Rule 88 PAYMENT OF THE DEBTS OF THE ESTATE

Sec. 1 Full payment of Debts - If:

1. After hearing all the money claims against the estate,
2. and after ascertaining the amount of such claims, it
3. It appears that there are sufficient assets to pay the debts,
4. the executor or administrator pay the same within the time limited for that purpose.
   

Propriety of Writ of Execution - A writ of execution is not the proper procedure under ROC for the payment of debts and expenses of administration. Instead, for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased.

Sec. 2 Testamentary Provisions for Payment of Debt -

1. GR - If the testator makes provision by his will, or designates the estate to be appropriated for the payment of his debts, the expenses of administration, or the family expenses, they shall be paid according to the provisions of the will;
2. XCPN - If provision of estate appropriated is insufficient, such part of the estate of the testator, real or personal, as is not disposed of by will, if any shall be appropriated for that purpose.
   

Sec. 3 Order of Preference for Payment of Debts -

1. From the portion or property designated in the will;
2. From the personal property; and
3. From the real property.

When Estate is Insufficient - In case of deficiency after the exhaustion of the decedent's es­tate, it shall be satisfied from the contribution of devisees, legatees, or heirs who have been in possession of portions of the estate before the debts and expenses have been settled and paid.

Insolvent Decedent - If the decedent is insolvent, the preference of credits stated in Articles 1059 and 2239 to 2251 of the Civil Code must be followed.

Exception, when Real Estate may be Charged First -

1. GR - Personal estate of the deceased not disposed of the will, shall be first chargeable with the payment of the debts and expenses.
   

Exceptions -

1. When the decedent's personal property is insufficient;
2. When the sale of personal property shall be detrimental to the participants of the estate;
3. When the sale of personal property may injure the business or interests of those interested in the estate;
4. When the testator has not made sufficient provision for payment of such debts, expenses, and legacies;
5. When the decedent was, in his lifetime, under contract, binding in law, to deed real property to beneficiary; and
6. When the decedent during his lifetime held real property in trust for another.
   

Sec. 4-5 Contingent Claims - One that is subject to the happening of a future uncertain event.

Requisites for Retention of Estate for Contingent Claims -

1. The contingent claim is duly filed within the two-year period allowed for the creditors to present claims;
2. The court is satisfied that the claim is valid; and
3. The claim has become absolute.
   

Effect of Expiration of Two year period - (De Bautista v. De Guzman) Assets retained in the hands of the executor or administrator not exhausted in the payment of the claims, shall be distributed by order of the court to the persons entitled to the same.

• If this matures, after expiration of two years, the creditor may sue the distributees. They are liable in proportion to the shares in the estate respectively received by them.

Scope of Court Authority - The residuary funds within the estate, even if within the possession of the universal heirs are considered funds of the estate.

• Thus, Court may compel the heirs to deliver said funds to administrator of the estate for the payment of any claim against the estate.
  

Importance of Establishing and Filing of Contingent Claims - 88.5 Is the only instance when a creditor can file an action against a distributee of the debtor’s asset.

• If filed after termination of intestate proceedings, no longe rallowed.

Sec. 6 Contributive Shares of Heirs - Where Heirs have entered into possession of portions of the estate before the debts and expenses have been settled and paid, and have become liable to contribute for the payment of such debts and expenses,

• The court may by order after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and may issue execution as circumstances require.

Extent of Liability of Heirs - The heirs are not liable to respond with their own property for the debts of the deceased. But, even after partition, liable in pro­portion to the amount or value of the property they have respec­tively received from the estate for any lawful outstanding claims against the estate

Rationale - The hereditary property refers to that part which remains after the settlement of all lawful claims against the estate. Thus, the heirs cannot, by any act of their own or by agreement among themselves, reduce the creditors security for the payment of their claims.

Enforcement of Liability - 88.6 Authorizes execution as means to enforce payments of the debts of the estate.

• Such debts do not include a legacy, as legatees are among those against whom execution is author­ized to be issued. (Pastor, Jr. v. CA)
  

Treatment of Legatees - Legatees are not considered as creditors of the estate. A legacy is not a debt of the estate. Instead, legatees are among those against whom execution is authorized to be issued

Propriety of Writ of Execution -

1. GR: A writ of execution may not issue to recover a claim against an estate
2. XCPN: It may issue in accordance with Section 6.

• When devisees, legatees, or heirs have entered into possession of their respective portions of the estate
• prior to the settlement and payment of the debts and administration expenses,
• and it is later on ascertained that there are still remaining debts to be paid.
  

Sec. 7 Order of Payment in Insolvent Estates - the executor or administrator shall pay the debts against the estate, observing the provisions of Articles 1059 and 2239 to 2251 of the Civil Code

Sec. 8 Payment of Dividends - If there are no assets sufficient to pay the credits of any once class of creditors after paying the credits entitled to preference over it, each creditor within such class shall be paid a dividend in proportion to his claim.

• No creditor of any one class shall receive any payment until those of the preceding class are paid.
  

Applicable Situation - Where:

1. There are several creditors entitled to the same preference and
2. The assets are insufficient to pay all of them.
   

Sec 9 Estate of Insolvent Non-Resident - If the decedent is a non-resident and insolvent, his estate found in the Philippines shall be distributed to his creditors, both here and outside,the country, in proportion to their respective shares.

Sec. 10 Foreign Claims against Insolvent Resident -

1. If it appears to the court having jurisdiction that claims have been duly proven in another country against the estate of an insolvent who was at the time of his death an inhabitant of the Philippines,
2. and that the executor or administrator in the Philippines had knowledge of the presentation of such claims in such country and an opportunity to contest their allowance,
3. the court shall receive a certified list of such claims, when perfected in such country, and add the same to the list of claims proved against the deceased person in the Philippines so that a just distribution of the whole estate may be made equally among all its creditors according to their respective claims;

Sec. 11 Order for Payment of Debts -

1. Before the expiration of the time limited for the payment of the debts,
2. the court shall order the payment thereof, and the distribution of the assets received by the executor or administrator for that purpose among the creditors, as the circumstances of the estate require and in accordance with the provisions of this rule.

Sec. 13 Order for Subsequent Distribution of the Estate - the court may from time to time make further orders for the distributions of assets under the following circumstances:

1. If the whole of the debts are not paid on the first distribution;
2. If the whole assets are not distributed; or
3. If other assets afterwards come to the hands of the executor or administrator
   

Sec. 15 Period for Payment of Debts and Legacies -

1. GR - court shall allow to the executor or administrator a time for disposing of the estate and paying the debts and legacies of the deceased, which shall not, in the first instance, exceed one (1) year from date of granting letters.
2. XCPN - Court, on application of the executor/administrator, after notice and hearing to all other interested persons, extend.

• Extension - 6 months per extension; maximum period of two years, counting initial 1 year period.
  

Sec. 16 Effect of Death of Executor/Administrator - Successor can request extension

1. Extension: Max of 6 months per extension
2. Limit: Must not exceed 6 months after the time allowed the original executor or administrator

RULE 89: SALE, MORTGAGE, AND OTHER ENCUMBRANCES

Sec. 1 Order of Sale of Personalty -

1. Upon the application of the executor or administrator, AND
2. on written notice to the heirs and other persons interested

• the court may order the whole or a part of the personal estate to be sold, if it appears necessary for the purpose of paying debts, expenses of administration, or legacies, or for the preservation of the property.
  

Sec. 2 Authorization for Sale, mortgage, or other encumbrance of realty to pay debts and legacies through personalty not exhausted

Sec. 3 Section 3. Persons interested may prevent such sale, etc., by giving bond - Any person interested in the estate may prevent the sale, mortgage, or encumbrance of real or personal property part of the estate

Sec. 4. Court Authorization for Sale of Estate

Effect of Lack of Court Order - Executor or administrator is prohibited from selling personal property of decedent without court order, even if heirs and other persons interest consented

• Executor or administrator may be held answerable for selling decedent’s property without court order.

Application Requirement - Upon application, court may authorize the executor or administrator to:

1. Sell
2. Mortgage, or
3. Otherwise encumber decedent’s real estate, instead of personal property
   

When Allowed -

1. Personal estate of the deceased is not sufficient to pay the debts, expenses of administration, and legacies, or
2. Sale of such personal estate may injure the business or other interests of those interested in the estate, and
3. Testator has not otherwise made sufficient provision for the payment of such debts, expenses, and legacies
   

Condition for Encumbrance - Sale, mortgage or other encumbrance is conditioned on:

1. Application of executor or administrator
2. Written notice to heirs, devisees, and legatees residing in the Philippines
3. Such would be beneficial to person interested
   

Partial Sale - Executor or administrator is not constrained to sell, mortgage, or encumber the whole property or none.

• Instead, so much as may be necessary of the real estate need to be sold, mortgaged, or encumbered
  

Sec. 5 Encumbrance of Estate to pay foreign Debts or Legacies -

Rule 90 DISTRIBUTION AND PARTITION

How Prevented - By Giving a bond, conditioned on payment of debts, expenses of administration and legacies, as well as security of the creditors, executor, or administrator

Requirements for Sale of Realty -

1. written notice of the application and time and place of hearing
2. to be served upon heirs residing in PH is mandatory
3. Court Order
4. Application of the executor or administrator
   

When Allowed - When it appears that the sale of the whole or a part of the real or personal estate, will be beneficial to the heirs, devisees, legatees, and other interested persons

Sale under Sec. 4 - Here, not necessary to pay debts, legacies or expenses of administration.

When Prohibited - such authority shall not be granted if inconsistent with the provisions of a will.

When Allowed -

1. Sale of personal estate, or the sale, mortgage, or other encumbrance of real estate is not necessary to pay the debts, expenses of administration, or legacies in the Philippines;
2. Records of probate court in another country show that the estate is NOT sufficient to pay the debts, expenses of administration, and legacies there.
   

How Authorized - Court may authorize in same manner as for the payment of debts or legacies in the Philippines

Sec. 6 Sale of Properties Acquired by Execution Sale - The court may authorize an executor or administrator to sell mortgage, or otherwise encumber real estate acquired by him on execution or foreclosure sale, under the same circumstances and under the same regulations as prescribed in this rule for the sale, mortgage, or other encumbrance of other real estate.

Sec. 7 Regulation for granting authority to sell, mortgage, or otherwise encumber estate. Court may authorize the executor or administrator to sell personal estate, or to sell, mortgage, or otherwise encumber real estate, in cases provided by these rules and when it appears necessary or beneficial under the following regulations.

How Authorized -

1. Petition - Executor or administrator shall file a written petition setting forth the debts due from the deceased, the expenses of administration, the legacies, the value of the personal estate, the situation of the estate to be sold, mortgaged, or otherwise encumbered, and such other facts as show that the sale, mortgage, or other encumbrance is necessary or beneficial.
2. Notice and Hearing - court shall thereupon fix a time and place for hearing such petition, and cause notice stating the nature of the petition, the reasons for the same, and the time and place of hearing, to be given personally or by mail to the persons interested, and may cause such further notice to be given, by publication or otherwise, as it shall deem proper;
3. Bond - Court may require the executor or administrator shall give an additional bond, in such sum as the court directs, conditioned that such executor or administrator will account for the proceeds of the sale, mortgage, or other encumbrance;
   

Effect of Compliance - If the requirements in the preceding subdivisions of this section have been complied with, the court, by order stating such compliance, may authorize the executor or administrator to sell, mortgage, or otherwise encumber, in proper cases, such part of the estate as is deemed necessary, and in case of sale the court may authorize it to be public or private, as would be most beneficial to all parties concerned. The executor or administrator shall be furnished with a certified copy of such order;

Effect of Non-Compliance - order of sale not issued in accordance with such regulations is void

• Sale made is also void
  

Objection of Heirs - probate court has authority to allow the executor or administrator to sell the properties of the decedent despite objection of one or more heirs

Sec. 8 Conveyance made by Decedent During Lifetime - In contrast with Secs. 2 and 4 of Rule 89, Sec. 8 does not limit to the executor or administrator the right to file the application for authority to see, mortgage or encumber realty under administration.

Sec. 9 Conveyance of Lands held in Trust by Deceased - Where the deceased in his lifetime held real property in trust for another person, the court may after notice given as required in the last preceding section, authorize the executor or administrator to deed such property to the person, or his executor or administrator, for whose use and benefit it was so held; and the court may order the execution of such trust, whether created by deed or by law.

When Applicable - Where the deceased was in his lifetime under contract, binding in law, to deed real property, or an interest therein.

How Authorized -

1. Court may, on application authorize the executor or administrator to convey such property according to such contract,
2. or with such modifications as are agreed upon by the parties and approved by the court;

• and if the contract is to convey real property to the executor or administrator, the clerk of court shall execute the deed. T

3. he deed executed by such executor, administrator, or clerk of court shall be as affectual to convey the property as if executed by the deceased in his lifetime;
   

Notice Requirement - no such conveyance shall be authorized until notice of the application for that purpose has been given personally or by mail to all persons interested, and such further notice has been given, by publication or otherwise, as the court deems proper;

Notice Requirement - Notice to all persons interested in the estate is necessary before the court may authorize the conveyane of the property held in trust

Sec. 1 When Order for Distribution is Made - The estate must first be settled in a special proceeding before a court can make a partition and distribution of the estate. Thus, only after:

1. After all the debts, funeral charges, expenses of administration, allowance to the widow, and estate tax have been paid;

   
   

2. Or before payment of said obligation, provide the distributees or any of them gives a bond in a sum fixed by the court

   
   

Application for Distribution - The order of distribution is only issued upon proper and specific application of the interest party or parties, not of the court.

Requisites for Order of Distribution -

1. Liquidation of estate or payment of obligations - The determination of all assets of the estate and payment of all debts and expenses
2. Declaration of heirs - There must first be a declaration of heirs to determine to whom the residue of the estate should be distributed.
   

Liquidation Requirement -

1. GR: No distribution shall be allowed until payment of the obligations above mentioned
2. XCPN: When the distributees or any of them give a bond in a sum to be fixed by the cour
   

Scope of Obligations - the debts, funeral charges and inheritance tax, if any chargeable to the estate in accordance with law.

Sec. 2 Questions as to advancement to be determined - Questions as to advancement made, or alleged to have been made, by the deceased to any heir may be heard and determined by the court having jurisdiction of the estate proceedings; and the final order of the court thereon shall be binding on the person raising the questions and on the heir.

Section 3. By whom expenses of partition paid.

1. GR - If at the time of distribution, there are sufficient assets retained for expenses of partition, may be paid by executor/administrator when it appears equitable to the court and not inconsistent with the intention of the testator;
2. XCPN - If insufficient, then paid by the parties to partition in proportion to their respective shares or interest in the premises.

• Appointment settled and allowed by court.

Power to Determine Proportion - The probate court has the power to determine the parts to which each distributee is entitled at this stage but the right to specific distribute shares is only determined after the debts are paid

Determination of Net Estate - All obligations and charges would deducted from the gross estate

• Then all donations subject to collation would be added to it.