Involuntary Insolvency of "Central Capiz." Timoteo Unson v. Urquijo

Summary

This landmark insolvency case established that a vendor's lien on personal property sold on credit maintains its preferential status even when the property becomes real property by destination, provided it retains its form and identity. Urquijo, Zuloaga & Escubi sold machinery to Central Capiz for P210,000 with P160,000 unpaid. When Central Capiz became insolvent, multiple creditors claimed preference through attachments. The Supreme Court reversed the lower court's ruling favoring attachment creditors, holding that the vendor's lien under Civil Code Article 1922 is superior to attachment liens. The decision recognized that allowing purchasers to destroy vendor's liens by changing property destination would violate equity and the law's protective purpose. The case was remanded to determine the machinery's proportional value in the total sale proceeds, establishing important precedent for creditor priorities in Philippine insolvency law.