G.R. No.
L-12767 November 16, 1918
In the matter of the estate of EMIL H. JOHNSON. EBBA INGEBORG
JOHNSON, applicant-appellant,
STREET, J.:
On February 4, 1916, Emil H. Johnson, a native of Sweden and a
naturalized citizen of the United States, died in the city of Manila,
leaving a will, dated September 9, 1915, by which he disposed of an
estate, the value of which, as estimated by him, was P231,800. This
document is an holographic instrument, being written in the testator's
own handwriting, and is signed by himself and two witnesses only,
instead of three witnesses required by section 618 of the Code of Civil
Procedure. This will, therefore, was not executed in conformity with
the provisions of law generally applicable to wills executed by
inhabitants of these Islands, and hence could not have been proved
under section 618.
On February 9, 1916, however, a petition was presented in the Court of
First Instance of the city of Manila for the probate of this will, on the
ground that Johnson was at the time of his death a citizen of the State
of Illinois, United States of America; that the will was duly executed in
accordance with the laws of that State; and hence could properly be
probated here pursuant to section 636 of the Code of Civil Procedure.
This section reads as follows:
Will made here by alien. — A will made within the Philippine
Islands by a citizen or subject of another state or country,
which is executed in accordance with the law of the state or
country of which he is a citizen or subject, and which might
be proved and allowed by the law of his own state or
country, may be proved, allowed, and recorded in the
Philippine Islands, and shall have the same effect as if
executed according to the laws of these Islands.
The hearing on said application was set for March 6, 1916, and three
weeks publication of notice was ordered in the "Manila Daily Bulletin."
Due publication was made pursuant to this order of the court. On
March 6, 1916, witnesses were examined relative to the execution of
the will; and upon March 16th thereafter the document was declared
to be legal and was admitted to probate. At the same time an order
was made nominating Victor Johnson and John T. Pickett as
administrators of the estate, with the sill annexed. Shortly thereafter
Pickett signified his desire not to serve, and Victor Johnson was
appointed sole administrator.
By the will in question the testator gives to his brother Victor one
hundred shares of the corporate stock in the Johnson-Pickett Rope
Company; to his father and mother in Sweden, the sum of P20,000; to
his daughter Ebba Ingeborg, the sum of P5,000; to his wife, Alejandra
Ibañez, the sum of P75 per month, if she remains single; to Simeona
Ibañez, spinster, P65 per month, if she remains single. The rest of the
property is left to the testator's five children — Mercedes, Encarnacion,
Victor, Eleonor and Alberto.
(2) The will is invalid and inadequate to pass real and personal property
The biographical facts relative to the deceased necessary to an
understanding of the case are these: Emil H. Johnson was born in
Sweden, May 25, 1877, from which country he emigrated to the United
States and lived in Chicago, Illinois, from 1893 to 1898. On May 9, 1898,
at Chicago, he was married to Rosalie Ackeson, and immediately
thereafter embarked for the Philippine Islands as a soldier in the Army
of the United States. As a result of relations between Johnson and
Rosalie Ackeson a daughter, named Ebba Ingeborg, was born a few
months after their marriage. This child was christened in Chicago by a
pastor of the Swedish Lutheran Church upon October 16, 1898.
After Johnson was discharged as a soldier from the service of the
United States he continued to live in the Philippine Islands, and on
November 20, 1902, the wife, Rosalie Johnson, was granted a decree of
divorce from him in the Circuit Court of Cook County, Illinois, on the
ground of desertion. A little later Johnson appeared in the United
States on a visit and on January 10, 1903, procured a certificate of
naturalization at Chicago. From Chicago he appears to have gone to
Sweden, where a photograph, exhibited in evidence in this case, was
taken in which he appeared in a group with his father, mother, and the
little daughter, Ebba Ingeborg, who was then living with her
grandparents in Sweden. When this visit was concluded, the deceased
returned to Manila, where he prospered in business and continued to
live until his death.
In this city he appears to have entered into marital relations with
Alejandra Ibañez, by whom he had three children, to wit, Mercedes,
baptized May 31, 1903; Encarnacion, baptized April 29, 1906; and
Victor, baptized December 9, 1907. The other two children mentioned
in the will were borne to the deceased by Simeona Ibañez.
On June 12, 1916, or about three months after the will had been
probated, the attorneys for Ebba Ingeborg Johnson entered an
appearance in her behalf and noted an exception to the other
admitting the will to probate. On October 31, 1916, the same attorneys
moved the court to vacate the order of March 16 and also various
other orders in the case. On February 20, 1917, this motion was
denied, and from this action of the trial court the present appeal has
been perfected.
As will be discerned, the purpose of the proceeding on behalf of the
petitioner is to annul the decree of probate and put the estate into
intestate administration, thus preparing the way for the establishment
of the claim of the petitioner as the sole legitimate heir of her father.
The grounds upon which the petitioner seeks to avoid the probate are
four in number and may be stated, in the same sequence in which they
are set forth in the petition, as follows:
(1) Emil H. Johnson was a resident of the city of Manila and not a
resident of the State of Illinois at the time the will in question was
executed;
in the State of Illinois;
(3) The order admitting the will to probate was made without notice to
the petitioner; and
(4) The order in question was beyond the jurisdiction of the court.
It cannot of course be maintained that a court of first instance lacks
essential jurisdiction over the probate of wills. The fourth proposition
above stated must, accordingly, be interpreted in relation with the
third and must be considered as a corollary deduced from the latter.
Moreover, both the third and fourth grounds stated take precedence,
by reason of their more fundamental implications, over the first two;
and a logical exposition of the contentions of the petitioner is
expressed in the two following propositions:
(I) The order admitting the will to probate was beyond the
jurisdiction of the court and void because made without
notice to the petitioner;
(II) The judgment from which the petitioner seeks relief
should be set aside because the testator was not a resident
of the State of Illinois and the will was not in conformity
with the laws of that State.
In the discussion which is to follow we shall consider the problems
arising in this cae in the order last above indicated. Upon the question,
then, of the jurisdiction of the court, it is apparent from an inspection
of the record of the proceedings in the court below that all the steps
prescribed by law as prerequisites to the probate of a will were
complied with in every respect and that the probate was effected in
external conformity with all legal requirements. This much is
unquestioned. It is, however, pointed out in the argument submitted in
behalf of the petitioner, that, at the time the court made the order of
publication, it was apprised of the fact that the petitioner lived in the
United States and that as daughter and heir she was necessarily
interested in the probate of the will. It is, therefore, insisted that the
court should have appointed a date for the probate of the will
sufficiently far in the future to permit the petitioner to be present
either in person or by representation; and it is said that the failure of
the court thus to postpone the probate of the will constitutes an
infringement of that provision of the Philippine Bill which declared that
property shall not be taken without due process of law.
On this point we are of the opinion that the proceedings for the
probate of the will were regular and that the publication was sufficient
to give the court jurisdiction to entertain the proceeding and to allow
the will to be probated.
As was said in the case of In re Davis (136 Cal., 590, 596), "the
proceeding as to the probate of a will is essentially one in rem, and in
the very nature of things the state is allowed a wide latitude in
determining the character of the constructive notice to be given to the
world in a proceeding where it has absolute possession of the res. It
would be an exceptional case where a court would declare a statute
void, as depriving a party of his property without due process of law,
the proceeding being strictly in rem, and the res within the state, upon
the ground that the constructive notice prescribed by the statute was
unreasonably short."
In that case the petitioner had been domiciled in the Hawaiian Islands
at the time of the testator's death; and it was impossible, in view of the
distance and means of communication then existing, for the petitioner
to appear and oppose the probate on the day set for the hearing in
California. It was nevertheless held that publication in the manner
prescribed by statute constituted due process of law. (See Estate of
Davis, 151 Cal., 318; Tracy vs. Muir, 151 Cal., 363.)
In the Davis case (136 Cal., 590) the court commented upon the fact
that, under the laws of California, the petitioner had a full year within
which she might have instituted a proceeding to contest the will; and
this was stated as one of the reasons for holding that publication in the
manner provided by statute was sufficient. The same circumstance was
commented upon in O'Callaghan vs. O'Brien (199 U. S., 89), decided in
the Supreme Court of the United States. This case arose under the laws
of the State of Washington, and it was alleged that a will had been
there probated without the notice of application for probate having
been given as required by law. It was insisted that this was an
infringement of the Fourteenth Amendment of the Constitution of the
United States. This contention was, however, rejected and it was held
that the statutory right to contest the will within a year was a complete
refutation of the argument founded on the idea of a violation of the
due process provision.
The laws of these Islands, in contrast with the laws in force in perhaps
all of the States of the American Union, contain no special provision,
other than that allowing an appeal in the probate proceedings, under
which relief of any sort can be obtained from an order of a court of first
instance improperly allowing or disallowing a will. We do, however,
have a provision of a general nature authorizing a court under certain
circumstances to set aside any judgment, order, or other proceeding
whatever. This provision is found in section 113 of the Code of Civil
Procedure, which reads as follows:
Upon such terms as may be just the court may relieve a
party or his legal representative from a judgment, order or
other proceeding taken against him through his mistake,
inadvertence, surprise or excusable neglect; Provided, That
application therefor be made within a reasonable time, but
in no case exceeding six months after such judgment, order,
or proceeding was taken.
The use of the word "judgment, order or other proceeding" in this
section indicates an intention on the part of the Legislature to give a
wide latitude to the remedy here provided, and in our opinion its
operation is not to be restricted to judgments or orders entered in
ordinary contentious litigation where a plaintiff impleads a defendant
and brings him into court by personal service of process. In other words
the utility of the provision is not limited to actions proper but extends
to all sorts of judicial proceedings.
In the second section of the Code of Civil Procedure it is declared that
the provisions of this Code shall be liberally construed to promote its
object and to assist the parties in obtaining speedy justice. We think
that the intention thus exhibited should be applied in the
interpretation of section 113; and we hold that the word "party," used
in this section, means any person having an interest in the subject
matter of the proceeding who is in a position to be concluded by the
judgment, order, to other proceeding taken.
The petitioner, therefore, in this case could have applied, under the
section cited, at any time within six months for March 16, 1916, and
upon showing that she had been precluded from appearing in the
probate proceedings by conditions over which she had no control and
that the order admitting the will to probate had been erroneously
entered upon insufficient proof or upon a supposed state of facts
contrary to the truth, the court would have been authorized to set the
probate aside and grant a rehearing. It is no doubt true that six months
was, under the circumstances, a very short period of time within which
to expect the petitioner to appear and be prepared to contest the
probate with the proof which she might have desired to collect from
remote countries. Nevertheless, although the time allowed for the
making of such application was inconveniently short, the remedy
existed; and the possibility of its use is proved in this case by the
circumstance that on June 12, 1916, she in fact here appeared in court
by her attorneys and excepted to the order admitting the will to
probate.
It results that, in conformity with the doctrine announced in the Davis
case, above cited, the proceedings in the court below were conducted
in such manner as to constitute due process of law. The law supplied a
remedy by which the petitioner might have gotten a hearing and have
obtained relief from the order by which she is supposed to have been
injured; and though the period within which the application should
have been made was short, the remedy was both possible and
practicable.
From what has been said it follows that the order of March 16, 1916,
admitting the will of Emil H. Johnson to probate cannot be declared
null and void merely because the petitioner was unavoidably prevented
from appearing at the original hearing upon the matter of the probate
of the will in question. Whether the result would have been the same if
our system of procedure had contained no such provision as that
expressed in section 113 is a matter which we need not here consider.
Intimately connected with the question of the jurisdiction of the court,
is another matter which may be properly discussed at this juncture.
This relates to the interpretation to be placed upon section 636 of the
Code of Civil Procedure. The position is taken by the appellant that this
section is applicable only to wills of liens; and in this connection
attention is directed to the fact that the epigraph of this section speaks
only of the will made here by an alien and to the further fact that the
word "state" in the body of the section is not capitalized. From this it is
argued that section 636 is not applicable to the will of a citizen of the
United States residing in these Islands.
We consider these suggestions of little weight and are of the opinion
that, by the most reasonable interpretation of the language used in the
statute, the words "another state or country" include the United States
and the States of the American Union, and that the operation of the
statute is not limited to wills of aliens. It is a rule of hermeneutics that
punctuation and capitalization are aids of low degree in interpreting
the language of a statute and can never control against the intelligible
meaning of the written words. Furthermore, the epigraph, or heading,,
of a section, being nothing more than a convenient index to the
contents of the provision, cannot have the effect of limiting the
operative words contained in the body of the text. It results that if Emil
H. Johnson was at the time of his death a citizen of the United States
and of the State of Illinois, his will was provable under this section in
the courts of the Philippine Islands, provided the instrument was so
executed as to be admissible to probate under the laws of the State of
Illinois.
We are thus brought to consider the second principal proposition
stated at the outset of this discussion, which raises the question
whether the order f probate can be set aside in this proceeding on the
other ground stated in the petition, namely, that the testator was not a
resident of the State of Illinois and that the will was not made in
conformity with the laws of that State.
The order of the Court of First Instance admitting the will to probate
recites, among other things:
That upon the date when the will in question was executed
Emil H. Johnson was a citizen of the United States,
naturalized in the State of Illinois, County of Cook, and that
the will in question was executed in conformity with the
dispositions of the law f the State of Illinois.
We consider this equivalent to a finding that upon the date of the
execution of the will the testator was a citizen of the State of Illinois
and that the will was executed in conformity with the laws of that
State. Upon the last point the finding is express; and in our opinion the
statement that the testator was a citizen of the United States,
naturalized in the State of Illinois, should be taken to imply that he was
a citizen of the State of Illinois, as well as of the United States.
The naturalization laws of the United States require, as a condition
precedent to the granting of the certificate of naturalization, that the
applicant should have resided at least five years in the United States
and for one year within the State or territory where the court granting
the naturalization papers is held; and in the absence of clear proof to
the contrary it should be presumed that a person naturalized in a court
of a certain State thereby becomes a citizen of that State as well as of
the United States.
In this connection it should be remembered that the Fourteenth
Amendment to the Constitution of the United States declares, in its
opening words, that all persons naturalized in the United States, and
subject to the jurisdiction thereof, are citizens of the United States and
of the State wherein they reside.
It is noteworthy that the petition by which it is sought to annul the
probate of this will does not assert that the testator was not a citizen of
Illinois at the date when the will was executed. The most that is said on
this point is he was "never a resident of the State of Illinois after the
year 1898, but became and was a resident of the city of Manila," etc.
But residence in the Philippine Islands is compatible with citizenship in
Illinois; and it must be considered that the allegations of the petition on
this point are, considered in their bearing as an attempt to refute
citizenship in Illinois, wholly insufficient.
As the Court of First Instance found that the testator was a citizen of
the State of Illinois and that the will was executed in conformity with
the laws of that State, the will was necessarily and properly admitted
to probate. And how is it possible to evade the effect of these findings?
In Section 625 of the Code of Civil Procedure it is declared that "the
allowance by the court of a will of real or personal property shall be
conclusive as to its due execution."
The due execution of a will involves conditions relating to a number of
matters, such as the age and mental capacity of the testator, the
signing of the document by the testator, or by someone in his behalf,
and the acknowledgment of the instrument by him in the presence of
the required number of witnesses who affix their signatures to the will
to attest the act. The proof of all these requisites is involved in the
probate; and as to each and all of them the probate is conclusive.
(Castañeda vs. Alemany, 3 Phil. Rep., 426; Pimentel vs. Palanca, 5 Phil.
Rep., 436; Chiong Joc-Soy vs. Vaño, 8 Phil. Rep., 119; Sanchez vs.
Pascual, 11 Phil. Rep., 395; Montañano vs. Suesa, 14 Phil. Rep., 676.)
Our reported cases do not contain the slightest intimation that a will
which has been probated according to law, and without fraud, can be
annulled, in any other proceeding whatever, on account of any
supposed irregularity or defect in the execution of the will or on
account of any error in the action of the court upon the proof adduced
before it. This court has never been called upon to decide whether, in
case the probate of a will should be procured by fraud, relief could be
granted in some other proceeding; and no such question is now
presented. But it is readily seen that if fraud were alleged, this would
introduce an entirely different factor in the cae. In Austrua vs.
Ventenilla (21 Phil. Rep., 180, 184), it was suggested but not decided
that relief might be granted in case the probate of a will were procured
by fraud.
The circumstance that the judgment of the trial court recites that the
will was executed in conformity with the law of Illinois and also, in
effect, that the testator was a citizen of that State places the judgment
upon an unassailable basis so far as any supposed error apparent upon
the fact of the judgment is concerned. It is, however, probable that
even if the judgment had not contained these recitals, there would
have been a presumption from the admission of the will to probate as
the will of a citizen of Illinois that the facts were as recited in the order
of probate.
As was said by this court in the case of Banco Español-Filipino vs.
Palanca (37 Phil. Rep., 921), "There is no principle of law better settled
than that after jurisdiction has once been acquired, every act of a court
of general jurisdiction shall be presumed to have been rightly done.
This rule is applied to every judgment or decree rendered in the various
stages of the proceedings from their initiation to their completion
(Voorhees vs. United States Bank, 10 Pet., 314; 35 U. S., 449); and if the
record is silent with respect to any fact which must have established
before the court could have rightly acted, it will be presumed that such
fact was properly brought to its knowledge."
The Court of First Instance is a court of original and general jurisdiction;
and there is no difference in its faculties in this respect whether
exercised in matters of probate or exerted in ordinary contentious
litigation. The trial court therefore necessarily had the power to
determine the facts upon which the propriety of admitting the will to
probate depended; and the recital of those facts in the judgment was
probably not essential to its validity. No express ruling is, however,
necessary on this point.
What has been said effectually disposes of the petition considered in
its aspect as an attack upon the order of probate for error apparent on
the face of the record. But the petitioner seeks to have the judgment
reviewed, it being asserted that the findings of the trial court —
especially on the question of the citizenship of the testator — are not
supported by the evidence. It needs but a moment's reflection,
however, to show that in such a proceeding as this it is not possible to
reverse the original order on the ground that the findings of the trial
court are unsupported by the proof adduced before that court. The
only proceeding in which a review of the evidence can be secured is by
appeal, and the case is not before us upon appeal from the original
order admitting the will to probate. The present proceedings by
petition to set aside the order of probate, and the appeal herein is from
the order denying this relief. It is obvious that on appeal from an order
refusing to vacate a judgment it is not possible to review the evidence
upon which the original judgment was based. To permit this would
operate unduly to protract the right of appeal.
However, for the purpose of arriving at a just conception of the case
from the point of view of the petitioner, we propose to examine the
evidence submitted upon the original hearing, in connection with the
allegations of the petition, in order to see, first, whether the evidence
submitted to the trial court was sufficient to justify its findings, and,
secondly, whether the petition contains any matter which would justify
the court in setting the judgment, aside. In this connection we shall for
a moment ignore the circumstance that the petition was filed after the
expiration of the six months allowed by section 113 of the Code of Civil
Procedure.
The principal controversy is over the citizenship of the testator. The
evidence adduced upon this point in the trial court consists of the
certificate of naturalization granted upon January 10, 1903, in the
Circuit Court of Cook County, Illinois, in connection with certain
biographical facts contained in the oral evidence. The certificate of
naturalization supplies incontrovertible proof that upon the date stated
the testator became a citizen of the United States, and inferentially
also a citizen of said State. In the testimony submitted to the trial court
it appears that, when Johnson first came to the United States as a boy,
he took up his abode in the State of Illinois and there remained until he
came as a soldier in the United States Army to the Philippine Islands.
Although he remained in these Islands for sometime after receiving his
discharge, no evidence was adduced showing that at the time he
returned to the United States, in the autumn of 1902, he had then
abandoned Illinois as the State of his permanent domicile, and on the
contrary the certificate of naturalization itself recites that at that time
he claimed to be a resident of Illinois.
Now, if upon January 10, 1903, the testator became a citizen of the
United States and of the State of Illinois, how has he lost the character
of citizen with respect to either of these jurisdictions? There is no law
in force by virtue of which any person of foreign nativity can become a
naturalized citizen of the Philippine Islands; and it was, therefore,
impossible for the testator, even if he had so desired, to expatriate
himself from the United States and change his political status from a
citizen of the United States to a citizen of these Islands. This being true,
it is to be presumed that he retained his citizenship in the State of
Illinois along with his status as a citizen of the United States. It would
be novel doctrine to Americans living in the Philippine Islands to be told
that by living here they lose their citizenship in the State of their
naturalization or nativity.
We are not unmindful of the fact that when a citizen of one State
leaves it and takes up his abode in another State with no intention of
returning, he immediately acquires citizenship in the State of his new
domicile. This is in accordance with that provision of the Fourteenth
Amendment to the Constitution of the United States which says that
every citizen of the United States is a citizen of the State where in he
resides. The effect of this provision necessarily is that a person
transferring his domicile from one State to another loses his citizenship
in the State of his original above upon acquiring citizenship in the State
of his new abode. The acquisition of the new State citizenship
extinguishes the old. That situation, in our opinion, has no analogy to
that which arises when a citizen of an American State comes to reside
in the Philippine Islands. Here he cannot acquire a new citizenship; nor
by the mere change of domicile does he lose that which he brought
with him.

The proof adduced before the trial court must therefore be taken as
showing that, at the time the will was executed, the testator was, as
stated in the order of probate, a citizen of the State of Illinois. This, in
connection with the circumstance that the petition does not even so
much as deny such citizenship but only asserts that the testator was a
resident of the Philippine Islands, demonstrates the impossibility of
setting the probate aside for lack of the necessary citizenship on the
part of the testator. As already observed, the allegation of the petition
on this point is wholly insufficient to justify any relief whatever.
Upon the other point — as to whether the will was executed in
conformity with the statutes of the State of Illinois — we note that it
does not affirmatively appear from the transaction of the testimony
adduced in the trial court that any witness was examined with
reference to the law of Illinois on the subject of the execution of will.
The trial judge no doubt was satisfied that the will was properly
executed by examining section 1874 of the Revised Statutes of Illinois,
as exhibited in volume 3 of Starr & Curtis's Annotated Illinois Statutes,
2nd ed., p. 426; and he may have assumed that he could take judicial
notice of the laws of Illinois under section 275 of the Code of Civil
Procedure. If so, he was in our opinion mistaken. that section
authorizes the courts here to take judicial notice, among other things,
of the acts of the legislative department of the United States. These
words clearly have reference to Acts of the Congress of the United
States; and we would hesitate to hold that our courts can, under this
provision, take judicial notice of the multifarious laws of the various
American States. Nor do we think that any such authority can be
derived from the broader language, used in the same action, where it is
said that our courts may take judicial notice of matters of public
knowledge "similar" to those therein enumerated. The proper rule we
think is to require proof of the statutes of the States of the American
Union whenever their provisions are determinative of the issues in any
action litigated in the Philippine courts.
Nevertheless, even supposing that the trial court may have erred in
taking judicial notice of the law of Illinois on the point in question, such
error is not now available to the petitioner, first, because the petition
does not state any fact from which it would appear that the law of
Illinois is different from what the court found, and, secondly, because
the assignment of error and argument for the appellant in this court
raises no question based on such supposed error. Though the trial
court may have acted upon pure conjecture as to the law prevailing in
the State of Illinois, its judgment could not be set aside, even upon
application made within six months under section 113 of the Code of
Civil procedure, unless it should be made to appear affirmatively that
the conjecture was wrong. The petitioner, it is true, states in general
terms that the will in question is invalid and inadequate to pass real
and personal property in the State of Illinois, but this is merely a
conclusion of law. The affidavits by which the petition is accompanied
contain no reference to the subject, and we are cited to no authority in
the appellant's brief which might tent to raise a doubt as to the
correctness of the conclusion of the trial court. It is very clear,
therefore, that this point cannot be urged as of serious moment.
But it is insisted in the brief for the appellant that the will in question
was not properly admissible to probate because it contains provisions
which cannot be given effect consistently with the laws of the
Philippine Islands; and it is suggested that as the petitioner is a
legitimate heir of the testator she cannot be deprived of the legitime to
which she is entitled under the law governing testamentary successions
in these Islands. Upon this point it is sufficient to say that the probate
of the will does not affect the intrinsic validity of its provisions, the
decree of probate being conclusive only as regards the due execution
of the will. (Code of Civil Procedure, secs. 625, 614; Sahagun vs. De
Gorostiza, 7 Phil. Rep., 347, 349; Chiong Joc-Soy vs. Vaño, 8 Phil. Rep.,
119, 121; Limjuco vs. Ganara, 11 Phil. Rep., 393, 395.)
If, therefore, upon the distribution of this estate, it should appear that
any legacy given by the will or other disposition made therein is
contrary to the law applicable in such case, the will must necessarily
yield upon that point and the law must prevail. Nevertheless, it should
not be forgotten that the intrinsic validity of the provisions of this will
must be determined by the law of Illinois and not, as the appellant
apparently assumes, by the general provisions here applicable in such
matters; for in the second paragraph of article 10 of the Civil Code it is
declared that "legal and testamentary successions, with regard to the
order of succession, as well as to the amount of the successional rights
and to the intrinsic validity of their provisions, shall be regulated by the
laws of the nation of the person whose succession is in question,
whatever may be the nature of the property and the country where it
may be situate."
From what has been said, it is, we think, manifest that the petition
submitted to the court below on October 31, 1916, was entirely
insufficient to warrant the setting aside of the other probating the will
in question, whether said petition be considered as an attack on the
validity of the decree for error apparent, or whether it be considered as
an application for a rehearing based upon the new evidence submitted
in the affidavits which accompany the petition. And in this latter aspect
the petition is subject to the further fatal defect that it was not
presented within the time allowed by law.
It follows that the trial court committed no error in denying the relief
sought. The order appealed from is accordingly affirmed with costs. So
ordered.
G.R. No. 141314 April 9, 2003
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY
REGULATORY BOARD, petitioner,
vs.
MANILA ELECTRIC COMPANY, respondent.
x-----------------------------x
G.R. No. 141369 April 9, 2003
LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting of
CEFERINO PADUA, Chairman, G. FULTON ACOSTA, GALILEO BRION,
ANATALIA BUENAVENTURA, PEDRO CASTILLO, NAPOLEON
CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE
GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA,
ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES,
EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and
ROLANDO ARZAGA, Secretary-General, JUSTICE ABRAHAM
SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and COMMISSIONER
BARTOLOME FERNANDEZ, JR., Board of Consultants, and Lawyer
GENARO LUALHATI, petitioners,
vs.
MANILA ELECTRIC COMPANY (MERALCO), respondent.
RESOLUTION
PUNO, J.:
The business and operations of a public utility are imbued with public
interest. In a very real sense, a public utility is engaged in public service-
- providing basic commodities and services indispensable to the
interest of the general public. For this reason, a public utility submits to
the regulation of government authorities and surrenders certain
business prerogatives, including the amount of rates that may be
charged by it. It is the imperative duty of the State to interpose its
protective power whenever too much profits become the priority of
public utilities.
For resolution is the Motion for Reconsideration filed by respondent
Manila Electric Company (MERALCO) on December 5, 2002 from the
decision of this Court dated November 15, 2002 reducing MERALCO's
rate adjustment in the amount of P0.017 per kilowatthour (kwh) for its
billing cycles beginning 1994 and further directing MERALCO to credit
the excess average amount of P0.167 per kwh to its customers starting
with MERALCO's billing cycles beginning February 1994.1
First, we leapfrog through the facts. On December 23, 1993, MERALCO
filed with the Energy Regulatory Board (ERB) an application for revised
rates, with an average increase of P0.21 per kwh in its distribution
charge. On January 28, 1994 the ERB granted a provisional increase of
P0.184 per kwh subject to the condition that in the event the ERB
determines that MERALCO is entitled to a lesser increase in rates, all
excess amounts collected by MERALCO shall be refunded to its
customers or credited in their favor. The Commission on Audit (COA)
conducted an examination of the books of accounts and records of
MERALCO and thereafter recommended, among others, that: (1)
income taxes paid by MERALCO should not be included as part of
MERALCO's operating expenses and (2) the "net average investment
method" or the "number of months use method" should be applied in
determining the proportionate value of the properties used by
MERALCO during the test year.
In its decision dated February 16, 1998, the ERB adopted the
recommendations of the COA and authorized MERALCO to adopt a rate
adjustment of P0.017 per kilowatthour (kwh) for its billing cycles
beginning 1994. The ERB further directed MERALCO to credit the excess
average amount of P0.167 per kwh to its customers starting with
MERALCO's billing cycles beginning February 1994. The said ruling of
the ERB was affirmed by this Court in its decision dated November 15,
2002.
In its Motion for Reconsideration, respondent MERALCO contends that:
(1) the deduction of income tax from revenues allowed for rate
determination of public utilities is part of its constitutional right to
property; (2) it correctly used the "average investment method" or the
"simple average" in computing the value of its properties entitled to a
return instead of the "net average investment method" or the "number
of months use method"; and (3) the decision of the ERB ordering the
refund of P0.167 per kwh to its customers should not be given
retroactive effect.2
The Republic of the Philippines through the ERB, now Energy
Regulatory Commission (ERC), represented by the Office of the Solicitor
General, filed its Comment on March 7, 2003. Surprisingly, in its
Comment, the ERC proffered a divergent view from the Office of the
Solicitor General. The ERC submits that income taxes are not operating
expenses but are reasonable costs that may be recoverable from the
consuming public. While the ERC admits that "there is still no
categorical determination on whether income tax should indeed be
deducted from revenues of a public utility," it agrees with MERALCO
that to disallow public utilities from recovering its income tax payments
will effectively lower the return on rate base enjoyed by a public utility
to 8%. The ERC, however, agrees with this Court's ruling that the use of
the "net average investment method" or the "number of months use
method" is not unreasonable.3
The Office of the Solicitor General, under its solemn duty to protect the
interests of the people, defended the thesis that income tax payments
by a public utility should not be recovered as costs from the consuming
public. It contended that: (1) the foreign jurisprudence cited by
MERALCO in support of its position is not applicable in this jurisdiction;
(2) MERALCO was given a fair rate of return; (3) the COA and the ERB
followed the National Accounting and Auditing Manual which expressly
disallows the treatment of income tax as operating expense; (4)
Executive Order No. 72 does not grant electric utilities the privilege of
treating income tax as operating expense; (5) the COA and the ERB
have been consistent in not allowing income tax as part of operating
expenses; (6) ERB decisions allowing the application of a tax recovery
clause are inapropos; (7) allowing MERALCO to treat income tax as an
operating expense would set a dangerous precedent; (8) assuming that
the disallowance of income tax as operating expense would discourage
foreign investors and lenders, the government is not precluded from
enacting laws and instituting measures to lure them back; and (9) the
findings and conclusions of the ERB carry great weight and should be
binding on the courts in the absence of grave abuse of discretion. The
Solicitor General agrees with the ERC that the "net average investment
method" is a reasonable method for property valuation. Finally, the
Solicitor General argues that the ERB decision may be applied
retroactively and the use of a test period to determine the rate base From the figures submitted by the COA, the ERB was able to determine
and allowable rates to be collected by a public utility is an accepted that MERALCO derived excess revenue during the test year in the
practice.4 amount of P2,448,378,000.8 This means that during the test year, and
after the rates were increased by P0.184, MERALCO earned
We shall discuss the main issues in seriatim. P2,448,378,000 or 8.15% more than the amount it should have earned
at a 12% rate of return on rate base. Accordingly, based on this amount
I of excess revenue, the ERB determined that the provisional rate
MERALCO argues that deduction of all kinds of taxes, including income granted by it to MERALCO was P0.167 per kwh more than the amount
tax, from the gross revenues of a public utility is firmly entrenched in MERALCO ought to charge its customers to obtain the prescribed 12%
American jurisprudence. It contends that the Public Service Act rate of return on rate base. Thus, the ERB correspondingly lowered the
(Commonwealth Act No. 146) was patterned after Act 2306 of the provisional increase by P0.167 per kwh and ordered MERALCO to
Philippine Commission, which, in turn, was borrowed from American increase its rates at a reduced amount of P0.017 per kwh, computed as
state public utility laws such as the New Jersey Public Utility Act. Hence, follows:9
it maintains that American jurisprudence on the inclusion of income
taxes as a lawful charge to operating expenses should be controlling. It At appraised value
cites the rule on statutory construction that a statute adopted from a
foreign country will be presumed to be adopted with the construction Total Invested Capital Entitled P 30,059,614,00010
placed upon it by the courts of that country before its adoption.5 to Return
We are not persuaded. American decisions and authorities are not per 12% return thereon P 3,607,154,000
se controlling in this jurisdiction. At best, they are persuasive for no Add: Total Operating expenses P 38,260,420,00011
court holds a patent on correct decisions. Our laws must be construed
for Rate Determination
in accordance with the intention of our own lawmakers and such intent
Purposes P 41,867,573,000
may be deduced from the language of each law and the context of Computed Revenue
other local legislation related thereto. More importantly, they must be
construed to serve our own public interest which is the be-all and the Actual Revenue P 44,315,951,000
end-all of all our laws. And it need not be stressed that our public Excess Revenue P 2,448,378,000
interest is distinct and different from others.
Percent of Excess Revenue to 8.15%
Rate regulation calls for a careful consideration of the totality of facts Invested Capital
and circumstances material to each application for an upward rate
revision. Rate regulators should strain to strike a balance between the Authorized Rate of Return 12.00%
clashing interests of the public utility and the consuming public and the Actual Rate of Return 20.15%
balance must assure a reasonable rate of return to public utilities
without being unreasonable to the consuming public. What is Total kwh sold 14,640,094,000
reasonable or unreasonable depends on a calculus of changing Ratio of Excess Revenue to
circumstances that ebb and flow with time. Yesterday cannot govern
today, no more than today can determine tomorrow. Total kwh Sold P 0.167
Prescinding from these premises, we reject MERALCO's insistence that In fact, even if MERALCO's income tax liability would be included as an
the non-inclusion of income tax payments as a legitimate operating operating expense, MERALCO would still enjoy excess revenue of
expense will deny public utilities a fair return of their investment. This P312,738,000.00 or 1.04% above the authorized rate of return of 12%.
stubborn stance is belied by the report submitted by the COA on the Based on its audit, the COA determined that the provision for income
audit conducted on MERALCO's books of accounts and the findings of tax liability of MERALCO amounted to P2,135,639,000.00.12 Thus, even
the ERB.6 if such amount of income tax liability would be included as operating
expense, the amount of excess revenue earned by MERALCO during the
Upon the instructions of the ERB, the COA conducted an audit of the test year would be more than sufficient to cover the additional income
operations of MERALCO covering the period from February 1, 1994 to tax expense. Thus:
January 31, 1995, or the period immediately after the implementation
of the provisional rate increase.7 Hence, amounts culled by the COA
from its examination of the books of MERALCO already included the
provisional rate increase of P0.184 granted by the ERB.
 At appraised value
Total Invested Capital Entitled to Return P 30,059,614,000
12% return thereon P 3,607,154,000
Add: Total Operating expenses for Rate P 40,396,059,00013
Determination Purposes
Computed Revenue P 44,003,213,000
Actual Revenue P 44,315,951,000
Excess Revenue P 312,738,000
Percent of Excess Revenue to Invested 1.04%
Capital
Authorized Rate of Return 12.00%
Actual Rate of Return 13.04%
It is crystal clear, therefore, that even if income tax is to be included as
an operating expense and hence, recoverable from the consuming
public, MERALCO would still enjoy a rate of return that is above the
authorized rate of 12%. Public utilities cannot be allowed to overcharge
at the expense of the public and worse, they cannot complain that they
are not overcharging enough.
Be that as it may, MERALCO contends that considering income tax
payments of public utilities constitute one-third of their net income,
public utilities will effectively get, not the 12% rate of return on rate
base allowed them, but only about 8%.14 Again, we are not persuaded.
The foregoing argument assumes that the 12% return allowed to public
utilities is equivalent to its taxable income which will be subject to
income tax. The 12% rate of return is computed only for the purpose of
fixing the allowable rates to be charged by a public utility and is in no
way determinative of the income subject to income tax of the public
utility. The computation of a corporation's income tax liability is an
altogether different matter, with the corporation's taxable income
derived by taking into account the corporation's gross revenues less
allowable deductions.15
At any rate, even on the assumption that in the test year involved
(February 1, 1994 to January 31, 1995), MERALCO's computed revenue
of P 41,867,573,000 or the amount that it is allowed to earn based on a
12% rate of return is its taxable income, after payment of its income
tax liability of P2,135,639,000.00, MERALCO would still obtain an
11.38% rate of return or a return that is well within the 12% rate
allowed to public utilities.16
MERALCO also contends that even the successor of the ERB or the ERC
created under the Electric Power Industry Reform Act of 2001 (EPIRA)17
"adheres to the principle that income tax is part of operating
expense."18 To bolster its argument, MERALCO cites Article 36 of the
EPIRA which charges the ERC with the responsibility of unbundling the
rates of the National Power Corporation (NPC) and each distribution
utility coming within the coverage of the law.19 MERALCO alleges that
pursuant to said provision, the ERC issued a set of Uniform Rate Filing
Requirements (UFR) containing guidelines to be followed with respect
to rate unbundling applications to be filed. MERALCO asserts that
under the UFR, the enumeration of the expenses which are to be
recovered through the rates, and which are to be separated or
allocated for the purpose of unbundling of these rates include income
tax expenses.
Under Section 36 of the EPIRA, the NPC and every distribution facility
covered by the law is mandated to unbundle, segregate or itemize its
rates according to the various sectors of the electric power industry
identified in the law, namely: generation, transmission, distribution and
supply.20 The law further directs the ERC to regulate and facilitate the
unbundling of rates prescribed by Section 36. Thus, on October 30,
2001, the ERC issued guidelines prescribing the uniform rate filing
requirements to be followed by distribution facilities for the purposes
of unbundling rates.21
A proper appreciation of the UFR shows that it simply specifies a
uniform accounting system to be complied with by a distribution
facility when filing an application for revised rates under the EPIRA. As
the EPIRA requires the unbundling or segregation of rates according to
the different sectors of the electric power industry, the UFR seeks to
facilitate this process by properly identifying the accounts or
information required for proper evaluation by the ERB. Thus, the
introductory statements of the UFR provide:
These uniform rate filing requirements are intended to
promote consistency and completeness in the rate filings
required by Republic Act No. 9136 (RA 9136), Section 36. To
that end, the filing requirements only specify minimum form
and content. A rate application in all its aspects continues to
be subject to subsequent Commission review and
deliberation.22
At the onset, it is clear that the UFR does not seek to determine which
accounting method will be used by the ERC for determination of rate
base or the items of expenses that may be recovered by a public utility
from its customers. The UFR only seeks to prescribe a uniform system
or format to standardize or facilitate the process of unbundling of rates
mandated by the EPIRA. At best, the UFR prescribes the set of raw data
or figures to be disclosed by a distribution facility that the ERC will need
to determine the authorized rates that a distribution facility may
charge. The UFR does not, in any way, determine the manner by which
the set of data or figures indicated in the rate application will be
evaluated by the ERC for rate determination purposes.
II
MERALCO also challenges the use of the "net average investment
method" or the "number of months use method" on the ground that
MERALCO and the Public Service Commission (PSC) have been
consistently applying the "average investment method" or "simple
average", which it alleged was also affirmed by this Court in the case of
MERALCO v. PSC23 and Republic v. Medina.24
It is true that in MERALCO v. PSC,25 the issue of the proper valuation
method to be used in determining the value of MERALCO's utility
plants for rate fixing purposes was brought to fore. In the said case,
MERALCO applied the "average investment method" or "simple
average" by obtaining the average value of the utility plants, using its
values at the beginning and at the end of the test year. In contrast, the
General Auditing Office used the "appraisal method" which fixes the
value of the utility plants by ascertaining the cost of production per
kilowatt and multiplying the same by the total capacity of said plants,
less the corresponding depreciation.26 In upholding the "average
investment method" used by MERALCO, this Court adopted the
findings of the PSC for being "by and large, supported by the records of
the case."27 This Court did not make an independent assessment of the
validity or applicability of the average investment method but simply
did not disturb the findings of the PSC for being supported by
substantial evidence. To conclude that the said decision "affirmed" the
use of the "average investment method" thereby implying that the said
method is the only method to be applied in all instances, is a strained
reading of the decision.
In fact, in the case of Republic v. Medina,28 also cited by MERALCO to
have affirmed the use of the "average investment method", this Court
ruled:
The decided weight of authority, however, is to the effect that
property valuation is not to be solved by formula but depends
upon the particular circumstances and relevant facts affecting
each utility as to what constitutes a just rate base and what
would be a fair return, just to both the utility and the public.29
Further, Mr. Justice Castro in his concurring opinion in the same case
elucidated:
A regulatory commission's field of inquiry, however, is not
confined to the computation of the cost of service or capital
nor to a mere prognostication of the future behavior of the
money and capital markets. It must also balance investor and
consumer expectations in such a way that broad requirements
of public interest may be meaningfully realized. It would hence
appear in keeping with its public duty if a regulatory body is
allowed wide discretion in the choice of methods rationally
related to the achievement of this end.30
Thus, the rule then as it is now, is that rate regulating authorities are
not hidebound to use any single formula or combination of formulas
for property valuation purposes because the rate-making process
involves the balancing of investor and consumer interests which takes
into account various factors that may be unique or peculiar to a
particular rate revision application.
We again stress the long established doctrine that findings of
administrative or regulatory agencies on matters which are within their
technical area of expertise are generally accorded not only respect but
at times even finality if such findings and conclusions are supported by
substantial evidence.31 Rate fixing calls for a technical examination and
a specialized review of specific details which the courts are ill-equipped
to enter, hence, such matters are primarily entrusted to the
administrative or regulating authority.32
Thus, this Court finds no reversible error on the part of the COA and
the ERB in adopting the "net average investment method" or the
"number of months use method" for property valuation purposes in
the cases at bar.
III
MERALCO also rants against the retroactive application of the rate
adjustment ordered by the ERB and affirmed by this Court. In its
decision, the ERB, after authorizing MERALCO to adopt a rate
adjustment in the amount of P0.017 per kwh, directed MERALCO to
refund or credit to its customers' future consumption the excess
average amount of P0.167 per kwh from its billing cycles beginning
February 199433 until its billing cycles beginning February 1998.34 In the
decision appealed from, this Court likewise ordered that the refund in
the average amount of P0.167 per kwh be made to retroact from
MERALCO's billing cycles beginning February 1994.
MERALCO contends that the refund cannot be given retroactive effect
as the figures determined by the ERB only apply to the test year or the
period subject of the COA Audit, i.e., February 1, 1994 to January 31,
1995. It reasoned that the amounts used to determine the proper rates
to be charged by MERALCO would vary from year to year and thus the
computation of the excess average charge of P0.167 would hold true
only for the test year. Thus, MERALCO argues that if a refund of P0.167
would be uniformly applied to its billing cycles beginning 1994, with
respect to periods after January 31, 1995, there will be instances
wherein its operating revenues would fall below the 12% authorized
rate of return. MERALCO therefore suggests that the dispositive
portion be modified and order that "the refund applicable to the
periods after January 31, 1995 is to be computed on the basis of the
excess collection in proportion to the excess over the 12% return."35
The purpose of the audit procedures conducted in a rate application
proceeding is to determine whether the rate applied for will generate a
reasonable return for the public utility, which, in accordance with
settled laws and jurisprudence, is 12% on rate base or the present
value of the assets used in the operations of a public utility. For audit
purposes, however, there is a need to obtain a sample set of data--
usually derived from figures within a designated period of time-- to
determine the amount of returns obtained by a public utility during
such period. In the cases at bar, the COA conducted an audit for the
test year beginning February 1, 1994 and ending January 31, 1995 or a
12-month period immediately after the order of the ERB granting a
provisional increase in the amount of P0.184 per kwh was issued. Thus,
the ultimate issue resolved by the COA when it conducted its audit was
whether the provisional increase granted by the ERB generated an
amount of return well within the rates authorized by law. As stated
earlier, based on the findings of the ERB, with the increase of P0.184
per kwh, MERALCO obtained a rate of return which was 8.15% more
than the authorized rate of return of 12%.36 Thus, a refund in the
amount of P0.167 was determined and ordered by ERB.
The essence of the use of a "test year" for auditing purposes is to
obtain a sample or representative set of figures to enable the
examining authority to arrive at a conclusion or finding based on the
gathered data. The use of a "test year" does not mean that the
information and conclusions so derived would only be correct for that
year and would be incorrect on the succeeding years. The use of a "test
year" assumes that within a reasonable period after such test year,
figures used to determine the amount of return would only vary slightly
from the figures culled during the test year such that the impact on the
utility's rate of return would not be very significant. Thus, in the event
that there is a substantial change in circumstances significantly
affecting the variable amounts that would determine the
reasonableness of a return, an event which would normally occur after
a certain period of time has elapsed, the public utility may
subsequently apply for a rate revision.
We agree with the Solicitor General that following MERALCO's
reasoning that the figures culled from a test year would only be
relevant during such year, there would be a need for public utilities to
apply for a rate adjustment every year and perform an audit
examination on a public utility's books of accounts every year as the
amount of a utility's revenue may fall above or below the authorized
rates at any given year. Needless to say, the trajectory of MERALCO's
arguments will lead to an absurdity.
From the time the order granting a provisional increase was issued by
the ERB, nowhere in the records does it appear that the subsequent
refund of P0.167 per kwh ordered by the ERB was ever implemented or
executed by MERALCO.37 Accordingly, from January 28, 1994 MERALCO
imposed on its customers a charge that is P0.167 in excess of the
proper amount. In fact, any application for rate adjustment that may
have been applied for and/or granted to MERALCO during the
intervening period would have to be reckoned from rates increased by
P0.184 per kwh as these were the rates prevailing at the time any
application for rate adjustment was made by MERALCO.
While we agree that the amounts used to determine the utility's rate of
return would vary from year to year, we are unable to subscribe to the
view that the refund applicable to the periods after January 31, 1995
should be computed on the basis of the excess collection in proportion
to the excess over the 12% return. MERALCO's contention that the
refund for periods after January 31, 1995 should be computed on the
basis of revenue of each year in excess of the 12% authorized rate of
return calls for a year-by-year computation of MERALCO's revenues
and assets which would be contrary to the essence of an audit
examination of a public utility based on a test year. To grant
MERALCO's prayer would, in effect, allow MERALCO the benefit of a
year-by-year adjustment of rates not normally enjoyed by any other
public utility required to adopt a subsequent rate modification. Indeed,
had the ERB ordered an increase in the provisional rates it previously
granted, said increase in rates would apply retroactively and would not
have varied from year to year, depending on the variable amounts used
to determine the authorized rates that may be charged by MERALCO.
We find no significant circumstance prevailing in the cases at bar that
would justify the application of a yearly adjustment as requested by
MERALCO.
WHEREFORE, in view of the foregoing, the petitioner's Motion for
Reconsideration is DENIED WITH FINALITY.
SO ORDERED.
[G.R. No. L-9408. October 31, 1956.]
EMILIO Y. HILADO, Petitioner, vs. THE COLLECTOR OF INTERNAL
REVENUE and THE COURT OF TAX APPEALS, Respondents.
BAUTISTA ANGELO, J.:
On March 31, 1952, petitioner filed his income tax return for 1951 with
the treasurer of Bacolod City wherein he claimed, among other things,
the amount of P12,837.65 as a deductible item from his gross income
pursuant to General Circular No. V-123 issued by the Collector of
Internal Revenue. This circular was issued pursuant to certain rules laid
down by the Secretary of Finance On the basis of said return, an
assessment notice demanding the payment of P9,419 was sent to
petitioner, who paid the tax in monthly installments, the last payment
having been made on January 2, 1953.
Meanwhile, on August 30, 1952, the Secretary of Finance, through the
Collector of Internal Revenue, issued General Circular No. V-139 which
not only revoked and declared void his general Circular No. V-123 but
laid down the rule that losses of property which occurred during the
period of World War II from fires, storms, shipwreck or other casualty,
or from robbery, theft, or embezzlement are deductible in the year of
actual loss or destruction of said property. As a consequence, the
amount of P12,837.65 was disallowed as a deduction from the gross
income of petitioner for 1951 and the Collector of Internal Revenue
demanded from him the payment of the sum of P3,546 as deficiency
income tax for said year. When the petition for reconsideration filed by
petitioner was denied, he filed a petition for review with the Court of
Tax Appeals. In due time, this court rendered decision affirming the
assessment made by respondent Collector of Internal Revenue. This is
an appeal from said decision.
It appears that petitioner claimed in his 1951 income tax return the
deduction of the sum of P12,837.65 as a loss consisting in a portion of
his war damage claim which had been duly approved by the Philippine
War Damage Commission under the Philippine Rehabilitation Act of
1946 but which was not paid and never has been paid pursuant to a
notice served upon him by said Commission that said part of his claim
will not be paid until the United States Congress should make further
appropriation. He claims that said amount of P12,837.65 represents a
''business asset" within the meaning of said Act which he is entitled to
deduct as a loss in his return for 1951. This claim is untenable.
To begin with, assuming that said amount represents a portion of the
75% of his war damage claim which was not paid, the sa,me would not
be deductible as a loss in 1951 because, according to petitioner, the
last installment he received from the War Damage Commission,
together with the notice that no further payment would be made on
his claim, was in 1950. In the circumstance, said amount would at most
be a proper deduction from his 1950 gross income. In the second place,
said amount cannot be considered as a "business asset" which can be
deducted as a loss in contemplation of law because its collection is not
enforceable as a matter of right, but is dependent merely upon the
generosity and magnanimity of the U. S. government. Note that, as of
the end of 1945, there was absolutely no law under which petitioner
could claim compensation for the destruction of his properties during
the battle for the liberation of the Philippines. And under the Philippine
Rehabilitation Act of 1946, the payments of claims by the War Damage
Commission merely depended upon its discretion to be exercised in the
manner it may see lit, but the non-payment of which cannot give rise to
any enforceable right, for, under said Act, "All findings, of the
Commission concerning the amount of loss or damage sustained, the
cause of such loss or damage, the persons to whom compensation
pursuant to this title is payable, and the value of the property lost or
damaged, shall be conclusive and shall not be reviewable by any court",
(section 113).
It is true that under the authority of section 338 of the National
Internal Revenue Code the Secretary of Finance, in the exercise of his
administrative powers, caused the issuance of General Circular No. V-
123 as an implementation or interpretative regulation of section 30 of
the same Code, under which the amount of P12,837.65 was allowed to
be deducted "in the year the last installment was received with notice
that no further payment would be made until the United States
Congress makes further appropriation therefor", but such circular was
found later to be wrong and was revoked. Thus, when doubts arose as
to the soundness or validity of such circular, the Secretary of Finance
sought the advice of the Secretary of Justice who, accordingly, gave his
opinion the pertinent portion oi which reads as follows:
"Yet it might be argued that war losses were not included as
deductions for the year when they were sustained because the
taxpayers had prospects that losses would be compensated for by the
United States Government; that since only uncompensated losses are
deductible, they had to wait until after the determination by the
Philippine War Damage Commission as to the compensability in part or
in whole of their war losses so that they could exclude from the
deductions those compensated for by the said Commission; and that,
of necessity, such determination could be complete only much later
than in the year 'when the loss was sustained. This contention falls to
the ground when it is considered that the Philippine Rehabilitation Act
which authorized the payment by the United States Government of
war losses suffered by property owners in the Philippines was passed
only on August 30, 1946, long after the losses were sustained. It cannot
be said therefore, that the property owners had any. conclusive
assurance during the years said losses were sustained, that the
compensation was to be paid therefor. Whatever assurance they could
have had,4 could have been based only on some information less
reliable and less conclusive than the passage of the Act itself. Hence, as
diligent property owners, they should adopt the safest alternative by
considering such losses deductible during the year when they were
sustained."
In line with this opinion, the Secretary of Finance, through the Collector
of Internal Revenue, issued General Circular No. V-I39 which not only
revoked and declared void his previous Circular No. V 123 but laid
down the rule that losses; of property which occurred during the
period of World War II from fires, storms, shipwreck or other casualty,
or from robbery, theft, or embezzlement are deductible for income tax
purposes in the year of actual destruction of said property. We can
hardly argue against this opinion. Since we have already stated that the
amount claimed does not represent a "business asset" that may be
deducted as a loss in 1951, it is clear that the loss of the corresponding
asset or property could only be deducted in the year it was actually
sustained. This is in line with section 30 (d) of the National Internal
Revenue Code which prescribes that losses sustained are allowable as
deduction only within the corresponding taxable year.
Petitioner's contention that during the last war and as a consequence
of enemy occupation in the Philippines "there was no taxable year"
within the meaning of our internal revenue laws because during that
period they were unenforceable, is without merit. It is well known that
our internal revenue laws are not political in nature and as such were
continued in force during the period of enemy occupation and in effect
were actually enforced by the occupation government. As a matter of
fact, income tax returns were filed during that period and income tax
payment were effected and considered valid and legal. Such tax laws
are deemed to be the laws of the occupied territory and not of the
occupying enemy.
"Furthermore, it is a legal maxim, that excepting that of a political
nature, 'Law once established continues until changed by some
competent legislative power. It is not changed merely by change of
sovereignty.' (Joseph H. Beale, Cases on Conflict of Laws, III, Summary
section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As the
same author says, in his Treatise on the Conflict of Laws (Cambridge,
1916, section 131): 'There can be no break or interregnun in law. From
the time the law comes into existence with the first-felt corporateness
of a primitive people it must last until the final disappearance of human
society. Once created, it persists until a change takes place, and when
changed it continues in such changed condition until the next change
and so forever. Conquest or colonization is impotent to bring law to an
end; inspite of change of constitution, the law continues unchanged
until the new sovereign by legislative act creates a change.'" (Co Kim
Chan vs. Valdez Tan Keh and Dizon, 75 Phil., 113, 142-143.)
It is likewise contended that the power to pass upon the validity of
General Circular No. V-123 is vested exclusively in our courts in view of
the principle of separation of powers and, therefore, the Secretary of
Finance acted without valid authority in revoking it and approving in
lieu thereof General Circular No. V-139. It cannot be denied, however,
that; the Secretary of Finance is vested with authority to revoke, repeal
or abrogate the acts or previous rulings of his predecessor in office
because the construction of a statute by those administering it is not
binding on their successors if thereafter the latter become satisfied
that a different construction should be given. [Association of Clerical
Employees vs. Brotherhood of Railways & Steamship Clerks, 85 F. (2d)
152, 109 A.L.R., 345.]
"When the Commissioner determined in 1937 that the petitioner was
not exempt and never had been, it was his duty to determine, assess
and collect the tax due for all years not barred by the statutes of
limitation. The conclusion reached and announced by his predecessor
in 1924 was not binding upon him. It did not exempt the petitioner
from tax, This same point was decided in this way in Stanford
University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d) 710."
(Southern Maryland Agricultural Fair Association vs. Commissioner of
Internal Revenue, 40 B. T. A., 549, 554),
With regard to the contention that General Circular No. V-139 cannot
be given retroactive effect because that would affect and obliterate the
vested right acquired by petitioner under the previous circular, suffice
it to say that General Circular No. V-123, having been, issued on a
wrong construction of the law, cannot give rise to a vested right that
can be invoked by a taxpayer. The reason, is obvious: a vested right
cannot spring from a wrong interpretation. This is too clear to require
elaboration.
"It seems too clear for serious argument that an administrative officer
cannot change a law enacted by Congress. A regulation that is merely
an interpretation of the statute when once determined to have been
erroneous becomes nullity. An erroneous construction of the law by
the Treasury Department or the collector of internal revenue does not
preclude or estop the government from collecting a tax which is legally
due." (Ben Stocker, et al., 12 B. T. A., 1351.)
"Art. 2254. No vested or acquired right can arise from acts or omissions
which are against the law or which infringe upon the rights of
others." (Article 2254, New Civil Code.)
Wherefore, the decision appealed from is affirmed Without
pronouncement as to costs.