Vera v. Navarro

CASTRO, J.:

This is a petition for certiorari, mandamus, prohibition and injunction filed by the herein petitioner Misael P. Vera, in his capacity as Commissioner of Internal Revenue (hereinafter referred to as "Commissioner"), against the Honorable Judge Pedro C. Navarro, in his capacity as Judge of the Court of First Instance of Pasig, Rizal (hereinafter referred to as "respondent Judge"), on account of three orders dated June 5, 8 and 9, 1967, which the latter issued in Special Proceedings No. 5249 entitled "In the Matter of the Testate Estate of Elsie M. Gaches - Bienvenido Tan, Executor," which the Commissioner maintains were issued without or in excess of jurisdiction or with grave abuse of discretion. It appears that one Elsie M. Gaches died on March 9, 1966 without a child.

The deceased, however, left a last will and testament in which she made the following relevant disposition of her estate, to wit: ñé+.£ªwph!1 3. After payment of my just debts and funeral expenses I intact that the balance of my property, both real and personal in the Philippines, he distributed as follows: ñé+.£ªwph!1 'a) to my driver, PACITO TROCIO - Ten Thousand Pesos (P10,000.00); b) to my lavandero, VICENTE JERODIAS - One Thousand Pesos (P1,000.00); c) to my gardener, CRISANTO SALIPOT, JR. - Five Hundred Pesos (P500.00); d) the balance of my estate in the Philippines shall then be divided in half; One-half (1/2) to be given to CAMILO ERIBAL and the other half to MISS MAGDALENA ABANTO; e) to MISS CONSUELO L. TAN - My office table and chair now in the library of my house, and one of the carpets in my house to be selected by her;' 4.

All my property in the United States consisting of furs, jewelry and stocks I leave to my sister BESS LAUER widow, and at present a resident of San Francisco, California. 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 Aped 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 authority 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 d 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 attomey'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 next 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 attomey'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 ?185,286.93 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: ñé+.£ªwph!1 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 time appearing as expenses made on May 10, 1967 payable to Apolonio manifastation illegal 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.

Saidajeno that him has no objection to the partial distribution of the estate as long as it an he shown that the rights and interests of the government can be full protected, and it appearing from the subsequent manifestation of Atty. Paredes, counsel for the heirs, that sufficient assets with a nutrient 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 asses it 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 Lo this following, terms and conditions: 1. The Executor is hereby discharged from any and all responsibilities that lie has pertaining to the estate; 2.

The voluntary heirs Magdalena Abanto and Camilo Eribal shill be responsible for all taxes of any nature whatsoever which may be due the government arising out of the transaction of the properties ol' the estate and the environment can, if it so desires, register its tax lien in the remaining assets after a partial distribution of the estate; 3. Bess Lauer, sister and heir of the deceased shall be fully for, all United States taxes pertaining to her share in the estate.

WHEREFORE, subject to the above terms and conditions, entitled Final Accounting and Project of Partition dated May 27, 1967 submitted by the Executor. as modified in the, manifestation of Atty. Paredes and Saidajeno, is hereby approved. 1. Pacita Trocio ₱ 10,000.00 2. To Vicente Jerodias 1,000.00 3. To Vicente Crisanto salipot, Jr. 500.00 4. To Magdalena Abanto and Camilo Eribal, share and share alike thru their attorney-in-fact Delia P. Medina, cash in the amont of 2,330.00 5. To Judge Bienvenido A. Tan, Sr. 120,000.00 6. To Atty. Bienvenido A. Tan, Jr. 150,000.00 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: 1. Philippine Banking Corporation 559,147.41 2. Philippine National Bank 238,5000.00 3. Overseas Bank of Manila 700,000.00 4. Banco Filipino Savings & Mortgage Bank 581.00 5. Refund from expenses 32,537.60 B. HOUSE AND LOT LOCATED AT NO. 50 TAMARIND ROAD, FORBES PARK, MAKATI, RIZAL; C. SHARES OF STOCK IN THE FOLLOWING: 1. Lepanto Consolidated Mining Co. 1,105,429 shares 2. San Miguel Corp. 16,692 shares (common) 3. San Miguel Corp. 500 shares (preferred) 4. Central Azucarera del Pilar 17,755 shares 5. Manufacturas Textile Industriales de Filipinas, Inc. 10,368 shares 6. Consolidated Mines, Inc. 85,858 shares 7. Mayon Metal Corporation 5,000 shares 8. Soliangco & Co Inc. 25 shares 9. San Juan Heights 5 shares 10. Metropolitan Insurance Co. 443 shares 11. Realty Investment Inc. 652 shares (10 shares, management & 642 common) 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.ñé+.£ªwph!1 (Sgd.) PEDRO C. NAVARROñé+.£ªwph!1 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 Manial, 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 punishment issued by the commissioner. On June 8, 1967, the respondent Judge issued an order lifting the wants in question. On June 9, 1967, the Philippine National Bank filed a motion in the probate court praying that it be authority 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 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 distribute may be made so long as the payment of the taxes due the government is "provided for," citing section 1, rule go of the Rules of Court in relation to sections 95 (c), 97, 103, 106 and 107 (c) the National lnternal 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 punishment as the assets in question were then in custodia legis, citing Collector vs. Vda. de Codeniera 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, 966, was based on wrong premises and valuation of the assets in question; in fact, the Commissioner had agreed during the pretrial 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 Revenue; it is claimed that in 1965 the estate had an income of P41 1,000.00 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: ñé+.£ªwph!1 Madam: ... 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 P5,963,822.31 respectively, or a gross estate of P9,341,734.81. The amounts of P193,892.38, P462,022.83 and Pl,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: "Estate tax ₱ 1,076.960.41 "Less: Amount Paid 185,286.7 "Total