G.R. No. 142131 - Sps. Lacap vs. Jouvet Ong Lee

Prior to 1981, Victor Facundo mortgaged two parcels of land and the improvements thereon to Monte de Piedad Savings Bank.
In 1981, petitioner spouses Dario and Matilde Lacap assumed Facundo’s mortgage obligation to the bank.
Their failure to pay resulted in the bank foreclosing on the mortgage, during which the bank emerged as the highest bidder at auction and acquired title.

After foreclosure, the bank allowed the petitioner spouses to remain in the property as lessees with a monthly rental of P800.
Relying on the bank’s assurances that the property would be sold back to them, the petitioners introduced improvements allegedly amounting to P500,000.
When, on May 1, 1996, a representative of the petitioners offered payment for the rental, the bank refused on the ground that the property had been sold to another person.
Subsequent communications with the bank’s head office led the petitioners to submit a written offer of P1,100,000, which was subsequently rejected on May 22, 1996.

On June 20, 1996, the bank (and later respondent Jouvet Ong Lee) demanded that the petitioner spouses vacate the premises after notifying them that the property had been sold.
The petitioners filed a civil case for cancellation of sale and damages (including a claim regarding the validity of the bank’s promise to first offer the property), which is pending before RTC Branch 13 of Davao City.
Meanwhile, the respondent filed a complaint for unlawful detainer, resulting in a decision from the Municipal Trial Court in Cities (MTCC) of Davao City ordering the petitioners to vacate and to pay compensation, attorney’s fees, and other costs.

The MTCC rendered a judgment in favor of the respondent, ordering eviction, payment of reasonable compensation, attorney’s fees, and costs.
On appeal, the Regional Trial Court (RTC) of Davao City, Branch 11, affirmed the MTCC judgment with the modification that the respondent should reimburse the petitioners for the improvements made.
The respondent filed a motion for reconsideration, which led to an order allowing the petitioners to remain in the premises provided that ornamental improvements be removed and no further damage be caused.
The petitioners, persisting in their claims, challenged both the jurisdiction of the MTCC and the basis for indemnity for their improvements before the Court of Appeals.

The petitioners contended that the MTCC lacked jurisdiction as the case should be classified as an accion publiciana for the recovery of possession.
They further argued that they should not be treated merely as tenants but as builders in good faith entitled to indemnification under Article 448 of the Civil Code, instead of Article 1678.
They raised the issue of the validity of respondent’s title by alleging the bank’s breach of its promise to first offer the property to them.
The separate, pending cancellation of sale case was also cited to demonstrate that the issue of ownership intertwined with possession, which they argued should have been addressed by the lower courts.

Whether the Municipal Trial Court in Cities (MTCC) of Davao City had proper jurisdiction to hear the complaint for unlawful detainer filed by the respondent.
Whether the courts below erred by disregarding the petitioners’ argument concerning the recovery of the right to possess, which supposedly fell under an accion publiciana.

Whether the petitioners, by virtue of the improvements introduced, should be entitled to indemnification based on Article 448 of the Civil Code as builders in good faith.
Alternately, whether the indemnity should be governed by Article 1678 of the Civil Code considering that their status in the property was that of lessees.

Whether the petitioners could raise the defense of ownership by questioning respondent’s title, specifically based on the bank’s failure to first offer the property to them.
Whether such a defense falls within the ambit of Section 16 of the 1997 Rules of Civil Procedure.

Whether the petitioners’ strategy of raising the issue of ownership in the unlawful detainer case improperly splits their cause of action, given that a separate cancellation of sale action is pending before another RTC branch.