G.R. No. L-20330 December 22, 1966
ADOLFO RACAZA, petitioner, vs. SUSANA REALTY, INC., respondent.

FACTS

Petitioner Adolfo Racaza is the lessee of a portion of land in Pasay City owned by respondent Susana Realty, Inc. He began renting in 1952 after his wife bought an unfinished house on the lot, completing the construction based on respondent’s assurance of staying by paying a monthly rent of P15. On December 16, 1955, respondent demanded petitioner to vacate as it needed the land, leading to an ejectment complaint filed on February 10, 1956, which was later dismissed for respondent’s failure to proceed to trial. On December 17, 1957, respondent made a second demand to vacate, followed by another ejectment suit filed on February 19, 1958, alleging the lease was month-to-month and respondent needed the lot for improvements. Petitioner countered that the lease allowed him to stay as long as he paid rent and sought P12,000 as reimbursement for finishing the house. The municipal court ordered eviction and dismissed the counterclaim. On appeal, the Court of First Instance affirmed, ruling that unlawful detainer started from the second demand (December 17, 1957), placing the filing within the one-year jurisdictional period, and that the counterclaim was beyond the municipal court’s jurisdiction. The Court of Appeals affirmed jurisdiction but awarded petitioner P3,500 (half of the house’s P7,000 value) under Article 1678 of the Civil Code. Petitioner appealed to the Supreme Court.

ISSUE

1. Whether the municipal court had jurisdiction over the ejectment case, specifically if it was filed within one year from the accrual of the cause of action.
2. Whether petitioner is entitled to full reimbursement for his improvements under Article 448 of the Civil Code.

RULING

1. Yes, the municipal court had jurisdiction. The action was based on the expiration of the month-to-month lease, not on non-payment of rent. Under Article 1687 of the Civil Code, a month-to-month lease expires at the end of each month. Demand to vacate was unnecessary for such expiration but served to negate any lease extension. The cause of action accrued from the second demand (December 17, 1957), and the complaint filed on February 19, 1958 was within the one-year period for unlawful detainer. Even if based on non-payment, the period would be reckoned from the second demand, as the lessor could waive the first.
2. No, petitioner is not entitled to full reimbursement. Lessees are not possessors in good faith, as they know their occupancy is limited to the lease term. Article 448 (on good faith possession) does not apply. Rights are governed by Article 1678 of the Civil Code, which allows reimbursement of one-half the value of useful improvements. The Court of Appeals correctly awarded P3,500 based on the house’s fair market value of P7,000. The decision was affirmed.