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Credit Transactions Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
PART EIGHT: CONCURRENCE AND PREFERENCE OF
CREDITS
PRINCIPLES
• Assets of a debtor can be used to satisfy obligations withcreditors.
• However, there are certain properties which are exemptedfrom satisfying liabilities.
• Note, however, that even if these properties are deemedexempted, these assets shall NOT be exempt from execution
issued upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon
Exempted Properties
• Art. 153 - Family Home – generally exempted unless for:
o Non-payment of taxes
o Debts incurred prior to the constitution of family
home
o Debts secured by mortgages on the premise before
or after such constitution; and
o Debts due to laborers, mechanics, architects,
builders, material men and others who have
rendered service or furnished material for theconstruction of the building (155)
• Art. 205 – Right to receive support as well as any money or property obtained as such support shall not be levied upon onattachment or execution
Section 13 – Exempted Properties
• Judgment obligor’s family home or the homesteadin which he resides
•Ordinary tools and implements personally used by
him in his trade, employment or livelihood;
• 3 horses or 3 cows or 3 carabaos or other beasts of burden necessarily used by him in his ordinary occupation;
• His necessary clothing and articles for ordinary personal use, EXCLUDING jewelry;
• Household furnitures and utensils necessary for housekeeping with a value not exceeding P100,000;
• Provisions for individual or family use sufficientfor 4 months
• Professional libraries of judges, lawyers, physicians, pharmacists, dentists, engineers, surveyors,
clergymen, teachers and other professionals not exceedingP300,000 in value;
• 1 fishing boat and accessories not exceeding thetotal value of P100,000 owned by a fisherman and by the
lawful use of which he earns his livelihood;
• Salaries, wages, earnings of the debtor for his
personal services within the 4 months preceeding the levynecessary to support his family;
• Lettered gravestones;
• Moneys, benefits, privileges, or annuities accruing
or growing out of life insurance; (except endowment)
• Right to receive legal support or money or
property obtained as such support or any pension or gratuityfrom the government;
• Properties especially exempted by law;
• Properties belonging to the absolute communityor conjugal partnership except insofar as the debt hasredounded to the benefit of the family (2238);
• Property held by debtor as trustee of an express
or implied trust (2239)
Concurrence vs. Preference
• Concurrence – implies the possession of two or more
creditors of equal rights or privileges over the SAME property or all of the property of the debtor
• Preference – right held by creditor to be preferred in the
payment of his claim above others out of the debtor’sassets
• The provisions on concurrence and preference will only
apply if the liabilities of the debtor are more than hisassets
Do not apply the provisions on concurrence and
preference if assets are sufficient to pay liabilities.
General Categories of Credit
(a) Special Preferred – 2241 & 2242(b) Ordinary Preferred – 2244(c) Common Credits - 2245
(a) SPECIAL PREFERRED
• Envisions a situation where a particular property which iseither movable or immovable is subject to certainobligations
• These special preferred credits or obligations have to besatisfied using the proceeds from the sale of said property
Illustration
A owns a vehicle. The price of the vehicle is not yet paid.The vehicle is also the subject of a chattel mortgage in favor
of the financial institution where A obtained a loan for the
price. A also has unpaid repair expenses.
IDENTIFY THE OBLIGATIONS WITH RESPECT TO
THE CAR: unpaid purchase price, chattel mortgage, unpaidrepair expenses
Special Preferred Credits on Movables 2241
• Duties, taxes and fees due on the movable
• 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
• Claims for the unpaid price of movables sold
• Credits guaranteed with a pledge of the movables
• Credits for repairs, safekeeping, preservation of the
property
• Claims for laborer’s wages on the goods manufactured
or work done
Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009)Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)
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= .25
Credit Transactions Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
• Expenses of salvage
• Credits between the landlord and tenant
• Credits for transportation upon goods carried
• Credits for lodging and supplies usually furnished to
travellers by hotelkeepers on movables belonging to theguests
• Credits for seeds and expenses for cultivation and harvest
• Credits for rent for 1 year upon personal property of thelessee
• Claims in favor of the depositor if depositary has wrongfullysold the thing deposited
Special Preferred Credits on a Car o VALUE OF THE VOLVO: P 2M
o Liabilities:
Taxes P500,000
Repairs P500,000
Pledge P500,000
Mortgage P500,000
Safekeeping P500,000
TOTAL P2,500,000.00 (in excess of the
car’s value)
• Taxes must be paid first before others
o (2M – P500,000) = P1.5M
• Balance: P1.5 M; Liabilities: P 2 M
• Get the ratio of each item to the total liabilities
o Repairs = P500,000
P2 MRepairs = .25 x 1.5 Million = P375,000
Only P375,000 of the P500,000 repair cost shall be paid
Special Preferred Credits on Immovables, 2242
Taxes due upon the land or building
• Unpaid price of immovable
• Claims of laborers, masons and other workmen engaged inconstruction
• Claims of furnishers of materials used in construction
• Mortgage credits recorded in Registry of Property
• Expenses for preservation, improvement
• Credits annotated in the Registry of Property
• Claims of co-heirs for warranty in the partition
• Claims of donors
• Credits of insurers upon property insured
(b) ORDINARY PREFERRED
• Envisions a situation where a particular credit is notsecured by any particular movable or immovable.
• HOWEVER, this credit happens to be one of thoseenumerated as ordinary preferred. Hence, the credit will
enjoy preference over properties which are notencumbered, including the free portion of the debtor's
property.
Ordinary Preferred, 2244: Hierarchical Application
Credits for services rendered the insolvent by employees,laborers, household helpers
• Proper funeral expenses for the debtor, children under his parental authority
• Expenses during last illness of debtor, spouse andchildren under his parental authority
• Compensation due to laborers or dependents under laws providing for indemnity for damages in cases of labor
accident or illness arising from nature of employment
Ordinary Preferred, 2244
• Credits and advancements made to debtor for support of himself and family
• Support during insolvency proceedings and for 3 monthsthereafter
• Fines and civil indemnification arising from criminaloffense
• Legal expenses for administration of insolvent’s estate
• Taxes due the national government
• Taxes due any province
• Taxes due any city or municipality
• Damages for death or personal injuries caused by quasi-delict
• Gifts due to private and public institutions of charity
• Credits without privilege which appear in a public
instrument or by final judgment if they have been thesubject if litigation
(c) COMMON CREDITS 2245
Illustration
A is insolvent. The assets of A available for paymentconsists of his car worth P248,000 and P60,000 in cash.
A’s obligations are: – P8,000 for unpaid taxes on his car
– P160,000 to B for unpaid balance on his car
– P6,000 to C for cost of car repair
Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009)Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)
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– P80,000 to D for loan secured by chattel mortgage
on the car – P48,000 to E for funeral expenses for A’s child – P16,000 to F for medicine’s during last illness of
wife
– P11,200 for unpaid business taxes – P32,000 to G for an unsecured loan in 1991 – P96,000 to H for an unsecured loan in 1991
STEP 1: Identify the special preferred credits, if any.Car has 4 special preferred credits:
Taxes
Unpaid balance
Repair cost
Loan secured by chattel mortgage
Since taxes enjoy preference, pay P8,000 first from the value
of the car (P248,000)
STEP 2: The P248,000 value of the car less than P8,000
taxes leaves P240,000 and there is P256,000 worth more of credits to be paid. The remaining special preferred credits onthe car must be paid on a pro rata basis using this formula:
– (Amount of claim of B) (Remaining value of car)Total preferred credits
o B = (P160,000) (P240,000) = P150,000
P256,000
o C = (P16,000) (P240,000) = P15,000
P256,000
o D = (P80,000) (P240,000) = P75,000
P256,000
NOTE: B, C and D’s credits are not entirely paid, they must join theother common or non-preferred creditors in claiming the balance from
the free portion
SUMMARY
STEP 1: Special Preferred Credits must be paid from the
value of the movable or immovable. Taxes enjoy priority whilethe rest of the credits are paid proportionally.
STEP 2: Ordinary Preferred Credits are then paid in the order of
priority as they are enumerated. The assets used to pay ordinary preferred credits are those which are free from encumbrancesunder 2241 and 2242 and the free portion under 2241 and 2242.
STEP 3: The non-preferred credits are now paid withwhatever free portion remains.
Example: P 2M value of property. Pay first taxes valued at P 200,000.Then, P 1.8M must be used to pay proportionately those in #2 to #3 inArticle 2241.
Cases:
DBP vs. NLRC (183 SCRA 328) - Article 110 of the Labor code
and section 10 Rule VIII, Book III of the revised rules and
regulations implementing the Labor code, interpreted; Declaration of
bankruptcy or a judicial liquidation must be present before the
worker’s preference may be enforced. Thus, article 110 of the Labor
code and its implementing rule cannot be invoked by therespondents in this case absent a formal declaration of bankruptcy or
a liquidation order.
RA 6715 expand worker preference to cover not only unpaid wages
but also other monetary claims to which even claims of the gov’tmust be deemed subordinate.
In the event of insolvency, a principal objective should be to effect
an equitable distribution of the insolvent’s property among his
creditors. To accomplish this there must first be some proceedingwhere notice to all of the insolvent’s creditors may be given and
where the claim of preferred creditors may be bindingly adjudicated.
Rationale of Preference of credit: A pereference of credit bestows upon the preferred creditor an advantage of having his
credit satisfied first ahead of other claims which may be
established against the debtor. Logically, it becomes material
only when the properties and assets of the debtors are
insufficient to pay the debts in full. The preferencial 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 LienApplies only to claims
which do not attach tospecific properties
Creates a charge on a particular
property.
The right of first preference as regards unpaid wages
recognized by article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a
preference of credit in their favor, a preference in application.
CIR vs. NLRC (238 SCRA 42) – it is settled that the claim of
the gov’t predicated on a tax lien is superior to the claim of a
private litigant predicated on a judgment. The tax lien attachesnot only from the service of the warrant of distraint of personal
property but from the time the tax became due and payable.
No merit in the contention of the NLRC that taxes are absolutely preferred claims only with respect to movable or immovable properties on which they due.
Article 110 of the Labor Code does not purport to create a lien in
favor of workers or employees for unpaid wages either upon all
of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all
within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the
extent that such claims for unpaid wages are already covered by Article 2241, number 6 : "claims for laborer's wages, on thegoods manufactured or the work done," or by Article 2242,
number 3: "claims of laborers and other workers engaged in the
construction, reconstruction or repair of buildings, canals and
other works, upon said buildings, canals or other works." To the
extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come
with the ambit of the category of ordinary preferred credits
under Article 2244.
Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer. This is clear from the text of
the law. Art. 110. Worker preference in case of bankruptcy. —
In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards
wages due them for services rendered during the period prior tothe bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full
before other creditors may establish any claims to a share in the
assets of the employer.
Ong vs. CA (253 SCRA 105) - If the Monetary Board shall
determine and confirm within (sixty days) that the bank isinsolvent or cannot resume business with safety to its depositors,
creditors and the general public, it shall, if the public interestrequires, order its liquidation, indicate the manner of its
liquidation and approve a liquidation plan. The Central Bank
shall, by the Solicitor General, file a petition in the Court of First
Instance reciting the proceedings which have been taken and
praying the assistance of the court in the liquidation of suchinstitution. The court shall have jurisdiction in the same
proceedings to adjudicate disputed claims against the bank and
enforce individual liabilities of the stockholders and do all that is
necessary to preserve the assets of such institution and to
implement the liquidation plan approved by the Monetary Board.
The fact that the insolvent bank is forbidden to do business, that
its assets are turned over to the Superintendent of Banks, as a
receiver, for conversion into cash, and that its liquidation is
undertaken with judicial intervention means that, as far as lawfuland practicable, all claims against the insolvent bank should be
filed in the liquidation proceeding.
J.L. BERNARDO CONSTRUCTION vs. CA (324 SCRA 24)
- Art.'s 2241 and 2242 of the Civil Code enumerates certain
credits which enjoy preference with respect to specific personalor real property of the debtor. Specifically, the contractor's lien
claimed by petitioners is granted under the third paragraph of
Article 2242 which provides that the claims of contractors
engaged in the construction, reconstruction or repair of buildings
Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009)Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)
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or other works shall be preferred with respect to the specific buildingor other immovable property constructed.
However, Article 2242 only finds application 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 of the debtor is insufficient to pay in full all the
creditors. In such a situation, the question of preference will arise,
that is, there will be a need to determine which of the creditors will
be paid ahead of the others.
INSOLVENCY LAW (ACT 1956)
Concept
• Insolvency generally denotes the state of a person whoseliabilities are more than his assets.
• Used interchangeably with bankruptcy.
• Insolvency law deals with voluntary and involuntaryinsolvency and suspension of payments.
Suspension of Payments
• Sec. 2 – The debtor who, possessing sufficient property to
cover all his debts, be it an individual person, sociedad or corporation foresees the impossibility of meeting them when theyrespectively fall due, may petition that he be declared in the stateof SUSPENSION OF PAYMENTS by the court or the judgethereof in vacation, of the province or city in which he has resided
for 6 months next preceeding the filing of his petition.
Voluntary Insolvency
• Debtor files petition for voluntary insolvency with theRTC (debt must be >P1,000)
• Court issues an order declaring debtor insolvent
• Order is published
•
Creditors meet to elect the assignee in insolvency• Debtor’s properties are conveyed by the clerk of court to
the assignee
• Debtor’s assets are liquidated and debts are paid
• Composition, or an agreement where creditors agree toreceive less than the amount due them
• Discharge of the debtor on his application
• Objection, if any to the discharge
• Appeal to the Supreme Court in extreme cases
Effects of Order Declaring Insolvency• All the assets of the debtor not exempt from execution are
taken possession by the sheriff or until the appointmentof a receiver or assignee
• Forbids the payment of the debtor of any debts due tohim and the delivery to the debtor or to any person for him of any property belonging to him and the transfer of any property by him
• All civil proceedings pending against the insolvent debtor shall be stayed
Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009)Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)
4 JC
Individual who has sufficient assets to cover his debts but who
foresees impossibility of meeting debts when they fall due shall file
petition for suspension of payments in the city or province where
he has resided 6 months preceeding filing of petition. Petition must
contain proposed AGREEMENT for payment of debts
Court shall make an order calling a meeting of creditors within 2-
8 weeks from date of order with publication of notice in anewspaper of general circulation. Order is accompanied by an
injunction to prevent debtor from disposing his properties except
in ordinary commerce or from making payments outside of
necessary and legitimate expenses of his business or industry while
the suspension proceedings are pending.
Order is published and delivered personally or sent by registered
mail to the creditors named in the schedule
Creditors representing at least 3/5 of the liabilities is required
before there can be a valid meeting.
Creditors will vote on the agreement. At least majority must votein favor Of the agreement. Majority means:
(a) 2/3 of the creditors voting unite upon the same proposition
(b) Claims represented by said majority vote amount to at least 3/5
of total liabilities of the debtor
If the concept of majority approval is not achieved, the agreement
is deemed disapproved and the proceedings are terminated. Parties
can enforce their rights.
If the agreement is approved, a creditor who attended the meeting
may object thereto on any of the ff grounds: (a) defects in the call
for meeting; (b) Fraudulent connivance between 1 or more
creditors and the debtor to vote in favor of the agreement (c)fraudulent conveyance of claims to obtain majority vote
Court shall decide on the protest. If the protest is granted,
proceedings are terminated and parties may proceeds to act on
their rights.
If debtor violates the agreement, all the rights of creditors rights
shall be revested on them.
Insolvent debtor may file a petition to be discharged with theRTC of the city or province where he has been residing at least 6
months preceeding the petition. The petition shall state his
inability to pay all his debts in full, his willingness to surrender
all his property and an application to be adjudged Insolvent.
The petition must be accompanied by a full and true statement
of all his debts And liabilities, list of creditors, sum due, nature
of indebtedness. There must also be an inventory which must
accurately describe real and personal property.
Court shall make an order declaring the petitioner insolvent
and directing the sheriff to take possession of and safekeep all
deeds, vouchers, books of account, papers and all his real and
personal property except those exempt from execution. The
Order shall also forbid payment to debtor of any debts due to
him and delivery to Debtor of property. The Order shall also set
the meeting of creditors which shall also be published.
A receiver shall be elected and all documents and properties
under The custody of the sheriff shall be turned over to him
Assets are liquidated and debts are paid
Debtor may offer terms of composition which may be approved
by creditors representing majority of the amount of claims.
Composition is an agreement made for sufficient considerationbetween an insolvent or embarrassed debtor and his creditors
whereby the latter for the sake of immediate or sooner payment
agree to accept a dividend less than the whole amount of their
claims distributed pro rata, in discharge and satisfaction of the
whole debt.
Application for discharge by the debtor.
Objection by the creditors, if any.
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• Mortgages or pledges, attachments or executions on propertyof the debtor duly recorded and not dissolved are NOTaffected by the order
Involuntary Insolvency
• Initiated by a petition filed by at least 3 creditors whosecredits accrue in the Philippines with an aggregate amount of not less than P1,000.
• The petition must set forth one or more acts of insolvency.
Acts of Insolvency
• Such person is about to depart or has departed from thecountry with intent to defraud his creditors;
• That being absent from the country, he remains absent;
• That he conceals himself to avoid the service of legal process
to delay or defraud creditors;
• He conceals or is removing any of his property to avoid its
being attached or taken on legal process;
• He has suffered his property to remain under attachment or
legal process for 3 days for the purpose of hindering or delaying or defrauding his creditors;
• He has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying or defrauding any creditor or claimant;
• He has willfully suffered judgment to be taken against himfor default for the purpose of hindering or delaying or defrauding his creditors;
• He has suffered or procured his property to be taken or legal process with intent to give a preference to one or more of hiscreditors and thereby hinder, delay or defraud any of his
creditors;
• He has made any assignment, gift, sale, conveyance or
transfer of his estate, property, rights or credits with intent todelay, defraud or hinder his creditors;
• He has, in contemplation of insolvency, made any payment,grant, sale, conveyance or transfer of his estate, property,
rights or credits with intent to delay, defraud or hinder hiscreditors;
• That being a merchant or tradesman he has generallydefaulted in the payment of his current obligations for a
period of 30 days;
• That for a period of 30 days he has failed after demand, to
pay any moneys deposited with him or received by him in afiduciary capacity; and
• An execution having been issued against him on final judgment for money, he was found to be without sufficient property subject to execution to satisfy judgment.
Voluntary Insolvency vs. Involuntary Insolvency
One creditor is sufficient At least 3 creditors must filethe petition
Insolvent debtor files the petition
Three or more creditors whomeet the requirements file the
petition
Debtor must not be guilty of any act of insolvency
Debtor must be guilty of anyact of insolvency
Debt must be > P 1,000 Debt must be P 1,000 or above
Bond is not required Bond is required
An adjudication of insolvencymay be granted ex parte
Adjudication of insolvencygranted only after hearing
Petition is filed with RTC of province or city where debtor had resided for 6 months
Length of residence isimmaterial
Declaration of insolvency ismade upon filing of voluntary
insolvency
Declaration of insolvency ismade after hearing
Classification and Preference of Creditors in case of Insolvency
1. Equitable claims under Section 48 of the Insolvency Law
2. Preferred claims with respect to specific movable andimmovable properties under 2241 and 2242
3. Preferred claims as to unencumbered property of the
debtor under 2244
4. Common or ordinary credits which shall be paid pro rataregardless of dates under 2245.
Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009)Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)
5 JC
Filing of petition by at least three creditors whose credits are in the
country and whose credits have an aggregate amount of at least
P1,000. Creditor must NOT be a creditor by assignment within 30
days preceeding the petition. Petition must set forth any of the acts
of insolvency and accompanied by a bond
Court shall issue an order for debtor to show cause during a
hearing why he should not be adjuged an insolvent debtor andupon good cause, the court may also order forbidding the payment
of any debt and the delivery of property belonging to such debtor
to him or to any other person for his use or benefit or the transfer
of any property by him.
A copy of the petition and the order shall be served on the debtor at
least 5 days before the hearing
During the hearing the debtor may either answer the petition or file
a Demurrer. If the court rules in favor of the debtor,
the petition
shall be dismissed.If the Court rules in favor of petitioners, the Court issues an order
adjudging debtor As insolvent debtor and the debtor is guilty of
acts of insolvency. The court will then order the debtor to submit
not later than 3 days from the order a SCHEDULE and
INVENTORY of creditors and credits.
Sheriff will be ordered to take possession of and safely keep until
the Appointment of an assignee all the deeds, vouchers, papers,
notes, bills and real and personal property of the debtor except
those exempted properties
The Court will schedule time and place of meeting of creditors
which shall be within 2-8 weeks from date of order to choose an
assignee. This Order will be published in a newspaper of general
circulation.
After the assignee is appointed, sheriff turns over to him all
properties of debtor.
Assets are liquidated and debts are paid
Debtor may offer terms of composition which may be approved
by creditors representing majority of the amount of claims.
Composition is an agreement made for sufficient consideration
between an insolvent or embarrassed debtor and his creditors
whereby the latter for the sake of immediate or sooner payment
agree to accept a dividend less than the whole amount of their
claims distributed pro rata, in discharge and satisfaction of the
whole debt.
Application for discharge by the debtor.
Objection by the creditors, if any.
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Equitable Claims under Sec. 48
• Paraphernal property belonging to the wife of insolvent
• Property held by insolvent on deposit, administration, leaseor usufruct
• Merchandise held by debtor on commission
• Negotiable instruments for collection or remittance
• Amounts due the insolvent for sale or merchandise oncommission
• Merchandise bought by the insolvent on credit where
delivery is made or where the right of ownership or possession has been retained by the seller
• Goods or chattels wrongfully taken by the insolvent or theamount or value thereof.
Suspension of Payment vs. Insolvency
Purpose is to suspend or delay payment in debts
Purpose is to discharge debtor from payment of debts
Debtor has sufficient property
to pay his debts
Debtor does not have sufficient
property to pay his debts
Amount of indebtedness is notaffected
Creditors receive less thantheir credits OR may notreceive anything at all in caseof preferred credits
Number of creditors isimmaterial
In voluntary: 1 creditor In involuntary: 3 or morecreditors
BAR 2007
An assignee in a proceeding under the Insolvency Law doesnot have the duty to:
(a) suing to recover the properties of theestate of the insolvent debtor
(b) selling the property of the insolventdebtor
(c) ensuring that a debtor corporationoperates the business effectively and efficiently while
proceedings are pending(a) collecting and discharging debts owed to the insolvent debtor
ANSWER: C
BAR 2007
In order to obtain approval of the proposed settlement of thedebtor in an insolvency proceeding:
(a) the court must initiate the proposal
(b) 2/3 of the number of creditors must agree to the proposal(c) 3/5 of the number of creditors must agree to thesettlement
(d) 1/3 of the total debts must be representative of theapproving creditors(e) letters a and b
ANSWER: B
Note: The 2/3 creditors who agree to the proposal must represent atleast 3/5 of the liabilities of the debtor.
Cases:
REPUBLIC vs. PERALTA (150 SCRA 37) –
STATE INVESTMENT HOUSE INC. vs. CITIBANK (203
SCRA 9) – The law grants to a juridical person as well as to natural
persons the power to petition for the adjudication of bankruptcy of
any natural or judicial, provided it is a resident corporation. - Neither can the Court accept the theory that the omission by the
banks in their petition for involuntary insolvency of an explicit
and categorical statement that they are "residents of the
Philippine Islands," is fatal to their cause. In truth, in light of the
concept of resident foreign corporations just expounded, whenthey alleged in that petition that they are foreign banking
corporations, licensed to do business in the Philippines, and
actually doing business in this Country through branch offices or
agencies, they were in effect stating that they are resident foreign
corporations in the Philippines.
There is, of course, as petitioners argue, no substantive law
explicitly granting foreign banks the power to petition for the
adjudication of a Philippine corporation as a bankrupt. This is
inconsequential, for neither is there any legal provision expresslygiving domestic banks the same power, although their capacity
to petition for insolvency can scarcely be disputed and is not in
truth disputed by petitioners. The law plainly grants to a juridical
person, whether it be a bank or not or it be a foreign or domestic
corporation, as to natural persons as well, such a power to petition for the adjudication of bankruptcy of any person, natural
or juridical, provided that it is a resident corporation and joins at
least two other residents in presenting the petition to the
Bankruptcy Court.
DBP vs. NLRC (242 SCRA 59) – Article 110 of the Labor lawshould be applied in conjunction with the pertinent provisions of
the Civil Code and the Insolvency Law to the extent that piece-
meal distribution of the assets of the debtor is avoided.
Declaration of bankruptcy or a judicial liquidation must be
present before the worker’s preference may be enforced. The
rationale is that to hold Art. 110 to be applicable also to
extrajudicial proceedings would be putting the worker in a better position than the State which could only assert its own prior
preference in case of a judicial proceeding.
The amendment expanded the concept of "worker preference" to
cover not only unpaid wages but also other monetary claims towhich even claims of the Government must be deemed
subordinate.
RUBBERWORLD vs. NLRC (305 SCRA 721) - It is plain
from the foregoing provisions of law that "upon the appointment[by the SEC] of a management committee or a rehabilitation
receiver," all actions for claims against the corporation pending
before any court, tribunal or board shall ipso jure be suspended.
The justification for the automatic stay of all pending actions for
claims "is to enable the management committee or therehabilitation receiver to effectively exercise its/his powers free
from any judicial or extra-judicial interference that might unduly
hinder or prevent the "rescue" of the debtor company. To allow
such other actions to continue would only add to the burden of
the management committee or rehabilitation receiver, whosetime, effort and resources would be wasted in defending claims
against the corporation instead of being directed toward its
restructuring and rehabilitation.
The law is clear: upon the creation of a management committeeor the appointment of a rehabilitation receiver, all claims for
actions "shall be suspended accordingly." No exception in favor
of labor claims is mentioned in the law. Since the law makes no
distinction or exemptions, neither should this Court. Ubi lex non
distinguit nec nos distinguere debemos. Allowing labor cases to proceed clearly defeats the purpose of the automatic stays and
severally encumbers the management committee's and resources.
The said committee would need to defend against these suits, to
the detriment of its primary and urgent duty to work towardsrehabilitating the corporation and making it viable again. The
rule otherwise would open the floodgates to other similarly
situated claimants and forestall if not defeat the rescue efforts.
Besides, even if the NLRC awards the claims of private
respondents, as it did, its ruling could not be enforced as long asthe petitioner is under the management committee.
The preferential right of workers and employees under Article
110 of the Labor code may be invoked only upon the institution
of insolvency or judicial liquidation proceeding. Indeed, it iswell-settled that "a declaration of bankruptcy or a judicial
liquidation must be present before preferences over various
money claims may be enforced." But debtors resort to preference
of credit giving preferred creditors the rights to have their claims
paid ahead of those of other claimants only when their assets areinsufficient to pay their debts fully. The purpose of rehabilitation
proceedings is precisely to enable the company to gain a new
lease on life and thereby allow creditors to be paid their claims
Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009)Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)
6 JC
8/3/2019 Credit Trans Updated Finals
http://slidepdf.com/reader/full/credit-trans-updated-finals 7/7
Credit Transactions Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
from its earnings. In insolvency proceedings, on the other hand, thecompany stops operating, and the claims of creditors are satisfied
from the assets of the insolvent corporation.
“Little drops of water, little grains of sand, make themighty ocean and the pleasant land; so the little
minutes humble though they be, make the mighty agesof eternity.
Mrs. Julia Fletcher Carney
Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009)Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)
7 JC