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G.R. No.

118910

10/09/2016, 10:29 AM

Today is Saturday, September 10, 2016

Republic of the Philippines


SUPREME 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, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
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 his capacity as Chairman of the Philippine Charity Sweepstakes Office, and the
PHILIPPINE GAMING MANAGEMENT CORPORATION, respondents.

MENDOZA, J.:
As a result of our decision in G.R. No. 113375 (Kilosbayan, Incorporated v. Guingona, 232 SCRA 110 (1994))
invalidating the Contract of Lease between the Philippine Charity Sweepstakes Office (PCSO) and the Philippine
Gaming Management Corp. (PGMC) on the ground that it had been made in violation of the charter of the PCSO,
the parties entered into negotiations for 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. 1169, 6 (B))
The term of the lease is eight (8) years, commencing from the start of commercial operation of the lottery equipment
first delivered to the lessee pursuant to the agreed schedule. (Par. 3)
In the operation of the lottery, the PCSO is to employ its own personnel. (Par. 5) It is responsible for the loss of, or
damage to, the equipment arising from any cause and for the cost of their maintenance and repair. (Pars. 7-8)
Upon the expiration of the lease, the PCSO has the option to purchase the equipment for the sum of P25 million.
A copy of the ELA was submitted to the Court by the PGMC in accordance with its manifestation in the prior case.
On February 21, 1995 this suit was filed seeking to declare the ELA invalid on the ground that it is substantially the
same as the Contract of Lease nullified in the first case. Petitioners argue:
1. 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.
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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 provided in E.O. No. 301, 1 (e); (3) that the power to determine whether
the ELA is advantageous to the government is vested in the Board of Directors of the PCSO; (4) that for lack of
funds the PCSO cannot purchase its own on-line lottery equipment and has had to enter into a lease contract; (5)
that what petitioners are actually seeking in this suit is to further their moral crusade and political agenda, using the
Court as their forum.
For reasons set forth below, we hold that petitioners have no cause against respondents and therefore their petition
should be dismissed.
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 this Court had denied standing to a party who, in
questioning the validity of another form of lottery, claimed the right to sue in the capacity of taxpayer, citizen and
member of the Bar. (Valmonte v. Philippine Charity Sweepstakes, G.R. No. 78716, Sept. 22, 1987) Only recently this
Court held that members of Congress have standing to question the validity of presidential veto on the ground that,
if true, the illegality of the veto would impair their prerogatives as members of Congress. Conversely if the complaint
is not grounded on the impairment of the powers of Congress, legislators do not have standing to question the
validity of any law or official action. (Philippine Constitution Association v. Enriquez, 235 SCRA 506 (1994)).
There is an additional reason for a reexamination of the ruling on standing. The voting on petitioners' standing in the
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previous case was a narrow one, with seven (7) members sustaining petitioners' standing and six (6) denying
petitioners' right to bring the suit. The majority was thus a tenuous one that is not likely to be maintained in any
subsequent litigation. In addition, there have been changes in the membership of the Court, with the retirement of
Justices Cruz and Bidin and the appointment of the writer of this opinion and Justice Francisco. Given this fact it is
hardly tenable to insist on the maintenance of the ruling as to petitioners' standing.
Petitioners argue that inquiry into their right to bring this suit is barred by the doctrine of "law of the case." We do not
think this doctrine is applicable considering the fact that while this case is a sequel to G.R. No. 113375, it is not its
continuation. The doctrine applies only when a case is before a court a second time after a ruling by an appellate
court. Thus in People v. Pinuila, 103 Phil. 992, 999 (1958), it was stated:
"Law of the case" has been defined as the opinion delivered on a former appeal. More specifically, it means
that whatever is once irrevocably established as the controlling legal rule of decision between the same
parties in the same case continues to be the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the facts of the case before the court.
(21 C. J. S. 330)
It may be stated as a rule of general application that, where the evidence on a second or succeeding appeal
is substantially the same as that on the first or preceding appeal, all matters, questions, points, or issues
adjudicated on the prior appeal are the law of the case on all subsequent appeals and will not be considered
or readjudicated therein. (5 C. J. S. 1267)
In accordance with the general rule stated in Section 1821, where, after a definite determination, the court
has remanded the cause for further action below, it will refuse to examine question other than those arising
subsequently to such determination and remand, or other than the propriety of the compliance with its
mandate; and if the court below has proceeded in substantial conformity to the directions of the appellate
court, its action will not be questioned on a second 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 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 are mentioned in the opinion. (5 C. J. S. 1286-87).
As this Court explained in another case, "The law of the case, as applied to a former decision of an appellate court,
merely expresses the practice of the courts in refusing to reopen what has been decided. It differs from res judicata
in that the conclusiveness of the first judgment is not dependent upon its finality. The first judgment is generally, if
not universally, not final. It relates entirely to questions of law, and is confined in its operation to subsequent
proceedings in the same case. . . ." (Municipality of Daet v. Court of Appeals, 93 SCRA 503, 521 (1979)
It follows that since the present case is not the same one litigated by the parties before in G.R. No. 113375, the
ruling there cannot in any sense be regarded as "the law of this case." The parties are the same but the cases are
not.
Nor is inquiry into petitioners' right to maintain this suit foreclosed by the related doctrine of "conclusiveness of
judgment." 1 According to the doctrine, an issue actually and directly passed upon and determined in a former suit cannot
again be drawn in question in any future action between the same parties involving a different cause of action. (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 COURTS
AND THE FEDERAL SYSTEM 1058, n. 2 (3rd Ed., 1988)) Following this ruling it was held in Commissioner v.
Sunnen, 333 U.S. 591, 92 L.Ed. 898 (1947) that where a taxpayer assigned to his wife his interest in a patent in
1928 and in a suit it was determined that money paid to his wife for the years 1929-1931 under the 1928 assignment
was not part of his taxable income, this determination is not preclusive in a second action for collection of taxes on
amounts paid to his wife under another deed of assignment for other years (1937 to 1941). For income tax purposes
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what is decided with respect to one contract is not conclusive as to any other contract which was not then in issue,
however similar or identical it may be. The rule on collateral estoppel, it was held, "must be confined to situations
where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and
where the controlling facts and applicable legal rules remain unchanged." (333 U.S. at 599-600, 92 L.Ed. at 907)
Consequently, "if the relevant facts in the two cases are separate, even though they be similar or identical, collateral
estoppel does not govern the legal issues which occur in the second case. Thus the second proceeding may involve
an instrument or transaction identical with, but in a form separable from, the one dealt with in the first proceeding. In
that situation a court is free in the second proceeding to make an independent examination of the legal matters at
issue. . . ." (333 U.S. at 601, 92 L.Ed at 908)
This exception to the General Rule of Issue Preclusion is authoritatively formulated in Restatement of the Law 2d,
on Judgments, as follows:
28. Although an issue is actually litigated and determined by a valid and final judgment, and the
determination is essential to the judgment, relitigation of the issue in a subsequent action between the parties
is not precluded in the following circumstances:
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 to take account of an intervening change in the applicable legal context or
otherwise to avoid inequitable administration of the laws; . . .
Illustration:
xxx xxx xxx
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.
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
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as Instant Sweepstakes invalid because, as the Court held,


Valmonte brings the suit as a citizen, lawyer, taxpayer and father of three (3) minor children. But nowhere in
his petition does petitioner claim that his rights and privileges as a lawyer or citizen have been directly and
personally injured by the operation of the Instant Sweepstakes. The interest of the person assailing the
constitutionality of a statute must be direct and personal. He must be able to show, not only that the law is
invalid, but also that he has sustained or is in immediate danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the person
complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he
is about to be subjected to some burdens or penalties by reason of the statute complained of.
We apprehend no difference between the petitioner in Valmonte and the present petitioners. Petitioners do not in
fact show what particularized interest they have for bringing this suit. It does not detract from the high regard for
petitioners as civic leaders to say that their interest falls short of that required to maintain an action under Rule 3, 2.
It is true that the present action involves not a mere contract between private individuals but one made by a
government corporation. There is, however, no allegation that public funds are being misspent so as to make this
action a public one and justify relaxation of the requirement that an action must be prosecuted in the name of the
real party in interest. (Valmonte v. PCSO, supra; Bugnay Const. and Dev. Corp. v. Laron, 176 SCRA 240 (1989))
On the other hand, the question as to "real party in interest" is whether he is "the party who would be benefitted or
injured by the judgment, or the 'party entitled to the avails of the suit.'" (Salonga v. Warner Barnes & Co., Ltd., 88
Phil. 125, 131 (1951))
Petitioners invoke the following Principles and State Policies set forth in Art. II of the Constitution:
The maintenance of peace and order, the protection of life, liberty, and property, and the promotion of the
general welfare are essential for the enjoyment by all the people of the blessings of democracy. (5).
The natural and primary right and duty of parents in the rearing of the youth for civic efficiency and the
development of moral character shall receive the support of the Government. (12)
The State recognizes the vital role of the youth in nation-building and shall promote their physical, moral,
spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism, and
encourage their involvement in public and civic affairs. (13)
The State shall give priority to education, science and technology, arts, culture, and sports to foster patriotism
and nationalism, accelerate social progress, and promote total human liberation and development. (17)
(Memorandum for Petitioners, p. 7)
These are not, however, self executing provisions, the disregard of which can give rise to a cause of action in the
courts. They do not embody judicially enforceable constitutional rights but guidelines for legislation.
Thus, while constitutional policies are invoked, this case involves basically questions of contract law. More
specifically, the question is whether petitioners have a legal right which has been violated.
In actions for the annulment of contracts, such as this action, the real parties are those who are parties to the
agreement or are bound either principally or subsidiarily or are prejudiced in their rights with respect to one of the
contracting parties and can show the detriment which would positively result to them from the contract even though
they did not intervene in it (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 Public
Works and Communications, G.R. No.
L-13460, Nov. 28, 1958)
These are parties with "a present substantial interest, as distinguished from a mere expectancy or future,
contingent, subordinate, or consequential interest. . . . The phrase 'present substantial interest' more concretely is
meant such interest of a party in the subject matter of action as will entitle him, under the substantive law, to recover
if the evidence is sufficient, or that he has the legal title to demand and the defendant will be protected in a payment
to or recovery by him." (1 MORAN, COMMENTS ON THE RULES OF COURT 154-155 (1979)) Thus, in Gonzales v.
Hechanova, 118 Phil. 1065 (1963) petitioner's right to question the validity of a government contract for the
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importation of rice was sustained because he was a rice planter with substantial production, who had a right under
the law to sell to the government.
But petitioners do not have such present substantial interest in the ELA as would entitle them to bring this suit.
Denying to them the right to intervene will not leave without remedy any perceived illegality in the execution of
government contracts. Questions as to the nature or validity of public contracts or the necessity for a public bidding
before they may be made can be raised in an appropriate case before the Commission on Audit or before the
Ombudsman. The Constitution requires that the Ombudsman and his deputies, "as protectors of the people shall act
promptly on complaints filed in any form or manner against public officials or employees of the government, or any
subdivision, agency or instrumentality thereof including government-owned or controlled corporations." (Art. XI, 12)
In addition, the Solicitor General is authorized to bring an action for quo warranto if it should be thought that a
government corporation, like the PCSO, has offended against its corporate charter or misused its franchise. (Rule
66, 2 (a) (d))
We now turn to the merits of petitioners' claim constituting their cause of action.
II. THE EQUIPMENT LEASE AGREEMENT
This Court ruled in the previous case that the Contract of Lease, which the PCSO had entered into with the PGMC
on December 17, 1993 for the operation of an on-line lottery system, was actually a joint venture agreement or, at
the very least, a contract involving "collaboration or association" with another party and, for that reason, was void.
The Court noted the following features of the contract:
(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 the provision, which the Court considered "unusual in a lessor-lessee relationship but inherent in a joint venture,"
for the payment of the rental not at a fixed amount but at a certain percentage (4.9%) of the gross receipts from the
sale of tickets, and the possibility that "nothing may be due or demandable at all because the PGMC binds itself to
'bear all risks if the revenue from the ticket sales, on an annualized basis, are insufficient to pay the entire prize
money.'" (232 SCRA at 147)
(3) 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, 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
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commercial operation, the LESSEE shall pay such shortfall from out of the proceeds of the then
current ticket sales from LESSEE's on-line; lottery operations in the Territory (after payment first
of prizes and agents' commissions but prior to any other payments, allocations or
disbursements) until said shortfall shall have been fully settled, but without prejudice to the
payment to LESSOR of the then current bi-weekly rentals in accordance with the provisions of
the first sentence of this paragraph 2.
The PCSO now bears all losses because the operation of the system is completely in its hands. This feature of the
new contract negates any doubt that it is anything but a lease agreement.
It is contended that the rental of 4.3% is substantially the same as the 4.9% in the old contract because the
reduction is negligible especially now that the PCSO assumes all business risks and risk of loss of, or damage to,
equipment. Petitioners allege that:
PGMC's annual minimum rental is P35,000.00 per terminal or a total of P70,000,000.00 per annum
considering that there are 2,000 terminals per the amended ELA. In order to meet the amount, based on the
4.3% rental arrangement without a shortfall, the gross ticket sales must amount to at least
P1,627,906,977.00. Multiplying this amount by 4.9% we get the 4.9% rental fee fixed under the old lease
contract and the product is P79,767,442.00. Deducting from this amount the sum of P70,000,000.00
representing the annual minimum rental under the amended ELA, we get the figure of P9,767,442 which is
equivalent to the .06% difference between the rental under the old lease contract and under the amended
ELA.
This amount of P9,767,442.00 cannot possibly cover the costs, expenses and obligations shouldered by
PGMC under the old lease contract but which are now to be borne by the PCSO under the new ELA, not to
mention the additional P25 million that the PCSO has to pay the PGMC if the former exercises its option to
purchase the equipment at the end of the lease period under the amended ELA.
(Petition, p. 37)
To be sure there is nothing unusual in fixing the rental as a certain percentage of the gross receipts. The lease of
space in commercial buildings, for example, involves the payment of a certain percentage of the receipts in rental.
Under the Civil Code (Art. 1643) the only requirement is that the rental be a "price certain." Petitioners do not claim
here that the rental is not a "price certain," simply because it is expressed as a certain percentage of the total gross
amount of ticket sales.
Indeed it is not alone the fact that in the old contract the rental was expressed in terms of percentage of the net
proceeds from the sale of tickets which was held to be characteristic of a joint venture agreement. It was the fact
that, in the prior case, the PGMC assumed, in addition, all risks of loss from the operation of the lottery, with the
distinct possibility that nothing might be due it. In the view of in the Court this possibility belied claims that the PGMC
had no participation in the lottery other than being merely the lessor of equipment.
In the new contract the rental is also expressed in terms of percentage of the gross proceeds from ticket sales
because the allocation of the receipts under the charter of the PCSO is also expressed in percentage, to wit: 55% is
set aside for prizes; 30% for contribution to charity; and 15% for operating expenses and capital expenditures. (R.A.
No. 1169, 6) As the Solicitor General points out in his Comment filed in behalf of the PCSO:
In the PCSO charter, operating costs are reflected as a percentage of the net receipts (which is defined as
gross receipts less ticket printing costs which shall not exceed 2% and the 1% granted to the Commission on
Higher Education under Republic Act No. 7722). The mandate of the law is that operating costs, which
include payments for any leased equipment, cannot exceed 15% of net receipts, or 14.55% of gross receipts.
The following conclusions are, therefore evident:
a. The 4.38 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
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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
showing that it was made in grave abuse of discretion of the PCSO, this Court is not inclined to review. In this case
the rental has to be expressed in terms of percentage of the revenue of the PCSO because rentals are treated in the
charter of the agency (R.A. No. 1169, 6(C)) as "operating expenses" and the allotment for "operating expenses" is
a percentage of the net receipts.
The ELA also provides:
8. REPAIR SERVICES
LESSEE shall bear the costs of maintenance and necessary repairs, except those repairs to
correct defective workmanship or replace defective materials used in the manufacture of
Equipment discovered after delivery of the Equipment, in which case LESSOR shall bear the
costs of such repairs and, if necessary, the replacements. The LESSEE may at any time during
the term of the lease, request the LESSOR to upgrade the equipment and/or increase the
number or 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 and manage an on-line lottery."
The claim is speculative. It is just as possible to speculate that after sometime operating the lottery system the
PCSO will be able to accumulate enough capital to enable it to buy its own equipment and gain expertise. As for
expertise, after three months of operation of the on-line lottery, there appears to be no complaint that the PCSO is
relying on others, outside its own personnel, to run the system. In any case as in the construction of statutes, the
presumption is that in making contracts the government has acted in good faith. The doctrine that the possibility of
abuse is not a reason for denying power to the government holds true also in cases involving the validity of
contracts made by it.
Finally, because the term "Equipment" is defined in the ELA as including "technology, intellectual property rights,
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 is also based on speculation
rather than on fact or experience. Evidence is needed to show that the transfer of technology would involve the
PCSO and its personnel in prohibited association or collaboration with the PGMC within the contemplation of the
law.
A contract of lease, as this is defined in Civil law, may call for some form of collaboration or association between the
parties since lease is a "consensual, bilateral, onerous and commutative contract by which one person binds himself
to grant temporarily the use of a thing or the rendering of some service to another who undertakes to pay some rent,
compensation or price." (5 PADILLA, CIVIL CODE 611 (6TH Ed 1974)). The lessor of a commercial building, it may
be assumed, would be interested in the success of its tenants. But it is untenable to contend that this is what the
charter of the PCSO contemplates in prohibiting it from entering into "collaboration or association" with any party. It
may be added that even if the PCSO purchases its own equipment, it still needs the assistance of the PGMC in the
initial phase or 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
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expose the opposition to the contract to be actually an opposition to lottery under any and all circumstances. But "
[t]he morality of gambling is not a justiciable issue. Gambling is not illegal per se. . . . It is left to Congress to deal
with the activity as it sees fit." (Magtajas v. Pryce Properties Corp. Inc., 234 SCRA 255, 268 (1994). Cf. Lim v.
Pacquing, G.R. No. 115044, Jan. 27, 1995) In the case of lottery, there is no dispute that, to enable the Philippine
Charity Sweepstakes Office to raise funds for charity, Congress authorized the Philippine Charity Sweepstakes
Office (PCSO) to hold or conduct lotteries under certain conditions.
We therefore now consider whether under the charter of the PCSO any contract for the operation of an on-line
lottery system, which involves any form of collaboration or association, is prohibited.
III. THE INTERPRETATION OF 1 OF R.A. 1169
In G.R. No. 113375 it was held that the PCSO does not have the power to enter into any contract which would
involve it in any form of "collaboration, association or joint venture" for the holding of sweepstakes races, lotteries
and other similar activities. This interpretation must be reexamined especially in determining whether petitioners
have a cause of action.
We hold that the charter of the PCSO does not absolutely prohibit it from holding or conducting lottery "in
collaboration, association or joint venture" with another party. What the PCSO is prohibited from doing is to invest in
a business engaged in sweepstakes races, lotteries and similar activities, and it is prohibited from doing so whether
in "collaboration, association or joint venture" with others or "by itself." The reason for this is that these are
competing activities and the PCSO should not invest in the business of a competitor.
It will be helpful to quote the pertinent provisions of R.A. No. 1169, as amended by B.P. Blg. 42:
.1 The Philippine Charity Sweepstakes Office. The Philippine Charity Sweepstakes Office, hereinafter
designated the Office, shall be the principal government agency for raising and providing for funds for health
programs, medical assistance and services and charities of national character, and as such shall have the
general powers conferred in section thirteen of Act Numbered One Thousand Four Hundred Fifty-Nine, as
amended, and shall have the authority:
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 by the National Economic and
Development Authority.
When parsed, it will be seen that 1 grants the PCSO authority to do any of the following: (1) to hold or conduct
charity sweepstakes races, lotteries and similar activities; and/or (2) to invest whether "by itself or in
collaboration, association or joint venture with any person, association, company or entity" in any "health and
welfare-related investments, programs, projects and activities which may be profit oriented," except "the activities
mentioned in the preceding paragraph (A)," i.e., sweepstakes races, lotteries and similar activities. The PCSO is
prohibited from investing in "activities mentioned in the preceding paragraph (A)" because, as already stated, these
are competing activities.
The subject matter of 1(B) is the authority of the PCSO to invest in certain projects for profit in order to enable it to
expand 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, "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
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business of others. Put in another way, the prohibition in 1(B) is not so much against the PCSO entering into any
collaboration, association or joint venture with others as against the PCSO investing in the business of another
franchise holder which would directly compete with PCSO's own charity sweepstakes races, lotteries or similar
activities. The prohibition applies whether the PCSO makes the investment alone or with others.
The contrary construction given to 1 in the previous decision is based on remarks made by then Assemblyman,
now Mr. Justice, Davide during the deliberations on what later became B.P. Blg. 42, amending R.A. No. 1169. It
appears, however, that the remarks were made in connection with a proposal to give the PCSO the authority "to
engage in any and all investments." It was to provide exception with regard to the type of investments which the
PCSO is authorized to make that the Davide amendment was adopted. It is reasonable to suppose that the
members of the Batasan Pambansa, in approving the amendment, understood it as referring to the exception to par.
(B) of 1 giving the PCSO the power to make investments. Had it been their intention to prohibit the PCSO from
entering into any collaboration, association or joint venture with others even in instances when the sweepstakes
races, lotteries or similar activities are operated by it ("itself"), they would have made the amendment not in par. (B),
but in par (A), of 1, as the logical place for the amendment.
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 THE MINISTER OF HUMAN SETTLEMENTS,
TO ENGAGE IN HEALTH-ORIENTED INVESTMENTS, PROGRAMS, PROJECTS
AND ACTIVITIES WHICH MAY BE PROFIT-ORIENTED, BY ITSELF OR IN
COLLABORATION, ASSOCIATION, OR JOINT VENTURE WITH ANY PERSON,
ASSOCIATION, COMPANY OR ENTITY, WHETHER DOMESTIC OR FOREIGN,
FOR THE PURPOSE OF PROVIDING FOR PERMANENT AND CONTINUING
SOURCES OF FUNDS FOR HEALTH PROGRAMS, INCLUDING THE
EXPANSION OF EXISTING ONES, MEDICAL ASSISTANCE AND SERVICES
AND/OR CHARITABLE GRANTS.
I move for approval of the amendment, Mr. Speaker.
MR. DAVIDE. Mr. Speaker.
THE SPEAKER. The gentleman from Cebu is recognized.
MR. DAVIDE. May I introduce an amendment to the committee amendment? The amendment
would be to insert after "foreign" in the amendment just read the following: EXCEPT FOR THE
ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with any other entity such collaboration or joint
venture must not include activity letter (a) which is the holding and conducting of sweepstakes
races, lotteries and other similar acts.
MR. ZAMORA. We accept the amendment, Mr. Speaker.
MR. DAVIDE. Thank you, Mr. Speaker.
THE SPEAKER. Is there any objection to the amendment? (Silence) The amendment, as
amended, is approved.
MR. ZAMORA. Continuing the line, Mr. Speaker, after "charitable grants" change the period (.)
into a semi-colon (;) and add the following proviso: PROVIDED, THAT SUCH INVESTMENTS,
PROGRAMS, PROJECTS AND ACTIVITIES SHALL NOT COMPETE WITH THE PRIVATE
SECTOR IN AREAS WHERE PRIVATE INVESTMENTS ARE ADEQUATE.
May I read the whole paragraph, Mr. Speaker.

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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.
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.
IV. REQUIREMENT OF PUBLIC BIDDING
Finally the question is whether the ELA is subject to public bidding. In justifying the award of the contract to the
PGMC without public bidding, the PCSO invokes E.O. No. 301, which states in pertinent part:
1. Guidelines for Negotiated Contracts. Any provision of law, decree, executive order or other issuances to
the contrary notwithstanding, no contract for public services or for furnishing supplies, materials and
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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, materials and equipment" to the government or to any of its branches, agencies or
instrumentalities, the exceptions in pars. (a), (b), (d), (e) and (f) refer to contracts for the furnishing 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."
E.O. No. 301, 1 applies only to contracts for the purchase of supplies, materials and equipment. It does not refer to
contracts of lease of equipment like the ELA. The provisions on lease are found in 6 and 7 but they refer to the
lease of privately-owned buildings or spaces for government use or of government-owned buildings or spaces for
private use, and these provisions do not require public bidding. These provisions state:
6. Guidelines for Lease Contracts. Any provisions of law, decree, executive order or other issuances to
the contrary notwithstanding, the Department of Public Works and Highways (DPWH), with respect to the
leasing of privately-owned buildings or spaces for government use or of government-owned buildings or
space for private use, shall formulate uniform standards or guidelines for determining the reasonableness of
the terms of lease contracts and of the rental rates involved.
7. Jurisdiction Over Lease Contracts. The heads of agency intending to rent privately-owned buildings or
spaces for their use, or to lease out government-owned buildings or spaces for private use, shall have
authority to determine the reasonableness of the terms of the lease and the rental rates thereof, and to enter
in such lease contracts without need of prior approval by higher authorities, subject to compliance with the
uniform standards or guidelines established pursuant to Section 6 hereof by the DPWH and to the audit
jurisdiction of COA or its duly authorized representative in accordance with existing rules and regulations.
It is thus difficult to see how E.O. No. 301 can be applied to the ELA when the only feature of the ELA that may be
thought of as close to a contract of purchase and sale is the option to buy given to the PCSO. An option to buy is not
of course a contract of purchase and sale.
Even assuming that l of E.O. No. 301 applies to lease contracts, the reference to "supplies" in the exceptions can
not be strictly construed to exclude the furnishing of "materials" and "equipment" without defeating the purpose for
which these exceptions are made. For example, par. (a) excepts from the requirement of public bidding the
furnishing of "supplies" which are "urgently needed to meet an emergency which may involve the loss of, or danger
to, life and/or property." Should rescue operations during a calamity, such as an earthquake, require the use of
heavy equipment, either by purchase or lease, no one can insist that there should first be a public bidding before the
equipment may be purchased or leased because the heavy equipment is not a "supply" and 1 (a) is limited to the
furnishing of "supplies" that are urgently needed.
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Petitioners contend that in any event the contract in question is not the "most advantageous to the government."
Whether the making of the present ELA meets this condition is not to be judged by a comparison, line by line, of its
provisions with those of the old contract which this Court found to be in reality a joint venture agreement. In some
respects the old contract would be more favorable to the government because the PGMC assumed many of the
risks and burdens incident to the operation of the on-line lottery system, while under the ELA it is freed from these
burdens. That is because the old contract was a joint venture agreement. The ELA, on the on the other hand, is a
lease contracts, with the PCSO, as lessee, bearing solely the risks and burdens of operating the on-line lottery
system
It is paradoxical that in their effort to show that the ELA is a joint venture agreement and not a lease contract,
petitioners point to contractual provisions whereby the PGMC assumed risks and losses which might be conceivably
be incurred in the operation of the lottery system, but to show that the present lease agreement is not the most
advantageous arrangement that can be obtained, the very absence of these features of the old contract which made
it a joint venture agreement, is criticized.
Indeed the question is not whether compared with the former joint venture agreement the present lease contract is "
[more] advantageous to the government." The question is whether under the circumstances, the ELA is the most
advantageous contract that could be obtained compared with similar lease agreements which the PCSO could have
made with other parties. Petitioners have not shown that more favorable terms could have been obtained by the
PCSO or that at any rate the ELA, which the PCSO concluded with the PGMC, is disadvantageous to the
government.
For the foregoing reasons, we hold:
(1) that petitioners have neither standing to bring this suit nor substantial interest to make them real parties in
interest within the meaning of Rule 3 2;
(2) that a determination of the petitioners' right to bring this suit is not precluded or barred by the decision in the prior
case between the parties;
(3) that the Equipment Lease Agreement of January 25, 1995 is valid as a lease contract under the Civil Code and
is not contrary to the charter of the Philippine Charity Sweepstakes Office;
(4) that under 1(A) of its charter (R.A. 1169), the Philippine Charity Sweepstakes Office has authority to enter into a
contract for the holding of an
on-line lottery, whether alone or in association, collaboration or joint venture with another party, so long as it itself
holds or conducts such lottery; and
(5) That the Equipment Lease Agreement in question did not have to be submitted to public bidding as a condition
for its validity.
WHEREFORE, the Petition for Prohibition, Review and/or Injunction seeking to declare the Equipment Lease
Agreement between the Philippine Charity Sweepstakes Office and the Philippine Gaming Management Corp.
invalid is DISMISSED.
SO ORDERED.
Melo, Quiason, Puno, Kapunan and Francisco, JJ., concur.
Narvasa, C.J., took no part.

Separate Opinions

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PADILLA, J., concurring:


I join the majority in voting for the dismissal of the petition in this case.
It is the duty of the Supreme Court to apply the laws enacted by Congress and approved by the President,
(unless they are violative of the Constitution) even if such laws run counter to a Member's personal conviction
that gambling should be totally prohibited by law.
In the present case, we are confronted with Republic Act No. 1169 as amended by B.P. Blg. 42 which
expressly allows the PCSO to conduct lotteries, clearly a form of gambling.
Given the various laws allowing specific forms of gambling, only Congress and the Executive branch of
government can, at present, repeal these laws to effectively eradicate gambling, if these two (2) political
branches truly intend to embark on an honest to goodness national moral recovery and development
program.
In my separate concurring opinion in the first lotto case (G.R. No. 113375), I expressed the view that the rule
on locus standi, being merely a procedural rule, should be relaxed, as the issue then was of paramount
national interest and importance, namely, the legality of a lease contract entered into by PCSO with PGMC
whereby the former sought to operate an "on-line high-tech" lottery, undeniably a form of gambling, the terms
of which clearly pointed to an "association, collaboration or joint venture" with PGMC.
The core issue in the present case is the same as the issue in the first lotto case, i.e., the validity of a
changed agreement between PCSO and PGMC. Thus, it is my view that the principle of locus standi should
not stand in the way of a review by this Court of the validity of such changed agreement.
The specific issues in the present case were formulated by the Court during the hearing held on 3 March
1995 thus:
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 petitioner's admit in their petition that the ELA is substantially different
from the contract declared void by this Court in G.R. No. 113375. Attached to the petition in this case (Annex
"D") is a 14-page comparison between the first contract and the ELA, showing such differences. Petitioners
do not deny that the objectionable provisions in the first contract are no longer found in the ELA. In fact, as I
had stated in my opinion on the issue of whether or not to grant a temporary restraining order (TRO) in this
case, the ELA is prima facie a simple contract of lease of equipment where PCSO is bound to pay a minimum
amount as rental plus a fixed percentage of gross receipts from the sales of lottery tickets, with an option
given PCSO to purchase the leased equipment upon expiration of the lease contract.
The argument that the ELA still constitutes a prohibited "association, collaboration or joint venture" with
PGMC is, in my view, a much too strained interpretation of the law which results from a less than pragmatic
analysis of the issue.
To my mind, the question of whether or not the ELA constitutes "association, collaboration or joint venture"
between PCSO and PGMC should be tackled by looking at the nature of a contract of lease.
A lease is a contract whereby one of the parties binds himself to give to another the enjoyment or use of a
thing for a price certain and for a period which may be definite or indefinite (Article 1643, Civil Code).
It would appear from the above legal provision that the ELA is truly a straight contract of lease. That the
parties to the ELA have stipulated on flexible rentals does not render it less of a lease contract and more of a
joint venture. Surely, the PGMC as owner of the leased equipment is free to demand the amount of rentals it
deems commensurate for the use thereof and, as long as PCSO agrees to the amount of such rentals, as
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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 determination and judgment of the COA on matters which are within its
primary jurisdiction under the Constitution.
As to whether or not the ELA is grossly disadvantageous to the government, it should be stressed that the
matter involves, basically, a policy determination by the executive branch which this Court should not
ordinarily reverse or substitute with its own judgment, in keeping with the time honored doctrine of separation
of powers.
Based on the foregoing considerations, I vote to DISMISS the petition.
VITUG, J., concurring:
I most humbly reiterate the separate opinion I have made in Kilosbayan, Inc., et al., vs. Teofisto Guingona,
Sr., etc., et al. (G.R. No. 113375, promulgated on 05 May 1994).
Before a peremptory voting could be taken by the Court on the main merits of the instant case (G.R. No.
118910), the ultimate outcome of its deliberations thereon, then still in progress, remained uncertain. In the
meanwhile, it behooved, in my view, all concerned to be bound by, or at the very least to respect, the decision
in G.R. No. 113375. It was clear to me that until G.R. No. 118910 would have itself been finally resolved, the
petitioners were entitled to a temporary restraining order on the basis of the decision in G.R. No. 113375 (and
thus I then voted accordingly). The new contract entered into (now in dispute in G.R. No. 118910), compared
with the previous contract nullified in G.R. No. 113375, just as I also saw it then, was not substantially
different from, let alone significantly better than, the nullified contract.
Back to the core of the petition, however, the matter of the legal standing of petitioners in their suit assailing
the subject-contract appears to me, both under substantive law and the rules of procedure, to still be an
insuperable issue. I have gone over carefully the pleadings submitted in G.R. No. 118910, and I regret my
inability to see anything new that can convince me to depart from the view I have expressed on it in G.R. No.
113375.
In part, I also said in G.R. No. 113375: A provision which has been introduced by the 1987 Constitution is a
definition, for the first time in our fundamental law, of the term "judicial power," as such authority and duty of
courts of justice "to settle actual controversies involving rights which are legally demandable and enforceable
and to determine whether or not there has been a grave abuse of discretion, amounting to lack or excess of
jurisdiction, on the part of any branch or instrumentality of the Government" (Article VIII, Section 1,
Constitution). I take it that the provision has not been intended to unduly mutate, let alone to disregard, the
long established rules on locus standi. Neither has it been meant, I most respectfully submit, to do away with
the principle of separation of powers and its essential incidents such as by, in effect, conferring omnipotence
on, or allowing an intrusion by, the courts in respect to purely political decisions, the exercise of which is
explicitly vested elsewhere, and subordinate to that of their own the will of either the Legislative Department
or the Executive Department both co-equal, independent and coordinate branches, along with the
Judiciary, in our system of government. Again, if it were otherwise, there indeed would be truth to the charge,
in the words of some constitutionalists, that "judicial tyranny" has been institutionalized by the 1987
Constitution, an apprehension which should, I submit, rather be held far from truth and reality.
In the Commencement Address I delivered to the 1995 graduating class of the San Beda College of Law, I
broached a matter which I felt was of contemporary concern. Allow me to quote from it:
. . . The relatively recent event in our history, still too vivid to be lost, has given root to a discernible
change in our fundamental law. Reacting to the lessons we, in the recent past, have learned, well
meant safeguards have been installed. One such measure is in strengthening the judiciary,
unquestionably in order to check on further abuses of power. Thus, the Supreme has been charged
with overseeing the entire judiciary by removing this function from, heretofore traditionally with, the
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executive. It has also given authority to the highest court of the land to literally strike down any act of
either Congress or the Executive for any grave abuse of discretion. What has thus come about is a
Supreme Court that effectively wields almost absolute authority to dictate matters of grave import to the
country in politics, in business and in veritably all major decisions of the State. The Supreme Court
is manned by fifteen justices, presumably all learned in law, but can it safely be said that beyond the
usual spheres of their judicial expertise, they so also have the capability to react to all needs of
government. The tribunal's power is awesome. It may be apropos to ask: Can the Court adequately
respond at every turn with full fidelity and competence? If you would have had the time to follow up
recent pronouncements of the Court, you might have noticed that on certain occasions I have
dissented from what I have felt and still feel to be an unwise encroachment of functions that are better
left to the judgment of others who are no less experts in their respective fields than we in law. Congress
is the branch of government, composed of the representatives of the people, that lays down the
policies of government and the Executive that carries out the people's mandate. I have found it most
difficult in voting with my colleagues whenever such policies are negated merely because of what the
Court perceives to be grave abuse of discretion, clearly too relative a term to permit it to be its own
sentinel against misuse.
WHEREFORE, for the same reasons I have stated in G.R. No. 113375, I respectfully vote for the dismissal of
the instant petition.
FELICIANO, J., dissenting:
I find myself regretfully quite unable to join the majority opinion written by my distinguished brother in the
Court, Mendoza, J.
I join the penetrating dissenting opinions written by my esteemed brothers Regalado and Davide, Jr., JJ. In
respect of the matter of locus standi, I would also reiterate the concurring opinion I wrote on that subject in the
first Kilosbayan case. 1 All the factors which, to my mind, pressed for recognition of locus standi on the part of
petitioners in the first Kilosbayan case, still exist and demand, with equal weight and insistence, such recognition in
the present or second Kilosbayan case. I fear that the Court may well have occasion in the future profoundly to regret
the doctrinal ball and chain that we have today clamped on our own limbs.

In the paragraphs which follow, I seek to address three (3) major substantive points made in the majority
opinion: firstly, the new interpretation of Section 1 (B) of the PCSO charter as amended by B.P. Blg. 42;
secondly, the question of whether the "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 of PCSO does not "prohibit []
it from holding or conducting lottery in collaboration, association or joint venture with another party." That
opinion argues that "what [PCSO] is prohibited from doing is to invest in a business engaged in sweepstakes
races, lotteries and similar activities" which are "competing activities and the PCSO should not invest in the
business of the business of a competitor."
In so doing, my learned brother Mendoza, J. purports to controvert and overturn the reading that the majority
of this Court, through Mr. Justice Davide, Jr., in the first Kilosbayan case gave to the relevant provisions of the
PCSO charter. It so happens that the critical language in the relevant PCSO charter provision that is, the
"except" clause in Section 1 (B) of the PCSO charter as amended by B.P. Blg. 42 was crafted by the then
Assemblyman Hilario G. Davide, Jr. during the deliberations in the Interim Batasan Pambansa on the bill that
became B.P. Blg. 42. It is impliedly contended by the majority that the intent of an individual legislator should
not be regarded as conclusive as to the "correct" interpretation of the provision of a statute. This is true
enough, as a general proposition, for it is the intent of the legislative body as manifested in the language used
by the legislature that must be examined and applied by this Court. However, it seems to me that the view
expressed by an individual legislator who eventually comes to sit in this Court as to the meaning to be given
to words crafted by himself should, at the very least, be regarded as entitled to a strong presumption of
correctness. Put a little differently, I respectfully submit that in a situation such as that presented in this case,
a strong presumption arises that the interpretation given by Mr. Justice Davide, Jr. and approved and adopted
by the majority of the Court in the first Kilosbayan case faithfully reflected the intent of the legislative body as
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a whole. Fortunately, in the present case, it is not necessary to take the word of Mr. Justice Davide, Jr. as to
what the intent of the legislative body was in respect of Section 1 (B) of the present PCSO charter. For that
intent is clearly discernible in the very words used by the legislative body itself. I turn, therefore, to a scrutiny
of the words used by that legislative body.
In arriving at his new interpretation, Mr. Justice Mendoza engages in "parsing:"
When parsed, it will be seen that under 1, the PCSO is given authority to do any of the following: (1)
to hold or conduct charity sweepstakes races, lotteries or 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. (Emphasis 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:
1. The Philippine Charity Sweepstakes Office. The Philippine Charity Sweepstakes Office,
hereinafter designated the Office, shall be the principal government agency for raising and providing for
funds for health programs, medical assistance and services and charities of national character, and as
such shall have the general powers conferred in section thirteen of Act Numbered One Thousand Four
Hundred Fifty-Nine, as amended, and shall have the authority:
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 welfarerelated 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. (Emphasis 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 . . . ." 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 . . . health and welfare-related investments, programs,
projects and activities . . ." which, however, Mendoza, J. would read restrictively and simply as "to invest in."
To do so, one must disregard the actual language used by the statute.
It would appear that the majority thinks of "investments" essentially in terms of passive investments and
conceives of Section 1 (B) as a prohibition against PCSO investing its own funds by buying either equity or
debt instruments issued by some other company itself also authorized to engage in sweepstakes races,
lotteries or similar activities and therefore, competing with PCSO. Under this view, the prohibition is intended
to prevent PCSO from competing with itself by putting its funds in privately owned and operated enterprises
lawfully and regularly engaged in raising funds by holding and conducting sweepstakes races, lotteries or
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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 engage in the same basis 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 noncompetition 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 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) . . . .
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 refers to contracts for the lease of equipment. What the order
contains are provisions (Sections 6-7) for the lease of privately owned buildings or spaces for
government use or of government owned buildings or spaces for private use and these provisions do
not require public bidding. These provisions state . . . . 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. (Emphasis 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."

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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:
Sec. 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: . . . .
(Emphases 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. . . 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 common place 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 along side 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 which the government seeks to provide itself with
supplies or materials or equipment is in fact the most advantageous to government. It is true enough that
public bidding may be inconvenient and time consuming; but it is still the only method of procurement so far
invented by man by which the government could reasonably expect to keep relatively honest those who
would contract with it. This is the basic reason why competition through public bidding is the general rule and
not the exception. I fear that the opinion of my learned brother Justice Mendoza would, in ultimate effect,
stand this rule on its head and make public bidding the exception rather than the general rule.
III
I would address finally the question of whether or not the original contract between PCSO and PGMC which
the court in the first Kilosbayan case found to be a joint venture, has been so substantially changed as to
have been effectively converted from a joint venture arrangement to an ordinary equipment lease agreement.
The majority of the Court have concluded that the ELA has been effectively "purged" of the characteristics of
a joint venture arrangement and that it should now be regarded as lawful under the provisions of the revised
PCSO charter.
With very great respect, it is submitted that the above conclusion has been merely assumed rather than
demonstrated and that what is in fact before this Court does not adequately support such conclusion.
I begin with the nature and form of the rental provisions of the ELA. The rental payable by PCSO as lessee of
equipment and other assets owned by PGMC as lessor, is fixed at a specified percentage, 4.3% of the gross
revenues accruing to PCSO out of or in connection with the operation of such equipment and assets. The
rental payable is not, in other words, expressed in terms of a fixed and absolute figure, although a floor
amount per leased terminal is set. Instead, the actual total amount of the rental rises and falls from month to
month as the revenues grow or shrink in volume. I respectfully suggest that thereby the lessor of the facilities
leased has acquired a legal interest either in the business of the lessee PCSO that is conducted through the
operation of such facilities and equipment, or at least in the income stream of PCSO originating from such
operation. 6 In the commercial world, a rental provision cast in terms of a fixed participation in the gross revenues of
the lessee, signals substantial economic interest in the business of such lessee. Such a provision cannot be regarded
as compatible with an "ordinary" equipment rental agreement. On the other hand, it is of the very substance of a
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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 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." (Emphasis supplied)
The Solicitor General is clearly not an accountant. In the first place, the so-called "allotment for 'operating
expenses'" is in fact nothing more than a ceiling established by the statute for permissible operating
expenses. The statute commands that the PCSO not spend for its operations more than 15% of its "net
receipts." There is no law requiring PCSO to spend the maximum which it is authorized to spend. Upon the
other hand, law and regulations prohibit the PCSO from spending more than what is in fact reasonably
necessary to produce the revenues targeted by it. Thus, the assertion that the 4.3% rental rate is "well within
the maximum of 15% net receipt fixed by law" is entirely meaningless insofar as 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 of expected];" there is nothing in Section 6 (C) of the PCSO charter that
either requires or justifies the adoption of the rental provision found both in the old contract and in the ELA
giving PGMC a fixed share in gross revenues. The explanation offered by the Solicitor General is
unfortunately merely contrived; its acceptance depends on lack of familiarity with elementary accounting
concepts.
Under the original agreement between PCSO and PGMC, the latter bore the great bulk of the risks and
business burdens involved in their relationship. The consideration for PGMC carrying such business risks and
burdens was set at 4.9% of gross revenues flowing out of the lotto operations. In contrast, under the written
terms of the new contract or ELA, the bulk if not all the risks and business burdens previously borne by
PGMC have apparently been shifted to PCSO. The consideration to PGMC has been reduced from 4.9% to
4.3% of gross revenues arising out of lotto operations.
Considering the nature and number of the business risks and burdens said to be shifted under the provisions
of ELA from PGMC to PCSO, the stipulated reduction of the rental by 0.6% of gross revenues would
appear disproportionately low when appraised in terms of ordinary commercial standards and practice. The
original rental rate was reduced by 12.24% only. 7 Of course, the minimal reduction of the rental rate payable
under the ELA to PGMC would be understandable if one assumes that the business risks and burdens set out in such
detail in the old contract, and moved over to PCSO in equal detail in the new contract, are, in the first place, basically
unreal and merely cosmetic flourishes applied to the contract documentation. But one is extremely loath to make such
an assumption, not only because the record offers no basis for such an assumption, but also because it would raise
far more questions than it would settle. Moreover, the true relationship between the rental rate and the economic
burdens and risks assumed by PCSO under the ELA, will remain unexplained.

Thus, the questions which are provoked by scrutiny of the economic implications of the text of the ELA
(which, it should again be recalled, did not go through the process of public bidding) are so numerous and
consequential that it becomes very difficult to suppose that the ELA is what it purports to be. It is suggested,
with respect, that the burden of showing that the elements found by the Court in the first Kilosbayan case to
constitute the prohibited "collaboration, association or joint venture" have truly (and not simply ostensibly)
been expunged from the relationship between PCSO and PGMC rests, not on Kilosbayan nor on this Court,
but rather on PCSO and PGMC. It is respectfully submitted further that that burden has not been adequately
discharged in the present case by the simple re-arrangement of words and paragraphs of the old contract
considering that the reality of the re-arrangement is controverted by the commercial terms of the new
contract.
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One final word. The PCSO appears sincerely convinced that the legal restrictions placed upon its operations
by the actual text of Section 1 (B) of its revised charter prevent it from realizing the kinds and volume of
revenues that it needs for charitable and health and welfare-oriented programs. In this situation, the
appropriate recourse is not to make light of nor to conjure away those legal restrictions but rather to go to the
legislative authority and there ask for further amendment of its charter. In that same forum, the petitioners
may in turn ventilate their own concerns and deeply felt convictions.
For all the foregoing, I vote to grant the Petition for Certiorari.
Romero and Bellosillo, JJ., concur.
REGALADO, J., dissenting:
I am constrained to respectfully dissent from the majority opinion premised on the constitutional and
procedural doctrines posed and interpreted in tandem therein. I also regret that I have to impose on the
majority with this virtual turno en contra when I could have indicated my disaccord by just joining Mr. Justice
Davide in his commendably objective presentation of the minority position. I feel, however, that certain views
that have been advanced require a rejoinder lest they lapse into the realm of unanimous precedents.
Preliminarily, there is no need to emphasize that the morality of gambling is not a justiciable issue, and that
this Court should not rule on the wisdom of the policy thereon but only on the power of the corresponding
authorities to adopt the same. To my knowledge, the first proposition has never been of concern to or
questioned by any member of this Court throughout its hegira from the first lotto case, 1 then to the jai alai
controversy, 2 and now this so-called sequel to the lottery dispute. The second is a constitutional tenet so hoary with
age that for the majority to still belabor the same would somehow reflect unfavorably upon the dissenting members.

Upon the other hand, the Court may even be misunderstood as adopting an adjudicative pattern designed
against transparency of and inquiry into public affairs. The misperception could very well be that it is glossing
over the validity of the lottery contract by seeking refuge in the rule of locus standi, and suppressing concern
over societal mores on gambling by invoking the doctrine of non-justiciability.
Coming to the real task at hand, we have this resuscitation of the nagging question of locus standi. In the first
lotto case, the Court excepted petitioners from the traditional locus standi proscription because the issues
raised on the indiscriminate operation of a nationwide on-line lottery system are of paramount public interest
and of a category higher than those involved in former cases wherein the application of that rule was
sustained. Respect for that holding was accordingly observed and enjoined in Tatad, et al. vs. Garcia, etc., et
al. 3
That the Court acted correctly in the original case, instead of clinging to the hidebound constitutional dictum of
indeterminate vintage, has been demonstrated in the various opinions filed in the jai alai case with illustrations
of the frequent reexamination of constitutional precepts in the courts of the United States itself from which
they originated. Thus, creating exceptions to said doctrines and even rejecting the same in the interest of
justice are not unusual, and this Court has likewise done so presumably since it agrees that one ought not to
be more popish than the Pope.
Withal, the relaxation or the locus standi doctrine in the first lotto case is impugned and lamented in the
second one now at bar. Yet, with regard to the "law of the case" doctrine, during the deliberations the majority
submitted, and I am borrowing their authority therefor, that "(d)octrine is merely a rule of procedure and does
not go to the power of the court, and will not be adhered to where its application will result in an unjust
decision." 4 I feel that here the majority is thus ignoring the adage about the proverbial sauce being for both the
goose and the gander.

In the first lotto case, the minority therein rested its position entirely on procedural grounds, that is, by merely
challenging the legal standing of petitioners but without any comment on the merits of the contract in
question. Since the case at bar is in truth a reprise of the first, I had expected that this case would now be
decided purely on the merits of the putative expanded lease agreement. Indeed, to make the Court's
judgment here turn again on technical procedural grounds, by hiding within the shroud of the locus standi
mystique, does not strike me as a decisive and conclusive adjudication. While the contract involved is not of
centennial duration, its legal impact on and the social cost to the country should warrant more than an
androgynous solution.
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Be that as it may, since the majority opinion has now evolved other adjective theories which are represented
to be either different from or ramifications of the original "standing to sue" objection raised in the first lotto
case, I will hazard my own humble observations thereon.
1. There is, initially, the salvo against the adoption of the "law of the case" doctrine in the original majority
ponencia. It is contended that this doctrine requires, for its applicability, an issue involved in a case originating
from a lower court which is first resolved by an appellate court, that case being then remanded to the court of
origin for further proceedings and with the prior resolution by the higher court of that issue being the "law of
the case" in any other proceeding in or a subsequent appeal from the same case. It is insinuated that said
doctrine exists only under such a scenario.
It may be conceded that, in the context of the cited cases wherein this doctrine was applied, two "appeals" are
generally involved and the issue resolved in the first appeal cannot be reexamined in the second appeal. If
so, then what is necessarily challenged in the first recourse to the higher court is either an interlocutory order
of the court a quo elevated on an original action for certiorari or an appealable adjudication which nonetheless
did not dispose of the entire case below because it was either a special proceeding or an action admitting of
multiple appeals.
That is the present reglementary situation in the Philippines which, unfortunately, does not appear to have
been taken into account when the double-appeal procedure involved in one particular American concept was
cited as authority in the majority opinion. No attempt was made to ascertain whether in the American cases
cited the lex fori provided for identical or even substantial counterparts of our procedural remedies of review
by a higher court on either an appeal by certiorari or writ of error, or through an original action of certiorari,
prohibition or mandamus. Yet on such unverified premises, and without a showing that the situations are in
pari materia, we are told that since the case at bar does not posses the formatted sequence of an initiatory
action in a lower court, an appeal to a higher court, a remand to the lower court, and then a second appeal to
the higher court, the "law of the case" doctrine cannot apply. I have perforce to reject that submission as I
cannot indulge in the luxury of absolutes espoused by this majority view.
I fear that this majority rule, has unduly constricted the factual and procedural situations where such doctrine
may apply, through its undue insistence on the remedial procedure involved in the proceedings rather than
the juridical effect of the pronouncement of the higher court. Even in American law, the "law of the case"
doctrine was essentially designed to express the practice of courts generally to refuse to reopen what has
been decided 5 and, thereby, to emphasize the rule that the final judgment of the highest court is a final determination
of the rights of the parties. 6 That is the actual and basic role that it was conceived to play in judicial determinations,
just like the rationale for the doctrines of res judicata and conclusiveness of judgment.

Accordingly, the "law of the case" may also arise from an original holding of a higher court on a writ of
certiorari, 7 and is binding not only in subsequent appeals or proceedings in the same case, but also in a subsequent
suit between the same parties. 8 What I wish to underscore is that where, as in the instant case, the holding of this
highest Court on a specific issue was handed down in an original action for certiorari, it has the same binding effect as
it would have had if promulgated in a case on appeal. Furthermore, since in our jurisdiction is an original action for
certiorari to control and set aside a grave abuse of official discretion can be commenced in the Supreme Court itself, it
would be absurd that for its ruling therein to constitute the law of the case, there must first be a remand to a lower
court which naturally could not be the court of origin from which the postulated second appeal should be taken.

2. Obviously realizing that continued reliance on the locus standi bar to petitioner's suit is not an ironclad
guaranty against it, the majority position has taken a different tack. It now invokes the concept of and the rules
on a right of action in ordinary civil actions and, prescinding from its previous position, insists that what is
supposedly determinative of the issue of representation is contract law and not constitutional law. On the
predicate that petitioners are not parties to the contract, primarily or subsidiarily, they then are not real parties
in interest, and for lack of cause of action on their part they have no right of action. Ergo, they cannot maintain
the present petition.
As a matter of a conventional rule of procedure, the syllogism of the majority can claim the merit of logic but,
even so, only on assumed premises. More importantly, however, the blemish in its new blueprint is that the
defense of lack of a right of action is effectively the same as lack of locus standi, that is, the absence of the
remedial right to sue. As the commentators of Castille would say, the objection under the new terminology is
"lo mismo perro con distino collar." That re-christened ground, as we shall later see, has already been
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foreclosed by the judgment of the Court in the first lotto case.


It is true that a right of action is the right or standing to enforce a cause of action. For its purposes, the
majority urges the adoption of the standard concept of a real party in interest based on his possession of a
cause of action. It could not have failed to perceive, but nonetheless refuses to concede, that the concept of a
cause of action in public interest cases should not be straitjacketed within its usual narrow confines in private
interest litigations.
Thus, adverting again to American jurisprudence, there is the caveat that "the adoption of a provision
requiring that an action be prosecuted in the name of the real party in interest does not solve all questions as
to the proper person or persons to institute suit, although it obviously simplifies procedures in actions at law. .
. . There is no clearly defined rule by which one may determine who is or is not the real party in interest, nor
has there been found any concise definition of the term. Who is the real party in interest depends on the
peculiar facts of each separate case, and one may be a party in interest and yet not be the sole real party in
interest." 9 (Emphasis supplied.)
The majority opinion quotes the view of a foreign author but unfortunately fails to put the proper emphasis on
the portion thereof which I believe should be that which should correctly be stressed, and which I
correspondingly reproduce:
It is important to note . . . that standing because of its constitutional and public policy underpinnings, is
very different from questions relating to whether a particular plaintiff is the real party in interest or has
the capacity to sue. Although all three requirements are directed towards ensuring that only certain
parties can maintain an action, standing restrictions require a partial consideration of the merits, as well
as of broader policy concerns relating to the proper role of the judiciary in certain areas. 10
Indeed, if the majority would have its way in this case, there would be no available judicial remedy against
irregularities or excesses in government contracts for lack of a party with legal standing or capacity to sue.
This legal dilemma or vacuum is supposedly remediable under a suggestion submitted in the majority opinion,
to wit:
Denial to petitioners of the right to intervene will not leave without remedy any perceived illegality in the
execution of government contracts. Questions as to the nature or validity of public contracts or the
necessity for a public bidding before they may be made can be raised in an appropriate complaint
before the Commission on Audit or before the Ombudsman . . . . In addition, the Solicitor General is
authorized to bring an action for quo warranto if it should be thought that a government corporation . . .
has offended against its corporate charter or misused its franchise. . . . .
The majority has apparently forgotten its own argument that in the present case petitioners are not the real
parties, hence they cannot avial of any remedial right to file a complaint or suit. It is, therefore, highly
improbable that the Commission on Audit would deign to deal with those whom the majority says are
strangers to the contract. Again, should this Court now sustain the assailed contract, of what avail would be
the suggested recourse to the Ombudsman? Finally, it is a perplexing suggestion that petitioners ask the
Solicitor General to bring a quo warranto suit, either in propria persona or ex relatione, not only because one
has to contend with that official's own views or personal interests but because he is himself the counsel for
respondents in this case. Any proposed remedy must take into account not only the legalities in the case but
also the realities of life.
3. The majority believes that in view of the retirement and replacement of two members of the Court, it is time
to reexamine the ruling in the first lotto case. A previous judgment of the Court may, of course, be revisited but
if the ostensible basis is the change or membership and known positions of the new members anent an issue
pending in a case in the Court, it may not sit well with the public as a judicious policy. This would be similar to
the situation where a judgment promulgated by the Court is held up by a motion for reconsideration and which
motion, just because the present Rules do not provide a time limit for the resolution thereof, stays unresolved
until the appointment of members sympathetic thereto. Thus, the unkind criticisms of "magistrate shopping" or
"court packing" levelled by disgruntled litigants is not unknown to this Court.
I hold the view that the matter of the right of petitioners to file and maintain this action whether the
objection thereto is premised on lack of locus standi or right of action has already been foreclosed by our
judgment in the first lotto case, G.R. No. 113375. If the majority refuses to recognize such right under the "law
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of the case'' principle, I see no reason why that particular issue can still be ventilated now as a survivor of the
doctrinal effects or res judicata. 11
It is undeniable that in that case and the one at bar, there is identity of parties, subject matter and cause of
action. Evidently, the judgment in G.R. No. 113375 was rendered by a court of competent jurisdiction, it was
an adjudication on the merits, and has long become final and executory. There is, to be sure, an attempt to
show that the subject matter in the first action is different from that in the instant case, since the former was
the original contract and the latter is the supposed expanded contract. I am not persuaded by the proferred
distinction.
The removal and replacement of some objectionable terms of a contract, which nevertheless continues to
operate under the same basis, with and on the same property, for the same purpose and through the same
contracting parties does not suffice to extinguish the identity of the subject matter in both cases. This would
be to exalt form over substance. Furthermore, respondents themselves admitted that the new contract is
actually the same as the original one, with just some variants in the terms of the latter to eliminate those
which were objected to. The contrary assumption now being floated by respondents would create chaos in
our remedial and contractual laws, open the door to fraud, and subvert the rules on the finality of judgments.
Yet, even assuming purely ex hypothesi that the amended terms in the expanded lease agreement created a
discrete set of litigable violations of the statutory charter of the Philippine Charity Sweepstakes Office, thereby
collectively resulting in a disparate actionable wrong of delict, that would merely constitute at most a
difference in the causes of action in the former and the present case. Under Section 49(c), Rule 39 of the
Rules of Court, we would still have a situation of collateral estoppel, better known in this jurisdiction as
conclusiveness of judgment. Hence, all relevant issues finally adjudged in the prior judgment shall be
conclusive between the parties in the case now before us, and that definitely includes at the very least the
adjudgment therein that petitioners have the locus standi or the right to sue respondents on the contracts
concerned.
In either case, whether of res judicata, on which I insist, or of conclusiveness of judgment, which I assume
arguendo what is now being primarily resisted is the right of petitioners to sue, aside from the postulated
invalidity of the contract for the government-sponsored lottery system. It does seem odd, if not arcane, that
petitioners were held to have the requisites locus standi or right of action in said G.R. No. 113375 and, for that
matter, were likewise so recognized in the expanded value added tax (EVAT) case, 12 but are now mysteriously
divested of that "place of standing" allegedly due to, for legal purposes, a compelling need for reexamination of the
doctrine, and, for economic reasons, an obsession for autarky of the nation.

4. I repeat what I said at the outset that this case should be decided on the merits and on substantive
considerations, not on dubious technicalities intended to prevent an inquiry into the validity of the supposed
amended lease contract. The people are entitled to the benefit of a duly clarified and translucent transaction,
just as respondents deserve the opportunity, and should even by themselves primarily seek, to be cleansed of
any suspicions or lingering doubts arising from the fact that the sponsors for jai alai and, now, of lotto are
different.
On the merits, to obviate unnecessary replication I reiterate my concurrence with the findings and conclusions
of Mr. Justice Davide in his dissenting opinion, the presentation whereof is completely devoid of strained or
speculative premises, and moreover has the virtue of being based on his first-hand knowledge as a legislator
of the very provisions of the law now in dispute. In this instance and absent any other operative data, I find
the same to be an amply sufficient and highly meritorious analysis of the controversy on the contract.
One concluding point. I am not impressed by the stance of the majority that our taking cognizance of this case
and resolving it on the merits will hereafter invite others to unduly overburden this Court with avoidable
importunities. This sounds like a tongue-in-cheek riposte since the Court has clearly indicated that it sets
aside objections grounded on judge-made constitutional theories only under cogent reasons of substantial
justice and paramount public interest.
On the contrary, to pay unqualified obeisance to the beguiling locus standi or right of action doctrines posited
by the majority in this case would not only be an abdication of a clear judicial duty. It could conceivably result
in depriving the people of recourse to us from dubious government contracts through constitutionally outdated
or procedurally insipid theories for such stultification. This is a contingency which is not only possible, but
probable under our oligarchic society in esse; and not only undesirable, but repugnant within a just regime of
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law still in posse.


Romero, J., concurs.
DAVIDE, JR., J., dissenting:
I register a dissenting vote.
I
I am disturbed by the sudden reversal of our rulings in Kilosbayan, Inc., et al. vs. Guingona, et al. 1 (hereinafter
referred to as the first lotto case) regarding the application or interpretation of the exception clause in paragraph B,
Section 1 of the Charter of the PCSO (R.A.. No. 1169), as amended by B.P. Blg. 442, and on the issue of locus standi
of the petitioners to question the contract of lease involving the on-line lottery system entered into between the
Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation (PGMC). Such
reversal upsets the salutary doctrines of the law of the case, res judicata, and stare decisis. It puts to jeopardy the
faith and confidence of the people, specially the lawyers and litigants, in the certainty and stability of the
pronouncements of this Court. It opens the floodgates to endless litigations for re-examination of such
pronouncements and weakens this Court's judicial and moral authority to demand from lower courts obedience thereto
and to impose sanctions for their opposite conduct.

It must be noted that the decision in the first lotto case was unconditionally accepted by the PCSO and the
PGMC, as can be gleaned from their separate manifestations that they would not ask for its reconsideration
but would, instead, negotiate a new equipment lease agreement consistent with the decision and the PCSO's
charter and that they would furnish the Court a copy of the new agreement. The decision has, thus, become
final on 23 May 1994. 2
As the writer of the said decision and as the author of the exception to paragraph B, Section 1 of R.A. No.
1169, as amended, I cannot accept the strained and tenuous arguments adduced in the majority opinion to
justify the reversal of our rulings in the first lotto case. While there are exceptions to the aforementioned
doctrines and I am not inexorably opposed to upsetting prior decisions if warranted by overwhelming
considerations of justice and irresistible desire to rectify an error, none of such considerations and nothing of
substance or weight can bring this case within any of the exceptions.
In the said case, we sustained the locus standi of the petitioners, and in no uncertain terms declared:
We find the instant petition to be of transcendental importance to the public. The issues it raised are of
paramount public interest and of a category even higher than those involved in many of the aforecited
cases. The ramifications of such issues immeasurably affect the social, economic, and moral wellbeing of the people even in the remotest barangays of the country and the counter-productive and
retrogressive effects of the envisioned on-line lottery system are as staggering as the billions of pesos
its is expected to raise. The legal standing then of the petitioners deserves recognition and, in the
exercise of its sound discretions, this Court hereby brushes aside the procedural barrier which the
respondents tried to take advantage of.
In his concurring opinion, Mr. Justice Florentino P. Feliciano further showed substantive grounds or
considerations of importance which strengthened the legal standing of the petitioner to bring and maintain the
action, namely: (a) the public character of the funds or other assets involved in the contract of lease; (b) the
presence of a clear case of disregard of a constitutional or legal provision by the public respondent agency;
(c) the lack of any other party with a more direct and specific interest in raising the questions involved therein;
and (d) the wide range of impact of the contract of lease and of its implementation.
Only last 6 April 1995, in the decision in Tatad vs. Garcia, 3 this Court, speaking through Mr. Justice Camilo D.
Quiason who had joined in the dissenting opinions in the first lotto case denying the petitioners' locus standi therein,
invoked and applied the ruling on locus standi in the first lotto case. He stated:

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by
the national government or government-owned or controlled corporations allegedly in contravention of
the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only
municipal contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176
SCRA 240 [1989]).
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For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow
it and uphold the legal standing of petitioners as taxpayers to institute the present action.
Mr. Justice Santiago M. Kapunan, who had also dissented in the first lotto case on the issue of locus standi;
unqualifiedly concurred with the majority opinion in Tatad. Mr. Justice Vicente V. Mendoza, the writer of the
ponencia in this case, also invoked the locus standi ruling in the first lotto case to deny legal standing to
Tatad, et al. He said:
Nor do petitioners have standing to bring this suit as citizens. In the cases in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners by
invalidating the challenged statutes or governmental actions. Thus in the Lotto case [Kilosbayan, Inc.
vs. Guingona, 232 SCRA 110 (1994)] relied upon by the majority for upholding petitioner's standing,
this Court took into account the "paramount public interest" involved which "immeasurably affect[ed] the
social, economic, and moral well-being of the people. . . and the counter-productive and retrogressive
effects of the envisioned on-line lottery system." Accordingly, the Court invalidated the contract for the
operation of the lottery.
Chief Justice Andres R. Narvasa and Associate Justices Abdulwahid A. Bidin, Jose A. R. Melo, Reynato S.
Puno, Jose C. Vitug, and Ricardo J. Francisco, joined him in his concurring opinion. Except for the Chief
Justice who took no part in the first lotto case and Justice Francisco who was not yet a member of this Court
at the time, the rest of the Justices who joined the concurring opinion of Justice Mendoza had dissented in the
first lotto case on the said issue.
Furthermore, it must not be forgotten that this Court has defined the issues in this case and limited them to
the following:
1. Whether the challenged ELA constitutes an association, collaboration, or joint venture within the
meaning of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42;
2. Whether the ELA requires prior public bidding; and
3. Whether the ELA is grossly disadvantageous to the Government.
In fact, during the oral arguments of this case on 3 March 1993 this Court aborted the attempt of the principal
counsel for the PGMC, Atty. Renato Cayetano, to revive the issue of locus standi. Since it seemed that he
had prepared himself for and had been assigned to discuss that issue alone, he took his seat without protest
and without a suggestion that he would ask for an expansion of the scope of the issues.
In the first lotto case, this Court also emphatically ruled that the language of Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, is
indisputably clear that with respect to its [PCSO's] franchise or privilege "to hold and conduct charity
sweepstakes races, lotteries and other similar activities," the PCSO cannot exercise it "in collaboration,
association or joint venture" with any other party. This is the unequivocal meaning and import of the
phrase "except for the activities mentioned in the preceding paragraph (A)," namely, "charity
sweepstakes races, lotteries and other similar activities."
In support thereof, we explained how the amendment came about and quoted portions of the Record of the
Batasan 4 on the proceedings during the period of amendments to show the unequivocal intent of the Interim
Batasang Pambansa to proscribe the holding or conducting by the PCSO of sweepstakes races, lotteries, and other
similar activities, "in collaboration, association, or joint venture with any person, association, company, or entity,
whether domestic or foreign." For convenience, I quote what this Court stated in the said case:

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by Committee Report No.
103 as reported out by the Committee on Socio-Economic Planning and Development of the Interim
Batasang Pambansa. The original text of paragraph B, Section 1 of Parliamentary Bill No. 622 reads as
follows:
To engage in any and all investments and related profit-oriented projects or programs and
activities by itself or in collaboration, association or joint venture with any person,
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association, company or entity, whether domestic or foreign, for the main purpose of
raising funds for health and medical assistance and services and charitable grants.
[Record of the Batasan, vol. Two, 993]
During the period of committee amendments, the Committee on Socio-Economic Planning and
Development, through Assemblyman Ronaldo B. Zamora, introduced an amendment by substitution to
the said paragraph B such that, as amended, it should read as follows:
Subject to the approval of the Minister of Human Settlements, to engage in health-oriented
investments, programs, projects and activities which may be profit-oriented, by itself or in
collaboration, association, or joint venture with any person, association, company or entity,
whether domestic or foreign, for the purpose of providing for permanent and continuing
sources of funds for health programs, including the expansion of existing ones, medical
assistance and services and/or charitable grants. [Id., 1006-1007].
Before the motion of Assemblyman Zamora for the approval of the amendment could be acted upon,
Assemblyman Davide introduced an amendment to the amendment:
MR. DAVIDE:
Mr. Speaker.
THE SPEAKER:
The gentleman from Cebu is recognized.
MR. DAVIDE:
May I introduce an amendment to the committee amendment? The
amendment would be to insert after "foreign" in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with an 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. [Id., 1007, emphasis supplied]
Further amendments to paragraph B were introduced and approved. When Assemblyman Zamora read
the final text of paragraph B as further amended, the earlier approved amendment of Assemblyman
Davide became "EXCEPT FOR THE ACTIVITIES MENTIONED IN PARAGRAPH (A)"; and by virtue of
the amendment introduced by Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted
before PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter, the new
Paragraph B was approved. [Id.] This is now paragraph B, Section 1 of R.A. No. 1169, as amended by
B.P. Blg. 42. 5
This Court further explained the rationale for the prohibition as follows:
No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the
privilege to hold or conduct charity sweepstakes races, lotteries, or other similar activities is a franchise
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granted by the legislature to the PCSO. It is a settled rule that "in all grants by the government to
individuals or corporations of rights, privileges and franchises, the words are to be taken most strongly
against the grantee . . . [o]ne who claims a franchise or privilege in derogation of the common rights of
the public must prove his title thereto by a grant which is clearly and definitely expressed, and he
cannot enlarge it by equivocal or doubtful provisions or by probable inferences. Whatever is not
unequivocally granted is withheld. Nothing passes by mere implication." [36 Am Jur 2d Franchises 26
(1968)].
In short then, by the exception explicitly made in paragraph B, Section 1 of its charter, the PCSO
cannot share its franchise with another by way of collaboration, association or joint venture. Neither can
it assign, transfer, or lease such franchise. It has been said that "the rights and privileges conferred
under a franchise may, without doubt, be assigned or transferred when the grant is to the grantee and
assigns, or is authorized by statute. On the other hand, the right of transfer or assignment may be
restricted by statute or the constitution, or be made subject to the approval of the grantor or a
governmental agency, such as a public utilities commission, except that an existing right of assignment
cannot be impaired by subsequent legislation. [Id., 63].
It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it
to hold and conduct a species of gambling. It is settled that "a statute which authorizes the carrying on
of a gambling activity or business should be strictly construed and every reasonable doubt so resolved
as to limit the powers and rights claimed under its authority. (38 Am Jur 2d Gambling 18 [1968]). 6
The PCSO and the PGMC never challenged our application or interpretation of the exception clause and our
definitions of the terms collaboration, association, and joint venture. On the contrary, they unconditionally
accepted the same by not asking for the reconsideration of our decision in the first lotto case.
Under the principle of either the law of the case or res judicata, the PCSO and the PGMC are bound by the
ruling in the first lotto case on the locus standi of the petitioners and the application or interpretation of the
exception clause in paragraph B, Section 1 of R.A. No. 1169, as amended. Moreover, that application or
interpretation has been laid to rest under the doctrine of stare decisis and has also become part of our legal
system pursuant to Article 8 of the Civil Code which provides: "Judicial decisions applying or interpreting the
laws or the constitution shall form part of the legal system of the Philippines."
These doctrines were not adopted whimsically or capriciously. They are based on public policy and other
considerations of great importance and should not be discarded or jettisoned in a cavalier fashion. Yet, they
are now put to naught in this case.
The principle of the law of the case "is necessary as a matter of policy to end litigation. There would be no
end to a suit if every obstinate litigant could, by repeated appeals, compel a court to listen to criticisms on
their opinions, or speculate on chances from changes in its members." 7
It is, however, contended that the law of the case is inapplicable because that doctrine applies only when a
case is before an appellate court a second time after its remand to a lower court. While indeed the statement
may be correct, it disregards the fact that this case is nothing but a sequel to and is, therefore, for all intents
and purposes, a continuation of the first lotto case. By their conduct, the parties admitted that it is, for which
reason the PGMC and the PCSO submitted in the first lotto case a copy of the ELA in question, and the
petitioners commenced the instant petition also in the said case. Our resolution that the validity of the ELA
could not be decided in the said case because the decision therein had become final does not detract from
the fact that this case is but a continuation of the first lotto case or a new chapter in the raging controversy
between the petitioners, on the one hand, and the PCSO and the PGMC, on the other, on the operation of the
on-line lottery system.
Equally unacceptable is the majority opinion's rejection of the related doctrine of conclusiveness of judgment
on the ground that the question of standing is a legal question, as this case in involves a different or unrelated
contract. The legal question of locus standi which was resolved in favor of the petitioners in the first lotto case
is the same in this case and in every subsequent case which would involve contracts relating or incidental to
the conduct or holding of lotteries by the PCSO in collaboration, association, or joint venture with any person,
association, company, or entity. And, the contract in question is not different from or unrelated to the first
nullified contract, for it is nothing but a substitute for the latter. Respondent Morato was even candid enough
to admit that no new and separate public bidding was conducted for the ELA in question because the PCSO
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was of the belief that the public bidding for the nullified contract was sufficient.
Its reliance on the ruling in Montana vs. United States 8 that preclusion of issues or collateral estoppel does not
apply to issues of law, at least when substantially unrelated claims are involved, is misplaced. For one thing, the
question of the petitioners' legal standing in the first lotto case and in this case is one and the same issue of law. For
another, these cases involve the same and not substantially unrelated subject matter, viz., the second contract
between the PCSO and the PGMC on the operation of the on-line lottery system.

The majority opinion likewise failed to consider that in the very authority it cited regarding the exception to the
rule of issue preclusion (Restatement of the Law, 2d Judgments 28), the second illustration stated therein is
subject to this NOTE: "The doctrine of the stare decisis may lead the court to refuse to reconsider the
question of sovereign immunity," which simply means that stare decisis is an effective bar to a re-examination
of a prior judgment.
The doctrine of stare decisis embodies the legal maxim that a principle or rule of law which has been
established by the decision of a court of controlling jurisdiction will be followed in other cases involving a
similar situation. It is founded on the necessity for securing certainty and stability in the law and does not
require identity or privity of parties. 9 This is explicitly fleshed out in Article 8 of the Civil Code which provides that
decisions applying or interpreting the laws or the constitution shall form part of the legal system. Such decisions
"assume the same authority as the statute itself and, until authoritatively abandoned, necessarily become, to the
extent that they are applicable, the criteria which must control the actuations not only of those called upon to abide
thereby but also of those in duty bound to enforce obedience thereto." 10 Abandonment thereof must be based only
on strong and compelling reasons which I do not find in this case otherwise, the becoming virtue of predictability
which is expected from this Court would be immeasurably affected and the public's confidence in the stability of its
solemn pronouncements diminished.

The doctrine of res judicata also bars a relitigation of the issue of locus standi and a re-examination of the
application or interpretation of the exception clause in paragraph B, Section 1 of R.A. No. 1169, as amended.
Section 49 (b), Rule 39 of the Rules of Court on effects of judgment expressly provides:
(b) In all other cases the judgment or order is, with respect to the matter directly adjudged or as to other
matter that could have been raised in relation thereto, conclusive between the parties and their
successors in interest by title subsequent to the commencement of the action or special proceedings,
litigating for the same thing in the same title and in the same capacity.
This doctrine has dual aspects: (1) as a bar to the prosecution of a second action upon the same claim,
demand, or cause of action; and (2) as preclusion to the relitigation of particular facts or issues in another
action between the same parties on a different claim or cause of action. 11 Public policy, judicial orderliness,
economy of judicial time, and the interest of litigants as well as the peace and order of society, all require that stability
should be accorded judgments; that controversies once decided on their merits shall remain in repose; that
inconsistent judicial decisions shall not be made on the same set of facts; and that there be an end to litigation which,
without the said doctrine, would be endless. It not only puts an end to strife, but recognizes that certainty in legal
relations must be maintained. It produces certainty as to individual rights and gives dignity and respect to judicial
proceedings. 12

The justifications given in the majority opinion to underrate the ruling on locus standi and to ultimately discard
it are unconvincing. It is not at all true, as the majority opinion contends, that "[t]he previous ruling sustaining
petitioners' intervention may in fact be considered a departure from settled rulings on 'real party in interest'
because no constitutional issues were actually involved."
It must be pointed out that the rule in ordinary civil procedure on real party in interest was never put in issue in
the previous case. It was the clear understanding of the Members of the Court that in the light of the issues
raised and the arguments adduced therein, only locus standi deserved consideration. Accordingly, the
majority opinion and the separate dissenting opinions therein dwelt lengthily on locus standi and brought in
the process a vast array of authorities on the issue. Moreover, as explicitly stressed in the concurring opinion
of Justice Feliciano, both constitutional and legal issues were involved therein. Finally, as shall hereafter be
discussed, in public law the rule of real party in interest is subordinated to the doctrine of locus standi.
Equally unconvincing is the majority opinion's contention that the ruling on locus standi in the first lotto case
may not be preserved because the majority vote sustaining the petitioners' standing was a "tenuous one" that
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may not be maintained in a subsequent litigation, and that there had been changes in the membership of the
Court due to the retirement of Justices Isagani A. Cruz and Abdulwahid A. Bidin and the appointment of
Justices Vicente V. Mendoza and Ricardo J. Francisco. It has forgotten that, as earlier stated, the ruling was
reiterated in Tatad vs. Garcia. Additionally, when in his concurring opinion in the Tatad case, Justice Mendoza
denied locus standi to Tatad, et al., because their case did not have the same importance as the first lotto
case, he thereby accepted the concession of standing to the petitioners in the lotto case. I wish to stress the
fact that all the Justices who had dissented in the first lotto case on the issue of locus standi were either for
the majority opinion or for the concurring opinion in the Tatad case. Hence, I can say that the Tatad case has
given vigor and strength to the "tenuous" majority in the first lotto case.
The majority opinion declares that the real issue in this case is not whether the petitioners have locus standi
but whether they are the real parties-in-interest. This proposition is a bold move to set up a bar to taxpayer's
suits or cases invested with public interest by requiring strict compliance with the rule on real party in interest
in ordinary civil actions, thereby effectively subordinating to that rule the doctrine of locus standi. I am not
prepared to be a party to that proposition.
First. Friedenthal; et al., whose book is cited in the majority opinion in its discussion of the rule on real party in
interest and the doctrine of locus standi, admit that there is a difference between the two, and that the former
is not strictly applicable in public law cases, thus:
The evolution of standing doctrine seems to point to greater freedom of action for plaintiffs. However,
the courts still have not articulated how the balance is to be struck between the relevant and often
competing interests: the plaintiff's right to relief and the legislature's right to carry out its policies without
judicial interference. Nor has the judiciary's competence to rule on these interests have analyzed
systematically or its limits defined. Courts essentially continue to be free to reconcile these competing
values on an ad hoc basis.
It is important to note, however, that standing, because of its constitutional and public policy
underpinnings, is very different from questions relating to whether a particular plaintiff is the real party
in interest or has capacity to sue. Although all three requirements are directed toward ensuring that
only certain parties can maintain an action, standing restrictions require a partial consideration of the
merits, as well as of broader policy concerns relating to the proper role of the judiciary in certain areas.
13

In an earlier book, 14 the same Friedenthal and Miller, with, John J. Cound as the lead author, expounded that in the
realm of public law, the real party in interest rule is not applicable, thus:

A third problem of proper parties occurs in the realm of public law. When governmental action is
attacked on the ground that it violates private rights or some constitutional principle, the courts have
tended to analyze the question whether the challenger is a proper party plaintiff to assert the claim in
terms of the judge-made doctrine of standing to sue requiring that plaintiff be adversely affected by
defendant's conduct rather than according to real-party-in-interest or capacity principles. See Davis,
Standing: Taxpayers and Others, 35 U. Chi. L. Rev. 601 (1968); Jaffee, The Citizen as a Litigant in
Public Actions: The Non-Hohfeldian or Ideological Plaintiff, 116 U. Pa. L. Rev. 1033 (1968); and Jaffee,
Standing Again, 84 Harv. L. Rev. 633 (1971). To the extent that standing is understood to mean that the
litigant actually must be injured by the governmental action that is being assailed, it closely resembles
the notion of real party in interest under Rule 17(a). However, several other elements of the standing
doctrine clearly are unrelated to the simple real-party-in-interest test. One significant context in which
the two concepts diverge is when for standing purposes plaintiff is required to show both that he has
been adversely affected by the governmental conduct that is under attack and has suffered an injury to
a legally protected right. When standing is defined in this fashion it may entail a preliminary
consideration of the merits of the case and therefore is quite different from the real-party-in-interest
notion. (emphasis supplied).
The downgrading of locus standi and its subordination to the restrictive rule on real party in interest cannot be
justified by the claim that what is involved here is contract law, not constitutional law. True, contract law is
involved. We are not, however, dealing here with an ordinary contract between private parties, but a contract
between a corporation wholly owned by the government hence, an instrumentality of the government
and a private corporation for the conduct of the lotto, which is invested with paramount and transcendental
public interest and other public policy considerations because the lotto has counter-productive and
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retrogressive effects which are as staggering as the billions of pesos it is expected to raise and provokes
issues that immeasurably affect the social, economic, and moral well-being of the people. We said so in the
first lotto case.
Second. The attempt to use the real-party-in-interest rule is to resurrect the abandoned restrictive application
of locus standi. This Court, speaking through the constitutionalist nonpareil, Justice and later Chief Justice
Enrique Fernando, has already declared in Tan vs. Macapagal 15 that as far as a taxpayer's suit is concerned,
this Court is not devoid of discretion as to whether or not it should be entertained. In his concurring opinion in Aquino
vs. Commission on Elections, 16 he said:

Then there is the attack on the standing of petitioners, as vindicating at most what they consider a
public right and not protecting their rights as individuals. [Respondents' Comment, 5]. This is to conjure
the specter of the public right dogma as an inhibition to parties intent on keeping public officials staying
on the path of constitutionalism. As was so well put by Jaffe [Standing to Secure Judicial Review, 74
Harvard Law Review, 1265 (1961)]: "The protection of private rights is an essential constituent of public
interest and, conversely, without a well-ordered state there could be no enforcement of private rights.
Private and public interests are, both in a substantive and procedural sense, aspects of the totality of
the legal order." [Ibid., 1266. Cf. Berger, Standing to Sue in Public Actions, 78 Yale Law Journal 816
(1969)]. Moreover, petitioners have convincingly shown that in their capacity as taxpayers, their
standing to sue has been amply demonstrated. There would be a retreat from the liberal approach
followed in Pascual v. Secretary of Public Works [110 Phil. 331 (1960)], foreshadowed by the very
decision of People v. Vera [65 Phil. 56 (1937)] where the doctrine was first fully discussed, if we act
differently now. I do not think we are prepared to take that step. Respondents, however, would hark
back to the American Supreme Court doctrine in Mellon v. Frothingham [262 US 447 (1923)], with their
claim that what petitioners possess "is an interest which is shared in common by other people and is
comparatively so minute and indeterminate as to afford any basis and assurance that the judicial
process can act on it." [Respondents' Comment, 5]. That is to speak in the language of a bygone era,
even in the United States. For as Chief Justice Warren clearly pointed out in the later case of Flast v.
Cohen [391 US 83 [1968)], the barrier thus set up if not breached has definitely been lowered. [Ibid.,
92-95]. The weakness of these particular defenses is thus quite apparent. [Cf. Tan v. Macapagal, 43
SCRA 677].
Third. Such attempt directly or indirectly restricts the exercise of the judicial authority of this Court in an
original action and there had been many in the past to determine whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
the Government. Only a very limited few may qualify, under the real-party-in-interest rule, to bring actions to
question acts or contracts tainted with such vice. Where, because of fear of reprisal, undue pressure, or even
connivance with the parties benefited by the contracts or transactions, the so-called real party in interest
chooses not to sue, the patently unconstitutional and illegal contracts or transactions will be placed beyond
the scrutiny of this Court, to the irreparable damage of the Government, and prejudice to public interest and
the general welfare.
By way of illustration, the first lotto contracts would not have reached this Court if only the so-called real party
in interest could bring an action to nullify it. Neither would the ELA in question, since for reasons only known
to them, none of those who had lost in the bidding for the first lotto contract showed interest to challenge it.
The majority opinion posits that a denial to the petitioners of the right to intervene will not leave without
remedy any perceived illegality in the contract because:
[q]uestions as to the nature or validity of public contracts of the necessity for a public bidding before
they may be made can be raised in an appropriate case before the Commission on Audit of before the
Ombudsman. . . . In addition, the Solicitor General is authorized to bring an action for quo warranto if it
should be thought that a government corporation, like the PCSO, has offended against its corporate
charter or misused its franchise.
That proposition delivers the coup de grace to taxpayers' suits, discourages involvement of citizens in public
affairs, and negates or renders ineffective Section 16, Article XIII of the Constitution which provides:
The right of the people and their organizations to effective and reasonable participation at all levels of
social, political, and economic decision-making shall no be abridged. The State shall, by law, facilitate
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the establishment of adequate consultation mechanisms.


Besides, it is fraught with unimaginable danger to public interest if neither the Commission on Audit (COA),
nor the Ombudsman, or the Office of the Solicitor General, would take any action on the matter.
In the instant case, the COA refused to directly act on Morato's request and, instead, referred it to the
Department of Justice (DOJ) which, in turn, merely indorsed an opinion to the COA. On the other hand, the
Office of the Solicitor General is taking the side of the PCSO, as it did in the first lotto case. The observation
then of Justice Cruz in his concurring opinion in the first lotto case is apropos:
Locus standi is not such an absolute rule that it cannot admit of exceptions under certain conditions or
circumstances like those attending this transaction. As I remarked in my dissent in Guazon vs. De Villa,
181 SCRA 623, "It is not only the owner of the burning house who has a right to call the firemen. Every
one has the right and responsibility to prevent the fire from spreading even if he lives in the other
block."
The majority opinion does not entirely foreclose the possibility of according the petitioners locus standi if only
they would allege "that public funds are being misspent so as to make this action a public one and justify
relaxation of the requirement that an action must be prosecuted by the real party in interest." While it may be
true that there is no such specific allegation, the totality of the petitioners' allegations points to illegal
expenditures of public funds due to or arising out of violations of the exception clause in paragraph B, Section
1 of R.A. No. 1169, as amended, and the public bidding law, and by reason of the grossly disadvantageous
provisions of the contract. The public character of the sums due the PGMC under the ELA cannot be
disputed. The PCSO is solely owned by the Government and is authorized to raise funds for the public
purposes specified in its Charter. The funds thus raised are public funds. This Court must take judicial notice
of these facts.
Before I take up the defined issues, I find it necessary to meet squarely the majority opinion's interpretation of
paragraph B, Section 1 of R.A. No. 1169, as amended. This is, of course, on the assumption that this Court
may now disregard the doctrines of the law of the case, res judicata, and stare decisis.
I respectfully submit that the best authority on the intention or rationale of a legislative amendment is its
author. Fortunately, I happened to be the author of the exception clause in said provision. The language of
that clause is very short and simple, and the elaboration given therefor, as earlier shown, is equally short and
simple. The sponsor of the measure, then Assemblyman, now Congressman, Ronaldo Zamora did not even
ask for an explanation or clarification; he readily accepted the amendment. Nobody from the floor
interpellated me for an explanation or clarification.
I regret then to say that neither the letter nor the spirit of the exception clause in paragraph B supports the
interpretation proposed in the majority opinion. The reason given in the majority opinion for the alleged
prohibition from investing in "activities mentioned in the preceding paragraph (A)" (i.e., the holding or
conducting of charity sweepstakes races, lotteries, and other similar activities) is that "these are competing
activities." In that aspect alone, the majority opinion has clearly misconstrued the exception clause. The
prohibition is not directed against such activities, since they are in fact the franchised primary activities of the
PCSO. What is prohibited is the conduct or holding thereof "in collaboration, association or joint venture with
any person, association, company, or entity, whether domestic or foreign." In the first lotto case, this Court
explained the principal reasons for such prohibition. If the purpose of the prohibition in the exception clause is
indeed to prevent competition, it would be with more reason that no other person, natural or juridical, should
be allowed to share in the PCSO's franchise to hold and conduct lotteries. In short, the argument in the
majority opinion sustains the rationale of the prohibition.
II
As to the defined issues, my answers are in the affirmative. To better appreciate them, the minute details of
the undisputed operative facts which are crucial to their resolution must have to be bared.
After its setback n G.R. No. 113375, the PGMC and the PCSO prepared a draft of a new ELA.
On 26 July 1994, the Board of Directors of the PCSO approved Resolution No. 445, 17 series of 1994, resolving
as follows:
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NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved, that the draft Equipment Lease
Agreement, hereto attached, is APPROVED, and the Chairman of the Board is AUTHORIZED to enter
into and execute the said Agreement, SUBJECT to the confirmation by the Commission on Audit that
PCSO can enter in the said Agreement.
On the same date, PCSO Chairman Morato sent a letter to Hon. Celso D. Gangan, Chairman of the COA, 18
seeking confirmation on whether the Equipment Lease Agreement is exempt from the requirements of public bidding
imposed under Executive Order No. 301 (1987) and the pertinent government accounting and auditing rules. The
request was based on the following submissions:

1. Pursuant to the provisions of Republic Act No. 1169, as amended, the Philippine Charity
Sweepstakes Office (PCSO), with the approval of the Office of the President, decided to operate an
On-line lottery System.
2. In August 1993, Request for Proposals (Annex "A") were issued seeking lessors for the On-Line
Lottery System under a build-lease basis at no expense or risk to PCSO.
3. The bids were evaluated by the Special Prequalification Bids and Awards Committee and its bid
report was further evaluated by a Special Review Committee of the Office of the President.
4. On 12 October 1993, the Office of the President announced that it was awarding the Lease Contract
to Philippine Gaming and Management Corporation (PGMC) as lessor, provided that the contract would
similarly be awarded to two (2) other bidders if they matched the terms of PGMC.
Morato invoked the following grounds to justify his request for confirmation:
a. A lease of equipment, with option to purchase, by a government corporation such as the PCSO,
provided this is approved by its governing board, is not generally subject to the public bidding
requirement (Section 4.3, second paragraph, COA Circular No. 85-55-A dated 8 September 1985);
b. The new lease contract is still the result of an award made after public bidding; and
c. In this case, its is apparent that the lease of the needed equipment through negotiation is the most
advantageous to the Government since so many studies, plans and procedures had already been
worked out with PGMC since October 1993 as a result of the previous bidding (Section 1. e, Executive
Order No. 301 [1987]).
The COA indorsed Morato's letter to the DOJ and requested an opinion on the propriety or legality of the
proposed ELA which was entered into without the benefit of a public bidding under E.O. No. 301 and the
pertinent government accounting and auditing rules.
In its Opinion No. 4, series of 1995, 19 contained in a 2nd Indorsement addressed to the COA, dated 16 January
1995, the DOJ, through Acting Secretary Demetrio G. Demetria:

(a) Disagreed with the statement of Morato that any of the three justifications he enumerated in his
letter to the COA may constitute valid basis for the exemption from public bidding.
(b) Declined to express an opinion on the first justification that under COA Circular No. 85-55-A of 8
September 1985 a lease of equipment with option to purchase is not generally subject to public
bidding, since it involves an interpretation of a COA circular which is best left to the COA's
determination.
(c) Expressed doubts on the accuracy of Morato's statement that the new lease contract is still the
result of the award made after public bidding and opined that since the original lease contract was
nullified by this Court, such nullification necessarily implied the nullification of the public bidding which
preceded its execution.
(d) Agreed, nonetheless, with Morato that the new ELA is exempt from the public bidding requirement
under Section 1 (e) of E.O. No. 301, and ratiocinates as follows:
The cited provision reads:
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Sec. 1. Guidelines for Negotiated Contracts. Any provision of Law, decree, executive order or other
issuances to the contrary notwithstanding, no contract for public services or for furnishing supplies,
materials and equipment to the government or any of its branches, agencies or instrumentalities shall
be renewed or entered into without public bidding except under any of the following situations:
xxx xxx xxx
(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
xxx xxx xxx
It should be noted that while public bidding is generally required for contracts for public services or for
furnishing supplies, materials and equipment, paragraph (e), abovequoted, would exempt from the
requirement of public bidding "the requisition of the needed supplies" and would allow the acquisition
thereof through negotiated purchase if deemed most advantageous to the government as determined
by the Department Head concerned.
In the instant case, it is believed that the new lease agreement, although denominated, "Equipment
Lease Agreement", may be considered a contract for furnishing supplies and may fall under the
exception provided for in paragraph (e) if entering into such agreement, through negotiation, is
determined to be the most advantageous by the Department Head concerned.
The words "supplies" and "equipment" are not synonymous. The word "equipment" imports "the outfit
necessary to enable the contractor to perform the agreed service, the tools, implements, and
appliances which might have been previously used or might be subsequently used by the contractor in
carrying on other work of like character" (Standard Boiler Works v. National Surety Co., 71 Wash. 28,
127 Pac. 573). The word "supplies", on the other hand, is defined as "any article entirely consumed by
its use in the work" (National Surety Co. v. Bratnober Lumber Co., 67 Wash. 601, 122, Pac. 337).
It has been held, however, that the true distinction between "supplies" and "equipment" rests on the
effect the use has upon the article, rather than upon the degree of use to which it is subjected. Thus, a
"supply" would be any article furnished for carrying on the work which from its nature is necessarily
consumed by use in the work, while "equipment" would consist of those articles that are not necessarily
so consumed, but which may survive the particular work and be further used on work of like character
(United States Rubber Co. of California v. Washington Engineering Co., 149 P. 706).
In case of lease of equipment, it was held that the rental value of machinery hired by the contractor for
use in carrying on work within the terms of the contract is recoverable from the bondsman as a supply,
the reason for this being that what was consumed in the work was the use of the machinery and not the
machinery itself (United States Rubber Co. vs. Washington Eng'g. Co., supra, citing cases). Applying
this ruling to the instant case, the subject Equipment Lease Agreement, as observed earlier, may be
deemed to be an agreement for furnishing of supplies because by its terms, what will be consumed by
the PCSO, as Lessee, would be the use of the equipment, and not the equipment itself.
Based thereon, the aforesaid Equipment Lease Agreement may be the subject of negotiation pursuant
to Section l(e) of E.O. No. 301 if it be determined to be the most advantageous to the government by
the Department Head concerned.
As earlier stated, on 25 January 1995, the PGMC, represented by Alfredo C. Ramos, its Vice-Chairman, and
the PCSO, represented by Manuel L. Morato, its Chairman, signed the assailed ELA.
A. The PGMC avers that the old contract was reformed to expunge therefrom the features and provisions
which were held by this Court as indicative of the statutorily proscribed collaboration, association, or joint
venture. 20 For their part, the public respondents claim that "as can be glaringly seen from the face of the ELA, none
of the terms and conditions in the old contract of lease which this Honorable Court found as vestiges of a joint venture
is present in the subject ELA." 21

I am not persuaded. To my mind, the parties only performed a superficial surgery on the nullified contract by
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merely deleting therefrom provisions which this Court had considered in the first lotto case to be badges of a
joint venture contract and by engrafting some modifications on rental, which include an option to purchase.
The PGMC and the PCSO conveniently forgot that per this Court's findings in the first lotto case, they had an
indivisible community of interest in the conception, birth and growth of the on-line lottery and that each is wed
to the other for better or for worse. The surgery affected only the post-natal activities of the union, but not the
indivisibility of their community of interest at conception and at the birth of the on-line lottery system. Put
differently, it only separated one from the other from bed and board but did not dissolve the bonds of such
indivisibility or community of interest. This was confirmed by respondent Morato when he candidly confessed
in his letter to the COA Chairman that:
[I]t is apparent that the lease of the needed equipment through negotiations is the most advantageous
to the Government since so many studies, plans and procedures had already been worked out with
PGMC since October 1993 as a result of the previous bidding (Sec. 1.e, Executive Order No. 301
[1987]). (emphasis supplied)
Although Mr. Morato did not volunteer to disclose what those studies, plans, and procedures are, it is logical
to presume that they refer to, among other things, (1) the building of the on-line lottery system, at no expense
of or risk to the PCSO, which was precisely the specific purpose of the Request for Proposals and which
Morato admitted in his "presentation" in his letter to the COA Chairman; and (2) those that this Court had
noted in the first lotto case, to wit: (a) the preparation of the detailed plan of all games and the marketing
thereof; and (b) the determination of the number of players, value of winnings, and the logistics required to
introduce the games, including the Master Games Plan. The indispensable role of the PGMC as a
collaborator, associate, or joint venturer up to that point where actual operation of the on-line lottery system
shall begin was unaffected by the superficial surgery on the text of the nullified contract. Atty. Eleazar Reyes,
co-counsel of Atty. Cayetano for the PGMC, was candid enough to admit during the oral arguments that it
would be extremely difficult for the PGMC and the PCSO to avoid the proscribed "collaboration, association,
or joint venture" under the exception of paragraph B, Section 1 of R.A. No. 1169, as amended. He,
nevertheless, hastened to add that an outright purchase by the PCSO of the PGMC's equipment would be the
best and safest recourse. Thus:
JUSTICE DAVIDE:
Mr. Counsel you just admitted a while ago that it is extremely difficult to comply with the
revised charter of the Philippine Charity Sweepstakes Office insofar as collaboration, joint
venture, association are concerned?
ATTY. REYES:
Yes, Your Honor.
JUSTICE DAVIDE:
But if given the chance to rewrite this contract, what proposal would you give, what
recommendation would you give to your client?
ATTY. REYES:
Your Honor, that is why I said I would leave it to the business judgment of my client.
JUSTICE DAVIDE:
As a lawyer what kind of a contract would you recommend to be rewritten, to satisfy the
law, to satisfy the judgment of this Court in the first case?
ATTY. REYES:
The safest, Your Honor, is a sale.
JUSTICE DAVIDE:
Sale, meaning the Philippine Charity Sweepstakes Office will buy everything?
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ATTY. REYES:
Yes, Your Honor.
JUSTICE DAVIDE:
Why did you not recommend that to your client instead you went into the process [of
drafting the] ELA.
ATTY. REYES:
Because, Your Honor, they do not have the money. They are going to use the proceeds
from the gains for the payment of the rental but they do not have the cash.
JUSTICE DAVIDE:
In the event that this Court will now strike down this agreement as also void, would you
recommend that to your client as a third contract?
ATTY. REYES:
Yes, Your Honor, if the PCSO can pay for it. 22
Besides, even on the face of the new ELA, the elements of the proscribed joint venture or, at the very least,
collaboration or association, can be detected, albeit they are hidden behind the skirt of the following: (a) the
Rental Clause; (b) the upgrading provision under the Repair Services Clause; and (c) the details of what are
embraced in the term Lottery Equipment and Accessories subject of the contract, which are found in Annex
"A" of the ELA. 23
The Rental Clause provides for a flexible rate based on a percentage of the gross amount of ticket sales,
payable bi-weekly, with an annual minimum rental fixed at P35,000.00 per terminal in commercial operation,
any shortfall of which shall be paid out of the proceeds of the current ticket sales. This clause provides in full
as follows:
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, further that the annual minimum fixed rental shall be reduced pro-rata for the
number of days during the year that a terminal is not in commercial operation due to
repairs or breakdown. In the event the aggregate bi-weekly rentals in any year falls short
of the annual minimum fixed rental computed at P35,000.00 per terminal in commercial
operation, the LESSEE shall pay such shortfall from out of the proceeds of the then
current ticket sales from LESSEE's on-line lottery operations in the Territory (after
payment first of prizes and agents' commissions but prior to any other payments,
allocations or disbursements) until said shortfall shall have been fully settled, but without
prejudice to the payment to LESSOR of the then current bi-weekly rentals in accordance
with the provisions of the first sentence of this paragraph 2.
This is an unusually novel arrangement which insures and guarantees the PGMC full participation in the
gross proceeds of ticket sales even if, ultimately, a draw could mean losses to the PCSO. It allots to the
PGMC only a very limited share in the losses since, under any circumstance and the most unfavorable
business climate, the PGMC is assured of an irreducible minimum "rental" per terminal. The term "rental" is
then a very deceptive, yet poorly contrived, disguise to cloak the real role of the PGMC. At the hearing, Atty.
Eleazar Reyes feigned ignorance on how the "rental" of 4.3% of the gross amount of ticket sales was arrived
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at. This Court should not wait for the end of the world for any acceptable explanation therefor. The
explanation can easily be had by relating it to the rental of 4.9% of gross receipts from ticket sales under the
nullified contract. The reduction of only 0.6% (4.9% 4.3%) is negligible considering the PCSO's assumption
of, among other things, all business risks; operation of the equipment with the use of its own personnel; risks
of loss of and damage to the equipment; responsibility for maintenance and repairs, all of which were the
PGMC's duties, obligations, and responsibilities under the nullified contract. I am convinced that such rate
was pre-determined to approximate the profits which the PGMC expected to realize under the nullified
contract. The rental clause is, indeed, a subtle scheme to unconditionally guaranty PGMC's share in the
profits.
If read in conjunction with the upgrading provision buried under the clause "Repair Services" it becomes clear
that the parties do have a different purpose for the use of the term rental.
The Repair Services clause provides as follows:
REPAIR SERVICES
LESSEE shall bear the costs of maintenance and necessary repairs, except those repairs
to correct defective workmanship or replace defective materials used in the manufacture
of Equipment discovered after delivery of the Equipment, in which case LESSOR shall
bear the costs of such repairs and, if necessary, the replacements. The LESSEE may at
any time during the term of the lease, request the LESSOR to upgrade the equipment
and/or increase the number of terminals, in which case the LESSEE and LESSOR shall
agree on an arrangement mutually satisfactory to both of them, upon such terms as may
be mutually agreed upon.
The upgrading provision is full of mischief and is, perhaps, the most deceptive provision in the ELA that puts
to naught any pretense of good faith in expunging from the old contract all indicia of the statutorily proscribed
collaboration, association, or joint venture. It is a provision which is entirely unrelated to the clause under
which it is placed Repair Services. It should have been either set forth as a separate clause or at least
placed under the clause on Equipment. 24
It should be stressed here that in the old contract the upgrading clause is under facilities, which include
among other things all capital equipment, computers, terminals, and softwares. Under the upgrading
provision, new equipment may be used; the number of terminals may be increased; and new terms and
conditions, including rates of "rentals" and the purchase price in case of exercise of the option to buy, may be
agreed upon. This makes the ELA not just a sweetheart contract, but one which will preserve the parties'
indivisible union and community of interest, thereby giving further credence to this Court's observation in the
first lotto case that each is wed to the other for better or for worse.
The term Equipment, which is allegedly the subject of the ELA, includes, per its definition in Annex "A"
thereof, the "associated or incidental hardware equipment, furnishing and fixtures, technology, intellectual
property rights, knowhow, processes and systems." Technology, knowhow, processes, and systems
necessarily include transfer of technology and other expertise which could only be carried out over a number
of years of continuing training and supervision of personnel, which the PGMC is necessarily and logically
required to do. Intellectual property rights can only refer to, among other things, the detailed plans of all
games and the Master Games Plan which, under the nullified contract, are to be prepared by the PGMC.
It may be observed that the term facilities in the old contract included all capital equipment but excluded
"technology, intellectual property rights, knowhow, processes and systems." As this Court found in the first
lotto case, there was a separate provision on the PGMC's obligations (1) to train PCSO and other local
personnel and (2) to effect the transfer of technology and other expertise. 25 Clearly, the inclusion of
"technology, intellectual property rights, knowhow, processes and systems" in the term Equipment was a ploy to hide,
again, the continuing indispensable collaboration of the PGMC in the conduct of the on-line lottery business.

B. Even assuming that the subject ELA is not a joint venture contract, still it must be nullified for having been
entered into without public bidding and for being grossly disadvantageous to the Government. It has been
said:
In this jurisdiction, public bidding is the policy and medium adhered to in Government procurement and
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construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the required bidding is null
and void and cannot adversely affect the rights of third parties. 26
The opening paragraph of E.O. No. 298, series of 1940, 27 of President Manuel L. Quezon, entitled "Prohibiting
the Automatic Renewal of Contracts, Requiring Public Bidding Before Entering Into New Contracts, Providing
Exceptions Therefor," states this policy:

Whereas, as a matter of general policy, it is in the interest of the public service that Government
contracts for public services or for furnishing of supplies, materials, and equipment to the Government
be submitted to public bidding.
This was restated in E.O No. 301 28 of President Corazon C. Aquino, entitled "Decentralizing Actions on
Government Negotiated Contracts, Lease Contracts and Records Disposal," whose Section 1 reads:

Sec. 1. Guidelines for Negotiated Contracts. Any provision of law, decree, executive order or other
issuances to the contrary notwithstanding, no contract for public services or for furnishing supplies,
materials and equipment to the government or any of its branches, agencies or instrumentalities shall
be renewed or entered into without public bidding, except under any of the following situations:
The Court agrees with DOJ Opinion No. 4, series of 1995, which states that the bidding conducted for the
nullified contract could be a valid basis for the new ELA and that, therefore, a new bidding was in order. The
DOJ erred, however, when it further stated that the ELA is exempt under Section 1(e) of E.O. No. 301 from
the public-bidding requirement.
Sections 1 and 2 of E.O. No. 301 under subdivision A (Decentralization of Negotiated Contracts) read in full
as follows:
Sec. 1. Guidelines for Negotiated Contracts. Any provision of law, decree, executive order or other
issuances to the contrary notwithstanding, no contract for public services or for furnishing supplies,
materials and equipment to the government or any of its branches, agencies or instrumentalities shall
be renewed or entered into without public bidding, except under any of the following situations:
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 subdealers 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.
Sec. 2. Jurisdiction over Negotiated Contracts. In line with the principles of decentralization and
accountability, negotiated contracts for public services or for furnishing supplies, materials or
equipment may be entered into by the department or agency head or the governing board of the
government-owned or controlled corporation concerned, without need of prior approval by higher
authorities, subject to availability of funds, compliance with the standards or guidelines prescribed in
Section 1 hereof, and to the audit jurisdiction of the Commission on Audit in accordance with existing
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rules and regulations.


Negotiated contracts involving P2,000,000 up to P10,000,000 shall be signed by the Secretary and two
other Undersecretaries.
It is clear that Sections 1 and 2 refer to contracts for public services, or for furnishing supplies, materials, and
equipment to the government. In no uncertain terms, the Executive Order itself distinguishes the terms
supplies, materials, and equipment from each other, i.e., it did not intend to consider them as synonymous
terms. If such were the intention, there would have been no need to enumerate them separately and to limit
subparagraphs (a), (b), and (e) to supplies; subparagraph (c) to materials; and subparagraph (f) to all three
(supplies, materials and equipment). The specific mention of supplies in Subparagraphs (a), (b), and (e) was
clearly intended to exclude therefrom materials and equipment, and the specific mention of materials in
subparagraph (c) was likewise intended to exclude supplies and equipment. Expressio unius est exclusio
alterius.
Elsewise stated, the Executive Order leaves no room for a construction that confuses supplies with materials
or equipment or either of the last two with the first or with each other. According to Sutherland: 29
It is an elementary rule of construction that effect must be given, if possible, to every word, clause and
sentence of a statute. A statute should be construed so that effect is given to all its provisions, so that no part
will be inoperative or superfluous, void or insignificant, and so that one section will not destroy another unless
the provision is the result of obvious mistake or error.

In a last-ditch effort to save the ELA, the DOJ opined that the subject ELA could be deemed as an agreement
for furnishing supplies and, in support thereof, cited United States Rubber Co. vs. Washington Eng'g. Co. 30
wherein it was allegedly held that in a lease of equipment, the rental value of machinery hired by the contractor for use
in carrying on work was the use of the machinery and not the machinery itself. The DOJ opinion is outlandish, as the
case it cited did not make the attributed pronouncement. It must have miscomprehended or misappreciated the ruling
in United States Rubber Co. . The said pronouncement is found in Hurley-Mason Co. vs. American Bonding Co., 31
which was cited by the appellant in the United States Rubber Co. case, and which the court did not, in fact, accept.
Thus, the court stated:

But the appellant cites as supporting its contention the case of Hurley-Mason Co. v. American Bonding
Co., 79 Wash. 564, 140 Pac. 575, to which may be added the more recent case of National Lumber &
Box Co. v. Title Guaranty & Surety Co., 149 Pac. 16, which hold that the rental value of machinery
hired by the contractor for use in carrying on work within the terms of the contract is recoverable from
the bondsman as a supply furnished the contractor. These cases proceed on the theory that it was the
use of the machinery that was consumed in the work, not the machinery itself, and that this use being
distinguishable from the machinery could be recovered for against the bondsman as a supply. If this
distinction is sound, then the cases are in line with the other cases cited, as such "use" was necessarily
consumed in carrying on the work. The appellant argues, however, that the distinction is not sound; that
there is no just ground for holding that one who rents to a contractor the tools and working appliances
necessary for the prosecution of a particular work may have recovery against the contractor's
bondsmen for the rental value of the articles furnished, while one who sells the contractor the same
character of articles on credit has no claim against the bondsmen for any part of the purchase price.
But, if this be true, and it be true that the contractor's working equipment is not to be deemed a supply,
it argues that the decisions cited are erroneous, rather than that the appellant's goods fall within the
meaning of the term "supplies."
On the contrary, United States Rubber Co. explicitly distinguished supplies from equipment, thus:
So construing the statute, the definitions of "equipment" and "supply" coincide, and a certain and
natural dividing line is found between them. A "supply" would be any article furnished for carrying on
the work which from its nature is necessarily consumed by use in the work, while "equipment" would
consist of those articles that are not necessarily so consumed, but which may survive the particular
work and be further used on work of like character. In this view also the question actually decided in the
case of National Surety Co. v. Bratnober Lumber Co. harmonizes with the other cases cited, since coal,
like powder and other explosives, and like electricity used for power and other forms of energy used for
the same purpose, is necessarily consumed by its use, and cannot survive for like uses in a similar
character of work.
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Tested by these rules, it is plain that the articles furnished by the appellant are not supplies, but are a
part of the contractor's equipment. While they were actually worn out by use in carrying on the work,
they were not articles of such a nature as to be necessarily consumed by such use, and might have
survived, had their use therein been of less duration, for use in subsequent work of like character.
Besides, subparagraph (e) of Section 1 unequivocally refers to a contract of purchase of supplies. The ELA in
question is not a contract of purchase of supplies. The parties themselves proclaim to the whole world and
solemnly represent to this Court that it is a contract of lease of equipment. They titled it, in bold big letters,
"EQUIPMENT LEASE AGREEMENT," and devote the first clause thereof to EQUIPMENT. Accordingly, since
the ELA is not a contract of purchase of supplies, we are unable to understand why the DOJ applied Section
1(e) of E.O. No. 301 to exempt the ELA from the public-bidding requirement.
The submission of the petitioners that the ELA violates paragraph 4.3 of the COA Rules and Regulations for
the Prevention of Irregular, Unnecessary, Excessive, and Extravagant Expenditures is not persuasive. The
said paragraph covers Lease Purchase contracts. It reads:
4.3 LEASE PURCHASE
The national government may enter into agreement for the lease purchase of equipment
subject to public bidding, the approval of the Office of the Management, and to other
pertinent accounting and auditing religions. Details of the payments shall be indicated in
the lease purchase agreement and accompanied with a certification of availability of
equipment outlay authorized for the agency to cover the full contract cost. The lease
purchase agreement may be entered into only for specialized equipment such as
typewriters, adding machines and automobiles, the purchase price of which is at least
P50,000.00. All lease purchase agreement of equipment the total value of which exceeds
P200,000.00 shall be subject to the approval of the President. Corporations/local
governments may adopt the mechanisms of these lease-purchase agreement subject to
the approval of their legislative or governing boards.
The ELA in question hardly qualifies as a lease purchase contract because there is no perfected agreement
to purchase (sale) but only an option on the part of PCSO to purchase the equipment for P25 million. It is, in
fact, an option which is not supported by a separate and distinct consideration, hence, not really binding upon
the PGMC.
An optional contract is a privilege existing in one person, for which he had paid a consideration, which gives
him the right to buy certain specified property from another person, if he choses, at any time within the agreed
period, at a fixed price. Said contract is separate and distinct contract from the contract which the parties may
enter into upon the consummation of the option. 32 The second paragraph of Article 1479 of the Civil Code
expressly provides that "[an accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the price."

C. A comparison between the nullified contract and the assailed ELA to prove that the latter is grossly
disadvantageous to the PCSO is not at all hampered by any perceived difficulty. As to the almost unrestricted
benefits and advantages which the PCSO were supposed to obtain under the former, the following findings of
this Court in the first lotto case bind the parties:
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its
own nor the expertise to operate and manage an on-line lottery system, and that although it wished to
have the system, it would have it "at no expense or risks to the government." Because of these serious
constraints and unwillingness to bear expenses and assume risks, the PCSO was candid enough to
state in its RFP that it is seeking for "a suitable contractor which shall build, at its own expense, all the
facilities needed to operate and maintain" the system; exclusively bear "all capital, operating expenses
and expansion expenses and risks"; and submit a comprehensive nationwide lottery development plan
. . . which will include the game, the marketing of the games, and the logistics to introduce the game to
all the cities and municipalities of the country within five (5) years"; and that the operation of the on-line
lottery system should be "at no expense or risk to the government" meaning itself, since it is a
government-owned and controlled agency. The facilities referred to means "all capital equipment,
computers, terminals, software, nationwide telecommunications network, ticket sales offices,
furnishings and fixtures, printing costs, costs of salaries and wages, advertising and promotions
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expenses, maintenance costs, expansion and replacement costs, security and insurance, and all other
related expenses needed to operate a nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line
lottery system; with the rest, including the risks of the business, being borne by the proponent or bidder.
It could be for this reason that it warned that "the proponent must be able to stand to the acid test of
proving that it is an entity able to take on the role of responsible maintainer of the on-line lottery
system." The PCSO, however, makes it clear in its RFP that the proponent can propose a period of the
contract which shall not exceed fifteen years, during which time it is assured of a "rental" which shall
not exceed 12% of gross receipts. As admitted by the PGMC, upon learning of the PCSO's decision,
the Berjaya Group Berhad, with its affiliates, wanted to offer its services and resources to the PCSO.
Forthwith, it organized the PGMC as "a medium through which the technical and management services
required for the project would be offered and delivered to PCSO."
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery
system, the PCSO had nothing but its franchise, which it solemnly guaranteed it had in the General
Information of the RFP. Howsoever viewed then, from the very inception, the, PCSO and the PGMC
mutually understood that any arrangement between them would necessarily leave to the PGMC the
technical, operations, and management aspects of the on-line lottery system while the PCSO would,
primarily, provide the franchise. The words Gaming and Management in the corporate name of
respondent Philippine Gaming Management Corporation could not have been conceived just for
euphemistic purposes. Of course, the RFP cannot substitute for the Contract of Lease which was
subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates
their intention and understanding.
xxx xxx xxx
Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the
PGMC represents and warrants that it has access to all managerial and technical expertise to promptly
and effectively carry out the terms of the contract. And, for the period of eight years, the PGMC is
under obligation to keep all the Facilities in safe condition and if necessary, upgrade, replace, and
improve them from time to time as new technology develops to make the on-line lottery system more
cost-effective and competitive; exclusively bear all costs and expenses relating to the printing,
manpower, salaries and wages, advertising and promotion, maintenance, expansion and replacement,
security and insurance, and all other related expenses needed to operate the on-line lottery system;
undertake a positive advertising and promotions campaign for both institutional and product lines
without engaging in negative advertising against other lessors; bear the salaries and related costs of
skilled and qualified personnel for administrative and technical operations; comply with procedural and
coordinating rules issued by the PCSO; and to train PCSO and other local personnel and to effect the
transfer of technology and other expertise, such that at the end of the term of the contract, the PCSO
will be able to effectively take over the Facilities and efficiently operate the on-line lottery system. The
latter simply means that indeed, the managers, technicians or employees who shall operate the on-line
lottery system are not managers, technicians or employees of the PCSO, but of the PGMC and that it is
only after the expiration of the contract that the PCSO will operate the system. After eight years, the
PCSO would automatically become the owner of the Facilities without any other further consideration.
For all the above representations, duties, obligations, and responsibilities, as well as the automatic loss of its
ownership over the facilities without any further consideration in favor of the PCSO after the expiration of only
eight years, the PGMC gets only a so-called rental of 4.9% of gross receipts from ticket sales, payable net of
taxes required by law to be withheld, which may, however, be drastically reduced, or in extreme cases, totally
obliterated because the PGMC bears "all risks if the revenue from ticket sales, on an annualized basis, are
insufficient to pay the entire prize money."
Under the assailed ELA, however, the PGMC is entitled to receive a flexible rental equivalent to 4.3% of the
gross ticket sales (or only 0.6% lower than it was entitled to under the old contract) for the use of its on-line
lottery system equipment (as distinguished from facilities in the old contract), which does not anymore include
the nationwide telecommunications network, without any assumption of business risks and the obligations (1)
to keep the facilities in safe condition and if necessary, to upgrade, replace, and improve them from time to
time as technology develops, and bear all expenses relating thereto; (2) to undertake advertising and
promotions campaign; (3) to bear all taxes, amusements, or other charges imposed on the activities covered
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by the contract; (4) to pay the premiums for third party or comprehensive insurance on the facilities: (5) to pay
all expenses for water, light, fuel, lubricants, electric power, gas, and other utilities used and necessary for the
operation of the facilities; and to pay the salaries and related costs of skilled and qualified personnel for
administrative and technical operations and maintenance crew. The PGMC is also given thereunder a special
privilege of receiving P25 million as purchase price for the equipment at the expiration of eight years should
the PCSO exercise its option to purchase.
Unlike in the old contract where nothing may at all be due the PGMC in the event that the ticket sales,
computed on an annual basis, are insufficient to pay the entire prize money, under the new ELA the PCSO is
under obligation to pay rental equivalent to 4.3% of the gross receipts from ticket sales, the aggregate amount
of which per year should not be less than the minimum annual rental of P35,000.00 per terminal in
commercial operation. Any shortfall shall be paid out of the proceeds of the then current ticket sales after
payment of prizes and agents' commissions but prior to any other payments, allocations, or disbursements.
The grossness of the disadvantage to the PCSO is all too obvious and why the PCSO accepted such
unreasonable, unconscionable, and inequitable terms and conditions confounds us.
The majority opinion, however, glosses over these considerations because it believes that the determination
of the issue of gross disadvantage should not be done through a comparison of the first lotto contract and the
ELA in question.
It says:
Indeed the question is not whether compared with the former joint venture agreement the present lease
contract is "[more] advantageous to the government." The question is whether under the
circumstances, the ELA is the most advantageous contract that could be obtained compared with
similar lease agreements which the PCSO could have made with the other parties.
It then concludes:
Petitioners have not shown that more favorable terms could have been obtained by the PCSO or that
at any rate the ELA, which the PCSO concluded with the PGMC, is disadvantageous to the
government.
That postulation is flawed. It forgets that no other contract proposed by other parties were available for
comparison precisely because no public bidding was conducted. To demand a comparison with non-existing
contracts would be unreasonable.
The challenged ELA must then be declared void for the following reasons: (1) it is a joint venture contract
prohibited under the exception in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42; (2) it
was entered into without the mandatory public bidding; and (3) it is grossly disadvantageous to the PCSO
and, ultimately, the Government.
I therefore vote to GRANT the instant petition and to declare VOID and INVALID the challenged EQUIPMENT
LEASE AGREEMENT (ELA) entered into between the public respondent Philippine Charity Sweepstakes
Office (PCSO) and the private respondent Philippine Gaming Management Corporation (PGMC).
Romero and Bellosillo, JJ., concur.

Separate Opinions
PADILLA, J., concurring:
I join the majority in voting for the dismissal of the petition in this case.
It is the duty of the Supreme Court to apply the laws enacted by Congress and approved by the President,
(unless they are violative of the Constitution) even if such laws run counter to a Member's personal conviction
that gambling should be totally prohibited by law.
In the present case, we are confronted with Republic Act No. 1169 as amended by B.P. Blg. 42 which
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expressly allows the PCSO to conduct lotteries, clearly a form of gambling.


Given the various laws allowing specific forms of gambling, only Congress and the Executive branch of
government can, at present, repeal these laws to effectively eradicate gambling, if these two (2) political
branches truly intend to embark on an honest to goodness national moral recovery and development
program.
In my separate concurring opinion in the first lotto case (G.R. No. 113375), I expressed the view that the rule
on locus standi, being merely a procedural rule, should be relaxed, as the issue then was of paramount
national interest and importance, namely, the legality of a lease contract entered into by PCSO with PGMC
whereby the former sought to operate an "on-line high-tech" lottery, undeniably a form of gambling, the terms
of which clearly pointed to an "association, collaboration or joint venture" with PGMC.
The core issue in the present case is the same as the issue in the first lotto case, i.e., the validity of a
changed agreement between PCSO and PGMC. Thus, it is my view that the principle of locus standi should
not stand in the way of a review by this Court of the validity of such changed agreement.
The specific issues in the present case were formulated by the Court during the hearing held on 3 March
1995 thus:
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 petitioner's admit in their petition that the ELA is substantially different
from the contract declared void by this Court in G.R. No. 113375. Attached to the petition in this case (Annex
"D") is a 14-page comparison between the first contract and the ELA, showing such differences. Petitioners
do not deny that the objectionable provisions in the first contract are no longer found in the ELA. In fact, as I
had stated in my opinion on the issue of whether or not to grant a temporary restraining order (TRO) in this
case, the ELA is prima facie a simple contract of lease of equipment where PCSO is bound to pay a minimum
amount as rental plus a fixed percentage of gross receipts from the sales of lottery tickets, with an option
given PCSO to purchase the leased equipment upon expiration of the lease contract.
The argument that the ELA still constitutes a prohibited "association, collaboration or joint venture" with
PGMC is, in my view, a much too strained interpretation of the law which results from a less than pragmatic
analysis of the issue.
To my mind, the question of whether or not the ELA constitutes "association, collaboration or joint venture"
between PCSO and PGMC should be tackled by looking at the nature of a contract of lease.
A lease is a contract whereby one of the parties binds himself to give to another the enjoyment or use of a
thing for a price certain and for a period which may be definite or indefinite (Article 1643, Civil Code).
It would appear from the above legal provision that the ELA is truly a straight contract of lease. That the
parties to the ELA have stipulated on flexible rentals does not render it less of a lease contract and more of a
joint venture. Surely, the PGMC as owner of the leased equipment is free to demand the amount of rentals it
deems commensurate for the use thereof and, as long as PCSO agrees to the amount of such rentals, as
justifying an adequate net return to it, then the contract is valid and binding between the parties thereto. This
is the essence of freedom to enter into contracts.
Petitioners have not cited any law which prevents such stipulations to be included in contracts of lease or
which changes the nature of such agreement from a lease to some other juridical relation. In fact, such
stipulations are common in leases of real estate for commercial purposes. A ruling that would prevent PCSO
from entering into such lease agreement for the operation by PCSO of the lottery would defeat the intent of
the law to raise, from such lotto determination and judgment of the COA on matters which are within its
primary jurisdiction under the Constitution.
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As to whether or not the ELA is grossly disadvantageous to the government, it should be stressed that the
matter involves, basically, a policy determination by the executive branch which this Court should not
ordinarily reverse or substitute with its own judgment, in keeping with the time honored doctrine of separation
of powers.
Based on the foregoing considerations, I vote to DISMISS the petition.
VITUG, J., concurring:
I most humbly reiterate the separate opinion I have made in Kilosbayan, Inc., et al., vs. Teofisto Guingona,
Sr., etc., et al. (G.R. No. 113375, promulgated on 05 May 1994).
Before a peremptory voting could be taken by the Court on the main merits of the instant case (G.R. No.
118910), the ultimate outcome of its deliberations thereon, then still in progress, remained uncertain. In the
meanwhile, it behooved, in my view, all concerned to be bound by, or at the very least to respect, the decision
in G.R. No. 113375. It was clear to me that until G.R. No. 118910 would have itself been finally resolved, the
petitioners were entitled to a temporary restraining order on the basis of the decision in G.R. No. 113375 (and
thus I then voted accordingly). The new contract entered into (now in dispute in G.R. No. 118910), compared
with the previous contract nullified in G.R. No. 113375, just as I also saw it then, was not substantially
different from, let alone significantly better than, the nullified contract.
Back to the core of the petition, however, the matter of the legal standing of petitioners in their suit assailing
the subject-contract appears to me, both under substantive law and the rules of procedure, to still be an
insuperable issue. I have gone over carefully the pleadings submitted in G.R. No. 118910, and I regret my
inability to see anything new that can convince me to depart from the view I have expressed on it in G.R. No.
113375.
In part, I also said in G.R. No. 113375: A provision which has been introduced by the 1987 Constitution is a
definition, for the first time in our fundamental law, of the term "judicial power," as such authority and duty of
courts of justice "to settle actual controversies involving rights which are legally demandable and enforceable
and to determine whether or not there has been a grave abuse of discretion, amounting to lack or excess of
jurisdiction, on the part of any branch or instrumentality of the Government" (Article VIII, Section 1,
Constitution). I take it that the provision has not been intended to unduly mutate, let alone to disregard, the
long established rules on locus standi. Neither has it been meant, I most respectfully submit, to do away with
the principle of separation of powers and its essential incidents such as by, in effect, conferring omnipotence
on, or allowing an intrusion by, the courts in respect to purely political decisions, the exercise of which is
explicitly vested elsewhere, and subordinate to that of their own the will of either the Legislative Department
or the Executive Department both co-equal, independent and coordinate branches, along with the
Judiciary, in our system of government. Again, if it were otherwise, there indeed would be truth to the charge,
in the words of some constitutionalists, that "judicial tyranny" has been institutionalized by the 1987
Constitution, an apprehension which should, I submit, rather be held far from truth and reality.
In the Commencement Address I delivered to the 1995 graduating class of the San Beda College of Law, I
broached a matter which I felt was of contemporary concern. Allow me to quote from it:
. . . The relatively recent event in our history, still too vivid to be lost, has given root to a discernible
change in our fundamental law. Reacting to the lessons we, in the recent past, have learned, well
meant safeguards have been installed. One such measure is in strengthening the judiciary,
unquestionably in order to check on further abuses of power. Thus, the Supreme has been charged
with overseeing the entire judiciary by removing this function from, heretofore traditionally with, the
executive. It has also given authority to the highest court of the land to literally strike down any act of
either Congress or the Executive for any grave abuse of discretion. What has thus come about is a
Supreme Court that effectively wields almost absolute authority to dictate matters of grave import to the
country in politics, in business and in veritably all major decisions of the State. The Supreme Court
is manned by fifteen justices, presumably all learned in law, but can it safely be said that beyond the
usual spheres of their judicial expertise, they so also have the capability to react to all needs of
government. The tribunal's power is awesome. It may be apropos to ask: Can the Court adequately
respond at every turn with full fidelity and competence? If you would have had the time to follow up
recent pronouncements of the Court, you might have noticed that on certain occasions I have
dissented from what I have felt and still feel to be an unwise encroachment of functions that are better
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left to the judgment of others who are no less experts in their respective fields than we in law. Congress
is the branch of government, composed of the representatives of the people, that lays down the
policies of government and the Executive that carries out the people's mandate. I have found it most
difficult in voting with my colleagues whenever such policies are negated merely because of what the
Court perceives to be grave abuse of discretion, clearly too relative a term to permit it to be its own
sentinel against misuse.
WHEREFORE, for the same reasons I have stated in G.R. No. 113375, I respectfully vote for the dismissal of
the instant petition.
FELICIANO, J., dissenting:
I find myself regretfully quite unable to join the majority opinion written by my distinguished brother in the
Court, Mendoza, J.
I join the penetrating dissenting opinions written by my esteemed brothers Regalado and Davide, Jr., JJ. In
respect of the matter of locus standi, I would also reiterate the concurring opinion I wrote on that subject in the
first Kilosbayan case. 1 All the factors which, to my mind, pressed for recognition of locus standi on the part of
petitioners in the first Kilosbayan case, still exist and demand, with equal weight and insistence, such recognition in
the present or second Kilosbayan case. I fear that the Court may well have occasion in the future profoundly to regret
the doctrinal ball and chain that we have today clamped on our own limbs.

In the paragraphs which follow, I seek to address three (3) major substantive points made in the majority
opinion: firstly, the new interpretation of Section 1 (B) of the PCSO charter as amended by B.P. Blg. 42;
secondly, the question of whether the "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 of PCSO does not "prohibit []
it from holding or conducting lottery in collaboration, association or joint venture with another party." That
opinion argues that "what [PCSO] is prohibited from doing is to invest in a business engaged in sweepstakes
races, lotteries and similar activities" which are "competing activities and the PCSO should not invest in the
business of the business of a competitor."
In so doing, my learned brother Mendoza, J. purports to controvert and overturn the reading that the majority
of this Court, through Mr. Justice Davide, Jr., in the first Kilosbayan case gave to the relevant provisions of the
PCSO charter. It so happens that the critical language in the relevant PCSO charter provision that is, the
"except" clause in Section 1 (B) of the PCSO charter as amended by B.P. Blg. 42 was crafted by the then
Assemblyman Hilario G. Davide, Jr. during the deliberations in the Interim Batasan Pambansa on the bill that
became B.P. Blg. 42. It is impliedly contended by the majority that the intent of an individual legislator should
not be regarded as conclusive as to the "correct" interpretation of the provision of a statute. This is true
enough, as a general proposition, for it is the intent of the legislative body as manifested in the language used
by the legislature that must be examined and applied by this Court. However, it seems to me that the view
expressed by an individual legislator who eventually comes to sit in this Court as to the meaning to be given
to words crafted by himself should, at the very least, be regarded as entitled to a strong presumption of
correctness. Put a little differently, I respectfully submit that in a situation such as that presented in this case,
a strong presumption arises that the interpretation given by Mr. Justice Davide, Jr. and approved and adopted
by the majority of the Court in the first Kilosbayan case faithfully reflected the intent of the 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 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
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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. (Emphasis 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:
1. The Philippine Charity Sweepstakes Office. The Philippine Charity Sweepstakes Office,
hereinafter designated the Office, shall be the principal government agency for raising and providing for
funds for health programs, medical assistance and services and charities of national character, and as
such shall have the general powers conferred in section thirteen of Act Numbered One Thousand Four
Hundred Fifty-Nine, as amended, and shall have the authority:
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 welfarerelated 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. (Emphasis 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 . . . ." 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 . . . health and welfare-related investments, programs,
projects and activities . . ." which, however, Mendoza, J. would read restrictively and simply as "to invest in."
To do so, one must disregard the actual language used by the statute.
It would appear that the majority thinks of "investments" essentially in terms of passive investments and
conceives of Section 1 (B) as a prohibition against PCSO investing its own funds by buying either equity or
debt instruments issued by some other company itself also authorized to engage in sweepstakes races,
lotteries or similar activities and therefore, competing with PCSO. Under this view, the prohibition is intended
to prevent PCSO from competing with itself by putting its funds in privately owned and operated enterprises
lawfully and regularly engaged in raising funds by holding and conducting sweepstakes races, lotteries or
similar activities for "health programs, medical 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,
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assuming for argument's sake that there is somewhere some obscure, publicly or privately owned entity
which is engage in the same basis 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 noncompetition 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 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) . . . .
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 refers to contracts for the lease of equipment. What the order
contains are provisions (Sections 6-7) for the lease of privately owned buildings or spaces for
government use or of government owned buildings or spaces for private use and these provisions do
not require public bidding. These provisions state . . . . 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. (Emphasis 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:
Sec. 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: . . . .
(Emphases supplied)

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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. . . 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 common place 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 along side 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 which the government seeks to provide itself with
supplies or materials or equipment is in fact the most advantageous to government. It is true enough that
public bidding may be inconvenient and time consuming; but it is still the only method of procurement so far
invented by man by which the government could reasonably expect to keep relatively honest those who
would contract with it. This is the basic reason why competition through public bidding is the general rule and
not the exception. I fear that the opinion of my learned brother Justice Mendoza would, in ultimate effect,
stand this rule on its head and make public bidding the exception rather than the general rule.
III
I would address finally the question of whether or not the original contract between PCSO and PGMC which
the court in the first Kilosbayan case found to be a joint venture, has been so substantially changed as to
have been effectively converted from a joint venture arrangement to an ordinary equipment lease agreement.
The majority of the Court have concluded that the ELA has been effectively "purged" of the characteristics of
a joint venture arrangement and that it should now be regarded as lawful under the provisions of the revised
PCSO charter.
With very great respect, it is submitted that the above conclusion has been merely assumed rather than
demonstrated and that what is in fact before this Court does not adequately support such conclusion.
I begin with the nature and form of the rental provisions of the ELA. The rental payable by PCSO as lessee of
equipment and other assets owned by PGMC as lessor, is fixed at a specified percentage, 4.3% of the gross
revenues accruing to PCSO out of or in connection with the operation of such equipment and assets. The
rental payable is not, in other words, expressed in terms of a fixed and absolute figure, although a floor
amount per leased terminal is set. Instead, the actual total amount of the rental rises and falls from month to
month as the revenues grow or shrink in volume. I respectfully suggest that thereby the lessor of the facilities
leased has acquired a legal interest either in the business of the lessee PCSO that is conducted through the
operation of such facilities and equipment, or at least in the income stream of PCSO originating from such
operation. 6 In the commercial world, a rental provision cast in terms of a fixed participation in the gross revenues of
the lessee, signals substantial economic interest in the business of such lessee. Such a provision cannot be regarded
as compatible with an "ordinary" equipment rental agreement. On the other hand, it is of the very substance of a
commercial joint venture and of economic collaboration or association.

Another of my distinguished brothers in the Court, Mr. Justice Padilla, remarks that this type of rental
stipulation is fairly common in leases of real estate in, e.g., Makati. This may well be the case. It is, however,
absolutely essential to bear in mind that neither, e.g., Ayala Land, Inc. as lessor-company nor any of the
ordinary commercial enterprises leasing real property in Makati, operate under statutory restrictions like those
in Section 1(B) of R.A. No. 1169 as amended by B.P. Blg. 42 upon PCSO. In the Ayala Center, lessor and
lessee are legally free to devise any rental provision they may agree upon, even if such a provision would
constitute participation by the lessor in the business of the lessee or a joint venture between the two (2).
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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." (Emphasis supplied)
The Solicitor General is clearly not an accountant. In the first place, the so-called "allotment for 'operating
expenses'" is in fact nothing more than a ceiling established by the statute for permissible operating
expenses. The statute commands that the PCSO not spend for its operations more than 15% of its "net
receipts." There is no law requiring PCSO to spend the maximum which it is authorized to spend. Upon the
other hand, law and regulations prohibit the PCSO from spending more than what is in fact reasonably
necessary to produce the revenues targeted by it. Thus, the assertion that the 4.3% rental rate is "well within
the maximum of 15% net receipt fixed by law" is entirely meaningless insofar as 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 of expected];" there is nothing in Section 6 (C) of the PCSO charter that
either requires or justifies the adoption of the rental provision found both in the old contract and in the ELA
giving PGMC a fixed share in gross revenues. The explanation offered by the Solicitor General is
unfortunately merely contrived; its acceptance depends on lack of familiarity with elementary accounting
concepts.
Under the original agreement between PCSO and PGMC, the latter bore the great bulk of the risks and
business burdens involved in their relationship. The consideration for PGMC carrying such business risks and
burdens was set at 4.9% of gross revenues flowing out of the lotto operations. In contrast, under the written
terms of the new contract or ELA, the bulk if not all the risks and business burdens previously borne by
PGMC have apparently been shifted to PCSO. The consideration to PGMC has been reduced from 4.9% to
4.3% of gross revenues arising out of lotto operations.
Considering the nature and number of the business risks and burdens said to be shifted under the provisions
of ELA from PGMC to PCSO, the stipulated reduction of the rental by 0.6% of gross revenues would
appear disproportionately low when appraised in terms of ordinary commercial standards and practice. The
original rental rate was reduced by 12.24% only. 7 Of course, the minimal reduction of the rental rate payable
under the ELA to PGMC would be understandable if one assumes that the business risks and burdens set out in such
detail in the old contract, and moved over to PCSO in equal detail in the new contract, are, in the first place, basically
unreal and merely cosmetic flourishes applied to the contract documentation. But one is extremely loath to make such
an assumption, not only because the record offers no basis for such an assumption, but also because it would raise
far more questions than it would settle. Moreover, the true relationship between the rental rate and the economic
burdens and risks assumed by PCSO under the ELA, will remain unexplained.

Thus, the questions which are provoked by scrutiny of the economic implications of the text of the ELA
(which, it should again be recalled, did not go through the process of public bidding) are so numerous and
consequential that it becomes very difficult to suppose that the ELA is what it purports to be. It is suggested,
with respect, that the burden of showing that the elements found by the Court in the first Kilosbayan case to
constitute the prohibited "collaboration, association or joint venture" have truly (and not simply ostensibly)
been expunged from the relationship between PCSO and PGMC rests, not on Kilosbayan nor on this Court,
but rather on PCSO and PGMC. It is respectfully submitted further that that burden has not been adequately
discharged in the present case by the simple re-arrangement of words and paragraphs of the old contract
considering that the reality of the re-arrangement is controverted by the commercial terms of the new
contract.
One final word. The PCSO appears sincerely convinced that the legal restrictions placed upon its operations
by the actual text of Section 1 (B) of its revised charter prevent it from realizing the kinds and volume of
revenues that it needs for charitable and health and welfare-oriented programs. In this situation, the
appropriate recourse is not to make light of nor to conjure away those legal restrictions but rather to go to the
legislative authority and there ask for further amendment of its charter. In that same forum, the petitioners
may in turn ventilate their own concerns and deeply felt convictions.
For all the foregoing, I vote to grant the Petition for Certiorari.

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Romero and Bellosillo, JJ., concur.


REGALADO, J., dissenting:
I am constrained to respectfully dissent from the majority opinion premised on the constitutional and
procedural doctrines posed and interpreted in tandem therein. I also regret that I have to impose on the
majority with this virtual turno en contra when I could have indicated my disaccord by just joining Mr. Justice
Davide in his commendably objective presentation of the minority position. I feel, however, that certain views
that have been advanced require a rejoinder lest they lapse into the realm of unanimous precedents.
Preliminarily, there is no need to emphasize that the morality of gambling is not a justiciable issue, and that
this Court should not rule on the wisdom of the policy thereon but only on the power of the corresponding
authorities to adopt the same. To my knowledge, the first proposition has never been of concern to or
questioned by any member of this Court throughout its hegira from the first lotto case, 1 then to the jai alai
controversy, 2 and now this so-called sequel to the lottery dispute. The second is a constitutional tenet so hoary with
age that for the majority to still belabor the same would somehow reflect unfavorably upon the dissenting members.

Upon the other hand, the Court may even be misunderstood as adopting an adjudicative pattern designed
against transparency of and inquiry into public affairs. The misperception could very well be that it is glossing
over the validity of the lottery contract by seeking refuge in the rule of locus standi, and suppressing concern
over societal mores on gambling by invoking the doctrine of non-justiciability.
Coming to the real task at hand, we have this resuscitation of the nagging question of locus standi. In the first
lotto case, the Court excepted petitioners from the traditional locus standi proscription because the issues
raised on the indiscriminate operation of a nationwide on-line lottery system are of paramount public interest
and of a category higher than those involved in former cases wherein the application of that rule was
sustained. Respect for that holding was accordingly observed and enjoined in Tatad, et al. vs. Garcia, etc., et
al. 3
That the Court acted correctly in the original case, instead of clinging to the hidebound constitutional dictum of
indeterminate vintage, has been demonstrated in the various opinions filed in the jai alai case with illustrations
of the frequent reexamination of constitutional precepts in the courts of the United States itself from which
they originated. Thus, creating exceptions to said doctrines and even rejecting the same in the interest of
justice are not unusual, and this Court has likewise done so presumably since it agrees that one ought not to
be more popish than the Pope.
Withal, the relaxation or the locus standi doctrine in the first lotto case is impugned and lamented in the
second one now at bar. Yet, with regard to the "law of the case" doctrine, during the deliberations the majority
submitted, and I am borrowing their authority therefor, that "(d)octrine is merely a rule of procedure and does
not go to the power of the court, and will not be adhered to where its application will result in an unjust
decision." 4 I feel that here the majority is thus ignoring the adage about the proverbial sauce being for both the
goose and the gander.

In the first lotto case, the minority therein rested its position entirely on procedural grounds, that is, by merely
challenging the legal standing of petitioners but without any comment on the merits of the contract in
question. Since the case at bar is in truth a reprise of the first, I had expected that this case would now be
decided purely on the merits of the putative expanded lease agreement. Indeed, to make the Court's
judgment here turn again on technical procedural grounds, by hiding within the shroud of the locus standi
mystique, does not strike me as a decisive and conclusive adjudication. While the contract involved is not of
centennial duration, its legal impact on and the social cost to the country should warrant more than an
androgynous solution.
Be that as it may, since the majority opinion has now evolved other adjective theories which are represented
to be either different from or ramifications of the original "standing to sue" objection raised in the first lotto
case, I will hazard my own humble observations thereon.
1. There is, initially, the salvo against the adoption of the "law of the case" doctrine in the original majority
ponencia. It is contended that this doctrine requires, for its applicability, an issue involved in a case originating
from a lower court which is first resolved by an appellate court, that case being then remanded to the court of
origin for further proceedings and with the prior resolution by the higher court of that issue being the "law of
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the case" in any other proceeding in or a subsequent appeal from the same case. It is insinuated that said
doctrine exists only under such a scenario.
It may be conceded that, in the context of the cited cases wherein this doctrine was applied, two "appeals" are
generally involved and the issue resolved in the first appeal cannot be reexamined in the second appeal. If
so, then what is necessarily challenged in the first recourse to the higher court is either an interlocutory order
of the court a quo elevated on an original action for certiorari or an appealable adjudication which nonetheless
did not dispose of the entire case below because it was either a special proceeding or an action admitting of
multiple appeals.
That is the present reglementary situation in the Philippines which, unfortunately, does not appear to have
been taken into account when the double-appeal procedure involved in one particular American concept was
cited as authority in the majority opinion. No attempt was made to ascertain whether in the American cases
cited the lex fori provided for identical or even substantial counterparts of our procedural remedies of review
by a higher court on either an appeal by certiorari or writ of error, or through an original action of certiorari,
prohibition or mandamus. Yet on such unverified premises, and without a showing that the situations are in
pari materia, we are told that since the case at bar does not posses the formatted sequence of an initiatory
action in a lower court, an appeal to a higher court, a remand to the lower court, and then a second appeal to
the higher court, the "law of the case" doctrine cannot apply. I have perforce to reject that submission as I
cannot indulge in the luxury of absolutes espoused by this majority view.
I fear that this majority rule, has unduly constricted the factual and procedural situations where such doctrine
may apply, through its undue insistence on the remedial procedure involved in the proceedings rather than
the juridical effect of the pronouncement of the higher court. Even in American law, the "law of the case"
doctrine was essentially designed to express the practice of courts generally to refuse to reopen what has
been decided 5 and, thereby, to emphasize the rule that the final judgment of the highest court is a final determination
of the rights of the parties. 6 That is the actual and basic role that it was conceived to play in judicial determinations,
just like the rationale for the doctrines of res judicata and conclusiveness of judgment.

Accordingly, the "law of the case" may also arise from an original holding of a higher court on a writ of
certiorari, 7 and is binding not only in subsequent appeals or proceedings in the same case, but also in a subsequent
suit between the same parties. 8 What I wish to underscore is that where, as in the instant case, the holding of this
highest Court on a specific issue was handed down in an original action for certiorari, it has the same binding effect as
it would have had if promulgated in a case on appeal. Furthermore, since in our jurisdiction is an original action for
certiorari to control and set aside a grave abuse of official discretion can be commenced in the Supreme Court itself, it
would be absurd that for its ruling therein to constitute the law of the case, there must first be a remand to a lower
court which naturally could not be the court of origin from which the postulated second appeal should be taken.

2. Obviously realizing that continued reliance on the locus standi bar to petitioner's suit is not an ironclad
guaranty against it, the majority position has taken a different tack. It now invokes the concept of and the rules
on a right of action in ordinary civil actions and, prescinding from its previous position, insists that what is
supposedly determinative of the issue of representation is contract law and not constitutional law. On the
predicate that petitioners are not parties to the contract, primarily or subsidiarily, they then are not real parties
in interest, and for lack of cause of action on their part they have no right of action. Ergo, they cannot maintain
the present petition.
As a matter of a conventional rule of procedure, the syllogism of the majority can claim the merit of logic but,
even so, only on assumed premises. More importantly, however, the blemish in its new blueprint is that the
defense of lack of a right of action is effectively the same as lack of locus standi, that is, the absence of the
remedial right to sue. As the commentators of Castille would say, the objection under the new terminology is
"lo mismo perro con distino collar." That re-christened ground, as we shall later see, has already been
foreclosed by the judgment of the Court in the first lotto case.
It is true that a right of action is the right or standing to enforce a cause of action. For its purposes, the
majority urges the adoption of the standard concept of a real party in interest based on his possession of a
cause of action. It could not have failed to perceive, but nonetheless refuses to concede, that the concept of a
cause of action in public interest cases should not be straitjacketed within its usual narrow confines in private
interest litigations.
Thus, adverting again to American jurisprudence, there is the caveat that "the adoption of a provision
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requiring that an action be prosecuted in the name of the real party in interest does not solve all questions as
to the proper person or persons to institute suit, although it obviously simplifies procedures in actions at law. .
. . There is no clearly defined rule by which one may determine who is or is not the real party in interest, nor
has there been found any concise definition of the term. Who is the real party in interest depends on the
peculiar facts of each separate case, and one may be a party in interest and yet not be the sole real party in
interest." 9 (Emphasis supplied.)
The majority opinion quotes the view of a foreign author but unfortunately fails to put the proper emphasis on
the portion thereof which I believe should be that which should correctly be stressed, and which I
correspondingly reproduce:
It is important to note . . . that standing because of its constitutional and public policy underpinnings, is
very different from questions relating to whether a particular plaintiff is the real party in interest or has
the capacity to sue. Although all three requirements are directed towards ensuring that only certain
parties can maintain an action, standing restrictions require a partial consideration of the merits, as well
as of broader policy concerns relating to the proper role of the judiciary in certain areas. 10
Indeed, if the majority would have its way in this case, there would be no available judicial remedy against
irregularities or excesses in government contracts for lack of a party with legal standing or capacity to sue.
This legal dilemma or vacuum is supposedly remediable under a suggestion submitted in the majority opinion,
to wit:
Denial to petitioners of the right to intervene will not leave without remedy any perceived illegality in the
execution of government contracts. Questions as to the nature or validity of public contracts or the
necessity for a public bidding before they may be made can be raised in an appropriate complaint
before the Commission on Audit or before the Ombudsman . . . . In addition, the Solicitor General is
authorized to bring an action for quo warranto if it should be thought that a government corporation . . .
has offended against its corporate charter or misused its franchise. . . . .
The majority has apparently forgotten its own argument that in the present case petitioners are not the real
parties, hence they cannot avial of any remedial right to file a complaint or suit. It is, therefore, highly
improbable that the Commission on Audit would deign to deal with those whom the majority says are
strangers to the contract. Again, should this Court now sustain the assailed contract, of what avail would be
the suggested recourse to the Ombudsman? Finally, it is a perplexing suggestion that petitioners ask the
Solicitor General to bring a quo warranto suit, either in propria persona or ex relatione, not only because one
has to contend with that official's own views or personal interests but because he is himself the counsel for
respondents in this case. Any proposed remedy must take into account not only the legalities in the case but
also the realities of life.
3. The majority believes that in view of the retirement and replacement of two members of the Court, it is time
to reexamine the ruling in the first lotto case. A previous judgment of the Court may, of course, be revisited but
if the ostensible basis is the change or membership and known positions of the new members anent an issue
pending in a case in the Court, it may not sit well with the public as a judicious policy. This would be similar to
the situation where a judgment promulgated by the Court is held up by a motion for reconsideration and which
motion, just because the present Rules do not provide a time limit for the resolution thereof, stays unresolved
until the appointment of members sympathetic thereto. Thus, the unkind criticisms of "magistrate shopping" or
"court packing" levelled by disgruntled litigants is not unknown to this Court.
I hold the view that the matter of the right of petitioners to file and maintain this action whether the
objection thereto is premised on lack of locus standi or right of action has already been foreclosed by our
judgment in the first lotto case, G.R. No. 113375. If the majority refuses to recognize such right under the "law
of the case'' principle, I see no reason why that particular issue can still be ventilated now as a survivor of the
doctrinal effects or res judicata. 11
It is undeniable that in that case and the one at bar, there is identity of parties, subject matter and cause of
action. Evidently, the judgment in G.R. No. 113375 was rendered by a court of competent jurisdiction, it was
an adjudication on the merits, and has long become final and executory. There is, to be sure, an attempt to
show that the subject matter in the first action is different from that in the instant case, since the former was
the original contract and the latter is the supposed expanded contract. I am not persuaded by the proferred
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distinction.
The removal and replacement of some objectionable terms of a contract, which nevertheless continues to
operate under the same basis, with and on the same property, for the same purpose and through the same
contracting parties does not suffice to extinguish the identity of the subject matter in both cases. This would
be to exalt form over substance. Furthermore, respondents themselves admitted that the new contract is
actually the same as the original one, with just some variants in the terms of the latter to eliminate those
which were objected to. The contrary assumption now being floated by respondents would create chaos in
our remedial and contractual laws, open the door to fraud, and subvert the rules on the finality of judgments.
Yet, even assuming purely ex hypothesi that the amended terms in the expanded lease agreement created a
discrete set of litigable violations of the statutory charter of the Philippine Charity Sweepstakes Office, thereby
collectively resulting in a disparate actionable wrong of delict, that would merely constitute at most a
difference in the causes of action in the former and the present case. Under Section 49(c), Rule 39 of the
Rules of Court, we would still have a situation of collateral estoppel, better known in this jurisdiction as
conclusiveness of judgment. Hence, all relevant issues finally adjudged in the prior judgment shall be
conclusive between the parties in the case now before us, and that definitely includes at the very least the
adjudgment therein that petitioners have the locus standi or the right to sue respondents on the contracts
concerned.
In either case, whether of res judicata, on which I insist, or of conclusiveness of judgment, which I assume
arguendo what is now being primarily resisted is the right of petitioners to sue, aside from the postulated
invalidity of the contract for the government-sponsored lottery system. It does seem odd, if not arcane, that
petitioners were held to have the requisites locus standi or right of action in said G.R. No. 113375 and, for that
matter, were likewise so recognized in the expanded value added tax (EVAT) case, 12 but are now mysteriously
divested of that "place of standing" allegedly due to, for legal purposes, a compelling need for reexamination of the
doctrine, and, for economic reasons, an obsession for autarky of the nation.

4. I repeat what I said at the outset that this case should be decided on the merits and on substantive
considerations, not on dubious technicalities intended to prevent an inquiry into the validity of the supposed
amended lease contract. The people are entitled to the benefit of a duly clarified and translucent transaction,
just as respondents deserve the opportunity, and should even by themselves primarily seek, to be cleansed of
any suspicions or lingering doubts arising from the fact that the sponsors for jai alai and, now, of lotto are
different.
On the merits, to obviate unnecessary replication I reiterate my concurrence with the findings and conclusions
of Mr. Justice Davide in his dissenting opinion, the presentation whereof is completely devoid of strained or
speculative premises, and moreover has the virtue of being based on his first-hand knowledge as a legislator
of the very provisions of the law now in dispute. In this instance and absent any other operative data, I find
the same to be an amply sufficient and highly meritorious analysis of the controversy on the contract.
One concluding point. I am not impressed by the stance of the majority that our taking cognizance of this case
and resolving it on the merits will hereafter invite others to unduly overburden this Court with avoidable
importunities. This sounds like a tongue-in-cheek riposte since the Court has clearly indicated that it sets
aside objections grounded on judge-made constitutional theories only under cogent reasons of substantial
justice and paramount public interest.
On the contrary, to pay unqualified obeisance to the beguiling locus standi or right of action doctrines posited
by the majority in this case would not only be an abdication of a clear judicial duty. It could conceivably result
in depriving the people of recourse to us from dubious government contracts through constitutionally outdated
or procedurally insipid theories for such stultification. This is a contingency which is not only possible, but
probable under our oligarchic society in esse; and not only undesirable, but repugnant within a just regime of
law still in posse.
Romero, J., concurs.
DAVIDE, JR., J., dissenting:
I register a dissenting vote.

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I
I am disturbed by the sudden reversal of our rulings in Kilosbayan, Inc., et al. vs. Guingona, et al. 1 (hereinafter
referred to as the first lotto case) regarding the application or interpretation of the exception clause in paragraph B,
Section 1 of the Charter of the PCSO (R.A.. No. 1169), as amended by B.P. Blg. 442, and on the issue of locus standi
of the petitioners to question the contract of lease involving the on-line lottery system entered into between the
Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation (PGMC). Such
reversal upsets the salutary doctrines of the law of the case, res judicata, and stare decisis. It puts to jeopardy the
faith and confidence of the people, specially the lawyers and litigants, in the certainty and stability of the
pronouncements of this Court. It opens the floodgates to endless litigations for re-examination of such
pronouncements and weakens this Court's judicial and moral authority to demand from lower courts obedience thereto
and to impose sanctions for their opposite conduct.

It must be noted that the decision in the first lotto case was unconditionally accepted by the PCSO and the
PGMC, as can be gleaned from their separate manifestations that they would not ask for its reconsideration
but would, instead, negotiate a new equipment lease agreement consistent with the decision and the PCSO's
charter and that they would furnish the Court a copy of the new agreement. The decision has, thus, become
final on 23 May 1994. 2
As the writer of the said decision and as the author of the exception to paragraph B, Section 1 of R.A. No.
1169, as amended, I cannot accept the strained and tenuous arguments adduced in the majority opinion to
justify the reversal of our rulings in the first lotto case. While there are exceptions to the aforementioned
doctrines and I am not inexorably opposed to upsetting prior decisions if warranted by overwhelming
considerations of justice and irresistible desire to rectify an error, none of such considerations and nothing of
substance or weight can bring this case within any of the exceptions.
In the said case, we sustained the locus standi of the petitioners, and in no uncertain terms declared:
We find the instant petition to be of transcendental importance to the public. The issues it raised are of
paramount public interest and of a category even higher than those involved in many of the aforecited
cases. The ramifications of such issues immeasurably affect the social, economic, and moral wellbeing of the people even in the remotest barangays of the country and the counter-productive and
retrogressive effects of the envisioned on-line lottery system are as staggering as the billions of pesos
its is expected to raise. The legal standing then of the petitioners deserves recognition and, in the
exercise of its sound discretions, this Court hereby brushes aside the procedural barrier which the
respondents tried to take advantage of.
In his concurring opinion, Mr. Justice Florentino P. Feliciano further showed substantive grounds or
considerations of importance which strengthened the legal standing of the petitioner to bring and maintain the
action, namely: (a) the public character of the funds or other assets involved in the contract of lease; (b) the
presence of a clear case of disregard of a constitutional or legal provision by the public respondent agency;
(c) the lack of any other party with a more direct and specific interest in raising the questions involved therein;
and (d) the wide range of impact of the contract of lease and of its implementation.
Only last 6 April 1995, in the decision in Tatad vs. Garcia, 3 this Court, speaking through Mr. Justice Camilo D.
Quiason who had joined in the dissenting opinions in the first lotto case denying the petitioners' locus standi therein,
invoked and applied the ruling on locus standi in the first lotto case. He stated:

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by
the national government or government-owned or controlled corporations allegedly in contravention of
the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only
municipal contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176
SCRA 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow
it and uphold the legal standing of petitioners as taxpayers to institute the present action.
Mr. Justice Santiago M. Kapunan, who had also dissented in the first lotto case on the issue of locus standi;
unqualifiedly concurred with the majority opinion in Tatad. Mr. Justice Vicente V. Mendoza, the writer of the
ponencia in this case, also invoked the locus standi ruling in the first lotto case to deny legal standing to
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Tatad, et al. He said:


Nor do petitioners have standing to bring this suit as citizens. In the cases in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners by
invalidating the challenged statutes or governmental actions. Thus in the Lotto case [Kilosbayan, Inc.
vs. Guingona, 232 SCRA 110 (1994)] relied upon by the majority for upholding petitioner's standing,
this Court took into account the "paramount public interest" involved which "immeasurably affect[ed] the
social, economic, and moral well-being of the people. . . and the counter-productive and retrogressive
effects of the envisioned on-line lottery system." Accordingly, the Court invalidated the contract for the
operation of the lottery.
Chief Justice Andres R. Narvasa and Associate Justices Abdulwahid A. Bidin, Jose A. R. Melo, Reynato S.
Puno, Jose C. Vitug, and Ricardo J. Francisco, joined him in his concurring opinion. Except for the Chief
Justice who took no part in the first lotto case and Justice Francisco who was not yet a member of this Court
at the time, the rest of the Justices who joined the concurring opinion of Justice Mendoza had dissented in the
first lotto case on the said issue.
Furthermore, it must not be forgotten that this Court has defined the issues in this case and limited them to
the following:
1. Whether the challenged ELA constitutes an association, collaboration, or joint venture within the
meaning of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42;
2. Whether the ELA requires prior public bidding; and
3. Whether the ELA is grossly disadvantageous to the Government.
In fact, during the oral arguments of this case on 3 March 1993 this Court aborted the attempt of the principal
counsel for the PGMC, Atty. Renato Cayetano, to revive the issue of locus standi. Since it seemed that he
had prepared himself for and had been assigned to discuss that issue alone, he took his seat without protest
and without a suggestion that he would ask for an expansion of the scope of the issues.
In the first lotto case, this Court also emphatically ruled that the language of Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, is
indisputably clear that with respect to its [PCSO's] franchise or privilege "to hold and conduct charity
sweepstakes races, lotteries and other similar activities," the PCSO cannot exercise it "in collaboration,
association or joint venture" with any other party. This is the unequivocal meaning and import of the
phrase "except for the activities mentioned in the preceding paragraph (A)," namely, "charity
sweepstakes races, lotteries and other similar activities."
In support thereof, we explained how the amendment came about and quoted portions of the Record of the
Batasan 4 on the proceedings during the period of amendments to show the unequivocal intent of the Interim
Batasang Pambansa to proscribe the holding or conducting by the PCSO of sweepstakes races, lotteries, and other
similar activities, "in collaboration, association, or joint venture with any person, association, company, or entity,
whether domestic or foreign." For convenience, I quote what this Court stated in the said case:

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by Committee Report No.
103 as reported out by the Committee on Socio-Economic Planning and Development of the Interim
Batasang Pambansa. The original text of paragraph B, Section 1 of Parliamentary Bill No. 622 reads as
follows:
To engage in any and all investments and related profit-oriented projects or programs and
activities by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, for the main purpose of
raising funds for health and medical assistance and services and charitable grants.
[Record of the Batasan, vol. Two, 993]
During the period of committee amendments, the Committee on Socio-Economic Planning and
Development, through Assemblyman Ronaldo B. Zamora, introduced an amendment by substitution to
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the said paragraph B such that, as amended, it should read as follows:


Subject to the approval of the Minister of Human Settlements, to engage in health-oriented
investments, programs, projects and activities which may be profit-oriented, by itself or in
collaboration, association, or joint venture with any person, association, company or entity,
whether domestic or foreign, for the purpose of providing for permanent and continuing
sources of funds for health programs, including the expansion of existing ones, medical
assistance and services and/or charitable grants. [Id., 1006-1007].
Before the motion of Assemblyman Zamora for the approval of the amendment could be acted upon,
Assemblyman Davide introduced an amendment to the amendment:
MR. DAVIDE:
Mr. Speaker.
THE SPEAKER:
The gentleman from Cebu is recognized.
MR. DAVIDE:
May I introduce an amendment to the committee amendment? The
amendment would be to insert after "foreign" in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with an 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. [Id., 1007, emphasis supplied]
Further amendments to paragraph B were introduced and approved. When Assemblyman Zamora read
the final text of paragraph B as further amended, the earlier approved amendment of Assemblyman
Davide became "EXCEPT FOR THE ACTIVITIES MENTIONED IN PARAGRAPH (A)"; and by virtue of
the amendment introduced by Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted
before PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter, the new
Paragraph B was approved. [Id.] This is now paragraph B, Section 1 of R.A. No. 1169, as amended by
B.P. Blg. 42. 5
This Court further explained the rationale for the prohibition as follows:
No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the
privilege to hold or conduct charity sweepstakes races, lotteries, or other similar activities is a franchise
granted by the legislature to the PCSO. It is a settled rule that "in all grants by the government to
individuals or corporations of rights, privileges and franchises, the words are to be taken most strongly
against the grantee . . . [o]ne who claims a franchise or privilege in derogation of the common rights of
the public must prove his title thereto by a grant which is clearly and definitely expressed, and he
cannot enlarge it by equivocal or doubtful provisions or by probable inferences. Whatever is not
unequivocally granted is withheld. Nothing passes by mere implication." [36 Am Jur 2d Franchises 26
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(1968)].
In short then, by the exception explicitly made in paragraph B, Section 1 of its charter, the PCSO
cannot share its franchise with another by way of collaboration, association or joint venture. Neither can
it assign, transfer, or lease such franchise. It has been said that "the rights and privileges conferred
under a franchise may, without doubt, be assigned or transferred when the grant is to the grantee and
assigns, or is authorized by statute. On the other hand, the right of transfer or assignment may be
restricted by statute or the constitution, or be made subject to the approval of the grantor or a
governmental agency, such as a public utilities commission, except that an existing right of assignment
cannot be impaired by subsequent legislation. [Id., 63].
It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it
to hold and conduct a species of gambling. It is settled that "a statute which authorizes the carrying on
of a gambling activity or business should be strictly construed and every reasonable doubt so resolved
as to limit the powers and rights claimed under its authority. (38 Am Jur 2d Gambling 18 [1968]). 6
The PCSO and the PGMC never challenged our application or interpretation of the exception clause and our
definitions of the terms collaboration, association, and joint venture. On the contrary, they unconditionally
accepted the same by not asking for the reconsideration of our decision in the first lotto case.
Under the principle of either the law of the case or res judicata, the PCSO and the PGMC are bound by the
ruling in the first lotto case on the locus standi of the petitioners and the application or interpretation of the
exception clause in paragraph B, Section 1 of R.A. No. 1169, as amended. Moreover, that application or
interpretation has been laid to rest under the doctrine of stare decisis and has also become part of our legal
system pursuant to Article 8 of the Civil Code which provides: "Judicial decisions applying or interpreting the
laws or the constitution shall form part of the legal system of the Philippines."
These doctrines were not adopted whimsically or capriciously. They are based on public policy and other
considerations of great importance and should not be discarded or jettisoned in a cavalier fashion. Yet, they
are now put to naught in this case.
The principle of the law of the case "is necessary as a matter of policy to end litigation. There would be no
end to a suit if every obstinate litigant could, by repeated appeals, compel a court to listen to criticisms on
their opinions, or speculate on chances from changes in its members." 7
It is, however, contended that the law of the case is inapplicable because that doctrine applies only when a
case is before an appellate court a second time after its remand to a lower court. While indeed the statement
may be correct, it disregards the fact that this case is nothing but a sequel to and is, therefore, for all intents
and purposes, a continuation of the first lotto case. By their conduct, the parties admitted that it is, for which
reason the PGMC and the PCSO submitted in the first lotto case a copy of the ELA in question, and the
petitioners commenced the instant petition also in the said case. Our resolution that the validity of the ELA
could not be decided in the said case because the decision therein had become final does not detract from
the fact that this case is but a continuation of the first lotto case or a new chapter in the raging controversy
between the petitioners, on the one hand, and the PCSO and the PGMC, on the other, on the operation of the
on-line lottery system.
Equally unacceptable is the majority opinion's rejection of the related doctrine of conclusiveness of judgment
on the ground that the question of standing is a legal question, as this case in involves a different or unrelated
contract. The legal question of locus standi which was resolved in favor of the petitioners in the first lotto case
is the same in this case and in every subsequent case which would involve contracts relating or incidental to
the conduct or holding of lotteries by the PCSO in collaboration, association, or joint venture with any person,
association, company, or entity. And, the contract in question is not different from or unrelated to the first
nullified contract, for it is nothing but a substitute for the latter. Respondent Morato was even candid enough
to admit that no new and separate public bidding was conducted for the ELA in question because the PCSO
was of the belief that the public bidding for the nullified contract was sufficient.
Its reliance on the ruling in Montana vs. United States 8 that preclusion of issues or collateral estoppel does not
apply to issues of law, at least when substantially unrelated claims are involved, is misplaced. For one thing, the
question of the petitioners' legal standing in the first lotto case and in this case is one and the same issue of law. For
another, these cases involve the same and not substantially unrelated subject matter, viz., the second contract
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between the PCSO and the PGMC on the operation of the on-line lottery system.

The majority opinion likewise failed to consider that in the very authority it cited regarding the exception to the
rule of issue preclusion (Restatement of the Law, 2d Judgments 28), the second illustration stated therein is
subject to this NOTE: "The doctrine of the stare decisis may lead the court to refuse to reconsider the
question of sovereign immunity," which simply means that stare decisis is an effective bar to a re-examination
of a prior judgment.
The doctrine of stare decisis embodies the legal maxim that a principle or rule of law which has been
established by the decision of a court of controlling jurisdiction will be followed in other cases involving a
similar situation. It is founded on the necessity for securing certainty and stability in the law and does not
require identity or privity of parties. 9 This is explicitly fleshed out in Article 8 of the Civil Code which provides that
decisions applying or interpreting the laws or the constitution shall form part of the legal system. Such decisions
"assume the same authority as the statute itself and, until authoritatively abandoned, necessarily become, to the
extent that they are applicable, the criteria which must control the actuations not only of those called upon to abide
thereby but also of those in duty bound to enforce obedience thereto." 10 Abandonment thereof must be based only
on strong and compelling reasons which I do not find in this case otherwise, the becoming virtue of predictability
which is expected from this Court would be immeasurably affected and the public's confidence in the stability of its
solemn pronouncements diminished.

The doctrine of res judicata also bars a relitigation of the issue of locus standi and a re-examination of the
application or interpretation of the exception clause in paragraph B, Section 1 of R.A. No. 1169, as amended.
Section 49 (b), Rule 39 of the Rules of Court on effects of judgment expressly provides:
(b) In all other cases the judgment or order is, with respect to the matter directly adjudged or as to other
matter that could have been raised in relation thereto, conclusive between the parties and their
successors in interest by title subsequent to the commencement of the action or special proceedings,
litigating for the same thing in the same title and in the same capacity.
This doctrine has dual aspects: (1) as a bar to the prosecution of a second action upon the same claim,
demand, or cause of action; and (2) as preclusion to the relitigation of particular facts or issues in another
action between the same parties on a different claim or cause of action. 11 Public policy, judicial orderliness,
economy of judicial time, and the interest of litigants as well as the peace and order of society, all require that stability
should be accorded judgments; that controversies once decided on their merits shall remain in repose; that
inconsistent judicial decisions shall not be made on the same set of facts; and that there be an end to litigation which,
without the said doctrine, would be endless. It not only puts an end to strife, but recognizes that certainty in legal
relations must be maintained. It produces certainty as to individual rights and gives dignity and respect to judicial
proceedings. 12

The justifications given in the majority opinion to underrate the ruling on locus standi and to ultimately discard
it are unconvincing. It is not at all true, as the majority opinion contends, that "[t]he previous ruling sustaining
petitioners' intervention may in fact be considered a departure from settled rulings on 'real party in interest'
because no constitutional issues were actually involved."
It must be pointed out that the rule in ordinary civil procedure on real party in interest was never put in issue in
the previous case. It was the clear understanding of the Members of the Court that in the light of the issues
raised and the arguments adduced therein, only locus standi deserved consideration. Accordingly, the
majority opinion and the separate dissenting opinions therein dwelt lengthily on locus standi and brought in
the process a vast array of authorities on the issue. Moreover, as explicitly stressed in the concurring opinion
of Justice Feliciano, both constitutional and legal issues were involved therein. Finally, as shall hereafter be
discussed, in public law the rule of real party in interest is subordinated to the doctrine of locus standi.
Equally unconvincing is the majority opinion's contention that the ruling on locus standi in the first lotto case
may not be preserved because the majority vote sustaining the petitioners' standing was a "tenuous one" that
may not be maintained in a subsequent litigation, and that there had been changes in the membership of the
Court due to the retirement of Justices Isagani A. Cruz and Abdulwahid A. Bidin and the appointment of
Justices Vicente V. Mendoza and Ricardo J. Francisco. It has forgotten that, as earlier stated, the ruling was
reiterated in Tatad vs. Garcia. Additionally, when in his concurring opinion in the Tatad case, Justice Mendoza
denied locus standi to Tatad, et al., because their case did not have the same importance as the first lotto
case, he thereby accepted the concession of standing to the petitioners in the lotto case. I wish to stress the
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fact that all the Justices who had dissented in the first lotto case on the issue of locus standi were either for
the majority opinion or for the concurring opinion in the Tatad case. Hence, I can say that the Tatad case has
given vigor and strength to the "tenuous" majority in the first lotto case.
The majority opinion declares that the real issue in this case is not whether the petitioners have locus standi
but whether they are the real parties-in-interest. This proposition is a bold move to set up a bar to taxpayer's
suits or cases invested with public interest by requiring strict compliance with the rule on real party in interest
in ordinary civil actions, thereby effectively subordinating to that rule the doctrine of locus standi. I am not
prepared to be a party to that proposition.
First. Friedenthal; et al., whose book is cited in the majority opinion in its discussion of the rule on real party in
interest and the doctrine of locus standi, admit that there is a difference between the two, and that the former
is not strictly applicable in public law cases, thus:
The evolution of standing doctrine seems to point to greater freedom of action for plaintiffs. However,
the courts still have not articulated how the balance is to be struck between the relevant and often
competing interests: the plaintiff's right to relief and the legislature's right to carry out its policies without
judicial interference. Nor has the judiciary's competence to rule on these interests have analyzed
systematically or its limits defined. Courts essentially continue to be free to reconcile these competing
values on an ad hoc basis.
It is important to note, however, that standing, because of its constitutional and public policy
underpinnings, is very different from questions relating to whether a particular plaintiff is the real party
in interest or has capacity to sue. Although all three requirements are directed toward ensuring that
only certain parties can maintain an action, standing restrictions require a partial consideration of the
merits, as well as of broader policy concerns relating to the proper role of the judiciary in certain areas.
13

In an earlier book, 14 the same Friedenthal and Miller, with, John J. Cound as the lead author, expounded that in the
realm of public law, the real party in interest rule is not applicable, thus:

A third problem of proper parties occurs in the realm of public law. When governmental action is
attacked on the ground that it violates private rights or some constitutional principle, the courts have
tended to analyze the question whether the challenger is a proper party plaintiff to assert the claim in
terms of the judge-made doctrine of standing to sue requiring that plaintiff be adversely affected by
defendant's conduct rather than according to real-party-in-interest or capacity principles. See Davis,
Standing: Taxpayers and Others, 35 U. Chi. L. Rev. 601 (1968); Jaffee, The Citizen as a Litigant in
Public Actions: The Non-Hohfeldian or Ideological Plaintiff, 116 U. Pa. L. Rev. 1033 (1968); and Jaffee,
Standing Again, 84 Harv. L. Rev. 633 (1971). To the extent that standing is understood to mean that the
litigant actually must be injured by the governmental action that is being assailed, it closely resembles
the notion of real party in interest under Rule 17(a). However, several other elements of the standing
doctrine clearly are unrelated to the simple real-party-in-interest test. One significant context in which
the two concepts diverge is when for standing purposes plaintiff is required to show both that he has
been adversely affected by the governmental conduct that is under attack and has suffered an injury to
a legally protected right. When standing is defined in this fashion it may entail a preliminary
consideration of the merits of the case and therefore is quite different from the real-party-in-interest
notion. (emphasis supplied).
The downgrading of locus standi and its subordination to the restrictive rule on real party in interest cannot be
justified by the claim that what is involved here is contract law, not constitutional law. True, contract law is
involved. We are not, however, dealing here with an ordinary contract between private parties, but a contract
between a corporation wholly owned by the government hence, an instrumentality of the government
and a private corporation for the conduct of the lotto, which is invested with paramount and transcendental
public interest and other public policy considerations because the lotto has counter-productive and
retrogressive effects which are as staggering as the billions of pesos it is expected to raise and provokes
issues that immeasurably affect the social, economic, and moral well-being of the people. We said so in the
first lotto case.
Second. The attempt to use the real-party-in-interest rule is to resurrect the abandoned restrictive application
of locus standi. This Court, speaking through the constitutionalist nonpareil, Justice and later Chief Justice
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Enrique Fernando, has already declared in Tan vs. Macapagal 15 that as far as a taxpayer's suit is concerned,
this Court is not devoid of discretion as to whether or not it should be entertained. In his concurring opinion in Aquino
vs. Commission on Elections, 16 he said:

Then there is the attack on the standing of petitioners, as vindicating at most what they consider a
public right and not protecting their rights as individuals. [Respondents' Comment, 5]. This is to conjure
the specter of the public right dogma as an inhibition to parties intent on keeping public officials staying
on the path of constitutionalism. As was so well put by Jaffe [Standing to Secure Judicial Review, 74
Harvard Law Review, 1265 (1961)]: "The protection of private rights is an essential constituent of public
interest and, conversely, without a well-ordered state there could be no enforcement of private rights.
Private and public interests are, both in a substantive and procedural sense, aspects of the totality of
the legal order." [Ibid., 1266. Cf. Berger, Standing to Sue in Public Actions, 78 Yale Law Journal 816
(1969)]. Moreover, petitioners have convincingly shown that in their capacity as taxpayers, their
standing to sue has been amply demonstrated. There would be a retreat from the liberal approach
followed in Pascual v. Secretary of Public Works [110 Phil. 331 (1960)], foreshadowed by the very
decision of People v. Vera [65 Phil. 56 (1937)] where the doctrine was first fully discussed, if we act
differently now. I do not think we are prepared to take that step. Respondents, however, would hark
back to the American Supreme Court doctrine in Mellon v. Frothingham [262 US 447 (1923)], with their
claim that what petitioners possess "is an interest which is shared in common by other people and is
comparatively so minute and indeterminate as to afford any basis and assurance that the judicial
process can act on it." [Respondents' Comment, 5]. That is to speak in the language of a bygone era,
even in the United States. For as Chief Justice Warren clearly pointed out in the later case of Flast v.
Cohen [391 US 83 [1968)], the barrier thus set up if not breached has definitely been lowered. [Ibid.,
92-95]. The weakness of these particular defenses is thus quite apparent. [Cf. Tan v. Macapagal, 43
SCRA 677].
Third. Such attempt directly or indirectly restricts the exercise of the judicial authority of this Court in an
original action and there had been many in the past to determine whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
the Government. Only a very limited few may qualify, under the real-party-in-interest rule, to bring actions to
question acts or contracts tainted with such vice. Where, because of fear of reprisal, undue pressure, or even
connivance with the parties benefited by the contracts or transactions, the so-called real party in interest
chooses not to sue, the patently unconstitutional and illegal contracts or transactions will be placed beyond
the scrutiny of this Court, to the irreparable damage of the Government, and prejudice to public interest and
the general welfare.
By way of illustration, the first lotto contracts would not have reached this Court if only the so-called real party
in interest could bring an action to nullify it. Neither would the ELA in question, since for reasons only known
to them, none of those who had lost in the bidding for the first lotto contract showed interest to challenge it.
The majority opinion posits that a denial to the petitioners of the right to intervene will not leave without
remedy any perceived illegality in the contract because:
[q]uestions as to the nature or validity of public contracts of the necessity for a public bidding before
they may be made can be raised in an appropriate case before the Commission on Audit of before the
Ombudsman. . . . In addition, the Solicitor General is authorized to bring an action for quo warranto if it
should be thought that a government corporation, like the PCSO, has offended against its corporate
charter or misused its franchise.
That proposition delivers the coup de grace to taxpayers' suits, discourages involvement of citizens in public
affairs, and negates or renders ineffective Section 16, Article XIII of the Constitution which provides:
The right of the people and their organizations to effective and reasonable participation at all levels of
social, political, and economic decision-making shall no be abridged. The State shall, by law, facilitate
the establishment of adequate consultation mechanisms.
Besides, it is fraught with unimaginable danger to public interest if neither the Commission on Audit (COA),
nor the Ombudsman, or the Office of the Solicitor General, would take any action on the matter.
In the instant case, the COA refused to directly act on Morato's request and, instead, referred it to the
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Department of Justice (DOJ) which, in turn, merely indorsed an opinion to the COA. On the other hand, the
Office of the Solicitor General is taking the side of the PCSO, as it did in the first lotto case. The observation
then of Justice Cruz in his concurring opinion in the first lotto case is apropos:
Locus standi is not such an absolute rule that it cannot admit of exceptions under certain conditions or
circumstances like those attending this transaction. As I remarked in my dissent in Guazon vs. De Villa,
181 SCRA 623, "It is not only the owner of the burning house who has a right to call the firemen. Every
one has the right and responsibility to prevent the fire from spreading even if he lives in the other
block."
The majority opinion does not entirely foreclose the possibility of according the petitioners locus standi if only
they would allege "that public funds are being misspent so as to make this action a public one and justify
relaxation of the requirement that an action must be prosecuted by the real party in interest." While it may be
true that there is no such specific allegation, the totality of the petitioners' allegations points to illegal
expenditures of public funds due to or arising out of violations of the exception clause in paragraph B, Section
1 of R.A. No. 1169, as amended, and the public bidding law, and by reason of the grossly disadvantageous
provisions of the contract. The public character of the sums due the PGMC under the ELA cannot be
disputed. The PCSO is solely owned by the Government and is authorized to raise funds for the public
purposes specified in its Charter. The funds thus raised are public funds. This Court must take judicial notice
of these facts.
Before I take up the defined issues, I find it necessary to meet squarely the majority opinion's interpretation of
paragraph B, Section 1 of R.A. No. 1169, as amended. This is, of course, on the assumption that this Court
may now disregard the doctrines of the law of the case, res judicata, and stare decisis.
I respectfully submit that the best authority on the intention or rationale of a legislative amendment is its
author. Fortunately, I happened to be the author of the exception clause in said provision. The language of
that clause is very short and simple, and the elaboration given therefor, as earlier shown, is equally short and
simple. The sponsor of the measure, then Assemblyman, now Congressman, Ronaldo Zamora did not even
ask for an explanation or clarification; he readily accepted the amendment. Nobody from the floor
interpellated me for an explanation or clarification.
I regret then to say that neither the letter nor the spirit of the exception clause in paragraph B supports the
interpretation proposed in the majority opinion. The reason given in the majority opinion for the alleged
prohibition from investing in "activities mentioned in the preceding paragraph (A)" (i.e., the holding or
conducting of charity sweepstakes races, lotteries, and other similar activities) is that "these are competing
activities." In that aspect alone, the majority opinion has clearly misconstrued the exception clause. The
prohibition is not directed against such activities, since they are in fact the franchised primary activities of the
PCSO. What is prohibited is the conduct or holding thereof "in collaboration, association or joint venture with
any person, association, company, or entity, whether domestic or foreign." In the first lotto case, this Court
explained the principal reasons for such prohibition. If the purpose of the prohibition in the exception clause is
indeed to prevent competition, it would be with more reason that no other person, natural or juridical, should
be allowed to share in the PCSO's franchise to hold and conduct lotteries. In short, the argument in the
majority opinion sustains the rationale of the prohibition.
II
As to the defined issues, my answers are in the affirmative. To better appreciate them, the minute details of
the undisputed operative facts which are crucial to their resolution must have to be bared.
After its setback n G.R. No. 113375, the PGMC and the PCSO prepared a draft of a new ELA.
On 26 July 1994, the Board of Directors of the PCSO approved Resolution No. 445, 17 series of 1994, resolving
as follows:

NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved, that the draft Equipment Lease
Agreement, hereto attached, is APPROVED, and the Chairman of the Board is AUTHORIZED to enter
into and execute the said Agreement, SUBJECT to the confirmation by the Commission on Audit that
PCSO can enter in the said Agreement.

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On the same date, PCSO Chairman Morato sent a letter to Hon. Celso D. Gangan, Chairman of the COA, 18
seeking confirmation on whether the Equipment Lease Agreement is exempt from the requirements of public bidding
imposed under Executive Order No. 301 (1987) and the pertinent government accounting and auditing rules. The
request was based on the following submissions:

1. Pursuant to the provisions of Republic Act No. 1169, as amended, the Philippine Charity
Sweepstakes Office (PCSO), with the approval of the Office of the President, decided to operate an
On-line lottery System.
2. In August 1993, Request for Proposals (Annex "A") were issued seeking lessors for the On-Line
Lottery System under a build-lease basis at no expense or risk to PCSO.
3. The bids were evaluated by the Special Prequalification Bids and Awards Committee and its bid
report was further evaluated by a Special Review Committee of the Office of the President.
4. On 12 October 1993, the Office of the President announced that it was awarding the Lease Contract
to Philippine Gaming and Management Corporation (PGMC) as lessor, provided that the contract would
similarly be awarded to two (2) other bidders if they matched the terms of PGMC.
Morato invoked the following grounds to justify his request for confirmation:
a. A lease of equipment, with option to purchase, by a government corporation such as the PCSO,
provided this is approved by its governing board, is not generally subject to the public bidding
requirement (Section 4.3, second paragraph, COA Circular No. 85-55-A dated 8 September 1985);
b. The new lease contract is still the result of an award made after public bidding; and
c. In this case, its is apparent that the lease of the needed equipment through negotiation is the most
advantageous to the Government since so many studies, plans and procedures had already been
worked out with PGMC since October 1993 as a result of the previous bidding (Section 1. e, Executive
Order No. 301 [1987]).
The COA indorsed Morato's letter to the DOJ and requested an opinion on the propriety or legality of the
proposed ELA which was entered into without the benefit of a public bidding under E.O. No. 301 and the
pertinent government accounting and auditing rules.
In its Opinion No. 4, series of 1995, 19 contained in a 2nd Indorsement addressed to the COA, dated 16 January
1995, the DOJ, through Acting Secretary Demetrio G. Demetria:

(a) Disagreed with the statement of Morato that any of the three justifications he enumerated in his
letter to the COA may constitute valid basis for the exemption from public bidding.
(b) Declined to express an opinion on the first justification that under COA Circular No. 85-55-A of 8
September 1985 a lease of equipment with option to purchase is not generally subject to public
bidding, since it involves an interpretation of a COA circular which is best left to the COA's
determination.
(c) Expressed doubts on the accuracy of Morato's statement that the new lease contract is still the
result of the award made after public bidding and opined that since the original lease contract was
nullified by this Court, such nullification necessarily implied the nullification of the public bidding which
preceded its execution.
(d) Agreed, nonetheless, with Morato that the new ELA is exempt from the public bidding requirement
under Section 1 (e) of E.O. No. 301, and ratiocinates as follows:
The cited provision reads:
Sec. 1. Guidelines for Negotiated Contracts. Any provision of Law, decree, executive order or other
issuances to the contrary notwithstanding, no contract for public services or for furnishing supplies,
materials and equipment to the government or any of its branches, agencies or instrumentalities shall
be renewed or entered into without public bidding except under any of the following situations:
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xxx xxx xxx


(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
xxx xxx xxx
It should be noted that while public bidding is generally required for contracts for public services or for
furnishing supplies, materials and equipment, paragraph (e), abovequoted, would exempt from the
requirement of public bidding "the requisition of the needed supplies" and would allow the acquisition
thereof through negotiated purchase if deemed most advantageous to the government as determined
by the Department Head concerned.
In the instant case, it is believed that the new lease agreement, although denominated, "Equipment
Lease Agreement", may be considered a contract for furnishing supplies and may fall under the
exception provided for in paragraph (e) if entering into such agreement, through negotiation, is
determined to be the most advantageous by the Department Head concerned.
The words "supplies" and "equipment" are not synonymous. The word "equipment" imports "the outfit
necessary to enable the contractor to perform the agreed service, the tools, implements, and
appliances which might have been previously used or might be subsequently used by the contractor in
carrying on other work of like character" (Standard Boiler Works v. National Surety Co., 71 Wash. 28,
127 Pac. 573). The word "supplies", on the other hand, is defined as "any article entirely consumed by
its use in the work" (National Surety Co. v. Bratnober Lumber Co., 67 Wash. 601, 122, Pac. 337).
It has been held, however, that the true distinction between "supplies" and "equipment" rests on the
effect the use has upon the article, rather than upon the degree of use to which it is subjected. Thus, a
"supply" would be any article furnished for carrying on the work which from its nature is necessarily
consumed by use in the work, while "equipment" would consist of those articles that are not necessarily
so consumed, but which may survive the particular work and be further used on work of like character
(United States Rubber Co. of California v. Washington Engineering Co., 149 P. 706).
In case of lease of equipment, it was held that the rental value of machinery hired by the contractor for
use in carrying on work within the terms of the contract is recoverable from the bondsman as a supply,
the reason for this being that what was consumed in the work was the use of the machinery and not the
machinery itself (United States Rubber Co. vs. Washington Eng'g. Co., supra, citing cases). Applying
this ruling to the instant case, the subject Equipment Lease Agreement, as observed earlier, may be
deemed to be an agreement for furnishing of supplies because by its terms, what will be consumed by
the PCSO, as Lessee, would be the use of the equipment, and not the equipment itself.
Based thereon, the aforesaid Equipment Lease Agreement may be the subject of negotiation pursuant
to Section l(e) of E.O. No. 301 if it be determined to be the most advantageous to the government by
the Department Head concerned.
As earlier stated, on 25 January 1995, the PGMC, represented by Alfredo C. Ramos, its Vice-Chairman, and
the PCSO, represented by Manuel L. Morato, its Chairman, signed the assailed ELA.
A. The PGMC avers that the old contract was reformed to expunge therefrom the features and provisions
which were held by this Court as indicative of the statutorily proscribed collaboration, association, or joint
venture. 20 For their part, the public respondents claim that "as can be glaringly seen from the face of the ELA, none
of the terms and conditions in the old contract of lease which this Honorable Court found as vestiges of a joint venture
is present in the subject ELA." 21

I am not persuaded. To my mind, the parties only performed a superficial surgery on the nullified contract by
merely deleting therefrom provisions which this Court had considered in the first lotto case to be badges of a
joint venture contract and by engrafting some modifications on rental, which include an option to purchase.
The PGMC and the PCSO conveniently forgot that per this Court's findings in the first lotto case, they had an
indivisible community of interest in the conception, birth and growth of the on-line lottery and that each is wed
to the other for better or for worse. The surgery affected only the post-natal activities of the union, but not the
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indivisibility of their community of interest at conception and at the birth of the on-line lottery system. Put
differently, it only separated one from the other from bed and board but did not dissolve the bonds of such
indivisibility or community of interest. This was confirmed by respondent Morato when he candidly confessed
in his letter to the COA Chairman that:
[I]t is apparent that the lease of the needed equipment through negotiations is the most advantageous
to the Government since so many studies, plans and procedures had already been worked out with
PGMC since October 1993 as a result of the previous bidding (Sec. 1.e, Executive Order No. 301
[1987]). (emphasis supplied)
Although Mr. Morato did not volunteer to disclose what those studies, plans, and procedures are, it is logical
to presume that they refer to, among other things, (1) the building of the on-line lottery system, at no expense
of or risk to the PCSO, which was precisely the specific purpose of the Request for Proposals and which
Morato admitted in his "presentation" in his letter to the COA Chairman; and (2) those that this Court had
noted in the first lotto case, to wit: (a) the preparation of the detailed plan of all games and the marketing
thereof; and (b) the determination of the number of players, value of winnings, and the logistics required to
introduce the games, including the Master Games Plan. The indispensable role of the PGMC as a
collaborator, associate, or joint venturer up to that point where actual operation of the on-line lottery system
shall begin was unaffected by the superficial surgery on the text of the nullified contract. Atty. Eleazar Reyes,
co-counsel of Atty. Cayetano for the PGMC, was candid enough to admit during the oral arguments that it
would be extremely difficult for the PGMC and the PCSO to avoid the proscribed "collaboration, association,
or joint venture" under the exception of paragraph B, Section 1 of R.A. No. 1169, as amended. He,
nevertheless, hastened to add that an outright purchase by the PCSO of the PGMC's equipment would be the
best and safest recourse. Thus:
JUSTICE DAVIDE:
Mr. Counsel you just admitted a while ago that it is extremely difficult to comply with the
revised charter of the Philippine Charity Sweepstakes Office insofar as collaboration, joint
venture, association are concerned?
ATTY. REYES:
Yes, Your Honor.
JUSTICE DAVIDE:
But if given the chance to rewrite this contract, what proposal would you give, what
recommendation would you give to your client?
ATTY. REYES:
Your Honor, that is why I said I would leave it to the business judgment of my client.
JUSTICE DAVIDE:
As a lawyer what kind of a contract would you recommend to be rewritten, to satisfy the
law, to satisfy the judgment of this Court in the first case?
ATTY. REYES:
The safest, Your Honor, is a sale.
JUSTICE DAVIDE:
Sale, meaning the Philippine Charity Sweepstakes Office will buy everything?
ATTY. REYES:
Yes, Your Honor.

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JUSTICE DAVIDE:
Why did you not recommend that to your client instead you went into the process [of
drafting the] ELA.
ATTY. REYES:
Because, Your Honor, they do not have the money. They are going to use the proceeds
from the gains for the payment of the rental but they do not have the cash.
JUSTICE DAVIDE:
In the event that this Court will now strike down this agreement as also void, would you
recommend that to your client as a third contract?
ATTY. REYES:
Yes, Your Honor, if the PCSO can pay for it. 22
Besides, even on the face of the new ELA, the elements of the proscribed joint venture or, at the very least,
collaboration or association, can be detected, albeit they are hidden behind the skirt of the following: (a) the
Rental Clause; (b) the upgrading provision under the Repair Services Clause; and (c) the details of what are
embraced in the term Lottery Equipment and Accessories subject of the contract, which are found in Annex
"A" of the ELA. 23
The Rental Clause provides for a flexible rate based on a percentage of the gross amount of ticket sales,
payable bi-weekly, with an annual minimum rental fixed at P35,000.00 per terminal in commercial operation,
any shortfall of which shall be paid out of the proceeds of the current ticket sales. This clause provides in full
as follows:
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, further that the annual minimum fixed rental shall be reduced pro-rata for the
number of days during the year that a terminal is not in commercial operation due to
repairs or breakdown. In the event the aggregate bi-weekly rentals in any year falls short
of the annual minimum fixed rental computed at P35,000.00 per terminal in commercial
operation, the LESSEE shall pay such shortfall from out of the proceeds of the then
current ticket sales from LESSEE's on-line lottery operations in the Territory (after
payment first of prizes and agents' commissions but prior to any other payments,
allocations or disbursements) until said shortfall shall have been fully settled, but without
prejudice to the payment to LESSOR of the then current bi-weekly rentals in accordance
with the provisions of the first sentence of this paragraph 2.
This is an unusually novel arrangement which insures and guarantees the PGMC full participation in the
gross proceeds of ticket sales even if, ultimately, a draw could mean losses to the PCSO. It allots to the
PGMC only a very limited share in the losses since, under any circumstance and the most unfavorable
business climate, the PGMC is assured of an irreducible minimum "rental" per terminal. The term "rental" is
then a very deceptive, yet poorly contrived, disguise to cloak the real role of the PGMC. At the hearing, Atty.
Eleazar Reyes feigned ignorance on how the "rental" of 4.3% of the gross amount of ticket sales was arrived
at. This Court should not wait for the end of the world for any acceptable explanation therefor. The
explanation can easily be had by relating it to the rental of 4.9% of gross receipts from ticket sales under the
nullified contract. The reduction of only 0.6% (4.9% 4.3%) is negligible considering the PCSO's assumption
of, among other things, all business risks; operation of the equipment with the use of its own personnel; risks
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of loss of and damage to the equipment; responsibility for maintenance and repairs, all of which were the
PGMC's duties, obligations, and responsibilities under the nullified contract. I am convinced that such rate
was pre-determined to approximate the profits which the PGMC expected to realize under the nullified
contract. The rental clause is, indeed, a subtle scheme to unconditionally guaranty PGMC's share in the
profits.
If read in conjunction with the upgrading provision buried under the clause "Repair Services" it becomes clear
that the parties do have a different purpose for the use of the term rental.
The Repair Services clause provides as follows:
REPAIR SERVICES
LESSEE shall bear the costs of maintenance and necessary repairs, except those repairs
to correct defective workmanship or replace defective materials used in the manufacture
of Equipment discovered after delivery of the Equipment, in which case LESSOR shall
bear the costs of such repairs and, if necessary, the replacements. The LESSEE may at
any time during the term of the lease, request the LESSOR to upgrade the equipment
and/or increase the number of terminals, in which case the LESSEE and LESSOR shall
agree on an arrangement mutually satisfactory to both of them, upon such terms as may
be mutually agreed upon.
The upgrading provision is full of mischief and is, perhaps, the most deceptive provision in the ELA that puts
to naught any pretense of good faith in expunging from the old contract all indicia of the statutorily proscribed
collaboration, association, or joint venture. It is a provision which is entirely unrelated to the clause under
which it is placed Repair Services. It should have been either set forth as a separate clause or at least
placed under the clause on Equipment. 24
It should be stressed here that in the old contract the upgrading clause is under facilities, which include
among other things all capital equipment, computers, terminals, and softwares. Under the upgrading
provision, new equipment may be used; the number of terminals may be increased; and new terms and
conditions, including rates of "rentals" and the purchase price in case of exercise of the option to buy, may be
agreed upon. This makes the ELA not just a sweetheart contract, but one which will preserve the parties'
indivisible union and community of interest, thereby giving further credence to this Court's observation in the
first lotto case that each is wed to the other for better or for worse.
The term Equipment, which is allegedly the subject of the ELA, includes, per its definition in Annex "A"
thereof, the "associated or incidental hardware equipment, furnishing and fixtures, technology, intellectual
property rights, knowhow, processes and systems." Technology, knowhow, processes, and systems
necessarily include transfer of technology and other expertise which could only be carried out over a number
of years of continuing training and supervision of personnel, which the PGMC is necessarily and logically
required to do. Intellectual property rights can only refer to, among other things, the detailed plans of all
games and the Master Games Plan which, under the nullified contract, are to be prepared by the PGMC.
It may be observed that the term facilities in the old contract included all capital equipment but excluded
"technology, intellectual property rights, knowhow, processes and systems." As this Court found in the first
lotto case, there was a separate provision on the PGMC's obligations (1) to train PCSO and other local
personnel and (2) to effect the transfer of technology and other expertise. 25 Clearly, the inclusion of
"technology, intellectual property rights, knowhow, processes and systems" in the term Equipment was a ploy to hide,
again, the continuing indispensable collaboration of the PGMC in the conduct of the on-line lottery business.

B. Even assuming that the subject ELA is not a joint venture contract, still it must be nullified for having been
entered into without public bidding and for being grossly disadvantageous to the Government. It has been
said:
In this jurisdiction, public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the required bidding is null
and void and cannot adversely affect the rights of third parties. 26
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The opening paragraph of E.O. No. 298, series of 1940, 27 of President Manuel L. Quezon, entitled "Prohibiting
the Automatic Renewal of Contracts, Requiring Public Bidding Before Entering Into New Contracts, Providing
Exceptions Therefor," states this policy:

Whereas, as a matter of general policy, it is in the interest of the public service that Government
contracts for public services or for furnishing of supplies, materials, and equipment to the Government
be submitted to public bidding.
This was restated in E.O No. 301 28 of President Corazon C. Aquino, entitled "Decentralizing Actions on
Government Negotiated Contracts, Lease Contracts and Records Disposal," whose Section 1 reads:

Sec. 1. Guidelines for Negotiated Contracts. Any provision of law, decree, executive order or other
issuances to the contrary notwithstanding, no contract for public services or for furnishing supplies,
materials and equipment to the government or any of its branches, agencies or instrumentalities shall
be renewed or entered into without public bidding, except under any of the following situations:
The Court agrees with DOJ Opinion No. 4, series of 1995, which states that the bidding conducted for the
nullified contract could be a valid basis for the new ELA and that, therefore, a new bidding was in order. The
DOJ erred, however, when it further stated that the ELA is exempt under Section 1(e) of E.O. No. 301 from
the public-bidding requirement.
Sections 1 and 2 of E.O. No. 301 under subdivision A (Decentralization of Negotiated Contracts) read in full
as follows:
Sec. 1. Guidelines for Negotiated Contracts. Any provision of law, decree, executive order or other
issuances to the contrary notwithstanding, no contract for public services or for furnishing supplies,
materials and equipment to the government or any of its branches, agencies or instrumentalities shall
be renewed or entered into without public bidding, except under any of the following situations:
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 subdealers 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.
Sec. 2. Jurisdiction over Negotiated Contracts. In line with the principles of decentralization and
accountability, negotiated contracts for public services or for furnishing supplies, materials or
equipment may be entered into by the department or agency head or the governing board of the
government-owned or controlled corporation concerned, without need of prior approval by higher
authorities, subject to availability of funds, compliance with the standards or guidelines prescribed in
Section 1 hereof, and to the audit jurisdiction of the Commission on Audit in accordance with existing
rules and regulations.
Negotiated contracts involving P2,000,000 up to P10,000,000 shall be signed by the Secretary and two
other Undersecretaries.
It is clear that Sections 1 and 2 refer to contracts for public services, or for furnishing supplies, materials, and
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equipment to the government. In no uncertain terms, the Executive Order itself distinguishes the terms
supplies, materials, and equipment from each other, i.e., it did not intend to consider them as synonymous
terms. If such were the intention, there would have been no need to enumerate them separately and to limit
subparagraphs (a), (b), and (e) to supplies; subparagraph (c) to materials; and subparagraph (f) to all three
(supplies, materials and equipment). The specific mention of supplies in Subparagraphs (a), (b), and (e) was
clearly intended to exclude therefrom materials and equipment, and the specific mention of materials in
subparagraph (c) was likewise intended to exclude supplies and equipment. Expressio unius est exclusio
alterius.
Elsewise stated, the Executive Order leaves no room for a construction that confuses supplies with materials
or equipment or either of the last two with the first or with each other. According to Sutherland: 29
It is an elementary rule of construction that effect must be given, if possible, to every word, clause and
sentence of a statute. A statute should be construed so that effect is given to all its provisions, so that no part
will be inoperative or superfluous, void or insignificant, and so that one section will not destroy another unless
the provision is the result of obvious mistake or error.

In a last-ditch effort to save the ELA, the DOJ opined that the subject ELA could be deemed as an agreement
for furnishing supplies and, in support thereof, cited United States Rubber Co. vs. Washington Eng'g. Co. 30
wherein it was allegedly held that in a lease of equipment, the rental value of machinery hired by the contractor for use
in carrying on work was the use of the machinery and not the machinery itself. The DOJ opinion is outlandish, as the
case it cited did not make the attributed pronouncement. It must have miscomprehended or misappreciated the ruling
in United States Rubber Co. . The said pronouncement is found in Hurley-Mason Co. vs. American Bonding Co., 31
which was cited by the appellant in the United States Rubber Co. case, and which the court did not, in fact, accept.
Thus, the court stated:

But the appellant cites as supporting its contention the case of Hurley-Mason Co. v. American Bonding
Co., 79 Wash. 564, 140 Pac. 575, to which may be added the more recent case of National Lumber &
Box Co. v. Title Guaranty & Surety Co., 149 Pac. 16, which hold that the rental value of machinery
hired by the contractor for use in carrying on work within the terms of the contract is recoverable from
the bondsman as a supply furnished the contractor. These cases proceed on the theory that it was the
use of the machinery that was consumed in the work, not the machinery itself, and that this use being
distinguishable from the machinery could be recovered for against the bondsman as a supply. If this
distinction is sound, then the cases are in line with the other cases cited, as such "use" was necessarily
consumed in carrying on the work. The appellant argues, however, that the distinction is not sound; that
there is no just ground for holding that one who rents to a contractor the tools and working appliances
necessary for the prosecution of a particular work may have recovery against the contractor's
bondsmen for the rental value of the articles furnished, while one who sells the contractor the same
character of articles on credit has no claim against the bondsmen for any part of the purchase price.
But, if this be true, and it be true that the contractor's working equipment is not to be deemed a supply,
it argues that the decisions cited are erroneous, rather than that the appellant's goods fall within the
meaning of the term "supplies."
On the contrary, United States Rubber Co. explicitly distinguished supplies from equipment, thus:
So construing the statute, the definitions of "equipment" and "supply" coincide, and a certain and
natural dividing line is found between them. A "supply" would be any article furnished for carrying on
the work which from its nature is necessarily consumed by use in the work, while "equipment" would
consist of those articles that are not necessarily so consumed, but which may survive the particular
work and be further used on work of like character. In this view also the question actually decided in the
case of National Surety Co. v. Bratnober Lumber Co. harmonizes with the other cases cited, since coal,
like powder and other explosives, and like electricity used for power and other forms of energy used for
the same purpose, is necessarily consumed by its use, and cannot survive for like uses in a similar
character of work.
Tested by these rules, it is plain that the articles furnished by the appellant are not supplies, but are a
part of the contractor's equipment. While they were actually worn out by use in carrying on the work,
they were not articles of such a nature as to be necessarily consumed by such use, and might have
survived, had their use therein been of less duration, for use in subsequent work of like character.

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Besides, subparagraph (e) of Section 1 unequivocally refers to a contract of purchase of supplies. The ELA in
question is not a contract of purchase of supplies. The parties themselves proclaim to the whole world and
solemnly represent to this Court that it is a contract of lease of equipment. They titled it, in bold big letters,
"EQUIPMENT LEASE AGREEMENT," and devote the first clause thereof to EQUIPMENT. Accordingly, since
the ELA is not a contract of purchase of supplies, we are unable to understand why the DOJ applied Section
1(e) of E.O. No. 301 to exempt the ELA from the public-bidding requirement.
The submission of the petitioners that the ELA violates paragraph 4.3 of the COA Rules and Regulations for
the Prevention of Irregular, Unnecessary, Excessive, and Extravagant Expenditures is not persuasive. The
said paragraph covers Lease Purchase contracts. It reads:
4.3 LEASE PURCHASE
The national government may enter into agreement for the lease purchase of equipment
subject to public bidding, the approval of the Office of the Management, and to other
pertinent accounting and auditing religions. Details of the payments shall be indicated in
the lease purchase agreement and accompanied with a certification of availability of
equipment outlay authorized for the agency to cover the full contract cost. The lease
purchase agreement may be entered into only for specialized equipment such as
typewriters, adding machines and automobiles, the purchase price of which is at least
P50,000.00. All lease purchase agreement of equipment the total value of which exceeds
P200,000.00 shall be subject to the approval of the President. Corporations/local
governments may adopt the mechanisms of these lease-purchase agreement subject to
the approval of their legislative or governing boards.
The ELA in question hardly qualifies as a lease purchase contract because there is no perfected agreement
to purchase (sale) but only an option on the part of PCSO to purchase the equipment for P25 million. It is, in
fact, an option which is not supported by a separate and distinct consideration, hence, not really binding upon
the PGMC.
An optional contract is a privilege existing in one person, for which he had paid a consideration, which gives
him the right to buy certain specified property from another person, if he choses, at any time within the agreed
period, at a fixed price. Said contract is separate and distinct contract from the contract which the parties may
enter into upon the consummation of the option. 32 The second paragraph of Article 1479 of the Civil Code
expressly provides that "[an accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the price."

C. A comparison between the nullified contract and the assailed ELA to prove that the latter is grossly
disadvantageous to the PCSO is not at all hampered by any perceived difficulty. As to the almost unrestricted
benefits and advantages which the PCSO were supposed to obtain under the former, the following findings of
this Court in the first lotto case bind the parties:
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its
own nor the expertise to operate and manage an on-line lottery system, and that although it wished to
have the system, it would have it "at no expense or risks to the government." Because of these serious
constraints and unwillingness to bear expenses and assume risks, the PCSO was candid enough to
state in its RFP that it is seeking for "a suitable contractor which shall build, at its own expense, all the
facilities needed to operate and maintain" the system; exclusively bear "all capital, operating expenses
and expansion expenses and risks"; and submit a comprehensive nationwide lottery development plan
. . . which will include the game, the marketing of the games, and the logistics to introduce the game to
all the cities and municipalities of the country within five (5) years"; and that the operation of the on-line
lottery system should be "at no expense or risk to the government" meaning itself, since it is a
government-owned and controlled agency. The facilities referred to means "all capital equipment,
computers, terminals, software, nationwide telecommunications network, ticket sales offices,
furnishings and fixtures, printing costs, costs of salaries and wages, advertising and promotions
expenses, maintenance costs, expansion and replacement costs, security and insurance, and all other
related expenses needed to operate a nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line
lottery system; with the rest, including the risks of the business, being borne by the proponent or bidder.
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It could be for this reason that it warned that "the proponent must be able to stand to the acid test of
proving that it is an entity able to take on the role of responsible maintainer of the on-line lottery
system." The PCSO, however, makes it clear in its RFP that the proponent can propose a period of the
contract which shall not exceed fifteen years, during which time it is assured of a "rental" which shall
not exceed 12% of gross receipts. As admitted by the PGMC, upon learning of the PCSO's decision,
the Berjaya Group Berhad, with its affiliates, wanted to offer its services and resources to the PCSO.
Forthwith, it organized the PGMC as "a medium through which the technical and management services
required for the project would be offered and delivered to PCSO."
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery
system, the PCSO had nothing but its franchise, which it solemnly guaranteed it had in the General
Information of the RFP. Howsoever viewed then, from the very inception, the, PCSO and the PGMC
mutually understood that any arrangement between them would necessarily leave to the PGMC the
technical, operations, and management aspects of the on-line lottery system while the PCSO would,
primarily, provide the franchise. The words Gaming and Management in the corporate name of
respondent Philippine Gaming Management Corporation could not have been conceived just for
euphemistic purposes. Of course, the RFP cannot substitute for the Contract of Lease which was
subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates
their intention and understanding.
xxx xxx xxx
Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the
PGMC represents and warrants that it has access to all managerial and technical expertise to promptly
and effectively carry out the terms of the contract. And, for the period of eight years, the PGMC is
under obligation to keep all the Facilities in safe condition and if necessary, upgrade, replace, and
improve them from time to time as new technology develops to make the on-line lottery system more
cost-effective and competitive; exclusively bear all costs and expenses relating to the printing,
manpower, salaries and wages, advertising and promotion, maintenance, expansion and replacement,
security and insurance, and all other related expenses needed to operate the on-line lottery system;
undertake a positive advertising and promotions campaign for both institutional and product lines
without engaging in negative advertising against other lessors; bear the salaries and related costs of
skilled and qualified personnel for administrative and technical operations; comply with procedural and
coordinating rules issued by the PCSO; and to train PCSO and other local personnel and to effect the
transfer of technology and other expertise, such that at the end of the term of the contract, the PCSO
will be able to effectively take over the Facilities and efficiently operate the on-line lottery system. The
latter simply means that indeed, the managers, technicians or employees who shall operate the on-line
lottery system are not managers, technicians or employees of the PCSO, but of the PGMC and that it is
only after the expiration of the contract that the PCSO will operate the system. After eight years, the
PCSO would automatically become the owner of the Facilities without any other further consideration.
For all the above representations, duties, obligations, and responsibilities, as well as the automatic loss of its
ownership over the facilities without any further consideration in favor of the PCSO after the expiration of only
eight years, the PGMC gets only a so-called rental of 4.9% of gross receipts from ticket sales, payable net of
taxes required by law to be withheld, which may, however, be drastically reduced, or in extreme cases, totally
obliterated because the PGMC bears "all risks if the revenue from ticket sales, on an annualized basis, are
insufficient to pay the entire prize money."
Under the assailed ELA, however, the PGMC is entitled to receive a flexible rental equivalent to 4.3% of the
gross ticket sales (or only 0.6% lower than it was entitled to under the old contract) for the use of its on-line
lottery system equipment (as distinguished from facilities in the old contract), which does not anymore include
the nationwide telecommunications network, without any assumption of business risks and the obligations (1)
to keep the facilities in safe condition and if necessary, to upgrade, replace, and improve them from time to
time as technology develops, and bear all expenses relating thereto; (2) to undertake advertising and
promotions campaign; (3) to bear all taxes, amusements, or other charges imposed on the activities covered
by the contract; (4) to pay the premiums for third party or comprehensive insurance on the facilities: (5) to pay
all expenses for water, light, fuel, lubricants, electric power, gas, and other utilities used and necessary for the
operation of the facilities; and to pay the salaries and related costs of skilled and qualified personnel for
administrative and technical operations and maintenance crew. The PGMC is also given thereunder a special
privilege of receiving P25 million as purchase price for the equipment at the expiration of eight years should
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the PCSO exercise its option to purchase.


Unlike in the old contract where nothing may at all be due the PGMC in the event that the ticket sales,
computed on an annual basis, are insufficient to pay the entire prize money, under the new ELA the PCSO is
under obligation to pay rental equivalent to 4.3% of the gross receipts from ticket sales, the aggregate amount
of which per year should not be less than the minimum annual rental of P35,000.00 per terminal in
commercial operation. Any shortfall shall be paid out of the proceeds of the then current ticket sales after
payment of prizes and agents' commissions but prior to any other payments, allocations, or disbursements.
The grossness of the disadvantage to the PCSO is all too obvious and why the PCSO accepted such
unreasonable, unconscionable, and inequitable terms and conditions confounds us.
The majority opinion, however, glosses over these considerations because it believes that the determination
of the issue of gross disadvantage should not be done through a comparison of the first lotto contract and the
ELA in question.
It says:
Indeed the question is not whether compared with the former joint venture agreement the present lease
contract is "[more] advantageous to the government." The question is whether under the
circumstances, the ELA is the most advantageous contract that could be obtained compared with
similar lease agreements which the PCSO could have made with the other parties.
It then concludes:
Petitioners have not shown that more favorable terms could have been obtained by the PCSO or that
at any rate the ELA, which the PCSO concluded with the PGMC, is disadvantageous to the
government.
That postulation is flawed. It forgets that no other contract proposed by other parties were available for
comparison precisely because no public bidding was conducted. To demand a comparison with non-existing
contracts would be unreasonable.
The challenged ELA must then be declared void for the following reasons: (1) it is a joint venture contract
prohibited under the exception in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42; (2) it
was entered into without the mandatory public bidding; and (3) it is grossly disadvantageous to the PCSO
and, ultimately, the Government.
I therefore vote to GRANT the instant petition and to declare VOID and INVALID the challenged EQUIPMENT
LEASE AGREEMENT (ELA) entered into between the public respondent Philippine Charity Sweepstakes
Office (PCSO) and the private respondent Philippine Gaming Management Corporation (PGMC).
Romero and Bellosillo, JJ., concur.
Footnotes
1 The doctrine of "conclusiveness of judgment" is also called "collateral estoppel" or "preclusion
of issues," as distinguished from "preclusion of claims" or res judicata. In the Rules of Court, the
first (conclusiveness of judgment, collateral estoppel or preclusion of issues) is governed by Rule
39, 49(c), while the second (res judicata or preclusion of claims) is found in Rule 39, 49(b).
2 2 RECORD OF THE BATASAN, Sept. 6, 1979. 1006-07. (Emphasis added)
FELICIANO, J., dissenting:
1 Kilosbayan, Inc., et al. v. Teofisto Guingona, etc., et al., 232 SCRA 110, at 153 (1994).
2 Opening paragraph, Section 1, Revised PCSO charter.
3 The majority opinion contends as follows:
". . . . Had it been [the legislators'] intention to prohibit the PCSO from entering into any
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collaboration, association or joint venture with others even in instances when the
sweepstakes races, lotteries or similar activities are operated by it ('itself'), they would
have made the amendment not in par. (B), but in par. (A), of 1, as the logical place for the
amendment."
In the very next page, the majority opinion quotes then Assemblyman Davide, Jr.:
"MR. DAVIDE: May I introduce an amendment to the committee amendment? The
amendment would be to insert after 'foreign' in the amendment just read the following:
EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with any other entity such collaboration or joint
venture must not include activity letter (a) which is the holding and conducting of
sweepstakes races, lotteries and other similar acts." (Emphases supplied)
It is submitted that Assemblyman Davide's statement is entirely clear and captures the essence
of the amendment he offered with such economy of words.
4 See, e.g., Beltran v. PAIC Finance Corporation, 209 SCRA 105 (1992); Investors Finance
Corporation v. Court of Appeals, 193 SCRA 701 (1991).
5 The majority also seek to bolster the second proposition by what is essentially an argumentum
ad absurdum. Should rescue operations after a calamity like an earthquake require the use of
heavy equipment, there is no law that requires the government to go (with or without a public
bidding) shopping for equipment first before commencing such rescue operations. As a practical
matter, the government (through, e.g., the Department of Public Works and Highways) would
simply order its own equipment to be brought forthwith to the scene of the disaster. Or the
government may resort to the "requisition" or the temporary expropriation of the use of personal
property, i.e., heavy equipment, and thereafter pay compensation for such use.
6 Such an interest on the part of the lessor would, for instance constitute an "insurable interest"
in the business or revenue flow of the lessee so as to enable the lessor to take out insurance
against the occurrence of the risks adversely affecting such business or revenue flow. As to the
breadth and amplitude of the concept of "insurable interest," see, e.g., Key ex rel Heaton v.
Continental Insurance Company, 74 S.W. 162, 165 (1903); Fenter v. General Accident Fire and
Life Assurance Corporation, 484 P. 2d 310 (1971); Leggio v. Millers National Insurance Co., 398
S.W. 2d 607 (1965); Bird v. Central Manufacturers Mut. Ins. Co., 120 P. 2d 753 (1942); Smith v.
Eagle Star Insurance Co., 370 S.W. 2d 448 (1963).
7 During the oral hearing of this case, at least one Member of the Court requested counsel for
PGMC to enlighten the Court as to the structure of the rental provisions, that is to say, to indicate
to the Court the factors or kinds of factors deemed relevant in setting the percentage figure
constituting the rental rate. (TSN, 3 March 1995, pp. 47-57) No useful information was furnished
to the Court either during the hearing or in the pleadings filed thereafter. There has also been no
showing of how the percentage rate and structure of the rental provisions of ELA compare with
the rental provisions in comparable contracts in other parts of the world.
REGALADO, J., dissenting:
1 Kilosbayan, Inc., et al. vs. Guingona Jr., etc., et al., G. R. No. 113375, May 5, 1994, 232 SCRA
110.
2 Lim, etc., et al. vs. Pacquing, etc., et al., G.R. No. 115044, and Guingona, Jr., et al. vs. Reyes,
et al., G.R. No. 117263, jointly decided on January 27, 1995.
3 G.R. No. 114222, April 6, 1995.
4 People vs. Medina, Cal., Cal. Rptr. 630, 635, 492 P.2d 686, cited in Black's Law Dictionary, 6th
ed., 887.
5 White vs. Higgins, C.C.A. Mass., 116 F.2d 312; Fleming vs. Campbell, 148 Kan. 516, 83 P.2d
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708.
6 Atchison, T. & S.F. Ry. Co. vs. Railroad Comm. of California, 209 Cal. 460, 288 P. 775.
7 Goodkind vs. Wolkowsky, 147 Fla. 415, 2 So. 2d 723; Atlantic Coast Line R. Co. vs. Sperry
Flour Co., 63 Ga. App. 611, 11 S.E. 2d 809.
8 Oglethorpe University vs. City of Atlanta, 180 Ga. 152, 178 S.E. 156.
9 59 Am. Jur. 2d, Parties, 429, citing State vs. Estate of Frankel, 94 Misc. 2d 105, 404 NYS2d
954.
10 Citing Friedenthal, Kane and Miller, Civil Procedure, Hornbook Series, 1985 ed., 328.
11 Since this is a Philippine case, I am using the term "res judicata" and, hereafter,
"conclusiveness of judgment" in the Philippine setting and as understood in our jurisdiction. The
importation of the alluring but variegated concepts thereof in American law for application in this
case would compound the confusion, especially if considered along with the rule on collateral
estoppel, whether by judgment or verdict, as understood in U.S. procedural law.
12 Kilosbayan, Inc., et al. vs. Executive Secretary, et al., G.R. No. 115781, August 25, 1994, 235
SCRA 630.
DAVIDE, JR., J., dissenting:
1 G.R. No. 113375, 5 May 1994. Reported in 232 SCRA 110.
2 Rollo, G.R. No. 113375, vol. I, 508.
3 G.R. 114222.
4 Vol. Two, 993; 1006-1007.
5 Those in brackets are in footnotes in the first lotto case.
6 Same as indicated in footnote no. 5.
7 Zarate vs. Director of Lands, 39 Phil. 747, 749 [1919], citing American cases. See also
Fernando vs. Crisostomo, 90 Phil. 585 [1951]; Padilla vs. Paterno, 93 Phil. 884 [1953]; People
vs. Penuila, 103 Phil. 992 [1958]; Kabigting vs. Director of Prisons, 6 SCRA 281 [1962]; People
vs. Olarte, 19 SCRA 494 [1967]; Ramos vs. Intermediate Appellate Court, 171 SCRA 93 [1989].
8 440 U.S. 147, 162, 59 L.Ed., 2d 210, 222 [1979].
9 A.C. FREEMAN, A Treatise on the law of Judgments by Edward W. Tuttle, vol. 2 [1925 ed.],
630, 1329.
10 Caltex (Phils.), Inc. vs. Palomar, 18 SCRA 247 [1966]. See also Floresca vs. Philex Mining
Corp., 136 SCRA 141 [1985]; Philippine Constitution Association vs. Enriquez, 235 SCRA 506
[1994].
11 46 Am Jur 2d Judgments 396, 563.
12 46 Am Jur 2d Judgments 395, 559-562.
13 JACK H. FRIEDENTHAL, MARY KAY KANE, and ARTHUR R. MILLER, Civil Procedure, 328
[1985].
14 JOHN J. COUND, JACK H. FRIEDENTHAL, and ARTHUR R. MILLER, Civil Procedure,
Cases and Materials, 523 [1980].
15 43 SCRA 677 [1972]. See also Macasiano vs. NHA, 224 SCRA 236 [1993].
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16 62 SCRA 275, 308 [1975]. Those in brackets appear in footnotes.


17 Annex "1" to Memorandum for the public respondents; Rollo, 431.
18 Annex "2" to Memorandum for the public respondents; Rollo, 432.
19 Annex "B" of Petition; Rollo, 48 et seq.
20 Comment of the PGMC, 4; Rollo, 206.
21 Comment of the public respondents, 9-10; Id., 254-55.
22 TSN, Oral Arguments of 3 March 1995, 60-62.
23 Rollo, 68-69.
24 Clause 1.
25 232 SCRA 110, 146 [1994].
26 BARTOLOME C. FERNANDEZ, A Treaties on Government Contracts Under Philippine Law,
Revised ed. [1991], 25.
27 Promulgated on 12 August 1940.
28 Promulgated on 26 July 1987.
29 FRANK E. HORACK, JR., Statutes and Statutory Construction by J.G. Sutherland, vol. 2
[1943 ed.] 339.
30 86 Wash 180, 149 Pac. 706.
31 79 Wash. 564, 140 Pac. 575.
32 Enriquez de la Cavada vs. Diaz, 37 Phil. 982 [1918].
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