Agan vs. Heirs of Sps. Andres Nueva and Diosdada Nueva

Mistake as a ground for petition for relief from judgment under Rule 38 of the Rules of Court refers to a mistake of fact, not of law; a party's erroneous belief that a portion of a judgment is surplusage and therefore need not be appealed constitutes a mistake of law that does not entitle the party to relief from judgment. The vendor a retro who in good faith raises the defense of equitable mortgage is entitled to repurchase the property within thirty days from the time final judgment is rendered declaring the contract to be a true sale with right to repurchase, pursuant to the third paragraph of Article 1606 of the Civil Code.

Diosdada Nueva, with the marital consent of her husband Andres, sold a 2,033-square-meter parcel of land in Kauswagan, Cagayan de Oro City, to Philadelphia Agan under a deed of sale with pacto de retro for ₱21,000.00, with a six-month repurchase period at the same price. The property was covered by Transfer Certificate of Title No. 25370, registered in the name of the Spouses Andres and Diosdada Nueva. The Nuevas failed to repurchase within the stipulated period. After Diosdada's death in a fire on March 19, 1990, the property was extrajudicially partitioned among the heirs, and a new title was issued in the name of Ann and Lou Nueva. The dispute centers on whether the RTC validly granted the vendors a 30-day redemption period in a consolidation-of-ownership judgment and whether the vendee's failure to appeal that grant may be excused through a petition for relief from judgment.

On April 13, 1988, Diosdada Nueva, with the marital consent of her husband Andres, sold under a pacto de retro a parcel of land with an area of 2,033 square meters situated in Kauswagan, Cagayan de Oro City, to Philadelphia Agan for ₱21,000.00. The property was covered by Transfer Certificate of Title No. 25370 and registered in the name of Spouses Andres and Diosdada Nueva. The agreement, evidenced by a public instrument entitled "Deed of Sale under a Pacto de Retro," granted the Nuevas the right to repurchase the property within six months from the date of the document for the same consideration of ₱21,000.00.

The Nuevas failed to repurchase the property within the stipulated six-month period. On March 19, 1990, a fire razed the property, and Diosdada died. The title to the property was allegedly lost in the fire. On July 5, 1991, upon Diosdada's death, the property was extrajudicially partitioned, with Andres selling his interest to his daughter Ann and son Lou. The title was reconstituted and subsequently transferred and registered in the name of Ann and Lou Nueva under TCT No. 63403.

On June 19, 1992, Agan filed a petition for consolidation of ownership against the Spouses Andres and Diosdada Nueva with the RTC, Branch 19, Cagayan de Oro City. In their answer filed on October 28, 1998, the Nuevas alleged that the pacto de retro sale was actually an equitable mortgage, the consideration being only ₱21,000.00 as against the property's fair market value of ₱81,320.00 pursuant to Tax Declaration No. 34661. They also claimed they remained in possession of the property and continued to pay real property taxes thereon. Trial proceeded, and on May 10, 2000, the RTC admitted Agan's exhibits and submitted the case for decision in view of the absence of the Nuevas and their counsel despite due notice. A motion for reconsideration filed by the Nuevas was denied.

On August 3, 2000, the RTC rendered judgment consolidating ownership over the disputed property in favor of Agan by virtue of the vendors' failure to redeem within the stipulated period. However, the second paragraph of the dispositive portion granted the vendors a period of thirty days from receipt of the decision within which to redeem the property, pursuant to Articles 1606 and 1607 of the New Civil Code. Because Agan refused to accept the amount of ₱52,080.00 as redemption price, the Nuevas were constrained to consign the amount with the court.

On September 12, 2000, Agan filed a petition for relief from the August 3, 2000 decision, arguing that she did not find it necessary to file an appeal because the grant of the 30-day redemption period was a mere surplusage and hence unenforceable and illegal. On October 9, 2000, the RTC granted the petition and deleted the second paragraph of the dispositive portion. The Nuevas' motion for reconsideration was denied on November 17, 2000. The Nuevas then filed a petition for certiorari before the Court of Appeals, which reversed the RTC's order on August 21, 2002, holding that Agan's mistake was one of law, not fact, and that relief under Rule 38 was unavailable where the party had an adequate remedy of appeal. Agan filed the present petition before the Supreme Court.

• Mistake as Ground for Relief: Petitioner argued that a mistake prevented her from filing an appeal, believing that an appeal was unnecessary because the inclusion of the second paragraph in the RTC decision was a mere surplusage and hence unenforceable and illegal.
• Inapplicability of Article 1606: Petitioner submitted that the Court of Appeals erred in ruling that respondents had thirty days within which to redeem the property under the third paragraph of Article 1606 of the Civil Code, which provides that the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase.
• Lack of Jurisdiction: Petitioner contended that the RTC had no jurisdiction to allow the respondents to repurchase the property, the judgment purportedly being contrary to prevailing jurisprudence.
• Clarification of Judgment: Petitioner invoked Ilacad vs. Court of Appeals, arguing that where there is ambiguity caused by an omission or mistake in the dispositive portion, the court may clarify such ambiguity by resorting to the pleadings, findings of fact, and conclusions of law in the body of the decision.

• Grave Abuse of Discretion: Respondent heirs contended that the RTC gravely abused its discretion in granting the petition for relief, the proper remedy having been an appeal or motion for new trial, which Agan was not prevented by fraud, accident, mistake, or excusable negligence from filing.
• Equitable Mortgage Defense: Respondents maintained that the pacto de retro sale was actually an equitable mortgage, citing the inadequate consideration of ₱21,000.00 against a fair market value of ₱81,320.00, their continued possession of the property, and their continued payment of real property taxes.

• Petition for Relief from Judgment: Whether petitioner's mistaken belief that the second paragraph of the RTC decision was a mere surplusage constitutes a mistake that warrants relief from judgment under Rule 38 of the Rules of Court.
• Applicability of Article 1606: Whether respondents are entitled to the 30-day redemption period under the third paragraph of Article 1606 of the Civil Code.
• Ambiguity in Disposition: Whether there is ambiguity in the RTC decision warranting clarification under Ilacad vs. Court of Appeals.

• Petition for Relief from Judgment: No. The mistake contemplated under Rule 38 pertains to a mistake of fact, not of law. Petitioner's belief that the second paragraph was surplusage constituted a mistake of law, which does not confer the right to relief, as she was in no wise prevented from interposing an appeal.
• Applicability of Article 1606: Yes. Respondents are entitled to the 30-day redemption period under the third paragraph of Article 1606, having raised in good faith the defense of equitable mortgage, which the RTC did not find to have been made in bad faith. The law presumes good faith.
• Ambiguity in Disposition: No. There is no ambiguity warranting clarification; the consolidation of ownership is subject to the suspensive condition of respondents' failure to repurchase within the 30-day period, as the dispositive portion references Article 1606.

• Petition for Relief from Judgment: Relief from judgment under Rule 38 is an equitable remedy of exceptional character, granted only where no other adequate remedy is available and the party was prevented by fraud, accident, mistake, or excusable negligence from availing of the ordinary remedies of motion for new trial or appeal. The "mistake" contemplated by Rule 38 pertains to a mistake of fact, not of law. Citing Guevara vs. Tuason & Co., the Court reiterated that the erroneous opinion of a party concerning the incorrectness of a judicial decision cannot constitute grounds for relief, because the party was not prevented from interposing an appeal. Petitioner's belief that the 30-day redemption grant was a mere surplusage and that appeal would be unnecessary was a mistake of law. Moreover, the Court was not convinced that petitioner sincerely believed the second paragraph was surplusage, as she would have moved to rectify the alleged error immediately rather than only after respondents offered to repurchase. Her failure to file a motion for reconsideration or appeal within the reglementary period constituted acceptance of the trial court's judgment, rendering it final and executory.

• Applicability of Article 1606: The third paragraph of Article 1606 grants the vendor a retro the right to repurchase within thirty days from the time final judgment is rendered in a civil action declaring the contract to be a true sale with right to repurchase. This provision is predicated upon the bona fides of the vendor a retro — there must be a belief, founded on facts attendant upon the execution of the sale, honestly and sincerely entertained, that the agreement was in reality a mortgage. The RTC in this case made no finding that respondents' defense of equitable mortgage was not made in good faith, and petitioner did not even attempt to prove bad faith during trial. Respondents alleged inadequate consideration (₱21,000.00 against a fair market value of ₱81,320.00), continued possession, and payment of real property taxes — circumstances consistent with an equitable mortgage. The law presumes good faith, and in the absence of a contrary finding by the RTC, respondents are entitled to the redemption period. The Court noted, however, that the RTC erred in granting thirty days from receipt of the decision rather than from the time final judgment was rendered, as construed in Perez vs. Zulueta to mean a judgment that has become final and executory — though this observation was moot because respondents had offered to pay within the period fixed by the trial court and consigned the amount.

• Ambiguity in Disposition: There is no ambiguity in the RTC decision warranting clarification under Ilacad vs. Court of Appeals. While the dispositive portion may appear inconsistent at first blush — consolidating ownership in petitioner while granting respondents thirty days to repurchase — the dispositive portion also references Articles 1606 and 1607 of the Civil Code. Taken together, it becomes obvious that the consolidation of ownership is subject to the suspensive condition of respondents' failure to repurchase within the 30-day period. Any ambiguity is merely ostensible.

• Mistake in Rule 38 — Fact, Not Law — The "mistake" that constitutes a ground for petition for relief from judgment under Rule 38 of the Rules of Court refers to a mistake of fact, not of law. A party's erroneous opinion concerning the incorrectness of a judicial decision, which leads the party to forego an appeal, constitutes a mistake of law and does not confer the right to relief. The rationale is that the party was not prevented from interposing an appeal; the most that may be said is that by reason of an erroneous interpretation of the law, the party believed appeal would be useless. The Court applied this doctrine to hold that petitioner's belief that the 30-day redemption clause was surplusage was a mistake of law, not fact, and thus did not entitle her to relief from judgment.

• Petition for Relief as Equitable Remedy — Relief from judgment is premised on equity and is granted only in exceptional cases. It is an act of grace, not regarded with favor. Relief will not be granted to a party who seeks to be relieved from the effects of a judgment when the loss of the remedy of law was due to the party's own negligence or a mistaken mode of procedure; otherwise, the petition would be tantamount to reviving a lost right of appeal. The law helps the vigilant but not those who sleep on their rights.

• Third Paragraph of Article 1606 — Bona Fides of Vendor a Retro — The application of the third paragraph of Article 1606, which grants the vendor a retro thirty days to repurchase from the time final judgment is rendered declaring the contract a true sale with right to repurchase, is predicated upon the bona fides of the vendor a retro. The vendor must honestly and sincerely believe, founded on facts attendant upon the execution of the sale, that the agreement was in reality an equitable mortgage. If there are no circumstances generating honest doubt as to the parties' intention, the proviso is inapplicable, as it would otherwise reward fraud and bad faith. The legislative intent behind Article 1606 and related provisions (Articles 1602–1605, 1607) is to accord the vendor a retro the maximum safeguards for the protection of legal rights, as many sales with right to repurchase have been devised to circumvent usury laws.

• Presumption of Good Faith — The law presumes good faith. In the absence of a contrary finding by the trial court, the vendor a retro is entitled to the right to redeem under the third paragraph of Article 1606.

• "Mistake, to constitute a ground for petition for relief, refers to a mistake of fact, not of law." — This opening statement frames the central legal principle of the case, establishing the threshold distinction that governs the availability of relief from judgment under Rule 38.

• "The erroneous opinion of a party concerning the incorrectness of the judicial decision of the court cannot constitute a ground for a petition for relief. This, while it constitutes a mistake of the party, is not such a mistake as confers the right to the relief. This is so because in no wise has the private respondent been prevented from interposing an appeal." — This passage, quoted from the Court of Appeals' decision and affirmed by the Supreme Court, articulates the ratio decidendi: a mistake of law does not excuse failure to appeal and thus cannot ground a petition for relief.

• "The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must appear that there was a belief on his part, founded on facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage." — This quotation from Felicen, Sr. vs. Orias sets forth the canonical formulation of the good-faith requirement for invoking the 30-day redemption period under Article 1606, a doctrine frequently cited in subsequent jurisprudence on pacto de retro sales.

• "The law helps the vigilant but not those who sleep on their rights, for time is a means of destroying obligations and actions, because time runs against the slothful and contemners of their own rights." — This passage encapsulates the equitable principle underlying the denial of relief, emphasizing that petition for relief from judgment cannot substitute for a lost right of appeal due to the party's own neglect.

• Guevara vs. Tuason & Co., 1 Phil. 27 (1901) — Controlling precedent on the nature of "mistake" under the petition for relief statute. The Court adopted its illustration of a party who mistakenly believes a judgment is correct and forgoes appeal, later realizing the error; such mistake of law does not confer the right to relief.
• Felicen, Sr. vs. Orias, 156 SCRA 586 (1987) — Leading authority on the bona fides requirement for the third paragraph of Article 1606. The Court relied on this case to hold that the vendor a retro must entertain a good-faith belief that the contract is an equitable mortgage to be entitled to the 30-day redemption period.
• Adorable vs. Inacala — Cited within Felicen as authority for the proposition that where no honest doubt exists as to the parties' intention that the transaction was a true sale with pacto de retro, the vendor a retro is not entitled to the benefit of the third paragraph of Article 1606.
• Ilacad vs. Court of Appeals, 78 SCRA 301 (1977) — Distinguished. Petitioner invoked it for the proposition that a court may clarify ambiguity in the dispositive portion of a judgment; the Court found no ambiguity warranting clarification.
• Ibabao vs. Intermediate Appellate Court, 150 SCRA 76 — Followed. Cited for the rule that relief under Rule 38 is not available when a party had another adequate remedy and was not prevented by fraud, accident, mistake, or excusable negligence from availing of it.
• Perez vs. Zulueta, 106 Phil. 264 (1959) — Followed. Cited for the construction that "final judgment" in Article 1606 means a judgment that has become final and executory, not merely one rendered by the trial court.
• Air Services Cooperative vs. Court of Appeals, 293 SCRA 101 — Followed. Cited for the rule that if a party complains of a decision as being void, the proper remedy is to appeal the judgment.

• Rule 38, Section 1, Rules of Court — Provides the remedy of petition for relief from judgment or order entered through fraud, accident, mistake, or excusable negligence. Applied to hold that petitioner's mistake was one of law, not fact, and thus fell outside the scope of Rule 38; moreover, petitioner had an adequate remedy of appeal which she was not prevented from pursuing.
• Article 1606, third paragraph, New Civil Code — Grants the vendor a retro the right to repurchase within thirty days from the time final judgment is rendered in a civil action declaring the contract to be a true sale with right to repurchase. Applied to uphold the RTC's grant of the 30-day redemption period, as respondents raised in good faith the defense of equitable mortgage and the RTC made no finding of bad faith.
• Articles 1602–1605 and 1607, New Civil Code — Provisions governing the presumption of equitable mortgage and the remedies of the vendor a retro. Cited for the legislative intent to accord the vendor a retro maximum safeguards, as many sales with right to repurchase have been devised to circumvent usury laws.

Puno (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concurred.