ON ACTION INCAPABLE OF PECUNIARY ESTIMATION

¬INTRODUCTION

It is important to distinguish between an action incapable of pecuniary estimation and a real action to
recover title or possession of real property or a personal action to recover a sum of money.

The recent decision of the Supreme Court en banc, First Sarmiento Property Holdings, Inc. v. Philippine
Bank of Communications, G.R. No. 102836, June 19, 2018, thru the Ponencia of Associate Justice Marvic
Leonen, re-affirms and re-establishes the ruling that the nature of the subject matter of the action,
whether it is capable of pecuniary estimation or not, is determined by the nature of the principal action
or relief. If the principal relief is for recovery of a sum of money or title to or possession of real
property, the action is capable of pecuniary estimation.

If the principal relief sought is not for recovery of sum of money or real property, even if a claim of a
sum of money or a real property results as a consequence as a relief, the action is incapable of pecuniary
estimation (First Sarmiento Property Holdings, Inc. v. Philippine Bank of Communications, G.R. No.
102836, June 19, 2018)

ACTION INCAPABLE OF PECUNIARY ESTIMATION

Special Civil Action for Declaratory Relief and Quieting of Title to remove the cloud over Torrens Title
are actions incapable of pecuniary estimation. An action for rescission or specific performance of
contracts is an action incapable of pecuniary estimation, but an action for damages for breach of
contract is an ordinary action capable of pecuniary estimation (Spouses Pajares v. Remarkable Laundry
& Dry Cleaning, G.R. No. 212690, February 20, 2017).

An action for breach of contract is incapable of pecuniary estimation if the principal relief is for
rescission of contract. If the principal relief is to recover damages, the action is capable of pecuniary
estimation (Spouses Pajares v. Remarkable Laundry & Dry Cleaning, G.R. No. 212690, February 20,
2017).

A Question of Jurisdiction

In the recent case of Spouses Pajares v. Remarkable Laundry & Dry Cleaning, G.R. No. 212690, February
20, 2017, a cause for breach of contract for rescission or specific performance is incapable of pecuniary
estimation regardless of the amount involved which is exclusively cognizable by the Regional Trial Court.
If the cause of action for breach of contract is to recover damages, it is an ordinary action capable of
pecuniary estimation and jurisdiction is determined by the amount of damages claimed. The RTC of
Cebu was held bereft of jurisdiction because the amount claimed as damages is less than Php
300.000.00, which exclusively falls under the jurisdiction of the Metropolitan Trial Court (Section 5, RA
7691).

Special Civil Action for Declaratory Relief

Petition for Declaratory Relief is governed by Section 1, Rule 63 of the Revised Rules of Civil Procedure,
which provides as follows:

Section 1. Who may file petition. – Any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any
other governmental regulation may, before breach or violation thereof bring an action in the
appropriate Regional Trial Court to determine any question of construction or validity arising, and for a
declaration of his rights or duties, thereunder. (Bar Matter No. 803, 17 February 1998)

An action for the reformation of an instrument, to quiet title to real property or remove clouds
therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this
Rule.

As held by the Supreme Court in Velarde v. Social Justice Society, 428 SCRA 283, G.R. No. 159357, April
28, 2004:

“Based on the foregoing, an action for declaratory relief should be filed by a person interested under a
deed, a will, a contract or other written instrument, and whose rights are affected by a statute, an
executive order, a regulation or an ordinance. The purpose of the remedy is to interpret or to determine
the validity of the written instrument and to seek a judicial declaration of the parties rights or duties
thereunder. (Gozun v. Liangco, 339 SCRA 253, August 30, 2000; Vda. De Aviles v. Court of Appeals, 264
SCRA 473, November 21, 1996.) The essential requisites of the action are as follows: (1) there is a
justiciable controversy; (2) the controversy is between persons whose interests are adverse; (3) the
party seeking the relief has a legal interest in the controversy; and (4) the issue is ripe for judicial
determination.( Board of Optometry v. Colet, 260 SCRA 88, July 30, 1996; Gozun v. Liangco, supra; citing
Galarosa v. Valencia, 227 SCRA 728, 737, November 11, 1993; Office of the Ombudsman v. Judge Ibay,
364 SCRA 281, September 3, 2001.)
Extra-Judicial Foreclosure is an action incapable of pecuniary estimation even if recovery of title,
possession and a sum of money are involved.

An action to declare null and void an extra-judicial foreclosure proceedings involves issue of ownership
or title, possession or recovery of a sum of money. Generally, it is classified as a real action. However,
if the issue of ownership, possession or title or recovery of a sum of money is only a consequence of the
principal action and relief incapable of pecuniary estimation, the annulment of extra-judicial foreclosure
proceedings is part of the action incapable of pecuniary estimation and may not be separately classified
as capable of pecuniary estimation since it results only from the principal relief to declare the real estate
mortgage involved in the foreclosure proceedings null and void.

In the recent case of First Sarmiento Property Holdings, Inc. v. Philippine Bank of Communications, G.R.
No. 202836, June 19, 2018, the Supreme Court held that an action to declare the Real Estate Mortgage
null and void and to declare the extra-judicial foreclosure proceedings null and void is an action
incapable of pecuniary estimation because the nullification of the extra-judicial foreclosure proceeding
is only a consequence from the relief in the principal action.

An action to rescind or set aside the Real Estate Mortgage is a principal action incapable of pecuniary
estimation. Nullification of the foreclosure sale is only a consequence of the principal action and relief
to nullify the Real Estate Mortgage which is the basis for the extra-judicial foreclosure proceedings. It is
logical that if the Real Estate Mortgage is null and void, the extra-judicial proceedings are equally null
and void. The spring cannot rise higher than the source.

In First Sarmiento Property Holdings, Inc. v. Philippine Bank of Communications, G.R. No. 202836, June
19, 2018, First Sarmiento Property Holdings, Inc. (First Sarmiento) obtained a loan from Philippine Bank
of Communication (PBCom) for Php 40,000,000.00 secured by real estate mortgage over 1,076 parcels
of land on June 19, 2002. The loan agreement was amended on March 15, 2003 increasing the loan
amount to Php 51,000,000.00 and further amended on September 15, 2003 increasing the loan to Php
100,000,000.00.

On January 2, 2006, PBCom filed an Extra-Judicial Foreclosure of Real Estate Mortgage for failure of First
Sarmiento to pay the principal amount and accrued interest.

On December 11, 2011, First Sarmiento attempted to file a Complaint for Annulment of Real Estate
Mortgage with the Regional Trial Court, but the Clerk of Court refused to accept the Complaint, in the
absence of the Tax Declarations of the mortgaged properties on which to base the amount of docket
fees for real action.
 The Executive Judge of the Regional Trial Court of Malolos, Bulacan granted First Sarmiento’s “Urgent
Motion To Consider the Value of the Subject Matter of Complaint As Not Capable of Pecuniary
Estimation” and ruled that the First Sarmiento’s action for annulment of real estate mortgage was
incapable of pecuniary estimation.

On December 2, 2011, the mortgaged properties were auctioned and sold to PBCom as the highest
bidder.

First Sarmiento filed on January 2, 2012 a “Complaint for Annulment of Mortgage with Prayer for
Issuance of Temporary Restraining Order and Preliminary Injunction” to enjoin the foreclosure and
registration of Certificate of Sale in favor of PBCom. That same day the Court issued an ex-parte
Restraining Order for 72 hours, and on January 4, 2012, the Court issued a Status Quo Ante Order.

On January 24, 2012, the Sheriff issued a Certificate of Sale in favor of PBCom.

PBCom argued that the action for annulment of Real Estate Mortgage was a real action and the filing
fee should be based on the fair market value of the mortgaged properties.

On April 3, 2012, the Regional Trial Court dismissed the Complaint for lack of jurisdiction for failure to
pay the docket fee for real action ruling that the action for annulment or rescission of contract has the
nature and objective to recover real property, as follows:

“Following the High Court's ruling in the case of Home Guaranty Corporation v. R. II Builders, Inc.
and National Housing Authority, G.R. No. 192549, March 9, 2011, cited by the bank in its Rejoinder,
which appears to be the latest jurisprudence on the matter to the effect that an action for annulment or
rescission of contract does not operate to efface the true objective and nature of the action which is to
recover real property, this Court hereby RESOLVES TO DISMISS the instant case for lack of jurisdiction,
plaintiff having failed to pay the appropriate filing fees.

Accordingly, the instant case is hereby DISMISSED.

SO ORDERED.”
First Sarmiento elevated the case directly to the Supreme Court on pure questions of law whether an
action for annulment of Real Estate Mortgage is an action incapable of pecuniary estimation or real
action to recover real property.

The Supreme Court granted the petition of First Sarmiento, reversed the stray decision in Home
Guaranty Corporation v. R. II Builders, Inc. and National Housing Authority, G.R. No. 192549, March 9,
2011, and re-affirms and re-establishes that the principal nature and relief determines the nature of the
action. If the principal nature and relief is not for sum of money or recovery of real property, such as
rescission and nullification or specific performance of a contract, the action is incapable of pecuniary
estimation even if the action results in the recovery of real property or a sum of money as a
consequence. If the principal action is to recover the title to or possession of real property, which is a
real action, or recovery of sum of money or an action for damages, the action is capable of pecuniary
estimation.

The ponencia of Justice Leonen reviewed the cases on action incapable of pecuniary estimation as
follows:

Section 19(1) of Batas Pambansa Blg. 129, as amended, provides Regional Trial Courts with exclusive,
original jurisdiction over "all civil actions in which the subject of the litigation is incapable of pecuniary
estimation."

Lapitan v. Scandia (133 Phil 526 (1968) [Per J. Reyes, J.B.L, En Banc]) instructed that to determine
whether the subject matter of an action is incapable of pecuniary estimation, the nature of the principal
action or remedy sought must first be established. This finds support in this Court's repeated
pronouncement that jurisdiction over the subject matter is determined by examining the material
allegations of the complaint and the relief sought (Figueroa v. People, 580 Phil. 58, 78 (2008) [Per J.
Nachura, Third Division] citing Villagracia v. Fifth Shari'a District Court, 734 Phil. 239 (2014) [Per J.
Leonen, Third Division]; Heirs of Julian Dela Cruz and Leonora Talaro v. Heirs of Alberto Cruz, 512 Phil.
389 (2005) [Per J. Callejo, Second Division]; Spouses Atuel v. Spouses Valdez, 451 Phil. 631 (2003) [Per J.
Carpio, First Division].) Heirs of Dela Cruz v. Heirs of Cruz (512 Phil. 389 (2005) [Per J. Callejo, Second
Division]) stated, thus:

It is axiomatic that the jurisdiction of a tribunal, including a quasi-judicial officer or government agency,
over the nature and subject matter of a petition or complaint is determined by the material allegations
therein and the character of the relief prayed for, irrespective of whether the petitioner or complainant
is entitled to any or all such reliefs (Id. at 400).
 However, Lapitan stressed that where the money claim is only a consequence of the remedy sought,
the action is said to be one incapable of pecuniary estimation:

A review of the jurisprudence of this Court indicates that 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 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, or where
the money claim is purely incidental to, or a consequence of, the principal relief sought like in suits to
have the defendant perform his part of the contract (specific performance) and in actions for support, or
for annulment of a judgment or to foreclose a mortgage, 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. The rationale of the rule is plainly that the second class cases,
besides the determination of damages, demand an inquiry into other factors which the law has deemed
to be more within the competence of courts of first instance, which were the lowest courts of record at
the time that the first organic laws of the Judiciary were enacted allocating jurisdiction (Act 136 of the
Philippine Commission of June 11, 1901) (Lapitan v. Scandia, 133 Phil. 526, 528 (1968) [Per J. Reyes,
J.B.L, En Banc] ) (Citation omitted)

Heirs of Sebe v. Heirs of Sevilla (Lapitan v. Scandia, 133 Phil. 526, 528 (1968) [Per J. Reyes, J.B.L, En
Banc]) likewise stressed that if the primary cause of action is based on a claim of ownership or a claim
of legal right to control, possess, dispose, or enjoy such property, the action is a real action involving
title to real property (Id. at 407.).

xxx xxx xxx

Far East Bank and Trust Company v. Shemberg Marketing Corporation (540 Phil. 7 (2006) [Per J.
Sandoval-Gutierrez, Second Division]) stated that an action for cancellation of mortgage has a subject
that is incapable of pecuniary estimation:

Here, the primary reliefs prayed for by respondents in Civil Case No. MAN-4045 is the cancellation of the
real estate and chattel mortgages for want of consideration. In Bumayog v. Tumas, this Court ruled that
where the issue involves the validity of a mortgage, the action is one incapable of pecuniary estimation.
In the more recent case of Russell v. Vestil, this Court, citing Bumayog, held that an action questioning
the validity of a mortgage is one incapable of pecuniary estimation. Petitioner has not shown adequate
reasons for this Court to revisit Bumayog and Russell. Hence, petitioner's contention [cannot] be
sustained. Since respondents paid the docket fees, as computed by the clerk of court, consequently, the
trial court acquired jurisdiction over Civil Case No. MAN-4045 (Id. at 21 citing Bunayog v. Tunas, 106 Phil.
715 (1959) [Per J. Bautista Angelo, En Banc] and Russell v. Vestil, 364 Phil. 392 (1999) [Per J. Kapunan,
First Division]).

xxx xxx xxx

Significantly, the ponencia of Justice Leonen reversed and abandoned the contrary ruling in Home
Guaranty Corporation v. R. II Builders, Inc. and National Housing Authority, G.R. No. 192549, March 9,
2011 to the effect that an action for annulment or rescission of contract does not operate to efface the
true objective and nature of the action which is to recover real property notwithstanding that the
principal action is for nullification of contract, as follows: .

Home Guaranty stated that to determine whether an action is capable or incapable of pecuniary
estimation, the nature of the principal action or remedy prayed for must first be determined.110
Nonetheless, in citing Ruby Shelter Builders v. Formaran, Home Guaranty looked beyond R-II Builder's
principal action for annulment or rescission of contract to purportedly unmask its true objective and
nature of its action, which was to recover real property (Id. at 537-538.)

In a dissenting opinion in the Home Guaranty ((667 Phil. 781 (2011) [Per J. Perez, Special First
Division] ) June 22, 2011 Resolution that dismissed R-II Builders' motion for reconsideration, Associate
Justice Presbitero Velasco, Jr. stressed that one must first look at the principal action of the case to
determine if it is capable or incapable of pecuniary estimation:

Whether or not the case is a real action, and whether or not the proper docket fees were paid, one must
look to the main cause of action of the case. In all instances, in the original Complaint, the Amended and
Supplemental Complaint and the Amended Complaint, it was all for the resolution or rescission of the
[Deed of Assignment and Conveyance], with the prayer for the provisional remedy of injunction and the
appointment of a trustee and subsequently a receiver. In the Second Amended Complaint, the return of
the remaining assets of the asset pool, if any, to respondent R-II Builders would only be the result of the
resolution or rescission of the [Deed of Assignment and Conveyance].

Even if real property in the Asset Pool may change hands as a result of the case in the trial court,
the fact alone that real property is involved does not make that property the basis of computing the
docket fees. De Leon v. Court of Appeals has already settled the matter. That case, citing Bautista v, Lim,
held that a case for rescission or annulment of contract is not susceptible of pecuniary estimation. On
the other hand, in the Decision We rendered on July 25, 2005 in Serrano v. Delica, We ruled that the
action for cancellation of contracts of sale and the titles is a real action. Similarly, on February 10, 2009,
We ruled in Ruby Shelter Builders and Realty Development Corporation v. Formaran III (Ruby Shelter)
that an action for nullification of a Memorandum of Agreement which required the lot owner to issue
deeds of sale and cancellation of the. Deeds of Sale is a real action (Id. at 802.)

Whatever confusion there might have been regarding the nature of actions for nullity of contracts or
legality of conveyances, which would also involve recovery of sum of money or real property, was
directly addressed by Lu v. Lu Ym (585 Phil. 251 (2008) [Per J. Nachura, En Banc]). Lu underscored that
"where the basic issue is something other than the right to recover a sum of money, the money claim
being only incidental to or merely a consequence of, the principal relief sought, the action is incapable
of pecuniary estimation." (Id. at 273.)

This finds support in numerous decisions where this Court proclaimed that the test to determine
whether an action is capable or incapable of pecuniary estimation is to ascertain the nature of the
principal action or relief sought. Thus, if the principal relief sought is the recovery of a sum of money or
real property, then the action is capable of pecuniary estimation. However, if the principal relief sought
is not for the recovery of money or real property and the money claim is only a consequence of the
principal relief, then the action is incapable of pecuniary estimation (See Lapitan v. Scandia, Inc., et al.,
133 Phil. 526, 528 (1968) [Per J. Reyes, J.B.L, En Banc]; Singson v. Isabela Sawmill, 177 Phil. 575, 588
(1979) [Per J. Fernandez, First Division]; Spouses Huguete v. Spouses Embudo, 453 Phil. 170, 176-177
(2003) Far East Bank and Trust Company v. Shemberg Marketing Corporation, 540 Phil. 7, 21 (2006) [Per
J. Sandoval-Gutierrez, Second Division]).

Considering that the principal remedy sought by R-II Builders was the resolution of the Deed of
Assignment and Conveyance, the action was incapable of pecuniary estimation and Home Guaranty
erred in treating it as a real action simply because the principal action was accompanied by a prayer for
conveyance of real property.

(G.R. No. 202836, June 19, 2018 - FIRST SARMIENTO PROPERTY HOLDINGS, INC., Petitioner, v.
PHILIPPINE BANK OF COMMUNICATIONS, Respondent.)

CONCLUSION

Annulment of extra-judicial foreclosure sale and reconveyance and reversion of title to the mortgagor is
incapable of pecuniary estimation if it is pleaded as a consequence of annulment or rescission of a Real
Estate Mortgage which is the basis of the extra-judicial foreclosure proceedings resulting in the transfer
of title to the highest bidder.

Adapted from Dean Arturo M. de Castro