Estate Tax Cases
Republic of the Philippines the moment of the death of the former, and that from the time,
SUPREME COURT
Manila
EN BANC
G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as
trustee of the estate of Thomas Hanley, deceased, brought this action in
the Court of First Instance of Zamboanga against the defendant, Juan
Posadas, Jr., then the Collector of Internal Revenue, for the refund of
the amount of P2,052.74, paid by the plaintiff as inheritance tax on the
estate of the deceased, and for the collection of interst thereon at the
rate of 6 per cent per annum, computed from September 15, 1932, the
date when the aforesaid tax was [paid under protest. The defendant set
up a counterclaim for P1,191.27 alleged to be interest due on the tax in
question and which was not included in the original assessment. From
the decision of the Court of First Instance of Zamboanga dismissing both
the plaintiff's complaint and the defendant's counterclaim, both parties
appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in
Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable
amount of real and personal properties. On june 14, 1922, proceedings
for the probate of his will and the settlement and distribution of his estate
were begun in the Court of First Instance of Zamboanga. The will was
admitted to probate. Said will provides, among other things, as follows:
4. I direct that any money left by me be given to my nephew
Matthew Hanley.
5. I direct that all real estate owned by me at the time of my
death be not sold or otherwise disposed of for a period of ten
(10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given
to my nephew, Matthew Hanley, at Castlemore,
Ballaghaderine, County of Rosecommon, Ireland, and that he
be directed that the same be used only for the education of
my brother's children and their descendants.
6. I direct that ten (10) years after my death my property be
given to the above mentioned Matthew Hanley to be disposed
of in the way he thinks most advantageous.
xxx xxx xxx
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 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
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Estate Tax Cases
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
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Estate Tax Cases
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.)
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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.

Page 4 of 30
Estate Tax Cases

EN BANC
[G.R. No. L-10128. November 13, 1956.]
MAMERTO C. CORRE, Plaintiff-Appellant, vs. GUADALUPE TAN
CORRE, Defendant-Appellee.

DECISION
BAUTISTA ANGELO, J.:

Plaintiff brought this action in the Court of First Instance of Manila

seeking his legal separation from Defendant, his wife, and the placing of
their minor children under the care and custody of a reputable women’s
dormitory or institution as the court may recommend.
Defendant moved to dismiss the complaint on the ground that the venue
is improperly laid. She claims that since it appears in the complaint that
neither the Plaintiff nor the Defendant is a resident of the City of Manila
the court where the action was filed is not the proper court to take
cognizance of the case. The court upheld the contention
of Defendant and, accordingly, dismissed the case without
pronouncement as to costs. This is an appeal from this decision.
The pertinent portion of the complaint which refers to the residence of
both Plaintiff and Defendant is as follows:chanroblesvirtuallawlibrary
“1. That Plaintiff is an American citizen, 44 years of age, resident of 114
North Ist Street, Las Vegas, Nevada, United States of America, master
sergeant in the U. S. Army with military service address of Ro-6739431,
Army Section, Military Assistance Advisory Group (MAAG) Formosa,
APO 63, San Francisco, California, and for the purpose of filing and
maintaining this suit, temporarily resides at 576 Paltoc, Santa Mesa,
Manila;
“2. That Defendant is a Filipino, 40 years of age and resident of the
municipality of Catbalogan, province of Samar, Philippines, where
summons may be served;”
Section 1, Rule 5, of the Rules of Court provides that Civil actions in
Courts of First Instance may be commenced and tried where
the Defendant or any of the Defendants resides or may be found, or
where the Plaintiff or any of the Plaintiffs resides, at the election of
the Plaintiff.” From this rule it may be inferred that Plaintiff can elect to
file the action in the court he may choose if both the Plaintiff and
the Defendant have their residence in the Philippines. Otherwise, the
action can only be brought in the place where either one resides.
It the present case, it clearly appears in the complaint that the Plaintiff is
a resident of Las Vegas, Nevada, U. S. A. while the Defendant is a
resident of the municipality of Catbalogan, province of Samar. Such
being the case, Plaintiff has no choice other than to file the action in the
court of first instance of the latter province. The allegation that
the Plaintiff “for the purpose of filing and maintaining this suit,
temporarily resides at 576 Paltoc, Santa Mesa, Manila” cannot serve as
basis for the purpose of determining the venue for that is not the
residence contemplated by the rule. If that were allowed, we would
create a situation where a person may have his residence in one
province and, to suit his convenience, or to harass the Defendant, may
bring the action in the court of any other province. That cannot be the
intendment of the rule.
Indeed, residence as used in said rule is synonymous with domicile. This
is define as “the permanent home, the place to which, whenever absent
for business or pleasure, one intends to return, and depends on facts
and circumstances, in the sense that they disclose intent” (67 C.J., 123-
124). This is what we said in the recent case of Evangelista vs. Santos,
86 Phil., 387:chanroblesvirtuallawlibrary
“The fact that Defendant was sojourning in Pasay at the time he was
served with summons does not make him a resident of that place for
purposes of venue. Residence is ‘the permanent home, the place to
which, whenever absent for business or pleasure, one intends to
return cralaw.’ (67 C.J. pp. 123-124.) A man can have but one domicile
at a time (Alcantara vs. Secretary of Interior, 61 Phil. 459), and residence
is synonymous with domicile under section 1 of Rule 5 (Moran’s
Comments, supra, p. 104).”
The case of Dela Rosa and Go Kee vs. De Borja, 53 Phil., 990, cited
by Appellant to support his contention, is not controlling. In that case,
the Defendant submitted to the jurisdiction of the court and did not raise
the point of venue until after judgment had been rendered. And so it was
held that Defendant was estopped to raise this point on appeal, although
in passing the court insinuated that residence for purposes of venue
need not be permanent. At any rate, this matter should now be regarded
as modified by our decision in the aforesaid case of Evangelista.
Wherefore, the decision appealed from is affirmed, with costs
against Appellant.

Page 5 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.
Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de
Lara.
Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf
for the Collector of Internal Revenue.
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 atcountry, Miller never acquired a house for residential purposes for he
......................................................................
Real property situated in Burlingame, San Mateo, California valued atand properties were in the United States. To his home in California, he
........................................................................................
Tangible Personal property, worth.............................................
Cash in the banks in the United States....................................
Accounts Receivable from various persons in the United Statesalready stated, executed his will in Santa Cruz, California, wherein he
including notes ...............................................................
Stocks in U.S. Corporations and U.S. Savings Bonds, valued atestate subject to estate and inheritance taxes are those shares of stock
........................................................................................
Shares of stock in Philippine Corporations, valued at ..........
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 and not by the fact of actual
residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921,
6 AFTR 7498, cert. den (1928) 272 U.S.608).
We also agree with the Court of Tax Appeals that at the time of his death,
Miller had his residence or domicile in Santa Cruz, California. During his
stayed at the Manila Hotel and later on at the Army and Navy Club.
P 5,000.00
Except this wife never stayed in the Philippines. The bulk of his savings
16,200.00
had been sending souvenirs, such as carvings, curios and other similar
collections
2,140.00 from the Philippines and the Far East. In November, 1940,
Miller took out a property insurance policy and indicated therein his
21,178.20
address as Santa Cruz, California, this aside from the fact that Miller, as
stated that he was "of Santa Cruz, California". From the foregoing, it is
36,062.74
clear that as a non-resident of the Philippines, the only properties of his
123,637.16
issued by Philippines corporations, valued at P51,906.45. It is true, as
stated by the Tax Court, that while it may be the general rule that
51,906.45
personal property, like shares of stock in the Philippines, is taxable at
the domicile of the owner (Miller) under the doctrine of mobilia secuuntur
persona, nevertheless, when he during his life time,
Page 6 of 30
Estate Tax Cases

. . . extended his activities with respect to his intangibles, so irrespective of whether there is a corresponding or similar
as to avail himself of the protection and benefits of the laws of exemption from transfer or death taxes of non-residents of the
the Philippines, in such a way as to bring his person or Philippines, who are citizens of the United States; and thirdly,
property within the reach of the Philippines, the reason for a because this exemption is allowed on all gross estates of non-
single place of taxation no longer obtains- protection, benefit, residents irrespective of whether it involves tangible or
and power over the subject matter are no longer confined to intangible, real or personal property; so that for these reasons
California, but also to the Philippines (Wells Fargo Bank & petitioner cannot claim a reciprocity. . .
Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the Furthermore, in the Philippines, there is already a reduction on gross
instant case, the actual situs of the shares of stock is in the estate tax in the amount of P3,000 under section 85 of the Tax Code,
Philippines, the corporation being domiciled herein: and before it was amended, which in part provides as follows:
besides, the right to vote the certificates at stockholders' SEC. 85. Rates of estate tax.—There shall be levied,
meetings, the right to collect dividends, and the right to assessed, collected, and paid upon the transfer of the net
dispose of the shares including the transmission and estate of every decedent, whether a resident or non-resident
acquisition thereof by succession, all enjoy the protection of of the Philippines, a tax equal to the sum of the following
the Philippines, so that the right to collect the estate and percentages of the value of the net estate determined as
inheritance taxes cannot be questioned (Wells Fargo Bank & provided in sections 88 and 89:
Union Trust Co. vs. Collector supra). It is recognized that the One per centrum of the amount by which the net estate
state may, consistently with due process, impose a tax upon exceeds three thousand pesos and does not exceed ten
transfer by death of shares of stock in a domestic corporation thousand pesos;. . .
owned by a decedent whose domicile was outside of the state It will be noticed from the dispositive part of the appealed decision of the
(Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Tax Court that the Ancilliary Administrator was ordered to pay the
Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)." amount of P2,047.22, representing estate taxes due, together with
(Brief for the Petitioner, p. 79-80). interest and other increments. Said Ancilliary Administrator invokes the
The Ancilliary Administrator for purposes of exemption invokes the provisions of Republic Act No. 1253, which was passed for the benefit
proviso in Section 122 of the Tax Code, which provides as follows: of veterans, guerrillas or victims of Japanese atrocities who died during
. . ."And Provided, however, That no tax shall be collected the Japanese occupation. The provisions of this Act could not be invoked
under this Title in respect of intangible personal property (a) if during the hearing before the Tax Court for the reason that said Republic
the decedent at the time of his death was a resident of a Act was approved only on June 10, 1955. We are satisfied that inasmuch
foreign country which at the time of his death did not impose as Miller, not only suffered deprivation of the war, but was killed by the
a transfer tax or death tax of any character in respect of Japanese military forces, his estate is entitled to the benefits of this Act.
intangible personal property of citizens of the Philippines not Consequently, the interests and other increments provided in the
residing in that country, or (b) if the laws of the foreign country appealed judgment should not be paid by his estate.
of which the decedent was resident at the tune of his death With the above modification, the appealed decision of the Court of Tax
allow a similar exemption from transfer taxes or death taxes Appeals is hereby affirmed. We deem it unnecessary to pass upon the
of every character in respect of intangible personal property other points raised in the appeal. No costs.
owned by citizen, of the Philippine not residing in that foreign
country.
The Ancilliary Administrator bases his claim of exemption on (a) the
exemption of non-residents from the California inheritance taxes with
respect to intangibles, and (b) the exemption by way of reduction 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
Taxation Code, reads as follows:
SEC. 6. The following exemption from the tax are hereby
allowed:
xxx xxx xxx.
(7) The tax imposed by this act in respect of intangible
personal property shall not be payable if decedent is a
resident of a State or Territory of the United States or a foreign
state or country which at the time of his death imposed a
legacy, succession of death tax in respect of intangible
personal property within the State or Territory or foreign state
or country of residents of the States or Territory or foreign
state or country of residence of the decedent at the time of his
death contained a reciprocal provision under which non-
residents were exempted from legacy or succession taxes or
death taxes of every character in respect of 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, Territory or foreign
state or country of residence of such decedent.
Considering the State of California as a foreign country in relation to
section 122 of Our Tax Code we beleive and hold, as did the Tax Court,
that the Ancilliary Administrator is entitled to exemption from the tax on
the intangible personal property found in the Philippines. Incidentally,
this exemption granted to non-residents under the provision of Section
122 of our Tax Code, was to reduce the burden of multiple taxation,
which otherwise would subject a decedent's intangible personal property
to the inheritance tax, both in his place of residence and domicile and
the place where those properties are found. As regards the exemption
or reduction of P4,000 based on the reduction under the Federal Tax
Law in the amount of $2,000, we agree with the Tax Court that the
amount of $2,000 allowed under the Federal Estate Tax Law is in the
nature of deduction and not of an exemption. Besides, as the Tax Court
observes--.
. . . this exemption is allowed on all gross estate of non-
residents of the United States, who are not citizens thereof,
Page 7 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-43314 December 19, 1935
A.L. VELILLA, administrator of the estate of Arthur Graydon
Moody, plaintiff -appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellee.
Ohnick and Opisso for appellant.
Office of the Solicitor-General Hilado for appellee.
BUTTE, J.:
This is an appeal from a judgment of the Court of First Instant of manila
in an action to recover from the defendant-appellee as Collector of
Internal Revenue the sum of P77,018.39 as inheritance taxes and
P13,001.41 as income taxes assessed against the estate of Arthur G.
Moody, deceased.
The parties submitted to the court an agreed statement of facts as
follows:
I. That Arthur Graydon Moody died in Calcutta, India, on
February 18, 1931.
II. That Arthur Graydon Moody executed in the Philippine
Islands a will, certified copy of which marked Exhibit AA is
hereto attached and made a part hereof, by virtue of which
will, he bequeathed all his property to his only sister, Ida M.
Palmer, who then was and still is a citizen and resident of the
State of New York, United States of America.
III. That on February 24,1931, a petition for appointment of
special administrator of the estate of the deceased Arthur
Graydon Moody was filed by W. Maxwell Thebaut with the
Court of First Instance of Manila, the same being designated
as case No. 39113 of said court. Copy of said petition marked
Exhibit BB is hereto attached and made a part hereof.
IV. That subsequently or on April 10, 1931, a petition will of
the deceased Arthur Graydon Moody, and the same was, after
hearing, duly probated by the court in a decree dated May 5,
1931. Copies of the petition and of the decree marked Exhibits
CC and DD, respectively, are hereto attached and made parts
hereof.
V. That on July 14, 1931, Ida M. Palmer was declared to be
the sole and only heiress of the deceased Arthur Graydon
Moody by virtue of an order issued by the court in said case
No. 39113, copy of which marked Exhibit EE is hereto
attached and made a part hereof; and that during the hearing
for the declaration of heirs, Ida M. Palmer presented as
evidence a letter dated February 28, 1925, and addressed to
her by Arthur Graydon Moody, copy of which marked Exhibit
FF hereto attached and made part hereof.
VI. That the property left by the late Arthur Graydon Moody
consisted principally of bonds and shares of stock of
corporations organized under the laws of the Philippine
Islands, bank deposits and other personal properties, as are
more fully shown in the inventory of April 17, 1931, filed by the
special administrator with the court in said case No. 39113,
certified copy of which inventory marked Exhibit GG is hereto
attached and made a part hereof. This stipulation does not,
however, cover the respective values of said properties for the
purpose of the inheritance tax.
VII. That on July 22, 1931, the Bureau of Internal Revenue
prepared for the estate of the late Arthur Graydon Moody an
inheritance tax return, certified copy of which marked Exhibit
HH is hereto attached and made a part, hereof.
VIII. That on September 9, 1931, an income tax return for the
fractional period from January 1, 1931 to June 30, 1931,
certified copy of which marked Exhibit 11 is hereto attached
and made a part hereof, was also prepared by the Bureau of
Internal Revenue for the estate of the said deceased Arthur
Graydon Moody.1awphil.net
IX. That on December 3, 1931, the committee on claims and
appraisals filed with the court its report, certified copy of which
marked Exhibit KK is hereto attached and made a part hereof.
X. That on September 15, 1931, the Bureau of Internal
Revenue addressed to the attorney for the administratrix Ida
M. Palmer a letter, copy of which marked Exhibit LL is hereto
attached and made a part hereof.
XI. That on October 15, 1931, the attorney for Ida M. Palmer
answered the letter of the Collector of Internal Revenue
referred to in the preceding paragraph. Said answer marked
Exhibit MM is hereto attached and made a part hereof.
XII. That on November 4, 1931, and in answer to the letter
mentioned in the preceding paragraph, the Bureau of Internal
Revenue addressed to the attorney for Ida M. Palmer another
letter, copy of which marked Exhibit NN is hereto attached and
made a part hereof.
XIII. That on December 7, 1931, the attorney for Ida M. Palmer
again replied in a letter, marked Exhibit OO, hereto attached
and made a part hereof.
XIV. That the estate of the late Arthur Graydon Moody paid
under protest the sum of P50,000 on July 22, 1931, and the
other sum of P40,019.75 on January 19, 1932, making
assessment for inheritance tax and the sum of P13,001.41
covers the assessment for income tax against said estate.
XV. That on January 21, 1932, the Collector of Internal
Revenue overruled the protest made by Ida M. Palmer
through her attorney.
XVI. The parties reserve their right to introduce additional
evidence at the hearing of the present case.
Manila, August 15, 1933.
In addition to the foregoing agreed statement of facts, both parties
introduced oral and documentary evidence from which it appears that
Arthur G. Moody, an American citizen, came to the Philippine Islands in
1902 or 1903 and engaged actively in business in these Islands up to
the time of his death in Calcutta, India, on February 18, 1931. He had no
business elsewhere and at the time of his death left an estate consisting
principally of bonds and shares of stock of corporations organized under
the laws of the Philippine Islands, bank deposits and other intangibles
and personal property valued by the commissioners of appraisal and
claims at P609,767.58 and by the Collector of Internal Revenue for the
purposes of inheritance tax at P653,657.47. All of said property at the
time of his death was located and had its situs within the Philippine
Islands. So far as this record shows, he left no property of any kind
located anywhere else. In his will, Exhibit AA, executed without date in
Manila in accordance with the formalities of the Philippine law, in which
he bequeathed all his property to his sister, Ida M. Palmer, he stated:
I, Arthur G. Moody, a citizen of the United States of America,
residing in the Philippine Islands, hereby publish and declare
the following as my last Will and Testament . . ..
The substance of the plaintiff's cause of action is stated in paragraph 7
of his complaint as follows:
That there is no valid law or regulation of the Government of
the Philippine Islands under or by virtue of which any
inheritance tax may be levied, assessed or collected upon
transfer, by death and succession, of intangible personal
properties of a person not domiciled in the Philippine Islands,
and the levy and collection by defendant of inheritance tax
computed upon the value of said stocks, bonds, credits and
other intangible properties as aforesaid constituted and
constitutes the taking and deprivation of property without due
process of law contrary to the Bill of Rights and organic law of
the Philippine Islands.
Section 1536 of the Revised Administrative Code (as amended)
provides as follows:
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 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 Philippine Islands in
accordance with its laws; of any shares or rights in any
partnership, business or any personal property located in the
Philippine Islands shall be subject to the following tax:
xxx xxx xxx
It is alleged in the complaint that at the time of his death, Arthur G. Moody
was a "non-resident of the Philippine Islands". The answer, besides the
general denial, sets up as a special defense "Arthur G. Moody, now
deceased, was and prior to the date of his death, a resident in the City
of Manila, Philippine Islands, where he was engaged actively in
business." Issue was thus joined on the question: Where was the legal
domicile of Arthur G. Moody at the time of his death?
Page 8 of 30
Estate Tax Cases
The Solicitor-General raises a preliminary objection to the consideration
of any evidence that Moody's domicile was elsewhere than in Manila at
the time of his death based on the proposition that as no such objection
was made before the Collector of Internal Revenue as one of the
grounds of the protest against the payment of the tax, this objection
cannot be considered in a suit against the Collector to recover the taxes
paid under protest. He relies upon the decision in the case of W.C.
Tucker vs. A.C. Alexander, Collector (15 Fed. [21, 356). We call
attention, however, to the fact that this decision was reversed in 275
U.S., 232; 72 Law. ed., 256, and the case remanded for trial on the
merits on the ground that the requirement that the action shall be based
upon the same grounds, and only such, as were presented in the protest
had been waived by the collector. In the case before us no copy of the
taxpayer's protest is included in the record and we have no means of
knowing its contents. We think, therefore, the preliminary objection
made on behalf of the appellee does not lie.
We proceed, therefore, to the consideration of the question on the merits
as to whether Arthur G. Moody was legally domiciled in the Philippine
Islands on the day of his death. Moody was never married and there is
no doubt that he had his legal domicile in the Philippine Islands from
1902 or 1903 forward during which time he accumulated a fortune from
his business in the Philippine Islands He lived in the Elks' Club in Manila
for many years and was living there up to the date he left Manila the
latter part of February, 1928, under the following circumstances: He was
afflicted with leprosy in an advanced stage and been informed by Dr.
Wade that he would be reported to the Philippine authorities for
confinement in the Culion Leper Colony as required by the law.
Distressed at the thought of being thus segregated and in violation of his
promise to Dr. Wade that he would voluntarily go to Culion, he
surreptitiously left the Islands the latter part of February, 1928, under
cover of night, on a freighter, without ticket, passport or tax clearance
certificate. The record does not show where Moody was during the
remainder of the year 1928. He lived with a friend in Paris, France,
during the months of March and April of the year 1929 where he was
receiving treatment for leprosy at the Pasteur Institute. The record does
not show where Moody was in the interval between April, 1929, and
November 26, 1930, on which latter date he wrote a letter, Exhibit B, to
Harry Wendt of Manila, offering to sell him mis interest in the Camera
Supply Company, a Philippine corporation, in which Moody owned 599
out of 603 shares. In this letter, among other things, he states: "Certainly
I'll never return there to live or enter business again." In this same letter
he says:
I wish to know as soon as now (as to the purchase) for I have very
recently decided either to sell or put in a line of school or office supplies
... before I go to the necessary investments placing any side lines, I
concluded to get your definite reply to this ... I have given our New York
buying agent a conditional order not to be executed until March and this
will give you plenty of time ... anything that kills a business is to have it
peddled around as being for sale and this is what I wish to avoid. He
wrote letters dated December 12, 1930, and January 3, 1931, along the
same line to Wendt. As Moody died of leprosy less than two months after
these letters were written, there can be no doubt that he would have
been immediately segregated in the Culion Leper Colony had he
returned to the Philippine Islands. He was, therefore, a fugitive, not from
justice, but from confinement in the Culion Leper Colony in accordance
with the law of the Philippine Islands.
There is no statement of Moody, oral or written, in the record that he had
adopted a new domicile while he was absent from Manila. Though he
was physically present for some months in Calcutta prior to the date of
his death there, the appellant does not claim that Moody had a domicile
there although it was precisely from Calcutta that he wrote and cabled
that he wished to sell his business in Manila and that he had no intention
to live there again. Much less plausible, it seems to us, is the claim that
he established a legal domicile in Paris in February, 1929. The record
contains no writing whatever of Moody from Paris. There is no evidence
as to where in Paris he had any fixed abode that he intended to be his
permanent home. There is no evidence that he acquired any property in
Paris or engaged in any settled business on his own account there.
There is no evidence of any affirmative factors that prove the
establishment of a legal domicile there. The negative evidence that he
told Cooley that he did not intend to return to Manila does not prove that
he had established a domicile in Paris. His short stay of three months in
Paris is entirely consistent with the view that he was a transient in Paris
for the purpose of receiving treatments at the Pasteur Institute. The
evidence in the record indicates clearly that Moody's continued absence
from his legal domicile in the Philippines was due to and reasonably
accounted for by the same motive that caused his surreptitious
departure, namely, to evade confinement in the Cullion Leper Colony for
he doubtless knew that on his return he would be immediately confined,
because his affliction became graver to us while he was absent than it
was on the day of his precipitous departure and he could not conceal
himself in the Philippines where he was well known, as he might do in
foreign parts.
Our Civil Code (art. 40) defines the domicile of natural persons as "the
place of their usual residence". The record before us leaves no doubt in
our minds that the "usual residence" of this unfortunate man, whom
appellant describes as a "fugitive" and "outcast", was in Manila where
he had lived and toiled for more than a quarter of a century, rather than
in any foreign country he visited during his wanderings up to the date of
his death in Calcutta. To effect the abandonment of one's domicile, there
must be a deliberate and provable choice of a new domicile, coupled
with actual residence in the place chosen, with a declared or provable
intent that it should be one's fixed and permanent place of abode, one's
home. There is a complete dearth of evidence in the record that Moody
ever established a new domicile in a foreign country.
The contention under the appellant's third assignment of error that the
defendant collector illegally assessed an income tax of P13,001.41
against the Moody estate is, in our opinion, untenable. The grounds for
this assessment, stated by the Collector of Internal Revenue in his letter,
Exhibit NN, appear to us to be sound. That the amount of P59,986.69
was received by the estate of Moody as dividends declared out of
surplus by the Camera Supply Company is clearly established by the
evidence. The appellant contends that this assessment in taxation: First,
because the corporation paid income tax on the same amount during
the years it was accumulated as surplus; second, that an inheritance tax
on the same amount was assessed against the estate, and third, the
same amount is assessed as income of the estate. As to the first, it
appears from the collector's assessment, Exhibit 11, to the collector
allowed the estate a deduction of the normal income tax on said amount
because it had already been paid at the source by the Camera Supply
Company. The only income tax assessed against the estate was the
additional tax or surtax that had not been paid by the Camera Supply
Company for which the estate, having actually received the income, is
clearly liable. As to the second alleged double taxation, it is clear that
the inheritance tax and the additional income tax in question are entirely
distinct. They are assessed under different statutes and we are not
convinced by the appellant's argument that the estate which received
these dividends should not be held liable for the payment of the income
tax thereon because the operation was simply the conversion of the
surplus of the corporation into the property of the individual stockholders.
(Cf. U.S. vs. Phellis, 257 U.S., 171, and Taft vs. Bowers, 278 U.S., 460.)
Section 4 of Act No. 2833 as amended, which is relied on by the
appellant, plainly provides that the income from exempt property shall
be included as income subject to tax.
Finding no merit in any of the assignments of error of the appellant, we
affirm the judgment of the trial court, first, because the property in the
estate of Arthur G. Moody at the time of his death was located and had
its situs within the Philippine Islands and, second, because his legal
domicile up to the time of his death was within the Philippine Islands.
Costs against the appellant.
Page 9 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11622 January 28, 1961
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
DOUGLAS FISHER AND BETTINA FISHER, and the COURT OF
TAX APPEALS, respondents.
x---------------------------------------------------------x
G.R. No. L-11668 January 28, 1961.
DOUGLAS FISHER AND BETTINA FISHER, petitioner,
vs.
THE COLLECTOR OF INTERNAL REVENUE, and the COURT OF
TAX APPEALS, respondents.
BARRERA, J.:
This case relates to the determination and settlement of the hereditary
estate left by the deceased Walter G. Stevenson, and the laws
applicable thereto. Walter G. Stevenson (born in the Philippines on
August 9, 1874 of British parents and married in the City of Manila on
January 23, 1909 to Beatrice Mauricia Stevenson another British
subject) died on February 22, 1951 in San Francisco, California, 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 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, described and preliminary
assessed as follows:
Gross Estate
Real Property — 2 parcels of land in
Baguio, covered by T.C.T. Nos. 378
and 379 P43,500.00
Personal Property
(1) 177 shares of stock of Canacao
Estate at P10.00 each 1,770.00
(2) 210,000 shares of stock of
Mindanao Mother Lode Mines, Inc. at
P0.38 per share 79,800.00
(3) Cash credit with Canacao Estate
Inc. 4,870.88
(4) Cash, with the Chartered Bank of
India, Australia & China 851.97
Total Gross Assets P130,792.85
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
deductions claimed by the ancillary administrator for funeral expenses
in the amount of P2,000.00 and for judicial and administration expenses
in the sum of P5,500.00, the Collector assessed the state the amount of
P5,147.98 for estate tax and P10,875,26 or inheritance tax, or a total of
P16,023.23. Both of these assessments were paid by the estate on June
6, 1952.
On September 27, 1952, the ancillary administrator filed in amended
estate and inheritance tax return in pursuance f his reservation made at
the time of filing of the preliminary return and for the purpose of availing
of the right granted by section 91 of the National Internal Revenue Code.
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 valuation of
P79,800.00 to P42,000.00. This change in price per share of stock was
based by the ancillary administrator on the market notation of the stock
obtaining at the San Francisco California) Stock Exchange six months
from the death of Stevenson, that is, As of August 22, 1931. In addition,
the ancillary administrator made claim for the following deductions:
Funeral expenses ($1,04326) P2,086.52
Judicial Expenses:
(a) Administrator's Fee P1,204.34
(b) Attorney's Fee 6.000.00
(c) Judicial and
Administration
expenses as of August
9, 1952 1,400.05
8,604.39
Real Estate Tax for
1951 on Baguio real
properties (O.R. No. B-
1 686836) 652.50
Claims against the
estate:
($5,000.00) P10,000.00 P10,000.00
Plus: 4% int. p.a. from
Feb. 2 to 22, 1951 22.47 10,022.47
Sub-Total P21,365.88
In the meantime, on December 1, 1952, Beatrice Mauricia Stevenson
assigned all her rights and interests in the estate to the spouses,
Douglas and Bettina Fisher, respondents herein.
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
Page 10 of 30
Estate Tax Cases
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
Page 11 of 30
Estate Tax Cases
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
Page 12 of 30
Estate Tax Cases
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
2) Attorney's fee
3) Judicial and Administration expenses as of August 9, 1952
Total
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. .
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) of the same section
89 of the Internal Revenue Code which provides:
(b) Deductions allowed to non-resident estates. — In the case
P1,204.34
of a non-resident not a citizen of the Philippines, by deducting
6,000.00
from the value of that part of his gross estate which at the time
of his death is situated in the Philippines —
2,052.55
(1) Expenses, losses, indebtedness, and taxes. — That
P9,256.89
proportion of the deductions specified in paragraph (1) of
subjection (a) of this section11 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.
Page 13 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11668 April 1, 1918
ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee,
vs.
ANTONIO DIAZ, defendant-appellant.
Ramon Diokno for appellant.
Alfredo Chicote and Jose Arnaiz for appellee.
JOHNSON, J.:
This action was instituted by the plaintiff for the purpose of requiring the
defendant to comply with a certain "contract of option" to purchase a
certain piece or parcel of land described in said contract and for
damages for a noncompliance with said contract. After the close of the
trial the Honorable James A. Ostrand, judge, rendered a judgment the
dispositive part of which is as follows:
Wherefore, it is hereby ordered and adjudged that the
defendant, within the period of thirty days from the date upon
which this decision becomes final, convey to the plaintiff a
good and sufficient title in fee simple to the land described in
decrees Nos. 13909 and 13919 of the Court of Land
Registration, upon payment or legal tender of payment by said
plaintiff of the sum of thirty thousand pesos (P30,000) in cash,
and upon said plaintiff giving security approved by this court
for the payment within the term of 6 years from the date of the
conveyance for the additional sum of forty thousand pesos
(P40,000) with interest at the rate of 6 per cent per annum.
It is further ordered and adjudged that in the event of the
failure of the defendant to execute the conveyance as
aforesaid, the plaintiff have and recover judgment against him,
the said defendant, for the sum of twenty thousand pesos
(P20,000), with interest at the rate of six per cent (6 per cent
per annum from the date upon which the conveyance should
have been made). It is so ordered.
From that judgment the defendant appealed and made several
assignment of error.
It appears from the record that on the 15th day of November, 1912, the
defendant and the plaintiff entered into the following "contract of option:"
(EXHIBIT A.)
CONTRACT OF OPTION.
I, the undersigned, Antonio Diaz, of legal age, with personal
registration certificate Number F-855949, issued at Pitogo,
Tayabas, January 16, 1912, and temporarily residing in
Manila, P. I., do hereby grant an option to Antonio Enriquez to
purchase my hacienda at Pitogo consisting of 100 and odd
hectares, within the period necessary for the approval and
issuance of a Torrens title thereto by the Government for
which he may pay me either the sum of thirty thousand pesos
(P30,000), Philippine currency, in cash, or within the period of
six (6) years, beginning with the date of the purchase, the sum
of forty thousand pesos (P40,000), Philippine currency, at six
per cent interest per annum, with due security for the payment
of the said P40,000 in consideration of the sale to him of my
property described as follows, to wit:
About one hundred hectares of land in Pitogo, Tayabas,
containing about 20,000 coconut trees and 10,000 nipa-palm
trees, all belonging to me, which I hereby sell to Antonio
Enriquez de la Cavada for seventy thousand pesos, under the
conditions herein specified.
I declare that Antonio Enriquez is the sole person who has,
and shall have, during the period of this option, the right to
purchase the property above-mentioned.
I likewise declare that Antonio Enriquez shall be free to resell
the said property at whatever price he may desire, provided
that he should comply with the stipulations covenanted with
me.
In witness of my entire conformity with the foregoing, I
hereunto affix my signature, in Manila, P. I., this 15th day of
November, 1912.
(Sgd.) Antonio Diaz.
Signed in the presence of:
(Sgd.) J. VALDS DIAZ.
(EXHIBIT B.)
P. I., November 15, 1912.
Sr. Don ANTONIO DIAZ,
Calle Victoria, No. 125, W. C., Manila, P. I.
DEAR SIR: I have the honor to inform you that, in conformity
with the letter of option in my favor of even date, I will buy your
coconut plantation in Pitogo, containing one hundred
hectares, together with all the coconut and nipa-palm trees
planted thereon, under the following conditions:
1. I shall send a surveyor to survey the said property, and to
apply to the Government for a Torrens title therefore, and, if
the expenses incurred for the same should not exceed
P1,000, I shall pay the P500 and you the other
P500; Provided, however, that you shall give the surveyor all
necessary assistance during his stay at the hacienda.
2. I shall pay the purchase price to you in conformity with our
letter of option of this date, and after the Torrens title shall
have been officially approved.
Yours respectfully,
(Sgd.) A. ENRIQUEZ
I acknowledge receipt of, and conform with, the foregoing.
(Sgd.) ANTONIO DIAZ
It appears from the record that soon after the execution of said contract,
and in part compliance with the terms thereof, the defendant presented
two petitions in the Court of Land Registration (Nos. 13909 and 13919),
each for the purpose of obtaining the registration of a part of the
"Hacienda de Pitogo." Said petitions were granted, and each parcel as
registered and a certificate of title was issued for each part under the
Torrens system to the defendant herein. Later, and pretending to comply
with the terms of said contract, the defendant offered to transfer to the
plaintiff one of said parcels only, which was a part of said "hacienda."
The plaintiff refused to accept said certificate for a part only of said
"hacienda" upon the ground (a) that it was only a part of the "Hacienda
de Pitogo," and (b) under the contract (Exhibits A and B) he was entitled
to a transfer to him all said "hacienda."
The theory of the defendant is that the contract of sale of said "Hacienda
de Pitogo" included only 100 hectares, more or less, of said "hacienda,"
and that by offering to convey to the plaintiff a portion of said "hacienda"
composed of "100 hectares, more or less," he thereby complied with the
terms of the contract. The theory of the plaintiff is that he had
purchased all of said "hacienda," and that the same contained, at least,
100 hectares, more or less. The lower court sustained the contention of
the plaintiff, to wit, that the sale was a sale of the "Hacienda de Pitogo"
and not a sale of a part of it, and rendered a judgment requiring the
defendant to comply with the terms of the contract by transferring to the
plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay in
lieu thereof the sum of P20,000 damages, together with 6 per cent
interest from the date upon which said conveyance should have been
made.
After issue had been joined between the plaintiff and defendant upon
their pleadings, they entered into the following agreement with reference
to the method of presenting their proof:
The attorneys for the parties in this case make the following
stipulations:
1. Each of the litigating parties shall present his evidence
before Don Felipe Canillas, assistant clerk of the Court of First
Instance of Manila, who, for such purpose, should be
appointed commissioner.
2. Said commissioner shall set a day and hour for the
presentation of the evidence above-mentioned, both oral and
documentary, and in the stenographic notes shall have record
entered of all objections made to the evidence by either party,
in order that they may afterwards be decided by the court.
3. The transcription of the stenographic notes, containing the
record of the evidence taken, shall be paid for in equal shares
by both parties.
4. At the close of the taking of the evidence, each of the parties
shall file his brief in respect to such evidence, whereupon the
case as it then stands shall be submitted to the decision of the
court.
The parties request the court to approve this agreement in the
part thereof which refers to the proceedings in this case.
Manila, P. I., December 21, 1914.
(Sgd.) ANTONIO V. HERRERO. (Sgd.)
ALFREDO CHICOTE.
Approved:
(Sgd.) GEO. R. HARVEY,
Judge.
Page 14 of 30
Estate Tax Cases
Said agreement was approved by the lower court, and proof was taken
in accordance therewith. The defendant-appellant now alleges, giving
several reasons therefor, that the proof was improperly practiced, and
that the judge was without authority o decide the cause upon proof taken
in the manner agreed upon by the respective parties. The defendant-
appellant makes no contention that he was not permitted to present all
the proof he desired to present. He makes no contention that he has
been prejudiced in any manner whatsoever by virtue of the method
agreed upon for taking the testimony.
There is nothing in the law nor in public policy which prohibits the parties
in a civil litigation from making the agreement above quoted. While the
law concedes to parties litigant, generally, the right to have their proof
taken in the presence of the judge, such right is a renounceable one. In
a civil action the parties litigant have a right to agree, outside of the court,
upon the facts in litigation. Under certain conditions the parties litigant
have a right to take the depositions of witnesses and submit the sworn
statements in that form to the court. The proof, as it was submitted to
the court in the present case, by virtue of said agreement, was, in effect,
in the form of a deposition of the various witnesses presented. Having
agreed to the method of taking the proof, and the same having been
taking in compliance with said agreement, it is now too late, there being
no law to the contrary, for them to deny and repudiate the effect of their
agreement. (Biunas vs. Mora, R. G. No. 11464, March 11, 1918; Behr
vs. Levy Hermanos, R. G. No 12211, March 19, 1918.1)
Not only is there no law prohibiting the parties from entering into an
agreement to submit their proof to the court in civil actions as was done
in the present case, but it may be a method highly convenient, not only
to the parties, but to busy courts. The judgment of the lower court,
therefore, should not be modified or reversed on account of the first
assignment of error.
In the second assignment of error, the appellant alleges (a) that the
lower court committed an error in declaring the contract (Exhibits A and
B) a valid obligation, for the reason that it not been admitted in evidence,
and (b) that the same was null for a failure of consideration. Upon the
first question, an examination of the proof shows that said contract
(Exhibits A and B) was offered in evidence and admitted as proof without
objection. Said contract was, therefore, properly presented to the court
as proof. Not only was the contract before the court by reason of its
having been presented in evidence, but the defendant himself made said
contract an integral part of his pleadings. The defendant admitted the
execution and delivery of the contract, and alleged that he made an effort
to comply with its terms. His only defense is that he sold to the plaintiff
a part of the "hacienda" only and that he offered, in compliance with the
terms of the contract, to convey to the plaintiff all of the land which he
had promised to sell.
With reference to the second objection, to wit, that there was no
consideration for said contract it may be said (a) that the contract was
for the sale of a definite parcel of land; (b) that it was reduced to writing;
(c) that the defendant promised to convey to the plaintiff said parcel of
land; (d) that the plaintiff promised to pay therefor the sum of P70,000 in
the manner prescribed in said contract; (e) that the defendant admitted
the execution and delivery of the contract and alleged that he made an
effort to comply with the same (par. 3 of defendant's answer) and
requested the plaintiff to comply with his part of the contract; and (f) that
no defense or pretension was made in the lower court that there was no
consideration for his contract. Having admitted the execution and
delivery of the contract, having admitted an attempt to comply with its
terms, and having failed in the court below to raise any question
whatsoever concerning the inadequacy of consideration, it is rather late,
in the face of said admissions, to raise that question for the first time in
this court. The only dispute between the parties in the lower court was
whether or not the defendant was obliged to convey to the plaintiff all of
said "hacienda." The plaintiff insisted that his contract entitled him to a
conveyance of all of said "hacienda." The defendant contended that he
had complied with the terms of his contract by offering to convey to the
plaintiff a part of the said "hacienda" only. That was the only question
presented to the lower court and that was the only question decided.
A promise made by one party, if made in accordance with the forms
required by the law, may be a good consideration (causa) for a promise
made by another party. (Art. 1274, Civil Code.) In other words, the
consideration (causa) need not pass from one to the other at the time
the contract is entered into. For example, A promises to sell a certain
parcel of land to B for the sum of P70,000. A, by virtue of the promise of
B to pay P70,000, promises to sell said parcel of land to B for said sum,
then the contract is complete, provided they have complied with the
forms required by the law. The consideration need not be paid at the
time of the promise. The one promise is a consideration for the other. Of
course, A cannot enforce a compliance with the contract and require B
to pay said sum until he has complied with his part of the contract. In the
present case, the defendant promised to convey the land in question to
the plaintiff as soon as the same could be registered. The plaintiff
promised to pay to the defendant P70,000 therefor in accordance with
the terms of their contract. The plaintiff stood ready to comply with his
part of the contract. The defendant, even though he had obtained a
registered title to said parcel of land, refused to comply with his promise.
All of the conditions of the contract on the part of the defendant had been
concluded, except delivering the deeds of transfer. Of course, if the
defendant had been unable to obtain a registration of his title, or if he
had violated the terms of the alleged optional contract by selling the
same to some other person than the plaintiff, then he might have raised
the objection that he had received nothing from the plaintiff for the option
which he had conceded. That condition, of course, would have
presented a different question from the one which we have before us.
The said contract (Exhibits A and B) was not, in fact, an "optional
contract" as that phrase is generally used. Reading the said contract
from its four corners it is clearly as absolute promise to sell a definite
parcel of land for a fixed price upon definite conditions. The defendant
promised to convey to the plaintiff the land in question as soon as the
same was registered under the Torrens system, and the plaintiff
promised to pay to the defendant the sum of P70,000, under the
conditions named, upon the happening of that event. The contract was
not, in fact, what is generally known as a "contract of option." It differs
very essentially from a contract of option. An optional contract is a
privilege existing in one person, for which he had paid a consideration,
which gives him the right to buy, for example, certain merchandise of
certain specified property, from another person, if he chooses, at any
time within the agreed period, at a fixed price. The contract of option is
a separate and distinct contract from the contract which the parties may
enter into upon the consummation of the option. A consideration for an
optional contract is just as important as the consideration for any other
kind of contract. If there was no consideration for the contract of option,
then it cannot be entered any more than any other contract where no
consideration exists. To illustrate, A offers B the sum of P100,000 for the
option of buying his property within the period of 30 days. While it is true
that the conditions upon which A promises to buy the property at the end
of the period mentioned are usually fixed in the option, the consideration
for the option is an entirely different consideration from the consideration
of the contract with reference to which the option exists. A contract of
option is a contract by virtue of the terms of which the parties thereto
promise and obligate themselves to enter into contract at a future time,
upon the happening of certain events, or the fulfillment of certain
conditions.
Upon the other hand, suppose that the defendant had complied with his
part of the contract and had tendered the deeds of transfer of the
"Hacienda de Pitogo" in accordance with its terms and had demanded
the payments specified in the contract, and the plaintiff refused to comply
— what then would have been the rights of the defendant? Might he not
have successfully maintained an action for the specific performance of
the contract, or for the damages resulting from the breach of said
contract? When the defendant alleged that he had complied with his part
of the contract (par. 3 of defendant's answer) and demanded that the
plaintiff should immediately comply with his part of the same, he
evidently was laying the foundation for an action for damages, the
nullification or a specific compliance with the contract.
The appellant contends that the contract which he made was not with
the plaintiff but with Rosenstock, Elser and Co. That question was not
presented in the court below. The contract in question shows, upon its
face, that the defendant made the same with the plaintiff, Not having
raised the question in the court below, and having admitted the
execution and delivery of the contract in question with the plaintiff, we
are of the opinion that his admission is conclusive upon that question
(par. 1 of special defense of defendant's answer) and need not be further
discussed.
The appellant further contends that the action was premature, for the
reason that the plaintiff had not paid nor offered to pay the price agreed
upon, under the conditions named, for the land in question. That
question was not raised in the court below, which fact, ordinarily, would
be a sufficient answer to the contention of the appellant. It may be
added, however, that the defendant could not demand the payment until
he had offered the deeds of conveyance, in accordance with the terms
of his contract. He did not offer to comply with the terms of his contract.
True it is that he offered to comply partially with the terms of the contract,
but not fully. While the payment must be simultaneous with the delivery
of the deeds of conveyance, the payment need not be made until the
deed of conveyance is offered. The plaintiff stood ready and willing to
Page 15 of 30
Estate Tax Cases

perform his part of the contract immediately upon the performance on

the part of the defendant. (Arts. 1258 and 1451 of Civil Code.)
In the fifth assignment of error the appellant contends that the lower
court committed an error in not declaring that the defendant was not
obligated to sell the "Hacienda de Pitogo" to the plaintiff "por
incumplimiento, renuncia abandono y negligencia del mismo
demandante, etc." (For nonfulfillment, renunciation, abandonment and
negligence of plaintiff himself, etc.) That question was not presented to
the court below. But even though it had been the record shows that the
plaintiff, at all times, insisted upon a compliance with the terms of the
contract on the part of the defendant, standing ready to comply with his
part of the same.
The appellant contends in his sixth assignment of error that the plaintiff
had not suffered the damages complained of, to wit, in the sum of
P20,000. The only proof upon the question of damages suffered by the
plaintiff for the noncompliance with the terms of the contract in question
on the part of the defendant is that the plaintiff, in contemplation of the
compliance with the terms of the contract on the part of the defendant,
entered into a contract with a third party to sell the said "hacienda" at a
profit of P30,000. That proof is not disputed. No attempt was made in
the lower court to deny that fact. The proof shows that the person with
whom the plaintiff had entered into a conditional sale of the land in
question had made a deposit for the purpose of guaranteeing the final
consummation of that contract. By reason of the failure of the defendant
to comply with the contract here in question, the plaintiff was obliged to
return the sum deposited by said third party with a promise to pay
damages. The record does not show why the plaintiff did not ask for
damages in the sum of P30,000. He asked for a judgment only in the
sum of P20,000. He now asks that the judgment of the lower court be
modified and that he be given a judgment for P30,000. Considering the
fact that he neither asked for a judgment for more than P20,000 nor
appealed from the judgment of the lower court, his request now cannot
be granted. We find no reason for modifying the judgment of the lower
court by virtue of the sixth assignment of error.
In the seventh assignment of error the appellant contends that the
contract of sale was not in effect a contract of sale. He alleges that the
contract was, in fact, a contract by virtue of which the plaintiff promised
to find a buyer for the parcel of land in question; that the plaintiff was not
in fact the purchaser; that the only obligation that the plaintiff assumed
was to find some third person who would purchase the land from the
defendant. Again, it would be sufficient to say, in answer to that
assignment of error, that no contention of that nature was presented in
the court below, and for that reason it is improperly presented now for
the first time. In addition, however, it may be added that the defendant,
in his answer, admitted that he not only sold the land in question, but
offered to transfer the same to the plaintiff, in compliance with the
contract. (See answer of defendant.)
In the eighth assignment of error the appellant contends that the lower
court committed an error in its order requiring him to convey to the
plaintiff the "Hacienda de Pitogo," for the reason that the plaintiff had not
demanded a transfer of said property, and for the additional reason that
a portion of said "hacienda" had already been sold to a third person.
With reference to the first contention, the record clearly shows that the
plaintiff was constantly insisting upon a compliance with the terms of the
contract, to wit, a conveyance to him of the "Hacienda de Pitogo" by the
defendant. Naturally, he refused, under the contract, to accept a
conveyance of a part only of said "hacienda." With reference to the
second contention, it may be said that the mere fact that the defendant
had sold a part of the "hacienda" to other persons, is no sufficient reason
for not requiring a strict compliance with the terms of his contract with
the plaintiff, or to answer in damages for his failure. (Arts. 1101 and 1252
of the Civil Code.)
In view of the foregoing, and after a consideration of the facts and the
law applicable thereto, we are persuaded that there is no reason given
in the record justifying a modification or reversal of the judgment of the
lower court. The same is, however, hereby affirmed, with costs. So
ordered.

Page 16 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-13250 October 29, 1971
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
ANTONIO CAMPOS RUEDA, respondent..
Assistant Solicitor General Jose P. Alejandro and Special Attorney
Jose G. Azurin, (O.S.G.) for petitioner.
Ramirez and Ortigas for 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 Code1 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 personality is a
condition sine qua non to Tangier being considered a "foreign country".
Deference to 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.11 Correctly has it
Page 17 of 30
Estate Tax Cases

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
WHEREFORE, the decision of the respondent Court of Tax Appeals of
October 30, 1957 is affirmed. Without pronouncement as to costs.

Page 18 of 30
Estate Tax Cases
United States v. Wells, 283 U.S. 102 (1931)
United States v. Wells
No. 252
Argued March 13, 1931
Decided April 13, 1931
283 U.S. 102
CERTIORARI TO THE COURT OF CLAIMS
Syllabus
1. Whether a gift inter vivos was made "in contemplation of death" within
the meaning of the Revenue Act of 1918 depends upon the donor's
motive, to be determined in each case from the circumstances, including
his bodily and mental condition. Pp. 283 U. S. 115, 283 U. S. 119.
2. A gift is made "in contemplation of death" when the motive inducing it
is of the sort that leads to testamentary disposition, but not when the
motive is merely to attain an object desirable to the donor in his life, as
where the immediate and moving cause of transfers was the carrying
out of a policy, long followed by the decedent in dealing with his children,
of making liberal girts to them during his lifetime. Pp. 283 U. S. 117, 283
U. S. 119.
3. A transfer may be "in contemplation of death" though not induced by
a fear that death is near at hand. Pp. 283 U. S. 113, 283 U. S. 119.
4. Upon review of a judgment of the Court of Claims, the findings of fact
are to be treated like the verdict of a jury and cannot be added to or
modified by reference to that court's opinion. P. 283 U. S. 120.
Page 283 U. S. 103
5. But absence of a finding of an ultimate fact does not require a reversal,
if the circumstantial facts a found are such that the ultimate fact follows
from them by necessary inference. Pp. 283 U. S. 111, 283 U. S. 120.
So held where the opinion of the Court of Claims showed clearly the
inference that it drew from its finding.
69 Ct.Cls. 485, 39 F.2d 998, affirmed.
Certiorari, 282 U.S. 822, to review a judgment recovered in the Court of
Claims on a claim for repayment of an estate tax.
Page 283 U. S. 104
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
John W. Wells, a resident of Menominee, Michigan, died on August 17,
1921. The Commissioner of Internal Revenue assessed additional
estate taxes, upon the ground
Page 283 U. S. 105
that certain transfers by the decedent within two years prior to his death,
were made in contemplation of death and should be included in the
taxable estate under the provisions of § 402(c) of the Revenue Act of
1918, 40 Stat. 1057, 1097. The amount of the additional tax was paid by
the executors and claim for refund was filed. The claim having been
rejected, the executors brought this suit in the Court of Claims to recover
the amount paid. The Court of Claims decided in favor of the executors,
69 Ct.Cls. 485, 39 F.2d 998, and this Court granted a writ of certiorari.
The substance of the findings of the Court of Claims with respect to the
circumstances of the transfers may be stated as follows:
The decedent died at the age of seventy-three years; his wife and five
children, three sons and two daughters, survived him. When a young
man he became interested in the business of acquiring and selling
timber lands and of manufacturing lumber. He continued in that business
to the time of his death.
As early as the year 1901, decedent began the making of advancements
of money and other property to his children. He kept a set of books on
which he charged to his children some, but not all, of the amounts
transferred to them. The decedent believed that the appropriate course
for a man of wealth was to give to his children substantial sums of money
during his lifetime while he could advise with them as to its proper use.
He informed one of his friends:
"I am making distribution from time to time of part of my property to see
what my children will do during my lifetime, and I will then know when
my time is up what I ought to do with the balance. [Footnote 1] "
Page 283 U. S. 106
In 1918, decedent advanced to three of his children, Ralph W. Wells,
Mrs. Edna Walsh, and Mrs. Florence Law, shares of stock in the Dunbar
& Wausaukee Railway Company for which he charged each of them, in
the equalization hereafter mentioned, the sum of $25,460. Neither this
transfer, nor any of the earlier transfers, is in controversy.
In December, 1919, decedent transferred to his son Artemus C. Wells,
343 shares, and to his son Daniel Wells, 73 shares, of the stock of the
J. W. Wells Lumber Company. He charged Artemus with $89,180, and
Daniel with $18,890, on account of these transfers.
On January 1, 1921, after carefully examining his accounts in preparing
for the final equalization of the prior advancements, decedent
transferred to his children 68,985 shares of the stock of the Girard
Lumber Company. His summaries of accounts with each of his children
showed debit balances, on which he had computed interest, as follows:
Daniel Wells, $266,530; Artemus C. Wells, $231,651; Ralph W. Wells,
$214,008; Mrs. Florence Law, $216,445, and Mrs. Edna Walsh,
$180,662. The decedent indorsed each of these statements with the
words, "Account with _____," "This account is cancelled and ledger
balanced to date as a gift to _____" (the name of the son or daughter
being inserted), or with other words to the same effect.
In this process of equalization, decedent charged his children with a total
of 3,458 shares of the capital stock of the Lloyd Manufacturing
Company. These shares were not delivered at that time, as decedent
had agreed to exchange them for a like number of shares in a new
company to result from an expected merger. On January 26, 1921,
decedent transferred to Marshall B. Lloyd, as trustee for the benefit of
his wife and five children, 3,713 shares of the stock of the Lloyd
Manufacturing Company with authority to exchange these shares for
shares of the stock of the new corporation, on the issue of which the
trustee
Page 283 U. S. 107
was to assign the shares to decedent's wife and children, respectively,
in designated amounts, or, in the event that the exchange was not
consummated before December 1, 1921, to distribute to them the shares
of the Lloyd company. [Footnote 2] On April 6, 1921, Lloyd, the trustee,
distributed the certificates for the shares in the new company, but the
finding states that the decedent had divested himself of all interest in the
3,713 shares of the Lloyd stock when they were transferred in trust.
The transfers which the Commissioner deemed to be subject to the
additional estate tax are these:
That of December, 1919, to his sons Daniel and Artemus, of 416 shares
of the stock of the J. W. Wells Lumber
Page 283 U. S. 108
Company, increased by a subsequent stock dividend to 1,280 shares at
the date of the decedent's death;
That of January 1, 1921, to his children, of 68,985 shares of the stock of
the Girard Lumber Company:
That of January 26, 1921, in trust for his wife and children, of 3,713
shares of the stock of the Lloyd Manufacturing Company.
The aggregate value at the time of the decedent's death of all the
property embraced in these transfers was $782,903. Excluding this
property, the value of decedent's estate at the time of his death was
$881,314.61, on which the decedent's annual income was
approximately $50,000 a year.
The Court of Claims made detailed findings as to the state of decedent's
health. It appeared that, for some time prior to the year 1919, he had
suffered from attacks of asthma. In May of that year, he went to a
hospital in Chicago for treatment, and remained eleven days. About the
middle of April, 1920, decedent began to be afflicted with ulcerative
colitis, a condition in which the large intestine becomes inflamed. The
finding states: "It is a curable disease. About eighty to eighty-five percent
of the cases are cured." In June, 1920, decedent was advised by
physicians in California that he was suffering from cancer of the
intestines. In the following July, decedent again entered the hospital in
Chicago and, on an examination by a specialist in diseases of the
bowels, the case was diagnosed as ulcerative colitis. Between July and
September, 1920, decedent was informed in detail of his condition. His
physician told him that "he would get well."
While at the hospital, following an inquiry by his business associate,
Marshall B. Lloyd, whether decedent had made any agreement with his
second wife, Katherine Wells, with reference to a division of property
after his death, decedent made such an agreement. Reciting his
Page 283 U. S. 109
illness, it provided that his wife "should have $100,000 in money and
certain other property in lieu of her statutory and dower rights." Mrs.
Wells ratified all gifts theretofore made by the decedent to his children
and all gifts which might be made to his children thereafter "and before
his death whether any of such gifts be made in contemplation of his
death or otherwise." Pursuant to the agreement, decedent made his will
on August 18, 1920, the provisions of which differed only slightly from
those of an earlier will. After providing for the payment of $100,000 to
his widow and making other bequests, decedent devised his residuary
estate to his five children, with the proviso:
"Provided, however, that the amount shown to be due me from each of
my children severally in accordance with my books at the time of my
death shall be considered advancement made by me to them from time
to time and shall be chargeable to each of them severally as
advancements and shall be deducted from their respective shares."
Page 19 of 30
Estate Tax Cases
On September 14, 1920, decedent wrote to his son Ralph: "The doctors
say that I will be absolutely cured if I am careful for two or three months
after leaving and I certainly will be careful after this." [Footnote 3]
On September 22, 1920, decedent was discharged from the hospital in
an improved condition. His medial adviser stated that decedent's
condition was "excellent," "he had not fully at that time recovered, but he
did within the next two of three months." "His appearance was normal;
he had gained an appreciable amount of weight" and "he was in a very
fair state of health." On his return to Menominee, decedent said to his
son, who had been in charge of his affairs during his absence, that
Page 283 U. S. 110
"he was completely cured of the trouble that he had had, and he felt
good." Decedent then resumed his normal business activities. [Footnote
4]
Decedent was again admitted to the hospital in Chicago, on November
30, 1920, for the purpose of an operation to relieve his asthma. His
physician stated that, at that time, "he found him to be in good general
condition." [Footnote 5] On December 9, 1920, decedent was
discharged from the hospital and returned to his home. He went back to
the hospital on January 10, 1921, for the completion of the nasal
operation. [Footnote 6] At the time of his discharge on January 14, 1921,
the medical examination showed "a very greatly improved condition,"
and that, "in respect to the ulcerative colitis, it was 90 percent normal.'"
On January 26, 1921, the date of the trust agreement (constituting the
last of the transfers in question), decedent wrote to his son Ralph: "The
doctors pronounce me cured of bowel trouble, but I will always have
asthma. I weigh 140 stripped." On February 3, 1921, he left for
California, where he was accustomed to spend the winter months. His
physician stated that decedent at that time
"considered himself well, and I told him that he need have no anxiety
whatever about his state of health;
Page 283 U. S. 111
that I considered him in excellent condition; that he need have no fears
of any recurrence of the ulcerated colitis. [Footnote 7]"
But, in April, 1921, while still in California, decedent had such a
recurrence. He consulted a specialist of reputation who, after
examination, informed him that he might have a cancer, and advised an
operation. In June, 1921, decedent reentered the hospital in Chicago.
His condition proved to be due to a virulent form of infection that failed
to yield to treatment. Returning to his home, he continued to lose ground,
and he died on August 17, 1921. An autopsy disclosed a severe and
extensive inflammation of the large intestine, with ulceration of the
bowel. No trace of cancer was found. The death certificate signed by his
physician set forth the cause of decedent's death as "suppurative colitis"
and its "duration one year."
The Court of Claims did not find, in terms, that the transfers in question
were not made in contemplation of death, but it is evident that the court
considered that its findings of fact amounted to that in substance, in view
Page 283 U. S. 112
of the conclusion of law, based upon these findings, that the executors
were entitled to recover the additional tax. This is also manifest from the
reasoning of the court's opinion. The court said:
"The plaintiffs have not only overcome the presumption created by the
statute that the transfers were made in contemplation of death, but have
definitely established the fact that the immediate and moving cause of
the transfers was the carrying out of a policy long followed by decedent
in dealing with his children of making liberal gifts to them during his
lifetime. He had consistently followed that policy for nearly thirty years,
and the three transfers in question were a continuation and final
consummation of such policy. In the last transfer, such amounts were
given to his children as would even them up one with another in the gifts
and advancements made to them."
"That this was the motive which actuated the decedent in making these
transfers seems unquestioned. He repeatedly, in letters to his children
and in statements to business associates at about the time the transfers
were made, gave this as his reason for such transfers. After the final
transfer in which the advancements and gifts to the children were
evened up in January, 1921, the decedent still possessed property of
the value of nearly $900,000, from which he drew an annual income of
approximately $50,000. At the time the transfers were made, decedent
had no reason to believe otherwise than, aside from his asthma, he was,
for a man of his age, in ordinary health. While he had gone through a
most serious and painful illness, he had, as he believed, made an almost
complete recovery. He was assured of this fact by his physician, an
eminent specialist in whom he had great confidence. The repeated
statements made by him to close friends and associates, his daily
activities in matters connected with his business affairs, his letters to his
children assuring them of his renewed health, show
Page 283 U. S. 113
that he fully believed the assurances given him by his physician that he
was cured and had nothing to fear on account of his former illness."
"The presumption created by the statute that the transfers in question
were made in contemplation of death cannot stand against ascertained
and proven facts showing the contrary to be true. The best evidence of
the state of the decedent's health at the time the transfers were made is
the statement of his doctor. The best evidence of the decedent's state
of mind at that time and the reasons actuating him in making the
transfers are the statements and expressions of the decedent himself,
supported as such statements are by all the circumstances concerning
the transfers. [Footnote 8]"
The government contests the decision of the Court of Claims upon the
ground that the conclusion was reached by an erroneous construction
of the words "in contemplation of death" as used in the statute. The court
held that "contemplation of death" does not mean that general
knowledge of all men that they must die, but that
Page 283 U. S. 114
there must be a present apprehension, from some existing bodily or
mental condition or impending peril, creating a reasonable fear that
death is near at hand, and that such reasonable fear or apprehension
must be the direct or animating cause, and the only cause of the transfer.
[Footnote 9]
The government insists that this definition is too narrow; that transfers in
contemplation of death are not limited to those induced by a condition
causing expectation of death in the near future; that the character of
such gifts is determined by the state of mind of the donor at the time they
are made, and that the statutory presumption may be overcome only by
proof that the decedent's purpose in making the gift was to attain some
object desirable to him during his life, as distinguished from the
distribution of his estate as at death.
Page 283 U. S. 115
The phrase "in contemplation of death," previously found in state
statutes, was first used by the Congress in the Revenue Act of 1916,
imposing an estate tax. It was coupled with a clause creating a statutory
presumption in case of gifts within two years before death. [Footnote 10]
The provision was continued in the Revenue Act of 1918, [Footnote 11]
which governs the present case, and in later legislation. While the
interpretation of the phrase has not been uniform, there had been
agreement upon certain fundamental considerations. It is recognized
that the reference is not to the general expectation of death which all
entertain. It must be a particular concern, giving rise to a definite motive.
[Footnote 12] The provision is not confined to gifts causa mortis,
Page 283 U. S. 116
which are made in anticipation of impending death, are revocable, and
are defeated if the donor survives the apprehended peril. Basket v.
Hassell, 107 U. S. 602, 107 U. S. 609-610. [Footnote 13] The statutory
description embraces gifts inter vivos, despite the fact that they are fully
executed, are irrevocable and indefeasible. The quality which brings the
transfer within the statute is indicated by the context and manifest
purpose. Transfers in contemplation of death are included within the
same category, for the purpose of taxation, with transfers intended to
take effect at or after the death of the transferor. The dominant
Page 283 U. S. 117
purpose is to reach substitutes for testamentary dispositions, and thus
to prevent the evasion of the estate tax. Nichols v. Coolidge, 274 U. S.
531, 274 U. S. 542; Milliken v. United States, ante, p. 283 U. S. 15. As
the transfer may otherwise have all the indicia of a valid gift inter
vivos, the differentiating factor must be found in the transferor's motive.
Death must be "contemplated" -- that is, the motive which induces the
transfer must be of the sort which leads to testamentary disposition. As
a condition of body and mind that naturally gives rise to the feeling that
death is near, that the donor is about to reach the moment of inevitable
surrender of ownership, is most likely to prompt such a disposition to
those who are deemed to be the proper objects of his bounty, the
evidence of the existence or nonexistence of such a condition at the time
of the gift is obviously of great importance in determining whether it is
made in contemplation of death. The natural and reasonable inference
which may be drawn from the fact that but a short period intervenes
between the transfer and death is recognized by the statutory provision
creating a presumption in the case of gifts within two years prior to death.
But this presumption, by the statute before us, is expressly stated to be
a rebuttable one, and the mere fact that death ensues even shortly after
the gift does not determine absolutely that it is in contemplation of death.
The question, necessarily, is as to the state of mind of the donor.
As the test, despite varying circumstances, is always to be found in
motive, it cannot be said that the determinative motive is lacking merely
because of the absence of a consciousness that death is imminent. It is
Page 20 of 30
Estate Tax Cases
contemplation of death, not necessarily contemplation of imminent
death, to which the statute refers. It is conceivable that the idea of death
may possess the mind so as to furnish a controlling motive for the
disposition of property, although death is not thought to be close at hand.
Old age
Page 283 U. S. 118
may give premonitions and promptings independent of mortal disease.
Yet age, in itself, cannot be regarded as furnishing a decisive test, for
sound health and purposes associated with life, rather than with death,
may motivate the transfer. The words "in contemplation of death" mean
that the thought of death is the impelling cause of the transfer, and, while
the belief in the imminence of death may afford convincing evidence, the
statute is not to be limited, and its purpose thwarted, by a rule of
construction which, in place of contemplation of death, makes the final
criterion to be an apprehension that death is "near at hand."
If it is the thought of death, as a controlling motive prompting the
disposition of property, that affords the test, it follows that the statute
does not embrace gifts inter vivos which spring from a different motive.
Such transfers were made the subject of a distinct gift tax, since
repealed. [Footnote 14] As illustrating transfers found to be related to
purposes associated with life, rather than with the distribution of property
in anticipation of death, the government mentions transfers made
"for the purpose of relieving the donor of the cares of management or in
order that his children may experience the responsibilities of business
under his guidance and supervision."
The illustrations are useful but not exhaustive. The purposes which may
be served by gifts are of great variety. It is common knowledge that a
frequent inducement is not only the desire to be relieved of
responsibilities, but to have children, or others who may be the
appropriate objects of the donor's bounty, independently established
with competencies of their own without being compelled to await the
death of the donor and without particular
Page 283 U. S. 119
consideration of that event. There may be the desire to recognize special
needs or exigencies or to discharge moral obligations. The gratification
of such desires may be a more compelling motive than any thought of
death.
It is apparent that there can be no precise delimitation of the transactions
embraced within the conception of transfers in "contemplation of death,"
as there can be none in relation to fraud, undue influence, due process
of law, or other familiar legal concepts which are applicable to many
varying circumstances. There is no escape from the necessity of
carefully scrutinizing the circumstances of each case to detect the
dominant motive of the donor in the light of his bodily and mental
condition, and thus to give effect to the manifest purpose of the statute.
We think that the government is right in its criticism of the narrowness of
the rule laid down by the Court of Claims, in requiring that there be a
condition "creating a reasonable fear that death is near at hand," and
that "such reasonable fear or apprehension" must be "the only cause of
the transfer." It is sufficient if contemplation of death be the inducing
cause of the transfer whether or not death is believed to be near. But it
does not appear that the decision of the court rests upon the limitation
thus expressed. The court did not rely merely upon the fact that, at the
time of the transfers, decedent considered that he had recovered from
his former illness and believed the assurances given him by his
physician that he need have no fear of its recurrence or any "anxiety
whatever about his state of health." That fact was manifestly important,
but, in addition to that, the court held that
"immediate and moving cause of the transfers was the carrying out of a
policy, long followed by decedent in dealing with his children of making
liberal gifts to them during his lifetime."
The court regarded the transfers in question as "a continuation and and
final consummation of such policy," saying "that this was the motive
Page 283 U. S. 120
which actuated the decedent in making these transfers seems
unquestioned." In the view of the court as thus explicitly stated, not only
was there no fear at the time of the transfers that death was near at
hand, but the motive for the transfers brought them within the category
of those which, as described by the government, are intended by the
donor "to accomplish some purpose desirable to him if he continues to
live." In the presence of such a motive, appropriately found, and of the
underlying facts which have been expressly found, there would be no
ground for a reversal of the judgment merely because of an inaccuracy
in the general statement as to the meaning of the statutory phrase.
The only difficulty presented by the record is that this statement with
respect to the motive of decedent appears in the opinion of the court and
not in its findings of fact. We are not at liberty to refer to the opinion for
additional findings. The findings of fact of the Court of Claims are to be
treated like the verdict of a jury. [Footnote 15] We cannot add to them,
or modify them, but the absence of the finding of an ultimate fact does
not require a reversal of the judgment if the circumstantial facts as found
are such that the ultimate fact follows from them as a necessary
inference. [Footnote 16]
It is evident that the court did not consider the statements in its opinion,
which we have quoted, as additional findings of fact, but as an argument
with respect to the conclusion to be drawn from its findings. In its opinion,
the court was summarizing what it considered to be the effect of its
findings, and no useful purpose would be served in returning the case
for a specific finding that the motive which impelled the decedent to
make the transfers
Page 283 U. S. 121
was precisely that which the court has thus definitely stated. While, in
accordance with proper practice and the rule of this Court, [Footnote 17]
the Court of Claims should have found the ultimate fact, and we do not
approve the method it adopted, we are of the opinion that, in view of the
findings of fact actually made and the conclusion they import, the
judgment should be sustained. [Footnote 18]
Judgment affirmed.
MR. JUSTICE ROBERTS took no part in the consideration or decision
of this case.
[Footnote 1]
Speaking of a less liberal policy of a former business associate who died
in or about the year 1918, decedent frequently expressed his opinion
that his friend "had made a big mistake in not distributing his property to
his children while he was alive to help them handle it properly," and said
"that is not my policy."
[Footnote 2]
On the day that this trust agreement was made, decedent wrote to his
son Ralph (then in England):
"I am going to divide Lloyd pref. stock and most of G.L. Co. (Girard
Lumber Co.) among you children at once so you will have enough to
keep you from hunger at least. I own now 5,103 Lloyd stock, $100 per
share. Income $35,721. I am going to even up my gifts to all now, and
the following is the way they stand before the evening up [inserting
statement]. I have charged all of you interest on your accounts at 5%
and I have charged you and Art $50,000 apiece for motor loss and credit
you for W. P.L. Co. stock charged you. I am mighty busy getting ready
for the West, so goodbye."
On February 3, 1921, on leaving for California, decedent wrote to his
daughter, Mrs. Edna Walsh:
"I have been working on my books and evening up all your accounts.
Dan, Art, and Ralph have had advances that were more than you and
Florence had, and I have equalized one with the other by charging each
with what they have had and charging them interest on the account to
date, and the inclosed sheet shows what each has had and how I
equalized your a/cs by giving stock to even. Your Lloyd stock will be
delivered as soon as the deal is closed, which will be very soon. Your
Lloyd stock is worth $108,600 and the Girard stock is worth $252000, so
you need not take in washing for support unless you throw it away on
copper or other junk. In making out these accounts, the thing that seems
most important is how interest runs up. Good safe bonds are the best
investment for a person who does not understand business. Well, my
dear girl, take good care of this, remember the poor and needy, and you
will receive your reward. Goodbye."
[Footnote 3]
At about this time, the hospital physician found marked evidence of an
inflammation of the ethmoid cells which are connected with the nasal
cavity, and concluded that there was very likely a close relation between
the ethmoiditis and the asthma.
[Footnote 4]
Writing to his son Ralph on October 30, 1920, decedent said:
"I am around about the same as usual. . . . I feel as well as ever, and
bowels seem normal, but doctor says I must diet and take bismuth
medicine for a while and be careful. Gained six pounds since I came
home."
[Footnote 5]
The physician said that decedent
"came to the hospital for treatment of the asthma, not for the bowel
trouble. In fact, it was by arrangement when he left the hospital in
September that he came back at this time, in November, to have the
operative work done on the nose that was designed to clear up the
asthma."
[Footnote 6]
His physician then made the following entry in the hospital record with
respect to decedent's condition:
Page 21 of 30
Estate Tax Cases
"In general feels very well. Gained six pounds in weight. Asthma has
been somewhat troublesome at times. Has had very good bowel
function. No pain. Returns for completion of nasal operation."
[Footnote 7]
In February, 1921, friends of the decedent, visiting him in California,
were taken by him on extended motor trips.
"Decedent drove the car himself through the congested portion of the
city (Los Angeles), as well as around or over the mountains near that
city. At places on these mountain roads the automobile party driven by
the decedent traversed roads that ran along a precipice where there is
a sheer fall of six or seven thousand feet without any apparent concern
or distress on the part of the decedent."
His friends "did not see any difference in his appearance. He seemed to
be just as spry as he ever was, and handled the car in pretty good
shape." He was thought to be "very cheerful."
In a letter dated February 21, 1921, written to his children, decedent
said:
"I am about free of my bowel trouble, but have my old complaint, asthma,
but I have taken treatment at Batch Creek Treatment Rooms here the
last two years, and they have cleared it up and they are now treating me
and it is clearing up."
[Footnote 8]
Referring to the agreement made in the summer of 1920 with the
decedent's wife as to her share of his property, and to the making of his
will, the court said:
"While these transactions are entitled to consideration in connection with
all the other facts and circumstances shown, we do not regard them as
having a great deal of weight in determining the question as to the
decedent's state of mind, and the motives actuating him in making
transfers of property, four months later. No transfers of property were
made to the children at the time of the execution of the property
agreement with his wife, and the provisions made for their benefit in the
will executed at that time were identical with the provisions of a former
will. Whatever apprehensions the decedent entertained at the time of the
making of the property agreement with his wife as to the chances of
recovery from the illness from which he was suffering at that time had
ceased to exist before the transfer of the Girard Lumber Company stock
on January 1, 1921, and the Lloyd Manufacturing Company stock on
January 26, 1921."
[Footnote 9]
In support of this view, the court cited Spreckels v. State, 30 Cal.App.
363, 158 P. 549; Shwab v. Doyle, 269 F. 321; Meyer v. United
States, 60 Ct.Cls. 474; Rea v. Heiner, 6 F.2d 389, and Appeal of Starck,
Executor, 3 B.T.A. 514. See also Phillips, Executor, 7 B.T.A. 1054;
Stein et al., Executors, 9 B.T.A. 486; Gimbel et al., Executors, 11 B.T.A.
214; George A. Wheelock's Estate, 13 B.T.A. 831; Commonwealth v.
Fenley, 189 Ky. 480, 225 S.W. 154; State v. Pabst, 139 Wis. 561, 121
N.W. 351; State v. Thompson, 154 Wis. 320, 142 N.W. 647; Gaither v.
Miles, 268 F. 692; Vaughan v. Riordan, 280 F. 742; Flannery v.
Willcuts, 25 F.2d 951; Beeler v. Motter, 33 F.2d 788; Rosenthal v.
People, 211 Ill. 306, 71 N.E. 1121; People v. Burkhalter, 247 Ill. 600, 93
N.E. 379; People v. Carpenter, 264 Ill. 400, 106 N.E. 302; People v.
Northern Trust Co., 324 Ill. 625, 155 N.E. 768; Matter of Baker, 83
App.Div. 530, 82 N.Y.S. 390, aff'd, 178 N.Y. 575, 70 N.E. 1094; Matter
of Palmer, 117 App.Div. 361, 102 N.Y.S. 236; Matter of Baird, 219
App.Div. 418, 219 N.Y.S. 158. But compare Estate of Reynolds, 169
Cal. 600, 147 P. 268; Estate of Pauson, 186 Cal. 358, 199 P.
331; Chambers v. Larronde, 196 Cal. 100, 235 P. 1024; Armstrong v.
Indiana, 72 Ind.App. 303, 120 N.E. 717; Matter of Crary, 31 Misc. Rep.
72, 64 N.Y.S. 566; Matter of Price, 62 Misc. Rep. 149, 116 N.Y.S.
283; Tax Commission v. Parker, 117 Ohio St. 215, 158 N.E.
89; Rengstorff v. McLaughlin, 21 F.2d 177.
[Footnote 10]
39 Stat. 756, 777, 778.
[Footnote 11]
40 Stat. 1057, 1097. Section 402(c) provides:
"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 at any time created
a trust, in contemplation of or intended to take effect in possession or
enjoyment at or after his death (whether such transfer or trust is made
or created before or after the passage of this Act), 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 is 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. . . ."
[Footnote 12]
Article 23 of Regulations 37, under the Revenue Act of 1918, contained
the following:
"Art. 23. Nature of Transfer. -- The words 'in contemplation of death' do
not refer to the general expectation of death which all persons entertain.
A transfer, however, is made in contemplation of death wherever the
person making it is influenced to do so by such an expectation of death,
arising from bodily or mental conditions, as prompts persons to dispose
of their property to those whom they deem proper objects of their bounty.
The cause which induces such bodily or mental conditions is immaterial,
and it is not necessary that the decedent be in the immediate expectation
of death. Such a transfer is taxable although the decedent parts
absolutely and immediately with his title to and possession of the
property. Transfers made within two years of a decedent's death are
presumed to be taxable if they are of a material part of his property and
are in the nature of a final disposition thereof. . . . All facts relating to the
transfer should be stated, including the motive therefor, the decedent's
state of health, and his anticipation of death. The presumption of
taxability may be rebutted by proof that the transfer was not induced by
bodily or mental conditions leading the grantor to make a disposition of
property testamentary in its nature. The fact that a gift was made as an
advancement, to be taken into account upon the final distribution of the
decedent's estate, is not enough, standing alone, to establish taxability,
but it is a circumstance to be considered in determining whether the
transfer was made in contemplation of death."
[Footnote 13]
In Matter of Seaman, 147 N.Y. 69, 76, 41 N.E. 401, 403. the court,
referring to the words "in contemplation of death" in the Inheritance Tax
Law of New York, said that the clause "evidently referred to grants or
gifts causa mortis." See also Matter of Edgerton, 35 App.Div. 125, 54
N.Y.S. 700, aff'd, 158 N.Y. 671, 52 N.E. 1124; Matter of Spaulding, 49
App.Div. 541, 63 N.Y.S. 694, aff'd 163 N.Y. 607, 57 N.E. 1124; Matter of
Baker, 83 App.Div. 530, 82 N.Y.S. 390, aff'd 178 N.Y. 575, 70 N.E.
1094. But compare Matter of Palmer, 117 App.Div. 361, 366-368, 102
N.Y.S. 236; Matter of Crary, 31 Misc. Rep. 72, 75, 64 N.Y.S. 566; Matter
of Price, 62 Misc.Rep. 149, 151, 152, 116 N.Y.S. 283; Matter of
Dee, 148 N.Y.S. 423, aff'd 161 App.Div. 881, 145 N.Y.S. 1120, aff'd 210
N.Y. 625, 104 N.E. 1128; Matter of Hodges, 215 N.Y. 447, 109 N.E. 559.
[Footnote 14]
Revenue Act of 1924, §§ 319-324, 43 Stat. 253, 313, and § 319, as
amended by Revenue Act of 1926, § 324, 44 Stat. 9, 86; Bromley v.
McCaughn, 280 U. S. 124. Revenue Act of 1926, § 1200(a), 44 Stat. 9,
125, 126.
[Footnote 15]
Stone v. United States, 164 U. S. 380, 164 U. S. 382-383; Crocker v.
United States, 240 U. S. 74, 240 U. S. 78; Brothers v. United States, 250
U. S. 88, 250 U. S. 93.
[Footnote 16]
United States v. Pugh, 99 U. S. 265, 99 U. S. 269-270; Botany Worsted
Mills v. United States, 278 U. S. 282, 278 U. S. 290.
[Footnote 17]
Rule 41.
[Footnote 18]
Act of February 26, 1919, c. 48, 40 Stat. 1181, U.S.C. Tit. 28, § 391.
Page 22 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.
Feria and La O for appellants.
Attorney-General Jaranilla for 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
Page 23 of 30
Estate Tax Cases

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.

Page 24 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-36770 November 4, 1932
LUIS W. DISON, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant.
Marcelino Aguas for plaintiff-appellant.
Attorney-General Jaranilla for 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.
Page 25 of 30
Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellee.
Araneta, De Joya, Zaragoza and Araneta for appellant.
Attorney-General Jaranilla for 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;
Page 26 of 30
Estate Tax Cases
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.
The estate of a deceased person cannot be placed on the same footing
as an individual heir. The 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 said heir and does not form
part of the deceased's estate subject to administrator. (Del Val vs. Del
Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of
the Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out by a
married person becomes the exclusive owner of the proceeds upon the
death of the insured even if the premiums were paid by the conjugal
partnership, so, it is argued, where the beneficiary named is the estate
of the deceased whose 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 a conjugal partnership the husband is the manager, empowered to
alienate the partnership property without the wife's consent (art. 1413,
Civil Code), a third person, therefore, named beneficiary in a life-
insurance policy becomes the absolute owner of its proceeds upon the
death of the insured even if the 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 assets of his estate,
in contravention of the provisions of article 1401, paragraph 1, of the
Civil Code 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 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 No. 3031, contains the following
relevant provision:
SEC. 1536. Conditions and rate of taxation. — Every
transmission by virtue of inheritance, devise, bequest,
gift mortis causa or advance in anticipation of inheritance,
Page 27 of 30
Estate Tax Cases

devise, or bequest of real property located in the Philippine Philippine Islands, according to the foregoing rules. If this be so, half of
Islands and real rights in such property; of any franchise which the proceeds which is community property, belongs to the estate of the
must be exercised in the Philippine Islands; of any shares, deceased and is subject to the inheritance tax, in accordance with the
obligations, or bonds issued by any corporation or sociedad legal provision quoted above, irrespective of whether or not the late
anonima organized or constituted in the Philippine Islands in Adolphe Oscar Schuetze was domiciled in the Philippine Islands at the
accordance with its laws; of any shares or rights in any time of his death.
partnership, business or industry established in the Philippine By virtue of the foregoing, we are of opinion and so hold: (1) That the
Islands or of any personal property located in the Philippine proceeds of a life-insurance policy payable to the insured's estate, on
Islands shall be subject to the following tax: which the premiums were paid by the conjugal partnership, constitute
xxx xxx xxx community property, and belong one-half to the husband and the other
In as much as the proceeds of the insurance policy on the life of the late half to the wife, exclusively; (2) that if the premiums were paid partly with
Adolphe Oscar Schuetze were paid to the Bank of the Philippine Islands, paraphernal and partly conjugal funds, the proceeds are likewise in like
as administrator of the deceased's estate, for management and partition, proportion paraphernal in part and conjugal in part; and (3) that the
and as such proceeds were turned over to the sole and universal proceeds of a life-insurance policy payable to the insured's estate as the
testamentary heiress Rosario Gelano Vda. de Schuetze, the plaintiff- beneficiary, if delivered to the testamentary administrator of the former
appellant, here in Manila, the situs of said proceeds is the Philippine as part of the assets of said estate under probate administration, are
Islands. subject to the inheritance tax according to the law on the matter, if they
In his work "The Law of Taxation," Cooley enunciates the general rule belong to the assured exclusively, and it is immaterial that the insured
governing the levying of taxes upon tangible personal property, in the was domiciled in these Islands or outside.1awphil.net
following words: Wherefore, the judgment appealed from is reversed, and the defendant
GENERAL RULE. — The suits of tangible personal property, is ordered to return to the plaintiff the one-half of the tax collected upon
for purposes of taxation may be where the owner is domiciled the amount of P20,150, being the proceeds of the insurance policy on
but is not necessarily so. Unlike intangible personal property, the life of the late Adolphe Oscar Schuetze, after deducting the
it may acquire a taxation situs in a state other than the one proportional part corresponding to the first premium, without special
where the owner is domiciled, merely because it is located pronouncement of costs. So ordered.
there. Its taxable situs is where it is more or less permanently
located, regardless of the domicile of the owner. It is well
settled that the state where it is more or less permanently
located has the power to tax it although the owner resides out
of the state, regardless of whether it has been taxed for the
same period at the domicile of the owner, provided there is
statutory authority for taxing such property. It is equally well
settled that the state where the owner is domiciled has no
power to tax it where the property has acquired an actual situs
in another state by reason of its more or less permanent
location in that state. ... (2 Cooley, The Law of Taxation, 4th
ed., p. 975, par. 451.)
With reference to the meaning of the words "permanent" and "in transit,"
he has the following to say:
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT.
— In order to acquire a situs in a state or 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
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Estate Tax Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9374 February 16, 1915
FRANCISCO DEL VAL, ET AL., plaintiffs-appellants,
vs.
ANDRES DEL VAL, defendant-appellee.
Ledesma, Lim and Irureta Goyena for appellants.
O'Brien and DeWitt for appellee.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the
city of Manila dismissing the complaint with costs.
The pleadings set forth that the plaintiffs and defendant are brother and
sisters; that they are the only heirs at law and next of kin of Gregorio
Nacianceno del Val, who died in Manila on August 4, 1910, intestate;
that an administrator was appointed for the estate of the deceased, and,
after a partial administration, it was closed and the administrator
discharged by order of the Court of First Instance dated December 9,
1911; that during the lifetime of the deceased he took out insurance on
his life for the sum of P40,000 and made it payable to the defendant as
sole beneficiary; that after his death the defendant collected the face of
the policy; that of said policy he paid the sum of P18,365.20 to redeem
certain real estate which the decedent had sold to third persons with a
right to repurchase; that the redemption of said premises was made by
the attorney of the defendant in the name of the plaintiff and the
defendant as heirs of the deceased vendor; that the redemption of said
premises they have had the use and benefit thereof; that during that time
the plaintiffs paid no taxes and made no repairs.
It further appears from the pleadings that the defendant, on the death of
the deceased, took possession of most of his personal property, which
he still has in his possession, and that he has also the balance on said
insurance policy amounting to P21,634.80.
Plaintiffs contend that the amount of the insurance policy belonged to
the estate of the deceased and not to the defendant personally; that,
therefore, they are entitled to a partition not only of the real and personal
property, but also of the P40,000 life insurance. The complaint prays a
partition of all the property, both real and personal, left by the deceased;
that the defendant account for P21,634.80, and that that sum be divided
equally among the plaintiffs and defendant along with the other property
of deceased.
The defendant denies the material allegations of the complaint and sets
up as special defense and counterclaim that the redemption of the real
estate sold by his father was made in the name of the plaintiffs and
himself instead of in his name alone without his knowledge or consent;
and that it was not his intention to use the proceeds of the insurance
policy for the benefit of any person but himself, he alleging that he was
and is the sole owner thereof and that it is his individual property. He,
therefore, asks that he be declared the owner of the real estate
redeemed by the payment of the P18,365.20, the owner of the remaining
P21,634.80, the balance of the insurance policy, and that the plaintiff's
account for the use and occupation of the premises so redeemed since
the date of the redemption.
The learned trial court refused to give relief to either party and dismissed
the action.
It says in its opinion: "This purports to be an action for partition, brought
against an heir by his coheirs. The complaint, however, fails to comply
with Code Civ., Pro. sec. 183, in that it does not 'contain an adequate
description of the real property of which partition is demanded.' Because
of this defect (which has not been called to our attention and was
discovered only after the cause was submitted) it is more than doubtful
whether any relief can be awarded under the complaint, except by
agreement of all the parties."
This alleged defect of the complaint was made one of the two bases for
the dismissal of the action.
We do not regard this as sufficient reason for dismissing the action. It is
the doctrine of this court, set down in several decisions, Lizarraga
Hermanos vs. Yap Tico, 24 Phil. Rep., 504, that, even though the
complaint is defective to the extent of failing in allegations necessary to
constitute a cause of action, if, on the trial of the cause, evidence is
offered which establishes the cause of action which the complaint
intended to allege, and such evidence is received without objection, the
defect is thereby cured and cannot be made the ground of a subsequent
objection. If, therefore, evidence was introduced on the trial in this case
definitely and clearly describing the real estate sought to be partitioned,
the defect in the complaint was cured in that regard and should not have
been used to dismiss the action. We do not stop to inquire whether such
evidence was or was not introduced on the trial, inasmuch as this case
must be turned for a new trial with opportunity to both parties to present
such evidence as is necessary to establish their respective claims.
The court in its decision further says: "It will be noticed that the provision
above quoted refers exclusively to real estate. . . . It is, in other words,
an exclusive real property action, and the institution thereof gives the
court no jurisdiction over chattels. . . . But no relief could possibly be
granted in this action as to any property except the last (real estate), for
the law contemplated that all the personal property of an estate be
distributed before the administration is closed. Indeed, it is only in
exceptional cases that the partition of the real estate is provided for, and
this too is evidently intended to be effected as a part of the
administration, but here the complaint alleges that the estate was finally
closed on December 9, 1911, and we find upon referring to the record in
that case that subsequent motion to reopen the same were denied; so
that the matter of the personal property at least must be considered res
judicata (for the final judgment in the administration proceedings must
be treated as concluding not merely what was adjudicated, but what
might have been). So far, therefore, as the personal property at least is
concerned, plaintiffs' only remedy was an appeal from said order."
We do not believe that the law is correctly laid down in this quotation.
The courts of the Islands have jurisdiction to divide personal property
between the common owners thereof and that power is as full and
complete as is the power to partition real property. If an actual partition
of personal property cannot be made it will be sold under the direction
of the court and the proceeds divided among the owners after the
necessary expenses have been deducted.
The administration of the estate of the decedent consisted simply, so far
as the record shows, in the payment of the debts. No division of the
property, either real or personal, seems to have been made. On the
contrary, the property appears, from the record, to have been turned
over to the heirs in bulk. The failure to partition the real property may
have been due either to the lack of request to the court by one or more
of the heirs to do so, as the court has no authority to make a partition of
the real estate without such request; or it may have been due to the fact
that all the real property of decedent had been sold under pacto de
retro and that, therefore, he was not the owner of any real estate at the
time of his death. As to the personal property, it does not appear that it
was disposed of in the manner provided by law. (Sec. 753, Code of Civil
Procedure.) So far as this action is concerned, however, it is sufficient
for us to know that none of the property was actually divided among the
heirs in the administration proceeding and that they remain coowners
and tenants-in- common thereof at the present time. To maintain an
action to partition real or personal property it is necessary to show only
that it is owned in common.
The order finally closing the administration and discharging the
administrator, referred to in the opinion of the trial court, has nothing to
do with the division of either the real or the personal property. The heirs
have the right to ask the probate court to turn over to them both the real
and personal property without division; and where that request is
unanimous it is the duty of the court to comply with it, and there is nothing
in section 753 of the Code of Civil Procedure which prohibits it. In such
case an order finally settling the estate and discharging the administrator
would not bar a subsequent action to require a division of either the real
or personal property. If, on the other hand, an order had been made in
the administration proceedings dividing the personal or the real property,
or both, among the heirs, then it is quite possible that, to a subsequent
action brought by one of the heirs for a partition of the real or personal
property, or both, there could have been interposed a plea of res
judicata based on such order. As the matter now stands, however, there
is no ground on which to base such a plea. Moreover, no such plea has
been made and no evidence offered to support it.
With the finding of the trial court that the proceeds of the life-insurance
policy belong exclusively to the defendant as his individual and separate
property, we agree. That the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose
life was insured, and that such proceeds are the separate and individual
property of the beneficiary, and not of the heirs of the person whose life
was insured, is the doctrine in America. We believe that the same
doctrine obtains in these Islands by virtue of section 428 of the Code of
Commerce, which reads:
The amount which the underwriter must deliver to the person
insured, in fulfillment of the contract, shall be the property of
the latter, even against the claims of the legitimate heirs or
creditors of any kind whatsoever of the person who effected
the insurance in favor of the former.
Page 29 of 30
Estate Tax Cases

It is claimed by the attorney for the plaintiffs that the section just quoted
is subordinate to the provisions of the Civil Code as found in article 1035.
This article reads:
An heir by force of law surviving with others of the same
character to a succession must bring into the hereditary estate
the property or securities he may have received from the
deceased during the life of the same, by way of dowry, gift, or
for any good consideration, in order to compute it in fixing the
legal portions and in the account of the division.
Counsel also claim that the proceeds of the insurance policy were a
donation or gift made by the father during his lifetime to the defendant
and that, as such, its ultimate destination is determined by those
provisions of the Civil Code which relate to donations, especially article
819. This article provides that "gifts made to children which are not
betterments shall be considered as part of their legal portion."
We cannot agree with these contentions. The contract of life insurance
is a special contract and the destination of the proceeds thereof is
determined by special laws which deal exclusively with that subject. The
Civil Code has no provisions which relate directly and specifically to life-
insurance contracts or to the destination of life insurance proceeds. That
subject is regulated exclusively by the Code of Commerce which
provides for the terms of the contract, the relations of the parties and the
destination of the proceeds of the policy.
The proceeds of the life-insurance policy being the exclusive property of
the defendant and he having used a portion thereof in the repurchase of
the real estate sold by the decedent prior to his death with right to
repurchase, and such repurchase having been made and the
conveyance taken in the names of all of the heirs instead of the
defendant alone, plaintiffs claim that the property belongs to the heirs in
common and not to the defendant alone.
We are not inclined to agree with this contention unless the fact appear
or be shown that the defendant acted as he did with the intention that
the other heirs should enjoy with him the ownership of the estate — in
other words, that he proposed, in effect, to make a gift of the real estate
to the other heirs. If it is established by the evidence that that was his
intention and that the real estate was delivered to the plaintiffs with that
understanding, then it is probable that their contention is correct and that
they are entitled to share equally with the defendant therein. If, however,
it appears from the evidence in the case that the conveyances were
taken in the name of the plaintiffs without his knowledge or consent, or
that it was not his intention to make a gift to them of the real estate, then
it belongs to him. If that facts are as stated, he has two remedies. The
one is to compel the plaintiffs to reconvey to him and the other is to let
the title stand with them and to recover from them the sum he paid on
their behalf.
For the complete and proper determination of the questions at issue in
this case, we are of the opinion that the cause should be returned to the
trial court with instructions to permit the parties to frame such issues as
will permit the settlement of all the questions involved and to introduce
such evidence as may be necessary for the full determination of the
issues framed. Upon such issues and evidence taken thereunder the
court will decide the questions involved according to the evidence,
subordinating his conclusions of law to the rules laid down in this opinion.
We do not wish to be understood as having decided in this opinion any
question of fact which will arise on the trial and be there in controversy.
The trial court is left free to find the facts as the evidence requires. To
the facts as so found he will apply the law as herein laid down.
The judgment appealed from is set aside and the cause returned to the
Court of First Instance whence it came for the purpose hereinabove
stated. So ordered.

Page 30 of 30