VOL.

300, DECEMBER 15, 1998 181

Manila Jockey Club, Inc. vs. Court of Appeals

*
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.

Horse Racing; Breakages; Words and Phrases; “Breakages”

are the fractions of ten centavos eliminated from the dividend of
winning tickets.—“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.
Same; Franchises; Words and Phrases; Franchise laws are
privileges conferred by the government on corporations to do that
“which does not belong to the citizens of the country generally by
common right.”—Franchise laws are privileges conferred by the
government on corporations to do that “which does not belong to
the citizens of the country generally by common right.” 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. Thus, a franchise partakes of a double
nature and character. In so far as it affects or concerns the public,
it is public juris and subject to governmental control. The
legislature may prescribe the conditions and terms upon which it
may be held, and the duty of grantee to the public exercising it.
Same; Same; Statutory Construction; Every statute should be
construed in such a way that will harmonize it with existing laws.
—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 by 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

__________

* FIRST DIVISION.

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182 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

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.
Same; Same; Same; Breakages; 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.—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.
Same; Same; Same; Same; Where the holding of horse races
on Wednesdays is in addition to the existing schedule of races
authorized by law, this new schedule became part of R.A. 6631 and
6632, with the set of procedures in the franchise laws applicable to
the conduct of horse racing business likewise applicable to
Wednesday or other midweek races; No law can be viewed in a
condition of isolation or as the beginning of a new legal system.—
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. 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
have taken full cognizance of the existing laws on the same
subject or those relating thereto.
Same; Same; Same; Same; Unjust Enrichment; Trusts; Even
if one of the benefactors of breakages had ceased operation, it was
still

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Manila Jockey Club, Inc. vs. Court of Appeals

not proper for the horse racing clubs to presume that they were
entitled to such share—when they mistakenly appropriated the
breakages for themselves, they became the implied trustees for
those legally entitled to the proceeds.—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 the 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.
Same; Breakages; Estoppel; Erroneous application of the law
by public officers does not prevent a subsequent correct application
of the law.—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. 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. 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.
Same; Same; The allocation of breakages in favor of city
hospitals and other institutions for rehabilitation of drug
dependents and other patients is a policy decision in pursuance of
social development goals worthy of judicial approbation.—
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.

184

184 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

Same; Same; Gambling; Statutory Construction; Horse racing

although authorized by law is still a form of gambling; 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.—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. For this reason,
legislative franchises impose limitations on horse racing and
betting. Petitioners’ 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: “x x x 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.” 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.

PETITION for review on certiorari of a decision of the

Court of Appeals.

The facts are stated in the opinion of the Court.

      Agcaoili & Associates for petitioners.
     The Solicitor General for respondents.

QUISUMBING, J.:

This is a Petition for 1 Review on Certiorari seeking the

reversal of the decision of the Court of Appeals in CA-G.R.
SP

_____________

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.

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2
No. 25251 dated September 17, 1991 and the resolution
dated January 8, 1992, which denied the motion for
reconsideration.3
At issue here is the control and disposition
of “breakages” 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:

“x x x Saturdays, Sundays and official holidays of the year,

excluding Thursdays 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)
 “x x x 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. 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.”

_____________

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.

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186 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

(Sec. 7 of R.A. 6632)

Said laws carried provisions on the allocation of

“breakages” to beneficiaries as follows:

  Franchise Laws
4 5
R.A. 6631 R.A. 6632
(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

_____________

4 SEC. 4, R.A. 6631.

x x x 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 Section 6, R.A. 6632.
x x x 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.

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the conduct of horse 6 racing, including the framing and

scheduling of races. By virtue of this power, the
PHILRACOM authorized the holding 7 of races on
Wednesdays starting on December 22, 1976.
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
8
of Wednesday races shall
belong to the racing club concerned.”

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, petitioners 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. 6631 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:

_____________

6 Rollo, p. 42, citing Sec. 8 of P.D. 420.

7 Ibid.
8 Rollo, p. 52.

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188 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

  Franchise Laws
9 10
E.O. 89 E.O. 88
(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%

_____________

9 Section 4 of Executive Order No. 89 (amending Sec. 4 of R.A. 6631)

reads:
Sec. 4. x x x 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 Section 1 of Executive Order No. 88 (amending Sec. 6 of R.A. 6632)
provides:
 Sec. 6. x x x 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 horsebreeding 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.

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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 the11
distribution scheme prescribed in said
Executive Orders.”
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.

____________

11 Rollo, p. 54.

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Manila Jockey Club, Inc. vs. Court of Appeals

4) Kindly furnish the Commission with the breakdown of all

breakages derived from Tuesdays, Thursdays and
Wednesdays racing
12
that you have remitted to the legal
beneficiaries.”

On June 16, 1987,13

petitioners MJCI and PRCI sought
reconsideration of the May 21, 1987 opinion of then
Deputy Executive Secretary Macaraig, but the same was
denied by the 14Office of the President in its letter dated
April 11, 1988. 15
On April 25, 1988, PHILRACOM wrote another letter
to the petitioners MJCI and PRCI seeking the remittance
of its share in the breakages. Again, on June 13, 1990,
PHILRACOM reiterated its 16
previous demand embodied in
its letter of April 25, 1988.
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

___________

12 Rollo, pp. 55-56.

13 Rollo, p. 57.
14 Rollo, p. 62.
15 Rollo, p. 65.
16 Rollo, p. 66.

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Manila Jockey Club, Inc. vs. Court of Appeals

b) The ownership by the Manila Jockey Club, Inc. and the

Philippine Racing Club, Inc. of the breakages they derive
from midweek 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.
17
SO ORDERED.”

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 from 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 general18
in character apply to
breakages derived on any racing day.
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 Sec-

_____________

17 Petition, pp. 12-13, rollo, pp. 19-20.

18 Rollo, p. 45.

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192 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

tion 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 respondents to remit to PHILRACOM its
share under E.O. 88 and E.O. 89 derived from races held
on Tuesdays, Wednesdays, Thursdays as authorized by
PHILRACOM.
19
SO ORDERED.”

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,
1989 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
20
Motion is denied.
SO ORDERED.”

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
break-

_____________

19 Rollo, pp. 46-47.

20 Rollo, p. 50.

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Manila Jockey Club, Inc. vs. Court of Appeals

ages 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
21
races shall belong to the racing clubs concerned. They
even advance the view that “where a statute by its terms is
expressly limited to certain matters, it may not by
interpretation
22
or construction be extended to other
matters.”
 However, respondent PHILRACOM contends that R.A.
Nos. 6631 and 6632 are laws intended primarily to grant
petitioners their respective franchises to construct,23operate,
and maintain a race track for horse racing. 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 rules 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.

_____________

21 Rollo, pp. 24-25.

22 Rollo, p. 29.
23 Rollo, p. 93.

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194 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

24
Franchise laws are privileges conferred by the
government on corporations to do that “which does not
belong25to the citizens of the country generally by common
right.” As a rule, a franchise springs from contracts
between the sovereign power and the private corporation
for purposes
26
of individual advantage as well as public
benefit. Thus,
27
a franchise partakes of a double nature and
character. In so far as it affects or concerns the public,
28
it
is public juris and subject to governmental control. The
legislature may prescribe the conditions and terms upon
which it may29be held, and the duty of grantee to the public
exercising it.
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
by 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
30
laws with laws is the best method of
interpretation.
A reasonable reading of the horse racing laws favors the
determination that the entities enumerated in the distribu-

_____________

24 RCPI vs. NTC, 150 SCRA 450 (1987); PLDT vs. Eastern
Telecommunications Philippines, 213 SCRA 16 (1992); Alger Electric, Inc.
vs. CA, 135 SCRA 37 (1985).
25 36 Am Jur 2d Franchises § 1, citing New Orleans Gaslight Co. v.
Louisiana Light and H.P. & Mfg. Co., 115 US 650, 29 L ed 516 6 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.

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Manila Jockey Club, Inc. vs. Court of Appeals

tion 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
31
of isolation or as the beginning
of a new legal system. 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 have 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 already 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 oper-

_____________

31 Ibid., citing Black pp. 345-347.

196

196 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

ate prospectively unless the legislator intends to give them

retroactive effect, the accrual of these breakages should
start on December32
16, 1986, the date of effectivity of E.O.
Nos. 88 and 89. 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 the 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
Sec. 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 capital outlays and other expenses relative to horse-
breeding activities of the National Stud Farm. x x x x x x [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

_____________

32 Rollo, p. 30.

197

VOL. 300, DECEMBER 15, 1998 197

Manila Jockey Club, Inc. vs. Court of Appeals

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. x x x x x x.” [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
33
by a mistake committed by its officials or agents. Well-
settled also is the rule that the erroneous application of the
law by public officers does34
not prevent a subsequent correct
application of the law. 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
_____________

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. Castañeda, 165 SCRA 327 (1988).
34 Cruz, Jr. vs. Court of Appeals, 194 SCRA 145 (1991); Republic vs. CA,
182 SCRA 290 (1990); People vs. Castañeda, 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).

198

198 SUPREME COURT REPORTS ANNOTATED

Manila Jockey Club, Inc. vs. Court of Appeals

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 35 aims of
enhancing national productivity and self-reliance. For this
reason, legislative franchises impose limitations on horse
racing and betting. Petitioners’ contention that a gambling
franchise is a public contract protected by the
Constitutional provision on non-impairment of contract
could not 36be left unqualified. For as well said in Lim vs.
Pacquing:

“x x x 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
37
subject to the
exercise of police power for the public welfare.”
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 38 and rights
claimed by franchise holders under its authority.
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.

_____________

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.

199

VOL. 300, DECEMBER 16, 1998 199

Alonto-Frayna vs. Astih

Costs against petitioners.

SO ORDERED.

          Davide, Jr. (C.J., Chairman), Melo, Vitug and

Panganiban, JJ., concur.

Judgment and resolution affirmed, petition denied.

Notes.—Advocacy of liberalized franchising and

regulatory process is tantamount to an abdication by the
government of its inherent right to exercise police power, of
the right to regulate public utilities for protection of the
public and the utilities themselves. (Kilusang Mayo Uno
Labor Center vs. Garcia, Jr., 239 SCRA 386 [1994])
The morality of gambling is not a justiciable issue.
(Kilosbayan, Incorporated vs. Morato, 246 SCRA 540
[1995])

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