G.R. No. 103533




Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 103533 December 15, 1998 MANILA JOCKEY CLUB, INC. AND PHILIPPINE RACING CLUB, INC., petitioners, vs. THE COURT OF APPEALS AND PHILIPPINE RACING COMMISSION, respondents. QUISUMBING, J.: This is a Petition for Review on Certiorari seeking the reversal of the decision1 of the Court of Appeals in CA-G.R. SP No. 25251 dated September 17, 1991 and the resolution2 dated January 8, 1992, which denied the motion for reconsideration. At issue here is the control and disposition of "breakages" 3 in connection with the conduct of horse-racing. The pertinent facts on record are as follows: On June 18, 1948, Congress approved Republic Act No. 309, entitled "An Act to Regulate Horse-Racing in the Philippines." This Act consolidated all existing laws and amended inconsistent provisions relative to horse racing. It provided for the distribution of gross receipts from the sale of betting tickets, but is silent on the allocation of so-called "breakages." Thus the practice, according to the petitioners, was to use the "breakages" for the anti-bookies drive and other sales promotions activities of the horse racing clubs. On October 23, 1992, petitioners, Manila Jockey Club, Inc. (MJCI) and Philippine Racing Club, Inc. (PRCI), were granted franchises to operate and maintain race tracks for horse racing in the City of Manila and the Province of Rizal by virtue of Republic Act Nos. 6631 and 6632, respectively, and allowed to hold horse races, with bets, on the following dates: . . . Saturdays, Sundays and official holidays of the year, excluding Thursday and Fridays of the Holy Week, June twelfth, commonly known as Independence Day, Election Day and December thirtieth, commonly known as Rizal Day. (Sec. 5 of R.A. 6631) . . . Saturday, Sundays, and official holiday of the year, except on those official holidays where the law expressly provides that no horse races are to be held. The grantee may also conduct races on the eve of any public holiday to start not earlier than five-thirty (5:30) o'clock in the afternoon but not to exceed five days a year. (Sec. 7 of R.A. 6632) Said laws carried provisions on the allocation of "breakages" to beneficiaries as follows: Franchise Laws R.A. 66314 R.A. 66325 (for MJCI) (for PRCI) Provincial or city hospitals 25% Rehabilitation of drug addicts 25% 50% For the benefit of Philippine Amateur Athletes Federation 50% 25% Charitable institutions 25% On March 20, 1974, Presidential Decree No. 420 was issued creating the Philippine Racing Commission (PHILRACOM), giving it exclusive jurisdiction and control over every aspect of the conduct of horse racing, including the framing and scheduling of races. 6 By virtue of this power, the PHILRACOM authorized the holding of races on Wednesdays starting on December 22, 1976.7 In connection with the new schedule of races, petitioners made a joint query regarding the ownership of breakages accumulated during Wednesday races. In response to the query, PHILRACOM rendered its opinion in a letter dated September 20, 1978. It declared that the breakages belonged to the racing clubs concerned, to wit: We find no further need to dissect the provisions of P.D. 420 to come to a legal conclusion. As can be clearly seen from the foregoing discussion and based on the established precedents, there can be no doubt that the breakage of Wednesday races shall belong to the racing club concerned. 8 Consequently, the petitioners allocated the proceeds of breakages for their own business purpose: Thereafter, PHILRACOM authorized the holding of races on Thursdays from November 15, 1984 to December 31, 1984 and on Tuesdays since January 15, 1985 up to the present. These mid-week races are in addition to those days specifically mentioned in R.A. 6631 and R.A. 6632. Likewise, petition allocated the breakages from these races for their own uses. On December 16, 1986 President Corazon Aquino amended certain provisions Sec. 4 of R.A. 8631 and Sec. 6 of R.A. 6632 through Executive Orders No. 88 and 89. Under these Executive Orders, breakages were allocated to beneficiaries, as follows: Franchise Laws E.O. 899 E.O. 88 10 (for MJCI) (for PRCI) Provincial or city hospitals 25% Rehabilitation of drug addicts 25% 50% For the benefit of Philippine Racing Commission 50% 25% Charitable institutions 25% On April 23, 1987, PHILRACOM itself addressed a query to the Office of the President asking which agency is entitled to dispose of the proceeds of the "breakages" derived from the Tuesday and Wednesday races. In a letter dated May 21, 1987, the Office of the President, through then Deputy Executive Secretary Catalino Macaraig, Jr., replied that "the disposition of the breakages rightfully belongs to PHILRACOM, not only those derived from the Saturday, Sunday and holiday races, but also from the Tuesday and Wednesday races in accordance with the distribution scheme prescribed in said Executive Orders". 11 Controversy arose when herein respondent PHILRACOM, sent a series of demand letters to petitioners MJCI and PRCI, requesting its share in the "breakages" of mid-week-races and proof of remittances to other legal beneficiaries as provided under the franchise laws. On June 8, 1987, PHILRACOM sent a letter of demand to petitioners MJCI and PRCI asking them to remit PHILRACOM's share in the "breakages" derived from the Tuesday, Wednesday and Thursday races in this wise: x x x x x x x x x Pursuant to Board Resolution dated December 21, 1986, and Executive Order Nos. 88 and 89 series of 1986, and the authority given by the Office of the President dated May 21, 1987, please remit to the Commission the following: 1) PHILRACOM's share in the breakages derived from Wednesday racing for the period starting December 22, 1976 up to the December 31, 1986. 2) PHILRACOM's share in the breakages derived from Thursday racing for the period starting November 15, 1984 up to December 31, 1984; and 3) PHILRACOM's share in the breakages derived from Tuesday racing for the period starting January 15, 1985 up to December, 1986. 4) Kindly furnish the Commission with the breakdown of all breakages derived from Tuesday, Thursdays and Wednesdays racing that you have remitted to the legal beneficiaries. 12 On June 16, 1987, petitioners MJCI and PRCI sought reconsideration 13 of the May 21, 1987 opinion of then Deputy Executive Secretary Macaraig, but the same was denied by the Office of the President in its letter dated April 11, 1988. 14 On April 25, 1988, PHILRACOM wrote another letter 15 to the petitioners MJCI and PRCI seeking the remittance of its share in the breakages. Again, on June 13, 1990, PHILRACOM reiterated its previous demand embodied in its letter of April 25, 1 988. 16 Petitioners ignored said demand. Instead, they filed a Petition for Declaratory Relief before the Regional Trial Court, Branch 150 of Makati, on the ground that there is a conflict between the previous opinion of PHILRACOM dated September 20, 1978 and the present position of PHILRACOM, as declared and affirmed by the Office of the President in its letters dated May 21, 1987 and April 11, 1988. Petitioners averred that there was an "actual controversy" between the parties, which should be resolved. On March 11, 1991, the trial court rendered judgment, disposing as follows: WHEREFORE, and in view of all the foregoing considerations, the Court hereby declares and decides as follows: a) Executive Orders Nos. 88 and 89 do not and cannot cover the disposition and allocation of mid-week races, particularly those authorized to be held during Tuesdays, Wednesdays and those which are not authorized under Republic Acts 6631 and 6632; and b) The ownership by the Manila Jockey Club, Inc. and the Philippine Racing Club, Inc. of the breakages they derive from mid-week races shall not be disturbed, with the reminder that the breakages should be strictly and wholly utilized for the purpose for which ownership thereof has been vested upon said racing entities. SO ORDERED. 17 Dissatisfied, respondent PHILRACOM filed a Petition for Certiorari with prayer for the issuance of a writ of preliminary injunction before this Court, raising the lone question of whether or not E.O. Nos. 88 and 89 cover breakages derived from the mid-week races. However, we referred the case to the Court of Appeals, which eventually reversed the decision of the trial court, and ruled as follows: x x x x x x x x x The decision on the part of PHILRACOM to authorize additional racing days had the effect of widening the scope of Section 5 of RA 6631 and Section 7 of RA 6632. Consequently, private respondents derive their privilege to hold races on the designated days not only their franchise acts but also from the order issued by the PHILRACOM. No provision of law became inconsistent with the passage of the Order granting additional racing days. Neither was there a special provision set to govern those mid-week races. The reason is simple. There was no need for any new provisions because there are enough general provisions to cover them. The provisions on the disposition and allocation of breakages being general in character apply to breakages derived on any racing day. 18 x x x x x x x x x WHEREFORE, based on the foregoing analysis and interpretation of the laws in question, the judgment of the trial court is hereby SET ASIDE. Decision is hereby rendered: 1. declaring Section 4 of RA 6631 as amended by E.O. 89 and Section 6 of RA 6632 as amended by E.O. 88 to cover the disposition and allocation of breakages derived on all races conducted by private respondents on any racing day, whether as provided for under Section 4 of RA 6631 or Section 6 of RA 6632 or as ordered by PHILRACOM in the exercise of its powers under P.D. 420; 2. ordering private respondent to remit to PHILRACOM its share under E.O. 88 and E.O. 89 derived from races held on Tuesday, Wednesdays, Thursday as authorized by PHILRACOM. SO ORDERED. 19 Petitioners filed a motion for reconsideration, but it was denied for lack of merit, with respondent Court of Appeals further declaring that: x x x x x x x x x In so far as the prospective application of Executive Orders Nos. 88 and 89 is concerned. We have no disagreement with the respondents. Since PHILRACOM became the beneficiary of the breakages only upon effectivity of Executive Order Nos. 88 and 89, it is therefore entitled to such breakages from December 16, 1986 when said Executive Orders were issued. However, we do not concede that respondents are entitled to breakages prior to December 16, 1986 because it is clear that the applicable laws from 1976 to December 16, 1986 were R.A. 6631 and R.A. 6632, which specifically apportion the breakages to specified beneficiaries among which was the PAAF, a government agency. Since respondents admit that PHILRACOM (Petitioner) was merely placed in lieu of PAAF as beneficiary/recipient of breakages, then whatever breakages was due to PAAF as one of the beneficiaries under R.A. Nos. 6631 and 6632 accrued to or should belong to PHILRACOM as successor to the defunct PAAF. Finding the Motion for Reconsideration without merit, and for reasons indicated, the Motion is denied. SO ORDERED. 20 Consequent to the aforequoted adverse decision, petitioners MJCI and PRCI filed this petition for review under Rule 45. The main issue brought by the parties for the Court's resolution is: Who are the rightful beneficiaries of the breakages derived from mid-week races? This issue also carries an ancillary question: assuming PHILRACOM is entitled to the mid-week breakages under the law, should the petitioners remit the money from the time the mid-week races started, or only upon the promulgation of E.O. Nos. 88 and 89? Petitioners assert that franchise laws should be construed to apply the distribution scheme specifically and exclusively to the racing days enumerated in Sec. 5 of R.A. 6631, and Sec. 7 of R.A. 6632. They claim that disposition of breakages under these laws should be limited to races conducted on "all Saturdays, Sundays, and official holidays of the year, except, on those official holidays where the law expressly provides that no horse races are to be held", hence, there is no doubt that the breakages of Wednesday races shall belong to the racing clubs concerned. 21 They even advance the view that "where a statute by its terms is expressly limited to certain matters, it may not by interpretation or construction be extended to other matters" 22 However, respondent PHILRACOM contends that R.A. Nos. 6631 and 6632 are laws intended primarily to grant petitioners their respective franchises to construct, operate, and maintain a race track for horse racing. 23 When PHILRACOM added mid-week races, the franchises given to the petitioners remained the same. Logically, what applies to races authorized under Republic Act Nos. 6631 and 6632 should also apply to races additionally authorized by PHILRACOM, namely mid-week races, because these are general provisions which apply general rues and procedures governing the operation of the races. Consequently, if the authorized racing days are extended, these races must therefore be governed by the same rules and provisions generally provided therein. We find petitioners' position on the main issue lacking in merit and far from persuasive. Franchise laws are privileges 24 conferred by the government on corporations to do that "which does not belong to the citizens of the country generally by common right". 25 As a rule, a franchise springs from contracts between the sovereign power and the private corporation for purposes of individual advantage as well as public benefit. 26 Thus, a franchise partakes of a double nature and character. 27 In so far as it affects or concerns the public, it is public juris and subject to governmental control. 28 The legislature may prescribe the conditions and terms upon which it may be held, and the duty of grantee to the public exercising it. 29 As grantees of a franchise, petitioners derive their existence from the same. Petitioners' operations are governed by all existing rules relative to horse racing provided they are not inconsistent with each other and could be reasonably harmonized. Therefore, the applicable laws are R.A. 309, as amended, R.A. 6631 and 6632, as amended by E.O. 88 and 89, P.D. 420 and the orders issued PHILRACOM. Consequently, every statute should be construed in such a way that will harmonize it with existing laws. This principle is expressed in the legal maxim "interpretare et concordare leges legibus est optimus interpretandi", that is, to interpret and to do it in such a way as to harmonize laws with laws is the best method of interpretation. 30 A reasonable reading of the horse racing laws favors the determination that the entities enumerated in the distribution scheme provided under R.A. Nos. 6631 and 6632, as amended by Executive Orders 88 and 89, are the rightful beneficiaries of breakages from mid-week races. Petitioners should therefore remit the proceeds of breakages to those benefactors designated by the aforesaid laws. The holding of horse races on Wednesdays is in addition to the existing schedule of races authorized by law. Since this new schedule became part of R.A. 6631 and 6632 the set of procedures in the franchise laws applicable to the conduct of horse racing business must likewise be applicable to Wednesday or other mid-week races. A fortiori, the granting of the mid-week races does not require another legislative act to reiterate the manner of allocating the proceeds of betting tickets. Neither does the allocation of breakages under the same provision need to be isolated to construe another distribution scheme. No law can be viewed in a condition of isolation or as the beginning of a new legal system. 31 A supplemental law becomes an addition to the existing statutes, or a section thereof; and its effect is not to change in any way the provisions of the latter but merely to extend the operation thereof, or give additional power to enforce its provisions, as the case may be. In enacting a particular statute, legislators are presumed to have full knowledge and to taken full cognizance of the existing laws on the same subject or those relating thereto. Proceeding to the subsidiary issue, the period for the remittance of breakages to the beneficiaries should have commenced from the time PHILRACOM authorized the holding of mid-week races because R.A. Nos. 6631 and 6632 were ready in effect then. The petitioners contend that they cannot be held retroactively liable to respondent PHILRACOM for breakages prior to the effectivity of E.O. Nos. 88 and 89. They assert that the real intent behind E.O. Nos. 88 and 89 was to favor the respondent PHILRACOM anew with the benefits which formerly had accrued in favor of Philippine Amateur Athletic Federation (PAAF). They opine that since laws operate prospectively unless the legislator intends to give them retroactive effect, the accrual of these breakages should start on December 16, 1986, the date of effectivity of E.O. Nos. 88 and 89. 32 Now, even if one of the benefactors of breakages, the PAAF, as provided by R.A. 6631 and 6632 had ceased operation, it is still not proper for the petitioners to presume that they were entitled to PAAF's share. When the petitioners mistakenly appropriated the breakages for themselves, they became the implied trustees for those legally entitled to the proceeds. This is in consonance with Article 1456 of the Civil Code, which provides that: Art. 1456 — If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. The petitioners should have properly set aside amount for the defunct PAAF, until an alternative beneficiary was designated, which as subsequently provided for by Executive Order Nos. 88 and 89, is PHILRACOM: x x x x x x x x x Secs. 2 — All the cash balances and accumulated amounts corresponding to the share of the Philippine Amateur Athletic Federation/Ministry of Youth and Sports Development, pursuant to Section 6 of Republic Act No. 6632, not remitted by the Philippine Racing Club, Inc./Manila Jockey Club Inc., are hereby transferred to the Philippine Racing Commission to be constituted into a TRUST FUND to be used exclusively for the payment of additional prizes for races sponsored by the Commission and for necessary outlays and other expenses relative to horse-breeding activities of the National Stud Farm. . . . . . . [E.O. No. 88] x x x x x x x x x Sec. 2. Any provision of law to the contrary notwithstanding, all cash balances and accumulated amounts corresponding to the share of the Philippine Amateur Athletic Federation/Ministry of Youth and Sports Development, pursuant to Republic Act No. 6631, not remitted by the Manila Jockey Club, Inc., are hereby constituted into a TRUST FUND to be used exclusively for the payment of additional prizes for races sponsored by the Philippine Racing Commission and for the necessary capital outlays and other expenses relative to horse-breeding activities of the National Stud Farm. . . . . . . . [E.O. No. 89] While herein petitioners might have relied on a prior opinion issued by an administrative body, the well-entrenched principle is that the State could not be estopped by a mistake committed by its officials or agents. 33 Well-settled also is the rule that the erroneous application of the law by public officers does not prevent a subsequent correct application of the law. 34 Although there was an initial interpretation of the law by PHILRACOM, a court of law could not be precluded from setting that interpretation aside if later on it is shown to be inappropriate. Moreover, the detrimental consequences of depriving the city hospitals and other institutions of the funds needed for rehabilitation of drug dependents and other patients are all too obvious. It goes without saying that the allocation of breakages in favor of said institutions is a policy decision in pursuance of social development goals worthy of judicial approbation. Nor could we be oblivious to the reality that horse racing although authorized by law is still a form of gambling. Gambling is essentially antagonistic to the aims of enhancing national productivity and self-reliance. 35 For this reason, legislative franchises impose limitations on horse racing and betting. Petitioner's contention that a gambling franchise is a public contract protected by the Constitutional provision on non-impairment of contract could not be left unqualified. For as well said in Lim vs. Pacquing: 36 . . . it should be remembered that a franchise is not in the strict sense a simple contract but rather it is, more importantly, a mere privilege specially in matters which are within the government's power to regulate and even prohibit through the exercise of the police power. Thus, a gambling franchise is always subject to the exercise of police power for the public welfare. 37 That is why we need to stress anew that a statute which authorizes a gambling activity or business should be strictly construed, and every reasonable doubt be resolved so as to limit rather than expand the powers and rights claimed by franchise holders under its authority. 38 WHEREFORE, there being no reversible error, the appealed decision and the resolution of the respondent Court of Appeals in CA-G.R. SP No. 25251, are hereby AFFIRMED, and the instant petition is hereby DENIED for lack of merit. Costs against petitioners. SO ORDERED. Davide, Jr., C.J., Melo, Vitug and Panganiban, JJ., concur. Footnotes 1 Decision of the Court of Appeals penned by Associate Justice Jose C. Campos, Jr., concurred in by Associate Justice Venancio D. Aldecoa, Jr. and Filemon H. Mendoza; rollo, pp. 40-47. 2 Rollo, pp. 49-50. 3 "Breakages" are the fractions of ten centavos eliminated from the dividend of winning tickets. For example the dividends due on a winning ticket is ten pesos and ninety-eight centavos, the fraction of ten centavos or eight centavos shall be deducted from the dividends and set aside as part of breakages. 4 Sec. 4, R.A. 6631. . . . The receipts from betting corresponding to the fractions of ten centavos eliminated from the dividends paid to the winning tickets, commonly known as breakage, shall be set aside as follows: twenty-five per centum (25%) to the provincial or city hospitals where the race track is located, twenty-five per centum (25%) for the rehabilitation of drug addicts as provided in Republic Act Numbered Sixty-four hundred and twenty-five and fifty per centum (50%) for the benefit of the Philippine Amateur Athletic Federation, subject to the condition that the funds shall be used exclusively for the training of Filipino athletes who will participate in international sports contests. 5 Sec. 6, R.A. 6632. . . . The receipts from betting corresponding to the fractions of less than ten centavos eliminated from the dividends paid to the winning tickets, commonly known as breakage shall be set aside as follows: twenty-five per centum, (25%) for the operations expenses of the Philippine Amateur Athletic Federation; twenty-five per centum (25%) for the charitable institutions within the Municipality of Makati; and fifty per centum (50%) for the rehabilitation of drug addicts, as provided in Republic Act Numbered Six thousand four hundred and twenty-five. 6 Rollo p. 42, citing Sec, 8 of P.D. 420. 7 Ibid. 8 Rollo, p. 52. 9 Sec. 4 of Executive Order No. 89 (amending Sec. 4 of R.A. 6631 ) reads: Sec. 4. . . . The receipts from betting corresponding to the fractions of ten (10) centavos eliminated from the dividends paid to the winning tickets, commonly known as breakage, shall be set aside as follows: twenty-five per centum (25%) to the provincial or city hospitals where the race track is located, twenty-five per centum (25%) for the rehabilitation of drug addicts as provided in Republic Act Numbered Sixty-four hundred and twenty-five as amended, and fifty per centum (50%) for the benefit of the Philippine Racing Commission, subject to the condition that the funds shall be used exclusively for the payment of additional prizes for races sponsored by the Philippine Racing Commission and for the necessary capital outlays and other expenses relative to horse-breeding activities of the national Stud Farm which is now under the Philippine Racing Commission. 10 Sec. 1 of Executive Order No. 88 (amending Sec. 6 R.A. 6632) provides: Sec. 6. . . . The receipts from betting corresponding to the fractions of less than ten (10) centavos eliminated from the dividends paid to the winning tickets, commonly known as breakage, shall be set aside as follows: Twenty-five per centum (25%) for the benefit of the Philippine Racing Commission subject to the condition that the funds shall be used exclusively for the payment of additional prizes for races sponsored by the Philippine Racing Commission and for necessary capital outlays and other expense relative to horse-breeding activities of the national Stud Farm which is now under the Philippine Racing Commission; twenty-five per centum (25%) for the charitable institutions within the Municipality of Makati; and fifty per centum (50%) for the rehabilitation of drug addicts, as provided in Republic Act Numbered Six Thousand Four Hundred twenty-five. 11 Rollo, p. 54. 12 Rollo, pp. 55-56. 13 Rollo, p. 57. 14 Rollo, p. 62. 15 Rollo, p. 65. 16 Rollo, p. 66. 17 Petition, pp. 12-13, rollo, pp. 19-20. 18 Rollo, p. 45. 19 Rollo, pp. 46-47. 20 Rollo, p. 50. 21 Rollo p. 24-25. 22 Rollo p. 29. 23 Rollo p. 93. 24 RCPI vs. NTC, 150 SCRA 450 (1987); PLDT vs. Eastern Telecommunications Philippines, 213 SCRA 16 (1992); Alger Electric Inc. vs. CA, 153 SCRA 37 (1985). 25 36 Am Jur 2d Franchises § 1, citing New Orleans Gaslight Co. v. Lovisiana Light and H.P. & Mfg. Co., 115 US 650, 29 L ed 5166 S Ct 252. 26 36 Am Jur 2d Franchises § 4. 27 Ibid. 28 Id. 29 Id. 30 Gonzaga, Luis J., Statutes and their Construction, p. 218. 31 Ibid., citing Black pp. 345-347. 32 Rollo, p. 30. 33 Republic vs. Intermediate Appellate Court, 209 SCRA 90 (1992), DBP vs. Commission on Audit, 231 SCRA 202 (1994); Sharp International Marketing vs. CA, 201 SCRA 299 (1991); GSIS vs. CA, 218 SCRA 233 (1990); citing Beronilla vs. GSIS, 36 SCRA 44, 55 (1970); Republic vs. PLDT, 26 SCRA 620 (1969); Pineda vs. CFI of Tayabas, 52 Phil. 803 (1929); Benguet Consolidated Mining Co. vs. Pineda, 98 Phil. 711 (1956); Republic vs. Philippine Rabbit Bus Lines, Inc., 32 SCRA 211 (1970); People vs. Castaneda, 165 SCRA 327 (1988). 34 Cruz, Jr. vs. Court of Appeals, 194 SCRA 145 (1991); Republic vs. CA, 182 SCRA 290 (1990); People vs. Castaneda, 165 SCRA 327 (1988); citing E. Rodriguez, Inc. vs. Collector of Internal Revenue, 28 SCRA 1119 (1969); Tan Guan vs. CTA, 19 SCRA 903 (1967); Visayan Cebu Terminal Co, Inc. vs. Commissioner of Internal Revenue, 13 SCRA 357 (1965); Floro vs. PNB, 5 SCRA 906 (1962); The Collector of Internal Revenue vs. Ellen Wood McGrath, et al., 111 Phil. 222 (1961); Gutierrez, et al. vs. CTA, 101 Phil. 713 (1957); Atlas Consolidated Mining and Development Corp. vs. Commissioner of Internal Revenue, 102 SCRA 246 (1981). 35 Lim vs. Pacquing, 240 SCRA 649 (1995) at p. 677. 36 Ibid., at p. 678. 37 Ibid. 38 38 Am Jur 2d Gambling § 18; Aicardi vs. Alabama, 19 Wall (US) 635, 22 L ed 215; West Indies, Inc. vs. First National Bank, 67 Nev 13, 214 P2d 144. The Lawphil Project - Arellano Law Foundation