Dear PAO,
My co-workers were talking over lunch about setting up a “paluwagan” system among us. I have second thoughts because I hear stories about how they never got their money back. Is “paluwagan” legal?
Angie
Dear Angie,
Paluwagan is an informal system of “savings and/or lending” based on the trust of each member of the group, usually among co-workers, friends, and other closely-knit groups.
Relative thereto, the Supreme Court elucidated, in the case of Dinna Castillo v. Zenaida C. Buencillo, AM P-97-1241, March 20, 2001, through Associate Justice Jose A. R. Melo, that engaging in paluwagan is not prohibited under the law, to wit:
“Paluwagan is not a form of gambling or lottery. It is not a game of chance where one wins while the others lose; it is a scheme where the members agree to put their money in a common fund, each one of them receiving the total amount collected from all the members for a given period at a specified time designated as their particular schedule to receive the same (Evaluation of the Office of the Court Administrator, August 17, 2000, p. 11). It does not involve wagering, gambling, or betting penalized under the Revised Penal Code (Record, p. 112). Respondent did not violate any law in engaging in paluwagan.” (Emphasis ours)
Likewise, in Samuel Barangan v. Court of Appeals and Leovino Jose, GR 123307, Nov. 29, 1999, the Supreme Court ruled through Associate Justice Josue Bellosillo, that the paluwagan scheme is not illegal per se:
“It has been proven time and again that schemes such as in the instant case — innocuously denominated as a paluwagan — are but rackets designed to victimize the gullible public. We want to clarify, however, that a paluwagan, which operates as a trust fund from which members can draw money in case of need, is not illegal per se. But if it becomes a device to entice investments, usually with the promise of enormous dividends, when in truth the ultimate objective is to swindle the investors, then the scheme is transformed into an illegal activity. x x x.”
As such, paluwagan is not illegal per se, as it is merely a system to save money. However, the said scheme becomes unlawful if it is used as a tool to attract investments, often with the promise of huge dividends, where the ultimate objective is to deceive investors. In such a case, the operator of the paluwagan may incur criminal and civil liability.
We hope that we were able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated on.
Editor's note: Dear PAO is a daily column of the Public Attorney's Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net
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