Payment of debts of the estate

If the estate is sufficient, debts shall be paid in full.

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 pay the same within the time limited for that purpose.

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.

This means that the testator can choose, by expressly saying so in his will, which part of his estate shall be used to pay debts and expenses.

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 tat purpose, or its sale would redound to the detriment of the participants for the estate, the whole of the real estate not dispose 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.

This means that personalty shall be disposed of first before selling or mortgaging realty. As much as possible, real property should be saved from being charged with the payment of debts of expenses. It is only when personal property becomes insufficient that this should be done. In so doing, however, the executor or administrator must secure authority from the court.

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.

This means that the court may order the reservation of certain part or portion of the estate for the satisfaction of claims filed against it, which appear to be valid. When such claim becomes absolute, such part or portion reserved shall be used to pay the claim.

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 disturbed 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.

Where devisees, legalitees, 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.

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.

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.

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, 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.

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.

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.

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.

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.

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.

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.

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 88 of the Rules of Court)

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