CONCURRENCE AND PREFERENCE OF CREDITS
The debtor is liable with all his property,
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
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 fi rst) out of the debtor’s assets.
Features of Title XIX of the Civil Code
(1) The liens and mortgages with respect to specifi c
movable and immovable property have been increased;
(2) The proposed Civil Code1 and the Insolvency Law
have been brought into harmony;
(3) Preferred claims as to the free property of the
insolvent have also been augmented; and
(4) The order of preference, laid down in Articles 19262
and 19273 of the present Civil Code,4 among claims
with respect to specifi c personal and real property has
been abolished, except that taxes must fi rst be
satisfied.”
Scope of Title XIX
creditor-debtor relationships
Nothing in the Civil Code indicates that its provisions on
concurrence and preference of credits are applicable
only to the insolvent debtor.
Nature and effect of preference—
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.
When rules on preference of credits applicable
The rules on preference of credits apply only where two
or more creditors have separate and distinct claims
against the same debtor who has an insufficient
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.
Preference of credit and lien distinguished—
A preference applies only to claims which do not attach
to specifi c properties. A lien creates a charge on a
particular property.
Credits must be due.--
The Title on “Concurrence and Preference of Credits”
refers to credits which are already due.
ART. 2236.
present and future, for the fulfi llment of his
obligations, subject to the exemptions provided by law.
(1911a)
The creditors have the right to pursue the property in
possession of the debtor to satisfy their claims.
Exempt property—
Present Property:
“Art. 152. The family home, constituted jointly by the
husband and the wife or by an unmarried head of a
family, is the dwelling house where they and their family
reside, and the land on which it is situated.
Art. 155. The family home shall be exempt from
execution, forced sale or attachment, except:
(1) For non-payment of taxes;
(2) For debts incurred prior to the constitution of the
family home;
(3) For debts secured by mortgages on the premises
before or after such constitution; and
(4) For debts due to laborers, mechanics, architects,
builders, materialmen and others who have rendered
service or furnished material for the construction of the
building. (Ibid.)
Art. 205. The right to receive support under this Title
[VIII] as well as any money or property obtained as such
support shall not be levied upon on attachment or
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 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 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
fi sherman 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;
monetary claims, shall be paid in full before claims of
the government and other creditors may be paid.
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. (n)

(j) Lettered gravestones;

(k) Moneys, benefi ts, 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;
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. (n)

(m) Properties especially exempted by law

ART. 2240. Property held by the insolvent debtor as a
trustee of an express or implied trust, shall be excluded
Sec. 118. Exception in favor of the Government or any of from the insolvency proceedings. (n)
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 fi ve
years from and after the date of the issuance of the
patent or grant] . . .” (The Public Land Act [C.A. No. 141,
as amended].)

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 unsatisfi ed claims of his
creditors with said property subject to certain
exceptions expressly provided by law. (Secs. 68, 69, The
Insolvency Law [Act No. 1956], infra.)

Property in custodia legis and of public dominion—

ART. 2237. Insolvency shall be governed by special laws

insofar as they are not inconsistent with this Code. (n)

By virtue of the above provisions, the Civil Code prevails

in case of confl ict with special laws on insolvency unless
otherwise provided in the latter.

Under the Labor Code…in the event of bankruptcy or

liquidation of an employer’s business, his workers shall
enjoy fi rst preference as regards unpaid wages and
other monetary claims, any provision of law to the
contrary notwithstanding. Such unpaid wages and other

ART. 2241. With reference to specifi c 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 offi cials 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.
(1922a)
General categories of credit—
(1) special preferred credits listed in Articles 2241 and
2242
(2) ordinary preferred credits listed in Article 2244; and
(3) common credits under Article 2245.
Articles 2241 and 2242 do not give the order of
preference or priority of payment…with the exception of
the State (No. 1), merely concur.
The last paragraph of Article 2241 applies only when the
right of ownership in such property continues in the
debtor, and, therefore, it is not applicable to cases
where the debtor has parted with his ownership
therein, as where he has sold the property.
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. (1923a)
The enumeration is not an order of preference.
But a recorded mortgage credit is superior to an
unrecorded unpaid vendor’s lien. (De Barretto vs.
Villanueva, 1 SCRA 288 [1961].)
Prior tempore potior jure.” (He who is fi rst in time is
preferred in right.)
Recorded mortgage credits—
It creates a real right which is enforceable against the
whole world. It is a lien on an identified immovable
property, which a preference is not. A recorded
mortgage credit is a special preferred credit under
Article 2242(5).
effect of registration under Act No. 3344. —
Between an unrecorded sale (or pacto de retro sale) of a
house (or land) of a prior date and a recorded mortgage
of the same property of a later date, the former is
preferred to the latter for the reason that, if the original
owner had parted with his ownership of the thing sold,
then he no longer had the ownership and free disposal
of the thing so as to be able to mortgage it.
Credits annotated in virtue of judicial order—
The pro rata rule in Article 2249 does not apply;
otherwise, the result would be absurd. The preference
of a credit annotated by an attachment or execution
could be defeated by simply obtaining a writ of
attachment or execution, no matter how much later.
(Manabat vs. Laguna Federation of Facomas, Inc., 19
SCRA 621 [1967].)
Refectionary credit—
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.
This liberal interpretation of refectionary credit to
include new construction has been adopted by the
Supreme Court as it “is in consonance with principles of
justice and fairness for there seems to be no valid
reason why one furnishing materials for purposes of
repair or reconstruction should be given preference
while another furnishing materials on new construction
is not given the same consideration.” (Luzon Lumber &
Hardware Co., Inc. vs. Quiambao and RFC, 94 Phil. 603
[1954].)
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. (n)
Hence, the provisions on pledge and mortgage are also
applicable.
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 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;
(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. (1924a)
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)
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)
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].)
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.

(a) Specific property involved of greater value. — If the Deviation from required procedure. — However, taking
value of the specific property involved is greater than into consideration the circumstances of the case and in
the sum total of tax liens and other specially preferred the interest of justice, a deviation from this procedure
credits, the residual value will form part of the “free may be allowed as where to order the plaintiffs, who are
property” of the insolvent admittedly living in poverty to refi le and relitigate their
case before the liquidation court would be an exercise in
(b) Specifi c property involved of lesser value. — If, on
futility as it would mean another several years of trial
the other hand, the value of the specifi c property is less
and additional expenses to them. (Valenzuela vs. Central
than the aggregate of the tax liens and other specially
Bank, 168 SCRA 623 [1988].)
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
ART. 2246. Those credits which enjoy preference with
paid in the order of preference therein provided.
respect to specifi c movables, exclude all others to the
(2) Ordinary preferred credits. — Only in respect of the extent of the value of the personal property to which
insolvent’s “free property” is an order of priority the preerence refers.
established by Article 2244.
ART. 2247. If there are two or more credits with
Preference of claims for unpaid wages and other respect to the same specifi c movable property, they
monetary claims— shall be satisfi ed pro rata, after the payment of duties,
taxes and fees due the State or any subdivision thereof.
Necessity of bankruptcy or liquidation proceedings. —
(1926a)
a declaration of bankruptcy or a judicial liquidation must
ART. 2248. Those credits which enjoy preference in
be present before the worker’s preference may be
relation to specifi c real property or real rights, exclude
enforced.
all others to the extent of the value of the immovable
Preference of credits evidenced by public instruments or real right to which the preference refers.
and final judgments—
ART. 2249. If there are two or more credits with
Under the last paragraph, credits evidenced by a public respect to the same specifi c real property or real
instrument and those evidenced by a fi nal judgment are rights, they shall be satisfi ed pro rata, after the
placed in the same order of preference. Preference payment of the taxes and assessments upon the
among themselves is determined by considering the immovable property or real right. (1927a)
priority of the dates of the instruments and of the fi nal
ART. 2250. The excess, if any, after the payment of the
judgments.
credits which enjoy preference with respect to specifi c
Statutory preference not applicable to the Government property, real or personal, shall be added to the free
— property which the debtor may have, for the payment
of the other credits. (1928a)
Upon the other hand, the law could not have been
intended to include the State itself among the debtors
referred to therein, considering that in this jurisdiction,
it is a recognized doctrine that the State is always
solvent
Two-tier order of preference—

The first-tier includes only taxes, duties and fees due on

a specific movable or immovable property. All other
special preferred (non-tax) credits stand on the second-
tier to be satisfi ed pari passu and pro rata, out of any
residual value of the specifi c property to which such
other credits relate. (Republic vs. Peralta, supra.)

The pro rata rule, however, does not apply to “credits

annotated in the Registry of Property in virtue of a
judicial order, by attachments and executions” which are
preferred to as “later credits.” In satisfying several
credits annotated by attachments or executions, the
rule is still preference according to the priority of the
credits in the order of time. (Manabat vs. Laguna
Federation of Facomas, Inc., 19 SCRA 621 [1967].)

Proceeding required for adjudication of claims of

preferred creditors. —

The full application of Articles 2249 and 2242 demands

that there must be fi rst some proceeding where the
claims of all the preferred creditors 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.

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 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. (1929a)