Facts:

The case concerns a dispute between ARRA Realty Corporation, Carlos D. Arguelles, and Remedios De La Rama-Arguelles (collectively referred to as "petitioners") and Paces Industrial Corporation ("respondent"). The contention arises from an agreement established on November 18, 1982, whereby ARRA agreed to sell to Paces two floors in a proposed five-story office building located in Makati City for a total consideration of P6,211,676.00. Payment was structured into an initial payment of P1,803,476.00 due within 60 days from a specified date, followed by 20 quarterly payments. Paces managed to pay a total of P2,774,992.02 but only took possession of the 3rd and 4th floors, which remained uncompleted and bare. Notably, Paces spent an additional P1,312,935.00 for necessary improvements such as the installation of air-conditioning units.

As the construction of the building progressed, ARRA obtained a loan from China Banking Corporation (CHINABANK) to finance its com

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Facts:

Contract and Agreement Formation

• ARRA Realty Corporation (ARRA) and Paces Industrial Corporation (Paces) entered into a transaction based on a letter from ARRA dated November 18, 1982.
• The letter summarized the arrangement for the construction of a 5-storey office building on a 992 sq. m. lot owned by ARRA, where Paces was to acquire two floors in exchange for a total consideration of P6,211,676.00 on a deferred payment scheme.
• Specific terms included:
• An initial payment of P1,803,476.00 within 60 days from November 20, 1982.
• The remaining balance was to be paid in 20 equal quarterly installments of P220,410.00 each.
• With each payment, ARRA credited Paces’ account as a partial payment for stock subscriptions.
• Provisions were made for immediate occupancy as soon as the contractor, Pyramid Construction & Engineering Corporation, completed its commitment (within five months), with a title transfer to follow “as soon as practicable.”
• An adjustment of price was stipulated if Paces paid full amount earlier than the prescribed 5-year period.

Performance, Partial Payment, and Subsequent Developments

• Paces was only able to remit P2,774,992.02 of the total contract price but nevertheless took possession of the 3rd and 4th floors, albeit in a “bare as a shell” condition.
• Paces incurred additional expenditures of P1,312,935.00 for improvements, which included the installation of four air-conditioning units to render the floors suitable for office use.
• ARRA, in its effort to finance full construction, secured a loan from China Banking Corporation by mortgaging the property, leading eventually to its foreclosure with CHINABANK acquiring it for P13,900,000.00.
• During the redemption period, ARRA sold the property to Guarantee Development Corporation and Insurance Agency (GUARANTEE) for P22,000,000.00 under the condition that the property be delivered vacant by May 15, 1987.
• Guarantee ultimately remitted a partial amount of P21,000,000.00 due to ARRA’s failure to vacate the premises as agreed.
• From the proceeds of this sale, ARRA redeemed the property from CHINABANK, and title was transferred to GUARANTEE on May 15, 1987.

Litigation and Procedural History

• Paces initiated legal action against GUARANTEE and the petitioners (ARRA and its officers) for “Annulment of Sale, Title and Recovery of Real Property and Damages” citing harassment by GUARANTEE.
• A Compromise Agreement was reached wherein Paces turned over possession of the improved 3rd and 4th floors to GUARANTEE, receiving P2,000,000.00 in exchange.
• Paces then amended its complaint by dropping GUARANTEE and other parties, seeking damages amounting to P5,500,000.00 as actual/compensatory damages, along with attorney’s fees and exemplary damages.

Decision of the Regional Trial Court and Court of Appeals

• The RTC ruled that due to Paces’ failure to pay the complete contract price, it did not acquire ownership of the 3rd and 4th floors; consequently, it ordered petitioners to refund P2,774,992.02 with legal interest.
• On appeal, the Court of Appeals (CA) rendered a decision on April 11, 2005, holding that Paces acquired ownership of the floors and modified the remedy by ordering petitioners to pay P4,723,316.00 (plus legal interest) jointly and severally.
• Subsequently, Paces filed a Motion for Entry of Judgment on May 19, 2005, asserting that the CA Decision had been delivered to counsel’s address.
• Petitioners opposed by filing a motion for reconsideration supported by a certification from the Postmaster, claiming they had provided a new forwarding address as early as July 18, 2000.
• Paces maintained that despite a letter from the postmaster (May 25, 2005) confirming delivery on April 15, 2005, petitioners’ counsel had moved without providing a forwarding address.
• The CA subsequently admitted the motion for reconsideration in the interest of justice but ultimately denied it via a Resolution dated September 13, 2005.

Service Issues and Constructive Notice

• The CA Decision was sent via registered mail to petitioners’ counsel at his official address (“N.C. Lat Bldg., Tanauan, Batangas”), which had not been updated through a formal notice of change of address with the CA.
• The envelope was returned with notations “Return to Sender” and “Moved, left no address,” yet under the existing rules of constructive service, service is deemed completed as of five days after first notice.
• Consequently, the period for filing a motion for reconsideration commenced on April 20, 2005, expiring on May 5, 2005; petitioners failed to file within the requisite period.

Issue:

Adequacy and Appropriateness of the Appeal

• Whether petitioners’ appeal by certiorari is proper in circumstances where a motion for reconsideration should have been raised based on procedural defaults.

Content and Sufficiency of the Assignment of Errors

• Whether the appeal in the Court of Appeals substantively contained an assignment of errors justifying further review.

Effect of Non-Timely Notice of Change of Address on Finality

• Whether the CA Decision had attained finality because petitioners failed to file a notice of change of address with the court.
• Whether constructive service, despite the registration issues, should be regarded as effectively notifying petitioners’ counsel.

Nature of the Agreement

• Whether the agreement between ARRA and Paces should be classified as a sale, as held by the CA, or whether it remains a mere contractual arrangement subject to different implications.

Basis for Liability Award

• Whether the CA erred in determining petitioners’ liability to pay based on the fair market value of the occupied 3rd and 4th floors.

Bar on Claiming Damages

• Whether the CA was correct in not holding that respondent Paces was barred from claiming damages against petitioners.

Rental and Interest Claims

• Whether the CA erred in not ordering petitioners to pay rental arrears plus interest for respondent’s occupancy of the floors.

Validity of the Conditional and Absolute Deeds

• Whether the CA erred in not annulling the conditional deed of sale and the deed of absolute sale entered into between petitioners and GUARANTEE.

Award of Moral and Exemplary Damages and Attorney’s Fees

• Whether the CA was mistaken in not awarding moral and exemplary damages and attorney’s fees against petitioners for respondent’s wrongful filing of the writ of attachment and/or garnishment.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)