e. Actions Involving Executors and Administrators (Rule 87)

A. Settlement of Estate of Deceased Persons (part 3 of 4)

Sec. 10. When creditor may bring action. Lien for costs.— When there is such a deficiency of assets, and the deceased in his lifetime had made or attempted such a conveyance, as is stated in the last preceding section, and the executor or administrator has not commenced the action therein provided for, any creditor of the estate may, with the permission of the court, commence and prosecute to final judgment, in the name of the executor or administrator, a like action for the recovery of the subject of the conveyance or attempted conveyance for the benefit of the creditors. But the action shall not be commenced until the creditor has filed in a court a bond executed to the executor or administrator, in an amount approved by the judge, conditioned to indemnify the executor or administrator against the costs and expenses incurred by reason of such action. Such creditor shall have a lien upon any judgment recovered by him in the action for such costs and other expenses incurred therein as the court deems equitable. Where the conveyance or attempted conveyance has been made by the deceased in his lifetime in favor of the executor or administrator, the action which a creditor may bring of the shall be in the name of all the creditors, and permission the court and filing of bond as above prescribed, are not necessary.

> Rule 88 PAYMENT OF THE DEBTS OF THE ESTATE

Section 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. 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, and, 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; 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.

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.

Sec. 8. Dividends to be paid in proportion to claims.— If there are no assets sufficient to pay the credits of any 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.

Sec. 9. Estate of insolvent nonresident, how disposed of.— In case administration is taken in the Philippines of the estate of a person who was at the time of his death an inhabitant of another country, and who died insolvent, his 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 creditors, according to their respective claims.

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 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. 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.

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 distribution of assets.

Sec. 14. Creditors to he paid in accordance with terms of order.— When an order is made for the distribution of assets among the creditors, the executor or administrator 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 sons interested as it shall direct, extend the time as the circumstances of the estate require not exceeding six (6) months for a single extension nor 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.

> Rule 89 SALES, MORTGAGES, AND OTHER ENCUMBRANCES OF PROPERTY OF DECEDENT

Section 1. Order of sale of personalty.— Upon the application of the executor or administrator, and 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 appeal's necessary for the purpose of paying debts, expenses of administration, or legacies, or for the preservation of the property.

Sec. 2. When court may authorize sale, mortgage, or other encumbrance of realty to pay debts and legacies through personalty not exhausted.— When the personal estate of the deceased is not sufficient to pay the debts, expenses of administration, and legacies, or where the sale of such personal estate may injure the business or other interests of those interested in the estate, and where a testator has not otherwise made sufficient provision for the payment of such debts, expenses, and legacies, the court, on the application of the executor or administrator and on written notice to the heirs, devisees, and legatee residing in the Philippines, may authorize the executor or administrator to sell, mortgage, or otherwise encumber so much as may be necessary of the real estate, in lieu c personal estate, for the purpose of paying such debts expenses, and legacies, if it clearly appears that such sale, mortgage, or encumbrance would be beneficial to the persons interested; and if a part cannot be sold, mortgaged, or otherwise encumbered without injury to those interested in the remainder, the authority may be for the sale, mortgage, or other encumbrance of the whole of such real estate, or so much thereof as is necessary or beneficial under the circumstances.

Sec. 3. Persons interested may prevent such sale, etc., by giving bond.— No such authority to sell, mortgage, or otherwise encumber real or personal estate shall be granted if any person interested in the estate gives a bond, in a sum to be fixed by the court, conditioned to pay the debts, expenses of administration, and legacies within such time as the court directs; and such bond shall be for the security of the creditors, as well as of the executor or administrator, and may be prosecuted for the benefit of either.

Sec. 4. When court may authorize sale of estate as beneficial to interested persons. Disposal of proceeds.— 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, the court may, upon application of the executor or administrator and on written notice to the heirs, devisees, and legatees who are interested in the estate to be sold, authorize the executor or administrator to sell the whole or a part of said estate, although not necessary to pay debts, legacies, or expenses of administration; but such authority shall not be granted if inconsistent with the provisions of a will. In case of such sale, the proceeds shall be assigned to the persons entitled to the estate in the proper proportions.

Sec. 5. When court may authorize sale, mortgage, or other encumbrance of estate to pay debts and legacies in other countries.— When the sale of personal estate, or the sale, mortgage, or other encumbrance of real estate not necessary to pay the debts, expenses of administration, or legacies in the Philippines, but it appears from records and proceedings of a probate court in another country that the estate of the deceased in such other country is not sufficient to pay the debts, expenses of administration, and legacies there, the court here may authorize the executor or administrator to sell the personal estate or to sell, mortgage, or otherwise encumber the real estate for the payment of debts or legacies in the other country, in the same manner as for the payment of debts or legacies in the Philippines.

Sec. 6. When court may authorize sale, mortgage, or other encumbrance of realty acquired on execution or foreclosure.—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. Regulations for granting authority to sell, mortgage, or otherwise encumber estate.— The court having jurisdiction of the estate of the deceased 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:(a) The 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;(b) The court shall thereupon fix a time and place for hearing such petition, and cause notice stating the nature of the petition, the reason 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;(c) If the court requires it, 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;(d) 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 eases, 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;(e) If the estate is to be sold at auction, the mode of giving notice of the time and place of the sale shall be governed by the provisions concerning notice of execution sale;(f) There shall be recorded in the registry of deeds of the province in which the real estate thus sold, mortgaged, or otherwise encumbered is situated, a certified copy of the order of the court, together with the deed of the executor or administrator for such real estate, which shall be as valid as if the deed had been executed by the deceased in his lifetime.

Actions of the Court upon Notice of Death

Upon receipt of the notice of death, the court shall determine whether or not the claim is extinguished by such death.

Rules in Cases where the Action Survives Death of the Party

When Formal Substitution is Not Necessary

Formal substitution of heirs is not necessary when the heirs themselves voluntarily appeared, participated in the case and presented evidence in defense of deceased defendant. (Vda. de Salazar v. CA, G.R. No. 121510, 1995)

The rule on substitution by heirs is not a matter of jurisdiction, but a requirement of due process. Noncompliance with the Rules results in the denial of the right to due process for the heirs who, though not duly notified of the proceedings, would be substantially affected by the decision rendered therein. Thus, it is only when there is a denial of due process, as when the deceased is not represented by any legal representative or heir, that the court nullifies the trial proceedings and the resulting judgment therein. (Sarsaba v. De Te, G.R. No. 175910, 2009)

Where the deceased has no heirs, the court shall require the appointment of an executor or administrator; if the heir is a minor, a guardian ad litem. (Rule 3, Sec. 16)

One who, in the opinion of the court, is unfit to exercise the duties of the trust by reason of:

• Drunkenness
• Improvidence
• Want of understanding/integrity
• Conviction of an offense involving moral turpitude

Other Limitations

A corporation / association authorized to conduct the business of a trust company in the Philippines may be appointed as an executor, administrator, guardian of an estate, or trustee, in like manner as an individual; but it shall not be appointed guardian of the person of a ward. (Art. 1060, NCC)

The marriage of a single woman also shall not affect her authority to serve under a previous appointment. (R78, S3)

If one has liabilities to the estate, he cannot perform the duties of an administrator. This is considered an adverse interest to the estate which renders him unsuitable to act as administrator. (Lim v. Diaz-Millarez, G.R. No. L-17633, 1966).

Order of Appointment of Regular Administrators

The order of appointment of regular administrators is final and therefore, appealable.

Powers and Duties of Executors and Administrators

• To have access to, and examine and take copies of books and papers relating to the partnership in case of a deceased partner;
• To examine and make invoices of the property belonging to the partnership in case of a deceased partner;
• To make improvements on the properties under administration with the necessary court approval, except for necessary repairs;
• To maintain in tenantable repair the houses and other structures and fences and to deliver the same in such repair to the heirs or devisees when directed to do so by the court;
• To possess and manage the estate when necessary for (a) the payment of debts and (b) the payment of expenses of administration;
• Make a true inventory and appraisal of all real/personal property of decedent within three (3) months after his appointment (except clothes of family, marriage bed, and other articles for subsistence of family).
• Render an account of his administration within one (1) year from the time of receiving letters testamentary or of administration and he shall render such further accounts as the courts may require until the estate is wholly settled;
• Give allowance to legitimate surviving spouse or children of the decedent if the court decrees such (grandchildren are not entitled).

An administrator or executor has all the powers necessary for the administration of the estate and which powers he can exercise without leave of court.

Other Incidents of Administration

However, if the lease contract exceeds one year, the same is no longer a mere act of administration (Art. 1878, NCC), and leave of court is required.

Properties under the name and possession of an administrator are considered as properties in custodia legis. Thus, they cannot be attached even by creditors of the decedent. (Lizaragga v. Abada, 49 Phil. 124, G.R. No. 13910, 1919)

An administrator is required to handle and marshal all assets of the deceased (Vasquez v. Porte, G.R. No. L-6767, February 28, 1956) and manage the estate wisely and economically and in a businesslike manner. (Tambunting v. San Jose, G.R. No. L-8162, August 30, 1955)

Bonds of Executors and Administrators

Before an executor or administrator enters upon the execution of his trust, he shall give a bond, in such a sum as the court directs.

Conditions of the Bond

• To make and return to the court, within three (3) months, a true and complete inventory of all goods, chattels, rights, credits, and estate of the deceased which shall come to his possession or knowledge or to the possession of any other person for him;
• To administer according to these rules, and, if an executor, according to the will of the testator, all goods, chattels, rights, credits, and estate which shall at any time come to his possession or to the possession of any other person for him, and from the proceeds to pay and discharge all debts, legacies, and charges on the same, or such dividends thereon as shall be decreed by the court;
• To render a true and just account of his administration to the court within one (1) year, and at any other time when required by the court;
• To perform all orders of the court by him to be performed.

The bond posted by administrators and executors is intended as an indemnity to the creditors, the heirs and the estate. The court shall fix the amount thereof and hold it accountable for breach of duty on the part of the administrator or executor. The enforcement of such liability may be brought by motion in the administration proceedings or in a separate civil action. (Mendoza v. Pacheco, G.R. No. 43351, 1937)

Accountability and Compensation of Executors and Administrators

• Executor or administrator shall be chargeable with all estate and income;
• An executor or administrator cannot profit by increase or suffer loss by decrease or destruction without his fault, of any part of the estate;
• No executor or administrator shall be accountable for debts due the deceased which remain uncollected without his fault;
• An executor or administrator shall be accountable for income from realty used by him;
• An executor or administrator shall be accountable if he neglects or delays to raise money by collecting debts or pay over the money that he has in his hands and the value of the estate decreases because of such act.
• An executor or administrator shall be allowed the necessary expenses for the care, management, and settlement of the estate, and for his services.

Necessary Expenses

Necessary expenses of administration are such expenses as are needed for the preservation and productivity of the estate and for its management for purposes of liquidation, payment of debts and distribution of the residue among persons entitled thereto.

An administrator or executor may be allowed fees for the necessary expenses he has incurred as such, but he may not recover attorney's fees from the estate. His compensation is fixed by the rule but such compensation is in the nature of executor's or administrator's commissions, and never as attorney's fees. A greater sum [other than that established by the rule] may be allowed in any special case, where the estate is large, and the settlement has been attended with great difficulty, and has required a high degree of capacity on the part of the executor or administrator. (Lacson v. Reyes, G.R. No. 86250, 1990)

An executor or administrator may be allowed fees for the necessary expenses he has incurred as such, but he may not recover attorney's fees from the estate. His compensation is fixed by the rule but such is in the nature of his commissions, and never as attorney's fees.

The lawyer of an executor or administrator may not charge the estate for his fees, but farther, must charge his client.

Such fee is a personal liability of the executor / administrator. (Sato v. Rallos, G.R. No. L-17194, 1964)

Special Administrator

Representative of a decedent appointed by a probate court to care for and preserve his estate until an executor or general administrator is appointed.

Who may ask for removal of administrator.

Textually, the Rules are silent. However, jurisprudence provides that a creditor, even a contingent one, would have the personality to seek relief, [due to his interest in the preservation of the estate’s assets to answer for his debt]. (Hilado v. CA, G.R. No. 164108, 2009).

Grounds for Removal of Executor/Administrator (not exclusive)

• Neglect to render accounts (within one (1) year when the court directs)
• Neglect to settle estate according to the Rules of Court
• Neglect to perform an order/judgment of the court or a duty expressly provided by the Rules of Court
• Absconding
• Insanity or incapacity or unsuitability to discharge the trust (R82, S2)

The lawful acts of an executor or administrator before the revocation of his letters testamentary or administration or before resignation or removal shall have the like validity as if there had been no such revocation, resignation or removal.

Other Grounds under Case Law

• Court loses confidence in the administrator (Co v. Rosario, G.R. No. 160671, 2008);
• An administrator who disbursed funds of the estate without judicial approval (Cotia v. Jimenez, G.R. No. L-12132, 1958);
• False representation by an administrator in securing his appointment (Cobarubbias v. Dizon, G.R. No. L-225, 1946);
• An administrator who holds an adverse interest to that of the estate, or by his conduct showing his unfitness to discharge the trust (Uy v. Ca, G.R. No. 167979, 2006); and
• An administrator who has the physical inability and consequent unsuitability to manage the estate (De Borja v. Tan, G.R. No. L-6476, 1955).

Powers of a New Executor/Administrator (After the First Resigns, is Removed, or Letters Revoked)

• Collect and settle the estate not administered
• Prosecute/defend actions commenced by or against the former executor/administrator
• Recover execution on judgments in the name of former executor/administrator

Resignation of Administrator

The following steps must be made before the court may accept the resignation of administrator:

• Administrator submits a resignation letter to the court; and;
• Administrator prepares an inventory of the properties in his possession

CLAIMS AGAINST THE ESTATE (RULE 86)

When Heirs May Sue

Heirs may not sue the executor/administrator for recovery of property left by the decedent until there is an order of the court assigning such lands to such heir or until the time for paying debts has expired. (R87, S3)

General Rule: Heirs have no legal standing to sue for recovery or protection of property rights of the deceased.

Exceptions:

• Pending the filing of administration proceedings
• Administration proceedings have already been commenced, but an administrator has not yet been appointed. (Go Chan v. Young, G.R. No. 131889, 2001)
• The executor or administrator is unwilling or refuses to bring suit (Rioferio v. CA, G.R. No. 129008, 2004)
• The executor is alleged to have participated in the act complained of and he is made a party defendant (Vda. De Reyes v CA, G.R. No. L47027, 1989)

Foreclosure of Mortgage Due to Estate

Executor / administrator can foreclose a mortgage belonging to the decedent. (R87, S5)

Discharge of Debt by Executor or Administrator

An executor or administrator may compound with the debtor of the deceased for a debt due and may give a discharge of such debt on receiving a just dividend of the estate of the debtor upon approval of the court. (R87, S4)

Concealment/Embezzlement/Conveyance of Any of the Property of the Deceased

Upon complaint of any interested person in the estate, the court may cite such suspected person to appear before it and examine him on oath on the matter of such complaint.

If the suspected person refuses to appear or to answer questions asked of him during the examination, the court may punish him for contempt and may commit him to prison until he submits to the order of the court. (R87, S6)

If even before the granting of the letters testamentary / letters of administration, a person embezzles or alienates any property of the deceased, such person shall be liable in favor of the administrator or executor for double the value of the property sold, embezzled, or alienated, to be recovered for the benefit of the estate. (R87, S8)

Complaint of Executor/Administrator against Person Entrusted with Estate

The court may require such person entrusted with the estate to appear before it and render a full account of all property which came into his possession.

Refusal to appear or give an accounting may be punished with contempt. (R87, S7)

When executor or administrator may bring action for property fraudulently conveyed by the deceased

When there is a deficiency of assets in the hands of an executor or administrator for the payment of debts and expenses of administration and the deceased fraudulently conveyed property to avoid any right debt or duty, the executor or administrator may commence and prosecute to final judgment such action for recovery of property.

The action would be for the benefit of the creditors. however, he shall not be bound to commence the action

Unless:

• Upon application of the creditors;
• The creditors making the application pay such part of the costs and expenses;
• Give security therefore to the executor or the administrator. (R87, S9)

Requisites Before Creditor May Bring Action:

• There is a deficiency of assets in the hands of an executor/administrator for the payment of debts and expenses of administration.
• In his lifetime, the deceased had made or attempted to make a fraudulent conveyance of his property or had so conveyed such property that by law, the conveyance would be void as against other creditors.
• The subject of the attempted conveyance would be liable to attachment in his lifetime.
• The executor/administrator has shown no desire to file the action or failed to institute the same within a reasonable time.
• Leave is granted by the court to the creditor to file the action.
• A bond is filed by the creditor.
• The action by the creditor is in the name of the executor/administrator.

The last three requisites are unnecessary where the grantee is the executor/administrator himself, in which event, the action should be in the name of all the creditors.