G.R. No. L-14594, January 29, 1920
EDUARDO RIVERA, et al., plaintiffs-appellants, vs. THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, defendant-appellee.

FACTS:
The plaintiffs-appellants constructed fish ponds on parcels of land forming part of the “Hacienda de Sta. Clara.” The Supreme Court, in a prior land registration case ( G.R. No. 8719 ), decreed the registration of the entire hacienda in the name of the defendant-appellee, the Roman Catholic Archbishop of Manila, as the absolute owner. The plaintiffs, who had been in possession of the land and enjoying the fish ponds, were defeated in their possession by virtue of that decision. They filed an action praying that the defendant be ordered to pay them the value of the fish ponds as useful improvements made in good faith and that their right to retain the land until paid be recognized. The defendant denied the allegations, asserted that the matter was res judicata, claimed the plaintiffs’ possession was not in good faith, and filed a counterclaim for unpaid rent. The trial court absolved both parties from each other’s claims.

ISSUE:
Whether the plaintiffs, as possessors of the land, are entitled to indemnity from the landowner for the value of the fish ponds they constructed, based on the provisions of the Civil Code regarding useful expenditures made in good faith.

RULING:
No. The Supreme Court affirmed the trial court’s judgment, absolving the defendant from the complaint.
The Court applied Articles 361-364 and 451-457 of the Civil Code. It first determined that the expenditures for constructing the fish ponds were “useful expenditures” under Article 453, as they were neither necessary nor purely for luxury or mere pleasure.
The crucial question was the good faith of the possessors (plaintiffs). The Court held that the plaintiffs did not possess the land in good faith. The prior registration decision established the defendant’s ownership and possession of the land. The plaintiffs’ possession, at most, was that of mere usufructuaries who profited from the land without the owner’s consent and without paying rent, which constitutes bad faith. Possession in good faith requires a belief in one’s ownership; the plaintiffs could not have held such a belief after the final registration decree declared the defendant the absolute owner.
Furthermore, there was no evidence to prove the defendant acted in bad faith by knowingly permitting the commencement of the construction, as required by Article 364 to impose an obligation on the owner. Mere tolerance of the existence of the improvements is not equivalent to bad faith.
Since the plaintiffs were possessors in bad faith, they are not entitled to indemnity for the useful expenditures under Article 453. The defendant, as the owner, has the right to appropriate the improvements without obligation to pay.