kilosbayan v. morato (1995)

8/12/2019 Kilosbayan v. Morato (1995)

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EN BANC

[ G.R. No. 118910, July 17, 1995 ]

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILOA. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T.

APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSEABCEDE, CHRISTINE TAN, RAFAEL G. FERNANDO, RAOUL. V.VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN.FREDDIE WEBB, SEN. WIGBERTO TAADA, REP. JOKER P.ARROYO, PETITIONERS, VS. MANUEL L. MORATO, IN HISCAPACITY AS CHAIRMAN OF THE PHILIPPINE CHARITYSWEEPSTAKES OFFICE, AND THE PHILIPPINE GAMING

MANAGEMENT CORPORATION, RESPONDENTS.

D E C I S I O N

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 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 on-line 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. L169, 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)


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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. 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. 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.

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.

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


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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 againstrespondents and therefore their petition should be dismissed.

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, 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 Taada 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 thisCourt 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


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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 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 inthe 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 casecontinues 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, aftera 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 appeal. . . .

"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


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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 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 arementioned 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 Daetv. 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 adifferent cause of action. (Pealosa 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 COUNTS 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 taxpayer assigned to his wife his interest in a patent in1928 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


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respectswith that decided in the first proceeding and where the controlling facts

and applicable legal rules remain unchanged." (333 U.S. at 59-600, 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 Judgements, as follows:

Sec. 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:

x x x x x x x x x

(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

account of an intervening change in the applicable legal context or otherwise to

avoid inequitable administration of the laws; . . .

Illustration:

x x x x x x x x x

2. A brings an action against the municipality of B for tortious injury. The court

sustains B's defense of sovereign immunity and 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.


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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 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 inimmediate 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


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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

one and justify relaxation of the requirement that an action must be prosecuted inthe name of the real party in interest. (Valmontev. 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.'" (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.


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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 (Ibaez 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 PublicWorks 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 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 RULERS 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 beforethe 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, Sec.

12) In addition, the Solicitor 6eneral is authorized to bring an action for quo

warrantoif it should be thought that a government corporation, like the PCSO, has

offended against its corporate charter or misused its franchise. (Ruler 66, 2(a)

(d))

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 Decembers 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


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reason, was void. The Court noted the following features of the contract:

(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) 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 theprovision, which the Court considered "unusual 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) 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 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,


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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, allocationsor 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

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. Deductingfrom 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 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


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expressed as a certain percentage of the total gross amount of ticket sales.

Indeed it is not alone the fact that in the old contact 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, he 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 lotteryother 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:

a. The 4.3% rental rate for the equipment is well within the maximum of 15%

net receipts fixed by law;

b. To obviate any violation of the law, it is best to express large operating costs

for budgetary purposes as a percentage of either gross or net receipts,

specifically since the amount of gross receipts can only be estimated.

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.

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


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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. Not 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 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/orincrease 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

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 andmanage 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 tie ELA as including "technology,

intellectual property rights, know-how 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


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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 togrant 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 operation.

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 contact 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 SARA 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 SweepstakesOffice (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 orjoint 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.

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


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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:

Sec. 1. The Philippine Charity Sweepstakes Office. - The Philippine CharitySweepstakes 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:

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.

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 bythe 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 holdor conductcharity sweepstakes races, lotteries ands similar

activities; and/or (2)to invest- whether "by itselfor 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, asalready stated, these are competing activities.

The subject matter of 1(B) is the authority or the PCSO to invest in certain

projects for profit in order to enable it to expand its health 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 undertaken by the PCSO "in

collaboration, association or joint venture" but also when made by the PCSO alone,


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"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 PCSOinvestingin the business of another franchise holder which would directly compete

with PCSO's own charity sweepstakes races, lotteries or similar activities. The

prohibition apples 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 lainter 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 engagein 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 them amendment.

The following excerpt[2]from the record of the discussion on Parliamentary Bill No.

622, which became B.P. Blg. 422, 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 any and all investment. . . ." until the words

"charitable grants" on line 23 and in lieu thereof insert the following:

SUBJECT TO THE APPROVAL OF THEE MINISTER OF HUMAN

SETTLEMENTS, TO ENGAGE IN HEALTH-ORIENTED INVEST MENTS,PROGRAMS, PROJECTS AND ACTIVITIES WHICH MAY BE PROFIT-

ORIENTED, BY ITSELF OR IN COLLABORATION, ASSOAIATION, 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 ASSISTANAE AND SERVICES AND/OR CHARITABLE

GRANTS.


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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? Theamendment 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 ad 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 determination 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.


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"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 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, 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.


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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 publicservices 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.

a. Whenever the supplies are urgently needed to meet an emergency which may

involve the loss of, or danger to, life and/or property:

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;

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;

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:

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

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, materialsand 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 of

supplies 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 furnishing of "supplies" must be

understood as excluding the furnishing of any of the other items, i.e., "materials"

and "equipment."


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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 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 standishould 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:

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. whether the ELA requires a prior public bidding; and

3. whether the ELA is grossly disadvantageous to the government.

On the first specific issue, no less than petitioners admit in their petition that theELA 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

isprima faciea 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.


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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, thePGMC 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 cost?

wise 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.

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


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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.

DISSENTING OPINION

FELICIANO, J.:

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 brothersRegalado 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 substantivepoints 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 "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

I turn first to the novel argument made in the majority opinion that the charter ofPCSO 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


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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 theintent 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 legislative 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 Sec. 1, the PCSO is, given

authority to do any of the following: (1) to hold or conduct charity

sweepstakes races, lotteries or 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 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

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:

Sec. 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


27/68



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:

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.

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 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." (Underscoring 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) "to engage in health and welfare-related investments which may be profit-

oriented ;"

(2) "to engage in health and welfare-related programs which may be profit-

oriented "

(3) "to engage in health and welfare-related projects which may be profit-

oriented ; " and

(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


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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 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 government-owned 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

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 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


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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]

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 refersto 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)

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:


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"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 public bidding, except under any of the following situations: x x

x." (Italics supplied)

It is worthy of special note that the above opening paragraph does not 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]

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 whichthe 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


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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 jointventure, 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 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 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 lesseePCSO 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 would constitute

participation by the lessor in the business of the lessee or a joint venture between


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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 isauthorized 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 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 sharein 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 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


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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 p

kilosbayan v. morato (1995)

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