P a g e | 1

LAW ON NATURAL RESOURCES

Regalian Doctrine
All lands of public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests
or timber, wildlife, flora and fauna, and other natural resources are
owned by the State.
1
Basic in the law of natural resources is Jura Regalia or Regalian
doctrine. Enshrined in the onstitution, it simply means that all natural
resources are owned by the State.
!he case of Secretary of DENR, et. al. vs. Yap, et. al. G.R. No.
167707, October 8, 2008 e"plicitly discusses this doctrine, to wit#
The Regalian Doctrine dictates that all lands of the public domain belong to the
State, that the State is the source of any asserted right to ownership of land and charged
with the conservation of such patrimony. The doctrine has been consistently adopted
under the 193, 19!3, and 19"! #onstitutions.

$ll lands not otherwise appearing to be clearly within private ownership are
presumed to belong to the State. Thus, all lands that have not been ac%uired from the
government, either by purchase or by grant, belong to the State as part of the inalienable
public domain. &ecessarily, it is up to the State to determine if lands of the public
domain will be disposed of for private ownership. The government, as the agent of the
state, is possessed of the plenary power as the persona in law to determine who shall be
the favored recipients of public lands, as well as under what terms they may be granted
such privilege, not e'cluding the placing of obstacles in the way of their e'ercise of what
otherwise would be ordinary acts of ownership.

(ur present land law traces its roots to the Regalian Doctrine. )pon the Spanish
con%uest of the *hilippines, ownership of all lands, territories and possessions in the
*hilippines passed to the Spanish #rown. The Regalian doctrine was first introduced in
the *hilippines through the Laws of the Indies and the Royal Cedulas, which laid the
foundation that +all lands that were not ac%uired from the ,overnment, either by
purchase or by grant, belong to the public domain.-

The Laws of the Indies was followed by the Ley Hipotecaria or the Mortgage
Law of 1893. The Spanish .ortgage /aw provided for the systematic registration of
titles and deeds as well as possessory claims.

The Royal Decree of 1"90 or the .aura /aw partly amended the Spanish
.ortgage /aw and the Laws of the Indies. 1t established possessory information as the
method of legali2ing possession of vacant #rown land, under certain conditions which
were set forth in said decree. )nder Section 393 of the .aura /aw, an informacion
posesoria or possessory information title, when duly inscribed in the Registry of
1
Sec. $, Article %&&, 1'() onstitution
P a g e | $
*roperty, is converted into a title of ownership only after the lapse of twenty 3456 years of
uninterrupted possession which must be actual, public, and adverse, from the date of its
inscription. 7owever, possessory information title had to be perfected one year after the
promulgation of the .aura /aw, or until $pril 1!, 1"9. (therwise, the lands would
revert to the State.

1n sum, private ownership of land under the Spanish regime could only be
founded on royal concessions which too8 various forms, namely9 316 titulo real or royal
grant: 346 concesion especial or special grant: 336 composicion con el estado or
ad;ustment title: 306 titulo de compra or title by purchase: and 36 informacion posesoria
or possessory information title.

The first law governing the disposition of public lands in the *hilippines under
$merican rule was embodied in the *hilippine <ill of 1902. <y this law, lands of the
public domain in the *hilippine 1slands were classified into three 336 grand divisions, to
wit9 agricultural, mineral, and timber or forest lands. The act provided for, among others,
the disposal of mineral lands by means of absolute grant 3freehold system6 and by lease
3leasehold system6. 1t also provided the definition by e'clusion of +agricultural public
lands.- 1nterpreting the meaning of +agricultural lands- under the *hilippine <ill of
1954, the #ourt declared in Mapa v Insular !overnment9

' ' ' 1n other words, that the phrase +agricultural land- as used in $ct &o. 94= means
those public lands acquired from Spain which are not timber or mineral lands. ' '
' 3>mphasis (urs6

(n ?ebruary 1, 1903, the *hilippine /egislature passed $ct &o. 496, otherwise
8nown as the /and Registration $ct. The act established a system of registration by
which recorded title becomes absolute, indefeasible, and imprescriptible. This is 8nown
as the Torrens system.

#oncurrently, on (ctober !, 1903, the *hilippine #ommission passed $ct &o.
926, which was the first *ublic /and $ct. The $ct introduced the homestead system and
made provisions for ;udicial and administrative confirmation of imperfect titles and for
the sale or lease of public lands. 1t permitted corporations regardless of the nationality of
persons owning the controlling stoc8 to lease or purchase lands of the public domain.
)nder the $ct, open, continuous, e'clusive, and notorious possession and occupation of
agricultural lands for the ne't ten 3156 years preceding @uly 4=, 1950 was sufficient for
;udicial confirmation of imperfect title.

(n &ovember 49, 1919, $ct &o. 94= was superseded by $ct &o. 2874,
otherwise 8nown as the second *ublic /and $ct. This new, more comprehensive law
limited the e'ploitation of agricultural lands to ?ilipinos and $mericans and citi2ens of
other countries which gave ?ilipinos the same privileges. ?or ;udicial confirmation of
title, possession and occupation en concepto due"o since time immemorial, or since @uly
4=, 1"90, was re%uired.

$fter the passage of the 193 #onstitution, ! "o# 141 amended $ct &o. 4"!0
on $ecember 1% 1936. To this day, #$ &o. 101, as amended, remains as the e'isting
general law governing the classification and disposition of lands of the public domain
other than timber and mineral lands, and privately owned lands which reverted to the
State.

Section 0"3b6 of #$ &o. 101 retained the re%uirement under $ct &o. 4"!0 of
possession and occupation of lands of the public domain since time immemorial or since
@uly 4=, 1"90. 7owever, this provision was superseded by Republic $ct 3R$6 &o. 1904,
which provided for a simple thirtyAyear prescriptive period for ;udicial confirmation of
imperfect title. The provision was last amended by &$ "o# 1073, which now provides
for possession and occupation of the land applied for since 'une 12% 194(% or earlier.

The issuance of *D &o. 892 on ?ebruary 1=, 19!= discontinued the use of
Spanish titles as evidence in land registration proceedings. )nder the decree, all holders
of Spanish titles or grants should apply for registration of their lands under $ct &o. 09=
within si' 3=6 months from the effectivity of the decree on ?ebruary 1=, 19!=.
Thereafter, the recording of all unregistered lands shall be governed by Section 190 of
the Revised $dministrative #ode, as amended by $ct &o. 3300.

(n @une 11, 19!", $ct &o. 09= was amended and updated by &$ "o# 1(29,
8nown as the *roperty Registration Decree. 1t was enacted to codify the various laws
P a g e | *
relative to registration of property. 1t governs registration of lands under the Torrens
system as well as unregistered lands, including chattel mortgages.

A positive act declaring land as alienable and disposable is required. 1n
8eeping with the presumption of State ownership, the #ourt has time and again
emphasi2ed that there must be a positi)e act of the go)ernment, such as an official
proclamation, declassifying inalienable public land into disposable land for agricultural
or other purposes. 1n fact, Section " of #$ &o. 101 limits alienable or disposable lands
only to those lands which have been +officially delimited and classified.-

The burden of proof in overcoming the presumption of State ownership of the
lands of the public domain is on the person applying for registration 3or claiming
ownership6, who must prove that the land sub;ect of the application is alienable or
disposable. To overcome this presumption, incontrovertible evidence must be established
that the land sub;ect of the application 3or claim6 is alienable or disposable. There must
still be a positive act declaring land of the public domain as alienable and disposable. To
prove that the land sub;ect of an application for registration is alienable, the applicant
must establish the e'istence of a positive act of the government such as a presidential
proclamation or an e'ecutive order: an administrative action: investigation reports of
<ureau of /ands investigators: and a legislative act or a statute. The applicant may also
secure a certification from the government that the land claimed to have been possessed
for the re%uired number of years is alienable and disposable.

1n the case at bar, no such proclamation, e'ecutive order, administrative action,
report, statute, or certification was presented to the #ourt. The records are bereft of
evidence showing that, prior to 455=, the portions of <oracay occupied by private
claimants were sub;ect of a government proclamation that the land is alienable and
disposable. $bsent such wellAnigh incontrovertible evidence, the #ourt cannot accept the
submission that lands occupied by private claimants were already open to disposition
before 455=. .atters of land classification or reclassification cannot be assumed. They
call for proof.
+pon Spanish con,uest, ownership of all lands, territories and
possessions in Philippines passed to Spanish rown. !he -ing, as the
so.ereign ruler and representati.e of the people, ac,uired and owned
all lands and territories in the Philippines e"cept those he disposed of
by grant or sale to pri.ate indi.iduals. !he 1'*/, 1')* and 1'()
onstitutions adopted the Regalian doctrine substituting howe.er, the
State, in lieu of the -ing, as the owner of all lands and waters of the
public domain. !he Regalian doctrine is the foundation of the time0
honored principle of land ownership that all lands that were not
acquired from the Government, either by purchase or by grant, belong
to the public domain.
P a g e | 1
Article **' of the i.il ode of 1((', which is now Article 1$2
$
of the i.il ode of 1'/2, incorporated the Regalian doctrine.
*
Pres!pt"o# of State O$#ers%"p
ertainly, without any proof that a land is pri.ately owned, the
presumption is that it belongs to the State.
1
+nless public land is
shown to ha.e been reclassified or alienated to a pri.ate person by
the State, it remains part of the inalienable public domain. &ndeed,
occupation thereof in the concept of owner, no matter how long,
cannot ripen into ownership and be registered as a title. !o
o.ercome such presumption, incontro.ertible e.idence must be shown
by the applicant. Absent such e.idence, the land sought to be
registered remains inalienable.
/
3ur adherence to the Regalian doctrine sub4ects all agricultural,
timber, and mineral lands to the dominion of the State. !hus, before
any land may be declassified from the forest group and con.erted into
alienable or disposable land for agricultural or other purposes, there
must be a positive act from the go.ernment. E.en rules on the
confirmation of imperfect titles do not apply unless and until the land
classified as forest land is released in an official proclamation to
that effect so that it may form part of the disposable agricultural
lands of the public domain. !he mere fact that a title was issued by
the 5irector of 6ands does not confer any .alidity on such title if the
property co.ered by the title or patent is part of the public forest.
7
$
Article 1$2 of 8# 9!he following things are property of public dominion# :1;
!hose intended for
public use, such as roads, canals, ri.ers, torrents, ports and bridges constructed by
the State, ban<s, shores, roadsteads, and others of similar character= :$; !hose
which belong to the State, without being for public use, and are intended for some
public ser.ice or for the de.elopment of the national wealth.>
*
ha.e? .s. Public Estates Authority, @.R. 8o. 1**$/2, Auly ', $22$= and 6ee
Bong -o< .s. 5a.id, 1( SRA *)$.
1
Republic .s. Sayo, 1'1 SRA )1.
/
Se.ille .s. 8ational 5e.elopment Authority, @.R. 8o. 1$'121, Cebruary $, $221=
and Republic .s. 8aguiat, @.R. 8o. 1*1$2', Aanuary $1, $227.
7
Sunbeam on.enience Cood .s. ourt of Appeals, @.R. 8o. 60/2171, Aanuary $',
1''2.
P a g e | /
Proof of &l"e#ab"l"ty
Emphatically, a positive act or official classification of the
State is necessary to segregate a land from the inalienable public
domain into the disposable land.
&t should be pointed that the power to classify public lands is an
e"clusi.e prerogati.e of the E"ecuti.e 5epartment of the @o.ernment
and not of the ourt. &t is beyond the competence and 4urisdiction of
the ourts to release a land from the unclassified category. &n the
absence of such classification, the land remains as unclassified land until it is
released therefrom and rendered open to disposition.
)

!he following may constitute as proof of such positi.e act or
official declaration#
'1(Pres")e#t"al Procla!at"o# 'PP(*
'2(E+ect"ve Or)er 'EO( of t%e Pres")e#t*
',(&)!"#"strat"ve Or)er by t%e Secretary of DENR*
+?inally, we note that respondent also failed to prove that the sub;ect property has
been declared alienable and disposable by the *resident or the Secretary of the
Department of >nvironment and &atural Resources. 1n Repu#lic v $%&
'roperties( Inc, the #ourt said9

BTChe applicant for land registration must prove that the D>&R
Secretary had approved the land classification and released the
land of the public domain as alienable and disposable, and that
the land sub;ect of the application for registration falls within the
approved area per verification through survey by the *>&R( or
#>&R(. 1n addition, the applicant for land registration must
present a copy of the original classification approved by the
D>&R Secretary and certified as a true copy by the legal
custodian of the official records. These facts must be established
to prove that the land is alienable and disposable.-
"

'-( .e/"slat"o#*
Pursuant, howe.er, to R.A. 8o. *''2 which establishes a
central e"periment station for the use of the +P in connection
with its research and e"tension functions, particularly by the
)
5irector of 6ands and 5irector of Corest 5e.elopment .s. ourt of Appeals, @.R.
8o. 60/((7), Aune $$, 1'(1.
(
Republic .s. Ruby 6ee !sai, @.R. 8o. 17(1(1, Aune $$, $22'.
P a g e | 7
ollege of Agriculture, ollege of Deterinary Eedicine and
ollege of Arts and Sciences, the abo.e Freser.edF area was
Fceded and transferred in full ownership to the !niversity of the
"hilippines sub#ect to any e$isting concessions, if any.F
Ghen it ceded and transferred the property to +P, the
Republic of the Philippines completely remo.ed it from the
public domain and, more specifically, in respect to the areas
co.ered by the timber license of petitioner, remo.ed and
segregated it from a public forest= it di.ested itself of its rights
and title thereto and relin,uished and con.eyed the same to the
+P= and made the latter the absolute owner thereof, sub4ect only
to the e"isting concession. """" insofar as the Republic of the
Philippines is concerned, all its rights as grantor of the license
were effecti.ely assigned, ceded and con.eyed to +P as a
conse,uence of the abo.e transfer of full ownership. !his is
further home out by Section * of R.A. 8o. *''2 which pro.ides,
inter alia, that Fany incidental receipts or income therefrom shall
pertain to the general fund of the +ni.ersity of the Philippines.
Ba.ing been effecti.ely segregated and remo.ed from the
public domain or from a public forest and, in effect, con.erted
into a registered pri.ate woodland, the authority and 4urisdiction
of the Bureau of Corestry o.er it were li<ewise terminated.
'

'0(1#vest"/at"o# Reports of 2rea of .a#)s 3"el) 1#vest"/ator*
9!he nature and character of said tract of public land, more
particularly 6ot 8o. 12'', as one found inside an Fagricultural
?oneF, and that of 6ot 8o. 1/17, as one suitable for rice
culti.ation, which were categorically stated in the separate
in.estigation reports in 1'/* of Dicente A. Dillena, 4unior public
land inspector of the Bureau of 6ands H5a.aoI is binding on the
courts inasmuch as it is the e"clusi.e prerogati.e of the
E"ecuti.e 5epartment of the @o.ernment to classify public
lands.>
12
Not Sff"c"e#t Proofs to Establ"s% Declass"f"cat"o# or &l"e#ab"l"ty
316 !he recommendation of the 5istrict Corester for release of sub4ect
property from the unclassified region is not the ultimate word on the
matter %or not an evidence of de&classification'. And the fact that
BC Eap 6 8o. 7*) dated Earch 1, 1'$) showing sub4ect property to
be within the unclassified region was not presented in e.idence will not
operate against the State considering the stipulation between the
parties and under the well0settled rule that the State cannot be
'
&nternational Bardwood and Deneer o. of the Philippines .s. +ni.ersity of the
Philippines. @.R. 8o. 60/$/1(, August 1*, 1''1.
12
Republic .s. 5e Por<an, @.R. 8o. 6077(77, Aune 1(, 1'().
P a g e | )
estopped by the omission, mista<e or error of its officials or agents, if
omission there was, in fact.
:$;Ghile it may be that the Eunicipality of 3bando has been cadastrally
sur.eyed in 1'71, it does not follow that all lands comprised therein
are automatically released as alienable. A sur.ey made in a cadastral
proceeding merely identifies each lot preparatory to a 4udicial
proceeding for ad4udication of title to any of the lands upon claim of
interested parties. Besides, if land is within the 4urisdiction of the
Bureau of Corest 5e.elopment, it would be beyond the 4urisdiction of
the adastral ourt to register it under the !orrens System.
336 !he con.ersion of sub4ect property into a fishpond by applicants, or the
alleged titling of properties around it, does not automatically render
the property as alienable and disposable. ApplicantsJ remedy lies in the
release of the property from its present classification.
11

306 !here is no factual basis for the conclusion of the appellate court that
the property in ,uestion was no longer part of the public land when the
@o.ernment through the 5irector of 6ands appro.ed on Earch 7, 1'$/,
the sur.ey plan :Plan Psu01*7*'; for Salming Piraso. !he e"istence of a
s<etch plan of real property e.en if appro.ed by the Bureau of 6ands is
no proof in itself of ownership of the land co.ered by the plan. %Gimeno
v. (ourt of )ppeals, *+ ,(R) -./'. !he fact that a claimant or a
possessor has a s<etch plan or a sur.ey map prepared for a parcel of
land which forms part of the countryJs forest reser.es does not con.ert
such land into alienable land, much less pri.ate property. Assuming
that a public officer erroneously appro.es the s<etch plan, such
appro.al is null and .oid. !here must first be a formal @o.ernment
11
5irector of 6ands and 5irector of Corest 5e.elopment .s. ourt of Appeals, @.R.
8o. 60/((7), Aune $$,
1'(1.
P a g e | (
declaration that the forest land has been re0classified into alienable
and disposable agricultural land which may then be ac,uired by
pri.ate persons in accordance with the .arious modes of ac,uiring
public agricultural lands.
1$
36 &n the case of D"rector of .a#)s vs. R"vas, G.R. No. .4610,5,
3ebrary 1-, 1586, the following may establish the land as
public gra?ing land within forest reser.e, and thus, inalienable#
3a6 6and lassification Eap# &t is part of !imberland Pro4ect 8o. 1/0
A of Enrile, agayan. &t is included in the Bureau of Corestry Eap 6.
. $$7*, comprising the !imberland of the agayan 6and
lassification, containing an area of *,.01 hectares, situated in
Enrile, Solana and Amulong, agayan. &t is non0registerable. &t
cannot be appropriated by pri.ate persons. &t is not disposable
public agricultural land=

3b6 Presidential Proclamation# Said land is a part of the
forest reserve under Presidential Proclamation 8o. 1/' dated
Cebruary 1*, 1'7). &t is intended for 2wood production watershed
soil protection and other forest uses.2 !he reser.ation was made
prior to the instant 1'7( application for registration.
3c6 Pasture 6ease Agreement with Bureau of Corestry#
Ri.as and oppositor Pascua and their predecessors ha.e always
treated the 1,'$* hectares as pasture land. Portions of the land had
been the ob4ect of pasture lease agreements with the Bureau of
Corestry.
3d6 !a" 5eclaration 5escribing the 6and 9Pasture E"clusi.ely#>
!he 1'72 and 1'7( ta" declarations of Ri.as
describe the $,222 hectares of land in ,uestion as for Fpasture
e$clusivelyF, meaning it is gra3ing land. Similarly, the 1'72 and
1'7$ ta" declarations submitted in e.idence by oppositor Pascua
describe )'2 or )7) hectares of the land as Fpasture land.>

Ancestral Domain as Exception to Regalian Doctrine
1$
Republic .s. ourt of Appeals, @.R. 8o. 60/7'1(, September *2, 1'().
P a g e | '
!he Supreme ourt sustained
1*
the .alidity and constitutionality of
R.A. (*)1 %4ndigenous "eoples Rights )ct of 5116' or &PRA with Austice
-apunan filing an opinion, to wit#
Drawing inspiration from both our fundamental law and international
law, IPRA now employs the politically-correct conjunctive term
indigenous peoplesindigenous cultural communities! as follows"
#ec$ %$ Definition of Terms.-- &or purposes of this Act, the
following terms shall mean"
'h( Indigenous peoples/Indigenous cultural communities$ -
refer to a group of people or homogenous societies identified by
self-ascription and ascription by others, who have continuously
lived as organi)ed community on communally bounded and
defined territory, and who have, under claims of ownership since
time immemorial, occupied, possessed and utili)ed such
territories, sharing common bonds of language, customs,
traditions, and other distinctive cultural traits, or who have, through
resistance to political, social and cultural inroads of coloni)ation,
non-indigenous religions and cultures, became historically
differentiated from the majority of &ilipinos$ Indigenous peoples
shall li*ewise include peoples who are regarded as indigenous on
account of their descent from the populations which inhabited the
country at the time of con+uest or coloni)ation, or at the time of
inroads of non-indigenous religions and cultures, or the
establishment of present #tate boundaries, who retain some or all
of their own social, economic, cultural and political institutions, but
who may have been displaced from their traditional domains or
who may have resettled outside their ancestral domains , , ,$
-ong before the #paniards set foot in these islands, the indigenous
peoples were already plowing our soil and hunting in our forests$ .he
&ilipinos of Aeta and /alay stoc*, who were the original inhabitants of our
archipelago, were, at that time, practicing a native culture$ &rom the time
the #paniards arrived up to the early part of the American regime, these
native inhabitants resisted foreign invasion, relentlessly fighting for their
lands$ .oday, from the remote uplands of 0orthern -u)on, to Palawan,
/indoro and /indanao, the indigenous peoples continue to live on and
cultivate their ancestral lands, the lands of their forefathers$
.hough &ilipinos today are essentially of the same stoc* as the
indigenous peoples, our national culture e,hibits only the last vestiges of
this native culture$ 1enturies of colonial rule and neocolonial domination
have created a discernible distinction between the cultural majority and
the group of cultural minorities$ .he e,tant Philippine national culture is
the culture of the majority2 its indigenous roots were replaced by foreign
cultural elements that are decidedly pronounced, if not dominant$ 3hile
the culture of the majority reoriented itself to 3estern influence, the culture
of the minorities has retained its essentially native character$
4ne of every si, &ilipinos is a member of an indigenous cultural
community$ Around twelve million &ilipinos are members of the one
hundred and ten or so indigenous cultural communities, accounting for
more than seventeen per centum of the estimated seventy million &ilipinos
in our country$ #adly, the indigenous peoples are one of the poorest
sectors of Philippine society$ .he incidence of poverty and malnutrition
among them is significantly higher than the national average$ .he
1*
ru? .s. Secretary of 5E8R, @.R. 8o. 1*/*(/, 5ecember 7, $222
P a g e | 12
indigenous peoples are also among the most powerless$ Perhaps
because of their inability to spea* the language of law and power, they
have been relegated to the fringes of society$ .hey have little, if any,
voice in national politics and enjoy the least protection from economic
e,ploitation$
The Constitutional Policies on Indigenous Peoples
.he framers of the 5678 1onstitution ,,, incorporated in the
fundamental law several provisions recogni)ing and protecting the rights
and interests of the indigenous peoples, to wit"
#ec$ 99$ .he #tate recogni)es and promotes the rights of
indigenous peoples within the framewor* of national unity and
development$
#ec$ :$ .he #tate, subject to the provisions of this
1onstitution and national development policies and programs,
shall protect the rights of indigenous cultural communities to their
ancestral lands to ensure their economic, social, and cultural well-
being$
.he 1ongress may provide for the applicability of customary
laws governing property rights and relations in determining the
ownership and e,tent of ancestral domains$
#ec$ 5$ .he 1ongress shall give the 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
ine+ualities, and remove cultural ine+uities by e+uitably diffusing
wealth and political power for the common good$
.o this end, the #tate shall regulate the ac+uisition,
ownership, use and disposition of property and its increments$
#ec$ ;$ .he #tate shall apply the principles of agrarian reform
or stewardship, whenever applicable in accordance with law, in
the disposition and utili)ation of other natural resources, including
lands of the public domain under lease or concession, subject to
prior rights, homestead rights of small settlers, and the rights of
indigenous communities to their ancestral lands$

#ec$ 58$ .he #tate shall recogni)e, respect, and protect the
rights of indigenous cultural communities to preserve and develop
their cultures, traditions, and institutions$ It shall consider these
rights in the formulation of national plans and policies$
#ec$ 59$ .he 1ongress may create a consultative body to
advise the President on policies affecting indigenous cultural
communities, the majority of the members of which shall come
from such communities$
" " " " " " " " " "
<nder IPRA, indigenous peoples may obtain the recognition of their
right of ownership over ancestral lands and ancestral domains by virtue of
native title$
.he term ancestral lands ! under the statute refers to lands occupied
by individuals, families and clans who are members of indigenous cultural
communities, including residential lots, rice terraces or paddies, private
forests, swidden farms and tree lots$ .hese lands are re+uired to have
been occupied, possessed and utili)ed! by them or through their
ancestors since time immemorial, continuously to the present!$
4n the other hand, ancestral domains ! is defined as areas
P a g e | 11
generally belonging to indigenous cultural communities, including
ancestral lands, forests, pasture, residential and agricultural lands, hunting
grounds, worship areas, and lands no longer occupied e,clusively by
indigenous cultural communities but to which they had traditional access,
particularly the home ranges of indigenous cultural communities who are
still nomadic or shifting cultivators$
Ancestral domains also include inland waters, coastal areas and
natural resources therein$ Again, the same are re+uired to have been
held under a claim of ownership, occupied or possessed by I11sIPs, by
themselves or through their ancestors, communally or individually since
time immemorial, continuously to the present!$ <nder #ection :;, property
rights within the ancestral domains already e,isting andor vested upon
effectivity of said law shall be recogni)ed and respected$!
Ownership is the cru, of the issue of whether the provisions of
IPRA pertaining to ancestral lands, ancestral domains, and natural
resources are unconstitutional$ .he fundamental +uestion is, who,
between the #tate and the indigenous peoples, are the rightful owners of
these properties=
, , , , , , , , ,
A. The provisions of IPRA recognizing the ownership of indigenous
peoples over the ancestral lands and ancestral domains are not
unconstitutional.
In support of their theory that ancestral lands and ancestral domains
are part of the public domain and, thus, owned by the #tate, pursuant to
#ection 9, Article >II of the 1onstitution, petitioners and the #olicitor
?eneral advance the following arguments"
&irst, according to petitioners, the @ing of #pain under international
law ac+uired e,clusive dominion over the Philippines by virtue of
discovery and con+uest$ .hey contend that the #panish @ing under the
theory of jura regalia, which was introduced into Philippine law upon
#panish con+uest in 5:95, ac+uired title to all the lands in the
archipelago$
#econd, petitioners and the #olicitor ?eneral submit that ancestral
lands and ancestral domains are owned by the #tate$ .hey invo*e the
theory of jura regalia which imputes to the #tate the ownership of all
lands and ma*es the #tate the original source of all private titles$ .hey
argue that the Philippine #tate, as successor to #pain and the <nited
#tates, is the source of any asserted right of ownership in land$
.hird, petitioners and the #olicitor ?eneral concede that the Cario
doctrine e,ists$ Aowever, petitioners maintain that the doctrine merely
states that title to lands of the public domain may be ac+uired by
prescription$ .he #olicitor ?eneral, for his part, argues that the doctrine
applies only to alienable lands of the public domain and, thus, cannot be
e,tended to other lands of the public domain such as forest or timber,
mineral lands, and national par*s$
&ourth, the #olicitor ?eneral asserts that even assuming that native
title over ancestral lands and ancestral domains e,isted by virtue of the
Cario doctrine, such native title was e,tinguished upon the ratification
of the 56%: 1onstitution$
&ifth, petitioners admit that 1ongress is mandated under #ection :,
Article >II of the 1onstitution to protect that rights of indigenous peoples
to their ancestral lands and ancestral domains$ Aowever, they contend
that the mandate is subject to #ection 9, Article >II and the theory of
jura regalia embodied therein$ According to petitioners, the recognition
and protection under R$A$ 7%85 of the right of ownership over ancestral
lands and ancestral domains is far in e,cess of the legislative power and
P a g e | 1$
constitutional mandate of 1ongress$
&inally, on the premise that ancestral lands and ancestral domains
are owned by the #tate, petitioners posit that R$A$ 7%85 violates #ection
9, Article >II of the 1onstitution which prohibits the alienation of non-
agricultural lands of the public domain and other natural resources$
I am not persuaded by these contentions$
,,,,,,,,,,,
?enerally, under the concept of jura regalia, private title to land
must be traced to some grant, e,press or implied, from the #panish 1rown
or its successors, the American 1olonial government, and thereafter, the
Philippine Republic$ .he belief that the #panish 1rown is the origin of all
land titles in the Philippines has persisted because title to land must
emanate from some source for it cannot issue forth from nowhere$
In its broad sense, the term jura regalia refers to royal rights, or
those rights which the @ing has by virtue of his prerogatives$ In #panish
law, it refers to a right which the sovereign has over anything in which a
subject has a right of property or propriedad$ .hese were rights enjoyed
during feudal times by the *ing as the sovereign$
.he theory of the feudal system was that title to all lands was
originally held by the @ing, and while the use of lands was granted out to
others who were permitted to hold them under certain conditions, the @ing
theoretically retained the title$ By fiction of law, the @ing was regarded as
the original proprietor of all lands, and the true and only source of title, and
from him all lands were held$ .he theory of jura regalia was therefore
nothing more than a natural fruit of con+uest$
The Regalian theory, however, does not negate native title to
lands held in private ownership since time immemorial$ In the
landmar* case of Cario vs. Insular Government the <nited #tates
#upreme 1ourt, reversing the decision of the pre-war Philippine
#upreme 1ourt, made the following pronouncement"
, , , Cvery presumption is and ought to be ta*en against the
?overnment in a case li*e the present$ It might, perhaps, be
proper and sufficient to say that when, as far back as testimony
or memory goes, the land has been held by individuals under
a claim of private ownership, it will be presumed to have been
held in the same way from before the Spanish conquest, and
never to have been public land , , , 'Cmphasis supplied$(
The aove ruling institutionalized the recognition of the
e!istence of native title to land, or ownership of land y "ilipinos y
virtue of possession under a claim of ownership since time
immemorial and independent of any grant from the #panish $rown,
as an e!ception to the theory of jura regalia .
In Cario, an Igorot by the name of /ateo 1ariDo applied for
registration in his name of an ancestral land located in Benguet$ .he
applicant established that he and his ancestors had lived on the land, had
cultivated it, and had used it as far they could remember$ Ae also proved
that they had all been recogni)ed as owners, the land having been passed
on by inheritance according to native custom$ Aowever, neither he nor his
ancestors had any document of title from the #panish 1rown$ .he
government opposed the application for registration, invo*ing the theory of
jura regalia$ 4n appeal, the <nited #tates #upreme 1ourt held that the
applicant was entitled to the registration of his native title to their
P a g e | 1*
ancestral land$
Cario was decided by the <$#$ #upreme 1ourt in 56E6, at a time
when decisions of the <$#$ 1ourt were binding as precedent in our
jurisdiction$ 3e applied the Cario doctrine in the 56F; case of O Co
vs. Director of !ands, where we stated that GaHll lands that were not
ac+uired from the ?overnment either by purchase or by grant, belong to
the public domain, but GaHn e,ception to the rule would be any land that
should have been in the possession of an occupant and of his
predecessors in interest since time immemorial, for such possession
would justify the presumption that the land had never een part of
the pulic domain or that it had een private property even efore
the #panish con%uest.!

Petitioners however aver that the <$#$ #upreme 1ourtIs ruling in
Cario was premised on the fact that the applicant had complied with the
re+uisites of ac+uisitive prescription, having established that he and his
predecessors-in-interest had been in possession of the property since
time immemorial$ In effect, petitioners suggest that title to the ancestral
land applied for by 1ariDo was transferred from the #tate, as original
owner, to 1ariDo by virtue of prescription$ .hey conclude that the doctrine
cannot be the basis for decreeing by mere legislative fiatJthat ownership
of vast tracts of land belongs to Gindigenous peoplesH without judicial
confirmation$!

.he #olicitor ?eneral, for his part, claims that the Cario doctrine
applies only to alienable lands of the public domain and, as such, cannot
be e,tended to other lands of the public domain such as forest or timber,
mineral lands, and national par*s$
.here is no merit in these contentions$
A proper reading of Cario would show that the doctrine enunciated
therein applies only to lands which have always een considered as
private, and not to lands of the public domain, whether alienable or
otherwise$ A distinction must be made between ownership of land
under native title and ownership by acquisitive prescription against
the #tate$ &wnership y virtue of native title presupposes that
the land has been held y its possessor and his predecessors'in'
interest in the concept of an owner since time immemorial The land
is not ac%uired from the #tate, that is, #pain or its successors'in'
interest, the (nited #tates and the Philippine )overnment. There has
een no transfer of title from the #tate as the land has een regarded
as private in character as far ac* as memory goes. In contrast,
ownership of land y ac%uisitive prescription against the
#tate involves a conversion of the character of the property from
alienale pulic land to private land, which presupposes a transfer of
title from the #tate to a private person$ #ince native title assumes
that the property covered y it is private land and is deemed never to
have een part of the pulic domain, the #olicitor ?eneralIs thesis that
native title under Cario applies only to lands of the public domain is
erroneous$ 1onse+uently, the classification of lands of the public domain
into agricultural, forest or timber, mineral lands, and national par*s under
the 1onstitution is irrelevant to the application of the Cario doctrine
because the Regalian doctrine which vests in the #tate ownership of lands
of the public domain does not cover ancestral lands and ancestral
domains$
-egal history supports the Cario doctrine$
3hen #pain ac+uired sovereignty over the Philippines by virtue of
P a g e | 11
its discovery and occupation thereof in the 5;th century and the .reaty of
.ordesillas of 5F6F which it entered into with Portugal, the continents of
Asia, the Americas and Africa were considered as terra nullius although
already populated by other peoples$ .he discovery and occupation by
the Curopean #tates, who were then considered as the only members of
the international community of civili)ed nations, of lands in the said
continents were deemed sufficient to create title under international law$
Although #pain was deemed to have ac+uired sovereignty over the
Philippines, this did not mean that it ac+uired title to all lands in the
archipelago$ By virtue of the colonial laws of #pain, the #panish 1rown
was considered to have ac+uired dominion only over the unoccupied and
unclaimed portions of our islands$
In sending the first e,pedition to the Philippines, #pain did not
intend to deprive the natives of their property$ /iguel -ope) de -ega)pi
was under instruction of the #panish @ing to do no harm to the natives
and to their property$ In this regard, an authority on the early #panish
colonial period in the Philippines wrote"
.he government of Gthe @ing of #painH Philip II regarded the
Philippines as a challenging opportunity to avoid a repetition of the
sanguinary con+uests of /e,ico and Peru$ In his written
instructions for the "delantado -ega)pi, who commanded the
e,pedition, Philip II envisaged a bloodless pacification of the
archipelago$ .his e,traordinary document could have been lifted
almost verbatim from the lectures of the Dominican theologian,
&rancisco de Kitoria, delivered in the <niversity of #alamanca$
.he @ing instructed -ega)pi to inform the natives that the
#paniards had come to do no harm to their persons or to their
property$ .he #paniards intended to live among them in peace
and in friendship and Lto e,plain to them the law of Mesus 1hrist
by which they will be saved$L Although the #panish e,pedition
could defend themselves if attac*ed, the royal instructions
admonished the commander to commit no aggressive act which
might arouse native hostility$
#panish colonial laws recogni)ed and respected &ilipino
landholdings including native land occupancy$ .hus, the #ecopilaci$n de
!e%es de las Indias e,pressly conferred ownership of lands already held
by the natives$ .he royal decrees of 577E and 576F did not e,tinguish
native title to land in the Philippines$ .he earlier royal decree, dated Mune
9:, 577E, provided that all those in unlawful possession of royal lands!
must legali)e their possession by means of adjustment proceedings, and
within the period specified$ .he later royal decree, dated &ebruary 5%,
576F, otherwise *nown as the /aura -aw, declared that titles that were
capable of adjustment under the royal decree of 577E, but for which
adjustment was not sought, were forfeited$ Despite the harsh wording
of the /aura -aw, it was held in the case of Cario that the royal decree
of 576F should not be construed as confiscation of title, but merely as the
withdrawal of the privilege of registering such title$
0either was native title disturbed by the #panish cession of the
Philippines to the <nited #tates, contrary to petitionersI assertion that the
<# merely succeeded to the rights of #pain, including the latterIs rights
over lands of the public domain$ <nder the .reaty of Paris of December
5E, 5767, the cession of the Philippines did not impair any right to property
e,isting at the time$ During the American colonial regime, native title to
land was respected, even protected$ .he Philippine Bill of 56E9 provided
that property and rights ac+uired by the <# through cession from #pain
were to be administered for the benefit of the &ilipinos$ In obvious
adherence to libertarian principles, /c@inleyIs Instructions, as well as the
Philippine Bill of 56E9, contained a bill of rights embodying the safeguards
P a g e | 1/
of the <# 1onstitution$ 4ne of these rights, which served as an inviolable
rule upon every division and branch of the American colonial government
in the Philippines, was that no person shall be deprived of life, liberty, or
property without due process of law$! .hese vested rights safeguarded
by the Philippine Bill of 56E9 were in turn e,pressly protected by the due
process clause of the 56%: 1onstitution$ Resultantly, property rights of the
indigenous peoples over their ancestral lands and ancestral domains were
firmly established in law$
0onetheless, the #olicitor ?eneral ta*es the view that the vested
rights of indigenous peoples to their ancestral lands and domains were
abated by the direct act by the sovereign &ilipino people of ratifying the
56%: 1onstitution$! Ae advances the following arguments"
.he #overeign, which is the source of all rights including
ownership, has the power to restructure the consolidation of rights
inherent in ownership in the #tate$ .hrough the mandate of the
1onstitutions that have been adopted, the #tate has wrested
control of those portions of the natural resources it deems
absolutely necessary for social welfare and e,istence$ It has been
held that the #tate may impair vested rights through a legitimate
e,ercise of police power$
Kested rights do not prohibit the #overeign from performing
acts not only essential to but determinative of social welfare and
e,istence$ .o allow otherwise is to invite havoc in the established
social system$ , , ,
.ime-immemorial possession does not create private
ownership in cases of natural resources that have been found
from generation to generation to be critical to the survival of the
#overeign and its agent, the #tate$
#tated simply, the #olicitor ?eneralIs argument is that the #tate, as
the source of all titles to land, had the power to re-vest in itself, through
the 56%: 1onstitution, title to all lands, including ancestral lands and
ancestral domains$ 3hile the #olicitor ?eneral admits that such a theory
would necessarily impair vested rights, he reasons out that even vested
rights of ownership over ancestral lands and ancestral domains are not
absolute and may be impaired by the legitimate e,ercise of police power$
I cannot agree$ .he te,t of the provision of the 56%: 1onstitution
invo*ed by the #olicitor ?eneral, while embodying the theory of jura
regalia, is too clear for any misunderstanding$ It simply declares that all
agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, and other natural resources of the Philippines belong to the
#tate$! 0owhere does it state that certain lands which are absolutely
necessary for social welfare and e,istence,! including those which are not
part of the public domain, shall thereafter be owned by the #tate$ If there
is any room for constitutional construction, the provision should be
interpreted in favor of the preservation, rather than impairment or
e,tinguishment, of vested rights$ #tated otherwise, #ection 5, Article >II of
the 56%: 1onstitution cannot be construed to mean that vested right which
had e,isted then were e,tinguished and that the landowners were
divested of their lands, all in the guise of wrestGingH control of those
portions of the natural resources Gwhich the #tateH deems absolutely
necessary for social welfare and e,istence$! 4n the contrary, said #ection
restated the fundamental rule against the diminution of e,isting rights by
e,pressly providing that the ownership of lands of the public domain and
other natural resources by the #tate is subject to any e,isting right, grant,
lease, or concessions$! .he e,isting rights! that were intended to be
protected must, perforce, include the right of ownership by indigenous
peoples over their ancestral lands and domains$ .he words of the law
should be given their ordinary or usual meaning, and the term e,isting
P a g e | 17
rights! cannot be assigned an unduly restrictive definition$
Petitioners concede that 1ongress is mandated under #ection :,
Article >II of the 5678 1onstitution to protect the rights of indigenous
peoples to their ancestral lands and ancestral domains$ 0onetheless,
they contend that the recognition and protection under IPRA of the right of
ownership of indigenous peoples over ancestral lands and ancestral
domains are far in e,cess of the legislative power and constitutional
mandate of the 1ongress, since such recognition and protection amount
to the alienation of lands of the public domain, which is proscribed under
#ection 9, Article >II of the 1onstitution$
#ection :, Article >II of the 1onstitution e,presses the sovereign
intent to protect the rights of indigenous peoples to their ancestral lands$!
In its general and ordinary sense, the term right! refers to any legally
enforceable claim$ It is a power, privilege, faculty or demand inherent in
one person and incident upon another$ 3hen used in relation to property,
LrightL includes any interest in or title to an object, or any just and legal
claim to hold, use and enjoy it$ #aid provision in the 1onstitution cannot,
by any reasonable construction, be interpreted to e,clude the protection of
the right of ownership over such ancestral lands$ &or this reason, 1ongress
cannot be said to have e,ceeded its constitutional mandate and power in
enacting the provisions of IPRA, specifically #ections 8'a( and 7, which
recogni)e the right of ownership of the indigenous peoples over ancestral
lands$
.he second paragraph of #ection :, Article >II also grants
1ongress the power to provide for the applicability of customary laws
governing property rights or relations in determining the ownership and
e,tent of ancestral domains$! In light of this provision, does 1ongress
have the power to decide whether ancestral domains shall be private
property or part of the public domain= Also, does 1ongress have the
power to determine whether the e,tent! of ancestral domains shall
include the natural resources found therein=
It is readily apparent from the constitutional records that the framers
of the 1onstitution did not intend 1ongress to decide whether ancestral
domains shall be public or private property$ Rather, they ac*nowledged
that ancestral domains shall be treated as private property, and that
customary laws shall merely determine whether such private ownership is
by the entire indigenous cultural community, or by individuals, families, or
clans within the community$ .he discussion below between /essrs$
Regalado and Bennagen and /r$ 1hief Mustice Davide, then members of
the 567; 1onstitutional 1ommission, is instructive"
/R$ RC?A-AD4$ .han* you, /adame President$ /ay I see* some
clarifications from either 1ommissioner Bennagen or 1ommissioner Davide
regarding this phrase 140?RC## #AA-- PR4KIDC &4R .AC
APP-I1ABI-I.N 4& 1<#.4/ARN -A3# ?4KCR0I0? PR4PCR.N RI?A.#
4R RC-A.I40# in determining the ownership and e,tent of the ancestral
domain,! because ordinarily it is the law on ownership and the e,tent thereof
which determine the property rights or relations arising therefrom$ 4n the other
hand, in this proposed amendment the phraseology is that it is the property rights
or relations which shall be used as the basis in determining the ownership and
e,tent of the ancestral domain$ I assume there must be a certain difference in
the customary laws and our regular civil laws on property$
/R$ DAKIDC$ .hat is e,actly the reason, /adam President, why we will
leave it to 1ongress to ma*e the necessary e,ception to the general law on
property relations$
/R$ RC?A-AD4$ I was thin*ing if 1ommissioner Bennagen could give us
an e,ample of such a customary law wherein it is the property rights and
relations that determine the ownership and the e,tent of that ownership, unli*e
the basic fundamental rule that it is the ownership and the e,tent of ownership
which determine the property rights and relations arising therefrom and
P a g e | 1)
conse+uent thereto$ Perhaps, these customary laws may have a different
provision or thrust so that we could ma*e the corresponding suggestions also by
way of an amendment$
/R$ DAKIDC$ .hat is e,actly my own perception$
/R$ BC00A?C0$ -et me put it this way$
.here is a range of customary laws governing certain types of ownership$
There would be ownership based on individuals, on clan or lineage, or on
community And the thin*ing e,pressed in the consultation is that this should be
codified and should be recogni)ed in relation to e,isting national laws$ .hat is
essentially the concept$

'Cmphasis supplied$(
.he intention to treat ancestral domains as private property is also
apparent from the following e,change between /essrs$ #uare) and
Bennagen"
/R$ #<ARCO$ 3hen we spea* of customary laws governing property rights
or relations in determining the ownership and e,tent of the ancestral domain, are
we thin*ing in terms of the tribal ownership or community ownership or of private
ownership within the ancestral lands or ancestral domain=
/R$ BC00A?C0$ The concept of customary laws is that it is
considered as ownership by private individuals, clans and even
communities
/R$ #<ARCO$ #o, there will be two aspects to this situation$ .his means
that the #tate will set aside the ancestral domain and there is a separate law for
that$ 3ithin the ancestral domain it could accept more specific ownership in
terms of individuals within the ancestral lands$
/R$ BC00A?C0$ Individuals and groups within the ancestral domain$
'Cmphasis supplied$(
It cannot be correctly argued that, because the framers of the
1onstitution never e,pressly mentioned Cario in their deliberations, they
did not intend to adopt the concept of native title to land, or that they were
unaware of native title as an e,ception to the theory of jura regalia$ .he
framers of the 1onstitution, as well as the people adopting it, were
presumed to be aware of the prevailing judicial doctrines concerning the
subject of constitutional provisions, and courts should ta*e these doctrines
into consideration in construing the 1onstitution$
Aaving thus recogni)ed that ancestral domains under the
1onstitution are considered as private property of indigenous peoples, the
IPRA, by affirming or ac*nowledging such ownership through its various
provisions, merely abides by the constitutional mandate and does not
suffer any vice of unconstitutionality$
Petitioners interpret the phrase subject to the provisions of this
1onstitution and national development policies and programs! in #ection
:, Article >II of the 1onstitution to mean as subject to the provision of
#ection 9, Article >II of the 1onstitution,! which vests in the #tate
ownership of all lands of the public domain, mineral lands and other
natural resources$ &ollowing this interpretation, petitioners maintain that
ancestral lands and ancestral domains are the property of the #tate$
.his proposition is untenable$ Indeed, #ection 9, Article >II
reiterates the declarations made in the 56%: and 568% 1onstitutions on
the state policy of conservation and nationali)ation of lands of the public
domain and natural resources, and is of paramount importance to our
national economy and patrimony$ A close perusal of the records of the
567; 1onstitutional 1ommission reveals that the framers of the
1onstitution inserted the phrase subject to the provisions of this
1onstitution! mainly to prevent the impairment of .orrens titles and other
prior rights in the determination of what constitutes ancestral lands and
ancestral domains, to wit"
/R$ 0A.IKIDAD$ Must one +uestion$ I want to clear this section
P a g e | 1(
protecting ancestral lands$ Aow does this affect the .orrens title and other prior
rights=
/R$ BC00A?C0$ I thin* that was also discussed in the committee hearings
and we did say that in cases where due process is clearly established in terms of
prior rights, these two have to be respected$
/R$ 0A.IKIDAD$ .he other point is" Aow vast is this ancestral land= Is it
true that parts of Baguio 1ity are considered as ancestral lands=
/R$ BC00A?C0$ .hey could be regarded as such$ If the 1ommissioner
still recalls, in one of the publications that I provided the 1ommissioners, the
parts could be considered as ancestral domain in relation to the whole population
of 1ordillera but not in relation to certain individuals or certain groups$
/R$ 0A.IKIDAD$ .he 1ommissioner means that the whole Baguio 1ity is
considered as ancestral land=
/R$ BC00A?C0$ Nes, in the sense that it belongs to 1ordillera or in the
same manner that &ilipinos can spea* of the Philippine archipelago as ancestral
land, but not in terms of the right of a particular person or particular group to
e,ploit, utili)e, or sell it$
/R$ 0A.IKIDAD$ But is clear that the prior rights will be respected$
/R$ BC00A?C0$ Definitely$

.hus, the phrase subject to the provisions of this 1onstitution! was
intended by the framers of the 1onstitution as a reiteration of the
constitutional guarantee that no person shall be deprived of property
without due process of law$
.here is another reason why #ection : of Article >II mandating the
protection of rights of the indigenous peoples to their ancestral lands
cannot be construed as subject to #ection 9 of the same Article ascribing
ownership of all public lands to the #tate$ .he 1onstitution must be
construed as a whole$ It is a rule that when construction is proper, the
whole 1onstitution is e,amined in order to determine the meaning of any
provision$ .hat construction should be used which would give effect to the
entire instrument$
iG555H

.hus, the provisions of the 1onstitution on #tate ownership of
public lands, mineral lands and other natural resources should be read
together with the other provisions thereof which firmly recogni)e the rights
of the indigenous peoples$ .hese, as set forth hereinbefore, include"
Section !!, "rticle II, providing that the #tate recogni)es and promotes the
rights of indigenous peoples within the framewor* of national unity and
development2 Section #, "rticle $II, calling for the protection of the rights of
indigenous cultural communities to their ancestral lands to ensure their
economic, social, and cultural well-being, and for the applicability of
customary laws governing property rights and relations in determining the
ownership and e,tent of ancestral domains2 Section %, "rticle $III, directing
the removal or reduction of social, economic, political and cultural
ine+uities and ine+ualities by e+uitably diffusing wealth and political power
for the common good2 Section &, "rticle $III, directing the application of the
principles of agrarian reform or stewardship in the disposition and
utili)ation of other natural resources, subject to prior rights, homestead
rights of small settlers, and the rights of indigenous communities to their
ancestral lands2 Section %', "rticle $I(, decreeing that the #tate shall
recogni)e, respect, and protect the rights of indigenous cultural
communities to preserve and develop their cultures, traditions, and
institutions2 and Section %!, "rticle $(I, authori)ing the 1ongress to create a
consultative body to advise the President on policies affecting indigenous
cultural communities$
Again, as articulated in the 1onstitution, the first goal of the national
economy is the more equitable distribution of opportunities, income,
and wealth$ C+uity is given prominence as the first objective of national
economic development$ .he framers of the 1onstitution did not, by the
phrase subject to the provisions of this 1onstitution and national
P a g e | 1'
development policies and programs,! intend to establish a hierarchy of
constitutional norms$ As e,plained by then 1ommissioner 'now 1hief
Mustice( Ailario ?$ Davide, Mr$, it was not their objective to ma*e certain
interests primary or paramount, or to create absolute limitations or outright
prohibitions2 rather, the idea is towards the balancing of interests"
BI#A4P BA1A0I$ In 1ommissioner DavideIs formulation of the first
sentence, he says" .he #tate, #<BMC1. .4 .AC provisions of this 1onstitution
A0D 0A.I40A- DCKC-4P/C0. P4-I1IC# A0D PR4?RA/# shall
guarantee the rights of cultural or tribal communities to their ancestral lands to
insure their economic, social and cultural well-being$! .here are at least two
concepts here which receive different weights very often$ .hey are the concepts
of national development policies and programs, and the rights of cultural or tribal
communities to their ancestral lands, et cetera$ I would li*e to as*" 3hen the
1ommissioner proposed this amendment, which was the controlling concept= I
as* this because sometimes the rights of cultural minorities are precisely
transgressed in the interest of national development policies and programs$
Aence, I would li*e to *now which is the controlling concept here$ Is it the rights
of indigenous peoples to their ancestral lands or is it national development
policies and programs$
/R$ DAKIDC$ It is not really a question of which is primary or which is
more paramount The concept introduced here is really the balancing of
interests .hat is what we see* to attain$ 3e have to balance the interests
ta*ing into account the specific needs and the specific interests also of these
cultural communities in li*e manner that we did so in the autonomous regions$
'Cmphasis supplied$(
+. The provisions of R.A. ,-./ do not infringe upon the #tate0s
ownership over the natural resources within the ancestral domains.
Petitioners posit that IPRA deprives the #tate of its ownership over
mineral lands of the public domain and other natural resources, as well as
the #tateIs full control and supervision over the e,ploration, development
and utili)ation of natural resources$ #pecifically, petitioners and the
#olicitor ?eneral assail #ections % 'a(, :, and 8 of IPRA as violative of
#ection 9, Article >II of the 1onstitution which states, in part, that GaHll
lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the
#tate$! .hey would have the 1ourt declare as unconstitutional #ection %'a(
of IPRA because the inclusion of natural resources in the definition of
ancestral domains purportedly results in the abdication of #tate ownership
over these resources$
I am not convinced$
#ection %'a( merely defines the coverage of ancestral domains, and
describes the e,tent, limit and composition of ancestral domains by setting
forth the standards and guidelines in determining whether a particular area
is to be considered as part of and within the ancestral domains$ In other
words, #ection %'a( serves only as a yardstic* which points out what
properties are within the ancestral domains$ It does not confer or
recogni)e any right of ownership over the natural resources to the
indigenous peoples$ Its purpose is definitional and not declarative of a
right or title$
.he specification of what areas belong to the ancestral domains is,
to our mind, important to ensure that no unnecessary encroachment on
private properties outside the ancestral domains will result during the
delineation process$ .he mere fact that #ection %'a( defines ancestral
domains to include the natural resources found therein does not ipso facto
convert the character of such natural resources as private property of the
indigenous peoples$ #imilarly, #ection : in relation to #ection %'a( cannot
P a g e | $2
be construed as a source of ownership rights of indigenous people over
the natural resources simply because it recogni)es ancestral domains as
their private but community property$!
.he phrase 1private ut community property is merely
descriptive of the indigenous peoplesI concept of ownership as
distinguished from that provided in the 1ivil 1ode$ In 1ivil -aw,
ownership! is the independent and general power of a person over a
thing for purposes recogni)ed by law and within the limits established
thereby$! .he civil law concept of ownership has the following attributes"
jus utendi or the right to receive from the thing that which it produces, jus
a&utendi or the right to consume the thing by its use, jus disponendi or the
power to alienate, encumber, transform and even destroy that which is
owned and jus vidicandi or the right to e,clude other persons from the
possession the thing owned$ In contrast, the indigenous peoplesI concept
of ownership emphasi)es the importance of communal or group
ownership$ By virtue of the communal character of ownership, the
property held in common cannot be sold, disposed or destroyed!
because it was meant to benefit the whole indigenous community and not
merely the individual member$
.hat IPRA is not intended to bestow ownership over natural
resources to the indigenous peoples is also clear from the deliberations of
the bicameral conference committee on #ection 8 which recites the rights
of indigenous peoples over their ancestral domains, to wit"
1AAIR/A0 &-AKICR$ Accepted$ #ection 7 rights to ancestral domain, this is
where we transferred the other provision but here itself ---
A40$ D4/I0?<CO$ /r$ 1hairman, if I maybe allowed to ma*e a very short
#tatement$ Carlier, /r$ 1hairman, we have decided to remove the provisions
on natural resources because we all agree that that belongs to the State$
0ow, the plight or the rights of those indigenous communities living in forest and
areas where it could be e,ploited by mining, by dams, so can we not also provide
a provision to give little protection or either rights for them to be consulted before
any mining areas should be done in their areas, any logging done in their areas
or any dam construction because this has been disturbing our people especially
in the 1ordilleras$ #o, if there could be, if our lawyers or the secretariat could just
propose a provision for incorporation here so that maybe the right to consultation
and the right to be compensated when there are damages within their ancestral
lands$
1AAIR/A0 &-AKICR$ Nes, very well ta*en but to the best of my recollection
both are already considered in subse+uent sections which we are now loo*ing
for$
A40$ D4/I0?<CO$ .han* you$
1AAIR/A0 &-AKICR$ &irst of all there is a line that gives priority use for the
indigenous people where they are$ 0umber two, in terms of the mines there is a
need for prior consultation of source which is here already$ #o, anyway it is on
the record that you want to ma*e sure that the secretariat ta*es note of those two
issues and my assurance is that it is already there and I will ma*e sure that they
cross chec*$
A40$ ADA/A.$ I second that, /r$ 1hairman$
1AAIR/A0 &-AKICR$ 4*ay, than* you$ #o we now move to #ection 7, there is a
#enate version you do not have and if you agree we will adopt that$ 'Cmphasis
supplied$(
&urther, #ection 8 ma*es no mention of any right of ownership of
the indigenous peoples over the natural resources$ In fact, #ection 8'a(
merely recogni)es the right to claim ownership over lands, bodies of
water traditionally and actually occupied by indigenous peoples, sacred
places, traditional hunting and fishing grounds, and all improvements
made by them at any time within the domains$! 0either does #ection 8'b(,
which enumerates certain rights of the indigenous peoples over the
natural resources found within their ancestral domains, contain any
recognition of ownership vis-a-vis the natural resources$
P a g e | $1
3hat is evident is that the IPRA protects the indigenous peoplesI
rights and welfare in relation to the natural resources found within their
ancestral domains, including the preservation of the ecological balance
therein and the need to ensure that the indigenous peoples will not be
unduly displaced when #tate-approved activities involving the natural
resources located therein are underta*en$
&inally, the concept of native title to natural resources, unli*e
native title to land, has not been recogni)ed in the Philippines$ 01IP and
&lavier, et al. invo*e the case of #eavies v. 'ian(a in support of their
thesis that native title to natural resources has been upheld in this
jurisdiction$ .hey insist that it is possible for rights over natural resources
to vest on a private 'as opposed to a public( holder if these were held prior
to the 56%: 1onstitution$! Aowever, a judicious e,amination of #eavies
reveals that, contrary to the position of 01IP and &lavier, et al$, the 1ourt
did not recogni)e native title to natural resources$ Rather, it merely upheld
the right of the indigenous peoples to claim ownership of minerals under
the Philippine )ill of %*+!$
3hile as previously discussed, native title to land or private
ownership by &ilipinos of land by virtue of time immemorial possession in
the concept of an owner was ac*nowledged and recogni)ed as far bac*
during the #panish coloni)ation of the Philippines, there was no similar
favorable treatment as regards natural resources$ .he uni+ue value of
natural resources has been ac*nowledged by the #tate and is
the underlying reason for its consistent assertion of ownership and
control over said natural resources from the #panish regime up to the
present$ 0atural resources, especially minerals, were considered by #pain
as an abundant source of revenue to finance its battles in wars against
other nations$ Aence, #pain, by asserting its ownership over minerals
wherever these may be found, whether in public or private lands,
recogni)ed the separability of title over lands and that over minerals
which may be found therein$
4n the other hand, the <nited #tates viewed natural resources as a
source of wealth for its nationals$ As the owner of natural resources over
the Philippines after the latterIs cession from #pain, the <nited #tates saw
it fit to allow both &ilipino and American citi)ens to e,plore and e,ploit
minerals in public lands, and to grant patents to private mineral lands$ A
person who ac+uired ownership over a parcel of private mineral land
pursuant to the laws then prevailing could e,clude other persons, even the
#tate, from e,ploiting minerals within his property$ Although the <nited
#tates made a distinction between minerals found in public lands and
those found in private lands, title in these minerals was in all cases
sourced from the #tate$ .he framers of the 56%: 1onstitution found it
necessary to maintain the #tateIs ownership over natural resources to
insure their conservation for future generations of &ilipinos, to prevent
foreign control of the country through economic domination2 and to avoid
situations whereby the Philippines would become a source of international
conflicts, thereby posing danger to its internal security and independence$
.he declaration of #tate ownership and control over minerals and
other natural resources in the 56%: 1onstitution was reiterated in both the
568% and 5678 1onstitutions$
Aaving ruled that the natural resources which may be found within
the ancestral domains belong to the #tate, the 1ourt deems it necessary
to clarify that the jurisdiction of the 01IP with respect to ancestral domains
under #ection :9 GiH of IPRA e,tends only to the lands and not to the
natural resources therein$
#ection :9GiH provides"
P a g e | $$
Turnover of "reas )itin "ncestral Domains *anaged &% Oter
Government "gencies. -- .he 1hairperson of the 01IP shall certify that the area
covered is an ancestral domain$ .he secretaries of the Department of Agrarian
Reform, Department of Cnvironment and 0atural Resources, Department of
Interior and -ocal ?overnment, and Department of Mustice, the 1ommissioner of
the 0ational Development 1orporation, and any other government agency
claiming jurisdiction over the area shall be notified thereof$ #uch notification shall
terminate any legal basis for the jurisdiction previously claimed$
<ndoubtedly, certain areas that are claimed as ancestral domains
may still be under the administration of other agencies of the ?overnment,
such as the Department of Agrarian Reform, with respect to agricultural
lands, and the Department of Cnvironment and 0atural Resources with
respect to timber, forest and mineral lands$ <pon the certification of these
areas as ancestral domain following the procedure outlined in #ections :5
to :% of the IPRA, jurisdiction of the government agency or agencies
concerned over lands forming part thereof ceases$ 0evertheless, the
jurisdiction of government agencies over the natural resources within the
ancestral domains does not terminate by such certification because said
agencies are mandated under e,isting laws to administer the natural
resources for the #tate, which is the owner thereof$ .o construe #ection
:9GiH as divesting the #tate, through the government agencies concerned,
of jurisdiction over the natural resources within the ancestral domains
would be inconsistent with the established doctrine that all natural
resources are owned by the #tate$

$. The provisions of IPRA pertaining to the utilization of natural
resources are not unconstitutional.
.he IPRA provides that indigenous peoples shall have the right to
manage and conserve the natural resources found on the ancestral
domains, to benefit from and share in the profits from the allocation
and utili)ation of these resources, and to negotiate the terms and
conditions for the e,ploration of such natural resources$ .he statute also
grants them priority rights in the harvesting, e,traction, development or
e,ploitation of any natural resources within the ancestral domains$ Before
the 01IP can issue a certification for the renewal, or grant of any
concession, license or lease, or for the perfection of any production-
sharing agreement the prior informed written consent of the indigenous
peoples concerned must be obtained$ In return, the indigenous peoples
are given the responsibility to maintain, develop, protect and conserve the
ancestral domains or portions thereof which are found to be necessary for
critical watersheds, mangroves, wildlife sanctuaries, wilderness, protected
areas, forest cover, or reforestation$
.he #olicitor ?eneral argues that these provisions deny the #tate
an active and dominant role in the utili)ation of our countryIs natural
resources$ Petitioners, on the other hand, allege that under the
1onstitution the e,ploration, development and utili)ation of natural
resources may only be underta*en by the #tate, either directly or indirectly
through co-production, joint venture, or production-sharing agreements$
.o petitioners, no other method is allowed by the 1onstitution$ .hey
li*ewise submit that by vesting ownership of ancestral lands and ancestral
domains in the indigenous peoples, IPRA necessarily gives them control
over the use and enjoyment of such natural resources, to the prejudice of
the #tate$
#ection 9, Article >II of the 1onstitution provides in paragraph 5
thereof that the e,ploration, development and utili)ation of natural
resources must be under the full control and supervision of the #tate,
P a g e | $*
which may directly underta*e such activities or enter into co-production,
joint venture, or production-sharing agreements$ .his provision, however,
should not be read in isolation to avoid a mista*en interpretation that any
and all forms of utili)ation of natural resources other than the foregoing
are prohibited$ .he 1onstitution must be regarded as consistent with
itself throughout$ 0o constitutional provision is to be separated from all
the others, or to be considered alone, all provisions bearing upon a
particular subject are to be brought into view and to be so interpreted as
to effectuate the great purposes of the fundamental law$
In addition to the means of e,ploration, development and utili)ation
of the countryIs natural resources stated in paragraph 5, #ection 9 of
Article >II, the 1onstitution itself states in the third paragraph of the same
section that 1ongress may, by law, allow small,scale utili-ation of
natural resources by its citi)ens$ &urther, #ection ;, Article >III, directs
the #tate, in the disposition and utili-ation of natural resources, to apply the
principles of agrarian reform or stewardship$ #imilarly, #ection 8, Article
>III mandates the #tate to protect the rights of subsistence fishermen to
the preferential use of marine and fishing resources$ 1learly, #ection 9,
Article >II, when interpreted in view of the pro-&ilipino, pro-poor
philosophy of our fundamental law, and in harmony with the other
provisions of the 1onstitution rather as a se+uestered pronouncement,
cannot be construed as a prohibition against any and all forms of
utili)ation of natural resources without the #tateIs direct participation$
.hrough the imposition of certain re+uirements and conditions for
the e,ploration, development and utili)ation of the natural resources under
e,isting laws, the #tate retains full control over such activities, whether
done on small-scale basis or otherwise$
.he rights given to the indigenous peoples regarding the
e,ploitation of natural resources under #ections 8'b( and :8 of IPRA
amplify what has been granted to them under e,isting laws, such as the
#mall-#cale /ining Act of 5665 'R$A$ 8E8;( and the Philippine /ining Act
of 566: 'R$A$ 86F9($ R$A$ 8E8; e,pressly provides that should an
ancestral land be declared as a peopleIs small-scale mining area, the
members of the indigenous peoples living within said area shall be given
priority in the awarding of small,scale mining contracts$ R$A$ 86F9
declares that no ancestral land shall be opened for mining operations without the
prior consent of the indigenous cultural community concerned and in the event
that the members of such indigenous cultural community give their
consent to mining operations within their ancestral land, royalties shall be
paid to them by the parties to the mining to the contract$
In any case, a careful reading of #ection 8'b( would reveal that the
rights given to the indigenous peoples are duly circumscribed$ .hese
rights are limited only to the following" to manage and conserve natural
resources within territories and uphold it for future generations2 to benefit
and share the profits from allocation and utili)ation of the natural
resources found therein2 to negotiate the terms and conditions for the
e.ploration of natural resources in the areas for the purpose of ensuring
ecological, environmental protection and the conservation measures,
pursuant to national and customary laws2 to an informed and intelligent
participation in the formulation and implementation of any project,
government or private, that will affect or impact upon the ancestral
domains and to receive /ust and fair compensation for any damages
which they may sustain as a result of the project, and the right to effective
measures by the government to prevent any interference with, alienation
and encroachment of these rights$!
It must be noted that the right to negotiate terms and conditions
granted under #ection 8'b( pertains only to the e.ploration of natural
resources$ .he term e,ploration! refers only to the search or prospecting
P a g e | $1
of mineral resources, or any other means for the purpose of
determining the e,istence and the feasibility of mining them for profit$
.he e,ploration, which is merely a preliminary activity, cannot be e+uated
with the entire process of e,ploration, development and utili)ation! of
natural resources which under the 1onstitution belong to the #tate$
#ection :8, on the other hand, grants the indigenous peoples
priority rights! in the utili)ation of natural resources and not absolute
ownership thereof$ Priority rights does not mean e,clusive rights$ 3hat is
granted is merely the right of preference or first consideration in the
award of privileges provided by e,isting laws and regulations, with due
regard to the needs and welfare of indigenous peoples living in the area$
.here is nothing in the assailed law which implies an automatic or
mechanical character in the grant of concessions$ 0or does the law
negate the e,ercise of sound discretion by government entities$ #everal
factors still have to be considered$ &or e,ample, the e,tent and nature of
utili)ation and the conse+uent impact on the environment and on the
indigenous peoplesI way of life are important considerations$ /oreover,
the indigenous peoples must show that they live in the area and that they
are in the best position to underta*e the re+uired utili)ation$
It must be emphasi)ed that the grant of said priority rights to
indigenous peoples is not a blan*et authority to disregard pertinent laws
and regulations$ .he utili)ation of said natural resources is always
subject to compliance by the indigenous peoples with e,isting laws, such
as R$A$ 8E8; and R$A$ 86F9 since it is not they but the #tate, which owns
these resources$
It also bears stressing that the grant of priority rights does not
preclude the #tate from underta*ing activities, or entering into co-
production, joint venture or production-sharing agreements with private
entities, to utili)e the natural resources which may be located within the
ancestral domains$ .here is no intention, as between the #tate and the
indigenous peoples, to create a hierarchy of values2 rather, the object is to
balance the interests of the #tate for national development and those of
the indigenous peoples$
0either does the grant of priority rights to the indigenous peoples
e,clude non-indigenous peoples from underta*ing the same activities
within the ancestral domains upon authority granted by the proper
governmental agency$ .o do so would unduly limit the ownership rights of
the #tate over the natural resources$
.o be sure, the act of the #tate of giving preferential right to a
particular sector in the utili)ation of natural resources is nothing new$ As
previously mentioned, #ection 8, Article >III of the 1onstitution mandates
the protection by the #tate of the rights of subsistence fishermen,
especially of local communities, to the preferential use of communal
marine and fishing resources, both inland and offshore$!
#ection :8 further recogni)es the possibility that the e,ploration
and e,ploitation of natural resources within the ancestral domains may
disrupt the natural environment as well as the traditional activities of the
indigenous peoples therein$ Aence, the need for the prior informed
consent of the indigenous peoples before any search for or utili)ation of
the natural resources within their ancestral domains is underta*en$
In a situation where the #tate intends to directly or indirectly
underta*e such activities, IPRA re+uires that the prior informed consent of
the indigenous peoples be obtained$ .he #tate must, as a matter of
policy and law, consult the indigenous peoples in accordance with the
P a g e | $/
intent of the framers of the 1onstitution that national development policies
and programs should involve a systematic consultation to balance local
needs as well as national plans$ As may be gathered from the
discussion of the framers of the 1onstitution on this point, the national
plan presumably ta*es into account the re+uirements of the region after
thorough consultation$ .o this end, IPRA grants to the indigenous
peoples the right to an informed and intelligent participation in the
formulation and implementation of any project, government or private,
and the right not to be removed therefrom without their free and prior
informed consent$ As to non-members, the prior informed consent ta*es
the form of a formal and written agreement between the indigenous
peoples and non-members under the proviso in #ection :8 in case
the #tate enters into a co-production, joint venture, or production-sharing
agreement with &ilipino citi)ens, or corporations$ .his re+uirement is not
peculiar to IPRA$ C,isting laws and regulations such as the Philippine
Cnvironmental Policy, the Cnvironmental Impact #ystem, the -ocal
?overnment 1ode and the Philippine /ining Act of 566: already re+uire
increased consultation and participation of sta*eholders, such as
indigenous peoples, in the planning of activities with significant
environment impact$
.he re+uirement in #ection :6 that prior written informed consent of
the indigenous peoples must be procured before the 01IP can issue a
certification for the issuance, renewal, or grant of any concession, license
or lease, or to the perfection of any production-sharing agreement,! must
be interpreted, not as a grant of the power to control the e,ploration,
development and utili)ation of natural resources, but merely the imposition
of an additional re+uirement for such concession or agreement$ .he
clear intent of the law is to protect the rights and interests of the
indigenous peoples which may be adversely affected by the operation of
such entities or licensees$
Corollary Issues
A. IPRA does not violate the 2ue Process clause.
.he first corollary issue raised by petitioners is whether IPRA
violates #ection 5, Article III of the 1onstitution, which provides that no
person shall be deprived of life, liberty, or property without due process of
law, nor shall any person be deprived the e+ual protection of the laws$!
Petitioners maintain that the broad definition of ancestral lands and
ancestral domains under #ection %'a( and %'b( of IPRA includes private
lands$ .hey argue that the inclusion of private lands in the ancestral lands
and ancestral domains violates the due process clause$ PetitionersI
contention is erroneous$
#ections %'a( and %'b( e,pressly provide that the definition of
ancestral lands and ancestral domains are subject to #ection :;,! which
reads"
Sec #& +,isting -ropert% #igts #egimes$ P Property rights within the
ancestral domains already e,isting andor vested upon effectivity of this Act, shall
be recogni)ed and protected$
Petitioners, however, contend that #ection :; aims to protect only
the vested rights of indigenous peoples, but not those who are not
members of such communities$ &ollowing their interpretation, IPRA, under
#ection :;, recogni)es the rights of indigenous peoples to their ancestral
lands and ancestral domains, sub/ect to the vested rights of the same
communities to such ancestral lands and ancestral domains #uch
P a g e | $7
interpretation is obviously incorrect$
.he property rights! referred to in #ection :; belong to those
ac+uired by individuals, whether indigenous or non-indigenous peoples$
#aid provision ma*es no distinction as to the ethnic origins of the
ownership of these property rights$! .he IPRA thus recogni)es and
respects vested rights! regardless of whether they pertain to indigenous
or non-indigenous peoples$ 3here the law does not distinguish, the courts
should not distinguish$ 3hat IPRA only re+uires is that these property
rights! already e,ist andor vested upon its effectivity$
&urther, by the enactment of IPRA, 1ongress did not purport to
annul any and all .orrens titles within areas claimed as ancestral lands or
ancestral domains$ .he statute imposes strict procedural re+uirements for
the proper delineation of ancestral lands and ancestral domains as
safeguards against the fraudulent deprivation of any landowner of his
land, whether or not he is member of an indigenous cultural community$
In all proceedings for delineation of ancestral lands and ancestral
domains, the Director of -ands shall appear to represent the interest of the
Republic of the Philippines$ 3ith regard to ancestral domains, the following
procedure is mandatory" first, petition by an indigenous cultural
community, or motu proprio by the 01IP2 second, investigation and
census by the Ancestral domains 4ffice 'LAD4L( of the 01IP2 third,
preliminary report by the AD42 fourth, posting and publication2 and lastl%,
evaluation by the 01IP upon submission of the final report of the AD4$
3ith regard to ancestral lands, unless such lands are within an ancestral
domain, the statute imposes the following procedural re+uirements" first,
application2 second, posting and publication2 third, investigation and
inspection by the AD42 fourth, delineation2 lastly, evaluation by the 01IP
upon submission of a report by the AD4$ Aence, we cannot sustain the
arguments of the petitioners that the law affords no protection to those
who are not indigenous peoples$
0either do the +uestioned sections of IPRA on the composition and
powers and jurisdiction of the 01IP and the application of customary law,
violate the due process clause of the 1onstitution$
Petitioners point out that IPRA provides that the 01IP shall be
composed e,clusively of members of indigenous peoples, and that the
01IP shall have jurisdiction over all claims and disputes involving
indigenous peoples, including even disputes between a member of such
communities and one who is not a member, as well as over disputes in the
delineation of ancestral domains$ Petitioners clarify that they do not claim
that the members of the 01IP are incapable of being fair and impartial
judges$ .hey merely contend that the 01IP will not appear to be impartial,
because a party who is not a member of an indigenous cultural community
who must defend his case against Gone who isH before judges who are all
members of Gindigenous peoplesH cannot but harbor a suspicion that they
do not have the cold neutrality of an impartial judge$!
In addition, petitioners claim that IPRA prescribes that customary
laws shall be applied first in disputes involving property, succession and
land, and that such laws shall li*ewise be used in disputes involving
indigenous peoples$ .hey assert that GwHhen the dispute involves a
member of an Gindigenous cultural community and another who is notH, a
resolution of such a dispute based on customary laws$ $ $ would clearly be
a denial of due process$ $ $ Gbecause those who are not indigenous
peoplesH do not *now what these customary laws are$!
PetitionersI concerns are unfounded$ .he fact that the 01IP is
composed of members of the indigenous peoples does not mean that it
'the 01IP( is incapable, or will appear to be so incapable, of delivering
justice to the non-indigenous peoples$ A personIs possession of the trait
P a g e | $)
of impartiality desirable of a judge has nothing to do with his or her ethnic
roots$ In this wise, the indigenous peoples are as capable of rendering
justice as the non-indigenous peoples for, certainly, the latter have no
monopoly of the concept of justice$
In any case, there are sufficient chec*s in the law against any
abuse by the 01IP of its +uasi-judicial powers$ #ection ;8 states that the
decision of the 01IP shall be appealable to the 1ourt of Appeals by
petition for review$ .he regular remedies under our rules of procedure
are li*ewise available to any party aggrieved by the decision of the 01IP$
Anent the use of customary laws in determining the ownership and
e,tent of ancestral domains, suffice it to say that such is allowed under
paragraph 9, #ection : of Article >II of the 1onstitution$ #aid provision
states, .he 1ongress may provide for the applicability of customary laws
governing property rights and relations in determining the ownership and
e,tent of the ancestral domains$ 0otably, the use of customary laws
under IPRA is not absolute, for the law spea*s merely of primacy of use$
.he IPRA prescribes the application of such customary laws where these
present a wor*able solution acceptable to the parties, who are members
of the same indigenous group$ .his interpretation is supported by #ection
5, Rule I> of the Implementing Rules which states"
R<-C I>$ M<RI#DI1.I40 A0D PR41CD<RC# &4R C0&4R1C/C0. 4&
RI?A.#
#ection 5$ Primacy of 1ustomary -aw$ All conflicts related to ancestral
domains and lands, involving I11sIPs, such as but not limited to conflicting
claims and boundary disputes, shall be resolved by the concerned parties
through the application of customary laws in the area where the disputed
ancestral domain or land is located$
"ll conflicts related to the ancestral domains or lands where one of
the parties is a non,ICC0IP or where the dispute could not be resolved
through customary law shall be heard and ad/udicated in accordance with
the 1ules on Pleadings, Practice and Procedures )efore the 2CIP to be
adopted hereafter$ 'Cmphasis supplied$(
.he application of customary law is limited to disputes
concerning property rights or relations in determining the ownership
and e.tent of the ancestral domains, where all the parties involved are
members of indigenous peoples, specifically, of the same indigenous
group$ It therefore follows that when one of the parties to a dispute is a
non-member of an indigenous group, or when the indigenous peoples
involved belong to different groups, the application of customary law is not
re+uired$
-i*e any other law, the objective of IPRA in prescribing the primacy
of customary law in disputes concerning ancestral lands and domains
where all parties involved are indigenous peoples is justice$ .he utili)ation
of customary laws is in line with the constitutional policy of recogni)ing the
application thereof through legislation passed by 1ongress$
&urthermore, the recognition and use of customary law is not a
novel idea in this jurisdiction$ <nder the 1ivil 1ode, use of customary law
is sanctioned, as long as it is proved as a fact according to the rules of
evidence, and it is not contrary to law, public order or public policy$
/oreover, the -ocal ?overnment 1ode of 5665 calls for the recognition
and application of customary laws to the resolution of issues involving
members of indigenous peoples$ .his law admits the operation of
customary laws in the settling of disputes if such are ordinarily used in
barangays where majority of the inhabitants are members of indigenous
peoples$
P a g e | $(
.. /ection 0, -art II, #ule 1II of te Implementing #ules of I-#" does not
infringe upon te -resident2s power of control over te +,ecutive Department.
.he second corollary issue is whether the Implementing Rules of
IPRA violate #ection 58, Article KII of the 1onstitution, which provides
that"
.he President shall have control of all the e,ecutive departments,
bureaus, and offices$ Ae shall ensure that the laws be faithfully e,ecuted$
.he assailed provision of the Implementing Rules provides"
1ule (II$ .he 0ational 1ommission on Indigenous Peoples '01IP(
, , ,
Part II" 01IP as an Independent Agency <nder the 4ffice of the President
Section %$ .he 01IP is the primary agency of government for the
formulation and implementation of policies, plans and programs to recogni)e,
promote and protect the rights and well-being of indigenous peoples$ It shall be
an independent agency under the 4ffice of the President$ As such, the
administrative relationship of the 3$IP to the &ffice of the President is
characterized as a lateral ut autonomous relationship for purposes of
policy and program coordination. .his relationship shall be carried out through
a system of periodic reporting$ /atters of day-to-day administration or all those
pertaining to internal operations shall be left to the discretion of the 1hairperson
of the 1ommission, as the 1hief C,ecutive 4fficer$
Petitioners asseverate that the aforecited rule infringes upon the
power of control of the President over the 01IP by characteri)ing the
relationship of the 01IP to the 4ffice of the President as lateral but
autonomous$$$for purposes of policy and program coordination$!
Although both #ection FE of the IPRA and #ection 5, Part II, Rule
KII of the Implementing Rules characteri)e the 01IP as an independent
agency under the 4ffice of the President, such characteri)ation does not
remove said body from the PresidentIs control and supervision$
.he 01IP has been designated under IPRA as the primary
government agency responsible for the formulation and implementation of
policies, plans and programs to promote and protect the rights and well
being of the indigenous peoples and the recognition of their ancestral
domain as well as their rights thereto$ It has been granted
administrative, +uasi-legislative and +uasi-judicial powers to carry out
its mandate$ .he diverse nature of the 01IPIs functions renders it
impossible to place said agency entirely under the control of only one
branch of government and this, apparently, is the reason for its
characteri)ation by 1ongress as an independent agency$ An
independent agency! is defined as an administrative body independent
of the e,ecutive branch or one not subject to a superior head of
department, as distinguished from a subordinate agency! or an
administrative body whose action is subject to administrative review or
revision$
.hat 1ongress did not intend to place the 01IP under the control of
the President in all instances is evident in the IPRA itself, which provides
that the decisions of the 01IP in the e,ercise of its +uasi-judicial functions
shall be appealable to the 1ourt of Appeals, li*e those of the 0ational
-abor Relations 1ommission '0-R1( and the #ecurities and C,change
1ommission '#C1($ 0evertheless, the 01IP, although independent to a
certain degree, was placed by 1ongress under the office of the President!
and, as such, is still subject to the PresidentIs power of control and
supervision granted under #ection 58, Article KII of the 1onstitution
with respect to its performance of administrative functions, such as the
following" '5( the 01IP must secure the PresidentIs approval in obtaining
loans to finance its projects2 '9( it must obtain the PresidentIs approval
P a g e | $'
for any negotiation for funds and for the acceptance of gifts andor
properties in whatever from and from whatever source2
iiG56EH
'%( the 01IP
shall submit annual reports of its operations and achievements to the
President, and advise the latter on all matters relating to the indigenous
peoples2 and 'F( it shall e,ercise such other powers as may be directed
by the President$ .he President is also given the power to appoint the
1ommissioners of the 01IP as well as to remove them from office for
cause motu proprio or upon the recommendation of any indigenous
community$
To recapitulate3
'5( .he provisions of the IPRA 'specifically #ections %, paragraphs 'a(
and 'b(, :, ;, 8, and 7( affirming the ownership by the indigenous peoples
of their ancestral lands and domains by virtue of native title do not
diminish the #tateIs ownership of lands of the public domain, because
said ancestral lands and domains are considered as private land, and
never to have been part of the public domain, following the doctrine laid
down in Cario vs. Insular Government2
'9( .he constitutional provision vesting ownership over minerals,
mineral lands and other natural resources in the #tate is not violated by
#ections %, :, 8, :;, :8, :7 and :6 of the IPRA which grant certain rights
to the indigenous peoples over the natural resources found within the
ancestral domains, e$g$, to benefit from and share in the profits from the
allocation and utili)ation of the same, as well as priority rights in the
harvesting, e,traction, development or e,ploitation thereof$ .he #tate
retains full control over the e,ploration, development and utili)ation of
natural resources even with the grant of said rights to the indigenous
peoples, through the imposition of re+uirements and conditions for the
utili)ation of natural resources under e,isting laws, such as the #mall-
#cale /ining Act of 5665 and the Philippine /ining Act of 566:$
/oreover, the rights granted to indigenous peoples for the utili)ation
of natural resources within their ancestral domains merely amplify what
has been earlier granted to them under the aforesaid laws2
'%( 3hile the IPRA recogni)es the rights of indigenous peoples
with regard to their ancestral lands and domains, it also protects the
vested rights of persons, whether indigenous or non-indigenous peoples,
who may have ac+uired rights of ownership lands or rights to e,plore and
e,ploit natural resources within the ancestral lands and domains2
'F( .he Due Process 1lause of the 1onstitution is not violated by the
provisions '#ections FE, :5-:F, ;9, ;%, ;: and ;;( of the IPRA which,
among others, establish the composition of the 01IP, and prescribe the
application of customary law in certain disputes involving indigenous
peoples$ .he fact the 01IP is composed wholly of indigenous peoples
does not mean that it is incapable of being impartial$ /oreover, the use of
customary laws is sanctioned by paragraph 9, #ection : of Article >II of
the 1onstitution2 and
':( .he provision of the Implementing Rules characteri)ing the 01IP
as an independent agency under the 4ffice of the President does not
infringe upon the PresidentIs power of control under #ection 58, Article KII
of the 1onstitution, since said provision as well as #ection FE of the IPRA
e,pressly places the 01IP under the 4ffice of the President, and therefore
under the PresidentIs control and supervision with respect to its
administrative functions$ Aowever, insofar as the decisions of the 01IP in
the e,ercise of its +uasi-judicial powers are concerned, the same are
P a g e | *2
reviewable by the 1ourt of Appeals, li*e those of the 0-R1 and the #C1$
In view of the foregoing, I vote to DI#/I## the petition$
i
Governing Laws on Natral Resorces
A! Constittional "rovisions on Natral Resorces
#! Article $%% of #&'( Constittion)
!*+,-. ,
"!+,/"!- +.**,+/*0
The national territory comprises the *hilippine archipelago, with all the islands
and waters embraced therein, and all other territories over which the *hilippines has
sovereignty or ;urisdiction, consisting of its terrestrial, fluvial and aerial domains,
including its territorial sea, the seabed, the subsoil, the insular shelves, and other
submarine areas. The waters around, between, and connecting the islands of the
archipelago, regardless of their breadth and dimensions, form part of the internal waters
of the *hilippines.
!*+,-. 1,,
"!+,/"!- ./"/20 !"$ &!+*,2/"0
Section 2# $ll lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife,
flora and fauna, and other natural resources are owned by the State. Dith the e'ception
of agricultural lands, all other natural resources shall not be alienated. The e'ploration,
development, and utili2ation of natural resources shall be under the full control and
supervision of the State. The State may directly underta8e such activities, or it may enter
into coAproduction, ;oint venture, or productionAsharing agreements with ?ilipino
citi2ens, or corporations or associations at least =5 per centum of whose capital is owned
by such citi2ens. Such agreements may be for a period not e'ceeding twentyAfive years,
renewable for not more than twentyAfive years, and under such terms and conditions as
may provided by law. 1n cases of water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of waterpower, beneficial use may be the
measure and limit of the grant.
The State shall protect the nations marine wealth in its archipelagic waters,
territorial sea, and e'clusive economic 2one, and reserve its use and en;oyment
e'clusively to ?ilipino citi2ens.
The #ongress may, by law, allow smallAscale utili2ation of natural resources by
?ilipino citi2ens, as well as cooperative fish farming, with priority to subsistence
fishermen and fish wor8ers in rivers, la8es, bays, and lagoons.
The *resident may enter into agreements with foreignAowned corporations
involving either technical or financial assistance for largeAscale e'ploration,
development, and utili2ation of minerals, petroleum, and other mineral oils according to
the general terms and conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. 1n such agreements, the State shall
promote the development and use of local scientific and technical resources.
The *resident shall notify the #ongress of every contract entered into in
accordance with this provision, within thirty days from its e'ecution.
Section 3# /ands of the public domain are classified into agricultural, forest or
timber, mineral lands and national par8s. $gricultural lands of the public domain may
be further classified by law according to the uses to which they may be devoted.
$lienable lands of the public domain shall be limited to agricultural lands. *rivate
corporations or associations may not hold such alienable lands of the public domain
e'cept by lease, for a period not e'ceeding twentyAfive years, renewable for not more
than twentyAfive years, and not to e'ceed one thousand hectares in area. #iti2ens of the
*hilippines may lease not more than five hundred hectares, or ac%uire not more than
twelve hectares thereof, by purchase, homestead, or grant.
Ta8ing into account the re%uirements of conservation, ecology, and
development, and sub;ect to the re%uirements of agrarian reform, the #ongress shall
determine, by law, the si2e of lands of the public domain which may be ac%uired,
developed, held, or leased and the conditions therefor.
Section 4# The #ongress shall, as soon as possible, determine, by law, the
specific limits of forest lands and national par8s, mar8ing clearly their boundaries on the
ground. Thereafter, such forest lands and national par8s shall be conserved and may not
be increased nor diminished, e'cept by law. The #ongress shall provide for such period
as it may determine, measures to prohibit logging in endangered forests and watershed
areas.
Section (# The State, sub;ect to the provisions of this #onstitution and national
development policies and programs, shall protect the rights of indigenous cultural
communities to their ancestral lands to ensure their economic, social, and cultural wellA
being.
The #ongress may provide for the applicability of customary laws governing
property rights or relations in determining the ownership and e'tent of ancestral domain.
Section 7# Save in cases of hereditary succession, no private lands shall be
transferred or conveyed e'cept to individuals, corporations, or associations %ualified to
ac%uire or hold lands of the public domain.
Section 8# &otwithstanding the provisions of Section ! of this $rticle, a naturalA
born citi2en of the *hilippines who has lost his *hilippine citi2enship may be a
transferee of private lands, sub;ect to limitations provided by law.
B. Stattes)
1. Cor 6ands of Public 5omain :6P5; 0 ommonwealth Act :A; 8o. 111
of 8o.ember ), 1'*7 or the Public 6and Act=
$. Cor Einerals 0 :1; Republic Act )'1$ of Earc *, 1''/ or the
Philippine Eining Act of 1''/= :$; Republic Act 8o. )2)7 of Aune $),
1''1 or the PeopleKs Small Scale Eining Act of 1''1=
*. Cor Petroleum 0 Republic Act 8o. *() of Aanuary 1(, 1'1' or the
Petroleum Act of 1'1'=
1. Cor Corest 0 Presidential 5ecree 8o. )2/ of Eay 1', 1')/ or the
Corest Reform ode=
/. Cor Cisheries 0 Presidential 5ecree 8o. )21 of Eay 17, 1')/ or
the Re.ised Cisheries 5ecree of 1')/=
7. Cor Gaters 0 Presidential 5ecree 8o. 127) of 5ecember 1, 1')7 or
the Gater ode=
C! *rispr+ence)
O# E+plorat"o#, Develop!e#t a#)
6t"l"7at"o# 'ED6( of Natral Resorces8
&n adherence to Regalian doctrine, the 1'() onstitution pro.ides that
the State has full control and super.ision in the acti.ities of the
E9P.OR&:1ON, DE;E.OP<EN: a#) 6:1.1=&:1ON 'ED6( of natural
resources. And in furtherance of its full control and super.ision, the
State may either )"rectly #)erta>e these E5+ or enter into co4
pro)ct"o#, ?o"#t ve#tre or pro)ct"o#4s%ar"#/ a/ree!e#ts with
Cilipino citi?ens, or corporations or associations at least si"ty :72L; per
centum of whose capital is owned by Cilipino citi?ens. Such agreements
may be for a period not e"ceeding $/ years, renewable for not more than
$/ years and such terms and conditions as may be pro.ided by law.
&t is also pro.ided that the President may enter into A@REEEE8!S with
Coreign03wned orporations in.ol.ing either !EB8&A6 or C&8A8&A6
ASS&S!A8E for large0scale e"ploration, de.elopment, and utili?ation of minerals,
petroleum, and other mineral oils according to the general terms and conditions
pro.ided by law, based on real contributions to the economic growth and general
welfare of the country. &n such agreements, the State shall promote the
de.elopment and use of local scientific and technical resources. %,ec. ., )rt. 744, 51*6
(onstitution'.
!he interpretation of E5+ and C!AA %8inancial 9echnical )ssistance
)greement' in the onstitution is e"plained in .a 2/al42@laa# :r"bal
&ssoc"at"o#, 1#c., et. al., vs. ;"ctor O. Ra!os, Secretary of DENR, et.
al., G.R. No. 127882, Dece!ber 1, 200-, to ,uote#

All mineral resources are owned by the #tate$ .heir e,ploration,
development and utili)ation 'CD<( must always be subject to the full control and
supervision of the #tate$ /ore specifically, given the inade+uacy of &ilipino
capital and technology in large-scale CD< activities, the #tate may secure the
help of foreign companies in all relevant matters -- especially financial and
technical assistance -- provided that, at all times, the #tate maintains its right of
full control$ .he foreign assistor or contractor assumes all financial, technical
and entrepreneurial ris*s in the CD< activities2 hence, it may be given
reasonable management, operational, mar*eting, audit and other prerogatives
to protect its investments and to enable the business to succeed$
&ull control is not anathematic to day-to-day management by the contractor,
provided that the #tate retains the power to direct overall strategy2 and to set
aside, reverse or modify plans and actions of the contractor$ .he idea of full
control is similar to that which is e,ercised by the board of directors of a private
corporation" the performance of managerial, operational, financial, mar*eting
and other functions may be delegated to subordinate officers or given to
contractual entities, but the board retains full residual control of the business$
3ho or what organ of government actually e,ercises this power of control
on behalf of the #tate= .he 1onstitution is crystal clear" the President$ Indeed,
the 1hief C,ecutive is the official constitutionally mandated to enter into
agreements with foreign owned corporations$! 4n the other hand, 1ongress
may review the action of the President once it is notified of every contract
entered into in accordance with this GconstitutionalH provision within thirty days
from its e,ecution$! In contrast to this e,press mandate of the President and
1ongress in the CD< of natural resources, Article >II of the 1onstitution is silent
on the role of the judiciary$ Aowever, should the President andor 1ongress
gravely abuse their discretion in this regard, the courts may -- in a proper case --
e,ercise their residual duty under Article KIII$ 1learly then, the judiciary should
not inordinately interfere in the e,ercise of this presidential power of control over
the CD< of our natural resources$
.he 1onstitution should be read in broad, life-giving stro*es$ It should not
be used to strangulate economic growth or to serve narrow, parochial interests$
Rather, it should be construed to grant the President and 1ongress sufficient
discretion and reasonable leeway to enable them to attract foreign investments
and e,pertise, as well as to secure for our people and our posterity the
blessings of prosperity and peace$
4n the basis of this control standard, this 1ourt upholds the constitutionality
of the Philippine /ining -aw, its Implementing Rules and Regulations -- insofar as
they relate to financial and technical agreements -- as well as the subject
&inancial and .echnical Assistance Agreement '&.AA($

+ac*ground
.he Petition for Prohibition and /andamus before the 1ourt challenges the
constitutionality of '5( Republic Act 0o$ GRAH 86F9 '.he Philippine /ining Act of
566:(2 '9( its Implementing Rules and Regulations 'DC0R Administrative 4rder
0o$ GDA4H 6;-FE(2 and '%( the &.AA dated /arch %E, 566:, e,ecuted by the
government with 3estern /ining 1orporation 'Philippines(, Inc$ '3/1P($

4n Manuary 98, 9EEF, the 1ourt en &anc promulgated its Decision granting the
Petition and declaring the unconstitutionality of certain provisions of RA 86F9, DA4
6;-FE, as well as of the entire &.AA e,ecuted between the government and 3/1P,
mainly on the finding that &.AAs are service contracts prohibited by the %*4'
Constitution
.he Decision struc* down the subject &.AA for being similar to service
contracts, which, though permitted under the 568% 1onstitution, were subse+uently
denounced for being antithetical to the principle of sovereignty over our natural
resources, because they allowed foreign control over the e,ploitation of our natural
resources, to the prejudice of the &ilipino nation$
.he Decision +uoted several legal scholars and authors who had critici)ed
service contracts for, inter alia, vesting in the foreign contractor e,clusive
management and control of the enterprise, including operation of the field in the
event petroleum was discovered2 control of production, e,pansion and
development2 nearly unfettered control over the disposition and sale of the
products discoverede,tracted2 effective ownership of the natural resource at the
point of e,traction2 and beneficial ownership of our economic resources$
According to the Decision, the 5678 1onstitution '#ection 9 of Article >II(
effectively banned such service contracts$
#ubse+uently, respondents filed separate /otions for Reconsideration$ In a
Resolution dated /arch 6, 9EEF, the 1ourt re+uired petitioners to comment
thereon$ In the Resolution of Mune 7, 9EEF, it set the case for 4ral Argument on
Mune 96, 9EEF$
After hearing the opposing sides, the 1ourt re+uired the parties to submit
their respective /emoranda in amplification of their arguments$ In a Resolution
issued later the same day, Mune 96, 9EEF, the 1ourt noted, inter alia, the
/anifestation and /otion 'in lieu of comment( filed by the 4ffice of the #olicitor
?eneral '4#?( on behalf of public respondents$ .he 4#? said that it was not
interposing any objection to the /otion for Intervention filed by the 1hamber of
/ines of the Philippines, Inc$ '1/P( and was in fact joining and adopting the
latterIs /otion for Reconsideration$
/emoranda were accordingly filed by the intervenor as well as by
petitioners, public respondents, and private respondent, dwelling at length on
the three issues discussed below$ -ater, 3/1P submitted its Reply
/emorandum, while the 4#? -- in obedience to an 4rder of this 1ourt -- filed a
1ompliance submitting copies of more &.AAs entered into by the government$
Three Issues Identified y the $ourt
During the 4ral Argument, the 1ourt identified the three issues to be
resolved in the present controversy, as follows"
5$ Aas the case been rendered moot by the sale of 3/1 shares in 3/1P
to #agittarius ';E percent of #agittariusI e+uity is owned by &ilipinos andor
&ilipino-owned corporations while FE percent is owned by Indophil Resources
0-, an Australian company( and by the subse+uent transfer and registration of
the &.AA from 3/1P to #agittarius=
9$ Assuming that the case has been rendered moot, would it still be proper
to resolve the constitutionality of the assailed provisions of the /ining -aw, DA4
6;-FE and the 3/1P &.AA=
%$ 3hat is the proper interpretation of the phrase "greements Involving
+iter Tecnical or 'inancial "ssistance contained in paragraph F of #ection 9
of Article >II of the 1onstitution=
#hould the 4otion for Reconsideration
+e )ranted5
RespondentsI and intervenorIs /otions for Reconsideration should be
granted, for the reasons discussed below$ .he foregoing three issues identified
by the 1ourt shall now be ta*en up seriatim.
5irst Issue3
4ootness
In declaring unconstitutional certain provisions of RA 86F9, DA4 6;-FE, and
the 3/1P &.AA, the majority Decision agreed with petitionersI contention that
the subject &.AA had been e,ecuted in violation of #ection 9 of Article >II of the
5678 1onstitution$ According to petitioners, the &.AAs entered into by the
government with foreign-owned corporations are limited by the fourth paragraph
of the said provision to agreements involving onl% tecnical or financial
assistance for large-scale e,ploration, development and utili)ation of minerals,
petroleum and other mineral oils$ &urthermore, the foreign contractor is
allegedly permitted by the &.AA in +uestion to fully manage and control the
mining operations and, therefore, to ac+uire beneficial ownership! of our
mineral resources$
.he Decision merely shrugged off the /anifestation by 3/P1 informing the
1ourt '5( that on Manuary 9%, 9EE5, 3/1 had sold all its shares in 3/1P to
#agittarius /ines, Inc$, ;E percent of whose e+uity was held by &ilipinos2 and
'9( that the assailed &.AA had li*ewise been transferred from 3/1P to
#agittarius$ .he ponencia declared that the instant case had not been
rendered moot by the transfer and registration of the &.AA to a &ilipino-owned
corporation, and that the validity of the said transfer remained in dispute and
awaited final judicial determination$ Patently therefore, the Decision is
anchored on the assumption that 3/1P had remained a foreign corporation$
.he cru, of this issue of mootness is the fact that 3/1P, at te time it
entered into te 'T"", happened to be wholly owned by 3/1 Resources
International Pty$, -td$ '3/1(, which in turn was a wholly owned subsidiary of
3estern /ining 1orporation Aoldings -td$, a publicly listed major Australian
mining and e,ploration company$
.he nullity of the &.AA was obviously premised upon the contractor being a
foreign corporation$ Aad the &.AA been originally issued to a &ilipino-owned
corporation, there would have been no constitutionality issue to spea* of$ <pon
the other hand, the conveyance of the 3/1P &.AA to a &ilipino corporation
can be li*ened to the sale of land to a foreigner who subse+uently ac+uires
&ilipino citi)enship, or who later resells the same land to a &ilipino citi)en$ .he
conveyance would be validated, as the property in +uestion would no longer be
owned by a dis+ualified vendee$
And, inasmuch as the &.AA is to be implemented now by a &ilipino
corporation, it is no longer possible for the 1ourt to declare it unconstitutional$
.he case pending in the 1ourt of Appeals is a dispute between two &ilipino
companies '#agittarius and -epanto(, both claiming the right to purchase the
foreign shares in 3/1P$ #o, regardless of which side eventually wins, the
&.AA would still be in the hands of a +ualified &ilipino company$ 1onsidering
that there is no longer any justiciable controversy, the plea to nullify the /ining
-aw has become a virtual petition for declaratory relief, over which this 1ourt
has no original jurisdiction$
In their &inal /emorandum, however, petitioners argue that the case has
not become moot, considering the invalidity of the alleged sale of the shares in
3/1P from 3/1 to #agittarius, and of the transfer of the &.AA from 3/1P to
#agittarius, resulting in the change of contractor in the &.AA in +uestion$ And
even assuming that the said transfers were valid, there still e,ists an actual case
predicated on the invalidity of RA 86F9 and its Implementing Rules and
Regulations 'DA4 6;-FE($ Presently, we shall discuss petitionersI objections to
the transfer of both the shares and the &.AA$ )e sall ta3e up te alleged
invalidit% of #" 4567 and D"O 58-69 later on in te discussion of te tird
issue.
3o Transgression of the $onstitution
y the Transfer of the 64$P #hares
Petitioners claim, first, that the alleged invalidity of the transfer of te
)*C- sares to #agittarius violates the fourth paragraph of #ection 9 of Article
>II of the 1onstitution2 second, that it is contrary to the provisions of the 3/1P
&.AA itself2 and tird, that the sale of the shares is suspect and should
therefore be the subject of a case in which its validity may properly be litigated$
4n the first ground, petitioners assert that paragraph F of #ection 9 of
Article >II permits the government to enter into &.AAs only with foreign-owned
corporations$ Petitioners insist that the first paragraph of this constitutional
provision limits the participation of &ilipino corporations in the e,ploration,
development and utili)ation of natural resources to only three species of
contracts -- production sharing, co-production and joint venture -- to the
e,clusion of all other arrangements or variations thereof, and the 3/1P &.AA
may therefore not be validly assumed and implemented by #agittarius$ In sort,
petitioners claim tat a 'ilipino corporation is not allowed &% te Constitution to
enter into an 'T"" wit te government.
Aowever, a te,tual analysis of the first paragraph of #ection 9 of Article >II
does not support petitionersI argument$ .he pertinent part of the said provision
states" :/ec. 7. , , , Te e,ploration, development and utili(ation of natural
resources sall &e under te full control and supervision of te /tate. Te /tate
ma% directl% underta3e suc activities, or it ma% enter into co-production, joint
venture, or production-saring agreements wit 'ilipino citi(ens, or corporations
or associations at least si,t% per centum of wose capital is owned &% suc
citi(ens. , , ,.; 0owhere in the provision is there any e,press limitation or
restriction insofar as arrangements other than the three aforementioned
contractual schemes are concerned$
0either can one reasonably discern any implied stricture to that effect$
Besides, there is no basis to believe that the framers of the 1onstitution, a
majority of whom were obviously concerned with furthering the development
and utili)ation of the countryIs natural resources, could have wanted to restrict
&ilipino participation in that area$ .his point is clear, especially in the light of the
overarching constitutional principle of giving preference and priority to &ilipinos
and &ilipino corporations in the development of our natural resources$
Besides, even assuming 'purely for argumentIs sa*e( that a constitutional
limitation barring &ilipino corporations from holding and implementing an &.AA
actually e,ists, nevertheless, such provision would apply only to the transfer of
the &.AA to #agittarius, but definitely not to the sale of 3/1Is e+uity sta*e in
3/1P to #agittarius$ 4therwise, an unreasonable curtailment of property
rights without due process of law would ensue$ PetitionersI argument must
therefore fail$
"TAA 3ot Intended
#olely for "oreign $orporation
C+ually barren of merit is the second ground cited by petitioners -- that the
&.AA was intended to apply solely to a foreign corporation, as can allegedly be
seen from the provisions therein$ .hey manage to cite only one 3/1P &.AA
provision that can be regarded as clearly intended to apply only to a foreign
contractor" #ection 59, which provides for international commercial arbitration
under the auspices of the International 1hamber of 1ommerce, after local
remedies are e,hausted$ .his provision, however, does not necessarily imply
that the 3/1P &.AA cannot be transferred to and assumed by a &ilipino
corporation li*e #agittarius, in wic event te said provision sould simpl% &e
disregarded as a superfluit%.
3o 3eed for a #eparate
7itigation of the #ale of #hares
Petitioners claim as third ground the suspicious! sale of shares from 3/1
to #agittarius2 hence, the need to litigate it in a separate case$ #ection FE of RA
86F9 'the /ining -aw( allegedly re+uires the PresidentIs prior approval of a
transfer$
A re-reading of the said provision, however, leads to a different conclusion$
:/ec. 69. Assignment.ransfer -- " financial or tecnical assistance agreement
ma% &e assigned or transferred, in wole or in part, to a <ualified person su&ject
to te prior approval of te -resident= -rovided, Tat te -resident sall notif%
Congress of ever% financial or tecnical assistance agreement assigned or
converted in accordance wit tis provision witin tirt% >?9@ da%s from te date
of te approval tereof.;
/ection 69 e,pressl% applies to te assignment or transfer of te 'T"", not
to te sale and transfer of sares of stoc3 in )*C-$ /oreover, when the
transferee of an &.AA is another foreign corporation, there is a logical
application of the re+uirement of prior approval by the President of the Republic
and notification to 1ongress in the event of assignment or transfer of an &.AA$
In this situation, such approval and notification are appropriate safeguards,
considering that the new contractor is the subject of a foreign government$
4n the other hand, when the transferee of the &.AA happens to be a
'ilipino corporation, the need for such safeguard is not critical2 hence, the lac*
of prior approval and notification may not be deemed fatal as to render the
transfer invalid$ Besides, it is not as if approval by the President is entirely
absent in this instance$ As pointed out by private respondent in its
/emorandum, the issue of approval is the subject of one of the cases brought
by -epanto against #agittarius in ?R 0o$ 5;9%%5$ .hat case involved the
review of the Decision of the 1ourt of Appeals dated 0ovember 95, 9EE% in 1A-
?R #P 0o$ 8F5;5, which affirmed the DC0R 4rder dated December %5, 9EE5
and the Decision of the 4ffice of the President dated Muly 9%, 9EE9, both
approving the assignment of the 3/1P &.AA to #agittarius$
Petitioners also +uestion the sale price and the financial capacity of the
transferee$ According to the Deed of Absolute #ale dated Manuary 9%, 9EE5,
e,ecuted between 3/1 and #agittarius, the price of the 3/1P shares was
fi,ed at <#Q6,78:,EEE, e+uivalent to P::% million at an e,change rate of :;"5$
#agittarius had an authori)ed capital stoc* of P9:E million and a paid up capital
of P;E million$ .herefore, at the time of approval of the sale by the DC0R, the
debt-to-e+uity ratio of the transferee was over 6"5 -- hardly ideal for an &.AA
contractor, according to petitioners$
Aowever, private respondents counter that the Deed of #ale specifically
provides that the payment of the purchase price would ta*e place onl% after
/agittarius2 commencement of commercial production from mining operations, if
at all$ 1onse+uently, under the circumstances, we believe it would not be
reasonable to conclude, as petitioners did, that the transfereeIs high debt-to-
e+uity ratio per se necessarily carried negative implications for the enterprise2
and it would certainly be improper to invalidate the sale on that basis, as
petitioners propose$
"TAA 3ot 8oid,
Thus Transferrale
.o bolster further their claim that the case is not moot, petitioners insist that
the &.AA is void and, hence cannot be transferred2 and that its transfer does
not operate to cure the constitutional infirmity that is inherent in it2 neither will a
change in the circumstances of one of the parties serve to ratify the void
contract$
3hile the discussion in their &inal /emorandum was s*impy, petitioners in
their 1omment 'on the /R( did ratiocinate that this 1ourt had declared the
&.AA to be void because, at the time it was e,ecuted with 3/1P, the latter
was a fully foreign-owned corporation, in which the former vested full control
and management with respect to the e,ploration, development and utili)ation of
mineral resources, contrary to the provisions of paragraph F of #ection 9 of
Article >II of the 1onstitution$ And since the &.AA was per se void, no valid
right could be transferred2 neither could it be ratified, so petitioners conclude$
Petitioners have assumed as fact that which has yet to be established$ 'irst
and foremost, the Decision of this 1ourt declaring the &.AA void has not yet
become final$ .hat was precisely the reason the 1ourt still heard 4ral Argument
in this case$ /econd, the &.AA does not vest in the foreign corporation full
control and supervision over the e,ploration, development and utili)ation of
mineral resources, to the e,clusion of the government$ .his point will be dealt
with in greater detail below2 but for now, suffice it to say that a perusal of the
&.AA provisions will prove that the government has effective overall direction
and control of the mining operations, including mar*eting and product pricing,
and that the contractorIs wor* programs and budgets are subject to its review
and approval or disapproval$
As will be detailed later on, the government does not have to micro-manage
the mining operations and dip its hands into the day-to-day management of the
enterprise in order to be considered as having overall control and direction$
Besides, for practical and pragmatic reasons, there is a need for government
agencies to delegate certain aspects of the management wor* to the
contractor$ .hus the basis for declaring the &.AA void still has to be revisited,
ree,amined and reconsidered$
Petitioners sniff at the citation of Cave( v. -u&lic +states "utorit%, and
Aalili v. C", claiming that the doctrines in these cases are wholly inapplicable to
the instant case$
Cave( clearly teaches" :Tus, te Court as ruled consistentl% tat were
a 'ilipino citi(en sells land to an alien wo later sells te land to a 'ilipino, te
invalidit% of te first transfer is corrected &% te su&se<uent sale to a citi(en.
/imilarl%, were te alien wo &u%s te land su&se<uentl% ac<uires -ilippine
citi(ensip, te sale is validated since te purpose of te constitutional &an to
limit land ownersip to 'ilipinos as &een acieved. In sort, te law disregards
te constitutional dis<ualification of te &u%er to old land if te land is
su&se<uentl% transferred to a <ualified part%, or te &u%er imself &ecomes a
<ualified part%.;
In their 1omment, petitioners contend that in Cave( and Aalili, the object of
the transfer 'the land( was not what was assailed for alleged unconstitutionality$
Rather, it was the transaction that was assailed2 hence subse+uent compliance
with constitutional provisions would cure its infirmity$ In contrast, in the instant
case it is the &.AA itself, the object of the transfer, that is being assailed as
invalid and unconstitutional$ #o, petitioners claim that the subse+uent transfer
of a void &.AA to a &ilipino corporation would not cure the defect$
Petitioners are confusing themselves$ .he present Petition has been filed,
precisely because the grantee of the &.AA was a wholly owned subsidiary of a
foreign corporation$ It cannot be gainsaid that anyone would have asserted that
the same &.AA was void if it had at the outset been issued to a &ilipino
corporation$ .he &.AA, therefore, is not per se defective or unconstitutional$ It
was +uestioned only because it had been issued to an allegedly non-+ualified,
foreign-owned corporation$
3e believe that this case is clearly analogous to Aalili, in which the land
ac+uired by a non-&ilipino was re-conveyed to a +ualified vendee and the
original transaction was thereby cured$ Paraphrasing Aalili, the same rationale
applies to the instant case" assuming arguendo the invalidity of its prior grant to
a foreign corporation, the disputed &.AA -- being now held by a &ilipino
corporation -- can no longer be assailed2 the objective of the constitutional
provision -- to *eep the e,ploration, development and utili)ation of our natural
resources in &ilipino hands -- has been served$
/ore accurately spea*ing, the present situation is one degree better than
that obtaining in Aalili, in which the original sale to a non-&ilipino was clearly and
indisputably violative of the constitutional prohibition and thus void a& initio. In
the present case, the issuancegrant of the subject &.AA to the then foreign-
owned 3/1P was not illegal, void or unconstitutional at the time$ .he matter
had to be brought to court, precisely for adjudication as to whether the &.AA
and the /ining -aw had indeed violated the 1onstitution$ #ince, up to this point,
the decision of this 1ourt declaring the &.AA void has yet to become final, to all
intents and purposes, the &.AA must be deemed valid and constitutional$
At bottom, we find completely outlandish petitionersI contention that an
&.AA could be entered into by the government only with a foreign corporation,
never wit a 'ilipino enterprise$ Indeed, the nationalistic provisions of the
1onstitution are all anchored on the protection of &ilipino interests$ Aow
petitioners can now argue that foreigners have the e,clusive right to &.AAs
totally overturns the entire basis of the Petition -- preference for the &ilipino in
the e,ploration, development and utili)ation of our natural resources$ It does
not ta3e deep 3nowledge of law and logic to understand tat wat te
Constitution grants to foreigners sould &e e<uall% availa&le to 'ilipinos.
Second Issue3
6hether the $ourt $an #till 2ecide the $ase,
9ven Assuming It Is 4oot
All the protagonists are in agreement that the 1ourt has jurisdiction to
decide this controversy, even assuming it to be moot$
Petitioners stress the following points$ 'irst, while a case becomes moot
and academic when :tere is no more actual controvers% &etween te parties or
no useful purpose can &e served in passing upon te merits,; what is at issue
in the instant case is not only the validity of the 3/1P &.AA, but also the
constitutionality of RA 86F9 and its Implementing Rules and Regulations$
/econd, the acts of private respondent cannot operate to cure the law of its
alleged unconstitutionality or to divest this 1ourt of its jurisdiction to decide$
Tird, the 1onstitution imposes upon the #upreme 1ourt the duty to declare
invalid any law that offends the 1onstitution$
Petitioners also argue that no amendatory laws have been passed to ma*e
the /ining Act of 566: conform to constitutional strictures 'assuming that, at
present, it does not(2 that public respondents will continue to implement and
enforce the statute until this 1ourt rules otherwise2 and that the said law
continues to be the source of legal authority in accepting, processing and
approving numerous applications for mining rights$
Indeed, it appears that as of Mune %E, 9EE9, some F% &.AA applications had
been filed with the /ines and ?eosciences Bureau '/?B(, with an aggregate
area of 9,E;F,6E7$;: hectares -- spread over -u)on, the Kisayas and /indanao
-- applied for$ It may be a bit far-fetched to assert, as petitioners do, that each
and every &.AA that was entered into under the provisions of the /ining Act
invites potential litigation! for as long as the constitutional issues are not
resolved with finality$ 0evertheless, we must concede tat tere e,ists te
distinct possi&ilit% tat one or more of te future 'T""s will &e te su&ject of %et
anoter suit grounded on constitutional issues.
But of e+ual if not greater significance is the cloud of uncertainty hanging
over the mining industry, which is even now scaring away foreign investments$
Attesting to this climate of an,iety is the fact that the 1hamber of /ines of the
Philippines saw the urgent need to intervene in the case and to present its
position during the 4ral Argument2 and that #ecretary ?eneral Romulo 0eri of
the 0ational Cconomic Development Authority '0CDA( re+uested this 1ourt to
allow him to spea*, during that 4ral Argument, on the economic conse+uences
of the Decision of Manuary 98, 9EEF$
3e are convinced$ )e now agree tat te Court must recogni(e te
e,ceptional caracter of te situation and te paramount pu&lic interest
involved, as well as te necessit% for a ruling to put an end to te uncertainties
plaguing te mining industr% and te affected communities as a result of dou&ts
cast upon te constitutionalit% and validit% of te *ining "ct, te su&ject 'T""
and future 'T""s, and te need to avert a multiplicit% of suits. Paraphrasing
Gon(ales v. Commission on +lections it is evident that strong reasons of public
policy demand that the constitutionality issue be resolved now$

In further support of the immediate resolution of the constitutionality issue,
public respondents cite "cop v. Guingona,
G9%H
to the effect that the courts will
decide a +uestion -- otherwise moot and academic -- if it is :capa&le of
repetition, %et evading review.;
G9FH
Public respondents as* the 1ourt to avoid a
situation in which the constitutionality issue may again arise with respect to
another &.AA, the resolution of which may not be achieved until after it has
become too late for our mining industry to grow out of its infancy$ .hey also
recall /alonga v. Cru( -ao,
G9:H
in which this 1ourt declared that :>t@e Court
also as te dut% to formulate guiding and controlling constitutional principles,
precepts, doctrines or rules. It as te s%m&olic function of educating te &enc
and &ar on te e,tent of protection given &% constitutional guarantees. , , ,.;
.he mootness of the case in relation to the 3/1P &.AA led the
undersigned ponente to state in his dissent to the Decision that there was no
more justiciable controversy and the plea to nullify the /ining -aw has become
a virtual petition for declaratory relief$
G9;H
.he entry of the 1hamber of /ines of
the Philippines, Inc$, however, has put into focus the seriousness of the
allegations of unconstitutionality of RA 86F9 and DA4 6;-FE which converts the
case to one for prohibition
G98H
in the enforcement of the said law and regulations$
Indeed, this 1/P entry brings to fore that the real issue in this case is
whether paragraph F of #ection 9 of Article >II of the 1onstitution is
contravened by RA 86F9 and DA4 6;-FE, not whether it was violated by specific
acts implementing RA 86F9 and DA4 6;-FE$ G3Hhen an act of the legislative
department is seriously alleged to have infringed the 1onstitution, settling the
controversy becomes the duty of this 1ourt$ By the mere enactment of the
+uestioned law or the approval of the challenged action, the dispute is said to
have ripened into a judicial controversy even without any other overt act$!
G97H
.his
ruling can be traced from Taada v. "ngara,
G96H
in which the 1ourt said"
In see*ing to nullify an act of the Philippine #enate on the ground that it
contravenes the 1onstitution, the petition no doubt raises a justiciable controversy$
)ere an action of te legislative &ranc is seriousl% alleged to ave infringed te
Constitution, it &ecomes not onl% te rigt &ut in fact te dut% of te judiciar% to settle
te dispute.
, , , , , , , , ,
As this 1ourt has repeatedly and firmly emphasi)ed in many cases, it will not
shir*, digress from or abandon its sacred duty and authority to uphold the 1onstitution
in matters that involve grave abuse of discretion brought before it in appropriate cases,
committed by any officer, agency, instrumentality or department of the government$!
G%EH
Additionally, the entry of 1/P into this case has also effectively forestalled
any possible objections arising from the standing or legal interest of the original
parties$
&or all the foregoing reasons, we believe that the 1ourt should proceed to a
resolution of the constitutional issues in this case$
Third Issue3
The Proper Interpretation of the $onstitutional Phrase
1Agreements Involving 9ither Technical or "inancial Assistance
.he constitutional provision at the nucleus of the controversy is paragraph F
of #ection 9 of Article >II of the 5678 1onstitution$ In order to appreciate its
conte,t, #ection 9 is reproduced in full"
:/ec. 7. "ll lands of te pu&lic domain, waters, minerals, coal, petroleum, and
oter mineral oils, all forces of potential energ%, fiseries, forests or tim&er, wildlife,
flora and fauna, and oter natural resources are owned &% te /tate. )it te
e,ception of agricultural lands, all oter natural resources sall not &e alienated. Te
e,ploration, development and utili(ation of natural resources sall &e under te full
control and supervision of te /tate. Te /tate ma% directl% underta3e suc activities,
or it ma% enter into co-production, joint venture or production-saring agreements wit
'ilipino citi(ens or corporations or associations at least si,t% per centum of wose
capital is owned &% suc citi(ens. /uc agreements ma% &e for a period not e,ceeding
twent%-five %ears, renewa&le for not more tan twent%-five %ears, and under suc terms
and conditions as ma% &e provided &% law. In cases of water rigts for irrigation, water
suppl%, fiseries, or industrial uses oter tan te development of water power,
&eneficial use ma% &e te measure and limit of te grant.
:Te /tate sall protect te nation2s marine wealt in its arcipelagic waters,
territorial sea, and e,clusive economic (one, and reserve its use and enjo%ment
e,clusivel% to 'ilipino citi(ens.
:Te Congress ma%, &% law, allow small-scale utili(ation of natural resources &%
'ilipino citi(ens, as well as cooperative fis farming, wit priorit% to su&sistence
fisermen and fis-wor3ers in rivers, la3es, &a%s and lagoons.
:Te -resident ma% enter into agreements wit foreign-owned corporations
involving either technical or financial assistance for large'scale e!ploration,
development, and utilization of minerals, petroleum, and other mineral oils
according to te general terms and conditions provided &% law, &ased on real
contri&utions to te economic growt and general welfare of te countr%. In suc
agreements, te /tate sall promote te development and use of local scientific and
tecnical resources.
:Te -resident sall notif% te Congress of ever% contract entered into in
accordance wit tis provision, witin tirt% da%s from its e,ecution.;
G%5H
3o Restriction of 4eaning y
a (erba 6egis Interpretation
.o interpret the foregoing provision, petitioners adamantly assert that the
language of the 1onstitution should prevail2 that the primary method of
interpreting it is to see* the ordinary meaning of the words used in its
provisions$ .hey rely on rulings of this 1ourt, such as the following"
:Te fundamental principle in constitutional construction owever is tat te
primar% source from wic to ascertain constitutional intent or purpose is te language
of te provision itself. Te presumption is tat te words in wic te constitutional
provisions are couced e,press te o&jective sougt to &e attained. In oter words,
verba legis prevails. Onl% wen te meaning of te words used is unclear and
e<uivocal sould resort &e made to e,traneous aids of construction and interpretation,
suc as te proceedings of te Constitutional Commission or Convention to sed ligt
on and ascertain te true intent or purpose of te provision &eing construed.;
G%9H
Kery recently, in 'rancisco v. Te Aouse of #epresentatives,
G%%H
this 1ourt
indeed had the occasion to reiterate the well-settled principles of constitutional
construction"
:'irst, verba legis, tat is, werever possi&le, te words used in te Constitution
must &e given teir ordinar% meaning e,cept were tecnical terms are emplo%ed. , ,
,.
, , , , , , , , ,
:/econd, were tere is am&iguit%, ratio legis est anima. Te words of te
Constitution sould &e interpreted in accordance wit te intent of its framers. , , ,.
, , , , , , , , ,
:'inall%, ut magis valeat +uam pereat$ Te Constitution is to &e interpreted as a
wole.;
G%FH
&or ease of reference and in consonance with ver&a legis, we reconstruct
and stratify the afore+uoted #ection 9 as follows"
5$ All natural resources are owned by the #tate$ C,cept for agricultural lands,
natural resources cannot be alienated by the #tate$
9$ .he e,ploration, development and utili)ation 'CD<( of natural resources shall be
under the full control and supervision of the #tate$
%$ .he #tate may underta*e these CD< activities through either of the following"
'a( By itself directly and solely
'b( By 'i( co-production2 'ii( joint venture2 or 'iii( production sharing agreements with
&ilipino citi)ens or corporations, at least ;E percent of the capital of which is owned by
such citi)ens
F$ /mall-scale utili)ation of natural resources may be allowed by law in favor of
&ilipino citi)ens$
:$ &or large-scale CD< of minerals, petroleum and other mineral oils, the President
may enter into agreements with foreign-owned corporations involving either technical
or financial assistance according to the general terms and conditions provided by law ,
, ,$!
0ote that in all the three foregoing mining activities -- e,ploration,
development and utili(ation -- the #tate may underta*e such CD< activities by
itself or in tandem with &ilipinos or &ilipino corporations, e,cept in two instances"
first, in small-scale utili)ation of natural resources, which &ilipinos may be
allowed by law to underta*e2 and second, in large-scale CD< of minerals,
petroleum and mineral oils, which may be underta*en by the #tate via
agreements wit foreign-owned corporations involving eiter tecnical or
financial assistance! as provided by law$
Petitioners claim that the phrase :agreements , , , involving eiter
tecnical or financial assistance; simply means technical assistance or financial
assistance agreements, nothing more and nothing else$ .hey insist that there is
no ambiguity in the phrase, and that a plain reading of paragraph F +uoted
above leads to the inescapable conclusion that what a foreign-owned
corporation may enter into with the government is merely an agreement for
eiter financial or technical assistance onl%, for the large-scale e,ploration,
development and utili)ation of minerals, petroleum and other mineral oils2 such
a limitation, they argue, e,cludes foreign management and operation of a
mining enterprise$
G%:H

.his restrictive interpretation, petitioners believe, is in line with the general
policy enunciated by the 1onstitution reserving to &ilipino citi)ens and
corporations the use and enjoyment of the countryIs natural resources$ .hey
maintain that this 1ourtIs Decision
G%;H
of Manuary 98, 9EEF correctly declared the
3/1P &.AA, along with pertinent provisions of RA 86F9, void for allowing a
foreign contractor to have direct and e,clusive management of a mining
enterprise$ Allowing such a privilege not only runs counter to the full control
and supervision! that the #tate is constitutionally mandated to e,ercise over the
e,ploration, development and utili)ation of the countryIs natural resources2
doing so also vests in the foreign company beneficial ownership! of our mineral
resources$ It will be recalled that the Decision of Manuary 98, 9EEF )eroed in on
management or other forms of assistance! or other activities associated with
the service contracts! of the martial law regime, since :te management or
operation of mining activities &% foreign contractors, wic is te primar% feature
of service contracts, was precisel% te evil tat te drafters of te 05B4
Constitution sougt to eradicate.;
4n the other hand, the intervenor
G%8H
and public respondents argue that the
&.AA allowed by paragraph F is not merely an agreement for supplying limited
and specific financial or technical services to the #tate$ Rather, such &.AA is a
comprehensive agreement for the foreign-owned corporationIs integrated
e,ploration, development and utili)ation of mineral, petroleum or other mineral
oils on a large-scale basis$ .he agreement, therefore, authori)es the foreign
contractorIs rendition of a whole range of integrated and comprehensive
services, ranging from the discovery to the development, utili)ation and
production of minerals or petroleum products$
3e do not see how applying a strictly literal or ver&a legis interpretation of
paragraph F could ine,orably lead to the conclusions arrived at in the ponencia.
'irst, the draftersI choice of words -- their use of the phrase agreements , , ,
involving eiter tecnical or financial assistance -- does not indicate the intent
to e,clude other modes of assistance$ .he drafters opted to use involving when
they could have simply said agreements for financial or tecnical assistance, if
that was their intention to begin with$ In this case, the limitation would be very
clear and no further debate would ensue$
In contrast, the use of the word involving! signifies the possibility of the
inclusion of other forms of assistance or activities having to do with,
otherwise related to or compatible with financial or technical assistance$ .he
word involving! as used in this conte,t has three connotations that can be
differentiated thus" one, the sense of concerning,! having to do with,! or
affecting!2 two, entailing,! re+uiring,! implying! or necessitating!2 and tree,
including,! containing! or comprising$!
G%7H
Plainly, none of the three connotations convey a sense of e,clusivity$
/oreover, the word involving,! when understood in the sense of including,! as
in including tecnical or financial assistance, necessarily implies that there are
activities oter tan those that are being included $ In other words, if an
agreement includes technical or financial assistance, there is apart from such
assistance -- something else already in, and covered or may be covered by, the
said agreement$
In short, it allows for the possibility that matters, other than those e,plicitly
mentioned, could be made part of the agreement$ .hus, we are now led to the
conclusion that the use of the word involving! implies that these agreements
with foreign corporations are not limited to mere financial or technical
assistance$ .he difference in sense becomes very apparent when we ju,tapose
agreements for technical or financial assistance! against agreements
including technical or financial assistance$! .his much is unalterably clear in a
ver&a legis approach$
/econd, if the real intention of the drafters was to confine foreign
corporations to financial or technical assistance and nothing more, their
language would have certainly been so unmistakably restrictive and
stringent as to leave no doubt in anyoneIs mind about their true intent$ &or
e,ample, they would have used the sentence foreign corporations are
asolutely prohiited from involvement in te management or operation of
mining or similar ventures or words of similar import$ A search for such
stringent wording yields negative results$ Thus, we come to the inevitale
conclusion that there was a conscious and delierate decision to avoid
the use of restrictive wording that espea*s an intent not to use the
e!pression 1agreements ! ! ! involving either technical or financial
assistance in an e!clusionary and limiting manner.
2eletion of 1#ervice $ontracts to
Avoid Pitfalls of Previous $onstitutions,
3ot to +an #ervice $ontracts Per #e
.hird, we do not see how a ver&a legis approach leads to the conclusion
that :te management or operation of mining activities &% foreign contractors,
wic is te primar% feature of service contracts, was precisel% te evil tat te
drafters of te 05B4 Constitution sougt to eradicate.; 0owhere in the above-
+uoted #ection can be discerned the objective to *eep out of foreign hands the
management or operation of mining activities or the plan to eradicate service
contracts as these were understood in the 568% 1onstitution$ #till, petitioners
maintain that the deletion or omission from the 5678 1onstitution of the term
service contracts! found in the 568% 1onstitution sufficiently proves the draftersI
intent to e,clude foreigners from the management of the affected enterprises$
.o our mind, however, such intent cannot be definitively and conclusively
established from the mere failure to carry the same e,pression or term over to
the new 1onstitution, absent a more specific, e,plicit and une+uivocal statement
to that effect$ 3hat petitioners see* 'a complete ban on foreign participation in
the management of mining operations, as previously allowed by the earlier
1onstitutions( is nothing short of bringing about a momentous sea change in the
economic and developmental policies2 and the fundamentally capitalist, free-
enterprise philosophy of our government$ 3e cannot imagine such a radical
sift being underta*en by our government, to the great prejudice of the mining
sector in particular and our economy in general, merely on the basis of the
omission of the terms service contract from or the failure to carry them over to
the new 1onstitution$ .here has to be a much more definite and even
unarguable basis for such a drastic reversal of policies$
'ourt, a literal and restrictive interpretation of paragraph F, such as that
proposed by petitioners, suffers from certain internal logical inconsistencies that
generate ambiguities in the understanding of the provision$ As the intervenor
pointed out, there has never been any constitutional or statutory provision that
reserved to &ilipino citi)ens or corporations, at least ;E percent of which is
&ilipino-owned, the rendition of financial or technical assistance to companies
engaged in mining or the development of any other natural resource$ .he
ta*ing out of foreign-currency or peso-denominated loans or any other *ind of
financial assistance, as well as the rendition of technical assistance -- whether
to the #tate or to any other entity in the Philippines -- has never been restricted
in favor of &ilipino citi)ens or corporations having a certain minimum percentage
of &ilipino e+uity$ #uch a restriction would certainly be preposterous and
unnecessary$ As a matter of fact, financial, and even technical assistance,
regardless of the nationality of its source, would be welcomed in the mining
industry anytime with open arms, on account of the dearth of local capital and
the need to continually update technological *now-how and improve technical
s*ills$
.here was therefore no need for a constitutional provision specifically
allowing foreign-owned corporations to render financial or technical assistance,
whether in respect of mining or some other resource development or
commercial activity in the Philippines$ The last point needs to be
emphasi-ed3 if merely financial or technical assistance agreements are
allowed, there would be no need to limit them to large'scale mining
operations, as there would be far greater need for them in the smaller,
scale mining activities 7and even in non,mining areas8 Obviously, the
provision in question was intended to refer to agreements other than
those for mere financial or technical assistance
In li*e manner, there would be no need to re+uire the President of the
Republic to report to 1ongress, if only financial or technical assistance
agreements are involved$ #uch agreements are in the nature of foreign loans
that -- pursuant to #ection 9E of Article KII
G%6H
of the 5678 1onstitution -- the
President may contract or guarantee, merely with the prior concurrence of the
/onetary Board$ In turn, the Board is re+uired to report to 1ongress witin
tirt% da%s from te end of ever% <uarter of te calendar %ear, not thirty days
after the agreement is entered into$
And if paragraph F permits only agreements for loans and other forms of
financial, or technical assistance, what is the point of re+uiring that they be
&ased on real contri&utions to te economic growt and general welfare of te
countr%= &or instance, how is one to measure and assess the real
contributions! to the economic growth! and general welfare! of the country that
may ensue from a foreign-currency loan agreement or a technical-assistance
agreement for, say, the refurbishing of an e,isting power generating plant for a
mining operation somewhere in /indanao= #uch a criterion would ma*e more
sense when applied to a major business investment in a principal sector of the
industry$
.he conclusion is clear and inescapable -- a ver&a legis construction shows
that paragraph F is not to be understood as one limited only to foreign loans 'or
other forms of financial support( and to technical assistance$ .here is definitely
more to it than that$ These are provisions permitting participation by
foreign companies9 requiring the President:s report to Congress9 and
using, as yardstick, contributions based on economic growth and general
welfare These were neither accidentally inserted into the Constitution nor
carelessly cobbled together by the drafters in lip service to shallow
nationalism .he provisions patently have significance and usefulness in a
conte,t that allows agreements with foreign companies to include more than
mere financial or technical assistance$
'ift, it is argued that #ection 9 of Article >II authori)es nothing more than a
rendition of specific and limited financial service or technical assistance by a
foreign company$ .his argument begs the +uestion .o whom or for whom
would it be rendered!= or 3ho is being assisted= If the answer is .he #tate,!
then it necessarily implies that the #tate itself is the one directl% and solel%
underta*ing the large-scale e,ploration, development and utili)ation of a mineral
resource, so it follows that the #tate must itself bear the liability and cost of
repaying the financing sourced from the foreign lender andor of paying
compensation to the foreign entity rendering technical assistance$
Aowever, it is of common *nowledge, and of judicial notice as well, that the
government is and has for many many years been financially strapped, to the
point that even the most essential services have suffered serious curtailments --
education and health care, for instance, not to mention judicial services -- have
had to ma*e do with inade+uate budgetary allocations$ .hus, government has
had to resort to build-operate-transfer and similar arrangements with the private
sector, in order to get vital infrastructure projects built without any governmental
outlay$
.he very recent brouhaha over the gargantuan fiscal crisis! or budget
deficit! merely confirms what the ordinary citi)en has suspected all along$ After
the reality chec*, one will have to admit the implausibility of a direct underta*ing
-- by the #tate itself -- of large-scale e,ploration, development and utili)ation of
minerals, petroleum and other mineral oils$ #uch an underta*ing entails not
only humongous capital re+uirements, but also the attendant ris* of never
finding and developing economically viable +uantities of minerals, petroleum
and other mineral oils$
GFEH
It is e+ually difficult to imagine that such a provision restricting foreign
companies to the rendition of only financial or technical assistance to the
government was deliberately crafted by the drafters of the 1onstitution, who
were all well aware of the capital-intensive and technology-oriented nature of
large-scale mineral or petroleum e,traction and the countryIs deficiency in
precisely those areas$
GF5H
.o say so would be tantamount to asserting that the
provision was purposely designed to ladle the large-scale development and
utili)ation of mineral, petroleum and related resources with impossible
conditions2 and to remain forever and permanently reserved! for future
generations of &ilipinos$
A 4ore Reasonale 7oo*
at the $harter0s Plain 7anguage
/i,t, we shall now loo* closer at the plain language of the 1harter and
e,amining the logical inferences$ .he drafters chose to emphasi)e and
highlight agreements , , , involving eiter tecnical or financial assistance in
relation to foreign corporationsI participation in large-scale CD<$ .he inclusion
of this clause on technical or financial assistance! recogni)es the fact that
foreign business entities and multinational corporations are the ones with the
resources and *now-how to provide technical andor financial assistance of the
magnitude and type re+uired for large-scale e,ploration, development and
utili)ation of these resources$
.he drafters -- whose ran*s included many academicians, economists,
businessmen, lawyers, politicians and government officials -- were not
unfamiliar with the practices of foreign corporations and multinationals$
0either were they so naRve as to believe that these entities would provide
assistance! without conditionalities or some <uid pro <uo$ Definitely, as
business persons well *now and as a matter of judicial notice, this matter is not
just a +uestion of signing a promissory note or e,ecuting a technology transfer
agreement$ &oreign corporations usually re+uire that they be given a say in the
management, for instance, of day-to-day operations of the joint venture$ .hey
would demand the appointment of their own men as, for e,ample, operations
managers, technical e,perts, +uality control heads, internal auditors or
comptrollers$ &urthermore, they would probably re+uire seats on the Board of
Directors -- all these to ensure the success of the enterprise and the repayment
of the loans and other financial assistance and to ma*e certain that the funding
and the technology they supply would not go to waste$ <ltimately, they would
also want to protect their business reputation and bottom lines$
GF9H
In short, the drafters will have to be credited with enough pragmatism and
savvy to *now that these foreign entities will not enter into such agreements
involving assistance! without re+uiring arrangements for the protection of their
investments, gains and benefits$
.hus, by specifying such agreements involving assistance,! the drafters
necessarily gave implied assent to everything that these agreements
necessarily entailed2 or that could reasonably be deemed necessary to ma*e
them tenable and effective, including management authority with respect to the
day-to-day operations of the enterprise and measures for the protection of the
interests of the foreign corporation, PR4KIDCD .AA. Philippine sovereignty
over natural resources and full control over the enterprise underta*ing the CD<
activities remain firmly in the #tate$
Petitioners0 Theory 2eflated y the
Asence of $losing'&ut Rules or )uidelines
/event and final point regarding the plain-language approach, one of the
practical difficulties that results from it is the fact that there is nothing by way of
transitory provisions that would serve to confirm the theory that the omission of
the term service contract! from the 5678 1onstitution signaled the demise of
service contracts$
.he framers *new at the time they were deliberating that there were various
service contracts e,tant and in force and effect, including those in the petroleum
industry$ /any of these service contracts were long-term '9: years( and had
several more years to run$ If te% ad meant to &an service contracts
altogeter, te% would ave ad to provide for te termination or pretermination
of te e,isting contracts. "ccordingl%, te% would ave supplied te specifics
and te when and how of effecting te e,tinguisment of tese e,isting
contracts >or at least te mecanics for determining tem@C and of putting in
place te means to address te just claims of te contractors for compensation
for teir investments, lost opportunities, and so on, if not for te recover%
tereof.
If the framers had intended to put an end to service contracts, they would
have at least left specific instructions to 1ongress to deal with these closing-out
issues, perhaps by way of general guidelines and a timeline within which to
carry them out$ .he following are some e,tant e,amples of such transitory
guidelines set forth in Article >KIII of our 1onstitution"
:/ection 7?. "dvertising entities affected &% paragrap >7@, /ection 00 of "rticle D1I of
tis Constitution sall ave five %ears from its ratification to compl% on a graduated and
proportionate &asis wit te minimum 'ilipino ownersip re<uirement terein.
, , , , , , , , ,
:/ection 7E. "fter te e,piration in 0550 of te "greement &etween te #epu&lic of te
-ilippines and te Fnited /tates of "merica concerning militar% &ases, foreign militar%
&ases, troops, or facilities sall not &e allowed in te -ilippines e,cept under a treat%
dul% concurred in &% te /enate and, wen te Congress so re<uires, ratified &% a
majorit% of te votes cast &% te people in a national referendum eld for tat purpose,
and recogni(ed as a treat% &% te oter contracting /tate.
:/ection 78. Te autorit% to issue se<uestration or free(e orders under -roclamation
Go. ? dated *arc 7E, 05B8 in relation to te recover% of ill-gotten wealt sall remain
operative for not more tan eigteen monts after te ratification of tis Constitution.
Aowever, in te national interest, as certified &% te -resident, te Congress ma%
e,tend suc period.
" se<uestration or free(e order sall &e issued onl% upon sowing of a prima facie
case. Te order and te list of te se<uestered or fro(en properties sall fortwit &e
registered wit te proper court. 'or orders issued &efore te ratification of tis
Constitution, te corresponding judicial action or proceeding sall &e filed witin si,
monts from its ratification. 'or tose issued after suc ratification, te judicial action or
proceeding sall &e commenced witin si, monts from te issuance tereof.
Te se<uestration or free(e order is deemed automaticall% lifted if no judicial action or
proceeding is commenced as erein provided.;
:;-<
It is inconceivable that the drafters of the 1onstitution would leave such an
important matter -- an e,pression of sovereignty as it were -- indefinitely
hanging in the air in a formless and ineffective state$ Indeed, the complete
absence of even a general framewor* only serves to further deflate petitionersI
theory, li*e a childIs balloon losing its air$
<nder the circumstances, the logical inconsistencies resulting from
petitionersI literal and purely ver&a legis approach to paragraph F of #ection 9 of
Article >II compel a resort to other aids to interpretation$
Petitioners0 Posture Also 3egated
y 1atio 6egis ;t "nima
.hus, in order to resolve te inconsistencies, incongruities and am&iguities
encountered and to suppl% te deficiencies of te plain-language approac,
tere is a need for recourse to te proceedings of te 05B8 Constitutional
Commission. .here is a need for ratio legis et anima.
#ervice $ontracts 3ot
12econstitutionalized
Pertinent portions of the deliberations of the members of the 1onstitutional
1ommission '1on1om( conclusively show that they discussed agreements
involving eiter tecnical or financial assistance in the same breadth as service
contracts and used the terms interchangeably$ .he following e,change
between 1ommissioner Mamir 'sponsor of the provision( and 1ommissioner
#uare) irrefutably proves that the agreements involving technical or financial
assistance! were none other than service contracts$
.AC PRC#IDC0.$ 1ommissioner Mamir is recogni)ed$ 3e are still on #ection %$
/R$ MA/IR$ Nes, /adam President$ 3ith respect to the second paragraph of #ection %,
my amendment by substitution reads" .AC PRC#IDC0. /AN C0.CR I0.4
A?RCC/C0.# 3I.A &4RCI?0-430CD 14RP4RA.I40# I0K4-KI0? CI.ACR
.C1A0I1A- 4R &I0A01IA- A##I#.A01C &4R -AR?C-#1A-C C>P-4RA.I40,
DCKC-4P/C0. A0D <.I-IOA.I40 4& 0A.<RA- RC#4<R1C# A114RDI0? .4
.AC .CR/# A0D 140DI.I40# PR4KIDCD BN -A3$
/R$ KI--C?A#$ .he 1ommittee accepts the amendment$ 1ommissioner #uare) will give
the bac*ground$
/R$ MA/IR$ .han* you$
.AC PRC#IDC0.$ 1ommissioner #uare) is recogni)ed$
/R$ #<ARCO$ .han* you, /adam President$
3ill 1ommissioner Mamir answer a few clarificatory +uestions=
/R$ MA/IR$ Nes, /adam President$
/R$ #<ARCO$ .his particular portion of the section has reference to what was popularly
known before as service contracts, among other things, is that correct=
/R$ MA/IR$ Nes, /adam President$
/R$ #<ARCO$ As it is formulated, the President may enter into service contracts but
subject to the guidelines that may be promulgated by 1ongress=
/R$ MA/IR$ .hat is correct$
/R$ #<ARCO$ .herefore, that aspect of negotiation and consummation will fall on the
President, not upon 1ongress=
/R$ MA/IR$ .hat is also correct, /adam President$
/R$ #<ARCO$ C,cept that all of these contracts, service or otherwise, must be made
strictly in accordance with guidelines prescribed by 1ongress=
/R$ MA/IR$ .hat is also correct$
/R$ #<ARCO$ And the ?entleman is thin*ing in terms of a law that uniformly covers
situations of the same nature=
/R$ MA/IR$ .hat is 5EE percent correct$
/R$ #<ARCO$ I than* the 1ommissioner$
/R$ MA/IR$ .han* you very much$
GFFH
.he following e,change leaves no doubt that the commissioners *new
e,actly what they were dealing with" service contracts$
.AC PRC#IDC0.$ 1ommissioner ?ascon is recogni)ed$
/R$ ?A#140$ 1ommissioner Mamir had proposed an amendment with regard to special
service contracts which was accepted by the 1ommittee$ #ince the 1ommittee has
accepted it, I would li*e to as* some +uestions$
.AC PRC#IDC0.$ 1ommissioner ?ascon may proceed$
/R$ ?A#140$ As it is proposed now, such service contracts will be entered into by the
President with the guidelines of a general law on service contract to be enacted by
1ongress$ Is that correct=
/R$ KI--C?A#$ .he 1ommissioner is right, /adam President$
/R$ ?A#140$ According to the original proposal, if the President were to enter into a
particular agreement, he would need the concurrence of 1ongress$ 0ow that it has
been changed by the proposal of 1ommissioner Mamir in that 1ongress will set the
general law to which the President shall comply, the President will, therefore, not need
the concurrence of 1ongress every time he enters into service contracts$ Is that
correct=
/R$ KI--C?A#$ .hat is right$
/R$ ?A#140$ .he proposed amendment of 1ommissioner Mamir is in indirect contrast to
my proposed amendment, so I would li*e to object and present my proposed
amendment to the body$
, , , , , , , , ,
/R$ ?A#140$ Nes, it will be up to the body$
I feel that the general law to be set by 1ongress as regard service contract agreements
which the President will enter into might be too general or since we do not *now the
content yet of such a law, it might be that certain agreements will be detrimental to the
interest of the &ilipinos$ .his is in direct contrast to my proposal which provides that
there be effective constraints in the implementation of service contracts$
#o instead of a general law to be passed by 1ongress to serve as a guideline to the
President when entering into service contract agreements, I propose that every
service contract entered into by the President would need the concurrence of
1ongress, so as to assure the &ilipinos of their interests with regard to the issue in
#ection % on all lands of the public domain$ /y alternative amendment, which we will
discuss later, reads" .AA. .AC PRC#IDC0. #AA-- C0.CR I0.4 #<1A
A?RCC/C0.# 40-N 3I.A .AC 1401<RRC01C 4& .34-.AIRD# K4.C 4& A--
.AC /C/BCR# 4& 140?RC## #I..I0? #CPARA.C-N$
, , , , , , , , ,
/R$ BC0?O40$ .he reason we made that shift is that we reali)ed the original proposal
could breed corruption$ By the way, this is not just confined to service contracts but
also to financial assistance$ If we are going to ma*e every single contract subject to
the concurrence of 1ongress P which, according to the 1ommissionerIs amendment is
the concurrence of two-thirds of 1ongress voting separately P then '5( there is a very
great chance that each contract will be different from another2 and '9( there is a great
temptation that it would breed corruption because of the great lobbying that is going to
happen$ And we do not want to subject our legislature to that$
0ow, to answer the 1ommissionerIs apprehension, by general law,! we do not
mean statements of motherhood$ 1ongress can build all the restrictions that it wishes
into that general law so that every contract entered into by the President under that
specific area will have to be uniform$ .he President has no choice but to follow all the
guidelines that will be provided by law$
/R$ ?A#140$ But my basic problem is that we do not *now as of yet the contents of such
a general law as to how much constraints there will be in it$ And to my mind, although
the 1ommitteeIs contention that the regular concurrence from 1ongress would subject
1ongress to e,tensive lobbying, I thin* that is a ris* we will have to ta*e since
1ongress is a body of representatives of the people whose membership will be
changing regularly as there will be changing circumstances every time certain
agreements are made$ It would be best then to *eep in tab and attuned to the interest
of the &ilipino people, whenever the President enters into any agreement with regard to
such an important matter as technical or financial assistance for large,scale
e.ploration, development and utili-ation of natural resources or service
contracts, the peopleIs elected representatives should be on top of it$
, , , , , , , , ,
/R$ 4P-C$ /adam President, we do not need to suspend the session$ If 1ommissioner
?ascon needs a few minutes, I can fill up the remaining time while he completes his
proposed amendment$ I just wanted to as* 1ommissioner Mamir whether he would
entertain a minor amendment to his amendment, and it reads as follows" .AC
PRC#IDC0. #AA-- #<B#CS<C0.-N 04.I&N 140?RC## 4& CKCRN S;1(IC;
CO2T1"CT C0.CRCD I0.4 I0 A114RDA01C 3I.A .AC ?C0CRA- -A3$ I thin*
the reason is, if I may state it briefly, as 1ommissioner Beng)on said, 1ongress can
always change the general law later on to conform to new perceptions of standards that
should be built into service contracts$ But the only way 1ongress can do this is if
there were a notification re+uirement from the 4ffice of the President that such service
contracts had been entered into, subject then to the scrutiny of the /embers of
1ongress$ .his pertains to a situation where the service contracts are already
entered into, and all that this amendment see*s is the reporting re+uirement from the
4ffice of the President$ 3ill 1ommissioner Mamir entertain that=
/R$ MA/IR$ I will gladly do so, if it is still within my power$
/R$ KI--C?A#$ Nes, the 1ommittee accepts the amendment$
, , , , , , , , ,
#R$ .A0$ /adam President, may I as* a +uestion=
.AC PRC#IDC0.$ 1ommissioner .an is recogni)ed$
#R$ .A0$ Am I correct in thin*ing that the only difference between these future service
contracts and the past service contracts under /r$ /arcos is the general law to be
enacted by the legislature and the notification of 1ongress by the President= .hat is
the only difference, is it not=
/R$ KI--C?A#$ .hat is right$
#R$ .A0$ #o those are the safeguards$
/R$ KI--C?A#$ Nes$ .here was no law at all governing service contracts before$
#R$ .A0$ .han* you, /adam President$
GF:H

4ore Than 4ere "inancial
and Technical Assistance
9ntailed y the Agreements
.he clear words of 1ommissioner Mose 0$ 0olledo +uoted below e,plicitly
and elo+uently demonstrate that the drafters *new that the agreements with
foreign corporations were going to entail not mere technical or financial
assistance but, rather, foreign investment in and management of an enterprise
involved in large-scale e,ploration, development and utili(ation of minerals,
petroleum, and oter mineral oils.
.AC PRC#IDC0.$ 1ommissioner 0olledo is recogni)ed$
/R$ 04--CD4$ /adam President, I have the permission of the Acting &loor -eader to
spea* for only two minutes in favor of the amendment of 1ommissioner ?ascon$
.AC PRC#IDC0.$ 1ommissioner 0olledo may proceed$
/R$ 04--CD4$ 3ith due respect to the members of the 1ommittee and 1ommissioner
Mamir, I am in favor of the objection of 1ommissioner ?ascon$
/adam President, I was one of those who refused to sign the 568% 1onstitution,
and one of the reasons is that there were many provisions in the .ransitory Provisions
therein that favored aliens$ I was shoc*ed when I read a provision authori)ing service
contracts while we, in this 1onstitutional 1ommission, provided for &ilipino control of
the economy$ 3e are, therefore, providing for e,ceptional instances where aliens may
circumvent &ilipino control of our economy$ And one way of circumventing the rule in
favor of &ilipino control of the economy is to recogni)e service contracts$
As far as I am concerned, if I should have my own way, I am for the complete
deletion of this provision$ <owever, we are presenting a compromise in the sense
that we are re+uiring a two-thirds vote of all the /embers of 1ongress as a safeguard$
I thin* we should not mistrust the future /embers of 1ongress by saying that the
purpose of this provision is to avoid corruption$ 3e cannot claim that they are less
patriotic than we are$ I thin* the /embers of this 1ommission should *now that
entering into service contracts is an e,ception to the rule on protection of natural
resources for the interest of the nation, and therefore, being an e,ception it should be
subject, whenever possible, to stringent rules$ It seems to me that we are liberali)ing
the rules in favor of aliens$
I say these things with a heavy heart, /adam President$ I do not claim to be a
nationalist, but I love my country$ "lthough we need investments, we must adopt
safeguards that are truly reflective of the sentiments of the people and not mere
cosmetic safeguards as they now appear in the Mamir amendment$ 'Applause(
.han* you, /adam President$
GF;H
Another e,cerpt, featuring then 1ommissioner 'now 1hief Mustice( Ailario ?$
Davide Mr$, indicates the limitations of the scope of such service contracts --
te% are valid onl% in regard to minerals, petroleum and oter mineral oils, not to
all natural resources.
.AC PRC#IDC0.$ 1ommissioner Davide is recogni)ed$
/R$ DAKIDC$ .han* you, /adam President$ .his is an amendment to the Mamir
amendment and also to the 4ple amendment$ I propose to delete 0A.<RA-
RC#4<R1C#! and substitute it with the following" /I0CRA-#, PC.R4-C</ A0D
4.ACR /I0CRA- 4I-#$ 4n the 4ple amendment, I propose to add" .AC
04.I&I1A.I40 .4 140?RC## #AA-- BC 3I.AI0 .AIR.N DAN# &R4/ .AC
C>C1<.I40 4& .AC #CRKI1C 140.RA1.$
.AC PRC#IDC0.$ 3hat does the 1ommittee say with respect to the first amendment in
lieu of 0A.<RA- RC#4<R1C#!=
/R$ KI--C?A#$ 1ould 1ommissioner Davide e,plain that=
/R$ DAKIDC$ /adam President, with the use of 0A.<RA- RC#4<R1C#! here, it would
necessarily include all lands of the public domain, our marine resources, forests, par*s
and so on$ #o we would li*e to limit the scope of these service contracts to those
areas really where these may be needed, the e,ploitation, development and e,ploration
of minerals, petroleum and other mineral oils$ And so, we believe that we should really,
if we want to grant service contracts at all, limit the same to only those particular
areas where 5ilipino capital may not be sufficient, and not to all natural resources$
/R$ #<ARCO$ Must a point of clarification again, /adam President$ 3hen the
1ommissioner made those enumerations and specifications, I suppose he deliberately
did not include agricultural land!=
/R$ DAKIDC$ .hat is precisely the reason we have to enumerate what these resources are
into which service contracts may enter$ #o, beyond the reach of any service
contract will be lands of the public domain, timberlands, forests, marine resources,
fauna and flora, wildlife and national par*s$
GF8H
After the Mamir amendment was voted upon and approved by a vote of 95 to
5E with 9 abstentions, 1ommissioner Davide made the following statement,
which is very relevant to our +uest"
.AC PRC#IDC0.$ 1ommissioner Davide is recogni)ed$
/R$ DAKIDC$ I am very glad that 1ommissioner Padilla emphasi)ed minerals, petroleum
and mineral oils$ .he 1ommission has just approved the possible foreign entry into the
development, e,ploration and utili)ation of these minerals, petroleum and other mineral
oils by virtue of the Mamir amendment$ I voted in favor of the Mamir amendment
because it will eventually give way to vesting in e,clusively &ilipino citi)ens and
corporations wholly owned by &ilipino citi)ens the right to utili)e the other natural
resources$ .his means that as a matter of policy, natural resources should be utili)ed
and e,ploited only by &ilipino citi)ens or corporations wholly owned by such citi)ens$
But by virtue of the Mamir amendment, since we feel that &ilipino capital may not be
enough for the development and utili)ation of minerals, petroleum and other mineral
oils, the President can enter into service contracts with foreign corporations precisely
for the development and utili)ation of such resources$ And so, there is nothing to fear
that we will stagnate in the development of minerals, petroleum and mineral oils
because we now allow service contracts$ , , ,$!
GF7H
.he foregoing are mere fragments of the framersI lengthy discussions of the
provision dealing with agreements , , , involving eiter tecnical or financial
assistance, which ultimately became paragraph F of #ection 9 of Article >II of
the 1onstitution$ Beyond any doubt, the members of the 1on1om were actually
debating about the martial-law-era service contracts for wic te% were
crafting appropriate safeguards$
In the voting that led to the approval of Article >II by the 1on1om, the
e,planations given by 1ommissioners ?ascon, ?arcia and .adeo indicated that
they had voted to reject this provision on account of their objections to the
constitutionali)ation! of the service contract! concept$
/r$ ?ascon said, :I felt tat if we would constitutionali(e an% provision on
service contracts, tis sould alwa%s &e wit te concurrence of Congress and
not guided onl% &% a general law to &e promulgated &% Congress.;
GF6H
/r$ ?arcia
e,plained, :#ervice contracts are given constitutional legitimi(ation in /ec. ?,
even wen te% ave &een proven to &e inimical to te interests of te nation,
providing, as te% do, te legal loopole for te e,ploitation of our natural
resources for te &enefit of foreign interests.;
G:EH
-i*ewise, /r$ .adeo cited inter
alia the fact that service contracts continued to subsist, enabling foreign
interests to benefit from our natural resources$
G:5H
It was hardly likely that these
gentlemen would have ob/ected so strenuously, had the provision called
for mere technical or financial assistance and nothing more
.he deliberations of the 1on1om and some commissionersI e,planation of
their votes leave no room for doubt that the service contract concept precisely
underpinned the commissionersI understanding of the agreements involving
either technical or financial assistance$!
#ummation of the
$oncom 2elierations
At this point, we sum up the matters established, based on a careful reading
of the 1on1om deliberations, as follows"

In their deliberations on what was to become paragraph F, the framers used the
term service contracts in referring to agreements , , , involving eiter tecnical
or financial assistance.
.hey spo*e of service contracts as the concept was understood in the 568%
1onstitution$
It was obvious from their discussions that they were not about to ban or
eradicate service contracts$
Instead, te% were plainl% crafting provisions to put in place safeguards tat
would eliminate or minimi(e te a&uses prevalent during te marital law regime$
In brief, they were going to permit service contracts with foreign corporations as
contractors, but with safety measures to prevent abuses, as an e,ception to the
general norm established in the first paragraph of #ection 9 of Article >II$ .his
provision reserves or limits to &ilipino citi)ens -- and corporations at least ;E
percent of which is owned by such citi)ens -- the e,ploration, development and
utili)ation of natural resources$
.his provision was prompted by the perceived insufficiency of &ilipino capital
and the felt need for foreign investments in the CD< of minerals and petroleum
resources$
.he framers for the most part debated about the sort of safeguards that would
be considered ade+uate and reasonable$ But some of them, having more
radical! leanings, wanted to ban service contracts altogether2 for them, the
provision would permit aliens to e,ploit and benefit from the nationIs natural
resources, which they felt should be reserved only for &ilipinos$
In the e,planation of their votes, the individual commissioners were heard by
the entire body$ .hey sounded off their individual opinions, openly enunciated
their philosophies, and supported or attac*ed the provisions with fervor$
CveryoneIs viewpoint was heard$
In the final voting, the Article on the 0ational Cconomy and Patrimony --
including paragraph F allowing service contracts with foreign corporations as an
e,ception to the general norm in paragraph 5 of #ection 9 of the same article --
was resoundingly approved by a vote of %9 to 8, with 9 abstentions$
Agreements Involving Technical
or "inancial Assistance Are
#ervice $ontracts 6ith #afeguards
&rom the foregoing, we are impelled to conclude that the phrase
agreements involving eiter tecnical or financial assistance, referred to in
paragraph F, are in fact service contracts. But unli*e those of the 568% variety,
the new ones are between foreign corporations acting as contractors on the one
hand2 and on the other, the government as principal or owner! of the wor*s$ In
the new service contracts, the foreign contractors provide capital, technology
and technical *now-how, and managerial e,pertise in the creation and operation
of large-scale mininge,tractive enterprises2 and the government, through its
agencies 'DC0R, /?B(, actively e,ercises control and supervision over the
entire operation$
#uch service contracts may be entered into onl% wit respect to minerals,
petroleum and oter mineral oils$ .he grant thereof is subject to several
safeguards, among which are these re+uirements"
'5( .he service contract shall be crafted in accordance with a general law that
will set standard or uniform terms, conditions and re+uirements, presumably to attain a
certain uniformity in provisions and avoid the possible insertion of terms
disadvantageous to the country$
'9( .he President shall be the signatory for the government because,
supposedly before an agreement is presented to the President for signature, it will have
been vetted several times over at different levels to ensure that it conforms to law and
can withstand public scrutiny$
'%( 3ithin thirty days of the e,ecuted agreement, the President shall report it to
1ongress to give that branch of government an opportunity to loo* over the agreement
and interpose timely objections, if any$
(se of the Record of the
$on$om to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the
framersI intent! approach, and the criticism hurled by petitioners who +uote a
ruling of this 1ourt"
:)ile it is permissi&le in tis jurisdiction to consult te de&ates and proceedings of
te constitutional convention in order to arrive at te reason and purpose of te
resulting Constitution, resort tereto ma% &e ad onl% wen oter guides fail as said
proceedings are powerless to var% te terms of te Constitution wen te meaning is
clear. De&ates in te constitutional convention Hare of value as showing the views of
the individual members, and as indicating the reason for their votes, but they give us no
light as to the views of the large majority who did not tal*, much less the mass of our
fellow citi)ens whose votes at the polls gave that instrument the force of fundamental
law$ 3e thin* it safer to construe the constitution from what appears upon its face$I
Te proper interpretation terefore depends more on ow it was understood &% te
people adopting it tan in te framers2 understanding tereof.;
G:9H
.he notion that the deliberations reflect only the views of those members
who spo*e out and not the views of the majority who remained silent should be
clarified$ 3e must never forget that those who spo*e out were heard by those
who remained silent and did not react$ If the latter were silent because they
happened not to be present at the time, they are presumed to have read the
minutes and *ept abreast of the deliberations$ By remaining silent, they are
deemed to have signified their assent to andor conformity with at least some of
the views propounded or their lac* of objections thereto$ It was incumbent upon
them, as representatives of the entire &ilipino people, to follow the deliberations
closely and to spea* their minds on the matter if they did not see eye to eye with
the proponents of the draft provisions$
In any event, each and every one of the commissioners had the opportunity
to spea* out and to vote on the matter$ /oreover, the individual e,planations of
votes are on record, and they show where each delegate stood on the issues
In sum, we cannot completely denigrate the value or usefulness of the
record of the ConCom, simply because certain members chose not to
speak out
It is contended that the deliberations therein did not necessarily reflect the
thin*ing of the voting population that participated in the referendum and ratified
the 1onstitution$ Kerily, whether we li*e it or not, it is a bit too much to assume
that every one of those who voted to ratify the proposed 1harter did so only
after carefully reading and mulling over it, provision by provision$
-i*ewise, it appears rather e,travagant to assume that every one of those
who did in fact bother to read the draft 1harter actually understood the import of
its provisions, much less analy)ed it vis-T-vis the previous 1onstitutions$ 3e
believe that in reality, a good percentage of those who voted in favor of it did so
more out of faith and trust$ &or them, it was the product of the hard wor* and
careful deliberation of a group of intelligent, dedicated and trustworthy men and
women of integrity and conviction, whose love of country and fidelity to duty
could not be +uestioned$
In short, a large proportion of the voters voted yes! because the drafters, or
a majority of them, endorsed the proposed 1onstitution$ 3hat this fact
translates to is the inescapable conclusion that many of the voters in the
referendum did not form their own isolated judgment about the draft 1harter,
much less about particular provisions therein$ .hey only relied or fell bac* and
acted upon the favorable endorsement or recommendation of the framers as a
group$ In other words, by voting %es, they may be deemed to have signified
their voluntary adoption of the understanding and interpretation of the delegates
with respect to the proposed 1harter and its particular provisions$ If itIs good
enough for them, itIs good enough for me2! or, in many instances, If itIs good
enough for President 1ory A+uino, itIs good enough for me$!
And even for those who voted based on their own individual assessment of
the proposed 1harter, there is no evidence available to indicate that their
assessment or understanding of its provisions was in fact different from that of
the drafters$ .his unwritten assumption seems to be petitionersI as well$ &or all
we *now, this segment of voters must have read and understood the provisions
of the 1onstitution in the same way the framers had, an assumption that would
account for the favorable votes$
&undamentally spea*ing, in the process of rewriting the 1harter, the
members of the 1on1om as a group were supposed to represent the entire
&ilipino people$ .hus, we cannot but regard their views as being very much
indicative of the thin*ing of the people with respect to the matters deliberated
upon and to the 1harter as a whole$
It is therefore reasonable and unavoidable to make the following
conclusion, based on the above arguments "s written by the framers and
ratified and adopted by the people, the Constitution allows the continued
use of service contracts with foreign corporations ,, as contractors who
would invest in and operate and manage e.tractive enterprises, sub/ect to
the full control and supervision of the State ,, sans the abuses of the past
regime The purpose is clear3 to develop and utili-e our mineral,
petroleum and other resources on a large scale for the immediate and
tangible benefit of the 5ilipino people
In view of the foregoing discussion, we should reverse the Decision of
Manuary 98, 9EEF, and in fact now hold a view different from that of the
Decision, which had these findings" 'a( paragraph F of #ection 9 of Article >II
limits foreign involvement in the local mining industry to agreements strictly for
either financial or technical assistance only2 'b( the same paragraph precludes
agreements that grant to foreign corporations the management of local mining
operations, as such agreements are purportedly in the nature of service
contracts as these were understood under the 568% 1onstitution2 'c( these
service contracts were supposedly de-constitutionali)ed! and proscribed by the
omission of the term service contracts from the 5678 1onstitution2 'd( since the
3/1P &.AA contains provisions permitting the foreign contractor to manage
the concern, the said &.AA is invalid for being a prohibited service contract2 and
'e( provisions of RA 86F9 and DA4 6;-FE, which li*ewise grant managerial
authority to the foreign contractor, are also invalid and unconstitutional$
(ltimate Test= #tate0s 1$ontrol
2eterminative of $onstitutionality
But we are not yet at the end of our +uest$ &ar from it$ It seems that we are
confronted with a possible collision of constitutional provisions$ 4n the one
hand, paragraph 5 of #ection 9 of Article >II e,plicitly mandates the #tate to
e,ercise full control and supervision! over the e,ploration, development and
utili)ation of natural resources$ 4n the other hand, paragraph F permits
safeguarded service contracts with foreign contractors$ 0ormally, pursuant
thereto, the contractors e,ercise management prerogatives over the mining
operations and the enterprise as a whole$ .here is thus a legitimate ground to
be concerned that either the #tateIs full control and supervision may rule out
any e,ercise of management authority by the foreign contractor2 or, the other
way around, allowing the foreign contractor full management prerogatives may
ultimately negate the #tateIs full control and supervision$
=t >agis (aleat
?uam Pereat
<nder the third principle of constitutional construction laid down in
'rancisco -- ut magis valeat <uam pereat -- every part of the 1onstitution is to
be given effect, and the 1onstitution is to be read and understood as a
harmonious whole$ .hus, :full control and supervision; &% te /tate must &e
understood as one tat does not preclude te legitimate e,ercise of
management prerogatives &% te foreign contractor. Before any further
discussion, we must stress the primacy and supremacy of the principle of
sovereignty and #tate control and supervision over all aspects of e,ploration,
development and utili)ation of the countryIs natural resources, as mandated in
the first paragraph of #ection 9 of Article >II$
But in the ne,t breadth we have to point out that full control and
supervision! cannot be ta*en literally to mean that the #tate controls and
supervises ever%ting involved, down to te minutest details, and ma*es all
decisions re+uired in the mining operations$ .his strained concept of control
and supervision over the mining enterprise would render impossible the
legitimate e,ercise by the contractors of a reasonable degree of management
prerogative and authority necessary and indispensable to their proper
functioning$
&or one thing, such an interpretation would discourage foreign entry into
large-scale e,ploration, development and utili)ation activities2 and result in the
unmitigated stagnation of this sector, to the detriment of our nationIs
development$ .his scenario renders paragraph F inoperative and useless$ And
as respondents have correctly pointed out, the government does not have to
micro-manage the mining operations and dip its hands into the day-to-day
affairs of the enterprise in order for it to be considered as having full control and
supervision$
.he concept of control
G:%H
adopted in #ection 9 of Article >II must be ta*en to
mean less than dictatorial, all-encompassing control2 but nevertheless sufficient
to give the #tate the power to direct, restrain, regulate and govern the affairs of
the e,tractive enterprises$ 1ontrol by the #tate may be on a macro level,
through the establishment of policies, guidelines, regulations, industry standards
and similar measures that would enable the government to control the conduct
of affairs in various enterprises and restrain activities deemed not desirable or
beneficial$
.he end in view is ensuring that these enterprises contribute to the
economic development and general welfare of the country, conserve the
environment, and uplift the well-being of the affected local communities$ #uch a
concept of control would be compatible with permitting the foreign contractor
sufficient and reasonable management authority over the enterprise it invested
in, in order to ensure that it is operating efficiently and profitably, to protect its
investments and to enable it to succeed$
The question to be answered, then, is whether 1" '*@! and its
Implementing 1ules enable the government to e.ercise that degree of
control sufficient to direct and regulate the conduct of affairs of individual
enterprises and restrain undesirable activities
4n the resolution of these +uestions will depend the validity and
constitutionality of certain provisions of the Philippine /ining Act of 566: 'RA
86F9( and its Implementing Rules and Regulations 'DA4 6;-FE(, as well as the
3/1P &.AA$
Indeed, petitioners charge
G:FH
that RA 86F9, as well as its Implementing
Rules and Regulations, ma*es it possible for &.AA contracts to cede full control
and management of mining enterprises over to fully foreign-owned corporations,
with the result that the #tate is allegedly reduced to a passive regulator
dependent on submitted plans and reports, with wea* review and audit powers$
.he #tate does not supposedly act as the owner of the natural resources for
and on behalf of the &ilipino people2 it practically has little effective say in the
decisions made by the enterprise$ Petitioners then conclude that the law, the
implementing regulations, and the 3/1P &.AA cede beneficial ownership! of
the mineral resources to the foreign contractor$
A careful scrutiny of the provisions of RA 86F9 and its Implementing Rules
belies petitionersI claims$ Paraphrasing the 1onstitution, #ection F of the
statute clearly affirms the #tateIs control thus"
:/ec. 6. Ownersip of *ineral #esources. I *ineral resources are owned &% te /tate
and te e,ploration, development, utili(ation and processing tereof sall &e under its
full control and supervision. Te /tate ma% directl% underta3e suc activities or it ma%
enter into mineral agreements wit contractors.
:Te /tate sall recogni(e and protect te rigts of te indigenous cultural communities
to teir ancestral lands as provided for &% te Constitution.;
.he afore+uoted provision is substantively reiterated in #ection 9 of DA4
6;-FE as follows"
:/ec. 7. Declaration of -olic%. "ll mineral resources in pu&lic and private lands
witin te territor% and e,clusive economic (one of te #epu&lic of te -ilippines are
owned &% te /tate. It sall &e te responsi&ilit% of te /tate to promote teir rational
e,ploration, development, utili(ation and conservation troug te com&ined efforts of
te Government and private sector in order to enance national growt in a wa% tat
effectivel% safeguards te environment and protects te rigts of affected
communities.;
#ufficient $ontrol &ver 4ining
&perations 8ested in the #tate
y RA .>;? and 2A& >@';A
RA 86F9 provides for the #tateIs control and supervision over mining
operations$ .he following provisions thereof establish the mechanism of
inspection and visitorial rights over mining operations and institute reportorial
re+uirements in this manner"
5$ #ec$ 7 which provides for the DC0RIs power of over-all supervision and periodic review
for the conservation, management, development and proper use of the #tateIs mineral
resources!2
9$ #ec$ 6 which authori)es the /ines and ?eosciences Bureau '/?B( under the DC0R
to e,ercise direct charge in the administration and disposition of mineral resources!,
and empowers the /?B to monitor the compliance by the contractor of the terms and
conditions of the mineral agreements!, confiscate surety and performance bonds!, and
deputi)e whenever necessary any member or unit of the Phil$ 0ational Police,
barangay, duly registered non-governmental organi)ation '0?4( or any +ualified
person to police mining activities2
%$ #ec$ ;; which vests in the Regional Director !e,clusive jurisdiction over safety
inspections of all installations, whether surface or underground!, utili)ed in mining
operations$
F$ #ec$ %:, which incorporates into all &.AAs the following terms, conditions and
warranties"
'g( /ining operations shall be conducted in accordance with the provisions of the Act and
its IRR$
'h( 3or* programs and minimum e,penditures commitments$
, , , , , , , , ,
'*( Re+uiring proponent to effectively use appropriate anti-pollution technology and
facilities to protect the environment and restore or rehabilitate mined-out areas$
'l( .he contractors shall furnish the ?overnment records of geologic, accounting and other
relevant data for its mining operation, and that boo*s of accounts and records shall be
open for inspection by the government$ , , ,$
'm( Re+uiring the proponent to dispose of the minerals at the highest price and more
advantageous terms and conditions$
'n( , , , , , , , , ,
'o( #uch other terms and conditions consistent with the 1onstitution and with this Act as
the #ecretary may deem to be for the best interest of the #tate and the welfare of the
&ilipino people$!
.he foregoing provisions of #ection %: of RA 86F9 are also reflected and
implemented in #ection :; 'g(, 'h(, 'l(, 'm( and 'n( of the Implementing Rules,
DA4 6;-FE$
/oreover, RA 86F9 and DA4 6;-FE also provide various stipulations
confirming the governmentIs control over mining enterprises"
.he contractor is to relin+uish to the government those portions of the contract
area not needed for mining operations and not covered by any declaration of
mining feasibility '#ection %:-e, RA 86F92 #ection ;E, DA4 6;-FE($
.he contractor must comply with the provisions pertaining to mine safety, health
and environmental protection '1hapter >I, RA 86F92 1hapters >K and >KI, DA4
6;-FE($
&or violation of any of its terms and conditions, government may cancel an
&.AA$ '1hapter >KII, RA 86F92 1hapter >>IK, DA4 6;-FE($
An &.AA contractor is obliged to open its boo*s of accounts and records for
inspection by the government '#ection :;-m, DA4 6;-FE($
An &.AA contractor has to dispose of the minerals and by-products at the
highest mar*et price and register with the /?B a copy of the sales agreement
'#ection :;-n, DA4 6;-FE($
/?B is mandated to monitor the contractorIs compliance with the terms and
conditions of the &.AA2 and to deputi)e, when necessary, any member or unit
of the Philippine 0ational Police, the barangay or a DC0R-accredited
nongovernmental organi)ation to police mining activities '#ection 8-d and -f,
DA4 6;-FE($
An &.AA cannot be transferred or assigned without prior approval by the
President '#ection FE, RA 86F92 #ection ;;, DA4 6;-FE($
A mining project under an &.AA cannot proceed to the
constructiondevelopmentutili)ation stage, unless its Declaration of /ining
Project &easibility has been approved by government '#ection 9F, RA 86F9($
.he Declaration of /ining Project &easibility filed by the contractor cannot be
approved without submission of the following documents"
5$ Approved mining project feasibility study '#ection :%-d, DA4 6;-FE(
9$ Approved three-year wor* program '#ection :%-a-F, DA4 6;-FE(
%$ Cnvironmental compliance certificate '#ection 8E, RA 86F9(
F$ Approved environmental protection and enhancement program '#ection ;6, RA 86F9(
:$ Approval by the #angguniang PanlalawiganBayanBarangay '#ection 8E, RA 86F92
#ection 98, RA 85;E(
;$ &ree and prior informed consent by the indigenous peoples concerned, including
payment of royalties through a /emorandum of Agreement '#ection 5;, RA 86F92
#ection :6, RA 7%85(
.he &.AA contractor is obliged to assist in the development of its mining
community, promotion of the general welfare of its inhabitants, and development
of science and mining technology '#ection :8, RA 86F9($
.he &.AA contractor is obliged to submit reports 'on +uarterly,
semi-annual or annual basis as the case may be2 per #ection 98E, DA4 6;-FE(,
pertaining to the following"
5$ C,ploration
9$ Drilling
%$ /ineral resources and reserves
F$ Cnergy consumption
:$ Production
;$ #ales and mar*eting
8$ Cmployment
7$ Payment of ta,es, royalties, fees and other ?overnment #hares
6$ /ine safety, health and environment
5E$ -and use
55$ #ocial development
59$ C,plosives consumption
An &.AA pertaining to areas within government reservations
cannot be granted without a written clearance from the government agencies
concerned '#ection 56, RA 86F92 #ection :F, DA4 6;-FE($
An &.AA contractor is re+uired to post a financial guarantee
bond in favor of the government in an amount e+uivalent to its e,penditures
obligations for any particular year$ .his re+uirement is apart from the
representations and warranties of the contractor that it has access to all the
financing, managerial and technical e,pertise and technology necessary to carry
out the objectives of the &.AA '#ection %:-b, -e, and -f, RA 86F9($
4ther reports to be submitted by the contractor, as re+uired
under DA4 6;-FE, are as follows" an environmental report on the rehabilitation
of the mined-out area andor mine wastetailing covered area, and anti-pollution
measures underta*en '#ection %:-a-9(2 annual reports of the mining operations
and records of geologic accounting '#ection :;-m(2 annual progress reports and
final report of e,ploration activities '#ection :;-9($
4ther programs re+uired to be submitted by the contractor,
pursuant to DA4 6;-FE, are the following" a safety and health program '#ection
5FF(2 an environmental wor* program '#ection 5;7(2 an annual environmental
protection and enhancement program '#ection 585($
.he foregoing gamut of re+uirements, regulations, restrictions and
limitations imposed upon the &.AA contractor by the statute and regulations
easily overturns petitionersI contention$ .he setup under RA 86F9 and DA4 6;-
FE hardly relegates the #tate to the role of a passive regulator! dependent on
submitted plans and reports$ 4n the contrary, the government agencies
concerned are empowered to approve or disapprove -- hence, to influence,
direct and change -- the various wor* programs and the corresponding minimum
e,penditure commitments for each of the e,ploration, development and
utili)ation phases of the mining enterprise$
4nce these plans and reports are approved, the contractor is bound to
comply with its commitments therein$ &igures for mineral production and sales
are regularly monitored and subjected to government review, in order to ensure
that the products and by-products are disposed of at the best prices possible2
even copies of sales agreements have to be submitted to and registered with
/?B$ And the contractor is mandated to open its boo*s of accounts and
records for scrutiny, so as to enable the #tate to determine if the government
share has been fully paid$
.he #tate may li*ewise compel the contractorIs compliance with mandatory
re+uirements on mine safety, health and environmental protection, and the use
of anti-pollution technology and facilities$ /oreover, the contractor is also
obligated to assist in the development of the mining community and to pay
royalties to the indigenous peoples concerned$
1ancellation of the &.AA may be the penalty for violation of any of its terms
and conditions andor noncompliance with statutes or regulations$ .his general,
all-around, multipurpose sanction is no trifling matter, especially to a contractor
who may have yet to recover the tens or hundreds of millions of dollars sun*
into a mining project$
4verall, considering the provisions of the statute and the regulations just
discussed, we believe that the #tate definitely possesses the means by which it
can have the ultimate word in the operation of the enterprise, set directions and
objectives, and detect deviations and noncompliance by the contractor2 li*ewise,
it has the capability to enforce compliance and to impose sanctions, should the
occasion therefor arise$
In other words, the 5T"" contractor is not free to do whatever it
pleases and get away with it9 on the contrary, it will have to follow the
government line if it wants to stay in the enterprise Ineluctably then, 1"
'*@! and A"O *&,@+ vest in the government more than a sufficient degree
of control and supervision over the conduct of mining operations
#ection -Ba%C of RA .>;?
3ot (nconstitutional
An objection has been e,pressed that #ection %'a+(
G::H
of RA 86F9 -- which
allows a foreign contractor to apply for and hold an e,ploration permit -- is
unconstitutional$ .he reasoning is that #ection 9 of Article >II of the
1onstitution does not allow foreign-owned corporations to underta*e mining
operations directly$ .hey may act only as contractors of the #tate under an
&.AA2 and the #tate, as the party directly underta*ing e,ploitation of its natural
resources, must hold through the government all e,ploration permits and similar
authori)ations$ Aence, #ection %'a+(, in permitting foreign-owned corporations
to hold e,ploration permits, is unconstitutional$
.he objection, however, is not well-founded$ 3hile the 1onstitution
mandates the #tate to e,ercise full control and supervision over the e,ploitation
of mineral resources, nowere does it re<uire te government to old all
e,ploration permits and similar autori(ations. In fact, there is no prohibition at
all against foreign or local corporations or contractors holding e,ploration
permits$ .he reason is not hard to see$
Pursuant to #ection 9E of RA 86F9, an e,ploration permit merely grants to a
+ualified person the right to conduct e,ploration for all minerals in specified
areas$ /uc a permit does not amount to an autori(ation to e,tract and carr%
off te mineral resources tat ma% &e discovered. .his phase involves nothing
but e,penditures for e,ploring the contract area and locating the mineral
bodies$ As no e,traction is involved, there are no revenues or incomes to spea*
of$ In short, the e,ploration permit is an authori)ation for the grantee to spend
its own funds on e,ploration programs that are pre-approved by the
government, without any right to recover anything should no minerals in
commercial +uantities be discovered$ .he #tate ris*s nothing and loses nothing
by granting these permits to local or foreign firms2 in fact, it stands to gain in the
form of data generated by the e,ploration activities$
Pursuant to #ection 9F of RA 86F9, an e,ploration permit grantee who
determines the commercial viability of a mining area may, within the term of the
permit, file with the /?B a declaration of mining project feasibility accompanied
by a wor* program for development$ .he approval of the mining project
feasibility and compliance with other re+uirements of RA 86F9 vests in the
grantee the e,clusive right to an /P#A or any other mineral agreement, or to an
&.AA$
.hus, the permit grantee may apply for an /P#A, a joint venture
agreement, a co-production agreement, or an &.AA over the permit area, and
the application shall be approved if the permit grantee meets the necessary
+ualifications and the terms and conditions of any such agreement$ .herefore,
the contractor will be in a position to e,tract minerals and earn revenues only
when the /P#A or another mineral agreement, or an &.AA, is granted$ At that
point, the contractorIs rights and obligations will be covered by an &.AA or a
mineral agreement$
But prior to the issuance of such &.AA or mineral agreement, the
e,ploration permit grantee 'or prospective contractor( cannot yet be deemed to
have entered into any contract or agreement with the #tate, and the grantee
would definitely need to have some document or instrument as evidence of its
right to conduct e,ploration wor*s within the specified area$ .his need is met by
the e,ploration permit issued pursuant to #ections %'a+(, 9E and 9% of RA 86F9$
In brief, the e.ploration permit serves a practical and legitimate
purpose in that it protects the interests and preserves the rights of the
e.ploration permit grantee 7the would,be contractor8 ,, foreign or local ,,
during the period of time that it is spending heavily on e.ploration works,
without yet being able to earn revenues to recoup any of its investments
and e.penditures /inus this permit and the protection it affords, the
e,ploration wor*s and e,penditures may end up benefiting only claim-jumpers$
#uch a possibility tends to discourage investors and contractors$ .hus, #ection
%'a+( of RA 86F9 may not be deemed unconstitutional$
The Terms of the 64$P "TAA
A 2eference to #tate $ontrol
A perusal of the 3/1P &.AA also reveals a slew of stipulations providing
for #tate control and supervision"
5$ .he contractor is obligated to account for the value of production and sale of minerals
'1lause 5$F($
9$ .he contractorIs wor* program, activities and budgets must be approved byon behalf
of the #tate '1lause 9$5($
%$ .he DC0R secretary has the power to e,tend the e,ploration period '1lause %$9-a($
F$ Approval by the #tate is necessary for incorporating lands into the &.AA contract area
'1lause F$%-c($
:$ .he Bureau of &orest Development is vested with discretion in regard to approving the
inclusion of forest reserves as part of the &.AA contract area '1lause F$:($
;$ .he contractor is obliged to relin+uish periodically parts of the contract area not needed
for e,ploration and development '1lause F$;($
8$ A Declaration of /ining &easibility must be submitted for approval by the #tate '1lause
F$;-b($
7$ .he contractor is obligated to report to the #tate its e,ploration activities '1lause F$6($
6$ .he contractor is re+uired to obtain #tate approval of its wor* programs for the
succeeding two-year periods, containing the proposed wor* activities and e,penditures
budget related to e,ploration '1lause :$5($
5E$ .he contractor is re+uired to obtain #tate approval for its proposed e,penditures for
e,ploration activities '1lause :$9($
55$ .he contractor is re+uired to submit an annual report on geological, geophysical,
geochemical and other information relating to its e,plorations within the &.AA area
'1lause :$%-a($
59$ .he contractor is to submit within si, months after e,piration of e,ploration period a
final report on all its findings in the contract area '1lause :$%-b($
5%$ .he contractor, after conducting feasibility studies, shall submit a declaration of mining
feasibility, along with a description of the area to be developed and mined, a description
of the proposed mining operations and the technology to be employed, and a proposed
wor* program for the development phase, for approval by the DC0R secretary '1lause
:$F($
5F$ .he contractor is obliged to complete the development of the mine, including
construction of the production facilities, within the period stated in the approved wor*
program '1lause ;$5($
5:$ .he contractor is obligated to submit for approval of the DC0R secretary a wor*
program covering each period of three fiscal years '1lause ;$9($
5;$ .he contractor is to submit reports to the DC0R secretary on the production, ore
reserves, wor* accomplished and wor* in progress, profile of its wor* force and
management staff, and other technical information '1lause ;$%($
58$ Any e,pansions, modifications, improvements and replacements of mining facilities
shall be subject to the approval of the secretary '1lause ;$F($
57$ .he #tate has control with respect to the amount of funds that the contractor may
borrow within the Philippines '1lause 8$9($
56$ .he #tate has supervisory power with respect to technical, financial and mar*eting
issues '1lause 5E$5-a($
9E$ .he contractor is re+uired to ensure ;E percent &ilipino e+uity in the contractor, within
ten years of recovering specified e,penditures, unless not so re+uired by subse+uent
legislation '1lause 5E$5($
95$ .he #tate has the right to terminate the &.AA for the contractorIs unremedied
substantial breach thereof '1lause 5%$9(2
99$ .he #tateIs approval is needed for any assignment of the &.AA by the contractor to an
entity other than an affiliate '1lause 5F$5($
3e should elaborate a little on the wor* programs and budgets, and what
they mean with respect to the #tateIs ability to e,ercise full control and effective
supervision over the enterprise$ &or instance, throughout the initial five-year
e,ploration and feasi&ilit% pase of the project, the contractor is mandated by
1lause :$5 of the 3/1P &.AA to submit a series of wor* programs 'copy
furnished the director of /?B( to the DC0R secretary for approval. .he
programs will detail the contractorIs proposed e,ploration activities and &udget
covering each subse+uent period of two fiscal years$
In other words, the concerned government officials will be informed
beforehand of the proposed e,ploration activities and e,penditures of the
contractor for each succeeding two-year period, with the right to
approvedisapprove them or re+uire changes or adjustments therein if deemed
necessary$
-i*ewise, under 1lause :$9'a(, the amount that the contractor was
supposed to spend for e,ploration activities during the first contract year of the
e,ploration period was fi,ed at not less than P9F million2 and then for the
succeeding years, the amount shall be as agreed between the DC0R secretary
and the contractor prior to the commencement of each subse+uent fiscal year$
If no such agreement is arrived upon, the previous yearIs e,penditure
commitment shall apply$
.his provision alone grants the government through the DC0R secretary a
very big say in the e,ploration phase of the project$ .his fact is not something
to be ta*en lightly, considering that the government as a&solutel% no
contri&ution to te e,ploration e,penditures or wor3 activities and %et is given
veto power over suc a critical aspect of te project$ 3e cannot but construe as
very significant such a degree of control over the project and, resultantly, over
the mining enterprise itself$
&ollowing its e,ploration activities or feasibility studies, if the contractor
believes that any part of the contract area is li*ely to contain an economic
mineral resource, it shall submit to the DC0R secretary a declaration of mining
feasibility 'per 1lause :$F of the &.AA(, together with a technical description of
the area delineated for development and production, a description of te
proposed mining operations including te tecnolog% to &e used, a wor3
program for development, an environmental impact statement, and a
description of te contri&utions to te economic and general welfare of the
country to be generated by the mining operations 'pursuant to 1lause :$:($
.he wor3 program for development is subject to the approval of te D+G#
secretar%. <pon its approval, the contractor must comply with it and complete
the development of the mine, including the construction of production facilities
and installation of machinery and e+uipment, within the period provided in the
approved wor* program for development 'per 1lause ;$5($
.hus, notably, the development phase of the project is li*ewise subject to
the control and supervision of the government$ It cannot be emphasi)ed
enough that the proper and timely construction and deployment of the
production facilities and the development of the mine are of pivotal significance
to the success of the mining venture$ Any missteps here will potentially be very
costly to remedy$ Aence, the submission of the wor* program for development
to the DC0R secretary for approval is particularly noteworthy, considering that
so many millions of dollars worth of investments -- courtesy of the contractor --
are made to depend on the #tateIs consideration and action$
.hroughout the operating period, the contractor is re+uired to submit to the
DC0R secretary for approval, copy furnished the director of /?B, wor*
programs covering each period of three fiscal years 'per 1lause ;$9($ During
the same period 'per 1lause ;$%(, the contractor is mandated to submit various
+uarterly and annual reports to the DC0R secretary, copy furnished the director
of /?B, on the tonnages of production in terms of ores and concentrates, with
corresponding grades, values and destinations2 reports of sales2 total ore
reserves, total tonnage of ores, wor* accomplished and wor* in progress
'installations and facilities related to mining operations(, investments made or
committed, and so on and so forth$
<nder #ection KIII, during the period of mining operations, the contractor is
also re+uired to submit to the DC0R secretary 'copy furnished the director of
/?B( the wor* program and corresponding budget for the contract area,
describing the mining operations that are proposed to be carried out during the
period covered$ .he secretary is, of course, entitled to grant or deny approval of
any wor* program or budget andor propose revisions thereto$ 4nce the
programbudget has been approved, the contractor shall comply therewith$
In sum, te a&ove provisions of te )*C- 'T"" ta3en togeter, far from
constituting a surrender of control and a grant of &eneficial ownersip of mineral
resources to te contractor in <uestion, bestow upon the State more than
adequate control and supervision over the activities of the contractor and
the enterprise
3o #urrender of $ontrol
(nder the 64$P "TAA
Petitioners, however, ta*e aim at 1lause 7$9, 7$%, and 7$: of the 3/1P
&.AA which, they say, amount to a relin+uishment of control by the #tate, since
it cannot truly impose its own discretion! in respect of the submitted wor*
programs$
:B.7. Te /ecretar% sall &e deemed to ave approved an% )or3 -rogramme or .udget or
variation tereof su&mitted &% te Contractor unless witin si,t% >89@ da%s after
su&mission &% te Contractor te /ecretar% gives notice declining suc approval or
proposing a revision of certain features and specif%ing its reasons terefor >Hte
#ejection Gotice2@.
B.?. If te /ecretar% gives a #ejection Gotice, te -arties sall promptl% meet and
endeavor to agree on amendments to te )or3 -rogramme or .udget. If te
/ecretar% and te Contractor fail to agree on te proposed revision witin ?9 da%s from
deliver% of te #ejection Gotice ten te )or3 -rogramme or .udget or variation
tereof proposed &% te Contractor sall &e deemed approved, so as not to
unnecessaril% dela% te performance of te "greement.
B.6. , , , , , , , , ,
B.E. /o far as is practica&le, te Contractor sall compl% wit an% approved )or3
-rogramme and .udget. It is recogni(ed &% te /ecretar% and te Contractor tat te
details of an% )or3 -rogrammes or .udgets ma% re<uire canges in te ligt of
canging circumstances. Te Contractor ma% ma3e suc canges witout approval of
te /ecretar% provided te% do not cange te general o&jective of an% )or3
-rogramme, nor entail a downward variance of more tan twent% per centum
>79percent@ of te relevant .udget. "ll oter variations to an approved )or3
-rogramme or .udget sall &e su&mitted for approval of te /ecretar%.;
&rom the provisions +uoted above, petitioners generali)e by asserting that
the government does not participate in ma*ing critical decisions regarding the
operations of the mining firm$ &urthermore, while the #tate can re+uire the
submission of wor* programs and budgets, the decision of the contractor will
still prevail, if the parties have a difference of opinion with regard to matters
affecting operations and management$
3e hold, however, that the foregoing provisions do not manifest a
relin+uishment of control$ &or instance, 1lause 7$9 merely provides a
mechanism for preventing the business or mining operations from grinding to a
complete halt as a result of possibly over-long and unjustified delays in the
governmentIs handling, processing and approval of submitted wor* programs
and budgets$ Anyway, the provision does give the DC0R secretary more than
sufficient time ';E days( to react to submitted wor* programs and budgets$ It
cannot be supposed that proper grounds for objecting thereto, if any e,ist,
cannot be discovered within a period of two months$
4n the other hand, 1lause 7$% see*s to provide a temporary, stop-gap
solution in the event a disagreement over the submitted wor* program or budget
arises between the #tate and the contractor and results in a stalemate or
impasse, in order that there will be no unreasonably long delays in the
performance of the wor*s$
.hese temporary or stop-gap solutions are not necessarily evil or wrong$
0either does it follow that the government will ine,orably be aggrieved if and
when these temporary remedies come into play$ 'irst, avoidance of long delays
in these situations will undoubtedly redound to the benefit of the #tate as well as
the contractor$ /econd, who is to say that the wor* program or budget
proposed by the contractor and deemed approved under 1lause 7$% would not
be the better or more reasonable or more effective alternative= .he contractor,
being the insider,! as it were, may be said to be in a better position than the
#tate -- an outsider loo*ing in -- to determine what wor* program or budget
would be appropriate, more effective, or more suitable under the circumstances$
All things considered, we ta*e e,ception to the characteri)ation of the
DC0R secretary as a subservient nonentity whom the contractor can overrule at
will, on account of 1lause 7$%$ And neither is it true that under the same clause,
the DC0R secretary has no authority whatsoever to disapprove the wor*
program$ As Respondent 3/1P reasoned in its Reply-/emorandum, the #tate
-- despite 1lause 7$% -- still has control over the contract area and it may, as
sovereign authority, prohibit wor* thereon until the dispute is resolved$ And
ultimately, the #tate may terminate the agreement, pursuant to 1lause 5%$9 of
the same &.AA, citing substantial breach thereof$ Aence, it clearly retains full
and effective control of the e,ploitation of the mineral resources$
4n the other hand, 1lause 7$: is merely an ac*nowledgment of the partiesI
need for fle,ibility, given that no one can accurately forecast under all
circumstances, or predict how situations may change$ Aence, while approved
wor* programs and budgets are to be followed and complied with as far as
practicable, there may be instances in which changes will have to be effected,
and effected rapidly, since events may ta*e shape and unfold with suddenness
and urgency$ .hus, 1lause 7$: allows the contractor to move ahead and ma*e
changes without the e,press or implicit approval of the DC0R secretary$ #uch
changes are, however, subject to certain conditions that will serve to limit or
restrict the variance and prevent the contractor from straying very far from what
has been approved$
1lause 7$: provides the contractor a certain amount of fle,ibility to meet
une,pected situations, while still guaranteeing that the approved wor* programs
and budgets are not abandoned altogether$ 1lause 7$: does not constitute
proof that the #tate has relin+uished control$ And ultimately, should there be
disagreement with the actions ta*en by the contractor in this instance as well as
under 1lause 7$% discussed above, the DC0R secretary may resort to
cancellationtermination of the &.AA as the ultimate sanction$
2iscretion to #elect $ontract
Area 3ot an Adication of $ontrol
0e,t, petitioners complain that the contractor has full discretion to select --
and the government has no say whatsoever as to -- the parts of the contract
area to be relin+uished pursuant to 1lause F$; of the 3/1P &.AA$
G:;H
.his
clause, however, does not constitute abdication of control$ Rather, it is a mere
ac*nowledgment of the fact that the contractor will have determined, after
appropriate e,ploration wor*s, which portions of the contract area do not contain
minerals in commercial +uantities sufficient to justify developing the same and
ought therefore to be relin+uished$ .he #tate cannot just substitute its judgment
for that of the contractor and dictate upon the latter which areas to give up$
/oreover, we can be certain that the contractorIs self-interest will propel proper
and efficient relin+uishment$ According to private respondent,
G:8H
a mining company
tries to relin+uish as much non-mineral areas as soon as possible, because the
annual occupation fees paid to the government are based on the total hectarage of
the contract area, net of the areas relin+uished$ .hus, the larger the remaining
area, the heftier the amount of occupation fees to be paid by the contractor$
Accordingly, relin+uishment is not an issue, given that the contractor will not want
to pay the annual occupation fees on the non-mineral parts of its contract area$
0either will it want to relin+uish promising sites, which other contractors may
subse+uently pic* up$
)overnment 3ot
a #ucontractor
Petitioners further maintain that the contractor can compel the government
to e,ercise its power of eminent domain to ac+uire surface areas within the
contract area for the contractorIs use$ 1lause 5E$9 'e( of the 3/1P &.AA
provides that the government agrees that the contractor shall :>e@ ave te rigt
to re<uire te Government at te Contractor2s own cost, to purcase or ac<uire
surface areas for and on &ealf of te Contractor at suc price and terms as
ma% &e accepta&le to te contractor. "t te termination of tis "greement suc
areas sall &e sold &% pu&lic auction or tender and te Contractor sall &e
entitled to reim&ursement of te costs of ac<uisition and maintenance, adjusted
for inflation, from te proceeds of sale.;
According to petitioners, government &ecomes a su&contractor to te
contractor! and may, on account of this provision, be compelled to ma3e use of
its power of eminent domain, not for pu&lic purposes &ut on &ealf of a private
part%, i.e., te contractor.! /oreover, the power of the courts to determine the
amount corresponding to the constitutional re+uirement of just compensation
has allegedly also been contracted away by the government, on account of the
latterIs commitment that the ac+uisition shall be at such terms as may be
acceptable to the contractor$
Aowever, private respondent has proffered a logical e,planation for the
provision$
G:7H
#ection 5E$9'e( contemplates a situation applicable to foreign-
owned corporations$ 3/1P, at the time of the e,ecution of the &.AA, was a
foreign-owned corporation and therefore not +ualified to own land$ As
contractor, it has at some future date to construct the infrastructure -- the mine
processing plant, the camp site, the tailings dam, and other infrastructure --
needed for the large-scale mining operations$ It will then have to identify and
pinpoint, within the &.AA contract area, the particular surface areas with
favorable topography deemed ideal for such infrastructure and will need to
ac+uire the surface rights$ .he #tate owns the mineral deposits in the earth,
and is also +ualified to own land$
#ection 5E$9'e( sets forth the mechanism whereby the foreign-owned
contractor, dis+ualified to own land, identifies to the government the specific
surface areas within the &.AA contract area to be ac+uired for the mine
infrastructure$ .he government then ac+uires ownership of the surface land
areas on behalf of the contractor, in order to enable the latter to proceed to fully
implement the &.AA$
.he contractor, of course, shoulders the purchase price of the land$ Aence,
the provision allows it, after termination of the &.AA, to be reimbursed from
proceeds of the sale of the surface areas, which the government will dispose of
through public bidding$ It should be noted that this provision will not be
applicable to #agittarius as the present &.AA contractor, since it is a &ilipino
corporation +ualified to own and hold land$ As such, it may therefore freely
negotiate with the surface rights owners and ac+uire the surface property in its
own right$
1learly, petitioners have needlessly jumped to unwarranted conclusions,
without being aware of the rationale for the said provision$ .hat provision does
not call for the e,ercise of the power of eminent domain -- and determination of
just compensation is not an issue -- as much as it calls for a +ualified party to
ac+uire the surface rights on behalf of a foreign-owned contractor$
Rather than having the foreign contractor act through a dummy corporation,
having the #tate do the purchasing is a better alternative$ .his will at least
cause the government to be aware of such transactions and foster
transparency in the contractorIs dealings with the local property owners$ .he
government, then, will not act as a subcontractor of the contractor2 rater, it will
facilitate te transaction and ena&le te parties to avoid a tecnical violation of
te "nti-Dumm% !aw.
Asence of Provision
Re%uiring #ale at Posted
Prices 3ot Prolematic
.he supposed absence of any provision in the 3/1P &.AA directly and
e,plicitly re+uiring the contractor to sell te mineral products at posted or
mar3et prices is not a problem$ Apart from 1lause 5$F of the &.AA obligating
the contractor to account for the total value of mineral production and the sale of
minerals, we can also loo* to #ection %: of RA 86F9, which incorporates into all
&.AAs certain terms, conditions and warranties, including the following"
:>l@ Te contractors sall furnis te Government records of geologic, accounting and oter
relevant data for its mining operation, and tat &oo3s of accounts and records sall &e
open for inspection &% te government. , , ,
>m@ #e<uiring te proponent to dispose of te minerals at te igest price and more
advantageous terms and conditions.;
&or that matter, #ection :;'n( of DA4 66-:; specifically obligates an &.AA
contractor to dispose of the minerals and by-products at the highest mar*et
price and to register with the /?B a copy of the sales agreement$ After all, the
provisions of prevailing statutes as well as rules and regulations are deemed
written into contracts$
$ontractor0s Right to 4ortgage
3ot &jectionale Per #e
Petitioners also +uestion the absolute right of the contractor under 1lause
5E$9 'l( to mortgage and encumber not only its rights and interests in the &.AA
and the infrastructure and improvements introduced, but also te mineral
products e,tracted$ Private respondents do not touch on this matter, but we
believe that this provision may have to do with the conditions imposed by the
creditor-ban*s of the then foreign contractor 3/1P to secure the lendings
made or to be made to the latter$ 4rdinarily, ban*s lend not only on the security
of mortgages on fi,ed assets, but also on encumbrances of goods produced
that can easily be sold and converted into cash that can be applied to the
repayment of loans$ Ban*s even lend on the security of accounts receivable
that are collectible within 6E days$
G:6H
It is not uncommon to find that a debtor corporation has e,ecuted deeds of
assignment by way of security! over the production for the ne,t twelve months
andor the proceeds of the sale thereof -- or the corresponding accounts
receivable, if sold on terms -- in favor of its creditor-ban*s$ #uch deeds may
include authori)ing the creditors to sell the products themselves and to collect
the sales proceeds andor the accounts receivable$
#een in this conte,t, 1lause 5E$9'l( is not something out of the ordinary or
objectionable$ In any case, as will be e,plained below, even if it is allowed to
mortgage or encum&er the mineral end-products themselves, the contractor is
not freed of its obligation to pay the government its basic and additional shares
in the net mining revenue, which is the essential thing to consider$
In brief, the alarum raised over the contractorIs right to mortgage the
minerals is simply unwarranted$ Must the same, the contractor must account for
the value of mineral production and the sales proceeds therefrom$ -i*ewise,
under the 3/1P &.AA, the government remains entitled to its si,ty percent
share in the net mining revenues of the contractor$ .he latterIs right to
mortgage the minerals does not negate the #tateIs right to receive its share of
net mining revenues$
#hareholders "ree
to #ell Their #toc*s
Petitioners li*ewise critici)e 1lause 5E$9'*(, which gives the contractor
authority to change its e+uity structure at any time$! .his provision may seem
somewhat unusual, but considering that 3/1P then was 5EE percent foreign-
owned, any change would mean that such percentage would either stay
unaltered or be decreased in favor of &ilipino ownership$ /oreover, the foreign-
held shares may change hands freely$ #uch eventuality is as it should be$
3e believe it is not necessary for government to attempt to limit or restrict
the freedom of the shareholders in the contractor to freely transfer, dispose of or
encumber their shareholdings, consonant with the unfettered e,ercise of their
business judgment and discretion$ Rather, wat is critical is tat, regardless of
te identit%, nationalit% and percentage ownersip of te various sareolders of
te contractor -- and regardless of weter tese sareolders decide to ta3e
te compan% pu&lic, float &onds and oter fi,ed-income instruments, or allow
te creditor-&an3s to ta3e an e<uit% position in te compan% -- te foreign-
owned contractor is alwa%s in a position to render te services re<uired under
te 'T"", under te direction and control of te government.
$ontractor0s Right to As*
"or Amendment 3ot Asolute
3ith respect to 1lauses 5E$F'e( and 'i(, petitioners complain that these
provisions bind government to allow amendments to the &.AA if re+uired by
ban*s and other financial institutions as part of the conditions for new lendings$
Aowever, we do not find anything wrong with 1lause 5E$F'e(, which only states
that :if te Contractor see3s to o&tain financing contemplated erein from &an3s
or oter financial institutions, >te Government sall@ cooperate wit te
Contractor in suc efforts provided tat suc financing arrangements will in no
event reduce te Contractor2s o&ligations or te Government2s rigts
ereunder.; .he colatilla obviously safeguards the #tateIs interests2 if
breached, it will give the government cause to object to the proposed
amendments$
4n the other hand, 1lause 5E$F'i( provides that :te Government sall
favoura&l% consider an% re<uest from JteK Contractor for amendments of tis
"greement wic are necessar% in order for te Contractor to successfull%
o&tain te financing.; Petitioners see in this provision a complete renunciation
of control$ 3e disagree$
.he proviso does not say that the government shall grant any re+uest for
amendment$ 1lause 5E$F'i( only obliges the #tate to favorably consider any
such re+uest, which is not at all unreasonable, as it is not e+uivalent to saying
that the government must automatically consent to it$ .his provision should be
read together with the rest of the &.AA provisions instituting government control
and supervision over the mining enterprise$ .he clause should not be given an
interpretation that enables the contractor to wiggle out of the restrictions
imposed upon it by merely suggesting that certain amendments are re+uested
by the lenders$
Rather, it is up to the contractor to prove to the government that the
re+uested changes to the &.AA are indispensable, as they enable the
contractor to obtain the needed financing2 that without such contract changes,
the funders would absolutely refuse to e,tend the loan2 that there are no other
sources of financing available to the contractor 'a very unli*ely scenario(2 and
that without the needed financing, the e,ecution of the wor* programs will not
proceed$ But the bottom line is, in the e,ercise of its power of control, the
government has the final sa% on whether to approve or disapprove such
re+uested amendments to the &.AA$ In sort, approval tereof is not
mandator% on te part of te government.
In fine, the foregoing evaluation and analysis of the aforementioned
5T"" provisions sufficiently overturns petitioners: litany of ob/ections to
and criticisms of the State:s alleged lack of control
"inancial +enefits 3ot
#urrendered to the $ontractor
4ne of the main reasons certain provisions of RA 86F9 were struc* down
was the finding mentioned in the Decision that beneficial ownership of the
mineral resources had been conveyed to the contractor$ .his finding was based
on the underlying assumption, common to the said provisions, that the foreign
contractor manages the mineral resources in the same way that foreign
contractors in service contracts used to$ :.% allowing foreign contractors to
manage or operate all te aspects of te mining operation, te a&ove-cited
provisions of #.". Go. 4567 ave in effect conveyed eneficial ownership
over te nation2s mineral resources to tese contractors, leaving te /tate wit
noting &ut &are title tereto.;
G;EH
As the 3/1P &.AA contained similar
provisions deemed by the ponente to be abhorrent to the 1onstitution, the
Decision struc* down the 1ontract as well$
Beneficial ownership has been defined as ownership recogni)ed by law and
capable of being enforced in the courts at the suit of the beneficial owner$
G;5H
Blac*Is !aw Dictionar% indicates that the term is used in two senses" first, to
indicate the interest of a beneficiary in trust property 'also called e+uitable
ownership!(2 and second, to refer to the power of a corporate shareholder to buy
or sell the shares, though the shareholder is not registered in the corporationIs
boo*s as the owner$
G;9H
<sually, beneficial ownership is distinguished from na*ed
ownership, which is the enjoyment of all the benefits and privileges of
ownership, as against possession of the bare title to property$
An assiduous e,amination of the 3/1P &.AA uncovers no indication that it
confers upon 3/1P ownership, beneficial or otherwise, of the mining property
it is to develop, the minerals to be produced, or the proceeds of their sale, which
can be legally asserted and enforced as against the #tate$
As public respondents correctly point out, any interest the contractor may
have in the proceeds of the mining operation is merely the e+uivalent of the
consideration the government has underta*en to pay for its services$ All lawful
contracts re+uire such mutual prestations, and the 3/1P &.AA is no different$
.he contractor commits to perform certain services for the government in
respect of the mining operation, and in turn it is to be compensated out of the
net mining revenues generated from the sale of mineral products$ 3hat would
be objectionable is a contractual provision that unduly benefits the contractor far
in e,cess of the service rendered or value delivered, if any, in e,change
therefor$
A careful perusal of the statute itself and its implementing rules reveals that
neither RA 86F9 nor DA4 66-:; can be said to convey beneficial ownership of
any mineral resource or product to any foreign &.AA contractor$
9%uitale #haring
of "inancial +enefits
4n the contrary, DA4 66-:;, entitled :Guidelines +sta&lising te 'iscal
#egime of 'inancial or Tecnical "ssistance "greements; aims to ensure an
e+uitable sharing of the benefits derived from mineral resources$ .hese
benefits are to be e+uitably shared among the government 'national and local(,
the &.AA contractor, and the affected communities$ .he purpose is to ensure
sustainable mineral resources development2 and a fair, e+uitable, competitive
and stable investment regime for the large-scale e,ploration, development and
commercial utili)ation of minerals$ Te general framewor3 or concept followed
in crafting te fiscal regime of te 'T"" is &ased on te principle tat te
government e,pects real contri&utions to te economic growt and general
welfare of te countr%, wile te contractor e,pects a reasona&le return on its
investments in te project.
G;%H
#pecifically, under the fiscal regime, the governmentIs e,pectation is, inter
alia, the receipt of its share from the ta,es and fees normally paid by a mining
enterprise$ 4n the other hand, the &.AA contractor is granted by the
government certain fiscal and non-fiscal incentives
G;FH
to help support the
formerIs cash flow during the most critical phase 'cost recovery( and to ma*e
the Philippines competitive with other mineral-producing countries$ After the
contractor has recovered its initial investment, it will pay all the normal ta,es and
fees comprising the basic share of the government, plus an additional share for
the government based on the options and formulae set forth in DA4 66-:;$
.he said DA4 spells out the financial benefits the government will receive
from an &.AA, referred to as the ?overnment #hare,! composed of a asic
government share and an additional government share
.he basic government share is comprised of all direct ta,es, fees and
royalties, as well as other payments made by the contractor during the term of
the &.AA$ .hese are amounts paid directly to 'i( the national government
'through the Bureau of Internal Revenue, Bureau of 1ustoms, /ines U
?eosciences Bureau and other national government agencies imposing ta,es or
fees(, 'ii( the local government units where the mining activity is conducted, and
'iii( persons and communities directly affected by the mining project$ .he major
ta,es and other payments constituting the basic government share are
enumerated below"
G;:H
Payments to the 0ational ?overnment"
C,cise ta, on minerals - 9 percent of the gross output of mining operations
1ontractorI income ta, - ma,imum of %9 percent of ta,able income for corporations
1ustoms duties and fees on imported capital e+uipment -the rate is set by the .ariff
and 1ustoms 1ode '%-8 percent for chemicals2 %-5E percent for e,plosives2 %-5:
percent for mechanical and electrical e+uipment2 and %-5E percent for vehicles, aircraft
and vessels
KA. on imported e+uipment, goods and services P 5E percent of value
Royalties due the government on minerals e,tracted from mineral reservations, if
applicable P : percent of the actual mar*et value of the minerals produced
Documentary stamp ta, - the rate depends on the type of transaction
1apital gains ta, on traded stoc*s - : to 5E percent of the value of the shares
3ithholding ta, on interest payments on foreign loans -5: percent of the amount of
interest
3ithholding ta, on dividend payments to foreign stoc*holders P 5: percent of the
dividend
3harfage and port fees
-icensing fees 'for e,ample, radio permit, firearms permit, professional fees(
4ther national ta,es and fees$
Payments to -ocal ?overnments"
-ocal business ta, - a ma,imum of 9 percent of gross sales or receipts 'the rate varies
among local government units(
Real property ta, - 9 percent of the fair mar*et value of the property, based on an
assessment level set by the local government
#pecial education levy - 5 percent of the basis used for the real property ta,
4ccupation fees - PhP:E per hectare per year2 PhP5EE per hectare per year if located
in a mineral reservation
1ommunity ta, - ma,imum of PhP5E,:EE per year
All other local government ta,es, fees and imposts as of the effective date of the &.AA
- the rate and the type depend on the local government
4ther Payments"
Royalty to indigenous cultural communities, if any P 5 percent of gross output from
mining operations
#pecial allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also
collected from the &.AA contractor in accordance with the second paragraph of
#ection 75 of RA 86F9, which provides that the government share shall be
comprised of, among oter tings, certain ta,es, duties and fees$ .he subject
proviso reads"
:Te Government sare in a financial or tecnical assistance agreement sall
consist of, among other things, te contractor2s corporate income ta,, e,cise ta,,
special allowance, witolding ta, due from te contractor2s foreign stoc3olders
arising from dividend or interest pa%ments to te said foreign stoc3older in case of a
foreign national, and all suc oter ta,es, duties and fees as provided for under
e,isting laws.; 'Bold types supplied$(
.he government, through the DC0R and the /?B, has interpreted the
insertion of the phrase among oter tings as signifying that the government is
entitled to an additional government share! to be paid by the contractor apart
from the basic share,! in order to attain a fifty-fifty sharing of net benefits from
mining$
.he additional government share is computed by using one of three
options or schemes presented in DA4 66-:;" '5( a fifty-fifty sharing in the
cumulative present value of cash flows2 '9( the share based on e,cess profits2
and '%( the sharing based on the cumulative net mining revenue$ .he particular
formula to be applied will be selected by the contractor, with a written notice to
the government prior to the commencement of the development and
construction phase of the mining project$
G;;H
Proceeds from the government shares arising from an &.AA contract are
distributed to and received by the different levels of government in the following
proportions"
0ational ?overnment :E percent
Provincial ?overnment 5E percent
/unicipal ?overnment 9E percent
Affected Barangays 9E percent
.he portion of revenues remaining after the deduction of the basic and
additional government shares is what goes to the contractor$
)overnment0s #hare in an
"TAA 3ot $onsisting #olely
of Ta!es, 2uties and "ees
In connection with the foregoing discussion on the basic and additional
government shares, it is pertinent at this juncture to mention the criticism
leveled at the second paragraph of #ection 75 of RA 86F9, +uoted earlier$ .he
said proviso has been denounced, because, allegedly, the #tateIs share in
&.AAs with foreign contractors has been limited to ta,es, fees and duties only2
in effect, the #tate has been deprived of a sare in te after-ta, income of the
enterprise$ In the face of this allegation, one has to consider that the law does
not define the term among oter tingsC and the 4ffice of the #olicitor ?eneral,
in its /otion for Reconsideration, appears to have erroneously claimed that the
phrase refers to indirect ta,es$
.he law provides no definition of the term among oter tings, for the
reason that 1ongress deliberately avoided setting unnecessary limitations as to
what may constitute compensation to the #tate for the e,ploitation and use of
mineral resources$ But the inclusion of that phrase clearly and unmista*ably
reveals the legislative intent to ave te /tate collect more tan just te usual
ta,es, duties and fees$ 1ertainly, there is nothing in that phrase -- or in the
second paragraph of #ection 75 -- that would suggest that such phrase should
be interpreted as referring only to ta,es, duties, fees and the li*e$
Precisely for that reason, to fulfill the legislative intent behind the inclusion of
the phrase among oter tings in the second paragraph of #ection 75,
G;8H
the
DC0R structured and formulated in DA4 66-:; the said additional
government share #uch a share was to consist not of ta,es, but of a share in
the earnings or cash flows of the mining enterprise .he additional
government share was to be paid by the contractor on top of the basic share, so
as to achieve a fift%-fift% saring -- between the government and the contractor --
of net &enefits from mining$ In te #amos-De1era paper, te e,planation of te
three options or formulas
G;7H
-- presented in D"O 55-E8 for te computation of
te additional government sare -- serves to de&un3 te claim tat te
government2s ta3e from an 'T"" consists solel% of ta,es, fees and duties.
<nfortunately, the 4ffice of the #olicitor ?eneral -- although in possession of
the relevant data -- failed to fully replicate or echo the pertinent elucidation in the
Ramos-DeKera paper regarding the three schemes or options for computing the
additional government share presented in DA4 66-:;$ Aad due care been ta*en
by the 4#?, the 1ourt would have been duly apprised of the real nature and
particulars of the additional share$
But, perhaps, on account of the esoteric discussion in the Ramos-DeKera
paper, and the even more abstruse mathematical jargon employed in DA4 66-
:;, the 4#? omitted any mention of the three options$ Instead, the 4#?
s*ipped to a side discussion of the effect of indirect ta,es, which had noting at
all to do wit te additional government sare, to &egin wit. <nfortunately, this
move created the wrong impression, pointed out in Mustice Antonio .$ 1arpioIs
4pinion, that the 4#? had ta*en the position that the additional government
share consisted of indirect ta,es$
In any event, what is +uite evident is the fact that the additional
government share, as formulated, has nothing to do with ta,es -- direct or
indirect -- or with duties, fees or charges$ .o repeat, it is over and above the
basic government share composed of ta,es and duties$ #imply put, the
additional share may be 'a( an amount that will result in a :E-:E sharing of the
cumulative present value of the cas flows
G;6H
of te enterprise2 'b( an amount
e+uivalent to 9: percent of the additional or e,cess profits of te enterprise,
rec*oned against a benchmar* return on investments2 or 'c( an amount that will
result in a fifty-fifty sharing of the cumulative net mining revenue from the end of
the recovery period up to the ta,able year in +uestion$ .he contractor is
re+uired to select one of the three options or formulae for computing the
additional share, an option it will apply to all of its mining operations$
As used above, net mining revenue! is defined as the gross output from
mining operations for a calendar year, less deductible e,penses 'inclusive of
ta,es, duties and fees($ #uch revenue would roughly be e+uivalent to ta,able
income! or income &efore income ta,$ Definitely, as compared with, say,
calculating the additional government share on the basis of net income 'after
income ta,(, the net mining revenue is a better and much more reasonable
basis for such computation, as it gives a truer picture of the profitability of the
company$
.o demonstrate that the three options or formulations will operate as
intended, /essrs$ Ramos and de Kera also performed some +uantifications of
the government share via a financial modeling of each of the three options
discussed above$ .hey found that the government would get the highest share
from the option that is based on the net mining revenue, as compared with the
other two options, considering only the basic and the additional shares2 and
that, even though production rate decreases, the government share will actually
increase when the net mining revenue and the additional profit-based options
are used$
&urthermore, it should be noted that the three options or formulae do not %et
ta3e into account te indirect ta,es
G8EH
and oter financial contri&utions
G85H
of
mining projects$ .hese indirect ta,es and other contributions are real and actual
benefits enjoyed by the &ilipino people andor government$ 0ow, if some of the
+uantifiable items are ta*en into account in the computations, the financial
modeling would show that the total government share increases to ;E percent
or iger -- in one instance, as much as 88 percent and even 76 percent -- of
the net present value of total benefits from the project$ As noted in the Ramos-
DeKera paper, these results are not at all shabby, considering that the
contractor puts in all the capital re+uirements and assumes all the ris*s, without
the government having to contribute or ris* anything$
Despite the foregoing e,planation, Mustice 1arpio still insisted during the
1ourtIs deliberations that the phrase among oter tings refers only to ta,es,
duties and fees$ 3e are bewildered by his position$ 4n the one hand, he
condemns the /ining -aw for allegedly limiting the governmentIs benefits only
to ta,es, duties and fees2 and on the other, he refuses to allow the #tate to
benefit from the correct and proper interpretation of the DC0R/?B$ .o
remove all doubts then, we hold that the #tateIs share is not limited to ta,es,
duties and fees only and that the DC0R/?B interpretation of the phrase
among oter tings is correct$ Definitely, this DC0R/?B interpretation is not
only legally sound, but also greatly advantageous to the government$
4ne last point on the subject$ .he legislature acted judiciously in not
defining the terms among oter tings and, instead, leaving it to the agencies
concerned to devise and develop the various modes of arriving at a reasonable
and fair amount for the additional government share As can be seen from
DA4 66-:;, the agencies concerned did an admirable job of conceiving and
developing not just one formula, but three different formulae for arriving at the
additional government share$ Cach of these options is +uite fair and
reasonable2 and, as /essrs$ Ramos and De Kera stated, other alternatives or
schemes for a possible improvement of the fiscal regime for &.AAs are also
being studied by the government$
Besides, not loc*ing into a fi,ed definition of the term among oter tings
will ultimately be more beneficial to the government, as it will have that innate
fle,ibility to adjust to and cope with rapidly changing circumstances, particularly
those in the international mar*ets$ #uch fle,ibility is especially significant for the
government in terms of helping our mining enterprises remain competitive in
world mar*ets despite challenging and shifting economic scenarios$
In conclusion, we stress that we do not share the view that in 5T""s
with foreign contractors under 1" '*@!, the government:s share is limited
to ta.es, fees and duties Consequently, we find the attacks on the
second paragraph of Section 4% of 1" '*@! totally unwarranted
$ollections 3ot 4ade (ncertain
y the Third Paragraph of #ection ,/
.he third or last paragraph of #ection 75
G89H
provides that the government
share in &.AAs shall be collected when the contractor shall have recovered its
pre-operating e,penses and e,ploration and development e,penditures$ .he
objection has been advanced that, on account of the proviso, the collection of
the #tateIs share is not even certain, as there is no time limit in RA 86F9 for this
grace period or recovery period$
3e believe that 1ongress did not set any time limit for the grace period,
preferring to leave it to the concerned agencies, which are, on account of their
technical e,pertise and training, in a better position to determine the appropriate
durations for such recovery periods$ After all, these recovery periods are
determined, to a great e,tent, by technical and technological factors peculiar to
the mining industry$ Besides, with developments and advances in technology
and in the geosciences, we cannot discount the possibility of shorter recovery
periods$ At any rate, the concerned agencies have not been remiss in this
area$ .he 566: and 566; Implementing Rules and Regulations of RA 86F9
specify that the period of recovery, rec*oned from the date of commercial
operation, shall be for a period not e,ceeding five %ears, or until te date of
actual recover%, wicever comes earlier$
Approval of Pre'&perating
9!penses Re%uired y RA .>;?
#till, RA 86F9 is critici)ed for allegedly not re+uiring government approval of
pre-operating, e,ploration and development e,penses of the foreign contractors,
who are in effect given unfettered discretion to determine the amounts of such
e,penses$ #upposedly, nothing prevents the contractors from recording such
e,penses in amounts e+ual to the mining revenues anticipated for the first 5E or
5: years of commercial production, with the result that the share of the #tate will
be )ero for the first 5E or 5: years$ /oreover, under the circumstances, the
government would be unable to say when it would start to receive its share
under the &.AA$
3e believe that the argument is based on incorrect information as well as
speculation$ 4bviously, certain crucial provisions in the /ining -aw were
overloo*ed$ #ection 9%, dealing with the rights and obligations of the
e,ploration permit grantee, states" :Te permittee sall underta3e e,ploration
wor3 on te area as specified &% its permit &ased on an approved wor3
program.; .he ne,t proviso reads" :"n% e,penditure in e,cess of te %earl%
&udget of te approved wor3 program ma% &e carried forward and credited to
te succeeding %ears covering te duration of te permit. , , ,.; 'underscoring
supplied(
1learly, even at the stage of application for an e,ploration permit, the
applicant is re+uired to submit -- for approval by the government -- a proposed
wor* program for e,ploration, containing a yearly budget of proposed
e,penditures$ .he #tate has the opportunity to pass upon 'and approve or
reject( such proposed e,penditures, with the fore*nowledge that -- if approved --
these will subse+uently be recorded as pre-operating e,penses that the
contractor will have to recoup over the grace period$ .hat is not all$
<nder #ection 9F, an e,ploration permit holder who determines the
commercial viability of a project covering a mining area may, within the term of
the permit, file with the /ines and ?eosciences Bureau a declaration of mining
project feasi&ilit%. .his declaration is to be accompanied by a wor3 program for
development for the BureauIs approval, the necessary prelude for entering into
an &.AA, a mineral production sharing agreement '/P#A(, or some other
mineral agreement$ At this stage, too, the government obviously has the
opportunity to approve or reject the proposed wor* program and budgeted
e,penditures for development wor3s on the project$ #uch e,penditures will
ultimately become the pre-operating and development costs that will have to be
recovered by the contractor$
0aturally, with the submission of approved wor* programs and budgets for
the e,ploration and the developmentconstruction phases, the government will
be able to scrutini)e and approve or reject such e,penditures$ It will be well-
informed as to the amounts of pre-operating and other e,penses that the
contractor may legitimately recover and the appro,imate period of time needed
to effect such a recovery$ .here is therefore no way the contractor can just
randomly post any amount of pre-operating e,penses and e,pect to recover the
same$
.he aforecited provisions on approved wor* programs and budgets have
counterparts in #ection %:, which deals with the terms and conditions
e,clusively applicable to &.AAs$ .he said provision re+uires certain terms and
conditions to be incorporated into &.AAs2 among them, :a firm commitment , ,
, of an amount corresponding to te e,penditure o&ligation tat will &e invested
in te contract area; and :representations and warranties , , , to timel% deplo%
tese Gfinancing, managerial and technical e,pertise and technologicalH
resources under its supervision pursuant to te periodic wor3 programs and
related &udgets , , ,,; as well as :wor3 programs and minimum e,penditures
commitments.; 'underscoring supplied(
<narguably, given the provisions of #ection %:, the #tate has every
opportunity to pass upon the proposed e,penditures under an &.AA and
approve or reject tem. It has access to all the information it may need in order
to determine in advance the amounts of pre-operating and developmental
e,penses that will have to be recovered by the contractor and the amount of
time needed for such recovery$
In summary, we cannot agree that the third or last paragraph of
Section 4% of 1" '*@! is in any manner unconstitutional
3o 2eprivation of
+eneficial Rights
It is also claimed that aside from the second and the third paragraphs of
#ection 75 'discussed above(, #ections 7E, 7F and 559 of RA 86F9 also operate
to deprive the #tate of beneficial rights of ownership over mineral resources2
and give them away for free to private business enterprises 'including foreign
owned corporations($ -i*ewise, the said provisions have been construed as
constituting, together with #ection 75, an ingenious attempt to resurrect the old
and discredited system of license, concession or lease$!
#pecifically, #ection 7E is condemned for limiting the #tateIs share in a
mineral production-sharing agreement '/P#A( to just the e,cise ta, on the
mineral product$ <nder #ection 5:5'A( of the .a, 1ode, such ta, is only 9
percent of the mar*et value of the gross output of the minerals$ .he colatilla in
#ection 7F, the portion considered offensive to the 1onstitution, reiterates the
same limitation made in #ection 7E$
G8%H
It should be pointed out that #ection 7E and the colatilla in #ection 7F
pertain onl% to *-/"s and ave no application to 'T""s$ .hese particular
statutory provisions do not come within the issues that were defined and
delineated by this 1ourt during the 4ral Argument -- particularly the third issue,
which pertained e,clusively to &.AAs$ 0either did the parties argue upon them
in their pleadings$ Aence, this 1ourt cannot ma*e any pronouncement in tis
case regarding the constitutionality of #ections 7E and 7F without violating the
fundamental rules of due process$ Indeed, the two provisos will have to await
another case specifically placing them in issue$
4n the other hand, #ection 559
G8FH
is disparaged for allegedly reverting
&.AAs and all mineral agreements to the old and discredited license,
concession or lease! system$ .his #ection states in relevant part that :te
provisions of Capter DI1 Gwhich includes #ections 7E to 79H on government
sare in mineral production-saring agreement , , , sall immediatel% govern
and appl% to a mining lessee or contractor.; 'underscoring supplied( .his
provision is construed as signifying that the 9 percent e,cise ta, which, pursuant
to #ection 7E, comprises the government share in /P#As shall now also
constitute the government share in &.AAs -- as well as in co-production
agreements and joint venture agreements -- to the e,clusion of revenues of any
other nature or from any other source$
Apart from the fact that #ection 559 li*ewise does not come within the
issues delineated by this 1ourt during the 4ral Argument, and was never
touched upon by the parties in their pleadings, it must also be noted that the
criticism hurled against this #ection is rooted in unwarranted conclusions made
without considering other relevant provisions in the statute$ 3hether #ection
559 may properly apply to co-production or joint venture agreements, the fact of
the matter is that it cannot &e made to appl% to 'T""s$
'irst, #ection 559 does not specifically mention or refer to &.AAs2 the only
reason it is being applied to them at all is the fact that it happens to use the
word contractor$! Aence, it is a bit of a stretch to insist that it covers &.AAs as
well$ /econd, mineral agreements, of which there are three types -- /P#As,
co-production agreements, and joint venture agreements -- are covered by
1hapter K of RA 86F9$ 4n the other hand, &.AAs are covered by and in fact
are the subject of 1hapter KI, an entirely different chapter altogether$ .he law
obviously intends to treat them as a breed apart from mineral agreements, since
#ection %: 'found in 1hapter KI( creates a long list of specific terms, conditions,
commitments, representations and warranties -- which have not been made
applicable to mineral agreements -- to be incorporated into &.AAs$
Tird, under #ection %6, the &.AA contractor is given the option to
downgrade! -- to convert the &.AA into a mineral agreement at any time during
the term if the economic viability of the contract area is inade+uate to sustain
large-scale mining operations$ .hus, there is no reason to thin* that the law
through #ection 559 intends to e,act from &.AA contractors merely the same
government share 'a 9 percent e,cise ta,( that it apparently demands from
contractors under the three forms of mineral agreements$ In brief, Section %%!
does not apply to 5T""s
0otwithstanding the foregoing e,planation, Mustices 1arpio and /orales
maintain that the 1ourt must rule now on the constitutionality of #ections 7E, 7F
and 559, allegedly because the 3/1P &.AA contains a provision which grants
the contractor unbridled and automatic! authority to convert the &.AA into an
/P#A2 and should such conversion happen, the #tate would be prejudiced
since its share would be limited to the 9 percent e,cise ta,$ Mustice 1arpio adds
that there are five /P#As already signed just awaiting the judgment of this
1ourt on respondentsI and intervenorIs /otions for Reconsideration$ 3e hold
however that, at this point, this argument is based on pure speculation$ .he
1ourt cannot rule on mere surmises and hypothetical assumptions, without firm
factual anchor$ 3e repeat" basic due process re+uires that we hear the parties
who have a real legal interest in the /P#As 'i$e$ the parties who e,ecuted them(
before these /P#As can be reviewed, or worse, struc* down by the 1ourt$
Anything less than that re+uirement would be arbitrary and capricious$
In any event, the conversion of the present &.AA into an /P#A is
problematic$ 'irst, the contractor must comply with the law, particularly #ection
%6 of RA 86F92 inter alia, it must convincingly show that the economic viability
of the contract is found to be inade+uate to justify large-scale mining
operations2! second, it must contend with the PresidentIs e,ercise of the power
of #tate control over the CD< of natural resources2 and tird, it will have to ris* a
possible declaration of the unconstitutionality 'in a proper case( of #ections 7E,
7F and 559$
.he first re+uirement is not as simple as it loo*s$ #ection %6 contemplates
a situation in which an &.AA has already been e,ecuted and entered into, and is
presumably being implemented, when the contractor discovers! that the mineral
ore reserves in the contract area are not sufficient to justify large-scale mining,
and thus the contractor re+uests the conversion of the &.AA into an /P#A$
.he contractor in effect needs to e,plain why, despite its e,ploration activities,
including the conduct of various geologic and other scientific tests and
procedures in the contract area, it was unable to determine correctly the mineral
ore reserves and the economic viability of the area$ .he contractor must e,plain
why, after conducting such e,ploration activities, it decided to file a declaration
of mining feasibility, and to apply for an &.AA, thereby leading the #tate to
believe that the area could sustain large-scale mining$ .he contractor must
justify fully why its earlier findings, based on scientific procedures, tests and
data, turned out to be wrong, or were way off$ It must li*ewise prove that its
new findings, also based on scientific tests and procedures, are correct$ Right
away, this puts the contractorIs technical capabilities and e,pertise into serious
doubt$ 3e wonder if anyone would relish being in this situation$ .he #tate
could even +uestion and challenge the contractorIs +ualification and
competence to continue the activity under an /P#A$
"ll in all, while there may be cogent grounds to assail the aforecited
Sections, this Court ,, on considerations of due process ,, cannot rule
upon them here "nyway, if later on these Sections are declared
unconstitutional, such declaration will not affect the other portions since
they are clearly separable from the rest
&ur 4ineral Resources 3ot
)iven Away for "ree y RA .>;?
0evertheless, if only to disabuse our minds, we should address the
contention that our mineral resources are effectively given away for free by the
law 'RA 86F9( in general and by #ections 7E, 75, 7F and 559 in particular$
&oreign contractors do not just walt) into town one day and leave the ne,t,
ta*ing away mineral resources witout pa%ing an%ting$ In order to get at the
minerals, they have to invest huge sums of money 'tens or hundreds of millions
of dollars( in e,ploration wor*s first$ If the e,ploration proves unsuccessful, all
the cash spent thereon will not be returned to the foreign investors2 rather, those
funds will have been infused into the local economy, to remain there
permanently$ .he benefits therefrom cannot be simply ignored$ And assuming
that the foreign contractors are successful in finding ore bodies that are viable
for commercial e,ploitation, they do not just pluc* out the minerals and cart
them off$ .hey have first to build camp sites and roadways2 dig mine shafts and
connecting tunnels2 prepare tailing ponds, storage areas and vehicle depots2
install their machinery and e+uipment, generator sets, pumps, water tan*s and
sewer systems, and so on$
In short, they need to e,pend a great deal more of their funds for facilities,
e+uipment and supplies, fuel, salaries of local labor and technical staff, and
other operating e,penses$ In the meantime, they also have to pay ta,es,
G8:H
duties, fees, and royalties$ All told, the e,ploration, pre-feasibility, feasibility,
development and construction phases together add up to as many as eleven
years$
G8;H
.he contractors have to continually shell out funds for the duration of
over a decade, before they can commence commercial production from which
they would eventually derive revenues$ All that money translates into a lot of
pump-priming! for the local economy$
?ranted that the contractors are allowed subse+uently to recover their pre-
operating e,penses, still, that eventuality will happen only after they shall have
first put out te cas and fueled the economy$ /oreover, in the process of
recouping their investments and costs, the foreign contractors do not actuall%
pull out te mone% from te econom%$ Rather, they recover or recoup their
investments out of actual commercial production by not paying a portion of the
basic government share corresponding to national ta,es, along with the
additional government share, for a period of not more than five years
G88H
counted
from the commencement of commercial production$
It must be noted that tere can &e no recover% witout commencing actual
commercial production$ In the meantime that the contractors are recouping
costs, they need to continue operating2 in order to do so, they have to disburse
money to meet their various needs$ In short, money is continually infused into
the economy$
.he foregoing discussion should serve to rid us of the mista*en belief that,
since the foreign contractors are allowed to recover their investments and costs,
the end result is that they practically get the minerals for free, which leaves the
&ilipino people none the better for it$
All +usinesses 9ntitled
to $ost Recovery
!et it &e put on record tat not onl% foreign contractors, &ut all &usinessmen
and all &usiness entities in general, ave to recoup teir investments and costs.
.hat is one of the first things a student learns in business school$ Regardless of
its nationality, and whether or not a business entity has a five-year cost recovery
period, it will -- must -- have to recoup its investments, one way or another$ .his
is just common business sense$ Recovery of investments is absolutely
indispensable for business survival2 and business survival ensures soundness
of the economy, which is critical and contributory to the general welfare of the
people$ +ven government corporations must recoup teir investments in order
to survive and continue in operation. And, as the preceding discussion has
shown, there is no business that gets ahead or earns profits without any cost to
it$
It must also be stressed that, though the #tate owns vast mineral wealth,
such wealth is not readily accessible or transformable into usable and
negotiable currency without the intervention of the credible mining companies$
.hose untapped mineral resources, hidden beneath tons of earth and roc*, may
as well not be there for all the good they do us right now$ .hey have first to be
e,tracted and converted into mar*etable form, and the country needs the
foreign contractorIs funds, technology and *now-how for that$
After about eleven years of pre-operation and another five years for cost
recovery, the foreign contractors will have just bro*en even$ Is it li*ely that they
would at that point stop their operations and leave= 1ertainly not$ .hey have
yet to ma*e profits$ .hus, for the remainder of the contract term, they must
strive to maintain profitability$ During this period, they pay the whole of the
&asic government sare and te additional government sare wic, ta3en
togeter wit indirect ta,es and oter contri&utions, amount to appro,imatel% 89
percent or more of te entire financial &enefits generated &% te mining venture.
In sum, we can hardly tal* about foreign contractors ta*ing our mineral
resources for free$ It ta*es a lot of hard cash to even begin to do what they do$
"nd wat te% do in tis countr% ultimatel% &enefits te local econom%, grows
&usinesses, generates emplo%ment, and creates infrastructure, as discussed
above$ Aence, we definitely disagree with the sweeping claim that no &.AA
under #ection 75 will ever ma*e any real contribution to the growth of the
economy or to the general welfare of the country$ .his is not a plea for foreign
contractors$ #ater, tis is a <uestion of focusing te judicial spotligt s<uarel%
on all te pertinent facts as te% &ear upon te issue at and, in order to avoid
leaping precipitatel% to ill-conceived conclusions not solidl% grounded upon fact.
Repatriation of
After'Ta! Income
Another objection points to the alleged failure of the /ining -aw to ensure
real contributions to the economic growth and general welfare of the country, as
mandated by #ection 9 of Article >II of the 1onstitution$ Pursuant to #ection 75
of the law, the entire after-ta, income arising from the e,ploitation of mineral
resources owned by the #tate supposedly belongs to the foreign contractors,
which will naturally repatriate the said after-ta, income to their home countries,
thereby resulting in no real contribution to the economic growth of this country$
1learly, this contention is premised on erroneous assumptions$
'irst, as already discussed in detail hereinabove, the concerned agencies
have correctly interpreted the second paragraph of #ection 75 of RA 86F9 to
mean that the government is entitled to an additional share, to be computed
based on any one of the following factors" net mining revenues, the present
value of the cash flows, or e,cess profits rec*oned against a benchmar* rate of
return on investments$ #o it is not correct to say that all of the after-ta, income
will accrue to the foreign &.AA contractor, as the government effectivel%
receives a significant portion tereof$
/econd, the foreign contractors can hardly :repatriate te entire after-ta,
income to teir ome countries.; Cven a bit of *nowledge of corporate finance
will show that it will be impossible to maintain a business as a going concern! if
the entire net profit! earned in any particular year will be ta*en out and
repatriated$ .he net income! figure reflected in the bottom line is a mere
accounting figure not necessarily corresponding to cash in the ban*, or other
+uic* assets$ In order to produce and set aside cash in an amount e+uivalent to
the bottom line figure, one may need to sell off assets or immediately collect
receivables or li+uidate short-term investments2 but doing so may very li*ely
disrupt normal business operations$
In terms of cash flows, the funds corresponding to the net income as of a
particular point in time are actuall% in use in the normal course of business
operations$ Pulling out such net income disrupts te cas flows and cas
position of te enterprise and, depending on the amount being ta*en out, could
seriously cripple or endanger the normal operations and financial health of the
business enterprise$ In short, no sane business person, concerned with
maintaining the mining enterprise as a going concern and keeping a
foothold in its market, can afford to repatriate the entire after,ta. income
to the home country
The #tate0s Receipt of #i!ty
Percent of an "TAA $ontractor0s
After'Ta! Income 3ot 4andatory
3e now come to the ne,t objection which runs this way" In &.AAs with a
foreign contractor, the #tate must receive at least ;E percent of the after-ta,
income from the e,ploitation of its mineral resources$ .his share is the
e+uivalent of the constitutional re+uirement that at least ;E percent of the
capital, and hence ;E percent of the income, of mining companies should
remain in &ilipino hands$
'irst, we fail to see how we can properly conclude that the 1onstitution
mandates the #tate to e,tract at least ;E percent of the after-ta, income from a
mining company run by a foreign contractor$ .he argument is that the 1harter
re+uires the #tateIs partner in a co-production agreement, joint venture
agreement or /P#A to be a &ilipino corporation 'at least ;E percent owned by
&ilipino citi)ens($
3e +uestion the logic of this reasoning, premised on a supposedly parallel
or analogous situation$ 3e are, after all, dealing with an essentiall% different
e<uation, one that involves different elements$ The Charter did not intend to
fi. an iron,clad rule on the &+ percent share, applicable to all situations at
all times and in all circumstances If ever such was the intention of the
framers, they would have spelt it out in blac* and white$ 1er&a legis will serve
to dispel unwarranted and untenable conclusions$
/econd, if we would bother to do the math, we might better appreciate the
impact 'and reasonableness( of what we are demanding of the foreign
contractor$ -et us use a simplified illustration$ -et us base it on gross revenues
of, say, P:EE$ After deducting operating e,penses, but prior to income ta,,
suppose a mining firm ma*es a ta,a&le income of P5EE$ A corporate income
ta, of %9 percent results in P%9 of ta,able income going to the government,
leaving the mining firm with P;7$ ?overnment then ta*es 89 percent tereof,
e+uivalent to PFE$7E, leaving only P98$9E for the mining firm$
At this point the government has poc*eted P%9$EE plus PFE$7E, or a total of
P89$7E for every P5EE of ta,able income, leaving the mining firm with only
P98$9E$ But that is not all$ .he government has also ta*en 9 percent e,cise ta,
off the top,! e+uivalent to another P5E$ <nder the minimum ;E percent
proposal, the government nets around P79$7E 'not counting other ta,es, duties,
fees and charges( from a ta,able income of P5EE 'assuming gross revenues of
P:EE, for purposes of illustration($ 4n the other hand, the foreign contractor,
wic provided all te capital, e<uipment and la&or, and too3 all te
entrepreneurial ris3s -- receives P98$9E$ 4ne cannot but wonder whether such
a distribution is even remotely e+uitable and reasonable, considering the nature
of te mining &usiness$ .he amount of P79$7E out of P5EE$EE is really a lot P it
does not matter that we call part of it e,cise ta, or income ta,, and another
portion thereof income from e,ploitation of mineral resources$ #ome might thin*
it wonderful to be able to ta*e the lionIs share of the benefits$ But we have to
as* ourselves if we are really serious in attracting the investments that are the
indispensable and *ey element in generating the monetary benefits of which we
wish to ta*e the lionIs share$ 5airness is a credo not only in law, but also in
business
Tird, the ;E percent rule in the petroleum industry cannot be insisted upon
at all times in the mining business$ .he reason happens to be the fact that in
petroleum operations, the bul* of e,penditures is in e,ploration, but once the
contractor has found and tapped into the deposit, subse+uent investments and
e,penditures are relatively minimal$ .he crude 'or gas( *eeps gushing out, and
the wor* entailed is just a matter of piping, transporting and storing$ 0ot so in
mineral mining$ .he ore body does not pop out on its own$ Cven after it has
been located, the contractor must continually invest in machineries and e,pend
funds to dig and build tunnels in order to access and e,tract the minerals from
underneath hundreds of tons of earth and roc*$
As already stated, the numerous intrinsic differences involved in their
respective operations and re+uirements, cost structures and investment needs
render it highly inappropriate to use petroleum operations &.AAs as
benchmar*s for mining &.AAs$ Kerily, we cannot just ignore the realities of the
distinctl% different situations and stubbornly insist on the minimum ;E percent$!
The 4ining and the &il Industries
2ifferent "rom 9ach &ther
.o stress, there is no independent sowing that the ta*ing of at least a ;E
percent share in the after-ta, income of a mining company operated by a foreign
contractor is fair and reasona&le under most if not all circumstances$ .he fact
that some petroleum companies li*e #hell acceded to such percentage of
sharing does not ipso facto mean tat it is per se reasona&le and applica&le to
non-petroleum situations >tat is, mining companies@ as well$ 3e can ta*e
judicial notice of the fact that there are, after all, numerous intrinsic differences
involved in teir respective operations and e<uipment or tecnological
re<uirements, costs structures and capital investment needs, and product
pricing and mar3ets$
.here is no sowing, for instance, that mining companies can readily cope
with a ;E percent government share in the same way petroleum companies
apparently can$ 3hat we have is a suggestion to enforce the ;E percent +uota
on the basis of a disjointed analogy$ .he only factor common to the two
disparate situations is the e,traction of natural resources$
Indeed, we should ta*e note of the fact that 1ongress made a distinction
between mining firms and petroleum companies$ In Republic Act 0o$ 8896 --
:"n "ct #educing te +,cise Ta, #ates on *etallic and Gon-*etallic *inerals
and Luarr% #esources, "mending for te -urpose /ection 0E0>a@ of te
Gational Internal #evenue Code, as amended; -- the lawma*ers fi,ed the e,cise
ta, rate on metallic and non-metallic minerals at two percent of the actual
mar*et value of the annual gross output at the time of removal$ Aowever, in the
case of petroleum, the lawma*ers set the e,cise ta, rate for the first ta,able
sale at fifteen percent of the fair international mar*et price thereof$
.here must have been a ver% sound reason that impelled 1ongress to
impose two very dissimilar e,cise ta, rate$ 3e cannot assume, without proof,
that our honorable legislators acted arbitrarily, capriciously and whimsically in
this instance$ 3e cannot just ignore the reality of two distinctly different
situations and stubbornly insist on going minimum ;E percent$!
.o repeat, the mere fact that gas and oil e,ploration contracts grant the
#tate ;E percent of the net revenues does not necessarily imply that mining
contracts should li*ewise yield a minimum of ;E percent for the #tate$ Mumping
to tat erroneous conclusion is li3e comparing apples wit oranges. Te
e,ploration, development and utili(ation of gas and oil are simpl% different from
tose of mineral resources.
.o stress again, the main ris* in gas and oil is in the e,ploration$ But once
oil in commercial +uantities is struc* and the wells are put in place, the ris* is
relatively over and blac* gold simply flows out continuously with comparativel%
less need for fresh investments and technology$
4n the other hand, even if minerals are found in viable +uantities, there is
still need for continuous fres capital and e,pertise to dig the mineral ores from
the mines$ Must because deposits of mineral ores are found in one area is no
guarantee that an e+ual amount can be found in the adjacent areas$ .here are
simply continuing ris*s and need for more capital, e,pertise and industry all the
time$
0ote, however, that the indirect benefits -- apart from the cash revenues --
are much more in the mineral industry$ As mines are e,plored and e,tracted,
vast employment is created, roads and other infrastructure are built, and other
multiplier effects arise$ 4n the other hand, once oil wells start producing, there
is less need for employment$ Roads and other public wor*s need not be
constructed continuously$ In fine, there is no basis for saying that government
revenues from the oil industry and from the mineral industries are to be identical
all the time$
'ourt, to our mind, the proffered minimum ;E percent! suggestion tends to
limit te fle,i&ilit% and tie te ands of government, ultimately hampering the
countryIs competitiveness in the international mar*et, to the detriment of the
&ilipino people$ .his you-have-to-give-us-;E-percent-of-after-ta,-income-or-
we-donIt-do- business-with-you! approach is +uite perilous$ .rue, this situation
may not seem too unpalatable to the foreign contractor during good years, when
international mar*et prices are up and the mining firm manages to *eep its costs
in chec*$ Aowever, under unfavorable economic and business conditions, with
costs spiraling s*ywards and minerals prices plummeting, a mining firm may
consider itself luc*y to ma*e just minimal profits$
.he infle,ible, carved-in-granite demand for a ;E percent government share
may spell the end of the mining venture, scare away potential investors, and
thereby further worsen the already dismal economic scenario$ /oreover, such
an unbending or unyielding policy prevents the government from responding
appropriately to changing economic conditions and shifting mar*et forces$ Tis
infle,i&ilit% furter renders our countr% less attractive as an investment option
compared wit oter countries.
And fift, for this 1ourt to decree imperiously that the governmentIs share
should be not less than ;E percent of the after-ta, income of &.AA contractors
at all times is nothing short of dictating upon the government$ .he result,
ironically, is that te /tate ends up losing control$ .o avoid compromising the
#tateIs full control and supervision over the e,ploitation of mineral resources,
this 1ourt must bac* off from insisting upon a minimum ;E percent! rule$ It is
sufficient that the #tate has the power and means, should it so decide, to get a
;E percent share 'or more( in the contractorIs net mining revenues or after-ta,
income, or whatever other basis the government may decide to use in rec*oning
its share$ It is not necessar% for it to do so in ever% case, regardless of
circumstances$
In fact, the government must be trusted, must be accorded the liberty and
the utmost fle,ibility to deal, negotiate and transact with contractors and third
parties as it sees fit2 and upon terms that it ascertains to be most favorable or
most acceptable under te circumstances, even if it means agreeing to less
than ;E percent$ 0othing must prevent the #tate from agreeing to a share less
than that, should it be deemed fit2 otherwise the #tate will be deprived of full
control over mineral e,ploitation that the 1harter has vested in it$
.o stress again, tere is simpl% no constitutional or legal provision fi,ing te
minimum sare of te government in an "TAA at ;E percent of the net profit$
&or this 1ourt to decree such minimum is to wade into judicial legislation, and
thereby inordinately impinge on the control power of the #tate$ -et it be clear"
the 1ourt is not against the grant of more benefits to the #tate2 in fact, the more
the better$ If during the &.AA negotiations, the President can secure ;E
percent,
G87H
or even 6E percent, then all the better for our people$ But, if under
the peculiar circumstances of a specific contract, the President could secure
only :E percent or :: percent, so be it$ 0eedless to say, the President will have
to report 'and be responsible for( the specific &.AA to 1ongress, and eventually
to the people$
&inally, if it should later be found that the share agreed to is grossl%
disadvantageous to the government, the officials responsible for entering into
such a contract on its behalf will have to answer to the courts for their
malfeasance$ And the contract provision voided$ But this 1ourt would abuse its
own authority should it force the governmentIs hand to adopt the ;E percent
demand of some of our esteemed colleagues$
$apital and 9!pertise Provided,
Det All Ris*s Assumed y $ontractor
Aere, we will repeat what has not been emphasi)ed and appreciated
enough" te fact tat te contractor in an 'T"" provides all te needed capital,
tecnical and managerial e,pertise, and tecnolog% re<uired to underta3e te
project.
In regard to the 3/1P &.AA, the then foreign-owned 3/1P as contractor
committed, at the very outset, to ma*e capital investments of up to <#Q:E
million in that single mining project$ 3/1P claims to have already poured in
well over P7EE million into the country as of &ebruary 5667, with more in the
pipeline$ .hese resources, valued in the tens or hundreds of millions of dollars,
are invested in a mining project that provides no assurance whatsoever that any
part of the investment will be ultimately recouped$
At the same time, the contractor must comply with legally imposed
environmental standards and the social obligations, for which it also commits to
ma*e significant e,penditures of funds$ .hroughout, the contractor assumes all
the ris*s
G86H
of the business, as mentioned earlier$ .hese ris*s are indeed very
high, considering that the rate of success in e,ploration is e,tremely low$ .he
probability of finding any mineral or petroleum in commercially viable +uantities
is estimated to be about 5"5,EEE only$ 4n that slim chance rides the
contractorIs hope of recouping investments and generating profits$ And when
the contractor has recouped its initial investments in the project, the government
share increases to si,ty percent of net benefits -- without the #tate ever being in
peril of incurring costs, e,penses and losses$
And even in the worst possible scenario -- an absence of commercial
+uantities of minerals to justify development -- the contractor would already
have spent several million pesos for e,ploration wor*s, before arriving at the
point in which it can ma*e that determination and decide to cut its losses$ In
fact, during the first year alone of the e,ploration period, the contractor was
already committed to spend not less than P9F million$ .he &.AA therefore
clearly ensures benefits for the local economy, courtesy of the contractor$
"ll in all, this setup cannot be regarded as disadvantageous to the
State or the 5ilipino people9 it certainly cannot be said to convey
beneficial ownership of our mineral resources to foreign contractors
2eductions Allowed y the
64$P "TAA Reasonale
Petitioners +uestion whether the #tateIs wea* control might render the
sharing arrangements ineffective$ .hey cite the so-called suspicious!
deductions allowed by the 3/1P &.AA in arriving at the net mining revenue,
which is the basis for computing the government share$ .he 3/1P &.AA, for
instance, allows e,penditures for development within and outside te Contract
"rea relating to the /ining 4perations,!
G7EH
consulting fees incurred both inside
and outside te -ilippines for wor* related directly to the /ining 4perations,!
G75H
and the establishment and administration of field offices including
administrative overheads incurred within and outside te -ilippines which are
properly allocatable to the /ining 4perations and reasonably related to the
performance of the 1ontractorIs obligations and e,ercise of its rights under this
Agreement$!
G79H
It is +uite well *nown, however, that mining companies do perform some
mar*eting activities abroad in respect of selling their mineral products and by-
products$ Aence, it would not be improper to allow the deduction of reasona&le
consulting fees incurred abroad, as well as administrative e,penses and
overheads related to mar*eting offices also located abroad -- provided that
these deductions are directly related or properly allocatable to the mining
operations and reasonably related to the performance of the contractorIs
obligations and e,ercise of its rights$ In any event, more facts are needed$ <ntil
we see how these provisions actually operate, mere suspicions! will not suffice
to propel this 1ourt into ta*ing action$
#ection ..> of the 64$P "TAA
Invalid and 2isadvantageous
Aaving defended the 3/1P &.AA, we shall now turn to two defective
provisos$ -et us start with #ection 8$6 of the 3/1P &.AA$ 3hile #ection 8$8
gives the government a ;E percent share in the net mining revenues of 3/1P
from the commencement of commercial production, #ection 8$6 deprives the
government of part or all of the said ;E percent$ <nder the latter provision,
should 3/1PIs foreign shareholders -- who originally owned 5EE percent of the
e+uity -- sell ;E percent or more of its outstanding capital stoc* to a &ilipino
citi)en or corporation, the #tate loses its right to receive its ;E percent share in
net mining revenues under #ection 8$8$
#ection 8$6 provides"
Te percentage of Get *ining #evenues pa%a&le to te Government pursuant to
Clause 4.4 sall &e reduced &% 0percent of Get *ining #evenues for ever% 0percent
ownersip interest in te Contractor >i.e., )*C-@ eld &% a Lualified +ntit%$
G7%H
Cvidently, what #ection 8$8 grants to the #tate is ta*en away in the ne,t
breath by #ection 8$6 witout an% offsetting compensation to te /tate. .hus, in
reality, the #tate has no vested right to receive any income from the &.AA for
the e,ploitation of its mineral resources$ 3orse, it would seem that what is
given to the #tate in #ection 8$8 is &% mere tolerance of )*C-2s foreign
stoc3olders, who can at any time cut off the governmentIs entire ;E percent
share$ .hey can do so by simply selling ;E percent of 3/1PIs outstanding
capital stoc* to a Philippine citi)en or corporation$ /oreover, the proceeds of
such sale will of course accrue to the foreign stoc*holders of 3/1P, not to the
#tate$
.he sale of ;E percent of 3/1PIs outstanding e+uity to a corporation that
is ;E percent &ilipino-owned and FE percent foreign-owned will still trigger the
operation of #ection 8$6$ Cffectively, the #tate will lose its right to receive all ;E
percent of the net mining revenues of 3/1P2 and foreign stoc3olders will own
&eneficiall% up to 86 percent of )*C-, consisting of the remaining FE percent
foreign e+uity therein, plus the 9F percent pro-rata share in the buyer-
corporation$
G7FH
In fact, the Manuary 9%, 9EE5 sale by 3/1PIs foreign stoc*holder of the
entire outstanding e+uity in 3/1P to #agittarius /ines, Inc$ -- a domestic
corporation at least ;E percent &ilipino owned -- may be deemed to have
automatically triggered the operation of #ection 8$6, without need of further
action by any party, and removed the #tateIs right to receive the ;E percent
share in net mining revenues$
At bottom, #ection 8$6 has the effect of depriving the #tate of its ;E percent
share in the net mining revenues of 3/1P witout an% offset or compensation
watsoever$ It is possible that the inclusion of the offending provision was
initially prompted by the desire to provide some form of incentive for the
principal foreign stoc*holder in 3/1P to eventually reduce its e+uity position
and ultimately divest in favor of &ilipino citi)ens and corporations$ Aowever, as
finally structured, #ection 8$6 has the deleterious effect of depriving government
of the entire ;E percent share in 3/1PIs net mining revenues, without any form
of compensation whatsoever$ #uch an outcome is completely unacceptable$
.he whole point of developing the nationIs natural resources is to benefit the
&ilipino people, future generations included$ And the #tate as sovereign and
custodian of the nationIs natural wealth is mandated to protect, conserve,
preserve and develop that part of the national patrimony for their benefit$
Aence, the 1harter lays great emphasis on real contributions to the economic
growth and general welfare of the country!
G7:H
as essential guiding principles to
be *ept in mind when negotiating the terms and conditions of &.AAs$
Carlier, we held '5( that the #tate must be accorded the liberty and the
utmost fle,ibility to deal, negotiate and transact with contractors and third parties
as it sees fit, and upon terms that it ascertains to be most favorable or most
acceptable under the circumstances, even if that should mean agreeing to less
than ;E percent2 '9( that it is not necessary for the #tate to e,tract a ;E percent
share in every case and regardless of circumstances2 and '%( that should the
#tate be prevented from agreeing to a share less than ;E percent as it deems
fit, it will be deprived of the full control over mineral e,ploitation that the 1harter
has vested in it$
.hat full control is obviously not an end in itself2 it e,ists and subsists
precisely because of the need to serve and protect the national interest$ In this
instance, national interest finds particular application in the protection of the
national patrimony and the development and e,ploitation of the countryIs
mineral resources for the benefit of the &ilipino people and the enhancement of
economic growth and the general welfare of the country$ =ndoubtedly, such
full control can be misused and abused, as we now witness
#ection 8$6 of the 3/1P &.AA effectivel% gives awa% te /tate2s sare of
net mining revenues >provided for in /ection 4.4@ witout an%ting in e,cange$
/oreover, this outcome constitutes unjust enricment on the part of the local
and foreign stoc*holders of 3/1P$ By their mere divestment of up to ;E
percent e+uity in 3/1P in favor of &ilipino citi)ens andor corporations, the
local and foreign stoc*holders get a windfall$ .heir share in the net mining
revenues of 3/1P is automatically increased, without their having to pay the
government anything for it$ In short, the provision in +uestion is without a doubt
grossl% disadvantageous to te government, detrimental to te interests of te
'ilipino people, and violative of pu&lic polic%.
/oreover, it has been reiterated in numerous decisions
G7;H
that the parties to
a contract may establish any agreements, terms and conditions that they deem
convenient2 but these should not be contrary to law, morals, good customs,
public order or public policy$
G78H
Being precisely violative of anti-graft provisions
and contrary to public policy, #ection 8$6 must therefore be stric*en off as
invalid$
3hether the government officials concerned acceded to that provision by
sheer mista*e or with full awareness of the ill conse+uences, is of no moment$
It is hornboo* doctrine that the principle of estoppel does not operate against
the government for the act of its agents,
G77H
and that it is never estopped by any
mista*e or error on their part$
G76H
It is therefore possible and proper to rectify the
situation at this time$ /oreover, we may also say that the &.AA in +uestion
does not involve mere contractual rights2 being impressed as it is with public
interest, the contractual provisions and stipulations must yield to the common
good and the national interest$
#ince the offending provision is very much separable
G6EH
from #ection 8$8
and the rest of the &.AA, the deletion of #ection 8$6 can be done without
affecting or re+uiring the invalidation of the 3/1P &.AA itself$ #uch a deletion
will preserve for the government its due share of the benefits$ .his way, the
mandates of the 1onstitution are complied with and the interests of the
government fully protected, while the business operations of the contractor are
not needlessly disrupted$
#ection ..,BeC of the 64$P "TAA
Also Invalid and 2isadvantageous
#ection 8$7'e( of the 3/1P &.AA is li*ewise invalid$ It provides thus"
:4.B Te Government /are sall &e deemed to include all of te following sums=
:>a@ all Government ta,es, fees, levies, costs, imposts, duties and ro%alties including e,cise
ta,, corporate income ta,, customs dut%, sales ta,, value added ta,, occupation and
regulator% fees, Government controlled price sta&ili(ation scemes, an% oter form of
Government &ac3ed scemes, an% ta, on dividend pa%ments &% te Contractor or its
"ffiliates in respect of revenues from te *ining Operations and an% ta, on interest on
domestic and foreign loans or oter financial arrangements or accommodations,
including loans e,tended to te Contractor &% its stoc3oldersC
:>&@ an% pa%ments to local and regional government, including ta,es, fees, levies, costs,
imposts, duties, ro%alties, occupation and regulator% fees and infrastructure
contri&utionsC
:>c@ an% pa%ments to landowners, surface rigts olders, occupiers, indigenous people or
ClaimownersC
:>d@ costs and e,penses of fulfilling te Contractor2s o&ligations to contri&ute to national
development in accordance wit Clause 09.0>i@ >0@ and 09.0>i@ >7@C
:>e@ an amount e<uivalent to watever &enefits tat ma% &e e,tended in te future &% te
Government to te Contractor or to financial or tecnical assistance agreement
contractors in generalC
:>f@ all of te foregoing items wic ave not previousl% &een offset against te
Government /are in an earlier 'iscal Near, adjusted for inflation.; >underscoring
supplied@
#ection 8$7'e( is out of place in the &.AA$ It ma*es no sense why, for
instance, money spent by the government for the benefit of the contractor in
building roads leading to the mine site should still be deductible from the #tateIs
share in net mining revenues$ Allowing this deduction results in benefiting the
contractor twice over$ It constitutes unjust enrichment on the part of the
contractor at the e,pense of the government, since the latter is effectively being
made to pay twice for the same item$
G65H
&or being grossly disadvantageous and
prejudicial to the government and contrary to public policy, #ection 8$7'e( is
undoubtedly invalid and must be declared to be without effect$ &ortunately, this
provision can also easily be stric*en off without affecting the rest of the &.AA$
3othing 7eft &ver
After 2eductions5
In connection with #ection 8$7, an objection has been raised" #pecified in
#ection 8$7 are numerous items of deduction from the #tateIs ;E percent share$
After ta*ing these into account, will the #tate ever receive anything for its
ownership of the mineral resources=
3e are confident that under normal circumstances, the answer will be yes
If we e,amine the various items of deduction! listed in #ection 8$7 of the
3/1P &.AA, we will find that they correspond closely to the components or
elements of the basic government share established in DA4 66-:;, as
discussed in the earlier part of this 4pinion$
-i*ewise, the balance of the governmentIs ;E percent share -- after netting
out the items of deduction listed in #ection 8$7 --corresponds closely to the
additional government share provided for in DA4 66-:; which, we once again
stress, has nothing at all to do with indirect ta,es$ .he Ramos-DeKera paper
G69H
concisely presents the fiscal contribution of an &.AA under DA4 66-:; in this
e+uation"
Receipts from an &.AA V basic govIt share W addIl govIt share
.ransposed into a similar e+uation, the fiscal payments system from the
3/1P &.AA assumes the following formulation"
?overnmentIs ;E percent share in net mining revenues of 3/1P V items listed in
#ec$ 8$7 of the &.AA W balance of ?ovIt share, payable F months from the end of the
fiscal year
It should become apparent that the fiscal arrangement under the 3/1P
&.AA is very similar to that under DA4 66-:;, with the balance of government
share payable F months from end of fiscal year! being the e+uivalent of the
additional government share computed in accordance with the net-mining-
revenue-based option! under DA4 66-:;, as discussed above$ As we have
emphasi)ed earlier, we find each of the three options for computing the
additional government share -- as presented in DA4 66-:; -- to be sound and
reasonable$
Be therefore conclude that there is nothing inherently wrong in the
fiscal regime of the B>CP 5T"", and certainly nothing to warrant the
invalidation of the 5T"" in its entirety
#ection -.- of the 64$P
"TAA $onstitutional
#ection %$% of the 3/1P &.AA is assailed for violating supposed
constitutional restrictions on the term of &.AAs$ .he provision in +uestion
reads"
:?.? Tis "greement sall &e renewed &% te Government for a furter period of twent%-five
>7E@ %ears under te same terms and conditions provided tat te Contractor lodges a
re<uest for renewal wit te Government not less tan si,t% >89@ da%s prior to te
e,pir% of te initial term of tis "greement and provided tat te Contractor is not in
&reac of an% of te re<uirements of tis "greement.;
Allegedly, the above provision runs afoul of #ection 9 of Article >II of the
5678 1onstitution, which states"
:/ec. 7. "ll lands of te pu&lic domain, waters, minerals, coal, petroleum, and
oter mineral oils, all forces of potential energ%, fiseries, forests or tim&er, wildlife,
flora and fauna, and oter natural resources are owned &% te /tate. )it te
e,ception of agricultural lands, all oter natural resources sall not &e alienated. Te
e,ploration, development and utili(ation of natural resources sall &e under te full
control and supervision of te /tate. Te /tate ma% directl% underta3e suc activities,
or it ma% enter into co-production, joint venture or production-saring agreements wit
'ilipino citi(ens or corporations or associations at least si,t% per centum of wose
capital is owned &% suc citi(ens. #uch agreements may e for a period not
e!ceeding twenty'five years, renewale for not more than twenty'five years, and
under such terms and conditions as may e provided y law. In cases of water
rigts for irrigation, water suppl%, fiseries, or industrial uses oter tan te
development of water power, &eneficial use ma% &e te measure and limit of te grant.
:Te /tate sall protect te nation2s marine wealt in its arcipelagic waters,
territorial sea, and e,clusive economic (one, and reserve its use and enjo%ment
e,clusivel% to 'ilipino citi(ens.
:Te Congress ma%, &% law, allow small-scale utili(ation of natural resources &%
'ilipino citi(ens, as well as cooperative fis farming, wit priorit% to su&sistence
fisermen and fis-wor3ers in rivers, la3es, &a%s and lagoons.
:Te -resident ma% enter into agreements wit foreign-owned corporations
involving eiter tecnical or financial assistance for large-scale e,ploration,
development, and utili(ation of minerals, petroleum, and oter mineral oils according to
te general terms and conditions provided &% law, &ased on real contri&utions to te
economic growt and general welfare of te countr%. In suc agreements, te /tate
sall promote te development and use of local scientific and tecnical resources.
:Te -resident sall notif% te Congress of ever% contract entered into in
accordance wit tis provision, witin tirt% da%s from its e,ecution.;
G6%H
3e hold that the term limitation of twenty-five years does not apply to
&.AAs$ .he reason is that the above provision is found within paragraph 5 of
#ection 9 of Article >II, which refers to mineral agreements -- co-production
agreements, joint venture agreements and mineral production-sharing
agreements -- which the government may enter into with &ilipino citi)ens and
corporations, at least ;E percent owned by &ilipino citi)ens$ .he word such!
clearly refers to these three mineral agreements -- 1PAs, MKAs and /P#As --
not to &.AAs$
#pecifically, &.AAs are covered by paragraphs F and : of #ection 9 of
Article >II of the 1onstitution$ It will be noted that tere are no term limitations
provided for in the said paragraphs dealing with &.AAs$ .his shows that &.AAs
are sui generis, in a class of their own$ .his omission was obviously a
deliberate move on the part of the framers$ .hey probably reali)ed that &.AAs
would be different in many ways from /P#As, MKAs and 1PAs$ .he reason the
framers did not fi, term limitations applicable to &.AAs is that they preferred to
leave the matter to the discretion of the legislature andor the agencies involved
in implementing the laws pertaining to &.AAs, in order to give the latter enough
fle,ibility and elbow room to meet changing circumstances$
0ote also that, as previously stated, the e,ploratory phrases of an &.AA
lasts up to eleven years$ .hereafter, a few more years would be gobbled up in
start-up operations$ It may ta*e fifteen years before an &.AA contractor can
start earning profits$ And thus, the period of 9: years may really be short for an
&.AA$ 1onsider too that in this *ind of agreement, the contractor assumes all
entrepreneurial ris*s$ If no commercial +uantities of minerals are found, the
contractor bears all financial losses$ .o compensate for this long gestation
period and e,tra business ris*s, it would not be totally unreasonable to allow it
to continue CD< activities for another twenty five years$
In any event, the complaint is that, in essence, #ection %$% gives the
contractor the power to compel the government to renew the 3/1P &.AA for
another 9: years and deprives the #tate of any say on whether to renew the
contract$
3hile we agree that #ection %$% could have been worded so as to prevent it
from favoring the contractor, this provision does not violate any constitutional
limits, since the said term limitation does not apply at all to &.AAs$ 0either can
the provision be deemed in any manner to be illegal, as no law is being violated
thereby$ It is certainly not illegal for the government to waive its option to refuse
the renewal of a commercial contract$
Kerily, the government did not have to agree to #ection %$%$ It could have
said 0o! to the stipulation, but it did not$ It appears that, in the process of
negotiations, the other contracting party was able to convince the government to
agree to the renewal terms$ <nder the circumstances, it does not seem proper
for this 1ourt to intervene and step in to undo what might have perhaps been a
possible miscalculation on the part of the #tate$ If government believes that it is
or will be aggrieved by the effects of #ection %$%, the remedy is the renegotiation
of the provision in order to provide the #tate the option to not renew the &.AA$
"inancial +enefits for "oreigners
3ot "oridden y the $onstitution
Before leaving this subject matter, we find it necessary for us to rid
ourselves of the false belief that the 1onstitution somehow forbids foreign-
owned corporations from deriving financial benefits from the development of our
natural or mineral resources$
.he 1onstitution has never prohibited foreign corporations from ac+uiring
and enjoying beneficial interest! in the development of Philippine natural
resources$ .he #tate itself need not directly underta*e e,ploration,
development, and utili)ation activities$ Alternatively, the 1onstitution authori)es
the government to enter into joint venture agreements 'MKAs(, co-production
agreements '1PAs( and mineral production sharing agreements '/P#As( with
contractors who are &ilipino citi)ens or corporations that are at least ;E percent
&ilipino-owned$ .hey may do the actual dirty wor*! -- the mining operations$
In the case of a ;E percent &ilipino-owned corporation, the FE percent
individual andor corporate non-'ilipino sta3eolders obviously participate in the
beneficial interest derived from the development and utili)ation of our natural
resources$ .hey may receive by way of dividends, up to FE percent of the
contractorIs earnings from the mining project$ -i*ewise, they may have a say in
the decisions of the board of directors, since they are entitled to representation
therein to the e,tent of their e+uity participation, which the 1onstitution permits
to be up to FE percent of the contractorIs e+uity$ Aence, the non-&ilipino
sta*eholders may in that manner also participate in the management of the
contractorIs natural resource development wor*$ All of this is permitted by our
1onstitution, for any natural resource, and without limitation even in regard to
the magnitude of the mining project or operations 'see paragraph 5 of #ection 9
of Article >II($
It is clear, then, that there is noting inerentl% wrong wit or constitutionall%
o&jectiona&le a&out te idea of foreign individuals and entities aving or
enjo%ing :&eneficial interest; in -- and participating in te management of
operations relative to -- te e,ploration, development and utili(ation of our
natural resources.
"TAA 4ore Advantageous
Than &ther #chemes
7i*e $PA, E8A and 4P#A
A final point on the subject of beneficial interest$ 3e believe the &.AA is a
more advantageous proposition for the government as compared with other
agreements permitted by the 1onstitution$ In a 1PA that the government enters
into with one or more contractors, the government sall provide inputs to te
mining operations oter tan te mineral resource itself.
G6FH
In a MKA, a MK company is organi)ed by the government and the contractor,
with both parties having e+uity shares 'investments(2 and the contractor is
granted the e,clusive right to conduct mining operations and to e,tract minerals
found in the area$
G6:H
4n the other hand, in an /P#A, the government grants the
contractor the e,clusive right to conduct mining operations within the contract
area and sares in te gross output2 and the contractor provides the necessary
financing, technology, management and manpower$
.he point being made here is that, in two of the three types of agreements
under consideration, the government as to ante up some ris3 capital for te
enterprise$ In other words, government funds 'public moneys( are withdrawn
from other possible uses, put to wor* in the venture and placed at ris3 in case
te venture fails$ .his notwithstanding, management and control of the
operations of the enterprise are -- in all three arrangements -- in te ands of
te contractor, with the government being mainly a silent partner$ .he three
types of agreement mentioned above apply to any natural resource, without
limitation and regardless of the si)e or magnitude of the project or operations$
In contrast to the foregoing arrangements, and pursuant to paragraph F of
#ection 9 of Article >II, the &.AA is limited to large-scale projects and only for
minerals, petroleum and other mineral oils$ Aere, the 1onstitution removes the
FE percent cap on foreign ownership and allows the foreign corporation to own
up to 5EE percent of the e+uity$ &ilipino capital may not be sufficient on account
of the si)e of the project, so the foreign entity may have to ante up all the ris*
capital$
1orrelatively, the foreign sta*eholder bears up to 5EE percent of the ris* of
loss if the project fails$ In respect of the particular &.AA granted to it, 3/1P
'then 5EE percent foreign owned( was responsible, as contractor, for providing
the entire e+uity, including all the inputs for the project$ It was to bear 5EE
percent of the ris* of loss if the project failed, but its ma,imum potential
beneficial interest! consisted only of FE percent of the net beneficial interest,
because the other ;E percent is the share of the government, which will never
be e,posed to any ris* of loss whatsoever$
In consonance with the degree of ris* assumed, the &.AA vested in 3/1P
the da%-to-da% management of te mining operations$ #till such management is
subject to the overall control and supervision of the #tate in terms of regular
reporting, approvals of wor* programs and budgets, and so on$
#o, one needs to consider in relative terms, the costs of inputs for, degree
of ris* attendant to, and benefits derived or to be derived from a 1PA, a MKA or
an /P#A vis-T-vis those pertaining to an &.AA$ It may not be realistically
asserted that the foreign grantee of an &.AA is being unduly favored or
benefited as compared with a foreign sta*eholder in a corporation holding a
1PA, a MKA or an /P#A$ #een the other way around, the government is
definitely better off with an &.AA than a 1PA, a MKA or an /P#A$
2evelopmental Policy
on the 4ining Industry
During the 4ral Argument and in their &inal /emorandum, petitioners
repeatedly urged the 1ourt to consider whether mining as an industry and
economic activity deserved to be accorded priority, preference and government
support as against, say, agriculture and other activities in which &ilipinos and
the Philippines may have an economic advantage$! &or instance, a recent <#
study
G6;H
reportedly e,amined the economic performance of all local <# counties
that were dependent on mining and 9E percent of whose labor earnings
between 568E and 9EEE came from mining enterprises$
.he study -- covering 5EE <# counties in 9: states dependent on mining --
showed that per capita income grew about %E percent less in mining-dependent
communities in the 567Es and 9: percent less for the entire period 567E to
9EEE2 the level of per capita income was also lower$ .herefore, given the
slower rate of growth, the gap between these and other local counties
increased$
Petitioners invite attention to the 4>&A/ "merica #eport2s warning to
developing nations that mining brings with it serious economic problems,
including increased regional ine+uality, unemployment and poverty$ .hey also
cite the final report
G68H
of the C,tractive Industries Review project commissioned
by the 3orld Ban* 'the 3B-CIR Report(, which warns of environmental
degradation, social disruption, conflict, and uneven sharing of benefits with local
communities that bear the negative social and environmental impact$ .he
Report suggests that countries need to decide on the best way to e,ploit their
natural resources, in order to ma,imi)e the value added from the development
of their resources and ensure that they are on the path to sustainable
development once the resources run out$
3hatever priority or preference may be given to mining vis-T-vis other
economic or non-economic activities is a +uestion of policy that the President
and 1ongress will have to address2 it is not for this 1ourt to decide$ Tis Court
declares wat te Constitution and te laws sa%, interprets onl% wen
necessar%, and refrains from delving into matters of polic%$
#uffice it to say that the #tate control accorded by the 1onstitution over
mining activities assures a proper balancing of interests$ /ore pointedly, such
control will enable the President to demand the best mining practices and the
use of the best available technologies to protect the environment and to
rehabilitate mined-out areas$ Indeed, under the /ining -aw, the government
can ensure the protection of the environment during and after mining$ It can
li*ewise provide for the mechanisms to protect the rights of indigenous
communities, and thereby mold a more socially-responsive, culturally-sensitive
and sustainable mining industry$
Carly on during the launching of the Presidential /ineral Industry
Cnvironmental Awards on &ebruary ;, 5668, then President &idel K$ Ramos
captured the essence of balanced and sustainable mining in these words"
:!ong term, ig profit mining translates into iger revenues for government,
more decent jo&s for te population, more raw materials to feed te engines of
downstream and allied industries, and improved cances of uman resource and
countr%side development &% creating self-reliant communities awa% from ur&an centers.
, , , , , , , , ,
:"gainst a fragile and finite environment, it is sustaina&ilit% tat olds te 3e%. In
sustaina&le mining, we ta3e a middle ground were &ot production and protection
goals are &alanced, and were parties-in-interest come to terms.;
0either has the present leadership been remiss in addressing the concerns
of sustainable mining operations$ Recently, on Manuary 5;, 9EEF and April 9E,
9EEF, President ?loria /acapagal Arroyo issued C,ecutive 4rders 0os$ 98E
and 98E-A, respectively, to promote responsi&le mineral resources e,ploration,
development and utili)ation, in order to enhance economic growth, in a manner
that adheres to the principles of sustainable development and with due regard
for justice and e+uity, sensitivity to the culture of the &ilipino people and respect
for Philippine sovereignty$!
G67H
1;5=T"TIO2 O5 AISS;2TS
.he 1ourt will now ta*e up a number of other specific points raised in the
dissents of Mustices 1arpio and /orales$
5$ Mustice /orales introduced us to Augh /organ, former president and
chief e,ecutive officer of 3estern /ining 1orporation '3/1( and former
president of the Australian /ining Industry 1ouncil, who spearheaded the
vociferous opposition to the filing by aboriginal peoples of native title claims
against mining companies in Australia in the aftermath of the landmar* *a&o
decision by the Australian Aigh 1ourt$ According to sources +uoted by our
esteemed colleague, /organ was also a racist and a bigot$ In the course of
protesting *a&o, /organ allegedly uttered derogatory remar*s belittling the
aboriginal culture and race$
An unwritten caveat of this introduction is that this 1ourt should be careful
not to permit the entry of the li*es of Augh /organ and his hordes of alleged
racist-bigots at 3/1$ 3ith all due respect, such scare tactics should have no
place in the discussion of this case$ 3e are deliberating on the constitutionality
of RA 86F9, DA4 6;-FE and the &.AA originally granted to 3/1P, which had
been transferred to #agittarius /ining, a &ilipino corporation$ 3e are not
discussing the apparition of white Anglo-#a,on racistsbigots massing at our
gates$
9$ 4n the proper interpretation of the phrase agreements involving eiter
tecnical or financial assistance, Mustice /orales points out that at times we
conveniently omitted! the use of the disjunctive eiterOor, which according to
her denotes restriction2 hence the phrase must be deemed to connote restriction
and limitation$
But, as Mustice 1arpio himself pointed out during the 4ral Argument, the
disjunctive phrase eiter tecnical or financial assistance would, strictly
spea*ing, literally mean that a foreign contractor may provide only one or the
other, but not both$ And if both technical and financial assistance were re+uired
for a project, the #tate would have to deal with at least two different foreign
contractors -- one for financial and the other for technical assistance$ And
following on that, a foreign contractor, though very much +ualified to provide
both *inds of assistance, would nevertheless be prohibited from providing one
*ind as soon as it shall have agreed to provide the other$
But if the 1ourt should follow this restrictive and literal construction, can we
really find two 'or more( contractors who are willing to participate in one single
project -- one to provide the financial assistance! only and the other the
technical assistance! e,clusively2 it would be e,cellent if these two or more
contractors happen to be willing and are able to cooperate and wor* closely
together on the same project 'even if they are otherwise competitors($ And it
would be superb if no conflicts would arise between or among them in the entire
course of the contract$ But what are the chances things will turn out this way in
the real world= .o thin* that the framers deliberately imposed this *ind of
restriction is to say that they were either e,ceedingly optimistic, or incredibly
naRve$ .his begs the +uestion -- 3hat laudable objective or purpose could
possibly be served by such strict and restrictive literal interpretation=
%$ 1iting Oposa v. 'actoran Mr., Mustice /orales claims that a service
contract is not a contract or propert% rigt wic merits protection &% te due
process clause of te Constitution, but merely a license or privilege which may
be validly revo*ed, rescinded or withdrawn by e,ecutive action whenever
dictated by public interest or public welfare$
Oposa cites Tan v. Director of 'orestr% and Nsmael v. Deput% +,ecutive
/ecretar% as authority$ .he latter cases dealt specifically with timber licenses
only$ Oposa allegedly reiterated that a license is merel% a permit or privilege to
do wat oterwise would &e unlawful, and is not a contract &etween te
autorit%, federal, state or municipal, granting it and te person to wom it is
grantedC neiter is it propert% or a propert% rigt, nor does it create a vested
rigtC nor is it ta,ation. Tus tis Court eld tat te granting of license does not
create irrevoca&le rigts, neiter is it propert% or propert% rigts.
#hould Oposa be deemed applicable to the case at bar, on the argument
that natural resources are also involved in this situation= 3e do not thin* so$ A
grantee of a timber license, permit or license agreement gets to cut the timber
already growing on the surface2 it need not dig up tons of earth to get at the
logs$ In a logging concession, the investment of the licensee is not as
substantial as the investment of a large-scale mining contractor$ If a timber
license were revo*ed, the licensee pac*s up its gear and moves to a new area
applied for, and starts over2 what it leaves behind are mainly the trails leading to
the logging site$
In contrast, the mining contractor will have sun* a great deal of money 'tens
of millions of dollars( into the ground, so to spea*, for e,ploration activities, for
development of the mine site and infrastructure, and for the actual e,cavation
and e,traction of minerals, including the e,tensive tunneling wor* to reach the
ore body$ .he cancellation of the mining contract will utterly deprive the
contractor of its investments 'i$e$, prevent recovery of investments(, most of
which cannot be pulled out$
.o say that an &.AA is just li*e a mere timber license or permit and does
not involve contract or property rights which merit protection by the due process
clause of the 1onstitution, and may therefore be revo*ed or cancelled in the
blin* of an eye, is to adopt a well-nigh confiscatory stance2 at the very least, it is
downright dismissive of the property rights of businesspersons and corporate
entities that have investments in the mining industry, whose investments,
operations and e,penditures do contribute to the general welfare of the people,
the coffers of government, and the strength of the economy$ #uch a
pronouncement will surely discourage investments 'local and foreign( which are
critically needed to fuel the engine of economic growth and move this country
out of the rut of poverty$ In sum, Oposa is not applicable$
F$ Mustice /orales adverts to the supposedly clear intention! of the framers
of the 1onstitution to reserve our natural resources e,clusively for the &ilipino
people$ #he then +uoted from the records of the 1on1om deliberations a
passage in which then 1ommissioner Davide e,plained his vote, arguing in the
process that aliens ought not be allowed to participate in the enjoyment of our
natural resources$ 4ne passage does not suffice to capture the tenor or
substance of the entire e,tensive deliberations of the commissioners, or to
reveal the clear intention of the framers as a group$ A re-reading of the entire
deliberations '+uoted here earlier( is necessary if we are to understand the true
intent of the framers$
:$ #ince 56%:, the &ilipino people, through their 1onstitution, have decided
that the retardation or delay in the e,ploration, development or utili)ation of the
nationIs natural resources is merely secondary to the protection and
preservation of their ownership of the natural resources, so says Mustice
/orales, citing Aruego$ If it is true that the framers of the 5678 1onstitution did
not care much about alleviating the retardation or delay in the development and
utili)ation of our natural resources, why did they bother to write paragraph F at
all= 3ere they merely paying lip service to large-scale e,ploration,
development and utili)ation= .hey could have just completely ignored the
subject matter and left it to be dealt with through a future constitutional
amendment$ But we have to harmoni)e every part of the 1onstitution and to
interpret each provision in a manner that would give life and meaning to it and to
the rest of the provisions$ It is obvious that a literal interpretation of paragraph F
will render it utterly inutile and inoperative$
;$ According to Mustice /orales, the deliberations of the 1onstitutional
1ommission do not support our contention that the framers, by specifying such
agreements involving financial or technical assistance, necessarily gave implied
assent to everything that these agreements implicitly entailed, or that could
reasonably be deemed necessary to ma*e them tenable and effective, including
management authority in the day-to-day operations$ As proof thereof, she
+uotes one single passage from the 1on1om deliberations, consisting of an
e,change among 1ommissioners .ingson, ?arcia and /onsod$
Aowever, the +uoted e,change does not serve to contradict our argument2 it
even bolsters it$ 1omm$ 1hristian /onsod was +uoted as saying" :,,, I tin3
we ave to ma3e a distinction tat it is not reall% realistic to sa% tat we will
&orrow on our own terms. *a%&e we can sa% tat we inerited unjust loans,
and we would li3e to repa% tese on terms tat are not prejudicial to our own
growt. .ut te general statement tat we sould onl% &orrow on our own
terms is a &it unrealistic.; 1omm$ /onsod is one who *new whereof he spo*e$
8$ Mustice /orales also declares that the optimal time for the conversion of
an &.AA into an /P#A is after completion of the e,ploration phase and just
before underta*ing the development and construction phase, on account of the
fact that the re+uirement for a minimum investment of Q:E million is applicable
only during the development, construction and utili)ation phase, but not during
the e,ploration phase, when the foreign contractor need merely comply with
minimum ground e,penditures$ .hus by converting, the foreign contractor
ma,imi)es its profits by avoiding its obligation to ma*e the minimum investment
of Q:E million$
.his argument forgets that the foreign contractor is in the game precisely to
ma*e money$ In order to come anywhere near profitability, the contractor must
first e,tract and sell the mineral ore$ In order to do that, it must also develop
and construct the mining facilities, set up its machineries and e+uipment and dig
the tunnels to get to the deposit$ .he contractor is thus compelled to e,pend
funds in order to ma*e profits$ If it decides to cut bac* on investments and
e,penditures, it will necessarily sacrifice the pace of development and
utili)ation2 it will necessarily sacrifice the amount of profits it can ma*e from the
mining operations$ In fact, at certain less-than-optimal levels of operation, the
stream of revenues generated may not even be enough to cover variable
e,penses, let alone overhead e,penses2 this is a dismal situation anyone would
want to avoid$ In order to ma*e money, one has to spend money$ .his truism
applies to the mining industry as well$
7$ /ortgaging the minerals to secure a foreign &.AA contractorIs obligations
is anomalous, according to Mustice /orales since the contractor was from the
beginning obliged to provide all financing needed for the mining operations$
Aowever, the mortgaging of minerals by the contractor does not necessarily
signify that the contractor is unable to provide all financing re+uired for the
project, or that it does not have the financial capability to underta*e large-scale
operations$ /ortgaging of mineral products, just li*e the assignment 'by way of
security( of manufactured goods and goods in inventory, and the assignment of
receivables, is an ordinary re+uirement of ban*s, even in the case of clients with
more than sufficient financial resources$ And nowadays, even the richest and
best managed corporations ma*e use of ban* credit facilities -- it does not
necessarily signify that they do not have the financial resources or are unable to
provide the financing on their own2 it is just a manner of ma,imi)ing the use of
their funds$
6$ Does the contractor in reality ac+uire the surface rights for free,! by
virtue of the fact that it is entitled to reimbursement for the costs of ac+uisition
and maintenance, adjusted for inflation= 3e thin* not$ .he reimbursement! is
possible only at the end of the term of the contract, when the surface rights will
no longer be needed, and the land previously ac+uired will have to be disposed
of, in which case the contractor gets reimbursement from the sales proceeds$
.he contractor has to pay out the ac+uisition price for the land$ .hat money will
belong to the seller of the land$ 4nly if and when the land is finally sold off will
the contractor get any reimbursement$ In other words, the contractor will have
been cash-out for the entire duration of the term of the contract -- 9: or :E
years, depending$ If we calculate the cost of money at say 59 percent per
annum, that is the cost or opportunity loss to the contractor, in addition to the
amount of the ac+uisition price$ 59 percent per annum for :E years is ;EE
percent2 this, without any compounding yet$ .he cost of money is therefore at
least ;EE percent of the original ac+uisition cost2 it is in addition to the
ac+uisition cost$ &or free!= 0ot by a long shot$
5E$ .he contractor will ac+uire and hold up to :,EEE hectares= 3e doubt it$
.he ac+uisition by the #tate of land for the contractor is just to enable the
contractor to establish its mine site, build its facilities, establish a tailings pond,
set up its machinery and e+uipment, and dig mine shafts and tunnels, etc$ It is
impossible that the surface re+uirement will aggregate :,EEE hectares$ /uch of
the operations will consist of the tunneling and digging underground, which will
not re+uire possessing or using any land surface$ :,EEE hectares is way too
much for the needs of a mining operator$ It simply will not spend its cash to
ac+uire property that it will not need2 the cash may be better employed for the
actual mining operations, to yield a profit$
55$ Mustice 1arpio claims that the phrase among oter tings 'found in the
second paragraph of #ection 75 of the /ining Act( is being incorrectly treated as
a delegation of legislative power to the DC0R secretary to issue DA4 66-:; and
prescribe the formulae therein on the #tateIs share from mining operations$ Ae
adds that the phrase among oter tings was not intended as a delegation of
legislative power to the DC0R secretary, much less could it be deemed a valid
delegation of legislative power, since there is nothing in the second paragraph
of #ection 75 which can be said to grant any delegated legislative power to the
DC0R secretary$ And even if there were, such delegation would be void, for
lac* of any standards by which the delegated power shall be e,ercised$
3hile there is nothing in the second paragraph of #ection 75 which can
directly be construed as a delegation of legislative power to the DC0R
secretary, it does not mean that DA4 66-:; is invalid per se, or that the
secretary acted without any authority or jurisdiction in issuing DA4 66-:;$ As
we stated earlier in our Prologue, :)o or wat organ of government actuall%
e,ercises tis power of control on &ealf of te /tateP Te Constitution is
cr%stal clear= te President. Indeed, te Cief +,ecutive is te official
constitutionall% mandated to Henter into agreements wit foreign owned
corporations.2 On te oter and, Congress ma% review te action of te
-resident once it is notified of Hever% contract entered into in accordance wit
tis JconstitutionalK provision witin tirt% da%s from its e,ecution.2; It is the
President who is constitutionally mandated to enter into 5T""s with foreign
corporations, and in doing so, it is within the PresidentIs prerogative to specify
certain terms and conditions of the &.AAs, for e,ample, the fiscal regime of
&.AAs -- i$e$, the sharing of the net mining revenues between the contractor
and the #tate$
Being the PresidentIs alter ego with respect to the control and supervision of
the mining industry, the DC0R secretary, acting for the President, is necessarily
clothed with the re+uisite authority and power to draw up guidelines delineating
certain terms and conditions, and specifying therein the terms of sharing of
benefits from mining, to be applicable to &.AAs in general$ It is important to
remember that DA4 66-:; has been in e,istence for almost si, years, and has
not been amended or revo*ed by the President$
Te issuance of D"O 55-E8 did not involve te e,ercise of delegated
legislative power. .he legislature did not delegate the power to determine the
nature, e,tent and composition of the items that would come under the phrase
among oter tings. .he legislatureIs power pertains to the imposition of ta,es,
duties and fees$ .his power was not delegated to the DC0R secretary$ But the
power to negotiate and enter into &.AAs was withheld from 1ongress, and
reserved for the President$ In determining the sharing of mining benefits, i$e$, in
specifying what the phrase among oter tings include, the President 'through
the secretary acting in hisher behalf( was not determining the amount or rate of
ta,es, duties and fees, but rather the amount of I014/C to be derived from
minerals to be e,tracted and sold, income which belongs to the #tate as owner
of the mineral resources$ 3e may say that, in the second paragraph of #ection
75, the legislature in a sense intruded partially into the PresidentIs sphere of
authority when the former provided that
:Te Government sare in financial or tecnical assistance agreement sall
consist of, among oter tings, te contractor2s corporate income ta,, e,cise ta,,
special allowance, witolding ta, due from te contractor2s foreign stoc3olders
arising from dividend or interest pa%ments to te said foreign stoc3older in case of a
foreign national and all suc oter ta,es, duties and fees as provided for under e,isting
laws.; 'Italics supplied(
But it did not usurp the PresidentIs authority since the provision merely
included the enumerated items as part of the government share, without
foreclosing or in any way preventing 'as in fact 1ongress could not validly
prevent( the President from determining what constitutes the #tateIs
compensation derived from &.AAs$ In this case, the President in effect directed
the inclusion or addition of other things,! vi(., I014/C for the owner of the
resources, in the governmentIs share, while adopting the items enumerated by
1ongress as part of the government share also$
59$ Mustice 1arpioIs insistence on applying the ejusdem generis rule of
statutory construction to the phrase among oter tings is therefore useless,
and must fall by the wayside$ .here is no point trying to construe that phrase in
relation to the enumeration of ta,es, duties and fees found in paragraph 9 of
#ection 75, precisely because 1the constitutional power to prescrie the
sharing of mining income etween the #tate and mining companies, to
+uote Mustice 1arpio pursuant to an &.AA is constitutionally lodged with the
President, not with Congress It thus ma*es no sense to persist in giving the
phrase among oter tings a restricted meaning referring only to ta,es, duties
and fees$
5%$ #trangely, Mustice 1arpio claims that the DC0R secretary can change
the formulae in DA4 66-:; any time even without the approval of the President,
and the secretary is the sole authority to determine the amount of consideration
that the #tate shall receive in an &.AA, because #ection : of the DA4 states
that :,,, an% amendment of an 'T"" oter tan te provision on fiscal regime
sall re<uire te negotiation wit te Gegotiation -anel and te
recommendation of te /ecretar% for approval of te -resident ,,,;$ Allegedly,
because of that provision, if an amendment in the &.AA involves non-fiscal
matters, the amendment re+uires approval of the President, but if the
amendment involves a change in the fiscal regime, the DC0R secretary has the
final authority, and approval of the President may be dispensed with2 hence the
secretary is more powerful than the President$
3e believe there is some distortion resulting from the +uoted provision
being ta*en out of conte,t$ #ection : of DA4 66-:; reads as follows"
#ection :$ #tatus of C,isting &.AAs$ All &.AAs approved prior to the effectivity of
this Administrative 4rder shall remain valid and be recogni)ed by the ?overnment"
Provided, .hat should a 1ontractor desire to amend its &.AA, it shall do so by filing a
-etter of Intent '-4I( to the #ecretary thru the Director$ Provided, further, .hat if the
1ontractor desires to amend the fiscal regime of its &.AA, it may do so by see*ing for
the amendment of its &.AAIs whole fiscal regime by adopting the fiscal regime
provided hereof" Provided, finally, .hat any amendment of an &.AA other than the
provision on fiscal regime shall re+uire the negotiation with the 0egotiating Panel and
the recommendation of the #ecretary for approval of the President of the Republic of
the Philippines$! 'underscoring supplied(
It loo*s li*e another case of misapprehension$ .he proviso being objected
to by Mustice 1arpio is actually preceded by a phrase that re+uires a contractor
desiring to amend the fiscal regime of its &.AA, to amend the same by adopting
the fiscal regime prescribed in DA4 66-:; -- i$e$, solely in that manner, and in
no oter $ Obviously, since A"O **,#& was issued by the secretary under
the authority and with the presumed approval of the President, the
amendment of an 5T"" by merely adopting the fiscal regime prescribed in
said A"O **,#& 7and nothing more8 need not have the e.press clearance of
the President anymore It is as if the same had been pre-approved$ 3e cannot
fathom the complaint that that ma*es the secretary more powerful than the
President, or that the former is trying to hide things from the President or
1ongress$
5F$ Based on the first sentence of #ection : of DA4 66-:;, which states
GAHll &.AAs approved prior to the effectivity of this Administrative 4rder shall
remain valid and be recogni)ed by the ?overnment!, Mustice 1arpio concludes
that said Administrative 4rder allegedly e.empts &.AAs approved prior to its
effectivity -- li*e the 3/1P &.AA -- from having to pay the #tate any share from
their mining income, apart from ta,es, duties and fees$
3e disagree$ 3hat we see in blac* and white is the statement that the
&.AAs approved before the DA4 came into effect are to continue to be valid
and will be recogni)ed by the #tate$ Goting is said a&out teir fiscal regimes.
1ertainly, there is no basis to claim that the contractors under said &.AAs were
being e,empted from paying the government a share in their mining incomes$
&or the record, the 3/1P &.AA is 04. and has never been e,empt from
paying the government share$ The B>CP 5T"" has its own fiscal regime ,,
Section '' ,, which gives the government a &+ percent share in the net
mining revenues of B>CP from the commencement of commercial
production
&or that very reason, we have never said that DA4 66-:; is the basis for
claiming that the 3/1P &.AA has a consideration$ Aence, we find +uite out of
place Mustice 1arpioIs statement that ironicall%, D"O 55-E8, te ver% autorit%
cited to support te claim tat te )*C- 'T"" as a consideration, does not
appl% to te )*C- 'T"". .% its own e,press terms, D"O 55-E8 does not
appl% to 'T""s e,ecuted &efore te issuance of D"O 55-E8, li3e te )*C-
'T"". Te majorit%2s position as allegedl% no leg to stand on since even D"O
55-E8, assuming it is valid, cannot save te )*C- 'T"" from want of
consideration. Cven assuming arguendo that DA4 66-:; does not apply to the
3/1P &.AA, nevertheless, the 3/1P &.AA has its own fiscal regime, found
in #ection 8$8 thereof$ Aence, there is no such thing as want of consideration!
here$
#till more startling is this claim" Te majorit% supposedl% agrees tat te
provisions of te )*C- 'T"", wic grant a sam consideration to te /tate,
are void. /ince te majorit% agrees tat te )*C- 'T"" as a sam
consideration, te )*C- 'T"" tus lac3s te tird element of a valid contract.
Te Decision sould declare te )*C- 'T"" void for want of consideration
unless it treats te contract as an *-/" under /ection B9. Indeed te onl%
recourse of )*C- to save te validit% of its contract is to convert it into an
*-/".
.o clarify, we said that #ections 8$6 and 8$7'e( of the 3/1P &.AA are
provisions grossly disadvantageous to government and detrimental to the
interests of the &ilipino people, as well as violative of public policy, and must
therefore be stric*en off as invalid$ #ince the offending provisions are very
much separable from #ection 8$8 and the rest of the &.AA, the deletion of
#ections 8$6 and 8$7'e( can be done without affecting or re+uiring the
invalidation of the 3/1P &.AA itself, and such deletion will preserve for
government its due share of the ;E percent benefits$ .herefore, the 3/1P
&.AA is 04. bereft of a valid consideration 'assuming for the nonce that indeed
this is the consideration! of the &.AA($
S=>>"TIO2
.o conclude, a summary of the *ey points discussed above is now in order$
The 4eaning of 1Agreements Involving
9ither Technical or "inancial Assistance
Applying familiar principles of constitutional construction to the phrase
agreements involving eiter tecnical or financial assistance, the framersI
choice of words does not indicate the intent to e,clude other modes of
assistance, but rather implies that there are oter tings being included or
possibly being made part of the agreement, apart from financial or technical
assistance$ .he drafters avoided the use of restrictive and stringent
phraseology2 a ver&a legis scrutiny of #ection 9 of Article >II of the 1onstitution
discloses not even a hint of a desire to prohibit foreign involvement in the
management or operation of mining activities, or to eradicate service contracts$
#uch moves would necessarily imply an underlying drastic shift in fundamental
economic and developmental policies of the #tate$ .hat change re+uires a
much more definite and irrefutable basis than mere omission of the words
service contract! from the new 1onstitution$
&urthermore, a literal and restrictive interpretation of tis paragrap leads to
logical inconsistencies. A constitutional provision specifically allowing foreign-
owned corporations to render financial or technical assistance in respect of
mining or any other commercial activity was clearly unnecessary2 the provision
was meant to refer to more than mere financial or technical assistance$
Also, if paragraph F permits only agreements for financial or technical
assistance, there would be no point in re+uiring that they be :&ased on real
contri&utions to te economic growt and general welfare of te countr%.; And
considering that there were various long-term service contracts still in force and
effect at the time the new 1harter was being drafted, the absence of any
transitory provisions to govern the termination and closing-out of the then
e,isting service contracts strongly militates against the theory that the mere
omission of service contracts! signaled their prohibition by the new
1onstitution$
Resort to the deliberations of the 1onstitutional 1ommission is therefore
unavoidable, and a careful scrutiny thereof conclusively shows that the 1on1om
members discussed agreements involving eiter tecnical or financial
assistance in the same sense as service contracts and used the terms
interchangeably$ .he drafters in fact *new that the agreements with foreign
corporations were going to entail not mere technical or financial assistance but,
rather, foreign investment in and management of an enterprise for large-scale
e,ploration, development and utili)ation of minerals$
.he framers spo*e about service contracts as the concept was understood in
the 568% 1onstitution$ It is obvious from their discussions that they did not intend
to ban or eradicate service contracts$ Instead, they were intent on crafting
provisions to put in place safeguards that would eliminate or minimi)e the abuses
prevalent during the martial law regime$ In brief, they were going to permit
service contracts with foreign corporations as contractors, but with safety
measures to prevent abuses, as an e.ception to the general norm
established in the first paragraph of Section ! of "rticle $II, which reserves
or limits to 5ilipino citi-ens and corporations at least &+ percent owned by
such citi-ens the e.ploration, development and utili-ation of mineral or
petroleum resources .his was prompted by the perceived insufficiency of
&ilipino capital and the felt need for foreign e,pertise in the CD< of mineral
resources$
Despite strong opposition from some 1on1om members during the final
voting, the Article on the 0ational Cconomy and Patrimony -- including
paragraph F allowing service contracts with foreign corporations as an e,ception
to the general norm in paragraph 5 of #ection 9 of the same Article -- was
resoundingly and overwhelmingly approved$
.he drafters, many of whom were economists, academicians, lawyers,
businesspersons and politicians *new that foreign entities will not enter into
agreements involving assistance without re+uiring measures of protection to
ensure the success of the venture and repayment of their investments, loans
and other financial assistance, and ultimately to protect the business reputation
of the foreign corporations$ .he drafters, by specifying such agreements
involving assistance, necessarily gave implied assent to everything that these
agreements entailed or that could reasonably be deemed necessary to ma*e
them tenable and effective -- including management authority with respect to the
day-to-day operations of the enterprise, and measures for the protection of the
interests of the foreign corporation, at least to the e,tent that they are consistent
with Philippine sovereignty over natural resources, the constitutional
re+uirement of #tate control, and beneficial ownership of natural resources
remaining vested in the #tate$
&rom the foregoing, it is clear that agreements involving eiter tecnical or
financial assistance referred to in paragraph F are in fact service contracts, but
such new service contracts are between foreign corporations acting as
contractors on the one hand, and on the other hand government as principal or
owner! 'of the wor*s(, whereby the foreign contractor provides the capital,
technology and technical *now-how, and managerial e,pertise in the creation
and operation of the large-scale mininge,tractive enterprise, and government
through its agencies 'DC0R, /?B( actively e,ercises full control and
supervision over the entire enterprise$
#uch service contracts may be entered into onl% with respect to minerals,
petroleum and other mineral oils$ .he grant of such service contracts is subject
to several safeguards, among them" '5( that the service contract be crafted in
accordance with a general law setting standard or uniform terms, conditions and
re+uirements2 '9( the President be the signatory for the government2 and '%( the
President report the e,ecuted agreement to 1ongress within thirty days$
(ltimate Test=
"ull #tate $ontrol
.o repeat, the primacy of the principle of the #tateIs sovereign ownership of
all mineral resources, and its full control and supervision over all aspects of
e,ploration, development and utili)ation of natural resources must be upheld$
But full control and supervision! cannot be ta*en literally to mean that the #tate
controls and supervises ever%ting down to te minutest details and ma3es all
re<uired actions, as this would render impossible the legitimate e,ercise by the
contractor of a reasonable degree of management prerogative and authority,
indispensable to the proper functioning of the mining enterprise$ Also,
government need not micro-manage mining operations and day-to-day affairs of
the enterprise in order to be considered as e,ercising full control and
supervision$
Control, as utili)ed in #ection 9 of Article >II, must be ta*en to mean a
degree of control sufficient to enable the #tate to direct, restrain, regulate and
govern the affairs of the e,tractive enterprises$ 1ontrol by the #tate may be on
a macro level, through the establishment of policies, guidelines, regulations,
industry standards and similar measures that would enable government to
regulate the conduct of affairs in various enterprises, and restrain activities
deemed not desirable or beneficial, with the end in view of ensuring that these
enterprises contribute to the economic development and general welfare of the
country, conserve the environment, and uplift the well-being of the local affected
communities$ #uch a degree of control would be compatible with permitting the
foreign contractor sufficient and reasonable management authority over the
enterprise it has invested in, to ensure efficient and profitable operation$
)overnment )ranted "ull $ontrol
y RA .>;? and 2A& >@';A
Baseless are petitionersI sweeping claims that RA 86F9 and its
Implementing Rules and Regulations ma*e it possible for &.AA contracts to
cede full control and management of mining enterprises over to fully foreign
owned corporations$ C+ually wobbly is the assertion that the #tate is reduced to
a passive regulator dependent on submitted plans and reports, with wea*
review and audit powers and little say in the decision-ma*ing of the enterprise,
for which reasons beneficial ownership! of the mineral resources is allegedly
ceded to the foreign contractor$
As discussed hereinabove, the #tateIs full control and supervision over
mining operations are ensured through the following provisions in RA 86F9"
#ections 7, 6, 5;, 56, 9F, %:G'b(, 'e(, 'f(, 'g(, 'h(, '*(, 'l(, 'm( and 'o(H, FE, :8, ;;,
;6, 8E, and 1hapters >I and >KII2 as well as the following provisions of DA4 6;-
FE" #ections8G'd( and 'f(H, %:'a-9(, :%G'a-F( and 'd(H, :F, :;G'g(, 'h(, 'l(, 'm( and
'n(H, :;'9(, ;E, ;;, 5FF, 5;7, 585 and 98E, and also 1hapters >K, >KI and >>IK$
.hrough the foregoing provisions, the government agencies concerned are
empowered to approve or disapprove -- hence, in a position to influence, direct,
and change -- the various wor* programs and the corresponding minimum
e,penditure commitments for each of the e,ploration, development and
utili)ation phases of the enterprise$ 4nce they have been approved, the
contractorIs compliance with its commitments therein will be monitored$ &igures
for mineral production and sales are regularly monitored and subjected to
government review, to ensure that the products and by-products are disposed of
at the best prices2 copies of sales agreements have to be submitted to and
registered with /?B$
.he contractor is mandated to open its boo*s of accounts and records for
scrutiny, to enable the #tate to determine that the government share has been
fully paid$ .he #tate may li*ewise compel compliance by the contractor with
mandatory re+uirements on mine safety, health and environmental protection,
and the use of anti-pollution technology and facilities$ .he contractor is also
obligated to assist the development of the mining community, and pay royalties
to the indigenous peoples concerned$ And violation of any of the &.AAIs terms
and conditions, andor non-compliance with statutes or regulations, may be
penali)ed by cancellation of the &.AA$ #uch sanction is significant to a
contractor who may have yet to recover the tens or hundreds of millions of
dollars sun* into a mining project$
4verall, the #tate definitely has a pivotal say in the operation of the
individual enterprises, and can set directions and objectives, detect deviations
and non-compliances by the contractor, and enforce compliance and impose
sanctions should the occasion arise$ Aence, RA 86F9 and DA4 6;-FE vest in
government more than a sufficient degree of control and supervision over the
conduct of mining operations$
#ection %'a+( of RA 86F9 was objected to as being unconstitutional for
allowing a foreign contractor to apply for and hold an e,ploration permit$ During
the e,ploration phase, the permit grantee 'and prospective contractor( is
spending and investing heavily in e,ploration activities without yet being able to
e,tract minerals and generate revenues$ .he e,ploration permit issued under
#ections %'a+(, 9E and 9% of RA 86F9, which allows e,ploration but not
e,traction, serves to protect the interests and rights of the e,ploration permit
grantee 'and would-be contractor(, foreign or local$ 4therwise, the e,ploration
wor*s already conducted, and e,penditures already made, may end up only
benefiting claim-jumpers$ .hus, #ection %'a+( of RA 86F9 is not
unconstitutional$
64$P "TAA 7i*ewise )ives the
#tate "ull $ontrol and #upervision
.he 3/1P &.AA obligates the contractor to account for the value of
production and sale of minerals '1lause 5$F(2 re+uires that the contractorIs wor*
program, activities and budgets be approved by the #tate '1lause 9$5(2 gives
the DC0R secretary power to e,tend the e,ploration period '1lause %$9-a(2
re+uires approval by the #tate for incorporation of lands into the contract area
'1lause F$%-c(2 re+uires Bureau of &orest Development approval for inclusion of
forest reserves as part of the &.AA contract area '1lause F$:(2 obligates the
contractor to periodically relin+uish parts of the contract area not needed for
e,ploration and development '1lause F$;(2 re+uires submission of a declaration
of mining feasibility for approval by the #tate '1lause F$;-b(2 obligates the
contractor to report to the #tate the results of its e,ploration activities '1lause
F$6(2 re+uires the contractor to obtain #tate approval for its wor* programs for
the succeeding two year periods, containing the proposed wor* activities and
e,penditures budget related to e,ploration '1lause :$5(2 re+uires the contractor
to obtain #tate approval for its proposed e,penditures for e,ploration activities
'1lause :$9(2 re+uires the contractor to submit an annual report on geological,
geophysical, geochemical and other information relating to its e,plorations
within the &.AA area '1lause :$%-a(2 re+uires the contractor to submit within si,
months after e,piration of e,ploration period a final report on all its findings in
the contract area '1lause :$%-b(2 re+uires the contractor after conducting
feasibility studies to submit a declaration of mining feasibility, along with a
description of the area to be developed and mined, a description of the
proposed mining operations and the technology to be employed, and the
proposed wor* program for the development phase, for approval by the DC0R
secretary '1lause :$F(2 obligates the contractor to complete the development of
the mine, including construction of the production facilities, within the period
stated in the approved wor* program '1lause ;$5(2 re+uires the contractor to
submit for approval a wor* program covering each period of three fiscal years
'1lause ;$9(2 re+uires the contractor to submit reports to the secretary on the
production, ore reserves, wor* accomplished and wor* in progress, profile of its
wor* force and management staff, and other technical information '1lause ;$%(2
subjects any e,pansions, modifications, improvements and replacements of
mining facilities to the approval of the secretary '1lause ;$F(2 subjects to #tate
control the amount of funds that the contractor may borrow within the
Philippines '1lause 8$9(2 subjects to #tate supervisory power any technical,
financial and mar*eting issues '1lause 5E$5-a(2 obligates the contractor to
ensure ;E percent &ilipino e+uity in the contractor within ten years of recovering
specified e,penditures unless not so re+uired by subse+uent legislation '1lause
5E$5(2 gives the #tate the right to terminate the &.AA for unremedied substantial
breach thereof by the contractor '1lause 5%$9(2 re+uires #tate approval for any
assignment of the &.AA by the contractor to an entity other than an affiliate
'1lause 5F$5($
In short, the aforementioned provisions of the 3/1P &.AA, far from
constituting a surrender of control and a grant of beneficial ownership of mineral
resources to the contractor in +uestion, vest the #tate with control and
supervision over practically all aspects of the operations of the &.AA contractor,
including the charging of pre-operating and operating e,penses, and the
disposition of mineral products$
.here is li*ewise no relin+uishment of control on account of specific
provisions of the 3/1P &.AA$ 1lause 7$9 provides a mechanism to prevent
the mining operations from grinding to a complete halt as a result of possible
delays of more than ;E days in the governmentIs processing and approval of
submitted wor* programs and budgets$ 1lause 7$% see*s to provide a
temporary, stop-gap solution in case a disagreement between the #tate and the
contractor 'over the proposed wor* program or budget submitted by the
contractor( should result in a deadloc* or impasse, to avoid unreasonably long
delays in the performance of the wor*s$
.he #tate, despite 1lause 7$%, still has control over the contract area, and it
may, as sovereign authority, prohibit wor* thereon until the dispute is resolved,
or it may terminate the &.AA, citing substantial breach thereof$ Aence, the
#tate clearly retains full and effective control$
1lause 7$:, which allows the contractor to ma*e changes to approved wor*
programs and budgets without the prior approval of the DC0R secretary, subject
to certain limitations with respect to the variances, merely provides the
contractor a certain amount of fle,ibility to meet une,pected situations, while still
guaranteeing that the approved wor* programs and budgets are not abandoned
altogether$ And if the secretary disagrees with the actions ta*en by the
contractor in this instance, he may also resort to cancellationtermination of the
&.AA as the ultimate sanction$
1lause F$; of the 3/1P &.AA gives the contractor discretion to select
parts of the contract area to be relin+uished$ .he #tate is not in a position to
substitute its judgment for that of the contractor, who *nows e,actly which
portions of the contract area do not contain minerals in commercial +uantities
and should be relin+uished$ Also, since the annual occupation fees paid to
government are based on the total hectarage of the contract area, net of the
areas relin+uished, the contractorIs self-interest will assure proper and efficient
relin+uishment$
1lause 5E$9'e( of the 3/1P &.AA does not mean that the contractor can
compel government to use its power of eminent domain$ It contemplates a
situation in which the contractor is a foreign-owned corporation, hence, not
+ualified to own land$ .he contractor identifies the surface areas needed for it
to construct the infrastructure for mining operations, and the #tate then ac+uires
the surface rights on behalf of the former$ .he provision does not call for the
e,ercise of the power of eminent domain 'or determination of just
compensation(2 it see*s to avoid a violation of the anti-dummy law$
1lause 5E$9'l( of the 3/1P &.AA giving the contractor the right to
mortgage and encumber the mineral products e,tracted may have been a result
of conditions imposed by creditor-ban*s to secure the loan obligations of
3/1P$ Ban*s lend also upon the security of encumbrances on goods
produced, which can be easily sold and converted into cash and applied to the
repayment of loans$ .hus, 1lause 5E$9'l( is not something out of the ordinary$
0either is it objectionable, because even though the contractor is allowed to
mortgage or encumber the mineral end-products themselves, the contractor is
not thereby relieved of its obligation to pay the government its basic and
additional shares in the net mining revenue$ .he contractorIs ability to mortgage
the minerals does not negate the #tateIs right to receive its share of net mining
revenues$
1lause 5E$9'*( which gives the contractor authority to change its e+uity
structure at any time,! means that 3/1P, which was then 5EE percent foreign
owned, could permit &ilipino e+uity ownership$ /oreover, what is important is
that the contractor, regardless of its ownership, is always in a position to render
the services re+uired under the &.AA, under the direction and control of the
government$
1lauses 5E$F'e( and 'i( bind government to allow amendments to the &.AA
if re+uired by ban*s and other financial institutions as part of the conditions of
new lendings$ .here is nothing objectionable here, since 1lause 5E$F'e( also
provides that such financing arrangements should in no event reduce the
contractorIs obligations or the governmentIs rights under the &.AA$ 1lause
5E$F'i( provides that government shall favourably consider! any re+uest for
amendments of this agreement necessary for the contractor to successfully
obtain financing$ .here is no renunciation of control, as the proviso does not
say that government shall automatically grant any such re+uest$ Also, it is up to
the contractor to prove the need for the re+uested changes$ .he government
always has the final say on whether to approve or disapprove such re+uests$
In fine, the 5T"" provisions do not reduce or abdicate State control
3o #urrender of
"inancial +enefits
.he second paragraph of #ection 75 of RA 86F9 has been denounced for
allegedly limiting the #tateIs share in &.AAs with foreign contractors to just
ta,es, fees and duties, and depriving the #tate of a share in the after-ta, income
of the enterprise$ Aowever, the inclusion of the phrase :among oter tings; in
the second paragraph of #ection 75 clearly and unmista*ably reveals the
legislative intent to have the #tate collect more tan just te usual ta,es, duties
and fees$
.hus, DA4 66-:;, the :Guidelines +sta&lising te 'iscal #egime of
'inancial or Tecnical "ssistance "greements,; spells out the financial benefits
government will receive from an &.AA, as consisting of not only a basic
government share, comprised of all direct ta,es, fees and royalties, as well as
other payments made by the contractor during the term of the &.AA, but also an
additional government share, being a share in the earnings or cash flows
of the mining enterprise, so as to achieve a fifty-fifty sharing of net benefits
from mining between the government and the contractor$
.he additional government share is computed using one of three '%(
options or schemes detailed in DA4 66-:;, vi(., '5( the fifty-fifty sharing of
cumulative present value of cash flows2 '9( the e,cess profit-related additional
government share2 and '%( the additional sharing based on the cumulative net
mining revenue$ 3hichever option or computation is used, the additional
government share has nothing to do with ta,es, duties, fees or charges$ .he
portion of revenues remaining after the deduction of the basic and additional
government shares is what goes to the contractor$
.he basic government share and the additional government share do not
yet ta*e into account the indirect ta,es and other financial contributions of
mining projects, which are real and actual benefits enjoyed by the &ilipino
people2 if these are ta*en into account, total government share increases to ;E
percent or higher 'as much as 88 percent, and 76 percent in one instance( of
the net present value of total benefits from the project$
.he third or last paragraph of #ection 75 of RA 86F9 is slammed for
deferring the payment of the government share in &.AAs until after the
contractor shall have recovered its pre-operating e,penses, e,ploration and
development e,penditures$ Allegedly, the collection of the #tateIs share is
rendered uncertain, as there is no time limit in RA 86F9 for this grace period or
recovery period$ But although RA 86F9 did not limit the grace period, the
concerned agencies 'DC0R and /?B( in formulating the 566: and 566;
Implementing Rules and Regulations provided that the period of recovery,
rec*oned from the date of commercial operation, shall be for a period not
e,ceeding five years, or until the date of actual recovery, whichever comes
earlier$
And since RA 86F9 allegedly does not re+uire government approval for the
pre-operating, e,ploration and development e,penses of the foreign contractors,
it is feared that such e,penses could be bloated to wipe out mining revenues
anticipated for 5E years, with the result that the #tateIs share is )ero for the first
5E years$ Aowever, the argument is based on incorrect information$
<nder #ection 9% of RA 86F9, the applicant for e,ploration permit is
re+uired to submit a proposed wor* program for e,ploration, containing a yearly
budget of proposed e,penditures, which the #tate passes upon and either
approves or rejects2 if approved, the same will subse+uently be recorded as pre-
operating e,penses that the contractor will have to recoup over the grace
period$
<nder #ection 9F, when an e,ploration permittee files with the /?B a
declaration of mining project feasibility, it must submit a wor* program for
development, with corresponding budget, for approval by the Bureau, before
government may grant an &.AA or /P#A or other mineral agreements2 again,
government has the opportunity to approve or reject the proposed wor* program
and budgeted e,penditures for development wor*s, which will become the pre-
operating and development costs that will have to be recovered$ ?overnment is
able to *now ahead of time the amounts of pre-operating and other e,penses to
be recovered, and the appro,imate period of time needed therefor$ .he
aforecited provisions have counterparts in #ection %:, which deals with the
terms and conditions e,clusively applicable to &.AAs$ In sum, te tird or last
paragrap of /ection B0 of #" 4567 cannot &e deemed defective.
#ection 7E of RA 86F9 allegedly limits the #tateIs share in a mineral
production-sharing agreement '/P#A( to just the e,cise ta, on the mineral
product, i$e$, only 9 percent of mar*et value of the minerals$ .he colatilla in
#ection 7F reiterates the same limitation in #ection 7E$ <owever, these two
provisions pertain only to >PS"s, and have no application to 5T""s
These particular provisions do not come within the issues defined by this
Court <ence, on due process grounds, no pronouncement can be made
in this case in respect of the constitutionality of Sections 4+ and 4@
#ection 559 is disparaged for reverting &.AAs and all mineral agreements
to the old license, concession or lease! system, because it allegedly effectively
reduces the government share in &.AAs to just the 9 percent e,cise ta, which
pursuant to #ection 7E comprises the government share in /P#As$ Aowever,
#ection 559 li*ewise does not come within the issues delineated by this 1ourt,
and was never touched upon by the parties in their pleadings$ /oreover,
#ection 559 may not properly apply to &.AAs$ Te mining law o&viousl% meant
to treat 'T""s as a &reed apart from mineral agreements$ .here is absolutely
no basis to believe that the law intends to e,act from &.AA contractors merely
the same government share 'i$e$, the 9 percent e,cise ta,( that it apparently
demands from contractors under the three forms of mineral agreements$
3hile there is ground to believe that #ections 7E, 7F and 559 are indeed
unconstitutional, they cannot be ruled upon here$ In any event, they are
separable2 thus, a later finding of nullity will not affect the rest of RA 86F9$
In fine, the challenged provisions of 1" '*@! cannot be said to
surrender financial benefits from an 5T"" to the foreign contractors
/oreover, there is no concrete basis for the view that, in &.AAs with a
foreign contractor, the #tate must receive at least ;E percent of the after-ta,
income from the e,ploitation of its mineral resources, and that such share is the
e+uivalent of the constitutional re+uirement that at least ;E percent of the
capital, and hence ;E percent of the income, of mining companies should
remain in &ilipino hands$ Cven if the #tate is entitled to a ;E percent share from
other mineral agreements '1PA, MKA and /P#A(, that would not create a
parallel or analogous situation for &.AAs$ 3e are dealing with an essentially
different e+uation$ Aere we have the old apples and oranges syndrome$
.he 1harter did not intend to fi, an iron-clad rule of ;E percent share,
applicable to all situations, regardless of circumstances$ .here is no indication
of such an intention on the part of the framers$ /oreover, the terms and
conditions of petroleum &.AAs cannot serve as standards for mineral mining
&.AAs, because the technical and operational requirements, cost
structures and investment needs of off,shore petroleum e.ploration and
drilling companies do not have the remotest resemblance to those of on,
shore mining companies
.o ta*e the position that governmentIs share must be not less than ;E
percent of after-ta, income of &.AA contractors is nothing short of this 1ourt
dictating upon the government$ Te /tate resultantl% ends up losing control. .o
avoid compromising the #tateIs full control and supervision over the e,ploitation
of mineral resources, there must be no attempt to impose a minimum ;E
percent! rule$ It is sufficient that the #tate has the power and means, should it
so decide, to get a ;E percent share 'or greater(2 and it is not necessary that the
#tate does so in ever% case$
Invalid Provisions of
the 64$P "TAA
#ection 8$6 of the 3/1P &.AA clearly renders illusory the #tateIs ;E
percent share of 3/1PIs revenues$ <nder #ection 8$6, should 3/1PIs
foreign stoc*holders 'who originally owned 5EE percent of the e+uity( sell ;E
percent or more of their e+uity to a &ilipino citi)en or corporation, the #tate loses
its right to receive its share in net mining revenues under #ection 8$8, without
any offsetting compensation to the #tate$ And what is given to the #tate in
#ection 8$8 is by mere tolerance of 3/1PIs foreign stoc*holders, who can at
any time cut off the governmentIs entire share by simply selling ;E percent of
3/1PIs e+uity to a Philippine citi)en or corporation$
In fact, the sale by 3/1PIs foreign stoc*holder on Manuary 9%, 9EE5 of the
entire outstanding e+uity in 3/1P to #agittarius /ines, Inc$, a domestic
corporation at least ;E percent &ilipino owned, can be deemed to have
automatically triggered the operation of #ection 8$6 and removed the #tateIs
right to receive its ;E percent share$ #ection 8$6 of the 3/1P &.AA has
effectively given away the #tateIs share without anything in e,change$
/oreover, it constitutes unjust enrichment on the part of the local and
foreign stoc*holders in 3/1P, because by the mere act of divestment, the local
and foreign stoc*holders get a windfall, as their share in the net mining
revenues of 3/1P is automatically increased, without having to pay anything
for it$
Being grossly disadvantageous to government and detrimental to the
&ilipino people, as well as violative of public policy, #ection 8$6 must therefore
be stric*en off as invalid$ .he &.AA in +uestion does not involve mere
contractual rights but, being impressed as it is with public interest, the
contractual provisions and stipulations must yield to the common good and the
national interest$ #ince the offending provision is very much separable from the
rest of the &.AA, the deletion of #ection 8$6 can be done without affecting or
re+uiring the invalidation of the entire 3/1P &.AA itself$
#ection 8$7'e( of the 3/1P &.AA li*ewise is invalid, since by allowing the
sums spent by government for the benefit of the contractor to be deductible from
the #tateIs share in net mining revenues, it results in benefiting the contractor
twice over$ .his constitutes unjust enrichment on the part of the contractor, at
the e,pense of government$ &or being grossly disadvantageous and prejudicial
to government and contrary to public policy, #ection 8$7'e( must also be
declared without effect$ It may li*ewise be stric*en off without affecting the rest
of the &.AA$
;PI6OC=;
A&.CR A-- I# #AID A0D D40C, it is clear that there is unanimous
agreement in the 1ourt upon the *ey principle that the #tate must e,ercise full
control and supervision over the e,ploration, development and utili)ation of
mineral resources$
Te cru, of te controvers% is te amount of discretion to &e accorded te
+,ecutive Department, particularl% te -resident of te #epu&lic, in respect of
negotiations over te terms of 'T""s, particularl% wen it comes to te
government sare of financial &enefits from 'T""s. .he 1ourt believes that it is
not unconstitutional to allow a wide degree of discretion to the 1hief C,ecutive,
given the nature and comple,ity of such agreements, the humongous amounts of
capital and financing re+uired for large-scale mining operations, the complicated
technology needed, and the intricacies of international trade, coupled with the
#tateIs need to maintain fle,ibility in its dealings, in order to preserve and
enhance our countryIs competitiveness in world mar*ets$
3e are all, in one way or another, sorely affected by the recently reported
scandals involving corruption in high places, duplicity in the negotiation of multi-
billion peso government contracts, huge payoffs to government officials, and
other malfeasances2 and perhaps, there is the desire to see some measures put
in place to prevent further abuse$ <owever, dictating upon the President
what minimum share to get from an 5T"" is not the solution It sets a bad
precedent since such a move institutionali)es the very reduction if not
deprivation of the #tateIs control$ .he remedy may be worse than the problem it
was meant to address$ In any event, provisions in such future agreements
which may be suspected to be grossly disadvantageous or detrimental to
government may be challenged in court, and the culprits haled before the bar of
justice$
Kerily, under the doctrine of separation of powers and due respect for co-
e+ual and coordinate branches of government, this 1ourt must restrain itself
from intruding into policy matters and must allow the President and 1ongress
ma,imum discretion in using the resources of our country and in securing the
assistance of foreign groups to eradicate the grinding poverty of our people and
answer their cry for viable employment opportunities in the country$
Te judiciar% is loat to interfere wit te due e,ercise &% coe<ual &rances
of government of teir official functions$!
G66H
As aptly spelled out seven decades
ago by Mustice ?eorge /alcolm, Must as te /upreme Court, as te guardian of
constitutional rigts, sould not sanction usurpations &% an% oter department of
government, so sould it as strictl% confine its own spere of influence to te
powers e,pressl% or &% implication conferred on it &% te Organic "ct$!
G5EEH
-et
the development of the mining industry be the responsibility of the political
branches of government$ And let not this 1ourt interfere inordinately and
unnecessarily$
.he 1onstitution of the Philippines is the supreme law of the land$ It is the
repository of all the aspirations and hopes of all the people$ 3e fully
sympathi)e with the plight of Petitioner -a Bugal BIlaan and other tribal groups,
and commend their efforts to uplift their communities$ Aowever, we cannot
justify the invalidation of an otherwise constitutional statute along with its
implementing rules, or the nullification of an otherwise legal and binding &.AA
contract$
3e must never forget that it is not only our less privileged brethren in tribal
and cultural communities who deserve the attention of this 1ourt2 rather, all
parties concerned -- including the #tate itself, the contractor 'whether &ilipino or
foreign(, and the vast majority of our citi)ens -- e+ually deserve the protection of
the law and of this 1ourt$ .o stress, the benefits to be derived by the #tate from
mining activities must ultimately serve the great majority of our fellow citi)ens$
.hey have as much right and interest in the proper and well-ordered
development and utili)ation of the countryIs mineral resources as the
petitioners$
3hether we consider the near term or ta*e the longer view, we cannot
overemphasi)e the need for an appropriate balancing of interests and needs
-- the need to develop our stagnating mining industry and e,tract what 0CDA
#ecretary Romulo 0eri estimates is some <#Q7FE billion 'appro,$ PhPF8$EF
trillion( worth of mineral wealth lying hidden in the ground, in order to jumpstart
our floundering economy on the one hand, and on the other, the need to
enhance our nationalistic aspirations, protect our indigenous communities, and
prevent irreversible ecological damage$
.his 1ourt cannot but be mindful that any decision rendered in this case will
ultimately impact not only the cultural communities which lodged the instant
Petition, and not only the larger community of the &ilipino people now struggling
to survive amidst a fiscalbudgetary deficit, ever increasing prices of fuel, food,
and essential commodities and services, the shrin*ing value of the local
currency, and a government hamstrung in its delivery of basic services by a
severe lac* of resources, &ut also countless future generations of 'ilipinos$
&or this latter group of &ilipinos yet to be born, their eventual access to
education, health care and basic services, their overall level of well-being, the
very shape of their lives are even now being determined and affected partly by
the policies and directions being adopted and implemented by government
today$ "nd in part &% te tis #esolution rendered &% tis Court toda%.
Kerily, the mineral wealth and natural resources of this country are meant to
benefit not merely a select group of people living in the areas locally affected by
mining activities, but the entire &ilipino nation, present and future, to whom the
mineral wealth really belong$ .his 1ourt has therefore weighed carefully the
rights and interests of all concerned, and decided for the greater good of the
greatest number$ M<#.I1C &4R A--, not just for some2 M<#.I1C &4R .AC
PRC#C0. A0D .AC &<.<RC, not just for the here and now$
B<;1;5O1;, the 1ourt #+/O!1+/ to G#"GT the respondentsI and the
intervenorsI /otions for Reconsideration2 to #+1+#/+ and /+T "/ID+ this
1ourtIs Manuary 98, 9EEF Decision2 to DI/*I// the Petition2 and to issue this
new judgment declaring COG/TITFTIOG"! '5( Republic Act 0o$ 86F9 'the
Philippine /ining -aw(, '9( its Implementing Rules and Regulations contained in
DC0R Administrative 4rder 'DA4( 0o$ 6;FE -- insofar as they relate to financial
and technical assistance agreements referred to in paragraph F of #ection 9 of
Article >II of the 1onstitution2 and '%( the &inancial and .echnical Assistance
Agreement '&.AA( dated /arch %E, 566: e,ecuted by the government and
3estern /ining 1orporation Philippines Inc$ '3/1P(, e,cept #ections 8$7 and
8$6 of the subject &.AA which are hereby I0KA-IDA.CD for being contrary to
public policy and for being grossly disadvantageous to the government$
SO O1A;1;A
iiLan+s of ",lic Domain
6and of Public 5omain :6P5; is one of the natural resources
enumerated in Section $, Art. %&& of the 1'() onstitution. !he term 9public
domain> is synonymous to public dominion or public ownership, as
distinguished from pri.ate ownership.
d

Gover#"#/ .a$
ommonwealth Act 8o. 111, as amended, or the Public 6and Act, is
the go.erning law of public land. 3n 8o.ember ), 1'*7, the 8ational
Assembly %then legislature' appro.ed A 8o. 111 which compiled e"isting
laws on public domain. &t remains to this day the e"isting general law on
classification and disposition of land of public domain other than timber
and mineral lands.
a
Alass"f"cat"o#
6ands of the public domain are classified into agricultural, forest or
timber, mineral lands and national par<s. Agricultural lands of the public domain
may be further classified by law according to the uses to which they may be
de.oted. Alienable lands of the public domain shall be limited to agricultural
lands.
l

!he 1'() onstitution pro.ides four :1; classifications of 6P5,
agricultural, forest or timber, mineral, and national par<s. But in Public
6and Act, there are only three :*; classifications, and they are agricultural,
forest or timber, and mineral. Agricultural lands remain to be the only
class of 6P5 that may be alienable or disposable, the rest are otherwise.
!hus, 6P5 may be generally classified as either the inalienable or
non0disposable lands which are the timber or forest, mineral and national
par<s, and the alienable or disposable which is the agricultural land.
!he case of &lba vs. Aort of &ppeals, G.R. No. 120066,
Septe!ber 5, 1555 is enlightening, as follows#
Public lands are broadly classified into 5$H Alienable or disposable
lands2 and, 9$H Inalienable or non-disposable public lands$ 0on-disposable
public lands or those not susceptible of private appropriation include a$H .imber
lands2 and, b$H /ineral lands$ &or purposes of administration and
disposition, the lands of the public domain classified as LdisposableL or
LalienableL are further sub-classified into a$H Agricultural2 b$H Residential,
commercial, industrial or for similar productive purposes2 c$H Cducational,
charitable or other similar purposes, and d$H Reservations for town sites and for
public and +uasi-public purposes$
&rom the foregoing classifications, public agricultural land may be defined
as those alienable portions of the public domain which are neither timber nor
mineral lands$ .hus the term includes residential, commercial and industrial
lands for the reason that these lands are neither timber nor mineral lands$
6and is a property, and it is thus worth ta<ing the classification of
the 8ew i.il ode as to ownership of property. Accordingly, property is
either of p,lic +ominion or private owners-ip.
.
And the following
things are property of dominion#
:1; !hose intended for public use, such as roads, canals, ri.ers,
torrents, ports and bridges constructed by the State, ban<s,
shores, roadsteads, and others of similar character=
:$; !hose which belong to the State, without being for public
use, and are intended for some public ser.ice or for
de.elopment of the national wealth.
d
Properties of the State or its political subdi.ision
P
could either be :1;
property of pbl"c )o!"#"o# which are those enumerated in immediately
preceding paragraph, e.g. those for public use, public service and for
development of national wealth, or the :$; patr"!o#"al property which
consists of all other property of State, which is not for public use, public
ser.ice and for de.elopment of national wealth.
s
Property of pri.ate ownership, besides the patrimonial property of the
State, pro.inces, cities, and municipalities, consists of all property belonging
to pri.ate persons, either indi.idually or collecti.ely.
t
Property of public dominion is held by the State or its political
subdi.ision in its governmental or sovereign capacity while the
patrimonial property in its proprietar. or private capacity.
Alass"f"cat"o# a# E+ect"ve Prero/at"ve
6ands of the public domain are classified under three main categories,
namely# Eineral, Corest and 5isposable or Alienable 6ands. +nder
ommonwealth onstitution, only agricultural lands are allowed to be
alienated. !hus, disposable or alienable lands of public domain necessarily
refer only to agricultural lands, not forest and mineral lands or national
par<s.
!he disposition of alienable or agricultural lands is pro.ided in
ommonwealth Act 8o. 111 %,ecs. -&6' which states that it is only the
President, upon the recommendation of the proper department head, who
has the authority to classify lands of public domain into alienable or
disposable, timber and mineral lands. d
Before the go.ernment could alienate or dispose 6P5, the President
must first officially classify these lands as alienable or disposable, and then
declare them open to disposition or concession. d !he classification is a
prerogati.e of the e"ecuti.e department and not the courts. p
Stated other way, the State could not dispose or alienate mineral and
forest lands or national par<s while they are still in that status. Cor the
State to dispose or alienate them, the President must first officially re0
classify them into agricultural lands because the onstitution pro.ides that
alienable lands are limited only to agricultural lands.
!he power of the President to re0classify 6P5 from inalienable or non0
disposable to alienable or disposable status is pro.ided in Public 6and Act,
as follows# 9he "resident, upon recommendation of the ,ecretary of
:;<R, shall from time to time classify the lands of the public domain
into= %a' )lienable or disposable> %b' 9imber> and %c' ?ineral land, and may
at any time and in a li@e manner transfer such lands from one class to
another, for the purposes of their administration and disposition..
Cor purposes of the administration and disposition of alienable or
disposable public lands, the President, upon recommendation of the
Secretary of the 5E8R, shall from time to time declare what lands are
open to disposition or concession. o
3nly those lands shall be declared open to disposition or concession
which ha.e been officially delimited or classified and, when practicable,
sur.eyed, and which ha.e not been reser.ed for public or ,uasi0public
uses, nor appropriated by the @o.ernment, nor in any manner become
pri.ate property, nor those which a pri.ate right authori?ed and recogni?ed
by A 8o. 111 or any other .alid law may be claimed, or which, ha.ing
been reser.ed or appropriated, ha.e ceased to be. Bowe.er, the President
may, for reasons of public interest, declare lands of the public domain open
to disposition before the same ha.e had their boundaries established or
been sur.eyed, or may, for the same reason, suspend their concession or
disposition until they are again declared open to concession or disposition
by proclamation duly published or by act of ongress.
b
3nce an 6P5 is re0classified as alienable or open to disposition, it
may be further classified according to their use or purposes. !his is the
language of Public 6and Act, as follows# 8or the purpose of their
administration and disposition, the land of the public domain alienable or
open to disposition shall be classified, according to the use or purposes to
which such lands are destined, as follows=
%a' )gricultural>
%b' Residential, commercial, industrial, or for similar productive
purposes>
%c' ;ducational, charitable, or other similar purposes> and
%d' Reservation for town sites and for public and quasi&public uses.
9he "resident, upon recommendation by the ,ecretary of the :;<R,
shall from time to time ma@e such classification, and may, at any time
and in a similar manner, transfer lands from one class to another.
.

<ea#"#/ of &l"e#at"o#
!he words 9Alienation,> 95isposition> or 9oncession> as used in Sec.
12n of Public 6and Act or .A. 8o. 111, as amended, shall mean any of the
methods authori?ed by said Act for the ac,uisition, lease, use or benefit of the
lands of the public domain other than timber or mineral lands.
<ea#"#/ of 1#al"e#ab"l"ty
&nalienable or non0disposable lands are those not susceptible of pri.ate
appropriation or ownership and hence, no pri.ate person or entity anational
par<s. !hey cannot be ac,uired by prescription. !heir possession howe.er long
cannot ripen into pri.ate ownership, they are imprescriptible. 'Be"rs of &!#ate/"
vs. D"rector of 3orestry, 126 SAR& 65* D"rector of 3orest &)!"#"strat"o# vs. 3er#a#)e7,
152 SAR& 121, 1,0(. !hey are not registrable, ';alla#ta vs. 1#ter!e)"ate &ppellate
Aort, 101 SAR& 675(.
1#al"e#able la#)s are #o#4re/"strable propert"es8
!hey could not be owned pri.ately, they are inalienable or non0disposable,
hence, they could not be registered under !orrens system of registration. !hey
are#
1( Property of Pbl"c Do!"#"o# #)er NAA
!hey are under the 8ew i.il ode :1; those intended for public use, such
as roads, canals, ri.ers, torrents, ports, and bridges constructed by the
State, ban<s, shores, roadsteads, and others of similar character= and :$;
those which belong to the State, without being for public use, and are
intended for some public ser.ice or for the de.elopment of the national
wealth, :Art. 1$2;.
All other property of the State, not in the character of foregoing, is
patrimonial, :Art. 1$1;. Property of public dominion, when no longer needed
for public use or for public ser.ice, shall form part of the patrimonial
property of the State, :Art. 1$$;.
2( 3orest or :"!ber .a#)s
!he fact that no trees could be found within the area does not di.est the
piece of land of its classification as timber or forest land as the classification
is descripti.e of its legal nature or status and does not ha.e to be ta<en
descripti.e of what the land actually loo<s li<e, 'D"rector of 3orest
&)!"#"strat"o# vs 3er#a#)e7, 1550, 1552 SAR& 121, 1,0(. A ta" declaration
secured o.er a land that is forested does not .est ownership to the
declarant, 'Repbl"c vs. Aort of &ppeals, 116 SAR& 000(.
A forested area classified as forest land of the public domain does not lose
such classification simply because loggers or settlers may ha.e stripped it
of its forest co.er. Parcels of land classified as forest land may actually be
co.ered with grass or planted to crops by <aingin culti.ators or others
farmers. MCorest landsK do not ha.e to be in mountains or in out of the way
places. Swampy areas co.ered by mangro.e trees, nipa palms, and other
trees growing in brac<ish or sea water may also be classified as forest land.
!he classification is descripti.e of its legal nature or status and does not
ha.e to be descripti.e of what the land actually loo<s li<e. +nless and until
the land classified as MforestK is released in an official proclamation to that
effects so that it may form part of the disposable agricultural lands of the
public domain, the rules on confirmation of imperfect title do not apply,
'&!#ate/" vs. D"rector of 3orestry, G.R. No. .42787,, Nove!ber 25, 158,(.
on.ersely, 9the mere fact that a tract of land has trees upon it or has
mineral within it is not of itself sufficient to declare that one is forestry land
and the other, mineral land. !here must be some proof of the e"tent and
present or future .alue of the forestry and of the minerals. Ghile, as we
ha.e 4ust said, many definitions ha.e been gi.en to MagricultureK, MforestryK
and MmineralK lands, and that in each case it is a ,uestion of fact, we thin< it
is safe to say that in order to be forestry or mineral land the proof must
show that it is more .aluable for the forestry or the mineral which it
contains than it is for agricultural purposes. &t is not sufficient to show that
there e"ists some trees upon the land or that it bears some mineral. 6and
may be classified as forestry or mineral today, and by reason of the
e"haustion of the timber or mineral, be classified as agricultural land
tomorrow. And .ice0.ersa, be reason of rapid growth of timber or the
disco.ery of .aluable minerals, lands classified as agricultural today may be
differently classified tomorrow. Each case must be decided upon the proof
in that particular case, ha.ing regard for its present or future .alue for one
or the other purposes.> '&#>ro# vs. Gover#!e#t of t%e P%"l"pp"#e 1sla#)s,
G.R.No. 1-21,, &/. 2,, 1515, -0 P%"l.(
,. Caters%e)s
!his is defined as an area drained by a ri.er and its tributaries and enclosed
by a boundary or di.ide which separates it from ad4acent watersheds. 'Sta.
Rosa Develop!e#t Aorporat"o# vs. Aort of &ppeals, G.R.N. 112026, Oct. 12,
2001, ,67 SAR& 170(.
-. <a#/rove S$a!ps
Eangro.e swamps or mangla.es is a community of intertidal plants
including all species of trees, shrubs, .ines, and herbs found on coasts,
swamp or border camps %,ec. 0, R.). <o. *AA+ or the 8isheries (ode of 511*'. !hey
form part of the public forests of the Philippines as defined in Section 1($2
of the Administrati.e ode of 1'1), and are not sub4ect to pri.ate
ownership until and unless they are first released as forest land and
classified as alienable agricultural land, 'D"rector of 3orestry vs. ;"llareal, 170
SAR& 058(.
0. <"#eral .a#)s
!hey are go.erned by special laws, not Public 6and 6aw. Eineral lands
mean any areas where mineral resources are found. Eineral resources
mean any concentration of mineral roc<s with potential economic .alue.
3wnership by a person of agricultural land in which minerals are disco.ered
does not gi.e him the right to e"tract or utili?e the minerals without
permission of the State. 'Repbl"c vs. Aort of &ppeals, G.R. No. .4-,5,8, &pr"l
10, 1580(.
6. Nat"o#al Par>s
ham .s. Pi?arro A.. 8o. /1'', Aug. 17, $22/=
7. <"l"tary or Naval Reservat"o#
Republic .s. Earcos, @.R.8o. 60*$'11, 4uly *1, 1')*= Republic .s. Southside
Bomeowners Association, &nc. @.R.8o. 1/7'/1, September $$, $227.
8. 3ores%ore .a#)s a#) Recla"!e) .a#)s
Coreshore 6and has been defined as that part of the land which is between
high and low water and left dry by the flu" and reflu" of the tides. &t is the
strip of the land that lies between the high and low water mar<s and that is
alternati.ely wet and dry according to the flow of the tide. &f the
submergence, howe.er, of the land is due to precipitation :rainfall;, it does
not become foreshore despite its pro"imity to the waters. 'Repbl"c vs.
&la/a), 165 SAR& -00, -62, -6- '1585(. Coreshore land, seashore, andNor
portions of the territorial waters and beaches, cannot be registered for they
are public land belonging to the State. E.en allu.ial formation along the
seashore is part of the public domain and, therefore, not open to
ac,uisition by ad.erse possession by pri.ate persons. Such accretion is
outside the commerce of man, unless declared by either the e"ecuti.e or
legislati.e branch of the go.ernment as disposable. !heir inclusion in a
certificate of title does not con.ert the same into properties of pri.ate
ownership or confer title upon the registrant, 'D1=ON ;S Ro)r"/e7, 1, SAR&
70-* Repbl"c vs. ;)a. De Aast"llo, 16, SAR& 286(.
!hat the foreshore area had been reclaimed does not remo.e it from its
classification of foreshore area sub4ect to the preferential right to lease of
the littoral owner. 'S1&N E#terpr"ses, 1#c. vs. 3.3. Ar7 D Ao., 1#c. G.R.No.
1-6616, &/. ,1, 2006(.
5. Sb!er/e) &reas
&n A%ave7 vs. Pbl"c Estates &t%or"ty, G.R.No. 1,,200, Ely 5, 2002, it is
held#
9!he /'$.1/ hectares of submerged areas of Eanila Bay remain inalienable
natural resources of the public domain until classified as alienable or
disposable lands open to disposition and declared no longer needed for
public ser.ice. !he go.ernment can ma<e such classification and
declaration only after PEA has reclaimed these submerged areas. 3nly then
can these lands ,ualify as agricultural lands of the public domain, which are
the only natural resources the go.ernment can alienate. &n their present
state, the /'$.1/ hectares of submerged areas are inalienable and outside
the commerce of man.>
9Since the Amended ADA also see<s to transfer to AEAR& ownership of
$'2.1/7 hectares of still submerged areas of Eanila Bay, such transfer is
.oid for being contrary to Section $, Article %&& of the 1'() onstitution
which prohibits the alienation of natural resources other than agricultural
lands of the public domain. PEA may reclaimed these submerged areas.
!hereafter, the go.ernment can classify the reclaimed lands as alienable or
disposable, and further declare them no longer needed for public ser.ice.
learly the amended ADA .iolates glaringly Section $ and *, Article %&& of the
1'() onstitution. +nder Article 112' of the i.il ode, contracts whose
9ob4ect or purpose is contrary to law,> or whose 9ob4ect is outside the
commerce of men> are 9ine"istent and .oid from the beginning.> !he court
must perform its duty to defend and uphold the onstitution, and therefore
declares the Amended ADA null and .oid ab initio.>
3therwise said, submerged areas form part of public domain, and in that
state, are inalienable and outside the commerce of man. +ntil reclaimed
from the sea, these submerged areas are, under the onstitution, 9waterO
owned by the State,> forming part of the public domain and conse,uently
inalienable. 3nly when actually reclaimed from the sea can these
submerged areas be classified as public agricultural lands, which under the
onstitution are the only natural resources that the State may alienate.
3nce reclaimed and transformed into public agricultural lands, the
go.ernment may then officially classify these lands as alienable or
disposable lands open to disposition. !hereafter, the go.ernment may
declare these lands no longer needed for public ser.ice. 3nly then can
these reclaimed lands be considered alienable or disposable lands of the
public domain and within the commerce of man. 'p.,7, .a$ o# Natral
Resorces, Os$al)o D. &/cao"l", 2007 e)(.
10( .a>es
Areas forming part of the 6#aguna de Bay, which is a la<e, are neither
agricultural nor disposable lands of the public domain. Any title issued o.er
non0disposable lots li<e la<es, e.en in the hands of the alleged purchaser
for .alue, shall be cancelled. 'Pelbel <a#factr"#/ Aorp. vs. Aort of &ppeals,
G.R.No. 1-1,20, Ely ,1, 2006(.
11( Nav"/able R"vers
&f the land forms part of the bed of the na.igable stream, cree< or ri.er, the
decree and title in the name of the applicants would not gi.e them any right
or title to it. 'Repbl"c vs. S"oso#, G.R. No. .41,687, Nov. 25,1 56,(.
12( Aree>s
A cree< is a recess or arm e"tending from a ri.er and participating in the
ebb and flow of the sea. As a public water, it cannot be registered under
the !orrens system of registration in the name of any indi.idual. '<erca)o
vs. Reyes, G.R.No. -0768, Dece!ber 2,, 15,7(. Absent any declaration by
the go.ernment, that a portion of the cree< had dried up does not,
by itself, alter its inalienable character. &t is only after the
go.ernment has declared the land to be alienable and disposable
agricultural land that the year of entry, culti.ation and e"clusi.e and
ad.erse possession can be counted for purposes of an imperfect title.
'Aelest"al vs. Aac%opero, G.R. No. 1-2050, October 10, 200,(. !he
construction of irrigation di<es on a cree< which pre.ents the water
from flowing, or con.erts it into fishpond, does not alter or change
the nature of the cree< as a property of the public domain,
'<a#/al)a# vs. <a#ao/, G.R. 11627, &/st 10, 1518(.
1,( Reservat"o#s for Pbl"c a#) Se!"4pbl"c Prposes
6ands reser.ed by the President for a specific public purpose are
non0alienable and shall not be sub4ect to sale or other disposition
until again declared alienable. +nless the President issues a
proclamation withdrawing public airports from public use, these
properties remain properties of public dominion and are inalienable.
'<1&& vs. Aort of &ppeals, G.R. No. 100600, Ely 20, 2006(. 6and
co.ered by reser.ation for a medical center is not sub4ect to entry,
and no lawful settlement on them can be ac,uired. 'Repbl"c vs. Aort
of &ppeals, G. R. No. .4-0512, Septe!ber ,0, 1576(.
/o+es of Disposition of ",lic Lan+s
0",lic Grant1
Cor the State, these are modes of disposition or alienation or grant
of, but for pri.ate persons or entities, these are methods of legitimi?ing
their possession of, public agricultural lands suitable for agricultural
purposes. And they are :1; for Bomestead Settlement, :$; by Sale, :*;
by 6ease, :1; by onfirmation of &mperfect or &ncomplete !itles which are
further :a; Audicial 6egali?ation and :b; by Administrati.e 6egali?ation :Cree
Patent;, :Sec. 11, A 8o. 111, as amended;. Each mode of disposition is
appropriately co.ered by separate chapters of the Public 6and Act because
there are specific re,uirements and applicable procedure for e.ery mode.
'Repbl"c vs. Berb"eto, G.R. No. 106117, <ay 26, 2000(.
Be it noted, that, 9no public land can be ac,uired by pri.ate persons
without any grant, e"press or implied, from the go.ernment.> !here must
be a showing of a title from the State. 'Pa)"lla vs. Reyes, G.R. No. ,7-,0,
Nove!ber 28, 15,-(. 3ne claiming 9pri.ate rights> must pro.e that he has
complied with the Public 6and Act which prescribes the substanti.e as well
as the procedural re,uirements for ac,uisition of public lands. 'Aolla)o vs.
Aort of &ppeals, G.R. No. 10776-, October -, 2002(.
1!porta#ce of .e/"t"!"7"#/ Possess"o#
of Pbl"c &/r"cltral .a#)s
&t is the duty of any claimant to ta<e positi.e steps to legitimi?e
before the Bureau of 6ands his claim of possession and culti.ation of the
public land. !he claimant may do this either by applying for homestead
settlement, sale patent, lease, or confirmation of imperfect or incomplete
title by 4udicial legali?ation under Sec. 1( :b; of the Public 6and 6aw, as
amended by R.A. 1'1$ and P.5. 12)*, or by administrati.e legali?ation :free
patent; under Sec. 11 of Public 6and, as amended. Be cannot 4ust sit tight,
doing nothing because if another claimant comes along and ta<es actual
possession of the land, he might lose it by prescription. Be must, in short,
affirmati.ely declare his prior and earlier possession and culti.ation and
pro.e that he actually possessed and culti.ated the entire area of land to
the e"clusion of other claimants who stand on e,ual footing under the
Public 6and 6aw as any other pioneering claimants. 'Yba#e7 vs. 1#ter!e)"ate
&ppellate Aort, 15- SAR& 7-04702, 1551(.
2omestea+ Settlement 0"atent1
Ao#cept8 By homestead is meant the home, the house and the
ad4oining land where the head of the family dwells= the home farm= the
fi"ed residence of the head of a family, with the land and buildings
surrounding the main house, 'Ol"ver vs. S#o$)e#, 18 3la. 820, -, &!. Rep.
,,8(. !he purpose of the law is to gi.e to the homesteader a place to
li.e in with his family so that he may become a happy citi?en and a
useful member of our society, 'Eocso# vs. Sor"a#o, -0 P%"l. ,70(. Bomestead
Act is a social legislation enacted for the welfare and protection of the
poor, 'Patr"c"o vs. 2ayo/, 112 SAR& -2(.
Fal"f"cat"o#s8
1. 3nly Cilipino citi?en=
$. 3.er 1( years old or head of family=
*. 5oes not own more than 1$ hectares of land in the Philippines, or
has not had the benefit of any gratuitous allotments of more than
1$ hectares of land since the occupation of the Philippines by
+SA, 'Sec. 12 A& No. 1-1, as a!e#)e) by Sec. ,, &rt. 911 of t%e 1587
Ao#st"tt"o#(
Proce)res8
1. Ciling of Bomestead application with 5irector of 6ands :Sec. 1*;
$. +pon appro.al of the application, the 5irector of 6ands shall
authori?e the applicant to ta<e possession of the land upon
payment of entry fee, :Sec. 1*;
*. Githin si" :7; months from appro.al of the application, the
applicant must begin culti.ation of the homestead lot, or else he shall
lose his prior right to the land. Be must culti.ate at least one0fifth of
the land for a period of not less than one nor more than fi.e years from
date of appro.al of the application :Sec. 1*;=
1. !he applicant must ha.e continuous resident at least one year in
the municipality where the land lies and culti.ation of at least one0fifth
:Sec. 11;=
/. !he applicant to notify the 5irector of 6ands of his readiness to present
final proof of compliance of culti.ation and resident and other
re,uirements. :Sec 11; :Proof of this notice may be in the form of Aoint
Affida.it of applicant and witnesses;=
7. Before hearing in the 5irector of 6ands of such final proof, due notice
shall be gi.en to the public and homesteader, stating among things
the nature of the application, and the time and place at which
such proof will be presented :Sec. 17;=
). +pon satisfaction of the proofs of application, the 5irector of 6ands
shall order the sur.ey of the land by the sur.eyor of the Bureau
of 6ands and the corresponding plan thereof to be prepared=
(. !he Bureau of 6ands shall prepare the Bomestead Patent issued in
the name of the Republic of the Philippines under the signature of
the President= and
'. ertified copy of the Patent is sent to the Register of 5eeds for
registration. !hereupon an 3riginal ertificate of !itle is issued to
the patentee in accordance with Section 1$$ of Act 8o. 1'7, in
relation to A 8o. 111.
!he applicant must ha.e possessed and culti.ated the land sub4ect of
the Bomestead application. &f no culti.ation of at least 1N/ of the land, no
certificate of title shall be issued, :Sec. 11;.
;este) R"/%ts of Bo!estea) 2efore 1ssa#ce of Pate#t
Ghen a homesteader has complied with all the terms and conditions
which entitled him to a patent for a particular tract of public land, he
ac,uires a .ested right and interest therein, and is to be regarded as the
e,uitable owner thereof. E.en without a patent, a perfected homestead
property is a property right in the fullest sense, unaffected by the fact
that the paramount title to the land is still in the @o.ernment, '2alboa vs.
3arrales, 61 P%"l. -58* &yo/ vs. As", 118 SAR& -52(.
Dested rights o.er the land applied under a homestead application
can only be .alidly claimed by a claimant after the appro.al by the
5irector of 6ands of his final proof for a homestead patent. !his is now the
condition sine ,ua non for the e"istence of such .ested right, 'F"#say vs.
1#ter!e)"ate &ppellate Aort, 150 SAR& 268(.
!he appro.al of the application for the homestead has the effect of
segregating the land from the public domain and di.esting the Bureau of
6ands of the control and possession of same land, 'Davao Gra"#s 1#c. vs.
1#ter!e)"ate &ppellate Aort, 171 SAR& 612, 617(.
Sales "atent
Fal"f"cat"o#s8
1. 3nly Cilipino citi?en=
$. 3f lawful age, or head of family= and
*. !o purchase not more than 1$ hectares.
8ote# 8o pri.ate corporation or association may purchase alienable public
lands or hold such land e"cept by lease not e"ceeding $/ years for not
more than 1,222 hectares 'Sec. , &rt. 911, 1587 Ao#st"tt"o#, <eralco vs. E)/e
2artolo!e, 11- SAR& 755, 1582(.
Proce)res8
1. Ciling of application with 5irector of 6ands=
$. Appraisal of the .alue of land by 5irector of 6and with appro.al of the
Secretary of the 5E8R=
*. Publication of the 8otice of Sale by the 5irector of 6ands once a wee<
for three consecuti.e wee<s in 3fficial @a?ette and in two newspaper
once published in Eanila and the other in the locality. Same notice
to be posted in the bulletin board of the Bureau of 6ands in Eanila
and in three conspicuous places in the pro.incial and municipal
buildings of the situs of the land, as well as in the barrio council
building=
1. Submission of Sealed Bids to the 5irector of 6ands, enclosing cash or
certified chec<, treasury warrant, to postal money order for an
amount e,ui.alent to 12L of the bid=
/. 3pening of bids and award to highest bidder=
7. Payment of the Purchase Price may be in full upon award or paid in
ten e,ual annual installments from date of award=
). !he purchaser culti.ates not less than one0fifth of the property within
fi.e years after the date of award=
(. !he purchaser must show actual occupancy, culti.ation and
impro.ements of at least one0fifth of the land applied for until the
date of final payment=
'. !he 5irector of 6ands, satisfied that the purchaser has complied the
re,uirements of law, may order the sur.ey of the land, and when the
plan thereof is finished, the sales patent is prepared and issued li<e
the Bomestead Patent=
12. ertified copy is sent to the Register of 5eeds for issuance of
the corresponding 3riginal ertificate of !itle.
PrereG"s"te to 1ssa#ce of Sales Pate#t
!he mere fact of ha.ing succeeded in the bidding and paid for the
full price is not sufficient to entitle the purchaser to the immediate
issuance of the sales patent. &t is a legal prere,uisite that the purchaser
must show that he has occupied and has bro<en and culti.ated at least
one0fifth of the land within fi.e years after date of award, :Sec. $(;. &f at
any time after the award and before the issuance of sales patent, it is
shown that the purchaser has .oluntarily abandoned the land for more than
one year at any time or has otherwise failed to comply the re,uirements
of occupation and culti.ation, then the land shall re.ert to the State, and
all prior payments made by the purchaser and all impro.ements e"isting
thereon shall be forfeited, :Sec. *2;.
&n simple, the award to the highest bidder mar<s the appro.al of
sales application. But this appro.al merely authori?es the applicant to ta<e
possession of the land so that he can comply with the re,uirements of
occupation and culti.ation before a final sales patent can be issued in his
fa.or. Eeanwhile, the go.ernment still remains the owner thereof, as in fact
the application can still be cancelled and the land awarded to another
applicant, if it be shown that said re,uirements of occupation and
culti.ation ha.e not been complied with. Bence, when the Bureau of 6ands
did not ta<e action on the sales application but instead issued the free
patent, it was only then the go.ernment was di.ested of its ownership and
the land was segregated from the mass of public domain, con.erting into
pri.ate property, 'Eav"er vs. Aort of &ppeals, 2,1 SAR& -58(.
Restr"ct"o#s o# Prc%ase) .a#)s
1. 8o sales paten shall be issued unless the land purchased has been
sur.eyed and an accurate plan made thereof by the Bureau of 6ands
:Sec. 12(;=
$. Patents or certificates of title issued shall not include nor con.ey title
to mineral deposits contained in the land granted inasmuch as
minerals remain property of the State, :Sec 112;=
*. !he land shall be sub4ect to a right of way not e"ceeding si"ty
meters in width for public highways, railroads, irrgigation ditches,
a,ueducts, telegraph and telephone lines and similar wor<s as the
go.ernment or any public or ,uasi0public ser.ice or enterprise,
including mining or forest concessionaires, may reasonably re,uire for
carrying on their business, with damages for the impro.ements only,
:Sec. 11$;=
1. !he land shall be sub4ect to the same public ser.itudes as are
imposed on lands owned by pri.ate persons, including those with
reference to the littoral of the sea and the ban<s of na.igable ri.ers
upon which rafting may be done, :Sec 111;.
Confirmation of %mperfect or %ncomplete Title
0A1 *+icial Legali3ation
!his is also called Audicial onfirmation of &mperfect or &ncomplete
!itles.
Fal"f"cat"o#s of &ppl"ca#t 'Sec. -8(
1. 3nly citi?ens of the Philippines=
$. 3ccupying lands of public domain or claiming to own any such lands
or any interest therein=
*. But whose titles ha.e not yet been perfected or completed= and
1. :a; !hose who prior to the transfer of so.ereignty from Spain to
+SA ha.e applied for the purchase, composition or other form of
grant of lands of the public domain under the laws and royal decrees
then in force and ha.e instituted and prosecuted the proceedings in
the connection therewith, but ha.e, with or without default upon their
part, or for any other cause, not recei.ed title therefor, if such
applicants or grantees and their heirs ha.e occupied and culti.ated
said lands continuously since filing of their applications= or
/. !hose who by themsel.es or through their predecessors0in0interest
ha.e been in open, continuous, e"clusi.e, and notorious possession
and occupation of agricultural lands of the public domain, under a
bona fide claim of ac,uisition or ownership, since Aune 1$, 1'1/,
immediately preceding the filing of application for confirmation of title,
e"cept when pre.ented by war or force ma4eure. !hose shall be
conclusi.ely presumed to ha.e performed all the conditions essential
to a go.ernment grant and shall be entitled to a certificate of title=
or
7. Eembers of the national cultural minorities who by themsel.es, or
through their predecessors0in0interest ha.e been in open, continuous,
e"clusi.e and notorious possession and occupation of the land of
public domain suitable to agriculture, whether disposable or not,
under bona fide claim of ownership since Aune 1$, 1'1/.
;e#e of &ppl"cat"o#8
!he application shall be filed with the Regional !rial ourt of the
pro.ince or city where the lies, :Sec. /2;
.e/al Represe#tat"ves or Sccessors "# R"/%t8
Any person or persons, or their legal representati.es or successors in
right, claiming any lands or interest in lands, must in e.ery case present
an application to the R!, praying that the .alidity of the alleged title or
claim be in,uired into and that a certificate of title be issued to them
under the pro.isions of 6and Registration Act, :Sec. /2;.
3or! of &ppl"cat"o# 'Sec. 00(
1. onformity to applications under 6and Registration Act or Act 8o.
1'7=
$. Accompanied by a plan of the land and all documents e.idencing a
right on the land claimed=
*. State citi?enship, full nature of the claim.
Proce)re 'Sec. 01(
!he procedure is similar to the pro.isions of 6and Registration Act or
Act 8o. 1'7, e"cept that a notice of all such applications, together with a
plan of the lands claimed, shall be immediately forwarded to the 5irector
of 6ands who may appear as a party in such cases, pro.ided, that prior to
the public publication for hearing, all of the papers in said case shall be
transmitted by the cler< of court to the Solicitor @eneral or officer acting in
his stead, in order that he may, if he deems if ad.isable for the interests
of the @o.ernment, in.estigate all of the facts alleged in the application or
otherwise brought to his attention. !he Solicitor @eneral shall return such
papers to the cler< as soon as practicable within three months.
!he final decree of the court shall in e.ery case be the basis for the
original certificate of title in fa.or of the persons entitled to the property
under the procedure prescribed in Sec. 11 of 6and Registration Act.
&f the land sought to be applied is embraced in cadastral proceedings
instituted by the go.ernment, in which case the claimant files with the
ourt, instead of an application, an answer to the petition of the 5irector of
6ands. !he filing of such answer has the same effect of an application for
confirmation of an imperfect or incomplete title to public agricultural land,
:Sec. /$;.
Rle on "rescription)
@eneral Rule is that 9property of the State or any of its subdi.ision,
not patrimonial in character, shall not be the ob4ect of prescription,> :Art.
111*, 8ew i.il ode;. !his e,ually applies to lands of public domain which
cannot also be ac,uired .ia prescription, '." Se#/ G"ap a#) Ao. vs. D"rector of
.a#)s, 05 P%"l. 687(.
E"ception to the Rule is pro.ided in Sec. /) of A 8o. 111, to wit# <o
title or right to, or equity in, any lands of the public domain may
hereafter be acquired by prescription or by adverse possession or
occupancy, or under or by virtue of any law in effect prior to )merican
occupation, e$cept as e$pressly provided by laws enacted after said
occupation of the "hilippines by !,).
Public 6and Act was enacted in 1'*7, rightly after American
occupation. And Sec. 1( thereof pro.ides ac,uisiti.e prescription or ad.erse
possession since Aune 1$, 1'1/, as a basis of claim of ownership. Dery
ob.ious from this enactment, the State has consented to yield to
prescription under special circumstance li<e this one.
Proof of &)verse Possess"o# or Prescr"pt"o#8
!he established rule is that open, e$clusive and undisputed
possession of alienable public land for the period prescribed by law creates
a legal fiction whereby the land, upon completion of the requisite period
ipso #ure and without need of #udicial or other sanctions, ceases to be
public land and becomes private property. And the 9possessor is deemed
to ha.e ac,uired by operation of law, a right to a grant, a go.ernment
grant, without the necessity of a certificate of title being issued, 'D"rector
of .a#)s vs. 2e#/7o#, 102 SAR& ,65(.
!o pro.e that <ind of possession, it is not enough to simply declare
oneKs possession and that of the applicantKs predecessors0in0interest to ha.e
been 9ad.erse, continuous, open, public, peaceful and in the concept of
the owner> for the re,uired number of years. Such general statement or
phrase is a mere conclusion of law than factual e.idence of possession. !he
applicant then should present specific facts that would show such nature of
possession. &f the testimony is such bare, the burden of proof is not shifter
to the oppositor, who may e.en forego to cross0e"amine witnesses.
Per"o) of Possses"o#
+nder RA 8o. 1'1$ dated Aune $$, 1'/), the re,uired possession was 9at
least *2 years immediately preceding the filing of the application.>
But under P5 8o. 12)* dated Aanuary $/, 1')), it should be since Aune 1$,
1'1/ or earlier.
!he law as presently phrased, re,uires the possession of land of the public
domain must be from Aune 1$, 1'1/ or earlier, for the same to be ac,uired
through 4udicial confirmation of imperfect title. 'Repbl"c vs. Dol)ol, G.R. No.
1,256,, Sept. 10, 1558* Repbl"c vs. Aarrascoso, G.R. No. 1-,-51, Dece!ber 6, 2006(.
!he commencement of ad.erse possession presents no problem where the
land applied for registration was not formerly part of forest land. But if the land
was formerly within the forest ?one, it is only from the date it was released as an
agricultural land for disposition under the Public 6and Act that the period of
occupancy for the purpose of confirmation of imperfect or incomplete title may be
counted. !he possession of the land by the applicant prior to such release or
reclassification cannot be credited as part of the re,uisite period, and could not
ripen into pri.ate ownership, howe.er long it was. 'Repbl"c vs. Aort of &ppeals,
1-8 SAR& -80(.
:ac>"#/ of Possess"o# to t%at of Pre)ecessor
Article 11*( of the 8ew i.il ode pro.ides that 9in the computation of time
necessary for prescription """ the present possessor may complete the period
necessary for prescription by tac<ing his possession to that of his grantor or
predecessor0in0interests.> But this applies only where there is pri.ity between
the successi.e possessors. 'R"7 vs. Aort of &ppeals, 75 SAR& 020* Sot% A"ty
Bo!es, 1#c. vs. Repbl"c, 180 SAR& 65,, 700(.
1#sff"c"e#t Proofs of Possess"o#
A mere casual or occational culti.ation of portions of the land by the
claimant, and the raising therein of cattle, do not constitute possession under
claim of ownership. &n that sense, possession is not e"clusi.e and notorious so as
to gi.e rise to a presumpti.e grant from the State. %"" Ghile gra?ing li.estoc<
o.er land is of course to be considered with other acts of dominion to show
possession, the mere occupancy by gra?ing li.estoc< upon it, without substantial
enclosures, or other permanent impro.ements, is not sufficient to support a claim
of title through prescription. 'D"rector of .a#)s vs. Reyes, 68 SAR& 170(.
R& No. 5176
3n 8o.ember 1*, $22$, RA 8o. '1)7 was enacted :a; e"tending the period
to file an application for 4udicial legali?ation of titles to 5ecember *1, $2$2= and
:b; limited the area applied to 1$ hectares.
Ghere applicant ac,uires a right to go.ernment grant, application is a mere
formality.
Ghere all the re,uirements for a go.ernment grant are complied with, i.e.,
possession in the manner and for the period re,uired by law :ad.erse possession;,
the land ipso 4ure ceases to be public land and becomes pri.ate property. 'Ss"
vs. Ra7o#, GR No. 2-066, Dec. 5, 1520, -8 P%"l. -2-(. Ghen the conditions specified
in Section 1( :b; of A 111 are complied with, the possessor is deemed to ha.e
ac,uired, by operation of law, a right to a grant, without the necessity of a
certificate of title being issued. !he land therefore ceases to be of a public
domain and beyond the authority of the 5irector to dispose of. !he application for
confirmation is a mere formality, the lac< of which does not affect the legal
sufficiency of the title as would be e.idenced by the patent and the !orrens title
to be issued upon the strength of said patent. 'Ber"co vs. Dar, GR No. .42,260, Ea#.
28, 1580(.
."!"te) as to &rea8
Ac,uisition by purchase, homestead or grant is limited to 1$ hectares only,
:Art. %&&, Sec. *, 1'() onsti;.
041 A+ministrative Legali3ation of 5ree "atent
!his is also called Administrati.e onfirmation of &mperfect or &ncomplete
!itles.
Fal"f"cat"o# of &ppl"ca#t 'Sec. --(8
1. 3nly natural0born Cilipino iti?en=
$. 8ot the owner of more than 1$ hectares of land= and
*. :a; Since Auly 1, 1'1/, or prior thereto, has continuously occupied and
culti.ated, either by himself or through his predecessors0in0interest, such
public lands= or
:b; Paid the real estate ta" thereon while the same has not been occupied
by any other person entitled thereto, or
:c; A member of national cultural minorities who has continuously occupied
and culti.ated, either by himself or predecessors0in0interest, a tract of land,
whether disposable or not, since Auly 1, 1'//.
Proce)res8 'Sec.-6(
:1;Ciling of application with the 5o6, accompanied with a map and the
technical description of the land occupied, with affida.its of two
disinterested persons residing in the same municipality of barrio where
the land lies=
:$;Posting of 8otice# !he 5o6 upon receipt of application shall cause to be
posted the notices of the application in conspicuous places in the capital
of the pro.ince, the municipality and the barrio where the land is
situated for $ consecuti.e wee<s, re,uiring in said notices e.eryone who
has any interest in the land in.ol.ed to present his ob4ections or ad.erse
claims, if any, before the applications is granted.
:*;Action upon the application# +pon the e"piration of the period pro.ided
in the notices, and there being no .alid ob4ections of ad.erse claims
presented, and the 5o6 after due in.estigation being satisfied of the
truth of the allegation in the application and in the supporting affida.its,
then the 5o6, satisfied the applicant has complied the re,uirements of
law, orders the sur.ey of the land= and
:1;Ghen the plan is finished, the free patent is prepared, issued and
registered in the same manner as homestead patent.
Notes8 +nder R.A.8o. 7'12 the period for the filing of free patent applications
ends on 5ecember *1, $222. !his period of filing application of free patent may
further be e"tended by subse,uent legislation, :Sec. 1/;. Presently, RA 8o. '1)7
amends Section 1/ of A 8o. 111 that 9the time to be fi"ed in the entire
Archipelago for the filing of applications for Cree Patent shall not e"tent beyond
*1 5ecember $2$2.>
Restr"ct"o#s8
1. Cor both Bomestead and Cree Patents# Githin / years from issuance of
patent or grant#
:a;8o alienation or encumbrance of lands under free patent or
homestead patent=
E"ception# :1; alienation or encumbrance is in fa.or to @o.ernment or
any of its branches, units or institutions, or or legally constituted
ban<ing corporations=
:$; impro.ements or crops on the land may be mortgaged or pledged
to ,ualified persons, associations, or corporations=
:b; the same lands not liable to the satisfaction of any debt
contracted prior to the e"piration of / year period=
$. Cor Bomestead Patent# After the /0year period and before $/ years
after issuance of title#
:a; 8o alienation, transfer, or con.eyance of any homestead land without
the appro.al of S5E8R. !he appro.al not be denied e"cept on
constitutional and legal grounds=
9Crom the date of the appro.al of the application and for a term of
fi.e years from and after the date of issuance of the patent of grant,
lands ac,uired under free patent, or homestead shall not be sub4ect of
encumbrance or alienation, nor shall they become liable to the
satisfaction of any debt contracted prior to the e"piration of said
period, e"cept in fa.or of the go.ernment or any of its branches, units
or any institutions, or legally constituted ban<ing corporations, but the
impro.ements or crops on the land may be mortgaged or pledged to
,ualified persons, associations, or corporations.
8o alienation, transfer or con.eyance of any homestead after fi.e
years and before $/ years after issuance of title shall be .alid without
the appro.al of S5E8R, which appro.al shall not be denied e"cept on
constitutional and legal grounds.> Sec. 11(;
!he fi.e year period of prohibition on alienation or encumbrance
restricti.ely begins from the date of the issuance of the patent, 'Re/"ster of Dee)s
of Neva Ec"?a vs. D"rector of .a#)s, 72 P%"l. ,1,* Gala#7a vs. Nesa, G.R. No. .46628,
&/st ,1, 150-(.
Cor the purpose of computing the /0year prohibition against alienation or
encumbrance, the patent is deemed issued upon promulgation of the order for the
issuance thereof by 5o6, 'Decolo#/o# vs. A&, 122 SAR& 8-,, 8-5(
!he prohibition of alienation, transfer of con.eyance of homestead lot after
/ years and before $/ years without appro.al of S5E8R is merely directory which
can be complied with at any time the future, :E.angelista .s. Eontano, @.R. 8o. 60
//7);. Ghere a homestead was sold after the e"piration of $/ years, from the
issuance of the patent, the failure to secure the re,uisite appro.al from S5E8R
does not render the sale null and .oid, '3lores vs. Plas"#a, O.G. 107,, 3ebrary 12,
150-(.
Bowe.er, the pro.ision of the law which prohibits the sale or encumbrance
of the homestead within / years after the grant of the patent is EA85A!3RP, this
cannot be ob.iated e.en if official appro.al is granted beyond the e"piration of
the period, because the purpose of the law is to promote a definite public policy,
which is to preser.e and <eep in the family of the homesteader that portion of
public land which the state has gratuitously gi.en to them, 'Pasca vs. :ale#s, -0
O.G. 5
t%
Spp. -1,* Delos Sa#tos vs. Ro!a# Aat%ol"c A%rc% of <")asayap, O.G. 1088,
3eb. 20, 150-(. Such sale is illegal, ine"istent, and null and .oid ab initio. !he
action to declare the e"istence of such contract will not prescribe. &n fact, the
.endor ne.er lost his title or ownership o.er the homestead, and there is no need
for him or his heirs to repurchase the same from the .endee, or for the latter to
e"ecute a deed of recon.eyance, '3el"ces vs. 1r"ola, 10, P%"l. 120(. !he rule on
pari delicto does not apply to homestead, '&#/eles vs. Aort of &ppeals, 102 P%"l.
1006(. 3f course, the purchaser may reco.er the price which he has paid, and
where the homesteader .endor died the reco.ery may be pursued as a claim
against the estate, :6abrador .s. 5elos Santos, 77 Phil. /)';. But as to the
impro.ements that the .endee has introduced on the land, he forfeits them
without any right to reimbursement in accordance with Art. 11' of the 8ew i.il
ode, '3el"ces vs. 1r"ola(.
A contract of antichresis is also an encumbrance, and hence if it in.ol.es a
homestead, is within the prohibition of Public 6and 6aw, '2col vs. &rcay, 61 O.G.
-,, p. 6815, Oct. 2, 1560(.
Sec. 11' of .A. 111 gi.es the owner0.endor of lands ac,uired under free
patent or homestead patent, his widows, or legal heirs, the right to repurchase
the land, within / years from con.eyance.
Reaso# for t%e Pro%"b"t"o# a#) R"/%t to Reprc%ase8
&t is based on the fundamental policy of the State to preser.e and <eep in
the family of the public land grantee that portion of the public domain which the
State has gratuitously gi.en to him, 'PN2 vs. Delos Reyes, 175 SAR& 615(.
*. 3or Sales Pate#t8 Githin 12 years from culti.ation :of at least 1N/
portion of purchased land of public domain; or grant :mar<ed by the
award to highest bidder;, and after title has been granted#
:a; !he purchaser may not con.ey or encumber or dispose the lands or
rights thereon to any person, corporation or association, without
pre4udice to any right or interest of the go.ernment on the land. Any
sale and encumbrance made in .iolation thereof shall be null and .oid
and shall produce the effect of annulling the ac,uisition and re.erting
the property and all rights thereto to the State, and all payments on
the purchase price theretofore made to the @o.ernment shall be
forfeited. :Sec. $';.
R"/%t of Re)e!pt"o#
E.ery con.eyance of land ac,uired under the free patent or homestead
pro.isions of the Public 6and Act, when proper, shall be sub4ect to repurchase by
the applicant, his widow or legal heirs, within a period of / years from the date of
con.eyance, :Sec. 11';. !he period is rec<oned from the date of sale not from
registration of sale in the Ro5, 'Gala#7a vs. Nesa, 50 P%"l. 71,(.
!he right to repurchase cannot be wai.ed and wai.er clause in a deed of
sale of such property is null and .oid, 'Pasca vs. :ale#s, 80 P%"ls. 752(.
!he right to repurchase can be e"ercised e.en in the absence of any
stipulation in the deed of sale, ';alla#/ca vs. A.&. 17, SAR& -2, 07(.
&f the .endor is still li.ing, he alone has the right of redemption, 'E#erv")a
vs. Dela :orre, 00 SAR& ,,5(. But if he died, his widow and his legal heirs ha.e
that right, '3errer vs. <a#/e#te, 00 SAR& -2-(.
Re/"strat"o# of Pate#ts 6#)er &ct. -56 <&ND&:ORY
!he law e"pressly re,uires that all patents or certificates for lands of public
domain that may be granted be registered in accordance with Sec. 1$$ of Act
1'7, now Sec. 12* of P5 1/$'. Actual con.eyance of such lands is to be effecti.e
only upon such registration which shall be the operati.e act to con.ey and affect
the lands.
9,ec. 5+/ of ": <o. 5A.1, the "roperty Registration :ecree. Ghene.er
public land is by the @o.ernment alienated, granted ort con.eyed to any person,
the same shall brought forthwith under the operation of this 5ecree. &t shall be the
duty of the official issuing the instrument of the alienation, grant, patent or to be
filed with the Registrar of 5eeds of the pro.ince or city where the land lies, and to
be there registered li<e other deeds and con.eyance, whereupon a certificate of
title shall be entered as in other cases of registered land, and an ownerKs duplicate
issued to the grantee. !he deed, grant, patent or instrument of con.eyance from
the @o.ernment to the grantee shall not ta<e effect as a con.eyance or bind the
land, but shall operate only as a contract between the @o.ernment and the
grantee as e.idence of authority to the Registrar of 5eeds to ma<e registration. &t
is the act of registration that shall be the operati.e act to affect and con.ey the
land, and in all cases under the 5ecree, registration shall be made in the 3ffice of
the Registrar of 5eeds of the pro.ince or city where the land lies. !he fees for
registration shall be paid by the grantee. After due registration and issuance of the
title, such land shall be deemed to be registered land to all intents and purposes
under this 5ecree.

E+pla#at"o#s8 All land patents must be registered since the con.eyance of the
land co.ered thereby is effecti.e only upon such registration. !his registration is
mandatory to affect third parties :,ec. A5 ": 5A.1;. Absent such registration, title to
the land co.ered thereby, whether it be by homestead, free patent or sales, may
not be considered as perfected and perforce not indefeasible, :Brtegas vs. Cidalgo,
51* ,(R) -/A, -05;.
1#)efeas"b"l"ty of Bo!estea) Pate#t
A homestead or sales patent or other public patents, once registered under
the 6and Registration Act, becomes as indefeasible as a !orrens title and cannot
thereafter be the sub4ect for determination or 4udgment in a cadastral case,
:Dbane3 vs. 4ntermediate )ppellate (ourt, 510 ,(R) 60/, 601;. &n this case the Supreme
ourt held that the date of issuance of public patents by 5o6 and appro.ed by
S5E8R corresponds to the date of the issuance of the decree in ordinary
registration cases, for the purpose of fi"ing the one year period to re.iew the
patent and ascertaining the indefeasibility of the patent, because the decree
finally awards the land applied for registration to the party entitled to it, and the
patent issued by 5o6 e,ually and finally grants, awards and con.eys the land
applied for the applicant.
!he original certificate of title issued pursuant to a public land patent
parta<es of the nature of a certificate of title issued in a 4udicial proceeding, as
long as the land co.ered is really part of the public domain. !he certificate of title
becomes indefeasible and incontro.ertible upon the e"piration of one year from
the date of the issuance of the order for the issuance of the patent, and this
prescription cannot operate against the registered owner, :Ceirs of Gregorio 9engco
vs. Ceirs of Jose )liwalas, 5-* ,(R) 51*, .+/, .+0;. 6ands co.ered by such title may no
longer be the sub4ect matter of a cadastral proceeding, nor can it be decreed to
another person, :Gome3 vs. (), 5-* ,(R) A+/, A55;. Any new title which the cadastral
court may order to be issued is null and .oid and should be cancelled. All that the
cadastral court may do is to ma<e corrections of technical errors in the
description of the property contained in its title, or to proceed to the partition
thereof if it is owned by two or more co0owners, :"amintuan vs. ,an )gustin, 0/ "hil.
AA*, A-5;.
Lease of ",lic Agricltral Lan+s
Fal"f"e) to .ease8
1. Cilipino citi?en= and
$. orporation or association with 72L Cilipino capital holding and
incorporated under Philippine laws. :,ec. //, (.). 505> and ,ec. /, )rt.744, 51*6
(onsti.;
."!"tat"o# of .a#) &rea8
1. /22 has. Cor Cilipino citi?en=
$. 1,222 has. Cor corporations or associations, :,ec. /, )rt. 744, 51*6 (onsti.;
Proce)re for .ease8 %practically same as ,ales'
1. &ssuance of 8otice of 5ate and Place of Auction of the right to lease=
$. Publication and Announcement of said 8otice li<e sale=
*. Submission of Sealed Bids to 5irector of 6ands with cash, or certified
chec<, !reasury Garrant, or Post 3ffice money order, for a sum
e,ui.alent to rental at least first * months of lease=
1. 3pening of the Bids at Auction, :,ecs. /0&/6;.
Pay!e#t of Re#tal8 :,ecs. /6 and 5++;
Paid yearly in ad.ance from the date of appro.al of the lease and payable in
the Bureau of 6ands before the e"ecution of the lease contract.
Per"o) of .ease8
8ot e"ceeding $/ years, renewable for $/ years, %,ec. /*' and %,ec. /, )rt. 744,
(onsti.'
Alt"vat"o# ReG"re!e#t8
Essential re,uirement for lessee to culti.ate at least 1N* of the land within /
years form and after appro.al of lease.
Restr"ct"o# o# .essee8
8o subse,uent assignment, encumbrance or sublease without appro.al of
S5E8R %,ec. 0+'.
Same restriction with sales patents on ta"es, ser.itudes, easements, mines
and water rights, %,ec. 5+/&550'.