G.R. No. L-5446, March 10, 1911
MANUEL CEA, plaintiff-appellant, vs. MARIANO P. VILLANUEVA, GUILLERMO GONZALES and the provincial sheriff, LEON REYES, defendants-appellees.

FACTS

Plaintiff Manuel Cea owned a house and lot mortgaged to defendant Mariano P. Villanueva. Villanueva foreclosed the mortgage, obtained a judgment, and purchased the property at a public auction sale on September 3, 1906. On September 12, 1906, the sheriff delivered possession of the property, including the lot (parcel No. 2) and the house on it, to Villanueva. The sheriff, uncertain if the house was included in the mortgage sale, warned Villanueva that if the court later ruled the house was not included, Villanueva must return possession and pay for its use. Cea’s employee, initially ordered to leave, was allowed by Villanueva to remain to care for certain articles, while Villanueva also placed his own employee to guard the property. On November 12, 1906, the court annulled the sale and ordered a resale. Before the resale in December, the house was destroyed by fire on October 3, 1906. The cause of the fire was not established. Cea sued Villanueva, alleging that Villanueva’s possession was in bad faith or that his negligence caused the fire.

ISSUE

1. Whether the house was included in the mortgage foreclosure sale.
2. Whether Villanueva possessed the property in good faith.
3. Whether Villanueva is liable for the loss of the house due to fire.

RULING

1. Yes, the house was included in the sale. The lot on which the house stood was clearly within the description of parcel No. 2 in the mortgage. Under Article 1877 of the Civil Code and established jurisprudence, a mortgage of real estate includes improvements on the property. Thus, the house passed to Villanueva under the foreclosure sale.
2. Yes, Villanueva possessed the property in good faith. Good faith is presumed, and Cea failed to prove bad faith. Villanueva entered possession as a purchaser at a foreclosure sale, acting under court authority. Even if the sale were void, he would be considered a mortgagee in possession, entitled to the presumption of good faith.
3. No, Villanueva is not liable for the loss. As a possessor in good faith, Villanueva is only liable for damages caused by his negligence or fraud under Article 457 of the Civil Code. The evidence did not show that the fire resulted from Villanueva’s negligence or that he acted with fraudulent intent. Without proof of fault, he cannot be held liable for the loss due to fire.

The Court affirmed the trial court’s judgment absolving the defendants, with costs against Cea.