Tag: Gaming Law

PAGCOR’s Tax Liabilities: Clarifying Income and VAT Exemptions Under Philippine Law

In a consolidated decision, the Supreme Court clarified the tax obligations of the Philippine Amusement and Gaming Corporation (PAGCOR). The Court affirmed that while PAGCOR is subject to corporate income tax on income from related services, its income from gaming operations remains exempt, subject only to a 5% franchise tax. This ruling reconciles PAGCOR’s charter with amendments to the National Internal Revenue Code, providing clarity on the scope of PAGCOR’s tax privileges and liabilities.

Navigating Tax Exemptions: Can PAGCOR Keep Its Winnings?

This case revolves around consolidated petitions questioning the tax liabilities of PAGCOR, a government instrumentality authorized to operate and regulate gambling activities in the Philippines. The central legal question is whether PAGCOR is exempt from certain taxes, specifically income tax and Value-Added Tax (VAT), considering various legislative changes affecting its charter and tax obligations.

PAGCOR was established through Presidential Decree (PD) No. 1869, granting it a franchise with rights to operate gambling casinos and other gaming activities. Section 13(2) of PD No. 1869 stipulates that PAGCOR is exempt from all kinds of taxes, except a 5% franchise tax on its gross revenue, which is “in lieu of all kinds of taxes.” However, Republic Act (RA) No. 8424, the National Internal Revenue Code of 1997 (1997 NIRC), initially included PAGCOR among government-owned or -controlled corporations (GOCCs) exempt from income tax. Subsequently, RA No. 9337 amended Section 27(C) of the 1997 NIRC, removing PAGCOR from this list, thereby seemingly subjecting it to income tax.

The Bureau of Internal Revenue (BIR) assessed PAGCOR for deficiency income tax, VAT, and Fringe Benefit Tax (FBT) for the taxable years 2005 and 2006, leading to a dispute that culminated in this Supreme Court case. The Court of Tax Appeals (CTA) partially granted PAGCOR’s petition, canceling the VAT assessments but affirming the income tax and FBT liabilities. Both PAGCOR and the Commissioner of Internal Revenue (CIR) appealed to the CTA En Banc, which affirmed the CTA Division’s decision. This prompted PAGCOR and the CIR to file separate petitions for review with the Supreme Court.

The Supreme Court’s analysis hinged on interpreting the interplay between PAGCOR’s charter (PD No. 1869), the 1997 NIRC, and subsequent amendments. The Court referenced its previous ruling in Philippine Amusement and Gaming Corporation v. Bureau of Internal Revenue, where it upheld the validity of RA No. 9337’s exclusion of PAGCOR from the list of GOCCs exempt from corporate income tax. However, the Court also considered PAGCOR’s argument that its franchise tax under PD No. 1869 should be in lieu of all taxes.

The Court emphasized the importance of harmonizing different statutes to avoid conflicts. It stated that RA No. 9337 did not repeal the tax privilege granted to PAGCOR under PD No. 1869 regarding its income from gaming operations. What RA No. 9337 withdrew was PAGCOR’s exemption from corporate income tax on its income derived from other related services, previously granted under Section 27(C) of RA No. 8424. The Court quoted its earlier decision:

After a thorough study of the arguments and points raised by the parties, and in accordance with our Decision dated March 15, 2011, we sustain [PAGCOR’s] contention that its income from gaming operations is subject only to five percent (5%) franchise tax under P.D. 1869, as amended, while its income from other related services is subject to corporate income tax pursuant to P.D. 1869, as amended, as well as R.A. No. 9337.

The Court further explained that a special law, like PD No. 1869, prevails over a general law, such as RA No. 9337, regardless of their dates of passage. Therefore, the 5% franchise tax under PAGCOR’s charter remains the sole tax applicable to its income from gaming operations.

Regarding the Fringe Benefit Tax (FBT), the Court cited Commissioner of Internal Revenue v. Secretary of Justice, where it ruled that FBT is not covered by the tax exemptions provided under PD No. 1869. The Court reiterated that PAGCOR, as a withholding agent, is responsible for withholding and remitting FBT on fringe benefits granted to its employees, unless it can prove that such benefits are necessary for its business or convenience.

PAGCOR’s claim that it should not be held liable for surcharges and interests due to its good faith reliance on tax exemptions was also addressed. The Court distinguished this case from others where surcharges and interests were deleted due to the taxpayer’s reliance on specific BIR rulings. In this instance, PAGCOR did not provide any particular BIR issuance or ruling that explicitly declared it exempt from income tax or FBT. The Court noted that:

Here, PAGCOR fails to point to any particular BIR issuance or ruling which categorically declared that it is not subject to income tax and/or FBT. Instead, PAGCOR relies on the opinions of the Office of the Government Corporate Counsel, and the OSG and the Resolutions issued by the Department of Justice – government offices bereft of any authority to implement or interpret tax laws.

As a result, the Court upheld the imposition of interests and surcharges as mandated by law.

Addressing the CIR’s petition concerning VAT, the Court referred to Philippine Amusement and Gaming Corporation v. Bureau of Internal Revenue, citing Commissioner of Internal Revenue v. Acesite (Phils.) Hotel Corporation, which affirmed PAGCOR’s exemption from VAT under its charter. The Court emphasized that Section 6 of RA No. 9337 retained Section 108 (B) (3) of RA No. 8424, which subjects services rendered to entities exempt under special laws to a zero percent rate. The Court cited Acesite, where it was held that:

A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect.

The Court clarified that the legislative intent was for PAGCOR to remain exempt from VAT even with the enactment of RA No. 9337, thus affirming the CTA’s cancellation of the deficiency VAT assessments.

FAQs

What was the key issue in this case?	The key issue was determining the extent of PAGCOR’s tax exemptions, specifically regarding income tax, VAT, and FBT, in light of legislative changes to the National Internal Revenue Code.
Is PAGCOR exempt from income tax?	PAGCOR is exempt from income tax only on its income derived from gaming operations, subject to a 5% franchise tax. Income from other related services is subject to corporate income tax.
Is PAGCOR liable for VAT?	No, PAGCOR is exempt from the payment of VAT under its charter, PD No. 1869, as affirmed by the Supreme Court.
What is the basis for PAGCOR’s VAT exemption?	PAGCOR’s VAT exemption is based on Section 108(B)(3) of RA No. 8424, as retained by Section 6 of RA No. 9337, which subjects services rendered to entities exempt under special laws to a zero percent rate.
Is PAGCOR liable for Fringe Benefit Tax (FBT)?	Yes, PAGCOR is liable for FBT as a withholding agent on fringe benefits granted to its employees, unless it can prove that such benefits are necessary for its business.
What happens if PAGCOR fails to withhold and remit FBT?	If PAGCOR fails to withhold and remit FBT, it becomes personally liable for the tax arising from the breach of its legal duty as a withholding agent.
Can PAGCOR claim good faith to avoid surcharges and interests?	No, PAGCOR cannot claim good faith to avoid surcharges and interests unless it can point to a specific BIR issuance or ruling that categorically declared it exempt from the assessed taxes.
What is the effect of RA No. 9337 on PAGCOR’s tax exemptions?	RA No. 9337 removed PAGCOR from the list of GOCCs exempt from corporate income tax, but it did not repeal PAGCOR’s VAT exemption or the 5% franchise tax on income from gaming operations.
What is the significance of PD No. 1869 in this case?	PD No. 1869, PAGCOR’s charter, is a special law that grants PAGCOR certain tax exemptions, including the 5% franchise tax in lieu of all taxes on income from gaming operations and VAT exemption.

In conclusion, the Supreme Court’s decision provides clarity on PAGCOR’s tax liabilities, distinguishing between income from gaming operations and other related services. While PAGCOR enjoys certain tax exemptions under its charter, it is also subject to specific tax obligations, such as the payment of corporate income tax on income from related services and the withholding and remittance of FBT.

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

November 22, 2017

Casino Franchise Agreements: PAGCOR’s Obligations and Investment Protection

The Supreme Court’s decision in Philippine Amusement and Gaming Corporation v. Thunderbird Pilipinas Hotels and Resorts, Inc. addresses the enforceability of casino franchise agreements when tied to significant investment commitments. The Court ruled that PAGCOR must honor its agreements, especially where casino operation franchises are linked to multi-billion peso investments in resort complexes. This decision protects investors by ensuring that the government fulfills its promises when substantial capital is at stake, providing stability and predictability in the gaming and tourism sectors.

Can PAGCOR Revoke Casino Licenses Mid-Term? Examining Investment-Backed Franchises

This case revolves around the Philippine Amusement and Gaming Corporation (PAGCOR) and its agreements with Thunderbird Pilipinas Hotels and Resorts, Inc. and Eastbay Resorts, Inc. (respondents). These agreements involved significant investments by the respondents in casino and resort complexes, contingent upon PAGCOR granting and extending their authority to operate (ATO) casinos within these complexes. The dispute arose when PAGCOR sought to impose new, more stringent terms for the renewal of the respondents’ ATOs, leading the respondents to seek court intervention to enforce the original agreements. At the heart of the matter is the extent to which PAGCOR is bound by its agreements, especially considering the investments made by the respondents in reliance on those agreements.

Presidential Decree (P.D.) No. 1869, as amended by Republic Act (R.A.) No. 9487, outlines PAGCOR’s powers and franchise. Section 10 of P.D. No. 1869 grants PAGCOR the authority to operate and license gambling casinos. Section 3(h) empowers PAGCOR to enter into contracts necessary for its business purposes. In this context, PAGCOR entered into several agreements with the respondents. A key element of these agreements was the respondents’ commitment to invest substantial amounts in their gaming and leisure operations. The agreements stipulated that the extension of the ATOs would be co-terminus with PAGCOR’s franchise, contingent upon the respondents’ compliance with their investment schedules.

However, a conflict emerged when PAGCOR attempted to alter the terms of the ATO renewals. PAGCOR sent the respondents blank renewal ATOs with a limited six-month validity, retroactive to July 12, 2008. The respondents refused to accept these terms, arguing that their agreements stipulated a franchise co-terminus with PAGCOR’s new charter. PAGCOR then proposed a five-year extension, conditioned on full compliance with investment schedules. Later, PAGCOR, under a new board, imposed new conditions, including shorter investment periods, increased space requirements, and higher revenue shares. The respondents argued that PAGCOR had already recognized the validity of their existing ATOs by accepting participation fees and approving various operational requests.

When PAGCOR threatened cessation proceedings, the respondents filed complaints with the Regional Trial Court (RTC) for specific performance and damages. The RTC issued a Temporary Restraining Order (TRO) and later a Writ of Preliminary Prohibitory Injunction, preventing PAGCOR from initiating cessation proceedings. The RTC also issued an Amended Order for a Writ of Preliminary Mandatory Injunction, directing PAGCOR to reinstate monitoring teams and act upon the respondents’ pending requests. PAGCOR, claiming grave abuse of discretion, filed petitions for certiorari with the Supreme Court, arguing that the respondents’ casino franchise was a mere privilege, not a contractual right.

The Supreme Court ultimately dismissed PAGCOR’s petitions, citing procedural and substantive grounds. First, the Court noted that the dismissal of the complaints in the RTC had rendered the petitions moot. However, recognizing the importance of the issues raised, the Court proceeded to address them. The Court found no abuse of discretion in the trial court’s extension of the 72-hour TRO, emphasizing that PAGCOR had been accorded notice and a chance to be heard. Furthermore, the Court criticized PAGCOR for failing to file a motion for reconsideration, a prerequisite for a certiorari petition, and for disregarding the hierarchy of courts by directly appealing to the Supreme Court.

The Court highlighted that the agreements between PAGCOR and the respondents were not solely about granting a franchise. They involved substantial investment commitments in resort complexes. The Court underscored that the respondents’ multi-billion investment commitment was integrally conditioned upon the government’s promise of a casino franchise. The decision underscored the importance of honoring agreements, especially when significant investments are involved. The Court noted that PAGCOR’s new terms were onerous, demanding accelerated investment timelines and increased revenue shares. By imposing these new terms, PAGCOR was attempting to unilaterally alter the agreements, disregarding the respondents’ reliance on the original terms.

The Supreme Court drew a parallel to its previous ruling in PAGCOR v. Fontana Development Corporation. In that case, the Court held that PAGCOR was bound by its MOA with Fontana, which granted a non-exclusive license to operate a casino. The Court rejected PAGCOR’s attempt to replace the MOA with a new Standard Authority to Operate (SAO), emphasizing that the MOA was a valid contract and that PAGCOR had no legal basis to nullify it. Similarly, in the present case, the Court emphasized that PAGCOR’s authority to restrict and control casino operations must be exercised with due regard to its agreements with licensees. This is especially crucial when the franchise is tied to significant investment agreements.

This case serves as a reminder that government entities must honor their contractual obligations, particularly when private entities rely on those obligations to make substantial investments. The Court’s decision reinforces the principle of contractual stability and protects investors from arbitrary changes in the terms of their agreements. By upholding the enforceability of the agreements between PAGCOR and the respondents, the Supreme Court has provided greater certainty for investors in the gaming and tourism sectors. This decision encourages investment by assuring that the government will fulfill its promises when substantial capital is at stake.

FAQs

What was the central legal issue in this case?	The core issue was whether PAGCOR could unilaterally alter the terms of agreements granting casino operation franchises, particularly when these agreements were linked to significant investment commitments by the respondents. The Court addressed the enforceability of these franchise agreements.
What did the Supreme Court decide?	The Supreme Court dismissed PAGCOR’s petitions, upholding the lower court’s injunctions that prevented PAGCOR from imposing new terms on the respondents’ casino operations. The Court emphasized that PAGCOR must honor its agreements, especially when they involve substantial investments.
What is an Authority to Operate (ATO) in this context?	An ATO is a license granted by PAGCOR that permits a company to operate a casino. In this case, the ATOs were tied to investment agreements, making their terms a key point of contention.
What was the significance of the respondents’ investment commitments?	The respondents committed to investing billions of pesos in resort complexes, which included casinos. These investments were contingent upon PAGCOR granting and extending their ATOs.
Why did PAGCOR want to change the terms of the ATOs?	PAGCOR, under a new board, sought to impose stricter conditions, including shorter investment periods, increased space requirements, and higher revenue shares. They claimed the original ATOs had expired and needed renewal under new terms.
What was the basis of the RTC’s injunction orders?	The RTC found prima facie evidence that a contract existed between PAGCOR and the respondents. The injunctions were issued to prevent PAGCOR from disrupting the respondents’ operations while the case was being litigated.
What procedural errors did PAGCOR commit?	PAGCOR failed to file a motion for reconsideration before appealing to the Supreme Court. It also bypassed the Court of Appeals, violating the principle of the hierarchy of courts.
*How did PAGCOR v. Fontana Development Corporation* influence this decision?**	The Court cited PAGCOR v. Fontana to reinforce the principle that PAGCOR is contractually bound by its agreements and cannot unilaterally change them, especially when significant investments are involved.
What is the key takeaway for businesses dealing with government agencies?	This case underscores the importance of clearly defined agreements with government entities. It highlights that government agencies must honor their contractual obligations, especially when private entities rely on those obligations to make substantial investments.

The Supreme Court’s decision in Philippine Amusement and Gaming Corporation v. Thunderbird Pilipinas Hotels and Resorts, Inc. clarifies the contractual obligations of PAGCOR in relation to casino franchise agreements tied to significant investment commitments. By upholding the enforceability of these agreements, the Court has provided greater certainty and protection for investors in the gaming and tourism sectors, encouraging further economic development and stability within the industry.

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

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Philippine Amusement and Gaming Corporation vs. Thunderbird Pilipinas Hotels and Resorts, Inc., Eastbay Resorts, Inc., and Hon. Cicero Jurado, Jr., G.R. Nos. 197942-43, 199528, March 26, 2014

March 26, 2014

PAGCOR’s Authority: Navigating the Boundaries of Franchise and Gaming Operations in the Philippines

In a pivotal decision, the Supreme Court addressed the extent of the Philippine Amusement and Gaming Corporation’s (PAGCOR) authority to operate and manage jai-alai games. The Court clarified that PAGCOR possesses a valid franchise to conduct jai-alai games but can only exercise this franchise independently, without associating with other entities. This ruling directly impacts the gaming industry, setting a precedent for how franchises are interpreted and managed, ensuring regulatory compliance and preventing unauthorized expansion of gaming operations.

The Jai-Alai Franchise: Who Holds the Reins of the Game?

The legal saga began when Raoul B. Del Mar, Federico S. Sandoval II, and Michael T. Defensor questioned PAGCOR’s arrangement with Belle Jai-Alai Corporation (BELLE) and Filipinas Gaming Entertainment Totalizator Corporation (FILGAME). At the heart of the dispute was the 17th June 1999 Agreement, which allowed these corporations to operate, maintain, or manage jai-alai games in conjunction with PAGCOR. The petitioners argued that PAGCOR lacked the authority to delegate its franchise to private entities. The Supreme Court initially granted the petitions, enjoining PAGCOR, BELLE, and FILGAME from jointly operating jai-alai games, leading to motions for reconsideration and the need for further clarification.

The Court’s resolution hinged on interpreting PAGCOR’s franchise and whether it permitted the corporation to associate with other entities in managing jai-alai games. Justice Puno’s ponencia underscored that PAGCOR did not have the franchise to operate, maintain, or manage jai-alai games whether by itself alone or in conjunction with its co-respondents. Conversely, Justice de Leon’s dissent argued that PAGCOR’s franchise authorized it to conduct jai-alai games and manage them through its agreements with BELLE and FILGAME. Justice Vitug’s separate opinion allowed PAGCOR to operate gaming pools, including jai-alai, but not to contract any part of that franchise to other entities.

The subsequent motions for reconsideration revealed a divided Court. The initial vote showed a lack of the required number of votes to reverse the original decision. This deadlock prompted respondents to seek clarification on the Court’s resolution, leading to a detailed examination of each Justice’s stance. The Court’s deliberations highlighted three distinct viewpoints:

Some justices believed PAGCOR had no valid franchise and thus no authority to operate jai-alai games, either alone or with others.
Others argued PAGCOR had a valid franchise and could operate jai-alai games with BELLE and FILGAME.
A third group maintained PAGCOR could operate jai-alai games alone but not contract those activities to other entities lacking their own valid franchise.

Ultimately, the Court clarified its position by distinguishing between PAGCOR’s right to operate jai-alai games and its ability to associate with other entities in doing so. The resolution partially granted the motions for clarification, affirming that PAGCOR holds a valid franchise. However, it denied the motions to the extent that they sought reconsideration of the original decision, which had enjoined PAGCOR from operating jai-alai games in association with BELLE and FILGAME. This distinction is crucial because it sets a precedent for how government-granted franchises can be exercised and the limits of delegating such authority.

The Supreme Court’s decision underscores the importance of clearly defining the scope and limitations of government-granted franchises. While PAGCOR has the authority to operate jai-alai games, it cannot delegate or share that authority with private corporations unless those entities also possess a valid franchise. This ruling aims to prevent the unauthorized expansion of gaming operations and ensures that all participants in the industry are properly regulated. This case emphasizes that regulatory bodies like PAGCOR must operate within the confines of their granted powers, ensuring transparency and accountability in their operations.

Building on this principle, the decision highlights the judiciary’s role in safeguarding public interest and ensuring that government entities adhere to the bounds of their legal mandates. The Court’s interpretation of PAGCOR’s franchise reflects a cautious approach to delegating governmental powers, particularly in sectors with significant public impact. This approach contrasts with interpretations that might allow for broader delegation, potentially opening the door to regulatory loopholes and unchecked expansion of gaming activities. This landmark case set important precedents for similar franchise arrangements in the Philippines, safeguarding the integrity of regulatory frameworks.

The implications of this ruling extend beyond the specific context of jai-alai games. It provides a framework for analyzing other franchise arrangements, particularly those involving government-owned and controlled corporations (GOCCs). The Court’s emphasis on the need for explicit authorization to delegate franchise powers serves as a reminder to GOCCs to carefully review their charters and agreements to ensure compliance. Moreover, this decision reinforces the principle that government franchises are intended to serve the public interest and cannot be used as a means to circumvent regulatory requirements or create unfair advantages for private entities. This will help ensure a level playing field in the business sector.

FAQs

What was the key issue in this case?	The primary issue was whether PAGCOR could operate, maintain, or manage jai-alai games in association with other corporations, or if it was limited to operating independently under its franchise.
Did the Supreme Court find PAGCOR’s franchise to be valid?	Yes, the Court affirmed that PAGCOR has a valid franchise to operate jai-alai games, but only on its own, not in association with other entities like BELLE and FILGAME.
What was the 17th June 1999 Agreement?	It was an agreement among PAGCOR, BELLE, and FILGAME that allowed the latter two corporations to operate, maintain, or manage jai-alai games in conjunction with PAGCOR, which the Court ultimately deemed unenforceable.
Why did the Court prohibit PAGCOR from associating with BELLE and FILGAME?	The Court determined that PAGCOR’s franchise did not authorize it to delegate its authority to operate jai-alai games to other entities without their own valid franchises.
What were the differing opinions among the Justices?	Some justices believed PAGCOR had no franchise, others thought it could associate with other entities, and a third group allowed PAGCOR to operate alone but not delegate its authority.
What is the significance of this ruling for other franchises?	The ruling provides a framework for interpreting franchise agreements, particularly those involving GOCCs, emphasizing the need for explicit authorization to delegate franchise powers.
How does this decision impact the gaming industry in the Philippines?	It sets a precedent for regulatory compliance, ensuring that all participants in the industry operate within the bounds of their legal mandates and preventing unauthorized expansion of gaming operations.
What was the final resolution of the Court?	The Court partially granted the motions for clarification, affirming PAGCOR’s franchise but prohibiting it from operating jai-alai games in association with BELLE and FILGAME.

In conclusion, the Supreme Court’s resolution in Del Mar v. PAGCOR clarifies the limits of PAGCOR’s authority to operate jai-alai games, emphasizing the importance of adherence to the terms of government-granted franchises. The decision underscores the need for explicit authorization to delegate franchise powers, setting a precedent for similar arrangements involving government-owned and controlled corporations. This landmark case ensured the protection of public interest and upheld the regulatory framework of the gaming industry in the Philippines.

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

August 24, 2001

PAGCOR’s Franchise: Del Mar v. PAGCOR and the Scope of Gaming Authority

In Raoul B. Del Mar v. Philippine Amusement and Gaming Corporation (PAGCOR), the Supreme Court addressed whether PAGCOR’s franchise, as defined in Presidential Decree No. 1869, includes the authority to operate and manage jai-alai games. The Court ultimately ruled that PAGCOR’s franchise is primarily for operating gambling casinos and does not extend to managing jai-alai games. This decision clarified the limits of PAGCOR’s authority and reinforced the principle that franchises, especially those involving gambling, must be strictly construed. The ruling protects existing franchise holders and ensures that any expansion of PAGCOR’s powers requires explicit legislative authorization, reflecting a cautious approach to gambling activities.

Jai-Alai Under PAGCOR: Skill, Chance, or an Unintended Bet?

The central legal question in Del Mar v. PAGCOR revolves around the interpretation of Presidential Decree (P.D.) No. 1869, which defines the scope of PAGCOR’s franchise. PAGCOR contended that Section 10 of P.D. No. 1869, which grants the authority to operate and maintain “gambling casinos, clubs, and other recreation or amusement places, sports, gaming pools, i.e. basketball, football, lotteries, etc.,” is broad enough to include jai-alai. The Court had to determine whether the phrase “gaming pools, i.e. basketball, football, lotteries, etc.” could reasonably be interpreted to encompass jai-alai, a game involving skill but also commonly associated with betting.

Justice Puno, in his separate opinion, emphasized that a franchise is a special privilege granted by Congress with specifically prescribed terms and conditions. These conditions are particularly stringent when the franchise involves a game played for bets, like jai-alai, which is recognized as a potential menace to morality. Puno argued that P.D. 1869’s history reveals it was primarily intended to grant PAGCOR the franchise to maintain gambling casinos, not to operate jai-alai. He noted that PAGCOR’s predecessor, P.D. 1067-B, was explicitly titled as granting a franchise to establish, operate, and maintain gambling casinos, highlighting the original intent behind PAGCOR’s creation. The creation of PAGCOR did not empower it to operate jai-alai in competition with existing franchises. P.D. 1067-A established PAGCOR to centralize games of chance “not heretofore authorized by existing franchises.” At the time, the Philippine Jai-alai and Amusement Corporation already had a franchise to operate jai-alai.

The Court also highlighted the importance of express legislative mandate when it comes to gambling activities. Since jai-alai is a different game than casino gambling, the terms and conditions imposed on the franchisee must be specifically spelled out, distinct from those of gambling casinos. P.D. 1869 lacked the standard terms and conditions typically found in laws granting franchises to operate jai-alai, such as the licensing of pelotaris, judges, and referees, the installation of automatic electric totalizators, and rules governing personnel and games. According to Justice Puno:

What is claimed in the cases at bar is an alleged legislative grant of a gambling franchise, i.e., to operate jai-alai. A statute which seeks to legalize an otherwise illegal gambling activity punishable by law must therefore be strictly construed and every reasonable doubt must be resolved to limit the powers and rights claimed under its authority. Gambling can bring a lot of money to the government but no self- respecting government can operate and hope to succeed on earnings from gambling.

The Court rejected the argument that the plain meaning rule of statutory construction should apply, as the different interpretations of P.D. 1869 indicated that the law was not clear and unambiguous. PAGCOR’s need to seek legal opinions from various government agencies further demonstrated the vagueness of the law. The Court noted that at the time P.D. 1869 was enacted in 1983, the Philippine Jai-Alai and Amusement Corporation had a subsisting franchise to operate jai-alai. The omission of specific provisions for jai-alai in P.D. 1869 indicated a deliberate intention to exclude jai-alai from PAGCOR’s charter. Further, the Court reasoned, the Aquino government’s repeal of P.D. 810, which granted the Philippine Jai-Alai and Amusement Corporation its franchise, showed an intent to not grant any franchise for jai-alai, and it would be illogical to then allow PAGCOR to engage in the same activity.

Several justices dissented, arguing that P.D. 1869 should be interpreted more broadly. Justice Melo contended that the franchise granted to PAGCOR was broad enough to encompass jai-alai, and to consider the franchise as allowing only the operation of casinos would render nugatory provisions allowing PAGCOR to operate and maintain “other recreation or amusement places, sports, gaming pools, i.e. basketball, football, lotteries, etc.” He argued that a law should be interpreted to uphold rather than destroy it.

Justice De Leon also dissented, stating that the language of Section 10 of P.D. No. 1869 defining 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. He argued that basketball and football, mentioned in P.D. 1869, are games of skill, like jai-alai, and when bets or stakes are made in connection with these games, they may be classified as games of chance under PAGCOR’s franchise. He further argued that the phrase “et cetera” in Section 10 should be given its usual and natural signification, and that jai-alai may be categorized as a game of chance when bets are accepted.

The majority opinion, however, prevailed, emphasizing the need for a strict construction of laws related to gambling. This view aligns with the principle that gambling activities should be closely regulated and any authorization for such activities must be explicitly stated by the legislature.

The Supreme Court’s decision has significant implications for the regulation of gambling in the Philippines. It underscores the principle that legislative franchises, especially those concerning gambling, must be strictly construed. Any ambiguity in the law must be resolved against the entity claiming the franchise. This approach ensures that any expansion of gambling activities requires explicit legislative authorization, preventing agencies like PAGCOR from unilaterally extending their powers. The decision reinforces the importance of clear and specific language in legislative grants of authority, particularly when dealing with activities that have significant social and moral implications.

The Del Mar v. PAGCOR case also clarifies the limitations on PAGCOR’s authority to enter into joint venture agreements. While PAGCOR has broad powers to enter into contracts, these powers are limited by the scope of its franchise. The Court’s decision implies that PAGCOR cannot use joint venture agreements to effectively delegate or expand its franchise beyond what is explicitly authorized by law.

FAQs

What was the key issue in this case?	The key issue was whether PAGCOR’s franchise, as defined in P.D. No. 1869, included the authority to operate and manage jai-alai games. The Court had to determine if the broad language of the franchise could be interpreted to encompass jai-alai.
What is PAGCOR?	PAGCOR stands for the Philippine Amusement and Gaming Corporation. It is a government-owned and controlled corporation that regulates and operates various forms of gaming in the Philippines.
What is jai-alai?	Jai-alai, also known as Basque pelota, is a game involving skill where players use a hand-held wicker basket to hurl a ball against a wall. It is often associated with betting and gambling.
What is Presidential Decree No. 1869?	Presidential Decree No. 1869 is the law that defines the scope and nature of PAGCOR’s franchise. It outlines the rights, privileges, and authority granted to PAGCOR to operate and maintain gambling casinos and other forms of gaming.
Why did the Court rule that PAGCOR could not operate jai-alai?	The Court ruled that P.D. No. 1869 primarily granted PAGCOR the franchise to operate gambling casinos, not to manage jai-alai games. The Court emphasized that franchises, especially those involving gambling, must be strictly construed.
What does “strict construction” mean in this context?	Strict construction means that the terms of a legislative grant, such as a franchise, should be interpreted narrowly and precisely. Any ambiguity or doubt should be resolved against the entity claiming the franchise.
Did any justices disagree with the Court’s decision?	Yes, several justices dissented, arguing that P.D. No. 1869 should be interpreted more broadly to include jai-alai within PAGCOR’s franchise. They believed that the law’s language was expansive enough to cover various forms of gaming.
What is the practical implication of this ruling?	The ruling clarifies the limits of PAGCOR’s authority and reinforces that any expansion of its powers requires explicit legislative authorization. This protects existing franchise holders and ensures a cautious approach to gambling activities.
Can PAGCOR enter into joint venture agreements to operate gaming activities?	Yes, PAGCOR can enter into joint venture agreements, but these agreements must be within the scope of its franchise. It cannot use joint venture agreements to effectively delegate or expand its franchise beyond what is explicitly authorized by law.

The Del Mar v. PAGCOR decision serves as a reminder of the judiciary’s role in interpreting and upholding the law, especially in areas with significant public interest concerns. The ruling underscores the importance of clarity and specificity in legislative grants of authority, ensuring that government agencies operate within their defined boundaries and that any expansion of their powers is subject to legislative scrutiny. This case remains a cornerstone in Philippine jurisprudence on gaming and franchise law.

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

June 19, 2001