Short answer. For claims tied to a specific item of the debtor's movable property, the law lists a fixed order of preference: taxes on that property first, then claims like the unpaid price of the item, pledge or chattel mortgage, repair or safekeeping costs, and laborers' wages tied to it — each paid out of that particular movable ahead of ordinary creditors.
What the law says
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;
Civil Code, Article 2241 — Preferred Credits on Specific Movables. Read the full provision →
What the law says
(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;
Civil Code, Article 2241 — Preferred Credits on Specific Movables. Read the full provision →
This rule is about specific movable property, not the whole estate
Article 2241 answers a narrower question than "who gets paid first overall." It sets a preference order only with reference to specific movable property of the debtor — meaning claims that attach to one particular item, like a car, a machine, or a shipment of goods, rather than a general ranking that applies to every peso the debtor owes across all of their assets.
Taxes and public claims come first
At the top of the list are duties, taxes and fees due on that property to the State or its subdivisions, followed by claims from misappropriation or breach of trust by public officials involving that same property. These outrank the ordinary commercial claims further down the list — the State's claim on the specific item is preferred before a private creditor's.
Claims tied directly to the item follow
After the public claims, preference goes to claims with a direct link to that movable: the unpaid price of the item while still in the debtor's possession, credits secured by a pledge or chattel mortgage on it, and costs of making, repairing, or safekeeping it. Further down the list sit laborers' wages on goods they made, transportation and lodging credits, and several other narrow categories, each keyed to a specific kind of movable property or transaction.
What this does not settle
Article 2241 does not rank a debtor's creditors generally, and it says nothing about real property or unsecured claims with no link to a specific movable. Whether a given claim falls into one of its thirteen categories — and where it lands relative to another claim on the same item — depends on the specific facts of the debt and the property involved.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Strategic Alliance Development Corporation vs. Radstock Securities Limited and Philippine National Construction corporation, G.R. No. 178158 / G.R. No. 180428, December 4, 2009 — read the decision on LawPhil →
- Manuel D. Yngson, Jr., (in his capacity as the Liquidator of ARCAM & Co., Inc.) vs. Philippine National Bank, G.R. No. 171132, August 15, 2012 — read the decision on LawPhil →
- Jan-Dec Construction Corporation vs. Court of Appeals, et al, G.R. No. 146818, February 6, 2006 — read the decision on LawPhil →
- Abundio Barayoga, et al. vs. Asset Privatization Trust, G.R. No. 160073, October 24, 2005 — read the decision on LawPhil →