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CREDITS (Arts. 2236 – 2251)  Lettered gravestones

 Life insurance benefits
D. Homesteads
Art. 2236. The debtor is liable with all his
property, present and future, for the fulfillment of As to future property – A debtor who obtains a
his obligations, subject to the exemptions provided discharge from his debts on account of his insolvency
by law. is not liable for the unsatisfied claims of his creditors
with said property, subject to certain exceptions
GENERAL RULE: Debtor is liable with all his expressly provided by law.
property, present and future.
EXCEPTION: Properties exempt from execution: Property in custodia legis and of public dominion
As to present property
A. Family home (Arts. 152-155 FC) Art. 2238. So long as the conjugal partnership or
a. Exception to the exception: Art . absolute community subsists, its property shall not
155of the Family Code (FC) provides be among the assets to be taken possession of by
that the family home is not exempt the assignee for the payment of the insolvent
from execution, forced sale, or debtor’s obligations, except insofar as the latter
attachment, in the following have redounded to the benefit of the family. If it is
instances: the husband who is insolvent, the administration of
i. Non-payment of taxes the conjugal partnership of absolute community
ii. For debts incurred prior to the may, by order of the court, be transferred to the
constitution of the family wife or to a third person other than the assignee.
iii. For debts secured by On conjugal partnership or absolute community
mortgages on the premises of property
before or after such If one of the spouses is insolvent, the assets of the
constitution; and CPG or ACP do not pass to the assignee in
iv. For debts due to laborers, insolvency elected by the creditors or appointed by
mechanics, architects, the court.
builders, materialmen and
others who have rendered Art. 2239. If there is property, other than that
service or furnished materials mentioned in the preceding article, owned by two
for the construction of the or more persons, one of whom is the insolvent
building. debtor, his undivided share or interest therein shall
B. Money or property obtained as support (Art. be among the assets to be taken possession of by
205 FC) the assignee for the payment of the insolvent
C. Those provided in Sec. 13, Rule 39 ROC debtor's obligations.
 Family home
 Three horses / cows / carabaos On co-ownership
 Provisions for individual / family use (4 If there is co-ownership and one of the co-owners is
months) an insolvent debtor, his undivided share or interest in
 Professional libraries less than P300k the property shall be possessed by the assignee in
 Household furniture and utensils less insolvency proceedings because it is part of his
than P100k assets.
 Ordinary tools
 Necessary clothing Art. 2240. Property held by the insolvent debtor as
 Earnings (4 months before levy) a trustee of an express or implied trust, shall be
 Support excluded from the insolvency proceedings.
 Fishing boat less than 100k
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On property held in trust (5) Credits for the making, repair, safekeeping or
Property held in trust by the insolvent debtor should preservation of personal property, on the
be excluded from insolvency proceedings. movable thus made, repaired, kept or
CONCURRENCE OF CREDITS (6) Claims for laborers' wages, on the goods
This implies the existence of equal rights or manufactured or the work done;
privileges of two or more creditors with respect to the (7) For expenses of salvage, upon the goods
same property of the debtor salvaged;
(8) Credits between the landlord and the tenant,
PREFERENCE OF CREDITS arising from the contract of tenancy on shares,
This is the right held by a creditor to be preferred in on the share of each in the fruits or harvest;
the payment of his claim above others out of the (9) Credits for transportation, upon the goods
debtor’s assets. It is the right to be first paid. carried, for the price of the contract and
incidental expenses, until their delivery and
Three categories of credit for thirty days thereafter;
1. Special preferred credits (Arts. 2241, 2242) (10) Credits for lodging and supplies usually
2. Ordinary preferred credits (Art. 2244) furnished to travellers by hotel keepers, on the
3. Common Credits (Art. 2245) movables belonging to the guest as long as
such movables are in the hotel, but not for
CLASSIFICATIONS OF CREDITS money loaned to the guests;
(11) Credits for seeds and expenses for cultivation
A. SPECIAL PREFERRED CREDITS and harvest advanced to the debtor, upon the
fruits harvested;
Art. 2241. With reference to specific movable (12) Credits for rent for one year, upon the
property of the debtor, the following claims or personal property of the lessee existing on the
liens shall be preferred: immovable leased and on the fruits of the
(1) Duties, taxes and fees due thereon to the State same, but not on money or instruments of
or any subdivision thereof; credit;
(2) Claims arising from misappropriation, breach (13) Claims in favor of the depositor if the
of trust, or malfeasance by public officials depositary has wrongfully sold the thing
committed in the performance of their duties, deposited, upon the price of the sale.
on the movables, money or securities In the foregoing cases, if the movables to which
obtained by them; the lien or preference attaches have been
(3) Claims for the unpaid price of movables sold, wrongfully taken, the creditor may demand them
on said movables, so long as they are in the from any possessor, within thirty days from the
possession of the debtor, up to the value of the unlawful seizure.
same; and if the movable has been resold by
the debtor and the price is still unpaid, the lien Art. 2242. With reference to specific immovable
may be enforced on the price; this right is not property and real rights of the debtor, the following
lost by the immobilization of the thing by claims, mortgages and liens shall be preferred, and
destination, provided it has not lost its form, shall constitute an encumbrance on the immovable
substance and identity; neither is the right lost or real right:
by the sale of the thing together with other (1) Taxes due upon the land or building;
property for a lump sum, when the price (2) For the unpaid price of real property sold,
thereof can be determined proportionally; upon the immovable sold;
(4) Credits guaranteed with a pledge so long as (3) Claims of laborers, masons, mechanics and
the things pledged are in the hands of the other workmen, as well as of architects,
creditor, or those guaranteed by a chattel engineers and contractors, engaged in the
mortgage, upon the things pledged or construction, reconstruction or repair of
mortgaged, up to the value thereof;

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buildings, canals or other works, upon said Art. 2244. With reference to other property, real
buildings, canals or other works; and personal, of the debtor, the following claims
(4) Claims of furnishers of materials used in the or credits shall be preferred in the order named:
construction, reconstruction, or repair of (1) Proper funeral expenses for the debtor, or
buildings, canals or other works, upon said children under his or her parental authority
buildings, canals or other works; who have no property of their own, when
(5) Mortgage credits recorded in the Registry of approved by the court;
Property, upon the real estate mortgaged; (2) Credits for services rendered the insolvent by
(6) Expenses for the preservation or employees, laborers, or household helpers for
improvement of real property when the law one year preceding the commencement of the
authorizes reimbursement, upon the proceedings in insolvency;
immovable preserved or improved; (3) Expenses during the last illness of the debtor
(7) Credits annotated in the Registry of Property, or of his or her spouse and children under his
in virtue of a judicial order, by attachments or or her parental authority, if they have no
executions, upon the property affected, and property of their own;
only as to later credits; (4) Compensation due the laborers or their
(8) Claims of co-heirs for warranty in the dependents under laws providing for
partition of an immovable among them, upon indemnity for damages in cases of labor
the real property thus divided; accident, or illness resulting from the nature
(9) Claims of donors or real property for of the employment;
pecuniary charges or other conditions (5) Credits and advancements made to the debtor
imposed upon the donee, upon the immovable for support of himself or herself, and family,
donated; during the last year preceding the insolvency;
(10) Credits of insurers, upon the property insured, (6) Support during the insolvency proceedings,
for the insurance premium for two years. and for three months thereafter;
(7) Fines and civil indemnification arising from a
Art. 2243. The claims or credits enumerated in the criminal offense;
two preceding articles shall be considered as (8) Legal expenses, and expenses incurred in the
mortgages or pledges of real or personal property, administration of the insolvent's estate for the
or liens within the purview of legal provisions common interest of the creditors, when
governing insolvency. Taxes mentioned in No. 1, properly authorized and approved by the
Article 2241, and No. 1, Article 2242, shall first be court;
satisfied. (9) Taxes and assessments due the national
government, other than those mentioned in
Two-Tier Order of Preference Articles 2241, No. 1, and 2242, No. 1;
(10) Taxes and assessments due any province,
 FIRST TIER: Taxes over specific movables
other than those referred to in Articles 2241,
and immovable enjoy an absolute preference
No. 1, and 2242, No. 1;
over the other items listed
(11) Taxes and assessments due any city or
 SECOND TIER: All other special preferred
municipality, other than those indicated in
credits stand on the same second tier to be
Articles 2241, No. 1, and 2242, No. 1;
satisfied pro rata
(12) Damages for death or personal injuries caused
Note: Sec. 136 FRIA created a special preference of
by a quasi-delict;
credit, or another tier in the order of preference in
(13) Gifts due to public and private institutions of
favor of trade-related claims of clients or customers
charity or beneficence;
of securities market participants.
(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

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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 Art. 2248. Those credits which enjoy preference
liquidation of an employer’s business, his workers in relation to specific real property or real rights,
shall enjoy first preference as regards their wages exclude all others to the extent of the value of the
and other monetary claims, and provisions of law to immovable or real right to which the preference
the contrary notwithstanding. refers.

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


Art. 2246. Those credits which enjoy preference

with respect to specific movables, exclude all
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