ESTATE TAX

CIR v. PINEDA
FACTS: Atanasio Pineda died, survived by his wife, FelicisimaBagtas, and 15 children, the eldest
of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was
divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After
the estate proceedings were closed, the BIR investigated the income tax liability of the estate for
the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns
were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said
returns for the estate issued an assessment and charged the full amount to the inheritance due
to Atty. Pineda who argued that he is liable only to extent of his proportional share in the
inheritance.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.
HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes
assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from the estate
as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue
of such lien, the Government has the right to subject the property in Pineda's possession to
satisfy the income tax assessment. After such payment, Pineda will have a right of contribution
from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable
estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all
the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received; and second, is by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due. This second remedy is the very
avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue
should be given, in instances like the case at bar, the necessary discretion to avail itself of the
most expeditious way to collect the tax as may be envisioned in the particular provision of the
Tax Code above quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.
CIR VS.VDA. DE PRIETO (1960)
FACTS:
On December 4, 1945, Consuelo L. Vda. De Prieto conveyed by way of gifts to her four
children (Antonio, Benito, Carmen and Mauro), real property with total assessed value of
892,497.50.
CIR appraised the real property donated for gift tax purposes at 1,231.268.00, and
assessed the total sum of 117,706.50 as donors gift tax, interests and compromises due
thereon.
Of the total sum of 117,706.50 paid by Consuelo, the sum of 55,978.65 represents the
total interest on account of delinquency. Said sum of the total interest was
claimed as deduction by Consuelo in her 1954 income tax return.
CIR disallowed the claim and as a consequence, assessed Consuelo the total sum of
21,410.38 as deficiency income tax due on the aforesaid 55,978.65, including interest up
to March 1957, surcharge and compromise for the late payment.
Under the law, for interest to be deductible, it must be shown that there be an
indebtedness, that there should be interest upon it, and that what is claimed as an interest
deduction should have been paid or accrued within the year. It is here conceded that the
interest paid by Consuelo was in consequence of the late payment of her donors tax, and
the same was paid within the year it is sought to be deducted.

To sustain the proposition that the interest payment is not deductible, CIR relies heavily on
section 80 of the Revenue Regulation No. 2( Income Tax Regulation) promulgated by the
Department of Finance, which provides that the word taxes means taxes proper and no
deductions should be allowed for amounts representing interest, surcharge, or penalties
incident to delinquency.
CTA reversed the decision of CIR.

ISSUES:
1. WON such interest was paid upon indebtedness within the contemplation of section 30(b)
(1) of the Tax Code.
2. WON the interest paid for the late payment of the donors tax is deductible from the gross
income under section 30(b) of the Tax Code.
3. WON section 80 of the Revenue Regulation No. 2 is applicable in this case, thus the
deduction should not be allowed.
HELD:
1. Yes, the donors tax may be considered as indebtedness within the contemplation of
the Tax Code.
2. Yes, given that the donors tax may be considered as indebtedness, the interest paid
for the late payment of the donors tax is deductible from the gross income under
section 30(b) of the Tax Code.
3. No, section 80 of RR2 is not applicable in this case because the said section of RR2
pertains to or implements section 30(c) of the Tax Code, governing deduction of taxes,
and not section 30 (b) on deduction of interest on indebtedness, which is the provision
invoked by Consuelo.
RATIO:
1. The term indebtedness as used in the US Tax Code containing similar provisions as in
the Phil Tax Code has been defined as an unconditional and legally enforceable obligation
for the payment of money. Within the meaning of that definition, it is apparent that a tax
may be considered an indebtedness. As stated by the SC in the case of Santiago
Sambrano vs. CTA and CIR: Although taxes already due have not, strictly speaking, the
same concept as debts, they are, however, obligations that may be considered as such.
2. This conclusion finds support in the established jurisprudence in the US. Under section
23(b) of the Internal Revenue Code of 1939, as amended, which contains similarly worded
provisions as section 30(b) of Phil Tax Code, the uniform ruling in the US jurisprudence is
that interest on taxes is interest on indebtedness and is deductible. This rule applies even
though the tax is nondeductible, like the donors tax.
3. Section 80 is inapplicable to the instant case because while it implements section 30(c) of
the Tax Code governing deduction of taxes, Consuelo seeks to come under section 30(b)
providing for deduction of interest on indebtedness.
In conclusion, the SC is of the opinion that although interest payment for delinquent taxes is not
deductible as tax under section 30(c) of the Tax Code and Section 80 of RR2, the taxpayer is not
precluded thereby from claiming said interest payment as deduction under section (b) of the
same code.Dispositive: CTAs decision AFFIRMED.
CIR vs. CA and Pajonar; Estate Tax
G.R. No. 123206
March 22, 2000
Facts: Private respondent Josefina Pajonar was the guardian of the person of decedent Pedro
Pajonar. The property of the decedent was put by the RTC- Dumaguete, under the guardianship
of the Philippine National Bank via special proceeding, wherein 50, 000 was spent therein for
payment of attorney's fees.
When the decedent died, instead of filing a estate tax return, PNB advised Josefina to extra-

judicially settle the estate of his brother. The decedent's estate was extra-judicially settled and
the heirs paid an amount of 60, 753 for the notarization of the deed of extra-judicial settlement
of estate.
The private paid the estate tax, however, they were subsequently assessed of deficiency taxes
because the amount paid in the special proceeding [50, 000] and the notarization fee [60, 753]
cannot be claimed as a deduction to the decedent's estate. Private respondent paid the said
taxes under protest. While the case is under review by the BIR, she filed a claim for refund in the
CTA which was granted.
Issue: whether or not the notarial fee paid for the extrajudicial settlement in the amount of
P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000 may
be allowed as deductions from the gross estate of decedent in order to arrive at the value of the
net
estate.
Held: Yes.
As to the deductibility of the amount spent for notarization of the deed of extrajudicial settlement of estate- Explained the SC, administration expenses, as an allowable
deduction from the gross estate of the decedent for purposes of arriving at the value of the net
estate, have been construed by the federal and state courts of the United States [which the law
on allowable deductions from gross estate was copied!] to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to the persons
entitled
to
it."
In other words, the expenses must be essential to the proper settlement of the estate.
Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible. This distinction has been carried over to our jurisdiction. Thus, in Lorenzo
v. Posadas the Court construed the phrase "judicial expenses of the testamentary or intestate
proceedings" as not including the compensation paid to a trustee of the decedent's estate when
it appeared that such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir. In another case, the Court disallowed the
premiums paid on the bond filed by the administrator as an expense of administration since the
giving of a bond is in the nature of a qualification for the office, and not necessary in the
settlement of the estate. Neither may attorney's fees incident to litigation incurred by the heirs in
asserting their respective rights be claimed as a deduction from the gross estate.
In this case, it is clear that the extrajudicial settlement was for the purpose of payment of taxes
and the distribution of the estate to the heirs. The execution of the extrajudicial settlement
necessitated the notarization of the same. It follows then that the notarial fee of P60,753.00 was
incurred primarily to settle the estate of the deceased Pedro Pajonar. Said amount should then be
considered an administration expenses actually and necessarily incurred in the collection of the
assets of the estate, payment of debts and distribution of the remainder among those entitled
thereto. Thus, the notarial fee of P60,753 incurred for the Extrajudicial Settlement should be
allowed
as
a
deduction
from
the
gross
estate.
Deductible expenses of administration of the estate may include executor's or administrator's
fees, attorney's fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees or commissions for selling or
disposing of the estate, and the like. Deductible attorney's fees are those incurred by the
executor or administrator in the settlement of the estate or in defending or prosecuting claims
against
or
due
the
estate.
As to the deductibility of attorney's fees in the Special proceedings- As a rule attorney's fees in
order to be deductible from the gross estate must be essential to the collection of assets,
payment of debts or the distribution of the property to the persons entitled to it. The services for
which the fees are charged must relate to the proper settlement of the estate. [34 Am. Jur. 2d

767.] In this case, the guardianship proceeding was necessary for the distribution of the property
of the late Pedro Pajonar to his rightful heirs. It is noteworthy to point that PNB was appointed the
guardian over the assets of the deceased. Necessarily the assets of the deceased formed part of
his gross estate. Accordingly, all expenses incurred in relation to the estate of the deceased will
be deductible for estate tax purposes provided these are necessary and ordinary expenses for
administration of the settlement of the estate. Hence the attorney's fees of 50, 000 is deductible
from the gross estate of the decedent.
LORENZO VS POSADAS
FACTS: Thomas Hanley died, leaving a will and a considerable amount of real and personal
properties. Proceedings for the probate of his will and the settlement and distribution of his
estate were begun in the CFI of Zamboanga. The will was admitted to probate.
The CFI considered it proper for the best interests of the estate to appoint a trustee to administer
the real properties which, under the will, were to pass to nephew Matthew ten years after the two
executors named in the will was appointed trustee. Moore acted as trustee until he resigned and
the plaintiff Lorenzo herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue
(Posadas) assessed against the estate an inheritance tax, together with the penalties for
deliquency in payment. Lorenzo paid said amount under protest, notifying Posadas at the same
time that unless the amount was promptly refunded suit would be brought for its recovery.
Posadas overruled Lorenzos protest and refused to refund the said amount. Plaintiff went to
court. The CFI dismissed Lorenzos complaint and Posadas counterclaim. Both parties appealed
to this court.
ISSUE:
(e) Has there been delinquency in the payment of the inheritance tax?
HELD: The judgment of the lower court is accordingly modified, with costs against the plaintiff in
both instances
YES
The defendant maintains that it was the duty of the executor to pay the inheritance tax before
the delivery of the decedents property to the trustee. Stated otherwise, the defendant contends
that delivery to the trustee was delivery to the cestuique trust, the beneficiary 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. A trustee is but an
instrument or agent for the cestuique trust
The appointment of 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. 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. 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.
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 appointmening a trustee to carry into effect
the provisions of the will

As the existence of the trust was already proven, 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.
On that date trust estate vested in him. The interest due should be computed from that date.
NOTES: Other issues:
(a) When does the inheritance tax accrue and when must it be satisfied?
The accrual of the inheritance tax is distinct from the obligation to pay the same.
According 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.
Whatever may be the time when actual transmission of the inheritance takes place, succession
takes place in any event at the moment of the decedents death. The time when the heirs legally
succeed to the inheritance may differ from the time when the heirs actually receive such
inheritance. 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. xx
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.
The instant case does[not] 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
Moore as trustee.
(b) Should the inheritance tax be computed on the basis of the value of the estate at the time of
the testators death, or on its value ten years later?
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 value of the estate as it

stood at the time of the decedents death, regardless of any subsequent contingency value of
any subsequent increase or decrease in value
(c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees?
A trustee, no doubt, is entitled to receive a fair compensation for his services. 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
(d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the taxpayer be given retroactive effect?
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, . . . . Act No. 3606 itself contains no provisions indicating
legislative intent to give it retroactive effect. No such effect can be given the statute by this
court.
MORAN SISON V. TEODORO DIGEST
Facts:
1. The CFI of Manila which had jurisdiction over the estate of Margarita David, issued an order
appointing appellantCarlos Moran Sison as judicial administrator without compensation after
filing a bond. After entering into his duties as administrator, he filed an accounting of his
administration which included items as an expense of administration the premiums he paid on
his bond.
2. One of the heirs, herein appelleeNarcisaTeodoro, objected to the approval of the items. The
court approved the report but disallowed the items objected to on the ground that these cannot
be considered as expenses of administration. Moran Sison filed a motion for reconsideration but
was denied hence this appeal.
Issue: Whether or not an executor or judicial administrator can validly charge the premiums on
his bond as an expense of administration against the estate
Held: NO.
The premiums paid by an executor or administrator serving without a compensation for his bond
cannot be charged against the estate. Further Sec. 7 of Rule 86 of the Rules of Court does not
authorize the executor or administrator to charge to the estate the money spent for the bond. As
held in the case of Sulit v. Santos (56 Phil 626), the position of an executor or administrator is
one of trust. The law safeguards the estates of deceased persons by making as a requirement for
qualification the ability to give a suitable bond. The execution of said bond is therefore a
condition precedent to acceptance of the responsibilities of the trust.
Further, the giving of the bond is not a necessary expense in the care, management, and
settlement of the estate within the meaning of Sec. 680 of the Civil Code of Procedure, since
such are the requirements after the executor or administrator has already qualified for the office
and has entered the performance of his duties.
MARCOS II v. CA
FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant
CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax

delinquencies during the period of his exile in the US. The Marcos family was assessed by the
BIR, and notices were constructively served to the Marcoses, however the assessment were not
protested administratively by Mrs. Marcos and the heirs of the late president so that they
became final and unappealable after the period for filing of opposition has prescribed. Marcos
contends that the properties could not be levied to cover the tax dues because they are still
pending probate with the court, and settlement of tax deficiencies could not be had, unless there
is an order by the probate court or until the probate proceedings are terminated.
ISSUE: Is the contention of Bongbong Marcos correct?
HELD: No. The deficiency income tax assessments and estate tax assessment are already final
and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This
summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of any other tax
remedies
instituted
by
the
government.
The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not
a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the
Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by
the late President, on the ground that it was required to seek first the probate court's sanction.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of
the probate or estate settlement court's approval of the state's claim for estate taxes, before the
same
can
be
enforced
and
collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is
bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver
any distributive share to any party interested in the estate, unless it is shown a Certification by
the Commissioner of Internal Revenue that the estate taxes have been paid. This provision
disproves the petitioner's contention that it is the probate court which approves the assessment
and collection of the estate tax.
DIZON vs CIR
Facts
Atty. Jesus Gonzales signed and filed on behalf of the Estate of Jose Fernandez the required
estate taxreturn and represented the same in securing a Certificate of Tax Clearance with the BIR
RegionalDirector of San Pablo City. The BIR Regional Director issued Certifications stating that the
taxes due onthe transfer of real and personal properties of Jose had been fully paid and said
properties may betransferred to his heirs.Petitioner requested the probate courts authority to
sell several properties forming part of the Estate, for the purpose of paying its creditors.
However, the Assistant Commissioner for Collection of the BIR issuedan Estate Tax Assessment
Notice, demanding the payment of deficiency estate tax. On June 2, 1994,petitioner filed a
petition for review before respondent CTA. In the hearings conducted, petitioner did notpresent
testimonial evidence but merely documentary evidence. Respondents [BIR] counsel
presentedAlberto Enriquez, who was one of the revenue examiners who conducted the
investigation on the estatetax case of the late Jose Fernandez.The CTA denied the petition for
review, opining that the pieces of evidence introduced by the BIR wereadmissible in evidence. CA
affirmed the decision of the CTA, ruling that the petitioners act of filing anestate tax return with
the BIR and the issuance of the BIR Certification did not deprive the BIRCommissioner of her
authority to re-examine or re-assess the said return filed on behalf of the Estate.Hence, the
instant Petition.
Issues
(1)Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces
of evidence which were not formally offered by the BIR

(2)Whether the actual claims of the creditors may be fully allowed as deductions from the
grossestate of Jose despite the fact that the said claims were reduced or condoned through
compromiseagreements entered into by the Estate with its creditors
Held
Under Sec. 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed
before itare litigated de novo, party-litigants shall prove every minute aspect of their cases.
Indubitably, noevidentiary value can be given the pieces of evidence submitted by the BIR, as
the rules on documentaryevidence require that these documents must be formally offered before
the CTA (Sec. 34, Rule 132 of theRevised Rules on Evidence).In People v. Napat-a, the Court
relaxed the rule and allowed evidence not formally offered to be admittedand considered by the
trial court provided the following requirements are present, viz.: first, the samemust have been
duly identified by testimony duly recorded and, second, the same must have beenincorporated in
the records of the case.In this case, the Court finds that these requirements have NOT been
satisfied. The assailed pieces of evidence were presented and marked during the trial particularly
when Alberto took the witness stand.Alberto identified these pieces of evidence in his direct
testimony. He was also subjected to cross-examination and re-cross examination by petitioner.
But Albertos account and the exchanges betweenAlberto and petitioner did not sufficiently
describe the contents of the said pieces of evidence presentedby the BIR. Moreover, while
Albertos testimony identifying the BIRs evidence was duly recorded, the BIRdocuments
themselves were not incorporated in the records of the case.While the CTA is not governed
strictly by technical rules of evidence, the presentation of the BIRsevidence is not a mere
procedural technicality which may be disregarded considering that it is the onlymeans by which
the CTA may ascertain and verify the truth of BIRs claims against the Estate. The BIRsfailure to
formally offer these pieces of evidence, despite CTAs directives, is fatal to its cause.
DONORS TAX
Republic of the Philippines vs. AFP Retirement and Separation Benefits System
FACTS: Lots X, Y-1 and Y-2 were lands of the public domain pursuant to Proclamation No. 168
(Proc. 168). In 1983, Proclamation No. 2273 (Proc. 2273) was issued which removed and
segregated Lots Y-1 and Y-2 from the reservation and declaring them open for disposition to
qualified applicants. As a result, only Lot X which consists of 15,020 square meters remained part
of
the
reservation
now
known
as
Magsaysay
Park.
The record discloses that the heirs of CabaloKusop and Atty. Flaviano petitioned the President to
have Lots Y-1 and Y-2 taken out of the reservation for the reason that through their predecessor
CabaloKusop (Kusop), they have acquired vested private rights over these lots. This campaign
resulted in Proc. 2273, which re-classified and returned Lots Y-1 and Y-2 to their original alienable
and
disposable
state.
In 1997, the heirs and Flaviano filed applications for the issuance of individual miscellaneous
sales patents over the whole of Lot X. Consequently, 16 original certificates of title (OCTs)
covering Lot X were issued in the names of the heirs, Flaviano and several others. These 16 titles
were simultaneously conveyed to respondent AFP-Retirement and Separation Benefits System
(AFP-RSBS).
Petitioner Republic of the Philippines a complaint for reversion, cancellation and annulment of the
AFP-RSBS titles, on the thesis that they were issued over a public park which is classified as
inalienable
and
non-disposable
public
land.
The heirs and Flaviano intervened, and, together with the AFP-RSBS, argued that their
predecessor-in-interest Kusop had acquired vested interests over Lot X for having occupied the
same for more than 30 years. The RTC ruled in favor of the Republic.

The CA reversed the RTC and ruled that the lands in dispute are alienable and disposable lands.
Hence this present appeal.
Issues:
I.
II.
III.

IV.

BY APPLYING FOR MISCELLANEOUS SALES PATENT, THE HEIRS HAVE ADMITTED THAT
LOT X IS PUBLIC LAND. THE EVIDENCE THEY SUBMITTED TO ESTABLISH THEIR ALLEGED
PRIVATE OWNERSHIP IS THEREFORE UNAVAILING.
THE ALLEGED "VESTED RIGHTS" OF THE HEIRS OVER LOT X CANNOT PREVAIL AGAINST
GOVERNMENT OWNERSHIP OF PUBLIC LAND UNDER THE REGALIAN DOCTRINE.
THERE IS NO BASIS TO CONCLUDE THAT PROCLAMATION 2273 RECOGNIZED THE
OWNERSHIP OF LOT X BY THE HEIRS. NEITHER IS THERE BASIS TO CLAIM THAT THE
HEIRS RETAINED OWNERSHIP OF LOT X DUE TO THE FAILURE OF THE CITY OF GENERAL
SANTOS TO ACCEPT THE DONATION OF LOT X.
AFP-RSBS IS NOT A BUYER IN GOOD FAITH.24

Held: WHEREFORE, premises considered, the Petition is GRANTED. The October 26, 2007
Decision of the Court of Appeals in CA-G.R. CV No. 75170 is ANNULLED and SET ASIDE. The
November 5, 2001 Decision of the Regional Trial Court, Branch 23 of General Santos City in Civil
Case No. 6419 is REINSTATED.
From the wording of Proc. 168, the land it comprises is subject to sale or settlement, and thus
alienable and disposable Upon the recommendation of the Secretary of Agriculture and Natural
Resources and pursuant to the authority vested in me by law, I, Diosdado Macapagal, President x
x x, do hereby withdraw from sale or settlement and reserve for recreational and health resort
site purposes, under the administration of the municipality of General Santos, subject to private
rights, if any there be x x x29 (Emphasis and underscoring supplied.)
However, this alienable and disposable character of the land covered by the proclamation was
subsequently withdrawn, and the land was re-classified by then President Macapagal to pave the
way for the establishment of a park reservation, subject only to previously acquired private
rights. Respondents-intervenors then lobbied for the exclusion of certain portions of the
reservation which they claimed to be theirs, allegedly acquired by their predecessor Kusop
through prescription. They were successful, for in 1983, then President Marcos issued Proc. 2273,
which excluded and segregated Lots Y-1 and Y-2 from the coverage of Proc. 168. In addition, Proc.
2273 declared Lots Y-1 and Y-2 open for distribution to qualified beneficiaries which included
the herein respondents-intervenors. However, Lot X was retained as part of the reservation.
xxxxx
Respondents-intervenors no longer had any right to Lot X not by acquisitive prescription, and
certainly not by sales patent. In fact, their act of applying for the issuance of miscellaneous sales
patents operates as an express acknowledgment that the State, and not respondentsintervenors, is the owner of Lot X. It is erroneous to suppose that respondents-intervenors
possessed title to
Lot X when they applied for miscellaneous sales patents, for the premise of such grant or
privilege is precisely that the State is the owner of the land, and that the applicant acknowledges
this and surrenders to State ownership. The government, as the agent of the State, is possessed
of the plenary power as the persona in law to determine who shall be the favored recipients of
public lands, as well as under what terms they may be granted such privilege, not excluding the
placing of obstacles in the way of their exercise of what otherwise would be ordinary acts of
ownership.32

Respondents-intervenors actions betray their claim of ownership to Lot X. When Proc. 168 was
issued, they did not institute action to question its validity, using as cause of action their claimed
ownership and title over the land. The same is true when Proc. 2273 came out. They did not file
suit to invalidate it because it contravenes their claimed ownership over Lot X. They simply sat
and waited for the good graces of the government to fall on their laps. They simply waited for the
State to declare them beneficiaries of the land. And when the President failed to include Lot X in
Proc. 2273 and declare it open for disposition to them as beneficiaries, they filed their
applications for issuance of miscellaneous sales patents over said lot. All these actions are
anathema to a claim of ownership, and instead indicate a willingness to abide by the actions of
the State, a show of respect for its dominion over the land.
Under the law, respondents-intervenors are charged with knowledge of the law; they
cannot feign ignorance. In fact, they could not claim to be unaware of Proc. 168, for
precisely they hid under its protective mantle to seek the invalidation of a donation
claimed to have been made by them to one Jose Tayoto. Thus, in Tayoto v. Heirs of
Kusop,33 an alleged donee (Tayoto) of property located within Lots X, Y-1, and Y-2
filed a case for quieting of title against the donors herein respondents-intervenors
to protect the property which they allegedly donated to him, which was then in
danger of being lost for the reason that respondents-intervenors supposedly reneged
on the donation. Respondents-intervenors filed an urgent motion to dismiss the
Complaint claiming, among others, the "invalidity of the donation as the subject
thereof had not yet been excluded from the Magsaysay Park."34 In disposing of the
case, the Court made the following pronouncement:
Be that as it may, the donation is void. There are three essential elements of
donations: [1] the reduction of the patrimony of the donor, [2] the increase in the
patrimony of the donee, and [3] the intent to do an act of liberality (animus donandi).
Granting that there is an animus donandi, we find that the alleged donation lacks the
first two elements which presuppose the donor's ownership rights over the subject of
the donation which he transmits to the donee thereby enlarging the donee's estate.
This is in consonance with the rule that a donor cannot lawfully convey what is not his
property. In other words, a donation of a parcel of land the dominical rights of which
do not belong to the donor at the time of the donation, is void. This holds true even if
the subject of the donation is not the land itself but the possessory and proprietary
rights over said land.
In this case, although they allegedly declared Magsaysay Park as their own for
taxation purposes, the heirs of Cabalo Kusop did not have any transmissible
proprietary rights over the donated property at the time of the donation. In fact, with
respect to Lot Y-2, they still had to file a free patents application to obtain an original
certificate of title thereon. This is because Proclamation No. 2273 declaring as open
to disposition under the provisions of the Public Land Act some portions of the
Magsaysay Park, is not an operative law which automatically vests rights of
ownership on the heirs of Cabalo Kusop over their claimed parcels of land.
The import of said quoted proviso in a presidential proclamation is discussed in the
aforecited Republic v. Court of Appeals case which dealt with the validity of a
donation by a sales awardee of a parcel of land which was later reserved by
presidential proclamation for medical center site purposes. We held therein that
where the land is withdrawn from the public domain and declared as disposable by
the Director of Lands under the Public Land Act, the Sales Award covering the same
confers on a sales awardee only a possessory and not proprietary right over the land
applied, for. The disposition of the land by the Director is merely provisional as the
applicant still has to comply with the requirements of the law before any patent is
issued. It is only after the compliance with such requirements that the patent is

issued and the land applied for considered permanently disposed of by the
Government.
The interpretation of said proviso should even be more stringent in this case
considering that with respect to Lot Y-1, the heirs of Cabalo Kusop do not appear to
have taken even the initial steps mandated by the Public Land Act for claimants of the
land excluded from the public domain. The alleged donation was therefore no more
than an exercise in futility.35 (Emphasis and underscoring supplied.)
For obvious reasons, respondents-intervenors should have, as early as 1990 when the above
Decision was promulgated, taken exception to its pronouncements if they rightfully believed that
the property covered by Proc. 168 (which included Lot X) rightfully belonged to them. Yet they
did not. Instead, after seven long years or in 1997, they filed their applications for the issuance
of miscellaneous sales patents over Lot X. This act of filing applications for the issuance of
miscellaneous sales patents in their name, taken in conjunction with all the other attendant
circumstances, constitutes an express acknowledgment that the land does not belong to them,
but to the State.
Neither may respondents-intervenors claim innocent mistake for all their missteps in claiming the
subject property as their own. The mistakes are simply too numerous, and respondentsintervenors inaction since 1963 is too glaring. To repeat, their actions are anathema to a claim of
ownership. While it is true that possession since time immemorial could result in the acquisition
of title without need of judicial or other action, respondents-intervenors actions and conduct, as
shown above, not only negate the application of such principle, but in fact point to the opposite.
Finally, as regards AFP-RSBS rights, the Court sustains the petitioners view that "any title issued
covering non-disposable lots even in the hands of an alleged innocent purchaser for value shall
be cancelled."37 We deem this case worthy of such principle. Besides, we cannot ignore the
basic principle that a spring cannot rise higher than its source; as successor-in-interest, AFP-RSBS
cannot acquire a better title than its predecessor, the herein respondents-intervenors.38 Having
acquired no title to the property in question, there is no other recourse but for AFP-RSBS to
surrender to the rightful ownership of the State.
Republic vs. David Rey Guzman
The essential elements of Donation
1. Reduction in the Patrimony of the Donor.
2. Increase in the Patrimony of the Donee.
3. Intent to do an act of liberality or animus donandi.
It is also required that the donation be made in a public document and that its acceptable be
made in the same deed of donation or in a separate public document,which has to be recorded
as well.
Facts: David Rey Guzman, a natural-born American citizen, is the son of the spouses Simeon
Guzman, a naturalized American citizen and Helen Meyers, American citizen. In 1986, Sineon
died leaving to his heirs, Helen and David, an estate consisting of several parcels of land in
Bulacan.
In 1970, Helen executed a Deed of Quitclaim, assigning, transferring and conveying her share
of the property to David. But since it was not registered, she executed another Deed of Quitclaim
to confirm the first.
In 1994, Atty. Batongbacal wrote the OSG and furnished it with documents showing that Davids
ownership of of the estate of was defective. He argued that Art. XII of the Constitution only
allows Filipinos to acquire private lands in the country. The only instances when a foreigner may

acquire private property are by hereditary succession and if he was formerly a natural-born
citizen who lost his Filipino citizenship. Moreover, it contends that the Deeds of Quitclaim
executed by Helen were really Donation Intervivos.
Republic filed with RTS a petition for Escheat praying that of Davids interest be forfeited in its
favour. RTC dismissed. CA affirmed.
Issue: WON there was donation intervivos?
Held: NO. Not all elements of a donation are present. The transfer of the properties by virtue of a
Deed of Quitclaim resulted in the (1) Reduction of her patrimony as donor and the (2)
Consequent increase in the patrimony of David as done.However, Helens (3( Intention to perform
an act of liberality in favour of David was not sufficiently established. The 2 Quitclaims reveal
that Helen intended to convey to her son certain parcels of land and to re-affirm it, she executed
a waiver and renunciation of her rights over these properties. It is clear that Helen merely
contemplated a waiver of her rights,titles, interest over the lands in favour of David, not a
donation. She was also aware that donation was not possible. Moreover, the essential element of
acceptance in the proper form and registration to make the donation valid is lacking. The SPA
executed by David in favour of Atty. Abela was not his acceptance, but an acknowledgment that
David owns the property referred to and that he authorizes Atty. Abela to sell the same in his
name. Further, there was nothing in the SPA to show that he indeed accept the donation.
However, the inexistence of a donation does not make the repudiation of Helen in favour David is
valid. There is NO valid repudiation of inheritance as Helen had already accepted her share of the
inheritance when she, together with David, executed a Extrajudicial Deed of Settlement of the
Estate, dividing and adjudicating between them all the properties. By virtue of the settlement,
the properties were registered in their names and for 11 years, they possessed the land in the
concept of owner. Thus, the 2 Quitclaims have no legal force and effect. Helen still owns of the
property.
Manuel G. Abello, et. Al. vs. CIR
Topics: Gift not defined in the Tax Code Civil Code definition on donation applies; election
contributions are subject to gift tax they are not exempt even if such transfers are with
intentions, motives or purpose
Facts: During the 1987 national elections, petitioners, who are partners in the Angara, Abello,
Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the campaign
funds of Senator Edgardo Angara, then running for the Senate. BIR assessed each of the
petitioners P263,032.66 for their contributions. Petitioners questioned the assessment to the BIR,
claiming that political or electoral contributions are not considered gifts under the NIRC so they
are not liable for donors tax. The claim for exemption was denied by the Commissioner. The CTA
ruled in favor of the petitioners, but such ruling was overturned by the CA, thus this petition for
review.
Issue: Whether or not electoral contributions are subject to donors tax.
Held: Yes, they are.
The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code,
states: In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by the provisions of this Code. Thus, reference may be made to the
definition of a donation in the Civil Code. Article 725 of said Code defines donation as: . . . an
act of liberality whereby a person disposes gratuitously of a thing or right in favor of another,
who accepts it. Donation has the following elements: (a) the reduction of the patrimony of the

donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality
or animus donandi.
The present case falls squarely within the definition of a donation. Petitioners each gave P
882,661.31 to the campaign funds of Senator Edgardo Angara, without any material
consideration. All three elements of a donation are present. The patrimony of the four petitioners
were reduced by P 882,661.31 each. Senator Angaras patrimony correspondingly increased by
P3,530,645.24. There was intent to do an act of liberality or animus donandi was present since
each of the petitioners gave their contributions without any consideration. Taken together with
the Civil Code definition of donation, Section 91 of the NIRC is clear and unambiguous, thereby
leaving no room for construction. Since animus donandi or the intention to do an act of liberality
is an essential element of a donation, petitioners argue that it is important to look into the
intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature of the mind. It
cannot be perceived except by the material and tangible acts which manifest its presence. This
being the case, donative intent is presumed present when one gives a part of ones patrimony to
another without consideration. Second, donative intent is not negated when the person donating
has other intentions, motives or purposes which do not contradict donative intent. This Court is
not convinced that since the purpose of the contribution was to help elect a candidate, there was
no donative intent. Petitioners contribution of money without any material consideration evinces
animus donandi. Petitioners claim that since the purpose of electoral contributions is to
influence the results of the elections, donative intent is not present. They claim that the purpose
of electoral contributions is brought on by the desire of the giver to influence the result of an
election by supporting candidates who would influence the shaping of government policies that
would promote the general welfare and economic well-being of the electorate, including the giver
himself. Petitioners attempt to place the barrier of mutual exclusivity between donative intent
and the purpose of political contributions. This Court reiterates that donative intent is not
negated by the presence of other intentions, motives or purposes which do not contradict
donative intent. Petitioners attempt is strained. The fact that petitioners will somehow in the
future benefit from the election of the candidate to whom they contribute, in no way amounts to
a valuable material consideration so as to remove political contributions from the purview of a
donation. Senator Angara was under no obligation to benefit the petitioners. The proper
performance of his duties as a legislator is his obligation as an elected public servant of the
Filipino people and not a consideration for the political contributions he received. In fact, as a
public servant, he may even be called to enact laws that are contrary to the interests of his
benefactors, for the benefit of the greater good.
Sumipat vs. Brigada Banga
Facts: The Sps. Sumipat, who arechildeless, acquired 3 parcels of land. LauroSumioat, however,
sired 5 illegitimate children out of an extra-marital affair with PedraDacola. On Jan. 5, 1983, Lauro
executed a document denominated DEED OF ABSOLUTE TRANSFER AND/OR QUITCLAIM OVER
REAL PROPERTIES in favour of defendants covering the 3 parcels of land. It appears that on Jan.
5, 1983, the assailed document was executed, Lauro was very sick and bedridden,; that upon
defendant-appelleeLydias request, their neighbour Benjamin Rivera lifted the body of Lauro
whereupon Lydia guided Lauros hand in affixing his signature on the assailed document which
she had brought. That Lydia thereafter left but later returned on the same day and requested
Lauros unlettered wife Placida to sign on the assailed document, as she did in haste, even
without the latter getting a responsive answer to her query on what it was all about.
After Lauros death, his wife Placida, and defendants-appellees jointly administered the
properties 50% of the produce of which went to plaintiff-appellant. But as Placidas share in the
produce of the properties dwindled until she no longer received any and learning that the titles to
the properties in question were already transferred/made in favour of the defendant-appellees,

she filed a complaint for declaration of nullity of titles, contracts, partition, recovery of
ownership, now the subject of the present appeal.
The RTC found that the subject properties are conjugal. However, bec Placida failed to question
the genuineness and due execution of the deed and even admitted having affixed her signature
thereon, the trial court declared that the entirety of the subject properties, and not just Lauros
conjugal share, were validly transferred to the defendants, the petitioners herein. CA annulled
the deed insofar as it covers Placidas conjugal share bec the latters consent was vitiated by
mistake when she affixed her signature on the document.
Issue: WON the questioned deed by its terms or under the surrounding circumstances has
validly transferred title to the disputed properties to the petitioners.
Held: NO. A perusal of the deed reveals that it is actually a gratuitous disposition of a property
a donationalthough Lauro imposed upon the petitioners the condition that he and his wife,
Placida, shall be entitled to of all the fruits or produce of the parcels of land for their
subsistence and support.
The deed covers 3 parcels of land. Being a donation of immovable property, the requirements for
validity set forth in Art. 749 of the CC should have been followed: Donation must be made in a
public document and the Acceptance may be made in the same document or in a separate public
document.
However, In this case, the donees acceptance of the donation is not manifested either in the
deed itself or in a separate document. Hence, the deed as an instrument of donation is patently
void.

Ganuelas vs. Cawed

Donation intervivos differs from donation mortis causa in that the former, the act is immediately
operative even if the actual execution may be deferred until the death of the donor, while in the
latter, nothing is conveyed to or acquired by the done until the death of the donor-testator.
Facts: Celestina GanuelasVda. De Valin executed a Deed of Donation of Real Property in favour
of petitioner Ursulina Ganuelas. The pertinent portion of the deed of donation reads:
That for and in consideration of the love and affection which the DONOR has for the DONEE,
and of the faithful services of the latter has rendered in the past to the former, the said DONOR
does by these presents transfer and convey, by way of DONATION, unto the DONEE of the
property above, described, to become effective upon the death of the donor; But in the event
that the DONEE should die before the DONOR, the present donation shall be deemed rescinded
and of no further force and effect.
However, more than a month before Celestina died, she executed a document revoking such
donation. After her death, Ursulina claimed ownership over the donated properties and refused
to give private respondents Leocadia G. Flores, et.al., niece of Celestina any share in the produce
of the properties despite repeated demands. Thus, prompting Flores et.al. to file a complaint
before the San Fernando, La Union RTC, challenging the validity of the Deed of Donation. They
alleged that such donation is void for failure to comply with the formalities of wills and
testaments, which is necessary in a donation mortis causa.

On the other hand, Ursulina maintains that there is no need to comply with the formalities of the
will and testaments bec such donation was intervivos.
RTC ruled that the Deed is a disposition mortis causa, thus, void for failure to comply with the
formalities of wills and testaments.
Issue: WON the donation is intervivos or mortis causa?
Held:Donation mortis causa.Crucial in the resolution of the issue is the determination of WON
the donor intended to transfer the ownership over the properties upon the execution of the deed.
Donation inter vivos differs from donation mortis causa in that in the former, the act is
immediately operative even if the actual execution may be deferred until the death of the donor,
while in the latter, nothing is conveyed to or acquired by the done until the death of the donortestator.
If the donation is made in contemplation of the donors death,meaning that the full or naked
ownership of the donated properties will pass to the done only because of the donors death,
then it is at that time the donation takes effect, and it is a donation mortis causa which should be
embodied in a last will and testament.
But if the donation takes effect during the donor s lifetime or independently of the donors
death, meaning the full or naked ownership of the donated properties passes to the done during
the donors lifetime, not by reason of his death but because of the deed of donation, then the
donation is intevivos.
The distinction between a transfer intervivos and mortis causa is important as the validity or
revocation of the donation depends upon its nature. If the donation is inter vivos, it must be
execurted and accepted with the formalities prescribed by Arts. 748 and 749 of the CC, EXC
when it is onerous in which case the rules on contracts apply. If it is mortis causa, the donation
must be in the form of a will, with all the formalities for the validity of wills, otherwise it is void
and cannot transfer ownership.
In the donation subject of the present case,m there is nothing therein which indicates that any
right, title or interest in the donated properties was to be transferred to Ursulina prior to the
death of Celestina. The phraseto become effective upon the daeath of the DONOR admits of no
other interpretation but that Celestina intended to transfer the ownership of the properties to
Ursulina on her death, not during her lifetime.
More importantly, the provision in the deed stating that if the done should die before the donor,
the donation shall be deemed rescinded and of no further force and effect shows that the
donation is a post-mortem disposition.