CREDIT TRANSACTIONS

A REPORT ON TITLE XIV OF THE NCC: CONCURRENCE & PREFERENCE OF CREDITS Articles 2236-2251
FAIZ B. BERUA | CAIRALYN D. GANDAMRA | SITTIE ALIYYAH A. LOMONDOT | FARHANNA B. MAPANDI
3/11/2012

AY 2011 2012 | SEM 2 | PROFESSOR: ATTY. JERLIE LUIS REQUERME

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TITLE XIV: CONCURRENCE & PREFERENCE OF CREDITS (Articles 2236-2251)

CONCURRENCE OF CREDITS, definition. It implies possession by two or more creditors of equal right or privileges over the same property or all of the property of a debtor. PREFERENCE OF CREDIT, definition. It is the right held by a creditor to be preferred in the payment of his claim above other out of the debtors assets. CHAPTER 1 : GENERAL PROVISIONS ART. 2236 The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided by law. What can the creditor do if the debtor has no money? 1. Attach property not exempt from attachment; Properties exempt from attachment: a) The family home, except in certain cases; b) The right to support, annuities, pensions (in certain instances); c) Properties in custodia legis; d) Properties of a municipal corporation used for governmental purposes; e) In certain cases, homesteads acquired under the Public Land Act; and f) Those mentioned in Rule 39, Sec. 13, Rules of Court. 2. Exercise accion subrogatoria; Accion subrogatoria (defn). The right to exercise all rights and actions except those inherent in the person. 3. Exercise accion pauliana; Accion pauliana (defn). Impugn or rescind acts or contracts done by the debtor to defraud the creditors. 4. Ask for dation in solutum, cession, file insolvency proceedings; and Datio in solutum (defn). Roman word which implies giving in payment or in clearer terms, it refers to an act of discharging a debt by giving something instead of paying in money. In this method any movable or immovable property can be given to the creditor instead of money to satisfy the creditors claim.

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5.

Cession (defn). Refers to the assignment of property to another entity. Reg. Insolvency Proccedings : Insolvency proceedings can only be resorted to if all the requisite conditions are present. Wait til the debtor has money or property in the future. Requisite: The obligations must already be due.

ART. 2237 Insolvency shall be governed by special laws insofar as they are not inconsistent with this Code. The Civil Code prevails over special laws. ART. 2238 So long as the conjugal partnership or absolute community subsists, its property shall not be among the assets to be taken possession of by the assignee for the payment of the insolvent debtors obligations, except insofar as the latter have redounded to the benefit of the family. If it is the husband who is insolvent, the administration of the conjugal partnership or absolute community may, by order of the court, be transferred to the wife or to a third person other than the assignee. Exemption of properties of the Conjugal Partnership or of the Absolute Community applies provided that: The conjugal partnership or the absolute community subsists; and The obligation did not redound to the benefit of the family. ART. 2239 If there is property, other than that mentioned in the preceding article, owned by two or more persons, one of whom is the insolvent debtor, his undivided share or interest therein shall be among the assets to be taken possession of by the assignee for the payment of the insolvent debtors obligations. Rule in case of co-ownership: The undivided share or interest shall be possessed by the assignee. ART. 2240 Property held by the insolvent debtor as a trustee of an express or implied trust, shall be excluded from the insolvency proceedings. Reason for the article: The trustee is not the owner of the property held. Thus, it should not respond for the insolvent trustees obligation.

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CHAPTER 2 : CLASSIFICATION OF CREDITS ART. 2241 With reference to specific movable property of the debtor, the following claims or liens shall be preferred: 1. Duties, taxes and fees due thereon to the State or any subdivision thereof; 2. 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; 3. Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; 4. Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; 5. Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made, repaired, kept or possessed; 6. Claims for laborers wages, on the goods manufactured or the work done; 7. For expenses of salvage, upon the goods salvaged; 8. Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on the share of each in the fruits or harvest; 9. Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses until the delivery and for thirty days thereafter; 10. Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the movables belonging to the guest as long as such movables are in the hotel, but not for money loaned to the guests; 11. Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested;

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12. Credits for rent for one year, upon the personal property of the lessee existing on the immovable leased and on the fruits of the same, but not on money or instruments of credit; 13. Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon the price of the sale. In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessor, within thirty days from the unlawful seizure. The order in this article is not important. What is important is a) 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 preference refers. (Art. 2246) b) If there are two or more credits with respect to the same movable property, they shall be satisfied pro rata, after the payment of duties, taxes, and fees due the State or any subdivision thereof (Art. 2246) c) Duties, taxes, and fees due the Government enjoy priority only when they are with reference to a specific movable property under Art. 2241 (1) or immovable property under Art. 2242 (1) of the same code. Lien (defn). A charge upon property subject to lien. In a broad sense, it means the liability of property for a certain legal duty, or a right to resort to certain property to enforce duty. Preference vs Lien. Preference applies only to claims which do not attach to specific properties. While a lien creates a charge on a particular property. ART. 2242 With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute as encumbrance on the immovable or real right: 1. Taxes due upon the land or building; 2. For the unpaid price of real property sold, upon the immovable sold; 3. Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works; 4. Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works; 5. Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;

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6.

Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or improved; 7. Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits; 8. Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided; 9. Claims of donors of real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated; 10. Credits of insurers, upon the property insured, for the insurance premium for two years. Like Art 2241, the order in this article is not important. It must be stressed that with the sole exception of the State, the creditors with respect to the same specific immovable merely concur, there is no preference. Concurrence vs Preference o A concurrence of credit implies the possession by 2 or more creditors of equal rights or privileges over the same property or all of the property of the debtor. A preference of credit is the right held by a creditor to be preferred in the payment of his claim above others out of the debtors assets. o A concurrence or preference of credit does not create a lien. It merely creates a right of 1 creditor to be paid first as against other creditors. o A preference applies only to claims that do not attach to specific properties, while a lien creates a charge on a particular property. o Concurrence of credits raises no question of consequence where value of property or asset not sufficient. When property not sufficient, preference arises. o Where there is concurrence; credits stand equally, without priority among themselves, and satisfied pro rata. ART. 2243 The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. Taxes mentioned in No. 1, Art. 2241, and No. 1, Art. 2242 shall first be satisfied. This article speaks of the nature of claims or credits --- they are considered as pledges or mortgages.

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ART. 2244 With reference to other property, real and personal of the debtor, the following claims or credits shall be preferred in the order named: 1. Proper funeral expenses for the debtor, or children under his or her parental authority who have no property of their own, when approved by the court; 2. Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the commencement of the proceedings in insolvency; 3. Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority, if they have no property of their own; 4. Compensation due the laborers or their dependents under laws providing for indemnity for damages in cases of labor accident, or illness resulting from the nature of the employment; 5. Credits and advancements made to the debtor for support of himself or herself, and family, during the last year preceding the insolvency; 6. Support during the insolvency proceedings, and for three months thereafter; 7. Fines and civil indemnification arising from a criminal offense; 8. Legal expenses, and expenses incurred in the administration of the insolvents estate for the common interest of the creditors, when properly authorized and approved by the court; 9. Taxes and assessments due the national government, other than those mentioned in Articles 2241, No.1 and 2242, No. 1; 10. Taxes and assessment due any province, other than those mentioned in Articles 2241, No.1 and 2242, No.1; 11. Taxes and assessment due any city or municipality, other than those mentioned in Articles 2241, No.1 and 2242, No.1; 12. Damages for death or personal injuries caused by a quasi-delict; 13. Gifts due to public and private institutions of charity or beneficence; 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 priority of the dates of the instruments and of the judgments, respectively. The order of preference here in Art. 2244 is very important. The order of preference here does not refer to specific real or personal property. It refers to other property.

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Taxes are placed only as pars 9, 10, 11. This rule applies to property other than specific. If the property is specific, taxes are given first preference. Regarding par. 14, it would seem here that an ordinary credit evidenced by a public instrument and a final judgment are placed on an equal plane; hence, if both are of the same date, there will be a pro rata sharing. 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. CHAPTER 3 : 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

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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 decedents 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.

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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. SOME DECIDED CASES GR No. L-146568 | March 20, 2003 ATLANTIC ERECTORS, INC. vs. HERBAL COVE REALTY CORPORATION Facts: On June 20, 1996, respondent and petitioner entered into a Construction Contract whereby the former agreed to construct 4 units of townhouses and 1 single detached unit for an original contract price of P15,726,745.19 which later adjusted to another million as a result of additional works. The contract period is 180 days commencing on July 7, 1996 and to terminate on July 7, 1997. Said period was not followed due to reasons attributable to the respondent, as claimed by the petitioner. Petitioner Atlantic Erectors Inc. avers that its money claim on the cost of labor and materials for the townhouses it constructed on Herbal Coves land is a proper lien that justifies the annotation of a notice of lis pendens on the land title. Petitioner points out that the money claim constitutes a lien that can be enforced to secure payment for the said obligations. Respondent Herbal Cove argues that the annotation is bereft of any factual or legal basis, because petitioners complaint does not directly affect the title to the property, or the use of the possession thereof. It also claims that petitioners complaint did not assert ownership of the property or any right to possess it. Respondent mainly attacks as baseless the annotation of the notice of lis pendens thru the enforcement of a contractors lien under Art. 2242. It points out that said provision only applies where there are several creditors carrying on a legal action against an insolvent debtor.

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Issue: WON money claims representing costs of materials for and labor on the houses constructed on property are a proper lien for annotation of lis pendens on the property title. Ruling: Petition is denied; notices of lis pendens cancelled. Ratio Decidendi: The pendency of a simple collection suit arising from the alleged non-payment of construction services, materials, unrealized income, and damages does not justify the annotation of a notice of lis pendens on the title to a property where construction has been done. As a general rule, the only instances in which a notice of lis pendens may be availed of are: a) An action to recover possession of real estate; b) An action for partition; c) Any other court proceedings that directly affect the title to the land or the building thereon or the use or occupation thereof; d) Also applies to suits seeking to establish a right to or an equitable estate or interest in a specific real property. Petitioner apparently relied on the premise that its money claim involves the enforcement of a lien since the money claim is for the nonpayment of materials and labor used in the construction of townhouses, the lien referred to would have to be that provided under Art. 2242 of the Civil Code. Petitioners complaint however merely asked for the payment of the construction services and materials plus damages, without mentioning much less asserting a lien or encumbrance over the property. It was simply a collection case. Indeed, the nature of an action is determined by the allegations of the complaint. Even assuming that petitioner has sufficiently alleged such lien or encumbrance in its complaint, the annotation of the notice of lis pendens would still be unjustified because a complaint for collection and damages is not the proper mode of the enforcement of a contractors lien. Moreover, Art. 2242 is not applicable in this case since nowhere does it show that respondents property was subject to the claims of other creditors or was insufficient to pay for all concurring debts.

GR No. L-23888 | March 18, 1967

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FRANCISCO C. MANABAT, in his capacity as Provincial Sheriff of Laguna, Branch I vs. LAGUNA FEDERATION OF FACOMAS, INC., ET AL., FLORENTINO CAYCO, and JOZE FERNANDEZ ZORILLA Facts: In a suit filed by Laguna Federation of Facomas Inc., against Nieves M. Vda de Roxas, a judgment in favor of the plaintiff was rendered. By virtue of a writ of execution issued pursuant to said judgment, Francisco Manabat, the provincial sheriff, sold at public auction all rights, titles, and interests of Nieves M. Vda de Roxas in 10 parcels of land for a total price of P37,000.00. It was however later discovered that said parcels of land were subject to registered liens such as writs of execution, and attachment annotated at the back of the respective title certificates, the sheriff instituted an action for interpleader for the different creditors to litigate among themselves and determine their rights to the P37,000.00 proceeds of the sale. There were 9 claims on the said property.
Date of Registration Nature of Annotation of Credit Attachment writ in CFI Laguna Case sc152. Attachment writ in CFI Laguna Case SC153 Attachment writ in CFI Manila Case No. 38118 Attachment writ in CFI Rizal Case No. 5238 Attachment writ in CFI Manila Case No. 3878 October 10, 1958 October 13, 1958 October 20, 1958 October 29, 1958

Claimant 1. Laguna Federation of Facomas, Inc. Valeriana &Limaco de Almeda Cosmopolitan Insurance Co., Inc. Florentino Cayco and Jose Fernandez Zorilla Victoria Dimayuga

Amount of Claim P17,448.00

2.

3,735.00

3.

12,650.00

4.

26,787.50

5.

May 23, 1960 September 26, 1960

12,500.00

6.

Jose Marfori and Execution writ CFI Josefina Reyes Cavite Case No.

9,410.00

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6480-R 7. Pastor Canillas Attachment writ in CFI Manila Case No. 38872 November 23, 1960 November 29, 1960 25,552.00

8.

Trinidad Calatin Execution writ in CFI Laguna Case No. B191 Rosauro Taningco and Simplicio Ramos

3,450.00

9.

Reg. of Deeds denied Not registration of deed registered mortgage; registrability became object of suit in Supreme Court, L15242.3

9,000.00

After submission of documentary evidence, the Court of First Instance rendered a decision stating that the defendants-claimants are entitled to the proceeds of the sale in the order of preference in accordance with the dates of the registration of their credits. From said judgment, Florentino Cayco and Jose Fernandez Zorilla, the 4th claimants basing on date of registration of claims, appealed; reasoning that since this is an instance of several credits referring to the same specific real property; and that the rule in such case is to satisfy all the aforesaid credits pro rata, following Art. 2242 of the NCC. Issue: WON in the satisfaction of credits, that of preference in the order of dates of registration should be followed or distribution pro rata. Ruling: Judgment appealed from is hereby affirmed. Ratio Decidendi: It is true that under the New Civil Code, there is no preference among specific creditors; the general rule is pro rata. But there is one exception to this: when there have been attachments and executions, there is still preference among them in order of time they were levied upon in the Registry. This can be noted from par. 7 of Art. 2242,
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(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits;

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Thus, as can be gleamed from the above provison, it follows that the same limitation applies as to their preference among themselves; i.e., for purposes of satisfying several credits annotated by attachments or executions, the rule is still preference according to priority of the credits in the order of time. For, otherwise, the result would be absurd: the preference of an attachment or execution lien over later credits, as above provided for, could easily be defeated by simply obtaining writs of attachment or execution, and annotating them, no matter how much later.

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