What Is Concurrence of Credits? What Is Preference of Credits?

CONCURRENCE AND PRERENCE OF CREDITS Date: May 14, 2021
ARTICLES 2236 – 2251 OF THE NEW CIVIL CODE

Report by Team Prime Creditors:
CRISANTE, Gemeniano Jr. B DATINGGALING, Jaykie D.
MAGPATOC, Princess F. QUITAYEN, Ianna Carmel Y.
SANCHEZ, April Rose Anne Y.
Professor: Atty. Julius Eleazar N. Mañego, CPA
Table of Contents
I. General Provisions Pages 1 to 3
II. Classification of Credits Pages 4 to 6
III. Order of Preference Page 7
IV. Relevant Cases Pages 8 to 12
V. References Page 13
I. General Provisions:
What is concurrence of credits? What is preference of credits?
a. Concurrence of credits is the possession by two or more creditors having equal

rights or privileges over the same property or over all of the property of a debtor.
b. Preference of credits is the right held by the creditor to be preferred in the payment
of his credit/claim above the other creditors out of the debtor’s asset. In short, right
to be paid first over other creditors.
Distinguish Concurrence from Preference:
1. Concurrence raises no question as to whether the value of the property of the debtor
is sufficient for fulfillment of his obligation. Whereas preference arises only when
the debtor’s property is insufficient for the fulfillment of his obligations.
NOTE: Preference of credits presupposes that the debtor, whose debts are due and
demandable, is insolvent. In other words, the debts owed by the debtor are already
due and demandable however, the debtor’s assets are insufficient to cover all of his
debts.
2. When there is concurrence, creditors stand on equal footing and no priority over
other creditors arises. They are satisfied pro rata, after payment of taxes and
assessments upon said property. Where there is preference, those credits which
enjoy the same, excludes all others to the extent of the value of the immovable or
real right to which preference refers. Any excess shall be added among the free
property for payment of other credits.
The following Articles have been repealed by Section 66 of RA 11057 (The

Personal Property Security Act):
Articles 2241, 2243, 2246, and 2247 of the Civil Code of the Philippines.
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Following ART. 2236 of the New Civil Code, the following must be noted:
GENERAL RULE: Debtor is liable with all his property, present and future, for the
fulfillment of his obligations.
EXCEPTION: Subject to exemptions provided by law.

A. For present property of the debtor:
1. Under the Family Code of the Philippines:
i. Family home, except when:
i.i. non-payment of taxes on family home
i.ii. debts incurred prior to its constitution
i.iii. debts secured by mortgages on premises before and
after its constitution
i.iv. debts due to laborers, mechanics, materialmen and
others who rendered service in or furnished materials
in its construction.
ii. Money or property obtained as support
2. Property exempt from execution
3. Land acquired under free patent or homestead
B. Future property of the debtor

In case debtor is discharged from his debts, any future property
acquired by him shall not be used to satisfy any unsatisfied claims.
C. Property under legal custody and of public dominion
NOTE: Since preference of credits presupposes that the debtor is insolvent, the
insolvency shall be governed by special law provided it must be consistent with the
provisions of Civil Code. In case of discrepancy, the provision of the Civil Code
prevails.
ART. 2238 provides that, as a general rule, the assets of the conjugal partnership or the
absolute community is also exempted from being taken possession of by the assignee in
the payment of the insolvent debtor’s obligations.
For the exemption to apply, the following rules must be observed:

1. The partnership or community subsists; and
2. The obligations of the insolvent debtor-spouse have not redounded to
the benefit of the family.
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Question: If the debtor-spouse is the husband, does his insolvency dissolve the
partnership or community?
Answer: No. It does not. The administration thereof may, by order of the court, be
transferred to the wife or to a third person other than the assignee.
RULE IN CASE OF CO-OWNERSHIP
ART. 2239 stipulates that other than those which form part of the partnership or
community, if there is property owned by two or more persons, the undivided share or
interest of the co-owner-debtor of such property shall be among the assets to be taken
possession of by the assignee for payment of the insolvent debtor’s obligation.
RULE IN CASE OF PROPERTY HELD IN TRUST
ART. 2240 expressly provides that property held by the insolvent debtor in trust shall
be excluded from the insolvency proceedings.
Property held in trust by the debtor, although he has legal title over the property, is not
owned by him. Thus, its exclusion from those to be applied for payment of his debt.
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II. Classification of Credits
GENERAL CATEGORIES OF CREDIT:

1. Special preferred credits (Art. 2242)
2. Ordinary preferred credits (Art. 2244)
3. Common credits (Art. 2245)
A. SPECIAL PREFERRED CREDITS

These are credits which are specially preferred because they constitute liens and
take precedence over ordinary preferred credits so far as it concerns the property
to which the liens are attached.
PREFERRED CLAIMS, MORTGAGES AND LIENS ON SPECIFIC

IMMOVABLE PROPERTY.
As per ART. 2242, with respect to specific immovable property and real rights of
the debtor, the following credits are preferred and shall constitute as an
encumbrance thereon:
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 of real property for pecuniary charges or other
conditions imposed upon the donee, upon the immovable donated;
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10. Credits of insurers, upon the property insured, for the

insurance premium for two years.
The enumeration under ART. 2242 is not an order of preference. The creditors
with respect to the same specific immovable merely concur, with the exception of
the State.
B. ORDINARY PREFERRED CREDITS

These are those credits in respect of the insolvent’s free property. There is an
order of priority established. Certain taxes and assessments also figure but they
do not have overriding preference.
As per ART. 2244, with respect to other property, the following credits shall be
preferred in the order named herein:
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 Article 2242, No. 1;
10. Taxes and assessment due any province, other than those mentioned
in Article 2242, No.1;
11. Taxes and assessment due any city or municipality, other than those
mentioned in Article 2242, No.1;
12. Damages for death or personal injuries caused by a quasi-delict;
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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.
C. NON-PREFERRED OR COMMON CREDITS

As per ART. 2245, these are credits other than those mentioned in ARTS. 2242,
and 2244 shall enjoy no preference and such common credits shall be paid pro rata
regardless of dates.
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III. Order of Preference
GENERAL RULE: After payment of taxes and assessments upon the specific
immovable property or real right, if there are two or more credits with respect to such
specific property, they shall be satisfied pro rata.
Under the New Civil Code, only taxes and assessments upon specific immovable
property enjoy absolute preference. All remaining classes under ART. 2242 enjoy
no priority and must be paid concurrently and pro rata. This is called the “Two-tier
Order of Preference”.
Q#1: What does pro rata mean?
Pro rata means in proportion to the amount of their respective credits.
Q#2: When does pro rata become applicable in preference upon specific
immovable property?
Following the “Two-tier Order of Preference”, the first tier includes only taxes,
duties and fees due on the specific immovable property. All other special preferred
credits (non-tax) stand on the second tier. It is during second tier that pro rata
applies. The second tier are to be satisfied on equal footing (pari passu) and pro
rata, out of any remaining value of the specific property to which such other credits
relate.
EXCEPTION: Pro rata rule does not apply to Credits annotated in the Registry of
Property by attachment or execution in virtue of a judicial order.
These credits follow preference according to the priority of the credits in the order of
time.
After payment of credits enjoying preference over specific property, any excess shall
form part of the free property which debtor may have for payment of the other credits.
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IV. Relevant Cases:
G.R. No. L-23888 March 18, 1967

FRANCISCO C. MANABAT, in his capacity as Provincial Sheriff of Laguna,
Branch I, plaintiff-appellee,
vs.
LAGUNA FEDERATION OF FACOMAS, INC., ET AL., defendants-appellees.
FLORENTINO CAYCO and JOSE FERNANDEZ ZORILLA, defendants-
appellants.
Facts of the Case:

- In a suit filed by Laguna Federation of Facomas Inc., against Nieves M. Vda de
Roxas, a judgment in favor of the plaintiff was rendered.
- Francisco Manabat, the provincial sheriff, sold at public auction all rights, titles,
and interests of Nieves M. Vda de Roxas in 10 parcels of land for a total price of
P37,000.00.
- However, said parcels of land were subject to registered liens such as writs of
execution, and attachment annotated at the back of the respective title certificates.
- The sheriff instituted an action for interpleader for the different creditors to litigate
among themselves and determine their rights to the P37,000.00 proceeds of the sale.
- The following are the pertinent claimants and the respective dates of the registration
of the writ of executions:
Laguna Federation of Facomas, Inc. October 10, 1958
Valeriana & Limaco de Almeda October 13, 1958
Cosmopolitan Insurance Co., Inc. October 20, 1958
Florentino Cayco and Jose Fernandez Zorilla October 29, 1958
Victoria Dimayuga May 23, 1960
Jose Marfori and Josefina Reyes September 26, 1960
Pastor Canillas November 23, 1960
Trinidad Calatin November 29, 1960
Rosauro Taningco and Simplicio Ramos Not registered
- CFI’s decision: that the defendants-claimants are entitled to the proceeds of the sale
in the order of preference in accordance with the dates of the registration of their
credits.
- APPELLANT'S/CLAIMANT’S CONTENTION: they contended that since this is
an instance of several credits referring to the same specific real property; and that
the rule in such case is to satisfy all the aforesaid credits pro rata, following Art.
2242 of the NCC.
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Issue:
WON in the satisfaction of credits, that preference in the order of dates of
registration should be followed or distribution pro rata.
Ruling: Judgment appealed from is hereby affirmed.
Ratio Decidendi:
While it is true that in the instance of several credits referring to the same specific
real property, the general rule is without priority and to satisfy all the aforesaid
credits pro rata.
Nonetheless, not all credits referring to the same specific real property come under
the pro rata rule. Article 2249 expressly provides that taxes and assessments upon
the real property are to be paid first.
Similarly, the rule of pro rata does not apply to the credits mentioned in subpar. (7)
of Article 2242 of the Civil Code:
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:
xxx xxx xxx
(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.
The rule is still preference according to priority of the credits in the order of time.
For otherwise, the result would be absurd: the preference of an attachment or
execution lien over later credits, as above provided for, could easily be defeated by
simply obtaining writs of attachment or execution, and annotating them, no matter
how much later.
It not being disputed that appellants' credit is "later" than those of appellees Laguna
Federation of Facomas, Inc., Valeriana Limaco de Almeda and Cosmopolitan
Insurance Co., Inc., the appellees' credits must be deemed preferred to that of
appellants. To satisfy them pro rata would erase the difference between earlier and
later credits provided for by subpar. (7) of Article 2242 aforementioned.
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G.R. No. L-14938 December 29, 1962

MAGDALENA C. DE BARRETTO and JOSE G. BARRETTO, plaintiffs-
appellants,
vs.
JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Facts of the Case:

- Pura L. Villanueva bought house and lot from Rosario Cruzado. Cruzado sold the
property for ₱ 19,000.00. However, Villanueva was only able to pay ₱ 7,000.00.
As a consequence, Cruzado obtained judgment for the unpaid balance.
- Despite nonpayment, Villanueva was able to acquire a certificate of title to such
land and mortgaged the property as a security for a loan in the amount of ₱
30,000.00 from Magdalena C. Barretto.
- Barretto foreclosed the mortgaged property after Villanueva defaulted in her
payment for the loan.
- Cruzado, who claimed to be an unpaid vendor, filed a motion asking recognition of
her “vendor’s lien” invoking ARTS. 2242, 2243 and 2244 of the Civil Code.
- Meanwhile, Barretto insisted that the vendor’s lien can only become effective in
the event of insolvency of the vendee (Villanueva).
Issue/s:
WON Cruzado can invoke ARTS. 2242, 2243 and 2244 of the Civil Code in the
case at bar?
Ruling:
No, Cruzado cannot invoke the aforementioned Articles in this case.
Under the system of the Civil Code of the Philippines, only taxes enjoy absolute
preference. All the remaining classes of preferred creditors under Article 2242
enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion
to the amount of the respective credits. Thus, Article 2249 provides:
"If there are two or more credits with respect to 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."
But in order to make the prorating fully effective, the preferred creditors under
Article 2242 must necessarily be convened, and the import of their claims
ascertained. Thus, the full application of Articles 2249 and 2242 demands that
there must be first some proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency.
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In the case at bar, it has not been shown that an insolvency proceeding has been
commenced nor proven that the vendee is insolvent. In the absence of
insolvency, therefore, the preference being invoked by the unpaid vendor cannot
be given credence.
Sample Case:
Leizl’s husband, Bobbie had dengue. As a result, he was hospitalized. The

hospital expenses amounted to ₱350,000. After receiving the hospital bill
statement, she drove quickly to meet with her friend Beverly to borrow some
money. On her way, she accidently hit a pedestrian named, John Paul. For the
injuries suffered by him, she now owes him ₱150,000.
Two months ago, Leizl bought goods at Mareng Annjelou’s Convenience Store
amounting to ₱50,000. However, she has not yet paid the same. She became
desperate and wanted to have the money to pay for her debts. Beverly advised
her to try gambling. After becoming addicted to gambling, she gained more
obligations as she now owes the operator a total of ₱150,000 as a result.
Now, the only properties Leizl has in her possession is cash worth ₱300,000, an
unused land which is currently valued at ₱500,000, and a house and lot where
her family resides. The unused land was acquired at ₱380,000, of which she was
only able to pay ₱100,000. In addition to the price, she has yet to pay ₱10,000
taxes due on the land. Improvements were also made therein, however the
laborers who built it were not yet paid for their services valued at ₱20,000.
Clearly, Leizl’s properties are now insufficient to cover all of her debts that have
already become due and demandable.
Question #1:
Which among the properties shall be taken possession for payment of the
Leizl’s obligations?
Cash: ₱300,000
Unused Land Currently Valued at ₱500,000
Family home is excluded.
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Question #2:
Give the order of preference of the various credits.
• Special Preferred Credits:
✓ Unpaid taxes due on unused land
✓ Unpaid purchase price of ₱280,000 upon unused land
✓ Unpaid services of ₱20,000.
• Ordinary Preferred Credits:
✓ Hospital expense: ₱350,000
✓ Personal injuries caused by quasi-delict: ₱150,000
• Non-preferred/Common Credits:
✓ Loan from Annjelou: ₱50,000
✓ Gambling: ₱150,000
Question #3:
How are the credits satisfied? When is pro rata applied?
• Special Preferred Credits:
✓ Unpaid taxes due on unused land
✓ Unpaid purchase price of ₱280,000 upon unused land
✓ Unpaid services of ₱20,000.
• Ordinary Preferred Credits are satisfied in the order given in ART. 2244.
In this case:
✓ Hospital expense: ₱350,000
✓ Personal injuries caused by quasi-delict: ₱150,000
• Non-preferred/Common Credits are satisfied pro rata with the insolvent
debtor’s free property, if any.
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V. REFERENCES:
o Comments-and-Cases-on-Credit-Transactions-De-Leon.pdf
o G.R. No. L-14938 December 29, 1962 - MAGDALENA S. DE BARRETTO, ET

AL. v. JOSE G. VILLANUEVA, ET AL. : December 1962 - Philipppine Supreme
Court Decisions (chanrobles.com)
o G.R. No. L-23888 (lawphil.net)
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CONCURRENCE AND PRERENCE OF CREDITS Date: May 14, 2021

ARTICLES 2236 – 2251 OF THE NEW CIVIL CODE

Professor: Atty. Julius Eleazar N. Mañego, CPA