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Pedro Pecson was the owner of a commercial lot on which he built a 4-door-2-storey apartment building. He failed to pay realty taxes amounting to P12k so the lot was sold at public auction to Mamerto Nepomuceno who later on sold it to the Sps. Nuguid.

Pecson challenged the validity of the auction before the RTC but was dismissed but the RTC held that the apartment bldg was not subject of the litigation. On appeal, the CA appealed in toto the decision of the RTC that the apartment bldg was not included in the auction sale.

After an entry of judgment was made, the Sps. Nuguid filed a motion with the RTC for a motion for delivery of possession of the lot and the apartment bldg citing Art. 546 of the CC. The RTC issued an order declaring that the owner of the lot and apartment bldg were the Sps. Nuguid and to pay the construction cost of the apartment before a writ of possession would be issued and to pay rent to the spouses. Pecson moved for reconsideration but the Trial court did not act on it, instead it issued a writ of possession. The CA affirmed in part the decision declaring the cost of construction can be offset from the amount of rents to be collected and that since Sps. Nuguid opted to appropriate the improvement, Pecson is entitled to be reimbursed the cost of construction at the time it was built in 1965 which is at P53k and the right the retain the improvement until full indemnity is paid.

Thus the case at bar.

Whether or not Art. 448 and 546 applies in the case at bar Whether or not the payment should be the fair market price Whether or not petitioner should pay rentals


> With regard to Art. 448, the provision on indemnity may be applied in analogy. Whoever is the owner of the land may appropriate whatever has been built, planted or sown after paying indemnity. However, it does not apply when the owner of the land is also the builder of the works on his own land who later on loses ownership by sale or donation.Here, the issue of good or bad faith is irrelevant. Article 448 applies only where there are 2 people,the BSP and the Landowner, claiming ownership of the same land.

>Art 448 can be applied to the case at bar by analogy considering its intent is not to force the 2 persons into co ownership.

> Art. 546 refers to the necessary and useful expenses which shall be refunded to the possessor in good faith with right of retention. However, it does not state how to determine the value of the useful improvement. The respondents [court and private respondents alike] espouses as sufficient reimbursement the cost of construction in 1965, however, this is contrary to previous rulings which declares that the value to the reimbursed should be the present market value of said improvements so as not to unjustly enrich either of the parties and to administer complete justice to both. [the trial court erred in ordering Pecson to pay rent since the Sps. Nuguid has yet to pay the indemnity therefore Pecson has the right to retain the improvements and the income thereof. The case was remanded to the trial court for determination of the current market value of the apartment bldg and ordered the Sps to pay Pecson otherwise it shall be restored to Pecson until payment of indemnity.] In summary, the value of the improvement shall be based on the markwt value at the time of the trial

>petitioner should not pay rentals anymore because he has the right to retain the improvements while indemnity is not paid which implies the tenancy or possession in facr o the land.


Both pairs of spouses, Sps. Benitez and Macapagal bought parcels of land wherein the latter found that the Sps. Benitez encroached on a portion of their land. The Sps. Macapagal filed an action to recover possession of said portion and after which a compromise was reached

wherein the Sps. Macapagal would sell the encroached portion to the Benitez. The Sps. Macapagal bought another lot adjacent to that of the Sps. Benitez and found that the Sps. Benitezs house encroached a portion of their lot [again]. After refusing to vacate despite verbal and written demands, the Sps. Macapagal filed an action for ejectment against the Sps. Benitez [within 1 year from the last demand]. The Metropolitan Trial Court (MeTC) decided in favor of Sps. Macapagal. On appeal the RTC and the CA affirmed in toto said decision. Thus the case at bar.

(1) Whether or not an action for ejectment is the proper remedy to recover possession of the encroached portion (2) Whether or not Sps. Benitez can be made to pay rent (3) Whether or not the option to sell exclusively belongs to the owner

(1) YES, Sec. 1 Rule 70 of the Revised Rules of Court allows any person unlawfully deprived of possession by FISTS or after expiration of right to hold possession within 1 year from unlawful deprivation to bring an action to recover possession. Forcible entry requires prior physical possession but unlawful detainer does not require prior physical possession. Actual or physical possession is not always necessary. And possession is not only acquired through material occupation but also when a thing is subject to the action of ones will or by the proper acts and legal formalities established for acquiring such right, through execution of deed of sale. [since it is a proper remedy, the MeTC has jurisdiction to hear the matter]

(2) YES, The rent to be paid arises from the loss of the use and occupation of the property and is technically damages. Therefore since petitioners benefited from the occupation of the property it is only just that they be made to pay damages in the form of rent. (3) YES, Art. 448 of the CC mandates that the option to sell the land on which another in good faith builds, plants or sown on, belongs to the owner. The reason for this is because the owners right is older and by principle of accession, he is entitled to the ownership of the accessory thing. Another reason is that it states the option to sell and not to buy.Not even a declaration of ba faith on the part of BPS gives him the choice to buy.

Petitioner bought a lot together with the building and improvements including the wall which encroached that of the defendant. Upon learning of such encroachment, petitioner offered to buy the land but defendant refused. After 2 years, through an agreement, petitioner agreed to demolish the wall (but the case did not state what happened to this agreement, my assumption is that it did not happen due to conflicts that arose after) Defendant dug a canal along the wall which caused a portion of it to collapse. Petitioner filed a supplemental complaint re the action and a separate criminal action of malicious mischief (which the wife was convicted of) RTC decided for the petitioners and the CA reversed. Note that respondent wants to have the wall demolished.

A. Whether or not petitioner is a builder in bad faith because it is 'presumed to know the metes and bounds of his property.' A.1 does the right of BSP in Art. 448 passes to the buyer? B. Whether or not amicable settlement was a proper remedy C. Whether or not respondent can opt to demolish the structure without exercising the option to sell the land to the petitioner and the latter cannot do buy the same

RULING: Petition was granted.

Good faith or Bad Faith No such doctrinal statement that supports that the knowledge of metes and bounds of a land due to the Torrens system would amount to bad faith if there was encroachment on the land of another. A. When the petitioner purchased the lot, the wall was already built. Even the respondent did not know about the encroachment until he has hired a surveyor. There is assumption of good faith unless contrary proved. Good faith consist of the belief that the builder believes that the land he is building on is his and an ignorance of any defects of his title. While one acquires the property from another, the bad faith of the latter in relation to the property is evidence against the buyer. But, possession acquired in good faith is presumed inless contrary is proved.Unless one is versed with the science of surveying, no one can determine the precise extent of his property A1. Yes, Buyer of the enchroaching land from the BSP makes him step in the shoes of the seller in regards to all the right to the immovable sold including the right to compel respondent to chose any of the two in Art 448 B. Where one derives title to the property from another, the act, declaration, or omission of the latter, while holding the title, in relation to the property, is evidence against the former. And possession in good faith does not lose this character except when the possessor is aware of this impropriety. C. The encroachment was very narrow which can be considered as a mere error. Remedy the petitioner, despite being a purchaser of the original builder, can compel the landowner to either buy the property or sell the piece of land because:

1. He was really unaware of the encroachment basing on the fact presented by both sides. 2. When the petitioner bought the land, he has stepped into the rights of the original owner (hence, the right to compel the LO to buy or sell is also transferred)

Estoppel Petitioner is not considered in estoppel only because it has previously agreed to demolish a part of the wall. Rather, it was to be negotiated by the parties concern. In the meantime, petitioner has to pay the rent for the property occupied by its building only up to the date when respondent serves notice of their option. Case remanded back to the trial court for determination of the value of the land and the number of days to allot for the respondent to choose an option.


In a complaint filed by the petitioner for recovery of possession against defendants, CFI ruled declaring respondent Nilo Madlangawa a builder in good faith. CA affirmed and SC dismissed respondents motion for recon for lack of merit.

Petitioner filed with the trial court motion for the approval of the petitioner's exercise of option and for satisfaction of judgment(that is final and executory) which was dismissed. Hence this petition for mandamus. However, since there is a pending case (Manotok v. NHA) involving the expropriation of the land in question it is better to suspend the current case til after the outcome of the expropriation proceedings is done. Moreover, a fire engulfed the Tambunting estate covering the disputed area of the land.The expropriation case was not granted and the law that provided for such was declared unconstitutional.

Due to the fire, petitioner is contending that the execution of the decision must now involve the delivery of possession.

Whether or not there should be a delivery of possession by the respondent to the petitioner

When the decision of the trial court became final and executory, it becomes incumbent upon the respondent judge to issue the necessary writ for the execution of the same. Since the improvements have been gutted by fire, and therefore, the basis for private respondent's right to retain the premises has already been extinguished without the fault of the petitioner, there is no other recourse for the private respondent but to vacate the premises and deliver the same to the petitioner.

Respondent cant dismiss the execution only because respondent was a builder in good faith that he made major repairs on the improvement. Such subsequent repairs are in bad faith because his good faith ceases after the filing of the complaint against him.


Before Ernesto Valentino and Rebecca Lorenzo wed, Rebeccas mother offered a lot in Paranaque that they could build their house on. In 1967, they finally built their home which cost about PhP8,000-10,000, thinking that someday, the lot would be transferred to them in their name. It turns out, though, that the lot was owned by the Spouses Santos who , in turn, sold the same to Leonila Sarmiento in 1974. A year later, Sarmiento ordered the Valentinos to vacate their lot, then eventually filed and Ejection Suit against them.

The lower court ruled in Sarmientos favor and ordered her to pay 20,000 as the value of the house. But the case was then elevated to the CFI of Pasay (w/ Agana as Judge), and pursuant to Art.448 of the CC (March 1979), the Court ordered Sarmiento to exercise the option in 60 days to pay Ernesto 40,000 as the value of the house or to let them purchase the land for 25,000. Sarmiento was not able to exercise this option, and the CFI allowed Ernesto to deposit the 25,000 purchase price with the Court.

Whether or not the land owner is compelled to exercise either option: to buy the building or to sell the land?

Ernesto and his wife (BPS) were clearly in good faith as they believed that Rebeccas mother has the capacity to eventually transfer the title of the land to them. In line with this, Sarmiento (LO) was required to exercise only 2 options: To purchase the house or to sell the land to them, in this case, based on the value decided by the courts. Since Sarmiento failed to exercise the option within the allotted period, and based on Art. 448, the LO is compelled by law to exercise either option. Not choosing either is a violation of the law.

Dumlao is the owner of a parcel of land in Iloilo, while Depra owns the lot adjoining his. Dumlao built his house on his own land, but the kitchen encroached about 34 sq.m on Depras property. Upon finding this, Depras mom ordered Dumlao to move back from his encroachment, then subsequently filed an action for unlawful detainer against Dumlao.

The lower court found that Dumlao was a builder in good faith, and ordered him to pay rent (PhP5.00/month) forced lease between the parties. Depra refused to accept the rentals so Dumlao deposited this with the MTC. Neither party appealed judgment so this became final and executory.

1 year later, though, Depra filed an complaint for Quieting of Title. Dumlao contested this, stating that the suit is barred by res judicata. But Depra averred that the lower court did not have jurisdiction to rule on encumbrances of real property only the CFI has jurisdiction.

1. Whether or not res judicata would apply to the case at bar? 2. Whether or not the land owner can be compelled to accept rent payments by the court (with both LO and BPS being in good faith)?

In the first issue, res judicata would not apply should the first case be one for ejectment and the other for quieting of title. Article 448 of the Civil Code provides that the land owner has 2 options to buy the building or to sell/rent his land. This is so because the rights of the owner of the land is older, and by the principle of accession, he also has a right to the accessories.

The Court remanded the case to the RTC to determine the fair price of the land, the

expenses incurred by the BPS (Dumlao), the increase in value of the land, and whether the value of the land is considerably more than the value of the kitchen built on it. The RTC shall then give Depra 15 days to exercise such option.

-Land Owner in Good faith, Builder in Good faith scenario -The right to choose between appropriating the improvement or selling the land on which the improvement of the builder, planter or sower stands, is given to the owner. -If the option chooses is to sell the lot, the price must be fixed at the prevailing market value at the time of payment.

Eden Ballatan, together with other petitioners, is living in and registered owners of Lot No. 24. Respondent Winston Go is living in and registered owners of Lot No. 25 and 26. And Li Ching Yao is living in and the registered owner of Lot. 27. The Lots are adjacent to each other.

When Ballatan constructed her house in her lot, she noticed that the concrete fence and side pathway of the adjoining house of respondent Winston Go encroached on the entire length of the eastern side of her property. She was informed by her contractor of this discrepancy, who then told respondent Go of the same. Respondent, however, claims that his house was built within the parameters of his fathers lot; and that this lot was surveyed by engineer Jose Quedding, the authorized surveyor of Araneta Institute of Agriculture (AIA). Petitioner called the attention of AIA on the matter and so the latter authorized another survey of the land by Engineer Quedding. The latter then did the survey twice which led to the conclusion that Lots Nos 25, 26 (owned by respondent Go) and 27 (owned by Li Ching Yao) moved westward to the eastern boundary of Lot 24 (owned by petitioner Ballatan.) (it was later on discovered by the courts that Go encroached 42 square meters from the property of Ballatan and Yao encroached 37 square meters on Gos property, all of which were in GOOD FAITH) Ballatan made written demands to the respondent to dismantle and move their improvements and since the latter wasnt answering the petitioner filed accion publiciana in court. Gos filed their Answer with Third-Party Complaint impleading as third party defendants respondents Li Ching Yao, the AIA and Engineer Quedding.

RTC ruled in favor of the petitioner ordering respondent Go to demolish their improvements and pay damages to Petitioner but dismissing the third-party complaint. CA affirmed the dismissal of the third party-complaint as to AIA but reinstated the the complaint against Yao and the Engineer. CA also affirmed the demolition and damages awarded to petitioner and added that Yao should also pay respondent for his encroachment of respondent Gos property. Jose Quedding was also ordered to pay attorneys fees for his negligence which caused all this fuzz.

ISSUE: What is the proper remedy in this situation (everyone was in good faith)? RULING:
Art 448 is the proper remedy (Lower Courts are wrong in awarding the damages). It was established in the case that the parties had no knowledge of the encroachment until Ballatan noticed it there all of them were builders in Good faith.In that scenario they have two options. 1st option is that the land owner will buy the improvements and the 2nd option is to oblige the builders to buy the land given that the value of the land is not considerably more than the buildings or tree; other wise the owner may remove the improvements thereon. Here, the court seems to imply that if the buying the improvement is impractical as it may render Gos house useless, then petitioner may sell to respondent Gos that portion of lot no 24 on which improvement stands. If go is unwilling to buy the lot, he must vacate and pay rentals until they have vacated.

The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof. The right to choose between appropriating the improvement or selling the land on which the improvement of the builder, planter or sower stands, is given to the owner. If the option chooses is to sell the lot, the price must be fixed at the prevailing market value at the time of payment.

The price must be fixed at the prevailing market vaue at the time of payment if the petitioner elects to sell respondent Go the lot.

Petitioner was given by SC 30 days to decide on what to do or which right to exercise. Likewise, Go was also given time to do the regarding Yaos encroachment. Engineer Quedding was still asked to pay attorneys fees.

Lessor in good faith and Builders in Good faith are not synonymous. Article 1678 may apply to the formers case and Art 448 may apply to the latters case. If a person knew that his stay would likely end or that he knew somehow that he is not the owner of the land then he is not a BPS in good faith.

The lot in question was originally owned by the mother of the petitioner. Petitioner sold their unfinished bungalow to the respondents for P6,000, with a promise to sell the lot to the latter. The property was later leased to the respondents for 7 years starting November 1978 for P40 a month as evidenced by their written lease contract. The respondents built their house and introduced some improvements in the lot. In 1985 petitioners mother refused receiving monthly rentals. It turned out that the lot in question was subject to litigation which resulted to its acquisition by Maria Lee which was sold to Salcedo, who further sold to Dionisio spouses. The property eventually came back to the petitioner when the Dinisio spouses executed a Deed of Quitclaim over the said property in favor of the petitioners. As such, the lot was registered in the latters names. (petitioners never lost possession of the land because Lee and company never issued a writ of possession against them).

In 1993, petitioners wrote a letter to respondents demanding them to vacate the premises and when the latter refused, petitioners filed in court. Respondents claim that they should be entitled to buy the land because of the promise of the petitioners to sell them the land and because they were builders in Good faith. The courts now are deciding which one to use: Art. 448 regarding builders and land owners in good faith or Art. 1678 regarding lessee in good faith who can be reimbursed half of the expenses of the improvements if the LO chooses to

appropriate them and that such lessee have the right to retain in the premises until fully reimbursed.

1) Whether or not the respondents were builders in Good faith? 2) Whether Art 448 or 1678 should be applied?

1) No, they were not builders in good faith. The respondents knew that their stay would end after the lease contract expires. They cant bank on the promise, which was not in writing, of the petitioners that the latter will sell the land to them. According to 1403, an agreement for the sale of real property or an interest therein is unenforceable, unless some note or memorandum thereof be produced. Other than the alleged promise by petitioner, respondents had no other evidence to prove their claim.

The mom was the lessor even though she didnt own the land. A person may be a lessor and occupy position of the landlord even though she is not the owner. In a lease, enjoyment and possession is transferred not the ownership.

2) They are mere lessees in good faith; therefore Art 1678 may apply if the lessor chooses to appropriate the improvements. But since the petitioners refused to exercise that option, the private respondents cant compel them to reimburse the one-half value of the house and improvements. Neither can they retain the premises until reimbursement is made. The private respondents sole right then is to remove the improvements without causing any more impairment upon the property leased than is necessary. Article 448 applies only to a builder in good faith,someone who builds on a land where he believes he is the owner thereof. It doesnt apply here because petitioners interest is only of a lessee. Contrary ruling would warrant the lessee to improve his landlord out of the property.

SULO SA NAYON, INC. VS NAYONG PILIPINO FOUNDATION FACTS: In 1975, respondent leased a portion of the Nayong Pilipino Complex, to petitioner Sulo sa Nayon, Inc. for the construction

and operation of a hotel building, to be known as the Philippine Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It is renewable for a period of 25 years under the same terms and conditions upon due notice in writing to respondent of the intention to renew. In 1995, petitioners sent respondent a letter notifying the latter of their intention to renew the contract for another. July of the same year, parties agreed to the renewal of the contract for another 25 years, or until 2021. Under the new agreement, petitioner PVHI was bound to pay the monthly rentals Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent repeatedly demanded petitioners to pay the arrears and vacate the premises. MeTC rendered its decision in favor of respondent RTC which modified the ruling of the MeTC. CA which held that the RTC erroneously applied the rules on accession, as found in Articles 448 and 546 of the Civil Code ISSUE: WON Sulo sa Nayon as builders have acted in good faith in order for Art. 448 in relation to Art. 546 of the Civil Code may apply with respect to their rights over improvements. HELD: Article 448 is manifestly intended to apply only to a case where one builds, plants, or sows on land in which he believes himself to have a claim of title, and not to lands where the only interest of the builder, planter or sower is that of a holder, such as a tenant. In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees, they recognize that the respondent is the owner of the land. What petitioners insist is that because of the improvements, which are of substantial value, that they have introduced on the leased premises with the permission of respondent, they should be considered builders in good faith who have the right to retain possession of the property until reimbursement by respondent. We affirm the ruling of the CA that introduction of valuable improvements on the leased premises does not give the petitioners the right of retention and reimbursement which rightfully belongs to a builder in good faith. Otherwise, such a situation would allow the lessee to easily "improve" the lessor out of its property. We reiterate the doctrine that a lessee is neither a builder in good faith nor in bad faith that would call for the application of Articles 448 and 546 of the Civil Code. His rights are governed byArticle 1678 of the Civil Code.


When land is co-owned by two parties, but the co-ownership is terminated, Article 448 governs in case real property (like a house) encroaches the land of another. This is provided that good faith exists.

The case involves two friendly parties who are co-owners of a corner lot at Flores and Cavan Streets in Cebu City. Plaintiff owns 2/3 of the lot and Defendant owns 1/3 of the same. The total size of the lot is 45 square meters (which is about the size of a typical Starbux caf) Later on, the two parties decided to divide the co-owned property into two lots. 30 square meters went to the plaintiffs and 15 square meters went to the defendants. From the sketch plan, both parties discovered that the house of the defendants occupied a portion of the plaintiffs adjacent lot, eating 5 sqm of it. The parties then requested the trial court to adjudicate who should take possession of the encroached 5 sqm. The trial court ruled that Art 448 does not apply. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. Since art 448 does not apply, the Plaintiff cannot be obliged to pay for the portion of defendants house that entered int o the 30 sqm lot, AND Defendant cannot be obliged to pay for the price of the 5 sqm their house occupied. Why? The RTC believed the rules of coownership should govern, and not that of accession. RTC then assigned the full 30sqm to Plaintiff and ordered Defendants to demolish the 5sqm part of their house encroaching the 30sqm lot of the Plaintiffs. Defendants where aghast at having to axe the family home, hence they appealed. CA affirmed the decision. So we have the SC coming to the rescue.

w/n the rules of accession applies (and not coownership) on property that used to be co-owned, but was subdivided.

Art 448 cannot apply where a co owner builds on a common owned lot for he didnt build it on a land owned by a third person or a land that exclusively belongs to another.here, it is goberned by rules of co ownership.However. The rule of accession applies because co-ownership was terminated upon the partitioning of the lot. Art 448 therefore governs. The house of Defendant overlapped that of Plaintiff, but this was built on good faith. Hence, the plaintiffs have the right to choose one of two options > Appropriate the 5sqm portion of the house of Defendants after indemnifying the Defendants; or > Obliging the Defendants to pay a portion of the land on which their home rested. ( or they can rent it)

IGNAO V. IAC When co-ownership is terminated by division of land, Art 448 applies to parties in good faith. The party whose land is encroached upon has the sole right to choose whether to sell his land encroached or to appropriate that which encroaches his land.

The case involves Petitioner Florencio Ignao and his Uncles Juan and Isidro Ignao as Respondents. Both Petitioner and Respondents co-owned land with 534 sqm (about the size of an Olympic swimming pool.) in Cavite. The parties had a falling out (maybe the uncles had bad breath) and so attempted to partition the land, with 133 going to the uncles and 266 going to Petitioner. The attempt failed. Later, Petitioner discovered that the two houses of Respondent uncles encroached his land. Juan ate 42 sqm and Isidro ate 59 sqm for the grand total of 101 sqm. He complained. The RTC said that uncles built in good faith therefore that exempts them from damages. Art 448 therefore applies But things didnt go to well for the Petitioner. The RTC said that if Petitioner opted to appropriate the sections of the encroaching houses, the Uncles will be left with worthless hovels. Hence, RTC ordered Petitioner to just sell his land which was encroached. No Good! cried Petitioner and he appealed to the IAC. He lost again. Petitioner trooped to the SC for vindication

1. Whether or not Petitioner has the right to choose whether to appropriate the house encroaching his land or to sell his land. 2. Whether or not the courts and respondents can rob Petitioner of the options provided for under Art 448.

Petitioner has the right whether to appropriate the houses or to sell his land! When co ownership is terminated by partition, and it appears that the house of an erstwhile co owner encroached on another co owner which was made in good faith, then art 448 can apply. The ruling of the RTC and IAC ,peremptoriliy adopted the workable solutionlcontravened the explicit provisions of Art 448 which granted him the explicit right to choose. The law is clear when it bestows choice upon the aggrieved land owner and not upon the builders or the courts.


The City of Dagupan (CITY) filed a complaint against the former National Waterworks and Sewerage Authority (NAWASA), now the Metropolitan Waterworks and Sewerage System (MWSS), for recovery of the ownership and possession of the Dagupan Waterworks System. NAWASA interposed as one of its special defenses R.A. 1383 which vested upon it the ownership, possession and control of all waterworks systems throughout the Philippines and as one of its counterclaims the reimbursement of the expenses it had incurred for necessary and useful improvements amounting to P255,000.00. Judgment was rendered by

the trial court in favor of the CITY on the basis of a stipulation of facts. The trial court found NAWASA to be a possessor in bad faith and hence not entitled to the reimbursement claimed by it.

Whether or not MWSS has the right to remove all the useful improvements introduced by NAWASA to the Dagupan Waterworks System, notwithstanding the fact that NAWASA was found to be a possessor in bad faith?

Article 449 of the Civil Code of the Philippines 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 Article 546 of said code, only a possessor in good faith shall be refunded for useful expenses with the right of retention until reimbursed; and under Article 547 thereof, only a possessor in good faith may remove useful improvements if this can be done without 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 is to remove improvements applies only to improvements for pure luxury or mere pleasure, provided the thing suffers no injury thereby and the lawful possessor does not prefer to retain them by paying the value they have at the time he enters into possession (Article 549).

The court said that the case cited by petitioners is inapplicable (carbonell vs CA) in that case, respondent built on a land in bad faith but was allowed to take away the improvements as a matter of equity. The equitable situation in that case isnot present in this case. Court also said that it was not a precedent,probably because there were dissenting opinions. Attention : provide case digest for Republic vs Ballocanag