Kilosbayan Inc. vs. Morato GR No.

118910 (Resolution)

Facts:
1. GR 113375 (KIlosbayan vs. Guingona) held invalidity of the contract between Philippine Charity
Sweepstakes Office (PCSO) and the privately owned Philippine Gaming Management Corporation
(PGMC) for the operation of a nationwide on-line lottery system. The contract violated the provision
in the PCSO Charter which prohibits PCSO from holding and conducting lotteries through a
collaboration, association, or joint venture.

2. Both parties again signed an Equipment Lease Agreement (ELA) for online lottery equipment
and accessories on January 25, 1995. The agreement are as follows:
○ Rental is 4.3% of gross amount of ticket sales by PCSO at which in no case be less than
an annual rental computed at P35,000 per terminal in commercial operation.
○ Rent is computed bi-weekly.
○ Term is 8 years.
○ PCSO is to employ its own personnel and responsible for the facilities.
○ Upon expiration of term, PCSO can purchase the equipment at P25M.

3. Kilosbayan again filed a petition to declare amended ELA invalid because:

○ It is the same as the old contract of lease.
○ It is still violative of PCSOs charter.
○ It is violative of the law regarding public bidding. It has not been approved by the
President and it is not the most advantageous to the government.

4. PCSO and PGMC filed separate comments

○ ELA is a different lease contract with none of the vestiges in the prior contract.
○ ELA is not subject to public bidding because it fell in the exception provided in EO No.
301.
○ Power to determine if ELA is advantageous vests in the Board of Directors of PCSO.
○ Lack of funds. PCSO cannot purchase its own online lottery equipment.
○ Petitioners seek to further their moral crusade.
○ Petitioners do not have a legal standing because they were not parties to the contract.

Issues:
1. Whether or not petitioner Kilosbayan, Incorporated has a legal standing to sue.
2. Whether or not the ELA between PCSO and PGMC in operating an online lottery is valid.

Rulings:
In the resolution of the case, the Court held that:
1. No, the Petitioners do not have a legal standing to sue.
○ STARE DECISIS cannot apply. The previous ruling sustaining the standing of the petitioners is
a departure from the settled rulings on real parties in interest because no constitutional issues
were actually involved.
○ LAW OF THE CASE (opinion delivered on a former appeal) cannot also apply. Since the
present case is not the same one litigated by the parties before in Kilosbayan vs. Guingona,
Jr., the ruling cannot be in any sense be regarded as “the law of this case”. The parties are
the same but the cases are not.
 ○ RULE ON “CONCLUSIVENESS OF JUDGMENT” cannot still apply. An issue actually and
directly passed upon and determined in a former suit cannot again be drawn in question in
any future action between the same parties involving a different cause of action. But the rule
does not apply to issues of law at least when substantially unrelated claims are involved.
When the second proceeding involves an instrument or transaction identical with, but in a form
separable from the one dealt with in the first proceeding, the Court is free in the second
proceeding to make an independent examination of the legal matters at issue.
○ Since ELA is a different contract, the previous decision does not preclude determination of the
petitioner’s standing.
○ Standing is a concept in constitutional law and here no constitutional question is actually
involved. The more appropriate issue is whether the petitioners are ‘real parties of interest’.
○ Question of contract of law: The real parties are those who are parties to the agreement or are
bound either principally 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.
○ Petitioners do not have such present substantial interest. Questions to the nature or validity of
public contracts maybe made before COA or before the Ombudsman.

2. Yes, the Equipment Lease Agreement (ELA) is valid.

○ It is different with the prior lease agreement: PCSO now bears all losses because the operation
of the system is completely in its hands.
○ Fixing the rental rate to a minimum is a matter of business judgment and the Court is not
inclined to review.
○ Rental rate is within the 15% net receipts fixed by law as a maximum. (4.3% of gross receipt is
discussed in the dissenting opinion of Feliciano, J.)
○ In the contract, it stated that the parties can change their agreement. Petitioners state that this
would allow PGMC to control and operate the on-line lottery system. The Court held that the
claim is speculative. In any case, in the construction of statutes, the resumption 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.
○ It was held in Kilosbayan Vs. Guingona that PCSO does not have the power to enter into any
contract which would involve it in any form of “collaboration, association, or joint venture” for
the holding of sweepstakes activities. This only mentions that PCSO is prohibited from
investing in any activities that would compete in their own activities.
○ It is claimed that ELA is a joint venture agreement which does not compete with their own
activities. The Court held that is also based on speculation. Evidence is needed to show that
the transfer of technology would involve the PCSO and its personnel in prohibited association
with the PGMC.
○ O. 301 (on law of public bidding) applies only to contracts for the purchase of supplies, materials
and equipment and not on the contracts of lease. Public bidding for leases are only for
privately-owned buildings or spaces for government use or of government owned buildings or
spaces for private use.
Petitioners have no standing. ELA is a valid lease contract. The motion for reconsideration of
petitioners is DENIED with finality.