YUN KWAN BYUNG, PETITIONER, VS. PHILIPPINE AMUSEMENT AND GAMING CORPORATION, RESPONDENT.

Yun Kwan Byung versus Philippine Amusement and Gaming Corporation

The Case

This is a petition for review brought by Yun Kwan Byung, a Korean national, against the Philippine Amusement and Gaming Corporation, known as PAGCOR, the government-owned and controlled corporation vested by law with the franchise to operate gambling casinos. The petitioner sued to compel PAGCOR to redeem gambling chips he says he accumulated at the Casino Filipino, worth two point one million US dollars. The case matters because it joins three great themes of the bar examinations: the limits of a legislative franchise, the void contract and its consequences, and the rule that the courts will not lend their aid to an illegal gambling transaction.

Procedural History

The petitioner filed a complaint for a sum of money before the Regional Trial Court of Manila, Branch 13. PAGCOR answered and filed a counterclaim. The trial court dismissed both the complaint and the counterclaim, holding that PAGCOR had no authority to lease any portion of its gaming tables to a private party, that the Junket Agreement was void, and that the parties should be left where they stood. The petitioner appealed to the Court of Appeals, which affirmed the trial court in a decision dated twenty seven May two thousand three. The petitioner moved for reconsideration, which the Court of Appeals denied on seven May two thousand four. The petitioner then elevated the case to the Supreme Court by petition for review.

Facts

PAGCOR launched a Foreign Highroller Marketing Program to invite foreign patrons to play at the dollar pit of designated casinos. The Korean-based ABS Corporation availed of the Program. Under a letter-agreement dated twenty five April nineteen ninety six, called the Junket Agreement, ABS Corporation undertook to bring foreign players to five designated gaming tables at the Casino Filipino Silahis. PAGCOR would provide ABS Corporation with separate junket chips, distinguished from the chips used by other players. ABS Corporation would distribute these chips to its players, collect them at the end of the playing period, and make an accounting to the casino treasury. ABS Corporation assumed sole responsibility to pay the winnings of its players and to settle the collectibles from losing players, and it held PAGCOR absolutely free and harmless from any claim. In return, PAGCOR was entitled to twelve and a half percent of the gross winnings of ABS Corporation, or one point five million US dollars, whichever is higher.

The petitioner says that from November nineteen ninety six to March nineteen ninety seven he came to the Philippines four times to play for high stakes at the Casino Filipino, and that he accumulated chips worth two point one million US dollars, of which he presented one point one million in evidence. He says he redeemed his chips during his first few winning trips, but that later the cashier refused to encash them, so he deposited them in a safety deposit box at the Grand Boulevard Hotel whenever he left Manila. PAGCOR answered that the petitioner was a junket player brought in by ABS Corporation, who played in the dollar pit exclusively leased to ABS Corporation, and that only ABS Corporation could account for the junket chips to the casino treasury.

PAGCOR posted a notice in English and Korean in the gaming room, stating that the room was exclusively operated by ABS Corporation under arrangement with PAGCOR, that ABS Corporation was solely accountable for all playing chips wagered on the tables, and that any financial arrangement between players and ABS Corporation bound only those parties. The trial court found that the junket chips were of a distinctive color and quality, that the junket players were confined to certain gaming rooms, and that the petitioner continued to play under these conditions over several months. When PAGCOR refused to encash the chips, the petitioner sued.

Issues

• Whether or not the Court of Appeals erred in holding that PAGCOR is not liable to the petitioner, disregarding the doctrine of implied agency or agency by estoppel.
• Whether or not the Court of Appeals erred in using the intent of the contracting parties as the test for the creation of agency, when the case concerns the liability of a presumed principal to a third party.
• Whether or not the Court of Appeals erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of ABS Corporation.

Applicable Provisions

Section 3, paragraph h, of Presidential Decree Number 1869, the PAGCOR charter then in force, provides:

Section 3. Corporate Powers. The Corporation shall have the following powers and functions, among others: x x x h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose pertaining to the business of the Corporation, or in any manner incident thereto, as principal, agent or otherwise, with any person, firm, association, or corporation.

This is the very power the Court measured the Junket Agreement against, and found wanting, because the power to contract for a lawful purpose does not include the power to share the franchise itself.

Article 2014 of the Civil Code provides:

No action can be maintained by the winner for the collection of what he has won in a game of chance.

This is the provision that bars the petitioner's demand, since the gambling between the junket player and the junket operator under the void agreement is illegal.

Article 1869 of the Civil Code provides:

Implied agency is derived from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

This is the provision on which the petitioner rested his theory of implied agency, which the Court rejected.

Ruling

On the first issue, the Court held that there was no implied agency and no agency by estoppel. Implied agency, being an actual agency, is a fact to be deduced from the acts of the principal. Here PAGCOR never intended to deal with the junket players, and never intended ABS Corporation to represent it in dealing with them. Representation is the basis of agency, and none is found in this case.

On the second issue, the Court held that the intent of the contracting parties was properly examined, because agency springs from the will of the principal. A void contract produces no effect either against or in favor of anyone, and cannot give rise to an implied agency. The special gaming chips, though belonging to PAGCOR, were mere accessories to the void Junket Agreement.

On the third issue, the Court held that there was no ratification. The Junket Agreement was void from the beginning, and the Court could not permit the petitioner to enforce it indirectly. The Court then laid down the decisive rule: PAGCOR has the sole and exclusive authority to operate a gambling activity, and cannot delegate that power, for the legal principle is that a delegated power cannot be delegated further. By taking only a percentage of the earnings of ABS Corporation, PAGCOR allowed ABS Corporation to operate gaming tables in the dollar pit, in direct violation of its charter. The Junket Agreement is therefore void, and the gambling under it is illegal. The Court also held that the amendatory law granting PAGCOR the power to enter into such agreements could not apply, because laws operate prospectively absent a clear contrary language, and the agreement was entered into in nineteen ninety six, before the amendment.

Doctrine

A legislative franchise is a special privilege of public concern, granted by the State upon such conditions as it imposes, and the grantee must not perform its activities arbitrarily but must strictly adhere to the limits of its franchise. PAGCOR may enter into operator's or management contracts, but it may not relinquish or share its franchise, for a delegated power cannot be delegated further. A contract by which PAGCOR shares its franchise is void, and gambling conducted under it is illegal, so that under Article 2014 of the Civil Code no action can be maintained by the winner for the collection of what he has won in a game of chance. A void contract produces no effect and cannot give rise to an implied agency under Article 1869, because implied agency requires acts of the principal showing that another acts in his behalf. Finally, amendatory laws operate prospectively unless retroactivity is expressly declared or necessarily implied.

Disposition

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals, so PAGCOR prevailed and the petitioner recovered nothing.

Remember This

Memorize the line that a franchise is a special privilege that cannot be shared, for a delegated power cannot be delegated further, and that the courts will not enforce winnings from illegal gambling. Examiners use this case on the limits of a legislative franchise, on the void contract and implied agency, and on the prospective operation of amendatory laws.