Concurrence and Preference of Credit1

8/6/2019 Concurrence and Preference of Credit1

1/3

TAU MU SCROLL NO. 528 Page 1

CONCURRENCE AND PREFERENCE OF CREDITS

( ARTS 2236-2251)

CONCURRENCE OF CREDITS

Possession by two or more creditors of equal rights

or privileges over the same property or all of theproperty of the debtor.

PREFERENCE OF CREDITS

Right held by a creditor to be preferred in the payment of his claim above others out of thedebtor s assets, it the right to be paid first.

Nature and Effect of Preference

GR: DEBTORS ARE OBLIGED TO PAY THEIRCREDITORS WHEN THE DEBT BECOMES DUE ANDDEMANDABLE.

1. Exception to the GR: There should be no rulesas to who should be paid first. Preferenceapplies ONLY when there are 2 0r morecreditors with separate claims against a debtorwho has insufficient property to answer for allhis obligations. Since it is an exception to theGR, the law as to preferences is strictly construed .

2. Does not create an interest in property:

Preference simply creates a right to be paid firstfrom the proceeds of the sale of property of thedebtor. It does NOT create a LIEN on theproperty itself, but merely preference in theapplication of the proceeds of the property it issold.

3. The creditor does not have the right to takethe property and sell it as against anothercreditor: Preference applies after a sale, and itis a question of application of the proceedsafter it is sold.

4. It must be asserted: If the right is not claimedis not asserted and maintained, it is lost. If property has not been seized, it is open toseizure by another.

5. It must be maintained: Where a creditorreleased his levy, leaving the property inpossession of the debtor, thereby indicatingthat he did not intend to press his claim furtheras to the specific property, he is deemed tohave abandoned his claim of preference.

THE RULES ONPREFERENCE ARE APPLICABLEONLY WHEN: 2SSI

1.) There are 2 0r more creditors 2.) With separate and distinct claims 3.) Against the same debtor 4.) Who has insufficient property

Note: The must be a proceeding such as an INSOLVENCYPROCEEDING wherein the creditors can file their claims. Theright becomes significant only after the properties of thedebtor have been inventoried and liquidated, and the claims

of the various creditors have been established. Prior to theproceedings, the debtor has no way of ascertaining who thecreditors are, and has no way of ascertaining who thecreditors are, and has no liquidated property out of which hecan pay them.

Preference of Credit and Lien Distinguished

PREFERENCE OF CREDIT LIEN

Applies only to claims whichdo not attach to specificproperties

Creates a charge on aparticular property

Liabilities of Debtor s Property for His Obligations

GR: The debtor is liable with all property, present andfuture, for the fulfillment of his obligations (Art 2236).

Exempt property:

a. present property

1.) family home (Arts 152, 153 and 155,NCC)2.) right to receive support as well as money or

property obtained by such support shall not belevied upon on attachment or execution (Art205,NCC)

3.) Sec 13, Rule 39, Rules of Court4.) Sec 118, the public Land Act,( CA No.

141, as amended)b . future property

a debtor who obtains a discharge from his debtson account of insolvency, is not liable for the

unsatisfied claims of his creditors with saidproperty (Secs.68 and 69, Insolvency Law, ActNo.1956) ???

c. property in custodia legis and of pu b lic dominion

Note: Art. 2238 If one of the spouses is insolvent, the

assets of the conjugal partnership of gains(CPG) or

absolute community (AC) do not pass to the assignee in

insolvency elected by the creditors or appointed by the

court. Reason: the CPG/AC is distinct from individual

spouses - Exemption of conjugal property or absolute

community or property provided that:

a) the CPG or AC subsists;b) Obligations of the insolvent spouse have not

redounded to the benefit of the family

if there is co-ownership, and one of the co-owners is the insolvent debtor, his undividedshare or interest in the property shall bepossessed by the assignee in insolvencyproceedings because it is part of his assets (Art. 2039)

property held by the insolvent debtor as atrustee of an express or implied trust, shall beexcluded from the insolvency proceedings (Art 2240)


2/3


G ENERAL CATE G ORIES OF CREDIT

I. SPECIALPREFERRED CREDITS THOSE LISTED INArts. 2241 and 2241 shall be considered asmortgages and pledges of real or personalproperty or liens (Art. 2243). Hence, they are notincluded in the insolvent debtor s assets .

Note: Arts. 2241 and 2241 do not give order of preference or priority in payment. They merelyenumerate the CREDITS which enjoy preference withrespect to specific movables or immovables. Withrespect to the same specific movables orimmovables, creditors, with the exception of theSTATE (No. 1), merely concur.

Take note of the following under Art . 22 41:

1. Taxes the tax must be due on the movable

2. M isappropriation, breach of trust, malfeasance of public officers:a ) The acquisition must have been in the

performance of official functions and b ) The property must still been in the hands of the

public official. If it is sold to a purchaser forvalue and in good faith, there can be no moreclaim on the said movable.

3. Guaranteed w/ a pledge or chattel mortgage tobe a preferred credit:a) Pledge - must be embodied in a PUBLIC

INSTRUMENT.b) Chattel M ortgage must be REGISTERED with

the Chattel Mortgage Registry. Under the last par. of 2241 if the movable is

wrongfully taken, the preferred creditor mayget it back within 30 days through an accionsubrogatoria, exercising the right of the debtorto recover property wrongfully taken from himgranted under Art. 559. The last par of Art. 2241is not applicable to cases where the debtor hasparted with his ownership of the property inquestion, as where he has sold the property

(Pea v. Mitchell, G.R. No. L-3764, Jan 15,1908)

Take note of the following under Art . 22 42

1. Taxes 2. Unpaid Seller 3. M ortgage 4.


3/3


RA 1014 2 or FRIA LAW

The Fria replaces and repeals the InsolvencyLaw (Act. No. 1956), which was enacted in1909and was almost universally acknowledged asoutdated and obsolete.

Impliedly amends the Interim Rules onCorporate Rehabilitation first issued by the SCin 2000 (and amended in 2008), given severalinconsistencies between those rules and thenew Fria.

DEBTOR considered INSOLVENT Generally unable to pay its or his liabilities as

they fall due in the ordinary course of businessor has liabilibities greater than its or hisassets .

M ODES OF REHABILITATING INSOLVENT CORPORATEDEBTOR

1.) COURT-SUPERVISED REHABILITATIONPROCEEDINGS

2.) PRE-NEGOTIATED REHABILITAITON3.) OUT-OF COURT OR INFORM AL RESTRUCTURING

AGREEM ENTS OR REHABILITATIONPLANS

Concurrence and Preference of Credit1

Documents

Transcript of Concurrence and Preference of Credit1