Spouses Romeo Pajares and Ida T. Pajares vs.

Remarkable Laundry and

Dry Cleaning
G.R. No. 212690
Digested by Kiara Florentyna P. Palma

DOCTRINE:

Breach of contract may give rise to an action for specific performance or rescission of
contract. It may also be the cause of action in a complaint for damages filed pursuant to
Art. 1170 of the Civil Code. In the specific performance and rescission of contract cases,
the subject matter is incapable of pecuniary estimation, hence jurisdiction belongs to the
Regional Trial Court (RTC). In the case for damages, however, the court that has
jurisdiction depends upon the total amount of the damages claimed.

Art. 2226 provides that thethe amount the parties stipulated to pay in case of breach are
liquidated damages.

FACTS:

Respondent entered into a Remarkable Dealer Outlet Contract with petitioners

wherein the petitioners would act as a dealer outlet. However, the respondent filed a
complaint in the RTC entitled “Breach of Contract and Damages” against the petitioners
wherein the respondent alleged that the petitioners violated Article IV of the agreement
when the petitioners ceased its dealer outlet operations due to lack of personnel.
Respondent made written demands to petitioners for payment of penalties that were
provided for in the contract, but petitioners failed to pay. Thus, breaching the contract.

The RTC ruled in favor of the respondent and ordered the petitioners to pay
incidental and consequential damages totaling Php 280,000. However, the RTC later
issued a dismissal order of its earlier decision due to lack of jurisdiction. Under BP 129,
as amended by RA 7691, RTC exercises exclusive jurisdiction over complaints with
demands over Php300,000. Otherwise, it falls under the jurisdiction of MTC. In the
complaint of respondent, the damages awarded was Php280,000 which is less than the
required amount to fall under RTC. Respondent appealed the decision to the CA, which
ultimately reversed the RTC ruling and ordered the RTC to proceed with the trial on the
merits. Then, the petitioners brought the case to the Supreme Court.

Petitioners argued that the complaint filed by the respondent was for the recovery
of a sum of money in the form of damages, that the determination of jurisdiction over
the case is based on the total amount claimed by the respondent, and that the
respondent did not seek specific performance or rescission of contract as a form of
relief. On the other hand, the respondent argued that the CA correctly ruled that the
complaint was based on a breach of contract and the damages were incidental to the
principal action.

ISSUE:
 WON respondent’s complaint, although denominated as one for breach of
contract, is essentially one for simple payment of damages.

RULING:

Yes. The RTC was correct in categorizing the complaint as an action for damages
that sought to recover an amount below its jurisdictional limit. Jurisprudence provides
that in determining whether the subject matter of an action is not capable of pecuniary
estimation, the Court must first ascertain the nature of the principal action or remedy
sought and whether jurisdiction is with the MTC or RTC. If the main issue is something
other than the right to recover a sum of money, the Supreme Court has considered such
actions to be those incapable of being estimated in terms of money and are cognizable
exclusively by the RTC where the money claim is incidental to or a consequence of the
principal relief sought. The CA never determined whether the respondent actually
intended to initiate an action for specific performance or for rescission of the contract.
There was nothing in the complaint indicating specific performance or rescission of the
contract. Respondent did not ask the RTC to compel specific performance nor did it seek
rescission of the contract. The designation of the complaint as one for “Breach of
Contract & Damages” is a misnomer and inacccurate. There is no such thing as an
action for breach of contract. The breach of contract is a cause of action, but
the breach is not an action or a remedy. Breach of contract may be the cause
of action for specific performance or rescission of contract both of which
are incapable of pecuniary estimation and thus, cognizable by the RTC.

Breach of contract may also be the cause of action for damages pursuant to Art.
1170 of the Civil Code. The penal clause of Article IV of the agreement involves payment
of liquidated damages as provided for under Art. 2226 of the Civil Code. Liquidated
damages has two functions: to provide liquidated damages and to strengthen the
coercive force of an obligation by the threat of greater responsibility in the event of
breach. What the respondent sought to recover were the liquidated damages premised
on the petitioners’ breach of contract. While it is true that breach of contract may give
rise to specific performance or rescission of contract and therefore incapable of
pecuniary estimation leading to cognizance with the RTC, such breach may also give rise
to damages. The CA erroneously ruled that breach of contract is a cause of action for
only complaints on specific performance or rescission of the contract because it may be
that the complaint is for damages such as the one in this case.

As for whether the RTC has jurisdiction over the case, it correctly ruled in its
dismissal order that it did not have the jurisdiction to try the case since the total
damages claimed by the respondent did not reach the required limit provided by law for
it to have jurisdiction over the case. In Administrative Circular No. 09-94, the SC
declared that when the complaint primarily seeks to recover damages, all claims for
damages shall be used to determine which court has jurisdiction over the case regardless
of whether it was a result of a single cause of action or several causes of action.
Therefore, the CA erred in declaring that the RTC had jurisdiction over the case.