Facts:

The case involves Luzon Lumber and Hardware Company, Inc. as the plaintiff and appellee, and Manuel Quiambao, Virginia Santiago, and the Rehabilitation Finance Corporation (RFC) as the defendants. The events took place in Tarlac, Philippines, with the mortgage transaction occurring on July 20, 1948. Quiambao and Santiago, owners of three lots covered by Certificates of Title Nos. 22607, 4217, and 4218, mortgaged these properties to RFC to secure a loan of P37,000 intended for the construction of a hotel and a residence. The mortgage was registered on September 13, 1948. The couple constructed the buildings on the lot covered by Certificate of Title No. 22607. However, they violated the mortgage terms, prompting RFC to foreclose on the properties. In an auction sale, RFC acquired the properties for P31,000, and Transfer Certificates of Title were issued accordingly.

During the construction, Quiambao and Santiago purchased construction materials worth approximately P7,000 fr...

Facts:

Ownership and Mortgage of Properties
Manuel Quiambao and Virginia Santiago owned three lots in Tarlac, covered by Certificates of Title Nos. 22607, 4217, and 4218. On July 20, 1948, they mortgaged these lots to the Rehabilitation Finance Corporation (RFC) to secure a loan of P37,000, which was intended for the construction of a hotel and a residential building on the lot covered by Certificate of Title No. 22607. The mortgage was registered on September 13, 1948.

Construction and Purchase of Materials
Between October 1948 and March 1949, the spouses purchased construction materials from Luzon Lumber & Hardware Co. valued at approximately P7,000. Only P3,500 was paid, leaving an outstanding balance of P3,456.50.

Foreclosure and Auction Sale
Due to a violation of the mortgage terms, the RFC foreclosed the mortgage and, in the auction sale held on July 17, 1950, acquired the mortgaged properties for P31,000. The hotel and residence were valued at P18,000 and P4,000, respectively.

Legal Action by Luzon Lumber & Hardware Co.
To recover the unpaid balance of P3,456.50, Luzon Lumber & Hardware Co. filed a suit against the spouses and later amended the complaint to include the RFC as a defendant. The Court of First Instance of Tarlac ruled in favor of the lumber company, ordering the spouses to pay the balance and, in default, requiring the RFC to pay the amount out of the proceeds from the sale of the hotel and residence.

Issue:

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Ruling:

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Ratio:

1. The term "refectionary credit" under Article 1923 of the old Civil Code includes materials used not only for repair or reconstruction but also for new construction. This interpretation aligns with principles of justice and fairness, as it provides equal consideration to suppliers of materials for both new and repair works.
2. The mortgage lien of the RFC attached to the properties, including future improvements, upon the registration of the mortgage in September 1948. This lien predates the furnishing of materials by the lumber company, which began in October 1948.
3. The lumber company’s credit does not qualify as a new right under Article 2253 of the new Civil Code, as it was already recognized under the old Civil Code. The new Civil Code provisions cannot be applied retroactively to impair vested rights.
4. The materials supplied by the lumber company became part of the buildings, transforming them into real property. Thus, they could not be classified as personal property under Article 1922 of the old Civil Code.