CONCURRENCE AND PREFERENCE OF CREDITS

What is concurrence of credits?

It implies the possession by two or more creditors of equal rights or privileges over the same
property or all the property of the debtor.

What is preference of credits?

It is the right held by a creditor to be preferred in the payment of his claim above others out of the
debtor’s assets.

How is the title on concurrence and preference of credits characterized?

1. The liens and mortgages with respect to movable and immovable property have been increased;
2. The (proposed) Civil Code and Insolvency Law have been brought into harmony
3. The preferred claims as to the free property of the insolvent have also been augmented
4. The order of preference laid down in Articles 1926 and 1927 (now Articles 2246 to 2249) among
claims with respect to specific personal and real property has been abolished, except that taxes
must first be satisfied.

When will the preferential right of credit attain significance?

When the debtor’s properties have been inventoried and liquidated, and the claims held by his
various creditors have been established. (Barreto v. Villanueva)

When does the rule on preference apply?

It applies only when:
2. with separate and distinct claims
3. against the same debtor
4. and he has no sufficient property (Pacific Farms, Inc. vs. Esguerra)

What is the aim of insolvency/liquidation proceedings?

To conserve all the remaining assets of the insolvent/liquidated person/corporation for distribution to
the creditors, after taxes.

Are the rules on concurrence and preference of credits applicable if the debtor’s assets are
sufficient to pay his liabilities?

NO. A preference of credit bestows upon the preferred creditor an advantage of having his credit
satisfied first ahead of other claims which may be established against the debtor. Logically, it
becomes material only when the properties and assets of the debtors are insufficient to pay his debts
in full; for if the debtor isamply to able to pay his various creditors in full, how can the necessity exist
to determine which of his creditors shall be paid first or whether they shall be paid out of the
proceeds of the sale of the debtor’s specific property, Indubitably, the preferential right of credit
attains significance only after the properties of the debtor have been inventoried and liquidated, and
the claims held by his various creditors have been established. (Development Bank of the
Philippines v. National Labor Relations Commission)
What is the difference between preference of credit and lien?
Preference applies only to claims which do not attach to specific properties. It is a method adopted to
determine and specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent’s assets. Lien is a liability of property for a certain legal duty or obligation,
or a right to resort to certain property to enforce duty. It creates a charge on a particular property.

To what kind of credit does the title on Concurrence and Preference of Credits apply?
Credits which are already due and demandable.

What is the extent of debtor’s liability to his creditors?

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. 2236, Civil Code)

What present properties of the debtor are exempt from the rules on preference?
1. Family home (Arts. 152 to 155, Family Code)
2. Right to receive support and any money or property obtained as such support (Art. 205, Family
Code)
3. Properties exempt from execution under Rule 39 of the Rules of Court
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 debtor 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 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 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; and
m. Properties especially exempted by law.

What future properties of the debtor are exempt from the rules on preference?
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. (Secs. 68 and 69, The Insolvency Law)

May property in custodia legis be attached?

YES. If the property sought to be attached is in custodia legis, a copy of the writ of attachment shall
be filed with the proper court or quasi-judicial agency, and notice of the attachment served upon the
custodian of such property. (Sec. 7, last par., Rule 57, Rules of Court)

May the assets of the conjugal partnership or absolute community be taken into possession
by the assignee for the payment of the insolvent debtor’s obligations?
NO. 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. (Art. 2238, Civil Code)
XPN: If such debtor’s obligation redounded to the benefit of his family.

In an absolute community or conjugal partnership, does the husband’s insolvency dissolve

the property regime?
NO. In case of the husband’s insolvency, the administration of the absolute community or conjugal
partnership may, by order of the assignee. (Art. 2238, Civil Code)

What is the rule when a property of an insolvent debtor is co-owned by others?

The insolvent debtor’s undivided share or interest in the property shall be possessed by the assignee
in insolvency proceedings. (Art. 2239, Civil Code)

May the properties held by the insolvent debtor as a trustee be included in the insolvency
proceedings?
NO. A trustee is not, strictly speaking, the owner of the property held by him in trust, although he has
legal title thereto, hence it should be excluded from insolvency proceedings.

CLASSIFICATIONS OF CREDITS

What are the general categories of credits?

1. Special preferred credits (Arts. 2241 and 2242, Civil Code)
2. Ordinary preferred credits (Art. 2244, Civil Code)
3. Common credits (Art. 2245, Civil Code; Republic v. Peralta)

What is the purpose of classification and preferences of credits?

To meet the situation where the value of a debtor’s assets is not sufficient to enable him to meet all
his maturing obligations.
To minimize the potential clash of rights among his creditors.

When may the rule on preference be implemented?

When there was an insolvency, liquidation, or testate or intestate proceedings conducted.
The full application of Articles 2242 and 2249 demands that there must first be some proceeding
where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the
settlement of a decedent’s estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import. (Philippine Savings Bank v. Lantin)

What is insolvency?
It is a state of a person whose liabilities are more than his assets.
A person’s assets, when all made immediately available, would be insufficient to discharge his
liabilities.

Do the enumerations under Arts. 2241 and 2242 give the order of preference or priority of
payment?
NO. The claims enumerated only give concurrence, not preference. (Carried Lumber Co. v.
AC-CFA).
XPN: Par. 1 of Arts. 2242 and 2242 enjoy absolute preference. (Phil. Savings v. Lantin; Art. 2243,
last part).

What are the preferred claims with reference to debtor’s 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;
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, 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. (Art. 2241, Civil Code)

What can the creditor do if the movables to which the lien or preference attaches are
wrongfully taken?
The creditor may demand them from any possessor, within thirty days from the unlawful seizure.
(Art. 2241, Civil Code)
This rule applies only when the right of ownership over the property is still with the debtor, and not
where the debtor has parted ownership therein.

What are the preferred claims with reference to the debtor's 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 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.
2242, Civil Code)

Does par. 2 of Article 2242 make any distinction between registered and unregistered
vendor’s lien?
NO. Any vendor’s lien enjoys the preferred credit status.

In par. 5 of Article 2242, are mortgage credits automatically given preference?

NO. Mortgage credits, in order to be given preference, should be recorded in the Registry of
Property.
NOTE: A recorded mortgage credit is superior to an unrecorded unpaid vendor’s lien.

May a pacto de retro sale, which is in reality an equitable mortgage, prevail over a
subsequent recorded mortgage over the same property?
NO. Preference of mortgage credits is determined by the priority of registration of the mortgages
“Prior tempore potior jure”: He who is first in time is preferred in right.

What is refectionary credit?

“Contractor’s Lien” It is primarily an indebtedness incurred in the repair or reconstruction of
something previously made, such repair or construction being made necessary by the deterioration
or destruction of the thing as it formerly existed. Based on principles of justice and fairness, it may
also include new construction, as liberally construed by the Supreme Court in Luzon Lumber &
Hardware Co., Inc. v. Quiambao and RFC.

How should the claims or credits enumerated in Articles 2241 and 2242 be considered?
As mortgages or pledges or real or personal property, or liens within the purview of legal provisions
governing insolvency. (Art. 2243, Civil Code)

What is the rule if the value of the specific property involved is greater than the sum total of
the 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.

What is the rule if the value of the specific property involved is less than the sum total of the
specially preferred credits?
The unsatisfied 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.

What are the ordinary 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;
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 the 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. 2244, Civil Code)

What does Article 2244 give with reference to the debtor’s remaining real and personal
properties?
It does not only enumerate the preferred credits of the debtor, but it also gives their order of
preference in the order named.

What kind of property does Article 2244 contemplate?

It may be real or personal property of the debtor, which are considered free assets, meaning free
from mortgages, pledges,and liens.

How should Article 2244 (2) be construed in relation to Article 110 of the Labor Code?
Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for
unpaid wages and other monetary claims either upon all of the properties or upon any particular
property owned by their employer.
It did not upgrade the workers’ claim as an absolutely preferred credit.
It only elevated the preferred credit under Article 2244 (2) to the top priority among all other ordinary
preferred credits, meaning it shall take priority over proper funeral expenses for the debtor, or
children, xxx, which is originally the first in order of ordinary preferred credits.
It also removed the one-year limitation preceding the commencement of insolvency proceedings.In
Article 110, there is a necessity of declaration of bankruptcy or judicial liquidation proceedings before
the worker’s preference may be enforced. (Development Bank of the Philippines v. National Labor
Relations Commission)

What is the difference between Article 2244 and Articles 2241 and 2242?
Article 2244 creates only simple rights in favor of certain creditors to have the cash and other assets
of the insolvent applied in a certain sequence or order of priority. It does not create liens on
determinate property which follow such property.

In Articles 2241 and 2242, there is no order of priority in the order named in the enumeration.

How do you harmonize the preference over taxes in par. 1 of Articles 2242 and 2242 with the
taxes and assessments in Article 2244 pars. (9) to (11)?

Taxes and assessments under Articles 2242 and 2242 are with reference to specific property of the
debtor.
Meanwhile, taxes under Article 2244, pars. (9) to (11), are with respect to the debtor’s free properties
– those which are not specific or determinate.

Is Article 2244 applicable to the State?

NO. It is considered that in this jurisdiction, it is a recognized doctrine that the State is always
solvent. (Araneta v. Hon. Gatmaitan)

What is the status of those credits other than those mentioned in Articles 2241, 2242, and
2244?
Said credits enjoy no preference and such common credits shall be paid pro rata regardless of
dates. (Art. 2245, Civil Code)

Are bank deposits considered as preferred credits?

NO, bank loans are considered as simple loans and, as such, are not preferred credits.

What is the summary of the scheme of concurrence and preference of credits under the Civil
Code?
1. Taxes and other duties under par. 1 of Articles 2241 and 2242
2. Other preferred liens and credits under Arts. 2241 and 2242, if there are specific properties.
3. Only after the specially preferred claims under Articles 2241 and 2242 are satisfied may the
ordinary preferred claims under Article 2244 be paid.

ORDER OF PREFERENCE OF CREDITS

What is the nature and effect of preference of credits?

1. It is an exception to the general rule.
Generally, one has to pay his creditors once his debt becomes due. Preference then applies only
when there are two or more creditors, having separate claims against a debtor who has insufficient
property. Being an exception to the general rule, the law as to preferences must be strictly construed.

2. It does not create interest in property. Preference simply creates a right to be paid first from the
proceeds of the sale of the property of the debtor. It does not create a lien on the property itself, but
merely a preference in the application of the proceeds of the property after it is sold.

3. It does not give the creditor the right to take the property or to sell it against another creditor.
Preference is not a question as to who may take and/or sell property belonging to the debtor.
Preference applies after a sale, and this is a question of application of the proceeds of the sale to
satisfy the debt.

4. It must be asserted.If the right claimed is not asserted nor maintained, it is lost. If the property has
not been seized, then it becomes open to seizure by another.
5. It must be maintained. Where a creditor released his levy, leaving the property in possession of
the debtor, thereby indicating that he did not intend to press his claim further as to that specific
property, he is deemed to have abandoned his claim of preference.

How are credits satisfied?

As a general rule, preferred credits are paid first before non preferred credits. The claims or liens
listed in Article 2241 are paid first. If there is a residue on the price of the specific movable property,
the same shall be applied to the unpaid preferred claims.

What rule governs cases involving a concurrence of credits over the same specific property?
Under the Old Code, the conflicts between preferred creditors under Article 1926 (as regards
personal property) or Article 1927(as regards real property) were resolved according to the order of
priorities fixed by said provisions under which one class of preferred creditors excluded other
creditors of lower ranking until the claims or liens of the former were completely satisfied out of the
proceeds of the sale of the specific property of the debtor. However, under the New Civil Code, the
order of priority was abolished. All the preferred creditors provided by Articles 2241 and 2242 enjoy
no priority among themselves. In other words, they must be paid concurrently and pro rata, that is,
in proportion to the amount of their respective credits, by and among the preferred concurring
creditors.

What is the exemption to the rule?

As mentioned, concurring credits shall be satisfied by dividing the property or its value pro rata
among the creditors. However, taxes are always given the first priority, as provided by Article 2247 of
the Civil Code which states that “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 the duties, taxes, and fees
due to the State or any subdivision thereof.

What is the rationale behind the shift from the old rule of “Order of Priority” to the new rule of
“Pro Rata Division”?
The Code Commission, in favoring the pro rata rule to supersede the order of priority rule, admitted
that in cases of several claims attaching to specific property, it is extremely difficult to determine a
just order of preference among themselves.

Needless to say, the holder of each claim could give plausible reasons why his claims should be
given priority among others; but it would seem to be a fairer course to divide the value of the
property, and pay such concurrently and pro rata among the holders.

What do we mean when we say concurring credits?

Concurring credits implies possession by two or more credits of equal right or privileges over
the same property or all of the property of the debtor.

When does concurrence of credits occur?

Concurrence of credits occurs when the same specific property of the debtor, or all of his property, is
subjected to the claims of several creditors. It raises no questions of consequence where the value
of the property or the value of all assets of the debtor is sufficient to pay in full all the creditors.

However, it becomes material when said assets are insufficient, for then some creditors of necessity
will not be paid or some creditors will not obtain the full satisfaction of their claims. In this situation,
the question of preference will then arise, that is to say, who of the creditors will be paid ahead of the
others (Metropolitan Bank and Trust Company v. S.F. Naguiat Enterprises, G.R. No. 178407, March
18, 2015).

What is pro rata division?

Literally translated as “in proportion”, pro rata refers to the share to be received or the amount to be
paid based on the fractional portion of value, such as ownership, responsibility or time used.

Where several debtors are each liable for the whole debt and each is liable for his own share or
proportion only, they are said to be bound pro rata. For example, an heir who receives a quarter of
an estate may be responsible for a quarter of the estate taxes as his or her pro rata share.

NOTE: Pro rata does not necessarily mean that all parts are equal; but each piece is given value in
proportion to something else. A pro rata dividend means that every shareholder gets an equal
proportion for each share they own.

What is the exception to the rule on pro rata division? How are they satisfied?
The pro rata division rule does not apply to “credits annotated in the Registry of Property, in virtue of
a judicial order, by attachments and executions” which are preferred as to “later credits”.

In satisfying credits annotated by attachments or executions, the rule is still preference according to
the priority of the credits in order of time (Manabat v. Laguna Federation of Facomas, Inc., 19
SCRA 621).

When is pro-rating under the law applicable?

In order to make pro-rating fully effective, the preferred creditors enumerated in nos. 2-14 of Article
2242 (or such of them as have credits outstanding) must necessarily be convened and the import of
their claims be ascertained. It is thus apparent that the full appreciation of Articles 2249 and 2242
demands that there must first be some proceeding where the claims of all the preferred credits may
be bindingly adjudicated, such as insolvency, the settlement of decedent’s estate under Rule 87 of
the Rules of Court, or other liquidation proceedings of similar import.

Barreto vs. Villanueva

The Court held that in order that the payment pro rata of preferred creditors under Articles 2242 and
2249 of the New Civil Code may be affected, there must be some proceeding, where the claims of all
the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of the
decedent’s estate or other similar liquidation proceedings. The creditor will be convened in that
proceeding and the import of their claims ascertained.
In the absence of the proper proceeding, wherein the pro rata dividend corresponding to each of the
creditors preferred with respect to specific real property may be determined, the order of a court in
an ordinary action decreeing that the proceeds of the foreclosure sale should be apportioned
between the unpaid vendor and the mortgagee of the realty sold is incorrect.

What happens if there is an excess after the payment of all the preferred credits?
If, after payment of the preferred credits whether with regard to real or personal property, there is any
resulting excess, the same shall be added to the free property of the debtor for the payment
of other credits.

What are the credits contemplated in Article 2251? How are they satisfied?
The said provision covers two kinds of credits:
a. those which do not enjoy the preference with respect to a specific property, as provided for by
Articles 2241 and 2242; and,
b. those which enjoy preference as to the amount not paid.

These credits are satisfied according to the following rules:

a. in the order established in Article 2244; and,
b. common credits referred in Article 2245 shall be paid pro rata regardless of dates.

STEP BY STEP APPLICATION OF THE RULES ON PREFERENCE OF CREDITS

STEP 1: MAKE AN INVENTORY OF ASSETS.

List down all the assets of the debtor. Then, group these assets into two: a) the Preferred Group and
b) the Free Property Group. Take note that those assets with special preferred claims under Articles
2241 and 2242 imposed upon them belong to the Preferred Group. Meanwhile, those without special
preferred claims will constitute the debtor’s Free Property.

Remember to take out property held by the debtor only in the capacity of the trustee. He may have
legal title to it, but the beneficial title and ownership actually belong to another person. Since the
property does not belong to the debtor, they should not be included in the proceedings.

STEP 2: GROUP THE CLAIMS.

Make four groups: (1) special preferred credits on movables; (2)special preferred credits on
immovable; (3) ordinary preferred credits; and, (4) common credits.Put the ordinary preferred claims
under Article 2244 together. List them down according to the order under the said provision, since it
already gives the order of preference. Take note, however, that labor claims are on top.

Put the other credits not falling under these three together. These are the common claims. The usual
example is a promissory note in a private instrument.
STEP 3: SATISFY THE SPECIAL PREFERRED CLAIMS.

First, one must take the value of the specific movable/immovable upon which the preferred claim is
imposed. Next, he must pay the taxes due on the property and the preferred claim of the creditor. If,
after paying the taxes and other special preferred claims, there will be an excess, he must take the
value of the excess and add it to the debtor’s Free Property. If the value of the specific property is
not enough to satisfy the taxes and other special preferred claims, and there is deficiency,
the following rules shall be followed:

a. If the deficiency is in a credit arising from a pledge, real mortgage or chattel mortgage, put the
deficiency in the ordinary preferred credits group.

Why is deficiency which is in a credit arising from a pledge, real mortgage or chattel
mortgage classified as an ordinary
preferred credit?

It is such because of Article 2244. Since it is a credit in a public instrument, then it is an ordinary
preferred credit under (14) of Article 2244.

b. If the deficiency is in a credit arising from a transaction that is not in a public document or is not
contained in a final judgment, put the deficiency in the common credits group.

STEP 4: UPDATE THE INVENTORY AND LIST OF CREDITS.

After satisfying all of the special preferred claims, the following must be updated:

a. The inventory of assets. If, after satisfying the preferred claims, there seems to be an excess, it
may be added to the Free Property Group. After the inclusion of the excess with the Free Property
group, add up the entire value of such group because this will be utilized for the settlement of the
ordinary preferred claims and the common claims.

b. The list of ordinary preferred claims. If there was a deficiency in satisfying the special preferred
claims, the deficiency will be an ordinary preferred credit if it is notarized or is contained in a final
judgment.

c. The list of common claims. If there was a deficiency in satisfying the special preferred claims, the
credit will be a common credit if it is not notarized nor contained in a final judgment.

STEP 5: SATISFY THE ORDINARY PREFERRED CLAIMS.

List down all the ordinary preferred claims in the order in which they are listed in 2244. This is the
order of preference among them. Most probably, there will be several credits in public instruments
and final judgments. Arrange these by date. Those falling on the same date will enjoy equal
preference and will share the balance of the free property proportionately.
STEP 6: SATISFY THE COMMON CLAIMS.

Whatever is remaining of the debtor’s free property will be used to satisfy the common claims. Since
these will not be enough to cover the debtor’s remaining liabilities (in case of insolvency), the
common creditors will share the balance in proportion to the amount of the credit, regardless of the
date.