CONCURRENCE AND PREFERENCE OF
CREDITS (Arts. 2236 – 2251)
Art. 2236. The debtor is liable with all his
property, present and future, for the fulfillment of
his obligations, subject to the exemptions provided
by law.
GENERAL RULE: Debtor is liable with all his
property, present and future.
EXCEPTION: Properties exempt from execution:
As to present property
A. Family home (Arts. 152-155 FC)
a. Exception to the exception: Art .
155of the Family Code (FC) provides
that the family home is not exempt
from execution, forced sale, or
attachment, in the following
instances:
i. Non-payment of taxes
ii. For debts incurred prior to the
constitution of the family
home;
iii. For debts secured by
mortgages on the premises
before or after such
constitution; and
iv. For debts due to laborers,
mechanics, architects,
builders, materialmen and
others who have rendered
service or furnished materials
for the construction of the
building.
B. Money or property obtained as support (Art.
205 FC)
C. Those provided in Sec. 13, Rule 39 ROC
 Family home
 Three horses / cows / carabaos
 Provisions for individual / family use (4
months)
 Professional libraries less than P300k
 Household furniture and utensils less
than P100k
 Ordinary tools
 Necessary clothing
 Earnings (4 months before levy)
 Support
 Fishing boat less than 100k
 Exempted by law
 Lettered gravestones
 Life insurance benefits
D. Homesteads
As to future property – 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.
Property in custodia legis and of public dominion
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.
On conjugal partnership or absolute community
of property
If one of the spouses is insolvent, the assets of the
CPG or ACP do not pass to the assignee in
insolvency elected by the creditors or appointed by
the court.
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.
On co-ownership
If there is co-ownership and one of the co-owners is
an 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.
Art. 2240. Property held by the insolvent debtor as
a trustee of an express or implied trust, shall be
excluded from the insolvency proceedings.
Libardo, Mabutin, Mateo, Mostrales, Oliveros, Sy
On property held in trust
Property held in trust by the insolvent debtor should
be excluded from insolvency proceedings.
CONCURRENCE OF CREDITS
This implies the existence of equal rights or
privileges of two or more creditors with respect to the
same property of the debtor
PREFERENCE OF CREDITS
This is the right held by a creditor to be preferred in
the payment of his claim above others out of the
debtor’s assets. It is the right to be first paid.
Three categories of credit
1. Special preferred credits (Arts. 2241, 2242)
2. Ordinary preferred credits (Art. 2244)
3. Common Credits (Art. 2245)
CLASSIFICATIONS OF CREDITS
A. SPECIAL PREFERRED 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 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.
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
Libardo, Mabutin, Mateo, Mostrales, Oliveros, Sy
 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.
Two-Tier Order of Preference
 FIRST TIER: Taxes over specific movables
and immovable enjoy an absolute preference
over the other items listed
 SECOND TIER: All other special preferred
credits stand on the same second tier to be
satisfied pro rata
Note: Sec. 136 FRIA created a special preference of
credit, or another tier in the order of preference in
favor of trade-related claims of clients or customers
of securities market participants.
B. ORDINARY PREFERRED CREDITS
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
Libardo, Mabutin, Mateo, Mostrales, Oliveros, Sy
 priority of the dates of the instruments and of others to the extent of the value of the personal
the judgments, respectively. property to which the preference refers.

Art. 110 Labor Code. In the event of bankruptcy or
liquidation of an employer’s business, his workers
shall enjoy first preference as regards their wages
and other monetary claims, and provisions of law to
the contrary notwithstanding.
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.

Such unpaid wages and monetary claims shall be
paid in full before claims of the government and
other creditors may be paid.
The order of preference does not refer to specific real
or personal property. It refers to other property / free
assets.
 Those free from mortgages, pledges, and liens
Note: Art. 110 LC did not modify Arts. 2241 and
2242 to the effect that it upgraded workers’ claim as
absolutely preferred credit. It only moved up the
claims for unpaid wages (and other monetary claims)
of laborers or workers of insolvent to first priority in
the enumeration of Art. 2244. It. It also removed the
1 year limitation in Art. 2244.
C. COMMON CREDITS
 Special preferred credits take precedence
over ordinary preferred credits only insofar as
the property to which the liens attach is
concerned; hence, special preferred credits
must be discharged first out of the proceeds
of the property to which they relate before
ordinary preferred credits are paid.
 If the value of the specific property involved
is greater than the total of the special
preferred credits, the residual value will form
part of the free property of the insolvent.
 If the value of the specific property is less
than the total of the special preferred credits,
the unsatisfied balance of the credits are to be
treated in Art. 2251 (which provides that the
order in Art. 2244, on ordinary credits, will
be followed).

Art. 2245. Credits of any other kind or class, or by

any other right or title not comprised in the four
preceding articles, shall enjoy no preference.

Art. 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.

Common credits are any other claims or credits other

than those mentioned in Arts. 2241, 2242, 2244
NCC. There is no order of preference among
common creditors. They share whatever is left in
proportion to their credit.

ORDER OF PREFERENCE OF CREDITS

Art. 2246. Those credits which enjoy preference

with respect to specific movables, exclude all
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