FACTS
In 1960, the Court of First Instance ordered the Estate of the Late Walter Scott Price to pay estate and inheritance taxes, charges, and penalties amounting to P40,058.55.
But the government fiscal's petition for execution of the said judgment was denied by the CFI, holding that the execution was not justifiable given the Government’s indebtedness to the Estate in the amount of P262,000 on account of a contract the parties entered into years before.
It then ruled that the payment of inheritance taxes due to the government be deducted from the amount of P262,200 due and payable to the estate.
RULING
The Supreme Court ruled in favor of the Estate.
When both the claim of the Government for inheritance taxes and the claim of the intestate become due and demandable as well as fully liquidated, compensation then takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.
In the present case, the claim of the Estate against the Government has been recognized and an amount of P262,200 has already been appropriated. Thus, both the claim of the Government for inheritance taxes and the claim of the intestate for services have already become overdue and demandable. Being demandable and fully liquidated, compensation takes place by operation of law.
