Metropolitan Waterworks and Sewerage System (MWSS) vs.

CA and City of Dagupan (CITY)

The City of Dagupan (City) filed a complaint against NAWASA (now MWSS) for recovery of ownership and
possession of Dagupan Waterworks System. NAWASA invoked RA 1383 which vested upon it the
ownership, possession and control of all waterworks systems throughout Philippines and as one of its
counterclaims, asked for reimbursement of its necessary and useful expenses in making improvements.

Trial court ruled in favor of City and found NAWASA to be possessor in bad faith and not entitled to
reimbursement.

NAWASA appealed to CA and argued that City must be liable for amortization of the balance of the loan
NAWASA secured for the improvement of Dagupan Waterworks System. CA affirmed lower court ’s
decision and ruled that:

“..expenses were made in utter bad faith for they were made after the complaint was filed and after
numerous SC decisions declaring unconstitutional the taking by NAWASA of the patrimonial waterworks
systems of cities, municipalities and provinces w/o just compensation.

Under Art 456 of NCC, it is clear that a builder or possessor in bad faith is not entitled to indemnity for
any useful improvement on the premises”

MWSS, successor-in-interest of NAWASA appealed to SC raising as sole issue of WON it has the right to
remove all the useful improvements introduced by NAWASA to Dagupan Waterworks System,
notwithstanding the fact that NAWASA was found to be possessor in bad faith. It argues that Art. 546,
547 and 549 do not definitely settle the question of whether a possessor in bad faith has the right to
remove useful improvements. It invoked cases of Mindanao Academy v. Yap and Carbonell v. CA.

Basically, the main issue is: Does a possessor in bad faith have the right to remove useful improvements?

SC: NO!

Article 449 of CC provides that “he who builds, plants or sows in bad faith on the land of another, loses
what is built, planted or sown without right to indemnity." As a builder in bad faith, NAWASA lost
whatever useful improvements it had made without right to indemnity

Moreover, under Art 546, only a possessor in good faith shall be refunded for useful expenses with the
right of retention until reimbursed; and under Art 547, only a possessor in good faith may remove useful
improvements if it can be done w/o damage to the principal thing and if the person who recovers the
possession does not exercise the option of reimbursing the useful expenses.

The right given a possessor in bad faith to remove improvements applies only to improvements for pure
luxury or mere pleasure, provided the thing suffers no injury thereby and lawful possessor does not
prefer to retain them by paying the value they have at the time he enters into possession.

Mindanao Academy v. Yap does not support stand of MWSS. In that case, Court ruled that if the
defendant constructed a new building, as he alleges, he cannot recover its value because the
construction was done after the filing of the action for annulment, thus rendering him a builder in bad
faith who is denied by law any right of reimbursement. What Court allowed Yap to remove were the
equipment, books, furniture and fixtures brought in by him, because they were outside the scope of the
judgment and may be retained by him.

In Carbonell v CA, both the trial court and CA found that respondents Infantes were possessors in good
faith. On appeal, Court reversed decision and declared Carbonell to have superior right to the land. On
issue of WON the Infantes were possessor in good faith, 4 members ruled that they were not, but as a
matter of equity, allowed them to remove the useful improvements. Inasmuch as only four Members
concurred in ruling that respondents Infantes were possessors in bad faith and two Members ruled that
they were possessors in good faith, said decision does not establish a precedent. Moreover, the
equitable consideration present in said case are not present in the case at bar.

(In that case, Justice Teehankee (now Chief Justice) concurred on the same premise as the dissenting
opinion of Justice Muñoz Palma that both the conflicting buyers of the real property in question, namely
petitioner Carbonell as the first buyer and respondents Infantes as the second buyer, may be deemed
purchasers in good faith at the respective dates of their purchase. Justice Muñoz Palma dissented on the
ground that since both purchasers were undoubtedly in good faith, respondents Infantes' prior
registration of the sale in good faith entitled them to the ownership of the land.)