MISAEL P. VERA, AS COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. HON. JUDGE PEDRO C. NAVARRO, IN HIS CAPACITY AS JUDGE OF THE COURT OF FIRST INSTANCE OF PASIG, RIZAL (BRANCH…

On March 11, 1966,
the herein respondent Judge Bienvenido Tan, Sr.
(hereinafter referred to as “Judge Tan”) filed with the Court of
First Instance of Pasig, Rizal
a petition for the probate of the aforesaid will.  On April 21, Judge Tan was appointed as
executor of the testate estate of Elsie M. Gaches
without a bond.

In a letter, dated June
3, 1966, Judge Tan informed the Commissioner that the testate
estate was worth about ten million (P10 million) pesos and that the estate and
inheritance taxes due thereon were about P9.5 million.

On June 11, 1966, the herein respondent Atty. Delia P. Medina
(hereinafter referred to as “Atty. Medina”), representing herself as
the attorney-in-fact of the herein respondents Camilo
Eribal and Magdalena Abanto,
filed with the probate court a motion praying that the executor of the estate
be authorized to give a monthly allowance to the voluntary heirs Abanto and Eribal from the month
of May, 1966 until “the receipt of the recom­mended advance of inheritance
of P100,000.00 each recommended by the Executor in his motion of June 6, 1966
and/or final distribution has been made to said heirs of their respective
shares in the estate.” This prayer was granted by the probate court in an
order dated June 25, 1966
(subsequently clarified in an order dated August 11, 1966).

On July 9, 1966,
the Commissioner filed with the probate court a proof of claim for the sum
“of P192,364.00 as income tax for 1965 and 1% monthly interest due from
the deceased Elsie M. Gaches.”

On July 19, 1966, Judge Tan filed with the probate court a motion
praying for authority to make the following additional advance payments — ­(1)
To Abanto and Eribal,
P150,000.00; (2) To Bess Lauer, $75,000.00; (3) To Judge Tan as advance
executor’s fees, P50,000.00; and (4) To Attys. Medina and Bienvenido
Tan, Jr., P75,000.00 each as advance attorney’s fees.  In this motion, Judge Tan claimed that the
estate was very liquid and that “any claims whatsoever against the Estate
and the Government shall be amply protected since over P7,000,000.00 worth of
shares shall still remain to answer therefor (Sec. 1,
Rule 90, Rules of Court).” The respondent Judge granted Judge Tan’s prayer
in an order dated July 23, 1966.

In a letter, dated November 4, 1966, the Commissioner advised
Judge Tan to pay to the Bureau of Internal Revenue the sum of P1,398,436.30 as
estate tax and P7,140,060.69 as inheritance tax, the investigation of his
office having allegedly disclosed that the net value of the testate estate was
P10,212,899.20.^[1]
Judge Tan disputed the correctness of the assessment in a letter sent to the
Commissioner.

On November 26, 1966,
the Commissioner filed with the probate court a proof of claim for the death
taxes stated in the assessment notice sent to Judge Tan.  On the same date, the Commissioner also
submitted to the probate court for its resolu­tion a motion praying:  (1) for the revocation of the court’s orders
dated June 25, July 6, July 23 and August 11, 1966 and all other orders
granting the payment of advance inheritance, allowances and fees; (2) for the
appointment of a co-administrator of the estate to represent the Government;
and (3) for the non-disbursement of funds of the estate without prior notice to
the Commissioner.  Although the records
do not disclose that the probate court specifically disposed of this motion, the
said court, from its subsequent actuations, may be considered to have impliedly
denied the Commissioner’s prayers for the appointment of a co-administrator and
the non-payment of advance allowances and fees.

On January 19, 1967,
the probate court authorized the conversion of the amount of P75,000.00
previously ruled to be paid to Atty. Medina as advance attorney’s fees in its
order of July 23, 1966 into
allowances for Eribal and Abanto.

On April 14, 1967,
with the probate court’s approval, Judge Tan paid to the Bureau of Internal
Revenue the amount of P185,286.93 as estate tax and, on April 24, 1967, the amount of P1,055,776.00 as
inheritance tax.  These payments were
based on a tax return filed by Atty. Medina on March 8, 1967 with the Bureau of Internal Revenue.

On June 3, 1967,
Judge Tan submitted to the probate court for approval a final accounting and
project of partition of the testate estate. 
Acting thereon, the respondent Judge issued an order, dated June 5, 1967, for the partial
distribution of the estate as follows:

“Submitted for resolution of this Court is the Amended Final
Accounting and Project of Partition dated May 27, 1967, presented by the executor.

“Atty. Paredes manifested that he
has no objection to the approval thereof provided that certain items enumerated
therein be corrected or modified, as follows: 
the amount of shares in the Lepanto
Consolidated Mining Co. should be 6,105,429 instead of 6,015,429, as reported;
the amount of P11,537.60 reported as expenses made on January 30, 1967 should
be cancelled or excluded … and that the item appearing as expenses made on
May 10, 1967 payable to Apolonio Villegas should be
only P114,000.00 instead of P135,000.00 … which manifestations were also
adopted by Atty. Virgilio Saldajeno
of the Bureau of Internal Revenue, and in addition, he objected in principle to
the Executor Fees and to the Attorney’s Fees as excessive but left the matter
to the discretion of the Court.

“Considering, further, the mani­festations of Atty. Saldajeno that he has no objection to the partial
distribution of the estate as long as it can be shown that the rights and
interests of the government can be fully protected, and it appearing from the
subsequent manifestation of Atty. Paredes, counsel
for the heirs, a that sufficient assets with a current market value of at least
P8,000,000.00 will be left to the estate even if a partial distribution in the
amount of P3,000,000.00 is made, for which reason the rights of the government
to collect whatever deficiency taxes, if any, may be assessed in the future the
heirs have already paid in good faith even ahead of its due dates transfer
taxes in the total amount of P1,241,062.93, the Amended Final Accounting and
Project of Partition dated May 27, 1967 may be approved, subject to the
following terms and conditions:

“1.  The Executor is hereby dis­charged from any
and all responsibi­lities that he has pertaining to the estate;

“2.  The voluntary heirs Magda­lena Abanto and Camilo Eribal shall be responsible for all taxes of any nature
whatsoever which may be due the government arising out of the transaction of
the properties of the estate, and the government can, if it so desires,
register its tax lien on the remaining assets after a partial distribution of
the estate;

“3.  Bess Lauer, sister and heir of the deceased
shall be fully res­ponsible for all United
States taxes pertaining to her share in the
estate.

“WHEREFORE, subject to the above terms and conditions, Amended
Final Accounting and Project of Partition dated May 27, 1967 submitted by the Executor, as modified in the
mani­festation of Attys. Paredes and Saldajeno, is hereby approved.

“The aforesaid amount is hereby ordered to be taken from the
funds of the estate deposited with the Philippine National Bank.

“As to the other properties remaining after this partial
distribution, consist­ing of the following:

“A. 
BANK DEPOSITS:

“B. 
HOUSE AND LOT LOCATED AT NO. 50
TAMARIND ROAD, FORBES
PARK, MAKATI,
RIZAL;

“C. 
SHARES OF STOCK IN THE FOLLOWING:

“The same shall be turned over and delivered
to the attorney-in-fact of the voluntary heirs, Atty. Delia P. Medina, to be
held by her to answer for whatever deficiency estate and inheritance taxes may
still be due from the estate and the heirs in favor of the government.

“SO ORDERED.

“Pasig, Rizal,
June 5, 1967.

“(Sgd.) PEDRO C. NAVARRO

Judge”

On the same day (that is, June 5, 1967), the Commissioner, having
been informed in advance about the foregoing order by certain undisclosed
sources, issued warrants of garnishment against the funds of the estate
deposited with the Philippine National Bank, the Overseas Bank of Manila, and
the Philip­pine Banking Corporation, on the strength of sections 315-330 of the
National Internal Revenue Code.

On June 7, 1967, Atty. Medina filed in the probate court a
petition for the discharge of the writs of garnishment issued by the
Commissioner.  On June 8, 1967, the
respondent Judge issued an order lifting the writs in question.

On June 9, 1967, the Philippine National Bank filed a motion in the
probate court praying that it be authorized to deposit with the said court the
money in its hands in view of the conflicting claims of the parties over the
funds in dispute.  On the same day (that
is, June 9, 1967), the respondent Judge issued an order denying the said motion
and threatening the bank officials who refuse to implement its orders of June 5
and 8, 1967 with contempt.  Atty. Medina
was consequently able to withdraw the sum of P2,330,000.00 from the PNB.  A copy of this order of June 9, 1967 as well
as the orders of June 5 and 8, 1967 were received by the Commissioner on June
13, 1967.

On June 16, 1967, the Commissioner filed a motion for
reconsideration (supplemented on June 22, 1967) of the orders of the probate
court dated June 5, 8 and 9, 1967.  On
July 6, 1967, however, the Commissioner, on the belief that the probate court’s
resolution on its motion was not legally necessary, filed with this Court the
instant petition for certiorari, mandamus, prohibition and injunction
against the aforesaid orders of the respondent Judge.  The petition at bar is based on the following
propositions:

(1)  That the distributive shares of an heir can
only be paid after full payment of the death taxes.  As this case subsequently progressed before
this Court, the position of the Commissioner would seem to be that the
deficiency income taxes due and payable during the lifetime of the deceased
should also be paid first.

(2)  While partial distribution of the estate of a
deceased may be allowed, a bond must be filed by the distributees
to secure the payment of the transfer taxes. 
Subsequently, however, the Commis­sioner changed his position, stating
that such distribution may be made so long as the payment of the taxes due the
government is “provided for,” citing section 1, Rule 90 of the Rules
of Court in relation to sections 95(c), 97, 103, 106 and 107(c) of the National
Internal Revenue Code.

(3)  That the executor of an estate cannot be dis­charged
without the payment of estate and inheritance taxes.  The Commissioner later modified his stand on
this proposition in line with the view that it is sufficient if the payment of
the said taxes is “provided for.”

(4)  That the delivery of properties of the estate
to a stranger [that is, to the voluntary heirs herein] is not sanctioned by
law.  Later, as the case at bar
progressed, and in view of a compromise offer made by the respondents Abanto and Eribal to pay the
taxes being claimed by the Bureau of Internal Revenue, the Commissioner
advanced the view that this proposition is already moot and academic.

(5)  That the respondent Judge has no authority to
quash or dissolve writs of garnishment issued by the Commissioner.  Subsequently, however, the Commissioner
reversed his stand on this point and stated that the probate court may so
dissolve said writs of garnishment as the assets in question were then in custodia legis,
citing Collector vs. Vda. de Codiñera,
L-9675, Sept. 28, 1957.

Taking stock of the Commissioner’s complaint that the disputed
orders were issued without or in excess of jurisdiction or with grave abuse of
dis­cretion, the herein respondents Atty. Medina and Judge Tan put up a number
of factual and legal arguments, the material ones of which may be stated, in
sum, as follows:

(1)  The Commissioner’s notice of assessment, dated
November 10, 1966, was based on wrong premises and valuation of the assets in
question; in fact, the Commissioner had agreed during the pre-trial conference
in the probate court to reconsider certain items therein;

(2)  The allowance granted to Abanto
and Eribal were taken solely from the income of the
estate, a fact admitted by Atty. Saldajeno of the
Bureau of Internal Revenues it is claimed that in 1965 the estate had an income
of P411,000.00 and over P750,000.00 in 1966, which could more than cover the
questioned allowances;

(3)  Eribal and Abanto are willing and bound themselves to assume the
responsibility for the payment of the taxes due against the estate except for
the properties located in the United States which should be charged against
Bess Lauer;

(4)  The Commissioner does not object to the
partition of the estate in question provided that enough assets are left to pay
the taxes against the estate;

(5)  The estate has sufficient assets with which to
pay the taxes being claimed by the government;

(6)  There was nothing unusual in the insti­tution
of Abanto and Eribal as
residual heirs of the deceased; Abanto was the
testator’s special nurse, companion, secretary and cook from 1945 until Elsie
M. Gaches‘ death in March, 1966; Eribal,
on the other hand, was the deceased’s cook, caretaker, companion and driver
since 1929;

(7)  The grant of allowances was never contested
below and cannot now be raised in the instant proceedings;

(8)  Adequate safeguards were specified in the
probate court’s order of June 5, 1967 to cover the tax claims; and

(9)  There had been no full distribution of the
estate in question without payment of the transfer taxes since the said taxes
are being dis­puted by the heirs.

In a reply filed on September 7, 1967, the Commissioner stated
that he had issued a revised assessment dated August 24, 1967 and that, further­more,
there were due from the estate deficiency income taxes for the years 1961 to
1965 in the total sum of P1,182,296.16, for which reason the estate should not
be ordered distributed until the same is fully satisfied.  In a rejoinder, Judge Tan claimed that the
August 24, 1967 assessment could still be reduced considerably.  The contents of the mentioned revised
assessment which was addressed to Atty. Medina are, inter alia, as follows:

“Madam:

“x x x I
have the honor to advise that in a reinvestigation conducted by this Office,
for trans­fer tax purposes, it was ascertained that she left real and personal
properties in the sums of P377,912.50 and P8,963,822.31 respectively, or a
gross estate of P9,341,734.81.  The
amounts of P193,392.38, P462,022.83 and P1,226,783.53, representing accrued
household and medical expenses, funeral expenses and income taxes (1961-1965)
payable, respectively, or a total of P1,882,198.74, were allowed as deductions
resulting in a net taxable estate in the sum of P7,459,536.07 subject to estate
and inheritance taxes.

“In view thereof, there are hereby further assessed the sums
of P891,673.68 and P4,353,972.87 as deficiency estate and inheri­tance taxes
and penalty still due on the transmission of the decedent’s estate, after
crediting the sums of P185,286.73 and P1,055,776.00, which were paid on April
4, 1967 and April 24, 1967, … details of which are shown hereunder:

“x x x“

The deadlines for the payment of the
aforementioned transfer taxes without penalty were December 9, 1967 for the
estate tax and March 9, 1968 for the inheritance tax.

On September 9, 1967, Atty. Medina filed with this Court a
pleading captioned “Compliance and Offer of Compromise to Terminate this
Case” in which she stated the following:

“x x x x

“4.  Although respondents volun­tary heirs intend
to assail and question the correctness of said assessment only insofar
as the same has disallowed the deductions claimed by them for personal services
rendered by various persons in the total sum of P366,800.00, foregoing thereby
other possible objections to the other items just so this case can be earlier
disposed of, said respond­ents, nevertheless, are willing to pay even before
these due dates the entire amount specified in said assessment, but under
protest insofar as the oft-cited disallowance is concerned, in order to already
terminate and dispose of this case before this Honorable Court.”

To pay the taxes in question, Atty.
Medina prayed in her offer of compromise that she and Abanto
and Eribal be authorized to make use of the funds of
the estate on deposit with the Philippine National Bank (P238,500.00), the
Philippine Banking Corporation (P559,147.41), the Banco
Filipino Savings and Mortgage Bank (P581.00), and the Overseas Bank of Manila
(P700,000.00), and to gradually dispose of and sell the shares of stock
representing investments in several corporations of the estate with an  estimated market value of P2,154,026.36.  Also included among the assets for which
authority to sell was being procured in the said offer of compromise were
2,442,000 Lepanto Consolidated Mining Co. shares
which Abanto and Eribal
deposited with the probate court after this Court issued a preliminary injunc­tion
in the case at bar on July 10, 1967 ordering, among others, Atty. Medina, Abanto and Eribal to restore to
the court a quo the amount of P2,330,000.00 withdrawn from the
Philippine National Bank pursuant to the questioned orders of the probate
court, and every other money or property received by them by virtue of said
questioned orders.  The mentioned Lepanto shares had then an estimated market value of
P2,588,520.00.  It should bear mention,
at this point, that the money withdrawn from the Philippine National Bank was
not returned by Atty. Medina, Abanto or Eribal to the probate court, these respondents having
prayed this Court that the deposit of the mentioned stocks be considered as
full compliance by them with the writ of preliminary injunction issued by this
Court.

On September 19, 1967, this Court issued a resolution requiring
the Commissioner to submit a memorandum on how he arrived at his original
assess­ment of more than P8.53 million and the revised assessment of only about
P6.48 million, showing a reduced difference of more than P2 million.  The Commissioner submitted to this Court the
required memorandum on May 25, 1968, the important items and figures described
in which may be summed up comparatively as follows:

LIABILITIES AND DEDUCTIONS

TRANSFER TAXES PAYABLE

On November 17, 1967, this Court authorized the herein
respondents Abanto, Eribal
and Atty. Medina to withdraw funds of the estate deposited with the Philip­pine
Banking Corporation (P191,673.68) and the Overseas Bank of Manila (P700,000.00)
in the form of cashier’s checks payable to the Commissioner for the payment of
the estate tax still unpaid under the terms of the revised assessment.

On November 23, 1967, the Solicitor General filed with this Court
a manifestation expressing his conformity, in behalf of the Commissioner, to
the offer of compromise dated September 9, 1967 made by Atty. Medina, subject
to certain conditions, such as, that the cash in the banks of the estate as
well as the proceeds to be realized from the sale of the shares of stock should
be turned over to the Commissioner for the payment of the taxes due against the
estate and the heirs thereof.  This
manifestation was first opposed by the Acting Commissioner of Internal Revenue
on the ground that the Commissioner (who was then abroad) had actually
requested the Solicitor General not to agree to the mentioned offer of
compromise; however, the Solicitor General subsequently said that the
Commissioner’s conformity was given to him orally.

On December 5, 1967,
Atty. Medina filed with this Court a petition to declare the Overseas Bank of Manila
in contempt for allowing the renewal, with­out court authority, of the time deposit
of P700,000.00 with the said bank for another year.  In a supplemental motion filed on December 8,
1967, Atty. Medina also prayed that the said bank and those responsible for
extending the maturity date of said time deposit be held liable for the payment
of whatever surcharges, interest and penalties may be imposed as a consequence
of the late payment of the balance of the estate tax assessed against the
estate.  It appears that the time deposit
in question was held by the said bank under two certificates, one for
P100,000.00 to mature on May 12, 1967,
and the other, for P600,000.00 to mature on June 16, 1967. 
Judge Tan, however, extended the maturity date of said time deposits to May 12, 1968.  The certificates of time deposit covering the
said funds had been endorsed in favor of the Commis­sioner in payment of the
unpaid balance of the estate which then (December 7, 1967) amounted to
P700,000.00.  The Commissioner, however,
informed the respondents Eribal and Abanto through their counsel that his Office -?

“x x x regrets that the same cannot be accepted as payment of
the defi­ciency estate tax in this case since they cannot, at present or on or
before December 9, 1967, be con­verted into cash.  However, we are holding said certificates of
time deposit for possible application in payment of the unpaid balance of the
deficiency estate tax in this case as soon as said certification can be the
balance of the deficiency estate tax in this case is not paid on or before
December 9, 1967, the same shall be subject to the interest on deficiency, 5%
sur­charge and 1% monthly interest for delinquency.”

According to Judge Tan, he caused the
extension of the maturity date of the said deposit but that in doing so he acted
in good faith in that the testate estate then had ample funds and assets and
the said time deposit earned a higher interest than a savings deposit; that he
needed no specific court authority for the purpose; and that he had a
gentleman’s agree­ment with the officials of the bank that said deposit could
be withdrawn in advance, such being the custom in banking circles.  The Overseas Bank of Manila,
on the other hand, in answer to Atty. Medina’s mentioned petition, claimed that
the deposit in question was renewed before the bank received any letter
demanding its release.  In view of this
impasse and the fast approaching deadline for the payment of the estate tax,
Atty. Medina requested the Commissioner to credit P700,000.00 to the amount
previously paid as inheritance tax; but, apparently, this request was not
honored by the Commissioner.

On January 26, 1968, Atty. Medina filed with this Court a
manifestation in which she alleged that even as the proposed joint
manifestation between the parties which was supposed to describe the matters
agreed upon between them and the Commissioner during a conference hearing held
on January 24, 1968 had not yet been shown to her, she already wished to
express her principals’ conformity to pay, but under protest, the deficiency
estate tax of P700,000.00 plus sur­charges, interest and penalties due thereon
and the inheritance tax in the amount of P4,161,986.12 appearing, according to
Atty. Medina, in the mentioned assessment notice dated August 24, 1967; that
she was likewise agreeable to pay, under protest however, the income taxes for
1961 to 1965 assessed against the estate in the demand letter of the Com­missioner
dated August 29, 1967 in the amount of P1,175,974.51 plus whatever interest,
surcharges and penalties were due thereon; and that she was also agreeable to
being authorized to sell such properties of the estate as may be necessary for
the mentioned purposes.

On the following day, however, that is, January 27, 1968, the
herein respondents Eribal, Abanto
and Atty. Medina, on the one hand, and the Commissioner and the Solicitor
General, on the other, filed with this Court a joint manifestation which, inter
alia, reads as follows:

“1.  That the respondent tax­payers will pay the
estate, inheritance and deficiency income taxes covered by existing
assessments, which are due and collectible from the estate of Elsie M. Gaches, including the delinquency penalties thereon, but
without prejudice to any right of the taxpayer to contest or protest the said
assess­ments at the proper time and in the proper court;

“2.  That the respondents Delia P. Medina,
Magdalena Abanto and Camilo
Eribal shall submit to this Honorable Court an
inventory of all the properties and assets of the estate …;

“3.  That in order to generate the necessary funds
for the purpose of paying the said taxes and delinquency penalties, so much of
the assets of the estate … shall be sold …;

“4.  That respondent Delia P. Medina, … and Mr.
Rodolfo U. Serrano, Supervising Revenue Examiner of the Bureau of Internal
Revenue … are hereby proposed to be constituted as the authorized agents of
the parties herein to effect the sale …;

“5.  That the said agents shall be directed to sell
the assets of the estate …;

“6.  That all negotiations and transactions for the
sale of the assets of the estate shall be made jointly by the authorized agents
…;

“7.  That no disposition of any property or assets
of the estate shall be effected except for the foregoing purpose;

“8.  That this case shall not be terminated until
… the above-mentioned … taxes and delinquency penalties are fully paid and
liquidated;

“9.  That the parties pray for the approval of the
foregoing propositions ….”

On February 6, 1968, this Court, acting on the above-mentioned
manifestation of Atty. Medina and the joint manifestation of the parties,
issued a reso­lution authorizing Atty. Medina to pay, albeit, under protest,
the transfer and income taxes collectible from the estate, including the
accompanying delin­quency penalties. 
Atty. Medina was given the necessary authority to collect and receive
all funds payable to the estate in question and to sell such assets thereof as
may be necessary.

On February 10, 1968,
a motion to declare in contempt the Lepanto
Consolidated Mining Co. was filed by Atty. Medina on the ground that the said
corporation refused to turn over to her dividends payable to the testate estate
unless the Commissioner first lifted his garnishment order on said dividends.

On February 16, 1968, this Court issued a resolution suspending
the writs of preliminary injunction issued by this Court on July 10 and 17,
1967 and all warrants of garnishment issued by the Commissioner relative to the
estate of Elsie M. Gaches, said suspension to be effective
until such time that Atty. Medina, Eribal and Abanto shall have fully paid the transfer and income taxes,
including the penalties thereon, covered by existing assess­ments.  Atty. Medina thereafter submitted to this
Court performance reports on her activities relative to the authority given
her.

On March 9, 1968, Atty. Medina filed with this Court a
manifestation stating that she received a demand letter dated March 7, 1968
from the Commis­sioner for the payment of the following:  (1) P756,000.00 as estate tax, including
penalties; (2) P192,186.75 as inheritance tax corresponding to the share of
Bess Lauer; and (3) P451,435.91 as balance of the income tax for the years 1961
to 1965.  Atty. Medina claimed the said
demands to be erroneous for the following reasons:  (1) as to the estate tax, the time deposit in
the Overseas Bank of Manila of P700,000.00 plus interest earned of P60,000.00
as of March 9, 1968 would more than cover the said tax and the certificates of
time deposits were already endorsed to the Commissioner on December 6, 1967;
(2) as to the inheritance tax, she (that is, her principals Abanto
and Eribal) was not responsible therefor
as the resolution of this Court dated February 6, 1968 required her “to
pay only the estate, inheritance and income taxes, under protest, covered by
existing assessments, against the Estate, and against the heirs Magdalena Abanto and Camilo Eribal;” in a supplemental motion, Atty. Medina
further argued that Bess Lauer alone was solely responsible for the payment of
the inhe­ritance tax on her share and not the decedent’s estate in the
Philippines, and that the properties of the testate estate in the United States
of America which consisted of shares of stock and deposits in banks, being
personal properties, were to be excluded from the computation of the gross
estate of the deceased in the Philippines and the computation of the Philippine
estate and inheritance taxes because, under Philippine law, the situs of those properties is the place where they are
located, citing Article 16 of the new Civil Code which, she argued, abandoned
the doctrine of mobilia sequuntur
personam embodied in Article 10 of the old Civil
Code; and (3) as to the deficiency income tax for 1961-1965, she had paid the
same in the total amount of P1,182,296.16 as of March 9, 1968, which was the
amount stated in the assessment letter of the Commissioner dated August 9,
1967.  According to Atty. Medina, the
payment of those taxes was made in the following manner:  on February 27, 1968, she paid a total of
P838,518.62 as follows:  the income tax
proper (P715,619,46) in full; interest (P106,855,29) in full; compromise
penalty (P5,000.00) in full; and surcharges P11,052.07) in part only; and, on
March 8, 1968, the amount of P343,773.54 as payment of the remaining
surcharges.  Consequently, she argued
that the surcharges and interest, if any were still due, could legally accrue
only from September 29, 1967
up to February 27, 1968 and
only on the tax proper.

On April 16, 1968,
a counter-manifestation was filed with this Court by the Commissioner to the
above-mentioned manifestation.  According
to the Commissioner, under existing assessments (that is, under the letter of
demand of August 24 and 29, 1967), the estate, inheritance and deficiency
income (1961-1965) taxes due and collectible from the testate estate as of February 6, 1968 were as follows:

“Estate tax
(Balance – P   700,000.00 (x)

Inheritance tax          
4,353,972.87 (xx)

Total Estate and

Inheritance taxes . . . .
. . . . . . . . . . . . . . . . . P5,053,972.87

Deficiency income

taxes for 1961 to   – P1,175,974.51 (xxx)

1965

Delinquency
penalties

for late filing of

income tax return

and late payment of

income tax for 1965

per return filed –               
6,321.65 (xxxx)

Total deficiency

income taxes for

1961 to 1965 and

the delinquency

penalties of income

tax for 1965 per

return                                                        
P1,182,296.16

GRAND TOTAL. . . . . . . . . . . . . . . . . . . . . . P6,236,269.03

“(x) plus 5% surcharge and 1% monthly
interest thereon from December 9, 1967 until full payment thereof; (xx) plus 5%
surcharge and 1% monthly interest thereon, if the same is not paid in full on
or before March 9, 1968; (xxx) plus 5% surcharge and 1% monthly interest
thereon from August 29, 1967 until full payment thereof; and (xxxx) plus additional 1% monthly interest from September
29, 1967 until full payment thereof.”

Further, the Commissioner alleged that
after taking into consideration the payments made by Atty. Medina, the balances
as of March 9, 1968 of the
death and income taxes still collectible were as follows:

“Estate Tax

Balance of the estate tax             – P 
700,000.00

5% surcharge                              –       
35,000.00

1% monthly interest from

12/9/67
to 3/9/68                   –        21,000.00

Total . . . . . . . . . . . . . . . . .
. . . . . .  P  756,000.00

plus additional 1% monthly interest

from March 9, 1968 until full

payment thereof.

“Inheritance Tax

Inheritance tax due and

collectible per letter              – P4,353,972.87

of demand dated

August
24, 1967

(Annex “A”)

Less: 
Payments of inheritance

tax on March 1 and

March 6, 1968 per

O.R. 2519938 and
2520026,

respectively                             –
    4,161,986.12

Inheritance tax still due

and collectible. . . . . . . . . . . .
.  P  
191,986.75

plus 5% surcharge and 1%

monthly interest thereon

from March 8, 1968 until

full payment.

“Deficiency Income Taxes

Deficiency income taxes

from 1961 to 1965 per

letter of demand dated

August
29, 1967 plus 5%

surcharge and 1%

monthly interest up to

March
8, 1968                       –
P  1,289,818.17

Less: 
Payments made on

February
27, 1968 and

March
8, 1968 under

O.R. 207001 and 207002     – P  1,182,296.16

Deficiency income taxes

still due and collectible . .       P     107,522.01

plus additional 1% monthly

interest thereon from

March
8, 1968 until full

payment.”

The Commissioner also explained that the
income taxes paid by Atty. Medina in the total amount of P1,182,296.16
“included only the 1/2% monthly interest on deficiency with respect to the
deficiency income taxes for 1961 to 1965 and the 1% monthly interest for
delinquency up to September 29, 1967 with respect to the income tax for 1965
which was paid per return, but did not include the 5% surcharge and 1% monthly
interest for delinquency from August 29, 1967 until full payment with respect
to the income tax for the 1965 return.” The Commissioner consequently
prayed that Atty. Medina be ordered to pay:

“(1)  The amount of P756,000.00 as balance of the
estate tax, 5% surcharge and 1% monthly interest from December 9, 1967 to March
9, 1968, plus additional 1% monthly interest from March 9, 1968 until full
payment;

“(2)  The amount of P191,986.75 as balance of the
inheritance tax, plus 5% surcharge and 1% monthly interest thereon from March
9, 1968 until full payment; and

“(3)  The amount of P107,522.01 as balance of the
deficiency income taxes, 5% surcharge and 1% monthly interest for delinquency
up to March 8, 1968, plus additional 1% monthly interest thereon from March 8,
1968 until full payment …..”

On August 23, 1968,
Atty. Medina filed a manifestation with this Court adverting to the re­fusal of
the Overseas Bank of Manila to
permit the withdrawal of the time deposit of the testate estate in the said
bank in spite of the fact that the extended maturity date of said deposit had
already expired.  Atty. Medina prayed
that the bank officials as well as those who made possible the deposit of the
funds of the estate of Elsie M. Gaches with the said
bank be declared in contempt.  On September 18, 1968, the Central Bank
of the Philippines
filed with this Court a comment on the urgent manifestation of Atty. Medina
concerning the deposit in question.  The
Central Bank, which according to the Overseas Bank of Manila
had restrained it from paying its time deposits to the bank’s depositors,
averred that this Court’s reso­lution of November 17, 1967 merely authorized Atty. Medina to
withdraw the deposit from the said bank and did not order the bank to pay the
time deposit in question.  Moreover,
according to the Central Bank, the non-payment of the said deposit was not wilful as the Overseas Bank of Manila
was in a state of insolvency.  A comment
was filed on October 11, 1968 by the Overseas Bank of Manila stating that the
majority stockholders of the bank filed a petition against the Central Bank for
certiorari, prohibition and mandamus in this Court in L-29352
entitled “Emerito M. Ramos, et al. vs. Central
Bank;”^[2]
that the time deposit in question was an unrecorded transaction; and that the
Central Bank prohibited the bank to do business due to its distressed financial
condition, for which reason it could not give preference to the payment of the
said deposit as it might prejudice other creditors of the bank.

On November 11, 1968, Atty. Medina filed with this Court a motion
reiterating a previous one to allow the payment of the amount of P200,000.00 to
Atty. Manuel M. Paredes whom she and the other
respondent herein — Abanto and Eribal
— hired as counsel in connection with the settlement proceedings of Elsie M. Gaches‘ estate.  On
March 29, 1969, pursuant to a resolution of this Court, Atty. Paredes submitted a memorandum on the nature and extent of
the legal services he had rendered to the herein respondents Atty. Medina, Eribal and Abanto.

On June 26, 1971,
Abanto and Eribal jointly
wrote the Chief Justice, expressing willingness and agreement to pay the amount
due the government as taxes against the estate and the heirs thereof.  However, the two respondents herein
subsequently retracted their statement in the said letter, claim­ing they
signed and sent the same without knowing and understanding its effect and
consequences.

A perusal in depth of the facts of the ins­tant case discloses
quite plainly that the respond­ent Judge committed a grave abuse of discretion
amounting to lack of jurisdiction in issuing its orders of June 5, 8 and 9,
1967.  Section 103 of the National
Internal Revenue Code (hereinafter referred to as “Tax Code”)
unequivocally provides that “No judge shall authorize the executor or
judicial administrator to deliver a distributive share to any party interested
in the estate unless it shall appear that the estate tax has been paid.”^[3]
The aforesaid orders of the respondent Judge are clearly in diametric
opposition to the mentioned Section 103 of the Tax Code and, consequently, the
same cannot merit approval of this Court.

While this Court thus holds that the questioned orders are not in
accordance with statutory requirements, the fundamental question raised herein
regarding the objectionable character of the probate court’s mentioned orders
has opened other issues which, not alone their importance to jurisprudence, but
the indispensability of forestalling needless delays when those issues are
raised anew, have, perforce, persuaded this Court that their complete and final
adjudication here and now is properly called for.  Said issues may be specifically framed as
follows:

(1)  Should the herein respondent heirs be required
to pay first the inheritance tax before the probate court may authorize the
delivery of the hereditary share pertaining to each of them?

(2)  Are the respondent heirs herein who are
citizens and residents of the Philippines liable for the payment of the
Philippine inheritance tax corresponding to the hereditary share of another
heir who is a citizen and resident of the United States of America, the said
share of the latter consisting of personal (cash deposits and stock shares)
properties located in the mentioned country?

(3)  Does the assignment of a certificate of time
deposit to the Commissioner of Internal Revenue for the purpose of paying
thereby the estate tax constitute payment of such tax?

(4)  Should the herein respondent heirs be held
liable for the payment of surcharge and interest on the amount (P700,000.00)
representing the face value of time deposit certificates assigned to the
Commissioner which could not be converted into cash?

Aside from the foregoing, there are also other incidental
questions which are raised in the present recourse, viz.,

(5)  What should be the liability of the
respondents herein on the contempt charges res­pectively lodged against them?

(6)  What should be a reasonable fee for the
counsel of the respondents Atty. Medina, Eribal and Abanto for professional services rendered in con­nection
with the settlement of the estate of Elsie M. Gaches?

1.  On the matter of the
authority of a probate court to allow distribution of an estate prior to the
complete liquidation of the inheritance tax, the Tax Code apparently lacks any
provision substantially identical to the mentioned Section 103 thereof.  There are provisions of the Tax Code, e.g.,
Section 104, which makes it the duty of registers of deeds not to register the
transfer to any new owner of a hereditary estate unless payment of the death
taxes shall be shown; Section 106, which imposes a similar obligation on
business establishments; and Section 107, which penalizes the executor who
delivers to an heir or devisee, and the officers and employees of business esta­blishments
who transfer in their books to any new owner, any property forming part of a
hereditary estate without the payment of the death taxes first being shown; but
those provisions by themselves do not clearly establish that the purpose and
object of the statute is to make the payment of the inheri­tance tax a
pre-condition to an order for the distribution and delivery of the decedent’s
estate to the lawful heirs thereof.  The
cloud of vagueness in the statute, however, is not entirely unbreachable.  Section 1, Rule 90 of the Rules of Court
erases this hiatus in the statute by providing thus:

“Section 1.  When
order for distribution of residue made. 
— When the debts, funeral charges, and expenses of administration, the
allowance to the widow, and inheritance tax, if any, chargeable to the estate
in accordance with law, have been paid, the court, on the application of the
executor or administrator, or of a person interested in the estate, and after
hearing upon notice, shall assign the residue of the estate to the persons
entitled to the same, naming them and the proportions, or parts, to which each
is entitled, and such persons may demand and recover their respective shares
from the executor or administrator, or any person having the same in his
possession.  If there is a controversy
before the court as to who are the lawful heirs of the deceased person or as to
the distributive shares to which each person is entitled under the law, the controvery shall be heard and decided as in ordinary cases.

“No distribution shall be allowed until the payment of the
obligations above mentioned has been made or provided for, unless the distributees, or any of them, give a bond, in a sum to be
fixed by the court, conditioned for the payment of said obligations within such
time as the court directs.”

Under the provisions of the aforequoted Rule, the distribution of a decedent’s assets
may only be ordered under any of the following three circums­tances, namely,
(1) when the inheritance tax, among others, is paid; (2) when a sufficient bond
is given to meet the payment of the inheritance tax and all the other
obligations of the nature enumera­ted in the above-cited provision; or (3) when
the payment of the said tax and all the other obligations mentioned in the said
Rule has been provided for.  None of
these three cases, insofar as the satisfaction of the inheritance tax due from
the estate is concerned, were present when the questioned orders were issued in
the case at bar.  Although the res­pondent
Judge did make a condition in its order of June 5, 1967 that the distribution
of the estate of Elsie M. Gaches (except the cash
deposits of than P2 million) shall be trusteed to
Atty. Medina for the payment of whatever taxes may be due to the government
from the estate and the heirs thereto, this Court cannot subscribe to the
proposition that the payment of the tax claims was thereby adequately provided
for.  In the first place, the order of
June 5, 1967 was, for all practical intents and purposes, a complete
distribution of the estate to the heirs, for, the executor who is supposed to take
care of the estate was absolutely discharged; the attorney’s fees for the
services of a lawyer who presumably acted as legal counsel for the estate in
the court below were ordered paid as were also the fees for the executor’s
services; the cash funds of the estate were ordered paid to the heirs; and the
non-cash (real property and shares of stock) properties were likewise ordered
delivered to Atty. Medina whose participation in the said proceedings was in
the capacity of an attorney-in-fact of the herein respondent heirs Eribal and Abanto.  In short, the probate court virtually
withdrew its custodial jurisdiction over the estate which is the subject of
settlement before it.  In the second
place, the respondent Judge, in ordering the distribution of the properties of
the estate in question, relied solely upon the mere manifestation of the
counsel for the heirs Eribal and Abanto
that there were sufficient properties of the estate with which to pay the taxes
due to the government.  There is no
evidence on record that would show that the probate court ever made a serious
attempt to determine what the values of the different assets of the estate were
with the view to determining the correctness of the tax claims of the
government and ascertaining that such properties shall be preserved for the
satisfaction of those claims.  In the
third place, considering that millions of pesos in taxes were being claimed by
the Bureau of Internal Revenue, the least reasonable thing that the probate
court should have done was to require the heirs to deposit the amount of
inheritance tax being claimed in a suitable institution or to authorize the
sale of non-cash assets under the court’s control and supervision.

The record is likewise bereft of any evidence to show that
sufficient bond has been filed to meet this particular outstanding obligation.

2.  The liability of the
herein respondents Eribal and Abanto
to pay the inheritance tax corres­ponding to the share of Bess Lauer in the
inheritance must be negated.  The
inheritance tax is an imposition created by law on the privilege to receive
property.^[4]
Consequently, the scope and subjects of this tax and other related matters in
which it is involved must be traced and sought in the law itself.  An analysis of our tax statutes supplies no
sufficient indication that the inheritance tax, as a rule, was meant to be the
joint and solidary liability of the heirs of a
decedent.  Section 95(c) of the Tax Code,
in fact, indicates that the general presumption must he otherwise.  The said subsection reads thus:

“(c)  x x x

“The inheritance tax imposed by Section 86 shall, in the
absence of contrary disposition by the predecessor, be charged to the account
of each beneficiary, in proportion to the value of the benefit received, and in
accordance with the scale fixed for the class or group to which he
pertains:  Provided, That in cases
where the heirs divide extrajudicially the property
left to them by their predecessor or otherwise convey, sell, transfer,
mortgage, or encumber the same without paying the estate or inheritance taxes
within the period prescribed in the preceding subsections (a) and (b), they
shall be solidarily liable for the payment of the
said taxes to the extent of the estate they have received.”

The statute’s enumeration of the specific
cases when the heirs may be held solidarily liable
for the payment of the inheritance tax is, in the opinion of this Court, a
clear indication that beyond those cases, the payment of the inheritance tax
should be taken as the individual responsibi­lity, to the extent of the
benefits received, of each heir.

3.  On the effect of the indorsement of the time deposit certificates to the
Commissioner, the same cannot be held to have extinguished the estate’s
liability for the estate tax.  In the
first place, in accepting the indorsement and
delivery of the said certificates, the Commissioner expressly gave notice that
his Office -?

“x x x regrets that the same can­not be accepted as payment of
the deficiency estate tax in this case since they cannot, at present or on or
before December 9, 1967, be converted into cash.  However, we are holding said certificates of
time deposit for possible application in payment of the un­paid balance of the
deficiency estate tax in this case as soon as said certificates can be con­verted
into cash.  x x
x“

In the second place, a time deposit
certificate is a mercantile document and is essentially a promis­sory note.^[5]
By the express terms of Article 1249 of the Civil Code of the Philippines,
the use of this medium to clear an obligation will “produce the effect of
payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.” From the records of the case at bar,
the Commissioner as well as the herein respondents Atty. Medina, Eribal and Abanto spared no time
trying to collect the value of the said certificates from the Overseas Bank of
Manila but all to no avail. 
Consequently, the value of the said certificates (P700,000.00) should
still be considered outstanding.

4.  The estate of Elsie M. Gaches is likewise liable for the payment of the interest
and sur­charges on the said amount of P700,000.00 imposed under Section
101(a)(1) and (c), respectively, of the Tax Code.^[6]

The interest charge of 1% per month imposed under Section
101(a)(1) of the Tax Code is essentially a compensation to the State for delay
in the payment of the tax due thereto^[7]
and for the concomitant use by the taxpayer of funds that rightfully should be
in the government’s hands.^[8]
As the indorsement and delivery of the mentioned time
deposit certificates to the Commissioner did not result in the payment of the
estate tax (for which it was intended), the decedent’s estate is consequently
liable for the interest charge imposed in the Tax Code.

The estate cannot likewise be exempted from the payment of the 5%
surcharge imposed by Section 101(c) of the Tax Code.  While there are cases in this jurisdiction
holding that a surcharge shall not be visited upon a taxpayer whose failure to
pay the tax on time is in good faith,^[9]
this element does not appear to be present in the case at bar.  The Commissioner, as aforesaid, fully
informed the respondents Atty. Medina, Eribal and Abanto of the condition to his acceptance of the said time
deposit certificates.  The Commissioner,
in fact, advised them in the same letter that “It will be understood in
this connection that if the balance of the estate tax in this case is not paid
on or before December 9, 1967, the same shall be subject to the interest on
deficiency, 5% surcharge and 1% monthly interest for delinquency.”
Moreover, Judge Tan himself, as executor of the estate of Elsie M. Gaches, specifically admitted that he was the one who
caused the extension (and consolidation) of the maturity dates of the two time
deposit certificates in question (one for P100,000.00 to mature on May 12, 1967
and the other for P600,000.00 to mature on June 16, 1967) to May 12, 1968.

It will be worthwhile to mention also, in this connection, that
when Atty. Medina applied to this Court for authority to withdraw the amount of
P700,000.00 from the Overseas Bank of Manila on September 9, 1967, the
resolution of this Court dated November 17, 1967, approving her request,
authorized her to withdraw the said amount in the form of cashier’s checks
payable to the Commissioner.  Apparently,
because the Overseas Bank of Manila refused to issue such checks or to allow
her to withdraw said amount in view of the exten­sion of the maturity date of
the deposit in question, Atty. Medina thought that by simply assigning the time
deposit certificates to the Commissioner, she would be deemed to have paid the
estate’s obligation in its corresponding amount.  However, as aforesaid, the Commissioner was
also unable to convert said amount into cash and he gave notice to that effect
to Atty. Medina.  Since the refusal of
the Overseas Bank of Manila to allow the withdrawal of the said deposit was
then well-known to the parties, it stands to reason that the repre­sentatives
of the estate who stand to be benefited therefrom,
such as the respondents Eribal and Abanto, should have forthwith asked for authority to pay
the same from other funds of the estate. 
Atty. Medina was, in fact, given the authority by this Court to sell
assets of the estate for the payment of the taxes due to the State, but she
never tried to pay the equivalent amount of P700,000.00 in question from the
proceeds of the sales she made afterwards. 
Moreover, it will also be noted that the respondents Eribal
and Abanto, during the pendency
of this case, had in their actual possession at least P2.3 million (the amount
they were able to withdraw from the Philippine National Bank on account of the
questioned orders) which they could have very well used for the payment of the
estate tax.  They, however, opted to put
the same to other uses.

5.  We now consider the
several petitions for contempt filed in the case at bar, namely, (a) against
the Philippine National Bank officials for allowing Atty. Medina to withdraw
P2,330,000.00 in contravention of the writ of garnishment issued by the
Commissioner; (b) against the officers of the Overseas Bank of Manila for
allowing the extension of the maturity date of the mentioned time deposit of
P700,000.00 and for refusing to pay the same after the extended term expired;
(c) against Judge Tan who renewed the maturity date of the said time deposits;
(d) against the Lepanto Consolidated Mining Co. for
refusing to turn over dividends payable to the estate of Elsie M. Gaches unless the Commis­sioner first lifted his
garnishment order; and (e) against the herein respondents Atty. Medina, Eribal and Abanto for depositing
shares of stock with the probate court instead of the cash amount of
P2,330,000.00 which they withdrew from the Philippine National Bank on account
of the questioned orders of the probate court, contrary to the resolutions of
this Court dated July 10 and 17, 1967.

(a)  The contempt charge against the officials of
the Philippine National Bank is without merit, it appearing to the satisfaction
of this Court that they exerted reasonable efforts not to disobey the writ of
garnishment issued by the Commissioner. 
Indeed, said officials merely acted in obedience to the order of the
probate court which threatened them with contempt of court after they moved to
be allowed to deposit with the said probate court the money of the estate of
Elsie M. Gaches deposited with the said bank.  The Commissioner himself, through the
Solicitor General, admitted later that its writ of garnish­ment cannot be
superior to that of the probate court’s orders as the estate in question was
then in custodia legis.

(b)  The contempt charges against the officials of
the Overseas Bank of Manila
likewise merit dis­missal.  In the case
of the renewal of the term of the time deposits in question, the said extension
was made by no less than the executor of the estate himself.  The renewal of said term may be considered as
purely an act of administration for the enhance­ment (due to the higher
interest rates) of the value of the estate, and the officials of the bank
cannot consequently be blamed for acting favorably on the executor’s
application.  Judge Tan himself explained
that he did what he did in the honest belief that it would redound to the benefit
of the estate on account of the higher interest rate on time deposits.

With reference to the refusal of the bank’s officials to allow
the withdrawal of the time deposit in question after the extended term expired
on May 12, 1968, this Court takes notice of the fact, as stated in our decision
in Ramos vs. Central Bank (L-293250, Oct. 4, 1971; 41 SCRA 565), that as
early as November 20, 1967 the Central Bank required the Overseas Bank of
Manila, in view of its distressed financial condition, to execute a voting
trust agreement in order to bail it out through a change of management and the
promise of fresh funds to replenish the bank’s financial port­folio.  The Overseas Bank of Manila was not able to
normalize its operations in spite of the voting trust agreement — for, on July
31, 1968, it was excluded by the Central Bank from inter-bank clearing; on
August 1, 1968, its operations were suspended; and on August 13, 1968, it was
com­pletely forbidden by the Central Bank to do business preparatory to its
forcible liquidation.  Under the circumstances,
this Court is satisfied with the explanation that to allow Atty. Medina to
withdraw the said time deposits after the extended term would have worked an
undue prejudice to the other depositors and creditors of the bank.

(c)  The contempt charge against Judge Tan is also
not meritorious.  There is no sufficient
and convincing evidence to show that he renewed the maturity date of the time
deposits in question maliciously or to the prejudice of the interest of the
estate.

(d)  The Lepanto Consolidated
Mining Company is likewise entitled to exoneration from the con­tempt charge
lodged against it.  In refusing to turn
over to Atty. Medina stock dividends payable to the estate of Elsie M. Gaches, it is evident that the said corporation acted in good
faith in view of the writ of garnishment issued to it by the Commissioner.  Moreover, on February 16, 1968, this Court passed a resolution
suspending temporarily the warrants of garnishment issued by the Commissioner,
and it does not appear that thereafter the turnover of the stock dividends to
the estate was refused.

(e)  With reference to the charge for contempt
against the respondents Atty. Medina, Eribal and Abanto, although admittedly the resolutions of this Court
dated July 10 and 17, 1967 were not strictly complied with by the said
respondents, it appears clearly that they immediately deposited with the
probate court shares of stock with a fairly stable liquidity value of
P2,588,520.00.  In any case, the main
objective of the instant petition is to assure the State that the assessed tax
obligations shall be paid and, from the records, more than P2 million had
already been paid to the State during the pendency of
the instant proceedings in this Court.

6.  With reference to the
attorney’s fees to be paid to Atty. Manuel M. Paredes,
this Court is of the opinion, after a careful study of the statement of
services rendered by said counsel to the respond­ents Eribal
and Abanto which was submitted to this Court, that
the amount of Fifty Thousand Pesos (P50,000.00) is fair and reasonable.  The payment of this amount, however, is the
personal liability of the said respondents Eribal and
Abanto, and not that of the estate of Elsie M. Gaches, as the said counsel was hired by the said
respondents to give legal aid to them in connection with the settlement of the
various claims proferred in the probate court and in
this Court.

7.  The Court’s intended
adjudication of the main issue has been rendered academic by
supervening events which dictate that the Court refrain from issuing any
further order relating thereto.  On July
18, 1977 a “Manifestation and Compliance” was filed by the respondent
Delia P. Medina which states that a compromise payment of P700,000 as
deficiency estate tax, evidenced by an official receipt (annex A of the
Manifestation), was accepted and duly approved by Acting Commissioner of
Internal Revenue Efren I. Plana
(annex B of the same Manifestation), and that “with the said compromise
payment of P700,000, all estate, inheritance and deficiency income taxes …
including pertinent delinquency penalties thereof have been fully paid and
liquidated, aggregating to P7,929,498.55 ….” No objection thereto was
inter­posed by any of the parties concerned despite due notice thereof.  This was further supplemented by a
communication, dated July 19, 1977, of Deputy Commissioner Conrado
P. Diaz, informing the Register of Deeds of Pasig,
Metro Manila, that the Gaches estate has already paid
all the estate and inheritance taxes assessed against it, and that,
consequently, the notice of tax lien inscribed on the property and property
rights of the estate can now be consi­dered cancelled.  With the full settlement of the tax claims,
the requirements of the law have been fully met, and it has become unnecessary
for the Court to issue orders relative to the main issue.

ACCORDINGLY, the respondent Delia P. Medina is directed to
deliver the remaining assets of the estate to the voluntary heirs in the
proportions adjudicated in the will and to submit a report of compliance.

On the incidental issues, the Court renders judgment as follows:

(1)  The amount of FIFTY THOUSAND (P50,000.00)
PESOS is hereby awarded to Manuel M. Paredes as legal
fee for his services, the same to be paid by the respondent Eribal
and the estate of Abanto, now deceased;

(2)  The contempt charges against the officials of
the Philippine National Bank and the Overseas Bank of Manila,
Judge Bienvenido Tan, Sr., and Lepanto
Consolidated Mining Co. are hereby ordered dismissed;

(3)  The authority given to the res­pondent Delia
P. Medina in the resolution of the Court dated February 6, 1968, to pay the
death and income taxes, including delinquency penalties, claimed by the State
and, for that purpose, to withdraw all cash deposits in various banks and sell
such properties of the estate as may be necessary, is hereby termi­nated; and

(4)  The writs of preliminary injunction issued by
the Court pursuant to its resolutions dated July 10 and 17, 1967 are hereby
dissolved.

No costs.

Antonio, Muñoz Palma, Concepcion, Jr., Martin, Santos, Fernandez, and Guerrero, JJ., concur.

Fernando, J., on official
leave.

Teehankee, J., concurs in a separate opinion.

Barredo, Makasiar, and Aquino, JJ., no part.

^[1] After
deducting the sum of P610,190.60 representing the income tax for 1965 and
allowable expenses.

^[2]
This case was decided by this Court on October
4, 1971.  See 41 SCRA 565.

^[3] A
similar provision may be found in Sec. 95(c) of the Tax Code.

^[4]
See Maxwell vs. Bugbee, 250 U.S.
525, 40 S Ct 2.

^[5]
See 3 R.C.L. 573.

^[6]
Section 101 of the Tax Code provides: 
“Sec. 101.  Additions to
the tax in case of non-payment.  —
(a) Tax shown on the return.  (1) Payment
not extended.  — Where the amount of
the taxes imposed by this Chapter, or any part of such amount is not paid on
the due date of the taxes, there shall be collected as a part of the taxes,
interest upon such unpaid amount at the rate of one per centum a month from due
date until it is paid.

“x x x

(c) Surcharge.  — If any amount of the taxes included in the
notice and demand from the Commis­sioner of Internal Revenue is not paid in
full within thirty days after such notice and demand, there shall be collected
in addition to the interest prescribed herein and in Sections 99 and 100 and as
part of the taxes a surcharge of five per centum of the unpaid amount.”

^[7]
Republic vs. Heras, L-26742, April 30, 1970.

^[8]
Castro vs. Collector of Int. Revenue, L-12174, December 28, 1962.

^[9] Connel Bros. Co. (Phil.), Inc. vs. Col­lector of
Int. Revenue, L-15470, Dec. 26, 1963,
aff’d. on reconsideration in L-15470, Mar. 31, 1964; Insular Lumber Co. vs.
Collector of Int. Revenue, L-7190, April
28, 1956.

105

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