KILOSBAYAN V GUINGONA

FACTS:
PCSO, pursuant to Section 1 of RA 1169 (PCSO Charter), decided to establish an on-line lottery
system for the purpose of increasing its revenue base and diversifying its sources of funds.
Sometime before March 1993, Berjaya Group Berhad or BGB (multinational company with partners
in America) became interested to offer its services and resources to PCSO.
In March 1993, BGB organized with some Filipino investors a Philippine corporation known as the
Philippine Gaming Management Corporation (PGMC), which was intended to be the medium through which
the technical and management services required for the project would be offered and delivered to PCSO.
(take note of this)
Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the Lease
Contract of an on-line lottery system for the PCSO:

1.2 PSCO is seeking a suitable contractor which shall build, at its own expense, all the Facilities needed to
operate and maintain a nationwide online lottery system. PCSO shall lease the Facilities for a fixed
percentage of quarterly gross receipts. All receipts from ticket sales shall be turned over directly to PCSO. All
capital, operating expenses and expansion expenses and risks shall be for the exclusive account of the
Lessor.

(Contract of Lease which was granted later on) **FACILITIES: All capital equipment, computers, terminals,
software (including source codes for the online lottery application software for the terminals,
telecommunications, and central system), technology, intellectual property rights, telecommunication
networks, furnishing and fixtures

As for the citizenship requirement of the Constitution. PGMC claims that BGB undertook to sell
35% out of its original 75% foreign stockholdings to local investors. (60% should be Filipino-owned
requirement).
On August 15, 1993, PGMC submitted its bid to the PCSO (upon evaluation and submission to the
President, it was preceded by complaints by the Committee Chairperson Dr. de Talavera) and 2 months
after, the Office of the President announced that it had given respondent PGMC the go-signal to operate
provided the Contract would be submitted not later than November 8, 1993 for final clearance and approval
by Chief Executive. It was thereafter published in Manila Standard, Philippine Daily Inquirer, and Manila
Times on October 29, 1993.
On November 4, 1993, KILOSBAYAN (composed of civic-spirited citizens, pastors, priests, nuns,
and lay leaders who are committed to the cause of truth, justice, and national renewal) sent an open letter
to President Fidel V. Ramos strongly opposing the setting up of the online lottery system on the basis of
serious moral and ethical considerations
On November 19, 1993, the media reported that despite the opposition, “Malacañang will push
through with the operation of an online lottery system nationwide” and that it is actually the respondent
PCSO which will operate the lottery while the winning corporation (PGMC) are mere lessors.
On December 1, 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery
award from Executive Secretary Teofisto Guingona Jr, which in his response he will transmit before the end
of the month. On the same date, an agreement of **Contract of Lease was finally executed by respondent
PCSO and PGMC.
On January 28, 1994, KILOSBAYAN together with its co-petitioners filed a petition of special civil
action for prohibition and injunction, with a prayer for temporary restraining order and preliminary injunction,
which seeks to prohibit and restrain the implementation of Contract of Lease:

a) Under Section 1 of the Charter of PCSO, it is prohibited from holding and conducting Lotteries “in
collaboration, association or joint venture with any person, association, company or entity
b) Under Act No. 3846 and established jurisprudence, a Congressional franchise is required before any person
may be allowed to establish and operate said telecommunication system
c) Under Section 11, Article XII of the Constitution, a less than 60% Fiilipino-owned and/or controlled
corporation, like PGMC is disqualified from operating a public service, like the said telecommunications system
d) Respondent PGMC is not authorized by its charter and under Foreign Investment Act RA 7042 to install.
Establish and operate the online lotto and telecommunications systems
 Respondents filed a Comment on the petition stating:

1) It is merely an independent contractor for a piece of work (i.e., the building and maintenance of a lottery
system to be used by PCSO in operation of its lottery franchise w PCSO)
2) PGMC is not a co-operator of the lottery franchise with PCSO, nor is PCSO sharing its franchise ‘in
collaboration, association or joint venture’ with PGMC’ – as such statutory limitation viewed from the context,
intent, and spirit of RA 1169
 It claims that it is neither engaged in gambling nor public service relative to the telecommunications
network, which the petitioners even consider as an indispensable requirement of an online lottery
system
3) It states that the execution and implementation of the contract does not violate the Constitution and the
laws, that the issue is on the morality of the lottery franchise granted to PCSO is political and not judicial or
legal
4) Petitioners do not have a legal standing or real interest on the subject contract and in obtaining reliefs
sought for
5) Guingona Jr., Corona, and PCSO: the contract of lease in question does not violate Sec. 1 of RA 1169 and
that the petitioner’s interpretation of the phrase “in collaboration, association, or joint venture” is much too
narrow, strained, and devoid of logic. It ignores the reality that PCSO, as a corporate entity is vested with the
basic and essential prerogative to enter into all kinds of transactions or contracts as may be necessary to
attain its purpose and objectives
6) Establishment of telecommunications system does not require congressional franchise because PGMC will
not operate a public utility

ISSUE:
1. Do the petitioners have legal standing? (Procedural issue) – YES
2. Does the challenged Contract of Lease violate or contravene the exception in Section 1 of RA
1169, as amended by BP Blg. 42, which prohibits the PCSO from holding and conducting lotteries
“in collaboration, association or joint venture” with another? (Substantive issue) – YES

RULING:
1. YES. The petitioners have locus standi or legal standing. Seven Justices voted to sustain
the locus standi of the petitioners, while six voted not to.
A party’s standing before the Court is a procedural technicality, which it may, in the exercise of its
discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers
Cases, this Court has brushed aside technicality because the transcendental importance to the public
of these cases demands that they be settled promptly and definitely, brushing aside technicalities
of procedure.
Insofar as taxpayers’ suit are concerned, this Court had declared that it is not devoid of discretion
as to whether or not it should be entertained. It enjoys an open discretion to entertain the same or not:
 De La Llana v Alba – GR: A person who impugns the validity of the statue must have a
personal and substantial interest in the case such that he has sustained, or will sustain,
direct injury as a result of its enforcement
 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc v Tan and Basco v
Philippine Amusement and Gaming Corporation – Objection to taxpayers’ suit for lack of
personality are, however, the main procedural matters. Considering the importance to the
public of the cases at bar, and in keeping with the Court’s duty, this Court has brushed
aside technicalities of procedure…
 Association of Small Land Owners in the Philippines, Inc. v Secretary of Agrarian Reform
- …it is within the wide discretion of the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious constitutional questions raised.
- The Court dismissed the objective that even though they were invoking only an indirect
and general interest shared with the public, that they were not proper parties. It ruled
that transcendental importance to the public of these cases demands that they
be settled promptly and definitely, brushing aside, if we must, technicalities of
procedure.
 The court finds the petition to be of transcendental importance to the public. The issue raised
are of paramount public interest and of a category even higher than those involved in many of the
aforecited cases. It affects the social, economic, and moral well-being of the people even in the
remote barangays of the country and the counter-productive and retrogressive effects of the online
lottery are as staggering as the billions in pesos it is expected to raise. The legal standing then of
the petitioners deserves recognition.

2. YES. It violated the exception stated in Section 1, RA 1169.

"Sec. 1. The Philippine Charity Sweepstakes O6ce. — The Philippine Charity Sweepstakes O6ce, hereinafter
designated the O6ce, 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.

The language is clear that with respect to its 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. 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. 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.
Whether the contract in question is one of lease or whether the PGMC is merely an independent
contractor should not be decided on the basis of the title or designation of the contract but by the intent of
the parties, which may be gathered from the provisions of the contract itself. Animus hominis est anima
scripti. The intention of the party is the soul of the instrument. In order to give life or effect to an instrument,
it is essential to look to the intention of the individual who executed it.
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 a period of eight years, the PGMC is under
obligation to keep all the Facilities in the 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 e6ciently
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. IT IS INDEED A JOINT VENTURE AND NOT MERELY A LEASE.