G.R. No.

L-41093, Oct 30, 1978

A realty corporation's failure to transfer a certificate of title to a buyer who had fully paid for a lot leads to a complaint for
specific performance and an award of reduced nominal damages.

Facts:

Lolita Millan purchased a lot from Robes-Francisco Realty & Development Corporation (petitioner) in May 1962,
completing payment on December 22, 1971. However, the deed of absolute sale was only executed on March 2, 1973.
Despite this, the petitioner failed to deliver the transfer certificate of title to Millan, who had to file a complaint for specific
performance. The trial court awarded her nominal damages of P20,000.

RTC Ruling:

The Court of First Instance commanded the petitioner to register the deed of absolute sale and secure the title in Millan's
name within ten days post-judgment finality. Alternatively, it was ordered to pay Millan P5,193.63 with 4% annual interest
from June 22, 1972, until fully paid, nominal damages of P20,000, attorney's fees of P5,000, and costs.

Issue:

Whether the provision for a 4% interest rate in the deed of absolute sale, in case of failure to transfer the title within six
months from full payment, constitutes a penal clause that precludes recovery of damages.

Supreme Court Ruling:

No. The Supreme Court found the stipulation for a 4% interest rate not to be penal in nature, as it does not prevent the
vendee from recovering damages. The Court noted that nominal damages were appropriate due to the violation of
Millan's rights, but deemed the P20,000 awarded by the trial court as excessive and reduced it to P10,000. The decision
was based on the principle that nominal damages are awarded not for the loss suffered but for the vindication or
recognition of a violated right. The Court also observed that bad faith or fraud was not evident on the part of the
petitioner, ruling out exemplary damages.

*************

The doctrine applied in this case regarding obligations with a penal clause, as interpreted by the Supreme Court, centers
around the nature and application of penal clauses in contracts in accordance with the Civil Code, particularly Articles
1226, 2209, 2221, and 2222. The Supreme Court clarified that not all stipulations for the payment of interest or refunds in
the event of failure to perform obligations are considered penal clauses. Specifically, the Court examined the stipulation in
the deed of absolute sale that required the vendor to refund the purchase price with a 4% interest per annum if it failed to
issue the transfer certificate of title within six months from the date of full payment. The Supreme Court determined that
this stipulation could not be considered a penal clause because it does not impose a penalty but rather ensures the return
of the amount paid by the buyer with interest, which is a right the buyer would have under Article 2209 of the Civil Code
regardless of the stipulation.

Moreover, the Supreme Court discussed the nature and purpose of nominal damages under Articles 2221 and 2222 of the
Civil Code. Nominal damages are awarded not for the purpose of indemnification for a loss but for the recognition or
vindication of a right that has been violated. The Court emphasized that nominal damages can be awarded even if no
actual damage is proven, provided there is a showing of a legal right violated. The assessment of nominal damages is left
to the discretion of the court, considering the circumstances of each case.

In this specific case, despite the presence of a clause that might seem to limit the buyer's recovery to the refund of the
purchase price with 4% interest per annum, the Supreme Court acknowledged the buyer's right to seek further relief due
to the violation of her right to receive the title after full payment. The Court found that the failure of the realty corporation
to deliver the title constituted a breach of contract, entitling the buyer to nominal damages as a recognition of her
violated rights.

The ruling also highlighted that the amount of nominal damages is determined based on the specific circumstances of
each case. While nominal damages are typically small, the Supreme Court has the discretion to adjust the amount to what
it deems fair and reasonable, considering the particular facts of the case. In this instance, the Supreme Court decided to
reduce the awarded nominal damages from P20,000 to P10,000, considering the absence of bad faith on the part of the
vendor and the nature of the violation.

This case underscores the principle that penal clauses must be distinctly identified as such and that nominal damages
serve a specific purpose of recognizing the existence of a legal right and its violation, independent of the actual loss
suffered.

NOTES:

RECAP:

A realty corporation's failure to transfer a certificate of title to a buyer who had fully paid for a lot leads to a complaint for
specific performance and an award of reduced nominal damages.

his appeal concerns a legal question stemming from a judgment issued by the Court of First Instance of Rizal, Branch
XXXIV, under the chairmanship of Honorable Bernardo P. Pardo. The judgment's essence is as follows:

"The court hereby orders the defendant to complete the registration of the deed of absolute sale it executed in the
plaintiff's favor with the Caloocan City Register of Deeds and to ensure the transfer of title to the plaintiff within ten (10)
days following the decision's finalization; failing this, the defendant is obliged to compensate the plaintiff P5,193.63 with a
4% annual interest from June 22, 1972 until full payment is made.

"Regardless of the outcome, the defendant is also directed to compensate the plaintiff with P20,000.00 as nominal
damages, alongside P5,000.00 for legal fees and additional court costs.

"Thus decreed.

"Caloocan City, February 11, 1975."

(Record, p. 21)

The petitioner corporation challenges the decision, particularly criticizing the P20,000.00 nominal damages and P5,000.00
attorney fees as excessive and unwarranted.

In our October 20, 1975 resolution, the appeal was accepted but limited solely to the nominal damages awarded.

The uncontested details are as follows:

Millan fulfilled her payment obligations, completing the last installment on December 22, 1971, with a total expenditure of
P5,193.63, inclusive of interest and title registration costs.

Subsequent to these payments, Millan demanded the corporation execute the final sale deed and issue the lot's transfer
certificate of title. Consequently, on March 2, 1973, both parties signed a deed of absolute sale for the lot. This deed
promised the title's transfer to Millan within six months from full payment, with a failure to do so incurring a 4% annual
interest repayment obligation on the total amount paid.

Despite the six-month deadline, the corporation did not secure the transfer certificate of title for Millan, leading her to file
a complaint on August 14, 1974, for specific performance and damages against the corporation at the Rizal Court of First
Instance, Branch XXXIV, Caloocan City, marked as Civil Case No. C-3268.

Millan's complaint sought the deed of absolute sale's reformation, title delivery free of liens, or compensation equivalent
to the lot's current estimated value of at least P27,600.00, in addition to P15,000.00 in damages.

The corporation's defense requested the complaint's dismissal, arguing that the deed of absolute sale was mutually
agreed upon and the interest provision for delayed title issuance adequately protected the plaintiff.

During the pre-trial conference, after the defendant admitted to additional facts not previously disclosed in its answer, it
was revealed that the delay in title issuance was due to the property being part of assets mortgaged to the Government
Service Insurance System (GSIS) for a P10 million loan, with GSIS holding the subdivision's owner's duplicate certificate of
title.

On February 11, 1975, based on these facts, the trial court issued its decision, mandating either the title's transfer to Millan
or monetary compensation, in addition to nominal damages and attorney fees.

RULING:

The trial court's decision to grant nominal damages was upheld, but the amount of P20,000.00 awarded to respondent
Millan was deemed excessive under the circumstances and thus reduced.

The petitioner corporation's failure to deliver the transfer certificate of title to Millan, who had fully paid for her lot,
constitutes a delay equivalent to nonfulfillment of obligation, as outlined in Article 1170 of the Civil Code. This provision
holds liable those who delay or contravene the agreed terms of their obligations.

The petitioner's argument, based on the deed of absolute sale, limits the compensation to the refund of the total amount
paid with a 4% annual interest, as per Article 1226 of the Civil Code. This argument was found lacking because the clause
in question does not impose a penalty; hence, it doesn't preclude an award for damages. According to Article 2209,
without such a clause, the vendee is still entitled to recover the paid amount with legal interest, potentially exceeding the
4% stipulated.

Given this, the provision in the deed cannot be seen as a penal clause that negates damages to Millan. In fact, it seems
more beneficial to the corporation.

Despite Millan not presenting evidence of actual damages incurred due to the petitioner's failure to fulfill the contract
terms, the violation of her right to the property title justifies nominal damages.

Nominal damages, as per Articles 2221 and 2222 of the Civil Code, aim to recognize a violated right, not compensate for
loss. Their amount is determined by the court, reflecting the case specifics rather than the injury's extent.
Although nominal damages are typically small, the exact amount depends on the case's context. Past rulings differentiate
between nominal damages and other forms of compensation, emphasizing their role in recognizing rights rather than
compensating for losses.

Considering the specifics of this case, including the time elapsed since the full payment and the failed title conveyance, a
reduced award of P10,000.00 as nominal damages is considered fair. This adjustment acknowledges the respondent's right
without presuming bad faith on the petitioner's part, given the absence of evidence for actual, moral, or exemplary
damages.

Therefore, the court modifies the original decision, setting the nominal damages at P10,000.00, with the rest of the
judgment remaining unchanged.

No costs were assigned.

Thus, the judgment is adjusted accordingly.

SEPARATE OPINION