G.R. No. 129107 September 26, 2001
ALFONSO L. IRINGAN, petitioner, vs. HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact, FELISA P. DELOS SANTOS, respondents.

FACTS

On March 22, 1985, Antonio Palao sold an undivided portion of a lot to Alfonso Iringan for P295,000.00, payable in installments. Iringan paid the initial P10,000.00 but defaulted on the second installment of P140,000.00 due on April 30, 1985, paying only P40,000.00. Consequently, on July 18, 1985, Palao sent Iringan a letter declaring the contract rescinded and refusing further payments. Iringan, through counsel, replied on August 20, 1985, stating he was “not opposing the revocation” but demanded reimbursement of his payments and expenses. Subsequent negotiations failed, leading Palao to file a Complaint for Judicial Confirmation of Rescission and Damages on July 1, 1991.
The Regional Trial Court ruled in favor of Palao, affirming the rescission, ordering Iringan to vacate, and awarding damages. The Court of Appeals affirmed the trial court’s decision but deleted the award of attorney’s fees. Iringan elevated the case to the Supreme Court, arguing that a mere letter could not effect a valid rescission and contesting the awards for damages.

ISSUE

The primary issues were: (1) whether the contract of sale was validly rescinded; and (2) whether the awards of moral and exemplary damages were proper.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. On the first issue, the Court clarified the applicable law. For the sale of immovable property, Article 1592 of the Civil Code governs. It mandates that even if the contract stipulates automatic rescission for non-payment, the rescission can only be effected upon a judicial or notarial demand made upon the vendee. Palao’s mere letter of July 18, 1985, did not constitute such a demand and therefore did not unilaterally rescind the contract. However, the Court found that the contract was validly rescinded through mutual agreement under Article 1191. Iringan’s reply letter of August 20, 1985, wherein he explicitly stated he was “not opposing the revocation,” constituted a clear acquiescence to Palao’s proposal to rescind. This mutual consent effectively dissolved the contract. The subsequent judicial action filed by Palao merely sought confirmation of this already consummated rescission.
On the second issue, the Court upheld the awards for moral and exemplary damages. Iringan’s act of annotating an adverse claim on the title after the mutual rescission and his continued occupation of the property without paying rent constituted clear bad faith. This wrongful conduct justified the awards. The Court emphasized that such damages are recoverable in breaches of contract where the defendant acted fraudulently or in bad faith, as Iringan did by refusing to vacate and clouding Palao’s title.