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 to the State or
any subdivision thereof. The credits over specific personal or movable properties are those
enumerated in Article 2241 of the Civil Code.

 Sample Problem: Sonia has one car, the taxes on which have not yet been paid. Once,
the car fell into the sea, was salvaged, was repaired, and has now been pledged with a
creditor. If Sonia is insolvent and has not paid for any of the acts done on her car, how
will the following be paid: the State, the person who salvaged it, the repairer, and the
pledgee?
o Answer:
a) All said 4 creditors have preference over the car to the exclusion of all
other creditors.
b) The State will first be paid for taxes on the car.
c) The salvager, the repairman, and the pledgee will all be paid pro rata
from the remaining value of the car.

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 rights. The credits, which refer to real rights or immovable
properties, are enumerated in Article 2242 of the Civil Code.

 When is prorating under the law applicable?

 In order to make prorating fully effective, the preferred creditors enumerated in
Nos. 2 to 14 of Article 2242 (or such of them as have credits outstanding) must
necessarily be convened and the, and the import of their claims ascertained. It is
thus apparent that the full application of Art. 2249 and 2242 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 decedent’s
estate under Rule 87 of the Rules of Court, or other liquidation proceedings of
similar import.
 Note: With the sole exception of the State, the creditors with respect to the same
property merely concur; there is no preference.
ART. 2250 The excess, if any after the payment of the credits which 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.

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.
Unlike in Arts 2241 and 2242 which refers to movable and immovable properties, respectively;
the order of preference in this provision refers to other properties.

 Sample Problem: A, an insolvent owes P500,000.00 in favor of a funeral parlor, P1

million for the hospital expenses during the cancer illness of his wife, and P100,000 in
favor of a pedestrian whom he had hurt while driving his car carelessly and for which he
was criminally and civilly liable. Unfortunately, he has only P600,000.00 and an
automobile, the purchase price of which he has not yet paid. Give the order of
preference of the various creditors involved.
 Answer:
a) With respect to the automobile (specific personal property) the unpaid seller shall be
preferred.
b) With respect to the P600,000.00, Art. 2244 should be applied. The funeral parlor comes
first, then the hospital, then the pedestrian. Here there is no pro rata sharing; there is a
preference. Therefore, the funeral parlor will be given P500,000.00; the hospital only
P100,000.00. The hospital cannot recover the deficiency of P900,000.00; and the
pedestrian cannot recover his P100,000.00.
 As regards the other kinds of credits, the rule is: there is no preference.