Lorenzo v. Posadas, G.R. No.

L-43082 (64 PHIL 353)

by the statue in force at the time of the death of the

June 18, 1937

decendent. The Court also emphasized that a statute

should be considered as prospective in its operation,
unless the language of the statute clearly demands or

Facts: Herein petitioner Lorenzo, in his capacity as

trustee of the estate of a certain Thomas Hanley,
deceased,

brought

an

action

against

respondent

Posadas, Collector of Internal Revenue. Petitioner

alleges the respondent to have exceeded in its tax

expresses that it shall have retroactive effect Act No.

3606 does not contain any provisions indicating a
legislative intent to give it a retroactive effect. Therefore,
the provisions of Act No. 3606 cannot be applied to the
case at bar.

collection, which, as assessed by the former, should only

be

in

the

amount

of

PhP1,434.24

instead

of

PhP2,052.74.

LORENZO vs. POSADAS JR.

G.R. No. L-43082

Disregarding the allegation, respondent filed a motion in

the CFI of Zamboanga praying that the trustee be made

June 18, 1937

to pay such tax. The motion was granted. Petitioner

paid the amount in protest, however notified the
respondent that until a refund is prompted, suit would be
bought for its recovery. Respondent overruled the
protest. Hence, the case at bar.

FACTS: Thomas Hanley died, leaving a will and a

considerable amount of real and personal properties.
Proceedings for the probate of his will and the settlement
and distribution of his estate were begun in the CFI of
Zamboanga.

Issue/s:
1. Whether or not the provisions of Act No. 3606 (Tax

The will was admitted to probate.

Law) which is favorable to the taxpayer be given

retroactive effect?
Held and Reasoning:
No.
The respondent levied and assessed the inheritance tax
collected from the petitioner under the provisions of
section 1544 of the Revised Administrative Code as
amended by Act No. 3606.
However, the latter only enacted in 1930 not the law in
force when the testator died in 1922. Laws cannot be
applied retroactively. The Court states that it is a wellsettled principle that inheritance taxation is governed

The CFI 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 nephew
Matthew ten years after the two executors named in the
will was appointed trustee. Moore acted as trustee until
he resigned and the plaintiff Lorenzo herein was
appointed in his stead.
During the incumbency of the plaintiff as trustee, the
defendant Collector of Internal Revenue (Posadas)
assessed against the estate an inheritance tax, together
with the penalties for deliquency in payment. Lorenzo
paid said amount under protest, notifying Posadas at the
same time that unless the amount was promptly
refunded suit would be brought for its recovery. Posadas

overruled Lorenzos protest and refused to refund the

said amount.
Plaintiff went to court. The CFI dismissed Lorenzos
complaint and Posadas counterclaim. Both parties
appealed to this court.
ISSUE:

(3) a certain or ascertain object; statutes in some

jurisdictions expressly or in effect so providing.

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 appointing a trustee to carry into
effect the provisions of the will

(e) Has there been delinquency in the payment of the

inheritance tax?

HELD: The judgment of the lower court is accordingly

modified, with costs against the plaintiff in both instances

As the existence of the trust was already proven, 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.

YES
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 cestuique 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. A trustee is but an instrument or agent for
the cestui que trust

The delinquency in payment occurred on March 10,

1924, the date when Moore became trustee. On that
date trust estate vested in him. The interest due should
be computed from that date.
NOTES: Other issues:

(a) When does the inheritance tax accrue and when

must it be satisfied?
The accrual of the inheritance tax is distinct from the
obligation to pay the same.

The appointment of 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. 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. 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;

Acording 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.
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. 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) 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?

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

(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. Xx

(c) In determining the net value of the estate subject to

tax, is it proper to deduct the compensation due to
trustees?

SEC. 1544. When tax to be paid. The tax fixed in

this article shall be paid:

A trustee, no doubt, is entitled to receive a fair

compensation for his services. 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

(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.

The instant case does[not] 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
Moore as trustee.

(d) What law governs the case at bar? Should the

provisions of Act No. 3606 favorable to the tax-payer be
given retroactive effect?

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, . . . . Act No. 3606 itself contains no
provisions indicating legislative intent to give it
retroactive effect. No such effect can be given the statute
by this court.