Pajares vs. Remarkable Laundry and Dry Cleaning

A complaint for "breach of contract" that seeks only the payment of liquidated damages and other monetary awards without praying for specific performance or rescission of the contract is an action for damages capable of pecuniary estimation, and jurisdiction is determined by the totality of the damages claimed pursuant to Administrative Circular No. 09-94; the "incapable of pecuniary estimation" rule applies only where the primary relief sought is specific performance or rescission, not where monetary payment is the principal objective.

Remarkable Laundry and Dry Cleaning entered into a Remarkable Dealer Outlet Contract with Spouses Romeo and Ida Pajares on September 8, 2011. Under the contract, the Pajares spouses acted as a dealer outlet required to produce a minimum of 200 kilos of laundry items per week. The contract contained a penal clause imposing fines for violations and interest charges on unpaid obligations. On April 24, 2012, the Pajares spouses notified Remarkable Laundry of their cessation of operations due to lack of personnel, effectively terminating the dealership prior to the expiration of the two-year contract period. Remarkable Laundry thereafter sent demand letters for payment of penalties and charges, which the spouses failed to satisfy.

The Dealer Contract and Alleged Breach: On September 8, 2011, Remarkable Laundry and Dry Cleaning (plaintiff) and Spouses Romeo and Ida Pajares (defendants) executed a Remarkable Dealer Outlet Contract. The contract required the Pajares spouses, as dealer outlets, to accept and receive laundry items for processing by Remarkable Laundry and to meet a minimum quota of 200 kilos per week. Article IV of the contract contained a penal clause imposing automatic charges of ₱200.00 per week for failure to meet the quota, 10% monthly interest on unpaid obligations, and fines of ₱25,000.00 for every violation or ₱50,000.00 for pre-termination due to breach. Article XV classified violations as "BREACH BY THE OUTLETS" and allowed immediate termination without prejudice to legal remedies.

Cessation of Operations: On April 24, 2012, the Pajares spouses sent a letter to Remarkable Laundry stating they would "CEASE OPERATION" due to lack of personnel and would advise when ready to resume business. They stopped accepting laundry items, effectively suspending operations prior to the contract's two-year term. Remarkable Laundry sent demand letters dated May 2, June 2, and June 19, 2012, requiring compliance with the contract and payment of penalties, which the spouses ignored.

The Complaint: On September 3, 2012, Remarkable Laundry filed a Complaint denominated as "Breach of Contract and Damages" before the RTC of Cebu City. The complaint alleged that the unilateral cessation constituted gross breach of contract under Articles IV and XVI of the agreement and violated Articles 1159 and 1170 of the Civil Code. The prayer sought: - ₱200,000.00 as "incidental and consequential damages" for violating the contract; - ₱30,000.00 as legal expenses; - ₱30,000.00 as exemplary damages; - ₱20,000.00 as costs of suit; - Other just and equitable reliefs.

Notably, the complaint did not pray for specific performance (compelling continued operation) or rescission (restoration of things to their pre-contractual condition) of the dealership agreement.

Procedural Posture: The RTC dismissed the complaint upon the Pajares spouses' jurisdictional objection, applying the "totality of claims" rule and noting the ₱280,000.00 total fell below the ₱300,000.00 RTC jurisdictional threshold. The CA reversed, characterizing the action as one for breach of contract (specific performance or rescission) incapable of pecuniary estimation.

• Nature of the Action: Petitioners maintained that the complaint was essentially an action for the recovery of a sum of money in the form of damages, not an action for specific performance or rescission. They argued that the designation "Breach of Contract and Damages" was a misnomer, and the true nature of the action must be determined by the allegations and the principal relief sought in the prayer.

• Jurisdictional Determination: Petitioners asserted that since the complaint merely prayed for the payment of damages totaling ₱280,000.00 without seeking specific performance or rescission, jurisdiction should be determined solely by the amount of the claim pursuant to Administrative Circular No. 09-94. The claim being below ₱300,000.00, the Municipal Trial Court had jurisdiction.

• Damages as Principal Relief: Petitioners contended that respondent "chose to focus [its] primary relief on the payment of damages," which constituted the true, actual, and principal relief sought, not merely incidental to or a consequence of the alleged breach.

• Primary Action for Breach: Respondent countered that the complaint was primarily based on breach of contract, and the damages prayed for were merely incidental to the principal action. It argued that the complaint referenced the dealership contract and the breach committed by petitioners, requiring the court to first determine whether a violation occurred before awarding damages.

• Incapable of Pecuniary Estimation: Respondent maintained that an action for breach of contract is either for specific performance or rescission, both of which are incapable of pecuniary estimation and thus within the exclusive original jurisdiction of the RTC pursuant to Section 19 of Batas Pambansa Blg. 129.

• Enforcement of Penal Clause: Respondent argued that the complaint sought to enforce the penal clause contained in Article IV of the contract, which by nature is incapable of pecuniary estimation because it involves the discretionary power of the court to determine the propriety of rescission or specific performance.

• Nature of the Action: Whether the complaint is an action for specific performance or rescission of contract (incapable of pecuniary estimation) or an action for damages (capable of pecuniary estimation).

• Jurisdiction: Whether the RTC has jurisdiction over the complaint where the total amount of damages claimed is ₱280,000.00.

• Nature of the Action: The complaint was an action for damages, not specific performance or rescission. Breach of contract is a cause of action, not the action or relief itself; it may give rise to specific performance, rescission, or damages. An analysis of the complaint's body, heading, and prayer revealed no allegation or prayer compelling petitioners to perform their obligations (specific performance) or restoring the parties to their pre-contractual status (rescission). Instead, the complaint sought to enforce the penal clause through payment of liquidated damages (termed "incidental and consequential damages") under Article 2226 of the Civil Code, which constitutes an action for damages pursuant to Article 1170.

• Jurisdiction: The RTC lacked jurisdiction. Where the claim for damages is the main cause of action, Administrative Circular No. 09-94 mandates that the amount of such claim shall be considered in determining jurisdiction. The total damages claimed amounted to ₱280,000.00, below the ₱300,000.00 threshold for RTC jurisdiction under Republic Act No. 7691. The "incapable of pecuniary estimation" rule under Section 19(1) of Batas Pambansa Blg. 129 applies only where the primary issue is something other than the right to recover a sum of money, or where the money claim is purely incidental to the principal relief sought. Here, the monetary claim was the principal objective.

• Determination of Jurisdiction Based on Principal Action: In ascertaining whether an action is incapable of pecuniary estimation, the nature of the principal action or remedy sought must first be determined. If the action is primarily for the recovery of a sum of money, the claim is capable of pecuniary estimation, and jurisdiction depends on the amount. However, where the basic issue is something other than the right to recover a sum of money, and the money claim is purely incidental to or a consequence of the principal relief sought, the action is incapable of pecuniary estimation and falls within the exclusive jurisdiction of the RTC.

• Breach of Contract as Cause of Action vs. Relief: Breach of contract is a cause of action (the delict or wrongful act committed by the defendant), but it is not the action or relief itself. It may give rise to: (1) an action for specific performance; (2) an action for rescission of contract; or (3) an action for damages. Specific performance and rescission are incapable of pecuniary estimation; an action for damages is capable of pecuniary estimation.

• Liquidated Damages and Penal Clauses: Liquidated damages are those agreed upon by the parties to a contract to be paid in case of breach (Article 2226, Civil Code). A complaint primarily seeking to enforce the accessory obligation contained in the penal clause is actually an action for damages capable of pecuniary estimation. The penal clause serves a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.

• Totality of Claims Rule: Under Administrative Circular No. 09-94, where the claim for damages is the main cause of action, or one of the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court. The totality principle applies to determine jurisdiction based on the aggregate amount of all damages claimed, irrespective of whether the causes of action arose out of the same or different transactions.

• "Breach of contract is a cause of action, but not the action or relief itself." — Distinguishing between the wrongful act that gives rise to liability and the specific remedy sought by the plaintiff.

• "In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. 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 trial 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, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance." — Articulating the test for determining jurisdiction based on the nature of the action.

• "There is no such thing as an 'action for breach of contract.' Rather, '[b]reach of contract is a cause of action, but not the action or relief itself.'"

• "A complaint primarily seeking to enforce the accessory obligation contained in the penal clause is actually an action for damages capable of pecuniary estimation."

• Russel v. Hon. Vestil, 364 Phil. 392 (1999) — Controlling precedent establishing the criterion for determining whether an action is incapable of pecuniary estimation by ascertaining the nature of the principal action or remedy sought.

• Villena v. Payoyo, 550 Phil. 686 (2007) — Cited by the CA; distinguished by the Supreme Court. Held that the nature of the action and jurisdiction are determined by the allegations of the complaint and the character of the relief sought, but was misapplied by the CA to conclude that all breach of contract cases are incapable of pecuniary estimation.

• Pacmac, Inc. v. Intermediate Appellate Court, 234 Phil. 548 (1987) — Followed for the principle that breach of contract may give rise to an action for damages under Article 1170 of the Civil Code, and that a party who unilaterally terminates a contract without legal justification can be held liable for damages.

• BF Corporation v. Werdenberg International Corporation, G.R. No. 174387, December 9, 2015 — Cited for the definition and function of liquidated damages under Article 2226 of the Civil Code.

• Baguioro v. Barrios and Tupas Vda. de Atas, 77 Phil. 120 (1946) — Cited for the definition of a cause of action as distinct from the action itself.

• Section 19, Batas Pambansa Blg. 129 (The Judiciary Reorganization Act of 1980), as amended by Republic Act No. 7691 — Grants RTC exclusive original jurisdiction over civil actions in which the subject of the litigation is incapable of pecuniary estimation, and in other cases where the demand, exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and costs, exceeds ₱300,000.00 (or ₱400,000.00 in Metro Manila).

• Section 33, Batas Pambansa Blg. 129, as amended — Grants Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts exclusive original jurisdiction over civil actions where the amount of the demand does not exceed ₱300,000.00 (or ₱400,000.00 in Metro Manila), exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and costs.

• Administrative Circular No. 09-94 — Provides guidelines for implementing RA 7691; states that where the claim for damages is the main cause of action, the amount of such claim shall be considered in determining the jurisdiction of the court.

• Article 1159, Civil Code of the Philippines — Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

• Article 1170, Civil Code of the Philippines — Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

• Article 1191, Civil Code of the Philippines — The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

• Article 2226, Civil Code of the Philippines — Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.

Maria Lourdes P.A. Sereno (Chief Justice, Chairperson) Teresita J. Leonardo-De Castro Estela M. Perlas-Bernabe Alfredo Benjamin S. Caguioa