations made by Father Braulio
vs. Pineda to each of the plaintiffs are donations inter vivos, or mortis causa, for it is the latter upon which
JUAN POSADAS, JR., ET AL., defendants-appellants. the Administrative Code imposes inheritance tax. In our opinion, said donations are inter vivos. It is so
--------------------------------- expressly stated in the instruments in which they appear. They were made in consideration of the
G.R. No. L-29207 December 29, 1928 donor's affection for the donees, and of the services they had rendered him, but he has charged them
LEONCIA PINEDA, ET AL., plaintiffs-appellees, with the obligation to pay him a certain amount of rice and money, respectively, each year during his
vs. lifetime, the donations to become effective upon acceptance. They are therefore not in the nature of
JUAN POSADAS, JR., ET AL., defendants-appellants. donations mortis causa but inter vivos.
---------------------------------
G.R. No. L-29208 December 29, 1928 The principal characteristics of a donation mortis causa, which distinguish it essentially from a
EMIGDIO DAVID, ET AL., plaintiffs-appellees, donation inter vivos, are that in the former it is the donor's death that determines the acquisition of, or
vs. the right to, the property, and that it is revocable at the will of the donor. In the donations in question,
JUAN POSADAS, JR., ET AL., defendants-appellants. their effect, that is, the acquisition of, or the right to, the property, was produced while the donor was
--------------------------------- still alive, for according to their expressed terms they were to have this effect upon acceptance, and this
G.R. No. L-29209 December 29, 1928 took place during the donor's lifetime. The nature of these donations is not affected by the fact that
GERONIMA PINEDA, plaintiff-appellees, they were subject to a condition, since it was imposed as a resolutory condition, and in this sense, it is
vs. necessarily implies that the right came into existence first as well as its effect, because otherwise there
JUAN POSADAS, JR., ET AL., defendants-appellants. would be nothing to resolve upon the nonfulfillment of the condition imposed. Neither does the fact
that these donations are revocable, give them the character of donations mortis causa, inasmuch as the
revocation is not the failure to fulfill the condition imposed. In relation to the donor's will alone, these
AVANCEÑA, C. J.: donations are irrevocable. On the other hand, this condition, in so far as it renders the donation
onerous, takes it further away from the disposition mortis causa and brings it nearer to contract. In this
sense, by virtue of this condition imposed, they are not donations throughout their full extent, but only
Father Braulio Pineda died in January 1925 without any ascendants or descendants leaving a will in
so far as they exceed the incumbrance imposed, for so far as concerns the portion equivalent to or less
which he instituted his sister Irene Pineda as his sole heiress. During his lifetime Father Braulio donated
than said incumbrance, it has the nature of a real contract and is governed by the rule on contracts (art.
some of his property by the instruments to the six plaintifffs, severally, with the condition that some of
622 of the Civil Code). And in the part in which it is strictly a donation, it is a donation inter vivos,
them would pay him a certain amount of rice, and others of money every year, and with the express
because its effect was produced by the donees' acceptance during the donor's lifetime and was not
provision that failure to fulfill this condition would revoke the donations ipso facto. These six plaintiff-
determined by the donor's death. Upon being accepted they had full effect. If the donor's life is
donees are relatives, and some of them brothers of Father Braulio Pineda. The donations contained
mentioned in connection with this condition, it is only fix the donor's death as the end of the term
another clause that they would take effect upon acceptance. They were accepted during Father
within which the condition must be fulfilled, and not because such death of the donor is the cause
Braulio's lifetime by every one of the donees.
which determines the birth of the right to the donation. The property donated passed to the ownership
of the donees from the acceptance of the donations, and these could not be revoked except upon the
Every one of the six plaintiffs filed a separate action against the Collector of Internal Revenue and his nonfulfillment of the condition imposed, or for other causes prescribed by the law, but not by mere will
deputy for the sums of which each of them paid, under protest, as inheritance tax on the property of the donor.
donated to them, in accordance with section 1536 of the Administrative Code, as amended by section
10 of Act No. 2835, and by section 1 of Act No. 3031. Section 1536 of the Administrative Code reads:
Neither can these donations be considered as an advance on inheritance or legacy, according to the
terms of section 1536 of the Administrative Code, because they are neither an inheritance nor a legacy.
And it cannot be said that the plaintiffs received such advance on inheritance or legacy, since they were
not heirs or legatees of their predessor in interest upon his death (sec. 1540 of the Administrative
Code). Neither can it be said that they obtained this inheritance or legacy by virtue of a document which
does not contain the requisites of a will (sec. 618 of the Code of Civil Pocedure).1awphi1.net

Besides, if the donations made by the plaintiffs are, as the appellants contended, mortis causa, then
they must be governed by the law on testate succession (art. 620 of the Civil Code). In such a case, the
documents in which these donations appear, being instruments which do not contain the requisites of a
will, are not valid to transmit the property to the donees (sec. 618, Code of Civil Procedure.) Then the
defendants are not justified in collecting from the donees the inheritance tax, on property which has
not been legally transferred to them, and in which they acquired no right.

For these reasons the judgment appealed from is affirmed, without special pronouncement as to costs.
So ordered.
 Lober v. United States
Argued October 16, 1953
Decided November 9, 1953
346 U.S. 335
Syllabus
Decedent had transferred property to himself as trustee for his minor children, reserving discretionary
power to invest and reinvest the principal and income, which were to be paid to the children when they
attained certain ages. The trusts were declared irrevocable, but decedent reserved the right to pay over
to the children at any time any or all of the trust assets.
Held: the value of the trust assets was includable in decedent's estate for estate tax purposes, under §
811(d)(2) of the Internal Revenue Code. Pp. 346 U. S. 335-337.
124 Ct.Cl. 44, 108 F.Supp. 731, affirmed.
MR. JUSTICE BLACK delivered the opinion of the Court.
This is an action for an estate tax refund brought by the executors of the estate of Morris Lober. In
1924, he signed an instrument conveying to himself as trustee money and stocks for the benefit of his
young son. In 1929, he executed two other instruments, one for the benefit a daughter, the other for a
second son. The terms of these three instruments were the same. Lober was to handle the funds, invest
and reinvest them as he deemed proper. He could accumulate and reinvest the income with the same
freedom until his children reached twenty-one years of age. When twenty-one, they were to be paid
the accumulated income. Lober could hold the principal of each trust until the beneficiary reached
twenty-five. In case he died, his wife was to be trustee with the same broad powers Lober had
conveyed to himself. The trusts were declared to be irrevocable, and, as the case reaches us, we may
assume that the trust instruments gave Lober's children a "vested interest" under state law, so that, if
they had died after creation of the trusts, their interests would have passed to their estates. A crucial
term of the trust instruments was that Lober could, at any time he saw fit, turn all or any part of the
principal of the trusts over to his children. Thus, he could at will reduce the principal or pay it all to the
beneficiaries, thereby terminating any trusteeship over it.
in Hays' Estate v. Commissioner, 181 F.2d 169, 172-174. Because of this conflict, we granted certiorari.
345 U.S. 969.
Petitioners stress a factual difference between this and the Holmes case. The Holmes trust instrument
provided that, if a beneficiary died before expiration of the trust his children succeeded to his interest,
but if he died without children, his interest would pass to his brothers or their children. Thus, the
trustee had power to eliminate a contingency that might have prevented passage of a beneficiary's
interest to his heirs. Here, we assume that, upon death of the Lober beneficiaries, their part in the trust
estate would, under New York law, pass to their heirs. But we cannot agree that this difference should
change the Holmes result.
We pointed out in the Holmes case that § 811(d)(2) was more concerned with "present economic
benefit" than with "technical vesting of title or estates." And the Lober beneficiaries, like the Holmes
beneficiaries, were granted no "present right to immediate enjoyment of either income or principal."
The trust instrument here gave none of Lober's children full "enjoyment" of the trust property, whether
it "vested" in them or not. To get this full enjoyment, they had to wait until they reached the age of
twenty-five unless their father sooner gave them the money and stocks by terminating the trust under
the power of change he kept to the very date of his death. This father could have given property to his
children without reserving in himself any power to change the terms as to the date his gift would be
wholly effective, but he did not. What we said in the Holmes case fits this situation too:
"A donor who keeps so strong a hold over the actual and immediate enjoyment of what he puts beyond
his own power to retake has not divested himself of that degree of control which § 811(d)(2) requires in
order to avoid the tax."
Affirmed.

Lober died in 1942. By that time, the trust property was valued at more than $125,000. The Internal
Revenue Commissioner treated this as Lober's property, and included it in his gross estate. That
inclusion brought this lawsuit. The Commissioner relied on § 811(d)(2) of the Internal Revenue Code, 26
U.S.C. §811 (1946 ed.). That section, so far as material here, required inclusion in a decedent's gross
estate of the value of all property that the decedent had previously transferred by trust "where the
enjoyment thereof was subject at the date of his death to any change through the exercise of a power .
. . to alter, amend, or revoke. . . ."

In Commissioner v. Holmes' Estate, 326 U. S. 480, we held that power to terminate was the equivalent
of power to "alter, amend, or revoke" it, and we approved taxation of the Holmes estate on that basis.
Relying on the Holmes case, the Court of Claims upheld inclusion of these trust properties in Lober's
estate. 124 Ct.Cl. 44 108 F.Supp. 731. This was done despite the assumption that the trust conveyances
gave the Lober children an indefeasible "vested interest" in the properties conveyed. The Fifth Circuit
Court of Appeals had reached a contrary result where the circumstances were substantially the same,
 JENNINGS et al. v. SMITH. April 14, 1947. The appellants contend that this section embraces only powers exercisable by the settlor in his
individual capacity and does not include powers exercisable by him in a fiduciary capacity, either alone
or as one of several trustees. Under § 811(d) (1), which relates to transfers made after June 22, 1936,
This is an action by the executors of the will of Olive`r Gould Jennings, a resident of Connecticut whose
the existence of a power to alter, amend or revoke "(in whatever capacity exercisable)" is sufficient.
death occurred on October 13, 1936, to recover such part of the estate tax paid by them to the
Whether the quoted parenthetical phrase was intended to effect a change or was declaratory of
defendant collector as had been illegally collected. Their right to a refund of the amount claimed is clear
existing law was left open in Commissioner v. Estate of Holmes, 326 U.S. 480, at page 490, 66 S. Ct. 257.
under Maass v. Higgins, 312 U.S. 443, 61 S. Ct. 631, 85 L. Ed. 940, 132 A.L.R. 1035, and was not disputed;
But in Commissioner v. Newbold's Estate, 2 Cir., 158 F.2d 694, this court recently held, following the
but the defendant set up in defense an additional estate tax liability (greater than the alleged
first and third circuits, that the phrase was merely declaratory and its absence from § 811(d) (2) is
overpayment) based on the failure to include in the decedent's gross estate the value of certain
consequently not significant. Despite the appellants' able argument to the contrary, we adhere to that
property which he had transferred in trust in 1934 and 1935. Although assessment of an additional
view.
estate tax was barred by the statute of limitations, the plaintiffs do not contend that they are entitled to
a refund unless the tax legally due was overpaid. See Lewis v. Reynolds, 284 U.S. 281, 52 S. Ct. 145, 76 L.
Ed. 293. Hence the question presented at the trial, and renewed here, is whether the value of the trust The next question is whether the powers conferred upon the trustees in the case at bar are powers of
property should have been included in the gross estate. The district court held it includible under § the character described in section 811(d) (2), which requires that enjoyment of the trust property must
811(d) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 811(d). Accordingly judgment was be subject at the date of the decedent's death to change through the exercise of a power. The trustees'
given for the defendant, and the plaintiffs have appealed. power to invade the capital of the trust property was exercisable only if the son or his issue "should
suffer prolonged illness or be overtaken by financial misfortune which the trustees deem
extraordinary." Neither of these contingencies had occurred before the decedent's death; hence
In December 1934 the decedent set up two trusts: one for the family of his elder son, B. Brewster
enjoyment of the capital was not "subject at the date of his death to any change through the exercise of
Jennings, the other for the family of his younger son, Lawrence K. Jennings. The trust instruments were
a power." In Commissioner v. Flanders, 2 Cir., 111 F.2d 117, although decision was rested on another
identical, except for the names of the beneficiaries and the property transferred.[1] In discussing the
ground, this court expressed the opinion that a power conditioned upon an event which had not
terms of the trusts it will suffice to refer to the one set up for the elder son's family. The trust was
occurred before the settlor's death was not within the section. In support of this view we cited Tait v.
irrevocable and in so far as legally permissible its provisions were to be interpreted and enforced
Safe Deposit & Trust Co., 4 Cir., 74 F.2d 851, 858; Day v. Commissioner, 3 Cir., 92 F.2d 179; Patterson v.
according to Connecticut law. It reserved no beneficial interest to the settlor. He and his two sons were
Commissioner, 36 B.T.A. 407. The question has recently been explored by the Tax Court in Estate of
named as the trustees; in case a vacancy should occur provision was made for the appointment of a
Budlong v. Commissioner, 7 T.C. 758. There it was held in a convincing opinion that the power of
successor trustee having like powers; there were always to be three trustees and they were authorized
trustees to invade corpus in case of "sickness or other emergency," which had not occurred before the
to act by majority vote. At the end of each year during the life of the son, the trustees were to
decedent's death, was not a power to "alter, amend or revoke" within the meaning of the statute. The
accumulate the net income by adding it to the capital of the trust but they were given power, "in their
court reasoned that the trustees had not unlimited discretion to act or withhold action under the
absolute discretion" at any time during the year and prior to the amalgamation of that year's net
power, since the trust instrument provided an external standard which a court of equity would apply to
income into capital, to use all or any part of it for the benefit of the son or his issue provided "the
compel compliance by the trustees on the happening of the specified contingency or to restrain
trustees shall determine that such disbursement is reasonably necessary to enable the beneficiary in
threatened action if the condition were not fulfilled. In the case at bar the district judge was of opinion
question to maintain *76 himself and his family, if any, in comfort and in accordance with the station in
that even if the trustees found that the stated conditions had been fulfilled, "their finding created no
life to which he belongs."[2] Upon the death of the son the capital of the trust was to be divided into
enforcible rights in any of the beneficiaries." 63 F. Supp. 834, at page 837. In this view we are unable to
separate equal trust funds, one for each of his surviving children and one for each deceased child who
concur.[4] The condition upon which the power to invade capital might arise is sufficiently definite to be
left issue surviving at the death of the son. The trustees also had power to invade the capital upon the
capable of determination by a court of equity. As Judge L. Hand said in Stix v. Commissioner, 2 Cir., 152
terms set out in paragraph 3(f) of the trust deed.[3] In the Lawrence K. Jennings trust all current net
F.2d 562, 563, "no language, however strong, will entirely remove any power held in trust from the
income for the years 1935 and 1936 was paid to him, the trustees, of whom the decedent was one,
reach of a court of equity." See also Cushman v. Commissioner, 2 Cir., 153 F.2d 510, 514; Commissioner
having unanimously determined that such payments were necessary to enable Lawrence to maintain
v. Irving Trust Co., 2 Cir., 147 F.2d 946, 949; Greenwich Trust Co. v. Converse, 100 Conn. 15, 26, 122 A.
himself and his family in comfort and in accordance with his station in life. No payment or application of
916; Hooker v. Goodwin, 91 Conn. 463, 99 A. 1059, Ann.Cas. 1918D, 1159; Little v. Geer, 69 Conn. 411,
income of the B. Brewster Jennings trust, and none of capital of either trust, was made or requested
37 A. 1056. Since the trustees were not free to exercise untrammeled discretion but were to be
during the life of the decedent.
governed by determinable standards, their *78power to invade capital, conditioned on contingencies
which had not happened, did not in our opinion bring the trust property within the reach of section
Gift tax returns covering the transfers in trust were duly filed and taxes paid thereon. The trusts were 811(d) (2).
not created in contemplation of death, nor to reduce estate taxes on the settlor's estate.
Similar reasoning leads to the same conclusion with respect to the trustees' power over net income. At
*77 Section 811(d) (2) of the Code, which is applicable to transfers made before June 22, 1936, provides the end of each calander year they were to accumulate the net income of that year unless prior to its
for inclusion in the gross estate of all property "To the extent of any interest therein of which the amalgamation into capital they exercised their power to disburse it to, or for the benefit of, the son or
decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was his issue. The power the trustees had with respect to disbursing income was exercisable year by year;
subject at the date of his death to any change through the exercise of a power, either by the decedent and at the date of the decedent's death the only income of which the enjoyment was subject to change
alone or in conjunction with any person, to alter, amend, or revoke, * * *". through exercise of a power was the income of the B. Brewster Jennings trust for the year 1936. But the
exercise of this power was conditioned on the trustees' determination that disbursement of the income NOTES
was necessary to enable the beneficiary to whom it might be allotted to maintain himself and his family
"in comfort and in accordance with the station in life to which he belongs." The contingency which
[1] The trust property of each trust was augmented by a further transfer in December 1935.
would justify exercise of the power had not happened before the decedent's death; consequently the
1936 net income of the B. Brewster Jennings trust was not subject at the date of the decedent's death
"to any change through the exercise of a power." Hence it was not includible in the gross estate of the [2] The relevant section of the trust deed reads as follows: "2. The trustees shall receive and collect any
decedent under § 811(d). This conclusion is not inconsistent with Commissioner v. Newbold's Estate, 2 increments to the capital and also the income arising from said trust fund, and after paying or providing
Cir., 158 F.2d 694, for there the trustees had unlimited discretion, the trust instrument expressly for current and anticipated taxes, charges and expenses of execution of this trust, including reasonable
providing that no beneficiary should have any vested right to receive any payment from income. compensation for financial advice and legal and clerical services, shall dispose of the net income during
the life of said B. Brewster Jennings as follows: At the end of each calendar year during the life of said B.
Brewster Jennings, commencing with the year 1935, they shall accumulate said net income by adding
There remains for consideration the question whether the value of the trust property is includible in the
and incorporating the same into the capital of said trust fund and thereafter administering the same as
decedent's estate under § 811(c) upon which the appellee also relies. This section, derived from §
an integral part of said capital, Provided, However, that the trustees shall have power, in their absolute
302(c) of the Revenue Act of 1926 as amended by the Joint Resolution of March 3, 1931 and § 803 of
discretion, at any time or times during any year in his lifetime prior to the amalgamation of that year's
the Revenue Act of 1932, provides for inclusion within the gross estate of all property "To the extent of
net income into capital, to utilize any or all of said current net income by either (a) paying over the same
any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in
to said B. Brewster Jennings and/or to any one or more of his issue and/or to the guardian of any minor
contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which
issue, in such amounts as said trustees may deem advisable, or (b) applying the same for the benefit,
he has at any time made a transfer by trust or otherwise, under which he has retained for his life or for
support and maintenance of B. Brewster Jennings and/or the benefit, support, maintenance or
any period not ascertainable without reference to his death or for any period which does not in fact end
education of any one or more of his issue, in either case, (a) or (b), at such times and in such manner
before his death (1) the possession or enjoyment of, or the right to the income from, the property, or
and in such proportions among such of said beneficiaries, if any, as the trustees may deem advisable, or
(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess
(c) by both such payments and such applications of income, and Provided, Further, that the trustees, in
or enjoy the property or the income therefrom; * * *".
the case of each payment or application of income, shall determine that such disbursement is
reasonably necessary to enable the beneficiary in question to maintain himself and his family, if any, in
Section 302(c) of the Revenue Act of 1926 was supposed to reach transfers made in contemplation of comfort and in accordance with the station in in life to which he belongs. In making such determination
death or intended to take effect in possession or enjoyment at or after the settlor's death. The the trustees shall take into consideration the amount of income which the beneficiary may enjoy from
amendments, as the legislative history discloses, were intended to avoid the effect of the decision in sources other than this fund, but the decision of the trustees shall be final and conclusive. At the end of
May v. Heiner, 281 U.S. 238, 50 S. Ct. 286, 74 L. Ed. 826, 67 A.L.R. 1244, where the settlor reserved a life each calendar year, the trustees shall add to the capital, as above provided, all of said net income which
estate, and to reach transfers closely akin to testamentary dispositions. See Report No. 708, 32d Cong., has been withheld by them and which accordingly has not during that year been paid over to, or applied
1st Sess. at page 46; Beach v. Busey, 6 Cir., 156 F.2d 496, 497. The possession or enjoyment referred to for, any of said beneficiaries. The trustees may also resort to the capital for use and application as
in clause (1) is plainly that of the settlor. The "right," referred to in clause (2), to designate the persons hereinafter provided in Paragraph 3(f)."
who shall possess or enjoy the property or the income therefrom, is not so limited and apparently
overlaps the powers mentioned in § 302(d), as amended, § 811(d) of the Code. See Art. 19, Treas. Reg.
[3] "(f) In the course of administration of said general trust fund and of said separate trust funds, that is
80. At first glance it might seem that clause (2) covers the present case, because the decedent, for a
to say, either before or after the death of said B. Brewster Jennings, if said B. Brewster Jennings or any
period that did not in fact end before his death, "retained the right," in conjunction with another of the
one or more of his issue should suffer prolonged illness or be overtaken by financial misfortune which
trustees, to designate the persons who should enjoy the trust property or the income therefrom. But
the trustees deem extraordinary, they may resort, as the case may be, to the capital of said general
for the reasons that moved us when considering the applicability of § 811(d) we think the decedent
fund or to the separate fund held for the benefit of the branch of the family to which such person or
effectively put that "right" beyond his own control or retention by imposing conditions upon the
persons belongs, and may apply any part of the same for his benefit and that of his wife and/or
exercise of it. A "right" so qualified that it becomes a duty enforcible in a court of equity on petition by
children, and they may also pay over part of said capital to him, to the extent in either event they deem
the beneficiaries does not circumvent the obvious purpose *79 of § 811(c) to prevent transfers akin to
reasonably necessary in their discretion to meet such conditions. In so doing they shall, as above
testamentary dispositions from escaping taxation. In this respect the case at bar differs from the trust
provided, consider other income of said beneficiary.
involved in Budlong's Estate, 7 T.C. 758, where the court held that § 811(c) was applicable to the
unlimited power of the decedent, as sole trustee, to distribute the trust income or to accumulate and
add it to the principal. In the Jennings trusts the rights of the beneficiaries were no more affected by the "Their powers in this respect shall include the provision of a place of residence for any such person
settlor's death in October 1936 than they would have been had he resigned as a trustee in January either by way of rental of suitable premises or by acquisition of land and the construction of suitable
1936. In either event the contingent power of the trustees to invade corpus or to disburse the net buildings or the alteration and reconstruction of buildings already thereon."
income of 1936 or any subsequent year would remain the same as before his death or resignation. Only
when the interest of some beneficiary is enlarged or matured by the decedent's death, is § 811(c) [4] Judge Arundell also expressed disagreement with it in the Budlong opinion.
applicable, in our opinion. In the case at bar the decedent's death had no such effect.

The judgment is reversed and the cause remanded with directions to enter judgment for the plaintiffs.
 A. Frederic LEOPOLD and Walter A. Keane, as Executors of the Estate of Hans G. M. de Schulthess,
Deceased, Appellees.
v. UNITED STATES of America, Appellant.
January 2, 1975.
OPINION
ALFRED T. GOODWIN, Circuit Judge :
The district court awarded the executors of the estate of Hans G. M. de Schulthess a refund of federal
estate taxes, and the government appeals.[1]
The government asserts: (1) that the entire value of the corpus and the undistributed accumulated
income of two identical inter vivos trusts created by the decedent for the benefit of two of his
daughters is includible in his gross estate; and (2) that a payment made by the executors to the
guardian of a third daughter was a nondeductible testamentary gift and not a deductible claim against
the estate.
The decedent died in an automobile accident in 1962 at the age of 44. He was not married at the time
of his death. Two former wives, Amelie de Schulthess and Constance Trevor de Schulthess, and three
daughters, Catherine, Celeste and Beatrice Tina survived. Catherine and Celeste were the children of his
first wife, Amelie, and Beatrice Tina was the child of his second wife, Constance. All three daughters
were minors at the time of his death.
I. Trusts for the Benefit of Catherine and Celeste
The first issue is the includibility in the decedent's gross estate of the entire corpus and accumulated
income of two inter vivos trusts, one for the primary benefit of his daughter Catherine, and the other
for the primary benefit of his daughter Celeste.
The relevant portions of the trust for Catherine are quoted below. The trust for Celeste was identical
except for the difference in names. Decedent designated himself and a friend as trustees of both trusts.
"FIRST : The Trustees shall receive, hold, manage, sell, exchange, invest and reinvest such property and
every part thereof in the manner hereinafter specified, and shall collect, recover and receive the rents,
issues, interest and income thereof, hereinafter called `income' and, after deducting such expenses in
connection with the administration of the trust as, in the opinion of the Trustees, are properly payable
from income, shall pay the balance of the said income to CATHERINE J. H. DE SCHULTHESS, the daughter
of the Donor, during the term of her natural life, at such intervals as the Trustees, in their sole
discretion, may determine. During the minority of the said CATHERINE J. H. DE SCHULTHESS the said
income may be accumulated or paid to AMELIE DE SCHULTHESS, the mother of the said CATHERINE J. H.
DE SCHULTHESS, or to the guardian of CATHERINE J. H. DE SCHULTHESS, for the support,
education, 619*619 maintenance and general welfare of the said infant, but such decision to
accumulate or pay the income during such minority is to be made solely in the uncontrolled discretion
of the Trustees. Any income accumulated when the said CATHERINE J. H. DE SCHULTHESS shall attain
the age of twenty-one (21) years shall be paid over to her at that time.
"SECOND: Upon the death of the said CATHERINE J. H. DE SCHULTHESS, this trust shall terminate, and
the principal thereof shall then be paid and distributed to the issue of the said CATHERINE J. H. DE
SCHULTHESS, in equal shares per stirpes and not per capita. If the said CATHERINE J. H. DE SCHULTHESS
shall die leaving no issue then the trust principal shall be paid and distributed to her sister * * *.
"THIRD: The Donor hereby authorizes and empowers the Trustees at any time during the continuance of
the trust to pay to the said CATHERINE J. H. DE SCHULTHESS, or to apply for her benefit out of the
principal of the trust, such amounts, if any, as the Trustees may deem necessary or proper, and their
judgment with respect to the time and amount of any such payments of principal shall be final and
conclusive beyond any dispute or appeal. Any payment or payments of principal under this Article may
only be made in the event both Trustees hereunder concur in such payment or payments, and such
payment or payments may in no manner be applied, directly or indirectly, to the benefit of the Donor.
"FOURTEENTH: In case of the death, resignation, removal, disability or inability (for any reason
whatsoever) further to act of any Trustee hereunder, the surviving or remaining Trustee shall have the
right to appoint a successor Trustee from time to time, such successor Trustee, upon executing a duly
acknowledged written acceptance of the trusteeship, to be and become vested with all the estate, title,
authorities, rights, powers, duties, privileges, immunities and discretions granted to his predecessors,
with like effect as if originally named as Trustee hereunder.
"EIGHTEENTH: All questions pertaining to the validity, construction and administration of the trust shall
be determined in accordance with the laws of the State of New Jersey.
Each trust was created in December 1956 with a corpus of approximately $641,000. Prior to the
decedent's death each trust earned approximately $63,000 in net income, $37,000 of which was paid to
each beneficiary in five annual installments and $26,000 of which was allowed to accumulate in the
trust.
On decedent's federal estate tax return, the trusts were identified, but no portion of either was
included in the gross estate. The Commissioner determined that the entire corpus and undistributed
accumulated income of each trust were includible under sections 2036 and 2038 of the Internal
Revenue Code, 26 U.S.C. §§ 2036, 2038, and asserted a deficiency in estate taxes. The district court,
rejecting part of the Commissioner's determination, held that none of the accumulated income and only
the actuarial value of the remainder interests (21.-187 per cent of the corpus of Catherine's trust and
20.021 per cent of the corpus of Celeste's) was includible in the gross estate.
The appeal asserts the Commissioner's original position. The taxpayers have not cross-appealed from
the district court's holding that the actuarial value of the remainder interests is includible, and that
issue is not before us.
Section 2038(a)(1) of the Code provides that there shall be included in a decedent's gross estate all
property gratuitously transferred by the decedent "where the enjoyment thereof was subject at the
date of his death to any 620*620change through the exercise of a power * * * by the decedent alone or
by the decedent in conjunction with any other person * * * to alter, amend, revoke, or terminate * * *."
Similarly, section 2036(a)(2), which often overlaps section 2038 in its coverage, requires the inclusion of
all gratuitously transferred property over which the decedent has retained "the right, either alone or in
conjunction with any person, to designate the persons who shall possess or enjoy * * * the income
therefrom."
The government contends that the powers of decedent and his co-trustee to distribute principal to
decedent's daughters whenever they deemed such payments to be "necessary and proper" and to
accumulate trust income or to pay it out in their "uncontrolled discretion" for the girls' "support,
education, maintenance and general welfare" constituted a power "to alter, amend, revoke, or
terminate" within the meaning of section 2038. The government also contends that these powers gave
the decedent the ability to shift income from his daughters to their heirs and, thus, to designate the
persons who would receive the enjoyment of the property within the meaning of section 2036(a)(2).
The district court concluded, and the taxpayers do not dispute, that since the decedent had the power
to pay out principal as he deemed "necessary and proper," he retained sufficient control over the
remainder interest of each trust to justify its inclusion in his gross estate. However, the court also held
that the decedent had retained no power to affect the beneficial enjoyment of the income of either
trust, except to the extent that such power was limited by an ascertainable, external, objective
standard. Although the question is a close one, we agree with the district court that the standard was
ascertainable. The Court of Appeals for the First Circuit has said :
"The trust provision which is uniformly held to provide an ascertainable standard is one which, though
variously expressed, authorizes such distributions as may be needed to continue the beneficiary's
accustomed way of life * * *" Old Colony Trust Co. v. United States, 423 F.2d 601, 604 (1st Cir. 1970).
The provision at issue here, authorizing payments of income for the "support, education, maintenance
and general welfare" of decedent's daughters, requires the trustees to maintain the daughters in their
accustomed way of life and, hence, provides a sufficiently objective standard. See Estate of Ford v.
Commissioner, 450 F.2d 878 (2d Cir. 1971), aff'g 53 T.C. 114 (1969) ; United States v. Powell, 307 F.2d
821, 826-828 (10th Cir. 1962) ; Jennings v. Smith, 161 F.2d 74 (2d Cir. 1947) ; C. Lowndes, R. Kramer & J.
McCord, Federal Estate and Gift Taxes, § 8.9 at 157-58. See generally Note, The Doctrine of External
Standards Under Sections 2036(a)(2) and 2038, 52 Minn.L.Rev. 1071 (1968).
From this conclusion it follows that the present value of a portion of the income interests was properly
excluded from the decedent's gross estate. At the time of decedent's death, the daughters had an
enforceable right to enjoy that portion of the trust income necessary to maintain them in their
accustomed way of life. The government has elsewhere conceded the propriety of excluding from the
gross estate the present value of a fixed, indefeasible income right even though the decedent retained
the power to pay corpus prematurely to the income beneficiary. See Walter v. United States, 295 F.2d
720 (6th Cir. 1961). See also Revenue Ruling 70-513, 1970-72 Cum.Bull. 194, which holds that under
section 2038 only the value of the remainder interest, and not the entire corpus, of a trust is includible
in the decedent's gross estate where the enjoyment of a life estate is vested in the beneficiary and is
not subject to reduction through exercise of the decedent's reserved power to terminate the trust and
to pay over the corpus to the life beneficiary.
But the daughters here had an enforceable right to enjoy currently only a portion of the full income
stream prior to reaching twenty-one years of age—i. e.,that amount necessary to maintain them in their
accustomed way of life. With respect to the remaining income, the decedent had two options: he could
either allow that income to accumulate until the girls reached 21, or he could provide for present
enjoyment of the income by paying over the corpus with its full income-generating capacity. Thus, the
decedent possessed a degree of control over the enjoyment of that segment of the future income he
was not required to distribute currently which precludes exclusion of its actuarial value from his gross
estate. See United States v. O'Malley, 383 U.S. 627, 631, 86 S.Ct. 1123, 16 L.Ed.2d 145 (1966) ; Lobor v.
United States, 346 U.S. 335, 337, 74 S.Ct. 98, 98 L.Ed. 15 (1953).
The government argues that under Estate of Varian v. Commissioner, 396 F.2d 753 (9th Cir.
1968), aff'g 47 T.C. 34 (1966), the entire corpus of the trusts must be included in the gross
estate. Varian does not compel such a result. In Varian, the trust instrument provided:
"3. Distribution of Income and Principal.
"(a) The Trustees shall pay to or apply for the benefit of the child such sums as may in the Trustees'
discretion be necessary for the child's support, maintenance and education.
"(b) In the discretion of Trustees, the principal and income or any portion thereof, may be payable to
the child at any time before attaining the age of 21 years.
The Tax Court held that the second clause conferred a completely unrestricted power over the
distribution of income and principal which destroyed whatever objective standard may have been
contained in the first clause. 47 T.C. at 43-44. We are presented with trust provisions which are
substantially similar to those in Varian in all significant respects but one: Here, the unrestricted power
extends only to the payment of principal. We recognize, of course, that in terms of economic effect the
addition of an unrestricted power over a future income stream adds very little to the discretion
possessed by a trustee with an unrestricted power over the principal.
But in determining whether an unrestricted power in one provision of a trust destroys an ascertainable
income standard in another trust provision, we refuse to extend the logic of Varian to the situation
where the unfettered power applies only to payment of principal. To do so would create conflict with
the concededly[2]proper principle that the present value of a fixed income right is excludible where the
decedent retains a discretionary power to pay the corpus prematurely to the income beneficiary.
The amount of previously accumulated income was properly excluded. Once the decision had been
made to accumulate part of the income, this accumulation was placed beyond the reach of the trustees.
The accumulated income would be paid to the children when they reached 21. Although the trustees
could pay out the principal early, they could not prematurely distribute the accumulated income. Unlike
the accumulated income held taxable in United States v. O'Malley, the accumulated income here did
not become part of the trust principal and was not subject to the powers decedent reserved over the
principal.
We hold, then, that under sections 2036(a)(2) and 2038(a)(1) the decedent's reserved power to
distribute the principal of the trusts at any time requires the inclusion of the corpus of each trust,
reduced by the actuarial value of that segment of the future income stream which the decedent would
be obligated 622*622to distribute currently to his daughters.[3] We further hold that the exclusion of
previously accumulated income was proper. The case must be remanded to the district court for a
factual determination of the amount of the includible sum.
II. Payment to Guardian of Beatrice Tina
The second issue on this appeal involves the deductibility for estate-tax purposes of a $264,000
payment by the executors of decedent's estate to Constance Trevor de Schulthess, as guardian for her
daughter Beatrice Tina.
The decedent and his second wife, Constance, were married on February 2, 1958. On August 13, 1958,
their daughter, Beatrice Tina, was born. One year later Constance filed an action for divorce. Following
extensive negotiations, the decedent and Constance entered into a property-settlement agreement,
one clause of which provided as follows:
"12A. Testamentary Gift to Child.
—The Husband shall promptly make and execute and keep in effect until his death a Will under which
he shall devise and bequeath property to Beatrice Tina de Schulthess in an amount at least equal to the
sum of the following :
(a) $250,000, and
(b) the greater of :
(i) the difference between an amount equal to the product of $6,000.00 multiplied by the number of
January 15ths since the date of this agreement and the aggregate of the amounts contributed to the
trust estates referred to in Paragraphs 11 and 12 of this agreement, or
(ii) the difference between $54,000.00 and the aggregate of the amounts contributed to the trust
estates referred to in Paragraphs 11 and 12 of this agreement.
The provisions contained in this Paragraph 12A are in addition to those contained in any and all other
paragraphs hereof."
This property-settlement agreement was approved and incorporated into an interlocutory judgment of
divorce entered on January 17, 1961.
Although the decedent did make a bequest to Beatrice Tina, the amount was uncertain. Constance filed
a creditor's claim for $273,900 based on the quoted clause of the property-settlement agreement. The
executors rejected the claim in part, but after Constance had filed suit in state court, the matter was
settled, and $264,000 was paid to Constance in satisfaction of the claim filed on behalf of Beatrice Tina.
In their claim for refund, the taxpayers contended that this payment was a deductible claim against the
estate under section 2053(a)(3) of the Internal Revenue Code, 26 U.S.C. § 2053(a)(3). The government
replied that although Beatrice Tina had an enforceable claim under local law, the claim was not
supported by adequate and full consideration in money or money's worth, as required by section
2053(c)(1)(A). See Lyeth v. Hoey, 305 U.S. 188, 194, 59 S.Ct. 155, 83 L.Ed. 119 (1938). The district court
agreed with the taxpayers, finding that the $264,000 payment was based upon a promise by the
decedent contracted bona fide and for an adequate and full consideration, and concluding that the
payment was deductible.
Section 2053(a)(3) does authorize deductions from the gross estate for amounts paid to satisfy "claims
against the estate." However, subsection (c)(1)(A) further provides that deductions "shall, when
founded on a promise or agreement, be limited to the extent that they were contracted bona fide and
for an adequate and full consideration in money or money's worth * * *." One purpose of this limitation
is to prevent testators from depleting their estates by transforming bequests to the natural objects of
their bounty into deductible claims. United States v. Stapf, 375 U.S. 118, 130-133, 84 S.Ct. 248, 11
L.Ed.2d 195 (1963).
We begin our analysis by looking to two decisions of this court construing an analogous provision of the
Internal Revenue Code.[4] In United States v. Past, 347 F.2d 7 (9th Cir. 1965), we scrutinized a property-
settlement agreement made in anticipation of divorce. There the husband and wife jointly transferred
certain community property into a trust, with the income payable to the wife for her life and the
remainder payable to the couple's children. When the wife died, the Commissioner included the entire
corpus of the trust in her gross estate. The district court held instead that none of the property was
includible because the decedent had received adequate and full consideration from her husband for
making the transfer. We reversed, holding that the fact that the transfer was part of a property-
settlement agreement incident to a divorce was insufficient in itself to make the transfer one for an
adequate and full consideration. The value of what the decedent received must be measured against
the value of what she transferred. Since in Past the decedent received less than she transferred, we
held that the trust property was not excludible from federal estate tax upon her death.
In Estate of Haskins v. United States, 357 F.2d 492 (9th Cir. 1966), we again were faced with a property-
settlement agreement incident to a divorce. There, as part of the agreement, the husband placed
money in a trust in which he reserved a life estate with the remainder to his children. We affirmed a
district court decision holding that the corpus of this trust was includible in the decedent's gross estate.
We noted that both parents were devoted to their children and keenly mindful of parental obligation.
Testamentary provisions for the care of children, even though required by a property-settlement
agreement, were not necessarily made for monetary consideration but could be viewed as a form of
estate planning by the couple.
The government contends that Haskins requires us to reverse the judgment of the district court holding
that the payment to Constance was a deductible claim against the estate. However, in Haskins the
district court specifically found that there was no consideration for the transfer ; here, the district court
found that there was. Moreover, Haskins did not establish a per-se rule that a testamentary provision
for one's own children could never be made for monetary consideration.
In Hartshorne v. Commissioner, 402 F.2d 592, 594 n. 2 (2d Cir. 1968), the government did take the
position that a bequest to one's own children can never be a "claim against the estate" within the
meaning of section 2053 because such a bequest is simply an agreement to make a testamentary
disposition to persons who are the natural objects of one's bounty. The Court of Appeals for the Second
Circuit rejected this absolute position, and so do we. The Second Circuit noted, in language which
conforms to the test laid down in Past and Haskins:
"* * * Under exceptional circumstances * * * it may be that 624*624 a claim by someone who might
otherwise inherit from the decedent should be deductible under section 2053. If the claim is not simply
a subterfuge for a nondeductible legacy, if the claim is supported by `adequate and full consideration,'
and if the consideration is a non-zero sum which augmented the decedent's estate, then it would seem
that the deduction should be allowed. Whether or not a particular claim is deductible, then, will depend
on the facts in each case." 402 F.2d at 594-595 n. 2.
Constance's claim on behalf of Beatrice Tina meets this standard. The case presents the "exceptional
circumstances" to which the Second Circuit alluded.

The testimony before the district court was sharply conflicting on the question whether the decedent's
agreement to make the bequest to Beatrice Tina was bargained for or merely gratuitous. Because the
taxpayers prevailed below, this court must view the evidence in the light most favorable to
them. United States v. Disney, 413 F.2d 783, 787 n. 2 (9th Cir. 1969). Viewing the evidence in this light,
we affirm as not clearly erroneous the district court's finding that decedent's promise was contracted
bona fide and for an adequate and full consideration.

Decedent's will suggests that Beatrice Tina might not necessarily have been a natural object of the
decedent's bounty. His will established his first wife and her daughters as the residuary beneficiaries of
his estate ; by contrast, nothing was left to Constance and no more to Beatrice Tina than was required
by the property-settlement agreement. His attorney testified that the decedent knew that his first two
daughters' share of the residuary estate would be worth considerably more than the amount promised
to Beatrice Tina. Moreover, these two daughters already had the inter vivos trusts which are the subject
of the first issue on this appeal.

The record strongly suggests that the decedent and Constance were not equally concerned with the
financial welfare of their daughter, and that Constance felt she had to wrench from her husband— or at
least from her husband's lawyers —the promise to leave a bequest to Beatrice Tina. She feared that
because of the circumstances concerning the marriage and the birth of their daughter, her child might
not be treated equally with the children of the first marriage. The decedent's attorney testified that the
decedent did give a preference in financial matters to his first two daughters, in part because he felt
that Constance was more self-assertive than his first wife and would always manage to provide for her
child.

Constance's initial demands for support payments for herself were within the range of California court
awards in similar cases. Nonetheless, she accepted a substantially smaller sum, partly in consideration
for her husband's promise to bequeath more than $250,000 to their daughter. Constance apparently
felt that she could spend her support payments more freely and would not have to set aside part for her
estate if she knew that her child would be taken care of in the event of her ex-husband's death. Thus, by
accepting reduced alimony, Constance paid for her husband's promise to leave money to their daughter
; in effect, she diverted to her daughter that consideration which otherwise would have flowed to
herself. Although the property-settlement agreement might have spelled out more precisely what
Constance relinquished in exchange for her husband's promise to leave their daughter a bequest, the
record supports the finding that the promise was contracted for in good faith for value which
augmented the decedent's estate.

The district court's holding that only the actuarial value of the remainder interests in the trusts for
Celeste and Catherine was includible in the gross estate is reversed. The remainder of the district court's
holding is affirmed.

The district court's judgment is vacated and remanded for entry of a modified judgment consistent with
this opinion. Neither party shall recover costs.
 Morgan v. Commissioner
Argued January 4, 5, 1940
Decided January 29, 1940
309 U.S. 78
Syllabus
A decedent in Wisconsin exercised a power of appointment over property held in trusts created under
the law of that State. The trusts empowered the trustees to withhold from any beneficiary property
which, in their judgment, would be dissipated. or be improvidently handled, and gave directions for
disposition, in such event, of what was withheld.
Held:
1. That the power exercised was a "general power of appointment" within § 302(f) of the Revenue Act
of 1926, whatever its characterization -- whether "general" or "special" -- by the Wisconsin law. P. 309
U. S. 80.
State law creates legal interests and rights. The federal Revenue Acts designate what interests or rights,
so created, shall be taxed.
2. The term "general power of appointment," as used in the federal Revenue Acts, applies where the
donee may appoint to any person he chooses, including his own estate or his creditors. P. 309 U. S. 81.
This accords with common acceptation and with administrative construction approved by Congressional
reenactments of the provisions construed.
3. Assuming that the trustees could withhold the appointed property from an appointee, the power
must still be held general. The important consideration is the breadth of the control in the donee of the
power, whatever the nature or extent of the appointee's interest. P. 309 U. S. 82.
MR. JUSTICE ROBERTS, delivered the opinion of the Court.
We took this case because it raises an important question as to the construction of the Revenue Act of
1926, § 302(f), amended by the Revenue Act of 1932, § 803(b). [Footnote 1]
The question is to what extent and in what sense the law of the decedent's domicile governs in
determining whether a power of appointment exercised by him is a general power within the meaning
of the statute.
The petitioner is the executor of Elizabeth S. Morgan, who was the donee of two powers of
appointment over property held in two trusts created by her father by will and by deed. The persons
named are, or were at death, citizens of Wisconsin. It is unnecessary to recite the terms of the trusts.
Suffice it to say that, under each, property remaining in the trustees' hands for Elizabeth S. Morgan was
given, at her death, to the appointee or appointees named in her will, with gifts over in case she failed
to appoint. Under both trusts, if in the judgment of the trustees, property going to any beneficiary
would be dissipated for any reason, or improvidently handled, the trustees were to withhold any part of
such property, with directions for disposition, in such event, of what was withheld. The decedent
appointed in favor of her husband.
The Commissioner ruled that the value of the appointed property should be included in the gross
estate, and determined a tax deficiency. The Board of Tax Appeals approved his action. [Footnote 2] The
Circuit Court of Appeals affirmed the Board's decision. [Footnote 3]
Although, under the law of Wisconsin, the decedent could have appointed anyone to receive the trust
property, including her estate and her creditors, the petitioner urges that, by statute and decision,
Wisconsin has defined as special a power such as she held. [Footnote 4] The respondent urges that this
is not a correct interpretation of the State law. We find it unnecessary to resolve the issue, since we
hold that the powers are general within the intent of the Revenue Act, notwithstanding they may be
classified as special by the law of Wisconsin.
State law creates legal interests and rights. The federal revenue acts designate what interests or rights,
so created, shall be taxed. Our duty is to ascertain the meaning of the words used to specify the thing
taxes. If it is found in a given case that an interest or right created by local law was the object intended
to be taxes, the federal law must prevail no matter what name is given to the interest or right by state
law. [Footnote 5]
None of the revenue acts has defined the phrase "general power of appointment." The distinction
usually made between a general and a special power lies in the circumstance that, under the former,
the donee may appoint to anyone, including his own estate or his creditors, thus having as full dominion
over the property as if he owned it, whereas, under the latter, the donee may appoint only amongst a
restricted or designated class of persons other than himself. [Footnote 6]
We should expect, therefore, that Congress had this distinction in mind when it used the adjective
"general." The legislative history indicates that this is so. [Footnote 7] The Treasury regulations have
provided that a power is within the purview of the statute if the donee may appoint to any person.
[Footnote 8]
With these regulations outstanding, Congress has several times re-enacted § 302(f), and has thus
adopted the administrative construction. That construction is in accord with the opinion of several
federal courts. [Footnote 9]
The petitioner claims, however, that the decision below is in conflict with two by other Circuit Courts of
Appeal. [Footnote 10] The contention is based on certain phrases found in the opinions. We think it
clear that, in both cases, the courts examined the local law to ascertain whether a power would be
construed by the state court to permit the appointment of the donee, his estate or his creditors, and on
the basis of the answer to that question determined whether the power was general within the intent
of the federal act.
As the decedent in this case could have appointed to her estate or to her creditors, we hold that she
had a general power within the meaning of § 302(f). This conclusion is not inconsistent with authorities
on which the petitioner relies, [Footnote 11] holding that, in the application of a federal revenue act,
state law controls in determining the nature of the legal interest which the taxpayer had in the property
or income sought to be reached by the statute.
The petitioner's section position is that, inasmuch as the trustees had an unfettered discretion to
withhold principal or income from any beneficiary, they could exercise their discretion as respects any
appointee of the decedent. This fact, they say, renders the power a special one. Assuming that the
trustees could withhold the appointed property from an appointee, we think the power must still be
held general. The quantum or character of the interest appointed, or the conditions imposed by the
terms of the trust upon its enjoyment, do not render the powers in question special within the purport
of § 302(f). The important consideration is the breadth of the control the decedent could exercise over
the property, whatever the nature or extent of the appointee's interest.

The judgment is Affirmed.

 United States v. Field
Argued December 9, 1920
Decided February 28, 1921
Syllabus
1. The provisions of laws imposing taxes are not to be extended by implication. P. 255 U. S. 262.
2. The Revenue Act of 1916, § 202, c. 463, 39 Stat. 777, did not impose an estate tax upon property
passing under a testamentary execution of a general power of appointment. Id.
3. To be taxable under clause (a) of § 202 of the act, the estate must be (1) an interest of the decedent
at the time of his death, (2) which, after his death, is subject to the payment of the charges against his
estate and the expenses of administration, and (3) is subject to distribution as part of his estate, and
these conditions are expressed conjunctively, and cannot be construed as disjunctive. Id.
4. A general power of appointment by will does not, of itself, vest any estate in the donee of the power.
P.255 U. S. 263.
5. In equity, property passing under such a power may be treated as assets of the donee of the power,
distributable to his creditors, but only when the power has been executed, and executed in favor of a
volunteer, and then only to the extent to which the donee's own estate is insufficient to pay his debts,
and his executor, if he take the appointed property at all, takes not as executor, but as representative of
the creditors. Id.
6. In any event, the property subject to such a power is not subject to distribution as part of the estate
of the donee. P. 255 U. S. 264.
7. Clause(b) of § 202 of the act, describing a transfer of an interest in the decedent's own property in his
lifetime, intended to take effect at or after his death, does not cover a transfer by testamentary
execution of a power of appointment over property not his own. Id.
8. The fact that, in the later Act of February 24, 1919, property passing under a general power of
appointment executed by the deceased was expressly included in the valuation of his estate for taxation
shows at least a legislative doubt whether the Act of 1916 included such property. P. 255 U. S. 265.
The case is stated in the opinion.
MR. JUSTICE PITNEY delivered the opinion of the Court.
This is an appeal from a judgment of the Court of Claims sustaining a claim for refund of an estate tax
exacted under Title II of Revenue Act Sept. 8, 1916, c. 463, 39 Stat. 756, 777, as amended by Act March
3, 1917, c. 159, 39 Stat. 1000, 1002. It presents the question whether the act taxed a certain interest
that passed under testamentary execution of a general power of appointment created prior, but
executed subsequent, to its passage.
The facts are as follows: Joseph N. Field, a citizen and resident of Illinois, died April 29, 1914, leaving a
will which was duly admitted to probate in that state, and by which he gave the residue of his estate,
after payment of certain legacies, to trustees, with provision that one-third of it should be set apart and
held as a separate trust fund for the benefit of his wife, Kate Field, the net income to be paid to her
during life, and from and after her death the net income of one-half of said share of the trust estate to
be paid to such persons and in such shares as she should appoint by last will and testament. The trust
was to continue until the death of the last surviving grandchild of the testator who was living at the
time of his death, and at its termination the undistributed estate was to be divided among named
beneficiaries or their issue, per stirpes, in proportions specified. Kate Field died April 29, 1917, a
resident of Illinois, leaving a will which was duly probated in that state, by which she executed the
power of appointment, directing that the income to which the power related should be paid in equal
shares to her children surviving at the date of the respective payments, the issue of any deceased child
to stand in the place of such deceased child. The collector of internal revenue, assuming to act under
the Revenue Act of 1916, as amended, and regulations issued by the Commissioner of Internal Revenue,
included as a part of the gross estate of Kate Field the appointed estate passing under her execution of
the power, and proceeded to assess and collect an estate tax based upon the net value thereof, and
amounting to $121,059.60. Her executor, having paid the tax under protest and having made a claim for
refund which was considered and rejected by the Commissioner of Internal Revenue, brought this suit
and recovered judgment, from which the United States appeals.
The Revenue Act of 1916, in § 201 (39 Stat. 777), imposes a tax equal to specified percentages of the
value of the net estate "upon the transfer of the net estate of every decedent dying after the passage of
this act." By § 203 (p. 778), the value of the net estate is to be determined by subtracting from the value
of the gross estate certain specified deductions. The gross estate is to be valued as follows:
"Sec. 202. That the value of the gross estate of the decedent shall be determined by including the value
at the time of his death of all property, real or personal, tangible or intangible, wherever situated:"
"(a) To the extent of the interest therein of the decedent at the time of his death which after his death
is subject to the payment of the charges against his estate and the expenses of its administration and is
subject to distribution as part of his estate."
"(b) To the extent of any interest therein of which the decedent has at any time made a transfer, or with
respect to which he has created a trust, in contemplation of or intended to take effect in possession or
enjoyment at or after his death, except in case of a bona fide sale for a fair consideration in money or
money's worth. Any transfer of a material part of his property in the nature of a final disposition or
distribution thereof, made by the decedent within two years prior to his death without such a
consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of
death within the meaning of this title. . . ."
The amendment of March 3, 1917 (39 Stat. 1002), pertains merely to the rates, and need not be further
considered. *
The provision quoted from § 202 was construed by the Treasury Department, in U.S. Internal Revenue
Regulations No. 37, relating to Estate Taxes, Revised May, 1917, Art. XI, as follows: "Property passing
under a general power of appointment is to be included as a portion of the gross estate of a decedent
appointor."
No question being suggested as to the power of Congress to impose a tax upon the passing of property
under testamentary execution of a power of appointment created before, but executed after, the
passage of the taxing act (see Chanler v. Kelsey, 205 U. S. 466, 205 U. S. 473, 205 U. S. 478; Knowlton v.
Moore, 178 U. S. 41, 178 U. S. 56-61), the case involves merely a question of the construction of the act.
Applying the accepted canon that the provisions of such acts are not to be extended by implication
(Gould v. Gould, 245 U. S. 151, 245 U. S. 153), we are constrained to the view, notwithstanding the
administrative construction adopted by the Treasury Department, that the Revenue Act of 1916 did not
impose an estate tax upon property passing under a testamentary execution of a general power of
appointment.
The government seeks to sustain the tax under both clauses above quoted from § 202.
The conditions expressed in clause (a) are to the effect that the taxable estate must be (1) an interest of
the decedent at the time of his death, (2) which after his death is subject to the payment of the charges
against his estate and the expenses of its administration, and (3) is subject to distribution as part of his
estate. These conditions are expressed conjunctively, and it would be inadmissible, in construing a
taxing act, to read them as if prescribed disjunctively. Hence, unless the appointed interest fulfilled all
three conditions, it was not taxable under this clause.
The chief reliance of the government is upon the rule, well established in England and followed
generally, but not universally, in this country, that, where one has a general power of appointment
either by deed or by will, and executes the power, equity will regard the property appointed as part of
his assets for the payment of his creditors in preference to the claims of his voluntary appointees. See
Brandies v. Cochrane,112 U. S. 344, 112 U. S. 352.
The English cases are fully reviewed by the House of Lords in O'Grady v. Wilmot, [1916] 2 A.C. 231,
246 et seq.Illustrative cases in the American courts are Johnson v. Cushing, 15 N.H. 298, 307; Rogers v.
Hinton, 62 N.C. 101, 105; Clapp v. Ingraham, 126 Mass. 200, 202; Knowles v. Dodge, 1 Mackey 66,
72; Freeman's Adm'r v. Butters,94 Va. 406, 411; Tallmadge v. Sill, 21 Barb. 34, 51 et seq.; contra, per
Gibson, C.J., in Commonwealth v. Duffield,12 Pa. 277, 279-281; Pearce v. Lederer, 262 F. 993, aff'd,
Lederer v. Pearce, 266 F. 497.
It is tacitly admitted that the rule obtains in Illinois, and we shall so assume.
But the existence of the power does not, of itself, vest any estate in the donee. Collins v. Wickwire, 162
Mass. 143, 144; Keays v. Blinn, 234 Ill. 121, 124; Walker v. Treasurer, 221 Mass. 600, 602, 603; Shattuck
v. Burrage, 229 Mass. 448, 451. See Carver v. Jackson, 4 Pet. 1, 29 U. S. 93.
Where the donee dies indebted, having executed the power in favor of volunteers, the appointed
property is treated as equitable, not legal, assets of his estate (Clapp v. Ingraham, 126 Mass. 200,
203; Patterson Co. v.Lawrence, 83 Ga. 703, 707), and (in the absence of statute) if it passes to the
executor at all, it does so not by virtue of his office, but as a matter of convenience, and because he
represents the rights of creditors (O'Grady v. Wilmot, [1916] 2 A.C. 231, 248-257; Smith v. Garey, 22
N.C. 42, 49; Olney v. Balch, 154 Mass. 318, 322; Emmons v. Shaw, 171 Mass. 410, 411; Hill v.
Treasurer, 229 Mass. 474, 477).
Where the power is executed, creditors of the donee can lay claim to the appointed estate only to the
extent that the donee's own estate is insufficient to satisfy their demands. Patterson Co. v. Lawrence, 83
Ga. 703, 708;
It is settled that (in the absence of statute) creditors have no redress in case of a failure to execute the
power. Holmes v. Coghill, 7 Ves. 499, 507, aff'd, 12 Ves. 206, 214-215; Gilman v. Bell. 99 Ill. 144,
150; Duncanson v. Manson, 3 App.D.C. 260, 273.
And, whether the power be or be not exercised, the property that was subject to appointment is not
subject to distribution as part of the estate of the donee. If there be no appointment, it goes according
to the disposition of the donor. If there be an appointment to volunteers, then, subject to whatever
charge creditors may have against it, it goes not to the next of kin or the legatees of the donee, but to
his appointees under the power.
It follows that the interest in question, not having been property of Mrs. Field at the time of her death
nor subject to distribution as part of her estate, was not taxable under clause (a).
We deem it equally clear that it was not within clause (b). That clause is the complement of (a), and is
aptly descriptive of a transfer of an interest in decedent's own property in his lifetime, intended to take
effect at or after his death. It cannot, without undue laxity of construction, be made to cover a transfer
resulting from a testamentary execution by decedent of a power of appointment over property not his
own.
It would have been easy for Congress to express a purpose to tax property passing under a general
power of appointment exercised by a decedent had such a purpose existed, and none was expressed in
the act under consideration. In that of February 24, 1919, which took its place, the section providing
how the value of the gross estate of the decedent shall be determined contains a clause precisely to the
point (§ 402(e), 40 Stat. 1097):
"To the extent of any property passing under a general power of appointment exercised by the
decedent (1) by will or (2) by deed executed in contemplation of, or intended to take effect in
possession or enjoyment at or after, his death, except," etc. Its insertion indicates that Congress at least
was doubtful whether the previous Act included property passing by appointment. See Matter of
Miller, 110 N.Y. 216, 222; Matter of Harbeck, 161 N.Y. 211, 217, 218; United States v. Bashaw, 50 F. 749,
754. The government contends that the amendment was made for the purpose of clarifying, rather than
extending, the law as it stood, and cites a statement to that effect in the Report of the House
Committee on Ways and Means (House Doc. No. 1267, p. 101, 65th Cong., 2d Sess.). It is evident,
however, that this statement was based upon the interpretation of the Act of 1916 adopted by the
Treasury Department. The same report proceeded to declare (p. 102) that "the absence of a provision
including property transferred by power of appointment makes it possible, by resorting to the creation
of such a power, to effect two transfers of an estate with the payment of only one tax," and this,
together with the fact that the committee proposed that the law be amended, shows that the Treasury
construction was not treated as a safe reliance.
The tax in question being unsupported by the taxing act, the Court of Claims was right in awarding
reimbursement.
Judgment affirmed.
 Helvering v. Safe Deposit & Trust Co.
Argued March 9, 1942
Decided April 13, 1942
Syllabus
1. The provision of § 302(a) of the Revenue Act of 1926, that in the gross estate of a decedent there
shall be included the value of all property "(a) To the extent of the interest therein of the decedent at
the time of his death," does not embrace property as to which he held merely a general testamentary
power of appointment which he did not exercise. P. 316 U. S. 57.
This view is compelled by the legislative, judicial, and administrative history of the legislation.
2. Where property in litigation was claimed by relatives of a decedent as appointees under his will, the
validity of which was contested, and, in the alternative, as his heirs -- also a matter in dispute -- and a
share of the property was allotted to them by a compromise agreement approved by the court, held:
(1) That so much of the share as was properly attributable to their claim under the appointment should
be included in the decedent's estate under § 302(f) of the Revenue Act of 1926 as "property passing
under a general power of appointment exercised by the decedent . . . by will." P. 316 U. S. 63.
(2) The determination of how much of the share should be imputed to the claim based on the
attempted exercise of the power of appointment and how much to the alternative claim -- necessarily
an approximation -- was a matter for the Board of Tax Appeals. P. 316 U. S. 66. 121 F.2d 307 reversed.
Certiorari, 314 U.S. 601, to review a judgment affirming a decision of the Board of Tax Appeals, 42 B.T.A.
145.
MR. JUSTICE BLACK delivered the opinion of the Court.
Because of the importance in the administration of the Federal Estate Tax of the questions involved, we
granted certiorari to review the judgment of the Circuit Court of Appeals, 121 F.2d 307, affirming a
decision of the Board of Tax Appeals, 42 B.T.A. 145.
Zachary Smith Reynolds, age 20, died on July 6, 1932. At the time, he was beneficiary of three trusts:
one created by his father's will in 1918, one by deed executed by his mother in 1923, and one created
by his mother's will in 1924. From his father's trust, the decedent was to receive only a portion of the
income prior to his twenty-eighth birthday, at which time, if living, he was to become the outright
owner of the trust property and all accumulated income. His mother's trusts directed that he enjoy the
income for life, subject to certain restrictions before he reached the age of 28. Each of the trusts gave
the decedent a general testamentary power of appointment over the trust property; in default of
exercise of the power, the properties were to go to his descendants, or, if he had none, to his brother
and sisters and their issue per stirpes.
The Commissioner included all the trust property within the decedent's gross estate for the purpose of
computing the Federal Estate Tax. The Board of Tax Appeals and the Circuit Court of Appeals, however,
held that no part of the trust property should have been included.
I
The case presents two questions, the first of which is whether the decedent at the time of his death,
had, by virtue of his general powers of appointment, even if never exercised, such an interest in the
trust property as to require its inclusion in his gross estate under Section 302(a) of the Revenue Act of
1926, 44 Stat. 9, 70. This section provides:
"The value of the gross estate of the decedent shall be determined by including the value at the time of
his death of all property, real or personal, tangible or intangible, wherever situated --"
"(a) To the extent of the interest therein of the decedent at the time of his death;"
The government argues that, at the time of his death, the decedent had an "interest" in the trust
properties that should have been included in his gross estate because he, to the exclusion of all other
persons, could enjoy the income from them; would have received the corpus of one trust upon reaching
the age of 28, and could alone decide to whom the benefits of all the trusts would pass at his death.
These rights, it is said, were attributes of ownership substantially equivalent to a fee simple title, subject
only to specified restrictions on alienation and the use of income. The respondents deny that the rights
of the decedent with respect to any of the three trusts were substantially equivalent to ownership in
fee, emphasizing the practical importance of the restrictions on alienation and the use of income, and
arguing further that the decedent never actually had the capacity to make an effective testamentary
disposition of the property because he died before reaching his majority.
We find it unnecessary to decide between these conflicting contentions on the economic equivalence of
the decedent's rights and complete ownership. [Footnote 1] For, even if we assume with the
government that the restrictions upon the decedent's use and enjoyment of the trust properties may be
dismissed as negligible, and that he had the capacity to exercise a testamentary power of appointment,
the question still remains: did the decedent have "at the time of his death" such an "interest" as
Congress intended to be included in a decedent's gross estate under Section 302(a) of the Revenue Act
of 1926? It is not contended that the benefits during life which the trusts provided for the decedent,
terminating as they did at his death, made the trust properties part of his gross estate under the
statute. And, viewing Section 302(a) in its background of legislative, judicial, and administrative history,
we cannot reach the conclusion that the words "interest . . . of the decedent at the time of his death"
were intended by Congress to include property subject to a general testamentary power of
appointment unexercised by the decedent.
The forerunner of Section 302(a) of the Revenue Act of 1926 was Section 202(a) of the Revenue Act of
1916, 39 Stat. 777. In United States v. Field, 255 U. S. 257, this Court held that property passing under a
general power of appointment exercised by a decedent was not such an "interest" of the decedent as
the 1916 Act brought within the decedent's gross estate. While the holding was limited to exercised
powers of appointment, the approach of the Court, the authorities cited, and certain explicit statements
[Footnote 2] in the opinion left little doubt that the Court regarded property subject to unexercised
general powers of appointment as similarly beyond the scope of the statutory phrase "interest of the
decedent." [Footnote 3]
After the Field case, the provision it passed upon was reenacted without change in the Revenue Act of
1921, Section 402(a), 42 Stat. 278, and in the Revenue Act of 1924, Section 302(a), 43 Stat. 304. If the
implications of the Field opinion with respect to unexercised powers had been considered contrary to
the intendment of the words "interest of the decedent," it is reasonable to suppose that Congress
would have added some clarifying amendment.
If the counterparts in the earlier Acts of Section 302(a) of the Revenue Act of 1926 did not require the
inclusion of property subject to an unexercised general testamentary power of appointment within the
decedent's gross estate, there is no basis for concluding that the amendment of 1926 changed the act in
this respect. Prior to 1926, an "interest . . . of the decedent" was to be included in his gross estate only if
subject "after his death . . . to the payment of the charges against his estate and the expenses of its
administration and . . . subject to distribution as part of his estate."
In the 1926 Act, this qualification was abandoned. In the report accompanying the bill which embodied
this change, the House Committee on Ways and Means stated only that, "In the interest of certainty, it
is recommended that the limiting language . . . shall be eliminated in the proposed bill, so that the gross
estate shall include the entire interest of the decedent at the time of his death in all the property.
[Footnote 4]"
Nothing in the report suggested that the change was intended to have any relevance to powers of
appointment, and no such intention can reasonably be inferred from the amended section itself. It is
noteworthy that the regulations of the Bureau of Internal Revenue issued after passage of the 1926 Act
contain no indication that the Treasury Department regarded the amendment as affecting unexercised
powers of appointment. On the other hand, the article pertaining to powers of appointment was
reincorporated in the 1926 regulations with the same content, so far as here relevant, as the
corresponding article in the last regulations issued prior to the 1926 Act. [Footnote 5]
When it was held in the Field case that property subject to an exercised general testamentary power of
appointment was not to be included in the decedent's gross estate under the Revenue Act of 1916, this
Court referred to an amendment passed in 1919, 40 Stat. 1097, § 402(e), which specifically declared
property passing under an exercised general testamentary power to be part of the decedent's gross
estate. The passage of this amendment, said the Court, "indicates that Congress at least was doubtful
whether the previous Act included property passing by appointment." [Footnote 6] In the face of such
doubts, which cannot reasonably be supposed to have been less than doubts with respect
to unexercised powers, Congress nevertheless specified only that property subject to exercised powers
should be included. From this deliberate singling out of exercised powers alone, without the
corroboration of the other matters we have discussed, a Congressional intent to
treat unexercised powers otherwise can be deduced.
At the least, Section 302(f) of the 1926 Act, [Footnote 7] the counterpart of the 1919 amendment
referred to in the Field case, represents a course of action followed by Congress since 1919 entirely
consistent with a purpose to exclude from decedents' gross estates property subject to unexercised
general testamentary powers of appointment.
In no judicial opinion brought to our attention has it been held that the gross estate of a decedent
includes, for purposes of the Federal Estate Tax, property subject to an unexercised general power. On
the contrary, as the court below points out, "the courts have been at pains to consider whether
property passed under a general power or not so as to be taxable under section 302(f), a consideration
which would have been absolutely unnecessary if the estate were taxable under 302(a) because of the
mere existence of a general power whether exercised or not. [Footnote 8]"
121 F.2d 307, 312. In addition, the uniform administrative practice until this case arose appears to have
placed an interpretation upon the Federal Estate Tax contrary to that the government now urges. No
regulations issued under the several revenue acts, including those in effect at the time this suit was
initiated, prescribe that property subject to an unexercised general testamentary power of appointment
should be included in a decedent's gross estate . Because of the combined effect of all of these
circumstances, we believe that a departure from the longstanding, generally accepted [Footnote 9]
construction of Section 302(a), now contested for the first time by the government, would override the
best indications we have of Congressional intent.
II
The second question is the treatment to be given, under Section 302(f) of the Revenue Act of 1926, to a
share of the trust property passing to the decedent's brother and sisters as a result of a compromise
settlement with other claimants. Should that share be included in whole or in part within the
decedent's gross estate as "property passing under a general power of appointment exercised by the
decedent . . . by will"?
The claim of the brother and sisters was based upon: (1) a purported exercise of the power of
appointment in their favor by the decedent in a will he executed in New York, and, in the alternative, (2)
their right to take in default of appointment under the terms of the trusts. Each of the two children of
the decedent (1) denied the validity of the New York will and (2) challenging the right of the brother and
sisters to take in default, independently asserted his own. These issues, complicated by many other
factors which it is unnecessary here to discuss, were never finally resolved by judicial decision, although
there had been much litigation involving them in the North Carolina courts. Eventually the several
claimants agreed to a compromise under which 37 1/2% of the trust property went to the brother and
sisters. The compromise was confirmed by a judgment of the North Carolina Superior Court, and this
judgment was affirmed by the North Carolina Supreme Court. Reynolds v. Reynolds, 208 N.C. 578, 182
S.E. 341.
The government contends that a portion of the share received by the brother and sisters reflects
recognition by the other claimants, as well as by the North Carolina courts, of the assertion that the
power of appointment was validly exercised, and that, under the doctrine approved by this Court
in Lyeth v. Hoey,305 U. S. 188, that portion must be treated as though it actually passed pursuant to an
effective exercise of the power.
The Lyeth case, like the one now before us, came to this Court after a compromise settlement. An heir
of the decedent had contested the validity of the decedent's will, in which no provision had been made
for him. The heir and the devisees and legatees under the will entered into a compromise providing that
the will be probated, and that a specific sum be paid to the heir. We held that the money the heir
received pursuant to the compromise should be treated, with respect to his tax liability under the
federal income tax statute, [Footnote 10] as if acquired "by inheritance," for the reason that it was
possible for him to receive it only "because of his standing as an heir and of his claim in that capacity."
[Footnote 11]
The claim of the decedent's brother and sisters here, so far as based on the validity of the purported
appointment, had its roots, like the claimed invalidity of the will in the Lyeth case, in an issue never
decided in litigation. If it had been litigated to final judgment by a competent tribunal and the brother
and sisters had succeeded in establishing the validity of the exercise of the power, the inclusion in the
decedent's gross estate of what they would have received as appointees, pursuant to Section 302(f), In matters so practical as the administration of tax laws, and in the decision of problems connected with
could not seriously be questioned. In the Lyeth case, we said that "the distinction sought to be made them, a high degree of precision is often impossible to achieve. But it is far better to make such a rough
between acquisition through such a judgment and acquisition by a compromise agreement in lieu of estimate as the data will permit than completely to ignore the realities of the compromise because of
such a judgment is too formal to be sound. [Footnote 12]" the difficulties of evaluation. [Footnote 14]

There is no less reason for the same conclusion here. The judgment of the Circuit Court of Appeals is reversed with directions to remand to the Board of Tax
Appeals for further proceedings not inconsistent with this opinion.
The respondents contend that the principle of the Lyeth case, announced by the Court with respect to
income tax liability, should not be controlling where, as here, the question is one of estate tax liability. It Reversed.
is urged that taxes should not be influenced by what occurs after the taxable event; that it is reasonable
to consider a compromise preceding the receipt of income in connection with an income tax, but that a
compromise occurring after the decedent's death, which is the "taxable event" under an estate tax,
should not be considered. Whatever may be the general rule in this respect, [Footnote 13] this Court
has clearly recognized, in Helvering v. Grinnell, 294 U. S. 153, that events subsequent to the decedent's
death -- events controlled by his beneficiaries -- can determine the inclusion or not of certain assets
within the decedent's gross estate under Section 302(f). In that case, the decedent had exercised a
general testamentary power of appointment -- an act which under Section 302(f) brings the property
subject to the power within the gross estate. The subsequent renouncement by the appointees of the
right to receive by appointment, and their election to take as remaindermen in default of appointment,
were held by this Court to place the property subject to the power outside the scope of Section 302(f).

The respondents further contend that judicial determinations having been made in the state courts that
the attempted appointment was invalid, the share of the brother and sisters in the compromise reflects
only their alternative claim to the trust property. While there are explicit statements in the opinion of
the North Carolina Superior Court that the attempted appointment was invalid, these statements must
be regarded as superseded by the opinion which the North Carolina Supreme Court, whose
determination constituted the final approval of the compromise, rendered on appeal. For, in the course
of that opinion the Supreme Court gave clear recognition to the alleged validity of the decedent's
attempted appointment as a basis of the claim the brother and sisters asserted. The court stated (208
N.C. 578, 618, 182 S.E. 341, 365):

"Serious and grave questions of law and facts were raised. The judgment sets them out, and we refer to
same, all troublesome; but we will consider one, for example: The validity and effect of the alleged will
executed in New York by Zachary Smith Reynolds, as a basis of the offer of the brother and sisters of
Zachary Smith Reynolds."

Inconsistent statements made in the course of a decree issued by the Circuit Court of Baltimore,
Maryland, cannot be regarded as overcoming the force of the foregoing, since the decree purported
only to authorize and direct the Maryland trustee to divide the trust property in accordance with the
compromise as approved in North Carolina.

How much, if any, of the 37 1/2% going to the decedent's brother and sisters should be imputed to the
claim based on the attempted exercise of the power of appointment and how much to their alternative
claim we do not decide. In remanding this case to the Board of Tax Appeals for a determination of this
issue, we recognize that a decision must necessarily be an approximation derived from the evaluation of
elements not easily measured.
 Helvering v. Grinnell
Argued January 16, 1935
Decided February 4, 1935
Syllabus
Property does not pass under a general power of appointment exercised by will, within the meaning of
§ 302(f), Revenue Act of 1926, where the person named as appointee elects to renounce the
appointment and take as remainderman under another will, which created the power. P. 294 U. S. 155.
70 F.2d 705 affirmed.
Certiorari, 293 U.S. 543, to review the reversal of an order of the Board of Tax Appeals. The Board
sustained the Commissioner in assessing a deficiency in a federal estate tax because of failure to include
in gross estate the value of property which he thought had passed under the exercise by the testatrix of
a general power of appointment.
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
In 1876, John O. Stone died a resident of New York. He left a will by which he created for the benefit of
his daughter, the decedent, Annie Stone, a trust fund, the income from which was to be paid to her
during her life. The will provided that, upon her death, her share of the estate should go and be applied
to such persons and such uses as she might appoint by last will and testament; but, in default of such
appointment, her share of the estate should go and belong to her children or issue, respectively, by
right of representation, or, in default of such issue, to her next of kin. Surviving John O. Stone were his
widow and three daughters, namely, this decedent and Ellen J. Stone and Sarah J. Grinnell. These
constituted his only heirs at law and next of kin. The widow died many years before the death of Annie
Stone. Annie Stone, the decedent, died September 24, 1927, unmarried, without issue, and leaving as
her sole next of kin her two sisters just named. Her will provided "that what property or money I am
allowed to dispose of by will under the will of my dear father, the late Dr. John O. Stone, of the City of
New York, I give, devise, and bequeath in equal shares to my dear sisters Ellen J. Stone and Sarah J.
Grinnell. . . ."
After the death of Annie Stone, the two sisters in writing renounced their right to receive the property
under this paragraph of her will and elected to take the property under the provisions of the will of their
father, John O. Stone.
The Commissioner of Internal Revenue declared a tax deficiency of several thousand dollars in the
federal estate tax on the estate of Annie Stone upon the theory that the property derived from the
estate of her father was required to be included in her gross estate in virtue of the fact that she had
exercised a power of appointment in respect thereof. The Board of Tax Appeals, on review, sustained
the Commissioner. The order of the Board of Tax Appeals based on this holding was reversed by the
Circuit Court of Appeals, 70 F.2d 705, upon the ground that the property did not pass under the exercise
of the power, and consequently an essential condition of § 302 of the Revenue Act of 1926 was not
present.
Section 302, c. 27, 44 Stat. 9, 70, 71, provides:
"Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at
the time of his death of all property, real or personal, tangible or intangible, wherever situated --"
"(f) To the extent of any property passing under a general power of appointment exercised by the
decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in
possession or enjoyment at or after, his death, except in case of a bona fide sale for an adequate and
full consideration in money or money's worth."
The crucial words are "property passing under a general power of appointment exercised by the
decedent by will." Analysis of this clause discloses three distinct requisites: (1) the existence of a general
power of appointment; (2) an exercise of that power by the decedent by will, and (3) the passing of the
property in virtue of such exercise. Clearly, the general power existed and was exercised, and this is not
disputed. But it is equally clear that no property passed under the power or as a result of its exercise,
since that result was definitely rejected by the beneficiaries. If they had wholly refused to take the
property, it could not well be said that the property had passed under the power, for, in that event, it
would not have passed at all. Can it properly be said that, because the beneficiaries elected to take the
property under a distinct and separate title, the property nevertheless passed under the power? Plainly
enough, we think, the answer must be in the negative.
The contention of the government is that the tax is imposed "upon the power to transmit or the
transmission of property by death; the shifting of the economic benefits in property is the real subject
of the tax. . . . The property in question passed to the sisters under the general power of appointment
exercised by the decedent by will within the meaning of the statute."
But this involves the obviously self-destructive conclusion that an unsuccessful attempt to effectuate a
thing required by the statute is the same as its consummation. The tax here does not fall upon the mere
shifting of the economic benefits in property, but upon the shifting of those benefits by a particular
method -- namely, by their "passing under a general power of appointment," and not otherwise.
Acceptance of the government's contention would strip the italicized word of all meaning.
The government relies upon Chase Nat. Bank v. United States, 278 U. S. 327, and Tyler v. United
States, 281 U. S. 497. In neither of these cases was the court concerned with the meaning of the act. In
the first case (p. 278 U. S. 334), the Court said the tax was plainly imposed by the explicit language of
the statute, and that there was no question as to its construction. The sole question for determination
was as to the constitutional validity of the act. The same is true in respect of the second case. Neither
case sheds any light upon the question here involved -- namely the meaning and application of the
statutory provision.
The court below leaned confidently upon the decision of the New York Court of Appeals in the Matter of
Lansing, 182 N.Y. 238, 74 N.E. 882. That well considered case and this in principle cannot be
distinguished. We think the reasoning of the New York court as to the meaning and application of the
state law equally applies to the federal statute here in question. There, as here, the contention of the
taxing authorities (there under the state act, here under the federal act) was that the appointee named
in the will of the donee of the power took her property thereunder, and not under the will of the
creator of the power, notwithstanding the property had been given to her by the will of the former
subject to the power of appointment. But the state court answered that the power gave the appointee
nothing and took nothing away from her; that she had the right of election, and could refuse to take
under the appointment and still hold the property, since her title without was as good as it was with the
power; that she treated the exercise of the power as a mere attempt, and not as an effective execution
of it, and that it sufficiently appeared that she elected to reject title from that source.

"Her rights were fixed by the will of her grandfather, and, unless changed pursuant to its provisions, her
estate in expectancy would become an estate in possession upon the death of her mother. . . . Although
the power was exercised in form, her title was perfect without it, and she derived no benefit from it.
The power was to 'dispose of the remainder,' and the remainder was not disposed of, but continued
where it was. The attempt to execute the power was not effective, because it did nothing. The exercise
of a power which leaves everything as it was before is a mere form, with no substance."

The opinion, p. 244, points out that the power might have been exercised so as to have left the
appointee with no title at all, but that, in fact, it was exercised so as to leave her the same title that she
would have had if the power had not been exercised. The same is true here.

"An appointee under a power," the court continued, "has the right of election, the same as a grantee
under a deed. . . . He can accept the title tendered or reject it, in his discretion. It cannot be forced upon
him against his will. He cannot be compelled to receive additional evidence of title when he does not
want it, and does not need it because his title is perfect without it. His consent is necessary before the
attempt to exercise the power becomes binding upon him the same as consent is necessary in making a
contract or agreement. Declining or refusing to take has the same effect as incapacity to take, as in the
case of a devise to a corporation which has no power to hold any more property because the statutory
limit has been exceeded. The title is not affected, but remains where it was before."

We granted the writ of certiorari in this case because of an alleged conflict with Wear v.
Commissioner, 65 F.2d 665, and Lee v. Commissioner, 61 App.D.C. 33, 57 F.2d 399. The reasoning and
conclusions of those courts and of the court below cannot be reconciled. We are of opinion that, to the
extent of the conflict, the view of the former is wrong, and that of the court below is right, and we hold
accordingly.

Judgment affirmed.
G.R. No. L-34583 October 22, 1931
THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late Adolphe Oscar
Schuetze,plaintiff-appellant,
vs. POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
VILLA-REAL, J.:
The Bank of the Philippine Islands, as administrator of the estate of the deceased Adolphe Oscar
Schuetze, has appealed to this court from the judgment of the Court of First Instance of Manila
absolving the defendant Juan Posadas, Jr., Collector of Internal Revenue, from the complaint filed
against him by said plaintiff bank, and dismissing the complaint with costs.
The appellant has assigned the following alleged errors as committed by the trial court in its judgment,
to wit:
1. The lower court erred in holding that the testimony of Mrs. Schuetze was inefficient to
established the domicile of her husband.
2. The lower court erred in holding that under section 1536 of the Administrative Code the tax
imposed by the defendant is lawful and valid.
3. The lower court erred in not holding that one-half (½) of the proceeds of the policy in
question is community property and that therefore no inheritance tax can be levied, at least
on one-half (½) of the said proceeds.
4. The lower court erred in not declaring that it would be unconstitutional to impose an
inheritance tax upon the insurance policy here in question as it would be a taking of property
without due process of law.
The present complaint seeks to recover from the defendant Juan Posadas, Jr., Collector of Internal
Revenue, the amount of P1,209 paid by the plaintiff under protest, in its capacity of administrator of the
estate of the late Adolphe Oscar Schuetze, as inheritance tax upon the sum of P20,150, which is the
amount of an insurance policy on the deceased's life, wherein his own estate was named the
beneficiary.
At the hearing, in addition to documentary and parol evidence, both parties submitted the following
agreed statement of facts of the court for consideration:
It is hereby stipulated and agreed by and between the parties in the above-entitled action
through their respective undersigned attorneys:
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late Adolphe Oscar
Schuetze, is of legal age, a native of Manila, Philippine Islands, and is and was at all times
hereinafter mentioned a resident of Germany, and at the time of the death of her husband,
the late Adolphe Oscar Schuetze, she was actually residing and living in Germany;
2. That the Bank of the Philippine Islands, is and was at all times hereinafter mentioned a
banking institution duly organized and existing under and by virtue of the laws of the
Philippine Islands;
3. That on or about August 23, 1928, the herein plaintiff before notary public Salvador
Zaragoza, drew a general power appointing the above-mentioned Bank of the Philippine
Islands as her attorney-in-fact, and among the powers conferred to said attorney-in-fact was
the power to represent her in all legal actions instituted by or against her;
4. That the defendant, of legal age, is and at all times hereinafter mentioned the duly
appointed Collector of Internal Revenue with offices at Manila, Philippine Islands;
5. That the deceased Adolphe Oscar Schuetze came to the Philippine Islands for the first time
of March 31, 1890, and worked in the several German firms as a mere employee and that
from the year 1903 until the year 1918 he was partner in the business of Alfredo Roensch;
6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the habit of making various
trips to Europe;
7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming from Java, and with
the intention of going to Bremen, landed in the Philippine Islands where he met his death on
February 2, 1928;
8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in Germany, executed a
will, in accordance with its law, wherein plaintiff was named his universal heir;
9. That the Bank of the Philippine Islands by order of the Court of First Instance of Manila
under date of May 24, 1928, was appointed administrator of the estate of the deceased
Adolphe Oscar Schuetze;
10. That, according to the testamentary proceedings instituted in the Court of First Instance of
Manila, civil case No. 33089, the deceased at the time of his death was possessed of not only
real property situated in the Philippine Islands, but also personal property consisting of shares
of stock in nineteen (19) domestic corporations;
11. That the fair market value of all the property in the Philippine Islands left by the deceased
at the time of his death in accordance with the inventory submitted to the Court of First
Instance of Manila, civil case No. 33089, was P217,560.38;
12. That the Bank of the Philippine Islands, as administrator of the estate of the deceased
rendered its final account on June 19, 1929, and that said estate was closed on July 16, 1929;
13. That among the personal property of the deceased was found life-insurance policy No.
194538 issued at Manila, Philippine Islands, on January 14, 1913, for the sum of $10,000 by
the Sun Life Assurance Company of Canada, Manila branch, a foreign corporation duly
organized and existing under and by virtue of the laws of Canada, and duly authorized to
transact business in the Philippine Islands;
14. That in the insurance policy the estate of the said Adolphe Oscar Schuetze was named the
beneficiary without any qualification whatsoever;
15. That for five consecutive years, the deceased Adolphe Oscar Schuetze paid the premiums
of said policy to the Sun Life Assurance Company of Canada, Manila branch;
16. That on or about the year 1918, the Sun Life Assurance Company of Canada, Manila
branch, transferred said policy to the Sun Life Assurance Company of Canada, London branch;
17. That due to said transfer the said Adolphe Oscar Schuetze from 1918 to the time of his
death paid the premiums of said policy to the Sun Life Assurance Company of Canada, London
Branch;
18. That the sole and only heir of the deceased Adolphe Oscar Schuetze is his widow, the
plaintiff herein;
19. That at the time of the death of the deceased and at all times thereafter including the date
when the said insurance policy was paid, the insurance policy was not in the hands or
possession of the Manila office of the Sun Life Assurance Company of Canada, nor in the
possession of the herein plaintiff, nor in the possession of her attorney-in-fact the Bank of the
Philippine Islands, but the same was in the hands of the Head Office of the Sun Life Assurance
Company of Canada, at Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine Islands as administrator of the decedent's
estate received from the Sun Life Assurance Company of Canada, Manila branch, the sum of
P20,150 representing the proceeds of the insurance policy, as shown in the statement of
income and expenses of the estate of the deceased submitted on June 18, 1929, by the
administrator to the Court of First Instance of Manila, civil case No. 33089;
21. That the Bank of the Philippine Islands delivered to the plaintiff herein the said sum of
P20,150;
22. That the herein defendant on or about July 5, 1929, imposed an inheritance tax upon the
transmission of the proceeds of the policy in question in the sum of P20,150 from the estate
of the late Adolphe Oscar Schuetze to the sole heir of the deceased, or the plaintiff herein,
which inheritance tax amounted to the sum of P1,209;
23. That the Bank of the Philippine Islands as administrator of the decedent's estate and as
attorney-in-fact of the herein plaintiff, having been demanded by the herein defendant to pay
inheritance tax amounting to the sum of P1,209, paid to the defendant under protest the
above-mentioned sum;
24. That notwithstanding the various demands made by plaintiff to the defendant, said
defendant has refused and refuses to refund to plaintiff the above mentioned sum of P1,209;
25. That plaintiff reserves the right to adduce evidence as regards the domicile of the
deceased, and so the defendant, the right to present rebuttal evidence;
26. That both plaintiff and defendant submit this stipulation of facts without prejudice to their
right to introduce such evidence, on points not covered by the agreement, which they may
deem proper and necessary to support their respective contentions.
In as much as one of the question raised in the appeal is whether an insurance policy on said Adolphe
Oscar Schuetze's life was, by reason of its ownership, subject to the inheritance tax, it would be well to
decide first whether the amount thereof is paraphernal or community property.
According to the foregoing agreed statement of facts, the estate of Adolphe Oscar Schuetze is the sole
beneficiary named in the life-insurance policy for $10,000, issued by the Sun Life Assurance Company of
Canada on January 14, 1913. During the following five years the insured paid the premiums at the
Manila branch of the company, and in 1918 the policy was transferred to the London branch.
The record shows that the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario
Gelano on January 16, 1914.
With the exception of the premium for the first year covering the period from January 14, 1913 to
January 14, 1914, all the money used for paying the premiums, i. e., from the second year, or January
16, 1914, or when the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario Gelano,
until his death on February 2, 1929, is conjugal property inasmuch as it does not appear to have
exclusively belonged to him or to his wife (art. 1407, Civil Code). As the sum of P20,150 here in
controversy is a product of such premium it must also be deemed community property, because it was
acquired for a valuable consideration, during said Adolphe Oscar Schuetze's marriage with Rosario
Gelano at the expense of the common fund (art. 1401, No. 1, Civil Code), except for the small part
corresponding to the first premium paid with the deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second edition, Manresa treats of life
insurance in the following terms, to wit:
The amount of the policy represents the premiums to be paid, and the right to it arises the
moment the contract is perfected, for at the moment the power of disposing of it may be
exercised, and if death occurs payment may be demanded. It is therefore something acquired
for a valuable consideration during the marriage, though the period of its fulfillment, depend
upon the death of one of the spouses, which terminates the partnership. So considered, the
question may be said to be decided by articles 1396 and 1401: if the premiums are paid with
the exclusive property of husband or wife, the policy belongs to the owner; if with conjugal
property, or if the money cannot be proved as coming from one or the other of the spouses,
the policy is community property.
The Supreme Court of Texas, United States, in the case of Martin vs. Moran (11 Tex. Civ. A., 509) laid
down the following doctrine:
COMMUNITY PROPERTY — LIFE INSURANCE POLICY. — A husband took out an endowment
life insurance policy on his life, payable "as directed by will." He paid the premiums thereon
out of community funds, and by his will made the proceeds of the policy payable to his own
estate. Held, that the proceeds were community estate, one-half of which belonged to the
wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of California laid down the following
doctrine:
A testator, after marriage, took out an insurance policy, on which he paid the premiums from
his salary. Held that the insurance money was community property, to one-half of which, the
wife was entitled as survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the following doctrine:
A decedent paid the first third of the amount of the premiums on his life-insurance policy out
of his earnings before marriage, and the remainder from his earnings received after marriage.
Held, that one-third of the policy belonged to his separate estate, and the remainder to the
community property.
Thus both according to our Civil Code and to the ruling of those North American States where the
Spanish Civil Code once governed, the proceeds of a life-insurance policy whereon the premiums were
paid with conjugal money, belong to the conjugal partnership.
The appellee alleges that it is a fundamental principle that a life-insurance policy belongs exclusively to
the beneficiary upon the death of the person insured, and that in the present case, as the late Adolphe
Oscar Schuetze named his own estate as the sole beneficiary of the insurance on his life, upon his death
the latter became the sole owner of the proceeds, which therefore became subject to the inheritance
tax, citing Del Val vs. Del Val (29 Phil., 534), where the doctrine was laid down that an heir appointed
beneficiary to a life-insurance policy taken out by the deceased, becomes the absolute owner of the
proceeds of such policy upon the death of the insured.
acquisition is made for the partnership or for one of the spouses only." Furthermore, such appropriation
is a fraud practised upon the wife, which cannot be allowed to prejudice her, according to article 1413,
paragraph 2, of said Code. Although the husband is the manager of the conjugal partnership, he cannot
of his own free will convert the partnership property into his own exclusive property.
As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar Schuetze, were
paid out of the conjugal funds, with the exceptions of the first, the proceeds of the policy, excluding the
proportional part corresponding to the first premium, constitute community property, notwithstanding
the fact that the policy was made payable to the deceased's estate, so that one-half of said proceeds
belongs to the estate, and the other half to the deceased's widow, the plaintiff-appellant Rosario
Gelano Vda. de Schuetze.
The second point to decide in this appeal is whether the Collector of Internal Revenue has authority,
under the law, to collect the inheritance tax upon one-half of the life-insurance policy taken out by the
late Adolphe Oscar Schuetze, which belongs to him and is made payable to his estate.
According to the agreed statement of facts mentioned above, the plaintiff-appellant, the Bank of the
Philippine Islands, was appointed administrator of the late Adolphe Oscar Schuetze's testamentary
estate by an order dated March 24, 1928, entered by the Court of First Instance of Manila. On July 13,
1928, the Sun Life Assurance Company of Canada, whose main office is in Montreal, Canada, paid
Rosario Gelano Vda. de Schuetze upon her arrival at Manila, the sum of P20,150, which was the amount
of the insurance policy on the life of said deceased, payable to the latter's estate. On the same date
Rosario Gelano Vda. de Schuetze delivered the money to said Bank of the Philippine Islands, as
administrator of the deceased's estate, which entered it in the inventory of the testamentary estate,
and then returned the money to said widow.

Section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835 and section 1 of Act
The estate of a deceased person cannot be placed on the same footing as an individual heir. The
No. 3031, contains the following relevant provision:
proceeds of a life-insurance policy payable to the estate of the insured passed to the executor or
administrator of such estate, and forms part of its assets (37 Corpus Juris, 565, sec. 322); whereas the
proceeds of a life-insurance policy payable to an heir of the insured as beneficiary belongs exclusively to SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of inheritance,
said heir and does not form part of the deceased's estate subject to administrator. (Del Val vs. Del devise, bequest, gift mortis causa or advance in anticipation of inheritance, devise, or bequest
Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of the Code of Commerce.) of real property located in the Philippine Islands and real rights in such property; of any
franchise which must be exercised in the Philippine Islands; of any shares, obligations, or
bonds issued by any corporation or sociedad anonima organized or constituted in the
Just as an individual beneficiary of a life-insurance policy taken out by a married person becomes the
Philippine Islands in accordance with its laws; of any shares or rights in any partnership,
exclusive owner of the proceeds upon the death of the insured even if the premiums were paid by the
business or industry established in the Philippine Islands or of any personal property located
conjugal partnership, so, it is argued, where the beneficiary named is the estate of the deceased whose
in the Philippine Islands shall be subject to the following tax:
life is insured, the proceeds of the policy become a part of said estate upon the death of the insured
even if the premiums have been paid with conjugal funds.
In as much as the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetze were
paid to the Bank of the Philippine Islands, as administrator of the deceased's estate, for management
In a conjugal partnership the husband is the manager, empowered to alienate the partnership property
and partition, and as such proceeds were turned over to the sole and universal testamentary heiress
without the wife's consent (art. 1413, Civil Code), a third person, therefore, named beneficiary in a life-
Rosario Gelano Vda. de Schuetze, the plaintiff-appellant, here in Manila, the situs of said proceeds is the
insurance policy becomes the absolute owner of its proceeds upon the death of the insured even if the
Philippine Islands.
premiums should have been paid with money belonging to the community property. When a married
man has his life insured and names his own estate after death, beneficiary, he makes no alienation of
the proceeds of conjugal funds to a third person, but appropriates them himself, adding them to the In his work "The Law of Taxation," Cooley enunciates the general rule governing the levying of taxes
assets of his estate, in contravention of the provisions of article 1401, paragraph 1, of the Civil Code upon tangible personal property, in the following words:
cited above, which provides that "To the conjugal partnership belongs" (1) Property acquired for a
valuable consideration during the marriage at the expense of the common fund, whether the
 GENERAL RULE. — The suits of tangible personal property, for purposes of taxation may be By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of a life-insurance policy
where the owner is domiciled but is not necessarily so. Unlike intangible personal property, it payable to the insured's estate, on which the premiums were paid by the conjugal partnership,
may acquire a taxation situs in a state other than the one where the owner is domiciled, constitute community property, and belong one-half to the husband and the other half to the wife,
merely because it is located there. Its taxable situs is where it is more or less permanently exclusively; (2) that if the premiums were paid partly with paraphernal and partly conjugal funds, the
located, regardless of the domicile of the owner. It is well settled that the state where it is proceeds are likewise in like proportion paraphernal in part and conjugal in part; and (3) that the
more or less permanently located has the power to tax it although the owner resides out of proceeds of a life-insurance policy payable to the insured's estate as the beneficiary, if delivered to the
the state, regardless of whether it has been taxed for the same period at the domicile of the testamentary administrator of the former as part of the assets of said estate under probate
owner, provided there is statutory authority for taxing such property. It is equally well settled administration, are subject to the inheritance tax according to the law on the matter, if they belong to
that the state where the owner is domiciled has no power to tax it where the property has the assured exclusively, and it is immaterial that the insured was domiciled in these Islands or
acquired an actual situs in another state by reason of its more or less permanent location in outside.1awphil.net
that state. ... (2 Cooley, The Law of Taxation, 4th ed., p. 975, par. 451.)
Wherefore, the judgment appealed from is reversed, and the defendant is ordered to return to the
With reference to the meaning of the words "permanent" and "in transit," he has the following to say: plaintiff the one-half of the tax collected upon the amount of P20,150, being the proceeds of the
insurance policy on the life of the late Adolphe Oscar Schuetze, after deducting the proportional part
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. — In order to acquire a situs in a state or corresponding to the first premium, without special pronouncement of costs. So ordered.
taxing district so as to be taxable in the state or district regardless of the domicile of the
owner and not taxable in another state or district at the domicile of the owner, tangible
personal property must be more or less permanently located in the state or district. In other
words, the situs of tangible personal property is where it is more or less permanently located
rather than where it is merely in transit or temporarily and for no considerable length of time.
If tangible personal property is more or less permanently located in a state other than the one
where the owner is domiciled, it is not taxable in the latter state but is taxable in the state
where it is located. If tangible personal property belonging to one domiciled in one state is in
another state merely in transitu or for a short time, it is taxable in the former state, and is not
taxable in the state where it is for the time being. . . . .

Property merely in transit through a state ordinarily is not taxable there. Transit begins when
an article is committed to a carrier for transportation to the state of its destination, or started
on its ultimate passage. Transit ends when the goods arrive at their destination. But
intermediate these points questions may arise as to when a temporary stop in transit is such
as to make the property taxable at the place of stoppage. Whether the property is taxable in
such a case usually depends on the length of time and the purpose of the interruption of
transit. . . . .

. . . It has been held that property of a construction company, used in construction of a

railroad, acquires a situs at the place where used for an indefinite period. So tangible personal
property in the state for the purpose of undergoing a partial finishing process is not to be
regarded as in the course of transit nor as in the state for a mere temporary purpose. (2
Cooley, The Law of Taxation, 4th ed., pp. 982, 983 and 988, par. 452.)

If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar Schuetze and made
payable to his estate, were delivered to the Bank of the Philippine Islands for administration and
distribution, they were not in transit but were more or less permanently located in the Philippine
Islands, according to the foregoing rules. If this be so, half of the proceeds which is community property,
belongs to the estate of the deceased and is subject to the inheritance tax, in accordance with the legal
provision quoted above, irrespective of whether or not the late Adolphe Oscar Schuetze was domiciled
in the Philippine Islands at the time of his death.
 ESTATE of Edward A. TULLY, Sr. Edward A. TULLY, Jr., et al. v. The UNITED STATES.
United States Court of Claims.
January 28, 1976.
KUNZIG, Judge.
The single issue presented in this estate tax case is the includability in decedent Edward A. Tully, Sr.'s
gross estate of death benefits paid directly to Tully's widow by his employer. Plaintiffs (co-executors)
move for partial summary judgment1 claiming that no estate tax provision compels such treatment.
Defendant's cross-motion counters that the death benefits must be added to the gross estate as
required either by section 2038(a)(1) or section 2033 of the Internal Revenue Code of 1954. We agree
with plaintiffs and hold the sum at issue not includable in Tully's gross estate.
The facts in this case are uncontested. Before his death, Tully was employed by Tully and DiNapoli, Inc.
(T & D), a company owned 50% by decedent and 50% by Vincent P. DiNapoli. On July 1, 1959, Tully,
DiNapoli and T & D entered into a contract whereby T & D promised to pay death benefits to the Tully
and DiNapoli widows.2 Later, in October 1963, the same parties amended the 1959 agreement to limit
the maximum amount of death payments to $104,000. On March 7, 1964, Tully died. T & D paid his
widow the $104,000 called for in the contract.
Because the death benefits were paid directly by T & D to the widow, plaintiffs did not include this sum
in Tully's gross estate when they filed the estate tax return. On audit, the Internal Revenue Service (IRS)
concluded that the $104,000 was part of Tully's gross estate and assessed an estate tax deficiency.
Plaintiffs paid the deficiency, filed a refund claim and by timely petition filed in this court, brought the
present action after the IRS disallowed their claim.
In essence, plaintiffs say section2038(a)(1)3 is inapplicable because Tully never transferred an interest
in the death benefits, either at the time of their creation or thereafter, and even if he had, he kept no
power to "alter, amend, revoke or terminate" the interest. Further, plaintiffs assert, decedent had no
"interest" in the death benefits at the time of his death within the meaning of estate tax section
2033.4 Defendant takes an opposing viewpoint. It contends that Tully made a transfer of his interest in
the benefits prior to his death, but kept a power to "alter, amend, revoke or terminate" such transfer
until the time of his death. Defendant claims this power requires addition of the benefits to Tully's gross
estate under section 2038(a)(1). Alternatively, the Government argues, Tully still had sufficient
"interest" in the benefits at the time of his death to force the $104,000 into his gross estate under
section 2033.
The Government relies only on sections 2038(a)(1) and 2033, and no others, in its argument that the
death benefits at issue here are includable in Tully's gross estate.
Defendant's contentions, specifically its argument that sections 2038(a)(1) and 2033 must be treated as
virtually identical, suggest at the outset that we consider the basic philosophy of estate tax law. As
enacted by Congress, the primary purpose of the estate tax is to tax "the transfer of property at death."
C. Lowndes & R. Kramer, Federal Estate and Gift Taxes § 2.2 (3d Ed. 1974). If sufficient incidents of
ownership in an item of property are given away before death, no tax will be imposed. Since all estate
tax statutes are direct at taxing properly transferred at death, it can become easy to confuse their
operation or to apply them in an overlapping fashion.
Within this context, the estate tax sections involved in the instant case, 2038(a)(1) and 2033, both
impose a tax on property transferred at death. However, they are directed at two different situations.
Section 2038(a)(1) is specific in its terms. It taxes property which an individual has given away while
retaining enough "strings" to change or revoke the gift. Section 20335 is more general in its approach,
and taxes property which has never really been given away at all.
Certain of defendant's arguments misconstrue this basic difference between section 2038(a)(1) and
section 2033. By suggesting that the same "controls" over property which might represent a section
2038(a)(1) "power" can also be viewed as a section 2033 "interest," the Government attempts to turn
section 2033 into an estate tax "catch all." This was not the intent of Congress in enacting section 2033.
Congress has provided a "catch all" in the income tax statutes. 6 It has not done so in the estate tax
area. Estate of Spiegel v. Commissioner of Internal Revenue, 335 U.S. 701, 714, 69 S.Ct. 301, 93 L.Ed. 330
(1949). Cf. Helvering v. Safe Deposit & Trust Co., 316 U.S. 56, 62 S.Ct. 925, 86 L.Ed. 1266 (1942); United
States v. Field, 255 U.S. 257, 41 S.Ct. 256, 65 L.Ed. 617 (1921).7 Therefore, defendant's efforts to treat
the two sections as virtually identical by the "catch all" method are misplaced.
In accordance with this analysis, our inquiry takes two avenues. First, did Tully transfer the death
benefits but keep a power to change or revoke them until the time of his death? If so, section
2038(a)(1) applies. Second, did Tully have an "interest" in the benefits at his death? If he had an
"interest," section 2033 applies.
We find that Tully effectively transferred his interests in the death benefits before his death, determine
that he did not keep any significant powers to "alter, amend, revoke or terminate" the transfer and
conclude that he had no "interest" in the benefits at the time of his death. We, therefore, hold that the
death benefits at issue here were not includable in Tully's gross estate.
I. Section 2038(a)(1):
Defendant argues that Tully transferred an interest in the death benefits at some point prior to his
death and kept a section 2038(a)(1) power to "alter, amend, revoke or terminate" the enjoyment of the
benefits after the transfer until his death. Plaintiffs counter that there was no "transfer" in the 1959
contract or thereafter because decedent never had any interest in the benefits which he could transfer.
Even if a transfer is found, plaintiffs claim Tully did not keep a section 2038(a)(1) "power" after such
transfer.
Contrary to plaintiffs' position, Tully did transfer an interest in the death benefits to his wife by
executing the 1959 contract. In one of the three death benefit plans at issue in Estate of Bogley v.
United States, 514 F.2d 1027, 206 Ct.Cl. 695 (1975), the decedent (an employee, officer, director and
34% shareholder) entered into an enforceable contract with his employer. In consideration of
decedent's past and future services, the employer promised to pay decedent's widow or the estate two
years' salary after his death. We found that where decedent was married at the time of the execution of
the contract he "* * * did make a transfer of his interest to his wife during his lifetime by making the
contract with [the employer]." Bogley, supra, 514 F.2d at 1039, 206 Ct.Cl. at 715. In the instant case, the
basic facts are nearly identical. The 1959 agreement looked to Tully's past and future services to T & D
for consideration. The benefits here were also payable to the "widow" and decedent was married at the
time of the 1959 contract. Tully in substance, if not in form, made a gift of a part of his future earnings
to his wife.
However, within the meaning of section 2038(a)(1), Tully did not keep a power to "alter, amend, revoke
or terminate" the death benefit transfer after the 1959 contract. There was no express reservation of
such power in either the 1959 or 1963 contracts and no indication in the record of any other express
agreements in which Tully obtained a section 2038(a)(1) power.
The Government implies that Tully's 50% stock ownership of T & D gave him unfettered power to
change the death benefit plan to suit his own tastes. The facts do not bear this out. To the contrary,
Tully's every movement could have been blocked by the other 50% shareholder. Tully did not have
individual control of T & D and could not by himself, alter the terms of the death benefit,
agreement.8 As stated by the court in Harris v. United States, 29 Am.Fed.Tax R.2d 1558 (C.D.Cal.1972),
section 2038(a)(1) powers must be demonstrable, real, apparent and evident, not speculative. See also
Hinze v. United States, 29 Am.Fed.Tax R.2d 1553 (C.D.Cal.1972). We agree with this test and find Tully
did not have a section 2038(a)(1) power to "alter, amend, revoke or terminate" through his 50% stock
ownership in T & D at the time of his death.
Moreover, the death benefits are not includable in Tully's gross estate despite the fact that
Tully might have altered, amended, revoked or terminated them in conjunction with T & D and
DiNapoli. A power to "alter, amend, revoke or terminate" expressly exercisable in conjunction with
others falls within section 2038(a)(1), but "power" as used in this section does not extend to powers of
persuasion. If section 2038(a)(1) reached the possibility that Tully might convince
T & D and DiNapoli to change the death benefit plan, it would apply to speculative powers.Section
2038(a)(1) cannot be so construed.9 Harris, supra; Hinze, supra. In addition, if section 2038(a)(1) applies
to situations where an employee might convince an employer to change a death benefit program, it
would sweep all employee death benefit plans into the gross estates of employees. It would always be
at least possible for an employee to convince the employer that it would be to their mutual benefit to
modify the death benefit plan. In light of the numerous cases where employee death benefit plans
similar to the instant plan were held not includable in the employee's gross estate, 10 we find that
Congress did not intend the "in conjunction" language of section 2038(a)(1) to extend to the mere
possibility of bilateral contract modification. Therefore, merely because Tully might have changed the
benefit plan "in conjunction" with T & D and DiNapoli, the death benefits are not forced into Tully's
gross estate.
Tully also did not obtain a section 2038(a)(1) "power" from the remote possibility that he could have
altered the amount of death benefits payable to his widow by changing his compensation scheme. The
death benefits here were to be paid based on decedent's annual salary. From this, defendant reasons
that up until the time of his death, Tully could have accepted lesser compensation or terminated his
employment in order to alter or revoke the death benefits.11 In practical terms, we reject
this possibility. This is not a factor which rises to the level of a section 2038(a)(1) "power." An employee
might accept lesser compensation or terminate his employment for a myriad of reasons, but to
conclude that a motive for such action would be the death benefit plan itself is not only speculative but
ridiculous. And we have already made clear that a section 2038(a)(1) "power" cannot be speculative,
but must be demonstrable, real, apparent and evident. Harris, supra; Hinze, supra. In addition,
modification of Tully's employment contract would have required the cooperation of T & D or a breach
by Tully. Neither of these two events constitutes a section 2038(a)(1) "power." Further, it is a common
practice to "peg" employee death benefit plans to the employee's salary. To our knowledge, no court
has ever held that such practice subjects death benefits to inclusion in the employee's gross estate. On
the contrary, in Estate of Whitworth v. Commissioner, 22 CCH Tax Ct.Mem. 177 (1963), the court
concluded that although the decedent could have terminated his widow's benefits by leaving his
employ or by breaching his employment contract, the death benefits at issue were not includable in his
estate as a section 2038(a)(1) revocable transfer. Due to the practicalities of death benefit contracts and
using the rationale of the Whitworth case, we hold that no section 2038(a)(1) power was created by the
remote possibility that Tully might have changed the amount of death benefits prior to his death.
Finally, Tully did not retain a section 2038(a)(1) "power" to revoke or terminate the transfer to his wife
by virtue of the possibility that he could have divorced her. The contract called for T & D to make the
death benefit payments to Tully's widow. It might be argued that Tully could have divorced his wife to
terminate her interest in the death benefits,12 but again such an argument ignores practicalities,
reduces the term "power" to the speculative realm, and is not in accord with prior cases. In reality, a
man might divorce his wife, but to assume that he would fight through an entire divorce process merely
to alter employee death benefits approaches the absurd. Further, in various cases, death benefits
payable to the "widow", Estate of Porter v. Commissioner, 442 F.2d 915 (1st Cir. 1971), or "wife", Estate
of Kramer v. United States, 406 F.2d 1363, 186 Ct.Cl. 684 (1969), were not thereby held includable in the
gross estate.13 The possibility of divorce in the instant situation is so de minimis and so speculative
rather than demonstrative, real, apparent and evident that it cannot rise to the level of a section
2038(a)(1) "power." Harris, supra; Hinze, supra. Thus the use of "widow" in the death benefit contract
did not give Tully a real power to revoke or terminate the death benefit transfer to his wife.
In short, in the 1959 contract Tully transferred certain interests to his wife by obtaining T & D's promise
to pay death benefits. While it may be argued that Tully kept a certain de minimisassociation with the
death benefit plan, such association never rose to the dignity of a power to "alter, amend, revoke or
terminate" the transfer. In Kramer, supra, we held that a substantially similar plan did not create section
2038(a)(1) powers. The facts here are not significantly different. Therefore, section 2038(a)(1) does not
operate to compel inclusion of the death benefits in decedent's gross estate.
II. Section 2033:
Nor does section 2033 require addition of the benefits to Tully's gross estate. The Government argues
that corporate control, "pegging" the benefits to Tully's salary, and naming "widow" as beneficiary
constituted section 2033 "interests" kept by Tully until his death. We found above that these facts did
not give rise to a section 2038(a)(1) "power." We also determine that they did not create a section 2033
"interest."
Having found that Tully transferred the death benefits to his wife and that he could not reach them for
his own use, he could not have kept a section 2033 "interest." The de minimisassociations Tully may
have still had with the benefits are not strong enough to force a conclusion that decedent never
transferred his interests in the benefits to his wife.
Defendant would use section 2033 as a "catch all." The simple answer to this is that section 2033 is not
a "catch all," Spiegel, supra, but applies to situations where decedent kept so much control over an item
of property that in substance he still owns the property. "Interest" as used in section 2033 connotes a
stronger control than "power" as used in section 2038(a)(1). If controls over property cannot rise to the
dignity of section 2038(a)(1) "powers" they equally cannot create section 2033 "interests." In the
instant case, having failed to establish that corporate stock ownership, "pegging" the benefits to Tully's
salary and naming the "widow" as beneficiary
created section 2038(a)(1) "powers," defendant equally fails to demonstrate that the same facts create
section 2033 "interests."

In summary, we have considered an employee plan in which the employee transferred death benefits to
his wife, but kept until his death certain tangential associations with the plan. These de
minimis associations did not rise to the level of section 2038(a)(1) "powers" to "alter, amend, revoke or
terminate" the transfer, and did not constitute "interests" sufficient to force the conclusion that section
2033 applies. Therefore, the death benefits at issue here were not includable in Tully's gross estate.

Accordingly, plaintiffs' motion for partial summary judgment is granted and defendant's cross-motion
for partial summary judgment is denied. The case is remanded to the Trial Judge for determination of
the amount due plaintiffs under Rule 131(c) by reason of this judgment and such other action as may be
necessary, not inconsistent with the above.
 Goodman
v. Granger
KALODNER, Circuit Judge.
When does the federal estate tax attach?
More specifically stated, when does such tax attach to a decedent-employee's contractual right to
annual deferred compensation payments from his employer, payable to his estate after his death?
That problem, of first impression, is presented by this appeal by the government from a judgment in
favor of the taxpayer, Eleanor D. Goodman, administratrix of the estate of Jacques Blum, deceased, in a
suit brought by her in the District Court for the Western District of Pennsylvania to recover estate
taxes and interest alleged to have been erroneously assessed and collected.
The District Court, subscribing to the taxpayer's contention, concluded as a matter of law that the
decedent's contractual right was to be "* * * valued during decedent's lifetime and at the moment
before death * * *" and made the factual finding that at such moment the contractual right was
"valueless", for reasons which will subsequently be discussed. In its opinion the District Court stated "It
must be admitted that if the value in the contracts is to be fixed the moment after death, then the
Government is correct in its contention in this case." (emphasis supplied)
Unfortunately, the District Court's opinion is not reported.
The undisputed facts may be summarized as follows:
The decedent, Jacques Blum, for several years prior to his sudden death of a heart attack at the age of
52 on May 2, 1947, was executive vice-president of Gimbel Brothers, Inc. ("Gimbels") in charge of its
Pittsburgh store.
On October 19, 1944, June 1, 1945 and May 26, 1946, decedent entered into identical contracts of
employment with Gimbel Brothers covering the years ending January 31, 1945, January 31, 1946 and
January 31, 1947, respectively. Each contract provided for a basic salary of $50,000 per year, and for
additional "contingent benefits" of $2,000 per year for fifteen years "after the employee ceases to be
employed by the employer" by reason of death or otherwise. The post-employment "contingent
payments" were to be made only if the employee duly performed the services agreed upon and did not
engage in a competing business within a specified period after termination of his employment; and they
were to be reduced if his post-employment earnings from a non-competing business plus the
contingent payments exceeded seventy-five percent of his yearly average compensation under the
contracts. Any of the fifteen annual contingent payments which fell due after the employee's death
were to be paid to his estate, or to a nominee designated in his will.
The third contract for the period of employment ending January 31, 1947 was, by its terms, renewed on
a month-to-month basis and was in effect at the time of decedent's death. At the latter time there was
every prospect that he would continue to advance in his highly successful career in retailing.
Each of the contracts provided for payment of amounts falling due after the employee's death, in the
following language:
"6. Any of the fifteen (15) annual contingent payments which fall due after the death of the Employee
shall be paid either (1) to such person as shall furnish evidence satisfactory to the Employer showing
that under the last will and testament of the Employee or for other reason he is duly authorized in law
to receive such payment, or (2) to such person as shall furnish the Employer with evidence of
appointment as representative of the estate of the Employee. The receipt of any such person for such
payments shall release the Employer of any further obligation in respect thereof. `Person' as used in this
Article 6 may include one or more individuals, trusts, firms or corporations."
After the decedent's death Gimbels paid the $6,000 annual installments provided by the three separate
contracts ($2,000 each) to the taxpayer in her capacity as administratrix as they became due. She filed
with the Collector a timely federal estate tax return and included the three contracts at a value of
$15,000. Upon audit of the return the Internal Revenue Agent in Charge, Pittsburgh, increased the value
of the three contracts from $15,000 to $66,710.34, the present worth of $90,000, payable in equal
annual installments of $6,000 a year over a period of fifteen years. The increase in the value of the
contracts resulted in a deficiency of $15,958.18, including interest, which was assessed against and paid
by the taxpayer, and for the recovery of which she brought the suit here involved.
At the trial the taxpayer offered the testimony of three witnesses to the effect that the three contracts
created no property right having any market value in the decedent while he lived.
The government offered the testimony of one witness who testified that the deficiency assessment was
based upon his conclusion that the contracts created in the decedent valuable vested interests, subject
to being divested, and on that theory the contracts were considered by the government to have the
marketable monetary value which it had determined and assessed.
The federal estate tax is imposed upon "the transfer" of a decedent's property, Internal Revenue Code
of 1939, sec. 810, and the gross estate of the decedent is determined by including "the value at the time
of his death of all property" to "the extent of the [decedent's] interest therein." Sec. 811(a). Treasury
Regulations 105, sec. 81.10 provide that the measure of value for the purpose of determining the gross
estate in federal estate taxation is the fair market value of the estate.
"Sec. 810. Rate of tax — A tax equal to the sum of the following percentages of the value of the net
estate (determined as provided in section 812) shall be imposed upon the transfer of the net estate of
every decedent, citizen or resident of the United States, dying after the date of the enactment of this
title." 26 U.S.C. § 810.
"Sec. 811. Gross estate — The value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
whereever situated, except real property situated outside of the United States —
"(a) Decedent's interest. To the extent of the interest therein of the decedent at the time of his death;"
26 U.S.C. § 811.
"Regulation 105. Section 81.10: Valuation of property. (a) General. The value of every item of property
includible in the gross estate is the fair market value thereof at the time of the decedent's death or, if
the executor elects in accordance with the provisions of section 81.11, it is the fair market value thereof
at the date therein prescribed or such value adjusted as therein set forth. The fair market value is the
price at which the property would change hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell. The fair market value of a particular kind of property
includible in the gross estate is not to be determined by a forced sale price. Such value is to be
determined by ascertaining as a basis the fair market value as of the applicable valuation date of each
unit of the property. For example, in the case of shares of stock or bonds, each unit of property is a
share or a bond. All relevant facts and elements of value as of the applicable valuation date should be
considered in every case."
The sum of the taxpayer's position is (1) what is taxed is "the value" of the decedent's interest in his
contract that "ceased by reason of death", not the value of what is received by the recipient (the
administratrix); otherwise stated, "the value" of the decedent's interest in his contract was to be
determined as "of the moment before death."
The government's position may be summarized as follows: (1) the estate tax is measured by the value of
property transferred by death and here an absolute right to the fifteen deferred compensation
payments passed by decedent's death to the taxpayer inasmuch as the possibility of forfeiture was
extinguished by decedent's death; (2) the government properly valued the right to the deferred
compensation payments in the same manner as an annuity for a term certain, i.e. at the commuted
value in accordance with the applicable Treasury Regulations.
As earlier noted, the District Court agreed with the taxpayer's view. In doing so it stated:
"It seems clear under the authorities and the statute and the regulations that the value of the contract
rights is limited to the interest of the decedent during his lifetime. That interest, under the testimony
and by a fair preponderance of the evidence, is valueless. There was no fair market value on which to
base a deficiency assessment." (Emphasis supplied.)
It may be noted parenthetically that the taxpayer's testimony as to lack of value, adverted to by the
District Court, was premised on the circumstance that the employment contracts specified four
contingencies which, if any of them had occurred, would have forfeited the decedent's right to the
deferred compensation payments.
It is clear that the decedent's interest in the employment contracts was "property" includible in his
gross estate under Section 811(a) of the Internal Revenue Code of 1939. Determination of the time
when that interest is to be valued is the crux of the dispute.
We have had the benefit of thorough discussions by both the government and the taxpayer of the
nature of the federal estate tax. Both parties cited Knowlton v. Moore, 1900, 178 U.S. 41, 20 S.Ct.
747, 44 L.Ed. 969; Young Men's Christian Association of Columbus, Ohio v. Davis, 1924, 264 U.S. 47, 44
S.Ct. 291, 68 L.Ed. 558; and Edwards v. Slocum, 1924, 264 U.S. 61, 44 S.Ct. 293, 68 L.Ed. 564. The
government cited them for the proposition that the subject of the tax is neither the property of the
decedent, nor the property of the legatee, but rather the transfer of assets affected by death. The
taxpayer emphasizes the language in these cases which supports the theory that what is taxed is the
value of the interest that ceased by reason of death, not the value of what is received by the recipient.
We are in accord with both of these general axioms which aid in clarifying the nature of the federal
estate tax. However, the cases cited and the principles drawn therefrom are not decisive of the
question posed by this case. While the nature of the tax has been discussed in numerous Supreme
Court cases, the question of the proper time to determine the nature of a decedent's interest and the
value thereof requires a more particularized analysis.
The taxpayer has ignored the very nature of the tax which it is urged is dispositive of this case. True, the
tax reaches the "`* * * interest which ceased by reason of the death'", Knowlton v. Moore, supra, 178
U.S. at page 49, 20 S.Ct. at page 751 but the reference there was to the distinction between an estate
tax and an inheritance tax. The inheritance tax is levied upon the individual shares of the decedent's
estate after distribution to the legatees; the estate tax is imposed upon the total estate of the decedent
which is transferred to the legatees. Int.Rev.Code of 1939, Sec. 810. The estate tax has been
characterized as "an excise imposed upon the transfer of or shifting in relationships to property at
death." United States Trust Co. of New York v. Helvering, 1939, 307 U.S. 57, 60, 59 S.Ct. 692, 693, 83
L.Ed. 1104. The estate and inheritance taxes have the common element of being based upon the
transmission of property from the dead to the living. New York Trust Co. v. Eisner, 1921, 256 U.S.
345, 41 S.Ct. 506, 65 L.Ed. 963. In Knowlton v. Moore, supra, the Supreme Court recognized this basic
principle when it said 178 U.S. at page 56, 20 S.Ct. at page 753:
"* * * tax laws of this nature in all countries rest in their essence upon the principle that death is the
generating source from which the particular taxing power takes its being, and that it is the power to
transmit, or the transmission from the dead to the living, on which such taxes are more immediately
rested."
Since death is the propelling force for the imposition of the tax, it is death which determines the
interests to be includible in the gross estate. Interests which terminate on or before death are not a
proper subject of the tax. Assets may be acquired or disposed of before death, possibilities of the loss of
an asset may become actualities or may disappear. Upon the same principle underlying the inclusion of
interests in a decedent's gross estate, valuation of an interest is neither logically made nor feasibly
administered until death has occurred. The taxpayer's theory of valuing property before death
disregards the fact that generally the estate tax is neither concerned with changes in property interests
nor values prior to death. The tax is measured by the value of assets transferred by reason of death, the
critical value being that which is determined as of the time of death.
Cf. Newell v. Commissioner of Internal Revenue, 7 Cir., 1933, 66 F.2d 102, for the effect of the death of
a key officer and shareholder in a corporation upon the valuation of stock in the corporation included in
his gross estate. Also, in valuing a partnership interest of a decedent, goodwill attributable to the
decedent's personal efforts is not valued due to the decedent's loss to the partnership. Estate of
Gannon, 1954, 21 T.C. 1073; Estate of Maddock, 1951, 16 T.C. 324.
As was so succinctly stated by Judge Hartshorne in Christiernin v. Manning, D.C.D.N.J. 1956, 138 F. Supp.
923, 925:
"There can not be a decedent, till death has occurred. A decedent's estate is not transferred either by
his will or by intestacy, till death has occurred. * * * And the decedent's interest in the property taxable
is to be such interest `at the time of his death' * * *."
Here the employment contracts provided for additional "contingent" compensation of $6,000 per year
for fifteen years to be paid to Blum or his estate after the termination of his employment by reason of
death or otherwise. True, the right to these payments was forfeitable upon the occurrence of any of the
specified contingencies. However, forfeiture as a result of the contingencies never occurred during
Blum's lifetime, and any possibility of their occurrence was extinguished by his death. Gimbels has been
making and the estate has been collecting the payments provided by the contracts. Valuation of the
right to these payments must be determined as of the time of Blum's death when the limiting factor of
the contingencies would no longer be considered. Death ripened the interest in the deferred payments
into an absolute one, and death permitted the imposition of the tax measured by the value of that
absolute interest in property.

In Mearkle's Estate v. Commissioner of Internal Revenue, 3 Cir., 1942, 129 F.2d 386, we considered the
proper method of valuing an annuity upon the death of the decedent which by its terms was payable to
the decedent during his life and to his wife for her life. The criterion adopted was the purchase price of
an annuity contract upon the life of the wife measured by her life expectancy on the date of her
husband's death. There is no reference in this test to the husband's life expectancy upon the date of his
death or to the joint expectancies of the decedent and his wife. See Christiernin v. Manning, supra. The
value of decedent's interest in the annuity up to the time of his death is not considered, and, as in the
situation here involved, death cuts off prior limiting factors.

In Estate of Harper, 1948, 11 T.C. 717, cited by taxpayer, there were included in decedent's gross estate
notes of insolvent makers who by reason of the receipt of legacies under the decedent's will became
solvent. The Commissioner valued the notes at face value. The Tax Court held to the contrary,
subscribing to the view that the estate tax was "measured by the value of the interest transferred or
which ceases at death", viz., the actual value of the then insolvent maker's assets. The result reached is
consistent with our approach in the instant case, although the language used by the Tax Court was
perhaps something less than fortunate.

For the reasons stated the judgment of the District Court will be reversed with directions to proceed in
accordance with this opinion.
G.R. No. 120880 June 5, 1997
FERDINAND R. MARCOS II, petitioner,
vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA
D. DE GUZMAN, respondents.
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and
unfair, suffering the basic and oftly implored requisites of due process of law. Specifically, the petition
assails the Decision 1of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where
the said court held:
In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable-and-the subsequent
levy of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of
any other tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the
petition for certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED.
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the
Republic of the Philippines, the matter of the settlement of his estate, and its dues to the government in
estate taxes, are still unresolved, the latter issue being now before this Court for resolution. Specifically,
petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations of the
respondent Commissioner of Internal Revenue in assessing, and collecting through the summary
remedy of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties
of his father, despite the pendency of the proceedings on probate of the will of the late president,
which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with
an application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993,
seeking to —
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from
proceeding with the Auction of the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November 29,
1994, ruling that the deficiency assessments for estate and income tax made upon the petitioner and
the estate of the deceased President Marcos have already become final and unappealable, and may
thus be enforced by the summary remedy of levying upon the properties of the late President, as was
done by the respondent Commissioner of Internal Revenue.
WHEREFORE, premises considered judgment is hereby rendered DISMISSING the
petition for Certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED.
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision,
assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE
OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS PROBATE
PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE
THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME
FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE
GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX
ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED
THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the
period provided in the Revenue Memorandum Circular No. 38-
68.
(2) [a] The numerous pending court cases questioning the late
President's ownership or interests in several properties (both
personal and real) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of
 the estate tax and their issuance of the Notices of Levy and Sale
are premature, confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs,
was never notified, much less served with copies of the Notices
of Levy, contrary to the mandate of Section 213 of the NIRC. As
such, petitioner was never given an opportunity to contest the
Notices in violation of his right to due process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT
MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF
COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well
as that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an
estate tax returns [sic], as well as several income tax returns covering the years 1982
to 1986, — all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252 — a & b) of the National
Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos
in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment
no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-
002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand "Bongbong" Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate
and income tax assessments were all personally and constructively served on August
26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker
Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M.
(Annexes "D" and "E" of the Petition). Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand "Bongbong" Marcos II were also
personally and constructively served upon him (through his caretaker) on
September 12, 1991, at his last known address at Don Mariano Marcos St. corner P.
Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the Petition). Thereafter,
Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o
petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon City.
Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized
representative or counsel), to a conference, was furnished the counsel of Mrs.
Marcos, Dean Antonio Coronel — but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses — to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and
213 of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
"Bongbong" Marcos II, as well as the interest of the late president — copies of the
aforesaid notices were, served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea,
Ata, Bello, Guevarra and Serapio Law Office".
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
of land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.
 On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the instant
petition for certiorari and prohibition under Rule 65 of the Rules of Court, with
prayer for temporary restraining order and/or writ of preliminary injunction.
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the sustenance of government. Taxes are the
lifeblood of the government and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved. 3
Whether or not the proper avenues of assessment and collection of the said tax obligations were taken
by the respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and void for disregarding the established procedure for
the enforcement of taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos 4 is
specifically cited to bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the
claimant to present a claim before the probate court so that said court may order the administrator to
pay the amount therefor." This remedy is allegedly, exclusive, and cannot be effected through any other
means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request by
the government for the immediate payment of taxes, and should order the payment of the same only
within the period fixed by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate of
Echarri (67 Phil 502), where it was held that:
The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on
the proposition that the court having control over the administration proceedings
has jurisdiction to entertain the claim presented by the government for taxes due
and to order the administrator to pay the tax should it find that the assessment was
proper, and that the tax was legal, due and collectible. And the rule laid down in
that case must be understood in relation to the case of Collector of Customs
vs. Haygood, supra., as to the procedure to be followed in a given case by the
government to effectuate the collection of the tax. Categorically stated, where
during the pendency of judicial administration over the estate of a deceased person
a claim for taxes is presented by the government, the court has the authority to
order payment by the administrator; but, in the same way that it has authority to
order payment or satisfaction, it also has the negative authority to deny the same.
While there are cases where courts are required to perform certain duties
mandatory and ministerial in character, the function of the court in a case of the
present character is not one of them; and here, the court cannot be an organism
endowed with latitude of judgment in one direction, and converted into a mere
mechanical contrivance in another direction.
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is
paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate taxes over the same.
According to the respondent, claims for payment of estate and income taxes due and assessed after the
death of the decedent need not be presented in the form of a claim against the estate. These can and
should be paid immediately. The probate court is not the government agency to decide whether an
estate is liable for payment of estate of income taxes. Well-settled is the rule that the probate court is a
court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with indifference nor should it be ignored with impunity
by the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approve the
sale of properties of a deceased person by his prospective heirs before final adjudication; 5 to determine
who are the heirs of the decedent; 6 the recognition of a natural child; 7 the status of a woman claiming
to be the legal wife of the decedent; 8 the legality of disinheritance of an heir by the testator; 9 and to
pass upon the validity of a waiver of hereditary rights. 10
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the decedent,
estate tax deficiencies, without the cognition and authority of the court sitting in probate over the
supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:
Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to
the complete settlement of an estate, and, under some statutes, it is made the duty
of the probate court to make the amount of the inheritance tax a part of the final
decree of distribution of the estate. It is not against the property of decedent, nor is
it a claim against the estate as such, but it is against the interest or property right
which the heir, legatee, devisee, etc., has in the property formerly held by decedent.
Further, under some statutes, it has been held that it is not a suit or controversy
between the parties, nor is it an adversary proceeding between the state and the
person who owes the tax on the inheritance. However, under other statutes it has
been held that the hearing and determination of the cash value of the assets and
the determination of the tax are adversary proceedings. The proceeding has been
held to be necessarily a proceeding in rem. 11
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as
the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the
National Internal Revenue Code attests to this:
Sec. 3. Powers and duties of the Bureau. — The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
 penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.
Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of claims for taxes
charged against the estate of the decedent. Such taxes, we said, were exempted from the application of
the statute of non-claims, and this is justified by the necessity of government funding, immortalized in
the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae — taxes are
the sinews of the state.
Taxes assessed against the estate of a deceased person, after administration is
opened, need not be submitted to the committee on claims in the ordinary course
of administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate.
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of
the estate's properties.
Claims for taxes, whether assessed before or after the death of the deceased, can
be collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance. 13
Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due
the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September
15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement
tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot
therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to seek first the probate
court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the
necessity of the probate or estate settlement court's approval of the state's claim for estate taxes,
before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not
to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive
share to any party interested in the estate, unless it is shown a Certification by the Commissioner of
Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's
contention that it is the probate court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have
been pursued through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
Sec. 229. Protesting of assessment. — When the Commissioner of Internal Revenue
or his duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the Commissioner shall issue an assessment based
on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment;
otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)
Apart from failing to file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments served upon them, allowing the
same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by
the Government, collection thereof may have been done in violation of the law. Thus, the manner and
method in which the latter is enforced may be questioned separately, and irrespective of the finality of
the former, because the Government does not have the unbridled discretion to enforce collection
without regard to the clear provision of law." 14
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections
318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties,
were issued beyond the allowed period, and are therefore null and void:
. . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of this
Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of distraint of personal property
were first issued by respondents, the latter should have complied with Revenue
Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than
three (3) months nor later than six (6) months from 12 September 1991. In
accordance with the Circular, respondents only had until 12 March 1992 (the last
day of the sixth month) within which to issue these Notices of Levy. The Notices of
 Levy, having been issued beyond the period allowed by law, are thus void and of no
effect. 15
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period
and in accordance with the provisions of the present Tax Code. The deficiency tax assessment, having
already become final, executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax
deficiency in this instance is Article 223 of the NIRC, which pertinently provides:
Sec. 223. Exceptions as to a period of limitation of assessment and collection of
taxes. — (a) In the case of a false or fraudulent return with intent to evade tax or of
a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud
assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for the collection thereof.
xxx xxx xxx
(c) Any internal revenue tax which has been assessed within the period of limitation
above prescribed, may be collected by distraint or levy or by a proceeding in court
within three years following the assessment of the tax.
xxx xxx xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in
case of failure to file a return, the tax may be assessed at any time within ten years after the omission,
and any tax so assessed may be collected by levy upon real property within three years following the
assessment of the tax. Since the estate tax assessment had become final and unappealable by the
petitioner's default as regards protesting the validity of the said assessment, there is now no reason
why the BIR cannot continue with the collection of the said tax. Any objection against the assessment
should have been pursued following the avenue paved in Section 229 of the NIRC on protests on
assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his estate,
and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are
premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034
and 0141, which were filed by the government to question the ownership and interests of the late
President in real and personal properties located within and outside the Philippines. Petitioner,
however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes
upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan.
Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact
that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of
P23,292,607,638.00, stating that this amount deviates from the findings of the Department of Justice's
Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had
already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of Internal Revenue, 16 whose determinations and
assessments are presumed correct and made in good faith. 17 The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon
the complaining party to show clearly that the assessment is erroneous. Failure to present proof of
error in the assessment will justify the judicial affirmance of said assessment. 18 In this instance,
petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team
which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's
attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the
taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the
assessments made.
Moreover, these objections to the assessments should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of
Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the pretext
of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme of a well-ordered society. The
subject tax assessments having become final, executory and enforceable, the same can no longer be
contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a
lost appeal or remedy. 19 This judicial policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound and resilient to petitioner's attacks.
Anent grounds 3(b) and (B) — both alleging/claiming lack of notice — We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs.
Imelda Marcos.
Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment personally given to the
caretaker of petitioner also at his last known address on September 12, 1991 — the
 subsequent notices given thereafter could no longer be ignored as they were sent at petitioner's insistence that he was denied due process. Where there was an opportunity to raise
a time when petitioner was already here in the Philippines, and at a place where objections to government action, and such opportunity was disregarded, for no justifiable reason, the
said notices would surely be called to petitioner's attention, and received by party claiming oppression then becomes the oppressor of the orderly functions of government. He who
responsible persons of sufficient age and discretion. comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the
very structure of established authority.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs.
Marcos c/o the petitioner, at his office, House of Representatives, Batasan IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of
Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8,
1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was SO ORDERED.
furnished the counsel of Mrs. Marcos — Dean Antonio Coronel (Annex "B", p.
211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos,
the petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and
Serapio Law Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices,
petitioner never lifted a finger to protest the assessments, (upon which the Levy and
sale of properties were based), nor appealed the same to the Court of Tax Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, — the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari. 20

Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been
issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent,
petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.

We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as
heir of the deceased. In the same vein, in the matter of income tax delinquency of the late president
and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in
satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section 213
of the NIRC, which pertinently states:

. . . Levy shall be effected by writing upon said certificate a description of the

property upon which levy is made. At the same time, written notice of the levy shall
be mailed to or served upon the Register of Deeds of the province or city where the
property is located and upon the delinquent taxpayer, or if he be absent from the
Philippines, to his agent or the manager of the business in respect to which the
liability arose, or if there be none, to the occupant of the property in question.

xxx xxx xxx

The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale
were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself
on April 12, 1993 at his office at the Batasang Pambansa. 21 We cannot therefore, countenance
G.R. No. L-19495 November 24, 1966 Based on the above findings, the Bureau of Internal Revenue assessed on October 29, 1953 estate and
COMMISSIONER OF INTERNAL REVENUE, petitioner, inheritance taxes in the sums of P6,849.78 and P16,970.63, respectively.
vs. LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents.
On January 25, 1955 the Bureau of Internal Revenue increased the assessment to P8,225.89 as estate
BENGZON, J.P., J.: 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
Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948, leaving two heirs, namely, required Jose S. Yusay to show proof of payment of said estate and inheritance taxes.
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 On March 3, 1955 Jose S. Yusay requested an extension of time within which to pay the tax. He posted a
(Special Proceedings No. 459). Jose S. Yusay was therein appointed administrator. surety bond to guarantee payment of the taxes in question within one year. The Commissioner of
Internal Revenue however denied the request. Then he issued a warrant of distraint and levy which he
On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and inheritance tax transmitted to the Municipal Treasurer of Pototan for execution. This warrant was not enforced
return declaring therein the following properties: because all the personal properties subject to distraint were located in Iloilo City.

On May 20, 1955 the Provincial Treasurer of Iloilo requested the BIR Provincial Revenue Officer to
Personal properties furnish him copies of the assessment notices to support a motion for payment of taxes which the
Provincial Fiscal would file in Special Proceedings No. 459 before the Court of First Instance of Iloilo. The
Palay P6,444.00 papers requested were sent by the Commissioner of Internal Revenue to the Provincial Revenue Officer
Carabaos 1,000.00 P7,444.00 of Iloilo to be transmitted to the Provincial Treasurer. The records do not however show whether the
Provincial Fiscal filed a claim with the Court of First Instance for the taxes due.
Real properties:
Capital, 74 parcels )
On May 30, 1956 the commissioner appointed by the Court of First Instance for the purpose, submitted
Conjugal 19 parcels) assessed at P179,760.00 a reamended project of partition which listed the following properties:

Total gross estate P187,204.00

Personal properties:

The return mentioned no heir. Buick Sedan P8,100.00

Packard car 2,000.00
Aparadors 500.00
Upon investigation however the Bureau of Internal Revenue found the following properties: Cash in Bank (PNB) 8,858.46
Palay 6,444.00
Personal properties: Carabaos 1,500.00 P27,402.46

Palay P6,444.00 Real properties:

Carabaos 1,500.00
Land, 174 parcels assessed
Packard Automobile 2,000.00
at P324,797.21
2 Aparadors 500.00 P10,444.00
Buildings 4,500.00 P329,297.21
Real properties:
Total P356,699.67
Capital, 25 parcels assessed at P87,715.32

1/2 of Conjugal, 130 parcels assessed at P121,425.00 P209,140.32 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.
Total P219,584.32
Whereupon, the Internal Revenue Commissioner caused the estate of Matias Yusay to be reinvestigated
for estate and inheritance tax liability. Accordingly, on February 13, 1958 he issued the following
The fair market value of the real properties was computed by increasing the assessed value by forty assessment:
percent.
 start the running of the period of limitations of five years under Section 331 of the Tax Code and
Estate tax P16,246.04
pursuant to Section 332 of the same Code he has ten years within which to make the assessment
counted from the discovery on September 24, 1953 of the identity of the heirs; and (2) that the estate's
5% surcharge 411.29
administrator waived the defense of prescription when he filed a surety bond on March 3, 1955 to
Delinquency interest 11,868.90 guarantee payment of the taxes in question and when he requested postponement of the payment of
the taxes pending determination of who the heirs are by the settlement court.
Compromise
No notice of death P15.00 On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals assailing the legality
Late payment 40.00 55.00 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
Total P28,581.23 prescribed and rendered the following judgment:

Inheritance Tax P38,178.12 WHEREFORE, the decision of respondent assessing against the estate of the late Matias Yusay
estate and inheritance taxes is hereby reversed. No costs.
5% surcharge 1,105.86

Delinquency interest 28,808.75 The Commissioner of Internal Revenue appealed to this Court and raises the following issues:

Compromise for late payment 50.00
Total P69,142.73
Total estate and inheritance taxes P97,723.96
Like in previous assessments, the fair market value of the real properties was arrived at by adding 40%
to the assessed value.
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 having been made despite repeated demands, the Commissioner of Internal Revenue filed
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 administrators,
namely Florencia Piccio Vda. de Yusay who administered two-thirds of the estate, and Lilia Yusay, who
administered the remaining one-third, 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.
1. Was the petition for review in the Court of Tax Appeals within the 30-day period provided for in
Section 11 of Republic Act 1125?
2. Could the Court of Tax Appeals take cognizance of Lilia Yusay's appeal despite the pendency of the
"Proof of Claim" and "Motion for Allowance of Claim and for an Order of Payment of Taxes" filed by the
Commissioner of Internal Revenue in Special Proceedings No. 459 before the Court of First Instance of
Iloilo?
3. Has the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in
question prescribed?
On November 17, 1959 Lilia Yusay disputed the legality of the assessment of February 13, 1958. On
March 14, 1960 she received the decision of the Commissioner of Internal Revenue on the disputed
assessment. On April 13, 1960 she filed her petition for review in the Court of Tax Appeals. Said Court
correctly held that the appeal was seasonably interposed pursuant to Section 11 of Republic Act 1125.
We already ruled in St. Stephen's Association v. Collector of Internal Revenue,1 that the counting of the
thirty days within which to institute an appeal in the Court of Tax Appeals should commence from the
date of receipt of the decision of the Commissioner on the disputed assessment, not from the date the
assessment was issued.
Accordingly, the thirty-day period should begin running from March 14, 1960, the date Lilia Yusay
received the appealable decision. From said date to April 13, 1960, when she filed her appeal in the
Court of Tax Appeals, is exactly thirty days. Hence, the appeal was timely.

On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated February 13, 1958. She
Next, the Commissioner attacks the jurisdiction of the Court of Tax Appeals to take cognizance of Lilia
claimed that the right to make the same had prescribed inasmuch as more than five years had elapsed
Yusay's appeal on the ground of lis pendens. He maintains that the pendency of his motion for
since the filing of the estate and inheritance tax return on May 11, 1949. She therefore requested that
allowance of claim and for order of payment of taxes in the Court of First Instance of Iloilo would
the assessment be declared invalid and without force and effect. This request was rejected by the
preclude the Court of Tax Appeals from acquiring jurisdiction over Lilia Yusay's appeal. This contention
Commissioner in his letter dates January 20, 1960, received by Lilia Yusay on March 14, 1960, for the
lacks merit.
reasons, namely, (1) that the right to assess the taxes in question has not been lost by prescription since
the return which did not name the heirs cannot be considered a true and complete return sufficient to
Lilia Yusay's cause seeks to resist the legality of the assessment in question. Should she maintain it in
the settlement court or should she elevate her cause to the Court of Tax Appeals? We say, she acted
correctly by appealing to the latter court. An action involving a disputed assessment for internal
revenue taxes falls within the exclusive jurisdiction of the Court of Tax Appeals.2 It is in that forum, to
the exclusion of the Court of First Instance,3where she could ventilate her defenses against the
assessment.
Moreover, the settlement court, where the Commissioner would wish Lilia Yusay to contest the
assessment, is of limited jurisdiction. And under the Rules,4 its authority relates only to matters having
to do with the settlement of estates and probate of wills of deceased persons. 5 Said court has no
jurisdiction to adjudicate the contentions in question, which — assuming they do not come exclusively
under the Tax Court's cognizance — must be submitted to the Court of First Instance in the exercise of
its general jurisdiction.6
We now come to the issue of prescription. Lilia Yusay claims that since the latest assessment was issued
only on February 13, 1958 or eight years, nine months and two days from the filing of the estate and
inheritance tax return, the Commissioner's right to make it has expired. She would rest her stand on
Section 331 of the Tax Code which limits the right of the Commissioner to assess the tax within five
years from the filing of the return.
The Commissioner claims that fraud attended the filing of the return; that this being so, Section 332(a)
of the Tax Code would apply.7 It may be well to note that the assessment letter itself (Exhibit 22) did not
impute fraud in the return with intent to evade payment of tax. Precisely, no surcharge for fraud was
imposed. In his answer to the petition for review filed by Lilia Yusay in the Court of Tax Appeals, the
Commissioner alleged no fraud. Instead, he broached the insufficiency of the return as barring the
commencement of the running of the statute of limitations. He raised the point of fraud for the first
time in the proceedings, only in his memorandum filed with the Tax Court subsequent to resting his
case. Said Court rejected the plea of fraud for lack of allegation and proof, and ruled that the return,
although not accurate, was sufficient to start the period of prescription.
Fraud is a question of fact.8 The circumstances constituting it must be alleged and proved in the court
below.9 And the finding of said court as to its existence and non-existence is final unless clearly shown
to be erroneous.10 As the court a quo found that no fraud was alleged and proved therein, We see no
reason to entertain the Commissioner's assertion that the return was fraudulent.
The conclusion, however, that the return filed by Jose S. Yusay was sufficient to commence the running
of the prescriptive period under Section 331 of the Tax Code rests on no solid ground.
Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid return. It states:
(a) Requirements.—In all cases of inheritance or transfers subject to either the estate tax or
the inheritance tax, or both, or where, though exempt from both taxes, the gross value of the
estate exceeds three thousand pesos, the executor, administrator, or anyone of the heirs, as
the case may be, shall file a return under oath in duplicate, setting forth (1) the value of the
gross estate of the decedent at the time of his death, or, in case of a nonresident not a citizen
of the Philippines ; (2) the deductions allowed from gross estate in determining net estate as
defined in section eighty-nine; (3) such part of such information as may at the time be
ascertainable and such supplemental data as may be necessary to establish the correct taxes.
A return need not be complete in all particulars. It is sufficient if it complies substantially with the law.
There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent;
(2) when it covers the entire period involved; and (3) when it contains information as to the various
items of income, deduction and credit with such definiteness as to permit the computation and
assessment of the tax.11
There is no question that the state and inheritance tax return filed by Jose S. Yusay was substantially
defective.
First, it was incomplete. It declared only ninety-three parcels of land representing about 400 hectares
and left out ninety-two parcels covering 503 hectares. Said huge under declaration could not have been
the result of an over-sight or mistake. As found in L-11378, supra note 7, Jose S. Yusay very well knew of
the existence of the ommited properties. Perhaps his motive in under declaring the inventory of
properties attached to the return was to deprive Lilia Yusay from inheriting her legal share in the
hereditary estate, but certainly not because he honestly believed that they did not form part of the
gross estate.
Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law,
on the basis of the return, there would be no occasion for the imposition of estate and inheritance
taxes. When there is no heir - the return showed none - the intestate estate is escheated to the
State.12 The State taxes not itself.
In a case where the return was made on the wrong form, the Supreme Court of the United States held
that the filing thereof did not start the running of the period of limitations. 13 The reason is that the
return submitted did not contain the necessary information required in the correct form. In this
jurisdiction, however, the Supreme Court refrained from applying the said ruling of the United States
Supreme Court in Collector of Internal Revenue v. Central Azucarera de Tarlac, L-11760-61, July 31,
1958, on the ground that the return was complete in itself although inaccurate. To our mind, it would
not make much difference where a return is made on the correct form prescribed by the Bureau of
Internal Revenue if the data therein required are not supplied by the taxpayer. Just the same, the
necessary information for the assessment of the tax would be missing.
The return filed in this case was so deficient that it prevented the Commissioner from computing the
taxes due on the estate. It was as though no return was made. The Commissioner had to determine and
assess the taxes on data obtained, not from the return, but from other sources. We therefore hold the
view that the return in question was no return at all as required in Section 93 of the Tax Code.
The law imposes upon the taxpayer the burden of supplying by the return the information upon which
an assessment would be based.14 His duty complied with, the taxpayer is not bound to do anything
more than to wait for the Commissioner to assess the tax. However, he is not required to wait forever.
Section 331 of the Tax Code gives the Commissioner five years within which to make his
assessment.15 Except, of course, if the taxpayer failed to observe the law, in which case Section 332 of
the same Code grants the Commissioner a longer period. Non-observance consists in filing a false or
fraudulent return with intent to evade the tax or in filing no return at all.
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.16 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.

As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the
huge underdeclaration 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.

Anent the Commissioner's contention that Lilia Yusay is estopped from raising the defense of
prescription because she failed to raise the same in her answer to the motion for allowance of claim
and for the payment of taxes filed in the settlement court (Court of First Instance of Iloilo), suffice it to
state that it would be unjust to the taxpayer if We were to sustain such a view. The Court of First
Instance acting as a settlement court is not the proper tribunal to pass upon such defense, therefore it
would be but futile to raise it therein. Moreover, the Tax Code does not bar the right to contest the
legality of the tax after a taxpayer pays it. Under Section 306 thereof, he can pay the tax and claim a
refund therefor. A fortiori his willingness to pay the tax is no waiver to raise defenses against the tax's
legality.

WHEREFORE, the judgment appealed from is set aside and another entered affirming the assessment of
the Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as administratrix
of the intestate estate of Matias Yusay, is hereby ordered to pay the sums of P16,246.04 and
P39,178.12 as estate and inheritance taxes, respectively, plus interest and surcharge for delinquency in
accordance with Section 101 of the National Internal Revenue Code, without prejudice to
reimbursement from her co-administratrix, Florencia Piccio Vda. de Yusay for the latter's corresponding
tax liability. No costs. So ordered.
G.R. No. L-33139 October 11, 1930
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellants,
vs. JOSE MA. PAMINTUAN, ET AL., defendants-appellees.
VILLA-REAL, J.:
This is an appeal taken by the Government of the Philippine Islands from the judgment of the Court of
First Instance of Manila dismissing its complaint and absolving the defendants, without costs. In support
of the appeal the following alleged errors have been assigned to the court below in its judgment:
1. The lower court erred in holding that the failure of the plaintiff to file its claim with the
committee on claims and appraisals barred it from collecting the tax in questions in this
action.
2. The lower court erred in holding that this case is governed by the principle laid down in the
case of the Government of the Philippine Islands vs. Inchausti & Co. (24 Phil., 315).
3. The lower court erred in absolving the defendants from the complaint and in denying the
plaintiff's motion for new trial.
The present case was submitted to the court below upon the following agreed statement of facts:
I. That on February 27, 1920, Florentino Pamintuan, represented by J. V. Ramirez or his
attorney-in-fact charged with the administration of his property, filed income-tax return for
the year 1919, paying the amount of P 672.99 on the basis of said return, and the additional
sum of P151.01 as a result of a subsequent assessment received from the Collector of Internal
Revenue.
II. That on April 24, 1925, Florentino Pamintuan died in Washington, D. C., U. S. A., leaving the
defendants herein as his heirs.
III. That on April 24, 1925, intestate proceedings were instituted in the Court of First Instance
of Manila in civil case No. 27948, intestate of the late Florentino Pamintuan.
IV. That on April 28,1925, the Court of First Instance of Manila appointed Maximo de la Paz
and Candido Ilagan commissioners of appraisal of the property left by the deceased
Pamintuan, the said appointees taking their oaths of office on May 4 and May 9, 1925,
respectively, and letters of appointment to the committee on claims and appraisals were
made on May 9,1925. 1awph!l.net
V. That the said committee on claims and appraisals after the publications of the notices
required by law held the necessary sessions in accordance with said notices for the
presentation and determination of all claims and credits against the estate of the deceased
Pamintuan.
VI. That on December 1, 1925, the above-mentioned committee rendered its report which
was duly approved by the court, and in which report it appears that he only claims presented
and that were approved were those of Tomasa Centeno, Jose, Paz, Caridad, and Natividad
Pamintuan and Cavanna, Aboitiz and Agan.
VII. That on June 12, 1926, Jose V. Ramirez, the duly appointed judicial administrator of the
estate of the deceased Florentino Pamintuan presented a proposed partition of the
decedent's estate which proposed partition was approved by the court on July 6,1926, the
court ordering the delivery to the heirs, the defendants herein, of their respective shares of
the inheritance after paying the corresponding inheritance taxes which were duly paid on
September 2, 1926, in the amount of P25,047.19 as appears on the official receipt No.
4421361.
VIII. That the defendants herein inherited from the deceased Florentino Pamintuan in the
following proportions: Tomasa Pamintuan inherited 0.0571 per cent of the decedent's estate
and the other defendants 0.0784 per cent each according to the partition approved by the
court in civil case No. 27948.
IX. That during the pendency of the intestate proceedings, the administrator filed income-tax
returns for the estate of the deceased corresponding to the years 1925 and 1926.
X. That the intestate proceedings in civil case No. 27948 were definitely closed on October 27,
1926, by order of the court of the same date.
XI. That subsequent to the distribution of the decedent's estate to the defendants herein, that
is, on February 16, 1927, the plaintiff discovered the fact that the deceased Florentino
Pamintuan has not paid the amount of four hundred and sixty-two pesos (P462) as additional
income tax and surcharge for the calendar year 1919, on account of the sale made by him on
November 14, 1919, of his house and lot located at 922 M. H. del Pilar, Manila, from which
sale he realized a net profit or income of P11,000, which was not included in his income-tax
return filed for said year 1919.
XII. That the defendants cannot disprove that the deceased Florentino Pamintuan made a
profit of P11,000 in the sale of the house referred to in paragraph Xl hereof because they have
destroyed the voluminous records and evidences regarding the sale in question and other
similar transactions which might show repairs on the house, commissions, and other expenses
tending to reduce the profit obtained as mentioned above.
XIII. That demand for the payment of the income tax referred to herein was made on February
24, 1927, on the defendants but they refused and still refuse to pay the same either in full or
in part.
With regard to the first assignment of error, this court held in Pineda vs. Court of First Instance of
Tayabas and Collector of Internal Revenue (52 Phil., 803):
To reply to these contentions in turn , we observe that, while there are a few courts that have
expressed themselves to the effect that a claim for taxes due to the Government should be
 presented like other claims to the committee appointed for the purpose of passing upon
claims, the clear weight of judicial authority is to the effect that claims for taxes and
assessments, whether assessed before or after the death of the decedent, are not required to
be presented to the committee. (24 C. J., 325; People vs. Olvera, 43 Cal., 492; Hancock
vs.Whittemore, 50 Cal., 522; Findley vs. Taylor, 97 Iowa, 420; Bogue vs.Laughlin,149 Wis., 271;
40 L. R. A. [N.S.], 927; Ann. Cas.1913 C.,p.1367.)

See also In re Estate of Frank H.Goulette (G. R. No. 32361, 1 decided on September 22,1930.)

The administration proceedings of the late Florentino Pamintuan having been closed, and his estate
distributed among his heirs, the defendants herein, the latter are responsible for the payment of the
income tax here in question in proportion to the share of each in said estate, in accordance with section
731 of the Code of Civil Procedure, and the doctrine of this court laid down in Lopez vs. Enriquez (16
Phil.,336) as follows:

ESTATE; LIABILITY OF HEIRS AND DISTRIBUTEES. — Heirs are not required to respond with
their own property for the debts of their deceased ancestors. But even after the partition of
an estate, heirs and distributees are liable individually for the payment of all lawful
outstanding claims against the estate in proportion to the amount or value of the property
they have respectively received from the estate. The hereditary property consists only of that
part which remains after the settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable. The heirs cannot, by any act of their own
or by agreement among themselves, reduce the creditors' security for the payment of their
claims. (Pavia vs. De la Rosa, 8 Phil.,70; secs. 731, 749, Code of Civil Procedure; art,1257, Civil
Code.)

For the reasons stated, we are of opinion and so hold that claims for income taxes need not be filed
with the committee on claims and appraisals appointed in the course of testate proceedings and may
be collected even after the distribution of the decedent's estate among his heirs, who shall be liable
therefor in proportion to their share in the inheritance.

Wherefore, let the defendants pay the plaintiff the sum of P462, with 1 per centum monthly interest
from August 19, 1927 until fully paid, as follows: Tomasa Centeno 0.0571 per cent, and each one of the
other defendants 0.0784 per cent, with costs against the appellees. So ordered.
G.R. No. L-22734 September 15, 1967 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
COMMISSIONER OF INTERNAL REVENUE, petitioner, assessments for both taxable years were made within five years therefrom or on October 19, 1953; and
vs. MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent. the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For
taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return was filed; hence, the right to assess
BENGZON, J.P., J.: income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further
appropriate proceedings.1
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First In the Tax Court, the parties submitted the case for decision without additional evidence.
Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings terminated on June 8, 1948. On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for
Manuel B. Pineda's share amounted to about P2,500.00. the payment corresponding to his share of the following taxes:

After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax Deficiency income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding
income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue
P135.8
filed said returns for the estate on the basis of information and data obtained from the aforesaid estate 1945
3
proceedings and issued an assessment for the following:
1946 436.95
Real estate dealer's fixed tax
1. Deficiency income tax
4th quarter of 1946 and
1945 P135.83 whole year of 1947 P187.50
1946 436.95
1947 1,206.91 P1,779.69 The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda
Add: 5% surcharge 88.98 liable for the payment of all the taxes found by the Tax Court to be due from the estate in the total
1% monthly interest from November amount of P760.28 instead of only for the amount of taxes corresponding to his share in the
30, 1953 to April 15, 1957 720.77 estate.1awphîl.nèt
Compromise for late filing 80.00
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income
Compromise for late payment 40.00 tax due the estate only up to the extent of and in proportion to any share he received. He relies
on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition of an
Total amount due P2,707.44 estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims
=========== against the estate in proportion to the amount or value of the property they have respectively received
P14.50 from the estate."
2. Additional residence tax for 1945
===========
3. Real Estate dealer's tax for the fourth We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes
quarter of 1946 and the whole year of P207.50 assessed.
1947 ===========
Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the
Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining share he received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4
to him as one of the heirs."
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the property in his possession. The reason is that the Government has a lien on the P2,500.00 received by
Commissioner on the ground that his right to assess and collect the tax has prescribed. The him from the estate as his share in the inheritance, for unpaid income taxes4a for which said estate is
Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder:
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for
 If any person, corporation, partnership, joint-account (cuenta en participacion), association, or
insurance company liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from the
time when the assessment was made by the Commissioner of Internal Revenue until paid with
interest, penalties, and costs that may accrue in addition thereto upon all property and rights
to property belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e.,
the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda
will have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper share of each
heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance received.
This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection of the tax. This action rests on the
concept that hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first liable.6 The reason
why in case suit is filed against all the heirs the tax due from the estate is levied proportionately against
them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares
of each heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This
second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail
itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve only
one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the
Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and
real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs. So ordered.
G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs. HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V, and
FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.
DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the Government
of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for deficiency income
taxes for the years 1963 and 1964 of the decedent in the total amount of P3,254.80, inclusive 5%
surcharge, 1% monthly interest and compromise penalties, and the second, dated October 7, 1969,
denying the Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim
represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes
in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-
21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim (Annex B, Petition, pp.
21-22, Rollo). The Administrator opposed the motion solely on the ground that the claim was barred
under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp.
23-24, Rollo). Finding the opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed
the motion for allowance of claim filed by herein petitioner, Regional Director of the Bureau of Internal
Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a
motion for reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated
October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government
against the estate of Luis D. Tongoy was filed beyond the period provided in Section
2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New
Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation
prescribed in Section 331 and 332 of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or
implied, whether the same be due, not due, or contingent, all claims for funeral
expenses and expenses for the last sickness of the decedent, and judgment for
money against the decedent, must be filed within the time limited in they notice;
otherwise they are barred forever, except that they may be set forth as counter
claims in any action that the executor or administrator may bring against the
claimants. Where the executor or administrator commence an action, or prosecutes
an action already commenced by the deceased in his lifetime, the debtor may set
forth may answer the claims he has against the decedents, instead of presenting
them independently to the court has herein provided, and mutual claims may be set
off against each other in such action; and in final judgment is rendered in favored of
the decedent, the amount to determined shall be considered the true balance
against the estate, as though the claim has been presented directly before the court
in the administration proceedings. Claims not yet due, or contingent may be
approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from the
claims expressly enumerated therein, such as: "all claims for money against the decedent arising from
contract, express or implied, whether the same be due, not due or contingent, all claim for funeral
expenses and expenses for the last sickness of the decedent and judgment for money against the
decedent." Under the familiar rule of statutory construction of expressio unius est exclusio alterius, the
mention of one thing implies the exclusion of another thing not mentioned. Thus, if a statute
enumerates the things upon which it is to operate, everything else must necessarily, and by implication
be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081,
December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the
matter of prescription thereof are governed by the provisions of the National Internal revenue Code,
particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng
and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29,
1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of the Rules of
Court may reasonably be presumed to have been also in the mind of the Court as not affecting the
aforecited Section of the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on claims
in the ordinary course of administration. In the exercise of its control over the administrator, the court
may direct the payment of such taxes upon motion showing that the taxes have been assessed against
the estate." The abolition of the Committee on Claims does not alter the basic ruling laid down giving
exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be
filed before the Court. Claims for taxes may be collected even after the distribution of the decedent's
estate among his heirs who shall be liable therefor in proportion of their share in the inheritance.
(Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood
of the Government and their prompt and certain availability are imperious need. (Commissioner of
Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation
depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard for allowance Of claim for taxes due from the estate, which in effect represents a claim of the people at
such interest, neglect or omission of government officials entrusted with the collection of taxes should large, the only reason given for the denial that the claim was filed out of the previously limited period,
not be allowed to bring harm or detriment to the people, in the same manner as private persons may sustaining thereby private respondents' contention, erroneously as has been demonstrated.
be made to suffer individually on account of his own negligence, the presumption being that they take
good care of their personal affairs. This should not hold true to government officials with respect to WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total
matters not of their own personal concern. This is the philosophy behind the government's exception, amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final
as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, one and the respondent estate's sole defense of prescription has been herein overruled, the Motion for
September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Allowance of Claim is herein granted and respondent estate is ordered to pay and discharge the same,
Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the subject only to the limitation of the interest collectible thereon as provided by the Tax Code. No
Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; pronouncement as to costs.
Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66
SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26
SO ORDERED.
SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc.
vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be
collected even after the distribution of the estate of the decedent among his heirs (Government of the
Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs.
Commissioner of Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of
Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the
Philippines from the time the assessment was made by the Commissioner of Internal Revenue until paid
with interests, penalties, etc. By virtue of such lien, this court held that the property of the estate
already in the hands of an heir or transferee may be subject to the payment of the tax due the estate. A
fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent may be
collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court. It
may truly be said that until the property of the estate of the decedent has vested in the heirs, the
decedent, represented by his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death. Thus in the case above cited, the
income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and 1948
following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2,
Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time
originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which
reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against the
estate, which shall not be more than twelve (12) nor less than six (6) months after
the date of the first publication of the notice. However, at any time before an order
of distribution is entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of
Payment of Taxes) which, though filed after the expiration of the time previously limited but before an
order of the distribution is entered, should have been granted by the respondent court, in the absence
of any valid ground, as none was shown, justifying denial of the motion, specially considering that it was
G.R. No. L-56340 June 24, 1983
SPOUSES ALVARO PASTOR, JR. and MA. ELENA ACHAVAL DE PASTOR, petitioners,
vs. THE COURT OF APPEALS, JUAN Y. REYES, JUDGE OF BRANCH I, COURT OF FIRST INSTANCE OF CEBU
and LEWELLYN BARLITO QUEMADA, respondents.
PLANA, J.:
I. FACTS:
This is a case of hereditary succession.
Alvaro Pastor, Sr. (PASTOR, SR.), a Spanish subject, died in Cebu City on June 5, 1966, survived by his
Spanish wife Sofia Bossio (who also died on October 21, 1966), their two legitimate children Alvaro
Pastor, Jr. (PASTOR, JR.) and Sofia Pastor de Midgely (SOFIA), and an illegitimate child, not natural, by
the name of Lewellyn Barlito Quemada QUEMADA PASTOR, JR. is a Philippine citizen, having been
naturalized in 1936. SOFIA is a Spanish subject. QUEMADA is a Filipino by his mother's citizenship.
On November 13, 1970, QUEMADA filed a petition for the probate and allowance of an alleged
holographic will of PASTOR, SR. with the Court of First Instance of Cebu, Branch I (PROBATE COURT),
docketed as SP No. 3128-R. The will contained only one testamentary disposition: a legacy in favor of
QUEMADA consisting of 30% of PASTOR, SR.'s 42% share in the operation by Atlas Consolidated Mining
and Development Corporation (ATLAS) of some mining claims in Pina-Barot, Cebu.
On November 21, 1970, the PROBATE COURT, upon motion of QUEMADA and after an ex parte hearing,
appointed him special administrator of the entire estate of PASTOR, SR., whether or not covered or
affected by the holographic will. He assumed office as such on December 4, 1970 after filing a bond of P
5,000.00.
On December 7, 1970, QUEMADA as special administrator, instituted against PASTOR, JR. and his wife
an action for reconveyance of alleged properties of the estate, which included the properties subject of
the legacy and which were in the names of the spouses PASTOR, JR. and his wife, Maria Elena Achaval
de Pastor, who claimed to be the owners thereof in their own rights, and not by inheritance. The action,
docketed as Civil Case No. 274-R, was filed with the Court of First Instance of Cebu, Branch IX.
On February 2, 1971, PASTOR, JR. and his sister SOFIA filed their opposition to the petition for probate
and the order appointing QUEMADA as special administrator.
On December 5, 1972, the PROBATE COURT issued an order allowing the will to probate. Appealed to
the Court of Appeals in CA-G.R. No. 52961- R, the order was affirmed in a decision dated May 9, 1977.
On petition for review, the Supreme Court in G.R. No. L-46645 dismissed the petition in a minute
resolution dated November 1, 1977 and remanded the same to the PROBATE COURT after denying
reconsideration on January 11, 1978.
For two years after remand of the case to the PROBATE COURT, QUEMADA filed pleading after pleading
asking for payment of his legacy and seizure of the properties subject of said legacy. PASTOR, JR. and
SOFIA opposed these pleadings on the ground of pendency of the reconveyance suit with another
branch of the Cebu Court of First Instance. All pleadings remained unacted upon by the PROBATE
COURT.
On March 5, 1980, the PROBATE COURT set the hearing on the intrinsic validity of the will for March 25,
1980, but upon objection of PASTOR, JR. and SOFIA on the e ground of pendency of the reconveyance
suit, no hearing was held on March 25. Instead, the PROBATE COURT required the parties to submit
their respective position papers as to how much inheritance QUEMADA was entitled to receive under
the wig. Pursuant thereto, PASTOR. JR. and SOFIA submitted their Memorandum of authorities dated
April 10, which in effect showed that determination of how much QUEMADA should receive was still
premature. QUEMADA submitted his Position paper dated April 20, 1980. ATLAS, upon order of the
Court, submitted a sworn statement of royalties paid to the Pastor Group of tsn from June 1966 (when
Pastor, Sr. died) to February 1980. The statement revealed that of the mining claims being operated by
ATLAS, 60% pertained to the Pastor Group distributed as follows:
1. A. Pastor, Jr. ...................................40.5%
2. E. Pelaez, Sr. ...................................15.0%
3. B. Quemada .......................................4.5%
On August 20, 1980, while the reconveyance suit was still being litigated in Branch IX of the Court of
First Instance of Cebu, the PROBATE COURT issued the now assailed Order of Execution and
Garnishment, resolving the question of ownership of the royalties payable by ATLAS and ruling in effect
that the legacy to QUEMADA was not inofficious. [There was absolutely no statement or claim in the
Order that the Probate Order of December 5, 1972 had previously resolved the issue of ownership of
the mining rights of royalties thereon, nor the intrinsic validity of the holographic will.]
The order of August 20, 1980 found that as per the holographic will and a written acknowledgment of
PASTOR, JR. dated June 17, 1962, of the above 60% interest in the mining claims belonging to the Pastor
Group, 42% belonged to PASTOR, SR. and only 33% belonged to PASTOR, JR. The remaining 25%
belonged to E. Pelaez, also of the Pastor Group. The PROBATE COURT thus directed ATLAS to remit
directly to QUEMADA the 42% royalties due decedent's estate, of which QUEMADA was authorized to
retain 75% for himself as legatee and to deposit 25% with a reputable banking institution for payment
of the estate taxes and other obligations of the estate. The 33% share of PASTOR, JR. and/or his
assignees was ordered garnished to answer for the accumulated legacy of QUEMADA from the time of
PASTOR, SR.'s death, which amounted to over two million pesos.
The order being "immediately executory", QUEMADA succeeded in obtaining a Writ of Execution and
Garnishment on September 4, 1980, and in serving the same on ATLAS on the same day. Notified of the
Order on September 6, 1980, the oppositors sought reconsideration thereof on the same date primarily
on the ground that the PROBATE COURT gravely abused its discretion when it resolved the question of
ownership of the royalties and ordered the payment of QUEMADA's legacy after prematurely passing
upon the intrinsic validity of the will. In the meantime, the PROBATE COURT ordered suspension of
payment of all royalties due PASTOR, JR. and/or his assignees until after resolution of oppositors'
motion for reconsideration.
Before the Motion for Reconsideration could be resolved, however, PASTOR, JR., this time joined by his
wife Ma. ELENA ACHAVAL DE PASTOR, filed with the Court of Appeals a Petition for certiorari and
Prohibition with a prayer for writ of preliminary injunction (CA-G.R. No. SP- 11373-R). They assailed the
Order dated August 20, 1980 and the writ of execution and garnishment issued pursuant thereto. The
petition was denied on November 18, 1980 on the grounds (1) that its filing was premature because the
Motion for Reconsideration of the questioned Order was still pending determination by the PROBATE
COURT; and (2) that although "the rule that a motion for reconsideration is prerequisite for an action
for certiorari is never an absolute rule," the Order assailed is "legally valid. "
On December 9, 1980, PASTOR, JR. and his wife moved for reconsideration of the Court of Appeal's
decision of November 18, 1980, calling the attention of the appellate court to another order of the
Probate Court dated November 11, 1980 (i.e., while their petition for certiorari was pending decision in
the appellate court), by which the oppositors' motion for reconsideration of the Probate Court's Order
of August 20, 1980 was denied. [The November 11 Order declared that the questions of intrinsic validity
of the will and of ownership over the mining claims (not the royalties alone) had been finally
adjudicated by the final and executory Order of December 5, 1972, as affirmed by the Court of Appeals
and the Supreme Court, thereby rendering moot and academic the suit for reconveyance then pending
in the Court of First Instance of Cebu, Branch IX. It clarified that only the 33% share of PASTOR, JR. in the
royalties (less than 7.5% share which he had assigned to QUEMADA before PASTOR, SR. died) was to be
garnished and that as regards PASTOR, SR.'s 42% share, what was ordered was just the transfer of its
possession to the custody of the PROBATE COURT through the special administrator. Further, the Order
granted QUEMADA 6% interest on his unpaid legacy from August 1980 until fully paid.] Nonetheless, the
Court of Appeals denied reconsideration.
Hence, this Petition for Review by certiorari with prayer for a writ of pre y injunction, assailing the
decision of the Court of Appeals dated November 18, 1980 as well as the orders of the Probate Court
dated August 20, 1980, November 11, 1980 and December 17, 1980, Med by petitioners on March 26,
1981, followed by a Supplemental Petition with Urgent Prayer for Restraining Order.
In April 1981, the Court (First Division) issued a writ of preliminary injunction, the lifting of which was
denied in the Resolution of the same Division dated October 18, 1982, although the bond of petitioners
was increased from P50,000.00 to P100,000.00.
Between December 21, 1981 and October 12, 1982, private respondent filed seven successive motions
for early resolution. Five of these motions expressly prayed for the resolution of the question as to
whether or not the petition should be given due course.
On October 18, 1982, the Court (First Division) adopted a resolution stating that "the petition in fact and
in effect was given due course when this case was heard on the merits on September 7, (should be
October 21, 1981) and concise memoranda in amplification of their oral arguments on the merits of the
case were filed by the parties pursuant to the resolution of October 21, 1981 . . . " and denied in a
resolution dated December 13, 1982, private respondent's "Omnibus motion to set aside resolution
dated October 18, 1982 and to submit the matter of due course to the present membership of the
Division; and to reassign the case to another ponente."
Upon Motion for Reconsideration of the October 18, 1982 and December 13, 1982 Resolutions, the
Court en banc resolved to CONFIRM the questioned resolutions insofar as hey resolved that the petition
in fact and in effect had been given due course.
II. ISSUES:
Assailed by the petitioners in these proceedings is the validity of the Order of execution and
garnishment dated August 20, 1980 as well as the Orders subsequently issued allegedly to implement
the Probate Order of December 5, 1972, to wit: the Order of November 11, 1980 declaring that the
Probate Order of 1972 indeed resolved the issues of ownership and intrinsic validity of the will, and
reiterating the Order of Execution dated August 20, 1980; and the Order of December 17, 1980 reducing
to P2,251,516.74 the amount payable to QUEMADA representing the royalties he should have received
from the death of PASTOR, SR. in 1966 up to February 1980.
The Probate Order itself, insofar as it merely allowed the holographic will in probate, is not questioned.
But petitioners denounce the Probate Court for having acted beyond its jurisdiction or with grave abuse
of discretion when it issued the assailed Orders. Their argument runs this way: Before the provisions of
the holographic win can be implemented, the questions of ownership of the mining properties and the
intrinsic validity of the holographic will must first be resolved with finality. Now, contrary to the position
taken by the Probate Court in 1980 — i.e., almost eight years after the probate of the will in 1972 — the
Probate Order did not resolve the two said issues. Therefore, the Probate Order could not have
resolved and actually did not decide QUEMADA's entitlement to the legacy. This being so, the Orders for
the payment of the legacy in alleged implementation of the Probate Order of 1972 are unwarranted for
lack of basis.
Closely related to the foregoing is the issue raised by QUEMADA The Probate Order of 1972 having
become final and executory, how can its implementation (payment of legacy) be restrained? Of course,
the question assumes that QUEMADA's entitlement to the legacy was finally adjudged in the Probate
Order.
On the merits, therefore, the basic issue is whether the Probate Order of December 5, 1972 resolved
with finality the questions of ownership and intrinsic validity. A negative finding will necessarily render
moot and academic the other issues raised by the parties, such as the jurisdiction of the Probate Court
to conclusively resolve title to property, and the constitutionality and repercussions of a ruling that the
mining properties in dispute, although in the name of PASTOR, JR. and his wife, really belonged to the
decedent despite the latter's constitutional disqualification as an alien.
On the procedural aspect, placed in issue is the propriety of certiorari as a means to assail the validity of
the order of execution and the implementing writ.
III. DISCUSSION:
1. Issue of Ownership —
(a) In a special proceeding for the probate of a will, the issue by and large is restricted to the extrinsic
validity of the will, i.e., whether the testator, being of sound mind, freely executed the will in
accordance with the formalities prescribed by law. (Rules of Court, Rule 75, Section 1; Rule 76, Section
9.) As a rule, the question of ownership is an extraneous matter which the Probate Court cannot resolve
with finality. Thus, for the purpose of determining whether a certain property should or should not be
included in the inventory of estate properties, the Probate Court may pass upon the title thereto, but
such determination is provisional, not conclusive, and is subject to the final decision in a separate action
to resolve title. [3 Moran, Comments on the Rules of Court (1980 ed.), p. 458; Valero Vda. de Rodriguez
vs. Court of Appeals, 91 SCRA 540.]
(b) The rule is that execution of a judgment must conform to that decreed in the dispositive part of the
decision. (Philippine-American Insurance Co. vs. Honorable Flores, 97 SCRA 811.) However, in case of
ambiguity or uncertainty, the body of the decision may be scanned for guidance in construing the
judgment. (Heirs of Presto vs. Galang, 78 SCRA 534; Fabular vs. Court of Appeals, 119 SCRA 329; Robles
vs. Timario. 107 Phil. 809.)
The Order sought to be executed by the assailed Order of execution is the Probate Order of December
5, 1972 which allegedly resolved the question of ownership of the disputed mining properties. The said
Probate Order enumerated the issues before the Probate Court, thus:
Unmistakably, there are three aspects in these proceedings: (1) the probate of the
holographic will (2) the intestate estate aspect; and (3) the administration
proceedings for the purported estate of the decedent in the Philippines.
In its broad and total perspective the whole proceedings are being impugned by the
oppositors on jurisdictional grounds, i.e., that the fact of the decedent's residence
and existence of properties in the Philippines have not been established.
Specifically placed in issue with respect to the probate proceedings are: (a) whether
or not the holographic will (Exhibit "J") has lost its efficacy as the last will and
testament upon the death of Alvaro Pastor, Sr. on June 5, 1966, in Cebu City,
Philippines; (b) Whether or not the said will has been executed with all the
formalities required by law; and (c) Did the late presentation of the holographic will
affect the validity of the same?
Issues In the Administration Proceedings are as follows: (1) Was the ex- parte
appointment of the petitioner as special administrator valid and proper? (2) Is there
any indispensable necessity for the estate of the decedent to be placed under
administration? (3) Whether or not petition is qualified to be a special administrator
of the estate; and (4) Whether or not the properties listed in the inventory
(submitted by the special administrator but not approved by the Probate Court) are
to be excluded.
Then came what purports to be the dispositive portion:
Upon the foregoing premises, this Court rules on and resolves some of the problems
and issues presented in these proceedings, as follows:
(a) The Court has acquired jurisdiction over the probate proceedings as it hereby
allows and approves the so-called holographic will of testator Alvaro Pastor, Sr.,
executed on July 31, 1961 with respect to its extrinsic validity, the same having been
duly authenticated pursuant to the requisites or solemnities prescribed by law. Let,
therefore, a certificate of its allowance be prepared by the Branch Clerk of this Court
to be signed by this Presiding Judge, and attested by the seal of the Court, and
thereafter attached to the will, and the will and certificate filed and recorded by the
clerk. Let attested copies of the will and of the certificate of allowance thereof be
sent to Atlas Consolidated Mining & Development Corporation, Goodrich Bldg.,
Cebu City, and the Register of Deeds of Cebu or of Toledo City, as the case may be,
for recording.
(b) There was a delay in the granting of the letters testamentary or of administration
for as a matter of fact, no regular executor and/or administrator has been
appointed up to this time and - the appointment of a special administrator was, and
still is, justified under the circumstances to take possession and charge of the
estate of the deceased in the Philippines (particularly in Cebu) until the problems
causing the delay are decided and the regular executor and/or administrator
appointed.
(c) There is a necessity and propriety of a special administrator and later on an
executor and/or administrator in these proceedings, in spite of this Court's
declaration that the oppositors are the forced heirs and the petitioner is merely
vested with the character of a voluntary heir to the extent of the bounty given to
him (under) the will insofar as the same will not prejudice the legitimes of the
oppositorfor the following reasons:
1. To submit a complete inventory of the
estate of the decedent-testator Alvaro
Pastor, Sr.
2. To administer and to continue to put to
prolific utilization of the properties of the
decedent;
3. To keep and maintain the houses and
other structures and belonging to the estate,
since the forced heirs are residing in Spain,
and prepare them for delivery to the heirs in
good order after partition and when directed
by the Court, but only after the payment of
estate and inheritance taxes;
(d) Subject to the outcome of the suit for reconveyance of ownership and possession
of real and personal properties in Civil Case No. 274-T before Branch IX of the Court
of First Instance of Cebu, the intestate estate administration aspect must proceed,
unless, however, it is duly proven by the oppositors that debts of the decedent have
already been paid, that there had been an extrajudicial partition or summary one
between the forced heirs, that the legacy to be given and delivered to the petitioner
does not exceed the free portion of the estate of the testator, that the respective
shares of the forced heirs have been fairly apportioned, distributed and delivered to
the two forced heirs of Alvaro Pastor, Sr., after deducting the property willed to the
petitioner, and the estate and inheritance taxes have already been paid to the
Government thru the Bureau of Internal Revenue.
The suitability and propriety of allowing petitioner to remain as special
administrator or administrator of the other properties of the estate of the decedent,
 which properties are not directly or indirectly affected by the provisions of the
holographic will (such as bank deposits, land in Mactan etc.), will be resolved in
another order as separate incident, considering that this order should have been
properly issued solely as a resolution on the issue of whether or not to allow and
approve the aforestated will. (Emphasis supplied.)
Nowhere in the dispositive portion is there a declaration of ownership of specific properties. On the
contrary, it is manifest therein that ownership was not resolved. For it confined itself to the question of
extrinsic validity of the win, and the need for and propriety of appointing a special administrator. Thus it
allowed and approved the holographic win "with respect to its extrinsic validity, the same having been
duly authenticated pursuant to the requisites or solemnities prescribed by law." It declared that the
intestate estate administration aspect must proceed " subject to the outcome of the suit for
reconveyance of ownership and possession of real and personal properties in Civil Case 274-T before
Branch IX of the CFI of Cebu." [Parenthetically, although the statement refers only to the "intestate"
aspect, it defies understanding how ownership by the estate of some properties could be
deemed finally resolved for purposes of testate administration, but not so for intestate purposes. Can
the estate be the owner of a property for testate but not for intestate purposes?] Then again, the
Probate Order (while indeed it does not direct the implementation of the legacy) conditionally stated
that the intestate administration aspect must proceed "unless . . . it is proven . . . that the legacy to be
given and delivered to the petitioner does not exceed the free portion of the estate of the testator,"
which clearly implies that the issue of impairment of legitime (an aspect of intrinsic validity) was in fact
not resolved. Finally, the Probate Order did not rule on the propriety of allowing QUEMADA to remain
as special administrator of estate properties not covered by the holographic will, "considering that this
(Probate) Order should have been properly issued solely as a resolution on the issue of whether or not
to allow and approve the aforestated will. "
(c) That the Probate Order did not resolve the question of ownership of the properties listed in the
estate inventory was appropriate, considering that the issue of ownership was the very subject of
controversy in the reconveyance suit that was still pending in Branch IX of the Court of First Instance of
Cebu.
(d) What, therefore, the Court of Appeals and, in effect, the Supreme Court affirmed en toto when they
reviewed the Probable Order were only the matters properly adjudged in the said Order.
(e) In an attempt to justify the issuance of the Order of execution dated August 20, 1980, the Probate
Court in its Order of November 11, 1980 explained that the basis for its conclusion that the question of
ownership had been formally resolved by the Probate Order of 1972 are the findings in the latter Order
that (1) during the lifetime of the decedent, he was receiving royalties from ATLAS; (2) he had resided in
the Philippines since pre-war days and was engaged in the mine prospecting business since 1937
particularly in the City of Toledo; and (3) PASTOR, JR. was only acting as dummy for his father because
the latter was a Spaniard.
Based on the premises laid, the conclusion is obviously far-fetched.
(f) It was, therefore, error for the assailed implementing Orders to conclude that the Probate Order
adjudged with finality the question of ownership of the mining properties and royalties, and that,
premised on this conclusion, the dispositive portion of the said Probate Order directed the special
administrator to pay the legacy in dispute.
2. Issue of Intrinsic Validity of the Holographic Will -
(a) When PASTOR, SR. died in 1966, he was survived by his wife, aside from his two legitimate children
and one illegitimate son. There is therefore a need to liquidate the conjugal partnership and set apart
the share of PASTOR, SR.'s wife in the conjugal partnership preparatory to the administration and
liquidation of the estate of PASTOR, SR. which will include, among others, the determination of the
extent of the statutory usufructuary right of his wife until her death. * When the disputed Probate order
was issued on December 5, 1972, there had been no liquidation of the community properties of
PASTOR, SR. and his wife.
(b) So, also, as of the same date, there had been no prior definitive determination of the assets of the
estate of PASTOR, SR. There was an inventory of his properties presumably prepared by the special
administrator, but it does not appear that it was ever the subject of a hearing or that it was judicially
approved. The reconveyance or recovery of properties allegedly owned but not in the name of PASTOR,
SR. was still being litigated in another court.
(c) There was no appropriate determination, much less payment, of the debts of the decedent and his
estate. Indeed, it was only in the Probate Order of December 5, 1972 where the Probate Court ordered
that-
... a notice be issued and published pursuant to the provisions of Rule 86 of the
Rules of Court, requiring all persons having money claims against the decedent to
file them in the office of the Branch Clerk of this Court."
(d) Nor had the estate tax been determined and paid, or at least provided for, as of December 5, 1972.
(e) The net assets of the estate not having been determined, the legitime of the forced heirs in concrete
figures could not be ascertained.
(f) All the foregoing deficiencies considered, it was not possible to determine whether the legacy of
QUEMADA - a fixed share in a specific property rather than an aliquot part of the entire net estate of
the deceased - would produce an impairment of the legitime of the compulsory heirs.
(g) Finally, there actually was no determination of the intrinsic validity of the will in other respects. It
was obviously for this reason that as late as March 5, 1980 - more than 7 years after the Probate Order
was issued the Probate Court scheduled on March 25, 1980 a hearing on the intrinsic validity of the will.
3. Propriety of certiorari —
Private respondent challenges the propriety of certiorari as a means to assail the validity of the disputed
Order of execution. He contends that the error, if any, is one of judgment, not jurisdiction, and properly
correctible only by appeal, not certiorari.
Under the circumstances of the case at bar, the challenge must be rejected. Grave abuse of discretion
amounting to lack of jurisdiction is much too evident in the actuations of the probate court to be
overlooked or condoned.
(a) Without a final, authoritative adjudication of the issue as to what properties compose the estate of
PASTOR, SR. in the face of conflicting claims made by heirs and a non-heir (MA. ELENA ACHAVAL DE
PASTOR) involving properties not in the name of the decedent, and in the absence of a resolution on
the intrinsic validity of the will here in question, there was no basis for the Probate Court to hold in its
Probate Order of 1972, which it did not, that private respondent is entitled to the payment of the
questioned legacy. Therefore, the Order of Execution of August 20, 1980 and the subsequent
implementing orders for the payment of QUEMADA's legacy, in alleged implementation of the
dispositive part of the Probate Order of December 5, 1972, must fall for lack of basis.
(b) The ordered payment of legacy would be violative of the rule requiring prior liquidation of the estate
of the deceased, i.e., the determination of the assets of the estate and payment of all debts and
expenses, before apportionment and distribution of the residue among the heirs and legatees.
(Bernardo vs. Court of Appeals, 7 SCRA 367.)
(c) Neither has the estate tax been paid on the estate of PASTOR, SR. Payment therefore of the legacy to
QUEMADA would collide with the provision of the National Internal Revenue Code requiring payment of
estate tax before delivery to any beneficiary of his distributive share of the estate (Section 107 [c])
(d) The assailed order of execution was unauthorized, having been issued purportedly under Rule 88,
Section 6 of the Rules of Court which reads:
Sec. 6. Court to fix contributive shares where devisees, legatees, or heirs have been
in possession. — Where devisees, legatees, or heirs have entered into possession of
portions of the estate before the debts and expenses have been settled and paid
and have become liable to contribute for the payment of such debts and expenses,
the court having jurisdiction of the estate may, by order for that purpose, after
hearing, settle the amount of their several liabilities, and order how much and in
what manner each person shall contribute, and may issue execution as
circumstances require.
The above provision clearly authorizes execution to enforce payment of debts of estate. A legacy is not
a debt of the estate; indeed, legatees are among those against whom execution is authorized to be
issued.
... there is merit in the petitioners' contention that the probate court generally
cannot issue a writ of execution. It is not supposed to issue a writ of execution
because its orders usually refer to the adjudication of claims against the estate
which the executor or administrator may satisfy without the necessity of resorting
to a writ of execution. The probate court, as such, does not render any judgment
enforceable by execution.
The circumstances that the Rules of Court expressly specifies that the probate court
may issue execution (a) to satisfy (debts of the estate out of) the contributive shares
of devisees, legatees and heirs in possession of the decedent's assets (Sec. 6. Rule
88), (b) to enforce payment of the expenses of partition (Sec. 3, Rule 90), and (c) to
satisfy the costs when a person is cited for examination in probate proceedings (Sec.
13, Rule 142) may mean, under the rule of inclusion unius est exclusion alterius, that
those are the only instances when it can issue a writ of execution. (Vda. de Valera
vs. Ofilada, 59 SCRA 96, 108.)
(d) It is within a court's competence to order the execution of a final judgment; but to order the
execution of a final order (which is not even meant to be executed) by reading into it terms that are not
there and in utter disregard of existing rules and law, is manifest grave abuse of discretion tantamount
to lack of jurisdiction. Consequently, the rule that certiorari may not be invoked to defeat the right of a
prevailing party to the execution of a valid and final judgment, is inapplicable. For when an order of
execution is issued with grave abuse of discretion or is at variance with the judgment sought to be
enforced (PVTA vs. Honorable Gonzales, 92 SCRA 172), certiorari will lie to abate the order of execution.
(e) Aside from the propriety of resorting to certiorari to assail an order of execution which varies the
terms of the judgment sought to be executed or does not find support in the dispositive part of the
latter, there are circumstances in the instant case which justify the remedy applied for.
Petitioner MA. ELENA ACHAVAL DE PASTOR, wife of PASTOR, JR., is the holder in her own right of three
mining claims which are one of the objects of conflicting claims of ownership. She is not an heir of
PASTOR, SR. and was not a party to the probate proceedings. Therefore, she could not appeal from the
Order of execution issued by the Probate Court. On the other hand, after the issuance of the execution
order, the urgency of the relief she and her co-petitioner husband seek in the petition for certiorari
states against requiring her to go through the cumbersome procedure of asking for leave to intervene in
the probate proceedings to enable her, if leave is granted, to appeal from the challenged order of
execution which has ordered the immediate transfer and/or garnishment of the royalties derived from
mineral properties of which she is the duly registered owner and/or grantee together with her husband.
She could not have intervened before the issuance of the assailed orders because she had no valid
ground to intervene. The matter of ownership over the properties subject of the execution was then
still being litigated in another court in a reconveyance suit filed by the special administrator of the
estate of PASTOR, SR.
Likewise, at the time petitioner PASTOR, JR. Med the petition for certiorari with the Court of Appeals,
appeal was not available to him since his motion for reconsideration of the execution order was still
pending resolution by the Probate Court. But in the face of actual garnishment of their major source of
income, petitioners could no longer wait for the resolution of their motion for reconsideration. They
needed prompt relief from the injurious effects of the execution order. Under the circumstances,
recourse to certiorari was the feasible remedy.
WHEREFORE, the decision of the Court of Appeals in CA G.R. No. SP-11373-R is reversed. The Order of
execution issued by the probate Court dated August 20, 1980, as well as all the Orders issued
subsequent thereto in alleged implementation of the Probate Order dated December 5, 1972,
particularly the Orders dated November 11, 1980 and December 17, 1980, are hereby set aside; and this
case is remanded to the appropriate Regional Trial Court for proper proceedings, subject to the
judgment to be rendered in Civil Case No. 274-R.
SO ORDERED.
G.R. No. L-16959 January 30, 1962
INTESTATE ESTATE OF THE DECEASED CLODUALDO VITUG,
DONATA MONTEMAYOR, administratrix-appellant,
vs. HEIRS OF EDUARDO D. GUTIERREZ, heirs-appellees.
LABRADOR, J.:
This is an appeal from an order of the Court of First Instance of Pampanga, Hon. L. Pasicolan, presiding,
ordering Donata Montemayor, administratrix-appellant to pay unto the heirs of the late Atty. Eduardo
D. Gutierrez or to their counsel, P9,600.00 with legal interest from the promulgation of the decision of
the Court of Appeals in C.A.-G.R. No. 19246-R, until fully paid, without prejudice to her securing a
reimbursement of said sum from the heirs of her deceased co-sureties.
The facts of the case may be briefly stated as follows: Herein administratrix-appellant, Donata
Montemayor was appointed administratrix of the estate of her late husband, Clodualdo Vitug, and
before she assumed office as administratrix she filed a bond the terms of which were as follows: .
(a) To make and return to the Court within three months, a true and complete inventory of all
goods, chattels, rights, credits and estate of the deceased which shall come to his possession
or knowledge or to the possession of any other person for him; .
(b) To administer according to these rules, and, if an executor, according to the will of the
testator, all goods, chattels, rights, credits, and estate which shall at any time come to his
possession or to the possession of any other firm for him, and from the proceeds to pay and
discharge all debts, legacies, and charges on the same, or such dividends thereon as shall be
decreed by the court; .
(c) To render a true and just account of his administration to the court within one year, and at
any other time when required by the court; .
(d) To perform all orders of the court by him to be performed." (pp. 42-43, R.A.; pp. 4-5, brief
for administratrix-appellant).
Atty. Eduardo D. Gutierrez served as counsel of the administratrix of the estate for the period from
June, 1936 to December, 1953. Before the employment of said Atty. Gutierrez, a project of partition had
already been approved by the court as early as August 23, 1933, wherein the administratrix renounced
her rights to the conjugal properties in favor of her children and the children of the deceased by a
previous marriage, and, in return for which, the heirs or the children, renounced in favor of the widow
the private properties of her husband. A house valued at P16,500.00 and another at P235.00, with
accessories valued at P2,000.00 in addition to a Fordson tractor, were not partitioned and were left in
the hands of the administratrix for future partition. It so happened, however, that the personal
properties were lost, destroyed or looted during World War II. Three cases filed against the
administratrix and the heirs for the recovery of alleged share or participation in the real properties
already partitioned, and these gave occasion to the employment of the services of Atty. Gutierrez by
the administratrix.
When the claim for attorney's fees was brought, the bondsmen for the administratrix had died. The
Court of First Instance declared that no claim for attorney's fees could be allowed, but on appeal to the
Court of Appeals (C.A.-G.R. No. 19246-R), this court declared that the administratrix is liable to pay
P9,600.00 attorney's fees. It is in execution of this judgment that this sum was ordered by the court
below to be paid by the administratrix, personally, with right to reimbursement from the heirs of the
deceased bondsmen.
That services were rendered by the deceased Atty. Eduardo D. Gutierrez is not questioned. Neither is it
denied that services were rendered on behalf of the estate under administration. Nor is there any
finding or claim that the administratrix was guilty of any malfeasance, mismanagement or violation of
her duties as administratrix; so it is claimed on this appeal that as there exist no more funds in her
possession belonging to the estate, the said attorney's fees should be apportioned among the heirs who
have already received their shares of the estate of the deceased Clodualdo Vitug..
We find this claim to be well founded. The expenses of administration incurred by an administratrix
have to be borne out of the properties under administration, or out of the income derived therefrom.
The administratrix can be held personally responsible only for any malfeasance, maladministration or
violation of any of her duties as administratrix.
The undertaking of administrators and their bondsmen is faithfully to administer the estate
and cause to be made just and true accounts, and to make due and proper settlements
thereof, from time to time, according to law or the lawful order, sentence, or decree of any
court having jurisdiction of the parties and subject matter. Harper v. Betts, 60 ALR 484, 177
Ark 977, 8 SW 2d 464; (Permanent A. L. R. Digest, Vol. 6, p. 51.)
Under the usual tenor of an administration bond, the principal and his sureties are only bound
to pay creditors, legatees, or heirs, according to assets which come to hand and the resources
which arise in the course of an honest, prudent, and well advised administration. (34 CJS
1165).
Such being the case, it is unfair that she should bear personally the fees of counsel for services rendered
to her as administratrix in the course of the administration. The Rules provide that an estate left by a
deceased may be partitioned even before the termination of the administration proceedings, like in this
case, and the heirs receiving shares should be responsible for the expenses proportionately.
Sec. 5. — If such contingent claim becomes absolute and is presented to the court, or to the
executor or administrator, within two years from the time limited for other creditors to
present their claims, it may be allowed by the court if not disputed by the executor or
administrator, and, if disputed, it may be proved and allowed or disallowed by the court as
the facts may warrant. If the contingent claim is allowed, the creditor shall receive payment to
the same extent as the other creditors if the estate retained by the executor or administrator
is sufficient. But if the claim is not so presented, after having become absolute, within said
two years, and allowed, the assets retained in the hands of the executor or administrator, not
exhausted in the payment of claims, shall be distributed by the order of the court to the
persons entitled to the same; but the assets so distributed may still be applied to the payment
of the claim when established, and the creditor may maintain an action against the
distributees to recover his debt, and such distributees and their estates shall be liable for the
 debt in proportion to the estate they have respectively received from the property of the
deceased." .

Sec. 6. — Where devisees, legatees, or heirs have entered into possession of portions of the
estate before the debts and expenses have been settled and paid, and have become liable to
contribute for the payment of such debts and expenses, the court having jurisdiction of the
estate may, by order for the purpose, after hearing, settle the amount of their several
liabilities, and order how much and in what manner each person shall contribute, and may
issue execution if circumstances require." (Rule 89, Secs. 5 and 6).

In accordance with these provisions, the administratrix in the case at bar should not be required to pay
personally the counsel's attorney's fees. Neither should her bondsmen on her bond be responsible as
there is nothing in her acts as would constitute a violation of the guaranty assumed by them in their
bond.

A surety on the official bond of an administrator or executor, where there is no statute or

stipulation in the bond to the contrary, obligates himself only to account for losses occasioned
by the failure of the fiduciary to use due diligence in pursuing and collecting claims owing to
the estate, and to make proper application of the assets that come into his hands. State ex rel.
Farmer v. Citizens' Trust & G. Co. & ALR 79, W Va. 729, 100 SE 685." .

It has been held that surety on an administration bond is bound only for faithful
administration of the estate, and not for the return of money which the administrator in good
faith spent and which he is unable to repay." (34 CJS 1186).1äwphï1.ñët

For the foregoing considerations, the order appealed from should be, as it is hereby, set aside, and
another entered ordering that the fees payable to the estate of the deceased Atty. Eduardo D. Gutierrez
be apportioned among the heirs. So ordered.
G.R. No. L-16959 July 24, 1962
INTESTATE ESTATE OF THE DECEASED CLODUALDO VITUG, DONATA MONTEMAYOR, administratrix-
appellant,
vs. HEIRS OF EDUARDO D. GUTIERREZ, heirs-appellees.

LABRADOR, J.:

The heirs of Eduardo D. Gutierrez, heirs-appellees herein, seek the reconsideration of the decision of
this Court in which the administratrix was exempted from personal liability for counsel's attorney's fees,
reserving to the heirs of the deceased counsel Eduardo D. Gutierrez the right to demand payment of the
fees of their deceased predecessor from the heirs of the deceased Clodualdo Vitug. Considering that the
said attorney's fees were due because administratrix Donata Montemayor had contracted the services
of said counsel and is, therefore, indirectly responsible to the heirs-appellees for the payment of the
fees of the above-mentioned counsel, the decision is hereby modified to read as follows:

For the foregoing considerations, the order appealed from is hereby modified by declaring the
administratrix Donata Montemayor responsible, in her capacity as administratrix, to the heirs
of the deceased Attorney Eduardo D. Gutierrez, for the payment of the fees adjudged by the
court to be due to the latter, with the corresponding duty and right on the part of said
administratrix to secure the sums needed for the payment of said fees from the heirs, who
have been declared responsible in proportion to the shares received.
[G.R. No. 138485. September 10, 2001]
DR . FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his capacity as Executor of
the Estate of JOSE SAN AGUSTIN, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
VITUG, J.:
Before the Court is a petition for review seeking to set aside the decision of 24 February 1999 of
the Court of Appeals, as well as its resolution of 27 April 1999, in CA-G.R. SP No. 34156, which has
reversed that of the Court of Tax Appeals in CTA Case No. 4956, entitled Jose Y. Feria, in his capacity as
Executor of the Estate of Jose San Agustin versus Commissioner of Internal Revenue. The tax courts
decision has modified the deficiency assessment of the Commission of Internal Revenue for surcharge,
interests and other penalties imposed against the estate of the late Jose San Agustin.
The facts of the case narrated by the appellate court would appear, by and large, to be
uncontroverted; thus viz:
Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving his wife Dra.
Felisa L. San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all his
estate to his widow, and naming retired Justice Jose Y. Feria as Executor thereof.
Probate proceedings were instituted on August 22, 1990, in the Regional Trial Court (RTC) of Makati,
Branch 139, docketed as Sp. Proc. No. M-2554. Pursuantly, notice of decedents death was sent to the
Commissioner of Internal Revenue on August 30, 1990.
On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on
behalf of the estate, with a request for an extension of two years for the payment of the tax, inasmuch
as the decedents widow (did) not personally have sufficient funds, and that the payment (would) have
to come from the estate.
In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor A. Deoferio, Jr., granted
the heirs an extension of only six (6) months, subject to the imposition of penalties and interests under
Sections 248 and 249 of the National Internal Revenue Code, as amended.
In the probate proceedings, on October 11, 1990, the RTC allowed the will and appointed Jose Feria as
Executor of the estate. On December 5, 1990, the executor submitted to the probate court an inventory
of the estate with a motion for authority to withdraw funds for the payment of the estate tax. Such
authority was granted by the probate court on March 5, 1991. Thereafter, on March 8, 1991, the
executor paid the estate tax in the amount of P1,676,432 as reported in the Tax Return filed with the
BIR. This was well within the six (6) months extension period granted by the BIR.
On September 23, 1991, the widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment
Notice from the BIR, dated August 29, 1991, showing a deficiency estate tax of P538,509.50, which,
including surcharge, interest and penalties, amounted to P976,540.00.
On October 1, 1991, within the ten-day period given in the pre-assessment notice, the executor filed a
letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of
P538,509.50 as soon as the Regional Trial Court approves withdrawal thereof, but, requesting that the
surcharge, interest, and other penalties, amounting to P438,040.38 be waived, considering that the
assessed deficiency arose only on account of the difference in zonal valuation used by the Estate and
the BIR, and that the estate tax due per return of P1,676,432.00 was already paid in due time within the
extension period.
On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand in the pre-
assessment notice and requesting payment on or before thirty (30) days upon receipt thereof.
In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the
assessment of P976,549.00 and waiver of the surcharge, interest, etc.
On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount
of P538,509.50 through its Receivable Accounts Billing Division.
The request for reconsideration was not acted upon until January 21, 1993, when the executor received
a letter, dated September 21, 1992, signed by the Commissioner, stating that there is no legal
justification for the waiver of the interests, surcharge and compromise penalty in this case, and
requiring full payment of P438,040.38 representing such charges within ten (10) days from receipt
thereof.
In view thereof, the respondent estate paid the amount of P438,040.38 under protest on January 25,
1993.
On February 18, 1993, a Petition for Review was filed by the executor with the CTA with the prayer that
the Commissioners letter/decision, dated September 21, 1992 be reversed and that a refund of the
amount of P438,040.38 be ordered.
The Commissioner opposed the said petition, alleging that the CTAs jurisdiction was not properly
invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau
of Internal Revenue before the petition was filed, in violation of Sections 204 and 230 of the National
Internal Revenue Code. Moreover, there is no statutory basis for the refund of the deficiency
surcharges, interests and penalties charged by the Commissioner upon the estate of the decedent.
Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated April 21, 1994,
modifying the CIRs assessment for surcharge, interests and other penalties from P438,040.38 to
P13,462.74, representing interest on the deficiency estate tax, for which reason the CTA ordered the
reimbursement to the respondent estate the balance of P423,577.64, to wit:
`WHEREFORE, respondents deficiency assessment for surcharge, interests, and other penalties is hereby
modified and since petitioner has clearly paid the full amount of P438,040.38, respondent is hereby
ordered to refund to the Estate of Jose San Agustin the overpayment amounting to P423,577.64.[1]
On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the Commissioner of
Internal Revenue to the Court of Appeals. There, the petition for review raised the following issues:
1. Whether respondent Tax Court has jurisdiction to take cognizance of the case considering the failure
of private respondent to comply with the mandatory requirements of Sections 204 and 230 of the
National Internal Revenue Code.
2. Whether or not respondent Tax Court was correct in ordering the refund to the Estate of Jose San
Agustin the reduced amount of P423,577.64 as alleged overpaid surcharge, interests and compromise
penalty imposed on the basic deficiency estate tax of P538,509.50 due on the transmission of the said
Estate to the sole heir in 1990.[2]
In its decision of 24 February 1999, the Court of Appeals granted the petition of the Commissioner
of Internal Revenue and held that the Court of Tax Appeals did not acquire jurisdiction over the subject
matter and that, accordingly, its decision was null and void.
Hence, the instant petition where petitioner submits that -
1. The filing of a claim for refund [is] not essential before the filing of the petition for review.
2. The imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is
not in accord with the law and therefore illegal.[3]
The Court finds the petition partly meritorious.
The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs.
Collector of Internal Revenue.[4]
The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax,
surcharge and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then
respondent Collector (now Commissioner) of Internal Revenue set up several defenses, one of which
was that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of the Tax
Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to petitioners
recourse to it, the Court of Tax Appeals dismissed the petition for lack of jurisdiction. On appeal to this
Court, the tax courts ruling was reversed; the Court held:
We agree with petitioner that Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in
providing for appeals from -
`(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or part of the law administered by the
Bureau of Internal Revenue -
allows an appeal from a decision of the Collector in cases involving `disputed assessments as
distinguished from cases involving `refunds of internal revenue taxes, fees or other charges, x x x; that
the present action involves a disputed assessment; because from the time petitioner received
assessments Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him
in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the
same, questioning the correctness and legality of such assessments; and that the petitioner paid the
disputed assessments under protest before filing his petition for review with the Court a quo, only to
forestall the sale of his properties that had been placed under distraint by the respondent Collector
since December 4, 1957. To hold that the taxpayer has now lost the right to appeal from the ruling on
the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which
requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to
appeal, would in effect require of him to go through a useless and needless ceremony that would only
delay the disposition of the case, for the Collector (now Commissioner) would certainly disallow the
claim for refund in the same way as he disallowed the protest against the assessment. The law, should
not be interpreted as to result in absurdities.[5]
The Court sees no cogent reason to abandon the above dictum and to require a useless formality
that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in
taking cognizance of the taxpayers appeal to it.
On the second issue, the National Internal Revenue Code, relative to the imposition of surcharges,
interests, and penalties, provides thusly:
Sec. 248. Civil Penalties. -
(a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-
five percent (25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code
or rules and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer
other than those with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under
the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is
required to be filed, on or before the date prescribed for its payment.
Sec. 249. Interest. -
(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate
of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations,
from the date prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be
subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and
collected from the date prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. - In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(2) The amount of the tax due for which no return is required, or In sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of
P13,462.74 or a total of P148,090.00.
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge,
demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at interest and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of
the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part P134,627.37 and interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38,
of the tax. respondent Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid
amount of P289,950.38. No costs.
(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and elects to pay
the tax on installment under the provisions of this Code, but fails to pay the tax or any installment SO ORDERED.
hereof, or any part of such amount or installment on or before the date prescribed for its payment, or
where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency
tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove
prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand
until it is paid.

It would appear that, as early as 23 September 1991, the estate already received a pre-
assessment notice indicating a deficiency estate tax of P538,509.50. Within the ten-day period given in
the pre-assessment notice, respondent Commissioner received a letter from petitioner expressing the
latters readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would
have approved the withdrawal of that sum from the estate but requesting that the surcharge, interests
and penalties be waived. On 04 October 1991, however, petitioner received from the Commissioner
notice insisting payment of the tax due on or before the lapse of thirty (30) days from receipt
thereof. The deficiency estate tax of P538,509.50 was not paid until 19 December 1991. [6]

The delay in the payment of the deficiency tax within the time prescribed for its payment in the
notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of
the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof
comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be
subject to interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and
collected from the date prescribed for its payment until full payment is made. The computation of
interest by the Court of Tax Appeals -

Deficiency estate tax x Interest Rate x Terms

P538,509.50 20% per annum 11/2 mo./12 mos
(11/04/91 to 12/19/91)
= P13,462.74[7]

conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment
until it is paid.

The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be
imposed on petitioner, a compromise being, by its nature, mutual in essence. The payment made under
protest by petitioner could only signify that there was no agreement that had effectively been reached
between the parties.

Regrettably for petitioner, the need for an authority from the probate court in the payment of the
deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that can
negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government,
are meant to be paid without delay and often oblivious to contingencies or conditions.
G.R. No. 170632 July 10, 2007
EUGENIA D. POLIDO, Petitioner,
vs. HON. COURT OF APPEALS and MARIANO P. GASAT, Respondents.
DECISION
CARPIO MORALES, J.:
After the death of her husband Jacinto Polido (Polido), Eugenia Duque Polido, petitioner, tried to
withdraw the joint savings deposit they maintained at the Philippine National Bank, Camiling, Tarlac
Branch, but failed because one Mariano Gasat (Gasat), herein respondent who claimed to be the
couple’s adopted child, objected thereto.
Petitioner thus filed on January 21, 2004 a complaint before the Regional Trial Court of Tarlac, with
Motion for the Issuance of a Writ of Preliminary Injunction, against Gasat.
In her complaint, petitioner prayed for the following reliefs:
1. An Order granting the issuance of [a] writ of preliminary injunction enjoining and
restraining the defendantand all persons acting under him from preventing the officers or
employee[s] of the Philippine National Bank, Camiling, Tarlac Branch from releasing in favor of
the plaintiff the money deposited with the said bank upon posting of a bond by the plaintiff in
an amount to be fixed by the Court;
2. After trial, to declare the defendant not the adopted child of the plaintiff and her husband
Jacinto Polido;
3. Directing the defendant to pay plaintiff attorney’s fees and litigation expenses in the
amount of P100,000.00 and moral damages in the amount of P50,000.00.
Other reliefs which are just and equitable under the premises are likewise prayed for. 1 (Underscoring
supplied)
In his Answer with Compulsory Counterclaim,2 Gasat alleged that petitioner and her late husband had
adopted him as their child, annexing as proof thereof a photocopy of an Order dated September 23,
1970 of the Municipal Trial Court (MTC) of Camiling in Civil Case No. 2497, "In the Matter of the
Adoption of the Minors, Lea D. Tomas and Mariano Gasat, JACINTO POLIDO AND EUGENIA POLIDO,
Petitioners,"3 and a copy of a Certification4 from the MTC Clerk of Court that a "[c]opy of the decree of
adoption dated September 23, 1970 was furnished to the Office of the Local Civil Registrar" and said
decree had become final and executory; and that petitioner cannot withdraw any amount from the
bank account because she should follow legal procedures governing settlement of the estate of a
deceased, unless a competent court issues an order allowing her to withdraw from said account.5
In his Opposition to the Issuance of Preliminary Injunction and Motion to Set the Affirmative Defenses
for Preliminary Hearing,6 Gasat argued that:
xxxx
3. Even assuming but without admitting that the defendant’s adoption paper is ineffective,
still he cannot be deprived of his inheritance from the Estate of Jacinto Polido because
said deceased and the plaintiff are childless and all the properties subject of inheritance
are exclusive properties of the late Jacinto Polido, the same being inherited from his late
father, NARCISO POLIDO[,] who died in Hawaii, USA.
4. The Estate of Narciso Polido was inherited by his two children, namely, said JACINTO
POLIDO and PETRA P. GASAT, also deceased and the latter was survived by her husband and
SEVEN (7) children of which the defendant (MARIANO D. POLIDO) is one . . .;
5. Thus, by virtue of the provision of Art. 1001 of the Civil Code of the Philippines, which reads
as follows:
"ART. 1001. Should brothers and sisters or their children survive with the widow or widower, the latter
shall be entitled to one-half of the inheritance and the brothers and sisters or their children to the other
half."
[T]he heirs of the late Jacinto Polido are his WIFE (plaintiff) [who is entitled to] one-half (1/2) and Petra
P. Gasat’s SEVEN (7) CHILDREN which would include the defendant[, who are entitled to] one-half (1/2).
HENCE, THERE IS NO WAY WHATSOEVER TO JUSTIFY THE ISSUANCE OF PRELIMINARY INJUNCTION
AGAINST THE DEFENDANT EVEN IF HIS ADOPTION WOULD BE NULLIFIED OR OF NO EFFECT
WHATSOEVER.7 (Emphasis in the original; underscoring supplied)
Gasat subsequently filed an Omnibus Motion8 withdrawing 1) the allegation he had made in various
pleadings that he is an adopted son of the couple and 2) his Motion to Set the Affirmative Defenses for
Preliminary Hearing. And he moved to convert the case to an action for partition, at his instance, of the
estate of his grandfather Narciso Polido,9 father of petitioner’s husband and Gasat’s mother, and to
require petitioner to file income tax returns and pay the estate tax due.
To Gasat’s prayer to convert the action to one for partition and to require her to file Estate Tax Returns,
petitioner filed an Opposition.10 And she moved for Judgment on the Pleadings.11
To justify her motion for judgment on the pleadings, petitioner argued that Gasat, in withdrawing his
claim and allegation that he is an adopted child, "practically admitted [her] material allegations [in the
Complaint] that [he] is not an adopted child."12
By Order13 dated December 7, 2004, the trial court denied Gasat’s motion to convert the case to an
action for partition and granted petitioner’s motion for judgment on the pleadings in this wise:
On November 30, 2004, the plaintiff filed a Motion for Judgment on the ground that by withdrawing all
his allegations that he is [an] adopted child of the plaintiff, defendant practically admitted all the
material allegations in the complaint and prayed that judgment be rendered as the complaint may
warrant.
This Court resolves to grant the motion for judgment on the ground that the defense that he is an
adopted child of the plaintiff is withdrawn by the defendant himself. By withdrawing his defense, he is
deemed to have admitted the main allegation of the plaintiff that he is not an adopted child. On the
motion of the defendant that the instant action be converted into a partition and that the plaintiff be
ordered to file her real estate tax return, the same is denied for lack of merit.14 (Underscoring supplied)
Accordingly, the trial court disposed as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring the defendant not the adopted child of the plaintiff,
2. Ordering the Manager of the Philippine National Bank, Camiling Branch or any other branch
to release to plaintiff upon her request the money she deposited or her deceased husband
Jacinto Polido;
3. Directing the defendant to pay the plaintiff moral damages in the amount of P25,000.00
and attorney’s fee[s] in the amount of P25,000.00.
SO ORDERED.15 (Underscoring supplied)
Gasat filed a Notice of Appeal.16 On May 26, 2005, before the Court of Appeals, he filed an Ex-Parte
Motion to Admit Payment of Docket Fee,17 explaining that being jobless, it took some time for him to
raise the docket fee. He added that he had to borrow at an exorbitant interest rate. Finally, he
explained that when he went to the trial court to pay the docket fee, he was advised to pay the same at
the Court of Appeals, the records having already been forwarded to it.
The Court of Appeals denied his motion and dismissed his
appeal.18 On Motion for Reconsideration, however, the Court of Appeals, by Resolution dated July 19,
2005, admitted Gasat’s docket fee.19 Petitioner filed a Motion for Reconsideration, which the Court of
Appeals denied in this wise: 20
It is settled that "delay in the payment of the docket fees confers a discretionary, and not mandatory,
power to dismiss the proposed appeal." While the payment of the prescribed docket fee is a
jurisdictional requirement, its non-payment at the time of filing does not automatically cause the
dismissal of the case, as long as the fee is paid within the applicable prescriptive or reglementary
period, moreso, when the party involved demonstrates a willingness to abide by the rules prescribing
such payment. On this score is the case of Spouses Gregorio Go and Juan Tan Go v. Johnson Y. Tong, et.
al., where the Supreme Court ruled that:
While the cause of action of the private respondent was supposed to prescribe in four (4) years, he was
allowed to pay; and he in fact paid the docket fee in a year’s time. We do not see how this period can be
deemed unreasonable. Moreover, on his part there is no showing of any pattern or intent to defraud
the government of the required docket fee.
In the instant case, the period between the filing of the notice of appeal on February 28, 2005 and the
payment of docket fee on May 26, 2005 is deemed reasonable. Moreover, justice will be better served
with the admission of such belated payment.21 (Underscoring supplied)
Hence, the present Petition for Certiorari and Prohibition with Urgent Motion for Injunction and
Temporary Restraining Order,22 petitioner faulting the Court of Appeals for committing grave abuse of
discretion in relaxing the rule on the payment of docket fees on the ground of substantial justice.23
The petition fails.
Indeed, jurisprudence allows the relaxation of the Rule on non-payment of appellate docket fees.
Notwithstanding the mandatory nature of the requirement of payment of appellate docket fees, we
also recognize that its strict application is qualified by the following: first, failure to pay those fees
within the reglementary period allows only discretionary, not automatic, dismissal; second, such power
should be used by the court in conjunction with its exercise of sound discretion in accordance with the
tenets of justice and fair play, as well as with a great deal of circumspection in consideration of all
attendant circumstances.24
The relaxation by the appellate court of the rule on non-payment of the appellate docket fee appears
justified as a perusal of the records of the case shows persuasive and weighty reasons to give due
course to the appeal.25
Instead of remanding the case to the appellate court, however, this Court, in the interest of speedy
dispensation of justice,26 especially given that the main issue is a question of law, now passes on the
merits of the appeal of Gasat.
Section 1 of Rule 34 of the Rules of Court provides:
SECTION 1. Judgment on the Pleadings. – Where an answer fails to tender an issue, or otherwise admits
the material allegations of the adverse party’s pleading, the court may, on motion of that party, direct
judgment on such pleading. However, in actions for declaration of nullity or annulment of marriage or
for legal separation, the material facts alleged in the complaint shall always be proved. (Emphasis and
underscoring supplied)
Passing on this rule, the Court declared:
x x x The answer would fail to tender an issue x x x if it does not comply with the requirements for a
specific denial set out in Section 10 (or Section 8) of Rule 8; and it would admit the material allegations
of the adverse party’s pleadings not only where it expressly confesses the truthfulness thereof but also
if it omits to deal with them at all.
Now, if an answer does in fact specifically deny the material averments of the complaint in the manner
indicated by said Section 10 of Rule 8, and/or asserts affirmative defenses (allegations of new matter
which, while admitting the material allegations of the complaint expressly or impliedly, would
nevertheless bar recovery by the plaintiff) x x x, a judgment on the pleadings would naturally not be
proper.27
In the case at bar, the trial court granted petitioner’s motion for judgment on the pleadings on
petitioner’s argument that in withdrawing Gasat’s allegation of her having adopted him, he "practically
admitted her material allegations [in her Complaint] that [he] is not an adopted child."
Gasat’s Answer with Compulsory Counterclaim raised other issues, however, which are independent of
his claim of adoptive filiation and which would defeat petitioner’s main cause of action – for the court
to enjoin Gasat "and all persons acting under him from preventing the officers or employees of the
[PNB] from releasing" the deposit to her.
to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the
joint depositors and such statement shall be under oath by the said depositors.
There being no ground to merit petitioner’s Motion for Judgment on the Pleadings, the trial court erred
in granting the same.lawphil.net
WHEREFORE, the assailed petition is DENIED. The Court of Appeals Resolution admitting respondent’s
payment of docket fee is upheld.

11. . . Further, defendant has all the rights to prohibit the plaintiff from personally withdrawing [from] The Order of the Regional Trial Court of Camiling, Tarlac, Branch 68 dated December 7, 2004 granting
the said bank account because, it is mandated by law that after the death of the owner of the said petitioner’s Motion for Judgment on the Pleadings is REVERSED and SET ASIDE.
account, any withdrawal is prohibited except by order of the Court or upon presentation of an
Extrajudicial Settlement executed by the legal heirs and after compliance with all the requirements of
Let the case be REMANDED to the trial court which is directed to continue with dispatch its proceedings
the law. Likewise the bank is prohibited to allow any withdrawal without submitting to it said
on and/or resolve the case in light of the foregoing discussions.
requirements.

Costs against petitioner.

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SO ORDERED.
13. With respect to the allegations of said paragraph 14, to wit –

Unless an injunction be issued against the defendant restraining him from claiming in the bank account,
the plaintiff would suffer irreparable damage. The plaintiff is willing to post a bond in an amount to be
fixed by the Honorable Court.

This allegation is UNFOUNDED AND BASELESS and the court cannot use [it] as a ground for the issuance
of any restraining order. Even assuming that the court will issue an Order restraining defendant from
claiming the bank account, the plaintiff still cannot withdraw any amount thereof, because it is a part of
the ESTATE of Jacinto Polido, and as provided for by laws before the bank allows any withdrawal, the
plaintiff has to follow certain proceduresrequired by other laws governing estate settlement, that is, -
(a) Payment of Estate Tax, if any; (b) BIR Tax Clearance; (c) Present a duly published Extrajudicial
Partition executed by the heirs adjudicating said amount to such heir, unless a competent Court issues
an Order allowing the plaintiff to withdraw [from] said account. 28(Underscoring supplied)

It bears noting that petitioner and her deceased husband Polido were childless; hence, Gasat, who is a
son of Polido’s sister Petra P. Gasat, could inherit from Polido.

Parenthetically, Section 97 of the National Internal Revenue Code states:

xxxx

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone,
or jointly with another, it shall not allow any withdrawal from the said deposit account unless the
Commissioner had certified that the taxes imposed thereon by this Title have been paid; Provided,
however, That the administrator of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(₱20,000) without the said certification. For this purpose, all withdrawal slips shall contain a statement