Credit Trans Updated Finals

8/3/2019 Credit Trans Updated Finals

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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


• 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


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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


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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


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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.




• 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.


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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.




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


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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


7 JC

Credit Trans Updated Finals

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