1. LORENZO vs POSADAS G.R. No.

L-43082 plaintiff contends that the lower court erred:

June 18, 1937
I. In holding that the real property of Thomas Hanley,
PABLO LORENZO, as trustee of the estate of Thomas deceased, passed to his instituted heir, Matthew Hanley,
Hanley, deceased, plaintiff-appellant, from the moment of the death of the former, and that
vs. from the time, the latter became the owner thereof.
JUAN POSADAS, JR., Collector of Internal
Revenue, defendant-appellant. II. In holding, in effect, that there was deliquency in the
payment of inheritance tax due on the estate of said
FACTS: deceased.

Thomas Hanley died in Zamboanga, Zamboanga, leaving a

III. In holding that the inheritance tax in question be
will (Exhibit 5) and considerable amount of real and based upon the value of the estate upon the death of the
personal properties. testator, and not, as it should have been held, upon the
value thereof at the expiration of the period of ten years
Said will provides, among other things, as follows: after which, according to the testator's will, the
property could be and was to be delivered to the
4. I direct that any money left by me be given to my instituted heir.
nephew Matthew Hanley.
ISSUES:
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 (a) When does the inheritance tax accrue and when must it
period of ten (10) years after my death, and that the be satisfied?
same be handled and managed by the executors, and (b) Should the inheritance tax be computed on the basis of
proceeds thereof to be given to my nephew, Matthew
the value of the estate at the time of the testator's death, or
Hanley
on its value ten years later?
6. I direct that ten (10) years after my death my (c) In determining the net value of the estate subject to tax,
property be given to the above mentioned Matthew is it proper to deduct the compensation due to trustees?
Hanley to be disposed of in the way he thinks most
advantageous. (d) What law governs the case at bar? Should the
provisions of Act No. 3606 favorable to the tax-payer be
xxx     xxx     xxx given retroactive effect?

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

8. I state at this time I have one brother living, named
inheritance tax? If so, should the additional interest
Malachi Hanley, and that my nephew, Matthew Hanley,
is a son of my said brother, Malachi Hanley. claimed by the defendant in his appeal be paid by the
estate?
The Court of First Instance of Zamboanga considered it
proper for the best interests of ther estate to appoint a
trustee to administer the real properties which, under the RULING:
will, were to pass to Matthew Hanley ten years after the
two executors named in the will, was, on March 8, 1924, (a) When does the inheritance tax accrue and when
appointed trustee. must it be satisfied?

(a) The accrual of the inheritance tax is distinct from the

Moore took his oath of office and gave bond on March 10,
obligation to pay the same.
1924.
Section 1536 as amended, of the Administrative Code,
He acted as trustee until February 29, 1932, when he imposes the tax upon "every transmission by virtue of
resigned and the plaintiff herein was appointed in his inheritance, devise, bequest, gift mortis causa, or advance
stead. in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or
During the incumbency of the plaintiff as trustee, the devolution of property of a decedent, made effective by his
defendant Collector of Internal Revenue, alleging that the death.
estate left by the deceased at the time of his death
consisted of realty valued at P27,920 and personalty Acording to article 657 of the Civil Code, "the rights to the
valued at P1,465, and allowing a deduction of P480.81, succession of a person are transmitted from the moment of
assessed against the estate an inheritance tax in the his death."
amount of P1,434.24 which, together with the penalties for
deliquency in payment consisting of a 1 per cent monthly From the fact, however, that Thomas Hanley died on May
interest from July 1, 1931 to the date of payment and a 27, 1922, it does not follow that the obligation to pay the
surcharge of 25 per cent on the tax, amounted to tax arose as of the date.
P2,052.74.
The time for the payment on inheritance tax is clearly fixed
the plaintiff paid said amount under protest, notifying the by section 1544 of the Revised Administrative Code as
defendant at the same time that unless the amount was amended by Act No. 3031, in relation to section 1543 of
promptly refunded suit would be brought for its recovery. the same Code.

The defendant overruled the plaintiff's protest and refused

The two sections follow:
to refund the said amount
 SEC. 1543. Exemption of certain acquisitions (b) Should the inheritance tax be computed on the
and transmissions. — The following shall not be basis of the value of the estate at the time of the
taxed: testator's death, or on its value ten years later?

(a) The merger of the usufruct in the If death is the generating source from which the power of
owner of the naked title. the estate to impose inheritance taxes takes its being and
if, upon the death of the decedent, succession takes place
(b) The transmission or delivery of the and the right of the estate to tax vests instantly, the tax
inheritance or legacy by the fiduciary should be measured by the vlaue of the estate as it stood at
heir or legatee to the trustees. the time of the decedent's death, regardless of any
subsequent contingency value of any subsequent increase
(c) The transmission from the first heir, or decrease in value.
legatee, or donee in favor of another
beneficiary, in accordance with the desire The right of the state to an inheritance tax accrues at the
of the predecessor. moment of death, and hence is ordinarily measured as to
any beneficiary by the value at that time of such property
In the last two cases, if the scale of taxation as passes to him. Subsequent appreciation or depriciation
appropriate to the new beneficiary is greater than is immaterial."
that paid by the first, the former must pay the
difference. But whatever may be the rule in other jurisdictions, we
hold that a transmission by inheritance is taxable at the
SEC. 1544. When tax to be paid. — The tax fixed time of the predecessor's death, notwithstanding the
in this article shall be paid: postponement of the actual possession or enjoyment of the
estate by the beneficiary, and the tax measured by the
(a) In the second and third cases of the value of the property transmitted at that time regardless of
next preceding section, before entrance its appreciation or depreciation.
into possession of the property.

(b) In other cases, within the six months (c) In determining the net value of the estate subject to
subsequent to the death of the
tax, is it proper to deduct the compensation due to
predecessor; but if judicial testamentary
trustees?
or intestate proceedings shall be
instituted prior to the expiration of said A trustee, no doubt, is entitled to receive a fair
period, the payment shall be made by the compensation for his services (Barney vs. Saunders, 16
executor or administrator before
How., 535; 14 Law. ed., 1047).
delivering to each beneficiary his share.
But from this it does not follow that the compensation due
If the tax is not paid within the time hereinbefore him may lawfully be deducted in arriving at the net value
prescribed, interest at the rate of twelve per of the estate subject to tax.
centum per annum shall be added as part of the
tax; and to the tax and interest due and unpaid There is no statute in the Philippines which requires
within ten days after the date of notice and trustees' commissions to be deducted in determining the
demand thereof by the collector, there shall be net value of the estate subject to inheritance tax (61 C. J., p.
further added a surcharge of twenty-five per 1705).
centum.
Furthermore, though a testamentary trust has been
A certified of all letters testamentary or of created, it does not appear that the testator intended that
admisitration shall be furnished the Collector of the duties of his executors and trustees should be
Internal Revenue by the Clerk of Court within separated.
thirty days after their issuance.

It should be observed in passing that the word (d) What law governs the case at bar? Should the
"trustee", appearing in subsection (b) of section 1543, provisions of Act No. 3606 favorable to the tax-payer
should read "fideicommissary" or "cestui que trust".
be given retroactive effect?
There was an obvious mistake in translation from the
Spanish to the English version.
The defendant levied and assessed the inheritance tax due
from the estate of Thomas Hanley under the provisions of
The instant case does fall under subsection (a), but under
section 1544 of the Revised Administrative Code, as
subsection (b), of section 1544 above-quoted, as there is
amended by section 3 of Act No. 3606.
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. But Act No. 3606 went into effect on January 1, 1930. It,
Moore as trustee on March 10, 1924. 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
The defendant Collector of Internal Revenue maintains, The corresponding inheritance tax should have been paid
however, that certain provisions of Act No. 3606 are more on or before March 10, 1924, to escape the penalties of the
favorable to the taxpayer than those of Act No. 3031, that laws.
said provisions are penal in nature and, therefore, should
operate retroactively in conformity with the provisions of This is so for the reason already stated that the delivery of
article 22 of the Revised Penal Code. the estate to the trustee was in esse delivery of the same
estate to the cestui que trust, the beneficiary in this case.
This is the reason why he applied Act No. 3606 instead of
Act No. 3031. 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;
Properly speaking, a statute is penal when it imposes 57 Law. ed., 1086).
punishment for an offense committed against the state When Moore accepted the trust and took possesson of the
which, under the Constitution, the Executive has the power trust estate he thereby admitted that the estate belonged
to pardon. not to him but to his cestui que trust
In common use, however, this sense has been enlarged to
include within the term "penal statutes" all status which It results that the estate which plaintiff represents has
command or prohibit certain acts, and establish penalties been delinquent in the payment of inheritance tax and,
therefore, liable for the payment of interest and surcharge
for their violation, and even those which, without
provided by law in such cases.
expressly prohibiting certain acts, impose a penalty upon
their commission (59 C. J., p. 1110).
The delinquency in payment occurred on March 10, 1924,
Revenue laws, generally, which impose taxes collected by the date when Moore became trustee.
the means ordinarily resorted to for the collection of taxes
are not classed as penal laws, although there are The interest due should be computed from that date and it
authorities to the contrary. 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

(e) Has there been deliquency in the payment of the
vs. Posadas, supra), and neither the Collector of Internal
inheritance tax? If so, should the additional interest Revenuen or this court may remit or decrease such
claimed by the defendant in his appeal be paid by the interest, no matter how heavily it may burden the
estate? taxpayer.

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 one's tax

does not render one delinqent until and unless the entire
period has eplased within which the taxpayer is authorized
by law to make such payment without being subjected to
the payment of penalties for fasilure to pay his taxes
within the prescribed period." (U. S. vs. Labadan, 26 Phil.,
239.)

the defendant contends that delivery to the trustee was

delivery to the cestui que trust, the beneficiery 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

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.