Philippine-Japan Active Carbon Corporation vs. Borgaily

An action for the recovery of a security deposit filed after the termination of a lease contract is an action for collection of sum of money capable of pecuniary estimation within the jurisdiction of municipal trial courts, not an action for breach of contract or specific performance cognizable by regional trial courts, because the termination of the lease extinguishes the contractual relationship and leaves only the obligation to return the deposit as a monetary debt.

Philippine-Japan Active Carbon Corporation (petitioner) entered into lease contracts with Habib Borgaily (respondent) for two apartment units in Davao City for the period August 1, 2002 to August 1, 2003, paying a total security deposit of P90,000.00. The contracts required the lessee to maintain the premises in good and tenantable condition and surrender them in like condition at termination, except for ordinary wear and tear. Upon lease expiration, petitioner continued occupancy until October 31, 2003, after which it demanded the return of the security deposit. Respondent refused, claiming petitioner had caused extensive damage requiring P79,534.00 in repairs and had used the units as staff houses rather than for executives as allegedly represented.

• The Lease Agreements: On July 17, 2002, petitioner leased two apartment units from respondent for P15,000.00 per month each, for the period August 1, 2002 to August 1, 2003. Petitioner paid a security deposit of P90,000.00 (P45,000.00 per unit). Paragraph 19 of the lease contracts stipulated that the deposit was security for faithful performance of obligations, could not be applied to rental due, and would be refunded only upon termination after ascertaining that the lessee had no further obligations.
• Post-Termination Occupancy and Demand: The lease was not renewed after August 1, 2003, but petitioner continued to occupy the premises until October 31, 2003. After vacating, petitioner demanded the return of the P90,000.00 security deposit, alleging it had no outstanding obligations.
• Respondent's Counterclaim: Respondent refused to return the deposit, claiming petitioner violated lease terms by failing to keep the units "neat-looking," maintain lawns, and return the premises in good condition. Respondent alleged petitioner used the units as staff houses rather than for executives as purportedly represented, and that the occupants destroyed the units, rendering them inhabitable and necessitating repairs costing P79,534.00, supported by receipts.
• Procedural Posture: Petitioner filed an action for collection of sum of money before the MTCC of Davao City. The MTCC ruled for petitioner, ordering refund of the deposit with interest and attorney's fees. The RTC reversed, finding respondent entitled to withhold the deposit to cover repair costs and awarding nominal damages. The CA dismissed the complaint for lack of jurisdiction, characterizing the action as one for breach of contract and specific performance incapable of pecuniary estimation.

• Nature of Action: Petitioner argued that the action was for collection of sum of money and attorney's fees, not for breach of contract, since the lease contracts had already terminated at the time of filing and no contract existed to be breached.
• Jurisdiction: Petitioner maintained that because the principal action was for recovery of a specific sum (P90,000.00), the claim was capable of pecuniary estimation and within the jurisdiction of the MTCC.
• Right to Refund: Petitioner contended that under Paragraph 19 of the lease agreements, the security deposit must be returned upon termination after ascertaining no further obligations, and respondent had not established petitioner's liability for damages through proper proceedings.

• Breach of Contract: Respondent countered that the action was for breach of contract where specific performance was the available remedy, making the action incapable of pecuniary estimation and cognizable by the RTC.
• Right to Withhold: Respondent argued he had legal and justifiable reason to withhold the deposit because petitioner vandalized and destroyed the leased units, necessitating repairs costing P79,534.00, which amount should be offset against the security deposit.
• Condition of Premises: Respondent maintained that photographs and receipts proved the premises were surrendered in damaged condition beyond ordinary wear and tear, justifying application of the security deposit to repair costs.

• Jurisdiction: Whether the MTCC has jurisdiction over an action for recovery of security deposit filed after lease termination, or whether the action is for breach of contract incapable of pecuniary estimation cognizable by the RTC.
• Offset of Security Deposit: Whether the RTC was correct in offsetting the security deposit against the cost of repairs and awarding nominal damages to respondent.

• Jurisdiction: The MTCC has jurisdiction over the case. The action is for collection of sum of money capable of pecuniary estimation, not for breach of contract or specific performance. Since the lease had already expired when petitioner filed the action, no contractual relationship existed to be breached; the demand for return of the security deposit was merely a collection suit for a monetary obligation.
• Offset of Security Deposit: The offset of the P90,000.00 security deposit against the P79,534.00 repair costs was proper. The lease contracts required petitioner to return the premises in good and tenantable condition except for ordinary wear and tear, and photographic evidence established that major repairs were necessary. Respondent furnished receipts for the repairs, and petitioner's failure to inspect the repairs despite notice bars it from questioning their propriety.
• Nominal Damages: The award of nominal damages has no basis. Nominal damages cannot coexist with actual damages; since respondent was already indemnified for the actual damages through the offset, no further award of nominal damages was warranted.

• Determination of Jurisdiction Based on Nature of Action — To determine whether an action is capable of pecuniary estimation, the nature of the principal action or remedy sought must be considered. If the action is primarily for recovery of a sum of money, the claim is capable of pecuniary estimation and jurisdiction lies with municipal trial courts (if within the jurisdictional amount). Where the basic issue is something other than the right to recover a sum of money, and the money claim is merely incidental to the principal relief sought, the action is not capable of pecuniary estimation and falls within the jurisdiction of the Regional Trial Courts.
• Application of Security Deposit to Damages — A lessor may apply the security deposit to cover repair costs when the lessee fails to surrender the premises in good and tenantable condition (excepting ordinary wear and tear) as required by the lease contract, provided the lessor furnishes evidence of the damage and repair expenses.
• Nominal Damages vs. Actual Damages — Nominal damages are adjudicated to vindicate a right that has been violated, not to indemnify for loss suffered. They cannot coexist with actual damages; where actual damages are awarded to indemnify for loss, nominal damages cannot be granted.

• "In order to determine whether the subject matter of an action is one which is capable of pecuniary estimation, the nature of the principal action or remedy sought must be considered. If it is primarily for recovery of a sum of money, then the claim is considered as capable of pecuniary estimation, and the jurisdiction lies with the municipal trial courts if the amount of the claim does not exceed P300,000.00 outside Metro Manila, and does not exceed P400,000.00 within Metro Manila. However, where the basic issue of the case is something other than the right to recover a sum of money, where the money claim is merely incidental to the principal relief sought, then the subject matter of the action is not capable of pecuniary estimation, and is within the jurisdiction of the Regional Trial Court." — Establishes the test for determining jurisdiction based on the nature of the principal action.
• "Contrary to its ruling, a perusal of the complaint filed by petitioner makes out a case for collection of sum of money and not for breach of contract. It is to be noted that the lease agreement had already expired when petitioner filed an action for the return of the security deposit. Since the lease had already expired, there is no more contract to breach." — Explains why the action is for collection rather than breach of contract.
• "It has been settled that nominal damages cannot co-exist with actual damages. Nominal damages are adjudicated in order that a right of the plaintiff, 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 by him." — States the rule on the incompatibility of nominal and actual damages.

• Pajares v. Remarkable Laundry and Dry Cleaning, 818 SCRA 144 (2017) — Cited as precedent for the test in determining jurisdiction based on whether the action is capable of pecuniary estimation.
• Ballesteros v. Abion, 517 Phil. 253 (2006) — Cited for the principle that an action for breach of contract presupposes the existence of a contract, and that breach must be committed during the effectivity of the same.
• Metroheights Subdivision Homeowners Association Inc. v. CMS Construction and Development Corporation, G.R. No. 209359, October 17, 2018 — Cited for the rule that nominal damages cannot coexist with actual damages.

• Rule 42, Rules of Court — Governs the Petition for Review filed before the Court of Appeals.
• Paragraph 19, Lease Contracts — Provided that the security deposit was for faithful performance of obligations, could not be applied to rental due, and refundable only upon termination after ascertaining no further obligations.
• Civil Code provisions on Damages — Applied in determining that nominal damages cannot coexist with actual damages.

Leonen, Gesmundo, Zalameda, and Gaerlan, JJ.