Kilosbayan Inc.

vs Morato
G.R. No. 118910, July 17, 1995

Facts:
On January 25, 1995, the Philippine Charity Sweepstakes Office (PCSO) and Philippine
Gaming Management Corporation (PGMC) entered an Equipment Lease Agreement
(ELA) whereby PGMC lease its online lottery equipment and accessories to PCSO. In a
previous case (Kilosbayan Inc vs Guingona), the court invalidated a Contract of Lease
between the PCSO and PGMC on the ground that it had violated the charter of the
PCSO. The term of the ELA is 8 years with an option to purchase the equipment upon
the expiration of the lease.

On February 21, 1995 petitioners filed a suit seeking to declare the ELA invalid on the
ground that it is substantially the same as the Contract of Lease nullified in the first
case. The respondents argued that the petitioners do not have the standing to bring the
said suit with them not being parties to the contract which they seek to nullify and that
ELA is a different lease contract with none of the vestiges of a joint venture which were
found in the Contract of Lease nullified in the prior case.

Issue:
Whether or not the petitioners have the legal standing to bring the said suit

Held:
No. The question whether petitioners have standing to question the Equipment Lease
Agreement or ELA is a legal question. the ELA, which petitioners seek to declare invalid
in this proceeding, is essentially different from the 1993 Contract of Lease entered into
by the PCSO with the PGMC. Hence the determination in the prior case (Kilosbayan vs
Guingona) that petitioners had standing to challenge the validity of the 1993 Contract of
Lease of the parties does not preclude determination of their standing in the present
suit. Not only is petitioners' standing a legal issue that may be determined again in this
case. It is, strictly speaking, not even the issue in this case, since standing is a concept
in constitutional law and here no constitutional question is actually involved. The issue
in this case is whether petitioners are the "real parties in interest" within the meaning of
Rule 3, §2 of the Rules of Court which requires that "Every action must be prosecuted
and defended in the name of the real party in interest."

In actions for the annulment of contracts, such as this action, the real parties are those
who are parties to the agreement or are bound either principally or subsidiarily or are
prejudiced in their rights with respect to one of the contracting parties and can show the
detriment which would positively result to them from the contract even though they did
not intervene in, or who claim a right to take part in a public bidding but have been
illegally excluded from it.  These are parties with "a present substantial interest, as
distinguished from a mere expectancy or future, contingent, subordinate, or
consequential interest. . . . The phrase 'present substantial interest' more concretely is
meant such interest of a party in the subject matter of action as will entitle him, under
the substantive law, to recover if the evidence is sufficient, or that he has the legal title
to demand and the defendant will be protected in a payment to or recovery by him."   But
petitioners do not have such present substantial interest in the ELA as would entitle
them to bring this suit. Questions as to the nature or validity of public contracts or the
necessity for a public bidding before they may be made can be raised in an appropriate
case before the Commission on Audit or before the Ombudsman.