Luzon Lumber & Hardware Co. v. Rehabilitation Finance Corporation
REITERATIONFacts
The Antecedents: Manuel Quiambao and Virginia Santiago mortgaged three lots to the Rehabilitation Finance Corporation (RFC) on July 20, 1948, to secure a P37,000 loan for constructing a hotel and a residence. The mortgage was registered on September 13, 1948. The spouses purchased construction materials worth approximately P7,000 on credit from Luzon Lumber & Hardware Co. between October 1948 and March 1949, with an unpaid balance of P3,456.50. The RFC foreclosed the mortgage due to default and was awarded the properties in an auction sale for P31,000. Procedural History: Luzon Lumber & Hardware Co. filed a suit against the spouses and RFC to recover the unpaid balance. The Court of First Instance of Tarlac ordered the spouses to pay the plaintiff, and in their default, ordered RFC to pay from the proceeds of the sale of the hotel and house. The Petition: RFC appealed the decision, arguing that the trial court erred in applying the New Civil Code and in granting preference to the plaintiff's credit over its mortgage credit.
Issue(s)
Whether the credit for construction materials falls under the category of 'refaccionarios' credits under the Old Civil Code. Whether the plaintiff's credit for construction materials enjoys preference over the RFC's registered mortgage credit. Whether the provisions of the New Civil Code, specifically Articles 2242 and 2253, should govern the preference of credits in this case.
Ruling
The Supreme Court modified the decision of the Court of First Instance by dismissing the complaint against the Rehabilitation Finance Corporation (RFC).
Ratio Decidendi
On the nature of 'refaccionarios' credits: The Court held that under Philippine jurisprudence and Spanish legal tradition, the term 'refaccionarios' credits, as used in Article 1923 of the Old Civil Code, encompasses not only materials used for repair or reconstruction but also those used for new construction. This interpretation is supported by Spanish jurisprudence and the intent of the Code Commission, aiming for fairness and consistency in treating suppliers of materials for both new works and repairs. The Court cited the liberal interpretation found in the ENCICLOPEDIA JURIDICA ESPAÑOLA, which sanctions cases of new works, aligning with the principle that there is no valid reason to differentiate between materials for repair and those for new construction in terms of preference. On the preference of credits: The Court ruled that the RFC's mortgage credit, although registered, did not enjoy preference over the plaintiff's credit for construction materials. The mortgage, registered on September 13, 1948, included future improvements. However, the plaintiff began furnishing materials in October 1948. The Court clarified that the lien for materials used in construction, whether old or new, falls under Article 1923 of the Old Civil Code. Crucially, the Court found that the RFC's mortgage lien on improvements vested not at the time of construction but on the date of registration of the mortgage deed, which was prior to the furnishing of materials. However, the Court also noted that the plaintiff's credit was not recorded, placing it under paragraph 5 of Article 1923, which deals with unregistered 'refaccionarios' credits, and that the RFC's mortgage was registered. On the applicability of the New Civil Code: The Court determined that the New Civil Code, specifically Articles 2242 and 2253, should not govern the preference of credits in this case. The credit for furnishing building materials was already provided for under Article 1923 of the Old Civil Code, meaning it was not a right declared for the first time in the new Code. Therefore, the preference of credits had to be governed by the Old Civil Code, as the mortgage was recorded and the materials were furnished before the New Civil Code took effect in 1950. The Court emphasized that the proviso in Article 2253, concerning new rights not prejudicing vested rights of the same origin, was not applicable because the right of a furnisher of materials was not new.
Main Doctrine
Under the Old Civil Code, 'refaccionarios' credits include those for new construction, not just repairs, and such credits, when registered, enjoy preference over later registered mortgage credits on the same immovable property, even if the mortgage was registered prior to the furnishing of materials for new construction.