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

This case originated from a final and executory judgment of the Supreme Court in a prior case (G.R. No. L-14674) ordering the estate of Walter Scott Price to pay estate and inheritance taxes amounting to P40,058.55. To enforce this judgment, the Provincial Fiscal petitioned the Court of First Instance of Leyte, presiding over the intestate proceedings, for a writ of execution. The respondent judge, Hon. Lorenzo C. Garlitos, denied the petition.
The denial was based on the court’s finding that the Government itself was indebted to the estate. The administratrix presented evidence, including a Presidential note and a provision in Republic Act No. 2700 , showing that the Government had appropriated the sum of P262,200 for payment to the estate for cadastral survey services rendered. The lower court, in its orders dated August 20 and September 28, 1960, ruled that the government’s tax claim should be deducted from the larger amount it owed the estate, or that payment of the tax should be deferred until the government settled its own debt.

ISSUE

Whether the respondent judge acted with grave abuse of discretion in denying the petition for a writ of execution to enforce the tax judgment against the estate.

RULING

The Supreme Court dismissed the petition, finding no grave abuse of discretion and upholding the orders of the lower court. The ruling was anchored on two principal legal grounds. First, the Court clarified the proper procedure for enforcing claims against an estate under judicial administration. The estate properties are in custodia legis; thus, the proper remedy is not a writ of execution via the sheriff, but a petition to the probate court for an order directing the administrator to pay the settled claim from the estate assets, following the rules on sale of properties for debt payment.
Second, and decisively, the Court applied the principle of legal compensation or set-off under the Civil Code. The requisites for compensation were present: both parties were mutually debtor and creditor of each other; both debts consisted in a sum of money; both were due and demandable; and there was no retention or controversy over either obligation. The government’s liquidated tax claim (P40,058.55) and the estate’s liquidated claim against the government (P262,200, recognized by law) were both overdue. Consequently, compensation took effect by operation of law under Articles 1279 and 1290 of the Civil Code, extinguishing both debts to the concurrent amount. Therefore, the government had no clear right to a writ of execution. The Court also noted that certiorari and mandamus were improper remedies, as any error by the lower court should have been corrected by appeal.