Kilosbayan, Incorporated vs.

Morato
SCRA 540 and 250 SCRA 150
FACTS:

In Jan. 25, 1995, Philippine Charity Sweepstakes Office (PCSO) and Philippine Gaming Management
Corporation (PGMC) signed an Equipment Lease Agreement (ELA) wherein PGMC leased online lottery
equipment and accessories to PCSO.

The agreements are the following:

(a) Rental is 4.3% of the gross amount of ticket or at least P35,000 per terminal annually,
(b) 30% of the net receipts are allotted to charity.
(c) Term of lease is for 8 years.
(d) PCSO is to employ its own personnel and responsible for the facilities.
(e) Upon the expiration of lease, PCSO may purchase the equipment for P25 million.

In Feb. 21, 1995, a petition was filed to declare ELA invalid because it is the same as the Contract of Lease.

Petitioner's Contention: ELA was same to the Contract of Lease; It is still violative of PCSO's charter; It is
violative of the law regarding public bidding; It violates Sec. 2(2) of Art. 9-D of the 1987 Constitution; Standing
can no longer be questioned because it has become the law of the case.

Respondent's reply: ELA is different from the Contract of Lease. There is no bidding required; The power to
determine if ELA is advantageous is vested in the Board of Directors of PCSO; PCSO does not have funds;
Petitioners seek to further their moral crusade; Petitioners do not have a legal standing because they were not
parties to the contract.

ISSUE: Whether the petitioners have standing?

HELD: Equipment Lease Agreement (ELA) is valid.

It is different with the prior lease agreement: PCSO now bears all losses because the operation of the system is
completely in its hands.

Fixing the rental rate to a minimum is a matter of business judgment and the Court is not inclined to review.

Rental rate is within the 15% net receipts fixed by law as a maximum. (4.3% of gross receipt is discussed in the
dissenting opinion of Feliciano, J.)

In the contract, it stated that the parties can change their agreement. Petitioners state that this would allow
PGMC to control and operate the on-line lottery system. The Court held that the claim is speculative. In any
case, in the construction of statutes, the resumption is that in making contracts, the government has acted in
good faith. The doctrine that the possibility of abuse is not a reason for denying power.

It was held in Kilosbayan Vs. Guingona that PCSO does not have the power to enter into any contract which
would involve it in any form of collaboration, association, or joint venture for the holding of sweepstakes
activities. This only mentions that PCSO is prohibited from investing in any activities that would compete in their
own activities.

It is claimed that ELA is a joint venture agreement which does not compete with their own activities. The Court
held that is also based on speculation. Evidence is needed to show that the transfer of technology would involve
the PCSO and its personnel in prohibited association with the PGMC.

O. 301 (on law of public bidding) applies only to contracts for the purchase of supplies, materials and equipment
and not on the contracts of lease. Public bidding for leases are only for privately-owned buildings or spaces for
government use or of government owned buildings or spaces for private use.

Petitioners have no standing. ELA is a valid lease contract. The motion for reconsideration of petitioners is
DENIED with finality.