Primary Holding

The Supreme Court granted the petition and declared the Contract of Lease between PCSO and PGMC invalid, holding that it contravenes Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.

Background

PCSO decided to establish an on-line lottery system to increase revenue, leading to a Request for Proposal (RFP). PGMC was formed by the Berjaya Group Berhad to bid on the project. The resulting contract was challenged by Kilosbayan, Inc. and others.

Facts

• 1. PCSO sought a contractor to build and maintain a nationwide on-line lottery system at the contractor's expense.
• 2. The contractor would lease the facilities to PCSO for a percentage of gross receipts.
• 3. PGMC, a corporation with initial foreign ownership, won the bid.
• 4. The Contract of Lease stipulated that PGMC would build and maintain the facilities, while PCSO would operate the lottery.
• 5. The rental fee was set at 4.9% of gross receipts.
• 6. The lease period was for eight years, after which the facilities would belong to PCSO.
• 7. PGMC was required to establish a telecommunications network.

Arguments of the Petitioners

• 1. The Contract of Lease violates Section 1 of the PCSO charter, which prohibits collaboration, association, or joint venture in conducting lotteries.
• 2. PGMC lacks a congressional franchise to operate the telecommunications system required by the contract.
• 3. PGMC, with its foreign ownership, is disqualified from operating a public service like the telecommunications system under the Constitution.
• 4. PGMC's charter and the Foreign Investments Act do not authorize it to operate the on-line lotto and telecommunications systems.

Arguments of the Respondents

• 1. The Contract of Lease does not violate Section 1 of the PCSO charter, as PGMC is merely a lessor of facilities, not a collaborator in operating the lottery.
• 2. The establishment of the telecommunications system does not require a congressional franchise because PGMC will not operate a public utility for business purposes.
• 3. The contract does not violate the Foreign Investment Act.
• 4. The petitioners lack legal standing to bring the suit.
• 5. The issues of wisdom, morality and propriety of acts of the executive department are beyond the ambit of judicial review.

Issues

• 1. Do the petitioners have locus standi to file the petition?
• 2. Is the Contract of Lease in violation of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits PCSO from holding lotteries "in collaboration, association or joint venture" with another entity?

Ruling

• 1. The Court held that the petitioners have locus standi, exercising its discretion to set aside procedural technicalities due to the importance of the issues raised.
• 2. The Court ruled that the Contract of Lease violates Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, because it constitutes a prohibited collaboration, association, or joint venture between PCSO and PGMC. The Court looked beyond the contract's title to the actual intent of the parties.

Doctrines

• 1. Locus Standi: The right of a party to bring a case before the court. The Court relaxed this requirement due to the transcendental importance of the issues.
• 2. Strict Construction of Franchises: Grants of rights, privileges, and franchises by the government are to be taken most strongly against the grantee.
• 3. Animus Hominis Est Anima Scripti: The intention of the party is the soul of the instrument.
• 4. Taxpayer's Suit: The case involves public funds, thus granting taxpayers standing to sue.

Key Excerpts

• 1. "The transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure."
• 2. "Animus hominis est anima scripti. The intention of the party is the soul of the instrument."
• 3. "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."

Precedents Cited

• 1. Emergency Powers Cases (Araneta vs. Dinglasan): Used to justify brushing aside technicalities due to the importance of the issues.
• 2. People vs. Vera: Cited regarding the requirement that a person impugning a statute must have a personal and substantial interest.
• 3. Pascual vs. Secretary of Public Works: Cited regarding the concept of taxpayer's suits.
• 4. Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform: Cited regarding the Court's discretion to waive the requirement of a proper party.
• 5. Daza vs. Singson: Reiterated the principle that serious constitutional questions warrant setting aside procedural technicalities.
• 6. United States vs. Federal Power Commission: The Federal Supreme Court of the United States also expressed its discretionary power to liberalize the rule on locus standi.
• 7. Aquino vs. Commission on Elections: The Court resolved to pass upon the issues raised because of the far-reaching implications of the petition despite ruling that the petitioners therein had no personality to file the petition.
• 8. De Guia vs. COMELEC: The Court brushed aside the procedural infirmity "considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent" despite declaring that the petitioner does not appear to have locus standi.

Statutory and Constitutional Provisions

• 1. R.A. No. 1169, Section 1 (PCSO Charter): Prohibits PCSO from holding lotteries in collaboration with other entities.
• 2. B.P. Blg. 42: Amended R.A. No. 1169.
• 3. Act No. 3846: Requires a Congressional franchise for operating a telecommunications system.
• 4. 1987 Constitution, Article XII, Section 11: Restricts foreign ownership in public utilities.
• 5. R.A. No. 7042 (Foreign Investments Act): Limits foreign capital in certain activities.
• 6. Civil Code, Article 1371: Rules for interpreting contracts and determining the intention of the contracting parties.