Lapitan vs. Scandia, Inc.

An action for rescission of a contract is not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance, because rescission is the principal relief sought and any award of damages is merely incidental to or a consequence of the grant of rescission, requiring the court to inquire into facts and law justifying the setting aside of the contract.

Andres Lapitan purchased a diesel engine from Scandia, Inc., a Manila-based entity, through its sub-dealer General Engineering Co. of Cebu. The purchase was for the purpose of running a rice and corn mill in Ormoc City, Leyte. The sellers warranted that spare parts were kept in stock and that defective parts would be replaced within twelve months of delivery. Republic Act 3828 had amended the Judiciary Act by increasing the jurisdiction of municipal courts to civil cases involving ₱10,000.00 or less, creating the jurisdictional threshold at issue.

On April 17, 1963, Andres Lapitan purchased from Scandia, Inc., through its sub-dealer General Engineering Co. of Cebu City, one ABC Diesel Engine of 16 horsepower for ₱3,735.00, paid in cash. He bought the engine for running a rice and corn mill at Ormoc City, Leyte. The defendants had warranted and assured him that all spare parts for the engine were kept in stock in their stores, enabling him to avoid losses due to long periods of waiting, and that they would replace any part of the engine that might break within twelve months after delivery.

On June 28, 1963, the cam rocker arm of the engine broke due to faulty material and workmanship, and the engine stopped functioning. The sellers were unable to send a replacement until August 29, 1963. Barely six days after replacement, the new part broke again due to faulty casting and poor material. Lapitan notified the sellers and demanded rescission of the contract of sale, seeking return of the price and damages, but the defendants did not pay.

Lapitan filed a complaint in the Court of First Instance of Cebu praying for (1) rescission of the contract, (2) reimbursement of the price, (3) recovery of ₱4,000.00 actual damages plus ₱1,000.00 attorney's fees, (4) recovery of moral and exemplary damages as the court deems just and equitable, and (5) costs and other proper relief. After filing answers disclaiming liability, Scandia, Inc. moved to dismiss on the ground that the total amount claimed was only ₱8,735.00 and was within the exclusive jurisdiction of the municipal court under Republic Act 3828. The CFI dismissed the action for lack of jurisdiction, invoking Cruz vs. Judge B. Tan, 87 Phil. 527. Unable to obtain reconsideration, Lapitan appealed directly to the Supreme Court.

• Nature of the Action: Lapitan argued that rescission was incapable of pecuniary estimation, and therefore the action fell within the jurisdiction of the Court of First Instance rather than the municipal court.
• Aggregate Amount of Demand: Lapitan contended that because he claimed moral and exemplary damages in addition to the price of ₱3,735.00, ₱4,000.00 actual damages, and ₱1,000.00 attorney's fees, the value of his demand exceeded the jurisdictional limit of the municipal court.

• Jurisdictional Amount: Scandia, Inc. argued that the total amount claimed was only ₱8,735.00, which was within the exclusive jurisdiction of the municipal court under Republic Act 3828, amending the Judiciary Act by increasing the jurisdiction of municipal courts to civil cases involving ₱10,000.00 or less.
• Disclaimer of Liability: Both defendants filed answers disclaiming liability before moving to dismiss.

• Jurisdiction: Whether an action for rescission of a contract, which includes a prayer for damages, is capable of pecuniary estimation such that jurisdiction is determined by the amount of the money claim, or whether it is an action not capable of pecuniary estimation cognizable exclusively by the Court of First Instance.

• Jurisdiction: No. The action for rescission is not capable of pecuniary estimation; jurisdiction lies with the Court of First Instance. The principal relief sought is rescission of the contract, and any money claim is purely incidental to or a consequence of that principal relief, placing the action within the class of cases cognizable exclusively by courts of first instance.

• Jurisdiction: The Court adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If the action is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and jurisdiction depends on the amount claimed. However, where the basic issue is something other than the right to recover a sum of money, or where the money claim is purely incidental to or a consequence of the principal relief sought — as in suits for specific performance, support, annulment of judgment, or foreclosure of mortgage — the action is considered not capable of pecuniary estimation and is cognizable exclusively by courts of first instance. The rationale is that such cases, besides the determination of damages, demand an inquiry into other factors which the law has deemed to be more within the competence of courts of first instance. Actions for specific performance have been expressly held to be exclusively cognizable by courts of first instance, and no cogent reason appears why an action for rescission should be treated differently, rescission being a counterpart of specific performance. In both, the court must investigate facts justifying one act or the other. No award of damages may be had in an action for rescission without first conducting an inquiry into matters justifying the setting aside of a contract. A prayer for damages in a rescission action must be included in the main action to compensate the plaintiff for breach and to avoid splitting a cause of action and multiplicity of suits; it should not be taken as the basis for classifying the action as capable of pecuniary estimation. The Court distinguished Cruz vs. Tan, where the money claim was prayed for as alternative relief to specific performance, implying an equivalence that permitted jurisdiction to be allocated by the amount of the money claim. In the case at bar, no such equivalence exists, because the money award can be considered only if rescission is first granted.

• Doctrine on Actions Not Capable of Pecuniary Estimation — In determining whether an action is one the subject matter of which is not capable of pecuniary estimation, the criterion is to first ascertain the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is capable of pecuniary estimation, and jurisdiction depends on the amount claimed. Where the basic issue is something other than the right to recover a sum of money, or where the money claim is purely incidental to or a consequence of the principal relief sought — as in specific performance, support, annulment of judgment, or foreclosure — the action is not capable of pecuniary estimation and is cognizable exclusively by courts of first instance. The Court applied this doctrine by holding that rescission of contract is the principal relief and damages are merely incidental, placing the action outside pecuniary estimation.
• Rescission as Counterpart of Specific Performance — An action for rescission (or resolution) of a contract should be treated the same as an action for specific performance for jurisdictional purposes, because both require the court to investigate facts and law justifying the granting or setting aside of a contract. No award of damages may be had in a rescission action without first inquiring into matters justifying the setting aside of the contract.

• "if it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, or where the money claim is purely incidental to, or a consequence of, the principal relief sought, like in suits to have the defendant perform his part of the contract (specific performance) and in actions for support, or for annulment of a judgment or to foreclose a mortgage, this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money" — This passage articulates the controlling criterion for distinguishing actions capable of pecuniary estimation from those that are not, and is the canonical formulation frequently cited in subsequent Philippine jurisprudence on jurisdiction.
• "no cogent reason appears, and none is here advanced by the parties, why an action for rescission (or resolution) should be differently treated, a rescission being a counterpart, so to speak, of 'specific performance'." — This establishes the analogy between rescission and specific performance for jurisdictional purposes, confirming that rescission actions are not capable of pecuniary estimation.
• "It is, therefore, difficult to see why a prayer for damages in an action for rescission should be taken as the basis for concluding such action as one capable of pecuniary estimation — a prayer which must be included in the main action if plaintiff is to be compensated for what he may have suffered as a result of the breach committed by defendant, and not later on precluded from recovering damages by the rule against splitting a cause of action and discouraging multiplicity of suits." — This explains why incidental damages in a rescission action cannot convert it into a pecuniary-estimation case, grounded on the policies against splitting causes of action and multiplicity of suits.

• Cruz vs. Judge B. Tan, 87 Phil. 527 — Distinguished. In that case, the money claim was prayed for as alternative relief to specific performance, implying an equivalence that permitted jurisdiction to be allocated by the amount of the money claim. No such equivalence exists in a rescission action where the money award depends on prior grant of rescission.
• De Jesus vs. Judge Garcia, L-26816, February 28, 1967 — Followed. Actions for specific performance of contracts are expressly cognizable exclusively by courts of first instance, supporting the analogous treatment of rescission.
• Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966 — Followed. Same holding as De Jesus regarding exclusive CFI jurisdiction over specific performance.
• Arroz vs. Alojado, et al., L-22153, March 31, 1967 — Cited as example of an action not capable of pecuniary estimation, involving inquiry into legality of conveyance and validity of money deposit.
• De Ursua vs. Pelayo, L-13285, April 18, 1950 — Cited as example involving validity of a judgment, an action not capable of pecuniary estimation.
• Bunayog vs. Tunas, L-12707, December 23, 1959 — Cited as example involving validity of a mortgage, an action not capable of pecuniary estimation.
• Baito vs. Sarmiento, L-13105, August 25, 1960 — Cited as example involving the relations of the parties and the right to support, an action not capable of pecuniary estimation.
• De Rivera, et al. vs. Halili, L-15159, September 30, 1963 — Cited as example involving validity or nullity of documents upon which claims are predicated, an action not capable of pecuniary estimation.

• Republic Act 3828 — Amended the Judiciary Act by increasing the jurisdiction of municipal courts to civil cases involving ₱10,000.00 or less. Scandia, Inc. invoked this statute in its motion to dismiss, arguing that the total amount claimed (₱8,735.00) fell within the municipal court's exclusive jurisdiction. The Court held the statute inapplicable because the action was not capable of pecuniary estimation.
• Rule 2, Sections 3 and 4, Rules of Court — Cited in footnote in relation to the rule against splitting a cause of action and discouraging multiplicity of suits, supporting the rationale that a prayer for damages must be included in the main rescission action.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Angeles, and Fernando, JJ., concurred. Castro, J., took no part.