In a contract dispute, proving actual loss is essential for claiming compensatory damages. While a breach of contract may justify nominal damages to recognize a violated right, it doesn’t automatically lead to a monetary award for actual losses. The Supreme Court in Pryce Properties Corporation v. Spouses Octobre clarified that compensatory damages require concrete evidence of financial harm, while nominal damages serve to vindicate rights when no actual loss is proven. This distinction ensures fairness and prevents speculative claims in contract law.

Custody of Titles: Who Bears the Risk of Non-Disclosure in Real Estate Contracts?

Spouses Sotero and Henrissa Octobre contracted with Pryce Properties Corporation to purchase two lots in Puerto Heights Village. After fully paying the agreed price, Pryce failed to deliver the land titles because they were held by China Banking Corporation as collateral under a Deed of Assignment. This arrangement, undisclosed to the spouses, led to a legal battle when Pryce defaulted on its loan obligations to China Bank. The Spouses Octobre then filed a complaint, and the central legal question arose: Can a breach of contract automatically result in an award of actual or compensatory damages without specific evidence of loss?

The Housing and Land Use Regulatory Board (HLURB) initially rescinded the contract and ordered Pryce to refund payments, along with compensatory damages. This decision was later modified, requiring Pryce to redeem the titles from China Bank or refund payments. The Office of the President and the Court of Appeals affirmed this ruling, emphasizing Pryce’s bad faith in not disclosing the title custody arrangement. Now, Pryce contests the award of compensatory damages, arguing Spouses Octobre failed to prove actual losses. This case highlights the crucial distinction between actual damages, which require proof of pecuniary loss, and nominal damages, which acknowledge a violated right.

Article 2199 of the Civil Code specifies the requirements for compensatory damages, stating:

Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.

Building on this, the Supreme Court has consistently held that compensatory damages must be based on competent proof of pecuniary loss. The party claiming damages bears the burden of providing the best evidence available. As the Court explained in Oceaneering Contractors (Phil), Inc. v. Barretto, G.R. No. 184215, February 9, 2011, 642 SCRA 596, 606-607:

To be entitled to compensatory damages, the amount of loss must therefore be capable of proof and must be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.

In the Pryce case, the Spouses Octobre undeniably proved the amount they paid for the lots. However, the P30,000.00 awarded as compensatory damages lacked an evidentiary foundation. The HLURB Arbiter justified the award based on equity, while the Court of Appeals cited Pryce’s breach of contract. Yet, neither provided concrete evidence of actual pecuniary loss suffered by the Spouses Octobre. The absence of such evidence prompted the Supreme Court to re-evaluate the propriety of compensatory damages.

The Supreme Court held that in the absence of adequate proof of pecuniary loss, compensatory damages are inappropriate. However, the Court recognized the Spouses Octobre’s right had been violated by Pryce’s failure to deliver the titles. As such, the court deemed nominal damages appropriate in lieu of compensatory damages. Article 2221 of the Civil Code explains the purpose of nominal damages:

Nominal damages are awarded in order that the plaintiff’s right, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered.

Nominal damages, as the Court noted, are recoverable where a legal right is technically violated, even without actual present loss. This principle was reiterated in Francisco v. Ferrer, Jr., G.R. No. 142029, February 28, 2001, 353 SCRA 261, 267-268, which stated nominal damages apply when “there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown.” Here, Pryce’s breach of contract, specifically its failure to deliver titles, justified an award for nominal damages to vindicate the Spouses Octobre’s contractual rights.

Additionally, Pryce questioned the award of attorney’s fees, arguing it was unjustified without exemplary damages. However, Article 2208 of the Civil Code lists several exceptions where attorney’s fees are recoverable, independent of exemplary damages. Specifically, Article 2208(2) allows for attorney’s fees when the defendant’s act or omission compels the plaintiff to litigate with third persons or incur expenses to protect their interest. The Court of Appeals found Pryce acted in bad faith by failing to disclose the title custody to Spouses Octobre. Because of this bad faith, the Supreme Court upheld the award of attorney’s fees and costs of suit in favor of the Spouses Octobre.

FAQs

What was the key issue in this case?	The central issue was whether a breach of contract automatically warrants an award of compensatory damages, even without specific proof of actual monetary loss.
What are compensatory damages?	Compensatory damages, also known as actual damages, are awarded to compensate for actual pecuniary losses suffered as a result of a breach of contract or wrongful act. These damages must be proven with a reasonable degree of certainty.
What are nominal damages?	Nominal damages are awarded to vindicate a right that has been violated, even if no actual monetary loss has occurred. They serve to recognize the plaintiff’s right and the defendant’s breach of duty.
Why were compensatory damages not awarded in this case?	The Supreme Court found that Spouses Octobre did not present sufficient evidence to prove actual pecuniary losses resulting from Pryce’s breach of contract. Therefore, compensatory damages were deemed inappropriate.
Why were nominal damages awarded instead?	Nominal damages were awarded because Pryce’s failure to deliver the titles constituted a violation of Spouses Octobre’s contractual rights, even though no specific monetary loss was proven.
What was the significance of Pryce’s non-disclosure of the title arrangement?	Pryce’s failure to disclose that the titles were held by China Bank was considered bad faith. This justified the award of attorney’s fees and costs of suit to Spouses Octobre, who were compelled to litigate to protect their interests.
What does Article 2199 of the Civil Code state regarding compensatory damages?	Article 2199 states that a party is entitled to adequate compensation only for such pecuniary loss suffered by him as he has duly proved, referring to such compensation as actual or compensatory damages.
Under what circumstances are attorney’s fees awarded in contract disputes?	Attorney’s fees may be awarded when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest, especially if the defendant acted in bad faith.

This case underscores the importance of proving actual losses when claiming compensatory damages in contract disputes. While nominal damages can vindicate violated rights, they do not substitute the need for concrete evidence when seeking compensation for financial harm. Pryce’s failure to disclose encumbrances on the property resulted in unnecessary litigation costs for the Spouses Octobre.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Pryce Properties Corporation v. Spouses Octobre, G.R. No. 186976, December 07, 2016