G.R. No. 118910. July 17, 1995.
* Same; Same; Same; Same; Same; Same; Same; There is an additional reason for
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A.
RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, RAFAEL G. FERNANDO, RAOUL V. VICTORINO,
JOSE CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN.
WIGBERTO TAÑADA, REP. JOKER P. ARROYO, petitioners, vs.
MANUEL L. MORATO, in his capacity as Chairman of the Philippine
Charity Sweepstakes Office, and the PHILIPPINE GAMING
MANAGEMENT CORPORATION, respondents.
Constitutional Law; Taxpayer’s Suits; Locus Standi; Actions; Res Judicata; Stare
Decisis; Parties; In this case, concern for stability in decisional law does not call
for adherence to what has recently been laid down as the rule since the previous
ruling sustaining petitioners’ intervention may itself be considered a departure
from settled rulings on “real parties in interest.”—Stare decisis is usually the wise
policy. But in this case, concern for stability in decisional law does not call for
adherence to what has recently been laid down as the rule. The previous ruling
sustaining petitioners’ intervention may itself be considered a departure from
settled rulings on “real parties in interest” because no constitutional issues were
actually involved. Just five years before that ruling this Court had denied standing
to a party who, in questioning the validity of another form of lottery, claimed the
right to sue in the capacity of taxpayer, citizen and member of the Bar. (Valmonte
v. Philippine Charity Sweepstakes, G.R. No. 78716, Sept. 22, 1987).
Same; Same; Same; Same; Same; Same; Same; If the complaint is not grounded
on the impairment of the powers of Congress, legislators do not have standing to
question the validity of any law or official action.—Only recently this Court held
that members of Congress have standing to question the validity of presidential
veto on the ground that, if true, the illegality of the veto would impair their
prerogatives as members of Congress. Conversely if the complaint is not grounded
on the impairment of the powers of Congress, legislators do not have standing to
question the validity of any law or official action. (Philippine Constitution
Association v. Enriquez, 235 SCRA 506 [1994]).
_______________
* EN BANC.
541
VOL. 246, JULY 17, 1995 541
Kilosbayan, Incorporated vs. Morato
reexamination of the ruling on standing since the voting in the previous case was
a narrow one, with seven (7) members sustaining petitioners’ standing and six
(6) denying petitioners’ right to bring the suit—a tenuous majority that is not
likely to be maintained in any subsequent litigation.—There is an additional
reason for a reexamination of the ruling on standing. The voting on petitioners’
standing in the previous case was a narrow one, with seven (7) members sustaining
petitioners’ standing and six (6) denying petitioners’ right to bring the suit. The
majority was thus a tenuous one that is not likely to be maintained in any
subsequent litigation. In addition, there have been changes in the membership of
the Court, with the retirement of Justices Cruz and Bidin and the appointment of
the writer of this opinion and Justice Francisco. Given this fact it is hardly tenable
to insist on the maintenance of the ruling as to petitioners’ standing.
Same; Same; Same; Same; Same; Same; Same; Words and Phrases; Doctrine of
“Law of the Case;” The doctrine of “law of the case” applies only when a case is
before a court a second time after a ruling by an appellate court.—Petitioners
argue that inquiry into their right to bring this suit is barred by the doctrine of “law
of the case.” We do not think this doctrine is applicable considering the fact that
while this case is a sequel to G.R. No. 113375, it is not its continuation. The doctrine
applies only when a case is before a court a second time after a ruling by an
appellate court.
Same; Same; Same; Same; Same; Same; Same; Same; Same; “Law of the Case,”
Explained.—Thus in People v. Pinuila, 103 Phil. 992, 999 (1958), it was stated:
“‘Law of the case’ has been defined as the opinion delivered on a former appeal.
More specifically, it means that whatever is once irrevocably established as the
controlling legal rule of decision between the same parties in the same case
continues to be the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the facts of
the case before the court.” (21 C.J.S. 330)
Same; Same; Same; Same; Same; Same; Same; Same; Same; Res Judicata and
“Law of the Case,” Distinguished; “Law of the Case” relates entirely to questions
of law, and is confined in its operation to subsequent proceedings in the same
case.—As this Court explained in another case, “The law of the case, as applied to
a former decision of an appellate court, merely expresses the practice of the courts
in refusing to reopen what has been decided. It differs from res judicata in that the
conclusiveness of the first judgment is not dependent upon its finality.
542
542 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
1
The first judgment is generally, if not universally, not final. It relates entirely to
questions of law, and is confined in its operation to subsequent proceedings in the
same case. . . .” (Municipality of Daet v. Court of Appeals, 93 SCRA 503, 521
[1979]).
Same; Same; Same; Same; Same; Same; Same; Same; Doctrine of
“Conclusiveness of Judgment,” Explained.—Nor is inquiry into petitioners’ right
to maintain this suit foreclosed by the related doctrine of “conclusiveness of
judgment.” According to the doctrine, an issue actually and directly passed upon
and determined in a former suit cannot again be drawn in question in any future
action between the same parties involving a different cause of action. (Peñalosa v.
Tuason, 22 Phil. 303, 313 (1912); Heirs of Roxas v. Galido, 108 Phil. 582 [1960]).
Same; Same; Same; Same; Same; Same; Same; Same; It has been held that the
rule on conclusiveness of judgment or preclusion of issues or collateral estoppel
does not apply to issues of law, at least when substantially unrelated claims are
involved.—It has been held that the rule on conclusiveness of judgment or
preclusion of issues or collateral estoppel does not apply to issues of law, at least
when substantially unrelated claims are involved. (Montana v. United States, 440
U.S. 147, 162, 59 L.Ed.2d 210, 222 (1979); BATOR, MELTZER, MISHKIN AND
SHAPIRO, THE FEDERAL COURTS AND THE FEDERAL SYSTEM 1058, n. 2
[3rd Ed., 1988]).
Same; Same; Same; Same; Same; Same; Same; Same; “Conclusiveness of
Judgment” and Res Judicata, Distinguished.—The doctrine of “conclusiveness of
judgment” is also called “collateral estoppel” or “preclusion of issues,” as
distinguished from “preclusion of claims” or res judicata. In the Rules of Court,
the first (conclusiveness of judgment, collateral estoppel or preclusion of issues) is
governed by Rule 39, §49(c), while the second (res judicata or preclusion of claims)
is found in Rule 39, §49(b).
Same; Same; Same; Same; Same; Same; Same; Strictly speaking, petitioners’
standing is not even an issue in this case since standing is a concept in
constitutional law and here no constitutional question is actually involved as the
issue is whether petitioners are the “real parties in interest” within the meaning
of Rule 3, §2 of the Rules of Court.—Not only is petitioners’ standing a legal issue
that may be determined again in this case. It is, strictly speaking, not even the issue
in this case, since standing is a concept in constitutional law and here no
constitutional question is actually involved. The issue in this case is whether
petitioners are the “real parties in interest” within the meaning of Rule 3, §2 of
543
VOL. 246, JULY 17, 1995 543
Kilosbayan, Incorporated vs. Morato
the Rules of Court which requires that “Every action must be prosecuted and
defended in the name of the real party in interest.”
Same; Same; Same; Same; Same; Same; Same; The rule on standing and real
party in interest, distinguished.—The difference between the rule on standing and
real party in interest has been noted by authorities thus: “It is important to note . .
. that standing because of its constitutional and public policy underpinnings, is
very different from questions relating to whether a particular plaintiff is the real
party in interest or has capacity to sue. Although all three requirements are
directed towards ensuring that only certain parties can maintain an action,
standing restrictions require a partial consideration of the merits, as well as
broader policy concerns relating to the proper role of the judiciary in certain areas.
(FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985]).
Same; Same; Same; Same; Same; Same; Same; The question in standing is
whether the parties bringing the suit have “alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court so largely depends for
illumination of difficult constitutional questions.”—Standing is a special concern
in constitutional law because in some cases suits are brought not by parties who
have been personally injured by the operation of a law or by official action taken,
but by concerned citizens, taxpayers or voters who actually sue in the public
interest. Hence the question in standing is whether such parties have “alleged such
a personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult constitutional questions.” (Baker v.
Carr, 369 U.S. 186, 7 L.Ed.2d 633 [1962]).
Same; Same; Same; Same; Same; Same; Same; Sections 5, 12, 13 and 17 of Article
II of the Constitution do not embody judicially enforceable constitutional rights
but guidelines for legislation.—These are not, however, self executing provisions,
the disregard of which can give rise to a cause of action in the courts. They do not
embody judicially enforceable constitutional rights but guidelines for legislation.
Same; Same; Same; Same; Same; Same; Same; Contracts; In actions for the
annulment of contracts, the real parties are those who are parties to the
agreement or are bound either principally or subsidiarily or are prejudiced in
their rights with respect to one of the contracting parties.—In actions for the
annulment of contracts, such as this action,
544
544 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
2
the real parties are those who are parties to the agreement or are bound either
principally or subsidiarily or are prejudiced in their rights with respect to one of
the contracting parties and can show the detriment which would positively result
to them from the contract even though they did not intervene in it (Ibañez v.
Hongkong & Shanghai Bank, 22 Phil. 572 [1912]), or who claim a right to take part
in a public bidding but have been illegally excluded from it. (See De la Lara Co.,
Inc. v. Secretary of Public Works and Communications, G.R. No. L-13460, Nov. 28,
1958).
Same; Same; Same; Same; Same; Same; Same; Same; Words and Phrases;
“Present Substantial Interest,” Explained.—These are parties with “a present
substantial interest, as distinguished from a mere expectancy or future, contingent,
subordinate, or consequential interest. . . . The phrase ‘present substantial interest’
more concretely is meant such interest of a party in the subject matter of the action
as will entitle him, under the substantive law, to recover if the evidence is sufficient,
or that he has the legal title to demand and the defendant will be protected in a
payment to or recovery by him.” (1 MORAN, COMMENTS ON THE RULES OF
COURT 154-155 [1979])
Same; Same; Same; Same; Same; Same; Same; Same; Commission on Audit;
Ombudsman; Petitioners do not have such present substantial interest in the
Equipment Lease Agreement (ELA) as would entitle them to bring this suit;
Questions as to the nature or validity of public contracts or the necessity of public
bidding can be raised in an appropriate case before the Commission on Audit or
before the Ombudsman.—But petitioners do not have such present substantial
interest in the ELA as would entitle them to bring this suit. Denying to them the
right to intervene will not leave without remedy any perceived illegality in the
execution of government contracts. Questions as to the nature or validity of public
contracts or the necessity for a public bidding before they may be made can be
raised in an appropriate case before the Commission on Audit or before the
Ombudsman.
Same; Same; Same; Same; Same; Same; Same; Same; Solicitor General; Quo
Warranto; If it should be thought that a government corporation has offended its
corporate charter or misused its franchise, the Solicitor General is authorized to
bring an action for quo warranto.—In addition, the Solicitor General is authorized
to bring an action for quowarranto if it should be thought that a government
corporation, like the PCSO, has offended against its corporate charter or misused
its franchise. (Rule 66, §2(a) (d))
545
VOL. 246, JULY 17, 1995 545
Kilosbayan, Incorporated vs. Morato
Philippine Charity Sweepstakes Office; Contracts; Lease; There is nothing
unusual in fixing the rental as a certain percentage of the gross receipts.—To be
sure there is nothing unusual in fixing the rental as a certain percentage of the gross
receipts. The lease of space in commercial buildings, for example, involves the
payment of a certain percentage of the receipts in rental. Under the Civil Code (Art.
1643) the only requirement is that the rental be a “price certain.” Petitioners do not
claim here that the rental is not a “price certain,” simply because it is expressed as
a certain percentage of the total gross amount of ticket sales.
Same; Same; Same; In the ELA the rental is expressed in terms of percentage of
the gross proceeds from ticket sales because the allocation of the receipts under
the charter of the PCSO is also expressed in percentage.—In the new contract the
rental is also expressed in terms of percentage of the gross proceeds from ticket
sales because the allocation of the receipts under the charter of the PCSO is also
expressed in percentage, to wit: 55% is set aside for prizes; 30% for contribution to
charity; and 15% for operating expenses and capital expenditures. (R.A. No. 1169,
§6)
Same; Same; Same; The manner of determining rentals is a matter of business
judgment which, in the absence of a clear and convincing showing that it was
made in grave abuse of discretion of the PCSO, the Supreme Court is not inclined
to review.—Petitioners reply that to obviate the possibility that the rental would
not exceed 15% of the net receipts what the respondents should have done was not
to agree on a minimum fixed rental of P35,000.00 per terminal in commercial
operation. This is a matter of business judgment which, in the absence of a clear
and convincing showing that it was made in grave abuse of discretion of the PCSO,
this Court is not inclined to review.
Same; Same; Same; As in the construction of statutes, the presumption is that in
making contracts the government has acted in good faith; The doctrine that the
possibility of abuse is not a reason for denying power to the government holds
true also in cases involving the validity of contracts made by it.—In any case as in
the construction of statutes, the presumption is that in making contracts the
government has acted in good faith. The doctrine that the possibility of abuse is
not a reason for denying power to the government holds true also in cases involving
the validity of contracts made by it.
Same; Same; Same; A contract of lease may call for some form of collaboration
or association between the parties.—A contract of lease, as
546
546 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
3
this is defined in Civil law, may call for some form of collaboration or association
between the parties since lease is a “consensual, bilateral, onerous and
commutative contract by which one person binds himself to grant temporarily the
use of a thing or the rendering of some service to another who undertakes to pay
some rent, compensation or price.” (5 PADILLA, CIVIL CODE 611 [6TH ED.
1974]).
Same; Same; Same; The ELA is a lease contract that contains none of the features
of the former contract which were considered “badges of a joint venture
agreement.”—We hold that the ELA is a lease contract and that it contains none of
the features of the former contract which were considered “badges of a joint
venture agreement.” To further find fault with the new contract would be to cavil
and expose the opposition to the contract to be actually an opposition to lottery
under any and all circumstances.
Same; Same; Same; Gambling; The morality of gambling is not a justiciable
issue; Gambling is not illegal per se.—But “[t]he morality of gambling is not a
justiciable issue. Gambling is not illegal per se. . . . It is left to Congress to deal with
the activity as it sees fit.” (Magtajas v. Pryce Properties Corp. Inc., 234 SCRA 255,
268 (1994). Cf. Lim v. Pacquing, G.R. No. 115044, Jan. 27, 1995) In the case of
lottery, there is no dispute that, to enable the Philippine Charity Sweepstakes
Office to raise funds for charity, Congress authorized the Philippine Charity
Sweepstakes Office (PCSO) to hold or conduct lotteries under certain conditions.
Same; Statutory Construction; Statutes; R.A. 1169; The Supreme Court’s
interpretation of R.A. 1169 in the earlier Kilosbayan case must be reexamined.—
In G.R. No. 113375 it was held that the PCSO does not have the power to enter into
any contract which would involve it in any form of “collaboration, association or
joint venture” for the holding of sweepstakes races, lotteries and other similar
activities. This interpretation must be reexamined especially in determining
whether petitioners have a cause of action.
Same; Same; Same; Same; The charter of the PCSO does not absolutely prohibit
it from holding or conducting lottery “in collaboration, association or joint
venture” with another party.—We hold that the charter of the PCSO does not
absolutely prohibit it from holding or conducting lottery “in collaboration,
association or joint venture” with another party. What the PCSO is prohibited from
doing is to invest in a business engaged in sweepstakes races, lotteries and similar
activities, and it is prohibited from doing so whether in “collaboration, association
547
VOL. 246, JULY 17, 1995 547
Kilosbayan, Incorporated vs. Morato
or joint venture” with others or “by itself.” The reason for this is that these are
competing activities and the PCSO should not invest in the business of a
competitor.
Same; Same; Same; Same; The prohibition in §1(B) of R.A. 1169 is not so much
against the PCSO entering into any collaboration, association or joint venture
with others as against PCSO investing in the business of another franchise holder
which would directly compete with PCSO’s own charity sweepstakes races,
lotteries or similar activities.—To harmonize pars. (A) and (B), the latter must be
read as referring to the authority of the PCSO to invest in the business of others.
Put in another way, the prohibition in §1(B) is not so much against the PCSO
entering into any collaboration, association or joint venture with others as against
the PCSO investing in the business of another franchise holder which would
directly compete with PCSO’s own charity sweepstakes races, lotteries or similar
activities. The prohibition applies whether the PCSO makes the investment alone
or with others.
Same; Same; Same; Same; The contrary construction given to §1 in the previous
decision is based on remarks made by then Assemblyman, now Mr. Justice,
Davide during the deliberations on what later became B.P. Blg. 42, amending
R.A. No. 1169, in connection with a proposal to give the PCSO the authority “to
engage in any and all investments”—and it is reasonable to suppose that the
members of the Batasan Pambansa, in approving the amendment, understood it
as referring to the exception to par. (B) of §1 giving the PCSO the power to make
investments.—The contrary construction given to §1 in the previous decision is
based on remarks made by then Assemblyman, now Mr. Justice, Davide during the
deliberations on what later became B.P. Blg. 42, amending R.A. No. 1169. It
appears, however, that the remarks were made in connection with a proposal to
give the PCSO the authority “to engage in any and all investments .” It was to
provide exception with regard to the type of investments which the PCSO is
authorized to make that the Davide amendment was adopted. It is reasonable to
suppose that the members of the Batasan Pambansa, in approving the amendment,
understood it as referring to the exception to par. (B) of §1 giving the PCSO the
power to make investments. Had it been their intention to prohibit the PCSO from
entering into any collaboration, association or joint venture with others even in
instances when the sweepstakes races, lotteries or similar activities are operated
by it (“itself”), they would have made the amendment not in par. (B), but in par.
(A), of §1, as the logical place for the amendment.
548
548 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
4
Same; Same; Same; Same; The construction given to §1 in the previous decision
is insupportable in light of both the text of §1 and the legislative deliberations.—
The construction given to §1 in the previous decision is insupportable in light of
both the text of §1 and the deliberations of the Batasang Pambansa which enacted
the amendatory law.
Same; Bids and Bidding; Statutes; E.O. 301; §1 of E.O. No. 301 applies only to
contracts for the purchase of supplies, materials and equipment and does not
refer to contracts of lease of equipment.—E.O. No. 301, §1 applies only to contracts
for the purchase of supplies, materials and equipment. It does not refer to contracts
of lease of equipment like the ELA. The provisions on lease are found in §§ 6 and 7
but they refer to the lease of privately-owned buildings or spaces for government
use or of government-owned buildings or spaces for private use, and these
provisions do not require public bidding.
Same; Same; Same; Same; Sales; An option to buy is not a contract of purchase
and sale.—It is thus difficult to see how E.O. No. 301 can be applied to the ELA
when the only feature of the ELA that may be thought of as close to a contract of
purchase and sale is the option to buy given to the PCSO. An option to buy is not
of course a contract of purchase and sale.
PADILLA, J.,Concurring:
Constitutional Law; Actions; Parties; Locus Standi; The principle of locus standi
should not stand in the way of a review by the Supreme Court of the validity of
the changed agreement between the PCSO and the PGMC.—The core issue in the
present case is the same as the issue in the first lotto case, i.e., the validity of a
changed agreement between PCSO and PGMC. Thus, it is my view that the
principle of locus standi should not stand in the way of a review by this Court of
the validity of such changed agreement.
Contracts; Lease; That the parties have stipulated on flexible rentals does not
render it less of a lease contract and more of joint venture.—A lease is a contract
whereby one of the parties binds himself to give to another the enjoyment or use
of a thing for a price certain and for a period which may be definite or indefinite
(Article 1643, Civil Code). It would appear from the above legal provision that the
ELA is truly a straight contract of lease. That the parties to the ELA have stipulated
on flexible rentals does not render it less of a lease contract and more of a joint
venture. Surely, the PGMC as owner of the leased equipment is free to demand the
amount of rentals it deems commensu-
549
VOL. 246, JULY 17, 1995 549
Kilosbayan, Incorporated vs. Morato
rate for the use thereof and, as long as PCSO agrees to the amount of such rentals,
as justifying an adequate net return to it, then the contract is valid and binding
between the parties thereto. This is the essence of freedom to enter into contracts.
Commission on Audit; Judicial Review; Doctrine of Primary Jurisdiction; The
Supreme Court should not preempt the determination and judgment of the COA
on matters which are within its primary jurisdiction under the Constitution.—On
the allegation of lack of public bidding on the ELA, the Commission on Audit (COA)
has yet to resolve a case where the issue of the validity of the ELA due to lack of
public bidding has been squarely raised. This matter surfaced during the hearing
of the present case. Needless to say, the Court should not preempt the
determination and judgment of the COA on matters which are within its primary
jurisdiction under the Constitution.
Constitutional Law; Separation of Powers; On the question as to whether the ELA
is grossly disadvantageous to the government, such matter involves basically a
policy-determination by the executive branch which the Supreme Court should
not ordinarily reverse or substitute with its own judgment.—As to whether or not
the ELA is grossly disadvantageous to the government, it should be stressed that
the matter involves, basically, a policy—determination by the executive branch
which this Court should not ordinarily reverse or substitute with its own judgment,
in keeping with the time honored doctrine of separation of powers.
FELICIANO, J.,Dissenting:
Statutory Construction; The view expressed by an individual legislator who
eventually comes to sit in the Supreme Court as to the meaning to be given to
words crafted by himself should, at the very least, be regarded as entitled to a
strong presumption of correctness.—In so doing, my learned brother Mendoza, J.
purports to controvert and overturn the reading that the majority of this Court,
through Mr. Justice Davide, Jr., in the first Kilosbayan case gave to the relevant
provisions of the PCSO charter. It so happens that the critical language in the
relevant PCSO charter provision—that is, the “except” clause in Section 1 (B) of the
PCSO charter as amended by B.P. Blg. 42—was crafted by the then Assemblyman
Hilario G. Davide, Jr. during the deliberations in the Interim Batasan Pambansa
on the bill that became B.P. Blg. 42. It is impliedly contended by the majority that
the intent of an individual legislator should not be regarded as conclusive as to the
“correct” interpretation of the provision of a statute. This is true
550
550 SUPREME COURT REPORTS ANNOTATED
5
Kilosbayan, Incorporated vs. Morato
enough, as a general proposition, for it is the intent of the legislative body as
manifested in the language used by the legislature that must be examined and
applied by this Court. However, it seems to me that the view expressed by an
individual legislator who eventually comes to sit in this Court as to the meaning to
be given to words crafted by himself should, at the very least, be regarded as
entitled to a strong presumption of correctness.
Contracts; Sales; Lease; It is commonplace knowledge that equipment leases
(especially “financial leases” involving expensive capital equipment) are often
substitutes for or equivalents of purchase and sale contracts.—It is commonplace
knowledge that equipment leases (especially “financial leases” involving expensive
capital equipment) are often substitutes for or equivalents of purchase and sale
contracts, given the multifarious credit and tax constraints operating in the market
place.
Same; Same; Same; Bids and Bidding; It is true enough that public bidding may
be inconvenient and time consuming but it is still the only method of procurement
so far invented by man by which the government could reasonably expect to keep
relatively honest those who would contract with it.—Public bidding is precisely
the standard and best way of ensuring that a contract by which the government
seeks to provide itself with supplies or materials or equipment is in fact the most
advantageous to government. It is true enough that public bidding may be
inconvenient and time consuming; but it is still the only method of procurement
so far invented by man by which the government could reasonably expect to keep
relatively honest those who would contract with it. This is the basic reason why
competition through public bidding is the general rule and not the exception. I fear
that the opinion of my learned brother Justice Mendoza would, in ultimate effect,
stand this rule on its head and make public bidding the exception rather than the
general rule.
Same; Same; Same; In the commercial world, a rental provision cast in terms of
a fixed participation in the gross revenues of the lessee signals substantial
economic interest in the business of such lessee which cannot be regarded as
compatible with an “ordinary” equipment rental agreement—it is of the very
substance of a commercial joint venture and of economic collaboration or
association.—I begin with the nature and form of the rental provisions of the ELA.
The rental payable by PCSO as lessee of equipment and other assets owned by
PGMC as lessor, is fixed at a specified percentage, 4.3% of the gross revenues
accruing to PCSO out of or in connection with the operation of such
551
VOL. 246, JULY 17, 1995 551
Kilosbayan, Incorporated vs. Morato
equipment and assets. The rental payable is not, in other words, expressed in terms
of a fixed and absolute figure, although a floor amount per leased terminal is set.
Instead, the actual total amount of the rental rises and falls from month to month
as the revenues grow or shrink in volume. I respectfully suggest that thereby the
lessor of the facilities leased has acquired a legal interest either in the business of
the lessee PCSO that is conducted through the operation of such facilities and
equipment, or at least in the income stream of PCSO originating from such
operation. In the commercial world, a rental provision cast in terms of a fixed
participation in the gross revenues of the lessee, signals substantial economic
interest in the business of such lessee. Such a provision cannot be regarded as
compatible with an “ordinary” equipment rental agreement. On the other hand, it
is of the very substance of a commercial joint venture and of economic
collaboration or association.
REGALADO, J.,Dissenting:
Actions; Res Judicata; Law of the Case; The “law of the case” may also arise from
an original holding of a higher court on a writ of certiorari, and is binding not
only in subsequent appeals or proceedings in the same case, but also in a
subsequent suit between the same parties.—Accordingly, the “law of the case” may
also arise from an original holding of a higher court on a writ of certiorari, and is
binding not only in subsequent appeals or proceedings in the same case, but also
in a subsequent suit between the same parties. What I wish to underscore is that
where, as in the instant case, the holding of this highest Court on a specific issue
was handed down in an original action for certiorari, it has the same binding effect
as it would have had if promulgated in a case on appeal. Furthermore, since in our
jurisdiction an original action for certiorari to control and set aside a grave abuse
of official discretion can be commenced in the Supreme Court itself, it would be
absurd that for its ruling therein to constitute the law of the case, there must first
be a remand to a lower court which naturally could not be the court of origin from
which the postulated second appeal should be taken.
Same; Same; Same; Constitutional Law; Parties; Locus Standi; The concept of a
cause of action in public interest cases should not be straightjacketed within its
usual narrow confines in private interest litigations.—It is true that a right of
action is the right or standing to enforce a cause of action. For its purposes, the
majority urges the adoption of the standard concept of a real party in interest based
on his possession of a cause of action. It could not have failed to perceive, but
552
552 SUPREME COURT REPORTS ANNOTATED
6
Kilosbayan, Incorporated vs. Morato
nonetheless refuses to concede, that the concept of a cause of action in public
interest cases should not be straitjacketed within its usual narrow confines in
private interest litigations.
Same; Same; Same; Same; Same; Same; The matter of the right of petitioners to
file and maintain the present action—whether the objection thereto is premised
on lack of locus standi or right of action—has already been foreclosed by the
judgment in the first lotto case.—I hold the view that the matter of the right of
petitioners to file and maintain this action—whether the objection thereto is
premised on lack of locus standi or right of action—has already been foreclosed by
our judgment in the first lotto case, G.R. No. 113375. If the majority refuses to
recognize such right under the “law of the case” principle, I see no reason why that
particular issue can still be ventilated now as a survivor of the doctrinal effects of
res judicata.
Same; Same; Same; The removal and replacement of some objectionable terms
of a contract, which nevertheless continues to operate under the same basis, with
and on the same property, and for the same purpose, and through the same
contracting parties does not suffice to extinguish the identity of the subject matter
in both cases.—The removal and replacement of some objectionable terms of a
contract, which nevertheless continues to operate under the same basis, with and
on the same property, for the same purpose, and through the same contracting
parties does not suffice to extinguish the identity of the subject matter in both
cases. This would be to exalt form over substance. Furthermore, respondents
themselves admitted that the new contract is actually the same as the original one,
with just some variants in the terms of the latter to eliminate those which were
objected to. The contrary assumption now being floated by respondents would
create chaos in our remedial and contractual laws, open the door to fraud, and
subvert the rules on the finality of judgments.
DAVIDE, JR., J.,Dissenting:
Actions; Res Judicata; Law of the Case; Stare Decisis; Parties; Locus Standi;
Under the principle of either the law of the case or res judicata, the PCSO and the
PGMC are bound by the ruling in the first lotto case on the locus standi of the
petitioners and the application or interpretation of the exception clause in §1 (B)
of R.A. No. 1169.—Under the principle of either the law of the case or res judicata,
the PCSO and the PGMC are bound by the ruling in the first lotto case on the locus
standi of the petitioners and the application or interpretation of the exception
clause in paragraph B, Section 1 of R.A. No. 1169, as amended.
553
VOL. 246, JULY 17, 1995 553
Kilosbayan, Incorporated vs. Morato
Moreover, that application or interpretation has been laid to rest under the
doctrine of stare decisis and has also become part of our legal system pursuant to
Article 8 of the Civil Code which provides: “Judicial decisions applying or
interpreting the laws or the constitution shall form part of the legal system of the
Philippines.”
Same; Same; Same; Same; Same; Same; Decisions applying or interpreting laws
or the constitution “assume the same authority as the statute itself and, until
authoritatively abandoned, necessarily become, to the extent that they are
applicable, the criteria which must control the actuations not only of those called
upon to abide thereby but also of those in duty bound to enforce obedience
thereto.”—The doctrine of stare decisis embodies the legal maxim that a principle
or rule of law which has been established by the decision of a court of controlling
jurisdiction will be followed in other cases involving a similar situation. It is
founded on the necessity for securing certainty and stability in the law and does
not require identity or privity of parties. This is explicitly fleshed out in Article 8 of
the Civil Code which provides that decisions applying or interpreting the laws or
the constitution shall form part of the legal system. Such decisions “assume the
same authority as the statute itself and, until authoritatively abandoned,
necessarily become, to the extent that they are applicable, the criteria which must
control the actuations not only of those called upon to abide thereby but also of
those in duty bound to enforce obedience thereto.”
Same; Same; Same; Same; Same; Same; Abandonment of decisions applying or
interpreting laws or the constitution must be based only on strong and
compelling reasons otherwise the becoming virtue of predictability expected from
the Supreme Court would be immeasurably affected and the public’s confidence
in the stability of its solemn pronouncements diminished.—Abandonment thereof
must be based only on strong and compelling reasons—which I do not find in this
case—otherwise, the becoming virtue of predictability which is expected from this
Court would be immeasurably affected and the public’s confidence in the stability
of its solemn pronouncements diminished.
Same; Same; Same; Same; Same; Same; Dual aspects of the doctrine of res
judicata.—The doctrine of res judicata also bars a relitigation of the issue of locus
standi and a re-examination of the application or interpretation of the exception
clause in paragraph B, Section 1 of R.A. 1169, as amended. This doctrine has dual
aspects: (1) as a bar to the prosecution of a second action upon the same claim,
demand, or cause of action; and (2) as preclusion to the relitigation of particular
facts or issues in another action between the same parties on
554
7
554 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
a different claim or cause of action.
Statutory Construction; The best authority on the intention or rationale of a
legislative amendment is its author.—I respectfully submit that the best authority
on the intention or rationale of a legislative amendment is its author. Fortunately,
I happened to be the author of the exception clause in said provision. The language
of that clause is very short and simple, and the elaboration given therefor, as earlier
shown, is equally short and simple. The sponsor of the measure, then
Assemblyman, now Congressman, Ronaldo Zamora did not even ask for an
explanation or clarification; he readily accepted the amendment. Nobody from the
floor interpellated me for an explanation or clarification.
Contracts; Lease; Bids and Bidding; Even assuming that the subject ELA is not a
joint venture contract, still it must be nullified for having been entered into
without public bidding and for being grossly disadvantageous to the
Government.—Even assuming that the subject ELA is not a joint venture contract,
still it must be nullified for having been entered into without public bidding and
for being grossly disadvantageous to the Government. It has been said: In this
jurisdiction, public bidding is the policy and medium adhered to in Government
procurement and construction contracts under existing laws and regulations. It is
the accepted method for arriving at a fair and reasonable price and ensures that
overpricing, favoritism and other anomalous practices are eliminated or
minimized. And any Government contract entered into without the required
bidding is null and void and cannot adversely affect the rights of third parties.
Same; Same; Sales; Words and Phrases; “Optional Contract,” Explained.—An
optional contract is a privilege existing in one person, for which he had paid a
consideration, which gives him the right to buy certain specified property from
another person, if he chooses, at any time within the agreed period, at a fixed price.
Said contract is separate and distinct contract from the contract which the parties
may enter into upon the consummation of the option. The second paragraph of
Article 1479 of the Civil Code expressly provides that “[a]n accepted unilateral
promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.”
VITUG, J., Concurring Opinion:
Constitutional Law; Judicial Power; Separation of Powers; The constitutional
provision defining “judicial power” has not been intended
555
VOL. 246, JULY 17, 1995 555
Kilosbayan, Incorporated vs. Morato
to unduly mutate, let alone to disregard, the long established rules on locus
standi, and neither has it been meant to do away with the principle of separation
of powers and its essential incidents.—A provision which has been introduced by
the 1987 Constitution is a definition, for the first time in our fundamental law, of
the term “judicial power,” as such authority and duty of courts of justice “to settle
actual controversies involving rights which are legally demandable and enforceable
and to determine whether or not there has been a grave abuse of discretion,
amounting to lack or excess of jurisdiction, on the part of any branch or
instrumentality of the Government” (Article VIII, Section 1, Constitution). I take it
that the provision has not been intended to unduly mutate, let alone to disregard,
the long established rules on locus standi. Neither has it been meant, I most
respectfully submit, to do away with the principle of separation of powers and its
essential incidents such as by, in effect, conferring omnipotence on, or allowing an
intrusion by, the courts in respect to purely political decisions, the exercise of
which is explicitly vested elsewhere, and subordinate to that of their own the will
of either the Legislative Department or the Executive Department—both co-equal,
independent and coordinate branches, along with the Judiciary, in our system of
government. Again, if it were otherwise, there indeed would be truth to the charge,
in the words of some constitutionalists, that “judicial tyranny” has been
institutionalized by the 1987 Constitution, an apprehension which should, I
submit, rather be held far from truth and reality.
PETITION for prohibition, review and/or Injunction in the Supreme Court.
The facts are stated in the opinion of the Court.
Jovito R. Salonga, Fernando Santiago and Emilio Capulong, Jr. for petitioners.
Renato L. Cayetano and Eleazar Reyes for private respondents.
MENDOZA, J.:
As a result of our decision in G.R. No. 113375 (Kilosbayan, Incorporated v.
Guingona, 232 SCRA 110 [1994]) invalidating the Contract of Lease between the
Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming
Management Corp. (PGMC) on the ground that it had been made in violation of
the charter of the PCSO, the parties entered into negotiations for
556
8
556 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
a new agreement that would be “consistent with the latter’s [PCSO] charter . . . and
conformable to this Honorable Court’s aforesaid Decision.”
On January 25, 1995, the parties signed an Equipment Lease Agreement (hereafter
called ELA) whereby the PGMC leased online lottery equipment and accessories to
the PCSO in consideration of a rental equivalent to 4.3% of the gross amount of
ticket sales derived by the PCSO from the operation of the lottery which in no case
shall be less than an annual rental computed at P35,000.00 per terminal in
commercial operation. The rental is to be computed and paid bi-weekly. In the
event the bi-weekly rentals in any year fall short of the annual minimum fixed
rental thus computed, the PCSO agrees to pay the deficiency out of the proceeds of
its current ticket sales. (Pars. 1-2)
Under the law, 30% of the net receipts from the sale of tickets is allotted to charity.
(R.A. No. 1169, §6 [B])
The term of the lease is eight (8) years, commencing from the start of commercial
operation of the lottery equipment first delivered to the lessee pursuant to the
agreed schedule. (Par. 3)
In the operation of the lottery, the PCSO is to employ its own personnel. (Par. 5) It
is responsible for the loss of, or damage to, the equipment arising from any cause
and for the cost of their maintenance and repair. (Pars. 7-8)
Upon the expiration of the lease, the PCSO has the option to purchase the
equipment for the sum of P25 million.
A copy of the ELA was submitted to the Court by the PGMC in accordance with its
manifestation in the prior case.
On February 21, 1995 this suit was filed seeking to declare the ELA invalid on the
ground that it is substantially the same as the Contract of Lease nullified in the first
case. Petitioners argue:
1. 1. THE AMENDED ELA IS NULL AND VOID SINCE IT IS BASICALLY
OR SUBSTANTIALLY THE SAME AS OR SIMILAR TO THE OLD LEASE
CONTRACT AS REPRESENTED AND ADMITTED BY RESPONDENTS
PGMC AND PCSO.
2. 2. ASSUMING ARGUENDO, THAT THE AMENDED ELA IS
MATERIALLY DIFFERENT FROM THE OLD LEASE CONTRACT, THE
AMENDED ELA IS NEVERTHELESS NULL AND VOID FOR BEING
INCONSISTENT WITH AND VIOLATIVE OF PCSO’S CHARTER AND
THE DECISION OF THIS HONORABLE COURT OF MAY 5, 1995.
557
VOL. 246, JULY 17, 1995 557
Kilosbayan, Incorporated vs. Morato
1. 3. THE AMENDED EQUIPMENT LEASE AGREEMENT IS NULL AND
VOID FOR BEING VIOLATIVE OF THE LAW ON PUBLIC BIDDING OF
CONTRACTS FOR FURNISHING SUPPLIES, MATERIALS AND
EQUIPMENT TO THE GOVERNMENT, PARTICULARLY E.O. NO. 301
DATED 26 JULY 1987 AND E.O. NO. 298 DATED 12 AUGUST 1940 AS
AMENDED, AS WELL AS THE “RULES AND REGULATIONS FOR THE
PREVENTION OF IRREGULAR, UNNECESSARY, EXCESSIVE OR
EXTRAVAGANT (IUEE) EXPENDITURES PROMULGATED UNDER
COMMISSION ON AUDIT CIRCULAR NO. 85-55-A DATED
SEPTEMBER 8, 1985, CONSIDERING THAT IT WAS AWARDED AND
EXECUTED WITHOUT THE PUBLIC BIDDING REQUIRED UNDER
SAID LAWS AND COA RULES AND REGULATIONS, IT HAS NOT BEEN
APPROVED BY THE PRESIDENT OF THE PHILIPPINES, AND IT IS
NOT MOST ADVANTAGEOUS TO THE GOVERNMENT.
2. 4. THE ELA IS VIOLATIVE OF SECTION 2(2), ARTICLE IX-D OF THE
1987 CONSTITUTION IN RELATION TO COA CIRCULAR NO. 85-55-A.
The PCSO and PGMC filed separate comments in which they question the
petitioners’ standing to bring this suit. They maintain (1) that the ELA is a different
lease contract with none of the vestiges of a joint venture which were found in the
Contract of Lease nullified in the prior case; (2) that the ELA did not have to be
submitted to a public bidding because it fell within the exception provided in E.O.
No. 301, §1(e); (3) that the power to determine whether the ELA is advantageous
to the government is vested in the Board of Directors of the PCSO; (4) that for lack
of funds the PCSO cannot purchase its own on-line lottery equipment and has had
to enter into a lease contract; (5) that what petitioners are actually seeking in this
suit is to further their moral crusade and political agenda, using the Court as their
forum.
For reasons set forth below, we hold that petitioners have no cause against
respondents and therefore their petition should be dismissed.
9
I PETITIONERS’ STANDING
The Kilosbayan, Inc. is an organization described in its petition as “composed of
civic-spirited citizens, pastors, priests, nuns and lay leaders who are committed to
the cause of truth, justice,
558
558 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
and national renewal.” Its trustees are also suing in their individual and collective
capacities as “taxpayers and concerned citizens.” The other petitioners (Sen.
Freddie Webb, Sen. Wigberto Tañada and Rep. Joker P. Arroyo) are members of
Congress suing as such and as “taxpayers and concerned citizens.”
Respondents question the right of petitioners to bring this suit on the ground that,
not being parties to the contract of lease which they seek to nullify, they have no
personal and substantial interest likely to be injured by the enforcement of the
contract. Petitioners on the other hand contend that the ruling in the previous case
sustaining their standing to challenge the validity of the first contract for the
operation of lottery is now the “law of the case” and therefore the question of their
standing can no longer be reopened.
Neither the doctrine of stare decisis nor that of “law of the case,” nor that of
conclusiveness of judgment poses a barrier to a determination of petitioners’ right
to maintain this suit.
Stare decisis is usually the wise policy. But in this case, concern for stability in
decisional law does not call for adherence to what has recently been laid down as
the rule. The previous ruling sustaining petitioners’ intervention may itself be
considered a departure from settled rulings on “real parties in interest” because no
constitutional issues were actually involved. Just five years before that ruling this
Court had denied standing to a party who, in questioning the validity of another
form of lottery, claimed the right to sue in the capacity of taxpayer, citizen and
member of the Bar. (Valmonte v. Philippine Charity Sweepstakes, G.R. No. 78716,
Sept. 22, 1987) Only recently this Court held that members of Congress have
standing to question the validity of presidential veto on the ground that, if true, the
illegality of the veto would impair their prerogatives as members of Congress.
Conversely if the complaint is not grounded on the impairment of the powers of
Congress, legislators do not have standing to question the validity of any law or
official action. (Philippine Constitution Association v. Enriquez, 235 SCRA 506
[1994])
There is an additional reason for a reexamination of the ruling on standing. The
voting on petitioners’ standing in the previous case was a narrow one, with seven
(7) members sustaining petitioners’ standing and six (6) denying petitioners’ right
to
559
VOL. 246, JULY 17, 1995 559
Kilosbayan, Incorporated vs. Morato
bring the suit. The majority was thus a tenuous one that is not likely to be
maintained in any subsequent litigation. In addition, there have been changes in
the membership of the Court, with the retirement of Justices Cruz and Bidin and
the appointment of the writer of this opinion and Justice Francisco. Given this fact
it is hardly tenable to insist on the maintenance of the ruling as to petitioners’
standing.
Petitioners argue that inquiry into their right to bring this suit is barred by the
doctrine of “law of the case.” We do not think this doctrine is applicable considering
the fact that while this case is a sequel to G.R. No. 113375, it is not its continuation.
The doctrine applies only when a case is before a court a second time after a ruling
by an appellate court. Thus in People v. Pinuila, 103 Phil. 992, 999 (1958), it was
stated:
“‘Law of the case’ has been defined as the opinion delivered on a former appeal.
More specifically, it means that whatever is once irrevocably established as the
controlling legal rule of decision between the same parties in the same case
continues to be the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the facts of
the case before the court.” (21 C.J.S. 330)
“It may be stated as a rule of general application that, where the evidence on a
second or succeeding appeal is substantially the same as that on the first or
preceding appeal, all matters, questions, points, or issues adjudicated on the prior
appeal are the law of the case on all subsequent appeals and will not be considered
or readjudicated therein. (5 C.J.S. 1267)
“In accordance with the general rule stated in Section 1821, where, after a definite
determination, the court has remanded the cause for further action below, it will
refuse to examine question other than those arising subsequently to such
determination and remand, or other than the propriety of the compliance with its
mandate; and if the court below has proceeded in substantial conformity to the
directions of the appellate court, its action will not be questioned on a second ap
10
peal. . . . “As a general rule a decision on a prior appeal of the same case is held to
be the law of the case whether that decision is right or wrong, the remedy of the
party deeming himself aggrieved being to seek a rehearing. (5 C.J.S. 1276-77)
“Questions ‘necessarily involved in the decision on a former appeal will be regarded
as the law of the case on a subsequent appeal, although the questions are not
expressly treated in the opinion of the
560
560 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
court, as the presumption is that all the facts in the case bearing on the point
decided have received due consideration whether all or none of them are
mentioned in the opinion. (5 C.J.S. 1286-87)”
As this Court explained in another case, “The law of the case, as applied to a former
decision of an appellate court, merely expresses the practice of the courts in
refusing to reopen what has been decided. It differs from res judicata in that the
conclusiveness of the first judgment is not dependent upon its finality. The first
judgment is generally, if not universally, not final. It relates entirely to questions
of law, and is confined in its operation to subsequent proceedings in the same case
. . . .” (Municipality of Daet v. Court of Appeals, 93 SCRA 503, 521 [1979])
It follows that since the present case is not the same one litigated by the parties
before in G.R. No. 113375, the ruling there cannot in any sense be regarded as “the
law of this case.” The parties are the same but the cases are not.
Nor is inquiry into petitioners’ right to maintain this suit foreclosed by the related
doctrine of “conclusiveness of judgment.”1 According to the doctrine, an issue
actually and directly passed upon and determined in a former suit cannot again be
drawn in question in any future action between the same parties involving a
different cause of action. (Peñalosa v. Tuason, 22 Phil. 303, 313 (1912); Heirs of
Roxas v. Galido, 108 Phil. 582 [1960])
It has been held that the rule on conclusiveness of judgment or preclusion of issues
or collateral estoppel does not apply to issues of law, at least when substantially
unrelated claims are involved. (Montana v. United States, 440 U.S. 147, 162, 59
L.Ed.2d 210, 222 [1979]; BATOR, MELTZER, MISHKIN AND SHAPIRO, THE
FEDERAL COURTS AND THE FEDERAL SYSTEM 1058, n. 2 (3rd Ed., [1988])
Following this ruling it was held in Commissioner v. Sunnen, 333 U.S. 591, 92
L.Ed. 898 (1947) that where a
_______________
1The doctrine of “conclusiveness of judgment” is also called “collateral estoppel”
or “preclusion of issues,” as distinguished from “preclusion of claims” or res
judicata. In the Rules of Court, the first (conclusiveness of judgment, collateral
estoppel or preclusion of issues) is governed by Rule 39, §49(c), while the second
(res judicata or preclusion of claims) is found in Rule 39, §49(b).
561
VOL. 246, JULY 17, 1995 561
Kilosbayan, Incorporated vs. Morato
taxpayer assigned to his wife his interest in a patent in 1928 and in a suit it was
determined that money paid to his wife for the years 1929-1931 under the 1928
assignment was not part of his taxable income, this determination is not preclusive
in a second action for collection of taxes on amounts paid to his wife under another
deed of assignment for other years (1937 to 1941). For income tax purposes what is
decided with respect to one contract is not conclusive as to any other contract
which was not then in issue, however similar or identical it may be. The rule on
collateral estoppel, it was held, “must be confined to situations where the matter
raised in the second suit is identical in all respects with that decided in the first
proceeding and where the controlling facts and applicable legal rules remain
unchanged.” (333 U.S. at 599-600, 92 L.Ed. at 907) Consequently, “if the relevant
facts in the two cases are separate, even though they be similar or identical,
collateral estoppel does not govern the legal issues which occur in the second case.
Thus the second proceeding may involve an instrument or transaction identical
with, but in a form separable from, the one dealt with in the first proceeding. In
that situation a court is free in the second proceeding to make an independent
examination of the legal matters at issue. . . .” (333 U.S. at 601, 92 L.Ed. at 908)
This exception to the General Rule of Issue Preclusion is authoritatively formulated
in Restatement of the Law 2d, on Judgments, as follows:
§ 28. Although an issue is actually litigated and determined by a valid and final
judgment, and the determination is essential to the judgment, relitigation of the
issue in a subsequent action between the parties is not precluded in the following
circumstances:
....
(2) The issue is one of law and (a) the two actions involve claims that are
substantially unrelated , or (b) a new determination is warranted in order to take
11
account of an intervening change in the applicable legal context or otherwise to
avoid inequitable administration of the laws; . . .
Illustration:
....
2. A brings an action against the municipality of B for tortious injury. The court
sustains B’s defense of sovereign immunity and
562
562 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
dismisses the action. Several years later A brings a second action against B for an
unrelated tortious injury occurring after the dismissal. The judgment in the first
action is not conclusive on the question whether the defense of sovereign immunity
is available to B. Note: The doctrine of stare decisis may lead the court to refuse to
reconsider the question of sovereign immunity. See §29, Comment i.
The question whether petitioners have standing to question the Equipment Lease
Agreement or ELA is a legal question. As will presently be shown, the ELA, which
petitioners seek to declare invalid in this proceeding, is essentially different from
the 1993 Contract of Lease entered into by the PCSO with the PGMC. Hence the
determination in the prior case (G.R. No. 113375) that petitioners had standing to
challenge the validity of the 1993 Contract of Lease of the parties does not preclude
determination of their standing in the present suit.
Not only is petitioners’ standing a legal issue that may be determined again in this
case. It is, strictly speaking, not even the issue in this case, since standing is a
concept in constitutional law and here no constitutional question is actually
involved. The issue in this case is whether petitioners are the “real parties in
interest” within the meaning of Rule 3, §2 of the Rules of Court which requires that
“Every action must be prosecuted and defended in the name of the real party in
interest.”
The difference between the rule on standing and real party in interest has been
noted by authorities thus: “It is important to note . . . that standing because of its
constitutional and public policy underpinnings, is very different from questions
relating to whether a particular plaintiff is the real party in interest or has capacity
to sue. Although all three requirements are directed towards ensuring that only
certain parties can maintain an action, standing restrictions require a partial
consideration of the merits, as well as broader policy concerns relating to the
proper role of the judiciary in certain areas. (FRIEDENTHAL, KANE AND
MILLER, CIVIL PROCEDURE 328 [1985])
Standing is a special concern in constitutional law because in some cases suits are
brought not by parties who have been personally injured by the operation of a law
or by official action taken, but by concerned citizens, taxpayers or voters who
actually sue in the public interest. Hence the question in standing is whether such
parties have “alleged such a personal stake in the
563
VOL. 246, JULY 17, 1995 563
Kilosbayan, Incorporated vs. Morato
outcome of the controversy as to assure that concrete adverseness which sharpens
the presentation of issues upon which the court so largely depends for illumination
of difficult constitutional questions.” (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633
[1962])
Accordingly, in Valmonte v. Philippine Charity Sweepstakes Office, G.R. No.
78716, Sept. 22, 1987, standing was denied to a petitioner who sought to declare a
form of lottery known as Instant Sweepstakes invalid because, as the Court held,
Valmonte brings the suit as a citizen, lawyer, taxpayer and father of three (3) minor
children. But nowhere in his petition does petitioner claim that his rights and
privileges as a lawyer or citizen have been directly and personally injured by the
operation of the Instant Sweepstakes. The interest of the person assailing the
constitutionality of a statute must be direct and personal. He must be able to show,
not only that the law is invalid, but also that he has sustained or is in immediate
danger of sustaining some direct injury as a result of its enforcement, and not
merely that he suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some right or privilege to
which he is lawfully entitled or that he is about to be subjected to some burdens or
penalties by reason of the statute complained of.
We apprehend no difference between the petitioner in Valmonte and the present
petitioners. Petitioners do not in fact show what particularized interest they have
for bringing this suit. It does not detract from the high regard for petitioners as
civic leaders to say that their interest falls short of that required to maintain an
action under Rule 3, §2.
It is true that the present action involves not a mere contract between private
individuals but one made by a government corporation. There is, however, no
allegation that public funds are being misspent so as to make this action a public
12
one and justify relaxation of the requirement that an action must be prosecuted in
the name of the real party in interest. (Valmonte v. PCSO, supra; Bugnay Const.
and Dev. Corp. v. Laron, 176 SCRA 240 [1989])
On the other hand, the question as to “real party in interest” is whether he is “the
party who would be benefitted or injured by the judgment, or the ‘party entitled to
the avails of the suit.’ ”
564
564 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
(Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131 [1951])
Petitioners invoke the following Principles and State Policies set forth in Art. II of
the Constitution:
The maintenance of peace and order, the protection of life, liberty, and property,
and the promotion of the general welfare are essential for the enjoyment by all the
people of the blessings of democracy. (§5)
The natural and primary right and duty of parents in the rearing of the youth for
civic efficiency and the development of moral character shall receive the support
of the Government. (§12)
The State recognizes the vital role of the youth in nation-building and shall
promote their physical, moral, spiritual, intellectual, and social well-being. It shall
inculcate in the youth patriotism and nationalism, and encourage their
involvement in public and civic affairs. (§13)
The State shall give priority to education, science and technology, arts, culture, and
sports to foster patriotism and nationalism, accelerate social progress, and
promote total human liberation and development. (§17)
(Memorandum for Petitioners, p. 7)
These are not, however, self executing provisions, the disregard of which can give
rise to a cause of action in the courts. They do not embody judicially enforceable
constitutional rights but guidelines for legislation.
Thus, while constitutional policies are invoked, this case involves basically
questions of contract law. More specifically, the question is whether petitioners
have a legal right which has been violated.
In actions for the annulment of contracts, such as this action, the real parties are
those who are parties to the agreement or are bound either principally or
subsidiarily or are prejudiced in their rights with respect to one of the contracting
parties and can show the detriment which would positively result to them from the
contract even though they did not intervene in it (Ibañez v. Hongkong & Shanghai
Bank, 22 Phil. 572 [1912]), or who claim a right to take part in a public bidding but
have been illegally excluded from it. (See De la Lara Co., Inc. v. Secretary of Public
Works and Communications, G.R. No. L-13460, Nov. 28, 1958)
These are parties with “a present substantial interest, as distinguished from a mere
expectancy or future, contingent, subordinate, or consequential interest. . . . The
phrase ‘present
565
VOL. 246, JULY 17, 1995 565
Kilosbayan, Incorporated vs. Morato
substantial interest’ more concretely is meant such interest of a party in the subject
matter of the action as will entitle him, under the substantive law, to recover if the
evidence is sufficient, or that he has the legal title to demand and the defendant
will be protected in a payment to or recovery by him.” (1 MORAN, COMMENTS
ON THE RULES OF COURT 154-155 ([1979]) Thus, in Gonzales v. Hechanova, 118
Phil. 1065 (1963) petitioner’s right to question the validity of a government
contract for the importation of rice was sustained because he was a rice planter
with substantial production, who had a right under the law to sell to the
government.
But petitioners do not have such present substantial interest in the ELA as would
entitle them to bring this suit. Denying to them the right to intervene will not leave
without remedy any perceived illegality in the execution of government contracts.
Questions as to the nature or validity of public contracts or the necessity for a
public bidding before they may be made can be raised in an appropriate case before
the Commission on Audit or before the Ombudsman. The Constitution requires
that the Ombudsman and his deputies, “as protectors of the people shall act
promptly on complaints filed in any form or manner against public officials or
employees of the government, or any subdivision, agency or instrumentality
thereof including government-owned or controlled corporations.” (Art. XI, §12)
In addition, the Solicitor General is authorized to bring an action for quo warranto
if it should be thought that a government corporation, like the PCSO, has offended
against its corporate charter or misused its franchise. (Rule 66, §2[a] [d])
13
We now turn to the merits of petitioners’ claim constituting their cause of action.
II. THE EQUIPMENT LEASE AGREEMENT
This Court ruled in the previous case that the Contract of Lease, which the PCSO
had entered into with the PGMC on December 17, 1993 for the operation of an on-
line lottery system, was actually a joint venture agreement, or, at the very least, a
contract involving “collaboration or association” with another party and, for that
reason, was void. The Court noted the following features of the contract:
566
566 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
1. (1) The PCSO had neither funds nor expertise to operate the on-line lottery
system so that it would be dependent on the PGMC for the operation of
the lottery system.
2. (2) The PGMC would exclusively bear all costs and expenses for printing
tickets, payment of salaries and wages of personnel, advertising and
promotion and other expenses for the operation of the lottery system.
Mention was made of the provision, which the Court considered “unusual
in a lessor-lessee relationship but inherent in a joint venture,” for the
payment of the rental not at a fixed amount but at a certain percentage
(4.9%) of the gross receipts from the sale of tickets, and the possibility that
“nothing may be due or demandable at all because the PGMC binds itself
to ‘bear all risks if the revenue from the ticket sales, on an annualized
basis, are insufficient to pay the entire prize money.’ ” (232 SCRA at 147)
3. (3) It was only after the term of the contract that PCSO personnel would
be ready to operate the lottery system themselves because it would take
the entire eight-year term of the contract for the technology transfer to be
completed. In the view of the Court, this meant that for the duration of the
contract, the PGMC would actually be the operator of the lottery system,
and not simply the lessor of equipment.
The Court considered the Contract of Lease to be actually a joint venture
agreement. From another angle, it said that the arrangement, especially the
provision that all risks were for the account of the PGMC, was in effect a lease by
the PCSO of its franchise to the PGMC.
These features of the old Contract of Lease have been removed in the present ELA.
While the rent is still expressed in terms of percentage (it is now 4.3% of the gross
receipts from the sale of tickets) in the ELA, the PGMC is now guaranteed a
minimum rent of P35,000.00 a year per terminal in commercial operation. (Par.
2) The PGMC is thus assured of payment of the rental. Thus par. 2 of the ELA
provides:
2. RENTAL
During the effectivity of this Agreement and the term of this lease as provided in
paragraph 3 hereof, LESSEE shall pay rental to LESSOR equivalent to FOUR
POINT THREE PERCENT (4.3%) of the gross amount of ticket sales from all of
LESSEE’s on-line lottery
567
VOL. 246, JULY 17, 1995 567
Kilosbayan, Incorporated vs. Morato
operations in the Territory, which rental shall be computed and payable bi-weekly
net of withholding taxes on income, if any: provided that, in no case shall the
annual aggregate rentals per year during the term of the lease be less than the
annual minimum fixed rental computed at P35,000.00 per terminal in commercial
operation per annum, provided, further that the annual minimum fixed rental shall
be reduced pro-rata for the number of days during the year that a terminal is not
in commercial operation due to repairs or breakdown. In the event the aggregate
bi-weekly rentals in any year falls short of the annual minimum fixed rental
computed at P35,000.00 per terminal in commercial operation, the LESSEE shall
pay such shortfall from out of the proceeds of the then current ticket sales from
LESSEE’s on-line lottery operations in the Territory (after payment first of prizes
and agents’ commissions but prior to any other payments, allocations or
disbursements) until said shortfall shall have been fully settled, but without
prejudice to the payment to LESSOR of the then current bi-weekly rentals in
accordance with the provisions of the first sentence of this paragraph 2.
The PCSO now bears all losses because the operation of the system is completely
in its hands. This feature of the new contract negates any doubt that it is anything
but a lease agreement.
It is contended that the rental of 4.3% is substantially the same as the 4.9% in the
old contract because the reduction is negligible especially now that the PCSO
assumes all business risks and risk of loss of, or damage to, equipment. Petitioners
allege that:
PGMC’s annual minimum rental is P35,000.00 per terminal or a total of
P70,000,000.00 per annum considering that there are 2,000 terminals per the
amended ELA. In order to meet the amount, based on the 4.3% rental arrangement
without a shortfall, the gross ticket sales must amount to at least
14
P1,627,906,977.00. Multiplying this amount by 4.9% we get the 4.9% rental fee
fixed under the old lease contract and the product is P79,767,442.00. Deducting
from this amount the sum of P70,000,000.00 representing the annual minimum
rental under the amended ELA, we get the figure of P9,767,442 which is equivalent
to the .06% difference between the rental under the old lease contract and under
the amended ELA.
This amount of P9,767,442.00 cannot possibly cover the costs, expenses and
obligations shouldered by PGMC under the old lease contract but which are now
to be borne by the PCSO under the new
568
568 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
ELA, not to mention the additional P25 million that the PCSO has to pay the PGMC
if the former exercises its option to purchase the equipment at the end of the lease
period under the amended ELA.
(Petition, p. 37)
To be sure there is nothing unusual in fixing the rental as a certain percentage of
the gross receipts. The lease of space in commercial buildings, for example,
involves the payment of a certain percentage of the receipts in rental. Under the
Civil Code (Art. 1643) the only requirement is that the rental be a “price certain.”
Petitioners do not claim here that the rental is not a “price certain,” simply because
it is expressed as a certain percentage of the total gross amount of ticket sales.
Indeed it is not alone the fact that in the old contract the rental was expressed in
terms of percentage of the net proceeds from the sale of tickets which was held to
be characteristic of a joint venture agreement. It was the fact that, in the prior case,
the PGMC assumed, in addition, all risks of loss from the operation of the lottery,
with the distinct possibility that nothing might be due it. In the view of the Court
this possibility belied claims that the PGMC had no participation in the lottery
other than being merely the lessor of equipment.
In the new contract the rental is also expressed in terms of percentage of the gross
proceeds from ticket sales because the allocation of the receipts under the charter
of the PCSO is also expressed in percentage, to wit: 55% is set aside for prizes; 30%
for contribution to charity; and 15% for operating expenses and capital
expenditures. (R.A. No. 1169, §6) As the Solicitor General points out in his
Comment filed in behalf of the PCSO:
In the PCSO charter, operating costs are reflected as a percentage of the net
receipts (which is defined as gross receipts less ticket printing costs which shall not
exceed 2% and the 1% granted to the Commission on Higher Education under
Republic Act No. 7722). The mandate of the law is that operating costs, which
include payments for any leased equipment, cannot exceed 15% of net receipts, or
14.55% of gross receipts. The following conclusions are, therefore evident:
1. a. The 4.3% rental rate for the equipment is well within the maximum of
15% net receipts fixed by law;
2. b. To obviate any violation of the law, it is best to express large operating
costs for budgetary purposes as a percentage of
569
VOL. 246, JULY 17, 1995 569
Kilosbayan, Incorporated vs. Morato
1. either gross or net receipts, specifically since the amount of gross receipts
can only be estimated.
2. c. Large fixed sums of money for major operating costs , such as fixed
rental for equipment, can very well exceed the maximum percentages
fixed by law, specifically if actual gross receipts are lower than estimates
for budgetary purposes.
3. d. The problem of budgeting based on estimates is even more difficult
when new projects are involved, as is the case in the on-line lottery.
(PCSO’s Comment, pp. 18-20)
Petitioners reply that to obviate the possibility that the rental would not exceed
15% of the net receipts what the respondents should have done was not to agree on
a minimum fixed rental of P35,000.00 per terminal in commercial operation. This
is a matter of business judgment which, in the absence of a clear and convincing
showing that it was made in grave abuse of discretion of the PCSO, this Court is
not inclined to review. In this case the rental has to be expressed in terms of
percentage of the revenue of the PCSO because rentals are treated in the charter of
the agency (R.A. No. 1169, §6[C]) as “operating expenses” and the allotment for
“operating expenses” is a percentage of the net receipts.
The ELA also provides:
8. REPAIR SERVICES
LESSEE shall bear the costs of maintenance and necessary repairs, except those
repairs to correct defective workmanship or replace defective materials used in the
15
manufacture of Equipment discovered after delivery of the Equipment, in which
case LESSOR shall bear the costs of such repairs and, if necessary, the
replacements. The LESSEE may at any time during the term of the lease, request
the LESSOR to upgrade the equipment and/or increase the number of terminals,
in which case the LESSEE and LESSOR shall agree on an arrangement mutually
satisfactory to both of them, upon such terms as may be mutually agreed upon .
By virtue of this provision on upgrading of equipment, petitioners claim, the
parties can change their entire agreement and thereby, by “clever means and
devices,” enable the PGMC to “actually operate, manage, control and supervise the
conduct
570
570 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
and holding of the on-line lottery system,” considering that as found in the first
decision, “the PCSO had neither funds of its own nor the expertise to operate and
manage an on-line lottery.”
The claim is speculative. It is just as possible to speculate that after sometime
operating the lottery system the PCSO will be able to accumulate enough capital to
enable it to buy its own equipment and gain expertise. As for expertise, after three
months of operation of the on-line lottery, there appears to be no complaint that
the PCSO is relying on others, outside its own personnel, to run the system. In any
case as in the construction of statutes, the presumption is that in making contracts
the government has acted in good faith. The doctrine that the possibility of abuse
is not a reason for denying power to the government holds true also in cases
involving the validity of contracts made by it.
Finally, because the term “Equipment” is defined in the ELA as including
“technology, intellectual property rights, knowhow processes and systems,” it is
claimed that these items could only be transferred to the PCSO by the PGMC
training PCSO personnel and this was found in the first case to be a badge of a joint
venture.
Like the argument based on the upgrading of equipment, we think this contention
is also based on speculation rather than on fact or experience. Evidence is needed
to show that the transfer of technology would involve the PCSO and its personnel
in prohibited association or collaboration with the PGMC within the contemplation
of the law.
A contract of lease, as this is defined in Civil law, may call for some form of
collaboration or association between the parties since lease is a “consensual,
bilateral, onerous and commutative contract by which one person binds himself to
grant temporarily the use of a thing or the rendering of some service to another
who undertakes to pay some rent, compensation or price.” (5 PADILLA, CIVIL
CODE 611 [6TH ED. 1974]). The lessor of a commercial building, it may be
assumed, would be interested in the success of its tenants. But it is untenable to
contend that this is what the charter of the PCSO contemplates in prohibiting it
from entering into “collaboration or association” with any party. It may be added
that even if the PCSO purchases its own equipment, it still needs the assistance of
the PGMC in the initial phase of opera-
571
VOL. 246, JULY 17, 1995 571
Kilosbayan, Incorporated vs. Morato
tion.
We hold that the ELA is a lease contract and that it contains none of the features
of the former contract which were considered “badges of a joint venture
agreement.” To further find fault with the new contract would be to cavil and
expose the opposition to the contract to be actually an opposition to lottery under
any and all circumstances. But “[t]he morality of gambling is not a justiciable issue.
Gambling is not illegal per se. . . . It is left to Congress to deal with the activity as it
sees fit.” (Magtajas v. Pryce Properties Corp. Inc., 234 SCRA 255, 268 (1994). Cf.
Lim v. Pacquing, G.R. No. 115044, Jan. 27, 1995) In the case of lottery, there is no
dispute that, to enable the Philippine Charity Sweepstakes Office to raise funds for
charity, Congress authorized the Philippine Charity Sweepstakes Office (PCSO) to
hold or conduct lotteries under certain conditions.
We therefore now consider whether under the charter of the PCSO any contract for
the operation of an on-line lottery system, which involves any form of collaboration
or association, is prohibited.
III. THE INTERPRETATION OF §1 OF R.A. 1169
In G.R. No. 113375 it was held that the PCSO does not have the power to enter into
any contract which would involve it in any form of “collaboration, association or
joint venture” for the holding of sweepstakes races, lotteries and other similar
activities. This interpretation must be reexamined especially in determining
whether petitioners have a cause of action.
16
We hold that the charter of the PCSO does not absolutely prohibit it from holding
or conducting lottery “in collaboration, association or joint venture” with another
party. What the PCSO is prohibited from doing is to invest in a business engaged
in sweepstakes races, lotteries and similar activities, and it is prohibited from doing
so whether in “collaboration, association or joint venture” with others or “by itself.”
The reason for this is that these are competing activities and the PCSO should not
invest in the business of a competitor.
It will be helpful to quote the pertinent provisions of R.A. No. 1169, as amended by
B.P. Blg. 42:
572
572 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
1. §1. The Philippine Charity Sweepstakes Office.—The Philippine Charity
Sweepstakes Office, hereinafter designated the Office, shall be the
principal government agency for raising and providing for funds for health
programs, medical assistance and services and charities of national
character, and as such shall have the general powers conferred in section
thirteen of Act Numbered One Thousand Four Hundred Fifty-Nine, as
amended, and shall have the authority:
1. A. To hold and conduct charity sweepstakes races, lotteries and other
similar activities, in such frequency and manner, as shall be determined,
and subject to such rules and regulations as shall be promulgated by the
Board of Directors.
2. B. Subject to the approval of the Minister of Human Settlements, to
engage in health and welfare-related investments, programs, projects and
activities which may be profit-oriented, by itself or in collaboration,
association or joint venture with any person, association, company or
entity, whether domestic or foreign, except for the activities mentioned in
the preceding paragraph (A), for the purpose of providing for permanent
and continuing sources of funds for health programs, including the
expansion of existing ones, medical assistance and services, and/or
charitable grants: Provided, That such investments will not compete with
the private sector in areas where investments are adequate as may be
determined by the National Economic and Development Authority.
When parsed, it will be seen that §1 grants the PCSO authority to do any of the
following: (1) to hold or conduct charity sweepstakes races, lotteries and similar
activities; and/or (2) to invest—whether “by itself or in collaboration, association
or joint venture with any person, association, company or entity”—in any “health
and welfare-related investments, programs, projects and activities which may be
profit oriented,” except “the activities mentioned in the preceding paragraph (A),”
i.e.., sweepstakes races, lotteries and similar activities. The PCSO is prohibited
from investing in “activities mentioned in the preceding paragraph (A)” because,
as already stated, these are competing activities.
The subject matter of §1(B) is the authority of the PCSO to invest in certain projects
for profit in order to enable it to expand itshealth programs, medical assistance
and charitable grants. The exception in the law refers to investment in businesses
engaged in sweepstakes races, lotteries and similar activities. The limitation
applies not only when the investment is under-
573
VOL. 246, JULY 17, 1995 573
Kilosbayan, Incorporated vs. Morato
taken by the PCSO “in collaboration, association or joint venture” but also when
made by the PCSO alone, “by itself.” The prohibition can not apply to the holding
of a lottery by the PCSO itself. Otherwise, what it is authorized to do in par. (A)
would be negated by what is prohibited by par. (B).
To harmonize pars. (A) and (B), the latter must be read as referring to the authority
of the PCSO to invest in the business of others. Put in another way, the prohibition
in §1(B) is not so much against the PCSO entering into any collaboration,
association or joint venture with others as against the PCSO investing in the
business of another franchise holder which would directly compete with PCSO’s
own charity sweepstakes races, lotteries or similar activities. The prohibition
applies whether the PCSO makes the investment alone or with others.
The contrary construction given to §1 in the previous decision is based on remarks
made by then Assemblyman, now Mr. Justice, Davide during the deliberations on
what later became B.P. Blg. 42, amending R.A. No. 1169. It appears, however, that
the remarks were made in connection with a proposal to give the PCSO the
authority “to engage in any and all investments .” It was to provide exception with
regard to the type of investments which the PCSO is authorized to make that the
Davide amendment was adopted. It is reasonable to suppose that the members of
the Batasan Pambansa, in approving the amendment, understood it as referring to
the exception to par. (B) of §1 giving the PCSO the power to make investments. Had
it been their intention to prohibit the PCSO from entering into any collaboration,
association or joint venture with others even in instances when the sweepstakes
races, lotteries or similar activities are operated by it (“itself”), they would have
made the amendment not in par. (B), but in par. (A), of §1, as the logical place for
the amendment.
17
The following excerpt2 from the record of the discussion on Parliamentary Bill No.
622, which became B.P. Blg. 42, bears out this conclusion:
MR. ZAMORA. On the same page, starting from line 18 until line 23, delete the
entire paragraph from “b. to engage in
_______________
2 2 RECORD OF THE BATASAN, Sept. 6, 1979, 1006-07. (Emphasis added)
574
574 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
any and all investment. . . .” until the words “charitable grants” on line 23 and in
lieu thereof insert the following:
SUBJECT TO THE APPROVAL OF THE MINISTER OF HUMAN SETTLEMENTS,
TO ENGAGE IN HEALTH-ORIENTED INVESTMENTS, PROGRAMS,
PROJECTS AND ACTIVITIES WHICH MAY BE PROFITORIENTED, BY ITSELF
OR IN COLLABORATION, ASSOCIATION, OR JOINT VENTURE WITH ANY
PERSON, ASSOCIATION, COMPANY OR ENTITY, WHETHER DOMESTIC OR
FOREIGN, FOR THE PURPOSE OF PROVIDING FOR PERMANENT AND
CONTINUING SOURCES OF FUNDS FOR HEALTH PROGRAMS, INCLUDING
THE EXPANSION OF EXISTING ONES, MEDICAL ASSISTANCE AND
SERVICES AND/OR CHARITABLE GRANTS.
I move for approval of the amendment, Mr. Speaker.
MR. DAVIDE. Mr. Speaker.
THE SPEAKER. The gentleman from Cebu is recognized.
MR. DAVIDE. May I introduce an amendment to the committee amendment? The
amendment would be to insert after “foreign” in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with any other entity such
collaboration or joint venture must not include activity letter (a) which is the
holding and conducting of sweepstakes races, lotteries and other similar acts .
MR. ZAMORA. We accept the amendment, Mr. Speaker.
MR. DAVIDE. Thank you, Mr. Speaker.
THE SPEAKER. Is there any objection to the amendment? (Silence) The
amendment, as amended, is approved.
MR. ZAMORA. Continuing the line, Mr. Speaker, after “charitable grants” change
the period (.) into a semi-colon (;) and add the following proviso: PROVIDED,
THAT SUCH INVESTMENTS, PROGRAMS, PROJECTS AND ACTIVITIES
SHALL NOT COMPETE WITH THE PRIVATE SECTOR IN AREAS WHERE
PRIVATE INVESTMENTS ARE ADEQUATE.
May I read the whole paragraph, Mr. Speaker.
MR. DAVIDE. May I introduce an amendment after “adequate.” The intention of
the amendment is not to leave the determi-
575
VOL. 246, JULY 17, 1995 575
Kilosbayan, Incorporated vs. Morato
nation of whether it is adequate or not to anybody. And my amendment is to add
after “adequate” the words AS MAY BE DETERMINED BY THE NATIONAL
ECONOMIC AND DEVELOPMENT AUTHORITY. As a matter of fact, it will
strengthen the authority to invest in these areas, provided that the determination
of whether the private sector’s activity is already adequate must be determined by
the National Economic and Development Authority.
MR. ZAMORA. Mr. Speaker, the committee accepts the proposed amendment.
MR. DAVIDE. Thank you, Mr. Speaker.
THE SPEAKER. May the sponsor now read the entire paragraph?
MR. ZAMORA. May I read the paragraph, Mr. Speaker.
“Subject to the Minister of Human Settlements, to engage in health and welfare-
oriented investment programs, projects, and activities which may be profit-
oriented, by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, EXCEPT FOR THE
ACTIVITIES MENTIONED IN PARAGRAPH (a) for the purpose of providing for
permanent and continuing sources of funds for health programs, including the
expansion of existing ones, medical assistance and services and/or charitable
18
grants: PROVIDED THAT SUCH INVESTMENTS, HEALTH PROGRAMS,
PROJECTS AND ACTIVITIES SHALL NOT COMPETE WITH THE PRIVATE
SECTOR IN AREAS WHERE PRIVATE INVESTMENTS ARE ADEQUATE AS
MAY BE DETERMINED BY THE NATIONAL AND ECONOMIC DEVELOPMENT
AUTHORITY.”
THE SPEAKER. Is there any objection to the amendment?
MR. PELAEZ. Mr. Speaker.
THE SPEAKER. The Gentleman from Misamis Oriental is recognized.
MR. PELAEZ. Mr. Speaker, may I suggest that in that proviso, we remove “health
programs, projects and activities,” because the proviso refers only to investment
activities—“provided that such investments will not compete with the private
sector in areas where investments are adequate . . .”
MR. ZAMORA. It is accepted, Mr. Speaker.
THE SPEAKER. Is there any objection?
MR. PELAEZ. Mr. Speaker, may I propose an improvement to the amendment of
the Gentleman from Cebu, just for style,
576
576 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
I would suggest the insertion of the word PRECEDING before the word
“paragraph.” The phrase will read “the PRECEDING paragraph.”
MR. ZAMORA. It is accepted, Mr. Speaker.
THE SPEAKER. Very well. Is there any objection to the committee amendment, as
amended? (Silence) The Chair hears none; the amendment is approved.
The construction given to §1 in the previous decision is insupportable in light of
both the text of §1 and the deliberations of the Batasang Pambansa which enacted
the amendatory law.
IV. REQUIREMENT OF PUBLIC BIDDING
Finally the question is whether the ELA is subject to public bidding. In justifying
the award of the contract to the PGMC without public bidding, the PCSO invokes
E.O. No. 301, which states in pertinent part:
§1. Guidelines for Negotiated Contracts. Any provision of law, decree, executive
order or other issuances to the contrary notwithstanding, no contract for public
services or for furnishing supplies, materials and equipment to the government or
any of its branches, agencies or instrumentalities shall be renewed or entered into
without public bidding, except under any of the following situations.
1. a. Whenever the supplies are urgently needed to meet an emergency which
may involve the loss of, or danger to, life and/or property;
2. b. Whenever the supplies are to be used in connection with a project or
activity which cannot be delayed without causing detriment to the public
service;
3. c. Whenever the materials are sold by an exclusive distributor or
manufacturer who does not have sub-dealers selling at lower prices and
for which no suitable substitute can be obtained elsewhere at more
advantageous terms to the government;
4. d. Whenever the supplies under procurement have been unsuccessfully
placed on bid for at least two consecutive times, either due to lack of
bidders or the offers received in each instance were exorbitant or non-
conforming to specifications;
5. e. In cases where it is apparent that the requisition of the needed supplies
through negotiated purchase is most advantageous to the government to
be determined by the Department Head
577
VOL. 246, JULY 17, 1995 577
Kilosbayan, Incorporated vs. Morato
1. concerned; and
2. f. Whenever the purchase is made from an agency of the government.
Petitioners point out that while the general rule requiring public bidding covers
“contract[s] for public services or for furnishing supplies, materials and
equipment” to the government or to any of its branches, agencies or
instrumentalities, the exceptions in pars. (a), (b), (d), (e) and (f) refer to contracts
for the furnishing ofsupplies only, while par. (c) refers to the furnishing of
materials, only. They argue that as the general rule covers the furnishing of
“supplies, materials and equipment,” the reference in the exceptions to the
19
furnishing of “supplies” must be understood as excluding the furnishing of any of
the other items, i.e., “materials” and “equipment.”
E.O. No. 301, §1 applies only to contracts for the purchase of supplies, materials
and equipment. It does not refer to contracts of lease of equipment like the ELA.
The provisions on lease are found in §§ 6 and 7 but they refer to the lease of
privately-owned buildings or spaces for government use or of government-owned
buildings or spaces for private use, and these provisions do not require public
bidding. These provisions state:
1. 6. Guidelines for Lease Contracts.—Any provisions of law, decree,
executive order or other issuances to the contrary notwithstanding, the
Department of Public Works and Highways (DPWH), with respect to the
leasing of privately-owned buildings or spaces for government use or of
government-owned buildings or space for private use, shall formulate
uniform standards or guidelines for determining the reasonableness of the
terms of lease contracts and of the rental rates involved.
2. §7. Jurisdiction Over Lease Contracts.—The heads of agency intending to
rent privately-owned buildings or spaces for their use, or to lease out
government-owned buildings or spaces for private use, shall have
authority to determine the reasonableness of the terms of the lease and
the rental rates thereof, and to enter in such lease contracts without need
of prior approval by higher authorities, subject to compliance with the
uniform standards or guidelines established pursuant to Section 6 hereof
by the DPWH and to the audit jurisdiction of COA or its duly authorized
representative in accordance with existing rules and regulations.
578
578 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
It is thus difficult to see how E.O. No. 301 can be applied to the ELA when the only
feature of the ELA that may be thought of as close to a contract of purchase and
sale is the option to buy given to the PCSO. An option to buy is not of course a
contract of purchase and sale.
Even assuming that §1 of E.O. No. 301 applies to lease contracts, the reference to
“supplies” in the exceptions can not be strictly construed to exclude the furnishing
of “materials” and “equipment” without defeating the purpose for which these
exceptions are made. For example, par. (a) excepts from the requirement of public
bidding the furnishing of “supplies” which are “urgently needed to meet an
emergency which may involve the loss of, or danger to, life and/or property.”
Should rescue operations during a calamity, such as an earthquake, require the use
of heavy equipment, either by purchase or lease, no one can insist that there should
first be a public bidding before the equipment may be purchased or leased because
the heavy equipment is not a “supply” and §1(a) is limited to the furnishing of
“supplies” that are urgently needed.
Petitioners contend that in any event the contract in question is not the “most
advantageous to the government.” Whether the making of the present ELA meets
this condition is not to be judged by a comparison, line by line, of its provisions
with those of the old contract which this Court found to be in reality a joint venture
agreement. In some respects the old contract would be more favorable to the
government because the PGMC assumed many of the risks and burdens incident
to the operation of the online lottery system, while under the ELA it is freed from
these burdens. That is because the old contract was a joint venture agreement. The
ELA, on the other hand, is a lease contract, with the PCSO, as lessee, bearing solely
the risks and burdens of operating the on-line lottery system.
It is paradoxical that in their effort to show that the ELA is a joint venture
agreement and not a lease contract, petitioners point to contractual provisions
whereby the PGMC assumed risks and losses which might conceivably be incurred
in the operation of the lottery system, but to show that the present lease agreement
is not the most advantageous arrangement that can be obtained, the very absence
of these features of the old contract which made it a joint venture agreement, is
criticized.
579
VOL. 246, JULY 17, 1995 579
Kilosbayan, Incorporated vs. Morato
Indeed the question is not whether compared with the former joint venture
agreement the present lease contract is “[more] advantageous to the government.”
The question is whether under the circumstances, the ELA is the most
advantageous contract that could be obtained compared with similar lease
agreements which the PCSO could have made with other parties. Petitioners have
not shown that more favorable terms could have been obtained by the PCSO or that
at any rate the ELA, which the PCSO concluded with the PGMC, is disadvantageous
to the government.
___________________
For the foregoing reasons, we hold:
1. (1) that petitioners have neither standing to bring this suit nor substantial
interest to make them real parties in interest within the meaning of Rule
3, §2;
20
 2. (2) that a determination of the petitioners’ right to bring this suit is not
precluded or barred by the decision in the prior case between the parties;
3. (3) that the Equipment Lease Agreement of January 25, 1995 is valid as a
lease contract under the Civil Code and is not contrary to the charter of
the Philippine Charity Sweepstakes Office;
4. (4) that under §1(A) of its charter (R.A. 1169), the Philippine Charity
Sweepstakes Office has authority to enter into a contract for the holding
of an on-line lottery, whether alone or in association, collaboration or joint
venture with another party, so long as it itself holds or conducts such
lottery; and
5. (5) That the Equipment Lease Agreement in question did not have to be
submitted to public bidding as a condition for its validity.
WHEREFORE, the Petition for Prohibition, Review and/or Injunction seeking to
declare the Equipment Lease Agreement between the Philippine Charity
Sweepstakes Office and the Philippine Gaming Management Corp. invalid is
DISMISSED.
SO ORDERED.
Melo, Quiason, Puno, Kapunan and Francisco, JJ., concur.
580
580 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
Narvasa (C.J.), No part, related to party directly interested in case.
Feliciano, J., Please see dissenting opinion.
Padilla, J., See separate concurring opinion.
Regalado, J., Please see dissenting opinion.
Davide, J., Please see dissenting opinion.
Romero, J., I join the dissenting opinions.
Bellosillo, J., I concur in the dissenting opinions of Mr. Justice Feliciano and
Mr. Justice Davide, Jr.
Vitug, J., Please see separate concurring opinion.
CONCURRING OPINION
PADILLA, J.:
I join the majority in voting for the dismissal of the petition in this case.
It is the duty of the Supreme Court to apply the laws enacted by Congress and
approved by the President, (unless they are violative of the Constitution) even if
such laws run counter to a Member’s personal conviction that gambling should be
totally prohibited by law.
In the present case, we are confronted with Republic Act No. 1169 as amended by
B.P. Blg. 42 which expressly allows the PCSO to conduct lotteries, clearly a form of
gambling.
Given the various laws allowing specific forms of gambling, only Congress and the
Executive branch of government can, at present, repeal these laws to effectively
eradicate gambling, if these two (2) political branches truly intend to embark on
an honest to goodness national moral recovery and development program.
In my separate concurring opinion in the first lotto case (G.R. No. 113375), I
expressed the view that the rule on locus standi, being merely a procedural rule,
should be relaxed, as the issue then was of paramount national interest and
importance, namely, the legality of a lease contract entered into by PCSO with
PGMC whereby the former sought to operate an “on-line high-tech” lottery,
undeniably a form of gambling, the terms of which
581
VOL. 246, JULY 17, 1995 581
Kilosbayan, Incorporated vs. Morato
clearly pointed to an “association, collaboration or joint venture” with PGMC.
The core issue in the present case is the same as the issue in the first lotto case, i.e.,
the validity of a changed agreement between PCSO and PGMC. Thus, it is my view
that the principle of locus standi should not stand in the way of a review by this
Court of the validity of such changed agreement.
The specific issues in the present case were formulated by the Court during the
hearing held on 3 March 1995 thus:
21
 1. 1. whether the challenged Equipment Lease Agreement (ELA for short)
between PCSO and PGMC constitutes an “association, collaboration or
joint venture” between the two (2) entities within the meaning of Section
1(b) of Republic Act No. 1169 as amended by Batas Pambansa Blg. 42 and
therefore prohibited by said law;
2. 2. whether the ELA requires a prior public bidding; and
3. 3. whether the ELA is grossly disadvantageous to the government.
On the first specific issue, no less than petitioners admit in their petition that the
ELA is substantially different from the contract declared void by this Court in G.R.
No. 113375. Attached to the petition in this case (Annex “D”) is a 14-page
comparison between the first contract and the ELA, showing such differences.
Petitioners do not deny that the objectionable provisions in the first contract are
no longer found in the ELA. In fact, as I had stated in my opinion on the issue of
whether or not to grant a temporary restraining order (TRO) in this case, the ELA
is prima facie a simple contract of lease of equipment where PCSO is bound to pay
a minimum amount as rental plus a fixed percentage of gross receipts from the
sales of lottery tickets, with an option given PCSO to purchase the leased
equipment upon expiration of the lease contract.
The argument that the ELA still constitutes a prohibited “association, collaboration
or joint venture” with PGMC is, in my view, a much too strained interpretation of
the law which results from a less than pragmatic analysis of the issue.
To my mind, the question of whether or not the ELA constitutes “association,
collaboration or joint venture” between PCSO and PGMC should be tackled by
looking at the nature of a contract of lease.
582
582 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
A lease is a contract whereby one of the parties binds himself to give to another the
enjoyment or use of a thing for a price certain and for a period which may be
definite or indefinite (Article 1643, Civil Code).
It would appear from the above legal provision that the ELA is truly a straight
contract of lease. That the parties to the ELA have stipulated on flexible rentals
does not render it less of a lease contract and more of a joint venture. Surely, the
PGMC as owner of the leased equipment is free to demand the amount of rentals
it deems commensurate for the use thereof and, as long as PCSO agrees to the
amount of such rentals, as justifying an adequate net return to it, then the contract
is valid and binding between the parties thereto. This is the essence of freedom to
enter into contracts.
Petitioners have not cited any law which prevents such stipulations to be included
in contracts of lease or which changes the nature of such agreement from a lease
to some other juridical relation. In fact, such stipulations are common in leases of
real estate for commercial purposes. A ruling that would prevent PCSO from
entering into such lease agreement for the operation by PCSO of the lottery would
defeat the intent of the law to raise, from such lotto operations, funds for charitable
institutions and government civic projects, because an outright purchase by PCSO
of the lottery equipment appears next to impossible or at least not feasible
coastwise considering the capital requirement involved. In enacting the law
creating the PCSO, Congress, to be sure, did not intend to make it impossible for
PCSO to attain its given purposes. A rigid interpretation of the restriction on
“association, collaboration, and joint venture” will result in such impossibility.
Neither can petitioners’ arguments that certain provisions in the ELA will ensure
PGMC’s continued participation and interest in the lottery operations provide
enough grounds for granting the petition in this case. Such arguments are based
on speculations devoid of any material or concrete factual basis.
In sum, the ELA constitutes, in my view, a straight lease agreement of equipment
between PCSO and PGMC. Such an agreement is, as far as PCSO’s charter is
concerned, validly and lawfully entered into.
583
VOL. 246, JULY 17, 1995 583
Kilosbayan, Incorporated vs. Morato
On the allegation of lack of public bidding on the ELA, the Commission on Audit
(COA) has yet to resolve a case where the issue of the validity of the ELA due to
lack of public bidding has been squarely raised. This matter surfaced during the
hearing of the present case. Needless to say, the Court should not preempt the
determination and judgment of the COA on matters which are within its primary
jurisdiction under the Constitution.
As to whether or not the ELA is grossly disadvantageous to the government, it
should be stressed that the matter involves, basically, a policy—determination by
the executive branch which this Court should not ordinarily reverse or substitute
with its own judgment, in keeping with the time honored doctrine of separation of
powers.
Based on the foregoing considerations, I vote to DISMISS the petition.
22
FELICIANO, J.,Dissenting:
I find myself regretfully quite unable to join the majority opinion written by my
distinguished brother in the Court, Mendoza, J.
I join the penetrating dissenting opinions written by my esteemed brothers
Regalado and Davide, Jr., JJ. In respect of the matter of locus standi, I would also
reiterate the concurring opinion I wrote on that subject in the first Kilosbayan
case.1 All the factors which, to my mind, pressed for recognition of locus standi on
the part of petitioners in the first Kilosbayan case, still exist and demand, with
equal weight and insistence, such recognition in the present or second Kilosbayan
case. I fear that the Court may well have occasion in the future profoundly to regret
the doctrinal ball and chain that we have today clamped on our own limbs.
In the paragraphs which follow, I seek to address three (3) major substantive
points made in the majority opinion: firstly, the new interpretation of Section 1 (B)
of the PCSO charter as amended by B.P. Blg. 42; secondly, the question of whether
the
_______________
1 Kilosbayan, Inc., et al. v. Teofisto Guingona, etc., et al., 232 SCRA 110, at 153
(1994).
584
584 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
“Equipment Lease Agreement” (ELA) is subject to the requirements of public
bidding; and lastly, the question of whether the ELA has been effectively “purged”
of the characteristics of a prohibited joint venture arrangement or collaboration or
association.
I similar activities; and/or (2) to invest—whether ‘by itself or in collaboration,
I turn first to the novel argument made in the majority opinion that the charter of
PCSO does not “prohibit[—] it from holding or conducting lottery in collaboration,
association or joint venture with another party.” That opinion argues that “what
[PCSO] is prohibited from doing is to invest in a business engaged in sweepstakes
races, lotteries and similar activities” which are “competing activities and the
PCSO should not invest in the business of a competitor.”
In so doing, my learned brother Mendoza, J. purports to controvert and overturn
the reading that the majority of this Court, through Mr. Justice Davide, Jr., in the
first Kilosbayan case gave to the relevant provisions of the PCSO charter. It so
happens that the critical language in the relevant PCSO charter provision—that is,
the “except” clause in Section 1 (B) of the PCSO charter as amended by B.P. Blg.
42—was crafted by the then Assemblyman Hilario G. Davide, Jr. during the
deliberations in the Interim Batasan Pambansa on the bill that became B.P. Blg.
42. It is impliedly contended by the majority that the intent of an individual
legislator should not be regarded as conclusive as to the “correct” interpretation of
the provision of a statute. This is true enough, as a general proposition, for it is the
intent of the legislative body as manifested in the language used by the legislature
that must be examined and applied by this Court. However, it seems to me that the
view expressed by an individual legislator who eventually comes to sit in this Court
as to the meaning to be given to words crafted by himself should, at the very least,
be regarded as entitled to a strong presumption of correctness. Put a little
differently, I respectfully submit that in a situation such as that presented in this
case, a strong presumption arises that the interpretation given by Mr. Justice
Davide, Jr. and approved and adopted by the majority of the Court in the first
Kilosbayan case faithfully reflected the intent of the legisla-
585
VOL. 246, JULY 17, 1995 585
Kilosbayan, Incorporated vs. Morato
tive body as a whole. Fortunately, in the present case, it is not necessary to take the
word of Mr. Justice Davide, Jr. as to what the intent of the legislative body was in
respect of Section 1 (B) of the present PCSO charter. For that intent is clearly
discernible in the very words used by the legislative body itself. I turn, therefore,
to a scrutiny of the words used by that legislative body.
In arriving at his new interpretation, Mr. Justice Mendoza engages in “parsing:”
“When parsed, it will be seen that under §1, the PCSO is given authority to do any
of the following: (1) to hold or conduct charity sweepstakes races, lotteries or
association or joint venture with any person, association, company or entity’ in any
‘health and welfare-related investments, programs, projects and activities which
may be profit-oriented,’ except those which are engaged in any of ‘the activities
mentioned in the preceding paragraph (A),’ i.e., sweepstakes races, lotteries and
similar activities, for the obvious reason, as already states, that these are competing
activities.” (Underscoring in the original)
My submission, essayed with great respect and reluctance, is that Mr. Justice
Mendoza has misread the pertinent provisions of R.A. No. 1169, as amended by
23
B.P. Blg. 42, and that in so parsing those provisions, he has in fact overlooked their
actual syntax. The pertinent portions need to be quoted here in full:
“§ 1. The Philippine Charity Sweepstakes Office .—The Philippine Charity
Sweepstakes Office, hereinafter designated the Office, shall be the principal
government agency for raising and providing for funds for health programs,
medical assistance and services and charities of national character, and as such
shall have the general powers conferred in section thirteen of Act Numbered One
Thousand Four Hundred Fifty-Nine, as amended, and shall have the authority:
1. A. To hold and conduct charity sweepstakes races, lotteries and other
similar activities, in such frequency and manner, as shall be determined,
and subject to such rules and regulations as shall be promulgated by the
Board of Directors.
2. B. Subject to the approval of the Minister of Human Settlements to engage
in health and welfare-related investments, programs, projects and
activities which may be profit-oriented, by itself or in collaboration,
association or joint venture with any person , association,
586
586 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
1. company or entity, whether domestic or foreign, except for the activities
mentioned in the preceding paragraph (A), for the purpose of providing
of permanent and continuing sources of funds for health programs,
including the expansion of existing ones, medical assistance and services,
and/ or charitable grants: Provided, That such investments will not
compete with the private sector in areas where investments are adequate
as may be determined by the National Economic and Development
Authority.” (Italics supplied)
Examining the actual text of Section 1 (B), it will be noted that what PCSO has been
authorized to do is not simply “to invest—whether ‘by itself or in collaboration,
association or joint venture—’ in any health and welfare-related investments,
programs, projects and activities which may be profit-oriented x x x.” Rather, the
PCSO has been authorized to do any and all of the following acts:
1. (1) “to engage in health and welfare-related investments—which may be
profit-oriented—;”
2. (2) “to engage in health and welfare-related—programs—which may be
profit-oriented—;”
3. (3) “to engage in health and welfare-related—projects—which may be
profit-oriented—;” and
4. (4) “to engage in health and welfare-related—activities—which may be
profit-oriented—.”
The operative words of Section 1 (B) are “to engage in x x x health and welfare-
related investments, programs, projects and activities x x x” which, however,
Mendoza, J. would read restrictively and simply as “to invest in.” To do so, one
must disregard the actual language used by the statute.
It would appear that the majority thinks of “investments” essentially in terms of
passive investments and conceives of Section 1 (B) as a prohibition against PCSO
investing its own funds by buying either equity or debt instruments issued by some
other company itself also authorized to engage in sweepstakes races, lotteries or
similar activities and therefore, competing with PCSO. Under this view, the
prohibition is intended to prevent PCSO from competing with itself by putting its
funds in privately owned and operated enterprises lawfully and regularly engaged
in raising funds by holding and conducting sweepstakes races, lotteries or similar
activities for “health programs, medical
587
VOL. 246, JULY 17, 1995 587
Kilosbayan, Incorporated vs. Morato
assistance and services and charities of national character.”2
There appear some major difficulties with the view proffered by the majority.
Firstly, PCSO appears in fact to be a legal monopoly, that is to say, there appears
to be no other governmentowned or -controlled corporation or entity that is legally
authorized to hold sweepstakes races, lotteries and similar activities on a regular
and continuing basis for the purpose of generating funds for charitable, health and
welfare-related purposes. A careful search in the records of the Securities and
Exchange Commission has failed to show any privately owned company that has
been organized for that principal purpose, i.e., to generate funds through the
regular holding of sweepstakes races and lotteries for charitable and welfare and
health-related projects. Secondly, assuming for argument’s sake that there is
somewhere some obscure, publicly or privately owned entity which is engaged in
the same basic activity that the PCSO is authorized to engage in Section 1 (A) of its
charter, it seems unreal to suppose that an express statutory injunction should
have been found necessary to prevent PCSO from competing with itself by buying
some equity or a debt interest in such a company. Such an injunction would seem
unfairly to assume an unusual degree of ineptitude on the part of officials of PCSO.
Thirdly, the final proviso found in Section 1 (B) (quoted supra) makes clear that
the legislative concern was not with PCSO competing with itself but rather with
24
protecting the private sector from competition that would be offered by PCSO ,
either alone or in combination with some other enterprise, when it would seek to
exercise its expanded powers under Section 1 (B) in areas already adequately
served by private capital.
I would, therefore, respectfully suggest that the “except” clause in Section 1 (B), is
not designed as a non-competition provision, nor as a measure intended to prevent
PCSO from putting its money in enterprises competing with PCSO. What the law
seeks thereby to avoid, rather, is the PCSO sharing or franchising out its exclusive
authority to hold and conduct sweepstakes races, lotteries and similar activities by
collaborating or associating or entering into joint ventures with other persons or
entities not
_______________
2 Opening paragraph, Section 1, Revised PCSO charter.
588
588 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
government-owned and legislatively chartered like the PCSO is. The prohibition
against PCSO sharing its authority with others is designed, among other things, to
prevent diversion to other uses of revenue streams that should go solely to the
charitable and welfare-related purposes specified in PCSO’s charter.
It will be seen that without the “except” clause inserted at the initiative of former
Assemblyman Davide, Jr., Section 1 (B) would be so comprehensively worded as to
permit PCSO precisely to share its exclusive right to hold and conduct sweepstakes
races, lotteries and the like. It is this “except” clause which prevents such sharing
or lending or farming out of the PCSO “franchise”
“by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, except for the
activities mentioned in the preceding paragraph (A) x x x.”
This “except” clause thus operates, as it were, as a renvoi clause which refers back
to Section 1 (A) and in this manner avoids the necessity of simultaneously
amending the text of Section 1 (A). The textual location, in other words, of the
“except” clause offers no support for the new-found and entirely original
interpretation offered in the majority opinion.3
_______________
3 The majority opinion contends as follows:
“x x x. Had it been [the legislators’] intention to prohibit the PCSO from entering
into any collaboration, association or joint venture with others even in instances
when the sweepstakes races, lotteries or similar activities are operated by it
(‘itself’), they would have made the amendment not in par. (B), but in par. (A), of
§1, as the logical place for the amendment.”
In the very next page, the majority opinion quotes then Assemblyman Davide, Jr.:
“MR. DAVIDE: May I introduce an amendment to the committee amendment? The
amendment would be to insert after ‘foreign’ in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with any other entity such
collaboration or joint venture must not include activity
589
VOL. 246, JULY 17, 1995 589
Kilosbayan, Incorporated vs. Morato
II
I consider next the question of whether the “Equipment Lease Agreement” (ELA)
is subject to public bidding. PCSO refers to Executive Order No. 301 dated 26 July
1987 in seeking to justify the award of the ELA to the PGMC without public bidding.
In accepting the contentions of PCSO, the majority opinion relies basically on two
(2) propositions. The first of these is that:
“Executive Order No. 301, Section 1 refers to contracts of purchase and sale [only].
For that matter, there is nothing in that Order which refers to contracts for the
lease of equipment. What the order contains are provisions (Sections 6-7) for the
lease of privately owned buildings or spaces for government use or of government
owned buildings or spaces for private use and these provisions do not require
public bidding. These provisions state x x x. I do not see, therefore, how Executive
Order No. 301 can be applied to the ELA when the only feature it has that may be
thought close to a contract of purchase and sale is the option to buy given to the
PCSO. But—an option to buy is not a contract of purchase and sale.” (Italics and
brackets supplied)
25
The second proposition offered is that the use of the term “supplies” “cannot be
limited so as to exclude ‘materials’ and ‘equipment’ without defeating the purpose
for which these exceptions are made.”
The first proposition, it is respectfully submitted, finds no basis in the actual
language used in the operative paragraph of Section 1 of Executive Order No. 301
setting out the general rule:
“Section 1. Guidelines for Negotiated Contracts.—Any provisions of law, decree,
executive order or other issuances to the contrary notwithstanding, no contract for
public services or for furnishing supplies, materials and equipment to the
government or any of its branches, agencies or instrumentalities shall be renewed
or entered into without
_______________
letter (a) which is the holding and conducting of sweepstakes races, lotteries and
other similar acts.” (Emphases supplied)
It is submitted that Assemblyman Davide’s statement is entirely clear and captures
the essence of the amendment he offered with such economy of words.
590
590 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
public bidding, except under any of the following situations: x x x.” (Emphases
supplied)
It is worthy of special note that the above opening paragraph doesnot even use the
words “purchase and sale” or “buy and sell;” the actual term used is “furnishing x
x x equipment to the government.” The term “furnishing” can scarcely be limited
to sales to the government but must instead be held to embrace any contract which
provides the government with either title to or use of equipment. A contrary view
can only result in serious emasculation of Executive Order No. 301. It is
commonplace knowledge that equipment leases (especially “financial leases”
involving expensive capital equipment) are often substitutes for or equivalents of
purchase and sale contracts, given the multifarious credit and tax constraints
operating in the market place.4 Thus, the above first proposition fails to take into
account actual commercial practice already reflected in our present commercial
and tax law.
The second proposition similarly requires one who must interpret and apply the
provisions of Section 1 of Executive Order No. 301 to disregard the actual language
used in that Order. For Executive Order No. 301 uses three (3) distinguishable
terms: “supplies,” “materials” and “equipment.” These terms are not always used
simultaneously in Executive Order No. 301. In some places, only “supplies” is used;
in other places, only “materials” is employed; and in still other places, the term
“equipment” is used alongside with, but separately from, both of the other two (2)
terms. To say that “supplies,” “materials” and “equipment” are merely synonymous
or fungible would appear too casual a treatment of the actual language of Executive
Order No. 301.5
_______________
4See, e.g., Beltran v. PAIC Finance Corporation, 209 SCRA 105 (1992); Investors
Finance Corporation v. Court of Appeals, 193 SCRA 701 (1991).
5 The majority also seek to bolster the second proposition by what is essentially an
argumentum ad absurdum. Should rescue operations after a calamity like an
earthquake require the use of heavy equipment, there is no law that requires the
government to go (with or without a public bidding) shopping for equipment first
before commencing such rescue operations. As a practical matter, the government
(through, e.g.,
591
VOL. 246, JULY 17, 1995 591
Kilosbayan, Incorporated vs. Morato
The fundamental difficulty with the above two (2) propositions is this: that public
bidding is precisely the standard and best way of ensuring that a contract by which
the government seeks to provide itself with supplies or materials or equipment is
in fact the most advantageous to government. It is true enough that public bidding
may be inconvenient and time consuming; but it is still the only method of
procurement so far invented by man by which the government could reasonably
expect to keep relatively honest those who would contract with it. This is the basic
reason why competition through public bidding is the general rule and not the
exception. I fear that the opinion of my learned brother Justice Mendoza would, in
ultimate effect, stand this rule on its head and make public bidding the exception
rather than the general rule.
III
I would address finally the question of whether or not the original contract between
PCSO and PGMC which the Court in the first Kilosbayan case found to be a joint
26
venture, has been so substantially changed as to have been effectively converted
from a joint venture arrangement to an ordinary equipment lease agreement. The
majority of the Court have concluded that the ELA has been effectively “purged” of
the characteristics of a joint venture arrangement and that it should now be
regarded as lawful under the provisions of the revised PCSO charter.
With very great respect, it is submitted that the above conclusion has been merely
assumed rather than demonstrated and that what is in fact before this Court does
not adequately support such conclusion.
I begin with the nature and form of the rental provisions of the ELA. The rental
payable by PCSO as lessee of equipment and other assets owned by PGMC as
lessor, is fixed at a specified
_______________
the Department of Public Works and Highways) would simply order its own
equipment to be brought forthwith to the scene of the disaster. Or the government
may resort to the “requisition” or the temporary expropriation of the use of
personal property, i.e., heavy equipment, and thereafter pay compensation for
such use.
592
592 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
percentage, 4.3% of the gross revenues accruing to PCSO out of or in connection
with the operation of such equipment and assets. The rental payable is not, in other
words, expressed in terms of a fixed and absolute figure, although a floor amount
per leased terminal is set. Instead, the actual total amount of the rental rises and
falls from month to month as the revenues grow or shrink in volume. I respectfully
suggest that thereby the lessor of the facilities leased has acquired a legal interest
either in the business of the lessee PCSO that is conducted through the operation
of such facilities and equipment, or at least in the income stream of PCSO
originating from such operation.6 In the commercial world, a rental provision cast
in terms of a fixed participation in the gross revenues of the lessee, signals
substantial economic interest in the business of such lessee. Such a provision
cannot be regarded as compatible with an “ordinary” equipment rental agreement.
On the other hand, it is of the very substance of a commercial joint venture and of
economic collaboration or association.
Another of my distinguished brothers in the Court, Mr. Justice Padilla, remarks
that this type of rental stipulation is fairly common in leases of real estate in, e.g.,
Makati. This may well be the case. It is, however, absolutely essential to bear in
mind that neither, e.g., Ayala Land, Inc. as lessor-company nor any of the ordinary
commercial enterprises leasing real property in Makati, operate under statutory
restrictions like those in Section 1 (B) of R.A. No. 1169 as amended by B.P. Blg. 42
upon PCSO. In the Ayala Center, lessor and lessee are legally free to devise any
rental provision they may agree upon, even if such a provision
_______________
6 Such an interest on the part of the lessor would, for instance, constitute an
“insurable interest” in the business or revenue flow of the lessee so as to enable the
lessor to take out insurance against the occurrence of risks adversely affecting such
business or revenue flow. As to the breadth and amplitude of the concept of
“insurable interest,” see, e.g., Key ex rel Heaton v. Continental Insurance
Company, 74 S.W. 162, 165 (1903); Fenter v. General Accident Fire and Life
Assurance Corporation, 484 P. 2d 310 (1971); Leggio v. Millers National Insurance
Co., 398 S.W. 2d 607 (1965); Bird v. Central Manufacturers Mut. Ins. Co., 120 P.
2d 753 (1942); Smith v. Eagle Star Insurance Co., 370 S.W. 2d 448 (1963).
593
VOL. 246, JULY 17, 1995 593
Kilosbayan, Incorporated vs. Morato
would constitute participation by the lessor in the business of the lessee or a joint
venture between the two (2).
The majority opinion, apparently following the posture adopted by the Solicitor
General in respect of this point, states:
“in this case the rental has to be expressed in terms of percentage of the revenue
of the PCSO because rentals are treated in the charter of the agency (R.A. No. 1169,
Section 6 [C]) as ‘operating expenses and the allotment for “operating expenses”
is a percentage of the net receipts .’ ” (Italics supplied)
The Solicitor General is clearly not an accountant. In the first place, the so-called
“allotment for ‘operating expenses’ ” is in fact nothing more than a ceiling
established by the statute for permissible operating expenses. The statute
commands that the PCSO not spend for its operations more than 15% of its “net
receipts.” There is no law requiring PCSO to spend the maximum which it is
authorized to spend. Upon the other hand, law and regulations prohibit the PCSO
from spending more than what is in fact reasonably necessary to produce the
revenues targeted by it. Thus, the assertion that the 4.3% rental rate is “well within
the maximum of 15% net receipt fixed by law” is entirely meaningless insofar as
27
explaining the structure of the rental provision and the reasonableness thereof is
concerned. In the second place, it is child’s play for an accountant to convert
absolute figures representing operating expenses [actual or budgeted] into a
percentage of “net receipts [actual or expected];” there is nothing in Section 6 (C)
of the PCSO charter that either requires or justifies the adoption of the rental
provision found both in the old contract and in the ELA giving PGMC a fixed share
in gross revenues. The explanation offered by the Solicitor General is unfortunately
merely contrived; its acceptance depends on lack of familiarity with elementary
accounting concepts.
Under the original agreement between PCSO and PGMC, the latter bore the great
bulk of the risks and business burdens involved in their relationship. The
consideration for PGMC carrying such business risks and burdens was set at 4.9%
of gross revenues flowing out of the lotto operations. In contrast, under the written
terms of the new contract or ELA, the bulk if not all the risks and business burdens
previously borne by PGMC have
594
594 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
apparently been shifted to PCSO. The consideration to PGMC has been reduced
from 4.9% to 4.3% of gross revenues arising out of lotto operations.
Considering the nature and number of the business risks and burdens said to be
shifted under the provisions of ELA from PGMC to PCSO, the stipulated reduction
of the rental—by 0.6% of gross revenues—would appear disproportionately low
when appraised in terms of ordinary commercial standards and practice. The
original rental rate was reduced by 12.24% only.7 Of course, the minimal reduction
of the rental rate payable under the ELA to PGMC would be understandable if one
assumes that the business risks and burdens set out in such detail in the old
contract, and moved over to PCSO in equal detail in the new contract, are, in the
first place, basically unreal and merely cosmetic flourishes applied to the contract
documentation. But one is extremely loath to make such an assumption, not only
because the record offers no basis for such an assumption, but also because it
would raise far more questions than it would settle. Moreover, the true relationship
between the rental rate and the economic burdens and risks assumed by PCSO
under the ELA, will remain unexplained.
Thus, the questions which are provoked by scrutiny of the economic implications
of the text of the ELA (which, it should again be recalled, did not go through the
process of public bidding) are so numerous and consequential that it becomes very
difficult to suppose that the ELA is what it purports to be. It is suggested, with
respect, that the burden of showing that the elements found by the Court in the
first Kilosbayan case to constitute the prohibited “collaboration, association or
joint ven-
_______________
7During the oral hearing of this case, at least one Member of the Court requested
counsel for PGMC to enlighten the Court as to the structure of the rental
provisions, that is to say, to indicate to the Court the factors or kinds of factors
deemed relevant in setting the percentage figure constituting the rental rate. (TSN,
3 March 1995, pp. 47-57) No useful information was furnished to the Court either
during the hearing or in the pleadings filed thereafter. There has also been no
showing of how the percentage rate and structure of the rental provisions of ELA
compare with the rental provisions in comparable contracts in other parts of the
world.
595
VOL. 246, JULY 17, 1995 595
Kilosbayan, Incorporated vs. Morato
ture” have truly (and not simply ostensibly) been expunged from the relationship
between PCSO and PGMC rests, not on Kilosbayan nor on this Court, but rather
on PCSO and PGMC. It is respectfully submitted further that that burden has not
been adequately discharged in the present case by the simple rearrangement of
words and paragraphs of the old contract considering that the reality of the re-
arrangement is controverted by the commercial terms of the new contract.
One final word. The PCSO appears sincerely convinced that the legal restrictions
placed upon its operations by the actual text of Section 1(B) of its revised charter
prevent it from realizing the kinds and volume of revenues that it needs for
charitable and health and welfare-oriented programs. In this situation, the
appropriate recourse is not to make light of nor to conjure away those legal
restrictions but rather to go to the legislative authority and there ask for further
amendment of its charter. In that same forum, the petitioners may in turn ventilate
their own concerns and deeply felt convictions.
For all the foregoing, I vote to grant the Petition for Certiorari.
DISSENTING OPINION
REGALADO, J.:
28
I am constrained to respectfully dissent from the majority opinion premised on the
constitutional and procedural doctrines posed and interpreted in tandem therein.
I also regret that I have to impose on the majority with this virtual turno en contra
when I could have indicated my disaccord by just joining Mr. Justice Davide in his
commendably objective presentation of the minority position. I feel, however, that
certain views that have been advanced require a rejoinder lest they lapse into the
realm of unanimous precedents.
Preliminarily, there is no need to emphasize that the morality of gambling is not a
justiciable issue, and that this Court should not rule on the wisdom of the policy
thereon but only on the power of the corresponding authorities to adopt the same.
To my knowledge, the first proposition has never been of concern to or questioned
by any member of this Court throughout its hegira
596
596 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
from the first lotto case,1 then to the jai alai controversy,2 and now this so-called
sequel to the lottery dispute. The second is a constitutional tenet so hoary with age
that for the majority to still belabor the same would somehow reflect unfavorably
upon the dissenting members.
Upon the other hand, the Court may even be misunderstood as adopting an
adjudicative pattern designed against transparency of and inquiry into public
affairs. The misperception could very well be that it is glossing over the validity of
the lottery contract by seeking refuge in the rule of locus standi, and suppressing
concern over societal mores on gambling by invoking the doctrine of non-
justiciability.
Coming to the real task at hand, we have this resuscitation of the nagging question
of locus standi. In the first lotto case, the Court excepted petitioners from the
traditional locus standi proscription because the issues raised on the
indiscriminate operation of a nationwide on-line lottery system are of paramount
public interest and of a category higher than those involved in former cases
wherein the application of that rule was sustained. Respect for that holding was
accordingly observed and enjoined in Tatad, et al. vs. Garcia, etc., et al.3
That the Court acted correctly in the original case, instead of clinging to the
hidebound constitutional dictum of indeterminate vintage, has been demonstrated
in the various opinions filed in the jai alai case with illustrations of the frequent
reexamination of constitutional precepts in the courts of the United States itself
from which they originated. Thus, creating exceptions to said doctrines and even
rejecting the same in the interest of justice are not unusual, and this Court has
likewise done so presumably since it agrees that one ought not to be more popish
than the Pope.
Withal, the relaxation of the locus standi doctrine in the first lotto case is impugned
and lamented in the second one now at
_______________
1Kilosbayan, Inc., et al. vs. Guingona, Jr., etc., et al., G.R. No. 113375, May 5, 1994,
232 SCRA 110.
2Lim, etc., et al. vs. Pacquing, etc., et al., G.R. No. 115044, and Guingona, Jr., et al.
vs. Reyes, et al., G.R. No. 117263, jointly decided on January 27, 1995.
3 G.R. No. 114222, April 6, 1995.
597
VOL. 246, JULY 17, 1995 597
Kilosbayan, Incorporated vs. Morato
bar. Yet, with regard to the “law of the case” doctrine, during the deliberations the
majority submitted, and I am borrowing their authority therefor, that “(d)octrine
is merely a rule of procedure and does not go to the power of the court, and will not
be adhered to where its application will result in an unjust decision.”4 I feel that
here the majority is thus ignoring the adage about the proverbial sauce being for
both the goose and the gander.
In the first lotto case, the minority therein rested its position entirely on procedural
grounds, that is, by merely challenging the legal standing of petitioners but without
any comment on the merits of the contract in question. Since the case at bar is in
truth a reprise of the first, I had expected that this case would now be decided
purely on the merits of the putative expanded lease agreement. Indeed, to make
the Court’s judgment here turn again on technical procedural grounds, by hiding
within the shroud of the locus standi mystique, does not strike me as a decisive and
conclusive adjudication. While the contract involved is not of centennial duration,
its legal impact on and the social cost to the country should warrant more than an
androgynous solution.
Be that as it may, since the majority opinion has now evolved other adjective
theories which are represented to be either different from or ramifications of the
29
original “standing to sue” objection raised in the first lotto case, I will hazard my
own humble observations thereon.
1. There is, initially, the salvo against the adoption of the “law of the case” doctrine
in the original majority ponencia. It is contended that this doctrine requires, for its
applicability, an issue involved in a case originating from a lower court which is
first resolved by an appellate court, that case being then remanded to the court of
origin for further proceedings and with the prior resolution by the higher court of
that issue being the “law of the case” in any other proceeding in or a subsequent
appeal from the same case. It is insinuated that said doctrine exists only under such
a scenario.
_______________
4People vs. Medina, Cal., Cal. Rptr. 630, 635, 492 P.2d 686, cited in Black’s Law
Dictionary, 6th ed., 887.
598
598 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
It may be conceded that, in the context of the cited cases wherein this doctrine was
applied, two “appeals” are generally involved and the issue resolved in the first
appeal cannot be reexamined in the second appeal. If so, then what is necessarily
challenged in the first recourse to the higher court is either an interlocutory order
of the court a quo elevated on an original action for certiorari or an appealable
adjudication which nonetheless did not dispose of the entire case below because it
was either a special proceeding or an action admitting of multiple appeals.
That is the present reglementary situation in the Philippines which, unfortunately,
does not appear to have been taken into account when the double-appeal
procedure involved in one particular American concept was cited as authority in
the majority opinion. No attempt was made to ascertain whether in the American
cases cited the lex fori provided for identical or even substantial counterparts of
our procedural remedies of review by a higher court on either an appeal by
certiorari or writ of error, or through an original action of certiorari, prohibition or
mandamus. Yet on such unverified premises, and without a showing that the
situations are in pari materia, we are told that since the case at bar does not
possess the formatted sequence of an initiatory action in a lower court, an appeal
to a higher court, a remand to the lower court, and then a second appeal to the
higher court, the “law of the case” doctrine cannot apply. I have perforce to reject
that submission as I cannot indulge in the luxury of absolutes espoused by this
majority view.
I fear that this majority rule, has unduly constricted the factual and procedural
situations where such doctrine may apply, through its undue insistence on the
remedial procedure involved in the proceedings rather than the juridical effect of
the pronouncement of the higher court. Even in American law, the “law of the case”
doctrine was essentially designed to express the practice of courts generally to
refuse to reopen what has been decided5 and, thereby, to emphasize the rule that
the final judgment of the highest court is a final determination of the
_______________
5White vs. Higgins, C.C.A. Mass., 116 F.2d 312; Fleming vs. Campbell, 148 Kan.
516, 83 P.2d 708.
599
VOL. 246, JULY 17, 1995 599
Kilosbayan, Incorporated vs. Morato
rights of the parties.6 That is the actual and basic role that it was conceived to play
in judicial determinations, just like the rationale for the doctrines of res judicata
and conclusiveness of judgment.
Accordingly, the “law of the case” may also arise from an original holding of a
higher court on a writ of certiorari,7 and is binding not only in subsequent appeals
or proceedings in the same case, but also in a subsequent suit between the same
parties.8 What I wish to underscore is that where, as in the instant case, the holding
of this highest Court on a specific issue was handed down in an original action for
certiorari, it has the same binding effect as it would have had if promulgated in a
case on appeal. Furthermore, since in our jurisdiction an original action for
certiorari to control and set aside a grave abuse of official discretion can be
commenced in the Supreme Court itself, it would be absurd that for its ruling
therein to constitute the law of the case, there must first be a remand to a lower
court which naturally could not be the court of origin from which the postulated
second appeal should be taken.
2. Obviously realizing that continued reliance on the locus standi bar to petitioner’s
suit is not an ironclad guaranty against it, the majority position has taken a
different tack. It now invokes the concept of and the rules on a right of action in
ordinary civil actions and, prescinding from its previous position, insists that what
is supposedly determinative of the issue of representation is contract law and not
constitutional law. On the predicate that petitioners are not parties to the contract,
primarily or subsidiarily, they then are not real parties in interest, and for lack of
cause of action on their part they have no right of action. Ergo, they cannot
maintain the present petition.
30
As a matter of a conventional rule of procedure, the syllogism of the majority can
claim the merit of logic but, even so, only on
_______________
6Atchison, T. & S.F. Ry. Co. vs. Railroad Comm. of California, 209 Cal. 460, 288
P. 775.
7Goodkind vs. Wolkowsky, 147 Fla. 415, 2 So.2d 723; Atlantic Coast Line R. Co. vs.
Sperry Flour Co., 63 Ga. App. 611, 11 S.E. 2d 809.
8 Oglethorpe University vs. City of Atlanta, 180 Ga. 152, 178 S.E. 156.
600
600 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
assumed premises. More importantly, however, the blemish in its new blueprint is
that the defense of lack of a right of action is effectively the same as lack of locus
standi, that is, the absence of the remedial right to sue. As the commentators of
Castille would say, the objection under the new terminology is “lo mismo perro con
distinto collar.” That re-christened ground, as we shall later see, has already been
foreclosed by the judgment of the Court in the first lotto case.
It is true that a right of action is the right or standing to enforce a cause of action.
For its purposes, the majority urges the adoption of the standard concept of a real
party in interest based on his possession of a cause of action. It could not have
failed to perceive, but nonetheless refuses to concede, that the concept of a cause
of action in public interest cases should not be straitjacketed within its usual
narrow confines in private interest litigations.
Thus, adverting again to American jurisprudence, there is the caveat that “the
adoption of a provision requiring that an action be prosecuted in the name of the
real party in interest does not solve all questions as to the proper person or
persons to institute suit, although it obviously simplifies procedures in actions at
law. x x x There is no clearly defined rule by which one may determine who is or is
not the real party in interest, nor has there been found any concise definition of the
term. Who is the real party in interest depends on the peculiar facts of each
separate case, and one may be a party in interest and yet not be the sole real
party in interest .”9 (Italics supplied.)
The majority opinion quotes the view of a foreign author but unfortunately fails to
put the proper emphasis on the portion thereof which I believe should be that
which should correctly be stressed, and which I correspondingly reproduce:
It is important to note x x x that standing because of its constitutional and public
policy underpinnings, is very different from questions relating to whether a
particular plaintiff is the real party in interest or has the capacity to sue. Although
all three requirements are directed towards ensuring that only certain parties can
maintain an action,
_______________
959 Am. Jur. 2d, Parties, 429, citing State vs. Estate of Frankel, 94 Misc. 2d 105,
404 NYS2d 954.
601
VOL. 246, JULY 17, 1995 601
Kilosbayan, Incorporated vs. Morato
standing restrictions require a partial consideration of the merits, as well as of
broader policy concerns relating to the proper role of the judiciary in certain
areas.10
Indeed, if the majority would have its way in this case, there would be no available
judicial remedy against irregularities or excesses in government contracts for lack
of a party with legal standing or capacity to sue. This legal dilemma or vacuum is
supposedly remediable under a suggestion submitted in the majority opinion, to
wit:
Denial to petitioners of the right to intervene will not leave without remedy any
perceived illegality in the execution of government contracts. Questions as to the
nature or validity of public contracts or the necessity for a public bidding before
they may be made can be raised in an appropriate complaint before the
Commission on Audit or before the Ombudsman. x x x In addition, the Solicitor
General is authorized to bring an action for quo warranto if it should be thought
that a government corporation x x x has offended against its corporate charter or
misused its franchise. x x x.
The majority has apparently forgotten its own argument that in the present case
petitioners are not the real parties, hence they cannot avail of any remedial right
to file a complaint or suit. It is, therefore, highly improbable that the Commission
on Audit would deign to deal with those whom the majority says are strangers to
the contract. Again, should this Court now sustain the assailed contract, of what
31
avail would be the suggested recourse to the Ombudsman? Finally, it is a
perplexing suggestion that petitioners ask the Solicitor General to bring a quo
warranto suit, either in propria personal or ex relatione , not only because one
has to contend with that official’s own views or personal interests but because he
is himself the counsel for respondents in this case. Any proposed remedy must take
into account not only the legalities in the case but also the realities of life.
3. The majority believes that in view of the retirement and replacement of two
members of the Court, it is time to reexamine
_______________
10Citing Friedenthal, Kane and Miller, Civil Procedure, Hornbook Series, 1985 ed.,
328.
602
602 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
the ruling in the first lotto case. A previous judgment of the Court may, of course,
be revisited but if the ostensible basis is the change of membership and known
positions of the new members anent an issue pending in a case in the Court, it may
not sit well with the public as a judicious policy. This would be similar to the
situation where a judgment promulgated by the Court is held up by a motion for
reconsideration and which motion, just because the present Rules do not provide
a time limit for the resolution thereof, stays unresolved until the appointment of
members sympathetic thereto. Thus, the unkind criticisms of “magistrate
shopping” or “court packing” levelled by disgruntled litigants is not unknown to
this Court.
I hold the view that the matter of the right of petitioners to file and maintain this
action—whether the objection thereto is premised on lack of locus standi or right
of action—has already been foreclosed by our judgment in the first lotto case, G.R.
No. 113375. If the majority refuses to recognize such right under the “law of the
case” principle, I see no reason why that particular issue can still be ventilated now
as a survivor of the doctrinal effects of res judicata.11
It is undeniable that in that case and the one at bar, there is identity of parties,
subject matter and cause of action. Evidently, the judgment in G.R. No. 113375 was
rendered by a court of competent jurisdiction, it was an adjudication on the merits,
and has long become final and executory. There is, to be sure, an attempt to show
that the subject matter in the first action is different from that in the instant case,
since the former was the original contract and the latter is the supposed expanded
contract. I am not persuaded by the proffered distinction.
The removal and replacement of some objectionable terms of a contract, which
nevertheless continues to operate under the
_______________
11Since this is a Philippine case, I am using the term “res judicata” and, hereafter,
“conclusiveness of judgment” in the Philippine setting and as understood in our
jurisdiction. The importation of the alluring but variegated concepts thereof in
American law for application in this case would compound the confusion,
especially if considered along with the rule on collateral estoppel, whether by
judgment or verdict, as understood in U.S. procedural law.
603
VOL. 246, JULY 17, 1995 603
Kilosbayan, Incorporated vs. Morato
same basis, with and on the same property, for the samepurpose, and through the
same contracting parties does not suffice to extinguish the identity of the subject
matter in both cases. This would be to exalt form over substance. Furthermore,
respondents themselves admitted that the new contract is actually the same as the
original one, with just some variants in the terms of the latter to eliminate those
which were objected to. The contrary assumption now being floated by
respondents would create chaos in our remedial and contractual laws, open the
door to fraud, and subvert the rules on the finality of judgments.
Yet, even assuming purely ex hypothesi that the amended terms in the expanded
lease agreement created a discrete set of litigable violations of the statutory charter
of the Philippine Charity Sweepstakes Office, thereby collectively resulting in a
disparate actionable wrong or delict, that would merely constitute at most a
difference in the causes of action in the former and the present cases. Under
Section 49(c), Rule 39 of the Rules of Court, we would still have a situation of
collateral estoppel, better known in this jurisdiction as conclusiveness of judgment.
Hence, all relevant issues finally adjudged in the prior judgment shall be conclusive
between the parties in the case now before us, and that definitely includes at the
very least the adjudgment therein that petitioners have the locus standi or the right
to sue respondents on the contracts concerned.
In either case,—whether of res judicata, on which I insist, or of conclusiveness of
judgment, which I assume arguendo—what is now being primarily resisted is the
right of petitioners to sue, aside from the postulated invalidity of the contract for
32
the government-sponsored lottery system. It does seem odd, if not arcane, that
petitioners were held to have the requisite locus standi or right of action in said
G.R. No. 113375 and, for that matter, were likewise so recognized in the expanded
value added tax (EVAT) case,12 but are now mysteriously divested of that “place of
standing” allegedly due to, for legal purposes, a compelling need for reexamination
of the doctrine, and, for economic reasons, an obsession for autarky of the nation.
_______________
12Kilosbayan, Inc., et al. vs. Executive Secretary, et al., G.R. No. 115781, August 25,
1994, 235 SCRA 630.
604
604 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
4. I repeat what I said at the outset that this case should be decided on the merits
and on substantive considerations, not on dubious technicalities intended to
prevent an inquiry into the validity of the supposed amended lease contract. The
people are entitled to the benefit of a duly clarified and translucent transaction,
just as respondents deserve the opportunity, and should even by themselves
primarily seek, to be cleansed of any suspicions or lingering doubts arising from
the fact that the sponsors for jai alai and, now, of lotto are different.
On the merits, to obviate unnecessary replication I reiterate my concurrence with
the findings and conclusions of Mr. Justice Davide in his dissenting opinion, the
presentation whereof is completely devoid of strained or speculative premises, and
moreover has the virtue of being based on his first-hand knowledge as a legislator
of the very provisions of the law now in dispute. In this instance and absent any
other operative data, I find the same to be an amply sufficient and highly
meritorious analysis of the controversy on the contract.
One concluding point. I am not impressed by the stance of the majority that our
taking cognizance of this case and resolving it on the merits will hereafter invite
others to unduly overburden this Court with avoidable importunities. This sounds
like a tongue-in-cheek riposte since the Court has clearly indicated that it sets aside
objections grounded on judge-made constitutional theories only under cogent
reasons of substantial justice and paramount public interest.
On the contrary, to pay unqualified obeisance to the beguiling locus standi or right
of action doctrines posited by the majority in this case would not only be an
abdication of a clear judicial duty. It could conceivably result in depriving the
people of recourse to us from dubious government contracts through
constitutionally outdated or procedurally insipid theories for such stultification.
This is a contingency which is not only possible, but probable under our oligarchic
society in esse; and not only undesirable, but repugnant within a just regime of law
still in posse.
605
VOL. 246, JULY 17, 1995 605
Kilosbayan, Incorporated vs. Morato
DISSENTING OPINION
DAVIDE, JR., J.:
I register a dissenting vote.
I.
I am disturbed by the sudden reversal of our rulings in Kilosbayan, Inc., et al. vs.
Guingona, et al.1 (hereinafter referred to as the first lotto case) regarding the
application or interpretation of the exception clause in paragraph B, Section 1 of
the Charter of the PCSO (R.A. No. 1169), as amended by B.P. Blg. 442, and on the
issue of locus standi of the petitioners to question the contract of lease involving
the on-line lottery system entered into between the Philippine Charity Sweepstakes
Office (PCSO) and the Philippine Gaming Management Corporation (PGMC). Such
reversal upsets the salutary doctrines of the law of the case, res judicata, and stare
decisis. It puts to jeopardy the faith and confidence of the people, specially the
lawyers and litigants, in the certainty and stability of the pronouncements of this
Court. It opens the floodgates to endless litigations for re-examination of such
pronouncements and weakens this Court’s judicial and moral authority to demand
from lower courts obedience thereto and to impose sanctions for their opposite
conduct.
It must be noted that the decision in the first lotto case was unconditionally
accepted by the PCSO and the PGMC, as can be gleaned from their separate
manifestations that they would not ask for its reconsideration but would, instead,
negotiate a new equipment lease agreement consistent with the decision and the
PCSO’s charter and that they would furnish the Court a copy of the new agreement.
The decision has, thus, become final on 23 May 1994.2
As the writer of the said decision and as the author of the exception to paragraph
B, Section 1 of R.A. No. 1169, as amended, I cannot accept the strained and tenuous
arguments adduced in
33
_______________
1 G.R. No. 113375, 5 May 1994. Reported in 232 SCRA 110.
2 Rollo, G.R. No. 113375, vol. I, 508.
606
606 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
the majority opinion to justify the reversal of our rulings in the first lotto case.
While there are exceptions to the aforementioned doctrines and I am not
inexorably opposed to upsetting prior decisions if warranted by overwhelming
considerations of justice and irresistible desire to rectify an error, none of such
considerations and nothing of substance or weight can bring this case within any
of the exceptions.
In the said case, we sustained the locus standi of the petitioners, and in no
uncertain terms declared:
We find the instant petition to be of transcendental importance to the public. The
issues it raised are of paramount public interest and of a category even higher than
those involved in many of the aforecited cases. The ramifications of such issues
immeasurably affect the social, economic, and moral well-being of the people even
in the remotest barangays of the country and the counter-productive and
retrogressive effects of the envisioned on-line lottery system are as staggering as
the billions of pesos it is expected to raise. The legal standing then of the petitioners
deserves recognition and, in the exercise of its sound discretion, this Court hereby
brushes aside the procedural barrier which the respondents tried to take advantage
of.
In his concurring opinion, Mr. Justice Florentino P. Feliciano further showed
substantive grounds or considerations of importance which strengthened the legal
standing of the petitioners to bring and maintain the action, namely: (a) the public
character of the funds or other assets involved in the contract of lease; (b) the
presence of a clear case of disregard of a constitutional or legal provision by the
public respondent agency; (c) the lack of any other party with a more direct and
specific interest in raising the questions involved therein; and (d) the wide range
of impact of the contract of lease and of its implementation.
Only last 6 April 1995, in the decision in Tatad vs. Garcia,3 this Court, speaking
through Mr. Justice Camilo D. Quiason who had joined in the dissenting opinions
in the first lotto case denying the petitioners’ locus standi therein, invoked and
applied the ruling on locus standi in the first lotto case. He stated:
_______________
3 G.R. No. 114222.
607
VOL. 246, JULY 17, 1995 607
Kilosbayan, Incorporated vs. Morato
The prevailing doctrines in taxpayer’s suits are to allow taxpayers to question
contracts entered into by the national government or government-owned or
controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v.
Guingona, 232 SCRA 110 [1994] and to disallow the same when only municipal
contracts are involved (Bugnay Construction and Development Corporation v.
Laron, 176 SCRA 240 [1989].
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no
choice but to follow it and uphold the legal standing of petitioners as taxpayers to
institute the present action.
Mr. Justice Santiago M. Kapunan, who had also dissented in the first lotto case on
the issue of locus standi, unqualifiedly concurred with the majority opinion in
Tatad. Mr. Justice Vicente V. Mendoza, the writer of the ponencia in this case, also
invoked the locus standi ruling in the first lotto case to deny legal standing to
Tatad, et al. He said:
Nor do petitioners have standing to bring this suit as citizens. In the cases in which
citizens were authorized to sue, this Court found standing because it thought the
constitutional claims pressed for decision to be of “transcendental importance,” as
in fact it subsequently granted relief to petitioners by invalidating the challenged
statutes or governmental actions. Thus in the Lotto case [Kilosbayan, Inc. vs.
Guingona, 232 SCRA 110 (1994)] relied upon by the majority for upholding
petitioners’ standing, this Court took into account the “paramount public interest”
involved which “immeasurably affect[ed] the social, economic, and moral well-
being of the people... and the counter-productive and retrogressive effects of the
envisioned on-line lottery system.” Accordingly, the Court invalidated the contract
for the operation of the lottery.
Chief Justice Andres R. Narvasa and Associate Justices Abdulwahid A. Bidin, Jose
A.R. Melo, Reynato S. Puno, Jose C. Vitug, and Ricardo J. Francisco, joined him in
his concurring opinion. Except for the Chief Justice who took no part in the first
34
lotto case and Justice Francisco who was not yet a member of this Court at the
time, the rest of the Justices who joined the concurring opinion of Justice Mendoza
had dissented in the first lotto case on the said issue.
Furthermore, it must not be forgotten that this Court has defined the issues in this
case and limited them to the following:
608
608 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
1. 1. Whether the challenged ELA constitutes an association, collaboration,
or joint venture within the meaning of Section 1(B) of R.A. No. 1169, as
amended by B.P. Blg. 42;
2. 2. Whether the ELA requires prior public bidding; and
3. 3. Whether the ELA is grossly disadvantageous to the Government.
In fact, during the oral arguments of this case on 3 March 1993 this Court aborted
the attempt of the principal counsel for the PGMC, Atty. Renato Cayetano, to revive
the issue of locus standi. Since it seemed that he had prepared himself for and had
been assigned to discuss that issue alone, he took his seat without protest and
without a suggestion that he would ask for an expansion of the scope of the issues.
In the first lotto case, this Court also emphatically ruled that the language of
Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, is
indisputably clear that with respect to its [PCSO’s] franchise or privilege “to hold
and conduct charity sweepstakes races, lotteries and other similar activities,” the
PCSO cannot exercise it “in collaboration, association or joint venture” with any
other party. This is the unequivocal meaning and import of the phrase “except for
the activities mentioned in the preceding paragraph (A),” namely, “charity
sweepstakes races, lotteries and other similar activities.”
In support thereof, we explained how the amendment came about and quoted
portions of the Record of the Batasan4 on the proceedings during the period of
amendments to show the unequivocal intent of the Interim Batasang Pambansa to
proscribe the holding or conducting by the PCSO of sweepstakes races, lotteries,
and other similar activities, “in collaboration, association, or joint venture with any
person, association, company, or entity, whether domestic or foreign.” For
convenience, I quote what this Court stated in the said case:
B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by
Committee Report No. 103 as reported out by the Committee on Socio-Economic
Planning and Development of the In-
_______________
4 Vol. Two, 993; 1006-1007.
609
VOL. 246, JULY 17, 1995 609
Kilosbayan, Incorporated vs. Morato
terim Batasang Pambansa. The original text of paragraph B, Section 1 of
Parliamentary Bill No. 622 reads as follows:
“To engage in any and all investments and related profitoriented projects or
programs and activities by itself or in collaboration, association or joint venture
with any person, association, company or entity, whether domestic or foreign, for
the main purpose of raising funds for health and medical assistance and services
and charitable grants.” [Record of the Batasan, vol. Two, 993)
During the period of committee amendments, the Committee on Socio-Economic
Planning and Development, through Assemblyman Ronaldo B. Zamora,
introduced an amendment by substitution to the said paragraph B such that, as
amended, it should read as follows:
“Subject to the approval of the Minister of Human Settlements, to engage in health-
oriented investments, programs, projects and activities which may be profit-
oriented, by itself or in collaboration, association, or joint venture with any person,
association, company or entity, whether domestic or foreign, for the purpose of
providing for permanent and continuing sources of funds for health programs,
including the expansion of existing ones, medical assistance and services and/or
charitable grants.” [Id., 1006-1007].
Before the motion of Assemblyman Zamora for the approval of the amendment
could be acted upon, Assemblyman Davide introduced an amendment to the
amendment:
“MR. DAVIDE:
Mr. Speaker.
THE SPEAKER:
35
 The gentleman from Cebu is recognized.
MR. DAVIDE:
May I introduce an amendment to the committee amendment? The
amendment would be to insert after ‘foreign’ in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with any entity such
collaboration or joint venture must not include activity letter (a) which is the
holding and conducting of sweepstakes races, lotteries and other similar acts
.
610
610 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
MR. ZAMORA:
We accept the amendment, Mr. Speaker.
MR. DAVIDE:
Thank you, Mr. Speaker.
THE SPEAKER:
Is there any objection to the amendment? (Silence) The amendment, as
amended, is approved.” [Id., 1007, emphasis supplied]
Further amendments to paragraph B were introduced and approved. When
Assemblyman Zamora read the final text of paragraph B as further amended, the
earlier approved amendment of Assemblyman Davide became “EXCEPT FOR THE
ACTIVITIES MENTIONED IN PARAGRAPH (A);” and by virtue of the
amendment introduced by Assemblyman Emmanuel Pelaez, the word
PRECEDING was inserted before PARAGRAPH. Assemblyman Pelaez introduced
other amendments. Thereafter, the new Paragraph B was approved. [Id.] This is
now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.5
This Court further explained the rationale for the prohibition as follows:
No interpretation of the said provision to relax or circumvent the prohibition can
be allowed since the privilege to hold or conduct charity sweepstakes races,
lotteries, or other similar activities is a franchise granted by the legislature to the
PCSO. It is a settled rule that “in all grants by the government to individuals or
corporations of rights, privileges and franchises, the words are to be taken most
strongly against the grantee . . . . [o]ne who claims a franchise or privilege in
derogation of the common rights of the public must prove his title thereto by a
grant which is clearly and definitely expressed, and he cannot enlarge it by
equivocal or doubtful provisions or by probable inferences. Whatever is not
unequivocably granted is withheld. Nothing passes by mere implication.” [36 Am
Jur 2d Franchises § 26 (1968)].
In short then, by the exception explicitly made in paragraph B, Section 1 of its
charter, the PCSO cannot share its franchise with another by way of collaboration,
association or joint venture. Neither can it assign, transfer, or lease such franchise.
It has been said that “the rights and privileges conferred under a franchise may,
without doubt, be assigned or transferred when the grant is to the grantee and
_______________
5 Those in brackets are in footnotes in the first lotto case.
611
VOL. 246, JULY 17, 1995 611
Kilosbayan, Incorporated vs. Morato
assigns, or is authorized by statute. On the other hand, the right of transfer or
assignment may be restricted by statute or the constitution, or be made subject to
the approval of the grantor or a governmental agency, such as a public utilities
commission, except that an existing right of assignment cannot be impaired by
subsequent legislation.” [Id., § 63].
It may also be pointed out that the franchise granted to the PCSO to hold and
conduct lotteries allows it to hold and conduct a species of gambling. It is settled
that “a statute which authorizes the carrying on of a gambling activity or business
should be strictly con-strued and every reasonable doubt so resolved as to limit the
powers and rights claimed under its authority. [38 Am Jur 2d Gambling § 18
[1968]).6
The PCSO and the PGMC never challenged our application or interpretation of the
exception clause and our definitions of the terms collaboration, association, and
joint venture. On the contrary, they unconditionally accepted the same by not
asking for the reconsideration of our decision in the first lotto case.
Under the principle of either the law of the case or res judicata, the PCSO and the
PGMC are bound by the ruling in the first lotto case on the locus standi of the
petitioners and the application or interpretation of the exception clause in
paragraph B, Section 1 of R.A. No. 1169, as amended. Moreover, that application
or interpretation has been laid to rest under the doctrine of stare decisis and has
also become part of our legal system pursuant to Article 8 of the Civil Code which
provides: “Judicial decisions applying or interpreting the laws or the constitution
shall form part of the legal system of the Philippines.”
36
These doctrines were not adopted whimsically or capriciously. They are based on
public policy and other considerations of great importance and should not be
discarded or jettisoned in a cavalier fashion. Yet, they are now put to naught in this
case.
The principle of the law of the case “is necessary as a matter of policy to end
litigation. There would be no end to a suit if every obstinate litigant could, by
repeated appeals, compel a court to listen to criticisms on their opinions, or
speculate on chances
_______________
6 Same as indicated in footnote no. 5.
612
612 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
from changes in its members.”7
It is, however, contended that the law of the case is inapplicable because that
doctrine applies only when a case is before an appellate court a second time after
its remand to a lower court. While indeed the statement may be correct, it
disregards the fact that this case is nothing but a sequel to and is, therefore, for all
intents and purposes, a continuation of the first lotto case. By their conduct, the
parties admitted that it is, for which reason the PGMC and the PCSO submitted in
the first lotto case a copy of the ELA in question, and the petitioners commenced
the instant petition also in the said case. Our resolution that the validity of the ELA
could not be decided in the said case because the decision therein had become final
does not detract from the fact that this case is but a continuation of the first lotto
case or a new chapter in the raging controversy between the petitioners, on the one
hand, and the PCSO and the PGMC, on the other, on the operation of the on-line
lottery system.
Equally unacceptable is the majority opinion’s rejection of the related doctrine of
conclusiveness of judgment on the ground that the question of standing is a legal
question, as this case involves a different or unrelated contract. The legal question
of locus standi which was resolved in favor of the petitioners in the first lotto case
is the same in this case and in every subsequent case which would involve contracts
relating or incidental to the conduct or holding of lotteries by the PCSO in
collaboration, association, or joint venture with any person, association, company,
or entity. And, the contract in question is not different from or unrelated to the first
nullified contract, for it is nothing but a substitute for the latter. Respondent
Morato was even candid enough to admit that no new and separate public bidding
was conducted for the ELA in question because the PCSO was of the belief that the
public bidding for the nullified contract was
_______________
7Zarate vs. Director of Lands, 39 Phil. 747, 749 [1919], citing American cases. See
also Fernando vs. Crisostomo, 90 Phil. 585 [1951]; Padilla vs. Paterno, 93 Phil. 884
[1953]; People vs. Penuila, 103 Phil. 992 [1958]; Kabigting vs. Director of Prisons,
6 SCRA 281 [1962]; People vs. Olarte, 19 SCRA 494 [1967]; Ramos vs. Intermediate
Appellate Court, 171 SCRA 93 [1989].
613
VOL. 246, JULY 17, 1995 613
Kilosbayan, Incorporated vs. Morato
sufficient.
Its reliance on the ruling in Montana vs. United States8 that preclusion of issues
or collateral estoppel does not apply to issues of law, at least when substantially
unrelated claims are involved, is misplaced. For one thing, the question of the
petitioners’ legal standing in the first lotto case and in this case is one and the same
issue of law. For another, these cases involve the same and not substantially
unrelated subject matter , viz., the second contract between the PCSO and the
PGMC on the operation of the on-line lottery system.
The majority opinion likewise failed to consider that in the very authority it cited
regarding the exception to the rule of issue preclusion (Restatement of the Law, 2d
Judgments § 28), the second illustration stated therein is subject to this NOTE:
“The doctrine of the stare decisis may lead the court to refuse to reconsider the
question of sovereign immunity,” which simply means that stare decisis is an
effective bar to a re-examination of a prior judgment.
The doctrine of stare decisis embodies the legal maxim that a principle or rule of
law which has been established by the decision of a court of controlling jurisdiction
will be followed in other cases involving a similar situation. It is founded on the
necessity for securing certainty and stability in the law and does not require
identity or privity of parties.9 This is explicitly fleshed out in Article 8 of the Civil
Code which provides that decisions applying or interpreting the laws or the
constitution shall form part of the legal system. Such decisions “assume the same
authority as the statute itself and, until authoritatively abandoned, necessarily
become, to the extent that they are applicable, the criteria which must control the
37
actuations not only of those called upon to abide thereby but also of those in duty
bound to enforce obedience thereto.”10 Abandonment thereof must be based only
_______________
8 440 U.S. 147, 162, 59 L.Ed., 2d 210, 222 [1979].
9A.C. FREEMAN, A Treatise on the Law of Judgments by Edward W. Tuttle, vol.
2 [1925 ed.], §630, 1329.
Caltex (Phils.), Inc. vs. Palomar, 18 SCRA 247 [1966]. See also Floresca vs. Philex
10
Mining Corp., 136 SCRA 141 [1985]; Philippine Constitution Association vs.
Enriquez, 235 SCRA 506 [1994].
614
614 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
on strong and compelling reasons—which I do not find in this case—otherwise, the
becoming virtue of predictability which is expected from this Court would be
immeasurably affected and the public’s confidence in the stability of its solemn
pronouncements diminished.
The doctrine of res judicata also bars a relitigation of the issue of locus standi and
a re-examination of the application or interpretation of the exception clause in
paragraph B, Section 1 of R.A. No. 1169, as amended. Section 49(b), Rule 39 of the
Rules of Court on effects of judgment expressly provides:
(b) In all other cases the judgment or order is, with respect to the matter directly
adjudged or as to other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title subsequent
to the commencement of the action or special proceedings, litigating for the same
thing in the same title and in the same capacity.
This doctrine has dual aspects: (1) as a bar to the prosecution of a second action
upon the same claim, demand, or cause of action; and (2) as preclusion to the
relitigation of particular facts or issues in another action between the same parties
on a different claim or cause of action.11 Public policy, judicial orderliness, economy
of judicial time, and the interest of litigants as well as the peace and order of
society, all require that stability should be accorded judgments; that controversies
once decided on their merits shall remain in repose; that inconsistent judicial
decisions shall not be made on the same set of facts; and that there be an end to
litigation which, without the said doctrine, would be endless. It not only puts an
end to strife, but recognizes that certainty in legal relations must be maintained. It
produces certainty as to individual rights and gives dignity and respect to judicial
proceed-ings.12
The justifications given in the majority opinion to underrate the ruling on locus
standi and to ultimately discard it are unconvincing. It is not at all true, as the
majority opinion contends, that “[t]he previous ruling sustaining petitioners’ in-
_______________
11 46 Am Jur 2d Judgments §396, 563.
12 46 Am Jur 2d Judgments §395, 559-562.
615
VOL. 246, JULY 17, 1995 615
Kilosbayan, Incorporated vs. Morato
tervention may in fact be considered a departure from settled rulings on ‘real party
in interest’ because no constitutional issues were actually involved.”
It must be pointed out that the rule in ordinary civil procedure on real party in
interest was never put in issue in the previous case. It was the clear understanding
of the Members of the Court that in the light of the issues raised and the arguments
adduced therein, only locus standi deserved consideration. Accordingly, the
majority opinion and the separate dissenting opinions therein dwelt lengthily on
locus standi and brought in the process a vast array of authorities on the issue.
Moreover, as explicitly stressed in the concurring opinion of Justice Feliciano, both
constitutional and legal issues were involved therein. Finally, as shall hereafter be
discussed, in public law the rule of real party in interest is subordinated to the
doctrine of locus standi.
Equally unconvincing is the majority opinion’s contention that the ruling on locus
standi in the first lotto case may not be preserved because the majority vote
sustaining the petitioners’ standing was a “tenuous one” that may not be
maintained in a subsequent litigation, and that there had been changes in the
membership of the Court due to the retirement of Justices Isagani A. Cruz and
Abdulwahid A. Bidin and the appointment of Justices Vicente V. Mendoza and
Ricardo J. Francisco. It has forgotten that, as earlier stated, the ruling was
reiterated in Tatad vs. Garcia. Additionally, when in his concurring opinion in the
Tatad case, Justice Mendoza denied locus standi to Tatad, et al., because their case
did not have the same importance as the first lotto case, he thereby accepted the
38
concession of standing to the petitioners in the lotto case. I wish to stress the fact
that all the Justices who had dissented in the first lotto case on the issue of locus
standi were either for the majority opinion or for the concurring opinion in the
Tatad case. Hence, I can say that the Tatad case has given vigor and strength to
the “tenuous” majority in the first lotto case.
The majority opinion declares that the real issue in this case is not whether the
petitioners have locus standi but whether they are the real parties-in-interest. This
proposition is a bold move to set up a bar to taxpayer’s suits or cases invested with
public interest by requiring strict compliance with the rule on real party in interest
in ordinary civil actions, thereby effectively subordi-
616
616 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
nating to that rule the doctrine of locus standi. I am not prepared to be a party to
that proposition.
First. Friedenthal, et al., whose book is cited in the majority opinion in its
discussion of the rule on real party in interest and the doctrine of locus standi,
admit that there is a difference between the two, and that the former is not strictly
applicable in public law cases, thus:
The evolution of standing doctrine seems to point to greater freedom of action for
plaintiffs. However, the courts still have not articulated how the balance is to be
struck between the relevant and often competing interests: the plaintiff’s right to
relief and the legislature’s right to carry out its policies without judicial
interference. Nor has the judiciary’s competence to rule on these interests have
analyzed systematically or its limits defined. Courts essentially continue to be free
to reconcile these competing values on an ad hoc basis.
It is important to note, however, that standing because of its constitutional and
public policy underpinnings, is very different from questions relating to whether a
particular plaintiff is the real party in interest or has capacity to sue. Although all
three requirements are directed toward ensuring that only certain parties can
maintain an action, standing restrictions require a partial consideration of the
merits, as well as of broader policy concerns relating to the proper role of the
judiciary in certain areas.13
In an earlier book,14 the same Friedenthal and Miller, with John J. Cound as the
lead author, expounded that in the realm of public law, the real party in interest
rule is not applicable, thus:
A third problem of proper parties occurs in the realm of public law. When
governmental action is attacked on the ground that it violates private rights or
some constitutional principle, the courts have tended to analyze the question
whether the challenger is a proper party plaintiff to assert the claim in terms of
the judge-made doctrine of standing to sue—requiring that plaintiff be adversely
affected by defendant’s conduct—rather than according to real-party-in-interest
or capacity principles. See Davis, Standing: Taxpayers and Others, 35
U.Chi.L.Rev. 601
_______________
13JACK H. FRIEDENTHAL, MARY KAY KANE, and ARTHUR R. MILLER, Civil
Procedure, 328 [1985].
14JOHN J. COUND, JACK H. FRIEDENTHAL, and ARTHUR R. MILLER, Civil
Procedure, Cases and Materials, 523 [1980].
617
VOL. 246, JULY 17, 1995 617
Kilosbayan, Incorporated vs. Morato
(1968); Jaffee, The Citizen as a Litigant in Public Actions: The Non-Hohfeldian or
Ideological Plaintiff, 116 U.Pa.L.Rev. 1033 (1968); and Jaffee, Standing Again, 84
Harv.L.Rev. 633 (1971). To the extent that standing is understood to mean that the
litigant actually must be injured by the governmental action that is being assailed,
it closely resembles the notion of real party in interest under Rule 17(a). However,
several other elements of the standing doctrine clearly are unrelated to the simple
real-party-in-interest test . One significant context in which the two concepts
diverge is when for standing purposes plaintiff is required to show both that he has
been adversely affected by the governmental conduct that is under attack and has
suffered an injury to a legally protected right. When standing is defined in this
fashion it may entail a preliminary consideration of the merits of the case and
therefore is quite different from the real-party-in-interest notion. (emphasis
supplied).
The downgrading of locus standi and its subordination to the restrictive rule on
real party in interest cannot be justified by the claim that what is involved here is
contract law, not constitutional law. True, contract law is involved. We are not,
however, dealing here with an ordinary contract between private parties, but a
contract between a corporation wholly owned by the government—hence, an
instrumentality of the government—and a private corporation for the conduct of
the lotto, which is invested with paramount and transcendental public interest and
other public policy considerations because the lotto has counter-productive and
39
retrogressive effects which are as staggering as the billions of pesos it is expected
to raise and provokes issues that immeasurably affect the social, economic, and
moral well-being of the people. We said so in the first lotto case.
Second. The attempt to use the real-party-in-interest rule is to resurrect the
abandoned restrictive application of locus standi. This Court, speaking through the
constitutionalist nonpareil, Justice and later Chief Justice Enrique Fernando, has
already declared in Tan vs. Macapagal15 that as far as a taxpayer’s suit is
concerned, this Court is not devoid of discretion as to whether or not it should be
entertained. In his concurring opinion in Aquino
_______________
15 43 SCRA 677 [1972]. See also Macasiano vs. NHA, 224 SCRA 236 [1993].
618
618 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
vs. Commission on Elections,16 he said:
Then there is the attack on the standing of petitioners, as vindicating at most what
they consider a public right and not protecting their rights as individuals.
[Respondents’ Comment, 5]. This is to conjure the specter of the public right
dogma as an inhibition to parties intent on keeping public officials staying on the
path of constitutionalism. As was so well put by Jaffe [Standing to Secure Judicial
Review, 74 Harvard Law Review, 1265 (1961)]: “The protection of private rights is
an essential constituent of public interest and, conversely, without a well-or-dered
state there could be no enforcement of private rights. Private and public interests
are, both in a substantive and procedural sense, aspects of the totality of the legal
order.” [Ibid., 1266. Cf. Berger, Standing to Sue in Public Actions, 78 Yale Law
Journal 816 (1969)]. Moreover, petitioners have convincingly shown that in their
capacity as taxpayers, their standing to sue has been amply demonstrated. There
would be a retreat from the liberal approach followed in Pascual v. Secretary of
Public Works [110 Phil. 331 (1960], foreshadowed by the very decision of People v.
Vera [65 Phil. 56 (1937)] where the doctrine was first fully discussed, if we act
differently now. I do not think we are prepared to take that step. Respondents,
however, would hark back to the American Supreme Court doctrine in Mellon v.
Frothingham [262 US 447 (1923)], with their claim that what petitioners possess
“is an interest which is shared in common by other people and is comparatively so
minute and indeterminate as to afford any basis and assurance that the judicial
process can act on it.” [Respondents’ Comment, 5]. That is to speak in the language
of a bygone era, even in the United States. For as Chief Justice Warren clearly
pointed out in the later case of Flast v. Cohen [391 US 83 (1968)], the barrier thus
set up if not breached has definitely been lowered. [Ibid., 92-95]. The weakness of
these particular defenses is thus quite apparent. [Cf. Tan v. Macapagal, 43 SCRA
677].
Third. Such attempt directly or indirectly restricts the exercise of the judicial
authority of this Court in an original action—and there had been many in the past—
to determine whether or not there has been grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government. Only a very limited few may qualify,
_______________
16 62 SCRA 275, 308 [1975]. Those in brackets appear in footnotes.
619
VOL. 246, JULY 17, 1995 619
Kilosbayan, Incorporated vs. Morato
under the real-party-in-interest rule, to bring actions to question acts or contracts
tainted with such vice. Where, because of fear of reprisal, undue pressure, or even
connivance with the parties benefited by the contracts or transactions, the so-
called real party in interest chooses not to sue, the patently unconstitutional and
illegal contracts or transactions will be placed beyond the scrutiny of this Court, to
the irreparable damage of the Government, and prejudice to public interest and
the general welfare.
By way of illustration, the first lotto contract would not have reached this Court if
only the so-called real party in interest could bring an action to nullify it. Neither
would the ELA in question, since for reasons only known to them, none of those
who had lost in the bidding for the first lotto contract showed interest to challenge
it.
The majority opinion posits that a denial to the petitioners of the right to intervene
will not leave without remedy any perceived illegality in the contract because:
[q]uestions as to the nature or validity of public contracts or the necessity for a
public bidding before they may be made can be raised in an appropriate case before
the Commission on Audit or before the Ombudsman. . . . In addition, the Solicitor
General is authorized to bring an action for quo warranto if it should be thought
that a government corporation, like the PCSO, has offended against its corporate
charter or misused its franchise.
40
That proposition delivers the coup de grace to taxpayers’ suits, discourages
involvement of citizens in public affairs, and negates or renders ineffective Section
16, Article XIII of the Constitution which provides:
The right of the people and their organizations to effective and reasonable
participation at all levels of social, political, and economic decision-making shall
not be abridged. The State shall, by law, facilitate the establishment of adequate
consultation mechanisms.
Besides, it is fraught with unimaginable danger to public interest if neither the
Commission on Audit (COA), nor the Ombudsman, or the Office of the Solicitor
General, would take any action on the matter.
620
620 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
In the instant case, the COA refused to directly act on Morato’s request and,
instead, referred it to the Department of Justice (DOJ) which, in turn, merely
indorsed an opinion to the COA. On the other hand, the Office of the Solicitor
General is taking the side of the PCSO, as it did in the first lotto case. The
observation then of Justice Cruz in his concurring opinion in the first lotto case is
apropos:
Locus standi is not such an absolute rule that it cannot admit of exceptions under
certain conditions or circumstances like those attending this transaction. As I
remarked in my dissent in Guazon vs. De Villa, 181 SCRA 623, “It is not only the
owner of the burning house who has a right to call the firemen. Every one has the
right and responsibility to prevent the fire from spreading even if he lives in the
other block.”
The majority opinion does not entirely foreclose the possibility of according the
petitioners locus standi if only they would allege “that public funds are being
misspent so as to make this action a public one and justify relaxation of the
requirement that an action must be prosecuted by the real party in interest.” While
it may be true that there is no such specific allegation, the totality of the petitioners’
allegations points to illegal expenditures of public funds due to or arising out of
violations of the exception clause in paragraph B, Section 1 of R.A. No. 1169, as
amended, and the public bidding law, and by reason of the grossly disadvantageous
provisions of the contract. The public character of the sums due the PGMC under
the ELA cannot be disputed. The PCSO is solely owned by the Government and is
authorized to raise funds for the public purposes specified in its Charter. The funds
thus raised are public funds. This Court must take judicial notice of these facts.
Before I take up the defined issues, I find it necessary to meet squarely the majority
opinion’s interpretation of paragraph B, Section 1 of R.A. No. 1169, as amended.
This is, of course, on the assumption that this Court may now disregard the
doctrines of the law of the case, res judicata, and stare decisis.
I respectfully submit that the best authority on the intention or rationale of a
legislative amendment is its author. Fortunately, I happened to be the author of
the exception clause in said provision. The language of that clause is very short and
simple, and the elaboration given therefor, as earlier shown, is equally
621
VOL. 246, JULY 17, 1995 621
Kilosbayan, Incorporated vs. Morato
short and simple. The sponsor of the measure, then Assemblyman, now
Congressman, Ronaldo Zamora did not even ask for an explanation or clarification;
he readily accepted the amendment. Nobody from the floor interpellated me for an
explanation or clarification.
I regret then to say that neither the letter nor the spirit of the exception clause in
paragraph B supports the interpretation proposed in the majority opinion. The
reason given in the majority opinion for the alleged prohibition from investing in
“activities mentioned in the preceding paragraph (A)” (i.e., the holding or
conducting of charity sweepstakes races, lotteries, and other similar activities) is
that “these are competing activities.” In that aspect alone, the majority opinion has
clearly misconstrued the exception clause. The prohibition is not directed against
such activities, since they are in fact the franchised primary activities of the PCSO.
What is prohibited is the conduct or holding thereof “in collaboration, association
or joint venture with any person, association, company, or entity, whether
domestic or foreign.” In the first lotto case, this Court explained the principal
reasons for such prohibition. If the purpose of the prohibition in the exception
clause is indeed to prevent competition, it would be with more reason that no other
person, natural or juridical, should be allowed to share in the PCSO’s franchise to
hold and conduct lotteries. In short, the argument in the majority opinion sustains
the rationale of the prohibition.
II.
As to the defined issues, my answers are in the affirmative. To better appreciate
them, the minute details of the undisputed operative facts which are crucial to their
resolution must have to be bared.
41
After its setback in G.R. No. 113375, the PGMC and the PCSO prepared a draft of a
new ELA.
On 26 July 1994, the Board of Directors of the PCSO approved Resolution No.
445,17 series of 1994, resolving as follows:
_______________
17 Annex “1” to Memorandum for the public respondents; Rollo, 431.
622
622 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved, that the draft
Equipment Lease Agreement, hereto attached, is APPROVED, and the Chairman
of the Board is AUTHORIZED to enter into and execute the said Agreement,
SUBJECT to the confirmation by the Commission on Audit that PCSO can enter in
the said Agreement.
On the same date, PCSO Chairman Morato sent a letter to Hon. Celso D. Gangan,
Chairman of the COA,18 seeking confirmation on whether the Equipment Lease
Agreement is exempt from the requirements of public bidding imposed under
Executive Order No. 301 (1987) and the pertinent government accounting and
auditing rules. The request was based on the following submissions:
1. 1. Pursuant to the provisions of Republic Act No. 1169, as amended, the
Philippine Charity Sweepstakes Office (PCSO), with the approval of the
Office of the President, decided to operate an On-line lottery system.
2. 2. In August 1993, Request for Proposals (Annex “A”) were issued seeking
lessors for the On-Line Lottery System under a build-lease basis at no
expense or risk to PCSO.
3. 3. The bids were evaluated by the Special Prequalification Bids and
Awards Committee and its bid report was further evaluated by a Special
Review Committee of the Office of the President.
4. 4. On 21 October 1993, the Office of the President announced that it was
awarding the Lease Contract to Philippine Gaming and Management
Corporation (PGMC) as lessor, provided that the contract would similarly
be awarded to two (2) other bidders if they matched the terms of PGMC.
Morato invoked the following grounds to justify his request for confirmation:
1. a. A lease of equipment, with option to purchase, by a government
corporation such as the PCSO, provided this is approved by its governing
board, is not generally subject to the public bidding requirement (Section
4.3, second paragraph, COA Circular No. 85-55-A dated 8 September
1985);
_______________
18 Annex “2” to Memorandum for the public respondents; Rollo, 432.
623
VOL. 246, JULY 17, 1995 623
Kilosbayan, Incorporated vs. Morato
1. b. The new lease contract is still the result of an award made after public
bidding; and
2. c. In this case, it is apparent that the lease of the needed equipment
through negotiation is the most advantageous to the Government since so
many studies, plans and procedures had already been worked out with
PGMC since October 1993 as a result of the previous bidding (Section 1.e,
Executive Order No. 301 [1987]).
The COA indorsed Morato’s letter to the DOJ and requested an opinion on the
propriety or legality of the proposed ELA which was entered into without the
benefit of a public bidding under E.O. No. 301 and the pertinent government
accounting and auditing rules.
In its Opinion No. 4, series of 1995,19 contained in a 2nd Indorsement addressed to
the COA, dated 16 January 1995, the DOJ, through Acting Secretary Demetrio G.
Demetria:
1. (a) Disagreed with the statement of Morato that any of the three
justifications he enumerated in his letter to the COA may constitute valid
basis for the exemption from public bidding.
2. (b) Declined to express an opinion on the first justification that under COA
Circular No. 85-55-A of 8 September 1985 a lease of equipment with
option to purchase is not generally subject to public bidding, since it
involves an interpretation of a COA circular which is best left to the COA’s
determination.
3. (c) Expressed doubts on the accuracy of Morato’s statement that the new
lease contract is still the result of the award made after public bidding and
opined that since the original lease contract was nullified by this Court,
42
 such nullification necessarily implied the nullification of the public if entering into such agreement, through negotiation, is determined to be the most
bidding which preceded its execution. advantageous by the Department Head concerned.
4. (d) Agreed, nonetheless, with Morato that the new ELA is exempt from
the public bidding requirement under Section 1(e) of E.O. No. 301, and The words “supplies” and “equipment” are not synonymous. The word
ratiocinates as follows: “equipment” imports “the outfit necessary to enable the contractor to perform the
agreed service, the tools, implements, and appliances which might have been
The cited provision reads: previously used or might be subsequently used by the contractor in carrying on
other work of like character” (Standard Boiler Works v. National Surety Co., 71
SECTION 1. Guidelines for Negotiated Contracts.—Any provision of law, decree, Wash. 28, 127 Pac. 573). The word “supplies,” on the other hand, is defined as “any
executive order or other issuances to the contrary notwithstanding, no contract for article entirely consumed by its use in the work” (National Surety Co. v. Bratnober
public services or for furnishing supplies, materials and equipment to the Lumber Co., 67 Wash. 601, 122, Pac. 337).
government or any of its branches, agencies or instrumentalities shall be
It has been held, however, that the true distinction between “supplies” and
_______________ “equipment” rests on the effect the use has upon the article, rather than upon the
degree of use to which it is subjected. Thus, a “supply” would be any article
furnished for carrying on the work which from its nature is necessarily consumed
19 Annex “B” of Petition; Rollo, 48 et seq. by use in the work, while “equipment” would consist of those articles that are not
necessarily so consumed, but which may survive the particular work and be further
624 used on work of like character (United States Rubber Co. of California v.
Washington Engineering Co., 149 P. 706).
624 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato In case of lease of equipment, it was held that the rental value of machinery hired
by the contractor for use in carrying on work within the terms of the contract is
recoverable from the bondsman as a supply, the reason for this being that what
renewed or entered into without public bidding except under any of the following was consumed in the work was the use of the machinery and not the machinery
situations: itself (United States

xxx 625

(e) In cases where it is apparent that the requisition of the needed supplies through VOL. 246, JULY 17, 1995 625
negotiated purchase is most advantageous to the government to be determined by
the Department Head concerned; and Kilosbayan, Incorporated vs. Morato

xxx Rubber Co. vs. Washington Eng’g. Co., supra, citing cases). Applying this ruling to
the instant case, the subject Equipment Lease Agreement, as observed earlier, may
be deemed to be an agreement for furnishing of supplies because by its terms, what
It should be noted that while public bidding is generally required for contracts for
will be consumed by the PCSO, as Lessee, would be the use of the equipment, and
public services or for furnishing supplies, materials and equipment, paragraph
not the equipment itself.
(e), abovequoted, would exempt from the requirement of public bidding “the
requisition of the needed supplies” and would allow the acquisition thereof through
negotiated purchase if deemed most advantageous to the government as Based thereon, the aforesaid Equipment Lease Agreement may be the subject of
determined by the Department Head concerned. negotiation pursuant to Section 1(e) of E.O. No. 301 if it be determined to be the
most advantageous to the government by the Department Head concerned.
In the instant case, it is believed that the new lease agreement, although
denominated, “Equipment Lease Agreement,” may be considered a contract for
furnishing supplies and may fall under the exception provided for in paragraph (e)
43
As earlier stated, on 25 January 1995, the PGMC, represented by Alfredo C. Ramos,
its Vice-Chairman, and the PCSO, represented by Manuel L. Morato, its Chairman,
signed the assailed ELA.
A. The PGMC avers that the old contract was reformed to expunge therefrom the
features and provisions which were held by this Court as indicative of the
statutorily proscribed collaboration, association, or joint venture.20 For their part,
the public respondents claim that “as can be glaringly seen from the face of the
ELA, none of the terms and conditions in the old contract of lease which this
Honorable Court found as vestiges of a joint venture is present in the subject
ELA.”21
I am not persuaded. To my mind, the parties only performed a superficial surgery
on the nullified contract by merely deleting therefrom provisions which this Court
had considered in the first lotto case to be badges of a joint venture contract and
by engrafting some modifications on rental, which include an option to purchase.
The PGMC and the PCSO conveniently forgot that per this Court’s findings in the
first lotto case, they had an indivisible community of interest in the conception,
birth, and growth of the on-line lottery and that each is wed to the other for better
or for worse. The surgery affected only the post-natal activities of the union, but
not the indivisibility of their community of interest at conception and at the birth
of the on-line lottery system. Put differently, it only separated one from the other
from bed and board but did not dissolve the bonds of such indivisibility or
_______________
20 Comment of the PGMC, 4; Rollo, 206.
21 Comment of the public respondents, 9-10; Id., 254-55.
626
626 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
community of interest. This was confirmed by respondent Morato when he
candidly confessed in his letter to the COA Chairman that:
[I]t is apparent that the lease of the needed equipment through negotiations is the
most advantageous to the Government since so many studies, plans and
procedures had already been worked out with PGMC since October 1993 as a
result of the previous bidding (Sec. 1.e, Executive Order No. 301 [1987]).
(emphasis supplied)
Although Mr. Morato did not volunteer to disclose what those studies, plans, and
procedures are, it is logical to presume that they refer to, among other things, (1)
the building of the on-line lottery system, at no expense of or risk to the PCSO,
which was precisely the specific purpose of the Request for Proposals and which
Morato admitted in his “presentation” in his letter to the COA Chairman; and (2)
those that this Court had noted in the first lotto case, to wit: (a) the preparation of
the detailed plan of all games and the marketing thereof; and (b) the determination
of the number of players, value of winnings, and the logistics required to introduce
the games, including the Master Games Plan. The indispensable role of the PGMC
as a collaborator, associate, or joint venturer up to that point where actual
operation of the online lottery system shall begin was unaffected by the superficial
surgery on the text of the nullified contract. Atty. Eleazar Reyes, co-counsel of Atty.
Cayetano for the PGMC, was candid enough to admit during the oral arguments
that it would be extremely difficult for the PGMC and the PCSO to avoid the
proscribed “collaboration, association, or joint venture” under the exception of
paragraph B, Section 1 of R.A. No. 1169, as amended. He, nevertheless, hastened
to add that an outright purchase by the PCSO of the PGMC’s equipment would be
the best and safest recourse. Thus:
JUSTICE DAVIDE:
Mr. Counsel you just admitted a while ago that it is extremely difficult to
comply with the revised charter of the Philippine Charity Sweepstakes Office
insofar as collaboration, joint venture, association are concerned?
ATTY. REYES:
Yes, Your Honor.
627
VOL. 246, JULY 627
17, 1995
Kilosbayan, Incorporated vs. Morato
JUSTICE DAVIDE:
But if given the chance to rewrite this contract, what proposal
would you give, what recommendation would you give to your
client?
ATTY. REYES:
Your Honor, that is why I said I would leave it to the business
judgment of my client.
JUSTICE DAVIDE:
As a lawyer what kind of a contract would you recommend to be
rewritten, to satisfy the law, to satisfy the judgment of this Court
in the first case?
44
ATTY. REYES: The Rental Clause provides for a flexible rate based on a percentage of the gross
The safest, Your Honor, is a sale. amount of ticket sales, payable bi-weekly, with an annual minimum rental fixed at
P35,000.00 per terminal in commercial operation, any shortfall of which shall be
JUSTICE DAVIDE: paid out of the proceeds of the current ticket sales. This clause provides in full as
Sale, meaning the Philippine Charity Sweepstakes Office will follows:
buy everything?
ATTY. REYES: RENTAL
Yes, Your Honor.
JUSTICE DAVIDE: During the effectivity of this Agreement and the term of this lease as provided in
paragraph 3 hereof, LESSEE shall pay rental to LESSOR equivalent to FOUR
Why did you not recommend that to your client instead you went
POINT THREE PERCENT (4.3%) of the gross amount of ticket sales from all of
into the process [of drafting the] ELA.
LESSEE’s on-line lottery operations in the Territory, which rental shall be
ATTY. REYES: computed and payable bi-weekly, net of withholding taxes on income, if any:
Because, Your Honor, they do not have the money. They are provided that, in no case shall the annual aggregate rentals per year during the
going to use the proceeds from the gains for the payment of the term of the lease be less than the annual minimum fixed rental computed at
rental but they do not have the cash. P35,000.00 per terminal in commercial operation per annum, provided, further
JUSTICE DAVIDE: that the annual minimum fixed rental shall be reduced pro-rata for the number of
days during the year that a terminal is not in commercial operation due to repairs
In the event that this Court will now strike down this agreement or breakdown. In the event the aggregate bi-weekly rentals in any year falls short
as also void, would you recommend that to your client as a third of the annual minimum fixed rental computed at P35,000.00 per terminal in
contract? commercial operation, the LESSEE shall pay such shortfall from out of the
ATTY. REYES: proceeds of the then current ticket sales from LESSEE’s on-line lottery operations
Yes, Your Honor, if the PCSO can pay for it.22 in the Territory (after payment first of prizes and agents’ commissions but prior to
any other payments, allocations or disbursements) until said shortfall shall have
been fully settled, but without prejudice to the payment to LESSOR of the then
Besides, even on the face of the new ELA, the elements of the proscribed joint current bi-weekly rentals in accordance with the provisions of the first sentence of
venture or, at the very least, collaboration or association, can be deleted, albeit they this paragraph 2.
are hidden behind the skirt of the following: (a) the Rental Clause; (b) the
upgrading provision under the Repair Services Clause; and (c) the details of what
are embraced in the term Lottery Equipment and Accessories subject of the This is an unusually novel arrangement which insures and guarantees the PGMC
contract, which are found in Annex “A” of the ELA.23 full participation in the gross proceeds of ticket sales even if, ultimately, a draw
could mean losses to the PCSO. It allots to the PGMC only a very limited share in
the losses since, under any circumstance and the most unfavorable business
_______________ climate, the PGMC is assured of an irreducible minimum “rental” per terminal. The
term “rental” is then a very deceptive, yet poorly contrived, disguise to cloak the
22 TSN, Oral Arguments of 3 March 1995, 60-62. real role of the PGMC. At the hearing, Atty. Eleazar Reyes feigned ignorance on
how the “rental” of 4.3% of the gross amount of ticket sales was arrived at. This
23 Rollo, 68-69. Court should not wait for the end of the

628 629

628 SUPREME COURT REPORTS ANNOTATED VOL. 246, JULY 17, 1995 629
Kilosbayan, Incorporated vs. Morato Kilosbayan, Incorporated vs. Morato

world for any acceptable explanation therefor. The explanation can easily be had
by relating it to the rental of 4.9% of gross receipts from ticket sales under the
45
nullified contract. The reduction of only 0.6% (4.9%-4.3%) is negligible
considering the PCSO’s assumption of, among other things, all business risks;
operation of the equipment with the use of its own personnel; risks of loss of and
damage to the equipment; responsibility for maintenance and repairs, all of which
were the PGMC’s duties, obligations, and responsibilities under the nullified
contract. I am convinced that such rate was pre-determined to approximate the
profits which the PGMC expected to realize under the nullified contract. The rental
clause is, indeed, a subtle scheme to unconditionally guaranty PGMC’s share in the
profits.
If read in conjunction with the upgrading provision buried under the clause
“Repair Services” it becomes clear that the parties do have a different purpose for
the use of the term rental.
The Repair Services clause provides as follows:
REPAIR SERVICES
LESSEE shall bear the costs of maintenance and necessary repairs, except those
repairs to correct defective workmanship or replace defective materials used in the
manufacture of Equipment discovered after delivery of the Equipment, in which
case LESSOR shall bear the costs of such repairs and, if necessary, the
replacements. The LESSEE may at any time during the term of the lease, request
the LESSOR to upgrade the equipment and/or increase the number of terminals,
in which case the LESSEE and LESSOR shall agree on an arrangement mutually
satisfactory to both of them, upon such terms as may be mutually agreed upon.
The upgrading provision is full of mischief and is, perhaps, the most deceptive
provision in the ELA that puts to naught any pretense of good faith in expunging
from the old contract all indicia of the statutorily proscribed collaboration,
association, or joint venture. It is a provision which is entirely unrelated to the
clause under which it is placed—Repair Services. It should have been either set
forth as a separate clause or at least placed under the clause on Equipment.24
_______________
24 Clause 1.
630
630 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
It should be stressed here that in the old contract the upgrading clause is under
facilities, which include among other things all capital equipment, computers,
terminals, and softwares. Under the upgrading provision, new equipment may be
used; the number of terminals may be increased; and new terms and conditions,
including rates of “rentals” and the purchase price in case of exercise of the option
to buy, may be agreed upon. This makes the ELA not just a sweetheart contract,
but one which will preserve the parties’ indivisible union and community of
interest, thereby giving further credence to this Court’s observation in the first lotto
case that each is wed to the other for better or for worse.
The term Equipment, which is allegedly the subject of the ELA, includes, per its
definition in Annex “A” thereof, the “associated or incidental hardware equipment,
furnishing and fixtures, technology, intellectual property rights, knowhow,
processes and systems .” Technology, knowhow, processes, and systems
necessarily include transfer of technology and other expertise which could only be
carried out over a number of years of continuing training and supervision of
personnel, which the PGMC is necessarily and logically required to do. Intellectual
property rights can only refer to, among other things, the detailed plans of all
games and the Master Games Plan which, under the nullified contract, are to be
prepared by the PGMC.
It may be observed that the term facilities in the old contract included all capital
equipment but excluded “technology, intellectual property rights, knowhow,
processes and systems.” As this Court found in the first lotto case, there was a
separate provision on the PGMC’s obligations (1) to train PCSO and other local
personnel and (2) to effect the transfer of technology and other expertise.25 Clearly,
the inclusion of “technology, intellectual property rights, knowhow, processes and
systems” in the term Equipment was a ploy to hide, again, the continuing
indispensable collaboration of the PGMC in the conduct of the on-line lottery
business.
_______________
25 232 SCRA 110, 146 [1994].
631
VOL. 246, JULY 17, 1995 631
Kilosbayan, Incorporated vs. Morato
B. Even assuming that the subject ELA is not a joint venture contract, still it must
be nullified for having been entered into without public bidding and for being
grossly disadvantageous to the Government. It has been said:
46
In this jurisdiction, public bidding is the policy and medium adhered to in
Government procurement and construction contracts under existing laws and
regulations. It is the accepted method for arriving at a fair and reasonable price
and ensures that overpricing, favoritism and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the
required bidding is null and void and cannot adversely affect the rights of third
parties.26
The opening paragraph of E.O. No. 298, series of 1940,27 of President Manuel L.
Quezon, entitled “Prohibiting the Automatic Renewal of Contracts, Requiring
Public Bidding Before Entering Into New Contracts, Providing Exceptions
Therefor, ” states this policy:
Whereas, as a matter of general policy, it is in the interest of the public service that
Government contracts for public services or for furnishing of supplies, materials,
and equipment to the Government be submitted to public bidding.
This was restated in E.O. No. 30128 of President Corazon C. Aquino, entitled
“Decentralizing Actions on Government Negotiated Contracts, Lease Contracts
and Records Disposal,” whose Section 1 reads:
SECTION 1. Guidelines for Negotiated Contracts.—Any provision of law, decree,
executive order or other issuances to the contrary notwithstanding, no contract for
public services or for furnishing supplies, materials and equipment to the
government or any of its branches, agencies or instrumentalities shall be renewed
or entered into without public bidding, except under any of the following
situations:
_______________
26BARTOLOME C. FERNANDEZ, A Treatise on Government Contracts Under
Philippine Law, Revised ed. [1991], 25.
27 Promulgated on 12 August 1940.
28 Promulgated on 26 July 1987.
632
632 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
The Court agrees with DOJ Opinion No. 4, series of 1995, which states that the
bidding conducted for the nullified contract could be a valid basis for the new ELA
and that, therefore, a new bidding was in order. The DOJ erred, however, when it
further stated that the ELA is exempt under Section 1(e) of E.O. No. 301 from the
public-bidding requirement.
Sections 1 and 2 of E.O. No. 301 under subdivision A (Decentralization of
Negotiated Contracts) read in full as follows:
SECTION 1. Guidelines for Negotiated Contracts.—Any provision of law, decree,
executive order or other issuances to the contrary notwithstanding, no contract for
public services or for furnishing supplies, materials and equipment to the
government or any of its branches, agencies or instrumentalities shall be renewed
or entered into without public bidding, except under any of the following
situations:
1. a. Whenever the supplies are urgently needed to meet an emergency which
may involve the loss of, or danger to, life and/or property;
2. b. Whenever the supplies are to be used in connection with a project or
activity which cannot be delayed without causing detriment to the public
service;
3. c. Whenever the materials are sold by an exclusive distributor or
manufacturer who does not have subdealers selling at lower prices and for
which no suitable substitute can be obtained elsewhere at more
advantageous terms to the government;
4. d. Whenever the supplies under procurement have been unsuccessfully
placed on bid for at least two consecutive times, either due to lack of
bidders or the offers received in each instance were exorbitant or non-
conforming to specifications;
5. e. In cases where it is apparent that the requisition of the needed supplies
through negotiated purchase is most advantageous to the government to
be determined by the Department Head concerned; and
6. f. Whenever the purchase is made from an agency of the government.
SEC. 2. Jurisdiction over Negotiated Contracts.—In line with the principles of
decentralization and accountability, negotiated contracts for public services or for
furnishing supplies, materials or equipment may be entered into by the
department or agency head or the governing board of the government-owned or
controlled corporation concerned, without need of prior approval by higher
authorities, subject to availability of funds, compliance with the standards or
guidelines
633
VOL. 246, JULY 17, 1995 633
47
Kilosbayan, Incorporated vs. Morato
prescribed in Section 1 hereof, and to the audit jurisdiction of the Commission on
Audit in accordance with existing rules and regulations.
Negotiated contracts involving P2,000,000 up to P10,000,000 shall be signed by
the Secretary and two other Undersecretaries.
It is clear that Sections 1 and 2 refer to contracts for public services, or for
furnishing supplies, materials, and equipment to the government. In no uncertain
terms, the Executive Order itself distinguishes the terms supplies, materials, and
equipment from each other, i.e., it did not intend to consider them as synonymous
terms. If such were the intention, there would have been no need to enumerate
them separately and to limit subparagraphs (a), (b), and (e) to supplies;
subparagraph (c) to materials; and subparagraph (f) to all three (supplies,
materials and equipment). The specific mention of supplies in subparagraphs (a),
(b), and (e) was clearly intended to exclude therefrom materials and equipment,
and the specific mention of materials in subparagraph (c) was likewise intended
to exclude supplies and equipment. Expressio unius est exclusio alterius .
Elsewise stated, the Executive Order leaves no room for a construction that
confuses supplies with materials or equipment or either of the last two with the
first or with each other. According to Sutherland:29
It is an elementary rule of construction that effect must be given, if possible, to
every word, clause and sentence of a statute. A statute should be construed so that
effect is given to all its provisions, so that no part will be inoperative or superfluous,
void or insignificant, and so that one section will not destroy another unless the
provision is the result of obvious mistake or error.
In a last-ditch effort to save the ELA, the DOJ opined that the subject ELA could
be deemed as an agreement for furnishing supplies and, in support thereof, cited
United States Rubber Co. vs. Washington Eng’g. Co.30 wherein it was allegedly
held that in
_______________
29 FRANK E. HORACK, JR., Statutes and Statutory Construction by J.G.
Sutherland, vol. 2 [1943 ed.] 339.
30 86 Wash 180, 149 Pac. 706.
634
634 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
a lease of equipment, the rental value of machinery hired by the contractor for use
in carrying on work was the use of the machinery and not the machinery itself. The
DOJ opinion is outlandish, as the case it cited did not make the attributed
pronouncement. It must have miscomprehended or misappreciated the ruling in
United States Rubber Co.. The said pronouncement is found in Hurley-Mason Co.
vs. American Bonding Co.,31 which was cited by the appellant in the United States
Rubber Co. case, and which the court did not, in fact, accept. Thus, the court stated:
But the appellant cites as supporting its contention the case of Hurley-Mason Co.
v. American Bonding Co., 79 Wash. 564, 140 Pac. 575, to which may be added the
more recent case of National Lumber & Box Co. v. Title Guaranty & Surety Co., 149
Pac. 16, which hold that the rental value of machinery hired by the contractor for
use in carrying on work within the terms of the contract is recoverable from the
bondsman as a supply furnished the contractor. These cases proceed on the theory
that it was the use of the machinery that was consumed in the work, not the
machinery itself, and that this use being distinguishable from the machinery could
be recovered for against the bondsman as a supply. If this distinction is sound, then
the cases are in line with the other cases cited, as such “use” was necessarily
consumed in carrying on the work. The appellant argues, however, that the
distinction is not sound; that there is no just ground for holding that one who rents
to a contractor the tools and working appliances necessary for the prosecution of a
particular work may have recovery against the contractor’s bondsmen for the
rental value of the articles furnished, while one who sells the contractor the same
character of articles on credit has no claim against the bondsmen for any part of
the purchase price. But, if this be true, and it be true that the contractor’s working
equipment is not to be deemed a supply, it argues that the decisions cited are
erroneous, rather than that the appellant’s goods fall within the meaning of the
term “supplies.”
On the contrary, United States Rubber Co. explicitly distinguished supplies from
equipment, thus:
So construing the statute, the definitions of “equipment” and “supply” coincide,
and a certain and natural dividing line is found between them.
_______________
31 79 Wash. 564, 140 Pac. 575.
635
48
VOL. 246, JULY 17, 1995 635
Kilosbayan, Incorporated vs. Morato
A “supply” would be any article furnished for carrying on the work which from its
nature is necessarily consumed by use in the work, while “equipment” would
consist of those articles that are not necessarily so consumed, but which may
survive the particular work and be further used on work of like character. In this
view also the question actually decided in the case of National Surety Co. v.
Bratnober Lumber Co. harmonizes with the other cases cited, since coal, like
powder and other explosives, and like electricity used for power and other forms
of energy used for the same purpose, is necessarily consumed by its use, and cannot
survive for like uses in a similar character of work.
Tested by these rules, it is plain that the articles furnished by the appellant are not
supplies, but are a part of the contractor’s equipment. While they were actually
worn out by use in carrying on the work, they were not articles of such a nature as
to be necessarily consumed by such use, and might have survived, had their use
therein been of less duration, for use in subsequent work of like character.
Besides, subparagraph (e) of Section 1 unequivocally refers to a contract of
purchase of supplies. The ELA in question is not a contract of purchase of supplies.
The parties themselves proclaim to the whole world and solemnly represent to this
Court that it is acontract of lease of equipment. They titled it, in bold big letters,
“EQUIPMENT LEASE AGREEMENT,” and devote the first clause thereof to
EQUIPMENT. Accordingly, since the ELA is not a contract of purchase of supplies,
we are unable to understand why the DOJ applied Section 1(e) of E.O. No. 301 to
exempt the ELA from the public-bidding requirement.
The submission of the petitioners that the ELA violates paragraph 4.3 of the COA
Rules and Regulations for the Prevention of Irregular, Unnecessary, Excessive, and
Extravagant Expenditures is not persuasive. The said paragraph covers Lease
Purchase contracts. It reads:
4.3 LEASE PURCHASE
The national government may enter into agreement for the lease purchase of
equipment subject to public bidding, the approval of the Office of the Management,
and to other pertinent accounting and auditing religions. Details of the payments
shall be indicated in the lease purchase agreement and accompanied with a
certification of availability of equipment outlay authorized for the agency to cover
the full contract cost. The lease purchase agreement may be entered into
636
636 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
only for specialized equipment such as typewriters, adding machines and
automobiles, the purchase price of which is at least P50,000.00. All lease purchase
agreement of equipment the total value of which exceeds P200,000.00 shall be
subject to the approval of the President. Corporation/local governments may adopt
the mechanisms of these lease-purchase agreement subject to the approval of their
legislative or governing boards.
The ELA in question hardly qualifies as a lease purchase contract because there is
no perfected agreement to purchase (sale) but only an option on the part of PCSO
to purchase the equipment for P25 million. It is, in fact, an option which is not
supported by a separate and distinct consideration, hence, not really binding upon
the PGMC.
An optional contract is a privilege existing in one person, for which he had paid a
consideration, which gives him the right to buy certain specified property from
another person, if he chooses, at any time within the agreed period, at a fixed price.
Said contract is separate and distinct contract from the contract which the parties
may enter into upon the consummation of the option.32 The second paragraph of
Article 1479 of the Civil Code expressly provides that “[a]n accepted unilateral
promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.”
C. A comparison between the nullified contract and the assailed ELA to prove that
the latter is grossly disadvantageous to the PCSO is not at all hampered by any
perceived difficulty. As to the almost unrestricted benefits and advantages which
the PCSO were supposed to obtain under the former, the following findings of this
Court in the first lotto case bind the parties:
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had
neither funds of its own nor the expertise to operate and manage an on-line lottery
system, and that although it wished to have the system, it would have it “at no
expense or risks to the government.” Because of these serious constraints and
unwillingness to bear expenses and assume risks, the PCSO was candid enough to
_______________
32 Enriquez de la Cavada vs. Diaz, 37 Phil. 982 [1918].
637
49
VOL. 246, JULY 17, 1995 637
Kilosbayan, Incorporated vs. Morato
state in its RFP that it is seeking for “a suitable contractor which shall build, at its
own expense, all the facilities needed to operate and maintain” the system;
exclusively bear “all capital, operating expenses and expansion expenses and
risks;” and submit “a comprehensive nationwide lottery development plan . . .
which will include the game, the marketing of the games, and the logistics to
introduce the game to all the cities and municipalities of the country within five (5)
years;” and that the operation of the on-line lottery system should be “at no
expense or risk to the government”—meaning itself, since it is a government-
owned and controlled agency. The facilities referred to means “all capital
equipment, computers, terminals, software, nationwide telecommunications
network, ticket sales offices, furnishings and fixtures, printing costs, costs of
salaries and wages, advertising and promotions expenses, maintenance costs,
expansion and replacement costs, security and insurance, and all other related
expenses needed to operate a nationwide on-line lottery system.”
In short, the only contribution the PCSO would have is its franchise or authority to
operate the on-line lottery system; with the rest, including the risks of the business,
being borne by the proponent or bidder. It could be for this reason that it warned
that “the proponent must be able to stand to the acid test of proving that it is an
entity able to take on the role of responsible maintainer of the on-line lottery
system.” The PCSO, however, makes it clear in its RFP that the proponent can
propose a period of the contract which shall not exceed fifteen years, during which
time it is assured of a “rental” which shall not exceed 12% of gross receipts. As
admitted by the PGMC, upon learning of the PCSO’s decision, the Berjaya Group
Berhad, with its affiliates, wanted to offer its services and resources to the PCSO.
Forthwith, it organized the PGMC as “a medium through which the technical and
management services required for the project would be offered and delivered to
PCSO.”
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection
with an on-line lottery system, the PCSO had nothing but its franchise, which it
solemnly guaranteed it had in the General Information of the RFP. Howsoever
viewed then, from the very inception, the PCSO and the PGMC mutually
understood that any arrangement between them would necessarily leave to the
PGMC the technical, operations, and management aspects of the on-line lottery
system while the PCSO would, primarily, provide the franchise. The words Gaming
and Management in the corporate name of respondent Philippine Gaming
Management Corporation could not have been conceived just for euphemistic
purposes. Of course, the RFP cannot substitute for the Contract of Lease which was
subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of
Lease
638
638 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
incorporates their intention and understanding.
xxx
Consistent with the above observations on the RFP, the PCSO has only its franchise
to offer, while the PGMC represents and warrants that it has access to all
managerial and technical expertise to promptly and effectively carry out the terms
of the contract. And, for the period of eight years, the PGMC is under obligation to
keep all the Facilities in safe condition and if necessary, upgrade, replace, and
improve them from time to time as new technology develops to make the on-line
lottery system more cost-effective and competitive; exclusively bear all costs and
expenses relating to the printing, manpower, salaries and wages, advertising and
promotion, maintenance, expansion and replacement, security and insurance, and
all other related expenses needed to operate the on-line lottery system; undertake
a positive advertising and promotions campaign for both institutional and product
lines without engaging in negative advertising against other lessors; bear the
salaries and related costs of skilled and qualified personnel for administrative and
technical operations; comply with procedural and coordinating rules issued by the
PCSO; and to train PCSO and other local personnel and to effect the transfer of
technology and other expertise, such that at the end of the term of the contract, the
PCSO will be able to effectively take over the Facilities and efficiently operate the
on-line lottery system. The latter simply means that, indeed, the managers,
technicians or employees who shall operate the on-line lottery system are not
managers, technicians or employees of the PCSO, but of the PGMC and that it is
only after the expiration of the contract that the PCSO will operate the system.
After eight years, the PCSO would automatically become the owner of the Facilities
without any other further consideration.
For all the above representations, duties, obligations and responsibilities, as well
as the automatic loss of its ownership over the facilities without any further
consideration in favor of the PCSO after the expiration of only eight years, the
PGMC gets only a so-called rental of 4.9% of gross receipts from ticket sales,
payable net of taxes required by law to be withheld, which may, however, be
drastically reduced, or in extreme cases, totally obliterated because the PGMC
bears “all risks if the revenue from ticket sales, on an annualized basis, are
insufficient to pay the entire prize money.”
Under the assailed ELA, however, the PGMC is entitled to receive a flexible rental
equivalent to 4.3% of the gross ticket sales (or only 0.6% lower than it was entitled
to under the old
50
639
VOL. 246, JULY 17, 1995 639
Kilosbayan, Incorporated vs. Morato
contract) for the use of its on-line lottery system equipment (as distinguished from
facilities in the old contract), which does not anymore include the nationwide
telecommunications network, without any assumption of business risks and the
obligations (1) to keep the facilities in safe condition and if necessary, to upgrade,
replace, and improve them from time to time as technology develops, and bear all
expenses relating thereto; (2) to undertake advertising and promotions campaign;
(3) to bear all taxes, amusements, or other charges imposed on the activities
covered by the contract; (4) to pay the premiums for third party or comprehensive
insurance on the facilities: (5) to pay all expenses for water, light, fuel, lubricants,
electric power, gas, and other utilities used and necessary for the operation of the
facilities; and to pay the salaries and related costs of skilled and qualified personnel
for administrative and technical operations and maintenance crew. The PGMC is
also given thereunder a special privilege of receiving P25 million as purchase price
for the equipment at the expiration of eight years should the PCSO exercise its
option to purchase.
Unlike in the old contract where nothing may at all be due the PGMC in the event
that the ticket sales, computed on an annual basis, are insufficient to pay the entire
prize money, under the new ELA the PCSO is under obligation to pay rental
equivalent to 4.3% of the gross receipts from ticket sales, the aggregate amount of
which per year should not be less than the minimum annual rental of 35,000.00
per terminal in commercial operation. Any shortfall shall be paid out of the
proceeds of the then current ticket sales after payment of prizes and agents’
commissions but prior to any other payments, allocations, or disbursements. The
grossness of the disadvantage to the PCSO is all too obvious, and why the PCSO
accepted such unreasonable, unconscionable, and inequitable terms and
conditions confounds us.
The majority opinion, however, glosses over these considerations because it
believes that the determination of the issue of gross disadvantage should not be
done through a comparison of the first lotto contract and the ELA in question. It
says:
Indeed the question is not whether compared with the former joint venture
agreement the present lease contract is “[more] advantageous to the government.”
The question is whether under the circum-
640
640 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
stances, the ELA is the most advantageous contract that could be obtained
compared with similar lease agreements which the PCSO could have made with the
other parties.
It then concludes:
Petitioners have not shown that more favorable terms could have been obtained by
the PCSO or that at any rate the ELA, which the PCSO concluded with the PGMC,
is disadvantageous to the government.
That postulation is flawed. It forgets that no other contract proposed by other
parties were available for comparison precisely because no public bidding was
conducted. To demand a comparison with non-existing contracts would be
unreasonable.
The challenged ELA must then be declared void for the follow-ing reasons: (1) it is
a joint venture contract prohibited under the exception in paragraph B, Section 1
of R.A. No. 1169, as amended by B.P. Blg. 42; (2) it was entered into without the
mandatory public bidding; and (3) it is grossly disadvantageous to the PCSO and,
ultimately, the Government.
I therefore vote to GRANT the instant petition and to declare VOID and INVALID
the challenged EQUIPMENT LEASE AGREEMENT (ELA) entered into between
the public respondent Philippine Charity Sweepstakes Office (PCSO) and the
private respondent Philippine Gaming Management Corporation (PGMC).
SEPARATE CONCURRING OPINION
VITUG, J.:
I most humbly reiterate the separate opinion I have made in Kilosbayan, Inc., et al.
vs. Teofisto Guingona, Sr., etc., et al. (G.R. No. 113375, promulgated on 05 May
1994).
Before a peremptory voting could be taken by the Court on the main merits of the
instant case (G.R. No. 118910), the ultimate outcome of its deliberations thereon,
then still in progress, remained uncertain. In the meanwhile , it behooved, in my
view, all concerned to be bound by, or at the very least to respect, the decision in
G.R. No. 113375. It was clear to me that until G.R. No.
51
641
VOL. 246, JULY 17, 1995 641
Kilosbayan, Incorporated vs. Morato
118910 would have itself been finally resolved, the petitioners were entitled to a
temporary restraining order on the basis of the decision in G.R. No. 113375 (and
thus I then voted accordingly). The new contract entered into (now in dispute in
G.R. No. 118910), compared with the previous contract nullified in G.R. No.
113375, just as I also saw it then, was not substantially different from, let alone
significantly better than, the nullified contract.
Back to the core of the petition, however, the matter of the legal standing of
petitioners in their suit assailing the subject-contract appears to me, both under
substantive law and the rules of procedure, to still be an insuperable issue. I have
gone over carefully the pleadings submitted in G.R. No. 118910, and I regret my
inability to see anything new that can convince me to depart from the view I have
expressed on it in G.R. No. 113375.
In part, I also said in G.R. No. 113375: A provision which has been introduced by
the 1987 Constitution is a definition, for the first time in our fundamental law, of
the term “judicial power,” as such authority and duty of courts of justice “to settle
actual controversies involving rights which are legally demandable and enforceable
and to determine whether or not there has been a grave abuse of discretion,
amounting to lack or excess of jurisdiction, on the part of any branch or
instrumentality of the Government” (Article VIII, Section 1, Constitution). I take it
that the provision has not been intended to unduly mutate, let alone to disregard,
the long established rules on locus standi. Neither has it been meant, I most
respectfully submit, to do away with the principle of separation of powers and its
essential incidents such as by, in effect, conferring omnipotence on, or allowing an
intrusion by, the courts in respect to purely political decisions, the exercise of
which is explicitly vested elsewhere, and subordinate to that of their own the will
of either the Legislative Department or the Executive Department—both co-equal,
independent and coordinate branches, along with the Judiciary, in our system of
government. Again, if it were otherwise, there indeed would be truth to the charge,
in the words of some constitutionalists, that “judicial tyranny” has been
institutionalized by the 1987 Constitution, an apprehension which should, I
submit, rather be held far from truth and reality.
642
642 SUPREME COURT REPORTS ANNOTATED
Kilosbayan, Incorporated vs. Morato
In the Commencement Address I delivered to the 1995 graduating class of the San
Beda College of Law, I broached a matter which I felt was of contemporary concern.
Allow me to quote from it:
“x x x The relatively recent event in our history, still too vivid to be lost, had given
root to a discernible change in our fundamental law. Reacting to the lessons we, in
the recent past, have learned, well meant safeguards have been installed. One such
measure is in strengthening the judiciary, unquestionably in order to check on
further abuses of power. Thus, the Supreme has been charged with overseeing the
entire judiciary by removing this function from, heretofore traditionally with, the
executive. It has also given authority to the highest court of the land to literally
strike down any act of either Congress or the Executive for any grave abuse of
discretion. What has thus come about is a Supreme Court that effectively wields
almost absolute authority to dictate matters of grave import to the country—in
politics, in business and in veritably all major decisions of the State. The Supreme
Court is manned by fifteen justices, presumably all learned in law, but can it safely
be said that beyond the usual spheres of their judicial expertise, they so also have
the capability to react to all needs of government. The tribunal’s power is awesome.
It may be apropos to ask. Can the Court adequately respond at every turn with full
fidelity and competence? If you would have had the time to follow up recent
pronouncements of the Court, you might have noticed that on certain occasions I
have dissented from what I have felt and still feel to be an unwise encroachment of
functions that are better left to the judgment of others who are no less experts in
their respective fields than we in law. Congress is the branch of government,
composed of the representatives of the people, that lays down the policies of
government and the Executive that carries out the people’s mandate. I have found
it most difficult in voting with my colleagues whenever such policies are negated
merely because of what the Court perceives to be grave abuse of discretion, clearly
too relative a term to permit it to be its own sentinel against misuse.”
WHEREFORE, for the same reasons I have stated in G.R. No. 113375, I respectfully
vote for the dismissal of the instant petition.
Petition dismissed.
Notes—The doctrine of separation of powers calls for the other departments being
left alone to discharge their duties as
643
VOL. 246, JULY 17, 1995 643
Cansino vs. Director of the New Bilibid Prison
52
they see fit. The legislative and executive branches are not bound to seek the
Court’s advice as to what to do or not to do. (Tan vs. Macapagal, 43 SCRA 677
[1972])

The duty of the Supreme Court to exercise its power of judicial review must still be
performed in the context of a concrete case or controversy. (Tolentino vs.
Secretary of Finance, 235 SCRA 630 [1994])

——o0o——

53