G.R. No.

L-770

April 27, 1948

ANGEL T. LIMJOCO, petitioner, vs. INTESTATE ESTATE OF PEDRO O. FRAGRANTE, deceased, respondent. Under date of May 21, 1946, the Public Service Commission, through Deputy Commissioner Fidel Ibaez, rendered its decision in case No. 4572 of Pedro O. Fragante, as applicant for a certificate of public convenience to install, maintain and operate an ice plant in San Juan, Rizal, whereby said commission held that the evidence therein showed that the public interest and convenience will be promoted in a proper and suitable manner "by authorizing the operation and maintenance of another ice plant of two and one-half (2-) tons in the municipality of San Juan; that the original applicant Pedro O. Fragante was a Filipino Citizen at the time of his death; and that his intestate estate is financially capable of maintaining the proposed service". The commission, therefore, overruled the opposition filed in the case and ordered "that under the provisions of section 15 of Commonwealth Act No. 146, as amended a certificate of public convenience be issued to the Intestate Estate of the deceased Pedro Fragante, authorizing said Intestate Estate through its Special or Judicial Administrator, appointed by the proper court of competent jurisdiction, to maintain and operate an ice plant with a daily productive capacity of two and one-half (21/2) tons in the Municipality of San Juan and to sell the ice produced from said plant in the said Municipality of San Juan and in the Municipality of Mandaluyong, Rizal, and in Quezon City", subject to the conditions therein set forth in detail (petitioner's brief, pp. 33-34). Petitioner makes four assignments of error in his brief as follows: 1. The decision of the Public Service Commission is not in accordance with law. 2. The decision of the Public Service Commission is not reasonably supported by evidence. 3. The Public Service Commission erred in not giving petitioner and the Ice and Cold Storage Industries of the Philippines, Inc., as existing operators, a reasonable opportunity to meet the increased demand. 4. The decision of the Public Service Commission is an unwarranted departure from its announced policy with respect to the establishment and operation of ice plant. (Pp. 1-2, petitioner's brief.) In his argument petitioner contends that it was error on the part of the commission to allow the substitution of the legal representative of the estate of Pedro O. Fragante for the latter as party applicant in the case then pending before the commission, and in subsequently granting to said estate the certificate applied for, which is said to be in contravention of law. If Pedro O. Fragante had not died, there can be no question that he would have had the right to prosecute his application before the commission to its final conclusion. No one would have denied him that right. As declared by the commission in its decision, he had invested in the ice plant in question P 35,000, and from what the commission said regarding his other properties and business, he would certainly have been financially able to maintain and operate said plant had he not died. His transportation business alone was netting him about P1,440 a month. He was a Filipino citizen and continued to be such till his demise. The commission declared in its decision, in view of the evidence before it, that his estate was financially able to maintain and operate the ice plant. The aforesaid right of Pedro O. Fragante to prosecute said application to its conclusion was one which by its nature did not lapse through his death. Hence, it constitutes a part of the assets of his estate, for which a right was property despite the possibility that in the end the commission might have denied application, although under the facts of the case, the commission granted the application in view of the financial ability of the estate to maintain and operate the ice plant. Petitioner, in his memorandum of March 19, 1947, admits (page 3) that the certificate of public convenience once granted "as a rule, should descend to his estate as an asset". Such certificate would certainly be property, and the right to acquire such a certificate, by complying with the requisites of the law, belonged to the decedent in his lifetime, and survived to his estate and judicial administrator after his death. If Pedro O. Fragrante had in his lifetime secured an option to buy a piece of land and during the life of the option he died, if the option had been given him in the ordinary course of business and not out of special consideration for his person, there would be no doubt that said option and the right to exercise it would have survived to his estate and legal representatives. In such a case there would also be the possibility of failure to acquire the property should he or his estate or legal representative fail to comply with the conditions of the option. In the case at bar Pedro O. Fragrante's undoubted right to apply for and acquire the desired certificate of public convenience the evidence established that the public needed the ice plant was under the law conditioned only upon the requisite citizenship

and economic ability to maintain and operate the service. Of course, such right to acquire or obtain such certificate of public convenience was subject to failure to secure its objective through nonfulfillment of the legal conditions, but the situation here is no different from the legal standpoint from that of the option in the illustration just given. Rule 88, section 2, provides that the executor or administrator may bring or defend actions, among other cases, for the protection of the property or rights of the deceased which survive, and it says that such actions may be brought or defended "in the right of the deceased". Rule 82, section 1, paragraph (a), mentions among the duties of the executor or administrator, the making of an inventory of all goods, chattels, rights, credits, and estate of the deceased which shall come to his possession or knowledge, or to the possession of any other person for him. In his commentaries on the Rules of Court (Volume II, 2nd ed., pages 366, 367) the present chief Justice of this Court draws the following conclusion from the decisions cited by him: Therefore, unless otherwise expressly provided by law, any action affecting the property or rights (emphasis supplied) of a deceased person which may be brought by or against him if he were alive, may likewise be instituted and prosecuted by or against the administrator, unless the action is for recovery of money, debt or interest thereon, or unless, by its very nature, it cannot survive, because death extinguishes the right . . . . It is true that a proceeding upon the application for a certificate of public convenience before the Public Service Commission is not an "action". But the foregoing provisions and citations go to prove that the decedent's rights which by their nature are not extinguished by death go to make up a part and parcel of the assets of his estate which, being placed under the control and management of the executor or administrator, can not be exercised but by him in representation of the estate for the benefit of the creditors, devisees or legatees, if any, and the heirs of the decedent. And if the right involved happens to consist in the prosecution of an unfinished proceeding upon an application for a certificate of public convenience of the deceased before the Public Service Commission, it is but logical that the legal representative be empowered and entitled in behalf of the estate to make the right effective in that proceeding. Manresa (Vol. III, 6th ed., p. 11) says that No. 10 of article 334 and article 336 of the Civil Code, respectively, consider as immovable and movable things rights which are not material. The same eminent commentator says in the cited volume (p. 45) that article 336 of the Civil Code has been deficiently drafted in that it is not sufficiently expressive of all incorporeal rights which are also property for juridical purposes. Corpus Juris (Vol. 50, p. 737) states that in the broad sense of the term, property includes, among other things, "an option", and "the certificate of the railroad commission permitting the operation of a bus line", and on page 748 of the same volume we read: However, these terms (real property, as estate or interest) have also been declared to include every species of title, inchoate or complete, and embrace rights which lie in contract, whether executory or executed. (Emphasis supplied.) Another important question raised by petitioner is whether the estate of Pedro O. Fragrante is a "person" within the meaning of the Public Service Act. Words and Phrases, First Series, (Vol. 6, p, 5325), states the following doctrine in the jurisdiction of the State of Indiana: As the estate of the decedent is in law regarded as a person, a forgery committed after the death of the man whose name purports to be signed to the instrument may be prosecuted as with the intent to defraud the estate. Billings vs. State, 107 Ind., 54, 55, 6 N. E. 914, 7 N. E. 763, 57 Am. Rep. 77. The Supreme Court of Indiana in the decision cited above had before it a case of forgery committed after the death of one Morgan for the purpose of defrauding his estate. The objection was urged that the information did not aver that the forgery was committed with the intent to defraud any person. The Court, per Elliott, J., disposed of this objection as follows:

. . . The reason advanced in support of this proposition is that the law does not regard the estate of a decedent as a person. This intention (contention) cannot prevail. The estate of the decedent is a person in legal contemplation. "The word "person" says Mr. Abbot, "in its legal signification, is a generic term, and includes artificial as well as natural persons," 2 Abb. Dict. 271; Douglas vs. Pacific, etc. Co., 4 Cal. 304; Planters', etc., Bank vs. Andrews, 8 Port. (Ala.) 404. It said in another work that 'persons are of two kinds: natural and artificial. A natural person is a human being. Artificial persons include (1) a collection or succession of natural persons forming a corporation; (2) a collection of property to which the law attributes the capacity of having rights and duties. The latter class of artificial persons is recognized only to a limited extent in our law. "Examples are the estate of a bankrupt or deceased person." 2 Rapalje & L. Law Dict. 954. Our own cases inferentially recognize the correctness of the definition given by the authors from whom we have quoted, for they declare that it is sufficient, in pleading a claim against a decedent's estate, to designate the defendant as the estate of the deceased person, naming him. Ginn vs. Collins, 43 Ind. 271. Unless we accept this definition as correct, there would be a failure of justice in cases where, as here, the forgery is committed after the death of a person whose name is forged; and this is a result to be avoided if it can be done consistent with principle. We perceive no difficulty in avoiding such a result; for, to our minds, it seems reasonable that the estate of a decedent should be regarded as an artificial person. It is the creation of law for the purpose of enabling a disposition of the assets to be properly made, and, although natural persons as heirs, devises, or creditors, have an interest in the property, the artificial creature is a distinct legal entity. The interest which natural persons have in it is not complete until there has been a due administration; and one who forges the name of the decedent to an instrument purporting to be a promissory note must be regarded as having intended to defraud the estate of the decedent, and not the natural persons having diverse interests in it, since ha cannot be presumed to have known who those persons were, or what was the nature of their respective interest. The fraudulent intent is against the artificial person, the estate and not the natural persons who have direct or contingent interest in it. (107 Ind. 54, 55, 6 N.E. 914-915.) In the instant case there would also be a failure of justice unless the estate of Pedro O. Fragrante is considered a "person", for quashing of the proceedings for no other reason than his death would entail prejudicial results to his investment amounting to P35,000.00 as found by the commission, not counting the expenses and disbursements which the proceeding can be presumed to have occasioned him during his lifetime, let alone those defrayed by the estate thereafter. In this jurisdiction there are ample precedents to show that the estate of a deceased person is also considered as having legal personality independent of their heirs. Among the most recent cases may be mentioned that of "Estate of Mota vs. Concepcion, 56 Phil., 712, 717, wherein the principal plaintiff was the estate of the deceased Lazaro Mota, and this Court gave judgment in favor of said estate along with the other plaintiffs in these words: . . . the judgment appealed from must be affirmed so far as it holds that defendants Concepcion and Whitaker are indebted to he plaintiffs in the amount of P245,804.69 . . . . Under the regime of the Civil Code and before the enactment of the Code of Civil Procedure, the heirs of a deceased person were considered in contemplation of law as the continuation of his personality by virtue of the provision of article 661 of the first Code that the heirs succeed to all the rights and obligations of the decedent by the mere fact of his death. It was so held by this Court in Barrios vs. Dolor, 2 Phil., 44, 46. However, after the enactment of the Code of Civil Procedure, article 661 of the Civil Code was abrogated, as held in Suiliong & Co. vs. ChioTaysan, 12 Phil., 13, 22. In that case, as well as in many others decided by this Court after the innovations introduced by the Code of Civil Procedure in the matter of estates of deceased persons, it has been the constant doctrine that it is the estate or the mass of property, rights and assets left by the decedent, instead of the heirs directly, that becomes vested and charged with his rights and obligations which survive after his demise. The heirs were formerly considered as the continuation of the decedent's personality simply by legal fiction, for they might not have been flesh and blood the reason was one in the nature of a legal exigency derived from the principle that the heirs succeeded to the rights and obligations of the decedent. Under the present legal system, such rights and obligations as survive after death have to be exercised and fulfilled only by the estate of the deceased. And if the same legal fiction were not indulged, there would be no juridical basis for the estate, represented by the executor or administrator, to exercise those rights and to fulfill those obligations of the deceased. The reason and purpose for indulging the fiction is identical and the same in both cases. This is why according to the Supreme Court of Indiana in Billings vs. State, supra, citing 2 Rapalje & L. Dictionary, 954, among the artificial

persons recognized by law figures "a collection of property to which the law attributes the capacity of having rights and duties", as for instance, the estate of a bankrupt or deceased person. Petitioner raises the decisive question of whether or not the estate of Pedro O. Fragrante can be considered a "citizen of the Philippines" within the meaning of section 16 of the Public Service Act, as amended, particularly the proviso thereof expressly and categorically limiting the power of the commission to issue certificates of public convenience or certificates of public convenience and necessity "only to citizens of the Philippines or of the United States or to corporations, copartnerships, associations, or joint-stock companies constituted and organized under the laws of the Philippines", and the further proviso that sixty per centum of the stock or paid-up capital of such entities must belong entirely to citizens of the Philippines or of the United States. Within the Philosophy of the present legal system, the underlying reason for the legal fiction by which, for certain purposes, the estate of the deceased person is considered a "person" is the avoidance of injustice or prejudice resulting from the impossibility of exercising such legal rights and fulfilling such legal obligations of the decedent as survived after his death unless the fiction is indulged. Substantially the same reason is assigned to support the same rule in the jurisdiction of the State of Indiana, as announced in Billings vs. State, supra, when the Supreme Court of said State said: . . . It seems reasonable that the estate of a decedent should be regarded as an artificial person. it is the creation of law for the purpose of enabling a disposition of the assets to be properly made . . . . Within the framework and principles of the constitution itself, to cite just one example, under the bill of rights it seems clear that while the civil rights guaranteed therein in the majority of cases relate to natural persons, the term "person" used in section 1 (1) and (2) must be deemed to include artificial or juridical persons, for otherwise these latter would be without the constitutional guarantee against being deprived of property without due process of law, or the immunity from unreasonable searches and seizures. We take it that it was the intendment of the framers to include artificial or juridical, no less than natural, persons in these constitutional immunities and in others of similar nature. Among these artificial or juridical persons figure estates of deceased persons. Hence, we hold that within the framework of the Constitution, the estate of Pedro O. Fragrante should be considered an artificial or juridical person for the purposes of the settlement and distribution of his estate which, of course, include the exercise during the judicial administration thereof of those rights and the fulfillment of those obligations of his which survived after his death. One of those rights was the one involved in his pending application before the Public Service Commission in the instant case, consisting in the prosecution of said application to its final conclusion. As stated above, an injustice would ensue from the opposite course. How about the point of citizenship? If by legal fiction his personality is considered extended so that any debts or obligations left by, and surviving, him may be paid, and any surviving rights may be exercised for the benefit of his creditors and heirs, respectively, we find no sound and cogent reason for denying the application of the same fiction to his citizenship, and for not considering it as likewise extended for the purposes of the aforesaid unfinished proceeding before the Public Service Commission. The outcome of said proceeding, if successful, would in the end inure to the benefit of the same creditors and the heirs. Even in that event petitioner could not allege any prejudice in the legal sense, any more than he could have done if Fragrante had lived longer and obtained the desired certificate. The fiction of such extension of his citizenship is grounded upon the same principle, and motivated by the same reason, as the fiction of the extension of personality. The fiction is made necessary to avoid the injustice of subjecting his estate, creditors and heirs, solely by reason of his death to the loss of the investment amounting to P35,000, which he has already made in the ice plant, not counting the other expenses occasioned by the instant proceeding, from the Public Service Commission of this Court. We can perceive no valid reason for holding that within the intent of the constitution (Article IV), its provisions on Philippine citizenship exclude the legal principle of extension above adverted to. If for reasons already stated our law indulges the fiction of extension of personality, if for such reasons the estate of Pedro O. Fragrante should be considered an artificial or juridical person herein, we can find no justification for refusing to declare a like fiction as to the extension of his citizenship for the purposes of this proceeding. Pedro O. Fragrante was a Filipino citizen, and as such, if he had lived, in view of the evidence of record, he would have obtained from the commission the certificate for which he was applying. The situation has suffered but one change, and that is, his death. His estate was that of a Filipino citizen. And its economic ability to appropriately and adequately operate and maintain the service of an ice plant was the same that it received from the decedent

himself. In the absence of a contrary showing, which does not exist here, his heirs may be assumed to be also Filipino citizens; and if they are not, there is the simple expedient of revoking the certificate or enjoining them from inheriting it. Upon the whole, we are of the opinion that for the purposes of the prosecution of said case No. 4572 of the Public Service Commission to its final conclusion, both the personality and citizenship of Pedro O. Fragrante must be deemed extended, within the meaning and intent of the Public Service Act, as amended, in harmony with the constitution: it is so adjudged and decreed. Decision affirmed, without costs. So ordered.

G.R. No. L-43082 PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant, vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant. On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiffs complaint and the defendants counterclaim, both parties appealed to this court. It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides, among other things, as follows: 4. I direct that any money left by me be given to my nephew Matthew Hanley. 5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my death, and that the same be handled and managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brothers children and their descendants. 6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in the way he thinks most advantageous. xxxxxxxxx 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 the estate to appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead. During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for delinquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiffs protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated. In his appeal, plaintiff contends that the lower court erred: I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the 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 delinquency in the payment of inheritance tax due on the estate of said deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten years after which, according to the testators will, the property could be and was to be delivered to the instituted heir. IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation to the trustees and paid to them from the decedents estate. V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial. The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides: The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley. The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testators death, or on its value ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been delinquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be touched upon in the course of this opinion. (a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or bequest. The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. According to article 657 of the Civil Code, the rights to the succession of a person are transmitted from the moment of his death. In other words, said Arellano, C. J., . . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of forced heirs; it does not even use the word heir. It speaks of the rights of succession and the transmission thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the moment of the decedents death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow: SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed: (a) The merger of the usufruct in the owner of the naked title. (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference. SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid: (a) In the second and third cases of the next preceding section, before entrance into possession of the property. (b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per centum. A certified of all letters testamentary or of administration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance. It should be observed in passing that the word trustee, appearing in subsection (b) of section 1543, should read fideicommissary or cestui que trust. There was an obvious mistake in translation from the Spanish to the English version. The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. (b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testators death. The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a reasonable value of only P5,787. This amount added to the value of the personal property left by the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge, would amount only to about P169.52. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedents death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent appreciation or depreciation 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, however, is by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and authorities that New York has varied and now requires the immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out of the corpus of the estate transferred. But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of the predecessors death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. (c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and

disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: In order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate proceedings, . . . . A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the duties of his executors and trustees should be separated. On the contrary, in paragraph 5 of his will, the testator expressed the desire that his real estate be handled and managed by his executors until the expiration of the period of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: . . . The compensation of a trustee, earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within the class or reason for exempting administration expenses. . . . Service rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to support the contention that such expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax. (d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been one of the incidents of social life. (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . . (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute by this court. The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and demand by the Collector of Internal Revenue within which to pay the tax, instead of ten days only as required by the old law. Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term penal statutes all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. As stated by this court, the mere failure to pay ones tax does not render one delinquent until and unless the entire period has elapsed within which the taxpayer is authorized by law to make such payment without being subjected to the payment of penalties for failure to pay his taxes within the prescribed period. (U. S. vs. Labadan, 26 Phil. 239.) The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedents property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiary in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word trust is not mentioned or used in the will but the intention to create one is clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words trust and trustee, though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). To create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate, and with sufficient certainty designate the beneficiaries, their interest in the trust, the purpose or object of the trust, and the property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing. (69 C. J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil Procedure). P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui quetrust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possession of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of the testators wishes. The estate then vested absolutely in the beneficiary (65 C. J., p. 542). The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period which does not offend the rule against perpetuities. 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 acceptance of the essential to the very existence of government. The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. While courts will not enlarge, by construction, the governments power of taxation they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distinctions. When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government. That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil. 252). In the case of Lim Co Chui vs. Posadas (47 Phil. 461), this court had occasion to demonstrate trenchment adherence to this policy of the law. It held that the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the

Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent. (Syllabus, No. 3.) . . . It is of the utmost importance, said the Supreme Court of the United States, . . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public. (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil. 580.) It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases. The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas,supra), and neither the Collector of Internal Revenue or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer. To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore in a communication dated October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became liable for the payment of the surcharge. In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief. We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley in accordance with the conclusions we have reached. At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing allowable deductions under section 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the estate subject to inheritance tax. The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24. To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interest thus computed should be added the sum of P724.88, representing a surcharge of 25 per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total of P3,634.43. As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim. The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered.

G.R. No. L-16544 LEONARDO OSORIO, plaintiff-appellee, vs. TOMASA OSORIO, administratrix of the estate of Petrona Reyes, and THE YNCHAUSTI STEAMSHIP CO., defendants-appellants. The plaintiff seeks to recover 610 shares of stock of Ynchausti Steamship Co. and the dividends corresponding to them, which were included in the inventory of the properties of the deceased Da. Maria Petrona Reyes, whose estate is administered by the defendant. The facts of this case are: D. Antonio Osorio had formed with Ynchausti & Co., a joint account association for the exploitation of the shipping business, he being the owner of the one-third of the companys capital. This capital amounted to P500,000, of which P166,666.66, that is, one-third belonged to D. Antonio Osorio. Upon his death, his heirs agreed to authorize the defendant Da. Tomasa Osorio, then administratrix of the estate of the deceased, to present a project of partition, and said administratix inserted in the project with the consent of all the heirs, among the properties which belonged to the widow Da. Petrona Reyes, the sum of P94,000 as her part in the share of the estate in the shipping business of Ynchausti & Co., that is, a little over P166,666.66, which was the share in said business of the deceased Osorio during his lifetime. The project of partition was approved on May 10, 1915, with the consent of the heirs, by the Court of First Instance of Cavite, which had cognizance of the testamentary and administration proceedings of the state of the deceased Osorio. On February 28, 1914, the widow of D. Antonio Osorio, Da. Petrona Reyes, now also deceased, executed before the notary D. Florencio Gonzales Diez a document of gift in favor of her son D. Leonardo Osorio, the plaintiff, giving to him one-half of her share in the one-third part which belonged to her husband in the shipping business of Ynchausti & Co., a donation which was duly accepted by the donee D. Leonardo Osorio, who signed said document with the plaintiff. On that date, February 28, 1914, the estate of D. Antonio Osorio was not yet distributed among his heirs, and the donor Da. Petrona Reyes in order to correct the error in said document, wherein it was stated that said half was adjudicated to her as part of her conjugal property, when the partition was yet being effected, executed another document dated July 3, 1915, maintaining said donation in effect in the sense that she ceded and donated to her son D. Leonardo Osorio, for the same reasons stated in the document of February 28, 1914, al interest or participation in said shipping business of Ynchausti & Co., which was adjudicated to her in the division of the estate of D. Antonio Osorio, which division was approved by the Court of First Instance of Cavite on May 10, 1915. After the death of D. Antonio Osorio and before the distribution of the estate, Ynchausti & Co. purchased the steamer Governor Forbes and recognized the heirs of D. Antonio Osorio as having an interest to the extent of onethird in the ownership and business of said steamer. It was agreed upon by all the interested parties that the share of Da. Petrona Reyes, widow of Osorio, in the vessel Governor Forbes, at the time of the incorporation of The Ynchausti Steamship Co. was P61,000, equivalent to 610 shares of stock of said corporation. Said sum was deposited with the Steamship Co. until the final settlement of the question that had arisen between the heirs of Da. Petrona Reyes as to the ownership thereof for, while the plaintiff alleges that, by virtue of the donation made in his favor by Da. Petrona Reyes, he is the owner of said shares and of their value which is P61,000; the defendant on the other hand contends that said shares are not included in the donation in question and belong to the heirs of Da. Petrona Reyes. Such as the facts which gave rise to this litigation. The trial court rendered judgment in the case, declaring that the 610 shares of stock in dispute and their dividends belong to the plaintiff, and ordered the defendant Da. Tomasa Osorio, administratrix of the estate of Da. Petrona Reyes, to exclude them from the inventory and her accounts, and the other defendant The Ynchausti Steamship Co. to inscribe them in the name of the plaintiff D. Leonardo Osorio, delivering to him the dividends corresponding thereto, and denied the counterclaim for the sum of P45,000, on the ground that said sum represents the dividends corresponding to the P94,000 adjudicated to Da. Petrona Reyes, in the partition of the estate of D. Antonio Osorio, and donated by her to the defendant in the counterclaim. The case having been appealed to this court, counsel for the defendant and appellant, in summing up their arguments in support of the errors assigned in their brief, maintain the two following propositions: 1. The donation made by Da. Petrona Reyes in favor of the plaintiff was of no value and effect; and 2. That, supposing said donation valid, the 610 shares of stock, the value of which is P61,000, cannot be considered as included among them. The document of donation dated February 28, 1914, attacked by the appellant, is as follows:

Know all me by these presents: That I, Petrona Reyes, of age, widow of D. Antonio Osorio and resident of the Province of Cavite, Philippine Islands, being in possession of all my senses, freely and voluntarily state: 1. That my husband, the deceased D. Antonio Osorio, was a shareholder to the extent of one-third in the joint account association Ynchausti & Co. of this place, which is engaged in the business of buying vessels and in the exploitation of six steam vessels acquired from the Compaia Maritima, the article of association of said joint account association having been executed in the city of Manila on July 3, 1906, before the notary public D. Florencio Gonzales Diez. 2. That upon the death of my husband D. Antonio Osorio and upon the partition of his estate, there was adjudicated to me as conjugal property, one-half of said one-third part in the business referred to, the other half thereof going to our four surviving children, such being the present condition of our interest in said company. 3. That in consideration of the continuous services and attention received by me from my son D. Leonardo Osorio, of age, married and a resident of Cavite also, and because of the affection he has always shown and still shows me, as well as because of the number of children that he has, I make a free and expressed donation to my said son D. Leonardo Osorio of all my interest and participation in said company Ynchausti and Co. which is neither transferred nor burdened in any manner whatever. 4. I also declare that the present donation does not in any way prejudice the right which may accrue to my other children with respect to inheriting my property and that therefore I can effect this donation, with all liberty, as I reserve for myself what is sufficient for me to live on in the manner which corresponds to my social position and needs. 5. In turn, I, Leonardo Osorio, of age, married and a resident of the Province of Cavite, state my conformity and acceptance of said donation which my dear mother makes to me, for which I am greatly thankful to her. In witness whereof we sign the present document in triplicate at Manila, Philippine Islands, this twenty-eighth day of February, nineteen hundred and fourteen. (Sgd.) PETRONA REYES.LEONARDO OSORIO. Signed in the presence of:(Sgd.) EUSEBIO ALBA.SALVADOR BARRIOS. Acknowledged before the notary public D. Florencio Gonzales Diez on February 28, 1914. The document rectifying the ratifying the preceding is literally as follows: Know all men by these presents: That I, Petrona Reyes, of age, widow of D. Antonio Osorio and resident of the Province of Cavite, Philippine Islands, being in the full possession of my senses, freely and voluntarily declare: 1. That on February 28, 1914, before the notary public of Manila, D. Florencio Gonzales Diez, I executed a document of donation in favor of my son D. Leonardo Osorio, of one-half of the one-third part which my deceased husband had in certain shipping business of the association Ynchausti & Co. 2. That in said document I stated, through error, that said half of one-third part of the business referred to was adjudicated to me as my part of the conjugal property in the partition of the properties left by my deceased husband, when the truth was that said partition had not yet been put in proper form or finished. 3. That in order to correct said error, I so state, declaring however in any event that I make said donation subsisting in the sense that I cede and donate to my side son D. Leonardo Osorio, in consideration of the same causes mentioned in said document of February 28, 1914, all interest or share in said shipping business of Ynchausti & Co. which was adjudicated to me in the partition of the estate of my deceased husband, and approved by the Court of First Instance of Cavite, on May 10, 1915. In witness whereof I sign the present document in triplicate of Cavite on July 3, 1915. (Sgd. by): PETRONA REYES. Signed in the presence of:

(Sgd.) CARLOS LEDESMA.ISAURO GABALDON. In support of the first proposition, the appellant invokes as the legal provision violated, article 635 of the Civil Code, which says: A donation can not include future property. By future property is understood that of which the donor can not dispose at the time of making the donation. Commenting on article 635 of the Civil Code, Manresa says, among other things: To close these fundamental ideas which the spirit of articles 634 and 635 develops we must fix our attention to the definition which the Code gives of future properties. They are those of which the donor cannot dispose at the time of making the donation. This definition in reality includes all properties which belong to others at the time of the donation, although they may or may not later belong to the donor, thus connecting two ideas which, although lacking apparently in relation, are merged in reality in the subject which we examine and which gives assurance to their application. Article 635 refers to the properties of third persons but it may be said that id does so in relation to a time to come; there can be properties which may latter belong to the donor; but these properties cannot be donated, because they are not at present his properties, because he cannot dispose of them at the moment of making the donation. The usufructuary for life or for a determined number of years of a vineyard may donate said usufruct to the whole extent that it belongs to him but never the property itself. The bare owner of said vineyard may donate his right of course; but he may also donate the usufruct which corresponds to the time that it will go back to him, because the case refers to a vested right of which he may dispose at the time of the donation. It is alleged that the donation made by Da. Petrona Reyes is void because she donated on February 28, 1914, a future property, such as the share in the business of the deceased Osorio, which was adjudicated to her on May 10, 1915, and because in 1914 she did not have the right to all or part of the share which her deceased husband had in the shipping business of Ynchausti & Co. Carefully examining said article 635 of the Civil Code, in relation to the worthy opinion of the commentator Manresa, we believe that the future properties, the donation of which is prohibited by said article, are those belonging to other, which, as such, cannot be the object of the disposal by the donor; but the properties of an existing inheritance as those of the case at bar, cannot be considered as anothers property with relation to the heirs who through a fiction of law continue the personality of the owner. Nor do they have the character of future property because the died before 1912, his heirs acquired a right to succeed him from the moment of his death, because of the principle announced in article 657 and applied by article 661 of the Civil Code, according to which the heirs succeed the deceased by the mere fact of his death. More of less time may elapse before the heirs enter into the possession of the hereditary property, but this is not an obstacle, for the acquisition of said property retroacts in any event to the moment of death, according to article 989 of the Civil Code. The right is acquired although subject to the adjudication of the corresponding hereditary portion. Furthermore the Civil Code does not prohibit absolutely that future inheritance should be the object of agreement, for there are certain cases (arts. 177, 827, 831, and 1331) in which agreements may be made as to them, beside that indicated in article 1271, and it may be deduced that an inheritance already existing, which is no longer future from the moment of death of the predecessor, may legally be the object of contract. A donation being of a contractual nature, inasmuch as for its efficacy the concurrence of two wills is required, that of the donor and the donee, we believe that which may be the object of contract may also be the object of a donation. Ubi eadem est ratio, ibi est eadem legis dispositio. We conclude that the donor Da. Petrona Reyes, on February 28, 1912, and could legally dispose of her right through an act of liberality, as she had done. With respect to the point that Da. Petrona Reyes did not have in 1914 any right to all or part of the share of her deceased husband in the shipping business of Ynchausti and Co., it must be observed that in the project of partition of the property of D. Antonio Osorio the following appears: The widow of the testator, Maria Petrona Reyes, her children Feliza, Tomasa, and Leonardo and her granddaugther Soledad Encarnacion Osorio y San Agustin are at present all living and are the only heirs of the deceased. The testator declares that all property left by him was acquired during his marriage with Petrona Reyes. The testator institutes as his only and universal heirs his said children and granddaugther, designates the parts which each of them must receive as legitime, betterment, and legacy, leaves to the disposition of his widow and amount equivalent to that set aside by him in payment of one-half part of the conjugal property and orders that the remainder should be equally distributed among his heirs.

We do not have before us the will of D. Antonio Osorio but supposing that he had left no property but the share which he had in the shipping business of Ynchausti & Co., can it be denied that the donor by law had the right to half of said share as her part of the conjugal property? Clearly not. The defendant in her answer says: That Da. Maria Petrona Reyes did not donate to the plaintiff more that her share in the shipping business of the firm Ynchausti & Co. which was adjudicated to her in the partition of the property of D. Antonio Osorio and that said share amounts to P94,000. This admission of the defendant is conclusive, and makes it unnecessary for us to enter into another discussion in order to deduce that Da. Petrona Reyes had in 1914 a right to a certain part of the interest of the deceased Osorio in the shipping business of the firm Ynchausti & Co., and could donate it, as she did, to her son D. Leonardo Osorio. The allegation that the document of July 3, 1915, is void, because it does not show the acceptance of the donee, is of no importance, because of the conclusion we have reached in discussing the document of donation of February 28, 1914. In the second document, the donor only tried to correct what she believed to be an error in the first, wherein it is stated that in the partition of the property of her husband there was adjudicated to her the part of the interest in the shipping business of Ynchausti & Co. which she donated to her son Leonardo, when in fact said partition was yet pending. After its approval by the Court of First Instance of Cavite, the donor executed the document of 1915, ratifying and correcting the document of donation. She did not make a new donation. She executed a personal act which did not require the concurrence of the donee. It is the duty of the donee, in order that the donation may produce legal effect, to accept to the donation and notify the donor thereof. The acceptance is necessary because nobody is obliged to receive a benefit against his will. And all this was complied with in the document of 1914. The wills of the donor and of the donee having concurred, the donation, as a mode of transferring ownership, becomes perfect, according to article 623 of the Civil Code. We will not pass to the second proposition of the appellant, that is, that the 610 shares, which are the subject matter of the suit, cannot be considered as included in the donation made by Da. Petrona Reyes in favor of the plaintiff, supposing that said donation was valied. The reasons alleged by the appellant are: (1) That the steam vessel Governor Forbes was purchased after the death of D. Antonio Osorio, with money borrowed and furnished by the heirs individually and not by the estate, and (2) that the plaintiff appellee has recognized that the capital used in the steamer Forbes is distinct from the money used in the purchase of other vessels in which the deceased Osorio had an interest. The question whether the streamer Governor Forbes was or was not purchased with money furnished by Ynchausti and the heirs of Osorio, indepedently of that former partnership in which the deceased Osorio had an interest, is one of the fact and must be resolved in view of the evidence adduced at the trial. D. Julio Gonzales, secretary and accountant of the firm Ynchausti, witness for the defendant, states that the Forbes was purchased with money which the shipping business of Unchaisti & Co. had. The appellant herself admits that his vessel took part in the general shipping business of Ynchausti & Co. for no new partnership was constituted for the purchase thereof, and, after its acquisition the Ynchausti firm accounted to the estate of D. Antonio Osorio for the profits obtained and the dividends to be distributed and no separate account was made of the earnings of the vessel, but only a general account, including the profits obtained in the shipping business, in which the Governor Forbes was but one of several vessels. D. Joaquin Elizalde, manager of the firm Ynchausti & Co., by agreement of the parties and with the approval of the court, made a deposition before the notary public D. Florencio Gonzales Diez, stating that when the steamer Forbes was acquired in 1912, the Ynchausti firm did not bring in any new capital, but obtained money for its purchase by mortgaging the vessel itself and other vesseles of the company; and that the heirs of D. Antonio Osorio did not bring in any new capital for the purchase of the vessel, but signed jointly with Ynchausti & Co. with the others, except Da. Soledad Osorio, the guaranty which the bank required. In our opinion the evidence shows conclusively that the vessel Governor Forbes forms part of the shipping business of Ynchausti & Co. in which D. Antonio Osorio and his estate had an interest. It is no argument against this conclusion that the heirs of Osorio signed with Ynchausti & Co. the guaranty required by the bank where the money used in the purchase of the Forbes was taken: (1) Because the guaranty is for the purpose only for securing the payment of the amount indebted and not for excluding the estate of Osorio from the result of that banking operation; (2) because, besides said guaranty, the other vessels of the joint account association of Osorio and Ynchausti & Co. were mortgage; (3) because no new partnership was formed between Ynchausti & Co. and the heirs of Osorio for the purchase of the vessel Forbes; and (4) because, when Unchausti & Co. agreed with the heirs of Osorio in that his share in the steamer Forbes was P108,333.33, this sum was distributed among said heirs, including Da. Soledad Osorio who did not sign the guaranty, the accruing to each P11, 833.33 and to the widow Da. Petrona Reyes P61,000, which is the object of this suit.

All of the above shows that the estate of Osorio had a one-third part of the steamer Forbes represented by the capital which was distributed among the heirs, there accruing to the widow, by agreement of the interested parties, the sum of P61,000. And this sum being part of the one-half of one-third of the shipping business of Ynchausti & Co., which one-half part accrued to the widow in the distribution of the properties of Osorio; and the widow Da. Petrona Reyes having disposed of this half, donating it to her son D. Leonardo Osorio, it clearly results, in our opinion, that the sum of 61,000, or the corresponding shares of the new corporation The Ynchausti Steamship Co. are included in said donation, and therefore belong to the plaintiff-appellee. The other reason alleged by the appellant in support of her contention is that the plaintiff has recognized in his letter addressed to the defendant corporation, and inserted in the answer presented by the latter that the Forbes was acquired with money different from that of the joint account association theretofore mentioned. We have carefully read the letter in question and what appears is that said plaintiff agreed that the P61,000 should be deposited with Ynchausti & Co., as trustee, to be distributed with its accumulated dividends, when the question between the heirs of Da. Petrona Reyes had already been terminated, that is to say, according to the result of the present suit. There is nothing in said letter which indicates how the Governor Forbes was acquired. With respect to the counterclaim of P45,609,91, we are of the opinion that the evidence justifies the conclusion of the trial court that they are the profits or dividends accruing to the P94,000, which were adjudicated to the widow Da. Petrona Reyes in the distribution of the estate of the deceased Osorio and which were donated by her to the plaintiff, and as such profits they belong to the latter, upon the principle of law that ownership of property gives right by accession to all that it produces, or is united or incorporated thereto, naturally or artificially. (Art. 353 of the Civil Code.) In view of what has been said, the judgment appealed from should be, as it is hereby, affirmed, with costs against the appellant. So ordered.

G.R. No. L-4963

January 29, 1953

MARIA USON, plaintiff-appellee, vs. MARIA DEL ROSARIO, CONCEPCION NEBREDA, CONRADO NEBREDA, DOMINADOR NEBREDA, AND FAUSTINO NEBREDA, Jr., defendants-appellants. BAUTISTA ANGELO, J.: This is an action for recovery of the ownership and possession of five (5) parcels of land situated in the Municipality of Labrador, Province of Pangasinan, filed by Maria Uson against Maria del Rosario and her four children named Concepcion, Conrado, Dominador, and Faustino, surnamed Nebreda, who are all of minor age, before the Court of First Instance of Pangasinan. Maria Uson was the lawful wife of Faustino Nebreda who upon his death in 1945 left the lands involved in this litigation. Faustino Nebreda left no other heir except his widow Maria Uson. However, plaintiff claims that when Faustino Nebreda died in 1945, his common-law wife Maria del Rosario took possession illegally of said lands thus depriving her of their possession and enjoyment. Defendants in their answer set up as special defense that on February 21, 1931, Maria Uson and her husband, the late Faustino Nebreda, executed a public document whereby they agreed to separate as husband and wife and, in consideration of their separation, Maria Uson was given a parcel of land by way of alimony and in return she renounced her right to inherit any other property that may be left by her husband upon his death (Exhibit 1). After trial, at which both parties presented their respective evidence, the court rendered decision ordering the defendants to restore to the plaintiff the ownership and possession of the lands in dispute without special pronouncement as to costs. Defendants interposed the present appeal. There is no dispute that Maria Uson, plaintiff-appellee, is the lawful wife of Faustino Nebreda, former owner of the five parcels of lands litigated in the present case. There is likewise no dispute that Maria del Rosario, one of the defendants-appellants, was merely a common-law wife of the late Faustino Nebreda with whom she had four illegitimate children, her now co-defendants. It likewise appears that Faustino Nebreda died in 1945 much prior to the effectivity of the new Civil Code. With this background, it is evident that when Faustino Nebreda died in 1945 the five parcels of land he was seized of at the time passed from the moment of his death to his only heir, his widow Maria Uson (Article 657, old Civil Code).As this Court aptly said, "The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death" (Ilustre vs. Alaras Frondosa, 17 Phil., 321). From that moment, therefore, the rights of inheritance of Maria Uson over the lands in question became vested. The claim of the defendants that Maria Uson had relinquished her right over the lands in question because she expressly renounced to inherit any future property that her husband may acquire and leave upon his death in the deed of separation they had entered into on February 21, 1931, cannot be entertained for the simple reason that future inheritance cannot be the subject of a contract nor can it be renounced (1 Manresa, 123, sixth edition; Tolentino on Civil Code, p. 12; Osorio vs. Osorio and Ynchausti Steamship Co., 41 Phil., 531). But defendants contend that, while it is true that the four minor defendants are illegitimate children of the late Faustino Nebreda and under the old Civil Code are not entitled to any successional rights, however, under the new Civil Code which became in force in June, 1950, they are given the status and rights of natural children and are entitled to the successional rights which the law accords to the latter (article 2264 and article 287, new Civil Code), and because these successional rights were declared for the first time in the new code, they shall be given retroactive effect even though the event which gave rise to them may have occurred under the prior legislation (Article 2253, new Civil Code). There is no merit in this claim. Article 2253 above referred to provides indeed that rights which are declared for the first time shall have retroactive effect even though the event which gave rise to them may have occurred under the former legislation, but this is so only when the new rights do not prejudice any vested or acquired right of the same origin. Thus, said article provides that "if a right should be declared for the first time in this Code, it shall be effective at once, even though the act or event which gives rise thereto may have been done or may have occurred under the

prior legislation, provided said new right does not prejudice or impair any vested or acquired right, of the same origin." As already stated in the early part of this decision, the right of ownership of Maria Uson over the lands in question became vested in 1945 upon the death of her late husband and this is so because of the imperative provision of the law which commands that the rights to succession are transmitted from the moment of death (Article 657, old Civil Code). The new right recognized by the new Civil Code in favor of the illegitimate children of the deceased cannot, therefore, be asserted to the impairment of the vested right of Maria Uson over the lands in dispute. As regards the claim that Maria Uson, while her deceased husband was lying in state, in a gesture of pity or compassion, agreed to assign the lands in question to the minor children for the reason that they were acquired while the deceased was living with their mother and Maria Uson wanted to assuage somewhat the wrong she has done to them, this much can be said; apart from the fact that this claim is disputed, we are of the opinion that said assignment, if any, partakes of the nature of a donation of real property, inasmuch as it involves no material consideration, and in order that it may be valid it shall be made in a public document and must be accepted either in the same document or in a separate one (Article 633, old Civil Code). Inasmuch as this essential formality has not been followed, it results that the alleged assignment or donation has no valid effect. WHEREFORE, the decision appealed from is affirmed, without costs.

G.R. No. L-4170

January 31, 1952

Intestate of the late AGUSTIN MONTILLA, SR.; PEDRO LITONJUA, a movant-appellant, vs. AGUSTIN B. MONTILLA, JR., administrator-appellee; CLAUDIO MONTILLA, oppositor-appellee. In Civil Case No. 868 of the court of First Instance of Negros Occidental, Pedro L. Litonjua obtained a judgment against Claudio Montilla for the payment of the sum of P4,000 with legal interest, plus costs amounting to P39.00 In due time, a writ of execution was issued, but no property of Claudio Montilla was found which could be levied upon. On June 12, 1950 Pedro L. Litonjua filed in special Proceeding No 32 of the Court of First Instance of Negros Occidental, Intestate Estate of Agustin Montilla, Sr., deceased, a motion praying that the interest, property and participation of Claudio Montilla, one of the heirs of Agustin Montilla, Sr., in the latter's intestate estate be sold and out of the proceed the judgment debt of Claudio Montilla in favor of Pedro L. Litonjua be paid. This motion was opposed by Claudio Montilla and by Agustin Montilla, Jr., administrator of the intestate estate. On August 7, 1950, the Court of First Instance of Negros Occidental issued an order denying the motion. From this order Pedro L. Litonjua appealed. In the case of Ortiga Brothers and Co. vs. Enage and Yap Tico, 18 Phil. 345, it was held that the creditor of the heirs of a deceased person is entitled to collect his claim out of the property which pertains by inheritance to said heirs, only after the debts of the testate or intestate succession have been paid and when the net assets that are divisible among the heirs are known, because the debts of the deceased must first be paid before his heirs can inherit. It was therein also held that a person who is not a creditor of a deceased, testate or intestate, has no right to intervene either in the proceedings brought in connection with the estate or in the settlement of the succession. We quote hereunder pertinent passages of the decision. A person who, having claim against a deceased person which should be considered by the committee does not, after publication of the required notice, exhibit his claim to the committee as provided by law, shall be barred from recovering such demand or from pleading the same as an offset to any action, under the provisions of section 695 of the Code of Civil Procedure, excepting the case referred to in section 701 of the same; with still less reason can one who is not a creditor of the said deceased intervene in the proceedings relative to the latter's intestate estate and to the settlement of his succession (article 1034 of the Civil Code), because such creditor has no right or interest that call for the protection of the law and the courts, except in any remainder which may be found due the heir. It is true that Yap Tico, as the creditor of the widow and heirs of the deceased Ildefonso, is entitled to collect what is due him out of the property left by the latter and which was inherited by such widow and heirs, but it is no less that only after all the debts of the said estate have been paid can it be known what net remainder will be left for division among the heirs, because the debts of the deceased must be paid before his heirs can inherit. (Arts. 659 et seq. 1026, 1027, and 1032 of the civil Code, and secs. 734 et seq., Code of Civil Code Procedure.) An execution cannot legally be levied upon the property of an intestate succession to pay the debts of the widow and heirs of the deceased, until the credits held against the latter at the time of his death shall have been paid can the remaining property that pertains to the said debtors heirs can be attached (Art. 1034, aforecited, Civil Code.) (pp. 350-251) The foregoing pronouncements are perfectly applicable to the case at bar, because the appellant is not a creditor of the deceased Agustin Montilla, Sr. and he seeks to collect his claim out of the inheritance of Claudio Montilla, an heir, before the net assets of the intestate estate have been determined. Wherefore, the appealed order is affirmed, and it is so ordered with costs against the appellant.

G.R. No. L-4777

November 11, 1908

SUILIONG & CO., as liquidators of The Yek Tong Lim Fire, Marine, and Insurance Co., Ltd., plaintiffsappellees, vs. SILVINA CHIO-TAYSAN, defendant-FRANCISCA JOSE, intervener-appellant. Avelina Caballero, deceased, owned during her lifetime a certain tract of land, which was duly inscribed in her name in the land registry of the city of Manila. On March 27, 1903, she borrowed from Francisca Jose, the intervener and appellant in this action, 1,000 pesos, Mexican currency, and turned over her title deeds to this tract of land to the lender as security for the loan, but no entry touching the transaction was noted in the land registry. Avelina Caballero died on the 5th day of June, 1903, and thereafter Silvina Chio-Taysan, the defendant in this action, instituted in the Court of First Instance of Manila an action, known, under the system of civil procedure in existence prior to the adoption of the present code, as an "action for the declaration of heirship" and on the 5th day of August, 1903, the following order declaring her to be the only and exclusive heir of Avelina Caballero, deceased, was issued in that proceeding: [United States of America, Philippine Islands. In the Court of First Instance of Manila. Part III.] It having been proven by both documental and oral evidence introduced in the above-cited case, that the petitioner Silvina Chio-Taysan y Caballero is the daughter of Jose Chio-Taysan and Avelina Caballero, who died on the 29th of April, 1895, and on the 5th of June, 1903, respectively, without leaving any other descendant or having executed any will; and there being no objection whatever to the claim of the petitioner, it is hereby declared that the said Silvina Chio-Taysan y Caballero is the legal heir abintestato of her deceased parents, the said Jose Chio-Taysan and Avelina Caballero, in conformity with the provisions of the Civil Code now in force. Let a certificate of this decision be issued to the interested party and those who may hereafter apply for the same. So ordered. A.S. CROSSFIELD, Judge. On March 9, 1904, the registrar of deeds of the city of Manila by virtue of this order entered the following inscription in the land registry whereby the said Silvina Chio-Taysan is made to appear as the owner of the land in question: Ninth inscription. Urban property. A parcel of land and a house of a strong materials, tile roofed, built thereon, marked number eight, situated in Calle Lavezares of the district of Binondo, this city, the remaining description of which appears in the first inscription of this number. It has no encumbrances. Doa Avelina Caballero y Bugnot, of age, widow, of this vicinity, is the owner of this property under a title of repurchase, according to the proceeding inscription. Said lady and her husband, Don Jose Chio-Taysan, died on June 5, 1903, and April 29, 1895, respectively, and neither of them having executed a will, the corresponding intestate proceedings were instituted, in which an order was issued on August 5, 1903, by A.S. Crossfield, judge of the third sala of the Court of First Instance of this city, declaring their daughter, Silvina Chio-Taysan y Caballero, their intestate heir. By virtue thereof, I inscribe, in favor of the said Silvina Chio-Taysan y Caballero, the right she was acquired over the property of this number, under title by intestate inheritance. All the above appears from the previous records and from the copy of the above judicial order, issued by Don Salvador Chofre, assistant clerk of the Court of First Instance of this city, on August 5, 1903, which document was presented to this registry at 8:50 a. m. on the 25th day of February last, as per record No. 452, page 266, of the 7th volume of the Diario. And all the above being in accordance with the document above referred to, I sign these presents in Manila, on March 9, 1904 Fees: $7.50, No. 7, Tariff of Fees. Alberto Barretto. On the 26th day of May, 1904, the said Silvina Chio-Taysan borrowed the sum of P2,500 from the Fire and Marine Insurance and Loan Co., of which the plaintiff is the lawfully appointed liquidator, and mortgaged the land in question as security for the repayment of the loan. Thereafter the husband of Silvina Chio-Taysan instituted special proceedings under the provisions of the present Code of Civil Procedure, for the administration of the estate of Avelina Caballero, deceased, and on the 16th day of October, 1905, he was, in accordance with his petition, appointed administrator; and thereupon, submitted as such

administrator, an inventory of the property of the estate, in which was included the land in question; and on the 28th of November, 1905, Francisca Jose, the intervener in this action, submitted her claim to the commissioner appointed in these proceedings, for the sum of 1,000 pesos, Mexican currency, loaned the deceased, as above set out, on the 28th day of March, 1904, which claim was duly approved on the 31st of August, 1906. On the 10th day of October, 1906, the plaintiff in this action filed its complaint against the defendant, Silvina ChioTaysan, praying for judgment for the amount loaned her as above set out, and the foreclosure of its mortgage upon the land. To this complaint the defendant, Silvina Chio-Taysan, filed her answer, admitting the facts alleged in the complaint and declining to interpose any objection to the prayer of the complaint; but on the 30th of October, 1907, Francisca Jose was permitted to intervene and file her separate "complaint in intervention" wherein she set out the facts touching the loan made by her to Avelina Caballero, deceased, and prayed that the court declare the mortgage executed by Silvina Chio-Taysan rescinded and of no effect; and further that it annul the inscription in the land registry of the title of Silvina Chio-Taysan to the land in question; and declare this land subject to her claim against the estate of Avelina Caballero, deceased. lawphil.net The trial court entered judgment in favor of the plaintiff and against both the defendant and the intervener in conformity with the prayer of the complaint, and the intervener brings that judgment before this court for review upon her bill of exceptions duly signed and certified. We do not think that the judgment of the trial court can be sustained in so far as it wholly denies relief to the intervener, Francisca Jose. The trial judge denied the relief prayed for by the intervener, on the ground that her intervention in this action was for the purpose of the written title deeds on the land, and that, since she admitted that she had admitted her claim against the estate of Avelina Caballero, deceased, to the committee appointed in the administration proceedings, she must be taken to have abandoned, whatever lien she may have held as security therefor, in accordance with the provisions of section 708 of the Code of Civil Procedure. The prayer of her complaint in intervention, however, is merely for the rescission and annulment of the mortgage contract between the loan company and the defendant and of the inscription in the land registry of the title of the defendant, and a declaration that as a creditor of the estate she has a superior right to that of the plaintiff company in the proceeds of any sale of the land in question. She does not seek to enforce her claim and recover her debt in this proceeding, but merely to prevent the plaintiff from securing a judgment in this action which would take out of the estate property which she believes to be subject to her claim set up in the administration proceedings. If her contentions are well founded, and if the estate of the deceased is subject to the payment of the debts of the deceased in such form that the heirs of the deceased could not alienate this land free of the claims of the creditors of the deceased against the land, for the payment of their claims against the deceased, the intervener is clearly entitled to at least so much of the relief she seeks in this action as will have the effect of preventing the sale of this land under the plaintiff's foreclosure proceedings, free of the claims of creditors of the deceased, because, if the plaintiffs in this action were permitted to foreclosure their mortgage and to recover their debt from the sale of the land in question, it might well be that there would not be sufficient property in the estate to pay the amount of the claim of the intervener against the estate. Had the transactions above set out in taken place under the system of law in force in these Islands immediately prior to the 1st day of October, 1901, when the new Code of Civil Procedure went into effect, there would be no difficulty in determining the respective rights of the various parties to this action. Article 657 of the Civil Code provides that Los derechos a la succession de una persona se transmiten desde el momento de su muerte. (The rights to the succession of another are transmitted from the moment of his death); and article 661 provides thatLos herederos suceden al difunto por el hecho solo de su muerte en todos sus derechos y obligaciones. (Heirs succeed the deceased by the mere fact of his death, in all rights and obligations). Under these, and co-related provisions of the Civil Code, a sole and exclusive heir (as defined in article 660 of the Civil Code) became the owner of the property and was charged with the obligations of the deceased at the moment of his death, upon precisely the same terms and conditions as the property was held and as the obligations had been incurred by the deceased prior to his death, save only that when he accepted the inheritance, "with benefit of an inventory" he was not held liable for the debts and obligations of the deceased beyond the value of the property which came into his hands. The property of the deceased, both real and personal, became the property of the heir by the mere fact of death of his prodecessor in interest, and he could deal with it in precisely the same way in which the deceased could have dealt with it, subject only to the limitations which by law or by contract were imposed upon the deceased himself. He could alienate or mortgage it with the same freedom as could the deceased in his lifetime; the unsecured debts and

other personal obligations of the deceased becoming the unsecured debts and personal obligations of the heir for which he was held personally responsible in precisely the same manner as the deceased, save only, as has been said before, where he availed himself of the privilege of taking the estate "with the benefit of an inventory," in which case the extent of his liability was limited to the value of the estate which came into his hands, though in other respects its character as a personal liability remained unchanged. Thus death created no new lien in favor of creditors upon the property of the deceased, which was not in existence at the time of his death; personal debts and obligations of the deceased becoming the personal debts and obligations of the heir, to whom the creditor was compelled to look for payment, with no new right in or to the property of the decease, in the hands of the heir, which he did not have in or to such property in the hands of the deceased. (Title 3, Book of the Civil Code.) Spanish procedural law provided an action known as an action for the declaration of heirship (declaracion de herederos) whereby one claiming the status of heir could have his right thereto judicially declared, and this judicial declaration of heirship unless and until set aside or modified in a proper judicial proceeding, was evidence of the fact of heirship which the officials charged with the keeping of the public records, including the land registry, were bound to accept as a sufficient basis for the formal entry, in the name of the heir, of ownership of the property of the deceased. It is evident therefore that, unless the provisions of Spanish procedural and substantive law, in force when the new Code of Civil Procedure went into effect, have been repealed or modified thereby, the defendant in this action, Silvina Chio-Taysan, who was judicially declared to be the sole and universal heir of Avelina Caballero, deceased, became, by the mere fact of the death of Caballero, the absolute owner of the tract of land in question, subject only to such liens thereon as may have existed prior thereto, the personal obligations of the deceased also passing to her at the same time; that, upon proof of such judicial declaration of heirship, the register of deeds of the city of Manila properly entered Chio-Taysan in the land registry as the owner of this land by right of inheritance; and that the Loan Company, of which the plaintiffs are the duly appointed liquidators, was entitled to rely on the properly noted entries in the land registry and that the company's mortgage deed from Chio-Taysan, in whose name the land is registered, could not be affected by the unrecorded claim of the indebtedness of the intervener, who must look to the heirs for the recovery of her debt. But both the substantive and procedural law touching rights of succession and their enforcement, which were in force in these Islands when the new Code of Civil Procedure went into effect, have, to a greater or less degree, been repealed or modified by its enactment; and we are of opinion that, under the provisions of the new code, the heir is not a such personally responsible for the debts of the deceased, in whole or in part; and on the other hand, the property of the deceased comes to him charged with the debts of the deceased, so that he can not alienate or charge it free of such debts, until and unless they are extinguished either by payment, prescription, or satisfaction in one or other of the modes recognized by law. It must be admitted that we can not point out the specific section of the new Code of Civil Procedure which in express terms repeals the old law and formally enacts the new doctrine of succession just laid down; but we think that an examination of the various provisions of that code touching the administration of the estates of deceased person leaves no room for doubt that they do so by necessary implication. The legislators who enacted this code were more especially acquainted with the American and English systems of legislation, and in most of its provisions closely adhered to American precedent. It substantially repeals in toto the proceedings prescribed under the old law for the administration of estates of deceased persons, and substitutes therefor a system similar to that generally adopted in the United States; most of its provisions having been borrowed word for word from the codes of one or other of the various States. The substantive law in force in these Islands being in many respects, and especially in regard to rights of inheritance, wholly different from that in force in the various States from which the new system of administration of the estates of deceased persons was adopted, many irreconcilable conflicts are to be found between the provisions of the new and the old law, so that it becomes necessary either to declare a great part of the provisions of the new Code of Procedure void and no effect, as wholly inapplicable, or to hold that in such cases the provisions of substantive as well as procedural law in conflict or inconsistent with the provisions of the new Code of Procedure are repealed, or amended by the substitution of such other provisions as are clearly necessary as a basis upon which the new provisions of procedural law are predicated.

An examination more especially of sections 597, 644, 695, 727, 729, 731, 733, and 749 of the Code of Civil Procedure, read together with the remaining provisions for the administration of the estates of deceased persons, clearly indicates that the provisions of articles 660 and 661 of the Civil Code have been abrogated. These provisions of the new code clearly demonstrate that the terms heredero and legatario, as defined in the Civil Code (art. 660), are not synonymous with the words "heir" and "legatee," as used in the new code; the word "heir" in the new code being technically and applicable only to a relative taking property of an intestate by virtue of the laws of descent, devisee and legatee being reserved for all persons whether relatives or not, taking respectively real or personal property by virtue of a will; while heredero in the Civil Code was applicable not only to one who would be called an "heir," under the provisions of the new code, but also to one, whether relative or not, who took what might be called "a residuary estate under a will" (el que sucede a titulo universal). It appears also from an examination of these provisions that the legislature has provided no machinery whereby an absolute right on the part of the heir to succeed by the mere fact of death to all the rights and property of the deceased may be enforced, without previous payment or provision of the payment of the debts; and on the other hand, it has provided machinery for the enforcement of the debts and other obligations of the deceased, not as debts or obligations of the heir, but as debt or obligations of the deceased, to the payment of which the property of the deceased may be subjected wherever it be found. Thus section 597 expressly provides that, in those cases where settlement of an intestate estate may be made without legal proceedings, either by a family council, as known under the Spanish law, or by an agreement in writing executed by all the heirs, the real estate of the deceased remains charged with liability to creditors of the deceased for two years after the settlement, "notwithstanding any transfers thereof that may have been made;" and we think the inference is clear that the legislator in this section recognizes and affirms the doctrine that, prior to the date of such settlement, the real estate at least was charged in like manner with the debts of the deceased. So it will be found that, where the legal proceedings are had looking to the settlement of testate or intestate estates, provision is made for the recovery of claims against the deceased, not by proceedings directed against the heir, but by proceedings looking directly to the subjection of the property of the deceased to the payment of such claims; the property both real and personal being, in express terms, made chargeable with the payment of these debts, the executor or administrator having the right to the possession of the real as well as the personal property, to the exclusion of the heirs, so long as may be necessary for that purpose (secs. 727 and 729). For practical purposes it may well be said that in the eye of the law, where there is no remedy to enforce an alleged right when it is invaded, the existence of the right may safely be denied; and where the law furnishes a remedy whereby one may enforce a claim, that claim is a right recognized and established by the law. The new Code of Procedure furnishing no remedy whereby the provisions of article 661 of the of the Civil Code may be enforced, in so far as they impose upon the heredero (heir) the duty of assuming as a personal obligation all the debts of the deceased, at least to the extent of the value of the property received from the estate; or in so far as they give to the heredero the reciprocal right to receive the property of the deceased, without such property being specifically subjected to the payment of the debts to the deceased by the very fact of his deceased, these provisions of article 661 may properly be held to have been abrogated; and the new code having provided a remedy whereby the property of the deceased may always be subjected to the payment of his debts in whatever hands it may be found, the right of a creditor to a lien upon the property of the deceased, for the payment of the debts of the deceased, created by the mere fact of his death, may be said to be recognized and created by the provisions of the new code. (Pavia vs. De la Rosa, 8 Phil. Rep., 70). It is evident, therefore, that a judgement in an action for the declaration of heirship in favor of one or more heirs could not entitle such persons to be recognized as the owner or owners of the property of the deceased on the same terms as such property was held by the deceased, for it passes to the heir, under the new code, burdened with all the debts of the deceased, his death having created a lien thereon for the benefit of creditor; and indeed an examination of the proceedings prescribed in the new Code of Civil Procedure for the administration and distribution of the estates of deceased persons leaves no room for doubt that those proceedings are exclusive of all other judicial proceedings looking to that end, and supersede the judicial proceeding for the declaration of heirship, as recognized in the old procedure, at least so far as that proceeding served as a remedy whereby the right of specific persons to succeed to the rights and obligations of the deceased as his heirs might be judicially determined and enforced. Examining the facts in the case at bar, in the light of the doctrine as to the law of succession as thus modified and amended by the new Code of Civil Procedure, which went into effect prior to the death of Avelina Caballero, it is

evident that her death created a lien upon her property in favor of the intervener Francisca Jose, for the payment of the debt contracted by her during her lifetime, and that this lien ought to have and has priority to any lien created upon this property by the heir of the deceased; that the judicial declaration of heirship in favor of Silvina ChioTaysan, could not and did not furnish a basis for an entry in the land registry of the name of Silvina Chio-Taysan as the absolute owner of the property of Avelina Caballero; that such entry, improperly made, could not and did not prejudice the lien of the intervener, Francisca Jose, for the debt due her by the deceased (Mortgage Law, art. 33); and that the mortgage of the property of the deceased by her heir, Silvina Chio-Taysan, was subject to the prior lien of the intervener, Francisca Jose, for the payment of her debt. It is not necessary for us to consider the action of the court below in ordering the foreclosure of the mortgage, in so far as it affects the defendant Silvina Chio-Taysan who did not appeal; but we think that the intervener, who is seeking to subject the property of the deceased to the payment of her debt in the administration proceedings now pending, is clearly entitled to so much of the relief prayed for as will have the effect of preventing the application of the proceeds of the sale of this land under foreclosure proceedings to the payment of debts contracted by the heir until and unless it shall appear that the residue of the estate of the deceased is sufficient to satisfy her claim. Such provision for the protection of her rights having been made, the other relief prayed for by her may properly be denied, since a provision subjecting the land in question to the payment of her claim against the estate of Avelina Caballero, deceased, fully and sufficiently protects her rights in the premises, and her rights having been secured, she has no proper interest in the rescission of the mortgage contract between plaintiff and defendant, or the cancellation of the inscription of the defendant's title as heir in the land registry. The judgment of the trial court should, therefore, be modified in accordance with the foregoing principles, and the record will be returned to the trial court where judgment will be entered modifying the judgment, by providing that the proceeds of the sale of the land under the foreclosure proceedings will be deposited with the clerk of the court, where it will be retained until the amount of the debt due the intervener and unpaid in the course of the administration of the estate of Avelina Caballero shall have been ascertained, whereupon the said funds shall be applied: first, to extinguish the unpaid residue, if any, of the claim of the intervener; second, to pay the debt due the plaintiff in this action; and finally, the residue, if any, to be paid to the estate of the deceased; the intervener to have her costs in this action in both instances. So ordered.

G.R. No. L-4133

May 13, 1952

AGUSTINA DE GUZMAN VDA. DE CARRILLO, (deceased) substituted by PRIMA CARRILLO, plaintiffappellant, vs. FRANCISCA SALAK DE PAZ, ET ALS., defendants-appellees. This is an action by the plaintiff against the defendant in the Court of First Instance of Tarlac seeking the reconveyance to the plaintiff of one-half () portion of lot No. 221 originally belonging to the spouses Severino Salak and Petra Garcia, the cancellation of the lease executed on said lot in favor of the spouses Gabino de Leon and Asuncion Reyes as well as the mortgage executed thereon by the lessees in favor of the Rehabilitation Finance Corporation, and the payment of damages suffered by the plaintiff. The facts alleged in the complaint are: lot No. 221 was originally owned by the spouses Severino Salak and Petra Garcia, their title being evidence by original Certificate of Title No. 41453 of the register's office of Tarlac; on December 20, 1939, said spouses mortgaged said lot for the sum of P1,200 to spouses Pedro Magat and Filomena Silva, the mortgage having been registered in accordance with law; on May 22, 1943, Pedro Magat and Filomena Silva assigned their mortgaged rights to Honaria Salak for the sum of P1,632 with the consent of the surviving debtor Severino Salak, his wife having already died; on August 16, 1943, Severino Salak transferred his interest in the property to Honaria Salak for the sum of P612, representing of the consideration paid by her to the mortgagees Pedro Magat and Filomena Silva; this transaction, as well as the assignment of the mortgage credit, were never registered in the office of the Registered of Deeds, nor annotated on the certificate of title No. 41453; Severino Salak died on December 5, 1944, while Honaria Salak died on January 13, 1945; intestate proceedings were instituted for the settlement and distribution of the estate of the deceased Severino Salak and Petra Garcia, including lot No. 221, and after proper proceedings, said lot was adjudicated to Ernesto Bautista, Aurea Sahagun, Rita Sahagun and Francisca Salak in the proportion of interested each; Francisca Salak acquired later the shares of the other heirs in said lot by virtue of which transfer certificate of title No. 970 was issued in her name; Honoria Salak died single living as sole heir Agustina de Guzman, plaintiff herein. Defendants filed a motion to dismiss on the ground that the complaint does not state a cause of action, which motion the court granted in an order which reads as follows: Acting on the motions to dismiss dated November 16, 1948, and November 27, 1948, filed by defendant Francisca Salak de Paz and defendant spouses Gabino de Leon and Asuncion Reyes, respectively, the Court finds the grounds of said motions well-taken. Besides judging from the facts alleged in the complaint, the action filed by plaintiff would call necessarily for the undoing of all the proceedings taken in Special Proceedings No. 3, intestado de los finados Severino Salak y Petra Garcia, an expediente now close more than two years ago. This Court has no jurisdiction to entertain any collateral attack in the present action against the proceedings taken in the said Special Proceeding No. 3. It is admitted in the complaint that the property sought to be recovered by plaintiff from defendants in this present case had regularly been adjudicated by the Court in favor of the latter as heirs of the deceased Severino Salak and Petra Garcia after compliance with all the steps and proceedings established in the Rules of Court for the settlement of the estates of deceased. This means that property now sought to be recovered from the defendants was adjudicated in their favor after all claims, indebtedness and obligations chargeable against the intestate estate of the deceased Severino Salak and Petra Garcia had been all paid and accounted for out of the estate of the deceased; so that, in the eyes of the law, the properties now in the hands of the defendants are presumed to be free from all claims whatsoever. The claim of the plaintiff set up in the complaint should have been interposed during the pendency and progress of Special Proceeding No. 3; but plaintiff not having done so, she can not now bring this action against the defendants, for it is clear that there exists no privity of contract between plaintiff and defendants upon which plaintiff can predicate her action against the present defendants. IN VIEW OF ALL THE FOREGOING, the Court dismisses the complaint with cost against the plaintiff. The case is now before this Court on Appeal taken by the plaintiff imputing the five errors to the court a quo.

One of the grounds which was considered by the lower court in dismissing the complaint is the fact that the property in question has already been the subject of adjudication in the intestate proceedings instituted for the settlement and distribution of the estate of the deceased Severino Salak and Petra Garcia, and the court a quo entertains the view that, having said property been duly adjudicated in said intestate estate proceedings, and having all the claims filed therein, as well as all obligations charged against the estate, being considered, passed upon, and settled, and said proceedings closed and terminated, the property now in question can no longer be reached by the plaintiff upon the theory that it has been adjudicated to the heirs free from all lien or claim whatsoever. The Court further holds that the claim of the plaintiff should have been claimed in said proceedings within the period prescribed by the Rules of Court, and having failed to do so, her claim is now barred and cannot be entertained. We do not subscribe to these findings of the court a quo. While we admit that the sale made by Severino Salak of his undivided interest in the property to Honoria Salak, predecessor in interest of the plaintiff, has not been registered in the office of the Register of Deeds, nor annotated on the Torrens Title covering it, such technical deficiency does not render the transaction ineffective, nor does it convert it into a mere monetary obligation. but it simply renders the transaction not binding against a third person because, being a registered land, the operative act to bind the land is the act of registration(section 50, Act No. 496). Said transaction however is valid and binding between the parties and can serve as basis to compel the register of deeds to make the necessary registration (id.). Such being the case, it is error to say that plaintiff should have filed her claim in the intestate proceedings of the late Severino Salak if she wanted to protect her interest in the land for, the transaction being binding between the parties, the same can be invoked against them or their privies. This means that plaintiff can still press her claim against the heirs of the deceased Severino Salak who were made parties-defendants in this case. These heirs cannot escape the legal consequence of this transaction because they have inherited the property subject to the liability affecting their common ancestor. The fact that Francisca Salak bought the shares of her co-heirs in said property is of no moment because in so far as the portion of the land acquired by Honoria Salak is concerned, Francisca Salak can recoup what she has parted with from her co-heirs when the time for read judgment comes. This matter can be threshed out when the case is decided on the merits. For the present suffice it to state that the lower court erred in dismissing the complaint for the reasons set forth in its order subject of the present appeal. Wherefore, the order appealed from is reversed, with costs against the appellees. Let this case be remanded to the lower court for further proceedings.