1. OBLIGATIONS AND CONTRACTS; CREDITS; REFECTIONARY CREDITS INTERPRETED. — Under our jurisprudence, the term or phrase refection credits (refaccionarios) used or employed in article 1923 of the old Civil Code refers to and includes not only materials used for repair or reconstruction, but those used for new construction as well.

2. ID.; ID.; ID.; ID.; REFECTION CREDIT, NOT A NEW RIGHT; CIVIL CODE OF 1889 GOVERNS. — The lien of one furnishing building materials used in a building or construction, whether old or new, comes under article 1923 of the old Civil Code, and not under article 1922 of the same Code. Since refection credit is provided for and included in the old Civil Code of 1889, said lien (refection credit) is not a right granted for the first time under article 2242 (4) of the new Civil Code (Republic Act 386) so as to come under the contemplation of article 2253 in the sense that the provisions of the new Civil Code should govern it although the acts or events which gave rise thereto may have occurred under the old Civil Code.

3. ID.; ID.; ID.; MORTGAGE CREDIT; PREFERENCE OF CREDITS GOVERNED BY THE OLD CIVIL CODE. — The deed of mortgage having been recorded in 1948 and the building materials having been furnished in 1948 and 1949, that is to say, before the promulgation of the new Civil Code in 1950, the preference of credits or liens has to be governed by the old Civil Code.

4. ID.; ID.; ID.; MORTGAGE CREDIT INCLUDING NEW OR FUTURE IMPROVEMENTS ON REGISTERED LAND, WHEN VESTED; ENJOYS PREFERENCE OVER REFECTION CREDIT. — When a mortgage is made to include new or future improvements on registered land, said lien attaches and vests not at the time said improvements are constructed but on the date of the recording and registration of the deed of mortgage. The mortgage lien of the Rehabilitation Finance Corporation on all the improvements, having vested on the day and hour the mortgage was registered — about one month before plaintiff began furnishing materials for construction — it enjoyed preference over the refection credit of plaintiff in point of time.

Manuel Quiambao and his wife Virginia Santiago, owners of three lots in the province of Tarlac covered by Certificates of Title Nos. 22607, 4217 and 4218, mortgaged the said lots on July 20, 1948, in favor of the Rehabilitation Finance Corporation (RFC) to secure the payment of a loan in the amount of P37,000 which sum was to be spent for the construction of two buildings, - one for a hotel and the other for residence. The mortgage was registered on September 13th of the same year. The two buildings were subsequently constructed on the lot covered by Certificate of Title No. 22607. Upon violation of the terms of the mortgage the RFC foreclosed the same and in the auction sale, said RFC as highest bidder was awarded the mortgaged properties for the total sum of P31,000 followed by the issuance of the corresponding Transfer Certificates of Title. The hotel and residence buildings were valued at P18,000 and P4,000, respectively.

In the edification of the two buildings the spouses bought on credit construction materials valued at about P7,000 from the plaintiff Luzon Lumber & Hardware Co. Said building materials were furnished by the lumber company between October 1948 and March 1949. Only P3,500 of this amount was paid, leaving an unpaid balance of P3,456.50. To recover this balance including interests and attorney’s fees the lumber company filed this suit against the spouses, the complaint being later amended so as to include the RFC as party defendant. According to the RFC said amendment was made about a week after the auction sale of the foreclosed properties. After hearing, the Court of First Instance of Tarlac rendered judgment ordering the defendant spouses Manuel and Virginia to pay to the plaintiff lumber company the sum of P3,456.49 with legal interests and in default of such payment by them, the RFC was ordered to pay to plaintiff out of the proceeds of the sale of the hotel and the house, the said sum of P3,456.49 together with the corresponding legal interests thereon. The RFC is appealing from that decision with the following assignment of errors:chanrob1es virtual 1aw library

FIRST ERROR

The trial court erred in finding that the preference of plaintiff’s credit is declared for the first time in the new Civil Code, and in consequently deciding that the order of preference therein should govern.

SECOND ERROR.

The trial court erred in finding that while plaintiff’s credit is declared for the first time in the new Civil Code and that it prejudices or impairs a "vested right", it should, nevertheless, prevail over appellant’s because both rights are not "of same origin."

THIRD ERROR.

The trial court erred in ordering the appellant, upon default of the defendants-spouses, to deliver to the appellee the sum the latter claims as the balance of the unpaid purchase price due from said spouses.

The theory of the plaintiff, which theory was upheld by the trial court is that its credit enjoyed preference over that of the mortgage credit of the RFC under articles 2242 and 2253 of the new Civil Code (Republic Act No. 386) which for purposes of reference we are reproducing below.

"ART. 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right:chanrob1es virtual 1aw library

x       x       x.

(4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canal or other works, upon said buildings, canals or other works;

(5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;

x       x       x.

"ART. 2253. The Civil Code of 1889 and other previous laws shall govern rights originating, under said laws, from acts done or events which took places under their regime, even though this Code may regulate them in a different manner, or may not recognize them. Put if a right be declared for the first time in this Code, it shall be effective at once, even though the act or event which give rise thereto may have been done or may have occurred under the prior legislation, provided said new right does not prejudice or impair any vested or acquired right, of the same origin."cralaw virtua1aw library

The trial court further held that the credit of the plaintiff enjoyed preference over the mortgage credit of the RFC in point of time, because the mortgage lien of the RFC vested only after the construction of the two buildings while the lien of the plaintiff vested immediately at the moment it furnished the materials. And as to the proviso found in the last part of article 2253 of the new Civil Code referring to vested rights of the same origin, said court ruled that the origins of the two credits were different and distinct, the origin of the credit of the plaintiff being that of purchase and sale while that of the RFC was a contract of mortgage.

After a careful study of the case we are constrained to agree with the counsel of the appellant RFC that the two articles in the new Civil Code above reproduced may not be applied in the instant case for the reason that the credit of the plaintiff is not a new right or one declared for the first time, a condition required by Article 2253 of the new Civil Code for its enforcement and application, because said right was already provided for by article 1923 of the old Civil Code particularly paragraphs 3 and 5 which read as follows:jgc:chanrobles.com.ph

"3. Mortgage and refection credits entered and recorded in the Registry of Deeds, with respect to the property mortgaged, or which has been the subject-matter of the refection;"

"5. Refection credits not entered or recorded, with respect to the real estate upon which the refection was made, and only with respect to other credits different from those mentioned in the four next preceding paragraphs."cralaw virtua1aw library

The question now to be decided is whether the furnishing of lumber and building materials by the plaintiff for the construction of the two buildings of the spouses falls under refection credit mentioned in paragraphs 3 and 5 above reproduced. The RFC contends and we agree to its contention that it is so included. In the case of Director of Public Works v. Sing Juco, 53 Phil., 205, this Court thru Justice Street said that in a precise and technical sense, refectionary credit is primarily an indebtedness incurred in the repair or reconstruction of something and does not ordinarily include an entirely new work, but that Spanish jurisprudence appears to have sanctioned in certain cases this broader view to include a new work or construction. The word "refaccionario" from which come the English translation of "refectionary" is derived from the Latin verb "refacio", "refacere", meaning "rehacer" which implies the idea of reconstruction or repair for reason of destruction or deterioration. As already said, that was the original idea of the word "refectionary" The liberal interpretation of the refectionary credit to include new construction is upheld in the ENCICLOPEDIA JURIDICA ESPAÑOLA, p. 890, from which we quote with favor the following:jgc:chanrobles.com.ph

"En el orden civil, los terminos de la cuestion son diferentes; el credito refaccionario, a pesar de su verdadera finalidad, de acuerdo con la significacion etimologia, esta permitido para obra nueva, pues la ley de Partida emplea las palabras "fazer’ y "refazer’, la jurispudencia sanciona casos de obra nueva, y el Codigo civil, sin distinguir, otorga prelacion al credito de caracter refaccionario, y en consecuencia, sea por obra nueva o por reconstruccion de obra anterior."cralaw virtua1aw library

And this view is shared by our Code Commission which prepared the new Civil Code. In its Report on the proposed Civil Code of the Philippines (now our new Civil Code) which went into effect in 1950, referring to article 2242 of the new Code, it said that the new encumbrances in said article are Nos. 2, 3, 6, 7 and 9, meaning to say that paragraph 4 referring to claims of furnishers of materials used in the construction, reconstruction or repair of building which as invoked by the plaintiff and applied by the trial court is not a new provision, clearly implying that it was already provided for in article 1923, paragraphs 3 and 5 under refectionary credits. This liberal view and interpretation of refectionary credit is in consonance with principles of justice and fairness, for there seems to be no valid reason why one furnishing material for purposes of repair or reconstruction should be given preference while another furnishing material on new construction is not given the same consideration.

With respect to the holding of the trial court that in point of time the credit of the plaintiff enjoys priority over that of the RFC for the reason that according to said court the lien of the plaintiff vested when the materials were furnished while the mortgage credit of the RFC vested only when the buildings were constructed, we must not forget that according to the facts of the case the loan of P37,000 was given to the spouses to construct the two buildings, and that under the terms of the deed of mortgage, not only the lots but also all the improvements now existing or which may hereafter be constructed on the mortgaged property are included. In other words, the mortgage in favor of the defendant RFC not only enjoyed the presumption provided by law (Art. 1877 of the old Civil Code, now article 2127 of the new Civil Code and articles 110 and 111 of the Spanish Mortgage Law) that a mortgage includes all improvements on the land mortgaged when the obligation falls due, but there was an express stipulation to include all buildings and improvements thereafter to be constructed on the mortgaged premises. This lien on all improvements vested on the day and hour the mortgage was registered - about one month before plaintiff began furnishing materials for construction. One of the purposes of the creation of the RFC was to finance the construction and reconstruction of buildings for purposes of rehabilitation. We may even take judicial notice of the fact that the security of the loans from the RFC is based mainly on the buildings and constructions themselves, and that to assure that the loans are spent for the said construction, the money is sometimes given on the installment basis, that is, so much money is released by the RFC as the construction progresses. This is to show the intimate relation between an RFC loan and the construction financed by it, for purposes of security.

In the discussion of this case among the members of this Tribunal, there was a suggestion, even a contention that the credit of the plaintiff herein might be made to fall under article 1922 of the old Civil Code which provides as follows:jgc:chanrobles.com.ph

"ART. 1922. With respect to determine personal property of the debtor, the following are preferred:chanrob1es virtual 1aw library

1. 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;"



But we believe that the two buildings in question constructed partly with building materials furnished by the plaintiff may not be considered as personal property under article 1922. Once said building materials were used in the construction and had become part of the building, they lost their classification as personal property and become real property. It is true that in the case of Unson v. Orquije, Et Al., 50 Phil., 160, this Tribunal applied the provision of article 1922, paragraph 1, referring to the purchase price of personal property in the possession of the debtor (machinery and grinder sold to the Capiz Central and installed in its building), the reason being that said machinery and grinder did not lose their form and substance and they preserved their identity. Besides, they could easily be removed from the building of the Central.

May the same thing be said in the present case as regards the building materials which went into the construction of the hotel and the house? The answer can be given only in the negative. Said materials had already become part of the two buildings either as posts, frames, floor, partition, roof, etc. They have lost their form and identity and had become part of the buildings which are real property.

Article 334, paragraph 3, old Civil Code, classifies as real property anything permanently annexed to any immovable property in such manner that it cannot be separated therefrom without breakage of material or injury to the object. Can the lumber used for the posts, frame, floor, partition, etc., be removed from the two buildings without injury to the said structures? They cannot. And it must be remembered that though the materials furnished by the plaintiff are valued at about P7,000, the present claim of the plaintiff for the balance of sales price of his building materials is only P3,456.49, less than one-sixth of the total value of the two buildings as bought by the RFC at the auction sale, namely, P22,000.

There is another circumstance in this case which greatly weakens plaintiff’s claim. While as already stated, appellant RFC’s mortgage which included the two buildings in question was recorded in September 1948, thus serving as notice to third parties including the plaintiff, the latter began furnishing building materials for the construction of the two buildings only in October 1948, that is the month following, and what is more, the evidence fails to show that it was ever recorded in the Registry of Deeds, so that said refection credit comes not under paragraph 3 of article 1923 of the old Civil Code, as does the RFC mortgage, but under paragraph 5 of the same article under unregistered and unrecorded refection credits.

Still another aspect of the case to be considered is that in the foreclosure proceedings, inasmuch as of July 1950, the spouses had a total unpaid account of P41,732.16 with the RFC, and the latter bought the mortgaged properties for P31,000, there is still a balance of P10,732.16 owing to the RFC, an amount of almost three times the claims of the plaintiff against the same spouses.

In conclusion we hold that (1) under our jurisprudence, the term or phrase refection credits (refaccionarios) used or employed in article 1923 of the old Civil Code refers to and includes not only materials used for repair or reconstruction, but those used for new construction, as well; (2) the lien of one furnishing building materials used in a building or construction whether old or new, comes under article 1923 of the old Civil Code, and not under article 1922 of the same Code; (3) that being provided for and included in the old Civil Code of 1889, said lien (refection credit) is not a right granted for the first time under article 2242 (4) of the new Civil Code (Republic Act 386) so as to come under the contemplation of article 2253 in the sense that the provisions of the new Civil Code should govern it although the acts or events which gave rise thereto may have occurred under the old Civil Code; (4) that the deed of mortgage herein having been recorded in 1948 and the building materials having been furnished in 1948 and 1949, that is to say, before the promulgation of the new Civil Code in 1950, the preference of credits or liens has to be governed by the old Civil Code; and (5) when a mortgage is made to include new or future improvements on registered land, said lien attaches and vests not at the time said improvements are constructed but on the date of the recording and registration of the deed of mortgage.

In view of the foregoing, the decision appealed from is modified by dismissing the complaint as against the defendant-appellant Rehabilitation Finance Corporation, with costs.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador and Concepcion, JJ., concur.



DIOKNO, M., disidente:chanrob1es virtual 1aw library

Los hechos en este caso estan estipulados y son como sigue:jgc:chanrobles.com.ph

"That the true indebtedness of Manuel Quiambao and Virginia Santiago for lumber and materials taken from the Luzon Lumber and Hardware Co. Inc., Tarlac, used in building their hotel and residential house located in the barrio San Nicolas, Tarlac, Tarlac, on their property covered by Transfer Certificate of Title No. 22607 is P3,456.49 which was their outstanding balance;

"That Manuel Quiambao and Virginia Santiago Quiambao had not yet paid the above sum, even after repeated demands;

"That for the purpose of constructing the two buildings referred to in the amended complaint, the defendant Rehabilitation Finance Corporation granted a loan of P37,000 to the spouses, Manuel Quiambao and Virginia Santiago (Virginia Quiambao) on the security of a first mortgage on their property covered by Transfer Certificates of Title Nos. 22607, 4217 and 4218 of the land records of the province of Tarlac, including the two buildings to be constructed out of the proceeds of said loan; "That said mortgage contract was duly registered in the Office of the Register of Deeds of Tarlac and noted on the certificates of title aforementioned;

"That the mortgagor spouses having violated the terms of said mortgage contract, the Rehabilitation Finance Corporation foreclosed the mortgage under Act No. 3135, as amended, and at the auction sale held at Tarlac, Tarlac, on July 17, 1950 the Provincial Sheriff awarded the mortgage property to the Rehabilitation Finance Corporation as the highest bidder for the total sum of P31,000;

"That the mortgagor spouses having violated the terms of said mortgage contract, the Rehabilitation Finance Corporation foreclosed the mortgage under Act No. 3135, as amended, and at the auction sale held at Tarlac, Tarlac, on July 17, 1950 the Provincial Sheriff awarded the mortgage property to the Rehabilitation Finance Corporation as the highest bidder for the total sum of P31,000; . . ." (Record on Appeal, pp. 11-13)

La sentencia apelada dispone lo que sigue:jgc:chanrobles.com.ph

". . . the Court renders judgment ordering the defendant-spouses, Manuel Quiambao and Virginia Santiago, to pay to plaintiff, Luzon Lumber and Hardware Co., Inc., the sum of P3,456.49 together with legal interests thereon at the rate of 6 per cent per annum from the date of the commencement of this action until full payment of the indebtedness, and in defect of such payment by the defendants-spouses, Manuel Quiambao and Virginia Santiago, the defendant Rehabilitation Finance Corporation is hereby ordered to pay to plaintiff, Luzon Lumber and Hardware Co., Inc., out of the proceeds of P3,456.49, together with the corresponding legal interests thereon. Defendants- spouses Manuel Quiambao and Virginia Santiago, shall pay the costs of this action.." . . (Record on Appeal, pp. 23-24)

Y la mayoria de este Tribunal se propone enmendar la sentencia precedente —

"By dismissing the complaint as against the defendant-appellant Rehabilitation Finance Corporation, with cost."cralaw virtua1aw library

Me veo obligado a disentir de esta decision porque me produce la sensacion de que se enriquece la RFC con materiales usados en la construccion de los edificios que son de la demandante y no de los deudores de la RFC y que no estan pagados, lo cual me parece a mi contraria a la recta conciencia, y pernicioso al curso ordinario de los negocios.

Contraria a la recta conciencia, porque se sabe que la RFC se lleva materiales que son de otros y no de sus deudores, lo cual es lucrarse a costa ajena.

Y pernicioso al curso ordinario de los negocios, porque mientras es de fomentar las construcciones de edificios por el beneficio que traen a los trabajadores y a la industria de los materiales de construccion, y en el comercio no es lo corriente exigir pago adelantado o al contado, la RFC podia muy bien haberse protegido condicionando las entregas de efectivo a los esposos Quiambao a la prueba previa de haberse pagado los materiales y mano de obra anteriores, como acostumbran, y en cierto modo requiere la ley, los propietarios que edifican mediante contratistas. La doctrina que establece la decision — que va contra lo que el antiguo y el nuevo Codigo Civil preceptuan como lo justo — producira en mi humilde opinion remora en la industria.

Dirigiendo ahora mi atencion a las fases legales de la cuestion, me causa extrañeza que se atribuya al proveedor de materiales interes sobre el edificio. Su interes, desde el principio hasta el fin, es sobre el valor de los materiales que suministro, cuya aplicacion y cuantia estan estipuladas, y cuya identificacion esta establecida por las facturas Exhs. A a A-52. El proveedor no reclama la devolucion de los materiales, para que se requiera una identificacion mas precisa dentro del edificio en que se emplearon; nadie duda que estan alli; tampoco duda nadie lo que valen. Se necesita algo mas, para que se pueda recuperar su valor? Responde a algun fin practico exigir una identificacion pieza por pieza? Si todo esto es sutileza de mal pagador, y no me parece que pueda honradamente caber duda deello, entonces estamos llevando nuestro legalismo a un extremo peligroso a la existencia de la justicia misma.

El antiguo Codigo Civil, que era el vigente cuando tuvieron lugar las transacciones de que nos ocupamos, dice que "los creditos se clasificaran, para su graduacion y pago, por el orden que en este capitulo se establecen" (art. 1921). Y seguidamente dispone en el articulo 1922:jgc:chanrobles.com.ph

"ART. 1922. Con relacion a determinados bienes muebles del deudor, gozan de preferencia:chanrob1es virtual 1aw library

1.