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. Articles Pages 13 to 15
VI. References Page 16
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
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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The following Articles have been repealed by Section 66 of RA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.
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
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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.
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 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;
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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.
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;
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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;
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
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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.
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
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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 Lim-aco
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.
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 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:
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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.
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 accidentally 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
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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.
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:
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 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. Articles:
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.
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 those to be
taken possession of by the assignee in 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.
Art. 2239. If there is property, other than that mentioned in the

preceding article, owned by two or more persons, 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.
Art. 2240. Property held by the insolvent debtor as a trustee of an

express or implied trust, shall be excluded from the insolvency
proceedings.
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;
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(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 prem ium for two years.
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;
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(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.
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.
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.
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.
Art. 2251. Those credits which do not enjoy any preference with
respect to specific property, and those which enjoy preference, as to
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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.
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VI. 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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What Is Concurrence of Credits? What Is Preference of Credits?

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CONCURRENCE AND PRERENCE OF CREDITS

Date: May 14, 2021

Professor: Atty. Julius Eleazar N. Mañego, CPA