G.R. No.
133250           July 9, 2002
FRANCISCO I. CHAVEZ, petitioner,
vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION, respondents.
CARPIO, J.:
This is an original Petition for Mandamus with prayer for a writ of preliminary injunction and a
temporary restraining order. The petition seeks to compel the Public Estates Authority ("PEA" for
brevity) to disclose all facts on PEA's then on-going renegotiations with Amari Coastal Bay and
Development Corporation ("AMARI" for brevity) to reclaim portions of Manila Bay. The petition
further seeks to enjoin PEA from signing a new agreement with AMARI involving such
reclamation.
The Facts
On November 20, 1973, the government, through the Commissioner of Public Highways, signed
a contract with the Construction and Development Corporation of the Philippines ("CDCP" for
brevity) to reclaim certain foreshore and offshore areas of Manila Bay. The contract also
included the construction of Phases I and II of the Manila-Cavite Coastal Road. CDCP obligated
itself to carry out all the works in consideration of fifty percent of the total reclaimed land.
On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. 1084
creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore and submerged
areas," and "to develop, improve, acquire, x x x lease and sell any and all kinds of lands." 1 On
the same date, then President Marcos issued Presidential Decree No. 1085 transferring to PEA
the "lands reclaimed in the foreshore and offshore of the Manila Bay" 2 under the Manila-Cavite
Coastal Road and Reclamation Project (MCCRRP).
On December 29, 1981, then President Marcos issued a memorandum directing PEA to amend
its contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be funded and owned
by PEA." Accordingly, PEA and CDCP executed a Memorandum of Agreement dated December
29, 1981, which stated:
"(i) CDCP shall undertake all reclamation, construction, and such other works in the
MCCRRP as may be agreed upon by the parties, to be paid according to progress of
works on a unit price/lump sum basis for items of work to be agreed upon, subject to
price escalation, retention and other terms and conditions provided for in Presidential
Decree No. 1594. All the financing required for such works shall be provided by PEA.
xxx
(iii) x x x CDCP shall give up all its development rights and hereby agrees to cede and
transfer in favor of PEA, all of the rights, title, interest and participation of CDCP in and
to all the areas of land reclaimed by CDCP in the MCCRRP as of December 30, 1981
which have not yet been sold, transferred or otherwise disposed of by CDCP as of
said date, which areas consist of approximately Ninety-Nine Thousand Four Hundred
Seventy Three (99,473) square meters in the Financial Center Area covered by land
pledge No. 5 and approximately Three Million Three Hundred Eighty Two Thousand
Eight Hundred Eighty Eight (3,382,888) square meters of reclaimed areas at varying
elevations above Mean Low Water Level located outside the Financial Center Area
and the First Neighborhood Unit."3
On January 19, 1988, then President Corazon C. Aquino issued Special Patent No. 3517,
granting and transferring to PEA "the parcels of land so reclaimed under the Manila-Cavite
Coastal Road and Reclamation Project (MCCRRP) containing a total area of one million nine
hundred fifteen thousand eight hundred ninety four (1,915,894) square meters." Subsequently,
on April 9, 1988, the Register of Deeds of the Municipality of Parañaque issued Transfer
Certificates of Title Nos. 7309, 7311, and 7312, in the name of PEA, covering the three
reclaimed islands known as the "Freedom Islands" located at the southern portion of the Manila-
Cavite Coastal Road, Parañaque City. The Freedom Islands have a total land area of One
Million Five Hundred Seventy Eight Thousand Four Hundred and Forty One (1,578,441) square
meters or 157.841 hectares.
On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity) with AMARI,
a private corporation, to develop the Freedom Islands. The JVA also required the reclamation of
an additional 250 hectares of submerged areas surrounding these islands to complete the
configuration in the Master Development Plan of the Southern Reclamation Project-MCCRRP.
PEA and AMARI entered into the JVA through negotiation without public bidding.4 On April 28,
1995, the Board of Directors of PEA, in its Resolution No. 1245, confirmed the JVA. 5 On June 8,
1995, then President Fidel V. Ramos, through then Executive Secretary Ruben Torres,
approved the JVA.6
On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege speech in
the Senate and denounced the JVA as the "grandmother of all scams." As a result, the Senate
Committee on Government Corporations and Public Enterprises, and the Committee on
Accountability of Public Officers and Investigations, conducted a joint investigation. The Senate
Committees reported the results of their investigation in Senate Committee Report No. 560
dated September 16, 1997.7 Among the conclusions of their report are: (1) the reclaimed lands
PEA seeks to transfer to AMARI under the JVA are lands of the public domain which the
government has not classified as alienable lands and therefore PEA cannot alienate these lands;
(2) the certificates of title covering the Freedom Islands are thus void, and (3) the JVA itself is
illegal.
On December 5, 1997, then President Fidel V. Ramos issued Presidential Administrative Order
No. 365 creating a Legal Task Force to conduct a study on the legality of the JVA in view of
Senate Committee Report No. 560. The members of the Legal Task Force were the Secretary of
Justice,8 the Chief Presidential Legal Counsel,9 and the Government Corporate Counsel. 10 The
Legal Task Force upheld the legality of the JVA, contrary to the conclusions reached by the
Senate Committees.11
On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that there were
on-going renegotiations between PEA and AMARI under an order issued by then President Fidel
V. Ramos. According to these reports, PEA Director Nestor Kalaw, PEA Chairman Arsenio Yulo
and retired Navy Officer Sergio Cruz composed the negotiating panel of PEA.
On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition with
Application for the Issuance of a Temporary Restraining Order and Preliminary
Injunction docketed as G.R. No. 132994 seeking to nullify the JVA. The Court dismissed the
petition "for unwarranted disregard of judicial hierarchy, without prejudice to the refiling of the
case before the proper court."12
On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer, filed the
instant Petition for Mandamus with Prayer for the Issuance of a Writ of Preliminary Injunction
and Temporary Restraining Order. Petitioner contends the government stands to lose billions of
pesos in the sale by PEA of the reclaimed lands to AMARI. Petitioner prays that PEA publicly
disclose the terms of any renegotiation of the JVA, invoking Section 28, Article II, and Section 7,
Article III, of the 1987 Constitution on the right of the people to information on matters of public
concern. Petitioner assails the sale to AMARI of lands of the public domain as a blatant violation
of Section 3, Article XII of the 1987 Constitution prohibiting the sale of alienable lands of the
public domain to private corporations. Finally, petitioner asserts that he seeks to enjoin the loss
of billions of pesos in properties of the State that are of public dominion.
After several motions for extension of time,13 PEA and AMARI filed their Comments on October
19, 1998 and June 25, 1998, respectively. Meanwhile, on December 28, 1998, petitioner filed an
Omnibus Motion: (a) to require PEA to submit the terms of the renegotiated PEA-AMARI
contract; (b) for issuance of a temporary restraining order; and (c) to set the case for hearing on
oral argument. Petitioner filed a Reiterative Motion for Issuance of a TRO dated May 26, 1999,
which the Court denied in a Resolution dated June 22, 1999.
In a Resolution dated March 23, 1999, the Court gave due course to the petition and required
the parties to file their respective memoranda.
On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement ("Amended
JVA," for brevity). On May 28, 1999, the Office of the President under the administration of then
President Joseph E. Estrada approved the Amended JVA.
Due to the approval of the Amended JVA by the Office of the President, petitioner now prays
that on "constitutional and statutory grounds the renegotiated contract be declared null and
void."14
The Issues
The issues raised by petitioner, PEA15 and AMARI16 are as follows:
I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE
MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;
II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE
THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;
III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF
ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;
V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES
OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL
AGREEMENT;
VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE
AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED
AND STILL TO BE RECLAIMED, VIOLATE THE 1987 CONSTITUTION; AND
VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE
OF WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT.
The Court's Ruling
First issue: whether the principal reliefs prayed for in the petition are moot and academic
because of subsequent events.
The petition prays that PEA publicly disclose the "terms and conditions of the on-going
negotiations for a new agreement." The petition also prays that the Court enjoin PEA from
"privately entering into, perfecting and/or executing any new agreement with AMARI."
PEA and AMARI claim the petition is now moot and academic because AMARI furnished
petitioner on June 21, 1999 a copy of the signed Amended JVA containing the terms and
conditions agreed upon in the renegotiations. Thus, PEA has satisfied petitioner's prayer for a
public disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin the signing of the
Amended JVA is now moot because PEA and AMARI have already signed the Amended JVA on
March 30, 1999. Moreover, the Office of the President has approved the Amended JVA on May
28, 1999.
Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by simply fast-
tracking the signing and approval of the Amended JVA before the Court could act on the issue.
Presidential approval does not resolve the constitutional issue or remove it from the ambit of
judicial review.
We rule that the signing of the Amended JVA by PEA and AMARI and its approval by the
President cannot operate to moot the petition and divest the Court of its jurisdiction. PEA and
AMARI have still to implement the Amended JVA. The prayer to enjoin the signing of the
Amended JVA on constitutional grounds necessarily includes preventing its implementation if in
the meantime PEA and AMARI have signed one in violation of the Constitution. Petitioner's
principal basis in assailing the renegotiation of the JVA is its violation of Section 3, Article XII of
the Constitution, which prohibits the government from alienating lands of the public domain to
private corporations. If the Amended JVA indeed violates the Constitution, it is the duty of the
Court to enjoin its implementation, and if already implemented, to annul the effects of such
unconstitutional contract.
The Amended JVA is not an ordinary commercial contract but one which seeks to transfer title
and ownership to 367.5 hectares of reclaimed lands and submerged areas of Manila Bay
to a single private corporation. It now becomes more compelling for the Court to resolve the
issue to insure the government itself does not violate a provision of the Constitution intended to
safeguard the national patrimony. Supervening events, whether intended or accidental, cannot
prevent the Court from rendering a decision if there is a grave violation of the Constitution. In the
instant case, if the Amended JVA runs counter to the Constitution, the Court can still prevent the
transfer of title and ownership of alienable lands of the public domain in the name of AMARI.
Even in cases where supervening events had made the cases moot, the Court did not hesitate
to resolve the legal or constitutional issues raised to formulate controlling principles to guide the
bench, bar, and the public.17
Also, the instant petition is a case of first impression. All previous decisions of the Court
involving Section 3, Article XII of the 1987 Constitution, or its counterpart provision in the 1973
Constitution,18 covered agricultural lands sold to private corporations which acquired the lands
from private parties. The transferors of the private corporations claimed or could claim the right
to judicial confirmation of their imperfect titles 19 under Title II of Commonwealth Act. 141
("CA No. 141" for brevity). In the instant case, AMARI seeks to acquire from PEA, a public failed to make this public disclosure because the original JVA, like the Amended JVA, was the
corporation, reclaimed lands and submerged areas for non-agricultural purposes result of a negotiated contract, not of a public bidding. Considering that PEA had an affirmative
by purchase under PD No. 1084 (charter of PEA) and Title III of CA No. 141. Certain statutory duty to make the public disclosure, and was even in breach of this legal duty, petitioner
undertakings by AMARI under the Amended JVA constitute the consideration for the purchase. had the right to seek direct judicial intervention.
Neither AMARI nor PEA can claim judicial confirmation of their titles because the lands covered
by the Amended JVA are newly reclaimed or still to be reclaimed. Judicial confirmation of
Moreover, and this alone is determinative of this issue, the principle of exhaustion of
imperfect title requires open, continuous, exclusive and notorious occupation of agricultural
administrative remedies does not apply when the issue involved is a purely legal or constitutional
lands of the public domain for at least thirty years since June 12, 1945 or earlier. Besides, the
question.27 The principal issue in the instant case is the capacity of AMARI to acquire lands held
deadline for filing applications for judicial confirmation of imperfect title expired on December 31,
by PEA in view of the constitutional ban prohibiting the alienation of lands of the public domain to
1987.20
private corporations. We rule that the principle of exhaustion of administrative remedies does not
apply in the instant case.
Lastly, there is a need to resolve immediately the constitutional issue raised in this petition
because of the possible transfer at any time by PEA to AMARI of title and ownership to portions
Fourth issue: whether petitioner has locus standi to bring this suit
of the reclaimed lands. Under the Amended JVA, PEA is obligated to transfer to AMARI the
latter's seventy percent proportionate share in the reclaimed areas as the reclamation
progresses. The Amended JVA even allows AMARI to mortgage at any time PEA argues that petitioner has no standing to institute mandamus proceedings to enforce his
the entire reclaimed area to raise financing for the reclamation project.21 constitutional right to information without a showing that PEA refused to perform an affirmative
duty imposed on PEA by the Constitution. PEA also claims that petitioner has not shown that he
will suffer any concrete injury because of the signing or implementation of the Amended JVA.
Second issue: whether the petition merits dismissal for failing to observe the principle
Thus, there is no actual controversy requiring the exercise of the power of judicial review.
governing the hierarchy of courts.

The petitioner has standing to bring this taxpayer's suit because the petition seeks to compel
PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief directly from the
PEA to comply with its constitutional duties. There are two constitutional issues involved here.
Court. The principle of hierarchy of courts applies generally to cases involving factual questions.
First is the right of citizens to information on matters of public concern. Second is the application
As it is not a trier of facts, the Court cannot entertain cases involving factual issues. The instant
of a constitutional provision intended to insure the equitable distribution of alienable lands of the
case, however, raises constitutional issues of transcendental importance to the public. 22 The
public domain among Filipino citizens. The thrust of the first issue is to compel PEA to disclose
Court can resolve this case without determining any factual issue related to the case. Also, the
publicly information on the sale of government lands worth billions of pesos, information which
instant case is a petition for mandamus which falls under the original jurisdiction of the Court
the Constitution and statutory law mandate PEA to disclose. The thrust of the second issue is to
under Section 5, Article VIII of the Constitution. We resolve to exercise primary jurisdiction over
prevent PEA from alienating hundreds of hectares of alienable lands of the public domain in
the instant case.
violation of the Constitution, compelling PEA to comply with a constitutional duty to the nation.

Third issue: whether the petition merits dismissal for non-exhaustion of administrative
Moreover, the petition raises matters of transcendental importance to the public. In Chavez v.
remedies.
PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit on matters of
transcendental importance to the public, thus -
PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose publicly
certain information without first asking PEA the needed information. PEA claims petitioner's
"Besides, petitioner emphasizes, the matter of recovering the ill-gotten wealth of the
direct resort to the Court violates the principle of exhaustion of administrative remedies. It also
Marcoses is an issue of 'transcendental importance to the public.' He asserts that
violates the rule that mandamus may issue only if there is no other plain, speedy and adequate
ordinary taxpayers have a right to initiate and prosecute actions questioning the
remedy in the ordinary course of law.
validity of acts or orders of government agencies or instrumentalities, if the issues
raised are of 'paramount public interest,' and if they 'immediately affect the social,
PEA distinguishes the instant case from Tañada v. Tuvera23 where the Court granted the petition economic and moral well being of the people.'
for mandamus even if the petitioners there did not initially demand from the Office of the
President the publication of the presidential decrees. PEA points out that in Tañada, the
Moreover, the mere fact that he is a citizen satisfies the requirement of personal
Executive Department had an affirmative statutory duty under Article 2 of the Civil Code24 and
interest, when the proceeding involves the assertion of a public right, such as in this
Section 1 of Commonwealth Act No. 63825 to publish the presidential decrees. There was,
case. He invokes several decisions of this Court which have set aside the procedural
therefore, no need for the petitioners in Tañada to make an initial demand from the Office of the
matter of locus standi, when the subject of the case involved public interest.
President. In the instant case, PEA claims it has no affirmative statutory duty to disclose publicly
information about its renegotiation of the JVA. Thus, PEA asserts that the Court must apply the
principle of exhaustion of administrative remedies to the instant case in view of the failure of xxx
petitioner here to demand initially from PEA the needed information.
In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right
The original JVA sought to dispose to AMARI public lands held by PEA, a government and the object of mandamus is to obtain the enforcement of a public duty, the people
corporation. Under Section 79 of the Government Auditing Code, 26 the disposition of government are regarded as the real parties in interest; and because it is sufficient that petitioner is
lands to private parties requires public bidding. PEA was under a positive legal duty to a citizen and as such is interested in the execution of the laws, he need not show that
disclose to the public the terms and conditions for the sale of its lands. The law obligated he has any legal or special interest in the result of the action. In the aforesaid case,
PEA to make this public disclosure even without demand from petitioner or from anyone. PEA the petitioners sought to enforce their right to be informed on matters of public
 concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in freedom of expression. If the government does not disclose its official acts, transactions and
connection with the rule that laws in order to be valid and enforceable must be decisions to citizens, whatever citizens say, even if expressed without any restraint, will be
published in the Official Gazette or otherwise effectively promulgated. In ruling for the speculative and amount to nothing. These twin provisions are also essential to hold public
petitioners' legal standing, the Court declared that the right they sought to be enforced officials "at all times x x x accountable to the people,"29 for unless citizens have the proper
'is a public right recognized by no less than the fundamental law of the land.' information, they cannot hold public officials accountable for anything. Armed with the right
information, citizens can participate in public discussions leading to the formulation of
government policies and their effective implementation. An informed citizenry is essential to the
Legaspi v. Civil Service Commission, while reiterating Tañada, further declared that
existence and proper functioning of any democracy. As explained by the Court in Valmonte v.
'when a mandamus proceeding involves the assertion of a public right, the
Belmonte, Jr.30 –
requirement of personal interest is satisfied by the mere fact that petitioner is a citizen
and, therefore, part of the general 'public' which possesses the right.'
"An essential element of these freedoms is to keep open a continuing dialogue or
process of communication between the government and the people. It is in the interest
Further, in Albano v. Reyes, we said that while expenditure of public funds may not
of the State that the channels for free political discussion be maintained to the end that
have been involved under the questioned contract for the development, management
the government may perceive and be responsive to the people's will. Yet, this open
and operation of the Manila International Container Terminal, 'public interest [was]
dialogue can be effective only to the extent that the citizenry is informed and thus able
definitely involved considering the important role [of the subject contract] . . . in the
to formulate its will intelligently. Only when the participants in the discussion are aware
economic development of the country and the magnitude of the financial consideration
of the issues and have access to information relating thereto can such bear fruit."
involved.' We concluded that, as a consequence, the disclosure provision in the
Constitution would constitute sufficient authority for upholding the petitioner's standing.
PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going negotiations the right to
information is limited to "definite propositions of the government." PEA maintains the right does
Similarly, the instant petition is anchored on the right of the people to information and
not include access to "intra-agency or inter-agency recommendations or communications during
access to official records, documents and papers — a right guaranteed under Section
the stage when common assertions are still in the process of being formulated or are in the
7, Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino
'exploratory stage'."
citizen. Because of the satisfaction of the two basic requisites laid down by decisional
law to sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2)
espoused by a Filipino citizen, we rule that the petition at bar should be allowed." Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional stage or
before the closing of the transaction. To support its contention, AMARI cites the following
discussion in the 1986 Constitutional Commission:
We rule that since the instant petition, brought by a citizen, involves the enforcement of
constitutional rights - to information and to the equitable diffusion of natural resources - matters
of transcendental public importance, the petitioner has the requisite locus standi. "Mr. Suarez. And when we say 'transactions' which should be distinguished from
contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps
leading to the consummation of the contract, or does he refer to the contract itself?
Fifth issue: whether the constitutional right to information includes official information on
on-going negotiations before a final agreement.
Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, it can
cover both steps leading to a contract and already a consummated contract, Mr.
Section 7, Article III of the Constitution explains the people's right to information on matters of
Presiding Officer.
public concern in this manner:

Mr. Suarez: This contemplates inclusion of negotiations leading to the

"Sec. 7. The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers pertaining
to official acts, transactions, or decisions, as well as to government research data
used as basis for policy development, shall be afforded the citizen, subject to such
limitations as may be provided by law." (Emphasis supplied)
The State policy of full transparency in all transactions involving public interest reinforces the
people's right to information on matters of public concern. This State policy is expressed in
Section 28, Article II of the Constitution, thus:
"Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving
public interest." (Emphasis supplied)
These twin provisions of the Constitution seek to promote transparency in policy-making and in
the operations of the government, as well as provide the people sufficient information to exercise
effectively other constitutional rights. These twin provisions are essential to the exercise of
consummation of the transaction.
Mr. Ople: Yes, subject only to reasonable safeguards on the national interest.
Mr. Suarez: Thank you."32 (Emphasis supplied)
AMARI argues there must first be a consummated contract before petitioner can invoke the right.
Requiring government officials to reveal their deliberations at the pre-decisional stage will
degrade the quality of decision-making in government agencies. Government officials will
hesitate to express their real sentiments during deliberations if there is immediate public
dissemination of their discussions, putting them under all kinds of pressure before they decide.
We must first distinguish between information the law on public bidding requires PEA to disclose
publicly, and information the constitutional right to information requires PEA to release to the
public. Before the consummation of the contract, PEA must, on its own and without demand
from anyone, disclose to the public matters relating to the disposition of its property. These
include the size, location, technical description and nature of the property being disposed of, the
terms and conditions of the disposition, the parties qualified to bid, the minimum price and
similar information. PEA must prepare all these data and disclose them to the public at the start
of the disposition process, long before the consummation of the contract, because the
Government Auditing Code requires public bidding. If PEA fails to make this disclosure, any
citizen can demand from PEA this information at any time during the bidding process.
Information, however, on on-going evaluation or review of bids or proposals being undertaken
by the bidding or review committee is not immediately accessible under the right to information.
While the evaluation or review is still on-going, there are no "official acts, transactions, or
decisions" on the bids or proposals. However, once the committee makes its official
recommendation, there arises a "definite proposition" on the part of the government. From
this moment, the public's right to information attaches, and any citizen can access all the non-
proprietary information leading to such definite proposition. In Chavez v. PCGG,33 the Court
ruled as follows:
"Considering the intent of the framers of the Constitution, we believe that it is
incumbent upon the PCGG and its officers, as well as other government
representatives, to disclose sufficient public information on any proposed settlement
they have decided to take up with the ostensible owners and holders of ill-gotten
wealth. Such information, though, must pertain to definite propositions of the
government, not necessarily to intra-agency or inter-agency recommendations or
communications during the stage when common assertions are still in the process of
being formulated or are in the "exploratory" stage. There is need, of course, to
observe the same restrictions on disclosure of information in general, as discussed
earlier – such as on matters involving national security, diplomatic or foreign relations,
intelligence and other classified information." (Emphasis supplied)
Contrary to AMARI's contention, the commissioners of the 1986 Constitutional Commission
understood that the right to information "contemplates inclusion of negotiations leading to
the consummation of the transaction." Certainly, a consummated contract is not a
requirement for the exercise of the right to information. Otherwise, the people can never exercise
the right if no contract is consummated, and if one is consummated, it may be too late for the
public to expose its defects.1âwphi1.nêt
Requiring a consummated contract will keep the public in the dark until the contract, which may
be grossly disadvantageous to the government or even illegal, becomes a fait accompli. This
negates the State policy of full transparency on matters of public concern, a situation which the
framers of the Constitution could not have intended. Such a requirement will prevent the
citizenry from participating in the public discussion of any proposed contract, effectively
truncating a basic right enshrined in the Bill of Rights. We can allow neither an emasculation of a
constitutional right, nor a retreat by the State of its avowed "policy of full disclosure of all its
transactions involving public interest."
The right covers three categories of information which are "matters of public concern," namely:
(1) official records; (2) documents and papers pertaining to official acts, transactions and
decisions; and (3) government research data used in formulating policies. The first category
refers to any document that is part of the public records in the custody of government agencies
or officials. The second category refers to documents and papers recording, evidencing,
establishing, confirming, supporting, justifying or explaining official acts, transactions or
decisions of government agencies or officials. The third category refers to research data,
whether raw, collated or processed, owned by the government and used in formulating
government policies.
The information that petitioner may access on the renegotiation of the JVA includes evaluation
reports, recommendations, legal and expert opinions, minutes of meetings, terms of reference
and other documents attached to such reports or minutes, all relating to the JVA. However, the
right to information does not compel PEA to prepare lists, abstracts, summaries and the like
relating to the renegotiation of the JVA. 34 The right only affords access to records, documents
and papers, which means the opportunity to inspect and copy them. One who exercises the right
must copy the records, documents and papers at his expense. The exercise of the right is also
subject to reasonable regulations to protect the integrity of the public records and to minimize
disruption to government operations, like rules specifying when and how to conduct the
inspection and copying.35
The right to information, however, does not extend to matters recognized as privileged
information under the separation of powers.36 The right does not also apply to information on
military and diplomatic secrets, information affecting national security, and information on
investigations of crimes by law enforcement agencies before the prosecution of the accused,
which courts have long recognized as confidential.37 The right may also be subject to other
limitations that Congress may impose by law.
There is no claim by PEA that the information demanded by petitioner is privileged information
rooted in the separation of powers. The information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings which, like internal
deliberations of the Supreme Court and other collegiate courts, or executive sessions of either
house of Congress,38 are recognized as confidential. This kind of information cannot be pried
open by a co-equal branch of government. A frank exchange of exploratory ideas and
assessments, free from the glare of publicity and pressure by interested parties, is essential to
protect the independence of decision-making of those tasked to exercise Presidential,
Legislative and Judicial power.39 This is not the situation in the instant case.
We rule, therefore, that the constitutional right to information includes official information on on-
going negotiations before a final contract. The information, however, must constitute definite
propositions by the government and should not cover recognized exceptions like privileged
information, military and diplomatic secrets and similar matters affecting national security and
public order.40 Congress has also prescribed other limitations on the right to information in
several legislations.41
Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of lands,
reclaimed or to be reclaimed, violate the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and submerged areas is rooted in the
Regalian doctrine which holds that the State owns all lands and waters of the public domain.
Upon the Spanish conquest of the Philippines, ownership of all "lands, territories and
possessions" in the Philippines passed to the Spanish Crown. 42 The King, as the sovereign ruler
and representative of the people, acquired and owned all lands and territories in the Philippines
except those he disposed of by grant or sale to private individuals.
The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting, however, the
State, in lieu of the King, as the owner of all lands and waters of the public domain. The
Regalian doctrine is the foundation of the time-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."43 Article 339 of the Civil Code of 1889, which is now Article 420 of the Civil Code of
1950, incorporated the Regalian doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law governing the ownership and
disposition of reclaimed lands in the Philippines. On May 18, 1907, the Philippine Commission
enacted Act No. 1654 which provided for the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. Later, on November 29, 1919, the
Philippine Legislature approved Act No. 2874, the Public Land Act, which authorized the lease,
but not the sale, of reclaimed lands of the government to corporations and individuals .
On November 7, 1936, the National Assembly passed Commonwealth Act No. 141, also known
as the Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of
the government to corporations and individuals. CA No. 141 continues to this day as the
general law governing the classification and disposition of lands of the public domain.
The Spanish Law of Waters of 1866 and the Civil Code of 1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all waters within
the maritime zone of the Spanish territory belonged to the public domain for public use. 44 The
Spanish Law of Waters of 1866 allowed the reclamation of the sea under Article 5, which
provided as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by the
State, or by the provinces, pueblos or private persons, with proper permission, shall
become the property of the party constructing such works, unless otherwise provided
by the terms of the grant of authority."
Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party
undertaking the reclamation, provided the government issued the necessary permit and did not
reserve ownership of the reclaimed land to the State.
Article 339 of the Civil Code of 1889 defined property of public dominion as follows:
"Art. 339. Property of public dominion is –
1. That devoted to public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, riverbanks, shores, roadsteads, and that of a similar
character;
2. That belonging exclusively to the State which, without being of general public use,
is employed in some public service, or in the development of the national wealth, such
as walls, fortresses, and other works for the defense of the territory, and mines, until
granted to private individuals."
Property devoted to public use referred to property open for use by the public. In contrast,
property devoted to public service referred to property used for some specific public service and
open only to those authorized to use the property.
Property of public dominion referred not only to property devoted to public use, but also to
property not so used but employed to develop the national wealth. This class of property
constituted property of public dominion although employed for some economic or commercial
activity to increase the national wealth.
Article 341 of the Civil Code of 1889 governed the re-classification of property of public dominion
into private property, to wit:
"Art. 341. Property of public dominion, when no longer devoted to public use or to the
defense of the territory, shall become a part of the private property of the State."
This provision, however, was not self-executing. The legislature, or the executive department
pursuant to law, must declare the property no longer needed for public use or territorial defense
before the government could lease or alienate the property to private parties.45
Act No. 1654 of the Philippine Commission
On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated the lease of
reclaimed and foreshore lands. The salient provisions of this law were as follows:
"Section 1. The control and disposition of the foreshore as defined in existing law,
and the title to all Government or public lands made or reclaimed by the
Government by dredging or filling or otherwise throughout the Philippine
Islands, shall be retained by the Government without prejudice to vested rights and
without prejudice to rights conceded to the City of Manila in the Luneta Extension.
Section 2. (a) The Secretary of the Interior shall cause all Government or public lands
made or reclaimed by the Government by dredging or filling or otherwise to be divided
into lots or blocks, with the necessary streets and alleyways located thereon, and shall
cause plats and plans of such surveys to be prepared and filed with the Bureau of
Lands.
(b) Upon completion of such plats and plans the Governor-General shall give notice
to the public that such parts of the lands so made or reclaimed as are not
needed for public purposes will be leased for commercial and business
purposes, x x x.
xxx
(e) The leases above provided for shall be disposed of to the highest and best
bidder therefore, subject to such regulations and safeguards as the Governor-General
may by executive order prescribe." (Emphasis supplied)
Act No. 1654 mandated that the government should retain title to all lands reclaimed by the
government. The Act also vested in the government control and disposition of foreshore lands.
Private parties could lease lands reclaimed by the government only if these lands were no longer
needed for public purpose. Act No. 1654 mandated public bidding in the lease of government
reclaimed lands. Act No. 1654 made government reclaimed lands sui generis in that unlike
other public lands which the government could sell to private parties, these reclaimed lands were
available only for lease to private parties.
Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. Act No.
1654 did not prohibit private parties from reclaiming parts of the sea under Section 5 of the
Spanish Law of Waters. Lands reclaimed from the sea by private parties with government
permission remained private lands.
Act No. 2874 of the Philippine Legislature
On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public Land
Act.46 The salient provisions of Act No. 2874, on reclaimed lands, were as follows:
"Sec. 6. The Governor-General, upon the recommendation of the Secretary of
Agriculture and Natural Resources, shall from time to time classify the lands of
the public domain into –
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands, x x x.
Sec. 7. For the purposes of the government and disposition of alienable or disposable
public lands, the Governor-General, upon recommendation by the Secretary of
Agriculture and Natural Resources, shall from time to time declare what lands
are open to disposition or concession under this Act."
Sec. 8. Only those lands shall be declared open to disposition or concession
which have been officially delimited or classified x x x.
xxx
Sec. 55. Any tract of land of the public domain which, being neither timber nor mineral
land, shall be classified as suitable for residential purposes or for commercial,
industrial, or other productive purposes other than agricultural purposes, and
shall be open to disposition or concession, shall be disposed of under the provisions
of this chapter, and not otherwise.
Sec. 56. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other
means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or
banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
x x x.
Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six shall
be disposed of to private parties by lease only and not otherwise, as soon as the
Governor-General, upon recommendation by the Secretary of Agriculture and
Natural Resources, shall declare that the same are not necessary for the public
service and are open to disposition under this chapter. The lands included in
class (d) may be disposed of by sale or lease under the provisions of this Act. "
(Emphasis supplied)
Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the public
domain into x x x alienable or disposable" 47 lands. Section 7 of the Act empowered the
Governor-General to "declare what lands are open to disposition or concession." Section 8 of
the Act limited alienable or disposable lands only to those lands which have been "officially
delimited and classified."
Section 56 of Act No. 2874 stated that lands "disposable under this title 48 shall be classified" as
government reclaimed, foreshore and marshy lands, as well as other lands. All these lands,
however, must be suitable for residential, commercial, industrial or other productive non-
agricultural purposes. These provisions vested upon the Governor-General the power to
classify inalienable lands of the public domain into disposable lands of the public domain. These
provisions also empowered the Governor-General to classify further such disposable lands of
the public domain into government reclaimed, foreshore or marshy lands of the public domain,
as well as other non-agricultural lands.
Section 58 of Act No. 2874 categorically mandated that disposable lands of the public domain
classified as government reclaimed, foreshore and marshy lands "shall be disposed of to
private parties by lease only and not otherwise." The Governor-General, before allowing the
lease of these lands to private parties, must formally declare that the lands were "not necessary
for the public service." Act No. 2874 reiterated the State policy to lease and not to sell
government reclaimed, foreshore and marshy lands of the public domain, a policy first
enunciated in 1907 in Act No. 1654. Government reclaimed, foreshore and marshy lands
remained sui generis, as the only alienable or disposable lands of the public domain that the
government could not sell to private parties.
The rationale behind this State policy is obvious. Government reclaimed, foreshore and marshy
public lands for non-agricultural purposes retain their inherent potential as areas for public
service. This is the reason the government prohibited the sale, and only allowed the lease, of
these lands to private parties. The State always reserved these lands for some future public
service.
Act No. 2874 did not authorize the reclassification of government reclaimed, foreshore and
marshy lands into other non-agricultural lands under Section 56 (d). Lands falling under Section
56 (d) were the only lands for non-agricultural purposes the government could sell to private
parties. Thus, under Act No. 2874, the government could not sell government reclaimed,
foreshore and marshy lands to private parties, unless the legislature passed a law allowing
their sale.49
Act No. 2874 did not prohibit private parties from reclaiming parts of the sea pursuant to Section
5 of the Spanish Law of Waters of 1866. Lands reclaimed from the sea by private parties with
government permission remained private lands.
Dispositions under the 1935 Constitution
On May 14, 1935, the 1935 Constitution took effect upon its ratification by the Filipino people.
The 1935 Constitution, in adopting the Regalian doctrine, declared in Section 1, Article XIII, that
–
"Section 1. 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 State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the Philippines or
to corporations or associations at least sixty per centum of the capital of which is
owned by such citizens, subject to any existing right, grant, lease, or concession at the
 time of the inauguration of the Government established under this
Constitution. Natural resources, with the exception of public agricultural land,
shall not be alienated, and no license, concession, or lease for the exploitation,
development, or utilization of any of the natural resources shall be granted for a period
exceeding twenty-five years, renewable for another twenty-five years, except as to
water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases beneficial use may be the measure and
limit of the grant." (Emphasis supplied)
The 1935 Constitution barred the alienation of all natural resources except public agricultural
lands, which were the only natural resources the State could alienate. Thus, foreshore lands,
considered part of the State's natural resources, became inalienable by constitutional fiat,
available only for lease for 25 years, renewable for another 25 years. The government could
alienate foreshore lands only after these lands were reclaimed and classified as alienable
agricultural lands of the public domain. Government reclaimed and marshy lands of the public
domain, being neither timber nor mineral lands, fell under the classification of public agricultural
lands.50 However, government reclaimed and marshy lands, although subject to classification as
disposable public agricultural lands, could only be leased and not sold to private parties because
of Act No. 2874.
The prohibition on private parties from acquiring ownership of government reclaimed and
marshy lands of the public domain was only a statutory prohibition and the legislature could
therefore remove such prohibition. The 1935 Constitution did not prohibit individuals and
corporations from acquiring government reclaimed and marshy lands of the public domain that
were classified as agricultural lands under existing public land laws. Section 2, Article XIII of the
1935 Constitution provided as follows:
"Section 2. No private corporation or association may acquire, lease, or hold
public agricultural lands in excess of one thousand and twenty four hectares,
nor may any individual acquire such lands by purchase in excess of one
hundred and forty hectares, or by lease in excess of one thousand and twenty-
four hectares, or by homestead in excess of twenty-four hectares. Lands adapted to
grazing, not exceeding two thousand hectares, may be leased to an individual, private
corporation, or association." (Emphasis supplied)
Still, after the effectivity of the 1935 Constitution, the legislature did not repeal Section 58 of Act
No. 2874 to open for sale to private parties government reclaimed and marshy lands of the
public domain. On the contrary, the legislature continued the long established State policy of
retaining for the government title and ownership of government reclaimed and marshy lands of
the public domain.
Commonwealth Act No. 141 of the Philippine National Assembly
On November 7, 1936, the National Assembly approved Commonwealth Act No. 141, also
known as the Public Land Act, which compiled the then existing laws on lands of the public
domain. CA No. 141, as amended, remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral lands.51
Section 6 of CA No. 141 empowers the President to classify lands of the public domain into
"alienable or disposable"52 lands of the public domain, which prior to such classification are
inalienable and outside the commerce of man. Section 7 of CA No. 141 authorizes the President
to "declare what lands are open to disposition or concession." Section 8 of CA No. 141 states
that the government can declare open for disposition or concession only lands that are "officially
delimited and classified." Sections 6, 7 and 8 of CA No. 141 read as follows:
"Sec. 6. The President, upon the recommendation of the Secretary of Agriculture
and Commerce, shall from time to time classify the lands of the public domain
into –
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands,
and may at any time and in like manner transfer such lands from one class to
another,53 for the purpose of their administration and disposition.
Sec. 7. For the purposes of the administration and disposition of alienable or
disposable public lands, the President, upon recommendation by the Secretary of
Agriculture and Commerce, shall from time to time declare what lands are open
to disposition or concession under this Act.
Sec. 8. Only those lands shall be declared open to disposition or concession
which have been officially delimited and classified and, when practicable,
surveyed, and which have not been reserved for public or quasi-public uses, nor
appropriated by the Government, nor in any manner become private property, nor
those on which a private right authorized and recognized by this Act or any other valid
law may be claimed, or which, having been reserved or appropriated, have ceased to
be so. x x x."
Thus, before the government could alienate or dispose of lands of the public domain, the
President must first officially classify these lands as alienable or disposable, and then declare
them open to disposition or concession. There must be no law reserving these lands for public or
quasi-public uses.
The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of
the public domain, are as follows:
"Sec. 58. Any tract of land of the public domain which, being neither timber nor
mineral land, is intended to be used for residential purposes or for commercial,
industrial, or other productive purposes other than agricultural, and is open to
disposition or concession, shall be disposed of under the provisions of this
chapter and not otherwise.
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other
means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the shores or
banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
 Sec. 60. Any tract of land comprised under this title may be leased or sold, as the classified as agricultural lands of the public domain, in which case they would fall under the
case may be, to any person, corporation, or association authorized to purchase or classification of government reclaimed lands.
lease public lands for agricultural purposes. x x x.
After the effectivity of the 1935 Constitution, government reclaimed and marshy disposable lands
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine of the public domain continued to be only leased and not sold to private parties. 56 These lands
shall be disposed of to private parties by lease only and not otherwise, as soon remained sui generis, as the only alienable or disposable lands of the public domain the
as the President, upon recommendation by the Secretary of Agriculture, shall government could not sell to private parties.
declare that the same are not necessary for the public service and are open to
disposition under this chapter. The lands included in class (d) may be disposed of
Since then and until now, the only way the government can sell to private parties government
by sale or lease under the provisions of this Act." (Emphasis supplied)
reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law
authorizing such sale. CA No. 141 does not authorize the President to reclassify government
Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution, Section 58 of reclaimed and marshy lands into other non-agricultural lands under Section 59 (d). Lands
Act No. 2874 prohibiting the sale of government reclaimed, foreshore and marshy disposable classified under Section 59 (d) are the only alienable or disposable lands for non-agricultural
lands of the public domain. All these lands are intended for residential, commercial, industrial or purposes that the government could sell to private parties.
other non-agricultural purposes. As before, Section 61 allowed only the lease of such lands to
private parties. The government could sell to private parties only lands falling under Section 59
Moreover, Section 60 of CA No. 141 expressly requires congressional authority before lands
(d) of CA No. 141, or those lands for non-agricultural purposes not classified as government
under Section 59 that the government previously transferred to government units or entities
reclaimed, foreshore and marshy disposable lands of the public domain. Foreshore lands,
could be sold to private parties. Section 60 of CA No. 141 declares that –
however, became inalienable under the 1935 Constitution which only allowed the lease of these
lands to qualified private parties.
"Sec. 60. x x x The area so leased or sold shall be such as shall, in the judgment of
the Secretary of Agriculture and Natural Resources, be reasonably necessary for the
Section 58 of CA No. 141 expressly states that disposable lands of the public domain intended
purposes for which such sale or lease is requested, and shall not exceed one hundred
for residential, commercial, industrial or other productive purposes other than agricultural "shall
and forty-four hectares: Provided, however, That this limitation shall not apply to
be disposed of under the provisions of this chapter and not otherwise." Under Section 10
grants, donations, or transfers made to a province, municipality or branch or
of CA No. 141, the term "disposition" includes lease of the land. Any disposition of government
subdivision of the Government for the purposes deemed by said entities conducive to
reclaimed, foreshore and marshy disposable lands for non-agricultural purposes must comply
the public interest; but the land so granted, donated, or transferred to a province,
with Chapter IX, Title III of CA No. 141, 54 unless a subsequent law amended or repealed these
municipality or branch or subdivision of the Government shall not be alienated,
provisions.
encumbered, or otherwise disposed of in a manner affecting its title, except
when authorized by Congress: x x x." (Emphasis supplied)
In his concurring opinion in the landmark case of Republic Real Estate Corporation v. Court
of Appeals,55 Justice Reynato S. Puno summarized succinctly the law on this matter, as follows:
The congressional authority required in Section 60 of CA No. 141 mirrors the legislative authority
required in Section 56 of Act No. 2874.
"Foreshore lands are lands of public dominion intended for public use. So too are
lands reclaimed by the government by dredging, filling, or other means. Act 1654
One reason for the congressional authority is that Section 60 of CA No. 141 exempted
mandated that the control and disposition of the foreshore and lands under water
government units and entities from the maximum area of public lands that could be acquired
remained in the national government. Said law allowed only the 'leasing' of reclaimed
from the State. These government units and entities should not just turn around and sell these
land. The Public Land Acts of 1919 and 1936 also declared that the foreshore and
lands to private parties in violation of constitutional or statutory limitations. Otherwise, the
lands reclaimed by the government were to be "disposed of to private parties by lease
transfer of lands for non-agricultural purposes to government units and entities could be used to
only and not otherwise." Before leasing, however, the Governor-General, upon
circumvent constitutional limitations on ownership of alienable or disposable lands of the public
recommendation of the Secretary of Agriculture and Natural Resources, had first to
domain. In the same manner, such transfers could also be used to evade the statutory
determine that the land reclaimed was not necessary for the public service. This
prohibition in CA No. 141 on the sale of government reclaimed and marshy lands of the public
requisite must have been met before the land could be disposed of. But even then,
domain to private parties. Section 60 of CA No. 141 constitutes by operation of law a lien on
the foreshore and lands under water were not to be alienated and sold to private
these lands.57
parties. The disposition of the reclaimed land was only by lease. The land
remained property of the State." (Emphasis supplied)
In case of sale or lease of disposable lands of the public domain falling under Section 59 of CA
No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of CA No. 141 provide
As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141 has
as follows:
remained in effect at present."

"Sec. 63. Whenever it is decided that lands covered by this chapter are not needed for
The State policy prohibiting the sale to private parties of government reclaimed, foreshore and
public purposes, the Director of Lands shall ask the Secretary of Agriculture and
marshy alienable lands of the public domain, first implemented in 1907 was thus reaffirmed in
Commerce (now the Secretary of Natural Resources) for authority to dispose of the
CA No. 141 after the 1935 Constitution took effect. The prohibition on the sale of foreshore
same. Upon receipt of such authority, the Director of Lands shall give notice by public
lands, however, became a constitutional edict under the 1935 Constitution. Foreshore lands
advertisement in the same manner as in the case of leases or sales of agricultural
became inalienable as natural resources of the State, unless reclaimed by the government and
public land, x x x.
 Sec. 67. The lease or sale shall be made by oral bidding; and adjudication shall
be made to the highest bidder. x x x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction all leases or sales of
alienable or disposable lands of the public domain.58
Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of the
Spanish Law of Waters of 1866. Private parties could still reclaim portions of the sea with
government permission. However, the reclaimed land could become private land only if
classified as alienable agricultural land of the public domain open to disposition under CA
No. 141. The 1935 Constitution prohibited the alienation of all natural resources except public
agricultural lands.
The Civil Code of 1950
The Civil Code of 1950 readopted substantially the definition of property of public dominion
found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of 1950 state that –
"Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth.
x x x.
Art. 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State."
Again, the government must formally declare that the property of public dominion is no longer
needed for public use or public service, before the same could be classified as patrimonial
property of the State.59 In the case of government reclaimed and marshy lands of the public
domain, the declaration of their being disposable, as well as the manner of their disposition, is
governed by the applicable provisions of CA No. 141.
Like the Civil Code of 1889, the Civil Code of 1950 included as property of public dominion those
properties of the State which, without being for public use, are intended for public service or the
"development of the national wealth." Thus, government reclaimed and marshy lands of the
State, even if not employed for public use or public service, if developed to enhance the national
wealth, are classified as property of public dominion.
Dispositions under the 1973 Constitution
The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the Regalian
doctrine. Section 8, Article XIV of the 1973 Constitution stated that –
"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, wildlife, and other natural
resources of the Philippines belong to the State. With the exception of agricultural,
industrial or commercial, residential, and resettlement lands of the public
domain, natural resources shall not be alienated, and no license, concession, or
lease for the exploration, development, exploitation, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five years, renewable for not
more than twenty-five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in which
cases, beneficial use may be the measure and the limit of the grant." (Emphasis
supplied)
The 1973 Constitution prohibited the alienation of all natural resources with the exception of
"agricultural, industrial or commercial, residential, and resettlement lands of the public domain."
In contrast, the 1935 Constitution barred the alienation of all natural resources except "public
agricultural lands." However, the term "public agricultural lands" in the 1935 Constitution
encompassed industrial, commercial, residential and resettlement lands of the public domain. 60 If
the land of public domain were neither timber nor mineral land, it would fall under the
classification of agricultural land of the public domain. Both the 1935 and 1973 Constitutions,
therefore, prohibited the alienation of all natural resources except agricultural lands of
the public domain.
The 1973 Constitution, however, limited the alienation of lands of the public domain to
individuals who were citizens of the Philippines. Private corporations, even if wholly owned by
Philippine citizens, were no longer allowed to acquire alienable lands of the public domain unlike
in the 1935 Constitution. Section 11, Article XIV of the 1973 Constitution declared that –
"Sec. 11. The Batasang Pambansa, taking into account conservation, ecological, and
development requirements of the natural resources, shall determine by law the size of
land of the public domain which may be developed, held or acquired by, or leased to,
any qualified individual, corporation, or association, and the conditions therefor. No
private corporation or association may hold alienable lands of the public
domain except by lease not to exceed one thousand hectares in area nor may any
citizen hold such lands by lease in excess of five hundred hectares or acquire by
purchase, homestead or grant, in excess of twenty-four hectares. No private
corporation or association may hold by lease, concession, license or permit, timber or
forest lands and other timber or forest resources in excess of one hundred thousand
hectares. However, such area may be increased by the Batasang Pambansa upon
recommendation of the National Economic and Development Authority." (Emphasis
supplied)
Thus, under the 1973 Constitution, private corporations could hold alienable lands of the public
domain only through lease. Only individuals could now acquire alienable lands of the public
domain, and private corporations became absolutely barred from acquiring any kind of
alienable land of the public domain. The constitutional ban extended to all kinds of alienable
lands of the public domain, while the statutory ban under CA No. 141 applied only to government
reclaimed, foreshore and marshy alienable lands of the public domain.
PD No. 1084 Creating the Public Estates Authority
On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree No. 1084
creating PEA, a wholly government owned and controlled corporation with a special charter.
Sections 4 and 8 of PD No. 1084, vests PEA with the following purposes and powers:
"Sec. 4. Purpose. The Authority is hereby created for the following purposes:
 (a) To reclaim land, including foreshore and submerged areas, by dredging,
filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and
sell any and all kinds of lands, buildings, estates and other forms of real property,
owned, managed, controlled and/or operated by the government;
(c) To provide for, operate or administer such service as may be necessary for the
efficient, economical and beneficial utilization of the above properties.
Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying out the
purposes for which it is created, have the following powers and functions:
(a)To prescribe its by-laws.
xxx
(i) To hold lands of the public domain in excess of the area permitted to private
corporations by statute.
(j) To reclaim lands and to construct work across, or otherwise, any stream,
watercourse, canal, ditch, flume x x x.
xxx
(o) To perform such acts and exercise such functions as may be necessary for the
attainment of the purposes and objectives herein specified." (Emphasis supplied)
PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the public
domain. Foreshore areas are those covered and uncovered by the ebb and flow of the
tide.61 Submerged areas are those permanently under water regardless of the ebb and flow of
the tide.62 Foreshore and submerged areas indisputably belong to the public domain 63 and are
inalienable unless reclaimed, classified as alienable lands open to disposition, and further
declared no longer needed for public service.
The ban in the 1973 Constitution on private corporations from acquiring alienable lands of the
public domain did not apply to PEA since it was then, and until today, a fully owned government
corporation. The constitutional ban applied then, as it still applies now, only to "private
corporations and associations." PD No. 1084 expressly empowers PEA "to hold lands of the
public domain" even "in excess of the area permitted to private corporations by statute." Thus,
PEA can hold title to private lands, as well as title to lands of the public domain.
In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the public
domain, there must be legislative authority empowering PEA to sell these lands. This legislative
authority is necessary in view of Section 60 of CA No.141, which states –
"Sec. 60. x x x; but the land so granted, donated or transferred to a province,
municipality, or branch or subdivision of the Government shall not be alienated,
encumbered or otherwise disposed of in a manner affecting its title, except when
authorized by Congress; x x x." (Emphasis supplied)
Without such legislative authority, PEA could not sell but only lease its reclaimed foreshore and
submerged alienable lands of the public domain. Nevertheless, any legislative authority granted
to PEA to sell its reclaimed alienable lands of the public domain would be subject to the
constitutional ban on private corporations from acquiring alienable lands of the public domain.
Hence, such legislative authority could only benefit private individuals.
Dispositions under the 1987 Constitution
The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the Regalian
doctrine. The 1987 Constitution declares that all natural resources are "owned by the State,"
and except for alienable agricultural lands of the public domain, natural resources cannot be
alienated. Sections 2 and 3, Article XII of the 1987 Constitution state that –
"Section 2. All 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. With the exception of
agricultural lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. x x x.
Section 3. Lands of the public domain are classified into agricultural, forest or timber,
mineral lands, and national parks. Agricultural lands of the public domain may be
further classified by law according to the uses which they may be devoted. Alienable
lands of the public domain shall be limited to agricultural lands. Private
corporations or associations may not hold such alienable lands of the public
domain except by lease, for a period not exceeding twenty-five years, renewable
for not more than twenty-five years, and not to exceed one thousand hectares in
area. Citizens of the Philippines may lease not more than five hundred hectares, or
acquire not more than twelve hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and development, and
subject to the requirements of agrarian reform, the Congress shall determine, by law,
the size of lands of the public domain which may be acquired, developed, held, or
leased and the conditions therefor." (Emphasis supplied)
The 1987 Constitution continues the State policy in the 1973 Constitution banning private
corporations from acquiring any kind of alienable land of the public domain. Like the 1973
Constitution, the 1987 Constitution allows private corporations to hold alienable lands of the
public domain only through lease. As in the 1935 and 1973 Constitutions, the general law
governing the lease to private corporations of reclaimed, foreshore and marshy alienable lands
of the public domain is still CA No. 141.
The Rationale behind the Constitutional Ban
The rationale behind the constitutional ban on corporations from acquiring, except through lease,
alienable lands of the public domain is not well understood. During the deliberations of the 1986
Constitutional Commission, the commissioners probed the rationale behind this ban, thus:
"FR. BERNAS: Mr. Vice-President, my questions have reference to page 3, line 5
which says:
`No private corporation or association may hold alienable lands of the public domain
except by lease, not to exceed one thousand hectares in area.'
 If we recall, this provision did not exist under the 1935 Constitution, but this was The subject matter of the Amended JVA, as stated in its second Whereas clause, consists of
introduced in the 1973 Constitution. In effect, it prohibits private corporations from three properties, namely:
acquiring alienable public lands. But it has not been very clear in jurisprudence
what the reason for this is. In some of the cases decided in 1982 and 1983, it was
1. "[T]hree partially reclaimed and substantially eroded islands along Emilio Aguinaldo
indicated that the purpose of this is to prevent large landholdings. Is that the
Boulevard in Paranaque and Las Pinas, Metro Manila, with a combined titled area of
intent of this provision?
1,578,441 square meters;"

MR. VILLEGAS: I think that is the spirit of the provision.

2. "[A]nother area of 2,421,559 square meters contiguous to the three islands;" and

FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were instances
3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares more or less
where the Iglesia ni Cristo was not allowed to acquire a mere 313-square meter land
to regularize the configuration of the reclaimed area."65
where a chapel stood because the Supreme Court said it would be in violation of this."
(Emphasis supplied)
PEA confirms that the Amended JVA involves "the development of the Freedom Islands and
further reclamation of about 250 hectares x x x," plus an option "granted to AMARI to
In Ayog v. Cusi,64 the Court explained the rationale behind this constitutional ban in this way:
subsequently reclaim another 350 hectares x x x."66

"Indeed, one purpose of the constitutional prohibition against purchases of public

In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84 hectares of
agricultural lands by private corporations is to equitably diffuse land ownership or to
the 750-hectare reclamation project have been reclaimed, and the rest of the 592.15
encourage 'owner-cultivatorship and the economic family-size farm' and to prevent a
hectares are still submerged areas forming part of Manila Bay.
recurrence of cases like the instant case. Huge landholdings by corporations or private
persons had spawned social unrest."
Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00 for PEA's
"actual cost" in partially reclaiming the Freedom Islands. AMARI will also complete, at its own
However, if the constitutional intent is to prevent huge landholdings, the Constitution could have
expense, the reclamation of the Freedom Islands. AMARI will further shoulder all the reclamation
simply limited the size of alienable lands of the public domain that corporations could acquire.
costs of all the other areas, totaling 592.15 hectares, still to be reclaimed. AMARI and PEA will
The Constitution could have followed the limitations on individuals, who could acquire not more
share, in the proportion of 70 percent and 30 percent, respectively, the total net usable area
than 24 hectares of alienable lands of the public domain under the 1973 Constitution, and not
which is defined in the Amended JVA as the total reclaimed area less 30 percent earmarked for
more than 12 hectares under the 1987 Constitution.
common areas. Title to AMARI's share in the net usable area, totaling 367.5 hectares, will be
issued in the name of AMARI. Section 5.2 (c) of the Amended JVA provides that –
If the constitutional intent is to encourage economic family-size farms, placing the land in the
name of a corporation would be more effective in preventing the break-up of farmlands. If the
"x x x, PEA shall have the duty to execute without delay the necessary deed of
farmland is registered in the name of a corporation, upon the death of the owner, his heirs would
transfer or conveyance of the title pertaining to AMARI's Land share based on the
inherit shares in the corporation instead of subdivided parcels of the farmland. This would
Land Allocation Plan. PEA, when requested in writing by AMARI, shall then cause
prevent the continuing break-up of farmlands into smaller and smaller plots from one generation
the issuance and delivery of the proper certificates of title covering AMARI's
to the next.
Land Share in the name of AMARI, x x x; provided, that if more than seventy percent
(70%) of the titled area at any given time pertains to AMARI, PEA shall deliver to
In actual practice, the constitutional ban strengthens the constitutional limitation on individuals AMARI only seventy percent (70%) of the titles pertaining to AMARI, until such time
from acquiring more than the allowed area of alienable lands of the public domain. Without the when a corresponding proportionate area of additional land pertaining to PEA has
constitutional ban, individuals who already acquired the maximum area of alienable lands of the been titled." (Emphasis supplied)
public domain could easily set up corporations to acquire more alienable public lands. An
individual could own as many corporations as his means would allow him. An individual could
Indisputably, under the Amended JVA AMARI will acquire and own a maximum of 367.5
even hide his ownership of a corporation by putting his nominees as stockholders of the
hectares of reclaimed land which will be titled in its name.
corporation. The corporation is a convenient vehicle to circumvent the constitutional limitation on
acquisition by individuals of alienable lands of the public domain.
To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI joint
venture PEA's statutory authority, rights and privileges to reclaim foreshore and submerged
The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer ownership of only
areas in Manila Bay. Section 3.2.a of the Amended JVA states that –
a limited area of alienable land of the public domain to a qualified individual. This constitutional
intent is safeguarded by the provision prohibiting corporations from acquiring alienable lands of
the public domain, since the vehicle to circumvent the constitutional intent is removed. The "PEA hereby contributes to the joint venture its rights and privileges to perform
available alienable public lands are gradually decreasing in the face of an ever-growing Rawland Reclamation and Horizontal Development as well as own the Reclamation
population. The most effective way to insure faithful adherence to this constitutional intent is to Area, thereby granting the Joint Venture the full and exclusive right, authority and
grant or sell alienable lands of the public domain only to individuals. This, it would seem, is the privilege to undertake the Project in accordance with the Master Development Plan."
practical benefit arising from the constitutional ban.

The Amended Joint Venture Agreement

The Amended JVA is the product of a renegotiation of the original JVA dated April 25, 1995 and
its supplemental agreement dated August 9, 1995.
The Threshold Issue
The threshold issue is whether AMARI, a private corporation, can acquire and own under the
Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas in Manila Bay in
view of Sections 2 and 3, Article XII of the 1987 Constitution which state that:
"Section 2. All 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. With the exception of
agricultural lands, all other natural resources shall not be alienated. x x x.
xxx
Section 3. x x x Alienable lands of the public domain shall be limited to agricultural
lands. Private corporations or associations may not hold such alienable lands of
the public domain except by lease, x x x."(Emphasis supplied)
Classification of Reclaimed Foreshore and Submerged Areas
PEA readily concedes that lands reclaimed from foreshore or submerged areas of Manila Bay
are alienable or disposable lands of the public domain. In its Memorandum,67 PEA admits that –
"Under the Public Land Act (CA 141, as amended), reclaimed lands are classified
as alienable and disposable lands of the public domain:
'Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the government by dredging, filling, or other means;
x x x.'" (Emphasis supplied)
Likewise, the Legal Task Force68 constituted under Presidential Administrative Order No. 365
admitted in its Report and Recommendation to then President Fidel V. Ramos, "[R]eclaimed
lands are classified as alienable and disposable lands of the public domain."69 The Legal
Task Force concluded that –
"D. Conclusion
Reclaimed lands are lands of the public domain. However, by statutory authority, the
rights of ownership and disposition over reclaimed lands have been transferred to
PEA, by virtue of which PEA, as owner, may validly convey the same to any qualified
person without violating the Constitution or any statute.
The constitutional provision prohibiting private corporations from holding public land,
except by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not apply to reclaimed
lands whose ownership has passed on to PEA by statutory grant."
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of
Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources"
and consequently "owned by the State." As such, foreshore and submerged areas "shall not be
alienated," unless they are classified as "agricultural lands" of the public domain. The mere
reclamation of these areas by PEA does not convert these inalienable natural resources of the
State into alienable or disposable lands of the public domain. There must be a law or
presidential proclamation officially classifying these reclaimed lands as alienable or disposable
and open to disposition or concession. Moreover, these reclaimed lands cannot be classified as
alienable or disposable if the law has reserved them for some public or quasi-public use.71
Section 8 of CA No. 141 provides that "only those lands shall be declared open to disposition or
concession which have been officially delimited and classified."72 The President has the
authority to classify inalienable lands of the public domain into alienable or disposable lands of
the public domain, pursuant to Section 6 of CA No. 141. In Laurel vs. Garcia, 73 the Executive
Department attempted to sell the Roppongi property in Tokyo, Japan, which was acquired by the
Philippine Government for use as the Chancery of the Philippine Embassy. Although the
Chancery had transferred to another location thirteen years earlier, the Court still ruled that,
under Article 42274 of the Civil Code, a property of public dominion retains such character until
formally declared otherwise. The Court ruled that –
"The fact that the Roppongi site has not been used for a long time for actual Embassy
service does not automatically convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use (Cebu Oxygen and
Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]. A property continues to be part of
the public domain, not available for private appropriation or ownership 'until
there is a formal declaration on the part of the government to withdraw it from
being such' (Ignacio v. Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized the issuance of special land patents for
lands reclaimed by PEA from the foreshore or submerged areas of Manila Bay. On January 19,
1988 then President Corazon C. Aquino issued Special Patent No. 3517 in the name of PEA for
the 157.84 hectares comprising the partially reclaimed Freedom Islands. Subsequently, on April
9, 1999 the Register of Deeds of the Municipality of Paranaque issued TCT Nos. 7309, 7311
and 7312 in the name of PEA pursuant to Section 103 of PD No. 1529 authorizing the issuance
of certificates of title corresponding to land patents. To this day, these certificates of title are still
in the name of PEA.
PD No. 1085, coupled with President Aquino's actual issuance of a special patent covering the
Freedom Islands, is equivalent to an official proclamation classifying the Freedom Islands as
alienable or disposable lands of the public domain. PD No. 1085 and President Aquino's
issuance of a land patent also constitute a declaration that the Freedom Islands are no longer
needed for public service. The Freedom Islands are thus alienable or disposable lands of
the public domain, open to disposition or concession to qualified parties.
At the time then President Aquino issued Special Patent No. 3517, PEA had already reclaimed
the Freedom Islands although subsequently there were partial erosions on some areas. The
government had also completed the necessary surveys on these islands. Thus, the Freedom
Islands were no longer part of Manila Bay but part of the land mass. Section 3, Article XII of the
1987 Constitution classifies lands of the public domain into "agricultural, forest or timber, mineral
lands, and national parks." Being neither timber, mineral, nor national park lands, the reclaimed
Freedom Islands necessarily fall under the classification of agricultural lands of the public
domain. Under the 1987 Constitution, agricultural lands of the public domain are the only natural
resources that the State may alienate to qualified private parties. All other natural resources,
such as the seas or bays, are "waters x x x owned by the State" forming part of the public
domain, and are inalienable pursuant to Section 2, Article XII of the 1987 Constitution.
AMARI claims that the Freedom Islands are private lands because CDCP, then a private
corporation, reclaimed the islands under a contract dated November 20, 1973 with the
Commissioner of Public Highways. AMARI, citing Article 5 of the Spanish Law of Waters of
1866, argues that "if the ownership of reclaimed lands may be given to the party constructing the
works, then it cannot be said that reclaimed lands are lands of the public domain which the State
may not alienate."75 Article 5 of the Spanish Law of Waters reads as follows:
"Article 5. Lands reclaimed from the sea in consequence of works constructed by the
State, or by the provinces, pueblos or private persons, with proper permission, shall
become the property of the party constructing such works, unless otherwise
provided by the terms of the grant of authority." (Emphasis supplied)
Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim from the sea
only with "proper permission" from the State. Private parties could own the reclaimed land only if
not "otherwise provided by the terms of the grant of authority." This clearly meant that no one
could reclaim from the sea without permission from the State because the sea is property of
public dominion. It also meant that the State could grant or withhold ownership of the reclaimed
land because any reclaimed land, like the sea from which it emerged, belonged to the State.
Thus, a private person reclaiming from the sea without permission from the State could not
acquire ownership of the reclaimed land which would remain property of public dominion like the
sea it replaced.76 Article 5 of the Spanish Law of Waters of 1866 adopted the time-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."77
Article 5 of the Spanish Law of Waters must be read together with laws subsequently enacted on
the disposition of public lands. In particular, CA No. 141 requires that lands of the public domain
must first be classified as alienable or disposable before the government can alienate them.
These lands must not be reserved for public or quasi-public purposes. 78 Moreover, the contract
between CDCP and the government was executed after the effectivity of the 1973 Constitution
which barred private corporations from acquiring any kind of alienable land of the public domain.
This contract could not have converted the Freedom Islands into private lands of a private
corporation.
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing the
reclamation of areas under water and revested solely in the National Government the power to
reclaim lands. Section 1 of PD No. 3-A declared that –
"The provisions of any law to the contrary notwithstanding, the reclamation of
areas under water, whether foreshore or inland, shall be limited to the National
Government or any person authorized by it under a proper contract. (Emphasis
supplied)
x x x."
PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because reclamation of
areas under water could now be undertaken only by the National Government or by a person
contracted by the National Government. Private parties may reclaim from the sea only under a
contract with the National Government, and no longer by grant or permission as provided in
Section 5 of the Spanish Law of Waters of 1866.
Executive Order No. 525, issued on February 14, 1979, designated PEA as the National
Government's implementing arm to undertake "all reclamation projects of the government,"
which "shall be undertaken by the PEA or through a proper contract executed by it with
any person or entity." Under such contract, a private party receives compensation for
reclamation services rendered to PEA. Payment to the contractor may be in cash, or in kind
consisting of portions of the reclaimed land, subject to the constitutional ban on private
corporations from acquiring alienable lands of the public domain. The reclaimed land can be
used as payment in kind only if the reclaimed land is first classified as alienable or disposable
land open to disposition, and then declared no longer needed for public service.
The Amended JVA covers not only the Freedom Islands, but also an additional 592.15 hectares
which are still submerged and forming part of Manila Bay. There is no legislative or
Presidential act classifying these submerged areas as alienable or disposable lands of
the public domain open to disposition. These submerged areas are not covered by any
patent or certificate of title. There can be no dispute that these submerged areas form part of the
public domain, and in their present state are inalienable and outside the commerce of man.
Until reclaimed from the sea, these submerged areas are, under the Constitution, "waters x x x
owned by the State," forming part of the public domain and consequently inalienable. Only when
actually reclaimed from the sea can these submerged areas be classified as public agricultural
lands, which under the Constitution are the only natural resources that the State may alienate.
Once reclaimed and transformed into public agricultural lands, the government may then
officially classify these lands as alienable or disposable lands open to disposition. Thereafter, the
government may declare these lands no longer needed for public service. Only then can these
reclaimed lands be considered alienable or disposable lands of the public domain and within the
commerce of man.
The classification of PEA's reclaimed foreshore and submerged lands into alienable or
disposable lands open to disposition is necessary because PEA is tasked under its charter to
undertake public services that require the use of lands of the public domain. Under Section 5 of
PD No. 1084, the functions of PEA include the following: "[T]o own or operate railroads,
tramways and other kinds of land transportation, x x x; [T]o construct, maintain and operate such
systems of sanitary sewers as may be necessary; [T]o construct, maintain and operate such
storm drains as may be necessary." PEA is empowered to issue "rules and regulations as may
be necessary for the proper use by private parties of any or all of the highways, roads,
utilities, buildings and/or any of its properties and to impose or collect fees or tolls for their
use." Thus, part of the reclaimed foreshore and submerged lands held by the PEA would
actually be needed for public use or service since many of the functions imposed on PEA by its
charter constitute essential public services.
Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily
responsible for integrating, directing, and coordinating all reclamation projects for and on behalf
of the National Government." The same section also states that "[A]ll reclamation projects shall
be approved by the President upon recommendation of the PEA, and shall be undertaken by the
PEA or through a proper contract executed by it with any person or entity; x x x." Thus, under
EO No. 525, in relation to PD No. 3-A and PD No.1084, PEA became the primary implementing
agency of the National Government to reclaim foreshore and submerged lands of the public
domain. EO No. 525 recognized PEA as the government entity "to undertake the reclamation of
lands and ensure their maximum utilization in promoting public welfare and interests."79 Since
large portions of these reclaimed lands would obviously be needed for public service, there must
be a formal declaration segregating reclaimed lands no longer needed for public service from
those still needed for public service.1âwphi1.nêt
Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to or be
owned by the PEA," could not automatically operate to classify inalienable lands into alienable or
disposable lands of the public domain. Otherwise, reclaimed foreshore and submerged lands of
the public domain would automatically become alienable once reclaimed by PEA, whether or not
classified as alienable or disposable.
The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO No. 525,
vests in the Department of Environment and Natural Resources ("DENR" for brevity) the
following powers and functions:
"Sec. 4. Powers and Functions. The Department shall:
(1) x x x
xxx
(4) Exercise supervision and control over forest lands, alienable and disposable
public lands, mineral resources and, in the process of exercising such control,
impose appropriate taxes, fees, charges, rentals and any such form of levy and collect
such revenues for the exploration, development, utilization or gathering of such
resources;
xxx
(14) Promulgate rules, regulations and guidelines on the issuance of licenses,
permits, concessions, lease agreements and such other privileges concerning
the development, exploration and utilization of the country's marine, freshwater,
and brackish water and over all aquatic resources of the country and shall
continue to oversee, supervise and police our natural resources; cancel or cause
to cancel such privileges upon failure, non-compliance or violations of any regulation,
order, and for all other causes which are in furtherance of the conservation of natural
resources and supportive of the national interest;
(15) Exercise exclusive jurisdiction on the management and disposition of all
lands of the public domain and serve as the sole agency responsible for
classification, sub-classification, surveying and titling of lands in consultation with
appropriate agencies."80 (Emphasis supplied)
As manager, conservator and overseer of the natural resources of the State, DENR exercises
"supervision and control over alienable and disposable public lands." DENR also exercises
"exclusive jurisdiction on the management and disposition of all lands of the public domain."
Thus, DENR decides whether areas under water, like foreshore or submerged areas of Manila
Bay, should be reclaimed or not. This means that PEA needs authorization from DENR before
PEA can undertake reclamation projects in Manila Bay, or in any part of the country.
DENR also exercises exclusive jurisdiction over the disposition of all lands of the public domain.
Hence, DENR decides whether reclaimed lands of PEA should be classified as alienable under
Sections 681 and 782 of CA No. 141. Once DENR decides that the reclaimed lands should be so
classified, it then recommends to the President the issuance of a proclamation classifying the
lands as alienable or disposable lands of the public domain open to disposition. We note that
then DENR Secretary Fulgencio S. Factoran, Jr. countersigned Special Patent No. 3517 in
compliance with the Revised Administrative Code and Sections 6 and 7 of CA No. 141.
In short, DENR is vested with the power to authorize the reclamation of areas under water, while
PEA is vested with the power to undertake the physical reclamation of areas under water,
whether directly or through private contractors. DENR is also empowered to classify lands of the
public domain into alienable or disposable lands subject to the approval of the President. On the
other hand, PEA is tasked to develop, sell or lease the reclaimed alienable lands of the public
domain.
Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas does not
make the reclaimed lands alienable or disposable lands of the public domain, much less
patrimonial lands of PEA. Likewise, the mere transfer by the National Government of lands of
the public domain to PEA does not make the lands alienable or disposable lands of the public
domain, much less patrimonial lands of PEA.
Absent two official acts – a classification that these lands are alienable or disposable and open
to disposition and a declaration that these lands are not needed for public service, lands
reclaimed by PEA remain inalienable lands of the public domain. Only such an official
classification and formal declaration can convert reclaimed lands into alienable or disposable
lands of the public domain, open to disposition under the Constitution, Title I and Title III 83 of CA
No. 141 and other applicable laws.84
PEA's Authority to Sell Reclaimed Lands
PEA, like the Legal Task Force, argues that as alienable or disposable lands of the public
domain, the reclaimed lands shall be disposed of in accordance with CA No. 141, the Public
Land Act. PEA, citing Section 60 of CA No. 141, admits that reclaimed lands transferred to a
branch or subdivision of the government "shall not be alienated, encumbered, or otherwise
disposed of in a manner affecting its title, except when authorized by Congress: x x
x."85 (Emphasis by PEA)
In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code of 1987,
which states that –
"Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following: x x x."
Thus, the Court concluded that a law is needed to convey any real property belonging to the
Government. The Court declared that -
"It is not for the President to convey real property of the government on his or her own
sole will. Any such conveyance must be authorized and approved by a law
enacted by the Congress. It requires executive and legislative concurrence."
(Emphasis supplied)
PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority allowing
PEA to sell its reclaimed lands. PD No. 1085, issued on February 4, 1977, provides that –
"The land reclaimed in the foreshore and offshore area of Manila Bay pursuant to
the contract for the reclamation and construction of the Manila-Cavite Coastal Road
Project between the Republic of the Philippines and the Construction and
Development Corporation of the Philippines dated November 20, 1973 and/or any
other contract or reclamation covering the same area is hereby transferred,
conveyed and assigned to the ownership and administration of the Public
Estates Authority established pursuant to PD No. 1084; Provided, however, That the
rights and interests of the Construction and Development Corporation of the
Philippines pursuant to the aforesaid contract shall be recognized and respected.
Henceforth, the Public Estates Authority shall exercise the rights and assume the
obligations of the Republic of the Philippines (Department of Public Highways) arising
 from, or incident to, the aforesaid contract between the Republic of the Philippines and
the Construction and Development Corporation of the Philippines.
In consideration of the foregoing transfer and assignment, the Public Estates Authority
shall issue in favor of the Republic of the Philippines the corresponding shares of
stock in said entity with an issued value of said shares of stock (which) shall be
deemed fully paid and non-assessable.
The Secretary of Public Highways and the General Manager of the Public Estates
Authority shall execute such contracts or agreements, including appropriate
agreements with the Construction and Development Corporation of the Philippines, as
may be necessary to implement the above.
Special land patent/patents shall be issued by the Secretary of Natural
Resources in favor of the Public Estates Authority without prejudice to the
subsequent transfer to the contractor or his assignees of such portion or
portions of the land reclaimed or to be reclaimed as provided for in the above-
mentioned contract. On the basis of such patents, the Land Registration
Commission shall issue the corresponding certificate of title." (Emphasis
supplied)
On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides that -
"Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the
PEA which shall be responsible for its administration, development, utilization or
disposition in accordance with the provisions of Presidential Decree No. 1084. Any
and all income that the PEA may derive from the sale, lease or use of reclaimed lands
shall be used in accordance with the provisions of Presidential Decree No. 1084."
There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell its
reclaimed lands. PD No. 1085 merely transferred "ownership and administration" of lands
reclaimed from Manila Bay to PEA, while EO No. 525 declared that lands reclaimed by PEA
"shall belong to or be owned by PEA." EO No. 525 expressly states that PEA should dispose of
its reclaimed lands "in accordance with the provisions of Presidential Decree No. 1084," the
charter of PEA.
PEA's charter, however, expressly tasks PEA "to develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of lands x x x owned, managed, controlled
and/or operated by the government."87 (Emphasis supplied) There is, therefore, legislative
authority granted to PEA to sell its lands, whether patrimonial or alienable lands of the
public domain. PEA may sell to private parties its patrimonial properties in accordance with
the PEA charter free from constitutional limitations. The constitutional ban on private
corporations from acquiring alienable lands of the public domain does not apply to the sale of
PEA's patrimonial lands.
PEA may also sell its alienable or disposable lands of the public domain to private
individuals since, with the legislative authority, there is no longer any statutory prohibition against
such sales and the constitutional ban does not apply to individuals. PEA, however, cannot sell
any of its alienable or disposable lands of the public domain to private corporations since
Section 3, Article XII of the 1987 Constitution expressly prohibits such sales. The legislative
authority benefits only individuals. Private corporations remain barred from acquiring any kind of
alienable land of the public domain, including government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed lands could be transferred by
PEA to the "contractor or his assignees" (Emphasis supplied) would not apply to private
corporations but only to individuals because of the constitutional ban. Otherwise, the provisions
of PD No. 1085 would violate both the 1973 and 1987 Constitutions.
The requirement of public auction in the sale of reclaimed lands
Assuming the reclaimed lands of PEA are classified as alienable or disposable lands open to
disposition, and further declared no longer needed for public service, PEA would have to
conduct a public bidding in selling or leasing these lands. PEA must observe the provisions of
Sections 63 and 67 of CA No. 141 requiring public auction, in the absence of a law exempting
PEA from holding a public auction. 88 Special Patent No. 3517 expressly states that the patent is
issued by authority of the Constitution and PD No. 1084, "supplemented by Commonwealth Act
No. 141, as amended." This is an acknowledgment that the provisions of CA No. 141 apply to
the disposition of reclaimed alienable lands of the public domain unless otherwise provided by
law. Executive Order No. 654,89 which authorizes PEA "to determine the kind and manner of
payment for the transfer" of its assets and properties, does not exempt PEA from the
requirement of public auction. EO No. 654 merely authorizes PEA to decide the mode of
payment, whether in kind and in installment, but does not authorize PEA to dispense with public
auction.
Moreover, under Section 79 of PD No. 1445, otherwise known as the Government Auditing
Code, the government is required to sell valuable government property through public bidding.
Section 79 of PD No. 1445 mandates that –
"Section 79. When government property has become unserviceable for any cause,
or is no longer needed, it shall, upon application of the officer accountable therefor, be
inspected by the head of the agency or his duly authorized representative in the
presence of the auditor concerned and, if found to be valueless or unsaleable, it may
be destroyed in their presence. If found to be valuable, it may be sold at public
auction to the highest bidder under the supervision of the proper committee on
award or similar body in the presence of the auditor concerned or other authorized
representative of the Commission, after advertising by printed notice in the Official
Gazette, or for not less than three consecutive days in any newspaper of
general circulation, or where the value of the property does not warrant the expense
of publication, by notices posted for a like period in at least three public places in the
locality where the property is to be sold. In the event that the public auction fails,
the property may be sold at a private sale at such price as may be fixed by the
same committee or body concerned and approved by the Commission."
It is only when the public auction fails that a negotiated sale is allowed, in which case the
Commission on Audit must approve the selling price.90 The Commission on Audit implements
Section 79 of the Government Auditing Code through Circular No. 89-296 91 dated January 27,
1989. This circular emphasizes that government assets must be disposed of only through public
auction, and a negotiated sale can be resorted to only in case of "failure of public auction."
At the public auction sale, only Philippine citizens are qualified to bid for PEA's reclaimed
foreshore and submerged alienable lands of the public domain. Private corporations are barred
from bidding at the auction sale of any kind of alienable land of the public domain.
PEA originally scheduled a public bidding for the Freedom Islands on December 10, 1991. PEA
imposed a condition that the winning bidder should reclaim another 250 hectares of submerged
areas to regularize the shape of the Freedom Islands, under a 60-40 sharing of the additional
reclaimed areas in favor of the winning bidder. 92 No one, however, submitted a bid. On
December 23, 1994, the Government Corporate Counsel advised PEA it could sell the Freedom
Islands through negotiation, without need of another public bidding, because of the failure of the contractor or developer is an individual, portions of the reclaimed land, not exceeding 12
public bidding on December 10, 1991.93 hectares96 of non-agricultural lands, may be conveyed to him in ownership in view of the
legislative authority allowing such conveyance. This is the only way these provisions of the BOT
Law and the Local Government Code can avoid a direct collision with Section 3, Article XII of the
However, the original JVA dated April 25, 1995 covered not only the Freedom Islands and the
1987 Constitution.
additional 250 hectares still to be reclaimed, it also granted an option to AMARI to reclaim
another 350 hectares. The original JVA, a negotiated contract, enlarged the reclamation area
to 750 hectares.94 The failure of public bidding on December 10, 1991, involving only 407.84 Registration of lands of the public domain
hectares,95 is not a valid justification for a negotiated sale of 750 hectares, almost double the
area publicly auctioned. Besides, the failure of public bidding happened on December 10, 1991,
Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands to public
more than three years before the signing of the original JVA on April 25, 1995. The economic
respondent PEA transformed such lands of the public domain to private lands." This theory is
situation in the country had greatly improved during the intervening period.
echoed by AMARI which maintains that the "issuance of the special patent leading to the
eventual issuance of title takes the subject land away from the land of public domain and
Reclamation under the BOT Law and the Local Government Code converts the property into patrimonial or private property." In short, PEA and AMARI contend
that with the issuance of Special Patent No. 3517 and the corresponding certificates of titles, the
157.84 hectares comprising the Freedom Islands have become private lands of PEA. In support
The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is absolute and
of their theory, PEA and AMARI cite the following rulings of the Court:
clear: "Private corporations or associations may not hold such alienable lands of the public
domain except by lease, x x x." Even Republic Act No. 6957 ("BOT Law," for brevity), cited by
PEA and AMARI as legislative authority to sell reclaimed lands to private parties, recognizes the 1. Sumail v. Judge of CFI of Cotabato,97 where the Court held –
constitutional ban. Section 6 of RA No. 6957 states –
"Once the patent was granted and the corresponding certificate of title was issued, the
"Sec. 6. Repayment Scheme. - For the financing, construction, operation and land ceased to be part of the public domain and became private property over which
maintenance of any infrastructure projects undertaken through the build-operate-and- the Director of Lands has neither control nor jurisdiction."
transfer arrangement or any of its variations pursuant to the provisions of this Act, the
project proponent x x x may likewise be repaid in the form of a share in the revenue of
2. Lee Hong Hok v. David,98 where the Court declared -
the project or other non-monetary payments, such as, but not limited to, the grant of a
portion or percentage of the reclaimed land, subject to the constitutional
requirements with respect to the ownership of the land: x x x." (Emphasis "After the registration and issuance of the certificate and duplicate certificate of title
supplied) based on a public land patent, the land covered thereby automatically comes under
the operation of Republic Act 496 subject to all the safeguards provided
therein."3. Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas,99 where the Court ruled
A private corporation, even one that undertakes the physical reclamation of a government BOT
-
project, cannot acquire reclaimed alienable lands of the public domain in view of the
constitutional ban.
"While the Director of Lands has the power to review homestead patents, he may do
so only so long as the land remains part of the public domain and continues to be
Section 302 of the Local Government Code, also mentioned by PEA and AMARI, authorizes
under his exclusive control; but once the patent is registered and a certificate of title is
local governments in land reclamation projects to pay the contractor or developer in kind
issued, the land ceases to be part of the public domain and becomes private property
consisting of a percentage of the reclaimed land, to wit:
over which the Director of Lands has neither control nor jurisdiction."

"Section 302. Financing, Construction, Maintenance, Operation, and Management of

4. Manalo v. Intermediate Appellate Court,100 where the Court held –
Infrastructure Projects by the Private Sector. x x x

xxx
In case of land reclamation or construction of industrial estates, the repayment plan
may consist of the grant of a portion or percentage of the reclaimed land or the
industrial estate constructed."
"When the lots in dispute were certified as disposable on May 19, 1971, and free
patents were issued covering the same in favor of the private respondents, the said
lots ceased to be part of the public domain and, therefore, the Director of Lands lost
jurisdiction over the same."
5.Republic v. Court of Appeals,101 where the Court stated –

Although Section 302 of the Local Government Code does not contain a proviso similar to that of
the BOT Law, the constitutional restrictions on land ownership automatically apply even though
not expressly mentioned in the Local Government Code.
Thus, under either the BOT Law or the Local Government Code, the contractor or developer, if a
corporate entity, can only be paid with leaseholds on portions of the reclaimed land. If the
"Proclamation No. 350, dated October 9, 1956, of President Magsaysay legally
effected a land grant to the Mindanao Medical Center, Bureau of Medical Services,
Department of Health, of the whole lot, validly sufficient for initial registration under the
Land Registration Act. Such land grant is constitutive of a 'fee simple' title or absolute
title in favor of petitioner Mindanao Medical Center. Thus, Section 122 of the Act,
which governs the registration of grants or patents involving public lands, provides that
 'Whenever public lands in the Philippine Islands belonging to the Government of the corporations of reclaimed alienable lands of the public domain because of the constitutional ban.
United States or to the Government of the Philippines are alienated, granted or Only individuals can benefit from such law.
conveyed to persons or to public or private corporations, the same shall be brought
forthwith under the operation of this Act (Land Registration Act, Act 496) and shall
The grant of legislative authority to sell public lands in accordance with Section 60 of CA No. 141
become registered lands.'"
does not automatically convert alienable lands of the public domain into private or patrimonial
lands. The alienable lands of the public domain must be transferred to qualified private parties,
The first four cases cited involve petitions to cancel the land patents and the corresponding or to government entities not tasked to dispose of public lands, before these lands can become
certificates of titles issued to private parties. These four cases uniformly hold that the Director private or patrimonial lands. Otherwise, the constitutional ban will become illusory if Congress
of Lands has no jurisdiction over private lands or that upon issuance of the certificate of title the can declare lands of the public domain as private or patrimonial lands in the hands of a
land automatically comes under the Torrens System. The fifth case cited involves the government agency tasked to dispose of public lands. This will allow private corporations to
registration under the Torrens System of a 12.8-hectare public land granted by the National acquire directly from government agencies limitless areas of lands which, prior to such law, are
Government to Mindanao Medical Center, a government unit under the Department of Health. concededly public lands.
The National Government transferred the 12.8-hectare public land to serve as the site for the
hospital buildings and other facilities of Mindanao Medical Center, which performed a public
Under EO No. 525, PEA became the central implementing agency of the National
service. The Court affirmed the registration of the 12.8-hectare public land in the name of
Government to reclaim foreshore and submerged areas of the public domain. Thus, EO No. 525
Mindanao Medical Center under Section 122 of Act No. 496. This fifth case is an example of a
declares that –
public land being registered under Act No. 496 without the land losing its character as a property
of public dominion.
"EXECUTIVE ORDER NO. 525
In the instant case, the only patent and certificates of title issued are those in the name of PEA,
a wholly government owned corporation performing public as well as proprietary functions. No Designating the Public Estates Authority as the Agency Primarily Responsible for all
patent or certificate of title has been issued to any private party. No one is asking the Director of Reclamation Projects
Lands to cancel PEA's patent or certificates of title. In fact, the thrust of the instant petition is that
PEA's certificates of title should remain with PEA, and the land covered by these certificates,
Whereas, there are several reclamation projects which are ongoing or being proposed
being alienable lands of the public domain, should not be sold to a private corporation.
to be undertaken in various parts of the country which need to be evaluated for
consistency with national programs;
Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant private or
public ownership of the land. Registration is not a mode of acquiring ownership but is merely
Whereas, there is a need to give further institutional support to the Government's
evidence of ownership previously conferred by any of the recognized modes of acquiring
declared policy to provide for a coordinated, economical and efficient reclamation of
ownership. Registration does not give the registrant a better right than what the registrant had
lands;
prior to the registration. 102 The registration of lands of the public domain under the Torrens
system, by itself, cannot convert public lands into private lands.103
Whereas, Presidential Decree No. 3-A requires that all reclamation of areas shall be
limited to the National Government or any person authorized by it under proper
Jurisprudence holding that upon the grant of the patent or issuance of the certificate of title the
contract;
alienable land of the public domain automatically becomes private land cannot apply to
government units and entities like PEA. The transfer of the Freedom Islands to PEA was made
subject to the provisions of CA No. 141 as expressly stated in Special Patent No. 3517 issued by Whereas, a central authority is needed to act on behalf of the National
then President Aquino, to wit: Government which shall ensure a coordinated and integrated approach in the
reclamation of lands;
"NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the
Philippines and in conformity with the provisions of Presidential Decree No. 1084, Whereas, Presidential Decree No. 1084 creates the Public Estates Authority as a
supplemented by Commonwealth Act No. 141, as amended, there are hereby government corporation to undertake reclamation of lands and ensure their
granted and conveyed unto the Public Estates Authority the aforesaid tracts of land maximum utilization in promoting public welfare and interests; and
containing a total area of one million nine hundred fifteen thousand eight hundred
ninety four (1,915,894) square meters; the technical description of which are hereto
attached and made an integral part hereof." (Emphasis supplied) Whereas, Presidential Decree No. 1416 provides the President with continuing
authority to reorganize the national government including the transfer, abolition, or
merger of functions and offices.
Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not covered by PD
No. 1084. Section 60 of CA No. 141 prohibits, "except when authorized by Congress," the sale
of alienable lands of the public domain that are transferred to government units or entities. NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by
Section 60 of CA No. 141 constitutes, under Section 44 of PD No. 1529, a "statutory lien virtue of the powers vested in me by the Constitution and pursuant to Presidential
affecting title" of the registered land even if not annotated on the certificate of title.104 Alienable Decree No. 1416, do hereby order and direct the following:
lands of the public domain held by government entities under Section 60 of CA No. 141 remain
public lands because they cannot be alienated or encumbered unless Congress passes a law Section 1. The Public Estates Authority (PEA) shall be primarily responsible for
authorizing their disposition. Congress, however, cannot authorize the sale to private integrating, directing, and coordinating all reclamation projects for and on
 behalf of the National Government. All reclamation projects shall be approved by or the public or private corporations, the same shall be brought forthwith under the
the President upon recommendation of the PEA, and shall be undertaken by the PEA operation of this Act and shall become registered lands."
or through a proper contract executed by it with any person or entity; Provided, that,
reclamation projects of any national government agency or entity authorized under its
PD No. 1529
charter shall be undertaken in consultation with the PEA upon approval of the
President.
"Sec. 103. Certificate of Title to Patents. Whenever public land is by the Government
alienated, granted or conveyed to any person, the same shall be brought forthwith
x x x ."
under the operation of this Decree." (Emphasis supplied)

As the central implementing agency tasked to undertake reclamation projects nationwide, with
Based on its legislative history, the phrase "conveyed to any person" in Section 103 of PD No.
authority to sell reclaimed lands, PEA took the place of DENR as the government agency
1529 includes conveyances of public lands to public corporations.
charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being
leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of
other alienable lands, does not dispose of private lands but alienable lands of the public domain. Alienable lands of the public domain "granted, donated, or transferred to a province,
Only when qualified private parties acquire these lands will the lands become private lands. In municipality, or branch or subdivision of the Government," as provided in Section 60 of CA No.
the hands of the government agency tasked and authorized to dispose of alienable of 141, may be registered under the Torrens System pursuant to Section 103 of PD No. 1529.
disposable lands of the public domain, these lands are still public, not private lands. Such registration, however, is expressly subject to the condition in Section 60 of CA No. 141 that
the land "shall not be alienated, encumbered or otherwise disposed of in a manner affecting
its title, except when authorized by Congress." This provision refers to government
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain"
reclaimed, foreshore and marshy lands of the public domain that have been titled but still cannot
as well as "any and all kinds of lands." PEA can hold both lands of the public domain and private
be alienated or encumbered unless expressly authorized by Congress. The need for legislative
lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are
authority prevents the registered land of the public domain from becoming private land that can
transferred to PEA and issued land patents or certificates of title in PEA's name does not
be disposed of to qualified private parties.
automatically make such lands private.

The Revised Administrative Code of 1987 also recognizes that lands of the public domain may
To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private
be registered under the Torrens System. Section 48, Chapter 12, Book I of the Code states –
lands will sanction a gross violation of the constitutional ban on private corporations from
acquiring any kind of alienable land of the public domain. PEA will simply turn around, as PEA
has now done under the Amended JVA, and transfer several hundreds of hectares of these "Sec. 48. Official Authorized to Convey Real Property. Whenever real property of the
reclaimed and still to be reclaimed lands to a single private corporation in only one transaction. Government is authorized by law to be conveyed, the deed of conveyance shall be
This scheme will effectively nullify the constitutional ban in Section 3, Article XII of the 1987 executed in behalf of the government by the following:
Constitution which was intended to diffuse equitably the ownership of alienable lands of the
public domain among Filipinos, now numbering over 80 million strong.
(1) x x x

This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain
since PEA can "acquire x x x any and all kinds of lands." This will open the floodgates to
corporations and even individuals acquiring hundreds of hectares of alienable lands of the public
domain under the guise that in the hands of PEA these lands are private lands. This will result in
corporations amassing huge landholdings never before seen in this country - creating the very
evil that the constitutional ban was designed to prevent. This will completely reverse the clear
direction of constitutional development in this country. The 1935 Constitution allowed private
corporations to acquire not more than 1,024 hectares of public lands.105 The 1973 Constitution
prohibited private corporations from acquiring any kind of public land, and the 1987 Constitution
has unequivocally reiterated this prohibition.
The contention of PEA and AMARI that public lands, once registered under Act No. 496 or PD
No. 1529, automatically become private lands is contrary to existing laws. Several laws
authorize lands of the public domain to be registered under the Torrens System or Act No. 496,
now PD No. 1529, without losing their character as public lands. Section 122 of Act No. 496, and
Section 103 of PD No. 1529, respectively, provide as follows:
Act No. 496
(2) For property belonging to the Republic of the Philippines, but titled in the
name of any political subdivision or of any corporate agency or instrumentality,
by the executive head of the agency or instrumentality." (Emphasis supplied)
Thus, private property purchased by the National Government for expansion of a public wharf
may be titled in the name of a government corporation regulating port operations in the country.
Private property purchased by the National Government for expansion of an airport may also be
titled in the name of the government agency tasked to administer the airport. Private property
donated to a municipality for use as a town plaza or public school site may likewise be titled in
the name of the municipality.106 All these properties become properties of the public domain, and
if already registered under Act No. 496 or PD No. 1529, remain registered land. There is no
requirement or provision in any existing law for the de-registration of land from the Torrens
System.
Private lands taken by the Government for public use under its power of eminent domain
become unquestionably part of the public domain. Nevertheless, Section 85 of PD No. 1529
authorizes the Register of Deeds to issue in the name of the National Government new
certificates of title covering such expropriated lands. Section 85 of PD No. 1529 states –

"Sec. 122. Whenever public lands in the Philippine Islands belonging to the x x x
Government of the Philippine Islands are alienated, granted, or conveyed to persons
 "Sec. 85. Land taken by eminent domain. Whenever any registered land, or interest
therein, is expropriated or taken by eminent domain, the National Government,
province, city or municipality, or any other agency or instrumentality exercising such
right shall file for registration in the proper Registry a certified copy of the judgment
which shall state definitely by an adequate description, the particular property or
interest expropriated, the number of the certificate of title, and the nature of the public
use. A memorandum of the right or interest taken shall be made on each certificate of
title by the Register of Deeds, and where the fee simple is taken, a new certificate
shall be issued in favor of the National Government, province, city, municipality,
or any other agency or instrumentality exercising such right for the land so taken. The
legal expenses incident to the memorandum of registration or issuance of a new
certificate of title shall be for the account of the authority taking the land or interest
therein." (Emphasis supplied)
Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively private or
patrimonial lands. Lands of the public domain may also be registered pursuant to existing laws.
AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the Freedom
Islands or of the lands to be reclaimed from submerged areas of Manila Bay. In the words of
AMARI, the Amended JVA "is not a sale but a joint venture with a stipulation for reimbursement
of the original cost incurred by PEA for the earlier reclamation and construction works performed
by the CDCP under its 1973 contract with the Republic." Whether the Amended JVA is a sale or
a joint venture, the fact remains that the Amended JVA requires PEA to "cause the issuance and
delivery of the certificates of title conveying AMARI's Land Share in the name of AMARI."107
This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which provides
that private corporations "shall not hold such alienable lands of the public domain except by
lease." The transfer of title and ownership to AMARI clearly means that AMARI will "hold" the
reclaimed lands other than by lease. The transfer of title and ownership is a "disposition" of the
reclaimed lands, a transaction considered a sale or alienation under CA No. 141, 108 the
Government Auditing Code,109 and Section 3, Article XII of the 1987 Constitution.
The Regalian doctrine is deeply implanted in our legal system. Foreshore and submerged areas
form part of the public domain and are inalienable. Lands reclaimed from foreshore and
submerged areas also form part of the public domain and are also inalienable, unless converted
pursuant to law into alienable or disposable lands of the public domain. Historically, lands
reclaimed by the government are sui generis, not available for sale to private parties unlike
other alienable public lands. Reclaimed lands retain their inherent potential as areas for public
use or public service. Alienable lands of the public domain, increasingly becoming scarce natural
resources, are to be distributed equitably among our ever-growing population. To insure such
equitable distribution, the 1973 and 1987 Constitutions have barred private corporations from
acquiring any kind of alienable land of the public domain. Those who attempt to dispose of
inalienable natural resources of the State, or seek to circumvent the constitutional ban on
alienation of lands of the public domain to private corporations, do so at their own risk.
We can now summarize our conclusions as follows:
1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now
covered by certificates of title in the name of PEA, are alienable lands of the public
domain. PEA may lease these lands to private corporations but may not sell or
transfer ownership of these lands to private corporations. PEA may only sell these
lands to Philippine citizens, subject to the ownership limitations in the 1987
Constitution and existing laws.
2. The 592.15 hectares of submerged areas of Manila 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 service. The government can
make such classification and declaration only after PEA has reclaimed these
submerged areas. Only then can these lands qualify as agricultural lands of the public
domain, which are the only natural resources the government can alienate. In their
present state, the 592.15 hectares of submerged areas are inalienable and outside
the commerce of man.
3. Since the Amended JVA seeks to transfer to AMARI, a private corporation,
ownership of 77.34 hectares110 of the Freedom Islands, such transfer is void for being
contrary to Section 3, Article XII of the 1987 Constitution which prohibits private
corporations from acquiring any kind of alienable land of the public domain.
4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156
hectares111 of still submerged areas of Manila Bay, such transfer is void for being
contrary to Section 2, Article XII of the 1987 Constitution which prohibits the alienation
of natural resources other than agricultural lands of the public domain. PEA may
reclaim these submerged areas. Thereafter, the government can classify the
reclaimed lands as alienable or disposable, and further declare them no longer
needed for public service. Still, the transfer of such reclaimed alienable lands of the
public domain to AMARI will be void in view of Section 3, Article XII of the 1987
Constitution which prohibits private corporations from acquiring any kind of alienable
land of the public domain.
Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987
Constitution. Under Article 1409112 of the Civil Code, contracts whose "object or purpose is
contrary to law," or whose "object is outside the commerce of men," are "inexistent and void from
the beginning." The Court must perform its duty to defend and uphold the Constitution, and
therefore declares the Amended JVA null and void ab initio.
Seventh issue: whether the Court is the proper forum to raise the issue of whether the
Amended JVA is grossly disadvantageous to the government.
Considering that the Amended JVA is null and void ab initio, there is no necessity to rule on this
last issue. Besides, the Court is not a trier of facts, and this last issue involves a determination of
factual matters.
WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay
Development Corporation are PERMANENTLY ENJOINED from implementing the Amended
Joint Venture Agreement which is hereby declared NULL and VOID ab initio.
SO ORDERED.
 provisions, filed on October 13, 1998 their Comment to the Petition, in which they defend the
constitutionality of the IPRA and pray that the petition be dismissed for lack of merit.

On October 19, 1998, respondents Secretary of the Department of Environment and Natural
Resources (DENR) and Secretary of the Department of Budget and Management (DBM) filed
through the Solicitor General a consolidated Comment. The Solicitor General is of the view that
the IPRA is partly unconstitutional on the ground that it grants ownership over natural resources
to indigenous peoples and prays that the petition be granted in part.

On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier, one of the
authors of the IPRA, Mr. Ponciano Bennagen, a member of the 1986 Constitutional Commission,
and the leaders and members of 112 groups of indigenous peoples (Flavier, et. al), filed their
Motion for Leave to Intervene. They join the NCIP in defending the constitutionality of IPRA and
praying for the dismissal of the petition.

On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a Motion to
Intervene and/or to Appear as Amicus Curiae. The CHR asserts that IPRA is an expression of
the principle of parens patriae and that the State has the responsibility to protect and guarantee
the rights of those who are at a serious disadvantage like indigenous peoples. For this reason it
prays that the petition be dismissed.

On March 23, 1999, another group, composed of the Ikalahan Indigenous People and the
Haribon Foundation for the Conservation of Natural Resources, Inc. (Haribon, et al.), filed a
motion to Intervene with attached Comment-in-Intervention. They agree with the NCIP and
Flavier, et al. that IPRA is consistent with the Constitution and pray that the petition for
prohibition and mandamus be dismissed.

The motions for intervention of the aforesaid groups and organizations were granted.

Oral arguments were heard on April 13, 1999. Thereafter, the parties and intervenors filed their
respective memoranda in which they reiterate the arguments adduced in their earlier pleadings
and during the hearing.

Petitioners assail the constitutionality of the following provisions of the IPRA and its
G.R. No. 135385               December 6, 2000 Implementing Rules on the ground that they amount to an unlawful deprivation of the State’s
ownership over lands of the public domain as well as minerals and other natural resources
therein, in violation of the regalian doctrine embodied in Section 2, Article XII of the Constitution:
ISAGANI CRUZ and CESAR EUROPA, petitioners,
vs.
SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES, et. al., intervenor. "(1) Section 3(a) which defines the extent and coverage of ancestral domains, and Section 3(b)
which, in turn, defines ancestral lands;
RESOLUTION
"(2) Section 5, in relation to section 3(a), which provides that ancestral domains including
inalienable public lands, bodies of water, mineral and other resources found within ancestral
PER CURIAM: domains are private but community property of the indigenous peoples;

Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and mandamus as "(3) Section 6 in relation to section 3(a) and 3(b) which defines the composition of ancestral
citizens and taxpayers, assailing the constitutionality of certain provisions of Republic Act No. domains and ancestral lands;
8371 (R.A. 8371), otherwise known as the Indigenous Peoples Rights Act of 1997 (IPRA), and
its Implementing Rules and Regulations (Implementing Rules).
"(4) Section 7 which recognizes and enumerates the rights of the indigenous peoples over the
1 
ancestral domains;
In its resolution of September 29, 1998, the Court required respondents to comment. In
compliance, respondents Chairperson and Commissioners of the National Commission on
Indigenous Peoples (NCIP), the government agency created under the IPRA to implement its
(5) Section 8 which recognizes and enumerates the rights of the indigenous peoples over the Petitioners pray for the following:
ancestral lands;
"(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 and 66 and other
"(6) Section 57 which provides for priority rights of the indigenous peoples in the harvesting, related provisions of R.A. 8371 are unconstitutional and invalid;
extraction, development or exploration of minerals and other natural resources within the areas
claimed to be their ancestral domains, and the right to enter into agreements with nonindigenous
"(2) The issuance of a writ of prohibition directing the Chairperson and Commissioners
peoples for the development and utilization of natural resources therein for a period not
of the NCIP to cease and desist from implementing the assailed provisions of R.A.
exceeding 25 years, renewable for not more than 25 years; and
8371 and its Implementing Rules;

"(7) Section 58 which gives the indigenous peoples the responsibility to maintain, develop,
"(3) The issuance of a writ of prohibition directing the Secretary of the Department of
protect and conserve the ancestral domains and portions thereof which are found to be
Environment and Natural Resources to cease and desist from implementing
necessary for critical watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas,
Department of Environment and Natural Resources Circular No. 2, series of 1998;
forest cover or reforestation."2

"(4) The issuance of a writ of prohibition directing the Secretary of Budget and
Petitioners also content that, by providing for an all-encompassing definition of "ancestral
Management to cease and desist from disbursing public funds for the implementation
domains" and "ancestral lands" which might even include private lands found within said areas,
of the assailed provisions of R.A. 8371; and
Sections 3(a) and 3(b) violate the rights of private landowners.3

"(5) The issuance of a writ of mandamus commanding the Secretary of Environment

In addition, petitioners question the provisions of the IPRA defining the powers and jurisdiction of
and Natural Resources to comply with his duty of carrying out the State’s
the NCIP and making customary law applicable to the settlement of disputes involving ancestral
constitutional mandate to control and supervise the exploration, development,
domains and ancestral lands on the ground that these provisions violate the due process clause
utilization and conservation of Philippine natural resources."7
of the Constitution.4

After due deliberation on the petition, the members of the Court voted as follows:
These provisions are:

"(1) sections 51 to 53 and 59 which detail the process of delineation and recognition of
ancestral domains and which vest on the NCIP the sole authority to delineate
ancestral domains and ancestral lands;
"(2) Section 52[i] which provides that upon certification by the NCIP that a particular
area is an ancestral domain and upon notification to the following officials, namely, the
Secretary of Environment and Natural Resources, Secretary of Interior and Local
Governments, Secretary of Justice and Commissioner of the National Development
Corporation, the jurisdiction of said officials over said area terminates;
Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the Chief Justice
and Justices Bellosillo, Quisumbing, and Santiago join, sustaining the validity of the challenged
provisions of R.A. 8371. Justice Puno also filed a separate opinion sustaining all challenged
provisions of the law with the exception of Section 1, Part II, Rule III of NCIP Administrative
Order No. 1, series of 1998, the Rules and Regulations Implementing the IPRA, and Section 57
of the IPRA which he contends should be interpreted as dealing with the large-scale exploitation
of natural resources and should be read in conjunction with Section 2, Article XII of the 1987
Constitution. On the other hand, Justice Mendoza voted to dismiss the petition solely on the
ground that it does not raise a justiciable controversy and petitioners do not have standing to
question the constitutionality of R.A. 8371.

"(3) Section 63 which provides the customary law, traditions and practices of
indigenous peoples shall be applied first with respect to property rights, claims of
ownership, hereditary succession and settlement of land disputes, and that any doubt
or ambiguity in the interpretation thereof shall be resolved in favor of the indigenous
peoples;
"(4) Section 65 which states that customary laws and practices shall be used to
resolve disputes involving indigenous peoples; and
Seven (7) other members of the Court voted to grant the petition. Justice Panganiban filed a
separate opinion expressing the view that Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related
provisions of R.A. 8371 are unconstitutional. He reserves judgment on the constitutionality of
Sections 58, 59, 65, and 66 of the law, which he believes must await the filing of specific cases
by those whose rights may have been violated by the IPRA. Justice Vitug also filed a separate
opinion expressing the view that Sections 3(a), 7, and 57 of R.A. 8371 are unconstitutional.
Justices Melo, Pardo, Buena, Gonzaga-Reyes, and De Leon join in the separate opinions of
Justices Panganiban and Vitug.

As the votes were equally divided (7 to 7) and the necessary majority was not obtained, the case
"(5) Section 66 which vests on the NCIP the jurisdiction over all claims and disputes
was redeliberated upon. However, after redeliberation, the voting remained the same.
involving rights of the indigenous peoples."5
Accordingly, pursuant to Rule 56, Section 7 of the Rules of Civil Procedure, the petition is
DISMISSED.
Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP Administrative
Order No. 1, series of 1998, which provides that "the administrative relationship of the NCIP to
Attached hereto and made integral parts thereof are the separate opinions of Justices Puno,
the Office of the President is characterized as a lateral but autonomous relationship for purposes
Vitug, Kapunan, Mendoza, and Panganiban.
of policy and program coordination." They contend that said Rule infringes upon the President’s
power of control over executive departments under Section 17, Article VII of the Constitution.6
SO ORDERED. attitudes are obstacles to anyone who wants to re-orient law in a more pragmatic direction. But,
by the same token, pragmatic jurisprudence must come to terms with history."
Davide, Jr., C.J., Bellosillo, Melo, Quisumbing, Pardo, Buena, Gonzaga-Reyes, Ynares-
Santiago, and De Leon, Jr., JJ., concur. When Congress enacted the Indigenous Peoples Rights Act (IPRA), it
Puno, Vitug, Kapunan, Mendoza and Panganiban JJ., see separate opinion introduced radical concepts into the Philippine legal system which appear to collide with settled
constitutional and jural precepts on state ownership of land and other natural resources. The
sense and subtleties of this law cannot be appreciated without considering its distinct sociology
and the labyrinths of its history. This Opinion attempts to interpret IPRA by discovering its soul
shrouded by the mist of our history. After all, the IPRA was enacted by Congress not only to
fulfill the constitutional mandate of protecting the indigenous cultural communities' right to their
ancestral land but more importantly, to correct a grave historical injustice to our indigenous
Footnotes
people.
1 
Rollo, p. 114.
This Opinion discusses the following:
2 
Petition, Rollo, pp. 16-23.
I. The Development of the Regalian Doctrine in the Philippine Legal System.
3 
Id. at 23-25.
A. The Laws of the Indies
4 
Section 1, Article III of the Constitution states: "No person shall be deprived of life,
B. Valenton v. Murciano
liberty or property without due process of law, nor shall any person be denied the
equal protection of the laws."
C. The Public Land Acts and the Torrens System
5 
Rollo, pp. 25-27.
D. The Philippine Constitutions
6 
Id. at 27-28.
II. The Indigenous Peoples Rights Act (IPRA).
7 
Transcript of Stenographic Notes of the hearing held on April 13, 1999, pp. 5-6.
A. Indigenous Peoples

The Lawphil Project - Arellano Law Foundation 1. Indigenous Peoples: Their History

2. Their Concept of Land

III. The IPRA is a Novel Piece of Legislation.

SEPARATE OPINION
A. Legislative History
PUNO, J.:
IV. The Provisions of the IPRA Do Not Contravene the Constitution.
PRECIS
A. Ancestral domains and ancestral lands are the private property of indigenous
A classic essay on the utility of history was written in 1874 by Friedrich Nietzsche entitled "On peoples and do not constitute part of the land of the public domain.
the Uses and Disadvantages of History for Life." Expounding on Nietzsche's essay, Judge
Richard Posner1 wrote:2 1. The right to ancestral domains and ancestral lands: how acquired

"Law is the most historically oriented, or if you like the most backward-looking, the most 'past- 2. The concept of native title
dependent,' of the professions. It venerates tradition, precedent, pedigree, ritual, custom, ancient
practices, ancient texts, archaic terminology, maturity, wisdom, seniority, gerontocracy, and
interpretation conceived of as a method of recovering history. It is suspicious of innovation, (a) Cariño v. Insular Government
discontinuities, 'paradigm shifts,' and the energy and brashness of youth. These ingrained
 (b) Indian Title to land
(c) Why the Cariño doctrine is unique
3. The option of securing a torrens title to the ancestral land
B. The right of ownership and possession by the ICCs/IPs to their ancestral domains
is a limited form of ownership and does not include the right to alienate the same.
1. The indigenous concept of ownership and customary law
C. Sections 7 (a), 7 (b) and 57 of the IPRA do not violate the Regalian Doctrine
enshrined in Section 2, Article XII of the 1987 Constitution.
1. The rights of ICCs/IPs over their ancestral domains and lands
2. The right of ICCs/IPs to develop lands and natural resources within the
ancestral domains does not deprive the State of ownership over the natural
resources, control and supervision in their development and exploitation.
(a) Section 1, Part II, Rule III of the Implementing Rules goes
beyond the parameters of Section 7(a) of the law on ownership of
ancestral domains and is ultra vires.
(b) The small-scale utilization of natural resources in Section 7 (b)
of the IPRA is allowed under Paragraph 3, Section 2, Article XII of
the 1987 Consitution.
(c) The large-scale utilization of natural resources in Section 57 of
the IPRA may be harmonized with Paragraphs 1 and 4, Section 2,
Article XII of the 1987 Constitution.
V. The IPRA is a Recognition of Our Active Participation in the International Indigenous
Movement.
DISCUSSION
I. THE DEVELOPMENT OF THE REGALIAN DOCTRINE IN THE PHILIPPINE LEGAL
SYSTEM.
A. The Laws of the Indies
The capacity of the State to own or acquire property is the state's power of dominium.3 This was
the foundation for the early Spanish decrees embracing the feudal theory of jura regalia. The
"Regalian Doctrine" or jura regalia is a Western legal concept that was first introduced by the
Spaniards into the country through the Laws of the Indies and the Royal Cedulas. The
Laws of the Indies, i.e., more specifically, Law 14, Title 12, Book 4 of the Novisima Recopilacion
de Leyes de las Indias, set the policy of the Spanish Crown with respect to the Philippine Islands
in the following manner:
"We, having acquired full sovereignty over the Indies, and all lands, territories, and possessions
not heretofore ceded away by our royal predecessors, or by us, or in our name, still pertaining to
the royal crown and patrimony, it is our will that all lands which are held without proper and true
deeds of grant be restored to us as they belong to us, in order that after reserving before all what
to us or to our viceroys, audiencias, and governors may seem necessary for public squares,
ways, pastures, and commons in those places which are peopled, taking into consideration not
only their present condition, but also their future and their probable increase, and after
distributing to the natives what may be necessary for tillage and pasturage, confirming them in
what they now have and giving them more if necessary, all the rest of said lands may remain
free and unencumbered for us to dispose of as we may wish.
We therefore order and command that all viceroys and presidents of pretorial courts designate at
such time as shall to them seem most expedient, a suitable period within which all possessors of
tracts, farms, plantations, and estates shall exhibit to them and to the court officers appointed by
them for this purpose, their title deeds thereto. And those who are in possession by virtue of
proper deeds and receipts, or by virtue of just prescriptive right shall be protected, and all the
rest shall be restored to us to be disposed of at our will."4
The Philippines passed to Spain by virtue of "discovery" and conquest. Consequently, all lands
became the exclusive patrimony and dominion of the Spanish Crown. The Spanish Government
took charge of distributing the lands by issuing royal grants and concessions to Spaniards, both
military and civilian.5 Private land titles could only be acquired from the government either by
purchase or by the various modes of land grant from the Crown.6
The Laws of the Indies were followed by the Ley Hipotecaria, or the Mortgage Law of
1893.7 The Spanish Mortgage Law provided for the systematic registration of titles and deeds as
well as possessory claims. The law sought to register and tax lands pursuant to the Royal
Decree of 1880. The Royal Decree of 1894, or the "Maura Law," was partly an amendment of
the Mortgage Law as well as the Laws of the Indies, as already amended by previous orders and
decrees.8 This was the last Spanish land law promulgated in the Philippines. It required the
"adjustment" or registration of all agricultural lands, otherwise the lands shall revert to the state.
Four years later, by the Treaty of Paris of December 10, 1898, Spain ceded to the government
of the United States all rights, interests and claims over the national territory of the Philippine
Islands. In 1903, the United States colonial government, through the Philippine Commission,
passed Act No. 926, the first Public Land Act.
B. Valenton v. Murciano
In 1904, under the American regime, this Court decided the case of Valenton v. Murciano.9
Valenton resolved the question of which is the better basis for ownership of land: long-time
occupation or paper title. Plaintiffs had entered into peaceful occupation of the subject land in
1860. Defendant's predecessor-in-interest, on the other hand, purchased the land from the
provincial treasurer of Tarlac in 1892. The lower court ruled against the plaintiffs on the ground
that they had lost all rights to the land by not objecting to the administrative sale. Plaintiffs
appealed the judgment, asserting that their 30-year adverse possession, as an extraordinary
period of prescription in the Partidas and the Civil Code, had given them title to the land as
against everyone, including the State; and that the State, not owning the land, could not validly
transmit it.
The Court, speaking through Justice Willard, decided the case on the basis of "those special
laws which from earliest time have regulated the disposition of the public lands in the
colonies."10 The question posed by the Court was: "Did these special laws recognize any right of
prescription as against the State as to these lands; and if so, to what extent was it recognized?"
Prior to 1880, the Court said, there were no laws specifically providing for the disposition of land
in the Philippines. However, it was understood that in the absence of any special law to govern a
specific colony, the Laws of the Indies would be followed. Indeed, in the Royal Order of July 5,
1862, it was decreed that until regulations on the subject could be prepared, the authorities of
the Philippine Islands should follow strictly the Laws of the Indies, the Ordenanza of
the Intendentes of 1786, and the Royal Cedula of 1754.11
Quoting the preamble of Law 14, Title 12, Book 4 of the Recopilacion de Leyes de las Indias,
the court interpreted it as follows:
"In the preamble of this law there is, as is seen, a distinct statement that all those lands belong
to the Crown which have not been granted by Philip, or in his name, or by the kings who
preceded him. This statement excludes the idea that there might be lands not so granted,
that did not belong to the king. It excludes the idea that the king was not still the owner of
all ungranted lands, because some private person had been in the adverse occupation of
them. By the mandatory part of the law all the occupants of the public lands are required to
produce before the authorities named, and within a time to be fixed by them, their title papers.
And those who had good title or showed prescription were to be protected in their holdings. It is
apparent that it was not the intention of the law that mere possession for a length of time should
make the possessors the owners of the land possessed by them without any action on the part
of the authorities."12
The preamble stated that all those lands which had not been granted by Philip, or in his name, or
by the kings who preceded him, belonged to the Crown.13 For those lands granted by the king,
the decree provided for a system of assignment of such lands. It also ordered that all possessors
of agricultural land should exhibit their title deed, otherwise, the land would be restored to the
Crown.14
The Royal Cedula of October 15, 1754 reinforced the Recopilacion when it ordered the Crown's
principal subdelegate to issue a general order directing the publication of the Crown's
instructions:
"x x x to the end that any and all persons who, since the year 1700, and up to the date of the
promulgation and publication of said order, shall have occupied royal lands, whether or not x x x
cultivated or tenanted, may x x x appear and exhibit to said subdelegates the titles and patents
by virtue of which said lands are occupied. x x x. Said subdelegates will at the same time warn
the parties interested that in case of their failure to present their title deeds within the term
designated, without a just and valid reason therefor, they will be deprived of and evicted from
their lands, and they will be granted to others."15
On June 25, 1880, the Crown adopted regulations for the adjustment of lands "wrongfully
occupied" by private individuals in the Philippine Islands. Valenton construed these regulations
together with contemporaneous legislative and executive interpretations of the law, and
concluded that plaintiffs' case fared no better under the 1880 decree and other laws which
followed it, than it did under the earlier ones. Thus as a general doctrine, the Court stated:
"While the State has always recognized the right of the occupant to a deed if he proves a
possession for a sufficient length of time, yet it has always insisted that he must make that
proof before the proper administrative officers, and obtain from them his deed, and  until
he did that the State remained the absolute owner."16
In conclusion, the Court ruled: "We hold that from 1860 to 1892 there was no law in force in
these Islands by which the plaintiffs could obtain the ownership of these lands by prescription,
without any action by the State." 17 Valenton had no rights other than those which accrued to
mere possession. Murciano, on the other hand, was deemed to be the owner of the land by
virtue of the grant by the provincial secretary. In effect, Valenton upheld the Spanish concept of
state ownership of public land.
As a fitting observation, the Court added that "[t]he policy pursued by the Spanish
Government from earliest times, requiring settlers on the public lands to obtain title
deeds therefor from the State, has been continued by the American Government in Act
No. 926."18
C. The Public Land Acts and the Torrens System
Act No. 926, the first Public Land Act, was passed in pursuance of the provisions of the the
Philippine Bill of 1902. The law governed the disposition of lands of the public domain. It
prescribed rules and regulations for the homesteading, selling, and leasing of portions of the
public domain of the Philippine Islands, and prescribed the terms and conditions to enable
persons to perfect their titles to public lands in the Islands. It also provided for the "issuance of
patents to certain native settlers upon public lands," for the establishment of town sites and sale
of lots therein, for the completion of imperfect titles, and for the cancellation or confirmation of
Spanish concessions and grants in the Islands." In short, the Public Land Act operated on the
assumption that title to public lands in the Philippine Islands remained in the government; 19 and
that the government's title to public land sprung from the Treaty of Paris and other subsequent
treaties between Spain and the United States.20 The term "public land" referred to all lands of the
public domain whose title still remained in the government and are thrown open to private
appropriation and settlement,21 and excluded the patrimonial property of the government and the
friar lands.22
Act No. 926 was superseded in 1919 by Act 2874, the second Public Land Act. This new
law was passed under the Jones Law. It was more comprehensive in scope but limited the
exploitation of agricultural lands to Filipinos and Americans and citizens of other countries which
gave Filipinos the same privileges.23 After the passage of the 1935 Constitution, Act 2874 was
amended in 1936 by Commonwealth Act No. 141. Commonwealth Act No. 141 remains the
present Public Land Law and it is essentially the same as Act 2874. The main difference
between the two relates to the transitory provisions on the rights of American citizens and
corporations during the Commonwealth period at par with Filipino citizens and corporations.24
Grants of public land were brought under the operation of the Torrens system under Act
496, or the Land Registration Law of 1903. Enacted by the Philippine Commission, Act 496
placed all public and private lands in the Philippines under the Torrens system. The law is said
to be almost a verbatim copy of the Massachussetts Land Registration Act of 1898,25 which, in
turn, followed the principles and procedure of the Torrens system of registration formulated by
Sir Robert Torrens who patterned it after the Merchant Shipping Acts in South Australia. The
Torrens system requires that the government issue an official certificate of title attesting to the
fact that the person named is the owner of the property described therein, subject to such liens
and encumbrances as thereon noted or the law warrants or reserves.26 The certificate of title is
indefeasible and imprescriptible and all claims to the parcel of land are quieted upon issuance of
said certificate. This system highly facilitates land conveyance and negotiation.27
D. The Philippine Constitutions
The Regalian doctrine was enshrined in the 1935 Constitution. One of the fixed and dominating
objectives of the 1935 Constitutional Convention was the nationalization and conservation of the
natural resources of the country.28 There was an overwhelming sentiment in the Convention
in favor of the principle of state ownership of natural resources and the adoption of the x x x."
Regalian doctrine.29 State ownership of natural resources was seen as a necessary starting
point to secure recognition of the state's power to control their disposition, exploitation,
Simply stated, all lands of the public domain as well as all natural resources enumerated
development, or utilization.30 The delegates to the Constitutional Convention very well knew that
therein, whether on public or private land, belong to the State. It is this concept of State
the concept of State ownership of land and natural resources was introduced by the Spaniards,
ownership that petitioners claim is being violated by the IPRA.
however, they were not certain whether it was continued and applied by the Americans. To
remove all doubts, the Convention approved the provision in the Constitution affirming the
Regalian doctrine.31 II. THE INDIGENOUS PEOPLES RIGHTS ACT.

Thus, the 1935 Constitution, in Section 1 of Article XIII on "Conservation and Utilization of
Natural Resources," reads as follows:
"Sec. 1. 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 State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the Philippines, or to
corporations or associations at least sixty per centum of the capital of which is owned by
such citizens, subject to any existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this Constitution. Natural resources,
with the exception of public agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five years, except as to water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water power,
in which cases beneficial use may be the measure and the limit of the grant."
The 1973 Constitution reiterated the Regalian doctrine in Section 8, Article XIV on the "National
Economy and the Patrimony of the Nation," to wit:
Republic Act No. 8371 is entitled "An Act to Recognize, Protect and Promote the Rights of
Indigenous Cultural Communities/ Indigenous Peoples, Creating a National Commission on
Indigenous Peoples, Establishing Implementing Mechanisms, Appropriating Funds Therefor, and
for Other Purposes." It is simply known as "The Indigenous Peoples Rights Act of 1997" or
the IPRA.
The IPRA recognizes the existence of the indigenous cultural communities or indigenous
peoples (ICCs/IPs) as a distinct sector in Philippine society. It grants these people the
ownership and possession of their ancestral domains and ancestral lands, and defines
the extent of these lands and domains. The ownership given is the indigenous concept of
ownership under customary law which traces its origin to native title.
Other rights are also granted the ICCs/IPs, and these are:
- the right to develop lands and natural resources;
- the right to stay in the territories;

"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other - the right in case of displacement;
mineral oils, all forces of potential energy, fisheries, wildlife, and other natural resources
of the Philippines belong to the State. With the exception of agricultural, industrial or
commercial, residential, and resettlement lands of the public domain, natural resources - the right to safe and clean air and water;
shall not be alienated, and no license, concession, or lease for the exploration,
development, exploitation, or utilization of any of the natural resources shall be granted - the right to claim parts of reservations;
for a period exceeding twenty-five years, renewable for not more than twenty-five
years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other
than the development of water power, in which cases beneficial use may be the measure and - the right to resolve conflict;32
the limit of the grant."
- the right to ancestral lands which include
The 1987 Constitution reaffirmed the Regalian doctrine in Section 2 of Article XII on "National
Economy and Patrimony," to wit: a. the right to transfer land/property to/among members of the same
ICCs/IPs, subject to customary laws and traditions of the community
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other concerned;
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of b. the right to redemption for a period not exceeding 15 years from date of
agricultural lands, all other natural resources shall not be alienated. The exploration, transfer, if the transfer is to a non-member of the ICC/IP and is tainted by
development and utilization of natural resources shall be under the full control and vitiated consent of the ICC/IP, or if the transfer is for an unconscionable
supervision of the State. The State may directly undertake such activities or it may enter consideration.33
into co-production, joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of whose capital is owned by
such citizens. Such agreements may be for a period not exceeding twenty-five years, Within their ancestral domains and ancestral lands, the ICCs/IPs are given the right to self-
renewable for not more than twenty-five years, and under such terms and conditions as may be governance and empowerment,34 social justice and human rights,35 the right to preserve and
provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses protect their culture, traditions, institutions and community intellectual rights, and the right to
other than the development of water power, beneficial use may be the measure and limit of the develop their own sciences and technologies.36
grant.
To carry out the policies of the Act, the law created the National Commission on Indigenous 1. Indigenous Peoples: Their History
Peoples (NCIP). The NCIP is an independent agency under the Office of the President and is
composed of seven (7) Commissioners belonging to ICCs/IPs from each of the ethnographic
Presently, Philippine indigenous peoples inhabit the interiors and mountains of Luzon,
areas- Region I and the Cordilleras; Region II; the rest of Luzon; Island groups including
Mindanao, Mindoro, Negros, Samar, Leyte, and the Palawan and Sulu group of islands. They
Mindoro, Palawan, Romblon, Panay and the rest of the Visayas; Northern and Western
are composed of 110 tribes and are as follows:
Mindanao; Southern and Eastern Mindanao; and Central Mindanao.37 The NCIP took over the
functions of the Office for Northern Cultural Communities and the Office for Southern Cultural
Communities created by former President Corazon Aquino which were merged under a 1. In the Cordillera Autonomous Region- Kankaney, Ibaloi, Bontoc, Tinggian or Itneg,
revitalized structure.38 Ifugao, Kalinga, Yapayao, Aeta or Agta or Pugot, and Bago of Ilocos Norte and
Pangasinan; Ibanag of Isabela, Cagayan; Ilongot of Quirino and Nueva Vizcaya;
Gaddang of Quirino, Nueva Vizcaya, Itawis of Cagayan; Ivatan of Batanes, Aeta of
Disputes involving ICCs/IPs are to be resolved under customary laws and
Cagayan, Quirino and Isabela.
practices. When still unresolved, the matter may be brought to the NCIP, which is granted
quasi-judicial powers.39 The NCIP's decisions may be appealed to the Court of Appeals by a
petition for review. 2. In Region III- Aetas.

Any person who violates any of the provisions of the Act such as, but not limited to, unauthorized 3. In Region IV- Dumagats of Aurora, Rizal; Remontado of Aurora, Rizal, Quezon;
and/or unlawful intrusion upon ancestral lands and domains shall be punished in accordance Alangan or Mangyan, Batangan, Buid or Buhid, Hanunuo and Iraya of Oriental and
with customary laws or imprisoned from 9 months to 12 years and/or fined from ₱100,000.00 to Occidental Mindoro; Tadyawan of Occidental Mindoro; Cuyonon, Palawanon,
₱500,000.00 and obliged to pay damages.40 Tagbanua and Tao't bato of Palawan.

A. Indigenous Peoples 4. In Region V- Aeta of Camarines Norte and Camarines Sur; Aeta-Abiyan, Isarog,
and Kabihug of Camarines Norte; Agta, and Mayon of Camarines Sur; Itom of Albay,
Cimaron of Sorsogon; and the Pullon of Masbate and Camarines Sur.
The IPRA is a law dealing with a specific group of people, i.e., the Indigenous Cultural
Communities (ICCs) or the Indigenous Peoples (IPs). The term "ICCs" is used in the 1987
Constitution while that of "IPs" is the contemporary international language in the International 5. In Region VI- Ati of Negros Occidental, Iloilo and Antique, Capiz; the Magahat of
Labor Organization (ILO) Convention 16941 and the United Nations (UN) Draft Declaration on the Negros Occidental; the Corolano and Sulod.
Rights of Indigenous Peoples.42
6. In Region VII- Magahat of Negros Oriental and Eskaya of Bohol.
ICCs/IPs are defined by the IPRA as:
7. In Region IX- the Badjao numbering about 192,000 in Tawi-Tawi, Zamboanga del
"Sec. 3 [h]. Indigenous Cultural Communities/ Indigenous Peoples- refer to a group of people or Sur; the Kalibugan of Basilan, the Samal, Subanon and Yakat.
homogeneous societies identified by self-ascription and ascription by others, who have
continuously lived as organized community on communally bounded and defined territory, and
8. Region X- Numbering 1.6 million in Region X alone, the IPs are: the Banwaon,
who have, under claims of ownership since time immemorial, occupied, possessed and utilized
Bukidnon, Matigsalog, Talaanding of Bukidnon; the Camiguin of Camiguin Island; the
such territories, sharing common bonds of language, customs, traditions and other distinctive
Higa-unon of Agusan del Norte, Agusan del Sur, Bukidnon and Misamis Occidental;
cultural traits, or who have, through resistance to political, social and cultural inroads of
the Tigwahanon of Agusan del Sur, Misamis Oriental and and Misamis Occidental, the
colonization, non-indigenous religions and cultures, became historically differentiated from the
Manobo of the Agusan provinces, and the Umayamnon of Agusan and Bukidnon.
majority of Filipinos. ICCs/IPs shall likewise include peoples who are regarded as indigenous on
account of their descent from the populations which inhabited the country, at the time of
conquest or colonization, or at the time of inroads of non-indigenous religions and cultures, or 9. In Region XI- There are about 1,774,065 IPs in Region XI. They are tribes of the
the establishment of present state boundaries, who retain some or all of their own social, Dibabaon, Mansaka of Davao del Norte; B'laan, Kalagan, Langilad, T'boli and
economic, cultural and political institutions, but who may have been displaced from their Talaingod of Davao del Sur; Mamamanua of Surigao del Sur; Mandaya of the Surigao
traditional domains or who may have resettled outside their ancestral domains." provinces and Davao Oriental; Manobo Blit of South Cotabato; the Mangguangon of
Davao and South Cotabato; Matigsalog of Davao del Norte and Del Sur; Tagakaolo,
Tasaday and Ubo of South Cotabato; and Bagobo of Davao del sur and South
Indigenous Cultural Communities or Indigenous Peoples refer to a group of people or
Cotabato.
homogeneous societies who have continuously lived as an organized community on
communally bounded and defined territory. These groups of people have actually occupied,
possessed and utilized their territories under claim of ownership since time immemorial. They 10. In Region XII- Ilianen, Tiruray, Maguindanao, Maranao, Tausug, Yakan/Samal,
share common bonds of language, customs, traditions and other distinctive cultural traits, or, and Iranon.43
they, by their resistance to political, social and cultural inroads of colonization, non-indigenous
religions and cultures, became historically differentiated from the Filipino majority. ICCs/IPs also
include descendants of ICCs/IPs who inhabited the country at the time of conquest or How these indigenous peoples came to live in the Philippines goes back to as early as
colonization, who retain some or all of their own social, economic, cultural and political 25,000 to 30,000 B.C.
institutions but who may have been displaced from their traditional territories or who may have
resettled outside their ancestral domains.
Before the time of Western contact, the Philippine archipelago was peopled largely by the
Negritos, Indonesians and Malays.44 The strains from these groups eventually gave rise to
common cultural features which became the dominant influence in ethnic reformulation in the
archipelago. Influences from the Chinese and Indian civilizations in the third or fourth millenium
B.C. augmented these ethnic strains. Chinese economic and socio-cultural influences came by
way of Chinese porcelain, silk and traders. Indian influence found their way into the religious-
cultural aspect of pre-colonial society.45
The ancient Filipinos settled beside bodies of water. Hunting and food gathering became
supplementary activities as reliance on them was reduced by fishing and the cultivation of the
soil.46 From the hinterland, coastal, and riverine communities, our ancestors evolved an
essentially homogeneous culture, a basically common way of life where nature was a primary
factor. Community life throughout the archipelago was influenced by, and responded to,
common ecology. The generally benign tropical climate and the largely uniform flora and fauna
favored similarities, not differences.47 Life was essentially subsistence but not harsh.48
The early Filipinos had a culture that was basically Malayan in structure and form. They had
languages that traced their origin to the Austronesian parent-stock and used them not only as
media of daily communication but also as vehicles for the expression of their literary
moods.49 They fashioned concepts and beliefs about the world that they could not see, but which
they sensed to be part of their lives.50 They had their own religion and religious beliefs. They
believed in the immortality of the soul and life after death. Their rituals were based on beliefs in a
ranking deity whom they called Bathalang Maykapal, and a host of other deities, in the
environmental spirits and in soul spirits. The early Filipinos adored the sun, the moon, the
animals and birds, for they seemed to consider the objects of Nature as something to be
respected. They venerated almost any object that was close to their daily life, indicating the
importance of the relationship between man and the object of nature.51
The unit of government was the "barangay," a term that derived its meaning from the Malay
word "balangay," meaning, a boat, which transported them to these shores. 52 The barangay was
basically a family-based community and consisted of thirty to one hundred families. Each
barangay was different and ruled by a chieftain called a "dato." It was the chieftain's duty to rule
and govern his subjects and promote their welfare and interests. A chieftain had wide powers for
he exercised all the functions of government. He was the executive, legislator and judge and
was the supreme commander in time of war.53
Laws were either customary or written. Customary laws were handed down orally from
generation to generation and constituted the bulk of the laws of the barangay. They were
preserved in songs and chants and in the memory of the elder persons in the community. 54 The
written laws were those that the chieftain and his elders promulgated from time to time as the
necessity arose.55 The oldest known written body of laws was the Maragtas Code by Datu
Sumakwel at about 1250 A.D. Other old codes are the Muslim Code of Luwaran and the
Principal Code of Sulu.56 Whether customary or written, the laws dealt with various subjects,
such as inheritance, divorce, usury, loans, partnership, crime and punishment, property rights,
family relations and adoption. Whenever disputes arose, these were decided peacefully through
a court composed by the chieftain as "judge" and the barangay elders as "jury." Conflicts arising
between subjects of different barangays were resolved by arbitration in which a board composed
of elders from neutral barangays acted as arbiters.57
Baranganic society had a distinguishing feature: the absence of private property in
land. The chiefs merely administered the lands in the name of the barangay. The social order
was an extension of the family with chiefs embodying the higher unity of the community. Each
individual, therefore, participated in the community ownership of the soil and the instruments of
production as a member of the barangay. 58 This ancient communalism was practiced in
accordance with the concept of mutual sharing of resources so that no individual, regardless of
status, was without sustenance. Ownership of land was non-existent or unimportant and the
right of usufruct was what regulated the development of lands. 59 Marine resources and
fishing grounds were likewise free to all. Coastal communities depended for their economic
welfare on the kind of fishing sharing concept similar to those in land communities.60 Recognized
leaders, such as the chieftains and elders, by virtue of their positions of importance, enjoyed
some economic privileges and benefits. But their rights, related to either land and sea, were
subject to their responsibility to protect the communities from danger and to provide them with
the leadership and means of survival.61
Sometime in the 13th century, Islam was introduced to the archipelago in
Maguindanao. The Sultanate of Sulu was established and claimed jurisdiction over territorial
areas represented today by Tawi-tawi, Sulu, Palawan, Basilan and Zamboanga. Four ethnic
groups were within this jurisdiction: Sama, Tausug, Yakan and Subanon. 62 The Sultanate of
Maguindanao spread out from Cotabato toward Maranao territory, now Lanao del Norte and
Lanao del Sur.63
The Muslim societies evolved an Asiatic form of feudalism where land was still held in
common but was private in use. This is clearly indicated in the Muslim Code of Luwaran. The
Code contains a provision on the lease of cultivated lands. It, however, has no provision for the
acquisition, transfer, cession or sale of land.64
The societies encountered by Magellan and Legaspi therefore were primitive economies where
most production was geared to the use of the producers and to the fulfillment of kinship
obligations. They were not economies geared to exchange and profit. 65 Moreover, the family
basis of barangay membership as well as of leadership and governance worked to splinter the
population of the islands into numerous small and separate communities.66
When the Spaniards settled permanently in the Philippines in 1565, they found the
Filipinos living in barangay settlements scattered along water routes and river banks. One
of the first tasks imposed on the missionaries and the encomenderos was to collect all scattered
Filipinos together in a reduccion.67 As early as 1551, the Spanish government assumed an
unvarying solicitous attitude towards the natives.68 The Spaniards regarded it a sacred "duty to
conscience and humanity to civilize these less fortunate people living in the obscurity of
ignorance" and to accord them the "moral and material advantages" of community life and the
"protection and vigilance afforded them by the same laws."69
The Spanish missionaries were ordered to establish pueblos where the church and convent
would be constructed. All the new Christian converts were required to construct their houses
around the church and the unbaptized were invited to do the same. 70 With the reduccion, the
Spaniards attempted to "tame" the reluctant Filipinos through Christian indoctrination using
the convento/casa real/plaza complex as focal point. The reduccion, to the Spaniards, was a
"civilizing" device to make the Filipinos law-abiding citizens of the Spanish Crown, and in the
long run, to make them ultimately adopt Hispanic culture and civilization.71
All lands lost by the old barangays in the process of pueblo organization as well as all
lands not assigned to them and the pueblos, were now declared to be crown lands
or realengas, belonging to the Spanish king. It was from the realengas that land grants
were made to non-Filipinos.72
The abrogation of the Filipinos' ancestral rights in land and the introduction of the
concept of public domain were the most immediate fundamental results of Spanish
colonial theory and law. 73 The concept that the Spanish king was the owner of everything
of value in the Indies or colonies was imposed on the natives, and the natives were
stripped of their ancestral rights to land.74
Increasing their foothold in the Philippines, the Spanish colonialists, civil and religious, classified
the Filipinos according to their religious practices and beliefs, and divided them into three types .
First were the Indios, the Christianized Filipinos, who generally came from the lowland
populations. Second, were the Moros or the Muslim communities, and third, were the infieles or
the indigenous communities.75
The Indio was a product of the advent of Spanish culture. This class was favored by the
Spaniards and was allowed certain status although below the Spaniards.
The Moros and infieles were regarded as the lowest classes.76
The Moros and infieles resisted Spanish rule and Christianity. The Moros were driven from
Manila and the Visayas to Mindanao; while the infieles, to the hinterlands. The Spaniards did
not pursue them into the deep interior. The upland societies were naturally outside the
immediate concern of Spanish interest, and the cliffs and forests of the hinterlands were difficult
and inaccessible, allowing the infieles, in effect, relative security.77 Thus, the infieles, which
were peripheral to colonial administration, were not only able to preserve their own culture but
also thwarted the Christianization process, separating themselves from the newly evolved
Christian community.78 Their own political, economic and social systems were kept constantly
alive and vibrant.
The pro-Christian or pro-Indio attitude of colonialism brought about a generally mutual feeling of
suspicion, fear, and hostility between the Christians on the one hand and the non-Christians on
the other. Colonialism tended to divide and rule an otherwise culturally and historically related
populace through a colonial system that exploited both the virtues and vices of the Filipinos.79
President McKinley, in his instructions to the Philippine Commission of April 7, 1900,
addressed the existence of the infieles:
"In dealing with the uncivilized tribes of the Islands, the Commission should adopt the
same course followed by Congress in permitting the tribes of our North American
Indians to maintain their tribal organization and government, and under which many of
those tribes are now living in peace and contentment, surrounded by civilization to which they
are unable or unwilling to conform. Such tribal government should, however, be subjected to
wise and firm regulation; and, without undue or petty interference, constant and active effort
should be exercised to prevent barbarous practices and introduce civilized customs."80
Placed in an alternative of either letting the natives alone or guiding them in the path of
civilization, the American government chose "to adopt the latter measure as one more in accord
with humanity and with the national conscience."81
The Americans classified the Filipinos into two: the Christian Filipinos and the non-
Christian Filipinos. The term "non-Christian" referred not to religious belief, but to a
geographical area, and more directly, "to natives of the Philippine Islands of a low grade of
civilization, usually living in tribal relationship apart from settled communities."82
Like the Spaniards, the Americans pursued a policy of assimilation. In 1903, they
passed Act No. 253 creating the Bureau of Non-Christian Tribes (BNCT). Under the
Department of the Interior, the BNCT's primary task was to conduct ethnographic research
among unhispanized Filipinos, including those in Muslim Mindanao, with a "special view to
determining the most practicable means for bringing about their advancement in civilization and
prosperity." The BNCT was modeled after the bureau dealing with American Indians. The
agency took a keen anthropological interest in Philippine cultural minorities and produced a
wealth of valuable materials about them.83
The 1935 Constitution did not carry any policy on the non-Christian Filipinos. The raging
issue then was the conservation of the national patrimony for the Filipinos.
In 1957, the Philippine Congress passed R.A. No. 1888, an "Act to effectuate in a more rapid
and complete manner the economic, social, moral and political advancement of the non-
Christian Filipinos or national cultural minorities and to render real, complete, and permanent the
integration of all said national cultural minorities into the body politic, creating the Commission
on National Integration charged with said functions." The law called for a policy of
integration of indigenous peoples into the Philippine mainstream and for this purpose created
the Commission on National Integration (CNI).84 The CNI was given, more or less, the same
task as the BNCT during the American regime. The post-independence policy of integration
was like the colonial policy of assimilation understood in the context of a guardian-ward
relationship.85
The policy of assimilation and integration did not yield the desired result. Like the Spaniards
and Americans, government attempts at integration met with fierce resistance. Since
World War II, a tidal wave of Christian settlers from the lowlands of Luzon and the Visayas
swamped the highlands and wide open spaces in Mindanao. 86 Knowledge by the settlers of
the Public Land Acts and the Torrens system resulted in the titling of several ancestral
lands in the settlers' names. With government initiative and participation, this titling
displaced several indigenous peoples from their lands. Worse, these peoples were also
displaced by projects undertaken by the national government in the name of national
development.87
It was in the 1973 Constitution that the State adopted the following provision:
"The State shall consider the customs, traditions, beliefs, and interests of national cultural
communities in the formulation and implementation of State policies."88
For the first time in Philippine history, the "non-Christian tribes" or the "cultural
minorities" were addressed by the highest law of the Republic, and they were referred to
as "cultural communities." More importantly this time, their "uncivilized" culture was given
some recognition and their "customs, traditions, beliefs and interests" were to be considered by
the State in the formulation and implementation of State policies. President Marcos abolished
the CNI and transferred its functions to the Presidential Adviser on National Minorities
(PANAMIN). The PANAMIN was tasked to integrate the ethnic groups that sought full
integration into the larger community, and at the same time "protect the rights of those who wish
to preserve their original lifeways beside the larger community."89 In short, while still adopting
the integration policy, the decree recognized the right of tribal Filipinos to preserve their
way of life.90
In 1974, President Marcos promulgated P.D. No. 410, otherwise known as the Ancestral Lands
Decree. The decree provided for the issuance of land occupancy certificates to members of the
national cultural communities who were given up to 1984 to register their claims.91 In 1979,
the Commission on the Settlement of Land Problems was created under E.O. No. 561 which
provided a mechanism for the expeditious resolution of land problems involving small settlers,
landowners, and tribal Filipinos.92
Despite the promulgation of these laws, from 1974 to the early 1980's, some 100,000 Kalingas
and Bontoks of the Cordillera region were displaced by the Chico River dam project of the
National Power Corporation (NPC). The Manobos of Bukidnon saw their land bulldozed by the
Bukidnon Sugar Industries Company (BUSCO). In Agusan del Sur, the National Development
Company was authorized by law in 1979 to take approximately 40,550 hectares of land that later
became the NDC-Guthrie plantation in Agusan del Sur. Most of the land was possessed by the
Agusan natives.93 Timber concessions, water projects, plantations, mining, and cattle ranching
and other projects of the national government led not only to the eviction of the indigenous to use and dispose of the property, he does not possess all the rights of an exclusive and full
peoples from their land but also to the reduction and destruction of their natural environment.94 owner as defined under our Civil Code. 103 Under Kalinga customary law, the alienation of
individually-owned land is strongly discouraged except in marriage and succession and except
to meet sudden financial needs due to sickness, death in the family, or loss of
The Aquino government signified a total shift from the policy of integration to one of
crops.104 Moreover, and to be alienated should first be offered to a clan-member before any
preservation. Invoking her powers under the Freedom Constitution, President Aquino created
village-member can purchase it, and in no case may land be sold to a non-member of the ili.105
the Office of Muslim Affairs, Office for Northern Cultural Communities and the Office for
Southern Cultural Communities all under the Office of the President.95
Land titles do not exist in the indigenous peoples' economic and social system. The
concept of individual land ownership under the civil law is alien to them. Inherently
The 1987 Constitution carries at least six (6) provisions which insure the right of tribal
colonial in origin, our national land laws and governmental policies frown upon
Filipinos to preserve their way of life. 96 This Constitution goes further than the 1973
indigenous claims to ancestral lands. Communal ownership is looked upon as inferior, if
Constitution by expressly guaranteeing the rights of tribal Filipinos to their ancestral
not inexistent.106
domains and ancestral lands. By recognizing their right to their ancestral lands and
domains, the State has effectively upheld their right to live in a culture distinctly their
own. III. THE IPRA IS A NOVEL PIECE OF LEGISLATION.

2. Their Concept of Land A. The Legislative History of the IPRA

Indigenous peoples share distinctive traits that set them apart from the Filipino mainstream. It was to address the centuries-old neglect of the Philippine indigenous peoples that the
They are non-Christians. They live in less accessible, marginal, mostly upland areas. They have Tenth Congress of the Philippines, by their joint efforts, passed and approved R.A. No. 8371,
a system of self-government not dependent upon the laws of the central administration of the the Indigenous Peoples Rights Act (IPRA) of 1997. The law was a consolidation of two Bills-
Republic of the Philippines. They follow ways of life and customs that are perceived as different Senate Bill No. 1728 and House Bill No. 9125.
from those of the rest of the population.97 The kind of response the indigenous peoples chose to
deal with colonial threat worked well to their advantage by making it difficult for Western
Principally sponsored by Senator Juan M. Flavier, 107 Senate Bill No. 1728 was a consolidation
concepts and religion to erode their customs and traditions. The "infieles societies" which had
of four proposed measures referred to the Committees on Cultural Communities, Environment
become peripheral to colonial administration, represented, from a cultural perspective, a much
and Natural Resources, Ways and Means, as well as Finance. It adopted almost en toto the
older base of archipelagic culture. The political systems were still structured on the patriarchal
comprehensive version of Senate Bill Nos. 1476 and 1486 which was a result of six regional
and kinship oriented arrangement of power and authority. The economic activities were
consultations and one national consultation with indigenous peoples nationwide. 108 At the
governed by the concepts of an ancient communalism and mutual help. The social structure
Second Regular Session of the Tenth Congress, Senator Flavier, in his sponsorship speech,
which emphasized division of labor and distinction of functions, not status, was maintained. The
gave a background on the situation of indigenous peoples in the Philippines, to wit:
cultural styles and forms of life portraying the varieties of social courtesies and ecological
adjustments were kept constantly vibrant.98
"The Indigenous Cultural Communities, including the Bangsa Moro, have long suffered from the
dominance and neglect of government controlled by the majority. Massive migration of their
Land is the central element of the indigenous peoples' existence. There is no traditional
Christian brothers to their homeland shrunk their territory and many of the tribal Filipinos were
concept of permanent, individual, land ownership. Among the Igorots, ownership of land more
pushed to the hinterlands. Resisting the intrusion, dispossessed of their ancestral land and with
accurately applies to the tribal right to use the land or to territorial control. The people are the
the massive exploitation of their natural resources by the elite among the migrant population,
secondary owners or stewards of the land and that if a member of the tribe ceases to work, he
they became marginalized. And the government has been an indispensable party to this
loses his claim of ownership, and the land reverts to the beings of the spirit world who are its
insidious conspiracy against the Indigenous Cultural Communities (ICCs). It organized and
true and primary owners. Under the concept of "trusteeship," the right to possess the land does
supported the resettlement of people to their ancestral land, which was massive during the
not only belong to the present generation but the future ones as well.99
Commonwealth and early years of the Philippine Republic. Pursuant to the Regalian Doctrine
first introduced to our system by Spain through the Royal Decree of 13 February 1894 or the
Customary law on land rests on the traditional belief that no one owns the land except the Maura Law, the government passed laws to legitimize the wholesale landgrabbing and provide
gods and spirits, and that those who work the land are its mere stewards. 100 Customary law has for easy titling or grant of lands to migrant homesteaders within the traditional areas of the
a strong preference for communal ownership, which could either be ownership by a group of ICCs."109
individuals or families who are related by blood or by marriage, 101 or ownership by residents of
the same locality who may not be related by blood or marriage. The system of communal
Senator Flavier further declared:
ownership under customary laws draws its meaning from the subsistence and highly
collectivized mode of economic production. The Kalingas, for instance, who are engaged in team
occupation like hunting, foraging for forest products, and swidden farming found it natural that "The IPs are the offsprings and heirs of the peoples who have first inhabited and cared for the
forest areas, swidden farms, orchards, pasture and burial grounds should be communally- land long before any central government was established. Their ancestors had territories over
owned.102 For the Kalingas, everybody has a common right to a common economic base. Thus, which they ruled themselves and related with other tribes. These territories- the land- include
as a rule, rights and obligations to the land are shared in common. people, their dwelling, the mountains, the water, the air, plants, forest and the animals. This is
their environment in its totality. Their existence as indigenous peoples is manifested in their own
lives through political, economic, socio-cultural and spiritual practices. The IPs culture is the
Although highly bent on communal ownership, customary law on land also sanctions
living and irrefutable proof to this.
individual ownership. The residential lots and terrace rice farms are governed by a limited
system of individual ownership. It is limited because while the individual owner has the right
Their survival depends on securing or acquiring land rights; asserting their rights to it; and
depending on it. Otherwise, IPs shall cease to exist as distinct peoples."110
To recognize the rights of the indigenous peoples effectively, Senator Flavier proposed a bill
based on two postulates: (1) the concept of native title; and (2) the principle of parens patriae.
According to Senator Flavier, "[w]hile our legal tradition subscribes to the Regalian Doctrine
reinstated in Section 2, Article XII of the 1987 Constitution," our "decisional laws" and
jurisprudence passed by the State have "made exception to the doctrine." This exception
was first laid down in the case of Cariño v. Insular Government where:
"x x x the court has recognized long occupancy of land by an indigenous member of the cultural
communities as one of private ownership, which, in legal concept, is termed "native title." This
ruling has not been overturned. In fact, it was affirmed in subsequent cases."111
Following Cariño, the State passed Act No. 926, Act No. 2874, C.A. No. 141, P.D. 705, P.D.
410, P.D. 1529, R.A. 6734 (the Organic Act for the Autonomous Region of Muslim Mindanao).
These laws, explicitly or implicitly, and liberally or restrictively, recognized "native title" or "private
right" and the existence of ancestral lands and domains. Despite the passage of these laws,
however, Senator Flavier continued:
"x x x the executive department of government since the American occupation has not
implemented the policy. In fact, it was more honored in its breach than in its observance, its
wanton disregard shown during the period unto the Commonwealth and the early years of the
Philippine Republic when government organized and supported massive resettlement of the
people to the land of the ICCs."
Senate Bill No. 1728 seeks to genuinely recognize the IPs right to own and possess their
ancestral land. The bill was prepared also under the principle of parens patriae inherent in the
supreme power of the State and deeply embedded in Philippine legal tradition. This principle
mandates that persons suffering from serious disadvantage or handicap, which places them in a
position of actual inequality in their relation or transaction with others, are entitled to the
protection of the State.
Senate Bill No. 1728 was passed on Third Reading by twenty-one (21) Senators voting in
favor and none against, with no abstention.112
House Bill No. 9125 was sponsored by Rep. Zapata, Chairman of the Committee on Cultural
Communities. It was originally authored and subsequently presented and defended on the floor
by Rep. Gregorio Andolana of North Cotabato.113
Rep. Andolana's sponsorhip speech reads as follows:
"This Representation, as early as in the 8th Congress, filed a bill of similar implications that
would promote, recognize the rights of indigenous cultural communities within the framework of
national unity and development.
Apart from this, Mr. Speaker, is our obligation, the government's obligation to assure and
ascertain that these rights shall be well-preserved and the cultural traditions as well as the
indigenous laws that remained long before this Republic was established shall be preserved and
promoted. There is a need, Mr. Speaker, to look into these matters seriously and early approval
of the substitute bill shall bring into reality the aspirations, the hope and the dreams of more than
12 million Filipinos that they be considered in the mainstream of the Philippine society as we
fashion for the year 2000." 114
Rep. Andolana stressed that H.B. No. 9125 is based on the policy of preservation as mandated
in the Constitution. He also emphasized that the rights of IPs to their land was enunciated
in Cariño v. Insular Government which recognized the fact that they had vested rights prior to
the establishment of the Spanish and American regimes.115
After exhaustive interpellation, House Bill No. 9125, and its corresponding amendments,
was approved on Second Reading with no objections.
IV. THE PROVISIONS OF THE IPRA DO NOT CONTRAVENE THE CONSTITUTION.
A. Ancestral Domains and Ancestral Lands are the Private Property of Indigenous
Peoples and Do Not Constitute Part of the Land of the Public Domain.
The IPRA grants to ICCs/IPs a distinct kind of ownership over ancestral domains and
ancestral lands. Ancestral lands are not the same as ancestral domains. These are defined in
Section 3 [a] and [b] of the Indigenous Peoples Right Act, viz:
"Sec. 3 a) Ancestral Domains. - Subject to Section 56 hereof, refer to all areas generally
belonging to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources
therein, held under a claim of ownership, occupied or possessed by ICCs/IPs by themselves or
through their ancestors, communally or individually since time immemorial, continuously to the
present except when interrupted by war, force majeure or displacement by force, deceit, stealth
or as a consequence of government projects or any other voluntary dealings entered into by
government and private individuals/corporations, and which are necessary to ensure their
economic, social and cultural welfare. It shall include ancestral lands, forests, pasture,
residential, agricultural, and other lands individually owned whether alienable and disposable or
otherwise, hunting grounds, burial grounds, worship areas, bodies of water, mineral and other
natural resources, and lands which may no longer be exclusively occupied by ICCs/IPs but from
which they traditionally had access to for their subsistence and traditional activities, particularly
the home ranges of ICCs/IPs who are still nomadic and/or shifting cultivators;
b) Ancestral Lands.- Subject to Section 56 hereof, refers to land occupied, possessed and
utilized by individuals, families and clans who are members of the ICCs/IPs since time
immemorial, by themselves or through their predecessors-in-interest, under claims of individual
or traditional group ownership, continuously, to the present except when interrupted by war,
force majeure or displacement by force, deceit, stealth, or as a consequence of government
projects and other voluntary dealings entered into by government and private
individuals/corporations, including, but not limited to, residential lots, rice terraces or paddies,
private forests, swidden farms and tree lots."
Ancestral domains are all areas belonging to ICCs/IPs held under a claim of ownership,
occupied or possessed by ICCs/IPs by themselves or through their ancestors, communally or
individually since time immemorial, continuously until the present, except when interrupted by
war, force majeure or displacement by force, deceit, stealth or as a consequence of government
projects or any other voluntary dealings with government and/or private individuals or
corporations. Ancestral domains comprise lands, inland waters, coastal areas, and natural
resources therein and includes ancestral lands, forests, pasture, residential, agricultural,
and other lands individually owned whether alienable or not, hunting grounds, burial
grounds, worship areas, bodies of water, mineral and other natural resources. They also
include lands which may no longer be exclusively occupied by ICCs/IPs but from which they
traditionally had access to for their subsistence and traditional activities, particularly the home
ranges of ICCs/IPs who are still nomadic and/or shifting cultivators.116
Ancestral lands are lands held by the ICCs/IPs under the same conditions as ancestral
domains except that these are limited to lands and that these lands are not merely occupied and
possessed but are also utilized by the ICCs/IPs under claims of individual or traditional group
ownership. These lands include but are not limited to residential lots, rice terraces or paddies,
private forests, swidden farms and tree lots.117
The procedures for claiming ancestral domains and lands are similar to the procedures
embodied in Department Administrative Order (DAO) No. 2, series of 1993, signed by then
Secretary of the Department of Environment and Natural Resources (DENR) Angel
Alcala.118 DAO No. 2 allowed the delineation of ancestral domains by special task forces and
ensured the issuance of Certificates of Ancestral Land Claims (CALC's) and Certificates of
Ancestral Domain Claims (CADC's) to IPs.
The identification and delineation of these ancestral domains and lands is a power conferred by
the IPRA on the National Commission on Indigenous Peoples (NCIP).119 The guiding principle in
identification and delineation is self-delineation. 120 This means that the ICCs/IPs have a decisive
role in determining the boundaries of their domains and in all the activities pertinent thereto.121
The procedure for the delineation and recognition of ancestral domains is set forth in Sections
51 and 52 of the IPRA. The identification, delineation and certification of ancestral lands is in
Section 53 of said law.
Upon due application and compliance with the procedure provided under the law and upon
finding by the NCIP that the application is meritorious, the NCIP shall issue a Certificate of
Ancestral Domain Title (CADT) in the name of the community concerned.122 The allocation
of lands within the ancestral domain to any individual or indigenous corporate (family or clan)
claimants is left to the ICCs/IPs concerned to decide in accordance with customs and
traditions.123 With respect to ancestral lands outside the ancestral domain, the NCIP issues a
Certificate of Ancestral Land Title (CALT).124
CADT's and CALT's issued under the IPRA shall be registered by the NCIP before the Register
of Deeds in the place where the property is situated.125
(1) Right to Ancestral Domains and Ancestral Lands: How Acquired
The rights of the ICCs/IPs to their ancestral domains and ancestral lands may be acquired in two
modes: (1) by native title over both ancestral lands and domains; or (2) by torrens
title under the Public Land Act and the Land Registration Act with respect to ancestral
lands only.
(2) The Concept of Native Title
Native title is defined as:
"Sec. 3 [l]. Native Title- refers to pre-conquest rights to lands and domains which, as far back as
memory reaches, have been held under a claim of private ownership by ICCs/IPs, have never
been public lands and are thus indisputably presumed to have been held that way since
before the Spanish Conquest."126
Native title refers to ICCs/IPs' preconquest rights to lands and domains held under a claim of
private ownership as far back as memory reaches. These lands are deemed never to have been
public lands and are indisputably presumed to have been held that way since before the Spanish
Conquest. The rights of ICCs/IPs to their ancestral domains (which also include ancestral lands)
by virtue of native title shall be recognized and respected. 127 Formal recognition, when solicited
by ICCs/IPs concerned, shall be embodied in a Certificate of Ancestral Domain Title (CADT),
which shall recognize the title of the concerned ICCs/IPs over the territories identified and
delineated.128
Like a torrens title, a CADT is evidence of private ownership of land by native title. Native title,
however, is a right of private ownership peculiarly granted to ICCs/IPs over their ancestral lands
and domains. The IPRA categorically declares ancestral lands and domains held by native title
as never to have been public land. Domains and lands held under native title are, therefore,
indisputably presumed to have never been public lands and are private.
(a) Cariño v. Insular Government129
The concept of native title in the IPRA was taken from the 1909 case of Cariño v. Insular
Government.130 Cariño firmly established a concept of private land title that existed irrespective
of any royal grant from the State.
In 1903, Don Mateo Cariño, an Ibaloi, sought to register with the land registration court 146
hectares of land in Baguio Municipality, Benguet Province. He claimed that this land had been
possessed and occupied by his ancestors since time immemorial; that his grandfather built
fences around the property for the holding of cattle and that his father cultivated some parts of
the land. Cariño inherited the land in accordance with Igorot custom. He tried to have the land
adjusted under the Spanish land laws, but no document issued from the Spanish Crown.131 In
1901, Cariño obtained a possessory title to the land under the Spanish Mortgage Law. 132 The
North American colonial government, however, ignored his possessory title and built a public
road on the land prompting him to seek a Torrens title to his property in the land registration
court. While his petition was pending, a U.S. military reservation133 was proclaimed over his land
and, shortly thereafter, a military detachment was detailed on the property with orders to keep
cattle and trespassers, including Cariño, off the land.134
In 1904, the land registration court granted Cariño's application for absolute ownership to the
land. Both the Government of the Philippine Islands and the U.S. Government appealed to the
C.F.I. of Benguet which reversed the land registration court and dismissed Cariño's application.
The Philippine Supreme Court135 affirmed the C.F.I. by applying the Valenton ruling. Cariño took
the case to the U.S. Supreme Court.136 On one hand, the Philippine government invoked the
Regalian doctrine and contended that Cariño failed to comply with the provisions of the Royal
Decree of June 25, 1880, which required registration of land claims within a limited period of
time. Cariño, on the other, asserted that he was the absolute owner of the land jure gentium, and
that the land never formed part of the public domain.
In a unanimous decision written by Justice Oliver Wendell Holmes, the U.S. Supreme Court
held:
"It is true that Spain, in its earlier decrees, embodied the universal feudal theory that all lands
were held from the Crown, and perhaps the general attitude of conquering nations toward
people not recognized as entitled to the treatment accorded to those in the same zone of
civilization with themselves. It is true, also, that in legal theory, sovereignty is absolute, and that,
as against foreign nations, the United States may assert, as Spain asserted, absolute power. But
it does not follow that, as against the inhabitants of the Philippines, the United States asserts
that Spain had such power. When theory is left on one side, sovereignty is a question of
strength, and may vary in degree. How far a new sovereign shall insist upon the theoretical
relation of the subjects to the head in the past, and how far it shall recognize actual facts, are
matters for it to decide."137
The U.S. Supreme Court noted that it need not accept Spanish doctrines. The choice was with
the new colonizer. Ultimately, the matter had to be decided under U.S. law.
The Cariño decision largely rested on the North American constitutionalist's concept of "due
process" as well as the pronounced policy "to do justice to the natives." 138 It was based on the
strong mandate extended to the Islands via the Philippine Bill of 1902 that "No law shall be
enacted in said islands which shall deprive any person of life, liberty, or property without due
process of law, or deny to any person therein the equal protection of the laws." The court
declared:
"The acquisition of the Philippines was not like the settlement of the white race in the United
States. Whatever consideration may have been shown to the North American Indians, the
dominant purpose of the whites in America was to occupy land. It is obvious that, however
stated, the reason for our taking over the Philippines was different. No one, we suppose, would
deny that, so far as consistent with paramount necessities, our first object in the internal
administration of the islands is to do justice to the natives, not to exploit their country for private
gain. By the Organic Act of July 1, 1902, chapter 1369, section 12 (32 Statutes at Large, 691),
all the property and rights acquired there by the United States are to be administered 'for the
benefit of the inhabitants thereof.' It is reasonable to suppose that the attitude thus assumed by
the United States with regard to what was unquestionably its own is also its attitude in deciding
what it will claim for its own. The same statute made a bill of rights, embodying the safeguards of
the Constitution, and, like the Constitution, extends those safeguards to all. It provides that 'no
law shall be enacted in said islands which shall deprive any person of life, liberty, or property
without due process of law, or deny to any person therein the equal protection of the laws.' In the
light of the declaration that we have quoted from section 12, it is hard to believe that the United
States was ready to declare in the next breath that "any person" did not embrace the inhabitants
of Benguet, or that it meant by "property" only that which had become such by ceremonies of
which presumably a large part of the inhabitants never had heard, and that it proposed to treat
as public land what they, by native custom and by long association,- of the profoundest factors in
human thought,- regarded as their own."139
The Court went further:
"Every presumption is and ought to be against the government in a case like 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. Certainly in a case like this, if there is doubt or ambiguity
in the Spanish law, we ought to give the applicant the benefit of the doubt."140
The court thus laid down the presumption of a certain title held (1) as far back as testimony or
memory went, and (2) under a claim of private ownership. Land held by this title is presumed to
"never have been public land."
Against this presumption, the U.S. Supreme Court analyzed the Spanish decrees upheld in the
1904 decision of Valenton v. Murciano. The U.S. Supreme Court found no proof that the
Spanish decrees did not honor native title. On the contrary, the decrees discussed
in Valenton appeared to recognize that the natives owned some land, irrespective of any royal
grant. The Regalian doctrine declared in the preamble of the Recopilacion was all "theory and
discourse" and it was observed that titles were admitted to exist beyond the powers of the
Crown, viz:
"If the applicant's case is to be tried by the law of Spain, we do not discover such clear
proof that it was bad by that law as to satisfy us that he does not own the land. To begin
with, the older decrees and laws cited by the counsel for the plaintiff in error seem to
indicate pretty clearly that the natives were recognized as owning some lands,
irrespective of any royal grant. In other words, Spain did not assume to convert all the native
inhabitants of the Philippines into trespassers or even into tenants at will. For instance, Book 4,
title 12, Law 14 of the the Recopilacion de Leyes de las Indias, cited for a contrary conclusion in
Valenton v. Murciano, 3 Philippine 537, while it commands viceroys and others, when it seems
proper, to call for the exhibition of grants, directs them to confirm those who hold by good grants
or justa prescripcion. It is true that it begins by the characteristic assertion of feudal
overlordship and the origin of all titles in the King or his predecessors. That was theory
and discourse. The fact was that titles were admitted to exist that owed nothing to the
powers of Spain beyond this recognition in their books." (Emphasis supplied).141
The court further stated that the Spanish "adjustment" proceedings never held sway over
unconquered territories. The wording of the Spanish laws were not framed in a manner as to
convey to the natives that failure to register what to them has always been their own would
mean loss of such land. The registration requirement was "not to confer title, but simply to
establish it;" it was "not calculated to convey to the mind of an Igorot chief the notion that ancient
family possessions were in danger, if he had read every word of it."
By recognizing this kind of title, the court clearly repudiated the doctrine of Valenton. It was
frank enough, however, to admit the possibility that the applicant might have been deprived of
his land under Spanish law because of the inherent ambiguity of the decrees and concomitantly,
the various interpretations which may be given them. But precisely because of the ambiguity
and of the strong "due process mandate" of the Constitution, the court validated this kind
of title.142 This title was sufficient, even without government administrative action, and entitled
the holder to a Torrens certificate. Justice Holmes explained:
"It will be perceived that the rights of the applicant under the Spanish law present a problem not
without difficulties for courts of a legal tradition. We have deemed it proper on that account to
notice the possible effect of the change of sovereignty and the act of Congress establishing the
fundamental principles now to be observed. Upon a consideration of the whole case we are of
the opinion that law and justice require that the applicant should be granted what he seeks, and
should not be deprived of what, by the practice and belief of those among whom he lived, was
his property, through a refined interpretation of an almost forgotten law of Spain."143
Thus, the court ruled in favor of Cariño and ordered the registration of the 148 hectares in
Baguio Municipality in his name. 144
Examining Cariño closer, the U.S. Supreme Court did not categorically refer to the title it upheld
as "native title." It simply said:
"The Province of Benguet was inhabited by a tribe that the Solicitor-General, in his
argument, characterized as a savage tribe that never was brought under the civil or
military government of the Spanish Crown. It seems probable, if not certain, that the
Spanish officials would not have granted to anyone in that province the registration to
which formerly the plaintiff was entitled by the Spanish Laws, and which would have
made his title beyond question good. Whatever may have been the technical position of
Spain it does not follow that, in the view of the United States, he had lost all rights and was a
mere trespasser when the present government seized his land. The argument to that effect
seems to amount to a denial of native titles through an important part of the Island of Luzon, at
least, for the want of ceremonies which the Spaniards would not have permitted and had not the
power to enforce."145
This is the only instance when Justice Holmes used the term "native title" in the entire length of
the Cariño decision. It is observed that the widespread use of the term "native title" may be
traced to Professor Owen James Lynch, Jr., a Visiting Professor at the University of the
Philippines College of Law from the Yale University Law School. In 1982, Prof. Lynch published
an article in the Philippine Law Journal entitled Native Title, Private Right and Tribal Land
Law.146 This article was made after Professor Lynch visited over thirty tribal communities
throughout the country and studied the origin and development of Philippine land laws. 147 He
discussed Cariño extensively and used the term "native title" to refer to Cariño's title as
discussed and upheld by the U.S. Supreme Court in said case.
(b) Indian Title
In a footnote in the same article, Professor Lynch stated that the concept of "native title" as
defined by Justice Holmes in Cariño "is conceptually similar to "aboriginal title" of the American
Indians.148 This is not surprising, according to Prof. Lynch, considering that during the American
regime, government policy towards ICCs/IPs was consistently made in reference to native
Americans.149 This was clearly demonstrated in the case of Rubi v. Provincial Board of
Mindoro.150
In Rubi, the Provincial Board of Mindoro adopted a Resolution authorizing the provincial
governor to remove the Mangyans from their domains and place them in a permanent
reservation in Sitio Tigbao, Lake Naujan. Any Mangyan who refused to comply was to be
imprisoned. Rubi and some Mangyans, including one who was imprisoned for trying to escape
from the reservation, filed for habeas corpus claiming deprivation of liberty under the Board
Resolution. This Court denied the petition on the ground of police power. It upheld government
policy promoting the idea that a permanent settlement was the only successful method for
educating the Mangyans, introducing civilized customs, improving their health and morals, and
protecting the public forests in which they roamed.151 Speaking through Justice Malcolm, the
court said:
"Reference was made in the President's instructions to the Commission to the policy adopted by
the United States for the Indian Tribes. The methods followed by the Government of the
Philippine Islands in its dealings with the so-called non-Christian people is said, on argument, to
be practically identical with that followed by the United States Government in its dealings with
the Indian tribes. Valuable lessons, it is insisted, can be derived by an investigation of the
American-Indian policy.
From the beginning of the United States, and even before, the Indians have been treated as "in
a state of pupilage." The recognized relation between the Government of the United States and
the Indians may be described as that of guardian and ward. It is for the Congress to determine
when and how the guardianship shall be terminated. The Indians are always subject to the
plenary authority of the United States.152
x x x.
As to the second point, the facts in the Standing Bear case and the Rubi case are not exactly
identical. But even admitting similarity of facts, yet it is known to all that Indian reservations do
exist in the United States, that Indians have been taken from different parts of the country and
placed on these reservations, without any previous consultation as to their own wishes, and that,
when once so located, they have been made to remain on the reservation for their own good
and for the general good of the country. If any lesson can be drawn from the Indian policy of the
United States, it is that the determination of this policy is for the legislative and executive
branches of the government and that when once so decided upon, the courts should not
interfere to upset a carefully planned governmental system. Perhaps, just as many forceful
reasons exist for the segregation of the Manguianes in Mindoro as existed for the segregation of
the different Indian tribes in the United States."153
Rubi applied the concept of Indian land grants or reservations in the Philippines. An Indian
reservation is a part of the public domain set apart by proper authority for the use and
occupation of a tribe or tribes of Indians.154 It may be set apart by an act of Congress, by treaty,
or by executive order, but it cannot be established by custom and prescription.155
Indian title to land, however, is not limited to land grants or reservations. It also covers
the "aboriginal right of possession or occupancy." 156 The aboriginal right of possession
depends on the actual occupancy of the lands in question by the tribe or nation as their ancestral
home, in the sense that such lands constitute definable territory occupied exclusively by the
particular tribe or nation.157 It is a right which exists apart from any treaty, statute, or other
governmental action, although in numerous instances treaties have been negotiated with Indian
tribes, recognizing their aboriginal possession and delimiting their occupancy rights or settling
and adjusting their boundaries.158
American jurisprudence recognizes the Indians' or native Americans' rights to land they
have held and occupied before the "discovery" of the Americas by the Europeans. The
earliest definitive statement by the U.S. Supreme Court on the nature of aboriginal title
was made in 1823 in Johnson & Graham's Lessee v. M'Intosh.159
In Johnson, the plaintiffs claimed the land in question under two (2) grants made by the chiefs
of two (2) Indian tribes. The U.S. Supreme Court refused to recognize this conveyance, the
plaintiffs being private persons. The only conveyance that was recognized was that made by the
Indians to the government of the European discoverer. Speaking for the court, Chief Justice
Marshall pointed out that the potentates of the old world believed that they had made ample
compensation to the inhabitants of the new world by bestowing civilization and Christianity upon
them; but in addition, said the court, they found it necessary, in order to avoid conflicting
settlements and consequent war, to establish the principle that discovery gives title to the
government by whose subjects, or by whose authority, the discovery was made, against
all other European governments, which title might be consummated by possession. 160 The
exclusion of all other Europeans gave to the nation making the discovery the sole right of
acquiring the soil from the natives and establishing settlements upon it. As regards the natives,
the court further stated that:
"Those relations which were to exist between the discoverer and the natives were to be
regulated by themselves. The rights thus acquired being exclusive, no other power could
interpose between them.
In the establishment of these relations, the rights of the original inhabitants were, in no
instance, entirely disregarded; but were necessarily, to a considerable extent, impaired. They
were admitted to be the rightful occupants of the soil, with a legal as well as just claim to
retain possession of it, and to use it according to their own discretion; but their rights to
complete sovereignty, as independent nations, were necessarily diminished, and their power to
dispose of the soil at their own will, to whomsoever they pleased, was denied by the
fundamental principle that discovery gave exclusive title to those who made it.
While the different nations of Europe respected the right of the natives as occupants,
they asserted the ultimate dominion to be in themselves; and claimed and exercised, as a
consequence of this ultimate dominion, a power to grant the soil, while yet in possession
of the natives. These grants have been understood by all to convey a title to the grantees,
subject only to the Indian right of occupancy." 161
Thus, the discoverer of new territory was deemed to have obtained the exclusive right to
acquire Indian land and extinguish Indian titles. Only to the discoverer- whether to England,
France, Spain or Holland- did this right belong and not to any other nation or private person. The
mere acquisition of the right nonetheless did not extinguish Indian claims to land. Rather, until
the discoverer, by purchase or conquest, exercised its right, the concerned Indians were
recognized as the "rightful occupants of the soil, with a legal as well as just claim to retain
possession of it." Grants made by the discoverer to her subjects of lands occupied by the
Indians were held to convey a title to the grantees, subject only to the Indian right of occupancy.
Once the discoverer purchased the land from the Indians or conquered them, it was only then
that the discoverer gained an absolute title unrestricted by Indian rights.
The court concluded, in essence, that a grant of Indian lands by Indians could not convey a title
paramount to the title of the United States itself to other parties, saying:
"It has never been contended that the Indian title amounted to nothing. Their right of
possession has never been questioned. The claim of government extends to the
complete ultimate title, charged with this right of possession, and to the exclusive power
of acquiring that right."162
It has been said that the history of America, from its discovery to the present day, proves the
universal recognition of this principle.163
The Johnson doctrine was a compromise. It protected Indian rights and their native lands
without having to invalidate conveyances made by the government to many U.S. citizens.164
Johnson was reiterated in the case of Worcester v. Georgia.165 In this case, the State of
Georgia enacted a law requiring all white persons residing within the Cherokee nation to obtain a
license or permit from the Governor of Georgia; and any violation of the law was deemed a high
misdemeanor. The plaintiffs, who were white missionaries, did not obtain said license and were
thus charged with a violation of the Act.
The U.S. Supreme Court declared the Act as unconstitutional for interfering with the treaties
established between the United States and the Cherokee nation as well as the Acts of Congress
regulating intercourse with them. It characterized the relationship between the United States
government and the Indians as:
"The Indian nations were, from their situation, necessarily dependent on some foreign potentate
for the supply of their essential wants, and for their protection from lawless and injurious
intrusions into their country. That power was naturally termed their protector. They had been
arranged under the protection of Great Britain; but the extinguishment of the British power in
their neighborhood, and the establishment of that of the United States in its place, led naturally
to the declaration, on the part of the Cherokees, that they were under the protection of the
United States, and of no other power. They assumed the relation with the United States which
had before subsisted with Great Britain.
This relation was that of a nation claiming and receiving the protection of one more powerful, not
that of individuals abandoning their national character, and submitting as subjects to the laws of
a master."166
It was the policy of the U.S. government to treat the Indians as nations with distinct territorial
boundaries and recognize their right of occupancy over all the lands within their domains. Thus:
"From the commencement of our government Congress has passed acts to regulate trade and
intercourse with the Indians; which treat them as nations, respect their rights, and manifest a firm
purpose to afford that protection which treaties stipulate. All these acts, and especially that of
1802, which is still in force, manifestly consider the several Indian nations as distinct political
communities, having territorial boundaries, within which their authority is exclusive, and
having a right to all the lands within those boundaries, which is not only acknowledged,
but guaranteed by the United States.
x x x.
"The Indian nations had always been considered as distinct, independent political
communities, retaining their original natural rights, as the undisputed possessors of the
soil from time immemorial, with the single exception of that imposed by irresistible power,
which excluded them from intercourse with any other European potentate than the first
discoverer of the coast of the particular region claimed: and this was a restriction which those
European potentates imposed on themselves, as well as on the Indians. The very term "nation,"
so generally applied to them, means "a people distinct from others." x x x.167
The Cherokee nation, then, is a distinct community, occupying its own territory, with boundaries
accurately described, in which the laws of Georgia can have no force, and which the citizens of
Georgia have no right to enter but with the assent of the Cherokees themselves or in conformity
with treaties and with the acts of Congress. The whole intercourse between the United States
and this nation is, by our Constitution and laws, vested in the government of the United
States."168
The discovery of the American continent gave title to the government of the discoverer as
against all other European governments. Designated as the naked fee, 169 this title was to be
consummated by possession and was subject to the Indian title of occupancy. The discoverer
acknowledged the Indians' legal and just claim to retain possession of the land, the Indians
being the original inhabitants of the land. The discoverer nonetheless asserted the exclusive
right to acquire the Indians' land- either by purchase, "defensive" conquest, or cession- and in so
doing, extinguish the Indian title. Only the discoverer could extinguish Indian title because it
alone asserted ultimate dominion in itself. Thus, while the different nations of Europe respected
the rights of the natives as occupants, they all asserted the ultimate dominion and title to be in
themselves.170
As early as the 19th century, it became accepted doctrine that although fee title to the
lands occupied by the Indians when the colonists arrived became vested in the
sovereign- first the discovering European nation and later the original 13 States and the
United States- a right of occupancy in the Indian tribes was nevertheless recognized.  The
Federal Government continued the policy of respecting the Indian right of occupancy, sometimes
called Indian title, which it accorded the protection of complete ownership. 171 But this aboriginal
Indian interest simply constitutes "permission" from the whites to occupy the land, and means
mere possession not specifically recognized as ownership by Congress. 172 It is clear that this
right of occupancy based upon aboriginal possession is not a property right. 173 It is vulnerable to
affirmative action by the federal government who, as sovereign, possessed exclusive power to
extinguish the right of occupancy at will.174 Thus, aboriginal title is not the same as legal
title. Aboriginal title rests on actual, exclusive and continuous use and occupancy for a long
time.175 It entails that land owned by Indian title must be used within the tribe, subject to its laws
and customs, and cannot be sold to another sovereign government nor to any citizen. 176 Such
title as Indians have to possess and occupy land is in the tribe, and not in the individual Indian;
the right of individual Indians to share in the tribal property usually depends upon tribal
membership, the property of the tribe generally being held in communal ownership.177
As a rule, Indian lands are not included in the term "public lands," which is ordinarily used to
designate such lands as are subject to sale or other disposal under general laws. 178 Indian land
which has been abandoned is deemed to fall into the public domain. 179 On the other hand, an
Indian reservation is a part of the public domain set apart for the use and occupation of a tribe of
Indians.180 Once set apart by proper authority, the reservation ceases to be public land, and until
the Indian title is extinguished, no one but Congress can initiate any preferential right on, or
restrict the nation's power to dispose of, them.181
The American judiciary struggled for more than 200 years with the ancestral land claims
of indigenous Americans. 182 And two things are clear. First, aboriginal title is
recognized. Second, indigenous property systems are also recognized. From a legal point of
view, certain benefits can be drawn from a comparison of Philippine IPs to native
Americans.183 Despite the similarities between native title and aboriginal title, however, there are
at present some misgivings on whether jurisprudence on American Indians may be cited
authoritatively in the Philippines. The U.S. recognizes the possessory rights of the Indians over
their land; title to the land, however, is deemed to have passed to the U.S. as successor of the
discoverer. The aboriginal title of ownership is not specifically recognized as ownership by action
authorized by Congress.184 The protection of aboriginal title merely guards against encroachment
by persons other than the Federal Government.185 Although there are criticisms against the
refusal to recognize the native Americans' ownership of these lands, 186 the power of the State to
extinguish these titles has remained firmly entrenched.187
Under the IPRA, the Philippine State is not barred form asserting sovereignty over the ancestral
domains and ancestral lands.188 The IPRA, however, is still in its infancy and any similarities
between its application in the Philippines vis-à-vis American Jurisprudence on aboriginal title will
depend on the peculiar facts of each case.
(c) Why the Cariño doctrine is unique
In the Philippines, the concept of native title first upheld in Cariño and enshrined in the IPRA
grants ownership, albeit in limited form, of the land to the ICCs/IPs. Native title presumes that
the land is private and was never public. Cariño is the only case that specifically and
categorically recognizes native title. The long line of cases citing Cariño did not touch on
native title and the private character of ancestral domains and lands. Cariño was cited by
the succeeding cases to support the concept of acquisitive prescription under the Public
Land Act which is a different matter altogether. Under the Public Land Act, land sought to be
registered must be public agricultural land. When the conditions specified in Section 48 [b] of
the Public Land Act are complied with, the possessor of the land is deemed to have acquired, by
operation of law, a right to a grant of the land. 189 The land ceases to be part of the public
domain,190 ipso jure,191 and is converted to private property by the mere lapse or completion of
the prescribed statutory period.
It was only in the case of Oh Cho v. Director of Lands192 that the court declared that the rule
that all lands that were not acquired from the government, either by purchase or grant, belong to
the public domain has an exception. This exception would be any land that should have been in
the possession of an occupant and of his predecessors-in-interest since time immemorial. It is
this kind of possession that would justify the presumption that the land had never been part of
the public domain or that it had been private property even before the Spanish conquest. 193 Oh
Cho, however, was decided under the provisions of the Public Land Act and Cariño was cited to
support the applicant's claim of acquisitive prescription under the said Act.
All these years, Cariño had been quoted out of context simply to justify long, continuous, open
and adverse possession in the concept of owner of public agricultural land. It is this long,
continuous, open and adverse possession in the concept of owner of thirty years both for
ordinary citizens194 and members of the national cultural minorities195 that converts the land from
public into private and entitles the registrant to a torrens certificate of title.
(3) The Option of Securing a Torrens Title to the Ancestral Land Indicates that the Land is
Private.
The private character of ancestral lands and domains as laid down in the IPRA is
further strengthened by the option given to individual ICCs/IPs over their individually-owned
ancestral lands. For purposes of registration under the Public Land Act and the Land
Registration Act, the IPRA expressly converts ancestral land into public agricultural land
which may be disposed of by the State. The necessary implication is that ancestral land
is private. It, however, has to be first converted to public agricultural land simply for
registration purposes. To wit:
"Sec. 12. Option to Secure Certificate of Title Under Commonwealth Act 141, as amended, or
the Land Registration Act 496- Individual members of cultural communities, with respect to their
individually-owned ancestral lands who, by themselves or through their predecessors-in-interest,
have been in continuous possession and occupation of the same in the concept of owner since
time immemorial or for a period of not less than thirty (30) years immediately preceding the
approval of this Act and uncontested by the members of the same ICCs/IPs shall have the
option to secure title to their ancestral lands under the provisions of Commonwealth Act 141, as
amended, or the Land Registration Act 496.
For this purpose, said individually-owned ancestral lands, which are agricultural in character and
actually used for agricultural, residential, pasture, and tree farming purposes, including those
with a slope of eighteen percent (18%) or more, are hereby classified as alienable and
disposable agricultural lands.
The option granted under this section shall be exercised within twenty (20) years from the
approval of this Act."196
ICCs/IPs are given the option to secure a torrens certificate of title over their individually-owned
ancestral lands. This option is limited to ancestral lands only, not domains, and such lands must
be individually, not communally, owned.
Ancestral lands that are owned by individual members of ICCs/IPs who, by themselves or
through their predecessors-in-interest, have been in continuous possession and occupation of
the same in the concept of owner since time immemorial 197 or for a period of not less than 30
years, which claims are uncontested by the members of the same ICCs/IPs, may be registered
under C.A. 141, otherwise known as the Public Land Act, or Act 496, the Land Registration Act.
For purposes of registration, the individually-owned ancestral lands are classified as alienable
and disposable agricultural lands of the public domain, provided, they are agricultural in
character and are actually used for agricultural, residential, pasture and tree farming purposes.
These lands shall be classified as public agricultural lands regardless of whether they have a
slope of 18% or more.
The classification of ancestral land as public agricultural land is in compliance with the
requirements of the Public Land Act and the Land Registration Act. C.A. 141, the Public Land
Act, deals specifically with lands of the public domain. 198 Its provisions apply to those lands
"declared open to disposition or concession" x x x "which have not been reserved for public or
quasi-public purposes, nor appropriated by the Government, nor in any manner become private
property, nor those on which a private right authorized and recognized by this Act or any other
valid law x x x or which having been reserved or appropriated, have ceased to be so." 199 Act 496,
the Land Registration Act, allows registration only of private lands and public agricultural
lands. Since ancestral domains and lands are private, if the ICC/IP wants to avail of the
benefits of C.A. 141 and Act 496, the IPRA itself converts his ancestral land, regardless of
whether the land has a slope of eighteen per cent (18%) or over, 200 from private to public
agricultural land for proper disposition.
The option to register land under the Public Land Act and the Land Registration Act has
nonetheless a limited period. This option must be exercised within twenty (20) years from
October 29, 1997, the date of approval of the IPRA.
Thus, ancestral lands and ancestral domains are not part of the lands of the public
domain. They are private and belong to the ICCs/IPs. Section 3 of Article XII on National
Economy and Patrimony of the 1987 Constitution classifies lands of the public domain into four
categories: (a) agricultural, (b) forest or timber, (c) mineral lands, and (d) national
parks. Section 5 of the same Article XII mentions ancestral lands and ancestral domains but it
does not classify them under any of the said four categories. To classify them as public lands
under any one of the four classes will render the entire IPRA law a nullity.  The spirit of the
IPRA lies in the distinct concept of ancestral domains and ancestral lands. The IPRA addresses
the major problem of the ICCs/IPs which is loss of land. Land and space are of vital concern in
terms of sheer survival of the ICCs/IPs.201
The 1987 Constitution mandates the State to "protect the rights of indigenous cultural
communities to their ancestral lands" and that "Congress provide for the applicability of
customary laws x x x in determining the ownership and extent of ancestral domain." 202 It
is the recognition of the ICCs/IPs distinct rights of ownership over their ancestral
domains and lands that breathes life into this constitutional mandate.
B. The right of ownership and possession by the ICCs/IPs of their ancestral domains is a
limited form of ownership and does not include the right to alienate the same.
Registration under the Public Land Act and Land Registration Act recognizes the concept of
ownership under the civil law. This ownership is based on adverse possession for a specified
period, and harkens to Section 44 of the Public Land Act on administrative legalization (free
patent) of imperfect or incomplete titles and Section 48 (b) and (c) of the same Act on the judicial
confirmation of imperfect or incomplete titles. Thus:
"Sec. 44. Any natural-born citizen of the Philippines who is not the owner of more than twenty-
four hectares and who since July fourth, 1926 or prior thereto, has continuously occupied and
cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of
agricultural public lands subject to disposition, or who shall have paid the real estate tax thereon
while the same has not been occupied by any person shall be entitled, under the provisions of
this chapter, to have a free patent issued to him for such tract or tracts of such land not to
exceed twenty-four hectares.
A member of the national cultural minorities who has continuously occupied and
cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of
land, whether disposable or not since July 4, 1955, shall be entitled to the right granted in
the preceding paragraph of this section: Provided, That at the time he files his free patent
application he is not the owner of any real property secured or disposable under the
provision of the Public Land Law.203
x x x.
"Sec. 48. The following described citizens of the Philippines, occupying lands of the public
domain or claiming to own any such lands or an interest therein, but whose titles have not been
perfected or completed, may apply to the Court of First Instance of the province where the land
is located for confirmation of their claims and the issuance of a certificate of title therefor, under
the Land Registration Act, to wit:
(a) [perfection of Spanish titles] xxx.
(b) Those who by themselves or through their predecessors-in-interest have been in
open, continuous, exclusive, and notorious possession and occupation of agricultural
lands of the public domain, under a bona fide claim of acquisition or ownership, for at
least thirty years immediately preceding the filing of the application for confirmation of
title except when prevented by war or force majeure. These shall be conclusively
presumed to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title under the provisions of this Chapter.
(c) Members of the national cultural minorities who by themselves or through
their predecessors-in-interest have been in open, continuous, exclusive and
notorious possession and occupation of lands of the public domain suitable to
agriculture, whether disposable or not, under a bona fide claim of ownership for
at least 30 years shall be entitled to the rights granted in sub-section (b)
hereof."204
Registration under the foregoing provisions presumes that the land was originally public
agricultural land but because of adverse possession since July 4, 1955 (free patent) or at least
thirty years (judicial confirmation), the land has become private. Open, adverse, public and
continuous possession is sufficient, provided, the possessor makes proper application therefor.
The possession has to be confirmed judicially or administratively after which a torrens title is
issued.
A torrens title recognizes the owner whose name appears in the certificate as entitled to all the
rights of ownership under the civil law. The Civil Code of the Philippines defines ownership in
Articles 427, 428 and 429. This concept is based on Roman Law which the Spaniards
introduced to the Philippines through the Civil Code of 1889. Ownership, under Roman Law,
may be exercised over things or rights. It primarily includes the right of the owner to enjoy and
dispose of the thing owned. And the right to enjoy and dispose of the thing includes the right to
receive from the thing what it produces, 205 the right to consume the thing by its use, 206 the right to
alienate, encumber, transform or even destroy the thing owned, 207 and the right to exclude from
the possession of the thing owned by any other person to whom the owner has not transmitted
such thing.208
1. The Indigenous Concept of Ownership and Customary Law.
Ownership of ancestral domains by native title does not entitle the ICC/IP to a torrens title but to
a Certificate of Ancestral Domain Title (CADT). The CADT formally recognizes
the indigenous concept of ownership of the ICCs/IPs over their ancestral domain. Thus:
"Sec. 5. Indigenous concept of ownership.- Indigenous concept of ownership sustains the view
that ancestral domains and all resources found therein shall serve as the material bases of their
cultural integrity. The indigenous concept of ownership generally holds that ancestral domains
are the ICCs/IPs private but community property which belongs to all generations and therefore
cannot be sold, disposed or destroyed. It likewise covers sustainable traditional resource rights."
The right of ownership and possession of the ICCs/IPs to their ancestral domains is held
under the indigenous concept of ownership. This concept maintains the view that
ancestral domains are the ICCs/IPs private but community property. It is private simply
because it is not part of the public domain. But its private character ends there. The which shall recognize the title of the concerned ICCs/IPs over the territories identified and
ancestral domain is owned in common by the ICCs/IPs and not by one particular delineated."
person. The IPRA itself provides that areas within the ancestral domains, whether delineated or
not, are presumed to be communally held. 209 These communal rights, however, are not
The moral import of ancestral domain, native land or being native is "belongingness" to the land,
exactly the same as co-ownership rights under the Civil Code. 210 Co-ownership gives any
being people of the land- by sheer force of having sprung from the land since time beyond recall,
co-owner the right to demand partition of the property held in common. The Civil Code expressly
and the faithful nurture of the land by the sweat of one's brow. This is fidelity of usufructuary
provides that "no co-owner shall be obliged to remain in the co-ownership." Each co-owner may
relation to the land- the possession of stewardship through perduring, intimate tillage, and the
demand at any time the partition of the thing in common, insofar as his share is concerned. 211 To
mutuality of blessings between man and land; from man, care for land; from the land,
allow such a right over ancestral domains may be destructive not only of customary law of the
sustenance for man.222
community but of the very community itself.212

C. Sections 7 (a), 7 (b) and 57 of the IPRA Do Not Violate the Regalian Doctrine Enshrined
Communal rights over land are not the same as corporate rights over real property, much
in Section 2, Article XII of the 1987 Constitution.
less corporate condominium rights. A corporation can exist only for a maximum of fifty (50)
years subject to an extension of another fifty years in any single instance. 213 Every stockholder
has the right to disassociate himself from the corporation.214 Moreover, the corporation itself may 1. The Rights of ICCs/IPs Over Their Ancestral Domains and Lands
be dissolved voluntarily or involuntarily.215
The IPRA grants the ICCs/IPs several rights over their ancestral domains and ancestral lands.
Communal rights to the land are held not only by the present possessors of the land but Section 7 provides for the rights over ancestral domains:
extends to all generations of the ICCs/IPs, past, present and future, to the domain. This is
the reason why the ancestral domain must be kept within the ICCs/IPs themselves. The domain
"Sec. 7. Rights to Ancestral Domains.- The rights of ownership and possession of ICCs/IPs to
cannot be transferred, sold or conveyed to other persons. It belongs to the ICCs/IPs as a
their ancestral domains shall be recognized and protected. Such rights include:
community.

a) Right of Ownership.- The right to claim ownership over lands, bodies of water

Ancestral lands are also held under the indigenous concept of ownership. The lands are
communal. These lands, however, may be transferred subject to the following limitations: (a)
only to the members of the same ICCs/IPs; (b) in accord with customary laws and traditions; and
(c) subject to the right of redemption of the ICCs/IPs for a period of 15 years if the land was
transferred to a non-member of the ICCs/IPs.
Following the constitutional mandate that "customary law govern property rights or relations in
determining the ownership and extent of ancestral domains,"216 the IPRA, by legislative fiat,
introduces a new concept of ownership. This is a concept that has long existed under
customary law.217
Custom, from which customary law is derived, is also recognized under the Civil Code as
a source of law.218 Some articles of the Civil Code expressly provide that custom should be
applied in cases where no codal provision is applicable.219 In other words, in the absence of any
applicable provision in the Civil Code, custom, when duly proven, can define rights and
liabilities.220
Customary law is a primary, not secondary, source of rights under the IPRA and uniquely
applies to ICCs/IPs. Its recognition does not depend on the absence of a specific provision
in the civil law. The indigenous concept of ownership under customary law is specifically
acknowledged and recognized, and coexists with the civil law concept and the laws on land
titling and land registration.221
traditionally and actually occupied by ICCs/IPs, sacred places, traditional
hunting and fishing grounds, and all improvements made by them at any time
within the domains;
b) Right to Develop Lands and Natural Resources.- Subject to Section 56 hereof,
the right to develop, control and use lands and territories traditionally occupied,
owned, or used; to manage and conserve natural resources within the territories
and uphold the responsibilities for future generations; to benefit and share the
profits from allocation and utilization of the natural resources found therein; the
right to negotiate the terms and conditions for the exploration of natural
resources in the areas for the purpose of ensuring ecological, environmental
protection and the conservation measures, pursuant to national and customary
laws; the right 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 just 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
upon these rights;"
c) Right to Stay in the Territories.- The right to stay in the territory and not to be
removed therefrom. No ICCs/IPs will be relocated without their free and prior informed
consent, nor through any means other than eminent domain. x x x;

To be sure, the indigenous concept of ownership exists even without a paper title. The d) Right in Case of Displacement.- In case displacement occurs as a result of natural
CADT is merely a "formal recognition" of native title. This is clear from Section 11 of the IPRA, to catastrophes, the State shall endeavor to resettle the displaced ICCs/IPs in suitable
wit: areas where they can have temporary life support systems: x x x;

"Sec. 11. Recognition of Ancestral Domain Rights.- The rights of ICCs/IPs to their ancestral e) Right to Regulate the Entry of Migrants.- Right to regulate the entry of migrant
domains by virtue of Native Title shall be recognized and respected. Formal recognition, when settlers and organizations into their domains;
solicited by ICCs/IPs concerned shall be embodied in a Certificate of Ancestral Domain Title,
 f) Right to Safe and Clean Air and Water.-For this purpose, the ICCs/IPs shall have
access to integrated systems for the management of their inland waters and air space;
g) Right to Claim Parts of Reservations.- The right to claim parts of the ancestral
domains which have been reserved for various purposes, except those reserved and
intended for common and public welfare and service;
h) Right to Resolve Conflict.- Right to resolve land conflicts in accordance with
customary laws of the area where the land is located, and only in default thereof shall
the complaints be submitted to amicable settlement and to the Courts of Justice
whenever necessary."
Section 8 provides for the rights over ancestral lands:
"Sec. 8. Rights to Ancestral Lands.- The right of ownership and possession of the ICCs/IPs to
their ancestral lands shall be recognized and protected.
a) Right to transfer land/property.- Such right shall include the right to transfer land or
property rights to/among members of the same ICCs/IPs, subject to customary laws
and traditions of the community concerned.
b) Right to Redemption.- In cases where it is shown that the transfer of land/property
rights by virtue of any agreement or devise, to a non-member of the concerned
ICCs/IPs is tainted by the vitiated consent of the ICCs/IPs, or is transferred for an
unconscionable consideration or price, the transferor ICC/IP shall have the right to
redeem the same within a period not exceeding fifteen (15) years from the date of
transfer."
Section 7 (a) defines the ICCs/IPs the right of ownership over their ancestral domains which
covers (a) lands, (b) bodies of water traditionally and actually occupied by the ICCs/IPs, (c)
sacred places, (d) traditional hunting and fishing grounds, and (e) all improvements made by
them at any time within the domains. The right of ownership includes the following rights: (1)
the right to develop lands and natural resources; (b) the right to stay in the territories; (c) the
right to resettlement in case of displacement; (d) the right to regulate the entry of migrants; (e)
the right to safe and clean air and water; (f) the right to claim parts of the ancestral domains as
reservations; and (g) the right to resolve conflict in accordance with customary laws.
Section 8 governs their rights to ancestral lands. Unlike ownership over the ancestral domains,
Section 8 gives the ICCs/IPs also the right to transfer the land or property rights to members of
the same ICCs/IPs or non-members thereof. This is in keeping with the option given to ICCs/IPs
to secure a torrens title over the ancestral lands, but not to domains.
2. The Right of ICCs/IPs to Develop Lands and Natural Resources Within the Ancestral Domains
Does Not Deprive the State of Ownership Over the Natural Resources and Control and
Supervision in their Development and Exploitation.
The Regalian doctrine on the ownership, management and utilization of natural resources is
declared in Section 2, Article XII of the 1987 Constitution, viz:
"Sec. 2. All 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. With the exception of agricultural
lands, all other natural resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and supervision of the
State. The State may directly undertake such activities, or, it may enter into co-
production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for
not more than twenty-five years, and under such terms and conditions as may be provided by
law. In cases of water rights for irrigation, water supply, fisheries, water supply, fisheries, or
industrial uses other than the development of water power, beneficial use may be the measure
and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and
fishworkers in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization 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. In such agreements, the state shall promote the development and use of local scientific
and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution."223
All lands of the public domain and all natural resources- 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. The Constitution provides that in
the exploration, development and utilization of these natural resources, the State exercises full
control and supervision, and may undertake the same in four (4) modes:
1. The State may directly undertake such activities; or
2. The State may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or qualified corporations;
3. Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens;
4. For the large-scale exploration, development and utilization of minerals, petroleum
and other mineral oils, the President may enter into agreements with foreign-owned
corporations involving technical or financial assistance.
As owner of the natural resources, the State is accorded primary power and
responsibility in the exploration, development and utilization of these natural resources.
The State may directly undertake the exploitation and development by itself, or, it may allow
participation by the private sector through co-production,224 joint venture,225 or production-sharing
agreements.226 These agreements may be for a period of 25 years, renewable for another 25
years. The State, through Congress, may allow the small-scale utilization of natural resources by
Filipino citizens. For the large-scale exploration of these resources, specifically minerals,
petroleum and other mineral oils, the State, through the President, may enter into technical and
financial assistance agreements with foreign-owned corporations.
Under the Philippine Mining Act of 1995, (R.A. 7942) and the People's Small-Scale Mining Act of
1991 (R.A. 7076) the three types of agreements, i.e., co-production, joint venture or production-
sharing, may apply to both large-scale227 and small-scale mining.228 "Small-scale mining" refers
to "mining activities which rely heavily on manual labor using simple implements and methods
and do not use explosives or heavy mining equipment."229
Examining the IPRA, there is nothing in the law that grants to the ICCs/IPs ownership
over the natural resources within their ancestral domains. The right of ICCs/IPs in their
ancestral domains includes ownership, but this "ownership" is expressly defined and
limited in Section 7 (a) as:
"Sec. 7. a) Right of ownership- The right to claim ownership over lands, bodies of water
traditionally and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing
grounds, and all improvements made by them at any time within the domains;"
The ICCs/IPs are given the right to claim ownership over "lands, bodies of water traditionally and
actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all
improvements made by them at any time within the domains." It will be noted that this
enumeration does not mention bodies of water not occupied by the
ICCs/IPs, minerals, coal, wildlife, flora and fauna in the traditional hunting grounds, fish in the
traditional fishing grounds, forests or timber in the sacred places, etc. and all other natural
resources found within the ancestral domains. Indeed, the right of ownership under Section 7
(a) does not cover "waters, minerals, coal, petroleum and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna and all other natural
resources" enumerated in Section 2, Article XII of the 1987 Constitution as belonging to
the State.
The non-inclusion of ownership by the ICCs/IPs over the natural resources in Section 7(a)
complies with the Regalian doctrine.
(a) Section 1, Part II, Rule III of the Implementing Rules Goes Beyond the Parameters of
Sec. 7 (a) of the IPRA And is Unconstitutional.
The Rules Implementing the IPRA230 in Section 1, Part II, Rule III reads:
"Section 1. Rights of Ownership. ICCs/IPs have rights of ownership over lands, waters,
and natural resources and all improvements made by them at any time within the ancestral
domains/ lands. These rights shall include, but not limited to, the right over the fruits, the right to
possess, the right to use, right to consume, right to exclude and right to recover ownership, and
the rights or interests over land and natural resources. The right to recover shall be particularly
applied to lands lost through fraud or any form or vitiated consent or transferred for an
unconscionable price."
Section 1 of the Implementing Rules gives the ICCs/IPs rights of ownership over "lands, waters
and natural resources." The term "natural resources" is not one of those expressly mentioned in
Section 7 (a) of the law. Our Constitution and jurisprudence clearly declare that the right to claim
ownership over land does not necessarily include the right to claim ownership over the natural
resources found on or under the land.231 The IPRA itself makes a distinction between land
and natural resources. Section 7 (a) speaks of the right of ownership only over the land
within the ancestral domain. It is Sections 7 (b) and 57 of the law that speak of natural
resources, and these provisions, as shall be discussed later, do not give the ICCs/IPs the
right of ownership over these resources.
The constitutionality of Section 1, Part II, Rule III of the Implementing Rules was not specifically
and categorically challenged by petitioners. Petitioners actually assail the constitutionality of the
Implementing Rules in general.232 Nevertheless, to avoid any confusion in the implementation of
the law, it is necessary to declare that the inclusion of "natural resources" in Section 1, Part II,
Rule III of the Implementing Rules goes beyond the parameters of Section 7 (b) of the law and
is contrary to Section 2, Article XII of the 1987 Constitution.
(b) The Small-Scale Utilization of Natural Resources In Sec. 7 (b) of the IPRA Is Allowed
Under Paragraph 3, Section 2 of Article XII of the Constitution.
Ownership over natural resources remain with the State and the IPRA in Section 7 (b) merely
grants the ICCs/IPs the right to manage them, viz:
"Sec. 7 (b) Right to Develop Lands and Natural Resources.- Subject to Section 56 hereof, right
to develop, control and use lands and territories traditionally occupied, owned, or used; to
manage and conserve natural resources within the territories and uphold the responsibilities for
future generations; to benefit and share the profits from allocation and utilization of the natural
resources found therein; the right to negotiate the terms and conditions for the exploration of
natural resources in the areas for the purpose of ensuring ecological, environmental protection
and the conservation measures, pursuant to national and customary laws; the right 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 just
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 upon these rights;"
The right to develop lands and natural resources under Section 7 (b) of the IPRA
enumerates the following rights:
a) the right to develop, control and use lands and territories traditionally occupied;
b) the right to manage and conserve natural resources within the territories and uphold
the responsibilities for future generations;
c) the right to benefit and share the profits from the allocation and utilization of
the natural resources found therein;
d) the right to negotiate the terms and conditions for the exploration of natural
resources for the purpose of ensuring ecological, environmental protection and the
conservation measures, pursuant to national and customary laws;
e) the right 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 just and fair compensation for any damages
which they may sustain as a result of the project;
f) the right to effective measures by the government to prevent any interference with,
alienation and encroachment upon these rights.233
Ownership over the natural resources in the ancestral domains remains with the State
and the ICCs/IPs are merely granted the right to "manage and conserve" them for future
generations, "benefit and share" the profits from their allocation and utilization, and
"negotiate the terms and conditions for their exploration" for the purpose of "ensuring
ecological and environmental protection and conservation measures." It must be noted that
the right to negotiate the terms and conditions over the natural resources covers only their
exploration which must be for the purpose of ensuring ecological and environmental protection
of, and conservation measures in the ancestral domain. It does not extend to the exploitation
and development of natural resources.
Simply stated, the ICCs/IPs' rights over the natural resources take the form of
management or stewardship. For the ICCs/IPs may use these resources and share in the
profits of their utilization or negotiate the terms for their exploration. At the same time, however,
the ICCs/IPs must ensure that the natural resources within their ancestral domains are
conserved for future generations and that the "utilization" of these resources must not harm the
ecology and environment pursuant to national and customary laws.234
The limited rights of "management and use" in Section 7 (b) must be taken to
contemplate small-scale utilization of natural resources as distinguished from large-
scale. Small-scale utilization of natural resources is expressly allowed in the third
paragraph of Section 2, Article XII of the Constitution "in recognition of the plight of forest
dwellers, gold panners, marginal fishermen and others similarly situated who exploit our natural
resources for their daily sustenance and survival." 235 Section 7 (b) also expressly mandates the
ICCs/IPs to manage and conserve these resources and ensure environmental and ecological
protection within the domains, which duties, by their very nature, necessarily reject utilization in a
large-scale.
(c) The Large-Scale Utilization of Natural Resources In Section 57 of the IPRA Is Allowed
Under Paragraphs 1 and 4, Section 2, Article XII of the 1987 Constitution.
Section 57 of the IPRA provides:
"Sec. 57. Natural Resources within Ancestral Domains.- The ICCs/IPs shall have priority
rights in the harvesting, extraction, development or exploitation of any natural
resources within the ancestral domains. A non-member of the ICCs/IPs concerned may be
allowed to take part in the development and utilization of the natural resources for a period of not
exceeding twenty-five (25) years renewable for not more than twenty-five (25) years: Provided,
That a formal and written agreement is entered into with the ICCs/IPs concerned or that the
community, pursuant to its own decision-making process, has agreed to allow such
operation: Provided finally, That the NCIP may exercise visitorial powers and take appropriate
action to safeguard the rights of the ICCs/IPs under the same contract."
Section 57 speaks of the "harvesting, extraction, development or exploitation of natural
resources within ancestral domains" and "gives the ICCs/IPs 'priority rights' therein." The
terms "harvesting, extraction, development or exploitation" of any natural resources
within the ancestral domains obviously refer to large-scale utilization. It is utilization not
merely for subsistence but for commercial or other extensive use that require technology other
than manual labor.236 The law recognizes the probability of requiring a non-member of the
ICCs/IPs to participate in the development and utilization of the natural resources and thereby
allows such participation for a period of not more than 25 years, renewable for another 25 years.
This may be done on condition that a formal written agreement be entered into by the non-
member and members of the ICCs/IPs.
Section 57 of the IPRA does not give the ICCs/IPs the right to "manage and conserve" the
natural resources. Instead, the law only grants the ICCs/IPs "priority rights" in the development
or exploitation thereof. Priority means giving preference. Having priority rights over the natural
resources does not necessarily mean ownership rights. The grant of priority rights implies that
there is a superior entity that owns these resources and this entity has the power to grant
preferential rights over the resources to whosoever itself chooses.
Section 57 is not a repudiation of the Regalian doctrine. Rather, it is an affirmation of the said
doctrine that all natural resources found within the ancestral domains belong to the State. It
incorporates by implication the Regalian doctrine, hence, requires that the provision be read in
the light of Section 2, Article XII of the 1987 Constitution. Interpreting Section 2, Article XII of
the 1987 Constitution237 in relation to Section 57 of IPRA, the State, as owner of these
natural resources, may directly undertake the development and exploitation of the natural
resources by itself, or in the alternative, it may recognize the priority rights of the
ICCs/IPs as owners of the land on which the natural resources are found by entering into
a co-production, joint venture, or production-sharing agreement with them. The State may
likewise enter into any of said agreements with a non-member of the ICCs/IPs, whether
natural or juridical, or enter into agreements with foreign-owned corporations involving
either technical or financial assistance for the large-scale exploration, development and
utilization of minerals, petroleum, and other mineral oils, or allow such non-member to
participate in its agreement with the ICCs/IPs. If the State decides to enter into an agreement
with a non-ICC/IP member, the National Commission on Indigenous Peoples (NCIP) shall
ensure that the rights of the ICCs/IPs under the agreement shall be protected. The agreement
shall be for a period of 25 years, renewable for another 25 years.
To reiterate, in the large-scale utilization of natural resources within the ancestral domains, the
State, as owner of these resources, has four (4) options: (1) it may, of and by itself, directly
undertake the development and exploitation of the natural resources; or (2) it may recognize the
priority rights of the ICCs/IPs by entering into an agreement with them for such development and
exploitation; or (3) it may enter into an agreement with a non-member of the ICCs/IPs, whether
natural or juridical, local or foreign; or (4) it may allow such non-member to participate in the
agreement with the ICCs/IPs.
The rights granted by the IPRA to the ICCs/IPs over the natural resources in their
ancestral domains merely gives the ICCs/IPs, as owners and occupants of the land on
which the resources are found, the right to the small-scale utilization of these resources,
and at the same time, a priority in their large-scale development and exploitation. Section
57 does not mandate the State to automatically give priority to the ICCs/IPs. The State has
several options and it is within its discretion to choose which option to pursue.  Moreover,
there is nothing in the law that gives the ICCs/IPs the right to solely undertake the large-scale
development of the natural resources within their domains. The ICCs/IPs must undertake such
endeavour always under State supervision or control. This indicates that the State does not lose
control and ownership over the resources even in their exploitation. Sections 7 (b) and 57 of the
law simply give due respect to the ICCs/IPs who, as actual occupants of the land where the
natural resources lie, have traditionally utilized these resources for their subsistence and
survival.
Neither is the State stripped of ownership and control of the natural resources by the following
provision:
"Section 59. Certification Precondition.- All departments and other governmental agencies shall
henceforth be strictly enjoined from issuing, renewing or granting any concession, license or
lease, or entering into any production-sharing agreement. without prior certification from the
NCIP that the area affected does not overlap with any ancestral domain. Such certification shall
only be issued after a field-based investigation is conducted by the Ancestral Domains Office of
the area concerned: Provided, That no certification shall be issued by the NCIP without the free
and prior informed and written consent of the ICCs/IPs concerned: Provided, further, That no
department, government agency or government-owned or -controlled corporation may issue new
concession, license, lease, or production sharing agreement while there is a pending application
for a CADT: Provided, finally, That the ICCs/IPs shall have the right to stop or suspend, in
accordance with this Act, any project that has not satisfied the requirement of this consultation
process."
Concessions, licenses, lease or production-sharing agreements for the exploitation of natural
resources shall not be issued, renewed or granted by all departments and government agencies
without prior certification from the NCIP that the area subject of the agreement does not overlap
with any ancestral domain. The NCIP certification shall be issued only after a field-based
investigation shall have been conducted and the free and prior informed written consent of the
ICCs/IPs obtained. Non-compliance with the consultation requirement gives the ICCs/IPs the
right to stop or suspend any project granted by any department or government agency.
As its subtitle suggests, this provision requires as a precondition for the issuance of any
concession, license or agreement over natural resources, that a certification be issued by the
NCIP that the area subject of the agreement does not lie within any ancestral domain. The
provision does not vest the NCIP with power over the other agencies of the State as to
determine whether to grant or deny any concession or license or agreement. It merely gives the
NCIP the authority to ensure that the ICCs/IPs have been informed of the agreement and that
their consent thereto has been obtained. Note that the certification applies to agreements over
natural resources that do not necessarily lie within the ancestral domains. For those that are
found within the said domains, Sections 7(b) and 57 of the IPRA apply.
V. THE IPRA IS A RECOGNITION OF OUR ACTIVE PARTICIPATION IN THE INDIGENOUS
INTERNATIONAL MOVEMENT.
The indigenous movement can be seen as the heir to a history of anti-imperialism stretching
back to prehistoric times. The movement received a massive impetus during the 1960's from two
sources. First, the decolonization of Asia and Africa brought into the limelight the possibility of
peoples controlling their own destinies. Second, the right of self-determination was enshrined in
the UN Declaration on Human Rights. 238 The rise of the civil rights movement and anti-racism
brought to the attention of North American Indians, Aborigines in Australia, and Maori in New
Zealand the possibility of fighting for fundamental rights and freedoms.
In 1974 and 1975, international indigenous organizations were founded, 239 and during the
1980's, indigenous affairs were on the international agenda. The people of the Philippine
Cordillera were the first Asians to take part in the international indigenous movement. It was the
Cordillera People's Alliance that carried out successful campaigns against the building of the
Chico River Dam in 1981-82 and they have since become one of the best-organized indigenous
bodies in the world.240
Presently, there is a growing concern for indigenous rights in the international scene. This came
as a result of the increased publicity focused on the continuing disrespect for indigenous human
rights and the destruction of the indigenous peoples' environment, together with the national
governments' inability to deal with the situation. 241 Indigenous rights came as a result of both
human rights and environmental protection, and have become a part of today's priorities for the
international agenda.242
International institutions and bodies have realized the necessity of applying policies, programs
and specific rules concerning IPs in some nations. The World Bank, for example, first adopted a
policy on IPs as a result of the dismal experience of projects in Latin America. 243 The World Bank
now seeks to apply its current policy on IPs to some of its projects in Asia. This policy has
provided an influential model for the projects of the Asian Development Bank.244
The 1987 Philippine Constitution formally recognizes the existence of ICCs/IPs and declares as
a State policy the promotion of their rights within the framework of national unity and
development.245 The IPRA amalgamates the Philippine category of ICCs with the international
category of IPs,246 and is heavily influenced by both the International Labor Organization (ILO)
Convention 169 and the United Nations (UN) Draft Declaration on the Rights of Indigenous
Peoples.247
ILO Convention No. 169 is entitled the "Convention Concerning Indigenous and Tribal Peoples
in Independent Countries"248 and was adopted on June 27, 1989. It is based on the Universal
Declaration of Human Rights, the International Covenant on Economic, Social and Cultural
Rights, the International Covenant on Civil and Political Rights, and many other international
instruments on the prevention of discrimination.249 ILO Convention No. 169 revised the
"Convention Concerning the Protection and Integration of Indigenous and Other Tribal and
Semi-Tribal Populations in Independent Countries" (ILO No. 107) passed on June 26, 1957.
Developments in international law made it appropriate to adopt new international standards on
indigenous peoples "with a view to removing the assimilationist orientation of the earlier
standards," and recognizing the aspirations of these peoples to exercise control over their own
institutions, ways of life and economic development."250
CONCLUSION
The struggle of the Filipinos throughout colonial history had been plagued by ethnic and religious
differences. These differences were carried over and magnified by the Philippine government
through the imposition of a national legal order that is mostly foreign in origin or
derivation.251 Largely unpopulist, the present legal system has resulted in the alienation of a
large sector of society, specifically, the indigenous peoples. The histories and cultures of the
indigenes are relevant to the evolution of Philippine culture and are vital to the understanding of
contemporary problems.252 It is through the IPRA that an attempt was made by our legislators to
understand Filipino society not in terms of myths and biases but through common experiences in
the course of history. The Philippines became a democracy a centennial ago and the
decolonization process still continues. If the evolution of the Filipino people into a democratic
society is to truly proceed democratically, i.e., if the Filipinos as a whole are to participate fully in
the task of continuing democratization,253 it is this Court's duty to acknowledge the presence of
indigenous and customary laws in the country and affirm their co-existence with the land laws in
our national legal system.With the foregoing disquisitions, I vote to uphold the constitutionality of
the Indigenous Peoples Rights Act of 1997.
G.R. No. 127882           January 27, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., et. al petitioners,
vs.
VICTOR O. RAMOS, SECRETARY, DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES (DENR), HORACIO RAMOS, DIRECTOR, MINES AND GEOSCIENCES
BUREAU (MGB-DENR), RUBEN TORRES, EXECUTIVE SECRETARY, and WMC
(PHILIPPINES), INC.4 respondents.
DECISION
CARPIO-MORALES, J.:
The present petition for mandamus and prohibition assails the constitutionality of Republic Act
No. 7942,5 otherwise known as the PHILIPPINE MINING ACT OF 1995, along with the
Implementing Rules and Regulations issued pursuant thereto, Department of Environment and
Natural Resources (DENR) Administrative Order 96-40, and of the Financial and Technical
Assistance Agreement (FTAA) entered into on March 30, 1995 by the Republic of the Philippines Petitioners thus filed the present petition for prohibition and mandamus, with a prayer for a
and WMC (Philippines), Inc. (WMCP), a corporation organized under Philippine laws. temporary restraining order. They allege that at the time of the filing of the petition, 100 FTAA
applications had already been filed, covering an area of 8.4 million hectares, 38 64 of which
applications are by fully foreign-owned corporations covering a total of 5.8 million hectares, and
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No.
at least one by a fully foreign-owned mining company over offshore areas.39
2796 authorizing the DENR Secretary to accept, consider and evaluate proposals from foreign-
owned corporations or foreign investors for contracts or agreements involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, which, Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:
upon appropriate recommendation of the Secretary, the President may execute with the foreign
proponent. In entering into such proposals, the President shall consider the real contributions to
I
the economic growth and general welfare of the country that will be realized, as well as the
development and use of local scientific and technical resources that will be promoted by the
proposed contract or agreement. Until Congress shall determine otherwise, large-scale mining, x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
for purpose of this Section, shall mean those proposals for contracts or agreements for mineral Act No. 7942, the latter being unconstitutional in that it allows fully foreign owned corporations to
resources exploration, development, and utilization involving a committed capital investment in a explore, develop, utilize and exploit mineral resources in a manner contrary to Section 2,
single mining unit project of at least Fifty Million Dollars in United States Currency (US paragraph 4, Article XII of the Constitution;
$50,000,000.00).7
II
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern the
exploration, development, utilization and processing of all mineral resources."8 R.A. No. 7942
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
defines the modes of mineral agreements for mining operations,9 outlines the procedure for their
Act No. 7942, the latter being unconstitutional in that it allows the taking of private property
filing and approval,10 assignment/transfer 11 and withdrawal,12 and fixes their terms.13 Similar
without the determination of public use and for just compensation;
provisions govern financial or technical assistance agreements.14

III
The law prescribes the qualifications of contractors15 and grants them certain rights, including
timber,16 water17 and easement18 rights, and the right to possess explosives.19 Surface owners,
occupants, or concessionaires are forbidden from preventing holders of mining rights from x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
entering private lands and concession areas.20 A procedure for the settlement of conflicts is Act No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of the Constitution;
likewise provided for.21
IV
The Act restricts the conditions for exploration,22 quarry23 and other24 permits. It regulates the
transport, sale and processing of minerals,25 and promotes the development of mining
communities, science and mining technology,26 and safety and environmental protection.27 x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows enjoyment by foreign citizens as
well as fully foreign owned corporations of the nation's marine wealth contrary to Section 2,
The government's share in the agreements is spelled out and allocated, 28 taxes and fees are paragraph 2 of Article XII of the Constitution;
imposed,29 incentives granted.30 Aside from penalizing certain acts,31 the law likewise specifies
grounds for the cancellation, revocation and termination of agreements and permits.32
V

On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and Manila
Times, two newspapers of general circulation, R.A. No. 7942 took effect.33 Shortly before the
effectivity of R.A. No. 7942, however, or on March 30, 1995, the President entered into an FTAA
with WMCP covering 99,387 hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur
and North Cotabato.34
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows priority to foreign and fully foreign
owned corporations in the exploration, development and utilization of mineral resources contrary
to Article XII of the Constitution;

On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order
(DAO) No. 95-23, s. 1995, otherwise known as the Implementing Rules and Regulations of R.A.
No. 7942. This was later repealed by DAO No. 96-40, s. 1996 which was adopted on December
20, 1996.
On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary demanding
that the DENR stop the implementation of R.A. No. 7942 and DAO No. 96-40, 35 giving the DENR
fifteen days from receipt36 to act thereon. The DENR, however, has yet to respond or act on
petitioners' letter.37
VI
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows the inequitable sharing of wealth
contrary to Sections [sic] 1, paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the
Constitution;
VII
x x x in recommending approval of and implementing the Financial and Technical Assistance
Agreement between the President of the Republic of the Philippines and Western Mining
Corporation Philippines Inc. because the same is illegal and unconstitutional.40
They pray that the Court issue an order:
It bears stressing that this case has not been rendered moot either by the transfer and
registration of the FTAA to a Filipino-owned corporation or by the non-issuance of a temporary
restraining order or a preliminary injunction to stay the above-said July 23, 2002 decision of the
Office of the President.53 The validity of the transfer remains in dispute and awaits final judicial
determination. This assumes, of course, that such transfer cures the FTAA's alleged
unconstitutionality, on which question judgment is reserved.

(a) Permanently enjoining respondents from acting on any application for Financial or
Technical Assistance Agreements;
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as
unconstitutional and null and void;
(c) Declaring the Implementing Rules and Regulations of the Philippine Mining Act
contained in DENR Administrative Order No. 96-40 and all other similar administrative
issuances as unconstitutional and null and void; and
WMCP also points out that the original claimowners of the major mineralized areas included in
the WMCP FTAA, namely, Sagittarius, Tampakan Mining Corporation, and Southcot Mining
Corporation, are all Filipino-owned corporations, 54 each of which was a holder of an approved
Mineral Production Sharing Agreement awarded in 1994, albeit their respective mineral claims
were subsumed in the WMCP FTAA;55 and that these three companies are the same companies
that consolidated their interests in Sagittarius to whom WMC sold its 100% equity in
WMCP.56 WMCP concludes that in the event that the FTAA is invalidated, the MPSAs of the
three corporations would be revived and the mineral claims would revert to their original
claimants.57

These circumstances, while informative, are hardly significant in the resolution of this case, it
(d) Cancelling the Financial and Technical Assistance Agreement issued to Western involving the validity of the FTAA, not the possible consequences of its invalidation.
Mining Philippines, Inc. as unconstitutional, illegal and null and void.41

Of the above-enumerated seven grounds cited by petitioners, as will be shown later, only the
Impleaded as public respondents are Ruben Torres, the then Executive Secretary, Victor O. first and the last need be delved into; in the latter, the discussion shall dwell only insofar as it
Ramos, the then DENR Secretary, and Horacio Ramos, Director of the Mines and Geosciences questions the effectivity of E. O. No. 279 by virtue of which order the questioned FTAA was
Bureau of the DENR. Also impleaded is private respondent WMCP, which entered into the forged.
assailed FTAA with the Philippine Government. WMCP is owned by WMC Resources
International Pty., Ltd. (WMC), "a wholly owned subsidiary of Western Mining Corporation
Holdings Limited, a publicly listed major Australian mining and exploration company." 42 By I
WMCP's information, "it is a 100% owned subsidiary of WMC LIMITED."43
Before going into the substantive issues, the procedural questions posed by respondents shall
Respondents, aside from meeting petitioners' contentions, argue that the requisites for judicial first be tackled.
inquiry have not been met and that the petition does not comply with the criteria for prohibition
and mandamus. Additionally, respondent WMCP argues that there has been a violation of the
REQUISITES FOR JUDICIAL REVIEW
rule on hierarchy of courts.

When an issue of constitutionality is raised, this Court can exercise its power of judicial review
After petitioners filed their reply, this Court granted due course to the petition. The parties have
only if the following requisites are present:
since filed their respective memoranda.

(1) The existence of an actual and appropriate case;

WMCP subsequently filed a Manifestation dated September 25, 2002 alleging that on January
23, 2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc. (Sagittarius), a corporation
organized under Philippine laws.44 WMCP was subsequently renamed "Tampakan Mineral (2) A personal and substantial interest of the party raising the constitutional question;
Resources Corporation."45 WMCP claims that at least 60% of the equity of Sagittarius is owned
by Filipinos and/or Filipino-owned corporations while about 40% is owned by Indophil Resources
(3) The exercise of judicial review is pleaded at the earliest opportunity; and
NL, an Australian company.46 It further claims that by such sale and transfer of shares, "WMCP
has ceased to be connected in any way with WMC."47
(4) The constitutional question is the lis mota of the case. 58
By virtue of such sale and transfer, the DENR Secretary, by Order of December 18,
2001,48 approved the transfer and registration of the subject FTAA from WMCP to Sagittarius. Respondents claim that the first three requisites are not present.
Said Order, however, was appealed by Lepanto Consolidated Mining Co. (Lepanto) to the Office
of the President which upheld it by Decision of July 23, 2002. 49 Its motion for reconsideration
Section 1, Article VIII of the Constitution states that "(j)udicial power includes the duty of the
having been denied by the Office of the President by Resolution of November 12,
courts of justice to settle actual controversies involving rights which are legally demandable and
2002,50 Lepanto filed a petition for review51 before the Court of Appeals. Incidentally, two other
enforceable." The power of judicial review, therefore, is limited to the determination of actual
petitions for review related to the approval of the transfer and registration of the FTAA to
cases and controversies.59
Sagittarius were recently resolved by this Court.52
An actual case or controversy means an existing case or controversy that is appropriate or ripe As earlier stated, petitioners meet this requirement.
for determination, not conjectural or anticipatory, 60 lest the decision of the court would amount to
an advisory opinion.61 The power does not extend to hypothetical questions 62 since any attempt
The challenge against the constitutionality of R.A. No. 7942 and DAO No. 96-40 likewise fulfills
at abstraction could only lead to dialectics and barren legal questions and to sterile conclusions
the requisites of justiciability. Although these laws were not in force when the subject FTAA was
unrelated to actualities.63
entered into, the question as to their validity is ripe for adjudication.

"Legal standing" or locus standi has been defined as a personal and substantial interest in the
The WMCP FTAA provides:
case such that the party has sustained or will sustain direct injury as a result of the governmental
act that is being challenged,64 alleging more than a generalized grievance. 65 The gist of the
question of standing is whether a party alleges "such personal stake in the outcome of the 14.3 Future Legislation
controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court depends for illumination of difficult constitutional questions." 66 Unless a
Any term and condition more favourable to Financial &Technical Assistance Agreement
person is injuriously affected in any of his constitutional rights by the operation of statute or
contractors resulting from repeal or amendment of any existing law or regulation or from the
ordinance, he has no standing.67
enactment of a law, regulation or administrative order shall be considered a part of this
Agreement.
Petitioners traverse a wide range of sectors. Among them are La Bugal B'laan Tribal
Association, Inc., a farmers and indigenous people's cooperative organized under Philippine
It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain provisions that are more
laws representing a community actually affected by the mining activities of WMCP, members of
favorable to WMCP, hence, these laws, to the extent that they are favorable to WMCP, govern
said cooperative,68 as well as other residents of areas also affected by the mining activities of
the FTAA.
WMCP.69 These petitioners have standing to raise the constitutionality of the questioned FTAA
as they allege a personal and substantial injury. They claim that they would suffer "irremediable
displacement"70 as a result of the implementation of the FTAA allowing WMCP to conduct mining In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing agreements.
activities in their area of residence. They thus meet the appropriate case requirement as they
assert an interest adverse to that of respondents who, on the other hand, insist on the FTAA's
validity. SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. – x x x That the provisions of
Chapter XIV on government share in mineral production-sharing agreement and of Chapter XVI
on incentives of this Act shall immediately govern and apply to a mining lessee or contractor
In view of the alleged impending injury, petitioners also have standing to assail the validity of unless the mining lessee or contractor indicates his intention to the secretary, in writing, not to
E.O. No. 279, by authority of which the FTAA was executed. avail of said provisions x x x Provided, finally, That such leases, production-sharing agreements,
financial or technical assistance agreements shall comply with the applicable provisions of this
Act and its implementing rules and regulations.
Public respondents maintain that petitioners, being strangers to the FTAA, cannot sue either or
both contracting parties to annul it.71 In other words, they contend that petitioners are not real
parties in interest in an action for the annulment of contract. As there is no suggestion that WMCP has indicated its intention not to avail of the provisions of
Chapter XVI of R.A. No. 7942, it can safely be presumed that they apply to the WMCP FTAA.
Public respondents' contention fails. The present action is not merely one for annulment of
contract but for prohibition and mandamus. Petitioners allege that public respondents acted Misconstruing the application of the third requisite for judicial review – that the exercise of the
without or in excess of jurisdiction in implementing the FTAA, which they submit is review is pleaded at the earliest opportunity – WMCP points out that the petition was filed only
unconstitutional. As the case involves constitutional questions, this Court is not concerned with almost two years after the execution of the FTAA, hence, not raised at the earliest opportunity.
whether petitioners are real parties in interest, but with whether they have legal standing. As
held in Kilosbayan v. Morato:72
The third requisite should not be taken to mean that the question of constitutionality must be
raised immediately after the execution of the state action complained of. That the question of
x x x. "It is important to note . . . that standing because of its constitutional and public policy constitutionality has not been raised before is not a valid reason for refusing to allow it to be
underpinnings, is very different from questions relating to whether a particular plaintiff is the real raised later.73 A contrary rule would mean that a law, otherwise unconstitutional, would lapse into
party in interest or has capacity to sue. Although all three requirements are directed towards constitutionality by the mere failure of the proper party to promptly file a case to challenge the
ensuring that only certain parties can maintain an action, standing restrictions require a partial same.
consideration of the merits, as well as broader policy concerns relating to the proper role of the
judiciary in certain areas.["] (FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328
[1985]) PROPRIETY OF PROHIBITION AND MANDAMUS

Standing is a special concern in constitutional law because in some cases suits are brought not
by parties who have been personally injured by the operation of a law or by official action taken,
but by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence, the
question in standing is whether such parties have "alleged such a personal stake in the outcome
of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional
questions." (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633 [1962].)
Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of Rule 65
read:
SEC. 2. Petition for prohibition. – When the proceedings of any tribunal, corporation, board, or
person, whether exercising functions judicial or ministerial, are without or in excess of its or his
jurisdiction, or with grave abuse of discretion, and there is no appeal or any other plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court alleging the facts with certainty and praying that judgment be
rendered commanding the defendant to desist from further proceeding in the action or matter
specified therein.
Prohibition is a preventive remedy.74 It seeks a judgment ordering the defendant to desist from
continuing with the commission of an act perceived to be illegal.75
The petition for prohibition at bar is thus an appropriate remedy. While the execution of the
contract itself may be fait accompli, its implementation is not. Public respondents, in behalf of the
Government, have obligations to fulfill under said contract. Petitioners seek to prevent them from
fulfilling such obligations on the theory that the contract is unconstitutional and, therefore, void.
The propriety of a petition for prohibition being upheld, discussion of the propriety of the
mandamus aspect of the petition is rendered unnecessary.
HIERARCHY OF COURTS
The contention that the filing of this petition violated the rule on hierarchy of courts does not
likewise lie. The rule has been explained thus:
Between two courts of concurrent original jurisdiction, it is the lower court that should initially
pass upon the issues of a case. That way, as a particular case goes through the hierarchy of
courts, it is shorn of all but the important legal issues or those of first impression, which are the
proper subject of attention of the appellate court. This is a procedural rule borne of experience
and adopted to improve the administration of justice.
This Court has consistently enjoined litigants to respect the hierarchy of courts. Although this
Court has concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to
issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction,
such concurrence does not give a party unrestricted freedom of choice of court forum. The resort
to this Court's primary jurisdiction to issue said writs shall be allowed only where the redress
desired cannot be obtained in the appropriate courts or where exceptional and compelling
circumstances justify such invocation. We held in People v. Cuaresma that:
II
Petitioners contend that E.O. No. 279 did not take effect because its supposed date of effectivity
came after President Aquino had already lost her legislative powers under the Provisional
Constitution.
And they likewise claim that the WMC FTAA, which was entered into pursuant to E.O. No. 279,
violates Section 2, Article XII of the Constitution because, among other reasons:
(1) It allows foreign-owned companies to extend more than mere financial or technical
assistance to the State in the exploitation, development, and utilization of minerals,
petroleum, and other mineral oils, and even permits foreign owned companies to
"operate and manage mining activities."
(2) It allows foreign-owned companies to extend both technical and financial
assistance, instead of "either technical or financial assistance."
To appreciate the import of these issues, a visit to the history of the pertinent constitutional
provision, the concepts contained therein, and the laws enacted pursuant thereto, is in order.
Section 2, Article XII reads in full:
Sec. 2. All 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. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, beneficial use may be
the measure and limit of the grant.

A becoming regard for judicial hierarchy most certainly indicates that petitions for the issuance of The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
extraordinary writs against first level ("inferior") courts should be filed with the Regional Trial exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
Court, and those against the latter, with the Court of Appeals. A direct invocation of the Supreme
Court's original jurisdiction to issue these writs should be allowed only where there are special
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens,
and important reasons therefor, clearly and specifically set out in the petition. This is established
as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in
policy. It is a policy necessary to prevent inordinate demands upon the Court's time and attention
rivers, lakes, bays, and lagoons.
which are better devoted to those matters within its exclusive jurisdiction, and to prevent further
over-crowding of the Court's docket x x x.76 [Emphasis supplied.]
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
The repercussions of the issues in this case on the Philippine mining industry, if not the national
minerals, petroleum, and other mineral oils according to the general terms and conditions
economy, as well as the novelty thereof, constitute exceptional and compelling circumstances to
provided by law, based on real contributions to the economic growth and general welfare of the
justify resort to this Court in the first instance.
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.
In all events, this Court has the discretion to take cognizance of a suit which does not satisfy the
requirements of an actual case or legal standing when paramount public interest is
The President shall notify the Congress of every contract entered into in accordance with this
involved.77 When the issues raised are of paramount importance to the public, this Court may
provision, within thirty days from its execution.
brush aside technicalities of procedure.78
THE SPANISH REGIME AND THE REGALIAN DOCTRINE
The first sentence of Section 2 embodies the Regalian doctrine or jura regalia. Introduced by
Spain into these Islands, this feudal concept is based on the State's power of dominium, which is
the capacity of the State to own or acquire property.79
In its broad sense, the term "jura regalia" refers to royal rights, or those rights which the King has
by virtue of his prerogatives. In Spanish law, it refers to a right which the sovereign has over
anything in which a subject has a right of property or propriedad. These were rights enjoyed
during feudal times by the king as the sovereign.
The theory of the feudal system was that title to all lands was originally held by the King, and
while the use of lands was granted out to others who were permitted to hold them under certain
conditions, the King theoretically retained the title. By fiction of law, the King was regarded as
the original proprietor of all lands, and the true and only source of title, and from him all lands
were held. The theory of jura regalia was therefore nothing more than a natural fruit of
conquest.80
persons, even the State, from exploiting minerals within his property.89 Thus, earlier
jurisprudence90 held that:
A valid and subsisting location of mineral land, made and kept up in accordance with the
provisions of the statutes of the United States, has the effect of a grant by the United States of
the present and exclusive possession of the lands located, and this exclusive right of possession
and enjoyment continues during the entire life of the location. x x x.
x x x.
The discovery of minerals in the ground by one who has a valid mineral location perfects his
claim and his location not only against third persons, but also against the Government. x x x.
[Italics in the original.]
The Regalian doctrine and the American system, therefore, differ in one essential respect. Under
the Regalian theory, mineral rights are not included in a grant of land by the state; under the
American doctrine, mineral rights are included in a grant of land by the government.91

The Philippines having passed to Spain by virtue of discovery and conquest, 81 earlier Spanish
Section 21 also made possible the concession (frequently styled "permit", license" or
decrees declared that "all lands were held from the Crown."82
"lease")92 system.93 This was the traditional regime imposed by the colonial administrators for the
exploitation of natural resources in the extractive sector (petroleum, hard minerals, timber,
The Regalian doctrine extends not only to land but also to "all natural wealth that may be found etc.).94
in the bowels of the earth."83 Spain, in particular, recognized the unique value of natural
resources, viewing them, especially minerals, as an abundant source of revenue to finance its
Under the concession system, the concessionaire makes a direct equity investment for the
wars against other nations.84 Mining laws during the Spanish regime reflected this perspective.85
purpose of exploiting a particular natural resource within a given area. 95 Thus, the concession
amounts to complete control by the concessionaire over the country's natural resource, for it is
THE AMERICAN OCCUPATION AND THE CONCESSION REGIME given exclusive and plenary rights to exploit a particular resource at the point of extraction. 96 In
consideration for the right to exploit a natural resource, the concessionaire either pays rent or
royalty, which is a fixed percentage of the gross proceeds.97
By the Treaty of Paris of December 10, 1898, Spain ceded "the archipelago known as the
Philippine Islands" to the United States. The Philippines was hence governed by means of
organic acts that were in the nature of charters serving as a Constitution of the occupied territory Later statutory enactments by the legislative bodies set up in the Philippines adopted the
from 1900 to 1935.86 Among the principal organic acts of the Philippines was the Act of contractual framework of the concession.98 For instance, Act No. 2932,99 approved on August 31,
Congress of July 1, 1902, more commonly known as the Philippine Bill of 1902, through which 1920, which provided for the exploration, location, and lease of lands containing petroleum and
the United States Congress assumed the administration of the Philippine Islands. 87 Section 20 of other mineral oils and gas in the Philippines, and Act No. 2719,100 approved on May 14, 1917,
said Bill reserved the disposition of mineral lands of the public domain from sale. Section 21 which provided for the leasing and development of coal lands in the Philippines, both utilized the
thereof allowed the free and open exploration, occupation and purchase of mineral deposits not concession system.101
only to citizens of the Philippine Islands but to those of the United States as well:
THE 1935 CONSTITUTION AND THE NATIONALIZATION OF NATURAL RESOURCES
Sec. 21. That all valuable mineral deposits in public lands in the Philippine Islands, both
surveyed and unsurveyed, are hereby declared to be free and open to exploration, occupation
By the Act of United States Congress of March 24, 1934, popularly known as the Tydings-
and purchase, and the land in which they are found, to occupation and purchase, by citizens of
McDuffie Law, the People of the Philippine Islands were authorized to adopt a constitution. 102 On
the United States or of said Islands: Provided, That when on any lands in said Islands entered
July 30, 1934, the Constitutional Convention met for the purpose of drafting a constitution, and
and occupied as agricultural lands under the provisions of this Act, but not patented, mineral
the Constitution subsequently drafted was approved by the Convention on February 8,
deposits have been found, the working of such mineral deposits is forbidden until the person,
1935.103 The Constitution was submitted to the President of the United States on March 18,
association, or corporation who or which has entered and is occupying such lands shall have
1935.104 On March 23, 1935, the President of the United States certified that the Constitution
paid to the Government of said Islands such additional sum or sums as will make the total
conformed substantially with the provisions of the Act of Congress approved on March 24,
amount paid for the mineral claim or claims in which said deposits are located equal to the
1934.105 On May 14, 1935, the Constitution was ratified by the Filipino people.106
amount charged by the Government for the same as mineral claims.

The 1935 Constitution adopted the Regalian doctrine, declaring all natural resources of the
Unlike Spain, the United States considered natural resources as a source of wealth for its
Philippines, including mineral lands and minerals, to be property belonging to the State. 107 As
nationals and saw fit to allow both Filipino and American citizens to explore and exploit minerals
adopted in a republican system, the medieval concept of jura regalia is stripped of royal
in public lands, and to grant patents to private mineral lands. 88 A person who acquired ownership
overtones and ownership of the land is vested in the State.108
over a parcel of private mineral land pursuant to the laws then prevailing could exclude other
Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935
Constitution provided:
SECTION 1. 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 State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the Philippines, or
to corporations or associations at least sixty per centum of the capital of which is
owned by such citizens, subject to any existing right, grant, lease, or concession at the
time of the inauguration of the Government established under this Constitution.
Natural resources, with the exception of public agricultural land, shall not be alienated,
and no license, concession, or lease for the exploitation, development, or utilization of
any of the natural resources shall be granted for a period exceeding twenty-five years,
except as to water rights for irrigation, water supply, fisheries, or industrial uses other
than the development of water power, in which cases beneficial use may be the
measure and the limit of the grant.
The nationalization and conservation of the natural resources of the country was one of the fixed
and dominating objectives of the 1935 Constitutional Convention.109 One delegate relates:
There was an overwhelming sentiment in the Convention in favor of the principle of state
ownership of natural resources and the adoption of the Regalian doctrine. State ownership of
natural resources was seen as a necessary starting point to secure recognition of the state's
power to control their disposition, exploitation, development, or utilization. The delegates of the
Constitutional Convention very well knew that the concept of State ownership of land and natural
resources was introduced by the Spaniards, however, they were not certain whether it was
continued and applied by the Americans. To remove all doubts, the Convention approved the
provision in the Constitution affirming the Regalian doctrine.
The adoption of the principle of state ownership of the natural resources and of the Regalian
doctrine was considered to be a necessary starting point for the plan of nationalizing and
conserving the natural resources of the country. For with the establishment of the principle of
state ownership of the natural resources, it would not be hard to secure the recognition of the
power of the State to control their disposition, exploitation, development or utilization.110
The nationalization of the natural resources was intended (1) to insure their conservation for
Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the
extension to the country of foreign control through peaceful economic penetration; and (3) to
avoid making the Philippines a source of international conflicts with the consequent danger to its
internal security and independence.111
The same Section 1, Article XIII also adopted the concession system, expressly permitting the
State to grant licenses, concessions, or leases for the exploitation, development, or utilization of
any of the natural resources. Grants, however, were limited to Filipinos or entities at least 60% of
the capital of which is owned by Filipinos.lawph!l.ne+
The swell of nationalism that suffused the 1935 Constitution was radically diluted when on
November 1946, the Parity Amendment, which came in the form of an "Ordinance Appended to
the Constitution," was ratified in a plebiscite. 112 The Amendment extended, from July 4, 1946 to
July 3, 1974, the right to utilize and exploit our natural resources to citizens of the United States
and business enterprises owned or controlled, directly or indirectly, by citizens of the United
States:113
Notwithstanding the provision of section one, Article Thirteen, and section eight, Article
Fourteen, of the foregoing Constitution, during the effectivity of the Executive Agreement entered
into by the President of the Philippines with the President of the United States on the fourth of
July, nineteen hundred and forty-six, pursuant to the provisions of Commonwealth Act
Numbered Seven hundred and thirty-three, but in no case to extend beyond the third of July,
nineteen hundred and seventy-four, the disposition, exploitation, development, and utilization of
all agricultural, timber, and mineral lands of the public domain, waters, minerals, coals,
petroleum, and other mineral oils, all forces and sources of potential energy, and other natural
resources of the Philippines, and the operation of public utilities, shall, if open to any person, be
open to citizens of the United States and to all forms of business enterprise owned or controlled,
directly or indirectly, by citizens of the United States in the same manner as to, and under the
same conditions imposed upon, citizens of the Philippines or corporations or associations owned
or controlled by citizens of the Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade Agreement, also
known as the Laurel-Langley Agreement, embodied in Republic Act No. 1355.114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387, 115 also known as the Petroleum Act of 1949, was
approved on June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the exploitation of the nation's
petroleum resources. Among the kinds of concessions it sanctioned were exploration and
exploitation concessions, which respectively granted to the concessionaire the exclusive right to
explore for116 or develop117 petroleum within specified areas.
Concessions may be granted only to duly qualified persons 118 who have sufficient finances,
organization, resources, technical competence, and skills necessary to conduct the operations to
be undertaken.119
Nevertheless, the Government reserved the right to undertake such work itself. 120 This
proceeded from the theory that all natural deposits or occurrences of petroleum or natural gas in
public and/or private lands in the Philippines belong to the State. 121 Exploration and exploitation
concessions did not confer upon the concessionaire ownership over the petroleum lands and
petroleum deposits.122 However, they did grant concessionaires the right to explore, develop,
exploit, and utilize them for the period and under the conditions determined by the law.123
Concessions were granted at the complete risk of the concessionaire; the Government did not
guarantee the existence of petroleum or undertake, in any case, title warranty.124
Concessionaires were required to submit information as maybe required by the Secretary of
Agriculture and Natural Resources, including reports of geological and geophysical
examinations, as well as production reports.125 Exploration126 and exploitation127 concessionaires
were also required to submit work programs.lavvphi1.net
Exploitation concessionaires, in particular, were obliged to pay an annual exploitation tax, 128 the
object of which is to induce the concessionaire to actually produce petroleum, and not simply to
sit on the concession without developing or exploiting it.129 These concessionaires were also
bound to pay the Government royalty, which was not less than 12½% of the petroleum produced
and saved, less that consumed in the operations of the concessionaire. 130 Under Article 66, R.A.
No. 387, the exploitation tax may be credited against the royalties so that if the concessionaire
shall be actually producing enough oil, it would not actually be paying the exploitation tax.131
Failure to pay the annual exploitation tax for two consecutive years,132 or the royalty due to the
Government within one year from the date it becomes due,133 constituted grounds for the
cancellation of the concession. In case of delay in the payment of the taxes or royalty imposed
by the law or by the concession, a surcharge of 1% per month is exacted until the same are
paid.134
As a rule, title rights to all equipment and structures that the concessionaire placed on the land
belong to the exploration or exploitation concessionaire. 135 Upon termination of such concession,
the concessionaire had a right to remove the same.136
The Secretary of Agriculture and Natural Resources was tasked with carrying out the provisions
of the law, through the Director of Mines, who acted under the Secretary's immediate
supervision and control.137 The Act granted the Secretary the authority to inspect any operation
of the concessionaire and to examine all the books and accounts pertaining to operations or
conditions related to payment of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical
Board.139 The Administration Unit was charged, inter alia, with the enforcement of the provisions
of the law.140 The Technical Board had, among other functions, the duty to check on the
performance of concessionaires and to determine whether the obligations imposed by the Act
and its implementing regulations were being complied with.141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development, analyzed
the benefits and drawbacks of the concession system insofar as it applied to the petroleum
industry:
Advantages of Concession. Whether it emphasizes income tax or royalty, the most positive
aspect of the concession system is that the State's financial involvement is virtually risk free and
administration is simple and comparatively low in cost. Furthermore, if there is a competitive
allocation of the resource leading to substantial bonuses and/or greater royalty coupled with a
relatively high level of taxation, revenue accruing to the State under the concession system may
compare favorably with other financial arrangements.
Disadvantages of Concession. There are, however, major negative aspects to this system.
Because the Government's role in the traditional concession is passive, it is at a distinct
disadvantage in managing and developing policy for the nation's petroleum resource. This is true
for several reasons. First, even though most concession agreements contain covenants
requiring diligence in operations and production, this establishes only an indirect and passive
control of the host country in resource development. Second, and more importantly, the fact that
the host country does not directly participate in resource management decisions inhibits its
ability to train and employ its nationals in petroleum development. This factor could delay or
prevent the country from effectively engaging in the development of its resources. Lastly, a direct
role in management is usually necessary in order to obtain a knowledge of the international
petroleum industry which is important to an appreciation of the host country's resources in
relation to those of other countries.142
Other liabilities of the system have also been noted:
owner of the natural resource being exploited, it has been shorn of all elements of control over
such natural resource because of the exclusive nature of the contractual regime of the
concession. The concession system, investing as it does ownership of natural resources,
constitutes a consistent inconsistency with the principle embodied in our Constitution that natural
resources belong to the state and shall not be alienated, not to mention the fact that the
concession was the bedrock of the colonial system in the exploitation of natural resources.143
Eventually, the concession system failed for reasons explained by Dimagiba:
Notwithstanding the good intentions of the Petroleum Act of 1949, the concession system could
not have properly spurred sustained oil exploration activities in the country, since it assumed that
such a capital-intensive, high risk venture could be successfully undertaken by a single
individual or a small company. In effect, concessionaires' funds were easily exhausted.
Moreover, since the concession system practically closed its doors to interested foreign
investors, local capital was stretched to the limits. The old system also failed to consider the
highly sophisticated technology and expertise required, which would be available only to
multinational companies.144
A shift to a new regime for the development of natural resources thus seemed imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION AND THE SERVICE
CONTRACT SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87,145 otherwise known as
The Oil Exploration and Development Act of 1972 signaled such a transformation. P.D. No. 87
permitted the government to explore for and produce indigenous petroleum through "service
contracts."146
"Service contracts" is a term that assumes varying meanings to different people, and it has
carried many names in different countries, like "work contracts" in Indonesia, "concession
agreements" in Africa, "production-sharing agreements" in the Middle East, and "participation
agreements" in Latin America.147 A functional definition of "service contracts" in the Philippines is
provided as follows:
A service contract is a contractual arrangement for engaging in the exploitation and development
of petroleum, mineral, energy, land and other natural resources by which a government or its
agency, or a private person granted a right or privilege by the government authorizes the other
party (service contractor) to engage or participate in the exercise of such right or the enjoyment
of the privilege, in that the latter provides financial or technical resources, undertakes the
exploitation or production of a given resource, or directly manages the productive enterprise,
operations of the exploration and exploitation of the resources or the disposition of marketing or
resources.148
In a service contract under P.D. No. 87, service and technology are furnished by the service
contractor for which it shall be entitled to the stipulated service fee. 149 The contractor must be
technically competent and financially capable to undertake the operations required in the
contract.150

x x x there are functional implications which give the concessionaire great economic power
Financing is supposed to be provided by the Government to which all petroleum produced
arising from its exclusive equity holding. This includes, first, appropriation of the returns of the
belongs.151 In case the Government is unable to finance petroleum exploration operations, the
undertaking, subject to a modest royalty; second, exclusive management of the project; third,
contractor may furnish services, technology and financing, and the proceeds of sale of the
control of production of the natural resource, such as volume of production, expansion, research
petroleum produced under the contract shall be the source of funds for payment of the service
and development; and fourth, exclusive responsibility for downstream operations, like
fee and the operating expenses due the contractor. 152 The contractor shall undertake, manage
processing, marketing, and distribution. In short, even if nominally, the state is the sovereign and
and execute petroleum operations, subject to the government overseeing the management of
the operations.153 The contractor provides all necessary services and technology and the
requisite financing, performs the exploration work obligations, and assumes all exploration risks
such that if no petroleum is produced, it will not be entitled to reimbursement. 154 Once petroleum
in commercial quantity is discovered, the contractor shall operate the field on behalf of the
government.155
P.D. No. 87 prescribed minimum terms and conditions for every service contract. 156 It also
granted the contractor certain privileges, including exemption from taxes and payment of tariff
duties,157 and permitted the repatriation of capital and retention of profits abroad.158
Ostensibly, the service contract system had certain advantages over the concession regime. 159 It
has been opined, though, that, in the Philippines, our concept of a service contract, at least in
the petroleum industry, was basically a concession regime with a production-sharing element.160
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of a new
Constitution.161 Article XIV on the National Economy and Patrimony contained provisions similar
to the 1935 Constitution with regard to Filipino participation in the nation's natural resources.
Section 8, Article XIV thereof provides:
Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils,
all forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines
belong to the State. With the exception of agricultural, industrial or commercial, residential and
resettlement lands of the public domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, renewable for not
more than twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases beneficial use may be
the measure and the limit of the grant.
While Section 9 of the same Article maintained the Filipino-only policy in the enjoyment of
natural resources, it also allowed Filipinos, upon authority of the Batasang Pambansa, to enter
into service contracts with any person or entity for the exploration or utilization of natural
resources.
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens, or to corporations or associations at least
sixty per centum of which is owned by such citizens. The Batasang Pambansa, in the national
interest, may allow such citizens, corporations or associations to enter into service contracts for
financial, technical, management, or other forms of assistance with any person or entity for the
exploration, or utilization of any of the natural resources. Existing valid and binding service
contracts for financial, technical, management, or other forms of assistance are hereby
recognized as such. [Emphasis supplied.]
The concept of service contracts, according to one delegate, was borrowed from the methods
followed by India, Pakistan and especially Indonesia in the exploration of petroleum and mineral
oils.162 The provision allowing such contracts, according to another, was intended to "enhance
the proper development of our natural resources since Filipino citizens lack the needed capital
and technical know-how which are essential in the proper exploration, development and
exploitation of the natural resources of the country."163
The original idea was to authorize the government, not private entities, to enter into service
contracts with foreign entities.164 As finally approved, however, a citizen or private entity could be
allowed by the National Assembly to enter into such service contract.165 The prior approval of the
National Assembly was deemed sufficient to protect the national interest.166 Notably, none of the
laws allowing service contracts were passed by the Batasang Pambansa. Indeed, all of them
were enacted by presidential decree.
On March 13, 1973, shortly after the ratification of the new Constitution, the President
promulgated Presidential Decree No. 151.167 The law allowed Filipino citizens or entities which
have acquired lands of the public domain or which own, hold or control such lands to enter into
service contracts for financial, technical, management or other forms of assistance with any
foreign persons or entity for the exploration, development, exploitation or utilization of said
lands.168
Presidential Decree No. 463,169 also known as The Mineral Resources Development Decree of
1974, was enacted on May 17, 1974. Section 44 of the decree, as amended, provided that a
lessee of a mining claim may enter into a service contract with a qualified domestic or foreign
contractor for the exploration, development and exploitation of his claims and the processing and
marketing of the product thereof.
Presidential Decree No. 704 170 (The Fisheries Decree of 1975), approved on May 16, 1975,
allowed Filipinos engaged in commercial fishing to enter into contracts for financial, technical or
other forms of assistance with any foreign person, corporation or entity for the production,
storage, marketing and processing of fish and fishery/aquatic products.171
Presidential Decree No. 705172 (The Revised Forestry Code of the Philippines), approved on
May 19, 1975, allowed "forest products licensees, lessees, or permitees to enter into service
contracts for financial, technical, management, or other forms of assistance . . . with any foreign
person or entity for the exploration, development, exploitation or utilization of the forest
resources."173
Yet another law allowing service contracts, this time for geothermal resources, was Presidential
Decree No. 1442,174 which was signed into law on June 11, 1978. Section 1 thereof authorized
the Government to enter into service contracts for the exploration, exploitation and development
of geothermal resources with a foreign contractor who must be technically and financially
capable of undertaking the operations required in the service contract.
Thus, virtually the entire range of the country's natural resources –from petroleum and minerals
to geothermal energy, from public lands and forest resources to fishery products – was well
covered by apparent legal authority to engage in the direct participation or involvement of foreign
persons or corporations (otherwise disqualified) in the exploration and utilization of natural
resources through service contracts.175
THE 1987 CONSTITUTION AND TECHNICAL OR FINANCIAL ASSISTANCE AGREEMENTS
After the February 1986 Edsa Revolution, Corazon C. Aquino took the reins of power under a
revolutionary government. On March 25, 1986, President Aquino issued Proclamation No.
3,176 promulgating the Provisional Constitution, more popularly referred to as the Freedom
Constitution. By authority of the same Proclamation, the President created a Constitutional
Commission (CONCOM) to draft a new constitution, which took effect on the date of its
ratification on February 2, 1987.177
The 1987 Constitution retained the Regalian doctrine. The first sentence of Section 2, Article XII
states: "All 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."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution, in the second sentence of
the same provision, prohibits the alienation of natural resources, except agricultural lands.
The third sentence of the same paragraph is new: "The exploration, development and utilization
of natural resources shall be under the full control and supervision of the State." The
constitutional policy of the State's "full control and supervision" over natural resources proceeds
from the concept of jura regalia, as well as the recognition of the importance of the country's
natural resources, not only for national economic development, but also for its security and
national defense.178 Under this provision, the State assumes "a more dynamic role" in the
exploration, development and utilization of natural resources.179
Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions
authorizing the State to grant licenses, concessions, or leases for the exploration, exploitation,
development, or utilization of natural resources. By such omission, the utilization of inalienable
lands of public domain through "license, concession or lease" is no longer allowed under the
1987 Constitution.180
Although Section 2 sanctions the participation of foreign-owned corporations in the exploration,
development, and utilization of natural resources, it imposes certain limitations or conditions to
agreements with such corporations.
First, the parties to FTAAs. Only the President, in behalf of the State, may enter into
these agreements, and only with corporations. By contrast, under the 1973
Constitution, a Filipino citizen, corporation or association may enter into a service
contract with a "foreign person or entity."
Second, the size of the activities: only large-scale exploration, development, and
utilization is allowed. The term "large-scale usually refers to very capital-intensive
activities."183
Third, the natural resources subject of the activities is restricted to minerals, petroleum
and other mineral oils, the intent being to limit service contracts to those areas where
Filipino capital may not be sufficient.184

Having omitted the provision on the concession system, Section 2 proceeded to introduce
Fourth, consistency with the provisions of statute. The agreements must be in
"unfamiliar language":181
accordance with the terms and conditions provided by law.

The State may directly undertake such activities or it may enter into co-production, joint venture,
Fifth, Section 2 prescribes certain standards for entering into such agreements. The
or production-sharing agreements with Filipino citizens, or corporations or associations at least
agreements must be based on real contributions to economic growth and general
sixty per centum of whose capital is owned by such citizens.
welfare of the country.

Consonant with the State's "full supervision and control" over natural resources, Section 2 offers
Sixth, the agreements must contain rudimentary stipulations for the promotion of the
the State two "options."182 One, the State may directly undertake these activities itself; or two, it
development and use of local scientific and technical resources.
may enter into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or entities at least 60% of whose capital is owned by such citizens.
Seventh, the notification requirement. The President shall notify Congress of every
financial or technical assistance agreement entered into within thirty days from its
A third option is found in the third paragraph of the same section:
execution.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens,
as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in
rivers, lakes, bays, and lagoons.
While the second and third options are limited only to Filipino citizens or, in the case of the
former, to corporations or associations at least 60% of the capital of which is owned by Filipinos,
a fourth allows the participation of foreign-owned corporations. The fourth and fifth paragraphs of
Section 2 provide:
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization 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. In such agreements, the State shall promote the development and use of local scientific
and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
Finally, the scope of the agreements. While the 1973 Constitution referred to "service
contracts for financial, technical, management, or other forms of assistance" the 1987
Constitution provides for "agreements. . . involving either financial or technical
assistance." It bears noting that the phrases "service contracts" and "management or
other forms of assistance" in the earlier constitution have been omitted.
By virtue of her legislative powers under the Provisional Constitution, 185 President Aquino, on
July 10, 1987, signed into law E.O. No. 211 prescribing the interim procedures in the processing
and approval of applications for the exploration, development and utilization of minerals. The
omission in the 1987 Constitution of the term "service contracts" notwithstanding, the said E.O.
still referred to them in Section 2 thereof:
Sec. 2. Applications for the exploration, development and utilization of mineral resources,
including renewal applications and applications for approval of operating agreements and mining
service contracts, shall be accepted and processed and may be approved x x x. [Emphasis
supplied.]
The same law provided in its Section 3 that the "processing, evaluation and approval of all
mining applications . . . operating agreements and service contracts . . . shall be governed by
Presidential Decree No. 463, as amended, other existing mining laws, and their implementing
rules and regulations. . . ."
As earlier stated, on the 25th also of July 1987, the President issued E.O. No. 279 by authority
of which the subject WMCP FTAA was executed on March 30, 1995.
On March 3, 1995, President Ramos signed into law R.A. No. 7942. Section 15 thereof declares
that the Act "shall govern the exploration, development, utilization, and processing of all mineral
resources." Such declaration notwithstanding, R.A. No. 7942 does not actually cover all the
modes through which the State may undertake the exploration, development, and utilization of
natural resources.
The State, being the owner of the natural resources, is accorded the primary power and
responsibility in the exploration, development and utilization thereof. As such, it may undertake
these activities through four modes:
The State may directly undertake such activities.
(2) The State may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or qualified corporations.
(3) Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens.
(4) For the large-scale exploration, development and utilization of minerals, petroleum
and other mineral oils, the President may enter into agreements with foreign-owned
corporations involving technical or financial assistance.186
Except to charge the Mines and Geosciences Bureau of the DENR with performing researches
and surveys,187 and a passing mention of government-owned or controlled corporations, 188 R.A.
No. 7942 does not specify how the State should go about the first mode. The third mode, on the
other hand, is governed by Republic Act No. 7076 189 (the People's Small-Scale Mining Act of
1991) and other pertinent laws.190 R.A. No. 7942 primarily concerns itself with the second and
fourth modes.
Mineral production sharing, co-production and joint venture agreements are collectively
classified by R.A. No. 7942 as "mineral agreements."191 The Government participates the least in
a mineral production sharing agreement (MPSA). In an MPSA, the Government grants the
contractor192 the exclusive right to conduct mining operations within a contract area 193 and shares
in the gross output.194 The MPSA contractor provides the financing, technology, management
and personnel necessary for the agreement's implementation.195 The total government share in
an MPSA is the excise tax on mineral products under Republic Act No. 7729, 196 amending
Section 151(a) of the National Internal Revenue Code, as amended.197
In a co-production agreement (CA),198 the Government provides inputs to the mining operations
other than the mineral resource, 199 while in a joint venture agreement (JVA), where the
Government enjoys the greatest participation, the Government and the JVA contractor organize
a company with both parties having equity shares.200 Aside from earnings in equity, the
Government in a JVA is also entitled to a share in the gross output. 201 The Government may
enter into a CA202 or JVA203 with one or more contractors. The Government's share in a CA or
JVA is set out in Section 81 of the law:
The share of the Government in co-production and joint venture agreements shall be negotiated
by the Government and the contractor taking into consideration the: (a) capital investment of the
project, (b) the risks involved, (c) contribution of the project to the economy, and (d) other factors
that will provide for a fair and equitable sharing between the Government and the contractor.
The Government shall also be entitled to compensations for its other contributions which shall be
agreed upon by the parties, and shall consist, among other things, the contractor's income tax,
excise tax, special allowance, withholding tax due from the contractor's foreign stockholders
arising from dividend or interest payments to the said foreign stockholders, in case of a foreign
national and all such other taxes, duties and fees as provided for under existing laws.
All mineral agreements grant the respective contractors the exclusive right to conduct mining
operations and to extract all mineral resources found in the contract area.204 A "qualified person"
may enter into any of the mineral agreements with the Government.205 A "qualified person" is
any citizen of the Philippines with capacity to contract, or a corporation, partnership, association,
or cooperative organized or authorized for the purpose of engaging in mining, with technical and
financial capability to undertake mineral resources development and duly registered in
accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens
of the Philippines x x x.206
The fourth mode involves "financial or technical assistance agreements." An FTAA is defined as
"a contract involving financial or technical assistance for large-scale exploration, development,
and utilization of natural resources."207 Any qualified person with technical and financial
capability to undertake large-scale exploration, development, and utilization of natural resources
in the Philippines may enter into such agreement directly with the Government through the
DENR.208 For the purpose of granting an FTAA, a legally organized foreign-owned corporation
(any corporation, partnership, association, or cooperative duly registered in accordance with law
in which less than 50% of the capital is owned by Filipino citizens) 209 is deemed a "qualified
person."210
Other than the difference in contractors' qualifications, the principal distinction between mineral
agreements and FTAAs is the maximum contract area to which a qualified person may hold or
be granted.211 "Large-scale" under R.A. No. 7942 is determined by the size of the contract area,
as opposed to the amount invested (US $50,000,000.00), which was the standard under E.O.
279.
Like a CA or a JVA, an FTAA is subject to negotiation. 212 The Government's contributions, in the
form of taxes, in an FTAA is identical to its contributions in the two mineral agreements, save
that in an FTAA:
The collection of Government share in financial or technical assistance agreement shall
commence after the financial or technical assistance agreement contractor has fully recovered
its pre-operating expenses, exploration, and development expenditures, inclusive.213
III
Having examined the history of the constitutional provision and statutes enacted pursuant
thereto, a consideration of the substantive issues presented by the petition is now in order.
THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279
Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did not
come into effect.
E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days before
the opening of Congress on July 27, 1987. 214 Section 8 of the E.O. states that the same "shall
take effect immediately." This provision, according to petitioners, runs counter to Section 1 of The convening of the first Congress merely precluded the exercise of legislative powers by
E.O. No. 200,215 which provides: President Aquino; it did not prevent the effectivity of laws she had previously enacted.

SECTION 1. Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it
is otherwise provided.216 [Emphasis supplied.]
On that premise, petitioners contend that E.O. No. 279 could have only taken effect fifteen days
after its publication at which time Congress had already convened and the President's power to
legislate had ceased.
Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in Miners
Association of the Philippines v. Factoran, supra. This is of course incorrect for the issue in
Miners Association was not the validity of E.O. No. 279 but that of DAO Nos. 57 and 82 which
were issued pursuant thereto.
Nevertheless, petitioners' contentions have no merit.
It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking effect on a
date other than – even before – the 15-day period after its publication. Where a law provides for
its own date of effectivity, such date prevails over that prescribed by E.O. No. 200. Indeed, this is
the very essence of the phrase "unless it is otherwise provided" in Section 1 thereof. Section 1,
E.O. No. 200, therefore, applies only when a statute does not provide for its own date of
effectivity.
There can be no question, therefore, that E.O. No. 279 is an effective, and a validly enacted,
statute.
THE CONSTITUTIONALITY OF THE WMCP FTAA
Petitioners submit that, in accordance with the text of Section 2, Article XII of the Constitution,
FTAAs should be limited to "technical or financial assistance" only. They observe, however, that,
contrary to the language of the Constitution, the WMCP FTAA allows WMCP, a fully foreign-
owned mining corporation, to extend more than mere financial or technical assistance to the
State, for it permits WMCP to manage and operate every aspect of the mining activity. 222
Petitioners' submission is well-taken. It is a cardinal rule in the interpretation of constitutions that
the instrument must be so construed as to give effect to the intention of the people who adopted
it.223 This intention is to be sought in the constitution itself, and the apparent meaning of the
words is to be taken as expressing it, except in cases where that assumption would lead to
absurdity, ambiguity, or contradiction.224 What the Constitution says according to the text of the
provision, therefore, compels acceptance and negates the power of the courts to alter it, based
on the postulate that the framers and the people mean what they say. 225 Accordingly, following
the literal text of the Constitution, assistance accorded by foreign-owned corporations in the
large-scale exploration, development, and utilization of petroleum, minerals and mineral oils
should be limited to "technical" or "financial" assistance only.

WMCP nevertheless submits that the word "technical" in the fourth paragraph of Section 2 of
What is mandatory under E.O. No. 200, and what due process requires, as this Court held in
E.O. No. 279 encompasses a "broad number of possible services," perhaps, "scientific and/or
Tañada v. Tuvera,217 is the publication of the law for without such notice and publication, there
technological in basis."226 It thus posits that it may also well include "the area of management or
would be no basis for the application of the maxim "ignorantia legis n[eminem] excusat." It would
operations . . . so long as such assistance requires specialized knowledge or skills, and are
be the height of injustice to punish or otherwise burden a citizen for the transgression of a law of
related to the exploration, development and utilization of mineral resources."227
which he had no notice whatsoever, not even a constructive one.

This Court is not persuaded. As priorly pointed out, the phrase "management or other forms of
While the effectivity clause of E.O. No. 279 does not require its publication, it is not a ground for
assistance" in the 1973 Constitution was deleted in the 1987 Constitution, which allows only
its invalidation since the Constitution, being "the fundamental, paramount and supreme law of
"technical or financial assistance." Casus omisus pro omisso habendus est. A person, object or
the nation," is deemed written in the law.218 Hence, the due process clause,219 which, so Tañada
thing omitted from an enumeration must be held to have been omitted intentionally.228 As will be
held, mandates the publication of statutes, is read into Section 8 of E.O. No. 279. Additionally,
shown later, the management or operation of mining activities by foreign contractors, which is
Section 1 of E.O. No. 200 which provides for publication "either in the Official Gazette or in a
the primary feature of service contracts, was precisely the evil that the drafters of the 1987
newspaper of general circulation in the Philippines," finds suppletory application. It is significant
Constitution sought to eradicate.
to note that E.O. No. 279 was actually published in the Official Gazette220 on August 3, 1987.

From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and Tañada v.
Tuvera, this Court holds that E.O. No. 279 became effective immediately upon its publication in
the Official Gazette on August 3, 1987.
That such effectivity took place after the convening of the first Congress is irrelevant. At the time
President Aquino issued E.O. No. 279 on July 25, 1987, she was still validly exercising
legislative powers under the Provisional Constitution.221 Article XVIII (Transitory Provisions) of
the 1987 Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first
Congress is convened.
Respondents insist that "agreements involving technical or financial assistance" is just another
term for service contracts. They contend that the proceedings of the CONCOM indicate "that
although the terminology 'service contract' was avoided [by the Constitution], the concept it
represented was not." They add that "[t]he concept is embodied in the phrase 'agreements
involving financial or technical assistance.'"229 And point out how members of the CONCOM
referred to these agreements as "service contracts." For instance:
SR. TAN. Am I correct in thinking that the only difference between these future service
contracts and the past service contracts under Mr. Marcos is the general law to be
enacted by the legislature and the notification of Congress by the President? That is
the only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards[?]
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.230 [Emphasis supplied.]
WMCP also cites the following statements of Commissioners Gascon, Garcia, Nolledo
and Tadeo who alluded to service contracts as they explained their respective votes in
the approval of the draft Article:
MR. GASCON. Mr. Presiding Officer, I vote no primarily because of two reasons: One,
the provision on service contracts. I felt that if we would constitutionalize any provision
on service contracts, this should always be with the concurrence of Congress and not
guided only by a general law to be promulgated by Congress. x x x. 231 [Emphasis
supplied.]
x x x.
MR. GARCIA. Thank you.
I vote no. x x x.
Service contracts are given constitutional legitimization in Section 3, even when they
have been proven to be inimical to the interests of the nation, providing as they do the
legal loophole for the exploitation of our natural resources for the benefit of foreign
interests. They constitute a serious negation of Filipino control on the use and
disposition of the nation's natural resources, especially with regard to those which are
nonrenewable.232 [Emphasis supplied.]
xxx
MR. NOLLEDO. While there are objectionable provisions in the Article on National
Economy and Patrimony, going over said provisions meticulously, setting aside
prejudice and personalities will reveal that the article contains a balanced set of
provisions. I hope the forthcoming Congress will implement such provisions taking into
account that Filipinos should have real control over our economy and patrimony, and if
foreign equity is permitted, the same must be subordinated to the imperative demands
of the national interest.
x x x.
It is also my understanding that service contracts involving foreign corporations or
entities are resorted to only when no Filipino enterprise or Filipino-controlled
enterprise could possibly undertake the exploration or exploitation of our natural
resources and that compensation under such contracts cannot and should not equal
what should pertain to ownership of capital. In other words, the service contract should
not be an instrument to circumvent the basic provision, that the exploration and
exploitation of natural resources should be truly for the benefit of Filipinos.
Thank you, and I vote yes.233 [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin ang
salitang "imperyalismo." Ang ibig sabihin nito ay ang sistema ng lipunang
pinaghaharian ng iilang monopolyong kapitalista at ang salitang "imperyalismo" ay
buhay na buhay sa National Economy and Patrimony na nating ginawa. Sa
pamamagitan ng salitang "based on," naroroon na ang free trade sapagkat tayo ay
mananatiling tagapagluwas ng hilaw na sangkap at tagaangkat ng yaring produkto.
Pangalawa, naroroon pa rin ang parity rights, ang service contract, ang 60-40 equity
sa natural resources. Habang naghihirap ang sambayanang Pilipino, ginagalugad
naman ng mga dayuhan ang ating likas na yaman. Kailan man ang Article on National
Economy and Patrimony ay hindi nagpaalis sa pagkaalipin ng ating ekonomiya sa
kamay ng mga dayuhan. Ang solusyon sa suliranin ng bansa ay dalawa lamang: ang
pagpapatupad ng tunay na reporma sa lupa at ang national industrialization. Ito ang
tinatawag naming pagsikat ng araw sa Silangan. Ngunit ang mga landlords and big
businessmen at ang mga komprador ay nagsasabi na ang free trade na ito, ang
kahulugan para sa amin, ay ipinipilit sa ating sambayanan na ang araw ay sisikat sa
Kanluran. Kailan man hindi puwedeng sumikat ang araw sa Kanluran. I vote
no.234 [Emphasis supplied.]
This Court is likewise not persuaded.
As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's
Article on National Economy and Patrimony. If the CONCOM intended to retain the concept of
service contracts under the 1973 Constitution, it could have simply adopted the old terminology
("service contracts") instead of employing new and unfamiliar terms ("agreements . . . involving
either technical or financial assistance"). Such a difference between the language of a provision
in a revised constitution and that of a similar provision in the preceding constitution is viewed as
indicative of a difference in purpose. 235 If, as respondents suggest, the concept of "technical or
financial assistance" agreements is identical to that of "service contracts," the CONCOM would
not have bothered to fit the same dog with a new collar. To uphold respondents' theory would
reduce the first to a mere euphemism for the second and render the change in phraseology
meaningless.
An examination of the reason behind the change confirms that technical or financial assistance
agreements are not synonymous to service contracts.
[T]he Court in construing a Constitution should bear in mind the object sought to be
accomplished by its adoption, and the evils, if any, sought to be prevented or remedied. A
doubtful provision will be examined in light of the history of the times, and the condition and
circumstances under which the Constitution was framed. The object is to ascertain the reason
which induced the framers of the Constitution to enact the particular provision and the purpose
sought to be accomplished thereby, in order to construe the whole as to make the words
consonant to that reason and calculated to effect that purpose.236
As the following question of Commissioner Quesada and Commissioner Villegas' answer shows
the drafters intended to do away with service contracts which were used to circumvent the
capitalization (60%-40%) requirement:
MS. QUESADA. The 1973 Constitution used the words "service contracts." In this
particular Section 3, is there a safeguard against the possible control of foreign
interests if the Filipinos go into coproduction with them?
 MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was our
first attempt to avoid some of the abuses in the past regime in the use of service
contracts to go around the 60-40 arrangement. The safeguard that has been
introduced – and this, of course can be refined – is found in Section 3, lines 25 to 30,
where Congress will have to concur with the President on any agreement entered into
between a foreign-owned corporation and the government involving technical or
financial assistance for large-scale exploration, development and utilization of natural
resources.237 [Emphasis supplied.]
MR. VILLEGAS. Actually, the second provision about the President does not permit foreign
investors to participate. It is only technical or financial assistance – they do not own anything –
but on conditions that have to be determined by law with the concurrence of Congress. So, it is
very restrictive.
If the Commissioner will remember, this removes the possibility for service contracts which we
said yesterday were avenues used in the previous regime to go around the 60-40
requirement.238 [Emphasis supplied.]

In a subsequent discussion, Commissioner Villegas allayed the fears of Commissioner

The present Chief Justice, then a member of the CONCOM, also referred to this limitation in
Quesada regarding the participation of foreign interests in Philippine natural
scope in proposing an amendment to the 60-40 requirement:
resources, which was supposed to be restricted to Filipinos.

MR. DAVIDE. May I be allowed to explain the proposal?

MS. QUESADA. Another point of clarification is the phrase "and utilization of natural
resources shall be under the full control and supervision of the State." In the 1973
Constitution, this was limited to citizens of the Philippines; but it was removed and MR. MAAMBONG. Subject to the three-minute rule, Madam President.
substituted by "shall be under the full control and supervision of the State." Was the
concept changed so that these particular resources would be limited to citizens of the
MR. DAVIDE. It will not take three minutes.
Philippines? Or would these resources only be under the full control and supervision
of the State; meaning, noncitizens would have access to these natural resources? Is
that the understanding? The Commission had just approved the Preamble. In the Preamble we clearly stated that the
Filipino people are sovereign and that one of the objectives for the creation or establishment of a
government is to conserve and develop the national patrimony. The implication is that the
MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next sentence,
national patrimony or our natural resources are exclusively reserved for the Filipino people. No
it states:
alien must be allowed to enjoy, exploit and develop our natural resources. As a matter of fact,
that principle proceeds from the fact that our natural resources are gifts from God to the Filipino
Such activities may be directly undertaken by the State, or it may enter into co-production, joint people and it would be a breach of that special blessing from God if we will allow aliens to exploit
venture, production-sharing agreements with Filipino citizens. our natural resources.

So we are still limiting it only to Filipino citizens.
x x x.
MS. QUESADA. Going back to Section 3, the section suggests that:
The exploration, development, and utilization of natural resources… may be directly undertaken
by the State, or it may enter into co-production, joint venture or production-sharing agreement
with . . . corporations or associations at least sixty per cent of whose voting stock or controlling
interest is owned by such citizens.
Lines 25 to 30, on the other hand, suggest that in the large-scale exploration, development and
utilization of natural resources, the President with the concurrence of Congress may enter into
agreements with foreign-owned corporations even for technical or financial assistance.
I wonder if this part of Section 3 contradicts the second part. I am raising this point for fear that
foreign investors will use their enormous capital resources to facilitate the actual exploitation or
exploration, development and effective disposition of our natural resources to the detriment of
Filipino investors. I am not saying that we should not consider borrowing money from foreign
sources. What I refer to is that foreign interest should be allowed to participate only to the extent
that they lend us money and give us technical assistance with the appropriate government
permit. In this way, we can insure the enjoyment of our natural resources by our own people.
I voted in favor of the Jamir proposal because it is not really exploitation that we granted to the
alien corporations but only for them to render financial or technical assistance. It is not for them
to enjoy our natural resources. Madam President, our natural resources are depleting; our
population is increasing by leaps and bounds. Fifty years from now, if we will allow these aliens
to exploit our natural resources, there will be no more natural resources for the next generations
of Filipinos. It may last long if we will begin now. Since 1935 the aliens have been allowed to
enjoy to a certain extent the exploitation of our natural resources, and we became victims of
foreign dominance and control. The aliens are interested in coming to the Philippines because
they would like to enjoy the bounty of nature exclusively intended for Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in the
Preamble "to preserve and develop the national patrimony for the sovereign Filipino people and
for the generations to come," we must at this time decide once and for all that our natural
resources must be reserved only to Filipino citizens.
Thank you.239 [Emphasis supplied.]
The opinion of another member of the CONCOM is persuasive 240 and leaves no doubt as to the
intention of the framers to eliminate service contracts altogether. He writes:
Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological
undertakings for which the President may enter into contracts with foreign-owned corporations,
and enunciates strict conditions that should govern such contracts. x x x.
This provision balances the need for foreign capital and technology with the need to maintain the
national sovereignty. It recognizes the fact that as long as Filipinos can formulate their own
terms in their own territory, there is no danger of relinquishing sovereignty to foreign interests. into co-production, joint venture, production- venture, or production-
venture, production sharing agreements sharing agreements
sharing agreements with Filipino citizens or with Filipino citizens, or
Are service contracts allowed under the new Constitution? No. Under the new Constitution, with Filipino citizens or corporations or corporations or
foreign investors (fully alien-owned) can NOT participate in Filipino enterprises except to corporations or associations at least associations at least
provide: (1) Technical Assistance for highly technical enterprises; and (2) Financial Assistance associations sixty per sixty per cent of whose sixty per centum of
for large-scale enterprises. cent of whose voting voting stock or whose capital is owned
stock or controlling controlling interest is by such citizens. Such
The intent of this provision, as well as other provisions on foreign investments, is to prevent the interest is owned by owned by such agreements may be for
practice (prevalent in the Marcos government) of skirting the 60/40 equation using the cover of such citizens for a citizens. Such a period not exceeding
service contracts.241 [Emphasis supplied.] period of not more than agreements shall be for twenty-five years,
twenty-five years, a period of twenty-five renewable for not more
renewable for not more years, renewable for than twenty-five years,
Furthermore, it appears that Proposed Resolution No. 496, 242 which was the draft Article on than twenty-five years not more than twenty- and under such terms
National Economy and Patrimony, adopted the concept of "agreements . . . involving either and under such terms five years, and under and conditions as may
technical or financial assistance" contained in the "Draft of the 1986 U.P. Law Constitution and conditions as may such term and be provided by law. In
Project" (U.P. Law draft) which was taken into consideration during the deliberation of the be provided by law. In conditions as may be case of water rights for
CONCOM.243 The former, as well as Article XII, as adopted, employed the same terminology, as case as to water rights provided by law. In irrigation, water supply,
the comparative table below shows: for irrigation, water cases of water rights fisheries, or industrial
supply, fisheries, or for irrigation, water uses other than the
industrial uses other supply, fisheries or development of water
than the development industrial uses other power, beneficial use
DRAFT OF THE UP PROPOSED ARTICLE XII OF THE of water power, than the development may be the measure
LAW CONSTITUTION RESOLUTION NO. 496 1987 CONSTITUTION beneficial use may be for water power, and limit of the grant.
PROJECT OF THE the measure and limit beneficial use may be
CONSTITUTIONAL of the grant. the measure and limit
The State shall protect
COMMISSION of the grant.
the nation's marine
The National Assembly wealth in its
may by law allow small The Congress may by archipelagic waters,
scale utilization of law allow small-scale territorial sea, and
Sec. 1. All lands of the Sec. 3. All lands of the Sec. 2. All lands of the natural resources by utilization of natural exclusive economic
public domain, waters, public domain, waters, public domain, waters, Filipino citizens. resources by Filipino zone, and reserve its
minerals, coal, minerals, coal, minerals, coal, citizens, as well as use and enjoyment
petroleum and other petroleum and other petroleum, and other cooperative fish exclusively to Filipino
mineral oils, all forces mineral oils, all forces mineral oils, all forces The National
farming in rivers, lakes, citizens.
of potential energy, of potential energy, of potential energy, Assembly, may, by
bays, and lagoons.
fisheries, flora and fisheries, forests, flora fisheries, forests or two-thirds vote of all its
fauna and other natural and fauna, and other timber, wildlife, flora members by special The Congress may, by
resources of the natural resources are and fauna, and other law provide the terms The President with the law, allow small-scale
Philippines are owned owned by the State. natural resources are and conditions under concurrence of utilization of natural
by the State. With the With the exception of owned by the State. which a foreign-owned Congress, by special resources by Filipino
exception of agricultural lands, all With the exception of corporation may enter law, shall provide the citizens, as well as
agricultural lands, all other natural resources agricultural lands, all into agreements with terms and conditions cooperative fish
other natural resources shall not be alienated. other natural resources the government under which a foreign- farming, with priority to
shall not be alienated. The exploration, shall not be alienated. involving either owned corporation may subsistence fishermen
The exploration, development, and The exploration, technical or financial enter into agreements and fish-workers in
development and utilization of natural development, and assistance for large- with the government rivers, lakes, bays, and
utilization of natural resources shall be utilization of natural scale exploration, involving either lagoons.
resources shall be under the full control resources shall be development, or technical or financial
under the full control and supervision of the under the full control utilization of natural assistance for large-
The President may
and supervision of the State. Such activities and supervision of the resources. [Emphasis scale exploration,
enter into agreements
State. Such activities may be directly State. The State may supplied.] development, and
with foreign-owned
may be directly undertaken by the directly undertake such utilization of natural
corporations
undertaken by the State, or it may enter activities or it may enter resources. [Emphasis
involving either
state, or it may enter into co-production, joint into co-production, joint supplied.]

technical or financial
assistance for large-
scale exploration,
development, and
utilization 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. In such
agreements, the State
shall promote the
development and use
of local scientific and
technical resources.
[Emphasis supplied.]
The President shall
notify the Congress of
every contract entered
into in accordance with
this provision, within
thirty days from its
execution.
The insights of the proponents of the U.P. Law draft are, therefore, instructive in interpreting the
phrase "technical or financial assistance."
In his position paper entitled Service Contracts: Old Wine in New Bottles?, Professor Pacifico A.
Agabin, who was a member of the working group that prepared the U.P. Law draft, criticized
service contracts for they "lodge exclusive management and control of the enterprise to the
service contractor, which is reminiscent of the old concession regime. Thus, notwithstanding the
provision of the Constitution that natural resources belong to the State, and that these shall not
be alienated, the service contract system renders nugatory the constitutional provisions
cited."244 He elaborates:
Looking at the Philippine model, we can discern the following vestiges of the concession regime,
thus:
1. Bidding of a selected area, or leasing the choice of the area to the interested party
and then negotiating the terms and conditions of the contract; (Sec. 5, P.D. 87)
2. Management of the enterprise vested on the contractor, including operation of the
field if petroleum is discovered; (Sec. 8, P.D. 87)
3. Control of production and other matters such as expansion and development; (Sec.
8)
4. Responsibility for downstream operations – marketing, distribution, and processing
may be with the contractor (Sec. 8);
5. Ownership of equipment, machinery, fixed assets, and other properties remain with
contractor (Sec. 12, P.D. 87);
6. Repatriation of capital and retention of profits abroad guaranteed to the contractor
(Sec. 13, P.D. 87); and
7. While title to the petroleum discovered may nominally be in the name of the
government, the contractor has almost unfettered control over its disposition and sale,
and even the domestic requirements of the country is relegated to a pro rata basis
(Sec. 8).
In short, our version of the service contract is just a rehash of the old concession regime x x x.
Some people have pulled an old rabbit out of a magician's hat, and foisted it upon us as a new
and different animal.
The service contract as we know it here is antithetical to the principle of sovereignty over our
natural resources restated in the same article of the [1973] Constitution containing the provision
for service contracts. If the service contractor happens to be a foreign corporation, the contract
would also run counter to the constitutional provision on nationalization or Filipinization, of the
exploitation of our natural resources.245 [Emphasis supplied. Underscoring in the original.]
Professor Merlin M. Magallona, also a member of the working group, was harsher in his
reproach of the system:
x x x the nationalistic phraseology of the 1935 [Constitution] was retained by the [1973] Charter,
but the essence of nationalism was reduced to hollow rhetoric. The 1973 Charter still provided
that the exploitation or development of the country's natural resources be limited to Filipino
citizens or corporations owned or controlled by them. However, the martial-law Constitution
allowed them, once these resources are in their name, to enter into service contracts with
foreign investors for financial, technical, management, or other forms of assistance. Since
foreign investors have the capital resources, the actual exploitation and development, as well as
the effective disposition, of the country's natural resources, would be under their direction, and
control, relegating the Filipino investors to the role of second-rate partners in joint ventures.
Through the instrumentality of the service contract, the 1973 Constitution had legitimized at the
highest level of state policy that which was prohibited under the 1973 Constitution, namely: the
exploitation of the country's natural resources by foreign nationals. The drastic impact of [this]
constitutional change becomes more pronounced when it is considered that the active party to
any service contract may be a corporation wholly owned by foreign interests. In such a case, the
citizenship requirement is completely set aside, permitting foreign corporations to obtain actual
possession, control, and [enjoyment] of the country's natural resources.246 [Emphasis supplied.]
Accordingly, Professor Agabin recommends that:
Recognizing the service contract for what it is, we have to expunge it from the Constitution and
reaffirm ownership over our natural resources. That is the only way we can exercise effective
control over our natural resources.
This should not mean complete isolation of the country's natural resources from foreign
investment. Other contract forms which are less derogatory to our sovereignty and control over
natural resources – like technical assistance agreements, financial assistance [agreements], co-
production agreements, joint ventures, production-sharing – could still be utilized and adopted
without violating constitutional provisions. In other words, we can adopt contract forms which
recognize and assert our sovereignty and ownership over natural resources, and where the
foreign entity is just a pure contractor instead of the beneficial owner of our economic
resources.247 [Emphasis supplied.]
Still another member of the working group, Professor Eduardo Labitag, proposed that:
2. Service contracts as practiced under the 1973 Constitution should be discouraged, instead
the government may be allowed, subject to authorization by special law passed by an
extraordinary majority to enter into either technical or financial assistance. This is justified by the
fact that as presently worded in the 1973 Constitution, a service contract gives full control over
the contract area to the service contractor, for him to work, manage and dispose of the proceeds
or production. It was a subterfuge to get around the nationality requirement of the
constitution.248 [Emphasis supplied.]
In the annotations on the proposed Article on National Economy and Patrimony, the U.P. Law
draft summarized the rationale therefor, thus:
5. The last paragraph is a modification of the service contract provision found in Section 9,
Article XIV of the 1973 Constitution as amended. This 1973 provision shattered the framework of
nationalism in our fundamental law (see Magallona, "Nationalism and its Subversion in the
Constitution"). Through the service contract, the 1973 Constitution had legitimized that which
was prohibited under the 1935 constitution—the exploitation of the country's natural resources
by foreign nationals. Through the service contract, acts prohibited by the Anti-Dummy Law were
recognized as legitimate arrangements. Service contracts lodge exclusive management and
control of the enterprise to the service contractor, not unlike the old concession regime where
the concessionaire had complete control over the country's natural resources, having been given
exclusive and plenary rights to exploit a particular resource and, in effect, having been assured
of ownership of that resource at the point of extraction (see Agabin, "Service Contracts: Old
Wine in New Bottles"). Service contracts, hence, are antithetical to the principle of sovereignty
over our natural resources, as well as the constitutional provision on nationalization or
Filipinization of the exploitation of our natural resources.
Under the proposed provision, only technical assistance or financial assistance agreements may
be entered into, and only for large-scale activities. These are contract forms which recognize
and assert our sovereignty and ownership over natural resources since the foreign entity is just a
pure contractor and not a beneficial owner of our economic resources. The proposal recognizes
the need for capital and technology to develop our natural resources without sacrificing our
sovereignty and control over such resources by the safeguard of a special law which requires
two-thirds vote of all the members of the Legislature. This will ensure that such agreements will
be debated upon exhaustively and thoroughly in the National Assembly to avert prejudice to the
nation.249 [Emphasis supplied.]
The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as grants
of beneficial ownership of the country's natural resources to foreign owned corporations. While,
in theory, the State owns these natural resources – and Filipino citizens, their beneficiaries –
service contracts actually vested foreigners with the right to dispose, explore for, develop,
exploit, and utilize the same. Foreigners, not Filipinos, became the beneficiaries of Philippine
natural resources. This arrangement is clearly incompatible with the constitutional ideal of
nationalization of natural resources, with the Regalian doctrine, and on a broader perspective,
with Philippine sovereignty.
The proponents nevertheless acknowledged the need for capital and technical know-how in the
large-scale exploitation, development and utilization of natural resources – the second
paragraph of the proposed draft itself being an admission of such scarcity. Hence, they
recommended a compromise to reconcile the nationalistic provisions dating back to the 1935
Constitution, which reserved all natural resources exclusively to Filipinos, and the more liberal
1973 Constitution, which allowed foreigners to participate in these resources through service
contracts. Such a compromise called for the adoption of a new system in the exploration,
development, and utilization of natural resources in the form of technical agreements or financial
agreements which, necessarily, are distinct concepts from service contracts.
The replacement of "service contracts" with "agreements… involving either technical or financial
assistance," as well as the deletion of the phrase "management or other forms of assistance,"
assumes greater significance when note is taken that the U.P. Law draft proposed other equally
crucial changes that were obviously heeded by the CONCOM. These include the abrogation of
the concession system and the adoption of new "options" for the State in the exploration,
development, and utilization of natural resources. The proponents deemed these changes to be
more consistent with the State's ownership of, and its "full control and supervision" (a phrase
also employed by the framers) over, such resources. The Project explained:
3. In line with the State ownership of natural resources, the State should take a more active role
in the exploration, development, and utilization of natural resources, than the present practice of
granting licenses, concessions, or leases – hence the provision that said activities shall be under
the full control and supervision of the State. There are three major schemes by which the State
could undertake these activities: first, directly by itself; second, by virtue of co-production, joint
venture, production sharing agreements with Filipino citizens or corporations or associations
sixty per cent (60%) of the voting stock or controlling interests of which are owned by such
citizens; or third, with a foreign-owned corporation, in cases of large-scale exploration,
development, or utilization of natural resources through agreements involving either technical or
financial assistance only. x x x.
At present, under the licensing concession or lease schemes, the government benefits from
such benefits only through fees, charges, ad valorem taxes and income taxes of the exploiters of
our natural resources. Such benefits are very minimal compared with the enormous profits
reaped by theses licensees, grantees, concessionaires. Moreover, some of them disregard the
conservation of natural resources and do not protect the environment from degradation. The
proposed role of the State will enable it to a greater share in the profits – it can also actively
husband its natural resources and engage in developmental programs that will be beneficial to
them.
4. Aside from the three major schemes for the exploration, development, and utilization of our
natural resources, the State may, by law, allow Filipino citizens to explore, develop, utilize
natural resources in small-scale. This is in recognition of the plight of marginal fishermen, forest
dwellers, gold panners, and others similarly situated who exploit our natural resources for their
daily sustenance and survival.250
Professor Agabin, in particular, after taking pains to illustrate the similarities between the two
systems, concluded that the service contract regime was but a "rehash" of the concession
system. "Old wine in new bottles," as he put it. The rejection of the service contract regime,
therefore, is in consonance with the abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the Constitution, and the adoption of
other proposed changes, there is no doubt that the framers considered and shared the intent of
the U.P. Law proponents in employing the phrase "agreements . . . involving either technical or
financial assistance."
While certain commissioners may have mentioned the term "service contracts" during the
CONCOM deliberations, they may not have been necessarily referring to the concept of service
contracts under the 1973 Constitution. As noted earlier, "service contracts" is a term that
assumes different meanings to different people.251 The commissioners may have been using the
term loosely, and not in its technical and legal sense, to refer, in general, to agreements
concerning natural resources entered into by the Government with foreign corporations. These
loose statements do not necessarily translate to the adoption of the 1973 Constitution provision
allowing service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in
response to Sr. Tan's question, Commissioner Villegas commented that, other than
congressional notification, the only difference between "future" and "past" "service contracts" is
the requirement of a general law as there were no laws previously authorizing the
same.252 However, such remark is far outweighed by his more categorical statement in his
exchange with Commissioner Quesada that the draft article "does not permit foreign investors to
participate" in the nation's natural resources – which was exactly what service contracts did –
except to provide "technical or financial assistance."253
In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that
the present charter prohibits service contracts.254 Commissioner Gascon was not totally averse
to foreign participation, but favored stricter restrictions in the form of majority congressional
concurrence.255 On the other hand, Commissioners Garcia and Tadeo may have veered to the
extreme side of the spectrum and their objections may be interpreted as votes against any
foreign participation in our natural resources whatsoever.
WMCP cites Opinion No. 75, s. 1987,256 and Opinion No. 175, s. 1990257 of the Secretary of
Justice, expressing the view that a financial or technical assistance agreement "is no different in
concept" from the service contract allowed under the 1973 Constitution. This Court is not,
however, bound by this interpretation. When an administrative or executive agency renders an
opinion or issues a statement of policy, it merely interprets a pre-existing law; and the
administrative interpretation of the law is at best advisory, for it is the courts that finally
determine what the law means.258
In any case, the constitutional provision allowing the President to enter into FTAAs with foreign-
owned corporations is an exception to the rule that participation in the nation's natural resources
is reserved exclusively to Filipinos. Accordingly, such provision must be construed strictly
against their enjoyment by non-Filipinos. As Commissioner Villegas emphasized, the provision is
"very restrictive."259 Commissioner Nolledo also remarked that "entering into service contracts is
an exception to the rule on protection of natural resources for the interest of the nation and,
therefore, being an exception, it should be subject, whenever possible, to stringent
rules."260 Indeed, exceptions should be strictly but reasonably construed; they extend only so far
as their language fairly warrants and all doubts should be resolved in favor of the general
provision rather than the exception.261
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as
said Act authorizes service contracts. Although the statute employs the phrase "financial and
technical agreements" in accordance with the 1987 Constitution, it actually treats these
agreements as service contracts that grant beneficial ownership to foreign contractors contrary
to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of
R.A. No. 7942 states:
SEC. 33. Eligibility.—Any qualified person with technical and financial capability to undertake
large-scale exploration, development, and utilization of mineral resources in the Philippines may
enter into a financial or technical assistance agreement directly with the Government through the
Department. [Emphasis supplied.]
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by geological, geochemical or
geophysical surveys, remote sensing, test pitting, trending, drilling, shaft sinking, tunneling or
any other means for the purpose of determining the existence, extent, quantity and quality
thereof and the feasibility of mining them for profit.262
A legally organized foreign-owned corporation may be granted an exploration permit,263 which
vests it with the right to conduct exploration for all minerals in specified areas, 264 i.e., to enter,
occupy and explore the same.265 Eventually, the foreign-owned corporation, as such permittee,
may apply for a financial and technical assistance agreement.266
"Development" is the work undertaken to explore and prepare an ore body or a mineral deposit
for mining, including the construction of necessary infrastructure and related facilities.267
"Utilization" "means the extraction or disposition of minerals."268 A stipulation that the proponent
shall dispose of the minerals and byproducts produced at the highest price and more
advantageous terms and conditions as provided for under the implementing rules and
regulations is required to be incorporated in every FTAA.269
A foreign-owned/-controlled corporation may likewise be granted a mineral processing
permit.270 "Mineral processing" is the milling, beneficiation or upgrading of ores or minerals and
rocks or by similar means to convert the same into marketable products.271
An FTAA contractor makes a warranty that the mining operations shall be conducted in
accordance with the provisions of R.A. No. 7942 and its implementing rules 272 and for work
programs and minimum expenditures and commitments. 273 And it obliges itself to furnish the
Government records of geologic, accounting, and other relevant data for its mining operation.274
"Mining operation," as the law defines it, means mining activities involving exploration, feasibility,
development, utilization, and processing.275
The underlying assumption in all these provisions is that the foreign contractor manages the
mineral resources, just like the foreign contractor in a service contract.
Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs the same auxiliary
mining rights that it grants contractors in mineral agreements (MPSA, CA and
JV).276 Parenthetically, Sections 72 to 75 use the term "contractor," without distinguishing
between FTAA and mineral agreement contractors. And so does "holders of mining rights" in
Section 76. A foreign contractor may even convert its FTAA into a mineral agreement if the
economic viability of the contract area is found to be inadequate to justify large-scale mining
operations,277 provided that it reduces its equity in the corporation, partnership, association or
cooperative to forty percent (40%).278
Finally, under the Act, an FTAA contractor warrants that it "has or has access to all the financing,
managerial, and technical expertise. . . ."279 This suggests that an FTAA contractor is bound to
provide some management assistance – a form of assistance that has been eliminated and,
therefore, proscribed by the present Charter.
Section 37,287 which prescribes the procedure for filing and evaluation of financial or
technical assistance agreement proposals;
Section 38,288 which limits the term of financial or technical assistance agreements;

By allowing foreign contractors to manage or operate all the aspects of the mining operation, the
Section 40,289 which allows the assignment or transfer of financial or technical
above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the
assistance agreements;
nation's mineral resources to these contractors, leaving the State with nothing but bare title
thereto.
Section 41,290 which allows the withdrawal of the contractor in an FTAA;
Moreover, the same provisions, whether by design or inadvertence, permit a circumvention of
the constitutionally ordained 60%-40% capitalization requirement for corporations or The second and third paragraphs of Section 81,291 which provide for the Government's
associations engaged in the exploitation, development and utilization of Philippine natural share in a financial and technical assistance agreement; and
resources.
Section 90,292 which provides for incentives to contractors in FTAAs insofar as it
In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of Section 2, applies to said contractors;
Article XII of the Constitution:
When the parts of the statute are so mutually dependent and connected as conditions,
(1) The proviso in Section 3 (aq), which defines "qualified person," to wit: considerations, inducements, or compensations for each other, as to warrant a belief that the
legislature intended them as a whole, and that if all could not be carried into effect, the
legislature would not pass the residue independently, then, if some parts are unconstitutional, all
Provided, That a legally organized foreign-owned corporation shall be deemed a
the provisions which are thus dependent, conditional, or connected, must fall with them.293
qualified person for purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit.
There can be little doubt that the WMCP FTAA itself is a service contract.
280
(2) Section 23,  which specifies the rights and obligations of an exploration permittee,
insofar as said section applies to a financial or technical assistance agreement, Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,]
process and dispose of all Minerals products and by-products thereof that may be produced
from the Contract Area."294 The FTAA also imbues WMCP with the following rights:
(3) Section 33, which prescribes the eligibility of a contractor in a financial or technical
assistance agreement;
(b) to extract and carry away any Mineral samples from the Contract area for the
purpose of conducting tests and studies in respect thereof;
(4) Section 35,281 which enumerates the terms and conditions for every financial or
technical assistance agreement;
(c) to determine the mining and treatment processes to be utilised during the
Development/Operating Period and the project facilities to be constructed during the
(5) Section 39,282 which allows the contractor in a financial and technical assistance
Development and Construction Period;
agreement to convert the same into a mineral production-sharing agreement;

(d) have the right of possession of the Contract Area, with full right of ingress and
(6) Section 56,283 which authorizes the issuance of a mineral processing permit to a
egress and the right to occupy the same, subject to the provisions of Presidential
contractor in a financial and technical assistance agreement;
Decree No. 512 (if applicable) and not be prevented from entry into private ands by
surface owners and/or occupants thereof when prospecting, exploring and exploiting
The following provisions of the same Act are likewise void as they are dependent on the for minerals therein;
foregoing provisions and cannot stand on their own:
xxx
(1) Section 3 (g),284 which defines the term "contractor," insofar as it applies to a
financial or technical assistance agreement.
(f) to construct roadways, mining, drainage, power generation and transmission
facilities and all other types of works on the Contract Area;
Section 34,285 which prescribes the maximum contract area in a financial or technical
assistance agreements;
(g) to erect, install or place any type of improvements, supplies, machinery and other
equipment relating to the Mining Operations and to use, sell or otherwise dispose of,
Section 36,286 which allows negotiations for financial or technical assistance modify, remove or diminish any and all parts thereof;
agreements;
 (h) enjoy, subject to pertinent laws, rules and regulations and the rights of third
Parties, easement rights and the use of timber, sand, clay, stone, water and other
natural resources in the Contract Area without cost for the purposes of the Mining
Operations;
xxx
(i) have the right to mortgage, charge or encumber all or part of its interest and
obligations under this Agreement, the plant, equipment and infrastructure and the
Minerals produced from the Mining Operations;
x x x. 295
All materials, equipment, plant and other installations erected or placed on the Contract Area
remain the property of WMCP, which has the right to deal with and remove such items within
twelve months from the termination of the FTAA.296
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology,
management and personnel necessary for the Mining Operations." The mining company binds
itself to "perform all Mining Operations . . . providing all necessary services, technology and
financing in connection therewith,"297 and to "furnish all materials, labour, equipment and other
installations that may be required for carrying on all Mining Operations." 298> WMCP may make
expansions, improvements and replacements of the mining facilities and may add such new
facilities as it considers necessary for the mining operations.299
These contractual stipulations, taken together, grant WMCP beneficial ownership over natural
resources that properly belong to the State and are intended for the benefit of its citizens. These
stipulations are abhorrent to the 1987 Constitution. They are precisely the vices that the
fundamental law seeks to avoid, the evils that it aims to suppress. Consequently, the contract
from which they spring must be struck down.
In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the Promotion
and Protection of Investments between the Philippine and Australian Governments, which was
signed in Manila on January 25, 1995 and which entered into force on December 8, 1995.
x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and thus the
fact that [WMCP's] FTAA was entered into prior to the entry into force of the treaty does not
preclude the Philippine Government from protecting [WMCP's] investment in [that] FTAA.
Likewise, Article 3 (1) of the treaty provides that "Each Party shall encourage and promote
investments in its area by investors of the other Party and shall [admit] such investments in
accordance with its Constitution, Laws, regulations and investment policies" and in Article 3 (2),
it states that "Each Party shall ensure that investments are accorded fair and equitable
treatment." The latter stipulation indicates that it was intended to impose an obligation upon a
Party to afford fair and equitable treatment to the investments of the other Party and that a
failure to provide such treatment by or under the laws of the Party may constitute a breach of the
treaty. Simply stated, the Philippines could not, under said treaty, rely upon the inadequacies of
its own laws to deprive an Australian investor (like [WMCP]) of fair and equitable treatment by
invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered into before
the enactment of RA 7942 such as those mentioned in PD 87 or EO 279.
This becomes more significant in the light of the fact that [WMCP's] FTAA was executed not by a
mere Filipino citizen, but by the Philippine Government itself, through its President no less,
which, in entering into said treaty is assumed to be aware of the existing Philippine laws on
service contracts over the exploration, development and utilization of natural resources. The
execution of the FTAA by the Philippine Government assures the Australian Government that
the FTAA is in accordance with existing Philippine laws. 300 [Emphasis and italics by private
respondents.]
The invalidation of the subject FTAA, it is argued, would constitute a breach of said treaty which,
in turn, would amount to a violation of Section 3, Article II of the Constitution adopting the
generally accepted principles of international law as part of the law of the land. One of these
generally accepted principles is pacta sunt servanda, which requires the performance in good
faith of treaty obligations.
Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its assertion
that "the Philippines could not . . . deprive an Australian investor (like [WMCP]) of fair and
equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the service
contracts entered into before the enactment of RA 7942 . . .," the annulment of the FTAA would
not constitute a breach of the treaty invoked. For this decision herein invalidating the subject
FTAA forms part of the legal system of the Philippines. 301 The equal protection
clause302 guarantees that such decision shall apply to all contracts belonging to the same class,
hence, upholding rather than violating, the "fair and equitable treatment" stipulation in said
treaty.
One other matter requires clarification. Petitioners contend that, consistent with the provisions of
Section 2, Article XII of the Constitution, the President may enter into agreements involving
"either technical or financial assistance" only. The agreement in question, however, is a
technical and financial assistance agreement.
Petitioners' contention does not lie. To adhere to the literal language of the Constitution would
lead to absurd consequences.303 As WMCP correctly put it:
x x x such a theory of petitioners would compel the government (through the President) to enter
into contract with two (2) foreign-owned corporations, one for financial assistance agreement
and with the other, for technical assistance over one and the same mining area or land; or to
execute two (2) contracts with only one foreign-owned corporation which has the capability to
provide both financial and technical assistance, one for financial assistance and another for
technical assistance, over the same mining area. Such an absurd result is definitely not
sanctioned under the canons of constitutional construction.304 [Underscoring in the original.]
Surely, the framers of the 1987 Charter did not contemplate such an absurd result from their use
of "either/or." A constitution is not to be interpreted as demanding the impossible or the
impracticable; and unreasonable or absurd consequences, if possible, should be
avoided.305 Courts are not to give words a meaning that would lead to absurd or unreasonable
consequences and a literal interpretation is to be rejected if it would be unjust or lead to absurd
results.306 That is a strong argument against its adoption. 307 Accordingly, petitioners'
interpretation must be rejected.
The foregoing discussion has rendered unnecessary the resolution of the other issues raised by
the petition.
WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
 (b) Section 23,

(c) Section 33 to 41,

(d) Section 56,

(e) The second and third paragraphs of Section 81, and

(f) Section 90.

(2) All provisions of Department of Environment and Natural Resources Administrative

Order 96-40, s. 1996 which are not in conformity with this Decision, and

(3) The Financial and Technical Assistance Agreement between the Government of
the Republic of the Philippines and WMC Philippines, Inc.

SO ORDERED.

G.R. No. 127882             December 1, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., et. al petitioners,
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources
(DENR); HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR);
RUBEN TORRES, Executive Secretary; and WMC (PHILIPPINES), INC., 4 respondents.
RESOLUTION
PANGANIBAN, J.:
All mineral resources are owned by the State. Their exploration, development and utilization
(EDU) must always be subject to the full control and supervision of the State. More specifically,
given the inadequacy of Filipino capital and technology in large-scale EDU activities, the State
may secure the help of foreign companies in all relevant matters -- especially financial and
technical assistance -- provided that, at all times, the State maintains its right of full control. The
foreign assistor or contractor assumes all financial, technical and entrepreneurial risks in the
EDU activities; hence, it may be given reasonable management, operational, marketing, audit
and other prerogatives to protect its investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor, provided that the
State retains the power to direct overall strategy; and to set aside, reverse or modify plans and
actions of the contractor. The idea of full control is similar to that which is exercised by the board
of directors of a private corporation: the performance of managerial, operational, financial,
marketing and other functions may be delegated to subordinate officers or given to contractual
entities, but the board retains full residual control of the business.
Who or what organ of government actually exercises this power of control on behalf of the
State? The Constitution is crystal clear: the President. Indeed, the Chief Executive is the official
constitutionally mandated to "enter into agreements with foreign owned corporations." On the
other hand, Congress may review the action of the President once it is notified of "every contract
entered into in accordance with this [constitutional] provision within thirty days from its
execution." In contrast to this express mandate of the President and Congress in the EDU of
natural resources, Article XII of the Constitution is silent on the role of the judiciary. However,
should the President and/or Congress gravely abuse their discretion in this regard, the courts
may -- in a proper case -- exercise their residual duty under Article VIII. Clearly then, the
judiciary should not inordinately interfere in the exercise of this presidential power of control over
the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. 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 Congress sufficient discretion and reasonable leeway to enable them to
attract foreign investments and expertise, as well as to secure for our people and our posterity
the blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the Philippine
Mining Law, its Implementing Rules and Regulations -- insofar as they relate to financial and
technical agreements -- as well as the subject Financial and Technical Assistance Agreement
(FTAA).5
Background
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of
(1) Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules
and Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March
30, 1995,6 executed by the government with Western Mining Corporation (Philippines), Inc.
(WMCP).7
On January 27, 2004, the Court en banc promulgated its Decision8 granting the Petition and
declaring the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the
entire FTAA executed between the government and WMCP, mainly on the finding that FTAAs
are service contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service contracts, 9 which, though
permitted under the 1973 Constitution,10 were subsequently denounced for being antithetical to
the principle of sovereignty over our natural resources, because they allowed foreign control
over the exploitation of our natural resources, to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized service contracts
for, inter alia, vesting in the foreign contractor exclusive management and control of the
enterprise, including operation of the field in the event petroleum was discovered; control of
production, expansion and development; nearly unfettered control over the disposition and sale
of the products discovered/extracted; effective ownership of the natural resource at the point of
extraction; and beneficial ownership of our economic resources. According to the Decision, the
1987 Constitution (Section 2 of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated
March 9, 2004, the Court required petitioners to comment thereon. In the Resolution of June 8,
2004, it set the case for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their respective
Memoranda in amplification of their arguments. In a Resolution issued later the same day, June
29, 2004, the Court noted, inter alia, the Manifestation and Motion (in lieu of comment) filed by
the Office of the Solicitor General (OSG) on behalf of public respondents. The OSG said that it
was not interposing any objection to the Motion for Intervention filed by the Chamber of Mines of
the Philippines, Inc. (CMP) and was in fact joining and adopting the latter's Motion for
Reconsideration.
Memoranda 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.
Later, WMCP submitted its Reply Memorandum, while the OSG -- in obedience to an Order of
this Court -- filed a Compliance submitting copies of more FTAAs entered into by the
government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be resolved in the present
controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60
percent of Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40
percent is owned by Indophil Resources NL, an Australian company) and by the subsequent
transfer and registration of the FTAA from WMCP to Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper to resolve the
constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or
Financial Assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons
discussed below. The foregoing three issues identified by the Court shall now be taken
up seriatim.
First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA,
the majority Decision agreed with petitioners' contention that the subject FTAA had been
executed in violation of Section 2 of Article XII of the 1987 Constitution. According to petitioners,
the FTAAs entered into by the government with foreign-owned corporations are limited by the
fourth paragraph of the said provision to agreements involving only technical or financial
assistance for large-scale exploration, development and utilization of minerals, petroleum and
other mineral oils. Furthermore, the foreign contractor is allegedly permitted by the FTAA in
question to fully manage and control the mining operations and, therefore, to acquire "beneficial
ownership" of our mineral resources.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on
January 23, 2001, WMC had sold all its shares in WMCP to Sagittarius Mines, Inc., 60 percent
of whose equity was held by Filipinos; and (2) that the assailed FTAA had likewise been
transferred from WMCP to Sagittarius.11 The ponencia declared that the instant case
had not been rendered moot by the transfer and registration of the FTAA to a Filipino-owned
corporation, and that the validity of the said transfer remained in dispute and awaited final
judicial determination.12 Patently therefore, the Decision is anchored on the assumption that
WMCP had remained a foreign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC), which
in turn was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd., a publicly
listed major Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation.
Had the FTAA been originally issued to a Filipino-owned corporation, there would have been no
constitutionality issue to speak of. Upon the other hand, the conveyance of the WMCP FTAA to
a Filipino corporation can be likened to the sale of land to a foreigner who subsequently acquires
Filipino citizenship, or who later resells the same land to a Filipino citizen. The conveyance
would be validated, as the property in question would no longer be owned by a disqualified
vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer
possible for the Court to declare it unconstitutional. The case pending in the Court of Appeals is
a dispute between two Filipino companies (Sagittarius and Lepanto), both claiming the right to
purchase the foreign shares in WMCP. So, regardless of which side eventually wins, the FTAA
would still be in the hands of a qualified Filipino company. Considering that there is no longer
any justiciable controversy, the plea to nullify the Mining Law has become a virtual petition for
declaratory relief, over which this Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become moot,
considering the invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius,
and of the transfer of the FTAA from WMCP to Sagittarius, resulting in the change of contractor
in the FTAA in question. And even assuming that the said transfers were valid, there still exists
an actual case predicated on the invalidity of RA 7942 and its Implementing Rules and
Regulations (DAO 96-40). Presently, we shall discuss petitioners' objections to the transfer of
both the shares and the FTAA. We shall take up the alleged invalidity of RA 7942 and DAO 96-
40 later on in the discussion of the third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to
Sagittarius violates the fourth paragraph of Section 2 of Article XII of the
Constitution; second, that it is contrary to the provisions of the WMCP FTAA itself; and third, 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.
On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII permits the
government to enter into FTAAs only with foreign-owned corporations. Petitioners insist that the
first paragraph of this constitutional provision limits the participation of Filipino corporations in the
exploration, development and utilization of natural resources to only three species of contracts --
production sharing, co-production and joint venture -- to the exclusion of all other arrangements
or variations thereof, and the WMCP FTAA may therefore not be validly assumed and
implemented by Sagittarius. In short, petitioners claim that a Filipino corporation is not allowed
by the Constitution to enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article XII does not support
petitioners' argument. The pertinent part of the said provision states: "Sec. 2. x x x The
exploration, development and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. x x x." Nowhere in the provision is there any express limitation or restriction insofar as
arrangements other than the three aforementioned contractual schemes are concerned.
Neither can one reasonably discern any implied stricture to that effect. Besides, there is no basis
to believe that the framers of the Constitution, a majority of whom were obviously concerned with
furthering the development and utilization of the country's natural resources, could have wanted
to restrict Filipino participation in that area. This point is clear, especially in the light of the
overarching constitutional principle of giving preference and priority to Filipinos and Filipino
corporations in the development of our natural resources.
Besides, even assuming (purely for argument's sake) that a constitutional limitation barring
Filipino corporations from holding and implementing an FTAA actually exists, nevertheless, such
provision would apply only to the transfer of the FTAA to Sagittarius, but definitely not to the sale
of WMC's equity stake in WMCP to Sagittarius. Otherwise, an unreasonable curtailment of
property rights without due process of law would ensue. Petitioners' argument must therefore
fail.
FTAA Not Intended
Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners -- that the FTAA was intended
to apply solely to a foreign corporation, as can allegedly be seen from the provisions therein.
They manage to cite only one WMCP FTAA provision that can be regarded as clearly intended
to apply only to a foreign contractor: Section 12, which provides for international commercial
arbitration under the auspices of the International Chamber of Commerce, after local remedies
are exhausted. This provision, however, does not necessarily imply that the WMCP FTAA
cannot be transferred to and assumed by a Filipino corporation like Sagittarius, in which event
the said provision should simply be disregarded as a superfluity.
No Need for a Separate
Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from WMC to Sagittarius;
hence, the need to litigate it in a separate case. Section 40 of RA 7942 (the Mining Law)
allegedly requires the President's prior approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. "Sec.
40. Assignment/Transfer -- A financial or technical assistance agreement may be assigned or
transferred, in whole or in part, to a qualified person subject to the prior approval of the
President: Provided, That the President shall notify Congress of every financial or technical
assistance agreement assigned or converted in accordance with this provision within thirty (30)
days from the date of the approval thereof."
Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and
transfer of shares of stock in WMCP. Moreover, when the transferee of an FTAA is
another foreign corporation, there is a logical application of the requirement of prior approval by
the President of the Republic and notification to Congress in the event of assignment or transfer
of an FTAA. In this situation, such approval and notification are appropriate safeguards,
considering that the new contractor is the subject of a foreign government.
On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the
need for such safeguard is not critical; hence, the lack 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
Memorandum,13 the issue of approval is the subject of one of the cases brought by Lepanto
against Sagittarius in GR No. 162331. That case involved the review of the Decision of the Court
of Appeals dated November 21, 2003 in CA-GR SP No. 74161, which affirmed the DENR Order
dated December 31, 2001 and the Decision of the Office of the President dated July 23, 2002,
both approving the assignment of the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the financial capacity of the transferee. According to
the Deed of Absolute Sale dated January 23, 2001, executed between WMC and Sagittarius, the
price of the WMCP shares was fixed at US$9,875,000, equivalent to P553 million at an
exchange rate of 56:1. Sagittarius had an authorized capital stock of P250 million and a paid up
capital of P60 million. Therefore, at the time of approval of the sale by the DENR, the debt-to-
equity ratio of the transferee was over 9:1 -- hardly ideal for an FTAA contractor, according to
petitioners.
However, private respondents counter that the Deed of Sale specifically provides that the
payment of the purchase price would take place only after Sagittarius' commencement of
commercial production from mining operations, if at all. Consequently, under the circumstances,
we believe it would not be reasonable to conclude, as petitioners did, that the transferee's high
debt-to-equity ratio per se necessarily carried negative implications for the enterprise; and it
would certainly be improper to invalidate the sale on that basis, as petitioners propose.
FTAA Not Void,
Thus Transferrable
To bolster further their claim that the case is not moot, petitioners insist that the FTAA is void
and, hence cannot be transferred; and that its transfer does not operate to cure the constitutional
infirmity that is inherent in it; neither will a change in the circumstances of one of the parties
serve to ratify the void contract.
While the discussion in their Final Memorandum was skimpy, petitioners in their Comment (on
the MR) did ratiocinate that this Court had declared the FTAA to be void because, at the time it
was executed with WMCP, the latter was a fully foreign-owned corporation, in which the former
vested full control and management with respect to the exploration, development and utilization
of mineral resources, contrary to the provisions of paragraph 4 of Section 2 of Article XII of the
Constitution. And since the FTAA was per se void, no valid right could be transferred; neither
could it be ratified, so petitioners conclude.
Petitioners have assumed as fact that which has yet to be established. First and foremost, the
Decision of this Court declaring the FTAA void has not yet become final. That was precisely the
reason the Court still heard Oral Argument in this case. Second, the FTAA does not vest in the
foreign corporation full control and supervision over the exploration, development and utilization
of mineral resources, to the exclusion of the government. This point will be dealt with in greater
detail below; but for now, suffice it to say that a perusal of the FTAA provisions will prove that the
government has effective overall direction and control of the mining operations, including
marketing and product pricing, and that the contractor's work 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 work to
the contractor. Thus the basis for declaring the FTAA void still has to be revisited, reexamined
and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates Authority,14 and Halili v. CA,15 claiming
that the doctrines in these cases are wholly inapplicable to the instant case.
Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen sells
land to an alien who later sells the land to a Filipino, the invalidity of the first transfer is corrected
by the subsequent sale to a citizen. Similarly, where the alien who buys the land subsequently
acquires Philippine citizenship, the sale is validated since the purpose of the constitutional ban
to limit land ownership to Filipinos has been achieved. In short, the law disregards the
constitutional disqualification of the buyer to hold land if the land is subsequently transferred to a
qualified party, or the buyer himself becomes a qualified party."16
In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the imposes upon the Supreme Court the duty to declare invalid any law that offends the
land) was not what was assailed for alleged unconstitutionality. Rather, it was the transaction Constitution.
that was assailed; hence subsequent compliance with constitutional provisions would cure its
infirmity. In contrast, in the instant case it is the FTAA itself, the object of the transfer, that is
Petitioners also argue that no amendatory laws have been passed to make the Mining Act of
being assailed as invalid and unconstitutional. So, petitioners claim that the subsequent transfer
1995 conform to constitutional strictures (assuming that, at present, it does not); that public
of a void FTAA to a Filipino corporation would not cure the defect.
respondents will continue to implement and enforce the statute until this Court rules otherwise;
and that the said law continues to be the source of legal authority in accepting, processing and
Petitioners are confusing themselves. The present Petition has been filed, precisely because the approving numerous applications for mining rights.
grantee of the FTAA was a wholly owned subsidiary of a foreign corporation. It cannot be
gainsaid that anyone would have asserted that the same FTAA was void if it had at the outset
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with the
been issued to a Filipino corporation. The FTAA, therefore, is not per se defective or
Mines and Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares --
unconstitutional. It was questioned only because it had been issued to an allegedly non-
spread over Luzon, the Visayas and Mindanao19 -- applied for. It may be a bit far-fetched to
qualified, foreign-owned corporation.
assert, as petitioners do, that each and every FTAA that was entered into under the provisions of
the Mining Act "invites potential litigation" for as long as the constitutional issues are not
We believe that this case is clearly analogous to Halili, in which the land acquired by a non- resolved with finality. Nevertheless, we must concede that there exists the distinct possibility that
Filipino was re-conveyed to a qualified vendee and the original transaction was thereby cured. one or more of the future FTAAs will be the subject of yet another suit grounded on
Paraphrasing Halili, the same rationale applies to the instant case: assuming arguendo the constitutional issues.
invalidity of its prior grant to a foreign corporation, the disputed FTAA -- being now held by a
Filipino corporation -- can no longer be assailed; the objective of the constitutional provision -- to
But of equal if not greater significance is the cloud of uncertainty hanging over the mining
keep the exploration, development and utilization of our natural resources in Filipino hands --
industry, which is even now scaring away foreign investments. Attesting to this climate of anxiety
has been served.
is the fact that the Chamber of Mines of the Philippines saw the urgent need to intervene in the
case and to present its position during the Oral Argument; and that Secretary General Romulo
More accurately speaking, the present situation is one degree better than that obtaining Neri of the National Economic Development Authority (NEDA) requested this Court to allow him
in Halili, in which the original sale to a non-Filipino was clearly and indisputably violative of the to speak, during that Oral Argument, on the economic consequences of the Decision of January
constitutional prohibition and thus void ab initio. In the present case, the issuance/grant of the 27, 2004.20
subject FTAA to the then foreign-owned WMCP was not illegal, void or unconstitutional at the
time. The matter had to be brought to court, precisely for adjudication as to whether the FTAA
We are convinced. We now agree that the Court must recognize the exceptional character of the
and the Mining Law had indeed violated the Constitution. Since, up to this point, the decision of
situation and the paramount public interest involved, as well as the necessity for a ruling to put
this Court declaring the FTAA void has yet to become final, to all intents and purposes, the
an end to the uncertainties plaguing the mining industry and the affected communities as a
FTAA must be deemed valid and constitutional.17
result of doubts cast upon the constitutionality and validity of the Mining Act, the subject FTAA
and future FTAAs, and the need to avert a multiplicity of suits. Paraphrasing Gonzales v.
At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered Commission on Elections, 21 it is evident that strong reasons of public policy demand that the
into by the government only with a foreign corporation, never with a Filipino enterprise. Indeed, constitutionality issue be resolved now.22
the nationalistic provisions of the Constitution are all anchored on the protection of Filipino
interests. How petitioners can now argue that foreigners have the exclusive right to FTAAs
In further support of the immediate resolution of the constitutionality issue, public respondents
totally overturns the entire basis of the Petition -- preference for the Filipino in the exploration,
cite Acop v. Guingona,23 to the effect that the courts will decide a question -- otherwise moot and
development and utilization of our natural resources. It does not take deep knowledge of law
academic -- if it is "capable of repetition, yet evading review." 24 Public respondents ask the Court
and logic to understand that what the Constitution grants to foreigners should be equally
to avoid a situation in which the constitutionality issue may again arise with respect to another
available to Filipinos.
FTAA, 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. They also recall Salonga v. Cruz Paño, 25 in which this
Second Issue: Court declared that "(t)he Court also has the duty to formulate guiding and controlling
constitutional principles, precepts, doctrines or rules. It has the symbolic function of educating
the bench and bar on the extent of protection given by constitutional guarantees. x x x."
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot
The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state in
his dissent to the Decision that there was no more justiciable controversy and the plea to nullify
All the protagonists are in agreement that the Court has jurisdiction to decide this controversy,
the Mining Law has become a virtual petition for declaratory relief. 26 The entry of the Chamber of
even assuming it to be moot.
Mines of the Philippines, Inc., however, has put into focus the seriousness of the allegations of
unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for prohibition 27 in
Petitioners stress the following points. First, while a case becomes moot and academic the enforcement of the said law and regulations.
when "there is no more actual controversy between the parties or no useful purpose can be
served in passing upon the merits," 18 what is at issue in the instant case is not only the validity of
Indeed, this CMP entry brings to fore that the real issue in this case is whether paragraph 4 of
the WMCP FTAA, but also the constitutionality of RA 7942 and its Implementing Rules and
Section 2 of Article XII of the Constitution is contravened by RA 7942 and DAO 96-40, not
Regulations. Second, the acts of private respondent cannot operate to cure the law of its alleged
whether it was violated by specific acts implementing RA 7942 and DAO 96-40. "[W]hen an act
unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the Constitution
of the legislative department is seriously alleged to have infringed the Constitution, settling the
controversy becomes the duty of this Court. By the mere enactment of the questioned 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." 28 This ruling can be traced from Tañada v. Angara,29 in which
the Court said:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes
the Constitution, the petition no doubt raises a justiciable controversy. Where an
action of the legislative branch is seriously alleged to have infringed the Constitution, it
becomes not only the right but in fact the duty of the judiciary to settle the dispute.
xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk,
digress from or abandon its sacred duty and authority to uphold the Constitution 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."30
Additionally, the entry of CMP into this case has also effectively forestalled any possible
objections arising from the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution of the
constitutional issues in this case.
Third Issue:
The Proper Interpretation of the Constitutional Phrase
"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of
Article XII of the 1987 Constitution. In order to appreciate its context, Section 2 is reproduced in
full:
"Sec. 2. All 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. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino
citizens or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial
sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to
Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural resources by
Filipino citizens, as well as cooperative fish farming, with priority to subsistence
fishermen and fish-workers in rivers, lakes, bays and lagoons.
"The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large-scale
exploration, development, and utilization 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. In such
agreements, the State shall promote the development and use of local scientific and
technical resources.
"The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution." 31
No Restriction of Meaning by
a  Verba Legis  Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the language of the
Constitution should prevail; that the primary method of interpreting it is to seek the ordinary
meaning of the words used in its provisions. They rely on rulings of this Court, such as the
following:
"The fundamental principle in constitutional construction however is that the primary
source from which to ascertain constitutional intent or purpose is the language of the
provision itself. The presumption is that the words in which the constitutional
provisions are couched express the objective sought to be attained. In other
words, verba legis prevails. Only when the meaning of the words used is unclear and
equivocal should resort be made to extraneous aids of construction and interpretation,
such as the proceedings of the Constitutional Commission or Convention to shed light
on and ascertain the true intent or purpose of the provision being construed." 32
Very recently, in Francisco v. The House of Representatives,33 this Court indeed had the
occasion to reiterate the well-settled principles of constitutional construction:
"First, verba legis, that is, wherever possible, the words used in the Constitution must
be given their ordinary meaning except where technical terms are employed. x x x.
xxxxxxxxx
"Second, where there is ambiguity, ratio legis est anima. The words of the
Constitution should be interpreted in accordance with the intent of its framers. x x x.
xxxxxxxxx
"Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a
whole."34
For ease of reference and in consonance with verba legis, we reconstruct and stratify the
aforequoted Section 2 as follows:
 1. All natural resources are owned by the State. Except for agricultural lands, natural
resources cannot be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be
under the full control and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing
agreements with Filipino citizens or corporations, at least 60 percent of the
capital of which is owned by such citizens
4. Small-scale utilization of natural resources may be allowed by law in favor of
Filipino citizens.
5. For large-scale EDU 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
x x x."
Note that in all the three foregoing mining activities -- exploration, development and utilization --
the State may undertake such EDU activities by itself or in tandem with Filipinos or Filipino
corporations, except in two instances: first, in small-scale utilization of natural resources, which
Filipinos may be allowed by law to undertake; and second, in large-scale EDU of minerals,
petroleum and mineral oils, which may be undertaken by the State via "agreements with foreign-
owned corporations involving either technical or financial assistance" as provided by law.
Petitioners claim that the phrase "agreements x x x involving either technical or financial
assistance" simply means technical assistance or financial assistance agreements, nothing more
and nothing else. They insist that there is no ambiguity in the phrase, and that a plain reading of
paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-owned
corporation may enter into with the government is merely an agreement
for either financial or technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes
foreign management and operation of a mining enterprise.35
This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by
the Constitution reserving to Filipino citizens and corporations the use and enjoyment of the
country's natural resources. They maintain that this Court's Decision36 of January 27, 2004
correctly declared the WMCP FTAA, along with pertinent provisions of RA 7942, void for
allowing a foreign contractor to have direct and exclusive management of a mining enterprise.
Allowing such a privilege not only runs counter to the "full control and supervision" that the State
is constitutionally mandated to exercise over the exploration, development and utilization of the
country's natural resources; doing so also vests in the foreign company "beneficial ownership" of
our mineral resources. It will be recalled that the Decision of January 27, 2004 zeroed in on
"management or other forms of assistance" or other activities associated with the "service
contracts" of the martial law regime, since "the management or operation of mining activities by
foreign contractors, which is the primary feature of service contracts, was precisely the evil that
the drafters of the 1987 Constitution sought to eradicate."
On the other hand, the intervenor 37 and public respondents argue that the FTAA allowed by
paragraph 4 is not merely an agreement for supplying limited and specific financial or technical
services to the State. Rather, such FTAA is a comprehensive agreement for the foreign-owned
corporation's integrated exploration, development and utilization of mineral, petroleum or other
mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractor's
rendition of a whole range of integrated and comprehensive services, ranging from the discovery
to the development, utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could
inexorably lead to the conclusions arrived at in the ponencia. First, the drafters' choice of words
-- their use of the phrase agreements x x x involving either technical or financial assistance --
does not indicate the intent to exclude other modes of assistance. The drafters opted to
use involving when they could have simply said agreements for financial or technical
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. The word "involving" as used in this context has three
connotations that can be differentiated thus: one, the sense of "concerning," "having to do with,"
or "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three, "including,"
"containing" or "comprising."38
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word
"involving," when understood in the sense of "including," as in including technical or financial
assistance, necessarily implies that there are activities other than 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 explicitly mentioned, could be
made part of the agreement. Thus, 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. The difference in sense becomes very apparent when we
juxtapose "agreements for technical or financial assistance" against
"agreements including technical or financial assistance." This much is unalterably clear in
a verba legis approach.
Second, 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 anyone's mind about their
true intent. For example, they would have used the sentence foreign corporations
are absolutely prohibited from involvement in the 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 inevitable conclusion that there was a conscious and
deliberate decision to avoid the use of restrictive wording that bespeaks an intent not to
use the expression "agreements x x x involving either technical or financial assistance"
in an exclusionary and limiting manner.
Deletion of "Service Contracts" to
Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the conclusion that "the management
or operation of mining activities by foreign contractors, which is the primary feature of service
contracts, was precisely the evil that the drafters of the 1987 Constitution sought to
eradicate." Nowhere in the above-quoted Section can be discerned the objective to keep out of
foreign hands the management or operation of mining activities or the plan to eradicate service
contracts as these were understood in the 1973 Constitution. Still, petitioners maintain that the
deletion or omission from the 1987 Constitution of the term "service contracts" found in the 1973
Constitution sufficiently proves the drafters' intent to exclude foreigners from the management of
the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively established from the
mere failure to carry the same expression or term over to the new Constitution, absent a more
specific, explicit and unequivocal statement to that effect. What petitioners seek (a complete ban
on foreign participation in the management of mining operations, as previously allowed by the
earlier Constitutions) is nothing short of bringing about a momentous sea change in the
economic and developmental policies; and the fundamentally capitalist, free-enterprise
philosophy of our government. We cannot imagine such a radical shift being undertaken 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 Constitution. There has to be a much more definite and even unarguable basis
for such a drastic reversal of policies.
Fourth, a literal and restrictive interpretation of paragraph 4, 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 Filipino citizens or corporations, at least 60
percent of which is Filipino-owned, the rendition of financial or technical assistance to companies
engaged in mining or the development of any other natural resource. The taking out of foreign-
currency or peso-denominated loans or any other kind of financial assistance, as well as the
rendition of technical assistance -- whether to the State or to any other entity in the Philippines --
has never been restricted in favor of Filipino citizens or corporations having a certain minimum
percentage of Filipino equity. Such 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 know-how
and improve technical skills.
There 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 emphasized: 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 (and even in non-mining
areas). Obviously, the provision in question was intended to refer to agreements other
than those for mere financial or technical assistance.
In like manner, there would be no need to require the President of the Republic to report to
Congress, if only financial or technical assistance agreements are involved. Such agreements
are in the nature of foreign loans that -- pursuant to Section 20 of Article VII39 of the 1987
Constitution -- the President may contract or guarantee, merely with the prior concurrence of the
Monetary Board. In turn, the Board is required to report to Congress within thirty days from the
end of every quarter of the calendar year, not thirty days after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or technical
assistance, what is the point of requiring that they be based on real contributions to the
economic growth and general welfare of the country? For 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 existing power generating plant for a mining operation somewhere in
Mindanao? Such a criterion would make more sense when applied to a major business
investment in a principal sector of the industry.
The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is
not to be understood as one limited only to foreign loans (or other forms of financial support) and
to technical assistance. There is definitely more to it than that. These are provisions
permitting participation by foreign companies; requiring the President's report to
Congress; 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. The provisions
patently have significance and usefulness in a context that allows agreements with foreign
companies to include more than mere financial or technical assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific
and limited financial service or technical assistance by a foreign company. This argument begs
the question "To whom or for whom would it be rendered"? or Who is being assisted? If the
answer is "The State," then it necessarily implies that the State itself is the
one directly and solely undertaking the large-scale exploration, development and utilization of a
mineral resource, so it follows that the State must itself bear the liability and cost of repaying the
financing sourced from the foreign lender and/or of paying compensation to the foreign entity
rendering technical assistance.
However, it is of common knowledge, 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 make do with inadequate budgetary allocations. Thus,
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.
The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms
what the ordinary citizen has suspected all along. After the reality check, one will have to admit
the implausibility of a direct undertaking -- by the State itself -- of large-scale exploration,
development and utilization of minerals, petroleum and other mineral oils. Such an undertaking
entails not only humongous capital requirements, but also the attendant risk of never finding and
developing economically viable quantities of minerals, petroleum and other mineral oils.40
It is equally 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 Constitution, who were all well aware of the capital-intensive and technology-
oriented nature of large-scale mineral or petroleum extraction and the country's deficiency in
precisely those areas.41 To say so would be tantamount to asserting that the provision was
purposely designed to ladle the large-scale development and utilization of mineral, petroleum
and related resources with impossible conditions; and to remain forever and permanently
"reserved" for future generations of Filipinos.
A More Reasonable Look
at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and examining the logical
inferences. The drafters chose to emphasize and highlight agreements x x x involving either
technical or financial assistance in relation to foreign corporations' participation in large-scale
EDU. The inclusion of this clause on "technical or financial assistance" recognizes the fact that
foreign business entities and multinational corporations are the ones with the resources and
know-how to provide technical and/or financial assistance of the magnitude and type required for
large-scale exploration, development and utilization of these resources.
The drafters -- whose ranks included many academicians, economists, businessmen, lawyers,
politicians and government officials -- were not unfamiliar with the practices of foreign
corporations and multinationals.
Neither were they so naïve as to believe that these entities would provide "assistance" without
conditionalities or some quid pro quo. Definitely, as business persons well know and as a matter
of judicial notice, this matter is not just a question of signing a promissory note or executing a
technology transfer agreement. Foreign corporations usually require that they be given a say in
the management, for instance, of day-to-day operations of the joint venture. They would demand
the appointment of their own men as, for example, operations managers, technical experts,
quality control heads, internal auditors or comptrollers. Furthermore, they would probably require
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 make certain that the funding and
the technology they supply would not go to waste. Ultimately, they would also want to protect
their business reputation and bottom lines.42
"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of
this Constitution shall have five years from its ratification to comply on a graduated
and proportionate basis with the minimum Filipino ownership requirement therein.
xxxxxxxxx
"Section 25. After the expiration in 1991 of the Agreement between the Republic of
the Philippines and the United States of America concerning military bases, foreign
military bases, troops, or facilities shall not be allowed in the Philippines except under
a treaty duly concurred in by the Senate and, when the Congress so requires, ratified
by a majority of the votes cast by the people in a national referendum held for that
purpose, and recognized as a treaty by the other contracting State.
"Section 26. The authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain
operative for not more than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the Congress may
extend such period.

In short, the drafters will have to be credited with enough pragmatism and savvy to know that
A sequestration or freeze order shall be issued only upon showing of a prima facie
these foreign entities will not enter into such "agreements involving assistance" without requiring
case. The order and the list of the sequestered or frozen properties shall forthwith be
arrangements for the protection of their investments, gains and benefits.
registered with the proper court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall be filed within six
Thus, by specifying such "agreements involving assistance," the drafters necessarily gave months from its ratification. For those issued after such ratification, the judicial action
implied assent to everything that these agreements necessarily entailed; or that could or proceeding shall be commenced within six months from the issuance thereof.
reasonably be deemed necessary to make them tenable and effective, including management
authority with respect to the day-to-day operations of the enterprise and measures for the
The sequestration or freeze order is deemed automatically lifted if no judicial action or
protection of the interests of the foreign corporation, PROVIDED THAT Philippine sovereignty
proceeding is commenced as herein provided."  43]
over natural resources and full control over the enterprise undertaking the EDU activities remain
firmly in the State.
It is inconceivable that the drafters of the Constitution would leave such an important matter -- an
expression of sovereignty as it were -- indefinitely hanging in the air in a formless and ineffective
Petitioners' Theory Deflated by the
state. Indeed, the complete absence of even a general framework only serves to further deflate
Absence of Closing-Out Rules or Guidelines
petitioners' theory, like a child's balloon losing its air.

Seventh and final point regarding the plain-language approach, one of the practical difficulties
Under the circumstances, the logical inconsistencies resulting from petitioners' literal and
that results from it is the fact that there is nothing by way of transitory provisions that would
purely verba legis approach to paragraph 4 of Section 2 of Article XII compel a resort to other
serve to confirm the theory that the omission of the term "service contract" from the 1987
aids to interpretation.
Constitution signaled the demise of service contracts.

Petitioners' Posture Also Negated

The framers knew at the time they were deliberating that there were various service contracts
by  Ratio Legis Et Anima
extant and in force and effect, including those in the petroleum industry. Many of these service
contracts were long-term (25 years) and had several more years to run. If they had meant to ban
service contracts altogether, they would have had to provide for the termination or Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to
pretermination of the existing contracts. Accordingly, they would have supplied the specifics and supply the deficiencies of the plain-language approach, there is a need for recourse to the
the when and how of effecting the extinguishment of these existing contracts (or at least the proceedings of the 1986 Constitutional Commission. There is a need for ratio legis et anima.
mechanics for determining them); and of putting in place the means to address the just claims of
the contractors for compensation for their investments, lost opportunities, and so on, if not for
Service Contracts Not
the recovery thereof.
"Deconstitutionalized"

If the framers had intended to put an end to service contracts, they would have at least left
Pertinent portions of the deliberations of the members of the Constitutional Commission
specific instructions to Congress to deal with these closing-out issues, perhaps by way of
(ConCom) conclusively show that they discussed agreements involving either technical or
general guidelines and a timeline within which to carry them out. The following are some extant
financial assistance in the same breadth as service contracts and used the terms
examples of such transitory guidelines set forth in Article XVIII of our Constitution:
interchangeably. The following exchange between Commissioner Jamir (sponsor of the
provision) and Commissioner Suarez irrefutably proves that the "agreements involving technical
or financial assistance" were none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section
3, my amendment by substitution reads: THE PRESIDENT MAY ENTER INTO
AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER
TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION,
DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES ACCORDING TO
THE TERMS AND CONDITIONS PROVIDED BY LAW.
MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will
give the background.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what was
popularly known before as service contracts, among other things, is that correct?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service contracts but
subject to the guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the
President, not upon Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or otherwise, must be
made strictly in accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers
situations of the same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.44
The following exchange leaves no doubt that the commissioners knew exactly what they were
dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment with regard to
special service contracts which was accepted by the Committee. Since the
Committee has accepted it, I would like to ask some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. 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 Congress. Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam President.
MR. GASCON. According to the original proposal, if the President were to enter into a
particular agreement, he would need the concurrence of Congress. Now that it has
been changed by the proposal of Commissioner Jamir in that Congress will set the
general law to which the President shall comply, the President will, therefore, not need
the concurrence of Congress every time he enters into service contracts. Is that
correct?
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect
contrast to my proposed amendment, so I would like to object and present my
proposed amendment to the body.
xxxxxxxxx
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service contract
agreements which the President will enter into might be too general or since we do
not know the content yet of such a law, it might be that certain agreements will be
detrimental to the interest of the Filipinos. This is in direct contrast to my proposal
which provides that there be effective constraints in the implementation of service
contracts.
So instead of a general law to be passed by Congress 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
Congress, so as to assure the Filipinos of their interests with regard to the issue in
Section 3 on all lands of the public domain. My alternative amendment, which we will
discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH
AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF xxxxxxxxx
ALL THE MEMBERS OF CONGRESS SITTING SEPARATELY.
SR. TAN. Madam President, may I ask a question?
xxxxxxxxx
THE PRESIDENT. Commissioner Tan is recognized.
MR. BENGZON. The reason we made that shift is that we realized the original
proposal could breed corruption. By the way, this is not just confined to service
SR. TAN. Am I correct in thinking that the only difference between these
contracts but also to financial assistance. If we are going to make every single
future service contracts and the past service contracts under Mr. Marcos is the
contract subject to the concurrence of Congress – which, according to the
general law to be enacted by the legislature and the notification of Congress by the
Commissioner's amendment is the concurrence of two-thirds of Congress voting
President? That is the only difference, is it not?
separately – then (1) there is a very great chance that each contract will be different
from another; and (2) 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 MR. VILLEGAS. That is right.
our legislature to that.
SR. TAN. So those are the safeguards.
Now, to answer the Commissioner's apprehension, by "general law," we do not mean
statements of motherhood. Congress can build all the restrictions that it wishes into
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
that general law so that every contract entered into by the President under that
specific area will have to be uniform. The President has no choice but to follow all the
guidelines that will be provided by law. SR. TAN. Thank you, Madam President.45

MR. GASCON. But my basic problem is that we do not know 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 Committee's contention that the regular concurrence from Congress
would subject Congress to extensive lobbying, I think that is a risk we will have to take
since Congress 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 keep in tab and attuned to the interest
of the Filipino people, whenever the President enters into any agreement with regard
to such an important matter as technical or financial assistance for large-scale
exploration, development and utilization of natural resources or service
contracts, the people's elected representatives should be on top of it.
xxxxxxxxx
MR. OPLE. Madam President, we do not need to suspend the session. If
Commissioner Gascon needs a few minutes, I can fill up the remaining time while he
completes his proposed amendment. I just wanted to ask Commissioner Jamir
whether he would entertain a minor amendment to his amendment, and it reads as
follows: THE PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS OF
EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH THE
GENERAL LAW. I think the reason is, if I may state it briefly, as Commissioner
Bengzon said, Congress 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 Congress can do this is if there were a notification requirement from the Office of
the President that such service contracts had been entered into, subject then to the
scrutiny of the Members of Congress. This pertains to a situation where the service
contracts are already entered into, and all that this amendment seeks is the reporting
requirement from the Office of the President. Will Commissioner Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
More Than Mere Financial
and Technical Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently
demonstrate that the drafters knew 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 exploration, development and utilization of
minerals, petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to
speak for only two minutes in favor of the amendment of Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee and
Commissioner Jamir, I am in favor of the objection of Commissioner Gascon.
Madam President, I was one of those who refused to sign the 1973
Constitution, and one of the reasons is that there were many provisions in
the Transitory Provisions therein that favored aliens. I was shocked when I
read a provision authorizing service contracts while we, in this
Constitutional Commission, provided for Filipino control of the economy. We
are, therefore, providing for exceptional instances where aliens may
circumvent Filipino control of our economy. And one way of circumventing
the rule in favor of Filipino control of the economy is to recognize service
contracts.

MR. VILLEGAS. Yes, the Committee accepts the amendment.

 As far as I am concerned, if I should have my own way, I am for the
complete deletion of this provision. However, we are presenting a
compromise in the sense that we are requiring a two-thirds vote of all the
Members of Congress as a safeguard. I think we should not mistrust the
future Members of Congress by saying that the purpose of this provision is
to avoid corruption. We cannot claim that they are less patriotic than we are.
I think the Members of this Commission should know that entering
into service contracts is an exception to the rule on protection of natural
resources for the interest of the nation, and therefore, being an exception it
should be subject, whenever possible, to stringent rules. It seems to me that
we are liberalizing the rules in favor of aliens.
I say these things with a heavy heart, Madam President. I do not claim to be
a nationalist, but I love my country. Although 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 Jamir
amendment. (Applause)
Thank you, Madam President.46
Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr.,
indicates the limitations of the scope of such service contracts -- they are valid only in regard to
minerals, petroleum and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir
amendment and also to the Ople amendment. I propose to delete "NATURAL
RESOURCES" and substitute it with the following: MINERALS, PETROLEUM AND
OTHER MINERAL OILS. On the Ople amendment, I propose to add: THE
NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE
EXECUTION OF THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first amendment
in lieu of "NATURAL RESOURCES"?
MR. VILLEGAS. Could Commissioner Davide explain that?
MR. DAVIDE. Madam President, with the use of "NATURAL RESOURCES" here, it
would necessarily include all lands of the public domain, our marine resources,
forests, parks and so on. So we would like to limit the scope of these service
contracts to those areas really where these may be needed, the exploitation,
development and exploration 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 Filipino capital may not be sufficient,
and not to all natural resources.
MR. SUAREZ. Just a point of clarification again, Madam President. When the
Commissioner made those enumerations and specifications, I suppose he deliberately
did not include "agricultural land"?
MR. DAVIDE. That is precisely the reason we have to enumerate what these
resources are into which service contracts may enter. So, beyond the reach of
any service contract will be lands of the public domain, timberlands, forests, marine
resources, fauna and flora, wildlife and national parks.47
After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2
abstentions, Commissioner Davide made the following statement, which is very relevant to our
quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals,
petroleum and mineral oils. The Commission has just approved the possible foreign
entry into the development, exploration and utilization of these minerals, petroleum
and other mineral oils by virtue of the Jamir amendment. I voted in favor of the Jamir
amendment because it will eventually give way to vesting in exclusively Filipino
citizens and corporations wholly owned by Filipino citizens the right to utilize the other
natural resources. This means that as a matter of policy, natural resources should be
utilized and exploited only by Filipino citizens or corporations wholly owned by such
citizens. But by virtue of the Jamir amendment, since we feel that Filipino capital may
not be enough for the development and utilization of minerals, petroleum and other
mineral oils, the President can enter into service contracts with foreign corporations
precisely for the development and utilization 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. x x x."48
The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing
with agreements x x x involving either technical or financial assistance, which ultimately became
paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of the
ConCom were actually debating about the martial-law-era service contracts for which they
were crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision
on account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts,
this should always be with the concurrence of Congress and not guided only by a general law to
be promulgated by Congress." 49 Mr. Garcia explained, "Service contracts are given
constitutional legitimization in Sec. 3, even when they have been proven to be inimical to the
interests of the nation, providing, as they do, the legal loophole for the exploitation of our natural
resources for the benefit of foreign interests." 50 Likewise, Mr. Tadeo cited inter alia the fact that
service contracts continued to subsist, enabling foreign interests to benefit from our natural
resources.51 It was hardly likely that these gentlemen would have objected so strenuously,
had the provision called for mere technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave no
room for doubt that the service contract concept precisely underpinned the commissioners'
understanding of the "agreements involving either technical or financial assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
 · In their deliberations on what was to become paragraph 4, the framers used the
term service contracts in referring to agreements x x x involving either technical or
financial assistance.
· They spoke of service contracts as the concept was understood in the 1973
Constitution.
· It was obvious from their discussions that they were not about to ban or
eradicate service contracts.
· Instead, they were plainly crafting provisions to put in place safeguards that would
eliminate or minimize the abuses prevalent during the 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 exception to the general norm
established in the first paragraph of Section 2 of Article XII. This provision reserves or
limits to Filipino citizens -- and corporations at least 60 percent of which is owned by
such citizens -- the exploration, development and utilization of natural resources.
· This provision was prompted by the perceived insufficiency of Filipino capital and the
felt need for foreign investments in the EDU of minerals and petroleum resources.
· The framers for the most part debated about the sort of safeguards that would be
considered adequate and reasonable. But some of them, having more "radical"
leanings, wanted to ban service contracts altogether; for them, the provision would
permit aliens to exploit and benefit from the nation's natural resources, which they felt
should be reserved only for Filipinos.
· In the explanation of their votes, the individual commissioners were heard by the
entire body. They sounded off their individual opinions, openly enunciated their
philosophies, and supported or attacked the provisions with fervor. Everyone's
viewpoint was heard.
· In the final voting, the Article on the National Economy and Patrimony -- including
paragraph 4 allowing service contracts with foreign corporations as an exception to
the general norm in paragraph 1 of Section 2 of the same article -- was resoundingly
approved by a vote of 32 to 7, with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the phrase agreements involving either
technical or financial assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign corporations acting as
contractors on the one hand; and on the other, the government as principal or "owner" of the
works. In the new service contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and operation of large-scale
mining/extractive enterprises; and the government, through its agencies (DENR, MGB), actively
exercises control and supervision over the entire operation.
Such service contracts may be entered into only with respect to minerals, petroleum and other
mineral oils. The grant thereof is subject to several safeguards, among which are these
requirements:
(1) The service contract shall be crafted in accordance with a general law that will set
standard or uniform terms, conditions and requirements, presumably to attain a certain
uniformity in provisions and avoid the possible insertion of terms disadvantageous to
the country.
(2) The 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.
(3) Within thirty days of the executed agreement, the President shall report it to
Congress to give that branch of government an opportunity to look over the agreement
and interpose timely objections, if any.
Use of the Record of the
ConCom to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the "framers' intent"
approach, and the criticism hurled by petitioners who quote a ruling of this Court:
"While it is permissible in this jurisdiction to consult the debates and proceedings of
the constitutional convention in order to arrive at the reason and purpose of the
resulting Constitution, resort thereto may be had only when other guides fail as said
proceedings are powerless to vary the terms of the Constitution when the meaning is
clear. Debates in the constitutional convention 'are 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 talk, much less the mass of
our fellow citizens whose votes at the polls gave that instrument the force of
fundamental law. We think it safer to construe the constitution from what appears
upon its face.' The proper interpretation therefore depends more on how it was
understood by the people adopting it than in the framers' understanding thereof."52
The notion that the deliberations reflect only the views of those members who spoke out and not
the views of the majority who remained silent should be clarified. We must never forget that
those who spoke 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 kept abreast of the deliberations. By remaining silent, they are deemed to
have signified their assent to and/or conformity with at least some of the views propounded or
their lack of objections thereto. It was incumbent upon them, as representatives of the entire
Filipino people, to follow the deliberations closely and to speak 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 speak out and to
vote on the matter. Moreover, the individual explanations 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 thinking of the voting
population that participated in the referendum and ratified the Constitution. Verily, whether we
like it or not, it is a bit too much to assume that every one of those who voted to ratify the
proposed Charter did so only after carefully reading and mulling over it, provision by provision.
Likewise, it appears rather extravagant to assume that every one of those who did in fact bother
to read the draft Charter actually understood the import of its provisions, much less analyzed it
vis-à-vis the previous Constitutions. We believe that in reality, a good percentage of those who
voted in favor of it did so more out of faith and trust. For them, it was the product of the hard
work 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
questioned.
In short, a large proportion of the voters voted "yes" because the drafters, or a majority of them,
endorsed the proposed Constitution. What 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 Charter, much less about particular provisions therein. They only relied or fell back and
acted upon the favorable endorsement or recommendation of the framers as a group. In other
words, by voting yes, they may be deemed to have signified their voluntary adoption of the
understanding and interpretation of the delegates with respect to the proposed Charter and its
particular provisions. "If it's good enough for them, it's good enough for me;" or, in many
instances, "If it's good enough for President Cory Aquino, it's good enough for me."
And even for those who voted based on their own individual assessment of the proposed
Charter, there is no evidence available to indicate that their assessment or understanding of its
provisions was in fact different from that of the drafters. This unwritten assumption seems to be
petitioners' as well. For all we know, this segment of voters must have read and understood the
provisions of the Constitution in the same way the framers had, an assumption that would
account for the favorable votes.
Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom
as a group were supposed to represent the entire Filipino people. Thus, we cannot but regard
their views as being very much indicative of the thinking of the people with respect to the matters
deliberated upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following conclusion, based on
the above arguments. As 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 extractive enterprises,
subject to the full control and supervision of the State -- sans the abuses of the past
regime. The purpose is clear: to develop and utilize our mineral, petroleum and other
resources on a large scale for the immediate and tangible benefit of the Filipino people.
In view of the foregoing discussion, we should reverse the Decision of January 27, 2004, and in
fact now hold a view different from that of the Decision, which had these findings: (a) paragraph
4 of Section 2 of Article XII limits foreign involvement in the local mining industry to agreements
strictly for either financial or technical assistance only; (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 1973 Constitution; (c) these service contracts were supposedly "de-constitutionalized"
and proscribed by the omission of the term service contracts from the 1987 Constitution; (d)
since the WMCP FTAA contains provisions permitting the foreign contractor to manage the
concern, the said FTAA is invalid for being a prohibited service contract; and (e) provisions of
RA 7942 and DAO 96-40, which likewise grant managerial authority to the foreign contractor, are
also invalid and unconstitutional.
Ultimate Test: State's "Control"
Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a
possible collision of constitutional provisions. On the one hand, paragraph 1 of Section 2 of
Article XII explicitly mandates the State to exercise "full control and supervision" over the
exploration, development and utilization of natural resources. On the other hand, paragraph 4
permits safeguarded service contracts with foreign contractors. Normally, pursuant thereto, the
contractors exercise management prerogatives over the mining operations and the enterprise as
a whole. There is thus a legitimate ground to be concerned that either the State's full control and
supervision may rule out any exercise of management authority by the foreign contractor; or, the
other way around, allowing the foreign contractor full management prerogatives may ultimately
negate the State's full control and supervision.
Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat
quam pereat -- every part of the Constitution is to be given effect, and the Constitution is to be
read and understood as a harmonious whole. Thus, "full control and supervision" by the State
must be understood as one that does not preclude the legitimate exercise of management
prerogatives by the foreign contractor. Before any further discussion, we must stress the primacy
and supremacy of the principle of sovereignty and State control and supervision over all aspects
of exploration, development and utilization of the country's natural resources, as mandated in the
first paragraph of Section 2 of Article XII.
But in the next breadth we have to point out that "full control and supervision" cannot be taken
literally to mean that the State controls and supervises everything involved, down to the minutest
details, and makes all decisions required in the mining operations. This strained concept of
control and supervision over the mining enterprise would render impossible the legitimate
exercise by the contractors of a reasonable degree of management prerogative and authority
necessary and indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale exploration,
development and utilization activities; and result in the unmitigated stagnation of this sector, to
the detriment of our nation's development. This scenario renders paragraph 4 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.
The concept of control53 adopted in Section 2 of Article XII must be taken to mean less than
dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power to
direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the State
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.
The 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. Such 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 RA 7942 and its Implementing Rules
enable the government to exercise that degree of control sufficient to direct and regulate
the conduct of affairs of individual enterprises and restrain undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of certain
provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and
Regulations (DAO 96-40), as well as the WMCP FTAA.
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the
DENR to exercise "direct charge in the administration and disposition of mineral
resources", and empowers the MGB to "monitor the compliance by the contractor of
the terms and conditions of the mineral agreements", "confiscate surety and
performance bonds", and deputize whenever necessary any member or unit of the
Phil. National Police, barangay, duly registered non-governmental organization (NGO)
or any qualified person to police mining activities;

3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety
Indeed, petitioners charge54 that RA 7942, as well as its Implementing Rules and Regulations,
inspections of all installations, whether surface or underground", utilized in mining
makes it possible for FTAA contracts to cede full control and management of mining enterprises
operations.
over to fully foreign-owned corporations, with the result that the State is allegedly reduced to a
passive regulator dependent on submitted plans and reports, with weak review and audit
powers. The State does not supposedly act as the owner of the natural resources for and on 4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and
behalf of the Filipino people; it practically has little effective say in the decisions made by the warranties:
enterprise. Petitioners then conclude that the law, the implementing regulations, and the WMCP
FTAA cede "beneficial ownership" of the mineral resources to the foreign contractor.
"(g) Mining operations shall be conducted in accordance with the provisions
of the Act and its IRR.
A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners'
claims. Paraphrasing the Constitution, Section 4 of the statute clearly affirms the State's control
"(h) Work programs and minimum expenditures commitments.
thus:

"Sec. 4. Ownership of Mineral Resources. – Mineral resources are owned by the State
and the exploration, development, utilization and processing thereof shall be under its
full control and supervision. The State may directly undertake such activities or it may
enter into mineral agreements with contractors.
"The State shall recognize and protect the rights of the indigenous cultural
communities to their ancestral lands as provided for by the Constitution."
The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows:
xxxxxxxxx
"(k) Requiring proponent to effectively use appropriate anti-pollution
technology and facilities to protect the environment and restore or
rehabilitate mined-out areas.
"(l) The contractors shall furnish the Government records of geologic,
accounting and other relevant data for its mining operation, and that books
of accounts and records shall be open for inspection by the government. x x
x.

"Sec. 2. Declaration of Policy. All mineral resources in public and private lands within
"(m) Requiring the proponent to dispose of the minerals at the highest price
the territory and exclusive economic zone of the Republic of the Philippines are
and more advantageous terms and conditions.
owned by the State. It shall be the responsibility of the State to promote their rational
exploration, development, utilization and conservation through the combined efforts of
the Government and private sector in order to enhance national growth in a way that "(n) x x x x x x x x x
effectively safeguards the environment and protects the rights of affected
communities."
"(o) Such other terms and conditions consistent with the Constitution and
with this Act as the Secretary may deem to be for the best interest of the
Sufficient Control Over Mining State and the welfare of the Filipino people."
Operations Vested in the State
by RA 7942 and DAO 96-40
The foregoing provisions of Section 35 of RA 7942 are also reflected and
implemented in Section 56 (g), (h), (l), (m) and (n) of the Implementing
RA 7942 provides for the State's control and supervision over mining operations. The following Rules, DAO 96-40.
provisions thereof establish the mechanism of inspection and visitorial rights over mining
operations and institute reportorial requirements in this manner:
Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the
government's control over mining enterprises:
1. Sec. 8 which provides for the DENR's power of over-all supervision and periodic
review for "the conservation, management, development and proper use of the State's
· The contractor is to relinquish to the government those portions of the contract area
mineral resources";
not needed for mining operations and not covered by any declaration of mining
feasibility (Section 35-e, RA 7942; Section 60, DAO 96-40).
· The contractor must comply with the provisions pertaining to mine safety, health and
environmental protection (Chapter XI, RA 7942; Chapters XV and XVI, DAO 96-40).
· For violation of any of its terms and conditions, government may cancel an FTAA.
(Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
· An FTAA contractor is obliged to open its books of accounts and records for
inspection by the government (Section 56-m, DAO 96-40).
· An FTAA contractor has to dispose of the minerals and by-products at the highest
market price and register with the MGB a copy of the sales agreement (Section 56-n,
DAO 96-40).
· MGB is mandated to monitor the contractor's compliance with the terms and
conditions of the FTAA; and to deputize, when necessary, any member or unit of the
Philippine National Police, the barangay or a DENR-accredited nongovernmental
organization to police mining activities (Section 7-d and -f, DAO 96-40).
· An FTAA cannot be transferred or assigned without prior approval by the President
(Section 40, RA 7942; Section 66, DAO 96-40).
· A mining project under an FTAA cannot proceed to the
construction/development/utilization stage, unless its Declaration of Mining Project
Feasibility has been approved by government (Section 24, RA 7942).
· The Declaration of Mining Project Feasibility filed by the contractor cannot be
approved without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program (Section
69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70,
RA 7942; Section 27, RA 7160)
6. Free and prior informed consent by the indigenous peoples concerned,
including payment of royalties through a Memorandum of Agreement
(Section 16, RA 7942; Section 59, RA 8371)
· The FTAA 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 (Section 57, RA 7942).
· The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or
annual basis as the case may be; per Section 270, DAO 96-40), pertaining to the
following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
· An FTAA pertaining to areas within government reservations cannot be granted
without a written clearance from the government agencies concerned (Section 19, RA
7942; Section 54, DAO 96-40).
· An FTAA contractor is required to post a financial guarantee bond in favor of the
government in an amount equivalent to its expenditures obligations for any particular
year. This requirement is apart from the representations and warranties of the
contractor that it has access to all the financing, managerial and technical expertise
and technology necessary to carry out the objectives of the FTAA (Section 35-b, -e,
and -f, RA 7942).
· Other reports to be submitted by the contractor, as required under DAO 96-40, are
as follows: an environmental report on the rehabilitation of the mined-out area and/or
mine waste/tailing covered area, and anti-pollution measures undertaken (Section 35-
a-2); annual reports of the mining operations and records of geologic accounting
(Section 56-m); annual progress reports and final report of exploration activities
(Section 56-2).
· Other programs required to be submitted by the contractor, pursuant to DAO 96-40,
are the following: a safety and health program (Section 144); an environmental work
program (Section 168); an annual environmental protection and enhancement
program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the
FTAA contractor by the statute and regulations easily overturns petitioners' contention. The
setup under RA 7942 and DAO 96-40 hardly relegates the State to the role of a "passive
regulator" dependent on submitted plans and reports. On the contrary, the government agencies
concerned are empowered to approve or disapprove -- hence, to influence, direct and change --
the various work programs and the corresponding minimum expenditure commitments for each
of the exploration, development and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its
commitments therein. Figures 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 possible; even copies of sales agreements have to be submitted
to and registered with MGB. And the contractor is mandated to open its books of accounts and
records for scrutiny, so as to enable the State to determine if the government share has been
fully paid.
The State may likewise compel the contractor's compliance with mandatory requirements on
mine safety, health and environmental protection, and the use of anti-pollution technology and
facilities. Moreover, the contractor is also obligated to assist in the development of the mining
community and to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions
and/or noncompliance with statutes or regulations. This 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 sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe
that the State 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 contractor; likewise, it has the capability to enforce compliance and to
impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away
with it; on the contrary, it will have to follow the government line if it wants to stay in the
enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a
sufficient degree of control and supervision over the conduct of mining operations.
Section 3(aq) of RA 7942
Not Unconstitutional
An objection has been expressed that Section 3(aq) 55 of RA 7942 -- which allows a foreign
contractor to apply for and hold an exploration permit -- is unconstitutional. The reasoning is that
Section 2 of Article XII of the Constitution does not allow foreign-owned corporations to
undertake mining operations directly. They may act only as contractors of the State under an
FTAA; and the State, as the party directly undertaking exploitation of its natural resources, must
hold through the government all exploration permits and similar authorizations. Hence, Section
3(aq), in permitting foreign-owned corporations to hold exploration permits, is unconstitutional.
The objection, however, is not well-founded. While the Constitution mandates the State to
exercise full control and supervision over the exploitation of mineral resources, nowhere does it
require the government to hold all exploration permits and similar authorizations. In fact, there is
no prohibition at all against foreign or local corporations or contractors holding exploration
permits. The reason is not hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the
right to conduct exploration for all minerals in specified areas. Such a permit does not amount to
an authorization to extract and carry off the mineral resources that may be discovered. This
phase involves nothing but expenditures for exploring the contract area and locating the mineral
bodies. As no extraction is involved, there are no revenues or incomes to speak of. In short, the
exploration permit is an authorization for the grantee to spend its own funds on exploration
programs that are pre-approved by the government, without any right to recover anything should
no minerals in commercial quantities be discovered. The State risks nothing and loses nothing
by granting these permits to local or foreign firms; in fact, it stands to gain in the form of data
generated by the exploration activities.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the
commercial viability of a mining area may, within the term of the permit, file with the MGB a
declaration of mining project feasibility accompanied by a work program for development. The
approval of the mining project feasibility and compliance with other requirements of RA 7942
vests in the grantee the exclusive right to an MPSA or any other mineral agreement, or to an
FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production
agreement, or an FTAA over the permit area, and the application shall be approved if the permit
grantee meets the necessary qualifications and the terms and conditions of any such
agreement. Therefore, the contractor will be in a position to extract minerals and earn revenues
only when the MPSA or another mineral agreement, or an FTAA, is granted. At that point, the
contractor's rights and obligations will be covered by an FTAA or a mineral agreement.
But prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or
prospective contractor) cannot yet be deemed to have entered into any contract or agreement
with the State, and the grantee would definitely need to have some document or instrument as
evidence of its right to conduct exploration works within the specified area. This need is met by
the exploration permit issued pursuant to Sections 3(aq), 20 and 23 of RA 7942.
In brief, the exploration permit serves a practical and legitimate purpose in that it protects
the interests and preserves the rights of the exploration permit grantee (the would-be
contractor) -- foreign or local -- during the period of time that it is spending heavily on
exploration works, without yet being able to earn revenues to recoup any of its
investments and expenditures. Minus this permit and the protection it affords, the exploration
works and expenditures may end up benefiting only claim-jumpers. Such a possibility tends to
discourage investors and contractors. Thus, Section 3(aq) of RA 7942 may not be deemed
unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and
supervision:
1. The contractor is obligated to account for the value of production and sale of
minerals (Clause 1.4).
2. The contractor's work program, activities and budgets must be approved by/on
behalf of the State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period (Clause 3.2-a).
4. Approval by the State is necessary for incorporating lands into the FTAA contract
area (Clause 4.3-c).
5. The Bureau of Forest Development is vested with discretion in regard to approving
the inclusion of forest reserves as part of the FTAA contract area (Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not
needed for exploration and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State
(Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause
4.9).
9. The contractor is required to obtain State approval of its work programs for the
succeeding two-year periods, containing the proposed work activities and
expenditures budget related to exploration (Clause 5.1).
10. The contractor is required to obtain State approval for its proposed expenditures
for exploration activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological, geophysical,
geochemical and other information relating to its explorations within the FTAA area
(Clause 5.3-a).
12. The contractor is to submit within six months after expiration of exploration period
a final report on all its findings in the contract area (Clause 5.3-b).
13. The 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 work program for the development phase, for approval by the DENR
secretary (Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including
construction of the production facilities, within the period stated in the approved work
program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a work
program covering each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production, ore
reserves, work accomplished and work in progress, profile of its work force and
management staff, and other technical information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining
facilities shall be subject to the approval of the secretary (Clause 6.4).
18. The State has control with respect to the amount of funds that the contractor may
borrow within the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and marketing
issues (Clause 10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in the contractor,
within ten years of recovering specified expenditures, unless not so required by
subsequent legislation (Clause 10.1).
21. The State has the right to terminate the FTAA for the contractor's unremedied
substantial breach thereof (Clause 13.2);
22. The State's approval is needed for any assignment of the FTAA by the contractor
to an entity other than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what they mean with
respect to the State's ability to exercise full control and effective supervision over the enterprise.
For instance, throughout the initial five-year exploration and feasibility phase of the project, the
contractor is mandated by Clause 5.1 of the WMCP FTAA to submit a series of work programs
(copy furnished the director of MGB) to the DENR secretary for approval. The programs will
detail the contractor's proposed exploration activities and budget covering each subsequent
period of two fiscal years.
In other words, the concerned government officials will be informed beforehand of the proposed
exploration activities and expenditures of the contractor for each succeeding two-year period,
with the right to approve/disapprove them or require changes or adjustments therein if deemed
necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend for
exploration activities during the first contract year of the exploration period was fixed at not less
than P24 million; and then for the succeeding years, the amount shall be as agreed between the
DENR secretary and the contractor prior to the commencement of each subsequent fiscal year.
If no such agreement is arrived upon, the previous year's expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a very big say in the
exploration phase of the project. This fact is not something to be taken lightly, considering that
the government has absolutely no contribution to the exploration expenditures or work activities
and yet is given veto power over such a critical aspect of the project. We cannot but construe as
very significant such a degree of control over the project and, resultantly, over the mining
enterprise itself.
Following its exploration activities or feasibility studies, if the contractor believes that any part of
the contract area is likely to contain an economic mineral resource, it shall submit to the DENR
secretary a declaration of mining feasibility (per Clause 5.4 of the FTAA), together with a
technical description of the area delineated for development and production, a description of the
proposed mining operations including the technology to be used, a work program for
development, an environmental impact statement, and a description of the contributions to the
economic and general welfare of the country to be generated by the mining operations (pursuant
to Clause 5.5).
The work program for development is subject to the approval of the DENR secretary. Upon 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 equipment,
within the period provided in the approved work program for development (per Clause 6.1).
Thus, notably, the development phase of the project is likewise subject to the control and
supervision of the government. It cannot be emphasized 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. Hence, the submission of the work program for development to the DENR
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 State's
consideration and action.
Throughout the operating period, the contractor is required to submit to the DENR secretary for
approval, copy furnished the director of MGB, work programs covering each period of three
fiscal years (per Clause 6.2). During the same period (per Clause 6.3), the contractor is
mandated to submit various quarterly and annual reports to the DENR secretary, copy furnished
the director of MGB, on the tonnages of production in terms of ores and concentrates, with
corresponding grades, values and destinations; reports of sales; total ore reserves, total tonnage
of ores, work accomplished and work in progress (installations and facilities related to mining
operations), investments made or committed, and so on and so forth.
Under Section VIII, during the period of mining operations, the contractor is also required to
submit to the DENR secretary (copy furnished the director of MGB) the work program and
corresponding budget for the contract area, describing the mining operations that are proposed
to be carried out during the period covered. The secretary is, of course, entitled to grant or deny
approval of any work program or budget and/or propose revisions thereto. Once the
program/budget has been approved, the contractor shall comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from constituting a
surrender of control and a grant of beneficial ownership of mineral resources to the contractor in
question, bestow upon the State more than adequate control and supervision over the
activities of the contractor and the enterprise.
No Surrender of Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which, they say,
amount to a relinquishment of control by the State, since it "cannot truly impose its own
discretion" in respect of the submitted work programs.
"8.2. The Secretary shall be deemed to have approved any Work Programme or
Budget or variation thereof submitted by the Contractor unless within sixty (60) days
after submission by the Contractor the Secretary gives notice declining such approval
or proposing a revision of certain features and specifying its reasons therefor ('the
Rejection Notice').
8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and
endeavor to agree on amendments to the Work Programme or Budget. If the
Secretary and the Contractor fail to agree on the proposed revision within 30 days
from delivery of the Rejection Notice then the Work Programme or Budget or variation
thereof proposed by the Contractor shall be deemed approved, so as not to
unnecessarily delay the performance of the Agreement.
8.4. x x x x x x x x x
8.5. So far as is practicable, the Contractor shall comply with any approved Work
Programme and Budget. It is recognized by the Secretary and the Contractor that the
details of any Work Programmes or Budgets may require changes in the light of
changing circumstances. The Contractor may make such changes without approval of
the Secretary provided they do not change the general objective of any Work
Programme, nor entail a downward variance of more than twenty per centum
(20percent) of the relevant Budget. All other variations to an approved Work
Programme or Budget shall be submitted for approval of the Secretary."
From the provisions quoted above, petitioners generalize by asserting that the government does
not participate in making critical decisions regarding the operations of the mining firm.
Furthermore, while the State can require the submission of work 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.
We hold, however, that the foregoing provisions do not manifest a relinquishment of control. For
instance, Clause 8.2 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 government's handling, processing and approval of submitted work programs and
budgets. Anyway, the provision does give the DENR secretary more than sufficient time (60
days) to react to submitted work programs and budgets. It cannot be supposed that proper
grounds for objecting thereto, if any exist, cannot be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the event a
disagreement over the submitted work program or budget arises between the State 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 works.
These temporary or stop-gap solutions are not necessarily evil or wrong. Neither does it follow
that the government will inexorably be aggrieved if and when these temporary remedies come
into play. First, avoidance of long delays in these situations will undoubtedly redound to the
benefit of the State as well as the contractor. Second, who is to say that the work program or
budget proposed by the contractor and deemed approved under Clause 8.3 would not be the
better or more reasonable or more effective alternative? The contractor, being the "insider," as it
were, may be said to be in a better position than the State -- an outsider looking in -- to
determine what work program or budget would be appropriate, more effective, or more suitable
under the circumstances.
All things considered, we take exception to the characterization of the DENR secretary as a
subservient nonentity whom the contractor can overrule at will, on account of Clause 8.3. And
neither is it true that under the same clause, the DENR secretary has no authority whatsoever to
disapprove the work program. As Respondent WMCP reasoned in its Reply-Memorandum, the
State -- despite Clause 8.3 -- still has control over the contract area and it may, as sovereign
authority, prohibit work thereon until the dispute is resolved. And ultimately, the State may
terminate the agreement, pursuant to Clause 13.2 of the same FTAA, citing substantial breach
thereof. Hence, it clearly retains full and effective control of the exploitation of the mineral
resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the parties' need for flexibility,
given that no one can accurately forecast under all circumstances, or predict how situations may
change. Hence, while approved work 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 take shape and unfold with suddenness and urgency. Thus,
Clause 8.5 allows the contractor to move ahead and make changes without the express or
implicit approval of the DENR secretary. Such 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.
Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations,
while still guaranteeing that the approved work programs and budgets are not abandoned
altogether. Clause 8.5 does not constitute proof that the State has relinquished control. And
ultimately, should there be disagreement with the actions taken by the contractor in this instance
as well as under Clause 8.3 discussed above, the DENR secretary may resort to
cancellation/termination of the FTAA as the ultimate sanction.
Discretion to Select Contract
Area Not an Abdication of Control
Next, 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 relinquished pursuant to
Clause 4.6 of the WMCP FTAA.56 This clause, however, does not constitute abdication of control.
Rather, it is a mere acknowledgment of the fact that the contractor will have determined, after
appropriate exploration works, which portions of the contract area do not contain minerals in
commercial quantities sufficient to justify developing the same and ought therefore to be
relinquished. The State cannot just substitute its judgment for that of the contractor and dictate
upon the latter which areas to give up.
Moreover, we can be certain that the contractor's self-interest will propel proper and efficient
relinquishment. According to private respondent,57 a mining company tries to relinquish 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 relinquished.
Thus, the larger the remaining area, the heftier the amount of occupation fees to be paid by the
contractor. Accordingly, relinquishment 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. Neither will it want
to relinquish promising sites, which other contractors may subsequently pick up.
Government Not a Subcontractor
Petitioners further maintain that the contractor can compel the government to exercise its power
of eminent domain to acquire surface areas within the contract area for the contractor's use.
Clause 10.2 (e) of the WMCP FTAA provides that the government agrees that the contractor
shall "(e) have the right to require the Government at the Contractor's own cost, to purchase or
acquire surface areas for and on behalf of the Contractor at such price and terms as may be
acceptable to the contractor. At the termination of this Agreement such areas shall be sold by
public auction or tender and the Contractor shall be entitled to reimbursement of the costs of
acquisition and maintenance, adjusted for inflation, from the proceeds of sale."
According to petitioners, "government becomes a subcontractor to the contractor" and may, on
account of this provision, be compelled "to make use of its power of eminent domain, not for
public purposes but on behalf of a private party, i.e., the contractor." Moreover, the power of the
courts to determine the amount corresponding to the constitutional requirement of just
compensation has allegedly also been contracted away by the government, on account of the
latter's commitment that the acquisition shall be at such terms as may be acceptable to the
contractor.
However, private respondent has proffered a logical explanation for the provision. 58 Section
10.2(e) contemplates a situation applicable to foreign-owned corporations. WMCP, at the time of
the execution of the FTAA, was a foreign-owned corporation and therefore not qualified 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 FTAA contract area,
the particular surface areas with favorable topography deemed ideal for such infrastructure and
will need to acquire the surface rights. The State owns the mineral deposits in the earth, and is
also qualified to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to
own land, identifies to the government the specific surface areas within the FTAA contract area
to be acquired for the mine infrastructure. The government then acquires ownership of the
surface land areas on behalf of the contractor, in order to enable the latter to proceed to fully
implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows
it, after termination of the FTAA, 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 Sagittarius as the present FTAA contractor, since it is a Filipino
corporation qualified to own and hold land. As such, it may therefore freely negotiate with the
surface rights owners and acquire the surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of
the rationale for the said provision. That provision does not call for the exercise of the power of
eminent domain -- and determination of just compensation is not an issue -- as much as it calls
for a qualified party to acquire the surface rights on behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having the State do
the purchasing is a better alternative. This will at least cause the government to be aware of
such transaction/s and foster transparency in the contractor's dealings with the local property
owners. The government, then, will not act as a subcontractor of the contractor; rather, it will
facilitate the transaction and enable the parties to avoid a technical violation of the Anti-Dummy
Law.
Absence of Provision
Requiring Sale at Posted
Prices Not Problematic
The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the
contractor to sell the mineral products at posted or market prices is not a problem. Apart from
Clause 1.4 of the FTAA obligating the contractor to account for the total value of mineral
production and the sale of minerals, we can also look to Section 35 of RA 7942, which
incorporates into all FTAAs certain terms, conditions and warranties, including the following:
"(l) The contractors shall furnish the Government records of geologic, accounting and
other relevant data for its mining operation, and that books of accounts and records
shall be open for inspection by the government. x x x
(m) Requiring the proponent to dispose of the minerals at the highest price and more
advantageous terms and conditions."
For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose
of the minerals and by-products at the highest market price and to register with the MGB a copy
of the sales agreement. After all, the provisions of prevailing statutes as well as rules and
regulations are deemed written into contracts.
Contractor's Right to Mortgage
Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to mortgage
and encumber not only its rights and interests in the FTAA and the infrastructure and
improvements introduced, but also the mineral products extracted. 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-banks of the then foreign contractor WMCP to secure the lendings made
or to be made to the latter. Ordinarily, banks lend not only on the security of mortgages on fixed
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. Banks even lend on the security of accounts
receivable that are collectible within 90 days.59
It is not uncommon to find that a debtor corporation has executed deeds of assignment "by way
of security" over the production for the next twelve months and/or the proceeds of the sale
thereof -- or the corresponding accounts receivable, if sold on terms -- in favor of its creditor-
banks. Such deeds may include authorizing the creditors to sell the products themselves and to
collect the sales proceeds and/or the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary or objectionable. In any
case, as will be explained below, even if it is allowed to mortgage or encumber 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 contractor's right to mortgage the minerals is simply
unwarranted. Just the same, the contractor must account for the value of mineral production and
the sales proceeds therefrom. Likewise, under the WMCP FTAA, the government remains
entitled to its sixty percent share in the net mining revenues of the contractor. The latter's right to
mortgage the minerals does not negate the State's right to receive its share of net mining
revenues.
Shareholders Free to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the contractor authority "to change its
equity structure at any time." This provision may seem somewhat unusual, but considering that
WMCP then was 100 percent foreign-owned, any change would mean that such percentage
would either stay unaltered or be decreased in favor of Filipino ownership. Moreover, the
foreign-held shares may change hands freely. Such eventuality is as it should be.
We 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 exercise of their business judgment and discretion. Rather, what
is critical is that, regardless of the identity, nationality and percentage ownership of the various
shareholders of the contractor -- and regardless of whether these shareholders decide to take
the company public, float bonds and other fixed-income instruments, or allow the creditor-banks
to take an equity position in the company -- the foreign-owned contractor is always in a position
to render the services required under the FTAA, under the direction and control of the
government.
Contractor's Right to Ask
For Amendment Not Absolute
With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind
government to allow amendments to the FTAA if required by banks and other financial
institutions as part of the conditions for new lendings. However, we do not find anything wrong
with Clause 10.4(e), which only states that "if the Contractor seeks to obtain financing
contemplated herein from banks or other financial institutions, (the Government shall) cooperate
with the Contractor in such efforts provided that such financing arrangements will in no event
reduce the Contractor's obligations or the Government's rights
hereunder." The colatilla obviously safeguards the State's interests; if breached, it will give the
government cause to object to the proposed amendments.
On the other hand, Clause 10.4(i) provides that "the Government shall favourably consider any
request from [the] Contractor for amendments of this Agreement which are necessary in order
for the Contractor to successfully obtain the financing." Petitioners see in this provision a
complete renunciation of control. We disagree.
The proviso does not say that the government shall grant any request for amendment. Clause
10.4(i) only obliges the State to favorably consider any such request, which is not at all
unreasonable, as it is not equivalent to saying that the government must automatically consent
to it. This provision should be read together with the rest of the FTAA provisions instituting
government control and supervision over the mining enterprise. The 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 requested by the lenders.
Rather, it is up to the contractor to prove to the government that the requested changes to the
FTAA are indispensable, as they enable the contractor to obtain the needed financing; that
without such contract changes, the funders would absolutely refuse to extend the loan; that there
are no other sources of financing available to the contractor (a very unlikely scenario); and that
without the needed financing, the execution of the work programs will not proceed. But the
bottom line is, in the exercise of its power of control, the government has the final say on
whether to approve or disapprove such requested amendments to the FTAA. In short, approval
thereof is not mandatory on the part of the government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions
sufficiently overturns petitioners' litany of objections to and criticisms of the State's
alleged lack of control.
Financial Benefits Not
Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down was the finding
mentioned in the Decision that beneficial ownership of the mineral resources had been
conveyed to the contractor. This 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. "By allowing foreign contractors to manage
or operate all the aspects of the mining operation, the above-cited provisions of R.A. No. 7942
have in effect conveyed beneficial ownership over the nation's mineral resources to these
contractors, leaving the State with nothing but bare title thereto." 60 As the WMCP FTAA
contained similar provisions deemed by the ponente to be abhorrent to the Constitution, the
Decision struck down the Contract as well.
Beneficial ownership has been defined as ownership recognized by law and capable of being
enforced in the courts at the suit of the beneficial owner. 61 Black's Law Dictionary indicates that
the term is used in two senses: first, to indicate the interest of a beneficiary in trust property (also
called "equitable ownership"); 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 corporation's books as the
owner.62 Usually, beneficial ownership is distinguished from naked ownership, which is the
enjoyment of all the benefits and privileges of ownership, as against possession of the bare title and communities directly affected by the mining project. The major taxes and other payments
to property. constituting the basic government share are enumerated below:65

An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon Payments to the National Government:
WMCP 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
· Excise tax on minerals - 2 percent of the gross output of mining operations
against the State.

· Contractor' income tax - maximum of 32 percent of taxable income for

As public respondents correctly point out, any interest the contractor may have in the proceeds
corporations
of the mining operation is merely the equivalent of the consideration the government has
undertaken to pay for its services. All lawful contracts require such mutual prestations, and the
WMCP FTAA is no different. The contractor commits to perform certain services for the · Customs duties and fees on imported capital equipment -the rate is set by
government in respect of the mining operation, and in turn it is to be compensated out of the net the Tariff and Customs Code (3-7 percent for chemicals; 3-10 percent for
mining revenues generated from the sale of mineral products. What would be objectionable is a explosives; 3-15 percent for mechanical and electrical equipment; and 3-10
contractual provision that unduly benefits the contractor far in excess of the service rendered or percent for vehicles, aircraft and vessels
value delivered, if any, in exchange therefor.
· VAT on imported equipment, goods and services – 10 percent of value
A careful perusal of the statute itself and its implementing rules reveals that neither RA 7942 nor
DAO 99-56 can be said to convey beneficial ownership of any mineral resource or product to
· Royalties due the government on minerals extracted from mineral
any foreign FTAA contractor.
reservations, if applicable – 5 percent of the actual market value of the
minerals produced
Equitable Sharing
of Financial Benefits
· Documentary stamp tax - the rate depends on the type of transaction

On the contrary, DAO 99-56, entitled "Guidelines Establishing the Fiscal Regime of Financial or
· Capital gains tax on traded stocks - 5 to 10 percent of the value of the
Technical Assistance Agreements" aims to ensure an equitable sharing of the benefits derived
shares
from mineral resources. These benefits are to be equitably shared among the government
(national and local), the FTAA contractor, and the affected communities. The purpose is to
ensure sustainable mineral resources development; and a fair, equitable, competitive and stable · Withholding tax on interest payments on foreign loans -15 percent of the
investment regime for the large-scale exploration, development and commercial utilization of amount of interest
minerals. The general framework or concept followed in crafting the fiscal regime of the FTAA is
based on the principle that the government expects real contributions to the economic growth
and general welfare of the country, while the contractor expects a reasonable return on its · Withholding tax on dividend payments to foreign stockholders – 15 percent
investments in the project.63 of the dividend

Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its · Wharfage and port fees
share from the taxes and fees normally paid by a mining enterprise. On the other hand, the
FTAA contractor is granted by the government certain fiscal and non-fiscal incentives 64 to help · Licensing fees (for example, radio permit, firearms permit, professional
support the former's cash flow during the most critical phase (cost recovery) and to make the fees)
Philippines competitive with other mineral-producing countries. After the contractor has
recovered its initial investment, it will pay all the normal taxes and fees comprising the basic
share of the government, plus an additional share for the government based on the options and · Other national taxes and fees.
formulae set forth in DAO 99-56.
Payments to Local Governments:
The said DAO spells out the financial benefits the government will receive from an FTAA,
referred to as "the Government Share," composed of a basic government share and · Local business tax - a maximum of 2 percent of gross sales or receipts
an additional government share. (the rate varies among local government units)

The basic government share is comprised of all direct taxes, fees and royalties, as well as
other payments made by the contractor during the term of the FTAA. These are amounts paid
directly to (i) the national government (through the Bureau of Internal Revenue, Bureau of
Customs, Mines & Geosciences Bureau and other national government agencies imposing taxes
or fees), (ii) the local government units where the mining activity is conducted, and (iii) persons
· Real property tax - 2 percent of the fair market value of the property, based
on an assessment level set by the local government
· Special education levy - 1 percent of the basis used for the real property
tax
 · Occupation fees - PhP50 per hectare per year; PhP100 per hectare per
year if located in a mineral reservation
· Community tax - maximum of PhP10,500 per year
· All other local government taxes, fees and imposts as of the effective date
of the FTAA - the rate and the type depend on the local government
Other Payments:
· Royalty to indigenous cultural communities, if any – 1 percent of gross
output from mining operations
· Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also collected from the FTAA
contractor in accordance with the second paragraph of Section 81 of RA 7942, which provides
that the government share shall be comprised of, among other things, certain taxes, duties and
fees. The subject proviso reads:
"The Government share in a financial or technical assistance agreement shall consist
of, among other things, the contractor's corporate income tax, excise tax, special allowance,
withholding tax due from the contractor's foreign stockholders arising from dividend or interest
payments to the said foreign stockholder in case of a foreign national, and all such other taxes,
duties and fees as provided for under existing laws." (Bold types supplied.)
The government, through the DENR and the MGB, has interpreted the insertion of the
phrase among other things 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.
The additional government share is computed by using one of three options or schemes
presented in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows; (2)
the share based on excess profits; and (3) the sharing based on the cumulative net mining
revenue. The 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.66
Proceeds from the government shares arising from an FTAA contract are distributed to and
received by the different levels of government in the following proportions:
National Government 50 percent
Provincial Government 10 percent
Municipal Government 20 percent
Affected Barangays 20 percent
The portion of revenues remaining after the deduction of the basic and additional government
shares is what goes to the contractor.
Government's Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees
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 Section
81 of RA 7942, quoted earlier. The said proviso has been denounced, because, allegedly, the
State's share in FTAAs with foreign contractors has been limited to taxes, fees and duties only;
in effect, the State has been deprived of a share in the after-tax income of the enterprise. In the
face of this allegation, one has to consider that the law does not define the term among other
things; and the Office of the Solicitor General, in its Motion for Reconsideration, appears to have
erroneously claimed that the phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the reason that Congress
deliberately avoided setting unnecessary limitations as to what may constitute compensation to
the State for the exploitation and use of mineral resources. But the inclusion of that phrase
clearly and unmistakably reveals the legislative intent to have the State collect more than just
the usual taxes, duties and fees. Certainly, there is nothing in that phrase -- or in the second
paragraph of Section 81 -- that would suggest that such phrase should be interpreted as
referring only to taxes, duties, fees and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the phrase among
other things in the second paragraph of Section 81,67 the DENR structured and formulated in
DAO 99-56 the said additional government share. Such a share was to consist not of taxes,
but of a share in the earnings or cash flows of the mining enterprise. The additional
government share was to be paid by the contractor on top of the basic share, so as to achieve  a
fifty-fifty sharing -- between the government and the contractor -- of net benefits from mining. In
the Ramos-DeVera paper, the explanation of the three options or formulas68 -- presented in
DAO 99-56 for the computation of the additional government share -- serves to debunk the claim
that the government's take from an FTAA consists solely of taxes, fees and duties.
Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data --
failed to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding
the three schemes or options for computing the additional government share presented in DAO
99-56. Had due care been taken by the OSG, the Court 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-DeVera paper, and the even
more abstruse mathematical jargon employed in DAO 99-56, the OSG omitted any mention of
the three options. Instead, the OSG skipped to a side discussion of the effect of indirect
taxes, which had nothing at all to do with the additional government share, to begin
with. Unfortunately, this move created the wrong impression, pointed out in Justice Antonio T.
Carpio's Opinion, that the OSG had taken the position that the additional government share
consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional government share, as
formulated, has nothing to do with taxes -- direct or indirect -- or with duties, fees or charges. To
repeat, it is over and above the basic government share composed of taxes and duties. Simply
put, the additional share may be (a) an amount that will result in a 50-50 sharing of the
cumulative present value of the cash flows69 of the enterprise; (b) an amount equivalent to 25
percent of the additional or excess profits of the enterprise, reckoned against a benchmark
return on investments; 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 taxable year in question. The
contractor is required 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 expenses (inclusive of taxes, duties and fees). Such revenue
would roughly be equivalent to "taxable income" or income before income tax. Definitely, as
compared with, say, calculating the additional government share on the basis of net income
(after income tax), 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.
To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos
and de Vera also performed some quantifications of the government share via a financial
modeling of each of the three options discussed above. They 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 shares; 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.
Furthermore, it should be noted that the three options or formulae do not yet take into account
the indirect taxes70 and other financial contributions 71 of mining projects. These indirect taxes and
other contributions are real and actual benefits enjoyed by the Filipino people and/or
government. Now, if some of the quantifiable items are taken into account in the computations,
the financial modeling would show that the total government share increases to 60 percent or
higher -- in one instance, as much as 77 percent and even 89 percent -- of the net present value
of total benefits from the project. As noted in the Ramos-DeVera paper, these results are not at
all shabby, considering that the contractor puts in all the capital requirements and assumes all
the risks, without the government having to contribute or risk anything.
In conclusion, we stress that we do not share the view that in FTAAs with foreign
contractors under RA 7942, the government's share is limited to taxes, fees and duties.
Consequently, we find the attacks on the second paragraph of Section 81 of RA 7942
totally unwarranted.
Collections Not Made Uncertain
by the Third Paragraph of Section 81
The third or last paragraph of Section 8172 provides that the government share in FTAAs shall be
collected when the contractor shall have recovered its pre-operating expenses and exploration
and development expenditures. The objection has been advanced that, on account of the
proviso, the collection of the State's share is not even certain, as there is no time limit in RA
7942 for this grace period or recovery period.
We believe that Congress 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 expertise 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 extent, 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. The 1995 and 1996 Implementing Rules
and Regulations of RA 7942 specify that the period of recovery, reckoned from the date of
commercial operation, shall be for a period not exceeding five years, or until the date
of actual recovery, whichever comes earlier.
Approval of Pre-Operating
Expenses Required by RA 7942

Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating,
Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations
exploration and development expenses of the foreign contractors, who are in effect given
that the phrase among other things refers only to taxes, duties and fees. We are bewildered by
unfettered discretion to determine the amounts of such expenses. Supposedly, nothing prevents
his position. On the one hand, he condemns the Mining Law for allegedly limiting the
the contractors from recording such expenses in amounts equal to the mining revenues
government's benefits only to taxes, duties and fees; and on the other, he refuses to allow the
anticipated for the first 10 or 15 years of commercial production, with the result that the share of
State to benefit from the correct and proper interpretation of the DENR/MGB. To remove all
the State will be zero for the first 10 or 15 years. Moreover, under the circumstances, the
doubts then, we hold that the State's share is not limited to taxes, duties and fees only and that
government would be unable to say when it would start to receive its share under the FTAA.
the DENR/MGB interpretation of the phrase among other things is correct. Definitely, this
DENR/MGB interpretation is not only legally sound, but also greatly advantageous to the
government. We believe that the argument is based on incorrect information as well as speculation.
Obviously, certain crucial provisions in the Mining Law were overlooked. Section 23, dealing with
the rights and obligations of the exploration permit grantee, states: "The permittee shall
One last point on the subject. The legislature acted judiciously in not defining the terms among
undertake exploration work on the area as specified by its permit based on an approved work
other things and, instead, leaving it to the agencies concerned to devise and develop the various
program." The next proviso reads: "Any expenditure in excess of the yearly budget of
modes of arriving at a reasonable and fair amount for the additional government share. As can
the approved work program may be carried forward and credited to the succeeding years
be seen from DAO 99-56, the agencies concerned did an admirable job of conceiving and
covering the duration of the permit. x x x." (underscoring supplied)
developing not just one formula, but three different formulae for arriving at the additional
government share. Each of these options is quite fair and reasonable; and, as Messrs. Ramos
and De Vera stated, other alternatives or schemes for a possible improvement of the fiscal Clearly, even at the stage of application for an exploration permit, the applicant is required to
regime for FTAAs are also being studied by the government. submit -- for approval by the government -- a proposed work program for exploration, containing
a yearly budget of proposed expenditures. The State has the opportunity to pass upon (and
approve or reject) such proposed expenditures, with the foreknowledge that -- if approved --
Besides, not locking into a fixed definition of the term among other things will ultimately be more
these will subsequently be recorded as pre-operating expenses that the contractor will have to
beneficial to the government, as it will have that innate flexibility to adjust to and cope with
recoup over the grace period. That is not all.
rapidly changing circumstances, particularly those in the international markets. Such flexibility is
especially significant for the government in terms of helping our mining enterprises remain
competitive in world markets despite challenging and shifting economic scenarios. Under Section 24, an exploration permit holder who determines the commercial viability of a
project covering a mining area may, within the term of the permit, file with the Mines and
Geosciences Bureau a declaration of mining project feasibility. This declaration is to be
accompanied by a work program for development for the Bureau's approval, the necessary
prelude for entering into an FTAA, a mineral production sharing agreement (MPSA), or some
other mineral agreement. At this stage, too, the government obviously has the opportunity to
approve or reject the proposed work program and budgeted expenditures for development
works on the project. Such expenditures will ultimately become the pre-operating and
development costs that will have to be recovered by the contractor.
Naturally, with the submission of approved work programs and budgets for the exploration and
the development/construction phases, the government will be able to scrutinize and approve or
reject such expenditures. It will be well-informed as to the amounts of pre-operating and other
expenses that the contractor may legitimately recover and the approximate period of time
needed to effect such a recovery. There is therefore no way the contractor can just randomly
post any amount of pre-operating expenses and expect to recover the same.
The aforecited provisions on approved work programs and budgets have counterparts in Section
35, which deals with the terms and conditions exclusively applicable to FTAAs. The said
provision requires certain terms and conditions to be incorporated into FTAAs; among them, "a
firm commitment x x x of an amount corresponding to the expenditure obligation that will be
invested in the contract area" and "representations and warranties x x x to timely deploy
these [financing, managerial and technical expertise and technological] resources under its
supervision pursuant to the periodic work programs and related budgets x x x," as well as "work
programs and minimum expenditures commitments." (underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the
proposed expenditures under an FTAA and approve or reject them. It has access to all the
information it may need in order to determine in advance the amounts of pre-operating and
developmental expenses 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 81 of RA 7942 is
in any manner unconstitutional.
No Deprivation of Beneficial Rights
It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed
above), Sections 80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights
of ownership over mineral resources; and give them away for free to private business
enterprises (including foreign owned corporations). Likewise, the said provisions have been
construed as constituting, together with Section 81, an ingenious attempt to resurrect the old and
discredited system of "license, concession or lease."
Specifically, Section 80 is condemned for limiting the State's share in a mineral production-
sharing agreement (MPSA) to just the excise tax on the mineral product. Under Section 151(A)
of the Tax Code, such tax is only 2 percent of the market value of the gross output of the
minerals. The colatilla in Section 84, the portion considered offensive to the Constitution,
reiterates the same limitation made in Section 80.73
It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs
and have no application to FTAAs. These particular statutory provisions do not come within the
issues that were defined and delineated by this Court during the Oral Argument -- particularly the
third issue, which pertained exclusively to FTAAs. Neither did the parties argue upon them in
their pleadings. Hence, this Court cannot make any pronouncement in this case regarding the
constitutionality of Sections 80 and 84 without violating the fundamental rules of due process.
Indeed, the two provisos will have to await another case specifically placing them in issue.
On the other hand, Section 112 74 is disparaged for allegedly reverting FTAAs and all mineral
agreements to the old and discredited "license, concession or lease" system. This Section states
in relevant part that "the provisions of Chapter XIV [which includes Sections 80 to 82] on
government share in mineral production-sharing agreement x x x shall immediately govern
and apply to a mining lessee or contractor." (underscoring supplied) This provision is construed
as signifying that the 2 percent excise tax which, pursuant to Section 80, comprises the
government share in MPSAs shall now also constitute the government share in FTAAs -- as well
as in co-production agreements and joint venture agreements -- to the exclusion of revenues of
any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by this
Court during the Oral Argument, and was never touched upon by the parties in their pleadings, it
must also be noted that the criticism hurled against this Section is rooted in unwarranted
conclusions made without considering other relevant provisions in the statute. Whether Section
112 may properly apply to co-production or joint venture agreements, the fact of the matter is
that it cannot be made to apply to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being
applied to them at all is the fact that it happens to use the word "contractor." Hence, it is a bit of
a stretch to insist that it covers FTAAs as well. Second, mineral agreements, of which there are
three types -- MPSAs, co-production agreements, and joint venture agreements -- are covered
by Chapter V of RA 7942. On the other hand, FTAAs are covered by and in fact are the subject
of Chapter VI, an entirely different chapter altogether. The law obviously intends to treat them as
a breed apart from mineral agreements, since Section 35 (found in Chapter VI) 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 FTAAs.
Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the
FTAA into a mineral agreement at any time during the term if the economic viability of the
contract area is inadequate to sustain large-scale mining operations. Thus, there is no reason to
think that the law through Section 112 intends to exact from FTAA contractors merely the same
government share (a 2 percent excise tax) that it apparently demands from contractors under
the three forms of mineral agreements. In brief, Section 112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court
must rule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP
FTAA contains a provision which grants the contractor unbridled and "automatic" authority to
convert the FTAA into an MPSA; and should such conversion happen, the State would be
prejudiced since its share would be limited to the 2 percent excise tax. Justice Carpio adds that
there are five MPSAs already signed just awaiting the judgment of this Court on respondents'
and intervenor's Motions for Reconsideration. We hold however that, at this point, this argument
is based on pure speculation. The Court cannot rule on mere surmises and hypothetical
assumptions, without firm factual anchor. We repeat: basic due process requires that we hear
the parties who have a real legal interest in the MPSAs (i.e. the parties who executed them)
before these MPSAs can be reviewed, or worse, struck down by the Court. Anything less than
that requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is problematic. First, the
contractor must comply with the law, particularly Section 39 of RA 7942; inter alia, it must
convincingly show that the "economic viability of the contract is found to be inadequate to justify
large-scale mining operations;" second, it must contend with the President's exercise of the
power of State control over the EDU of natural resources; and third, it will have to risk a possible
declaration of the unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation in which an
FTAA has already been executed 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 requests the conversion of the FTAA into an
MPSA. The contractor in effect needs to explain why, despite its exploration 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. The contractor must explain why, after conducting such exploration activities, it decided to
file a declaration of mining feasibility, and to apply for an FTAA, thereby leading the State to
believe that the area could sustain large-scale mining. The 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 likewise prove that its new findings, also based on scientific tests and
procedures, are correct. Right away, this puts the contractor's technical capabilities and
expertise into serious doubt. We wonder if anyone would relish being in this situation. The State
could even question and challenge the contractor's qualification and competence to continue the
activity under an MPSA.
All 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. Anyway, if later on
these Sections are declared unconstitutional, such declaration will not affect the other
portions since they are clearly separable from the rest.
Our Mineral Resources Not
Given Away for Free by RA 7942
Nevertheless, 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 7942) in general and by Sections
80, 81, 84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking away mineral
resources without paying anything. In order to get at the minerals, they have to invest huge
sums of money (tens or hundreds of millions of dollars) in exploration works first. If the
exploration proves unsuccessful, all the cash spent thereon will not be returned to the foreign
investors; rather, those funds will have been infused into the local economy, to remain there
permanently. The benefits therefrom cannot be simply ignored. And assuming that the foreign
contractors are successful in finding ore bodies that are viable for commercial exploitation, they
do not just pluck out the minerals and cart them off. They have first to build camp sites and
roadways; dig mine shafts and connecting tunnels; prepare tailing ponds, storage areas and
vehicle depots; install their machinery and equipment, generator sets, pumps, water tanks and
sewer systems, and so on.
In short, they need to expend a great deal more of their funds for facilities, equipment and
supplies, fuel, salaries of local labor and technical staff, and other operating expenses. In the
meantime, they also have to pay taxes,75 duties, fees, and royalties. All told, the exploration, pre-
feasibility, feasibility, development and construction phases together add up to as many as
eleven years.76 The 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.
Granted that the contractors are allowed subsequently to recover their pre-operating expenses,
still, that eventuality will happen only after they shall have first put out the cash and fueled the
economy. Moreover, in the process of recouping their investments and costs, the foreign
contractors do not actually pull out the money from the economy. 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 taxes, along with the additional government share,
for a period of not more than five years 77 counted from the commencement of commercial
production.
It must be noted that there can be no recovery without commencing actual commercial
production. In the meantime that the contractors are recouping costs, they need to continue
operating; in order to do so, they have to disburse money to meet their various needs. In short,
money is continually infused into the economy.
The foregoing discussion should serve to rid us of the mistaken 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 Filipino people none the better for it.
All Businesses Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all businessmen and all business
entities in general, have to recoup their investments and costs. That 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. This is just common business sense. Recovery of investments is absolutely
indispensable for business survival; and business survival ensures soundness of the economy,
which is critical and contributory to the general welfare of the people. Even government
corporations must recoup their 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 State 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. Those untapped mineral resources, hidden beneath tons of
earth and rock, may as well not be there for all the good they do us right now. They have first to
be extracted and converted into marketable form, and the country needs the foreign contractor's
funds, technology and know-how for that.
After about eleven years of pre-operation and another five years for cost recovery, the foreign
contractors will have just broken even. Is it likely that they would at that point stop their
operations and leave? Certainly not. They have yet to make profits. Thus, for the remainder of
the contract term, they must strive to maintain profitability. During this period, they pay the whole
of the basic government share and the additional government share which, taken together with
indirect taxes and other contributions, amount to approximately 60 percent or more of the entire
financial benefits generated by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral resources for free. It
takes a lot of hard cash to even begin to do what they do. And what they do in this country
ultimately benefits the local economy, grows businesses, generates employment, and creates
infrastructure, as discussed above. Hence, we definitely disagree with the sweeping claim that
no FTAA under Section 81 will ever make any real contribution to the growth of the economy or
to the general welfare of the country. This is not a plea for foreign contractors. Rather, this is a
question of focusing the judicial spotlight squarely on all the pertinent facts as they bear upon
the issue at hand, in order to avoid leaping precipitately to ill-conceived conclusions not solidly
grounded upon fact.
Repatriation of After-Tax Income
Another objection points to the alleged failure of the Mining Law to ensure real contributions to
the economic growth and general welfare of the country, as mandated by Section 2 of Article XII
of the Constitution. Pursuant to Section 81 of the law, the entire after-tax income arising from the
exploitation of mineral resources owned by the State supposedly belongs to the foreign
contractors, which will naturally repatriate the said after-tax income to their home countries,
thereby resulting in no real contribution to the economic growth of this country. Clearly, this
contention is premised on erroneous assumptions.
Second, 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. Let us use
a simplified illustration. Let us base it on gross revenues of, say, P500. After deducting operating
expenses, but prior to income tax, suppose a mining firm makes a taxable income of P100. A
corporate income tax of 32 percent results in P32 of taxable income going to the government,
leaving the mining firm with P68. Government then takes 60 percent thereof, equivalent
to P40.80, leaving only P27.20 for the mining firm.

First, as already discussed in detail hereinabove, the concerned agencies have correctly
interpreted the second paragraph of Section 81 of RA 7942 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 excess profits reckoned against a
benchmark rate of return on investments. So it is not correct to say that all of the after-tax
income will accrue to the foreign FTAA contractor, as the government effectively receives a
significant portion thereof.
Second, the foreign contractors can hardly "repatriate the entire after-tax income to their home
countries." Even a bit of knowledge 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 taken out and repatriated. The "net income" figure reflected in the bottom line is a mere
accounting figure not necessarily corresponding to cash in the bank, or other quick assets. In
order to produce and set aside cash in an amount equivalent to the bottom line figure, one may
need to sell off assets or immediately collect receivables or liquidate short-term investments; but
doing so may very likely disrupt normal business operations.
In terms of cash flows, the funds corresponding to the net income as of a particular point in time
are actually in use in the normal course of business operations. Pulling out such net
income disrupts the cash flows and cash position of the enterprise and, depending on the
amount being taken 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-tax income to the home country.
At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for
every P100 of taxable income, leaving the mining firm with only P27.20. But that is not all. The
government has also taken 2 percent excise tax "off the top," equivalent to another P10. Under
the minimum 60 percent proposal, the government nets around P82.80 (not counting other
taxes, duties, fees and charges) from a taxable income of P100 (assuming gross revenues
of P500, for purposes of illustration). On the other hand, the foreign contractor, which provided
all the capital, equipment and labor, and took all the entrepreneurial risks -- receives P27.20.
One cannot but wonder whether such a distribution is even remotely equitable and reasonable,
considering the nature of the mining business. The amount of P82.80 out of P100.00 is really a
lot – it does not matter that we call part of it excise tax or income tax, and another portion
thereof income from exploitation of mineral resources. Some might think it wonderful to be able
to take the lion's share of the benefits. But we have to ask ourselves if we are really serious in
attracting the investments that are the indispensable and key element in generating the
monetary benefits of which we wish to take the lion's share. Fairness is a credo not only in
law, but also in business.
Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the
mining business. The reason happens to be the fact that in petroleum operations, the bulk of
expenditures is in exploration, but once the contractor has found and tapped into the deposit,
subsequent investments and expenditures are relatively minimal. The crude (or gas) keeps
gushing out, and the work entailed is just a matter of piping, transporting and storing. Not so in
mineral mining. The ore body does not pop out on its own. Even after it has been located, the
contractor must continually invest in machineries and expend funds to dig and build tunnels in
order to access and extract the minerals from underneath hundreds of tons of earth and rock.

As already stated, the numerous intrinsic differences involved in their respective operations and
The State's Receipt of Sixty
requirements, cost structures and investment needs render it highly inappropriate to use
Percent of an FTAA Contractor's
petroleum operations FTAAs as benchmarks for mining FTAAs. Verily, we cannot just ignore the
After-Tax Income Not Mandatory
realities of the distinctly different situations and stubbornly insist on the "minimum 60 percent."

We now come to the next objection which runs this way: In FTAAs with a foreign contractor, the
The Mining and the Oil Industries
State must receive at least 60 percent of the after-tax income from the exploitation of its mineral
Different From Each Other
resources. This share is the equivalent of the constitutional requirement that at least 60 percent
of the capital, and hence 60 percent of the income, of mining companies should remain in
Filipino hands. To stress, there is no independent showing that the taking of at least a 60 percent share in the
after-tax income of a mining company operated by a foreign contractor is fair and reasonable
under most if not all circumstances. The fact that some petroleum companies like Shell acceded
First, we fail to see how we can properly conclude that the Constitution mandates the State to
to such percentage of sharing does not ipso facto mean that it is per se reasonable and
extract at least 60 percent of the after-tax income from a mining company run by a foreign
applicable to non-petroleum situations (that is, mining companies) as well. We can take judicial
contractor. The argument is that the Charter requires the State's partner in a co-production
notice of the fact that there are, after all, numerous intrinsic differences involved in their
agreement, joint venture agreement or MPSA to be a Filipino corporation (at least 60 percent
respective operations and equipment or technological requirements, costs structures and capital
owned by Filipino citizens).
investment needs, and product pricing and markets.

We question the logic of this reasoning, premised on a supposedly parallel or analogous

There is no showing, for instance, that mining companies can readily cope with a 60 percent
situation. We are, after all, dealing with an essentially different equation, one that involves
government share in the same way petroleum companies apparently can. What we have is a
different elements. The Charter did not intend to fix an iron-clad rule on the 60 percent
suggestion to enforce the 60 percent quota on the basis of a disjointed analogy. The only factor
share, applicable to all situations at all times and in all circumstances. If ever such was the
common to the two disparate situations is the extraction of natural resources.
intention of the framers, they would have spelt it out in black and white. Verba legis will serve to
dispel unwarranted and untenable conclusions.
Indeed, we should take note of the fact that Congress made a distinction between mining firms
and petroleum companies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates
on Metallic and Non-Metallic Minerals and Quarry Resources, Amending for the Purpose
Section 151(a) of the National Internal Revenue Code, as amended" -- the lawmakers fixed the
excise tax rate on metallic and non-metallic minerals at two percent of the actual market value of
the annual gross output at the time of removal. However, in the case of petroleum, the
lawmakers set the excise tax rate for the first taxable sale at fifteen percent of the fair
international market price thereof.
There must have been a very sound reason that impelled Congress to impose two very
dissimilar excise tax rate. We cannot assume, without proof, that our honorable legislators acted
arbitrarily, capriciously and whimsically in this instance. We cannot just ignore the reality of two
distinctly different situations and stubbornly insist on going "minimum 60 percent."
To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the
net revenues does not necessarily imply that mining contracts should likewise yield a minimum
of 60 percent for the State. Jumping to that erroneous conclusion is like comparing apples with
oranges. The exploration, development and utilization of gas and oil are simply different from
those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But once oil in commercial
quantities is struck and the wells are put in place, the risk is relatively over and black gold simply
flows out continuously with comparatively less need for fresh investments and technology.
On the other hand, even if minerals are found in viable quantities, there is still need
for continuous fresh capital and expertise to dig the mineral ores from the mines. Just because
deposits of mineral ores are found in one area is no guarantee that an equal amount can be
found in the adjacent areas. There are simply continuing risks and need for more capital,
expertise and industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues -- are much more in the
mineral industry. As mines are explored and extracted, vast employment is created, roads and
other infrastructure are built, and other multiplier effects arise. On the other hand, once oil wells
start producing, there is less need for employment. Roads and other public works 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.
Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility
and tie the hands of government, ultimately hampering the country's competitiveness in the
international market, to the detriment of the Filipino people. This "you-have-to-give-us-60-
percent-of-after-tax-income-or-we-don't-do- business-with-you" approach is quite perilous. True,
this situation may not seem too unpalatable to the foreign contractor during good years, when
international market prices are up and the mining firm manages to keep its costs in check.
However, under unfavorable economic and business conditions, with costs spiraling skywards
and minerals prices plummeting, a mining firm may consider itself lucky to make just minimal
profits.
The inflexible, carved-in-granite demand for a 60 percent government share may spell the end of
the mining venture, scare away potential investors, and thereby further worsen the already
dismal economic scenario. Moreover, such an unbending or unyielding policy prevents the
government from responding appropriately to changing economic conditions and shifting market
forces. This inflexibility further renders our country less attractive as an investment option
compared with other countries.
And fifth, for this Court to decree imperiously that the government's share should be not less
than 60 percent of the after-tax income of FTAA contractors at all times is nothing short of
dictating upon the government. The result, ironically, is that the State ends up losing control. To
avoid compromising the State's full control and supervision over the exploitation of mineral
resources, this Court must back off from insisting upon a "minimum 60 percent" rule. It is
sufficient that the State has the power and means, should it so decide, to get a 60 percent share
(or more) in the contractor's net mining revenues or after-tax income, or whatever other basis the
government may decide to use in reckoning its share. It is not necessary for it to do so in every
case, regardless of circumstances.
In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility 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 it means
agreeing to less than 60 percent. Nothing must prevent the State from agreeing to a share less
than that, should it be deemed fit; otherwise the State will be deprived of full control over mineral
exploitation that the Charter has vested in it.
To stress again, there is simply no constitutional or legal provision fixing the minimum share of
the government in an FTAA at 60 percent of the net profit. For this Court to decree such
minimum is to wade into judicial legislation, and thereby inordinately impinge on the control
power of the State. Let it be clear: the Court is not against the grant of more benefits to the
State; in fact, the more the better. If during the FTAA negotiations, the President can secure 60
percent,78 or even 90 percent, then all the better for our people. But, if under the peculiar
circumstances of a specific contract, the President could secure only 50 percent or 55 percent,
so be it. Needless to say, the President will have to report (and be responsible for) the specific
FTAA to Congress, and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly 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 Court
would abuse its own authority should it force the government's hand to adopt the 60 percent
demand of some of our esteemed colleagues.
Capital and Expertise Provided,
Yet All Risks Assumed by Contractor
Here, we will repeat what has not been emphasized and appreciated enough: the fact that the
contractor in an FTAA provides all the needed capital, technical and managerial expertise, and
technology required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the
very outset, to make capital investments of up to US$50 million in that single mining project.
WMCP claims to have already poured in well over P800 million into the country as of February
1998, with more in the pipeline. These 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 make significant expenditures of funds.
Throughout, the contractor assumes all the risks79 of the business, as mentioned earlier. These
risks are indeed very high, considering that the rate of success in exploration is extremely low.
The probability of finding any mineral or petroleum in commercially viable quantities is estimated
to be about 1:1,000 only. On that slim chance rides the contractor's hope of recouping
investments and generating profits. And when the contractor has recouped its initial investments
in the project, the government share increases to sixty percent of net benefits -- without the
State ever being in peril of incurring costs, expenses and losses.
And even in the worst possible scenario -- an absence of commercial quantities of minerals to
justify development -- the contractor would already have spent several million pesos for
exploration works, before arriving at the point in which it can make that determination and decide
to cut its losses. In fact, during the first year alone of the exploration period, the contractor was
already committed to spend not less than P24 million. The FTAA therefore clearly ensures
benefits for the local economy, courtesy of the contractor.
All in all, this setup cannot be regarded as disadvantageous to the State or the Filipino
people; it certainly cannot be said to convey beneficial ownership of our mineral
resources to foreign contractors.
Deductions Allowed by
WMCP FTAA Reasonable
Petitioners question whether the State's weak control might render the sharing arrangements
ineffective. They cite the so-called "suspicious" deductions allowed by the WMCP FTAA in
arriving at the net mining revenue, which is the basis for computing the government share. The
WMCP FTAA, for instance, allows expenditures for "development within and outside the
Contract Area relating to the Mining Operations," 80 "consulting fees incurred both inside
and outside the Philippines for work related directly to the Mining Operations,"81 and "the
establishment and administration of field offices including administrative overheads incurred
within and outside the Philippines which are properly allocatable to the Mining Operations and
reasonably related to the performance of the Contractor's obligations and exercise of its rights
under this Agreement."82
It is quite well known, however, that mining companies do perform some marketing activities
abroad in respect of selling their mineral products and by-products. Hence, it would not be
improper to allow the deduction of reasonable consulting fees incurred abroad, as well as
administrative expenses and overheads related to marketing 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 contractor's obligations and
exercise of its rights. In any event, more facts are needed. Until we see how these provisions
actually operate, mere "suspicions" will not suffice to propel this Court into taking action.
Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with
Section 7.9 of the WMCP FTAA. While Section 7.7 gives the government a 60 percent share in
the net mining revenues of WMCP from the commencement of commercial production, Section
7.9 deprives the government of part or all of the said 60 percent. Under the latter provision,
should WMCP's foreign shareholders -- who originally owned 100 percent of the equity -- sell 60
percent or more of its outstanding capital stock to a Filipino citizen or corporation, the State
loses its right to receive its 60 percent share in net mining revenues under Section 7.7.
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government pursuant to
Clause 7.7 shall be reduced by 1percent of Net Mining Revenues for every 1percent
ownership interest in the Contractor (i.e., WMCP) held by a Qualified Entity.83
Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section
7.9 without any offsetting compensation to the State. Thus, in reality, the State has no vested
right to receive any income from the FTAA for the exploitation of its mineral resources. Worse, it
would seem that what is given to the State in Section 7.7 is by mere tolerance of WMCP's
foreign stockholders, who can at any time cut off the government's entire 60 percent share. They
can do so by simply selling 60 percent of WMCP's outstanding capital stock to a Philippine
citizen or corporation. Moreover, the proceeds of such sale will of course accrue to the foreign
stockholders of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-
owned and 40 percent foreign-owned will still trigger the operation of Section 7.9. Effectively, the
State will lose its right to receive all 60 percent of the net mining revenues of WMCP;
and foreign stockholders will own beneficially up to 64 percent of WMCP, consisting of the
remaining 40 percent foreign equity therein, plus the 24 percent pro-rata share in the buyer-
corporation.84
the
In fact, the January 23, 2001 sale by WMCP's foreign stockholder of the entire outstanding
equity in WMCP to Sagittarius Mines, Inc. -- a domestic corporation at least 60 percent Filipino
owned -- may be deemed to have automatically triggered the operation of Section 7.9, without
need of further action by any party, and removed the State's right to receive the 60 percent
share in net mining revenues.
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net
mining revenues of WMCP without any offset or compensation whatsoever. 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 stockholder in WMCP to eventually reduce its equity position
and ultimately divest in favor of Filipino citizens and corporations. However, as finally structured,
Section 7.9 has the deleterious effect of depriving government of the entire 60 percent share in
WMCP's net mining revenues, without any form of compensation whatsoever. Such an outcome
is completely unacceptable.
The whole point of developing the nation's natural resources is to benefit the Filipino people,
future generations included. And the State as sovereign and custodian of the nation's natural
wealth is mandated to protect, conserve, preserve and develop that part of the national
patrimony for their benefit. Hence, the Charter lays great emphasis on "real contributions to the
economic growth and general welfare of the country" 85 as essential guiding principles to be kept
in mind when negotiating the terms and conditions of FTAAs.
Earlier, we held (1) that the State must be accorded the liberty and the utmost flexibility 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 60 percent; (2) that it is not necessary for the State to extract a 60
percent share in every case and regardless of circumstances; and (3) that should the State be
prevented from agreeing to a share less than 60 percent as it deems fit, it will be deprived of the
full control over mineral exploitation that the Charter has vested in it.
That full control is obviously not an end in itself; it exists 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 exploitation of
the country's mineral resources for the benefit of the Filipino people and the enhancement of
economic growth and the general welfare of the country. Undoubtedly, such full control can
be misused and abused, as we now witness.
Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues
(provided for in Section 7.7) without anything in exchange. Moreover, this outcome
constitutes unjust enrichment on the part of the local and foreign stockholders of WMCP. By "(d) costs and expenses of fulfilling the Contractor's obligations to contribute
their mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or to national development in accordance with Clause 10.1(i) (1) and 10.1(i)
corporations, the local and foreign stockholders get a windfall. Their share in the net mining (2);
revenues of WMCP is automatically increased, without their having to pay the government
anything for it. In short, the provision in question is without a doubt grossly disadvantageous to
"(e) an amount equivalent to whatever benefits that may be extended in the
the government, detrimental to the interests of the Filipino people, and violative of public policy.
future by the Government to the Contractor or to financial or technical
assistance agreement contractors in general;
Moreover, it has been reiterated in numerous decisions86 that the parties to a contract may
establish any agreements, terms and conditions that they deem convenient; but these should not
"(f) all of the foregoing items which have not previously been offset against
be contrary to law, morals, good customs, public order or public policy. 87 Being precisely violative
the Government Share in an earlier Fiscal Year, adjusted for inflation."
of anti-graft provisions and contrary to public policy, Section 7.9 must therefore be stricken off as
(underscoring supplied)
invalid.

Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money spent by
Whether the government officials concerned acceded to that provision by sheer mistake or with
the government for the benefit of the contractor in building roads leading to the mine site should
full awareness of the ill consequences, is of no moment. It is hornbook doctrine that the principle
still be deductible from the State's share in net mining revenues. Allowing this deduction results
of estoppel does not operate against the government for the act of its agents,88 and that it is
in benefiting the contractor twice over. It constitutes unjust enrichment on the part of the
never estopped by any mistake or error on their part. 89 It is therefore possible and proper to
contractor at the expense of the government, since the latter is effectively being made to pay
rectify the situation at this time. Moreover, we may also say that the FTAA in question does not
twice for the same item.91 For being grossly disadvantageous and prejudicial to the government
involve mere contractual rights; being impressed as it is with public interest, the contractual
and contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be declared to be
provisions and stipulations must yield to the common good and the national interest.
without effect. Fortunately, this provision can also easily be stricken off without affecting the rest
of the FTAA.
Since the offending provision is very much separable 90 from Section 7.7 and the rest of the
FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidation of
Nothing Left Over
the WMCP FTAA itself. Such a deletion will preserve for the government its due share of the
After Deductions?
benefits. This way, the mandates of the Constitution are complied with and the interests of the
government fully protected, while the business operations of the contractor are not needlessly
disrupted. In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are
numerous items of deduction from the State's 60 percent share. After taking these into account,
will the State ever receive anything for its ownership of the mineral resources?
Section 7.8(e) of the WMCP FTAA
Also Invalid and Disadvantageous
We are confident that under normal circumstances, the answer will be yes. If we examine the
various items of "deduction" listed in Section 7.8 of the WMCP FTAA, we will find that they
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
correspond closely to the components or elements of the basic government share established
in DAO 99-56, as discussed in the earlier part of this Opinion.
"7.8 The Government Share shall be deemed to include all of the following sums:
Likewise, the balance of the government's 60 percent share -- after netting out the items of
"(a) all Government taxes, fees, levies, costs, imposts, duties and royalties deduction listed in Section 7.8 --corresponds closely to the additional government
including excise tax, corporate income tax, customs duty, sales tax, value share provided for in DAO 99-56 which, we once again stress, has nothing at all to do with
added tax, occupation and regulatory fees, Government controlled price indirect taxes. The Ramos-DeVera paper92 concisely presents the fiscal contribution of an FTAA
stabilization schemes, any other form of Government backed schemes, any under DAO 99-56 in this equation:
tax on dividend payments by the Contractor or its Affiliates in respect of
revenues from the Mining Operations and any tax on interest on domestic
Receipts from an FTAA = basic gov't share + add'l gov't share
and foreign loans or other financial arrangements or accommodations,
including loans extended to the Contractor by its stockholders;
Transposed into a similar equation, the fiscal payments system from the WMCP FTAA assumes
the following formulation:
"(b) any payments to local and regional government, including taxes, fees,
levies, costs, imposts, duties, royalties, occupation and regulatory fees and
infrastructure contributions; Government's 60 percent share in net mining revenues of WMCP = items listed in
Sec. 7.8 of the FTAA + balance of Gov't share, payable 4 months from the end of the
fiscal year
"(c) any payments to landowners, surface rights holders, occupiers,
indigenous people or Claimowners;
It should become apparent that the fiscal arrangement under the WMCP FTAA is very similar to
that under DAO 99-56, with the "balance of government share payable 4 months from end of
fiscal year" being the equivalent of the additional government share computed in accordance
with the "net-mining-revenue-based option" under DAO 99-56, as discussed above. As we have
emphasized earlier, we find each of the three options for computing the additional government
share -- as presented in DAO 99-56 -- to be sound and reasonable.
We therefore conclude that there is nothing inherently wrong in the fiscal regime of the
WMCP FTAA, and certainly nothing to warrant the invalidation of the FTAA in its entirety.
Section 3.3 of the WMCP
FTAA Constitutional
Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on
the term of FTAAs. The provision in question reads:
"3.3 This Agreement shall be renewed by the Government for a further period of
twenty-five (25) years under the same terms and conditions provided that the
Contractor lodges a request for renewal with the Government not less than sixty (60)
days prior to the expiry of the initial term of this Agreement and provided that the
Contractor is not in breach of any of the requirements of this Agreement."
Allegedly, the above provision runs afoul of Section 2 of Article XII of the 1987 Constitution,
which states:
"Sec. 2. All 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. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino
citizens or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under
such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of
water power, beneficial use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial
sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to
Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural resources by
Filipino citizens, as well as cooperative fish farming, with priority to subsistence
fishermen and fish-workers in rivers, lakes, bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization 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. In such agreements, the State shall
promote the development and use of local scientific and technical resources.
"The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution." 93
We hold that the term limitation of twenty-five years does not apply to FTAAs. The reason is that
the above provision is found within paragraph 1 of Section 2 of Article XII, which refers to
mineral agreements -- co-production agreements, joint venture agreements and mineral
production-sharing agreements -- which the government may enter into with Filipino citizens and
corporations, at least 60 percent owned by Filipino citizens. The word "such" clearly refers to
these three mineral agreements -- CPAs, JVAs and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the
Constitution. It will be noted that there are no term limitations provided for in the said paragraphs
dealing with FTAAs. This shows that FTAAs are sui generis, in a class of their own. This
omission was obviously a deliberate move on the part of the framers. They probably realized
that FTAAs would be different in many ways from MPSAs, JVAs and CPAs. The reason the
framers did not fix term limitations applicable to FTAAs is that they preferred to leave the matter
to the discretion of the legislature and/or the agencies involved in implementing the laws
pertaining to FTAAs, in order to give the latter enough flexibility and elbow room to meet
changing circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to eleven
years. Thereafter, a few more years would be gobbled up in start-up operations. It may take
fifteen years before an FTAA contractor can start earning profits. And thus, the period of 25
years may really be short for an FTAA. Consider too that in this kind of agreement, the
contractor assumes all entrepreneurial risks. If no commercial quantities of minerals are found,
the contractor bears all financial losses. To compensate for this long gestation period and extra
business risks, it would not be totally unreasonable to allow it to continue EDU activities for
another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to
compel the government to renew the WMCP FTAA for another 25 years and deprives the State
of any say on whether to renew the contract.
While we agree that Section 3.3 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 FTAAs. Neither 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.
Verily, the government did not have to agree to Section 3.3. It could have said "No" 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. Under the
circumstances, it does not seem proper for this Court to intervene and step in to undo what
might have perhaps been a possible miscalculation on the part of the State. If government
believes that it is or will be aggrieved by the effects of Section 3.3, the remedy is the
renegotiation of the provision in order to provide the State the option to not renew the FTAA.
Financial Benefits for Foreigners
Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief
that the Constitution somehow forbids foreign-owned corporations from deriving financial
benefits from the development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying
"beneficial interest" in the development of Philippine natural resources. The State itself need not
directly undertake exploration, development, and utilization activities. Alternatively, the
Constitution authorizes the government to enter into joint venture agreements (JVAs), co-
production agreements (CPAs) and mineral production sharing agreements (MPSAs) with
contractors who are Filipino citizens or corporations that are at least 60 percent Filipino-owned.
They may do the actual "dirty work" -- the mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or
corporate non-Filipino stakeholders obviously participate in the beneficial interest derived from
the development and utilization of our natural resources. They may receive by way of dividends,
up to 40 percent of the contractor's earnings from the mining project. Likewise, they may have a
say in the decisions of the board of directors, since they are entitled to representation therein to
the extent of their equity participation, which the Constitution permits to be up to 40 percent of
the contractor's equity. Hence, the non-Filipino stakeholders may in that manner also participate
in the management of the contractor's natural resource development work. All of this is permitted
by our Constitution, for any natural resource, and without limitation even in regard to the
magnitude of the mining project or operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or constitutionally objectionable about
the idea of foreign individuals and entities having or enjoying "beneficial interest" in -- and
participating in the management of operations relative to -- the exploration, development and
utilization of our natural resources.
FTAA More Advantageous
Than Other Schemes
Like CPA, JVA and MPSA
A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous
proposition for the government as compared with other agreements permitted by the
Constitution. In a CPA that the government enters into with one or more contractors, the
government shall provide inputs to the mining operations other than the mineral resource itself. 94
In a JVA, a JV company is organized by the government and the contractor, with both parties
having equity shares (investments); and the contractor is granted the exclusive right to conduct
mining operations and to extract minerals found in the area. 95 On the other hand, in an MPSA,
the government grants the contractor the exclusive right to conduct mining operations within the
contract area and shares in the gross output; and the contractor provides the necessary
financing, technology, management and manpower.
The point being made here is that, in two of the three types of agreements under consideration,
the government has to ante up some risk capital for the enterprise. In other words, government
funds (public moneys) are withdrawn from other possible uses, put to work in the venture
and placed at risk in case the venture fails. This notwithstanding, management and control of the
operations of the enterprise are -- in all three arrangements -- in the hands of the contractor,
with the government being mainly a silent partner. The three types of agreement mentioned
above apply to any natural resource, without limitation and regardless of the size or magnitude
of the project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article
XII, the FTAA is limited to large-scale projects and only for minerals, petroleum and other
mineral oils. Here, the Constitution removes the 40 percent cap on foreign ownership and allows
the foreign corporation to own up to 100 percent of the equity. Filipino capital may not be
sufficient on account of the size of the project, so the foreign entity may have to ante up all the
risk capital.
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project
fails. In respect of the particular FTAA granted to it, WMCP (then 100 percent foreign owned)
was responsible, as contractor, for providing the entire equity, including all the inputs for the
project. It was to bear 100 percent of the risk of loss if the project failed, but its maximum
potential "beneficial interest" consisted only of 40 percent of the net beneficial interest, because
the other 60 percent is the share of the government, which will never be exposed to any risk of
loss whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day
management of the mining operations. Still such management is subject to the overall control
and supervision of the State in terms of regular reporting, approvals of work programs and
budgets, and so on.
So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to,
and benefits derived or to be derived from a CPA, a JVA or an MPSA vis-à-vis those pertaining
to an FTAA. It may not be realistically asserted that the foreign grantee of an FTAA is being
unduly favored or benefited as compared with a foreign stakeholder in a corporation holding a
CPA, a JVA or an MPSA. Seen the other way around, the government is definitely better off with
an FTAA than a CPA, a JVA or an MPSA.
Developmental Policy on the Mining Industry
During the Oral Argument and in their Final Memorandum, petitioners repeatedly urged the
Court 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 Filipinos and the Philippines may have an "economic advantage." For instance, a recent
US study96 reportedly examined the economic performance of all local US counties that were
dependent on mining and 20 percent of whose labor earnings between 1970 and 2000 came
from mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed that per
capita income grew about 30 percent less in mining-dependent communities in the 1980s and 25
percent less for the entire period 1980 to 2000; the level of per capita income was also lower.
Therefore, given the slower rate of growth, the gap between these and other local counties
increased.
Petitioners invite attention to the OXFAM America Report's warning to developing nations that
mining brings with it serious economic problems, including increased regional inequality,
unemployment and poverty. They also cite the final report 97 of the Extractive Industries Review
project commissioned by the World Bank (the WB-EIR 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. The Report suggests that countries
need to decide on the best way to exploit their natural resources, in order to maximize 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.
Whatever priority or preference may be given to mining vis-à-vis other economic or non-
economic activities is a question of policy that the President and Congress will have to address;
it is not for this Court to decide. This Court declares what the Constitution and the laws say,
interprets only when necessary, and refrains from delving into matters of policy.
Suffice it to say that the State control accorded by the Constitution over mining activities assures
a proper balancing of interests. More 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 Mining Law, the government
can ensure the protection of the environment during and after mining. It can likewise provide for
the mechanisms to protect the rights of indigenous communities, and thereby mold a more
socially-responsive, culturally-sensitive and sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry Environmental Awards on
February 6, 1997, then President Fidel V. Ramos captured the essence of balanced and
sustainable mining in these words:
"Long term, high profit mining translates into higher revenues for government, more
decent jobs for the population, more raw materials to feed the engines of downstream
and allied industries, and improved chances of human resource and countryside
development by creating self-reliant communities away from urban centers.
xxxxxxxxx
"Against a fragile and finite environment, it is sustainability that holds the key. In
sustainable mining, we take a middle ground where both production and protection
goals are balanced, and where parties-in-interest come to terms."
Neither has the present leadership been remiss in addressing the concerns of sustainable
mining operations. Recently, on January 16, 2004 and April 20, 2004, President Gloria
Macapagal Arroyo issued Executive Orders Nos. 270 and 270-A, respectively, "to
promote responsible mineral resources exploration, development and utilization, in order to
enhance economic growth, in a manner that adheres to the principles of sustainable
development and with due regard for justice and equity, sensitivity to the culture of the Filipino
people and respect for Philippine sovereignty."98
REFUTATION OF DISSENTS
The Court will now take up a number of other specific points raised in the dissents of Justices
Carpio and Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of
Western Mining Corporation (WMC) and former president of the Australian Mining Industry
Council, 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
landmark Mabo decision by the Australian High Court. According to sources quoted by our
esteemed colleague, Morgan was also a racist and a bigot. In the course of
protesting Mabo, Morgan allegedly uttered derogatory remarks belittling the aboriginal culture
and race.
An unwritten caveat of this introduction is that this Court should be careful not to permit the entry
of the likes of Hugh Morgan and his hordes of alleged racist-bigots at WMC. With all due
respect, such scare tactics should have no place in the discussion of this case. We are
deliberating on the constitutionality of RA 7942, DAO 96-40 and the FTAA originally granted to
WMCP, which had been transferred to Sagittarius Mining, a Filipino corporation. We are not
discussing the apparition of white Anglo-Saxon racists/bigots massing at our gates.
2. On the proper interpretation of the phrase agreements involving either technical or financial
assistance, Justice Morales points out that at times we "conveniently omitted" the use of the
disjunctive either…or, which according to her denotes restriction; hence the phrase must be
deemed to connote restriction and limitation.
But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive
phrase either technical or financial assistance would, strictly speaking, literally mean that a
foreign contractor may provide only one or the other, but not both. And if both technical and
financial assistance were required for a project, the State 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 qualified to provide both kinds of
assistance, would nevertheless be prohibited from providing one kind as soon as it shall have
agreed to provide the other.
But if the Court 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" exclusively; it would be
excellent if these two or more contractors happen to be willing and are able to cooperate and
work 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? To think that the framers
deliberately imposed this kind of restriction is to say that they were either exceedingly optimistic,
or incredibly naïve. This begs the question -- What laudable objective or purpose could possibly
be served by such strict and restrictive literal interpretation?
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract
or property right which merits protection by the due process clause of the Constitution, but
merely a license or privilege which may be validly revoked, rescinded or withdrawn by executive
action whenever dictated by public interest or public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority.
The latter cases dealt specifically with timber licenses only. Oposa allegedly reiterated that a
license is merely a permit or privilege to do what otherwise would be unlawful, and is not a
contract between the authority, federal, state or municipal, granting it and the person to whom it
is granted; neither is it property or a property right, nor does it create a vested right; nor is it
taxation. Thus this Court held that the granting of license does not create irrevocable rights,
neither is it property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument that natural resources
are also involved in this situation? We do not think so. A grantee of a timber license, permit or
license agreement gets to cut the timber already growing on the surface; 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
revoked, the licensee packs up its gear and moves to a new area applied for, and starts over;
what it leaves behind are mainly the trails leading to the logging site.
In contrast, the mining contractor will have sunk a great deal of money (tens of millions of
dollars) into the ground, so to speak, for exploration activities, for development of the mine site
and infrastructure, and for the actual excavation and extraction of minerals, including the
extensive tunneling work to reach the ore body. The 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.
To say that an FTAA is just like a mere timber license or permit and does not involve contract or
property rights which merit protection by the due process clause of the Constitution, and may
therefore be revoked or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory
stance; 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 expenditures do contribute to the general welfare of the people, the coffers of government,
and the strength of the economy. Such 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.
4. Justice Morales adverts to the supposedly "clear intention" of the framers of the Constitution
to reserve our natural resources exclusively for the Filipino people. She then quoted from the
records of the ConCom deliberations a passage in which then Commissioner Davide explained
his vote, arguing in the process that aliens ought not be allowed to participate in the enjoyment
of our natural resources. One passage does not suffice to capture the tenor or substance of the
entire extensive deliberations of the commissioners, or to reveal the clear intention of the
framers as a group. A re-reading of the entire deliberations (quoted here earlier) is necessary if
we are to understand the true intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation
or delay in the exploration, development or utilization of the nation's natural resources is merely
secondary to the protection and preservation of their ownership of the natural resources, so says
Justice Morales, citing Aruego. If it is true that the framers of the 1987 Constitution did not care
much about alleviating the retardation or delay in the development and utilization of our natural
resources, why did they bother to write paragraph 4 at all? Were they merely paying lip service
to large-scale exploration, development and utilization? They could have just completely ignored
the subject matter and left it to be dealt with through a future constitutional amendment. But we
have to harmonize every part of the Constitution 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 4 will render it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional Commission 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 make them tenable and
effective, including management authority in the day-to-day operations. As proof thereof, she
quotes one single passage from the ConCom deliberations, consisting of an exchange among
Commissioners Tingson, Garcia and Monsod.
However, the quoted exchange does not serve to contradict our argument; it even bolsters it.
Comm. Christian Monsod was quoted as saying: "xxx I think we have to make a distinction that it
is not really realistic to say that we will borrow on our own terms. Maybe we can say that we
inherited unjust loans, and we would like to repay these on terms that are not prejudicial to our
own growth. But the general statement that we should only borrow on our own terms is a bit
unrealistic." Comm. Monsod is one who knew whereof he spoke.
7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an
MPSA is after completion of the exploration phase and just before undertaking the development
and construction phase, on account of the fact that the requirement for a minimum investment of
$50 million is applicable only during the development, construction and utilization phase, but not
during the exploration phase, when the foreign contractor need merely comply with minimum
ground expenditures. Thus by converting, the foreign contractor maximizes its profits by avoiding
its obligation to make the minimum investment of $50 million.
This argument forgets that the foreign contractor is in the game precisely to make money. In
order to come anywhere near profitability, the contractor must first extract and sell the mineral
ore. In order to do that, it must also develop and construct the mining facilities, set up its
machineries and equipment and dig the tunnels to get to the deposit. The contractor is thus
compelled to expend funds in order to make profits. If it decides to cut back on investments and
expenditures, it will necessarily sacrifice the pace of development and utilization; it will
necessarily sacrifice the amount of profits it can make 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 expenses, let alone overhead expenses; this is a dismal situation
anyone would want to avoid. In order to make money, one has to spend money. This truism
applies to the mining industry as well.
8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations is anomalous,
according to Justice Morales since the contractor was from the beginning obliged to provide all
financing needed for the mining operations. However, the mortgaging of minerals by the
contractor does not necessarily signify that the contractor is unable to provide all financing
required for the project, or that it does not have the financial capability to undertake large-scale
operations. Mortgaging of mineral products, just like the assignment (by way of security) of
manufactured goods and goods in inventory, and the assignment of receivables, is an ordinary
requirement of banks, even in the case of clients with more than sufficient financial resources.
And nowadays, even the richest and best managed corporations make use of bank credit
facilities -- it does not necessarily signify that they do not have the financial resources or are
unable to provide the financing on their own; it is just a manner of maximizing the use of their
funds.
9. Does the contractor in reality acquire the surface rights "for free," by virtue of the fact that it is
entitled to reimbursement for the costs of acquisition and maintenance, adjusted for inflation?
We think not. The "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 acquired will have to be
disposed of, in which case the contractor gets reimbursement from the sales proceeds. The
contractor has to pay out the acquisition price for the land. That money will belong to the seller of
the land. Only 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 -- 25 or 50 years, depending. If we calculate the cost of money at say 12 percent per
annum, that is the cost or opportunity loss to the contractor, in addition to the amount of the
acquisition price. 12 percent per annum for 50 years is 600 percent; this, without any
compounding yet. The cost of money is therefore at least 600 percent of the original acquisition
cost; it is in addition to the acquisition cost. "For free"? Not by a long shot.
10. The contractor will acquire and hold up to 5,000 hectares? We doubt it. The acquisition by
the State 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 equipment, and dig mine shafts
and tunnels, etc. It is impossible that the surface requirement will aggregate 5,000 hectares.
Much of the operations will consist of the tunneling and digging underground, which will not
require possessing or using any land surface. 5,000 hectares is way too much for the needs of a
mining operator. It simply will not spend its cash to acquire property that it will not need; the cash
may be better employed for the actual mining operations, to yield a profit.
11. Justice Carpio claims that the phrase among other things (found in the second paragraph of
Section 81 of the Mining Act) is being incorrectly treated as a delegation of legislative power to
the DENR secretary to issue DAO 99-56 and prescribe the formulae therein on the State's share
from mining operations. He adds that the phrase among other things was not intended as a
delegation of legislative power to the DENR secretary, much less could it be deemed a valid
delegation of legislative power, since there is nothing in the second paragraph of Section 81
which can be said to grant any delegated legislative power to the DENR secretary. And even if
there were, such delegation would be void, for lack of any standards by which the delegated
power shall be exercised.
While there is nothing in the second paragraph of Section 81 which can directly be construed as
a delegation of legislative power to the DENR secretary, it does not mean that DAO 99-56 is
invalid per se, or that the secretary acted without any authority or jurisdiction in issuing DAO 99-
56. As we stated earlier in our Prologue, "Who or what organ of government actually exercises
this power of control on behalf of the State? The Constitution is crystal clear: the President.
Indeed, the Chief Executive is the official constitutionally mandated to 'enter into agreements
with foreign owned corporations.' On the other hand, Congress may review the action of the
President once it is notified of 'every contract entered into in accordance with this [constitutional]
provision within thirty days from its execution.'" It is the President who is constitutionally
mandated to enter into FTAAs with foreign corporations, and in doing so, it is within the
President's prerogative to specify certain terms and conditions of the FTAAs, for example,
the fiscal regime of FTAAs -- i.e., the sharing of the net mining revenues between the contractor
and the State.
Being the President's alter ego with respect to the control and supervision of the mining industry,
the DENR secretary, acting for the President, is necessarily clothed with the requisite 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 FTAAs in general. It is important
to remember that DAO 99-56 has been in existence for almost six years, and has not been
amended or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated legislative power. The
legislature did not delegate the power to determine the nature, extent and composition of the
items that would come under the phrase among other things. The legislature's power pertains to
the imposition of taxes, duties and fees. This power was not delegated to the DENR secretary.
But the power to negotiate and enter into FTAAs was withheld from Congress, and reserved for
the President. In determining the sharing of mining benefits, i.e., in specifying what the
phrase among other things include, the President (through the secretary acting in his/her behalf)
was not determining the amount or rate of taxes, duties and fees, but rather the amount of
INCOME to be derived from minerals to be extracted and sold, income which belongs to the
State as owner of the mineral resources. We may say that, in the second paragraph of Section
81, the legislature in a sense intruded partially into the President's sphere of authority when the
former provided that
"The Government share in financial or technical assistance agreement shall consist
of, among other things, the contractor's corporate income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign stockholders arising from
dividend or interest payments to the said foreign stockholder in case of a foreign
national and all such other taxes, duties and fees as provided for under existing
laws." (Italics supplied)
But it did not usurp the President's 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
Congress could not validly prevent) the President from determining what constitutes the State's
compensation derived from FTAAs. In this case, the President in effect directed the inclusion or
addition of "other things," viz., INCOME for the owner of the resources, in the government's
share, while adopting the items enumerated by Congress as part of the government share also.
12. Justice Carpio's insistence on applying the ejusdem generis rule of statutory construction to
the phrase among other things is therefore useless, and must fall by the wayside. There is no
point trying to construe that phrase in relation to the enumeration of taxes, duties and fees found
in paragraph 2 of Section 81, precisely because "the constitutional power to prescribe the
sharing of mining income between the State and mining companies," to quote Justice
Carpio pursuant to an FTAA is constitutionally lodged with the President, not with
Congress. It thus makes no sense to persist in giving the phrase among other things a
restricted meaning referring only to taxes, duties and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO
99-56 any time even without the approval of the President, and the secretary is the sole authority
to determine the amount of consideration that the State shall receive in an FTAA, because
Section 5 of the DAO states that "xxx any amendment of an FTAA other than the provision on
fiscal regime shall require the negotiation with the Negotiation Panel and the recommendation of
the Secretary for approval of the President xxx". Allegedly, because of that provision, if an
amendment in the FTAA involves non-fiscal matters, the amendment requires approval of the
President, but if the amendment involves a change in the fiscal regime, the DENR secretary has
the final authority, and approval of the President may be dispensed with; hence the secretary is
more powerful than the President.
We believe there is some distortion resulting from the quoted provision being taken out of
context. Section 5 of DAO 99-56 reads as follows:
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this
Administrative Order shall remain valid and be recognized by the Government:
Provided, That should a Contractor desire to amend its FTAA, it shall do so by filing a
Letter of Intent (LOI) to the Secretary thru the Director. Provided, further, That if the
Contractor desires to amend the fiscal regime of its FTAA, it may do so by seeking for
the amendment of its FTAA's whole fiscal regime by adopting the fiscal regime
provided hereof: Provided, finally, That any amendment of an FTAA other than the
provision on fiscal regime shall require the negotiation with the Negotiating Panel and
the recommendation of the Secretary for approval of the President of the Republic of
the Philippines." (underscoring supplied)
It looks like another case of misapprehension. The proviso being objected to by Justice Carpio is
actually preceded by a phrase that requires a contractor desiring to amend the fiscal regime of
its FTAA, to amend the same by adopting the fiscal regime prescribed in DAO 99-56 -- i.e.,
solely in that manner,  and in no other . Obviously, since DAO 99-56 was issued by the
secretary under the authority and with the presumed approval of the President, the
amendment of an FTAA by merely adopting the fiscal regime prescribed in said DAO 99-
56 (and nothing more) need not have the express clearance of the President anymore.  It is
as if the same had been pre-approved. We cannot fathom the complaint that that makes the
secretary more powerful than the President, or that the former is trying to hide things from the
President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved
prior to the effectivity of this Administrative Order shall remain valid and be recognized by the
Government", Justice Carpio concludes that said Administrative Order
allegedly exempts FTAAs approved prior to its effectivity -- like the WMCP FTAA -- from having
to pay the State any share from their mining income, apart from taxes, duties and fees.
We disagree. What we see in black and white is the statement that the FTAAs approved before
the DAO came into effect are to continue to be valid and will be recognized by the
State. Nothing is said about their fiscal regimes. Certainly, there is no basis to claim that the
contractors under said FTAAs were being exempted from paying the government a share in their
mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from paying the
government share. The WMCP FTAA has its own fiscal regime -- Section 7.7 -- which gives
the government a 60 percent share in the net mining revenues of WMCP from the
commencement of commercial production.
For that very reason, we have never said that DAO 99-56 is the basis for claiming that the
WMCP FTAA has a consideration. Hence, we find quite out of place Justice Carpio's statement
that ironically, DAO 99-56, the very authority cited to support the claim that the WMCP FTAA
has a consideration, does not apply to the WMCP FTAA. By its own express terms, DAO 99-56
does not apply to FTAAs executed before the issuance of DAO 99-56, like the WMCP FTAA.
The majority's position has allegedly no leg to stand on since even DAO 99-56, assuming it is
valid, cannot save the WMCP FTAA from want of consideration. Even assuming arguendo that
DAO 99-56 does not apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own
fiscal regime, found in Section 7.7 thereof. Hence, there is no such thing as "want of
consideration" here.
Still more startling is this claim: The majority supposedly agrees that the provisions of the
WMCP FTAA, which grant a sham consideration to the State, are void. Since the majority
agrees that the WMCP FTAA has a sham consideration, the WMCP FTAA thus lacks the third
element of a valid contract. The Decision should declare the WMCP FTAA void for want of
consideration unless it treats the contract as an MPSA under Section 80. Indeed the only
recourse of WMCP to save the validity of its contract is to convert it into an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions grossly
disadvantageous to government and detrimental to the interests of the Filipino people, as well as
violative of public policy, and must therefore be stricken off as invalid. Since the offending
provisions are very much separable from Section 7.7 and the rest of the FTAA, the deletion of
Sections 7.9 and 7.8(e) can be done without affecting or requiring the invalidation of the WMCP
FTAA itself, and such deletion will preserve for government its due share of the 60 percent
benefits. Therefore, the WMCP FTAA is NOT bereft of a valid consideration (assuming for the
nonce that indeed this is the "consideration" of the FTAA).
SUMMATION
To conclude, a summary of the key points discussed above is now in order.
The Meaning of "Agreements Involving
Either Technical or Financial Assistance"
Applying familiar principles of constitutional construction to the phrase agreements involving
either technical or financial assistance, the framers' choice of words does not indicate the intent
to exclude other modes of assistance, but rather implies that there are other things being
included or possibly being made part of the agreement, apart from financial or technical
assistance. The drafters avoided the use of restrictive and stringent phraseology; a verba
legis scrutiny of Section 2 of Article XII of the Constitution 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. Such moves would necessarily imply an underlying drastic shift in
fundamental economic and developmental policies of the State. That change requires a much
more definite and irrefutable basis than mere omission of the words "service contract" from the
new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph 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 unnecessary; the provision was meant to refer to more than mere financial or technical
assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance, there would
be no point in requiring that they be "based on real contributions to the economic growth and
general welfare of the country." And considering that there were various long-term service
contracts still in force and effect at the time the new Charter was being drafted, the absence of
any transitory provisions to govern the termination and closing-out of the then existing service
contracts strongly militates against the theory that the mere omission of "service contracts"
signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a
careful scrutiny thereof conclusively shows that the ConCom members discussed agreements
involving either technical or financial assistance in the same sense as service contracts and
used the terms interchangeably. The drafters in fact knew 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 exploration, development and
utilization of minerals.
The framers spoke about service contracts as the concept was understood in the 1973
Constitution. 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 minimize 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 exception to the general norm established in
the first paragraph of Section 2 of Article XII, which reserves or limits to Filipino citizens
and corporations at least 60 percent owned by such citizens the exploration,
development and utilization of mineral or petroleum resources. This was prompted by the
perceived insufficiency of Filipino capital and the felt need for foreign expertise in the EDU of
mineral resources.
Despite strong opposition from some ConCom members during the final voting, the Article on
the National Economy and Patrimony -- including paragraph 4 allowing service contracts with
foreign corporations as an exception to the general norm in paragraph 1 of Section 2 of the
same Article -- was resoundingly and overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers, businesspersons and
politicians knew that foreign entities will not enter into agreements involving assistance without
requiring 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. The 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 make 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 extent that they are
consistent with Philippine sovereignty over natural resources, the constitutional requirement of
State control, and beneficial ownership of natural resources remaining vested in the State.
From the foregoing, it is clear that agreements involving either technical or financial
assistance referred to in paragraph 4 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 works), whereby the foreign contractor
provides the capital, technology and technical know-how, and managerial expertise in the
creation and operation of the large-scale mining/extractive enterprise, and government through
its agencies (DENR, MGB) actively exercises full control and supervision over the entire
enterprise.
Such service contracts may be entered into only with respect to minerals, petroleum and other
mineral oils. The grant of such service contracts is subject to several safeguards, among them:
(1) that the service contract be crafted in accordance with a general law setting standard or
uniform terms, conditions and requirements; (2) the President be the signatory for the
government; and (3) the President report the executed agreement to Congress within thirty days.
Ultimate Test: Full State Control
To repeat, the primacy of the principle of the State's sovereign ownership of all mineral
resources, and its full control and supervision over all aspects of exploration, development and
utilization of natural resources must be upheld. But "full control and supervision" cannot be taken
literally to mean that the State controls and supervises everything down to the minutest details
and makes all required actions, as this would render impossible the legitimate exercise 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
exercising full control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control
sufficient to enable the State to direct, restrain, regulate and govern the affairs of the extractive
enterprises. Control by the State 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. Such 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.
Government Granted Full Control
by RA 7942 and DAO 96-40
Baseless are petitioners' sweeping claims that RA 7942 and its Implementing Rules and
Regulations make it possible for FTAA contracts to cede full control and management of mining
enterprises over to fully foreign owned corporations. Equally wobbly is the assertion that the
State is reduced to a passive regulator dependent on submitted plans and reports, with weak
review and audit powers and little say in the decision-making of the enterprise, for which reasons
"beneficial ownership" of the mineral resources is allegedly ceded to the foreign contractor.
As discussed hereinabove, the State's full control and supervision over mining operations are
ensured through the following provisions in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f),
(g), (h), (k), (l), (m) and (o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as well as the
following provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2), 53[(a-4) and (d)], 54, 56[(g),
(h), (l), (m) and (n)], 56(2), 60, 66, 144, 168, 171 and 270, and also Chapters XV, XVI and XXIV.
Through the foregoing provisions, the government agencies concerned are empowered to
approve or disapprove -- hence, in a position to influence, direct, and change -- the various work
programs and the corresponding minimum expenditure commitments for each of the exploration,
development and utilization phases of the enterprise. Once they have been approved, the
contractor's compliance with its commitments therein will be monitored. Figures 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 prices; copies of sales agreements
have to be submitted to and registered with MGB.
The contractor is mandated to open its books of accounts and records for scrutiny, to enable the
State to determine that the government share has been fully paid. The State may likewise
compel compliance by the contractor with mandatory requirements on mine safety, health and
environmental protection, and the use of anti-pollution technology and facilities. The 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 FTAA's terms and conditions, and/or
non-compliance with statutes or regulations, may be penalized by cancellation of the FTAA.
Such sanction is significant to a contractor who may have yet to recover the tens or hundreds of
millions of dollars sunk into a mining project.
Overall, the State 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. Hence, RA 7942 and DAO
96-40 vest in government more than a sufficient degree of control and supervision over the
conduct of mining operations.
Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a foreign
contractor to apply for and hold an exploration permit. During the exploration phase, the permit
grantee (and prospective contractor) is spending and investing heavily in exploration activities
without yet being able to extract minerals and generate revenues. The exploration permit issued
under Sections 3(aq), 20 and 23 of RA 7942, which allows exploration but not extraction, serves
to protect the interests and rights of the exploration permit grantee (and would-be contractor),
foreign or local. Otherwise, the exploration works already conducted, and expenditures already
made, may end up only benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not
unconstitutional.
WMCP FTAA Likewise Gives the
State Full Control and Supervision
The WMCP FTAA obligates the contractor to account for the value of production and sale of
minerals (Clause 1.4); requires that the contractor's work program, activities and budgets be
approved by the State (Clause 2.1); gives the DENR secretary power to extend the exploration
period (Clause 3.2-a); requires approval by the State for incorporation of lands into the contract
area (Clause 4.3-c); requires Bureau of Forest Development approval for inclusion of forest
reserves as part of the FTAA contract area (Clause 4.5); obligates the contractor to periodically
relinquish parts of the contract area not needed for exploration and development (Clause 4.6);
requires submission of a declaration of mining feasibility for approval by the State (Clause 4.6-
b); obligates the contractor to report to the State the results of its exploration activities (Clause
4.9); requires the contractor to obtain State approval for its work programs for the succeeding
two year periods, containing the proposed work activities and expenditures budget related to
exploration (Clause 5.1); requires the contractor to obtain State approval for its proposed
expenditures for exploration activities (Clause 5.2); requires the contractor to submit an annual
report on geological, geophysical, geochemical and other information relating to its explorations
within the FTAA area (Clause 5.3-a); requires the contractor to submit within six months after
expiration of exploration period a final report on all its findings in the contract area (Clause 5.3-
b); requires 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 work
program for the development phase, for approval by the DENR secretary (Clause 5.4); obligates
the contractor to complete the development of the mine, including construction of the production
facilities, within the period stated in the approved work program (Clause 6.1); requires the
contractor to submit for approval a work program covering each period of three fiscal years
(Clause 6.2); requires the contractor to submit reports to the secretary on the production, ore
reserves, work accomplished and work in progress, profile of its work force and management
staff, and other technical information (Clause 6.3); subjects any expansions, modifications,
improvements and replacements of mining facilities to the approval of the secretary (Clause 6.4);
subjects to State control the amount of funds that the contractor may borrow within the
Philippines (Clause 7.2); subjects to State supervisory power any technical, financial and
marketing issues (Clause 10.1-a); obligates the contractor to ensure 60 percent Filipino equity in
the contractor within ten years of recovering specified expenditures unless not so required by
subsequent legislation (Clause 10.1); gives the State the right to terminate the FTAA for
unremedied substantial breach thereof by the contractor (Clause 13.2); requires State approval
for any assignment of the FTAA by the contractor to an entity other than an affiliate (Clause
14.1).
In short, the aforementioned provisions of the WMCP FTAA, far from constituting a surrender of
control and a grant of beneficial ownership of mineral resources to the contractor in question,
vest the State with control and supervision over practically all aspects of the operations of the
FTAA contractor, including the charging of pre-operating and operating expenses, and the
disposition of mineral products.
There is likewise no relinquishment of control on account of specific provisions of the WMCP
FTAA. Clause 8.2 provides a mechanism to prevent the mining operations from grinding to a
complete halt as a result of possible delays of more than 60 days in the government's
processing and approval of submitted work programs and budgets. Clause 8.3 seeks to provide
a temporary, stop-gap solution in case a disagreement between the State and the contractor
(over the proposed work program or budget submitted by the contractor) should result in a
deadlock or impasse, to avoid unreasonably long delays in the performance of the works.
always in a position to render the services required under the FTAA, under the direction and
control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required by banks
and other financial institutions as part of the conditions of new lendings. There is nothing
objectionable here, since Clause 10.4(e) also provides that such financing arrangements should
in no event reduce the contractor's obligations or the government's rights under the FTAA.
Clause 10.4(i) provides that government shall "favourably consider" any request for
amendments of this agreement necessary for the contractor to successfully obtain financing.
There is no renunciation of control, as the proviso does not say that government shall
automatically grant any such request. Also, it is up to the contractor to prove the need for the
requested changes. The government always has the final say on whether to approve or
disapprove such requests.

The State, despite Clause 8.3, still has control over the contract area, and it may, as sovereign In fine, the FTAA provisions do not reduce or abdicate State control.
authority, prohibit work thereon until the dispute is resolved, or it may terminate the FTAA, citing
substantial breach thereof. Hence, the State clearly retains full and effective control.
No Surrender of Financial Benefits

Clause 8.5, which allows the contractor to make changes to approved work programs and
The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the
budgets without the prior approval of the DENR secretary, subject to certain limitations with
State's share in FTAAs with foreign contractors to just taxes, fees and duties, and depriving the
respect to the variance/s, merely provides the contractor a certain amount of flexibility to meet
State of a share in the after-tax income of the enterprise. However, the inclusion of the
unexpected situations, while still guaranteeing that the approved work programs and budgets
phrase "among other things" in the second paragraph of Section 81 clearly and unmistakably
are not abandoned altogether. And if the secretary disagrees with the actions taken by the
reveals the legislative intent to have the State collect more than just the usual taxes, duties and
contractor in this instance, he may also resort to cancellation/termination of the FTAA as the
fees.
ultimate sanction.

Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of Financial or Technical
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts of the contract
Assistance Agreements," spells out the financial benefits government will receive from an FTAA,
area to be relinquished. The State is not in a position to substitute its judgment for that of the
as consisting of not only a basic government share, comprised of all direct taxes, fees and
contractor, who knows exactly which portions of the contract area do not contain minerals in
royalties, as well as other payments made by the contractor during the term of the FTAA, but
commercial quantities and should be relinquished. Also, since the annual occupation fees paid
also an additional government share, being a share in the earnings or cash flows of the
to government are based on the total hectarage of the contract area, net of the areas
mining enterprise, so as to achieve a fifty-fifty sharing of net benefits from mining between the
relinquished, the contractor's self-interest will assure proper and efficient relinquishment.
government and the contractor.

Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can compel government
The additional government share is computed using one of three (3) options or schemes
to use its power of eminent domain. It contemplates a situation in which the contractor is a
detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value of cash flows;
foreign-owned corporation, hence, not qualified to own land. The contractor identifies the surface
(2) the excess profit-related additional government share; and (3) the additional sharing based
areas needed for it to construct the infrastructure for mining operations, and the State then
on the cumulative net mining revenue. Whichever option or computation is used, the additional
acquires the surface rights on behalf of the former. The provision does not call for the exercise of
government share has nothing to do with taxes, duties, fees or charges. The portion of revenues
the power of eminent domain (or determination of just compensation); it seeks to avoid a
remaining after the deduction of the basic and additional government shares is what goes to the
violation of the anti-dummy law.
contractor.

Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the
The basic government share and the additional government share do not yet take into account
mineral products extracted may have been a result of conditions imposed by creditor-banks to
the indirect taxes and other financial contributions of mining projects, which are real and actual
secure the loan obligations of WMCP. Banks lend also upon the security of encumbrances
benefits enjoyed by the Filipino people; if these are taken into account, total government share
on goods produced, which can be easily sold and converted into cash and applied to the
increases to 60 percent or higher (as much as 77 percent, and 89 percent in one instance) of the
repayment of loans. Thus, Clause 10.2(l) is not something out of the ordinary. Neither is it
net present value of total benefits from the project.
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. The contractor's ability The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the payment of the
to mortgage the minerals does not negate the State's right to receive its share of net mining government share in FTAAs until after the contractor shall have recovered its pre-operating
revenues. expenses, exploration and development expenditures. Allegedly, the collection of the State's
share is rendered uncertain, as there is no time limit in RA 7942 for this grace period or recovery
period. But although RA 7942 did not limit the grace period, the concerned agencies (DENR and
Clause 10.2(k) which gives the contractor authority "to change its equity structure at any time,"
MGB) in formulating the 1995 and 1996 Implementing Rules and Regulations provided that the
means that WMCP, which was then 100 percent foreign owned, could permit Filipino equity
ownership. Moreover, what is important is that the contractor, regardless of its ownership, is
period of recovery, reckoned from the date of commercial operation, shall be for a period not
exceeding five years, or until the date of actual recovery, whichever comes earlier.
And since RA 7942 allegedly does not require government approval for the pre-operating,
exploration and development expenses of the foreign contractors, it is feared that such
expenses could be bloated to wipe out mining revenues anticipated for 10 years, with the result
that the State's share is zero for the first 10 years. However, the argument is based on incorrect
information.
Under Section 23 of RA 7942, the applicant for exploration permit is required to submit a
proposed work program for exploration, containing a yearly budget of proposed expenditures,
which the State passes upon and either approves or rejects; if approved, the same will
subsequently be recorded as pre-operating expenses that the contractor will have to recoup over
the grace period.
Under Section 24, when an exploration permittee files with the MGB a declaration of mining
project feasibility, it must submit a work program for development, with corresponding budget,
for approval by the Bureau, before government may grant an FTAA or MPSA or other mineral
agreements; again, government has the opportunity to approve or reject the proposed work
program and budgeted expenditures for development works, which will become the pre-
operating and development costs that will have to be recovered. Government is able to know
ahead of time the amounts of pre-operating and other expenses to be recovered, and the
approximate period of time needed therefor. The aforecited provisions have counterparts in
Section 35, which deals with the terms and conditions exclusively applicable to FTAAs. In sum,
the third or last paragraph of Section 81 of RA 7942 cannot be deemed defective.
Section 80 of RA 7942 allegedly limits the State's share in a mineral production-sharing
agreement (MPSA) to just the excise tax on the mineral product, i.e., only 2 percent of market
value of the minerals. The colatilla in Section 84 reiterates the same limitation in Section
80. However, these two provisions pertain only to MPSAs, and have no application to
FTAAs. These particular provisions do not come within the issues defined by this Court.
Hence, on due process grounds, no pronouncement can be made in this case in respect
of the constitutionality of Sections 80 and 84.
Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old "license,
concession or lease" system, because it allegedly effectively reduces the government share in
FTAAs to just the 2 percent excise tax which pursuant to Section 80 comprises the government
share in MPSAs. However, Section 112 likewise does not come within the issues delineated by
this Court, and was never touched upon by the parties in their pleadings. Moreover, Section 112
may not properly apply to FTAAs. The mining law obviously meant to treat FTAAs as a breed
apart from mineral agreements. There is absolutely no basis to believe that the law intends to
exact from FTAA contractors merely the same government share (i.e., the 2 percent excise tax)
that it apparently demands from contractors under the three forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are indeed unconstitutional, they
cannot be ruled upon here. In any event, they are separable; thus, a later finding of nullity will
not affect the rest of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to surrender financial
benefits from an FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the
State must receive at least 60 percent of the after-tax income from the exploitation of its mineral
resources, and that such share is the equivalent of the constitutional requirement that at least 60
percent of the capital, and hence 60 percent of the income, of mining companies should remain
in Filipino hands. Even if the State is entitled to a 60 percent share from other mineral
agreements (CPA, JVA and MPSA), that would not create a parallel or analogous situation for
FTAAs. We are dealing with an essentially different equation. Here we have the old apples and
oranges syndrome.
The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations,
regardless of circumstances. There is no indication of such an intention on the part of the
framers. Moreover, the terms and conditions of petroleum FTAAs cannot serve as standards for
mineral mining FTAAs, because the technical and operational requirements, cost structures
and investment needs of off-shore petroleum exploration and drilling companies do not
have the remotest resemblance to those of on-shore mining companies.
To take the position that government's share must be not less than 60 percent of after-tax
income of FTAA contractors is nothing short of this Court dictating upon the government. The
State resultantly ends up losing control. To avoid compromising the State's full control and
supervision over the exploitation of mineral resources, there must be no attempt to impose a
"minimum 60 percent" rule. It is sufficient that the State has the power and means, should it so
decide, to get a 60 percent share (or greater); and it is not necessary that the State does so
in every case.
Invalid Provisions of the WMCP FTAA
Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60 percent share of WMCP's
revenues. Under Section 7.9, should WMCP's foreign stockholders (who originally owned 100
percent of the equity) sell 60 percent or more of their equity to a Filipino citizen or corporation,
the State loses its right to receive its share in net mining revenues under Section 7.7, without
any offsetting compensation to the State. And what is given to the State in Section 7.7 is by
mere tolerance of WMCP's foreign stockholders, who can at any time cut off the government's
entire share by simply selling 60 percent of WMCP's equity to a Philippine citizen or corporation.
In fact, the sale by WMCP's foreign stockholder on January 23, 2001 of the entire outstanding
equity in WMCP to Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino
owned, can be deemed to have automatically triggered the operation of Section 7.9 and
removed the State's right to receive its 60 percent share. Section 7.9 of the WMCP FTAA
has effectively given away the State's share without anything in exchange.
Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in
WMCP, because by the mere act of divestment, the local and foreign stockholders get a windfall,
as their share in the net mining revenues of WMCP is automatically increased, without having to
pay anything for it.
Being grossly disadvantageous to government and detrimental to the Filipino people, as well as
violative of public policy, Section 7.9 must therefore be stricken off as invalid. The FTAA in
question 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. Since the offending provision is very much separable from the rest of the
FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidation of
the entire WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by
government for the benefit of the contractor to be deductible from the State's share in net mining
revenues, it results in benefiting the contractor twice over. This constitutes unjust enrichment on
the part of the contractor, at the expense of government. For being grossly disadvantageous and
prejudicial to government and contrary to public policy, Section 7.8(e) must also be declared by the State from mining activities must ultimately serve the great majority of our fellow citizens.
without effect. It may likewise be stricken off without affecting the rest of the FTAA. They have as much right and interest in the proper and well-ordered development and utilization
of the country's mineral resources as the petitioners.
EPILOGUE
Whether we consider the near term or take the longer view, we cannot overemphasize the need
for an appropriate balancing of interests and needs -- the need to develop our stagnating
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the Court
mining industry and extract what NEDA Secretary Romulo Neri estimates is some US$840
upon the key principle that the State must exercise full control and supervision over the
billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order to
exploration, development and utilization of mineral resources.
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
The crux of the controversy is the amount of discretion to be accorded the Executive damage.
Department, particularly the President of the Republic, in respect of negotiations over the terms
of FTAAs, particularly when it comes to the government share of financial benefits from
This Court cannot but be mindful that any decision rendered in this case will ultimately impact
FTAAs. The Court believes that it is not unconstitutional to allow a wide degree of discretion to
not only the cultural communities which lodged the instant Petition, and not only the larger
the Chief Executive, given the nature and complexity of such agreements, the humongous
community of the Filipino people now struggling to survive amidst a fiscal/budgetary deficit, ever
amounts of capital and financing required for large-scale mining operations, the complicated
increasing prices of fuel, food, and essential commodities and services, the shrinking value of
technology needed, and the intricacies of international trade, coupled with the State's need to
the local currency, and a government hamstrung in its delivery of basic services by a severe lack
maintain flexibility in its dealings, in order to preserve and enhance our country's
of resources, but also countless future generations of Filipinos.
competitiveness in world markets.

For this latter group of Filipinos yet to be born, their eventual access to education, health care
We are all, in one way or another, sorely affected by the recently reported scandals involving
and basic services, their overall level of well-being, the very shape of their lives are even now
corruption in high places, duplicity in the negotiation of multi-billion peso government contracts,
being determined and affected partly by the policies and directions being adopted and
huge payoffs to government officials, and other malfeasances; and perhaps, there is the desire
implemented by government today. And in part by the this Resolution rendered by this Court
to see some measures put in place to prevent further abuse. However, dictating upon the
today.
President what minimum share to get from an FTAA is not the solution. It sets a bad
precedent since such a move institutionalizes the very reduction if not deprivation of the State's
control. The remedy may be worse than the problem it was meant to address. In any event, Verily, the mineral wealth and natural resources of this country are meant to benefit not merely a
provisions in such future agreements which may be suspected to be grossly disadvantageous or select group of people living in the areas locally affected by mining activities, but the entire
detrimental to government may be challenged in court, and the culprits haled before the bar of Filipino nation, present and future, to whom the mineral wealth really belong. This Court has
justice. therefore weighed carefully the rights and interests of all concerned, and decided for the greater
good of the greatest number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE
PRESENT AND THE FUTURE, not just for the here and now.
Verily, under the doctrine of separation of powers and due respect for co-equal and coordinate
branches of government, this Court must restrain itself from intruding into policy matters and
must allow the President and Congress maximum discretion in using the resources of our WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions
country and in securing the assistance of foreign groups to eradicate the grinding poverty of our for Reconsideration; to REVERSE and SET ASIDE this Court's January 27, 2004 Decision;
people and answer their cry for viable employment opportunities in the country. to DISMISS the Petition; and to issue this new judgment declaring CONSTITUTIONAL (1)
Republic Act No. 7942 (the Philippine Mining Law), (2) its Implementing Rules and Regulations
contained in DENR Administrative Order (DAO) No. 9640 -- insofar as they relate to financial
"The judiciary is loath to interfere with the due exercise by coequal branches of government of
and technical assistance agreements referred to in paragraph 4 of Section 2 of Article XII of the
their official functions."99 As aptly spelled out seven decades ago by Justice George Malcolm,
Constitution; and (3) the Financial and Technical Assistance Agreement (FTAA) dated March 30,
"Just as the Supreme Court, as the guardian of constitutional rights, should not sanction
1995 executed by the government and Western Mining Corporation Philippines Inc. (WMCP),
usurpations by any other department of government, so should it as strictly confine its own
except Sections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for being
sphere of influence to the powers expressly or by implication conferred on it by the Organic
contrary to public policy and for being grossly disadvantageous to the government.
Act."100 Let the development of the mining industry be the responsibility of the political branches
of government. And let not this Court interfere inordinately and unnecessarily.
SO ORDERED.
The Constitution of the Philippines is the supreme law of the land. It is the repository of all the
aspirations and hopes of all the people. We fully sympathize with the plight of Petitioner La
Bugal B'laan and other tribal groups, and commend their efforts to uplift their communities.
However, we cannot justify the invalidation of an otherwise constitutional statute along with its
implementing rules, or the nullification of an otherwise legal and binding FTAA contract.

We must never forget that it is not only our less privileged brethren in tribal and cultural
communities who deserve the attention of this Court; rather, all parties concerned -- including
the State itself, the contractor (whether Filipino or foreign), and the vast majority of our citizens --
equally deserve the protection of the law and of this Court. To stress, the benefits to be derived