G.R. No. 26293 , March 24, 1927
TIMOTEO UNSON, CLARA LACSON, ANTONIO BELO and JOSE ALTAVAS, claimants-appellees, vs. URQUIJO, ZULOAGA & ESCUBI, claimants-appellants.

FACTS

The case involves the involuntary insolvency of “Central Capiz.” Prior to the insolvency declaration, several creditors had claims against Central Capiz:
1. Appellants Urquijo, Zuloaga & Escubi sold machinery to Central Capiz for P210,000, with an unpaid balance of P160,000. They filed a collection suit and claimed a vendor’s lien on the machinery.
2. Appellees Timoteo Unson and Clara Lacson filed a damages suit and obtained a writ of attachment on Central Capiz’s property on August 12, 1921.
3. Appellees Jose Altavas and Antonio Belo later filed separate suits and also obtained writs of attachment on Central Capiz’s property in March and April 1922.
Central Capiz was declared insolvent on September 5, 1922. Before the appellants filed their claim in the insolvency proceeding, all property of Central Capiz (including the machinery sold by appellants) was sold to Pilar Sugar Central for P80,000, without notice to appellants. The proceeds were deposited in a bank. The appellees later entered into compromise agreements with the assignee, resulting in judgments for their claims (P30,000 for Unson and Lacson, P8,000 for Altavas, and P11,000 for Belo), reserving the question of preference based on their attachments.
The insolvency court ordered the assignee to pay the appellees’ claims first from the insolvent estate funds, with the balance to be distributed pro rata among other creditors. The appellants appealed, arguing their vendor’s lien should be preferred over the appellees’ attachment liens.

ISSUE

1. Whether the attachments obtained by the appellees were valid and constituted liens.
2. Whether the appellants have a vendor’s lien that constitutes a preferred credit under the Insolvency Law.
3. If both have preferences, which credit is superiorthe appellants’ vendor’s lien or the appellees’ attachment liens?

RULING

The Supreme Court, in its decision and amended resolution on motion for reconsideration, ruled as follows:
1. On the validity of the attachments: The Court found the attachments levied by the appellees (Unson and Lacson, Altavas, and Belo) were valid and constituted liens on the property of Central Capiz. The alleged defects in the levy were not fatal.
2. On the appellants’ vendor’s lien: The Court held that the machinery sold by appellants to Central Capiz, once installed and used in the sugar central, became immovable property by destination under Article 334(5) of the Civil Code. Consequently, the sale was one of real property, and the vendor’s lien under Article 1922(1) of the Civil Code (which applies to movables) did not attach. However, the Court, in its amended resolution, clarified that if appellants could prove a vendor’s lien, it would only extend to the unpaid value of the specific property sold, not exceeding P30,000 (the amount they claimed as preferred), and only if that property was included in the sale of Central Capiz’s assets.
3. On the order of preference: Applying the Insolvency Law ( Act No. 1956 ), the Court held that a lien created by attachment is superior to a vendor’s lien claimed as a preferred credit. Therefore, the appellees’ claims, secured by valid attachments, must be paid in full from the available funds of the insolvent estate after the payment of the appellants’ preferred credit (if duly proven), and with preference over all other ordinary claims. Among the appellees, the order of payment follows the dates of their respective attachments.

DISPOSITIVE PORTION (Amended):
The judgment of the lower court was affirmed insofar as it recognized the appellees’ attachment liens as preferential, but reversed regarding the order of payment. The case was remanded to the trial court for further proceedings to:
(a) Determine the value of the appellants’ vendor’s lien, if any, not exceeding P30,000, payable from the insolvent estate first.
(b) Pay the appellees’ claims in full, in the order of the dates of their attachments, from the remaining funds, before any distribution to ordinary creditors.