Concurrence & Preference of Credit
Concurrence & Preference of Credit
(Articles 2236-2251)
CONCURRENCE OF CREDITS
It implies possession by two or more creditors of equal right or privileges over the same
property or all of the property of a debtor.
PREFERENCE OF CREDIT
It is the right held by a creditor to be preferred in the payment of his claim above other out of
the debtor's assets.
ART. 2237. Insolvency shall be governed by special laws insofar as they are not inconsistent with
this Code.
The Civil Code prevails over special laws.
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.
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.
ART. 2240. Property held by the insolvent debtor as a trustee of an express or implied trust, shall
be excluded from the insolvency proceedings.
Reason for the article: The trustee is not the owner of the property held.
Thus, it should not respond for the insolvent trustee's obligation.
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 the 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.
Lien - A charge upon property subject to lien. In a broad sense, it means the liability of property
for a certain legal duty, or a right to resort to certain property to enforce duty.
Preference vs Lien
Preference applies only to claims which do not attach to specific properties. While a lien creates a
charge on a particular 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 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 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
done, 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, Art. 2241, and No. 1, Art. 2242 shall first be
satisfied.
This article speaks of the nature of claims or credits --- they are considered as pledges or
mortgages.
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 assessment due any province, other than those mentioned in Articles 2241, No.1 and
2242, No.1;
11. Taxes and assessment due any city or municipality, other than those mentioned 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. 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 to the State or any
subdivision thereof. The credits over specific personal or movable properties are those enumerated
in Article 2241 of the Civil Code.
Sample Problem: Sonia has one car, the taxes on which have not yet been paid. Once, the car
fell into the sea, was salvaged, was repaired, and has now been pledged with a creditor. If
Sonia is insolvent and has not paid for any of the acts done on her car, how will the following
be paid: the State, the person who salvaged it, the repairer, and the pledgee?
Answer:
a. All said 4 creditors have preference over the car to the exclusion of all other
creditors.
b. The State will first be paid for taxes on the car.
c. The salvager, the repairman, and the pledgee will all be paid pro rata from the
remaining value of the car.
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 rights. The credits, which refer to real rights or immovable properties,
are enumerated in Article 2242 of the Civil Code.
ART. 2250. The excess, if any after the payment of the credits which 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 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.
Unlike in Arts 2241 and 2242 which refers to movable and immovable properties, respectively; the
order of preference in this provision refers to other properties.
Sample Problem: A, an insolvent owes P500,000.00 in favor of a funeral parlor, P1 million for
the hospital expenses during the cancer illness of his wife, and P100,000 in favor of a
pedestrian whom he had hurt while driving his car carelessly and for which he was criminally
and civilly liable. Unfortunately, he has only P600,000.00 and an automobile, the purchase
price of which he has not yet paid. Give the order of preference of the various creditors
involved.
Answer:
a. With respect to the automobile (specific personal property) the unpaid seller shall be
preferred.
b. With respect to the P600,000.00, Art. 2244 should be applied. The funeral parlor comes
first, then the hospital, then the pedestrian. Here there is no pro rata sharing; there is a preference.
Therefore, the funeral parlor will be given P500,000.00; the hospital only P100,000.00. The hospital
cannot recover the deficiency of P900,000.00; and the pedestrian cannot recover his P100,000.00.
As regards the other kinds of credits, the rule is: there is no preference.