The Use of Extrajudicial Settlement as a Basis for Partition in the Philippines

1. Introduction

When a person dies leaving property in the Philippines, the heirs may divide the estate in two principal ways:

Judicial settlement – through a probate or intestate case in court;
Extrajudicial settlement – by private agreement, later registered with the Register of Deeds.

Because probate cases are costly and time-consuming, Filipino families often prefer the extrajudicial route. Once the required conditions are met, a “Deed of Extrajudicial Settlement and Partition” becomes the operative instrument for transferring title and terminating co-ownership among the heirs.

2. Statutory and Regulatory Framework

Source	Key Provisions
Rule 74, Rules of Court (ROC)	§1 – Requisites and form of the deed; §2 – Bond and publication; §3 – Participation of a public administrator; §4 – Creditors’ remedies and heirs’ liability
Civil Code of the Philippines	Art 777 (succession transmission at death), Arts 960–1080 (succession & partition), Arts 498–501 (partition of co-ownership), Art 1083 et seq. (collation & rescission)
National Internal Revenue Code (NIRC)	Secs 84-97 (estate tax), implementing Revenue Regulations; Estate Tax Amnesty Acts (RA 11213; RA 11956 extension)
Property Registration Decree (PD 1529) & Land Registration Authority (LRA) circulars	Procedures for annotating deeds, issuing new certificates of title
Local Government Code (LGC)	Transfer taxes on real property
Bureau of Internal Revenue (BIR) issuances	CAR procedures, substituted filing for small estates, e-CAR system

3. Requisites for a Valid Extrajudicial Settlement

Under ROC Rule 74 §1, all of these must exist:

No will was left, or the will does not dispose of all property (testate + intestate portion).
No outstanding debts * of the deceased or debts have been fully paid.
All heirs are of legal age (18 +) or, if minors, are duly represented by legal guardians.
A public instrument entitled “Deed of Extrajudicial Settlement (with Partition/with Waiver/with Sale)” is executed and notarized.
Publication of the deed in a newspaper of general circulation once a week for three (3) consecutive weeks.
Estate tax, donor’s tax (if waivers without consideration), and local transfer taxes are paid and a BIR Certificate Authorizing Registration (CAR or e-CAR) is issued.

* If debts surface later, heirs remain solidarily liable for two (2) years from distribution, and pro-rata thereafter (ROC Rule 74 §4).

4. Procedural Road-Map

Gather documents
- Death certificate, marriage certificate (if applicable), birth certificates of heirs, titles, tax declarations, tax identification numbers.
Draft the deed
- Recitals of facts of death and heirship; description of properties; statement that conditions of Rule 74 are met; manner of partition; waiver or sale clauses if any; signatures of heirs (and guardians or attorneys-in-fact).
Notarization
- All signatories must appear before the notary. Overseas heirs sign before a Philippine consul or have the deed apostilled, then notarized locally.
Publication
- Secure affidavit of publication and copies of the newspaper issues.
Estate tax clearance
- File BIR Form 1801 within one (1) year from death (or by the amnesty deadline, if availing). Submit the deed, sworn declaration of value, CPA certification if required, etc. Pay estate tax and obtain the CAR.
Local transfer taxes
- Pay transfer tax (0.5 %–0.75 % of zonal/fair market value) to the LGU.
Registration with the Register of Deeds (RD)
- Present: original deed, CAR, tax clearances, titles, and IDs. RD annotates the deed and issues new certificates of title in the names of the heirs according to the partition.
Issuance of separate tax declarations by the assessor.

5. Forms and Variations

Instrument	Typical Use
Deed of Extrajudicial Settlement with Partition	Estate is divided in kind among heirs (e.g., Lot 1 to A, Lot 2 to B…).
…with Waiver of Rights	One or more heirs waive their shares (often a donation subject to donor’s tax).
…with Absolute Sale	Heirs simultaneously sell inherited property to a third party.
Extrajudicial Settlement Among Heirs (no partition)	Heirs choose to maintain co-ownership; may lease or mortgage collectively.

6. Legal Effects

Transfer of Ownership occurs by operation of law at death (Civil Code Art 777) but is made registrable and opposable to third persons only upon registration of the deed.
Termination of Co-ownership – Partition confers exclusive dominion over the allotted portions.
Solidary liability of heirs to unpaid creditors for two years (ROC Rule 74 §4).
Rescission or Annulment – Fraud, mistake, or breach of the Rule 74 requisites may render the deed rescissible (Art 1381) or voidable (Art 1390).
Prescription
- Summary action under Rule 74 §4: within 2 years from registration.
- Ordinary action for reconveyance/annulment: within 4 years from discovery of fraud or 10 years from issuance of the new title (if based on implied constructive trust).
- Action to quiet title: imprescriptible if possession is in concept of owner.

7. Creditor & Third-Party Remedies

Petition under Rule 74 §4 for heirs’ bond or property contribution (summary procedure).
Ordinary civil action to collect from heirs or recover specific property received.
Annotation of adverse claim or notice of lis pendens on titles derived from the deed.

8. Leading Supreme Court Decisions

Case	G.R. No. & Date	Doctrinal Points
Luzon Surety v. De Garcia	L-7136, Apr 30 1955	Creditors may sue the heirs within 2 years on the bond or the distributed estate.
Heirs of Tiongson v. CA	127385, Aug 29 1999	Extrajudicial settlement without publication is void as to third persons; subsequent buyers in bad faith bound.
Heirs of Malate v. Gamboa	170338, Jan 21 2013	Publication is jurisdictional; registration alone does not cure the defect.
Spouses Abalos v. Heirs of Gomez	150284, June 4 2005	Action to annul void settlement does not prescribe when plaintiff is in actual possession.
Heirs of Sotto v. Palicte	159691, Apr 22 2010	A deed executed without participation of indispensable heirs is rescissible; 4-year prescriptive period applies from discovery.
Calma v. Tano	227838, Oct 5 2022	Deed signed by heirs but not published binds heirs inter se; does not bar omitted heir’s action to reconvey.

9. Tax Considerations

Estate Tax (NIRC §84 ff.)
- Rate: Flat 6 % of the net estate.
- Deadline: Within one (1) year from death (extendible), or by June 14 2025 if availing of estate tax amnesty extension (RA 11956).
- Deductions: Standard ₱5 million, vanishing deduction, family home up to ₱10 million, funeral expenses, medical expenses, etc.
Donor’s Tax (waivers without consideration) – 6 % on net value donated; but waiver in favor of all co-heirs proportionally is exempt (BIR Ruling).
Capital Gains Tax & Documentary Stamp Tax – Apply only to sale portions of the deed.
Local Transfer Tax under the LGU (0.5 %–0.75 %).
Real-property tax (RPT) must be current for RD registration.

10. Comparison with Judicial Settlement

Aspect	Extrajudicial	Judicial Probate/Intestate
Venue	Notarial, then RD	Regional Trial Court
Debts	Must be settled first	Court supervises payment
Speed & Cost	Faster; cheaper	Slower; filing fees & bonds
Publication	3 weeks in newspaper	Notice by court
Disputes Among Heirs	Must be amicable; otherwise fails	Court resolves
Creditor Protection	2-year solidary liability	Court directly orders payment
Foreign assets	Generally excluded; separate proceeding abroad	Court may appoint ancillary administrator

11. Special Situations & Pitfalls

Minor or incapacitated heirs – guardianship letters or court approval required; otherwise deed is voidable.
Unknown or unborn heirs – judicial settlement is necessary; extrajudicial not allowed.
Outstanding mortgage/liens – partition does not extinguish encumbrances; transferee takes title subject thereto.
Agrarian reform-covered land – DAR clearance must precede registration.
Foreign heirs – deed must comply with Apostille Convention or consular authentication.
Non-publication – deed is valid inter se but void as to third persons; cannot defeat creditors or omitted heirs.
Partition in equity – If physical division prejudices the value, heirs may agree to sell and divide proceeds (Art 498).
Subsequent discovery of property – Execute Supplemental Deed or file partial judicial settlement.

12. Practical Drafting Tips

Use clear lot descriptions (technical descriptions & TCT numbers).
Attach family tree and supporting civil registry documents.
Insert “No Outstanding Debts” clause and an indemnity undertakings clause.
Provide schedule of movables (bank accounts, vehicles) and indicate mode of transfer (e.g., electronic—banks require CAR).
State tax declarations/zonal valuations for transparency.
Reserve a common area or right-of-way if future subdivision is contemplated.
Consider simultaneous deeds (Settlement + Waiver; Settlement + Sale) to minimize taxes.
Keep originals of newspaper issues and affidavit of publication – BIR and RD require them.

13. Conclusion

An extrajudicial settlement and partition is a powerful, streamlined mechanism under Philippine law that allows heirs to bypass formal probate, saving time and expense, provided that:

Statutory requisites are strictly observed, especially settlement of debts, unanimous consent of competent heirs, publication, and tax compliance; and
The deed is properly registered so that the transfer is binding on third persons and reflected in Torrens titles.

Failure in any requisite exposes the heirs to annulment suits, tax penalties, and creditor claims. Accordingly, careful due diligence, transparent disclosure among heirs, and professional assistance (lawyer, notary, CPA, surveyor) are indispensable to ensure that the extrajudicial settlement validly vests title and peaceably effects partition.

This article is for informational purposes only and does not constitute legal advice. Consult a Philippine lawyer or tax professional for advice tailored to specific facts.