In the Philippines, determining the correct court to file a case is crucial. This case clarifies the distinction between a breach of contract claim and an action for damages, particularly in determining which court has jurisdiction. The Supreme Court held that if a complaint, even if labeled as a ‘breach of contract,’ primarily seeks monetary damages below a certain threshold, it falls under the jurisdiction of the Municipal Trial Court, not the Regional Trial Court.

Remarkable Laundry: Did the Customer’s Breach Belong in a Higher Court?

Spouses Romeo and Ida Pajares entered into a Remarkable Dealer Outlet Contract with Remarkable Laundry and Dry Cleaning. The Pajareses, acting as a dealer outlet, were expected to receive laundry items for processing by Remarkable Laundry. However, they ceased operations, allegedly violating the contract’s requirement to produce a minimum quantity of laundry items weekly. Remarkable Laundry filed a complaint for “Breach of Contract and Damages” against the Pajareses, seeking damages for the alleged breach. The Regional Trial Court (RTC) initially dismissed the case for lack of jurisdiction, finding that the total amount of damages sought was below the RTC’s jurisdictional threshold. The Court of Appeals (CA) reversed this decision, stating that the case was one for breach of contract, which is incapable of pecuniary estimation and thus falls under the RTC’s jurisdiction. The Supreme Court was then asked to determine whether the CA erred in declaring that the RTC had jurisdiction over the complaint.

The Supreme Court, in reversing the Court of Appeals’ decision, emphasized the importance of accurately identifying the nature of the principal action. The Court clarified that while a breach of contract can indeed lead to actions for specific performance or rescission, which are typically outside of pecuniary estimation and under the RTC’s jurisdiction, it can also be the basis for a simple action for damages. The distinction lies in the primary relief sought by the plaintiff. If the main objective is to recover a sum of money as damages, the case is considered capable of pecuniary estimation, and the jurisdiction is determined by the total amount claimed.

The Court dissected the Complaint filed by Remarkable Laundry, noting the absence of any explicit request for specific performance or rescission of the contract. Instead, the Complaint primarily sought monetary compensation for the alleged breach, specifying amounts for incidental and consequential damages, legal expenses, exemplary damages, and cost of suit. The Supreme Court pointed out the misnomer in labeling the complaint as one for “Breach of Contract & Damages”, clarifying that breach of contract is a cause of action, not the action itself.

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” Breach of contract may be the cause of action in a complaint for specific performance or rescission of contract, both of which are incapable of pecuniary estimation and, therefore, cognizable by the RTC. However, as will be discussed below, breach of contract may also be the cause of action in a complaint for damages.

The Supreme Court addressed the issue of the penal clause in the Remarkable Dealer Outlet Contract, stating that the petitioners’ responsibility under the penal clause involved the payment of liquidated damages. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. The Court emphasized that the respondent primarily sought to recover these liquidated damages, which it termed as ‘incidental and consequential damages,’ based on the petitioners’ alleged breach of contract. The Court quoted Article 1170 of the Civil Code:

Art. 1170. 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.

In light of this, the Supreme Court concluded that the Complaint was indeed one for damages, where the court’s jurisdiction is determined by the total amount of damages claimed. The court referred to Batas Pambansa Blg. 129 (BP 129), as amended by Republic Act No. 7691, which sets the jurisdictional amounts for the Regional Trial Courts and Municipal Trial Courts. At the time the Complaint was filed, the RTC’s exclusive original jurisdiction applied to cases where the demand exceeded P300,000.00, exclusive of interest, damages of whatever kind, attorney’s fees, litigation expenses, and costs. Since the total amount of damages claimed by Remarkable Laundry was only P280,000.00, the Supreme Court agreed with the RTC’s initial decision that it lacked jurisdiction over the case. Therefore, the correct venue for the case was the Municipal Trial Court.

The Supreme Court’s decision underscores the critical importance of accurately assessing the nature of the action when determining jurisdiction. Merely labeling a complaint as one for breach of contract does not automatically vest jurisdiction with the Regional Trial Court. The determining factor is the primary relief sought. If the main objective is the recovery of a sum of money as damages, the total amount claimed dictates which court has jurisdiction.

FAQs

What was the key issue in this case?	The key issue was determining whether the Regional Trial Court (RTC) had jurisdiction over a complaint labeled as “Breach of Contract and Damages,” where the primary relief sought was monetary damages amounting to less than the RTC’s jurisdictional threshold.
What is the difference between an action for specific performance and an action for damages?	Specific performance seeks to compel a party to fulfill their contractual obligations, while an action for damages seeks monetary compensation for losses incurred due to a breach of contract. The former is typically considered incapable of pecuniary estimation, while the latter is determined by the amount claimed.
How does the court determine jurisdiction in a case involving breach of contract?	The court examines the primary relief sought in the complaint. If the main objective is to recover a sum of money as damages, the total amount claimed dictates the court’s jurisdiction. If it is specific performance or rescission, the RTC has jurisdiction.
What is a penal clause, and how does it relate to liquidated damages?	A penal clause is a contractual provision that specifies a penalty for breach of the contract. When this penalty involves a predetermined sum of money, it is considered liquidated damages, which are agreed upon by the parties to be paid in case of breach.
What is the significance of Article 1170 of the Civil Code in this case?	Article 1170 provides that those who contravene the tenor of their obligations are liable for damages. In this case, it formed the legal basis for Remarkable Laundry’s claim that the Pajareses’ breach of contract entitled them to monetary compensation.
What is the “totality of claims” rule?	The totality of claims rule is applied in cases where a complaint contains multiple claims or causes of action. The court considers the total amount of all claims to determine whether it meets the jurisdictional threshold.
What was the effect of the Supreme Court’s decision in this case?	The Supreme Court reversed the Court of Appeals’ decision and reinstated the Regional Trial Court’s order dismissing the case for lack of jurisdiction. This means that Remarkable Laundry would need to refile their case in the Municipal Trial Court.
What is Batas Pambansa Blg. 129, as amended by Republic Act No. 7691?	Batas Pambansa Blg. 129 is the Judiciary Reorganization Act of 1980, which defines the jurisdiction of various courts in the Philippines. Republic Act No. 7691 amended BP 129 to expand the jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts.

This decision serves as a reminder to carefully assess the nature of the action and the primary relief sought when filing a complaint. Misclassifying the action can lead to delays and dismissal for lack of jurisdiction, as demonstrated in this case. Filing in the correct court from the outset is essential for the efficient resolution of legal disputes.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Romeo Pajares and Ida T. Pajares vs. Remarkable Laundry and Dry Cleaning, G.R. No. 212690, February 20, 2017