f. Payment of Debts of the Estate (Rule 88)

Probate Court’s Power to Issue Writs of Execution

General Rule: A probate court cannot issue writs of execution because its orders usually refer to the adjudication of claims against the estate which the executor or administrator may satisfy WITHOUT the need of executor processes. (Angelita G. Vda. De Valera v. Hon. Macario M. Ofilada, G.R. No. L-27526, 1974)

Exceptions: The court may issue writs of execution on the following:

• To satisfy the contributive shares of the devisees, legatees and heirs on possession of the decedent’s assets (R88, S6);
• To enforce payment of the expenses of partition (R90, S3); and
• To satisfy the cost when a person is cited for examination in probate proceedings. (R142, S13)

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

Requisites Before Payment of Money Claims Against the Estate

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

• A hearing is conducted
• The amounts of such claims are ascertained, and
• There are sufficient assets to pay the debts.

Payment of Debts if Estate Sufficient

General rule: The payment of the debts of the estate must be taken (by order of preference):

• From the portion or property designated in the will; (R88, S2)
• From the personal property, and
• From the real property.

If there is still a deficiency, it shall be met by contributions by devisees, legatees, or heirs who have been in possession of portions of the estate BEFORE debts and expenses have been settled and paid. (R88, S6)

Exception: Instances When Realty Can Be Charged First:

• When the personal property is not sufficient. (R88, S3)
• Where the sale of such personalty would be detrimental to the participants (everyone) of the estate. (R88, S3)
• When sale of personal property may injure the business or interests of those interested in the estate. (R89, S2)
• When the testator has not made sufficient provision for payment of such debts/expenses/legacies. (R89, S2)
• When the decedent was, in his lifetime, under contract, binding in law, to deed real property to beneficiary. (R89, S8)
• When the cedent during his lifetime held real property in trust for another person. (R89, S9)

Contingent Claim

Claim that is subject to the happening of a future uncertain event.

If the court is satisfied that a contingent claim duly filed is valid, it may order the executor / 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. (R88, S4)

Requisites for the Estate to be Retained to Meet Contingent Claims:

• Contingent claim is duly filed within the two (2) year period allowed for the creditors to present claims;
• Court is satisfied that the claim is valid;
• The claim has become absolute. (R88, S5)

Contingent Claims Which Mature After the Two (2) Year Period for Filing of Claims

The assets retained in the hands of the executor / administrator, not exhausted in the payment of claims, shall be distributed by the order of the court to the persons entitled to the same.

But 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, and 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. (R88, S5)

Contributive Share of Devisees/Legatees/Heirs in Possession of Portions of Estate for Debts

If devisees, legatees or heirs have taken possession of portions of the estate before the debts have been settled and paid have become liable to contribute for the payment of debts and expenses, and the court, after hearing, may settle the amount of their several liabilities, and order how much and in what manner each person shall contribute. (R88, S6)

Payment of Debts if Estate Insolvent or Assets Insufficient

If insufficient estate to pay all debts: The executor / administrator shall pay the debts according to the concurrence and preference of credits provided by Articles 1059 and 2239-2251 of the Civil Code. (R88, S7)

After following the order of preference of credits, if all the creditors belonging to one class cannot be paid in full, then all of them will suffer a reduction in proportion to that creditor’s claim. No creditor of any one class shall receive any payment until those of the preceding class are paid. (R88, S8)

Estate of an Insolvent Non-Resident Disposed of

His estate in the Philippines shall be so disposed of that his creditors in and outside the Philippines may receive an equal share, in proportion to their respective credits. (R88, S9)

Claim Proven Outside the Philippines Against an Insolvent Resident’s Estate Paid

Claims proven outside the Philippines where the executor had knowledge and opportunity to contest its allowance therein may be added to the list of claims in the Philippines against the estate of an insolvent resident and the estate will be distributed equally among those creditors. The claims of foreign creditors against insolvent non-residents and against insolvent residents would not be able to recover from the estate if there is no reciprocity with that creditor’s country granting the same benefit to Filipinos. (R88, S10)

However, 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 creditors, according to their respective claims. (R88, S10)

Order of Payment of Debts

Before the expiration of the time limited for the payment of debts, the court shall order the payment thereof. (R88, S11)

Upon appeal, the court may suspend the order for the payment of debts or may order the distribution among the creditors whose claims are definitely allowed, leaving in the hands of the executor/administrator sufficient assets to pay the claim disputed and appealed. (R88, S12)

Time for Payment of Debts and Legacies; Period for Successor of Deceased Administrator/Executor

Shall not exceed one (1) year in the first instance; but court may extend on application of executor / administrator and after hearing and notice thereof. Extension must not exceed six (6) months for single extension. The whole period allowed to the original executor / administrator shall not exceed two (2) years.

The successor of dead executor/administrator may be allowed an extension not to exceed six (6) months. (R88, S15)

Requisites Before Payment of Money Claims Against the Estate

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

• A hearing is conducted
• The amounts of such claims are ascertained, and
• There are sufficient assets to pay the debts.

Payment of Debts if Estate Sufficient

General rule: The payment of the debts of the estate must be taken (by order of preference):

• From the portion or property designated in the will; (R88, S2
• From the personal property, and
• From the real property.

If there is still a deficiency, it shall be met by contributions by devisees, legatees, or heirs who have been in possession of portions of the estate BEFORE debts and expenses have been settled and paid. (R88, S6)

Exception: Instances When Realty Can Be Charged First:

• When the personal property is not sufficient. (R88, S3)
• Where the sale of such personalty would be detrimental to the participants (everyone) of the estate. (R88, S3)
• When sale of personal property may injure the business or interests of those interested in the estate. (R89, S2)
• When the testator has not made sufficient provision for payment of such debts/expenses/legacies. (R89, S2)
• When the decedent was, in his lifetime, under contract, binding in law, to deed real property to beneficiary. (R89, S8)
• When the cedent during his lifetime held real property in trust for another person. (R89, S9)

Contingent Claim

Claim that is subject to the happening of a future uncertain event.

If the court is satisfied that a contingent claim duly filed is valid, it may order the executor / 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. (R88, S4)

Requisites for the Estate to be Retained to Meet Contingent Claims:

• Contingent claim is duly filed within the two (2) year period allowed for the creditors to present claims;
• Court is satisfied that the claim is valid;
• The claim has become absolute. (R88, S5)

Contingent Claims Which Mature After the Two (2) Year Period for Filing of Claims

The assets retained in the hands of the executor / administrator, not exhausted in the payment of claims, shall be distributed by the order of the court to the persons entitled to the same.

But 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, and 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. (R88, S5)

Contributive Share of Devisees/Legatees/Heirs in Possession of Portions of Estate for Debts

If devisees, legatees or heirs have taken possession of portions of the estate before the debts have been settled and paid have become liable to contribute for the payment of debts and expenses, and the court, after hearing, may settle the amount of their several liabilities, and order how much and in what manner each person shall contribute. (R88, S6)

Payment of Debts if Estate Insolvent or Assets Insufficient

If insufficient estate to pay all debts: The executor / administrator shall pay the debts according to the concurrence and preference of credits provided by Articles 1059 and 2239-2251 of the Civil Code. (R88, S7)

After following the order of preference of credits, if all the creditors belonging to one class cannot be paid in full, then all of them will suffer a reduction in proportion to that creditor’s claim. No creditor of any one class shall receive any payment until those of the preceding class are paid. (R88, S8)

Estate of an Insolvent Non-Resident Disposed of

His estate in the Philippines shall be so disposed of that his creditors in and outside the Philippines may receive an equal share, in proportion to their respective credits. (R88, S9)

Claim Proven Outside the Philippines Against an Insolvent Resident’s Estate Paid

Claims proven outside the Philippines where the executor had knowledge and opportunity to contest its allowance therein may be added to the list of claims in the Philippines against the estate of an insolvent resident and the estate will be distributed equally among those creditors. The claims of foreign creditors against insolvent non-residents and against insolvent residents would not be able to recover from the estate if there is no reciprocity with that creditor’s country granting the same benefit to Filipinos. (R88, S10)

However, 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 creditors, according to their respective claims. (R88, S10)

Order of Payment of Debts

Before the expiration of the time limited for the payment of debts, the court shall order the payment thereof. (R88, S11)

Upon appeal, the court may suspend the order for the payment of debts or may order the distribution among the creditors whose claims are definitely allowed, leaving in the hands of the executor/administrator sufficient assets to pay the claim disputed and appealed. (R88, S12)

Time for Payment of Debts and Legacies; Period for Successor of Deceased Administrator/Executor

Shall not exceed one (1) year in the first instance; but court may extend on application of executor / administrator and after hearing and notice thereof. Extension must not exceed six (6) months for single extension. The whole period allowed to the original executor / administrator shall not exceed two (2) years.

The successor of dead executor/administrator may be allowed an extension not to exceed six (6) months. (R88, S15)

Requisites Before Payment of Money Claims Against the Estate

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

• A hearing is conducted
• The amounts of such claims are ascertained, and
• There are sufficient assets to pay the debts.

Payment of Debts if Estate Sufficient

General rule: The payment of the debts of the estate must be taken (by order of preference):

• From the portion or property designated in the will; (R88, S2).
• From the personal property, and
• From the real property.

If there is still a deficiency, it shall be met by contributions by devisees, legatees, or heirs who have been in possession of portions of the estate BEFORE debts and expenses have been settled and paid. (R88, S6)

Exception: Instances When Realty Can Be Charged First:

• When the personal property is not sufficient. (R88, S3)
• Where the sale of such personalty would be detrimental to the participants (everyone) of the estate. (R88, S3)
• When sale of personal property may injure the business or interests of those interested in the estate. (R89, S2)
• When the testator has not made sufficient provision for payment of such debts/expenses/legacies. (R89, S2)
• When the decedent was, in his lifetime, under contract, binding in law, to deed real property to beneficiary. (R89, S8)
• When the cedent during his lifetime held real property in trust for another person. (R89, S9)

Contingent Claim

Claim that is subject to the happening of a future uncertain event.

If the court is satisfied that a contingent claim duly filed is valid, it may order the executor / 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. (R88, S4)

Requisites for the Estate to be Retained to Meet Contingent Claims:

• Contingent claim is duly filed within the two (2) year period allowed for the creditors to present claims;
• Court is satisfied that the claim is valid;
• The claim has become absolute. (R88, S5)

Contingent Claims Which Mature After the Two (2) Year Period for Filing of Claims

The assets retained in the hands of the executor / administrator, not exhausted in the payment of claims, shall be distributed by the order of the court to the persons entitled to the same.

But 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, and 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. (R88, S5)

Contributive Share of Devisees/Legatees/Heirs in Possession of Portions of Estate for Debts

If devisees, legatees or heirs have taken possession of portions of the estate before the debts have been settled and paid have become liable to contribute for the payment of debts and expenses, and the court, after hearing, may settle the amount of their several liabilities, and order how much and in what manner each person shall contribute. (R88, S6)

Payment of Debts if Estate Insolvent or Assets Insufficient

If insufficient estate to pay all debts: The executor / administrator shall pay the debts according to the concurrence and preference of credits provided by Articles 1059 and 2239-2251 of the Civil Code. (R88, S7)

After following the order of preference of credits, if all the creditors belonging to one class cannot be paid in full, then all of them will suffer a reduction in proportion to that creditor’s claim. No creditor of any one class shall receive any payment until those of the preceding class are paid. (R88, S8)

Estate of an Insolvent Non-Resident Disposed of

His estate in the Philippines shall be so disposed of that his creditors in and outside the Philippines may receive an equal share, in proportion to their respective credits. (R88, S9)

Claim Proven Outside the Philippines Against an Insolvent Resident’s Estate Paid

Claims proven outside the Philippines where the executor had knowledge and opportunity to contest its allowance therein may be added to the list of claims in the Philippines against the estate of an insolvent resident and the estate will be distributed equally among those creditors. The claims of foreign creditors against insolvent non-residents and against insolvent residents would not be able to recover from the estate if there is no reciprocity with that creditor’s country granting the same benefit to Filipinos. (R88, S10)

However, 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 creditors, according to their respective claims. (R88, S10)

Order of Payment of Debts

Before the expiration of the time limited for the payment of debts, the court shall order the payment thereof. (R88, S11)

Upon appeal, the court may suspend the order for the payment of debts or may order the distribution among the creditors whose claims are definitely allowed, leaving in the hands of the executor/administrator sufficient assets to pay the claim disputed and appealed. (R88, S12)

Time for Payment of Debts and Legacies; Period for Successor of Deceased Administrator/Executor

Shall not exceed one (1) year in the first instance; but court may extend on application of executor / administrator and after hearing and notice thereof. Extension must not exceed six (6) months for single extension. The whole period allowed to the original executor / administrator shall not exceed two (2) years.

Liquidation

Liquidation refers to the determination of all assets of the estate and payment of all debts and expenses.

Exceptions:

• To satisfy the contributive shares of the devisees/legatees/heirs when the latter had entered prior possession over the estate. (R88, S6)
• To enforce payment of the expenses of partition. (R90, S3)
• To satisfy the costs when a person is cited for examination in probate proceedings. (R142, S13) (Vda. de Valera v. Ofilada, G.R. No. L-27526, 1974).