In a contract to sell real property, the Supreme Court ruled that while a seller’s failure to deliver the title and execute a deed of absolute sale constitutes a breach, the buyer must still prove actual damages to claim compensation. The Court clarified that temperate damages, exemplary damages, and attorney’s fees may be awarded even if actual damages are not proven, especially if the seller acted in bad faith. This decision underscores the importance of fulfilling contractual obligations in property sales while also highlighting the need for buyers to substantiate their damage claims.

Delayed Delivery, Diminished Value: Who Bears the Loss in Real Estate Deals?

This case revolves around a dispute between Universal International Investment (BVI) Limited (Universal), the buyer, and Ray Burton Development Corporation (RBDC), the seller, concerning a contract to sell condominium units and parking slots in Elizabeth Place, Makati City. Universal fully paid for the properties in 1999, but RBDC failed to deliver possession or transfer the Condominium Certificates of Title (CCTs). Universal then discovered that the property was mortgaged to China Banking Corporation (China Bank) since 1991, and subsequently foreclosed in 2001. The core legal question is whether RBDC’s failure to deliver the properties and the titles entitles Universal to damages, considering the mortgage and subsequent foreclosure.

Universal filed a complaint with the Housing and Land Use Regulatory Board (HLURB) for specific performance or rescission of contract and damages. The HLURB initially ruled in favor of Universal. The Office of the President (OP) later reversed part of the HLURB ruling, affirming Universal’s right to rescind the contract and receive a refund, but maintained the validity of the discharge of one of RBDC’s attached properties. The Court of Appeals (CA) ultimately denied Universal’s claim for damages, prompting Universal to elevate the case to the Supreme Court.

At the heart of the matter is Section 6 of the Contracts to Sell, which addresses breaches and violations. According to the contract:

SECTION 6. BREACH AND/OR VIOLATIONS OF THE CONTRACT.

This agreement shall be deemed cancelled, at the option of the BUYER, in the event that SELLER, for the reasons of force majeure, decide not to continue with the Project or the Project has been substantially delayed. In such a case, the BUYER shall be entitled to refund all the payments made with interest at one-and-a-half (1 ½) percent per month on the amount paid computed from the date of cancellation until the payments have been fully refunded. Substantial delay is defined as six (6) months from date of estimated date of completion. The parties agree that the estimated date of completion shall be December 31, 1998.

The Supreme Court, however, found that Section 6 only applied to situations of force majeure or substantial delay, neither of which were being claimed by Universal. Universal sought damages for RBDC’s failure to deliver possession of the properties and their CCTs, rendering Section 6 inapplicable.

Universal also sought to recover losses amounting to P19,646,483.72, representing the difference between the purchase price in 1996 and the market value of the properties in 2005. It anchored its claim on Article 2200 of the Civil Code, which states:

ARTICLE 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain.

The Court reiterated that to recover damages, the claimant must prove an injury or wrong sustained as a consequence of a breach of contract or tort, caused by the party chargeable with a wrong. The Supreme Court underscored the need to substantiate losses.

The Court found that Universal failed to prove that it intended to market the properties for profit and, therefore, could not claim lost profits under Article 2200. Moreover, the Court stated that the alleged difference in market value was speculative and did not represent actual unearned profits. It emphasized that unearned profits must not be conjectural or based on contingent transactions.

The Supreme Court clarified the obligations of the seller in a contract to sell. According to the Court, RBDC’s obligations under Section 3 of the contract were limited to delivering deeds of absolute sale and the corresponding CCTs, not to transferring possession or causing the transfer of the CCTs to Universal’s name. Referencing Chua v. Court of Appeals, the Court highlighted the distinction between the transfer of ownership and the transfer of a certificate of title:

In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller.

The Supreme Court then scrutinized whether RBDC’s actions were the proximate cause of Universal’s losses. Proximate cause is defined as that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. The Court held that Universal failed to demonstrate that RBDC’s breach caused the depreciation of the properties, or that possession would have prevented their decline in value. It determined that the depreciation was primarily due to the passage of time, not RBDC’s actions.

Regarding the sums paid by Universal to China Bank, the Court sided with RBDC, stating that these payments should not have been necessary. The HLURB’s Judgment Upon Compromise directed China Bank to release the titles to fully paid units without additional payment, making Universal’s expenses unjustifiable.

The Court determined that RBDC had breached its obligations by failing to execute deeds of absolute sale and deliver the CCTs. RBDC’s excuse that Universal had not paid transfer charges was rejected, as RBDC had not made a proper demand for these charges. Section 5(a) of the Contracts to Sell was interpreted to mean that the obligation to pay transfer charges arose only if the seller elected to handle the titling of the properties, which RBDC had not done.

Despite Universal’s failure to prove actual damages, the Supreme Court awarded temperate damages, recognizing that Universal had sustained pecuniary loss due to RBDC’s breaches. The Court highlighted that Universal had lost opportunities to enjoy possession of the properties and use the titles as collateral. After considering the investment made, the duration of suffering, and RBDC’s lack of action to remedy the situation, the Court calculated temperate damages at 15% of the purchase value, amounting to P7,925,517.23.

Furthermore, the Court imposed exemplary damages on RBDC, finding that it had acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The Court emphasized the state’s policy to protect innocent buyers in real estate transactions and cited RBDC’s refusal to execute deeds of absolute sale and release the CCTs without sound basis. It also noted RBDC’s failure to disclose the mortgage to China Bank. Exemplary damages were set at P300,000.

Given the award of exemplary damages, the Court also found it just and equitable to award P200,000 as attorney’s fees. All damages awarded were set to earn interest at 6% per annum from the date of finality of the judgment until full payment.

FAQs

What was the central issue in this case?	The central issue was whether the buyer, Universal International Investment, was entitled to damages from the seller, Ray Burton Development Corporation, for failing to deliver properties and titles after full payment. The case examined the scope of damages recoverable for breach of contract in real estate transactions.
What are the seller’s obligations in a contract to sell?	In a contract to sell, the seller is obligated to execute a deed of absolute sale and deliver the corresponding Condominium Certificate of Title (CCT) upon full payment. They are not necessarily obligated to transfer possession or cause the transfer of the CCT to the buyer’s name unless explicitly agreed upon.
What did the Supreme Court say about proving actual damages?	The Supreme Court emphasized that to recover actual damages, the claimant must prove an injury or wrong sustained as a consequence of a breach of contract. The amount of actual loss must be proved with a reasonable degree of certainty, based on competent proof and the best evidence obtainable.
What are temperate damages?	Temperate damages are awarded when the court finds that some pecuniary loss has been suffered, but the amount cannot be proven with certainty. It serves as a moderate compensation when actual damages cannot be precisely determined.
Under what circumstances can exemplary damages be awarded?	Exemplary damages are corrective damages imposed by way of example or correction for the public good. They can be awarded if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Why was the claim for lost profits denied?	The claim for lost profits was denied because Universal failed to prove that it intended to market the properties for profit and could not demonstrate the amount of profits it would have earned. The alleged difference in market value was considered speculative, not actual unearned profits.
What was the significance of the mortgage on the property?	The Supreme Court noted that the seller’s failure to disclose the mortgage to China Bank before executing the Contracts to Sell was a factor supporting the imposition of exemplary damages. This was because it was a violation of the buyer’s rights and protections.
What is proximate cause in the context of damages?	Proximate cause is the cause that, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. The claimant must demonstrate that the defendant’s breach directly caused the loss sustained.
Why was the buyer not entitled to recover the payments made to China Bank?	The buyer was not entitled to recover the payments made to China Bank because the HLURB had directed the bank to release the titles to fully paid units without additional payment. The additional expenses incurred by the buyer were deemed unnecessary.

This case reinforces the principle that while breaches of contract are actionable, the burden of proving actual damages rests with the claimant. The Supreme Court’s decision provides a nuanced understanding of the types of damages available and the circumstances under which they may be awarded, even in the absence of concrete proof of loss. Real estate transactions demand diligence, transparency, and adherence to contractual obligations.

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: Universal International Investment (BVI) Limited v. Ray Burton Development Corporation, G.R. No. 185815, November 14, 2016