How is the estate of a deceased person settled?
The estate of a deceased person may be settled either judicially or extrajudicially.
Extrajudicial settlement may be made:
a. By agreement – if there are several heirs; or
b. By self-adjudication – if there is only 1 heir.
What are the requisites for a valid extrajudicial settlement BY AGREEMENT?
Under Section 1, Rule 74 of the Rules of Court, the following are the requisites for a valid extrajudicial settlement by agreement:
a. The decedent died intestate, i.e., without a will;
b. The estate has no outstanding debts*;
c. The heirs are all of age, or the minors are represented by their judicial or legal representatives duly authorized for the purpose;
d. The settlement is by means of a public instrument filed in the Office of the Register of Deeds; and
e. The fact of the extrajudicial settlement is published in a newspaper of general circulation in the province once a week for 3 consecutive weeks.
*Under the same rule, there is a presumption that the decedent left no debts if no creditors file a petition for letters of administration within 2 years after the death of the decedent.
What is the manner of protecting the creditors or other persons, during the 2-year window for their claims against the estate?
As to personal properties, the heirs shall file a bond with the Register of Deeds, in an amount equivalent to the value of the personal property involved. [1] Such bond shall remain charged with the liability to creditors, or other persons for the full period of two (2) years after distribution of the estate. [2]
As to real properties, the fact of settlement shall be annotated on the Title of the real estate. Such real estate shall remain charged with the liability to creditors, or other persons for the full period of two (2) years after distribution of the estate, notwithstanding any transfers of real estate that may have been made. [3]
What if the decedent left a will?
If the decedent left a will, the will must be probated as under Article 838 of the Civil Code, no will shall pass either real or personal property unless it is proved and allowed in accordance with the Rules of Court. In other words, extrajudicial settlement cannot be had in this case.
The law enjoins the probate of the will and public policy requires it, because unless the will is probated and notice thereof given to the whole world, the right of a person to dispose of his property by will may be rendered nugatory.[4]
What if the settlement is not by means of a public instrument?
If for instance the settlement was made in an instrument which was not notarized or although notarized, it was not properly made as required under the rules, the defect renders the instrument a private one and not a public instrument.
In Spouses Pontigon v. Heirs of Sanchez [5], the Extra-judicial Settlement with Absolute Sale was not properly notarized. The Supreme Court (SC) held that although it is a private writing, it nevertheless remains to be binding upon any person who participated thereon or had notice thereof.
What is the effect if an heir is excluded in the extrajudicial settlement?
Under Sec. 1, Rule 74 of the Rules of Court, no extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof.
In Neri v. Heirs of Hadji Yusop Uy [6], the SC ruled that the settlement was not valid and binding upon the heirs excluded and consequently, a total nullity. In Cruz v. Cruz [7], the SC, citing Segura v. Segura, held that:
It is clear that Section 1 of Rule 74 does not apply to the partition in question which was null and void as far as the plaintiffs were concerned. The rule covers only valid partitions. The partition in the present case was invalid because it excluded six of the nine heirs who were entitled to equal shares in the partitioned property. Under the rule 'no extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof.'
[1] Sec 1, Rule 74, Rules of Court
[2] Sec 4, Rule 74, Rules of Court
[3] Id.