Cherie Mae F.

Aguinaldo
KILOSBAYAN VS GUINGONA JR.
G.R. No. 113375
May 5, 1994

FACTS:

The PCSO decided to establish an online lottery system for the purpose of increasing

its revenue base and diversifying its sources of funds. After learning that the PCSO was

interested in operating on an online lottery system, the Berjaya Group Berhad, became

interested to offer its services and resources to PCSO. Considering the citizenship

requirement, the PGMC claims that 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.

The petitioners claim that 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.

ISSUE:
Whether or not the Contract of Lease was valid and legal
HELD:

Sec. 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. The language of the section

is clear that with respect to its franchise or privilege to hold and conduct charity

sweepstakes races, lotteries and other similar activities, the PCSO cannot exercise it in

collaboration, association or joint venture with any other party. This is the unequivocal

meaning and import of the phrase. By the exception explicitly made, the PCSO cannot share

its franchise with another by way of the methods mentioned, nor can it transfer, assign or

lease such 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.

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

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.

Hence, the Contract of Lease between PCSO and PGMC was declared invalid and

contrary to law.