U.S.

Supreme Court
United States v. Farenholt, 206 U.S. 226 (1907)

United States v. Farenholt

No. 277

Argued April 25, 1907

Decided May 13, 1907

206 U.S. 226

APPEAL FROM THE COURT OF CLAIMS

Syllabus

A court is not always confined to the written words of a statute; construction is to

be exercised, as well as interpretation, and a statute will not be construed as giving
higher pay to the inferior officer. Under the Navy Personnel Act of March 3, 1898,
30 Stat. 1007, and § 1466 Rev.Stat., passed assistant surgeons of the Navy, as well
as assistant surgeons, rank with captains in the Army, and are entitled to the pay of
a captain mounted.

41 Ct.Cl. affirmed.

MR. JUSTICE McKENNA delivered the opinion of the Court.

The appellee filed a petition in the Court of Claims to recover from the United
States the sum of $282.66 for the difference he alleged he was entitled to as a
passed assistant surgeon in the Navy, with the rank of lieutenant, for mounted pay
from December 26, 1900, to July 27, 1901, with ten percent increase for service
outside of the limits of the United States. He was given judgment for $141.33. The
ten percent increase was not allowed.

A statement of the case is well expressed in the findings and conclusion of the
court, as follows:

"The claimant, Ammen Farenholt, entered the naval service as an assistant surgeon
May 29, 1894, and was promoted to the grade of passed assistant surgeon May 29,
1897. He attained the rank of lieutenant on December 26, 1900, and was a passed
assistant surgeon in the Navy with the rank of lieutenant during all of the time
covered by this petition."

"From December 26, 1900, to April 12, 1901, he was on sea duty attached to the
U.S.S. 'Concord.' From April 12, 1901, to July 27, 1901, he was on sea duty attached
to the U.S.S. 'Oregon.'"

"The claimant has already received pay at mounted rates for the periods before
December 26, 1900, and after July 27, 1901, under the decisions of the Court of
Claims in Richardson v. United States, 38 Ct.Cl. 182, as applied by the Comptroller of
the Treasury in Brownell's Case, 9 Comp.Dec. 676, but the Treasury Department
declines to allow him mounted pay between these dates only because it considers
that it is deprived of jurisdiction over the claim therefor by reason of a prior
allowance and settlement of pay for the same period."

"If entitled to Army pay at mounted rates for this period, the amount due would be
as follows:"

Pay of a lieutenant of the Navy,which corresponds

in rank with a captain in the Army, mounted,

from December 26, 1900, to July 27, 1901, with

Page 206 U. S. 228

increased pay for length of service, 7 months

and 2 days at $2,400.00 per annum . . . . . . . . . $1,413.33

Less amount received for same period at

$2,160.00 per annum . . . . . . . . . . . . . . . . 1,272.00

---------

Difference . . . . . . . . . . . . . . . . . . $ 141.33

"Before the date of the decision of this Court in the case of Richardson v. United
States, supra, January 5, 1903, assistant surgeons in the Navy received only the pay
of an officer of corresponding rank in the Army 'not mounted.' By that decision, it
was held that they are entitled to the pay of such an officer 'mounted.' This decision
was not appealed from, and has been accepted as the proper interpretation of the
law. It has been applied by ruling of the Comptroller of the Treasury to passed
assistant surgeons."

"All officers of the medical corps in grades for which there is in the Army pay table,
a distinction between 'mounted' and 'not mounted' pay have ever since been paid
at mounted rates of pay for their service from the date the personnel act took
effect, July 1, 1899, to the present time."

"Conclusion of Law"

"Upon the foregoing findings of fact, the court decides as a conclusion of law, on
the authority of Richardson v. United States, supra, that the claimant is entitled to
recover against the United States the sum one hundred and forty-one dollars and
thirty-three cents ($141.33)."

"By a majority of the court."

Section 13 of the Act of March 3, 1899, 30 Stat. 1007, called the Navy Personnel Act,
provides

"that, after June 30, 1899, commissioned officers of the line of the Navy and of the
medical and pay corps shall receive the same pay and allowances, except forage, as
are or may be provided by or in pursuance of law for the officers of corresponding
rank in the Army."
Section 1466, Revised Statutes, assimilates in rank lieutenants in the Navy with
captains in the Army. And § 1261 Page 206 U. S. 229

fixes the pay of a captain, mounted at $2,000 a year and a captain not mounted at
$1,800 a year. Section 1262 gives ten percent increase for each term of five years'
service.

The appellee is a lieutenant in the Navy; he ranks with a captain in the Army, but
the question is, of which class, mounted or not mounted?

The government contends with captains not mounted. Its argument is that the
extra pay that mounted officers receive is not compensation, but reimbursement
for expenses incurred, and to give it to a naval officer who does not bear such
expenses would produce the inequality that the Navy Personnel Act was passed to
prevent. United States v. Crosley, 196 U. S. 332. Counsel, however, concedes
that Richardson v. United States, supra, was correctly decided, and that the rule has
been extended by the Comptroller of the Treasury to passed assistant surgeons,
but attacks the practice of the Comptroller and rejects the application of
the Richardson case upon the distinction between an assistant surgeon, which
Richardson was, and a passed assistant surgeon, which appellee is.

The Act of June 7, 1900, 31 Stat. 697, provides that

"the active list of surgeons shall hereafter consist of fifty-five, and that of passed
assistant and assistant surgeons of one hundred and ten. Assistant surgeons shall
rank with assistant surgeons in the Army."

Commenting on this statute, the government says:

"Assistant surgeons in the Army being mounted, the court very justly granted
mounted pay to Richardson, who ranked with assistant surgeons in the Army."

In other words, the government contends it was the purpose of Congress to give
the inferior officer the better pay. The Assistant Attorney General ventures on no
explanation of this anomaly, but insists upon the written word. A court is not always
confined to the written word. Construction sometimes is to be exercised, as well as
interpretation. And

"construction is the drawing of conclusions respecting subjects that lie beyond the
direct expression of the text, from elements known from and given in the text --
conclusions which are in the spirit, though not within Page 206 U. S. 230

the letter, of the text."

Lieber 56. The application of this rule is clear. Consideration of the provisions
relative to the rank and pay of officers of the Army and Navy make it evident that
Congress used the words "assistant surgeon" as descriptive of the whole class of
assistant surgeons, passed as well as those not passed.

Judgment affirmed.

MR. JUSTICE MOODY took no part in the decision of this case.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-19650 September 29, 1966

CALTEX (PHILIPPINES), INC., petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as THE POSTMASTER GENERAL, respondent-appellant.

Office of the Solicitor General for respondent and appellant.

Ross, Selph and Carrascoso for petitioner and appellee.

CASTRO, J.:

In the year 1960 the Caltex (Philippines) Inc. (hereinafter referred to as Caltex) conceived and laid
the groundwork for a promotional scheme calculated to drum up patronage for its oil products.
Denominated "Caltex Hooded Pump Contest", it calls for participants therein to estimate the actual
number of liters a hooded gas pump at each Caltex station will dispense during a specified period.
Employees of the Caltex (Philippines) Inc., its dealers and its advertising agency, and their
immediate families excepted, participation is to be open indiscriminately to all "motor vehicle owners
and/or licensed drivers". For the privilege to participate, no fee or consideration is required to be
paid, no purchase of Caltex products required to be made. Entry forms are to be made available
upon request at each Caltex station where a sealed can will be provided for the deposit of
accomplished entry stubs.

A three-staged winner selection system is envisioned. At the station level, called "Dealer Contest",
the contestant whose estimate is closest to the actual number of liters dispensed by the hooded
pump thereat is to be awarded the first prize; the next closest, the second; and the next, the third.
Prizes at this level consist of a 3-burner kerosene stove for first; a thermos bottle and a Ray-O-Vac
hunter lantern for second; and an Everready Magnet-lite flashlight with batteries and a screwdriver
set for third. The first-prize winner in each station will then be qualified to join in the "Regional
Contest" in seven different regions. The winning stubs of the qualified contestants in each region will
be deposited in a sealed can from which the first-prize, second-prize and third-prize winners of that
region will be drawn. The regional first-prize winners will be entitled to make a three-day all-
expenses-paid round trip to Manila, accompanied by their respective Caltex dealers, in order to take
part in the "National Contest". The regional second-prize and third-prize winners will receive cash
prizes of P500 and P300, respectively. At the national level, the stubs of the seven regional first-
prize winners will be placed inside a sealed can from which the drawing for the final first-prize,
second-prize and third-prize winners will be made. Cash prizes in store for winners at this final stage
are: P3,000 for first; P2,000 for second; Pl,500 for third; and P650 as consolation prize for each of
the remaining four participants.

Foreseeing the extensive use of the mails not only as amongst the media for publicizing the contest
but also for the transmission of communications relative thereto, representations were made by
Caltex with the postal authorities for the contest to be cleared in advance for mailing, having in view
sections 1954(a), 1982 and 1983 of the Revised Administrative Code, the pertinent provisions of
which read as follows:

SECTION 1954. Absolutely non-mailable matter. — No matter belonging to any of the

following classes, whether sealed as first-class matter or not, shall be imported into the
Philippines through the mails, or to be deposited in or carried by the mails of the Philippines,
or be delivered to its addressee by any officer or employee of the Bureau of Posts:

Written or printed matter in any form advertising, describing, or in any manner pertaining to,
or conveying or purporting to convey any information concerning any lottery, gift enterprise,
or similar scheme depending in whole or in part upon lot or chance, or any scheme, device,
or enterprise for obtaining any money or property of any kind by means of false or fraudulent
pretenses, representations, or promises.

"SECTION 1982. Fraud orders.—Upon satisfactory evidence that any person or company is
engaged in conducting any lottery, gift enterprise, or scheme for the distribution of money, or
of any real or personal property by lot, chance, or drawing of any kind, or that any person or
company is conducting any scheme, device, or enterprise for obtaining money or property of
any kind through the mails by means of false or fraudulent pretenses, representations, or
promises, the Director of Posts may instruct any postmaster or other officer or employee of
the Bureau to return to the person, depositing the same in the mails, with the word
 "fraudulent" plainly written or stamped upon the outside cover thereof, any mail matter of
whatever class mailed by or addressed to such person or company or the representative or
agent of such person or company.

SECTION 1983. Deprivation of use of money order system and telegraphic transfer service.
—The Director of Posts may, upon evidence satisfactory to him that any person or company
is engaged in conducting any lottery, gift enterprise or scheme for the distribution of money,
or of any real or personal property by lot, chance, or drawing of any kind, or that any person
or company is conducting any scheme, device, or enterprise for obtaining money or property
of any kind through the mails by means of false or fraudulent pretenses, representations, or
promise, forbid the issue or payment by any postmaster of any postal money order or
telegraphic transfer to said person or company or to the agent of any such person or
company, whether such agent is acting as an individual or as a firm, bank, corporation, or
association of any kind, and may provide by regulation for the return to the remitters of the
sums named in money orders or telegraphic transfers drawn in favor of such person or
company or its agent.

The overtures were later formalized in a letter to the Postmaster General, dated October 31, 1960, in
which the Caltex, thru counsel, enclosed a copy of the contest rules and endeavored to justify its
position that the contest does not violate the anti-lottery provisions of the Postal Law. Unimpressed,
the then Acting Postmaster General opined that the scheme falls within the purview of the provisions
aforesaid and declined to grant the requested clearance. In its counsel's letter of December 7, 1960,
Caltex sought a reconsideration of the foregoing stand, stressing that there being involved no
consideration in the part of any contestant, the contest was not, under controlling authorities,
condemnable as a lottery. Relying, however, on an opinion rendered by the Secretary of Justice on
an unrelated case seven years before (Opinion 217, Series of 1953), the Postmaster General
maintained his view that the contest involves consideration, or that, if it does not, it is nevertheless a
"gift enterprise" which is equally banned by the Postal Law, and in his letter of December 10, 1960
not only denied the use of the mails for purposes of the proposed contest but as well threatened that
if the contest was conducted, "a fraud order will have to be issued against it (Caltex) and all its
representatives".

Caltex thereupon invoked judicial intervention by filing the present petition for declaratory relief
against Postmaster General Enrico Palomar, praying "that judgment be rendered declaring its
'Caltex Hooded Pump Contest' not to be violative of the Postal Law, and ordering respondent to
allow petitioner the use of the mails to bring the contest to the attention of the public". After issues
were joined and upon the respective memoranda of the parties, the trial court rendered judgment as
follows:

In view of the foregoing considerations, the Court holds that the proposed 'Caltex Hooded
Pump Contest' announced to be conducted by the petitioner under the rules marked as
Annex B of the petitioner does not violate the Postal Law and the respondent has no right to
bar the public distribution of said rules by the mails.

The respondent appealed.

The parties are now before us, arrayed against each other upon two basic issues: first, whether the
petition states a sufficient cause of action for declaratory relief; and second, whether the proposed
"Caltex Hooded Pump Contest" violates the Postal Law. We shall take these up in seriatim.

1. By express mandate of section 1 of Rule 66 of the old Rules of Court, which was the applicable
legal basis for the remedy at the time it was invoked, declaratory relief is available to any person
"whose rights are affected by a statute . . . to determine any question of construction or validity
arising under the . . . statute and for a declaration of his rights thereunder" (now section 1, Rule 64,
Revised Rules of Court). In amplification, this Court, conformably to established jurisprudence on the
matter, laid down certain conditions sine qua non therefor, to wit: (1) there must be a justiciable
controversy; (2) the controversy must be between persons whose interests are adverse; (3) the party
seeking declaratory relief must have a legal interest in the controversy; and (4) the issue involved
must be ripe for judicial determination (Tolentino vs. The Board of Accountancy, et al., G.R. No. L-
3062, September 28, 1951; Delumen, et al. vs. Republic of the Philippines, 50 O.G., No. 2, pp. 576,
578-579; Edades vs. Edades, et al., G.R. No. L-8964, July 31, 1956). The gravamen of the
appellant's stand being that the petition herein states no sufficient cause of action for declaratory
relief, our duty is to assay the factual bases thereof upon the foregoing crucible.

As we look in retrospect at the incidents that generated the present controversy, a number of
significant points stand out in bold relief. The appellee (Caltex), as a business enterprise of some
consequence, concededly has the unquestioned right to exploit every legitimate means, and to avail
of all appropriate media to advertise and stimulate increased patronage for its products. In contrast,
the appellant, as the authority charged with the enforcement of the Postal Law, admittedly has the
power and the duty to suppress transgressions thereof — particularly thru the issuance of fraud
orders, under Sections 1982 and 1983 of the Revised Administrative Code, against legally non-
mailable schemes. Obviously pursuing its right aforesaid, the appellee laid out plans for the sales
promotion scheme hereinbefore detailed. To forestall possible difficulties in the dissemination of
information thereon thru the mails, amongst other media, it was found expedient to request the
appellant for an advance clearance therefor. However, likewise by virtue of his jurisdiction in the
premises and construing the pertinent provisions of the Postal Law, the appellant saw a violation
thereof in the proposed scheme and accordingly declined the request. A point of difference as to the
correct construction to be given to the applicable statute was thus reached. Communications in
which the parties expounded on their respective theories were exchanged. The confidence with
which the appellee insisted upon its position was matched only by the obstinacy with which the
appellant stood his ground. And this impasse was climaxed by the appellant's open warning to the
appellee that if the proposed contest was "conducted, a fraud order will have to be issued against it
and all its representatives."

Against this backdrop, the stage was indeed set for the remedy prayed for. The appellee's insistent
assertion of its claim to the use of the mails for its proposed contest, and the challenge thereto and
consequent denial by the appellant of the privilege demanded, undoubtedly spawned a live
controversy. The justiciability of the dispute cannot be gainsaid. There is an active antagonistic
assertion of a legal right on one side and a denial thereof on the other, concerning a real — not a
mere theoretical — question or issue. The contenders are as real as their interests are substantial.
To the appellee, the uncertainty occasioned by the divergence of views on the issue of construction
hampers or disturbs its freedom to enhance its business. To the appellant, the suppression of the
appellee's proposed contest believed to transgress a law he has sworn to uphold and enforce is an
unavoidable duty. With the appellee's bent to hold the contest and the appellant's threat to issue a
fraud order therefor if carried out, the contenders are confronted by the ominous shadow of an
imminent and inevitable litigation unless their differences are settled and stabilized by a tranquilizing
declaration (Pablo y Sen, et al. vs. Republic of the Philippines, G.R. No. L-6868, April 30, 1955).
And, contrary to the insinuation of the appellant, the time is long past when it can rightly be said that
merely the appellee's "desires are thwarted by its own doubts, or by the fears of others" — which
admittedly does not confer a cause of action. Doubt, if any there was, has ripened into a justiciable
controversy when, as in the case at bar, it was translated into a positive claim of right which is
actually contested (III Moran, Comments on the Rules of Court, 1963 ed., pp. 132-133, citing:
Woodward vs. Fox West Coast Theaters, 36 Ariz., 251, 284 Pac. 350).

We cannot hospitably entertain the appellant's pretense that there is here no question of
construction because the said appellant "simply applied the clear provisions of the law to a given set
of facts as embodied in the rules of the contest", hence, there is no room for declaratory relief. The
infirmity of this pose lies in the fact that it proceeds from the assumption that, if the circumstances
here presented, the construction of the legal provisions can be divorced from the matter of their
application to the appellee's contest. This is not feasible. Construction, verily, is the art or process of
discovering and expounding the meaning and intention of the authors of the law with respect to its
application to a given case, where that intention is rendered doubtful, amongst others, by reason of
the fact that the given case is not explicitly provided for in the law (Black, Interpretation of Laws, p.
1). This is precisely the case here. Whether or not the scheme proposed by the appellee is within the
coverage of the prohibitive provisions of the Postal Law inescapably requires an inquiry into the
intended meaning of the words used therein. To our mind, this is as much a question of construction
or interpretation as any other.

Nor is it accurate to say, as the appellant intimates, that a pronouncement on the matter at hand can
amount to nothing more than an advisory opinion the handing down of which is anathema to a
declaratory relief action. Of course, no breach of the Postal Law has as yet been committed. Yet, the
disagreement over the construction thereof is no longer nebulous or contingent. It has taken a fixed
and final shape, presenting clearly defined legal issues susceptible of immediate resolution. With the
battle lines drawn, in a manner of speaking, the propriety — nay, the necessity — of setting the
dispute at rest before it accumulates the asperity distemper, animosity, passion and violence of a
full-blown battle which looms ahead (III Moran, Comments on the Rules of Court, 1963 ed., p. 132
and cases cited), cannot but be conceded. Paraphrasing the language in Zeitlin vs. Arnebergh 59
Cal., 2d., 901, 31 Cal. Rptr., 800, 383 P. 2d., 152, cited in 22 Am. Jur., 2d., p. 869, to deny
declaratory relief to the appellee in the situation into which it has been cast, would be to force it to
choose between undesirable alternatives. If it cannot obtain a final and definitive pronouncement as
to whether the anti-lottery provisions of the Postal Law apply to its proposed contest, it would be
faced with these choices: If it launches the contest and uses the mails for purposes thereof, it not
only incurs the risk, but is also actually threatened with the certain imposition, of a fraud order with
its concomitant stigma which may attach even if the appellee will eventually be vindicated; if it
abandons the contest, it becomes a self-appointed censor, or permits the appellant to put into effect
a virtual fiat of previous censorship which is constitutionally unwarranted. As we weigh these
considerations in one equation and in the spirit of liberality with which the Rules of Court are to be
interpreted in order to promote their object (section 1, Rule 1, Revised Rules of Court) — which, in
the instant case, is to settle, and afford relief from uncertainty and insecurity with respect to, rights
and duties under a law — we can see in the present case any imposition upon our jurisdiction or any
futility or prematurity in our intervention.

The appellant, we apprehend, underrates the force and binding effect of the ruling we hand down in
this case if he believes that it will not have the final and pacifying function that a declaratory
judgment is calculated to subserve. At the very least, the appellant will be bound. But more than this,
he obviously overlooks that in this jurisdiction, "Judicial decisions applying or interpreting the law
shall form a part of the legal system" (Article 8, Civil Code of the Philippines). In effect, judicial
decisions assume the same authority as the statute itself and, until authoritatively abandoned,
necessarily become, to the extent that they are applicable, the criteria which must control the
actuations not only of those called upon to abide thereby but also of those in duty bound to enforce
obedience thereto. Accordingly, we entertain no misgivings that our resolution of this case will
terminate the controversy at hand.

It is not amiss to point out at this juncture that the conclusion we have herein just reached is not
without precedent. In Liberty Calendar Co. vs. Cohen, 19 N.J., 399, 117 A. 2d., 487, where a
corporation engaged in promotional advertising was advised by the county prosecutor that its
proposed sales promotion plan had the characteristics of a lottery, and that if such sales promotion
were conducted, the corporation would be subject to criminal prosecution, it was held that the
corporation was entitled to maintain a declaratory relief action against the county prosecutor to
determine the legality of its sales promotion plan. In pari materia, see also: Bunis vs. Conway, 17
App. Div. 2d., 207, 234 N.Y.S. 2d., 435; Zeitlin vs. Arnebergh, supra; Thrillo, Inc. vs. Scott, 15 N.J.
Super. 124, 82 A. 2d., 903.

In fine, we hold that the appellee has made out a case for declaratory relief.

2. The Postal Law, chapter 52 of the Revised Administrative Code, using almost identical
terminology in sections 1954(a), 1982 and 1983 thereof, supra, condemns as absolutely non-
mailable, and empowers the Postmaster General to issue fraud orders against, or otherwise deny
the use of the facilities of the postal service to, any information concerning "any lottery, gift
enterprise, or scheme for the distribution of money, or of any real or personal property by lot,
chance, or drawing of any kind". Upon these words hinges the resolution of the second issue posed
in this appeal.

Happily, this is not an altogether untrodden judicial path. As early as in 1922, in "El Debate", Inc. vs.
Topacio, 44 Phil., 278, 283-284, which significantly dwelt on the power of the postal authorities
under the abovementioned provisions of the Postal Law, this Court declared that —

While countless definitions of lottery have been attempted, the authoritative one for this
jurisdiction is that of the United States Supreme Court, in analogous cases having to do with
the power of the United States Postmaster General, viz.: The term "lottery" extends to all
schemes for the distribution of prizes by chance, such as policy playing, gift exhibitions, prize
concerts, raffles at fairs, etc., and various forms of gambling. The three essential elements of
a lottery are: First, consideration; second, prize; and third, chance. (Horner vs. States [1892],
147 U.S. 449; Public Clearing House vs. Coyne [1903], 194 U.S., 497; U.S. vs. Filart and
Singson [1915], 30 Phil., 80; U.S. vs. Olsen and Marker [1917], 36 Phil., 395; U.S. vs. Baguio
[1919], 39 Phil., 962; Valhalla Hotel Construction Company vs. Carmona, p. 233, ante.)

Unanimity there is in all quarters, and we agree, that the elements of prize and chance are too
obvious in the disputed scheme to be the subject of contention. Consequently as the appellant
himself concedes, the field of inquiry is narrowed down to the existence of the element of
consideration therein. Respecting this matter, our task is considerably lightened inasmuch as in the
same case just cited, this Court has laid down a definitive yard-stick in the following terms —

In respect to the last element of consideration, the law does not condemn the gratuitous
distribution of property by chance, if no consideration is derived directly or indirectly from the
party receiving the chance, but does condemn as criminal schemes in which a valuable
consideration of some kind is paid directly or indirectly for the chance to draw a prize.

Reverting to the rules of the proposed contest, we are struck by the clarity of the language in which
the invitation to participate therein is couched. Thus —

No puzzles, no rhymes? You don't need wrappers, labels or boxtops? You don't have to buy
anything? Simply estimate the actual number of liter the Caltex gas pump with the hood at
your favorite Caltex dealer will dispense from — to —, and win valuable prizes . . . ." .

Nowhere in the said rules is any requirement that any fee be paid, any merchandise be bought, any
service be rendered, or any value whatsoever be given for the privilege to participate. A prospective
contestant has but to go to a Caltex station, request for the entry form which is available on demand,
and accomplish and submit the same for the drawing of the winner. Viewed from all angles or turned
inside out, the contest fails to exhibit any discernible consideration which would brand it as a lottery.
Indeed, even as we head the stern injunction, "look beyond the fair exterior, to the substance, in
order to unmask the real element and pernicious tendencies which the law is seeking to prevent" ("El
Debate", Inc. vs. Topacio, supra, p. 291), we find none. In our appraisal, the scheme does not only
appear to be, but actually is, a gratuitous distribution of property by chance.

There is no point to the appellant's insistence that non-Caltex customers who may buy Caltex
products simply to win a prize would actually be indirectly paying a consideration for the privilege to
join the contest. Perhaps this would be tenable if the purchase of any Caltex product or the use of
any Caltex service were a pre-requisite to participation. But it is not. A contestant, it hardly needs
reiterating, does not have to buy anything or to give anything of value. 1awphîl.nèt

Off-tangent, too, is the suggestion that the scheme, being admittedly for sales promotion, would
naturally benefit the sponsor in the way of increased patronage by those who will be encouraged to
prefer Caltex products "if only to get the chance to draw a prize by securing entry blanks". The
required element of consideration does not consist of the benefit derived by the proponent of the
contest. The true test, as laid down in People vs. Cardas, 28 P. 2d., 99, 137 Cal. App. (Supp.) 788,
is whether the participant pays a valuable consideration for the chance, and not whether those
conducting the enterprise receive something of value in return for the distribution of the prize.
Perspective properly oriented, the standpoint of the contestant is all that matters, not that of the
sponsor. The following, culled from Corpus Juris Secundum, should set the matter at rest:

The fact that the holder of the drawing expects thereby to receive, or in fact does receive,
some benefit in the way of patronage or otherwise, as a result of the drawing; does not
supply the element of consideration. Griffith Amusement Co. vs. Morgan, Tex. Civ. App., 98
S.W., 2d., 844" (54 C.J.S., p. 849).

Thus enlightened, we join the trial court in declaring that the "Caltex Hooded Pump Contest"
proposed by the appellee is not a lottery that may be administratively and adversely dealt with under
the Postal Law.

But it may be asked: Is it not at least a "gift enterprise, or scheme for the distribution of money, or of
any real or personal property by lot, chance, or drawing of any kind", which is equally prescribed?
Incidentally, while the appellant's brief appears to have concentrated on the issue of consideration,
this aspect of the case cannot be avoided if the remedy here invoked is to achieve its tranquilizing
effect as an instrument of both curative and preventive justice. Recalling that the appellant's action
was predicated, amongst other bases, upon Opinion 217, Series 1953, of the Secretary of Justice,
which opined in effect that a scheme, though not a lottery for want of consideration, may
nevertheless be a gift enterprise in which that element is not essential, the determination of whether
or not the proposed contest — wanting in consideration as we have found it to be — is a prohibited
gift enterprise, cannot be passed over sub silencio.

While an all-embracing concept of the term "gift enterprise" is yet to be spelled out in explicit words,
there appears to be a consensus among lexicographers and standard authorities that the term is
commonly applied to a sporting artifice of under which goods are sold for their market value but by
way of inducement each purchaser is given a chance to win a prize (54 C.J.S., 850; 34 Am. Jur.,
654; Black, Law Dictionary, 4th ed., p. 817; Ballantine, Law Dictionary with Pronunciations, 2nd ed.,
p. 55; Retail Section of Chamber of Commerce of Plattsmouth vs. Kieck, 257 N.W., 493, 128 Neb.
13; Barker vs. State, 193 S.E., 605, 56 Ga. App., 705; Bell vs. State, 37 Tenn. 507, 509, 5 Sneed,
507, 509). As thus conceived, the term clearly cannot embrace the scheme at bar. As already noted,
there is no sale of anything to which the chance offered is attached as an inducement to the
purchaser. The contest is open to all qualified contestants irrespective of whether or not they buy the
appellee's products.

Going a step farther, however, and assuming that the appellee's contest can be encompassed within
the broadest sweep that the term "gift enterprise" is capable of being extended, we think that the
appellant's pose will gain no added comfort. As stated in the opinion relied upon, rulings there are
indeed holding that a gift enterprise involving an award by chance, even in default of the element of
consideration necessary to constitute a lottery, is prohibited (E.g.: Crimes vs. States, 235 Ala 192,
178 So. 73; Russell vs. Equitable Loan & Sec. Co., 129 Ga. 154, 58 S.E., 88; State ex rel. Stafford
vs. Fox-Great Falls Theater Corporation, 132 P. 2d., 689, 694, 698, 114 Mont. 52). But this is only
one side of the coin. Equally impressive authorities declare that, like a lottery, a gift enterprise comes
within the prohibitive statutes only if it exhibits the tripartite elements of prize, chance and
consideration (E.g.: Bills vs. People, 157 P. 2d., 139, 142, 113 Colo., 326; D'Orio vs. Jacobs, 275 P.
563, 565, 151 Wash., 297; People vs. Psallis, 12 N.Y.S., 2d., 796; City and County of Denver vs.
Frueauff, 88 P., 389, 394, 39 Colo., 20, 7 L.R.A., N.S., 1131, 12 Ann. Cas., 521; 54 C.J.S., 851,
citing: Barker vs. State, 193 S.E., 605, 607, 56 Ga. App., 705; 18 Words and Phrases, perm. ed., pp.
590-594). The apparent conflict of opinions is explained by the fact that the specific statutory
provisions relied upon are not identical. In some cases, as pointed out in 54 C.J.S., 851, the terms
"lottery" and "gift enterprise" are used interchangeably (Bills vs. People, supra); in others, the
necessity for the element of consideration or chance has been specifically eliminated by statute. (54
C.J.S., 351-352, citing Barker vs. State, supra; State ex rel. Stafford vs. Fox-Great Falls Theater
Corporation, supra). The lesson that we derive from this state of the pertinent jurisprudence is,
therefore, that every case must be resolved upon the particular phraseology of the applicable
statutory provision.

Taking this cue, we note that in the Postal Law, the term in question is used in association with the
word "lottery". With the meaning of lottery settled, and consonant to the well-known principle of legal
hermeneutics noscitur a sociis — which Opinion 217 aforesaid also relied upon although only insofar
as the element of chance is concerned — it is only logical that the term under a construction should
be accorded no other meaning than that which is consistent with the nature of the word associated
therewith. Hence, if lottery is prohibited only if it involves a consideration, so also must the term "gift
enterprise" be so construed. Significantly, there is not in the law the slightest indicium of any intent to
eliminate that element of consideration from the "gift enterprise" therein included.

This conclusion firms up in the light of the mischief sought to be remedied by the law, resort to the
determination thereof being an accepted extrinsic aid in statutory construction. Mail fraud orders, it is
axiomatic, are designed to prevent the use of the mails as a medium for disseminating printed
matters which on grounds of public policy are declared non-mailable. As applied to lotteries, gift
enterprises and similar schemes, justification lies in the recognized necessity to suppress their
tendency to inflame the gambling spirit and to corrupt public morals (Com. vs. Lund, 15 A. 2d., 839,
143 Pa. Super. 208). Since in gambling it is inherent that something of value be hazarded for a
chance to gain a larger amount, it follows ineluctably that where no consideration is paid by the
contestant to participate, the reason behind the law can hardly be said to obtain. If, as it has been
held —

Gratuitous distribution of property by lot or chance does not constitute "lottery", if it is not
resorted to as a device to evade the law and no consideration is derived, directly or
indirectly, from the party receiving the chance, gambling spirit not being cultivated or
stimulated thereby. City of Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258." (25 Words and
Phrases, perm. ed., p. 695, emphasis supplied).

we find no obstacle in saying the same respecting a gift enterprise. In the end, we are persuaded to
hold that, under the prohibitive provisions of the Postal Law which we have heretofore examined, gift
enterprises and similar schemes therein contemplated are condemnable only if, like lotteries, they
involve the element of consideration. Finding none in the contest here in question, we rule that the
appellee may not be denied the use of the mails for purposes thereof.

Recapitulating, we hold that the petition herein states a sufficient cause of action for declaratory
relief, and that the "Caltex Hooded Pump Contest" as described in the rules submitted by the
appellee does not transgress the provisions of the Postal Law.

ACCORDINGLY, the judgment appealed from is affirmed. No costs.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and
Sanchez, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-28463 May 31, 1971

REPUBLIC FLOUR MILLS INC., petitioner,

vs.
THE COMMISSIONER OF CUSTOMS and THE COURT OF TAX APPEALS, respondents.

Agrava & Agrava for petitioner.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Pacifico P. de Castro
and Solicitor Santiago M. Kapunan for respondents.

FERNANDO, J.:

It is a novel question that this petition for the review of a decision of respondent Court of Tax
Appeals presents. Petitioner Republic Flour Mills, Inc. would have this Court construe the words
"products of the Philippines" found in Section 2802 of the Tariff and Custom Code as excluding bran
1

(ipa) and pollard (darak) on the ground that, coming as they do from wheat grain which is imported in
the Philippines, they are merely waste and not the products, which is the flour produced. That way,
2

it would not be liable at all for the wharfage dues assessed under such section by respondent
Commission of Customs. It elevated the matter to respondent Court, as the construction it would
place on the aforesaid section appears too strained and far remote from the ordinary meaning of the
text, not to mention the policy of the Act. We affirm.

In the decision of respondent Court now sought to be reviewed, after stating that what was before it
was an appeal from a decision of the Commissioner of Customs holding petitioner liable for the sum
of P7,948.00 as wharfage due the facts were set forth as follows: "Petitioner, Republic Flour Mills,
Inc., is a domestic corporation, primarily engaged in the manufacture of wheat flour, and produces
pollard (darak) and bran (ipa) in the process of milling. During the period from December, 1963 to
July, 1964, inclusive, petitioner exported Pollard and/or bran which was loaded from lighters
alongside vessels engaged in foreign trade while anchored near the breakwater The respondent
assessed the petitioner by way of wharfage dues on the said exportations in the sum of P7,948.00,
which assessment was paid by petitioner under protest." The only issue, in the opinion of
3

respondent Court, is whether or not such collection of wharfage dues was in accordance with law.
The main contention before respondent Court of petitioner was "that inasmuch as no government or
private wharves or government facilities [were] utilized in exporting the pollard and/or bran, the
collection of wharfage dues is contrary to law." On the other hand, the stand of respondent
4

Commissioner of Customs was that petitioner was liable for wharfage dues "upon receipt or
discharge of the exported goods by a vessel engaged in foreign trade regardless of the non-use of
government-owned or private wharves." Respondent Court of Tax Appeals sustained the action
5

taken by the Commissioner of Customs under the appropriate provision of the Tariff and Customs
Code, relying on our decision in Procter & Gamble Phil. Manufacturing Corp. v. Commissioner of
Customs. It did not feel called upon to answer the question now before us as, in its opinion,
6

petitioner only called its attention to it for the first time in its memorandum.

Hence, this petition for review. The sole error assigned by petitioner is that it should not, under its
construction of the Act, be liable for wharfage dues on its exportation of bran and pollard as they are
not "products of the Philippines", coming as they did from wheat grain which were imported from
abroad, and being "merely parts of the wheat grain milled by Petitioner to produce flour which had
become waste." We find, to repeat, such contention unpersuasive and affirm the decision of
7

respondent Court of Tax Appeals.

1. The language of Section 2802 appears to be quite explicit: "There shall be levied, collected and
paid on all articles imported or brought into the Philippines, and on products of the Philippines ...
exported from the Philippines, a charge of two pesos per gross metric ton as a fee for wharfage ...."
One category refers to what is imported. The other mentions products of the Philippines that are
exported. Even without undue scrutiny, it does appear quite obvious that as long as the goods are
produced in the country, they fall within the terms of the above section. Petitioner appeared to have
entertained such a nation. In its petition for review before respondent Court, it categorically asserted:
"Petitioner is primarily engaged in the manufacture of flour from wheat grain. In the process of milling
the wheat grain into flour, petitioner also produces 'bran' and 'pollard' which it exports abroad." It
8

does take a certain amount of hair-splitting to exclude from its operation what petitioner calls "waste"
resulting from the production of flour processed from the wheat grain in petitioner's flour mills in the
Philippines. It is always timely to remember that, as stressed by Justice Moreland: "The first and
fundamental duty of courts, in our judgment, is to apply the law. Construction and interpretation
come only after it has been demonstrated that application is impossible or inadequate without
them." Petitioner ought to have been aware that deference to such a doctrine precludes an
9

affirmative response to its contention. The law is clear; it must be obeyed. It is as simple, as that.10

2. There is need of confining familiar language of a statute to its usual signification. While statutory
construction involves the exercise of choice, the temptation to roam at will and rely on one's
predilections as to what policy should prevail is to be resisted. The search must be for a reasonable
interpretation. It is best to keep in mind the reminder from Holmes that "there is no canon against
using common sense in construing laws as saying what obviously means." To paraphrase
11

Frankfurter, interpolation must be eschewed but evisceration avoided. Certainly, the utmost effort
should be exerted lest the interpretation arrived at does violence to the statutory language in its total
context. It would be then to ignore what has been stressed time and time again as to limits of judicial
freedom in the construction of statutes to accept their view advanced by petitioner.

3. Then, again, there is the fundamental postulate in statutory construction requiring fidelity to the
legislative purpose. What Congress intended is not to be frustrates. Its objective must be carried out.
Even if there be doubt as to the meaning of the language employed, the interpretation should not be
at war with the end sought to be attained. No undue reflection is needed to show that if through an
ingenious argument, the scope of a statute may be contracted, the probability that other exceptions
may be thought of is not remote. If petitioner were to prevail, subsequent pleas motivated by the
same desire to be excluded from the operation of the Tariff and Customs Code would likewise be
entitled to sympathetic consideration. It is desirable then that the gates to such efforts at undue
restriction of the coverage of the Act be kept closed. Otherwise, the end result would be not respect
for, but defiance of, a clear legislative mandate. That kind of approach in statutory construction has
never recommended itself. It does not now. 12

WHEREFORE, the decision of respondent Court of Tax Appeals of November 27, 1967 is affirmed.
With costs against petitioner.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Villamor and Makasiar, JJ., concur.

Castro, Teehankee and Barredo, JJ., took no part.

Footnotes

1 Section 2802 of the Tariff and Customs Code (1957) reads in full "Schedule of
Dues. — There shall be levied, collected and paid on all articles imported or brought
into the Philippines, and on products of the Philippines except coal, lumber,
creosoted and other pressure treated materials as well as other minor forest
products, cement, guano natural rock asphalt, the minerals and ores of base metals
(e.g., copper, lead, zinc, iron, chromite manganese, magnesite and steel), and sugar
molasses exported from the Philippines, a charge of two pesos per gross metric ton
as a fee for wharfage: Provided, That in the case of logs, or flitches twelve inches
square or equivalent cross-sectional area, or over, a charge of sixty centavos per
cubic meter shall be collected."

2 According to the petition: "(a) Petitioner is engaged in the manufacture of flour from
wheat grain. It imports the wheat grain from abroad and mills the same to produce
the flour. The wheat grain is not a product of the Philippines. Properly and technically
speaking, the product of the milling process is the flour produced. (b) In the course of
producing flour, part of the wheat grain be waste in the form of bran and pollard."
Par. 4, p. 2.

3 Decision, Appendix to Petitioner's Brief, pp. 9-10.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22301 August 30, 1967

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
MARIO MAPA Y MAPULONG, defendant-appellant.

Francisco P. Cabigao for defendant-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General F. R. Rosete and Solicitor
O. C. Hernandez for plaintiff-appellee.

FERNANDO, J.:

The sole question in this appeal from a judgment of conviction by the lower court is whether or not
the appointment to and holding of the position of a secret agent to the provincial governor would
constitute a sufficient defense to a prosecution for the crime of illegal possession of firearm and
ammunition. We hold that it does not.

The accused in this case was indicted for the above offense in an information dated August 14, 1962
reading as follows: "The undersized accuses MARIO MAPA Y MAPULONG of a violation of Section
878 in connection with Section 2692 of the Revised Administrative Code, as amended by
Commonwealth Act No. 56 and as further amended by Republic Act No. 4, committed as follows:
That on or about the 13th day of August, 1962, in the City of Manila, Philippines, the said accused
did then and there wilfully and unlawfully have in his possession and under his custody and control
one home-made revolver (Paltik), Cal. 22, without serial number, with six (6) rounds of ammunition,
without first having secured the necessary license or permit therefor from the corresponding
authorities. Contrary to law."

When the case was called for hearing on September 3, 1963, the lower court at the outset asked the
counsel for the accused: "May counsel stipulate that the accused was found in possession of the
gun involved in this case, that he has neither a permit or license to possess the same and that we
can submit the same on a question of law whether or not an agent of the governor can hold a firearm
without a permit issued by the Philippine Constabulary." After counsel sought from the fiscal an
assurance that he would not question the authenticity of his exhibits, the understanding being that
only a question of law would be submitted for decision, he explicitly specified such question to be
"whether or not a secret agent is not required to get a license for his firearm."

Upon the lower court stating that the fiscal should examine the document so that he could pass on
their authenticity, the fiscal asked the following question: "Does the accused admit that this pistol cal.
22 revolver with six rounds of ammunition mentioned in the information was found in his possession
on August 13, 1962, in the City of Manila without first having secured the necessary license or permit
thereof from the corresponding authority?" The accused, now the appellant, answered categorically:
"Yes, Your Honor." Upon which, the lower court made a statement: "The accused admits, Yes, and
his counsel Atty. Cabigao also affirms that the accused admits."

Forthwith, the fiscal announced that he was "willing to submit the same for decision." Counsel for the
accused on his part presented four (4) exhibits consisting of his appointment "as secret agent of the
Hon. Feliciano Leviste," then Governor of Batangas, dated June 2, 1962; 1 another document likewise
issued by Gov. Leviste also addressed to the accused directing him to proceed to Manila, Pasay and
Quezon City on a confidential mission;2 the oath of office of the accused as such secret agent,3 a
certificate dated March 11, 1963, to the effect that the accused "is a secret agent" of Gov.
Leviste.4 Counsel for the accused then stated that with the presentation of the above exhibits he was
"willing to submit the case on the question of whether or not a secret agent duly appointed and
qualified as such of the provincial governor is exempt from the requirement of having a license of
firearm." The exhibits were admitted and the parties were given time to file their respective
memoranda. 1äwphï1.ñët

Thereafter on November 27, 1963, the lower court rendered a decision convicting the accused "of
the crime of illegal possession of firearms and sentenced to an indeterminate penalty of from one
year and one day to two years and to pay the costs. The firearm and ammunition confiscated from
him are forfeited in favor of the Government."
The only question being one of law, the appeal was taken to this Court. The decision must be
affirmed.

The law is explicit that except as thereafter specifically allowed, "it shall be unlawful for any person to
. . . possess any firearm, detached parts of firearms or ammunition therefor, or any instrument or
implement used or intended to be used in the manufacture of firearms, parts of firearms, or
ammunition."5 The next section provides that "firearms and ammunition regularly and lawfully issued
to officers, soldiers, sailors, or marines [of the Armed Forces of the Philippines], the Philippine
Constabulary, guards in the employment of the Bureau of Prisons, municipal police, provincial
governors, lieutenant governors, provincial treasurers, municipal treasurers, municipal mayors, and
guards of provincial prisoners and jails," are not covered "when such firearms are in possession of
such officials and public servants for use in the performance of their official duties." 6

The law cannot be any clearer. No provision is made for a secret agent. As such he is not exempt.
Our task is equally clear. The first and fundamental duty of courts is to apply the law. "Construction
and interpretation come only after it has been demonstrated that application is impossible or
inadequate without them."7 The conviction of the accused must stand. It cannot be set aside.

Accused however would rely on People v. Macarandang,8 where a secret agent was acquitted on
appeal on the assumption that the appointment "of the accused as a secret agent to assist in the
maintenance of peace and order campaigns and detection of crimes, sufficiently put him within the
category of a "peace officer" equivalent even to a member of the municipal police expressly covered
by section 879." Such reliance is misplaced. It is not within the power of this Court to set aside the
clear and explicit mandate of a statutory provision. To the extent therefore that this decision conflicts
with what was held in People v. Macarandang, it no longer speaks with authority.

Wherefore, the judgment appealed from is affirmed.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and
Angeles, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-34568 March 28, 1988

RODERICK DAOANG, and ROMMEL DAOANG, assisted by their father, ROMEO

DAOANG, petitioners,
vs.
THE MUNICIPAL JUDGE, SAN NICOLAS, ILOCOS NORTE, ANTERO AGONOY and AMANDA
RAMOS-AGONOY, respondents.

PADILLA, J.:

This is a petition for review on certiorari of the decision, dated 30 June 1971, rendered by the respondent judge * in Spec. Proc. No. 37 of
Municipal Court of San Nicolas, Ilocos Norte, entitled: "In re Adoption of the Minors Quirino Bonilla and Wilson Marcos; Antero Agonoy and
Amanda R. Agonoy, petitioners", the dispositive part of which reads, as follows:

Wherefore, Court renders judgment declaring that henceforth Quirino Bonilla and
Wilson Marcos be, to all legitimate intents and purposes, the children by adoption of
the joint petitioners Antero Agonoy and Amanda R. Agonoy and that the former be
freed from legal obedience and maintenance by their respective parents, Miguel
Bonilla and Laureana Agonoy for Quirino Bonilla and Modesto Marcos and
Benjamina Gonzales for Wilson Marcos and their family names 'Bonilla' and 'Marcos'
be changed with "Agonoy", which is the family name of the petitioners.

Successional rights of the children and that of their adopting parents shall be
governed by the pertinent provisions of the New Civil Code.

Let copy of this decision be furnished and entered into the records of the Local Civil
Registry of San Nicolas, Ilocos Norte, for its legal effects at the expense of the
petitioners. 1

The undisputed facts of the case are as follows:

On 23 March 1971, the respondent spouses Antero and Amanda Agonoy filed a petition with the
Municipal Court of San Nicolas, Ilocos Norte, seeking the adoption of the minors Quirino Bonilla and
Wilson Marcos. The case, entitled: "In re Adoption of the Minors Quirino Bonilla and Wilson Marcos,
Antero Agonoy and Amanda Ramos-Agonoy, petitioners", was docketed therein as Spec. Proc. No.
37. 2

The petition was set for hearing on 24 April 1971 and notices thereof were caused to be served upon
the office of the Solicitor General and ordered published in the ILOCOS TIMES, a weekly newspaper
of general circulation in the province of Ilocos Norte, with editorial offices in Laoag City. 3

On 22 April 1971, the minors Roderick and Rommel Daoang, assisted by their father and
guardian ad litem, the petitioners herein, filed an opposition to the aforementioned petition for
adoption, claiming that the spouses Antero and Amanda Agonoy had a legitimate daughter named
Estrella Agonoy, oppositors' mother, who died on 1 March 1971, and therefore, said spouses were
disqualified to adopt under Art. 335 of the Civil Code. 4

After the required publication of notice had been accomplished, evidence was presented. Thereafter,
the Municipal Court of San Nicolas, Ilocos Norte rendred its decision, granting the petition for
adoption. 5

Hence, the present recourse by the petitioners (oppositors in the lower court).

The sole issue for consideration is one of law and it is whether or not the respondent spouses Antero
Agonoy and Amanda Ramos-Agonoy are disqualified to adopt under paragraph (1), Art. 335 of the
Civil Code.
The pertinent provision of law reads, as follows:

Art. 335. The following cannot adopt:

(1) Those who have legitimate, legitimated, acknowledged natural children, or

children by legal fiction;

xxx xxx xxx

In overruling the opposition of the herein petitioners, the respondents judge held that "to add
grandchildren in this article where no grandchil is included would violate to (sic) the legal maxim that
what is expressly included would naturally exclude what is not included".

But, it is contended by the petitioners, citing the case of In re Adoption of Millendez, that the
6

adoption of Quirino Bonilla and Wilson Marcos would not only introduce a foreign element into the
family unit, but would result in the reduction of their legititimes. It would also produce an indirect,
permanent and irrevocable disinheritance which is contrary to the policy of the law that a subsequent
reconciliation between the offender and the offended person deprives the latter of the right to
disinherit and renders ineffectual any disinheritance that may have been made.

We find, however, that the words used in paragraph (1) of Art. 335 of the Civil Code, in enumerating
the persons who cannot adopt, are clear and unambiguous. The children mentioned therein have a
clearly defined meaning in law and, as pointed out by the respondent judge, do not include
grandchildren.

Well known is the rule of statutory construction to the effect that a statute clear and unambiguous on
its face need not be interpreted; stated otherwise, the rule is that only statutes with an ambiguous or
doubtful meaning may be the subject of statutory construction. 7

Besides, it appears that the legislator, in enacting the Civil Code of the Philippines, obviously
intended that only those persons who have certain classes of children, are disqualified to adopt. The
Civil Code of Spain, which was once in force in the Philippines, and which served as the pattern for
the Civil Code of the Philippines, in its Article 174, disqualified persons who have legitimate or
legitimated descendants from adopting. Under this article, the spouses Antero and Amanda Agonoy
would have been disqualified to adopt as they have legitimate grandchildren, the petitioners herein.
But, when the Civil Code of the Philippines was adopted, the word "descendants" was changed to
"children", in paragraph (1) of Article 335.

Adoption used to be for the benefit of the adoptor. It was intended to afford to persons who have no
child of their own the consolation of having one, by creating through legal fiction, the relation of
paternity and filiation where none exists by blood relationship. The present tendency, however, is
8

geared more towards the promotion of the welfare of the child and the enhancement of his
opportunities for a useful and happy life, and every intendment is sustained to promote that
objective. Under the law now in force, having legitimate, legitimated, acknowledged natural children,
9

or children by legal fiction, is no longer a ground for disqualification to adopt.

10

WHEREFORE, the petition is DENIED. The judgment of the Municipal Court of San Nicolas, Ilocos
Norte in Spec. Proc. No. 37 is AFFIRMED. Without pronouncement as to costs in this instance.

SO ORDERED.

Yap, Melencio-Herrera, Paras and Sarmiento, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-44143 August 31, 1988

THE PEOPLE OF THE PHILIPPINES, plaintiff,

vs.
EUSEBIO NAZARIO, accused-appellant.

The Solicitor General for plaintiff-appellee.

Teofilo Ragodon for accused-appellant.

SARMIENTO, J.:

The petitioner was charged with violation of certain municipal ordinances of the municipal council of Pagbilao, in Quezon province. By way of
confession and avoidance, the petitioner would admit having committed the acts charged but would claim that the ordinances are
unconstitutional, or, assuming their constitutionality, that they do not apply to him in any event.

The facts are not disputed:

This defendant is charged of the crime of Violation of Municipal Ordinance in an

information filed by the provincial Fiscal, dated October 9, 1968, as follows:

That in the years 1964, 1965 and 1966, in the Municipality of

Pagbilao, Province of Quezon, Philippines, and within the jurisdiction
of this Honorable Court, the above-named accused, being then the
owner and operator of a fishpond situated in the barrio of
Pinagbayanan, of said municipality, did then and there willfully,
unlawfully and feloniously refuse and fail to pay the municipal taxes in
the total amount of THREE HUNDRED SIXTY TWO PESOS AND
SIXTY TWO CENTAVOS (P362.62), required of him as fishpond
operator as provided for under Ordinance No. 4, series of 1955, as
amended, inspite of repeated demands made upon him by the
Municipal Treasurer of Pagbilao, Quezon, to pay the same.

Contrary to law.

For the prosecution the following witnesses testified in substance as follows;

MIGUEL FRANCIA, 39 years of age, married, farmer and resident of Lopez, Quezon
—

In 1962 to 1967, I resided at Pinagbayanan, Pagbilao, Quezon. I know the accused

as I worked in his fishpond in 1962 to 1964. The fishpond of Nazario is at
Pinagbayanan, Pagbilao, Quezon. I worked in the clearing of the fishpond, the
construction of the dikes and the catching of fish.

On cross-examination, this witness declared:

I worked with the accused up to March 1964.

NICOLAS MACAROLAY, 65 years of age, married, copra maker and resident of

Pinagbayanan, Pagbilao, Quezon —

I resided at Pinagbayanan, Pagbilao, Quezon since 1959 up to the present. I know

the accused since 1959 when he opened a fishpond at Pinagbayanan, Pagbilao,
Quezon. He still operates the fishpond up to the present and I know this fact as I am
the barrio captain of Pinagbayanan.
On cross-examination, this witness declared:

I came to know the accused when he first operated his fishpond since 1959.

On re-direct examination, this witness declared:

I was present during the catching of fish in 1967 and the accused was there.

On re-cross examination, this witness declared:

I do not remember the month in 1962 when the accused caught fish.

RODOLFO R. ALVAREZ, 45 years old, municipal treasurer of Pagbilao, Quezon,

married —

As Municipal Treasurer I am in charge of tax collection. I know the accused even

before I was Municipal Treasurer of Pagbilao. I have written the accused a letter
asking him to pay his taxes (Exhibit B). Said letter was received by the accused as
per registry return receipt, Exhibit B-1. The letter demanded for payment of P362.00,
more or less, by way of taxes which he did not pay up to the present. The former
Treasurer, Ceferino Caparros, also wrote a letter of demand to the accused (Exhibit
C). On June 28, 1967, I sent a letter to the Fishery Commission (Exhibit D),
requesting information if accused paid taxes with that office. The Commission sent
me a certificate (Exhibits D-1, D-2 & D-3). The accused had a fishpond lease
agreement. The taxes unpaid were for the years 1964, 1965 and 1966.

On cross-examination, this witness declared:

I have demanded the taxes for 38.10 hectares.

On question of the court, this witness declared:

What I was collecting from the accused is the fee on fishpond operation, not rental.

The prosecution presented as part of their evidence Exhibits A, A-1, A-2, B, B-2, C,
D, D-1, D-2, D-3, E, F, F-1 and the same were admitted by the court, except Exhibits
D, D-1, D-2 and D-3 which were not admitted for being immaterial.

For the defense the accused EUSEBIO NAZARIO, 48 years of age, married, owner
and general manager of the ZIP Manufacturing Enterprises and resident of 4801 Old
Sta. Mesa, Sampaloc, Manila, declared in substance as follows:

I have lived in Sta. Mesa, Manila, since 1949. I buy my Residence Certificates at
Manila or at San Juan. In 1964, 1965 and 1966, I was living in Manila and my
business is in Manila and my family lives at Manila. I never resided at Pagbilao,
Quezon. I do not own a house at Pagbilao. I am a lessee of a fishpond located at
Pagbilao, Quezon, and I have a lease agreement to that effect with the Philippine
Fisheries Commission marked as Exhibit 1. In 1964, 1965 and 1966, the contract of
lease, Exhibit 1, was still existing and enforceable. The Ordinances Nos. 4, 15 and
12, series of 1955, 1965 and 1966, were translated into English by the Institute of
National Language to better understand the ordinances. There were exchange of
letters between me and the Municipal Treasurer of Pagbilao regarding the payment
of the taxes on my leased fishpond situated at Pagbilao. There was a letter of
demand for the payment of the taxes by the treasurer (Exhibit 3) which I received by
mail at my residence at Manila. I answered the letter of demand, Exhibit 3, with
Exhibit 3-A. I requested an inspection of my fishpond to determine its condition as it
was not then in operation. The Municipal Treasurer Alvarez went there once in 1967
and he found that it was destroyed by the typhoon and there were pictures taken
marked as Exhibits 4, 4-A, 4-B and 4C. I received another letter of demand, Exhibit
5, and I answered the same (Exhibit 5-A). I copied my reference quoted in Exhibit 5-
A from Administrative Order No. 6, Exhibit 6. I received another letter of demand
from Tomas Ornedo, Acting Municipal Treasurer of Pagbilao, dated February 16,
1966, Exhibit 7, and I answered the same with the letter marked as Exhibit 7-A,
dated February 26, 1966. I received another letter of demand from Treasurer Alvarez
of Pagbilao, Exhibit 8, and I answered the same (Exhibit 8-A). In 1964, I went to
Treasurer Caparros to ask for an application for license tax and he said none and he
told me just to pay my taxes. I did not pay because up to now I do not know whether I
am covered by the Ordinance or not. The letters of demand asked me to pay
different amounts for taxes for the fishpond. Because under Sec. 2309 of the
 Revised Administrative Code, municipal taxes lapse if not paid and they are
collecting on a lapsed ordinance. Because under the Tax Code, fishermen are
exempted from percentage tax and privilege tax. There is no law empowering the
municipality to pass ordinance taxing fishpond operators.

The defense presented as part of their evidence Exhibits 1, 2, 3, 3-A, 4, 4-B, 4-B, 4-
C, 5, 5-A, 6, 6-A, 6-B, 6-C, 7, 7-A, 8 and 8-A and the same were admitted by the
court.

From their evidence the prosecution would want to show to the court that the
accused, as lessee or operator of a fishpond in the municipality of Pagbilao, refused,
and still refuses, to pay the municipal taxes for the years 1964, 1965 and 1966, in
violation of Municipal Ordinance No. 4, series of 1955, as amended by Municipal
Ordinance No. 15, series of 1965, and finally amended by Municipal Ordinance No.
12, series of 1966.

On the other hand, the accused, by his evidence, tends to show to the court that the
taxes sought to be collected have already lapsed and that there is no law
empowering municipalities to pass ordinances taxing fishpond operators. The
defense, by their evidence, tried to show further that, as lessee of a forest land to be
converted into a fishpond, he is not covered by said municipal ordinances; and finally
that the accused should not be taxed as fishpond operator because there is no
fishpond yet being operated by him, considering that the supposed fishpond was
under construction during the period covered by the taxes sought to be collected.

Finally, the defendant claims that the ordinance in question is ultra vires as it is
outside of the power of the municipal council of Pagbilao, Quezon, to enact; and that
the defendant claims that the ordinance in question is ambiguous and uncertain.

There is no question from the evidences presented that the accused is a lessee of a
parcel of forest land, with an area of 27.1998 hectares, for fishpond purposes, under
Fishpond Lease Agreement No. 1066, entered into by the accused and the
government, through the Secretary of Agriculture and Natural Resources on August
21, 1959.

There is no question from the evidences presented that the 27.1998 hectares of land
leased by the defendant from the government for fishpond purposes was actually
converted into fishpond and used as such, and therefore defendant is an operator of
a fishpond within the purview of the ordinance in question. 1

The trial Court returned a verdict of guilty and disposed as follows:

2

VIEWED IN THE LIGHT OF ALL THE FOREGOING, the Court finds the accused guilty beyond
reasonable doubt of the crime of violation of Municipal Ordinance No. 4, series of 1955, as amended
by Ordinance No. 15, series of 1965 and further amended by Ordinance No. 12, series of 1966, of
the Municipal Council of Pagbilao, Quezon; and hereby sentences him to pay a fine of P50.00, with
subsidiary imprisonment in case of insolvency at the rate of P8.00 a day, and to pay the costs of this
proceeding.

SO ORDERED. 3

In this appeal, certified to this Court by the Court of Appeals, the petitioner alleges that:

I.

THE LOWER COURT ERRED IN NOT DECLARING THAT ORDINANCE NO. 4, SERIES OF 1955,
AS AMENDED BY ORDINANCE NO. 15, SERIES OF 1965, AND AS FURTHER AMENDED BY
ORDINANCE NO. 12, SERIES OF 1966, OF THE MUNICIPALITY OF PAGBILAO, QUEZON, IS
NULL AND VOID FOR BEING AMBIGUOUS AND UNCERTAIN.

II.

THE LOWER COURT ERRED IN NOT HOLDING THAT THE ORDINANCE IN QUESTION, AS
AMENDED, IS UNCONSTITUTIONAL FOR BEING EX POST FACTO.

III.
THE LOWER COURT ERRED IN NOT HOLDING THAT THE ORDINANCE IN QUESTION
COVERS ONLY OWNERS OR OVERSEER OF FISHPONDS OF PRIVATE OWNERSHIP AND
NOT TO LESSEES OF PUBLIC LANDS.

IV.

THE LOWER COURT ERRED IN NOT FINDING THAT THE QUESTIONED ORDINANCE, EVEN IF
VALID, CANNOT BE ENFORCED BEYOND THE TERRITORIAL LIMITS OF PAGBILAO AND
DOES NOT COVER NON-
RESIDENTS. 4

The ordinances in question are Ordinance No. 4, series of 1955, Ordinance No. 15, series of 1965,
and Ordinance No. 12, series of 1966, of the Municipal Council of Pagbilao. Insofar as pertinent to
this appeal, the salient portions thereof are hereinbelow quoted:

Section 1. Any owner or manager of fishponds in places within the territorial limits of
Pagbilao, Quezon, shall pay a municipal tax in the amount of P3.00 per hectare of
fishpond on part thereof per annum. 5

xxx xxx xxx

Sec. l (a). For the convenience of those who have or owners or managers of
fishponds within the territorial limits of this municipality, the date of payment of
municipal tax relative thereto, shall begin after the lapse of three (3) years starting
from the date said fishpond is approved by the Bureau of Fisheries. 6

xxx xxx xxx

Section 1. Any owner or manager of fishponds in places within the territorial limits of
Pagbilao shall pay a municipal tax in the amount of P3.00 per hectare or any fraction
thereof per annum beginning and taking effect from the year 1964, if the fishpond
started operating before the year 1964. 7

The first objection refers to the ordinances being allegedly "ambiguous and uncertain." The 8

petitioner contends that being a mere lessee of the fishpond, he is not covered since the said
ordinances speak of "owner or manager." He likewise maintains that they are vague insofar as they
reckon the date of payment: Whereas Ordinance No. 4 provides that parties shall commence
payment "after the lapse of three (3) years starting from the date said fishpond is approved by the
Bureau of Fisheries." Ordinance No. 12 states that liability for the tax accrues "beginning and taking
9

effect from the year 1964 if the fishpond started operating before the year 1964." 10

As a rule, a statute or act may be said to be vague when it lacks comprehensible standards that men
"of common intelligence must necessarily guess at its meaning and differ as to its application." It is 11

repugnant to the Constitution in two respects: (1) it violates due process for failure to accord
persons, especially the parties targetted by it, fair notice of the conduct to avoid; and (2) it leaves law
enforcers unbridled discretion in carrying out its provisions and becomes an arbitrary flexing of the
Government muscle.

But the act must be utterly vague on its face, that is to say, it cannot be clarified by either a saving
clause or by construction. Thus, in Coates v. City of Cincinnati, the U.S. Supreme Court struck
12

down an ordinance that had made it illegal for "three or more persons to assemble on any sidewalk
and there conduct themselves in a manner annoying to persons passing by." Clearly, the
13

ordinance imposed no standard at all "because one may never know in advance what 'annoys some
people but does not annoy others.' " 14

Coates highlights what has been referred to as a "perfectly vague" act whose obscurity is evident
15

on its face. It is to be distinguished, however, from legislation couched in imprecise language — but
which nonetheless specifies a standard though defectively phrased — in which case, it may be
"saved" by proper construction.

It must further be distinguished from statutes that are apparently ambiguous yet fairly applicable to
certain types of activities. In that event, such statutes may not be challenged whenever directed
against such activities. In Parker v. Levy, a prosecution originally under the U.S. Uniform Code of
16

Military Justice (prohibiting, specifically, "conduct unbecoming an officer and gentleman"), the
defendant, an army officer who had urged his men not to go to Vietnam and called the Special
Forces trained to fight there thieves and murderers, was not allowed to invoke the void for
vagueness doctrine on the premise that accepted military interpretation and practice had provided
enough standards, and consequently, a fair notice that his conduct was impermissible.
It is interesting that in Gonzales v. Commission on Elections, a divided Court sustained an act of
17

Congress (Republic Act No. 4880 penalizing "the too early nomination of candidates" limiting the
18

election campaign period, and prohibiting "partisan political activities"), amid challenges of
vagueness and overbreadth on the ground that the law had included an "enumeration of the acts
deemed included in the terms 'election campaign' or 'partisan political activity" that would supply
19

the standards. "As thus limited, the objection that may be raised as to vagueness has been
minimized, if not totally set at rest." In his opinion, however, Justice Sanchez would stress that the
20

conduct sought to be prohibited "is not clearly defined at all." "As worded in R.A 4880, prohibited
21

discussion could cover the entire spectrum of expression relating to candidates and political
parties." He was unimpressed with the "restrictions" Fernando's opinion had relied on: " 'Simple
22

expressions of opinions and thoughts concerning the election' and expression of 'views on current
political problems or issues' leave the reader conjecture, to guesswork, upon the extent of protection
offered, be it as to the nature of the utterance ('simple expressions of opinion and thoughts') or the
subject of the utterance ('current political problems or issues')." 23

The Court likewise had occasion to apply the "balancing-of-interests" test, insofar as the statute's
24

ban on early nomination of candidates was concerned: "The rational connection between the
prohibition of Section 50-A and its object, the indirect and modest scope of its restriction on the
rights of speech and assembly, and the embracing public interest which Congress has found in the
moderation of partisan political activity, lead us to the conclusion that the statute may stand
consistently with and does not offend the Constitution." In that case, Castro would have the
25

balance achieved in favor of State authority at the "expense" of individual liberties.

In the United States, which had ample impact on Castro's separate opinion, the balancing test finds
a close kin, referred to as the "less restrictive alternative " doctrine, under which the court searches
26

for alternatives available to the Government outside of statutory limits, or for "less drastic
means" open to the State, that would render the statute unnecessary. In United States v.
27

Robel, legislation was assailed, banning members of the (American) Communist Party from
28

working in any defense facility. The U.S. Supreme Court, in nullifying the statute, held that it
impaired the right of association, and that in any case, a screening process was available to the
State that would have enabled it to Identify dangerous elements holding defense positions. In that 29

event, the balance would have been struck in favor of individual liberties.

It should be noted that it is in free expression cases that the result is usually close. It is said,
however, that the choice of the courts is usually narrowed where the controversy involves say,
economic rights, or as in the Levy case, military affairs, in which less precision in analysis is
30

required and in which the competence of the legislature is presumed.

In no way may the ordinances at bar be said to be tainted with the vice of vagueness. It is
unmistakable from their very provisions that the appellant falls within its coverage. As the actual
operator of the fishponds, he comes within the term " manager." He does not deny the fact that he
financed the construction of the fishponds, introduced fish fries into the fishponds, and had
employed laborers to maintain them. While it appears that it is the National Government which
31

owns them, the Government never shared in the profits they had generated. It is therefore only
32

logical that he shoulders the burden of tax under the said ordinances.

We agree with the trial court that the ordinances are in the character of revenue
measures designed to assist the coffers of the municipality of Pagbilao. And obviously, it cannot be
33

the owner, the Government, on whom liability should attach, for one thing, upon the ancient principle
that the Government is immune from taxes and for another, since it is not the Government that had
been making money from the venture.

Suffice it to say that as the actual operator of the fishponds in question, and as the recipient of profits
brought about by the business, the appellant is clearly liable for the municipal taxes in question. He
cannot say that he did not have a fair notice of such a liability to make such ordinances vague.

Neither are the said ordinances vague as to dates of payment. There is no merit to the claim that
"the imposition of tax has to depend upon an uncertain date yet to be determined (three years after
the 'approval of the fishpond' by the Bureau of Fisheries, and upon an uncertain event (if the
fishpond started operating before 1964), also to be determined by an uncertain individual or
individuals." Ordinance No. 15, in making the tax payable "after the lapse of three (3) years starting
34

from the date said fishpond is approved by the Bureau of Fisheries," is unequivocal about the date
35

of payment, and its amendment by Ordinance No. 12, reckoning liability thereunder "beginning and
taking effect from the year 1964 if the fishpond started operating before the year 1964 ," does not36

give rise to any ambiguity. In either case, the dates of payment have been definitely established. The
fact that the appellant has been allegedly uncertain about the reckoning dates — as far as his
liability for the years 1964, 1965, and 1966 is concerned — presents a mere problem in computation,
but it does not make the ordinances vague. In addition, the same would have been at most a difficult
piece of legislation, which is not unfamiliar in this jurisdiction, but hardly a vague law.
As it stands, then, liability for the tax accrues on January 1, 1964 for fishponds in operation prior
thereto (Ordinance No. 12), and for new fishponds, three years after their approval by the Bureau of
Fisheries (Ordinance No. 15). This is so since the amendatory act (Ordinance No. 12) merely
granted amnesty unto old, delinquent fishpond operators. It did not repeal its mother ordinances
(Nos. 4 and 15). With respect to new operators, Ordinance No. 15 should still prevail.

To the Court, the ordinances in question set forth enough standards that clarify imagined
ambiguities. While such standards are not apparent from the face thereof, they are visible from the
intent of the said ordinances.

The next inquiry is whether or not they can be said to be ex post facto measures. The appellant
argues that they are: "Amendment No. 12 passed on September 19, 1966, clearly provides that the
payment of the imposed tax shall "beginning and taking effect from the year 1964, if the fishpond
started operating before the year 1964.' In other words, it penalizes acts or events occurring before
its passage, that is to say, 1964 and even prior thereto." 37

The Court finds no merit in this contention. As the Solicitor General notes, "Municipal Ordinance No.
4 was passed on May 14, 1955. Hence, it cannot be said that the amendment (under Ordinance
38

No. 12) is being made to apply retroactively (to 1964) since the reckoning period is 1955 (date of
enactment). Essentially, Ordinances Nos. 12 and 15 are in the nature of curative measures intended
to facilitate and enhance the collection of revenues the originally act, Ordinance No. 4, had
prescribed. Moreover, the act (of non-payment of the tax), had been, since 1955, made
39

punishable, and it cannot be said that Ordinance No. 12 imposes a retroactive penalty. As we have
noted, it operates to grant amnesty to operators who had been delinquent between 1955 and 1964.
It does not mete out a penalty, much less, a retrospective one.

The appellant assails, finally, the power of the municipal council of Pagbilao to tax "public forest
land." In Golden Ribbon Lumber Co., Inc. v. City of Butuan we held that local governments'
40 41

taxing power does not extend to forest products or concessions under Republic Act No. 2264, the
Local Autonomy Act then in force. (Republic Act No. 2264 likewise prohibited municipalities from
imposing percentage taxes on sales.)

First of all, the tax in question is not a tax on property, although the rate thereof is based on the area
of fishponds ("P3.00 per hectare" ). Secondly, fishponds are not forest lands, although we have
42

held them to the agricultural lands. By definition, "forest" is "a large tract of land covered with a
43

natural growth of trees and underbush; a large wood." (Accordingly, even if the challenged taxes
44

were directed on the fishponds, they would not have been taxes on forest products.)

They are, more accurately, privilege taxes on the business of fishpond maintenance. They are not
charged against sales, which would have offended the doctrine enshrined by Golden Ribbon
Lumber, but rather on occupation, which is allowed under Republic Act No. 2264. They are what
45 46

have been classified as fixed annual taxes and this is obvious from the ordinances themselves.

There is, then, no merit in the last objection.

WHEREFORE, the appeal is DISMISSED. Costs against the appellant.

Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Padilla, Bidin, Cortes, Griño-Aquino
and Medialdea, JJ., concur.

Melencio-Herrera, and Regalado, J., took no part.

Gancayco, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 117254 January 21, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and BANK OF THE PHILIPPINE ISLANDS as
LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORPORATION, respondent.

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated September 19, 1994, of the Court of
Appeals affirming the decision of the Court of Tax Appeals which ordered petitioner to refund
P65,259.00 as overpaid income tax.

The facts are stated in the following portion of the decision of the CTA which the Court of Appeals
quoted with approval:

Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust
corporation duly organized and existing under Philippine laws. It acts as the liquidator
of Paramount Acceptance Corporation after its dissolution on March 31, 1986.

On April 2, 1986, Paramount Acceptance Corporation (Paramount for brevity) filed its
Corporate Annual Income Tax Return, for calendar year ending December 31, 1985,
declaring a Net Income of P3,324,802.00 (Exh. A). The income tax due thereon is
P1,153,681.00. However, Paramount paid the BIR its quarterly income tax, to wit:

Qtr. CR/ROR Date Bank Amount Exh.

1st 6817293 5/30/85 DBP P308,779.00 C
2nd 5613316 8/29/85 DBP 626,000.00 C-1
3rd 7720471 11/29/85 DBP 284,161.00 C-2
—————
—
TOTAL P1,218,940.00
=========
=

After deducting Paramount's total quarterly income tax payments of P1,218,940.00

from its income tax of P1,153,681.00, the return showed a refundable amount of
P65,259.00. The appropriate box in the return was marked with a cross (x) indicating
"To be refunded" he amount of P65,29,00.

n April 14, 1988, petitioner BPI, as liquidator of Paramount, through counsel filed a
letter dated April 12, 1988 reiterating its claim for refund of P65,259.00 as overpaid
income tax for the calendar year 1985. The following day or on April 15, 1988. BPI
filed the instant petition with this Court in order to toll the running of the prescriptive
period for filing a claim for refund of overpaid income taxes.

The question is whether the two-year period of prescription for filing a claim for refund, as provided
in §230 of the National Internal Revenue Code, is to be counted from April 2, 1986 when the
corporate income tax return was actually filed or from April l5, 1986 when, according to §70(b) of the
NIRC, the final adjustment return could still be filed without incurring any penalty. The aforesaid
§230 of the NLRC provides that such period must be counted "from the date of payment of the tax."
1

But, given the facts as stated above, when was the corporate income tax paid in this case?

The Court of Tax Appeals rendered a decision decision the considering the two year period of
prescription to have commenced to run from April 15, 1986, the last day for filing the corporate
income tax return, and, since the claim for refund was filed on April 14, 1988 and the action was
brought on April 15, 1988, it held that prescription had not set in. Accordingly, the CTA ordered as
follows:

WHEREFORE, the respondent [petitioner herein] is hereby ordered to REFUND in

favor of petitioner, the sum of P65,259.00, representing overpaid income tax of
Paramount Acceptance Corporation for the calendar year 1985.

No pronouncement as to costs.

SO ORDERED. 2

On appeal, its decision was affirmed by the Court of Appeals. Said the appellate court: 3

We agree with the respondent court's ruling that the date of payment of the tax as
prescribed under the Tax Code is the date when the corporate income tax return is
required to be filed. . . .

The Supreme Court has laid down the rule regarding the computation of the
prescriptive period that the two-year period should be computed from the time of
filing of the Adjustment Returns or Annual Income Tax Return and final payment of
income tax: it is only when the Adjustment Return covering the whole year is filed
that the taxpayer would know whether a tax is still due or a refund can be claimed
based on the adjusted and audited figures (Commissioner of Internal Revenue vs.
TMX Sales Inc., 205 SCRA 184). The two-year prescriptive period within which to
claim a refund commences to run, at the earliest, on the date of the filing of the
adjusted final tax return (Commissioner of Internal Revenue vs. Asia Australia
Express Ltd., G.R. No. 85956). The "date of payment" from which to reckon the two-
year period, in the case of a corporation whose taxable year is on a calendar basis,
is the 15th day of the fourth month (April 15th) following the close of the fiscal year,
and the filing of the final adjustment return on April 15th, following the close of the
preceding taxable year, is such "date of payment" (ACCRA Investments Corp. vs.
Court of Appeals, 204 SCRA 957).

In this case, BPI filed its final adjustment return on April 2, 1985. No taxes were paid
then because the returns showed that the quarterly taxes already paid exceeded the
income tax due by P65,259.00. As correctly put by BPI, it is only on April 15 that the
previous year's income tax becomes due and payable and the taxpayer is still free to
make amendments or adjustments on its return, without penalty, until April 15, 1986
(See Section 80, N.I.R.C.). Thus the final payment of income tax should be deemed
to be on April 15, 1986, when the previous year's income tax became due and
payable and when the quarterly corporate income taxes may be considered paid.
Accordingly the administrative claim and court proceeding for tax refund were timely
filed.

Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends that the two-
year prescriptive period should be computed from April 2, 1984, when the final adjustment return
was actually filed, because that is the time of payment of the tax, within the meaning of §230 of the
NIRC.

We agree.

The conclusions reached by the appellate court are contrary to the very rulings cited by it.
In Commissioner of Internal Revenue v. TMX Sales, Inc., this Court, in rejecting the contention that
4

the period of prescription should be counted from the date of payment of the quarterly tax, held:

. . . [T]he filing of a quarterly income tax return required in Section 85 [now Section
68] and implemented per BIR Form 1702-Q and payment of quarterly income tax
should only be considered mere installments of the annual tax due. These quarterly
tax payment which are computed based on the cumulative figures of gross receipts
and deductions in order to arrive at a net taxable income, should be treated as
advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. This is reinforced by Section 87 [now Section 69] which
provides for the filing of adjustment returns and final payment of income
tax. Consequently, the two-year prescriptive period provided in Section 292 [now
Section 230 of the Tax Code] should be computed from the time of filing the
Adjustment Return or Annual Income Tax Return and final payment of income tax.

On the other hand, in ACCRA Invesments Corporation v. Court of Appeals, where the question was
5

whether the two-year period of prescription should be reckoned from the end of the taxable year (in
that case December 31, 1981), we explained why the period should be counted from the filing of the
final adjustment return, thus:
6

Clearly, there is the need to file a return first before a claim for refund can proper
inasmuch as the respondent Commissioner by his own rules and regulations
mandates that the corporate taxpayer opting to ask for a refund must show in its final
adjustment return the income it received from all sources and the amount of
withholding taxes remitted by its withholding agents to the Bureau of Internal
Revenue. The petitioner corporation filed its final adjustment return for its 1981
taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case
of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No.
85956), we ruled that the two-year prescriptive period within which to claim a refund
commences to run, at the earliest, on the date of the filing of the adjusted final tax
return. Hence, the petitioner corporation had until April 15, 1984 within which to file
its claim for refund.

xxx xxx xxx

It bears emphasis at this point that the rationale in computing the two-year
prescriptive period with respect to the petitioner corporation's claim for refund from
the time it filed is final adjustment return is the fact that it was only then that
ACCRAIN could ascertain whether it made profits or incurred losses in its business
operations. The "date of payments", therefore, in ACCRAIN's case was when its tax
liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.

Finally, in Commissioner of Internal Revenue v. Philippine American Life Insurance Co., we held:
7

Clearly, the prescriptive period of two years should commence to run only from the
time that the refund is ascertained, which can only be determined after a final
adjustment return is accomplished. In the present case, this date is April 16, 1984,
and two years from this date would be April 16, 1986. The record shows that the
claim for refund was filed on December 10, 1985 and the petition for review was
brought before the CTA on January 2, 1986. Both dates are within the two-year
reglementary period. Private respondent being a corporation, Section 292 [now
Section 230] cannot serve as the sole basis for determining the two-year prescriptive
period for refunds. As we have earlier stated in the TMX Sales case. Sections 68, 69,
and 70 on Quarterly Corporate Income Tax Payment and Sectibn 321 should be
construed in conjunction with it.

Sec. 49(a) of the NIRC provides that —

§9. Payment and assessment of income tax for individuals and corporations.

(a) Payment of tax—(1) In general. — The total amount of tax imposed by this Title
shall be paid by the person subject thereto at the time the return is filed. . . .

On the other hand, §70(b) of the same Code provides that —

§70 (b) Title of filing the income return — The corporate quarterly declaration shall be
filed within sisty (60) days following the close of each of the first three quarters of the
taxable year. The final adjustment return shall be filed on or before the 15th day of
the 4th month following the close of the fiscal year, as the case may be.

Thus, it can be deduced from the foregoing that, in the contest of §230, which provides for a two-
year period of prescription counted "from the date of payment of the tax" for actions for refund of
corporate income tax, the two-year period should be computed from the time of actual filing of the
Adjustment Return or Annual Income Tax Return. This is so because at that point, it can already be
determined whether there has been an overpayment by the taxpayer. Moreover, under §49(a) of the
NIRC, payment is made at the time the return is filed.

In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However,
private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14,
1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus
barred by prescription.

The foregoing conclusion makes it unnecessary for us to pass on the other issues raised in this case
by petitioner.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the petition for refund filed
by private respondent is DISMISSED on the ground that it is barred by prescription. 1âwphi1.nêt

SO ORDERED.

Bellosillo, Puno, Quisumbing and Buena, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-95630 June 18, 1992

SPOUSES LEOPOLDO and MA. LUISA VEROY, petitioners,

vs.
THE HON. WILLIAM L. LAYAGUE, Presiding Judge, Branch XIV, Regional Trial Court at Davao
City; and BRIG. GEN. PANTALEON DUMLAO, Commanding General, PC-Criminal
Investigation Service, respondents.

PARAS, J.:

This was originally a petition for certiorari, mandamus and prohibition under Rule 65 of the Rules of
Court: certiorari, to review the Order of the respondent Judge dated October 2, 1990 denying herein
petitioner's Motion for Hospital Confinement; mandamus, to compel respondent Judge to resolve
petitioners' long pending motion for bail; and prohibition, to enjoin further proceedings on the ground
that the legal basis therefore is unconstitutional for being violative of the due process and equal
protection clauses of the Constitution.

The facts of this case are as follows:

Petitioners are husband and wife who owned and formerly resided at No. 13 Isidro St., Skyline
Village. Catalunan Grande, Davao City. When petitioner Leopoldo Veroy was promoted to the
position of Assistant Administrator of the Social Security System sometime in June, 1988, he and his
family transferred to 130 K-8th St., East Kamias, Quezon City, where they are presently residing.
The care and upkeep of their residence in Davao City was left to two (2) houseboys, Jimmy Favia
and Eric Burgos, who had their assigned quarters at a portion of the premises. The Veroys would
occasionally send money to Edna Soguilon for the salary of the said houseboys and other expenses
for the upkeep of their house. While the Veroys had the keys to the interior of the house, only the
key to the kitchen, where the circuit breakers were located, was entrusted to Edna Soguilon to give
her access in case of an emergency. Hence, since 1988, the key to the master's bedroom as well as
the keys to the children's rooms were retained by herein Petitioners so that neither Edna Soguilon
nor the caretakers could enter the house.

On April 12, 1990, Capt. Reynaldo Obrero of the Talomo Patrol Station, PC/INP, acting upon a
directive issued by Metrodiscom Commander Col. Franco Calida, raided the house of herein
petitioners in Davao City on information that the said residence was being used as a safehouse of
rebel soldiers. They were able to enter the yard with the help of the caretakers but did not enter the
house since the owner was not present and they did not have a search warrant. Petitioner Ma. Luisa
was contacted by telephone in her Quezon City residence by Capt. Obrero to ask permission to
search the house in Davao City as it was reportedly being used as a hideout and recruitment center
of rebel soldiers. Petitioner Ma. Luisa Veroy responded that she is flying to Davao City to witness the
search but relented if the search would not be conducted in the presence of Major Ernesto
Macasaet, an officer of the PC/INP, Davao City and a long time family friend of the Veroys. The
authority given by Ma. Luisa Veroy was relayed by Capt. Obrero to Major Macasaet who answered
that Ma. Luisa Veroy has called him twice by telephone on the matter and that the permission was
given on the condition that the search be conducted in his presence.

The following day, Capt. Obrero and Major Macasaet met at the house of herein petitioners in
Skyline Village to conduct the search pursuant to the authority granted by petitioner Ma. Luisa
Veroy. The caretakers facilitated their entry into the yard, and using the key entrusted to Edna
Soguilon, they were able to gain entrance into the kitchen. However, a locksmith by the name of
George Badiang had to be employed to open the padlock of the door leading to the children's room.
Capt. Obrero and Major Macasaet then entered the children's room and conducted the search. Capt.
Obrero recovered a .45 cal. handgun with a magazine containing seven (7) live bullets in a black
clutch bag inside an unlocked drawer. Three (3) half-full jute sacks containing printed materials of
RAM-SFP (samples of which were attached as Annexes "H" and "H-1" of the petition) (Rollo, pp. 49-
55) were also found in the children's room. A search of the children's recreation and study area
revealed a big travelling bag containing assorted polo shirts, men's brief, two (2) pieces polo barong
and short sleeve striped gray polo. sweat shirt, two (2) pairs men's socks, a towel made in U.S.A.,
one blanket, a small black bag, Gandhi brand, containing a book entitled "Islamic Revolution Future
Path of the Nation", a road map of the Philippines, a telescope, a plastic bag containing assorted
medicines and religious pamphlets was found in the master's bedroom. Sgt. Leo Justalero was
instructed by Capt. Obrero to make an inventory and receipt of the articles seized, in the house
(Annex "F" of the Petition, Rollo, p. 48). Said receipt was signed by Eric Burgos, one of the
caretakers, and George Badiang, the locksmith, as witnesses. Sgt. Justalero turned over the articles
to Sgt. Rodolfo Urbano at the police station.

The case was referred for preliminary investigation to Quezon City Assistant Prosecutor Rodolfo
Ponferrada who was designated Acting Provincial Prosecutor for Davao City by the Department of
Justice through Department Order No. 88 dated May 16, 1990. In a resolution dated August 6, 1990,
Fiscal Ponferrada recommended the filing of an information against herein petitioners for Violation of
Presidential Decree No. 1866 (Illegal Possession of Firearms and Ammunitions in Furtherance of
Rebellion) (Annex "L" of the Petition, Rollo, p. 71). Hence, on August 8, 1990. an Information for the
said offense was filed by the Office of the City Prosecutor of Davao City before the Regional Trial
Court, 11th Judicial Region, Davao City, docketed as Criminal Case No. 20595-90 and
entitled "People of the Philippines v. Atty. Leopoldo Veroy and Mrs. Maria Luisa Veroy" (Annex "K"
of the Petition, Rollo, p. 70). No bail was recommended by the prosecution.

The aforementioned resolution dated August 6, 1990 of Fiscal Ponferrada was received by the
petitioners on August 13, 1990. On the same day, the latter filed a Motion for Bail before herein
respondent Judge Layague which was denied on August 17, 1990 for being premature since at that
time, petitioners had not yet been arrested. Despite the fact that the warrants for their arrest have
not yet been served on them, herein petitioners voluntarily surrendered themselves to Brig. Gen.
Pantaleon Dumlao, PC-CIS Chief, since it was the CIS that initiated the complaint. However, the
latter refused to receive them on the ground that his office has not yet received copies of their
warrants of arrest.

In the meantime, on August 15, 1990, herein petitioners were admitted to the St. Luke's Hospital for
various ailments brought about or aggravated by the stress and anxiety caused by the filing of the
criminal complaint. On August 17, 1990, Brig. Gen. Dumlao granted their request that they be
allowed to be confined at the hospital and placed under guard thereat.

In an Indorsement dated August 20, 1990, the CIS through Capt. Benjamin de los Santos, made its
return to the trial court informing the latter of the voluntary surrender of herein petitioners and the
fact that they were under hospital confinement. Herein Petitioner reiterated their Motion for Bail. In
an Order dated August 24, 1990 (Annex "M" of the Petition, Rollo, p. 74), the hearing for the Motion
for Ball was set for August 31, 1990 to enable the prosecution to present evidence it opposition to
said motion. The prosecution filed its written opposition (Annex "N" of the Petition, Rollo, p. 75) on
August 28, 1990, arguing that the evidence of petitioners' guilt was strong and thereafter presented
its evidence.

On September 21, 1990, respondent Judge required the CIS to produce the bodies of herein
petitioners on October 1, 1990 for arraignment (Annex "O" of the Petition, Rollo, p. 76). Upon their
arraignment, herein Petitioners entered a plea of not guilty and filed an "Urgent Motion for Hospital
Confinement" (Annex "OO" of the Petition Rollo, p. 77) which was denied by the court in its Order
dated October 2, 1990 (Annex "P" of the Petition, Rollo, p. 80). It likewise ordered their commitment
at the Davao City Rehabilitation Center, Ma-a, Davao City pending trial on the merits. Herein
petitioners argued orally a motion for reconsideration which was opposed by the prosecution. At the
conclusion thereof, the court a quo issued a second order annex "Q" of the Petition, Rollo, p. 83)
denying then motion for reconsideration and as to the alternative prayer to reopen the motion for
hospital confinement, set the continuance thereof to October 17, 1990. It was further ordered that
the petitioners shall remain under the custody of the PC-CIS pending resolution of the case.

Meanwhile, petitioners were returned to the St. Luke's Hospital where their physical condition
remained erratic. On or about October 18, 1990, herein petitioners were informed that Brig. Gen.
Dumlao had issued a directive for their transfer from the St. Luke's Hospital to Camp Crame on the
basis of the October 2, 1990 Order (Annex "Q" of the Petition, Rollo, p. 83). Petitioners made
representations that the tenor of the court order warranted maintenance of the status quo, i.e., they
were to continue their hospital confinement. However, Brig, Gen. Dumlao informed them that unless
otherwise restrained by the court, they would proceed with their transfer pursuant to the order of the
trial court.
Hence, this petition on October 25, 1990 this Court issued a Temporary Restraining Order, effective
immediately and continuing until further orders from this Court, ordering: (a) respondent Hon. William
L. Layague to refrain from further proceeding with petitioners' "Motion for Hospital Confinement" in
Criminal Case No. 20595-90 entitled "People of the Philippines v. Leopoldo Veroy and Ma. Luisa
Veroy"; and (b) respondent Brig. Gen. Pantaleon Dumlao to refrain from transferring petitioners from
the St. Luke's Hospital (Rollo, pp. 84-A to 84-C).

On November 2, 1990, respondent Judge issued an order denying petitioners' Motion for Bail (Annex
"A" of the Second Supplemental Petition, Rollo, p. 133). Petitioners filed a Supplemental Petition on
November 7, 1990 (Rollo, P. 105) and a Second Supplemental Petition on November 16, 1990
(Rollo, p. 120) which sought to review the order of the trial court dated November 2, 1990 denying
their petition for bail.

Acting on the Supplemental Petition filed by Petitioners and taking into consideration several factors
such as: a) that the possibility that they will flee or evade the processes of the court is fairly remote;
b) their poor medical condition; and c) the matters in their Second Supplemental Petition especially
since the prosecution's evidence refers to constructive possession of the disputed firearms in Davao
City through the two (2) caretakers while petitioners lived in Manila since 1988, this Court, on
November 20, 1990, granted petitioners' provisional liberty and set the bail bond at P20,000.00 each
(Rollo, p. 141). Petitioners posted a cash bond in the said amount on November 23, 1990 (Rollo, pp.
143-145).

The petition was given due course on July 16, 1991 (Rollo, p. 211). Respondents adopted their
Comment dated December 28, 1990 (Rollo, pp. 182-191) as their Memorandum while, petitioners
filed their Memorandum on September 9, 1991 (Rollo, pp. 218-269).

As submitted by the respondents, and accepted by petitioners, the petition for mandamus to compel
respondent Judge to resolve petitioners' Motion for Bail, and the petition for certiorari to review the
order of respondent judge initially denying their Motion for Hospital Confinement, were rendered
moot and academic by the resolutions of this Court dated November 20, 1990 and October 25,
1990, respectively. What remains to be resolved is the petition for prohibition where petitioners
raised the following issues:

1. Presidential Decree No. 1866, or at least the third paragraph of Section 1 thereof,
is unconstitutional for being violative of the due process and equal protection clauses
of the Constitution;

2. Presidential Decree No. 1866 has been repealed by Republic Act No. 6968;

3. Assuming the validity of Presidential Decree No. 1866 the respondent judge
gravely abused his discretion in admitting in evidence certain articles which were
clearly inadmissible for being violative of the prohibition against unreasonable
searches and seizures.

The issue of constitutionality of Presidential Decree No. 1866 has been laid to rest in the case
of Misolas v. Panga, G.R. No. 83341, January 30, 1990 (181 SCRA 648), where this Court held that
the declaration of unconstitutionality of the third paragraph of Section 1 of Presidential Decree No.
1866 is wanting in legal basis since it is neither a bill of attainder nor does it provide a possibility of a
double jeopardy.

Likewise, petitioners' contention that Republic Act 6968 has repealed Presidential Decree No. 1866
is bereft of merit. It is a cardinal rule of statutory construction that where the words and phrases of a
statute are not obscure or ambiguous. its meaning and the intention of the legislature must be
determined from the language employed, and where there is no ambiguity in the words, there is no
room for construction (Provincial Board of Cebu v. Presiding Judge of Cebu, CFI, Br. IV, G.R. No.
34695, March 7, 1989 [171 SCRA 1]). A perusal of the aforementioned laws would reveal that the
legislature provided for two (2) distinct offenses: (1) illegal possession of firearms under Presidential
Decree No. 1866; and (2) rebellion, coup d' etat, sedition and disloyalty under Republic Act 6968;
evidently involving different subjects which were not clearly shown to have eliminated the others.

But petitioners contend that Section 1 of Presidential Decree No. 1866 is couched in general or
vague terms. The terms "deal in", "acquire", "dispose" or "possess" are capable of various
interpretations such that there is no definiteness as to whether or not the definition includes
"constructive possession" or how the concept of constructive possession should be applied.
Petitioners were not found in actual possession of the firearm and ammunitions. They were in
Quezon City while the prohibited articles were found in Davao City. Yet they were being charged
under Presidential Decree No. 1866 upon the sole circumstance that the house wherein the items
were found belongs to them (Memorandum for Petitioners, Rollo, pp. 242-244).
Otherwise stated, other than their ownership of the house in Skyline Village, there was no other
evidence whatsoever that herein petitioners possessed or had in their control the items seized (Ibid.,
pp. 248-250). Neither was it shown that they had the intention to possess the Firearms or to further
rebellion (Ibid., P. 252).

In a similar case, the revolver in question was found in appellant's store and the question arouse
whether he had possession or custody of it within the meaning of the law.

This Court held that:

The animus possidendi must be proved in opium cases where the prohibited drug
was found on the premises of the accused and the same rule is applicable to the
possession of firearms. The appellant denied all knowledge of the existence of the
revolver, and the Government's principal witness stated that there were a number of
employees in the store. The only testimony which tends to show that the appellant
had the possession or custody of this revolver is the inference drawn from the fact
that it was found in his store, but we think that this inference is overcome by the
positive testimony of the appellant, when considered with the fact that there were a
number of employees in the store, who, of course, could have placed the revolver in
the secret place where it was found without the knowledge of the appellant. At least
there is a very serious doubt whether he knew of the existence of this revolver. In
such case the doubt must be resolved in favor of the appellant. (U.S. v. Jose and
Tan Bo., 34 Phil. 724 [1916])

But more importantly, petitioners question the admissibility in evidence of the articles seized in
violation of their constitutional right against unreasonable search and seizure.

Petitioners aver that while they concede that Capt. Obrero had permission from Ma. Luisa Veroy to
break open the door of their residence, it was merely for the purpose of ascertaining thereat the
presence of the alleged "rebel" soldiers. The permission did not include any authority to conduct a
room to room search once inside the house. The items taken were, therefore, products of an illegal
search, violative of their constitutional rights As such, they are inadmissible in evidence against
them.

The Constitution guarantees the right of the people to be secure in their persons, houses, papers
and effects against unreasonable searches and seizures (Article III, Section 2 of the 1987
Constitution). However, the rule that searches and seizures must be supported by a valid warrant is
not an absolute one. Among the recognized exceptions thereto are: (1) a search incidental to an
arrest; (2) a search of a moving vehicle; and (3) seizure of evidence in plain view (People v. Lo Ho
Wing, G.R. No. 88017, January 21, 1991 [193 SCRA 122]).

None of these exceptions pertains to the case at bar. The reason for searching the house of herein
petitioners is that it was reportedly being used as a hideout and recruitment center for rebel soldiers.
While Capt. Obrero was able to enter the compound, he did not enter the house because he did not
have a search warrant and the owners were not present. This shows that he himself recognized the
need for a search warrant, hence, he did not persist in entering the house but rather contacted the
Veroys to seek permission to enter the same. Permission was indeed granted by Ma. Luisa Veroy to
enter the house but only to ascertain the presence of rebel soldiers. Under the circumstances it is
undeniable that the police officers had ample time to procure a search warrant but did not.

In a number of cases decided by this Court, (Guazon v. De Villa, supra.; People v. Aminnudin, G.R.
No. L-74869, July 6, 1988 [163 SCRA 402]; Alih v. Castro, G.R. No. L-69401, June 23, 1987 [151
SCRA 279]), warrantless searches were declared illegal because the officials conducting the search
had every opportunity to secure a search Warrant. The objects seized, being products of illegal
searches, were inadmissible in evidence in the criminal actions subsequently instituted against the
accused-appellants (People v. Cendana, G.R. No. 84715, October 17, 1990 [190 SCRA 538]).

Undeniably, the offense of illegal possession of firearms is malum prohibitum but it does not follow
that the subject thereof is necessarily illegal per se. Motive is immaterial in mala prohibita but the
subjects of this kind of offense may not be summarily seized simply because they are prohibited. A
search warrant is still necessary. Hence, the rule having been violated and no exception being
applicable, the articles seized were confiscated illegally and are therefore protected by the
exclusionary principle. They cannot be used as evidence against the petitioners in the criminal action
against them for illegal possession of firearms. (Roan v. Gonzales, 145 SCRA 689-690 [1986]).
Besides, assuming that there was indeed a search warrant, still in mala prohibita, while there is no
need of criminal intent, there must be knowledge that the same existed. Without the knowledge or
voluntariness there is no crime.
PREMISES CONSIDERED, the petition as granted and the criminal case against the petitioners for
illegal possession of firearms is DISMISSED.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea, Regalado,
Davide, Jr., Romero and Bellosillo, JJ., concur.

Nocon, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 74851 December 9, 1999

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
INTERMEDIATE APPELLATE COURT AND BF HOMES, INC., respondents.

RESOLUTION

MELO, J.:

On September 14, 1992, the Court passed upon the case at bar and rendered its decision,
dismissing the petition of Rizal Commercial Banking Corporation (RCBC), thereby affirming the
decision of the Court of Appeals which canceled the transfer certificate of title issued in favor of
RCBC, and reinstating that of respondent BF Homes.

This will now resolve petitioner's motion for reconsideration which, although filed in 1992 was not
deemed submitted for resolution until in late 1998. The delay was occasioned by exchange of
pleadings, the submission of supplemental papers, withdrawal and change of lawyers, not to speak
of the case having been passed from one departing to another retiring justice. It was not until May 3,
1999, when the case was re-raffled to herein ponente, but the record was given to him only
sometime in the late October 1999.

By way of review, the pertinent facts as stated in our decision are reproduced herein, to wit:

On September 28, 1984, BF Homes filed a "Petition for Rehabilitation and for
Declaration of Suspension of Payments" (SEC Case No. 002693) with the Securities
and Exchange Commission (SEC).

One of the creditors listed in its inventory of creditors and liabilities was RCBC.

On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-
judicially foreclose its real estate mortgage on some properties of BF Homes. A
notice of extra-judicial foreclosure sale was issued by the Sheriff on October 29,
1984, scheduled on November 29, 1984, copies furnished both BF Homes
(mortgagor) and RCBC (mortgagee).

On motion of BF Homes, the SEC issued on November 28, 1984 in SEC Case No.
002693 a temporary restraining order (TRO), effective for 20 days, enjoining RCBC
and the sheriff from proceeding with the public auction sale. The sale was
rescheduled to January 29, 1985.

On January 25, 1985, the SEC ordered the issuance of a writ of preliminary
injunction upon petitioner's filing of a bond. However, petitioner did not file a bond
until January 29, 1985, the very day of the auction sale, so no writ of preliminary
injunction was issued by the SEC. Presumably, unaware of the filing of the bond, the
 sheriffs proceeded with the public auction sale on January 29, 1985, in which RCBC
was the highest bidder for the properties auctioned.

On February 5, 1985, BF Homes filed in the SEC a consolidated motion to annul the
auction sale and to cite RCBC and the sheriff for contempt. RCBC opposed the
motion

Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of
a certificate of sale covering the auctioned properties.

On February 13, 1985, the SEC in Case No. 002693 belatedly issued a writ of
preliminary injunction stopping the auction sale which had been conducted by the
sheriff two weeks earlier.

On March 13, 1985, despite SEC Case No. 002693, RCBC filed with the Regional
Trial Court, Br. 140, Rizal (CC 10042) an action for mandamus against the provincial
sheriff of Rizal and his deputy to compel them to execute in its favor a certificate of
sale of the auctioned properties.

In answer, the sheriffs alleged that they proceeded with the auction sale on January
29, 1985 because no writ of preliminary injunction had been issued by SEC as of that
date, but they informed the SEC that they would suspend the issuance of a certificate
of sale to RCBC.

On March 18, 1985, the SEC appointed a Management Committee for BF Homes.

On RCBC's motion in the mandamus case, the trial court issued on May 8, 1985 a
judgment on the pleadings, the dispositive portion of which states:

WHEREFORE, petitioner's Motion for Judgment on the pleadings is

granted and judgment is hereby rendered ordering respondents to
execute and deliver to petitioner the Certificate of the Auction Sale of
January 29, 1985, involving the properties sold therein, more
particularly those described in Annex "C" of their Answer." (p.
87, Rollo.)

On June 4, 1985, B.F. Homes filed an original complaint with the IAC pursuant to
Section 9 of B.P. 129 praying for the annulment of the judgment, premised on the
following:

. . .: (1) even before RCBC asked the sheriff to extra-judicially

foreclose its mortgage on petitioner's properties, the SEC had already
assumed exclusive jurisdiction over those assets, and (2) that there
was extrinsic fraud in procuring the judgment because the petitioner
was not impleaded as a party in the mandamus case, respondent
court did not acquire jurisdiction over it, and it was deprived of its right
to be heard. (CA Decision, p. 88, Rollo).

On April 8, 1986, the IAC rendered a decision, setting aside the decision of the trial
court, dismissing the mandamus case and suspending issuance to RCBC of new
land titles, "until the resolution of case by SEC in Case No. 002693," disposing as
follows:

WHEREFORE, the judgment dated May 8, 1985 in Civil Case No.

10042 is hereby annulled and set aside and the case is hereby
dismissed. In view of the admission of respondent Rizal Commercial
Banking Corporation that the sheriff's certificate of sale has been
registered on BF Homes' TCT's . . . (here the TCTs were
enumerated) the Register of Deeds for Pasay City is hereby ordered
to suspend the issuance to the mortgagee-purchaser, Rizal
Commercial Banking Corporation, of the owner's copies of the new
land titles replacing them until the matter shall have been resolved by
the Securities and Exchange Commission in SEC Case No. 002693.

On June 18, 1986, RCBC appealed the decision of the then Intermediate Appellate Court (now, back
to its old revered name, the Court of Appeals) to this Court, arguing that:
 1. Petitioner did not commit extrinsic fraud in excluding private
respondent as party defendant in Special Civil Case No. 10042 as
private respondent was not indispensable party thereto, its
participation not being necessary for the full resolution of the issues
raised in said case.

2. SEC Case No. 2693 cannot be invoked to suspend Special Civil

Case No. 10042, and for that matter, the extra-judicial foreclosure of
the real estate mortgage in petitioner's favor, as these do not
constitute actions against private respondent contemplated under
Section 6(c) of Presidential Decree No. 902-A.

3. Even assuming arguendo that the extra-judicial sale constitute an

action that may be suspended under Section 6(c) of Presidential
Decree No. 902-A, the basis for the suspension thereof did not exist
so as to adversely affect the validity and regularity thereof.

4. The Regional Trial court had jurisdiction to take cognizable of

Special Civil Case No. 10042.

5. The Regional Trial court had jurisdiction over Special Civil Case
No. 10042.

On November 12, 1986, the Court gave due course to the petition. During the pendency of the case,
RCBC brought to the attention of the Court an order issued by the SEC on October 16, 1986 in Case
No. 002693, denying the consolidated Motion to Annul the Auction Sale and to cite RCBC and the
Sheriff for Contempt, and ruling as follows:

WHEREFORE, the petitioner's "Consolidated Motion to Cite Sheriff

and Rizal Commercial Banking Corporation for Contempt and to
Annul Proceedings and Sale," dated February 5, 1985, should be as
is, hereby DENIED.

While we cannot direct the Register of Deeds to allow the

consolidation of the titles subject of the Omnibus Motion dated
September 18, 1986 filed by the Rizal Commercial Banking
Corporation, and therefore, denies said Motion, neither can this
Commission restrain the said bank and the Register of Deeds from
effecting the said consolidation.

SO ORDERED.

By virtue of the aforesaid order, the Register of Deeds of Pasay City effected the transfer of title over
subject pieces of property to petitioner RCBC, and the issuance of new titles in its name. Thereafter,
RCBC presented a motion for the dismissal of the petition, theorizing that the issuance of said new
transfer certificates of title in its name rendered the petition moot and academic.

In the decision sought to be reconsidered, a greatly divided Court (Justices Gutierrez, Nocon, and
Melo concurred with the ponente, Justice Medialdea; Chief Justice Narvasa, Justices Bidin,
Regalado, and Bellosillo concurred only in the result; while Justice Feliciano dissented and was
joined by Justice Padilla, then Justice, now Chief Justice Davide, and Justice Romero; Justices
Griño-Aquino and Campos took no part) denied petitioner's motion to dismiss, finding basis for
nullifying and setting aside the TCTs in the name of RCBC. Ruling on the merits, the Court upheld
the decision of the Intermediate Appellate Court which dismissed the mandamus case filed by RCBC
and suspended the issuance of new titles to RCBC. Setting aside RCBC's acquisition of title and
nullifying the TCTs issued to it, the Court held that:

. . . whenever a distressed corporation asks the SEC for rehabilitation

and suspension of payments, preferred creditors may no longer
assert such preference, but . . . stand on equal footing with other
creditors. Foreclosure shall be disallowed so as not to prejudice other
creditors, or cause discrimination among them. If foreclosure is
undertaken despite the fact that a petition, for rehabilitation has been
filed, the certificate of sale shall not be delivered pending
rehabilitation. Likewise, if this has also been done, no transfer of title
shall be effected also, within the period of rehabilitation. The rationale
behind PD 902-A, as amended to effect a feasible and viable
rehabilitation. This cannot be achieved if one creditor is preferred
over the others.
 In this connection, the prohibition against foreclosure attaches as
soon as a petition for rehabilitation is filed. Were it otherwise, what is
to prevent the petitioner from delaying the creation of a Management
Committee and in the meantime dissipate all its assets. The sooner
the SEC takes over and imposes a freeze on all the assets, the better
for all concerned.

Then Justice Feliciano (joined by three other Justices), dissented and voted to grant the petition. He
opined that the SEC acted prematurely and without jurisdiction or legal authority in enjoining RCBC
and the sheriff from proceeding with the public auction sale. The dissent maintain that Section 6 (c)
of Presidential Decree 902-A is clear and unequivocal that, claims against the corporations,
partnerships, or associations shall be suspended only upon the appointment of a management
committee, rehabilitation receiver, board or body. Thus, in the case under consideration, only upon
the appointment of the Management Committee for BF Homes on March 18, 1985, should the
suspension of actions for claims against BF Homes have taken effect and not earlier.

In support of its motion for reconsideration, RCBC contends:

The restraining order and the writ of preliminary injunction issued by the Securities
and Exchange Commission enjoining the foreclosure sale of the properties of
respondent BF Homes were issued without or in excess of its jurisdiction because it
was violative of the clear provision of Presidential Decree No. 902-A, and are
therefore null and void; and

Petitioner, being a mortgage creditor, is entitled to rely solely on its security and to
refrain from joining the unsecured creditors in SEC Case No. 002693, the petition for
rehabilitation filed by private respondent.

We find the motion for reconsideration meritorious.

The issue of whether or not preferred creditors of distressed corporations stand on equal footing with
all other creditors gains relevance and materiality only upon the appointment of a management
committee, rehabilitation receiver, board, or body. Insofar as petitioner RCBC is concerned, the
provisions of Presidential Decree No. 902-A are not yet applicable and it may still be allowed to
assert its preferred status because it foreclosed on the mortgage prior to the appointment of the
management committee on March 18, 1985. The Court, therefore, grants the motion for
reconsideration on this score.

The law on the matter, Paragraph (c), Section 6 of Presidential Decree 902-A, provides:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall posses
the following powers:

c) To appoint one or more receivers of the property, real and personal, which is the
subject of the action pending before the Commission in accordance with the pertinent
provisions of the Rules of Court in such other cases whenever necessary to preserve
the rights of the parties litigants to and/or protect the interest of the investing public
and creditors; Provided, however, that the Commission may, in appropriate cases,
appoint a rehabilitation receiver of corporations, partnerships or other associations
not supervised or regulated by other government agencies who shall have, in
addition to the powers of a regular receiver under the provisions of the Rules of
Court, such functions and powers as are provided for in the succeeding paragraph
(d) hereof: Provided, finally, That upon appointment of a management committee
rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims
against corporations, partnerships or associations under management or
receivership, pending before any court, tribunal, board or body shall be suspended
accordingly. (As amended by PDs No. 1673, 1758 and by PD No. 1799. Emphasis
supplied.)

It is thus adequately clear that suspension of claims against a corporation under rehabilitation is
counted or figured up only upon the appointment of a management committee or a rehabilitation
receiver. The holding that suspension of actions for claims against a corporation under rehabilitation
takes effect as soon as the application or a petition for rehabilitation is filed with the SEC — may, to
some, be more logical and wise but unfortunately, such is incongruent with the clear language of the
law. To insist on such ruling, no matter how practical and noble, would be to encroach upon
legislative prerogative to define the wisdom of the law — plainly judicial legislation.

It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is
clear and free from any doubt or ambiguity, there is no room for construction or interpretation. As
has been our consistent ruling, where the law speaks in clear and categorical language, there is no
occasion for interpretation; there is only room for application (Cebu Portland Cement Co. vs.
Municipality of Naga, 24 SCRA-708 [1968]).

Where the law is clear and unambiguous, it must be taken to mean exactly what it
says and the court has no choice but to see to it that its mandate is obeyed
(Chartered Bank Employees Association vs. Ople, 138 SCRA 273 [1985]; Luzon
Surety Co., Inc. vs. De Garcia, 30 SCRA 111 [1969]; Quijano vs. Development Bank
of the Philippines, 35 SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true
intent. Ambiguity is a condition of admitting two or more meanings, of being understood in more than
one way, or of referring to two or more things at the same time. A statute is ambiguous if it is
admissible of two or more possible meanings, in which case, the Court is called upon to exercise
one of its judicial functions, which is to interpret the law according to its true intent.

Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does nor
always result in the appointment of a receiver or the creation of a management committee. The SEC
has to initially determine whether such appointment is appropriate and necessary under the
circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations
must be shown to exist before a management committee may be created or appointed, such as;

1. when there is imminent danger of dissipation, loss, wastage or

destruction of assets or other properties; or

2. when there is paralization of business operations of such

corporations or entities which may be prejudicial to the interest of
minority stockholders, parties-litigants or to the general public.

On the other hand, receivers may be appointed whenever:

1. necessary in order to preserve the rights of the parties-litigants;

and/or

2. protect the interest of the investing public and creditors. (Section 6

(c), P.D. 902-A.)

These situations are rather serious in nature, requiring the appointment of a management committee
or a receiver to preserve the existing assets and property of the corporation in order to protect the
interests of its investors and creditors. Thus, in such situations, suspension of actions for claims
against a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is
necessary, and here we borrow the words of the late Justice Medialdea, "so as not to render the
SEC management Committee irrelevant and inutile and to give it unhampered "rescue efforts" over
the distressed firm" (Rollo, p. 265).

Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent
danger of losing the corporate assets, a management committee or rehabilitation receiver need not
be appointed and suspension of actions for claims may not be ordered by the SEC. When the SEC
does not deem it necessary to appoint a receiver or to create a management committee, it may be
assumed, that there are sufficient assets to sustain the rehabilitation plan and, that the creditors and
investors are amply protected.

Petitioner additionally argues in its motion for reconsideration that, being a mortgage creditor, it is
entitled to rely on its security and that it need not join the unsecured creditors in filing their claims
before the SEC appointed receiver. To support its position, petitioner cites the Court's ruling in the
case of Philippine Commercial International Bank vs. Court of Appeals, (172 SCRA 436 [1989]) that
an order of suspension of payments as well as actions for claims applies only to claims of unsecured
creditors and cannot extend to creditors holding a mortgage, pledge, or any lien on the property.

Ordinarily, the Court would refrain from discussing additional matters such as that presented in
RCBC's second ground, and would rather limit itself only to the relevant issues by which the
controversy may be settled with finality.

In view, however, of the significance of such issue, and the conflicting decisions of this Court on the
matter, coupled with the fact that our decision of September 14, 1992, if not clarified, might mislead
the Bench and the Bar, the Court resolved to discuss further.

It may be recalled that in the herein en banc majority opinion (pp. 256-275, Rollo, also published
as RCBC vs. IAC, 213 SCRA 830 [1992]), we held that:
 . . . whenever a distressed corporation asks the SEC for rehabilitation and
suspension of payments, preferred creditors may no longer assert such preference,
but . . . stand on equal footing with other creditors. Foreclosure shall be disallowed
so as not to prejudice other creditors, or cause discrimination among them. If
foreclosure is undertaken despite the fact that a petition for rehabilitation has been
filed, the certificate of sale shall not be delivered pending rehabilitation. Likewise, if
this has also, been done, no transfer of title shall be effected also, within the period
of rehabilitation. The rationale behind PD 902-A, as amended, is to effect a feasible
and viable rehabilitation. This cannot be achieved if one creditor is preferred over the
others.

In this connection, the prohibition against foreclosure attaches as soon as a petition

for rehabilitation is filed. Were it otherwise, what is to prevent the petitioner from
delaying the creation of a Management Committee and in the meantime dissipate all
its assets. The sooner the SEC takes over and imposes a freeze on all the assets,
the better for all concerned.

The foregoing majority opinion relied upon BF Homes, Inc. vs. Court of Appeals (190 SCRA 262
[1990] — per Cruz, J.: First Division) where it held that "when a corporation threatened by
bankruptcy is taken over by a receiver, all the creditors should stand on an equal footing. Not
anyone of them should be given preference by paying one or some of them ahead of the others.
This is precisely the reason for the suspension of all pending claims against the corporation under
receivership. Instead of creditors vexing the courts with suits against the distressed firm, they are
directed to file their claims with the receiver who is a duly appointed officer of the SEC (pp. 269-270;
emphasis in the original). This ruling is a reiteration of Alemar's Sibal & Sons, Inc. vs. Hon. Jesus M.
Elbinias (pp. 99-100; 186 SCRA 94 [1991] — per Fernan, C.J.: Third Division).

Taking the lead from Alemar's Sibal & Sons, the Court also applied this same ruling in Araneta vs.
Court of Appeals (211 SCRA 390 [1992] — per Nocon, J.: Second Division).

All the foregoing cases departed from the ruling of the Court in the much earlier case of PCIB vs.
Court of Appeals (172 SCRA 436 [1989] — per Medialdea, J.: First Division) where the Court
categorically ruled that:

SEC's order for suspension of payments of Philfinance as well as for all actions of
claims against Philfinance could only be applied to claims of unsecured creditors.
Such order can not extend to creditors holding a mortgage, pledge or any lien on the
property unless they give up the property, security or lien in favor of all the creditors
of Philfinance . . .

(p. 440. Emphasis supplied)

Thus, in BPI vs. Court of Appeals (229 SCRA 223 [1994] — per Bellosilio, J.: First Division) the
Court explicitly stared that ". . . the doctrine in the PCIB Case has since been abrogated. In Alemar's
Sibal & Sons v. Elbinias, BF Homes, Inc. v. Court of Appeals, Araneta v. Court of
Appeals and RCBC v. Court of Appeals, we already ruled that whenever a distressed corporation
asks SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert
such preference, but shall stand on equal footing with other creditors . . ." (pp. 227-228).

It may be stressed, however, that of all the cases cited by Justice Bellosillo in BPI, which abandoned
the Court's ruling in PCIB, only the present case satisfies the constitutional requirement that "no
doctrine or principle of law laid down by the court in a decision rendered en banc or in division may
be modified or reversed except by the court sitting en banc" (Sec 4, Article VIII, 1987 Constitution).
The rest were division decisions.

It behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for
the guidance of the Bench and the Bar, the following rules of thumb shall are laid down:

1. All claims against corporations, partnerships, or associations that are pending before any court,
tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be
suspended effective upon the appointment of a management committee, rehabilitation receiver,
board, or body in accordance which the provisions of Presidential Decree No. 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of such
preference is equally suspended upon the appointment of a management committee, rehabilitation
receiver, board, or body. In the event that the assets of the corporation, partnership, or association
are finally liquidated, however, secured and preferred credits under the applicable provisions of the
Civil Code will definitely have preference over unsecured ones.
In other words, once a management committee, rehabilitation receiver, board or body is appointed
pursuant to P.D. 902-A, all actions for claims against a distressed corporation pending before any
court, tribunal, board or body shall be suspended accordingly.

This suspension shall not prejudice or render ineffective the status of a secured creditor as
compared totally unsecured creditor P.D. 902-A does not state anything to this effect. What it merely
provides is that all actions for claims against the corporation, partnership or association shall be
suspended. This should give the receiver a chance to rehabilitate the corporation if there should still
be a possibility of doing so. (This will be in consonance with Alemar's BF Homes, Araneta, and
RCBC insofar as enforcing liens by preferred creditors are concerned.)

However, in the event that rehabilitation is no longer feasible and claims against the distressed
corporation would eventually have to be settled, the secured creditors shall enjoy preference over
the unsecured creditors (still maintaining PCIB ruling), subject only to the provisions of the Civil
Code on Concurrence and Preferences of Credit (our ruling in State Investment House, Inc. vs.
Court of Appeals, 277 SCRA 209 [1997]).

The Majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a
way, stand an equal footing with all other creditors, must be read and understood in the light of the
foregoing rulings. All claims of both a secured or unsecured creditors, without distinction on this
score, are suspended once a management committee is appointed. Secured creditors, in the
meantime, shall not be allowed to assert such preference before the Securities and Exchange
Commission. It may be stressed, however, that this shall only take effect upon the appointment of a
management committee, rehabilitation receiver, board, or body, as opined in the dissent.

In fine, the Court grants the motion for reconsideration for the cogent reason that suspension of
actions for claims commences only from the time a management committee or receiver is appointed
by the SEC. Petitioner RCBC, therefore, could have rightfully, as it did, move for the extrajudicial
foreclosure of its mortgage on October 26, 1984 because a management committee was not
appointed by the SEC until March 18, 1985.

WHEREFORE, petitioner's motion for reconsideration is hereby GRANTED. The decision, dated
September 14, 1992 is vacated, the decision of Intermediate Appellate Court in AC-G.R. No. SP-
06313 REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National Capital
Judicial Region, Branch 140, in Civil Case No. 10042 REINSTATED.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Puno, Vitug, Kapunan, Mendoza, Quisumbing, Purisima, Pardo, Buena,
Gonzaga-Reyes, Ynares-Santiago and De Leon, Jr., JJ., concur.

Panganiban, J., please see separate (concuring) opinion.

Separate Opinions

PANGANIBAN, J., separate opinion;

The issue as to when suspension of payments takes effect upon a petition of a distressed
corporation is a contentious one. The ponencia in the case under consideration, Rizal Commercial
Banking Corporation (RCBC) v. Immediate Appellate Court, has ruled that "the prohibition against
1

foreclosure attaches as soon as a petition for rehabilitation is filed. Were it otherwise, what is to
prevent the [creditors] from delaying the creation of the Management Committee and in the
meantime [seizing] all [the debtor's] assets. The sooner the SEC takes over and imposes a freeze on
all the assets, the better for all concerned." 2

Suspension Takes Effect Only Upon

Constitution of Management Committee

A Dissent debunking the quoted ruling was written by the esteemed Justice Florentino P. Feliciano
as follows:

I understand the above quoted portion of the ponencia to be saying that suspension
of actions for claims against the corporation which applies for rehabilitation takes
effect as soon as the application or a petition for rehabilitation is filed with the SEC.

I would point out with respect, that the actual language used in Section 6 (c) and (d)
of P.D. No. 902-A, as amended, does not support the position taken in the ponencia.
The pertinent provision of Section 6 (c) is as follows:
 Sec. 6. In order to effectively exercise such jurisdiction, the
commission shall possess the following powers:

xxx xxx xxx

c) To appoint one or more receivers of the property, real and

personal, which is the subject of the action pending before the
Commission in accordance with the pertinent provisions of the Rules
of Court in such cases whenever necessary to preserve the rights of
the parties-litigants to and/or protect the interest of the investing
public and creditors; Provided, however, That the Commission may,
in appropriate cases, appoint a rehabilitation receiver of corporations,
partnerships or other associations not supervised or regulated by
other government agencies who shall have, in addition to the powers
of a regular receiver under the provisions of the Rules of Court, such
functions and powers as are provided for in the succeeding
paragraph (d) hereof; Provided, further, that the Commission may
appoint a rehabilitation receiver of corporations, partnerships or other
associations supervised or regulated by other government agencies,
such as banks and insurance companies, upon request of the
government agency concerned; Provided, finally, that upon
appointment of a management committee, rehabilitation receiver,
board or body pursuant to this Decree, all actions for claims against
corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body shall
be suspended accordingly.

It should be pointed out that the appointment of a management committee or a

rehabilitation receiver is not ordinarily effected immediately upon the filing of an
application for suspension of payments and for rehabilitation. The reason is that the
SEC must first determine whether the jurisdictional requirements for the appointment
of a management committee are present. There are at least two (2) sets of
requirements: (a) the requirements in respect of the petition for declaration of
suspension of payments; and (b) the requirements concerning the petition for
creation and appointment of a management committee.

xxx xxx xxx

As already noted, SEC took just about six (6) months after the filing of the petition of
B.F. Homes to decide to create and appoint a management committee. Only upon
such appointment of the management committee did the proviso in Section 6 (c)
which decrees suspension of actions for claims against the petitioning corporation
take effect.

It is only then that the SEC determines that the circumstances warranting, under the
statute, the appointment of a management committee do exist, i.e., that there is
"imminent danger of dissipation, loss, wastage or destruction of assets — or
paralization of business operations — which [would] be prejudicial to the interest of
minority stockholders, parties litigant or the general public." Only when such
circumstances have been determined to exist is there justification for suspending
actions for claims against the corporation so placed under SEC management. The
authority of the SEC to suspend or freeze the judicial enforcement of claims against
a corporation is an extraordinary authority, most especially where credits secured by
specific liens on property, like real estate mortgages, are involved; such authority
cannot lightly be assumed to have arisen simply because the corporation on its own
initiative goes to the SEC and there seeks shelter from its lawful creditors. 3

The foregoing Dissent found jural expression in a later case, Barotac Sugar Mills, Inc. v. Court of
Appeals, penned by then Associate, now Chief Justice Hilario G. Davide Jr.:
4

The appointment of a management committee or rehabilitation receiver may only

take place after the filing with the SEC of an appropriate petition for suspension of
payments. This is clear from a reading of sub-paragraph (d) of Section 5 and sub-
paragraph (d) of Section 6 P.D. No. 902-A, as amended by P.D. Nos. 1653 and 1758
....

xxx xxx xxx

 The conclusion then is inevitable that pursuant to the underscored proviso in sub-
paragraph (c) of the aforementioned Section 6, taken together with sub-paragraph
(d) of Section 6, a court action is ipso jure suspended only upon the appointment of a
management committee or a rehabilitation receiver.

As a member of the then First Division which promulgated Barotac, I concurred in the aforequoted
ruling. To repeat, Barotac and Justice Feliciano's Dissent are clearly supported by Section 6,
paragraph (c) of presidential Decree 902-A. It is basic in statutory construction that in the absence of
doubt or ambiguity, there is no necessity for construction or interpretation of the law, as in this case.
Where the law speaks in clear and categorical language, there is no room for interpretation. There is
only room for application. 5

SEC Retains Power to

Issue Injunctive Relief

Left unsaid in RCBC, Barotac and even in the present Resolution, however, is the existence of two
competing economic interests in the determination of the issue. On the one hand, there is the
creditor; on the other, the corporation and its stockholders. Under the RCBC ponencia of Justice
Medialdea, an unscrupulous company can seek shelter in a petition for suspension of payments in
order to evade or at least unfairly delay the payment of just obligations. This course of action would
clearly prejudice its creditors, who would be barred from judicially enforcing their rightful claims,
simply because a petition for suspension has been filed. Indeed, to paraphrase Justice Medialdea,
what is to prevent the debtor from delaying the creation of the management committee, in the
meantime dissipating all its assets?

On the other hand, if the bare ruling of Barotac were to be applied strictly, a distressed company
would be exposed to grave danger that may precipitate its untimely demise, the very evil sought to
be avoided by a suspension of payments. Notably, the appointment of a management committee
takes place only after several months, even years, from submission of the petition. The appointment
entails hearings and the submission of documentary evidence to determine whether the requisites
for suspension of payments have been met. By the time a management committee or receiver is
appointed, creditors, upon knowledge of the application for suspension of payments, will have
feasted on the distressed corporation.

Money lenders will demand satisfaction of their credits by precipitately foreclosing on their
mortgages. Particularly vulnerable are liquid assets which can be attached and rendered useless.
Payrolls will be frozen and suppliers will lose faith in the company. Verily, the distressed company's
credit standing would be zero-rated. Indeed, after the vultures' feast, the remaining corporate
carcass can no longer be resurrected into a viable enterprise. When this happens, there will be no
more company left to rehabilitate, thus rendering ineffectual the very law which was enacted
precisely to effect such rehabilitation. In the business world, bridge liquidity and credit are sometimes
even more important than profits.

The prudent way to avoid the disastrous consequence of a strict application of said law is to call
attention to the power of the SEC to issue injunctive reliefs. Herein movant (RCBC) raises the issue
of the validity of the restraining order and the writ of preliminary injunction later issued by the
Securities and Exchange Commission (SEC) prior to the appointment of the management
committee. It contends that the issuance of the injunctive reliefs effectively results, the suspension of
actions against the petitioning distressed corporation.

Movant is thus saying that the SEC has no jurisdiction to issue injunctive reliefs in favor of the
distressed corporation petitioning for suspension of payments prior to the appointment of a
management committee I disagree.

Sec. 5(d) of PD 902-A clearly enumerates the cases over which the SEC has original and exclusive
jurisdiction to hear and decide:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and decrees,
it shall have original and exclusive jurisdiction to hear and decide cases involving:

xxx xxx xxx

d) Petitions of corporations, partnerships or associations to be declared in the state

of suspension of payments in cases where the corporation, partnership or
association possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the
 corporation, partnership or association has no sufficient assets to cover its liabilities,
but is under the management of a Rehabilitation Receiver or Management
Committee created pursuant to this Decree.

Sec. 6 (a) of said Decree goes on further to say:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall

possess the following powers:

a) To issue preliminary or permanent injunctions, whether prohibitory or mandatory,

in all cases in which it has jurisdiction, and in which cases the pertinent provisions of
the Rules of Court shall apply;

xxx xxx xxx

Thus, it is obvious from the above-quoted provisions that the SEC acquires jurisdiction over the
distressed companies upon the submission of a petition for suspension of payments. And when the
legal requirements are complied with, it has the authority to issue injunctive reliefs for the effective
exercise of its jurisdiction. I would like to emphasize that this power to issue restraining orders or
preliminary injunctions, upon the prayer of the petitioning corporation, may be the only buffer that
could save a company from being feasted on by any vulture-creditor prior to the appointment of a
management committee or a rehabilitation receiver.

WHEREFORE, I vote to GRANT the Motion for Reconsideration, subject to the caveat that the
Securities and Exchange Commission, in meritorious cases, may issue injunctive reliefs.
 EN BANC

G.R. No. 138298 November 29, 2000

RAOUL B. DEL MAR, petitioner,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, BELLE JAI-ALAI CORPORATION,
FILIPINAS GAMING ENTERTAINMENT TOTALIZATOR CORPORATION, respondents.

x-----------------------x

G.R. No. 138982 November 29, 2000

FEDERICO S. SANDOVAL II and MICHAEL T. DEFENSOR, petitioners,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondent.
JUAN MIGUEL ZUBIRI, intervenor.

DECISION

PUNO, J.:

These two consolidated petitions concern the issue of whether the franchise granted to the
Philippine Amusement and Gaming Corporation (PAGCOR) includes the right to manage and
operate jai-alai.

First, we scour the significant facts. The Philippine Amusement and Gaming Corporation is a
government-owned and controlled corporation organized and existing under Presidential Decree No.
1869 which was enacted on July 11, 1983. Pursuant to Sections 1 and 10 of P.D. No. 1869,
respondent PAGCOR requested for legal advice from the Secretary of Justice as to whether or not it
is authorized by its Charter to operate and manage jai-alai frontons in the country. In its Opinion No.
67, Series of 1996 dated July 15, 1996, the Secretary of Justice opined that "the authority of
PAGCOR to operate and maintain games of chance or gambling extends to jai-alai which is a form
of sport or game played for bets and that the Charter of PAGCOR amounts to a legislative
franchise for the purpose." Similar favorable opinions were received by PAGCOR from the Office of
1

the Solicitor General per its letter dated June 3, 1996 and the Office of the Government Corporate
Counsel under its Opinion No. 150 dated June 14, 1996. Thus, PAGCOR started the operation of
2

jai-alai frontons.

On May 6, 1999, petitioner Raoul B. del Mar initially filed in G.R. No. 138298 a Petition for
Prohibition to prevent respondent PAGCOR from managing and/or operating the jai-alai or Basque
pelota games, by itself or in agreement with Belle Corporation, on the ground that the controverted
act is patently illegal and devoid of any basis either from the Constitution or PAGCOR’s own Charter.

However, on June 17, 1999, respondent PAGCOR entered into an Agreement with private
respondents Belle Jai Alai Corporation (BELLE) and Filipinas Gaming Entertainment Totalizator
Corporation (FILGAME) wherein it was agreed that BELLE will make available to PAGCOR the
required infrastructure facilities including the main fronton, as well as provide the needed funding for
jai-alai operations with no financial outlay from PAGCOR, while PAGCOR handles the actual
management and operation of jai-alai. 3

Thus, on August 10, 1999, petitioner Del Mar filed a Supplemental Petition for
Certiorari questioning the validity of said Agreement on the ground that PAGCOR is without
jurisdiction, legislative franchise, authority or power to enter into such Agreement for the opening,
establishment, operation, control and management of jai-alai games.
A little earlier, or on July 1, 1999, petitioners Federico S. Sandoval II and Michael T. Defensor filed
a Petition for Injunction, docketed as G.R. No. 138982, which seeks to enjoin respondent
PAGCOR from operating or otherwise managing the jai-alai or Basque pelota games by itself or in
joint venture with Belle Corporation, for being patently illegal, having no basis in the law or the
Constitution, and in usurpation of the authority that properly pertains to the legislative branch of the
government. In this case, a Petition in Intervention was filed by Juan Miguel Zubiri alleging that the
operation by PAGCOR of jai-alai is illegal because it is not included in the scope of PAGCOR’s
franchise which covers only games of chance.

Petitioners Raoul B. del Mar, Federico S. Sandoval II, Michael T. Defensor, and intervenor Juan
Miguel Zubiri, are suing as taxpayers and in their capacity as members of the House of
Representatives representing the First District of Cebu City, the Lone Congressional District of
Malabon-Navotas, the Third Congressional District of Quezon City, and the Third Congressional
District of Bukidnon, respectively.

The bedrock issues spawned by the petitions at bar are:

G.R. No. 138298

Petitioner Del Mar raises the following issues:

I. The respondent PAGCOR has no jurisdiction or legislative franchise or acted with grave
abuse of discretion, tantamount to lack or excess of jurisdiction, in arrogating unto itself the
authority or power to open, pursue, conduct, operate, control and manage jai-alai game
operations in the country.

II. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x in executing its

agreement with co-respondents Belle and Filgame for the conduct and management of jai-
alai game operations, upon undue reliance on an opinion of the Secretary of Justice.

III. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x in entering into a

partnership, joint venture or business arrangement with its co-respondents Belle and
Filgame, through their agreement x x x. The Agreement was entered into through manifest
partiality and evident bad faith (Sec. 3 (e), RA 3019), thus manifestly and grossly
disadvantageous to the government [Anti-Graft and Corrupt Practices Act, RA 3019, Sec. 3
(g)].

IV. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to award to its

co-respondents Belle and Filgame the right to avail of the tax benefits which, by law, inures
solely and exclusively to PAGCOR itself.

V. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to cause the

disbursement of funds for the illegal establishment, management and operation of jai-alai
game operations.

VI. x x x Respondent PAGCOR has equally no jurisdiction or authority x x x to award or grant

authority for the establishment, management and operation of off-fronton betting stations or
bookies.

VII. The respondent PAGCOR has no jurisdiction or authority x x x in awarding unto its co-
respondents Belle and Filgame, without public bidding, the subject agreement.

In defense, private respondents BELLE and FILGAME assert:

1. The petition states no cause of action and must be dismissed outright;

2. The petitioner has no cause of action against the respondents, he not being a real party in
interest;

3. The instant petition cannot be maintained as a taxpayer suit, there being no illegal
disbursement of public funds involved;

4. The instant petition is essentially an action for quo warranto and may only be commenced
by the Solicitor General;

5. The operation of jai-alai is well within PAGCOR’s authority to operate and maintain.
PAGCOR’s franchise is intended to be wide in its coverage, the underlying considerations
being, that: (1) the franchise must be used to integrate all gambling operations in one
 corporate entity (i.e. PAGCOR); and (2) it must be used to generate funds for the
government to support its social impact projects;

6. The agreement executed by, between and among PAGCOR, BJAC and FILGAME is
outside the coverage of existing laws requiring public bidding.

Substantially the same defenses were raised by respondent PAGCOR in its Comment.

G.R. No. 138982

Petitioners contend that:

I. The operation of jai-alai games by PAGCOR is illegal in that:

1) the franchise of PAGCOR does not include the operation of jai-alai since jai-alai is a prohibited
activity under the Revised Penal Code, as amended by P.D. No. 1602 which is otherwise known as
the Anti-Gambling Law;

2) jai-alai is not a game of chance and therefore cannot be the subject of a PAGCOR franchise.

II. A franchise is a special privilege that should be construed strictly against the grantee.

III. To allow PAGCOR to operate jai-alai under its charter is tantamount to a license to PAGCOR to
legalize and operate any gambling activity.

In its Comment, respondent PAGCOR avers that:

1. An action for injunction is not among the cases or proceedings originally cognizable by the
Honorable Supreme Court, pursuant to Section 1, Rule 56 of the 1997 Rules of Civil
Procedure.

2. Assuming, arguendo, the Honorable Supreme Court has jurisdiction over the petition, the
petition should be dismissed for failure of petitioners to observe the doctrine on hierarchy of
courts.

3. x x x Petitioners have no legal standing to file a taxpayer’s suit based on their cause of
action nor are they the real parties-in-interest entitled to the avails of the suit.

4. Respondent’s franchise definitely includes the operation of jai-alai.

5. Petitioners have no right in esse to be entitled to a temporary restraining order and/or to

be protected by a writ of preliminary injunction.

The Solicitor General claims that the petition, which is actually an action for quo warranto under
Rule 66 of the Rules of Court, against an alleged usurpation by PAGCOR of a franchise to operate
jai alai, should be dismissed outright because only the Solicitor General or public prosecutor can file
the same; that P.D. No. 1869, the Charter of PAGCOR, authorizes PAGCOR to regulate and
operate games of chance and skill which include jai-alai; and that P.D. No. 1602 did not outlaw jai-
alai but merely provided for stiffer penalties to illegal or unauthorized activities related to jai-alai and
other forms of gambling.

We shall first rule on the important procedural issues raised by the respondents.

Respondents in G.R. No. 138982 contend that the Court has no jurisdiction to take original
cognizance of a petition for injunction because it is not one of those actions specifically mentioned in
Section 1 of Rule 56 of the 1997 Rules of Civil Procedure. Moreover, they urge that the petition
should be dismissed for failure of petitioners to observe the doctrine on hierarchy of courts.

It is axiomatic that what determines the nature of an action and hence, the jurisdiction of the court,
are the allegations of the pleading and the character of the relief sought. A cursory perusal of the
4

petition filed in G.R. No. 138982 will show that it is actually one for Prohibition under Section 2 of
Rule 65 for it seeks to prevent PAGCOR from managing, maintaining and operating jai-alai games.
Even assuming, arguendo, that it is an action for injunction, this Court has the discretionary power to
take cognizance of the petition at bar if compelling reasons, or the nature and importance of the
issues raised, warrant the immediate exercise of its jurisdiction. It cannot be gainsaid that the issues
5

raised in the present petitions have generated an oasis of concern, even days of disquiet in view of
the public interest at stake. In Tano, et al. vs. Socrates, et al., this Court did not hesitate to treat a
6

petition for certiorari and injunction as a special civil action for certiorari and prohibition to resolve an
issue of far-reaching impact to our people. This is in consonance with our case law now accorded
near religious reverence that rules of procedure are but tools designed to facilitate the attainment of
justice such that when its rigid application tends to frustrate rather than promote substantial justice,
this Court has the duty to suspend their operation. 7

Respondents also assail the locus standi or the standing of petitioners to file the petitions at bar as
taxpayers and as legislators. First, they allege that petitioners have no legal standing to file a
taxpayer’s suit because the operation of jai-alai does not involve the disbursement of public funds.

Respondents' stance is not without oven ready legal support. A party suing as a taxpayer must
specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised
by taxation. In essence, taxpayers are allowed to sue where there is a claim of illegal disbursement
8

of public funds, or that public money is being deflected to any improper purpose, or where
9 10

petitioners seek to restrain respondent from wasting public funds through the enforcement of an
invalid or unconstitutional law. 11

In the petitions at bar, the Agreement entered into between PAGCOR and private respondents
BELLE and FILGAME will show that all financial outlay or capital expenditure for the operation of jai-
alai games shall be provided for by the latter. Thus, the Agreement provides, among others, that:
PAGCOR shall manage, operate and control the jai-alai operation at no cost or financial risk to it
(Sec. 1[A][1]); BELLE shall provide funds, at no cost to PAGCOR, for all capital expenditures (Sec.
1[B][1]); BELLE shall make available to PAGCOR, at no cost to PAGCOR, the use of the integrated
nationwide network of on-line computerized systems (Sec. 1[B][2]); FILGAME shall make available
for use of PAGCOR on a rent-free basis the jai-alai fronton facilities (Sec. 1 [C][1]); BELLE &
FILGAME jointly undertake to provide funds, at no cost to PAGCOR, for pre-operating expenses and
working capital (Sec. 1 [D][1]); and that BELLE & FILGAME will provide PAGCOR with goodwill
money in the amount of ₱ 200 million (Sec. 1 [D][2]). In fine, the record is barren of evidence that the
operation and management of jai-alai by the PAGCOR involves expenditure of public money.

Be that as it may, in line with the liberal policy of this Court on locus standi when a case involves an
issue of overarching significance to our society, we find and so hold that as members of the House
12

of Representatives, petitioners have legal standing to file the petitions at bar. In the instant cases,
petitioners complain that the operation of jai-alai constitutes an infringement by PAGCOR of the
legislature’s exclusive power to grant franchise. To the extent the powers of Congress are impaired,
so is the power of each member thereof, since his office confers a right to participate in the exercise
of the powers of that institution, so petitioners contend. The contention commands our concurrence
for it is now settled that a member of the House of Representatives has standing to maintain
inviolate the prerogatives, powers and privileges vested by the Constitution in his office. As
13

presciently stressed in the case of Kilosbayan, Inc., viz:

"We find the instant petition to be of transcendental importance to the public. The issues it raised are
of paramount public interest and of a category even higher than those involved in many of the
aforecited cases. The ramifications of such issues immeasurably affect the social, economic, and
moral well-being of the people even in the remotest barangays of the country and the counter-
productive and retrogressive effects of the envisioned on-line lottery system are as staggering as the
billions in pesos it is expected to raise. The legal standing then of the petitioners deserves
recognition x x x."

After hurdling the threshold procedural issues, we now come to the decisive substantive issue of
whether PAGCOR's legislative franchise includes the right to manage and operate jai-alai. The 14

issue is of supreme significance for its incorrect resolution can dangerously diminish the plenary
legislative power of Congress, more especially its exercise of police power to protect the morality of
our people. After a circumspect consideration of the clashing positions of the parties, we hold that
the charter of PAGCOR does not give it any franchise to operate and manage jai-alai.

FIRST. A "franchise" is a special privilege conferred upon a corporation or individual by a

government duly empowered legally to grant it. It is a privilege of public concern which cannot be
15

exercised at will and pleasure, but should be reserved for public control and administration, either
by the government directly, or by public agents, under such conditions and regulations as the
government may impose on them in the interest of the public. A franchise thus emanates from a
16

sovereign power and the grant is inherently a legislative power. It may, however, be
17

derived indirectly from the state through an agency to which the power has been clearly and
validly delegated. In such cases, Congress prescribes the conditions on which the grant of a
18

franchise may be made. Thus, the manner of granting the franchise, to whom it may be granted,
19

the mode of conducting the business, the character and quality of the service to be rendered and
the duty of the grantee to the public in exercising the franchise are almost always defined in clear
and unequivocal language. In the absence of these defining terms, any claim to a legislative
franchise to operate a game played for bets and denounced as a menace to morality ought to
be rejected.
SECOND. A historical study of the creation, growth and development of PAGCOR will readily show
that it was never given a legislative franchise to operate jai-alai.

(2.a) Before the creation of PAGCOR, a 25-year right to operate jai-alai in Manila was given by
President Marcos to the Philippine Jai-Alai and Amusement Corporation then controlled by his
in-laws, the Romualdez family. The franchise was granted on October 16, 1975 thru P.D. No.
810 issued by President Marcos in the exercise of his martial law powers. On that very date, the
25-year franchise of the prior grantee expired and was not renewed. A few months before, President
Marcos had issued P.D. No. 771 dated August 20, 1975, revoking the authority of local government
units to issue jai-alai franchises. By these acts, the former President exercised complete control of
the sovereign power to grant franchises.

(2.b) Almost one year and a half after granting the Philippine Jai-Alai and Amusement Corporation
a 25-year franchise to operate jai-alai in Manila, President Marcos created PAGCOR on January 1,
1977 by issuing P.D. No. 1067-A. The decree is entitled "Creating the Philippine Amusements and
Gaming Corporation, Defining Its Powers and Functions, Providing Funds therefor and for Other
Purposes." Its Declaration of Policy trumpeted the intent that PAGCOR was created to implement
20

"the policy of the State to centralize and integrate all games of chance not heretofore authorized
by existing franchises or permitted by law x x x." One of its whereas clauses referred to the need
to prevent "the proliferation of illegal casinos or clubs conducting games of chance x x x." To
21

achieve this objective, PAGCOR was empowered "to establish and maintain clubs, casinos,
branches, agencies or subsidiaries, or other units anywhere in the Philippines x x x." 22

(2.c) On the same day after creating PAGCOR, President Marcos issued P.D. No. 1067-B granting
PAGCOR "x x x a Franchise to Establish, Operate, and Maintain Gambling Casinos on Land or
Water Within the Territorial Jurisdiction of the Republic of the Philippines." Obviously, P.D. No.
1067-A which created the PAGCOR is not a grant of franchise to operate the game of jai-alai. On the
other hand, Section 1 of P.D. No. 1067-B provides the nature and term of PAGCOR’S franchise to
maintain gambling casinos (not a franchise to operate jai-alai), viz:

"SECTION 1. NATURE AND TERM OF FRANCHISE. – Subject to the terms and conditions
established in this Decree, the Philippine Amusements and Gaming Corporation is hereby granted
for a period of twenty-five (25) years, renewable for another 25 years, the right, privilege, and
authority to operate and maintain gambling casinos, clubs and other recreation or amusement
places, sports, gaming pools, i.e., basketball, football, etc., whether on land or sea, within the
territorial jurisdiction of the Republic of the Philippines."

Section 2 of the same decree spells out the scope of the PAGCOR franchise to maintain
gambling casinos (not a franchise to operate jai-alai), viz:

"SEC. 2. SCOPE OF FRANCHISE. – In addition to the right and privileges granted it under Sec. 1,
this Franchise shall entitle the franchise holder to do and undertake the following:

(1) Enter into operator’s and/or management contracts with duly registered and accredited
company possessing the knowledge, skill, expertise and facilities to insure the efficient
operation of gambling casinos; Provided, That the service fees of such management and/or
operator companies whose services may be retained by the franchise holder of this
Franchise shall not in the aggregate exceed ten (10%) percent of the gross income.

(2) Purchase foreign exchange that may be required for the importation of equipment,
facilities and other gambling paraphernalia indispensably needed or useful to insure the
successful operation of gambling casinos.

(3) Acquire the right of way, access to or thru public lands, public waters or harbors,
including the Manila Bay Area; such right to include, but not limited to, the right to lease
and/or purchase public lands, government reclaimed lands, as well as land of private
ownership or those leased from the government. This right shall carry with it the privilege of
the franchise holder to utilize piers, quays, boat landings, and such other pertinent and
related facilities within these specified areas for use as landing, anchoring, or berthing sites
in connection with its authorized casino operations.

(4) Build or construct structures, buildings, coastways, piers, docks, as well as any other
form of land and berthing facilities for its floating casinos.

(5) To do and perform such other acts directly related to the efficient and successful
operation and conduct of games of chance in accordance with existing laws and decrees."

(2.d) Still on the day after creating PAGCOR, President Marcos issued P.D. No.
1067-C amending P.D. Nos. 1067-A and B. The amendment provides
 that PAGCOR’s franchise to maintain gambling casinos "x x x shall
become exclusive in character, subject only to the exception of existing
franchises and games of chance heretofore permitted by law, upon the generation
by the franchise holder of gross revenues amounting to ₱1.2 billion and its
contribution therefrom of the amount of ₱720 million as the government’s share."

(2.e) On June 2, 1978, President Marcos issued P.D. No. 1399 amending P.D. Nos.
1067-A and 1067-B. The amendments did not change the nature and scope of
the PAGCOR franchise to maintain gambling casinos. Rather, they referred to
the Composition of the Board of Directors, Special Condition of
23

Franchise, Exemptions, and Other Conditions.

24 25 26

(2.f) On August 13, 1979, President Marcos issued P.D. No. 1632. Again, the
amendments did not change a comma on the nature and scope of PAGCOR’s
franchise to maintain gambling casinos. They related to the allocation of the 60%
share of the government where the host area is a city or municipality other than
Metro Manila, and the manner of payment of franchise tax of PAGCOR.
27 28

(2.g) On July 11, 1983, President Marcos issued P.D. No. 1869 entitled
"Consolidating and Amending P.D. Nos. 1067-A, 1067-B, 1067-C, 1399 and 1632
Relative to the Franchise and Power of the PAGCOR." As a consolidated decree, it
reiterated the nature and scope of PAGCOR’s existing franchise to maintain
gambling casinos (not a franchise to operate jai-alai), thus:

"SEC. 10. Nature and term of franchise. – Subject to the terms and conditions established in this
Decree, the Corporation is hereby granted for a period of twenty-five (25) years, renewable for
another twenty-five (25) years, the rights, privilege and authority to operate and maintain gambling
casinos, clubs, and other recreation or amusement places, sports, gaming pools, i.e. basketball,
football, lotteries, etc., whether on land or sea, within the territorial jurisdiction of the Republic of the
Philippines.

SEC. 11. Scope of Franchise. – In addition to the rights and privileges granted it under the
preceding Section, this Franchise shall entitle the corporation to do and undertake the following:

(1) Enter into operating and/or management contracts with any registered and accredited
company possessing the knowledge, skill, expertise and facilities to insure the efficient
operation of gambling casinos; provided, that the service fees of such management and/or
operator companies whose services may be retained by the Corporation shall not in the
aggregate exceed ten (10%) percent of the gross income;

(2) Purchase foreign exchange that may be required for the importation of equipment,
facilities and other gambling paraphernalia indispensably needed or useful to insure the
successful operation of gambling casinos;

(3) Acquire the right of way or access to or thru public land, public waters or harbors,
including the Manila Bay Area; such right shall include, but not be limited to, the right to lease
and/or purchase public lands, government reclaimed lands, as well as lands of private
ownership or those leased from the Government. This right shall carry with it the privilege of
the Corporation to utilize piers, quays, boat landings, and such other pertinent and related
facilities within these specified areas for use as landing, anchoring or berthing sites in
connection with its authorized casino operations;

(4) Build or construct structures, buildings, castways, piers, decks, as well as any other form
of landing and boarding facilities for its floating casinos; and

(5) To do and perform such other acts directly related to the efficient and successful
operation and conduct of games of chance in accordance with existing laws and decrees."

(2.h) Then came the 1986 EDSA revolution and the end of the Marcos regime. On May 8,
1987, President Corazon Aquino issued Executive Order No. 169 repealing P.D. Nos. 810, 1124
and 1966 thus revoking the franchise of the Philippine Jai-Alai and Amusement Corporation
controlled by the Romualdezes to operate jai-alai in Manila. PAGCOR’s franchise to operate
gambling casinos was not revoked. Neither was it given a franchise to operate jai-alai.

THIRD. In light of its legal history, we hold that PAGCOR cannot maintain that section 10 of P.D.
No. 1869 grants it a franchise to operate jai-alai. Section 10 provides:

"SEC. 10 Nature and term of franchise. – Subject to the terms and conditions established in this
Decree, the Corporation is hereby granted for a period of twenty-five (25) years, renewable for
another twenty-five (25) years, the rights, privilege and authority to operate and maintain gambling
casinos, clubs, and other recreation or amusement places, sports, gaming pools, i.e., basketball,
football, lotteries, etc., whether on land or sea, within the territorial jurisdiction of the Republic of the
Philippines."

(3.a) P.D. No. 1869 is a mere consolidation of previous decrees dealing with PAGCOR. PAGCOR
cannot seek comfort in section 10 as it is not a new provision in P.D. No. 1869 and, from the
beginning of its history, was never meant to confer it with a franchise to operate jai-alai. It is
a reiteration of section 1 of P.D. No. 1067-B which provides:

"SECTION 1. Nature and Term of Franchise. – Subject to the terms and conditions established in
this Decree, the Philippine Amusements and Gaming Corporation is hereby granted for a period of
twenty-five (25) years, renewable for another 25 years, the right, privilege, and authority to operate
and maintain gambling casinos, clubs and other recreation or amusement places, sports gaming
pools, i.e., basketball, football, etc., whether on land or sea, within the territorial jurisdiction of the
Republic of the Philippines."

(3.b) Plainly, section 1 of P.D. No. 1067-B which was reenacted as section 10 of P.D. No. 1869 is
not a grant of legislative franchise to operate jai-alai. P.D. No. 1067-B is a franchise to maintain
gambling casinos alone. The two franchises are as different as day and night and no alchemy of
logic will efface their difference.

(3.c) PAGCOR's stance becomes more sterile when we consider the law's intent. It cannot be the
intent of President Marcos to grant PAGCOR a franchise to operate jai-alai because a year and
a half before it was chartered, he issued P.D. No. 810 granting Philippine Jai-Alai and Amusement
Corporation a 25-year franchise to operate jai-alai in Manila. This corporation is controlled by his in-
laws, the Romualdezes. To assure that this Romualdez corporation would have no competition,
29

President Marcos earlier revoked the power of local governments to grant jai-alai franchises.
Thus, PAGCOR’s stance that P.D. No. 1067-B is its franchise to operate jai-alai, which would
have competed with the Romualdezes’ franchise, extends credulity to the limit. Indeed, P.D.
No. 1067-A which created PAGCOR made it crystal clear that it was to implement "the policy of the
State to centralize and integrate all games of chance not heretofore authorized by existing
franchises or permitted by law," which included the Philippine Jai-Alai and Amusement
Corporation.

(3.d) There can be no sliver of doubt that under P.D. No. 1869, PAGCOR’s franchise is only to
operate gambling casinos and not jai-alai. This conclusion is compelled by a plain reading of its
various provisions, viz:

"SECTION 1. Declaration of Policy. - It is hereby declared to be the policy of the State to centralize
and integrate all games of chance not heretofore authorized by existing franchises or permitted by
law in order to attain the following objectives:

xxxxxx

(b) To establish and operate clubs and casinos, for amusement and recreation, including sports,
gaming pools (basketball, football, lotteries, etc.) and such other forms of amusement and recreation
including games of chance, which may be allowed by law within the territorial jurisdiction of the
Philippines and which will: x x x (3) minimize, if not totally eradicate, the evils, malpractices and
corruptions that are normally prevalent in the conduct and operation of gambling clubs and
casinos without direct government involvement.

xxxxxx

TITLE IV – GRANT OF FRANCHISE

SEC. 10. Nature and term of franchise. – Subject to the terms and conditions established in this
Decree, the Corporation is hereby granted for a period of twenty-five (25) years, renewable for
another twenty-five (25) years, the rights, privileges and authority to operate and maintain
gambling casinos, clubs, and other recreation or amusement places, sports, gaming pools, i.e.
basketball, football, lotteries, etc. whether on land or sea, within the territorial jurisdiction of the
Republic of the Philippines.

SEC. 11. Scope of Franchise. – In addition to the rights and privileges granted it under the preceding
Section, this Franchise shall entitle the Corporation to do and undertake the following:

(1) Enter into operating and/or management contracts with any registered and accredited company
possessing the knowledge, skill, expertise and facilities to insure the efficient operation of
gambling casinos; provided, that the service fees of such management and/or operator companies
whose services may be retained by the Corporation shall not in the aggregate exceed ten (10%)
percent of the gross income;

(2) Purchase foreign exchange that may be required for the importation of equipment, facilities and
other gambling paraphernalia indispensably needed or useful to insure the successful operation
of gambling casinos;

(3) Acquire the right of way or access to or thru public land, public waters or harbors x x x. This right
shall carry with it the privilege of the Corporation to utilize x x x such other pertinent and related
facilities within these specified areas x x x in connection with its authorized casino operations;

(4) Build or construct structures, building castways, piers, decks, as well as any other form of landing
and boarding facilities for its floating casinos;

xxxxxx

SEC. 13. Exemptions. –

(1) Customs duties, taxes and other imposts on importations. – All importations of equipment,
vehicles, automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia,
including accessories or related facilities, for the sole and exclusive use of the casinos, the
proper and efficient management and administration thereof, and such other clubs. Recreation or
amusement places to be established under and by virtue of this Franchise shall be exempt from the
payment of all kinds of customs duties, taxes and other imposts, including all kinds of fees, levies, or
charges of any kind or nature, whether National or Local.

Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing
contractual arrangements with the Corporation, for the sole and exclusive use of the casino or to
be used to service the operations and requirements of the casino, shall likewise be totally
exempt from the payment of all customs duties, x x x.

(2) Income and other taxes. – (a) x x x

(b) Others: The exemption herein granted for earnings derived from the operations conducted under
the franchise x x x shall inure to the benefit of and extend to corporation(s) x x x with whom the
Corporation or operator has any contractual relationship in connection with the operations of
the casino(s) authorized to be conducted under this Franchise x x x.

(3) Dividend Income. – x x x The dividend income shall not in such case be considered as part of
beneficiaries’ taxable income; provided, however, that such dividend income shall be totally
exempted from income or other forms of taxes if invested within six (6) months from date the
dividend income is received, in the following:

(a) operation of the casino(s) or investments in any affiliate activity that will ultimately redound to
the benefit of the Corporation or any other corporation with whom the Corporation has any existing
arrangements in connection with or related to the operations of the casino(s);

xxxxxx

(4) Utilization of Foreign Currencies. – The Corporation shall have the right and authority, solely and
exclusively in connection with the operations of the casino(s), to purchase, receive, exchange
and disburse foreign exchange, subject to the following terms and conditions:

(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players
and patrons utilizing foreign currencies;

(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the
Central Bank, to handle, administer and manage the use of foreign currencies in the casino(s);

(c) The Corporation shall provide an office at casino(s) for the employees of the designated bank,
agent of the Central Bank, where the Corporation will maintain a dollar account which will be utilized
exclusively for the above purpose and the casino dollar treasury employees;

xxxxxx

(f) The disbursement, administration, management and recording of foreign exchange currencies
used in the casino(s) shall be carried out in accordance with existing foreign exchange regulations
x x x.
SEC. 14. Other Conditions. –

(1) Place. – The Corporation shall conduct the gambling activities or games of chance on land or
water within the territorial jurisdiction of the Republic of the Philippines. When conducted on water,
the Corporation shall have the right to dock the floating casino(s) in any part of the Philippines
where vessels/boats are authorized to dock under the Customs and Maritime Laws.

(2) Time. – Gambling activities may be held and conducted at anytime of the day or night; provided,
however, that in places where curfew hours are observed, all players and personnel of gambling
casinos shall remain within the premises of the casinos.

(3) Persons allowed to play. – x x x

(4) Persons not allowed to play. -

xxxxxx

From these are excepted the personnel employed by the casinos, special guests, or those who
at the discretion of the Management may be allowed to stay in the premises.

TITLE VI – EXEMPTION FROM CIVIL SERVICE LAW

SEC. 16. Exemption. – All position in the Corporation, whether technical, administrative, professional
or managerial are exempt from the provisions of the Civil Service Law, rules and regulations, and
shall be governed only by the personnel management policies set by the Board of Directors. All
employees of the casinos and related services shall be classified as "Confidential" appointees.

TITLE VII – TRANSITORY PROVISIONS

SEC. 17. Transitory Provisions. – x x x

SEC. 18. Exemption from Labor Laws. – No union or any form of association shall be formed by all
those working as employees of the casino or related services whether directly or indirectly. For
such purpose, all employees of the casinos or related services shall be classified as "confidential"
appointees and their employment thereof, whether by the franchise holder, or the operators, or the
managers, shall be exempt from the provisions of the Labor Code or any implementing rules and
regulations thereof."

From its creation in 1977 and until 1999, PAGCOR never alleged that it has a franchise to
operate jai-alai. Twenty-two years is a long stretch of silence. It is inexplicable why it never
claimed its alleged franchise for so long a time which could have allowed it to earn billions of
pesos as additional income.

(3.e) To be sure, we need not resort to intellectual jujitsu to determine whether PAGCOR has a
franchise to operate jai-alai. It is easy to tell whether there is a legislative grant or not. Known as the
game of a thousand thrills, jai-alai is a different game, hence, the terms and conditions imposed
on a franchisee are spelled out in standard form. A review of some laws and executive orders
granting a franchise to operate jai-alai will demonstrate these standard terms and conditions, viz:

(3.e.1) Commonwealth Act No. 485 (An Act to Permit Bets in the Game of Basque Pelota) – June
18, 1939

"Be it enacted by the National Assembly of the Philippines:

SECTION 1. Any provision of existing law to the contrary notwithstanding, it shall be permissible in
the game of Basque pelota, a game of skill (including the games of pala, raqueta, cestapunta,
remonte and mano), in which professional players participate, to make either direct bets or bets by
means of a totalizer; Provided, That no operator or maintainer of a Basque pelota court shall collect
as commission a fee in excess of twelve per centum on such bets, or twelve per centum of the
receipts of the totalizer, and of such per centum three shall be paid to the Government of the
Philippines, for distribution in equal shares between the General Hospital and the Philippine Anti-
tuberculosis Society.

SEC. 2. Any person, company or corporation, that shall build a court for Basque pelota games with
bets within eighteen months from the date of the approval of this Act, shall thereunder have the
privilege to maintain and operate the said court for a term of twenty-five years from the date in which
the first game with bets shall have taken place. At the expiration of the said term of twenty-five
years, the buildings and the land on which the court and the stadium shall be established, shall
become the property of the Government of the Philippines, without payment.

SEC. 3. The location and design of the buildings that shall be used for the same games of Basque
pelota, shall have prior approval of the Bureau of Public Works and the operator shall pay a license
fee of five hundred pesos a year to the city or municipality in which the establishment shall be
situated, in addition to the real-estate tax due on such real property.

SEC. 4. This Act shall take effect upon its approval.

ENACTED, without Executive approval, June 18, 1939."

(3.e.2) Executive Order No. 135 (Regulating the Establishment, Maintenance and Operation of
Frontons and Basque Pelota Games [Jai Alai]) – May 4, 1948

"By virtue of the powers vested in me by Commonwealth Act No. 601, entitled An Act to regulate the
establishment, maintenance and operation of places of amusements in chartered cities,
municipalities and municipal districts, the following rules and regulations governing frontons and
basque pelota games are hereby promulgated:

SECTION 1. Definitions. – Whenever used in this Order and unless the context indicates a different
meaning, the following terms shall bear the meaning indicated herein:

(a) ‘Basque pelota game’ shall include the pelota game with the use of pala, raqueta, cesta punta,
remonte and mano, in which professional players participate.

(b) ‘Fronton’ comprises the court where basque pelota games are played, inlcuding the adjoining
structures used in connection with such games, such as the betting booths and galleries, totalizator
equipment, and the grandstands where the public is admitted in connection with such games.

(c) ‘Pelotari’ is a professional player engaged in playing basque pelota.

(d) ‘Professional player’ is one who plays for compensation.

SEC. 2. Supervision over the establishment and operation of frontons and basque pelota games. –
Subject to the administrative control and supervision of the Secretary of the Interior, city or municipal
mayors shall exercise supervision over the establishment, maintenance and operation of frontons
and basque pelota games within their respective territorial jurisdiction, as well as over the officials
and employees of such frontons and shall see to it that all laws, orders and regulations relating to
such establishments are duly enforced. Subject to similar approval, they shall appoint such
personnel as may be needed in the discharge of their duties and fix their compensation which shall
be paid out of the allotment of one-half per centum (1/2%) out of the total bets or wager funds set
aside and made available for the purpose in accordance with Section 19 hereof. The Secretary of
the Interior shall have the power to prohibit or allow the operation of such frontons on any day or
days, or modify their hour of operation and to prescribe additional rules and regulations governing
the same.

SEC. 3. Particular duties of city or municipal mayors regarding operation of basque pelota games
and frontons. – In connection with their duty to enforce the laws, orders, rules and regulations
relating to frontons and basque pelota games, the city or municipal mayor shall require that such
frontons shall be properly constructed and maintained in accordance with the provisions of
Commonwealth Act No. 485; shall see that the proper sanitary accommodations are provided in the
grandstands and other structures comprising such frontons; and shall require that such frontons be
provided with a properly equipped clinic for the treatment of injuries to the pelotaris.

SEC. 4. Permits. – In the absence of a legislative franchise, it shall be unlawful for any person or
entity to establish and/or operate frontons and conduct basque pelota games without a permit issued
by the corresponding city or municipal mayor, with the approval of the provincial governor in the
latter case. Any permit issued hereunder shall be reported by the provincial governor or city mayor,
as the case may be, to the Secretary of the Interior.

SEC. 5. License fees. – The following license fees shall be paid:

(a) For each basque pelota fronton, five hundred pesos (P500) annually, or one hundred and twenty-
five pesos (P125) quarterly.

(b) For pelotaris, judges or referees and superintendents (intendentes) of basque pelota games,
eighteen pesos (P18) each annually.
The above license fees shall accrue to the funds of the city or municipality where the fronton is
operated.

SEC. 6. Location. – Except in the case of any basque pelota fronton licensed as of December 8,
1941, no basque pelota fronton shall be maintained or operated within a radius of 200 lineal meters
from any city hall or municipal building, provincial capitol building, national capitol building, public
playa or park, public school, church, hospital, athletic stadium, or any institution of learning or
charity.

SEC. 7. Buildings, sanitary and parking requirements. – No permit or license for the construction or
operation of a basque pelota fronton shall be issued without proper certificate of the provincial or city
engineer and architect certifying to the suitability and safety of the building and of the district or city
health officer certifying to the sanitary condition of said building. The city or municipal mayor may, in
his discretion and as circumstances may warrant, require that the fronton be provided with sufficient
space for parking so that the public roads and highways be not used for such purposes.

SEC. 8. Protest and complaint. – Any person who believes that any basque pelota fronton is located
or established in any place not authorized herein or is being operated in violation of any provision of
this order may file a protest or complaint with the city or municipal mayor concerned, and after
proper investigation of such complaint the city or municipal mayor may take such action as he may
consider necessary in accordance with the provisions of section 10 hereof. Any decision rendered
on the matter by the city or municipal mayor shall be appealable to the Secretary of the Interior.

SEC. 9. Persons prohibited admission. – Persons under 16 years of age, persons carrying firearms
or deadly weapons of any description, except government officials actually performing their official
duties therein, intoxicated persons, and persons of disorderly nature and conduct who are apt to
disturb peace and order, shall not be admitted or allowed in any basque pelota fronton: Provided,
That persons under 16 years of age may, when accompanied by their parents or guardians, be
admitted therein but in no case shall such minors be allowed to bet.

SEC. 10. Gambling prohibited. – No card games or any of the prohibited games shall be permitted
within the premises of any basque pelota fronton; and upon satisfactory evidence that the operator
or entity conducting the game has tolerated the existence of any prohibited game within its premises,
the city or municipal mayor may take the necessary action in accordance with the provisions of
section 11 hereof.

SEC. 11. Revocation or suspension of permits and licenses. – The city or municipal mayor, subject
to the approval of the Secretary of the Interior, may suspend or revoke any license granted under
this Order to any basque pelota fronton or to any official or employee thereof, for violation of any of
the rules and regulations provided in this Order or those which said city or municipal mayor may
prescribe, or for any just cause. Such suspension or revocation shall operate to forfeit to the city or
municipality concerned all sums paid therefor.

SEC. 12. Appeals. – Any action taken by the city or municipal mayor under the provisions of this
Order shall stand, unless modified or revoked by the Secretary of the Interior.

SEC. 13. Books, records and accounts. – The city or municipal mayor, or his duly authorized
representative, shall have the power to inspect at all times the books, records, and accounts of any
basque pelota fronton. He may, in his discretion and as the circumstances may warrant, require that
the books and financial or other statements of the person or entity operating the game be kept in
such manner as he may prescribe.

SEC. 14. Days and hours of operation. – Except as may otherwise be provided herein, basque
pelota games with betting shall be allowed every day, excepting Sundays, from 2 o’clock p.m. to not
later than 11 o’clock p.m.

SEC. 15. Pelotaris, judges, referees, etc. shall be licensed. – No person or entity operating a basque
pelota fronton, wherein games are played with betting, shall employ any pelotari, judge or referee,
superintendent of games (intendente), or any other official whose duties are connected with the
operation or supervision of the games, unless such person has been duly licensed by the city or
municipal mayor concerned. Such license shall be granted upon satisfactory proof that the applicant
is in good health, know the rules and usages of the game, and is a person of good moral character
and of undoubted honesty. In the case of pelotaris, such license shall be granted only upon the
further condition that they are able to play the game with reasonable skill and with safety to
themselves and to their opponents. The city or municipal mayor may further require other
reasonable qualifications for applicants to a license, not otherwise provided herein. Such license
shall be obtained yearly.
SEC. 16. Installation of automatic electric totalizator. – Any person or entity operating a fronton
wherein betting in any form is allowed shall install in its premises within the period of one year from
the date this Order takes effect, an automatic electrically operated indicator system and ticket selling
machine, commonly known as totalizator, which shall clearly record each ticket purchased on every
player in any game, the total number of tickets sold on each event, as well as the dividends that
correspond to holders of winning numbers. This requirement shall, however, not apply to double
events or forecast pools or to any betting made on the basis of a combination or grouping of players
until a totalizator that can register such bets has been invented and placed on the market.

SEC. 17. Supervision over sale of betting tickets and payment of dividends. – For the purpose of
verifying the accuracy of reports in connection with the sale of betting tickets and the computation of
dividends awarded to winners on each event, as well as other statements with reference to the
betting in the games played, the city or municipal mayor shall assign such number of auditing
officers and checkers as may be necessary for the purpose. These auditing officers and checkers
shall be placed in the ticket selling booths, dividend computation booths and such other parts of the
fronton, where betting tickets are sold and dividends computed. It shall be their duty to check up and
correct any irregularity or any erroneous report or computation that may be made by officials of the
fronton, in connection with the sale of tickets and the payment of dividends.

SEC. 18. Wager tickets and dividends. – The face value of the wager tickets for any event shall not
exceed ₱5 whether for "win" or "place", or for any combination or grouping of winning numbers. The
face value of said tickets, as the case may be, shall be the basis for the computation of the dividends
and such dividends shall be paid after eliminating fractions of ten centavos (₱0.10); for example: if
the resulting dividend is ₱10.43, the dividend that shall be paid will be only ₱10.40.

SEC. 19. Distribution of wager funds. – The total wager funds or gross receipts from the sale of the
betting tickets shall be apportioned as follows: a commission not exceeding ten and one-half per
centum (10 ½%) on the total bets on each game or event shall be set aside for the person or entity
operating the fronton and four and one-half per centum (4 ½%) of such bets shall be covered into
the National Treasury for disposition as may be authorized by law or executive order; and the
balance or eighty-five per centum (85%) of the total bets shall be distributed in the form of dividends
among holders of "win" or "place" numbers or holders of the winning combination or grouping of
numbers, as the case may be: Provided, however, That of the ten and one-half per centum (10 ½%)
representing the commission of the person or entity operating the fronton, an amount equivalent to
one-half per centum (1/2%) of the total bets or wager funds shall be set aside and made available to
cover the expenses of the personnel assigned to supervise the operation of basque pelota games
and frontons, including payment of salaries of such personnel, purchase of necessary equipment
and other sundry expenses as may be authorized by competent authority.

SEC. 20. Supervision over the conduct of games; enforcement of rules and regulations. – The city or
municipal mayor is authorized to place within the premises of the fronton such number of inspectors
and agents as may be deemed necessary to supervise the conduct of the games to see that the
rules of the games are strictly enforced, and to carry out the provisions of this Order as well as such
other regulations as may hereafter be prescribed.

SEC. 21. Rules governing the games and personnel of the fronton. – The rules and regulations that
have been adopted by any fronton to govern the operation of its games and the behavior, duties and
performance of the officials and personnel connected therewith, such as pelotaris, judges, referees
or superintendents of games (intendentes) and others, shall be the recognized rules and regulations
of such fronton until the same are altered or repealed by the Secretary of the Interior; and any
fronton may introduce any type or form of games or events, provided they are not contrary to the
provisions of this Order or any rule or regulation hereafter issued by the Secretary of the Interior.

SEC. 22. Regulations governing pelotaris. – Any rule or regulation adopted by any established
fronton governing the conduct or performance of pelotaris to the contrary notwithstanding, the
following regulations shall be observed:

(a) The pelotaris who are participating in the games shall not be allowed to communicate, talk or
make signs with any one in the public or with any official or employee of the fronton during the
games, except with the judges or referees or the superintendent (intendente) in charge of the
games;

(b) The program of games or events, as well as the line-up or order of playing of the pelotaris in
each event shall be determined by the superintendent of the games (intendente), subject to the
approval of the city or municipal mayor, or his authorized representatives;

(c) Pelotaris shall be in good physical condition before participating in any game and shall be laid off
from playing at least two days in a week. Every pelotari shall once a month secure a medical
certificate from a government physician to be designated by the city or municipal mayor concerned
certifying to his physical fitness to engage in the games; and

(d) The amount of dividends computed for any event shall not be posted within the view of the
pelotaris participating in the event until after the termination of said event."

(3.e.3) Presidential Decree No. 810 (An Act Granting the Philippine Jai-Alai and Amusement
Corporation a Franchise to Operate, Construct and Maintain a Fronton for Basque Pelota and
Similar Games of Skill in the Greater Manila Area) – October 16, 1975

"WHEREAS, by virtue of the provisions of Commonwealth Act Numbered 485 the franchise to
operate and maintain a fronton for the Basque pelota and similar games of skill in the City of Manila,
shall expire on October, 1975 whereupon the ownership of the land, buildings and improvements
used in the said game will be transferred without payment to the government by operation of law;

WHEREAS, there is a pressing need not only to further develop the game as a sport and
amusement for the general public but also to exploit its full potential in support of the government’s
objectives and development programs;

WHEREAS, Basque pelota is a game of international renown, the maintenance and promotion of
which will surely assist the tourism industry of the country;

WHEREAS, the tourism appeal of the game will be enhanced only with the government’s support
and inducement in developing the sport to a level at par with international standards;

WHEREAS, once such tourism appeal is developed, the same will serve as a stable and expanding
base for revenue generation for the government’s development projects.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, hereby decree as follows:

SECTION 1. Any provision of law to the contrary notwithstanding, there is hereby granted to the
Philippine Jai-Alai and Amusement Corporation, a corporation duly organized and registered under
the laws of the Philippines, hereinafter called the grantee or its successors, for a period of twenty-
five years from the approval of this Act, extendable for another twenty-five years without the
necessity of another franchise, the right, privilege and authority to construct, operate and maintain a
court for Basque Pelota (including the games of pala, raqueta, cestapunta, remonte and mano)
within the Greater Manila Area, establish branches thereof for booking purposes and hold or conduct
Basque pelota games therein with bettings either directly or by means of electric and/or
computerized totalizator.

The games to be conducted by the grantee shall be under the supervision of the Games and
Amusements Board, hereinafter referred to as the Board, which shall enforce the laws, rules and
regulations governing Basque pelota as provided in Commonwealth Act numbered four hundred and
eighty-five, as amended, and all the officials of the game and pelotaris therein shall be duly licensed
as such by the Board.

SEC. 2. The grantee or its duly authorized agent may offer, take or arrange bets within or outside the
place, enclosure or court where the Basque pelota games are held: Provided, That bets offered,
taken or arranged outside the place, enclosure or court where the games are held, shall be offered,
taken or arranged only in places duly licensed by the corporation; Provided, however, That the same
shall be subject to the supervision of the Board. No person other than the grantee or its duly
authorized agents shall take or arrange bets on any pelotari or on the game, or maintain or use a
totalizator or other device, method or system to bet on any pelotari or on the game within or without
the place, enclosure or court where the games are held by the grantee. Any violation of this section
shall be punished by a fine of not more than two thousand pesos or by imprisonment of not more
than six months, or both in the discretion of the Court. If the offender is a partnership, corporation, or
association, the criminal liability shall devolve upon its president, directors or any other officials
responsible for the violation.

SEC. 3. The grantee shall provide mechanical and/or computerized devices, namely: a) electric
totalizator; b) machine directly connected to a computer in a display board, for the sale of tickets,
including, those sold from the off-court stations; c) modern sound system and loud speakers; d)
facilities that bring safety, security, comfort and convenience to the public; e) modern
intercommunication devices; and f) such other facilities, devices and instruments for clean, honest
and orderly Basque pelota games, within three years from the approval of this Act.

The Board shall assign its auditors and/or inspectors to supervise and regulate the placing of bets,
proper computation of dividends and the distribution of wager funds.
SEC. 4. The total wager fund or gross receipts from the sale of betting tickets will be apportioned as
follows: eighty-five per centum (85%) shall be distributed in the form of dividends among the holders
of "win" or "place" numbers or holders of the winning combination or grouping of numbers as the
case may be. The remaining balance of fifteen per centum (15%) shall be distributed as follows:
eleven and one-half per centum (11 ½%) shall be set aside as the commission fee of the grantee,
and three and one-half per centum (3 ½%) thereof shall be set aside and alloted to any special
health, educational, civic, cultural, charitable, social welfare, sports, and other similar projects as
may be directed by the President. The receipts from betting corresponding to the fraction of ten
centavos eliminated from the dividends paid to the winning tickets, commonly known as breakage,
shall also be set aside for the above-named special projects.

SEC. 5. The provision of any existing law to the contrary notwithstanding, the grantee is hereby
authorized to hold Basque pelota games (including the games of pala, raqueta, cestapunta, remonte
and mano) on all days of the week except Sundays and official holidays.

SEC. 6. The provisions of Commonwealth Act numbered four hundred and eighty-five as amended,
shall be deemed incorporated herein, provided that the provisions of this Act shall take precedence
over the provisions thereof and all other laws, executive orders and regulations which are
inconsistent herewith.

SEC. 7. The grantee shall not lease, transfer, grant the usufruct of, sell or assign this franchise
permit, or the rights or privileges acquired thereunder to any person, firm, company, corporation or
other commercial or legal entity, nor merge with any other person, company or corporation
organized for the same purpose, without the previous approval of the President of the Philippines.

SEC. 8. For purposes of this franchise, the grantee is herein authorized to make use of the existing
fronton, stadium and facilities located along Taft Avenue, City of Manila, belonging to the
government by virtue of the provisions of Commonwealth Act numbered four hundred and eighty-
five."

It is abundantly clear from the aforequoted laws, executive orders and decrees that the
legislative practice is that a franchise to operate jai-alai is granted solely for that purpose and
the terms and conditions of the grant are unequivocably defined by the grantor. Such
express grant and its conditionalities protective of the public interest are evidently wanting in
P.D. No. 1869, the present Charter of PAGCOR. Thus, while E.O. 135 and P.D. No. 810 provided
for the apportionment of the wager funds or gross receipts from the sale of betting tickets, as well as
the distribution of dividends among holders of "win" or "place" numbers or holders of the winning
combination or grouping of numbers, no such provisions can be found in P.D. No. 1869. Likewise,
while P.D. No. 810 describes where and how the games are to be conducted and bettings to be
made, and imposes a penalty in case of a violation thereof, such provisions are absent in P.D. No.
1869.

In fine, P.D. No. 1869 does not have the standard marks of a law granting a franchise to
operate jai-alai as those found under P.D. No. 810 or E.O. 135. We cannot blink away from the
stubborn reality that P.D. No. 1869 deals with details pertinent alone to the operation of
gambling casinos. It prescribes the rules and regulations concerning the operation of gambling
casinos such as the place, time, persons who are and are not entitled to play, tax exemptions, use of
foreign exchange, and the exemption of casino employees from the coverage of the Civil Service
Law and the Labor Code. The short point is that P.D. No. 1869 does not have the usual
provisions with regards to jai-alai. The logical inference is that PAGCOR was not given a
franchise to operate jai-alai frontons. There is no reason to resist the beguiling rule that acts of
incorporation, and statutes granting other franchises or special benefits or privileges to corporations,
are to be construed strictly against the corporations; and whatever is not given in unequivocal terms
is understood to be withheld.30

FOURTH. The tax treatment between jai-alai operations and gambling casinos are distinct from each
other. Letters of Instruction No. 1439 issued on November 2, 1984 directed the suspension of the
imposition of the increased tax on winnings in horse races and jai-alai under the old revenue code,
to wit:

"WHEREAS, the increased tax on winnings on horse races and jai-alai under Presidential Decree
1959 has already affected the holding of horse races and jai-alai games, resulting in government
revenue loss and affecting the livelihood of those dependent thereon;

WHEREAS, the manner of taxation applicable thereto is unique and its effects and incidence are in
no way similar to the taxes on casino operation or to any shiftable tax;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, do hereby order and instruct the Minister of Finance, the
Commissioner of the Bureau of Internal Revenue, and the Chairman, Games & Amusements Board,
to suspend the implementation of the increased rate of tax winnings in horse races and jai-alai
games and collect instead the rate applicable prior to the effectivity of PD 1959."

Similarly, under Republic Act No. 8424, or the Tax Reform Act of 1997, there is an amusement tax
imposed on operators of jai-alai (Section 125) and a stamp tax on jai-alai tickets (Section 190).
There is no corresponding imposition on gambling casinos. Well to note, section 13 of P.D. No. 1869
grants to the franchise holder and casino operators tax exemptions from the payment of customs
duties and income tax, except a franchise tax of five (5%) percent which shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected
by any municipal, provincial, or national government authority. No similar exemptions have been
extended to operators of jai-alai frontons.

FIFTH. P.D. No. 1869, the present Charter of PAGCOR, is a consolidation of P.D. Nos. 1067-A,
1067-B and 1067-C all issued on January 1, 1977. P.D. No. 1067-A created the PAGCOR and
defined its powers and functions; P.D. No. 1067-B granted to PAGCOR a franchise to establish,
operate, and maintain gambling casinos on land or water within the territorial jurisdiction of the
Republic of the Philippines; and P.D. No. 1067-C granted PAGCOR the exclusive right, privilege
and authority to operate and maintain gambling casinos, subject only to the exception of existing
franchises and games of chance permitted by law.

Beyond debate, P.D. No. 1869 adopted substantially the provisions of said prior decrees, with
some additions which, however, have no bearing on the franchise granted to PAGCOR to
operate gambling casinos alone, such as the Affiliation Provisions under Title III and the
Transitory Provisions under Title VII. It also added the term "lotteries" under Section 1 (b) on
Declaration of Policy and Section 10 on the Nature and Term of Franchise. It ought to follow that
P.D. No. 1869 carries with it the same legislative intent that infused P.D. Nos. 1067-A, 1067-B and
1067-C. To be sure, both P.D. No. 1067-A and P.D. No. 1869 seek to enforce the same avowed
policy of the State to "minimize, if not totally eradicate, the evils, malpractices and corruptions that
normally are found prevalent in the conduct and operation of gambling clubs and casinos without
direct government involvement." It did not address the moral malevolence of jai-alai games and
the need to contain it thru PAGCOR. We cannot deface this legislative intent by holding that the
grant to PAGCOR under P.D. Nos. 1067-A and 1067-B to establish, operate, and maintain gambling
casinos, has been enlarged, broadened or expanded by P.D. No. 1869 so as to include a grant to
operate jai-alai frontons. Then and now, the intention was merely to grant PAGCOR a franchise to
operate gambling casinos, no more, no less.

SIXTH. Lest the idea gets lost in the shoals of our subconsciousness, let us not forget that PAGCOR
is engaged in business affected with public interest. The phrase "affected with public interest" means
that an industry is subject to control for the public good; it has been considered as the equivalent of
31

"subject to the exercise of the police power." Perforce, a legislative franchise to operate jai-alai is
32

imbued with public interest and involves an exercise of police power. The familiar rule is that
laws which grant the right to exercise a part of the police power of the state are to be
construed strictly and any doubt must be resolved against the grant. The legislature is
33

regarded as the guardian of society, and therefore is not presumed to disable itself or
abandon the discharge of its duty. Thus, courts do not assume that the legislature intended
to part away with its power to regulate public morals. The presumption is influenced by
34

constitutional considerations. Constitutions are widely understood to withhold from legislatures any
authority to bargain away their police power for the power to protect the public interest is beyond
35

abnegation.

It is stressed that the case at bar does not involve a franchise to operate a public utility (such as
water, transportation, communication or electricity) – the operation of which undoubtedly redounds to
the benefit of the general public. What is claimed is an alleged legislative grant of a gambling
franchise – a franchise to operate jai-alai. A statute which legalizes a gambling activity or business
should be strictly construed and every reasonable doubt must be resolved to limit the powers and
rights claimed under its authority.36

The dissent would like to make capital of the fact that the cases of Stone vs.
Mississippi and Aicardi vs. Alabama are not on all fours to the cases at bar and, hence, the
rulings therein do not apply. The perceived incongruity is more apparent than real.

Stone involves a contract entered into by the State of Mississippi with the plaintiffs which allowed
37

the latter to sell and dispose of certificates of subscription which would entitle the holders thereof to
such prizes as may be awarded to them, by the casting of lots or by lot, chance or otherwise. The
contract was entered into by plaintiffs pursuant to their charter entitled "An Act Incorporating the
Mississippi Agricultural, Educational and Manufacturing Aid Society" which purportedly granted them
the franchise to issue and sell lottery tickets. However, the state constitution expressly prohibits the
legislature from authorizing any lottery or allowing the sale of lottery tickets. Mississippi law makes it
unlawful to conduct a lottery.
The question raised in Stone concerned the authority of the plaintiffs to exercise the franchise or
privilege of issuing and selling lottery tickets. This is essentially the issue involved in the cases at
bar, that is, whether PAGCOR’s charter includes the franchise to operate jai-alai frontons. Moreover,
even assuming arguendo that the facts in the cases at bar are not identical, the principles of law laid
down in Stone are illuminating. For one, it was held in Stone that:

"Experience has shown that the common forms of gambling are comparatively innocuous when
placed in contrast with the wide-spread pestilence of lotteries. The former are confined to a few
persons and places, but the latter infests the whole community; it enters every dwelling; it reaches
every class; it preys upon the hard earnings of the poor; and it plunders the ignorant and simple. x x
x"38

The verity that all species of gambling are pernicious prompted the Mississippi Court to rule that the
legislature cannot bargain away public health or public morals. We can take judicial notice of the fact
that jai-alai frontons have mushroomed in every nook and corner of the country. They are accessible
to everyone and they specially mangle the morals of the marginalized sector of society. It cannot be
gainsaid that there is but a miniscule of a difference between jai-alai and lottery with respect to the
evils sought to be prevented.

In the case of Aicardi vs. Alabama, Moses & Co. was granted a legislative franchise to carry on
gaming in the form specified therein, and its agent, Antonio Aicardi, was indicted for keeping a
gaming table. In ascertaining whether the scope of the company’s franchise included the right to
keep a gaming table, the Court there held that "such an Act should be construed strictly. Every
reasonable doubt should be so resolved as to limit the powers and rights claimed under its authority.
Implications and intendments should have no place except as they are inevitable from the language
or the context."

The view expressed in the dissent that the aforequoted ruling was taken out of context is perched on
the premise that PAGCOR’s franchise is couched in a language that is broad enough to cover the
operations of jai-alai. This view begs the question for as shown in our disquisition, PAGCOR's
franchise is restricted only to the operation of gambling casinos. Aicardi supports the thesis that a
gambling franchise should be strictly construed due to its ill-effects on public order and morals.

SEVENTH. The dissent also insists that the legislative intent must be sought first of all in the
language of the statute itself. In applying a literal interpretation of the provision under Section 11 of
P.D. 1869 that "x x x the Corporation is hereby granted x x x the rights, privileges, and authority to
operate and maintain gambling casinos, clubs, and other recreation or amusement places, sports,
gaming pools, i.e., basketball, football, lotteries, etc. x x x," it contends that the extent and nature of
PAGCOR’s franchise is so broad that literally all kinds of sports and gaming pools, including jai-alai,
are covered therein. It concluded that since under Section 11 of P.D. No. 1869, games of skill like
basketball and football have been lumped together with the word "lotteries" just before the word
"etc." and after the words "gaming pools," it may be deduced from the wording of the law that when
bets or stakes are made in connection with the games of skill, they may be classified as games of
chance under the coverage of PAGCOR’s franchise.

We reject this simplistic reading of the law considering the social, moral and public policy
implications embedded in the cases at bar. The plain meaning rule used in the dissent rests on the
assumption that there is no ambiguity or obscurity in the language of the law. The fact, however, that
the statute admits of different interpretations is the best evidence that the statute is vague and
ambiguous. It is widely acknowledged that a statute is ambiguous when it is capable of being
39

understood by reasonably well-informed persons in either of two or more senses. In the cases at
40

bar, it is difficult to see how a literal reading of the statutory text would unerringly reveal the
legislative intent. To be sure, the term "jai-alai" was never used and is nowhere to be found in the
law. The conclusion that it is included in the franchise granted to PAGCOR cannot be based on a
mere cursory perusal of and a blind reliance on the ordinary and plain meaning of the statutory terms
used such as "gaming pools" and "lotteries." Sutherland tells us that a statute is "ambiguous", and so
open to explanation by extrinsic aids, not only when its abstract meaning or the connotation of its
terms is uncertain, but also when it is uncertain in its application to, or effect upon, the fact-situation
of the case at bar.41

Similarly, the contention in the dissent that :

" x x x Even if the Court is fully persuaded that the legislature really meant and intended something
different from what it enacted, and that the failure to convey the real meaning was due to
inadvertence or mistake in the use of the language, yet, if the words chosen by the legislature are
not obscure or ambiguous, but convey a precise and sensible meaning (excluding the case of
obvious clerical errors or elliptical forms of expression), then the Court must take the law as it finds
it, and give it its literal interpretation, without being influenced by the probable legislative meaning
lying at the back of the words. In that event, the presumption that the legislature meant what it said,
though it be contrary to the fact, is conclusive."
cannot apply in the cases at bar considering that it has not been shown that the failure to convey the
true intention of the legislature is attributable to inadvertence or a mistake in the language used.

EIGHTH. Finally, there is another reason why PAGCOR's claim to a legislative grant of a franchise
to operate jai-alai should be subjected to stricter scrutiny. The so-called legislative grant to
PAGCOR did not come from a real Congress. It came from President Marcos who assumed
legislative powers under martial law. The grant is not the result of deliberations of the duly elected
representatives of our people.

This is not to assail President Marcos’ legislative powers granted by Amendment No. 6 of the 1973
Constitution, as the dissent would put it. It is given that in the exercise of his legislative power,
President Marcos legally granted PAGCOR's franchise to operate gambling casinos. The validity of
this franchise to operate gambling casinos is not, however, the issue in the cases at bar. The issue
is whether this franchise to operate gambling casinos includes the privilege to operate jai-alai.
PAGCOR says it does. We hold that it does not. PAGCOR's overarching claim should be given the
strictest scrutiny because it was granted by one man who governed when the country was under
martial law and whose governance was repudiated by our people in EDSA 1986. The reason for this
submission is rooted in the truth that PAGCOR's franchise was not granted by a real Congress
where the passage of a law requires a more rigorous process in terms of floor deliberations and
voting by members of both the House and the Senate. It is self-evident that there is a need to be
extra cautious in treating this alleged grant of a franchise as a grant by the legislature, as a
grant by the representatives of our people, for plainly it is not. We now have a real Congress
and it is best to let Congress resolve this issue considering its policy ramifications on public order
and morals. 1âwphi1

In view of this ruling, we need not resolve the other issues raised by petitioners.

WHEREFORE, the petitions are GRANTED. Respondents PAGCOR, Belle Jai Alai Corporation and
Filipinas Gaming Entertainment Totalizator Corporation are ENJOINED from managing, maintaining
and operating jai-alai games, and from enforcing the agreement entered into by them for that
purpose.

SO ORDERED.

Melo, Panganiban, Pardo, Buena, Gonzaga-Reyes, and Ynares-Santiago JJ., concur.

Davide, Jr. , C.J., Vitug and De Leon Jr. , JJ., see separate opinion.
Bellosillo, Kapunan, and Quisumbing, JJ., join the opinion of J. De Leon.
Mendoza, J., join in the separate opinion of Vitug, J.

SEPARATE OPINION

DAVIDE, JR., C.J.:

In my Separate Opinion in G.R. No. 115044 (Alfredo Lim vs. Hon. Felipe Pacquing) and G.R. No.
117263 (Teofisto Guingona vs. Hon. Vetino Reyes), 240 SCRA 649, 685, I reiterated my prior view
in a supplemental concurring opinion I submitted in the earlier case, G.R. No. 115044 that jai alai is
not a game of chance, but a sport based on skill. Betting on the results thereof can only be allowed
by Congress, and I am not aware of any new law authorizing such betting.

I said therein, thus:

It follows then that the Mayor’s Permit ordered by the trial court to be issued to the private
respondent is not a license or authority to allow betting or wagering on the results of the jai-
alai games. Jai-alai is a sport based on skill. Under Article 197 of the Revised Penal Code, before it
was amended by P.D. No. 1602, betting upon the result of any boxing or other sports contests was
penalized with arresto menor or a fine not exceeding P200.00, or both. Article 2019 of the Civil Code
provides that "[b]etting on the results of sports, athletic competitions, or games of skill may be
prohibited by local ordinances."

P.D. No. 483, enacted on 13 June 1974, penalizes betting, game fixing or point shaving and
machinations in sports contests, including jai-alai. Section 2 thereof expressly provides:
SECTION 2. Betting, game fixing, point shaving or game machinations unlawful.- Game fixing, point
shaving, machination, as defined in the preceding Section, in connection with the games of
basketball, volleyball, softball, baseball, chess, boxing bouts, "jai-alai," "sipa," "pelota" and all other
sports contests, games or races; as well as betting therein except as may be authorized by law, is
hereby declared unlawful.

The succeeding Section 3 provides for the penalties.

On 11 June 1978, P.D. No. 1602 (75 O.G. No. 15, 3270), Prescribing Stiffer Penalties on Illegal
Gambling, was enacted to increase the penalties provided in various "Philippine Gambling Laws
such as Articles 195-199 of the Revised Penal Code (Forms of Gambling and Betting), R.A. No.
3063 (Horse Racing Bookies), P.D. No. 449 (Cock-fighting), P.D. No. 483 (Game Fixing), P.D. No.
510 (Slot Machines) in relation to Opinion Nos. 33 and 97 of the Ministry of Justice, P.D. No. 1306
(Jai-alai Bookies), and other City and Municipal Ordinances on gambling all over the country,"
Section 1 thereof reads:

xxx

Both P.D. No. 483 and P.D. No. 1602 were promulgated in the exercise of the police power of the
State.

Pursuant to Section 2 of P.D. No. 483, which was not repealed by P.D. No. 1602 since the former is
not inconsistent with the latter in that respect, betting in jai-alai is illegal unless allowed by law. There
was such a law, P.D. No. 810, which authorized the Philippine Jai-Alai and Amusement Corporation
as follows:

SECTION 2. The grantee or its duly authorized agent may offer, take or arrange bets within or
outside the place, enclosure or court where the Basque pelota games are held: Provided, That bets
offered, taken or arranged outside the place, enclosure or court where the games are held, shall be
offered, taken or arranged only in places duly licensed by the corporation. Provided, however, That
the same shall be subject to the supervision of the Board. No person other than the grantee or its
duly authorized agents shall take or arrange bets on any pelotari or on the game, or maintain or use
a totalizator or other device, method or system to bet on any pelotari or on the game within or
without the place, enclosure or court where the games are held by the grantee. Any violation of this
section shall be punished by a fine or not more than two thousand pesos or by imprisonment of not
more than six months, or both in the discretion of the Court. If the offender is a partnership,
corporation or association, the criminal liability shall devolve upon its president, directors or any
officials responsible for the violation.

However, as stated in the ponencia, P.D. No. 810 was repealed by E.O. No. 169 issued by then
President Corazon C. Aquino, I am not aware of any other law which authorizes betting in jai-alai. It
follows then that while the private respondent may operate the jai-alai fronton and conduct jai-
alai games, it can do so solely as a sports contest. Betting on the results thereof, whether within or
off-fronton, is illegal and the City of Manila cannot, under the present state of the law, license such
betting. The dismissal of the petition in this case sustaining the challenged orders of the trial court
does not legalize betting, for this Court is not the legislature under our systems of government.

My reading of the charter of the PAGCOR fails to disclose a grant of a congressional authority to
allow betting on the results of jai alai.

Accordingly, all that the PAGCOR may do is operate and conduct the jai alai, but in no case can it
allow betting on the results thereof without obtaining a statutory authority for the purpose.