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G.R. No. 113375 May 5, 1994

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, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, and REP. JOKER P.ARROYO, petitioners,vs.

TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President; RENATO CORONA, in his capacity asAssistant Executive Secretary and Chairman of the Presidential review Committee on the Lotto, Office of the President;PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and PHILIPPINE GAMING MANAGEMENT CORPORATION, respondents.

DAVIDE, JR.,J.:

This is a special civil action for prohibition and injunction, with a prayer for a temporary restraining order and preliminaryinjunction, which seeks to prohibit and restrain the implementation of the "Contract of Lease" executed by the Philippine Charity

Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation (PGMC) in connection with the on- line lottery

system, also known as "lotto."

Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock domestic corporation composed of civic-spirited

citizens, pastors, priests, nuns, and lay leaders who are committed to the cause of truth, justice, and national renewal. The rest of

the petitioners, except Senators Freddie Webb and Wigberto Taada and Representative Joker P. Arroyo, are suing in their

capacities as members of the Board of Trustees o f KILOSBAYAN and as taxpayers and concerned citizens. Senators Webb and

Taada and Representative Arroyo are suing in their capacities as members of Congress and as taxpayers and concerned citizens

of the Philippines.

The pleadings of the parties disclose the factual antecedents which triggered off the filing of this petition.

Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the authority to hold

and conduct "charity sweepstakes races, lotteries and other similar activities," the PCSO decided to establish an on- line lottery

system for the purpose of increasing its revenue base and diversifying its sources of funds. Sometime before March 1993, after

learning that the PCSO was interested in operating an on-line lottery system, the Berjaya Group Berhad, "a multinational companyand one of the ten largest public companies in Malaysia," long "engaged in, among others, successful lottery operations in Asia,

running both Lotto and Digit games, thru its subsidiary, Sports Toto Malaysia," with its "affiliate, the International Totalizator

Systems, Inc., . . . an American public company engaged in the international sale or provision of computer systems, softwares,

terminals, training and other technical services to the gaming industry," "became interested to offer its services and resources to

PCSO." As an initial step, Berjaya Group Berhad (through its in dividual nominees) organized with some Filipino investors in March

1993 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."1

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.2Relevant provisions of the RFP are the following:

1. EXECUTIVE SUMMARY

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1.2. PCSO is seeking a suitable contractor which shall build, at its own expense, all the facilities ('Facilities') needed to ope

maintain a nationwide on-line lottery system. PCSO shall lease the Facilities for a fixed percentage ofquarterly gross recei

receipts from ticket sales shall be turned over directly to PCSO. All capital, operating expenses and expansion expenses an

shall be for the exclusive account of the Lessor.

xxx xxx xxx

1.4. The lease shall be for a period not exceeding fifteen (15) years.

1.5. The Lessor is expected to submit a comprehensive nationwide lottery development plan ("Development Plan") which

include the game, the marketing of the games, and the logistics to introduce the games to all the cities and municipalities

country within five (5) years.

xxx xxx xxx

1.7. The Lessor shall be sel ected based on its technical expertise, hardware and software capability, maintenance support

financial resources. The Development Plan shall have a substantial bearing on the choice of the Lessor. The Lessor shall be

domestic corporation, with at least sixty percent (60%) of i ts shares owned by Filipino s hareholders.

xxx xxx xxx

The Office of the President, the National Disaster Control Coordinating Council, the Philippine National Police, and the Na

Bureau of Investigation shall be authorized to use the nationwide telecommunications system of the Facilities Free of Cha

1.8. Upon expiration of the lease, the Facilities shall be owned by PCSO without any additional consideration.3

xxx xxx xxx

2.2. OBJECTIVES

The objectives of PCSO in leasing the Facilities from a private entity are as follows:

xxx xxx xxx

2.2.2. Enable PCSO to operate a nationwide on-line Lottery system at no expense or risk to the government.

xxx xxx xxx

2.4. DUTIES AND RESPONSIBILITIES OF THE LESSOR

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2.4.2. THE LESSOR


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The Proponent is expected to furnish and maintain the Facilities, including the personnel needed to operate the computers, the

communications network and sales offices under a build-lease basis. The printing of tickets shall be undertaken under the

supervision and control of PCSO. The Facilities shall enable PCSO to computerize the entire gaming system.

The Proponent is expected to formulate and design consumer-oriented Master Games Plan suited to the marketplace, especially

geared to Filipino gaming habits and preferences. In addition, the Master Games Plan is expected to include a Product Plan for

each game and explain how each will be introduced into the market. This will be an integral part of the Development Plan which

PCSO will require from the Proponent.

xxx xxx xxx

The Proponent is expected to provide upgrades to modernize the entire gaming system over the life ofthe lease contract.

The Proponent is expected to provide technology transfer to PCSO technical personnel. 4

7. GENERAL GUIDELINES FOR PROPONENTS

xxx xxx xxx

Finally, the Proponent must be able to stand 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, and able to achieve PSCO's goal of formalizing an on-line lottery system to achieve its

mandated objective.5

xxx xxx xxx

16. DEFINITION OF TERMS

Facilities: All capital equipment, computers, terminals, software, nationwide telecommunication network,

ticket sales offices, furnishings, and fixtures; printing costs; cost of salaries and wages; advertising and

promotion expenses; maintenance costs; expansion and replacement costs; security and insurance, and all

other related expenses needed to operate nationwide on-line lottery system.6

Considering the above citizenship requirement, the PGMC claims that the Berjaya Group "undertook to reduce its equity stakes in

PGMC to 40%," by selling 35% out of the original 75% foreign s tockholdings to local investors.

On 15 August 1993, PGMC submitted its bid to the PCSO.7

The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee (SPBAC) for the on-line lottery and its Bid

Report was thereafter submitted to the Office of the President.8The submission was preceded by complaints by the Committee's

Chairperson, Dr. Mita Pardo de Tavera.9

On 21 October 1993, the Office of the President announced that it had given the respondent PGMC the go-signal to operate the

country's on-line lottery system and that the corresponding implementing contract would be submitted not later than 8

November 1993 "for final clearance and approval by the Chief Executive."10This announcement was published in the Manila

Standard, Philippine Daily Inquirer, and the Manila Times on 29 October 1993.11

On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V. Ramos strongly opposing the setting up to t

line lottery system on the basis of serious moral and ethical considerations.12

At the meeting of the Committee on Games and Amusements of the Senate on 12 November 1993, KILOSBAYAN reiterate

vigorous opposition to the on-line lottery on account of its immorality and illegality.13

On 19 November 1993, the media reported that despite the opposition, "Malacaang will push through with the operatio

on-line lottery system nationwide" and that it is actually the respondent PCSO which will operate the lottery while the wi

corporate bidders are merely "lessors."14

On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery award from Executive Sec

Teofisto Guingona, Jr. In his answer of 17 December 1993, the Executive Secretary informed KILOSBAYAN that the reques

documents would be duly transmitted before the end of the month.15

. However, on that same date, an agreement denom

as "Contract of Lease" was finally executed by respondent PCSO and respondent PGMC.

16

The President, per the press staissued by the Office of the President, approved it on 20 December 1993.17

In view of their materiality and relevance, we quote the following salient provisions of the Contract of Lease:

1. DEFINITIONS

The following words and terms shall have the following respective meanings:

1.1 Rental Fee Amount to be paid by PCSO to the LESSOR as compensation for the fulfillment of the obligations of the L

under this Contract, including, but not limited to the lease of the Facilities.

xxx xxx xxx

1.3 Facilities All capital equipment, computers, terminals, software (including source codes for the On-Line Lottery app

software for the terminals, telecommunications and central systems), technology, intellectual property rights,

telecommunications network, and furnishings and fixtures.

1.4 Maintenance and Other Costs All costs and expenses relating to printing, manpower, salaries and wages, advertisin

promotion, maintenance, expansion and replacement, security and insurance, and all other related expenses needed to o

an On-Line Lottery System, which shall be for the account of the LESSOR. All expenses relating to the setting-up, operatio

maintenance of ticket sales offices of dealers and retailers shall be borne by PCSO's dealers and retailers.

1.5 Development Plan The detailed plan of all games, the marketing thereof, number of players, value of winnings and

logistics required to introduce the games, including the Master Games Plan as approved by PCSO, attached hereto as Ann

modified as necessary by the provisions of this Contract.

xxx xxx xxx

1.8 Escrow Deposit The proposal deposit in the sum of Three Hundred Million Pesos (P300,000,000.00) submitted by th

LESSOR to PCSO pursuant to the requirements of the Request for Proposals.

2. SUBJECT MATTER OF THE LEASE


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The LESSOR shall build, furnish and maintain at its own expense and risk the Facilities for the On-Line Lottery System of PCSO in

the Territory on an exclusive basis. The LESSOR shall bear all Maintenance and Other Costs as defined herein.

xxx xxx xxx

3. RENTAL FEE

For and in consideration of the performance by the LESSOR of its obligations herein, PCSO shall pay LESSOR a fixed Rental Fee

equal to four point nine percent (4.9%) of gross receipts from ticket sales, payable net of taxes required by law to be withheld, on

a semi-monthly basis. Goodwill, franchise and similar fees shall belong to PCSO.

4. LEASE PERIOD

The period of the lease shall commence ninety (90) days from the date of effectivity of this Contract and shall run for a period of

eight (8) years thereafter, unless sooner terminated in accordance with this Contract.

5. RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE LOTTERY SYSTEM

PCSO shall be the sole and individual operator of the On-Line Lottery System. Consequently:

5.1 PCSO shall have sole responsibility to decide whether to implement, fully or partially, the Master Games Plan of the LESSOR.

PCSO shall have the sole responsibility to determine the time for introducing new games to the market. The Master Games Plan

included in Annex "A" hereof is hereby approved by PCSO.

5.2 PCSO shall have control over revenues and receipts of whatever nature from the On-Line Lottery System. After paying the

Rental Fee to the LESSOR, PCSO shall have exclusive responsibility to determine the Revenue Allocation Plan; Provided, that the

same shall be consistent with the requirement of R.A. No. 1169, as amended, which fixes a prize fund of fifty five percent (55%) on

the average.

5.3 PCSO shall have exclusive control over the printing of tickets, including but not limited to the design, text, and contents

thereof.

5.4 PCSO shall have sole responsibility over the appointment of dealers or retailers throughout the country. PCSO shall appoint the

dealers and retailers in a timely manner with due regard to the i mplementation timetable of the On-Line Lo ttery System. Nothing

herein shall preclude the LESSOR from recommending dealers or retailers for appointment by PCSO, which shall act on said

recommendation within forty-eight (48) hours.

5.5 PCSO shall designate the necessary personnel to monitor and audit the daily performance of the On-Line Lottery System. For

this purpose, PCSO designees shall be given, free of charge, suitable and adequate space, furniture and fixtures, in all offices of the

LESSOR, including but not limited to its headquarters, alternate site, regional and area offices.

5.6 PCSO shall have the responsibility to resolve, and exclusive jurisdiction over, all matters involving the operation o f the On-Line

Lottery System not otherwise provided in this Contract.

5.7 PCSO shall promulgate procedural and coordinating rules governing all activities relating to the On-Line Lottery System.

5.8 PCSO will be responsible for the payment of prize monies, commissions to agents and dealers, and taxes and levies (if

chargeable to the operator of the On-Line Lottery System. The LESSOR will bear all other Maintenance and Other Costs, e

provided in Section 1.4.

5.9 PCSO shall assist the LESSOR in the following:

5.9.1 Work permits for the LESSOR's staff;

5.9.2 Approvals for importation of the Facilities;

5.9.3 Approvals and consents for the On-Line Lottery System; and

5.9.4 Business and premises licenses for all offices of the LESSOR and licenses for the telecommunications network.

5.10 In the event that PCSO shall pre-terminate this Contract or suspend the operation of the On-Line Lottery System, in b

this Contract and through no fault of the LESSOR, PCSO shall promptly, and in any event not later than sixty (60) days, reim

the LESSOR the amount of its total investment cost associated with the On-Line Lottery System, including but not limited

cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unex

term of the lease.

6. DUTIES AND RESPONSIBILITIES OF THE LESSOR

The LESSOR is one of not more than three (3) lessors of similar facilities for the nationwide On-Line Lottery System of PCS

understood that the rights of the LESSOR are primarily those of a lessor of the Facilities, and consequently, all rights involv

business aspects of the use of the Facilities are within the jurisdiction of PCSO. During the term of the lease, the LESSOR s

6.1 Maintain and preserve its corporate existence, rights and privileges, and conduct its business in an orderly, efficient, a

customary manner.

6.2 Maintain insurance coverage with insurers acceptable to PCSO on all Facilities.

6.3 Comply with all laws, statues, rules and regulations, orders and directives, obligations and duties by which it is legally

6.4 Duly pay and discharge all taxes, assessments and government charges now and hereafter imposed of whatever natu

may be legally levied upon it.

6.5 Keep all the Facilities in fail safe condition and, if necessary, upgrade, replace and improve the Facilities from time to t

new technology develops, in order to make the On-Line Lottery System more cost-effective and/or competitive, and as m

required by PCSO shall not impose such requirements unreasonably nor arbitrarily.

6.6 Provide PCSO with management terminals which will allow real-time monitoring of the On-Line Lottery System.

6.7 Upon effectivity of this Contract, commence the training of PCSO and other local personnel and the transfer of techno

expertise, such that at the end of the term of this Contract, PCSO will be able to effectively take-over the Facilities and eff

operate the On-Line Lottery System.


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6.8 Undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in

negative advertising against other lessors.

6.9 Bear all expenses and risks relating to the Facilities including, but not limited to, Maintenance and Other Costs and:

xxx xxx xxx

6.10 Bear all risks if the revenues from ticket sales, on an annualized basis, are insufficient to pay the entire prize money.

6.11 Be, and is hereby, authorized to collect and retain for its own account, a security deposit from dealers and retailers, in an

amount determined with the approval of PCSO, in respect of equipment supplied by the LESSOR. PCSO's approval shall not be

unreasonably withheld.

xxx xxx xxx

6.12 Comply with procedural and coordinating rules issued by PCSO.

7. REPRESENTATIONS AND WARRANTIES

The LESSOR represents and warrants that:

7.1 The LESSOR is corporation duly organized and existing under the laws of the Republic of the Philippines, at least sixty percent

(60%) of the outstanding capital stock of which is owned by Filipino shareholders. The minimum required Filipino equity

participation shall not be impaired through voluntary or involuntary transfer, disposition, or sale of shares of stock by the present

stockholders.

7.2 The LESSOR and its Affiliates have the full corporate and legal power and authority to own and operate their properties and to

carry on their business in the place where such properties are now or may be conducted. . . .

7.3 The LESSOR has or has access to all the financing and funding requirements to promptly and effectively carry out the terms of

this Contract. . . .

7.4 The LESSOR has or has access to all the managerial and technical expertise to promptly and effectively carry out the terms of

this Contract. . . .

xxx xxx xxx

10. TELECOMMUNICATIONS NETWORK

The LESSOR shall establish a telecommunications network that will connect all municipalities and cities in the Territory in

accordance with, at the LESSOR's option, either of the LESSOR's proposals (or a combinations of both such proposals) attached

hereto as Annex "B," and under the following PCSO schedule:

xxx xxx xxx

PCSO may, at its option, require the LESSOR to establish the telecommunications network in accordance with the above T

in provinces where the LESSOR has not yet installed terminals. Provided, that such provinces have existing nodes. Once a

municipality or city is serviced by land lines of a licensed public telephone company, and such lines are connected to Metr

Manila, then the obligation of the LESSOR to connect such municipality or city through a telecommunications network sh

with respect to such municipality or city. The voice facility will cover the four offices of the Office of the President, Nation

Disaster Control Coordinating Council, Philippine National Police and the National Bureau of Investigation, and each city a

municipality in the Territory except Metro Manila, and those cities and municipalities which have easy telephone access f

these four offices. Voice calls from the four offices shall be transmitted via radio or VSAT to the remote municipalities wh

be connected to this voice facility through wired network or by radio. The facility shall be designed to handle four private

conversations at any one time.

xxx xxx xxx

13. STOCK DISPERSAL PLAN

Within two (2) years from the effectivity of this Contract, the LESSOR shall cause itself to be listed in the local stock excha

offer at least twenty five percent (25%) of its equity to the public.

14. NON-COMPETITION

The LESSOR shall not, directly or indirectly, undertake any activity or business in competition with or adverse to the On-Li

Lottery System of PCSO unless it obtains the latter's prior written consent t hereto.

15. HOLD HARMLESS CLAUSE

15.1 The LESSOR shall at all times protect and defend, at its cost and expense, PCSO from and against any and all liabilitie

claims for damages and/or suits for or by reason of any deaths of, or any injury or injuries to any person or persons, or da

property of any kind whatsoever, caused by the LESSOR, its subcontractors, its authorized agents or employees, from any

causes whatsoever.

15.2 The LESSOR hereby covenants and agrees to indemnify and hold PCSO harmless from all liabilities, charges, expenses

(including reasonable counsel fees) and costs on account of or by reason of any such death or deaths, injury or injuries, lia

claims, suits or losses caused by the LESSOR's fault or negligence.

15.3 The LESSOR shall at all times protect and defend, at its own cost and expense, its title to the facilities and PCSO's inte

therein from and against any and all claims for the duration of the Contract until transfer to PCSO of ownership of the ser

Facilities.

16. SECURITY

16.1 To ensure faithful compliance by the LESSOR with the terms of the Contract, the LESSOR shall s ecure a Performance

from a reputable insurance company or companies acceptable to PCSO.

16.2 The Performance Bond shall be in the initial amount of Three Hundred Million Pesos (P300,000,000.00), to its U.S. do

equivalent, and shall be renewed to cover the duration of the Contract. However, the Performance Bond shall be reduced

proportionately to the percentage of unencumbered terminals installed; Provided, that the Performance Bond shall in no

less than One Hundred Fifty Million Pesos (P150,000,000.00).


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16.3 The LESSOR may at its option maintain its Escrow Deposit as the Performance Bond. . . .

17. PENALTIES

17.1 Except as may be provided in Section 17.2, should the LESSOR fail to take remedial measures within seven (7) days, and

rectify the breach within thirty (30) days, from written notice by PCSO of any wilfull or grossly negligent violation of the material

terms and conditions of this Contract, all unencumbered Facilities shall automatically become the property of PCSO without

consideration and without need for further notice or demand by PCSO. The Performance Bond shall likewise be forfeited in favor

of PCSO.

17.2 Should the LESSOR fail to comply with the terms of the Timetables provided in Section 9 and 10, it shall be subject to an initial

Penalty of Twenty Thousand Pesos (P20,000.00), per city or municipality per every month of delay; Provided, that the Penalty s hall

increase, every ninety (90) days, by the amount of Twenty Thousand Pesos (P20,000.00) per city or municipality per month, whilst

shall failure to comply persists. The penalty shall be deducted by PCSO from the rental fee.

xxx xxx xxx

20. OWNERSHIP OF THE FACILITIES

After expiration of the term of the lease as provided in Section 4, the Facilities directly required for the On-Line Lottery System

mentioned in Section 1.3 shall automatically belong in full ownership to PCSO without any further consideration other than the

Rental Fees already paid during the effectivity of the lease.

21. TERMINATION OF THE LEASE

PCSO may terminate this Contract for any breach of the material provisions of this Contract, including the following:

21.1 The LESSOR is insolvent or bankrupt or unable to pay its debts, stops or suspends or threatens to stop or suspend payment of

all or a material part of its debts, or proposes or makes a general assignment or an arrangement or compositions with or for the

benefit of its creditors; or

21.2 An order is made or an effective resolution passed for the winding up or dissolution of the LESSOR or when it ceases or

threatens to cease to carry on all or a material part of its operations or business; or

21.3 Any material statement, representation or warranty made or furnished by the LESSOR proved to be materially false or

misleading;

said termination to take effect upon receipt of written notice of termination by the LESSOR and failure to take remedial action

within seven (7) days and cure or remedy the same within thirty (30) days from notice.

Any suspension, cancellation or termination of this Contract shall not relieve the LESSOR of any liability that may have already

accrued hereunder.

xxx xxx xxx

Considering the denial by the Office of the President of its protest and the statement of Assistant Executive Secretary Ren

Corona that "only a court injunction can stop Malacaang," and the imminent implementation of the Contract of Lease in

February 1994, KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.

In support of the petition, the petitioners claim that:

. . . X X THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS EXECUTIVE SECRETARY AND/OR ASSISTANT EXEC

SECRETARY FOR LEGAL AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR DISCRETION AND/OR FUNCTIONS TANTAMOU

LACK OF JURISDICTION AND/OR AUTHORITY IN RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT TO, AND (B

ENTERING INTO THE SO-CALLED "CONTRACT OF LEASE" WITH, RESPONDENT PGMC FOR THE INSTALLATION, ESTABLISHM

OPERATION OF THE ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR AUTHORIZED UNDER TH

CONTRACT, CONSIDERING THAT:

a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from holding and conducting

"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 a

person may be allowed to establish and operate said telecommunications system;

c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned and/or controlle

corporation, like the PGMC, is disqualified from operating a public service, like the said telecommu

system; and

d) Respondent PGMC is not authorized by its charter and under the Foreign I nvestment Act (R.A. No

to install, establish and operate the on-line lotto and telecommunications systems.18

Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease with the PGMC because it is an

arrangement wherein the PCSO would hold and conduct the on-line lottery system in "collaboration" or "association" wit

PGMC, in violation of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding an

conducting charity sweepstakes races, lotteries, and other similar activities "in collaboration, association or joint venture w

person, association, company or entity, foreign or domestic." Even granting arguendothat a lease of facilities is not withincontemplation of "collaboration" or "association," an analysis, however, of the Contract of Lease clearly shows that there

"collaboration, association, or joint venture between respondents PCSO and PGMC in the holding of the On-Line Lottery S

and that there are terms and conditions of the Contract "showing that respondent PGMC is the actual lotto operator and

respondent PCSO."19

The petitioners also point out that paragraph 10 of the Contract of Lease requires or authorizes PGMC to establish a

telecommunications network that will connect all the municipalities and cities in the territory. However, PGMC cannot do

because it has no franchise from Congress to construct, install, establish, or operate the network pursuant to Section 1 of

3846, as amended. Moreover, PGMC is a 75% foreign-owned or controlled corporation and cannot, therefore, be granted

franchise for that purpose because of Section 11, Article XII of the 1987 Constitution. Furthermore, since "the subscribed

capital" of the PGMC "comes to about 75%, as shown by paragraph EIGHT of its Articles of Incorporation," it cannot lawfu

into the contract in question because all forms of gambling and lottery is one of them are included in the so-called f

investments negative list under the Foreign Investments Act (R.A. No. 7042) where only up to 40% foreign capital is allow

Finally, the petitioners insist that the Articles of Incorporation of PGMC do not authorize it to establish and operate an on

lottery and telecommunications systems.21


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Accordingly, the petitioners pray that we issue a temporary restraining order and a writ of preliminary injunction commanding the

respondents or any person acting in their places or upon their instructions to cease and desist from implementing the challenged

Contract of Lease and, after hearing the merits of the petition, that we render judgment declaring the Contract of Lease void and

without effect and making the injunction permanent.22

We required the respondents to comment on the petition.

In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(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 the operation of its lottery franchise);

and (2) as such independent contractor, 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 is viewed from the context,

intent, and spirit of Republic Act 1169, as amended by Batas Pambansa 42." It further claims that as an independent contractor for

a piece of work, it is neither engaged in "gambling" nor in "public service" relative to the telecommunications network, which the

petitioners even consider as an "indispensable requirement" of an on- line lottery system. Finally, it states that the execution and

implementation of the contract does not violate the Constitution and the laws; that the issue on the "morality" of the lotteryfranchise granted to the PCSO is political and not judicial or legal, which should be ventilated in another forum; and that the

"petitioners do not appear to have the legal standing or real interest in the subject contract and in obtaining the reliefs sought."23

In their Comment filed by the Office of the Solicitor General, public respondents Executive Secretary Teofisto Guingona, Jr.,

Assistant Executive Secretary Renato Corona, and the PCSO maintain that the contract of lease in question does not violate

Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and that the petitioner's interpretation of the phrase "in collaboration,

association or joint venture" in Section 1 is "much too narrow, strained and utterly devoid of logic" for it "ignores the reality that

PCSO, as a corporate entity, is vested with the basic and essential prerogative to enter in to all kinds of transactions or contracts as

may be necessary for the attainment of its purposes and objectives." What the PCSO charter "seeks to prohibit is that

arrangement akin to a "joint venture" or partnership where there is "community of interest in the business, sharing of profits and

losses, and a mutual right of control," a characteristic which does not obtain in a contract of lease." With respect to the challenged

Contract of Lease, the "role of PGMC is limited to that of a lessor of the facilities" for the on-line lottery system; in "strict technical

and legal sense," said contract "can be categorized as a contract for a piece of work as defined in Articles 1467, 1713 and 1644 of

the Civil Code."

They further claim that the establishment of the telecommunications system stipulated in the Contract of Lease does not require a

congressional franchise because PGMC will not operate a public utility; moreover, PGMC's "establishment of atelecommunications system is not intended to establish a telecommunications business," and it has been held that where the

facilities are operated "not for business purposes bu t for its own use," a legislative franchise is not required before a certificate of

public convenience can be granted.24Even grantingarguendothat PGMC is a public utility, pursuant toAlbano S.

Reyes,25"it can establish a telecommunications system even without a legislative franchise because not every public utility is

required to secure a legislative franchise before it could establish, maintain, and operate the service"; and, in any case, "PGMC's

establishment of the telecommunications system stipulated in it s contract of lease with PCSO falls within the exceptions under

Section 1 of Act No. 3846 where a legislative franchise is not necessary for the establishment of radio stations."

They also argue that the contract does not violate the Foreign Investment Act of 1991; that the Articles of Incorporation of PGMC

authorize it to enter into the Contract of Lease; and that the issues of "wisdom, morality and propriety of acts of the executive

department are beyond the ambit of judicial review."

Finally, the public respondents allege that the petitioners have no standing to maintain the instant suit, citing our resolution in

Valmonte vs. Philippine Charity Sweepstakes Office .26

Several parties filed motions to intervene as petitioners in this case,27but only the motion of Senators Alberto Romulo, A

Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo, Vicente Sotto III, John Osmea, Ramon Revilla, and Jose Lina28was

and the respondents were required to comment on their petition in intervention, which the public respondents and PGM

In the meantime, the petitioners filed with the Securities and Exchange Commission on 29 March 1994 a petition against

for the nullification of the latter's General Information Sheets. That case, however, has no bearing in this petition.

On 11 April 1994, we heard the parties in oral arguments. Thereafter, we resolved to consider the matter submitted for re

and pending resolution of the major issues in this case, to issue a temporary restraining order commanding the responden

any person acting in their place or upon their instructions to cease and desist from implementing the challenged Contract

Lease.

In the deliberation on this case on 26 April 1994, we resolved to consider only these issues: (a) thelocus standiof the peti

and (b) the legality and validity of the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg.

which prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with any pe

association, company or entity, whether domestic or foreign." On the first issue, seven Justices voted to sustain the locus

the petitioners, while six voted not to. On the second issue, the seven Justices were of the opinion that the Contract of Le

violates the exception to Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid and contrary

The six Justices stated that they wished to express no opinion thereon in view of their stand on the first issue. The Chief Ju

took no part because one of the Directors of the PCSO is his brother-in-law.

This case was then assigned to thisponente for the writing of the opinion of the Court.

The preliminary issue on the locus standiof the petitioners should, indeed, be resolved in their favor. A party's standing b

this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of

issues raised. In the landmark Emergency Powers Cases,29this Court brushed aside this technicality because "the transce

importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must,

technicalities of procedure. (Avelino vs. Cuenco,G.R. No. L-2821)." Insofar as taxpayers' suits are concerned, this Court ha

declared that it "is not devoid of discretion as to whether or not it should be entertained,"30or that it "enjoys an open dis

to entertain the same or not."31In De La Llana vs. Alba, 32this Court declared:

1. The argument as to the lack of standing of petitioners is easily resolved. As far as Judge de la Llana is concerned, he cer

falls within the principle set forth in Justice Laurel's opinion in People vs. Vera[65 Phil. 56 (1937)]. Thus: "The unchallenge

that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that

sustained, or will sustain, direct injury as a result of its enforcement [Ibid,89]. The other petitioners as members of the ba

officers of the court cannot be considered as devoid of "any personal and substantial interest" on the matter. There is rele

this excerpt from a separate opinion in Aquino, Jr. v. Commission on Elections[L-40004, January 31, 1975, 62 SCRA 275]: "

there is the attack on the standing of petitioners, as vindicating at most what they consider a public right and not protect

rights as individuals. This is to conjure the specter of the public right dogma as an inhibition to parties intent on keeping p

officials staying on the path of constitutionalism. As was so well put by Jaffe; "The protection of private rights is an essent

constituent of public interest and, conversely, without a well-ordered state there could be no enforcement of private righ

Private and public interests are, both in a substantive and procedural sense, aspects of the totality of the legal order." Mo

petitioners have convincingly shown that in their capacity as taxpayers, their standing to sue has been amply demonstrate

would be a retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by the very d

of People v. Verawhere the doctrine was first fully discussed, if we act differently now. I do not think we are prepared to t

step. Respondents, however, would hard back to the American Supreme Court doctrine in Mellon v. Frothingham, with th

that what petitioners possess "is an interest which is shared in common by other people and is comparatively so minute a

indeterminate as to afford any basis and assurance that the judicial process can act on it." That is to speak in the language


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B. Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related investments, programs,

projects and activitieswhich may be profit-oriented, by itself or in collaboration, association or joint venturewith 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 investment 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)

The language of the section is indisputably clear that with respect to its franchise or privilege "to hold and conduct charity

sweepstakes races, lotteries and other similar activities," the PCSO cannotexercise 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."

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.55

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.56

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 joint venture or in collaboration with any entity such collaboration or joint venture must not include activity ac tivity

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.57

Further amendments to paragraph B were introduced and approved. When Assemblyman Zamora read the final text of p

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 wo

PRECEDING was inserted before PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter, the new

paragraph B was approved.58

This is now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.

No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the privilege to hold or

charity sweepstakes races, lotteries, or other similar activities is a franchise granted by the legislature to the PCSO. It is a s

rule that "in all grants by the government to individuals or corporations of rights, privileges and franchises, the words are

taken most strongly against the grantee .... [o]ne who claims a franchise or privilege in derogation of the common rights o

public must prove his title thereto by a grant which is clearly and definitely expressed, and he cannot enlarge it by equivo

doubtful provisions or by probable inferences. Whatever is not unequivocally granted is withheld. Nothing passes by mere

implication."59

In short then, by the exception explicitly made in paragraph B, Section 1 of i ts charter, the PCSO cannot share its franchise

another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease such franchise. It has

said that "the rights and privileges conferred under a franchise may, without doubt, be assigned or transferred when the

to the grantee and assigns, or is authorized by statute. On the other hand, the right of transfer or assignment may be rest

statute or the constitution, or be made subject to the approval of the grantor or a governmental agency, such as a public

commission, exception that an existing right of assignment cannot be impaired by subsequent legislation."60

It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it to hold and cond

species of gambling. It is settled that "a statute which authorizes the carrying on of a gambling activity or business should

strictly construed and every reasonable doubt so resolved as to limit the powers and rights claimed under its authority."6

Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169, as amended by B

42, which prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with" an

We agree with the petitioners that it does, notwithstanding its denomination or designation as a (Contract of Lease). We

neither convinced nor moved or fazed by the insistence and forceful arguments of the PGMC that it does not because in r

is only an independent contractor for a piece of work, i.e., the building and maintenance of a lottery system to be used by

PCSO in the operation of its lottery franchise. Whether the contract in question is one of lease or whether the PGMC is m

independent contractor should not be decided on the basis of the title or designation of the contract but by the intent of

parties, which may be gathered from the provisions of the contract itself.Animus hominis est anima scripti. The intention

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 o f

individual who executed it.62And, pursuant to Article 1371 of the Civil Code, "to determine the intention of the contracti

parties, their contemporaneous and subsequent acts shall be principally considered." To put it more bluntly, no one shou

deceived by the title or desig nation of a contract.

A careful analysis and evaluation of the provisions of the contract and a consideration of the contemporaneous acts of th

and PGMC indubitably disclose that the contract is not in reality a contract of lease under which the PGMC is merely an

independent contractor for a piece of work, but one where the statutorily proscribed collaborationorassociation, in the l

joint venture, at the most, exists between the contracting parties. Collaborationis defined as the acts of working together

joint project.63Associationmeans the act of a number of persons in uniting together for some special purpose or busines


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confirms that it is the PGMC which will operate the system and the PCSO may, for the protection of its interest, monitor and audit

the daily performance of the system. The second admits the coordinatingandcooperativepowers and functions of the parties.

(g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its debts, or if it

stops or suspends or threatens to stop or suspend payment of all or a material part of its debts.

All of the foregoing unmistakably confirm the indispensable role of the PGMC in the pursuit, operation, conduct, and management

of the On-Line Lottery System. They exhibit and demonstrate the parties' indivisible community of interest in the conception, birth

and growth of the on-line lottery, and, above all, in its profits, with each having a right in the formulation and implementation of

policies related to the business and sharing, as well, in the losses with the PGMC bearing the greatest burden because of its

assumption of expenses and risks, and the PCSO the least, because of its confessed unwillingness to bear expenses and risks. In a

manner of speaking, each is wed to the other for better or for worse. In the final analysis, however, in the light of the PCSO's RFP

and the above highlighted provisions, as well as the "Hold Harmless Clause" of the Contract of Lease, it is even safe to conclude

that the actuallessorin this case is the PCSO and the subject matter thereof is its franchise to hold and conduct lotteries since it is,

in reality, the PGMC which operates and manages the on-line lottery system for a period of eight years.

We thus declare that the challenged Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A. No.

1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law. This conclusion renders unnecessary further

discussion on the other issues raised by the petitioners.

WHEREFORE, the instant petition is hereby GRANTED and the challenged Contract of Lease executed on 17 December 1993 by

respondent Philippine Charity Sweepstakes Office (PCSO) and respondent Philippine Gaming Management Corporation (PGMC) is

hereby DECLARED contrary to law and invalid. The Temporary Restraining Order issued on 11 April 1994 is hereby MADE

PERMANENT. No pronouncement as to costs. SO ORDERED.

G.R. No. 115044 September 1, 1994

HON. ALFREDO S. LIM, in his capacity as Mayor of Manila; and THE CITY OF MANILA, petitioners,

vs.HON. FELIPE G. PACQUING, as Judge, Regional Trial Court of Manila; and ASSOCIATED DEVELOPMENT CORPORATION,respondents.

QUIASON,J.:

This is a petition for certiorariunder Rule 65 of the Revised Rules of Court to set aside the Orders dated March 28, 1994, April 11,

1994 and April 20, 1994 of Judge Felipe G. Pacquing, presiding judge of the Regional Trial Court, Branch 40, Manila, issued in Civil

Case No. 88-45660.

The Order dated March 28, 1994 granted the motion of private respondent to compel petitioner Mayor Alfredo S. Lim to issue a

permit or license in favor of private respondent pursuant to Ordinance No. 7065 upon compliance by private respondent with all

the requirements set thereunder.

The Order dated April 11, 1994 denied the motion for reconsideration filed by petitioners of the Order dated May 28, 1994.

The Order dated April 20, 1994 reiterated the order of March 28, 1994, directing Mayor Lim to immediately issue to priva

respondent the necessary permit or license pursuant to Ordinance No. 7065.

I

On September 7, 1971, the Municipal Board of Manila passed Ordinance No. 7065 pursuant to Section 18(jj) of the Revise

Charter of Manila, granting private respondent a franchise to operate a jai-alai in the city. The ordinance is reproduced as

AN ORDINANCE AUTHORIZING THE MAYOR TO ALLOW AND PERMIT THE ASSOCIATED DEVELOPMENT CORPORATION TO

ESTABLISH, MAINTAIN AND OPERATE A JAI-ALAI IN THE CITY OF MANILA, UNDER CERTAIN TERMS AND CONDITIONS AND

OTHER PURPOSES.

Be it ordained by the Municipal Board of the City of Manila, that:

Sec. 1. The Mayor is authorized, as he is hereby authorized to allow and permit the Associated Development Corporation

establish, maintain and operate a jai-alai in the City of Manila, under the following terms and conditions and such other te

conditions as he (the Mayor) may prescribe for good reasons of general interest:

a. That the construction, establishment and maintenance of the jai-alai shall be at a place permissible under existing zonin

ordinance of Manila;

b. That the games to be played daily shall commence not earlier than 5:00 in the afternoon;

c. That the City of Manila wil l receive a share of 2 1/2% on the annual gross receipts on all wagers or bets, 1/2% of which w

accrue to the Games and Amusement Board as now provided by law;

d. That the corporation will, in addition, pay to the city an annual license fee of P3,000.00 and a daily permit fee of P200.0

e. That the corporation will, to insure its faithful compliance of all the terms and conditions under this ordinance, put up a

performance bond from a surety acceptable to the city, in t he amount of at least P30,000.00.

Sec. 2. The Mayor and the City Treasurer or their duly authorized representatives are hereby empowered to inspect at all

during regular business hours the books, records and accounts of the establishment, as well as to prescribe the manner in

the books and financial statements of the entrepreneur shall be kept.

Sec. 3. This ordinance shall take effect upon its approval.

Enacted originally by the Municipal Board on September 7, 1971; vetoed by the Mayor on September 27, 1971; modified

amended by the Municipal Board at its regular session today, October 12, 1971.

Approved by His Honor, the Mayor, on 13 November 1971.

Thereafter, private respondent took steps preparatory to the establishment of the jai-alai at Ermita, Manila. Private respo

retained the services of an architectural firm from Hongkong to design the fronton and contracted with a local firm for the

construction of the building.


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On August 20, 1975, after the declaration of Martial Law, President Ferdinand E. Marcos promulgated Presidential Decree No. 771

revoking the powers of the local government to grant permits or licenses and canceling all existing franchises to operate jai-alais.

Less than two months after P.D. No. 771 was issued, the Philippine Jai-Alai and Amusement Corporation, an enterprise controlled

by Alfredo Romualdez, a brother-in-law of President Marcos, was granted a franchise to operate a jai-alai within the Greater

Manila Area under P.D. No. 810.

However, after the EDSA Resolution, President Corazon C. Aquino issued Executive Order No. 169, repealing P.D. No. 810.

On May 5, 1988, private respondent sought the resumption of its business operations under its franchise issued under Ordinance

No. 7065. Mayor Gemiliano C. Lopez denied private respondent's request, as well as its motion for reconsideration.

On August 2, 1988, private respondent filed a petition for mandamus and specific performance with the Regional Trial Court,

Branch 40, Manila, docketed as Civil Case No. 88-45660.

In a decision dated September 9, 1989, Judge Augusto E. Villarin of Branch 40 held that Ordinance No. 7065 created a binding

contract between the City of Manila and private respondent and that the City Mayor had no discretion but "to grant the necessary

permit or license allowing it to operate and maintain a jai-alai in the City of Manila pursuant to Ordinance No. 7065."

The trial court noted:

A careful reading, however, of Ordinance No. 7065 will readily show that the discretion, if any, allowed respondent Mayor, under

the Ordinance, will be exercisable only after the permit, which he is mandated to issue, has been issued and the jai-alai fronton is

already operational. The Ordinance stipulates that the Mayor is authorized "to allow and permit petitioner to establish, maintain

and operate a jai-alai in the City of

Manila ," under the five conditions enumerated in subparagraphs "a" to "e" of Section 1 of the Ordinance. But a simple reading of

these "terms and conditions" patently shows that subparagraphs "b" to "e" are clearly conditions that will only come into play

after the jai-alai fronton has been put up or established; while the condition under sub-paragraph "a" appears to have been

complied with satisfactorily by the petitioner, since no objection at all has been made by respondents to the proposed site for the

jai-alai fronton, that is, the 25,000 sq. m. land area behind the present Harrison Plaza Complex located at Ermita, Manila.

It is therefore, quite evident to this Court that no discretion is left to the respondent Mayor to allow or not petitioner "to

establish, maintain and operate a jai-alai in the City of Manila." The Court is satisfied that the requirements of Sec. 3, Rule 65, have

been met.

Moreover, it is well-settled that the grant of a franchise, when accepted and acted upon by the grantee, creates a contract. And,

going by contract law, under the undisputed circumstances in this case, respondent Mayor, in behalf of the City, is obliged to

comply with what is required of him under the Ordinance. At the very least, the enactment and approval of Ordinance No. 7065

on November 13, 1971, created a bilateral contract between petitioner and respondents. Petitioner has commenced the

performance of its obligation under the contract, but was prevented by events over which it has no control from completely

fulfilling what was called for on its part to establish, operate and maintain a jai-alai in the City of Manila (Rollo, pp. 39-40).

The trial court disposed as follows;

WHEREFORE, the petitioner is GRANTED and respondent City of Manila, is ordered to immediately issue to petitioner, the

permit/license required under Ordinance No. 7065 (Rollo, p. 40).

Mayor Lopez appealed said decision to the Court of Appeals (CA G.R. No. 16477 SP) but on February 9, 1989, he filed a No

Withdrawal of Appeal.

On May 5, 1989, the Court of Appeals promulgated a resolution, the dispositive part of which reads as follows:

For the reasons stated in the NOTICE OF WITHDRAWAL OF APPEAL which was filed on February 9, 1989 by respondents a

thru counsel let their appeal from the Decision dated September 9, 1989 and Order dated August 25, 1988, of the Region

Court of Manila in Civil Case No. 88-45660 be as it is hereby considered WITHDRAWN (Rollo, p. 126).

With the withdrawal of the appeal, the judgment in Civil Case No. 45560 became final and executory and was entered in t

of Entries of Judgment of the Court of Appeals on May 26, 1989 and in the Book of Entries of Judgment of the Regional Tr

on October 27, 1992.

In 1991, the City of Manila filed an action to annul the franchise of private respondent with the Regional Trial Court, BranManila, docketed as Civil Case No. 91-58913.

In said complaint, the City of Manila claimed that private respondent had abandoned its franchise granted under Ordinan

7065 and that said ordinance had been repealed by P.D. Nos. 771 and 810.

Judge William Bayhon of Branch 23 noted that the issue of abandonment was squarely raised and resolved in Civil Case No

45660, while the issue of the repeal of Ordinance No. 7065 could have been pleaded but was not by the City of Manila as

defense in Civil Case No. 88-45660. According to him, the city had waived such a defense. To make matters worse, the city

estoppel to raise said issue since it had been issuing permits pursuant to the decision in Civil Case No. 88-45660 and colle

corresponding fees.

Civil Case No. 91-58913, questioning the effectivity of the franchise granted private respondent under Ordinance No. 706

therefore dismissed on December 21, 1991. No appeal was taken from said dismissal of the case.

The City of Manila filed with this Court another case for declaratory judgment to nullify the franchise to operate a jai-alai

Ordinance No. 7065 (G.R. No. 101768). The petition was dismissed in a resolution dated October 3, 1991 "for lack of jurisd

It may be of interest to note that three Manila councilors also filed an action to compel Mayor Lopez to cancel the permit

license he issued in favor of private petitioner pursuant to Ordinance No. 7065 (Maceda v. Lopez, Civil Case No. 91-58930

Regional Trial Court, Branch 37, Manila). In his answer to said petition, Mayor Lopez pointed out that in issuing the permi

license, he was just acting in obedience to the final judgment in Civil Case No. 88-45660.

Judge Enrico A. Laxamana, presiding judge of Branch 37, made the following observations:

The license was issued by Mayor Lopez in obedience to a final order of a court of justice. For him to refuse to issue the lice

would place him in danger of being cited in contempt of court. And for him now to revoke or cancel such license or permi

definitely would place a greater risk and danger of being cited in contempt of court? (Rollo, p. 184).

II

As a preliminary issue, private respondent urged the dismissal of the petition on the grounds that it was in violation of Cir

28-91, prohibiting forum shopping, and Revised Circular No. 1-88, requiring the inclusion in the petition of a verified state


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the dates when notice of the judgment, order or resolution subject thereof, was received, when a motion for reconsideration, if

any, was filed, and when the notice of the denial thereof was received.

Private respondent averred that the certification submitted by petitioners did not disclose (1) that the t rial court had rendered a

decision in Civil Case No. 88- 45660 on September 9, 1988 holding that Ordinance No. 7065 was in full force and effect; (2) that

said decision had become final and executory after the petiti oners withdrew their appeal therefrom; (3) that petitioners had also

filed Civil Case No. 91-58913, questioning the effectivity of Ordinance No. 7065, which was dismissed. Likewise, they alleged that

the affidavit did not state the material dates necessary for the Court to determine the timelines of the filing of the petition ( Rollo,

pp. 108-110).

The certification submitted in compliance with Circular No. 28-91 stated that the petitioner in said petition "has not commenced a

similar action in any court or administrative body against said respondents nor is there any pending cases of the same nature and

parties in any court or administrative body." Rightly, there was no case filed nor was there any case pending wherein the question

of whether the decision in Civil Case No. 88-45660 can be executed by motion is raised.

The affidavit on the material dates submitted by petitioners attested to the dates when petitioners received the three orders of

respondent judge being questioned in the petition for certiorari. These are the dates material for reckoning the timelines of the

filing of the petition to nullify said orders. As far as the issue of the proper mode for executing the decision is concerned, the dates

given in the affidavit are sufficient for the Court to determine whether the petition was filed within a reasonable time

contemplated in Rule 65.

There is, therefore, no violation of Circular No. 28-91 and Revised Circular No. 1-88 to speak of.

On their part, petitioners alleged that the decision in Civil Case No. 88-45660, which is being implemented by the three orders in

question, is null and void for want of jurisdiction of the trial court that rendered it. They posited their claim on the theory that

Ordinance No. 7065 had been canceled by P.D. No. 771 in 1975 and that the trial court had traduced the law when it made it

appear in its decision that Ordinance No. 7065 was still in full force and effect (Rollo, pp. 10-13).

Petitioners failed to appreciate the distinction between a void and an erroneous judgment and between jurisdiction and the

exercise of jurisdiction.

Jurisdiction should be distinguished from the exercise thereof (Lamagan v. De La Cruz, 40 SCRA 101 [1971]). The authority to

decide a case at all and not the decision rendered therein, is what makes up jurisdiction. The fact that the decision is erroneous

does not divest the court that rendered it of the jurisdiction conferred by law to try the case (Quiason, Philippine Courts and their

Jurisdictions, p. 199 [1993 ed.]).

Since jurisdiction is the power to hear and determine a particular case, or the jurisdiction over the subject matter, it does no t

depend upon the regularity of the exercise by the court of its power (Century Insurance Co. v. Fuentes, 2 SCRA 1168 [1961]).

In the case at bench, there is no question that the Regional Trial Court has the competence to hear and decide Civil Case No. 88-

45660, a special civil action for mandamusunder Rule 65 of the Revised Rules of Court. There is also no quarrel that said court has

jurisdiction over an action for specific performance under Section 19(1) of the Judiciary Reorganization Act of 1990 (Lapitan v.

Scandia, 24 SCRA 479 [1968]). Assuming arguendo that the Regional Trial Court did not have jurisdiction over the said civil case,

the principle of estoppel will operate to bar petitioners from raising the question of jurisdiction for the first time in the instant

case (Tijam v. Sibonghanay, 23 SCRA 29 [1968]).

Having jurisdiction over the civil case, whatever error may be attributed to the trial court, is simply one of judgment, not of

jurisdiction. An error of judgment cannot be corrected by certioraribut by appeal (Robles v. House of Representatives Electoral

Tribunal, 181 SCRA 780 [1990]; De Castro v. Delta Motor Sales Corporation, 57 SCRA 344 [1978]; Galang v. Endencia, 73 Ph

[1941]). In fact, Mayor Lopez availed of such a remedy when he appealed the decision in Civil Case No. 88-45660 to the Co

Appeals (CA G.R. No. 16477-SP).

The issue on the cancellation of Ordinance No. 7065 by President Marcos could have been raised as a special defense in C

No. 88-54660 but was not. The Revised Rules of Court frown at the piecemeal presentation of issues, and jurisprudence b

subsequent litigation between the same parties matters that could have been raised in a previous case (Revised Rules of C

Rule 39, Sec. 49[b]; Gonzales v. Gonzales, 26 SCRA 72 [1968]).

The City of Manila should have pursued in the appellate courts its appeal questioning the dismissal of Civil Case No. 91-58

where the trial court ruled that Mayor Lopez and the city could no longer claim that Ordinance No. 7065 had been cancel

President Marcos because they failed to raise this issue in Civil Case No 88-54660.

At any rate, the unilateral cancellation of the franchise, which has the status of a contract, without notice, hearing and jus

cause is intolerable in any system where the Rule of Law prevails (Poses v. Toledo Transportation Co., 62 Phil. 297 [1935])Electric Co., v. Public Utility commissioners, 30 Phil. 387 [1915]).

As a fall-back, petitioners claimed that assuming arguendo that the judgment in Civil Case No. 88-45660 dated Septembe

is valid, its execution by mere motion on March 11, 1994 is irregular. Citing Section 6 of Rule 39 of the Revised Rules of Co

contended that the decision must be enforced by action, not motion (Rollo, pp. 13-14).

Petitioners erroneously counted the five-year period under Section 6 of Rule 39 from the date of the decision. Said Rule p

Execution by Motion or by Independent Action. A judgment may be executed on motion within five (5) years from the dat

entry or from the date it becomes final and executory. After the lapse of such time and before it is barred by the statute o

limitations, a judgment may be enforced by action.

It must be remembered that Mayor Lopez appealed the decision in Civil Case No. 88-45660 to the Court of Appeals, that h

the motion to withdraw the appeal on February 9, 1989, and that the Court of Appeals approved the withdrawal of the ap

only on May 5, 1989. The entries of judgment were made on May 26, 1989 in the Court of Appeals, and on October 27, 19

Regional Trial Court. The motion to compel the City Mayor to issue the permit or license pursuant to Ordinance No. 7065filed on March 14, 1994, or well within the five-year period whether such period is counted from May 5, 1989, May 26, 19

October 27, 1992.

Petitioners hypothesized that the withdrawal of an appeal operates as if no appeal was taken at all and that the five-year

should be counted from January 24, 1989, the fifteenth day from the service of a copy of the decision on Mayor Lopez. Pe

anchored their theory on Section 9, Rule 40 and Section 2, Rule 50 of the Revised Rules of Court (Rollo, pp. 15-16).

We find nothing in said Rules to support petitioners' posture.

Sec. 9 of Rule 40, in pertinent part, provides:

. . . If the appeal is withdrawn, or dismissed for failure to prosecute, the judgment shall be deemed revived and shall forth

remanded to the justice of the peace or municipal court for execution.


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Rule 40 governed the procedure for appeals from the inferior courts to the Court of First Instance before they became courts of

record. A provision on the revival of the judgment was necessary because at those times the decisions appealed from were

automatically vacated and trials de novohad to be conducted by the Court of First Instance.

Sec. 2 of Rule 50, which governs the dismissal of an appeal by the Court of Appeals, in pertinent part, provides:

Upon the receipt of such certification [of the Clerk of Court that the appeal has been dismissed] in the lower court the case shall

stand there as though no appeal had ever been taken, and the judgment of the said court may be enforced with the additional

costs allowed by the appellate court upon dismissing the appeal.

The phrase "the case shall stand there as if no appeal has been taken" refers to the manner of how the judgment may be enforced

as can be gleaned from the phrase following it that "the judgment of said court may be enforced with the additional costs allowed

by the appellate court . . ." In other words, the judgment shall be executed in accordance with its original disposition, no

modifications thereof having been ordered by the Court of Appeals.

Certainly, said Rule has nothing to do with the five-year period for enforcing a judgment by motion, which is governed by Section 6

of Rule 39.

Mayor Lim's vow to clean the city of vices, like gambling, is commendable. But in the process, he should bear in mind that there

are forms of gambling, and jai-alai is one them, that Congress has deigned to allow.

The pronouncement of Justice Isagani A. Cruz in Mayor Pablo Magtales v. Pryce Properties Corporation, G.R. No. 111097. July 20,

1994, apropos the operation of a gambling casino in Cagayan de Oro by the Philippine Amusement and Games Inc., is cogent to

the instant case, thus:

The morality of gambling is not a justiciable issue. Gambling is not illegal perse. While it is generally considered inimical to the

interests of the people, there is nothing in the Constitution categorically proscribing or penalizing gambling or, for that matter,

even mentioning it at all. It is left to Congress to deal with the activity as it sees fit. In the exercise of its own discretion, the

legislature may prohibit gambling altogether or allow it without limitation or it may prohibit some forms of gambling and allow

others for whatever reasons it may consider sufficient. Thus, it has prohibitedjuetengand montebut permits lotteries,

cockfighting andhorse-racing. In making such choices, Congress has consulted its own wisdom, which this Court has no authority to review, much

less reverse. Well has it been said that courts do not sit to resolve the merits of conflicting theories. (Garcia v. Executive Secretary,

204 SCRA 516, quoting Cooley, Constitutional Limitations, 8th ed., 379-380) That is the prerogative of the political departments. It

is settled that questions regarding the wisdom, morality, or practicability of statutes are not addressed to the judiciary but may be

resolved only by the legislative and e xecutive departments, to which the function belongs in our scheme of government (Decision,

p. 8).

It was Mayor Lopez himself who assessed the benefits that will accrue to the city with the operation of the jai-alai. Explaining his

motion to withdraw the appeal from the decision in Civil Case No. 88-45660, he said:

The beneficient effects to the appellant City of Manila, especially during this critical period in our national economy, are manifold

and undeniable. The franchise operation shall be a great boost toward generating much needed revenues for the City coffers

estimated at P100,000.00 a day by way of franchise fees alone, not to mention other municipal taxes and regulatory fees. Millions

of pesos in real estate taxes on the improvements would be realizable. Employment opportunities to little less than five hundred

people in the main building and hundreds of others in the off track fronton shall also be created. These is also the fact that the jai-

alai building, together with all the equipment therein, with an aggregate estimated cost of P100 million shall belong to the city

upon termination of the franchise terms ( Rollo, p. 127).

Considerations of equity and fair play militate against the petition.

The Office of the Mayor of the City of Manila issued on January 19, 1990, January 21, 1991 and May 25, 1992 business pe

favor of private respondent to operate a jai-alai fronton and collected the corresponding license and regulatory fees (Roll

151-153; 175-177; 178-198). Private respondent has spent close to P100,000,000.00 to finish the construction of the jai-a

building and fronton.

The petition was brought under "Rule 42, Section 1 in relation to R.A. No. 5440, to declare null and void ab initio for want

jurisdiction, the Decision and Orders dated March 28, 1994, April 11, 1994 and April 20, 1994 issued in Civil Case No. 88-4

the Regional Trial Court of Manila, Branch 40" (Rollo, p. 2).

Said Rule and law refer to appeals to the Supreme Court from the decisions of the Regional Trial Court. Clearly, they do no

involved the review of orders of the Regional Trial Court rendered after the decision of the trial court has become final an

executory. Such a review must be taken under

Rule 65, which can be given due course only when there is a showing of lack or excess of jurisdiction or grave abuse of dison the part of the trial court (Revised Rules of Court, Rule 67, Section 1; Planter's Products v. Court of Appeals, 193 SCRA

[1991]). We find no abuse of discretion, much less lack of or excess of jurisdiction, on the part of respondent judge. WHER

the petition for certiorariis DISMISSED. SO ORDERED.

G.R. No. 88386 August 17, 1989

THE UNIVERSITY OF THE PHILIPPINES, THE UP BOARD OF REGENTS AND DEAN PATRICIO LAZARO, petitioners,vs.

HON. JUDGE RUBEN AYSON, Br. VI, RTC-BAGUIO CITY, AND UP COLLEGE BAGUIO HIGH SCHOOL FOUNDATION, INC.,REPRESENTED HEREIN BY ITS PRESIDENT AND CHAIRMAN OF THE BOARD, SALVADOR VALDEZ, JR., respondents.

BIDIN,J.:

This is a petition for certiorari, with urgent prayer for the issuance of a temporary restraining order, seeking to annul the O

respondent Judge dated May 25, 1989 and June 14, 1989 in Civil Case No. 1748-R entitled, "UP College Baguio High Schoo

Foundation, Inc., et al,, v. The University of the Philippines, et al.,"restraining petitioners from implementing the decision

Board of Regents to phase out the UP College Baguio High School (UPCBHS) and the Memorandum of petitioner Dean Pat

Lazaro directing the principal of UPCBHS not to accept new incoming freshmen for the school year 1989-1990.

Sometime in 1972, the UP Board of Regents approved the establishment of UPCBHS as an integral part of the graduate pr

education to serve, among others, as a laboratory and demonstration school for prospective teachers. Provided, howeve

UPCBHS must be self-supporting and should not entail any subsidy from the budget of the UP.

In 1978, the Board of Regents provided for the establishment of a Division of Education in UP College Baguio (UPCB) whic

composed of a Department of Professional Education and a High School Department. However, the Department of Profes

Education was never organized, although the High School Department has been in continuous operation.

In 1981, the Committee to Review Academic Program recommended the abolition of the UPCBHS. In 1985, the Program R

Committee likewise asked the UPCB to look into the viability of its secondary education program on account of limited fin


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academic freedom, Rep. Act No. 6655 requires that the students enrolled therein "shall be free from payment of tuition and other

school fees.

In view of the foregoing, respondents do not have a clear legal right to UP s econdary education.

ACCORDINGLY, the Court Resolved to Grant the petition. The assailed Orders of respondent Judge dated May 25, 1989 and June

14, 1989 are hereby Set Aside and respondent Judge is ordered to Dismiss Civil Case No. 1748-R. Secretary Lourdes Quisumbing of

the Department of Education, Culture and Sports is requested to make arrangements with the other high schools in Baguio City for

purposes of accommodating the students herein affected. The temporary restraining order issued is made permanent.

SO ORDERED.

G.R. No. L-65439 November 13, 1985

PAMANTASAN NG LUNGSOD NG MAYNILA, petitionervs.

HON. INTERMEDIATE APPELLATE COURT, HON. FILEM0N FERNANDEZ, JR., HON. ALBINA MANALODANS as Commissioners ofCivil Service Commission and HERNANI P. ESTEBAN, respondents.

GUTIERREZ, JR.,J.:

The sole issue raised in this petition is the status of respondent Hernani Esteban's appointment as Vice-President for

Administration of the Pamantasan ng Lungsod ng Maynila that is, whether or not he holds the position in a permanent capacity as

to guarantee as security of tenure.

Respondent Esteban asserts that his appointment is permanent whereas the petitioner maintains its temporary and contractual

nature such that the respondent may be dismissed at any time even without cause.

Prior to his joining the Pamantasan, Dr. Esteban had been a permanent employee in the government service for twenty five (25)

years. Until May 20, 1973, he was officially connected with the Philippine College of Commerce, a state-owned educational

institution as its Vice-President for Academic Affairs. Shortly before that date, the Board of Trustees of the College in a bold move

to streamline the college organization resolve to abolish the position of Vice-President for Academic Affairs. Private respondent

was given the option to continue teaching at the Philippine College of Commerce which he accepted until his transfer to the

Pamantasan ng Lungsod ng Maynila, upon the invitation of its president, Dr. Consuelo Blanco.

At the Pamantasan, Dr. Esteban was initially extended an ad interimtemporary appointment as Vice-President for Administration

by Dr. Consuelo Blanco. Dr. Esteban received from the Secretary of Pamantasan a 'Notification of Confirmation of Temporary

Appointment' dated June 28, 1973. His appointment was 'effective May 21, 1973 until June 30, 1974, unless sooner terminated.'

On July 5, 1974, the Secretary of Pamantasan sent him a 'Notification of Renewal of Temporary Appointment' indicating that his

appointment was renewed 'effective July 1, 1974 until August 31, 1974.'

A month later, on August 30, 1974, he received from the University Secretary another 'notification of renewal of temporary

appointment' informing him that the Board of Regents, on recommendation of the President of the University approved the

renewal of his appointment 'effective September 1, 1974 until June 30, 1975' with an increased salary of P17,160per annum.

On October 15, 1974, incident to a further increase of his salary, Dr. Esteban was notified that his appointment as vice-pr

for administration at a salary of P17,600per annumhad been renewed effective September 1, 1974 until June 30, 1975.

On June 26, 1975, he received another 'Notification of Renewal of Temporary Appointment' as Vice-President for Adminis

with at salary of P21,760per annum,'effective July 1, 1975 until June 30, 1976.'

On July 26, 1975, Dr. E qqqsteban discovered that he was not included in the list of employees recommended for perman

appointments. He wrote Dr. Consuelo Blanco requesting the conversion of his temporary appointment to a permanent on

considering his two and half (2) years service.

On July 26, 1975, Dr. Esteban received an answer to his request from President Blanco who indicated various reasons for

acting favorably on his request.

On August 1, 1975, Dr. Esteban received a 'Notification of Ad Interim Appointment notifying him that the president of the

university had approved his appointment as Professor III with a salary of P15,600per annum'effective August 1, 1975'. He

further designated as Director of the Institute of Continuing Education and Community Service with an honorarium of P5,

annum, likewise effective August 1, 1975.

On August 7, 1975, Dr. Consuelo Blanco, issued a memorandum circular terminating Dr. Esteban's appointment as Vice-Pr

for Administration effective July 31, 1975. His appointment dated June 26, 1975 and effective until June 30, 1976 had bee

withdrawn before it could be confirmed by the Pamantasan Board of Regents.

On the same date, August 7, 1975, Dr. Esteban appealed to the Civil Service Commission for the protection of his tenure i

Pamantasan .

On October 9,1975, the Civil Service Commission ruled that:

The temporary nature of the appointment issued to Dr. Esteban as Vice President for Administration is conceded. Such be

Case, his services may be terminated at any time with or without request that he be extended permanent appointment ,o

temporary appointment be converted into permanent one, it may be stated that the issuance of such appointment is add

the sound discretion of the appointing official.

Dr. Esteban flied a motion for the reconsideration of that ruling. On January 14, 1976, the Civil Service Commission ruled f

on Dr. Esteban's motion. It stated that he was fully qualified for the position of Vice-President for Administration and cert

"for appointment therein under permanent status." The Commission stated:

In view thereof, and in the absence of any apparent justifiable reason why Dr. Esteban should remian under temporary st

the length of time prior to the withdrawal of his appointment as Vice President for Administration in that University, and

further appears that he is fully qualified for the position in question in view of his extensive experience in the fields of publ

administration and management, this Commission hereby certifies him for appointment therein under permanent status.

The Pamantasan, in turn, asked for the reconsideration of that ruling.

The Commission, in an undated Resolution No. 75, Series of 1976, came out with a statement which confused more than

clarified. It stated that its certification should not be interpreted as directing the reinstatement of Dr. Esteban because 'it

never intended to be so


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discharge the duties of the office during the absence or temporary incapacity of its regular incumbent (Black's Law Dictionary,

Revised Fourth Edition, 1978). But such is not the meaning nor the use intended in the context of Philippine law. In referring to Dr.

Esteban's appointments, the term is not descriptive of the nature of the appointments given to him. Rather, it is used to denote

the manner in which said appointments were made, that is, done by the President of the Pamantasan in the meantime, while the

Board of Regents, which is originally vested by the University Charter with the power of appointment, is unable to act. Thus, we

held in Summers v. Ozaeta(81 Phil. 760):

... an ad interimappointment is one made in pursuance of paragraph (4), section 10, Article VII of the Constitution, which provides

that the President shall have the power to make appointments during the recess of the Congress, but such appointments shall b e

effective only until disapproval by the Commission on Appointments or until the next adjournment of the Congress.' lt is an

appointment permanent in nature, and the circumstance that it is subject to confirmation by the Commission on Appointments

does not alter its permanent character. An ad interim appointment is disapproved certainly for a reason other than that its

provisional period has expired. Said appointment is of course distinguishable from an 'acting' appointment which is merely

temporary, good until another permanent appointment is issued.

Not only is the appointment in question an ad interimappointment, but the same is also a confirmed ad interimappointment. In

its Resolution No. 485, dated June 20, 1973, the Pamantasan Board of Regents verified respondent Esteban's appointment

without condition nor limitation as to tenure. As of that moment, it became a regular and permanent appointment.

In other words, if the Board of Regents is in session, the Pamantasan President merely nominates while the Board issues the

appointment. But when the Board is not in session, the President is authorized to issue ad interimappointments. Such

appointments are permanent but their terms are only until the Board disapproves them. If confirmed, the appointee's term is

converted into the regular term inherent in the position.

Petitioner centers its arguments and tries to fix the attention of the court to the fact that all notices of appointments, renewals,

and confirmation thereof all declare the same to be temporary, carrying fixed commencement and termination dates, "unless

sooner terminated." As expressed by public respondent, "... This stubborn insistence is anchored on the notifications of temporary

appointment sent to private respondent Esteban by the Secretary of Pamantasan. However, this insistence deliberately ignores ...

Resolution No. 485 dated June 20, 1973 of the Board of Regents ...". And correctly so argued. "In case of conflict between a

notification issued

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