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THIRD DIVISION

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

JOSE C. LEE AND ALMA AGGABAO, in their capacities as President and Corporate Secretary,

respectively, of Philippines Internationl Life Insurance Company, and FILIPINO LOAN

ASSISTANCE GROUP, peti tioners, vs. REGIONAL TRIAL COURT OF QUEZON CITY

BRANCH 85 presided by JUDGE PEDRO M. AREOLA, BRANCH CLERK OF COURT

JANICE Y. ANTERO, DEPUTY SHERIFFS ADENAUER G. RIVERA and PEDRO L.

BORJA, all of the Regional Trial Court of Quezon City Branch 85, MA. DIVINA

ENDERES claiming to be Special Administratrix, and other persons/ public officers acting

for and in their behalf, respondents.

D E C I S I O N

CORONA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside thedecision[1]of the Court of Appeals, First Division, dated July 26, 2000, in CA G.R. 59736, whichdismissed the petition for certiorari filed by petitioners Jose C. Lee and Alma Aggabao (in their capacitiesas president and secretary, respectively, of Philippine International Life Insurance Company) and FilipinoLoan Assistance Group.

The antecedent facts follow.

Dr. Juvencio P. Ortaez incorporated the Philippine International Life Insurance Company, Inc. onJuly 6, 1956. At the time of the companys incorporation, Dr. Ortaez owned ninety percent (90%) of the

subscribed capital stock.

On July 21, 1980, Dr. Ortaez died. He left behind a wife (Juliana Salgado Ortaez), three legitimatechildren (Rafael, Jose and Antonio Ortaez) and five illegitimate children by Ligaya Novicio (herein

private respondent Ma. Divina Ortaez-Enderes and her siblings Jose, Romeo, Enrico Manuel and Cesar,all surnamed Ortaez).[2]

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

Private respondent Ma. Divina Ortaez-Enderes and her siblings filed an opposition to the petition for

letters of administration and, in a subsequent urgent motion, prayed that the intestate court appoint aspecial administrator.

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

As ordered by the intestate court, special administrators Rafael and Jose Ortaez submitted aninventory of the estate of their father which included, among other properties, 2,029[3]shares of stock in
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Philippine International Life Insurance Company (hereafter Philinterlife), representing 50.725% of thecompanys outstanding capital stock.

On April 15, 1989, the decedents wife, Juliana S. Ortaez, claiming that she owned1,014[4]Philinterlife shares of stock as her conjugal share in the estate, sold said shares with right torepurchase in favor of herein petitioner Filipino Loan Assistance Group (FLAG), represented by its

president, herein petitioner Jose C. Lee. Juliana Ortaez failed to repurchase the shares of stock within thestipulated period, thus ownership thereof was consolidated by petitioner FLAG in its name.

On October 30, 1991, Special Administrator Jose Ortaez, acting in his personal capacity andclaiming that he owned the remaining 1,011[5]Philinterlife shares of stocks as his inheritance share in theestate, sold said shares with right to repurchase also in favor of herein petitioner FLAG, represented by its

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

It appears that several years before (but already during the pendency of the intestate proceedings atthe Regional Trial Court of Quezon City, Branch 85), Juliana Ortaez and her two children, SpecialAdministrators Rafael and Jose Ortaez, entered into a memorandum of agreement dated March 4, 1982for the extrajudicial settlement of the estate of Dr. Juvencio Ortaez, partitioning the estate (including the

Philinterlife shares of stock) among themselves. This was the basis of the number of shares separatelysold by Juliana Ortaez on April 15, 1989 (1,014 shares) and by Jose Ortaez on October 30, 1991 (1,011shares) in favor of herein petitioner FLAG.

On July 12, 1995, herein private respondent Ma. Divina OrtaezEnderes and her siblings (hereafterreferred to as private respondents Enderes et al.) filed a motion for appointment of special administratorof Philinterlife shares of stock. This move was opposed by Special Administrator Jose Ortaez.

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

On December 20, 1995, Special Administratrix Enderes filed an urgent motion to declare void abinitio the memorandum of agreement dated March 4, 1982. On January 9, 1996, she filed a motion todeclare the partial nullity of the extrajudicial settlement of the decedents estate. These motions wereopposed by Special Administrator Jose Ortaez.

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

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

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

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

WHEREFORE, the OMNIBUS MOTION for the approval of the sale of Philinterlife shares of stock andrelease of Ma. Divina Ortaez-Enderes as Special Administratrix is hereby denied.[6]
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On August 29, 1997, the intestate court issued another order granting the motion of SpecialAdministratrix Enderes for the annulment of the March 4, 1982 memorandum of agreement orextrajudicial partition of estate. The court reasoned that:

In consonance with the Order of this Court dated August 11, 1997 DENYING the approval of the sale ofPhilinterlife shares of stocks and release of Ma. Divina Ortaez-Enderes as Special Administratrix, the

Urgent Motion to Declare VoidAb Initio Memorandum of Agreement dated December 19, 1995. . . ishereby impliedly partially resolved insofar as the transfer/waiver/renunciation of the Philinterlife sharesof stock are concerned, in particular, No. 5, 9(c), 10(b) and 11(d)(ii) of the Memorandum of Agreement.

WHEREFORE, this Court hereby declares the Memorandum of Agreement dated March 4, 1982executed by Juliana S. Ortaez, Rafael S. Ortaez and Jose S. Ortaez as partially void ab initioinsofar as thetransfer/waiver/renunciation of the Philinterlife shares of stocks are concerned.[7]

Aggrieved by the above-stated orders of the intestate court, Jose Ortaez filed, on December 22, 1997,a petition for certiorari in the Court of Appeals. The appellate court denied his petition, however, rulingthat there was no legal justification whatsoever for the extrajudicial partition of the estate by Jose Ortaez,his brother Rafael Ortaez and mother Juliana Ortaez during the pendency of the settlement of the estate ofDr. Ortaez, without the requisite approval of the intestate court, when it was clear that there were otherheirs to the estate who stood to be prejudiced thereby. Consequently, the sale made by Jose Ortaez and hismother Juliana Ortaez to FLAG of the shares of stock they invalidly appropriated for themselves, withoutapproval of the intestate court, was void.[8]

Special Administrator Jose Ortaez filed a motion for reconsideration of the Court of Appealsdecision but it was denied. He elevated the case to the Supreme Court via petition for review under Rule45 which the Supreme Court dismissed on October 5, 1998, on a technicality. His motion forreconsideration was denied with finality on January 13, 1999. On February 23, 1999, the resolution of theSupreme Court dismissing the petition of Special Administrator Jose Ortaez became final and wassubsequently recorded in the book of entries of judgments.

Meanwhile, herein petitioners Jose Lee and Alma Aggabao, with the rest of the FLAG-controlledboard of directors, increased the authorized capital stock of Philinterlife, diluting in the process the50.725% controlling interest of the decedent, Dr. Juvencio Ortaez, in the insurance company.[9]This

became the subject of a separate action at the Securities and Exchange Commission filed by privaterespondent-Special Administratrix Enderes against petitioner Jose Lee and other members of the FLAG-controlled board of Philinterlife on November 7, 1994. Thereafter, various cases were filed by Jose Lee as

president of Philinterlife and Juliana Ortaez and her sons against private respondent-SpecialAdministratrix Enderes in the SEC and civil courts.[10]Somehow, all these cases were connected to thecore dispute on the legality of the sale of decedent Dr. Ortaezs Philinterlife shares of stock to petitionerFLAG, represented by its president, herein petitioner Jose Lee who later became the president ofPhilinterlife after the controversial sale.

On May 2, 2000, private respondent-Special Administratrix Enderes and her siblings filed a motion

for execution of the Orders of the intestate court dated August 11 and August 29, 1997 because the ordersof the intestate court nullifying the sale (upheld by the Court of Appeals and the Supreme Court) had longbecame final. Respondent-Special Administratrix Enderes served a copy of the motion to petitioners JoseLee and Alma Aggabao as president and secretary, respectively, of Philinterlife,[11]but petitioners ignoredthe same.

On July 6, 2000, the intestate court granted the motion for execution, the dispositive portion of whichread:
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WHEREFORE, premises considered, let a writ of execution issue as follows:

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

2. Commanding the President and the Corporate Secretary of Philinterlife to reinstate in the

stock and transfer book of Philinterlife the 2,029 Philinterlife shares of stock in thename of the Estate of Dr. Juvencio P. Ortaez as the owner thereof without prejudiceto other claims for violation of pre-emptive rights pertaining to the said 2,029Philinterlife shares;

3. Directing the President and the Corporate Secretary of Philinterlife to issue stockcertificates of Philinterlife for 2,029 shares in the name of the Estate of Dr. JuvencioP. Ortaez as the owner thereof without prejudice to other claims for violations of

pre-emptive rights pertaining to the said 2,029 Philinterlife shares and,

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

5. Directing Philinterlife and/or any other person or persons claiming to represent it orotherwise, to acknowledge and allow the said Special Administratrix to exercise allthe aforesaid rights on the said shares and to refrain from resorting to any actionwhich may tend directly or indirectly to impede, obstruct or bar the free exercisethereof under pain of contempt.

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

7. The Deputy Sheriffs Adenauer Rivera and Pedro Borja are hereby directed to implementthe writ of execution with dispatch to forestall any and/or further damage to theEstate.

SO ORDERED.[12]

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

Petitioners Lee and Aggabao subsequently filed before the Court of Appeals a petition for certiorari,docketed as CA G.R. SP No. 59736. Petitioners alleged that the intestate court gravely abused itsdiscretion in (1) declaring that the ownership of FLAG over the Philinterlife shares of stock was null and

void; (2) ordering the execution of its order declaring such nullity and (3) depriving the petitioners oftheir right to due process.

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

We are constrained to DISMISS OUTRIGHT the present petition for certiorari and prohibition withprayer for a temporary restraining order and/or writ of preliminary injunction in the light of the followingconsiderations:
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1. The assailed Order dated August 11, 1997 of the respondent judge had long become finaland executory;

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

3. Except for the assailed orders and writ of execution, deed of sale with right to repurchase,

deed of sale of shares of stocks and omnibus motion, the petition is not accompaniedby such pleadings, documents and other material portions of the record as wouldsupport the allegations therein in violation of the second paragraph, Rule 65 of the1997 Rules of Civil Procedure, as amended.

Petition is DISMISSED.

SO ORDERED.[14]

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

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

Dura lex, sed lex.

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

SO ORDERED.[15]

On December 4, 2000, petitioners elevated the case to the Supreme Court through a petition for

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

However, upon motion for reconsideration filed by petitioners Lee and Aggabao, the Supreme Courtgranted the motion and reinstated their petition on September 5, 2001. The parties were then required tosubmit their respective memoranda.

Meanwhile, private respondent-Special Administratrix Enderes, on July 19, 2000, filed a motion todirect the branch clerk of court in lieu of herein petitioners Lee and Aggabao to reinstate the name of Dr.Ortaez in the stock and transfer book of Philinterlife and issue the corresponding stock certificate

pursuant to Section 10, Rule 39 of the Rules of Court which provides that the court may direct the act tobe done at the cost of the disobedient party by some other person appointed by the court and the act when

so done shall have the effect as if done by the party. Petitioners Lee and Aggabao opposed the motion onthe ground that the intestate court should refrain from acting on the motion because the issues raisedtherein were directly related to the issues raised by them in their petition for certiorari at the Court ofAppeals docketed as CA-G.R. SP No. 59736. On October 30, 2000, the intestate court granted the motion,ruling that there was no prohibition for the intestate court to execute its orders inasmuch as the appellatecourt did not issue any TRO or writ of preliminary injunction.

On December 3, 2000, petitioners Lee and Aggabao filed a petition for certiorari in the Court ofAppeals, docketed as CA-G.R. SP No. 62461, questioning this time the October 30, 2000 order of the


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intestate court directing the branch clerk of court to issue the stock certificates. They also questioned inthe Court of Appeals the order of the intestate court nullifying the sale made in their favor by JulianaOrtaez and Jose Ortaez. On November 20, 2002, the Court of Appeals denied their petition and upheld the

power of the intestate court to execute its order. Petitioners Lee and Aggabao then filed motion forreconsideration which at present is still pending resolution by the Court of Appeals.

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

THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR:

A. IN FAILING TO RECONSIDER ITS PREVIOUS RESOLUTION DENYING THEPETITION DESPITE THE FACT THAT THE APPELLATE COURTS MISTAKE INAPPREHENDING THE FACTS HAD BECOME PATENT AND EVIDENT FROMTHE MOTION FOR RECONSIDERATION AND THE COMMENT OFRESPONDENT ENDERES WHICH HAD ADMITTED THE FACTUALALLEGATIONS OF PETITIONERS IN THE PETITION AS WELL AS IN THEMOTION FOR RECONSIDERATION. MOREOVER, THE RESOLUTION OF THE

APPELLATE COURT DENYING THE MOTION FOR RECONSIDERATION WASCONTAINED IN ONLY ONE PAGE WITHOUT EVEN TOUCHING ON THESUBSTANTIVE MERITS OF THE EXHAUSTIVE DISCUSSION OF FACTS ANDSUPPORTING LAW IN THE MOTION FOR RECONSIDERATION INVIOLATION OF THE RULE ON ADMINISTRATIVE DUE PROCESS;

B. IN FAILING TO SET ASIDE THE VOID ORDERS OF THE INTESTATE COURTON THE ERRONEOUS GROUND THAT THE ORDERS WERE FINAL ANDEXECUTORY WITH REGARD TO PETITIONERS EVEN AS THE LATTERWERE NEVER NOTIFIED OF THE PROCEEDINGS OR ORDER CANCELINGITS OWNERSHIP;

C. IN NOT FINDING THAT THE INTESTATE COURT COMMITTED GRAVEABUSE OF DISCRETION AMOUNTING TO EXCESS OF JURISDICTION (1)WHEN IT ISSUED THE OMNIBUS ORDER NULLIFYING THE OWNERSHIP OFPETITIONER FLAG OVER SHARES OF STOCK WHICH WERE ALLEGED TOBE PART OF THE ESTATE AND (2) WHEN IT ISSUED A VOID WRIT OFEXECUTION AGAINST PETITIONER FLAG AS PRESENT OWNER TOIMPLEMENT MERELY PROVISIONAL ORDERS, THEREBY VIOLATINGFLAGS CONSTITUTIONAL RIGHT AGAINST DEPRIVATION OF PROPERTYWITHOUT DUE PROCESS;

D. IN FAILING TO DECLARE NULL AND VOID THE ORDERS OF THEINTESTATE COURT WHICH NULLIFIED THE SALE OF SHARES OF STOCK

BETWEEN THE LEGITIMATE HEIR JOSE S. ORTAEZ AND PETITIONER FLAGBECAUSE OF SETTLED LAW AND JURISPRUDENCE, I.E., THAT AN HEIRHAS THE RIGHT TO DISPOSE OF THE DECEDENTS PROPERTY EVEN IF THESAME IS UNDER ADMINISTRATION PURSUANT TO CIVIL CODE PROVISIONTHAT POSSESSION OF HEREDITARY PROPERTY IS TRANSMITTED TO THEHEIR THE MOMENT OF DEATH OF THE DECEDENT (ACEDEBO VS.ABESAMIS, 217 SCRA 194);


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E. IN DISREGARDING THE FINAL DECISION OF THE SUPREME COURT IN G.R.NO. 128525 DATED DECEMBER 17, 1999 INVOLVING SUBSTANTIALLY THESAME PARTIES, TO WIT, PETITIONERS JOSE C. LEE AND ALMA AGGABAOWERE RESPONDENTS IN THAT CASE WHILE RESPONDENT MA. DIVINAENDERES WAS THE PETITIONER THEREIN. THAT DECISION, WHICH CANBE CONSIDERED LAW OF THE CASE, RULED THAT PETITIONERS CANNOT

BE ENJOINED BY RESPONDENT ENDERES FROM EXERCISING THEIRPOWER AS DIRECTORS AND OFFICERS OF PHILINTERLIFE AND THAT THEINTESTATE COURT IN CHARGE OF THE INTESTATE PROCEEDINGSCANNOT ADJUDICATE TITLE TO PROPERTIES CLAIMED TO BE PART OFTHE ESTATE AND WHICH ARE EQUALLY CLAIMED BY PETITIONERFLAG.[17]

The petition has no merit.

Petitioners Jose Lee and Alma Aggabao, representing Philinterlife and FLAG, assail before us notonly the validity of the writ of execution issued by the intestate court dated July 7, 2000 but also thevalidity of the August 11, 1997 order of the intestate court nullifying the sale of the 2,029 Philinterlife

shares of stock made by Juliana Ortaez and Jose Ortaez, in their personal capacities and without courtapproval, in favor of petitioner FLAG.

We cannot allow petitioners to reopen the issue of nullity of the sale of the Philinterlife shares ofstock in their favor because this was already settled a long time ago by the Court of Appeals in itsdecision dated June 23, 1998 in CA-G.R. SP No. 46342. This decision was effectively upheld by us in ourresolution dated October 9, 1998 in G.R. No. 135177 dismissing the petition for review on a technicalityand thereafter denying the motion for reconsideration on January 13, 1999 on the ground that there wasno compelling reason to reconsider said denial.[18]Our decision became final on February 23, 1999 andwas accordingly entered in the book of entry of judgments. For all intents and purposes therefore, thenullity of the sale of the Philinterlife shares of stock made by Juliana Ortaez and Jose Ortaez in favor of

petitioner FLAG is already a closed case. To reopen said issue would set a bad precedent, opening thedoor wide open for dissatisfied parties to relitigate unfavorable decisions no end. This is completely

inimical to the orderly and efficient administration of justice.

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

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

JUSTICE AQUINO:

Counsel for petitioner, when the Memorandum of Agreement was executed, did thechildren of Juliana Salgado know already that there was a claim for share in the inheritanceof the children of Novicio?

ATTY. CALIMAG:

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

JUSTICE AQUINO:

What can be your legal justification for extrajudicial settlement of a property subjectof intestate proceedings when there is an adverse claim of another set of heirs, alleged


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heirs? What would be the legal justification for extra-judicially settling a property underadministration without the approval of the intestate court?

ATTY. CALIMAG:

Well, Your Honor please, in that extra-judicial settlement there is an approval of thehonorable court as to the propertys partition x x x. There were as mentioned by the

respondents counsel, Your Honor.

ATTY. BUYCO:

No

JUSTICE AQUINO:

The point is, there can be no adjudication of a property under intestate proceedingswithout the approval of the court. That is basic unless you can present justification on that.In fact, there are two steps: first, you ask leave and then execute the document and then askfor approval of the document executed. Now, is there any legal justification to exclude this

particular transaction from those steps?

ATTY. CALIMAG:None, Your Honor.

ATTY BUYCO:

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

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

What we have here is a situation where some of the heirs of the decedent without securing court approval

have appropriated as their own personal property the properties of [the] Estate, to the exclusion and theextreme prejudice of the other claimant/heirs. In other words, these heirs, without court approval, havedistributed the asset of the estate among themselves and proceeded to dispose the same to third partieseven in the absence of an order of distribution by the Estate Court. As admitted by petitioners counsel,there was absolutely no legal justification for this action by the heirs. There being no legal justification,

petitioner has no basis for demanding that public respondent [the intestate court] approve the sale of thePhilinterlife shares of the Estate by Juliana and Jose Ortaez in favor of the Filipino Loan AssistanceGroup.

It is an undisputed fact that the parties to the Memorandum of Agreement dated March 4, 1982 (seeAnnex 7 of the Comment). . . are not the only heirs claiming an interest in the estate left by Dr. JuvencioP. Ortaez. The records of this case. . . clearly show that as early as March 3, 1981 an Opposition to the

Application for Issuance of Letters of Administration was filed by the acknowledged natural children ofDr. Juvencio P. Ortaez with Ligaya Novicio. . . This claim by the acknowledged natural children of Dr.Juvencio P. Ortaez is admittedly known to the parties to the Memorandum of Agreement before theyexecuted the same. This much was admitted by petitioners counsel during the oral argument. xxx

Given the foregoing facts, and the applicable jurisprudence, public respondent can never be faulted fornot approving. . . the subsequent sale by the petitioner [Jose Ortaez] and his mother [Juliana Ortaez] ofthe Philinterlife shares belonging to the Estate of Dr. Juvencio P. Ortaez. (pages 3-4 of PrivateRespondents Memorandum; pages 243-244 of the Rollo)


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

From the above decision, it is clear that Juliana Ortaez, and her three sons, Jose, Rafael and Antonio,all surnamed Ortaez, invalidly entered into a memorandum of agreement extrajudicially partitioning theintestate estate among themselves, despite their knowledge that there were other heirs or claimants to the

estate and before final settlement of the estate by the intestate court. Since the appropriation of the estateproperties by Juliana Ortaez and her children (Jose, Rafael and Antonio Ortaez) was invalid, thesubsequent sale thereof by Juliana and Jose to a third party (FLAG), without court approval, was likewisevoid.

An heir can sell his right, interest, or participation in the property under administration under Art.533 of the Civil Code which provides that possession of hereditary property is deemed transmitted to theheir without interruption from the moment of death of the decedent.[20]However, an heir can only alienatesuch portion of the estate that may be allotted to him in the division of the estate by the probate orintestate court after final adjudication, that is, after all debtors shall have been paid or the devisees orlegatees shall have been given their shares.[21]This means that an heir may only sell his ideal or undivided

share in the estate, not any specific property therein. In the present case, Juliana Ortaez and Jose Ortaez

sold specific properties of the estate (1,014 and 1,011 shares of stock in Philinterlife) in favor of petitionerFLAG. This they could not lawfully do pending the final adjudication of the estate by the intestate courtbecause of the undue prejudice it would cause the other claimants to the estate, as what happened in thepresent case.

Juliana Ortaez and Jose Ortaez sold specific properties of the estate, without court approval. It iswell-settled that court approval is necessary for the validity of any disposition of the decedents estate. Inthe early case of Godoy vs. Orellano,[22]we laid down the rule that the sale of the property of the estate byan administrator without the order of the probate court is void and passes no title to the purchaser. And inthe case ofDillena vs. Court of Appeals,[23]we ruled that:

[I]t must be emphasized that the questioned properties (fishpond) were included in the inventory ofproperties of the estate submitted by then Administratrix Fausta Carreon Herrera on November 14, 1974.Private respondent was appointed as administratrix of the estate on March 3, 1976 in lieu of FaustaCarreon Herrera. On November 1, 1978, the questioned deed of sale of the fishponds was executed

between petitioner and private respondent without notice and approval of the probate court. Even after thesale, administratrix Aurora Carreon still included the three fishponds as among the real properties of theestate in her inventory submitted on August 13, 1981. In fact, as stated by the Court of Appeals,

petitioner, at the time of the sale of the fishponds in question, knew that the same were part of the estateunder administration.

x x x x x x x x x

The subject properties therefore are under the jurisdiction of the probate court which according to oursettled jurisprudence has the authority to approve any disposition regarding properties underadministration. . . More emphatic is the declaration We made in Estate of Olave vs. Reyes (123 SCRA767) where We stated that when the estate of the deceased person is already the subject of a testate orintestate proceeding, the administrator cannot enter into any transaction involving it without priorapproval of the probate court.

Only recently, in Manotok Realty, Inc. vs. Court of Appeals (149 SCRA 174), We held that the sale of animmovable property belonging to the estate of a decedent, in a special proceedings, needs court approval.. . This pronouncement finds support in the previous case of Dolores Vda. De Gil vs. Agustin Cancio (14
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SCRA 797) wherein We emphasized that it is within the jurisdiction of a probate court to approve the saleof properties of a deceased person by his prospective heirs before final adjudication. x x x

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

property of the deceased, which is not authorized by the probate court is null and void and title does notpass to the purchaser.

There is hardly any doubt that the probate court can declare null and void the disposition of the propertyunder administration, made by private respondent, the same having been effected without authority fromsaid court.It is the probate court that has the power to authorize and/or approve the sale (Section 4 and7, Rule 89), hence, a fortiori, it is said court that can declare it null and void for as long as the

proceedings had not been closed or terminated. To uphold petitioners contention that the probate courtcannot annul the unauthorized sale, would render meaningless the power pertaining to the said court.(Bonga vs. Soler, 2 SCRA 755). (emphasis ours)

Our jurisprudence is therefore clear that (1) any disposition of estate property by an administrator orprospective heir pending final adjudication requires court approval and (2) any unauthorized dispositionof estate property can be annulled by the probate court, there being no need for a separate action to annulthe unauthorized disposition.

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

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

Moreover, in this case, the order of the intestate court nullifying the sale was affirmed by the

appellate courts (the Court of Appeals in CA-G.R. SP No. 46342 dated June 23, 1998 and subsequentlyby the Supreme Court in G.R. No. 135177 dated October 9, 1998). The finality of the decision of theSupreme Court was entered in the book of entry of judgments on February 23, 1999. Considering thefinality of the order of the intestate court nullifying the sale, as affirmed by the appellate courts, it wascorrect for private respondent-Special Administratrix Enderes to thereafter move for a writ of executionand for the intestate court to grant it.

Petitioners Jose Lee, Alma Aggabao and FLAG, however, contend that the probate court could notissue a writ of execution with regard to its order nullifying the sale because said order was merely

provisional:

The only authority given by law is for respondent judge to determine provisionally whether said shares

are included or excluded in the inventory In ordering the execution of the orders, respondent judge actedin excess of his jurisdiction and grossly violated settled law and jurisprudence, i.e., that the determinationby a probate or intestate court of whether a property is included or excluded in the inventory of the estatebeing provisional in nature, cannot be the subject of execution .[24](emphasis ours)

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


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The controversy here actually started when, during the pendency of the settlement of the estate of Dr.Ortaez, his wife Juliana Ortaez sold the 1,014 Philinterlife shares of stock in favor petitioner FLAGwithout the approval of the intestate court. Her son Jose Ortaez later sold the remaining 1,011 Philinterlifeshares also in favor of FLAG without the approval of the intestate court.

We are not dealing here with the issue of inclusion or exclusion of properties in the inventory of the

estate because there is no question that, from the very start, the Philinterlife shares of stock were ownedby the decedent, Dr. Juvencio Ortaez. Rather, we are concerned here with the effect of the sale madeby the decedents heirs, Juliana Ortaez and Jose Ortaez, without the required approval of theintestate court.This being so, the contention of petitioners that the determination of the intestate courtwas merely provisional and should have been threshed out in a separate proceeding is incorrect.

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

We are not persuaded. The title of the purchaser like herein petitioner FLAG can be struck down bythe intestate court after a clear showing of the nullity of the alienation. This is the logical consequence ofour ruling in Godoy andin several subsequent cases.[26]The sale of any property of the estate by an

administrator or prospective heir without order of the probate or intestate court is void and passesno title to the purchaser. Thus, inJuan Lao et al. vs. Hon. Melencio Geneto, G.R. No. 56451, June 19,1985, we ordered the probate court to cancel the transfer certificate of title issued to the vendees at theinstance of the administrator after finding that the sale of real property under probate proceedings wasmade without the prior approval of the court. The dispositive portion of our decision read:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the assailed Order dated February 18, 1981 ofthe respondent Judge approving the questioned Amicable Settlement is declared NULL and VOID andhereby SET ASIDE. Consequently, the sale in favor of Sotero Dioniosio III and by the latter to WilliamGo is likewise declared NULL and VOID. The Transfer Certificate of Title issued to the latter is herebyordered cancelled.

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

Petitioners next argue that they were denied due process.

We do not think so.

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

It must be noted that private respondent-Special Administratrix Enderes filed before the intestatecourt (RTC of Quezon City, Branch 85) a Motion to Declare VoidAb InitioDeeds of Sale of PhilinterlifeShares of Stock on March 22, 1996. But as early as 1994, petitioners already knew of the pendingsettlement proceedings and that the shares they bought were under the administration by the intestatecourt because private respondent Ma. Divina Ortaez-Enderes and her mother Ligaya Novicio had filed acase against them at the Securities and Exchange Commission on November 7, 1994, docketed as SEC

No. 11-94-4909, for annulment of transfer of shares of stock, annulment of sale of corporate properties,annulment of subscriptions on increased capital stocks, accounting, inspection of corporate books andrecords and damages with prayer for a writ of preliminary injunction and/or temporary restraining
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order.[27]In said case, Enderes and her mother questioned the sale of the aforesaid shares of stock topetitioners. The SEC hearing officer in fact, in his resolution dated March 24, 1995, deferred to thejurisdiction of the intestate court to rule on the validity of the sale of shares of stock sold to petitioners byJose Ortaez and Juliana Ortaez:

Petitioners also averred that. . . the Philinterlife shares of Dr. Juvencio Ortaez who died, in 1980, are part

of his estate which is presently the subject matter of an intestate proceeding of the RTC of Quezon City,Branch 85. Although, private respondents [Jose Lee et al.] presented the documents of partition wherebythe foregoing share of stocks were allegedly partitioned and conveyed to Jose S. Ortaez who allegedlyassigned the same to the other private respondents, approval of the Court was not presented. Thus, theassignments to the private respondents [Jose Lee et al.] of the subject shares of stocks are void.

x x x x x x x x x

With respect to the alleged extrajudicial partition of the shares of stock owned by the late Dr. JuvencioOrtaez, we rule that the matter properly belongs to the jurisdiction of the regular court where the intestate

proceedings are currently pending.[28]

With this resolution of the SEC hearing officer dated as early as March 24, 1995 recognizing thejurisdiction of the intestate court to determine the validity of the extrajudicial partition of the estate of Dr.Ortaez and the subsequent sale by the heirs of the decedent of the Philinterlife shares of stock to

petitioners, how can petitioners claim that they were not aware of the intestate proceedings?

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

[T]he subject matter of the complaint is not within the jurisdiction of the SEC but with the Regional TrialCourt; Ligaya Novicio and children represented themselves to be the common law wife and illegitimatechildren of the late Ortaez; that on March 4, 1982, the surviving spouse Juliana Ortaez, on her behalf and

for her minor son Antonio, executed a Memorandum of Agreement with her other sons Rafael and Jose,both surnamed Ortaez, dividing the estate of the deceased composed of his one-half (1/2) share in theconjugal properties; that in the said Memorandum of Agreement, Jose S. Ortaez acquired as his share ofthe estate the 1,329 shares of stock in Philinterlife; that on March 4, 1982, Juliana and Rafael assignedtheir respective shares of stock in Philinterlife to Jose; that contrary to the contentions of petitioners,

private respondents Jose Lee, Carlos Lee, Benjamin Lee and Alma Aggabao became stockholders ofPhilinterlife on March 23, 1983 when Jose S. Ortaez, the principal stockholder at that time, executed adeed of sale of his shares of stock to private respondents; and that the right of petitioners to question theMemorandum of Agreement and the acquisition of shares of stock of private respondent is barred by

prescription.[29]

Also, private respondent-Special Administratrix Enderes offered additional proof of actual

knowledge of the settlement proceedings by petitioners which petitioners never denied: (1) thatpetitioners were represented by Atty. Ricardo Calimag previously hired by the mother of privaterespondent Enderes to initiate cases against petitioners Jose Lee and Alma Aggaboa for the nullificationof the sale of the shares of stock but said counsel made a conflicting turn-around and appeared instead ascounsel of petitioners, and (2) that the deeds of sale executed between petitioners and the heirs of thedecedent (vendors Juliana Ortaez and Jose Ortaez) were acknowledged before Atty. Ramon Carpio who,during the pendency of the settlement proceedings, filed a motion for the approval of the sale ofPhilinterlife shares of stock to the Knights of Columbus Fraternal Association, Inc. (which motion was,


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however, later abandoned).[30]All this sufficiently proves that petitioners, through their counsels, knew ofthe pending settlement proceedings.

Finally, petitioners filed several criminal cases such as libel (Criminal Case No. 97-7179-81), gravecoercion (Criminal Case No. 84624) and robbery (Criminal Case No. Q-96-67919) against privaterespondents mother Ligaya Novicio who was a director of Philinterlife,[31]all of which criminal cases

were related to the questionable sale to petitioners of the Philinterlife shares of stock.Considering these circumstances, we cannot accept petitioners claim of denial of due process. The

essence of due process is the reasonable opportunity to be heard. Where the opportunity to be heard hasbeen accorded, there is no denial of due process.[32]In this case, petitioners knew of the pending instestateproceedings for the settlement of Dr. Juvencio Ortaezs estate but for reasons they alone knew, they neverintervened. When the court declared the nullity of the sale, they did not bother to appeal. And when theywere notified of the motion for execution of the Orders of the intestate court, they ignored the same.Clearly, petitioners alone should bear the blame.

Petitioners next contend that we are bound by our ruling in G.R. No. 128525 entitledMa. DivinaOrtaez-Enderes vs. Court of Appeals,dated December 17, 1999, where we allegedly ruled that theintestate court may not pass upon the title to a certain property for the purpose of determining whether the

same should or should not be included in the inventory but such determination is not conclusive and issubject to final decision in a separate action regarding ownership which may be constituted by the parties.

We are not unaware of our decision in G.R. No. 128525. The issue therein was whether the Court ofAppeals erred in affirming the resolution of the SEC that Enderes et al. were not entitled to the issuanceof the writ of preliminary injunction. We ruled that the Court of Appeals was correct in affirming theresolution of the SEC denying the issuance of the writ of preliminary injunction because injunction is notdesigned to protect contingent rights. Said case did not rule on the issue of the validity of the sale ofshares of stock belonging to the decedents estate without court approval nor of the validity of the writ ofexecution issued by the intestate court. G.R. No. 128525 clearly involved a different issue and it does nottherefore apply to the present case.

Petitioners and all parties claiming rights under them are hereby warned not to further delay the

execution of the Orders of the intestate court dated August 11 and August 29, 1997.WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R.

S.P. No. 59736 dated July 26, 2000, dismissing petitioners petition for certiorariand affirming the July 6,2000 order of the trial court which ordered the execution of its (trial courts) August 11 and 29, 1997orders, is hereby AFFIRMED.

SO ORDERED.

Vitug, (Chairman), and Carpio-Morales, JJ., concur.Sandoval-Gutierrez, J., no part.

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.


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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, JuanPosadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid bythe 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 thetax in question and which was not included in the original assessment. From the decision of the Court ofFirst 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 forthe probate of his will and the settlement and distribution of his estate were begun in the Court of FirstInstance of Zamboanga. The will was admitted to probate. Said will provides, among other things, asfollows:

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 otherwisedisposed of for a period of ten (10) years after my death, and that the same be handled andmanaged by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, atCastlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that thesame 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 mentionedMatthew Hanley to be disposed of in the way he thinks most advantageous.

x x x x x x x x x

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

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate toappoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanleyten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore tookhis oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when heresigned 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 andpersonalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate aninheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in paymentconsisting 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 thetestamentary 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 ofP2,052.74. 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


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brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the saidamount hausted, plaintiff went to court with the result herein above indicated.

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

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

became the owner thereof.

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

III. In holding that the inheritance tax in question be based upon the value of the estate upon thedeath of the testator, and not, as it should have been held, upon the value thereof at the expirationof the period of ten years after which, according to the testator's will, the property could be andwas to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estatesubject to said tax, the amounts allowed by the court as compensation to the "trustees" and paid tothem 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 June30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendantagainst the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does theinheritance 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) Indetermining the net value of the estate subject to tax, is it proper to deduct the compensation due totrustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to thetax-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 ofthis 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, giftmortis causa, or advance in anticipation of inheritance,devise, or bequest." The taxtherefore is upon transmission or the transfer or devolution of property of a decedent, made effective byhis 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 operativeat or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a person aretransmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeedimmediately to all of the property of the deceased ancestor. The property belongs to the heirs at themoment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a


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deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocenciovs. 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 & YuchaustiSteamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51Phil., 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 heirsare 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 theword "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 awill as a necessary condition to effect transmission of property does not affect the general rule laid downin article 657 of the Civil Code. The authentication of a will implies its due execution but once probatedand allowed the transmission is effective as of the death of the testator in accordance with article 657 ofthe 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 legallysucceed to the inheritance may differ from the time when the heirs actually receive such inheritance."Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento

del causante, hasta que el heredero o legatario entre en posesion de los bienes de la herencia o dellegado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de lamuerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente ." (5Manresa, 305;see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, theinheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligationto pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of thesame 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 orlegatee 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 thatpaid 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 intopossession of the property.

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


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said period, the payment shall be made by the executor or administrator before deliveringto each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve percentum per annum shall be added as part of the tax; and to the tax and interest due and unpaidwithin 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 ofInternal 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 theSpanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, asthere 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 tenyears from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on thevalue of the estate in 1932, or ten years after the testator's death. The plaintiff introduced evidence tendingto show that in 1932 the real properties in question had a reasonable value of only P5,787. This amountadded 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 amountonly 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 vestsinstantly, the tax should be measured by the vlaue of the estate as it stood at the time of the decedent'sdeath, 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. SeealsoKnowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the stateto 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 ordepriciation 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, isby 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 andauthorities that New York has varied and now requires the immediate appraisal of the postponed estate atits clear market value and the payment forthwith of the tax on its out of the corpusof the estatetransferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782;In reHuber, 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


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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 taxableat the time of the predecessor's death, notwithstanding the postponement of the actual possession orenjoyment 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 valueof the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). Inthe case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum representsthe expenses and disbursements of the executors until March 10, 1924, among which were their fees andthe 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 deductedunder section 1539 of the Revised Administrative Code which provides, in part, as follows: "In order todetermine 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, 16How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him maylawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in thePhilippines which requires trustees' commissions to be deducted in determining the net value of the estatesubject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been created, itdoes 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 realestate 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. HennepinCounty 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 administrationexpenses. . . . Service rendered in that behalf have no reference to closing the estate for the purpose of adistribution thereof to those entitled to it, and are not required or essential to the perfection of the rights ofthe 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 thepreservation of the estate. No sound reason is given to support the contention that such expenses shouldbe 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 theprovisions 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 thetestator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended byAct 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 thedecedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee andought not to be required to guess the outcome of pending measures. Of course, a tax statute may be maderetroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidentsof social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislativeintent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup.


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Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as prospective in itsoperation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statuteclearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though thelast 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 provisionsindicating legislative intent to give it retroactive effect. No such effect can begiven the statute by thiscourt.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in natureand, therefore, should operate retroactively in conformity with the provisions of article 22 of the RevisedPenal 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 theinterest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice anddemand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only asrequired by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against thestate which, under the Constitution, the Executive has the power to pardon. In common use, however, thissense has been enlarged to include within the term "penal statutes" all status which command or prohibitcertain 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 arenot classed as penal laws, although there are authorities to the contrary. (See Sutherland, StatutoryConstruction, 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 clearlegislative 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 maybe paid within another given time. As stated by this court, "the mere failure to pay one's tax does notrender 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 histaxes 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 deliveryof the decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to thetrustee 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 welltaken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court inconformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is notmentioned or used in the will but the intention to create one is clear. No particular or technical words arerequired to create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt forthe purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that atrust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will hisintention so to do by using language sufficient to separate the legal from the equitable estate, and withsufficient 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


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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 thatcertain 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 theprovisions of the will (seesec. 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 inrelation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed intrust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of theinheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, toescape the penalties of the laws. This is so for the reason already stated that the delivery of the estate tothe trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. Atrustee is but an instrument or agent for thecestui 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 hethereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He tooksuch 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 holdthat 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 theirestates 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 whichdoes 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 theessential 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; 50Law. 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 thegovernment but upon the necessity of money for the support of the state (Dobbins vs. ErieCountry,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 oftaxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also willnot place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantialdistictions. (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; CastleBros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong &

Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil.,803.) When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construedthis 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 isallowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, RevisedAdministrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47Phil., 461), this court had occassion to demonstrate trenchment adherence to this policy of the law. It held


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that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, theywere prevented from praying their internal revenue taxes on time and by mutual agreement closed theirhomes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend thetime prescribed for the payment of the taxes or to accept them without the additional penalty of twentyfive per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modesadopted 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 theoperations of government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance taxand, 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. Theinterest due should be computed from that date and it is error on the part of the defendant to compute itone month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas,supra), andneither the Collector of Internal Revenuen or this court may remit or decrease such interest, no matterhow 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 theCollector 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 InternalRevenue 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 tenthday fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate becameliable for the payment of the surcharge.

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

We shall now compute the tax, together with the interest and surcharge due from the estate of ThomasHanley 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 worthP1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing allowabledeductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 as the net valueof 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 theamount by which the share exceed thirty thousand pesos, plus an additional two hundred per centum. Oneper centum of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to thesetwo 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 RevisedAdministrative Code. First should be added P1,465.31 which stands for interest at the rate of twelve percentum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of


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payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interest thuscomputed should be added the sum of P724.88, represe

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