EN BANC

[G.R. No. 114222. April 6, 1995.]

FRANCISCO S. TATAD, JOHN H. OSMEA and RODOLFO G. BIAZON, petitioners, vs. HON. JESUS B.
GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and Communications,
and EDSA LRT CORPORATION, LTD., respondents.
Brillantes (Nachura) Navarro Jumamil Arcilla & Bello Law Offices for petitioners.
The Solicitor General for respondents.
SYLLABUS
1.
REMEDIAL LAW; CIVIL PROCEDURE; TAXPAYER'S SUITS; PREVAILING DOCTRINE. The prevailing
doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national
government or government-owned or controlled corporations allegedly in contravention of the law
(Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal
contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA 240
[1989]). For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.
2.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY; FACILITIES TO
OPERATE A PUBLIC UTILITY DO NOT NEED A FRANCHISE. Private respondent EDSA LRT Corporation,
Ltd. to whom the contract to construct the EDSA LRT III was awarded by public respondent Secretary of
DOTC, is admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong."
However, there is also no dispute that once the EDSA LRT III is constructed, private respondent, as
lessor, will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for said
use. What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations,
terminals and the power plant, not a public utility. While a franchise is needed to operate these facilities
to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility
is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service
Board, 44 Phil. 551, 557558 [1923]). The Constitution, in no uncertain terms, requires a franchise for
the operation of a public utility. However, it does not require a franchise before one can own the
facilities needed to operate a public utility so long as it does not operate them to serve the public.
3.
ID.; ID.; ID.; ID.; OPERATION OF PUBLIC UTILITY AND OWNERSHIP OF FACILITIES,
DISTINGUISHED. In law, there is a clear distinction between the "operation" of a public utility and the
ownership of the facilities and equipment used to serve the public. Ownership is defined as a relation in
law by virtue of which a thing pertaining to one person is completely subjected to his will in everything
not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and
Jurisprudence on the Civil Code of the Philippines 45 [1992]). The exercise of the rights encompassed in
ownership is limited by law so that a property cannot be operated and used to serve the public as a
public utility unless the operator has a franchise. The operation of a rail system as a public utility

includes the transportation of passengers from one point to another point, their loading and unloading
at designated places and the movement of the trains at pre-scheduled times. The right to operate a
public utility may exist independently and separately from the ownership of the facilities thereof. One
can own said facilities without operating them as a public utility, or conversely, one may operate a
public utility without owning the facilities used to serve the public. The devotion of property to serve the
public may be done by the owner or by the person in control thereof who may not necessarily be the
owner thereof. This dichotomy between the operation of a public utility and the ownership of the
facilities used to serve the public can be very well appreciated when we consider the transportation
industry. Enfranchised airline and shipping companies may lease their aircraft and vessels instead of
owning them themselves.
4.
ID.; ID.; ID.; ID.; REQUISITE FILIPINO NATIONALITY DETERMINED WHEN ENTITY APPLIES FOR
FRANCHISE. Private respondent will not run the light rail vehicles and collect fees from the riding
public. It will have no dealings with the public and the public will have no right to demand any services
from it. Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility.
Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to
railroad companies considered as public utilities. Even the mere formation of a public utility corporation
does not ipso facto characterize the corporation as one operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any
other form of authorization for that purpose.
5.
ID.; ID.; ID.; BUILD-OPERATE-AND-TRANSFER (BOT) SCHEME; BUILD-AND-TRANSFER (BT)
SCHEME; DEFINED AND DISTINGUISHED. The BOT scheme is expressly defined as one where the
contractor undertakes the construction and financing of an infrastructure facility, and operates and
maintains the same. The contractor operates the facility for a fixed period during which it may recover
its expenses and investment in the project plus a reasonable rate of return thereon. After the expiration
of the agreed term, the contractor transfers the ownership and operation of the project to the
government. In the BT scheme, the contractor undertakes the construction and financing of the facility,
but after completion, the ownership and operation thereof are turned over to the government. The
government, in turn, shall pay the contractor its total investment on the project in addition to a
reasonable rate of return. If payment is to be effected through amortization payments by the
government infrastructure agency or local government unit concerned, this shall be made in accordance
with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6). Emphasis
must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the
citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is
imposed in the BT scheme.
6.
ID.; ID.; ID.; BUILD-LEASE-AND-TRANSFER (BLT) SCHEME AND RELATED AGREEMENTS; NOT
BARRED IN THE BOT LAW (RA 6957). There is no mention in the BOT Law that the BOT and BT
schemes bar any other arrangement for the payment by the government of the project cost. The law
must not be read in such a way as to rule out or unduly restrict any variation within the context of the
two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and details
for the multifarious and complex situations that may be encountered in enforcing the law. The BLT

scheme in the challenged agreements is but a variation of the BT scheme under the law. As a matter of
fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it
to amortize payments out of the income from the operation of the LRT System. In form and substance,
the challenged agreements provide that rentals are to be paid on a monthly basis according to a
schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit. At
the end of 25 years and when full payment shall have been made to and received by private respondent,
it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the
project for only U.S. $1.00 (Revised and Restated Agreement). A lease is a contract where one of the
parties binds himself to give to another the enjoyment or use of a thing for certain price and for a period
which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art.
1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate that
title to the leased premises shall be transferred to the lessee at the end of the lease period upon the
payment of an agreed sum, the lease becomes a lease-purchase agreement. Furthermore, it is of no
significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA LRT III
Project is a high priority project certified by Congress and the National Economic and Development
Authority as falling under the Investment Priorities Plan of Government. It is, therefore, outside the
application of the Uniform Currency Act (R.A. No. 529).
7.
ID.; ID.; ID.; AWARD OF CONSTRUCTION MAY BE MADE BY NEGOTIATION. The fact that the
contract for the construction of the EDSA LRT III was awarded through negotiation and before
congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by
the private sector pursuant to the BOT Law does not suffice to invalidate the award. Subsequent
congressional approval of the list including "rail-based projects packaged with commercial development
opportunities" under which the EDSA LRT III project falls, amounts to a ratification of the prior award of
the EDSA LRT III contract under the BOT Law. Indeed, where there is a lack of qualified bidders or
contractors, the award of government infrastructure contracts may be made by negotiation. Presidential
Decree No. 1594 is the general law on government infrastructure contracts while the BOT Law governs
particular arrangements or schemes aimed at encouraging private sector participation in government
infrastructure projects. The two laws are not inconsistent with each other but are in pari materia and
should be read together accordingly.
8.
ID.; ID.; RA 7718; QUALIFIED APPLICANT MAY ENTER INTO ANY SCHEME INCLUDING A BLT
ARRANGEMENT. Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof.
Section 5-A of the law, expressly allows direct negotiation of contracts. From the law itself, once an
applicant has prequalified, it can enter into any of the schemes enumerated in Section 2, RA 7718,
including a BLT arrangement, enumerated and defined therein (Sec. 3). Republic Act No. 7718 is a
curative statute. It is intended to provide financial incentives and "a climate of minimum government
regulations and procedures and specific government undertakings in support of the private sector" (Sec.
1). A curative statute makes valid that which before enactment of the statute was invalid. Thus,
whatever doubts and alleged procedural lapses private respondent and DOTC may have engendered and
committed in entering into the questioned contracts, these have now been cured by R.A. No. 7718.

9.
ID.; ID.; ID.; AGREEMENTS BETWEEN PRIVATE RESPONDENT AND DOTC, PRESUMED WELLTAKEN AND TO THE ADVANTAGE OF BOTH PARTIES; GOVERNMENT OFFICIALS CONCERNED, PRESUMED
TO HAVE PERFORMED THEIR FUNCTIONS REGULARLY. The determination by the proper
administrative agencies and officials who have acquired expertise, specialized skills and knowledge in
the performance of their functions should be accorded respect, absent any showing of grave abuse of
discretion. Government officials are presumed to perform their functions with regularity and strong
evidence is necessary to rebut this presumption. Petitioners have not presented evidence on the
reasonable rentals to be paid by the parties to each other. The matter of valuation is an esoteric field
which is better left to the experts and which this Court is not eager to undertake. That the grantee of a
government contract will profit therefrom and to that extent the government is deprived of the profits if
it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party
enters into a contract with the government, he does so, not out of charity and not to lose money, but to
gain pecuniarily. Definitely, the agreements in question have been entered into by DOTC in the exercise
of its governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications systems as
well as in the fast, safe, efficient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in
particular, that has the power, authority and technical expertise to determine whether or not a specific
transportation or communications project is necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the government agencies entrusted with that function.
MENDOZA, J., concurring:
1.
REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; MEMBERS OF CONGRESS, NO LEGAL STANDING TO
SUE IF THEY ALLEGE NO INFRINGEMENT OF PREROGATIVES AS LEGISLATORS. J. Mendoza holds that
petitioners do not have standing to sue. He joins to dismiss the petition in this case. Petitioners do not
have the right to sue, whether as legislators, taxpayers or citizens. As members of Congress, because
they allege no infringement of prerogatives as legislators. As taxpayers because petitioners allege
neither an unconstitutional exercise of the taxing or spending powers of Congress (Art. VI, 24-25 and 29)
nor an illegal disbursement of public money. As this Court pointed out in Bugnay Const. and Dev. Corp.
v. Laron, 176 SCRA 240, 251-2-(1989) a party suing as taxpayer "must specifically prove that he has
sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will
sustain a direct injury as a result of the enforcement of the questioned statute or contract. It is not
sufficient that he has merely a general interest common to all members of the public." In that case, it
was held that a contract, whereby a local government leased property to a private party with the
understanding that the latter would build a market building and at the end of the lease would transfer
the building to the lessor, did not involve a disbursement of public funds so as to give a taxpayer
standing to question the legality of the contract. He sees no substantial difference, as far as the standing
of taxpayers to question public contracts is concerned, between the contract there and the build-leasetransfer (BLT) contract being questioned by petitioners in this case. Nor do petitioners have standing to
bring this suit as citizens. In the cases in which citizens were authorized to sue, this Court found standing

because it thought the constitutional claims pressed for decision to be of "transcendental importance,"
as in fact it subsequently granted relief to petitioners by invalidating the challenged statutes or
governmental actions. But in the case at bar, the Court precisely finds the opposite by finding
petitioners' substantive contentions to be without merit. To the extent therefore that a party's standing
is affected by a determination of the substantive merit of the case or a preliminary estimate thereof,
petitioners in the case at bar must be held to be without standing. This is in line with our ruling in
Lawyers League for a Better Philippines v. Aquino (G.R. Nos. 73748, 73972, 73990, May 22, 1986) and In
re Bermudez (145 SCRA 160, 1986) where we dismissed citizens' actions on the ground that petitioners
had no personality to sue and their petitions did not state a cause of action. The holding that petitioners
did not have standing followed from the finding that they did not have a cause of action. In order that
citizens' actions may be allowed a party must show that he personally has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly
traceable to the challenged action; and the injury is likely to be redressed by a favorable action. Todays's
holding that a citizen, qua citizen, has standing to question a government contract unduly expands the
scope of public actions and sweeps away the case and controversy requirement so carefully embodied
in Art. VIII, 5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of
ombudsman for the ventilation of generalized grievances.
FELICIANO, J., dissenting:
1.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY (EDSA LRT III); PD 1594
ON BIDDING AND RELATED PROVISIONS; NOT APPLICABLE TO RA 6957 AND RA 7718. Presidential
Decree No. 1594 dated 11 June 1978 entitled: "Prescribing Policies, Guidelines, Rules and Regulations
for Government Infrastructure Contracts." More specifically, the majority opinion invokes paragraph 1
of Section 4 of this Degree which refers to Bidding. I understand the unspoken theory in the majority
opinion to be that above Section 4 and presumably the rest of Presidential Decree No. 1594 continue to
exist and to run parallel to the provisions of Republic Act No. 6957, whether in its original form or as
amended by Republic Act No. 7718. A principal difficulty with this approach is that Presidential Decree
No. 1594 purports to apply to all "government contracts for infrastructure and other construction
projects." But Republic Act No. 6957 as amended by Republic Act No. 7718, relates only to
"infrastructure projects" which are financed, constructed, operated and maintained "by the private
sector" "through the build/operate-and-transfer or build-and-transfer scheme" under Republic Act No.
6597 and under a series of other comparable schemes under Republic Act No. 7718. In other words,
Republic Act No. 6957 and Republic Act No. 7718 must be held, in my view, to be special statutes
applicable to a more limited field of "infrastructure projects" than the wide-ranging scope of application
of the general statute, i.e., Presidential Decree No. 1594. Thus, the high relevance of the point made by
Mr. Justice Davide that Republic Act No. 6957 in specific connection with BOT- and BLT-type of contracts
imposed an unqualified requirement of public bidding set out in Section 5 thereof. It should also be
pointed out that under Presidential Decree No. 1594, projects may be undertaken "by administration or
force account or by negotiated contract only" (1) "in exceptional cases where time is of the essence"; or
(2) "where there is lack of bidders or contractors"; or (3) "where there is a conclusive evidence that
greater economy and efficiency would be achieved through these arrangements, and in accordance with

provision[s] of laws and acts of the matter." It must, upon the one hand, be noted that the special law
Republic Act No. 6957 made absolutely no mention of negotiated contracts being permitted to displace
the requirement of public bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957
by the amending statute Republic Act No. 7718, does not purport to authorize direct negotiation of
contracts except in four (4) situations where there is a lack of pre-qualified contractors or complying
bidders. Thus, even under the amended special statute, entering into contracts by negotiation is not
permissible in the other two (2) categories of cases referred to in Section 4 of Presidential Decree No.
1594, i.e., "in exceptional cases where time is of the essence" and "when there is conclusive evidence
that greater economy and efficiency would be achieved through these arrangements, etc." The result I
reach is that insofar as BOT, etc. types of contracts are concerned, the applicable public bidding
requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened
for pre-qualification and bidding after the date of effectivity of republic Act No. 7718, the provisions of
Republic Act No. 7718. The assailed contract was entered into before Republic Act No. 7718 was
enacted. The difficulties of applying the provisions of Presidential Decree No. 1594 to the Edsa LRT-type
of contracts are aggravated when one considers the detailed "Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree. There is no reference at all in these
Presidential Decree No. 1594 Implementing Rules and Regulations to absence of pre-qualified applicants
and bidders as justifying negotiation of contracts as distinguished from requiring public bidding or a
second public bidding. Note also the following provision of the same Implementing Rules and
Regulations: "IB 1 Prequalification. The following may become contractors for government projects: 1.
Filipino a. Citizens (single proprietorship) b. Partnership or corporation duly organized under the laws of
the Philippines, and at least seventy five percent (75%) of the capital stock of which belongs to Filipino
citizens. 2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors
that intend to be jointly and severally responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited by the
Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566, provided that
joint ventures in which Filipino ownership is less than seventy five percent (75%) may be prequalified
where the structures to be built require the application of techniques and/or technologies which are not
adequately possessed by a Filipino entity as defined above. The record of this case is entirely silent on
the extent of Philippine equity in the Edsa LRT Corporation; there is no suggestion that this corporation
is organized under Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens.
2.
ID.; ID.; ID.; PUBLIC BIDDING, AN IMPORTANT REQUIREMENT. Public bidding is the normal
method by which a government keeps contractors honest and is able to assure itself that it would be
getting the best possible value for its money in any construction or similar project. It is not for nothing
that multilateral financial organizations like the World Bank and the Asian Development Bank uniformly
require projects financed by them to be implemented and carried out by public bidding. Public bidding is
much too important a requirement casually to loosen by a latitudinarian exercise in statutory
construction.
DAVIDE, JR., J., dissenting opinion:

1.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY (EDSA LRT III); RA 6957
(BOT LAW); BUILD-LEASE-AND-TRANSFER (BLT) SCHEME, NOT INCLUDED THEREIN. Respondents
admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements
between the private sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer
(BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2
thereof which defines only the BOT and BT schemes, in Section 3 which explicitly provides for said
schemes and in Section 5 which requires public bidding of projects under both schemes. All prior acts
and negotiations leading to the perfection of the challenged contract were clearly intended and pursued
for such schemes. A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and
none of the aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence,
the DOTC is without any power or authority to enter into the BLT contract in question. If it is intended to
include a BLT scheme in RA 6957, then it should have so stated, for contracts of lease are not unknown
in our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT scheme was
never intended as a permissible variation "within the context" of the BOT and BT schemes is conclusively
established by the passage of R.A. No. 7718 which amends: a) Section 2 by adding to the original BOT
and BT schemes the following schemes: (1) Build-own-and operate (BOO) (2) Build-Lease-and-transfer
(BLT) (3) Build-transfer-and-operate (BTO) (4) Contract-add-and-operate (CAO) (5) Develop-operate-andtransfer (DOT) (6) Rehabilitate-operate-and-transfer (ROT) (7) Rehabilitate-own-and-operate (ROO) b)
Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-and-transfer or
build-and-transfer scheme."
2.
ID.; ID.; ID.; PUBLIC BIDDING THEREIN, MANDATORY ; RA 7718 FOREGOING THE SAME DOES
NOT PROVIDE FOR RETROACTIVE APPLICATION. Public bidding is mandatory in R.A. No. 6957 under
Section 5 thereof. The requirement of public bidding is not an idle ceremony. It has been aptly said that
in our jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the required bidding is null
and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A
TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs.
Delgado Bros., 96 Phil. 368 [1954]). The Office of the President, through then Executive Secretary
Franklin Drilon correctly disapproved the contract because no public bidding in strict compliance with
Section 5 of R.A. No. 6957 was conducted. Secretary Drilon further bluntly stated that the provision of
the Implementing Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, it
is null and void because the law itself does not recognize or allow negotiated contracts. The mandatory
requirement of public bidding cannot be legally dispensed with simply because only one was qualified to
bid during the prequalification proceedings. Section 5 mandates that the BOT or BT contract should be
awarded "to the lowest complying bidder," which logically means that there must at least be two (2)
bidders. If this minimum requirement is not met, then the proposed bidding should be deferred and a
new prequalification proceeding be scheduled. Even those who were earlier disqualified may by then

have qualified because they may have, in the meantime, exerted efforts to meet all the qualifications.
This view of the majority would open the floodgates to the rigging of prequalification proceedings or to
unholy conspiracies among prospective bidders, which would even include dishonest government
officials. They could just agree, for a certain consideration, that only one of them would qualify in order
that the latter would automatically corner the contract and obtain the award. That Section 5 admits of
no exception and that no bidding could be validly had with only one bidder is likewise conclusively
shown by the amendments introduced by R.A. No. 7718. Per Section 7 thereof, a new section
denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation of contracts.
Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be. R.A. No. 7718 does not provide
that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall
take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation." If
it were the intention of Congress to give said act retroactive effect then it would have so expressly
provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect, unless the
contrary is provided." The presumption is that all laws operate prospectively, unless the contrary clearly
appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt,
the doubt will be resolved against the retroactive application of laws. (Ruben E. Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing statute,
Sutherland states: In accordance with the rule applicable to original acts, it is presumed that provisions
added by the amendment affecting substantive rights are intended to operate prospectively. Provisions
added by the amendment that affect substantive rights will not be construed to apply to transactions
and events completed prior to its enactment unless the legislature has expressed its intent to that effect
or such intent is clearly implied by the language of the amendment or by the circumstances surrounding
its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434436 [1943 ed.]).
DECISION
QUIASON, J p:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light
Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April
1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA"
dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine
Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is
the incumbent Secretary of the Department of Transportation and Communications (DOTC), while
private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of
Hongkong. cdll
I

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The
plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit
system along EDSA and alleviate the congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu
Levin, to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-OperateTransfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with
DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes,"
was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took
effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or BuildTransfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC,
on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496,
respectively creating the Prequalification Bids and Awards Committee (PBAC) and the Technical
Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing
and implementation of the project. The notice, advertising the prequalification of bidders, was
published in three newspapers of general circulation once a week for three consecutive weeks starting
February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to
April 1, 1991. Five groups responded to the invitation: namely, ABB Trazione of Italy, Hopewell Holdings,
Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT
Consortium, composed of ten foreign and domestic corporations: namely, Kaiser Engineers
International, Inc., ACER Consultants (Far East) Ltd., Freeman Fox, Tradeinvest/CKD Tatra of the Czech
and Slovak Federal Republics, TCGI Engineering, All Asia Capital and Leasing Corporation, The Salim
Group of Jakarta, E.L. Enterprises, Inc., A.M. Oreta & Co., Inc., Capitol Industrial Construction Group, Inc.
and F.F. Cruz & Co., Inc. cdrep
On the last day for submission of prequalification documents, the prequalification criteria proposed by
the Technical Committee were adopted by the PBAC. The criteria, totalling 100 percent, are as follows:
(a) Legal aspects 10 percent; (b) Management/Organizational capability 30 percent; (c) Financial
capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122).

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementing
Rules and Regulations thereof, approved the same.
After evaluating the prequalification bids, the PBAC issued a Resolution on May 9, 1991 declaring that of
the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points
per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points"
(Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the
requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines
and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters
dated May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III
project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority to
negotiate with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and
Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the
DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid
proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147177).
Secretary Prado, thereafter, requested presidential approval of the contract. LibLex
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary
Orbos, informed Secretary Prado that the President could not grant the requested approval for the
following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with Section 5 of
the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT projects, and the
prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of
the Implementing Rules and Regulations of the BOT Law which authorized negotiated award of contract
in addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of
priority projects under the BOT or BT Scheme provided in the law had not yet been granted at the time
the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated
the agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are]
cognizant of the fact the DOTC has full authority to sign the Agreement without need of approval by the
President pursuant to the provisions of Executive Order No. 380 and that certain events [had]
supervened since November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51).
On May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and private

respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their
respective rights and responsibilities" and to "submit [the] Supplemental Agreement to the President of
the Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and
approval. In a Memorandum to Secretary Garcia on May 6, 1993, President Ramos approved the said
Agreements (Rollo, p. 194).
According to the agreements, the EDSA-LRT III will use light rail vehicles from the Czech and Slovak
Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150
million a year to be achieved through 54 such vehicles operating simultaneously. The EDSA LRT III will
run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B.
Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility (Revised
and Restated Agreement, Sec. 2.3 (ii); Rollo, p. 55). It will also have thirteen (13) passenger stations and
one depot in the 16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11;
Rollo, pp. 91-92).
Private respondent shall undertake and finance the entire project required for a complete operational
light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date
is 1,080 days or approximately three years from the implementation date of the contract inclusive of
mobilization, site works, initial and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p.
83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and
possession of the completed portion to DOTC which shall operate the same (Supplemental Agreement,
Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private
respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be
determined by an independent and internationally accredited inspection firm to be appointed by the
parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86). As agreed upon, private respondent's capital
shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the earnings
of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC
shall have completed payment of the rentals, ownership of the project shall be transferred to the latter
for a consideration of only U.S.$1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67). LibLex
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled 'An
Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector, and for Other Purposes'" was signed into law by the President. The law was published
in two newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on May
28, 1994. The law expressly recognizes a BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:

"(1)
THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF
MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE
OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS
UNCONSTITUTIONAL;
"(2)
THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR
RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS
ILLEGAL;
"(3)
THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R.A. NO. 6957 AND, HENCE,
IS UNLAWFUL;
"(4)
THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE
BOT LAW AND, HENCE, IS ILLEGAL;
"(5)
THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO. 380 FOR THEIR FAILURE TO BEAR
PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
"(6)

THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT" (Rollo, pp. 15-16).

Secretary Garcia and private respondent filed their comments separately and claimed that:
(1)
Petitioners are not the real parties-in-interest and have no legal standing to institute the present
petition;
(2)
facts;

The writ of prohibition is not the proper remedy and the petition requires ascertainment of

(3)
Law;

The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT

(4)
The nationality requirement for public utilities mandated by the Constitution does not apply to
private respondent;
(5)
The Agreements executed by and between respondents have been approved by President
Ramos and are not disadvantageous to the government;
(6)
The award of the contract to private respondent through negotiation and not public bidding is
allowed by the BOT Law; and
(7)
Granting that the BOT Law requires public bidding, this has been amended by R.A. No. 7718
passed by the Legislature on May 12, 1994, which provides for direct negotiation as a mode of award of
infrastructure projects. LexLib
III

Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by
the national government or government-owned or controlled corporations allegedly in contravention of
the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only
municipal contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176
SCRA 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it
and uphold the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:
(1)
the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the
Constitution to Filipino citizens and domestic corporations, not foreign corporations like private
respondent;
(2)
the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT scheme
under the law;
(3)
the contract to construct the EDSA LRT III was awarded to private respondent not through public
bidding which is the only mode of awarding infrastructure projects under the BOT law; and
(4)

the agreements are grossly disadvantageous to the government.

1.
Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT
III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and
existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT
III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to
operate the system and pay rentals for said use.
The question posed by petitioners is:
"Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III, a public utility?"
(Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks,
rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a
franchise is needed to operate these facilities to serve the public, they do not by themselves constitute a
public utility. What constitutes a public utility is not their ownership but their use to serve the public
(Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557-558 [1923]). LexLib

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a public
utility so long as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
"No franchise, certificate or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws
of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive in character or for a longer period than fifty years . . ."
(Italics supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the rights of
another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility unless the operator has a franchise. The
operation of a rail system as a public utility includes the transportation of passengers from one point to
another point, their loading and unloading at designated places and the movement of the trains at prescheduled times (cf. Arizona Eastern R.R. Co. v. J.A. Matthews, 20 Ariz 282, 180 P. 159, 7 A.L.R. 1149
[1919]; United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065
[1948]). cdphil
The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to serve the public. The devotion of
property to serve the public may be done by the owner or by the person in control thereof who may not
necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to
serve the public can be very well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning them
themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA LRT III, it admits
that it is not enfranchised to operate a public utility. (Revised and Restated Agreement, Sec. 3.2; Rollo,
p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion date, private
respondent will immediately deliver possession of the LRT system by way of lease for 25 years, during
which period DOTC shall operate the same as a common carrier and private respondent shall provide
technical maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and

5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance
facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and
distributing maintenance manuals and drawings for the entire system (Revised and Restated
Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signalling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies, collection, counting and securing cash from
the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will
work under the direction and control of private respondent only during training (Revised and Restated
Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of
the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ
personnel capable of undertaking training of all new and replacement personnel (Revised and Restated
Agreement, Annex E, Sec. 5.1). In other words, by the end of the three-year construction period and
upon commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on
its own and train all new personnel by itself. Cdpr
Fees for private respondent's services shall be included in the rent, which likewise includes the project
cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a
reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since, DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common
carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses,
damages, injuries or death which may be claimed in the operation or implementation of the system,
except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective
condition of equipment or facilities or the defective maintenance of such equipment or facilities
(Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It
will have no dealings with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case of
Kilosbayan, Inc. v. Guingona, 232-SCRA 110 (1994). Therein, the Contract of Lease between PGMC and
the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture
agreement prescribed under the charter of the PCSO. In the Contract of Lease, PGMC, the lessor
obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a
nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same.
Upon due examination of the contract, the Court found that PGMC's participation was not confined to
the construction and setting up of the on-line lottery system. It spilled over to the actual operation

thereof, becoming indispensable to the pursuit, conduct, administration and control of the highly
technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which
actually operated and managed the same. LLphil
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence
and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of
Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill. 35 S.
Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry
and beer cars who supply cars under contract to railroad companies considered as public utilities
(Crystal Car Line v. State Tax Commission, 174 P. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation
as one operating a public utility. The moment for determining the requisite Filipino nationality is when
the entity applies for a franchise, certificate or any other form of authorization for that purpose (People
v. Quasha, 93 Phil. 333 (1953]).
2.
Petitioners further assert that the BLT scheme under the Agreements in question is not
recognized in the BOT Law and its implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
"(a)
Build-operate-and-transfer scheme A contractual arrangement whereby the contractor
undertakes the construction, including financing, of a given infrastructure facility, and the operation and
maintenance thereof. The contractor operates the facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals, and charges sufficient to enable the contractor to
recover its operating and maintenance expenses and its investment in the project plus a reasonable rate
of return thereon. The contractor transfers the facility to the government agency or local government
unit concerned at the end of the fixed term which shall not exceed fifty (50) years. For the construction
stage, the contractor may obtain financing from foreign and/or domestic sources and/or engage the
services of a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the
contractor of an infrastructure facility whose operation requires a public utility franchise must be in
accordance with the Constitution: Provided, however, That in the case of corporate investors in the
build-operate-and-transfer corporation, the citizenship of each stockholder in the corporate investors
shall be the basis for the computation of Filipino equity in the said corporation: Provided, further, That,
in the case of foreign constructors [sic], Filipino labor shall be employed or hired in the different phases
of the construction where Filipino skills are available: Provided, furthermore, that the financing of a
foreign or foreign-controlled contractor from Philippine government financing institutions shall not
exceed twenty percent (20%) of the total cost of the infrastructure facility or project: Provided, finally,
That financing from foreign sources shall not require a guarantee by the Government or by governmentowned or controlled corporations. The build-operate-and-transfer scheme shall include a supply-andoperate situation which is a contractual arrangement whereby the supplier of equipment and machinery
for a given infrastructure facility, if the interest of the Government so requires, operates the facility
providing in the process technology transfer and training to Filipino nationals. cdphil

(b)
Build-and-transfer scheme A contractual arrangement whereby the contractor undertakes
the construction including financing, of a given infrastructure facility, and its turnover after completion
to the government agency or local government unit concerned which shall pay the contractor its total
investment expended on the project, plus a reasonable rate of return thereon. This arrangement may be
employed in the construction of any infrastructure project including critical facilities which for security
or strategic reasons, must be operated directly by the government" (Italics supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and
financing of an infrastructure facility, and operates and maintains the same. The contractor operates the
facility for a fixed period during which it may recover its expenses and investment in the project plus a
reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after
completion, the ownership and operation thereof are turned over to the government. The government,
in turn, shall pay the contractor its total investment on the project in addition to a reasonable rate of
return. If payment is to be effected through amortization payments by the government infrastructure
agency or local government unit concerned, this shall be made in accordance with a scheme proposed in
the bid and incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must
comply with the citizenship requirement of the Constitution on the operation of a public utility. No such
a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the
payment by the government of the project cost. The law must not be read in such a way as to rule out or
unduly restrict any variation within the context of the two schemes. Indeed, no statute can be enacted
to anticipate and provide all the fine points and details for the multifarious and complex situations that
may be encountered in enforcing the law (Director of Forestry v. Muoz, 23 SCRA 1183 [1968]; People v.
Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter
by allowing it to amortize payments out of the income from the operation of the LRT System. LibLex
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly
basis according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving
Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full
payment shall have been made to and received by private respondent, it shall transfer to DOTC, free
from any lien or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00
(Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec. 7; Rollo, pp. 67, 87).

A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a
thing for a certain price and for a period which may be definite or indefinite but not longer than 99 years
(Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the lease
period. But if the parties stipulate that title to the leased premises shall be transferred to the lessee at
the end of the lease period upon the payment of an agreed sum, the lease becomes a lease-purchase
agreement. LLjur
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine
pesos. The EDSA LRT III Project is a high priority project certified by Congress and the National Economic
and Development Authority as falling under the Investment Priorities Plan of Government (Rollo, pp.
310-311). It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which
reads as follows:
"Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any
obligation contracted in the Philippines which provisions purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby, be as it is hereby declared against public policy,
and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting
high-priority economic projects for agricultural, industrial and power development as may be
determined by the National Economic Council which are financed by or through foreign funds; . . . ."
3.
The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of National
Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not
suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial
development opportunities" (Rollo, p. 310) under which the EDSA LRT III project falls, amounts to a
ratification of the prior award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalification process which led to the negotiated award of the contract
appears to have been rigged from the very beginning to do away with the usual open international
public bidding where qualified internationally known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to
conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an
absurd and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of then Executive Secretary Drilon, Section 5 of the BOT Law in relation to
Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government
Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases.
Section 4 of the said law reads as follows:

"Bidding. Construction projects shall generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract only
in exceptional cases where time is of the essence, or where there is lack of qualified bidders or
contractors, or where there is conclusive evidence that greater economy and efficiency would be
achieved through this arrangement, and in accordance with provision of laws and acts on the matter,
subject to the approval of the Minister of Public Works and Transportation and Communications, the
Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than
P1 Million, and the President of the Philippines, upon recommendation of the Minister, if the project
cost is P1 Million or more (Italics supplied).
xxx

xxx

xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure
contracts may be made by negotiation. Presidential Decree No. 1594 is the general law on government
infrastructure contracts while the BOT Law governs particular arrangements or schemes aimed at
encouraging private sector participation in government infrastructure projects. The two laws are not
inconsistent with each other but are in pari materia and should be read together accordingly. LibLex
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why
none of the competing firms ever brought the matter before the PBAC, or intervened in this case before
us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v.
Office of the President, 205 SCRA 705 [1992]). The challenged agreements have been approved by
President Ramos himself. Although then Executive Secretary Drilon may have disapproved the
"Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA," there is nothing in our
laws that prohibits parties to a contract from renegotiating and modifying in good faith the terms and
conditions thereof so as to meet legal, statutory and constitutional requirements. Under the
circumstances, to require the parties to go back to step one of the prequalification process would just be
an idle ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private
sector participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and
renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
"(e)
Build-lease-and-transfer A contractual arrangement whereby a project proponent is
authorized to finance and construct an infrastructure or development facility and upon its completion
turns it over to the government agency or local government unit concerned on a lease arrangement for
a fixed period after which ownership of the facility is automatically transferred to the government
agency or local government unit concerned."
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
"Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only one
complying bidder left as defined hereunder.

"(a)
If, after advertisement, only one contractor applies for prequalification and it meets the
prequalification requirements, after which it is required to submit a bid proposal which is subsequently
found by the agency/local government unit (LGU) to be complying.
"(b)
If, after advertisement, more than one contractor applied for prequalification but only one
meets the prequalification requirements, after which it submits bid/proposal which is found by the
agency/local government unit (LGU) to be complying.
"(c)
If, after prequalification of more than one contractor, only one submits a bid which is found by
the agency/LGU to be complying.
"(d)
If, after prequalification, more than one contractor submit bids but only one is found by the
agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may appeal
the decision of the implementing agency/LGUs prequalification bids and awards committee within
fifteen (15) working days to the head of the agency, in case of national projects or to the Department of
the Interior and Local Government, in case of local projects from the date the disqualification was made
known to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs
concerned should act on the appeal within forty-five (45) working days from receipt thereof." cdrep
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the
BOT Law has now been rendered moot and academic by R.A. No. 7718. Sec. 3 of this law authorizes all
government infrastructure agencies, government-owned and controlled corporations and local
government units to enter into contract with any duly prequalified proponent for the financing,
construction, operation and maintenance of any financially viable infrastructure or development facility
through a BOT, BT, BLT, BOO (Build-own-and-operate), BTO (Build-transfer-and-operate), CAO (Contractadd-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once an applicant has prequalified, it can enter into any of the schemes in Section 2
thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of
minimum government regulations and procedures and specific government undertakings in support of
the private sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute
was invalid. Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may
have engendered and committed in entering into the questioned contracts, these have now been cured
by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980];
Santos v. Duata, 14 SCRA 1041 [1965]; Adong v. Cheong Seng Gee, 43 Phil. 43 [1922]).
4.
Lastly, petitioners claim that the agreements are grossly disadvantageous to the government
because the rental rates are excessive and private respondent's development rights over the 13 stations
and the depot will rob DOTC of the best terms during the most productive years of the project.

It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a
period of 25 years, exclusive rights over the depot and the air space above the stations for development
into commercial premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec.
11; Rollo, pp. 91-92). For and in consideration of these development rights, private respondent shall pay
DOTC in Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the
Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private
respondent for the construction of the EDSA LRT III. (Supplemental Agreement, Sec. 11; Rollo, pp. 9394). All rights, titles, interests and income over all contracts on the commercial spaces shall revert to
DOTC upon expiration of the 25-year period (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by
the proper administrative agencies and officials who have acquired expertise, specialized skills and
knowledge in the performance of their functions should be accorded respect, absent any showing of
grave abuse of discretion (Felipe Ysmael, Jr. & Co. v Deputy Executive Secretary, 190 SCRA 673 [1990];
Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is
necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable rentals
to be paid by the parties to each other. The matter of valuation is an esoteric field which is better left to
the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is
deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all
cases where a party enters into a contract with the government, he does so, not out of charity and not
to lose money, but to gain pecuniarily. cdrep
5.
Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications systems as
well as in the fast, safe, efficient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in
particular, that has the power, authority and technical expertise to determine whether or not a specific
transportation or communications project is necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the government agencies entrusted with that function
(Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Bellosillo and Kapunan, JJ., concur.

Narvasa, C.J., Bidin, Melo, Puno, V

EN BANC
[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 as Assistant Executive Secretary and Chairman of the Presidential Review
Committee on the Lotto, Office of the President; PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and
PHILIPPINE GAMING CORPORATION, respondent.
SYLLABUS
1.
REMEDIAL LAW; ACTIONS; PARTY; A PARTY'S STANDING IN THE HIGH COURT IS A PROCEDURAL
TECHNICALITY WHICH MAY BE SET ASIDE WHERE ISSUES RAISED ARE OF PARAMOUNT PUBLIC INTEREST;
CASE AT BAR. The preliminary issue on the locus standi of the petitioners should, indeed, be resolved
in their favor. A party's standing before this 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 brushed aside this technicality because "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. (Avelino vs. Cuenco, G.R. No. L-2821)." Insofar as
taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether
or not it should be entertained," or that it "enjoys an open discretion to entertain the same or not." We
find the instant petition to be of transcendental importance to the public. The issues it raised are of
paramount public interest and of a category even higher than those involved in many of the aforecited
cases. The ramifications of such issues immeasurably affect the social, economic, and moral well-being
of the people even in the remotest barangays of the country and the counter-productive and
retrogressive effects of the envisioned on-line lottery system are as staggering as the billions in pesos it
is expected to raise. The legal standing then of the petitioners deserves recognition and, in the exercise
of its sound discretion, this Court hereby brushes aside the procedural barriers which the respondents
tried to take advantage of.
2.
ID.; ID.; ID.; ID. In line with the liberal policy of this Court on locus standi, ordinary taxpayers,
members of Congress, and even association of planters, and non-profit civic organizations were allowed
to initiate and prosecute actions before this Court to question the constitutionality or validity of laws,
acts, decisions, ruling, or orders of various government agencies or instrumentalities.
3.
ADMINISTRATIVE LAW; PUBLIC CORPORATIONS; PHILIPPINE CHARITY SWEEPSTAKES OFFICE;
PROHIBITED FROM HOLDING AND CONDUCTING LOTTERIES IN COLLABORATION, ASSOCIATION OR
JOINT VENTURE WITH ANY PERSON, ASSOCIATION, COMPANY OR ENTITY. Section 1 of R.A. No. 1169,

as amended by B.P. Blg. 42, prohibits the PCSO from holding and conducting lotteries "in collaboration,
association or joint venture with any person, association, company on entity, whether domestic or
foreign." 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 cannot
exercise it "in collaboration, association or joint venture" with any other party. This is the unequivocal
meaning and import of the phrase "except for the activities mentioned in the preceding paragraph (A),"
namely, "charity sweepstakes races, lotteries and other similar activities."
4.
ID.; ID.; ID.; ID.; NO INTERPRETATION ALLOWED TO RELAX OR CIRCUMVENT PROHIBITION;
REASON. No interpretation of the said provision to relax or circumvent the prohibition can be allowed
since the privilege to hold or conduct charity sweepstakes, races, lotteries, or other similar activities is a
franchise granted by the legislature to the PCSO. It is a settled rule that "in all grants by the government
to individuals or corporations of rights, privileges and franchises, the words are to be taken most
strongly against the grantee . . . . [o]ne who claims a franchise or privilege in derogation of the common
rights of the public must prove his title thereto by a grant which is clearly and definitely expressed, and
he cannot enlarge it by equivocal or doubtful provisions or by probable inferences. Wherever is not
unequivocally granted is withheld. Nothing passes by mere implication." In short then, by the exception
explicitly made in paragraph B, Section 1 of its charter, the PCSO cannot share its franchise with another
by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease such
franchise. It has been said that "the rights and privileges conferred under a franchise may, without
doubt, be assigned or transferred when the grant is to the grantee and assigns, or is authorized by
statute. On the other hand, the right of transfer or assignment may be restricted by statute or the
constitution, or be made subject to the approval of the grantor or a governmental agency, such as a
public utilities commission, except that an existing right of assignment cannot be impaired by
subsequent legislation."
5.
STATUTORY CONSTRUCTION; STATUTE AUTHORIZING CARRYING ON OF GAMBLING ACTIVITY,
STRICTLY CONSTRUED. It may also be pointed out that the franchise granted to the PCSO to hold and
conduct lotteries allows it to hold and conduct a species of gambling. It is settled that "a statute which
authorizes the carrying on of a gambling activity or business should be strictly construed and every
reasonable doubt so resolved as to limit the powers and rights claimed under its authority."
6.
ADMINISTRATIVE LAW; PUBLIC CORPORATIONS; PHILIPPINE CHARITY SWEEPSTAKES OFFICE;
PROHIBITED FROM HOLDING & CONDUCTING LOTTERIES IN COLLABORATION, ASSOCIATION OR JOINT
VENTURE WITH ANY PERSON, ASSOCIATION, COMPANY OR ENTITY; "LEASE" ENTERED IN
CONTRAVENTION THEREOF, NULL & VOID; CASE AT BAR. Does the challenged Contract of Lease
violate or contravene the exception in Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture
with" another? We agree with the petitioners that it does, notwithstanding its denomination or
designation as a Contract of Lease. We are neither convinced nor moved or fazed by the insistence and
forceful arguments of the PGMC that it does not because in reality it is only an independent contractor
for a piece of work, i.e., the building and maintenance of a lottery system to be used by the PCSO in the
operation of its lottery franchise. A careful analysis and evaluation of the provisions of the contract and

a consideration of the contemporaneous acts of the PCSO 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 collaboration or association, in the least,
or joint venture, at the most, exists between the contracting parties. Collaboration is defined as the acts
of working together in a joint project. Association means the act of a number of persons in uniting
together for some special purpose or business. Joint venture is defined as an association of person or
companies jointly undertaking some commercial enterprise; generally all contribute assets and share
risks. It requires a community of interest in the performance of the subject matter, a right to direct and
govern the policy in connection therewith, and duty, which may be altered by agreement to share both
in profit and losses. 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.
7.
CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS DECIDED BY INTENT OF PARTIES NOT
BY DESIGNATION OR TITLE THEREOF; CASE AT BAR. 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. And, pursuant to Article 1371 of the Civil Code, "to determine the
intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered." To put it more bluntly, no one should be deceived by the title or designation of a contract.
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery
system, the PCSO had nothing but its franchise, which it solemnly guaranteed it had in the General
Information of the RFP. Howsoever viewed then, from the very inception, the PCSO and the PGMC
mutually understood that any arrangement between them would necessarily leave to the PGMC the
technical, operations, and management aspects of the on-line lottery system while the PCSO would,
primarily, provide the franchise. The words Gaming and Management in the corporate name of
respondent Philippine Gaming Management Corporation could not have been conceived just for
euphemistic purposes. Of course, the RFP cannot substitute for the Contract of Lease which was
subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates
their intention and understanding. The so-called Contract of Lease is not, therefore, what it purports to
be. Its denomination as such is a crafty device, carefully conceived, to provide a built-in defense in the
event that the agreement is questioned as violative of the exception in Section 1(B) of the PCSO's
charter. The acuity or skill of its draftsmen to accomplish that purpose easily manifests itself in the
Contract of Lease. It is outstanding for its careful and meticulous drafting designed to give an immediate
impression that it is a contract of lease. Yet, woven therein are provisions which negate its title and
betray the true intention of the parties to be in or have a joint venture for a period of eight years in the
operation and maintenance of the on-line lottery system.
CRUZ, J., concurring:

1.
ADMINISTRATIVE LAW; PUBLIC CORPORATIONS; PHILIPPINE CHARITY SWEEPSTAKES OFFICE
(PCSO); PROHIBITED FROM OPERATING A LOTTERY "IN ASSOCIATION, COLLABORATION OR JOINT
VENTURE WITH ANY PERSON, ASSOCIATION, COMPANY OR ENTITY; CONTRACT OF "LEASE" WITH PGMC,
A VIOLATION THEREOF. I am happy to join Mr. Justice Hilario G. Davide, Jr. in his excellent ponencia. I
will add the following personal observations only for emphasis as it is not necessary to supplement his
thorough exposition. It should be quite clear, from the adroit way the contract has been drafted, that
the primary objective was to avoid the conclusion that PCSO will be operating a lottery "in association,
collaboration or joint venture with any person, association, company or entity," which is prohibited by
Section 1 of Rep. Act No. 1169 as amended by B.P. Blg. 42. Citing the self-serving provisions of the
contract, the respondents would have us believe that the contract is perfectly lawful because all it does
is provide for the lease to PCSO of the technical know-how and equipment of PGMC, with PCSO acting as
"the sole and individual operator" of the lottery. I am glad we are not succumbing to this sophistry.
Despite the artfulness of the contract (authorship of which was pointedly denied by both counsel for the
government and the private respondent during the oral argument on this case), a careful study will
reveal telling stipulations that it is PGMC and not PCSO that will actually be operating the lottery. Even
on the assumption that it is PCSO that will be operating the lottery at the very start, the authority
granted to PGMC by the agreement will readily show that PCSO will not be acting alone, as the
respondents pretend. In fact, it cannot. PGMC is an indispensable co-worker because it has the
equipment and the technology and the management skills that PCSO does not have at this time for the
operation of the lottery. PCSO cannot deny that it needs the assistance of PGMC for this purpose, which
was its reason for entering into the contract in the first place. And when PCSO does avail itself of such
assistance, how will it be operating the lottery? Undoubtedly, it will be doing so "in collaboration,
association or joint venture" with PGMC, which, let it be added, will not be serving as a mere "hired
help" of PCSO subject to its control. PGMC will be functioning independently in the discharge of its own
assigned role as stipulated in detail under the contract. PGMC is plainly a partner of PCSO in violation of
law, no matter how PGMC's assistance is called or the contract is denominated.
2.
REMEDIAL LAW; ACTIONS; PARTIES; RULE ON LOCUS STANDI, NOT ABSOLUTE. Concerning the
doctrine of locus standi, I cannot agree that out of the sixty million Filipinos affected by the proposed
lottery, not a single solitary citizen can question the agreement. Locus standi is not such an absolute rule
that it cannot admit of exceptions under certain conditions or circumstances like those attending this
transaction. As I remarked in my dissent in Guazon v. De Villa, 181 SCRA 623, "It is not only the owner of
the burning house who has the right to call the firemen. Every one has the right and responsibility to
prevent the fire from spreading even if he lives in the other block."
MELO, J., dissenting:
1.
REMEDIAL LAW; ACTIONS; PARTIES; LOCUS STANDI; ABSENCE OF PERSONAL STAKE IN THE
OUTCOME OF THE CONTROVERSY OF PETITIONERS IN THE CASE AT BAR. I submit that the petition
before the Court deserves no less than outright dismissal for the reason that petitioners, as concerned
citizens and as taxpayers and as members of Congress, do not possess the necessary legal standing to
assail the validity of the contract of lease entered into by the Philippine Charity Sweepstakes Office and
the Philippine Gaming Management Corporation relative to the establishment and operation of an "On-

line Hi-Tech Lottery System" in the country. As announced in Lamb vs. Phipps (22 Phil. [1912], 559),
"[J]udicial power in its nature, is the power to hear and decide causes pending between parties who
have the right to sue and be sued in the courts of law and equity." Necessarily, this implies that a party
must show a personal stake in the outcome of the controversy or an injury to himself that can be
addressed by a favorable decision so as to warrant his invocation of the court's jurisdiction and to justify
the court's remedial powers in his behalf (Whart vs. Seldin, 422 U.S. 490; Guzman vs. Marrero, 180 U.S.
81; McMicken vs. United States, 97 U.S. 204). Here, we have yet to see any of petitioners acquiring a
personal stake in the outcome of the controversy or being placed in a situation whereby injury may be
sustained if the contract of lease in question is implemented. It may be that the contract has somehow
evoked public interest which petitioners claim to represent. But the alleged public interest which they
pretend to represent is not only abroad and encompassing but also strikingly and veritably
indeterminate that one cannot truly say whether a handful of the public, like herein petitioners, may lay
a valid claim of representation in behalf of the millions of citizens spread all over the land who may have
just as many varied reactions relative to the contract in question.
2.
ID.; ID.; ID.; ID.; TAXPAYER'S SUIT; ILLEGAL DISBURSEMENT OF PUBLIC FUNDS INDISPENSABLE
THERETO; ABSENCE THEREOF IN CASE AT BAR. Any effort to infuse personality on petitioners by
considering the present case as a "taxpayer's suit" could not cure the lack of locus standi on the part of
petitioners. As understood in this jurisdiction, a "taxpayer's suit" refers to a case where the act
complained of directly involves the illegal disbursement of public funds derived from taxation (Pascual
vs. Secretary of Public Works, 110 Phil. [1960] 331; Maceda vs. Macaraig, 197 SCRA [1991]; Lozada vs.
COMELEC, 120 SCRA [1983] 337; Dumlao vs. COMELEC, 95 SCRA [1980] 392; Gonzales vs. Marcos, 65
SCRA [1975] 624). It cannot be overstressed that no public fund raised by taxation is involved in this
case. In fact, it is even doubtful if the rentals which the PCSO will pay to the lessor for its operation of
the lottery system may be regarded as "public fund." The PCSO is not a revenue-collecting arm of the
government. Income or money realized by it from its operations will not and need not be turned over to
the National Treasury. Rather, this will constitute corporate funds which will remain with the
corporation to finance its various activities as authorized in its charter. And if ever some semblance of
"public character" may be said to attach to its earnings, it is simply because PCSO is a governmentowned or controlled entity and not a purely private enterprise. The case before us is not a challenge to
the validity of a statute or an attempt to restrain expenditure of public funds pursuant to an alleged
invalid congressional enactment. What petitioners ask us to do is to nullify a simple contract of lease
entered into by a government-owned corporation with a private entity. That contract, as earlier pointed
out, does not involve the disbursement of public funds but of strictly corporate money. If every
taxpayer, claiming to have interest in the contract, no matter how remote, could come to this Court and
seek nullification of said contract, the day may come when the activities of government corporate
entities will ground to a standstill on account of nuisance suits filed against them by persons whose
supposed interest in the contract is as remote and as obscure as the interest of any man in the street.
The dangers attendant thereto are not hard to discern and this Court must not allow them to come to
pass.

3.
ID.; SUPREME COURT; INTERPRETATION OF CONTRACT, BEYOND ITS POWER TO REVIEW. One
final observation must be emphasized. When the petition at bench was filed, the Court decided to hear
the case on oral argument on the initial perception that a constitutional issue could be involved.
However, it now appears that no question of constitutional dimension is at stake as indeed the majority
barely touches on such an issue, concentrating as it does on its interpretation of the contract between
the Philippine Charity Sweepstakes Office and the Philippine Gaming Management Corporation. I,
therefore, vote to dismiss the petition.
FELICIANO, J., concurring:
1.
ADMINISTRATIVE LAW; PUBLIC CORPORATIONS; PHILIPPINE CHARITY SWEEPSTAKES OFFICE
(PCSO); PROHIBITED FROM OPERATING A LOTTERY "IN ASSOCIATION, COLLABORATION OR JOINT
VENTURE WITH ANY PERSON, ASSOCIATION, COMPANY OR ENTITY; CONTRACT OF LEASE ENTERED INTO
BY PCSO AND PGMC, NULL AND VOID. I agree with the conclusions reached by my distinguished
brother in the Court Davide, Jr., J., both in respect of the questions of locus standi and in respect of the
merits of this case, that is, the issues of legality and constitutionality of the Contract of Lease entered
into between the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming Management
Corporation (PGMC).
2.
REMEDIAL LAW; ACTIONS; PARTIES; RULE ON LOCUS STANDI, NOT ABSOLUTE. There is little
substantive dispute that the possession of locus standi is not, in each and every case, a rigid and
absolute requirement for access to the courts. Certainly that is the case where great issues of public law
are at stake, issues which cannot be approached in the same way that a court approaches a suit for the
collection of a sum of money or a complaint for the recovery of possession of a particular piece of land.
The broad question is when, or in what types of cases, the court should insist on a clear showing of locus
standi understood as a direct and personal interest in the subject matter of the case at bar, and when
the court may or should relax that apparently stringent requirement and proceed to deal with the legal
or constitutional issues at stake in a particular case.
3.
ID.; ID.; ID.; ID.; SPECIFIC CONSIDERATIONS THEREFOR MUST BE INDICATED. I submit, with
respect, that it is not enough for the Court simply to invoke "public interest" or even "paramount
considerations of national interest," and to say that the specific requirements of such public interest can
only be ascertained on a "case to case" basis. For one thing, such an approach is not intellectually
satisfying. For another, such an answer appears to come too close to saying that locus standi exists
whenever at least a majority of the Members of this Court participating in a case feel that an
appropriate case for judicial intervention has arisen. This is not, however, to say that there is
somewhere an over-arching juridical principle or theory, waiting to be discovered, that permits a ready
answer to the question of when, or in what types of cases, the need to show locus standi may be relaxed
in greater or lesser degree. To my knowledge, no satisfactory principle or theory has been discovered
and none has been crafted, whether in our jurisdiction or in the United States. I have neither the
competence nor the opportunity to try to craft such principle or formula. It might, however, be useful to
attempt to indicate the considerations of principle which, in the present case, appear to me to require

an affirmative answer to the question of whether or not petitioners are properly regarded as imbued
with the standing necessary to bring and maintain the present petition.
4.
ID.; ID.; ID.; ID.; ID.; CHARACTER OF THE FUNDS OR OTHER ASSETS INVOLVED, OF MAJOR
IMPORTANCE; CASE AT BAR. Firstly, the character of the funds or other assets involved in the case is
of major importance. In the case presently before the Court, the funds involved are clearly public in
nature. The funds to be generated by the proposed lottery are to be raised from the population at large.
Should the proposed operation be as successful as its proponents project, those funds will come from
well-nigh every town and barrio of Luzon. The funds here involved are public in another very real sense:
they will belong to the PCSO, a government owned or controlled corporation and an instrumentality of
the government and are destined for utilization in social development projects which, at least in
principle, are designed to benefit the general public. My learned brothers Melo, Puno and Vitug, JJ.
concede that taxpayers' suits have been recognized as an exception to the traditional requirement of
recognized as an exception to the traditional requirement of locus standi. They insist, however, that
because the funds here involved will not have been generated by the exercise of the taxing power of the
Government, the present petition cannot be regarded as a taxpayer's suit and therefore, must be
dismissed by the Court. It is my respectful submission that that constitutes much too narrow a
conception of the taxpayer's suit and of the public policy that it embodies. It is also to overlook the fact
that tax monies, strictly so called, constitute only one (1) of the major categories of funds today raised
and used for public purposes. It is widely known that the principal sources of funding for government
operations today include, not just taxes and customs duties, but also revenues derived from activities of
the Philippine Amusement Gaming Corporation (PAGCOR), as well as the proceeds of privatization of
government owned or controlled corporations and other government owned assets. The interest of a
private citizen in seeing to it that public funds, from whatever source they may have been derived, go
only to the uses directed and permitted by law is as real and personal and substantial as the interest of a
private taxpayer in seeing to it that tax monies are not intercepted on their way to the public treasury or
otherwise diverted from uses prescribed or allowed by law. It is also pertinent to note that the more
successful the government is in raising revenues by non-traditional methods such as PAGCOR operations
and privatization measures, the lesser will be the pressure upon the traditional sources of public
revenues, i.e., the pocket books of individual taxpayers and importers.
5.
ID.; ID.; ID.; ID.; ID.; PRESENCE OF CLEAR CASE OF DISREGARD OF CONSTITUTIONAL OR
STATUTORY PROHIBITION; CASE AT BAR. A second factor of high relevance is the presence of a clear
case of disregard of a constitutional or statutory prohibition by the public respondent agency or
instrumentality of the government. A showing that a constitutional or legal provision is patently being
disregarded by the agency or instrumentality whose act is being assailed, can scarcely be disregarded by
court. The concept of locus standi which is part and parcel of the broader notion of ripeness of the
case "does not operate independently and is not alone decisive. . . . [I]t is in substantial part a
function of a judge's estimate of the merits of the constitutional [or legal] issue." The notion of locus
standi and the judge's conclusions about the merits of the case, in other words, interact with each other.
Where the Court perceives a serious issue of violation of some constitutional or statutory limitation, it
will be much less difficult for the Court to find locus standi in the petitioner and to confront the legal or

constitutional issue. In the present case, the majority of the Court considers that a very substantial
showing has been made that the Contract of Lease between the PCSO and the PGMC flies in the face of
legal limitations.
6.
ID.; ID.; ID.; ID.; ID.; LACK OF ANY OTHER PARTY WITH A MORE DIRECT AND SPECIFIC INTEREST;
CASE AT BAR. A third consideration of importance in the present case is the lack of any other party
with a more direct and specific interest in raising the questions here being raised. Though a public
bidding was held, no losing or dissatisfied bidder has come before the Court. The Office of the
Ombudsman has not, to the knowledge of the Court, raised questions about the legality or
constitutionality of the Contract of Lease here involved. The National Government itself, through the
Office of the Solicitor General, is defending the PCSO Contract (though it had not participated in the
drafting thereof). In a situation like that here obtaining, the submission may be made that the
institution, so well known in corporation law and practice, of the corporate stockholders' derivative suit
furnishes an appropriate analogy and that on the basis of such an analogy, a taxpayer's derivative suit
should be recognized as available.
7.
ID.; ID.; ID.; ID.; ID.; WIDE RANGE OF IMPACT OF THE ASSAILED CONTRACT; CASE AT BAR. The
wide range of impact of the Contract of Lease here assailed and of its implementation, constitutes still
another consideration of significance. In the case at bar, the agreement if implemented will be
practically nationwide in its scope and reach (the PCSO-PGMC Contract is limited in its application to the
Island of Luzon; but if the PCSO Contracts with the other two [2] private "gaming management"
corporations in respect of the Visayas and Mindanao are substantially similar to PCSO's Contract with
PGMC, then the Contract before us may be said to be national indeed in its implications and
consequences). Necessarily, the amounts of money expected to be raised by the proposed activities of
the PCSO and PGMC will be very substantial, probably in the hundreds of millions of pesos. It is not easy
to conceive of a contract with greater and more far-reaching consequences, literally speaking, for the
country than the Contract of Lease here involved. Thus, the subject matter of the petition is not
something that the Court may casually pass over as unimportant and as not warranting the expenditure
of significant judicial resources.
KAPUNAN, J., dissenting:
1.
REMEDIAL LAW; SUPREME COURT; POWER OF PREVIEW, LIMITED. Moral or legal questions
aside, I believe that there are unfortunately certain standards that have to be followed in the exercise of
this Court's awesome power of review before this Court could even begin to assay the validity of the
contract between the PCSO and the PGMC. This, in spite of the apparent expansion of judicial power
granted by Section 1 of Article VIII of the 1987 Constitution. It is fundamental that such standards be
complied with before this Court could even begin to explore the substantive issues raised by any
controversy brought before it, for no issue brought before this court could possibly be so fundamental
and paramount as to warrant a relaxation of the requisite rules for judicial review developed by settled
jurisprudence in order to avoid entangling this court in controversies which properly belong to the
legislative or executive branches of our government. The potential harm to our system of government,
premised on the concept of separation of powers, by the Court eager to exercise its powers and

prerogatives at every turn, cannot be gainsaid. The Constitution does not mandate this Court to wield
the power of judicial review with excessive vigor and alacrity in every area or at every turn, except in
appropriate cases and controversies which meet established requirements for constitutional
adjudication. Article VIII, Sec. 1 of the Constitution notwithstanding, there are questions which I believe
are still beyond the pale of judicial power. Moreover, it is my considered opinion that the instant
petition does not meet the requirements set by this court for a valid exercise of judicial review.
2.
ID.; ID.; ID.; ACTUAL CASE AND CONTROVERSY, INDISPENSABLE. Our Constitution expressly
defines judicial power as including "the duty to settle actual cases and controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to a lack or excess of jurisdiction on the part of any branch or
instrumentality of the government." This constitutional requirement for an actual case and controversy
limits this Court's power of review to precisely those suits between adversary litigants with real interests
at stake thus preventing it from making all sorts of hypothetical pronouncements on abstract,
contingent and amorphous issues. The Court will therefore not pass upon the validity of an act of
government or a statute passed by a legislative body without a requisite showing of injury. A personal
stake is essential, which absence renders our pronouncements gratuitous and certainly violative of the
constitutional requirement for actual cases and controversies.
3.
ID.; ID.; ID.; LOCUS STANDI, REQUIRED. The requirement for standing based on personal
injury may of course be bypassed, as the petitioners in this case attempt to do, by considering the case
as a "taxpayer suit" which would thereby clothe them with the personality they would lack under
ordinary circumstances. However, the act assailed by the petitioners on the whole involves the
generation rather than disbursement of public funds. In a line of cases starting from Pascual v. Secretary
of Public Works "taxpayer suits" have been understood to refer only to those cases where the act or
statute assailed involves the illegal or unconstitutional disbursement of public funds derived from
taxation. The main premise behind the "taxpayer suit" is that the pecuniary interest of the taxpayer is
involved whenever there is an illegal or wasteful use of public funds which grants them the right to
question the appropriation or disbursement on the basis of their contribution to government funds.
Since it has not been alleged that an illegal appropriation or disbursement of a fund derived from
taxation would be made in the instant case, I fail to see how the petitioners in this case would be able to
satisfy the locus standi requirement on the basis of a "taxpayer's suit". This alone should inhibit this
Court from proceeding with the case at bench. The interest alleged and the potential injury asserted are
far too general and hypothetical for us to rush into a judicial determination of what to me appears to be
judgment better left to executive branch of our government.
4.
CONSTITUTIONAL LAW; SEPARATION OF POWERS; SHOULD NOT BE SLIGHTLY BRUSHED ASIDE
ON THE MERE SUPPOSITION THAT ISSUE BEFORE THE HIGH TRIBUNAL IS OF PARAMOUNT PUBLIC
INTEREST. This brings me to one more important point: The idea that a norm of constitutional
adjudication could be lightly brushed aside on the mere supposition that an issue before the Court is of
paramount public concern does great harm to a democratic system which espouses a delicate balance
between three separate but co-equal branches of government. It is equally of paramount public
concern, certainly paramount to the survival of our democracy, that acts of the other branches of

government are accorded due respect by this Court. Such acts, done within their sphere of competence,
have been and should always be - accorded with a presumption of regularity. When such acts are
assailed as illegal or unconstitutional, the burden falls upon those who assail these acts to prove that
they satisfy the essential norms of constitutional adjudication, because when we finally proceed to
declare an act of the executive or legislative branch of our government unconstitutional or illegal, what
we actually accomplish is the thwarting of the will of the elected representatives of the people in the
executive or legislative branches of government. Notwithstanding Article VIII, Section 1 of the
Constitution, since the exercise of the power of judicial review by this Court is inherently
antidemocratic, this Court should exercise a becoming modesty in acting as a revisor of an act of the
executive or legislative branch. The tendency of a frequent and easy resort to the function of judicial
review, particularly in areas of economic policy has become lamentably too common as to dwarf the
political capacity of the people expressed through their representatives in the policy making branches of
government and to deaden their sense of moral responsibility.
5.
REMEDIAL LAW; SUPREME COURT; WITHOUT JURISDICTION OVER DISPUTES ON VALIDITY OF
CONTRACTS; CASE AT BAR. The instant petition was brought to this Court on the assumption that the
issue at bench raises primarily constitutional issues. As it has ultimately turned out, the core foundation
of the petitioner's objections to the LOTTO operations was based on the validity of the contract between
the PCSO and the PGMC in the light of Section 1 of R.A. 1169 as amended by B.P. Blg. 427. It might have
been much more appropriate for the issue to have taken its normal course in the courts below.
PUNO, J., dissenting:
1.
CONSTITUTIONAL LAW; JUDICIAL POWER, DEFINED. Judicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.
2.
REMEDIAL LAW; ACTIONS; LOCUS STANDI; REQUIREMENTS BEFORE ONE CAN COME TO COURT
TO LITIGATE A CONSTITUTIONAL ISSUE. The phrase "actual controversies involving rights which are
legally demandable and enforceable" in Section 1 of Article VIII of the Constitution has acquired a
cultivated meaning given by courts. It spells out the requirements that must be satisfied before one can
come to court to litigate a constitutional issue. Our distinguished colleague, Mr. Justice Isagani A. Cruz,
gives a shorthand summary of these requirements when he states that no constitutional question will be
heard and decided by courts unless there is a showing of the following: . . . (1) there must be an actual
case or controversy; (2) the question of constitutionality must be raised by the proper party; (3) the
constitutional question must be raised at the earliest possible opportunity; and (4) the decision of the
constitutional question must be necessary to the determination of the case itself.
3.
ID.; ID.; ID.; RULE THEREON RELAXED BUT NOT ELIMINATED. The complexion of the rule on
locus standi has been undergoing a change. Mr. Justice Cruz has observed the continuing relaxation of
the rule on standing. Last July 30, 1993, we further relaxed the rule on standing in Oposa, et al. v. Hon.
Fulgencio S. Factoran, Jr., where we recognized the locus standi of minors representing themselves as

well as generations unborn to protect their constitutional right to a balanced and healthful ecology. I am
perfectly at peace with the drift of our decisions liberalizing the rule on locus standi. The once stubborn
disinclination to decide constitutional issues due to lack of locus standi is incompatible with the
expansion of judicial power mandated in section 1 of Article VIII of the Constitution, i.e., "to determine
whether or not there has been a grave abuse of discretion, amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the government." As we held thru the ground breaking
ponencia of Mr. Justice Cruz in Daza v. Singson, this provision no longer precludes the Court from
resolving political questions in proper cases. But even perusing this provision as a constitutional warrant
for the court to enter the once forbidden political thicket, it is clear that the requirement of locus standi
has not been jettisoned by the Constitution for it still commands courts in no uncertain terms to settle
only "actual controversies involving rights which are legally demandable and enforceable." Stated
otherwise, courts are neither free to decide all kinds of cases dumped into their laps nor are they free to
open their doors to all parties or entities claiming a grievance.
4.
ID.; ID.; ID.; ID.; RATIONALE. The rationale for this constitutional requirement of locus standi
is by no means trifle. It is intended "to assure a vigorous adversary presentation of the case, and,
perhaps more importantly to warrant the judiciary's overruling the determination of a coordinate,
democratically elected organ of government." It thus goes to the very essence of representative
democracies. A lesser but not insignificant reason for screening the standing of persons who desire to
litigate constitutional issues is economic in character. Given the sparseness of our resources, the
capacity of courts to render efficient judicial service to our people is severely limited. For courts to
indiscriminately open their doors to all types of suits and suitors is for them to unduly overburden their
dockets, and ultimately render themselves ineffective dispensers of justice. To be sure, this is an evil
that clearly confronts our judiciary today.
5.
ID.; ID.; ID.; PETITIONERS IN CASE AT BAR HAVE NOT SUSTAINED OR ARE IN IMMEDIATE
DANGER OF SUSTAINING AN INJURY AS A RESULT OF THE SAID CONTRACT OF LEASE. Prescinding from
these premises, and with great reluctance, I am not prepared to concede the standing to sue of
petitioners. On a personal level, they have not shown the elemental injury in fact which will endow
them with a standing to sue. It must be stressed that petitioners are in the main, seeking the nullity not
of a law but of a Contract of Lease. Not one of the petitioners is a party to the Contract of Lease
executed between PCSO and PGMC. None of the petitioners participated in the bidding, and hence they
are not losing bidders. They are complete strangers to the contract. They stand neither to gain nor to
lose economically by its enforcement. It seems to me unusual that an unaffected third party to a
contract could be allowed to question its validity. Petitioner Kilosbayan cannot justify this officious
interference on the ground of its commitment to "truth, justice and national renewal." Such
commitment to truth, justice and national renewal, however noble it may be, cannot give Kilosbayan a
roving commission to check the validity of contracts entered into by the government and its agencies.
Kilosbayan is not a private commission on audit. Neither can I perceive how the other petitioners can be
personally injured by the Contract of Lease between PCSO and PGMC even if petitioner Salonga assails
as unmitigated fraud the statistical probability of winning the lotto as he compared it to the probability
of being struck twice by lightning. The reason is obvious: none of the petitioners will be exposed to this

alleged fraud for all of them profess to abjure playing the lotto. It is self-evident that lotto cannot
physically or spiritually injure him who does not indulge in it.
6.
ID.; ID.; ID.; TAXPAYER'S SUIT; CASE AT BAR DOES NOT INVOLVE EXPENDITURE OF PUBLIC
MONEY DERIVED FROM TAXATION. Petitioners also contend they have locus standi as taxpayers. But
the case at bench does not involve any expenditure of public money on the part of PCSO. In fact,
paragraph 2 of the Contract of Lease provides that it is PGMC that shall build, furnish, and maintain at its
own expense and risk the facilities for the On-Line Lottery System of PCSO and shall bear all
maintenance and other costs. Thus, PGMC alleged it has already spent P245M in equipment and fixtures
and would be investing close to P1 billion to supply adequately the technology and other requirements
of PCSO. If no tax money is being illegally deflected in the Contract of Lease between PCSO and PGMC,
petitioners have no standing to impugn its validity as taxpayers.
7.
ID.; ID.; ID.; CITIZEN SUIT; REQUIREMENTS. Next, petitioners plead their standing as
"concerned citizens." As citizens, petitioners are pleading that they be allowed to advocate the
constitutional rights of other persons who are not before the court and whose protection is allegedly
their concern. A citizen qua citizen suit urges a greater relaxation of the rule on locus standi. I feel no
aversion to the further relaxation of the rule on standing to accommodate what in other jurisdiction is
known as an assertion of jus tertii in constitutional litigation provided the claimant can demonstrate: (1)
an injury in fact to himself, and (2) the need to prevent the erosion of a preferred constitutional right of
a third person. As stressed before, the first requirement of injury in fact cannot be abandoned for it is an
essential element for the exercise of judicial power. The second requirement recognized society's right
in the protection of certain preferred rights in the Constitution even when the rightholders are not
before the court. The theory is that their dilution has a substantial fall out detriment to the rights of
others, hence the latter can vindicate them.
8.
ID.; ID.; ID.; ID.; ID.; CASE AT BAR. In the case at bench, it is difficult to see how petitioners
can satisfy these two requirements to maintain a jus tertii claim. They claim violation of two
constitutional provisions, to wit: "Section 1, Article XIII and Section 11, Article XII." Section 1, Article XIII
of the Constitution cannot be the matrix of petitioners' jus tertii claim for it expresses no more than a
policy direction to the legislative in the discharge of its ordained duty - to give highest priority to the
enactment of measures that protect and enhance the right of all the people to human dignity, reduce
social, economic, and political inequalities and remove cultural inequities by equitably diffusing wealth
and political power for the common good. Whether the act of the legislature in amending the charter of
PCSO by giving it the authority to conduct lotto and whether the Contract of Lease entered into between
PCSO and PGMC are incongruent to the policy direction of this constitutional provision is a highly
debatable proposition and can be endlessly argued. Respondents steadfastly insist that the operation of
lotto will increase the revenue base of PCSO and enable government to provide a wider range of social
services to the people. They also allege that the operation of high-tech lotto will eradicate illegal
jueteng. Petitioners are scandalized by this submission. They dismiss gambling as evil per se and
castigate government for attempting to correct a wrong by committing another wrong. In any event, the
proper forum for this debate, however cerebrally exciting it may be, is not this court but congress.

9.
ID.; ID.; ID.; NOT CONFERRED BY MERELY ADVOCATING THE RIGHTS OF HYPOTHETICAL THIRD
PARTIES NOT BEFORE THE COURT. I am not also convinced that petitioners can justify their locus
standi to advocate the rights of hypothetical third parties not before the court by invoking the need to
keep inviolate Section 11, Article XII of the Constitution which imposes a nationality requirement on
operators of a public utility. For even assuming arguendo that PGMC is a public utility, still, the records
do not at the moment bear out the claim of petitioners that PGMC is a foreign owned and controlled
corporation. This factual issue remains unsettled and is still the subject of litigation by the parties in the
Securities and Exchange Commission. We are not at liberty to anticipate the verdict on this contested
factual issue. But over and above this consideration, I respectfully submit that this constitutional
provision does not confer on third parties any right of a preferred status comparable to the Bill of Rights
whose dilution will justify petitioners to vindicate them in behalf of its rightholders. The legal right of
hypothetical third parties they profess to advocate is to my mind too impersonal, too unsubstantial, too
indirect, too amorphous to justify their access to this Court and the further lowering of the
constitutional barrier of locus standi.
10.
ID.; ID.; ID.; NOT CONFERRED BY MERE FACT OF BEING LEGISLATORS. Again, with regret, I do
not agree that the distinguished status of some of the petitioners as lawmakers gives them the
appropriate locus standi. I cannot perceive how their constitutional rights and prerogatives as legislators
can be adversely affected by the contract in question. Their right to enact laws for the general conduct
of our society remains unimpaired and undiminished. Their status as legislators, notwithstanding, they
have to demonstrate that the said contract has caused them to suffer a personal, direct, and substantial
injury in fact. They cannot simply advance a generic grievance in common with the people in general.
11.
ID.; ID.; ID.; NOT A PLAIN PROCEDURAL RULE BUT A CONSTITUTIONAL REQUIREMENT. I am
not unaware of our ruling in De Guia v. Comelec, G.R. No. 104712, May 6, 1992, 208 SCRA 420. It is my
respectful submission, however, that we should re-examine de Guia. It treated the rule on locus standi
as a mere procedural rule. It is not a plain procedural rule but a constitutional requirement derived from
Section 1, Article VIII of the Constitution which mandates courts of justice to settle only "actual
controversies involving rights which are legally demandable and enforceable." The phrase has been
construed since time immemorial to mean that a party in a constitutional litigation must demonstrate a
standing to sue. By downgrading the requirement on locus standi as a procedural rule which can be
discarded in the name of public interest, we are in effect amending the Constitution by judicial fiat.
12.
ID.; ID.; ID.; SHOULD NOT BE BRUSHED ASIDE WHERE A CASE RAISES AN IMPORTANT ISSUE.
De Guia would also brush aside the rule on locus standi if a case raises an important issue. In this regard,
I join the learned observation of Mr. Justice Feliciano: "that it is not enough for the Court simply to
invoke 'public interest' or even paramount considerations of national interest,' and to say that the
specific requirements of such public interest can only be ascertained on a 'case to case' basis. For one
thing, such an approach is not intellectually satisfying. For another, such an answer appears to come too
close to saying that locus standi exists whenever at least a majority of the Members of this Court
participating in a case feel that an appropriate case for judicial intervention has arisen."
PADILLA, J., concurring:

1.
REMEDIAL LAW; ACTIONS; PARTIES; PROCEDURAL RULE ON LOCUS STANDI RELAXED WHERE
ISSUES RAISED ARE OF GREAT IMPORTANCE; CASE AT BAR. 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, We resolved
to brush aside the question of procedural infirmity, even as We perceive the petition to be one of
declaratory relief. We so held similarly through Mr. Justice Edgardo L. Paras in Osmea vs. Commission
on Elections." (De Guia vs. Comelec, G.R. No. 104712, May 6, 1992, 208 SCRA 420) I view the present
case as falling within the De Guia case doctrine. For, when the contract of lease in question seeks to
establish and operate a nationwide gambling network with substantial if not controlling foreign
participation, then the issue is of paramount national interest and importance as to justify and warrant a
relaxation of the above-mentioned procedural rule on locus standi.
2.
ADMINISTRATIVE LAW; PUBLIC CORPORATIONS; PHILIPPINE CHARITY SWEEPSTAKES OFFICE
(PCSO); PROHIBITED FROM UNDERTAKING OR ENGAGING IN LOTTERIES IN "COLLABORATION,
ASSOCIATION OR JOINT VENTURES WITH OTHERS; RATIONALE. It is at once clear from Republic Act
No. 1109 as amended by BP. No. 42 that, while the PCSO charter allows the PCSO to itself engage in
lotteries, it does not however permit the PCSO to undertake or engage in lotteries in "collaboration,
association or joint venture" with others. The palpable reason for this prohibition is, that PCSO should
not and cannot be made a vehicle for an otherwise prohibited foreign or domestic entity to engage in
lotteries (gambling activities) in the Philippines.
3.
ID.; ID.; ID.; ID.; LEASE CONTRACT ENTERED INTO BY PCSO WITH PGMC, A JOINT VENTURE.
The core question then is whether the lease contract between PCSO and PGMC is a device whereby
PCSO will engage in lottery in collaboration, association or joint venture with another, i.e. PGMC. On a
slightly different plane and, perhaps simplified, I consider the agreement or arrangement between the
PCSO and PGMC a joint venture because each party to the contract contributes its share in the
enterprise or project. PGMC contributes its facilities, equipment and know-how (expertise). PCSO
contributes (aside from its charter) the market, directly or through dealers and this to me is most
important in the totality or mass of the Filipino gambling elements who will invest in lotto tickets.
PGMC will get its 4.9% of gross receipts (with assumption of certain risks in the course of lotto
operations); the residue of the whole exercise will go to PCSO. To any person with a minimum of
business know-how, this a joint venture between PCSO and PGMC, plain and simple. But assuming ex
gratia argumenti that such arrangement between PCSO and PGMC is not a joint venture between the
two of them to install and operate an "on-line hi-tech lotto system" in the country, it can hardly be
denied that it is, at the very least, an association or collaboration between PCSO and PGMC. For one
cannot do without the other in the installation, operation and, most importantly, marketing of the
entire enterprise or project in this country.
4.
ID.; ID.; ID.; ID.; ID.; CONTRACT, NULL AND VOID. Indeed, the contract of lease in question is a
clear violation of Republic Act No. 1169 as amended by BP No.. 42 (the PCSO charter). Having arrived at
the conclusion that the contract of lease in question between the PCSO and PGMC is illegal and,
therefore, invalid. I find it unnecessary to dwell on the other issues raised in the pleadings and
arguments of the parties.

VITUG, J., Separate Opinion:

1.
CONSTITUTIONAL LAW; COURTS; JUDICIAL POWER, CONSTRUED. Judicial power encompasses
both an authority and duty to resolve "actual controversies involving rights which are legally
demandable and enforceable" (Article VIII, Section 1, 1987 Constitution). As early as the case of Lamb vs.
Phipps, this Court ruled: "Judicial power, in its nature, is the power to hear and decide causes pending
between parties who have the right to sue in the courts of law and equity."
2.
REMEDIAL LAW; ACTIONS; PARTIES; LOCUS STANDI; DEFINED. An essential part of, and
corollary to, this principle is the locus standi of a party litigant, referring to one who is directly affected
by, and whose interest is immediate and substantial in, the controversy. The rule requires that a party
must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a
favorable decision so as to warrant his invocation of the court's jurisdiction and to justify the exercise of
the court's remedial powers in his behalf. If it were otherwise, the exercise of that power can easily
become too unwieldy by its sheer magnitude and scope to a point that may, in no small degree,
adversely affect its intended essentiality, stability and consequentiality.
3.
ID.; ID.; ID.; ID.; TAXPAYER'S SUIT, AN EXCEPTION THERETO; BASIS. Locus standi, nevertheless,
admits of the so-called "taxpayer's suit." Taxpayer's suits are actions or proceedings initiated by one or
more taxpayers in their own behalf or, conjunctively, in representation of others similarly situated for
the purpose of declaring illegal or unauthorized certain acts of public officials which are claimed to be
injurious to their common interests as such taxpayers (Cf. 71 Am Jur 2d., 179-180). The principle is
predicated upon the theory that taxpayers are, in equity, the cestui que trust of tax funds, and any
illegal diminution thereof by public officials constitutes a breach of trust even as it may result in an
increased burden on taxpayers (Haddock vs. Board of Public Education, 86 A 2d 157; Henderson vs.
McCormick, 17 ALR 2d 470).
4.
ID.; ID.; ID.; ID.; ID.; CASE MUST INVOLVE ILLEGAL DISBURSEMENT OF PUBLIC FUNDS DERIVED
FROM TAXATION. A "taxpayer's suit," enough to confer locus standi to a party, we have held before,
is understood to be a case where the act complained of directly involves illegal disbursement of public
funds derived from taxation. It is not enough that the dispute concerns public funds. A contrary rule
could easily lead to a limitless application of the term "taxpayer's suit," already by itself a broad concept,
since a questioned act of government would almost so invariably entail, as a practical matter, a financial
burden of some kind.
5.
CONSTITUTIONAL LAW; COURTS; JUDICIAL POWER, DEFINED. A provision which has been
introduced by the 1987 Constitution is a definition, for the first time in our fundamental law, of the term
"judicial power," as such authority and duty of courts of justice "to settle actual controversies involving
rights which are legally demandable and enforceable and to determine whether or not there has been a
grave abuse of discretion, amounting to lack or excess of jurisdiction, on the part of any branch or
instrumentality of the Government" (Article VIII, Section 1, Constitution).
6.
REMEDIAL LAW; ACTIONS; PARTIES; RULE ON LOCUS STANDI, JURISDICTIONAL. While any act
of government, be it executive in nature or legislative in character, may be struck down and declared a

nullity either because it contravenes an express provision of the Constitution or because it is perceived
and found to be attended by or the result of grave abuse of discretion, amounting to lack or excess of
jurisdiction, that issue, however, must first be raised in a proper judicial controversy. The Court's
authority to look into and grant relief in such cases would necessitate locus standi on the part of party
litigants. This requirement, in my considered view, is not merely procedural or technical but goes into
the essence of jurisdiction and the competence of courts to take cognizance of justiciable disputes.
7.
ID.; SUPREME COURT; WITHOUT JURISDICTION TO RESOLVE FACTUAL ISSUES; CASE AT BAR. A
further set-back in entertaining the petition is that it unfortunately likewise strikes at factual issues. The
allegations to the effect that irregularities have been committed in the processing and evaluation of the
bids to favor respondent PGMC; that the Malacaang Special Review Committee did not verify
warranties embodied in the contract; that the operation of telecommunication facilities is indispensable
in the operation of the lottery system; the involvement of multi-national corporations in the operation
of the on-line "hi-tech" lottery system, and the like, require the submission of evidence. This Court is not
a trier of facts, and it cannot, at this time, resolve the above issues. Just recently, the Court has noted
petitioners' manifestation of its petition with the Securities and Exchange Commission "for the
nullification of the General Information Sheets of PGMC" in respect particularly to the nationality
holdings in the corporation. The doctrine of primary jurisdiction would not justify a disregard of the
jurisdiction of, nor would it permit us to now preempt, said Commission on the matter.
8.
CONSTITUTIONAL LAW; SUPREME COURT; POWER OF REVIEW, LIMITED. The Court must
recognize the limitations of its own authority. Courts neither legislate nor ignore legal mandates.
Republic Act No. 1169, as amended, explicitly gives public respondent PCSO the authority and power "to
hold and conduct sweepstakes races, lotteries, and other similar activities. In People vs. Dionisio, cited
by the petitioners themselves, we remarked: "What evils should be corrected as pernicious to the body
politic, and how correction should be done, is a matter primarily addressed to the discretion of the
legislative department, not of the courts . . ." The constraints on judicial power are clear. I feel, the Court
must thus beg off, albeit not without reluctance, from giving due course to the instant petition.
DECISION
DAVIDE, JR., J p:
This is a special civil action for prohibition and injunction, with a prayer for a temporary restraining order
and preliminary injunction, 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 of 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
company and 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 individual 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. 2 Relevant provisions of the RFP are the following:
"1.
xxx

EXECUTIVE SUMMARY
xxx

xxx

1.2
PCSO is seeking a suitable contractor which shall build, at its own expense, all the facilities
('Facilities') needed to operate and maintain a nationwide on-line 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.
xxxx
1.4

xxx

xxx

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 will include the game, the marketing of the games, and the logistics to
introduce the games to all the cities and municipalities of the country within five (5) years.
xxx

xxx

xxx

1.7
The Lessor shall be selected based on its technical expertise, hardware and software capability,
maintenance support, and financial resources. The Development Plan shall have a substantial bearing on
the choice of the Lessor. The Lessor shall be a domestic corporation, with at least sixty percent (60%) of
its shares owned by Filipino shareholders. . .
The office of the President, the National Disaster Control Coordinating Council, the Philippine
National Police, and the National Bureau of Investigation shall be authorized to use the nationwide
telecommunications system of the Facilities Free of Charge.
1.8
Upon expiration of the lease, the Facilities shall be owned by PCSO without any additional
consideration. 3
xxx
2.2

xxx

xxx

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

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2.2.2 Enable PCSO to operate a nationwide on-line lottery system at no expense or risk to the
government.
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2.4
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2.4.2

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DUTIES AND RESPONSIBILITIES OF THE LESSOR

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THE LESSOR

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

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

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7.
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GENERAL GUIDELINES FOR PROPONENTS

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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 PCSO's goal
of formalizing an on-line lottery system to achieve its mandated objective. 5
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16.

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DEFINITION OF TERMS

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

network, ticket sales offices, furnishings, and fixtures; printing costs; costs 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 stockholdings 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. 8 The
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." 10 This 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 President Fidel V. Ramos strongly opposing
the setting up of the on-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 reiterated its 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 operation of an on-line lottery system nationwide" and that it is actually the respondent PCSO
which will operate the lottery while the winning corporate bidders are merely "lessors." 14

On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery award
from Executive Secretary Teofisto Guingona, Jr. In his answer of 17 December 1993, the Executive
Secretary informed KILOSBAYAN that the requested documents would be duly transmitted before the
end of the month. 15 However, on that same date, an agreement denominated as "Contract of Lease"
was finally executed by respondent PCSO and respondent PGMC. 16 The President, per the press
statement issued 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 meaning:

1.1
Rental Fee Amount to be paid by PCSO to the LESSOR as compensation for the fulfillment of
the obligations of the LESSOR under this Contract, including, but not limited to the Lease of the
Facilities.
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1.3
Facilities All capital equipment, computers, terminals, software (including source codes for
the On-Line Lottery application 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, advertising and promotion, maintenance expansion and replacement, security and
insurance, and all other related expenses needed to operate an On-Line Lottery System, which shall be
for the account of the LESSOR. All expenses relating to the setting-up, operation and 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 the logistics required to introduce the games, including the Master Games Plan as
approved by PCSO, attached hereto as Annex "A", modified as necessary by the provisions of this
Contract.
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1.8
Escrow Deposit The proposal deposit in the sum of Three Hundred Million Pesos
(P300,000,000.00) submitted by the LESSOR to PCSO pursuant to the requirements of the Request for
Proposals.
2.

SUBJECT MATTER OF THE LEASE

The LESSOR shall build, furnish and maintain at its own expense and risk the Facilities for the OnLine Lottery System of PCSO in the Territory on an exclusive basis. The LESSOR shall bear all
Maintenance and Other Costs as defined herein.

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3.

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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
implementation timetable of the On-Line Lottery 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 of 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 any) chargeable to the operator of the On-Line Lottery System. The LESSOR will
bear all other Maintenance and Other Costs, except as 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 officers 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 breach of this Contract and through no fault of the LESSOR, PCSO shall promptly, and
in any event not later than sixty (60) days, reimburse the LESSOR the amount of its total investment cost
associated with the On-Line Lottery System, including but not limited to the cost of the Facilities, and
further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired
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 OnLine Lottery System of PCSO. It is understood that the rights of the LESSOR are primarily those of a lessor
of the Facilities, and consequently, all rights involving the business aspects of the use of the Facilities are
within the jurisdiction of PCSO. During the term of the lease, the LESSOR shall:
6.1
Maintain and preserve its corporate existence, rights and privileges, and conduct its business in
an orderly, efficient, and customary manner.
6.2

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

6.3
Comply with all laws, statutes, rules and regulations, orders and directives, obligations and
duties by which it is legally bound.
6.4
Duly pay and discharge all taxes, assessments and government charges now and hereafter
imposed of whatever nature that 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 time as new technology develops, in order to make the On-Line Lottery System
more cost-effective and/or competitive, and as may be required by PCSO. 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 technology and expertise, such that at the end of the term of this Contract, PCSO will be
able to effectively take-over the Facilities and efficiently operate the On-Line Lottery System.
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;
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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 . . .
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 a 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. . .
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10.

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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:
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PCSO may, at its option, require the LESSOR to establish the telecommunications network in
accordance with the above Timetable 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 Metro Manila, then the obligation
of the LESSOR to connect such municipality or city through a telecommunications network shall cease
with respect to such municipality or city.
The voice facility will cover the four offices of the Office of the President, National Disaster
Control Coordinating Council, Philippine National Police and the National Bureau of Investigation, and
each city and municipality in the Territory except Metro Manila, and those cities and municipalities
which have easy telephone access from these four offices. Voices calls from the four offices shall be
transmitted via radio or VSAT to the remote municipalities which will 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.
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13.

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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 exchange and 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-Line Lottery System of PCSO unless it obtains the latter's prior written consent
thereto.
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 liabilities and 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 damages to property of any kind whatsoever, caused by the
LESSOR, its subcontractors, its authorized agents or employees, from any cause or 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, liabilities, claims, suits or losses caused by the LESSOR's fault
or negligence.
15.3 The LESSOR at all times protect and defend, at its own cost and expense, its title to the facilities
and PCSO's interest therein from and against any and all claims for the duration of the Contract until
transfer to PCSO of ownership of the serviceable Facilities.
16.

SECURITY

16.1 To ensure faithful compliance by the LESSOR with the terms of the Contract, the LESSOR shall
secure a Performance Bond 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. dollar 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 case be less than
One Hundred Fifty Million Pesos (P150,000,000.00).
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 shall 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.
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20.

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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 cease 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."
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Considering the denial by the Office of the President of its protest and the statement of Assistant
Executive Secretary Renato Corona that "only a court injunction can stop Malacaang," and the
imminent implementation of the Contract of Lease in February 1994, KILOSBAYAN, with its copetitioners, filed on 28 January 1994 this petition.
In support of the petition, the petitioners claim that:
". . . THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS EXECUTIVE SECRETARY AND/OR
ASSISTANT EXECUTIVE SECRETARY FOR LEGAL AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR
DISCRETION AND/OR FUNCTIONS TANTAMOUNT TO LACK OF JURISDICTION AND/OR AUTHORITY IN
RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT TO, AND (B) ENTERING INTO THE SOCALLED 'CONTRACT OF LEASE' WITH, RESPONDENT PGMC FOR THE INSTALLATION, ESTABLISHMENT
AND OPERATION OF THE ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR
AUTHORIZED UNDER THE SAID CONTRACT, CONSIDERING THAT:
a)
Under Section 1 of the Charter of the PCSO, the PCSO 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 telecommunications system;

c)
Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned and/or
controlled corporation, like the PGMC, is disqualified from operating a public service, like the said
telecommunications system; and
d)
Respondent PGMC is not authorized by its charter and under the Foreign Investment Act (R.A.
No. 7042) 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" with the 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 and conducting charity sweepstakes
races, lotteries, and other similar activities "in collaboration, association or joint venture with any
person, association, company or entity, foreign or domestic." Even granting arguendo that a lease of
facilities is not within the contemplation of "collaboration" or "association," an analysis, however, of the
Contract of Lease clearly shows that there is a "collaboration, association, or joint venture between
respondents PCSO and PGMC in the holding of the On-Line Lottery System," and that there are terms
and conditions of the Contract "showing that respondent PGMC is the actual lotto operator and not
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 that because it has no franchise from Congress to construct, install,
establish, or operate the network pursuant to Section 1 of Act No. 3846, as amended. Moreover, PGMC
is a 75% foreign-owned or controlled corporation and cannot, therefore, be granted a franchise for that
purpose because of Section 11, Article XII of the 1987 Constitution. Furthermore, since, "the subscribed
foreign capital" of the PGMC "comes to about 75%, as shown by paragraph EIGHT of its Articles of
Incorporation," it cannot lawfully enter into the contract in question because all forms of gambling
and lottery is one of them are included in the so-called foreign investments negative list under the
Foreign Investments Act (R.A. No. 7042) where only up to 40% foreign capital is allowed. 20
Finally, the petitioners insist that the Articles of Incorporation of PGMC do not authorize it to establish
and operate an on-line lottery and telecommunications systems. 21
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
lottery franchise 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 petitioners' 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 into 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 a telecommunications system is not intended to establish a
telecommunications business," and it has been held that where the facilities are operated "not for
business purposes but for its own use," a legislative franchise is not required before a certificate of
public convenience can be granted. 24 Even granting arguendo that PGMC is a public utility, pursuant to
Albano 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 its 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, 27 but only the motion of Senators
Alberto Romulo, Arturo Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo, Vicente Sotto III, John
Osmena, Ramon Revilla, and Jose Lina 28 was granted, and the respondents were required to comment
on their petition in intervention, which the public respondents and PGMC did.
In the meantime, the petitioners filed with the Securities and Exchange Commission on 29 March 1994 a
petition against PGMC 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 resolution and pending resolution of the major issues in this case, to issue a
temporary restraining order commanding the respondents or any person acting in their place or upon
their instructions to cease and desist from implementing the challenged Contract of Lease.
In the deliberation on this case on 26 April 1994, we resolved to consider only these issues: (a) the locus
standi of the petitioners, 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. 42, which prohibits the PCSO from holding and conducting
lotteries "in collaboration, association or joint venture with any person, association, company or entity,
whether domestic or foreign." On the first issue, seven Justices voted to sustain the locus standi of the
petitioners, while six voted not to. On the second issue, the seven Justice were of the opinion that the
Contract of Lease 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 to law. The six Justices stated that they wished to express no
opinion thereon in view of their stand on the first issue. The Chief Justice took no part because one of
the Directors of the PCSO is his brother-in-law.
This case was then assigned to this ponente for the writing of the opinion of the Court.
The preliminary issue on the locus standi of the petitioners should, indeed, be resolved in their favor. A
party's standing before this 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, 29 this Court brushed aside this technicality because "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. (Avelino vs. Cuenco, G.R. No. L-2821)." Insofar as taxpayers' suits are
concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be
entertained," 30 or that it "enjoys an open discretion to entertain the same or not." 31 In De La Llana vs.
Alba, 32 this 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 certainly falls within the principle set forth in Justice Laurel's opinion in People vs.
Vera [65 Phil. 56 (1937)]. Thus: 'The unchallenged rule is that the person who impugns the validity of a
statute 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 [Ibid, 89].' The other petitioners as members of the
bar and officers of the court cannot be considered as devoid of 'any personal and substantial interest' on
the matter. There is relevance to this excerpt form a separate opinion in Aquino, Jr. v. Commission on
Elections [L-40004, January 31, 1975, 62 SCRA 275]: 'Then there is the attack on the standing of
petitioners, as vindicating at most what they consider a public right and not protecting their rights as
individuals. This is to conjure the specter of the public right dogma as an inhibition to parties intent on
keeping public officials staying on the path of constitutionalism. As was so well put by Jaffe: "The
protection of private rights is an essential constituent of public interest and, conversely, without a wellordered state there could be no enforcement of private rights. Private and public interests are, both in a
substantive and procedural sense, aspects of the totality of the legal order." Moreover, petitioners have
convincingly shown that in their capacity as taxpayers, their standing to sue has been amply
demonstrated. There would be a retreat from the liberal approach followed in Pascual v. Secretary of
Public Works, foreshadowed by the very decision of People v. Vera where the doctrine was first fully
discussed, if we act differently now. I do not think we are prepared to take that step. Respondents,
however, would hark back to the American Supreme Court doctrine in Mellon v. Frothingham, with their
claim that what petitioners possess "is an interest which is shared in common by other people and is
comparatively so minute and indeterminate as to afford any basis and assurance that the judicial
process can act on it." That is to speak in the language of a bygone era, even in the United States. For as
Chief Justice Warren clearly pointed out in the later case of Flast v. Cohen, the barrier thus set up if not
breached has definitely been lowered."
In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 33 reiterated in Basco vs.
Philippine Amusements and Gaming Corporation, 34 this Court stated:
"Objections to taxpayers' suits for lack of sufficient personality standing or interest are, however, in the
main procedural matters. Considering the importance to the public of the cases at bar, and in keeping
with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of
government have kept themselves within the limits of the Constitution and the laws and that they have
not abused the discretion given to them, this Court has brushed aside technicalities of procedure and
has taken cognizance of these petitions."
and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, 35 it
declared:
"With particular regard to the requirement of proper party as applied in the cases before us, we hold
that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in
danger of sustaining an immediate injury as a result of the acts or measures complained of. [Ex Parte
Levitt, 303 US 633]. And even if, strictly speaking, they are not covered by the definition, it is still 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.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the
constitutionality of several executive orders issued by President Quirino although they were invoking

only an indirect and general interest shared in common with the public. The Court dismissed the
objective that they were not proper parties and ruled that 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. We have since then applied this exception in many other cases." (Emphasis
supplied)
In Daza vs. Singson, 36 this Court once more said:
". . . For another, we have early as in the Emergency Powers Cases that where serious constitutional
questions are involved, '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.' The same
policy has since then been consistently followed by the Court, as in Gonzales vs. Commission on
Elections [21 SCRA 774] . . . ."
The Federal Supreme Court of the United States of America has also expressed its discretionary power
to liberalize the rule on locus standi. In United States vs. Federal Power Commission and Virginia Rea
Association vs. Federal Power Commission, 37 it held:
"We hold that petitioners have standing. Differences of view, however, preclude a single opinion of the
Court as to both petitioners. It would not further clarification of this complicated specialty of federal
jurisdiction, the solution of whose problems is in any event more or less determined by the specific
circumstances of individual situations, to set out the divergent grounds in support of standing in these
cases."
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and
even association of planters, and non-profit civic organizations were allowed to initiate and prosecute
actions before this Court to question the constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or instrumentalities. Among such cases were those assailing the
constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of
vacation and sick leave to Senators and Representatives and to elective officials of both Houses of
Congress; 38 (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which
allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other
government offices or positions; 39 (c) the automatic appropriation for debt service in the General
Appropriations Act; 40 (d) R.A. No. 7056 on the holding of desynchronized elections; 41 (e) P.D. No.
1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is
contrary to morals, public policy, and order; 42 and (f) R.A. No. 6975, establishing the Philippine National
Police. 43
Other cases where we have followed a liberal policy regarding locus standi include those attacking the
validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed
by R.A. No. 3452; 44 (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the
Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and
conduct the referendum-plebiscite on 16 October 1976; 45 (c) the bidding for the sale of the 3,179
square meters of land at Roppongi, Minato-ku, Tokyo, Japan; 46 (d) the approval without hearing by the

Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer
the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock
from naphtha only to naphtha and/or liquefied petroleum gas; 47 (e) the decisions, orders, rulings, and
resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue,
Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power
Corporation from indirect tax and duties; 48 (f) the orders of the Energy Regulatory Board of 5 and 6
December 1990 on the ground that the hearings conducted on the second provisional increase in oil
prices did not allow the petitioner substantial cross-examination; 49 (g) Executive Order No. 478 which
levied a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil and P1.00 per liter of
imported oil products; 50 (h) resolutions of the Commission on Elections concerning the apportionment,
by district, of the number of elective members of Sanggunians; 51 and (i) memorandum orders issued by
a Mayor affecting the Chief of Police of Pasay City. 52
In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite its unequivocal ruling that
the petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the
issues raised because of the far-reaching implications of the petition. We did no less in De Guia vs.
COMELEC 54 where, although we declared that De Guia "does not appear to have locus standi, a
standing in law, a personal or substantial interest," we 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."
We find the instant petition to be of transcendental importance to the public. The issues it raised are of
paramount public interest and of a category even higher than those involved in many of the aforecited
cases. The ramifications of such issues immeasurably affect the social, economic, and moral well-being
of the people even in the remotest barangays of the country and the counter-productive and
retrogressive effects of the envisioned on-line lottery system are as staggering as the billions in pesos it
is expected to raise. The legal standing then of the petitioners deserves recognition and, in the exercise
of its sound discretion, this Court hereby brushes aside the procedural barrier which the respondents
tried to take advantage of.
And now on the substantive issue.
Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, prohibits the PCSO from holding and conducting
lotteries "in collaboration, association or joint venture with any person, association, company or entity,
whether domestic or foreign." Section 1 provides:
"Sec. 1. The Philippine Charity Sweepstakes Office. The Philippine Charity Sweepstakes Office,
hereinafter designated the Office, shall be the principal government agency for raising and providing for
funds for health programs, medical assistance and services and charities of national character, and as
such shall have the general powers conferred in section thirteen of Act Numbered One thousand four
hundred fifty-nine, as amended, and shall have the authority:

A.
To hold and conduct charity sweepstakes races, lotteries and other similar activities, in such
frequency and manner, as shall be determined, and subject to such rules and regulations as shall be
promulgated by the Board of Directors.
B.
Subject to the approval of the Minister of Human Settlements, to engage in health and welfarerelated investments, programs, projects and activities which may be profit-oriented, by itself or in
collaboration, association or joint venture with any person, association, company or entity, whether
domestic or foreign, except for the activities mentioned in the preceding paragraph (A), for the purpose
of providing for permanent and continuing sources of funds for health programs, including the
expansion of existing ones, medical assistance and services, and/or charitable grants: Provided, That
such investments will not compete with the private sector in areas where investments are adequate as
may be determined by the National Economic and Development Authority." (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 cannot exercise
it "in collaboration, association, or joint venture" with any other party. This is the unequivocal meaning
and import of the phrase "except for the activities mentioned in the preceding paragraph (A)," namely,
"charity sweepstakes races, lotteries and other similar activities."
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 a joint venture or in collaboration with any entity such collaboration or joint venture
must not include activity letter (a) which is the holding and conducting of sweepstakes races, lotteries
and other similar acts.
MR. ZAMORA.
We accept the amendment, Mr. Speaker.
MR. DAVIDE.
Thank you, Mr. Speaker.
THE SPEAKER.
Is there any objection to the amendment? (Silence) The amendment, as amended, is approved."
57
Further amendments to paragraph B were introduced and approved. When Assemblyman Zamora read
the final text of paragraph B as further amended, the earlier approved amendment of Assemblyman
Davide became "EXCEPT FOR THE ACTIVITIES MENTIONED IN PARAGRAPH (A)"; and by virtue of the
amendment introduced by Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted before
PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter, the new paragraph B was
approved. 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 provisions to relax or circumvent the prohibition can be allowed since the
privilege to hold or conduct charity sweepstakes races, lotteries, or other similar activities is a franchise
granted by the legislature to the PCSO. It is a settled rule that "in all grants by the government to
individuals or corporations of rights, privileges and franchises, the words are to be taken most strongly
against the grantee . . . . [o]ne who claims a franchise or privilege in derogation of the common rights of
the public must prove his title thereto by a grant which is clearly and definitely expressed, and he cannot
enlarge it by equivocal or doubtful provisions or by probable inferences. Whatever is not unequivocably
granted is withheld. Nothing passes by mere implication." 59
In short then, by the exception explicitly made in paragraph B, Section 1 of this charter, the PCSO cannot
share its franchise with another by way of collaboration, association or joint venture. Neither can it

assign, transfer, or lease such franchise. It has been said that "the rights and privileges conferred under
a franchise may, without doubt, be assigned or transferred when the grant is to the grantee and assigns,
or is authorized by statute. On the other hand, the right of transfer or assignment may be restricted by
statute or the constitution, or be made subject to the approval of the grantor or a governmental agency,
such as a public utilities commission, except that an existing right of assignment cannot be impaired by
subsequent legislation." 60
It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it
to hold and conduct a species of gambling. It is settled that "a statute which authorizes the carrying on
of a gambling activity or business should be strictly construed and every reasonable doubt so resolved as
to limit the powers and rights claimed under its authority." 61
Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169,
as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries "in
collaboration, association or joint venture with" another?
We agree with the petitioners that it does, notwithstanding its denomination or designation as a
Contract of Lease. We are neither convinced nor moved or fazed by the insistence and forceful
arguments of the PGMC that it does not because in reality it is only an independent contractor for a
piece of work, i.e., the building and maintenance of a lottery system to be used by the PCSO in the
operation of its lottery franchise. 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. 62 And, pursuant to Article 1371 of the Civil Code, "to determine the intention of the
contracting parties, their contemporaneous and subsequent acts shall be principally considered." To put
it more bluntly, no one should be deceived by the title or designation of a contract.
A careful analysis and evaluation of the provisions of the contract and a consideration of the
contemporaneous acts of the PCSO 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 collaboration or association, in the least, or joint venture, at the
most, exists between the contracting parties. Collaboration is defined as the act of working together in a
joint project. 63 Association means the act of a number of persons in uniting together for some special
purpose or business. 64 Joint venture is defined as an association of persons or companies jointly
undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a
community of interest in the performance of the subject matter, a right to direct and govern the policy
in connection therewith, and duty, which may be altered by agreement to share both in profit and
losses. 65
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its own
nor the expertise to operate and manage an on-line lottery system, and that although it wished to have

the system, it would have it "at no expense or risks to the government." Because of these serious
constraints and unwillingness to bear expenses and assume risks, the PCSO was candid enough to state
in its RFP that it is seeking for "a suitable contractor which shall build, at its own expense, all the
facilities needed to operate and maintain" the system; exclusively bear "all capital, operating expenses
and expansion expenses and risks"; and submit "a comprehensive nationwide lottery development plan
. . . which will include the game, the marketing of the games, and the logistics to introduce the game to
all the cities and municipalities of the country within five (5) years"; and that the operation of the online lottery system should be "at no expense or risk to the government" meaning itself , since it is a
government-owned and controlled agency. The facilities referred to means "all capital equipment,
computers, terminals, software, nationwide telecommunications network, ticket sales offices,
furnishings and fixtures, printing costs, costs of salaries and wages, advertising and promotions
expenses, maintenance costs, expansion and replacement costs, security and insurance, and all other
related expenses needed to operate a nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line
lottery system; with the rest, including the risks of the business, being borne by the proponent or
bidder. It could be for this reason that it warned that "the proponent must be able to stand to the acid
test of proving that it is an entity able to take on the role of responsible maintainer of the on-line lottery
systems." The PCSO however, makes it clear in its RFP that the proponent can propose a period of the
contract which shall not exceed fifteen years, during which time it is assured of a "rental" which shall
not exceed 12% of gross receipts. As admitted by the PGMC, upon learning of the PCSO's decision, the
Berjaya Group Berhad, with its affiliates, wanted to offer its services and resources to the PCSO.
Forthwith, it organized the PGMC as "a medium through which the technical and management services
required for the project would be offered and delivered to PCSO." 66
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery
system, the PCSO had nothing but its franchise, which it solemnly guaranteed it had in the General
Information of the RFP. 67 Howsoever viewed then, from the very inception, the PCSO and the PGMC
mutually understood that any arrangement between them would necessarily leave to the PGMC the
technical, operations, and management aspects of the on-line lottery system while the PCSO would,
primarily, provide the franchise. The words Gaming and Management in the corporate name of
respondent Philippine Gaming Management Corporation could not have been conceived just for
euphemistic purposes. Of course, the RFP cannot substitute for the Contract of Lease which was
subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates
their intention and understanding.
The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination as such is a
crafty device, carefully conceived, to provide a built-in defense in the event that the agreement is
questioned as violative of the exception in Section 1 (B) of the PCSO's charter. The acuity or skill of its
draftsmen to accomplish that purpose easily manifests itself in the Contract of Lease. It is outstanding
for its careful and meticulous drafting designed to give an immediate impression that it is a contract of
lease. Yet, woven therein are provisions which negate its title and betray the true intention of the

parties to be in or to have a joint venture for a period of eight years in the operation and maintenance
of the on-line lottery system.
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 costeffective and competitive; exclusively bear all costs and expenses relating to the printing, manpower,
salaries and wages, advertising and promotion, maintenance, expansion and replacement, security and
insurance, and all other related expenses needed to operate the on-line lottery system; undertake a
positive advertising and promotions campaign for both institutional and product lines without engaging
in negative advertising against other lessors; bear the salaries and related costs of skilled and qualified
personnel for administrative and technical operations; comply with procedural and coordinating rules
issued by the PCSO; and to train PCSO and other local personnel and to effect the transfer of technology
and other expertise, such that at the end of the term of the contract, the PCSO will be able to effectively
take over the Facilities and efficiently operate the on-line lottery system. The latter simply means that,
indeed, the managers, technicians or employees who shall operate the on-line lottery system are not
managers, technicians or employees of the PCSO, but of the PGMC and that it is only after the expiration
of the contract that the PCSO will operate the system. After eight years, the PCSO would automatically
become the owner of the Facilities without any other further consideration.
For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan of all games
and the marketing thereof, and determine the number of players, value of winnings, and the logistics
required to introduce the games, including the Master Games Plan. Of course, the PCSO has the
reserved authority to disapprove them. 68 And, while the PCSO has the sole responsibility over the
appointment of dealers and retailers throughout the country, the PGMC may, nevertheless, recommend
for appointment dealers and retailers which shall be acted upon by the PCSO within forty-eight hours
and collect and retain, for its own account, security deposit from dealers and retailers in respect of
equipment supplied by it. This joint venture is further established by the following:
(a)
Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for
the fulfillment of its obligations under the contract, including but not limited to the lease of the
Facilities. However, this rent is not actually a fixed amount. Although it is stated to be 4.9% of gross
receipts from ticket sales, payable net of taxes required by law to be withheld, it may be drastically
reduced or, in extreme cases, nothing may be due or demandable at all because the PGMC binds itself
to "bear all risks if the revenue from the ticket sales, on an annualized basis, are insufficient to pay the
entire prize money." This risk-bearing provision is unusual in a lessor-lessee relationship, but inherent in
a joint venture.
(b)
In the event of pre-termination of the contract by the PCSO, or its suspension of operation of
the on-line lottery system in breach of the contract and through no fault of the PGMC, the PCSO binds
itself "to promptly, and in any event not later than sixty (60) days, reimburse the LESSOR the amount of

its total investment cost associated with the On-Line Lottery System, including but not limited to the
cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax,
computed over the unexpired term of the lease." If the contract were indeed one of lease, the payment
of the expected profits or rentals for the unexpired portion of the term of the contract would be
enough.
(c)
The PGMC cannot "directly or indirectly undertake any activity or business in competition with
or adverse to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent." If
the PGMC is engaged in the business of leasing equipment and technology for an on-line lottery system,
we fail to see any acceptable reason why it should allow a restriction on the pursuit of such business.
(d)
The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within
two years from the effectivity of the contract, cause itself to be listed in the local stock exchange and
offer at least 25% of its equity to the public. If the PGMC is merely a lessor, this imposition is
unreasonable and whimsical, and could only be tied up to the fact that the PGMC will actually operate
and manage the system; hence, increasing public participation in the corporation would enhance public
interest.
(e)
The PGMC shall put an Escrow Deposit of P300,000,000.00 pursuant to the requirements of the
RFP, which it may, at its option, maintain as its initial performance bond required to ensure its faithful
compliance with the terms of the contract.
(f)
The PCSO shall designate the necessary personnel to monitor and audit the daily performance of
the on-line lottery system; and promulgate procedural and coordinating rules governing all activities
relating to the on-line lottery system. The first further 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 coordinating and cooperative powers and function
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 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 actual lessor in
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.
FIRST DIVISION
[G.R. No. 115381. December 23, 1994.]
KILUSANG MAYO UNO LABOR CENTER, petitioner, vs. HON. JESUS B. GARCIA, JR., the LAND
TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUSES OPERATORS
ASSOCIATION OF THE PHILIPPINES, respondents.
DECISION
KAPUNAN, J p:
Public utilities are privately owned and operated businesses whose service are essential to the general
public. They are enterprises which specially cater to the needs of the public and conduce to their
comfort and convenience. As such, public utility services are impressed with public interest and concern.
The same is true with respect to the business of common carrier which holds such a peculiar relation to
the public interest that there is superinduced upon it the right of public regulation when private
properties are affected with public interest, hence, they cease to be juris privati only. When, therefore,
one devotes his property to a use in which the public has an interest, he, in effect grants to the public an
interest in that use, and must submit to the control by the public for the common good, to the extent of
the interest he has thus created. 1
An abdication of the licensing and regulatory government agencies of their functions as the instant
petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is
inimical to public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda,
circulars and/or orders of the Department of Transportation and Communications (DOTC) and the Land
Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize provincial
bus and jeepney operators to increase or decrease the prescribed transportation fares without

application therefor with the LTFRB and without hearing and approval thereof by said agency in
violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public
Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by
delegating that function to bus operators, and (b) establish a presumption of public need in favor of
applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving
that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as
amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It
is, likewise, violative of the Rules of Court which places upon each party the burden to prove his own
affirmative allegations. 3 The offending provisions contained in the questioned issuances pointed out by
petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and
smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the
burden of spiraling costs of public transportation without hearing and due process. cdrep
The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz:
(a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare
range scheme for provincial bus services in the country; (b) DOTC Department Order No. 92-587, dated
March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC
Memorandum dated October 8, 1992, laying down rules and procedures to implement Department
Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on
the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 943112.
The relevant antecedents are as follows:
On June 26, 1990, then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to
then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers
rates within a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The
text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the
Medium-Term Philippine Development Plan (MTPDP) 1987 1992) is the liberalization of regulations in
the transport sector. Along this line, the Government intends to move away gradually from regulatory
policies and make progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already charging passenger rates above
and below the official fare declared by LTFRB on many provincial routes. It is in this context that some
form of liberalization on public transport fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all
provincial bus routes in country (except those operating within Metro Manila). Transport operators shall
be allowed to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%)
below the LTFRB official rate for a period of one year.

Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the
DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando
submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received
on 19 July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus
routes in the country (except those operating within Metro Manila)" that will allow operators "to charge
passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB
official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention
to the following for his consideration:
1.
Section 16 (c) of the Public Service Act prescribes the following for the fixing and determination
of rates -- (a) the rates to be approved should be proposed by public service operators; (b) there should
be a publication and notice to concerned or affected parties in the territory affected; (c) a public hearing
should be held for the fixing of the rates; hence, implementation of the proposed fare range scheme on
August 6 without complying with the requirements of the Public Service Act may not be legally feasible.
2.
To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB
fares in the wake of the devastation, death and suffering caused by the July 16 earthquake will not be
socially warranted and will be politically unsound; most likely public criticism against the DOTC and the
LTFRB will be triggered by the untimely motu propio implementation of the proposal by the mere
expedient of publicizing the fare range scheme without calling a public hearing, which scheme many as
early as during the Secretary's predecessor know through newspaper reports and columnists' comments
to be Asian Development Bank and World Bank inspired.
3.
More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the
proposal will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when
hundreds of thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La
Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc
caused by the recent earthquake.
4.
In lieu of the said proposal, the DOTC with its agencies involved in public transportation can
consider measures and reforms in the industry that will be socially uplifting, especially for the people in
the areas devastated by the recent earthquake.
In view of the foregoing considerations, the undersigned respectfully suggests that the implementation
of the proposed fare range scheme this year be further studied and evaluated.

On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc.
(PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half
centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range of
fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said
minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fiftycentavo (P0.50) minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-theboard increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was
due to the drop in the expected price of diesel. llcd
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging
that the proposed rates were exorbitant and unreasonable and that the application contained no
allegation on the rate of return of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in
accordance with the following schedule of fares on a straight computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 KMS. SUCCEEDING KM.
REGULAR

P1.50 P0.37

STUDENT

P1.15 P0.28

VISAYAS/MINDANAO
REGULAR

P1.60 P0.375

STUDENT

P1.20 P0.285

FIRST CLASS (PER KM.)

LUZON P0.385
VISAYAS/MINDANAO

P0.395

PREMIERE CLASS (PER KM.)

LUZON P0.395
VISAYAS/ MINDANAO P0.405

AIRCON (PER KM.)

P0.415. 4

On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete
Nicomedes Prado issued Department Order No. 92-587 defining the policy framework on the regulation
of transport services. The full text of the said order is reproduced below in view of the importance of the
provisions contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and
Communications (DOTC) as the primary policy, planning, regulating and implementing agency on
transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the
transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions
and adopt a common philosophy and direction;
WHEREAS, the government proposes to build on the successful liberalization measures pursued over the
last five years and bring the transport sector nearer to a balanced longer term regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and
principles in the economic regulation of land, air, and water transportation services are hereby adopted:
1.
Entry into and exit out of the industry. Following the Constitutional dictum against monopoly,
no franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two
franchise holders shall be permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of
Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the riding
public.
In determining public need, the presumption of need for a service shall be deemed in favor of the
applicant. The burden of proving that there is no need for a proposed service shall be with the
oppositor(s).
In the interest of providing efficient public transport services, the use of the 'prior operator' and the
'priority of filing' rules shall be discontinued. The route measured capacity test or other similar tests of
demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each
franchise application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban areas, or at airports and
ports, the use of demand management measures in conformity with market principles may be
considered.
The right of an operator to leave the industry is recognized as a business decision, subject only to the
filing of appropriate notice and following a phase-out period, to inform the public and to minimize
disruption of services.

2.
Rate and Fare Setting. Freight rates shall be freed gradually from government controls.
Passenger fares shall also be deregulated, except for the lowest class of passenger service (normally
third class passenger transport) for which the government will fix indicative or reference fares.
Operators of particular services may fix their own fares within a range 15% above and below the
indicative or reference rate.
Where there is lack of effective competition for services, or on specific routes, or for the transport of
particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily
by the government pending actions to increase the level of competition.
For unserved or single operator routes, the government shall contract such services in the most
advantageous terms to the public and the government, following public bids for the services. The
advisability of bidding out the services or using other kinds of incentives on such routes shall be studied
by the government.
3.
Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government
shall not engage in special financing and incentive programs, including direct subsidies for fleet
acquisition and expansion. Only when the market situation warrants government intervention shall
programs of this type be considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime
Industry Authority are hereby directed to submit to the office of the Secretary, within forty-five (45)
days of this Order, the detailed rules and procedures for the Implementation of the policies herein set
forth. In the formulation of such rules, the concerned agencies shall be guided by the most recent
studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master
Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner
Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of Transportation and
Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB
suggesting swift action on the adoption of rules and procedures to implement above-quoted
Department Order No. 92-587 that laid down deregulation and other liberalization policies for the
transport sector. Attached to the said memorandum was a revised draft of the required rules and
procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with
comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from the
said memorandum is the statement of the DOTC Secretary that the adoption of the rules and
procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank. 5
On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the guidelines
for the implementation of DOTC Department Order No. 92-587. The Circular provides, among others,
the following challenged portions:

xxx
IV.

xxx

xxx

Policy Guidelines on the Issuance of Certificate of Public Convenience:

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of
public need for a service shall be deemed in favor of the applicant, while burden of proving that there is
no need for the proposed service shall be the oppositor's.
xxx
V.

xxx

xxx

Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition complementary with the quality
of service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without
public hearing.
A.

On the General Structure of Rates

1.
The existing authorized fare range system of plus or minus 15 per cent for provincial buses and
jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an
indicative or reference rate as the basis for the expanded fare range.
2.
xxx

Fare systems for aircon buses are liberalized to cover first class and premier services.
xxx

xxx

(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the
DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare
without first having filed a petition for the purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to be
made effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment
of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit.
The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES
FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved
with dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or
options it is entitled under existing laws.
SO ORDERED. 6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining
order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing
respondents from implementing the bus fare rate increase as well as the questioned orders and
memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly
authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance
of franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to
provincial bus operators to set a fare range of plus or minus fifteen (15) percent, later increased to plus
twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare
without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the
establishment of a presumption of public need in favor of an applicant for a proposed transport service
without having to prove public necessity, is illegal for being violative of the Public Service Act and the
Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the
petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that
the petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining
the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B.
Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the
instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme
and establish a presumption of public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of
the Constitution provides:
xxx

xxx

xxx

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending
between parties who have the right to sue in the courts of law and equity. Corollary to this provision is
the principle of locus standi of a party litigant. One who is directly affected by and whose interest is
immediate and substantial in the controversy has the standing to sue. The rule therefore requires that a

party must show a personal stake in the outcome of the case or an injury to himself that can be
redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify
the exercise of the court's remedial powers in his behalf. 8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and
irreparable injury and damage from the implementation of the questioned memoranda, circulars and/or
orders, has shown that it has a clear legal right that was violated and continues to be violated with the
enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the
use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary
increase in passenger fares. They are part of the millions of commuters who comprise the riding public.
Certainly, their rights must be protected, not neglected nor ignored. cdll
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush
aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the
transcendental importance of the issues raised. And this act of liberality is not without judicial
precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion and waived
the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et
al., 9 we ruled in the same lines and enumerated some of the cases where the same policy was adopted,
viz:
. . . A party's standing before this 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, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta v. Angeles); G.R. No. L-3054
(Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R.
No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this
technicality because '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. (Avelino vs.
Cuenco, G.R. No. L-2621).' Insofar as taxpayers' suits are concerned, this Court had declared that it 'is
not devoid of discretion as to whether or not it should be entertained,' (Tan v. Macapagal, 43 SCRA 677,
680 [1972]) or that it 'enjoys an open discretion to entertain the same or not.' [Sanidad v. COMELEC, 73
SCRA 333 (1976)].
xxx

xxx

xxx

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and
even association of planters, and non-profit civic organizations were allowed to initiate and prosecute
actions before this court to question the constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or instrumentalities. Among such cases were those assailing the
constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of
vacation and sick leave to Senators and Representatives and to elective officials of both Houses of
Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order
No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet,
their undersecretaries, and assistant secretaries to hold other government offices or positions (Civil

Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt
service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056
on the holding of desynchronized elections (Osmea v. Commission on Elections, 199 SCRA 750 [1991];
(e) P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that
it is contrary to morals, public policy, and order (Basco v. Philippine Gaming and Amusement Corp., 197
SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive
Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi include those attacking the
validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed
by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b)
P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031
insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite
on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179
square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d)
the approval without hearing by the Board of Investments of the amended application of the Bataan
Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of
such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas
(Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288
[1990]); (e) the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of
Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review
Board exempting the National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197
SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the
ground that the hearings conducted on the second provisional increase in oil prices did not allow the
petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g)
Executive Order No. 478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v.
Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning
the apportionment, by district, of the number of elective members of Sanggunians (De Guia vs.
Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor
affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662
[1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its
unequivocal ruling that the petitioners therein had no personality to file the petition, resolved
nevertheless to pass upon the issues raised because of the far-reaching implications of the petition. We
did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia 'does not appear
to have locus standi, a standing in law, a personal or substantial interest,' we 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.'
Now on the merits of the case.

On the fare range scheme.

Section 16 (c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. The Commission shall have power,
upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the
limitations and exceptions mentioned and saving provisions to the contrary:
xxx

xxx

xxx

(c)
To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof,
as well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed,
and followed thereafter by any public service: Provided, That the Commission may, in its discretion,
approve rates proposed by public services provisionally and without necessity of any hearing; but it shall
call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns
operating in the territory affected: Provided, further, That in case the public service equipment of an
operator is used principally or secondarily for the promotion of a private business, the net profits of said
private business shall be considered in relation with the public service of such operator for the purpose
of fixing the rates. (Emphasis ours).
xxx

xxx

xxx

Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the
power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is
likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5 (c) of the
said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and
adjust, reasonable fares, rates and other related charges, relative to the operation of public land
transportation services provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the
increasing complexity of modern life. As subjects for governmental regulation multiply, so does the
difficulty of administering the laws. Hence, specialization even in legislation has become necessary.
Given the task of determining sensitive and delicate matters as route-fixing and rate-making for the
transport sector, the responsible regulatory body is entrusted with the power of subordinate legislation.
With this authority, an administrative body and in this case, the LTFRB, may implement broad policies
laid down in a statute by "filling in" the details which the Legislature may neither have time or
competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory
bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport
operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range
over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue
delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated
cannot be delegated. This doctrine is based on the ethical principle that such as delegated power

constitutes not only a right but a duty to be performed by the delegate through the instrumentality of
his own judgment and not through the intervening mind of another. 10 A further delegation of such
power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate
mandated to discharge it directly. 11 The policy of allowing the provincial bus operators to change and
increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs.
This would leave the riding public at the mercy of transport operators who may increase fares every
hour, every day, every month or every year, whenever it pleases them or whenever they deem it
"necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine
Railway Co. was granted by the Public Service Commission the authority to change its freight rates at
will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine
Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order
to meet the competition of road trucks and autobuses, or to change its freight rates at will, or to regard
its present rates as maximum rates, and to fix lower rates whenever in the opinion of the Philippine
Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is enough to show that
it is untenable. The Legislature has delegated to the Public Service Commission the power of fixing the
rates of public services, but it has not authorized the Public Service Commission to delegate that power
to a common carrier or other public service. The rates of public services like the Philippine Railway Co.
have been approved or fixed by the Public Service Commission, and any change in such rates must be
authorized or approved by the Public Service Commission after they have been shown to be just and
reasonable. The public service may, of course, propose new rates, as the Philippine Railway Co. did in
case No. 31827, but it cannot lawfully make said new rates effective without the approval of the Public
Service Commission, and the Public Service Commission itself cannot authorize a public service to
enforce new rates without the prior approval of said rates by the commission. The commission must
approve new rates when they are submitted to it, if the evidence shows them to be just and reasonable,
otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or
not the new rates of the Philippine Railway Co. will be just and reasonable, because it does not know
what those rates will be.
In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at
will. It may change them every day or every hour, whenever it deems it necessary to do so in order to
meet competition or whenever in its opinion it would be to its advantage. Such a procedure would
create a most unsatisfactory state of affairs and largely defeat the purposes of the public service law. 13
(Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded fare. If transport
operators will be authorized to impose and collect an additional amount equivalent to 20% over and
above the authorized fare over a period of time, this will unduly prejudice a commuter who will be made
to pay a fare that has been computed in a manner similar to those of compounded bank interest rates.

Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a
thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed
to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo
per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavo) is equivalent to P0.42
centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase
per kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos
(which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional
20% over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is,
P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously
subject, not only to a double fare adjustment but to a compounding fare as well. On their part, transport
operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect
an additional amount by virtue of the authorized fare range. Mathematically, the situation translates
into the following:
Year * LTFRB Fare Range

Fare to be

authorized

collected

rate **

per kilometer

1990

P0.37 15% (P0.05)

P0.42

1994

P0.42 + 0.05 = 0.47

20% (P0.09)

P0.56

1998

P0.56 + 0.05 = 0.61

20% (P0.12)

P0.73

2002

P0.73 + 0.05 = 0.78

20% (P0.16)

P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government
function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a
just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact, have
to be taken into consideration before a balance could be achieved. A rate should not be confiscatory as
would place an operator in a situation where he will continue to operate at a loss. Hence, the rate
should enable public utilities to generate revenues sufficient to cover operational costs and provide
reasonable return on the investments. On the other hand, a rate which is too high becomes
discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must
be affordable to the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions
of commuters, government must not relinquish this important function in favor of those who would
benefit and profit from the industry. Neither should the requisite notice and hearing be done away with.
The people, represented by reputable oppositors, deserve to be given full opportunity to be heard in
their opposition to any fare increase.

The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory
arrangement for all parties involved. To do away with such a procedure and allow just one party, an
interested party at that, to determine what the rate should be will undermine the right of the other
parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable
rate is. 15 Discarding such procedural and constitutional right is certainly inimical to our fundamental
law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of
land transportation services for public use as required by law. Pursuant to Section 16(a) of the Public
Service Act, as amended, the following requirements must be met before a CPC may be granted, to wit:
(i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or
joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum
of its stock or paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must
be financially capable of undertaking the proposed service and meeting the responsibilities incident to
its operation; and (iii) the applicant must prove that the operation of the public service proposed and
the authorization to do business will promote the public interest in a proper and suitable manner. It is
understood that there must be proper notice and hearing before the PSC can exercise its power to issue
a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular
No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a
CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of
public need for a service shall be deemed in favor of the applicant, while the burden of proving that
there is no need for the proposed service shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public
Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice
and hearing that the operation of the public service proposed will promote public interest in a proper
and suitable manner. On the contrary, the policy guideline states that the presumption of public need
for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and
an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the public
need. 16 As one of the basic requirements for the grant of a CPC, public convenience and necessity
exists when the proposed facility or service meets a reasonable want of the public and supply a need
which the existing facilities do not adequately supply. The existence or non-existence of public
convenience and necessity is therefore a question of fact that must be established by evidence, real
and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing
conducted for that purpose. The object and purpose of such procedure, among other things, is to look
out for, and protect, the interests of both the public and the existing transport operators.

Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress
hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of
the public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that fact
alone must be consistently borne in mind. Also, existing operators is subject routes must be given an
opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be
required to prove his capacity and capability to furnish the service which he has undertaken to render.
18 And all this will be possible only if a public hearing were conducted for that purpose. LLjur
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and
institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates
the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending
provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by
adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section
5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as only this
Court is mandated by law to promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the
present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an
abdication by the government of its inherent right to exercise police power, that is, the right of
government to regulate public utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate
the transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department
Order No. 92-587 defining the policy framework on the regulation of transport services and LTFRB
Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department
Order No. 92-587, the said administrative issuances being amendatory and violative of the Public Service
Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare increase
imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a public hearing
is null and void and of no force and effect. No grave abuse of discretion however was committed in the
issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the
same being merely internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged
administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum
Circular No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby
DECLARED contrary to law and invalid insofar as they affect provisions therein (a) delegating to
provincial bus and jeepney operators the authority to increase or decrease the duly prescribed
transportation fares; and (b) creating a presumption of public need for a service in favor of the applicant
for a certificate of public convenience and placing the burden of proving that there is no need for the
proposed service to the oppositor. LexLib

The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it
enjoined the bus fare rate increase granted under the provisions of the aforementioned administrative
circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur
EN BANC
[G.R. No. 101083. July 30, 1993.]
JUAN ANTONIO, ANNA ROSARIO and JOSE ALFONSO, all surnamed OPOSA, minors, and represented by
their parents ANTONIO and RIZALINA OPOSA, ROBERT A NICOLE SADIUA, minor, represented by her
parents CALVIN and ROBERTA SADIUA, CARLO, AMANDA SALUD and PATRISHA, all surnamed FLORES,
minors and represented by their parents ENRICO and NIDA FLORES, GIANINA DITA R. FORTUN, minor,
represented by her parents SIGFRID and DOLORES FORTUN, GEORGE II and MA. CONCEPCION, all
surnamed MISA, minors and represented by their parents GEORGE and MYRA MISA, BENJAMIN ALAN V.
PASIGAN, minor, represented by his parents ANTONIO and ALICE PESIGAN, JOVIE MARIE ALFARO, minor,
represented by her parents JOSE and MARIA VIOLETA ALFARO, MARIA CONCEPCION T. CASTRO, minor,
represented by her parents FREDENIL and JANE CASTRO, JOHANNA DESAMPARADO, minor, represented
by her parents JOSE and ANGELA DESAMPARADO, CARLO JOAQUIN T. NARVASA, minor, represented by
his parents GREGORIO II and CRISTINE CHARITY NARVASA, MA. MARGARITA, JESUS IGNACIO, MA.
ANGELA and MARIE GABRIELLE, all surnamed SAENZ, minors, represented by their parents ROBERTO
and AURORA SAENZ, KRISTINE, MARY ELLEN, MAY, GOLDA MARTHE and DAVID IAN, all surnamed KING,
minors, represented by their parents MARIO and HAYDEE KING, DAVID, FRANCISCO and THERESE
VICTORIA, all surnamed ENDRIGA, minors, represented by their parents BALTAZAR and TERESITA
ENDRIGA, JOSE MA. and REGINA MA., all surnamed ABAYA, minors, represented by their parents
ANTONIO and MARICA ABAYA, MARILIN, MARIO, JR. and MARIETTE, all surnamed CARDAMA, minors,
represented by their parents MARIO and LINA CARDAMA, CLARISSA, ANN MARIE, NAGEL and IMEE LYN,
all surnamed OPOSA, minors and represented by their parents RICARDO and MARISSA OPOSA, PHILIP
JOSEPH, STEPHEN JOHN and ISAIAH JAMES, all surnamed QUIPIT, minors, represented by their parents
JOSE MAX and VILMI QUIPIT, BUGHAW CIELO, CRISANTO, ANNA, DANIEL and FRANCISCO, all surnamed
BIBAL, minors, represented by their parents FRANCISCO, JR. and MILAGROS BIBAL, and THE PHILIPPINE
ECOLOGICAL NETWORK, INC., petitioners, vs. THE HONORABLE FULGENCIO S. FACTORAN, JR., in his
capacity as the Secretary of the Department of Environment and Natural Resources, and THE
HONORABLE ERIBERTO U. ROSARIO, Presiding Judge of the RTC, Makati, Branch 66, respondents.
Oposa Law Office for petitioners.
The Solicitor General for respondents.
SYLLABUS

1.
CONSTITUTIONAL LAW; DECLARATION OF PRINCIPLES AND STATE POLICIES; RIGHT TO A
BALANCED AND HEALTHFUL ECOLOGY, CONSTRUED. The complaint focuses on one specific
fundamental legal right the right to a balanced and healthful ecology which, for the first time in our
nation's constitutional history, is solemnly incorporated in the fundamental law. Section 16, Article II of
the 1987 Constitution explicitly provides: "SEC. 16. The State shall protect and advance the right of the
people to a balanced and healthful ecology in accord with the rhythm and harmony of nature." This right
unites with the right to health which is provided for in the preceding section of the same article: "SEC.
15. The State shall protect and promote the right to health of the people and instill health consciousness
among them." While the right to a balanced and healthful ecology is to be found under the Declaration
of Principles and State Policies and not under the Bill of Rights, it does not follow that it is less important
than any of the civil and political rights enumerated in the latter. Such a right belongs to a different
category of rights altogether for it concerns nothing less than self-preservation and self-perpetuation
aptly and fittingly stressed by the petitioners the advancement of which may even be said to predate
all governments and constitutions. As a matter of fact, these basic rights need not even be written in the
Constitution for they are assumed to exist from the inception of humankind. If they are now explicitly
mentioned in the fundamental charter, it is because of the well-founded fear of its framers that unless
the rights to a balanced and healthful ecology and to health are mandated as state policies by the
Constitution itself, thereby highlighting their continuing importance and imposing upon the state a
solemn obligation to preserve the first and protect and advance the second, the day would not be too
far when all else would be lost not only for the present generation, but also for those to come
generations which stand to inherit nothing but parched earth incapable of sustaining life. The right to a
balanced and healthful ecology carries with it the correlative duty to refrain from impairing the
environment.
2.
ID.; ID.; TIMBER LICENSES; NATURE THEREOF; NON-IMPAIRMENT CLAUSE MAY NOT BE
INVOKED; CASE AT BAR. all licenses may thus be revoked or rescinded by executive action. It is not a
contract, property or a property right protected by the due process clause of the Constitution. In Tan vs.
Director of Forestry, (125 SCRA 302, 325 [1983]) This Court held: ". . . A timber license is an instrument
by which the State regulates the utilization and disposition of forest resources to the end that public
welfare is promoted. A timber license is not a contract within the purview of the due process clause; it is
only a license or privilege, which can be validly withdrawn whenever dictated by public interest or public
welfare as in this case. 'A license is merely a permit or privilege to do what otherwise would be unlawful,
and is not a contract between the authority, federal, state, or municipal, granting it and the person to
whom it is granted; neither is it property or a property right, nor does it create a vested right; nor is it
taxation' (37 C.J. 168). Thus, this Court held that the granting of license does not create irrevocable
rights, neither is it property or property rights (People vs. Ong Tin, 54 O.G. 7576) . . ." We reiterated this
pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive Secretary: (190 SCRA 673 684
[1990]) ". . . Timber licenses, permits and license agreements are the principal instruments by which the
State regulates the utilization and disposition of forest resources to the end that public welfare is
promoted. And it can hardly be gainsaid that they merely evidence a privilege granted by the State to
qualified entities, and do not vest in the latter a permanent or irrevocable right to the particular
concession area and the forest products therein. They may be validly amended, modified, replaced or

rescinded by the Chief Executive when national interests so require. Thus, they are not deemed
contracts within the purview of the due process of law clause [See Sections 3(ee) and 20 of Pres. Decree
No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA
302]." Since timber licenses are not contracts, the non-impairment clause, which reads: "SEC. 10. No law
impairing the obligation of contracts shall be passed." In the second place, even if it is to be assumed
that the same are contracts, the instant case does not involve a law or even an executive issuance
declaring the cancellation or modification of existing timber licenses. Hence, the non-impairment clause
cannot as yet be invoked. Nevertheless, granting further that a law has actually been passed mandating
cancellations or modifications, the same cannot still be stigmatized as a violation of the non-impairment
clause. This is because by its very nature and purpose, such a law could have only been passed in the
exercise of the police power of the state for the purpose of advancing the right of the people to a
balanced and healthful ecology, promoting their health and enhancing the general welfare. In Abe vs.
Foster Wheeler Corp., (110 Phil. 198, 203 [1960]) this Court stated: "The freedom of contract, under our
system of government, is not meant to be absolute. The same is understood to be subject to reasonable
legislative regulation aimed at the promotion of public health, moral, safety and welfare. In other words,
the constitutional guaranty of non-impairment of obligations of contract is limited by the exercise of the
police power of the State, in the interest of public health, safety, moral and general welfare." The reason
for this is emphatically set forth in Nebia vs. New York, (291 U.S. 502, 523, 78 L. ed. 940 947-949) quoted
in Philippine American Life Insurance Co. vs. Auditor General, (22 SCRA 135, 146-147 [1968]) to wit:
"'Under our form of government the use of property and the making of contracts are normally matters
of private and not of public concern. The general rule is that both shall be free of governmental
interference. But neither property rights nor contract rights are absolute; for government cannot exist if
the citizen may at will use his property to the detriment of his fellows, or exercise his freedom of
contract to work them harm. Equally fundamental with the private right is that of the public to regulate
it in the common interest.'" In court, the non-impairment clause must yield to the police power of the
state. (Ongsiako vs. Gamboa, 86 Phil. 50 [1950]; Abe vs. Foster Wheeler Corp., supra; Phil. American Life
Insurance Co. vs. Auditor General, supra; Alalyan vs. NLRC, 24 scra 172 [1968]; Victoriano vs. Elizalde
Rope Workers Union, 59 SCRA 54 [1974]; Kabiling vs. National Housing Authority, 156 SCRA 623 [1987]).
3.
ID.; JUDICIAL REVIEW; NO LONGER IMPAIRED BY THE POLITICAL QUESTION DOCTRINE;
RATIONALE. It must, nonetheless, be emphasized that the political question doctrine is no longer the
insurmountable obstacle to the exercise of judicial power or the impenetrable shield that protects
executive and legislative actions from judicial inquiry or review. The second paragraph of section 1,
Article VIII of the Constitution states that: "Judicial power includes the duty of the courts of justice to
settle actual controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government." Commenting on this
provision in his book, Philippine Political Law, Mr. Justice Isagani A. Cruz, a distinguished member of this
Court, says: "The first part of the authority represents the traditional concept of judicial power, involving
the settlement of conflicting rights as conferred by law. The second part of the authority represents a
broadening of judicial power to enable the courts of justice to review what was before forbidden
territory, to wit, the discretion of the political departments of the government. As worded, the new

provision vests in the judiciary, and particularly the Supreme Court, the power to rule upon even the
wisdom of the decisions of the executive and the legislature and to declare their acts invalid for lack or
excess of jurisdiction because tainted with grave abuse of discretion. The catch, of course, is the
meaning of 'grave abuse of discretion,' which is a very elastic phrase that can expand or contract
according to the disposition of the judiciary." In Daza vs. Singson, (180 SCRA 496, 501-502 [1989]. See
also Coseteng vs. Mitra, 187 SCRA 377 [1990]; Gonzales vs. Macaraig, 191 SCRA 844 [1991]; Bengzon vs.
Senate Blue Ribbon Committee, 203 SCRA 767 [1991]) Mr. Justice Cruz, now speaking for this Court,
noted: "In the case now before us, the jurisdictional objection becomes even less tenable and decisive.
The reason is that, even if we were to assume that the issue presented before us was political in nature,
we would still not be precluded from resolving it under the expanded jurisdiction conferred upon us that
now covers, in proper cases, even the political question. Article VII, Section 1, of the Constitution clearly
provides: . . ."
4.
REMEDIAL LAW; PLEADINGS; CAUSE OF ACTION, DEFINED; CASE AT BAR. the right of the
petitioners (and all those they represent) to a balanced and healthful ecology is as clear as the DENR's
duty under its mandate and by virtue of its powers and functions under E.O. No. 192 and the
Administrative Code of 1987 to protect and advance the said right. A denial or violation of that right
by the other who has the correlative duty or obligation to respect or protect the same gives rise to a
cause of action. Petitioners maintain that the granting of the TLAs, which they claim was done with
grave abuse of discretion, violated their right to a balanced and healthful ecology; hence, the full
protection thereof requires that no further TLAs should be renewed or granted. A cause of action is
defined as: ". . . an act or omission of one party in violation of the legal right or rights of the other; and
its essential elements are legal right of the plaintiff, correlative obligation of the defendant, and act or
omission of the defendant in violation of said legal right." (Marao Sugar Central Co. vs. Barrios, 79 Phil.
666 [1947]; Community Investment and Finance Corp. vs. Garcia, 88 Phil. 215 [1951]; Remitere vs. vda.
de Yulo, 16 SCRA 251 [1966]; Caseas vs. Rosales, 19 SCRA 462 [1967]; Virata vs. Sandiganbayan, 202
SCRA 680 [1991]; Madrona vs. Rosal, 204 SCRA 1 [1991].
5.
ID.; ID.; MOTION TO DISMISS; LACK OF CAUSE OF ACTION, AS A GROUND; RULE; CASE AT BAR.
It is settled in this jurisdiction that in a motion to dismiss based on the ground that the complaint fails
to state a cause of action, the question submitted to the court for resolution involves the sufficiency of
the facts alleged in the complaint itself. No other matter should be considered; furthermore, the truth
or falsity of the said allegations is beside the point for the truth thereof is deemed hypothetically
admitted. The only issue to be resolved in such a case is: admitting such alleged facts to be true, may the
court render a valid judgment in accordance with the prayer in the complaint? In Militante vs.
Edrosolano, this Court laid down the rule that the judiciary should "exercise the utmost care and
circumspection in passing upon a motion to dismiss on the ground of the absence thereof [cause of
action] lest, by its failure to manifest a correct appreciation of the facts alleged and deemed
hypothetically admitted, what the law grants or recognizes is effectively nullified. If that happens, there
is a blot on the legal order. The law itself stands in disrepute." After a careful examination of the
petitioners' complaint, We find the statements under the introductory affirmative allegations, as well as
the specific averments under the subheading CAUSE OF ACTION, to be adequate enough to show, prima

facie, the claimed violation of their rights. On the basis thereof, they may thus be granted, wholly or
partly, the reliefs prayed for.
FELICIANO, J., concurring:
1.
REMEDIAL LAW; ACTIONS; LOCUS STANDI, CONSTRUED; CASE AT BAR. The Court explicitly
states that petitioners have the locus standi necessary to sustain the bringing and maintenance of this
suit (Decision, pp. 11-12). Locus standi is not a function of petitioners' claim that their suit is properly
regarded as a class suit. I understand locus standi to refer to the legal interest which a plaintiff must
have in the subject matter of the suit. Because of the very broadness of the concept of "class" here
involved membership in this "class" appears to embrace everyone living in the country whether now
or in the future it appears to me that everyone who may be expected to benefit from the course of
action petitioners seek to require public respondents to take, is vested with the necessary locus standi.
The Court may be seen therefore to be recognizing a beneficiaries' right of action in the field of
environmental protection, as against both the public administrative agency directly concerned and the
private persons or entities operating in the field or sector of activity involved. Whether such a
beneficiaries' right of action may be found under any and all circumstances, or whether some failure to
act, in the first instance, on the part of the governmental agency concerned must be shown ("prior
exhaustion of administrative remedies"), is not discussed in the decision and presumably is left for
future determination in an appropriate case.
2.
CONSTITUTIONAL LAW; DECLARATION OF PRINCIPLES AND STATE POLICIES; RIGHT TO "A
BALANCE AND HEALTHFUL ECOLOGY"; INTERPRETATION. The Court has also declared that the
complaint has alleged and focused upon "one specific fundamental legal right the right to a balanced
and healthful ecology" (Decision, p. 14). There is no question that "the right to a balanced and healthful
ecology" is "fundamental" and that, accordingly, it has been "constitutionalized." But although it is
fundamental in character, I suggest, with very great respect, that it cannot be characterized as "specific,"
without doing excessive violence to language. It is in fact very difficult to fashion language more
comprehensive in scope and generalized in character than a right to "a balanced and healthful ecology."
The list of particular claims which can be subsumed under this rubric appears to be entirely open-ended:
prevention and control of emission of toxic fumes and smoke from factories and motor vehicles; of
discharge of oil, chemical effluents, garbage and raw sewage into rivers, inland and coastal waters by
vessels, oil rigs, factories, mines and whole communities; of dumping of organic and inorganic wastes on
open land, streets and thoroughfares; failure to rehabilitate land after strip-mining or open-pit mining;
kaingin or slash-and-burn farming; destruction of fisheries, coral reefs and other living sea resources
through the use of dynamite or cyanide and other chemicals; contamination of ground water resources;
loss of certain species of fauna and flora; and so on. The other statements pointed out by the Court:
Section 3, Executive Order No. 192 dated 10 June 1987; Section 1, Title XIV, Book IV of the 1987
Administrative Code; and P.D. No. 1151, dated 6 June 1977 all appear to be formulations of policy, as
general and abstract as the constitutional statements of basic policy in Article II, Sections 16 ("the right
to a balanced and healthful ecology") and 15 ("the right to health"). As a matter of logic, by finding
petitioners' cause of action as anchored on a legal right comprised in the constitutional statements
above noted, the Court is in effect saying that Section 15 (and Section 16) of Article II of the Constitution

are self-executing and judicially enforceable even in their present form. The implications of this doctrine
will have to be explored in future cases; those implications are too large and far-reaching in nature even
to be hinted at here.
3.
ID.; RIGHT TO HEALTH; SHOULD SPECIFICALLY EXIST IN OUR CORPUS OF LAW. Justice
Feliciano suggestion is simply that petitioners must, before the trial court, show a more specific legal
right a right cast in language of a significantly lower order of generality than Article II (15) of the
Constitution that is or may be violated by the actions, or failures to act, imputed to the public
respondent by petitioners so that the trial court can validly render judgment granting all or part of the
relief prayed for. To my mind, the Court should be understood as simply saying that such a more specific
legal right or rights may well exist in our corpus of law, considering the general policy principles found in
the Constitution and the existence of the Philippine Environment Code, and that the trial court should
have given petitioners an effective opportunity so to demonstrate, instead of aborting the proceedings
on a motion to dismiss.
4.
REMEDIAL LAW; CIVIL PROCEDURE; CAUSE OF ACTION; LEGAL RIGHTS, AS ESSENTIAL
COMPONENTS; STANDARDS. the legal right which is an essential component of a cause of action be a
specific, operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons.
One is that unless the legal right claimed to have been violated or disregarded is given specification in
operational terms, defendants may well be unable to defend themselves intelligently and effectively; in
other words, there are due process dimensions to this matter. The second is a broader-gauge
consideration where a specific violation of law or applicable regulation is not alleged or proved,
petitioners can be expected to fall back on the expanded conception of judicial power in the second
paragraph of Section 1 of Article VIII of the Constitution which reads: "Section 1 . . . Judicial power
includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government." When substantive standards as general as "the right to a balanced and healthy ecology"
and "the right to health" are combined with remedial standards as broad ranging as "a grave abuse of
discretion amounting to lack or excess of jurisdiction," the result will be, it is respectfully submitted, to
propel courts into the uncharted ocean of social and economic policy making. At least in respect of the
vast area of environmental protection and management, our courts have no claim to special technical
competence and experience and professional qualifications. Where no specific, operable norms and
standards are shown to exist, then the policy making departments the legislative and executive
departments must be given a real and effective opportunity to fashion and promulgate those norms
and standards, and to implement them before the courts should intervene.
DECISION
DAVIDE, JR., J p:
In a broader sense, this petition bears upon the right of Filipinos to a balanced and healthful ecology
which the petitioners dramatically associate with the twin concepts of "inter-generational responsibility"

and "inter-generational justice." Specifically, it touches on the issue of whether the said petitioners have
a cause of action to "prevent the misappropriation or impairment" of Philippine rainforests and "arrest
the unabated hemorrhage of the country's vital life-support systems and continued rape of Mother
Earth."
The controversy has its genesis in Civil Case No. 90-777 which was filed before Branch 66 (Makati, Metro
Manila) of the Regional Trial Court (RTC), National Capital Judicial Region. The principal plaintiffs therein,
now the principal petitioners, are all minors duly represented and joined by their respective parents.
Impleaded as an additional plaintiff is the Philippine Ecological Network, Inc. (PENI), a domestic, nonstock and non-profit corporation organized for the purpose of, inter alia, engaging in concerted action
geared for the protection of our environment and natural resources. The original defendant was the
Honorable Fulgencio S. Factoran, Jr., then Secretary of the Department of Environment and Natural
Resources (DENR). His substitution in this petition by the new Secretary, the Honorable Angel C. Alcala,
was subsequently ordered upon proper motion by the petitioners. 1 The complaint 2 was instituted as
a taxpayers' class suit 3 and alleges that the plaintiffs "are all citizens of the Republic of the Philippines,
taxpayers, and entitled to the full benefit, use and enjoyment of the natural resource treasure that is the
country's virgin tropical rainforests." The same was filed for themselves and others who are equally
concerned about the preservation of said resource but are "so numerous that it is impracticable to bring
them all before the Court." The minors further asseverate that they "represent their generation as well
as generations yet unborn." 4 Consequently, it is prayed for that judgment be rendered:
". . . ordering defendant, his agents, representatives and other persons acting in his behalf to
(1)

Cancel all existing timber license agreements in the country;

(2)
Cease and desist from receiving, accepting, processing, renewing or approving new timber
license agreements."
and granting the plaintiffs ". . . such other reliefs just and equitable under the premises." 5
The complaint starts off with the general averments that the Philippine archipelago of 7,100 islands has
a land area of thirty million (30,000,000) hectares and is endowed with rich, lush and verdant rainforests
in which varied, rare and unique species of flora and fauna may be found; these rainforests contain a
genetic, biological and chemical pool which is irreplaceable; they are also the habitat of indigenous
Philippine cultures which have existed, endured and flourished since time immemorial; scientific
evidence reveals that in order to maintain a balanced and healthful ecology, the country's land area
should be utilized on the basis of a ratio of fifty-four per cent (54%) for forest cover and forty-six per
cent (46%) for agricultural, residential, industrial, commercial and other uses; the distortion and
disturbance of this balance as a consequence of deforestation have resulted in a host of environmental
tragedies, such as (a) water shortages resulting from the drying up of the water table, otherwise known
as the "aquifer," as well as of rivers, brooks and streams, (b) salinization of the water table as a result of
the intrusion therein of salt water, incontrovertible examples of which may be found in the island of
Cebu and the Municipality of Bacoor, Cavite, (c) massive erosion and the consequential loss of soil
fertility and agricultural productivity, with the volume of soil eroded estimated at one billion

(1,000,000,000) cubic meters per annum approximately the size of the entire island of Catanduanes,
(d) the endangering and extinction of the country's unique, rare and varied flora and fauna, (e) the
disturbance and dislocation of cultural communities, including the disappearance of the Filipino's
indigenous cultures, (f) the siltation of rivers and seabeds and consequential destruction of corals and
other aquatic life leading to a critical reduction in marine resource productivity, (g) recurrent spells of
drought as is presently experienced by the entire country, (h) increasing velocity of typhoon winds
which result from the absence of windbreakers, (i) the flooding of lowlands and agricultural plains
arising from the absence of the absorbent mechanism of forests, (j) the siltation and shortening of the
lifespan of multi-billion peso dams constructed and operated for the purpose of supplying water for
domestic uses, irrigation and the generation of electric power, and (k) the reduction of the earth's
capacity to process carbon dioxide gases which has led to perplexing and catastrophic climatic changes
such as the phenomenon of global warming, otherwise known as the "greenhouse effect."
Plaintiffs further assert that the adverse and detrimental consequences of continued deforestation are
so capable of unquestionable demonstration that the same may be submitted as a matter of judicial
notice. This notwithstanding, they expressed their intention to present expert witnesses as well as
documentary, photographic and film evidence in the course of the trial.
As their cause of action, they specifically allege that:
"CAUSE OF ACTION
7.

Plaintiffs replead by reference the foregoing allegations.

8.
Twenty-five (25) years ago, the Philippines had some sixteen (16) million hectares of rainforests
constituting roughly 53% of the country's land mass.
9.
Satellite images taken in 1987 reveal that there remained no more than 1.2 million hectares of
said rainforests or four per cent (4.0%) of the country's land area.
10.
More recent surveys reveal that a mere 850,000 hectares of virgin old-growth rainforests are
left, barely 2.8% of the entire land mass of the Philippine archipelago and about 3.0 million hectares of
immature and uneconomical secondary growth forests.
11.
Public records reveal that defendant's predecessors have granted timber license agreements
('TLA's') to various corporations to cut the aggregate area of 3.89 million hectares for commercial
logging purposes.
A copy of the TLA holders and the corresponding areas covered is hereto attached as Annex 'A'.
12.
At the present rate of deforestation, i.e. about 200,000 hectares per annum or 25 hectares per
hour nighttime, Saturdays, Sundays and holidays included the Philippines will be bereft of forest
resources after the end of this ensuing decade, if not earlier.

13.
The adverse effects, disastrous consequences, serious injury and irreparable damage of this
continued trend of deforestation to the plaintiff minors' generation and to generations yet unborn are
evident and incontrovertible. As a matter of fact, the environmental damages enumerated in paragraph
6 hereof are already being felt, experienced and suffered by the generation of plaintiff adults.
14.
The continued allowance by defendant of TLA holders to cut and deforest the remaining forest
stands will work great damage and irreparable injury to plaintiffs especially plaintiff minors and their
successors who may never see, use, benefit from and enjoy this rare and unique natural resource
treasure.
This act of defendant constitutes a misappropriation and/or impairment of the natural resource
property he holds in trust for the benefit of plaintiff minors and succeeding generations.
15.
Plaintiffs have a clear and constitutional right to a balanced and healthful ecology and are
entitled to protection by the State in its capacity as the parens patriae.
16.
Plaintiffs have exhausted all administrative remedies with the defendant's office. On March 2,
1990, plaintiffs served upon defendant a final demand to cancel all logging permits in the country.
A copy of the plaintiffs' letter dated March 1, 1990 is hereto attached as Annex 'B'.
17.
Defendant, however, fails and refuses to cancel the existing TLA's, to the continuing serious
damage and extreme prejudice of plaintiffs.
18.
The continued failure and refusal by defendant to cancel the TLA's is an act violative of the rights
of plaintiffs, especially plaintiff minors who may be left with a country that is desertified (sic), bare,
barren and devoid of the wonderful flora, fauna and indigenous cultures which the Philippines has been
abundantly blessed with.
19.
Defendant's refusal to cancel the aforementioned TLA's is manifestly contrary to the public
policy enunciated in the Philippine Environmental Policy which, in pertinent part, states that it is the
policy of the State
'(a)
to create, develop, maintain and improve conditions under which man and nature can thrive in
productive and enjoyable harmony with each other;
'(b)
to fulfill the social, economic and other requirements of present and future generations of
Filipinos and;
'(c)
to ensure the attainment of an environmental quality that is conducive to a life of dignity and
well-being'. (P.D. 1151, 6 June 1977).
20.
Furthermore, defendant's continued refusal to cancel the aforementioned TLA's is contradictory
to the Constitutional policy of the State to

a.
effect 'a more equitable distribution of opportunities, income and wealth' and 'make full and
efficient use of natural resources (sic).' (Section 1, Article XII of the Constitution);
b.

'protect the nation's marine wealth.' (Section 2, ibid);

c.
'conserve and promote the nation's cultural heritage and resources (sic).' (Section 14, Article
XIV, id.);
d.
'protect and advance the right of the people to a balanced and healthful ecology in accord with
the rhythm and harmony of nature.' (Section 16, Article II, id.)
21.
Finally, defendant's act is contrary to the highest law of humankind the natural law and
violative of plaintiffs' right to self-preservation and perpetuation.
22.
There is no other plain, speedy and adequate remedy in law other than the instant action to
arrest the unabated hemorrhage of the country's vital life-support systems and continued rape of
Mother Earth." 6
On 22 June 1990, the original defendant, Secretary Factoran, Jr., filed a Motion to Dismiss the complaint
based on two (2) grounds, namely: (1) the plaintiffs have no cause of action against him and (2) the issue
raised by the plaintiffs is a political question which properly pertains to the legislative or executive
branches of Government. In their 12 July 1990 Opposition to the Motion, the petitioners maintain that
(1) the complaint shows a clear and unmistakable cause of action, (2) the motion is dilatory and (3) the
action presents a justiciable question as it involves the defendant's abuse of discretion.
On 18 July 1991, respondent Judge issued an order granting the aforementioned motion to dismiss. 7 In
the said order, not only was the defendant's claim that the complaint states no cause of action
against him and that it raises a political question sustained, the respondent Judge further ruled that
the granting of the reliefs prayed for would result in the impairment of contracts which is prohibited by
the fundamental law of the land.
Plaintiffs thus filed the instant special civil action for certiorari under Rule 65 of the Revised Rules of
Court and ask this Court to rescind and set aside the dismissal order on the ground that the respondent
Judge gravely abused his discretion in dismissing the action. Again, the parents of the plaintiffs-minors
not only represent their children, but have also joined the latter in this case. 8
On 14 May 1992, We resolved to give due course to the petition and required the parties to submit their
respective Memoranda after the Office of the Solicitor General (OSG) filed a Comment in behalf of the
respondents and the petitioners filed a reply thereto.
Petitioners contend that the complaint clearly and unmistakably states a cause of action as it contains
sufficient allegations concerning their right to a sound environment based on Articles 19, 20 and 21 of
the Civil Code (Human Relations), Section 4 of Executive Order (E.O.) No. 192 creating the DENR, Section
3 of Presidential Decree (P.D.) No. 1151 (Philippine Environmental Policy), Section 16, Article II of the
1987 Constitution recognizing the right of the people to a balanced and healthful ecology, the concept

of generational genocide in Criminal Law and the concept of man's inalienable right to self-preservation
and self-perpetuation embodied in natural law. Petitioners likewise rely on the respondent's correlative
obligation, per Section 4 of E.O. No. 192, the safeguard the people's right to a healthful environment.
It is further claimed that the issue of the respondent Secretary's alleged grave abuse of discretion in
granting Timber License Agreements (TLAs) to cover more areas for logging than what is available
involves a judicial question.
Anent the invocation by the respondent Judge of the Constitution's non-impairment clause, petitioners
maintain that the same does not apply in this case because TLAs are not contracts. They likewise submit
that even if TLAs may be considered protected by the said clause, it is well settled that they may still be
revoked by the State when public interest so requires.
On the other hand, the respondents aver that the petitioners failed to allege in their complaint a specific
legal right violated by the respondent Secretary for which any relief is provided by law. They see nothing
in the complaint but vague and nebulous allegations concerning an "environmental right" which
supposedly entitles the petitioners to the "protection by the state in its capacity as parens patriae." Such
allegations, according to them, do not reveal a valid cause of action. They then reiterate the theory that
the question of whether logging should be permitted in the country is a political question which should
be properly addressed to the executive or legislative branches of Government. They therefore assert
that the petitioners' recourse is not to file an action in court, but to lobby before Congress for the
passage of a bill that would ban logging totally.
As to the matter of the cancellation of the TLAs, respondents submit that the same cannot be done by
the State without due process of law. Once issued, a TLA remains effective for a certain period of time
usually for twenty-five (25) years. During its effectivity, the same can neither be revised nor cancelled
unless the holder has been found, after due notice and hearing, to have violated the terms of the
agreement or other forestry laws and regulations. Petitioners' proposition to have all the TLAs
indiscriminately cancelled without the requisite hearing would be violative of the requirements of due
process.
Before going any further, We must first focus on some procedural matters. Petitioners instituted Civil
Case No. 90-777 as a class suit. The original defendant and the present respondents did not take issue
with this matter. Nevertheless, We hereby rule that the said civil case is indeed a class suit. The subject
matter of the complaint is of common and general interest not just to several, but to all citizens of the
Philippines. Consequently, since the parties are so numerous, it becomes impracticable, if not totally
impossible, to bring all of them before the court. We likewise declare that the plaintiffs therein are
numerous and representative enough to ensure the full protection of all concerned interests. Hence, all
the requisites for the filing of a valid class suit under Section 12, Rule 3 of the Revised Rules of Court are
present both in the said civil case and in the instant petition, the latter being but an incident to the
former.
This case, however, has a special and novel element. Petitioners minors assert that they represent their
generation as well as generations yet unborn. We find no difficulty in ruling that they can, for

themselves, for others of their generation and for the succeeding generations, file a class suit. Their
personality to sue in behalf of the succeeding generations can only be based on the concept of
intergenerational responsibility insofar as the right to a balanced and healthful ecology is concerned.
Such a right, as hereinafter expounded, considers the "rhythm and harmony of nature." Nature means
the created world in its entirety. 9 Such rhythm and harmony indispensably include, inter alia, the
judicious disposition, utilization, management, renewal and conservation of the country's forest,
mineral, land, waters, fisheries, wildlife, off-shore areas and other natural resources to the end that
their exploration, development and utilization be equitably accessible to the present as well as future
generations. 10 Needless to say, every generation has a responsibility to the next to preserve that
rhythm and harmony for the full enjoyment of a balanced and healthful ecology. Put a little differently,
the minors' assertion of their right to a sound environment constitutes, at the same time, the
performance of their obligation to ensure the protection of that right for the generations to come.
The locus standi of the petitioners having thus been addressed, We shall now proceed to the merits of
the petition.
After a careful perusal of the complaint in question and a meticulous consideration and evaluation of
the issues raised and arguments adduced by the parties, We do not hesitate to find for the petitioners
and rule against the respondent Judge's challenged order for having been issued with grave abuse of
discretion amounting to lack of jurisdiction. The pertinent portions of the said order read as follows:
xxx

xxx

xxx

"After a careful and circumspect evaluation of the Complaint, the Court cannot help but agree with the
defendant. For although we believe that plaintiffs have but the noblest of all intentions, it (sic) fell short
of alleging, with sufficient definiteness, a specific legal right they are seeking to enforce and protect, or a
specific legal wrong they are seeking to prevent and redress (Sec. 1, Rule 2, RRC). Furthermore, the
Court notes that the Complaint is replete with vague assumptions and vague conclusions based on
unverified data. In fine, plaintiffs fail to state a cause of action in its Complaint against the herein
defendant.
Furthermore, the Court firmly believes that the matter before it, being impressed with political color
and involving a matter of public policy, may not be taken cognizance of by this Court without doing
violence to the sacred principle of 'Separation of Powers' of the three (3) co-equal branches of the
Government.
The Court is likewise of the impression that it cannot, no matter how we stretch our jurisdiction, grant
the reliefs prayed for by the plaintiffs, i.e., to cancel all existing timber license agreements in the country
and to cease and desist from receiving, accepting, processing renewing or approving new timber license
agreements. For to do otherwise would amount to 'impairment of contracts' abhored (sic) by the
fundamental law." 11
We do not agree with the trial court's conclusion that the plaintiffs failed to allege with sufficient
definiteness a specific legal right involved or a specific legal wrong committed, and that the complaint is

replete with vague assumptions and conclusions based on unverified data. A reading of the complaint
itself belies these conclusions.
The complaint focuses on one specific fundamental legal right the right to a balanced and healthful
ecology which, for the first time in our nation's constitutional history, is solemnly incorporated in the
fundamental law. Section 16, Article II of the 1987 Constitution explicitly provides:
"SEC. 16.
The State shall protect and advance the right of the people to a balanced and healthful
ecology in accord with the rhythm and harmony of nature."
This right unites with the right to health which is provided for in the preceding section of the same
article:
"SEC. 15.
The State shall protect and promote the right to health of the people and instill health
consciousness among them."
While the right to a balanced and healthful ecology is to be found under the Declaration of Principles
and State Policies and not under the Bill of Rights, it does not follow that it is less important than any of
the civil and political rights enumerated in the latter. Such a right belongs to a different category of
rights altogether for it concerns nothing less than self-preservation and self-perpetuation aptly and
fittingly stressed by the petitioners the advancement of which may even be said to predate all
governments and constitutions. As a matter of fact, these basic rights need not even be written in the
Constitution for they are assumed to exist from the inception of humankind. If they are now explicitly
mentioned in the fundamental charter, it is because of the well-founded fear of its framers that unless
the rights to a balanced and healthful ecology and to health are mandated as state policies by the
Constitution itself, thereby highlighting their continuing importance and imposing upon the state a
solemn obligation to preserve the first and protect and advance the second, the day would not be too
far when all else would be lost not only for the present generation, but also for those to come
generations which stand to inherit nothing but parched earth incapable of sustaining life.
The right to a balanced and healthful ecology carries with it the correlative duty to refrain from
impairing the environment. During the debates on this right in one of the plenary sessions of the 1986
Constitutional Commission, the following exchange transpired between Commissioner Wilfrido
Villacorta and Commissioner Adolfo Azcuna who sponsored the section in question:
"MR. VILLACORTA:
Does this section mandate the State to provide sanctions against all forms of pollution air,
water and noise pollution?
MR. AZCUNA:
Yes, Madam President. The right to healthful (sic) environment necessarily carries with it the
correlative duty of not impairing the same and, therefore, sanctions may be provided for impairment of
environmental balance." 12

The said right implies, among many other things, the judicious management and conservation of the
country's forests. Without such forests, the ecological or environmental balance would be irreversibly
disrupted.
Conformably with the enunciated right to a balanced and healthful ecology and the right to health, as
well as the other related provisions of the Constitution concerning the conservation, development and
utilization of the country's natural resources, 13 then President Corazon C. Aquino promulgated on 10
June 1987 E.O. No. 192, 14 Section 4 of which expressly mandates that the Department of Environment
and Natural Resources "shall be the primary government agency responsible for the conservation,
management, development and proper use of the country's environment and natural resources,
specifically forest and grazing lands, mineral resources, including those in reservation and watershed
areas, and lands of the public domain, as well as the licensing and regulation of all natural resources as
may be provided for by law in order to ensure equitable sharing of the benefits derived therefrom for
the welfare of the present and future generations of Filipinos." Section 3 thereof makes the following
statement of policy:
"SEC. 3. Declaration of Policy. It is hereby declared the policy of the State to ensure the sustainable
use, development, management, renewal, and conservation of the country's forest, mineral, land, offshore areas and other natural resources, including the protection and enhancement of the quality of the
environment, and equitable access of the different segments of the population to the development and
use of the country's natural resources, not only for the present generation but for future generations as
well. It is also the policy of the state to recognize and apply a true value system including social and
environmental cost implications relative to their utilization; development and conservation of our
natural resources."
This policy declaration is substantially re-stated in Title XIV, Book IV of the Administrative Code of 1987,
15 specifically in Section 1 thereof which reads:
"SEC. 1. Declaration of Policy. (1) The State shall ensure, for the benefit of the Filipino people, the full
exploration and development as well as the judicious disposition, utilization, management, renewal and
conservation of the country's forest, mineral, land, waters, fisheries, wildlife, off-shore areas and other
natural resources, consistent with the necessity of maintaining a sound ecological balance and
protecting and enhancing the quality of the environment and the objective of making the exploration,
development and utilization of such natural resources equitably accessible to the different segments of
the present as well as future generations.
(2)
The State shall likewise recognize and apply a true value system that takes into account social
and environmental cost implications relative to the utilization, development and conservation of our
natural resources."
The above provision stresses "the necessity of maintaining a sound ecological balance and protecting
and enhancing the quality of the environment." Section 2 of the same Title, on the other hand,
specifically speaks of the mandate of the DENR; however, it makes particular reference to the fact of the
agency's being subject to law and higher authority. Said section provides:

"SEC. 2. Mandate. (1) The Department of Environment and Natural Resources shall be primarily
responsible for the implementation of the foregoing policy.
(2)
It shall, subject to law and higher authority, be in charge of carrying out the State's
constitutional mandate to control and supervise the exploration, development, utilization, and
conservation of the country's natural resources."
Both E.O. No. 192 and the Administrative Code of 1987 have set the objectives which will serve as the
bases for policy formulation, and have defined the powers and functions of the DENR.
It may, however, be recalled that even before the ratification of the 1987 Constitution, specific statutes
already paid special attention to the "environmental right" of the present and future generations. On 6
June 1977, P.D. No. 1151 (Philippine Environmental Policy) and P.D. No. 1152 (Philippine Environment
Code) were issued. The former "declared a continuing policy of the State (a) to create, develop, maintain
and improve conditions under which man and nature can thrive in productive and enjoyable harmony
with each other, (b) to fulfill the social, economic and other requirements of present and future
generations of Filipinos, and (c) to insure the attainment of an environmental quality that is conducive
to a life of dignity and well-being." 16 As its goal, it speaks of the "responsibilities of each generation as
trustee and guardian of the environment for succeeding generations." 17 The latter statute, on the
other hand, gave flesh to the said policy.
Thus, the right of the petitioners (and all those they represent) to a balanced and healthful ecology is as
clear as the DENR's duty under its mandate and by virtue of its powers and functions under E.O. No.
192 and the Administrative Code of 1987 to protect and advance the said right.
A denial or violation of that right by the other who has the correlative duty or obligation to respect or
protect the same gives rise to a cause of action. Petitioners maintain that the granting of the TLAs, which
they claim was done with grave abuse of discretion, violated their right to a balanced and healthful
ecology; hence, the full protection thereof requires that no further TLAs should be renewed or granted.
A cause of action is defined as:
". . . an act or omission of one party in violation of the legal right or rights of the other; and its essential
elements are legal right of the plaintiff, correlative obligation of the defendant, and act or omission of
the defendant in violation of said legal right." 18
It is settled in this jurisdiction that in a motion to dismiss based on the ground that the complaint fails to
state a cause of action, 19 the question submitted to the court for resolution involves the sufficiency of
the facts alleged in the complaint itself. No other matter should be considered; furthermore, the truth
or falsity of the said allegations is beside the point for the truth thereof is deemed hypothetically
admitted. The only issue to be resolved in such a case is: admitting such alleged facts to be true, may the
court render a valid judgment in accordance with the prayer in the complaint? 20 In Militante vs.
Edrosolano, 21 this Court laid down the rule that the judiciary should "exercise the utmost care and
circumspection in passing upon a motion to dismiss on the ground of the absence thereof [cause of

action] lest, by its failure to manifest a correct appreciation of the facts alleged and deemed
hypothetically admitted, what the law grants or recognizes is effectively nullified. If that happens, there
is a blot on the legal order. The law itself stands in disrepute."
After a careful examination of the petitioners' complaint, We find the statements under the
introductory affirmative allegations, as well as the specific averments under the subheading CAUSE OF
ACTION, to be adequate enough to show, prima facie, the claimed violation of their rights. On the basis
thereof, they may thus be granted, wholly or partly, the reliefs prayed for. It bears stressing, however,
that insofar as the cancellation of the TLAs is concerned, there is the need to implead, as party
defendants, the grantees thereof for they are indispensable parties.
The foregoing considered, Civil Case No. 90-777 cannot be said to raise a political question. Policy
formulation or determination by the executive or legislative branches of Government is not squarely put
in issue. What is principally involved is the enforcement of a right vis-a-vis policies already formulated
and expressed in legislation. It must, nonetheless, be emphasized that the political question doctrine is
no longer the insurmountable obstacle to the exercise of judicial power or the impenetrable shield that
protects executive and legislative actions from judicial inquiry or review. The second paragraph of
section 1, Article VIII of the Constitution states that:
"Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government."
Commenting on this provision in his book, Philippine Political Law, 22 Mr. Justice Isagani A. Cruz, a
distinguished member of this Court, says:
"The first part of the authority represents the traditional concept of judicial power, involving the
settlement of conflicting rights as conferred by law. The second part of the authority represents a
broadening of judicial power to enable the courts of justice to review what was before forbidden
territory, to wit, the discretion of the political departments of the government.
As worded, the new provision vests in the judiciary, and particularly the Supreme Court, the power to
rule upon even the wisdom of the decisions of the executive and the legislature and to declare their acts
invalid for lack or excess of jurisdiction because tainted with grave abuse of discretion. The catch, of
course, is the meaning of 'grave abuse of discretion,' which is a very elastic phrase that can expand or
contract according to the disposition of the judiciary."
In Daza vs. Singson, 23 Mr. Justice Cruz, now speaking for this Court, noted:
"In the case now before us, the jurisdictional objection becomes even less tenable and decisive. The
reason is that, even if we were to assume that the issue presented before us was political in nature, we
would still not be precluded from resolving it under the expanded jurisdiction conferred upon us that

now covers, in proper cases, even the political question. Article VII, Section 1, of the Constitution clearly
provides: . . ."
The last ground invoked by the trial court in dismissing the complaint is the non-impairment of contracts
clause found in the Constitution. The court a quo declared that:
"The Court is likewise of the impression that it cannot, no matter how we stretch our jurisdiction, grant
the reliefs prayed for by the plaintiffs, i.e., to cancel all existing timber license agreements in the country
and to cease and desist from receiving, accepting, processing, renewing or approving new timber license
agreements. For to do otherwise would amount to 'impairment of contracts' abhored (sic) by the
fundamental law." 24
We are not persuaded at all; on the contrary, We are amazed, if not shocked, by such a sweeping
pronouncement. In the first place, the respondent Secretary did not, for obvious reasons, even invoke in
his motion to dismiss the non-impairment clause. If he had done so, he would have acted with utmost
infidelity to the Government by providing undue and unwarranted benefits and advantages to the
timber license holders because he would have forever bound the Government to strictly respect the said
licenses according to their terms and conditions regardless of changes in policy and the demands of
public interest and welfare. He was aware that as correctly pointed out by the petitioners, into every
timber license must be read Section 20 of the Forestry Reform Code (P.D. No. 705) which provides:
". . . Provided, That when the national interest so requires, the President may amend, modify, replace or
rescind any contract, concession, permit, licenses or any other form of privilege granted herein . . ."
Needless to say, all licenses may thus be revoked or rescinded by executive action. It is not a contract,
property or a property right protected by the due process clause of the Constitution. In Tan vs. Director
of Forestry, 25 this Court held:
". . . A timber license is an instrument by which the State regulates the utilization and disposition of
forest resources to the end that public welfare is promoted. A timber license is not a contract within the
purview of the due process clause; it is only a license or privilege, which can be validly withdrawn
whenever dictated by public interest or public welfare as in this case.
'A license is merely a permit or privilege to do what otherwise would be unlawful, and is not a contract
between the authority, federal, state, or municipal, granting it and the person to whom it is granted;
neither is it property or a property right, nor does it create a vested right; nor is it taxation' (37 C.J. 168).
Thus, this Court held that the granting of license does not create irrevocable rights, neither is it property
or property rights (People vs. Ong Tin, 54 O.G. 7576) . . ."
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive Secretary: 26
". . . Timber licenses, permits and license agreements are the principal instruments by which the State
regulates the utilization and disposition of forest resources to the end that public welfare is promoted.
And it can hardly be gainsaid that they merely evidence a privilege granted by the State to qualified
entities, and do not vest in the latter a permanent or irrevocable right to the particular concession area

and the forest products therein. They may be validly amended, modified, replaced or rescinded by the
Chief Executive when national interests so require. Thus, they are not deemed contracts within the
purview of the due process of law clause [See Sections 3(ee) and 20 of Pres. Decree No. 705, as
amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302]."
Since timber licenses are not contracts, the non-impairment clause, which reads:
"SEC. 10.

No law impairing the obligation of contracts shall be passed." 27

cannot be invoked.
In the second place, even if it is to be assumed that the same are contracts, the instant case does not
involve a law or even an executive issuance declaring the cancellation or modification of existing timber
licenses. Hence, the non-impairment clause cannot as yet be invoked. Nevertheless, granting further
that a law has actually been passed mandating cancellations or modifications, the same cannot still be
stigmatized as a violation of the non-impairment clause. This is because by its very nature and purpose,
such a law could have only been passed in the exercise of the police power of the state for the purpose
of advancing the right of the people to a balanced and healthful ecology, promoting their health and
enhancing the general welfare. In Abe vs. Foster Wheeler Corp., 28 this Court stated:
"The freedom of contract, under our system of government, is not meant to be absolute. The same is
understood to be subject to reasonable legislative regulation aimed at the promotion of public health,
moral, safety and welfare. In other words, the constitutional guaranty of non-impairment of obligations
of contract is limited by the exercise of the police power of the State, in the interest of public health,
safety, moral and general welfare."
The reason for this is emphatically set forth in Nebia vs. New York, 29 quoted in Philippine American Life
Insurance Co. vs. Auditor General, 30 to wit:
" 'Under our form of government the use of property and the making of contracts are normally matters
of private and not of public concern. The general rule is that both shall be free of governmental
interference. But neither property rights nor contract rights are absolute; for government cannot exist if
the citizen may at will use his property to the detriment of his fellows, or exercise his freedom of
contract to work them harm. Equally fundamental with the private right is that of the public to regulate
it in the common interest.' "
In court, the non-impairment clause must yield to the police power of the state. 31
Finally, it is difficult to imagine, as the trial court did, how the non-impairment clause could apply with
respect to the prayer to enjoin the respondent Secretary from receiving, accepting, processing,
renewing or approving new timber licenses for, save in cases of renewal, no contract would have as of
yet existed in the other instances. Moreover, with respect to renewal, the holder is not entitled to it as a
matter of right.

WHEREFORE, being impressed with merit, the instant Petition is hereby GRANTED, and the challenged
Order of respondent Judge of 18 July 1991 dismissing Civil Case No. 90-777 is hereby set aside. The
petitioners may therefore amend their complaint to implead as defendants the holders or grantees of
the questioned timber license agreements.
No pronouncement as to costs.
SO ORDERED.
Cruz, Padilla, Bidin, Grio-Aquino, Regalado, Romero, Nocon, Bellosillo, Melo and Quiason, JJ ., concur.
Narvasa, C .J . , took no part; related to one of the parties.
Puno, J ., took no part in the deliberations.
Vitug, J ., took no part; I was not yet with the Court when the case was deliberated upon.
Separate Opinions
FELICIANO, J ., concurring:
I join in the result reached by my distinguished brother in the Court, Davide, Jr., J . in this case which, to
my mind, is one of the most important cases decided by this Court in the last few years. The seminal
principles laid down in this decision are likely to influence profoundly the direction and course of the
protection and management of the environment, which of course embraces the utilization of all the
natural resources in the territorial base of our polity. I have therefore sought to clarify, basically to
myself, what the Court appears to be saying.
The Court explicitly states that petitioners have the locus standi necessary to sustain the bringing and
maintenance of this suit (Decision, pp. 11-12). Locus standi is not a function of petitioners' claim that
their suit is properly regarded as a class suit. I understand locus standi to refer to the legal interest
which a plaintiff must have in the subject matter of the suit. Because of the very broadness of the
concept of "class" here involved membership in this "class" appears to embrace everyone living in the
country whether now or in the future it appears to me that everyone who may be expected to
benefit from the course of action petitioners seek to require public respondents to take, is vested with
the necessary locus standi. The Court may be seen therefore to be recognizing a beneficiaries' right of
action in the field of environmental protection, as against both the public administrative agency directly
concerned and the private persons or entities operating in the field or sector of activity involved.
Whether such a beneficiaries' right of action may be found under any and all circumstances, or whether
some failure to act, in the first instance, on the part of the governmental agency concerned must be
shown ("prior exhaustion of administrative remedies"), is not discussed in the decision and presumably
is left for future determination in an appropriate case.
The Court has also declared that the complaint has alleged and focused upon "one specific fundamental
legal right the right to a balanced and healthful ecology" (Decision, p. 14). There is no question that

"the right to a balanced and healthful ecology" is "fundamental" and that, accordingly, it has been
"constitutionalized." But although it is fundamental in character, I suggest, with very great respect, that
it cannot be characterized as "specific," without doing excessive violence to language. It is in fact very
difficult to fashion language more comprehensive in scope and generalized in character than a right to
"a balanced and healthful ecology." The list of particular claims which can be subsumed under this rubric
appears to be entirely open-ended: prevention and control of emission of toxic fumes and smoke from
factories and motor vehicles; of discharge of oil, chemical effluents, garbage and raw sewage into rivers,
inland and coastal waters by vessels, oil rigs, factories, mines and whole communities; of dumping of
organic and inorganic wastes on open land, streets and thoroughfares; failure to rehabilitate land after
strip-mining or open-pit mining; kaingin or slash-and-burn farming; destruction of fisheries, coral reefs
and other living sea resources through the use of dynamite or cyanide and other chemicals;
contamination of ground water resources; loss of certain species of fauna and flora; and so on. The
other statements pointed out by the Court: Section 3, Executive Order No. 192 dated 10 June 1987;
Section 1, Title XIV, Book IV of the 1987 Administrative Code; and P.D. No. 1151, dated 6 June 1977 all
appear to be formulations of policy, as general and abstract as the constitutional statements of basic
policy in Article II, Sections 16 ("the right to a balanced and healthful ecology") and 15 ("the right to
health").
P.D. No. 1152, also dated 6 June 1977, entitled "The Philippine Environment Code," is, upon the other
hand, a compendious collection of more "specific environment management policies" and "environment
quality standards" (fourth "Whereas" clause, Preamble) relating to an extremely wide range of topics:
(a)

air quality management;

(b)

water quality management;

(c)

land use management;

(d)

natural resources management and conservation embracing:

(i)

fisheries and aquatic resources;

(ii)

wild life;

(iii)

forestry and soil conservation;

(iv)

flood control and natural calamities;

(v)

energy development;

(vi)

conservation and utilization of surface and ground water

(vii)

mineral resources.

Two (2) points are worth making in this connection. Firstly, neither petitioners nor the Court has
identified the particular provision or provisions (if any) of the Philippine Environment Code which give

rise to a specific legal right which petitioners are seeking to enforce. Secondly, the Philippine
Environment Code identifies with notable care the particular government agency charged with the
formulation and implementation of guidelines and programs dealing with each of the headings and subheadings mentioned above. The Philippine Environment Code does not, in other words, appear to
contemplate action on the part of private persons who are beneficiaries of implementation of that
Code.
As a matter of logic, by finding petitioners' cause of action as anchored on a legal right comprised in the
constitutional statements above noted, the Court is in effect saying that Section 15 (and Section 16) of
Article II of the Constitution are self-executing and judicially enforceable even in their present form. The
implications of this doctrine will have to be explored in future cases; those implications are too large and
far-reaching in nature even to be hinted at here.
My suggestion is simply that petitioners must, before the trial court, show a more specific legal right a
right cast in language of a significantly lower order of generality than Article II (15) of the Constitution
that is or may be violated by the actions, or failures to act, imputed to the public respondent by
petitioners so that the trial court can validly render judgment granting all or part of the relief prayed for.
To my mind, the Court should be understood as simply saying that such a more specific legal right or
rights may well exist in our corpus of law, considering the general policy principles found in the
Constitution and the existence of the Philippine Environment Code, and that the trial court should have
given petitioners an effective opportunity so to demonstrate, instead of aborting the proceedings on a
motion to dismiss.
It seems to me important that the legal right which is an essential component of a cause of action be a
specific, operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons.
One is that unless the legal right claimed to have been violated or disregarded is given specification in
operational terms, defendants may well be unable to defend themselves intelligently and effectively; in
other words, there are due process dimensions to this matter.
The second is a broader-gauge consideration where a specific violation of law or applicable regulation
is not alleged or proved, petitioners can be expected to fall back on the expanded conception of judicial
power in the second paragraph of Section 1 of Article VIII of the Constitution which reads:
"Section 1.

...

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government." (Emphases supplied)
When substantive standards as general as "the right to a balanced and healthy ecology" and "the right
to health" are combined with remedial standards as broad ranging as "a grave abuse of discretion
amounting to lack or excess of jurisdiction," the result will be, it is respectfully submitted, to propel
courts into the uncharted ocean of social and economic policy making. At least in respect of the vast

area of environmental protection and management, our courts have no claim to special technical
competence and experience and professional qualifications. Where no specific, operable norms and
standards are shown to exist, then the policy making departments the legislative and executive
departments must be given a real and effective opportunity to fashion and promulgate those norms
and standards, and to implement them before the courts should intervene.
My learned brother Davide, Jr., J., rightly insists that the timber companies, whose concession
agreements or TLA's petitioners demand public respondents should cancel, must be impleaded in the
proceedings below. It might be asked that, if petitioners' entitlement to the relief demanded is not
dependent upon proof of breach by the timber companies of one or more of the specific terms and
conditions of their concession agreements (and this, petitioners implicitly assume), what will those
companies litigate about? The answer I suggest is that they may seek to dispute the existence of the
specific legal right petitioners should allege, as well as the reality of the claimed factual nexus between
petitioners' specific legal right and the claimed wrongful acts or failures to act of public respondent
administrative agency. They may also controvert the appropriateness of the remedy or remedies
demanded by petitioners, under all the circumstances which exist.
I vote to grant the Petition for Certiorari because the protection of the environment, including the forest
cover of our territory, is of extreme importance for the country. The doctrines set out in the Court's
decision issued today should, however, be subjected to closer examination.
Footnotes
1.

Rollo, 164; 186