FACTS:

Remarkable Laundry and Dry Cleaning (respondent) filed a Complaint denominated as “Breach of Contract and Damages” against spouses Romeo and Ida Pajares (petitioners) before the RTC, wherein it alleged that it entered into a Dealer Outlet Contract with petitioners whereby the latter, acting as a dealer outlet, shall accept and receive items or materials for laundry which are then picked up and processed by the former in its main plant or laundry outlet; that petitioners violated Article IV (Penal Clause) of said contract, which required them to produce at least 200 kilos of laundry items each week, when they ceased dealer outlet operations on account of lack of personnel; that respondent made written demands upon petitioners for the payment of penalties imposed and provided for in the contract, but the latter failed to pay; and, that petitioners’ violation constitutes breach of contract. 

On February 19, 2013, the RTC issued an Order dismissing the case for lack of jurisdiction, stating that the plaintiffs complaint is for the recovery of damages for the total amount of ₱280,000.00 for the alleged breach of contract. Hence, the action shall fall under the jurisdiction of the Municipal Trial Courts.

On appeal,  the CA rendered the assailed Decision setting aside the Order of the RTC and remanding the case to the court a quo for further proceedings. It held that the complaint is one incapable of pecuniary estimation; thus, one within the RTC’s jurisdiction.

ISSUE:

Whether or not the RTC had jurisdiction over respondent’s Complaint which, although denominated as one for breach of contract, is essentially one for simple payment of damages.

RULING:

The Court grants the Petition. The RTC was correct in categorizing the case as an action for damages seeking to recover an amount below its jurisdictional limit.

Petitioners’ responsibility under the penal clause of the Contract involves the payment of liquidated damages because under Article 2226 of the Civil Code the amount the parties stipulated to pay in case of breach are liquidated damages. “It is attached to an obligation in order to ensure performance and has 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.”

Concomitantly, what respondent primarily seeks in its Complaint is to recover aforesaid liquidated damages (which it termed as “incidental and consequential damages”) premised on the alleged breach of contract committed by the petitioners when they unilaterally ceased business operations.

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.

Respondent’s complaint denominated as one for “‘Breach of Contract & Damages” is neither an action for specific performance nor a complaint for rescission of contract.

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

In an action for damages, the court which has jurisdiction is determined by the total amount of damages claimed.

The Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The F Order of the RTC dismissing the case for lack of jurisdiction is REINSTATED.