27. KILOSBAYAN v. GUINGONA
” PCSO cannot share the franchise
Facts:
Petitioners filed a case for the prohibition / injunction
with a prayer for a TRO & preliminary injunction against the
implementation of the Contract of Lease between PCSO &
PGMC in connection to an online lotto system. Petitioners are
suing in their capacity as members of Congress and as
taxpayers. On DECEMBER 17, 1993 the Contract of Lease was
executed and approved by the president on DECEMBER 20,
1993. Petitioner claims that the respondents & the OFFICE OF
THE PRESIDENT gravely abused their discretion tantamount to
a lack of authority by entering into the contract, because:
1. Section 1 of RA 1169 (PCSO Charter) prohibits the
PCSO from conducting lotteries in cooperation with any
entity
2. RA 3846 & jurisprudence require Congresional
franchise before a telecom system (public utility) can be
established
3. Article 12 of Section 11 of the Constitution prohibits
companies with less than 60% Filipino Ownership from
operating a public system
4. PGMG is not authorized by its charter or by RA 7042
(Foreign Investment Act) to install an online Lotto
system
a. The contract shows that PGMC is the actual
operatior while it is a 75% foreign-owned
company. RA 7042 puts all forms of gambling
on the negative list
Respondents answered the allegations by contending:
1. PGMC is only an independent contractor. There is no
shared franchise
2. PCSO will not a operate a public system as a telecom
system is an indispensable requirement of an online
lottery system. Petitioner interpretation of Section 1 of
RA 1169 too narrow.
3. There are no violations of laws
4. The issue of morality is a political one and should not be
resolved in a legal forum
5. Petitioners are without legal standing, as illustrated in
Valmonte vs. PCSO
a. The PCSO is a corporate entity and can enter
into all kinds of contracts to achieve objectives.
Arguing that PCSO will operate a public utility,
it is still exempted under Section of Act 3846,
where legislative franchisees are not
necessary for radio stations
Issues:
1. Whether or not petitioners have standing
2. Whether or not the contract is legal under Section 1 of
RA 1169
Held:
1. Yes, petitioners have standing. Standing is only a
procedural technicality that can be set aside depending
on the importance of an issue. As taxpayers and
citizens to be affected by the reach of the lotto system,
petitioners have standing.
2. No, the contract is illegal. The Court rules in the
negative arguing that “whatever is not unequivocally
granted is withheld.
in any way. The contract’s nature can be understood to
form the intent of the parties as evident in the provisions
of the contract. Article 1371 of the CC provides that the
intent of contracting parties are determined in part
through their acts. The only contribution PCSO will be
giving is the authority to operate. All risks are to be
taken by the lessor; operation will be taken by the
PCSO only after 8 years. Further proof are:
a. Payment of investment acts in the even of
contract suspension / breach
b. Rent not fixed at 4.9% and can be reduced
given that all risks are borne by the lessor
c. Prohibition against PGMC involvement in
competitor games; strange if gaming is PGMC;
business
d. Public stock requirement of 25% in 2 years,
which is unreasonable for a lease contract. It
indicates that PGMC is the operator and the
condition an attempt to increase public benefit
through public involvement.
e. Escrow deposit may be used as performance
bond.
f. PGMC operation evident in personnel
management, procedural and coordinating
rules set by the lessor.
g. PCSO authority to terminate contact upon
PGMC insolvency
The contract indicates that PCSO is the actual lessor of
the authority to operate given the indivisible community
between them.
Wherefore, Petition granted. Contract invalid and TRO made
permanent
Cruz, Concurring:
The respondent was not able to prove the allegations
that the contract was intentionally crafted to appear to be a lease.
PCSO cannot operate without the collaboration of PGMC. The
rental fee underscores the PGMC interest in the success of the
venture, since their income depends on the degree of success.
The transaction is immoral insofar as the activity is fixed by the
foreigners on us with government approval.
Feliciano concurring:
Locus standi reflects an important constitutional
principle: the separation of powers. The rules is that those
assailing statute must show the adverse effect of its
implementation has on them. But it is not a rigid rule. It is not
enough that the court invoke public mistrust or national concern
in brushing aside the requirement, as it would mean standing is
dependent on a majority and is far from being intellectually
satisfying. While no principle has been set for determining
standing, the guidelines are:
1. character of funds involved (is it public in nature?  in
this case, the funds are from the general populace);
taxpayer with right to see taxes used properly.
2. clear disregard of a law prohibiting certain actions of a
public agency – the judicial conclusion on case merits
interact with the notion of locus standi
 3. lack of any party with a more direct and specific interest.
In this case, no other government agency filed suit.
4. wide impact or implementation; in this case, nationwide.
Padilla, concurring:
Gambling is immoral. Petitioner must show a clear,
personal or legal right violated by the assailed law, but the
requirement must be relaxed in the face of paramount national
interest. The PCSO-PGMC contract is clearly a joint venture as
each party contributes its share in the enterprise or project –
PCSO contributes the market.
Melo, dissenting:
The petition must be dismissed for lack of standing.
Petitioners are without a personal stake in the outcome of the
controversy; to invoke public interest is too broad and
indeterminate. Their capacity as taxpayers does not give them
standing; a taxpayer suit can arise only w\hen public funds
derived from taxation are improperly disbursed. PCSO is not a
revenue-collecting fund and as such no public funds are
involved. The funds in question are corporate in nature and will
not fo into the National Treasury. If the petition is entertained, it
may give rise to nuisance suits.
Puno, dissenting:
The requirement of standing to sue inheres from the
definition of judicial power. It is not merely a technical rule.
Section 1, Article 8 of Consti outlines the requirements to be
satisfied / complied with before coming to court:
a) actual case / controversy
b) question of constitutionality raised by the proper party
with actual or potential injury
c) question raised ASAP
d) judicial decision on question raised necessarily to
determine the case.
is without legal basis as the PCSO is a quasi-public
corporation where taxpayer derivative suits cannot be
recognized. The majority struck down the contract on
the basis of a statute, but invoked National Importance
for overlooking standing. There are no Constitutionally-
based arguments. Power unused would be better than
power misused. Petition denied.
Vitug, Separate Opinion:
Tax Payer suits are recognized only insofar as public
funds from taxation are misused. Locus standi is not merely a
procedural rule but the essence of jurisdiction. The petition
strikes at factual issues and requires evidence. The petitioner’s
claim that lottery being a game of chance is a crime against
morals in the REVISED PENAL CODE is misplaced. The Court
has not power to ignore legal mandates. RA 1169 Section 1
authorizes PCSO to conduct lotteries. Petition dismissed.
Kapunan, dissenting:
There is a need to comply with standards before petition
can be recognized. The judiciary has power to decide on cases
only when litigants with real interests at stake file complaints in
accordance with law. The funds in questions are generated from
sources other than taxation / public funds. The Court must
respect the other branches of government; national interest is not
enough reason to encroach on their powers. The judicial power is
to check, not to supplant those powers of elected
representatives. There is no constitutional issue involved; the
question of the contract’s validity should have been brough
before the lower courts. Petition denied.

Even a relaxation of the requirement of standing does not

mean all cases should be heard. Petitioner has no standing
because:
a) not part of the contract
b) petitioners are not personally injured; they won’t even
play
c) no ordinary tax is involved or tax money used, given
that PGMC assumes all risk
d) an action on behalf of other parties must exhibit
personal injury and a need to prevent the erosion of a
third party right

The invocation of constitutional rights and the allegation

of vioalation are untenable. Section 1 Article
13(enhance right to dignity and equality through
property regulation) is a mere policy direction for the
legislative, reminding them to prioritize certain
concerns. Section 11, Aticle 12 (60% Filipino ownership)
violations cannot be determined by the Court as PGMC
has not been proven to be foreign-owned or controlled.
The rulings in DE GUIA VS. COMELEC the Court
treated standing as a procedural rule when in fact it is a
constitutional requirement under Sec 1, Art. 8. In FLAST
VS. COHEN standing was shown to focus on the party
and not the issue. Standing cannot be granted simply
because others cannot come to court. The taxpayer suit