Case No.

KILOSBAYAN INCORPORATED VS. GUINGONA

(GR No. 113375, May 5 1994)

FACTS: Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42)
which grants it the authority to hold and conduct "charity sweepstakes races, lotteries and other similar
activities," the PCSO decided to establish an on- line lottery system for the purpose of increasing its
revenue base and diversifying its sources of funds. After learning that the PCSO was interested in
operating an on-line lottery system, the Berjaya Group Berhad- a multinational company became
interested to offer its services and resources to PCSO. As an initial step, Berjaya Group Berhad (through
its individual nominees) organized with some Filipino investors, a Philippine corporation known as the
Philippine Gaming Management Corporation (PGMC), which was intended to be the medium through
which the technical and management services required for the project would be offered and delivered to
PCSO.

On 4 November 1993, KILOSBAYAN sent an open letter to President Fidel V. Ramos strongly opposing
the setting up to the on-line lottery system on the basis of the following grounds: 1.PGMC does not meet
the nationality requirement because it is 75% foreign owned (owned by a Malaysian firm Berjaya Group
Berhad); 2.PCSO, under Section 1 of its charter (RA 1169), is prohibited from holding and conducting
lotteries “in collaboration, association or joint venture with any person, association, company or entity”;
3.The network system sought to be built by PGMC for PCSO is a telecommunications network. Under the
law (Act No. 3846), a franchise is needed to be granted by the Congress before any person may be
allowed to set up such; 4.PGMC’s articles of incorporation, as well as the Foreign Investments Act (R.A.
No. 7042) does not allow it to install, establish and operate the on-line lotto and telecommunications
systems. Petitioners also submit that the PCSO cannot validly enter into the assailed Contract of Lease
with the PGMC because it is an arrangement wherein the PCSO would hold and conduct the on-line
lottery system in "collaboration" or "association" with the PGMC, in violation of Section 1(B) of R.A. No.
1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting charity
sweepstakes races, lotteries, and other similar activities "in collaboration, association or joint venture with
any person, association, company or entity, foreign or domestic."

PGMC and PCSO, through Teofisto Guingona, Jr. and Renato Corona, Executive Secretary and Asst.
Executive Secretary respectively, alleged that PGMC is not a collaborator but merely a contractor for a
piece of work,( i.e., the building of the network;) and that PGMC is a mere lessor of the network it will
build as evidenced by the nature of the contract agreed upon, (i.e., Contract of Lease.) KILOSBAYAN
seeks to prohibit and restrain the implementation of the "Contract of Lease" executed by the PCSO and
the PGMC in connection with the on- line lottery system, also known as "lotto."

ISSUE: Whether or not the oppositions made by the KILOSBAYAN, INC were valid.

RULING: Yes. The Court agrees with the KILOSBAYAN, INC. and the challenged Contract of Lease
executed by PCSO and PGMC is declared to be contrary to law and invalid. The preliminary issue on the
locus standi of the petitioners which was raised by the respondents should be resolved in their favor. The
Court finds this 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 well-being
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 in pesos it is expected to
raise. The legal standing then of the petitioners deserves recognition and, in the exercise of its sound
discretion, this Court hereby brushes aside the procedural barrier which the respondents tried to take
advantage of. On the substantive issue regarding the provision in Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, is indisputably clear with respect to its franchise or privilege "to hold and
conduct charity sweepstakes races, lotteries and other similar activities." Meaning, the PCSO cannot
exercise it "in collaboration, association or joint venture" with any other party. Thus, the challenged
Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law.