G.R. No. 187972 - Philippine Amusement and Gaming Corp. vs. Fontana Development Corporation

Case Summary (G.R. No. 187972)

Facts and Genesis of the Dispute

PAGCOR was created to regulate and centralize “all games of chance authorized by existing franchise or permitted by law.” Under Section 10 of PD No. 1869, PAGCOR’s franchise originally covered a period of twenty-five (25) years or until July 11, 2008, renewable for another twenty-five (25) years. Section 9 of PD No. 1869 conferred on PAGCOR regulatory power over affiliated entities, giving it “all the powers, authority and the responsibilities vested in the Securities and Exchange Commission” over such affiliated entities.

On March 13, 1992, RA No. 7227 was enacted to convert former military reservations, including former United States military bases, into Special Economic Zones (SEZ). On April 3, 1993, EO No. 80 was issued. Section 5 of EO No. 80 provided that the Clark Special Economic Zone (CSEZ) would enjoy the incentives applicable to the Subic Bay Special Economic and Free Port Zone, as those incentives were provided under RA No. 7227 and other investment laws.

On December 23, 1999, PAGCOR entered into a MOA granting FDC authority to operate and maintain a casino inside the CSEZ. A critical provision in the MOA stated non-exclusivity and that the license would be “co-terminus with the Charter of PAGCOR, or any extension thereof,” for the period defined in the agreement. After regulatory implementation in the zone, the MOA was reflected through amendments and through Clark Development Corporation (CDC) registration, with amendments made on July 28, 2000, September 6, 2000, December 6, 2001, June 3, 2002, October 13, 2003, and March 31, 2004.

In 2005, the constitutionality of EO No. 80 was challenged before the Supreme Court. The Court ruled in favor of Coconut Oil Refiners Association, Inc., and declared Section 5 of EO No. 80 of no legal force and effect, with the effect described in the record as involving tax and customs duty incentives and privileges tied to the zone incentives framework.

Events Leading to the Injunction Suit

On June 20, 2007, RA No. 9487 extended PAGCOR’s franchise up to July 10, 2033, renewable for another twenty-five (25) years. In July 18, 2008, PAGCOR informed FDC that it would extend the MOA on a month-to-month basis until finalization of franchise renewal. FDC protested, maintaining that the franchise extension automatically extended the MOA because the MOA was co-terminus with PAGCOR’s franchise including any extension.

After dialogues and exchanges of position papers, PAGCOR notified FDC on October 6, 2008 that PAGCOR’s “new standard Authority to Operate” would govern and regulate FDC’s casino operations in place of the earlier MOA. PAGCOR later instructed FDC on November 5, 2008 to remit franchise fees based on the standard Authority to Operate arrangement.

FDC filed its complaint for Injunction on November 5, 2008 before the RTC of Manila in Civil Case No. 08-120338. FDC alleged that it could not be covered by a month-to-month extension nor by the standard Authority to Operate, because the MOA—expressly co-terminus with PAGCOR’s franchise including extensions—was automatically extended up to 2033. FDC asserted that it had faithfully complied with MOA obligations, invested substantially, and had met its regulatory duties.

RTC Proceedings on TRO and Preliminary Injunction

PAGCOR filed a special appearance and motion to dismiss on November 13, 2008, contending that the RTC lacked jurisdiction because PAGCOR’s licensing and regulatory decisions allegedly belonged to the appellate scheme under PD No. 902-A, and that an injunction was improper since the casino authority allegedly conferred on FDC was merely a privilege, not property and not a contract.

On November 18, 2008, the RTC denied PAGCOR’s motion to dismiss and granted FDC’s application for a TRO. The RTC reasoned that the Supreme Court had no exclusive jurisdiction over PAGCOR matters; it treated PAGCOR as not exercising quasi-judicial functions; and it sustained the RTC’s jurisdiction by relying on the hierarchy of courts and provisions of Batas Pambansa Blg. 129 (BP 129) and the Constitution.

After FDC posted a bond of PHP 500,000.00, the RTC issued the TRO on November 19, 2008, enjoining PAGCOR from implementing the standard Authority to Operate within twenty (20) days. PAGCOR’s motion for reconsideration was denied in a subsequent RTC order, and on December 8, 2008, the RTC denied FDC’s application for a writ of preliminary injunction. The RTC held that FDC failed to present a clear legal right, and it characterized PAGCOR’s authority as legislative in nature such that the casino operating license was a license, not a contract, and thus no vested property right was implicated.

Pursuant to motions for reconsideration, the RTC reconsidered its earlier denial. On January 30, 2009, the RTC granted the writ of preliminary injunction in favor of FDC, holding that public interest was not prejudiced and that the license issued could not be revoked or rescinded by mere executive action. The RTC ordered that the writ would be effective upon posting of PHP 100,000,000.00.

The writ of preliminary injunction was issued on February 25, 2009. PAGCOR sought reconsideration and dissolution, including arguments that the bond was insufficient and that irreparable injury would occur to the Government. The RTC denied PAGCOR’s motion on March 31, 2009. The RTC sustained its earlier ruling that FDC established a prima facie right sufficient to justify injunctive relief.

CA Ruling on the Petition

PAGCOR filed a petition for certiorari and prohibition with the CA on February 5, 2009 in CA-G.R. SP No. 107247, challenging the RTC orders.

On May 19, 2009, the CA dismissed the petition for lack of merit. The CA rejected PAGCOR’s jurisdictional claim that FDC should have sought relief directly from the Supreme Court, explaining that nowhere in PD No. 1869 or RA No. 9487 was it stated that the remedy against PAGCOR had to be brought only with the Supreme Court. The CA further held that under RA No. 8799, quasi-judicial powers previously granted to the SEC were transferred to the RTC, and that powers retained by the Commission were subject to appeal to the CA.

The CA treated the complaint as an original action for injunction and sustained RTC jurisdiction under BP 129. It also held that the controversy as to the TRO had become moot because the TRO had lapsed, and PAGCOR had not assailed the later writ of preliminary injunction issued after the CA petition was filed.

Issues Raised to the Supreme Court

PAGCOR’s Rule 45 petition synthesized into two core issues as framed by the Court: first, whether the Manila RTC or the Supreme Court had jurisdiction over FDC’s complaint for injunction and specific performance; and second, whether PAGCOR issued the license (MOA) to FDC under PD No. 1869 or under EO No. 80, Section 5, in relation to RA No. 7227.

On the jurisdictional issue, PAGCOR insisted that the RTC had no jurisdiction and that the proper remedy was a petition for review to this Court, or an appeal to the Office of the President, given PAGCOR’s asserted quasi-SEC powers under PD No. 1869.

On the substantive issue, PAGCOR maintained that the MOA and the “license” should be understood as arising from EO No. 80, Section 5, and that after Coconut Oil Refiners Association, Inc. nullified Section 5, the MOA became void, or at least could be replaced by PAGCOR’s standard Authority to Operate.

Legal Basis and Reasoning: Jurisdiction and Hierarchy of Courts

The Court reiterated that jurisdiction over the subject matter is a matter of law conferred only by the Constitution or statute, and that jurisdiction is determined by the allegations in the complaint, not by whether the party is entitled to all requested relief.

From the allegations, the Court characterized FDC’s complaint as an action for injunction anchored on an alleged violation of the MOA granting the right to operate a casino inside the CSEZ. The Court held that RTC jurisdiction lay under Section 19, Chapter II of BP 129, which grants RTCs original exclusive jurisdiction over civil actions where the subject is incapable of pecuniary estimation, which covers an injunction or breach-of-contract complaint for injunctive relief. It also cited Section 21 of BP 129, which grants RTCs original jurisdiction in the issuance of, among others, writs of injunction enforceable within their regions.

The Court rejected PAGCOR’s theory that PD No. 1869 and its SEC-equivalent regulatory power meant that any challenge to PAGCOR decisions had to be taken to the Supreme Court under the scheme in PD No. 902-A. The Court held that PD No. 1869 had no procedure for appeal or review of PAGCOR decisions, and neither its predecessor laws nor RA No. 9487 conferred original jurisdiction on the Supreme Court to review PAGCOR’s actions and decisions.

The Court relied on its earlier rulings in PAGCOR v. Viola that PAGCOR, in exercising licensing and regulatory powers, had no quasi-judicial functions because Sections 8 and 9 of PD No. 1869 did not grant quasi-judicial powers. It distinguished instances where direct resort to this Court had been allowed previously as exceptions to hierarchy of courts, but it emphasized that cases involving the revocation of a license fell within the RTC’s original jurisdiction. The Court accordingly treated the trial court’s TRO and preliminary injunction as not void for lack of jurisdiction.

Finally, while recognizing that it was the RTC that had original jurisdiction, the Court noted that PAGCOR had requested suspension of the rules to decide the controversy on the merits. The Court exercised discretion to resolve the case based on records already before it because the dispute involved a purely legal question concerning the source of PAGCOR’s authority and the validity and effectivity of the MOA vis-a-vis PAGCOR’s replacement actions.

Legal Basis and Reasoning: Source of Authority and Effect of Coconut Oil

On the merits, the Court addressed whether PAGCOR issued

Case Syllabus (G.R. No. 187972)

Parties and Procedural Posture

The petitioner was Philippine Amusement and Gaming Corporation (PAGCOR), represented by Atty. Carlos R. Bautista, Jr.
The respondent was Fontana Development Corporation (FDC) (formerly RN Development Corporation).
The case arose from an injunction complaint filed by FDC against PAGCOR in Civil Case No. 08-120338 before the RTC of Manila, Branch 7.
The RTC issued a Temporary Restraining Order (TRO), later issued a Writ of Preliminary Injunction, and thereafter denied motions for reconsideration.
PAGCOR filed a petition for certiorari and prohibition before the Court of Appeals (CA) docketed as CA-G.R. SP No. 107247, assailing the RTC orders granting injunctive relief.
The CA dismissed PAGCOR’s petition for lack of merit and held that the TRO issue had become moot.
PAGCOR elevated the matter to the Supreme Court under Rule 45 and questioned both the RTC’s jurisdiction and the legal source of PAGCOR’s licensing authority.

Key Factual Allegations

PAGCOR was created under Presidential Decree (PD) No. 1869 to regulate and centralize games of chance authorized by existing franchises or permitted by law.
Under PD No. 1869, PAGCOR was granted a franchise for twenty-five (25) years, renewable for another twenty-five (25) years.
FDC was granted authority by PAGCOR under a Memorandum of Agreement (MOA) dated December 23, 1999 to operate and maintain a casino inside the Clark Special Economic Zone (CSEZ).
The MOA contained a non-exclusivity and co-terminus clause stating that the license would be co-terminus with the Charter of PAGCOR, or any extension thereof.
Clark Development Corporation (CDC) issued Certificate of Registration No. 2000-24 on April 12, 2000, and the MOA was subsequently amended through multiple amendments up to March 31, 2004.
Coconut Oil Refiners Association challenged the constitutionality of Executive Order (EO) No. 80, and the Supreme Court declared Section 5 of EO 80 of no legal force and effect.
On June 20, 2007, Republic Act (RA) No. 9487 extended PAGCOR’s franchise up to July 10, 2033, renewable for another twenty-five (25) years.
PAGCOR informed FDC on July 18, 2008 that it would extend the MOA on a month-to-month basis pending contract renewal.
FDC protested, asserting that the franchise extension automatically extended the MOA and that the Supreme Court’s ruling in Coconut Oil Refiners Association did not void the authority to establish a casino.
After dialogues and exchange of position papers, PAGCOR notified FDC on October 6, 2008 that its new standard Authority to Operate would govern casino operations instead of the MOA.
On November 5, 2008, FDC was instructed to remit franchise fees under the standard Authority to Operate.
On November 5, 2008, FDC filed an injunction complaint alleging that it could not be covered by a month-to-month extension or the standard Authority to Operate because the MOA was co-terminus with PAGCOR’s franchise including any extension.
FDC alleged substantial compliance with MOA conditions and claimed investments of P1 Billion, while asserting that the provisions invalidated in Coconut Oil Refiners Association related mainly to tax and customs duty incentives later restored by RA Nos. 9400 and 9399.
The RTC issued a TRO after FDC posted a bond of P500,000.00 and later issued a Writ of Preliminary Injunction, ultimately requiring P100,000,000.00 bond effective upon posting.

Issues Framed for Review

The Court synthesized the petition into two core issues: (1) whether the RTC of Manila or the Supreme Court had jurisdiction over FDC’s injunction and specific performance complaint, and (2) whether PAGCOR issued the license (MOA authority) under PD No. 1869 or under EO No. 80, Section 5.
PAGCOR insisted that the RTC lacked subject matter jurisdiction, rendering all processes void.
PAGCOR argued that the proper remedy was review to the Supreme Court on questions of law or resort to the Office of the President, not an RTC injunction action.
PAGCOR argued that its decision to replace the MOA with the standard Authority to Operate was an exercise of its regulatory authority, and that injunctive relief improperly prevented collection of government revenues.

Jurisdiction Over Injunction Action

The Court reiterated the controlling principle that jurisdiction over the subject matter is conferred only by the Constitution or statute.
The Court held that jurisdiction is determined by the allegations of the complaint, irrespective of whether the plaintiff is entitled to all the reliefs demanded.
The Court found that FDC’s complaint was an action for injunction anchored on an alleged violation of contract under the MOA granting the right to operate a casino in the CSEZ.
The Court held that the Manila RTC had jurisdiction under Section 19, Chapter II of BP Blg. 129, which grants RTCs original exclusive jurisdiction over civil actions where the subject is incapable of pecuniary estimation.
The Court considered an injunction complaint and a breach of contract claim as incapable of pecuniary estimation for purposes of BP Blg. 129.
The Court further relied on Section 21 of BP Blg. 129, which empowers RTCs to issue injunction enforceable anywhere within their regions.
The Court rejected PAGCOR’s reliance on Section 9 of PD No. 1869, which vests regulatory powers analogous to powers vested in the SEC.
The Court ruled that PD No. 1869 did not provide a procedure for appeal or review of PAGCOR’s orders to the Supreme Court, and it did not establish an exclusive remedy.
The Court held that related laws, including PD No. 902-A and its framework for SEC appeals, did not confer original jurisdiction on the Court to review PAGCOR’s licensing decisions in the manner claimed by PAGCOR.
The Court invoked precedent, holding that PAGCOR’s exercise of licensing and regulatory power lacks quasi-judicial functions, so direct resort to the Supreme Court through extraordinary writs was not generally allowed.

Hierarchy of Courts

The Court restated the general rule that courts must strictly follow the hierarchy of courts.
The Court held that direct invocation of the Supreme Court’s original jurisdiction to issue extraordinary writs is permitted only for special and important reasons clearly and specifically set out in the petition.
The Court