G.R. No. 27178, September 10, 1927
EN BANC

Voluntary insolvency of “Central Capiz.” TIMOTEO UNSON ET AL., claimants-appellees, vs. SMITH, BELL & CO., ET AL., creditors-appellants.

FACTS

The Capiz Central, a voluntary insolvent, was undergoing liquidation in the Court of First Instance of Iloilo. Prior to the insolvency proceedings, three damage suits were pending against it in the Court of First Instance of Capiz, filed by Timoteo Unson and wife, Jose Altavas, and Antonio Belo. Each plaintiff had obtained an attachment against the property of Capiz Central. The insolvency proceeding in Iloilo temporarily stayed the Capiz cases. Later, the assignee in insolvency obtained permission from the Iloilo court to continue the Capiz proceedings. The cases were compromised, with the assignee agreeing to the amounts claimed. The Capiz court approved the compromises, reserving the determination of whether the claims were preferential due to the attachments for the Iloilo insolvency court. The Iloilo court then issued an order admitting the claims and declaring them preferential, to be satisfied before the claims of ordinary creditors. Smith, Bell & Co. and other ordinary creditors appealed this order.

ISSUE

1. Whether the assignee in insolvency had the authority to compromise the pending litigation.
2. Whether the claims of Unson, Altavas, and Belo were entitled to preference by virtue of the attachments they obtained more than thirty days before the insolvency.
3. Whether Altavas and Belo waived or are estopped from asserting their attachment liens by participating in the election of the assignee.

RULING

The Supreme Court AFFIRMED the order of the Iloilo court, upholding the preferential status of the claims.

1. Authority to Compromise: The assignee in insolvency, representing the mass of creditors, has the authority under the Insolvency Law (Act No. 1956, sec. 33) to prosecute or defend actions on behalf of the insolvent. This authority inherently includes the power to enter into good-faith compromises to settle claims. No bad faith or collusion was alleged against the assignee in this case.

2. Validity of Preferential Claims: The attachments were regularly issued (as held in a related case, G.R. No. 26293) and created provisional liens. For an attachment to be dissolved on the ground that its basis was false, the debtor must actively challenge it and obtain a judicial declaration to that effect. The Capiz Central (and later the assignee) never made such a challenge in the Capiz court proceedings. Therefore, the liens must be given effect, entitling the claims to preference.

3. No Waiver or Estoppel: The fact that creditors Altavas and Belo participated in the election of the assignee did not result in a waiver or estoppel of their attachment liens. While Section 29 of the Insolvency Law prohibits a secured creditor from voting the secured portion of their claim in such an election, it does not prescribe forfeiture of the lien as a penalty for voting. Forfeitures are not favored and will not be implied without an express statutory provision.

The Court found it unnecessary to definitively rule on whether the present appellants were bound by the decision in the prior related appeal (G.R. No. 26293), as the appeal could be resolved on the substantive grounds stated above.