ADOLFO RACAZA, PETITIONER, VS. SUSANA REALTY, INC., RESPONDENT.

Racaza versus Susana Realty

The Case

This is a case of unlawful detainer, brought by Susana Realty, Incorporated, as lessor, against Adolfo Racaza, as lessee of a portion of land in Pasay City on which Racaza had built and kept a house. The landlord says the lease had expired and demands that the tenant vacate; the tenant says the municipal court never acquired jurisdiction because the suit came too late, and that in any event he should be paid for his improvements. The case matters because it fixes two working rules every practitioner must know: when the one-year period for unlawful detainer begins to run, and why a lessee is not a possessor in good faith and so recovers only half the value of his useful improvements.

Procedural History

Susana Realty filed a complaint for ejectment in the Municipal Court of Pasay City. After trial, that court ordered Racaza to vacate the premises and to pay fifteen pesos a month until he had done so, and dismissed his counterclaim for lack of merit. Racaza appealed to the Court of First Instance of Pasay, which again ordered his eviction and again threw out the counterclaim, this time for lack of jurisdiction, since the amount demanded was beyond the municipal court's power to grant. Racaza moved for reconsideration, failed, and appealed to the Court of Appeals. That court overruled his jurisdictional argument, holding that the one-year period should be counted from the second demand to vacate, but sustained his claim for improvements, applying Article 1678 of the Civil Code and awarding him one half of the fair market value of the house. His motion for reconsideration was denied, and he appealed to the Supreme Court.

Facts

Racaza began renting a portion of the respondent corporation's land on San Juan Street in Pasay City in 1952, when his wife bought an unfinished house already built on it. On the assurance of the respondent that the family could stay by paying a monthly rent of fifteen pesos, Racaza finished the construction of the house and the family lived in it.

On December 16, 1955, the respondent asked him to vacate because it needed the land. A complaint for ejectment followed on February 10, 1956, but it was dismissed for the respondent's failure to proceed to trial, and the family remained. On December 17, 1957, Racaza received another letter demanding surrender of the premises, and on February 19, 1958, a second ejectment suit was filed, alleging that the respondent needed the lot for constructing improvements and for other uses, and that despite repeated demands Racaza refused to leave.

In his answer, Racaza denied that the lease was on a month-to-month basis and claimed that his understanding was that he could stay as long as he paid the fifteen pesos monthly. By counterclaim he demanded twelve thousand pesos, which he said he had spent to finish the house. The courts below ordered him out; the Court of Appeals, while affirming the eviction, found the fair market value of the house to be seven thousand pesos and awarded him three thousand five hundred pesos.

Issues

• Whether or not the complaint stated a cause of action and vested jurisdiction in the municipal court, considering that it did not allege the date the unlawful detainer began.
• Whether or not the one-year period for unlawful detainer should be counted from the first demand to vacate, or from the first failure to pay rent, rather than from the second demand.
• Whether or not the lessee may recover the full value of his improvements under Article 448 of the Civil Code instead of one half under Article 1678.

Applicable Provisions

Article 1678 of the Civil Code governs the rights of a lessee who makes improvements:

If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary.

This is the provision the Court applies to fix the tenant's recovery at one half of the value of the improvements.

Article 1687 of the Civil Code supplies the period of a lease without a fixed term, and explains why the demand to vacate mattered here:

If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is daily. The courts may, however, fix a longer term for the lease, if the lessor should be prejudiced by the lease for a shorter term.

The Court used it to explain that the demand negated any inference that the lessor had agreed to extend the lease.

Ruling

On the first issue, the Court held that the complaint was not defective. The action was brought not on the theory that the lessee failed to pay rent, but on the theory that the lease had expired and the lessor had asked him to vacate. The averment that the lease was on a month-to-month basis was equivalent to an allegation that it expired at the end of every month. Hence it was immaterial that rents had not been paid since July 1955, since what made the petitioner liable for ejectment was the expiration of the lease. Demand to vacate was therefore unnecessary, for the rule requires previous demand only when the action is for failure to pay rent due or to comply with the conditions of the lease. Upon expiration, the lessee became a deforciant unlawfully withholding possession.

On the second issue, the Court held that the one-year period should not be counted from the first demand. Even if the action were based on non-payment of rent, the period should be reckoned from the second notice, on the theory that the lessor has the right to waive his action based on the first demand and to let the lessee remain in the premises. The action being founded on the expiration of the term, the demand merely evidenced the lessor's determination not to extend the lease.

On the third issue, the Court held that Article 448, in relation to Article 546, applies only to possessors in good faith, and lessees are not possessors in good faith, because they know that their occupation continues only during the life of the lease. They cannot recover the value of their improvements from the lessor, much less retain the premises until reimbursed. Their rights are governed by Article 1678, which allows reimbursement up to one half of the value of their useful improvements.

Doctrine

First, in unlawful detainer, previous demand is required only when the action is for failure to pay rent due or to comply with the conditions of the lease; where the action is to terminate the lease because of the expiration of its term, no such demand is necessary, and the lessee becomes a deforciant upon expiration.

Second, the one-year period is counted from the second demand to vacate, because the lessor may waive the action based on the first demand and suffer the lessee to remain.

Third, a lessee is not a possessor in good faith; he cannot invoke Article 448 and Article 546, and his recovery for useful improvements is limited by Article 1678 to one half of their value.

Disposition

The Supreme Court affirmed the decision of the Court of Appeals, with costs against the petitioner, so the lessor won the eviction and the lessee kept only the award of one half of the value of his improvements.

Remember This

Memorize the line that a lessee is not a possessor in good faith, so Article 448 does not apply and Article 1678 gives him only one half of the value of his useful improvements. Examiners use this case to test the counting of the one-year period in unlawful detainer and the distinction between an action on expiration of the lease and one for non-payment of rent.