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THIRD DIVISION

[G.R. No. 120615. January 21, 1997]

HEIRS OF MANUEL T. SUICO, Petitioners, v. COURT OF APPEALS, MARLYN A. REYES and JULIE DURAN, Respondents.

D E C I S I O N

DAVIDE, JR., J.:

This is a petition for review of the decision¹ of the Court of Appeals in CA-G.R. SP No. 31456 annulling the decisions of the Regional Trial Court (RTC) of Cebu, Branch 24, in Civil Case No. CEB-13798,² and of the Municipal Trial Court in Cities (MTCC) of Cebu City, Branch 8, in Civil Case No. R-31419,³ for having been rendered without jurisdiction.

Civil Case No. R-31419 was an ejectment case filed by the petitioners.

The factual antecedents of this case were summarized by the Court of Appeals as follows:

The two (2) storey six (6) room residential building subject of the instant petition was originally owned by the late Emilia Suico, grandmother of petitioners, as shown by Tax Declaration No. 00188 (Rollo, p. 7; Exhibit B, p.51, Records). The same was being rented by private respondents from petitioners at the rate of P360.00 per month. (Rollo, pp. 7-8).

Finding this amount to be inadequate, sometime prior to April 1991, petitioners proposed to increase this amount to P1,200 a month. (Rollo, pp. 7-8) This was refused by private respondents.

In a letter dated July 26, 1991 (Rollo, p. 65), private respondents proposed a lease contract for a period of at least twenty five years at a monthly rental of P600.00 subject to an escalation of not more than ten (10%) percent per annum. This in turn was not accepted by petitioners.

The petitioners refused to receive the rentals tendered by private respondents as the latter insisted on paying the previous rate sought to be increased by petitioners. Because of private respondents failure to remit increased rentals, petitioners served on private respondents a notice to vacate the premises dated August 6, 1991. (p. 53, Records)

The petitioners then brought the case before the barangay for conciliation. After referral of the case to the barangay, private respondents informed petitioners for the first time that they had been depositing their monthly rentals in the amount of P450.00 with a reputable bank since August 1991 through a letter dated May 28, 1992. (Rollo, p. 66) Both parties failed to come to an agreement during the proceedings in the barangay court.

On June 23, 1992 petitioners filed a complaint for unlawful detainer against private respondents in the Municipal Trial Court of Cebu which was docketed therein as MTCC-R-31419. (Rollo, p. 5; Records, p. 1)

After joinder of issues, the MTC issued its preliminary conference order dated August 21, 1992 which defined the issues in this manner:

6. The legal issues: a) have the plaintiffs legal ground to eject the defendants? b) May the Court fix the period or term of lease? Stated otherwise, whether the defendants are entitled to the Courts discretion of fixing the lease extension? c) Is this particular lease covered by the house rental law? [Annex D, Petition; Rollo, p. 72]

On February 12, 1993 the MTC rendered its decision, the decretal portion of which reads as follows:

WHEREFORE, judgment is rendered on preponderance of evidence for the plaintiffs, as against the defendants who are ordered to viz:

1) Vacate the leased premises, together with any and all persons who may claim possession of the premises or any portion thereof from or through the defendants and turn over possession of the leased premises to plaintiffs; provided, that defendants are likewise ordered to remove the subject house, and all appurtenances thereto, at their own expense;

2) Pay plaintiffs rental arrears at Four Hundred Fifty (P450.00) Pesos a month, starting in April 1991 until the last month/date of occupancy; provided that in compliance herewith, defendants are ordered to turn over the original bank passbook to plaintiffs;

3) Pay plaintiffs Two Thousand (P2,000.00) Pesos as attorneys fee; Three Hundred (P300.00) Pesos as litigation expenses inclusive of filing fees and other incidental litigation expenses; and, the cost of suit.

Defendants counterclaims are hereby dismissed for lack of merit.

SO ORDERED. [Annex E, Petition; Rollo, p. 75]

Both parties appealed this decision to the Regional Trial Court of Cebu, and the appeal was raffled to Branch 24 thereof presided over by respondent Judge. On their part, petitioners appealed the portion of the MTC decision which recognized private respondents as the owners of the leased buildings. The private respondents, on the other hand, appealed the entire MTC decision.

On June 30, 1993 petitioners received the assailed decision of respondent RTC Judge dated May 25, 1993 the decretal portion of which reads as follows:

THE FOREGOING PREMISES CONSIDERED, judgment is hereby rendered, modifying the contested decision by fixing the period of the defendants lease for another five (5) years from date of this decision or until May, 1998, but during the lease period, the defendants shall continue paying a P450.00 monthly rental, subject to increase as may be allowed by law. After the expiration of [sic] aforementioned period, then, the property should be vacated by the defendants and the residential building together with all its permanent improvements on the leased property shall become the property of the plaintiffs.

SO ORDERED. [Annex A, Petition; Rollo, p.38]

On July 9, 1993, petitioners filed the instant Petition for Review, raising the following assignments of error:

THE RESPONDENT COURT ERRED IN SUSTAINING THE FINDINGS OF THE MUNICIPAL TRIAL COURT (MTC) THAT PRIVATE RESPONDENTS ARE THE OWNERS OF THE LEASED PREMISES WHICH DECLARATION AMOUNTS TO A DEPRIVATION OF PETITIONERS PROPERTY WITHOUT DUE PROCESS OF LAW.

WITH THE UNCOMMON ZEAL AND HASTE TO PROCLAIM THE PRIVATE RESPONDENTS AS THE OWNERS OF THE LEASED PROPERTY, RESPONDENT COURT ACTED ARBITRARILY IN FIXING THE PERIOD OF LEASE FOR FIVE (5) YEARS.

IN THE GUISE OF FIXING A PERIOD, THE RESPONDENT COURT NOT ONLY MODIFIED BUT COMPLETELY REVERSED THE DECISION OF THE MUNICIPAL TRIAL COURT WHICH UPHOLD [sic] THE RIGHT OF PETITIONERS TO EVICT PRIVATE RESPONDENTS. [Rollo, p. 9]⁴chanroblesvirtuallawlibrary

The Court of Appeals ruled that the MTCC had no jurisdiction over Civil Case No. R-31419, hence it nullified the decisions in Civil Case No. CEB-13798 and Civil Case No. R-31419, and ordered the dismissal of the complaint in Civil Case No. R-31419. In support of its disposition, the Court of Appeals ratiocinated as follows:

In so doing, both the trial court and respondent Judge were in error for the following reasons:

FIRST. The trial court had no jurisdiction whatsoever to award ownership of the disputed residential building since the only thing in issue in an unlawful detainer case is possession de facto and not ownership or possession de jure;

SECOND. The absurdity of the situation is readily apparent when we take into consideration the fact that private respondents are paying rent for the residential building over which they claim ownership. Why should they be paying rent for something which they own? And;

THIRD. Both parties claim ownership over the disputed residential building, and not merely a claim of better right to its possession.

In reiteration: the trial court had no jurisdiction to decide the issue of ownership of the house and to award the same in favor of any of the parties because as already stated above, under Section 33(2) of BP 129, in connection with Section 4, Rule 70 of the Revised Rules of Court, the trial court could only decide the issue of who as between the parties, had a better right to the possession of the disputed premises. It could not have validly made a determination and award of ownership to one of the parties as it had no jurisdiction to do so in the first place. Jurisdiction is conferred by law and cannot be conferred by the parties (Allied Developer and Steel Industries Inc. vs. Sarmiento Enterprises, Inc. G.R. No. 64735, 184 SCRA 153 [1990]; Philippine International Trading Corporation vs. M.V. Zileena G.R. No. 102904, 215 SCRA 309 [1992]); and all decisions rendered by a court without the requisite jurisdiction is a patent nullity. Respondent Judge could not therefore have validly modified the decision of the trial court on appeal, because in an appeal from an inferior court in an ejectment case the issue of ownership should not be delved into, for an ejectment action lies even against the owner of the property. The fact of possession in itself has a positive value and is endowed with the distinct standing of its own in the law of property. (Manuel vs. Court of Appeals, G.R. No. 95469, 199 SCRA 603 [1991].

In the Manuel case, supra., the Supreme Court further stated that:

Proceedings in forcible entry and detainer are wholly summary in nature. The fact of lease and the expiration of its terms are the only elements of its kind of action. The question of ownership is unessential and should be raised by the defendant on an appropriate action. Any controversy over ownership rights could and should be settled after the party who had the prior, peaceful and actual possession is returned to the property.

In the present case, and assuming the new factual milieu posited by petitioner, he should file a separate action wherein his alleged rights as owner of the land vis-a-vis the rights of private respondents as builders or owners of the structure standing thereon can be properly ventilated. There can be no such adjudication here for when the relationship of lessor and lessee is established in an unlawful detainer case, any attempt of the defendant to inject the question of ownership into the case is inutile except insofar as it might throw light on the right of possession. [At 608].

Since the issues in the trial court do not only raise the question of possession of the lot but also the ownership of the building constructed thereon and for its recovery, jurisdiction over the action is clearly vested in the Regional Trial Courts under Section 19, BP 129, the subject of the litigation being one incapable of pecuniary estimation, and not with the Municipal Trial Court.⁵

Their motion to reconsider the above decision having been denied by the Court of Appeals in its resolution of 29 May 1995,⁶ the petitioners filed this petition for review. They pray we set aside the decision of the Court of Appeals and affirm the decision of the MTCC in Civil Case No. R-31419 as the Court of Appeals erred:

... IN RULING THAT MTCC LOST THE JURISDICTION OVER THE UNLAWFUL DETAINER CASE FILED BY THE PETITIONERS WHEN THE ISSUE OF OWNERSHIP WAS RAISED BY PRIVATE RESPONDENTS IN THEIR PLEADINGS.

... WHEN IT ANNULLED THE DECISION OF THE MTCC DATED 12 FEBRUARY 1993.

... WHEN IT RULED TO DISMISS THE COMPLAINT FILED BY PETITIONERS FOR ALLEGED LACK OF JURISDICTION.⁷chanroblesvirtuallawlibrary

The private respondents maintain otherwise in their Comment and assert that the MTCC had, indeed, lost jurisdiction over the case when the petitioners themselves raised the issue of ownership. Nevertheless, they pray we uphold the decision of the RTC in Civil Case No. CEB-13798 should the challenged decision of the Court of Appeals be reversed.⁸

After the petitioners filed the required Reply to the private respondents Comment, we resolved to give due course to the petition and required the parties to submit their respective memoranda, which they complied with.

The core issue is whether the Court of Appeals committed reversible error in holding that the MTCC had no jurisdiction over the case because the issue of ownership of the building was raised.

We find for the petitioners. The Court of Appeals failed to fully appreciate the subject matter of the lease and the purpose of the private respondents claim of ownership over the building. The initiatory pleadings of the parties filed with the MTCC, together with the annexes thereto, disclose that the subject of the lease between the petitioners grandparents, as lessors, and the private respondents parents, as lessees, was a portion of the land and a small house with nipa roof, bamboo floors, and amakan walls. Parenthetically, it is settled that the lease of and rentals for a building include that of the lot on which it stands.⁹ The building was destroyed sometime in 1950 by typhoon Amy and the private respondents parents (the lessees) constructed a larger house of permanent materials. That the lease was principally over a portion of the lessors lot is admitted by the private respondents in paragraph 4 of the Affirmative Allegations in their Answer, to wit:

4. When the defendants family started to occupy the premises, there was only a tiny hut made of nipa roof, amakan walls, bamboo floor and tugas posts. This hut was completely destroyed by typhoon Amy. Defendants parents, thereafter, constructed a larger dwelling of permanent materials which has a present value of not less that P500.000.¹⁰chanroblesvirtuallawlibrary

Likewise in the 26 July 1991 letter of private respondent Marlyn A. Reyes to Manuel Suicos surviving spouse (one of the petitioners herein). Marlyn asserted:

This is in connection with your refusal to accept our rental payment and your demand to increase the land rental of our residential house...

Let it be recalled that we had been occupying and in possession of the land as tenants since 1949, while your mother-in-law (Lola Meliang) and beloved husband (Tiyo Maning) were still landlords. Also, please be reminded that said house was destroyed by typhoon Amy in the early 1950s and that the reconstruction of the building was undertaken by our family (with Tiyo Manings approval) at no cost to the Suico landlords.... (emphasis supplied)

A copy of the letter was attached as Annex 2 of the Answer in Civil Case No. R-31419.¹¹ In their reply¹² to this letter of Marlyn, the petitioners did not deny Marlyns claim that the old house was destroyed and a new one was built by the private respondents parents.

By their prayer in this petition that we annul the decision of the Court of Appeals and affirm the MTCC decision,¹³ the petitioners have unconditionally conceded to the finding of the MTCC that the building did not belong to their grandparents, as it was constructed by the private respondents parents.

The private respondents affirmative allegation of ownership of the building was raised merely to underscore their claim that the petitioners demand for a rental increase several times (more) than the prevailing rentals was harsh, and that the petitioners were trying to oppressively evict them from the premises, disregarding the close relationship between the petitioners parents and grandparents, on one hand, and the private respondents and their parents, on the other.¹⁴ It may also be noted that in the Prayer in their Answer, the private respondents never asked for payment of the value of their building, but only sought that the complaint be dismissed in toto, or in the alternative, that the lease period be fixed, with moral damages of P50,000.00 and attorneys fees and litigation expenses of at least P50,000.00, in either case.¹⁵chanroblesvirtuallawlibrary

Indisputably then, the subject matter of the verbal lease agreement between the petitioners grandparents and the private respondents parents was exclusively a portion of the lot described in the Complaint in Civil Case No. R-31419, after the latter constructed the building in question following the destruction of the old house by typhoon Amy.

The private respondents, moreover, did not set up in their answer to the complaint for ejectment, the defense of lack of jurisdiction of the MTCC on the basis of the issue of ownership of the building. Neither did they raise this before the RTC nor the Court of Appeals. In their Appeal Memorandum in Civil Case No. CEB-13798, they merely submitted the following Assignment of Errors and Contentions:¹⁶

Assignment of Errors

The lower court erred in holding that, since the lease was on a month-to-month basis and defendants-appellants did not accede to the increase in rentals, they had no alternative but to vacate.

The lower court erred in holding that the rules on consignation be followed strictly and that, since defendants-appellants failed to comply therewith, the demand to vacate on the basis of non-payment of rent was valid.

The lower court erred in holding that the length of stay of defendants-appellants in the premises militates against the fixing of the period of the lease.

Contentions

The increase in monthly rentals sought to be imposed by the plaintiff-appellees was contrary to law, and hence, could not be the basis for a valid demand to vacate nor for the termination of the month-to-month lease.

The deposit of the monthly rentals in the bank was sufficient compliance with the obligation of paying such rent upon the refusal by plaintiff-lessors to accept the same, there being no need to follow the strict rules on consignation.

In any event, the lease contract was for an indefinite period, and thus, the defendants-appellants had the right to ask the court to fix the period.

In their Answer in CA-G.R. SP No. 31456, the private respondents merely alleged, under the heading Contentions, that:

Based on the established evidence, this petition has no factual or legal basis. The Lease Contract between the parties had no definite period. Thus, the fixing of such period (for five years) conforms with the authority granted by the law upon the courts to determine such period. Moreover, the lease falls under the Rent Control Law; hence, the demand to vacate based upon a four-fold increased in rent was invalid and cannot be the basis for the termination of the lease.¹⁷chanroblesvirtuallawlibrary

The upshot of the foregoing is that the MTCCs lack of jurisdiction on the ground aforementioned was not even contemplated by the parties.

It was thus error for the Court of Appeals to annul the decisions of the MTCC and the RTC on the ground of lack of jurisdiction on the part of the MTCC owing to the allegations concerning ownership of the building.

The parties to the oral lease in question -- the petitioners grandparents and the private respondents parents -- did not fix a specified period therefor. However, since the rentals were paid monthly, the lease, even if verbal, may be deemed to be on a monthly basis, expiring at the end of every month, pursuant to Article 1687, in relation to Article 1673, of the Civil Code.¹⁸ In such case, a demand to vacate was not even necessary for judicial action after the expiration of every one month.¹⁹ In the instant case, however, the petitioners likewise demanded an increase in the rent since the private respondents did not use the building exclusively for their residence or dwelling, having used it for the conduct of their air-conditioning service and repair business.²⁰ Expectedly, the private respondents refused to pay the new rate of rentals.

Whether the demand was valid or otherwise is no longer in issue since the private respondents even prayed in their comment that we affirm the decision of the RTC should we reverse the decision of the Court of Appeals. The dispositive portion of the decision of the RTC reads as follows:

THE FOREGOING CONSIDERED, judgment is hereby rendered, modifying the contested decision by fixing the period of the defendants lease for another five (5) years from date of this decision or until May, 1998, but during the lease period, the defendants shall continue paying a P450.00 monthly rental, subject to increase as may be allowed by law. After the expiration of the aforementioned period, then, the property should be vacated by the defendants and the residential building together with all its improvements on the leased property shall become the property of the plaintiffs.²¹chanroblesvirtuallawlibrary

The issues left then involve the propriety of the extension of the term of the lease and the award of the ownership of the house in favor of the petitioners at no further cost to the latter upon the expiration of the extended term.

It has been held that the power of a court to extend the term of the lease under the second sentence of Article 1687 of the Civil Code²² s potestative, or more precisely, discretionary. The court is not bound to extend it, and its exercise depends upon the circumstances surrounding the case. It may grant a longer term where equities come into play.²³

The MTCC refused to grant the extension because the private respondents had already occupied the premises since 1949, or for more than half a century now, and while Article 1687 obviously considers a lessee whose occupancy has been for more than one (1) year, it is not that lopsided as to disregard altogether the lessors right not to be deprived of possession for so many years.... Basic common law principle of fairness and equity shuns property entailment that borders on perpetuity to the exclusion of the owner.²⁴ It cited Yek Seng Co. v. Court of Appeals²⁵ where this Court ruled as insufficient basis for extension of the term the circumstance that the petitioner therein had paid rentals religiously during the past twenty years, or the claim that the said petitioner had introduced substantial improvements and found difficulty relocating itself; and further stated that since the lease contract had already expired at the time the petitioner therein was asked to vacate the leased premises, the contract could no longer be extended. The MTCC then concluded:

On this issue therefore, this Court resolves against defendants. While this Court is not unmindful of the plight of the latter, the fact that plaintiffs have been deprived of their possession over the leased premises for so long a time militates against further deprivation by fixing a period of extension.²⁶

On the other hand, the RTC used the length of time (fifty years) and the value of the house constructed by the private respondents parents (substantially worth P500,000.00) as its justification to grant a 5-year extension, reckoned from the date of its decision (25 May 1993).

In light of the facts obtaining in this case, we find the MTCCs ruling more in accord with justice and equity. The private respondents and their parents had been in possession of the premises for 43 years when the complaint in Civil Case No. R-31419 was filed. Although the building is rather large as shown in the pictures,²⁷ and described in the Tax Declaration²⁸ as having a floor area of 165 square meters with a portion being used as a shop for the private respondents business, the private respondents were paying a relatively meager sum as rental, which started at P30.00 a month, and was at P360.00 immediately before the demand to increase to P1,200.00 was made. To the demand, the private respondents merely deposited P450.00 a month. Verily, the arrangement obviously worked in favor of the private respondents, a situation which could probably be explained by the admitted closeness of the relationship between the parties predecessors-in-interest -- the original lessors and lessees. In short, respondents were the recipients of greater benefits while petitioners were unable to have the full use and enjoyment of a substantial portion of their valuable property. The need to balance these interests, however, did not sanction an extension of the term. In any event, by these proceedings, the private respondents have effectively obtained an extension of nearly five years, i.e., from the filing of the complaint on 23 June 1992 up to the present.

The value of the house is inconsequential since it was built in 1950, and the private respondents can remove it if the petitioners opt not to retain it by paying the private respondents one-half () of its value pursuant to Article 1678 of the Civil Code. This Article provides as follows:

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, 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.

Under this Article, the petitioners (as lessors) would become the owner of the house constructed by the private respondents parents (lessees) by reimbursing the latter one-half () of the value of the house, a useful improvement, as of the termination of the extended term. The petitioners are thus given the option to pay such indemnity, while the private respondents do not have a right to demand that they be paid therefor. If the former refuses to reimburse the said amount, the latters remedy is to remove the house, even though the petitioners lot may suffer damage thereby, provided, however, that such removal should not cause any more impairment upon the lot than is necessary.²⁹

It necessarily follows that the RTC erred when it ruled that [a]fter the expiration of the aforementioned period, then, the property should be vacated by the defendants and the residential building, together with all its permanent improvements on the leased property shall become the property of the plaintiffs.

IN VIEW OF THE FOREGOING, judgment is rendered GRANTING the instant petition; SETTING ASIDE the challenged Decision of 20 January 1995 and Resolution of 29 May 1995 of the Court of Appeals in CA-G.R. SP No. 31456; REVERSING the Decision of 25 May 1993 of the Regional Trial Court of Cebu, Branch 24, in Civil Case No. CEB-13798; and REINSTATING the Decision of 12 February 1993 of the Municipal Trial Court in Cities of Cebu City, Branch 8, in Civil Case No. R-31419, subject to the modification that the private respondents, as lessees, may remove their house from the lot in question within sixty (60) days from finality of this Decision, unless within the same period the petitioners, as lessors, exercise their option under Article 1678 of the Civil Code by paying the private respondents one-half () of the value of such house, and should the parties be unable to agree on such value, the trial court of origin shall receive the evidence thereon and resolve the issue.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.