G.R. No. L-46205 December 29, 1977
MARGARITA CACO, thru her surviving heir, CARLOS CACO, petitioner-appellant vs. THE COURT OF APPEALS and BENIGNO SALAO, respondents-appellees.

FACTS

Petitioner Margarita Caco leased a parcel of land to respondent Benigno Salao under a contract extendable until February 28, 1978. In 1972, Caco filed a complaint for rescission of the lease and recovery of possession, alleging two grounds: Salao’s failure to pay the annual rental for 1972, and his violation of the contract by assigning the lease to his granddaughter, Amelia S. Antonio, without Caco’s consent. Caco also sought unpaid rentals and damages.
Salao, in his answer, contended that Caco had, for several years, accepted rental payments from Antonio without objection, thus estopping her from complaining about the assignment. He argued the complaint was filed in bad faith to recover the property prematurely for higher income. The trial court dismissed Caco’s complaint and ordered her to pay Salao moral damages, litigation expenses, and attorney’s fees. The Court of Appeals affirmed this decision.

ISSUE

The primary issue is whether the petitioner acted in bad faith in filing the suit for rescission, thereby justifying the award of damages in favor of the respondent.

RULING

The Supreme Court modified the decision, eliminating the award of damages against Caco and ordering Salao to pay rentals in arrears. The Court held that the assignment of the lease contract, while not prohibited by its terms and thus not a valid ground for rescission, could be considered a justification for Caco’s good-faith belief that it was. The legal logic centered on the absence of malice. Caco, an elderly and non-lawyer individual, genuinely believed the assignment constituted a breach warranting judicial action. By analogy with principles of good faith under the Civil Code, a mistake in initiating suit, when based on a sincere belief in one’s legal right, does not constitute actionable wrong justifying damages.
Consequently, the filing of the complaint was not capricious or malicious but an attempt to seek redress for a perceived contractual violation. Therefore, the awards for moral damages, actual expenses, and attorney’s fees were improper. However, the Court upheld the dismissal of the complaint for rescission itself, as the assigned lease period was nearing its end, rendering the issue moot. The Court balanced equities by also holding Salao liable for any unpaid rentals during the litigation period, ensuring neither party unjustly enriched themselves from the proceedings.