Concurrence of credits implies possession by two or more creditors of equal rights or privileges over the same property or all

of the property of a debtor; while a preference of the same provides for the right held by a debtor to be preferred in the payment of his claim above other out of the debtors assets. A preference of credit applies only when two or more creditors have separate and distinct claims against the same debtor. A preference is an exception to the general rule. For this reason, the law as to preferences is strictly construed. It does not also create an interest in property but it simply makes a right of one creditor to be paid first the proceeds of the sale of property as against another creditor. The law does not give the creditor who has a preference a right to take the property or sell it as against another creditor. It is not a question who takes or sells; it is one of the application of the proceeds after the saleof payment of the debt. The right of preference is one which can be made only by being asserted and maintained. If the right claimed is not asserted or maintained, it is lost. Where a creditor released his levy, leaving the property in possession of the debtor, thereby indicating that he di dnt intend to press his claim further as to that specific property, after that act, his claim to preference, if one had been asserted by him, could not exist because he had ceased to contest. Articles 2236 to 2251 of the New Civil Code govern the concurrence and preference of credits. Article 110 of the Labor Code, however, provides that: In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages, and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. Furthermore, the Rules and Regulations Implementing the Labor Code, as amended, states that Unpaid wages earned by the employee before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to the assets of the employer. Because of the impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits, which provisions find particular application in insolvency proceedings where the claims may be adjudicated in a binding manner. A preference 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. It applies only to claims which do not attach to specific properties. Unlike lien, a preference of credit does not create in favor of the preferred creditor a change or proprietary interest upon any particular property of the debtor. Neither does it vest as a matter of course upon the mere accrual of a money claim against the debtor. A lien, on the other hand, creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 of the Labor Code 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. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvents assets. The same article likewise did not sweep away the overriding preference accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof which constitute a lien upon properties of the insolvent. Moreover, the right to preference given to workers cannot exist in any effective way prior to the time of its presentation in distribution proceedings. Bearing in mind the overriding precedence given to taxes, duties and fees by the Civil Code and the fact that the Labor Code does not impress any lien on the property of an employer, the use of the phrase: first preference in Article 110 indicates that what the same intended to modify is the order of preference found in Article 2244, which order relates to property of the insolvent that is not burdened with the liens or encumbrances created or recognized by Articles 2241 and 2242. It can be ascertained that claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under the provisions of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6. "claims for laborers' wages, on the goods 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 within the ambit of the category of ordinary preferred credits under Article 2244. Reading Article 110 of the Labor Code, it is quite clear from the provision that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Therefore, to hold that the same is also applicable in extra-judicial proceedings would be putting the

worker in a better position than the State which could only assert its own prior preference in case of judicial proceeding. Such measures are proceedings in rem which are binding against the whole world. The reason behind the necessity for a judicial proceeding or a proceeding in rem before the concurrence and preference of credits may be appealed is to bind all interested persons whether known to the parties or not. It should also be noted that for the purposes of application of Article 110, termination pay is reasonably regarded as forming part of the remuneration or other money benefits accruing to the employees or workers by reason of their having previously rendered services. Development Bank of the Philippines vs. Hon. Secretary of Labor, G.R. No. 79351, November 28, 1989: A preference 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. The same becomes material only when the properties and assets of the debtor are insufficient to pay his debts in full; During bankruptcy, insolvency or liquidation proceedings involving existing properties of the employer, the employees have the advantage of having their unpaid wages satisfied ahead of certain claims which may be proven therein. Preference does not exist in any effective way prior to, and apart from, the institution of these proceedings, for it is only then that the legal provisions on concurrence and preference of credits begin to apply. Unlike lien, a preference of credit does not create in favor of the preferred creditor a change or proprietary interest upon any particular property of the debtor. Neither does it vest as a matter of course upon the mere accrual of a money claim against the debtor. Development Bank of the Philippines vs. National Labor Relations Commission, 183 SCRA 328, G.R. No. 82763-64: Because of the impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits. A preference applies only to claims which do not attach to specific properties. 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. It is a method adopted to determine and specify the order in which credits should be paid In the final distribution of the proceeds of the insolvents assets. For an orderly settlement of a debtors assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the preferences determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor of the payment of his debts and other lawful obligations. The right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the claims of the Government and other creditors may be paid. the adjudication made will be binding on all parties -in-interest, since those proceedings are proceedings in rem; and the legal scheme of classification concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony. Philippine Savings Bank vs. Lantin, G.R. No. L-33929, September 2, 1983, 124 SCRA 476: An orderly determination of preference of creditors claims is assured Insolvency proceedings and settlement of a decedents estate are both proceedings in rem which are binding against the whole world. All persons having interest in the subject matter involved, whether they were notified or not, are equally bound. Consequently, a liquidation in rem so that all interested persons whether known to the parties or not may be bound by such proceeding. De Barretto vs. Villanueva, G.R. No. L-14938, December 29, 1962, 6 SCRA 928: In the event of insolvency, a principal objective should be to effect equitable distribution of the insolvents property among his creditors. To accomplish this there must be some proceed ing

where notice to all of the insolvents creditors may be given and where the claims of preferred creditors may be bindingly adjudicated. Barretto vs. Villanueva, 1 SCRA 288, (1961): Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits, which provisions find particular application in insolvency proceedings where the claims of all creditors, preferred or non-preferred, may be adjudicated in a binding manner. Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel Santos, G.R. No. 7861-62, March 8, 1989: It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Article 110 of the Labor Code and its implementing rule cannot be invoked absent a formal declaration of bankruptcy or a liquidation order. The reason behind the necessity for a judicial proceeding or a proceeding in rem before the concurrence and preference of credits may be appealed is to bind all interested persons whether known to the parties or not. Republic v. Peralta (150 SCRA 37 [1988]): To hold that Article 110 is also applicable in extra-judicial proceedings would be putting the worker in a better position than the State which could only assert its own prior preference in case of judicial proceeding. Article 110 must not be viewed in isolation and must always be reckoned with the provisions of the Civil Code. Article 110 of the Labor Code did not sweep away the overriding preference accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof which constitute a lien upon properties of the insolvent. It cannot be assumed simpliciter that the legislative authority, by using Article 110 of the words first preference and any provisions of law to contrary notwithstanding intended to disrupt the elaborate and symmetrical structure set up in the Civil Code. Bearing in mind the overriding precedence given to taxes, duties and fees by the Civil Code and the fact that the Labor Code does not impress any lien on the property of an employer, the use of the phrase: first preference in Article 110 indicates that what Article 110 intended to modify is the order of preference found in Article 2244, which order relates, as we have seen, to property of the insolvent that is not burdened with the liens or encumbrances created or recognized by Articles 2241 and 2242. Article 110 of the Labor Code has modified Article 2244 of the Civil Code in two respects: (a) firstly, by removing the one year limitation found in Article 2244, number 2; and (b) secondly, by moving up clams for unpaid wages of laborers or workers of the insolvent from second priority to first priority in the order of preference established by Article 2244 Those provisions may be seen classify credits against a particular insolvent into three general categories, namely: (a) special preferred credits listed in Articles 2241 and 2242 o which constitute liens or encumbrances on the specific movable or immovable property to which they relate; o these credits shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency.; o duties, taxes and fees due [on specific movable property of the insolvent] to the State or any subdivision thereof and taxes due upon [insolvents] land or building stand first in preference in respect of the particular movable or immovable property to which the tax liens have attached o Article 2243: Taxes mentioned in number 1, Article 2241 (1), Article 2242 shall be first be satisfied

The claims listed in number 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles 2242 all come after taxes in order of precedence; o Such claims enjoy their privileged character as liens and may be paid only to the extent that taxes have been paid from the proceeds of the specific property involved ad only in respect of the remaining balance of such proceeds (b) ordinary preferred credits listed in Article 2244; and (c) common credits under Article 2245 Articles 2241 and 2242 jointly with Articles 2246 to 2249 establish a two-dier order of preference. o First: includes only taxes, duties and fees due on specific movable or immovable property. o All other special preferred credits stand on the same second tier to be satisfied, pari passu and pro rata, out of any residual value of the specific property to which such other credits relate. If the value of the specific property involved is greater than the sum total of the tax liens and other specially preferred credits, the residual value will form part of the free property of the insolvent. If, on the other hand, the value of the specific movable or immovable is less than the aggregate of the tax the value of the specific property involved is greater than the sum total of the tax liens and other specially preferred credits, the residual value will form part of the "free property" of the insolvent i.e., property not impressed with liens by operation of Articles 2241 and 2242. If, on the other hand, the value of the specific movable or immovable is less than the aggregate of the tax liens and other specially preferred credits, the unsatisfied balance of the tax liens and other such credits are to the treated as ordinary credits under Article 2244 and to be paid in the order of preference there set up. 10 In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which follow such property. What Article 2244 creates are simply rights in favor of certain creditors to have the cash and other assets of the insolvent applied in a certain sequence or order of priority. 11 Only in respect of the insolvent's "free property" is an order of priority established by Article 2244. In this sequence, certain taxes and assessments also figure but these do not have the same kind of overriding preference that Articles 2241 No. 1 and 2242 No. I create for taxes which constituted liens on the taxpayer's property. Under Article 2244, a) taxes and assessments due to the national government, excluding those which result in tax liens under Articles 2241 No. 1 and 2242 No. 1 but including the balance thereof not satisfied out of the movable or immovable property to which such liens attached, are ninth in priority; b) taxes and assessments due any province, excluding those impressed as tax liens under Articles 2241 No. 1 and 2242 No. 1, but including the balance thereof not satisfied out of the movable or immovable property to which such liens attached, are tenth in priority; and c) taxes and assessments due any city or municipality, excluding those impressed as tax liens under Articles 2241 No. I and 2242 No. 2 but including the balance thereof not satisfied out of the movable or immovable property to which such liens attached, are eleventh in priority. 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 laborers' wages, on the goods 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 within the ambit of the category of ordinary preferred credits under Article 2244.

PNB vs. Cruz, et. al. G.R. No. 80593, December 13, 1989

For the purposes of application of Article 110, termination pay is reasonably regarded as forming part of the remuneration or other money benefits accruing to the employees or workers by reason of their having previously rendered services.

Articles 2246 and 2248: Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take precedence over ordinary preferred credits so far as concerns the property to which the liens have attached. The specially preferred credits must be discharged first out of the proceeds of the property to which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds.