FACTS:

The petitioner spouses Dario and Matilde Lacap assumed the mortgage obligation of Victor Facundo to the Monte de Piedad Savings Bank. The bank foreclosed on the mortgage and emerged as the highest bidder during the auction sale, acquiring title to the property. The bank allowed the petitioner spouses to stay on the property as lessees, but they introduced improvements on the premises based on the bank's assurance that the property would be sold back to them. However, the bank refused to accept their rental payments, claiming that the property had already been sold to another person. The bank advised them to submit a written offer to repurchase the property but eventually turned down the offer. The respondent, Jouvet Ong Lee, claimed ownership of the property and demanded that the petitioner spouses vacate. The petitioner spouses filed a civil case for cancellation of sale and damages against the respondent, which is still pending. Meanwhile, the respondent filed a complaint for unlawful detainer against the petitioner spouses, which was granted by the Municipal Trial Court. The decision was affirmed by the Regional Trial Court with the modification that the respondent should reimburse the petitioner spouses for the improvements made on the property. The respondent filed a motion for reconsideration, which was granted, allowing the petitioner spouses to leave the property but requiring them to remove the improvements. The petitioner spouses appealed to the Court of Appeals, but their petition was dismissed. They raised two issues before the Supreme Court: (1) whether the municipal trial court had jurisdiction over the unlawful detainer case, and (2) whether the court correctly applied Article 1678 instead of Article 448 of the Civil Code regarding indemnity for the improvements made on the property.

ISSUES:

1. Whether or not the Court of Appeals correctly ruled on the jurisdictional question, particularly the jurisdiction of the Davao City Municipal Court over the unlawful detainer case filed by the respondent.

2. Assuming that the Davao City Municipal Court had jurisdiction, whether or not the Court of Appeals correctly applied Article 1678 instead of Article 448 of the Civil Code with regard to indemnity for the improvements introduced by the petitioners on the subject property.

RULING:

1. The Court of Appeals correctly ruled on the jurisdictional question. The municipal trial court had jurisdiction over the case because the complaint sufficiently alleged that possession was unlawfully withheld from the respondent, the registered owner, and the petitioners refused to vacate the premises despite demands.

2. The Court of Appeals correctly applied Article 1678 instead of Article 448 of the Civil Code in determining indemnity for the improvements introduced by the petitioners. The petitioners cannot be considered builders in good faith because they paid rentals to the bank, indicating that they were mere lessees.

PRINCIPLES:

• The court with jurisdiction over an unlawful detainer case is determined by the allegations in the complaint, particularly whether possession is unlawfully withheld from the registered owner.

• The determination of ownership is not within the jurisdiction of the court in an unlawful detainer case and cannot be ruled upon.