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EN BANC
[ G.R. No. 118910, July 17, 1995 ]
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILOA. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T.
APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSEABCEDE, CHRISTINE TAN, RAFAEL G. FERNANDO, RAOUL. V.VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN.FREDDIE WEBB, SEN. WIGBERTO TAADA, REP. JOKER P.ARROYO, PETITIONERS, VS. MANUEL L. MORATO, IN HISCAPACITY AS CHAIRMAN OF THE PHILIPPINE CHARITYSWEEPSTAKES OFFICE, AND THE PHILIPPINE GAMING
MANAGEMENT CORPORATION, RESPONDENTS.
D E C I S I O N
MENDOZA, J.:
As a result of our decision in G.R. No. 113375 (Kilosbayan, Incorporated v.
Guingona, 232 SCRA 110 (1994)) invalidating the Contract of Lease between the
Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming
Management Corp. (PGMC) on the ground that it had been made in violation of the
charter of the PCSO, the parties entered into negotiations for a new agreement
that would be "consistent with the latter's [PCSO] charter . . . and conformable to
this Honorable Court's aforesaid Decision."
On January 25, 1995, the parties signed an Equipment Lease Agreement (hereafter
called ELA) whereby the PGMC leased on-line lottery equipment and accessories to
the PCSO in consideration of a rental equivalent to 4.3% of the gross amount of
ticket sales derived by the PCSO from the operation of the lottery which in no case
shall be less than an annual rental computed at P35,000.00 per terminal in
commercial operation. The rental is to be computed and paid bi-weekly. In the
event the bi-weekly rentals in any year fall short of the annual minimum fixed rental
thus computed, the PCSO agrees to pay the deficiency out of the proceeds of its
current ticket sales. (Pars. 1-2)
Under the law, 30% of the net receipts from the sale of tickets is allotted to
charity. (R.A. No. L169, 6 (B))
The term of the lease is eight (8) years, commencing from the start of commercial
operation of the lottery equipment first delivered to the lessee pursuant to the
agreed schedule. (Par. 3)
In the operation of the lottery, the PCSO is to employ its own personnel. (Par. 5)
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It is responsible for the loss of, or damage to, the equipment arising from any
cause and for the cost of their maintenance and repair. (Pars. 7-8)
Upon the expiration of the lease, the PCSO has the option to purchase the
equipment for the sum of P25 million.
A copy of the ELA was submitted to the Court by the PGMC in accordance with its
manifestation in the prior case.
On February 21, 1995 this suit was filed seeking to declare the ELA invalid on the
ground that it is substantially the same as the Contract of Lease nullified in the first
case. Petitioners argue:
1. THE AMENDED ELA IS NULL AND VOID SINCE IT IS BASICALLY OR
SUBSTANTIALLY THE SAME AS OR SIMILAR TO THE OLD LEASE CONTRACT
AS REPRESENTED AND ADMITTED BY RESPONDENTS PGMC AND PCSO.
2. ASSUMING ARGUENDO, THAT THE AMENDED ELA IS MATERIALLY DIFFERENT
FROM THE OLD LEASE CONTRACT, THE AMENDED ELA IS NEVERTHELESS
NULL AND VOID FOR BEING INCONSISTENT WITH AND VIOLATIVE OF
PCSO'S CHARTER AND THE DECISION OF THIS HONORABLE COURT OF MAY
5, 1995.
3. THE AMENDED EQUIPMENT LEASE AGREEMENT IS NULL AND VOID FOR
BEING VIOLATIVE OF THE LAW ON PUBLIC BIDDING OF CONTRACTS FOR
FURNISHING SUPPLIES, MATERIALS AND EQUIPMENT TO THE GOVERNMENT,
PARTICULARLY E.O. NO. 301 DATED 26 JULY 1987 AND E.O. NO. 298 DATED
12 AUGUST 1940 AS AMENDED, AS WELL AS THE "RULES AND
REGULATIONS FOR THE PREVENTION OF IRREGULAR, UNNECESSARY,
EXCESSIVE OR EXTRAVAGANT (IUEE) EXPENDITURES PROMULGATED
UNDER COMMISSION ON AUDIT CIRCULAR NO. 85- 55-A DATED SEPTEMBER
8, 1985, CONSIDERING THAT IT WAS AWARDED AND EXECUTED WITHOUT
THE PUBLIC BIDDING REQUIRED UNDER SAID LAWS AND COA RULES AND
REGULATIONS, IT HAS NOT BEEN APPROVED BY THE PRESIDENT OF THE
PHILIPPINES, AND IT IS NOT MOST ADVANTAGEOUS TO THE GOVERNMENT.
4. THE ELA IS VIOLATIVE OF SECTION 2(2), ARTICLE IX-D OF THE 1987
CONSTITUTION IN RELATION TO COA CIRCULAR NO. 85-55-A.
The PCSO and PGMC filed separate comments in which they question the
petitioners' standing to bring this suit. They maintain (1) that the ELA is a
different lease contract with none of the vestiges of a joint venture which were
found in the Contract of Lease nullified in the prior case; (2) that the ELA did not
have to be submitted to a public bidding because it fell within the exception
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provided in E.O. No. 301, 1(e); (3) that the power to determine whether the ELA
is advantageous to the government is vested in the Board of Directors of the
PCSO; (4) that for lack of funds the PCSO cannot purchase its own on-line lottery
equipment and has had to enter into a lease contract; (5) that what petitioners are
actually seeking in this suit is to further their moral crusade and political agenda,
using the Court as their forum.
For reasons set forth below, we hold that petitioners have no cause againstrespondents and therefore their petition should be dismissed.
I. PETITIONERS' STANDING
The Kilosbayan, Inc. is an organization described in its petition as "composed of
civic-spirited citizens, pastors, priests, nuns and lay leaders who are committed to
the cause of truth, justice, and national renewal." Its trustees are also suing in
their individual and collective capacities as "taxpayers and concerned citizens." The
other petitioners (Sen. Freddie Webb, Sen. Wigberto Taada and Rep. Joker P.
Arroyo) are members of Congress suing as such and as "taxpayers and concerned
citizens."
Respondents question the right of petitioners to bring this suit on the ground that,
not being parties to the contract of lease which they seek to nullify, they have no
personal and substantial interest likely to be injured by the enforcement of the
contract. Petitioners on the other hand contend that the ruling in the previous case
sustaining their standing to challenge the validity of the first contract for the
operation of lottery is now the "law of the case" and therefore the question of their
standing can no longer be reopened.
Neither the doctrine of stare decisis nor that of "law of the case," nor that of
conclusiveness of judgment poses a barrier to a determination of petitioners' right
to maintain this suit.
Stare decisis is usually the wise policy. But in this case, concern for stability in
decisional law does not call for adherence to what has recently been laid down as
the rule. The previous ruling sustaining petitioners' intervention may itself be
considered a departure from settled rulings on "real parties in interest" because no
constitutional issues were actually involved. Just five years before that ruling thisCourt had denied standing to a party who, in questioning the validity of another
form of lottery, claimed the right to sue in the capacity of taxpayer, citizen and
member of the Bar. (Valmonte v.Philippine Charity Sweepstakes, G.R. No. 78716,
Sept. 22, 1987) Only recently this Court held that members of Congress have
standing to question the validity of presidential veto on the ground that, if true,
the illegality of the veto would impair their prerogatives as members of Congress.
Conversely if the complaint is not grounded on the impairment of the powers of
Congress, legislators do not have standing to question the validity of any law or
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official action. (Philippine Constitution Association v. Enriquez, 235 SCRA 506
(1994))
There is an additional reason for a reexamination of the ruling on standing. The
voting on petitioners' standing in the previous case was a narrow one, with seven
(7) members sustaining petitioners' standing and six (6) denying petitioners' right
to bring the suit. The majority was thus a tenuous one that is not likely to be
maintained in any subsequent litigation. In addition, there have been changes inthe membership of the Court, with the retirement of Justices Cruz and Bidin and
the appointment of the writer of this opinion and Justice Francisco. Given this fact
it is hardly tenable to insist on the maintenance of the ruling as to petitioners'
standing.
Petitioners argue that inquiry into their right to bring this suit is barred by the
doctrine of "law of the case." We do not think this doctrine is applicable considering
the fact that while this case is a sequel to G.R. No. 113375, it is not its
continuation. The doctrine applies only when a case is before a court a second time
after a ruling by an appellate court. Thus in People v. Pinuila, 103 Phil. 992, 999
(1958), it was stated;
"'Law of the case' has been defined as the opinion delivered on a former
appeal. More specifically, it means that whatever is once irrevocably
established as the controlling legal rule of decision between the same
parties in the same casecontinues to be the law of the case, whether
correct on general principles or not, so long as the facts on which such
decision was predicated continue to be the facts of the case before the
court." (21 C. J. S. 330)
"It may be stated as a rule of general application that, where the
evidence on a second or succeeding appeal is substantially the same as
that on the first or preceding appeal, all matters, questions, points, or
issues adjudicated on the prior appeal are the law of the case on all
subsequent appeals and will not be considered or readjudicated therein.
(5 C.J. S. 1267)
"In accordance with the general rule stated in Section 1821, where, aftera definite determination, the court has remanded the cause for further
action below, it will refuse to examine question other than those arising
subsequently to such determination and remand, or other than the
propriety of the compliance with its mandate; and if the court below has
proceeded in substantial conformity to the directions of the appellate
court, its action will not be questioned on a second appeal. . . .
"As a general rule a decision on a prior appeal of the same case is held
to be the law of the case whether that decision is right or wrong, the
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remedy of the party deeming himself aggrieved being to seek a
rehearing. (5 C. J. S. 1276-77)
"Questions necessarily involved in the decision on a former appeal will be
regarded as the law of the case on a subsequent appeal, although the
questions are not expressly treated in the opinion of the court, as the
presumption is that all the facts in the case bearing on the point decided
have received due consideration whether all or none of them arementioned in the opinion. (5 C. J. S. 1286-87)"
As this Court explained in another case, "The law of the case, as applied to a
former decision of an appellate court, merely expresses the practice of the courts in
refusing to reopen what has been decided. It differs from res judicata in that the
conclusiveness of the first judgment is not dependent upon its finality. The first
judgment is generally, if not universally, not final. It relates entirely to questions
of law, and is confined in its operation to subsequent proceedings in the same
case. . . ." (Municipality of Daetv. Court of Appeals, 93 SCRA 503, 521 (1979))
It follows that since the present case is not the same one litigated by the parties
before in G.R. No. 113375, the ruling there cannot in any sense be regarded as
"the law of this case." The parties are the same but the cases are not.
Nor is inquiry into petitioners' right to maintain this suit foreclosed by the related
doctrine of "conclusiveness of judgment."[1] According to the doctrine, an issue
actually and directly passed upon and determined in a former suit cannot again be
drawn in question in any future action between the same parties involving adifferent cause of action. (Pealosa v. Tuason, 22 Phil. 303, 313 (1912); Heirs of
Roxas v. Galido, 108 Phil. 582 (1960))
It has been held that the rule on conclusiveness of judgment or preclusion of
issues or collateral estoppel does not apply to issues of law, at least when
substantially unrelated claims are involved. (Montana v. United States, 440 U.S.
147, 162, 59 L.Ed.2d 210, 222 (1979); BATOR, MELTZER, MISHKIN AND SHAPIRO,
THE FEDERAL COUNTS AND THE FEDERAL SYSTEM 1058, n. 2 (3rd Ed., 1988))
Following this ruling it was held in Commissioner v. Sunnen,333 U.S. 591, 92 L.Ed.
898 (1947) that where a taxpayer assigned to his wife his interest in a patent in1928 and in a suit it was determined that money paid to his wife for the years
1929-1931 under the 1928 assignment was not part of his taxable income, this
determination is not preclusive in a second action for collection of taxes on
amounts paid to his wife under another deed of assignment for other years (1937
to 1941). For income tax purposes what is decided with respect to one contract is
not conclusive as to any other contract which was not then in issue, however
similar or identical it may be. The rule on collateral estoppel, it was held, "must be
confined to situations where the matter raised in the second suit is identical in all
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respectswith that decided in the first proceeding and where the controlling facts
and applicable legal rules remain unchanged." (333 U.S. at 59-600, 92 L.Ed. at 907)
Consequently, "if the relevant facts in the two cases are separate, even though
they be similar or identical, collateral estoppel does not govern the legal issues
which occur in the second case. Thus the second proceeding may involve an
instrument or transaction identical with, but in a form separable from, the one dealt
with in the first proceeding. In that situation a court is free in the second
proceeding to make an independent examination of the legal matters at issue. . ."(333 U.S. at 601, 92 L.Ed. at 908)
This exception to the General Rule of Issue Preclusion is authoritatively formulated
in Restatement of the Law 2d, on Judgements, as follows:
Sec. 28. Although an issue is actually litigated and determined by a valid and final
judgment, and the determination is essential to the judgment, relitigation of the
issue in a subsequent action between the parties is not precluded in the following
circumstances:
x x x x x x x x x
(2) The issue is one of law and (a) the two actions involve claims that are
substantially unrelated,or (b) a new determination is warranted in order to take
account of an intervening change in the applicable legal context or otherwise to
avoid inequitable administration of the laws; . . .
Illustration:
x x x x x x x x x
2. A brings an action against the municipality of B for tortious injury. The court
sustains B's defense of sovereign immunity and dismisses the action. Several
years later A brings a second action against B for an unrelated tortious injury
occurring after the dismissal. The judgment in the first action is not conclusive on
the question whether the defense of sovereign immunity is available to B. Note:
The doctrine of stare decisis may lead the court to refuse to reconsider the
question of sovereign immunity. See 29, Comment i.
The question whether petitioners have standing to question the Equipment Lease
Agreement or ELA is a legal question. As will presently be shown, the ELA, which
petitioners seek to declare invalid in this proceeding, is essentially different from the
1993 Contract of Lease entered into by the PCSO with the PGMC. Hence the
determination in the prior case (G.R. No. 113375) that petitioners had standing to
challenge the validity of the 1993 Contract of Lease of the parties does not
preclude determination of their standing in the present suit.
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Not only is petitioners' standing a legal issue that may be determined again in this
case. It is, strictly speaking, not even the issue in this case, since standing is a
concept in constitutional law and here no constitutional question is actually
involved. The issue in this case is whether petitioners are the "real parties in
interest" within the meaning of Rule 3, 2 of the Rules of Court which requires that
"Every action must be prosecuted and defended in the name of the real party in
interest."
The difference between the rule on standing and real party in interest has been
noted by authorities thus: "It is important to note . . . that standing because of its
constitutional and public policy underpinnings, is very different from questions
relating to whether a particular plaintiff is the real party in interest or has capacity
to sue. Although all three requirements are directed towards ensuring that only
certain parties can maintain an action, standing restrictions require a partial
consideration of the merits, as well as broader policy concerns relating to the
proper role of the judiciary in certain areas. (FRIEDENTHAL, KANE AND MILLER,
CIVIL PROCEDURE 328 (1985))
Standing is a special concern in constitutional law because in some cases suits are
brought not by parties who have been personally injured by the operation of a law
or by official action taken, but by concerned citizens, taxpayers or voters who
actually sue in the public interest. Hence the question in standing is whether such
parties have "alleged such a personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the presentation of issues upon
which the court so largely depends for illumination of difficult constitutional
questions." (Baker v. Carr, 369 U.S. 186, 7 L.Ed. 2d 633 (1962))
Accordingly, in Valmonte v. Philippine Charity Sweepstakes Office, G.R. No. 78716,
Sept. 22, 1987, standing was denied to a petitioner who sought to declare a form
of lottery known as Instant Sweepstakes invalid because, as the Court held,
Valmonte brings the suit as a citizen, lawyer, taxpayer and father of three (3) minor
children. But nowhere in his petition does petitioner claim that his rights and
privileges as a lawyer or citizen have been directly and personally injured by the
operation of the Instant Sweepstakes. The interest of the person assailing the
constitutionality of a statute must be direct and personal. He must be able to
show, not only that the law is invalid, but also that he has sustained or is inimmediate danger of sustaining some direct injury as a result of its enforcement,
and not merely that he suffers thereby in some indefinite way. It must appear that
the person complaining has been or is about to be denied some right or privilege to
which he is lawfully entitled or that he is about to be subjected to some burdens or
penalties by reason of the statute complained of.
We apprehend no difference between the petitioner in Valmonte and the present
petitioners. Petitioners do not in fact show what particularized interest they have
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for bringing this suit. It does not detract from the high regard for petitioners as
civic leaders to say that their interest falls short of that required to maintain an
action under Rule 3, 2.
It is true that the present action involves not a mere contract between private
individuals but one made by a government corporation. There is, however, no
allegation that public funds are being misspent so as to make this action a public
one and justify relaxation of the requirement that an action must be prosecuted inthe name of the real party in interest. (Valmontev. PCSO, supra; Bugnay Const.
and Dev. Corp.v. Laron, 176 SCRA 240 (1989))
On the other hand, the question as to "real party in interest" is whether he is "the
party who would be benefitted or injured by the judgment, or the `party entitled to
the avails of the suit.'" (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131
(1951))
Petitioners invoke the following Principles and State Policies set forth in Art. II of the
Constitution:
The maintenance of peace and order, the protection of life, liberty, and property,
and the promotion of the general welfare are essential for the enjoyment by all the
people of the blessings of democracy. (5)
The natural and primary right and duty of parents in the rearing of the youth for
civic efficiency and the development of moral character shall receive the support of
the Government. (12)
The State recognizes the vital role of the youth in nation-building and shall promote
their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in
the youth patriotism and nationalism, and encourage their involvement in public and
civic affairs. (13)
The State shall give priority to education, science and technology, arts, culture, and
sports to foster patriotism and nationalism, accelerate social progress, and
promote total human liberation and development. (17)
(Memorandum for Petitioners, p. 7)
These are not, however, self executing provisions, the disregard of which can give
rise to a cause of action in the courts. They do not embody judicially enforceable
constitutional rights but guidelines for legislation.
Thus, while constitutional policies are invoked, this case involves basically questions
of contract law. More specifically, the question is whether petitioners have a legal
right which has been violated.
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In actions for the annulment of contracts, such as this action, the real parties are
those who are parties to the agreement or are bound either principally or
subsidiarily or are prejudiced in their rights with respect to one of the contracting
parties and can show the detriment which would positively result to them from the
contract even though they did not intervene in it (Ibaez v. Hongkong & Shanghai
Bank, 22 Phil. 572 (1912)), or who claim a right to take part in a public bidding but
have been, illegally excluded from it. (See De la Lara Co., Inc. v. Secretary of PublicWorks and Communications, G.R. No. L-13460, Nov. 28, 1958)
These are parties with "a present substantial interest, as distinguished from a mere
expectancy or future, contingent, subordinate, or consequential interest. . . . The
phrase `present substantial interest' more concretely is meant such interest of a
party in the subject matter of the action as will entitle him, under the substantive
law, to recover if the evidence is sufficient, or that he has the legal title to demand
and the defendant will be protected in a payment to or recovery by him." (1
MORAN, COMMENTS ON THE RULERS OF COURT 154-155 (1979)) Thus, in
Gonzales v. Hechanova, 118 Phil. 1065 (1963) petitioner's right to question the
validity of a government contract for the importation of rice was sustained because
he was a rice planter with substantial production, who had a right under the law to
sell to the government.
But petitioners do not have such present substantial interest in the ELA as would
entitle them to bring this suit. Denying to them the right to intervene will not leave
without remedy any perceived illegality in the execution of government contracts.
Questions as to the nature or validity of public contracts or the necessity for a
public bidding before they may be made can be raised in an appropriate case beforethe Commission on Audit or before the Ombudsman. The Constitution requires
that the Ombudsman and his deputies, "as protectors of the people shall act
promptly on complaints filed in any form or manner against public officials or
employees of the government, or any subdivision, agency or instrumentality
thereof including government-owned or controlled corporations." (Art. XI, Sec.
12) In addition, the Solicitor 6eneral is authorized to bring an action for quo
warrantoif it should be thought that a government corporation, like the PCSO, has
offended against its corporate charter or misused its franchise. (Ruler 66, 2(a)
(d))
We now turn to the merits of petitioners' claim constituting their cause of action.
II. THE EQUIPMENT LEASE AGREEMENT
This Court ruled in the previous case that the Contract of Lease, which the PCSO
had entered into with the PGMC on Decembers 17, 1993 for the operation of an
on-line lottery system, was actually a joint venture agreement or, at the very least,
a contract involving "collaboration or association" with another party and, for that
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reason, was void. The Court noted the following features of the contract:
(1) The PCSO had neither funds nor expertise to operate the on-line lottery system
so that it would be dependent on the PGMC for the operation of the lottery system.
(2) The PGMC would exclusively bear all costs and expenses for printing tickets,
payment of salaries and wages of personnel, advertising and promotion and other
expenses for the operation of the lottery system. Mention was made of theprovision, which the Court considered "unusual a lessor-lessee relationship but
inherent in a joint venture," for the payment of the rental not at a fixed amount
but at a certain percentage (4.9%) of the gross receipts from the sale of tickets,
and the possibility that "nothing may be due or demandable at all because the
PGMC binds itself to 'bear all risks if the revenue from the ticket sales, on an
annualized basis, are insufficient to pay the entire prize money.'" (232 SCRA at
147)
(3) It was only after the term of the contract that PCSO personnel would be ready
to operate the lottery system themselves because it would take the entire eight-
year term of the contract for the technology transfer to be completed. In the view
of the Court, this meant that for the duration of the contract, the PGMC would
actually be the operator of the lottery system, and not simply the lessor of
equipment.
The Court considered the Contract of Lease to be actually a joint venture
agreement. From another angle, it said that the arrangement, especially the
provision that all risks were for the account of the PGMC, was in effect a lease by
the PCSO of its franchise to the PGMC.
These features of the old Contract of Lease have been removed in the present
ELA. While the rent is still expressed in terms of percentage (it is now 4.3% of the
gross receipts from the sale of tickets) in the ELA, the PGMC is now guaranteed a
minimum rent of P35,000.00 a year per terminal in commercial operation. (Par. 2)
The PGMC is thus assured of payment of the rental. Thus par. 2 of the ELA
provides:
2. RENTAL
During the effectivity of this Agreement and the term of this lease as provided
in paragraph 3 hereof, LESSEE shall pay rental to LESSOR equivalent to FOUR
POINT THREE PERCENT (4.3%) of the gross amount of ticket sales from all of
LESSEE's on-line lottery operations in the Territory, which rental shall be
computed and payable bi-weekly net of withholding taxes on income, if any:
provided that, in no case shall the annual aggregate rentals per year during
the term of the lease be less than the annual minimum fixed rental computed
at P35,000.00 per terminal in commercial operation per annum, provided,
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further that the annual minimum fixed rental shall be reduced pro-rata for the
number of days during the year that a terminal is not in commercial operation
due to repairs or breakdown. In the event the aggregate bi-weekly rentals in
any year falls short of the annual minimum fixed rental computed at
P35,000.00 per terminal in commercial operation, the LESSEE shall pay such
shortfall from out of the proceeds of the then current ticket sales from
LESSEE's on-line lottery operations in the Territory (after payment first of
prizes and agents' commissions but prior to any other payments, allocationsor disbursements) until said shortfall shall have been fully settled, but without
prejudice to the payment to LESSOR of the then current bi-weekly rentals in
accordance with the provisions of the first sentence of this paragraph 2.
The PCSO now bears all losses because the operation of the system is completely in
its hands. This feature of the new contract negates any doubt that it is anything
but a lease agreement.
It is contended that the rental of 4.3% is substantially the same as the 4.9% in the
old contract because the reduction is negligible especially now that the PCSO
assumes all business risks and risk of loss of, or damage to, equipment.
Petitioners allege that:
PGMC's annual minimum rental is P35,000.00 per terminal or a total of
P70,000,000.00 per annum considering that there are 2,000 terminals per the
amended ELA. In order to meet the amount, based on the 4.3% rental
arrangement without a shortfall, the gross ticket sales must amount to at least
P1,627,906,977.00. Multiplying this amount by 4.9% we get the 4.9% rental fee
fixed under the old lease contract and the product is P79,767,442.00. Deductingfrom this amount the sum of P70,000,000.00 representing the annual minimum
rental under the amended ELA, we get the figure of P9,767,442 which is equivalent
to the .06% difference between the rental under the old lease contract and under
the amended ELA.
This amount of P9,767,442.00 cannot possibly cover the costs, expenses and
obligations shouldered by PGMC under the old lease contract but which are now to
be borne by the PCSO under the new ELA, not to mention the additional P25 million
that the PCSO has to pay the PGMC if the former exercises its option to purchase
the equipment at the end of the lease period under the amended ELA.
(Petition, p. 37)
To be sure there is nothing unusual in fixing the rental as a certain percentage of
the gross receipts. The lease of space in commercial buildings, for example, involves
the payment of a certain percentage of the receipts in rental. Under the Civil Code
(Art. 1643) the only requirement is that the rental be a "price certain." Petitioners
do not claim here that the rental is not a "price certain," simply because it is
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expressed as a certain percentage of the total gross amount of ticket sales.
Indeed it is not alone the fact that in the old contact the rental was expressed in
terms of percentage of the net proceeds from the sale of tickets which was held to
be characteristic of a joint venture agreement. It was the fact that, in the prior
case, he PGMC assumed, in addition, all risks of loss from the operation of the
lottery, with the distinct possibility that nothing might be due it. In the view of the
Court this possibility belied claims that the PGMC had no participation in the lotteryother than being merely the lessor of equipment.
In the new contract the rental is also expressed in terms of percentage of the
gross proceeds from ticket sales because the allocation of the receipts under the
charter of the PCSO is also expressed in percentage, to wit: 55% is set aside for
prizes; 30% for contribution to charity; and 15% for operating expenses and
capital expenditures. (R.A. No. 1169, 6) As the Solicitor General points out in his
Comment filed in behalf of the PCSO:
In the PCSO charter, operating costs are reflected as a percentage of the net
receipts (which is defined as gross receipts less ticket printing costs which shall
not exceed 2% and the 1% granted to the Commission on Higher Education under
Republic Act No. 7722). The mandate of the law is that operating costs, which
include payments for any leased equipment, cannot exceed 15% of net receipts, or
14.55% of gross receipts. The following conclusions are, therefore evident:
a. The 4.3% rental rate for the equipment is well within the maximum of 15%
net receipts fixed by law;
b. To obviate any violation of the law, it is best to express large operating costs
for budgetary purposes as a percentage of either gross or net receipts,
specifically since the amount of gross receipts can only be estimated.
c. Large fixed sums of money for major operating costs, such as fixed rental
for equipment, can very well exceed the maximum percentages fixed by law,
specifically if actual gross receipts are lower than estimates for budgetary
purposes.
d. The problem of budgeting based on estimates is even more difficult when new
projects are involved, as is the case in the on-line lottery.
(PCSO's Comment, pp. 18-20)
Petitioners reply that to obviate the possibility that the rental would not exceed
15% of the net receipts what the respondents should have done was not to agree
on a minimum fixed rental of P35,000.00 per terminal in commercial operation. This
is a matter of business judgment which, in the absence of a clear and convincing
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showing that it was made in grave abuse of discretion of the PCSO, this Court is
not inclined to review. In this case the rental has to be expressed in terms of
percentage of the revenue of the PCSO because rentals are treated in the charter
of the agency (R.A. Not 1169, 6(C)) as "operating expenses" and the allotment
for "operating expenses" is a percentage of the net receipts.
The ELA also provides:
8. REPAIR SERVICES
LESSEE shall bear the costs of maintenance and necessary
repairs, except those repairs to correct defective workmanship or
replace defective materials used in the manufacture of Equipment
discovered after delivery of the Equipment, in which case LESSOR
shall bear the costs of such repairs and, if necessary, the
replacements. The LESSEE may at any time during the term of
the lease, request the LESSOR to upgrade the equipment and/orincrease the number of terminals, in which case the LESSEE and
LESSOR shall agree on an arrangement mutually satisfactory to
both of them, upon such terms as may be mutually agreed upon.
By virtue of this provision on upgrading of equipment, petitioners claim, the parties
can change their entire agreement and thereby, by "clever means and devices,"
enable the PGMC to "actually operate, manage, control and supervise the conduct
and holding of the on-line lottery system," considering that as found in the first
decision, "the PCSO had neither funds of its own nor the expertise to operate andmanage an on-line lottery."
The claim is speculative. It is just as possible to speculate that after sometime
operating the lottery system the PCSO will be able to accumulate enough capital to
enable it to buy its own equipment and gain expertise. As for expertise, after three
months of operation of the on-line lottery, there appears to be no complaint that
the PCSO is relying on others, outside its own personnel, to run the system. In
any case as in the construction of statutes, the presumption is that in making
contracts the government has acted in good faith. The doctrine that the possibility
of abuse is not a reason for denying power to the government holds true also in
cases involving the validity of contracts made by it.
Finally, because the term "Equipment" is defined in tie ELA as including "technology,
intellectual property rights, know-how processes and systems," it is claimed that
these items could only be transferred to the PCSO by the PGMC training PCSO
personnel and this was found in the first case to be a badge of a joint venture.
Like the argument based on the upgrading of equipment, we think this contention
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is also based on speculation rather than on fact or experience. Evidence is needed
to show that the transfer of technology would involve the PCSO and its personnel
in prohibited association or collaboration with the PGMC within the contemplation of
the law.
A contract of lease, as this is defined in Civil law, may call for some form of
collaboration or association between the parties since lease is a "consensual,
bilateral, onerous and commutative contract by which one person binds himself togrant temporarily the use of a thing or the rendering of some service to another
who undertakes to pay some rent, compensation or price." (5 PADILLA, CIVIL
CODE 611 (6TH ED. 1974)). The lessor of a commercial building, it may be
assumed, would be interested in the success of its tenants. But it is untenable to
contend that this is what the charter of the PCSO contemplates in prohibiting it
from entering into "collaboration or association" with any party. It may be added
that even if the PCSO purchases its own equipment, it still needs the assistance of
the PGMC in the initial phase of operation.
We hold that the ELA is a lease contract and that it contains none of the features
of the former contract which were considered "badges of a joint venture
agreement." To further find fault with the new contract would be to cavil and
expose the opposition to the contact to be actually an opposition to lottery under
any and all circumstances. But "[t]he morality of gambling is not a justiciable
issue. Gambling is not illegal per se. . . . It is left to Congress to deal with the
activity as it sees fit." (Magtajas v. Pryce Properties Corp. Inc., 234 SARA 255, 268
(1994). Cf. Lim v. Pacquing, G.R. No. 115044, Jan. 27, 1995) In the case of
lottery, there is no dispute that, to enable the Philippine Charity Sweepstakes Office
to raise funds for charity, Congress authorized the Philippine Charity SweepstakesOffice (PCSO) to hold or conduct lotteries under certain conditions.
We therefore now consider whether under the charter of the PCSO any contract for
the operation of an on-line lottery system, which involves any form of collaboration
or association, is prohibited.
III. THE INTERPRETATION OF 1 OF R.A. 1169
In G.R. No. 113375 it was held that the PCSO does not have the power to enter
into any contract which would involve it in any form of "collaboration, association orjoint venture" for the holding of sweepstakes races, lotteries and other similar
activities. This interpretation must be reexamined especially in determining whether
petitioners have a cause of action.
We hold that the charter of the PCSO does not absolutely prohibit it from holding
or conducting lottery "in collaboration, association or joint venture" with another
party. What the PCSO is prohibited from doing is to invest in a business engaged
in sweepstakes races, lotteries and similar activities, and it is prohibited from doing
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so whether in "collaboration, association or joint venture" with others or "by itself."
The reason for this is that these are competing activities and the PCSO should not
invest in the business of a competitor.
It will be helpful to quote the pertinent provisions of R.A. No. 1169, as amended by
B.P. Blg. 42:
Sec. 1. The Philippine Charity Sweepstakes Office. - The Philippine CharitySweepstakes Office, hereinafter designated the Office, shall be the principal
government agency for raising and providing for funds for health programs, medical
assistance and services and charities of national character, and as such shall have
the general powers conferred in section thirteen of Act Numbered One Thousand
Four Hundred Fifty-Nine, as amended, and shall have the authority:
A. To hold and conduct charity sweepstakes races, lotteries and other similar
activities, in such frequency and manner, as shall be determined, and subject to
such rules and regulations as shall be promulgated by the Board of Directors.
B. Subject to the approval of the Minister of Human Settlements, to engage in
health and welfare-related investments, programs, projects and activities which
may be profit-oriented, by itself or in collaboration, association or joint venture with
any person, association, company or entity, whether domestic or foreign, except
for the activities mentioned in the preceding paragraph (A), for the purpose of
providing for permanent and continuing sources of funds for health programs,
including the expansion of existing ones; medical assistance and services, and/or
charitable grants: Provided, That such investments will not compete with the
private sector in areas where investments are adequate as may be determined bythe National Economic and Development Authority.
When parsed, it will be seen that 1 grants the PCSO authority to do any of the
following: (1) to holdor conductcharity sweepstakes races, lotteries ands similar
activities; and/or (2)to invest- whether "by itselfor in collaboration, association or
joint venture with any person, association, company or entity" - in any "health and
welfare-related investments, programs, projects and activities which may be profit
oriented," except "the activities mentioned in the preceding paragraph (A)," i.e.,
sweepstakes races, lotteries and similar activities. The PCSO is prohibited from
investing in "activities mentioned in the preceding paragraph (A)" because, asalready stated, these are competing activities.
The subject matter of 1(B) is the authority or the PCSO to invest in certain
projects for profit in order to enable it to expand its health programs, medical
assistance and charitable grants. The exception in the law refers to investment in
businesses engaged in sweepstakes races, lotteries and similar activities. The
limitation applies not only when the investment is undertaken by the PCSO "in
collaboration, association or joint venture" but also when made by the PCSO alone,
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"by itself." The prohibition can not apply to the holding of a lottery by the PCSO
itself. Otherwise, what it is authorized to do in par. (A) would be negated by what
is prohibited by par. (B).
To harmonize pars. (A) and (B), the latter must be read as referring to the
authority of the PCSO to invest in the business of others. Put in another way, the
prohibition in 1(B) is not so much against the PCSO entering into any
collaboration, association or joint venture with others as against the PCSOinvestingin the business of another franchise holder which would directly compete
with PCSO's own charity sweepstakes races, lotteries or similar activities. The
prohibition apples whether the PCSO makes the investment alone or with others.
The contrary construction given to 1 in the previous decision is based on remarks
made by then Assemblyman, now Mr. Justice, Davide during the deliberations on
what lainter became B.P. Blg. 42, amending R.A. No. 1169. It appears, however,
that the remarks were made in connection with a proposal to give the PCSO the
authority "to engagein any and all investments." It was to provide exception with
regard to the type of investments which the PCSO is authorized to make that the
Davide amendment was adopted. It is reasonable to suppose that the members of
the Batasan Pambansa, in approving the amendment, understood it as referring to
the exception to par. (B) of 1 giving the PCSO the power to make investments.
Had it been their intention to prohibit the PCSO from entering into any
collaboration, association or joint venture with others even in instances when the
sweepstakes races, lotteries or similar activities are operated by it ("itself"), they
would have made the amendment not in par. (B), but in par. (A), of 1, as the
logical place for them amendment.
The following excerpt[2]from the record of the discussion on Parliamentary Bill No.
622, which became B.P. Blg. 422, bears out this conclusion:
MR. ZAMORA. On the same page, starting from line 18 until line 23, delete the
entire paragraph from "b. to engage in any and all investment. . . ." until the words
"charitable grants" on line 23 and in lieu thereof insert the following:
SUBJECT TO THE APPROVAL OF THEE MINISTER OF HUMAN
SETTLEMENTS, TO ENGAGE IN HEALTH-ORIENTED INVEST MENTS,PROGRAMS, PROJECTS AND ACTIVITIES WHICH MAY BE PROFIT-
ORIENTED, BY ITSELF OR IN COLLABORATION, ASSOAIATION, OR
JOINT VENTURE WITH ANY PERSON, ASSOCIATION, COMPANY OR
ENTITY, WHETHER DOMESTIC OR FOREIGN, FOR THE PURPOSE OF
PROVIDING FOR PERMANENT AND CONTINUING SOURCES OF FUNDS
FOR HEALTH PROGRAMS, INCLUDING THE EXPANSION OF EXISTING
ONES, MEDICAL ASSISTANAE AND SERVICES AND/OR CHARITABLE
GRANTS.
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I move for approval of the amendment, Mr. Speaker.
MR. DAVIDE. Mr. Speaker.
THE SPEAKER. The gentleman from Cebu is recognized.
MR. DAVIDE. May I introduce an amendment to the committee amendment? Theamendment would be to insert after "foreign" in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is a joint venture or in collaboration with any other entity such
collaboration or joint venture must not include activity letter (a) which is the
holding and conducting of sweepstakes races, lotteries and other similar acts.
MR. ZAMORA. We accept the amendment, Mr. Speaker.
MR. DAVIDE. Thank you, Mr. Speaker.
THE SPEAKER. Is there any objection to the amendment? (Silence) The
amendment, as amended, is approved.
MR. ZAMORA. Continuing the line, Mr. Speaker, after "charitable grants" change the
period (.) into a semi-colon (;) and ad the following proviso: PROVIDED, THAT
SUCH INVESTMENTS, PROGRAMS, PROJECTS AND ACTIVITIES SHALL NOT
COMPETE WITH THE PRIVATE SECTOR IN AREAS WHERE PRIVATE INVESTMENTS
ARE ADEQUATE.
May I read the whole paragraph, Mr. Speaker.
MR. DAVIDE. May I introduce an amendment after "adequate". The intention of the
amendment is not to leave the determination of whether it is adequate or not to
anybody. And my amendment is to add after "adequate" the words AS MAY BE
DETERMINED BY THE NATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY. As a
matter of fact, it will strengthen the authority to invest in these areas, provided
that the determination of whether the private sector's activity is already adequate
must be determined by the National Economic and Development Authority.
MR. ZAMORA. Mr. Speaker, the committee accepts the proposed amendment.
MR. DAVIDE. Thank you, Mr. Speaker.
THE SPEAKER. May the sponsor now read the entire paragraph?
MR. ZAMORA. May I read the paragraph, Mr. Speaker.
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"Subject to the Minister of Human Settlements, to engage in health and
welfare-oriented investment programs, projects, and activities which
may be profit-oriented, by itself or in collaboration, association or joint
venture with any person, association, company or entity, whether
domestic or foreign, EXCEPT FOR THE ACTIVITIES MENTIONED IN
PARAGRAPH (a) for the purpose of providing for permanent and
continuing sources of funds for health programs, including the
expansion of existing ones, medical assistance and services and/or
charitable grants: PROVIDED THAT SUCH INVESTMENTS, HEALTH
PROGRAMS, PROJECTS AND ACTIVITIES SHALL NOT COMPETE WITH
THE PRIVATE SECTOR IN AREAS WHERE PRIVATE INVESTMENTS ARE
ADEQUATE AS MAY BE DETERMINED BY THE NATIONAL AND
ECONOMIC DEVELOPMENT AUTHORITY."
THE SPEAKER. Is there any objection to the amendment?
MR. PELAEZ. Mr. Speaker.
THE SPEAKER. The Gentleman from Misamis Oriental is recognized.
MR. PELAEZ. Mr. Speaker, may I suggest that in that proviso, we remove "health
programs, projects and activities," because the proviso refers only to investment
activities "provided that such investments will not compete with the private
sector in areas where investments are adequate . . ."
MR. ZAMORA. It is accepted, Mr. Speaker.
THE SPEAKER. Is there any objection?
MR. PELAEZ. Mr. Speaker, may I propose an improvement to the amendment of
the Gentleman from Cebu, just for style, I would suggest the insertion of the word
PRECEDING before the word "paragraph." The phrase will read "the PRECEDING
paragraph."
MR. ZAMORA. It is accepted, Mr. Speaker.
THE SPEAKER. Very well. Is there any objection to the committee amendment, as
amended? (Silence) The Chair hears none; the amendment is approved.
The construction given to 1 in the previous decision is insupportable in light of
both the text of 1 and the deliberations of the Batasang Pambansa which enacted
the amendatory law.
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IV. REQUIREMENT OF PUBLIC BIDDING
Finally the question is whether the ELA is subject to public bidding. In justifying the
award of the contract to the PGMC without public bidding, the PCSO invokes E.O.
No. 301, which states in pertinent part:
1. Guidelines for Negotiated Contracts. Any provision of law, decree, executive
order or other issuances to the contrary notwithstanding, no contract for publicservices or for furnishing supplies, materials and equipment to the government or
any of its branches, agencies or instrumentalities shall be renewed or entered into
without public bidding, except under any of the following situations.
a. Whenever the supplies are urgently needed to meet an emergency which may
involve the loss of, or danger to, life and/or property:
b. Whenever the supplies are to be used in connection with a project or activity
which cannot be delayed without causing detriment to the public service;
c. Whenever the materials are sold by an exclusive distributor or manufacturer
who does not have sub-dealers selling at lower prices and for which no
suitable substitute can be obtained elsewhere at more advantageous terms to
the government;
d. Whenever the supplies under procurement have been unsuccessfully placed
on bid for at least two consecutive times, either due to lack of bidders or the
offers received in each instance were exorbitant or non- conforming to
specifications:
e. In cases where it is apparent that the requisition of the needed supplies
through negotiated purchase is most advantageous to the government to be
determined by the Department Head concerned; and
f. Whenever the purchase is made from an agency of the government.
Petitioners point out that while the general rule requiring public bidding covers
"contract[s] for public services or for furnishing supplies, materialsand equipment"
to the government or to any of its branches, agencies or instrumentalities, the
exceptions in pars. (a), (b), (d), (e) and (f) refer to contracts for the furnishing of
supplies only, while par. (c) refers to the furnishing of materials, only. They argue
that as the general rule covers the furnishing of "supplies, materials and
equipment," the reference in the exceptions to the furnishing of "supplies" must be
understood as excluding the furnishing of any of the other items, i.e., "materials"
and "equipment."
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In my separate concurring opinion in the first lotto case (G.R. No. 113375), I
expressed the view that the rule on locus standi, being merely a procedural rule,
should be relaxed, as the issue then was of paramount national interest and
importance, namely, the legality of a lease contract entered into by PCSO with
PGMC whereby the former sought to operate an "on-line high-tech" lottery,
undeniably a form of gambling, the terms of which clearly pointed to an
"association, collaboration or joint venture" with PGMC.
The core issue in the present case is the same as the issue in the first lotto case,
i.e., the validity of a changed agreement between PCSO and PGMC. Thus, it is my
view that the principle of locus standishould not stand in the way of a review by
this Court of the validity of such changed agreement.
The specific issues in the present case were formulated by the Court during the
hearing held on 3 March 1995 thus:
1. whether the challenged Equipment Lease Agreement (ELA for short) between
PCSO and PGMC constitutes an "association, collaboration or joint venture"
between the two (2) entities within the meaning of Section 1(b) of Republic Act No.
1169 as amended by Batas Pambansa Blg. 42 and therefore prohibited by said law;
2. whether the ELA requires a prior public bidding; and
3. whether the ELA is grossly disadvantageous to the government.
On the first specific issue, no less than petitioners admit in their petition that theELA is substantially different from the contract declared void by this Court in G.R.
No. 113375. Attached to the petition in this case (Annex "D") is a 14-page
comparison between the first contract and the ELA, showing such differences.
Petitioners do not deny that the objectionable provisions in the first contract are no
longer found in the ELA. In fact, as I had stated in my opinion on the issue of
whether or not to grant a temporary restraining order (TRO) in this case, the ELA
isprima faciea simple contract of lease of equipment where PCSO is bound to pay
a minimum amount as rental plus a fixed percentage of gross receipts from the
sales of lottery tickets, with an option given PCSO to purchase the leased
equipment upon expiration of the lease contract.
The argument that the ELA still constitutes a prohibited "association, collaboration
or joint venture" with PGMC is, in my view, a much too strained interpretation of
the law which results from a less than pragmatic analysis of the issue.
To my mind, the question of whether or not the ELA constitutes "association,
collaboration or joint venture" between PCSO and PGMC should be tackled by
looking at the nature of a contract of lease.
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A lease is a contract whereby one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain and for a period which may be
definite or indefinite (Article 1643, Civil Code).
It would appear from the above legal provision that the ELA is truly a straight
contract of lease. That the parties to the ELA have stipulated on flexible rentals
does not render it less of a lease contract and more of a joint venture. Surely, thePGMC as owner of the leased equipment is free to demand the amount of rentals it
deems commensurate for the use thereof and, as long as PCSO agrees to the
amount of such rentals, as justifying an adequate net return to it, then the
contract is valid and binding between the parties thereto. This is the essence of
freedom to enter into contracts.
Petitioners have not cited any law which prevents such stipulations to be included in
contracts of lease or which changes the nature of such agreement from a lease to
some other juridical relation. In fact, such stipulations are common in leases of real
estate for commercial purposes. A ruling that would prevent PCSO from entering
into such lease agreement for the operation by PCSO of the lottery would defeat
the intent of the law to raise, from such lotto operations, funds for charitable
institutions and government civic projects, because an outright purchase by PCSO
of the lottery equipment appears next to impossible or at least not feasible cost?
wise considering the capital requirement involved. In enacting the law creating the
PCSO, Congress, to be sure, did not intend to make it impossible for PCSO to
attain its given purposes. A rigid interpretation of the restriction on "association,
collaboration, and joint venture" will result in such impossibility.
Neither can petitioners' arguments that certain provisions in the ELA will ensure
PGMC's continued participation and interest in the lottery operations provide
enough grounds for granting the petition in this case. Such arguments are based
on speculations devoid of any material or concrete factual basis.
In sum, the ELA constitutes, in my view, a straight lease agreement of equipment
between PCSO and PGMC. Such an agreement is, as far as PCSO's charter is
concerned, validly and lawfully entered into.
On the allegation of lack of public bidding on the ELA, the Commission on Audit(COA) has yet to resolve a case where the issue of the validity of the ELA due to
lack of public bidding has been squarely raised. This matter surfaced during the
hearing of the present case. Needless to say, the Court should not preempt the
determination and judgment of the COA on matters which are within its primary
jurisdiction under the Constitution.
As to whether or not the ELA is grossly disadvantageous to the government, it
should be stressed that the matter involves, basically, a policy - determination by
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the executive branch which this Court should not ordinarily reverse or substitute
with its own judgment, in keeping with the time honored doctrine of separation of
powers.
Based on the foregoing considerations, I vote to DISMISS the petition.
DISSENTING OPINION
FELICIANO, J.:
I find myself regretfully quite unable to join the majority opinion written by my
distinguished brother in the Court, Mendoza, J.
I join the penetrating dissenting opinions written by my esteemed brothersRegalado and Davide, Jr., JJ. In respect of the matter of locus standi, I would also
reiterate the concurring opinion I wrote on that subject in the first Kilosbayan case.
[1]All the factors which, to my mind, pressed for recognition of locus standi on the
part of petitioners in the first Kilosbayan case, still exist and demand, with equal
weight and insistence, such recognition in the present or second Kilosbayan case. I
fear that the Court may well have occasion in the future profoundly to regret the
doctrinal ball and chain that we have today clamped on our own limbs.
In the paragraphs which follow, I seek to address three (3) major substantivepoints made in the majority opinion: firstly, the new interpretation of Section 1 (B)
of the PCSO charter as amended by B.P. Blg. 42; secondly, the question of whether
the "Equipment Lease Agreement" (ELA) is subject to the requirements of public
bidding; and lastly, the question of whether the ELA has been effectively "purged"
of the characteristics of a prohibited joint venture arrangement or collaboration or
association.
I
I turn first to the novel argument made in the majority opinion that the charter ofPCSO does not "prohibit[] it from holding or conducting lottery in collaboration,
association or joint venture with another party." That opinion argues that "what
[PCSO] is prohibited from doing is to invest in a business engaged in sweepstakes
races, lotteries and similar activities" which are "competing activities and the PCSO
should not invest in the business of a competitor."
In so doing, my learned brother Mendoza, J. purports to controvert and overturn
the reading that the majority of this Court, through Mr. Justice Davide, Jr., in the
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first Kilosbayan case gave to the relevant provisions of the PCSO charter. It so
happens that the critical language in the relevant PCSO charter provision that is,
the "except" clause in Section 1 (B) of the PCSO charter as amended by B.P. Blg.
42 was crafted by the then Assemblyman Hilario G. Davide, Jr. during the
deliberations in the Interim Batasan Pambansa on the bill that became B.P. Blg. 42.
It is impliedly contended by the majority that the intent of an individual legislator
should not be regarded as conclusive as to the "correct" interpretation of the
provision of a statute. This is true enough, as a general proposition, for it is theintent of the legislative body as manifested in the language used by the legislature
that must be examined and applied by this Court. However, it seems to me that
the view expressed by an individual legislator who eventually comes to sit in this
Court as to the meaning to be given to words crafted by himself should, at the
very least, be regarded as entitled to a strong presumption of correctness. Put a
little differently, I respectfully submit that in a situation such as that presented in
this case, a strong presumption arises that the interpretation given by Mr. Justice
Davide, Jr. and approved and adopted by the majority of the Court in the first
Kilosbayan case faithfully reflected the intent of the legislative body as a whole.
Fortunately, in the present case, it is not necessary to take the word of Mr. Justice
Davide, Jr. as to what the intent of the legislative body was in respect of Section 1
(B) of the present PCSO charter. For that intent is clearly discernible in the very
words used by the legislative body itself. I turn, therefore, to a scrutiny of the
words used by that legislative body.
In arriving at his new interpretation, Mr. Justice Mendoza engages in "parsing:"
"When parsed, it will be seen that under Sec. 1, the PCSO is, given
authority to do any of the following: (1) to hold or conduct charity
sweepstakes races, lotteries or similar activities; and/or (2) to invest
whether `by itself or in collaboration, association or joint venture with
any person, association, company or entity' in any `health and welfare-
related investments, programs, projects and activities which may be
profit-oriented,' except those which are engaged in any of 'the activities
mentioned in the preceding paragraph (A),' i.e., sweepstakes races,
lotteries and similar activities, for the obvious reason, as already states,
that these are competing activities." (Underscoring in the original)
My submission, essayed with great respect and reluctance, is that Mr. Justice
Mendoza has misread the pertinent provisions of R.A. No. 1169, as amended by
B.P. Blg. 42, and that in so parsing those provisions, he has in fact overlooked
their actual syntax. The pertinent portions need to be quoted here in full:
Sec. 1. The Philippine Charity Sweepstakes Office. The Philippine Charity
Sweepstakes Office, hereinafter designated the Office, shall be the principal
government agency for raising and providing for funds for health programs, medical
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assistance and services and charities of national character, and as such shall have
the general powers conferred in section thirteen of Act Numbered One Thousand
Four Hundred Fifty-Nine, as amended, and shall have the authority:
A. To hold and conduct charity sweepstakes races, lotteries and other similar
activities, in such frequency and manner, as shall be determined, and subject to
such rules and regulations as shall be promulgated by the Board of Directors.
B. Subject to the approval of the Minister of Human Settlements to engage in
health and welfare-related investments, programs, projects and activities, which
may be profit-oriented, by itself or in collaboration, association or joint venture with
any person, association, company or entity, whether domestic or foreign, except
for the activities mentioned in the preceding paragraph (A), for the purpose of
providing of permanent and continuing sources of funds for health programs,
including the expansion of existing ones, medical assistance and services, and/or
charitable grants: Provided, That such, investments will not compete with the
private sector in areas where investments are adequate as may be determined by
the National Economic and Development Authority." (Underscoring supplied)
Examining the actual text of Section 1 (B), it will be noted that what PCSO has
been authorized to do is not simply "to invest whether `by itself or in
collaboration, association or joint venture ` in any health and welfare?related
investments, programs, projects and activities which may be profit-oriented x x x."
Rather, the PCSO has been authorized to do any and all of the following acts:
(1) "to engage in health and welfare-related investments which may be profit-
oriented ;"
(2) "to engage in health and welfare-related programs which may be profit-
oriented "
(3) "to engage in health and welfare-related projects which may be profit-
oriented ; " and
(4) "to engage in health and welfare-related --? activities which may be profit?
oriented ."
The operative words of Section 1 (B) are "to engage in x x x health and welfare-
related investments, programs, projects and activities x x x" which, however,
Mendoza, J. would read restrictively and simply as "to invest in." To do so, one
must disregard the actual language used by the statute.
It would appear that the majority thinks of "investments" essentially in terms of
passive investments and conceives of Section 1 (B) as a prohibition against PCSO
investing its own funds by buying either equity or debt instruments issued by some
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other company itself also authorized to engage in sweepstakes races, lotteries or
similar activities and therefore, competing with PCSO. Under this view, the
prohibition is intended to prevent PCSO from competing with itself by putting its
funds in privately owned and operated enterprises lawfully and regularly engaged in
raising funds by holding and conducting sweepstakes races, lotteries or similar
activities for "health programs, medical assistance and services and charities of
national character."[2]
There appear some major difficulties with the view proffered by the majority.
Firstly, PCSO appears in fact to be a legal monopoly, that is to say, there appears
to be no other government-owned or controlled corporation or entity that is legally
authorized to hold sweepstakes races, lotteries and similar activities on a regular
and continuing basis for the purpose of generating funds for charitable, health and
welfare-related purposes. A careful search in the records of the Securities and
Exchange Commission has failed to show any privately owned company that has
been organized for that principal purpose, i.e., to generate funds through the
regular holding of sweepstakes races and lotteries for charitable and welfare and
health-related projects. Secondly, assuming for argument's sake that there is
somewhere some obscure, publicly or privately owned entity which is engaged in
the same basic activity that the PCSO is authorized to engage in Section 1 (A) of its
charter, it seems unreal to suppose that an express statutory injunction should
have been found necessary to prevent PCSO from competing with itself by buying
some equity or a debt interest in such a company. Such an injunction would seem
unfairly to assume an unusual degree of ineptitude on the part of officials of PCSO.
Thirdly, the final proviso found in Section 1 (B) (quoted supra) makes clear that the
legislative concern was not with PCSO competing with itself but rather with
protecting the private sector from competition that would be offered by PCSO,either alone or in combination with some other enterprise, when it would seek to
exercise its expanded powers under Section 1 (B) in areas already adequately
served by private capital.
I would, therefore, respectfully suggest that the "except" clause in Section 1 (B), is
not designed as a non-competition provision, nor as a measure intended to
prevent PCSO from putting its money in enterprises competing with PCSO. What
the law seeks thereby to avoid, rather, is the PCSO sharing or franchising out its
exclusive authority to hold and conduct sweepstakes races, lotteries and similar
activities by collaborating or associating or entering into joint ventures with other
persons or entities not government-owned and legislatively chartered like the PCSO
is. The prohibition against PCSO sharing its authority with others is designed,
among other things, to prevent diversion to other uses of revenue streams that
should go solely to the charitable and welfare-related purposes specified in PCSO's
charter.
It will be seen that without the "except" clause inserted at the initiative of former
Assemblyman Davide, Jr., Section 1 (B) would be so comprehensively worded as to
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permit PCSO precisely to share its exclusive right to hold and conduct sweepstakes
races, lotteries and the like. It is this "except" clause which prevents such sharing
or lending or farming out of the PCSO "franchise"
"by itself or in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign,
except for the activities mentioned in the preceding paragraph (A) x x
x."
This "except" clause thus operates, as it were, as a renvoi clause which refers back
to Section 1 (A) and in this manner avoids the necessity of simultaneously
amending the text of Section 1 (A). The textual location, in other words, of the
"except" clause offers no support for the new-found and entirely original
interpretation offered in the majority opinion.[3]
II
I consider next the question of whether the "Equipment Lease Agreement" (ELA) is
subject to public bidding. PCSO refers to Executive Order No. 301 dated 26 July
1987 in seeking to justify the award of the ELA to the PGMC without public
bidding. In accepting the contentions of PCSO, the majority opinion relies basically
on two (2) propositions. The first of these is that:
"Executive Order No. 301, Section 1 refers to contracts of purchase and
sale [only]. For that matter, there is nothing in that Order which refersto contracts for the lease of equipment. What the order contains are
provisions (Sections 6-7) for the lease of privately owned buildings or
spaces for government use or of government owned buildings or spaces
for private use and these provisions do not require public bidding.
These provisions state x x x. I do not see, therefore, how Executive
Order No. 301 can be applied to the ELA when the only feature it has
that may be thought close to a contract of purchase and sale is the
option to buy given to the PCSO. But an option to buy is not a
contract of purchase and sale." (Italics and brackets supplied)
The second proposition offered is that the use of the term "supplies" "cannot be
limited so as to exclude 'materials' and 'equipment' without defeating the purpose
for which these exceptions are made."
The first proposition, it is respectfully submitted, finds no basis in the actual
language used in the operative paragraph of Section 1 of Executive Order No. 301
setting out the general rule:
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"Section 1. Guidelines for Negotiated Contracts. Any provisions of
law, decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for furnishing
supplies, materials and equipment to the government or any of its
branches, agencies or instrumentalities shall be renewed or entered into
without public bidding, except under any of the following situations: x x
x." (Italics supplied)
It is worthy of special note that the above opening paragraph does not even use
the words "purchase and sale" or "buy and sell;" the actual term used is "furnishing
x x x equipment to the government." The term "furnishing" can scarcely be limited
to sales to the government but must instead be held to embrace any contract
which provides the government with either title to or use of equipment. A contrary
view can only result in serious emasculation of Executive Order No. 301. It is
commonplace knowledge that equipment leases (especially "financial leases"involving expensive capital equipment) are often substitutes for or equivalents of
purchase and sale contracts, given the multifarious credit and tax constraints
operating in the market place.[4]Thus, the above first proposition fails to take into
account actual commercial practice already reflected in our present commercial and
tax law.
The second proposition similarly requires one who must interpret and apply the
provisions of Section 1 of Executive Order No. 301 to disregard the actual language
used in that Order. For Executive Order No. 301 uses three (3) distinguishable
terms: "supplies," "materials" and "equipment." These terms are not always used
simultaneously in Executive Order No. 301. In some places, only "supplies" is used;
in other places, only "materials" is employed; and in still other places, the term
"equipment" is used alongside with, but separately from, both of the other two (2)
terms. To say that "supplies," "materials" and "equipment" are merely synonymous
or fungible would appear too casual a treatment of the actual language of Executive
Order No. 301.[5]
The fundamental difficulty with the above two (2) propositions is this: that public
bidding is precisely the standard and best way of ensuring that a contract by whichthe government seeks to provide itself with supplies or materials or equipment is in
fact the most advantageous to government. It is true enough that public bidding
may be inconvenient and time consuming; but it is still the only method of
procurement so far invented by man by which the government could reasonably
expect to keep relatively honest those who would contract with it. This is the basic
reason why competition through public bidding is the general rule and not the
exception. I fear that the opinion of my learned brother Justice Mendoza would, in
ultimate effect, stand this rule on its head and make public bidding the exception
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rather than the general rule.
III
I would address finally the question of whether or not the original contract between
PCSO and PGMC, which the Court in the first Kilosbayan case found to be a jointventure, has been so substantially changed as to have been effectively converted
from a joint venture arrangement to an ordinary equipment lease agreement. The
majority of the Court have concluded that the ELA has been effectively "purged" of
the characteristics of a joint venture arrangement and that it should now be
regarded as lawful under the provisions of the revised PCSO charter.
With very great respect, it is submitted that the above conclusion has been merely
assumed rather than demonstrated and that what is in fact before this Court does
not adequately support such conclusion.
I begin with the nature and form of the rental provisions of the ELA. The rental
payable by PCSO as lessee of equipment and other assets owned by PGMC as
lessor, is fixed at a specified percentage, 4.3% of the gross revenues accruing to
PCSO out of or in connection with the operation of such equipment and assets.
The rental payable is not, in other words, expressed in terms of a fixed and
absolute figure, although a floor amount per leased terminal is set. Instead, the
actual total amount of the rental rises falls from month to month as the revenues
grow or shrink in volume. I respectfully suggest that thereby the lessor of the
facilities leased has acquired a legal interest either in the business of the lesseePCSO that is conducted through the operation of such facilities and equipment, or
at least in the income stream of PCSO originating from such operation.[6] In the
commercial world, a rental provision cast in terms of a fixed participation in the
gross revenues of the lessee, signals substantial economic interest in the business
of such lessee. Such a provision cannot be regarded as compatible with an
"ordinary" equipment rental agreement. On the other hand, it is of the very
substance of a commercial joint venture and of economic collaboration or
association.
Another of my distinguished brothers in the Court, Mr. Justice Padilla, remarks that
this type of rental stipulation is fairly common in leases of real estate in, e.g.,
Makati. This may well be the case. It is, however, absolutely essential to bear in
mind that neither, e.g., Ayala Land, Inc. as lessor-company nor any of the ordinary
commercial enterprises leasing real property in Makati, operate under statutory
restrictions like those in Section 1 (B) of R.A. No. 1169 as amended by B.P. Blg. 42
upon PCSO. In the Ayala Center, lessor and lessee are legally free to devise any
rental provision they may agree upon, even if such a provision would constitute
participation by the lessor in the business of the lessee or a joint venture between
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the two (2).
The majority opinion, apparently following the posture adopted by the Solicitor
General in respect of this point, states:
"in this case the rental has to be expressed in terms of percentage of
the revenue of the PCSO because rentals are treated in the charter of
the agency (R.A. No. 1169, Section 6 [C]) as 'operating expenses and
the allotment for "operating expenses" is a percentage of the net
receipts.' " (Italics supplied)
The Solicitor General is clearly not an accountant. In the first place, the so-called
"allotment for 'operating expenses' " is in fact nothing more than a ceiling
established by the statute for permissible operating expenses. The statute
commands that the PCSO not spend for its operations more than 15% of its "net
receipts." There is no law requiring PCSO to spend the maximum which it isauthorized to spend. Upon the other hand, law and regulations prohibit the PCSO
from spending more than what is in fact reasonably necessary to produce the
revenues targeted by it. Thus, the assertion that the 4.3% rental rate is "well
within the maximum of 15% net receipt fixed by law" is entirely meaningless,
insofar as explaining the structure of the rental provision and the reasonableness
thereof is concerned. In the second place, it is child's play for an accountant to
convert absolute figures representing operating expenses [actual or budgeted] into
a percentage of "net receipts [actual or expected];" there is nothing in Section 6
(C) of the PCSO charter that either requires or justifies the adoption of the rental
provision found both in the old contract and in the ELA giving PGMC a fixed sharein gross revenues. The explanation offered by the Solicitor General is unfortunately
merely contrived; its acceptance depends on lack of familiarity with elementary
accounting concepts.
Under the original agreement between PCSO and PGMC, the latter bore the great
bulk of the risks and business burdens involved in their relationship. The
consideration for PGMC carrying such business risks and burdens was set at 4.9%
of gross revenues flowing out of the lotto operations. In contrast, under the
written terms of the new contract or ELA, the bulk if not all the risks and business
burdens previously borne by PGMC have apparently been shifted to PCSO. The
consideration to PGMC has been reduced from 4.9% to 4.3% of gross revenues
arising out of lotto operations.
Considering the nature and number of the business risks and burdens said to be
shifted under the provisions of ELA from PGMC to PCSO, the stipulated reduction
of the rental by 0.6% of gross revenues would appear disproportionately low
when appraised in terms of ordinary commercial standards and practice. The
original rental rate was reduced by 12.24% only.[7] Of course, the minimal
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reduction of the rental rate payable under the ELA to PGMC would be
understandable if one assumes that the business risks and burdens set out in such
detail in the old contract, and moved over to PCSO in equal detail in the new
contract, are, in the first p