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RULE 88

PAYMENT OF THE DEBTS OF THE ESTATE

SECTIONS 1-5

Section 1. Debts paid in full if estate is sufficient

 

Is execution a proper remedy to satisfy an approved claim?

1.Payment approving a claim does not create a lien upon a property of the estate;

2.Special procedure is for the court to order the sale to satisfy the claim.

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What is the remedy?

›The court must order the sale or mortgage of the properties of decedent, the proceeds of which will satisfy the debts and expenses.

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General Rule: Payment of the debts of the estate must be taken in the following order of preference:

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

2.From the personal property; and

3.From the real property.

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Exception: The court, on petition of interested parties may modify such order of disposition.

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Section 2. Part of Estate from which debt paid when provision made by will

›If the testator made a provision in his will or designates the estate to be appropriated for the payment of his debts that will be followed.

 

›But if it is not sufficient, such part of the estate as is not disposed of by will, if any, shall be appropriated for that purpose.

 

Section 3. Personalty first chargeable for debts, then realty

›Two instances when realty is liable for debts and expenses

1.When the personal estate of the decedent is not sufficient for that purpose;

2.Where the sale of such personalty would be to the detriment of the participants of the estate.

 

Section 4. Estate to be retained to meet contingent claims

›If the court is satisfied that the contingent claim duly filed is valid, it may order the executor or administrator to retain in his hands a sufficient part of the estate to pay a portion equal to the dividend of the creditors.

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Requisites (FAV):

1.Contingent claim is filed;

2.The claim has become absolute; and

3.Court is satisfied that the claim is valid.

 

Section 5. How contingent claim becoming absolute in two (2) years allowed and paid

›If such contingent claim becomes absolute and is presented to the court as an absolute claim within two (2) years from the time allowed for the presentation of claims, it will be paid in the same manner as the other absolute claims.

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›If the contingent claim matures after the expiration of the two (2) years, the creditors may sue the distributees, who are liable in proportion to the shares in the estate respectively received by them.

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SECTIONS 6-7

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

           

SECTION 7 Order of payment  if estate insolvent.

          If estate is insolvent, as in liabilities are more than the assets, Sec. 7 in relation to Article 1059  and 2239 to 2251 of the Civil Code

 

Following are the pertinent provisions of the Civil Code as mentioned in Sec. 7;

         

Art. 1059. If the assets of the estate of a decedent which can be applied to the payment of debts are not sufficient for that purpose, the provisions of Articles 2239 to 2251 on Preference of Credits shall be observed, provided that the expenses referred to in article 2244, No. 8, shall be those involved in the administration of the decedent's estate.

 

Art. 2239. If there is property, other than that mentioned in the preceding article, owned by two or more persons, one of whom is the

insolvent debtor, his undivided share or interest therein shall be among the assets to be taken possession of by the assignee for the payment of the insolvent debtor's obligations.

 

Art. 2240. Property held by the insolvent debtor as a trustees of an express or implied trust shall be excluded from the insolvency proceedings.

 

Art. 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred:

(1) Duties, taxes and fees due thereon to the State or any subdivision thereof;

(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the movables, money or securities obtained by them;

(3) Claims for the unpaid price of movable sold, on said movables, so long as they are in the possession

(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage,

(5) Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made repaired, kept or possessed;

(6) Claims for laborers' wages, on the goods manufactured or the work done;

(7) For expenses of salvage, upon the goods salvaged;

(8) Credits between the landlord and the tenant, arising from the contract of tenancy on shares of each in the fruits or harvest;

(9) Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and for thirty days thereafter;

(10) Credits for lodging and supplies usually furnished to travelers by hotel keepers, on the movables belonging to the guest as long as such movables are in the hotel, but not for money loaned to the guests;

(11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested;

(12) Credits for rent for one year, upon the personal property of the lease existing on the immovable leased and on the fruits of the same, but not on money or instruments of credits;

(13) Claims in favor of the depositor if the depository has wrongfully sold the thing deposited, upon the price of the sale.

 

In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessor, within thirty days from the unlawful seizure.

         

Art. 2242. When reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right:

  1. Taxes due upon the land or building;

  2. For the unpaid price of real property sold, upon the immovable sold;

  3. Claims of laborers, masons, mechanics and other workmen, as well as architects, engineers and contractors, engaged in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works;

  4. of furnishes of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works;

  5. Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;

  6. Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or improved;

  7. Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits;

  8. (Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided;

  9. Claims of donors of real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated;

  10. Credits of insurers, upon the property insured, for the insurance premium for two years.

 

Art. 2243. The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. Taxes mentioned in No. 1, Article 2241, and No. 1, article 2242, shall first be satisfied.

 

Art. 2244. With reference to other property, real and personal of the debtor, the following claims or credits shall be preferred in the order named:

 

(1) Proper funeral expenses for the debtor, or children under his or her parental authority who have no property of their own, when approved by the court;

(2) Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the commencement of the proceedings in insolvency;

(3) Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority, if they have no property of their own;

(4) Compensation due the laborers or their dependents under laws providing for indemnity for damages in cases of labor accident, or illness resulting from the nature of the employment;

(5) Credits and advancements made to the debtor for support of himself or herself, and family, during the last year preceding the insolvency;

(6) Support during the insolvency proceedings, and for three months thereafter;

(7) Fines and civil indemnification arising from a criminal offense;

(8) Legal expenses, and expenses incurred in the administration of the insolvents estate for the common interest of the creditors, when properly authorized and approved by the court;

(9) Taxes and assessments due the national government, other than those mentioned in Articles 2241, No. 1, and 2242, No.l;

(10) Taxes and assessments due any province, other than those referred to in articles 2241, No. 1, and 2242, No. 1;

(11) Taxes and assessments due any city or municipality, other than those indicated in Articles 2241, No. 1 and 2242, No. 1;

(12) Damages for death or personal injuries caused by a quasi delict;

(13) Gifts due to public and private institutions of charity or beneficence;

(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively.

         

Art. 2245. Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall enjoy no preference.

Art. 2246. Those credits which enjoy preference with respect to specific movables, exclude all others to the extent of the value of the personal property to which the preference refers.

 

Art. 2247. If there are two or more credits with respect to the same specific movable property, they shall be satisfied pro rata, after the payment of duties, taxes and fees due the State or any subdivision thereof.

 

Art. 2248. Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or real right to which the preference refers.

 

Art. 2249. If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real right.

 

Art. 2250. The excess, if any, after the payment of the credits which enjoy preference with respect to specific property, real or personal, shall be added to the free property which the debtor may have, for the payment of the other credits.

 

Art. 2251. Those credits which do not enjoy any preference with respect to specific property, and those which enjoy preference, as to the amount not paid, shall be satisfied according to the following rules:

 

(1) In the order established in Article 2244;

(2) Common credits referred to in Article 2245 shall be paid pro rata, regardless of dates.

SECTIONS 8-12

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

 

      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.

 

 

SECTION 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.


 

SECTION 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.


 

SECTION 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.

 


SECTION 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.

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