Iringan vs. Court of Appeals

A contract of sale involving immovable property cannot be unilaterally rescinded by mere notice; a judicial or notarial act is required, and the filing of a complaint for judicial confirmation of rescission satisfies this requirement.

On March 22, 1985, Antonio Palao sold an undivided portion of a lot to Alfonso Iringan for P295,000, payable in installments. Iringan paid a total of P50,000 but defaulted on the remaining balance. Palao, who needed the money to pay an SSS loan, sent a letter declaring the contract rescinded due to non-payment. Iringan did not oppose the revocation but demanded reimbursement. Negotiations failed, prompting Palao to seek judicial intervention.

• The Sale: On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan an undivided portion of Lot No. 992 for P295,000.00, payable in three installments: P10,000.00 upon execution, P140,000.00 on or before April 30, 1985, and P145,000.00 on or before December 31, 1985.
• The Default: Iringan paid the P10,000.00 down payment but only P40,000.00 of the second installment, leaving a substantial balance unpaid.
• The Letter of Rescission: On July 18, 1985, Palao sent a letter to Iringan stating that he considered the contract rescinded and would not accept further payments due to Iringan's failure to pay the full second installment.
• The Reply and Negotiations: On August 20, 1985, Iringan, through counsel, replied that he was not opposing the revocation but demanded reimbursement of the P50,000.00 paid, plus expenses and interest. Palao refused the reimbursement in a letter dated January 10, 1986. On February 21, 1989, Iringan proposed reimbursement or the sale of an equivalent portion of the land, but Palao instead demanded payment of rental arrears.
• The Lawsuit: On July 1, 1991, Palao filed a Complaint for Judicial Confirmation of Rescission of Contract and Damages against Iringan and his wife. In their Answer, the spouses alleged that the contract was consummated, hence the proper remedy was collection of the balance, not rescission. They also claimed they were ready and willing to comply with their obligations.

• Validity of Rescission: Petitioner argued that no rescission was effected by the private respondent's mere letter declaring the contract rescinded. A judicial or notarial act is necessary before a party can unilaterally effect rescission.
• Award of Damages: Petitioner contended that the Court of Appeals erred in finding bad faith on his part for resisting rescission, asserting that he had always been ready and willing to pay the balance.

• Mutual Agreement to Rescind: Respondent countered that the right to rescind is vested by law on the obligee. Since petitioner did not oppose the intent to rescind the contract in his August 20, 1985 letter, a mutually agreed rescission was effectively established.

• Validity of Rescission: Whether the contract of sale was validly rescinded.
• Award of Damages: Whether the award of moral and exemplary damages is proper.

• Validity of Rescission: The contract was validly rescinded, not by the July 18, 1985 letter, but by the filing of the complaint for judicial confirmation of rescission. Article 1592 of the Civil Code requires a judicial or notarial act for the rescission of a sale of immovable property; a mere letter does not suffice. The operative act producing the resolution of the contract is the court decree, not the unilateral act of the vendor. However, the filing of the complaint seeking judicial confirmation satisfied this requirement. Furthermore, the action prescribed in ten years under Article 1144, not four years under Article 1389, because the action was a principal action for resolution under Articles 1191 and 1592, not a subsidiary action for lesion under Article 1381.
• Award of Damages: The award of moral and exemplary damages was proper. Petitioner acted in bad faith by breaching the contract despite knowing Palao's urgent need for the money to pay an SSS loan, adamantly refusing to formalize the mutual agreement to rescind, and failing to substantiate his claim of readiness to pay with clear and convincing proof, such as a bank deposit or consignation.

• Judicial or Notarial Act Requirement for Rescission of Sale of Immovable Property — Under Article 1592 of the Civil Code, a valid rescission of a sale of immovable property requires a judicial or notarial act, even if automatic rescission has been stipulated. The right to rescind cannot be exercised solely on a party's own judgment that the other committed a breach; the operative act is the court decree or notarial act, not the mere declaration of the vendor. The filing of a complaint for judicial confirmation of rescission satisfies the judicial act requirement.
• Distinction Between Rescission Under Articles 1191/1592 and Article 1381 — Rescission under Articles 1191 and 1592 is a principal action seeking the resolution or cancellation of the contract due to breach, subject to a ten-year prescriptive period under Article 1144. Rescission under Article 1381 is a subsidiary action limited to cases of lesion enumerated therein, subject to a four-year prescriptive period under Article 1389.

• "Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated. It is to be noted that the law uses the phrase 'even though' emphasizing that when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies."
• "The right cannot be exercised solely on a party's own judgment that the other committed a breach of the obligation. The operative act which produces the resolution of the contract is the decree of the court and not the mere act of the vendor."

• Villaruel v. Tan King, 43 Phil. 251 (1922) — Followed. Sale of real property is governed by Article 1592, requiring judicial or notarial demand for rescission, not strictly by Article 1191.
• Escueta v. Pando, 76 Phil. 256 (1946) — Followed. Under Article 1191, the right to resolve reciprocal obligations must be invoked judicially; the court decree is the operative act.
• Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972) — Applied. A crossclaim or complaint can constitute a judicial demand for rescission satisfying the requirement of the law.
• Ong v. CA, 310 SCRA 1 (1999) — Cited. Distinguished "rescission" under Article 1381 (subsidiary action for lesion) from resolution under Articles 1191 and 1592 (principal action for cancellation).

• Article 1592, Civil Code — Governs the rescission of the sale of immovable property, requiring a judicial or notarial demand before rescission can take place, even if automatic rescission is stipulated.
• Article 1191, Civil Code — Provides the power to rescind reciprocal obligations in case of breach, requiring a court decree to effect the rescission.
• Article 1144, Civil Code — Sets the ten-year prescriptive period for actions upon a written contract, applied to rescission under Articles 1191 and 1592.
• Article 1389, Civil Code — Sets the four-year prescriptive period for rescissible contracts under Article 1381, held inapplicable to the present action.

Bellosillo, Mendoza, Buena, De Leon, Jr.