Yun Kwan Byung vs. PAGCOR

A void contract cannot give rise to implied agency or agency by estoppel, and courts will not enforce debts arising from illegal gambling activities conducted pursuant to an agreement that illegally shares a legislative franchise. The basis for agency is representation, and absent mutual intent to create a principal-agent relationship, no agency exists; a void or inexistent contract cannot be validated by ratification.

PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling clubs and casinos to promote tourism and generate government revenue. Pursuant to its charter, PAGCOR launched its Foreign Highroller Marketing Program, inviting foreign patrons to play at the dollar pit of designated PAGCOR-operated casinos under specified terms and conditions. ABS Corporation, a Korean-based entity, availed of the Program under a Junket Agreement dated 25 April 1996, agreeing to bring foreign players to play at five designated gaming tables at Casino Filipino Silahis at the Grand Boulevard Hotel in Manila. Under the agreement, PAGCOR provided ABS Corporation with separate junket chips, ABS Corporation assumed sole responsibility for paying winnings and settling collectibles, ABS Corporation held PAGCOR free from any liability, and PAGCOR received either 12.5% of ABS Corporation's gross winnings or US$1.5 million, whichever was higher, over a six-month period.

Petitioner Yun Kwan Byung, a Korean national, came to the Philippines four times from November 1996 to March 1997 to play for high stakes at Casino Filipino, a casino managed and operated by PAGCOR at the Grand Boulevard Hotel in Manila. He alleges that during these visits he accumulated gambling chips worth US$2.1 million, of which he presented chips with a face value of US$1.1 million as evidence at trial. Petitioner contends that when he presented the gambling chips for encashment with PAGCOR's employees or agents, PAGCOR refused to redeem them. He claims that every time he came to Manila, PAGCOR extended amenities deserving of a high roller: a PAGCOR official would meet him at the airport and bring him to Casino Filipino, the card dealers were all PAGCOR employees, and the gambling chips, equipment, and furniture belonged to PAGCOR. He states that he was able to redeem his gambling chips with the cashier during his first few winning trips, but later the casino cashier refused to encash them, so he deposited his chips at the Grand Boulevard Hotel's deposit box each time he departed Manila.

PAGCOR maintains that petitioner was brought into the Philippines by ABS Corporation as a junket player who played in the dollar pit exclusively leased by ABS Corporation for its junket players. Under the Junket Agreement, PAGCOR provided ABS Corporation with distinct junket chips — orange or yellow chips with stickers bearing denominations of 10,000 or 1,000, the latter marked "no cash value" — which differed from the chips used in regular casino games. ABS Corporation distributed these chips to its junket players, and at the end of each playing period, only ABS Corporation made an accounting of the chips to PAGCOR's casino treasury. The junket players were confined to certain gaming rooms on the third floor and did not mingle with regular PAGCOR patrons. In these rooms, PAGCOR posted notices in English and Korean stating that the gaming room was exclusively operated by ABS Corporation and that ABS Corporation was solely accountable for all playing chips wagered on the tables. Petitioner denied seeing the notice, but PAGCOR officials testified to its posting, and the trial court found their testimony credible.

PAGCOR also argues that under its gaming rules, gambling chips cannot be brought outside the casino and must be converted to cash at the end of every gaming period, as they are inventoried every shift. It would therefore be impossible for a PAGCOR player to accumulate two million dollars worth of chips and bring them out of the casino premises. Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused to encash the gambling chips, petitioner filed a complaint for a sum of money before the trial court. The trial court found that petitioner had been alerted to the existence of special gambling rules and that his continued play over several months confirmed his acquiescence, and it dismissed the complaint, leaving the parties where they were. The Court of Appeals affirmed, finding that petitioner enjoyed accommodations extended only to junket players and could not claim ignorance of the special rules.

• Implied Agency or Agency by Estoppel: Petitioner maintained that PAGCOR is liable to him under the doctrine of implied agency or, alternatively, agency by estoppel, arguing that PAGCOR's acts and conduct — leasing floors to PAGCOR, allowing ABS Corporation to use a whole floor with PAGCOR dealers, facilities, employees, and chips bearing the PAGCOR logo, controlling the release and inventory of chips, requiring ABS Corporation to account with the Commission on Audit, and enforcing rules through its own manager — demonstrated control indicative of an agency relationship.
• Irrelevance of Contracting Parties' Intent: Petitioner argued that the CA erred in using the intent of the contracting parties as the test for the creation of agency, since the case involves the liability of the presumed principal in implied agency to a third party who was not a party to the contract.
• Ratification or Adoption: Petitioner asserted that PAGCOR ratified, or at least adopted, the acts of ABS Corporation, thereby binding PAGCOR to the obligations arising from those acts.

• Junket Player Status: Respondent countered that petitioner was a junket player brought into the Philippines by ABS Corporation, not a regular PAGCOR player, and that he played exclusively in the dollar pit leased by ABS Corporation using distinct junket chips.
• Posted Notices: Respondent argued that notices in English and Korean were posted in the gaming rooms informing players that the rooms were exclusively operated by ABS Corporation and that ABS Corporation was solely accountable for all chips wagered, constituting a standard precautionary measure to avoid confusion between junket players and regular PAGCOR players.
• Impossibility Under PAGCOR Rules: Respondent maintained that under PAGCOR's gaming rules, chips cannot be brought outside the casino and must be converted to cash at the end of every gaming period, making it impossible for a PAGCOR player to accumulate two million dollars worth of chips and remove them from the premises.

• PAGCOR's Liability Under Agency Doctrines: Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of implied agency or agency by estoppel.
• Intent as Test for Agency: Whether the CA erred in using the intent of the contracting parties as the test for creation of agency, when the case involves liability of the presumed principal in implied agency to a third party.
• Ratification of Agent's Acts: Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of ABS Corporation.

• PAGCOR's Liability Under Agency Doctrines: No. PAGCOR is not liable because the Junket Agreement was void for illegally sharing PAGCOR's franchise, and no implied agency or agency by estoppel arose, PAGCOR having never held out ABS Corporation as its agent or represented to the public that an agency relationship existed.
• Intent as Test for Agency: No. The CA correctly used the intent of the contracting parties, because agency by estoppel requires proof of reliance upon representations by the principal, and such reliance was absent given the notices, special chips, and separate gaming areas that alerted petitioner he was playing under different terms.
• Ratification of Agent's Acts: No. A void or inexistent contract cannot be ratified, and Article 1409 of the Civil Code expressly provides that contracts expressly prohibited or declared void by law cannot be ratified.

• PAGCOR's Liability Under Agency Doctrines: The Court first established that the Junket Agreement was void. Under PD 1869, PAGCOR's charter, PAGCOR had the sole and exclusive authority to operate gambling activities. While PAGCOR could enter into operator's or management contracts, it could not relinquish or share its franchise, pursuant to the principle of delegata potestas delegare non potest. By taking only a percentage of ABS Corporation's earnings and allowing ABS Corporation to operate gaming tables in the dollar pit, PAGCOR shared its franchise in violation of its charter. The Court relied on Senator Jaworski vs. Phil. Amusement and Gaming Corp., which held that PAGCOR acted beyond its authority when it passed on or shared its franchise to SAGE. Because the Junket Agreement was void, gambling between the junket player and the junket operator under it was illegal and unenforceable under Article 2014 of the Civil Code. Turning to the agency issues, the Court explained that the basis for agency is representation: the agent acts for and on behalf of the principal, and there must be an actual intention to appoint or an intention naturally inferable from words or actions on the part of the principal, and an intention to accept and act on the part of the agent. PAGCOR did not hold out ABS Corporation as its principal or agent; the Junket Agreement was merely a lease of facilities and services. PAGCOR posted notices, used different chips, and confined junket players to separate gaming areas, all of which negated any representation of agency. RA 9487, which amended PAGCOR's charter to permit such arrangements, could not apply retroactively because it contained no express retroactivity provision, and the default rule is prospective application of laws.

• Intent as Test for Agency: The Court agreed with the CA that the intent of the contracting parties is relevant even when the claimant is a third party. Agency by estoppel, similar to apparent authority, requires proof of reliance upon the principal's representations, and such reliance must predate the action taken in reliance. There must be acts or conduct on the part of the principal known to and relied upon in good faith by the third person, producing a change of position to its detriment. Petitioner failed to establish such reliance. Throughout his play at Casino Filipino, he dealt only with ABS Corporation and availed of privileges extended only to ABS Corporation's junket players. His special treatment upon arrival, special accommodations at the Grand Boulevard Hotel, and play in special gaming rooms all indicated he could not claim good faith in believing he was dealing with PAGCOR. He was not an innocent third party and could not claim equitable relief.

• Ratification of Agent's Acts: The Court affirmed that the Junket Agreement was void. A void or inexistent contract has no force and effect from the very beginning and cannot be validated by passage of time or by ratification. Article 1409 of the Civil Code provides that contracts expressly prohibited or declared void by law, such as gambling contracts, cannot be ratified. Since the Junket Agreement was void, PAGCOR could not have ratified the acts of ABS Corporation.

• Void Contracts Cannot Be Ratified — A void or inexistent contract has no force and effect from the very beginning, as if it had never been entered into, and cannot be validated either by the passage of time or by ratification. Article 1409 of the Civil Code expressly provides that contracts expressly prohibited or declared void by law cannot be ratified, and the right to set up the defense of illegality cannot be waived. The Court applied this doctrine to hold that the Junket Agreement, being void for violating PAGCOR's charter, could not be ratified by PAGCOR's subsequent conduct.

• Implied Agency — 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. Being an actual agency, it is a fact to be proved by deductions or inferences from other facts. The basis for agency is representation, requiring on the part of the principal an actual intention to appoint or an intention naturally inferable from his words or actions, and on the part of the agent an intention to accept the appointment and act on it. Absent such mutual intent, there is generally no agency. The Court found no implied agency because PAGCOR did not hold out ABS Corporation as its agent and posted notices disclaiming any agency relationship.

• Agency by Estoppel (Apparent Authority) — Agency by estoppel arises when the principal knowingly permits the agent to hold himself out as having authority, or when the principal clothes the agent with indicia of authority leading a reasonably prudent person to believe the agent has such authority. It requires proof of reliance upon the principal's representations, which must predate the action taken in reliance, and the third person must have known and relied upon the principal's acts in good faith and with reasonable prudence, producing a change of position to his detriment. The Court found these requisites absent because PAGCOR's notices, special chips, and separate gaming areas negated any representation of authority, and petitioner could not claim good faith reliance.

• Non-Retroactivity of Laws — Laws should only be applied prospectively unless the legislative intent to give them retroactive effect is expressly declared or necessarily implied from the language used. In every case of doubt, the doubt is resolved against retroactive operation. The Court applied this principle to hold that RA 9487, which amended PAGCOR's charter to permit sharing of the franchise, could not apply to the Junket Agreement executed on 25 April 1996, when the prevailing law (PD 1869) prohibited such sharing.

• Non-Enforcement of Illegal Gambling Debts — 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. The Court invoked this provision to bar petitioner's claim for redemption of gambling chips, as the gambling activity was conducted under a void agreement and was therefore illegal.

• "The basis for agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal." — This passage articulates the fundamental rationale for why no agency existed between PAGCOR and ABS Corporation, establishing representation as the essential element that was absent.

• "A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification." — This statement of the doctrine on void contracts underpins the Court's rejection of petitioner's ratification argument and is the controlling principle for the third issue.

• "PAGCOR has the sole and exclusive authority to operate a gambling activity. While PAGCOR is allowed under its charter to enter into operator's or management contracts, PAGCOR is not allowed under the same charter to relinquish or share its franchise." — This formulation, drawn from Senator Jaworski vs. Phil. Amusement and Gaming Corp., defines the boundary of PAGCOR's corporate powers and establishes why the Junket Agreement was void.

• "It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them retroactive effect is expressly declared or is necessarily implied from the language used." — This statement of the prospectivity principle explains why RA 9487 could not save the void Junket Agreement.

• Senator Jaworski vs. Phil. Amusement and Gaming Corp., 464 Phil. 375 (2004) — Controlling precedent on the scope of PAGCOR's franchise. The Court held that PAGCOR acted beyond its authority when it shared its franchise with SAGE, establishing that PAGCOR has sole and exclusive authority to operate gambling and cannot delegate or share its franchise. The Court applied this ruling to the Junket Agreement, finding it void for the same reason.

• United States vs. Salaveria, 39 Phil. 102 (1918) — Cited for the proposition that gambling is an act beyond the pale of good morals, prohibited and punished to repress an evil undermining social, moral, and economic growth.

• People vs. Punto, 68 Phil. 481 (1939) — Cited in support of the characterization of gambling as a prohibited act undermining the nation.

• Woodchild Holdings, Inc. vs. Roxas Electric and Construction Company, Inc., 479 Phil. 896 (2004) — Cited for the definition of apparent authority and agency by estoppel, including the requirement that the principal's acts must have been known and relied upon in good faith by the third person.

• Francisco vs. Herrera, 440 Phil. 841 (2002) — Cited for the doctrine that a void or inexistent contract cannot be validated by ratification.

• Section 3(h), Presidential Decree No. 1869 (PAGCOR Charter) — Granted PAGCOR the power to enter into contracts of every kind for any lawful purpose pertaining to its business, as principal, agent or otherwise. The Court interpreted this provision as not authorizing PAGCOR to share its gambling franchise with third parties, rendering the Junket Agreement void.

• Section 13, Presidential Decree No. 1869 (PAGCOR Charter) — Prescribed the terms and conditions for the utilization of foreign currencies in casino operations, including the designation of specific gaming pits for foreign currency players and the issuance of rules for qualified players. The trial court cited this provision in holding that only PAGCOR could use foreign currency in its gaming tables.

• Article 2014, Civil Code — Provides that no action can be maintained by the winner for the collection of what he has won in a game of chance. The Court applied this to bar petitioner's claim for redemption of gambling chips won in illegal gambling.

• Article 1409, Civil Code — Declares that contracts expressly prohibited or declared void by law are inexistent and void from the beginning and cannot be ratified. The Court invoked this to reject petitioner's ratification argument.

• Article 1869, Civil Code — Defines implied agency as derived from the acts of the principal, his silence or lack of action, or his failure to repudiate the agency. The Court applied this provision and found no implied agency.

• Article 1883, Civil Code — Provides that if an agent acts in his own name, the principal has no right of action against persons with whom the agent contracted, and vice versa. The CA cited this provision to reject the implied agency theory, noting it applies only where the agent is authorized by the principal but contracts in his own name.

• Section 1, Republic Act No. 9487 — Amended Section 3(h) of the PAGCOR charter to expressly allow PAGCOR to enter into joint venture, management, and agency agreements with third parties. The Court held this amendment could not apply retroactively to the Junket Agreement executed in 1996.

• Presidential Decree No. 1602 — Prescribed stiffer penalties on illegal gambling, modifying Articles 195-199 of the Revised Penal Code. The Court cited this to underscore the general prohibition on gambling except as authorized by PAGCOR's franchise.

Conchita Carpio Morales, Teresita J. Leonardo-De Castro, Mariano C. Del Castillo, and Roberto A. Abad concurred. No separate concurring opinions were written.