Special Rules and Proceedings: Rule 88

CHAPTER IX


PAYMENT OF DEBTS OF THE ESTATE AND SALES, MORTGAGES, AND OTHER ENCUMBRANCES OF PROPERTY OF DECEDENT


RULE 88 — PAYMENT OF DEBTS OF THE ESTATE


SEC. 1. Debts paid in full if estate sufficient. 

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


SEC. 2. Part of estate from which debt paid when provision made by will. 

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; but if the provision made by the will or the estate appropriated is not sufficient for that purpose, 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. Personalty first chargeable for debts, then realty. 

The personal estate of the deceased not disposed of by will shall be first chargeable with the payment of debts and expenses; and if said personal estate is not sufficient for that purpose, or its sale would redound to the detriment of the participants of the estate, the whole of the real estate not disposed of by will, or so much thereof as is necessary, may be sold, mortgaged, or otherwise encumbered for that purpose by the executor or administrator, after obtaining the authority of the court therefor. Any deficiency shall be met by contributions in accordance with the provisions of Section 6 of this Rule.


SEC. 6. Court to fix contributive shares where devisees, legatees, or heirs have been in possession. 

Where devisees, legatees, or 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 having jurisdiction of the estate may, by order for that purpose, 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.


SEC. 7. Order of payment if estate insolvent.

If the assets which can be appropriated for the payment of debts are not sufficient for that purpose, 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.


  • The following requisites must concur before the executor or administrator may pay the money claims against the estate:

    1. A hearing is conducted;

    2. The amounts of such claims are ascertained; and

    3. There are sufficient assets to pay the debt.

  • The provision in a will for the payment of a specific debt does not dispense with the requirement that a claim should be filed against the estate. 

  • In any case where the provision in the will is insufficient to cover the entire debt, that part of the decedent's estate not disposed of by will shall answer for such deficiency.

  • The order of preference for the payment of debts of the estate is as follows:

    1. From the portion or property designated in the will;

    2. From the personal property; and

    3. From the real property.

  • In case of a 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.

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


Exceptions: Instances when realty can be charged first

  • The rules provide for specific instances when realty shall be charged ahead of the decedent's personal property:

    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 a beneficiary; and

    6. When the decedent during his lifetime held real property in trust for another.

  • Before the foregoing exceptions may apply, the following requisites must be complied with:

    1. The executor or administrator makes an application with the court;

    2. Written notice is given to the persons interested; and

    3. A hearing is conducted by the court.


When writ of execution may issue

  • Although a writ of execution may not issue to recover a claim against the estate, a writ of execution may issue in accordance with Section 6. In declaring such writ as valid, the Supreme Court said:

"Execution may issue only where the devisees, legatees, or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case the court having jurisdiction of the estate may, by order for that purpose, 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 if circumstances require."

  • Section 6 clearly authorizes execution to enforce payment of the debts of the estate. A legacy is not a debt of the estate, but according to Section 6, legatees are among those against whom execution is authorized to be issued. 

  • Sections 15 and 16, as well as Sections 1 to 5 and 7(a) of Rule 89, all refer to the payment of legacies as if such are debts.

  • The correct rule is amply stated in Rule 90, Section 1, which does not include legacies as among those that should be paid before order of distribution—only debts, funeral charges, expenses of administration, allowance to widow, and inheritance tax. Again, it is only after the debts and expenses of administration have been paid that the residue shall be given to heirs and those entitled by way of inheritance or legacy.


SEC. 4. Estate to be retained to meet contingent claims

If the court is satisfied that a contingent claim duly filed is valid, it may order the executor or administrator to retain in his hands sufficient estate to pay such contingent claim when the same becomes absolute, or, if the estate is insolvent, sufficient to pay a portion equal to the dividend of the other creditors.


SEC. 5. How contingent claim becoming absolute in two years allowed and paid. Action against distributees later.

If such contingent claim becomes absolute and is presented to the court, or to the executor or administrator, within two (2) years from the time limited for other creditors to present their claims, it may be allowed by the court if not disputed by the executor or administrator. If disputed, it may be proved and allowed or disallowed by the court as the facts may warrant.


If the contingent claim is allowed, the creditor shall receive payment to the same extent as the other creditors if the estate retained by the executor or administrator is sufficient. But if the claim is not so presented after having become absolute within said two (2) years and allowed, the assets retained in the hands of the executor or administrator, not exhausted in the payment of claims, shall be distributed by the order of the court to the persons entitled to the same.


However, the assets so distributed may still be applied to the payment of the claim when established, and the creditor may maintain an action against the distributees to recover the debt. Such distributees and their estates shall be liable for the debt in proportion to the estate they have respectively received from the property of the deceased.


  • A contingent claim is one that is subject to the happening of a future uncertain event. The requisites for the estate to be required to retain estate to meet the contingent claim are as follows:

    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.

  • As to contingent claims which mature after the two-year period for filing claims, the 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.

  • Nevertheless, the assets so distributed may still be applied to the payment of the claim when established, and the creditor may maintain an action against the distributees to recover the debt. Such distributees and their estates shall be liable for the debt in proportion to the estate they have respectively received from the property of the deceased.


SEC. 8. Dividends to be paid in proportion to claims.

If there are no assets sufficient to pay the credits of any one 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.


  • Section 8 contemplates a situation where there are several creditors entitled to the same preference and the assets are insufficient to pay all of them. 

  • In such case, the proceeds shall be prorated among the creditors of the same preference. 

  • This, of course, assumes that the other creditors entitled to a higher preference have been satisfied.


SEC. 9. Estate of insolvent non-resident, how disposed of. 

In case administration is taken in the Philippine of the estate of a person who was at the time of his death an inhabitant of another country, and who died insolvent, hi estate found in the Philippines shall, as far as practicable, be so disposed of that his creditors here and elsewhere may receive each an equal share, in proportion to their respective credits.


SEC. 10. When and how claim proved outside the Philippines against insolvent resident's estate paid. 

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, 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, 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; but the benefit of this and the preceding sections shall not be extended to the creditors in another country if the property of such deceased person there found is not equally apportioned to the creditors residing in the Philippines and the other creditor, according to their respective claims.


  • 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. 11. Order for payment of debts.

Before the expiration of the time limited for the payment of the debts, 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. 12. Orders relating to payment of debts where appeal is taken. 

If an appeal has been taken from a decision of the court concerning a claim, the court may suspend the order for the payment of the debts or may order the distributions among the creditors whose claims are definitely allowed, leaving in the hands of the executor or administrator sufficient assets to pay the claim disputed and appealed. When a disputed claim is finally settled the court having jurisdiction of the estate shall order the same to be paid out of the assets retained to the same extent and in the same proportion with the claims of other creditors.


  • When an appeal is taken from its decision concerning a claim, the court may take either of the following courses of action:

    1. Suspend the order for the payment of the debts; or

    2. Order the distribution among the creditors whose claims are definitely allowed, leaving in the hands of the executor or administrator sufficient assets to pay the claim disputed and appealed.

  • Once the dispute has been settled, the court shall order the same to be paid out of the assets retained to the same extent and in the same proportion with the claims of other creditors.


SEC. 13. When subsequent distribution of assets ordered.  

If the whole of the debts are not paid on the first distribution, and if the whole assets are not distributed, or other assets afterwards come to the hands of the executor or administrator, the court may from time to time make further orders for the distributions of assets.


  • The court is not precluded from making a single order of distribution of the estate. 

  • In fact, Section 13 recognizes the court's power to make further orders for the distribution of the estate in the following cases:

    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 afterward come to the hands of the executor or administrator.


SEC. 14. Creditors to be paid in accordance with terms of order. 

When an order is made for the distribution of assets among the creditors, the executor or administration shall, as soon as the time of payment arrives, pay the creditors the amounts of their claims, or the dividend thereon, in accordance with the terms of such order.


SEC. 15. Time for paying debts and legacies fixed, or extended after notice, within what periods. 

On granting letters testamentary or administration the 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; but the court may, on application of the executor or administrator and after hearing on such notice of the time and place therefor given to all persons interested as it shall direct, extend the time as the circumstances of the estate require not exceeding six (6) months for a single extension not so that the whole period allowed to the original executor or administrator shall exceed two (2) years.


SEC. 16. Successor of dead executor or administrator may have time extended on notice within certain period. 

When an executor or administrator dies, and a new administrator of the same estate is appointed, the court may extend the time allowed for the payment of the debts or legacies beyond the time allowed to the original executor or administrator, not exceeding six (6) months at a time and not exceeding six (6) months beyond the time which the court might have allowed to such original executor or administrator; and notice shall be given of the time and place for hearing such application, as required in the last preceding section.


  • Sections 15 and 16 may be summarized as follows:

    1. The executor or administrator has an initial period of one year from the issuance of letters testamentary or administration to:

      1. Dispose of the estate; and

      2. Pay the debts and legacies of the deceased.

    2. The executor or administrator may apply for an extension not exceeding six months for a single extension, after hearing and notice to all persons interested.

    3. The whole period allowed to the original executor or administrator shall not exceed two years.

    4. The successor of the executor or administrator who dies during the settlement of the estate may have the time extended on notice,

      1. Not exceeding six months at a time; and

      2. Not exceeding six months beyond the time allowed to the original executor or administrator.

    5. Thus, the total allowable period if the executor or administrator dies is two and a half years.


 

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