G.R. No. 152332 - De Leon vs. Calalo

This case involves a petition for review on certiorari challenging a Court of Appeals’ decision which had vacated and set aside the Regional Trial Court’s ruling, and remanded the case for further proceedings.
The dispute centers on the validity of a mortgage executed by Augorio Calalo in favor of petitioner Dr. Roberto De Leon over a property located at 45/4th Street, East Tapinac, Olongapo City, which includes both a residential house and a commercial building.

He purchased the property for P306,000.00 from Federico and Marietta Malit on September 13, 1984.
Because he was then serving abroad as a member of the merchant marines, the transfer of the title was made in favor of his brother, Augorio Calalo.
Subsequently, Augorio executed a Deed of Donation in favor of Eduardo’s son, Julsunthie Calalo, who had been receiving the fruits of the property.

He obtained the mortgage from Augorio Calalo who, by the documents presented (including certificates and clearances from relevant government agencies), appeared to be the lawful owner of the property.
The deed of sale attached to respondent Eduardo’s complaint confirmed that the property was in Augorio’s name, supporting his belief of bona fide ownership by Augorio.
The mortgage, which was duly registered with the Register of Deeds and subsequently amended several times, was executed without Eduardo’s knowledge or consent.

Execution of a Real Estate Mortgage on September 1, 1988 amounting to P250,000.00.
Amendment of the mortgage on September 30, 1988 for an additional P250,000.00, bringing the total mortgage consideration to P500,000.00.

De Leon, as a mortgagee in good faith, had taken all necessary steps to verify that Augorio was the registered owner and the property was possessed by him.
The documents submitted (transfer certificate of title, tax declarations, and other government clearances) confirmed Augorio Calalo’s ownership.
In contrast, the deed of donation in favor of Julsunthie Calalo was not registered, weakening any claim arising from it.
Despite respondent Eduardo’s arguments about his alleged purchase and ownership, the evidence showed that De Leon’s actions were based on the title and physical possession reflected in the records.

The initial trial court ruling declared the mortgage valid, recognized De Leon as a mortgagee in good faith, and affirmed his right to foreclose should the mortgagor fail to redeem the property by paying the indebtedness and ancillary fees.
On appeal by respondent Eduardo Calalo, the Court of Appeals reversed the trial court’s decision on the ground that:

The determination of the true owner among Eduardo, Augorio, and Julsunthie was central to the dispute.
The joinder of Julsunthie, as an indispensable party, was necessary to conclusively resolve the issue of ownership, particularly given the alleged unregistered deed of donation.

Petitioner De Leon filed a motion for reconsideration which was denied, prompting him to elevate the case for review on certiorari, where the trial court’s ruling was ultimately reinstated.

Whether the mortgage executed by Augorio Calalo in favor of petitioner De Leon is valid and enforceable given the evidence showing that the property was registered in Augorio’s name.
Whether De Leon acted in good faith relying on the public records (e.g., the transfer certificate of title) and other pertinent documents verifying Augorio’s ownership.

Whether the conflicting claims — respondent Eduardo’s assertion of ownership based on his purchase versus Augorio’s title registration — affect the validity of the mortgage.
The significance of the unregistered deed of donation executed in favor of Julsunthie Calalo and its impact on ownership rights.

Whether the absence of Julsunthie Calalo, deemed an indispensable party due to his directly affected interest, compromised the resolution of the property ownership issue.
The effect of proper joinder on the overall determination of rights related to the mortgage.

Whether matters such as the alleged breach of trust by Augorio Calalo or the question of whether respondent Eduardo’s funds were used to acquire the property, although relevant to other disputes, should impact the validity of the mortgage.