G.R. No.

L-18994             June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, 

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte, 
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price,respondents.

FACTS:
In Domingo vs. Moscoso, the Supreme Court declared at final and executor the order of the court of first
instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to ₱
40, 058.55 by the estate of the late Walter Scott Pine. He petition for execution filed by the fiscal,
however, was denied by the lower court the court held that the execution is unjustified as the government
itself is indebted to the estate for 262,200; and ordered the amount of inheritance taxes be deducted from
the governments’ indebtedness to the estate.
Issues: Can there be legal compensation?
Held:
Yes. The fact that the court having jurisdiction of the estate had found that the claim of the estate against
the government has been appropriated for the purpose by a corresponding law ( RA 2700) shows that both
the claim of the government for inheritance taxes and the claim of the intestate for services regarded have
already become overdue and demandable as well as fully liquidated. Compensation, therefore, take place
by operation of law, in accordance with the provisions of article 1279 and 1290 of the civil code, and both
debts are extinguished to the amount. Exception: SC allowed set off in the case of Domingo v. Garlitos [8
SCRA 443] re: claim for payment of unpaid services of a government employee vis-à-vis the estate taxes
due from his estate. The fact that the court having jurisdiction of the estate had found that the claim of the
estate against the government has been appropriated for the purpose by a corresponding law shows that
both the claim of the government for inheritance taxes and the claim of the intestate for services rendered
have already become overdue and demandable as well as fully liquidated. Compensation therefore takes
place by operation of law

The petition is, therefore, dismissed, without costs.