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Specially preferred credits Ordinary preferred credits (Art. Common credits (Art. 2245)
Specific movable property (Art. Specific immovable property 2244) LFL-CSS-FENMC-DGC
2241) PLSTC HRD DRV ML (Art. 2242) TAP WILD MUM
1. Credits guaranteed by 1. Taxes to the State; its 1. Unpaid wages and other Everything else!
pledge or chattel mortgage subdivisions monetary claims of the
2. Claims for laborers’ wages 2. Credits annotated in the laborers and workers of the
3. Expenses for salvage Registry of Property by insolvent
4. Credits for transportation virtue of judicial order 2. Funeral expenses
of goods 3. Expenses for the 3. Expenses during the last illness
5. Credits for seeds and preservation/improvemen of the debtor or his/her
expenses for cultivation t of real property spouse/children
6. Credits for lodging and 4. Claims of co-heirs for 4. Compensation due the
supplies for travelers by
hotel keepers on movables
warranty in partition of
immovable
laborers or their dependents in
cases of labor accident or
PHILOMATHEIA TIPS
7. Credits for making, repair, 5. Credits of insurers upon illness resulting from work
preservation of movable property insured 5. Credits and advancements
8. Duties, Taxes, fees to the 6. Claims of laborers, as well made to the debtor for
State; its subdivisions as architects, contractors, support (before insolvency)
9. Claims in favor of depositor engineers engaged in 6. Support during the insolvency
if depository wrongfully construction of said proceedings
sold the thing deposited buildings 7. Fines and Civil indemnification
10. Credits for rent for one 7. Claims of donors of real arising from a criminal offense
year upon personal property 8. Legal expenses and expenses
property of the lessee 8. Mortgage credits recorded incurred in the administration
11. Unpaid price of movables in Registry of Property of the insolvent’s estate
sold so long as in 9. Unpaid price of real 9. Taxes and assessments due
possession of debtor property sold national government which
PAGE 1 | T H E H O N O R S O C I E T Y O F P H I L O M A T H E I A
COURSE: SECURITY TRANSACTIONS
PROFESSOR: ATTY. LERMA
10/2/2010
IMPORTANT RULES
1. Taxes due on specific property first!
2. Second, all other special credits. If there are several
claims, they enjoy no preference.
3. If the value of the movable/immovable is not sufficient to
meet all the claims, satisfy the claims pro rata. (The
unpaid balance/deficiency shall become common credits)
4. Note that pro rata rule does not apply to credits
annotated in the Registry of Property by virtue of judicial
order for specific immovable. The rule is still preference
according to time.
5. Whatever excess there is after special credits satisfied,
add them to the free property.
6. 2241 and 2242 has no order of preference. There is
merely concurrence among them. 2244, however, has an
order. Memorize the order!
A. Sample problem
Manuel died and he left behind the following assets and liabilities
Assets
A yacht called “Vicky” worth P15,000,000
One building in Makati City worth P85,000,000 PHILOMATHEIA TIPS
Cash amounting to P4,000,000 found in bayongs in his residence
A rare book collection on the topic of improving your IQ worth P1,000,000
Debts
• By virtue of an unpaid balance of a business transaction worth P2,500,000 on June 9, 1990, a judicial order of attachment
was prayed for by Ping and issued by the court on 08 February 2002 over the building
• Claim by Bong in the amount of P4,000,000, as mortgagee over the “Vicky” entered into on November 29, 1995
• Income taxes due to the BIR on account of his solo practice law firm (operated on the building) worth P80,000
• On account of an unpaid fine arising from a breach of trust committed while Manuel was a barangay official of City of
Manila, the City claims P3,000,000 on the rare book collection
• Real estate taxes relating to the building due to the City of Makati in the amount of P80,000,000
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COURSE: SECURITY TRANSACTIONS
PROFESSOR: ATTY. LERMA
10/2/2010
• By virtue of an unpaid balance of a business transaction worth P3,500,000 on July 31, 1988, a judicial order of attachment
was prayed for by Joker and issued by the Court on March 10, 1999 over the building
• P12,000,000 in unpaid import duties due to the Bureau of Customs for the importation of “Vicky”
• Inday, his trusted and beloved yaya for the past years is owed P20,000 in wages for the past five years
• P 1,000,000 due to the Asian Hospital for his stay in the hospital during the last days of his life
• P500,000 due to Alfonso due to a loan agreement executed and notarized on September 15, 2002
No excess
Bong P1,000,000/P4,000,000 x P2,400,000 = P600,000 (add this to the P3,000,000 already received)
Ping P1,000,000/P4,000,000 x P2,400,000 = P600,000 (add this to the P1,500,000 already received)
PHILOMATHEIA TIPS
City of Manila P2,000,000/P4,000,000 x P2,400,000 = P 1,200,000 (add this to the P1,000,000 already received)
Final Answers:
• PING – P2,100,000
• BONG – P3,600,000
• BIR – P80,000
• CITY OF MANILA – P2,200,000
• CITY OF MAKATI – P80,000,000
• JOKER – P3,500,000
• CUSTOMS – P12,000,000
• INDAY – P20,000
• ASIAN HOSPITAL – P1,000,000
• ALFONSO – P500,000
PAGE 3 | T H E H O N O R S O C I E T Y O F P H I L O M A T H E I A
COURSE: SECURITY TRANSACTIONS
PROFESSOR: ATTY. LERMA
10/2/2010
B. Sample Problem 2
Raul died October 20, 2006. He was insolvent and he left behind the following assets
Assets
• One airplane worth P10,000,000
• One hacienda in Cagayan worth P160,000,000
• Cash amounting to P30,000,000
• One exotic antique car worth P8,000,000
Debts
• Unpaid balance for architectural services rendered by Architect Dante for the construction of the house on the
hacienda in the amount of P20,000,000. The services were rendered in 1995.
• A real estate mortgage claim by Bank of Cagayan in the amount of P80,000,000 as mortgage over the hacienda. The
mortgage was annotated on the title on December 15, 2000.
• An unpaid loan in the amount of P1,800,000 owed to Yoyong. The loan agreement was executed and notarized on
January 11, 1998.
• Unpaid income taxes due to the Bureau of Internal Revenue in the amount of P29,000,000
• Unpaid medical bills amounting to P5,500,000 to Makati Medical Center for Raulito’s last illness. Raulito is Raul’s son.
He was 40 years old at the time of his death and he was a rich and successful businessman. Raulito was confined in
the Makati Medical Center for two weeks in June 2006 prior to his untimely death
• On account of an unpaid fine arising from a breach of trust committed while Raul was an officer of the PCGG (a
government agency), the PCGG claims P3,000,000 on the antique car
• Unpaid donation to the Hospicio de San Jose orphanage in the amount of P500,000. Raul executed a contract with the
Hospicio de San Jose that he would donate this amount on October 21, 2006
• Carding, his family driver, all around assistant and beloved companion was owed P1,000,000 in wages for the past 12
months
• Jack was owed the unpaid balance of the selling price of the hacienda in the amount of P20,000,000. The hacienda
was purchased on 1998
• Real estate taxes on the hacienda due to the Province of Cagayan in the amount of P100,000,000. Taxes are due for
the years 2002 to 2006
• P20,000,000 in unpaid import duties due to the Bureau of Customs for the importation of the airplane. The plane was
imported on November 28, 1996.
• P2,000,000 claimed by Libingan ng Makati for the funeral of Raul
Unpaid Balance
Arch. Dante – P10,000,000
Bank of Cagayan – P40,000,000
Jack – P10,000,000
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COURSE: SECURITY TRANSACTIONS
PROFESSOR: ATTY. LERMA
10/2/2010
Excess: P5,000,000
Cash: P30,000,000
NO MORE ASSETS!
Final Answers:
• ARCH. DANTE – P10,000,000
• BANK OF CAGAYAN – P40,000,000
• YOYONG – 0
• BIR – P26,500,000
• MAKATI MEDICAL CENTER – P5,500,000
• PCGG – P3,000,000
• HOSPICIO – 0
• CARDING – P1,000,000
• JACK – P10,000,000
• PROVINCE OF CAGAYAN – P100,000,000
• BUREAU OF CUSTOMS – P10,000,000
• LIBINGAN NG MAKATI – P2,000,000
PAGE 5 | T H E H O N O R S O C I E T Y O F P H I L O M A T H E I A
COURSE: SECURITY TRANSACTIONS
PROFESSOR: ATTY. LERMA
10/2/2010
C. Sample Problem
Ricardo borrowed P1 million plus interest from Julian as seed money for an internet cafe business. To secure the obligation,
Ricardo mortgaged his computers, printers, desks and chairs in the café. Ricardo and Julian entered into the proper legal
documentation to evidence their agreement. Ricardo also borrowed money from other third parties for his other businesses (a
printing press and a barber shop). Two years after, due to business losses from his printing press and barbershop, Ricardo was
unable to pay all his creditors on time. His default has lasted for over 30 days already. Julian has engaged you as counsel for the
purpose of collecting his claim P1 million plus interest. Eric and Jojo, who are also creditors of Ricardo for an amount of
P50,000, also decided to engage you for the same purpose of collection. Eric and Jojo are owed the amount by Ricardo because
Eric is the supplier of paper used for printing in the café and Jojo is the supplier of coffee sold regularly in the café. Both paper
and coffee are indispensable to the operations of Ricardo.
a. Which among the following proceedings will you recommend to your clients for them to file?
• Suspension of payments
• Voluntary insolvency
• Involuntary insolvency
• Corporate Rehabilitation PHILOMATHEIA TIPS
Why?
From the procedural viewpoint: Since creditors will be filing the petition, suspension of payments and voluntary insolvency are
not options because these are filed by the insolvent debtor. Corporate rehabilitation or liquidation in any form cannot be
applied as there is no showing of fact that it is a single proprietorship duly registered with the Department of Trade and
Industry. Moreover, the wording of the problem implies a individual debtor or a natural person. Hence, the only real option
available to the clients is INVOLUNTARY INSOLVENCY which is to be filed by any creditor or group of creditors against an
insolvent individual debtor.
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COURSE: SECURITY TRANSACTIONS
PROFESSOR: ATTY. LERMA
10/2/2010
From the substantive viewpoint: Based on the facts of the case, there is no indication that Ricardo is simply not liquid to pay
his liabilities. His default has in fact lasted for over 30 days. He would have filed for a petition to have himself declared to be in a
state of suspension of payment. The logical conclusion in this case is that he no longer has sufficient property to cover all his
liabilities. With that said, the recommended remedy for the clients is to file a petition for involuntary insolvency so as to
impound all of Ricardo’s non-exempt property and distributed it equitably among the creditors in accordance with law
governing concurrence and preference of credits.
b. What facts will you have to establish in order to properly file the case (i.e. jurisdictional requirements)? Where will
you file the case?
The case shall be filed at the court designated by the Supreme Court. At present, no rules issued by Supreme Court but it is
likely that such cases will be filed in the Regional Trial Court designated as Commercial Courts.
1. Please review and focus on pledge, mortgage, chattel mortgage and antichresis as one problem
will be taken from here (specifically focus on mortgages and foreclosures, know the law
governing it).
2. Expect either multiple choice or true or false. For this, review your codals and breeze through
Mickey Ingles’ reviewer. Check sample exams as well.
PHILOMATHEIA TIPS
Tips prepared by
Pierre Martin Reyes, HSP’10
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