G.R. No. L-54526 August 25, 1986
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs. THE COURT OF APPEALS and THE CITY OF DAGUPAN, respondents.

FACTS

The City of Dagupan filed a complaint against the National Waterworks and Sewerage Authority (NAWASA), now the Metropolitan Waterworks and Sewerage System (MWSS), for the recovery of ownership and possession of the Dagupan Waterworks System. NAWASA defended its possession based on Republic Act No. 1383, which vested ownership of all waterworks systems in the government agency. The trial court, based on a stipulation of facts, ruled in favor of the City, declaring it the lawful owner. The court found NAWASA to be a possessor in bad faith because it introduced useful improvements to the system after the complaint was filed and after Supreme Court decisions had declared the taking of local waterworks systems without compensation unconstitutional. Consequently, the trial court denied NAWASA’s counterclaim for reimbursement of P255,000.00 spent on improvements. The Court of Appeals affirmed this decision.

ISSUE

Whether a possessor in bad faith has the right to remove the useful improvements it introduced on the property.

RULING

No, a possessor in bad faith has no right to remove useful improvements. The Supreme Court affirmed the appellate court’s decision. The legal logic is anchored on Articles 546, 547, and 549 of the Civil Code, which definitively state that a builder or possessor in bad faith is not entitled to indemnity for useful expenses. The law clearly provides that the owner of the property is entitled to all useful improvements without any obligation to reimburse the bad-faith possessor. The Court rejected MWSS’s argument that the cited Civil Code articles are ambiguous, holding they provide a clear rule denying any right to reimbursement or removal for a possessor in bad faith. The cases cited by MWSS, Mindanao Academy, Inc. vs. Yap and Carbonell vs. Court of Appeals, were distinguished and found inapplicable. In Mindanao Academy, the removable items were equipment and furniture, not integral improvements to a waterworks system. The Carbonell decision, which allowed removal based on equity, did not establish a controlling precedent as it lacked a clear majority and involved different equitable considerations absent in this case. The Court also noted the procedural flaw that the issue of removal was raised for the first time at the Supreme Court.