16. Loan in an transport business

Lawrence, a retired air force captain, decided to go into the air transport business. He purchased an aircraft in cash except for an outstanding balance of P500,000.00. He incurred an indebtedness of P300,000.00 for repairs with an aircraft repair company. He also borrowed P1 Million from a bank for additional capital and constituted a chattel mort­gage on the aircraft to secure the loan.

While on a test flight the aircraft crashed causing physical injuries to a third party who was awarded damages of P200,000.00.

Lawrence's insurance claim for damage to the aircraft was denied thus leaving him nothing else but the aircraft which was then valued only at P1 Million. Lawrence was declared insolvent.

Assuming that the aircraft was sold for Pl Million, give the order of preference of the creditors of Lawrence and distribute the amount of P1 Million.