Klos Bayan- Stat Con

8/12/2019 Klos Bayan- Stat Con

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 118910 July 17, 1995

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS,ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIMTENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN,RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTINS. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, REP.

JOKER P. ARROYO, petitioners,vs.MANUEL L. MORATO, in his capacity as Chairman of the Philippine CharitySweepstakes Office, and the PHILIPPINE GAMING MANAGEMENTCORPORATION, 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 thePhilippine Charity Sweepstakes Office (PCSO) and the Philippine GamingManagement Corp. (PGMC) on the ground that it had been made in violation ofthe charter of the PCSO, the parties entered into negotiations for a newagreement that would be "consistent with the latter's [PCSO] charter . . . andconformable 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 andaccessories 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 thelottery which in no case shall be less than an annual rental computed atP35,000.00 per terminal in commercial operation. The rental is to be computedand paid bi-weekly. In the event the bi-weekly rentals in any year fall short of theannual minimum fixed rental thus computed, the PCSO agrees to pay thedeficiency out of the proceeds of its current ticket sales. (Pars. 1-2)


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Under the law, 30% of the net receipts from the sale of tickets is allotted tocharity. (R.A. No. 1169, 6 (B))

The term of the lease is eight (8) years, commencing from the start ofcommercial 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 anycause 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 theequipment 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 onthe ground that it is substantially the same as the Contract of Lease nullified inthe first case. Petitioners argue:

1. THE AMENDED ELA IS NULL AND VOID SINCE IT IS BASICALLY ORSUBSTANTIALLY THE SAME AS OR SIMILAR TO THE OLD LEASECONTRACT AS REPRESENTED AND ADMITTED BY RESPONDENTSPGMC AND PCSO.

2. ASSUMING ARGUENDO, THAT THE AMENDED ELA IS MATERIALLYDIFFERENT FROM THE OLD LEASE CONTRACT, THE AMENDED ELAIS NEVERTHELESS NULL AND VOID FOR BEING INCONSISTENTWITH AND VIOLATIVE OF PCSO'S CHARTER AND THE DECISION OFTHIS HONORABLE COURT OF MAY 5, 1995.

3. THE AMENDED EQUIPMENT LEASE AGREEMENT IS NULL ANDVOID FOR BEING VIOLATIVE OF THE LAW ON PUBLIC BIDDING OFCONTRACTS FOR FURNISHING SUPPLIES, MATERIALS ANDEQUIPMENT TO THE GOVERNMENT, PARTICULARLY E.O. NO. 301

DATED 26 JULY 1987 AND E.O. NO. 298 DATED 12 AUGUST 1940 ASAMENDED, AS WELL AS THE "RULES AND REGULATIONS FOR THEPREVENTION OF IRREGULAR, UNNECESSARY, EXCESSIVE OREXTRAVAGANT (IUEE) EXPENDITURES PROMULGATED UNDERCOMMISSION ON AUDIT CIRCULAR NO. 85-55-A DATED SEPTEMBER8, 1985, CONSIDERING THAT IT WAS AWARDED AND EXECUTEDWITHOUT THE PUBLIC BIDDING REQUIRED UNDER SAID LAWS AND


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COA RULES AND REGULATIONS, IT HAS NOT BEEN APPROVED BYTHE 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 thepetitioners' standing to bring this suit. They maintain (1) that the ELA is a differentlease contract with none of the vestiges of a joint venture which were found in theContract of Lease nullified in the prior case; (2) that the ELA did not have to besubmitted 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 isadvantageous to the government is vested in the Board of Directors of thePCSO; (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 whatpetitioners are actually seeking in this suit is to further their moral crusade andpolitical 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 ofcivic-spirited citizens, pastors, priests, nuns and lay leaders who are committedto the cause of truth, justice, and national renewal." Its trustees are also suing intheir 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 andconcerned 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 nopersonal and substantial interest likely to be injured by the enforcement of thecontract. 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 theoperation of lottery is now the "law of the case" and therefore the question oftheir standing can no longer be reopened.

Neither the doctrine of stare decisis nor that of "law of the case," nor that ofconclusiveness of judgment poses a barrier to a determination of petitioners' rightto maintain this suit.


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Stare decisis is usually the wise policy. But in this case, concern for stability indecisional law does not call for adherence to what has recently been laid downas the rule. The previous ruling sustaining petitioners' intervention may itself beconsidered a departure from settled rulings on "real parties in interest" becauseno constitutional issues were actually involved. Just five years before that ruling

this Court had denied standing to a party who, in questioning the validity ofanother form of lottery, claimed the right to sue in the capacity of taxpayer, citizenand member of the Bar. (Valmonte v. Philippine Charity Sweepstakes, G.R. No.78716, Sept. 22, 1987) Only recently this Court held that members of Congresshave standing to question the validity of presidential veto on the ground that, iftrue, the illegality of the veto would impair their prerogatives as members ofCongress. Conversely if the complaint is not grounded on the impairment of thepowers of Congress, legislators do not have standing to question the validity ofany law or official action. (Philippine Constitution Association v. Enriquez, 235SCRA 506 (1994)).

There is an additional reason for a reexamination of the ruling on standing. Thevoting on petitioners' standing in the previous case was a narrow one, with seven(7) members sustaining petitioners' standing and six (6) denying petitioners' rightto bring the suit. The majority was thus a tenuous one that is not likely to bemaintained in any subsequent litigation. In addition, there have been changes inthe membership of the Court, with the retirement of Justices Cruz and Bidin andthe appointment of the writer of this opinion and Justice Francisco. Given this factit 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 thedoctrine of "law of the case." We do not think this doctrine is applicableconsidering the fact that while this case is a sequel to G.R. No. 113375, it is notits continuation. The doctrine applies only when a case is before a court asecond time after a ruling by an appellate court. Thus in People v. Pinuila, 103Phil. 992, 999 (1958), it was stated:

"Law of the case" has been defined as the opinion delivered on a formerappeal. More specifically, it means that whatever is once irrevocablyestablished as the controlling legal rule of decision between the same

parties in the same case continues to be the law of the case, whethercorrect on general principles or not, so long as the facts on which suchdecision was predicated continue to be the facts of the case before thecourt. (21 C. J. S. 330)

It may be stated as a rule of general application that, where the evidenceon a second or succeeding appeal is substantially the same as that on the


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first or preceding appeal, all matters, questions, points, or issuesadjudicated on the prior appeal are the law of the case on all subsequentappealsand will not be considered or readjudicated therein. (5 C. J. S.1267)

In accordance with the general rule stated in Section 1821, where, after adefinite determination, the court has remanded the cause for further actionbelow, it will refuse to examine question other than those arisingsubsequently to such determination and remand, or other than thepropriety of the compliance with its mandate; and if the court below hasproceeded 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 tobe 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 beregarded as the law of the case on a subsequent appeal, although thequestions are not expressly treated in the opinion of the court, as thepresumption is that all the facts in the case bearing on the point decidedhave 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 aformer decision of an appellate court, merely expresses the practice of the courtsin refusing to reopen what has been decided. It differs from res judicatain thatthe conclusiveness of the first judgment is not dependent upon its finality. Thefirst judgment is generally, if not universally, not final. It relates entirely toquestions of law, and is confined in its operation to subsequent proceedings inthe 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 partiesbefore 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 relateddoctrine of "conclusiveness of judgment."1According to the doctrine, an issue actually anddirectly passed upon and determined in a former suit cannot again be drawn in question in any futureaction between the same parties involving a different cause of action. (Pealosa v. Tuason, 22 Phil. 303,313 (1912); Heirs of Roxas v. Galido, 108 Phil. 582 (1960))


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It has been held that the rule on conclusiveness of judgment or preclusion ofissues or collateral estoppel does not apply to issues of law, at least whensubstantially unrelated claims are involved. (Montana v. United States, 440 U.S.147, 162, 59 L.Ed. 2d 210, 222 (1979); BATOR, MELTZER, MISHKIN ANDSHAPIRO, THE FEDERAL COURTS AND THE FEDERAL SYSTEM 1058, n. 2

(3rd Ed., 1988)) Following this ruling it was held inCommissioner v. Sunnen, 333U.S. 591, 92 L.Ed. 898 (1947) that where a taxpayer assigned to his wife hisinterest in a patent in 1928 and in a suit it was determined that money paid to hiswife for the years 1929-1931 under the 1928 assignment was not part of histaxable income, this determination is not preclusive in a second action forcollection of taxes on amounts paid to his wife under another deed of assignmentfor other years (1937 to 1941). For income tax purposes what is decided withrespect to one contract is not conclusive as to any other contract which was notthen in issue, however similar or identical it may be. The rule on collateralestoppel, 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 proceedingand 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 thetwo cases are separate, even though they be similar or identical, collateralestoppel does not govern the legal issues which occur in the second case. Thusthe 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 thatsituation a court is free in the second proceeding to make an independentexamination 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 authoritativelyformulated in Restatement of the Law 2d, on Judgments, as follows:

28. Although an issue is actually litigated and determined by a valid andfinal judgment, and the determination is essential to the judgment,relitigation of the issue in a subsequent action between the parties is notprecluded in the following circumstances:

xxx xxx xxx

(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 totake account of an intervening change in the applicable legal context orotherwise to avoid inequitable administration of the laws; . . .

Illustration:

xxx xxx xxx


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2. A brings an action against the municipality of B for tortious injury. Thecourt sustains B's defense of sovereign immunity and dismisses the action.Several years later A brings a second action against B for an unrelatedtortious injury occurring after the dismissal. The judgment in the first actionis not conclusive on the question whether the defense of sovereign

immunity is available to B. Note: The doctrine of stare decisis may lead thecourt to refuse to reconsider the question of sovereign immunity. See 29,Commenti.

The question whether petitioners have standing to question the Equipment LeaseAgreement or ELA is a legal question. As will presently be shown, the ELA,which petitioners seek to declare invalid in this proceeding, is essentially differentfrom 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 hadstanding 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 inthis case. It is, strictly speaking, not even the issue in this case, since standing isa concept in constitutional law and here no constitutional question is actuallyinvolved. The issue in this case is whether petitioners are the "real parties ininterest" within the meaning of Rule 3, 2 of the Rules of Court which requiresthat "Every action must be prosecuted and defended in the name of the real partyin interest."

The difference between the rule on standing and real party in interest has beennoted by authorities thus: "It is important to note . . . that standing because of itsconstitutional and public policy underpinnings, is very different from questionsrelating to whether a particular plaintiff is the real party in interest or has capacityto sue. Although all three requirements are directed towards ensuring that onlycertain parties can maintain an action, standing restrictions require a partialconsideration of the merits, as well as broader policy concerns relating to theproper role of the judiciary in certain areas. (FRIEDENTHAL, KANE ANDMILLER, 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 alaw or by official action taken, but by concerned citizens, taxpayers or voters whoactually sue in the public interest. Hence the question in standing is whether suchparties have "alleged such a personal stake in the outcome of the controversy asto assure that concrete adverseness which sharpens the presentation of issuesupon which the court so largely depends for illumination of difficult constitutionalquestions." (Baker v. Carr, 369 U.S. 186, 7 L.Ed. 2d 633 (1962))


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Accordingly, in Valmonte v. Philippine Charity Sweepstakes Office,G.R. No. 78716, Sept. 22, 1987, standing was denied to a petitioner who soughtto declare a form of lottery known as Instant Sweepstakes invalid because, asthe 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 hisrights and privileges as a lawyer or citizen have been directly andpersonally injured by the operation of the Instant Sweepstakes. Theinterest of the person assailing the constitutionality of a statute must bedirect and personal. He must be able to show, not only that the law isinvalid, but also that he has sustained or is in immediate danger ofsustaining some direct injury as a result of its enforcement, and not merelythat he suffers thereby in some indefinite way. It must appear that theperson 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 subjectedto some burdens or penalties by reason of the statute complained of.

We apprehend no difference between the petitioner in Valmonteand the presentpetitioners. Petitioners do not in fact show what particularized interest they havefor bringing this suit. It does not detract from the high regard for petitioners ascivic leaders to say that their interest falls short of that required to maintain anaction under Rule 3, 2.

It is true that the present action involves not a mere contract between privateindividuals but one made by a government corporation. There is, however, noallegation that public funds are being misspent so as to make this action a publicone and justify relaxation of the requirement that an action must be prosecuted inthe 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 "theparty who would be benefitted or injured by the judgment, or the 'party entitled tothe 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 ofthe Constitution:

The maintenance of peace and order, the protection of life, liberty, andproperty, and the promotion of the general welfare are essential for theenjoyment by all the people of the blessings of democracy. (5).


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The natural and primary right and duty of parents in the rearing of theyouth for civic efficiency and the development of moral character shallreceive 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. Itshall inculcate in the youth patriotism and nationalism, and encourage theirinvolvement 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 socialprogress, and promote total human liberation and development. (17)

(Memorandum for Petitioners, p. 7)

These are not, however, self executing provisions, the disregard of which cangive rise to a cause of action in the courts. They do not embody judiciallyenforceable constitutional rights but guidelines for legislation.

Thus, while constitutional policies are invoked, this case involves basicallyquestions of contract law. More specifically, the question is whether petitionershave a legal right which has been violated.

In actions for the annulment of contracts, such as this action, the real parties arethose who are parties to the agreement or are bound either principally orsubsidiarily 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 thecontract even though they did not intervene in it (Ibaez v. Hongkong & ShanghaiBank, 22 Phil. 572 (1912)), or who claim a right to take part in a public biddingbut have been illegally excluded from it. (See De la Lara Co., Inc. v. Secretary ofPublic Works and Communications, G.R. No.L-13460, Nov. 28, 1958)

These are parties with "a present substantial interest, as distinguished from amere 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 action as will entitle him, under the substantivelaw, to recover if the evidence is sufficient, or that he has the legal title todemand 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,inGonzales v. Hechanova, 118 Phil. 1065 (1963) petitioner's right to question thevalidity of a government contract for the importation of rice was sustained


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because he was a rice planter with substantial production, who had a right underthe law to sell to the government.

But petitioners do not have such present substantial interest in the ELA as wouldentitle 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 apublic bidding before they may be made can be raised in an appropriate casebefore the Commission on Audit or before the Ombudsman. The Constitutionrequires that the Ombudsman and his deputies, "as protectors of the people shallact promptly on complaints filed in any form or manner against public officials oremployees of the government, or any subdivision, agency or instrumentalitythereof including government-owned or controlled corporations." (Art. XI, 12) Inaddition, the Solicitor General is authorized to bring an action for quo warranto ifit 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))

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 PCSOhad entered into with the PGMC on December 17, 1993 for the operation of anon-line lottery system, was actually a joint venture agreement or, at the veryleast, a contract involving "collaboration or association" with another party and,for that 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 lotterysystem so that it would be dependent on the PGMC for the operation of thelottery system.

(2) The PGMC would exclusively bear all costs and expenses for printing tickets,payment of salaries and wages of personnel, advertising and promotion andother expenses for the operation of the lottery system. Mention was made of theprovision, which the Court considered "unusual in a lessor-lessee relationship butinherent 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, andthe possibility that "nothing may be due or demandable at all because the PGMCbinds itself to 'bear all risks if the revenue from the ticket sales, on an annualizedbasis, 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 readyto operate the lottery system themselves because it would take the entire eight-


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year term of the contract for the technology transfer to be completed. In the viewof the Court, this meant that for the duration of the contract, the PGMC wouldactually be the operator of the lottery system, and not simply the lessor ofequipment.

The Court considered the Contract of Lease to be actually a joint ventureagreement. From another angle, it said that the arrangement, especially theprovision that all risks were for the account of the PGMC, was in effect a lease bythe PCSO of its franchise to the PGMC.

These features of the old Contract of Lease have been removed in the presentELA. While the rent is still expressed in terms of percentage (it is now 4.3% ofthe gross receipts from the sale of tickets) in the ELA, the PGMC is nowguaranteed a minimum rent of P35,000.00 a year per terminal in commercialoperation. (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 thislease as provided in paragraph 3 hereof, LESSEE shall payrental to LESSOR equivalent to FOUR POINT THREEPERCENT (4.3%) of the gross amount of ticket sales from allof LESSEE's on-line lottery operations in the Territory, whichrental shall be computed and payable bi-weekly net ofwithholding taxes on income, if any: provided that, in no caseshall the annual aggregate rentals per year during the term ofthe lease be less than the annual minimum fixed rentalcomputed at P35,000.00 per terminal in commercialoperationper annum, provided, further that the annualminimum fixed rental shall be reduced pro-rata for the numberof days during the year that a terminal is not in commercialoperation due to repairs or breakdown. In the event theaggregate bi-weekly rentals in any year falls short of theannual minimum fixed rental computed at P35,000.00 perterminal in commercial operation, the LESSEE shall pay such

shortfall from out of the proceeds of the then current ticketsales from LESSEE's on-line; lottery operations in theTerritory (after payment first of prizes and agents'commissions but prior to any other payments, allocations ordisbursements) until said shortfall shall have been fully settled,but without prejudice to the payment to LESSOR of the then


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current bi-weekly rentals in accordance with the provisions ofthe first sentence of this paragraph 2.

The PCSO now bears all losses because the operation of the system iscompletely 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% inthe old contract because the reduction is negligible especially now that the PCSOassumes 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 ofP70,000,000.00per annumconsidering that there are 2,000 terminals perthe 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 atleast 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 isP79,767,442.00. Deducting from this amount the sum of P70,000,000.00representing the annual minimum rental under the amended ELA, we getthe figure of P9,767,442 which is equivalent to the .06% differencebetween the rental under the old lease contract and under the amendedELA.

This amount of P9,767,442.00 cannot possibly cover the costs, expensesand obligations shouldered by PGMC under the old lease contract butwhich are now to be borne by the PCSO under the new ELA, not tomention the additional P25 million that the PCSO has to pay the PGMC ifthe former exercises its option to purchase the equipment at the end of thelease period under the amended ELA.

(Petition, p. 37)

To be sure there is nothing unusual in fixing the rental as a certain percentage ofthe 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," simplybecause it is expressed as a certain percentage of the total gross amount ofticket sales.

Indeed it is not alone the fact that in the old contract the rental was expressed interms of percentage of the net proceeds from the sale of tickets which was held


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to be characteristic of a joint venture agreement. It was the fact that, in the priorcase, the PGMC assumed, in addition, all risks of loss from the operation of thelottery, with the distinct possibility that nothing might be due it. In the view of inthe Court this possibility belied claims that the PGMC had no participation in thelottery other than being merely the lessor of equipment.

In the new contract the rental is also expressed in terms of percentage of thegross proceeds from ticket sales because the allocation of the receipts under thecharter of the PCSO is also expressed in percentage, to wit: 55% is set aside forprizes; 30% for contribution to charity; and 15% for operating expenses andcapital expenditures. (R.A. No. 1169, 6) As the Solicitor General points out inhis Comment filed in behalf of the PCSO:

In the PCSO charter, operating costs are reflected as apercentage of thenet receipts (which is defined as gross receipts less ticket printing costs

which shall not exceed 2% and the 1% granted to the Commission onHigher Education under Republic Act No. 7722). The mandate of the law isthat operating costs, which include payments for any leasedequipment, cannotexceed 15% of net receipts, or 14.55%of grossreceipts. The following conclusions are, therefore evident:

a. The 4.38 rental rate for the equipment is well within themaximum of 15% net receipts fixed by law;

b. To obviate any violation of the law, it is best to expresslarge operating costs for budgetary purposes as a percentageof either gross or net receipts, specifically since the amount ofgross receipts can only be estimated.

c. Large fixed sums of money for major operating costs , suchas fixed rental for equipment, can very well exceed themaximum percentages fixed by law, specifically if actual grossreceipts are lower than estimates for budgetary purposes.

d. The problem of budgeting based on estimates is even moredifficult 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 exceed15% of the net receipts what the respondents should have done was not to agreeon a minimum fixed rental of P35,000.00 per terminal in commercial operation.


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This is a matter of business judgment which, in the absence of a clear andconvincing 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 interms of percentage of the revenue of the PCSO because rentals are treated inthe 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 necessaryrepairs, except those repairs to correct defective workmanshipor replace defective materials used in the manufacture ofEquipment 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 timeduring the term of the lease, request the LESSOR to upgradethe equipment and/or increase the number or terminals, inwhich case the LESSEE and LESSOR shall agree on anarrangement mutually satisfactory to both of them, upon suchterms as may be mutually agreed upon.

By virtue of this provision on upgrading of equipment, petitioners claim, theparties can change their entire agreement and thereby, by "clever means anddevices," enable the PGMC to "actually operate, manage, control and supervisethe conduct and holding of the on-line lottery system," considering that as foundin the first decision, "the PCSO had neither funds of its own nor the expertise tooperate and manage an on-line lottery."

The claim is speculative. It is just as possible to speculate that after sometimeoperating the lottery system the PCSO will be able to accumulate enough capitalto enable it to buy its own equipment and gain expertise. As for expertise, afterthree months of operation of the on-line lottery, there appears to be no complaintthat 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 possibilityof abuse is not a reason for denying power to the government holds true also incases involving the validity of contracts made by it.

Finally, because the term "Equipment" is defined in the ELA as including"technology, intellectual property rights, know-how processes and systems," it isclaimed that these items could only be transferred to the PCSO by the PGMC


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training PCSO personnel and this was found in the first case to be a badge of ajoint venture.

Like the argument based on the upgrading of equipment, we think this contentionis 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 itspersonnel in prohibited association or collaboration with the PGMC within thecontemplation of the law.

A contract of lease, as this is defined in Civil law, may call for some form ofcollaboration or association between the parties since lease is a "consensual,bilateral, onerous and commutative contract by which one person binds himselfto grant temporarily the use of a thing or the rendering of some service to anotherwho undertakes to pay some rent, compensation or price." (5 PADILLA, CIVILCODE 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 tocontend that this is what the charter of the PCSO contemplates in prohibiting itfrom entering into "collaboration or association" with any party. It may be addedthat even if the PCSO purchases its own equipment, it still needs the assistanceof the PGMC in the initial phase or operation.

We hold that the ELA is a lease contract and that it contains none of the featuresof the former contract which were considered "badges of a joint ventureagreement." To further find fault with the new contract would be to cavil andexpose the opposition to the contract to be actually an opposition to lottery underany and all circumstances. But "[t]he morality of gambling is not a justiciableissue. Gambling is not illegalper se. . . . It is left to Congress to deal with theactivity 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 oflottery, there is no dispute that, to enable the Philippine Charity SweepstakesOffice to raise funds for charity, Congress authorized the Philippine CharitySweepstakes Office (PCSO) to hold or conduct lotteries under certain conditions.

We therefore now consider whether under the charter of the PCSO any contractfor the operation of an on-line lottery system, which involves any form ofcollaboration 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 enterinto any contract which would involve it in any form of "collaboration, associationor joint venture" for the holding of sweepstakes races, lotteries and other similar


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activities. This interpretation must be reexamined especially in determiningwhether petitioners have a cause of action.

We hold that the charter of the PCSO does not absolutely prohibit it from holdingor conducting lottery "in collaboration, association or joint venture" with another

party. What the PCSO is prohibited from doing is to invest in a business engagedin sweepstakes races, lotteries and similar activities, and it is prohibited fromdoing so whether in "collaboration, association or joint venture" with others or "byitself." The reason for this is that these are competing activities and the PCSOshould not invest in the business of a competitor.

It will be helpful to quote the pertinent provisions of R.A. No. 1169, as amendedby B.P. Blg. 42:

.1 The Philippine Charity Sweepstakes Office.The Philippine Charity

Sweepstakes Office, hereinafter designated the Office, shall be theprincipal government agency for raising and providing for funds for healthprograms, medical assistance and services and charities of nationalcharacter, and as such shall have the general powers conferred in sectionthirteen of Act Numbered One Thousand Four Hundred Fifty-Nine, asamended, and shall have the authority:

A. To hold and conduct charity sweepstakes races, lotteries and othersimilar activities, in such frequency and manner, as shall be determined,and subject to such rules and regulations as shall be promulgated by theBoard of Directors.

B. Subject to the approval of the Minister of Human Settlements, to engagein health and welfare-related investments, programs, projects and activitieswhich may be profit-oriented, by itself or in collaboration, association or

joint venture with any person, association, company or entity, whetherdomestic or foreign, except for the activities mentioned in the precedingparagraph (A), for the purpose of providing for permanent and continuingsources of funds for health programs, including the expansion of existingones, 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 NationalEconomic and Development Authority.

When parsed, it will be seen that 1 grants the PCSO authority to do any of thefollowing: (1) to holdor conductcharity sweepstakes races, lotteries and similaractivities; and/or (2) to investwhether "by itself or in collaboration, associationor joint venture with any person, association, company or entity" in any "health


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and welfare-related investments, programs, projects and activities which may beprofit oriented," except "the activities mentioned in the preceding paragraph(A)," i.e., sweepstakes races, lotteries and similar activities. The PCSO isprohibited 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 certainprojects for profit in order to enable it to expand its health programs, medicalassistance and charitable grants. The exception in the law refers to investment inbusinesses engaged in sweepstakes races, lotteries and similar activities. Thelimitation applies not only when the investment is undertaken by the PCSO "incollaboration, association or joint venture" but also when made by the PCSOalone, "by itself." The prohibition can not apply to the holding of a lottery by thePCSO itself. Otherwise, what it is authorized to do in par. (A) would be negatedby what is prohibited by par. (B).

To harmonize pars. (A) and (B), the latter must be read as referring to theauthority of the PCSO to invest in the business of others. Put in another way, theprohibition in 1(B) is not so much against the PCSO entering into anycollaboration, association or joint venture with others as against thePCSO investingin the business of another franchise holder which would directlycompete with PCSO's own charity sweepstakes races, lotteries or similaractivities. The prohibition applies whether the PCSO makes the investment aloneor with others.

The contrary construction given to 1 in the previous decision is based onremarks made by then Assemblyman, now Mr. Justice, Davide during thedeliberations on what later became B.P. Blg. 42, amending R.A. No. 1169. Itappears, however, that the remarks were made in connection with a proposal togive the PCSO the authority "to engagein any and all investments." It was toprovide exception with regard to the type of investments which the PCSO isauthorized to make that the Davide amendment was adopted. It is reasonable tosuppose that the members of the Batasan Pambansa, in approving theamendment, understood it as referring to the exception to par. (B) of 1 givingthe PCSO the power to make investments. Had it been their intention to prohibitthe PCSO from entering into any collaboration, association or joint venture with

others even in instances when the sweepstakes races, lotteries or similaractivities are operated by it ("itself"), they would have made the amendment notin par. (B), but in par (A), of 1, as the logical place for the amendment.

The following excerpt2from the record of the discussion on Parliamentary Bill No. 622, whichbecame B.P. Blg. 422, bears out this conclusion:


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MR. ZAMORA. On the same page, starting from line 18 untilline 23, delete the entire paragraph from "b. to engage in anyand all investment. . . ." until the words "charitable grants" online 23 and in lieu thereof insert the following:

SUBJECT TO THE APPROVAL OF THEMINISTER OF HUMAN SETTLEMENTS, TOENGAGE IN HEALTH-ORIENTEDINVESTMENTS, PROGRAMS, PROJECTS AND

ACTIVITIES WHICH MAY BE PROFIT-ORIENTED, BY ITSELF OR INCOLLABORATION, ASSOCIATION, OR JOINTVENTURE WITH ANY PERSON, ASSOCIATION,COMPANY OR ENTITY, WHETHER DOMESTICOR FOREIGN, FOR THE PURPOSE OF

PROVIDING FOR PERMANENT ANDCONTINUING SOURCES OF FUNDS FORHEALTH PROGRAMS, INCLUDING THEEXPANSION OF EXISTING ONES, MEDICAL

ASSISTANCE AND SERVICES AND/ORCHARITABLE 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 thecommittee amendment? The amendment would be to insertafter "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 otherentity such collaboration or joint venture must not includeactivity 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.


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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 followingproviso: PROVIDED, THAT SUCHINVESTMENTS, PROGRAMS, PROJECTS AND ACTIVITIESSHALL NOT COMPETE WITH THE PRIVATE SECTOR IN

AREAS WHERE PRIVATE INVESTMENTS AREADEQUATE.

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. Andmy amendment is to add after "adequate" the words AS MAYBE DETERMINED BY THE NATIONAL ECONOMIC ANDDEVELOPMENT AUTHORITY. As a matter of fact, it willstrengthen theauthority to invest in these areas, provided thatthe determination of whether the private sector's activity isalready adequate must be determined by the NationalEconomic and Development Authority.

MR. ZAMORA. Mr. Speaker, the committee accepts theproposed amendment.

MR. DAVIDE. Thank you, Mr. Speaker

THE SPEAKER. May the sponsor now read the entireparagraph?

MR. ZAMORA. May I read the paragraph, Mr. Speaker.

Subject to the Minister of Human Settlements, to engage inhealth and welfare-oriented investment programs, projects,

and activities which may be profit-oriented, by itself or incollaboration, association or joint venture with any person,association, company or entity, whether domestic or foreign,EXCEPT FOR THE ACTIVITIES MENTIONED INPARAGRAPH (a) for the purpose of providing for permanentand continuing sources of funds for health programs, includingthe expansion of existing ones, medical assistance and


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services and/or charitable grants: PROVIDED THAT SUCHINVESTMENTS, HEALTH PROGRAMS, PROJECTS AND

ACTIVITIES SHALL NOT COMPETE WITH THE PRIVATESECTOR 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 isrecognized.

MR. PELAEZ. Mr. Speaker, may I suggest that in thatproviso,

we remove "health programs, projects and activities,"because theproviso refers only to investment activities"provided that such investments will not compete with theprivate 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 tothe amendment of the Gentleman from Cebu, just for style, I

would suggest the insertion of the word PRECEDING beforethe word "paragraph." The phrase will read "the PRECEDINGparagraph."

MR. ZAMORA. It is accepted, Mr. Speaker.

THE SPEAKER. Very well. Is there any objection to thecommittee amendment, as amended? (Silence). The Chairhears none; the amendment is approved.

The construction given to 1 in the previous decision is insupportable in light ofboth the text of 1 and the deliberations of the Batasang Pambansa whichenacted the amendatory law.

IV. REQUIREMENT OF PUBLIC BIDDING


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Finally the question is whether the ELA is subject to public bidding. In justifyingthe award of the contract to the PGMC without public bidding, the PCSO invokesE.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, nocontract for public services or for furnishing supplies, materials andequipment to the government or any of its branches, agencies orinstrumentalities 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 anemergency which may involve the loss of, or danger to, lifeand/or property:

b. Whenever the supplies are to be used in connection with aproject or activity which cannot be delayed without causingdetriment to the public service;

c. Whenever the materials are sold by an exclusive distributoror manufacturer who does not have sub-dealers selling atlower prices and for which no suitable substitute can beobtained elsewhere at more advantageous terms to thegovernment;

d. Whenever the supplies under procurement have beenunsuccessfully placed on bid for at least two consecutivetimes, either due to lack of bidders or the offers received ineach instance were exorbitant or non-conforming tospecifications:

e. In cases where it is apparent that the requisition of theneeded supplies through negotiated purchase is mostadvantageous to the government to be determined by theDepartment Head concerned; and

f. Whenever thepurchase is made from an agency of thegovernment.

Petitioners point out that while the general rule requiring public bidding covers"contract[s] for public services or forfurnishing supplies,materials and equipment" to the government or to any of itsbranches, agencies or instrumentalities, the exceptions in pars. (a), (b), (d), (e)


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and (f) refer to contracts for the furnishing of suppliesonly, while par. (c) refers tothe furnishing of materials, only. They argue that as the general rule covers thefurnishing of "supplies, materials and equipment," the reference in the exceptionsto the furnishing of "supplies" must be understood as excluding the furnishing ofany of the other items, i.e., "materials" and "equipment."

E.O. No. 301, 1 applies only to contracts for the purchase of supplies, materialsand 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 ofprivately-owned buildings or spaces for government use or of government-ownedbuildings or spaces for private use, and these provisions do not require publicbidding. These provisions state:

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 theleasing of privately-owned buildings or spaces for government use or ofgovernment-owned buildings or space for private use, shall formulateuniform standards or guidelines for determining the reasonableness of theterms of lease contracts and of the rental rates involved.

7. Jurisdiction Over Lease Contracts.The heads of agency intendingto rent privately-owned buildings or spaces for their use, or to lease outgovernment-owned buildings or spaces for private use, shall have authorityto determine the reasonableness of the terms of the lease and the rentalrates thereof, and to enter in such lease contracts without need of priorapproval by higher authorities, subject to compliance with the uniformstandards or guidelines established pursuant to Section 6 hereof by theDPWH and to the audit jurisdiction of COA or its duly authorizedrepresentative in accordance with existing rules and regulations.

It is thus difficult to see how E.O. No. 301 can be applied to the ELA when theonly feature of the ELA that may be thought of as close to a contract of purchaseand sale is the option to buy given to the PCSO. An option to buy is not of coursea contract of purchase and sale.

Even assuming that l of E.O. No. 301 applies to lease contracts, the referenceto "supplies" in the exceptions can not be strictly construed to exclude thefurnishing of "materials" and "equipment" without defeating the purpose for whichthese exceptions are made. For example, par. (a) excepts from the requirementof public bidding the furnishing of "supplies" which are "urgently needed to meetan 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


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use of heavy equipment, either by purchase or lease, no one can insist that thereshould first be a public bidding before the equipment may be purchased orleased because the heavy equipment is not a "supply" and 1 (a) is limited to thefurnishing of "supplies" that are urgently needed.

Petitioners contend that in any event the contract in question is not the "mostadvantageous to the government." Whether the making of the present ELAmeets this condition is not to be judged by a comparison, line by line, of itsprovisions 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 morefavorable to the government because the PGMC assumed many of the risks andburdens incident to the operation of the on-line lottery system, while under theELA it is freed from these burdens. That is because the old contract was a jointventure agreement. The ELA, on the on the other hand, is a lease contracts, withthe 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 ventureagreement and not a lease contract, petitioners point to contractual provisionswhereby the PGMC assumed risks and losses which might be conceivably beincurred in the operation of the lottery system, but to show that the present leaseagreement is not the most advantageous arrangement that can be obtained, thevery absence of these features of the old contract which made it a joint ventureagreement, is criticized.

Indeed the question is not whether compared with the former joint ventureagreement the present lease contract is "[more] advantageous to thegovernment." The question is whether under the circumstances, the ELA is themost advantageous contract that could be obtained compared with similar leaseagreements which the PCSO could have made with other parties. Petitionershave not shown that more favorable terms could have been obtained by thePCSO or that at any rate the ELA, which the PCSO concluded with the PGMC, isdisadvantageous to the government.

For the foregoing reasons, we hold:

(1) that petitioners have neither standing to bring this suit nor substantial interestto make them real parties in interest within the meaning of Rule 3 2;

(2) that a determination of the petitioners' right to bring this suit is not precludedor barred by the decision in the prior case between the parties;


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(3) that the Equipment Lease Agreement of January 25, 1995 is valid as a leasecontract under the Civil Code and is not contrary to the charter of the PhilippineCharity Sweepstakes Office;

(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 anon-line lottery, whether alone or in association, collaboration or joint venture withanother party, so long as it itselfholds or conducts such lottery; and

(5) That the Equipment Lease Agreement in question did not have to besubmitted to public bidding as a condition for its validity.

WHEREFORE, the Petition for Prohibition, Review and/or Injunction seeking todeclare the Equipment Lease Agreement between the Philippine CharitySweepstakes Office and the Philippine Gaming Management Corp. invalid is

DISMISSED.

SO ORDERED.

Melo, Quiason, Puno, Kapunan and Francisco, JJ., concur.

Narvasa, C.J., took no part.

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