THE DIRECTOR OF PUBLIC WORKS, PLAINTIFF AND APPELLEE, VS. SING JUCO ET AL., DEFENDANTS. SING JUCO, SING BENGCO AND PHILIPPINE NATIONAL BANK, APPELLANTS.

From Torrens certificate of title No. 1359, relating to land in the
municipality of Iloilo, it appears that on September 28, 1920, the
title to the property described therein was owned, in undivided shares,
by Mariano de la Rama, Gonzalo Mariano Tanboontien, Sing Juco and Sing
Bengco. The interest vested by said certificate in Mariano de la Rama
was subsequently transferred by sale to Enrique Echaus. It further
appears that on November 23, 1920, the owners of the property covered
by said certificate conveyed it by way of mortgage to the Philippine
National Bank for the purpose of securing a credit in current account
in an amount not in excess of P170,000, with interest at the rate of 12
per cent per annum. The indebtedness covered by this mortgage has not
been satisfied, and upon the date of the decision of the court below it
anibunted to the sum of P170,000, plus interest at 12 per cent per
annum from November 24, 1920.

The land above referred to contains an area of nearly 16 hectares,
or to be exact, 158,589.44 square meters according to the certificate.
It is located on “Point Llorente” at the mouth of Iloilo River, near
the City of Iloilo, and it is of so low a level that, prior to the
improvement to which reference is to be made, it was subject to
frequent flooding. In 1921 the Government of the Philippine Islands was
planning extensive harbor improvements in this vicinity, requiring
extensive dredging by the Bureau of Public Works in the mouth of said
river. ” The conduct of these dredging operations made it necessary for
the Director of Public Works to find a place of deposit for the dirt
and mud taken from the place, or places, dredged. As the land already
referred to was low and easily accessible to the spot where dredging
was to be conducted, it was obviously to the interest both of the
Government and the owners of said land that the material taken out by
the dredges should be deposited on said property. Accordingly, after
preliminary negotiations to this effect had been conducted, a contract
was made between the Director of Public Works, representing the
Government of the Philippine Islands, and the four owners, M. de la
Rama, Sing Juco, G. M. Tanboontien and Sing Bengco, of which, as
modified in some respects by subsequent agreement, the following
features are noteworthy.

(1) The Bureau of Public Works agreed to deposit the material to be
dredged by it from the Iloilo River, in connection with the
contemplated improvement, upon the lot of land, already described as
covered by certificate No. 1359, at a price to be determined by actual
cost of the filling, with certain surcharges to be determined by the
Bureau of Public Works. It was contemplated in the original draft of
the contract that the bureau would be able to furnish some 250,000
cubic meters of dredged material for filling in the land, but in the
course of the negotiations the liability of the bureau, with respect to
the amount of dredged material to be placed upon the land, was limited
to the material which should be dredged from the river as the result of
the proposed improvement. To this stipulation the four owners of the
property assented on March 14, 1921. (2) With respect to the
compensation it was agreed that the amount due should be determined by
the Director of Public Works, under certain conditions mentioned in the
contract, at an amount of not less than 20 nor more than 75 centavos
per cubic meter. It was further agreed that, when the work should be
finished, the cost thereof should be paid by the owners in five annual installments and that for failure to pay any such installment the whole
of the amount thereafter to accrue should become at once due. This
contract was noted on the Torrens certificate of title on January 8,
1924.

In connection with the making of the contract above-mentioned, the
Director of Public Works required a bond to be supplied by the owners
in the penal amount of P150,000, approximately twice the estimated cost
of the filling, conditioned for the payment of the amount due from the
owners. This bond was executed contemporaneously with the main
contract; and in connection therewith it should be noted that one of
the names appearing upon said contract was that of “Casa Viuda de Tan
Toco,” purporting to be signed by M. de la Rama.

The dredging operations were conducted by the Bureau of Public Works
in substantial compliance, we find, with the terms of said agreement;
and after the account with the owners had been liquidated and the
amount due from them determined, demand was made upon them for the
payment of the first installment. No such payment was, however, made,
and as a consequence this action was instituted by the Director of
Public Works on October 14, 1926, for the purpose of recovering the
amount due the Government under the contract from the original owners
of the property and from the sureties whose names were signed to the
contract of suretyship, and to enforce the obligation as a real lien
upon the property. In said action the Philippine National Bank was made
a party defendant, as having an interest under its prior mortgage upon
the property, while Enrique Echaus was made defendant as successor in
interest of M. de la Rama, and Tan Ong Sze widow of Tan Toco, was also
made a defendant by reason of her supposed liability derived from the
act of De la Rama in signing the firm name “Casa Viuda de Tan Toco,” as
a surety on the bond. It is noteworthy that in the complaint it was
asked that, in the enforcement of the Government’s lien, the property
should be sold “subject to the first mortgage in favor of the
Philippine National Bank.”

To this complaint different defenses were set up, as follows : On
behalf of the owners of the property, it was contended that the
Government had not complied with its contract, in that the dredged
material deposited on the land had not been sufficient in quantity to
raise the level of the land above high water, and that, as a
consequence, the land had not been much benefited. It1 is therefore
asserted that the owners of the property are not obligated to pay for
the filling operation. These defendants further sought to recover
damages by way of cross-complaint for the same supposed breach of
contract on the part of the Government. On the part of Viuda de Tan
Toco the defense was interposed that the name “Casa Viuda de Tan Toco,”
signed to the contract of suretyship by Mariano de la Rama, was signed
without authority; while on the part of the Philippine National Bank it
was asserted that the mortgage credit pertaining to the bank is
superior to the Government’s lien for improvement, and by way of
counterclaim the bank asked that its mortgage be foreclosed for the
amount of its mortgage credit, and that the four mortgagors, Sing Juco,
Sing Bengco, M. de la Rama and G. M. Tanboontien, be required to pay
the amount due the bank, and that in case of their failure to do so the
mortgaged property should be sold and the proceeds paid preferentially
to the bank upon its mortgage. Upon hearing the cause the trial court,
ignoring that part of the original complaint wherein the Government
seeks to enforce its lien in subordination to the first mortgage, made
pronouncements:

“(1) Declaring Sing Juco, Sing Bengco, G. M.
Tanboontien, and Mariano de la Rama indebted to the Government in the
amount of P70,938, with interest from the date of the filing of the
complaint, and requiring them to pay said sum to the plaintiff;

“(2)
Declaring, in effect, that the lien of the Government for the filling
improvement was superior to the mortgage of the Philippine National
Bank; and finally

“(3) Declaring the defendant Tan Ong Sze,
Viuda de Tan Toco, personally liable upon the contract of suretyship,
in case the four principal obligors should not satisfy their
indebtedness to the Government, or if the land should not sell for
enough to satisfy the same.”

From this judgment various parties defendant appealed, as follows:
All of the defendants, except the Philippine National Bank, appealed
from so much of the decision as held that the defendant owners and
signatories to the contract of suretyship had not been released by
non-performance of the contract on the part of the Bureau of Public
Works, and from the refusal of the court to give to the defendant
owners damages for breach of contract on the part of the Government. On
the part of Tan Ong Sze, Viuda de Tan Toco, error is assigned to the
action of the court in holding said defendant liable upon the contract
of suretyship. Finally, the Philippine National Bank appealed from so
much of the decision as gave the lien of the Government for
improvements priority over the mortgage executed in favor of the bank.

Dealing with these contentions in the order indicated, we find that
the contention of the appellants (except the Philippine National Bank),
to the effect that the Director of Public Works has failed to comply
with the obligations imposed upon the Government by the contract, is
wholly untenable. By said contract the Government was not obligated to
raise the land on which the dredged material was deposited to any
specified level. The Government only obligated itself to place upon
said land the material which should be dredged from the mouth of the
Iloilo River in the course of the improvement undertaken by the
Government in and near that place. Under the original contract as
originally drafted, the Government agreed to furnish 250,000 cubic
meters, more or less, of dredged material; but on March 14,1921, the
owners of the property indicated their acceptance of a modification of
the contract, effected by the Director of Public Works and the
Secretary of Commerce and Communications, in which it was made clear
that the material to be supplied would be such only as should be
dredged from the river as a result of the proposed improvement. In the
indorsement of the Director of Public Works, thus accepted by the
owners, it was made clear that the Bureau of Public Works did not
undertake to furnish material to complete the filling of the land to
any specified level. Proof submitted on the part of the owners tends to
show that parts of the filled land are still subject to inundation in
rainy weather; and it is contended that the owners have, for this
reason, been unable to sell the property in lots to individual
occupants. The sum of P15,000, which is claimed upon this account, as
damages, by the owners, is the amount of interest alleged to have
accrued upon their investment, owing to their inability to place the
land advantageously upon the market. The claim is, as already
suggested, untenable. There has been no breach on the part of the
Government in fulfilling the contract. In fact it appears that the
Government deposited in the period covered by the contract 236,460
cubic meters, and after the amount thug deposited had been reduced by
21,840 cubic meters, owing to the natural process of drying, the Bureau
of Public Works further deposited 53,000 cubic meters on the same land.
In this connection the district engineer testified that the filling
which has been charged to the owners at P70,938 actually cost the
Government the amount of P88,297.85. The charge made for the work was
evidently computed on a very moderate basis; and the owners of the
property have no just ground of complaint whatever.

The contention of Tan Ong Sze, widow of Tan Toco, to the effect that
she was not, and is not, bound by the contract of suretyship, is, in
our opinion, well founded. It will be remembered that said contract
purports to have been signed by Mariano de la Rama, acting for this
defendant under power of attorney. But the Government has exhibited no
power of attorney which would authorize the creation, by the
attorney-in-fact, of an obligation in the nature of suretyship binding
upon his principal.

It is true that the Government introduced in evidence two documents
exhibiting powers of attorney, conferred by Tan Ong Sze, upon Mariano
de la Rama. In the first of these documents (Exhibit K, identical with
Exhibit 6) Mariana de la Rama is given a power which reads as follows:

” * * * an(j ajso for me an(j jn my name to sign,
seal and execute, and as my act and deed deliver, any lease, any other
deed for the conveying any real or personal property or other matter or
thing wherein I am or may be personally interested or concerned. And I
do hereby further authorize and empower my said attorney to substitute
and appoint any other attorney or attorneys under him for the purposes
aforesaid, and the same again and pleasure to revoke; and generally for
me and in my name to do, perform and execute all and every other lawful
and reasonable acts and things whatsoever as fully and effectually as
I, the said Tan Ong Sze might or could do if personally present.”

In another document (Exhibits L and M), executed in favor of the
same Mariano de la Rama by his uncle Tan Lien Co, attorney-in-fact of
Tan Ong Sze, with power of substitution, there appears the following:

“* * * and also for her and in her name to sign,
seal and execute, and as her act and deed deliver, any lease, release,
bargain, sale, assignment, conveyance or assurance, or any other deed
for the conveying any real or personal property or other matter or
thing wherein she or may be personally interested or concerned.”

Neither of these powers specifically confers upon Mariano de la Rama
the power to bind the principal by a contract of suretyship. The
clauses quoted relate more specifically to the execution of contracts
relating to property; and the more general words at the close of the
quoted clauses should be interpreted, under the rule ejusdem generis,
as referring to contracts of like character. Power to execute a
contract of so exceptional a nature as a contract of suretyship or
guaranty cannot be inferred from the general words contained in these
powers.

In article 1827 of the Civil Code it is declared that guaranty shall
not be presumed; it must be expressed and cannot be extended beyond its
specified limits. By analogy a power of attorney to execute a contract
of guaranty should not be inferred from vague or general words,
especially when such words have their origin and explanation in
particular powers of a wholly different nature. It results that the
trial court was in error in giving personal judgment against Tan Ong
Sze upon the bond upon which she was sued in this case.

We now proceed to consider the last important disputed question
involved in the case, which is, whether the indebtedness owing to the
Government under the contract for filling the parcel of land already
mentioned is entitled to preference over the mortgage credit due to the
Philippine National Bank, as the trial judge held, or whether, on the
contrary, the latter claim is entitled to priority over the claim of
the Government. Upon entering into the discussion of this feature of
the case it is well to recall the fact that the bank’s mortgage was
registered in the office of the register of deeds of the Province of
Iloilo on November 26, 1920, while the filling contract was registered
on January 8, 1924, that is to say, there is a priority of more than
three years, in point of time, in the inscription of the mortgage
credit over the filling contract. It should also be noted that the
Government’s credit under the filling contract was made an express lien
upon the property which was the subject of the improvement.

In the brief submitted in behalf of the bank it appears to be
assumed that the Government’s credit under the filling contract is a
true refectionary credit (credito refaccionario) under
subsection 2 of article 1923 of the Civil Code. It may be observed,
however, that in a precise and technical sense, this credit is not
exactly of the nature of the refectionary credit as known to the civil
law. In the civil law the refectionary credit is primarily an
indebtedness incurred in the repair or reconstruction of something
previously made, such repair or reconstruction being made necessary by
the deterioration or destruction of the thing as it formerly existed.
The conception does not ordinarily include an entirely new work, though
Spanish jurisprudence appears to have sanctioned this broader
conception in certain cases, as may be gathered from the discussion in Enciclopedia Juridica Espanola
(vol. 26, pp. 888-890), s. v. Refaccionario. The question whether the
credit we are considering falls precisely under the conception of
refectionary credit in the civil law is in this case academic rather
than practical, for the reason that by the express terms of the filling
contract the credit was constituted a lien upon the improved property.
But assuming, as might be tenable in the state of the jurisprudence,
that said credit is a refectionary credit enjoying preference under
subsection 3 of article 1923 of the Civil Code, then the mortgage
credit must be given priority under subsection 2 of article 1927 of the
same Code, for the reason that the mortgage was registered first.

Possibly the simpler view of the situation is to consider the
Government’s right under the stipulation expressly making the credit a
lien upon the property, for it was certainly lawful for the parties to
the filling contract to declare the credit a lien upon the property to
be improved— to the extent hereinafter defined—whether the credit
precisely fulfills the conception of refectionary credit or not. In
this aspect we have before us a competition between the real lien
created by the registered mortgage and the real lien created by the
filling contract, of later registration.

The true solution to this problem is, in our opinion, not open to
doubt; and again the result is that priority must be conceded to the
mortgage. The mortgage was created by the lawful owners at a time when
no other competing interest existed in the property. The lien of the
mortgage therefore attached to the fee, or unlimited interest of the
owners in the property. On the other hand, the lien created by the
filling contract was created after the mortgage had been made and
registered, and, therefore, after the owners of the property had parted
with the interest created by the mortgage. The Government’s lien owes
its origin to the contract, and derives its efficacy from the volition
of the contracting parties. But no party can by contract create a right
in another intrinsically greater than that which he himself possesses.
The owners, at the time this contract was made, were owners of the
equity of redemption only and not of the entire interest in the
property, and the lien created by the contract could only operate upon
the equity of redemption.

In this connection we observe that, as the new material was
deposited from the Government dredges upon the property in question, it
became an integral part of the soil and an irremovable fixture; and the
deposit having been made under contract between the Government and the
owners of the equity of redemption, without the concurrence of the
mortgage creditor in said contract, the latter could not be prejudiced
thereby. The trial court, in declaring that the Government’s lien
should have preference over the mortgage, seems to have proceeded upon
the idea that, at the time the mortgage was created, the new soil had
not yet been deposited under the filling contract and that as a
consequence the mortgage lien should not be considered as attaching to
the value added by deposit of the additional material. This
proposition, however, overlooks the fact that the deposited material
became an irremovable fixture, by the act and intention of the parties
to the filling contract, and the lien of the mortgage undoubtedly
attached to the increment thus spread over and affixed to the mortgaged
land. If the idea which prevailed in the trial court should be accepted
as law upon this point, the result would be that a mortgage creditor
could, by the act of strangers, be entirely improved out of his
property by the making of improvements to which he had not assented.
This cannot be accepted as good law.

We may add that the case cannot, on this point, be resolved
favorably to the contention of the Director of Public Works, upon the
authority of Unson vs. Urquijo, Zuloaga & Escubi (50 Phil., 160),
for the reason that upon the deposit of the dredged material on the
land such material lost its identity. In the case cited the machinery
in respect to which the vendor’s preference was upheld by this court
retained its separate existence and remained perfectly capable of
identification at all times.

From what has been said it results that the appealed judgment must
be affirmed, and the same is hereby affirmed, in dismissing, in effect,
the cross-complaint filed by some of the defendants against the
plaintiff, Director of Public Works. Said judgment is further affirmed
in its findings, which are not in dispute, with respect to the amount
of the Government’s claim under the filling contract and the amount of
the mortgage credit of the bank, as it is also affirmed in respect to
the joint and several judgment entered in favor of the plaintiff
against Sing Juco, Sing Bengco, Tanboontien and Mariano de la Rama
Tanbunco, (alias Mariano de la Rama) for the amount found due to the
Government.

Said judgment, however, must be reversed, and the same is hereby
reversed, in so far as it holds that Tan Ong Sze, Viuda de Tan Toco, is
liable upon the contract of suretyship, and she is hereby absolved from
the complaint. The judgment must also be reversed in so far as it
declares that the Government’s lien under the filling contract is
entitled to priority over the bank’s mortgage. On the contrary it is
hereby declared that the bank’s credit is entitled to priority out of
the proceeds of the foreclosure sale, the residue, if any, to be
applied to the Government’s lien created by the filling contract, and
otherwise in accordance with law. For further proceedings an conformity
with this opinion, the cause is hereby remanded to the court of origin,
without pronouncement as to costs. So ordered.

Johnson, Villamor, Johns, Romualdez, and Villa-Real, JJ., concur.

Malcolm and Ostrand, JJ., also voted as indicated
in the dispositive part of this decision, but their names are not
signed to the opinion owing to their absence on leave at the time of
promulgation.