Kilosbayan Vs Guingona Digested

G.R. No.
113375 May 5, 1994
KILOSBAYAN, INCORPORATED, ET. AL petitioners,

vs.
TEOFISTO GUINGONA, JR., ET. AL. respondents.
ISSUE: whether or not PCSO entered into a joint venture with PGMC in violation of its charter
FACTS:
Pursuant to its decision to establish an on-line lottery system, PCSO entered into the so called “contract of
lease” with Philippine Gaming Management Corporation- a company which "was intended to be the
medium through which the technical and management services required for the establishment of said on-
line lottery system would be offered and delivered to PCSO.
Herein petitioners vehemently opposed such agreement between PCSO and PGMC arguing among
others that 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 and that there are terms and conditions of the Contract
"showing that respondent PGMC is the actual lotto operator and not respondent PCSO."
On the other hand, 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 .
In its comment the Sol Gen argued that 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."
Ruling:
Yes, PCSO entered into a joint venture with PGMC in violation of its charter.
After a careful analysis and evaluation of the provisions of the contract and a consideration of the
contemporaneous acts of the PCSO and PGMC the court held 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. 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.
The court found that 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.
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.
This joint venture is further established by among others
This risk-bearing provision in the definition of rent; the non-compete clause and the "Hold Harmless
Clause"; the coordinating and cooperative powers and functions of the parties.
In view of the foregoing the Contract of Lease was declared violative of 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.
Hence the Temporary Restraining Order against it was MADE PERMANENT.

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G.R. No.

113375 May 5, 1994

KILOSBAYAN, INCORPORATED, ET. AL petitioners,

This joint venture is further established by among others

Hence the Temporary Restraining Order against it was MADE PERMANENT.

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