Concurrence and Preference of Credit
personally used by him in his trade, employment, or
Concurrence of credits implies the possession by two or
more creditors of equal rights or privileges over the same
property or all of the property of a debtor.
(All the creditors has equal rights to the debtor)
Preference of credit is the right held by a creditor to be
preferred in the payment of his claim above others (i.e.,
to be paid first) out of the debtor’s assets.
(Paid first before the assets)
Preference does not 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. It creates no lien on property, and, therefore,
gives no interest in property, specific or general, to the
preferred creditor but a preference in application of the
proceeds after the sale.
The law does not 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 of who takes or sells; it is
one of the application of the proceeds after the sale —
of payment of the debt.
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.
Liability of debtor’s property for his obligations.
The creditors have the right to pursue the property in
possession of the debtor to satisfy their claims. They are
given the right to exercise all the rights and bring all the
actions of the latter for the same purpose, save those
which are inherent in his person; and impugn the acts
which the debtor may have done to defraud them.
Exempt property
(1) Present property.
a. Family Home
b. Property 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
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 debtor may select, of a value not exceeding
one hundred thousand pesos;
(f) Provisions for individual or family use
suffi cient for four months;
(g) The professional libraries of judges,
lawyers, physicians, pharmacists, dentists, engineers,
surveyors, clergymen, teachers, and other
professionals, not exceeding three hundred thousand
pesos in value;
(h) One fi shing 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 debtor for his personal services within the four
months preceding the levy as are necessary for the support of
his family;
(j) Lettered gravestones;
(k) Moneys, 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 especially exempted by law.
But no article or species of property mentioned in this
section shall be exempt from execution issued upon a judgment
recovered for its price or upon a judgment of foreclosure of a
mortgage thereon.” (Rule 39, Rules of Court.) “Sec. 118.
Exception in favor of the Government or any of its branches,
units, or institutions, land acquired under free patent or
homestead provisions shall not become liable to
the satisfaction of any debt contracted prior to the expiration of
said period [a term of five years from and after the date of the
issuance of the patent or grant] . . .” (The Public Land Act
[C.A. No. 141, as amended].)
(2) Future property. — With respect to his future property, a
debtor who obtains a discharge from his debts on account of
his insolvency, is not liable for the unsatisfied claims of his
creditors with said property subject to certain exceptions
expressly
provided by law.
(3) Property in custodia legis and of public dominion. —
Property under legal custody those owned by municipal
corporations necessary for governmental
purposes
ART. 2237. Insolvency shall be governed by special
laws insofar as they are not inconsistent with this Code.
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 or absolute
community may, by order of the court, be transferred to
the wife or to a third person other than the assignee.
Exemption of conjugal partnership or
absolute community property.
The assets of the conjugal partnership or the absolute
community do not pass to the assignee in insolvency
elected by the creditors or appointed by the court as they
do not belong to the individual spouses, but a distinct
entity: the partnership or the community. The exemption
applies provided that:
(1) the partnership or community subsists; and
(2) the obligations of the insolvent spouse have not
redounded to the benefit of the family.
The insolvency of the husband does not have the effect of
dissolving the conjugal partnership or the absolute
community.
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 obligation.
Rule involving undivided share
or interest of a co-owner.
If there is a co-ownership (see Arts. 484, 493.) and one 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 share of the other co-owners cannot, of course, 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.
Rule involving property held in trust.
The trustee is not, strictly speaking, the owner of the trust
property although he has the legal title thereto. Hence,
property held in trust by the insolvent debtor should be
excluded from the
insolvency proceedings.
This is very important:
Take note: that this concurrence and preference of credit will
ONLY APPLY, if the property of the debtor is not sufficing to
pay his debts. So, this is the basis for the commercial court on
how to distribute his assets. If his properties are enough to pay
his debts. We will not apply this concurrence and preference of
credit.
Again, we will use this remedy if the property cannot suffice to
pay his debts.
It is necessary prior thereto that the proceedings being done is
conducted.
Take note that there are three categories of credit;
1. Special preferred credit (Art. 2241 pertains to
personal property and Art. 2242 pertains to real
property)
*You don’t have to memorize that, but you have to familiarize
with the preferential preferred credit.
- they merely concur, there is no credit that is above except the
TAXES due to the government. It should be paid ahead among
the list. The rest merely concur meaning PRO RATA.
2. Ordinary preferred credit (Art. 2244)
*You really have to MEMORIZE this provisions. Because if
any is above on the list must be the preferred credit and should
be paid first.
 - in relation to Art. 110 of the labor code, provides that the
claims of workers are to be preferred. So what is the
implication of Art. 2244. It has modified 2244, so the one-year
limitation under no. 2 is remove and the claims of the workers
for unpaid wages under monetary claims are raised from the
second priority to the first.
If there is still a remaining balance applying 2241 and 2242.
Example:
(Automatic the debtor is insolvent)
Bendever is Insolvent, Necklace = P50, 000
1. He has a debt to Bulak, P30,000 for unpaid balance. (unpaid
purchase price for the necklace.)
2. He has debt to Riva, P20,000 secured by the Pledge.
3. He has debt from Pawnshop own by Trisky, P15,000.
Improvement made by the necklace.
4. He has debt of the Rural Bank of Maasin, P20,000 unsecured.
5. He has debt at the City Government of Maasin P5,000 unpaid
Taxes.
His debts are more than his assets.
How are you going to pay the debts to his
remaining property which is the necklace?
The no. 1, 2, 3 must be satisfied ahead of the two, no.
4 and 5. Because those are special preferred credits.
Those two are ordinary preferred credits under Art.
2244.
What make them special because they pertain to the
property. While the two items do not pertain to the
property.
Since, they concur that means PRO RATA. In this
case, the total is P65,000 over the property which is
P50,000.
PRO RATA:
1. P30,000/P65,000 x P50,000 = P23076.92
2. P20,000/P65,000 x P50,000 = P15384.61
3. P15,000/P65,000 x P50,000 = P11538.46
Total = P49999.99 or P50,000
3. Common credit (Art. 2245)
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, repairs, 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, 1 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 travellers 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. 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.
ART. 2242. With reference to specifi c immovable property
and real rights of the debtor, the following claims,
mortgages and liens shall be preferred, and shall constitute
as 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,
and 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;
(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 fi rst be satisfi ed.
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 pre ceding 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 indemnifi cation 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;5
(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 benefi cence;
(14) Credits which, without special privilege, appear
in (a) a public instrument; or (b) in the fi nal 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 (tax or non-tax)
take precedence over ordinary preferred credits so far as
concerns the
property to which the liens have attached.
(a) Specifi c property involved of greater value. — If the
value
of the specifi c property involved is greater than the sum
total
of tax liens and other specially preferred credits, the
residual
value will form part of the “free property” of the
insolvent,
i.e., property not impressed with liens by operation of
Articles
2241 and 2242.
(b) Specifi c property involved of lesser value. — If, on
the
other hand, the value of the specifi c property is less than
the aggregate of the tax liens and other specially
preferred
credits, the unsatisfi ed balance of the tax liens and other
such
credits are to be treated as ordinary preferred credits
under
Article 2244 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 by
Article 2244. In this sequence, certain taxes and
assessments also
fi gure but, as already pointed out, these do not have the
same
kind of overriding preference that Articles 2241, No. 1
and 2242,
No. 1, create for taxes which constitute liens on the
taxpayer’s
property. (Ibid.) Taxes and assessments due the national
government
other than those in Articles 2241, No. 1 and 2242, No. 1,
come only in ninth place in the order of preference under
Article
2244.
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.
As provided in this article, credits other than those
mentioned
in Articles 2241, 2242, and 2244, shall enjoy no
preference and
such common credits shall be paid pro rata regardless of
dates.
(Art. 2251[2].)
Insolvency proceedings involving banks.
(1) Remedy against actions of Monetary Board. — The
actions
of the Monetary Board of the Central Bank in
proceedings in
receivership and liquidation are explicitly declared by
Section
29 of the Central Bank Act (R.A. No. 265,11 as amended.),
to be
“fi nal and executory.” They may not be set aside or
restrained, or
enjoined by the courts, except upon “convincing proof
that the
action is plainly arbitrary and made in bad faith.”
(Central Bank
vs. De la Cruz, 191 SCRA 346 [1990].)
(2) Remedy of depositor or creditor to recover claims. —
After a
bank is declared insolvent by the Monetary Board of the
Central
Bank, a depositor cannot bring a separate action against
it,
his remedy being to intervene in the judicial proceedings
for
liquidation instituted by the Board thru the Solicitor
General.
ORDER OF PREFERENCE OF CREDITS
ART. 2246. Those credits which enjoy preference with
respect to specifi c 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 specifi c movable property, they shall be satisfi
ed 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 specifi c 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 specifi c real property or real rights, they shall
be satisfi ed pro rata, after the payment of the taxes and
assessments upon the immovable property or real right. P160,000 x P240,000 = P150,000
(1927a) P256,000
ART. 2250. The excess, if any, after the payment of the P16,000 x P240,000 = 15,000
credits which enjoy preference with respect to specifi c P256,000
property, real or personal, shall be added to the free property
which the debtor may have, for the payment of the
P80,000 x P240,000 = 75,000
other credits.
P256,000 P240,000

ART. 2251. Those credits which do not enjoy any preference
with respect to specifi c property, and those which
enjoy preference, as to the amount not paid, shall be satisfi
ed 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.
EXAMPLE:
A is an insolvent. The assets of A available for payment
consists of his car worth P248,000, a small parcel of land in the
province with a market value of P111,200, and P24,000 cash.
His obligations are as follows:
P 8,000 — to the State, for unpaid taxes on the car.
160,000 — to B, for unpaid balance of the price of said
car which he bought from B.
16,000 — to C, for cost of repair on the car made by
C.
80,000 — to D, for loan secured by a chattel mortgage
on the car.
P264,000 — Total
48,000 — to E, for the funeral expenses of the child
of A who died.
16,000 — to F, for medicines purchased during the
last illness of his wife.
11,200 — to the State, for unpaid business taxes.
32,000 — to G, for an unsecured loan contracted in
2005.
96,000 — to H, for an unsecured loan contracted in
2005.
P203,200 — Total
(4) B, C, and D are entitled to have the unpaid portions of
their credits satisfi ed from the other property of A subject to
the
right of preference of other creditors. (see Art. 2244.)
(5) Assuming that the credit of D is only P48,000, the
excess of P16,000 (with respect to the car) after deducting the
credits of the State, B, C, and D (P248,000 – P232,000), shall
be
added to the other property of A for the payment of his other
obligations. (see Art. 2250.)
(6) With respect to the P8,000 excess, the parcel of land
worth P111,200 and the P24,000 cash, a total of P139,200, the
other credits shall be paid in the following order:
E — P48,000
F — 16,000
State — 11,200
G — 16,000
H — 48,000
P139,200
G and H shall be paid pro rata regardless of the dates of
their credits. (see Art. 2251.) Note that the State is not given
preference as the taxes do not refer to specifi c property.
(7) If the car of A has been totally destroyed, the unpaid
tax of P8,000 on the car shall be satisfi ed after the payment of
the credits of E and F.

The order of preference of the creditors is as follows:

(1) With respect to the car (specifi c personal property), the
taxes (P8,000) shall be paid fi rst. (see Art. 2241.)
(2) With respect to the same car, the claims of B for the
unpaid price (P160,000) of C for the repair (P16,000), and D
for
the secured loan (P80,000) exclude all others to the extent of
the value of the car. (see Arts. 2246, 2248.) Said claims enjoy
no preference. There is merely concurrence among them. (see
Arts. 2247, 2249.)
(3) The claims of B, C, and D shall be satisfi ed pro rata
(see Ibid.) as the remaining value of the car (P240,000) is not
suffi cient to satisfy all their credits, as follows: