Basco vs. Phil. Amusements and Gaming Corporation

52 SUPREME COURT REPORTS ANNOTATED
Basco vs. Phil. Amusements and Gaming Corporation
*
G.R. No. 91649. May 14, 1991.
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE,

SOCRATES MARANAN AND LORENZO SANCHEZ,
petitioners, vs. PHILIPPINE AMUSEMENTS AND
GAMING CORPORATION (PAGCOR), respondent.
Constitutional Law; Taxation; Municipal Corporations;

Municipal corporations have no inherent power to tax; their power
to tax must always yield to a legislative act.—The City of Manila,
being a mere Municipal corporation has no inherent right to
impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v.
Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7
SCRA 643). Thus, “the Charter or statute must plainly show an
intent to confer that power or the municipality cannot assume it”
(Medina v. City of Baguio, 12 SCRA 62). Its “power to tax”
therefore must always yield to a legislative act which is superior
having been passed upon by the state itself which has the
“inherent power to tax” (Bernas, the Revised [1973] Philippine
Constitution, Vol. 1, 1983 ed. p. 445).
Same; Same; Same; Same; Congress has the power of control
over local governments; if Congress can grant a municipal
corporation the power to tax certain matters, it can also provide for
exemptions or even take back the power.—The Charter of the City
of Manila is subject to control by Congress. It should be stressed
that “municipal corporations are mere creatures of Congress”
(Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the
power to “create and abolish municipal corporations” due to its
“general legislative powers” (Asuncion v. Yriantes, 28 Phil. 67;
Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the
power of control over local governments (Hebron v. Reyes, G.R.
No. 9124, July 2, 1950). And if Congress can grant the City of
Manila the power to tax certain matters, it can also provide for
exemptions or even take back the power.
Same; Same; Same; License Fees; The power of local
governments to regulate gambling thru the grant of franchises,
licenses or permits was withdrawn by PD 771, it is now vested
exclusively on the National Government.—The City of Manila’s
power to impose license fees on gambling, has long been revoked.
As early as 1975, the power of local
________________
* EN BANC.
53
VOL. 197, MAY 14, 1991 53
governments to regulate gambling thru the grant of “franchise,

licenses or permits” was withdrawn by P.D. No. 771 and was
vested exclusively on the National Government. xxx xxx
Therefore, only the National Government has the power to issue
“licenses or permits” for the operation of gambling. Necessarily,
the power to demand or collect license fees which is a consequence
of the issuance of “licenses or permits” is no longer vested in the
City of Manila.
Same; Same; Same; Same; Local governments have no power
to tax instrumentalities of the National Government; PAGCOR,
being an instrumentality of the Government, is therefore exempt
from local taxes.—Local governments have no power to tax
instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original
charter, PD 1869. All of its shares of stocks are owned by the
National Government. xxx xxx PAGCOR has a dual role, to
operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of
the Government, PAGCOR should be and actually is exempt from
local taxes. Otherwise, its operation might be burdened, impeded
or subjected to control by a mere Local government. “The states
have no power by taxation or otherwise, to retard, impede, burden
or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in
the federal government.” (MC Culloch v. Maryland, 4 Wheat 316,
4 L Ed. 579) This doctrine emanates from the “supremacy” of the
National Government over local governments. “Justice Holmes,
speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no
state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
accomplishment of them.” (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, italics supplied). Otherwise, mere creatures of the
State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or
enterprise using the power to tax as “a tool for regulation” (U.S. v.
Sanchez, 340 US 42). The power to tax which was called by
Justice Marshall as the “power to destroy” (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality
or creation of the very entity which has the inherent power to
wield it.
54
Same; Same; Same; Same; The power of local government to

impose taxes and fees is always subject to limitations which
Congress may provide by law.—The power of local government to
“impose taxes and fees” is always subject to “limitations” which
Congress may provide by law. Since PD 1869 remains an
“operative” law until “amended, repealed or revoked” (Sec. 3, Art.
XVIII, 1987 Constitution), its “exemption clause” remains as an
exception to the exercise of the power of local governments to
impose taxes and fees. It cannot therefore be violative but rather
is consistent with the principle of local autonomy.
Same; Same; Same; Local Autonomy; The principle of local
autonomy does not make local governments sovereign within the
state, it simply means decentralization.—Besides, the principle of
local autonomy under the 1987 Constitution simply means
“decentralization” (III Records of the 1987 Constitutional
Commission, pp. 435-436, as cited in Bernas, the Constitution of
the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It
does not make local governments sovereign within the state or an
“imperium in imperio.” Local Government has been described as a
political subdivision of a nation or state which is constituted by
law and has substantial control of local affairs. In a unitary
system of government, such as the government under the
Philippine Constitution, local governments can only be an intra
sovereign subdivision of one sovereign nation, it cannot be an
imperium in imperio. Local government in such a system can only
mean a measure of decentralization of the function of government.
(italics supplied)
Same; Equal Protection Clause; The “equal protection” clause
does not preclude classification of individuals who may be
accorded different treatment under the law as long as the
classification is not unreasonable or arbitrary.—Petitioners next
contend that P.D. 1869 violates the equal protection clause of the
Constitution, because “it legalized PAGCOR—conducted
gambling, while most gambling are outlawed together with
prostitution, drug trafficking and other vices” (p. 82, Rollo). We,
likewise, find no valid ground to sustain this contention. The
petitioners’ posture ignores the well-accepted meaning of the
clause “equal protection of the laws.” The clause does not preclude
classification of individuals who may be accorded different
treatment under the law as long as the classification is not
unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155).
A law does not have to operate in equal force on all persons or
things to be conformable to Article III, Section 1 of the
Constitution (DECS v. San Diego, G.R. No. 89572, December 21,
1989). The “equal protection
55
VOL. 197, MAY 14, 1991 55
clause” does not prohibit the Legislature from establishing classes

of individuals or objects upon which different rules shall operate
(Laurel v. Misa, 43 O.G. 2847). The Constitution does not require
situations which are different in fact or opinion to be treated in
law as though they were the same (Gomez v. Palomar, 25 SCRA
827). Just how P.D. 1869 in legalizing gambling conducted by
PAGCOR is violative of the equal protection is not clearly
explained in the petition. The mere fact that some gambling
activities like cockfighting (P.D. 449) horse racing (R.A. 306 as
amended by RA 983), sweepstakes, lotteries and races (RA 1169
as amended by B.P. 42) are legalized under certain conditions,
while others are prohibited, does not render the applicable laws,
P.D. 1869 for one, unconstitutional. “If the law presumably hits
the evil where it is most felt, it is not to be overthrown because
there are other instances to which it might have been applied.”
(Gomez v. Palomar, 25 SCRA 827) “The equal protection clause of
the 14 th Amendment does not mean that all occupations called
by the same name must be treated the same way; the state may
do what it can to prevent which is deemed as evil and stop short
of those cases in which harm to the few concerned is not less than
the harm to the public that would insure if the rule laid down
were made mathematically exact.” (Dominican Hotel v. Arizana,
249 U.S. 2651).
Same; Statutes; Every law has in its favor the presumption of
constitutionality, for a law to be nullified, it must be shown that
there is a clear and unequivocal breach of the Constitution.—
Every law has in its favor the presumption of constitutionality
(Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48
SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec,
179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be
shown that there is a clear and unequivocal breach of the
Constitution, not merely a doubtful and equivocal one. In other
words, the grounds for nullity must be clear and beyond
reasonable doubt. (Peralta v. Comelec, supra) Those who petition
this Court to declare a law, or parts thereof, unconstitutional
must clearly establish the basis for such a declaration. Otherwise,
their petition must fail. Based on the grounds raised by
petitioners to challenge the constitutionality of P.D. 1869, the
Court finds that petitioners have failed to overcome the
presumption. The dismissal of this petition is therefore,
inevitable. But as to whether P.D. 1869 remains a wise legislation
considering the issues of “morality, monopoly, trend to free
enterprise, privatization as well as the state principles on social
justice, role of youth and educational values” being raised, is up
for Congress to determine.
56

PADILLA, J., Concurring
Constitutional Law; Legislative Department; The legislative

department must outlaw all forms of gambling, as a fundamental
policy.—Gambling is reprehensible whether maintained by
government or privatized. The revenues realized by the
government out of “legalized” gambling will, in the long run, be
more than offset and negated by the irreparable damage to the
people’s moral values. Also, the moral standing of the government
in its repeated avowals against “illegal gambling” is fatally flawed
and becomes untenable when it itself engages in the very activity
it seeks to eradicate. One can go through the Court’s decision
today and mentally replace the activity referred to therein as
gambling, which is legal only because it is authorized by law and
run by the government, with the activity known as prostitution.
Would prostitution be any less reprehensible were it to be
authorized by law, franchised, and “regulated” by the government,
in return for the substantial revenues it would yield the
government to carry out its laudable projects, such as
infrastructure and social amelioration? The question, I believe,
answers itself. I submit that the sooner the legislative department
outlaws all forms of gambling, as a fundamental state policy, and
the sooner the executive implements such policy, the better it will
be for the nation.
H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for
petitioners.
Aguirre, Laborte and Capule for respondent
PAGCOR.
PARAS, J.:
A TV ad proudly announces:
“The new PAGCOR—responding through responsible
gaming.”
But the petitioners think otherwise, that is why, they
filed the instant petition seeking to annul the Philippine
Amusement and Gaming Corporation (PAGCOR) Charter
—PD 1869, because it is allegedly contrary to morals,
public policy and order, and because—
“A. It constitutes a waiver of a right prejudicial to a

third person with a right recognized by law. It
waived the Manila City government’s right to
impose taxes and license fees, which is recognized
by law;
57
VOL. 197, MAY 14, 1991 57

“B. For the same reason stated in the immediately

preceding paragraph, the law has intruded into the
local government’s right to impose local taxes and
license fees. This, in contravention of the
constitutionally enshrined principle of local
autonomy;
“C. It violates the equal protection clause of the
constitution in that it legalizes PAGCOR—
conducted gambling, while most other forms of
gambling are outlawed, together with prostitution,
drug trafficking and other vices;
“C. It violates the avowed trend of the Cory government
away from monopolistic and crony economy, and toward
free enterprise and privatization.” (p. 2, Amended
Petition; p. 7, Rollo)
In their Second Amended Petition, petitioners also claim

that PD 1869 is contrary to the declared national policy of
the “new restored democracy” and the people’s will as
expressed in the 1987 Constitution. The decree is said to
have a “gambling objective” and therefore is contrary to
Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII
and Section 3 (2) of Article XIV, of the present Constitution
(p. 3, Second Amended Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as
taxpayers and practicing lawyers (petitioner Basco being
also the Chairman of the Committee on Laws of the City
Council of Manila), can question and seek the annulment of
PD 1869 on the alleged grounds mentioned above.
The Philippine Amusements and Gaming Corporation
(PAGCOR) was created by virtue of P.D. 1067-A dated
January 1, 1977 and was granted a franchise under P.D
1067-B also dated January 1, 1977 “to establish, operate
and maintain gambling casinos on land or water within the
territorial jurisdiction of the Philippines.” Its operation was
originally conducted in the well known floating casino
“Philippine Tourist.” The operation was considered a
success for it proved to be a potential source of revenue to
fund infrastructure and socioeconomic projects, thus, P.D.
1399 was passed on June 2, 1978 for PAGCOR to fully
attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created
under P.D. 1869 to enable the Government to regulate and
centralize all games of chance authorized by existing
franchise or permitted by law, under the following declared
policy—
58

“Section 1 . Declaration of Policy.—It is hereby declared to be the

policy of the State to centralize and integrate all games of chance
not heretofore authorized by existing franchises or permitted by
law in order to attain the following objectives:
“(a) To centralize and integrate the right and authority to

operate and conduct games of chance into one corporate
entity to be controlled, administered and supervised by
the Government.
“(b) To establish and operate clubs and casinos, for
amusement and recreation, including sports gaming pools,
(basketball, football, lotteries, etc.) and such other forms of
amusement and recreation including games of chance,
which may be allowed by law within the territorial
jurisdiction of the Philippines and which will: (1) generate
sources of additional revenue to fund infrastructure and
socio-civic projects, such as flood control programs,
beautification, sewerage and sewage projects, Tulungan
ng Bayan Centers, Nutritional Programs, Population
Control and such other essential public services; (2) create
recreation and integrated facilities which will expand and
improve the country’s existing tourist attractions; and (3)
minimize, if not totally eradicate, all the evils,
malpractices and corruptions that are normally prevalent
on the conduct and operation of gambling clubs and
casinos without direct government involvement.” (Section
1, P.D. 1869)
To attain these objectives PAGCOR is given territorial

jurisdiction all over the Philippines. Under its Charter’s
repealing clause, all laws, decrees, executive orders, rules
and regulations, inconsistent therewith, are accordingly
repealed, amended or modified.
It is reported that PAGCOR is the third largest source of
government revenue, next to the Bureau of Internal
Revenue and the Bureau of Customs. In 1989 alone,
PAGCOR earned P3.43 Billion, and directly remitted to the
National Government a total of P2.5 Billion in form of
franchise tax, government’s income share, the President’s
Social Fund and Host Cities’ share. In addition, PAGCOR
sponsored other sociocultural and charitable projects on its
own or in cooperation with various governmental agencies,
and other private associations and organizations. In its 3
1/2 years of operation under the present administration,
PAGCOR remitted to the government a total of P6.2
Billion. As of December 31, 1989, PAGCOR was employing
4,494 employees in its nine (9) casinos nationwide, directly
supporting the livelihood of Four Thousand Four Hun-
59
VOL. 197, MAY 14, 1991 59

dred Ninety-Four (4,494) families.

But the petitioners, are questioning the validity of P.D
No. 1869. They allege that the same is “null and void” for
being “contrary to morals, public policy and public order,”
monopolistic and tends toward “crony economy”, and is
violative of the equal protection clause and local autonomy
as well as for running counter to the state policies
enunciated in Sections 11 (Personal Dignity and Human
Rights), 12 (Family) and 13 (Role of Youth) of Article II,
Section 1 (Social Justice) of Article XIII and Section 2
(Educational Values) of Article XIV of the 1987
Constitution.
This challenge to P.D. No. 1869 deserves a searching
and thorough scrutiny and the most deliberate
consideration by the Court, involving as it does the exercise
of what has been described as “the highest and most
delicate function which belongs to the judicial department
of the government.” (State v. Manuel, 20 N.C. 144; Lozano
v. Martinez, 146 SCRA 323).
As We enter upon the task of passing on the validity of
an act of a co-equal and coordinate branch of the
government We need not be reminded of the time-honored
principle, deeply ingrained in our jurisprudence, that a
statute is presumed to be valid. Every presumption must
be indulged in favor of its constitutionality. This is not to
say that We approach Our task with diffidence or timidity.
Where it is clear that the legislature or the executive for
that matter, has over-stepped the limits of its authority
under the constitution, We should not hesitate to wield the
axe and let it fall heavily, as fall it must, on the offending
statute (Lozano v. Martinez, supra).
In Victoriano v. Elizalde Rope Workers’ Union, et al, 59
SCRA 54, the Court thru Mr. Justice Zaldivar underscored
the—
“x x x thoroughly established principle which must be followed in

all cases where questions of constitutionality as obtain in the
instant cases are involved. All presumptions are indulged in favor
of constitutionality; one who attacks a statute alleging
unconstitutionality must prove its invalidity beyond a reasonable
doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld and the challenger
must negate all possible basis; that the courts are not concerned
with the wisdom, justice, policy or expediency of a statute and
that a liberal interpretation of the constitution in favor of
60

the constitutionality of legislation should be adopted.” (Danner v.

Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2 nd
660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA
734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30,
55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242
[1983] cited in Citizens Alliance for Consumer Protection v.
Energy Regulatory Board, 162 SCRA 521, 540)
Of course, there is first, the procedural issue. The

respondents are questioning the legal personality of
petitioners to file the instant petition.
Considering however the importance to the public of the
case at bar, and in keeping with the Court’s duty, under
the 1987 Constitution, to determine whether or not the
other branches of government have kept themselves within
the limits of the Constitution and the laws and that they
have not abused the discretion given to them, the Court
has brushed aside technicalities of procedure and has
taken cognizance of this petition. (Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163
SCRA 371)
“With particular regard to the requirement of proper party as

applied in the cases before us, We hold that the same is satisfied
by the petitioners and intervenors because each of them has
sustained or is in danger of sustaining an immediate injury as a
result of the acts or measures complained of. And even if, strictly
speaking they are not covered by the definition, it is still within
the wide discretion of the Court to waive the requirement and so
remove the impediment to its addressing and resolving the
serious constitutional questions raised.
“In the first Emergency Powers Cases, ordinary citizens and
taxpayers were allowed to question the constitutionality of several
executive orders issued by President Quirino although they were
involving only an indirect and general interest shared in common
with the public. The Court dismissed the objection that they were
not proper parties and ruled that ‘the transcendental importance
to the public of these cases demands that they be settled promptly
and definitely, brushing aside, if we must technicalities of
procedure.’ We have since then applied the exception in many
other cases.” (Association of Small Landowners in the Philippines,
Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).
61
VOL. 197, MAY 14, 1991 61

Having disposed of the procedural issue, We will now

discuss the substantive issues raised.
Gambling in all its forms, unless allowed by law, is
generally prohibited. But the prohibition of gambling does
not mean that the Government cannot regulate it in the
exercise of its police power.
The concept of police power is well-established in this
jurisdiction. It has been defined as the “state authority to
enact legislation that may interfere with personal liberty or
property in order to promote the general welfare.” (Edu v.
Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an
imposition or restraint upon liberty or property, (2) in order
to foster the common good. It is not capable of an exact
definition but has been, purposely, veiled in general terms
to underscore its all-comprehensive embrace. (Philippine
Association of Service Exporters, Inc. v. Drilon, 163 SCRA
386).
Its scope, ever-expanding to meet the exigencies of the
times, even to anticipate the future where it could be done,
provides enough room for an efficient and flexible response
to conditions and circumstances thus assuming the
greatest benefits. (Edu v. Ericta, supra)
It finds no specific Constitutional grant for the plain
reason that it does not owe its origin to the charter. Along
with the taxing power and eminent domain, it is inborn in
the very fact of statehood and sovereignty. It is a
fundamental attribute of government that has enabled it to
perform the most vital functions of governance. Marshall,
to whom the expression has been credited, refers to it
succinctly as the plenary power of the state “to govern its
citizens”. (Tribe, American Constitutional Law, 323, 1978).
The police power of the State is a power coextensive with
self-protection and is most aptly termed the “law of
overwhelming necessity.” (Rubi v. Provincial Board of
Mindoro, 39 Phil. 660, 708) It is “the most essential,
insistent, and illimitable of powers.” (Smith Bell & Co. v.
National, 40 Phil. 136) It is a dynamic force that enables
the state to meet the exigencies of the winds of change.
What was the reason behind the enactment of P.D.
1869?
P.D. 1869 was enacted pursuant to the policy of the
government to “regulate and centralize thru an appropriate
institution all games of chance authorized by existing
franchise or
62

permitted by law” (1st whereas clause, PD 1869). As was

subsequently proved, regulating and centralizing gambling
operations in one corporate entity—the PAGCOR, was
beneficial not just to the Government but to society in
general. It is a reliable source of much needed revenue for
the cash strapped Government. It provided funds for social
impact projects and subjected gambling to “close scrutiny,
regulation, supervision and control of the Government”
(4th Whereas Clause, PD 1869). With the creation of
PAGCOR and the direct intervention of the Government,
the evil practices and corruptions that go with gambling
will be minimized if not totally eradicated. Public welfare,
then, lies at the bottom of the enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver
of the right of the City of Manila to impose taxes and legal
fees; that the exemption clause in P.D. 1869 is violative of
the principle of local autonomy. They must be referring to
Section 13 par. (2) of P.D. 1869 which exempts PAGCOR,
as the franchise holder from paying any “tax of any kind or
form, income or otherwise, as well as fees, charges or levies
of whatever nature, whether National or Local.”
“(2) Income and other taxes.—(a) Franchise Holder: No tax

of any kind or form, income or otherwise as well as fees,
charges or levies of whatever nature, whether National
or Local, shall be assessed and collected under this
franchise from the Corporation; nor shall any form of tax
or charge attach in any way to the earnings of the
Corporation, except a franchise tax of five (5%) percent of
the gross revenues or earnings derived by the
Corporation from its operations under this franchise.
Such tax shall be due and payable quarterly to the
National Government and shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or
description, levied, established or collected by any
municipal, provincial or national government authority”
(Section 13 [2]).
Their contention stated hereinabove is without merit for

the following reasons:
(a) The City of Manila, being a mere Municipal

corporation has no inherent right to impose taxes
(Icard v. City of Baguio, 83 Phil. 870; City of Iloilo
v. Villanueva, 105 Phil. 337; Santos v. Municipality
of Caloocan, 7 SCRA 643). Thus, “the Charter or
statute must plainly show an intent to confer that
power or the
63
VOL. 197, MAY 14, 1991 63

municipality cannot assume it” (Medina v. City of

Baguio, 12 SCRA 62). Its “power to tax” therefore
must always yield to a legislative act which is
superior having been passed upon by the state itself
which has the “inherent power to tax” (Bernas, the
Revised [1973] Philippine Constitution, Vol. 1, 1983
ed. p. 445).
(b) The Charter of the City of Manila is subject to
control by Congress. It should be stressed that
“municipal corporations are mere creatures of
Congress” (Unson v. Lacson, G.R. No. 7909,
January 18, 1957) which has the power to “create
and abolish municipal corporations” due to its
“general legislative powers” (Asuncion v. Yriantes,
28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541).
Congress, therefore, has the power of control over
Local governments (Hebron v. Reyes, G.R. No.
9124, July 2, 1950). And if Congress can grant the
City of Manila the power to tax certain matters, it
can also provide for exemptions or even take back
the power.
(c) The City of Manila’s power to impose license fees on
gambling, has long been revoked. As early as 1975,
the power of local governments to regulate
gambling thru the grant of “franchise, licenses or
permits” was withdrawn by P.D. No. 771 and was
vested exclusively on the National Government,
thus:
“Section 1. Any provision of law to the contrary notwithstanding,
the authority of chartered cities and other local governments to
issue license, permit or other form of franchise to operate,
maintain and establish horse and dog race tracks, jai-alai and
other forms of gambling is hereby revoked.
“Section 2. Hereafter, all permits or franchises to operate,
maintain and establish, horse and dog race tracks, jai-alai and
other forms of gambling shall be issued by the national
government upon proper application and verification of the
qualification of the applicant x x x.”
Therefore, only the National Government has the power to

issue “licenses or permits” for the operation of gambling.
Necessarily, the power to demand or collect license fees
which is a consequence of the issuance of “licenses or
permits” is no longer vested in the City of Manila.
(d) Local governments have no power to tax

instrumentalities of the National Government.
PAGCOR is a government owned or controlled
corporation with an original charter, PD 1869. All
of its shares of stocks are owned by the National
64

Government. In addition to its corporate powers (Sec. 3,

Title II,PD 1869) it also exercises regulatory powers, thus:
“Sec. 9. Regulatory Power.—The Corporation shall maintain a

Registry of the affiliated entities, and shall exercise all the
powers, authority and the responsibilities vested in the Securities
and Exchange Commission over such affiliating entities
mentioned under the preceding section, including, but not limited
to amendments of Articles of Incorporation and By-Laws, changes
in corporate term, structure, capitalization and other matters
concerning the operation of the affiliated entities, the provisions
of the Corporation Code of the Philippines to the contrary
notwithstanding, except only with respect to original
incorporation.”
PAGCOR has a dual role, to operate and to regulate

gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality of
the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt
from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local
government.
“The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government.” (MC Culloch v.
Marland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the “supremacy” of the

National Government over local governments.
“Justice Holmes, speaking for the Supreme Court, made reference

to the entire absence of power on the part of the States to touch,
in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed
that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
accmplishment of them.” (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National

policies thru extermination of what local authorities may
per-
65
VOL. 197, MAY 14, 1991 65

ceive to be undesirable activities or enterprise using

the power to tax as “a tool for regulation” (U.S. v.
Sanchez, 340 US 42). The power to tax which was
called by Justice Marshall as the “power to destroy”
(Mc Culloch v. Maryland, supra) cannot be allowed
to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it.
(e) Petitioners also argue that the Local Autonomy
Clause of the Constitution will be violated by P.D.
1869. This is a pointless argument. Article X of the
1987 Constitution (on Local Autonomy) provides:
“Sec. 5. Each local government unit shall have the power to create
its own source of revenue and to levy taxes, fees, and other
charges subject to such guidelines and limitation as the congress
may provide, consistent with the basic policy on local autonomy.
Such taxes, fees and charges shall accrue exclusively to the local
government.” (italics supplied)
The power of local government to “impose taxes and fees” is

always subject to “limitations” which Congress may provide
by law. Since PD 1869 remains an “operative” law until
“amended, repealed or revoked” (Sec. 3, Art. XVIII, 1987
Constitution), its “exemption clause” remains as an
exception to the exercise of the power of local governments
to impose taxes and fees. It cannot therefore be violative
but rather is consistent with the principle of local
autonomy.
Besides, the principle of local autonomy under the 1987
Constitution simply means “decentralization” (III Records
of the 1987 Constitutional Commission, pp. 435-436, as
cited in Bernas, The Constitution of the Republic of the
Philippines, Vol. II, First Ed., 1988, p. 374). It does not
make local governments sovereign within the state or an
“imperium in imperio.”
“Local Government has been described as a political subdivision of

a nation or state which is constituted by law and has substantial
control of local affairs. In a unitary system of government, such as
the government under the Philippine Constitution, local
governments can only be an intra sovereign subdivision of one
sovereign nation, it cannot be an imperium in imperio . Local
government in such a system can only mean a measure of
decentralization of the function of government. (italics supplied)
66

As to what state powers should be “decentralized” and

what may be delegated to local government units remains a
matter of policy, which concerns wisdom. It is therefore a
political question. (Citizens Alliance for Consumer
Protection v. Energy Regulatory Board, 162 SCRA 539).
What is settled is that the matter of regulating, taxing
or otherwise dealing with gambling is a State concern and
hence, it is the sole prerogative of the State to retain it or
delegate it to local governments.
“As gambling is usually an offense against the State, legislative

grant or express charter power is generally necessary to empower
the local corporation to deal with the subject. x x x In the absence
of express grant of power to enact, ordinance provisions on this
subject which are inconsistent with the state laws are void.” (Ligan
v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440,
27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22
Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 ibid,
p. 548, italics supplied)
Petitioners next contend that P.D. 1869 violates the equal

protection clause of the Constitution, because “it legalized
PAGCOR—conducted gambling, while most gambling are
outlawed together with prostitution, drug trafficking and
other vices” (p. 82, Rollo).
We, likewise, find no valid ground to sustain this
contention. The petitioners’ posture ignores the well-
accepted meaning of the clause “equal protection of the
laws.” The clause does not preclude classification of
individuals who may be accorded different treatment under
the law as long as the classification is not unreasonable or
arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law
does not have to operate in equal force on all persons or
things to be conformable to Article III, Section 1 of the
Constitution (DECS v. San Diego, G.R. No. 89572,
December 21, 1989).
The “equal protection clause” does not prohibit the
Legislature from establishing classes of individuals or
objects upon which different rules shall operate (Laurel v.
Misa, 43 O.G. 2847). The Constitution does not require
situations which are different in fact or opinion to be
treated in law as though they were the same (Gomez v.
Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by
67
VOL. 197, MAY 14, 1991 67

PAGCOR is violative of the equal protection is not clearly

explained in the petition. The mere fact that some
gambling activities like cockfighting (P.D 449) horse racing
(R.A. 306 as amended by RA 983), sweepstakes, lotteries
and races (RA 1169 as amended by B.P. 42) are legalized
under certain conditions, while others are prohibited, does
not render the applicable laws, P.D. 1869 for one,
unconstitutional.
“If the law presumably hits the evil where it is most felt, it is not
to be overthrown because there are other instances to which it
might have been applied.” (Gomez v. Palomar, 25 SCRA 827)
“The equal protection clause of the 14th Amendment does not
mean that all occupations called by the same name must be
treated the same way; the state may do what it can to prevent
which is deemed as evil and stop short of those cases in which
harm to the few concerned is not less than the harm to the public
that would insure if the rule laid down were made mathematically
exact.” (Dominican Hotel v. Arizana, 249 US 2651).
Anent petitioners’ claim that PD 1869 is contrary to the

“avowed trend of the Cory Government away from
monopolies and crony economy and toward free enterprise
and privatization” suffice it to state that this is not a
ground for this Court to nullify P.D. 1869. If, indeed, PD
1869 runs counter to the government’s policies then it is for
the Executive Department to recommend to Congress its
repeal or amendment.
“The judiciary does not settle policy issues. The Court can only
declare what the law is and not what the law should be. Under
our system of government, policy issues are within the domain of
the political branches of government and of the people themselves
as the repository of all state power.” (Valmonte v. Belmonte, Jr.,
170 SCRA 256).
On the issue of “monopoly,” however, the Constitution

provides that:
“Sec. 19. The State shall regulate or prohibit monopolies when

public interest so requires. No combinations in restraint of trade
or unfair competition shall be allowed.” (Art. XII, National
Economy and Patrimony)
68

It should be noted that, as the provision is worded,

monopolies are not necessarily prohibited by the
Constitution. The state must still decide whether public
interest demands that monopolies be regulated or
prohibited. Again, this is a matter of policy for the
Legislature to decide.
On petitioners’ allegation that P.D. 1869 violates
Sections 11 (Personality Dignity) 12 (Family) and 13 (Role
of Youth) of Article II; Section 13 (Social Justice) of Article
XIII and Section 2 (Educational Values) of Article XIV of
the 1987 Constitution, suffice it to state also that these are
merely statements of principles and policies. As such, they
are basically not self-executing, meaning a law should be
passed by Congress to clearly define and effectuate such
principles.
“In general, therefore, the 1935 provisions were not intended to be

self-executing principles ready for enforcement through the
courts. They were rather directives addressed to the executive
and the legislature. If the executive and the legislature failed to
heed the directives of the articles the available remedy was not
judicial or political. The electorate could express their displeasure
with the failure of the executive and the legislature through the
language of the ballot.” (Bernas, Vol. II, p. 2)
Every law has in its favor the presumption of

constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387;
Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82
SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for
PD 1869 to be nullified, it must be shown that there is a
clear and unequivocal breach of the Constitution, not
merely a doubtful and equivocal one. In other words, the
grounds for nullity must be clear and beyond reasonable
doubt. (Peralta v. Comelec, supra) Those who petition this
Court to declare a law, or parts thereof, unconstitutional
must clearly establish the basis for such a declaration.
Otherwise, their petition must fail. Based on the grounds
raised by petitioners to challenge the constitutionality of
P.D. 1869, the Court finds that petitioners have failed to
overcome the presumption. The dismissal of this petition is
therefore, inevitable. But as to whether P.D. 1869 remains
a wise legislation considering the issues of “morality,
monopoly, trend to free enterprise, privatization as well as
the state principles on social justice, role of youth and
educational values” being raised, i s u p
69
VOL. 197, MAY 14, 1991 69

for Congress to determine.

As this Court held in Citizens’ Alliance for Consumer
Protection v. Energy Regulatory Board, 162 SCRA 521—
“Presidential Decree No. 1956, as amended by Executive Order

No. 137 has, in any case, in its favor the presumption of validity
and constitutionality which petitioners Valmonte and the KMU
have not overturned. Petitioners have not undertaken to identify
the provisions in the Constitution which they claim to have been
violated by that statute. This Court, however, is not compelled to
speculate and to imagine how the assailed legislation may
possibly offend some provision of the Constitution. The Court
notes, further, in this respect that petitioners have in the main
put in question the wisdom, justice and expediency of the
establishment of the OPSF, issues which are not properly
addressed to this Court and which this Court may not
constitutionally pass upon. Those issues should be addressed
rather to the political departments of government: the President
and the Congress.”
Parenthetically, We wish to state that gambling is

generally immoral, and this is precisely so when the
gambling resorted to is excessive. This excessiveness
necessarily depends not only on the financial resources of
the gambler and his family but also on his mental, social,
and spiritual outlook on life. However, the mere fact that
some persons may have lost their material fortunes, mental
control, physical health, or even their lives does not
necessarily mean that the same are directly attributable to
gambling. Gambling may have been the antecedent, but
certainly not necessarily the cause. For the same
consequences could have been preceded by an overdose of
food, drink, exercise, work, and even sex.
WHEREFORE, the petition is DISMISSED for lack of
merit.
SO ORDERED.
Fernan (C.J.), Narvasa Gutierrez, Jr., Cruz,

Feliciano, Gancayco, Bidin, Sarmiento, Griño-Aquino,
Medialdea, Regalado and Davide, Jr., JJ., concur.
Melencio-Herrera, J., concurring in the result with
Justice Padilla.
Padilla, J., See separate Concurring Opinion.
70

CONCURRING IN THE RESULT
PADILLA, J.:
I concur in the result of the learned decision penned by my

brother Mr. Justice Paras. This means that I agree with
the decision insofar as it holds that the prohibition, control,
and regulation of the entire activity known as gambling
properly pertain to “state policy.” It is, therefore, the
political departments of government, namely, the
legislative and the executive that should decide on what
government should do in the entire area of gambling, and
assume full responsibility to the people for such policy.
The courts, as the decision states, cannot inquire into
the wisdom, morality or expediency of policies adopted by
the political departments of government in areas which fall
within their authority, except only when such policies pose
a clear and present danger to the life, liberty or property of
the individual. This case does not involve such a factual
situation.
However, I hasten to make of record that I do not
subscribe to gambling in any form. It demeans the human
personality, destroys self-confidence and eviscerates one’s
self-respect, which in the long run will corrode whatever is
left of the Filipino moral character. Gambling has wrecked
and will continue to wreck families and homes; it is an
antithesis to individual reliance and reliability as well as
personal industry which are the touchstones of real
economic progress and national development. Gambling is
reprehensible whether maintained by government or
privatized. The revenues realized by the government out of
“legalized” gambling will, in the long run, be more than
offset and negated by the irreparable damage to the
people’s moral values.
Also, the moral standing of the government in its
repeated avowals against “illegal gambling” is fatally
flawed and becomes untenable when it itself engages in the
very activity it seeks to eradicate.
One can go through the Court’s decision today and
mentally replace the activity referred to therein as
gambling, which is legal only because it is authorized by
law and run by the
71
VOL. 197, MAY 14, 1991 71

Allied Leasing & Finance Corporation vs. Court of Appeals
government, with the activity known as prostitution.

Would prostitution be any less reprehensible were it to be
authorized by law, franchised, and “regulated” by the
government, in return for the substantial revenues it would
yield the government to carry out its laudable projects,
such as infrastructure and social amelioration? The
question, I believe, answers itself. I submit that the sooner
the legislative department outlaws all forms of gambling,
as a fundamental state policy, and the sooner the executive
implements such policy, the better it will be for the nation.
Petition dismissed.
Note.—It is presumed that an act of the law-making

body is valid and constitutional. (National Housing
Authority vs. Reyes, 123 SCRA 245.)
——o0o——
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52 SUPREME COURT REPORTS ANNOTATED