Lacap v Lee G.R. No. 142131, December 11, 2002 Ponente: J. Corona.

Digest Prepared by: Roxas Facts: [1981] Victor Facundo, the original owner, mortgaged 2 parcels of land and the improvements thereon to Monte de Piedad Savings Bank (Bank). Petitioner, Lacap spouses, assumed the mortgage and took possession of the property. However, Lacap sps failed to pay, and the Bank foreclosed on the mortgage. An auction sale was conducted, where the bank was the highest bidder, and the title passed on to the bank. The bank allowed the Lacap sps to continue staying in the premises as lessees paying a monthly rental of Php800. The Lacap sps, relying on the banks assurances that the property would be sold back to them, allegedly made numerous improvements amounting to Php 500,000 [May 1996] Lacap called the banks head office, and spoke to the VP of Assets division who advised them to submit a written offer to the bank for Php1.1m, they did so the next day. Their offer however, was refused by the bank. [June 1996] The Lacap spouses received a letter from the bank demanding that they vacate the property because it was already owned by Respondent, Lee.

Procedural Progression: 1st case- Petitioner, Lacap, filed a complaint for cancellation of sale and damages with an application for preliminary injunction before the 13th branch of the RTC of Davao. *This case is still pending, and its pendency was not discussed by the MTC, RTC or CA in the 2nd case* 2nd Case- While the first case was pending, Respondent, Bank filed a complaint for unlawful detainer against the Lacap spouses before the 4th Branch of the MTC of Davao. MTC decided in favor of the Bank and ordered the Lacap sps to vacate the premises and pay rents. On appeal, the RTC affirmed the MTC with the modification that the Bank should reimburse Lacap for the improvements they introduced on the premises. The Bank filed an MR before the RTC, praying that the order to reimburse be deleted. The MR was granted, and the RTC ordered Lacap to leave the premises but allowed them to take the improvements introduced, even if it should cause some damage to the property. Lacap appealed to the CA alleging that the MTC where the case was originally filled did not have jurisdiction over the case, as the complaint for unlawful detainer involved recovery of the right to possess, which is a matter cognizable by the RTC. CA denied the appeal, and found that MTC had jurisdiction over the case since the complaint itself sufficiently alleged that possession was unlawfully withheld from the bank, who is the registered owner, and that Lacap was not a building in good faith, applying the rules under Art 1678 in indemnification for the improvements made. Initially, the Lacap spouses in their appeal to the SC, raised as an issue the jurisdiction of the MTC over the unlawful detainer case which involved a question of ownership, but this position was abandoned.

Issue/ Ratio 1. WON the courts a quo should have resolved the question of ownership as a pre-requisite to the determination and resolution of the issue of physical possession. [No. Lacap merely alleged a violation of their right of first refusal, even if it were true, such is not the definition of ownership as contemplated under Rule 70.16 under which the question of ownership must be resolved as a pre requisite to the resolution of the issue of possession Further, the resolution of the issue of ownership is barred by litis pendentia, as Case#1 is still pending before the RTC] Petitioner Lacap Spouses argue: As they are questioning the title of the bank over the subject property, the case for unlawful detainer is not limited to a question of possession but involves a question of ownership, and thus the lower courts (RTC&CA) erred in failing to apply Rule 70.16. They should not have evaded ruling on the issue of ownership as it is a pre-requisite to the determination and resolution of the issue of physical possession. Rule 70.16 Resolving defense of ownership. When the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession. SC: The defense of ownership contemplated by 70.16 refers to a situation where the defendants either claim ownership of the subject property or attributes said ownership to another person other than the Bank. It does not apply where the defendants merely question the validity of the title of the Bank. Thus, the Lacap spouses must anchor the legality of their material possession of the property on a claim of title in order for the court to be able to touch, at least provisionally and only for purposes of determining possession, on the legality of the issue of ownership. In this case, the Lacap sps do not claim ownership over the property to support their right to possess the property. Neither do they claim that they have a better right over it by way of transfer of title. The alleged violation of their right of first refusal even if true, is not the definition of ownership contemplated in 70.16 because said violation, would only give a cause of action for damages, on grounds of breach of contract, but not an action for recovery of title. Another reason why the issue of ownership cannot be ruled on, is the fact that the same issue is also the subject of a separate pending case for cancellation of sale (Case #1) pending before the 13th branch of the Davao RTC. To question the ownership of the bank, would be to raise a defines that serves as the main cause of action in the complaint filed before the 13th RTC branch. This legal strategy is prohibited by the rule on litis pendentia. To ask the court to rule on the defense of ownership then, would be to pre-empt the ruling of the RTC. A party is prohibited from splitting his cause of action for the reason that it will unnecessarily clog court dockets.

2. WON CA correctly applied Art 1687 instead of Art 448 of the Civil Code w/ regard to indemnity for improvements introduced by the spouses on the property. Petitioner Lacap spouses argue: They should be treated as builders in good faith, entitled to reimbursement for necessary and useful expenses with right of retention, in as much as they were not lessees and paid no rentals.

SC: Although in the beginning the Lacap spouses were in good faith, as they were made to believe that they had a claim of title over the property by assuming the mortgage and possessing the property, all this changed when they started paying monthly rentals to the bank after the foreclosure of the property. Since from the fact of the existence of the tenancy relationship, the Lacap spouses admitted the validity of title of their landlord, it negates their previous claim of title. Hence the applicable provision is Art. 1687

Art. 1678. 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, however, 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 cause to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished. Held: Lacap Spouses are therefore entitled to be paid only one-half of the value of the useful improvements at the time of the termination of the lease or to have the said improvements removed if the respondent refuses to reimburse them. Petition Denied, CA decision appealed from is affirmed.