CONCURRENCE OF CREDITS

     Implies  the  possession  by  two  or  more  creditors  of  equal rights  or  privileges  over  the  same  property  or  all  the property of a debtor
 

PREFERENCE OF CREDIT

     Right held by a creditor to be preferred in the payment of his claim above others out of the debtor’s assets
 

NATURE AND EFFECT OF PREFERENCE

1.   A  preference  is  an  exception  to  the  general  rule.    For  this reason, the law as to preferences is strictly construed.
2.   Preference  doesn’t  create  an  interest  in  property.    it  creates simply  a right of  one  creditor to  be paid  first the proceeds  of the sale of property as against another creditor.
3.   The law doesn’t give the creditor who has a preference a right to take the property or sell it as against another creditor.  It is not a question who takes or sells, it is one of the application of the proceeds after the sale—of payment of the debt
4.   The  right  of  preference  is  one  which  can  be  made  only  by being  asserted  and  maintained.    If  the  right  claimed  is  not asserted or maintained, it is lost.
5.   Where  a  creditor  released  his  levy,  leaving  the  property  in possession  of  the  debtor,  thereby  indicating  that  he  didn’t intend  to  press  his  claim  further  as  to  that  specific  property, after that act, his claim to preference, if one had been asserted y him, could not exist because he had ceased to contest.
 

WHEN RULE OF PREFERENCE APPLICABLE

     Apply only where two or more creditors have separate and distinct  claims  against  the  same  debtor  who  has  an insufficient property
     Is  applicable  when  the  debtor  is  insolvent—having  more liabilities than his assets
     It  is  a  matter  of  necessity  and  log  that  the  question  of preference should arise only when the debtor’s assets are insufficient to pay his debts in full 

GENERAL PROVISIONS

 
Art. 2236. The debtor is liable with all his property, present and future, for the fulfillment of  his obligations, subject to the exemptions provided by law. (1911a)
 

AS A RULE, A DEBTOR IS LIABLE WITH ALL HIS PROPERTY, PRESENT  AND  FUTURE,  FOR  THE  FULFILLMENT  OF  HIS OBLIGATIONS

 
EXEMPT PROPERTY
1.   Present  property-Articles  152,  153,  154,  155,  205(Family Code);  Section  13  Rule  39  of  the  Rules  of  Court;  Section 118 of CA 141
 
Art. 152. The family home, constituted jointly by the husband and  the  wife  or  by  an  unmarried  head  of  a  family,  is  the dwelling  house  where  they  and  their  family  reside,  and  the land on which it is situated. (223a)

Art. 153. The family  home is deemed constituted  on  a  house and lot from the time it is occupied as a family residence. From the  time  of  its  constitution  and  so  long  as  any  of  its
beneficiaries   actually   resides   therein,   the   family   home continues to be such and is exempt from execution, forced sale  or attachment except as hereinafter provided and to the extent
of the value allowed by law. (223a)

Art. 154. The beneficiaries of a family home are:

(1) The husband and wife, or an unmarried person who is the head of a family;
(2)  Their  parents,  ascendants,  descendants,  brothers  and sisters,  whether  the  relationship  be  legitimate  or  illegitimate, who  are  living  in  the  family  home  and  who  depend  upon  the head of the family for legal support. (226a)

Art.  155.  The  family  home  shall  be  exempt  from  execution, forced sale or attachment except:
(1) For nonpayment of taxes;
(2)  For  debts  incurred  prior  to  the  constitution  of  the  family home;
(3) For debts secured by mortgages on the premises before or after such constitution; and
(4) For debts due to laborers, mechanics, architects, builders, materialmen   and   others   who   have   rendered   service   or furnished material for the construction of the building. (243a)

Art. 205. The right to receive support  under this Title as well as  any  money  or property  obtained  as  such support shall  not be levied upon on attachment or execution. (302a)

Sec. 13. Property exempt from execution.
Except  as  otherwise  expressly  provided  by  law,  the  following property, and no other, shall be exempt from execution:

(a) The judgment obligor's family home as provided by law, or the homestead in which he resides, and land necessarily used in connection therewith;
(b)  Ordinary  tools  and  implements  personally  used  by  him  in his trade, employment, or livelihood;
(c)  Three  horses,  or  three  cows,  or  three  carabaos,  or  other beasts  of  burden  such  as  the  judgment  obligor  may  select necessarily used by him in his ordinary occupation;
(d)  His  necessary  clothing  and  articles  for  ordinary  personal use, excluding jewelry;
(e)    Household    furniture    and    utensils    necessary    for housekeeping,  and  used  for  that  purpose  by  the  judgment obligor  and  his  family,  such  as  the  judgment  obligor  may
select, of a value not exceeding one hundred thousand pesos;

(f)  Provisions  for  individual  or  family  use  sufficient  for  four months;
(g)   The   professional   libraries   and   equipment   of   judges, lawyers,    physicians,    pharmacists,    dentists,    engineers, surveyors,  clergymen,  teachers,  and  other  professionals,  not exceeding three hundred thousand pesos in value;
(h)  One  fishing  boat  and  accessories  not  exceeding  the  total value  of  one  hundred  thousand  pesos  owned  by  a  fisherman and by the lawful use of which he earns his livelihood;
(i)  So  much  of  the  salaries,  wages,  or  earnings  of  the judgment  obligor  of  his  personal  services  within  the  four months preceding the levy as are necessary for the support of
his family;
(j) Lettered gravestones;
(k) Monies benefits, privileges, or annuities accruing or in any manner growing out of any life insurance;
(l)  The  right  to  receive  legal  support,  or  money  or  property obtained as such support, or any pension or gratuity from the Government;
(m) Properties specially exempt by law.

But  no article or  species  of  property  mentioned in  his section shall  be  exempt  from  execution  issued  upon  a  judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon.

2.   Future  property—those  related  to  the  insolvency  of  a debtor
3.   Property in custodia legis and of public dominion

Art.  2237.  Insolvency  shall  be  governed  by  special  laws insofar as they are not inconsistent with this Code. (n)
 

INSOLVENCY LAW WILL COME INTO PLAY AFTER THE RULES OF PREFERENCE AND CONCURRENCE OF CREDITS.

 
DEBTOR MUST BE THE ABSOLUTE OWNER
 
Art. 2238.  So long as the conjugal partnership or absolute community  subsists,  its  property  shall  not  be  among  the assets  to  be  taken  possession  of  by  the  assignee  for  the payment   of   the   insolvent   debtor's   obligations,   except insofar  as  the  latter  have  redounded  to  the  benefit  of  the family.   If   it   is   the   husband   who   is   insolvent,   the administration   of   the   conjugal   partnership   of   absolute community may, by order of the court, be transferred to the wife or to a third person other than the assignee. (n)
 
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. (n)
 

RULES  INVOLVING  UNDIVIDED  SHARE  OR  INTEREST  OF  A CO-OWNER

     If  there  is  a  co-ownership  and  of  the  co-owners  is  the insolvent  debtor,  his  undivided  share  or  interest  in  the property shall be possessed by the assignee in insolvency proceedings because it is part of his assets 

     The  shares  of  the  other  co-owners  of  course  cannot  be taken possession of by the assignee
 
Art.  2240.  Property  held  by  the  insolvent  debtor  as  a trustee  of  an  express  or  implied  trust,  shall  be  excluded from the insolvency proceedings. (n)
 

RULE INVOLVING PROPERTY HELD IN TRUST

     The trustee is not strictly speaking the owner of the trust property although he has legal title thereto
     Hence,  property  held  in  trust  by  the  insolvent  debtor should be excluded from the insolvency proceedings
 

CLASSIFICATION OF CREDITS

 
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 movables sold, on said movables,  so  long  as  they  are  in  the  possession  of  the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced  on the price; this right is not lost by the  immobilization  of  the  thing  by  destination,  provided  it has not lost its form, substance and identity; neither is the right  lost  by  the  sale  of  the  thing  together  with  other property  for  a  lump  sum,  when  the  price  thereof  can  be determined proportionally;
 
      (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, upon the things pledged or mortgaged, up to the value thereof;
 
      (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,  on  the  share  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 hotelkeepers, 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 lessee existing on the immovable leased and on the fruits of the same, but not on money or instruments of credit;
 
      (13)  Claims  in  favor  of  the  depositor  if  the  depositary 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. (1922a)
 

GENERAL CATEGORIES OF CREDIT

1.   Special preferred credits listed in Articles 2241 and 2242
2.   Ordinary preferred credits listed in Article 2244
3.   Common credits under Article 2245
 

PREFERRED    CREDITS    WITH    RESPECT    TO    SPECIFIC MOVABLE PROPERTY

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  movables  sold,  on  said movables,  so  long  as  they  are  in  the  possession  of  the debtor,  up  to  the  value  of  the  same;  and  if  the  movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form,  substance and identity;  neither is the right lost by the sale  of the thing together  with other property  for  a  lump  sum,  when  the  price  thereof  can  be determined proportionally 
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,   upon   the   things pledged or mortgaged, up to the value thereof

a.    Should be registered
b.   Binding against third parties

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, on the share 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  lessee  existing  on  the  immovable  leased  and  on  the fruits  of  the  same,  but  not  on  money  or  instruments  of credit
13. Claims  in  favor  of  the  depositor  if  the  depositary  has wrongfully sold the thing deposited, upon the price  of the sale.
 

PREFERRED    CREDITS    WITH    RESPECT    TO    SPECIFIC MOVABLE PROPERTY

     Articles 2241 and 2242 don’t give the order of preference or priority of payment
     They merely enumerate the credits which enjoy preference with respect to specific movables or immovables
     With respect to the same  specific movable or immovable, creditors with the exception of the State, merely concur
     REMEMBER  that  preference  is  only  given  to  #1  and  the rest shall be treated equally
 

WRONGFUL   TAKING   OF   MOVABLES   TO   WHICH   LIEN ATTACHES

     Last paragraph applies only when the right of ownership in such  property  continues  in  the  debtor,  and  therefore,  is not  applicable  to  cases  where  the  debtor  has  parted  his ownership therein, as where he has sold the property

Art.  2242.  With  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   of   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)   Claims   of   furnishers   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  or  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. (1923a) 

PREFERRED LIEN ON SPECIFIC IMMOVABLE PROPERTY

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   of   architects,   engineers   and ontractors, engaged in the construction, reconstruction or repair  of  buildings,  canals  or  other  works,  upon  said buildings, canals or other works 
4.   Claims of furnishers 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 or 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. (n)
 

NATURE  OF  CLAIMS  OR  CREDITS  IN  ARTICLES  2241  AND 2242

     Articles  2241  and  2242  apply  only  when  there  is  a concurrence of credits when the same specific property of the  debtor  is  subjected  to  the  claims  of  several  creditors and the value of such property is insufficient to pay in full all the creditors
     In  such  situation,  the  question  of  preference  will  arise, there  will  be  a  need  to  determine  which  of  the  creditors will be paid ahead of the others
 
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  insolvent's  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. 1;
 
      (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. (1924a)
 

SPECIAL PREFERRED CREDITS

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  insolvent's  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.   1   (10)   Taxes   and   assessments   due   any province, other than those referred to in Articles 2241, No. 1, and 2242, No. 1 
10. Taxes and assessments due any city or municipality, other than those indicated in Articles 2241, No. 1, and 2242, No. 1
11. Damages for death or personal injuries caused by a quasi-delict
12. Gifts  due  to  public  and  private  institutions  of  charity  or beneficence 
13. Credits which, without special privilege, appear in  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.

ORDER OF PRIORITY ONLY WITH RESPECT TO INSOLVENT’S FREE PROPERTY

1.   Specially  preferred  credits—credits  which  are  specially preferred  because  they  constitute  liens  take  precedence over  ordinary  preferred  credits  so  far  as  concerns  the property to which the liens are attached
a.    Specific property involved of greater value
b.   Specific  property  involved  of  lesser  value—will  be treated as ordinary preferred credits and to be paid
in the order of preference therein provided
2.   Ordinary   preferred   credits—only   in   respect   of   the insolvent’s   free   property,   is   an   order   of   priority established.      In   this   sequence,   certain   taxes   and assessments also figure but, as already pointed out, these don’t have the same kind of overriding preference
 
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. (1925)
 

NON-PREFERRED OR COMMON CREDITS

     Credits  other  than  those  mentioned  in  2241,  2242,  and 2244 shall enjoy  no preference and such common  credits shall be paid pro rata regardless of dates
 

ORDER OF PREFERENCE OF CREDITS

 
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. (1926a)
 
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. (1927a)
 
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. (1928a)
 

TWO-TIER ORDER OF PREFERENCE

     First  tier  includes  only  taxes,  duties  and  fees  due  on  a specific movable or immovable property
     All other special preferred credits stand on the second tier to be satisfied pari passu and pro rata, out of the residual value  of  the  specific  property  to  which  such  other  credits relate
     The   pro-rata   rule   however   doesn’t   apply   to   credits annotated  in  the  RD  in  virtue  of  a  judicial  order,  by attachments  and  executions,  which  are  preferred  to  later credits.      In   satisfying   several   credits   annotated   by attachments  and  executions,  the  rule  is  still  preference according to the priority of credits in the order of time.
 

PROCEEDING  FOR  PAYMENT  PRO  RATA  OF  PREFERRED CREDITORS

     Proceeding required for adjudication of claims of preferred creditors
     Pro rata rule contemplates more than one creditor 

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. (1929a)
 

SUMMARY AS TO ORDER OF PREFERENCE

1.   Preferred lien on specific immovables
2.   Preferred lien on specific movables
3.   Special preferred credits
4.   Distribute pro-rata to creditors without preference