UNSON v URQUIJO

CLAIMANTS-APPELLEES: Involuntary insolvency of "Central Capiz."

TIMOTEO UNSON
CLARA LACSON
ANTONIO BELO and JOSE ALTAVAS
CLAIMANTS-APPELLANTS: URQUIJO, ZULOAGA & ESCUBI
CITATION: G.R. No. L-26293
DATE: March 24, 1927
PONENTE: Villa-real, J.

FACTS:
 Urquijo, Zuloaga, and Escubi (UZE) – sold personal property to Capiz Central (CC) for P210,000 (only
P50,000 was paid)
o Filed complaint against CC for the recovery of P160,000
o Prayed that their claim against CC be given preference
o Court said, it was a matter for the insolvency court to decide
 On the other hand, Timoteo Unson and Clara Lacson file a complaint vs, CC for the recovery of sum of
P163,643.88 as indemnity for damages.
o A writ of attachment was then issued in favour of the plaintiffs upon all of the property of the
defendant company.
 Subsequently, Jose Altavas and Antonio Belo separately filed a complaint against CC for an attachment
praying for an attachment, which was issued, the same having been levied on the property of said
Central on March 29, 1922 and April 26, 1922, respectively.
 The personal property sold by UZE sold to CC were then sold to Pilar Sugar Central for P80,000 and
P266 interest. These sums were deposited to BPI Iloilo to protect the interest of preferred creditors.
 On March 26, 1925, judgment was rendered in favour of UZE for the sum of P90,000.

PETITIONS AND COMPROMISE AGREEMENTS FOR THEIR CLAIMS

 Timoteo Unson and Clara Lacson entered into a compromise agreement with a Walter Smith that
served as their petition to render in their judgment for the sum of P30,000 as indemnity for liquidated
damages. Thereafter, CFI Capiz rendered judgment in favour of Unson and Lacson for P30,000.
 Jose Altavas and Walter Smith also entered into a compromise agreement to petition the CFI Capiz to
render judgment in the insolvency proceedings filed by Altavas against CC, for the sum of P8,000.
Thereafter, the CFI Capiz rendered judgment in favor of Altavas for P8,000.
 Antonio Belo and Walter Smith also entered into a compromise agreement to petition the court to render
a judgment in favor of Belo for the sum of P11,000. In accordance therewith, the CFI Capiz rendered
judgment in favour of Belo for the sum of P11,000.

OPPOSITIONS REGARDING EACH CLAIMANT’S CLAIM OF PREFERENCE

 Timoteo Unson and Clara Lacson presented their claim in the insolvency for P30,000 with a claim of
right of preference by virtue of the first attachment secured by them and levied on the property of the
insolvent company the “Central Capiz”. UZE opposed said claim of preference by Unson and Lacson.
 UZE filed a claim for P30,000 based on the judgment rendered in their favour, claiming a right of
preference by virtue of their lien as sellers of certain movable property specified in the claim. Unson
and Lacson filed an opposition to this claim of preference.
 Jose Altavas filed a claim for P8,000 based on the judgment rendered upon his favour alleging that he
had a preferential right though inferior to that of Timoteo Unson and Clara Lacson by virtue of the
second attachment levied upon the property of the Capiz Central in his favor. UZE also objected to this
claim of preference.
 Antonio Belo filed a claim for the sum of P11,000 based on the judgment rendered n his favour, alleging
alleging that he had a preferential right subordinate to that of Timoteo Unson and Clara Lacson by
virtue of the third attachment levied on the property of the Capiz Central in his favor. UZE also objected
to this claim of preference.
 The decision of the CFI re: the four claims was the that the assignee in this insolvency proceeding, as
soon as possible after this judgment has become final, pay from the funds of the same which have
been deposited, the following amounts:
o P30,000 to Unson and Lacson
o P8,000 to Jose Altavas
o P11,000 to Antonio Belo

APPEAL OF UZE
 Assignments of errors raised by the appellants UZE:
o The first assignment of error raises the question of the validity of the attachment levied in favor
of Timoteo Unson and Clara Lacson on the property of the Capiz Central.
o The second assignment of error raises the question of the alleged attachments levied on the
property of the Capiz Central in favor of Jose Altavas and Antonio Belo, respectively.
o The third error alleged to have been committed by the trial court is the fact that it found that the
appellants had lost their preferential right to the price of the machinery and the grinder which
had been sold to the Capiz Central, from the moment that it was installed on the estate and
became real property by destination.
 The main focus of the case was the 3rd assignment of error, but the question to determine under this
assignment of error is whether or not the vendor of personal property which has become real by
destination loses his preferential right to the purchase price of the same.

RULING OF THE SUPREME COURT

 Citing Article 1922 (1) of the CC:
With respect to determinate personal property of the debtor, the following are preferred:
Credits for the construction, repair, preservation, or purchase price of personal property in the
possession of the debtor, to the extent of the value of the same.
 The law gives the vendor a real right in the personal property sold for the price of the sale while said
property remains in the possession of the purchaser. It certainly would be contrary to equity and justice
if the owner of the article sold could not collect the purchase price of the same while it is in the
possession of the purchaser.
 If the personal property sold, while in the possession of the purchaser is subject to the payment of its
price, and the vendor has a real right therein, whatever use the purchaser may make of it, so long as it
does not lose its form and substance and conserves its identity, the vendor does not lose his right to
said thing for its price. Not because it suits the purchaser's purpose to give it a destination that,
according to article 334, case 5, converts it into real property must the vendor lose his right while the
thing sold remains in the possession of the purchaser in its entirety in order to protect his credit. To
hold otherwise would be to violate the spirit of the law and to permit the right of preference, which the
law grants the vendor, to be subject to the will of the purchaser.
 Briefly, then, since the machinery in question has not lost its identity either before, during, or
after its sale as an integral part of the Capiz Central for the lump sum of P80,266 its proportional
value in the sale can be determined and the appellants have a preferential right to said
proportional value for the unpaid price.
 Summary provided by the SC:
o That the right of preference established by article 1922, paragraph No. 1, of the Civil Code, in
favor of the vendor to personal property sold and in the possession of the purchaser, for the
price thereof is not lost by the mere fact that such personal property is converted into real
property by destination, whenever the form and substance are not changed and it has not lost
its identity.
o That neither does the vendor lose such preference notwithstanding the fact that the personal
property converted into real property, without having lost its identity, is sold with the real
property to which it is attached, for a lump sum, and the vendor has not requested its separation
before the sale.
o That by article 1922, paragraph No. 1, of the Civil Code and the decisions of this court,
interpreting it, as will as by the Revised Civil Code of Louisiana and the decisions of the
Supreme Court and Circuit Court of Appeals of said State, the preference granted the vendor
 to the personal property sold and in possession of the purchaser for the price thereof, is
superior to any other real right or lien, such as mortgage and attachment.
 In view of the foregoing the order appealed from is reversed; the credit of the appellants Urquijo,
Zuloaga and Escubi to the proportional part of the proceeds of the sale of the Capiz Central
corresponding to the proportional part of the machinery not paid for is declared preferential,
and it is ordered that the record be remanded to the court of origin for the determination of said
proportional part to which the appellants have preferential right. So ordered.

DISSENTING OPINIONS (Malcolm and Ostrand)

 Citing the case of Valdes vs. Central Altagracia, Chief Justice White said: “The machinery placed by
the corporation in the plant, by the fact of its being so placed, lost its character as a movable by
destination.”
 Conceding, however, that the appellants have preferential vendor's lien, yet under the Bankruptcy and
Insolvency law, said preferred credit is not superior to the lien by attachment of the appellees. Under
the Bankruptcy and Insolvency Law, which should govern, the lien creditor is prior in right and prior in
distribution.

EXPLANATION ON THE DISPOSITIVE PORTION

 The motion is denied in regard to the first part and granted in regard to the second, the dispositive part
being amended so as to read as follows:
o That the right of preference of the appellants Urquijo, Zuloaga and Escubi is only on the value
(art. 1922 par. No. 1, of the Civil Code), which must first be proven, has not been paid for and
which was included among other property of the Capiz Central which has not been paid for and
which was included among other property of Capiz Central in the sale of the same; and that in
no case must the preference exceed the sum of thirty thousand pesos (P30,000), the only
amount on which they claim a preference.
o That the claim of the appellees Timoteo Unson and Clara Lacson, Jose Altavas and Antonio
Belo, by reason of the fact that the attachments secured by them were declared valid and held
to constitute liens, are also preferential in character and must be paid in full out of the available
funds of the insolvent estate after the extinction and payment of the credit of the appellants
Urquijo, Zuloaga and Escubi, and with preference over any and all other ordinary unpaid claims,
following in the payment of the claims of the appellees, the order of the dates of the respective
attachments.
 In virtue whereof of the judgment appealed from is hereby affirmed in so far as it is in harmony
herewith and reversed in so far as it is not, and it is ordered that the record be remanded to the
court of origin for further proceedings in accordance herewith. So ordered.

CARRIED LUMBER V. ACCFA

PLAINTIFF-APPELLEE: Carried Lumber Company

DEFENDANT-APPELLANT: Agricultural Credit and Cooperative Financing Administration (ACCFA)
CITATION: G.R. No. L-21836
DATE: April 22, 1975
PONENTE: Aquino, J.

FACTS:
LUMBER COMPANY'S MATERIALMAN'S LIEN.
 Sta. Barbara Farmer’s Cooperative Marking Association, Inc. (FACOMA) – purchased on credit from
Carried Lumber Company (CLC) lumber and materials which were used in the construction of the
Facoma’s warehouse.
 CLC extended credit to Facoma after having been informed by the ACCFA’s General Manager in a
telegram dated October 23, 1954 that a loan of P27,200 had been approved for the construction of the
Facoma’s warehouse.
 After CLC supplied Facoma with lumber and construction materials worth P4,999.40, the parties
executed a contract stating CLC would sell materials to Facoma with a value not exceedings P27,200.
 CLC actually delivered Facoma materials valued at P8,233.55.
o Facoma made partial payments – as of Jan. 1, 1955, it had not paid to CLC the balance of its
account amounting to P4,733.55.
o On May 18, 1959, CLC sued Facoma for the recovery of such money.
o On a decision based on compromise, the lower court ordered the Facoma to pay the company
the sum of P5,500 in monthly installments from October 31, 1960 to March 31, 1961, subject
to the acceleration proviso that failure on the part of the Facoma to pay any installment would
render the whole unpaid balance due and demandable.
 In view of Facoma’s failure to pay the stipulated instalments, the CLC secured a writ of execution to
enforce the judgment.
o The sheriff levied upon the Facoma's lease rights, warehouse and ricemill building.
o On January, 3, 1961 he issued a notice scheduling the sale of the attached properties on
January 31, 1961.
 On January 25, 1961 the ACCFA filed a third-party claim with the sheriff. Its provincial director informed
the sheriff that the properties levied upon had already been sold to the ACCFA on November 5, 1960.
 As scheduled, the sheriff on January 31, 1961 sold for P5,610.50 the Facoma's lease rights, warehouse
and ricemill building to the Carried Lumber Company, as the highest bidder. On that same date, he
issued a certificate of sale to the company.
o There being no redemption within the one-year period, the sheriff on June 29, 1962 issued a
final deed of sale in favor of the Carried Lumber Company for the said lease rights, warehouse
and ricemill building.

ACCFA'S MORTGAGE LIEN.

 As already stated, the Facoma obtained from the ACCFA a loan of P27,200 for the construction of its
warehouse.
o As security for that loan, the Facoma on November 10, 1954 mortgaged to the ACCFA its lease
rights over a parcel of land located at Barrio Maningding Sta. Barbara, Pangasinan and the
warehouse to be constructed on the said land together with the other improvements existing
thereon
o The mortgage was recorded on November 13, 1954 in the registration book provided for in Act
No. 3344.
 Two supplementary mortgages dated February 19 and October 19, 1955 were executed by the Facoma
in favor of the ACCFA as security for other loans amounting to P11,600 and P15,408.80, respectively.
o Facoma also defaulted in the payment of its mortgage obligations.
o The ACCFA in a letter dated September 19, 1960 requested the Provincial Sheriff of
Pangasinan to foreclose the mortgages extrajudicially.
o The sheriff issued a notice of auction sale dated October 13, 1960. He scheduled the sale on
November 5, 1960
 The CLC notified the sheriff and the Facoma that pursuant to article 2242(4) of the Civil Code, it had a
preferential lien over the warehouse of the Facoma for having furnished the lumber and materials used
in its construction and the cost of which had not been fully paid for.
o However, the sheriff proceeded with the foreclosure sale.
o On November 5, 1960 he sold the mortgaged properties to the ACCFA, as the highest bidder
for the sum of P68,067.35. On that date, he issued a certificate of sale covering the Facoma's
lease rights, warehouse, ricemill, ricemill building and a diesel engine.
o Upon application with the Court of First Instance, the ACCFA was placed in possession of the
mortgaged properties by virtue of a writ of possession dated January 27, 1961.

PROCEEDINGS IN THIS CASE

 On March 1, 1961 or after the execution of the Carried Lumber Company's judgment against the
Facoma and the issuance of the certificate of sale in its favor, CLC sued the ACCFA for the purpose of
asserting its preferential lien over the Facoma's warehouse and ricemill building and in order to obtain
possession thereof.
 The trial court ruled that CLC’s materialman’s lien was superior to the ACCFA’s mortgage lien
because the company’s lien is sanctioned by paragraph 4 of article 2242 of the Civil Code, whereas
the ACCFA’s mortgage lien is covered by paragraph 5 of the same article.
o It reasoned out that the company's lien "existed ahead" of the ACCFA's mortgage lien. It noted
that the ACCFA was aware of the company's claim because the company sent to the ACCFA
on October 23, 1954 a telegraphic inquiry as to the loan which the ACCFA would extend to the
Facoma for the construction of its warehouse and the ACCFA confirmed in a telegraph answer
that the loan would be granted to the Facoma.

SUPREME COURT RULING

 The trial court erred in holding that the lumber company's lien over the warehouse is superior
to the ACCFA's mortgage lien.
 It was mistaken in assuming that the enumeration of ten claims, mortgages and liens in article 2242
creates an order of preference. It is not correct to say that the materialman's (mechanic's) lien or
refectionary credit of the lumber company, being listed as No. 4 in article 2242, is superior to the
ACCFA's mortgage credit which is listed as No. 5. The enumeration in article 2242 is not an order of
preference. That article lists the credits which may concur with respect to specific real properties and
which would be satisfied pro rata according to article 2249.
 Also inapplicable to this case is the ruling that in order to implement the pro rata sharing among the
creditors mentioned in article 2242, as directed in article 2249, the said creditors "must necessarily be
convened and the import of their claims ascertained" and that, to do so, "there must be first some
proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as
insolvency, the settlement of a decedent's estate under Rule 87 (now 86) of the Rules of Court, or other
liquidation proceedings of similar import" (Resolution of the motion for reconsideration in De Barretto
vs. Villanueva, 110 Phil. 896, 904, 906).
 As already noted, the ACCFA has been in possession of the warehouse since January 27, 1961. The
trial court should ascertain whether the warehouse has yielded any income during the time that the
ACCFA has been in possession thereof. In any event, the rental value of the warehouse should be
determined. The ACCFA is entitled to deduct from the earnings of the warehouse or its rental value the
taxes and necessary and useful expenses which it had incurred for the said warehouse. By reason of
its lien, the Carried Lumber Company has a pro rata share in the net earnings or rental value of the
warehouse.
 There is another aspect of this case which has eluded the attention of the parties. The lumber company
in its original complaint asserted a lien not only over the Facoma's warehouse but also over its ricemill
building. The trial court sustained the lumber company's lien over the Facoma's ricemill building.
That is an error.
o The company in its letter to the sheriff specified that it was asserting a lien only over the
warehouse. It did not mention the ricemill building. It has no materialman's lien on the ricemill
building. On the other hand, the ACCFA had a mortgage lien on the ricemill building. It
foreclosed its mortgage and bought the ricemill building at the auction sale held on November
5, 1960.
 WHEREFORE, the trial court's judgment is reversed. It is hereby adjudged that the Carried
Lumber Company and the ACCFA have concurrent liens on the Sta. Barbara Facoma warehouse
in the proportion of their credits amounting to P5,655.50 (including the sheriff's fee of P45) and
P41,370.11 (Exh. 4), respectively.