HEIRS OF MANUEL T. SUICO, PETITIONERS, VS. COURT OF APPEALS, MARLYN A. REYES AND JULIE DURAN, RESPONDENTS.

Heirs of Suico versus Court of Appeals

The Case

This is a petition for review brought by the Heirs of Manuel T. Suico against the Court of Appeals, Marlyn A. Reyes, and Julie Duran. The petitioners are the lessors of a parcel of land in Cebu on which the private respondents, as lessees, had long maintained a residential building. The action began as a complaint for unlawful detainer filed by the petitioners before the Municipal Trial Court in Cities of Cebu City. The case matters because it draws the boundary between the jurisdiction of the municipal trial court in an ejectment suit and the question of ownership, and because it explains how the court should treat the lessee's claim over a building erected on the leased lot, and whether the term of the lease should be extended.

Procedural History

The petitioners filed a complaint for unlawful detainer before the Municipal Trial Court in Cities of Cebu City. After the preliminary conference, the trial court rendered judgment in favor of the petitioners, ordering the private respondents to vacate the premises, to pay rental arrears, attorney's fees, litigation expenses, and the costs of suit, and dismissing the counterclaims.

Both parties appealed to the Regional Trial Court of Cebu, Branch 24. The Regional Trial Court modified the decision of the trial court by fixing the period of the lease for another five years from the date of its decision, or until May 1998, at a monthly rental of 450 pesos subject to increase as may be allowed by law, and ruled that after that period the property should be vacated and the residential building, together with all its permanent improvements, should become the property of the petitioners.

The petitioners then elevated the matter to the Court of Appeals, which annulled the decisions of both the Regional Trial Court and the Municipal Trial Court in Cities on the ground that they had been rendered without jurisdiction, and ordered the dismissal of the complaint. The Court of Appeals held that the trial court had no jurisdiction to decide the issue of ownership of the house, since an ejectment case concerns only possession de facto and not ownership. The petitioners' motion for reconsideration was denied, so they filed this petition for review before the Supreme Court.

Facts

The subject of the lease was originally a portion of the lot owned by the petitioners' grandmother, Emilia Suico, together with a small house of nipa roof, bamboo floors, and amakan walls. The private respondents' parents occupied the premises as tenants beginning in 1949, paying a monthly rental that started at 30 pesos and stood at 360 pesos immediately before the demand for an increase.

Sometime before April 1991, the petitioners proposed to raise the monthly rental to 1,200 pesos, but the private respondents refused. The private respondents then proposed a lease of at least twenty five years at 600 pesos a month with an escalation of not more than ten percent per annum, which the petitioners in turn rejected. Because the private respondents insisted on paying the old rate, the petitioners refused to receive the tendered rentals and served a notice to vacate dated August 6, 1991. The matter was brought before the barangay for conciliation, where the private respondents disclosed for the first time that since August 1991 they had been depositing 450 pesos a month with a bank. Conciliation failed.

Earlier, in 1950, the original small house had been destroyed by typhoon Amy, and the private respondents' parents constructed a larger dwelling of permanent materials on the lot. The private respondents raised their claim of ownership over this building in their answer, asserting that their family had reconstructed it at no cost to the Suico landlords. The petitioners, in turn, appealed the portion of the trial court decision that recognized the private respondents as owners of the building.

Issues

• Whether or not the Municipal Trial Court in Cities lost jurisdiction over the unlawful detainer case when the issue of ownership of the building was raised by the private respondents in their pleadings.
• Whether or not the Court of Appeals erred in annulling the decision of the Municipal Trial Court in Cities and in dismissing the complaint for alleged lack of jurisdiction.
• Whether or not the Regional Trial Court properly extended the term of the lease and awarded ownership of the building to the petitioners upon the expiration of the extended term.

Applicable Provisions

Article 1687 of the Civil Code, which governs the term of a lease without a fixed period, provides:

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 to be paid daily. Even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month.

This provision bears on the case because the oral lease had no fixed period, the rentals were paid monthly, and the courts are given discretion to fix a longer term.

Article 1678 of the Civil Code, which governs useful improvements made by the lessee in good faith, provides:

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 at that time. 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, cause any more impairment upon the property leased than is necessary. With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished.

This provision bears on the case because the house built by the private respondents' parents is a useful improvement, and it governs who may keep it and on what terms upon the termination of the lease.

Ruling

On the first issue, the Court ruled for the petitioners. The Court of Appeals failed to appreciate the true subject matter of the lease and the purpose of the private respondents' claim of ownership. The lease was principally over a portion of the lessors' lot, as the private respondents themselves admitted when they wrote that the reconstruction of the building was undertaken by their family at no cost to the Suico landlords. Their affirmative allegation of ownership was raised merely to underscore their claim that the demand for a rental increase was harsh and that they were being oppressively evicted. They never asked for payment of the value of their building. The private respondents also never raised the defense of lack of jurisdiction before the trial court, the Regional Trial Court, or the Court of Appeals. Hence, it was error for the Court of Appeals to annul the decisions on the ground of lack of jurisdiction.

On the second issue, the Court held that the annulment and the dismissal of the complaint were improper, for the reasons just stated. The municipal trial court had validly acted on the ejectment case.

On the third issue, the Court found the ruling of the Municipal Trial Court in Cities more in accord with justice and equity than the extension granted by the Regional Trial Court. The power of a court to extend the term of the lease under Article 1687 is discretionary, and the court is not bound to extend it. The private respondents had been in possession for forty three years when the complaint was filed, paying a relatively meager rental, so that the arrangement worked in their favor. The need to balance the interests of the parties did not sanction an extension of the term. As to the building, the Court held that the value of the house is inconsequential, since it was built in 1950 and the private respondents may remove it if the petitioners opt not to retain it by paying one half of its value under Article 1678. The Regional Trial Court therefore erred in ruling that the building and its improvements would automatically become the property of the petitioners upon the expiration of the extended term.

Doctrine

An ejectment case concerns only possession de facto, and the municipal trial court may not adjudicate ownership. But the mere raising of a claim of ownership by the defendant does not divest the municipal trial court of jurisdiction over the unlawful detainer case, especially where the claim is raised only to resist the demand for a rental increase and not to recover the property. The subject matter of the lease, as shown by the initiatory pleadings and the admissions of the parties, determines whether the action remains one of possession.

The power of a court to fix a longer term of the lease under Article 1687 of the Civil Code is discretionary, not mandatory, and its exercise depends on the circumstances of the case. Length of occupancy alone does not entitle the lessee to an extension.

Where the lessee has made useful improvements in good faith, the lessor who wishes to keep them upon the termination of the lease must pay one half of their value under Article 1678 of the Civil Code. If the lessor refuses, the lessee may remove the improvements, causing no more impairment on the property than is necessary.

Disposition

The Supreme Court granted the petition, set aside the decision and resolution of the Court of Appeals, reversed the decision of the Regional Trial Court, and reinstated the decision of the Municipal Trial Court in Cities, subject to the modification that the private respondents, as lessees, may remove their house from the lot within sixty days from the finality of the decision, unless within the same period the petitioners opt to retain it by reimbursing one half of its value.

Remember This

The single line to memorize is that a defendant's claim of ownership does not automatically strip the municipal trial court of jurisdiction in an unlawful detainer case, and that the extension of a lease term under Article 1687 is discretionary. Examiners like to use this case on the jurisdiction of the municipal trial court in ejectment suits and on the rights of a lessee over useful improvements under Article 1678.