G.R. No. 118910 July 17, 1995

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS,

ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM
TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN,
RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN
S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAÑADA, REP.
JOKER P. ARROYO, petitioners,
vs.
MANUEL L. MORATO, in his capacity as Chairman of the Philippine
Charity Sweepstakes Office, and the PHILIPPINE GAMING MANAGEMENT
CORPORATION, respondents.

MENDOZA, J.:

As a result of our decision in G.R. No. 113375 (Kilosbayan, Incorporated

v. Guingona, 232 SCRA 110 (1994)) invalidating the Contract of Lease between
the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming
Management Corp. (PGMC) on the ground that it had been made in violation
of the charter of the PCSO, the parties entered into negotiations for a new
agreement that would be "consistent with the latter's [PCSO] charter . . . and
conformable to this Honorable Court's aforesaid Decision."

On January 25, 1995, the parties signed an Equipment Lease

Agreement (hereafter called ELA) whereby the PGMC leased on-line lottery
equipment and accessories to the PCSO in consideration of a rental equivalent
to 4.3% of the gross amount of ticket sales derived by the PCSO from the
operation of the lottery which in no case shall be less than an annual rental
computed at P35,000.00 per terminal in commercial operation. The rental is
to be computed and paid bi-weekly. In the event the bi-weekly rentals in any
year fall short of the annual minimum fixed rental thus computed, the PCSO
agrees to pay the deficiency out of the proceeds of its current ticket sales.
(Pars. 1-2)

Under the law, 30% of the net receipts from the sale of tickets is allotted
to charity. (R.A. No. 1169, §6 (B))

The term of the lease is eight (8) years, commencing from the start of
commercial operation of the lottery equipment first delivered to the lessee
pursuant to the agreed schedule. (Par. 3)
 In the operation of the lottery, the PCSO is to employ its own
personnel. (Par. 5) It is responsible for the loss of, or damage to, the
equipment arising from any cause and for the cost of their maintenance
and repair. (Pars. 7-8)

Upon the expiration of the lease, the PCSO has the option to purchase the
equipment for the sum of P25 million.

A copy of the ELA was submitted to the Court by the PGMC in accordance with
its manifestation in the prior case.

On February 21, 1995 this suit was filed seeking to declare the ELA invalid
on the ground that it is substantially the same as the Contract of Lease
nullified in the first case. Petitioners argue:

1. THE AMENDED ELA IS NULL AND VOID SINCE IT IS BASICALLY OR

SUBSTANTIALLY THE SAME AS OR SIMILAR TO THE OLD LEASE
CONTRACT AS REPRESENTED AND ADMITTED BY RESPONDENTS
PGMC AND PCSO.

2. ASSUMING ARGUENDO, THAT THE AMENDED ELA IS MATERIALLY

DIFFERENT FROM THE OLD LEASE CONTRACT, THE AMENDED ELA
IS NEVERTHELESS NULL AND VOID FOR BEING INCONSISTENT WITH
AND VIOLATIVE OF PCSO'S CHARTER AND THE DECISION OF THIS
HONORABLE COURT OF MAY 5, 1995.

3. THE AMENDED EQUIPMENT LEASE AGREEMENT IS NULL AND

VOID FOR BEING VIOLATIVE OF THE LAW ON PUBLIC BIDDING OF
CONTRACTS FOR FURNISHING SUPPLIES, MATERIALS AND
EQUIPMENT TO THE GOVERNMENT, PARTICULARLY E.O. NO. 301
DATED 26 JULY 1987 AND E.O. NO. 298 DATED 12 AUGUST 1940 AS
AMENDED, AS WELL AS THE "RULES AND REGULATIONS FOR THE
PREVENTION OF IRREGULAR, UNNECESSARY, EXCESSIVE OR
EXTRAVAGANT (IUEE) EXPENDITURES PROMULGATED UNDER
COMMISSION ON AUDIT CIRCULAR NO. 85-55-A DATED SEPTEMBER
8, 1985, CONSIDERING THAT IT WAS AWARDED AND EXECUTED
WITHOUT THE PUBLIC BIDDING REQUIRED UNDER SAID LAWS AND
COA RULES AND REGULATIONS, IT HAS NOT BEEN APPROVED BY
THE PRESIDENT OF THE PHILIPPINES, AND IT IS NOT MOST
ADVANTAGEOUS TO THE GOVERNMENT.

4. THE ELA IS VIOLATIVE OF SECTION 2(2), ARTICLE IX-D OF THE

1987 CONSTITUTION IN RELATION TO COA CIRCULAR NO. 85-55-A.
 The PCSO and PGMC filed separate comments in which they
question the petitioners' standing to bring this suit.

They maintain

(1) that the ELA is a different lease contract with none of the vestiges of a joint
venture which were found in the Contract of Lease nullified in the prior case;

(2) that the ELA did not have to be submitted to a public bidding because it fell
within the exception provided in E.O. No. 301, §1 (e);

(3) that the power to determine whether the ELA is advantageous to the
government is vested in the Board of Directors of the PCSO;

(4) that for lack of funds the PCSO cannot purchase its own on-line lottery
equipment and has had to enter into a lease contract;

(5) that what petitioners are actually seeking in this suit is to further their
moral crusade and political agenda, using the Court as their forum.

For reasons set forth below, we hold that petitioners have no cause against
respondents and therefore their petition should be dismissed.

I. PETITIONERS' STANDING

The Kilosbayan, Inc. is an organization described in its petition as

"composed of civic-spirited citizens, pastors, priests, nuns and lay leaders who
are committed to the cause of truth, justice, and national renewal." Its trustees
are also suing in their individual and collective capacities as "taxpayers and
concerned citizens." The other petitioners (Sen. Freddie Webb, Sen. Wigberto
Tañada and Rep. Joker P. Arroyo) are members of Congress suing as such and
as "taxpayers and concerned citizens."

Respondents question the right of petitioners to bring this suit on

the ground that, not being parties to the contract of lease which they seek to
nullify, they have no personal and substantial interest likely to be injured by the
enforcement of the contract. Petitioners on the other hand contend that the
ruling in the previous case sustaining their standing to challenge the validity of
the first contract for the operation of lottery is now the "law of the case" and
therefore the question of their standing can no longer be reopened.

Neither the doctrine of stare decisis nor that of "law of the case," nor
that of conclusiveness of judgment poses a barrier to a determination of
petitioners' right to maintain this suit.
 Stare decisis is usually the wise policy. But in this case, concern for
stability in decisional law does not call for adherence to what has recently been
laid down as the rule. The previous ruling sustaining petitioners' intervention
may itself be considered a departure from settled rulings on "real parties in
interest" because no constitutional issues were actually involved. Just five
years before that ruling this Court had denied standing to a party who, in
questioning the validity of another form of lottery, claimed the right to sue in
the capacity of taxpayer, citizen and member of the Bar. (Valmonte v.
Philippine Charity Sweepstakes, G.R. No. 78716, Sept. 22, 1987) Only
recently this Court held that members of Congress have standing to
question the validity of presidential veto on the ground that, if true, the
illegality of the veto would impair their prerogatives as members of Congress.
Conversely if the complaint is not grounded on the impairment of the powers of
Congress, legislators do not have standing to question the validity of any law or
official action. (Philippine Constitution Association v. Enriquez, 235 SCRA 506
(1994)).

There is an additional reason for a reexamination of the ruling on

standing. The voting on petitioners' standing in the previous case was a narrow
one, with seven (7) members sustaining petitioners' standing and six (6)
denying petitioners' right to bring the suit. The majority was thus a tenuous
one that is not likely to be maintained in any subsequent litigation. In addition,
there have been changes in the membership of the Court, with the retirement
of Justices Cruz and Bidin and the appointment of the writer of this opinion
and Justice Francisco. Given this fact it is hardly tenable to insist on the
maintenance of the ruling as to petitioners' standing.

Petitioners argue that inquiry into their right to bring this suit is barred
by the doctrine of "law of the case." We do not think this doctrine is applicable
considering the fact that while this case is a sequel to G.R. No. 113375, it is
not its continuation. The doctrine applies only when a case is before a court a
second time after a ruling by an appellate court. Thus in People v. Pinuila, 103
Phil. 992, 999 (1958), it was stated:

"Law of the case" has been defined as the opinion delivered on a former
appeal. More specifically, it means that whatever is once irrevocably
established as the controlling legal rule of decision between the same
parties in the same case continues to be the law of the case, whether
correct on general principles or not, so long as the facts on which such
decision was predicated continue to be the facts of the case before the
court. (21 C. J. S. 330)

It may be stated as a rule of general application that, where the

evidence on a second or succeeding appeal is substantially the same as
that on the first or preceding appeal, all matters, questions, points, or
 issues adjudicated on the prior appeal are the law of the case on all
subsequent appeals and will not be considered or re-adjudicated therein.
(5 C. J. S. 1267)

In accordance with the general rule stated in Section 1821, where,

after a definite determination, the court has remanded the cause for
further action below, it will refuse to examine question other than those
arising subsequently to such determination and remand, or other than
the propriety of the compliance with its mandate; and if the court below
has proceeded in substantial conformity to the directions of the appellate
court, its action will not be questioned on a second appeal . . . .

As a general rule a decision on a prior appeal of the same case is held to

be the law of the case whether that decision is right or wrong, the remedy
of the party deeming himself aggrieved being to seek a rehearing. (5 C. J.
S. 1276-77).

Questions "necessarily involved in the decision on a former appeal will be

regarded as the law of the case on a subsequent appeal, although the
questions are not expressly treated in the opinion of the court, as the
presumption is that all the facts in the case bearing on the point decided
have received due consideration whether all or none of them are
mentioned in the opinion. (5 C. J. S. 1286-87).

As this Court explained in another case, "The law of the case, as applied to a
former decision of an appellate court, merely expresses the practice of the
courts in refusing to reopen what has been decided. It differs from res
judicata in that the conclusiveness of the first judgment is not dependent upon
its finality. The first judgment is generally, if not universally, not final. It relates
entirely to questions of law, and is confined in its operation to subsequent
proceedings in the same case. . . ." (Municipality of Daet v. Court of Appeals, 93
SCRA 503, 521 (1979)

It follows that since the present case is not the same one litigated by the
parties before in G.R. No. 113375, the ruling there cannot in any sense be
regarded as "the law of this case." The parties are the same but the cases are
not.

Nor is inquiry into petitioners' right to maintain this suit foreclosed by the
related doctrine of "conclusiveness of judgment." 1 According to the doctrine, an
issue actually and directly passed upon and determined in a former suit
cannot again be drawn in question in any future action between the same
parties involving a different cause of action. (Peñalosa v. Tuason, 22 Phil. 303,
313 (1912); Heirs of Roxas v. Galido, 108 Phil. 582 (1960))
 It has been held that the rule on conclusiveness of judgment or
preclusion of issues or collateral estoppel does not apply to issues of law, at
least when substantially unrelated claims are involved. (Montana v. United
States, 440 U.S. 147, 162, 59 L.Ed. 2d 210, 222 (1979); BATOR, MELTZER,
MISHKIN AND SHAPIRO, THE FEDERAL COURTS AND THE FEDERAL
SYSTEM 1058, n. 2 (3rd Ed., 1988)) Following this ruling it was held
in Commissioner v. Sunnen, 333 U.S. 591, 92 L.Ed. 898 (1947) that where a
taxpayer assigned to his wife his interest in a patent in 1928 and in a suit it
was determined that money paid to his wife for the years 1929-1931 under the
1928 assignment was not part of his taxable income, this determination is not
preclusive in a second action for collection of taxes on amounts paid to his wife
under another deed of assignment for other years (1937 to 1941). For income
tax purposes what is decided with respect to one contract is not conclusive as
to any other contract which was not then in issue, however similar or identical
it may be. The rule on collateral estoppel, it was held, "must be confined to
situations where the matter raised in the second suit is identical in all
respects with that decided in the first proceeding and where the controlling
facts and applicable legal rules remain unchanged." (333 U.S. at 599-600, 92
L.Ed. at 907) Consequently, "if the relevant facts in the two cases are
separate, even though they be similar or identical, collateral estoppel does not
govern the legal issues which occur in the second case. Thus the second
proceeding may involve an instrument or transaction identical with, but in a
form separable from, the one dealt with in the first proceeding. In that situation
a court is free in the second proceeding to make an independent examination
of the legal matters at issue. . . ." (333 U.S. at 601, 92 L.Ed at 908)

This exception to the General Rule of Issue Preclusion is authoritatively

formulated in Restatement of the Law 2d, on Judgments, as follows:

§28. Although an issue is actually litigated and determined by a valid

and final judgment, and the determination is essential to the judgment,
relitigation of the issue in a subsequent action between the parties is not
precluded in the following circumstances:

xxx xxx xxx

(2) The issue is one of law and (a) the two actions involve claims that are
substantially unrelated, or (b) a new determination is warranted in order
to take account of an intervening change in the applicable legal context
or otherwise to avoid inequitable administration of the laws; . . .

Illustration:

xxx xxx xxx

 2. A brings an action against the municipality of B for tortious injury.
The court sustains B's defense of sovereign immunity and dismisses the
action. Several years later A brings a second action against B for an
unrelated tortious injury occurring after the dismissal. The judgment in
the first action is not conclusive on the question whether the defense of
sovereign immunity is available to B. Note: The doctrine of stare decisis
may lead the court to refuse to reconsider the question of sovereign
immunity. See §29, Comment i.

The question whether petitioners have standing to question the Equipment

Lease Agreement or ELA is a legal question. As will presently be shown, the
ELA, which petitioners seek to declare invalid in this proceeding, is essentially
different from the 1993 Contract of Lease entered into by the PCSO with the
PGMC. Hence the determination in the prior case (G.R. No. 113375) that
petitioners had standing to challenge the validity of the 1993 Contract of Lease
of the parties does not preclude determination of their standing in the present
suit.

Not only is petitioners' standing a legal issue that may be determined

again in this case. It is, strictly speaking, not even the issue in this case, since
standing is a concept in constitutional law and here no constitutional question
is actually involved. The issue in this case is whether petitioners are the "real
parties in interest" within the meaning of Rule 3, §2 of the Rules of Court
which requires that "Every action must be prosecuted and defended in the
name of the real party in interest."

The difference between the rule on standing and real party in interest has been
noted by authorities thus: "It is important to note . . . that standing because of
its constitutional and public policy underpinnings, is very different from
questions relating to whether a particular plaintiff is the real party in interest
or has capacity to sue. Although all three requirements are directed towards
ensuring that only certain parties can maintain an action, standing restrictions
require a partial consideration of the merits, as well as broader policy concerns
relating to the proper role of the judiciary in certain areas. (FRIEDENTHAL,
KANE AND MILLER, CIVIL PROCEDURE 328 (1985))

Standing is a special concern in constitutional law because in some cases suits

are brought not by parties who have been personally injured by the operation
of a law or by official action taken, but by concerned citizens, taxpayers or
voters who actually sue in the public interest. Hence the question in standing
is whether such parties have "alleged such a personal stake in the outcome of
the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for illumination
of difficult constitutional questions." (Baker v. Carr, 369 U.S. 186, 7 L.Ed. 2d
633 (1962))
Accordingly, in Valmonte v. Philippine Charity Sweepstakes Office,
G.R. No. 78716, Sept. 22, 1987, standing was denied to a petitioner who
sought to declare a form of lottery known as Instant Sweepstakes invalid
because, as the Court held,

Valmonte brings the suit as a citizen, lawyer, taxpayer and father of

three (3) minor children. But nowhere in his petition does petitioner
claim that his rights and privileges as a lawyer or citizen have been
directly and personally injured by the operation of the Instant
Sweepstakes. The interest of the person assailing the constitutionality of
a statute must be direct and personal. He must be able to show, not only
that the law is invalid, but also that he has sustained or is in immediate
danger of sustaining some direct injury as a result of its enforcement,
and not merely that he suffers thereby in some indefinite way. It must
appear that the person complaining has been or is about to be denied
some right or privilege to which he is lawfully entitled or that he is about
to be subjected to some burdens or penalties by reason of the statute
complained of.

We apprehend no difference between the petitioner in Valmonte and the

present petitioners. Petitioners do not in fact show what particularized interest
they have for bringing this suit. It does not detract from the high regard for
petitioners as civic leaders to say that their interest falls short of that required
to maintain an action under Rule 3, §2.

It is true that the present action involves not a mere contract between private
individuals but one made by a government corporation. There is, however, no
allegation that public funds are being misspent so as to make this action a
public one and justify relaxation of the requirement that an action must be
prosecuted in the name of the real party in interest. (Valmonte v. PCSO, supra;
Bugnay Const. and Dev. Corp. v. Laron, 176 SCRA 240 (1989))

On the other hand, the question as to "real party in interest" is whether he is

"the party who would be benefitted or injured by the judgment, or the 'party
entitled to the avails of the suit.'" (Salonga v. Warner Barnes & Co., Ltd., 88
Phil. 125, 131 (1951))

Petitioners invoke the following Principles and State Policies set forth in Art. II
of the Constitution:

The maintenance of peace and order, the protection of life, liberty, and
property, and the promotion of the general welfare are essential for the
enjoyment by all the people of the blessings of democracy. (§5).
 The natural and primary right and duty of parents in the rearing of the
youth for civic efficiency and the development of moral character shall
receive the support of the Government. (§12)

The State recognizes the vital role of the youth in nation-building and
shall promote their physical, moral, spiritual, intellectual, and social
well-being. It shall inculcate in the youth patriotism and nationalism,
and encourage their involvement in public and civic affairs. (§13)

The State shall give priority to education, science and technology, arts,
culture, and sports to foster patriotism and nationalism, accelerate social
progress, and promote total human liberation and development. (§17)

(Memorandum for Petitioners, p. 7)

These are not, however, self executing provisions, the disregard of which can
give rise to a cause of action in the courts. They do not embody judicially
enforceable constitutional rights but guidelines for legislation.

Thus, while constitutional policies are invoked, this case involves basically
questions of contract law. More specifically, the question is whether petitioners
have a legal right which has been violated.

In actions for the annulment of contracts, such as this action, the real parties
are those who are parties to the agreement or are bound either principally or
subsidiarily or are prejudiced in their rights with respect to one of the
contracting parties and can show the detriment which would positively result
to them from the contract even though they did not intervene in it (Ibañez v.
Hongkong & Shanghai Bank, 22 Phil. 572 (1912)), or who claim a right to take
part in a public bidding but have been illegally excluded from it. (See De la
Lara Co., Inc. v. Secretary of Public Works and Communications, G.R. No.
L-13460, Nov. 28, 1958)

These are parties with "a present substantial interest, as distinguished from a
mere expectancy or future, contingent, subordinate, or consequential interest. .
. . The phrase 'present substantial interest' more concretely is meant such
interest of a party in the subject matter of action as will entitle him, under the
substantive law, to recover if the evidence is sufficient, or that he has the legal
title to demand and the defendant will be protected in a payment to or recovery
by him." (1 MORAN, COMMENTS ON THE RULES OF COURT 154-155 (1979))
Thus, in Gonzales v. Hechanova, 118 Phil. 1065 (1963) petitioner's right to
question the validity of a government contract for the importation of rice was
sustained because he was a rice planter with substantial production, who had
a right under the law to sell to the government.
But petitioners do not have such present substantial interest in the ELA as
would entitle them to bring this suit. Denying to them the right to intervene
will not leave without remedy any perceived illegality in the execution of
government contracts. Questions as to the nature or validity of public contracts
or the necessity for a public bidding before they may be made can be raised in
an appropriate case before the Commission on Audit or before the
Ombudsman. The Constitution requires that the Ombudsman and his
deputies, "as protectors of the people shall act promptly on complaints filed in
any form or manner against public officials or employees of the government, or
any subdivision, agency or instrumentality thereof including government-owned
or controlled corporations." (Art. XI, §12) In addition, the Solicitor General is
authorized to bring an action for quo warranto if it should be thought that a
government corporation, like the PCSO, has offended against its corporate
charter or misused its franchise. (Rule 66, §2 (a) (d))

We now turn to the merits of petitioners' claim constituting their cause of

action.

II. THE EQUIPMENT LEASE AGREEMENT

This Court ruled in the previous case that the Contract of Lease, which the
PCSO had entered into with the PGMC on December 17, 1993 for the operation
of an on-line lottery system, was actually a joint venture agreement or, at the
very least, a contract involving "collaboration or association" with another party
and, for that reason, was void. The Court noted the following features of the
contract:

(1) The PCSO had neither funds nor expertise to operate the on-line lottery
system so that it would be dependent on the PGMC for the operation of the
lottery system.

(2) The PGMC would exclusively bear all costs and expenses for printing
tickets, payment of salaries and wages of personnel, advertising and promotion
and other expenses for the operation of the lottery system. Mention was made
of the provision, which the Court considered "unusual in a lessor-lessee
relationship but inherent in a joint venture," for the payment of the rental not
at a fixed amount but at a certain percentage (4.9%) of the gross receipts from
the sale of tickets, and the possibility that "nothing may be due or demandable
at all because the PGMC binds itself to 'bear all risks if the revenue from the
ticket sales, on an annualized basis, are insufficient to pay the entire prize
money.'" (232 SCRA at 147)

(3) It was only after the term of the contract that PCSO personnel would be
ready to operate the lottery system themselves because it would take the entire
eight-year term of the contract for the technology transfer to be completed. In
the view of the Court, this meant that for the duration of the contract, the
PGMC would actually be the operator of the lottery system, and not simply the
lessor of equipment.

The Court considered the Contract of Lease to be actually a joint venture

agreement. From another angle, it said that the arrangement, especially the
provision that all risks were for the account of the PGMC, was in effect a lease
by the PCSO of its franchise to the PGMC.

These features of the old Contract of Lease have been removed in the present
ELA. While the rent is still expressed in terms of percentage (it is now 4.3% of
the gross receipts from the sale of tickets) in the ELA, the PGMC is now
guaranteed a minimum rent of P35,000.00 a year per terminal in commercial
operation. (Par. 2) The PGMC is thus assured of payment of the rental. Thus
par. 2 of the ELA provides:

2. RENTAL

During the effectivity of this Agreement and the term "of this
lease as provided in paragraph 3 hereof, LESSEE shall pay
rental to LESSOR equivalent to FOUR POINT THREE
PERCENT (4.3%) of the gross amount of ticket sales from all
of LESSEE's on-line lottery operations in the Territory, which
rental shall be computed and payable bi-weekly net of
withholding taxes on income, if any: provided that, in no
case shall the annual aggregate rentals per year during the
term of the lease be less than the annual minimum fixed
rental computed at P35,000.00 per terminal in commercial
operation per annum, provided, further that the annual
minimum fixed rental shall be reduced pro-rata for the
number of days during the year that a terminal is not in
commercial operation due to repairs or breakdown. In the
event the aggregate bi-weekly rentals in any year falls short
of the annual minimum fixed rental computed at P35,000.00
per terminal in commercial operation, the LESSEE shall pay
such shortfall from out of the proceeds of the then current
ticket sales from LESSEE's on-line; lottery operations in the
Territory (after payment first of prizes and agents'
commissions but prior to any other payments, allocations or
disbursements) until said shortfall shall have been fully
settled, but without prejudice to the payment to LESSOR of
the then current bi-weekly rentals in accordance with the
provisions of the first sentence of this paragraph 2.
The PCSO now bears all losses because the operation of the system is
completely in its hands. This feature of the new contract negates any doubt
that it is anything but a lease agreement.

It is contended that the rental of 4.3% is substantially the same as the 4.9% in
the old contract because the reduction is negligible especially now that the
PCSO assumes all business risks and risk of loss of, or damage to, equipment.
Petitioners allege that:

PGMC's annual minimum rental is P35,000.00 per terminal or a total of

P70,000,000.00 per annum considering that there are 2,000 terminals
per the amended ELA. In order to meet the amount, based on the 4.3%
rental arrangement without a shortfall, the gross ticket sales must
amount to at least P1,627,906,977.00. Multiplying this amount by 4.9%
we get the 4.9% rental fee fixed under the old lease contract and the
product is P79,767,442.00. Deducting from this amount the sum of
P70,000,000.00 representing the annual minimum rental under the
amended ELA, we get the figure of P9,767,442 which is equivalent to
the .06% difference between the rental under the old lease contract and
under the amended ELA.

This amount of P9,767,442.00 cannot possibly cover the costs, expenses

and obligations shouldered by PGMC under the old lease contract but
which are now to be borne by the PCSO under the new ELA, not to
mention the additional P25 million that the PCSO has to pay the PGMC if
the former exercises its option to purchase the equipment at the end of
the lease period under the amended ELA.

(Petition, p. 37)

To be sure there is nothing unusual in fixing the rental as a certain percentage

of the gross receipts. The lease of space in commercial buildings, for example,
involves the payment of a certain percentage of the receipts in rental. Under
the Civil Code (Art. 1643) the only requirement is that the rental be a "price
certain." Petitioners do not claim here that the rental is not a "price certain,"
simply because it is expressed as a certain percentage of the total gross
amount of ticket sales.

Indeed it is not alone the fact that in the old contract the rental was expressed
in terms of percentage of the net proceeds from the sale of tickets which was
held to be characteristic of a joint venture agreement. It was the fact that, in
the prior case, the PGMC assumed, in addition, all risks of loss from the
operation of the lottery, with the distinct possibility that nothing might be due
it. In the view of in the Court this possibility belied claims that the PGMC had
no participation in the lottery other than being merely the lessor of equipment.
In the new contract the rental is also expressed in terms of percentage of the
gross proceeds from ticket sales because the allocation of the receipts under
the charter of the PCSO is also expressed in percentage, to wit: 55% is set
aside for prizes; 30% for contribution to charity; and 15% for operating
expenses and capital expenditures. (R.A. No. 1169, §6) As the Solicitor General
points out in his Comment filed in behalf of the PCSO:

In the PCSO charter, operating costs are reflected as a percentage of the

net receipts (which is defined as gross receipts less ticket printing costs
which shall not exceed 2% and the 1% granted to the Commission on
Higher Education under Republic Act No. 7722). The mandate of the law
is that operating costs, which include payments for any leased
equipment, cannot exceed 15% of net receipts, or 14.55%
of gross receipts. The following conclusions are, therefore evident:

a. The 4.38 rental rate for the equipment is well within the
maximum of 15% net receipts fixed by law;

b. To obviate any violation of the law, it is best to express

large operating costs for budgetary purposes as a percentage
of either gross or net receipts, specifically since the amount
of gross receipts can only be estimated.

c. Large fixed sums of money for major operating costs, such

as fixed rental for equipment, can very well exceed the
maximum percentages fixed by law, specifically if actual
gross receipts are lower than estimates for budgetary
purposes.

d. The problem of budgeting based on estimates is even more

difficult when new projects are involved, as is the case in the
on-line lottery.

(PCSO's Comment, pp. 18-20)

Petitioners reply that to obviate the possibility that the rental would not exceed
15% of the net receipts what the respondents should have done was not to
agree on a minimum fixed rental of P35,000.00 per terminal in commercial
operation. This is a matter of business judgment which, in the absence of a
clear and convincing showing that it was made in grave abuse of discretion of
the PCSO, this Court is not inclined to review. In this case the rental has to be
expressed in terms of percentage of the revenue of the PCSO because rentals
are treated in the charter of the agency (R.A. No. 1169, §6(C)) as "operating
expenses" and the allotment for "operating expenses" is a percentage of the net
receipts.
The ELA also provides:

8. REPAIR SERVICES

LESSEE shall bear the costs of maintenance and necessary

repairs, except those repairs to correct defective
workmanship or replace defective materials used in the
manufacture of Equipment discovered after delivery of the
Equipment, in which case LESSOR shall bear the costs of
such repairs and, if necessary, the replacements. The
LESSEE may at any time during the term of the lease, request
the LESSOR to upgrade the equipment and/or increase the
number or terminals, in which case the LESSEE and LESSOR
shall agree on an arrangement mutually satisfactory to both of
them, upon such terms as may be mutually agreed upon.

By virtue of this provision on upgrading of equipment, petitioners claim, the

parties can change their entire agreement and thereby, by "clever means and
devices," enable the PGMC to "actually operate, manage, control and supervise
the conduct and holding of the on-line lottery system," considering that as
found in the first decision, "the PCSO had neither funds of its own nor the
expertise to operate and manage an on-line lottery."

The claim is speculative. It is just as possible to speculate that after sometime

operating the lottery system the PCSO will be able to accumulate enough
capital to enable it to buy its own equipment and gain expertise. As for
expertise, after three months of operation of the on-line lottery, there appears
to be no complaint that the PCSO is relying on others, outside its own
personnel, to run the system. In any case as in the construction of statutes,
the presumption is that in making contracts the government has acted in good
faith. The doctrine that the possibility of abuse is not a reason for denying
power to the government holds true also in cases involving the validity of
contracts made by it.

Finally, because the term "Equipment" is defined in the ELA as including

"technology, intellectual property rights, know-how processes and systems," it
is claimed that these items could only be transferred to the PCSO by the PGMC
training PCSO personnel and this was found in the first case to be a badge of a
joint venture.

Like the argument based on the upgrading of equipment, we think this

contention is also based on speculation rather than on fact or experience.
Evidence is needed to show that the transfer of technology would involve the
PCSO and its personnel in prohibited association or collaboration with the
PGMC within the contemplation of the law.
A contract of lease, as this is defined in Civil law, may call for some form of
collaboration or association between the parties since lease is a "consensual,
bilateral, onerous and commutative contract by which one person binds
himself to grant temporarily the use of a thing or the rendering of some service
to another who undertakes to pay some rent, compensation or price." (5
PADILLA, CIVIL CODE 611 (6TH Ed 1974)). The lessor of a commercial
building, it may be assumed, would be interested in the success of its tenants.
But it is untenable to contend that this is what the charter of the PCSO
contemplates in prohibiting it from entering into "collaboration or association"
with any party. It may be added that even if the PCSO purchases its own
equipment, it still needs the assistance of the PGMC in the initial phase or
operation.

We hold that the ELA is a lease contract and that it contains none of the
features of the former contract which were considered "badges of a joint
venture agreement." To further find fault with the new contract would be to
cavil and expose the opposition to the contract to be actually an opposition to
lottery under any and all circumstances. But "[t]he morality of gambling is not
a justiciable issue. Gambling is not illegal per se. . . . It is left to Congress to
deal with the activity as it sees fit." (Magtajas v. Pryce Properties Corp. Inc.,
234 SCRA 255, 268 (1994). Cf. Lim v. Pacquing, G.R. No. 115044, Jan. 27,
1995) In the case of lottery, there is no dispute that, to enable the Philippine
Charity Sweepstakes Office to raise funds for charity, Congress authorized the
Philippine Charity Sweepstakes Office (PCSO) to hold or conduct lotteries
under certain conditions.

We therefore now consider whether under the charter of the PCSO any contract
for the operation of an on-line lottery system, which involves any form of
collaboration or association, is prohibited.

III. THE INTERPRETATION OF §1 OF R.A. 1169

In G.R. No. 113375 it was held that the PCSO does not have the power to enter
into any contract which would involve it in any form of "collaboration,
association or joint venture" for the holding of sweepstakes races, lotteries and
other similar activities. This interpretation must be reexamined especially in
determining whether petitioners have a cause of action.

We hold that the charter of the PCSO does not absolutely prohibit it from
holding or conducting lottery "in collaboration, association or joint venture"
with another party. What the PCSO is prohibited from doing is to invest in a
business engaged in sweepstakes races, lotteries and similar activities, and it is
prohibited from doing so whether in "collaboration, association or joint
venture" with others or "by itself." The reason for this is that these are
competing activities and the PCSO should not invest in the business of a
competitor.

It will be helpful to quote the pertinent provisions of R.A. No. 1169, as

amended by B.P. Blg. 42:

§.1 The Philippine Charity Sweepstakes Office.— The Philippine Charity

Sweepstakes Office, hereinafter designated the Office, shall be the
principal government agency for raising and providing for funds for
health programs, medical assistance and services and charities of
national character, and as such shall have the general powers conferred
in section thirteen of Act Numbered One Thousand Four Hundred Fifty-
Nine, as amended, and shall have the authority:

A. To hold and conduct charity sweepstakes races, lotteries and other

similar activities, in such frequency and manner, as shall be determined,
and subject to such rules and regulations as shall be promulgated by the
Board of Directors.

B. Subject to the approval of the Minister of Human Settlements, to

engage in health and welfare-related investments, programs, projects and
activities which may be profit-oriented, by itself or in collaboration,
association or joint venture with any person, association, company or
entity, whether domestic or foreign, except for the activities mentioned in
the preceding paragraph (A), for the purpose of providing for permanent
and continuing sources of funds for health programs, including the
expansion of existing ones, medical assistance and services, and/or
charitable grants: Provided, That such investments will not compete with
the private sector in areas where investments are adequate as may be
determined by the National Economic and Development Authority.

When parsed, it will be seen that §1 grants the PCSO authority to do any of the
following: (1) to hold or conduct charity sweepstakes races, lotteries and similar
activities; and/or (2) to invest — whether "by itself or in collaboration,
association or joint venture with any person, association, company or entity" —
in any "health and welfare-related investments, programs, projects and
activities which may be profit oriented," except "the activities mentioned in the
preceding paragraph (A)," i.e., sweepstakes races, lotteries and similar
activities. The PCSO is prohibited from investing in "activities mentioned in the
preceding paragraph (A)" because, as already stated, these are competing
activities.

The subject matter of §1(B) is the authority of the PCSO to invest in certain
projects for profit in order to enable it to expand its health programs, medical
assistance and charitable grants. The exception in the law refers to investment
in businesses engaged in sweepstakes races, lotteries and similar activities.
The limitation applies not only when the investment is undertaken by the
PCSO "in collaboration, association or joint venture" but also when made by
the PCSO alone, "by itself." The prohibition can not apply to the holding of a
lottery by the PCSO itself. Otherwise, what it is authorized to do in par. (A)
would be negated by what is prohibited by par. (B).

To harmonize pars. (A) and (B), the latter must be read as referring to the
authority of the PCSO to invest in the business of others. Put in another way,
the prohibition in §1(B) is not so much against the PCSO entering into any
collaboration, association or joint venture with others as against the
PCSO investing in the business of another franchise holder which would
directly compete with PCSO's own charity sweepstakes races, lotteries or
similar activities. The prohibition applies whether the PCSO makes the
investment alone or with others.

The contrary construction given to §1 in the previous decision is based on

remarks made by then Assemblyman, now Mr. Justice, Davide during the
deliberations on what later became B.P. Blg. 42, amending R.A. No. 1169. It
appears, however, that the remarks were made in connection with a proposal
to give the PCSO the authority "to engage in any and all investments." It was to
provide exception with regard to the type of investments which the PCSO is
authorized to make that the Davide amendment was adopted. It is reasonable
to suppose that the members of the Batasan Pambansa, in approving the
amendment, understood it as referring to the exception to par. (B) of §1 giving
the PCSO the power to make investments. Had it been their intention to
prohibit the PCSO from entering into any collaboration, association or joint
venture with others even in instances when the sweepstakes races, lotteries or
similar activities are operated by it ("itself"), they would have made the
amendment not in par. (B), but in par (A), of §1, as the logical place for the
amendment.

The following excerpt2 from the record of the discussion on Parliamentary Bill

No. 622, which became B.P. Blg. 422, bears out this conclusion:

MR. ZAMORA. On the same page, starting from line 18 until

line 23, delete the entire paragraph from "b. to engage in any
and all investment. . . ." until the words "charitable grants"
on line 23 and in lieu thereof insert the following:

SUBJECT TO THE APPROVAL OF THE

MINISTER OF HUMAN SETTLEMENTS, TO
ENGAGE IN HEALTH-ORIENTED
INVESTMENTS, PROGRAMS, PROJECTS AND
ACTIVITIES WHICH MAY BE PROFIT-
ORIENTED, BY ITSELF OR IN
 COLLABORATION, ASSOCIATION, OR JOINT
VENTURE WITH ANY PERSON, ASSOCIATION,
COMPANY OR ENTITY, WHETHER DOMESTIC
OR FOREIGN, FOR THE PURPOSE OF
PROVIDING FOR PERMANENT AND
CONTINUING SOURCES OF FUNDS FOR
HEALTH PROGRAMS, INCLUDING THE
EXPANSION OF EXISTING ONES, MEDICAL
ASSISTANCE AND SERVICES AND/OR
CHARITABLE GRANTS.

I move for approval of the amendment, Mr. Speaker.

MR. DAVIDE. Mr. Speaker.

THE SPEAKER. The gentleman from Cebu is recognized.

MR. DAVIDE. May I introduce an amendment to the

committee amendment? The amendment would be to insert
after "foreign" in the amendment just read the following:
EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.

When it is a joint venture or in collaboration with any other

entity such collaboration or joint venture must not include
activity letter (a) which is the holding and conducting of
sweepstakes races, lotteries and other similar acts.

MR. ZAMORA. We accept the amendment, Mr. Speaker.

MR. DAVIDE. Thank you, Mr. Speaker.

THE SPEAKER. Is there any objection to the amendment?

(Silence) The amendment, as amended, is approved.

MR. ZAMORA. Continuing the line, Mr. Speaker, after

"charitable grants" change the period (.) into a semi-colon (;)
and add the following proviso: PROVIDED, THAT SUCH
INVESTMENTS, PROGRAMS, PROJECTS AND ACTIVITIES
SHALL NOT COMPETE WITH THE PRIVATE SECTOR IN
AREAS WHERE PRIVATE INVESTMENTS ARE ADEQUATE.

May I read the whole paragraph, Mr. Speaker.

MR. DAVIDE. May I introduce an amendment after

"adequate". The intention of the amendment is not to leave
the determination of whether it is adequate or not to
anybody. And my amendment is to add after "adequate" the
words AS MAY BE DETERMINED BY THE NATIONAL
ECONOMIC AND DEVELOPMENT AUTHORITY. As a matter
of fact, it will strengthen the authority to invest in these
areas, provided that the determination of whether the private
sector's activity is already adequate must be determined by
the National Economic and Development Authority.

MR. ZAMORA. Mr. Speaker, the committee accepts the

proposed amendment.

MR. DAVIDE. Thank you, Mr. Speaker

THE SPEAKER. May the sponsor now read the entire

paragraph?

MR. ZAMORA. May I read the paragraph, Mr. Speaker.

Subject to the Minister of Human Settlements, to engage in

health and welfare-oriented investment programs, projects,
and activities which may be profit-oriented, by itself or in
collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign,
EXCEPT FOR THE ACTIVITIES MENTIONED IN PARAGRAPH
(a) for the purpose of providing for permanent and
continuing sources of funds for health programs, including
the expansion of existing ones, medical assistance and
services and/or charitable grants: PROVIDED THAT SUCH
INVESTMENTS, HEALTH PROGRAMS, PROJECTS AND
ACTIVITIES SHALL NOT COMPETE WITH THE PRIVATE
SECTOR IN AREAS WHERE PRIVATE INVESTMENTS ARE
ADEQUATE AS MAY BE DETERMINED BY THE NATIONAL
AND ECONOMIC DEVELOPMENT AUTHORITY.

THE SPEAKER. Is there any objection to the amendment?

MR. PELAEZ. Mr. Speaker.

THE SPEAKER. The Gentleman from Misamis Oriental is

recognized.

MR. PELAEZ. Mr. Speaker, may I suggest that in

that proviso, we remove "health programs, projects and
activities," because the proviso refers only to investment
activities — "provided that such investments will not
 compete with the private sector in areas where investments
are adequate . . . .

MR. ZAMORA. It is accepted, Mr. Speaker.

THE SPEAKER. Is there any objection?

MR. PELAEZ. Mr. Speaker, may I propose an improvement to

the amendment of the Gentleman from Cebu, just for style, I
would suggest the insertion of the word PRECEDING before
the word "paragraph." The phrase will read "the PRECEDING
paragraph."

MR. ZAMORA. It is accepted, Mr. Speaker.

THE SPEAKER. Very well. Is there any objection to the

committee amendment, as amended? (Silence). The Chair
hears none; the amendment is approved.

The construction given to §1 in the previous decision is insupportable in light

of both the text of §1 and the deliberations of the Batasang Pambansa which
enacted the amendatory law.

IV. REQUIREMENT OF PUBLIC BIDDING

Finally the question is whether the ELA is subject to public bidding. In

justifying the award of the contract to the PGMC without public bidding, the
PCSO invokes E.O. No. 301, which states in pertinent part:

§1. Guidelines for Negotiated Contracts. Any provision of law, decree,

executive order or other issuances to the contrary notwithstanding, no
contract for public services or for furnishing supplies, materials and
equipment to the government or any of its branches, agencies or
instrumentalities shall be renewed or entered into without public
bidding, except under any of the following situations.

a. Whenever the supplies are urgently needed to meet an

emergency which may involve the loss of, or danger to, life
and/or property:

b. Whenever the supplies are to be used in connection with a

project or activity which cannot be delayed without causing
detriment to the public service;

c. Whenever the materials are sold by an exclusive

distributor or manufacturer who does not have sub-dealers
 selling at lower prices and for which no suitable substitute
can be obtained elsewhere at more advantageous terms to
the government;

d. Whenever the supplies under procurement have been

unsuccessfully placed on bid for at least two consecutive
times, either due to lack of bidders or the offers received in
each instance were exorbitant or non-conforming to
specifications:

e. In cases where it is apparent that the requisition of the

needed supplies through negotiated purchase is most
advantageous to the government to be determined by the
Department Head concerned; and

f. Whenever the purchase is made from an agency of the

government.

Petitioners point out that while the general rule requiring public bidding covers
"contract[s] for public services or for
furnishing supplies, materials and equipment" to the government or to any of
its branches, agencies or instrumentalities, the exceptions in pars. (a), (b), (d),
(e) and (f) refer to contracts for the furnishing of supplies only, while par. (c)
refers to the furnishing of materials, only. They argue that as the general rule
covers the furnishing of "supplies, materials and equipment," the reference in
the exceptions to the furnishing of "supplies" must be understood as excluding
the furnishing of any of the other items, i.e., "materials" and "equipment."

E.O. No. 301, §1 applies only to contracts for the purchase of supplies,
materials and equipment. It does not refer to contracts of lease of equipment
like the ELA. The provisions on lease are found in §§ 6 and 7 but they refer to
the lease of privately-owned buildings or spaces for government use or of
government-owned buildings or spaces for private use, and these provisions do
not require public bidding. These provisions state:

§6. Guidelines for Lease Contracts. — Any provisions of law, decree,

executive order or other issuances to the contrary notwithstanding, the
Department of Public Works and Highways (DPWH), with respect to the
leasing of privately-owned buildings or spaces for government use or of
government-owned buildings or space for private use, shall formulate
uniform standards or guidelines for determining the reasonableness of
the terms of lease contracts and of the rental rates involved.

§7. Jurisdiction Over Lease Contracts. — The heads of agency intending

to rent privately-owned buildings or spaces for their use, or to lease out
government-owned buildings or spaces for private use, shall have
 authority to determine the reasonableness of the terms of the lease and
the rental rates thereof, and to enter in such lease contracts without
need of prior approval by higher authorities, subject to compliance with
the uniform standards or guidelines established pursuant to Section 6
hereof by the DPWH and to the audit jurisdiction of COA or its duly
authorized representative in accordance with existing rules and
regulations.

It is thus difficult to see how E.O. No. 301 can be applied to the ELA when the
only feature of the ELA that may be thought of as close to a contract of
purchase and sale is the option to buy given to the PCSO. An option to buy is
not of course a contract of purchase and sale.

Even assuming that §l of E.O. No. 301 applies to lease contracts, the reference
to "supplies" in the exceptions can not be strictly construed to exclude the
furnishing of "materials" and "equipment" without defeating the purpose for
which these exceptions are made. For example, par. (a) excepts from the
requirement of public bidding the furnishing of "supplies" which are "urgently
needed to meet an emergency which may involve the loss of, or danger to, life
and/or property." Should rescue operations during a calamity, such as an
earthquake, require the use of heavy equipment, either by purchase or lease,
no one can insist that there should first be a public bidding before the
equipment may be purchased or leased because the heavy equipment is not a
"supply" and §1 (a) is limited to the furnishing of "supplies" that are urgently
needed.

Petitioners contend that in any event the contract in question is not the "most
advantageous to the government." Whether the making of the present ELA
meets this condition is not to be judged by a comparison, line by line, of its
provisions with those of the old contract which this Court found to be in reality
a joint venture agreement. In some respects the old contract would be more
favorable to the government because the PGMC assumed many of the risks and
burdens incident to the operation of the on-line lottery system, while under the
ELA it is freed from these burdens. That is because the old contract was a joint
venture agreement. The ELA, on the on the other hand, is a lease contracts,
with the PCSO, as lessee, bearing solely the risks and burdens of operating the
on-line lottery system

It is paradoxical that in their effort to show that the ELA is a joint venture
agreement and not a lease contract, petitioners point to contractual provisions
whereby the PGMC assumed risks and losses which might be conceivably be
incurred in the operation of the lottery system, but to show that the present
lease agreement is not the most advantageous arrangement that can be
obtained, the very absence of these features of the old contract which made it a
joint venture agreement, is criticized.
Indeed the question is not whether compared with the former joint venture
agreement the present lease contract is "[more] advantageous to the
government." The question is whether under the circumstances, the ELA is the
most advantageous contract that could be obtained compared with similar
lease agreements which the PCSO could have made with other parties.
Petitioners have not shown that more favorable terms could have been
obtained by the PCSO or that at any rate the ELA, which the PCSO concluded
with the PGMC, is disadvantageous to the government.

For the foregoing reasons, we hold:

(1) that petitioners have neither standing to bring this suit nor substantial
interest to make them real parties in interest within the meaning of Rule 3 §2;

(2) that a determination of the petitioners' right to bring this suit is not
precluded or barred by the decision in the prior case between the parties;

(3) that the Equipment Lease Agreement of January 25, 1995 is valid as a lease
contract under the Civil Code and is not contrary to the charter of the
Philippine Charity Sweepstakes Office;

(4) that under §1(A) of its charter (R.A. 1169), the Philippine Charity
Sweepstakes Office has authority to enter into a contract for the holding of an
on-line lottery, whether alone or in association, collaboration or joint venture
with another party, so long as it itself holds or conducts such lottery; and

(5) That the Equipment Lease Agreement in question did not have to be
submitted to public bidding as a condition for its validity.

WHEREFORE, the Petition for Prohibition, Review and/or Injunction seeking to

declare the Equipment Lease Agreement between the Philippine Charity
Sweepstakes Office and the Philippine Gaming Management Corp. invalid is
DISMISSED.

SO ORDERED.

Melo, Quiason, Puno, Kapunan and Francisco, JJ., concur.

Narvasa, C.J., took no part.

Separate Opinions
PADILLA, J., concurring:

I join the majority in voting for the dismissal of the petition in this case.

It is the duty of the Supreme Court to apply the laws enacted by

Congress and approved by the President, (unless they are violative of the
Constitution) even if such laws run counter to a Member's personal
conviction that gambling should be totally prohibited by law.

In the present case, we are confronted with Republic Act No. 1169 as
amended by B.P. Blg. 42 which expressly allows the PCSO to conduct
lotteries, clearly a form of gambling.

Given the various laws allowing specific forms of gambling, only

Congress and the Executive branch of government can, at present, repeal
these laws to effectively eradicate gambling, if these two (2) political
branches truly intend to embark on an honest to goodness national
moral recovery and development program.

In my separate concurring opinion in the first lotto case (G.R. No.

113375), I expressed the view that the rule on locus standi, being merely
a procedural rule, should be relaxed, as the issue then was of paramount
national interest and importance, namely, the legality of a lease contract
entered into by PCSO with PGMC whereby the former sought to operate
an "on-line high-tech" lottery, undeniably a form of gambling, the terms
of which clearly pointed to an "association, collaboration or joint venture"
with PGMC.

The core issue in the present case is the same as the issue in the first
lotto case, i.e., the validity of a changed agreement between PCSO and
PGMC. Thus, it is my view that the principle of locus standi should not
stand in the way of a review by this Court of the validity of
such changed agreement.

The specific issues in the present case were formulated by the Court
during the hearing held on 3 March 1995 thus:

1. whether the challenged Equipment Lease Agreement (ELA for short)

between PCSO and PGMC constitutes an "association, collaboration or
joint venture" between the two (2) entities within the meaning of Section
1(b) of Republic Act No. 1169 as amended by Batas Pambansa Blg. 42
and therefore prohibited by said law;

2. whether the ELA requires a prior public bidding; and

3. whether the ELA is grossly disadvantageous to the government.

On the first specific issue, no less than petitioner's admit in their petition
that the ELA is substantially different from the contract declared void by
this Court in G.R. No. 113375. Attached to the petition in this case
(Annex "D") is a 14-page comparison between the first contract and the
ELA, showing such differences. Petitioners do not deny that the
objectionable provisions in the first contract are no longer found in the
ELA. In fact, as I had stated in my opinion on the issue of whether or not
to grant a temporary restraining order (TRO) in this case, the ELA
is prima facie a simple contract of lease of equipment where PCSO is
bound to pay a minimum amount as rental plus a fixed percentage of
gross receipts from the sales of lottery tickets, with an option given PCSO
to purchase the leased equipment upon expiration of the lease contract.

The argument that the ELA still constitutes a prohibited "association,

collaboration or joint venture" with PGMC is, in my view, a much too
strained interpretation of the law which results from a less than
pragmatic analysis of the issue.

To my mind, the question of whether or not the ELA constitutes

"association, collaboration or joint venture" between PCSO and PGMC
should be tackled by looking at the nature of a contract of lease.

A lease is a contract whereby one of the parties binds himself to give to

another the enjoyment or use of a thing for a price certain and for a
period which may be definite or indefinite (Article 1643, Civil Code).

It would appear from the above legal provision that the ELA is truly a
straight contract of lease. That the parties to the ELA have stipulated on
flexible rentals does not render it less of a lease contract and more of a
joint venture. Surely, the PGMC as owner of the leased equipment is free
to demand the amount of rentals it deems commensurate for the use
thereof and, as long as PCSO agrees to the amount of such rentals, as
justifying an adequate net return to it, then the contract is valid and
binding between the parties thereto. This is the essence of freedom to
enter into contracts.

Petitioners have not cited any law which prevents such stipulations to be
included in contracts of lease or which changes the nature of such
agreement from a lease to some other juridical relation. In fact, such
stipulations are common in leases of real estate for commercial
purposes. A ruling that would prevent PCSO from entering into such
lease agreement for the operation by PCSO of the lottery would defeat the
intent of the law to raise, from such lotto determination and judgment of
the COA on matters which are within its primary jurisdiction under the
Constitution.
 As to whether or not the ELA is grossly disadvantageous to the
government, it should be stressed that the matter involves, basically, a
policy — determination by the executive branch which this Court should
not ordinarily reverse or substitute with its own judgment, in keeping
with the time honored doctrine of separation of powers.

Based on the foregoing considerations, I vote to DISMISS the petition.

VITUG, J., concurring:

I most humbly reiterate the separate opinion I have made in Kilosbayan,

Inc., et al., vs. Teofisto Guingona, Sr., etc., et al. (G.R. No. 113375,
promulgated on 05 May 1994).

Before a peremptory voting could be taken by the Court on the main

merits of the instant case (G.R. No. 118910), the ultimate outcome of its
deliberations thereon, then still in progress, remained uncertain. In the
meanwhile, it behooved, in my view, all concerned to be bound by, or at
the very least to respect, the decision in G.R. No. 113375. It was clear to
me that until G.R. No. 118910 would have itself been finally resolved, the
petitioners were entitled to a temporary restraining order on the basis of
the decision in G.R. No. 113375 (and thus I then voted accordingly). The
new contract entered into (now in dispute in G.R. No. 118910), compared
with the previous contract nullified in G.R. No. 113375, just as I also saw
it then, was not substantially different from, let alone significantly better
than, the nullified contract.

Back to the core of the petition, however, the matter of the legal standing
of petitioners in their suit assailing the subject-contract appears to me,
both under substantive law and the rules of procedure, to still be an
insuperable issue. I have gone over carefully the pleadings submitted in
G.R. No. 118910, and I regret my inability to see anything new that can
convince me to depart from the view I have expressed on it in G.R. No.
113375.

In part, I also said in G.R. No. 113375: A provision which has been
introduced by the 1987 Constitution is a definition, for the first time in
our fundamental law, of the term "judicial power," as such authority and
duty of courts of justice "to settle actual controversies involving rights
which are legally demandable and enforceable and to determine whether
or not there has been a grave abuse of discretion, amounting to lack or
excess of jurisdiction, on the part of any branch or instrumentality of the
Government" (Article VIII, Section 1, Constitution). I take it that the
provision has not been intended to unduly mutate, let alone to disregard,
the long established rules on locus standi. Neither has it been meant, I
most respectfully submit, to do away with the principle of separation of
powers and its essential incidents such as by, in effect, conferring
omnipotence on, or allowing an intrusion by, the courts in respect to
purely political decisions, the exercise of which is explicitly vested
elsewhere, and subordinate to that of their own the will of either the
Legislative Department or the Executive Department — both co-equal,
independent and coordinate branches, along with the Judiciary, in our
system of government. Again, if it were otherwise, there indeed would be
truth to the charge, in the words of some constitutionalists, that "judicial
tyranny" has been institutionalized by the 1987 Constitution, an
apprehension which should, I submit, rather be held far from truth and
reality.

In the Commencement Address I delivered to the 1995 graduating class

of the San Beda College of Law, I broached a matter which I felt was of
contemporary concern. Allow me to quote from it:

. . . The relatively recent event in our history, still too vivid to be

lost, has given root to a discernible change in our fundamental
law. Reacting to the lessons we, in the recent past, have learned,
well meant safeguards have been installed. One such measure is in
strengthening the judiciary, unquestionably in order to check on
further abuses of power. Thus, the Supreme has been charged
with overseeing the entire judiciary by removing this function from,
heretofore traditionally with, the executive. It has also given
authority to the highest court of the land to literally strike down
any act of either Congress or the Executive for any grave abuse of
discretion. What has thus come about is a Supreme Court that
effectively wields almost absolute authority to dictate matters of
grave import to the country — in politics, in business and in
veritably all major decisions of the State. The Supreme Court is
manned by fifteen justices, presumably all learned in law, but can
it safely be said that beyond the usual spheres of their judicial
expertise, they so also have the capability to react to all needs of
government. The tribunal's power is awesome. It may be apropos to
ask: Can the Court adequately respond at every turn with full
fidelity and competence? If you would have had the time to follow
up recent pronouncements of the Court, you might have noticed
that on certain occasions I have dissented from what I have felt
and still feel to be an unwise encroachment of functions that are
better left to the judgment of others who are no less experts in
their respective fields than we in law. Congress is the branch of
government, composed of the representatives of the people, that
lays down the policies of government and the Executive that
carries out the people's mandate. I have found it most difficult in
voting with my colleagues whenever such policies are negated
 merely because of what the Court perceives to be grave abuse of
discretion, clearly too relative a term to permit it to be its own
sentinel against misuse.

WHEREFORE, for the same reasons I have stated in G.R. No. 113375, I
respectfully vote for the dismissal of the instant petition.

FELICIANO, J., dissenting:

I find myself regretfully quite unable to join the majority opinion written
by my distinguished brother in the Court, Mendoza, J.

I join the penetrating dissenting opinions written by my esteemed

brothers Regalado and Davide, Jr., JJ. In respect of the matter of locus
standi, I would also reiterate the concurring opinion I wrote on that
subject in the first Kilosbayan case.1 All the factors which, to my mind,
pressed for recognition of locus standi on the part of petitioners in the
first Kilosbayan case, still exist and demand, with equal weight and
insistence, such recognition in the present or second Kilosbayan case. I
fear that the Court may well have occasion in the future profoundly to
regret the doctrinal ball and chain that we have today clamped on our
own limbs.

In the paragraphs which follow, I seek to address three (3) major

substantive points made in the majority opinion: firstly, the new
interpretation of Section 1 (B) of the PCSO charter as amended by B.P.
Blg. 42; secondly, the question of whether the "Equipment Lease
Agreement" (ELA) is subject to the requirements of public bidding; and
lastly, the question of whether the ELA has been effectively "purged" of
the characteristics of a prohibited joint venture arrangement or
collaboration or association.

I turn first to the novel argument made in the majority opinion that the
charter of PCSO does not "prohibit [—] it from holding or conducting
lottery in collaboration, association or joint venture with another party."
That opinion argues that "what [PCSO] is prohibited from doing is to
invest in a business engaged in sweepstakes races, lotteries and similar
activities" which are "competing activities and the PCSO should not invest
in the business of the business of a competitor."

In so doing, my learned brother Mendoza, J. purports to controvert and

overturn the reading that the majority of this Court, through Mr. Justice
Davide, Jr., in the first Kilosbayan case gave to the relevant provisions
of the PCSO charter. It so happens that the critical language in the
relevant PCSO charter provision — that is, the "except" clause in Section
1 (B) of the PCSO charter as amended by B.P. Blg. 42 — was crafted by
the then Assemblyman Hilario G. Davide, Jr. during the deliberations in
the Interim Batasan Pambansa on the bill that became B.P. Blg. 42. It is
impliedly contended by the majority that the intent of an individual
legislator should not be regarded as conclusive as to the "correct"
interpretation of the provision of a statute. This is true enough, as a
general proposition, for it is the intent of the legislative body as
manifested in the language used by the legislature that must be
examined and applied by this Court. However, it seems to me that the
view expressed by an individual legislator who eventually comes to sit in
this Court as to the meaning to be given to words crafted by himself
should, at the very least, be regarded as entitled to a strong presumption
of correctness. Put a little differently, I respectfully submit that in a
situation such as that presented in this case, a strong presumption
arises that the interpretation given by Mr. Justice Davide, Jr. and
approved and adopted by the majority of the Court in the
first Kilosbayan case faithfully reflected the intent of the legislative body
as a whole. Fortunately, in the present case, it is not necessary to take
the word of Mr. Justice Davide, Jr. as to what the intent of the legislative
body was in respect of Section 1 (B) of the present PCSO charter. For
that intent is clearly discernible in the very words used by the legislative
body itself. I turn, therefore, to a scrutiny of the words used by that
legislative body.

In arriving at his new interpretation, Mr. Justice Mendoza engages in

"parsing:"

When parsed, it will be seen that under §1, the PCSO is given
authority to do any of the following: (1) to hold or conduct charity
sweepstakes races, lotteries or similar activities; and/or (2) to
invest — whether "by itself or in collaboration, association or joint
venture with any person, association, company or entity" in any
"health and welfare-related investments, programs, projects and
activities which may be profit-oriented," except those which are
engaged in any of "the activities mentioned in the preceding
paragraph (A)," i.e., sweepstakes races, lotteries and similar
activities, for the obvious reason, as already states, that these are
competing activities. (Emphasis in the original)

My submission, essayed with great respect and reluctance, is that Mr.

Justice Mendoza has misread the pertinent provisions of R.A. No. 1169,
as amended by B.P. Blg. 42, and that in so parsing those provisions, he
has in fact overlooked their actual syntax. The pertinent portions need to
be quoted here in full:
 §1. The Philippine Charity Sweepstakes Office. — The Philippine
Charity Sweepstakes Office, hereinafter designated the Office, shall
be the principal government agency for raising and providing for
funds for health programs, medical assistance and services and
charities of national character, and as such shall have the general
powers conferred in section thirteen of Act Numbered One
Thousand Four Hundred Fifty-Nine, as amended, and shall have
the authority:

A. To hold and conduct charity sweepstakes races, lotteries and

other similar activities, in such frequency and manner, as shall be
determined, and subject to such rules and regulations as shall be
promulgated by the Board of Directors.

B. Subject to the approval of the Minister of Human Settlements to

engage in health and 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. (Emphasis supplied)

Examining the actual text of Section 1 (B), it will be noted that what
PCSO has been authorized to do is not simply to invest — whether 'by
itself or in collaboration, association or joint venture —' in any health
and welfare related investments, programs, projects and activities which
may be profit-oriented . . . ." Rather, the PCSO has been authorized to
do any and all of the following acts:

(1) to engage in health and welfare-related investments — which

may be profit-oriented —;

(2) to engage in health and welfare-related — programs — which

may be profit-oriented —;

(3) to engage in health and welfare-related — projects — which

may be profit-oriented —;" and

(4) to engage in health and welfare-related — activities — which

may be profit-oriented —.
The operative words of Section 1 (B) are "to engage in . . . health and
welfare-related investments, programs, projects and activities . . ." which,
however, Mendoza, J. would read restrictively and simply as "to invest
in." To do so, one must disregard the actual language used by the
statute.

It would appear that the majority thinks of "investments" essentially in

terms of passive investments and conceives of Section 1 (B) as a
prohibition against PCSO investing its own funds by buying either equity
or debt instruments issued by some other company itself also authorized
to engage in sweepstakes races, lotteries or similar activities and
therefore, competing with PCSO. Under this view, the prohibition is
intended to prevent PCSO from competing with itself by putting its funds
in privately owned and operated enterprises lawfully and regularly
engaged in raising funds by holding and conducting sweepstakes races,
lotteries or similar activities for "health programs, medical assistance
and services and charities of national character.2

There appear some major difficulties with the view proffered by the
majority. Firstly, PCSO appears in fact to be a legal monopoly, that is to
say, there appears to be no other government-owned or controlled
corporation or entity that is legally authorized to hold sweepstakes races,
lotteries and similar activities on a regular and continuing basis for the
purpose of generating funds for charitable, health and welfare-related
purposes. A careful search in the records of the Securities and Exchange
Commission has failed to show any privately owned company that has
been organized for that principal purpose, i.e., to generate funds through
the regular holding of sweepstakes races and lotteries for charitable and
welfare and health-related projects. Secondly, assuming for argument's
sake that there is somewhere some obscure, publicly or privately owned
entity which is engage in the same basis activity that the PCSO is
authorized to engage in Section 1 (A) of its charter, it seems unreal to
suppose that an express statutory injunction should have been found
necessary to prevent PCSO from competing with itself by buying some
equity or a debt interest in such a company. Such an injunction would
seem unfairly to assume an unusual degree of ineptitude on the part of
officials of PCSO. Thirdly, the final proviso found in Section 1 (B)
(quoted supra) makes clear that the legislative concern was not with
PCSO competing with itself but rather with protecting the private sector
from competition that would be offered by PCSO, either alone or in
combination with some other enterprise, when it would seek to exercise
its expanded powers under Section 1 (B) in areas already adequately
served by private capital.
I would, therefore, respectfully suggest that the "except" clause in Section
1 (B), is not designed as a 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 permit PCSO precisely to share its
exclusive right to hold and conduct sweepstakes races, lotteries and the
like. It is this "except" clause which prevents such sharing or lending or
farming out of the PCSO "franchise"

by itself or in collaboration, association or joint venture with any

person, association, company or entity, whether domestic or
foreign, except for the activities mentioned in the preceding
paragraph (A) . . . .

This "except" clause thus operates, as it were, as a renvoi clause which

refers back to Section 1 (A) and in this manner avoids the necessity of
simultaneously amending the text of Section 1 (A). The textual location,
in other words, of the "except" clause offers no support for the new-found
and entirely original interpretation offered in the majority opinion. 3

II

I consider next the question of whether the "Equipment Lease

Agreement" (ELA) is subject to public bidding. PCSO refers to Executive
Order No. 301 dated 26 July 1987 in seeking to justify the award of the
ELA to the PGMC without public bidding. In accepting the contentions of
PCSO, the majority opinion relies basically on two (2) propositions. The
first of these is that:

Executive Order No. 301, Section 1 refers to contracts of purchase

and sale [only]. For that matter, there is nothing in that Order
which refers to contracts for the lease of equipment. What the
order contains are provisions (Sections 6-7) for the lease of
privately owned buildings or spaces for government use or of
government owned buildings or spaces for private use and these
 provisions do not require public bidding. These provisions state . . .
. I do not see, therefore, how Executive Order No. 301 can be
applied to the ELA when the only feature it has that may be
thought close to a contract of purchase and sale is the option to
buy given to the PCSO. But — an option to buy is not a contract of
purchase and sale. (Emphasis and brackets supplied)

The second proposition offered is that the use of the term "supplies"
"cannot be limited so as to exclude 'materials' and 'equipment' without
defeating the purpose for which these exceptions are made."

The first proposition, it is respectfully submitted, finds no basis in the

actual language used in the operative paragraph of Section 1 of
Executive Order No. 301 setting out the general rule:

Sec. 1. Guidelines for Negotiated Contracts. — Any provisions of

law, decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for
furnishing supplies, materials and equipment to the government or
any of its branches, agencies or instrumentalities shall be renewed
or entered into without public bidding, except under any of the
following situations: . . . . (Emphases supplied)

It is worthy of special note that the above opening paragraph

does not even use the words "purchase and sale" or "buy and sell;"
the actual term used is " furnishing. . . equipment to the government."
The term "furnishing" can scarcely be limited to sales to the government
but must instead be held to embrace any contract which provides the
government with either title to or use of equipment. A contrary view can
only result in serious emasculation of Executive Order No. 301. It is
common place knowledge that equipment leases (especially "financial
leases" involving expensive capital equipment) are often substitutes for or
equivalents of purchase and sale contracts, given the multifarious credit
and tax constraints operating in the market place. 4 Thus, the above first
proposition fails to take into account actual commercial practice already
reflected in our present commercial and tax law.

The second proposition similarly requires one who must interpret and
apply the provisions of Section 1 of Executive Order No. 301 to disregard
the actual language used in that Order. For Executive Order No. 301
uses three (3) distinguishable terms: "supplies," "materials" and
"equipment." These terms are not always used simultaneously in
Executive Order No. 301. In some places, only "supplies" is used; in
other places, only "materials" is employed; and in still other places, the
term "equipment" is used along side with, but separately from, both of
the other two (2) terms. To say that "supplies," "materials" and
"equipment" are merely synonymous or fungible would appear too casual
a treatment of the actual language of Executive Order No. 301. 5

The fundamental difficulty with the above two (2) propositions is this:
that public bidding is precisely the standard and best way of ensuring
that a contract by which the government seeks to provide itself with
supplies or materials or equipment is in fact the most advantageous to
government. It is true enough that public bidding may be inconvenient
and time consuming; but it is still the only method of procurement so far
invented by man by which the government could reasonably expect to
keep relatively honest those who would contract with it. This is the basic
reason why competition through public bidding is the general rule and
not the exception. I fear that the opinion of my learned brother Justice
Mendoza would, in ultimate effect, stand this rule on its head and make
public bidding the exception rather than the general rule.

III

I would address finally the question of whether or not the original

contract between PCSO and PGMC which the court in the
first Kilosbayan case found to be a joint venture, has been so
substantially changed as to have been effectively converted from a joint
venture arrangement to an ordinary equipment lease agreement. The
majority of the Court have concluded that the ELA has been effectively
"purged" of the characteristics of a joint venture arrangement and that it
should now be regarded as lawful under the provisions of the revised
PCSO charter.

With very great respect, it is submitted that the above conclusion has
been merely assumed rather than demonstrated and that what is in fact
before this Court does not adequately support such conclusion.

I begin with the nature and form of the rental provisions of the ELA. The
rental payable by PCSO as lessee of equipment and other assets owned
by PGMC as lessor, is fixed at a specified percentage, 4.3% of the gross
revenues accruing to PCSO out of or in connection with the operation of
such equipment and assets. The rental payable is not, in other words,
expressed in terms of a fixed and absolute figure, although a floor
amount per leased terminal is set. Instead, the actual total amount of the
rental rises and falls from month to month as the revenues grow or
shrink in volume. I respectfully suggest that thereby the lessor of the
facilities leased has acquired a legal interest either in the business of the
lessee PCSO that is conducted through the operation of such facilities
and equipment, or at least in the income stream of PCSO originating
from such operation.6 In the commercial world, a rental provision cast in
terms of a fixed participation in the gross revenues of the lessee, signals
substantial economic interest in the business of such lessee. Such a
provision cannot be regarded as compatible with an "ordinary"
equipment rental agreement. On the other hand, it is of the very
substance of a commercial joint venture and of economic collaboration or
association.

Another of my distinguished brothers in the Court, Mr. Justice Padilla,

remarks that this type of rental stipulation is fairly common in leases of
real estate in, e.g., Makati. This may well be the case. It is, however,
absolutely essential to bear in mind that neither, e.g., Ayala Land, Inc. as
lessor-company nor any of the ordinary commercial enterprises leasing
real property in Makati, operate under statutory restrictions like those in
Section 1(B) of R.A. No. 1169 as amended by B.P. Blg. 42 upon PCSO. In
the Ayala Center, lessor and lessee are legally free to devise any rental
provision they may agree upon, even if such a provision would constitute
participation by the lessor in the business of the lessee or a joint venture
between the two (2).

The majority opinion, apparently following the posture adopted by the

Solicitor General in respect of this point, states:

in this case the rental has to be expressed in terms of percentage of

the revenue of the PCSO because rentals are treated in the charter
of the agency (R.A. No. 1169, Section 6 [C]) as "operating expenses
and the allotment for "operating expenses" is a percentage of the net
receipts." (Emphasis supplied)

The Solicitor General is clearly not an accountant. In the first place, the
so-called "allotment for 'operating expenses'" is in fact nothing more than
a ceiling established by the statute for permissible operating expenses.
The statute commands that the PCSO not spend for its operations more
than 15% of its "net receipts." There is no law requiring PCSO to spend
the maximum which it is authorized to spend. Upon the other hand, law
and regulations prohibit the PCSO from spending more than what is in
fact reasonably necessary to produce the revenues targeted by it. Thus,
the assertion that the 4.3% rental rate is "well within the maximum of
15% net receipt fixed by law" is entirely meaningless insofar as
explaining the structure of the rental provision and the reasonableness
thereof is concerned. In the second place, it is child's play for an
accountant to convert absolute figures representing operating expenses
[actual or budgeted] into a percentage of "net receipts [actual of
expected];" there is nothing in Section 6 (C) of the PCSO charter that
either requires or justifies the adoption of the rental provision found both
in the old contract and in the ELA giving PGMC a fixed share in gross
revenues. The explanation offered by the Solicitor General is
unfortunately merely contrived; its acceptance depends on lack of
familiarity with elementary accounting concepts.

Under the original agreement between PCSO and PGMC, the latter bore
the great bulk of the risks and business burdens involved in their
relationship. The consideration for PGMC carrying such business risks
and burdens was set at 4.9% of gross revenues flowing out of the lotto
operations. In contrast, under the written terms of the new contract or
ELA, the bulk if not all the risks and business burdens previously borne
by PGMC have apparently been shifted to PCSO. The consideration to
PGMC has been reduced from 4.9% to 4.3% of gross revenues arising out
of lotto operations.

Considering the nature and number of the business risks and burdens
said to be shifted under the provisions of ELA from PGMC to PCSO, the
stipulated reduction of the rental — by 0.6% of gross revenues — would
appear disproportionately low when appraised in terms of ordinary
commercial standards and practice. The original rental rate was reduced
by 12.24% only.7 Of course, the minimal reduction of the rental rate
payable under the ELA to PGMC would be understandable if one
assumes that the business risks and burdens set out in such detail in
the old contract, and moved over to PCSO in equal detail in the new
contract, are, in the first place, basically unreal and merely cosmetic
flourishes applied to the contract documentation. But one is extremely
loath to make such an assumption, not only because the record offers no
basis for such an assumption, but also because it would raise far more
questions than it would settle. Moreover, the true relationship between
the rental rate and the economic burdens and risks assumed by PCSO
under the ELA, will remain unexplained.

Thus, the questions which are provoked by scrutiny of the economic

implications of the text of the ELA (which, it should again be recalled, did
not go through the process of public bidding) are so numerous and
consequential that it becomes very difficult to suppose that the ELA is
what it purports to be. It is suggested, with respect, that the burden of
showing that the elements found by the Court in the
first Kilosbayan case to constitute the prohibited "collaboration,
association or joint venture" have truly (and not simply ostensibly) been
expunged from the relationship between PCSO and PGMC
rests, not on Kilosbayan nor on this Court, but rather on PCSO and
PGMC. It is respectfully submitted further that that burden has not been
adequately discharged in the present case by the simple re-arrangement
of words and paragraphs of the old contract considering that the reality
 of the re-arrangement is controverted by the commercial terms of the
new contract.

One final word. The PCSO appears sincerely convinced that the legal
restrictions placed upon its operations by the actual text of Section 1 (B)
of its revised charter prevent it from realizing the kinds and volume of
revenues that it needs for charitable and health and welfare-oriented
programs. In this situation, the appropriate recourse is not to make light
of nor to conjure away those legal restrictions but rather to go to the
legislative authority and there ask for further amendment of its charter.
In that same forum, the petitioners may in turn ventilate their own
concerns and deeply felt convictions.

For all the foregoing, I vote to grant the Petition for Certiorari.

Romero and Bellosillo, JJ., concur.

REGALADO, J., dissenting:

I am constrained to respectfully dissent from the majority opinion

premised on the constitutional and procedural doctrines posed and
interpreted in tandem therein. I also regret that I have to impose on the
majority with this virtual turno en contra when I could have indicated my
disaccord by just joining Mr. Justice Davide in his commendably
objective presentation of the minority position. I feel, however, that
certain views that have been advanced require a rejoinder lest they lapse
into the realm of unanimous precedents.

Preliminarily, there is no need to emphasize that the morality of

gambling is not a justiciable issue, and that this Court should not rule
on the wisdom of the policy thereon but only on the power of the
corresponding authorities to adopt the same. To my knowledge, the first
proposition has never been of concern to or questioned by any member of
this Court throughout its hegira from the first lotto case, 1 then to the jai
alai controversy,2 and now this so-called sequel to the lottery dispute.
The second is a constitutional tenet so hoary with age that for the
majority to still belabor the same would somehow reflect unfavorably
upon the dissenting members.

Upon the other hand, the Court may even be misunderstood as adopting
an adjudicative pattern designed against transparency of and inquiry
into public affairs. The misperception could very well be that it is
glossing over the validity of the lottery contract by seeking refuge in the
rule of locus standi, and suppressing concern over societal mores on
gambling by invoking the doctrine of non-justiciability.
Coming to the real task at hand, we have this resuscitation of the
nagging question of locus standi. In the first lotto case, the Court
excepted petitioners from the traditional locus standi proscription
because the issues raised on the indiscriminate operation of a
nationwide on-line lottery system are of paramount public interest and of
a category higher than those involved in former cases wherein the
application of that rule was sustained. Respect for that holding was
accordingly observed and enjoined in Tatad, et al. vs. Garcia, etc., et al.3

That the Court acted correctly in the original case, instead of clinging to
the hidebound constitutional dictum of indeterminate vintage, has been
demonstrated in the various opinions filed in the jai alai case with
illustrations of the frequent reexamination of constitutional precepts in
the courts of the United States itself from which they originated. Thus,
creating exceptions to said doctrines and even rejecting the same in the
interest of justice are not unusual, and this Court has likewise done so
presumably since it agrees that one ought not to be more popish than
the Pope.

Withal, the relaxation or the locus standi doctrine in the first lotto case is

impugned and lamented in the second one now at bar. Yet, with regard
to the "law of the case" doctrine, during the deliberations the majority
submitted, and I am borrowing their authority therefor, that "(d)octrine is
merely a rule of procedure and does not go to the power of the court, and
will not be adhered to where its application will result in an unjust
decision."4 I feel that here the majority is thus ignoring the adage about
the proverbial sauce being for both the goose and the gander.

In the first lotto case, the minority therein rested its position entirely on
procedural grounds, that is, by merely challenging the legal standing of
petitioners but without any comment on the merits of the contract in
question. Since the case at bar is in truth a reprise of the first, I had
expected that this case would now be decided purely on the merits of the
putative expanded lease agreement. Indeed, to make the Court's
judgment here turn again on technical procedural grounds, by hiding
within the shroud of the locus standi mystique, does not strike me as a
decisive and conclusive adjudication. While the contract involved is not
of centennial duration, its legal impact on and the social cost to the
country should warrant more than an androgynous solution.

Be that as it may, since the majority opinion has now evolved other
adjective theories which are represented to be either different from or
ramifications of the original "standing to sue" objection raised in the first
lotto case, I will hazard my own humble observations thereon.
1. There is, initially, the salvo against the adoption of the "law of the
case" doctrine in the original majority ponencia. It is contended that this
doctrine requires, for its applicability, an issue involved in a case
originating from a lower court which is first resolved by an appellate
court, that case being then remanded to the court of origin for further
proceedings and with the prior resolution by the higher court of that
issue being the "law of the case" in any other proceeding in or a
subsequent appeal from the same case. It is insinuated that said
doctrine exists only under such a scenario.

It may be conceded that, in the context of the cited cases wherein this
doctrine was applied, two "appeals" are generally involved and the issue
resolved in the first appeal cannot be reexamined in the second appeal. If
so, then what is necessarily challenged in the first recourse to the higher
court is either an interlocutory order of the court a quo elevated on an
original action for certiorari or an appealable adjudication which
nonetheless did not dispose of the entire case below because it was either
a special proceeding or an action admitting of multiple appeals.

That is the present reglementary situation in the Philippines which,

unfortunately, does not appear to have been taken into account when
the double-appeal procedure involved in one particular American concept
was cited as authority in the majority opinion. No attempt was made to
ascertain whether in the American cases cited the lex fori provided for
identical or even substantial counterparts of our procedural remedies of
review by a higher court on either an appeal by certiorari or writ of error,
or through an original action of certiorari, prohibition or mandamus. Yet
on such unverified premises, and without a showing that the situations
are in pari materia, we are told that since the case at bar does not
posses the formatted sequence of an initiatory action in a lower court, an
appeal to a higher court, a remand to the lower court, and then a second
appeal to the higher court, the "law of the case" doctrine cannot apply. I
have perforce to reject that submission as I cannot indulge in the luxury
of absolutes espoused by this majority view.

I fear that this majority rule, has unduly constricted the factual and
procedural situations where such doctrine may apply, through its undue
insistence on the remedial procedure involved in the proceedings rather
than the juridical effect of the pronouncement of the higher court. Even
in American law, the "law of the case" doctrine was essentially designed
to express the practice of courts generally to refuse to reopen what has
been decided5 and, thereby, to emphasize the rule that the final
judgment of the highest court is a final determination of the rights of the
parties.6 That is the actual and basic role that it was conceived to play in
judicial determinations, just like the rationale for the doctrines of res
judicata and conclusiveness of judgment.

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

2. Obviously realizing that continued reliance on the locus standi bar to

petitioner's suit is not an ironclad guaranty against it, the majority
position has taken a different tack. It now invokes the concept of and the
rules on a right of action in ordinary civil actions and, prescinding from
its previous position, insists that what is supposedly determinative of the
issue of representation is contract law and not constitutional law. On the
predicate that petitioners are not parties to the contract, primarily or
subsidiarily, they then are not real parties in interest, and for lack of
cause of action on their part they have no right of action. Ergo, they
cannot maintain the present petition.

As a matter of a conventional rule of procedure, the syllogism of the

majority can claim the merit of logic but, even so, only on assumed
premises. More importantly, however, the blemish in its new blueprint is
that the defense of lack of a right of action is effectively the same as lack
of locus standi, that is, the absence of the remedial right to sue. As the
commentators of Castille would say, the objection under the new
terminology is "lo mismo perro con distino collar." That re-christened
ground, as we shall later see, has already been foreclosed by the
judgment of the Court in the first lotto case.

It is true that a right of action is the right or standing to enforce a cause

of action. For its purposes, the majority urges the adoption of the
standard concept of a real party in interest based on his possession of a
cause of action. It could not have failed to perceive, but nonetheless
refuses to concede, that the concept of a cause of action in public
interest cases should not be straitjacketed within its usual narrow
confines in private interest litigations.
Thus, adverting again to American jurisprudence, there is
the caveat that "the adoption of a provision requiring that an action be
prosecuted in the name of the real party in interest does not solve all
questions as to the proper person or persons to institute suit, although it
obviously simplifies procedures in actions at law. . . . There is no clearly
defined rule by which one may determine who is or is not the real party
in interest, nor has there been found any concise definition of the
term. Who is the real party in interest depends on the peculiar facts of
each separate case, and one may be a party in interest and yet not be the
sole real party in interest."9 (Emphasis supplied.)

The majority opinion quotes the view of a foreign author but

unfortunately fails to put the proper emphasis on the portion thereof
which I believe should be that which should correctly be stressed, and
which I correspondingly reproduce:

It is important to note . . . that standing because of its

constitutional and public policy underpinnings, is very different
from questions relating to whether a particular plaintiff is the real
party in interest or has the capacity to sue. Although all three
requirements are directed towards ensuring that only certain
parties can maintain an action, standing restrictions require a
partial consideration of the merits, as well as of broader policy
concerns relating to the proper role of the judiciary in certain
areas. 10

Indeed, if the majority would have its way in this case, there would be no
available judicial remedy against irregularities or excesses in government
contracts for lack of a party with legal standing or capacity to sue. This
legal dilemma or vacuum is supposedly remediable under a suggestion
submitted in the majority opinion, to wit:

Denial to petitioners of the right to intervene will not leave without

remedy any perceived illegality in the execution of government
contracts. Questions as to the nature or validity of public contracts
or the necessity for a public bidding before they may be made can
be raised in an appropriate complaint before the Commission on
Audit or before the Ombudsman . . . . In addition, the Solicitor
General is authorized to bring an action for quo warranto if it
should be thought that a government corporation . . . has offended
against its corporate charter or misused its franchise. . . . .

The majority has apparently forgotten its own argument that in the
present case petitioners are not the real parties, hence they cannot avial
of any remedial right to file a complaint or suit. It is, therefore, highly
improbable that the Commission on Audit would deign to deal with those
whom the majority says are strangers to the contract. Again, should this
Court now sustain the assailed contract, of what avail would be the
suggested recourse to the Ombudsman? Finally, it is a perplexing
suggestion that petitioners ask the Solicitor General to bring a quo
warranto suit, either in propria persona or ex relatione, not only because
one has to contend with that official's own views or personal interests
but because he is himself the counsel for respondents in this case. Any
proposed remedy must take into account not only the legalities in the
case but also the realities of life.

3. The majority believes that in view of the retirement and replacement of

two members of the Court, it is time to reexamine the ruling in the first
lotto case. A previous judgment of the Court may, of course, be revisited
but if the ostensible basis is the change or membership and known
positions of the new members anent an issue pending in a case in the
Court, it may not sit well with the public as a judicious policy. This
would be similar to the situation where a judgment promulgated by the
Court is held up by a motion for reconsideration and which motion, just
because the present Rules do not provide a time limit for the resolution
thereof, stays unresolved until the appointment of members sympathetic
thereto. Thus, the unkind criticisms of "magistrate shopping" or "court
packing" levelled by disgruntled litigants is not unknown to this Court.

I hold the view that the matter of the right of petitioners to file and
maintain this action — whether the objection thereto is premised on lack
of locus standi or right of action — has already been foreclosed by our
judgment in the first lotto case, G.R. No. 113375. If the majority refuses
to recognize such right under the "law of the case'' principle, I see no
reason why that particular issue can still be ventilated now as a survivor
of the doctrinal effects or res judicata. 11

It is undeniable that in that case and the one at bar, there is identity of
parties, subject matter and cause of action. Evidently, the judgment in
G.R. No. 113375 was rendered by a court of competent jurisdiction, it
was an adjudication on the merits, and has long become final and
executory. There is, to be sure, an attempt to show that the subject
matter in the first action is different from that in the instant case, since
the former was the original contract and the latter is the supposed
expanded contract. I am not persuaded by the proferred distinction.

The removal and replacement of some objectionable terms of a contract,

which nevertheless continues to operate under the same basis, with and
on the same property, for the same purpose and through
the same contracting parties does not suffice to extinguish the identity
of the subject matter in both cases. This would be to exalt form over
substance. Furthermore, respondents themselves admitted that the new
contract is actually the same as the original one, with just some variants
in the terms of the latter to eliminate those which were objected to. The
contrary assumption now being floated by respondents would create
chaos in our remedial and contractual laws, open the door to fraud, and
subvert the rules on the finality of judgments.

Yet, even assuming purely ex hypothesi that the amended terms in the

expanded lease agreement created a discrete set of litigable violations of
the statutory charter of the Philippine Charity Sweepstakes Office,
thereby collectively resulting in a disparate actionable wrong of delict,
that would merely constitute at most a difference in the causes of action
in the former and the present case. Under Section 49(c), Rule 39 of the
Rules of Court, we would still have a situation of collateral estoppel,
better known in this jurisdiction as conclusiveness of judgment. Hence,
all relevant issues finally adjudged in the prior judgment shall be
conclusive between the parties in the case now before us, and that
definitely includes at the very least the adjudgment therein that
petitioners have the locus standi or the right to sue respondents on the
contracts concerned.

In either case, — whether of res judicata, on which I insist, or of

conclusiveness of judgment, which I assume arguendo — what is now
being primarily resisted is the right of petitioners to sue, aside from the
postulated invalidity of the contract for the government-sponsored lottery
system. It does seem odd, if not arcane, that petitioners were held to
have the requisites locus standi or right of action in said G.R. No.
113375 and, for that matter, were likewise so recognized in the expanded
value added tax (EVAT) case, 12 but are now mysteriously divested of that
"place of standing" allegedly due to, for legal purposes, a compelling need
for reexamination of the doctrine, and, for economic reasons, an
obsession for autarky of the nation.

4. I repeat what I said at the outset that this case should be decided on
the merits and on substantive considerations, not on dubious
technicalities intended to prevent an inquiry into the validity of the
supposed amended lease contract. The people are entitled to the benefit
of a duly clarified and translucent transaction, just as respondents
deserve the opportunity, and should even by themselves primarily seek,
to be cleansed of any suspicions or lingering doubts arising from the fact
that the sponsors for jai alai and, now, of lotto are different.

On the merits, to obviate unnecessary replication I reiterate my

concurrence with the findings and conclusions of Mr. Justice Davide in
 his dissenting opinion, the presentation whereof is completely devoid of
strained or speculative premises, and moreover has the virtue of being
based on his first-hand knowledge as a legislator of the very provisions of
the law now in dispute. In this instance and absent any other operative
data, I find the same to be an amply sufficient and highly meritorious
analysis of the controversy on the contract.

One concluding point. I am not impressed by the stance of the majority

that our taking cognizance of this case and resolving it on the merits will
hereafter invite others to unduly overburden this Court with avoidable
importunities. This sounds like a tongue-in-cheek riposte since the Court
has clearly indicated that it sets aside objections grounded on judge-
made constitutional theories only under cogent reasons of substantial
justice and paramount public interest.

On the contrary, to pay unqualified obeisance to the beguiling locus

standi or right of action doctrines posited by the majority in this case
would not only be an abdication of a clear judicial duty. It could
conceivably result in depriving the people of recourse to us from dubious
government contracts through constitutionally outdated or procedurally
insipid theories for such stultification. This is a contingency which is not
only possible, but probable under our oligarchic society in esse; and not
only undesirable, but repugnant within a just regime of law still in posse.

Romero, J., concurs.

DAVIDE, JR., J., dissenting:

I register a dissenting vote.

I am disturbed by the sudden reversal of our rulings in Kilosbayan, Inc.,

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

It must be noted that the decision in the first lotto case was
unconditionally accepted by the PCSO and the PGMC, as can be gleaned
from their separate manifestations that they would not ask for its
reconsideration but would, instead, negotiate a new equipment lease
agreement consistent with the decision and the PCSO's charter and that
they would furnish the Court a copy of the new agreement. The decision
has, thus, become final on 23 May 1994.2

As the writer of the said decision and as the author of the exception to
paragraph B, Section 1 of R.A. No. 1169, as amended, I cannot accept
the strained and tenuous arguments adduced in the majority opinion to
justify the reversal of our rulings in the first lotto case. While there are
exceptions to the aforementioned doctrines and I am not inexorably
opposed to upsetting prior decisions if warranted by overwhelming
considerations of justice and irresistible desire to rectify an error, none of
such considerations and nothing of substance or weight can bring this
case within any of the exceptions.

In the said case, we sustained the locus standi of the petitioners, and in

no uncertain terms declared:

We find the instant petition to be of transcendental importance to

the public. The issues it raised are of paramount public interest
and of a category even higher than those involved in many of the
aforecited cases. The ramifications of such issues immeasurably
affect the social, economic, and moral 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 of pesos its is
expected to raise. The legal standing then of the petitioners
deserves recognition and, in the exercise of its sound discretions,
this Court hereby brushes aside the procedural barrier which the
respondents tried to take advantage of.

In his concurring opinion, Mr. Justice Florentino P. Feliciano further

showed substantive grounds or considerations of importance which
strengthened the legal standing of the petitioner to bring and maintain
the action, namely: (a) the public character of the funds or other assets
involved in the contract of lease; (b) the presence of a clear case of
disregard of a constitutional or legal provision by the public respondent
agency; (c) the lack of any other party with a more direct and specific
interest in raising the questions involved therein; and (d) the wide range
of impact of the contract of lease and of its implementation.

Only last 6 April 1995, in the decision in Tatad vs. Garcia,3 this Court,
speaking through Mr. Justice Camilo D. Quiason who had joined in the
dissenting opinions in the first lotto case denying the petitioners' locus
standi therein, invoked and applied the ruling on locus standi in the
first lotto case. He stated:

The prevailing doctrines in taxpayer's suits are to allow taxpayers

to question contracts entered into by the national government or
government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA
110 [1994]) and to disallow the same when only municipal
contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not

reversed, we have no choice but to follow it and uphold the legal
standing of petitioners as taxpayers to institute the present action.

Mr. Justice Santiago M. Kapunan, who had also dissented in the first
lotto case on the issue of locus standi; unqualifiedly concurred with the
majority opinion in Tatad. Mr. Justice Vicente V. Mendoza, the writer of
the ponencia in this case, also invoked the locus standi ruling in the
first lotto case to deny legal standing to Tatad, et al. He said:

Nor do petitioners have standing to bring this suit as citizens. In

the cases in which citizens were authorized to sue, this Court
found standing because it thought the constitutional claims
pressed for decision to be of "transcendental importance," as in
fact it subsequently granted relief to petitioners by invalidating the
challenged statutes or governmental actions. Thus in the Lotto
case [Kilosbayan, Inc. vs. Guingona, 232 SCRA 110 (1994)] relied
upon by the majority for upholding petitioner's standing, this
Court took into account the "paramount public interest" involved
which "immeasurably affect[ed] the social, economic, and moral
well-being of the people. . . and the counter-productive and
retrogressive effects of the envisioned on-line lottery system."
Accordingly, the Court invalidated the contract for the operation of
the lottery.

Chief Justice Andres R. Narvasa and Associate Justices Abdulwahid A.

Bidin, Jose A. R. Melo, Reynato S. Puno, Jose C. Vitug, and Ricardo J.
Francisco, joined him in his concurring opinion. Except for the Chief
Justice who took no part in the first lotto case and Justice Francisco who
was not yet a member of this Court at the time, the rest of the Justices
who joined the concurring opinion of Justice Mendoza had dissented in
the first lotto case on the said issue.

Furthermore, it must not be forgotten that this Court has defined the
issues in this case and limited them to the following:

1. Whether the challenged ELA constitutes an association,

collaboration, or joint venture within the meaning of Section 1(B) of
R.A. No. 1169, as amended by B.P. Blg. 42;

2. Whether the ELA requires prior public bidding; and

3. Whether the ELA is grossly disadvantageous to the Government.

In fact, during the oral arguments of this case on 3 March 1993 this
Court aborted the attempt of the principal counsel for the PGMC, Atty.
Renato Cayetano, to revive the issue of locus standi. Since it seemed that
he had prepared himself for and had been assigned to discuss that issue
alone, he took his seat without protest and without a suggestion that he
would ask for an expansion of the scope of the issues.

In the first lotto case, this Court also emphatically ruled that the
language of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, is

indisputably clear that with respect to its [PCSO's] franchise or

privilege "to hold and conduct charity sweepstakes races, lotteries
and other similar activities," the PCSO cannot exercise it "in
collaboration, association or joint venture" with any other party.
This is the unequivocal meaning and import of the phrase "except
for the activities mentioned in the preceding paragraph (A),"
namely, "charity sweepstakes races, lotteries and other similar
activities."

In support thereof, we explained how the amendment came about and

quoted portions of the Record of the Batasan4 on the proceedings during
the period of amendments to show the unequivocal intent of the Interim
Batasang Pambansa to proscribe the holding or conducting by the PCSO
of sweepstakes races, lotteries, and other similar activities, "in
collaboration, association, or joint venture with any person, association,
company, or entity, whether domestic or foreign." For convenience, I
quote what this Court stated in the said case:

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was
covered by Committee Report No. 103 as reported out by the
Committee on Socio-Economic Planning and Development of the
Interim Batasang Pambansa. The original text of paragraph B,
Section 1 of Parliamentary Bill No. 622 reads as follows:

To engage in any and all investments and related

profit-oriented projects or programs and activities by
itself or in collaboration, association or joint venture
with any person, association, company or entity,
whether domestic or foreign, for the main purpose of
raising funds for health and medical assistance and
services and charitable grants. [Record of the Batasan,
vol. Two, 993]

During the period of committee amendments, the Committee on

Socio-Economic Planning and Development, through Assemblyman
Ronaldo B. Zamora, introduced an amendment by substitution to
the said paragraph B such that, as amended, it should read as
follows:

Subject to the approval of the Minister of Human

Settlements, to engage in health-oriented investments,
programs, projects and activities which may be profit-
oriented, by itself or in collaboration, association, or
joint venture with any person, association, company or
entity, whether domestic or foreign, for the purpose of
providing for permanent and continuing sources of
funds for health programs, including the expansion of
existing ones, medical assistance and services and/or
charitable grants. [Id., 1006-1007].

Before the motion of Assemblyman Zamora for the approval of the

amendment could be acted upon, Assemblyman Davide introduced
an amendment to the amendment:

MR. DAVIDE:

Mr. Speaker.

THE SPEAKER:

The gentleman from Cebu is recognized.

MR. DAVIDE:

May I introduce an amendment to the

committee amendment? The amendment
would be to insert after "foreign" in the
 amendment just read the following:
EXCEPT FOR THE ACTIVITY IN LETTER
(A) ABOVE.

When it is a joint venture or in collaboration

with an entity such collaboration or joint
venture must not include activity Letter (a)
which is the holding and conducting of
sweepstakes races, lotteries and other
similar acts.

MR. ZAMORA:

We accept the amendment, Mr. Speaker.

MR. DAVIDE:

Thank you, Mr. Speaker.

THE SPEAKER:

Is there any objection to the amendment?

(Silence) The amendment, as amended, is
approved. [Id., 1007, emphasis supplied]

Further amendments to paragraph B were introduced and

approved. When Assemblyman Zamora read the final text of
paragraph B as further amended, the earlier approved amendment
of Assemblyman Davide became "EXCEPT FOR THE ACTIVITIES
MENTIONED IN PARAGRAPH (A)"; and by virtue of the amendment
introduced by Assemblyman Emmanuel Pelaez, the word
PRECEDING was inserted before PARAGRAPH. Assemblyman
Pelaez introduced other amendments. Thereafter, the new
Paragraph B was approved. [Id.] This is now paragraph B, Section
1 of R.A. No. 1169, as amended by B.P. Blg. 42.5

This Court further explained the rationale for the prohibition as follows:

No interpretation of the said provision to relax or circumvent the

prohibition can be allowed since the privilege to hold or conduct
charity sweepstakes races, lotteries, or other similar activities is a
franchise granted by the legislature to the PCSO. It is a settled rule
that "in all grants by the government to individuals or corporations
of rights, privileges and franchises, the words are to be taken most
strongly against the grantee . . . [o]ne who claims a franchise or
privilege in derogation of the common rights of the public must
 prove his title thereto by a grant which is clearly and definitely
expressed, and he cannot enlarge it by equivocal or doubtful
provisions or by probable inferences. Whatever is not
unequivocally granted is withheld. Nothing passes by mere
implication." [36 Am Jur 2d Franchises §26 (1968)].

In short then, by the exception explicitly made in paragraph B,

Section 1 of its charter, the PCSO cannot share its franchise with
another by way of collaboration, association or joint venture.
Neither can it assign, transfer, or lease such franchise. It has been
said that "the rights and privileges conferred under a franchise
may, without doubt, be assigned or transferred when the grant is
to the grantee and assigns, or is authorized by statute. On the
other hand, the right of transfer or assignment may be restricted
by statute or the constitution, or be made subject to the approval
of the grantor or a governmental agency, such as a public utilities
commission, except that an existing right of assignment cannot be
impaired by subsequent legislation. [Id., §63].

It may also be pointed out that the franchise granted to the PCSO
to hold and conduct lotteries allows it to hold and conduct a
species of gambling. It is settled that "a statute which authorizes
the carrying on of a gambling activity or business should be strictly
construed and every reasonable doubt so resolved as to limit the
powers and rights claimed under its authority. (38 Am Jur 2d
Gambling §18 [1968]).6

The PCSO and the PGMC never challenged our application or

interpretation of the exception clause and our definitions of the
terms collaboration, association, and joint venture. On the contrary, they
unconditionally accepted the same by not asking for the reconsideration
of our decision in the first lotto case.

Under the principle of either the law of the case or res judicata, the
PCSO and the PGMC are bound by the ruling in the first lotto case on
the locus standi of the petitioners and the application or interpretation
of the exception clause in paragraph B, Section 1 of R.A. No. 1169, as
amended. Moreover, that application or interpretation has been laid to
rest under the doctrine of stare decisis and has also become part of our
legal system pursuant to Article 8 of the Civil Code which provides:
"Judicial decisions applying or interpreting the laws or the constitution
shall form part of the legal system of the Philippines."

These doctrines were not adopted whimsically or capriciously. They are

based on public policy and other considerations of great importance and
should not be discarded or jettisoned in a cavalier fashion. Yet, they are
now put to naught in this case.

The principle of the law of the case "is necessary as a matter of policy to

end litigation. There would be no end to a suit if every obstinate litigant
could, by repeated appeals, compel a court to listen to criticisms on their
opinions, or speculate on chances from changes in its members." 7

It is, however, contended that the law of the case is inapplicable because
that doctrine applies only when a case is before an appellate court a
second time after its remand to a lower court. While indeed the
statement may be correct, it disregards the fact that this case is nothing
but a sequel to and is, therefore, for all intents and purposes, a
continuation of the first lotto case. By their conduct, the parties admitted
that it is, for which reason the PGMC and the PCSO submitted in the
first lotto case a copy of the ELA in question, and the petitioners
commenced the instant petition also in the said case. Our resolution that
the validity of the ELA could not be decided in the said case because the
decision therein had become final does not detract from the fact that this
case is but a continuation of the first lotto case or a new chapter in the
raging controversy between the petitioners, on the one hand, and the
PCSO and the PGMC, on the other, on the operation of the on-line lottery
system.

Equally unacceptable is the majority opinion's rejection of the related

doctrine of conclusiveness of judgment on the ground that the question
of standing is a legal question, as this case in involves a different or
unrelated contract. The legal question of locus standi which was
resolved in favor of the petitioners in the first lotto case is the same in
this case and in every subsequent case which would involve contracts
relating or incidental to the conduct or holding of lotteries by the PCSO
in collaboration, association, or joint venture with any person,
association, company, or entity. And, the contract in question is not
different from or unrelated to the first nullified contract, for it is nothing
but a substitute for the latter. Respondent Morato was even candid
enough to admit that no new and separate public bidding was conducted
for the ELA in question because the PCSO was of the belief that the
public bidding for the nullified contract was sufficient.

Its reliance on the ruling in Montana vs. United States8 that preclusion of

issues or collateral estoppel does not apply to issues of law, at least when
substantially unrelated claims are involved, is misplaced. For one thing,
the question of the petitioners' legal standing in the first lotto case and in
this case is one and the same issue of law. For another, these cases
involve the same and not substantially unrelated subject matter, viz., the
second contract between the PCSO and the PGMC on the operation of
the on-line lottery system.

The majority opinion likewise failed to consider that in the very authority
it cited regarding the exception to the rule of issue preclusion
(Restatement of the Law, 2d Judgments § 28), the second illustration
stated therein is subject to this NOTE: "The doctrine of the stare
decisis may lead the court to refuse to reconsider the question of
sovereign immunity," which simply means that stare decisis is an
effective bar to a re-examination of a prior judgment.

The doctrine of stare decisis embodies the legal maxim that a principle or

rule of law which has been established by the decision of a court of
controlling jurisdiction will be followed in other cases involving a similar
situation. It is founded on the necessity for securing certainty and
stability in the law and does not require identity or privity of
parties.9 This is explicitly fleshed out in Article 8 of the Civil Code which
provides that decisions applying or interpreting the laws or the
constitution shall form part of the legal system. Such decisions "assume
the same authority as the statute itself and, until authoritatively
abandoned, necessarily become, to the extent that they are applicable,
the criteria which must control the actuations not only of those called
upon to abide thereby but also of those in duty bound to enforce
obedience thereto." 10 Abandonment thereof must be based only on
strong and compelling reasons — which I do not find in this case —
otherwise, the becoming virtue of predictability which is expected from
this Court would be immeasurably affected and the public's confidence
in the stability of its solemn pronouncements diminished.

The doctrine of res judicata also bars a relitigation of the issue of locus

standi and a re-examination of the application or interpretation of the
exception clause in paragraph B, Section 1 of R.A. No. 1169, as
amended. Section 49 (b), Rule 39 of the Rules of Court on effects of
judgment expressly provides:

(b) In all other cases the judgment or order is, with respect to the
matter directly adjudged or as to other matter that could have been
raised in relation thereto, conclusive between the parties and their
successors in interest by title subsequent to the commencement of
the action or special proceedings, litigating for the same thing in
the same title and in the same capacity.

This doctrine has dual aspects: (1) as a bar to the prosecution of a

second action upon the same claim, demand, or cause of action; and (2)
as preclusion to the relitigation of particular facts or issues in another
action between the same parties on a different claim or cause of
action.11 Public policy, judicial orderliness, economy of judicial time, and
the interest of litigants as well as the peace and order of society, all
require that stability should be accorded judgments; that controversies
once decided on their merits shall remain in repose; that inconsistent
judicial decisions shall not be made on the same set of facts; and that
there be an end to litigation which, without the said doctrine, would be
endless. It not only puts an end to strife, but recognizes that certainty in
legal relations must be maintained. It produces certainty as to individual
rights and gives dignity and respect to judicial proceedings. 12

The justifications given in the majority opinion to underrate the ruling

on locus standi and to ultimately discard it are unconvincing. It is not at
all true, as the majority opinion contends, that "[t]he previous ruling
sustaining petitioners' intervention may in fact be considered a departure
from settled rulings on 'real party in interest' because no constitutional
issues were actually involved."

It must be pointed out that the rule in ordinary civil procedure on real
party in interest was never put in issue in the previous case. It was the
clear understanding of the Members of the Court that in the light of the
issues raised and the arguments adduced therein, only locus
standi deserved consideration. Accordingly, the majority opinion and the
separate dissenting opinions therein dwelt lengthily on locus standi and
brought in the process a vast array of authorities on the issue. Moreover,
as explicitly stressed in the concurring opinion of Justice Feliciano, both
constitutional and legal issues were involved therein. Finally, as shall
hereafter be discussed, in public law the rule of real party in interest is
subordinated to the doctrine of locus standi.

Equally unconvincing is the majority opinion's contention that the ruling

on locus standi in the first lotto case may not be preserved because the
majority vote sustaining the petitioners' standing was a "tenuous one"
that may not be maintained in a subsequent litigation, and that there
had been changes in the membership of the Court due to the retirement
of Justices Isagani A. Cruz and Abdulwahid A. Bidin and the
appointment of Justices Vicente V. Mendoza and Ricardo J. Francisco. It
has forgotten that, as earlier stated, the ruling was reiterated in Tatad
vs. Garcia. Additionally, when in his concurring opinion in the Tatad
case, Justice Mendoza denied locus standi to Tatad, et al., because their
case did not have the same importance as the first lotto case, he thereby
accepted the concession of standing to the petitioners in the lotto case. I
wish to stress the fact that all the Justices who had dissented in the first
lotto case on the issue of locus standi were either for the majority
opinion or for the concurring opinion in the Tatad case. Hence, I can say
that the Tatad case has given vigor and strength to the "tenuous"
majority in the first lotto case.

The majority opinion declares that the real issue in this case is not
whether the petitioners have locus standi but whether they are the real
parties-in-interest. This proposition is a bold move to set up a bar to
taxpayer's suits or cases invested with public interest by requiring strict
compliance with the rule on real party in interest in ordinary civil
actions, thereby effectively subordinating to that rule the doctrine
of locus standi. I am not prepared to be a party to that proposition.

First. Friedenthal; et al., whose book is cited in the majority opinion in its

discussion of the rule on real party in interest and the doctrine of locus
standi, admit that there is a difference between the two, and that the
former is not strictly applicable in public law cases, thus:

The evolution of standing doctrine seems to point to greater

freedom of action for plaintiffs. However, the courts still have not
articulated how the balance is to be struck between the relevant
and often competing interests: the plaintiff's right to relief and the
legislature's right to carry out its policies without judicial
interference. Nor has the judiciary's competence to rule on these
interests have analyzed systematically or its limits defined. Courts
essentially continue to be free to reconcile these competing values
on an ad hoc basis.

It is important to note, however, that standing, because of its

constitutional and public policy underpinnings, is very different
from questions relating to whether a particular plaintiff is the real
party in interest or has capacity to sue. Although all three
requirements are directed toward ensuring that only certain
parties can maintain an action, standing restrictions require a
partial consideration of the merits, as well as of broader policy
concerns relating to the proper role of the judiciary in certain
areas. 13

In an earlier book, 14 the same Friedenthal and Miller, with, John J.

Cound as the lead author, expounded that in the realm of public law, the
real party in interest rule is not applicable, thus:

A third problem of proper parties occurs in the realm of public law.

When governmental action is attacked on the ground that it
violates private rights or some constitutional principle, the courts
have tended to analyze the question whether the challenger is a
proper party plaintiff to assert the claim in terms of the judge-made
doctrine of standing to sue — requiring that plaintiff be adversely
 affected by defendant's conduct — rather than according to real-
party-in-interest or capacity principles. See Davis, Standing:
Taxpayers and Others, 35 U. Chi. L. Rev. 601 (1968); Jaffee, The
Citizen as a Litigant in Public Actions: The Non-Hohfeldian or
Ideological Plaintiff, 116 U. Pa. L. Rev. 1033 (1968); and Jaffee,
Standing Again, 84 Harv. L. Rev. 633 (1971). To the extent that
standing is understood to mean that the litigant actually must be
injured by the governmental action that is being assailed, it closely
resembles the notion of real party in interest under Rule
17(a). However, several other elements of the standing doctrine
clearly are unrelated to the simple real-party-in-interest test. One
significant context in which the two concepts diverge is when for
standing purposes plaintiff is required to show both that he has
been adversely affected by the governmental conduct that is under
attack and has suffered an injury to a legally protected right. When
standing is defined in this fashion it may entail a preliminary
consideration of the merits of the case and therefore is quite
different from the real-party-in-interest notion. (emphasis
supplied).

The downgrading of locus standi and its subordination to the restrictive

rule on real party in interest cannot be justified by the claim that what is
involved here is contract law, not constitutional law. True, contract law is
involved. We are not, however, dealing here with an ordinary contract
between private parties, but a contract between a corporation wholly
owned by the government — hence, an instrumentality of the
government — and a private corporation for the conduct of the lotto,
which is invested with paramount and transcendental public interest
and other public policy considerations because the lotto has counter-
productive and retrogressive effects which are as staggering as the
billions of pesos it is expected to raise and provokes issues that
immeasurably affect the social, economic, and moral well-being of the
people. We said so in the first lotto case.

Second. The attempt to use the real-party-in-interest rule is to resurrect

the abandoned restrictive application of locus standi. This Court,
speaking through the constitutionalist nonpareil, Justice and later Chief
Justice Enrique Fernando, has already declared in Tan vs.
Macapagal 15 that as far as a taxpayer's suit is concerned, this Court is
not devoid of discretion as to whether or not it should be entertained. In
his concurring opinion in Aquino vs. Commission on Elections, 16 he said:

Then there is the attack on the standing of petitioners, as

vindicating at most what they consider a public right and not
protecting their rights as individuals. [Respondents' Comment, 5].
 This is to conjure the specter of the public right dogma as an
inhibition to parties intent on keeping public officials staying on
the path of constitutionalism. As was so well put by Jaffe
[Standing to Secure Judicial Review, 74 Harvard Law Review, 1265
(1961)]: "The protection of private rights is an essential constituent
of public interest and, conversely, without a well-ordered state
there could be no enforcement of private rights. Private and public
interests are, both in a substantive and procedural sense, aspects
of the totality of the legal order." [Ibid., 1266. Cf. Berger, Standing
to Sue in Public Actions, 78 Yale Law Journal 816 (1969)].
Moreover, petitioners have convincingly shown that in their
capacity as taxpayers, their standing to sue has been amply
demonstrated. There would be a retreat from the liberal approach
followed in Pascual v. Secretary of Public Works [110 Phil. 331
(1960)], foreshadowed by the very decision of People v. Vera [65
Phil. 56 (1937)] where the doctrine was first fully discussed, if we
act differently now. I do not think we are prepared to take that
step. Respondents, however, would hark back to the American
Supreme Court doctrine in Mellon v. Frothingham [262 US 447
(1923)], with their claim that what petitioners possess "is an
interest which is shared in common by other people and is
comparatively so minute and indeterminate as to afford any basis
and assurance that the judicial process can act on it."
[Respondents' Comment, 5]. That is to speak in the language of a
bygone era, even in the United States. For as Chief Justice Warren
clearly pointed out in the later case of Flast v. Cohen [391 US 83
[1968)], the barrier thus set up if not breached has definitely been
lowered. [Ibid., 92-95]. The weakness of these particular defenses
is thus quite apparent. [Cf. Tan v. Macapagal, 43 SCRA 677].

Third. Such attempt directly or indirectly restricts the exercise of the

judicial authority of this Court in an original action — and there had
been many in the past — to determine whether or not there has been
grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government. Only a very
limited few may qualify, under the real-party-in-interest rule, to bring
actions to question acts or contracts tainted with such vice. Where,
because of fear of reprisal, undue pressure, or even connivance with the
parties benefited by the contracts or transactions, the so-called real
party in interest chooses not to sue, the patently unconstitutional and
illegal contracts or transactions will be placed beyond the scrutiny of this
Court, to the irreparable damage of the Government, and prejudice to
public interest and the general welfare.
By way of illustration, the first lotto contracts would not have reached
this Court if only the so-called real party in interest could bring an action
to nullify it. Neither would the ELA in question, since for reasons only
known to them, none of those who had lost in the bidding for the first
lotto contract showed interest to challenge it.

The majority opinion posits that a denial to the petitioners of the right to
intervene will not leave without remedy any perceived illegality in the
contract because:

[q]uestions as to the nature or validity of public contracts of the

necessity for a public bidding before they may be made can be
raised in an appropriate case before the Commission on Audit of
before the Ombudsman. . . . In addition, the Solicitor General is
authorized to bring an action for quo warranto if it should be
thought that a government corporation, like the PCSO, has
offended against its corporate charter or misused its franchise.

That proposition delivers the coup de grace to taxpayers' suits,

discourages involvement of citizens in public affairs, and negates or
renders ineffective Section 16, Article XIII of the Constitution which
provides:

The right of the people and their organizations to effective and

reasonable participation at all levels of social, political, and
economic decision-making shall no be abridged. The State shall, by
law, facilitate the establishment of adequate consultation
mechanisms.

Besides, it is fraught with unimaginable danger to public interest if

neither the Commission on Audit (COA), nor the Ombudsman, or the
Office of the Solicitor General, would take any action on the matter.

In the instant case, the COA refused to directly act on Morato's request
and, instead, referred it to the Department of Justice (DOJ) which, in
turn, merely indorsed an opinion to the COA. On the other hand, the
Office of the Solicitor General is taking the side of the PCSO, as it did in
the first lotto case. The observation then of Justice Cruz in his
concurring opinion in the first lotto case is apropos:

Locus standi is not such an absolute rule that it cannot admit of

exceptions under certain conditions or circumstances like those
attending this transaction. As I remarked in my dissent in Guazon
vs. De Villa, 181 SCRA 623, "It is not only the owner of the burning
house who has a right to call the firemen. Every one has the right
 and responsibility to prevent the fire from spreading even if he lives
in the other block."

The majority opinion does not entirely foreclose the possibility of

according the petitioners locus standi if only they would allege "that
public funds are being misspent so as to make this action a public one
and justify relaxation of the requirement that an action must be
prosecuted by the real party in interest." While it may be true that there
is no such specific allegation, the totality of the petitioners' allegations
points to illegal expenditures of public funds due to or arising out of
violations of the exception clause in paragraph B, Section 1 of R.A. No.
1169, as amended, and the public bidding law, and by reason of the
grossly disadvantageous provisions of the contract. The public character
of the sums due the PGMC under the ELA cannot be disputed. The PCSO
is solely owned by the Government and is authorized to raise funds for
the public purposes specified in its Charter. The funds thus raised are
public funds. This Court must take judicial notice of these facts.

Before I take up the defined issues, I find it necessary to meet squarely

the majority opinion's interpretation of paragraph B, Section 1 of R.A.
No. 1169, as amended. This is, of course, on the assumption that this
Court may now disregard the doctrines of the law of the case, res
judicata, and stare decisis.

I respectfully submit that the best authority on the intention or rationale

of a legislative amendment is its author. Fortunately, I happened to be
the author of the exception clause in said provision. The language of that
clause is very short and simple, and the elaboration given therefor, as
earlier shown, is equally short and simple. The sponsor of the measure,
then Assemblyman, now Congressman, Ronaldo Zamora did not even
ask for an explanation or clarification; he readily accepted the
amendment. Nobody from the floor interpellated me for an explanation or
clarification.

I regret then to say that neither the letter nor the spirit of the exception
clause in paragraph B supports the interpretation proposed in the
majority opinion. The reason given in the majority opinion for the alleged
prohibition from investing in "activities mentioned in the preceding
paragraph (A)" (i.e., the holding or conducting of charity sweepstakes
races, lotteries, and other similar activities) is that "these are competing
activities." In that aspect alone, the majority opinion has clearly
misconstrued the exception clause. The prohibition is not directed
against such activities, since they are in fact the franchised primary
activities of the PCSO. What is prohibited is the conduct or holding
thereof "in collaboration, association or joint venture with any person,
association, company, or entity, whether domestic or foreign." In the first
lotto case, this Court explained the principal reasons for such
prohibition. If the purpose of the prohibition in the exception clause is
indeed to prevent competition, it would be with more reason that no
other person, natural or juridical, should be allowed to share in the
PCSO's franchise to hold and conduct lotteries. In short, the argument in
the majority opinion sustains the rationale of the prohibition.

II

As to the defined issues, my answers are in the affirmative. To better

appreciate them, the minute details of the undisputed operative facts
which are crucial to their resolution must have to be bared.

After its setback n G.R. No. 113375, the PGMC and the PCSO prepared a
draft of a new ELA.

On 26 July 1994, the Board of Directors of the PCSO approved

Resolution No. 445, 17 series of 1994, resolving as follows:

NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved,

that the draft Equipment Lease Agreement, hereto attached, is
APPROVED, and the Chairman of the Board is AUTHORIZED to
enter into and execute the said Agreement, SUBJECT to the
confirmation by the Commission on Audit that PCSO can enter in
the said Agreement.

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

1. Pursuant to the provisions of Republic Act No. 1169, as

amended, the Philippine Charity Sweepstakes Office (PCSO), with
the approval of the Office of the President, decided to operate an
On-line lottery System.

2. In August 1993, Request for Proposals (Annex "A") were issued

seeking lessors for the On-Line Lottery System under a build-lease
basis at no expense or risk to PCSO.

3. The bids were evaluated by the Special Prequalification Bids and

Awards Committee and its bid report was further evaluated by a
Special Review Committee of the Office of the President.
 4. On 12 October 1993, the Office of the President announced that
it was awarding the Lease Contract to Philippine Gaming and
Management Corporation (PGMC) as lessor, provided that the
contract would similarly be awarded to two (2) other bidders if they
matched the terms of PGMC.

Morato invoked the following grounds to justify his request for

confirmation:

a. A lease of equipment, with option to purchase, by a government

corporation such as the PCSO, provided this is approved by its
governing board, is not generally subject to the public bidding
requirement (Section 4.3, second paragraph, COA Circular No. 85-
55-A dated 8 September 1985);

b. The new lease contract is still the result of an award made after
public bidding; and

c. In this case, its is apparent that the lease of the needed

equipment through negotiation is the most advantageous to the
Government since so many studies, plans and procedures had
already been worked out with PGMC since October 1993 as a
result of the previous bidding (Section 1. e, Executive Order No.
301 [1987]).

The COA indorsed Morato's letter to the DOJ and requested an opinion
on the propriety or legality of the proposed ELA which was entered into
without the benefit of a public bidding under E.O. No. 301 and the
pertinent government accounting and auditing rules.

In its Opinion No. 4, series of 1995, 19 contained in a 2nd Indorsement

addressed to the COA, dated 16 January 1995, the DOJ, through Acting
Secretary Demetrio G. Demetria:

(a) Disagreed with the statement of Morato that any of the three
justifications he enumerated in his letter to the COA may
constitute valid basis for the exemption from public bidding.

(b) Declined to express an opinion on the first justification that

under COA Circular No. 85-55-A of 8 September 1985 a lease of
equipment with option to purchase is not generally subject to
public bidding, since it involves an interpretation of a COA circular
which is best left to the COA's determination.

(c) Expressed doubts on the accuracy of Morato's statement that

the new lease contract is still the result of the award made after
 public bidding and opined that since the original lease contract
was nullified by this Court, such nullification necessarily implied
the nullification of the public bidding which preceded its execution.

(d) Agreed, nonetheless, with Morato that the new ELA is exempt
from the public bidding requirement under Section 1 (e) of E.O. No.
301, and ratiocinates as follows:

The cited provision reads:

Sec. 1. Guidelines for Negotiated Contracts. — Any provision of

Law, decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for furnishing
supplies, materials and equipment to the government or any of its
branches, agencies or instrumentalities shall be renewed or
entered into without public bidding except under any of the
following situations:

xxx xxx xxx

(e) In cases where it is apparent that the requisition of the needed

supplies through negotiated purchase is most advantageous to the
government to be determined by the Department Head concerned;
and

xxx xxx xxx

It should be noted that while public bidding is generally required

for contracts for public services or for furnishing supplies,
materials and equipment, paragraph (e), abovequoted, would
exempt from the requirement of public bidding "the requisition of
the needed supplies" and would allow the acquisition thereof
through negotiated purchase if deemed most advantageous to the
government as determined by the Department Head concerned.

In the instant case, it is believed that the new lease agreement,

although denominated, "Equipment Lease Agreement", may be
considered a contract for furnishing supplies and may fall under
the exception provided for in paragraph (e) if entering into such
agreement, through negotiation, is determined to be the most
advantageous by the Department Head concerned.

The words "supplies" and "equipment" are not synonymous. The

word "equipment" imports "the outfit necessary to enable the
contractor to perform the agreed service, the tools, implements,
and appliances which might have been previously used or might be
 subsequently used by the contractor in carrying on other work of
like character" (Standard Boiler Works v. National Surety Co., 71
Wash. 28, 127 Pac. 573). The word "supplies", on the other hand,
is defined as "any article entirely consumed by its use in the work"
(National Surety Co. v. Bratnober Lumber Co., 67 Wash. 601, 122,
Pac. 337).

It has been held, however, that the true distinction between

"supplies" and "equipment" rests on the effect the use has upon
the article, rather than upon the degree of use to which it is
subjected. Thus, a "supply" would be any article furnished for
carrying on the work which from its nature is necessarily
consumed by use in the work, while "equipment" would consist of
those articles that are not necessarily so consumed, but which
may survive the particular work and be further used on work of
like character (United States Rubber Co. of California v.
Washington Engineering Co., 149 P. 706).

In case of lease of equipment, it was held that the rental value of

machinery hired by the contractor for use in carrying on work
within the terms of the contract is recoverable from the bondsman
as a supply, the reason for this being that what was consumed in
the work was the use of the machinery and not the machinery
itself (United States Rubber Co. vs. Washington Eng'g. Co., supra,
citing cases). Applying this ruling to the instant case, the subject
Equipment Lease Agreement, as observed earlier, may be deemed
to be an agreement for furnishing of supplies because by its terms,
what will be consumed by the PCSO, as Lessee, would be the use
of the equipment, and not the equipment itself.

Based thereon, the aforesaid Equipment Lease Agreement may be

the subject of negotiation pursuant to Section l(e) of E.O. No. 301 if
it be determined to be the most advantageous to the government
by the Department Head concerned.

As earlier stated, on 25 January 1995, the PGMC, represented by Alfredo

C. Ramos, its Vice-Chairman, and the PCSO, represented by Manuel L.
Morato, its Chairman, signed the assailed ELA.

A. The PGMC avers that the old contract was reformed to expunge
therefrom the features and provisions which were held by this Court as
indicative of the statutorily proscribed collaboration, association, or joint
venture. 20 For their part, the public respondents claim that "as can be
glaringly seen from the face of the ELA, none of the terms and conditions
in the old contract of lease which this Honorable Court found as vestiges
of a joint venture is present in the subject ELA." 21

I am not persuaded. To my mind, the parties only performed a superficial

surgery on the nullified contract by merely deleting therefrom provisions
which this Court had considered in the first lotto case to be badges of a
joint venture contract and by engrafting some modifications on rental,
which include an option to purchase. The PGMC and the PCSO
conveniently forgot that per this Court's findings in the first lotto case,
they had an indivisible community of interest in
the conception, birth and growth of the on-line lottery and that each is
wed to the other for better or for worse. The surgery affected only the
post-natal activities of the union, but not the indivisibility of their
community of interest at conception and at the birth of the on-line lottery
system. Put differently, it only separated one from the other from bed
and board but did not dissolve the bonds of such indivisibility or
community of interest. This was confirmed by respondent Morato when
he candidly confessed in his letter to the COA Chairman that:

[I]t is apparent that the lease of the needed equipment through

negotiations is the most advantageous to the Government since so
many studies, plans and procedures had already been worked out
with PGMC since October 1993 as a result of the previous
bidding (Sec. 1.e, Executive Order No. 301 [1987]). (emphasis
supplied)

Although Mr. Morato did not volunteer to disclose what those studies,
plans, and procedures are, it is logical to presume that they refer to,
among other things, (1) the building of the on-line lottery system, at no
expense of or risk to the PCSO, which was precisely the specific purpose
of the Request for Proposals and which Morato admitted in his
"presentation" in his letter to the COA Chairman; and (2) those that this
Court had noted in the first lotto case, to wit: (a) the preparation of the
detailed plan of all games and the marketing thereof; and (b) the
determination of the number of players, value of winnings, and the
logistics required to introduce the games, including the Master Games
Plan. The indispensable role of the PGMC as a collaborator, associate, or
joint venturer up to that point where actual operation of the on-line
lottery system shall begin was unaffected by the superficial surgery on
the text of the nullified contract. Atty. Eleazar Reyes, co-counsel of Atty.
Cayetano for the PGMC, was candid enough to admit during the oral
arguments that it would be extremely difficult for the PGMC and the
PCSO to avoid the proscribed "collaboration, association, or joint
venture" under the exception of paragraph B, Section 1 of R.A. No. 1169,
as amended. He, nevertheless, hastened to add that an outright
purchase by the PCSO of the PGMC's equipment would be the best and
safest recourse. Thus:

JUSTICE DAVIDE:

Mr. Counsel you just admitted a while ago that it is

extremely difficult to comply with the revised charter of
the Philippine Charity Sweepstakes Office insofar as
collaboration, joint venture, association are
concerned?

ATTY. REYES:

Yes, Your Honor.

JUSTICE DAVIDE:

But if given the chance to rewrite this contract, what

proposal would you give, what recommendation would
you give to your client?

ATTY. REYES:

Your Honor, that is why I said I would leave it to the

business judgment of my client.

JUSTICE DAVIDE:

As a lawyer what kind of a contract would you

recommend to be rewritten, to satisfy the law, to
satisfy the judgment of this Court in the first case?

ATTY. REYES:

The safest, Your Honor, is a sale.

JUSTICE DAVIDE:

Sale, meaning the Philippine Charity Sweepstakes

Office will buy everything?

ATTY. REYES:

Yes, Your Honor.

JUSTICE DAVIDE:
 Why did you not recommend that to your client
instead you went into the process [of drafting the] ELA.

ATTY. REYES:

Because, Your Honor, they do not have the money.

They are going to use the proceeds from the gains for
the payment of the rental but they do not have the
cash.

JUSTICE DAVIDE:

In the event that this Court will now strike down this
agreement as also void, would you recommend that to
your client as a third contract?

ATTY. REYES:

Yes, Your Honor, if the PCSO can pay for it. 22

Besides, even on the face of the new ELA, the elements of the proscribed
joint venture or, at the very least, collaboration or association, can be
detected, albeit they are hidden behind the skirt of the following: (a) the
Rental Clause; (b) the upgrading provision under the Repair Services
Clause; and (c) the details of what are embraced in the term Lottery
Equipment and Accessories subject of the contract, which are found in
Annex "A" of the ELA. 23

The Rental Clause provides for a flexible rate based on a percentage of

the gross amount of ticket sales, payable bi-weekly, with an annual
minimum rental fixed at P35,000.00 per terminal in commercial
operation, any shortfall of which shall be paid out of the proceeds of the
current ticket sales. This clause provides in full as follows:

RENTAL

During the effectivity of this Agreement and the term

of this lease as provided in paragraph 3 hereof,
LESSEE shall pay rental to LESSOR equivalent to
FOUR POINT THREE PERCENT (4.3%) of the gross
amount of ticket sales from all of LESSEE's on-line
lottery operations in the Territory, which rental shall
be computed and payable bi-weekly, net of withholding
taxes on income, if any: provided that, in no case shall
the annual aggregate rentals per year during the term
of the lease be less than the annual minimum fixed
 rental computed at P35,000.00 per terminal in
commercial operation per annum, provided, further
that the annual minimum fixed rental shall be reduced
pro-rata for the number of days during the year that a
terminal is not in commercial operation due to repairs
or breakdown. In the event the aggregate bi-weekly
rentals in any year falls short of the annual minimum
fixed rental computed at P35,000.00 per terminal in
commercial operation, the LESSEE shall pay such
shortfall from out of the proceeds of the then current
ticket sales from LESSEE's on-line lottery operations
in the Territory (after payment first of prizes and
agents' commissions but prior to any other payments,
allocations or disbursements) until said shortfall shall
have been fully settled, but without prejudice to the
payment to LESSOR of the then current bi-weekly
rentals in accordance with the provisions of the first
sentence of this paragraph 2.

This is an unusually novel arrangement which insures and guarantees

the PGMC full participation in the gross proceeds of ticket sales even if,
ultimately, a draw could mean losses to the PCSO. It allots to the PGMC
only a very limited share in the losses since, under any circumstance
and the most unfavorable business climate, the PGMC is assured of an
irreducible minimum "rental" per terminal. The term "rental" is then a
very deceptive, yet poorly contrived, disguise to cloak the real role of the
PGMC. At the hearing, Atty. Eleazar Reyes feigned ignorance on how the
"rental" of 4.3% of the gross amount of ticket sales was arrived at. This
Court should not wait for the end of the world for any acceptable
explanation therefor. The explanation can easily be had by relating it to
the rental of 4.9% of gross receipts from ticket sales under the nullified
contract. The reduction of only 0.6% (4.9% — 4.3%) is negligible
considering the PCSO's assumption of, among other things, all business
risks; operation of the equipment with the use of its own personnel; risks
of loss of and damage to the equipment; responsibility for maintenance
and repairs, all of which were the PGMC's duties, obligations, and
responsibilities under the nullified contract. I am convinced that such
rate was pre-determined to approximate the profits which the PGMC
expected to realize under the nullified contract. The rental clause is,
indeed, a subtle scheme to unconditionally guaranty PGMC's share in
the profits.

If read in conjunction with the upgrading provision buried under the

clause "Repair Services" it becomes clear that the parties do have a
different purpose for the use of the term rental.
The Repair Services clause provides as follows:

REPAIR SERVICES

LESSEE shall bear the costs of maintenance and

necessary repairs, except those repairs to correct
defective workmanship or replace defective materials
used in the manufacture of Equipment discovered
after delivery of the Equipment, in which case LESSOR
shall bear the costs of such repairs and, if necessary,
the replacements. The LESSEE may at any time
during the term of the lease, request the LESSOR to
upgrade the equipment and/or increase the number of
terminals, in which case the LESSEE and LESSOR
shall agree on an arrangement mutually satisfactory to
both of them, upon such terms as may be mutually
agreed upon.

The upgrading provision is full of mischief and is, perhaps, the most

deceptive provision in the ELA that puts to naught any pretense of good
faith in expunging from the old contract all indicia of the statutorily
proscribed collaboration, association, or joint venture. It is a provision
which is entirely unrelated to the clause under which it is placed
— Repair Services. It should have been either set forth as a separate
clause or at least placed under the clause on Equipment. 24

It should be stressed here that in the old contract the upgrading clause
is under facilities, which include among other things all capital
equipment, computers, terminals, and softwares. Under the upgrading
provision, new equipment may be used; the number of terminals may be
increased; and new terms and conditions, including rates of "rentals"
and the purchase price in case of exercise of the option to buy, may be
agreed upon. This makes the ELA not just a sweetheart contract, but one
which will preserve the parties' indivisible union and community of
interest, thereby giving further credence to this Court's observation in
the first lotto case that each is wed to the other for better or for worse.

The term Equipment, which is allegedly the subject of the ELA, includes,

per its definition in Annex "A" thereof, the "associated or incidental
hardware equipment, furnishing and fixtures, technology, intellectual
property rights, knowhow, processes and systems." Technology,
knowhow, processes, and systems necessarily include transfer of
technology and other expertise which could only be carried out over a
number of years of continuing training and supervision of personnel,
which the PGMC is necessarily and logically required to do. Intellectual
property rights can only refer to, among other things, the detailed plans
of all games and the Master Games Plan which, under the nullified
contract, are to be prepared by the PGMC.

It may be observed that the term facilities in the old contract included

all capital equipment but excluded "technology, intellectual property
rights, knowhow, processes and systems." As this Court found in the
first lotto case, there was a separate provision on the PGMC's obligations
(1) to train PCSO and other local personnel and (2) to effect the transfer
of technology and other expertise. 25 Clearly, the inclusion of "technology,
intellectual property rights, knowhow, processes and systems" in the
term Equipment was a ploy to hide, again, the continuing indispensable
collaboration of the PGMC in the conduct of the on-line lottery business.

B. Even assuming that the subject ELA is not a joint venture contract,
still it must be nullified for having been entered into without public
bidding and for being grossly disadvantageous to the Government. It has
been said:

In this jurisdiction, public bidding is the policy and medium

adhered to in Government procurement and construction contracts
under existing laws and regulations. It is the accepted method for
arriving at a fair and reasonable price and ensures that
overpricing, favoritism and other anomalous practices are
eliminated or minimized. And any Government contract entered
into without the required bidding is null and void and cannot
adversely affect the rights of third parties. 26

The opening paragraph of E.O. No. 298, series of 1940, 27 of President

Manuel L. Quezon, entitled "Prohibiting the Automatic Renewal of
Contracts, Requiring Public Bidding Before Entering Into New Contracts,
Providing Exceptions Therefor," states this policy:

Whereas, as a matter of general policy, it is in the interest of the

public service that Government contracts for public services or for
furnishing of supplies, materials, and equipment to the
Government be submitted to public bidding.

This was restated in E.O No. 301 28 of President Corazon C. Aquino,

entitled "Decentralizing Actions on Government Negotiated Contracts,
Lease Contracts and Records Disposal," whose Section 1 reads:

Sec. 1. Guidelines for Negotiated Contracts. — Any provision of law,

decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for furnishing
supplies, materials and equipment to the government or any of its
 branches, agencies or instrumentalities shall be renewed or
entered into without public bidding, except under any of the
following situations:

The Court agrees with DOJ Opinion No. 4, series of 1995, which states
that the bidding conducted for the nullified contract could be a valid
basis for the new ELA and that, therefore, a new bidding was in order.
The DOJ erred, however, when it further stated that the ELA is exempt
under Section 1(e) of E.O. No. 301 from the public-bidding requirement.

Sections 1 and 2 of E.O. No. 301 under subdivision A (Decentralization of

Negotiated Contracts) read in full as follows:

Sec. 1. Guidelines for Negotiated Contracts. — Any provision of law,

decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for furnishing
supplies, materials and equipment to the government or any of its
branches, agencies or instrumentalities shall be renewed or
entered into without public bidding, except under any of the
following situations:

a. Whenever the supplies are urgently needed to meet

an emergency which may involve the loss of, or danger
to, life and/or property;

b. Whenever the supplies are to be used in connection

with a project or activity which cannot be delayed
without causing detriment to the public service;

c. Whenever the materials are sold by an exclusive

distributor or manufacturer who does not have
subdealers selling at lower prices and for which no
suitable substitute can be obtained elsewhere at more
advantageous terms to the government;

d. Whenever the supplies under procurement have

been unsuccessfully placed on bid for at least two
consecutive times, either due to lack of bidders or the
offers received in each instance were exorbitant or
non-conforming to specifications;

e. In cases where it is apparent that the requisition of

the needed supplies through negotiated purchase is
most advantageous to the government to be
determined by the Department Head concerned; and
 f. Whenever the purchase is made from an agency of
the government.

Sec. 2. Jurisdiction over Negotiated Contracts. — In line with the

principles of decentralization and accountability, negotiated
contracts for public services or for furnishing supplies, materials
or equipment may be entered into by the department or agency
head or the governing board of the government-owned or controlled
corporation concerned, without need of prior approval by higher
authorities, subject to availability of funds, compliance with the
standards or guidelines prescribed in Section 1 hereof, and to the
audit jurisdiction of the Commission on Audit in accordance with
existing rules and regulations.

Negotiated contracts involving P2,000,000 up to P10,000,000 shall

be signed by the Secretary and two other Undersecretaries.

It is clear that Sections 1 and 2 refer to contracts for public services, or

for furnishing supplies, materials, and equipment to the government. In
no uncertain terms, the Executive Order itself distinguishes the
terms supplies, materials, and equipment from each other, i.e., it did not
intend to consider them as synonymous terms. If such were the
intention, there would have been no need to enumerate them separately
and to limit subparagraphs (a), (b), and (e) to supplies; subparagraph (c)
to materials; and subparagraph (f) to all three (supplies, materials and
equipment). The specific mention of supplies in Subparagraphs (a), (b),
and (e) was clearly intended to exclude
therefrom materials and equipment, and the specific mention
of materials in subparagraph (c) was likewise intended to
exclude supplies and equipment. Expressio unius est exclusio alterius.

Elsewise stated, the Executive Order leaves no room for a construction

that confuses supplies with materials or equipment or either of the last
two with the first or with each other. According to Sutherland: 29

It is an elementary rule of construction that effect must be given, if

possible, to every word, clause and sentence of a statute. A statute
should be construed so that effect is given to all its provisions, so
that no part will be inoperative or superfluous, void or
insignificant, and so that one section will not destroy another
unless the provision is the result of obvious mistake or error.

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

But the appellant cites as supporting its contention the case of

Hurley-Mason Co. v. American Bonding Co., 79 Wash. 564, 140
Pac. 575, to which may be added the more recent case of National
Lumber & Box Co. v. Title Guaranty & Surety Co., 149 Pac. 16,
which hold that the rental value of machinery hired by the
contractor for use in carrying on work within the terms of the
contract is recoverable from the bondsman as a supply furnished
the contractor. These cases proceed on the theory that it was the
use of the machinery that was consumed in the work, not the
machinery itself, and that this use being distinguishable from the
machinery could be recovered for against the bondsman as a
supply. If this distinction is sound, then the cases are in line with
the other cases cited, as such "use" was necessarily consumed in
carrying on the work. The appellant argues, however, that the
distinction is not sound; that there is no just ground for holding
that one who rents to a contractor the tools and working
appliances necessary for the prosecution of a particular work may
have recovery against the contractor's bondsmen for the rental
value of the articles furnished, while one who sells the contractor
the same character of articles on credit has no claim against the
bondsmen for any part of the purchase price. But, if this be true,
and it be true that the contractor's working equipment is not to be
deemed a supply, it argues that the decisions cited are erroneous,
rather than that the appellant's goods fall within the meaning of
the term "supplies."

On the contrary, United States Rubber Co. explicitly

distinguished supplies from equipment, thus:

So construing the statute, the definitions of "equipment" and

"supply" coincide, and a certain and natural dividing line is found
between them. A "supply" would be any article furnished for
carrying on the work which from its nature is necessarily
consumed by use in the work, while "equipment" would consist of
those articles that are not necessarily so consumed, but which
may survive the particular work and be further used on work of
 like character. In this view also the question actually decided in
the case of National Surety Co. v. Bratnober Lumber Co.
harmonizes with the other cases cited, since coal, like powder and
other explosives, and like electricity used for power and other
forms of energy used for the same purpose, is necessarily
consumed by its use, and cannot survive for like uses in a similar
character of work.

Tested by these rules, it is plain that the articles furnished by the

appellant are not supplies, but are a part of the contractor's
equipment. While they were actually worn out by use in carrying
on the work, they were not articles of such a nature as to be
necessarily consumed by such use, and might have survived, had
their use therein been of less duration, for use in subsequent work
of like character.

Besides, subparagraph (e) of Section 1 unequivocally refers to a contract

of purchase of supplies. The ELA in question is not a contract of
purchase of supplies. The parties themselves proclaim to the whole world
and solemnly represent to this Court that it is a contract of lease of
equipment. They titled it, in bold big letters, "EQUIPMENT LEASE
AGREEMENT," and devote the first clause thereof to EQUIPMENT.
Accordingly, since the ELA is not a contract of purchase of supplies, we
are unable to understand why the DOJ applied Section 1(e) of E.O. No.
301 to exempt the ELA from the public-bidding requirement.

The submission of the petitioners that the ELA violates paragraph 4.3 of
the COA Rules and Regulations for the Prevention of Irregular,
Unnecessary, Excessive, and Extravagant Expenditures is not
persuasive. The said paragraph covers Lease Purchase contracts. It
reads:

4.3 LEASE PURCHASE

The national government may enter into agreement for

the lease purchase of equipment subject to public
bidding, the approval of the Office of the Management,
and to other pertinent accounting and auditing
religions. Details of the payments shall be indicated in
the lease purchase agreement and accompanied with a
certification of availability of equipment outlay
authorized for the agency to cover the full contract
cost. The lease purchase agreement may be entered
into only for specialized equipment such as
typewriters, adding machines and automobiles, the
 purchase price of which is at least P50,000.00. All
lease purchase agreement of equipment the total value
of which exceeds P200,000.00 shall be subject to the
approval of the President. Corporations/local
governments may adopt the mechanisms of these
lease-purchase agreement subject to the approval of
their legislative or governing boards.

The ELA in question hardly qualifies as a lease purchase contract

because there is no perfected agreement to purchase (sale) but only an
option on the part of PCSO to purchase the equipment for P25 million. It
is, in fact, an option which is not supported by a separate and distinct
consideration, hence, not really binding upon the PGMC.

An optional contract is a privilege existing in one person, for which he

had paid a consideration, which gives him the right to buy certain
specified property from another person, if he choses, at any time within
the agreed period, at a fixed price. Said contract is separate and distinct
contract from the contract which the parties may enter into upon the
consummation of the option. 32 The second paragraph of Article 1479 of
the Civil Code expressly provides that "[an accepted unilateral promise to
buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from
the price."

C. A comparison between the nullified contract and the assailed ELA to

prove that the latter is grossly disadvantageous to the PCSO is not at all
hampered by any perceived difficulty. As to the almost unrestricted
benefits and advantages which the PCSO were supposed to obtain under
the former, the following findings of this Court in the first lotto case bind
the parties:

The contemporaneous acts of the PCSO and the PGMC reveal that
the PCSO had neither funds of its own nor the expertise to operate
and manage an on-line lottery system, and that although it wished
to have the system, it would have it "at no expense or risks to the
government." Because of these serious constraints and
unwillingness to bear expenses and assume risks, the PCSO was
candid enough to state in its RFP that it is seeking for "a suitable
contractor which shall build, at its own expense, all the facilities
needed to operate and maintain" the system; exclusively bear "all
capital, operating expenses and expansion expenses and risks";
and submit a comprehensive nationwide lottery development plan .
. . which will include the game, the marketing of the games, and
the logistics to introduce the game to all the cities and
municipalities of the country within five (5) years"; and that the
operation of the on-line lottery system should be "at no expense or
risk to the government" — meaning itself, since it is a government-
owned and controlled agency. The facilities referred to means "all
capital equipment, computers, terminals, software, nationwide
telecommunications network, ticket sales offices, furnishings and
fixtures, printing costs, costs of salaries and wages, advertising
and promotions expenses, maintenance costs, expansion and
replacement costs, security and insurance, and all other related
expenses needed to operate a nationwide on-line lottery system."

In short, the only contribution the PCSO would have is its

franchise or authority to operate the on-line lottery system; with
the rest, including the risks of the business, being borne by the
proponent or bidder. It could be for this reason that it warned that
"the proponent must be able to stand to the acid test of proving
that it is an entity able to take on the role of responsible
maintainer of the on-line lottery system." The PCSO, however,
makes it clear in its RFP that the proponent can propose a period
of the contract which shall not exceed fifteen years, during which
time it is assured of a "rental" which shall not exceed 12% of gross
receipts. As admitted by the PGMC, upon learning of the PCSO's
decision, the Berjaya Group Berhad, with its affiliates, wanted to
offer its services and resources to the PCSO. Forthwith, it
organized the PGMC as "a medium through which the technical
and management services required for the project would be offered
and delivered to PCSO."

Undoubtedly, then, the Berjaya Group Berhad knew all along that
in connection with an on-line lottery system, the PCSO had
nothing but its franchise, which it solemnly guaranteed it had in
the General Information of the RFP. Howsoever viewed then, from
the very inception, the, PCSO and the PGMC mutually understood
that any arrangement between them would necessarily leave to the
PGMC the technical, operations, and management aspects of the
on-line lottery system while the PCSO would, primarily, provide the
franchise. The words Gaming and Management in the corporate
name of respondent Philippine Gaming Management Corporation
could not have been conceived just for euphemistic purposes. Of
course, the RFP cannot substitute for the Contract of Lease which
was subsequently executed by the PCSO and the PGMC.
Nevertheless, the Contract of Lease incorporates their intention
and understanding.

xxx xxx xxx

 Consistent with the above observations on the RFP, the PCSO has
only its franchise to offer, while the PGMC represents and warrants
that it has access to all managerial and technical expertise to
promptly and effectively carry out the terms of the contract. And,
for the period of eight years, the PGMC is under obligation to keep
all the Facilities in safe condition and if necessary, upgrade,
replace, and improve them from time to time as new technology
develops to make the on-line lottery system more cost-effective and
competitive; exclusively bear all costs and expenses relating to the
printing, manpower, salaries and wages, advertising and
promotion, maintenance, expansion and replacement, security and
insurance, and all other related expenses needed to operate the
on-line lottery system; undertake a positive advertising and
promotions campaign for both institutional and product lines
without engaging in negative advertising against other lessors; bear
the salaries and related costs of skilled and qualified personnel for
administrative and technical operations; comply with procedural
and coordinating rules issued by the PCSO; and to train PCSO and
other local personnel and to effect the transfer of technology and
other expertise, such that at the end of the term of the contract,
the PCSO will be able to effectively take over the Facilities and
efficiently operate the on-line lottery system. The latter simply
means that indeed, the managers, technicians or employees who
shall operate the on-line lottery system are not managers,
technicians or employees of the PCSO, but of the PGMC and that it
is only after the expiration of the contract that the PCSO will
operate the system. After eight years, the PCSO would
automatically become the owner of the Facilities without any other
further consideration.

For all the above representations, duties, obligations, and

responsibilities, as well as the automatic loss of its ownership over the
facilities without any further consideration in favor of the PCSO after the
expiration of only eight years, the PGMC gets only a so-called rental of
4.9% of gross receipts from ticket sales, payable net of taxes required by
law to be withheld, which may, however, be drastically reduced, or in
extreme cases, totally obliterated because the PGMC bears "all risks if
the revenue from ticket sales, on an annualized basis, are insufficient to
pay the entire prize money."

Under the assailed ELA, however, the PGMC is entitled to receive a

flexible rental equivalent to 4.3% of the gross ticket sales (or only 0.6%
lower than it was entitled to under the old contract) for the use of its on-
line lottery system equipment (as distinguished from facilities in the old
contract), which does not anymore include the nationwide
telecommunications network, without any assumption of business risks
and the obligations (1) to keep the facilities in safe condition and if
necessary, to upgrade, replace, and improve them from time to time as
technology develops, and bear all expenses relating thereto; (2) to
undertake advertising and promotions campaign; (3) to bear all taxes,
amusements, or other charges imposed on the activities covered by the
contract; (4) to pay the premiums for third party or comprehensive
insurance on the facilities: (5) to pay all expenses for water, light, fuel,
lubricants, electric power, gas, and other utilities used and necessary for
the operation of the facilities; and to pay the salaries and related costs of
skilled and qualified personnel for administrative and technical
operations and maintenance crew. The PGMC is also given thereunder a
special privilege of receiving P25 million as purchase price for the
equipment at the expiration of eight years should the PCSO exercise its
option to purchase.

Unlike in the old contract where nothing may at all be due the PGMC in
the event that the ticket sales, computed on an annual basis, are
insufficient to pay the entire prize money, under the new ELA the PCSO
is under obligation to pay rental equivalent to 4.3% of the gross receipts
from ticket sales, the aggregate amount of which per year should not be
less than the minimum annual rental of P35,000.00 per terminal in
commercial operation. Any shortfall shall be paid out of the proceeds of
the then current ticket sales after payment of prizes and agents'
commissions but prior to any other payments, allocations, or
disbursements. The grossness of the disadvantage to the PCSO is all too
obvious and why the PCSO accepted such unreasonable,
unconscionable, and inequitable terms and conditions confounds us.

The majority opinion, however, glosses over these considerations because

it believes that the determination of the issue of gross disadvantage
should not be done through a comparison of the first lotto contract and
the ELA in question.

It says:

Indeed the question is not whether compared with the former joint
venture agreement the present lease contract is "[more]
advantageous to the government." The question is whether under
the circumstances, the ELA is the most advantageous contract that
could be obtained compared with similar lease agreements which
the PCSO could have made with the other parties.

It then concludes:
 Petitioners have not shown that more favorable terms could have
been obtained by the PCSO or that at any rate the ELA, which the
PCSO concluded with the PGMC, is disadvantageous to the
government.

That postulation is flawed. It forgets that no other contract proposed by

other parties were available for comparison precisely because no public
bidding was conducted. To demand a comparison with non-existing
contracts would be unreasonable.

The challenged ELA must then be declared void for the following reasons:
(1) it is a joint venture contract prohibited under the exception in
paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42; (2)
it was entered into without the mandatory public bidding; and (3) it is
grossly disadvantageous to the PCSO and, ultimately, the Government.

I therefore vote to GRANT the instant petition and to declare VOID and
INVALID the challenged EQUIPMENT LEASE AGREEMENT (ELA) entered
into between the public respondent Philippine Charity Sweepstakes
Office (PCSO) and the private respondent Philippine Gaming
Management Corporation (PGMC).

Romero and Bellosillo, JJ., concur.

Separate Opinions

PADILLA, J., concurring:

I join the majority in voting for the dismissal of the petition in this case.

It is the duty of the Supreme Court to apply the laws enacted by

Congress and approved by the President, (unless they are violative of the
Constitution) even if such laws run counter to a Member's personal
conviction that gambling should be totally prohibited by law.

In the present case, we are confronted with Republic Act No. 1169 as
amended by B.P. Blg. 42 which expressly allows the PCSO to conduct
lotteries, clearly a form of gambling.

Given the various laws allowing specific forms of gambling, only

Congress and the Executive branch of government can, at present, repeal
these laws to effectively eradicate gambling, if these two (2) political
branches truly intend to embark on an honest to goodness national
moral recovery and development program.
In my separate concurring opinion in the first lotto case (G.R. No.
113375), I expressed the view that the rule on locus standi, being merely
a procedural rule, should be relaxed, as the issue then was of paramount
national interest and importance, namely, the legality of a lease contract
entered into by PCSO with PGMC whereby the former sought to operate
an "on-line high-tech" lottery, undeniably a form of gambling, the terms
of which clearly pointed to an "association, collaboration or joint venture"
with PGMC.

The core issue in the present case is the same as the issue in the first
lotto case, i.e., the validity of a changed agreement between PCSO and
PGMC. Thus, it is my view that the principle of locus standi should not
stand in the way of a review by this Court of the validity of
such changed agreement.

The specific issues in the present case were formulated by the Court
during the hearing held on 3 March 1995 thus:

1. whether the challenged Equipment Lease Agreement (ELA for short)

between PCSO and PGMC constitutes an "association, collaboration or
joint venture" between the two (2) entities within the meaning of Section
1(b) of Republic Act No. 1169 as amended by Batas Pambansa Blg. 42
and therefore prohibited by said law;

2. whether the ELA requires a prior public bidding; and

3. whether the ELA is grossly disadvantageous to the government.

On the first specific issue, no less than petitioner's admit in their petition
that the ELA is substantially different from the contract declared void by
this Court in G.R. No. 113375. Attached to the petition in this case
(Annex "D") is a 14-page comparison between the first contract and the
ELA, showing such differences. Petitioners do not deny that the
objectionable provisions in the first contract are no longer found in the
ELA. In fact, as I had stated in my opinion on the issue of whether or not
to grant a temporary restraining order (TRO) in this case, the ELA
is prima facie a simple contract of lease of equipment where PCSO is
bound to pay a minimum amount as rental plus a fixed percentage of
gross receipts from the sales of lottery tickets, with an option given PCSO
to purchase the leased equipment upon expiration of the lease contract.

The argument that the ELA still constitutes a prohibited "association,

collaboration or joint venture" with PGMC is, in my view, a much too
strained interpretation of the law which results from a less than
pragmatic analysis of the issue.
 To my mind, the question of whether or not the ELA constitutes
"association, collaboration or joint venture" between PCSO and PGMC
should be tackled by looking at the nature of a contract of lease.

A lease is a contract whereby one of the parties binds himself to give to

another the enjoyment or use of a thing for a price certain and for a
period which may be definite or indefinite (Article 1643, Civil Code).

It would appear from the above legal provision that the ELA is truly a
straight contract of lease. That the parties to the ELA have stipulated on
flexible rentals does not render it less of a lease contract and more of a
joint venture. Surely, the PGMC as owner of the leased equipment is free
to demand the amount of rentals it deems commensurate for the use
thereof and, as long as PCSO agrees to the amount of such rentals, as
justifying an adequate net return to it, then the contract is valid and
binding between the parties thereto. This is the essence of freedom to
enter into contracts.

Petitioners have not cited any law which prevents such stipulations to be
included in contracts of lease or which changes the nature of such
agreement from a lease to some other juridical relation. In fact, such
stipulations are common in leases of real estate for commercial
purposes. A ruling that would prevent PCSO from entering into such
lease agreement for the operation by PCSO of the lottery would defeat the
intent of the law to raise, from such lotto determination and judgment of
the COA on matters which are within its primary jurisdiction under the
Constitution.

As to whether or not the ELA is grossly disadvantageous to the

government, it should be stressed that the matter involves, basically, a
policy — determination by the executive branch which this Court should
not ordinarily reverse or substitute with its own judgment, in keeping
with the time honored doctrine of separation of powers.

Based on the foregoing considerations, I vote to DISMISS the petition.

VITUG, J., concurring:

I most humbly reiterate the separate opinion I have made in Kilosbayan,

Inc., et al., vs. Teofisto Guingona, Sr., etc., et al. (G.R. No. 113375,
promulgated on 05 May 1994).

Before a peremptory voting could be taken by the Court on the main

merits of the instant case (G.R. No. 118910), the ultimate outcome of its
deliberations thereon, then still in progress, remained uncertain. In the
meanwhile, it behooved, in my view, all concerned to be bound by, or at
the very least to respect, the decision in G.R. No. 113375. It was clear to
me that until G.R. No. 118910 would have itself been finally resolved, the
petitioners were entitled to a temporary restraining order on the basis of
the decision in G.R. No. 113375 (and thus I then voted accordingly). The
new contract entered into (now in dispute in G.R. No. 118910), compared
with the previous contract nullified in G.R. No. 113375, just as I also saw
it then, was not substantially different from, let alone significantly better
than, the nullified contract.

Back to the core of the petition, however, the matter of the legal standing
of petitioners in their suit assailing the subject-contract appears to me,
both under substantive law and the rules of procedure, to still be an
insuperable issue. I have gone over carefully the pleadings submitted in
G.R. No. 118910, and I regret my inability to see anything new that can
convince me to depart from the view I have expressed on it in G.R. No.
113375.

In part, I also said in G.R. No. 113375: A provision which has been
introduced by the 1987 Constitution is a definition, for the first time in
our fundamental law, of the term "judicial power," as such authority and
duty of courts of justice "to settle actual controversies involving rights
which are legally demandable and enforceable and to determine whether
or not there has been a grave abuse of discretion, amounting to lack or
excess of jurisdiction, on the part of any branch or instrumentality of the
Government" (Article VIII, Section 1, Constitution). I take it that the
provision has not been intended to unduly mutate, let alone to disregard,
the long established rules on locus standi. Neither has it been meant, I
most respectfully submit, to do away with the principle of separation of
powers and its essential incidents such as by, in effect, conferring
omnipotence on, or allowing an intrusion by, the courts in respect to
purely political decisions, the exercise of which is explicitly vested
elsewhere, and subordinate to that of their own the will of either the
Legislative Department or the Executive Department — both co-equal,
independent and coordinate branches, along with the Judiciary, in our
system of government. Again, if it were otherwise, there indeed would be
truth to the charge, in the words of some constitutionalists, that "judicial
tyranny" has been institutionalized by the 1987 Constitution, an
apprehension which should, I submit, rather be held far from truth and
reality.

In the Commencement Address I delivered to the 1995 graduating class

of the San Beda College of Law, I broached a matter which I felt was of
contemporary concern. Allow me to quote from it:
 . . . The relatively recent event in our history, still too vivid to be
lost, has given root to a discernible change in our fundamental
law. Reacting to the lessons we, in the recent past, have learned,
well meant safeguards have been installed. One such measure is in
strengthening the judiciary, unquestionably in order to check on
further abuses of power. Thus, the Supreme has been charged
with overseeing the entire judiciary by removing this function from,
heretofore traditionally with, the executive. It has also given
authority to the highest court of the land to literally strike down
any act of either Congress or the Executive for any grave abuse of
discretion. What has thus come about is a Supreme Court that
effectively wields almost absolute authority to dictate matters of
grave import to the country — in politics, in business and in
veritably all major decisions of the State. The Supreme Court is
manned by fifteen justices, presumably all learned in law, but can
it safely be said that beyond the usual spheres of their judicial
expertise, they so also have the capability to react to all needs of
government. The tribunal's power is awesome. It may be apropos to
ask: Can the Court adequately respond at every turn with full
fidelity and competence? If you would have had the time to follow
up recent pronouncements of the Court, you might have noticed
that on certain occasions I have dissented from what I have felt
and still feel to be an unwise encroachment of functions that are
better left to the judgment of others who are no less experts in
their respective fields than we in law. Congress is the branch of
government, composed of the representatives of the people, that
lays down the policies of government and the Executive that
carries out the people's mandate. I have found it most difficult in
voting with my colleagues whenever such policies are negated
merely because of what the Court perceives to be grave abuse of
discretion, clearly too relative a term to permit it to be its own
sentinel against misuse.

WHEREFORE, for the same reasons I have stated in G.R. No. 113375, I
respectfully vote for the dismissal of the instant petition.

FELICIANO, J., dissenting:

I find myself regretfully quite unable to join the majority opinion written
by my distinguished brother in the Court, Mendoza, J.

I join the penetrating dissenting opinions written by my esteemed

brothers Regalado and Davide, Jr., JJ. In respect of the matter of locus
standi, I would also reiterate the concurring opinion I wrote on that
subject in the first Kilosbayan case.1 All the factors which, to my mind,
pressed for recognition of locus standi on the part of petitioners in the
first Kilosbayan case, still exist and demand, with equal weight and
insistence, such recognition in the present or second Kilosbayan case. I
fear that the Court may well have occasion in the future profoundly to
regret the doctrinal ball and chain that we have today clamped on our
own limbs.

In the paragraphs which follow, I seek to address three (3) major

substantive points made in the majority opinion: firstly, the new
interpretation of Section 1 (B) of the PCSO charter as amended by B.P.
Blg. 42; secondly, the question of whether the "Equipment Lease
Agreement" (ELA) is subject to the requirements of public bidding; and
lastly, the question of whether the ELA has been effectively "purged" of
the characteristics of a prohibited joint venture arrangement or
collaboration or association.

I turn first to the novel argument made in the majority opinion that the
charter of PCSO does not "prohibit [—] it from holding or conducting
lottery in collaboration, association or joint venture with another party."
That opinion argues that "what [PCSO] is prohibited from doing is to
invest in a business engaged in sweepstakes races, lotteries and similar
activities" which are "competing activities and the PCSO should not invest
in the business of the business of a competitor."

In so doing, my learned brother Mendoza, J. purports to controvert and

overturn the reading that the majority of this Court, through Mr. Justice
Davide, Jr., in the first Kilosbayan case gave to the relevant provisions
of the PCSO charter. It so happens that the critical language in the
relevant PCSO charter provision — that is, the "except" clause in Section
1 (B) of the PCSO charter as amended by B.P. Blg. 42 — was crafted by
the then Assemblyman Hilario G. Davide, Jr. during the deliberations in
the Interim Batasan Pambansa on the bill that became B.P. Blg. 42. It is
impliedly contended by the majority that the intent of an individual
legislator should not be regarded as conclusive as to the "correct"
interpretation of the provision of a statute. This is true enough, as a
general proposition, for it is the intent of the legislative body as
manifested in the language used by the legislature that must be
examined and applied by this Court. However, it seems to me that the
view expressed by an individual legislator who eventually comes to sit in
this Court as to the meaning to be given to words crafted by himself
should, at the very least, be regarded as entitled to a strong presumption
of correctness. Put a little differently, I respectfully submit that in a
situation such as that presented in this case, a strong presumption
arises that the interpretation given by Mr. Justice Davide, Jr. and
approved and adopted by the majority of the Court in the
first Kilosbayan case faithfully reflected the intent of the legislative body
as a whole. Fortunately, in the present case, it is not necessary to take
the word of Mr. Justice Davide, Jr. as to what the intent of the legislative
body was in respect of Section 1 (B) of the present PCSO charter. For
that intent is clearly discernible in the very words used by the legislative
body itself. I turn, therefore, to a scrutiny of the words used by that
legislative body.

In arriving at his new interpretation, Mr. Justice Mendoza engages in

"parsing:"

When parsed, it will be seen that under §1, the PCSO is given
authority to do any of the following: (1) to hold or conduct charity
sweepstakes races, lotteries or similar activities; and/or (2) to
invest — whether "by itself or in collaboration, association or joint
venture with any person, association, company or entity" in any
"health and welfare-related investments, programs, projects and
activities which may be profit-oriented," except those which are
engaged in any of "the activities mentioned in the preceding
paragraph (A)," i.e., sweepstakes races, lotteries and similar
activities, for the obvious reason, as already states, that these are
competing activities. (Emphasis in the original)

My submission, essayed with great respect and reluctance, is that Mr.

Justice Mendoza has misread the pertinent provisions of R.A. No. 1169,
as amended by B.P. Blg. 42, and that in so parsing those provisions, he
has in fact overlooked their actual syntax. The pertinent portions need to
be quoted here in full:

§1. The Philippine Charity Sweepstakes Office. — The Philippine

Charity Sweepstakes Office, hereinafter designated the Office, shall
be the principal government agency for raising and providing for
funds for health programs, medical assistance and services and
charities of national character, and as such shall have the general
powers conferred in section thirteen of Act Numbered One
Thousand Four Hundred Fifty-Nine, as amended, and shall have
the authority:

A. To hold and conduct charity sweepstakes races, lotteries and

other similar activities, in such frequency and manner, as shall be
determined, and subject to such rules and regulations as shall be
promulgated by the Board of Directors.
 B. Subject to the approval of the Minister of Human Settlements to
engage in health and 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. (Emphasis supplied)

Examining the actual text of Section 1 (B), it will be noted that what
PCSO has been authorized to do is not simply to invest — whether 'by
itself or in collaboration, association or joint venture —' in any health
and welfare related investments, programs, projects and activities which
may be profit-oriented . . . ." Rather, the PCSO has been authorized to
do any and all of the following acts:

(1) to engage in health and welfare-related investments — which

may be profit-oriented —;

(2) to engage in health and welfare-related — programs — which

may be profit-oriented —;

(3) to engage in health and welfare-related — projects — which

may be profit-oriented —;" and

(4) to engage in health and welfare-related — activities — which

may be profit-oriented —.

The operative words of Section 1 (B) are "to engage in . . . health and
welfare-related investments, programs, projects and activities . . ." which,
however, Mendoza, J. would read restrictively and simply as "to invest
in." To do so, one must disregard the actual language used by the
statute.

It would appear that the majority thinks of "investments" essentially in

terms of passive investments and conceives of Section 1 (B) as a
prohibition against PCSO investing its own funds by buying either equity
or debt instruments issued by some other company itself also authorized
to engage in sweepstakes races, lotteries or similar activities and
therefore, competing with PCSO. Under this view, the prohibition is
intended to prevent PCSO from competing with itself by putting its funds
in privately owned and operated enterprises lawfully and regularly
engaged in raising funds by holding and conducting sweepstakes races,
lotteries or similar activities for "health programs, medical assistance
and services and charities of national character.2

There appear some major difficulties with the view proffered by the
majority. Firstly, PCSO appears in fact to be a legal monopoly, that is to
say, there appears to be no other government-owned or controlled
corporation or entity that is legally authorized to hold sweepstakes races,
lotteries and similar activities on a regular and continuing basis for the
purpose of generating funds for charitable, health and welfare-related
purposes. A careful search in the records of the Securities and Exchange
Commission has failed to show any privately owned company that has
been organized for that principal purpose, i.e., to generate funds through
the regular holding of sweepstakes races and lotteries for charitable and
welfare and health-related projects. Secondly, assuming for argument's
sake that there is somewhere some obscure, publicly or privately owned
entity which is engage in the same basis activity that the PCSO is
authorized to engage in Section 1 (A) of its charter, it seems unreal to
suppose that an express statutory injunction should have been found
necessary to prevent PCSO from competing with itself by buying some
equity or a debt interest in such a company. Such an injunction would
seem unfairly to assume an unusual degree of ineptitude on the part of
officials of PCSO. Thirdly, the final proviso found in Section 1 (B)
(quoted supra) makes clear that the legislative concern was not with
PCSO competing with itself but rather with protecting the private sector
from competition that would be offered by PCSO, either alone or in
combination with some other enterprise, when it would seek to exercise
its expanded powers under Section 1 (B) in areas already adequately
served by private capital.

I would, therefore, respectfully suggest that the "except" clause in Section

1 (B), is not designed as a 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 permit PCSO precisely to share its
exclusive right to hold and conduct sweepstakes races, lotteries and the
like. It is this "except" clause which prevents such sharing or lending or
farming out of the PCSO "franchise"

by itself or in collaboration, association or joint venture with any

person, association, company or entity, whether domestic or
foreign, except for the activities mentioned in the preceding
paragraph (A) . . . .

This "except" clause thus operates, as it were, as a renvoi clause which

refers back to Section 1 (A) and in this manner avoids the necessity of
simultaneously amending the text of Section 1 (A). The textual location,
in other words, of the "except" clause offers no support for the new-found
and entirely original interpretation offered in the majority opinion. 3

II

I consider next the question of whether the "Equipment Lease

Agreement" (ELA) is subject to public bidding. PCSO refers to Executive
Order No. 301 dated 26 July 1987 in seeking to justify the award of the
ELA to the PGMC without public bidding. In accepting the contentions of
PCSO, the majority opinion relies basically on two (2) propositions. The
first of these is that:

Executive Order No. 301, Section 1 refers to contracts of purchase

and sale [only]. For that matter, there is nothing in that Order
which refers to contracts for the lease of equipment. What the
order contains are provisions (Sections 6-7) for the lease of
privately owned buildings or spaces for government use or of
government owned buildings or spaces for private use and these
provisions do not require public bidding. These provisions state . . .
. I do not see, therefore, how Executive Order No. 301 can be
applied to the ELA when the only feature it has that may be
thought close to a contract of purchase and sale is the option to
buy given to the PCSO. But — an option to buy is not a contract of
purchase and sale. (Emphasis and brackets supplied)

The second proposition offered is that the use of the term "supplies"
"cannot be limited so as to exclude 'materials' and 'equipment' without
defeating the purpose for which these exceptions are made."
The first proposition, it is respectfully submitted, finds no basis in the
actual language used in the operative paragraph of Section 1 of
Executive Order No. 301 setting out the general rule:

Sec. 1. Guidelines for Negotiated Contracts. — Any provisions of

law, decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for
furnishing supplies, materials and equipment to the government or
any of its branches, agencies or instrumentalities shall be renewed
or entered into without public bidding, except under any of the
following situations: . . . . (Emphases supplied)

It is worthy of special note that the above opening paragraph

does not even use the words "purchase and sale" or "buy and sell;"
the actual term used is " furnishing. . . equipment to the government."
The term "furnishing" can scarcely be limited to sales to the government
but must instead be held to embrace any contract which provides the
government with either title to or use of equipment. A contrary view can
only result in serious emasculation of Executive Order No. 301. It is
common place knowledge that equipment leases (especially "financial
leases" involving expensive capital equipment) are often substitutes for or
equivalents of purchase and sale contracts, given the multifarious credit
and tax constraints operating in the market place. 4 Thus, the above first
proposition fails to take into account actual commercial practice already
reflected in our present commercial and tax law.

The second proposition similarly requires one who must interpret and
apply the provisions of Section 1 of Executive Order No. 301 to disregard
the actual language used in that Order. For Executive Order No. 301
uses three (3) distinguishable terms: "supplies," "materials" and
"equipment." These terms are not always used simultaneously in
Executive Order No. 301. In some places, only "supplies" is used; in
other places, only "materials" is employed; and in still other places, the
term "equipment" is used along side with, but separately from, both of
the other two (2) terms. To say that "supplies," "materials" and
"equipment" are merely synonymous or fungible would appear too casual
a treatment of the actual language of Executive Order No. 301. 5

The fundamental difficulty with the above two (2) propositions is this:
that public bidding is precisely the standard and best way of ensuring
that a contract by which the government seeks to provide itself with
supplies or materials or equipment is in fact the most advantageous to
government. It is true enough that public bidding may be inconvenient
and time consuming; but it is still the only method of procurement so far
invented by man by which the government could reasonably expect to
keep relatively honest those who would contract with it. This is the basic
reason why competition through public bidding is the general rule and
not the exception. I fear that the opinion of my learned brother Justice
Mendoza would, in ultimate effect, stand this rule on its head and make
public bidding the exception rather than the general rule.

III

I would address finally the question of whether or not the original

contract between PCSO and PGMC which the court in the
first Kilosbayan case found to be a joint venture, has been so
substantially changed as to have been effectively converted from a joint
venture arrangement to an ordinary equipment lease agreement. The
majority of the Court have concluded that the ELA has been effectively
"purged" of the characteristics of a joint venture arrangement and that it
should now be regarded as lawful under the provisions of the revised
PCSO charter.

With very great respect, it is submitted that the above conclusion has
been merely assumed rather than demonstrated and that what is in fact
before this Court does not adequately support such conclusion.

I begin with the nature and form of the rental provisions of the ELA. The
rental payable by PCSO as lessee of equipment and other assets owned
by PGMC as lessor, is fixed at a specified percentage, 4.3% of the gross
revenues accruing to PCSO out of or in connection with the operation of
such equipment and assets. The rental payable is not, in other words,
expressed in terms of a fixed and absolute figure, although a floor
amount per leased terminal is set. Instead, the actual total amount of the
rental rises and falls from month to month as the revenues grow or
shrink in volume. I respectfully suggest that thereby the lessor of the
facilities leased has acquired a legal interest either in the business of the
lessee PCSO that is conducted through the operation of such facilities
and equipment, or at least in the income stream of PCSO originating
from such operation.6 In the commercial world, a rental provision cast in
terms of a fixed participation in the gross revenues of the lessee, signals
substantial economic interest in the business of such lessee. Such a
provision cannot be regarded as compatible with an "ordinary"
equipment rental agreement. On the other hand, it is of the very
substance of a commercial joint venture and of economic collaboration or
association.

Another of my distinguished brothers in the Court, Mr. Justice Padilla,

remarks that this type of rental stipulation is fairly common in leases of
real estate in, e.g., Makati. This may well be the case. It is, however,
absolutely essential to bear in mind that neither, e.g., Ayala Land, Inc. as
lessor-company nor any of the ordinary commercial enterprises leasing
real property in Makati, operate under statutory restrictions like those in
Section 1(B) of R.A. No. 1169 as amended by B.P. Blg. 42 upon PCSO. In
the Ayala Center, lessor and lessee are legally free to devise any rental
provision they may agree upon, even if such a provision would constitute
participation by the lessor in the business of the lessee or a joint venture
between the two (2).

The majority opinion, apparently following the posture adopted by the

Solicitor General in respect of this point, states:

in this case the rental has to be expressed in terms of percentage of

the revenue of the PCSO because rentals are treated in the charter
of the agency (R.A. No. 1169, Section 6 [C]) as "operating expenses
and the allotment for "operating expenses" is a percentage of the net
receipts." (Emphasis supplied)

The Solicitor General is clearly not an accountant. In the first place, the
so-called "allotment for 'operating expenses'" is in fact nothing more than
a ceiling established by the statute for permissible operating expenses.
The statute commands that the PCSO not spend for its operations more
than 15% of its "net receipts." There is no law requiring PCSO to spend
the maximum which it is authorized to spend. Upon the other hand, law
and regulations prohibit the PCSO from spending more than what is in
fact reasonably necessary to produce the revenues targeted by it. Thus,
the assertion that the 4.3% rental rate is "well within the maximum of
15% net receipt fixed by law" is entirely meaningless insofar as
explaining the structure of the rental provision and the reasonableness
thereof is concerned. In the second place, it is child's play for an
accountant to convert absolute figures representing operating expenses
[actual or budgeted] into a percentage of "net receipts [actual of
expected];" there is nothing in Section 6 (C) of the PCSO charter that
either requires or justifies the adoption of the rental provision found both
in the old contract and in the ELA giving PGMC a fixed share in gross
revenues. The explanation offered by the Solicitor General is
unfortunately merely contrived; its acceptance depends on lack of
familiarity with elementary accounting concepts.

Under the original agreement between PCSO and PGMC, the latter bore
the great bulk of the risks and business burdens involved in their
relationship. The consideration for PGMC carrying such business risks
and burdens was set at 4.9% of gross revenues flowing out of the lotto
operations. In contrast, under the written terms of the new contract or
ELA, the bulk if not all the risks and business burdens previously borne
by PGMC have apparently been shifted to PCSO. The consideration to
PGMC has been reduced from 4.9% to 4.3% of gross revenues arising out
of lotto operations.

Considering the nature and number of the business risks and burdens
said to be shifted under the provisions of ELA from PGMC to PCSO, the
stipulated reduction of the rental — by 0.6% of gross revenues — would
appear disproportionately low when appraised in terms of ordinary
commercial standards and practice. The original rental rate was reduced
by 12.24% only.7 Of course, the minimal reduction of the rental rate
payable under the ELA to PGMC would be understandable if one
assumes that the business risks and burdens set out in such detail in
the old contract, and moved over to PCSO in equal detail in the new
contract, are, in the first place, basically unreal and merely cosmetic
flourishes applied to the contract documentation. But one is extremely
loath to make such an assumption, not only because the record offers no
basis for such an assumption, but also because it would raise far more
questions than it would settle. Moreover, the true relationship between
the rental rate and the economic burdens and risks assumed by PCSO
under the ELA, will remain unexplained.

Thus, the questions which are provoked by scrutiny of the economic

implications of the text of the ELA (which, it should again be recalled, did
not go through the process of public bidding) are so numerous and
consequential that it becomes very difficult to suppose that the ELA is
what it purports to be. It is suggested, with respect, that the burden of
showing that the elements found by the Court in the
first Kilosbayan case to constitute the prohibited "collaboration,
association or joint venture" have truly (and not simply ostensibly) been
expunged from the relationship between PCSO and PGMC
rests, not on Kilosbayan nor on this Court, but rather on PCSO and
PGMC. It is respectfully submitted further that that burden has not been
adequately discharged in the present case by the simple re-arrangement
of words and paragraphs of the old contract considering that the reality
of the re-arrangement is controverted by the commercial terms of the
new contract.

One final word. The PCSO appears sincerely convinced that the legal
restrictions placed upon its operations by the actual text of Section 1 (B)
of its revised charter prevent it from realizing the kinds and volume of
revenues that it needs for charitable and health and welfare-oriented
programs. In this situation, the appropriate recourse is not to make light
of nor to conjure away those legal restrictions but rather to go to the
legislative authority and there ask for further amendment of its charter.
 In that same forum, the petitioners may in turn ventilate their own
concerns and deeply felt convictions.

For all the foregoing, I vote to grant the Petition for Certiorari.

Romero and Bellosillo, JJ., concur.

REGALADO, J., dissenting:

I am constrained to respectfully dissent from the majority opinion

premised on the constitutional and procedural doctrines posed and
interpreted in tandem therein. I also regret that I have to impose on the
majority with this virtual turno en contra when I could have indicated my
disaccord by just joining Mr. Justice Davide in his commendably
objective presentation of the minority position. I feel, however, that
certain views that have been advanced require a rejoinder lest they lapse
into the realm of unanimous precedents.

Preliminarily, there is no need to emphasize that the morality of

gambling is not a justiciable issue, and that this Court should not rule
on the wisdom of the policy thereon but only on the power of the
corresponding authorities to adopt the same. To my knowledge, the first
proposition has never been of concern to or questioned by any member of
this Court throughout its hegira from the first lotto case, 1 then to the jai
alai controversy,2 and now this so-called sequel to the lottery dispute.
The second is a constitutional tenet so hoary with age that for the
majority to still belabor the same would somehow reflect unfavorably
upon the dissenting members.

Upon the other hand, the Court may even be misunderstood as adopting
an adjudicative pattern designed against transparency of and inquiry
into public affairs. The misperception could very well be that it is
glossing over the validity of the lottery contract by seeking refuge in the
rule of locus standi, and suppressing concern over societal mores on
gambling by invoking the doctrine of non-justiciability.

Coming to the real task at hand, we have this resuscitation of the

nagging question of locus standi. In the first lotto case, the Court
excepted petitioners from the traditional locus standi proscription
because the issues raised on the indiscriminate operation of a
nationwide on-line lottery system are of paramount public interest and of
a category higher than those involved in former cases wherein the
application of that rule was sustained. Respect for that holding was
accordingly observed and enjoined in Tatad, et al. vs. Garcia, etc., et al.3
That the Court acted correctly in the original case, instead of clinging to
the hidebound constitutional dictum of indeterminate vintage, has been
demonstrated in the various opinions filed in the jai alai case with
illustrations of the frequent reexamination of constitutional precepts in
the courts of the United States itself from which they originated. Thus,
creating exceptions to said doctrines and even rejecting the same in the
interest of justice are not unusual, and this Court has likewise done so
presumably since it agrees that one ought not to be more popish than
the Pope.

Withal, the relaxation or the locus standi doctrine in the first lotto case is

impugned and lamented in the second one now at bar. Yet, with regard
to the "law of the case" doctrine, during the deliberations the majority
submitted, and I am borrowing their authority therefor, that "(d)octrine is
merely a rule of procedure and does not go to the power of the court, and
will not be adhered to where its application will result in an unjust
decision."4 I feel that here the majority is thus ignoring the adage about
the proverbial sauce being for both the goose and the gander.

In the first lotto case, the minority therein rested its position entirely on
procedural grounds, that is, by merely challenging the legal standing of
petitioners but without any comment on the merits of the contract in
question. Since the case at bar is in truth a reprise of the first, I had
expected that this case would now be decided purely on the merits of the
putative expanded lease agreement. Indeed, to make the Court's
judgment here turn again on technical procedural grounds, by hiding
within the shroud of the locus standi mystique, does not strike me as a
decisive and conclusive adjudication. While the contract involved is not
of centennial duration, its legal impact on and the social cost to the
country should warrant more than an androgynous solution.

Be that as it may, since the majority opinion has now evolved other
adjective theories which are represented to be either different from or
ramifications of the original "standing to sue" objection raised in the first
lotto case, I will hazard my own humble observations thereon.

1. There is, initially, the salvo against the adoption of the "law of the
case" doctrine in the original majority ponencia. It is contended that this
doctrine requires, for its applicability, an issue involved in a case
originating from a lower court which is first resolved by an appellate
court, that case being then remanded to the court of origin for further
proceedings and with the prior resolution by the higher court of that
issue being the "law of the case" in any other proceeding in or a
subsequent appeal from the same case. It is insinuated that said
doctrine exists only under such a scenario.
It may be conceded that, in the context of the cited cases wherein this
doctrine was applied, two "appeals" are generally involved and the issue
resolved in the first appeal cannot be reexamined in the second appeal. If
so, then what is necessarily challenged in the first recourse to the higher
court is either an interlocutory order of the court a quo elevated on an
original action for certiorari or an appealable adjudication which
nonetheless did not dispose of the entire case below because it was either
a special proceeding or an action admitting of multiple appeals.

That is the present reglementary situation in the Philippines which,

unfortunately, does not appear to have been taken into account when
the double-appeal procedure involved in one particular American concept
was cited as authority in the majority opinion. No attempt was made to
ascertain whether in the American cases cited the lex fori provided for
identical or even substantial counterparts of our procedural remedies of
review by a higher court on either an appeal by certiorari or writ of error,
or through an original action of certiorari, prohibition or mandamus. Yet
on such unverified premises, and without a showing that the situations
are in pari materia, we are told that since the case at bar does not
posses the formatted sequence of an initiatory action in a lower court, an
appeal to a higher court, a remand to the lower court, and then a second
appeal to the higher court, the "law of the case" doctrine cannot apply. I
have perforce to reject that submission as I cannot indulge in the luxury
of absolutes espoused by this majority view.

I fear that this majority rule, has unduly constricted the factual and
procedural situations where such doctrine may apply, through its undue
insistence on the remedial procedure involved in the proceedings rather
than the juridical effect of the pronouncement of the higher court. Even
in American law, the "law of the case" doctrine was essentially designed
to express the practice of courts generally to refuse to reopen what has
been decided5 and, thereby, to emphasize the rule that the final
judgment of the highest court is a final determination of the rights of the
parties.6 That is the actual and basic role that it was conceived to play in
judicial determinations, just like the rationale for the doctrines of res
judicata and conclusiveness of judgment.

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

2. Obviously realizing that continued reliance on the locus standi bar to

petitioner's suit is not an ironclad guaranty against it, the majority
position has taken a different tack. It now invokes the concept of and the
rules on a right of action in ordinary civil actions and, prescinding from
its previous position, insists that what is supposedly determinative of the
issue of representation is contract law and not constitutional law. On the
predicate that petitioners are not parties to the contract, primarily or
subsidiarily, they then are not real parties in interest, and for lack of
cause of action on their part they have no right of action. Ergo, they
cannot maintain the present petition.

As a matter of a conventional rule of procedure, the syllogism of the

majority can claim the merit of logic but, even so, only on assumed
premises. More importantly, however, the blemish in its new blueprint is
that the defense of lack of a right of action is effectively the same as lack
of locus standi, that is, the absence of the remedial right to sue. As the
commentators of Castille would say, the objection under the new
terminology is "lo mismo perro con distino collar." That re-christened
ground, as we shall later see, has already been foreclosed by the
judgment of the Court in the first lotto case.

It is true that a right of action is the right or standing to enforce a cause

of action. For its purposes, the majority urges the adoption of the
standard concept of a real party in interest based on his possession of a
cause of action. It could not have failed to perceive, but nonetheless
refuses to concede, that the concept of a cause of action in public
interest cases should not be straitjacketed within its usual narrow
confines in private interest litigations.

Thus, adverting again to American jurisprudence, there is

the caveat that "the adoption of a provision requiring that an action be
prosecuted in the name of the real party in interest does not solve all
questions as to the proper person or persons to institute suit, although it
obviously simplifies procedures in actions at law. . . . There is no clearly
defined rule by which one may determine who is or is not the real party
in interest, nor has there been found any concise definition of the
term. Who is the real party in interest depends on the peculiar facts of
each separate case, and one may be a party in interest and yet not be the
sole real party in interest."9 (Emphasis supplied.)
The majority opinion quotes the view of a foreign author but
unfortunately fails to put the proper emphasis on the portion thereof
which I believe should be that which should correctly be stressed, and
which I correspondingly reproduce:

It is important to note . . . that standing because of its

constitutional and public policy underpinnings, is very different
from questions relating to whether a particular plaintiff is the real
party in interest or has the capacity to sue. Although all three
requirements are directed towards ensuring that only certain
parties can maintain an action, standing restrictions require a
partial consideration of the merits, as well as of broader policy
concerns relating to the proper role of the judiciary in certain
areas. 10

Indeed, if the majority would have its way in this case, there would be no
available judicial remedy against irregularities or excesses in government
contracts for lack of a party with legal standing or capacity to sue. This
legal dilemma or vacuum is supposedly remediable under a suggestion
submitted in the majority opinion, to wit:

Denial to petitioners of the right to intervene will not leave without

remedy any perceived illegality in the execution of government
contracts. Questions as to the nature or validity of public contracts
or the necessity for a public bidding before they may be made can
be raised in an appropriate complaint before the Commission on
Audit or before the Ombudsman . . . . In addition, the Solicitor
General is authorized to bring an action for quo warranto if it
should be thought that a government corporation . . . has offended
against its corporate charter or misused its franchise. . . . .

The majority has apparently forgotten its own argument that in the
present case petitioners are not the real parties, hence they cannot avial
of any remedial right to file a complaint or suit. It is, therefore, highly
improbable that the Commission on Audit would deign to deal with those
whom the majority says are strangers to the contract. Again, should this
Court now sustain the assailed contract, of what avail would be the
suggested recourse to the Ombudsman? Finally, it is a perplexing
suggestion that petitioners ask the Solicitor General to bring a quo
warranto suit, either in propria persona or ex relatione, not only because
one has to contend with that official's own views or personal interests
but because he is himself the counsel for respondents in this case. Any
proposed remedy must take into account not only the legalities in the
case but also the realities of life.
3. The majority believes that in view of the retirement and replacement of
two members of the Court, it is time to reexamine the ruling in the first
lotto case. A previous judgment of the Court may, of course, be revisited
but if the ostensible basis is the change or membership and known
positions of the new members anent an issue pending in a case in the
Court, it may not sit well with the public as a judicious policy. This
would be similar to the situation where a judgment promulgated by the
Court is held up by a motion for reconsideration and which motion, just
because the present Rules do not provide a time limit for the resolution
thereof, stays unresolved until the appointment of members sympathetic
thereto. Thus, the unkind criticisms of "magistrate shopping" or "court
packing" levelled by disgruntled litigants is not unknown to this Court.

I hold the view that the matter of the right of petitioners to file and
maintain this action — whether the objection thereto is premised on lack
of locus standi or right of action — has already been foreclosed by our
judgment in the first lotto case, G.R. No. 113375. If the majority refuses
to recognize such right under the "law of the case'' principle, I see no
reason why that particular issue can still be ventilated now as a survivor
of the doctrinal effects or res judicata. 11

It is undeniable that in that case and the one at bar, there is identity of
parties, subject matter and cause of action. Evidently, the judgment in
G.R. No. 113375 was rendered by a court of competent jurisdiction, it
was an adjudication on the merits, and has long become final and
executory. There is, to be sure, an attempt to show that the subject
matter in the first action is different from that in the instant case, since
the former was the original contract and the latter is the supposed
expanded contract. I am not persuaded by the proferred distinction.

The removal and replacement of some objectionable terms of a contract,

which nevertheless continues to operate under the same basis, with and
on the same property, for the same purpose and through
the same contracting parties does not suffice to extinguish the identity
of the subject matter in both cases. This would be to exalt form over
substance. Furthermore, respondents themselves admitted that the new
contract is actually the same as the original one, with just some variants
in the terms of the latter to eliminate those which were objected to. The
contrary assumption now being floated by respondents would create
chaos in our remedial and contractual laws, open the door to fraud, and
subvert the rules on the finality of judgments.

Yet, even assuming purely ex hypothesi that the amended terms in the

expanded lease agreement created a discrete set of litigable violations of
the statutory charter of the Philippine Charity Sweepstakes Office,
thereby collectively resulting in a disparate actionable wrong of delict,
that would merely constitute at most a difference in the causes of action
in the former and the present case. Under Section 49(c), Rule 39 of the
Rules of Court, we would still have a situation of collateral estoppel,
better known in this jurisdiction as conclusiveness of judgment. Hence,
all relevant issues finally adjudged in the prior judgment shall be
conclusive between the parties in the case now before us, and that
definitely includes at the very least the adjudgment therein that
petitioners have the locus standi or the right to sue respondents on the
contracts concerned.

In either case, — whether of res judicata, on which I insist, or of

conclusiveness of judgment, which I assume arguendo — what is now
being primarily resisted is the right of petitioners to sue, aside from the
postulated invalidity of the contract for the government-sponsored lottery
system. It does seem odd, if not arcane, that petitioners were held to
have the requisites locus standi or right of action in said G.R. No.
113375 and, for that matter, were likewise so recognized in the expanded
value added tax (EVAT) case, 12 but are now mysteriously divested of that
"place of standing" allegedly due to, for legal purposes, a compelling need
for reexamination of the doctrine, and, for economic reasons, an
obsession for autarky of the nation.

4. I repeat what I said at the outset that this case should be decided on
the merits and on substantive considerations, not on dubious
technicalities intended to prevent an inquiry into the validity of the
supposed amended lease contract. The people are entitled to the benefit
of a duly clarified and translucent transaction, just as respondents
deserve the opportunity, and should even by themselves primarily seek,
to be cleansed of any suspicions or lingering doubts arising from the fact
that the sponsors for jai alai and, now, of lotto are different.

On the merits, to obviate unnecessary replication I reiterate my

concurrence with the findings and conclusions of Mr. Justice Davide in
his dissenting opinion, the presentation whereof is completely devoid of
strained or speculative premises, and moreover has the virtue of being
based on his first-hand knowledge as a legislator of the very provisions of
the law now in dispute. In this instance and absent any other operative
data, I find the same to be an amply sufficient and highly meritorious
analysis of the controversy on the contract.

One concluding point. I am not impressed by the stance of the majority

that our taking cognizance of this case and resolving it on the merits will
hereafter invite others to unduly overburden this Court with avoidable
importunities. This sounds like a tongue-in-cheek riposte since the Court
 has clearly indicated that it sets aside objections grounded on judge-
made constitutional theories only under cogent reasons of substantial
justice and paramount public interest.

On the contrary, to pay unqualified obeisance to the beguiling locus

standi or right of action doctrines posited by the majority in this case
would not only be an abdication of a clear judicial duty. It could
conceivably result in depriving the people of recourse to us from dubious
government contracts through constitutionally outdated or procedurally
insipid theories for such stultification. This is a contingency which is not
only possible, but probable under our oligarchic society in esse; and not
only undesirable, but repugnant within a just regime of law still in posse.

Romero, J., concurs.

DAVIDE, JR., J., dissenting:

I register a dissenting vote.

I am disturbed by the sudden reversal of our rulings in Kilosbayan, Inc.,

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

It must be noted that the decision in the first lotto case was
unconditionally accepted by the PCSO and the PGMC, as can be gleaned
from their separate manifestations that they would not ask for its
reconsideration but would, instead, negotiate a new equipment lease
agreement consistent with the decision and the PCSO's charter and that
they would furnish the Court a copy of the new agreement. The decision
has, thus, become final on 23 May 1994.2
As the writer of the said decision and as the author of the exception to
paragraph B, Section 1 of R.A. No. 1169, as amended, I cannot accept
the strained and tenuous arguments adduced in the majority opinion to
justify the reversal of our rulings in the first lotto case. While there are
exceptions to the aforementioned doctrines and I am not inexorably
opposed to upsetting prior decisions if warranted by overwhelming
considerations of justice and irresistible desire to rectify an error, none of
such considerations and nothing of substance or weight can bring this
case within any of the exceptions.

In the said case, we sustained the locus standi of the petitioners, and in

no uncertain terms declared:

We find the instant petition to be of transcendental importance to

the public. The issues it raised are of paramount public interest
and of a category even higher than those involved in many of the
aforecited cases. The ramifications of such issues immeasurably
affect the social, economic, and moral 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 of pesos its is
expected to raise. The legal standing then of the petitioners
deserves recognition and, in the exercise of its sound discretions,
this Court hereby brushes aside the procedural barrier which the
respondents tried to take advantage of.

In his concurring opinion, Mr. Justice Florentino P. Feliciano further

showed substantive grounds or considerations of importance which
strengthened the legal standing of the petitioner to bring and maintain
the action, namely: (a) the public character of the funds or other assets
involved in the contract of lease; (b) the presence of a clear case of
disregard of a constitutional or legal provision by the public respondent
agency; (c) the lack of any other party with a more direct and specific
interest in raising the questions involved therein; and (d) the wide range
of impact of the contract of lease and of its implementation.

Only last 6 April 1995, in the decision in Tatad vs. Garcia,3 this Court,
speaking through Mr. Justice Camilo D. Quiason who had joined in the
dissenting opinions in the first lotto case denying the petitioners' locus
standi therein, invoked and applied the ruling on locus standi in the
first lotto case. He stated:

The prevailing doctrines in taxpayer's suits are to allow taxpayers

to question contracts entered into by the national government or
government-owned or controlled corporations allegedly in
 contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA
110 [1994]) and to disallow the same when only municipal
contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not

reversed, we have no choice but to follow it and uphold the legal
standing of petitioners as taxpayers to institute the present action.

Mr. Justice Santiago M. Kapunan, who had also dissented in the first
lotto case on the issue of locus standi; unqualifiedly concurred with the
majority opinion in Tatad. Mr. Justice Vicente V. Mendoza, the writer of
the ponencia in this case, also invoked the locus standi ruling in the
first lotto case to deny legal standing to Tatad, et al. He said:

Nor do petitioners have standing to bring this suit as citizens. In

the cases in which citizens were authorized to sue, this Court
found standing because it thought the constitutional claims
pressed for decision to be of "transcendental importance," as in
fact it subsequently granted relief to petitioners by invalidating the
challenged statutes or governmental actions. Thus in the Lotto
case [Kilosbayan, Inc. vs. Guingona, 232 SCRA 110 (1994)] relied
upon by the majority for upholding petitioner's standing, this
Court took into account the "paramount public interest" involved
which "immeasurably affect[ed] the social, economic, and moral
well-being of the people. . . and the counter-productive and
retrogressive effects of the envisioned on-line lottery system."
Accordingly, the Court invalidated the contract for the operation of
the lottery.

Chief Justice Andres R. Narvasa and Associate Justices Abdulwahid A.

Bidin, Jose A. R. Melo, Reynato S. Puno, Jose C. Vitug, and Ricardo J.
Francisco, joined him in his concurring opinion. Except for the Chief
Justice who took no part in the first lotto case and Justice Francisco who
was not yet a member of this Court at the time, the rest of the Justices
who joined the concurring opinion of Justice Mendoza had dissented in
the first lotto case on the said issue.

Furthermore, it must not be forgotten that this Court has defined the
issues in this case and limited them to the following:

1. Whether the challenged ELA constitutes an association,

collaboration, or joint venture within the meaning of Section 1(B) of
R.A. No. 1169, as amended by B.P. Blg. 42;

2. Whether the ELA requires prior public bidding; and

 3. Whether the ELA is grossly disadvantageous to the Government.

In fact, during the oral arguments of this case on 3 March 1993 this
Court aborted the attempt of the principal counsel for the PGMC, Atty.
Renato Cayetano, to revive the issue of locus standi. Since it seemed that
he had prepared himself for and had been assigned to discuss that issue
alone, he took his seat without protest and without a suggestion that he
would ask for an expansion of the scope of the issues.

In the first lotto case, this Court also emphatically ruled that the
language of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, is

indisputably clear that with respect to its [PCSO's] franchise or

privilege "to hold and conduct charity sweepstakes races, lotteries
and other similar activities," the PCSO cannot exercise it "in
collaboration, association or joint venture" with any other party.
This is the unequivocal meaning and import of the phrase "except
for the activities mentioned in the preceding paragraph (A),"
namely, "charity sweepstakes races, lotteries and other similar
activities."

In support thereof, we explained how the amendment came about and

quoted portions of the Record of the Batasan4 on the proceedings during
the period of amendments to show the unequivocal intent of the Interim
Batasang Pambansa to proscribe the holding or conducting by the PCSO
of sweepstakes races, lotteries, and other similar activities, "in
collaboration, association, or joint venture with any person, association,
company, or entity, whether domestic or foreign." For convenience, I
quote what this Court stated in the said case:

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was
covered by Committee Report No. 103 as reported out by the
Committee on Socio-Economic Planning and Development of the
Interim Batasang Pambansa. The original text of paragraph B,
Section 1 of Parliamentary Bill No. 622 reads as follows:

To engage in any and all investments and related

profit-oriented projects or programs and activities by
itself or in collaboration, association or joint venture
with any person, association, company or entity,
whether domestic or foreign, for the main purpose of
raising funds for health and medical assistance and
services and charitable grants. [Record of the Batasan,
vol. Two, 993]
During the period of committee amendments, the Committee on
Socio-Economic Planning and Development, through Assemblyman
Ronaldo B. Zamora, introduced an amendment by substitution to
the said paragraph B such that, as amended, it should read as
follows:

Subject to the approval of the Minister of Human

Settlements, to engage in health-oriented investments,
programs, projects and activities which may be profit-
oriented, by itself or in collaboration, association, or
joint venture with any person, association, company or
entity, whether domestic or foreign, for the purpose of
providing for permanent and continuing sources of
funds for health programs, including the expansion of
existing ones, medical assistance and services and/or
charitable grants. [Id., 1006-1007].

Before the motion of Assemblyman Zamora for the approval of the

amendment could be acted upon, Assemblyman Davide introduced
an amendment to the amendment:

MR. DAVIDE:

Mr. Speaker.

THE SPEAKER:

The gentleman from Cebu is recognized.

MR. DAVIDE:

May I introduce an amendment to the

committee amendment? The amendment
would be to insert after "foreign" in the
amendment just read the following:
EXCEPT FOR THE ACTIVITY IN LETTER
(A) ABOVE.

When it is a joint venture or in collaboration

with an entity such collaboration or joint
venture must not include activity Letter (a)
which is the holding and conducting of
sweepstakes races, lotteries and other
similar acts.

MR. ZAMORA:
 We accept the amendment, Mr. Speaker.

MR. DAVIDE:

Thank you, Mr. Speaker.

THE SPEAKER:

Is there any objection to the amendment?

(Silence) The amendment, as amended, is
approved. [Id., 1007, emphasis supplied]

Further amendments to paragraph B were introduced and

approved. When Assemblyman Zamora read the final text of
paragraph B as further amended, the earlier approved amendment
of Assemblyman Davide became "EXCEPT FOR THE ACTIVITIES
MENTIONED IN PARAGRAPH (A)"; and by virtue of the amendment
introduced by Assemblyman Emmanuel Pelaez, the word
PRECEDING was inserted before PARAGRAPH. Assemblyman
Pelaez introduced other amendments. Thereafter, the new
Paragraph B was approved. [Id.] This is now paragraph B, Section
1 of R.A. No. 1169, as amended by B.P. Blg. 42.5

This Court further explained the rationale for the prohibition as follows:

No interpretation of the said provision to relax or circumvent the

prohibition can be allowed since the privilege to hold or conduct
charity sweepstakes races, lotteries, or other similar activities is a
franchise granted by the legislature to the PCSO. It is a settled rule
that "in all grants by the government to individuals or corporations
of rights, privileges and franchises, the words are to be taken most
strongly against the grantee . . . [o]ne who claims a franchise or
privilege in derogation of the common rights of the public must
prove his title thereto by a grant which is clearly and definitely
expressed, and he cannot enlarge it by equivocal or doubtful
provisions or by probable inferences. Whatever is not
unequivocally granted is withheld. Nothing passes by mere
implication." [36 Am Jur 2d Franchises §26 (1968)].

In short then, by the exception explicitly made in paragraph B,

Section 1 of its charter, the PCSO cannot share its franchise with
another by way of collaboration, association or joint venture.
Neither can it assign, transfer, or lease such franchise. It has been
said that "the rights and privileges conferred under a franchise
may, without doubt, be assigned or transferred when the grant is
to the grantee and assigns, or is authorized by statute. On the
 other hand, the right of transfer or assignment may be restricted
by statute or the constitution, or be made subject to the approval
of the grantor or a governmental agency, such as a public utilities
commission, except that an existing right of assignment cannot be
impaired by subsequent legislation. [Id., §63].

It may also be pointed out that the franchise granted to the PCSO
to hold and conduct lotteries allows it to hold and conduct a
species of gambling. It is settled that "a statute which authorizes
the carrying on of a gambling activity or business should be strictly
construed and every reasonable doubt so resolved as to limit the
powers and rights claimed under its authority. (38 Am Jur 2d
Gambling §18 [1968]).6

The PCSO and the PGMC never challenged our application or

interpretation of the exception clause and our definitions of the
terms collaboration, association, and joint venture. On the contrary, they
unconditionally accepted the same by not asking for the reconsideration
of our decision in the first lotto case.

Under the principle of either the law of the case or res judicata, the
PCSO and the PGMC are bound by the ruling in the first lotto case on
the locus standi of the petitioners and the application or interpretation
of the exception clause in paragraph B, Section 1 of R.A. No. 1169, as
amended. Moreover, that application or interpretation has been laid to
rest under the doctrine of stare decisis and has also become part of our
legal system pursuant to Article 8 of the Civil Code which provides:
"Judicial decisions applying or interpreting the laws or the constitution
shall form part of the legal system of the Philippines."

These doctrines were not adopted whimsically or capriciously. They are

based on public policy and other considerations of great importance and
should not be discarded or jettisoned in a cavalier fashion. Yet, they are
now put to naught in this case.

The principle of the law of the case "is necessary as a matter of policy to

end litigation. There would be no end to a suit if every obstinate litigant
could, by repeated appeals, compel a court to listen to criticisms on their
opinions, or speculate on chances from changes in its members." 7

It is, however, contended that the law of the case is inapplicable because
that doctrine applies only when a case is before an appellate court a
second time after its remand to a lower court. While indeed the
statement may be correct, it disregards the fact that this case is nothing
but a sequel to and is, therefore, for all intents and purposes, a
continuation of the first lotto case. By their conduct, the parties admitted
that it is, for which reason the PGMC and the PCSO submitted in the
first lotto case a copy of the ELA in question, and the petitioners
commenced the instant petition also in the said case. Our resolution that
the validity of the ELA could not be decided in the said case because the
decision therein had become final does not detract from the fact that this
case is but a continuation of the first lotto case or a new chapter in the
raging controversy between the petitioners, on the one hand, and the
PCSO and the PGMC, on the other, on the operation of the on-line lottery
system.

Equally unacceptable is the majority opinion's rejection of the related

doctrine of conclusiveness of judgment on the ground that the question
of standing is a legal question, as this case in involves a different or
unrelated contract. The legal question of locus standi which was
resolved in favor of the petitioners in the first lotto case is the same in
this case and in every subsequent case which would involve contracts
relating or incidental to the conduct or holding of lotteries by the PCSO
in collaboration, association, or joint venture with any person,
association, company, or entity. And, the contract in question is not
different from or unrelated to the first nullified contract, for it is nothing
but a substitute for the latter. Respondent Morato was even candid
enough to admit that no new and separate public bidding was conducted
for the ELA in question because the PCSO was of the belief that the
public bidding for the nullified contract was sufficient.

Its reliance on the ruling in Montana vs. United States8 that preclusion of

issues or collateral estoppel does not apply to issues of law, at least when
substantially unrelated claims are involved, is misplaced. For one thing,
the question of the petitioners' legal standing in the first lotto case and in
this case is one and the same issue of law. For another, these cases
involve the same and not substantially unrelated subject matter, viz., the
second contract between the PCSO and the PGMC on the operation of
the on-line lottery system.

The majority opinion likewise failed to consider that in the very authority
it cited regarding the exception to the rule of issue preclusion
(Restatement of the Law, 2d Judgments § 28), the second illustration
stated therein is subject to this NOTE: "The doctrine of the stare
decisis may lead the court to refuse to reconsider the question of
sovereign immunity," which simply means that stare decisis is an
effective bar to a re-examination of a prior judgment.

The doctrine of stare decisis embodies the legal maxim that a principle or

rule of law which has been established by the decision of a court of
controlling jurisdiction will be followed in other cases involving a similar
situation. It is founded on the necessity for securing certainty and
stability in the law and does not require identity or privity of
parties.9 This is explicitly fleshed out in Article 8 of the Civil Code which
provides that decisions applying or interpreting the laws or the
constitution shall form part of the legal system. Such decisions "assume
the same authority as the statute itself and, until authoritatively
abandoned, necessarily become, to the extent that they are applicable,
the criteria which must control the actuations not only of those called
upon to abide thereby but also of those in duty bound to enforce
obedience thereto." 10 Abandonment thereof must be based only on
strong and compelling reasons — which I do not find in this case —
otherwise, the becoming virtue of predictability which is expected from
this Court would be immeasurably affected and the public's confidence
in the stability of its solemn pronouncements diminished.

The doctrine of res judicata also bars a relitigation of the issue of locus

standi and a re-examination of the application or interpretation of the
exception clause in paragraph B, Section 1 of R.A. No. 1169, as
amended. Section 49 (b), Rule 39 of the Rules of Court on effects of
judgment expressly provides:

(b) In all other cases the judgment or order is, with respect to the
matter directly adjudged or as to other matter that could have been
raised in relation thereto, conclusive between the parties and their
successors in interest by title subsequent to the commencement of
the action or special proceedings, litigating for the same thing in
the same title and in the same capacity.

This doctrine has dual aspects: (1) as a bar to the prosecution of a

second action upon the same claim, demand, or cause of action; and (2)
as preclusion to the relitigation of particular facts or issues in another
action between the same parties on a different claim or cause of
action.11 Public policy, judicial orderliness, economy of judicial time, and
the interest of litigants as well as the peace and order of society, all
require that stability should be accorded judgments; that controversies
once decided on their merits shall remain in repose; that inconsistent
judicial decisions shall not be made on the same set of facts; and that
there be an end to litigation which, without the said doctrine, would be
endless. It not only puts an end to strife, but recognizes that certainty in
legal relations must be maintained. It produces certainty as to individual
rights and gives dignity and respect to judicial proceedings. 12

The justifications given in the majority opinion to underrate the ruling

on locus standi and to ultimately discard it are unconvincing. It is not at
all true, as the majority opinion contends, that "[t]he previous ruling
sustaining petitioners' intervention may in fact be considered a departure
from settled rulings on 'real party in interest' because no constitutional
issues were actually involved."

It must be pointed out that the rule in ordinary civil procedure on real
party in interest was never put in issue in the previous case. It was the
clear understanding of the Members of the Court that in the light of the
issues raised and the arguments adduced therein, only locus
standi deserved consideration. Accordingly, the majority opinion and the
separate dissenting opinions therein dwelt lengthily on locus standi and
brought in the process a vast array of authorities on the issue. Moreover,
as explicitly stressed in the concurring opinion of Justice Feliciano, both
constitutional and legal issues were involved therein. Finally, as shall
hereafter be discussed, in public law the rule of real party in interest is
subordinated to the doctrine of locus standi.

Equally unconvincing is the majority opinion's contention that the ruling

on locus standi in the first lotto case may not be preserved because the
majority vote sustaining the petitioners' standing was a "tenuous one"
that may not be maintained in a subsequent litigation, and that there
had been changes in the membership of the Court due to the retirement
of Justices Isagani A. Cruz and Abdulwahid A. Bidin and the
appointment of Justices Vicente V. Mendoza and Ricardo J. Francisco. It
has forgotten that, as earlier stated, the ruling was reiterated in Tatad
vs. Garcia. Additionally, when in his concurring opinion in the Tatad
case, Justice Mendoza denied locus standi to Tatad, et al., because their
case did not have the same importance as the first lotto case, he thereby
accepted the concession of standing to the petitioners in the lotto case. I
wish to stress the fact that all the Justices who had dissented in the first
lotto case on the issue of locus standi were either for the majority
opinion or for the concurring opinion in the Tatad case. Hence, I can say
that the Tatad case has given vigor and strength to the "tenuous"
majority in the first lotto case.

The majority opinion declares that the real issue in this case is not
whether the petitioners have locus standi but whether they are the real
parties-in-interest. This proposition is a bold move to set up a bar to
taxpayer's suits or cases invested with public interest by requiring strict
compliance with the rule on real party in interest in ordinary civil
actions, thereby effectively subordinating to that rule the doctrine
of locus standi. I am not prepared to be a party to that proposition.

First. Friedenthal; et al., whose book is cited in the majority opinion in its

discussion of the rule on real party in interest and the doctrine of locus
standi, admit that there is a difference between the two, and that the
former is not strictly applicable in public law cases, thus:

The evolution of standing doctrine seems to point to greater

freedom of action for plaintiffs. However, the courts still have not
articulated how the balance is to be struck between the relevant
and often competing interests: the plaintiff's right to relief and the
legislature's right to carry out its policies without judicial
interference. Nor has the judiciary's competence to rule on these
interests have analyzed systematically or its limits defined. Courts
essentially continue to be free to reconcile these competing values
on an ad hoc basis.

It is important to note, however, that standing, because of its

constitutional and public policy underpinnings, is very different
from questions relating to whether a particular plaintiff is the real
party in interest or has capacity to sue. Although all three
requirements are directed toward ensuring that only certain
parties can maintain an action, standing restrictions require a
partial consideration of the merits, as well as of broader policy
concerns relating to the proper role of the judiciary in certain
areas. 13

In an earlier book, 14 the same Friedenthal and Miller, with, John J.

Cound as the lead author, expounded that in the realm of public law, the
real party in interest rule is not applicable, thus:

A third problem of proper parties occurs in the realm of public law.

When governmental action is attacked on the ground that it
violates private rights or some constitutional principle, the courts
have tended to analyze the question whether the challenger is a
proper party plaintiff to assert the claim in terms of the judge-made
doctrine of standing to sue — requiring that plaintiff be adversely
affected by defendant's conduct — rather than according to real-
party-in-interest or capacity principles. See Davis, Standing:
Taxpayers and Others, 35 U. Chi. L. Rev. 601 (1968); Jaffee, The
Citizen as a Litigant in Public Actions: The Non-Hohfeldian or
Ideological Plaintiff, 116 U. Pa. L. Rev. 1033 (1968); and Jaffee,
Standing Again, 84 Harv. L. Rev. 633 (1971). To the extent that
standing is understood to mean that the litigant actually must be
injured by the governmental action that is being assailed, it closely
resembles the notion of real party in interest under Rule
17(a). However, several other elements of the standing doctrine
clearly are unrelated to the simple real-party-in-interest test. One
significant context in which the two concepts diverge is when for
 standing purposes plaintiff is required to show both that he has
been adversely affected by the governmental conduct that is under
attack and has suffered an injury to a legally protected right. When
standing is defined in this fashion it may entail a preliminary
consideration of the merits of the case and therefore is quite
different from the real-party-in-interest notion. (emphasis
supplied).

The downgrading of locus standi and its subordination to the restrictive

rule on real party in interest cannot be justified by the claim that what is
involved here is contract law, not constitutional law. True, contract law is
involved. We are not, however, dealing here with an ordinary contract
between private parties, but a contract between a corporation wholly
owned by the government — hence, an instrumentality of the
government — and a private corporation for the conduct of the lotto,
which is invested with paramount and transcendental public interest
and other public policy considerations because the lotto has counter-
productive and retrogressive effects which are as staggering as the
billions of pesos it is expected to raise and provokes issues that
immeasurably affect the social, economic, and moral well-being of the
people. We said so in the first lotto case.

Second. The attempt to use the real-party-in-interest rule is to resurrect

the abandoned restrictive application of locus standi. This Court,
speaking through the constitutionalist nonpareil, Justice and later Chief
Justice Enrique Fernando, has already declared in Tan vs.
Macapagal 15 that as far as a taxpayer's suit is concerned, this Court is
not devoid of discretion as to whether or not it should be entertained. In
his concurring opinion in Aquino vs. Commission on Elections, 16 he said:

Then there is the attack on the standing of petitioners, as

vindicating at most what they consider a public right and not
protecting their rights as individuals. [Respondents' Comment, 5].
This is to conjure the specter of the public right dogma as an
inhibition to parties intent on keeping public officials staying on
the path of constitutionalism. As was so well put by Jaffe
[Standing to Secure Judicial Review, 74 Harvard Law Review, 1265
(1961)]: "The protection of private rights is an essential constituent
of public interest and, conversely, without a well-ordered state
there could be no enforcement of private rights. Private and public
interests are, both in a substantive and procedural sense, aspects
of the totality of the legal order." [Ibid., 1266. Cf. Berger, Standing
to Sue in Public Actions, 78 Yale Law Journal 816 (1969)].
Moreover, petitioners have convincingly shown that in their
capacity as taxpayers, their standing to sue has been amply
 demonstrated. There would be a retreat from the liberal approach
followed in Pascual v. Secretary of Public Works [110 Phil. 331
(1960)], foreshadowed by the very decision of People v. Vera [65
Phil. 56 (1937)] where the doctrine was first fully discussed, if we
act differently now. I do not think we are prepared to take that
step. Respondents, however, would hark back to the American
Supreme Court doctrine in Mellon v. Frothingham [262 US 447
(1923)], with their claim that what petitioners possess "is an
interest which is shared in common by other people and is
comparatively so minute and indeterminate as to afford any basis
and assurance that the judicial process can act on it."
[Respondents' Comment, 5]. That is to speak in the language of a
bygone era, even in the United States. For as Chief Justice Warren
clearly pointed out in the later case of Flast v. Cohen [391 US 83
[1968)], the barrier thus set up if not breached has definitely been
lowered. [Ibid., 92-95]. The weakness of these particular defenses
is thus quite apparent. [Cf. Tan v. Macapagal, 43 SCRA 677].

Third. Such attempt directly or indirectly restricts the exercise of the

judicial authority of this Court in an original action — and there had
been many in the past — to determine whether or not there has been
grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government. Only a very
limited few may qualify, under the real-party-in-interest rule, to bring
actions to question acts or contracts tainted with such vice. Where,
because of fear of reprisal, undue pressure, or even connivance with the
parties benefited by the contracts or transactions, the so-called real
party in interest chooses not to sue, the patently unconstitutional and
illegal contracts or transactions will be placed beyond the scrutiny of this
Court, to the irreparable damage of the Government, and prejudice to
public interest and the general welfare.

By way of illustration, the first lotto contracts would not have reached
this Court if only the so-called real party in interest could bring an action
to nullify it. Neither would the ELA in question, since for reasons only
known to them, none of those who had lost in the bidding for the first
lotto contract showed interest to challenge it.

The majority opinion posits that a denial to the petitioners of the right to
intervene will not leave without remedy any perceived illegality in the
contract because:

[q]uestions as to the nature or validity of public contracts of the

necessity for a public bidding before they may be made can be
raised in an appropriate case before the Commission on Audit of
 before the Ombudsman. . . . In addition, the Solicitor General is
authorized to bring an action for quo warranto if it should be
thought that a government corporation, like the PCSO, has
offended against its corporate charter or misused its franchise.

That proposition delivers the coup de grace to taxpayers' suits,

discourages involvement of citizens in public affairs, and negates or
renders ineffective Section 16, Article XIII of the Constitution which
provides:

The right of the people and their organizations to effective and

reasonable participation at all levels of social, political, and
economic decision-making shall no be abridged. The State shall, by
law, facilitate the establishment of adequate consultation
mechanisms.

Besides, it is fraught with unimaginable danger to public interest if

neither the Commission on Audit (COA), nor the Ombudsman, or the
Office of the Solicitor General, would take any action on the matter.

In the instant case, the COA refused to directly act on Morato's request
and, instead, referred it to the Department of Justice (DOJ) which, in
turn, merely indorsed an opinion to the COA. On the other hand, the
Office of the Solicitor General is taking the side of the PCSO, as it did in
the first lotto case. The observation then of Justice Cruz in his
concurring opinion in the first lotto case is apropos:

Locus standi is not such an absolute rule that it cannot admit of

exceptions under certain conditions or circumstances like those
attending this transaction. As I remarked in my dissent in Guazon
vs. De Villa, 181 SCRA 623, "It is not only the owner of the burning
house who has a right to call the firemen. Every one has the right
and responsibility to prevent the fire from spreading even if he lives
in the other block."

The majority opinion does not entirely foreclose the possibility of

according the petitioners locus standi if only they would allege "that
public funds are being misspent so as to make this action a public one
and justify relaxation of the requirement that an action must be
prosecuted by the real party in interest." While it may be true that there
is no such specific allegation, the totality of the petitioners' allegations
points to illegal expenditures of public funds due to or arising out of
violations of the exception clause in paragraph B, Section 1 of R.A. No.
1169, as amended, and the public bidding law, and by reason of the
grossly disadvantageous provisions of the contract. The public character
of the sums due the PGMC under the ELA cannot be disputed. The PCSO
is solely owned by the Government and is authorized to raise funds for
the public purposes specified in its Charter. The funds thus raised are
public funds. This Court must take judicial notice of these facts.

Before I take up the defined issues, I find it necessary to meet squarely

the majority opinion's interpretation of paragraph B, Section 1 of R.A.
No. 1169, as amended. This is, of course, on the assumption that this
Court may now disregard the doctrines of the law of the case, res
judicata, and stare decisis.

I respectfully submit that the best authority on the intention or rationale

of a legislative amendment is its author. Fortunately, I happened to be
the author of the exception clause in said provision. The language of that
clause is very short and simple, and the elaboration given therefor, as
earlier shown, is equally short and simple. The sponsor of the measure,
then Assemblyman, now Congressman, Ronaldo Zamora did not even
ask for an explanation or clarification; he readily accepted the
amendment. Nobody from the floor interpellated me for an explanation or
clarification.

I regret then to say that neither the letter nor the spirit of the exception
clause in paragraph B supports the interpretation proposed in the
majority opinion. The reason given in the majority opinion for the alleged
prohibition from investing in "activities mentioned in the preceding
paragraph (A)" (i.e., the holding or conducting of charity sweepstakes
races, lotteries, and other similar activities) is that "these are competing
activities." In that aspect alone, the majority opinion has clearly
misconstrued the exception clause. The prohibition is not directed
against such activities, since they are in fact the franchised primary
activities of the PCSO. What is prohibited is the conduct or holding
thereof "in collaboration, association or joint venture with any person,
association, company, or entity, whether domestic or foreign." In the first
lotto case, this Court explained the principal reasons for such
prohibition. If the purpose of the prohibition in the exception clause is
indeed to prevent competition, it would be with more reason that no
other person, natural or juridical, should be allowed to share in the
PCSO's franchise to hold and conduct lotteries. In short, the argument in
the majority opinion sustains the rationale of the prohibition.

II

As to the defined issues, my answers are in the affirmative. To better

appreciate them, the minute details of the undisputed operative facts
which are crucial to their resolution must have to be bared.
After its setback n G.R. No. 113375, the PGMC and the PCSO prepared a
draft of a new ELA.

On 26 July 1994, the Board of Directors of the PCSO approved

Resolution No. 445, 17 series of 1994, resolving as follows:

NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved,

that the draft Equipment Lease Agreement, hereto attached, is
APPROVED, and the Chairman of the Board is AUTHORIZED to
enter into and execute the said Agreement, SUBJECT to the
confirmation by the Commission on Audit that PCSO can enter in
the said Agreement.

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

1. Pursuant to the provisions of Republic Act No. 1169, as

amended, the Philippine Charity Sweepstakes Office (PCSO), with
the approval of the Office of the President, decided to operate an
On-line lottery System.

2. In August 1993, Request for Proposals (Annex "A") were issued

seeking lessors for the On-Line Lottery System under a build-lease
basis at no expense or risk to PCSO.

3. The bids were evaluated by the Special Prequalification Bids and

Awards Committee and its bid report was further evaluated by a
Special Review Committee of the Office of the President.

4. On 12 October 1993, the Office of the President announced that

it was awarding the Lease Contract to Philippine Gaming and
Management Corporation (PGMC) as lessor, provided that the
contract would similarly be awarded to two (2) other bidders if they
matched the terms of PGMC.

Morato invoked the following grounds to justify his request for

confirmation:

a. A lease of equipment, with option to purchase, by a government

corporation such as the PCSO, provided this is approved by its
governing board, is not generally subject to the public bidding
 requirement (Section 4.3, second paragraph, COA Circular No. 85-
55-A dated 8 September 1985);

b. The new lease contract is still the result of an award made after
public bidding; and

c. In this case, its is apparent that the lease of the needed

equipment through negotiation is the most advantageous to the
Government since so many studies, plans and procedures had
already been worked out with PGMC since October 1993 as a
result of the previous bidding (Section 1. e, Executive Order No.
301 [1987]).

The COA indorsed Morato's letter to the DOJ and requested an opinion
on the propriety or legality of the proposed ELA which was entered into
without the benefit of a public bidding under E.O. No. 301 and the
pertinent government accounting and auditing rules.

In its Opinion No. 4, series of 1995, 19 contained in a 2nd Indorsement

addressed to the COA, dated 16 January 1995, the DOJ, through Acting
Secretary Demetrio G. Demetria:

(a) Disagreed with the statement of Morato that any of the three
justifications he enumerated in his letter to the COA may
constitute valid basis for the exemption from public bidding.

(b) Declined to express an opinion on the first justification that

under COA Circular No. 85-55-A of 8 September 1985 a lease of
equipment with option to purchase is not generally subject to
public bidding, since it involves an interpretation of a COA circular
which is best left to the COA's determination.

(c) Expressed doubts on the accuracy of Morato's statement that

the new lease contract is still the result of the award made after
public bidding and opined that since the original lease contract
was nullified by this Court, such nullification necessarily implied
the nullification of the public bidding which preceded its execution.

(d) Agreed, nonetheless, with Morato that the new ELA is exempt
from the public bidding requirement under Section 1 (e) of E.O. No.
301, and ratiocinates as follows:

The cited provision reads:

Sec. 1. Guidelines for Negotiated Contracts. — Any provision of

Law, decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for furnishing
supplies, materials and equipment to the government or any of its
branches, agencies or instrumentalities shall be renewed or
entered into without public bidding except under any of the
following situations:

xxx xxx xxx

(e) In cases where it is apparent that the requisition of the needed

supplies through negotiated purchase is most advantageous to the
government to be determined by the Department Head concerned;
and

xxx xxx xxx

It should be noted that while public bidding is generally required

for contracts for public services or for furnishing supplies,
materials and equipment, paragraph (e), abovequoted, would
exempt from the requirement of public bidding "the requisition of
the needed supplies" and would allow the acquisition thereof
through negotiated purchase if deemed most advantageous to the
government as determined by the Department Head concerned.

In the instant case, it is believed that the new lease agreement,

although denominated, "Equipment Lease Agreement", may be
considered a contract for furnishing supplies and may fall under
the exception provided for in paragraph (e) if entering into such
agreement, through negotiation, is determined to be the most
advantageous by the Department Head concerned.

The words "supplies" and "equipment" are not synonymous. The

word "equipment" imports "the outfit necessary to enable the
contractor to perform the agreed service, the tools, implements,
and appliances which might have been previously used or might be
subsequently used by the contractor in carrying on other work of
like character" (Standard Boiler Works v. National Surety Co., 71
Wash. 28, 127 Pac. 573). The word "supplies", on the other hand,
is defined as "any article entirely consumed by its use in the work"
(National Surety Co. v. Bratnober Lumber Co., 67 Wash. 601, 122,
Pac. 337).

It has been held, however, that the true distinction between

"supplies" and "equipment" rests on the effect the use has upon
the article, rather than upon the degree of use to which it is
subjected. Thus, a "supply" would be any article furnished for
carrying on the work which from its nature is necessarily
 consumed by use in the work, while "equipment" would consist of
those articles that are not necessarily so consumed, but which
may survive the particular work and be further used on work of
like character (United States Rubber Co. of California v.
Washington Engineering Co., 149 P. 706).

In case of lease of equipment, it was held that the rental value of

machinery hired by the contractor for use in carrying on work
within the terms of the contract is recoverable from the bondsman
as a supply, the reason for this being that what was consumed in
the work was the use of the machinery and not the machinery
itself (United States Rubber Co. vs. Washington Eng'g. Co., supra,
citing cases). Applying this ruling to the instant case, the subject
Equipment Lease Agreement, as observed earlier, may be deemed
to be an agreement for furnishing of supplies because by its terms,
what will be consumed by the PCSO, as Lessee, would be the use
of the equipment, and not the equipment itself.

Based thereon, the aforesaid Equipment Lease Agreement may be

the subject of negotiation pursuant to Section l(e) of E.O. No. 301 if
it be determined to be the most advantageous to the government
by the Department Head concerned.

As earlier stated, on 25 January 1995, the PGMC, represented by Alfredo

C. Ramos, its Vice-Chairman, and the PCSO, represented by Manuel L.
Morato, its Chairman, signed the assailed ELA.

A. The PGMC avers that the old contract was reformed to expunge
therefrom the features and provisions which were held by this Court as
indicative of the statutorily proscribed collaboration, association, or joint
venture. 20 For their part, the public respondents claim that "as can be
glaringly seen from the face of the ELA, none of the terms and conditions
in the old contract of lease which this Honorable Court found as vestiges
of a joint venture is present in the subject ELA." 21

I am not persuaded. To my mind, the parties only performed a superficial

surgery on the nullified contract by merely deleting therefrom provisions
which this Court had considered in the first lotto case to be badges of a
joint venture contract and by engrafting some modifications on rental,
which include an option to purchase. The PGMC and the PCSO
conveniently forgot that per this Court's findings in the first lotto case,
they had an indivisible community of interest in
the conception, birth and growth of the on-line lottery and that each is
wed to the other for better or for worse. The surgery affected only the
post-natal activities of the union, but not the indivisibility of their
community of interest at conception and at the birth of the on-line lottery
system. Put differently, it only separated one from the other from bed
and board but did not dissolve the bonds of such indivisibility or
community of interest. This was confirmed by respondent Morato when
he candidly confessed in his letter to the COA Chairman that:

[I]t is apparent that the lease of the needed equipment through

negotiations is the most advantageous to the Government since so
many studies, plans and procedures had already been worked out
with PGMC since October 1993 as a result of the previous
bidding (Sec. 1.e, Executive Order No. 301 [1987]). (emphasis
supplied)

Although Mr. Morato did not volunteer to disclose what those studies,
plans, and procedures are, it is logical to presume that they refer to,
among other things, (1) the building of the on-line lottery system, at no
expense of or risk to the PCSO, which was precisely the specific purpose
of the Request for Proposals and which Morato admitted in his
"presentation" in his letter to the COA Chairman; and (2) those that this
Court had noted in the first lotto case, to wit: (a) the preparation of the
detailed plan of all games and the marketing thereof; and (b) the
determination of the number of players, value of winnings, and the
logistics required to introduce the games, including the Master Games
Plan. The indispensable role of the PGMC as a collaborator, associate, or
joint venturer up to that point where actual operation of the on-line
lottery system shall begin was unaffected by the superficial surgery on
the text of the nullified contract. Atty. Eleazar Reyes, co-counsel of Atty.
Cayetano for the PGMC, was candid enough to admit during the oral
arguments that it would be extremely difficult for the PGMC and the
PCSO to avoid the proscribed "collaboration, association, or joint
venture" under the exception of paragraph B, Section 1 of R.A. No. 1169,
as amended. He, nevertheless, hastened to add that an outright
purchase by the PCSO of the PGMC's equipment would be the best and
safest recourse. Thus:

JUSTICE DAVIDE:

Mr. Counsel you just admitted a while ago that it is

extremely difficult to comply with the revised charter of
the Philippine Charity Sweepstakes Office insofar as
collaboration, joint venture, association are
concerned?

ATTY. REYES:

Yes, Your Honor.

JUSTICE DAVIDE:

But if given the chance to rewrite this contract, what

proposal would you give, what recommendation would
you give to your client?

ATTY. REYES:

Your Honor, that is why I said I would leave it to the

business judgment of my client.

JUSTICE DAVIDE:

As a lawyer what kind of a contract would you

recommend to be rewritten, to satisfy the law, to
satisfy the judgment of this Court in the first case?

ATTY. REYES:

The safest, Your Honor, is a sale.

JUSTICE DAVIDE:

Sale, meaning the Philippine Charity Sweepstakes

Office will buy everything?

ATTY. REYES:

Yes, Your Honor.

JUSTICE DAVIDE:

Why did you not recommend that to your client

instead you went into the process [of drafting the] ELA.

ATTY. REYES:

Because, Your Honor, they do not have the money.

They are going to use the proceeds from the gains for
the payment of the rental but they do not have the
cash.

JUSTICE DAVIDE:
 In the event that this Court will now strike down this
agreement as also void, would you recommend that to
your client as a third contract?

ATTY. REYES:

Yes, Your Honor, if the PCSO can pay for it. 22

Besides, even on the face of the new ELA, the elements of the proscribed
joint venture or, at the very least, collaboration or association, can be
detected, albeit they are hidden behind the skirt of the following: (a) the
Rental Clause; (b) the upgrading provision under the Repair Services
Clause; and (c) the details of what are embraced in the term Lottery
Equipment and Accessories subject of the contract, which are found in
Annex "A" of the ELA. 23

The Rental Clause provides for a flexible rate based on a percentage of

the gross amount of ticket sales, payable bi-weekly, with an annual
minimum rental fixed at P35,000.00 per terminal in commercial
operation, any shortfall of which shall be paid out of the proceeds of the
current ticket sales. This clause provides in full as follows:

RENTAL

During the effectivity of this Agreement and the term

of this lease as provided in paragraph 3 hereof,
LESSEE shall pay rental to LESSOR equivalent to
FOUR POINT THREE PERCENT (4.3%) of the gross
amount of ticket sales from all of LESSEE's on-line
lottery operations in the Territory, which rental shall
be computed and payable bi-weekly, net of withholding
taxes on income, if any: provided that, in no case shall
the annual aggregate rentals per year during the term
of the lease be less than the annual minimum fixed
rental computed at P35,000.00 per terminal in
commercial operation per annum, provided, further
that the annual minimum fixed rental shall be reduced
pro-rata for the number of days during the year that a
terminal is not in commercial operation due to repairs
or breakdown. In the event the aggregate bi-weekly
rentals in any year falls short of the annual minimum
fixed rental computed at P35,000.00 per terminal in
commercial operation, the LESSEE shall pay such
shortfall from out of the proceeds of the then current
ticket sales from LESSEE's on-line lottery operations
in the Territory (after payment first of prizes and
 agents' commissions but prior to any other payments,
allocations or disbursements) until said shortfall shall
have been fully settled, but without prejudice to the
payment to LESSOR of the then current bi-weekly
rentals in accordance with the provisions of the first
sentence of this paragraph 2.

This is an unusually novel arrangement which insures and guarantees

the PGMC full participation in the gross proceeds of ticket sales even if,
ultimately, a draw could mean losses to the PCSO. It allots to the PGMC
only a very limited share in the losses since, under any circumstance
and the most unfavorable business climate, the PGMC is assured of an
irreducible minimum "rental" per terminal. The term "rental" is then a
very deceptive, yet poorly contrived, disguise to cloak the real role of the
PGMC. At the hearing, Atty. Eleazar Reyes feigned ignorance on how the
"rental" of 4.3% of the gross amount of ticket sales was arrived at. This
Court should not wait for the end of the world for any acceptable
explanation therefor. The explanation can easily be had by relating it to
the rental of 4.9% of gross receipts from ticket sales under the nullified
contract. The reduction of only 0.6% (4.9% — 4.3%) is negligible
considering the PCSO's assumption of, among other things, all business
risks; operation of the equipment with the use of its own personnel; risks
of loss of and damage to the equipment; responsibility for maintenance
and repairs, all of which were the PGMC's duties, obligations, and
responsibilities under the nullified contract. I am convinced that such
rate was pre-determined to approximate the profits which the PGMC
expected to realize under the nullified contract. The rental clause is,
indeed, a subtle scheme to unconditionally guaranty PGMC's share in
the profits.

If read in conjunction with the upgrading provision buried under the

clause "Repair Services" it becomes clear that the parties do have a
different purpose for the use of the term rental.

The Repair Services clause provides as follows:

REPAIR SERVICES

LESSEE shall bear the costs of maintenance and

necessary repairs, except those repairs to correct
defective workmanship or replace defective materials
used in the manufacture of Equipment discovered
after delivery of the Equipment, in which case LESSOR
shall bear the costs of such repairs and, if necessary,
the replacements. The LESSEE may at any time
 during the term of the lease, request the LESSOR to
upgrade the equipment and/or increase the number of
terminals, in which case the LESSEE and LESSOR
shall agree on an arrangement mutually satisfactory to
both of them, upon such terms as may be mutually
agreed upon.

The upgrading provision is full of mischief and is, perhaps, the most

deceptive provision in the ELA that puts to naught any pretense of good
faith in expunging from the old contract all indicia of the statutorily
proscribed collaboration, association, or joint venture. It is a provision
which is entirely unrelated to the clause under which it is placed
— Repair Services. It should have been either set forth as a separate
clause or at least placed under the clause on Equipment. 24

It should be stressed here that in the old contract the upgrading clause
is under facilities, which include among other things all capital
equipment, computers, terminals, and softwares. Under the upgrading
provision, new equipment may be used; the number of terminals may be
increased; and new terms and conditions, including rates of "rentals"
and the purchase price in case of exercise of the option to buy, may be
agreed upon. This makes the ELA not just a sweetheart contract, but one
which will preserve the parties' indivisible union and community of
interest, thereby giving further credence to this Court's observation in
the first lotto case that each is wed to the other for better or for worse.

The term Equipment, which is allegedly the subject of the ELA, includes,

per its definition in Annex "A" thereof, the "associated or incidental
hardware equipment, furnishing and fixtures, technology, intellectual
property rights, knowhow, processes and systems." Technology,
knowhow, processes, and systems necessarily include transfer of
technology and other expertise which could only be carried out over a
number of years of continuing training and supervision of personnel,
which the PGMC is necessarily and logically required to do. Intellectual
property rights can only refer to, among other things, the detailed plans
of all games and the Master Games Plan which, under the nullified
contract, are to be prepared by the PGMC.

It may be observed that the term facilities in the old contract included

all capital equipment but excluded "technology, intellectual property
rights, knowhow, processes and systems." As this Court found in the
first lotto case, there was a separate provision on the PGMC's obligations
(1) to train PCSO and other local personnel and (2) to effect the transfer
of technology and other expertise. 25 Clearly, the inclusion of "technology,
intellectual property rights, knowhow, processes and systems" in the
term Equipment was a ploy to hide, again, the continuing indispensable
collaboration of the PGMC in the conduct of the on-line lottery business.

B. Even assuming that the subject ELA is not a joint venture contract,
still it must be nullified for having been entered into without public
bidding and for being grossly disadvantageous to the Government. It has
been said:

In this jurisdiction, public bidding is the policy and medium

adhered to in Government procurement and construction contracts
under existing laws and regulations. It is the accepted method for
arriving at a fair and reasonable price and ensures that
overpricing, favoritism and other anomalous practices are
eliminated or minimized. And any Government contract entered
into without the required bidding is null and void and cannot
adversely affect the rights of third parties. 26

The opening paragraph of E.O. No. 298, series of 1940, 27 of President

Manuel L. Quezon, entitled "Prohibiting the Automatic Renewal of
Contracts, Requiring Public Bidding Before Entering Into New Contracts,
Providing Exceptions Therefor," states this policy:

Whereas, as a matter of general policy, it is in the interest of the

public service that Government contracts for public services or for
furnishing of supplies, materials, and equipment to the
Government be submitted to public bidding.

This was restated in E.O No. 301 28 of President Corazon C. Aquino,

entitled "Decentralizing Actions on Government Negotiated Contracts,
Lease Contracts and Records Disposal," whose Section 1 reads:

Sec. 1. Guidelines for Negotiated Contracts. — Any provision of law,

decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for furnishing
supplies, materials and equipment to the government or any of its
branches, agencies or instrumentalities shall be renewed or
entered into without public bidding, except under any of the
following situations:

The Court agrees with DOJ Opinion No. 4, series of 1995, which states
that the bidding conducted for the nullified contract could be a valid
basis for the new ELA and that, therefore, a new bidding was in order.
The DOJ erred, however, when it further stated that the ELA is exempt
under Section 1(e) of E.O. No. 301 from the public-bidding requirement.
Sections 1 and 2 of E.O. No. 301 under subdivision A (Decentralization of
Negotiated Contracts) read in full as follows:

Sec. 1. Guidelines for Negotiated Contracts. — Any provision of law,

decree, executive order or other issuances to the contrary
notwithstanding, no contract for public services or for furnishing
supplies, materials and equipment to the government or any of its
branches, agencies or instrumentalities shall be renewed or
entered into without public bidding, except under any of the
following situations:

a. Whenever the supplies are urgently needed to meet

an emergency which may involve the loss of, or danger
to, life and/or property;

b. Whenever the supplies are to be used in connection

with a project or activity which cannot be delayed
without causing detriment to the public service;

c. Whenever the materials are sold by an exclusive

distributor or manufacturer who does not have
subdealers selling at lower prices and for which no
suitable substitute can be obtained elsewhere at more
advantageous terms to the government;

d. Whenever the supplies under procurement have

been unsuccessfully placed on bid for at least two
consecutive times, either due to lack of bidders or the
offers received in each instance were exorbitant or
non-conforming to specifications;

e. In cases where it is apparent that the requisition of

the needed supplies through negotiated purchase is
most advantageous to the government to be
determined by the Department Head concerned; and

f. Whenever the purchase is made from an agency of

the government.

Sec. 2. Jurisdiction over Negotiated Contracts. — In line with the

principles of decentralization and accountability, negotiated
contracts for public services or for furnishing supplies, materials
or equipment may be entered into by the department or agency
head or the governing board of the government-owned or controlled
corporation concerned, without need of prior approval by higher
authorities, subject to availability of funds, compliance with the
 standards or guidelines prescribed in Section 1 hereof, and to the
audit jurisdiction of the Commission on Audit in accordance with
existing rules and regulations.

Negotiated contracts involving P2,000,000 up to P10,000,000 shall

be signed by the Secretary and two other Undersecretaries.

It is clear that Sections 1 and 2 refer to contracts for public services, or

for furnishing supplies, materials, and equipment to the government. In
no uncertain terms, the Executive Order itself distinguishes the
terms supplies, materials, and equipment from each other, i.e., it did not
intend to consider them as synonymous terms. If such were the
intention, there would have been no need to enumerate them separately
and to limit subparagraphs (a), (b), and (e) to supplies; subparagraph (c)
to materials; and subparagraph (f) to all three (supplies, materials and
equipment). The specific mention of supplies in Subparagraphs (a), (b),
and (e) was clearly intended to exclude
therefrom materials and equipment, and the specific mention
of materials in subparagraph (c) was likewise intended to
exclude supplies and equipment. Expressio unius est exclusio alterius.

Elsewise stated, the Executive Order leaves no room for a construction

that confuses supplies with materials or equipment or either of the last
two with the first or with each other. According to Sutherland: 29

It is an elementary rule of construction that effect must be given, if

possible, to every word, clause and sentence of a statute. A statute
should be construed so that effect is given to all its provisions, so
that no part will be inoperative or superfluous, void or
insignificant, and so that one section will not destroy another
unless the provision is the result of obvious mistake or error.

In a last-ditch effort to save the ELA, the DOJ opined that the subject
ELA could be deemed as an agreement for furnishing supplies and, in
support thereof, cited United States Rubber Co. vs. Washington Eng'g.
Co. 30 wherein it was allegedly held that in a lease of equipment, the
rental value of machinery hired by the contractor for use in carrying on
work was the use of the machinery and not the machinery itself. The
DOJ opinion is outlandish, as the case it cited did not make the
attributed pronouncement. It must have miscomprehended or
misappreciated the ruling in United States Rubber Co. . The said
pronouncement is found in Hurley-Mason Co. vs. American Bonding
Co., 31 which was cited by the appellant in the United States Rubber Co.
case, and which the court did not, in fact, accept. Thus, the court stated:
 But the appellant cites as supporting its contention the case of
Hurley-Mason Co. v. American Bonding Co., 79 Wash. 564, 140
Pac. 575, to which may be added the more recent case of National
Lumber & Box Co. v. Title Guaranty & Surety Co., 149 Pac. 16,
which hold that the rental value of machinery hired by the
contractor for use in carrying on work within the terms of the
contract is recoverable from the bondsman as a supply furnished
the contractor. These cases proceed on the theory that it was the
use of the machinery that was consumed in the work, not the
machinery itself, and that this use being distinguishable from the
machinery could be recovered for against the bondsman as a
supply. If this distinction is sound, then the cases are in line with
the other cases cited, as such "use" was necessarily consumed in
carrying on the work. The appellant argues, however, that the
distinction is not sound; that there is no just ground for holding
that one who rents to a contractor the tools and working
appliances necessary for the prosecution of a particular work may
have recovery against the contractor's bondsmen for the rental
value of the articles furnished, while one who sells the contractor
the same character of articles on credit has no claim against the
bondsmen for any part of the purchase price. But, if this be true,
and it be true that the contractor's working equipment is not to be
deemed a supply, it argues that the decisions cited are erroneous,
rather than that the appellant's goods fall within the meaning of
the term "supplies."

On the contrary, United States Rubber Co. explicitly

distinguished supplies from equipment, thus:

So construing the statute, the definitions of "equipment" and

"supply" coincide, and a certain and natural dividing line is found
between them. A "supply" would be any article furnished for
carrying on the work which from its nature is necessarily
consumed by use in the work, while "equipment" would consist of
those articles that are not necessarily so consumed, but which
may survive the particular work and be further used on work of
like character. In this view also the question actually decided in
the case of National Surety Co. v. Bratnober Lumber Co.
harmonizes with the other cases cited, since coal, like powder and
other explosives, and like electricity used for power and other
forms of energy used for the same purpose, is necessarily
consumed by its use, and cannot survive for like uses in a similar
character of work.
 Tested by these rules, it is plain that the articles furnished by the
appellant are not supplies, but are a part of the contractor's
equipment. While they were actually worn out by use in carrying
on the work, they were not articles of such a nature as to be
necessarily consumed by such use, and might have survived, had
their use therein been of less duration, for use in subsequent work
of like character.

Besides, subparagraph (e) of Section 1 unequivocally refers to a contract

of purchase of supplies. The ELA in question is not a contract of
purchase of supplies. The parties themselves proclaim to the whole world
and solemnly represent to this Court that it is a contract of lease of
equipment. They titled it, in bold big letters, "EQUIPMENT LEASE
AGREEMENT," and devote the first clause thereof to EQUIPMENT.
Accordingly, since the ELA is not a contract of purchase of supplies, we
are unable to understand why the DOJ applied Section 1(e) of E.O. No.
301 to exempt the ELA from the public-bidding requirement.

The submission of the petitioners that the ELA violates paragraph 4.3 of
the COA Rules and Regulations for the Prevention of Irregular,
Unnecessary, Excessive, and Extravagant Expenditures is not
persuasive. The said paragraph covers Lease Purchase contracts. It
reads:

4.3 LEASE PURCHASE

The national government may enter into agreement for

the lease purchase of equipment subject to public
bidding, the approval of the Office of the Management,
and to other pertinent accounting and auditing
religions. Details of the payments shall be indicated in
the lease purchase agreement and accompanied with a
certification of availability of equipment outlay
authorized for the agency to cover the full contract
cost. The lease purchase agreement may be entered
into only for specialized equipment such as
typewriters, adding machines and automobiles, the
purchase price of which is at least P50,000.00. All
lease purchase agreement of equipment the total value
of which exceeds P200,000.00 shall be subject to the
approval of the President. Corporations/local
governments may adopt the mechanisms of these
lease-purchase agreement subject to the approval of
their legislative or governing boards.
The ELA in question hardly qualifies as a lease purchase contract
because there is no perfected agreement to purchase (sale) but only an
option on the part of PCSO to purchase the equipment for P25 million. It
is, in fact, an option which is not supported by a separate and distinct
consideration, hence, not really binding upon the PGMC.

An optional contract is a privilege existing in one person, for which he

had paid a consideration, which gives him the right to buy certain
specified property from another person, if he choses, at any time within
the agreed period, at a fixed price. Said contract is separate and distinct
contract from the contract which the parties may enter into upon the
consummation of the option. 32 The second paragraph of Article 1479 of
the Civil Code expressly provides that "[an accepted unilateral promise to
buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from
the price."

C. A comparison between the nullified contract and the assailed ELA to

prove that the latter is grossly disadvantageous to the PCSO is not at all
hampered by any perceived difficulty. As to the almost unrestricted
benefits and advantages which the PCSO were supposed to obtain under
the former, the following findings of this Court in the first lotto case bind
the parties:

The contemporaneous acts of the PCSO and the PGMC reveal that
the PCSO had neither funds of its own nor the expertise to operate
and manage an on-line lottery system, and that although it wished
to have the system, it would have it "at no expense or risks to the
government." Because of these serious constraints and
unwillingness to bear expenses and assume risks, the PCSO was
candid enough to state in its RFP that it is seeking for "a suitable
contractor which shall build, at its own expense, all the facilities
needed to operate and maintain" the system; exclusively bear "all
capital, operating expenses and expansion expenses and risks";
and submit a comprehensive nationwide lottery development plan .
. . which will include the game, the marketing of the games, and
the logistics to introduce the game to all the cities and
municipalities of the country within five (5) years"; and that the
operation of the on-line lottery system should be "at no expense or
risk to the government" — meaning itself, since it is a government-
owned and controlled agency. The facilities referred to means "all
capital equipment, computers, terminals, software, nationwide
telecommunications network, ticket sales offices, furnishings and
fixtures, printing costs, costs of salaries and wages, advertising
and promotions expenses, maintenance costs, expansion and
replacement costs, security and insurance, and all other related
expenses needed to operate a nationwide on-line lottery system."

In short, the only contribution the PCSO would have is its

franchise or authority to operate the on-line lottery system; with
the rest, including the risks of the business, being borne by the
proponent or bidder. It could be for this reason that it warned that
"the proponent must be able to stand to the acid test of proving
that it is an entity able to take on the role of responsible
maintainer of the on-line lottery system." The PCSO, however,
makes it clear in its RFP that the proponent can propose a period
of the contract which shall not exceed fifteen years, during which
time it is assured of a "rental" which shall not exceed 12% of gross
receipts. As admitted by the PGMC, upon learning of the PCSO's
decision, the Berjaya Group Berhad, with its affiliates, wanted to
offer its services and resources to the PCSO. Forthwith, it
organized the PGMC as "a medium through which the technical
and management services required for the project would be offered
and delivered to PCSO."

Undoubtedly, then, the Berjaya Group Berhad knew all along that
in connection with an on-line lottery system, the PCSO had
nothing but its franchise, which it solemnly guaranteed it had in
the General Information of the RFP. Howsoever viewed then, from
the very inception, the, PCSO and the PGMC mutually understood
that any arrangement between them would necessarily leave to the
PGMC the technical, operations, and management aspects of the
on-line lottery system while the PCSO would, primarily, provide the
franchise. The words Gaming and Management in the corporate
name of respondent Philippine Gaming Management Corporation
could not have been conceived just for euphemistic purposes. Of
course, the RFP cannot substitute for the Contract of Lease which
was subsequently executed by the PCSO and the PGMC.
Nevertheless, the Contract of Lease incorporates their intention
and understanding.

xxx xxx xxx

Consistent with the above observations on the RFP, the PCSO has
only its franchise to offer, while the PGMC represents and warrants
that it has access to all managerial and technical expertise to
promptly and effectively carry out the terms of the contract. And,
for the period of eight years, the PGMC is under obligation to keep
all the Facilities in safe condition and if necessary, upgrade,
replace, and improve them from time to time as new technology
 develops to make the on-line lottery system more cost-effective and
competitive; exclusively bear all costs and expenses relating to the
printing, manpower, salaries and wages, advertising and
promotion, maintenance, expansion and replacement, security and
insurance, and all other related expenses needed to operate the
on-line lottery system; undertake a positive advertising and
promotions campaign for both institutional and product lines
without engaging in negative advertising against other lessors; bear
the salaries and related costs of skilled and qualified personnel for
administrative and technical operations; comply with procedural
and coordinating rules issued by the PCSO; and to train PCSO and
other local personnel and to effect the transfer of technology and
other expertise, such that at the end of the term of the contract,
the PCSO will be able to effectively take over the Facilities and
efficiently operate the on-line lottery system. The latter simply
means that indeed, the managers, technicians or employees who
shall operate the on-line lottery system are not managers,
technicians or employees of the PCSO, but of the PGMC and that it
is only after the expiration of the contract that the PCSO will
operate the system. After eight years, the PCSO would
automatically become the owner of the Facilities without any other
further consideration.

For all the above representations, duties, obligations, and

responsibilities, as well as the automatic loss of its ownership over the
facilities without any further consideration in favor of the PCSO after the
expiration of only eight years, the PGMC gets only a so-called rental of
4.9% of gross receipts from ticket sales, payable net of taxes required by
law to be withheld, which may, however, be drastically reduced, or in
extreme cases, totally obliterated because the PGMC bears "all risks if
the revenue from ticket sales, on an annualized basis, are insufficient to
pay the entire prize money."

Under the assailed ELA, however, the PGMC is entitled to receive a

flexible rental equivalent to 4.3% of the gross ticket sales (or only 0.6%
lower than it was entitled to under the old contract) for the use of its on-
line lottery system equipment (as distinguished from facilities in the old
contract), which does not anymore include the nationwide
telecommunications network, without any assumption of business risks
and the obligations (1) to keep the facilities in safe condition and if
necessary, to upgrade, replace, and improve them from time to time as
technology develops, and bear all expenses relating thereto; (2) to
undertake advertising and promotions campaign; (3) to bear all taxes,
amusements, or other charges imposed on the activities covered by the
contract; (4) to pay the premiums for third party or comprehensive
insurance on the facilities: (5) to pay all expenses for water, light, fuel,
lubricants, electric power, gas, and other utilities used and necessary for
the operation of the facilities; and to pay the salaries and related costs of
skilled and qualified personnel for administrative and technical
operations and maintenance crew. The PGMC is also given thereunder a
special privilege of receiving P25 million as purchase price for the
equipment at the expiration of eight years should the PCSO exercise its
option to purchase.

Unlike in the old contract where nothing may at all be due the PGMC in
the event that the ticket sales, computed on an annual basis, are
insufficient to pay the entire prize money, under the new ELA the PCSO
is under obligation to pay rental equivalent to 4.3% of the gross receipts
from ticket sales, the aggregate amount of which per year should not be
less than the minimum annual rental of P35,000.00 per terminal in
commercial operation. Any shortfall shall be paid out of the proceeds of
the then current ticket sales after payment of prizes and agents'
commissions but prior to any other payments, allocations, or
disbursements. The grossness of the disadvantage to the PCSO is all too
obvious and why the PCSO accepted such unreasonable,
unconscionable, and inequitable terms and conditions confounds us.

The majority opinion, however, glosses over these considerations because

it believes that the determination of the issue of gross disadvantage
should not be done through a comparison of the first lotto contract and
the ELA in question.

It says:

Indeed the question is not whether compared with the former joint
venture agreement the present lease contract is "[more]
advantageous to the government." The question is whether under
the circumstances, the ELA is the most advantageous contract that
could be obtained compared with similar lease agreements which
the PCSO could have made with the other parties.

It then concludes:

Petitioners have not shown that more favorable terms could have
been obtained by the PCSO or that at any rate the ELA, which the
PCSO concluded with the PGMC, is disadvantageous to the
government.

That postulation is flawed. It forgets that no other contract proposed by

other parties were available for comparison precisely because no public
 bidding was conducted. To demand a comparison with non-existing
contracts would be unreasonable.

The challenged ELA must then be declared void for the following reasons:
(1) it is a joint venture contract prohibited under the exception in
paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42; (2)
it was entered into without the mandatory public bidding; and (3) it is
grossly disadvantageous to the PCSO and, ultimately, the Government.

I therefore vote to GRANT the instant petition and to declare VOID and
INVALID the challenged EQUIPMENT LEASE AGREEMENT (ELA) entered
into between the public respondent Philippine Charity Sweepstakes
Office (PCSO) and the private respondent Philippine Gaming
Management Corporation (PGMC).

Romero and Bellosillo, JJ., concur.

Footnotes

1 The doctrine of "conclusiveness of judgment" is also called

"collateral estoppel" or "preclusion of issues," as
distinguished from "preclusion of claims" or res judicata. In
the Rules of Court, the first (conclusiveness of judgment,
collateral estoppel or preclusion of issues) is governed by
Rule 39, § 49(c), while the second (res judicata or preclusion
of claims) is found in Rule 39, §49(b).

2 2 RECORD OF THE BATASAN, Sept. 6, 1979. 1006-07.

(Emphasis added)

FELICIANO, J., dissenting:

1 Kilosbayan, Inc., et al. v. Teofisto Guingona, etc., et al.,

232 SCRA 110, at 153 (1994).

2 Opening paragraph, Section 1, Revised PCSO charter.

3 The majority opinion contends as follows:

". . . . Had it been [the legislators'] intention to prohibit

the PCSO from entering into any collaboration,
association or joint venture with others even in
instances when the sweepstakes races, lotteries or
similar activities are operated by it ('itself'), they would
have made the amendment not in par. (B), but in par.
(A), of §1, as the logical place for the amendment."
In the very next page, the majority opinion quotes then
Assemblyman Davide, Jr.:

"MR. DAVIDE: May I introduce an amendment to the

committee amendment? The amendment would be to
insert after 'foreign' in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A)
ABOVE.

When it is a joint venture or in collaboration with any

other entity such collaboration or joint venture must not
include activity letter (a) which is the holding and
conducting of sweepstakes races, lotteries and other
similar acts." (Emphases supplied)

It is submitted that Assemblyman Davide's statement is

entirely clear and captures the essence of the amendment he
offered with such economy of words.

4 See, e.g., Beltran v. PAIC Finance Corporation, 209 SCRA

105 (1992); Investors Finance Corporation v. Court of
Appeals, 193 SCRA 701 (1991).

5 The majority also seek to bolster the second proposition by

what is essentially an argumentum ad absurdum. Should
rescue operations after a calamity like an earthquake require
the use of heavy equipment, there is no law that requires the
government to go (with or without a public bidding) shopping
for equipment first before commencing such rescue
operations. As a practical matter, the government (through,
e.g., the Department of Public Works and Highways) would
simply order its own equipment to be brought forthwith to
the scene of the disaster. Or the government may resort to
the "requisition" or the temporary expropriation of the use of
personal property, i.e., heavy equipment, and thereafter pay
compensation for such use.

6 Such an interest on the part of the lessor would, for

instance constitute an "insurable interest" in the business or
revenue flow of the lessee so as to enable the lessor to take
out insurance against the occurrence of the risks adversely
affecting such business or revenue flow. As to the breadth
and amplitude of the concept of "insurable interest," see,
e.g., Key ex rel Heaton v. Continental Insurance Company,
74 S.W. 162, 165 (1903); Fenter v. General Accident Fire and
Life Assurance Corporation, 484 P. 2d 310 (1971); Leggio v.
Millers National Insurance Co., 398 S.W. 2d 607 (1965); Bird
v. Central Manufacturers Mut. Ins. Co., 120 P. 2d 753
(1942); Smith v. Eagle Star Insurance Co., 370 S.W. 2d 448
(1963).

7 During the oral hearing of this case, at least one Member

of the Court requested counsel for PGMC to enlighten the
Court as to the structure of the rental provisions, that is to
say, to indicate to the Court the factors or kinds of factors
deemed relevant in setting the percentage figure constituting
the rental rate. (TSN, 3 March 1995, pp. 47-57) No useful
information was furnished to the Court either during the
hearing or in the pleadings filed thereafter. There has also
been no showing of how the percentage rate and structure of
the rental provisions of ELA compare with the rental
provisions in comparable contracts in other parts of the
world.

REGALADO, J., dissenting:

1 Kilosbayan, Inc., et al. vs. Guingona Jr., etc., et al., G. R.

No. 113375, May 5, 1994, 232 SCRA 110.

2 Lim, etc., et al. vs. Pacquing, etc., et al., G.R. No. 115044,
and Guingona, Jr., et al. vs. Reyes, et al., G.R. No. 117263,
jointly decided on January 27, 1995.

3 G.R. No. 114222, April 6, 1995.

4 People vs. Medina, Cal., Cal. Rptr. 630, 635, 492 P.2d 686,
cited in Black's Law Dictionary, 6th ed., 887.

5 White vs. Higgins, C.C.A. Mass., 116 F.2d 312; Fleming vs.
Campbell, 148 Kan. 516, 83 P.2d 708.

6 Atchison, T. & S.F. Ry. Co. vs. Railroad Comm. of

California, 209 Cal. 460, 288 P. 775.

7 Goodkind vs. Wolkowsky, 147 Fla. 415, 2 So. 2d 723;

Atlantic Coast Line R. Co. vs. Sperry Flour Co., 63 Ga. App.
611, 11 S.E. 2d 809.

8 Oglethorpe University vs. City of Atlanta, 180 Ga. 152, 178

S.E. 156.
9 59 Am. Jur. 2d, Parties, 429, citing State vs. Estate of
Frankel, 94 Misc. 2d 105, 404 NYS2d 954.

10 Citing Friedenthal, Kane and Miller, Civil Procedure,

Hornbook Series, 1985 ed., 328.

11 Since this is a Philippine case, I am using the term "res

judicata" and, hereafter, "conclusiveness of judgment" in the
Philippine setting and as understood in our jurisdiction. The
importation of the alluring but variegated concepts thereof in
American law for application in this case would compound
the confusion, especially if considered along with the rule on
collateral estoppel, whether by judgment or verdict, as
understood in U.S. procedural law.

12 Kilosbayan, Inc., et al. vs. Executive Secretary, et al., G.R.

No. 115781, August 25, 1994, 235 SCRA 630.

DAVIDE, JR., J., dissenting:

1 G.R. No. 113375, 5 May 1994. Reported in 232 SCRA 110.

2 Rollo, G.R. No. 113375, vol. I, 508.

3 G.R. 114222.

4 Vol. Two, 993; 1006-1007.

5 Those in brackets are in footnotes in the first lotto case.

6 Same as indicated in footnote no. 5.

7 Zarate vs. Director of Lands, 39 Phil. 747, 749

[1919], citing American cases. See also Fernando vs.
Crisostomo, 90 Phil. 585 [1951]; Padilla vs. Paterno, 93 Phil.
884 [1953]; People vs. Penuila, 103 Phil. 992 [1958];
Kabigting vs. Director of Prisons, 6 SCRA 281 [1962]; People
vs. Olarte, 19 SCRA 494 [1967]; Ramos vs. Intermediate
Appellate Court, 171 SCRA 93 [1989].

8 440 U.S. 147, 162, 59 L.Ed., 2d 210, 222 [1979].

9 A.C. FREEMAN, A Treatise on the law of Judgments by

Edward W. Tuttle, vol. 2 [1925 ed.], § 630, 1329.
10 Caltex (Phils.), Inc. vs. Palomar, 18 SCRA 247 [1966]. See
also Floresca vs. Philex Mining Corp., 136 SCRA 141 [1985];
Philippine Constitution Association vs. Enriquez, 235 SCRA
506 [1994].

11 46 Am Jur 2d Judgments § 396, 563.

12 46 Am Jur 2d Judgments § 395, 559-562.

13 JACK H. FRIEDENTHAL, MARY KAY KANE, and ARTHUR

R. MILLER, Civil Procedure, 328 [1985].

14 JOHN J. COUND, JACK H. FRIEDENTHAL, and ARTHUR

R. MILLER, Civil Procedure, Cases and Materials, 523
[1980].

15 43 SCRA 677 [1972]. See also Macasiano vs. NHA, 224

SCRA 236 [1993].

16 62 SCRA 275, 308 [1975]. Those in brackets appear in

footnotes.

17 Annex "1" to Memorandum for the public

respondents; Rollo, 431.

18 Annex "2" to Memorandum for the public

respondents; Rollo, 432.

19 Annex "B" of Petition; Rollo, 48 et seq.

20 Comment of the PGMC, 4; Rollo, 206.

21 Comment of the public respondents, 9-10; Id., 254-55.

22 TSN, Oral Arguments of 3 March 1995, 60-62.

23 Rollo, 68-69.

24 Clause 1.

25 232 SCRA 110, 146 [1994].

26 BARTOLOME C. FERNANDEZ, A Treaties on Government

Contracts Under Philippine Law, Revised ed. [1991], 25.

27 Promulgated on 12 August 1940.

28 Promulgated on 26 July 1987.

29 FRANK E. HORACK, JR., Statutes and Statutory

Construction by J.G. Sutherland, vol. 2 [1943 ed.] 339.

30 86 Wash 180, 149 Pac. 706.

31 79 Wash. 564, 140 Pac. 575.

32 Enriquez de la Cavada vs. Diaz, 37 Phil. 982 [1918].