Lorenzo v. Posadas, G.R. No.

L-43082 (64 PHIL

353) June 18, 1937

operation, unless the language of the statute clearly

demands or expresses that it shall have retroactive
effect Act No. 3606 does not contain any

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 collection, which, as
assessed by the former, should only be in the
amount of PhP1,434.24 instead of
PhP2,052.74. Disregarding the allegation,
respondent filed a motion in the CFI of
Zamboanga praying that the trustee be made
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.
Issue/s:
1. Whether or not the provisions of Act No.
3606 (Tax 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 well-settled principle
that inheritance taxation is governed by the
statue in force at the time of the death of the
decendent. The Court also emphasized that a
statute should be considered as prospective in its

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.
LORENZO vs. POSADAS JR.
G.R. No. L-43082
June 18, 1937
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. The will was admitted to
probate.
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:
(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
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

(a) When does the inheritance tax accrue and when

otherwise, the defendant contends that delivery to the

trustee was delivery to the cestui que trust, the

must it be satisfied?
The accrual of the inheritance tax is distinct from the

beneficiary in this case, within the meaning of the first

paragraph of subsection (b) of section 1544 of the

obligation to pay the same.

Revised Administrative Code. This contention is well

taken and is sustained. A trustee is but an instrument

Acording to article 657 of the Civil Code, the rights to

the succession of a person are transmitted from the

or agent for the cestui que trust

moment of his death. In other words, said Arellano,

C. J., . . . the heirs succeed immediately to all of the

The appointment of Moore as trustee was made by the

property of the deceased ancestor. The property

belongs to the heirs at the moment of the death of the

trial court in conformity with the wishes of the testator

as expressed in his will. It is true that the word trust

ancestor as completely as if the ancestor had executed

and delivered to them a deed for the same before his

is not mentioned or used in the will but the intention to

create one is clear. No particular or technical words are

death.

required to create a testamentary trust. The words

trust and trustee, though apt for the purpose, are

Whatever may be the time when actual transmission of

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:

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.

(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.

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:

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

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

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. xx
SEC. 1544. When tax to be paid. The tax fixed in
this article shall be paid:

surcharge provided by law in such cases.

(a) In the second and third cases of the next preceding

section, before entrance into possession of the

The delinquency in payment occurred on March 10,

property.
(b) In other cases, within the six months subsequent

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:

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 abovequoted, 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.
(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

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

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

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

(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.