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OF CREDITS (ARTICLES 2236-2251

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Insolvency
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COMPOSITION -
Insolvency Law
CONCURRENCE AND PREFERENCE OF CREDITS PROOF OF DEBTS -
Insolvency Law
(ARTICLES 2236-2251
2236-2251)) Assignees in
Insolvency
CLASSIFICATION AND ☰
PREFERENCE OF
CONCURRENCE OF
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advice every Wednesday and Friday at 6pm. CREDITORS
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Implies the possession by two or more creditors of equal rights or privileges over the same INSOLVENCY,
property or all the property of a debtor Insolvency Law- ACT
NO. 1956
THE INSOLVENCY LAW
PREFERENCE OF CREDIT - TITLE AND GENERAL
SUBJECT OF THE ACT
Right held by a creditor to be preferred in the payment of his claim above others out of the debtor’s SUSPENSION OF
assets PAYMENTS - Insolvency
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INSOLVENCY
NATURE AND EFFECT OF PREFERENCE PROCEEDINGS IN REM
REVOCATION AND
1. A preference is an exception to the general rule. For this reason, the law as to preferences is REDUCTION OF
strictly construed. DONATIONS,
2. Preference doesn’t create an interest in property. it creates simply a right of one creditor to be INOFFICIOUS
paid first the proceeds of the sale of property as against another creditor. DONATIONS
3. The law doesn’t 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 who takes or sells, it is one of the application of the proceeds after
the sale—of payment of the debt
4. The right of preference is one which can be made only by being asserted and maintained. If
the right claimed is not asserted or maintained, it is lost.
5. Where a creditor released his levy, leaving the property in possession of the debtor, thereby
indicating that he didn’t intend to press his claim further as to that specific property, after that act,
his claim to preference, if one had been asserted y him, could not exist because he had ceased to contest.
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WHEN RULE OF PREFERENCE APPLICABLE
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who has an insufficient property
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Is applicable when the debtor is insolvent—having more liabilities than his assets
It is a matter of necessity and log that the question of preference should arise only when the Season One

debtor’s assets are insufficient to pay his debts in full Episode 1: August 31, 2018
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GENERAL PROVISIONS Episode 2: September 7, 2018
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Art. 2236. The debtor is liable with all his property, present and future, for the fulfillment of his Episode 3: September 13, 2018
obligations, subject to the exemptions provided by law. (1911a) Facebook Video | YouTube Video

Episode 4: September 21, 2018

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AS A RULE, A DEBTOR IS LIABLE WITH ALL HIS PROPERTY, PRESENT
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Episode 6: October 5, 2018

EXEMPT PROPERTY Facebook Video | YouTube Video
1. Present property-Articles 152, 153, 154, 155, 205(Family Code); Section 13 Rule 39 of the Rules
of Court; Section 118 of CA 141

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. (223a)

Art. 153. The family home is deemed constituted on a house and lot from the time it is
occupied as a family residence. From the time of its constitution and so long as any of
its
beneficiaries actually resides therein, the family home continues to be such and is
exempt from execution, forced sale or attachment except as hereinafter provided and to the
extent
of the value allowed by law. (223a)

Art. 154. The beneficiaries of a family home are:

(1) The husband and wife, or an unmarried person who is the head of a family;
(2) Their parents, ascendants, descendants, brothers and sisters, whether the
relationship be legitimate or illegitimate, who are living in the family home and who
depend upon the head of the family for legal support. (226a)

Art. 155. The family home shall be exempt from execution, forced sale or attachment
except:
(1) For nonpayment 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.
(243a)

Art. 205. The right to receive support under this Title as well as any money or property
obtained as such support shall not be levied upon on attachment or execution. (302a)

Sec. 13. Property exempt from execution.

Except as otherwise expressly provided by law, the following property, and no other,
shall be exempt from execution:

(a) The judgment obligor's family home as provided by law, or the homestead in which he
resides, and land necessarily used in connection therewith;
(b) Ordinary tools and implements 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 obligor
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 and equipment 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 obligor of his
personal services within the four months preceding the levy as are necessary for the
support of
his family;
( j) Lettered gravestones;
(k) Monies benefits, privileges, or annuities accruing or in any manner growing out of any
life insurance;
(l) The right to receive legal support, or money or property obtained as such support,
or any pension or gratuity from the Government;
(m) Properties specially exempt by law.

But no article or species of property mentioned in his section shall be exempt from
execution issued upon a judgment recovered for its price or upon a judgment of
foreclosure of a mortgage thereon.

2. Future property—those related to the insolvency of a debtor

3. 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)

INSOLVENCY LAW WILL COME INTO PLAY AFTER THE RULES OF

PREFERENCE AND CONCURRENCE OF CREDITS.

DEBTOR MUST BE THE ABSOLUTE OWNER

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 of absolute
community may, by order of the court, be transferred to the wife or to a third person other than the
assignee. (n)

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. (n)

RULES INVOLVING UNDIVIDED SHARE OR INTEREST OF A CO-

OWNER
If there is a co-ownership and of the co-owners is the insolvent debtor, his undivided share or
interest in the property shall be possessed by the assignee in insolvency proceedings because it is part
of his assets

The shares of the other co-owners of course cannot be taken possession of by the assignee

Art. 2240. Property held by the insolvent debtor as a trustee of an express or implied trust, shall
be excluded from the insolvency proceedings. (n)

RULE INVOLVING PROPERTY HELD IN TRUST

The trustee is not strictly speaking the owner of the trust property although he has legal title thereto
Hence, property held in trust by the insolvent debtor should be excluded from the insolvency
proceedings

CLASSIFICATION OF CREDITS

Art. 2241. With reference to specific movable property of the debtor, the following claims or liens shall
be preferred:

(1) Duties, taxes and fees due thereon to the State or any subdivision thereof;

(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials
committed in the performance of their duties, on the movables, money or securities obtained by
them;

(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the
possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor
and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the
immobilization of the thing by destination, provided it has not lost its form, substance and identity;
neither is the right lost by the sale of the thing together with other property for a lump sum, when
the price thereof can be determined proportionally;

(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the
creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the
value thereof;

(5) Credits for the making, 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 their delivery and for thirty days thereafter;

(10) Credits for lodging and supplies usually furnished to travelers by hotelkeepers, 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
3. Common credits under Article 2245

PREFERRED CREDITS WITH RESPECT TO 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

a. Should be registered
b. Binding against third parties

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 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.

PREFERRED CREDITS WITH RESPECT TO SPECIFIC MOVABLE

PROPERTY
Articles 2241 and 2242 don’t give the order of preference or priority of payment
They merely enumerate the credits which enjoy preference with respect to specific movables or
immovables
With respect to the same specific movable or immovable, creditors with the exception of the State,
merely concur
REMEMBER that preference is only given to #1 and the rest shall be treated equally

WRONGFUL TAKING OF MOVABLES TO WHICH LIEN ATTACHES

Last paragraph applies only when the right of ownership in such property continues in the debtor,
and therefore, is not applicable to cases where the debtor has parted his ownership therein, as
where he has sold the 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 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;

(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 premium for two years. (1923a)

PREFERRED LIEN ON 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 ontractors, 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 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 premium for two years.

Art. 2243. The claims or credits enumerated in the two preceding articles shall be
considered as mortgages or pledges of real or personal property, or liens within the
purview of legal provisions governing insolvency. Taxes mentioned in No. 1, Article
2241, and No. 1, Article 2242, shall first be satisfied. (n)

NATURE OF CLAIMS OR CREDITS IN ARTICLES 2241 AND 2242

Articles 2241 and 2242 apply only when there is a concurrence of credits when the same specific
property of the debtor is subjected to the claims of several creditors and the value of such property is
insufficient to pay in full all the creditors
In such situation, the question of preference will arise, there will be a need to determine
which of the creditors will be paid ahead of the others

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 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. (1924a)

SPECIAL 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
10. Taxes and assessments due any city or municipality, other than those indicated in Articles 2241, No. 1,
and 2242, No. 1
11. Damages for death or personal injuries caused by a quasi-delict
12. Gifts due to public and private institutions of charity or beneficence
13. Credits which, without special privilege, appear in 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.

ORDER OF PRIORITY ONLY WITH RESPECT TO INSOLVENT’S FREE

PROPERTY
1. Specially preferred credits—credits which are specially preferred because they constitute liens
take precedence over ordinary preferred credits so far as concerns the property to which the liens are
attached
a. Specific property involved of greater value
b. Specific property involved of lesser value—will be treated as ordinary preferred credits and to be
paid
in the order of preference therein provided
2. Ordinary preferred credits—only in respect of the insolvent’s free property, is an order of
priority established. In this sequence, certain taxes and assessments also figure but, as already
pointed out, these don’t have the same kind of overriding preference

Art. 2245. Credits of any other kind or class, or by any other right or title not comprised
in the four preceding articles, shall enjoy no preference. (1925)

NON-PREFERRED OR COMMON CREDITS

Credits other than those mentioned in 2241, 2242, and 2244 shall enjoy no preference and such
common credits shall be paid pro rata regardless of dates

ORDER OF PREFERENCE OF CREDITS

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 the State or any subdivision
thereof. (1926a)

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. (1927a)

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. (1928a)

TWO-TIER ORDER OF PREFERENCE

First tier includes only taxes, duties and fees due on a specific movable or immovable property
All other special preferred credits stand on the second tier to be satisfied pari passu and pro rata, out
of the residual value of the specific property to which such other credits relate
The pro-rata rule however doesn’t apply to credits annotated in the RD in virtue of a
judicial order, by attachments and executions, which are preferred to later credits. In satisfying
several credits annotated by attachments and executions, the rule is still preference according to
the priority of credits in the order of time.

PROCEEDING FOR PAYMENT PRO RATA OF PREFERRED CREDITORS

Proceeding required for adjudication of claims of preferred creditors
Pro rata rule contemplates more than one creditor

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.
(1929a)

SUMMARY AS TO ORDER OF PREFERENCE

1. Preferred lien on specific immovables
2. Preferred lien on specific movables
3. Special preferred credits
4. Distribute pro-rata to creditors without preference

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FRAUDULENT PREFERENCES AND TRANSFERS- Insolvency

COMPOSITION - Insolvency Law
PROOF OF DEBTS - Insolvency Law
Assignees in Insolvency
CLASSIFICATION AND PREFERENCE OF CREDITORS
VOLUNTARY INSOLVENCY, Insolvency Law- ACT NO. 1956
THE INSOLVENCY LAW - TITLE AND GENERAL SUBJECT OF THE ACT
SUSPENSION OF PAYMENTS - Insolvency Law
INSOLVENCY PROCEEDINGS IN REM
REVOCATION AND REDUCTION OF DONATIONS, INOFFICIOUS DONATIONS

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