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G.R. No.

92024 November 9, 1990 the evidence in his possession in support of his opposition to
the transfer of the site of the BPC petrochemical plant to
CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), Batangas province. The hearing shall not exceed a period of
petitioner, ten (10) days from the date fixed by the BOI, notice of which
vs. should be served by personal service to the petitioner
THE BOARD OF INVESTMENTS, THE DEPARTMENT OF TRADE AND through counsel, at least three (3) days in advance. The
INDUSTRY, LUZON PETROCHEMICAL CORPORATION, and PILIPINAS hearings may be held from day to day for a period of ten (10)
SHELL CORPORATION, respondents. days without postponements. The petition for a writ of
prohibition or preliminary injunction is denied. No costs.
Abraham C. La Vina for petitioner. (Rollo, pages 450-451)

Sycip, Salazar, Hernandez & Gatmaitan for Luzon Petrochemical However, acting on the petitioner's motion for partial reconsideration asking
Corporation. that we rule on the import of P.D. Nos. 949 and 1803 and on the foreign
investor's claim of right of final choice of plant site, in the light of the
provisions of the Constitution and the Omnibus Investments Code of 1987,
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for Pilipinas Shell this Court on October 24, 1989, made the observation that P.D. Nos. 949
Petroleum Corporation. and 1803 "do not provide that the Limay site should be the only
petrochemical zone in the country, nor prohibit the establishment of a
petrochemical plant elsewhere in the country, that the establishment of a
petrochemical plant in Batangas does not violate P.D. No. 949 and P.D. No.
GUTIERREZ, JR., J.: 1803.

This is a petition to annul and set aside the decision of the Board of Our resolution skirted the issue of whether the investor given the initial
Investments (BOI)/Department of Trade and Industry (DTI) approving the inducements and other circumstances surrounding its first choice of plant site
transfer of the site of the proposed petrochemical plant from Bataan to may change it simply because it has the final choice on the matter. The Court
Batangas and the shift of feedstock for that plant from naphtha only to merely ruled that the petitioner appears to have lost interest in the case by
naphtha and/or liquefied petroleum gas (LPG). his failure to appear at the hearing that was set by the BOI after receipt of the
decision, so he may be deemed to have waived the fruit of the judgment. On
This petition is a sequel to the petition in G.R. No. 88637 entitled this ground, the motion for partial reconsideration was denied.
"Congressman Enrique T. Garcia v. the Board of Investments", September 7,
1989, where this Court issued a decision, ordering the BOI as follows: A motion for reconsideration of said resolution was filed by the petitioner
asking that we resolve the basic issue of whether or not the foreign investor
WHEREFORE, the petition for certiorari is granted. The has the right of final choice of plant site; that the non-attendance of the
Board of Investments is ordered: (1) to publish the amended petitioner at the hearing was because the decision was not yet final and
application for registration of the Bataan Petrochemical executory; and that the petitioner had not therefor waived the right to a
Corporation, (2) to allow the petitioner to have access to its hearing before the BOI.
records on the original and amended applications for
registration, as a petrochemical manufacturer, of the In the Court's resolution dated January 17, 1990, we stated:
respondent Bataan Petrochemical Corporation, excluding,
however, privileged papers containing its trade secrets and Does the investor have a "right of final choice" of plant site?
other business and financial information, and (3) to set for Neither under the 1987 Constitution nor in the Omnibus
hearing the petitioner's opposition to the amended Investments Code is there such a 'right of final choice.' In the
application in order that he may present at such hearing all first place, the investor's choice is subject to processing and
1
approval or disapproval by the BOI (Art. 7, Chapter II, Under P.D. No. 1803 dated January 16, 1981, 576 hectares of the public
Omnibus Investments Code). By submitting its application domain located in Lamao, Limay, Bataan were reserved for the
and amended application to the BOI for approval, the Petrochemical Industrial Zone under the administration, management, and
investor recognizes the sovereign prerogative of our ownership of the Philippine National Oil Company (PNOC).
Government, through the BOI, to approve or disapprove the
same after determining whether its proposed project will be The Bataan Refining Corporation (BRC) is a wholly government owned
feasible, desirable and beneficial to our country. By asking corporation, located at Bataan. It produces 60% of the national output of
that his opposition to the LPC's amended application be naphtha.
heard by the BOI, the petitioner likewise acknowledges that
the BOI, not the investor, has the last word or the "final
Taiwanese investors in a petrochemical project formed the Bataan
choice" on the matter.
Petrochemical Corporation (BPC) and applied with BOI for registration as a
new domestic producer of petrochemicals. Its application specified Bataan as
Secondly, as this case has shown, even a choice that had the plant site. One of the terms and conditions for registration of the project
been approved by the BOI may not be 'final', for supervening was the use of "naphtha cracker" and "naphtha" as feedstock or fuel for its
circumstances and changes in the conditions of a place may petrochemical plant. The petrochemical plant was to be a joint venture with
dictate a corresponding change in the choice of plant site in PNOC. BPC was issued a certificate of registration on February 24, 1988 by
order that the project will not fail. After all, our country will BOI.
benefit only when a project succeeds, not when it fails.
(Rollo, pp. 538-539) BPC was given pioneer status and accorded fiscal and other incentives by
BOI, like: (1) exemption from taxes on raw materials, (2) repatriation of the
Nevertheless, the motion for reconsideration of the petitioner was denied. entire proceeds of liquidation investments in currency originally made and at
the exchange rate obtaining at the time of repatriation; and (3) remittance of
A minority composed of Justices Melencio-Herrera, Gancayco, Sarmiento earnings on investments. As additional incentive, the House of
and this ponente voted to grant the motion for reconsideration stating that the Representatives approved a bill introduced by the petitioner eliminating the
hearing set by the BOI was premature as the decision of the Court was not 48% ad valorem tax on naphtha if and when it is used as raw materials in the
yet final and executory; that as contended by the petitioner the Court must petrochemical plant. (G.R. No. 88637, September 7, 1989, pp. 2-3. Rollo, pp.
first rule on whether or not the investor has the right of final choice of plant 441-442)
site for if the ruling is in the affirmative, the hearing would be a useless
exercise; that in the October 19, 1989 resolution, the Court while upholding However, in February, 1989, A.T. Chong, chairman of USI Far East
validity of the transfer of the plant site did not rule on the issue of who has Corporation, the major investor in BPC, personally delivered to Trade
the final choice; that they agree with the observation of the majority that "the Secretary Jose Concepcion a letter dated January 25, 1989 advising him of
investor has no final choice either under the 1987 Constitution or in the BPC's desire to amend the original registration certification of its project by
Omnibus Investments Code and that it is the BOI who decides for the changing the job site from Limay, Bataan, to Batangas. The reason adduced
government" and that the plea of the petitioner should be granted to give him for the transfer was the insurgency and unstable labor situation, and the
the chance to show the justness of his claim and to enable the BOI to give a presence in Batangas of a huge liquefied petroleum gas (LPG) depot owned
second hard look at the matter. by the Philippine Shell Corporation.

Thus, the herein petition which relies on the ruling of the Court in the The petitioner vigorously opposed the proposal and no less than President
resolution of January 17, 1990 in G.R. No. 88637 that the investor has no Aquino expressed her preference that the plant be established in Bataan in a
right of final choice under the 1987 Constitution and the Omnibus conference with the Taiwanese investors, the Secretary of National Defense
Investments Code. and The Chief of Staff of the Armed Forces.

2
Despite speeches in the Senate and House opposing the Transfer of the Judicial power includes the duty of the courts of justice to
project to Batangas, BPC filed on April 11, 1989 its request for approval of settle actual controversies involving rights which are legally
the amendments. Its application is as follows: "(l) increasing the investment demandable and enforceable, and to determine whether or
amount from US $220 million to US $320 million; (2) increasing the not there has been a grave abuse of discretion amounting to
production capacity of its naphtha cracker, polythylene plant and lack or excess of jurisdiction on the part of any branch or
polypropylene plant; (3) changing the feedstock from naphtha only to instrumentality of the Government.
"naphtha and/or liquefied petroleum gas;" and (4) transferring the job site
from Limay, Bataan, to Batangas. (Annex B to Petition; Rollo, p. 25) There is before us an actual controversy whether the petrochemical plant
should remain in Bataan or should be transferred to Batangas, and whether
Notwithstanding opposition from any quarters and the request of the its feedstock originally of naphtha only should be changed to naphtha and/or
petitioner addressed to Secretary Concepcion to be furnished a copy of the liquefied petroleum gas as the approved amended application of the BPC,
proposed amendment with its attachments which was denied by the BOI on now Luzon Petrochemical Corporation (LPC), shows. And in the light of the
May 25, 1989, BOI approved the revision of the registration of BPC's categorical admission of the BOI that it is the investor who has the final
petrochemical project. (Petition, Annex F; Rollo, p. 32; See pp. 4 to 6, choice of the site and the decision on the feedstock, whether or not it
Decision in G.R. No. 88637; supra.) constitutes a grave abuse of discretion for the BOI to yield to the wishes of
the investor, national interest notwithstanding.
BOI Vice-Chairman Tomas I. Alcantara testifying before the Committee on
Ways and Means of the Senate asserted that: We rule that the Court has a constitutional duty to step into this controversy
and determine the paramount issue. We grant the petition.
The BOI has taken a public position preferring Bataan over
Batangas as the site of the petrochemical complex, as this First, Bataan was the original choice as the plant site of the BOI to which the
would provide a better distribution of industries around the BPC agreed. That is why it organized itself into a corporation bearing the
Metro Manila area. ... In advocating the choice of Bataan as name Bataan. There is available 576 hectares of public land precisely
the project site for the petrochemical complex, the BOI, reserved as the petrochemical zone in Limay, Bataan under P.D. No. 1803.
however, made it clear, and I would like to repeat this that There is no need to buy expensive real estate for the site unlike in the
the BOI made it clear in its view that the BOI or the proposed transfer to Batangas. The site is the result of careful study long
government for that matter could only recomend as to where before any covetous interests intruded into the choice. The site is ideal. It is
the project should be located. The BOI recognizes and not unduly constricted and allows for expansion. The respondents have not
respect the principle that the final chouce is still with the shown nor reiterated that the alleged peace and order situation in Bataan or
proponent who would in the final analysis provide the unstable labor situation warrant a transfer of the plant site to Batangas.
funding or risk capital for the project. (Petition, P. 13; Annex Certainly, these were taken into account when the firm named itself Bataan
D to the petition) Petrochemical Corporation. Moreover, the evidence proves the contrary.

This position has not been denied by BOI in its pleadings in G.R. No. 88637 Second, the BRC, a government owned Filipino corporation, located in
and in the present petition. Bataan produces 60% of the national output of naphtha which can be used
as feedstock for the plant in Bataan. It can provide the feedstock requirement
Section 1, Article VIII of the 1987 Constitution provides: of the plant. On the other hand, the country is short of LPG and there is need
to import the same for use of the plant in Batangas. The local production
SECTION 1. The judicial power shall be vested in one thereof by Shell can hardly supply the needs of the consumers for cooking
Supreme Court and in such lower courts as may be purposes. Scarce dollars will be diverted, unnecessarily, from vitally essential
projects in order to feed the furnaces of the transferred petrochemical plant.
established by law.

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Third, naphtha as feedstock has been exempted by law from the ad valorem xxx xxx xxx
tax by the approval of Republic Act No. 6767 by President Aquino but
excluding LPG from exemption from ad valorem tax. The law was enacted The State shall promote industrialization and full
specifically for the petrochemical industry. The policy determination by both employment based on sound agricultural development and
Congress and the President is clear. Neither BOI nor a foreign investor agrarian reform, through industries that make full and
should disregard or contravene expressed policy by shifting the feedstock efficient use of human and natural resources, and which are
from naphtha to LPG. competitive in both domestic and foreign markets. However,
the State shall protect Filipino enterprises against unfair
Fourth, under Section 10, Article XII of the 1987 Constitution, it is the duty of foreign competition and trade practices.
the State to "regulate and exercise authority over foreign investments within
its national jurisdiction and in accordance with its national goals and xxx xxx xxx
priorities." The development of a self-reliant and independent national
economy effectively controlled by Filipinos is mandated in Section 19, Article Every provision of the Constitution on the national economy and patrimony is
II of the Constitution. infused with the spirit of national interest. The non-alienation of natural
resources, the State's full control over the development and utilization of our
In Article 2 of the Omnibus Investments Code of 1987 "the sound scarce resources, agreements with foreigners being based on real
development of the national economy in consonance with the principles and contributions to the economic growth and general welfare of the country and
objectives of economic nationalism" is the set goal of government. the regulation of foreign investments in accordance with national goals and
priorities are too explicit not to be noticed and understood.
Fifth, with the admitted fact that the investor is raising the greater portion of
the capital for the project from local sources by way of loan which led to the A petrochemical industry is not an ordinary investment opportunity. It should
so-called "petroscam scandal", the capital requirements would be greatly not be treated like a garment or embroidery firm, a shoe-making venture, or
minimized if LPC does not have to buy the land for the project and its even an assembler of cars or manufacturer of computer chips, where the BOI
feedstock shall be limited to naphtha which is certainly more economical, reasoning may be accorded fuller faith and credit. The petrochemical industry
more readily available than LPG, and does not have to be imported. is essential to the national interest. In other ASEAN countries like Indonesia
and Malaysia, the government superintends the industry by controlling the
Sixth, if the plant site is maintained in Bataan, the PNOC shall be a partner in upstream or cracker facility.
the venture to the great benefit and advantage of the government which shall
have a participation in the management of the project instead of a firm which In this particular BPC venture, not only has the Government given
is a huge multinational corporation. unprecedented favors, among them:

In the light of all the clear advantages manifest in the plant's remaining in (1) For an initial authorized capital of only P20 million, the
Bataan, practically nothing is shown to justify the transfer to Batangas except Central Bank gave an eligible relending credit or relending
a near-absolute discretion given by BOI to investors not only to freely choose facility worth US $50 million and a debt to swap arrangement
the site but to transfer it from their own first choice for reasons which remain for US $30 million or a total accommodation of US $80
murky to say the least. million which at current exchange rates is around P2080
million.
And this brings us to a prime consideration which the Court cannot rightly
ignore. (2) A major part of the company's capitalization shall not
come from foreign sources but from loans, initially a Pl Billion
Section 1, Article XII of the Constitution provides that: syndicated loan, to be given by both government banks and
a consortium of Philippine private banks or in common
parlance, a case of 'guiniguisa sa sariling manteca.'
4
(3) Tax exemptions and privileges were given as part of its
'preferred pioneer status.'

(4) Loan applications of other Philippine firms will be


crowded out of the Asian Development Bank portfolio
because of the petrochemical firm's massive loan request.
(Taken from the proceedings before the Senate Blue Ribbon
Committee).

but through its regulatory agency, the BOI, it surrenders even the power to
make a company abide by its initial choice, a choice free from any suspicion
of unscrupulous machinations and a choice which is undoubtedly in the best
interests of the Filipino people.

The Court, therefore, holds and finds that the BOI committed a grave abuse
of discretion in approving the transfer of the petrochemical plant from Bataan
to Batangas and authorizing the change of feedstock from naphtha only to
naphtha and/or LPG for the main reason that the final say is in the investor
all other circumstances to the contrary notwithstanding. No cogent advantage
to the government has been shown by this transfer. This is a repudiation of
the independent policy of the government expressed in numerous laws and
the Constitution to run its own affairs the way it deems best for the national
interest.

One can but remember the words of a great Filipino leader who in part said
he would not mind having a government run like hell by Filipinos than one
subservient to foreign dictation. In this case, it is not even a foreign
government but an ordinary investor whom the BOI allows to dictate what we
shall do with our heritage.

WHEREFORE, the petition is hereby granted. The decision of the


respondent Board of Investments approving the amendment of the certificate
of registration of the Luzon Petrochemical Corporation on May 23, 1989
under its Resolution No. 193, Series of 1989, (Annex F to the Petition) is SET
ASIDE as NULL and VOID. The original certificate of registration of BPC'
(now LPC) of February 24, 1988 with Bataan as the plant site and naphtha
as the feedstock is, therefore, ordered maintained.

SO ORDERED.

5
G.R. No. L-30389 December 27, 1972 of the Naga Cadastre. On the basis of the order of award of the Director of
Lands the Undersecretary of Agriculture and Natural Resources issued on
PEDRO LEE HONG HOK, SIMEON LEE HONG HOK, ROSITA LEE HONG August 26, 1959, Miscellaneous Sales Patent No. V-1209 pursuant to which
HOK and LEONCIO LEE HONG HOK, petitioners, OCT No. 510 was issued by the Register of Deeds of Naga City to
vs. defendant-appellee Aniano David on October 21, 1959. According to the
ANIANO DAVID, THE HON. SECRETARY OF AGRICULTURE AND Stipulation of Facts, since the filing of the sales application of Aniano David
NATURAL RESOURCES, THE DIRECTOR OF LANDS and COURT OF and during all the proceedings in connection with said application, up to the
APPEALS, respondents. actual issuance of the sales patent in his favor, the plaintiffs-appellants did
not put up any opposition or adverse claim thereto. This is fatal to them
Augusto A. Pardalis for petitioners. because after the registration and issuance of the certificate and duplicate
certificate of title based on a public land patent, the land covered thereby
automatically comes under the operation of Republic Act 496 subject to all
Luis General, Jr. for respondent Aniano David. the safeguards provided therein.... Under Section 38 of Act 496 any question
concerning the validity of the certificate of title based on fraud should be
Office of the Solicitor General for other respondents. raised within one year from the date of the issuance of the patent. Thereafter
the certificate of title based thereon becomes indefeasible.... In this case the
land in question is not a private property as the Director of Lands and the
Secretary of Agriculture and Natural Resources have always sustained the
FERNANDO, J.:p public character thereof for having been formed by reclamation.... The only
remedy therefore, available to the appellants is an action for reconveyance
on the ground of fraud. In this case we do not see any fraud committed by
Petitioners 1 in this appeal by certiorari would have us reverse a decision of
defendant-appellant Aniano David in applying for the purchase of the land
respondent Court of Appeals affirming a lower court judgment dismissing
involved through his Miscellaneous Sales Application No. MSA-V-26747,
their complaint to have the Torrens Title 2 of respondent Aniano David
entered in the records of the Bureau of Lands [Miscellaneous Sales] Entry
declared null and void. What makes the task for petitioners quite difficult is
No. V-9033, because everything was done in the open. The notices
that their factual support for their pretension to ownership of such disputed lot
regarding the auction sale of the land were published, the actual sale and
through accretion was rejected by respondent Court of Appeals. Without
award thereof to Aniano David were not clandestine but open and public
such underpinning, they must perforce rely on a legal theory, which, to put it
official acts of an officer of the Government. The application was merely a
mildly, is distinguished by unorthodoxy and is therefore far from persuasive.
renewal of his deceased wife's application, and the said deceased occupied
A grant by the government through the appropriate public officials 3
the land since 1938." 4
exercising the competence duly vested in them by law is not to be set at
naught on the premise, unexpressed but implied, that land not otherwise
passing into private ownership may not be disposed of by the state. Such an On such finding of facts, the attempt of petitioners to elicit a different
assumption is at war with settled principles of constitutional law. It cannot conclusion is likely to be attended with frustration. The first error assigned
receive our assent. We affirm. predicated an accretion having taken place, notwithstanding its rejection by
respondent Court of Appeals, would seek to disregard what was accepted by
respondent Court as to how the disputed lot came into being, namely by
The decision of respondent Court of Appeals following that of the lower court
reclamation. It does not therefore call for any further consideration. Neither of
makes clear that there is no legal justification for nullifying the right of
the other two errors imputed to respondent Court, as to its holding that
respondent Aniano David to the disputed lot arising from the grant made in
authoritative doctrines preclude a party other than the government to dispute
his favor by respondent officials. As noted in the decision under review, he
the validity of a grant and the recognition of the indefeasible character of a
"acquired lawful title thereby pursuant to his miscellaneous sales application
public land patent after one year, is possessed of merit. Consequently, as set
in accordance with which an order of award and for issuance of a sales
forth at the outset, there is no justification for reversal.
patent was made by the Director of Lands on June 18, 1958, covering Lot
2892 containing an area of 226 square meters, which is a portion of Lot 2863

6
1. More specifically, the shaft of criticism was let loose by petitioner aimed at earlier decrees embodied the universal feudal theory that all lands were held
this legal proposition set forth in the exhaustive opinion of then Justice from the Crown...." 13 That was a manifestation of the concept of jura
Salvador Esguerra of the Court of Appeals, now a member of this Court: regalia, 14 which was adopted by the present Constitution, ownership
"There is, furthermore, a fatal defect of parties to this action. Only the however being vested in the state as such rather than the head thereof. What
Government, represented by the Director of Lands, or the Secretary of was stated by Holmes served to confirm a much more extensive discussion
Agriculture and Natural Resources, can bring an action to cancel a void of the matter in the leading case of Valenton v. Murciano, 15 decided in
certificate of title issued pursuant to a void patent (Lucas vs. Durian, 102 Phil. 1904. One of the royal decrees cited was incorporated in the Recopilacion de
1157; Director of Lands vs. Heirs of Ciriaco Carlo, G.R. No. L-12485, July 31, Leyes de las Indias 16 in these words: "We having acquired full sovereignty
1959). This was not done by said officers but by private parties like the over the Indies and all lands, territories, and possessions not heretofore
plaintiffs, who cannot claim that the patent and title issued for the land ceded away by our royal predecessors, or by us, or in our name, still
involved are void since they are not the registered owners thereof nor had pertaining to the royal crown and patrimony, it is our will that all lands which
they been declared as owners in the cadastral proceedings of Naga are held without proper and true deeds of grant be restored to us according
Cadastre after claiming it as their private property. The cases cited by as they belong to us, in order that after reserving before all what to us or to
appellants are not in point as they refer to private registered lands or public our viceroys audiences, and governors may seem necessary for public
lands over which vested rights have been acquired but notwithstanding such squares, ways, pastures, and commons in those places which are peopled,
fact the Land Department subsequently granted patents to public land taking into consideration not only their present condition, but also their future
applicants."5 Petitioner ought to have known better. The above excerpt is and their probable increase, and after distributing to the natives what may be
invulnerable to attack. It is a restatement of a principle that dates back to necessary for tillage and pasturage, confirming them in what they now have
Maninang v. Consolacion, 6 a 1908 decision. As was there categorically and giving them more if necessary, all the rest of said lands may remain free
stated: "The fact that the grant was made by the government is undisputed. and unencumbered for us to dispose of as we may wish." 17
Whether the grant was in conformity with the law or not is a question which
the government may raise, but until it is raised by the government and set It could therefore be affirmed in Montano v. Insular Government" 18 that "as
aside, the defendant can not question it. The legality of the grant is a to the unappropriated public lands constituting the public domain the sole
question between the grantee and the government."7 The above citation was power of legislation is vested in Congress, ..." 19 They continue to possess
repeated ipsissimis verbis in Salazar v. Court of Appeals.8 Bereft as that character until severed therefrom by state grant. 20 Where, as in this
petitioners were of the right of ownership in accordance with the findings of case, it was found by the Court of Appeals that the disputed lot was the result
the Court of Appeals, they cannot, in the language of Reyes v. Rodriguez, 9 of reclamation, its being correctly categorized as public land is undeniable.
"question the [title] legally issued." 10 The second assignment of error is thus 21 What was held in Heirs of Datu Pendatun v. Director of Lands 22 finds
disposed of. application. Thus: "There being no evidence whatever that the property in
question was ever acquired by the applicants or their ancestors either by
2. As there are overtones indicative of skepticism, if not of outright rejection, composition title from the Spanish Government or by possessory information
of the well-known distinction in public law between the government authority title or by any other means for the acquisition of public lands, the property
possessed by the state which is appropriately embraced in the concept of must be held to be public domain." 23 For it is well-settled "that no public
sovereignty, and its capacity to own or acquire property, it is not land can be acquired by private persons without any grant, express or
inappropriate to pursue the matter further. The former comes under the implied, from the government." 24 It is indispensable then that there be a
heading of imperium and the latter of dominium. The use of this term is showing of a title from the state or any other mode of acquisition recognized
appropriate with reference to lands held by the state in its proprietary by law. 25 The most recent restatement of the doctrine, found in an opinion
character. In such capacity, it may provide for the exploitation and use of of Justice J.B.L. Reyes, follows: 26 "The applicant, having failed to establish
lands and other natural resources, including their disposition, except as his right or title over the northern portion of Lot No. 463 involved in the
limited by the Constitution. Dean Pound did speak of the confusion that present controversy, and there being no showing that the same has been
existed during the medieval era between such two concepts, but did note the acquired by any private person from the Government, either by purchase or
existence of res publicae as a corollary to dominium." 11 As far as the by grant, the property is and remains part of the public domain." 27 To
Philippines was concerned, there was a recognition by Justice Holmes in repeat, the second assignment of error is devoid of merit.
Cario v. Insular Government, 12 a case of Philippine origin, that "Spain in its
7
3. The last error assigned would take issue with this portion of the opinion of
Justice Esguerra: "According to the Stipulation of Facts, since the filing of the
sales application of Aniano David and during all the proceedings in
connection with said application, up to the actual issuance of the sales patent
in his favor, the
plaintiffs-appellants did not put up any opposition or adverse claim thereto.
This is fatal to them because after the registration and issuance of the
certificate and duplicate certificate of title 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 ... Under Section 38 of
Act 496 any question concerning the validity of the certificate of title based on
fraud should be raised within one year from the date of the issuance of the
patent. Thereafter the certificate of title based thereon becomes indefeasible
..." 28 Petitioners cannot reconcile themselves to the view that respondent
David's title is impressed with the quality of indefeasibility. In thus
manifesting such an attitude, they railed to accord deference to controlling
precedents. As far back as 1919, in Aquino v. Director of
Lands, 29 Justice Malcolm, speaking for the Court, stated: "The proceedings
under the Land Registration Law and under the provisions of Chapter VI of
the Public Land Law are the same in that both are against the whole world,
both take the nature of judicial proceedings, and for both the decree of
registration issued is conclusive and final." 30 Such a view has been followed
since then. 31 The latest case in point is Cabacug v. Lao. 32 There is this
revealing excerpt appearing in that decision: "It is said, and with reason, that
a holder of a land acquired under a free patent is more favorably situated
than that of an owner of registered property. Not only does a free patent have
a force and effect of a Torrens Title, but in addition the person to whom it is
granted has likewise in his favor the right to repurchase within a period of five
years." 33 It is quite apparent, therefore, that petitioners' stand is legally
indefensible.

WHEREFORE, the decision of respondent Court of Appeals of January 31,


1969 and its resolution of March 14, 1969 are affirmed. With costs against
petitioners-appellants.

8
U.S. Supreme Court c. 1369, 32 Stat. 691, providing that property rights are to be administered for
the benefit of the inhabitants, one who actually owned land for many years
Carino v. Insular Government, 212 U.S. 449 (1909) cannot be deprived of it for failure to comply with certain ceremonies
prescribed either by the acts of the Philippine Commission or by Spanish law.
Carino v. Insular Government of the Philippine Islands
The Organic Act of the Philippines made a bill of rights embodying
No. 72 safeguards of the Constitution, and, like the Constitution, extends those
safeguards to all.
Argued January 13, 1909
Every presumption of ownership is in favor of one actually occupying land for
many years, and against the government which seeks to deprive him of it, for
Decided February 23, 1909 failure to comply with provisions of a subsequently enacted registration act.

212 U.S. 449 Title by prescription against the crown existed under Spanish law in force in
the Philippine Islands prior to their acquisition by the United States, and one
ERROR TO THE SUPREME COURT occupying land in the Province of Benguet for more than fifty years before
the Treaty of Paris is entitled to the continued possession thereof.
OF THE PHILIPPINE ISLANDS
7 Phil. 132 reversed.
Syllabus
The facts are stated in the opinion.
Writ of error is the general, and appeal the exceptional, method of bringing
Cases to this Court. The latter method is in the main confined to equity Page 212 U. S. 455
cases, and the former is proper to bring up a judgment of the Supreme Court
of the Philippine Islands affirming a judgment of the Court of Land MR. JUSTICE HOLMES delivered the opinion of the Court.
Registration dismissing an application for registration of land.
This was an application to the Philippine Court of Land Registration for the
Although a province may be excepted from the operation of Act No. 926 of registration of certain land. The application was granted by the court on
1903 of the Philippine Commission which provides for the registration and March 4, 1904. An appeal was taken to the Court of First Instance of the
perfecting of new titles, one who actually owns property in such province is Province of Benguet on behalf of the government of the Philippines, and also
entitled to registration under Act No. 496 of 1902, which applies to the whole on behalf of the United States, those governments having taken possession
archipelago. of the property for public and military purposes. The Court of First Instance
found the facts and dismissed the application upon grounds of law. This
While, in legal theory and as against foreign nations, sovereignty is absolute, judgment was affirmed by the supreme court, 7 Phil. 132, and the case then
practically it is a question of strength and of varying degree, and it is for a was brought here by writ of error.
new sovereign to decide how far it will insist upon theoretical relations of the
subject to the former sovereign and how far it will recognize actual facts. The material facts found are very few. The applicant and plaintiff in error is
an Igorot of the Province of Benguet, where the land lies. For more than fifty
Page 212 U. S. 450 years before the Treaty of

The acquisition of the Philippines was not for the purpose of acquiring the Page 212 U. S. 456
lands occupied by the inhabitants, and under the Organic Act of July 1, 1902,
9
Paris, April 11, 1899, as far back as the findings go, the plaintiff and his authorized in general terms applications to be made by persons claiming to
ancestors had held the land as owners. His grandfather had lived upon it, own the legal estate in fee simple, as the applicant does. He is entitled to
and had maintained fences sufficient for the holding of cattle, according to registration if his claim of ownership can be maintained.
the custom of the country, some of the fences, it seems, having been of
much earlier date. His father had cultivated parts and had used parts for We come, then, to the question on which the case was decided below --
pasturing cattle, and he had used it for pasture in his turn. They all had been namely, whether the plaintiff owns the land. The position of the government,
recognized as owners by the Igorots, and he had inherited or received the shortly stated, is that Spain assumed, asserted, and had title to all the land in
land from his father in accordance with Igorot custom. No document of title, the Philippines except so far as it saw fit to permit private titles to be
however, had issued from the Spanish Crown, and although, in 1893-1894 acquired; that there was no prescription against the Crown, and that, if there
and again in 1896-1897, he made application for one under the royal decrees was, a decree of June 25, 1880, required registration within a limited time to
then in force, nothing seems to have come of it, unless, perhaps, information make the title good; that the plaintiff's land was not registered, and therefore
that lands in Benguet could not be conceded until those to be occupied for a became, if it was not always, public land; that the United States succeeded to
sanatorium, etc., had been designated -- a purpose that has been carried out the title of Spain, and so that the plaintiff has no rights that the Philippine
by the Philippine government and the United States. In 1901, the plaintiff filed government is bound to respect.
a petition, alleging ownership, under the mortgage law, and the lands were
registered to him, that process, however, establishing only a possessory title,
If we suppose for the moment that the government's contention is so far
it is said.
correct that the Crown of Spain in form asserted a title to this land at the date
of the Treaty of Paris, to which the United States succeeded, it is not to be
Before we deal with the merits, we must dispose of a technical point. The assumed without argument that the plaintiff's case is at an end. It is true that
government has spent some energy in maintaining that this case should Spain, in its earlier decrees, embodied the universal feudal theory that all
have been brought up by appeal, and not by writ of error. We are of opinion, lands were held from the Crown, and perhaps the general attitude of
however, that the mode adopted was right. The proceeding for registration is conquering nations toward people not recognized as entitled to the treatment
likened to bills in equity to quiet title, but it is different in principle. It is a accorded to those
proceeding in rem under a statute of the type of the Torrens Act, such as was
discussed in Tyler v. Court of Registration, 175 Mass. 71. It is nearer to law
Page 212 U. S. 458
than to equity, and is an assertion of legal title; but we think it unnecessary to
put it into either pigeon hole. A writ of error is the general method of bringing
cases to this Court, an appeal the exception, confined to equity in the main. in the same zone of civilization with themselves. It is true also that, in legal
There is no reason for not applying the general rule to this case. Ormsby v. theory, sovereignty is absolute, and that, as against foreign nations, the
Webb, 134 U. S. 47, 134 U. S. 65; Campbell v. Porter, 162 U. S. 478; United States may assert, as Spain asserted, absolute power. But it does not
Metropolitan R. Co. v. District of Columbia, 195 U. S. 322. 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
Page 212 U. S. 457
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
Another preliminary matter may as well be disposed of here. It is suggested decide.
that, even if the applicant have title, he cannot have it registered, because
the Philippine Commission's Act No. 926, of 1903, excepts the Province of
The Province of Benguet was inhabited by a tribe that the Solicitor General,
Benguet among others from its operation. But that act deals with the
in his argument, characterized as a savage tribe that never was brought
acquisition of new titles by homestead entries, purchase, etc., and the
under the civil or military government of the Spanish Crown. It seems
perfecting of titles begun under the Spanish law. The applicant's claim is that probable, if not certain, that the Spanish officials would not have granted to
he now owns the land, and is entitled to registration under the Philippine anyone in that province the registration to which formerly the plaintiff was
Commission's Act No. 496, of 1902, which established a court for that
entitled by the Spanish laws, and which would have made his title beyond
purpose with jurisdiction "throughout the Philippine Archipelago," 2, and
question good. Whatever may have been the technical position of Spain, it
10
does not follow that, in the view of the United States, he had lost all rights occupied by the native or his ancestors before August 13, 1898. But this
and was a mere trespasser when the present government seized his land. section perhaps might be satisfied if confined to cases where the occupation
The argument to that effect seems to amount to a denial of native titles was of land admitted to be public land, and had not continued for such a
throughout an important part of the island of Luzon, at least, for the want of length of time and under such circumstances as to give rise to the
ceremonies which the Spaniards would not have permitted and had not the understanding that the occupants were owners at that date. We hesitate to
power to enforce. suppose that it was intended to declare every native who had not a paper
title a trespasser, and to set the claims of all the wilder tribes afloat. It is true
The acquisition of the Philippines was not like the settlement of the white again that there is excepted from the provision that we have quoted as to the
race in the United States. Whatever consideration may have been shown to administration of the property and rights acquired by the United States such
the North American Indians, the dominant purpose of the whites in America land and property as shall be designated by the President for military or other
was to occupy the land. It is obvious that, however stated, the reason for our reservations,
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 Page 212 U. S. 460
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, c. as this land since has been. But there still remains the question what
1369, 12, 32 Stat. 691, all the property and rights acquired there by the property and rights the United States asserted itself to have acquired.

Page 212 U. S. 459 Whatever the law upon these points may be, and we mean to go no further
than the necessities of decision demand, every presumption is and ought to
United States are to be administered "for the benefit of the inhabitants be against the government in a case like the present. It might, perhaps, be
thereof." It is reasonable to suppose that the attitude thus assumed by the proper and sufficient to say that when, as far back as testimony or memory
United States with regard to what was unquestionably its own is also its goes, the land has been held by individuals under a claim of private
attitude in deciding what it will claim for its own. The same statute made a bill ownership, it will be presumed to have been held in the same way from
of rights, embodying the safeguards of the Constitution, and, like the before the Spanish conquest, and never to have been public land. Certainly,
Constitution, extends those safeguards to all. It provides that 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. Whether justice to the natives
"no law shall be enacted in said islands which shall deprive any person of and the import of the organic act ought not to carry us beyond a subtle
life, liberty, or property without due process of law, or deny to any person examination of ancient texts, or perhaps even beyond the attitude of Spanish
therein the equal protection of the laws." law, humane though it was, it is unnecessary to decide. If, in a tacit way, it
was assumed that the wild tribes of the Philippines were to be dealt with as
the power and inclination of the conqueror might dictate, Congress has not
5. In the light of the declaration that we have quoted from 12, it is hard to
yet sanctioned the same course as the proper one "for the benefit of the
believe that the United States was ready to declare in the next breath that
inhabitants thereof."
"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 If the applicant's case is to be tried by the law of Spain, we do not discover
proposed to treat as public land what they, by native custom and by long such clear proof that it was bad by that law as to satisfy us that he does not
association -- one of the profoundest factors in human thought -- regarded as own the land. To begin with, the older decrees and laws cited by the counsel
their own. 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
It is true that, by 14, the government of the Philippines is empowered to 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
enact rules and prescribe terms for perfecting titles to public lands where
4, Title 12, Law 14 of the Recopilacion de Leyes de las Indias, cited for a
some, but not all, Spanish conditions had been fulfilled, and to issue patents
contrary conclusion in Valenton v. Murciano, 3 Phil. 537, while it commands
to natives for not more than sixteen hectares of public lands actually
11
viceroys and others, when it seems proper, to call for the exhibition of grants, Page 212 U. S. 462
directs them to confirm those who hold by good grants or justa prescripcion.
It is true that it articles [the articles recognizing prescription of twenty and thirty years] may
legalize their possession, and thereby acquire the full ownership of the said
Page 212 U. S. 461 lands, by means of adjustment proceedings, to be conducted in the following
manner."
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 This seems, by its very terms, not to apply to those declared already to be
fact was that titles were admitted to exist that owed nothing to the powers of owners by lapse of time. Article 8 provides for the case of parties not asking
Spain beyond this recognition in their books. an adjustment of the lands of which they are unlawfully enjoying the
possession, within one year, and threatens that the treasury "will reassert the
Prescription is mentioned again in the royal cedula of October 15, 1754, cited ownership of the state over the lands," and will sell at auction such part as it
in 3 Phil. 546: does not reserve. The applicant's possession was not unlawful, and no
attempt at any such proceedings against him or his father ever was made.
Finally, it should be noted that the natural construction of the decree is
"Where such possessors shall not be able to produce title deeds, it shall be
confirmed by the report of the council of state. That report puts forward as a
sufficient if they shall show that ancient possession, as a valid title by
reason for the regulations that, in view of the condition of almost all property
prescription."
in the Philippines, it is important to fix its status by general rules on the
principle that the lapse of a fixed period legalizes completely all possession,
It may be that this means possession from before 1700; but, at all events, the recommends in two articles twenty and thirty years, as adopted in the
principle is admitted. As prescription, even against Crown lands, was decree, and then suggests that interested parties not included in those
recognized by the laws of Spain, we see no sufficient reason for hesitating to articles may legalize their possession and acquire ownership by adjustment
admit that it was recognized in the Philippines in regard to lands over which at a certain price.
Spain had only a paper sovereignty.
It is true that the language of Articles 4 and 5 attributes title to those "who
The question comes, however, on the decree of June 25, 1880, for the may prove" possession for the necessary time, and we do not overlook the
adjustment of royal lands wrongfully occupied by private individuals in the argument that this means may prove in registration proceedings. It may be
Philippine Islands. This begins with the usual theoretic assertion that, for that an English conveyancer would have recommended an application under
private ownership, there must have been a grant by competent authority; but the foregoing decree, but certainly it was not calculated to convey to the mind
instantly descends to fact by providing that, for all legal effects, those who of an Igorot chief the notion that ancient family possessions were in danger, if
have been in possession for certain times shall be deemed owners. For he had read every word of it. The words "may prove" (acrediten), as well, or
cultivated land, twenty years, uninterrupted, is enough. For uncultivated, better, in view of the other provisions, might be taken to mean when called
thirty. Art. 5. So that, when this decree went into effect, the applicant's father upon to do so in any litigation. There are indications that registration was
was owner of the land by the very terms of the decree. But, it is said, the expected from all, but none sufficient to show that, for want of it, ownership
object of this law was to require the adjustment or registration proceedings actually gained would be lost.
that it described, and in that way to require everyone to get a document of
title or lose his land. That purpose may have been entertained, but it does
Page 212 U. S. 463
not appear clearly to have been applicable to all. The regulations purport to
have been made "for the adjustment of royal lands wrongfully occupied by
private individuals." (We follow the translation in the government's brief.) It The effect of the proof, wherever made, was not to confer title, but simply to
does not appear that this land ever was royal land or wrongfully occupied. In establish it, as already conferred by the decree, if not by earlier law. The
Article 6, it is provided that royal decree of February 13, 1894, declaring forfeited titles that were capable
of adjustment under the decree of 1880, for which adjustment had not been
sought, should not be construed as a confiscation, but as the withdrawal of a
"interested parties not included within the two preceding
12
privilege. As a matter of fact, the applicant never was disturbed. This same
decree is quoted by the Court of Land Registration for another recognition of
the common law prescription of thirty years as still running against alienable
Crown land.

It will be perceived that the rights of the applicant under the Spanish law
present a problem not without difficulties for courts of a different 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 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.

Judgment reversed.

13
G.R. No. L-30299 August 17, 1972 acquisition violated section 5, Article XIII, of the Constitution of the
Philippines, which prohibits the transfer of private agricultural land to non-
REPUBLIC OF THE PHILIPPINES and/or THE SOLICITOR GENERAL Filipinos, except by hereditary succession; and assuming, without conceding,
petitioners, that Quasha's acquisition was valid, any and all rights by him so acquired
vs. "will expire ipso facto and ipso jure at the end of the day on 3 July 1974, if he
WILLIAM H. QUASHA, respondent. continued to hold the property until then, and will be subject to escheat or
reversion proceedings" by the Republic.
Office of the Solicitor General Estelito P. Mendoza for petitioner.
After hearing, the Court of First Instance of Rizal (Judge Pedro A. Revilla
Quasha, Asperilla Blanco, Zafra & Tayag for respondent. presiding) rendered a decision, dated 6 March 1969, in favor of plaintiff, with
the following dispositive portion:

WHEREFORE, judgment is hereby rendered declaring that


acquisition by the plaintiff on 26 November 1954 of, the
REYES J. B. L., J.:p private agricultural land described in and covered by
Transfer Certificate of Title No. 36862 in his name was valid,
This case involves a judicial determination of the scope and duration of the and that plaintiff has a right to continue in ownership of the
rights acquired by American citizens and corporations controlled by them, said property even beyond July 3, 1974.
under the Ordinance appended to the Constitution as of 18 September 1946,
or the so-called Parity Amendment. Defendants appealed directly to this Court on questions of law, pleading that
the court below erred:
The respondent, William H. Quasha, an American citizen, had acquired by
purchase on 26 November 1954 a parcel of land with the permanent (1) In ruling that under the Parity Amendment American
improvements thereon, situated at 22 Molave Place, in Forbes Park, citizens and American owned and/or controlled business
Municipality of Makati, Province of Rizal, with an area of 2,616 sq. m. more enterprises "are also qualified to acquire private agricultural
or less, described in and covered by T. C. T. 36862. On 19 March 1968, he lands" in the Philippines; and
filed a petition in the Court of First Instance of Rizal, docketed as its Civil
Case No. 10732, wherein he (Quasha) averred the acquisition of the real
(2) In ruling that when the Parity Amendment ceases to be
estate aforesaid; that the Republic of the Philippines, through its officials,
effective on 3 July 1974, "what must be considered to end
claimed that upon expiration of the Parity Amendment on 3 July 1974, rights
should be the right to acquire land, and not the right to
acquired by citizens of the United States of America shall cease and be of no
continue in ownership of land already acquired prior to that
further force and effect; that such claims necessarily affect the rights and
interest of the plaintiff, and that continued uncertainty as to the status of time."
plaintiff's property after 3 July 1974 reduces the value thereof, and precludes
further improvements being introduced thereon, for which reason plaintiff As a historical background, requisite to a proper understanding of the issues
Quasha sought a declaration of his rights under the Parity Amendment, said being litigated, it should be recalled that the Constitution as originally
plaintiff contending that the ownership of properties during the effectivity of adopted, contained the following provisions:
the Parity Amendment continues notwithstanding the termination and
effectivity of the Amendment. Article XIII CONSERVATION AND UTILIZATION
OF NATURAL RESOURCES
The then Solicitor General Antonio P. Barredo (and later on his successors in
office, Felix V. Makasiar and Felix Q. Antonio) contended that the land Section 1. All Agricultural, timber, and mineral lands of the
acquired by plaintiff constituted private agricultural land and that the public domain, waters, minerals, coal, petroleum, and other

14
mineral oils, all forces of potential energy, and other natural longer period than fifty years. No franchise or right shall be
resources of the Philippines belong to the State, and their granted to any individual, firm, or corporation, except under
disposition, exploitation, development, or utilization shall be the condition that it shall be subject to amendment,
limited to citizens of the Philippines, or to corporations or alteration, or repeal by the Congress when the public interest
associations at least sixty per centum of the capital of which so requires.
is owned by such citizens subject to any existing right, grant,
lease, or concession at the time of the inauguration of the The nationalistic spirit that pervaded these and other provisions of the
Government established under this Constitution. Natural Constitution are self-evident and require no further emphasis.
resources, with the exception of public agricultural land, shall
not be alienated, and no license, concession, or lease for the
From the Japanese occupation and the reconquest of the Archipelago, the
resources shall be granted for a period exceeding twenty-
Philippine nation emerged with its industries destroyed and its economy
five years, renewable for another twenty-five years, except dislocated. It was described in this Court's opinion in Commissioner of
as to water right for irrigation, water supply, fisheries, or Internal Revenue vs. Guerrero, et al.,
industrial uses other than the development of water power, L-20942, 22 September 1967, 21 SCRA 181, 187, penned by Justice
in which cases beneficial use may be the measure and the Enrique M. Fernando, in the following terms:
limit of the grant.
It was fortunate that the Japanese Occupation ended when it
Section 2. No private corporation or association may
did. Liberation was hailed by all, but the problems faced by
acquire, lease, or hold public agricultural lands in excess of the legitimate government were awesome in their immensity.
one thousand and twenty-four hectares, nor may any The Philippine treasury was bankrupt and her economy
individual acquire such lands by purchase in excess of one
prostrate. There were no dollar-earning export crops to
hundred and forty-four hectares, or by lease in excess of one
speak of; commercial operations were paralyzed; and her
thousand and twenty-four hectares, or by homestead in
industries were unable to produce with mills, factories and
excess of twenty-four hectares. Lands adapted to grazing
plants either destroyed or their machineries obsolete or
not exceeding two thousand hectares, may be leased to an dismantled. It was a desolate and tragic sight that greeted
individual, private corporation, or association.
the victorious American and Filipino troops. Manila,
particularly that portion south of the Pasig, lay in ruins, its
xxx xxx xxx public edifices and business buildings lying in a heap of
rubble and numberless houses razed to the ground. It was in
Section 5. Save in cases of hereditary succession, no private fact, next to Warsaw, the most devastated city in the expert
agricultural land shall be transferred or assigned except to opinion of the then General Eisenhower. There was thus a
individuals, corporations, or associations qualified to acquire clear need of help from the United States. American aid was
or hold lands of the public domain in the Philippines. forthcoming but on terms proposed by her government and
later on accepted by the Philippines.
Article XIV GENERAL PROVISIONS
The foregoing description is confirmed by the 1945 Report of the Committee
Section 8. No franchise, certificate, or any other form of on Territories and Insular Affairs to the United States Congress:
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to When the Philippines do become independent next July,
corporations or other entities organized under the laws of the they will start on the road to independence with a country
Philippines, sixty per centum of the capital of which is owned whose commerce, trade and political institutions have been
by citizens of the Philippines, nor shall such franchise, very, very seriously damaged. Years of rebuilding are
certificate, or authorization be exclusive in character or for a necessary before the former physical conditions of the
15
islands can be restored. Factories, homes, government and ARTICLE VII
commercial buildings, roads, bridges, docks, harbors and the
like are in need of complete reconstruction or widespread 1. The disposition, exploitation, development, and utilization
repairs. It will be quite some while before the Philippine can of all agricultural, timber, and mineral lands of the public
produce sufficient food with which to sustain themselves. domain, waters, mineral, coal, petroleum, and other mineral
oils, all forces and sources of potential energy, and other
The internal revenues of the country have been greatly natural resources of the Philippines, and the operation of
diminished by war. Much of the assessable property basis public utilities, shall, if open to any person, be open to
has been destroyed. Foreign trade has vanished. Internal citizens of the United States and to all forms of business
commerce is but a faction of what it used to be. Machinery, enterprise owned or controlled, directly or indirectly, by
farming implements, ships, bus and truck lines, inter-island United States citizens, except that (for the period prior to the
transportation and communications have been wrecked. amendment of the Constitution of the Philippines referred to
in Paragraph 2 of this Article) the Philippines shall not be
Shortly thereafter, in 1946, the United States 79th Congress enacted Public required to comply with such part of the foregoing provisions
Law 3721, known as the Philippine Trade Act, authorizing the President of of this sentence as are in conflict with such Constitution.
the United States to enter into an Executive Agreement with the President of
the Philippines, which should contain a provision that 2. The Government of the Philippines will promptly take such
steps as are necessary to secure the amendment of the
The disposition, exploitation, development, and utilization of constitution of the Philippines so as to permit the taking
all agricultural, timber, and mineral lands of the public effect as laws of the Philippines of such part of the
domain, waters, minerals, coal, petroleum, and other mineral provisions of Paragraph 1 of this Article as is in conflict with
oils,; all forces and sources of potential energy, and other such Constitution before such amendment.
natural resources of the Philippines, and the operation of
public utilities shall, if open to any person, be open to Thus authorized, the Executive Agreement was signed on 4 July 1946, and
citizens of the United States and to all forms of business shortly thereafter the President of the Philippines recommended to the
enterprise owned or controlled, directly or indirectly, by Philippine Congress the approval of a resolution proposing amendments to
United States citizens. the Philippine Constitution pursuant to the Executive Agreement. Approved
by the Congress in joint session, the proposed amendment was submitted to
and that: a plebiscite and was ratified in November of 1946. Generally known as the
Parity Amendment, it was in the form of an Ordinance appended to the
Philippine Constitution, reading as follows:
The President of the United States is not authorized ... to
enter into such executive agreement unless in the
agreement the Government of the Philippines ... will Notwithstanding the provision of section one, Article
promptly take such steps as are necessary to secure the Thirteen, and section eight, Article Fourteen, of the foregoing
amendment of the Constitution of the Philippines so as to Constitution, during the effectivity of the Executive
permit the taking effect as laws of the Philippines of such Agreement entered into by the President of the Philippines
part of the provisions of section 1331 ... as is in conflict with with the President of the United States on the fourth of July,
such Constitution before such amendment. nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-
The Philippine Congress, by Commonwealth Act No. 733, authorized the three, but in no case to extend beyond the third of July,
nineteen hundred and seventy-four, the disposition,
President of the Philippines to enter into the Executive Agreement. Said Act
provided, inter alia, the following: exploitation, development, and utilization of all agricultural,
timber, and mineral lands of the public domain, waters,

16
minerals, coals, petroleum, and other mineral oils, all forces No other provision of our Constitution was referred to by the "Parity
and sources of potential energy, and other natural resources Amendment"; nor Section 2 of Article XIII limiting the maximum area of public
of the Philippines, and the operation of public utilities, shall, if agricultural lands that could be held by individuals or corporations or
OPEN to any person, be open to citizens of the United associations; nor Section 5 restricting the transfer or assignment of private
States and to all forms of business enterprise owned or agricultural lands to those qualified to acquire or hold lands of the public
controlled, directly or indirectly, by citizens of the United domain (which under the original Section 1 of Article XIII meant Filipinos
States in the same manner as to and under the same exclusively), save in cases of hereditary succession. These sections 2 and 5
conditions imposed upon, citizens of the Philippines or were therefore left untouched and allowed to continue in operation as
corporations or associations owned or controlled by citizens originally intended by the Constitution's framers.
of the Philippines.
Respondent Quasha argues that since the amendment permitted United
A revision of the 1946 Executive Agreement was authorized by the States citizens or entities controlled by them to acquire agricultural lands of
Philippines by Republic Act 1355, enacted in July 1955. The revision was the public domain, then such citizens or entities became entitled to acquire
duly negotiated by representatives of the Philippines and the United States, private agricultural land in the Philippines, even without hereditary
and a new agreement was concluded on 6 September 1955 to take effect on succession, since said section 5 of Article XIII only negates the transfer or
1 January 1956, becoming known as the Laurel-Langley Agreement. assignment of private agricultural land to individuals or entities not qualified
to acquire or hold lands of the public domain. Clearly, this argument of
This latter agreement, however, has no direct application to the case at bar, respondent Quasha rests not upon the text of the Constitutional Amendment
since the purchase by herein respondent Quasha of the property in question but upon a mere inference therefrom. If it was ever intended to create also an
was made in 1954, more than one year prior to the effectivity of the Laurel- exception to section 5 of Article XIII, why was mention therein made only of
Langley Agreement.. Section 1 of Article XIII and Section 8 of Article XIV and of no other? When
the text of the Amendment was submitted for popular ratification, did the
voters understand that three sections of the Constitution were to be modified,
I
when only two sections were therein mentioned?
Bearing in mind the legal provisions previously quoted and their background,
A reading of Sections 1 and 4 of Article XIII, as originally drafted by its
We turn to the first main issue posed in this appeal: whether under or by
farmers, leaves no doubt that the policy of the Constitution was to reserve to
virtue of the so-called Parity Amendment to the Philippine Constitution
Filipinos the disposition, exploitation development or utilization of agricultural
respondent Quasha could validly acquire ownership of the private residential
land in Forbes Park, Makati, Rizal, which is concededly classified private lands, public (section 1) or private (section 5), as well as all other natural
agricultural land. resources of the Philippines. The "Parity Amendment" created exceptions to
that Constitutional Policy and in consequence to the sovereignty of the
Philippines. By all canons of construction, such exceptions must be given
Examination of the "Parity Amendment", as ratified, reveals that it only strict interpretation; and this Court has already so ruled in Commissioner of
establishes an express exception to two (2) provisions of our Constitution, to Internal Revenue vs. Guerrero, et al., L-20942, 22 September 1967, 21
wit: (a) Section 1, Article XIII, re disposition, exploitation, development and SCRA 181, per Justice Enrique M. Fernando:
utilization of agricultural, timber and mineral lands of the public domain and
other natural resources of the Philippines; and (b) Section 8, Article XIV,
While good faith, no less than adherence to the categorical
regarding operation of public utilities. As originally drafted by the framers of
the Constitution, the privilege to acquire and exploit agricultural lands of the wording of the Ordinance, requires that all the rights and
public domain, and other natural resources of the Philippines, and to operate privileges thus granted to Americans and business
public utilities, were reserved to Filipinos and entities owned or controlled by enterprises owned and controlled by them be respected,
them: but the "Parity Amendment" expressly extended the privilege to anything further would not be warranted. Nothing less would
suffice but anything more is not justified.
citizens of the United States of America and/or to business enterprises
owned or controlled by them.
17
The basis for the strict interpretation was given by former President of the forest lands cannot be bought, mineral lands cannot be
University of the Philippines, Hon. Vicente G. Sinco (Congressional Record, bought, because by explicit provision of the Constitution they
House of Representatives, Volume 1, No. 26, page 561): belong to the State, they belong to our Government, they
belong to our people. That is why we call them rightly the
It should be emphatically stated that the provisions of our patrimony of our race. Even if the Americans should so
Constitution which limit to Filipinos the rights to develop the desire, they can have no further privilege than to ask for a
natural resources and to operate the public utilities of the lease of concession of forest lands and mineral lands
Philippines is one of the bulwarks of our national integrity. because it is so commanded in the Constitution. And under
The Filipino people decided to include it in our Constitution in the Constitution, such a concession is given only for a limited
order that it may have the stability and permanency that its period. It can be extended only for 25 years, renewable for
importance requires. It is written in our Constitution so that it another 25. So that with respect to mineral or forest lands, all
may neither be the subject of barter nor be impaired in the they can do is to lease it for 25 years, and after the
give and take of politics. With our natural resources, our expiration of the original 25 years they will have to extend it,
sources of power and energy, our public lands, and our and I believe it can be extended provided that it does not
public utilities, the material basis of the nation's existence, in exceed 28 years because this agreement is to be effected
the hands of aliens over whom the Philippine Government only as an ordinance and for the express period of 28 years.
does not have complete control, the Filipinos may soon find So that it is my humble belief that there is nothing to worry
themselves deprived of their patrimony and living as it were, about insofar as our forest and mineral lands are concerned.
in a house that no longer belongs to them.
Now, coming to the operation of public utilities, as every
The true extent of the Parity Amendment, as understood by its proponents in member of the Congress knows, it is also for a limited
the Philippine Congress, was clearly expressed by one of its advocates, period, under our Constitution, for a period not exceeding 50
Senator Lorenzo Sumulong: years. And since this amendment is intended to endure only
for 28 years, it is my humble opinion that when Americans
It is a misconception to believe that under this amendment try to operate public utilities they cannot take advantage of
the maximum provided in the Constitution but only the 28
Americans will be able to acquire all kinds of natural
years which is expressly provided to be the life of this
resources of this country, and even after the expiration of 28
amendment.
years their acquired rights cannot be divested from them. If
we read carefully the language of this amendment which is
taken verbatim from the Provision of the Bell Act, and, which There remains for us to consider the case of our public
in turn, is taken also verbatim from certain sections of the agricultural lands. To be sure, they may be bought, and if we
Constitution, you will find out that the equality of rights pass this amendment, Americans may buy our public
granted under this amendment refers only to two subjects. agricultural lands, but the very same Constitution applying
Firstly, it refers to exploitation of natural resources, and even to Filipinos, provides that the sale of public agricultural
secondly, it refers to the operation of public utilities. Now, lands to a corporation can never exceed one thousand and
when it comes to exploitation of natural resources, it must be twenty-four hectares. That is to say, if an American
pointed out here that, under our Constitution and under this corporation, and American enterprise, should decide to
amendment, only public agricultural land may be acquired, invest its money in public agricultural lands, it will be limited
may be bought, so that on the supposition that we give way to the amount of 1,024 hectares, no more than 1,024
to this amendment and on the further supposition that it is hectares' (Emphasis supplied).
approved by our people, let not the mistaken belief be
entertained that all kinds of natural resources may be No views contrary to these were ever expressed in the Philippine Legislature
acquired by Americans because under our Constitution during the discussion of the Proposed Amendment to our Constitution, nor

18
was any reference made to acquisition of private agricultural lands by non- The import of paragraph (17) of the Ordinance was confirmed and reenforced
Filipinos except by hereditary succession. On the American side, it is by Section 127 of Commonwealth Act 141 (the Public Land Act of 1936) that
significant to observe that the draft of the Philippine Trade Act submitted to prescribes:
the House of Representatives by Congressman Bell, provided in the first
Portion of Section 19 the following: Sec. 127. During the existence and continuance of the
Commonwealth, and before the Republic of the Philippines
SEC. 19. Notwithstanding any existing provision of the is established, citizens and corporations of the United States
constitution and statutes of the Philippine Government, shall enjoy the same rights granted to citizens and
citizens and corporations of the United States shall enjoy in corporations of the Philippines under this Act.
the Philippine Islands during the period of the validity of this
Act, or any extension thereof by statute or treaty, the same thus clearly evidencing once more that equal rights of citizens and
rights as to property, residence, and occupation as citizens corporations of the United States to acquire agricultural lands of the
of the Philippine Islands ... Philippines vanished with the advent of the Philippine Republic. Which
explains the need of introducing the "Parity Amendment" of 1946.
But as finally approved by the United States Congress, the equality as to "
property residence and occupation" provided in the bill was eliminated and It is then indubitable that the right of United States citizens and corporations
Section 341 of the Trade Act limited such parity to the disposition, to acquire and exploit private or public lands and other natural resources of
exploitation, development, and utilization of lands of the public domain, and the Philippines was intended to expire when the Commonwealth ended on 4
other natural resources of the Philippines (V. ante, page 5 of this opinion). July 1946. Thereafter, public and private agricultural lands and natural
resources of the Philippines were or became exclusively reserved by our
Thus, whether from the Philippine or the American side, the intention was to Constitution for Filipino citizens. This situation lasted until the "Parity
secure parity for United States citizens, only in two matters: (1) exploitation, Amendment", ratified in November, 1946, once more reopened to United
development and utilization of public lands, and other natural resources of States citizens and business enterprises owned or controlled by them the
the Philippines; and (2) the operation of public utilities. That and nothing else. lands of the public domain, the natural resources of the Philippines, and the
operation of the public utilities, exclusively, but not the acquisition or
Respondent Quasha avers that as of 1935 when the Constitution was exploitation of private agricultural lands, about which not a word is found in
adopted, citizens of the United States were already qualified to acquire public the Parity Amendment..Respondent Quasha's pretenses can find no support
agricultural lands, so that the literal text of section 5 must be understood as in Article VI of the Trade Agreement of 1955, known popularly as the Laurel-
permitting transfer or assignment of private agricultural lands to Americans Langley Agreement, establishing a sort of reciprocity rights between citizens
even without hereditary succession. Such capacity of United States citizens of the Philippines and those of the United States, couched in the following
could exist only during the American sovereignty over the Islands. For the terms:
Constitution of the Philippines was designed to operate even beyond the
extinction of the United States sovereignty, when the Philippines would ARTICLE VI
become fully independent. That is apparent from the provision of the original
Ordinance appended to the Constitution as originally approved and ratified. 2. The rights provided for in Paragraph I may be exercised,
Section 17 of said Ordinance provided that: in the case of citizens of the Philippines with respect to
natural resources in the United States which are subject to
(17) Citizens and corporations of the United States shall Federal control or regulations, only through the medium of a
enjoy in the Commonwealth of the Philippines all the civil corporation organized under the laws of the United States or
rights of the citizens and corporations, respectively, thereof. one of the States hereof and likewise, in the case of citizens
(Emphasis supplied) of the United States with respect to natural resources in the
public domain in the Philippines only through the medium of
a corporation organized under the laws of the Philippines
19
and at least 60% of the capital stock of which is owned or has existed since the independent Republic was established in 1946. The
controlled by citizens of the United States. This provision, quoted expressions of the Laurel-Langley Agreement could not expand the
however, does not affect the right of citizens of the United rights of United States citizens as to public agricultural lands of the
States to acquire or own private agricultural lands in the Philippines to private lands, when the Parity Amendment and the Constitution
Philippines or citizens of the Philippines to acquire or own authorize such United States citizens and business entities only to acquire
land in the United States which is subject to the jurisdiction and exploit agricultural lands of the public domain. If the reopening of only
of the United States and not within the jurisdiction of any public lands to Americans required a Constitutional Amendment, how could a
state and which is not within the public domain. The mere Trade Agreement, like the Laurel-Langley, by itself enable United
Philippines reserves the right to dispose of the public lands States citizens to acquire and exploit private agricultural lands, a right that
in small quantities on especially favorable terms exclusively ceased to exist since the independence of the Philippines by express
to actual settlers or other users who are its own citizens. The prescription of our Constitution?
United States reserves the right to dispose of its public lands
in small quantities on especially favorable terms exclusively We turn to the second issue involved in this appeal: On the assumption that
to actual settlers or other users who are its own citizens or respondent Quasha's purchase of the private agricultural land involved is
aliens who have declared their intention to become citizens. valid and constitutional, will or will not his rights expire on 3 July 1974?
Each party reserves the right to limit the extent to which
aliens may engage in fishing, or engage in enterprises which
For the solution of this problem, We again turn to the "Parity Amendment".
furnish communications services and air or water transport.
Under it,
The United States also reserves the right to limit the extent
to which aliens may own land in its outlying territories and
possessions, but the Philippines will extend to American Notwithstanding the provision of section one, Article
nationals who are residents of any of those outlying Thirteen, and section eight, Article Fourteen, of the foregoing
territories and possessions only the same rights, with Constitution, during the effectivity of the Executive
respect to, ownership of lands, which are granted therein to Agreement entered into by the President of the Philippines
citizens of the Philippines. The rights provided for in this with the President of the United States on the fourth of July,
paragraph shall not, however, be exercised by either party nineteen hundred and forty-six, pursuant to the provisions of
so as to derogate from the rights previously acquired by Commonwealth Act Numbered Seven hundred and thirty-
citizens or corporations or associations owned or controlled three, but in no case to extend beyond the third of July,
by citizens of the other party. nineteen hundred and seventy-four, the disposition,
exploitation, development, and utilization of all agricultural,
timber, and mineral lands of the public domain, waters,
The words used in Article VI to the effect that minerals, coals, petroleum, and other mineral oils, all forces
and sources of potential energy, and other natural resources
... This provision does not affect the right of citizen of the of the Philippines, and the operation of public utilities, shall, if
United States to acquire or own private agricultural lands in open to any person, be open to citizens of the United states
the Philippines, or citizens of the Philippines to acquire or and to all forms of business enterprise owned or controlled,
own land in the United States which is subject to the directly or indirectly, by citizens of the United States in the
jurisdiction of the United States ... same manner as to, and under the same conditions imposed
upon, citizens of the Philippines or corporations or
must be understood as referring to rights of United States citizens to acquire associations owned or controlled by citizens of the
or own private agricultural lands before the independence of the Philippines Philippines. (Emphasis supplied)
since the obvious purpose of the article was to establish rights of United
States and Filipino citizens on a basis of reciprocity. For as already shown, It is easy to see that all exceptional rights conferred upon United States
no such right to acquire or own private agricultural lands in the Philippines citizens and business entities owned or controlled by them, under the

20
Amendment, are subject to one and the same resolutory term or period: they agricultural lands of the public domain are in no case to extend beyond the
are to last "during the effectivity of the Executive Agreement entered into on third of July 1974. This limitation already existed when Quasha in 1954
4 July 1946", "but in no case to extend beyond the, third of July, 1974". None purchased the Forbes Park property, and the acquisition was subject to it. If
of the privileges conferred by the "Parity Amendment" are excepted from this the Philippine government can not dispose of its alienable public agricultural
resolutory period. lands beyond that date under the "Parity Amendment", then, logically, the
Constitution, as modified by the Amendment, only authorizes either of two
This limitation of time is in conformity with Article X, Section 2, of the things: (a) alienation or transfer of rights less than ownership or (b) a
Philippine Trade Act of 1946, as embodied in Commonwealth Act No. 733. It resoluble ownership that will be extinguished not later than the specified
says: period. For the Philippine government to dispose of the public agricultural
land for an indefinite time would necessarily be in violation of the
Constitution. There is nothing in the Civil Law of this country that is
ARTICLE X
repugnant to the existence of ownership for a limited duration; thus the title of
a "reservista" (ascendant inheriting from a descendant) in reserva troncal,
2. This Agreement shall have no effect after 3 July 1974. It under Article 891 of the Civil Code of the Philippines, is one such owner,
may be terminated by either the United States or the holding title and dominion, although under condition subsequent; he can do
Philippines at any time, upon not less than five years' written anything that a genuine owner can do, until his death supervenes with
notice. It the President of the United States or the President "reservataries surviving", i.e., relatives within the third degree (Edroso vs.
of the Philippines determines and proclaims that the other Sablan, 25 Phil. 295; Lunsod vs. Ortega, 46 Phil. 661, 695). In truth,
Country has adopted or applied measures or practices which respondent himself invokes Article 428 of the Civil Code to the effect that
would operate to nullify or impair any right or obligation "the owner has the right to enjoy and dispose of a thing, without other
provided for in this Agreement, then the Agreement may be limitations than those established by law". One such limitation is the period
terminated upon not less than six months' written notice. fixed on the "Parity Amendment", which forms part of the Constitution, the
highest law of the land. How then can he complain of deprivation of due
Respondent Quasha argues that the limitative period set in the "Parity process?
Amendment" should be understood not to be applicable to the disposition, or
correlative acquisition, of alienable agricultural lands of the public domain, That the legislature has not yet determined what is to be done with the
since such lands can be acquired in full ownership, in which event, under property when the respondent's rights thereto terminate on 3 July 1974 is
Article 428 of the Civil Code of Philippines irrelevant to the issues in this case. The law, making power has until that
date full power to adopt the apposite measures, and it is expected to do so.
ART, 428. The owner has the right to enjoy and dispose of a
thing, without other limitations than those established by law. One last point: under the "Parity Amendment" the disposition, exploitation,
development and utilization of lands of the public domain, and other natural
The owner has also a right of action against the holder and resources of the Philippines, and the operation of public utilities are open
possessor of the thing in order to recover it.
to citizens of the United States and to all forms of business
and that since any period or condition which produces the effect of loss or enterprises owned or controlled, directly or indirectly, by
deprivation of valuable rights is in derogation of due process of law, there citizens of the United States
must be "a law which expressly and indubitably limits and extinguishes the
ownership of non-citizens over private agricultural lands situated in the while under the Philippine Constitution (section 1, Article XIII, and section 8,
Philippines validly acquired under the law existing at the time of acquisition." Article XIV) utilization of such lands, natural resources and public utilities are
open to citizens of the Philippines or to
Strangely enough, this argument ignores the provisions of the "Parity
Amendment" prescribing that the disposition and exploitation, etc. of

21
corporations or associations at least sixty per centum of the
capital of which is owned by such citizens ...

It is thus apparent that American business enterprises are more favored than
Philippine organization during the period of parity in that, first, they need not
be owned by American citizens up to 60% of their capital; all that is required
is that they be controlled by United States citizens, a control that is attained
by ownership of only 51% a of the capital stock; and second, that the control
by United States citizens may be direct or indirect (voting trusts, pyramiding,
etc.) which indirect control is not allowed in the case of Philippine nationals.

That Filipinos should be placed under the so-called Parity in a more


disadvantageous position than United States citizens in the disposition,
exploitation, development and utilization of the public lands, forests, mines,
oils and other natural resources of their own country is certainly rank injustice
and inequity that warrants a most strict interpretation of the "Parity
Amendment", in order that the dishonorable inferiority in which Filipinos find
themselves at present in the land of their ancestors should not be prolonged
more than is absolutely necessary.

FOR THE FOREGOING REASONS, the appealed decision of the Court of


First Instance of Rizal is hereby reversed and set aside; and judgment is
rendered declaring that, under the "Parity Amendment" to our Constitution,
citizens of the United States and corporations and business enterprises
owned or controlled by them can not acquire and own, save in cases of
hereditary succession, private agricultural lands in the Philippines and that all
other rights acquired by them under said amendment will expire on 3 July
1974.

Concepcion, C.J., Makalintal, Zaldivar, Castro, Fernando and Esguerra, JJ.,


concur.

Teehankee, Barredo, Makasiar and Antonio, JJ., took no part.

22
G.R. No. L-630 November 15, 1947 and the majority decision was being prepared. The motion for withdrawal
stated no reason whatsoever, and the Solicitor General was agreeable to it.
ALEXANDER A. KRIVENKO, petitioner-appellant, While the motion was pending in this Court, came the new circular of the
vs. Department of Justice, instructing all register of deeds to accept for
THE REGISTER OF DEEDS, CITY OF MANILA, respondent and appellee. registration all transfers of residential lots to aliens. The herein respondent-
appellee was naturally one of the registers of deeds to obey the new circular,
Gibbs, Gibbs, Chuidian and Quasha of petitioner-appellant. as against his own stand in this case which had been maintained by the trial
First Assistant Solicitor General Reyes and Solicitor Carreon for respondent- court and firmly defended in this Court by the Solicitor General. If we grant
appellee. the withdrawal, the the result would be that petitioner-appellant Alexander A.
Marcelino Lontok appeared as amicus curies. Krivenko wins his case, not by a decision of this Court, but by the decision or
circular of the Department of Justice, issued while this case was pending
before this Court. Whether or not this is the reason why appellant seeks the
MORAN, C.J.: withdrawal of his appeal and why the Solicitor General readily agrees to that
withdrawal, is now immaterial. What is material and indeed very important, is
Alenxander A. Kriventor alien, bought a residential lot from the Magdalena whether or not we should allow interference with the regular and complete
Estate, Inc., in December of 1941, the registration of which was interrupted exercise by this Court of its constitutional functions, and whether or not after
by the war. In May, 1945, he sought to accomplish said registration but was having held long deliberations and after having reached a clear and positive
denied by the register of deeds of Manila on the ground that, being an alien, conviction as to what the constitutional mandate is, we may still allow our
he cannot acquire land in this jurisdiction. Krivenko then brought the case to conviction to be silenced, and the constitutional mandate to be ignored or
the fourth branch of the Court of First Instance of Manila by means of a misconceived, with all the harmful consequences that might be brought upon
consulta, and that court rendered judgment sustaining the refusal of the the national patromony. For it is but natural that the new circular be taken full
register of deeds, from which Krivenko appealed to this Court. advantage of by many, with the circumstance that perhaps the constitutional
question may never come up again before this court, because both vendors
There is no dispute as to these facts. The real point in issue is whether or not and vendees will have no interest but to uphold the validity of their
an alien under our Constitution may acquire residential land. transactions, and very unlikely will the register of deeds venture to disobey
the orders of their superior. Thus, the possibility for this court to voice its
It is said that the decision of the case on the merits is unnecessary, there conviction in a future case may be remote, with the result that our
being a motion to withdraw the appeal which should have been granted indifference of today might signify a permanent offense to the Constitution.
outright, and reference is made to the ruling laid down by this Court in
another case to the effect that a court should not pass upon a constitutional All thse circumstances were thoroughly considered and weighted by this
question if its judgment may be made to rest upon other grounds. There is, Court for a number of days and the legal result of the last vote was a denial
we believe, a confusion of ideas in this reasoning. It cannot be denied that of the motion withdrawing the appeal. We are thus confronted, at this stage
the constitutional question is unavoidable if we choose to decide this case of the proceedings, with our duty, the constitutional question becomes
upon the merits. Our judgment cannot to be made to rest upon other grounds unavoidable. We shall then proceed to decide that question.
if we have to render any judgment at all. And we cannot avoid our judgment
simply because we have to avoid a constitutional question. We cannot, for Article XIII, section 1, of the Constitutional is as follows:
instance, grant the motion withdrawing the appeal only because we wish to
evade the constitutional; issue. Whether the motion should be, or should not Article XIII. Conservation and utilization of natural resources.
be, granted, is a question involving different considerations now to be stated.
SECTION 1. All agricultural, timber, and mineral lands of the public
According to Rule 52, section 4, of the Rules of Court, it is discretionary upon domain, water, minerals, coal, petroleum, and other mineral oils, all
this Court to grant a withdrawal of appeal after the briefs have been forces of potential energy, and other natural resources of the
presented. At the time the motion for withdrawal was filed in this case, not Philippines belong to the State, and their disposition, exploitation,
only had the briefs been prensented, but the case had already been voted
23
development, or utilization shall be limited to citizens of the Hence, any parcel of land or building lot is susceptible of cultivation,
Philippines, or to corporations or associations at least sixty per and may be converted into a field, and planted with all kinds of
centum of the capital of which is owned by such citizens, subject to vegetation; for this reason, where land is not mining or forestal in its
any existing right, grant, lease, or concession at the time of the nature, it must necessarily be included within the classification of
inaguration of the Government established uunder this Constitution. agricultural land, not because it is actually used for the purposes of
Natural resources, with the exception of public agricultural land, shall agriculture, but because it was originally agricultural and may again
not be alienated, and no licence, concession, or lease for the become so under other circumstances; besides, the Act of Congress
exploitation, development, or utilization of any of the natural contains only three classification, and makes no special provision
resources shall be granted for a period exceeding twenty-five years, with respect to building lots or urban lands that have ceased to be
renewable for another twenty-five years, except as to water rights for agricultural land.
irrigation, water supply, fisheries, or industrial uses other than the
development of water "power" in which cases beneficial use may be In other words, the Court ruled that in determining whether a parcel of land is
the measure and the limit of the grant. agricultural, the test is not only whether it is actually agricultural, but also its
susceptibility to cultivation for agricultural purposes. But whatever the test
The scope of this constitutional provision, according to its heading and its might be, the fact remains that at the time the Constitution was adopted,
language, embraces all lands of any kind of the public domain, its purpose lands of the public domain were classified in our laws and jurisprudence into
being to establish a permanent and fundamental policy for the conservation agricultural, mineral, and timber, and that the term "public agricultural lands"
and utilization of all natural resources of the Nation. When, therefore, this was construed as referring to those lands that were not timber or mineral,
provision, with reference to lands of the public domain, makes mention of and as including residential lands. It may safely be presumed, therefore, that
only agricultural, timber and mineral lands, it means that all lands of the what the members of the Constitutional Convention had in mind when they
public domain are classified into said three groups, namely, agricultural, drafted the Constitution was this well-known classification and its technical
timber and mineral. And this classification finds corroboration in the meaning then prevailing.
circumstance that at the time of the adoption of the Constitution, that was the
basic classification existing in the public laws and judicial decisions in the Certain expressions which appear in Constitutions, . . . are obviously
Philippines, and the term "public agricultural lands" under said classification technical; and where such words have been in use prior to the
had then acquired a technical meaning that was well-known to the members adoption of a Constitution, it is presumed that its framers and the
of the Constitutional Convention who were mostly members of the legal people who ratified it have used such expressions in accordance
profession. with their technical meaning. (11 Am. Jur., sec. 66, p. 683.) Also
Calder vs. Bull, 3 Dall. [U.S.], 386; 1 Law. ed., 648; Bronson vs.
As early as 1908, in the case of Mapa vs. Insular Government (10 Phil., 175, Syverson, 88 Wash., 264; 152 P., 1039.)
182), this Court said that the phrase "agricultural public lands" as defined in
the Act of Congress of July 1, 1902, which phrase is also to be found in It is a fundamental rule that, in construing constitutions, terms
several sections of the Public Land Act (No. 926), means "those public lands employed therein shall be given the meaning which had been put
acquired from Spain which are neither mineral for timber lands." This upon them, and which they possessed, at the time of the framing and
definition has been followed in long line of decisions of this Court. (See adoption of the instrument. If a word has acquired a fixed, technical
Montano vs. Insular Government, 12 Phil., 593; Ibaez de Aldecoa vs. meaning in legal and constitutional history, it will be presumed to
Insular Government, 13 Phil., 159; Ramos vs. Director of Lands, 39 Phil., have been employed in that sense in a written Constitution.
175; Jocson vs. Director of Forestry, 39 Phil., 560; Ankron vs. Government of (McKinney vs. Barker, 180 Ky., 526; 203 S.W., 303; L.R.A., 1918 E,
the Philippines, 40 Phil., 10.) And with respect to residential lands, it has 581.)
been held that since they are neither mineral nor timber lands, of necessity
they must be classified as agricultural. In Ibaez de Aldecoa vs. Insular
Where words have been long used in a technical sense and have
Government (13 Phil., 159, 163), this Court said: been judicially construed to have a certain meaning, and have been
adopted by the legislature as having a certain meaning prior to a

24
particular statute in which they are used, the rule of construction domain suitable for residence or industrial purposes could be sold or leased
requires that the words used in such statute should be construed to aliens, but after the Constitution and under section 60 of Commonwealth
according to the sense in which they have been so previously used, Act No. 141, such land may only be leased, but not sold, to aliens, and the
although the sense may vary from strict literal meaning of the words. lease granted shall only be valid while the land is used for the purposes
(II Sutherland, Statutory Construction, p. 758.) referred to. The exclusion of sale in the new Act is undoubtedly in pursuance
of the constitutional limitation, and this again is another legislative
Therefore, the phrase "public agricultural lands" appearing in section 1 of construction that the term "public agricultural land" includes land for
Article XIII of the Constitution must be construed as including residential residence purposes.
lands, and this is in conformity with a legislative interpretation given after the
adoption of the Constitution. Well known is the rule that "where the Such legislative interpretation is also in harmony with the interpretation given
Legislature has revised a statute after a Constitution has been adopted, such by the Executive Department of the Government. Way back in 1939,
a revision is to be regarded as a legislative construction that the statute so Secretary of Justice Jose Abad Santos, in answer to a query as to "whether
revised conforms to the Constitution." (59 C.J., 1102.) Soon after the or not the phrase 'public agricultural lands' in section 1 of Article XII (now
Constitution was adopted, the National Assembly revised the Public Land XIII) of the Constitution may be interpreted to include residential, commercial,
Law and passed Commonwealth Act No. 141, and sections 58, 59 and 60 and industrial lands for purposes of their disposition," rendered the following
thereof permit the sale of residential lots to Filipino citizens or to associations short, sharp and crystal-clear opinion:
or corporations controlled by such citizens, which is equivalent to a solemn
declaration that residential lots are considered as agricultural lands, for, Section 1, Article XII (now XIII) of the Constitution classifies lands of
under the Constitution, only agricultural lands may be alienated. the public domain in the Philippines into agricultural, timber and
mineral. This is the basic classification adopted since the enactment
It is true that in section 9 of said Commonwealth Act No. 141, "alienable or of the Act of Congress of July 1, 1902, known as the Philippine Bill.
disposable public lands" which are the same "public agriculture lands" under At the time of the adoption of the Constitution of the Philippines, the
the Constitution, are classified into agricultural, residential, commercial, term 'agricultural public lands' and, therefore, acquired a technical
industrial and for other puposes. This simply means that the term "public meaning in our public laws. The Supreme Court of the Philippines in
agricultural lands" has both a broad and a particular meaning. Under its the leading case of Mapa vs. Insular Government, 10 Phil., 175, held
broad or general meaning, as used in the Constitution, it embraces all lands that the phrase 'agricultural public lands' means those public lands
that are neither timber nor mineral. This broad meaning is particularized in acquired from Spain which are neither timber nor mineral lands. This
section 9 of Commonwealth Act No. 141 which classifies "public agricultural definition has been followed by our Supreme Court in many
lands" for purposes of alienation or disposition, into lands that are stricly subsequent case. . . .
agricultural or actually devoted to cultivation for agricultural puposes; lands
that are residential; commercial; industrial; or lands for other purposes. The Residential commercial, or industrial lots forming part of the public
fact that these lands are made alienable or disposable under Commonwealth domain must have to be included in one or more of these classes.
Act No. 141, in favor of Filipino citizens, is a conclusive indication of their Clearly, they are neither timber nor mineral, of necessity, therefore,
character as public agricultural lands under said statute and under the they must be classified as agricultural.
Constitution.
Viewed from another angle, it has been held that in determining
It must be observed, in this connection that prior to the Constitution, under whether lands are agricultural or not, the character of the land is the
section 24 of Public Land Act No. 2874, aliens could acquire public test (Odell vs. Durant, 62 N.W., 524; Lorch vs. Missoula Brick and
agricultural lands used for industrial or residential puposes, but after the Tile Co., 123 p.25). In other words, it is the susceptibility of the land
Constitution and under section 23 of Commonwealth Act No. 141, the right of to cultivation for agricultural purposes by ordinary farming methods
aliens to acquire such kind of lands is completely stricken out, undoubtedly in which determines whether it is agricultural or not (State vs. Stewart,
pursuance of the constitutional limitation. And, again, prior to the 190 p. 129).
Constitution, under section 57 of Public Land Act No. 2874, land of the public

25
Furthermore, as said by the Director of Lands, no reason is seen in the Philippines." And the subject matter of both sections is the same,
why a piece of land, which may be sold to a person if he is to devote namely, the non-transferability of "agricultural land" to aliens. Since
it to agricultural, cannot be sold to him if he intends to use it as a site "agricultural land" under section 1 includes residential lots, the same
for his home. technical meaning should be attached to "agricultural land under section 5. It
is a rule of statutory construction that "a word or phrase repeated in a statute
This opinion is important not alone because it comes from a Secratary of will bear the same meaning throughout the statute, unless a different
Justice who later became the Chief Justice of this Court, but also because it intention appears." (II Sutherland, Statutory Construction, p. 758.) The only
was rendered by a member of the cabinet of the late President Quezon who difference between "agricultural land" under section 5, is that the former is
actively participated in the drafting of the constitutional provision under public and the latter private. But such difference refers to ownership and not
consideration. (2 Aruego, Framing of the Philippine Constitution, p. 598.) And to the class of land. The lands are the same in both sections, and, for the
the opinion of the Quezon administration was reiterated by the Secretary of conservation of the national patrimony, what is important is the nature or
Justice under the Osmea administration, and it was firmly maintained in this class of the property regardless of whether it is owned by the State or by its
Court by the Solicitor General of both administrations. citizens.

It is thus clear that the three great departments of the Government judicial, Reference is made to an opinion rendered on September 19, 1941, by the
legislative and executive have always maintained that lands of the public Hon. Teofilo Sison, then Secretary of Justice, to the effect that residential
domain are classified into agricultural, mineral and timber, and that lands of the public domain may be considered as agricultural lands, whereas
agricultural lands include residential lots. residential lands of private ownership cannot be so considered. No reason
whatsoever is given in the opinion for such a distinction, and no valid reason
Under section 1 of Article XIII of the Constitution, "natural resources, with the can be adduced for such a discriminatory view, particularly having in mind
exception of public agricultural land, shall not be aliented," and with respect that the purpose of the constitutional provision is the conservation of the
national patrimony, and private residential lands are as much an integral part
to public agricultural lands, their alienation is limited to Filipino citizens. But
of the national patrimony as the residential lands of the public domain.
this constitutional purpose conserving agricultural resources in the hands of
Specially is this so where, as indicated above, the prohibition as to the
Filipino citizens may easily be defeated by the Filipino citizens themselves
who may alienate their agricultural lands in favor of aliens. It is partly to alienable of public residential lots would become superflous if the same
prohibition is not equally applied to private residential lots. Indeed, the
prevent this result that section 5 is included in Article XIII, and it reads as
prohibition as to private residential lands will eventually become more
follows:
important, for time will come when, in view of the constant disposition of
public lands in favor of private individuals, almost all, if not all, the residential
Sec. 5. Save in cases of hereditary succession, no private lands of the public domain shall have become private residential lands.
agricultural land will be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the
It is maintained that in the first draft of section 5, the words "no land of private
public domain in the Philippines.
ownership" were used and later changed into "no agricultural land of private
ownership," and lastly into "no private agricultural land" and from these
This constitutional provision closes the only remaining avenue through which changes it is argued that the word "agricultural" introduced in the second and
agricultural resources may leak into aliens' hands. It would certainly be futile final drafts was intended to limit the meaning of the word "land" to land
to prohibit the alienation of public agricultural lands to aliens if, after all, they actually used for agricultural purposes. The implication is not accurate. The
may be freely so alienated upon their becoming private agricultural lands in wording of the first draft was amended for no other purpose than to clarify
the hands of Filipino citizens. Undoubtedly, as above indicated, section 5 is concepts and avoid uncertainties. The words "no land" of the first draft,
intended to insure the policy of nationalization contained in section 1. Both unqualified by the word "agricultural," may be mistaken to include timber and
sections must, therefore, be read together for they have the same purpose mineral lands, and since under section 1, this kind of lands can never be
and the same subject matter. It must be noticed that the persons against private, the prohibition to transfer the same would be superfluous. Upon the
whom the prohibition is directed in section 5 are the very same persons who other hand, section 5 had to be drafted in harmony with section 1 to which it
under section 1 are disqualified "to acquire or hold lands of the public domain is supplementary, as above indicated. Inasmuch as under section 1, timber
26
and mineral lands can never be private, and the only lands that may become nationalization of the natural resources of the country. (2 Aruego, Framing of
private are agricultural lands, the words "no land of private ownership" of the the Philippine Constitution, p 592.) This is ratified by the members of the
first draft can have no other meaning than "private agricultural land." And Constitutional Convention who are now members of this Court, namely, Mr.
thus the change in the final draft is merely one of words in order to make its Justice Perfecto, Mr. Justice Briones, and Mr. Justice Hontiveros. And,
subject matter more specific with a view to avoiding the possible confusion of indeed, if under Article XIV, section 8, of the Constitution, an alien may not
ideas that could have arisen from the first draft. even operate a small jitney for hire, it is certainly not hard to understand that
neither is he allowed to own a pieace of land.
If the term "private agricultural lands" is to be construed as not including
residential lots or lands not strictly agricultural, the result would be that This constitutional intent is made more patent and is strongly implemented by
"aliens may freely acquire and possess not only residential lots and houses an act of the National Assembly passed soon after the Constitution was
for themselves but entire subdivisions, and whole towns and cities," and that approved. We are referring again to Commonwealth Act No. 141. Prior to the
"they may validly buy and hold in their names lands of any area for building Constitution, there were in the Public Land Act No. 2874 sections 120 and
homes, factories, industrial plants, fisheries, hatcheries, schools, health and 121 which granted aliens the right to acquire private only by way of
vacation resorts, markets, golf courses, playgrounds, airfields, and a host of reciprocity. Said section reads as follows:
other uses and purposes that are not, in appellant's words, strictly
agricultural." (Solicitor General's Brief, p. 6.) That this is obnoxious to the SEC. 120. No land originally acquired in any manner under the
conservative spirit of the Constitution is beyond question. provisions of this Act, nor any permanent improvement on such land,
shall be encumbered, alienated, or transferred, except to persons,
One of the fundamental principles underlying the provision of Article XIII of corporations, associations, or partnerships who may acquire lands of
the Constitution and which was embodied in the report of the Committee on the public domain under this Act; to corporations organized in the
Nationalization and Preservation of Lands and other Natural Resources of Philippine Islands authorized therefor by their charters, and, upon
the Constitutional Convention, is "that lands, minerals, forests, and other express authorization by the Philippine Legislature, to citizens of
natural resources constitute the exclusive heritage of the Filipino nation. countries the laws of which grant to citizens of the Philippine Islands
They should, therefore, be preserved for those under the sovereign authority the same right to acquire, hold, lease, encumber, dispose of, or
of that nation and for their posterity." (2 Aruego, Framing of the Filipino alienate land, or permanent improvements thereon, or any interest
Constitution, p. 595.) Delegate Ledesma, Chairman of the Committee on therein, as to their own citizens, only in the manner and to the extent
Agricultural Development of the Constitutional Convention, in a speech specified in such laws, and while the same are in force but not
delivered in connection with the national policy on agricultural lands, said: thereafter.
"The exclusion of aliens from the privilege of acquiring public agricultural
lands and of owning real estate is a necessary part of the Public Land Laws SEC. 121. No land originally acquired in any manner under the
of the Philippines to keep pace with the idea of preserving the Philippines for provisions of the former Public Land Act or of any other Act,
the Filipinos." (Emphasis ours.) And, of the same tenor was the speech of ordinance, royal order, royal decree, or any other provision of law
Delegate Montilla who said: "With the complete nationalization of our lands formerly in force in the Philippine Islands with regard to public lands,
and natural resources it is to be understood that our God-given birthright terrenos baldios y realengos, or lands of any other denomination that
should be one hundred per cent in Filipino hands . . .. Lands and natural were actually or presumptively of the public domain or by royal grant
resources are immovables and as such can be compared to the vital organs or in any other form, nor any permanent improvement on such land,
of a person's body, the lack of possession of which may cause instant death shall be encumbered, alienated, or conveyed, except to persons,
or the shortening of life. If we do not completely antionalize these two of our corporations, or associations who may acquire land of the public
most important belongings, I am afraid that the time will come when we shall domain under this Act; to corporate bodies organized in the
be sorry for the time we were born. Our independence will be just a mockery, Philippine Islands whose charters may authorize them to do so, and,
for what kind of independence are we going to have if a part of our country is upon express authorization by the Philippine Legislature, to citizens
not in our hands but in those of foreigners?" (Emphasis ours.) Professor of the countries the laws of which grant to citizens of the Philippine
Aruego says that since the opening days of the Constitutional Convention Islands the same right to acquire, hold, lease, encumber, dispose of,
one of its fixed and dominating objectives was the conservation and
27
or alienate land or pemanent improvements thereon or any interest improvement on such land, shall be encumbered, alienated, or
therein, as to their own citizens, and only in the manner and to the conveyed, except to persons, corporations or associations who may
extent specified in such laws, and while the same are in force, but acquire land of the public domain under this Act or to corporate
not thereafter: Provided, however, That this prohibition shall not be bodies organized in the Philippines whose charters authorize them to
applicable to the conveyance or acquisition by reason of hereditary do so: Provided, however, That this prohibition shall not be
succession duly acknowledged and legalized by competent courts, applicable to the conveyance or acquisition by reason of hereditary
nor to lands and improvements acquired or held for industrial or succession duly acknowledged and legalized by competent courts:
residence purposes, while used for such purposes: Provided, further, Provided, further, That in the event of the ownership of the lands and
That in the event of the ownership of the lands and improvements improvements mentioned in this section and in the last preceding
mentioned in this section and in the last preceding section being section being transferred by judicial decree to persons, corporations
transferred by judicial decree to persons,corporations or associations or associations not legally capacitated to acquire the same under the
not legally capacitated to acquire the same under the provisions of provisions of this Act, such persons, corporations, or associations
this Act, such persons, corporations, or associations shall be obliged shall be obliged to alienate said lands or improvements to others so
to alienate said lands or improvements to others so capacitated capacitated within the precise period of five years; otherwise, such
within the precise period of five years, under the penalty of such property shall revert to the Government.
property reverting to the Government in the contrary case." (Public
Land Act, No. 2874.) These two sections are almost literally the same as sections 120 and 121 of
Act No. 2874, the only difference being that in the new provisions, the right to
It is to be observed that the pharase "no land" used in these section refers to reciprocity granted to aliens is completely stricken out. This, undoubtedly, is
all private lands, whether strictly agricultural, residential or otherwise, there to conform to the absolute policy contained in section 5 of Article XIII of the
being practically no private land which had not been acquired by any of the Constitution which, in prohibiting the alienation of private agricultural lands to
means provided in said two sections. Therefore, the prohibition contained in aliens, grants them no right of reciprocity. This legislative construction carries
these two provisions was, in effect, that no private land could be transferred exceptional weight, for prominent members of the National Assembly who
to aliens except "upon express authorization by the Philippine Legislature, to approved the new Act had been members of the Constitutional Convention.
citizens of Philippine Islands the same right to acquire, hold, lease,
encumber, dispose of, or alienate land." In other words, aliens were granted It is said that the lot question does not come within the purview of sections
the right to acquire private land merely by way of reciprocity. Then came the 122 and 123 of Commonwealth Act No. 141, there being no proof that the
Constitution and Commonwealth Act No. 141 was passed, sections 122 and same had been acquired by one of the means provided in said provisions.
123 of which read as follows: We are not, however, diciding the instant case under the provisions of the
Public Land Act, which have to refer to land that had been formerly of the
SEC. 122. No land originally acquired in any manner under the public domain, otherwise their constitutionality may be doubtful. We are
provisions of this Act, nor any permanent improvement on such land, deciding the instant case under section 5 of Article XIII of the Constitution
shall be encumbered, alienated, or transferred, except to persons, which is more comprehensive and more absolute in the sense that it prohibits
corporations, associations, or partnerships who may acquire lands of the transfer to alien of any private agricultural land including residential land
the public domain under this Act or to corporations organized in the whatever its origin might have been.
Philippines authorized thereof by their charters.
And, finally, on June 14, 1947, the Congress approved Republic Act No. 133
SEC. 123. No land originally acquired in any manner under the which allows mortgage of "private real property" of any kind in favor of aliens
provisions of any previous Act, ordinance, royal order, royal decree, but with a qualification consisting of expressly prohibiting aliens to bid or take
or any other provision of law formerly in force in the Philippines with part in any sale of such real property as a consequence of the mortgage.
regard to public lands terrenos baldios y realengos, or lands of any This prohibition makes no distinction between private lands that are strictly
other denomination that were actually or presumptively of the public agricultural and private lands that are residental or commercial. The
domain, or by royal grant or in any other form, nor any permanent prohibition embraces the sale of private lands of any kind in favor of aliens,

28
which is again a clear implementation and a legislative interpretation of the
constitutional prohibition. Had the Congress been of opinion that private
residential lands may be sold to aliens under the Constitution, no legislative
measure would have been found necessary to authorize mortgage which
would have been deemed also permissible under the Constitution. But clearly
it was the opinion of the Congress that such sale is forbidden by the
Constitution and it was such opinion that prompted the legislative measure
intended to clarify that mortgage is not within the constitutional prohibition.

It is well to note at this juncture that in the present case we have no choice.
We are construing the Constitution as it is and not as we may desire it to be.
Perhaps the effect of our construction is to preclude aliens, admitted freely
into the Philippines from owning sites where they may build their homes. But
if this is the solemn mandate of the Constitution, we will not attempt to
compromise it even in the name of amity or equity. We are satisfied,
however, that aliens are not completely excluded by the Constitution from the
use of lands for residential purposes. Since their residence in the Philippines
is temporary, they may be granted temporary rights such as a lease contract
which is not forbidden by the Constitution. Should they desire to remain here
forever and share our fortunes and misfortunes, Filipino citizenship is not
impossible to acquire.

For all the foregoing, we hold that under the Constitution aliens may not
acquire private or public agricultural lands, including residential lands, and,
accordingly, judgment is affirmed, without costs.

Feria, Pablo, Perfecto, Hilado, and Briones, JJ., concur.

29
G.R. No. 92013 July 25, 1990 The Court could not act on these cases immediately because the
respondents filed a motion for an extension of thirty (30) days to file comment
SALVADOR H. LAUREL, petitioner, in G.R. No. 92047, followed by a second motion for an extension of another
vs. thirty (30) days which we granted on May 8, 1990, a third motion for
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL extension of time granted on May 24, 1990 and a fourth motion for extension
MANGLAPUS, as Secretary of Foreign Affairs, and CATALINO of time which we granted on June 5, 1990 but calling the attention of the
MACARAIG, as Executive Secretary, respondents. respondents to the length of time the petitions have been pending. After the
comment was filed, the petitioner in G.R. No. 92047 asked for thirty (30) days
G.R. No. 92047 July 25, 1990 to file a reply. We noted his motion and resolved to decide the two (2) cases.

DIONISIO S. OJEDA, petitioner, I


vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION The subject property in this case is one of the four (4) properties in Japan
TRUST CHAIRMAN RAMON T. GARCIA, AMBASSADOR RAMON DEL acquired by the Philippine government under the Reparations Agreement
ROSARIO, et al., as members of the PRINCIPAL AND BIDDING entered into with Japan on May 9, 1956, the other lots being:
COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION OF
PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN, respondents. (1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo
which has an area of approximately 2,489.96 square meters, and is at
Arturo M. Tolentino for petitioner in 92013. present the site of the Philippine Embassy Chancery;

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of


around 764.72 square meters and categorized as a commercial lot now
GUTIERREZ, JR., J.: being used as a warehouse and parking lot for the consulate staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara,


These are two petitions for prohibition seeking to enjoin respondents, their
Nada-ku, Kobe, a residential lot which is now vacant.
representatives and agents from proceeding with the bidding for the sale of
the 3,179 square meters of land at 306 Roppongi, 5-Chome Minato-ku
Tokyo, Japan scheduled on February 21, 1990. We granted the prayer for a The properties and the capital goods and services procured from the
temporary restraining order effective February 20, 1990. One of the Japanese government for national development projects are part of the
petitioners (in G.R. No. 92047) likewise prayes for a writ of mandamus to indemnification to the Filipino people for their losses in life and property and
compel the respondents to fully disclose to the public the basis of their their suffering during World War II.
decision to push through with the sale of the Roppongi property inspire of
strong public opposition and to explain the proceedings which effectively The Reparations Agreement provides that reparations valued at $550 million
prevent the participation of Filipino citizens and entities in the bidding would be payable in twenty (20) years in accordance with annual schedules
process. of procurements to be fixed by the Philippine and Japanese governments
(Article 2, Reparations Agreement). Rep. Act No. 1789, the Reparations Law,
The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by prescribes the national policy on procurement and utilization of reparations
the Court on March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary and development loans. The procurements are divided into those for use by
Macaraig, et al. was filed, the respondents were required to file a comment the government sector and those for private parties in projects as the then
by the Court's resolution dated February 22, 1990. The two petitions were National Economic Council shall determine. Those intended for the private
consolidated on March 27, 1990 when the memoranda of the parties in the sector shall be made available by sale to Filipino citizens or to one hundred
Laurel case were deliberated upon. (100%) percent Filipino-owned entities in national development projects.

30
The Roppongi property was acquired from the Japanese government under were changed such that the $225 million floor price became merely a
the Second Year Schedule and listed under the heading "Government suggested floor price.
Sector", through Reparations Contract No. 300 dated June 27, 1958. The
Roppongi property consists of the land and building "for the Chancery of the The Court finds that each of the herein petitions raises distinct issues. The
Philippine Embassy" (Annex M-D to Memorandum for Petitioner, p. 503). As petitioner in G.R. No. 92013 objects to the alienation of the Roppongi
intended, it became the site of the Philippine Embassy until the latter was property to anyone while the petitioner in G.R. No. 92047 adds as a principal
transferred to Nampeidai on July 22, 1976 when the Roppongi building objection the alleged unjustified bias of the Philippine government in favor of
needed major repairs. Due to the failure of our government to provide selling the property to non-Filipino citizens and entities. These petitions have
necessary funds, the Roppongi property has remained undeveloped since been consolidated and are resolved at the same time for the objective is the
that time. same - to stop the sale of the Roppongi property.

A proposal was presented to President Corazon C. Aquino by former The petitioner in G.R. No. 92013 raises the following issues:
Philippine Ambassador to Japan, Carlos J. Valdez, to make the property the
subject of a lease agreement with a Japanese firm - Kajima Corporation (1) Can the Roppongi property and others of its kind be alienated by the
which shall construct two (2) buildings in Roppongi and one (1) building in
Philippine Government?; and
Nampeidai and renovate the present Philippine Chancery in Nampeidai. The
consideration of the construction would be the lease to the foreign
corporation of one (1) of the buildings to be constructed in Roppongi and the (2) Does the Chief Executive, her officers and agents, have the authority and
two (2) buildings in Nampeidai. The other building in Roppongi shall then be jurisdiction, to sell the Roppongi property?
used as the Philippine Embassy Chancery. At the end of the lease period, all
the three leased buildings shall be occupied and used by the Philippine Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the
government. No change of ownership or title shall occur. (See Annex "B" to authority of the government to alienate the Roppongi property assails the
Reply to Comment) The Philippine government retains the title all throughout constitutionality of Executive Order No. 296 in making the property available
the lease period and thereafter. However, the government has not acted for sale to non-Filipino citizens and entities. He also questions the bidding
favorably on this proposal which is pending approval and ratification between procedures of the Committee on the Utilization or Disposition of Philippine
the parties. Instead, on August 11, 1986, President Aquino created a Government Properties in Japan for being discriminatory against Filipino
committee to study the disposition/utilization of Philippine government citizens and Filipino-owned entities by denying them the right to be informed
properties in Tokyo and Kobe, Japan through Administrative Order No. 3, about the bidding requirements.
followed by Administrative Orders Numbered 3-A, B, C and D.
II
On July 25, 1987, the President issued Executive Order No. 296 entitling
non-Filipino citizens or entities to avail of separations' capital goods and In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and
services in the event of sale, lease or disposition. The four properties in the related lots were acquired as part of the reparations from the Japanese
Japan including the Roppongi were specifically mentioned in the first government for diplomatic and consular use by the Philippine government.
"Whereas" clause. Vice-President Laurel states that the Roppongi property is classified as one
of public dominion, and not of private ownership under Article 420 of the Civil
Amidst opposition by various sectors, the Executive branch of the Code (See infra).
government has been pushing, with great vigor, its decision to sell the
reparations properties starting with the Roppongi lot. The property has twice The petitioner submits that the Roppongi property comes under "property
been set for bidding at a minimum floor price of $225 million. The first bidding intended for public service" in paragraph 2 of the above provision. He states
was a failure since only one bidder qualified. The second one, after that being one of public dominion, no ownership by any one can attach to it,
postponements, has not yet materialized. The last scheduled bidding on not even by the State. The Roppongi and related properties were acquired
February 21, 1990 was restrained by his Court. Later, the rules on bidding for "sites for chancery, diplomatic, and consular quarters, buildings and other

31
improvements" (Second Year Reparations Schedule). The petitioner states In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the
that they continue to be intended for a necessary service. They are held by constitutionality of Executive Order No. 296. He had earlier filed a petition in
the State in anticipation of an opportune use. (Citing 3 Manresa 65-66). G.R. No. 87478 which the Court dismissed on August 1, 1989. He now avers
Hence, it cannot be appropriated, is outside the commerce of man, or to put that the executive order contravenes the constitutional mandate to conserve
it in more simple terms, it cannot be alienated nor be the subject matter of and develop the national patrimony stated in the Preamble of the 1987
contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]). Noting Constitution. It also allegedly violates:
the non-use of the Roppongi property at the moment, the petitioner avers
that the same remains property of public dominion so long as the (1) The reservation of the ownership and acquisition of alienable lands of the
government has not used it for other purposes nor adopted any measure public domain to Filipino citizens. (Sections 2 and 3, Article XII, Constitution;
constituting a removal of its original purpose or use. Sections 22 and 23 of Commonwealth Act 141).itc-asl

The respondents, for their part, refute the petitioner's contention by saying (2) The preference for Filipino citizens in the grant of rights, privileges and
that the subject property is not governed by our Civil Code but by the laws of concessions covering the national economy and patrimony (Section 10,
Japan where the property is located. They rely upon the rule of lex situs Article VI, Constitution);
which is used in determining the applicable law regarding the acquisition,
transfer and devolution of the title to a property. They also invoke Opinion
(3) The protection given to Filipino enterprises against unfair competition and
No. 21, Series of 1988, dated January 27, 1988 of the Secretary of Justice
trade practices;
which used the lex situs in explaining the inapplicability of Philippine law
regarding a property situated in Japan.
(4) The guarantee of the right of the people to information on all matters of
public concern (Section 7, Article III, Constitution);
The respondents add that even assuming for the sake of argument that the
Civil Code is applicable, the Roppongi property has ceased to become
property of public dominion. It has become patrimonial property because it (5) The prohibition against the sale to non-Filipino citizens or entities not
has not been used for public service or for diplomatic purposes for over wholly owned by Filipino citizens of capital goods received by the Philippines
thirteen (13) years now (Citing Article 422, Civil Code) and because the under the Reparations Act (Sections 2 and 12 of Rep. Act No. 1789); and
intention by the Executive Department and the Congress to convert it to
private use has been manifested by overt acts, such as, among others: (1) (6) The declaration of the state policy of full public disclosure of all
the transfer of the Philippine Embassy to Nampeidai (2) the issuance of transactions involving public interest (Section 28, Article III, Constitution).
administrative orders for the possibility of alienating the four government
properties in Japan; (3) the issuance of Executive Order No. 296; (4) the Petitioner Ojeda warns that the use of public funds in the execution of an
enactment by the Congress of Rep. Act No. 6657 [the Comprehensive unconstitutional executive order is a misapplication of public funds He states
Agrarian Reform Law] on June 10, 1988 which contains a provision stating that since the details of the bidding for the Roppongi property were never
that funds may be taken from the sale of Philippine properties in foreign publicly disclosed until February 15, 1990 (or a few days before the
countries; (5) the holding of the public bidding of the Roppongi property but scheduled bidding), the bidding guidelines are available only in Tokyo, and
which failed; (6) the deferment by the Senate in Resolution No. 55 of the the accomplishment of requirements and the selection of qualified bidders
bidding to a future date; thus an acknowledgment by the Senate of the should be done in Tokyo, interested Filipino citizens or entities owned by
government's intention to remove the Roppongi property from the public them did not have the chance to comply with Purchase Offer Requirements
service purpose; and (7) the resolution of this Court dismissing the petition in on the Roppongi. Worse, the Roppongi shall be sold for a minimum price of
Ojeda v. Bidding Committee, et al., G.R. No. 87478 which sought to enjoin $225 million from which price capital gains tax under Japanese law of about
the second bidding of the Roppongi property scheduled on March 30, 1989. 50 to 70% of the floor price would still be deducted.

III IV

32
The petitioners and respondents in both cases do not dispute the fact that ART. 421. All other property of the State, which is not of the
the Roppongi site and the three related properties were through reparations character stated in the preceding article, is patrimonial
agreements, that these were assigned to the government sector and that the property.
Roppongi property itself was specifically designated under the Reparations
Agreement to house the Philippine Embassy. The Roppongi property is correctly classified under paragraph 2 of Article
420 of the Civil Code as property belonging to the State and intended for
The nature of the Roppongi lot as property for public service is expressly some public service.
spelled out. It is dictated by the terms of the Reparations Agreement and the
corresponding contract of procurement which bind both the Philippine Has the intention of the government regarding the use of the property been
government and the Japanese government. changed because the lot has been Idle for some years? Has it become
patrimonial?
There can be no doubt that it is of public dominion unless it is convincingly
shown that the property has become patrimonial. This, the respondents have The fact that the Roppongi site has not been used for a long time for actual
failed to do. Embassy service does not automatically convert it to patrimonial property.
Any such conversion happens only if the property is withdrawn from public
As property of public dominion, the Roppongi lot is outside the commerce of use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]). A
man. It cannot be alienated. Its ownership is a special collective ownership property continues to be part of the public domain, not available for private
for general use and enjoyment, an application to the satisfaction of collective appropriation or ownership until there is a formal declaration on the part of
needs, and resides in the social group. The purpose is not to serve the State the government to withdraw it from being such (Ignacio v. Director of Lands,
as a juridical person, but the citizens; it is intended for the common and 108 Phil. 335 [1960]).
public welfare and cannot be the object of appropration. (Taken from 3
Manresa, 66-69; cited in Tolentino, Commentaries on the Civil Code of the The respondents enumerate various pronouncements by concerned public
Philippines, 1963 Edition, Vol. II, p. 26). officials insinuating a change of intention. We emphasize, however, that an
abandonment of the intention to use the Roppongi property for public service
The applicable provisions of the Civil Code are: and to make it patrimonial property under Article 422 of the Civil Code must
be definite Abandonment cannot be inferred from the non-use alone specially
ART. 419. Property is either of public dominion or of private if the non-use was attributable not to the government's own deliberate and
ownership. indubitable will but to a lack of financial support to repair and improve the
property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368 [1988]).
Abandonment must be a certain and positive act based on correct legal
ART. 420. The following things are property of public
premises.
dominion

(1) Those intended for public use, such as roads, canals, A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not
relinquishment of the Roppongi property's original purpose. Even the failure
rivers, torrents, ports and bridges constructed by the State,
by the government to repair the building in Roppongi is not abandonment
banks shores roadsteads, and others of similar character;
since as earlier stated, there simply was a shortage of government funds.
The recent Administrative Orders authorizing a study of the status and
(2) Those which belong to the State, without being for public conditions of government properties in Japan were merely directives for
use, and are intended for some public service or for the investigation but did not in any way signify a clear intention to dispose of the
development of the national wealth. properties.

Executive Order No. 296, though its title declares an "authority to sell", does
not have a provision in its text expressly authorizing the sale of the four
33
properties procured from Japan for the government sector. The executive or Japanese law should apply without stating what that law provides. It is a
order does not declare that the properties lost their public character. It merely ed on faith that Japanese law would allow the sale.
intends to make the properties available to foreigners and not to Filipinos
alone in case of a sale, lease or other disposition. It merely eliminates the We see no reason why a conflict of law rule should apply when no conflict of
restriction under Rep. Act No. 1789 that reparations goods may be sold only law situation exists. A conflict of law situation arises only when: (1) There is a
to Filipino citizens and one hundred (100%) percent Filipino-owned entities. dispute over the title or ownership of an immovable, such that the capacity to
The text of Executive Order No. 296 provides: take and transfer immovables, the formalities of conveyance, the essential
validity and effect of the transfer, or the interpretation and effect of a
Section 1. The provisions of Republic Act No. 1789, as conveyance, are to be determined (See Salonga, Private International Law,
amended, and of other laws to the contrary notwithstanding, 1981 ed., pp. 377-383); and (2) A foreign law on land ownership and its
the above-mentioned properties can be made available for conveyance is asserted to conflict with a domestic law on the same matters.
sale, lease or any other manner of disposition to non-Filipino Hence, the need to determine which law should apply.
citizens or to entities owned by non-Filipino citizens.
In the instant case, none of the above elements exists.
Executive Order No. 296 is based on the wrong premise or assumption that
the Roppongi and the three other properties were earlier converted into The issues are not concerned with validity of ownership or title. There is no
alienable real properties. As earlier stated, Rep. Act No. 1789 differentiates question that the property belongs to the Philippines. The issue is the
the procurements for the government sector and the private sector (Sections authority of the respondent officials to validly dispose of property belonging to
2 and 12, Rep. Act No. 1789). Only the private sector properties can be sold the State. And the validity of the procedures adopted to effect its sale. This is
to end-users who must be Filipinos or entities owned by Filipinos. It is this governed by Philippine Law. The rule of lex situs does not apply.
nationality provision which was amended by Executive Order No. 296.
The assertion that the opinion of the Secretary of Justice sheds light on the
Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one relevance of the lex situs rule is misplaced. The opinion does not tackle the
of the sources of funds for its implementation, the proceeds of the disposition alienability of the real properties procured through reparations nor the
of the properties of the Government in foreign countries, did not withdraw the existence in what body of the authority to sell them. In discussing who are
Roppongi property from being classified as one of public dominion when it capable of acquiring the lots, the Secretary merely explains that it is the
mentions Philippine properties abroad. Section 63 (c) refers to properties foreign law which should determine who can acquire the properties so that
which are alienable and not to those reserved for public use or service. Rep the constitutional limitation on acquisition of lands of the public domain to
Act No. 6657, therefore, does not authorize the Executive Department to sell Filipino citizens and entities wholly owned by Filipinos is inapplicable. We
the Roppongi property. It merely enumerates possible sources of future see no point in belaboring whether or not this opinion is correct. Why should
funding to augment (as and when needed) the Agrarian Reform Fund we discuss who can acquire the Roppongi lot when there is no showing that
created under Executive Order No. 299. Obviously any property outside of it can be sold?
the commerce of man cannot be tapped as a source of funds.
The subsequent approval on October 4, 1988 by President Aquino of the
The respondents try to get around the public dominion character of the recommendation by the investigating committee to sell the Roppongi
Roppongi property by insisting that Japanese law and not our Civil Code property was premature or, at the very least, conditioned on a valid change in
should apply. the public character of the Roppongi property. Moreover, the approval does
not have the force and effect of law since the President already lost her
It is exceedingly strange why our top government officials, of all people, legislative powers. The Congress had already convened for more than a
should be the ones to insist that in the sale of extremely valuable government year.
property, Japanese law and not Philippine law should prevail. The Japanese
law - its coverage and effects, when enacted, and exceptions to its provision
is not presented to the Court It is simply asserted that the lex loci rei sitae
34
Assuming for the sake of argument, however, that the Roppongi property is It is not for the President to convey valuable real property of the government
no longer of public dominion, there is another obstacle to its sale by the on his or her own sole will. Any such conveyance must be authorized and
respondents. approved by a law enacted by the Congress. It requires executive and
legislative concurrence.
There is no law authorizing its conveyance.
Resolution No. 55 of the Senate dated June 8, 1989, asking for the
Section 79 (f) of the Revised Administrative Code of 1917 provides deferment of the sale of the Roppongi property does not withdraw the
property from public domain much less authorize its sale. It is a mere
Section 79 (f ) Conveyances and contracts to which the resolution; it is not a formal declaration abandoning the public character of
Government is a party. In cases in which the Government the Roppongi property. In fact, the Senate Committee on Foreign Relations is
conducting hearings on Senate Resolution No. 734 which raises serious
of the Republic of the Philippines is a party to any deed or
policy considerations and calls for a fact-finding investigation of the
other instrument conveying the title to real estate or to any
other property the value of which is in excess of one hundred circumstances behind the decision to sell the Philippine government
thousand pesos, the respective Department Secretary shall properties in Japan.
prepare the necessary papers which, together with the
proper recommendations, shall be submitted to the The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did
Congress of the Philippines for approval by the same. Such not pass upon the constitutionality of Executive Order No. 296. Contrary to
deed, instrument, or contract shall be executed and signed respondents' assertion, we did not uphold the authority of the President to
by the President of the Philippines on behalf of the sell the Roppongi property. The Court stated that the constitutionality of the
Government of the Philippines unless the Government of the executive order was not the real issue and that resolving the constitutional
Philippines unless the authority therefor be expressly vested question was "neither necessary nor finally determinative of the case." The
by law in another officer. (Emphasis supplied) Court noted that "[W]hat petitioner ultimately questions is the use of the
proceeds of the disposition of the Roppongi property." In emphasizing that
The requirement has been retained in Section 48, Book I of the "the decision of the Executive to dispose of the Roppongi property to finance
the CARP ... cannot be questioned" in view of Section 63 (c) of Rep. Act No.
Administrative Code of 1987 (Executive Order No. 292).
6657, the Court did not acknowledge the fact that the property became
alienable nor did it indicate that the President was authorized to dispose of
SEC. 48. Official Authorized to Convey Real Property. the Roppongi property. The resolution should be read to mean that in case
Whenever real property of the Government is authorized by the Roppongi property is re-classified to be patrimonial and alienable by
law to be conveyed, the deed of conveyance shall be authority of law, the proceeds of a sale may be used for national economic
executed in behalf of the government by the following: development projects including the CARP.

(1) For property belonging to and titled in the name of the Moreover, the sale in 1989 did not materialize. The petitions before us
Republic of the Philippines, by the President, unless the question the proposed 1990 sale of the Roppongi property. We are resolving
authority therefor is expressly vested by law in another the issues raised in these petitions, not the issues raised in 1989.
officer.
Having declared a need for a law or formal declaration to withdraw the
(2) For property belonging to the Republic of the Philippines Roppongi property from public domain to make it alienable and a need for
but titled in the name of any political subdivision or of any legislative authority to allow the sale of the property, we see no compelling
corporate agency or instrumentality, by the executive head reason to tackle the constitutional issues raised by petitioner Ojeda.
of the agency or instrumentality. (Emphasis supplied)
The Court does not ordinarily pass upon constitutional questions unless
these questions are properly raised in appropriate cases and their resolution
35
is necessary for the determination of the case (People v. Vera, 65 Phil. 56 Roppongi is a reminder that cannot should not be
[1937]). The Court will not pass upon a constitutional question although dissipated ... (Rollo-92047, p. 9)
properly presented by the record if the case can be disposed of on some
other ground such as the application of a statute or general law (Siler v. It is indeed true that the Roppongi property is valuable not so much because
Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission of the inflated prices fetched by real property in Tokyo but more so because
v. Pullman Co., 312 U.S. 496 [1941]). of its symbolic value to all Filipinos veterans and civilians alike. Whether
or not the Roppongi and related properties will eventually be sold is a policy
The petitioner in G.R. No. 92013 states why the Roppongi property should determination where both the President and Congress must concur.
not be sold: Considering the properties' importance and value, the laws on conversion
and disposition of property of public dominion must be faithfully followed.
The Roppongi property is not just like any piece of property.
It was given to the Filipino people in reparation for the lives WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are
and blood of Filipinos who died and suffered during the GRANTED. A writ of prohibition is issued enjoining the respondents from
Japanese military occupation, for the suffering of widows proceeding with the sale of the Roppongi property in Tokyo, Japan. The
and orphans who lost their loved ones and kindred, for the February 20, 1990 Temporary Restraining Order is made PERMANENT.
homes and other properties lost by countless Filipinos during
the war. The Tokyo properties are a monument to the SO ORDERED.
bravery and sacrifice of the Filipino people in the face of an
invader; like the monuments of Rizal, Quezon, and other
Filipino heroes, we do not expect economic or financial
benefits from them. But who would think of selling these
monuments? Filipino honor and national dignity dictate that
we keep our properties in Japan as memorials to the
countless Filipinos who died and suffered. Even if we should
become paupers we should not think of selling them. For it
would be as if we sold the lives and blood and tears of our
countrymen. (Rollo- G.R. No. 92013, p.147)

The petitioner in G.R. No. 92047 also states:

Roppongi is no ordinary property. It is one ceded by the


Japanese government in atonement for its past belligerence
for the valiant sacrifice of life and limb and for deaths,
physical dislocation and economic devastation the whole
Filipino people endured in World War II.

It is for what it stands for, and for what it could never bring
back to life, that its significance today remains undimmed,
inspire of the lapse of 45 years since the war ended, inspire
of the passage of 32 years since the property passed on to
the Philippine government.

36
G.R. No. 74833 January 21, 1991 Thirty days later, or on July 31, 1981, Thomas Cheesman brought suit in the
Court of First Instance at Olongapo City against his wife, Criselda, and
THOMAS C. CHEESMAN, petitioner, Estelita Padilla, praying for the annulment of the sale on the ground that the
vs. transaction had been executed without his knowledge and consent.7 An
INTERMEDIATE APPELLATE COURT and ESTELITA PADILLA, answer was filed in the names of both defendants, alleging that (1) the
respondents. property sold was paraphernal, having been purchased by Criselda with
funds exclusively belonging to her ("her own separate money"); (2) Thomas
Estanislao L. Cesa, Jr. for petitioner. Cheesman, being an American, was disqualified to have any interest or right
Benjamin I. Fernandez for private respondent. of ownership in the land; and (3) Estelita Padilla was a buyer in good faith.8

During the pre-trial conference, the parties agreed upon certain facts which
were subsequently set out in a pre-trial Order dated October 22, 1981,9 as
follows:
NARVASA, J.:
1. Both parties recognize the existence of the Deed of Sale over the
This appeal concerns the attempt by an American citizen (petitioner Thomas residential house located at No. 7 Granada St., Gordon Heights,
Cheesman) to annul for lack of consent on his part the sale by his Olongapo City, which was acquired from Armando Altares on June 4,
Filipino wife (Criselda) of a residential lot and building to Estelita Padilla, also 1974 and sold by defendant Criselda Cheesman to Estelita Padilla
a Filipino. on July 12, 1981; and

Thomas Cheesman and Criselda P. Cheesman were married on December 2. That the transaction regarding the transfer of their property took
4, 1970 but have been separated since February 15,1981.1 place during the existence of their marriage as the couple were
married on December 4, 1970 and the questioned property was
On June 4, 1974, a "Deed of Sale and Transfer of Possessory Rights" was acquired sometime on June 4,1974.
executed by Armando Altares conveying a parcel of unregistered land and
the house thereon (at No. 7 Neptune Street, Gordon Heights, Olongapo City) The action resulted in a judgment dated June 24, 1982,10 declaring void ab
in favor of "Criselda P. Cheesman, of legal age, Filipino citizen, married to initio the sale executed by Criselda Cheesman in favor of Estelita M. Padilla,
Thomas Cheesman, and residing at Lot No. 1, Blk. 8, Filtration Road, Sta. and ordering the delivery of the property to Thomas Cheesman as
Rita, Olongapo City . . ."2 Thomas Cheesman, although aware of the deed, administrator of the conjugal partnership property, and the payment to him of
did not object to the transfer being made only to his wife.3 P5,000.00 as attorney's fees and expenses of litigation.11

Thereafterand again with the knowledge of Thomas Cheesman and also The judgment was however set aside as regards Estelita Padilla on a petition
without any protest by himtax declarations for the property purchased were for relief filed by the latter, grounded on "fraud, mistake and/or excusable
issued in the name only of Criselda Cheesman and Criselda assumed negligence" which had seriously impaired her right to present her case
exclusive management and administration of said property, leasing it to adequately.12 "After the petition for relief from judgment was given due
tenants.4 course," according to petitioner, "a new judge presided over the case."13

On July 1, 1981, Criselda Cheesman sold the property to Estelita M. Padilla, Estelita Padilla filed a supplemental pleading on December 20, 1982 as her
without the knowledge or consent of Thomas Cheesman.5 The deed own answer to the complaint, and a motion for summary judgment on May
described Criselda as being" . . . of legal age, married to an American 17, 1983. Although there was initial opposition by Thomas Cheesman to the
citizen,. . ."6 motion, the parties ultimately agreed on the rendition by the court of a
summary judgment after entering into a stipulation of facts, at the hearing of
the motion on June 21, 1983, the stipulation being of the following tenor:14
37
(1) that the property in question was bought during the existence of Cheesman was, under Article 1473 of the Civil Code, estopped to
the marriage between the plaintiff and the defendant Criselda P. impugn the transfer to Estelita Padilla.
Cheesman;
Thomas Cheesman appealed to the Intermediate Appellate Court. There he
(2) that the property bought during the marriage was registered in the assailed the Trial Court acts (1) of granting Estelita Padilla's petition for relief,
name of Criselda Cheesman and that the Deed of Sale and Transfer and its resolution of matters not subject of said petition; (2) of declaring valid
of Possessory Rights executed by the former owner-vendor the sale to Estelita Padilla despite the lack of consent thereto by him, and the
Armando Altares in favor of Criselda Cheesman made no mention of presumption of the conjugal character of the property in question pursuant to
the plaintiff; Article 160 of the Civil Code; (3) of disregarding the judgment of June 24,
1982 which, not having been set aside as against Criselda Cheesman,
(3) that the property, subject of the proceedings, was sold by continued to be binding on her; and (4) of making findings of fact not
defendant Criselda Cheesman in favor of the other defendant supported by evidence. All of these contentions were found to be without
Estelita M. Padilla, without the written consent of the plaintiff. merit by the Appellate Tribunal which, on January 7, 1986, promulgated a
decision (erroneously denominated, "Report")17 affirming the "Summary
Judgment complained of," "having found no reversible error" therein.
Obviously upon the theory that no genuine issue existed any longer and
there was hence no need of a trial, the parties having in fact submitted, as
also stipulated, their respective memoranda each praying for a favorable Once more, Thomas Cheesman availed of the remedy of appeal, this time to
verdict, the Trial Court15 rendered a "Summary Judgment" dated August 3, this Court. Here, he argues that it was reversible error for the Intermediate
1982 declaring "the sale executed by . . . Criselda Cheesman in favor of . . . Appellate Court
Estelita Padilla to be valid," dismissing Thomas Cheesman's complaint and
ordering him "to immediately turn over the possession of the house and lot 1) to find that the presumption that the property in question is conjugal in
subject of . . . (the) case to . . . Estelita Padilla . . ."16 accordance with Article 160 had been satisfactorily overcome by Estelita
Padilla;18
The Trial Court found that
2) to rule that Estelita Padilla was a purchaser of said property in good faith,
1) the evidence on record satisfactorily overcame the disputable it appearing:
presumption in Article 160 of the Civil Codethat all property of the
marriage belongs to the conjugal partnership "unless it be proved a) that the deed by which the property was conveyed to
that it pertains exclusively to the husband or to the wife"and that Criselda Cheesman described her as "married to Thomas C.
the immovable in question was in truth Criselda's paraphernal Cheesman," as well as the deed by which the property was
property; later conveyed to Estelita Padilla by Criselda Cheesman also
described her as "married to an American citizen," and both
2) that moreover, said legal presumption in Article 160 could not said descriptions had thus "placed Estelita on knowledge of
apply "inasmuch as the husband-plaintiff is an American citizen and the conjugal nature of the property;" and
therefore disqualified under the Constitution to acquire and own real
properties; and b) that furthermore, Estelita had admitted to stating in the
deed by which she acquired the property a price much lower
3) that the exercise by Criselda of exclusive acts of dominion with the than that actually paid "in order to avoid payment of more
knowledge of her husband "had led . . . Estelita Padilla to believe obligation to the government;"19
that the properties were the exclusive properties of Criselda
Cheesman and on the faith of such a belief she bought the 3) to decline to declare that the evidence did not warrant the grant of Estelita
properties from her and for value," and therefore, Thomas Padilla's petition for relief on the ground of "fraud, mistake and/or excusable
negligence;"20
38
4) to hold that Thomas Cheesman had waived his objection to Estelita's value thereof. Both Courts found that the facts on record adequately proved
petition for relief by failing to appeal from the order granting the same; fraud, mistake or excusable negligence by which Estelita Padilla's rights had
been substantially impaired; that the funds used by Criselda Cheesman was
5) to accord to Estelita Padilla a relief other than that she had specifically money she had earned and saved prior to her marriage to Thomas
prayed for in her petition for relief, ie., "the restoration of the purchase price Cheesman, and that Estelita Padilla did believe in good faith that Criselda
which Estelita allegedly paid to Criselda;"21 and Cheesman was the sole owner of the property in question. Consequently,
these determinations of fact will not be here disturbed, this Court having
6) to fail to declare that Thomas Cheesman's citizenship is not a bar to his been cited to no reason for doing so.
action to recover the lot and house for the conjugal partnership.22
These considerations dispose of the first three (3) points that petitioner
Cheesman seeks to make in his appeal.1wphi1 They also make
Such conclusions as that (1) fraud, mistake or excusable negligence existed
unnecessary an extended discussion of the other issues raised by him. As to
in the premises justifying relief to Estelita Padilla under Rule 38 of the Rules
of Court, or (2) that Criselda Cheesman had used money she had brought them, it should suffice to restate certain fundamental propositions.
into her marriage to Thomas Cheesman to purchase the lot and house in
question, or (3) that Estelita Padilla believed in good faith that Criselda An order of a Court of First Instance (now Regional Trial Court) granting a
Cheesman was the exclusive owner of the property that she (Estelita) petition for relief under Rule 38 is interlocutory and is not appealable. Hence,
intended to and did in fact buyderived from the evidence adduced by the the failure of the party who opposed the petition to appeal from said order, or
parties, the facts set out in the pleadings or otherwise appearing on record his participation in the proceedings subsequently had, cannot be construed
are conclusions or findings of fact. As distinguished from a question of law as a waiver of his objection to the petition for relief so as to preclude his
which exists "when the doubt or difference arises as to what the law is on a raising the same question on appeal from the judgment on the merits of the
certain state of facts" "there is a question of fact when the doubt or main case. Such a party need not repeat his objections to the petition for
difference arises as to the truth or the falsehood of alleged facts;"23 or when relief, or perform any act thereafter (e.g., take formal exception) in order to
the "query necessarily invites calibration of the whole evidence considering preserve his right to question the same eventually, on appeal, it being
mainly the credibility of witnesses, existence and relevancy of specific sufficient for this purpose that he has made of record "the action which he
surrounding circumstances, their relation; to each other and to the whole and desires the court to take or his objection to the action of the court and his
the probabilities of the situation."24 grounds therefor."29

Now, it is axiomatic that only questions of law, distinctly set forth, may be Again, the prayer in a petition for relief from judgment under Rule 38 is not
raised in a petition for the review on certiorari of a decision of the Court of necessarily the same prayer in the petitioner's complaint, answer or other
Appeals presented to this Court.25 As everyone knows or ought to know, the basic pleading. This should be obvious. Equally obvious is that once a
appellate jurisdiction of this Court is limited to reviewing errors of law, petition for relief is granted and the judgment subject thereof set aside, and
accepting as conclusive the factual findings of the lower court upon its own further proceedings are thereafter had, the Court in its judgment on the
assessment of the evidence.26 The creation of the Court of Appeals was merits may properly grant the relief sought in the petitioner's basic pleadings,
precisely intended to take away from the Supreme Court the work of although different from that stated in his petition for relief.
examining the evidence, and confine its task to the determination of
questions which do not call for the reading and study of transcripts containing Finally, the fundamental law prohibits the sale to aliens of residential land.
the testimony of witnesses.27 The rule of conclusiveness of the factual Section 14, Article XIV of the 1973 Constitution ordains that, "Save in cases
findings or conclusions of the Court of Appeals is, to be sure, subject to of hereditary succession, no private land shall be transferred or conveyed
certain exceptions,28 none of which however obtains in the case at bar. except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain."30 Petitioner Thomas Cheesman was, of
It is noteworthy that both the Trial Court and the Intermediate Appellate Court course, charged with knowledge of this prohibition. Thus, assuming that it
reached the same conclusions on the three (3) factual matters above set was his intention that the lot in question be purchased by him and his wife,
forth, after assessment of the evidence and determination of the probative he acquired no right whatever over the property by virtue of that purchase;

39
and in attempting to acquire a right or interest in land, vicariously and
clandestinely, he knowingly violated the Constitution; the sale as to him was
null and void.31 In any event, he had and has no capacity or personality to
question the subsequent sale of the same property by his wife on the theory
that in so doing he is merely exercising the prerogative of a husband in
respect of conjugal property. To sustain such a theory would permit indirect
controversion of the constitutional prohibition. If the property were to be
declared conjugal, this would accord to the alien husband a not insubstantial
interest and right over land, as he would then have a decisive vote as to its
transfer or disposition. This is a right that the Constitution does not permit
him to have.

As already observed, the finding that his wife had used her own money to
purchase the property cannot, and will not, at this stage of the proceedings
be reviewed and overturned. But even if it were a fact that said wife had used
conjugal funds to make the acquisition, the considerations just set out
militate, on high constitutional grounds, against his recovering and holding
the property so acquired or any part thereof. And whether in such an event,
he may recover from his wife any share of the money used for the purchase
or charge her with unauthorized disposition or expenditure of conjugal funds
is not now inquired into; that would be, in the premises, a purely academic
exercise. An equally decisive consideration is that Estelita Padilla is a
purchaser in good faith, both the Trial Court and the Appellate Court having
found that Cheesman's own conduct had led her to believe the property to be
exclusive property of the latter's wife, freely disposable by her without his
consent or intervention. An innocent buyer for value, she is entitled to the
protection of the law in her purchase, particularly as against Cheesman, who
would assert rights to the property denied him by both letter and spirit of the
Constitution itself.

WHEREFORE, the appealed decision is AFFIRMED, with costs against


petitioner.

SO ORDERED.

40
G.R. No. 156364 September 3, 2007 3) Pay complainant the sum of P100,000.00 by way of moral
damages;
JACOBUS BERNHARD HULST, petitioner,
vs. 4) Pay complainant the sum of P150,000.00 as exemplary damages;
PR BUILDERS, INC., respondent.
5) P50,000.00 as attorney's fees and for other litigation expenses;
DECISION and

AUSTRIA-MARTINEZ, J.: 6) Cost of suit.

Before the Court is a Petition for Review on Certiorari under Rule 45 of the SO ORDERED.3
Revised Rules of Court assailing the Decision1 dated October 30, 2002 of the
Court of Appeals (CA) in CA-G.R. SP No. 60981. Meanwhile, spouses Hulst divorced. Ida assigned her rights over the
purchased property to petitioner.4 From then on, petitioner alone pursued the
The facts: case.

Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van On August 21, 1997, the HLURB Arbiter issued a Writ of Execution
Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR addressed to the Ex-Officio Sheriff of the Regional Trial Court of Tanauan,
Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in Batangas directing the latter to execute its judgment.5
respondent's townhouse project in Barangay Niyugan, Laurel, Batangas.
On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of
When respondent failed to comply with its verbal promise to complete the Execution. However, upon complaint of respondent with the CA on a Petition
project by June 1995, the spouses Hulst filed before the Housing and Land for Certiorari and Prohibition, the levy made by the Sheriff was set aside,
Use Regulatory Board (HLURB) a complaint for rescission of contract with requiring the Sheriff to levy first on respondent's personal properties.6 Sheriff
interest, damages and attorney's fees, docketed as HLRB Case No. IV6- Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ
071196-0618. was returned unsatisfied.7

On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an
rendered a Decision2 in favor of spouses Hulst, the dispositive portion of Alias Writ of Execution.8
which reads:
On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land
WHEREFORE, premises considered, judgment is hereby rendered covered by 13 Transfer Certificates of Title (TCT)9 in Barangay Niyugan,
in favor of the complainant, rescinding the Contract to Sell and Laurel, Batangas.10
ordering respondent to:
In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of
1) Reimburse complainant the sum of P3,187,500.00, representing the levied properties on April 28, 2000 at 10:00 a.m..11
the purchase price paid by the complainants to P.R. Builders, plus
interest thereon at the rate of twelve percent (12%) per annum from Two days before the scheduled public auction or on April 26, 2000,
the time complaint was filed; respondent filed an Urgent Motion to Quash Writ of Levy with the HLURB on
the ground that the Sheriff made an overlevy since the aggregate appraised
2) Pay complainant the sum of P297,000.00 as actual damages; value of the levied properties at P6,500.00 per sq m is P83,616,000.00,

41
based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The
December 11, 1996, which is over and above the judgment award.13 difference between PhP83,616,000.00 and Php6,000,000.00 is
PhP77,616,000.00 and it definitely invites our attention to look into
At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's the proceedings had especially so when there was only one bidder,
counsel objected to the conduct of the public auction on the ground that the HOLLY PROPERTIES REALTY CORPORATION represented by
respondent's Urgent Motion to Quash Writ of Levy was pending resolution. Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale
Absent any restraining order from the HLURB, the Sheriff proceeded to sell proceedings was timely objected by Respondent's counsel (par. 6,
the 15 parcels of land. Holly Properties Realty Corporation was the winning Sheriff's Return) due to the pendency of the Urgent Motion to Quash
bidder for all 15 parcels of land for the total amount of P5,450,653.33. The the Writ of Levy which was filed prior to the execution sale.
sum of P5,313,040.00 was turned over to the petitioner in satisfaction of the
judgment award after deducting the legal fees.14 Besides, what is at issue is not the value of the subject
properties as determined during the auction sale, but the
At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to determination of the value of the properties levied upon by the
remit the legal fees relative to the auction sale and to submit the Certificates Sheriff taking into consideration Section 9(b) of the 1997 Rules
of Sale15 for the signature of HLURB Director Belen G. Ceniza (HLURB of Civil Procedure x x x.
Director), he received the Order dated April 28, 2000 issued by the HLURB
Arbiter to suspend the proceedings on the matter.16 xxxx

Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB It is very clear from the foregoing that, even during levy, the Sheriff
Director issued an Order setting aside the sheriff's levy on respondent's real has to consider the fair market value of the properties levied upon to
properties,17 reasoning as follows: determine whether they are sufficient to satisfy the judgment, and
any levy in excess of the judgment award is void (Buan v. Court of
While we are not making a ruling that the fair market value of the Appeals, 235 SCRA 424).
levied properties is PhP6,500.00 per square meter (or an aggregate
value of PhP83,616,000.00) as indicated in the Hunter Baynes x x x x18 (Emphasis supplied).
Appraisal Report, we definitely cannot agree with the position of the
Complainants and the Sheriff that the aggregate value of the The dispositive portion of the Order reads:
12,864.00-square meter levied properties is only around
PhP6,000,000.00. The disparity between the two valuations are [sic]
WHEREFORE, the levy on the subject properties made by the Ex-
so egregious that the Sheriff should have looked into the matter first
Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET
before proceeding with the execution sale of the said properties,
ASIDE and the said Sheriff is hereby directed to levy instead
especially when the auction sale proceedings was seasonably
Respondent's real properties that are reasonably sufficient to enforce
objected by Respondent's counsel, Atty. Noel Mingoa. However, its final and executory judgment, this time, taking into consideration
instead of resolving first the objection timely posed by Atty. Mingoa, not only the value of the properties as indicated in their respective
Sheriff Ozaete totally disregarded the objection raised and,
tax declarations, but also all the other determinants at arriving at a
posthaste, issued the corresponding Certificate of Sale even prior to
fair market value, namely: the cost of acquisition, the current value of
the payment of the legal fees (pars. 7 & 8, Sheriff's Return).
like properties, its actual or potential uses, and in the particular case
of lands, their size, shape or location, and the tax declarations
While we agree with the Complainants that what is material in an thereon.
execution sale proceeding is the amount for which the properties
were bidded and sold during the public auction and that, mere
SO ORDERED.19
inadequacy of the price is not a sufficient ground to annul the sale,
the court is justified to intervene where the inadequacy of the price
42
A motion for reconsideration being a prohibited pleading under Section 1(h), have been disqualified from acquiring public lands; hence, they have also
Rule IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition been disqualified from acquiring private lands.27
for Certiorari and Prohibition with the CA on September 27, 2000.
Since petitioner and his wife, being Dutch nationals, are proscribed under the
On October 30, 2002, the CA rendered herein assailed Decision20 dismissing Constitution from acquiring and owning real property, it is unequivocal that
the petition. The CA held that petitioner's insistence that Barrozo v. the Contract to Sell entered into by petitioner together with his wife and
Macaraeg21 does not apply since said case stated that "when there is a right respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all
to redeem inadequacy of price should not be material" holds no water as contracts whose cause, object or purpose is contrary to law or public policy
what is obtaining in this case is not "mere inadequacy," but an inadequacy and those expressly prohibited or declared void by law are inexistent and
that shocks the senses; that Buan v. Court of Appeals22 properly applies void from the beginning. Article 1410 of the same Code provides that the
since the questioned levy covered 15 parcels of land posited to have an action or defense for the declaration of the inexistence of a contract does not
aggregate value of P83,616,000.00 which shockingly exceeded the judgment prescribe. A void contract is equivalent to nothing; it produces no civil
debt of only around P6,000,000.00. effect.28 It does not create, modify or extinguish a juridical relation.29

Without filing a motion for reconsideration,23 petitioner took the present Generally, parties to a void agreement cannot expect the aid of the law; the
recourse on the sole ground that: courts leave them as they are, because they are deemed in pari delicto or "in
equal fault."30 In pari delicto is "a universal doctrine which holds that no
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN action arises, in equity or at law, from an illegal contract; no suit can be
AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY maintained for its specific performance, or to recover the property agreed to
MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES.24 be sold or delivered, or the money agreed to be paid, or damages for its
violation; and where the parties are in pari delicto, no affirmative relief of any
kind will be given to one against the other."31
Before resolving the question whether the CA erred in affirming the Order of
the HLURB setting aside the levy made by the sheriff, it behooves this Court
to address a matter of public and national importance which completely This rule, however, is subject to exceptions32 that permit the return of that
escaped the attention of the HLURB Arbiter and the CA: petitioner and his which may have been given under a void contract to: (a) the innocent party
wife are foreign nationals who are disqualified under the Constitution from (Arts. 1411-1412, Civil Code);33 (b) the debtor who pays usurious interest
owning real property in their names. (Art. 1413, Civil Code);34 (c) the party repudiating the void contract
before the illegal purpose is accomplished or before damage is caused
to a third person and if public interest is subserved by allowing
Section 7 of Article XII of the 1987 Constitution provides:
recovery (Art. 1414, Civil Code);35 (d) the incapacitated party if the interest
of justice so demands (Art. 1415, Civil Code); 36 (e) the party for whose
Sec. 7. Save in cases of hereditary succession, no private lands protection the prohibition by law is intended if the agreement is not illegal per
shall be transferred or conveyed except to individuals, se but merely prohibited and if public policy would be enhanced by permitting
corporations, or associations qualified to acquire or hold lands of recovery (Art. 1416, Civil Code);37 and (f) the party for whose benefit the law
the public domain. (Emphasis supplied). has been intended such as in price ceiling laws (Art. 1417, Civil Code) 38 and
labor laws (Arts. 1418-1419, Civil Code).39
The capacity to acquire private land is made dependent upon the capacity to
acquire or hold lands of the public domain. Private land may be transferred or It is significant to note that the agreement executed by the parties in this case
conveyed only to individuals or entities "qualified to acquire lands of the is a Contract to Sell and not a contract of sale. A distinction between the two
public domain." The 1987 Constitution reserved the right to participate in the is material in the determination of when ownership is deemed to have been
disposition, exploitation, development and utilization of lands of the public transferred to the buyer or vendee and, ultimately, the resolution of the
domain for Filipino citizens25 or corporations at least 60 percent of the capital question on whether the constitutional proscription has been breached.
of which is owned by Filipinos.26 Aliens, whether individuals or corporations,

43
In a contract of sale, the title passes to the buyer upon the delivery of the correction of clerical errors, the so-called nunc pro tunc entries which cause
thing sold. The vendor has lost and cannot recover the ownership of the no prejudice to any party, void judgments, and whenever circumstances
property until and unless the contract of sale is itself resolved and set transpire after the finality of the decision rendering its execution unjust and
aside.40 On the other hand, a contract to sell is akin to a conditional sale inequitable.46 None of the exceptions is present in this case. The HLURB
where the efficacy or obligatory force of the vendor's obligation to transfer decision cannot be considered a void judgment, as it was rendered by a
title is subordinated to the happening of a future and uncertain event, so that tribunal with jurisdiction over the subject matter of the complaint.47
if the suspensive condition does not take place, the parties would stand as if
the conditional obligation had never existed.41 In other words, in a contract to Ineluctably, the HLURB Decision resulted in the unjust enrichment of
sell, the prospective seller agrees to transfer ownership of the property to the petitioner at the expense of respondent. Petitioner received more than what
buyer upon the happening of an event, which normally is the full payment of he is entitled to recover under the circumstances.
the purchase price. But even upon the fulfillment of the suspensive condition,
ownership does not automatically transfer to the buyer. The prospective Article 22 of the Civil Code which embodies the maxim, nemo ex alterius
seller still has to convey title to the prospective buyer by executing a contract incommode debet lecupletari (no man ought to be made rich out of another's
of absolute sale.42 injury), states:

Since the contract involved here is a Contract to Sell, ownership has not yet
Art. 22. Every person who through an act of performance by another,
transferred to the petitioner when he filed the suit for rescission. While the
or any other means, acquires or comes into possession of something
intent to circumvent the constitutional proscription on aliens owning real
at the expense of the latter without just or legal ground, shall return
property was evident by virtue of the execution of the Contract to Sell, such the same to him.
violation of the law did not materialize because petitioner caused the
rescission of the contract before the execution of the final deed transferring
ownership. The above-quoted article is part of the chapter of the Civil Code on Human
Relations, the provisions of which were formulated as basic principles to be
observed for the rightful relationship between human beings and for the
Thus, exception (c) finds application in this case. Under Article 1414, one stability of the social order; designed to indicate certain norms that spring
who repudiates the agreement and demands his money before the illegal act
from the fountain of good conscience; guides for human conduct that should
has taken place is entitled to recover. Petitioner is therefore entitled to
run as golden threads through society to the end that law may approach its
recover what he has paid, although the basis of his claim for rescission,
supreme ideal which is the sway and dominance of justice.48 There is unjust
which was granted by the HLURB, was not the fact that he is not allowed to
enrichment when a person unjustly retains a benefit at the loss of another, or
acquire private land under the Philippine Constitution. But petitioner is when a person retains money or property of another against the fundamental
entitled to the recovery only of the amount of P3,187,500.00, representing principles of justice, equity and good conscience.49
the purchase price paid to respondent. No damages may be recovered on
the basis of a void contract; being nonexistent, the agreement produces no
juridical tie between the parties involved.43 Further, petitioner is not entitled to A sense of justice and fairness demands that petitioner should not be
actual as well as interests thereon,44 moral and exemplary damages and allowed to benefit from his act of entering into a contract to sell that violates
attorney's fees. the constitutional proscription.

The Court takes into consideration the fact that the HLURB Decision dated This is not a case of equity overruling or supplanting a positive provision of
April 22, 1997 has long been final and executory. Nothing is more settled in law or judicial rule. Rather, equity is exercised in this case "as the
the law than that a decision that has acquired finality becomes immutable complement of legal jurisdiction [that] seeks to reach and to complete justice
and unalterable and may no longer be modified in any respect even if the where courts of law, through the inflexibility of their rules and want of power
modification is meant to correct erroneous conclusions of fact or law and to adapt their judgments to the special circumstances of cases, are
whether it was made by the court that rendered it or by the highest court of incompetent to do so."50
the land.45 The only recognized exceptions to the general rule are the

44
The purpose of the exercise of equity jurisdiction in this case is to prevent (a) Immediate payment on demand. - The officer shall enforce an
unjust enrichment and to ensure restitution. Equity jurisdiction aims to do execution of a judgment for money by demanding from the judgment
complete justice in cases where a court of law is unable to adapt its obligor the immediate payment of the full amount stated in the writ of
judgments to the special circumstances of a case because of the inflexibility execution and all lawful fees. x x x
of its statutory or legal jurisdiction.51
(b) Satisfaction by levy. - If the judgment obligor cannot pay all or
The sheriff delivered to petitioner the amount of P5,313,040.00 representing part of the obligation in cash, certified bank check or other mode of
the net proceeds (bidded amount is P5,450,653.33) of the auction sale after payment acceptable to the judgment obligee, the officer shall levy
deducting the legal fees in the amount of P137,613.33.52 Petitioner is only upon the properties of the judgment obligor of every kind and
entitled to P3,187,500.00, the amount of the purchase price of the real nature whatsoever which may be disposed of for value and not
property paid by petitioner to respondent under the Contract to Sell. Thus, otherwise exempt from execution, giving the latter the option to
the Court in the exercise of its equity jurisdiction may validly order petitioner immediately choose which property or part thereof may be levied
to return the excess amount of P2,125,540.00. upon, sufficient to satisfy the judgment. If the judgment obligor does
not exercise the option, the officer shall first levy on the personal
The Court shall now proceed to resolve the single issue raised in the present properties, if any, and then on the real properties if the personal
petition: whether the CA seriously erred in affirming the HLURB Order setting properties are insufficient to answer for the judgment.
aside the levy made by the Sheriff on the subject properties.
The sheriff shall sell only a sufficient portion of the personal or
Petitioner avers that the HLURB Arbiter and Director had no factual basis for real property of the judgment obligor which has been levied
pegging the fair market value of the levied properties at P6,500.00 per sq m upon.
or P83,616,000.00; that reliance on the appraisal report was misplaced since
the appraisal was based on the value of land in neighboring developed When there is more property of the judgment obligor than is
subdivisions and on the assumption that the residential unit appraised had sufficient to satisfy the judgment and lawful fees, he must sell
already been built; that the Sheriff need not determine the fair market value only so much of the personal or real property as is sufficient to
of the subject properties before levying on the same since what is material is satisfy the judgment and lawful fees.
the amount for which the properties were bidded and sold during the public
auction; that the pendency of any motion is not a valid ground for the Sheriff Real property, stocks, shares, debts, credits, and other personal
to suspend the execution proceedings and, by itself, does not have the effect property, or any interest in either real or personal property, may be
of restraining the Sheriff from proceeding with the execution. levied upon in like manner and with like effect as under a writ of
attachment (Emphasis supplied).53
Respondent, on the other hand, contends that while it is true that the HLURB
Arbiter and Director did not categorically state the exact value of the levied Thus, under Rule 39, in executing a money judgment against the property of
properties, said properties cannot just amount to P6,000,000.00; that the the judgment debtor, the sheriff shall levy on all property belonging to the
HLURB Arbiter and Director correctly held that the value indicated in the tax judgment debtor as is amply sufficient to satisfy the judgment and costs, and
declaration is not the sole determinant of the value of the property. sell the same paying to the judgment creditor so much of the proceeds as will
satisfy the amount of the judgment debt and costs. Any excess in the
The petition is impressed with merit. proceeds shall be delivered to the judgment debtor unless otherwise directed
by the judgment or order of the court.54
If the judgment is for money, the sheriff or other authorized officer must
execute the same pursuant to the provisions of Section 9, Rule 39 of the Clearly, there are two stages in the execution of money judgments. First, the
Revised Rules of Court, viz: levy and then the execution sale.

Sec. 9. Execution of judgments for money, how enforced.


45
Levy has been defined as the act or acts by which an officer sets apart or The HLURB and the CA misconstrued the Court's pronouncements in
appropriates a part or the whole of a judgment debtor's property for the Barrozo. Barrozo involved a judgment debtor who wanted to repurchase
purpose of satisfying the command of the writ of execution. 55 The object of a properties sold at execution beyond the one-year redemption period. The
levy is to take property into the custody of the law, and thereby render it statement of the Court in Barrozo, that "only where such inadequacy shocks
liable to the lien of the execution, and put it out of the power of the judgment the conscience the courts will intervene," is at best a mere obiter dictum. This
debtor to divert it to any other use or purpose.56 declaration should be taken in the context of the other declarations of the
Court in Barrozo, to wit:
On the other hand, an execution sale is a sale by a sheriff or other ministerial
officer under the authority of a writ of execution of the levied property of the Another point raised by appellant is that the price paid at the auction
debtor.57 sale was so inadequate as to shock the conscience of the court.
Supposing that this issue is open even after the one-year period has
In the present case, the HLURB Arbiter and Director gravely abused their expired and after the properties have passed into the hands of third
discretion in setting aside the levy conducted by the Sheriff for the reason persons who may have paid a price higher than the auction sale
that the auction sale conducted by the sheriff rendered moot and academic money, the first thing to consider is that the stipulation contains no
the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on statement of the reasonable value of the properties; and although
the motion to quash the levy by virtue of the consummation of the auction defendant' answer avers that the assessed value was P3,960 it also
sale. Absent any order from the HLURB suspending the auction sale, the avers that their real market value was P2,000 only. Anyway, mere
sheriff rightfully proceeded with the auction sale. The winning bidder had inadequacy of price which was the complaint' allegation is
already paid the winning bid. The legal fees had already been remitted to the not sufficient ground to annul the sale. It is only where such
HLURB. The judgment award had already been turned over to the judgment inadequacy shocks the conscience that the courts will
creditor. What was left to be done was only the issuance of the intervene. x x x Another consideration is that the assessed value
corresponding certificates of sale to the winning bidder. In fact, only the being P3,960 and the purchase price being in effect P1,864 (P464
signature of the HLURB Director for that purpose was needed58 a purely sale price plus P1,400 mortgage lien which had to be discharged)
ministerial act. the conscience is not shocked upon examining the prices paid in the
sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v.
Guerrero, 57 Phil., 445, sales which were left undisturbed by this
A purely ministerial act or duty is one which an officer or tribunal performs in
Court.
a given state of facts, in a prescribed manner, in obedience to the mandate
of a legal authority, without regard for or the exercise of his own judgment
upon the propriety or impropriety of the act done. If the law imposes a duty Furthermore, where there is the right to redeem as in this case
upon a public officer and gives him the right to decide how or when the duty inadequacy of price should not be material because the
shall be performed, such duty is discretionary and not ministerial. The duty is judgment debtor may re-acquire the property or else sell his
ministerial only when the discharge of the same requires neither the exercise right to redeem and thus recover any loss he claims to have
of official discretion nor judgment.59 In the present case, all the requirements suffered by reason of the price obtained at the execution sale.
of auction sale under the Rules have been fully complied with to warrant the
issuance of the corresponding certificates of sale. x x x x (Emphasis supplied).62

And even if the Court should go into the merits of the assailed Order, the In other words, gross inadequacy of price does not nullify an execution sale.
petition is meritorious on the following grounds: In an ordinary sale, for reason of equity, a transaction may be invalidated on
the ground of inadequacy of price, or when such inadequacy shocks one's
Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on conscience as to justify the courts to interfere; such does not follow when the
Barrozo v. Macaraeg60 and Buan v. Court of Appeals61 is misplaced. law gives the owner the right to redeem as when a sale is made at public
auction,63 upon the theory that the lesser the price, the easier it is for the
owner to effect redemption.64 When there is a right to redeem, inadequacy of

46
price should not be material because the judgment debtor may re-acquire the Thirdly, in determining what amount of property is sufficient out of which to
property or else sell his right to redeem and thus recover any loss he claims secure satisfaction of the execution, the Sheriff is left to his own judgment.
to have suffered by reason of the price obtained at the execution sale.65 He may exercise a reasonable discretion, and must exercise the care which
Thus, respondent stood to gain rather than be harmed by the low sale value a reasonably prudent person would exercise under like conditions and
of the auctioned properties because it possesses the right of redemption. circumstances, endeavoring on the one hand to obtain sufficient property to
More importantly, the subject matter in Barrozo is the auction sale, not the satisfy the purposes of the writ, and on the other hand not to make an
levy made by the Sheriff. unreasonable and unnecessary levy.69 Because it is impossible to know the
precise quantity of land or other property necessary to satisfy an execution,
The Court does not sanction the piecemeal interpretation of a decision. To the Sheriff should be allowed a reasonable margin between the value of the
get the true intent and meaning of a decision, no specific portion thereof property levied upon and the amount of the execution; the fact that the
should be isolated and resorted to, but the decision must be considered in its Sheriff levies upon a little more than is necessary to satisfy the execution
entirety.66 does not render his actions improper.70 Section 9, Rule 39, provides
adequate safeguards against excessive levying. The Sheriff is mandated to
As regards Buan, it is cast under an entirely different factual milieu. It sell so much only of such real property as is sufficient to satisfy the judgment
involved the levy on two parcels of land owned by the judgment debtor; and and lawful fees.
the sale at public auction of one was sufficient to fully satisfy the judgment,
such that the levy and attempted execution of the second parcel of land was In the absence of a restraining order, no error, much less abuse of discretion,
declared void for being in excess of and beyond the original judgment award can be imputed to the Sheriff in proceeding with the auction sale despite the
granted in favor of the judgment creditor. pending motion to quash the levy filed by the respondents with the HLURB. It
is elementary that sheriffs, as officers charged with the delicate task of the
enforcement and/or implementation of judgments, must, in the absence of a
In the present case, the Sheriff complied with the mandate of Section 9, Rule
restraining order, act with considerable dispatch so as not to unduly delay the
39 of the Revised Rules of Court, to "sell only a sufficient portion" of the
administration of justice; otherwise, the decisions, orders, or other processes
levied properties "as is sufficient to satisfy the judgment and the lawful fees."
of the courts of justice and the like would be futile.71 It is not within the
Each of the 15 levied properties was successively bidded upon and sold, one
after the other until the judgment debt and the lawful fees were fully satisfied. jurisdiction of the Sheriff to consider, much less resolve, respondent's
objection to the continuation of the conduct of the auction sale. The Sheriff
Holly Properties Realty Corporation successively bidded upon and bought
has no authority, on his own, to suspend the auction sale. His duty being
each of the levied properties for the total amount of P5,450,653.33 in full
ministerial, he has no discretion to postpone the conduct of the auction sale.
satisfaction of the judgment award and legal fees.67

Secondly, the Rules of Court do not require that the value of the property Finally, one who attacks a levy on the ground of excessiveness carries the
burden of sustaining that contention.72 In the determination of whether a levy
levied be exactly the same as the judgment debt; it can be less or more than
of execution is excessive, it is proper to take into consideration
the amount of debt. This is the contingency addressed by Section 9, Rule 39
encumbrances upon the property, as well as the fact that a forced sale
of the Rules of Court. In the levy of property, the Sheriff does not determine
usually results in a sacrifice; that is, the price demanded for the property
the exact valuation of the levied property. Under Section 9, Rule 39, in
conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is upon a private sale is not the standard for determining the excessiveness of
required to do only two specific things to effect a levy upon a realty: (a) file the levy.73
with the register of deeds a copy of the order of execution, together with the
description of the levied property and notice of execution; and (b) leave with Here, the HLURB Arbiter and Director had no sufficient factual basis to
the occupant of the property copy of the same order, description and determine the value of the levied property. Respondent only submitted an
notice.68 Records do not show that respondent alleged non-compliance by Appraisal Report, based merely on surmises. The Report was based on the
the Sheriff of said requisites. projected value of the townhouse project after it shall have been fully
developed, that is, on the assumption that the residential units appraised had
already been built. The Appraiser in fact made this qualification in its

47
Appraisal Report: "[t]he property subject of this appraisal has not been
constructed. The basis of the appraiser is on the existing model units."74
Since it is undisputed that the townhouse project did not push through, the
projected value did not become a reality. Thus, the appraisal value cannot be
equated with the fair market value. The Appraisal Report is not the best proof
to accurately show the value of the levied properties as it is clearly self-
serving.

Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and
Director Ceniza in HLRB Case No. IV6-071196-0618 which set aside the
sheriff's levy on respondent's real properties, was clearly issued with grave
abuse of discretion. The CA erred in affirming said Order.

WHEREFORE, the instant petition is GRANTED. The Decision dated


October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is
REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB
Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case
No. IV6-071196-0618 is declared NULL and VOID. HLURB Arbiter Aquino
and Director Ceniza are directed to issue the corresponding certificates of
sale in favor of the winning bidder, Holly Properties Realty Corporation.
Petitioner is ordered to return to respondent the amount of P2,125,540.00,
without interest, in excess of the proceeds of the auction sale delivered to
petitioner. After the finality of herein judgment, the amount of P2,125,540.00
shall earn 6% interest until fully paid.

SO ORDERED.

48
JACOBUS BERNHARD HULST, G.R. No. 156364 Petitioner filed the present Motion for Partial Reconsideration3 insofar as he
Petitioner, was ordered to return to respondent the amount of P2,125,540.00 in excess
Present: of the proceeds of the auction sale delivered to petitioner. Petitioner
contends that the Contract to Sell between petitioner and respondent
involved a condominium unit and did not violate the Constitutional
YNARES-SANTIAGO, proscription against ownership of land by aliens. He argues that the contract
J., to sell will not transfer to the buyer ownership of the land on which the unit is
Chairperson, situated; thus, the buyer will not get a transfer certificate of title but merely a
- versus - AUSTRIA-MARTINEZ, Condominium Certificate of Title as evidence of ownership; a perusal of the
CHICO-NAZARIO, contract will show that what the buyer acquires is the seller's title and rights
NACHURA, and to and interests in the unit and the common areas.
REYES, JJ.
Despite receipt of this Courts Resolution dated February 6, 2008,
PR BUILDERS, INC., Promulgated: respondent failed to file a comment on the subject motion.
Respondent. September 25, 2008
The Motion for Partial Reconsideration is impressed with merit.
x-------------------------------------------------------
---x The Contract to Sell between petitioner and respondent provides as follows:

RESOLUTION Section 3. TITLE AND OWNERSHIP OF UNIT

AUSTRIA-MARTINEZ, J.: a. Upon full payment by the BUYER of the purchase price stipulated
in Section 2 hereof, x x x, the SELLER shall deliver to the BUYER
the Deed of Absolute Sale conveying its rights, interests and title
This resolves petitioner's Motion for Partial Reconsideration.
to the UNIT and to the common areas appurtenant to such UNIT,
and the corresponding Condominium Certificate of Title in the
On September 3, 2007, the Court rendered a Decision 1 in the present case, SELLER's name; x x x
the dispositive portion of which reads:
b. The Seller shall register with the proper Registry of Deeds, the
WHEREFORE, the instant petition is GRANTED. The Decision dated Master Deed with the Declaration of Restrictions and other
October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is documents and shall immediately comply with all requirements of
REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB Republic Act No. 4726 (The Condominium Act) and Presidential
Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case Decree No. 957 (Regulating the Sale of Subdivision Lots and
No. IV6-071196-0618 is declared NULL and VOID. HLURB Arbiter Aquino Condominiums, Providing Penalties for Violations Thereof). It is
and Director Ceniza are directed to issue the corresponding certificates of hereby understood that all title, rights and interest so conveyed
sale in favor of the winning bidder, Holly Properties Realty Corporation. shall be subject to the provisions of the Condominium Act, the
Petitioner is ordered to return to respondent the amount of Master Deed with Declaration of Restrictions, the Articles of
P2,125,540.00, without interest, in excess of the proceeds of the auction Incorporation and By-Laws and the Rules and Regulations of the
sale delivered to petitioner. After the finality of herein judgment, the Condominium Corporation, zoning regulations and such other
amount of P2,125,540.00 shall earn 6% interest until fully paid. restrictions on the use of the property as annotated on the title or
may be imposed by any government agency or instrumentality
SO ORDERED.2 (Emphasis supplied) having jurisdiction thereon.4 (Emphasis supplied)

49
Under Republic Act (R.A.) No. 4726, otherwise known as the Condominium WHEREFORE, the Motion for Partial Reconsideration is GRANTED.
Act, foreign nationals can own Philippine real estate through the purchase of Accordingly, the Decision dated September 3, 2007 of the Court is
condominium units or townhouses constituted under the Condominium MODIFIED by deleting the order to petitioner to return to respondent the
principle with Condominium Certificates of Title. Section 5 of R.A. No. 4726 amount of P2,125,540.00 in excess of the proceeds of the auction sale
states: delivered to petitioner.

SECTION 5. Any transfer or conveyance of a unit or an apartment, office or SO ORDERED.


store or other space therein, shall include the transfer or conveyance of the
undivided interest in the common areas or, in a proper case, the membership
or shareholdings in the condominium corporation; Provided, however, That
where the common areas in the condominium project are held by the owners
of separate units as co-owners thereof, no condominium unit therein shall be
conveyed or transferred to persons other than Filipino citizens or
corporations at least 60% of the capital stock of which belong to Filipino
citizens, except in cases of hereditary succession. Where the common
areas in a condominium project are held by a corporation, no transfer
or conveyance of a unit shall be valid if the concomitant transfer of the
appurtenant membership or stockholding in the corporation will cause
the alien interest in such corporation to exceed the limits imposed by
existing laws. (Emphasis supplied)

The law provides that no condominium unit can be sold without at the same
time selling the corresponding amount of rights, shares or other interests in
the condominium management body, the Condominium Corporation; and no
one can buy shares in a Condominium Corporation without at the same time
buying a condominium unit. It expressly allows foreigners to acquire
condominium units and shares in condominium corporations up to not more
than 40% of the total and outstanding capital stock of a Filipino-owned or
controlled corporation. Under this set up, the ownership of the land is legally
separated from the unit itself. The land is owned by a Condominium
Corporation and the unit owner is simply a member in this Condominium
Corporation.5 As long as 60% of the members of this Condominium
Corporation are Filipino, the remaining members can be foreigners.

Considering that the rights and liabilities of the parties under the Contract to
Sell is covered by the Condominium Act wherein petitioner as unit owner was
simply a member of the Condominium Corporation and the land remained
owned by respondent, then the constitutional proscription against aliens
owning real property does not apply to the present case. There being no
circumvention of the constitutional prohibition, the Court's pronouncements
on the invalidity of the Contract of Sale should be set aside.

50
G.R. No. L-17587 September 12, 1967 agreement; the monthly rental was P3,120. The contract covered an area of
1,124 square meters. Ten days later (November 25), the contract was
PHILIPPINE BANKING CORPORATION, representing the estate of amended (Plff Exh. 4) so as to make it cover the entire property, including
JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant, the portion on which the house of Justina Santos stood, at an additional
vs. monthly rental of P360. For his part Wong undertook to pay, out of the rental
LUI SHE in her own behalf and as administratrix of the intestate estate due from him, an amount not exceeding P1,000 a month for the food of her
of Wong Heng, deceased, defendant-appellant. dogs and the salaries of her maids.

Nicanor S. Sison for plaintiff-appellant. On December 21 she executed another contract (Plff Exh. 7) giving Wong
Ozaeta, Gibbs & Ozaeta for defendant-appellant. the option to buy the leased premises for P120,000, payable within ten years
at a monthly installment of P1,000. The option, written in Tagalog, imposed
on him the obligation to pay for the food of the dogs and the salaries of the
maids in her household, the charge not to exceed P1,800 a month. The
option was conditioned on his obtaining Philippine citizenship, a petition for
CASTRO, J.: which was then pending in the Court of First Instance of Rizal. It appears,
however, that this application for naturalization was withdrawn when it was
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in discovered that he was not a resident of Rizal. On October 28, 1958 she filed
common of a piece of land in Manila. This parcel, with an area of 2,582.30 a petition to adopt him and his children on the erroneous belief that adoption
square meters, is located on Rizal Avenue and opens into Florentino Torres would confer on them Philippine citizenship. The error was discovered and
street at the back and Katubusan street on one side. In it are two residential the proceedings were abandoned.
houses with entrance on Florentino Torres street and the Hen Wah
Restaurant with entrance on Rizal Avenue. The sisters lived in one of the On November 18, 1958 she executed two other contracts, one (Plff Exh. 5)
houses, while Wong Heng, a Chinese, lived with his family in the restaurant. extending the term of the lease to 99 years, and another (Plff Exh. 6) fixing
Wong had been a long-time lessee of a portion of the property, paying a the term of the option of 50 years. Both contracts are written in Tagalog.
monthly rental of P2,620.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she
On September 22, 1957 Justina Santos became the owner of the entire bade her legatees to respect the contracts she had entered into with Wong,
property as her sister died with no other heir. Then already well advanced in but in a codicil (Plff Exh. 17) of a later date (November 4, 1959) she appears
years, being at the time 90 years old, blind, crippled and an invalid, she was to have a change of heart. Claiming that the various contracts were made by
left with no other relative to live with. Her only companions in the house were her because of machinations and inducements practiced by him, she now
her 17 dogs and 8 maids. Her otherwise dreary existence was brightened directed her executor to secure the annulment of the contracts.
now and then by the visits of Wong's four children who had become the joy
of her life. Wong himself was the trusted man to whom she delivered various
amounts for safekeeping, including rentals from her property at the corner of On November 18 the present action was filed in the Court of First Instance of
Ongpin and Salazar streets and the rentals which Wong himself paid as Manila. The complaint alleged that the contracts were obtained by Wong
"through fraud, misrepresentation, inequitable conduct, undue influence and
lessee of a part of the Rizal Avenue property. Wong also took care of the
abuse of confidence and trust of and (by) taking advantage of the
payment; in her behalf, of taxes, lawyers' fees, funeral expenses, masses,
helplessness of the plaintiff and were made to circumvent the constitutional
salaries of maids and security guard, and her household expenses.
provision prohibiting aliens from acquiring lands in the Philippines and also of
the Philippine Naturalization Laws." The court was asked to direct the
"In grateful acknowledgment of the personal services of the lessee to her," Register of Deeds of Manila to cancel the registration of the contracts and to
Justina Santos executed on November 15, 1957 a contract of lease (Plff Exh. order Wong to pay Justina Santos the additional rent of P3,120 a month from
3) in favor of Wong, covering the portion then already leased to him and November 15, 1957 on the allegation that the reasonable rental of the leased
another portion fronting Florentino Torres street. The lease was for 50 years, premises was P6,240 a month.
although the lessee was given the right to withdraw at any time from the
51
In his answer, Wong admitted that he enjoyed her trust and confidence as From this judgment both parties appealed directly to this Court. After the
proof of which he volunteered the information that, in addition to the sum of case was submitted for decision, both parties died, Wong Heng on October
P3,000 which he said she had delivered to him for safekeeping, another sum 21, 1962 and Justina Santos on December 28, 1964. Wong was substituted
of P22,000 had been deposited in a joint account which he had with one of by his wife, Lui She, the other defendant in this case, while Justina Santos
her maids. But he denied having taken advantage of her trust in order to was substituted by the Philippine Banking Corporation.
secure the execution of the contracts in question. As counterclaim he sought
the recovery of P9,210.49 which he said she owed him for advances. Justina Santos maintained now reiterated by the Philippine Banking
Corporation that the lease contract (Plff Exh. 3) should have been
Wong's admission of the receipt of P22,000 and P3,000 was the cue for the annulled along with the four other contracts (Plff Exhs. 4-7) because it lacks
filing of an amended complaint. Thus on June 9, 1960, aside from the nullity mutuality; because it included a portion which, at the time, was in custodia
of the contracts, the collection of various amounts allegedly delivered on legis; because the contract was obtained in violation of the fiduciary relations
different occasions was sought. These amounts and the dates of their of the parties; because her consent was obtained through undue influence,
delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 fraud and misrepresentation; and because the lease contract, like the rest of
(Dec. 6, 1957); P22,000 and P3,000 (as admitted in his answer). An the contracts, is absolutely simulated.
accounting of the rentals from the Ongpin and Rizal Avenue properties was
also demanded. Paragraph 5 of the lease contract states that "The lessee may at any time
withdraw from this agreement." It is claimed that this stipulation offends
In the meantime as a result of a petition for guardianship filed in the Juvenile article 1308 of the Civil Code which provides that "the contract must bind
and Domestic Relations Court, the Security Bank & Trust Co. was appointed both contracting parties; its validity or compliance cannot be left to the will of
guardian of the properties of Justina Santos, while Ephraim G. Gochangco one of them."
was appointed guardian of her person.
We have had occasion to delineate the scope and application of article 1308
In his answer, Wong insisted that the various contracts were freely and in the early case of Taylor v. Uy Tieng Piao.1 We said in that case:
voluntarily entered into by the parties. He likewise disclaimed knowledge of
the sum of P33,724.27, admitted receipt of P7,344.42 and P10,000, but Article 1256 [now art. 1308] of the Civil Code in our opinion creates
contended that these amounts had been spent in accordance with the no impediment to the insertion in a contract for personal service of a
instructions of Justina Santos; he expressed readiness to comply with any resolutory condition permitting the cancellation of the contract by one
order that the court might make with respect to the sums of P22,000 in the of the parties. Such a stipulation, as can be readily seen, does not
bank and P3,000 in his possession. make either the validity or the fulfillment of the contract dependent
upon the will of the party to whom is conceded the privilege of
The case was heard, after which the lower court rendered judgment as cancellation; for where the contracting parties have agreed that such
follows: option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the
[A]ll the documents mentioned in the first cause of action, with the subject of agreement. Indeed, the cancellation of a contract in
exception of the first which is the lease contract of 15 November accordance with conditions agreed upon beforehand is fulfillment.2
1957, are declared null and void; Wong Heng is condemned to pay
unto plaintiff thru guardian of her property the sum of P55,554.25 And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease
with legal interest from the date of the filing of the amended contract that the lessee, at any time before he erected any building on the
complaint; he is also ordered to pay the sum of P3,120.00 for every land, might rescind the lease, can hardly be regarded as a violation of article
month of his occupation as lessee under the document of lease 1256 [now art. 1308] of the Civil Code."
herein sustained, from 15 November 1959, and the moneys he has
consigned since then shall be imputed to that; costs against Wong The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of
Heng. the claim of want of mutuality, because of a difference in factual setting. In
52
that case, the lessees argued that they could occupy the premises as long as prepared the lease contract on the basis of data given to him by Wong and
they paid the rent. This is of course untenable, for as this Court said, "If this that she told him that "whatever Mr. Wong wants must be followed."7
defense were to be allowed, so long as defendants elected to continue the
lease by continuing the payment of the rentals, the owner would never be The testimony of Atty. Yumol cannot be read out of context in order to
able to discontinue it; conversely, although the owner should desire the lease warrant a finding that Wong practically dictated the terms of the contract.
to continue the lessees could effectively thwart his purpose if they should What this witness said was:
prefer to terminate the contract by the simple expedient of stopping payment
of the rentals." Here, in contrast, the right of the lessee to continue the lease Q Did you explain carefully to your client, Doa Justina, the contents
or to terminate it is so circumscribed by the term of the contract that it cannot of this document before she signed it?
be said that the continuance of the lease depends upon his will. At any rate,
even if no term had been fixed in the agreement, this case would at most
justify the fixing of a period5 but not the annulment of the contract. A I explained to her each and every one of these conditions and I
also told her these conditions were quite onerous for her, I don't
really know if I have expressed my opinion, but I told her that we
Nor is there merit in the claim that as the portion of the property formerly would rather not execute any contract anymore, but to hold it as it
owned by the sister of Justina Santos was still in the process of settlement in
was before, on a verbal month to month contract of lease.
the probate court at the time it was leased, the lease is invalid as to such
portion. Justina Santos became the owner of the entire property upon the
death of her sister Lorenzo on September 22, 1957 by force of article 777 of Q But, she did not follow your advice, and she went with the contract
the Civil Code. Hence, when she leased the property on November 15, she just the same?
did so already as owner thereof. As this Court explained in upholding the
sale made by an heir of a property under judicial administration: A She agreed first . . .

That the land could not ordinarily be levied upon while in custodia Q Agreed what?
legis does not mean that one of the heirs may not sell the right,
interest or participation which he has or might have in the lands A Agreed with my objectives that it is really onerous and that I was
under administration. The ordinary execution of property in custodia really right, but after that, I was called again by her and she told me
legis is prohibited in order to avoid interference with the possession to follow the wishes of Mr. Wong Heng.
by the court. But the sale made by an heir of his share in an
inheritance, subject to the result of the pending administration, in no xxx xxx xxx
wise stands in the way of such administration. 6
Q So, as far as consent is concerned, you were satisfied that this
It is next contended that the lease contract was obtained by Wong in violation document was perfectly proper?
of his fiduciary relationship with Justina Santos, contrary to article 1646, in
relation to article 1941 of the Civil Code, which disqualifies "agents (from
xxx xxx xxx
leasing) the property whose administration or sale may have been entrusted
to them." But Wong was never an agent of Justina Santos. The relationship
of the parties, although admittedly close and confidential, did not amount to A Your Honor, if I have to express my personal opinion, I would say
an agency so as to bring the case within the prohibition of the law. she is not, because, as I said before, she told me "Whatever Mr.
Wong wants must be followed."8
Just the same, it is argued that Wong so completely dominated her life and
affairs that the contracts express not her will but only his. Counsel for Justina Wong might indeed have supplied the data which Atty. Yumol embodied in
Santos cites the testimony of Atty. Tomas S. Yumol who said that he the lease contract, but to say this is not to detract from the binding force of
the contract. For the contract was fully explained to Justina Santos by her
own lawyer. One incident, related by the same witness, makes clear that she
53
voluntarily consented to the lease contract. This witness said that the original As it was with the lease contract (Plff Exh. 3), so it was with the rest of the
term fixed for the lease was 99 years but that as he doubted the validity of a contracts (Plff Exhs. 4-7) the consent of Justina Santos was given freely
lease to an alien for that length of time, he tried to persuade her to enter and voluntarily. As Atty. Alonzo, testifying for her, said:
instead into a lease on a month-to-month basis. She was, however, firm and
unyielding. Instead of heeding the advice of the lawyer, she ordered him, [I]n nearly all documents, it was either Mr. Wong Heng or Judge
"Just follow Mr. Wong Heng."9 Recounting the incident, Atty. Yumol declared Torres and/or both. When we had conferences, they used to tell me
on cross examination: what the documents should contain. But, as I said, I would always
ask the old woman about them and invariably the old woman used to
Considering her age, ninety (90) years old at the time and her tell me: "That's okay. It's all right."15
condition, she is a wealthy woman, it is just natural when she said
"This is what I want and this will be done." In particular reference to But the lower court set aside all the contracts, with the exception of the lease
this contract of lease, when I said "This is not proper," she said contract of November 15, 1957, on the ground that they are contrary to the
"You just go ahead, you prepare that, I am the owner, and if there is expressed wish of Justina Santos and that their considerations are fictitious.
any illegality, I am the only one that can question the illegality."10 Wong stated in his deposition that he did not pay P360 a month for the
additional premises leased to him, because she did not want him to, but the
Atty. Yumol further testified that she signed the lease contract in the trial court did not believe him. Neither did it believe his statement that he paid
presence of her close friend, Hermenegilda Lao, and her maid, Natividad P1,000 as consideration for each of the contracts (namely, the option to buy
Luna, who was constantly by her side.11 Any of them could have testified on the leased premises, the extension of the lease to 99 years, and the fixing of
the undue influence that Wong supposedly wielded over Justina Santos, but the term of the option at 50 years), but that the amount was returned to him
neither of them was presented as a witness. The truth is that even after by her for safekeeping. Instead, the court relied on the testimony of Atty.
giving his client time to think the matter over, the lawyer could not make her Alonzo in reaching the conclusion that the contracts are void for want of
change her mind. This persuaded the lower court to uphold the validity of the consideration.
lease contract against the claim that it was procured through undue
influence. Atty. Alonzo declared that he saw no money paid at the time of the execution
of the documents, but his negative testimony does not rule out the possibility
Indeed, the charge of undue influence in this case rests on a mere that the considerations were paid at some other time as the contracts in fact
inference12 drawn from the fact that Justina Santos could not read (as she recite. What is more, the consideration need not pass from one party to the
was blind) and did not understand the English language in which the contract other at the time a contract is executed because the promise of one is the
is written, but that inference has been overcome by her own evidence. consideration for the other.16

Nor is there merit in the claim that her consent to the lease contract, as well With respect to the lower court's finding that in all probability Justina Santos
as to the rest of the contracts in question, was given out of a mistaken sense could not have intended to part with her property while she was alive nor
of gratitude to Wong who, she was made to believe, had saved her and her even to lease it in its entirety as her house was built on it, suffice it to quote
sister from a fire that destroyed their house during the liberation of Manila. the testimony of her own witness and lawyer who prepared the contracts (Plff
For while a witness claimed that the sisters were saved by other persons (the Exhs. 4-7) in question, Atty. Alonzo:
brothers Edilberto and Mariano Sta. Ana)13 it was Justina Santos herself
who, according to her own witness, Benjamin C. Alonzo, said "very The ambition of the old woman, before her death, according to her
emphatically" that she and her sister would have perished in the fire had it revelation to me, was to see to it that these properties be enjoyed,
not been for Wong.14 Hence the recital in the deed of conditional option (Plff even to own them, by Wong Heng because Doa Justina told me
Exh. 7) that "[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang that she did not have any relatives, near or far, and she considered
magkapatid sa halos ay tiyak na kamatayan", and the equally emphatic Wong Heng as a son and his children her grandchildren; especially
avowal of gratitude in the lease contract (Plff Exh. 3). her consolation in life was when she would hear the children reciting
prayers in Tagalog.17
54
She was very emphatic in the care of the seventeen (17) dogs and of It does not follow from what has been said, however, that because the
the maids who helped her much, and she told me to see to it that no parties are in pari delicto they will be left where they are, without relief. For
one could disturb Wong Heng from those properties. That is why we one thing, the original parties who were guilty of a violation of the
thought of the ninety-nine (99) years lease; we thought of adoption, fundamental charter have died and have since been substituted by their
believing that thru adoption Wong Heng might acquire Filipino administrators to whom it would be unjust to impute their guilt.23 For another
citizenship; being the adopted child of a Filipino citizen. 18 thing, and this is not only cogent but also important, article 1416 of the Civil
Code provides, as an exception to the rule on pari delicto, that "When the
This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For agreement is not illegal per se but is merely prohibited, and the prohibition by
the testimony just quoted, while dispelling doubt as to the intention of Justina law is designed for the protection of the plaintiff, he may, if public policy is
Santos, at the same time gives the clue to what we view as a scheme to thereby enhanced, recover what he has paid or delivered." The
circumvent the Constitutional prohibition against the transfer of lands to Constitutional provision that "Save in cases of hereditary succession, no
aliens. "The illicit purpose then becomes the illegal causa"19 rendering the private agricultural land shall be transferred or assigned except to individuals,
contracts void. corporations, or associations qualified to acquire or hold lands of the public
domain in the Philippines"24 is an expression of public policy to conserve
lands for the Filipinos. As this Court said in Krivenko:
Taken singly, the contracts show nothing that is necessarily illegal, but
considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, a lease to an It is well to note at this juncture that in the present case we have no
alien for a reasonable period is valid. So is an option giving an alien the right choice. We are construing the Constitution as it is and not as we may
to buy real property on condition that he is granted Philippine citizenship. As desire it to be. Perhaps the effect of our construction is to preclude
this Court said in Krivenko v. Register of Deeds:20 aliens admitted freely into the Philippines from owning sites where
they may build their homes. But if this is the solemn mandate of the
Constitution, we will not attempt to compromise it even in the name
[A]liens are not completely excluded by the Constitution from the use
of amity or equity . . . .
of lands for residential purposes. Since their residence in the
Philippines is temporary, they may be granted temporary rights such
as a lease contract which is not forbidden by the Constitution. Should For all the foregoing, we hold that under the Constitution aliens may
they desire to remain here forever and share our fortunes and not acquire private or public agricultural lands, including residential
misfortunes, Filipino citizenship is not impossible to acquire. lands, and, accordingly, judgment is affirmed, without costs.25

But if an alien is given not only a lease of, but also an option to buy, a piece That policy would be defeated and its continued violation sanctioned if,
of land, by virtue of which the Filipino owner cannot sell or otherwise dispose instead of setting the contracts aside and ordering the restoration of the land
of his property,21 this to last for 50 years, then it becomes clear that the to the estate of the deceased Justina Santos, this Court should apply the
arrangement is a virtual transfer of ownership whereby the owner divests general rule of pari delicto. To the extent that our ruling in this case conflicts
himself in stages not only of the right to enjoy the land ( jus possidendi, jus with that laid down in Rellosa v. Gaw Chee Hun 26 and subsequent similar
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it ( jus cases, the latter must be considered as pro tanto qualified.
disponendi) rights the sum total of which make up ownership. It is just as if
today the possession is transferred, tomorrow, the use, the next day, the The claim for increased rentals and attorney's fees, made in behalf of Justina
disposition, and so on, until ultimately all the rights of which ownership is Santos, must be denied for lack of merit.
made up are consolidated in an alien. And yet this is just exactly what the
parties in this case did within the space of one year, with the result that And what of the various amounts which Wong received in trust from her? It
Justina Santos' ownership of her property was reduced to a hollow concept. appears that he kept two classes of accounts, one pertaining to amount
If this can be done, then the Constitutional ban against alien landholding in which she entrusted to him from time to time, and another pertaining to
the Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed rentals from the Ongpin property and from the Rizal Avenue property, which
in grave peril. he himself was leasing.
55
With respect to the first account, the evidence shows that he received home was because there she did not incur in any debts . . . this
P33,724.27 on November 8, 1957 (Plff Exh. 16); P7,354.42 on December 1, being the case, . . . the Court will not adjudicate in favor of Wong
1957 (Plff Exh. 13); P10,000 on December 6, 1957 (Plff Exh. 14) ; and Heng on his counterclaim; on the other hand, while it is claimed that
P18,928.50 on August 26, 1959 (Def. Exh. 246), or a total of P70,007.19. He the expenses were much less than the rentals and there in fact
claims, however, that he settled his accounts and that the last amount of should be a superavit, . . . this Court must concede that daily
P18,928.50 was in fact payment to him of what in the liquidation was found to expenses are not easy to compute, for this reason, the Court faced
be due to him. with the choice of the two alternatives will choose the middle course
which after all is permitted by the rules of proof, Sec. 69, Rule 123
He made disbursements from this account to discharge Justina Santos' for in the ordinary course of things, a person will live within his
obligations for taxes, attorneys' fees, funeral services and security guard income so that the conclusion of the Court will be that there is neither
services, but the checks (Def Exhs. 247-278) drawn by him for this purpose deficit nor superavit and will let the matter rest here.
amount to only P38,442.84.27 Besides, if he had really settled his accounts
with her on August 26, 1959, we cannot understand why he still had P22,000 Both parties on appeal reiterate their respective claims but we agree with the
in the bank and P3,000 in his possession, or a total of P25,000. In his lower court that both claims should be denied. Aside from the reasons given
answer, he offered to pay this amount if the court so directed him. On these by the court, we think that the claim of Justina Santos totalling P37,235, as
two grounds, therefore, his claim of liquidation and settlement of accounts rentals due to her after deducting various expenses, should be rejected as
must be rejected. the evidence is none too clear about the amounts spent by Wong for food29
masses30 and salaries of her maids.31 His claim for P9,210.49 must likewise
After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts), be rejected as his averment of liquidation is belied by his own admission that
there is a difference of P31,564 which, added to the amount of P25,000, even as late as 1960 he still had P22,000 in the bank and P3,000 in his
leaves a balance of P56,564.3528 in favor of Justina Santos. possession.

As to the second account, the evidence shows that the monthly income from ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and
the Ongpin property until its sale in Rizal Avenue July, 1959 was P1,000, and set aside; the land subject-matter of the contracts is ordered returned to the
that from the Rizal Avenue property, of which Wong was the lessee, was estate of Justina Santos as represented by the Philippine Banking
P3,120. Against this account the household expenses and disbursements for Corporation; Wong Heng (as substituted by the defendant-appellant Lui She)
the care of the 17 dogs and the salaries of the 8 maids of Justina Santos is ordered to pay the Philippine Banking Corporation the sum of P56,564.35,
were charged. This account is contained in a notebook (Def. Exh. 6) which with legal interest from the date of the filing of the amended complaint; and
shows a balance of P9,210.49 in favor of Wong. But it is claimed that the the amounts consigned in court by Wong Heng shall be applied to the
rental from both the Ongpin and Rizal Avenue properties was more than payment of rental from November 15, 1959 until the premises shall have
enough to pay for her monthly expenses and that, as a matter of fact, there been vacated by his heirs. Costs against the defendant-appellant.
should be a balance in her favor. The lower court did not allow either party to
recover against the other. Said the court:

[T]he documents bear the earmarks of genuineness; the trouble is


that they were made only by Francisco Wong and Antonia Matias,
nick-named Toning, which was the way she signed the loose
sheets, and there is no clear proof that Doa Justina had authorized
these two to act for her in such liquidation; on the contrary if the
result of that was a deficit as alleged and sought to be there shown,
of P9,210.49, that was not what Doa Justina apparently understood
for as the Court understands her statement to the Honorable Judge
of the Juvenile Court . . . the reason why she preferred to stay in her

56
G.R. No. 122156 February 3, 1997 1. The Highest Bidder must comply with the conditions set
forth below by October 23, 1995 (reset to November 3,
MANILA PRINCE HOTEL petitioner, 1995) or the Highest Bidder will lose the right to purchase
vs. the Block of Shares and GSIS will instead offer the Block of
GOVERNMENT SERVICE INSURANCE SYSTEM, MANILA HOTEL Shares to the other Qualified Bidders:
CORPORATION, COMMITTEE ON PRIVATIZATION and OFFICE OF THE
GOVERNMENT CORPORATE COUNSEL, respondents. a. The Highest Bidder must negotiate and
execute with the GSIS/MHC the
Management Contract, International
Marketing/Reservation System Contract or
BELLOSILLO, J.: other type of contract specified by the
Highest Bidder in its strategic plan for the
Manila Hotel. . . .
The FiIipino First Policy enshrined in the 1987 Constitution, i.e., in the grant
of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos,1 is in oked by b. The Highest Bidder must execute the
Stock Purchase and Sale Agreement with
petitioner in its bid to acquire 51% of the shares of the Manila Hotel
GSIS . . . .
Corporation (MHC) which owns the historic Manila Hotel. Opposing,
respondents maintain that the provision is not self-executing but requires an
implementing legislation for its enforcement. Corollarily, they ask whether the K. DECLARATION OF THE WINNING
51% shares form part of the national economy and patrimony covered by the BIDDER/STRATEGIC PARTNER
protective mantle of the Constitution.
The Highest Bidder will be declared the Winning
The controversy arose when respondent Government Service Insurance Bidder/Strategic Partner after the following conditions are
System (GSIS), pursuant to the privatization program of the Philippine met:
Government under Proclamation No. 50 dated 8 December 1986, decided to
sell through public bidding 30% to 51% of the issued and outstanding shares a. Execution of the necessary contracts with
of respondent MHC. The winning bidder, or the eventual "strategic partner," GSIS/MHC not later than October 23, 1995
is to provide management expertise and/or an international (reset to November 3, 1995); and
marketing/reservation system, and financial support to strengthen the
profitability and performance of the Manila Hotel.2 In a close bidding held on b. Requisite approvals from the GSIS/MHC
18 September 1995 only two (2) bidders participated: petitioner Manila and COP (Committee on
Prince Hotel Corporation, a Filipino corporation, which offered to buy 51% of Privatization)/OGCC (Office of the
the MHC or 15,300,000 shares at P41.58 per share, and Renong Berhad, a Government Corporate Counsel) are
Malaysian firm, with ITT-Sheraton as its hotel operator, which bid for the obtained.3
same number of shares at P44.00 per share, or P2.42 more than the bid of
petitioner.
Pending the declaration of Renong Berhad as the winning bidder/strategic
partner and the execution of the necessary contracts, petitioner in a letter to
Pertinent provisions of the bidding rules prepared by respondent GSIS state respondent GSIS dated 28 September 1995 matched the bid price of P44.00
per share tendered by Renong Berhad.4 In a subsequent letter dated 10
October 1995 petitioner sent a manager's check issued by Philtrust Bank for
I. EXECUTION OF THE NECESSARY Thirty-three Million Pesos (P33.000.000.00) as Bid Security to match the bid
CONTRACTS WITH GSIS/MHC of the Malaysian Group, Messrs. Renong Berhad . . .5 which respondent
GSIS refused to accept.
57
On 17 October 1995, perhaps apprehensive that respondent GSIS has Second, granting that this provision is self-executing, Manila Hotel does not
disregarded the tender of the matching bid and that the sale of 51% of the fall under the term national patrimony which only refers to lands of the public
MHC may be hastened by respondent GSIS and consummated with Renong domain, waters, minerals, coal, petroleum and other mineral oils, all forces of
Berhad, petitioner came to this Court on prohibition and mandamus. On 18 potential energy, fisheries, forests or timber, wildlife, flora and fauna and all
October 1995 the Court issued a temporary restraining order enjoining marine wealth in its territorial sea, and exclusive marine zone as cited in the
respondents from perfecting and consummating the sale to the Malaysian first and second paragraphs of Sec. 2, Art. XII, 1987 Constitution. According
firm. to respondents, while petitioner speaks of the guests who have slept in the
hotel and the events that have transpired therein which make the hotel
On 10 September 1996 the instant case was accepted by the Court En Banc historic, these alone do not make the hotel fall under the patrimony of the
after it was referred to it by the First Division. The case was then set for oral nation. What is more, the mandate of the Constitution is addressed to the
arguments with former Chief Justice Enrique M. Fernando and Fr. Joaquin G. State, not to respondent GSIS which possesses a personality of its own
Bernas, S.J., as amici curiae. separate and distinct from the Philippines as a State.

In the main, petitioner invokes Sec. 10, second par., Art. XII, of the 1987 Third, granting that the Manila Hotel forms part of the national patrimony, the
Constitution and submits that the Manila Hotel has been identified with the constitutional provision invoked is still inapplicable since what is being sold is
Filipino nation and has practically become a historical monument which only 51% of the outstanding shares of the corporation, not the hotel building
reflects the vibrancy of Philippine heritage and culture. It is a proud legacy of nor the land upon which the building stands. Certainly, 51% of the equity of
an earlier generation of Filipinos who believed in the nobility and sacredness the MHC cannot be considered part of the national patrimony. Moreover, if
of independence and its power and capacity to release the full potential of the disposition of the shares of the MHC is really contrary to the Constitution,
the Filipino people. To all intents and purposes, it has become a part of the petitioner should have questioned it right from the beginning and not after it
national patrimony.6 Petitioner also argues that since 51% of the shares of had lost in the bidding.
the MHC carries with it the ownership of the business of the hotel which is
owned by respondent GSIS, a government-owned and controlled Fourth, the reliance by petitioner on par. V., subpar. J. 1., of the bidding rules
corporation, the hotel business of respondent GSIS being a part of the which provides that if for any reason, the Highest Bidder cannot be awarded
tourism industry is unquestionably a part of the national economy. Thus, any the Block of Shares, GSIS may offer this to the other Qualified Bidders that
transaction involving 51% of the shares of stock of the MHC is clearly have validly submitted bids provided that these Qualified Bidders are willing
covered by the term national economy, to which Sec. 10, second par., Art. to match the highest bid in terms of price per share, is misplaced.
XII, 1987 Constitution, applies.7 Respondents postulate that the privilege of submitting a matching bid has not
yet arisen since it only takes place if for any reason, the Highest Bidder
It is also the thesis of petitioner that since Manila Hotel is part of the national cannot be awarded the Block of Shares. Thus the submission by petitioner of
patrimony and its business also unquestionably part of the national economy a matching bid is premature since Renong Berhad could still very well be
petitioner should be preferred after it has matched the bid offer of the awarded the block of shares and the condition giving rise to the exercise of
Malaysian firm. For the bidding rules mandate that if for any reason, the the privilege to submit a matching bid had not yet taken place.
Highest Bidder cannot be awarded the Block of Shares, GSIS may offer this
to the other Qualified Bidders that have validly submitted bids provided that Finally, the prayer for prohibition grounded on grave abuse of discretion
these Qualified Bidders are willing to match the highest bid in terms of price should fail since respondent GSIS did not exercise its discretion in a
per share.8 capricious, whimsical manner, and if ever it did abuse its discretion it was not
so patent and gross as to amount to an evasion of a positive duty or a virtual
Respondents except. They maintain that: First, Sec. 10, second par., Art. XII, refusal to perform a duty enjoined by law. Similarly, the petition for
of the 1987 Constitution is merely a statement of principle and policy since it mandamus should fail as petitioner has no clear legal right to what it
is not a self-executing provision and requires implementing legislation(s) . . . demands and respondents do not have an imperative duty to perform the act
Thus, for the said provision to Operate, there must be existing laws "to lay required of them by petitioner.
down conditions under which business may be done."9

58
We now resolve. A constitution is a system of fundamental laws for the of the fundamental law.14 This can be cataclysmic. That is why the prevailing
governance and administration of a nation. It is supreme, imperious, absolute view is, as it has always been, that
and unalterable except by the authority from which it emanates. It has been
defined as the fundamental and paramount law of the nation. 10 It prescribes . . . in case of doubt, the Constitution should be considered
the permanent framework of a system of government, assigns to the different self-executing rather than non-self-executing . . . . Unless the
departments their respective powers and duties, and establishes certain fixed contrary is clearly intended, the provisions of the Constitution
principles on which government is founded. The fundamental conception in should be considered self-executing, as a contrary rule
other words is that it is a supreme law to which all other laws must conform would give the legislature discretion to determine when, or
and in accordance with which all private rights must be determined and all whether, they shall be effective. These provisions would be
public authority administered. 11 Under the doctrine of constitutional subordinated to the will of the lawmaking body, which could
supremacy, if a law or contract violates any norm of the constitution that law make them entirely meaningless by simply refusing to pass
or contract whether promulgated by the legislative or by the executive branch the needed implementing statute. 15
or entered into by private persons for private purposes is null and void and
without any force and effect. Thus, since the Constitution is the fundamental,
Respondents argue that Sec. 10, second par., Art. XII, of the 1987
paramount and supreme law of the nation, it is deemed written in every
Constitution is clearly not self-executing, as they quote from discussions on
statute and contract.
the floor of the 1986 Constitutional Commission

Admittedly, some constitutions are merely declarations of policies and


MR. RODRIGO. Madam President, I am
principles. Their provisions command the legislature to enact laws and carry asking this question as the Chairman of the
out the purposes of the framers who merely establish an outline of Committee on Style. If the wording of
government providing for the different departments of the governmental
"PREFERENCE" is given to QUALIFIED
machinery and securing certain fundamental and inalienable rights of
FILIPINOS," can it be understood as a
citizens. 12 A provision which lays down a general principle, such as those preference to qualified Filipinos vis-a-vis
found in Art. II of the 1987 Constitution, is usually not self-executing. But a
Filipinos who are not qualified. So, why do
provision which is complete in itself and becomes operative without the aid of we not make it clear? To qualified Filipinos
supplementary or enabling legislation, or that which supplies sufficient rule by
as against aliens?
means of which the right it grants may be enjoyed or protected, is self-
executing. Thus a constitutional provision is self-executing if the nature and
extent of the right conferred and the liability imposed are fixed by the THE PRESIDENT. What is the question of
constitution itself, so that they can be determined by an examination and Commissioner Rodrigo? Is it to remove the
construction of its terms, and there is no language indicating that the subject word "QUALIFIED?".
is referred to the legislature for action. 13
MR. RODRIGO. No, no, but say definitely
As against constitutions of the past, modern constitutions have been "TO QUALIFIED FILIPINOS" as against
generally drafted upon a different principle and have often become in effect whom? As against aliens or over aliens?
extensive codes of laws intended to operate directly upon the people in a
manner similar to that of statutory enactments, and the function of MR. NOLLEDO. Madam President, I think
constitutional conventions has evolved into one more like that of a legislative that is understood. We use the word
body. Hence, unless it is expressly provided that a legislative act is "QUALIFIED" because the existing laws or
necessary to enforce a constitutional mandate, the presumption now is that prospective laws will always lay down
all provisions of the constitution are self-executing If the constitutional conditions under which business may be
provisions are treated as requiring legislation instead of self-executing, the done. For example, qualifications on the
legislature would have the power to ignore and practically nullify the mandate setting up of other financial structures, et
cetera (emphasis supplied by respondents)
59
MR. RODRIGO. It is just a matter of style. constitutional provision may be self-executing in one part and non-self-
executing in another. 19
MR. NOLLEDO Yes, 16
Even the cases cited by respondents holding that certain constitutional
Quite apparently, Sec. 10, second par., of Art XII is couched in such a way provisions are merely statements of principles and policies, which are
as not to make it appear that it is non-self-executing but simply for purposes basically not self-executing and only placed in the Constitution as moral
of style. But, certainly, the legislature is not precluded from enacting other incentives to legislation, not as judicially enforceable rights are simply not
further laws to enforce the constitutional provision so long as the in point. Basco v. Philippine Amusements and Gaming Corporation 20
contemplated statute squares with the Constitution. Minor details may be left speaks of constitutional provisions on personal dignity, 21 the sanctity of
to the legislature without impairing the self-executing nature of constitutional family life, 22 the vital role of the youth in nation-building 23 the promotion of
provisions. social justice, 24 and the values of education. 25 Tolentino v. Secretary of
Finance 26 refers to the constitutional provisions on social justice and human
rights 27 and on education. 28 Lastly, Kilosbayan, Inc. v. Morato 29 cites
In self-executing constitutional provisions, the legislature may still enact
legislation to facilitate the exercise of powers directly granted by the provisions on the promotion of general welfare, 30 the sanctity of family life,
31 the vital role of the youth in nation-building 32 and the promotion of total
constitution, further the operation of such a provision, prescribe a practice to
human liberation and development. 33 A reading of these provisions indeed
be used for its enforcement, provide a convenient remedy for the protection
clearly shows that they are not judicially enforceable constitutional rights but
of the rights secured or the determination thereof, or place reasonable
merely guidelines for legislation. The very terms of the provisions manifest
safeguards around the exercise of the right. The mere fact that legislation
that they are only principles upon which the legislations must be based. Res
may supplement and add to or prescribe a penalty for the violation of a self-
ipsa loquitur.
executing constitutional provision does not render such a provision
ineffective in the absence of such legislation. The omission from a
constitution of any express provision for a remedy for enforcing a right or On the other hand, Sec. 10, second par., Art. XII of the of the 1987
liability is not necessarily an indication that it was not intended to be self- Constitution is a mandatory, positive command which is complete in itself
executing. The rule is that a self-executing provision of the constitution does and which needs no further guidelines or implementing laws or rules for its
not necessarily exhaust legislative power on the subject, but any legislation enforcement. From its very words the provision does not require any
must be in harmony with the constitution, further the exercise of constitutional legislation to put it in operation. It is per se judicially enforceable When our
right and make it more available. 17 Subsequent legislation however does Constitution mandates that [i]n the grant of rights, privileges, and
not necessarily mean that the subject constitutional provision is not, by itself, concessions covering national economy and patrimony, the State shall give
fully enforceable. preference to qualified Filipinos, it means just that qualified Filipinos shall
be preferred. And when our Constitution declares that a right exists in certain
specified circumstances an action may be maintained to enforce such right
Respondents also argue that the non-self-executing nature of Sec. 10,
notwithstanding the absence of any legislation on the subject; consequently,
second par., of Art. XII is implied from the tenor of the first and third
if there is no statute especially enacted to enforce such constitutional right,
paragraphs of the same section which undoubtedly are not self-executing. 18
such right enforces itself by its own inherent potency and puissance, and
The argument is flawed. If the first and third paragraphs are not self-
executing because Congress is still to enact measures to encourage the from which all legislations must take their bearings. Where there is a right
there is a remedy. Ubi jus ibi remedium.
formation and operation of enterprises fully owned by Filipinos, as in the first
paragraph, and the State still needs legislation to regulate and exercise
authority over foreign investments within its national jurisdiction, as in the As regards our national patrimony, a member of the 1986 Constitutional
third paragraph, then a fortiori, by the same logic, the second paragraph can Commission 34 explains
only be self-executing as it does not by its language require any legislation in
order to give preference to qualified Filipinos in the grant of rights, privileges The patrimony of the Nation that should be conserved and
and concessions covering the national economy and patrimony. A developed refers not only to out rich natural resources but
also to the cultural heritage of out race. It also refers to our

60
intelligence in arts, sciences and letters. Therefore, we land on which the hotel edifice stands. Consequently, we cannot sustain
should develop not only our lands, forests, mines and other respondents' claim that the Filipino First Policy provision is not applicable
natural resources but also the mental ability or faculty of our since what is being sold is only 51% of the outstanding shares of the
people. corporation, not the Hotel building nor the land upon which the building
stands. 38
We agree. In its plain and ordinary meaning, the term patrimony pertains to
heritage. 35 When the Constitution speaks of national patrimony, it refers not The argument is pure sophistry. The term qualified Filipinos as used in Our
only to the natural resources of the Philippines, as the Constitution could Constitution also includes corporations at least 60% of which is owned by
have very well used the term natural resources, but also to the cultural Filipinos. This is very clear from the proceedings of the 1986 Constitutional
heritage of the Filipinos. Commission

Manila Hotel has become a landmark a living testimonial of Philippine THE PRESIDENT. Commissioner Davide is
heritage. While it was restrictively an American hotel when it first opened in recognized.
1912, it immediately evolved to be truly Filipino, Formerly a concourse for the
elite, it has since then become the venue of various significant events which MR. DAVIDE. I would like to introduce an
have shaped Philippine history. It was called the Cultural Center of the amendment to the Nolledo amendment. And
1930's. It was the site of the festivities during the inauguration of the the amendment would consist in substituting
Philippine Commonwealth. Dubbed as the Official Guest House of the the words "QUALIFIED FILIPINOS" with the
Philippine Government. it plays host to dignitaries and official visitors who are following: "CITIZENS OF THE PHILIPPINES
accorded the traditional Philippine hospitality. 36 OR CORPORATIONS OR ASSOCIATIONS
WHOSE CAPITAL OR CONTROLLING
The history of the hotel has been chronicled in the book The Manila Hotel: STOCK IS WHOLLY OWNED BY SUCH
The Heart and Memory of a City. 37 During World War II the hotel was CITIZENS.
converted by the Japanese Military Administration into a military
headquarters. When the American forces returned to recapture Manila the xxx xxx xxx
hotel was selected by the Japanese together with Intramuros as the two (2)
places fro their final stand. Thereafter, in the 1950's and 1960's, the hotel
MR. MONSOD. Madam President,
became the center of political activities, playing host to almost every political apparently the proponent is agreeable, but
convention. In 1970 the hotel reopened after a renovation and reaped we have to raise a question. Suppose it is a
numerous international recognitions, an acknowledgment of the Filipino
corporation that is 80-percent Filipino, do we
talent and ingenuity. In 1986 the hotel was the site of a failed coup d' etat
not give it preference?
where an aspirant for vice-president was "proclaimed" President of the
Philippine Republic.
MR. DAVIDE. The Nolledo amendment
would refer to an individual Filipino. What
For more than eight (8) decades Manila Hotel has bore mute witness to the
about a corporation wholly owned by Filipino
triumphs and failures, loves and frustrations of the Filipinos; its existence is
citizens?
impressed with public interest; its own historicity associated with our struggle
for sovereignty, independence and nationhood. Verily, Manila Hotel has
become part of our national economy and patrimony. For sure, 51% of the MR. MONSOD. At least 60 percent, Madam
equity of the MHC comes within the purview of the constitutional shelter for it President.
comprises the majority and controlling stock, so that anyone who acquires or
owns the 51% will have actual control and management of the hotel. In this MR. DAVIDE. Is that the intention?
instance, 51% of the MHC cannot be disassociated from the hotel and the

61
MR. MONSOD. Yes, because, in fact, we MR FOZ. In connection with that
would be limiting it if we say that the amendment, if a foreign enterprise is
preference should only be 100-percent qualified and a Filipino enterprise is also
Filipino. qualified, will the Filipino enterprise still be
given a preference?
MR: DAVIDE. I want to get that meaning
clear because "QUALIFIED FILIPINOS" may MR. NOLLEDO. Obviously.
refer only to individuals and not to juridical
personalities or entities. MR. FOZ. If the foreigner is more qualified in
some aspects than the Filipino enterprise,
MR. MONSOD. We agree, Madam will the Filipino still be preferred?
President. 39
MR. NOLLEDO. The answer is "yes."
xxx xxx xxx
MR. FOZ. Thank you, 41
MR. RODRIGO. Before we vote, may I
request that the amendment be read again. Expounding further on the Filipino First Policy provision Commissioner
Nolledo continues
MR. NOLLEDO. The amendment will read:
"IN THE GRANT OF RIGHTS, PRIVILEGES MR. NOLLEDO. Yes, Madam President. Instead of "MUST,"
AND CONCESSIONS COVERING THE it will be "SHALL THE STATE SHALL GlVE
NATIONAL ECONOMY AND PATRIMONY, PREFERENCE TO QUALIFIED FILIPINOS. This embodies
THE STATE SHALL GIVE PREFERENCE the so-called "Filipino First" policy. That means that Filipinos
TO QUALIFIED FILIPINOS." And the word should be given preference in the grant of concessions,
"Filipinos" here, as intended by the privileges and rights covering the national patrimony. 42
proponents, will include not only individual
Filipinos but also Filipino-controlled entities The exchange of views in the sessions of the Constitutional Commission
or entities fully-controlled by Filipinos. 40
regarding the subject provision was still further clarified by Commissioner
Nolledo 43
The phrase preference to qualified Filipinos was explained thus
Paragraph 2 of Section 10 explicitly mandates the "Pro-
MR. FOZ. Madam President, I would like to Filipino" bias in all economic concerns. It is better known as
request Commissioner Nolledo to please the FILIPINO FIRST Policy . . . This provision was never
restate his amendment so that I can ask a found in previous Constitutions . . . .
question.
The term "qualified Filipinos" simply means that preference
MR. NOLLEDO. "IN THE GRANT OF shall be given to those citizens who can make a viable
RIGHTS, PRIVILEGES AND contribution to the common good, because of credible
CONCESSIONS COVERING THE competence and efficiency. It certainly does NOT mandate
NATIONAL ECONOMY AND PATRIMONY, the pampering and preferential treatment to Filipino citizens
THE STATE SHALL GIVE PREFERENCE or organizations that are incompetent or inefficient, since
TO QUALIFIED FILIPINOS."

62
such an indiscriminate preference would be counter distinct personality. This argument again is at best specious. It is undisputed
productive and inimical to the common good. that the sale of 51% of the MHC could only be carried out with the prior
approval of the State acting through respondent Committee on Privatization.
In the granting of economic rights, privileges, and As correctly pointed out by Fr. Joaquin G. Bernas, S.J., this fact alone makes
concessions, when a choice has to be made between a the sale of the assets of respondents GSIS and MHC a "state action." In
"qualified foreigner" end a "qualified Filipino," the latter shall constitutional jurisprudence, the acts of persons distinct from the government
be chosen over the former." are considered "state action" covered by the Constitution (1) when the
activity it engages in is a "public function;" (2) when the government is so
Lastly, the word qualified is also determinable. Petitioner was so considered significantly involved with the private actor as to make the government
by respondent GSIS and selected as one of the qualified bidders. It was pre- responsible for his action; and, (3) when the government has approved or
authorized the action. It is evident that the act of respondent GSIS in selling
qualified by respondent GSIS in accordance with its own guidelines so that
51% of its share in respondent MHC comes under the second and third
the sole inference here is that petitioner has been found to be possessed of
categories of "state action." Without doubt therefore the transaction. although
proven management expertise in the hotel industry, or it has significant
equity ownership in another hotel company, or it has an overall management entered into by respondent GSIS, is in fact a transaction of the State and
and marketing proficiency to successfully operate the Manila Hotel. 44 therefore subject to the constitutional command. 46

When the Constitution addresses the State it refers not only to the people but
The penchant to try to whittle away the mandate of the Constitution by
also to the government as elements of the State. After all, government is
arguing that the subject provision is not self-executory and requires
implementing legislation is quite disturbing. The attempt to violate a clear composed of three (3) divisions of power legislative, executive and
constitutional provision by the government itself is only too distressing. judicial. Accordingly, a constitutional mandate directed to the State is
correspondingly directed to the three(3) branches of government. It is
To adopt such a line of reasoning is to renounce the duty to ensure
undeniable that in this case the subject constitutional injunction is addressed
faithfulness to the Constitution. For, even some of the provisions of the
among others to the Executive Department and respondent GSIS, a
Constitution which evidently need implementing legislation have juridical life
government instrumentality deriving its authority from the State.
of their own and can be the source of a judicial remedy. We cannot simply
afford the government a defense that arises out of the failure to enact further
enabling, implementing or guiding legislation. In fine, the discourse of Fr. It should be stressed that while the Malaysian firm offered the higher bid it is
Joaquin G. Bernas, S.J., on constitutional government is apt not yet the winning bidder. The bidding rules expressly provide that the
highest bidder shall only be declared the winning bidder after it has
The executive department has a constitutional duty to negotiated and executed the necessary contracts, and secured the requisite
approvals. Since the "Filipino First Policy provision of the Constitution
implement laws, including the Constitution, even before
bestows preference on qualified Filipinos the mere tending of the highest bid
Congress acts provided that there are discoverable legal
is not an assurance that the highest bidder will be declared the winning
standards for executive action. When the executive acts, it
bidder. Resultantly, respondents are not bound to make the award yet, nor
must be guided by its own understanding of the
are they under obligation to enter into one with the highest bidder. For in
constitutional command and of applicable laws. The
responsibility for reading and understanding the Constitution choosing the awardee respondents are mandated to abide by the dictates of
and the laws is not the sole prerogative of Congress. If it the 1987 Constitution the provisions of which are presumed to be known to
all the bidders and other interested parties.
were, the executive would have to ask Congress, or perhaps
the Court, for an interpretation every time the executive is
confronted by a constitutional command. That is not how Adhering to the doctrine of constitutional supremacy, the subject
constitutional government operates. 45 constitutional provision is, as it should be, impliedly written in the bidding
rules issued by respondent GSIS, lest the bidding rules be nullified for being
violative of the Constitution. It is a basic principle in constitutional law that all
Respondents further argue that the constitutional provision is addressed to
the State, not to respondent GSIS which by itself possesses a separate and
63
laws and contracts must conform with the fundamental law of the land. Those disregard by respondent GSIS of petitioner's matching bid did the latter have
which violate the Constitution lose their reason for being. a cause of action.

Paragraph V. J. 1 of the bidding rules provides that [if] for any reason the Besides, there is no time frame for invoking the constitutional safeguard
Highest Bidder cannot be awarded the Block of Shares, GSIS may offer this unless perhaps the award has been finally made. To insist on selling the
to other Qualified Bidders that have validly submitted bids provided that Manila Hotel to foreigners when there is a Filipino group willing to match the
these Qualified Bidders are willing to match the highest bid in terms of price bid of the foreign group is to insist that government be treated as any other
per ordinary market player, and bound by its mistakes or gross errors of
share. 47 Certainly, the constitutional mandate itself is reason enough not to judgment, regardless of the consequences to the Filipino people. The
award the block of shares immediately to the foreign bidder notwithstanding miscomprehension of the Constitution is regrettable. Thus we would rather
its submission of a higher, or even the highest, bid. In fact, we cannot remedy the indiscretion while there is still an opportunity to do so than let the
conceive of a stronger reason than the constitutional injunction itself. government develop the habit of forgetting that the Constitution lays down
the basic conditions and parameters for its actions.
In the instant case, where a foreign firm submits the highest bid in a public
bidding concerning the grant of rights, privileges and concessions covering Since petitioner has already matched the bid price tendered by Renong
the national economy and patrimony, thereby exceeding the bid of a Filipino, Berhad pursuant to the bidding rules, respondent GSIS is left with no
there is no question that the Filipino will have to be allowed to match the bid alternative but to award to petitioner the block of shares of MHC and to
of the foreign entity. And if the Filipino matches the bid of a foreign firm the execute the necessary agreements and documents to effect the sale in
award should go to the Filipino. It must be so if we are to give life and accordance not only with the bidding guidelines and procedures but with the
meaning to the Filipino First Policy provision of the 1987 Constitution. For, Constitution as well. The refusal of respondent GSIS to execute the
while this may neither be expressly stated nor contemplated in the bidding corresponding documents with petitioner as provided in the bidding rules
rules, the constitutional fiat is, omnipresent to be simply disregarded. To after the latter has matched the bid of the Malaysian firm clearly constitutes
ignore it would be to sanction a perilous skirting of the basic law. grave abuse of discretion.

This Court does not discount the apprehension that this policy may The Filipino First Policy is a product of Philippine nationalism. It is embodied
discourage foreign investors. But the Constitution and laws of the Philippines in the 1987 Constitution not merely to be used as a guideline for future
are understood to be always open to public scrutiny. These are given factors legislation but primarily to be enforced; so must it be enforced. This Court as
which investors must consider when venturing into business in a foreign the ultimate guardian of the Constitution will never shun, under any
jurisdiction. Any person therefore desiring to do business in the Philippines or reasonable circumstance, the duty of upholding the majesty of the
with any of its agencies or instrumentalities is presumed to know his rights Constitution which it is tasked to defend. It is worth emphasizing that it is not
and obligations under the Constitution and the laws of the forum. the intention of this Court to impede and diminish, much less undermine, the
influx of foreign investments. Far from it, the Court encourages and
The argument of respondents that petitioner is now estopped from welcomes more business opportunities but avowedly sanctions the
questioning the sale to Renong Berhad since petitioner was well aware from preference for Filipinos whenever such preference is ordained by the
the beginning that a foreigner could participate in the bidding is meritless. Constitution. The position of the Court on this matter could have not been
Undoubtedly, Filipinos and foreigners alike were invited to the bidding. But more appropriately articulated by Chief Justice Narvasa
foreigners may be awarded the sale only if no Filipino qualifies, or if the
qualified Filipino fails to match the highest bid tendered by the foreign entity. As scrupulously as it has tried to observe that it is not its
In the case before us, while petitioner was already preferred at the inception function to substitute its judgment for that of the legislature
of the bidding because of the constitutional mandate, petitioner had not yet or the executive about the wisdom and feasibility of
matched the bid offered by Renong Berhad. Thus it did not have the right or legislation economic in nature, the Supreme Court has not
personality then to compel respondent GSIS to accept its earlier bid. Rightly, been spared criticism for decisions perceived as obstacles to
only after it had matched the bid of the foreign firm and the apparent economic progress and development . . . in connection with

64
a temporary injunction issued by the Court's First Division played and continues to play a significant role as an authentic repository of
against the sale of the Manila Hotel to a Malaysian Firm and twentieth century Philippine history and culture. In this sense, it has become
its partner, certain statements were published in a major truly a reflection of the Filipino soul a place with a history of grandeur; a
daily to the effect that injunction "again demonstrates that most historical setting that has played a part in the shaping of a country. 51
the Philippine legal system can be a major obstacle to doing
business here. This Court cannot extract rhyme nor reason from the determined efforts of
respondents to sell the historical landmark this Grand Old Dame of hotels
Let it be stated for the record once again that while it is no in Asia to a total stranger. For, indeed, the conveyance of this epic
business of the Court to intervene in contracts of the kind exponent of the Filipino psyche to alien hands cannot be less than
referred to or set itself up as the judge of whether they are mephistophelian for it is, in whatever manner viewed, a veritable alienation of
viable or attainable, it is its bounden duty to make sure that a nation's soul for some pieces of foreign silver. And so we ask: What
they do not violate the Constitution or the laws, or are not advantage, which cannot be equally drawn from a qualified Filipino, can be
adopted or implemented with grave abuse of discretion gained by the Filipinos Manila Hotel and all that it stands for is sold to a
amounting to lack or excess of jurisdiction. It will never shirk non-Filipino? How much of national pride will vanish if the nation's cultural
that duty, no matter how buffeted by winds of unfair and ill- heritage is entrusted to a foreign entity? On the other hand, how much dignity
informed criticism. 48 will be preserved and realized if the national patrimony is safekept in the
hands of a qualified, zealous and well-meaning Filipino? This is the plain and
Privatization of a business asset for purposes of enhancing its business simple meaning of the Filipino First Policy provision of the Philippine
viability and preventing further losses, regardless of the character of the Constitution. And this Court, heeding the clarion call of the Constitution and
asset, should not take precedence over non-material values. A commercial, accepting the duty of being the elderly watchman of the nation, will continue
nay even a budgetary, objective should not be pursued at the expense of to respect and protect the sanctity of the Constitution.
national pride and dignity. For the Constitution enshrines higher and nobler
non-material values. Indeed, the Court will always defer to the Constitution in WHEREFORE, respondents GOVERNMENT SERVICE INSURANCE
the proper governance of a free society; after all, there is nothing so SYSTEM, MANILA HOTEL CORPORATION, COMMITTEE ON
sacrosanct in any economic policy as to draw itself beyond judicial review PRIVATIZATION and OFFICE OF THE GOVERNMENT CORPORATE
when the Constitution is involved. 49 COUNSEL are directed to CEASE and DESIST from selling 51% of the
shares of the Manila Hotel Corporation to RENONG BERHAD, and to
Nationalism is inherent, in the very concept of the Philippines being a ACCEPT the matching bid of petitioner MANILA PRINCE HOTEL
democratic and republican state, with sovereignty residing in the Filipino CORPORATION to purchase the subject 51% of the shares of the Manila
people and from whom all government authority emanates. In nationalism, Hotel Corporation at P44.00 per share and thereafter to execute the
the happiness and welfare of the people must be the goal. The nation-state necessary clearances and to do such other acts and deeds as may be
can have no higher purpose. Any interpretation of any constitutional provision necessary for purpose.
must adhere to such basic concept. Protection of foreign investments, while
laudible, is merely a policy. It cannot override the demands of nationalism. 50 SO ORDERED.

The Manila Hotel or, for that matter, 51% of the MHC, is not just any
commodity to be sold to the highest bidder solely for the sake of privatization.
We are not talking about an ordinary piece of property in a commercial
district. We are talking about a historic relic that has hosted many of the most
important events in the short history of the Philippines as a nation. We are
talking about a hotel where heads of states would prefer to be housed as a
strong manifestation of their desire to cloak the dignity of the highest state
function to their official visits to the Philippines. Thus the Manila Hotel has

65
G.R. No. 127882 December 1, 2004 vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Resources (DENR); HORACIO RAMOS, Director, Mines and
Chairman F'LONG MIGUEL M. LUMAYONG; WIGBERTO E. TAADA; Geosciences Bureau (MGB-DENR); RUBEN TORRES, Executive
PONCIANO BENNAGEN; JAIME TADEO; RENATO R. CONSTANTINO Secretary; and WMC (PHILIPPINES), INC.,4 respondents.
JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L.
DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B.
GUSANAN; MARCELO L. GUSANAN; QUINTOL A. LABUAYAN;
LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors JOLY L. RESOLUTION
BUGOY, Represented by His Father UNDERO D. BUGOY and ROGER M.
DADING; Represented by His Father ANTONIO L. DADING; ROMY M.
LAGARO, Represented by His Father TOTING A. LAGARO; MIKENY
JONG B. LUMAYONG, Represented by His Father MIGUEL M.
LUMAYONG; RENE T. MIGUEL, Represented by His Mother EDITHA T. PANGANIBAN, J.:
MIGUEL; ALDEMAR L. SAL, Represented by His Father DANNY M. SAL;
DAISY RECARSE, Represented by Her Mother LYDIA S. SANTOS; All mineral resources are owned by the State. Their exploration, development
EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L. MANGCAL; and utilization (EDU) must always be subject to the full control and
ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F. supervision of the State. More specifically, given the inadequacy of Filipino
LEONEN; JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO capital and technology in large-scale EDU activities, the State may secure
CULAR JR., Represented by Their Father VIRGILIO CULAR; PAUL the help of foreign companies in all relevant matters -- especially financial
ANTONIO P. VILLAMOR, Represented by His Parents JOSE VILLAMOR and technical assistance -- provided that, at all times, the State maintains its
and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA, Represented right of full control. The foreign assistor or contractor assumes all financial,
by Her Father MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN, technical and entrepreneurial risks in the EDU activities; hence, it may be
Represented by Her Father ALFREDO M. CUNANAN; ANTONIO JOSE A. given reasonable management, operational, marketing, audit and other
VITUG III, Represented by His Mother ANNALIZA A. VITUG, LEAN D. prerogatives to protect its investments and to enable the business to
NARVADEZ, Represented by His Father MANUEL E. NARVADEZ JR.; succeed.
ROSERIO MARALAG LINGATING, Represented by Her Father RIO
OLIMPIO A. LINGATING; MARIO JOSE B. TALJA; DAVID E. DE VERA; Full control is not anathematic to day-to-day management by the contractor,
MARIA MILAGROS L. SAN JOSE; Sr. SUSAN O. BOLANIO, OND; provided that the State retains the power to direct overall strategy; and to set
LOLITA G. DEMONTEVERDE; BENJIE L. NEQUINTO;1 ROSE LILIA S. aside, reverse or modify plans and actions of the contractor. The idea of full
ROMANO; ROBERTO S. VERZOLA; EDUARDO AURELIO C. REYES; control is similar to that which is exercised by the board of directors of a
LEAN LOUEL A. PERIA, Represented by His Father ELPIDIO V. PERIA;2 private corporation: the performance of managerial, operational, financial,
GREEN FORUM PHILIPPINES; GREEN FORUM WESTERN VISAYAS marketing and other functions may be delegated to subordinate officers or
(GF-WV); ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC); given to contractual entities, but the board retains full residual control of the
KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT business.
REPORMANG PANSAKAHAN (KAISAHAN);3 PARTNERSHIP FOR
AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES, INC. Who or what organ of government actually exercises this power of control on
(PARRDS); PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF behalf of the State? The Constitution is crystal clear: the President. Indeed,
HUMAN RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA); the Chief Executive is the official constitutionally mandated to "enter into
WOMEN'S LEGAL BUREAU (WLB); CENTER FOR ALTERNATIVE agreements with foreign owned corporations." On the other hand, Congress
DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND DEVELOPMENT may review the action of the President once it is notified of "every contract
INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG entered into in accordance with this [constitutional] provision within thirty
ALTERNATIBONG LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS days from its execution." In contrast to this express mandate of the President
AND NATURAL RESOURCES CENTER, INC. (LRC), petitioners, and Congress in the EDU of natural resources, Article XII of the Constitution
66
is silent on the role of the judiciary. However, should the President and/or development; nearly unfettered control over the disposition and sale of the
Congress gravely abuse their discretion in this regard, the courts may -- in a products discovered/extracted; effective ownership of the natural resource at
proper case -- exercise their residual duty under Article VIII. Clearly then, the the point of extraction; and beneficial ownership of our economic resources.
judiciary should not inordinately interfere in the exercise of this presidential According to the Decision, the 1987 Constitution (Section 2 of Article XII)
power of control over the EDU of our natural resources. effectively banned such service contracts.

The Constitution should be read in broad, life-giving strokes. It should not be Subsequently, respondents filed separate Motions for Reconsideration. In a
used to strangulate economic growth or to serve narrow, parochial interests. Resolution dated March 9, 2004, the Court required petitioners to comment
Rather, it should be construed to grant the President and Congress sufficient thereon. In the Resolution of June 8, 2004, it set the case for Oral Argument
discretion and reasonable leeway to enable them to attract foreign on June 29, 2004.
investments and expertise, as well as to secure for our people and our
posterity the blessings of prosperity and peace. After hearing the opposing sides, the Court required the parties to submit
their respective Memoranda in amplification of their arguments. In a
On the basis of this control standard, this Court upholds the constitutionality Resolution issued later the same day, June 29, 2004, the Court noted, inter
of the Philippine Mining Law, its Implementing Rules and Regulations -- alia, the Manifestation and Motion (in lieu of comment) filed by the Office of
insofar as they relate to financial and technical agreements -- as well as the the Solicitor General (OSG) on behalf of public respondents. The OSG said
subject Financial and Technical Assistance Agreement (FTAA).5 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
Background and adopting the latter's Motion for Reconsideration.

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 Memoranda were accordingly filed by the intervenor as well as by petitioners,
Order No. [DAO] 96-40); and (3) the FTAA dated March 30, 1995,6 executed public respondents, and private respondent, dwelling at length on the three
by the government with Western Mining Corporation (Philippines), Inc. issues discussed below. Later, WMCP submitted its Reply Memorandum,
(WMCP).7 while the OSG -- in obedience to an Order of this Court -- filed a Compliance
submitting copies of more FTAAs entered into by the government.
On January 27, 2004, the Court en banc promulgated its Decision8 granting
the Petition and declaring the unconstitutionality of certain provisions of RA Three Issues Identified by the Court
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 During the Oral Argument, the Court identified the three issues to be
contracts prohibited by the 1987 Constitution. resolved in the present controversy, as follows:

The Decision struck down the subject FTAA for being similar to service 1. Has the case been rendered moot by the sale of WMC shares in WMCP to
contracts,9 which, though permitted under the 1973 Constitution,10 were Sagittarius (60 percent of Sagittarius' equity is owned by Filipinos and/or
subsequently denounced for being antithetical to the principle of sovereignty Filipino-owned corporations while 40 percent is owned by Indophil Resources
over our natural resources, because they allowed foreign control over the NL, an Australian company) and by the subsequent transfer and registration
exploitation of our natural resources, to the prejudice of the Filipino nation. of the FTAA from WMCP to Sagittarius?

The Decision quoted several legal scholars and authors who had criticized 2. Assuming that the case has been rendered moot, would it still be proper to
service contracts for, inter alia, vesting in the foreign contractor exclusive resolve the constitutionality of the assailed provisions of the Mining Law,
management and control of the enterprise, including operation of the field in DAO 96-40 and the WMCP FTAA?
the event petroleum was discovered; control of production, expansion and
67
3. What is the proper interpretation of the phrase Agreements Involving The nullity of the FTAA was obviously premised upon the contractor being a
Either Technical or Financial Assistance contained in paragraph 4 of Section foreign corporation. Had the FTAA been originally issued to a Filipino-owned
2 of Article XII of the Constitution? corporation, there would have been no constitutionality issue to speak of.
Upon the other hand, the conveyance of the WMCP FTAA to a Filipino
Should the Motion for Reconsideration Be Granted? 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
Respondents' and intervenor's Motions for Reconsideration should be
granted, for the reasons discussed below. The foregoing three issues question would no longer be owned by a disqualified vendee.
identified by the Court shall now be taken up seriatim.
And, inasmuch as the FTAA is to be implemented now by a Filipino
First Issue: 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
Mootness 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
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and company. Considering that there is no longer any justiciable controversy, the
the WMCP FTAA, the majority Decision agreed with petitioners' contention plea to nullify the Mining Law has become a virtual petition for declaratory
that the subject FTAA had been executed in violation of Section 2 of Article relief, over which this Court has no original jurisdiction.
XII of the 1987 Constitution. According to petitioners, the FTAAs entered into
by the government with foreign-owned corporations are limited by the fourth In their Final Memorandum, however, petitioners argue that the case has not
paragraph of the said provision to agreements involving only technical or become moot, considering the invalidity of the alleged sale of the shares in
financial assistance for large-scale exploration, development and utilization WMCP from WMC to Sagittarius, and of the transfer of the FTAA from
of minerals, petroleum and other mineral oils. Furthermore, the foreign WMCP to Sagittarius, resulting in the change of contractor in the FTAA in
contractor is allegedly permitted by the FTAA in question to fully manage and question. And even assuming that the said transfers were valid, there still
control the mining operations and, therefore, to acquire "beneficial exists an actual case predicated on the invalidity of RA 7942 and its
ownership" of our mineral resources. Implementing Rules and Regulations (DAO 96-40). Presently, we shall
discuss petitioners' objections to the transfer of both the shares and the
The Decision merely shrugged off the Manifestation by WMPC informing the FTAA. We shall take up the alleged invalidity of RA 7942 and DAO 96-40
Court (1) that on January 23, 2001, WMC had sold all its shares in WMCP to later on in the discussion of the third issue.
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 No Transgression of the Constitution
Sagittarius.11 The ponencia declared that the instant case had not been by the Transfer of the WMCP Shares
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
Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP
dispute and awaited final judicial determination.12 Patently therefore, the
shares to Sagittarius violates the fourth paragraph of Section 2 of Article XII
Decision is anchored on the assumption that WMCP had remained a foreign
of the Constitution; second, that it is contrary to the provisions of the WMCP
corporation.
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
The crux of this issue of mootness is the fact that WMCP, at the time it litigated.
entered into the FTAA, happened to be wholly owned by WMC Resources
International Pty., Ltd. (WMC), which in turn was a wholly owned subsidiary
On the first ground, petitioners assert that paragraph 4 of Section 2 of Article
of Western Mining Corporation Holdings Ltd., a publicly listed major
XII permits the government to enter into FTAAs only with foreign-owned
Australian mining and exploration company.
corporations. Petitioners insist that the first paragraph of this constitutional
68
provision limits the participation of Filipino corporations in the exploration, foreign contractor: Section 12, which provides for international commercial
development and utilization of natural resources to only three species of arbitration under the auspices of the International Chamber of Commerce,
contracts -- production sharing, co-production and joint venture -- to the after local remedies are exhausted. This provision, however, does not
exclusion of all other arrangements or variations thereof, and the WMCP necessarily imply that the WMCP FTAA cannot be transferred to and
FTAA may therefore not be validly assumed and implemented by Sagittarius. assumed by a Filipino corporation like Sagittarius, in which event the said
In short, petitioners claim that a Filipino corporation is not allowed by the provision should simply be disregarded as a superfluity.
Constitution to enter into an FTAA with the government.
No Need for a Separate
However, a textual analysis of the first paragraph of Section 2 of Article XII Litigation of the Sale of Shares
does not support petitioners' argument. The pertinent part of the said
provision states: "Sec. 2. x x x The exploration, development and utilization Petitioners claim as third ground the "suspicious" sale of shares from WMC
of natural resources shall be under the full control and supervision of the to Sagittarius; hence, the need to litigate it in a separate case. Section 40 of
State. The State may directly undertake such activities, or it may enter into RA 7942 (the Mining Law) allegedly requires the President's prior approval of
co-production, joint venture, or production-sharing agreements with Filipino a transfer.
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
A re-reading of the said provision, however, leads to a different conclusion.
any express limitation or restriction insofar as arrangements other than the "Sec. 40. Assignment/Transfer -- A financial or technical assistance
three aforementioned contractual schemes are concerned. 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
Neither can one reasonably discern any implied stricture to that effect. President shall notify Congress of every financial or technical assistance
Besides, there is no basis to believe that the framers of the Constitution, a agreement assigned or converted in accordance with this provision within
majority of whom were obviously concerned with furthering the development thirty (30) days from the date of the approval thereof."
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 Section 40 expressly applies to the assignment or transfer of the FTAA, not
light of the overarching constitutional principle of giving preference and to the sale and transfer of shares of stock in WMCP. Moreover, when the
priority to Filipinos and Filipino corporations in the development of our natural transferee of an FTAA is another foreign corporation, there is a logical
resources.
application of the requirement of prior approval by the President of the
Republic and notification to Congress in the event of assignment or transfer
Besides, even assuming (purely for argument's sake) that a constitutional of an FTAA. In this situation, such approval and notification are appropriate
limitation barring Filipino corporations from holding and implementing an safeguards, considering that the new contractor is the subject of a foreign
FTAA actually exists, nevertheless, such provision would apply only to the government.
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 On the other hand, when the transferee of the FTAA happens to be a Filipino
of property rights without due process of law would ensue. Petitioners' corporation, the need for such safeguard is not critical; hence, the lack of
argument must therefore fail. 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
FTAA Not Intended absent in this instance. As pointed out by private respondent in its
Solely for Foreign Corporation 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
Equally barren of merit is the second ground cited by petitioners -- that the involved the review of the Decision of the Court of Appeals dated November
FTAA was intended to apply solely to a foreign corporation, as can allegedly 21, 2003 in CA-GR SP No. 74161, which affirmed the DENR Order dated
be seen from the provisions therein. They manage to cite only one WMCP December 31, 2001 and the Decision of the Office of the President dated
FTAA provision that can be regarded as clearly intended to apply only to a
69
July 23, 2002, both approving the assignment of the WMCP FTAA to Argument in this case. Second, the FTAA does not vest in the foreign
Sagittarius. corporation full control and supervision over the exploration, development
and utilization of mineral resources, to the exclusion of the government. This
Petitioners also question the sale price and the financial capacity of the point will be dealt with in greater detail below; but for now, suffice it to say
transferee. According to the Deed of Absolute Sale dated January 23, 2001, that a perusal of the FTAA provisions will prove that the government has
executed between WMC and Sagittarius, the price of the WMCP shares was effective overall direction and control of the mining operations, including
fixed at US$9,875,000, equivalent to P553 million at an exchange rate of marketing and product pricing, and that the contractor's work programs and
56:1. Sagittarius had an authorized capital stock of P250 million and a paid budgets are subject to its review and approval or disapproval.
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 As will be detailed later on, the government does not have to micro-manage
for an FTAA contractor, according to petitioners. 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
However, private respondents counter that the Deed of Sale specifically direction. Besides, for practical and pragmatic reasons, there is a need for
provides that the payment of the purchase price would take place only after government agencies to delegate certain aspects of the management work to
Sagittarius' commencement of commercial production from mining the contractor. Thus the basis for declaring the FTAA void still has to be
operations, if at all. Consequently, under the circumstances, we believe it revisited, reexamined and reconsidered.
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 Petitioners sniff at the citation of Chavez v. Public Estates Authority,14 and
the enterprise; and it would certainly be improper to invalidate the sale on Halili v. CA,15 claiming that the doctrines in these cases are wholly
that basis, as petitioners propose. inapplicable to the instant case.

FTAA Not Void, Chavez clearly teaches: "Thus, the Court has ruled consistently that where a
Thus Transferrable 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.
To bolster further their claim that the case is not moot, petitioners insist that Similarly, where the alien who buys the land subsequently acquires
the FTAA is void and, hence cannot be transferred; and that its transfer does Philippine citizenship, the sale is validated since the purpose of the
not operate to cure the constitutional infirmity that is inherent in it; neither will constitutional ban to limit land ownership to Filipinos has been achieved. In
a change in the circumstances of one of the parties serve to ratify the void short, the law disregards the constitutional disqualification of the buyer to
contract. hold land if the land is subsequently transferred to a qualified party, or the
buyer himself becomes a qualified party."16
While the discussion in their Final Memorandum was skimpy, petitioners in
their Comment (on the MR) did ratiocinate that this Court had declared the In their Comment, petitioners contend that in Chavez and Halili, the object of
FTAA to be void because, at the time it was executed with WMCP, the latter the transfer (the land) was not what was assailed for alleged
was a fully foreign-owned corporation, in which the former vested full control unconstitutionality. Rather, it was the transaction that was assailed; hence
and management with respect to the exploration, development and utilization subsequent compliance with constitutional provisions would cure its infirmity.
of mineral resources, contrary to the provisions of paragraph 4 of Section 2 In contrast, in the instant case it is the FTAA itself, the object of the transfer,
of Article XII of the Constitution. And since the FTAA was per se void, no that is being assailed as invalid and unconstitutional. So, petitioners claim
valid right could be transferred; neither could it be ratified, so petitioners that the subsequent transfer of a void FTAA to a Filipino corporation would
conclude. not cure the defect.

Petitioners have assumed as fact that which has yet to be established. First Petitioners are confusing themselves. The present Petition has been filed,
and foremost, the Decision of this Court declaring the FTAA void has not yet precisely because the grantee of the FTAA was a wholly owned subsidiary of
become final. That was precisely the reason the Court still heard Oral a foreign corporation. It cannot be gainsaid that anyone would have asserted
70
that the same FTAA was void if it had at the outset been issued to a Filipino Petitioners stress the following points. First, while a case becomes moot and
corporation. The FTAA, therefore, is not per se defective or unconstitutional. academic when "there is no more actual controversy between the parties or
It was questioned only because it had been issued to an allegedly non- no useful purpose can be served in passing upon the merits,"18 what is at
qualified, foreign-owned corporation. issue in the instant case is not only the validity of the WMCP FTAA, but also
the constitutionality of RA 7942 and its Implementing Rules and Regulations.
We believe that this case is clearly analogous to Halili, in which the land Second, the acts of private respondent cannot operate to cure the law of its
acquired by a non-Filipino was re-conveyed to a qualified vendee and the alleged unconstitutionality or to divest this Court of its jurisdiction to decide.
original transaction was thereby cured. Paraphrasing Halili, the same Third, the Constitution imposes upon the Supreme Court the duty to declare
rationale applies to the instant case: assuming arguendo the invalidity of its invalid any law that offends the Constitution.
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 Petitioners also argue that no amendatory laws have been passed to make
constitutional provision -- to keep the exploration, development and utilization the Mining Act of 1995 conform to constitutional strictures (assuming that, at
of our natural resources in Filipino hands -- has been served. present, it does not); that public respondents will continue to implement and
enforce the statute until this Court rules otherwise; and that the said law
More accurately speaking, the present situation is one degree better than continues to be the source of legal authority in accepting, processing and
that obtaining in Halili, in which the original sale to a non-Filipino was clearly approving numerous applications for mining rights.
and indisputably violative of the constitutional prohibition and thus void ab
initio. In the present case, the issuance/grant of the subject FTAA to the then Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had
foreign-owned WMCP was not illegal, void or unconstitutional at the time. been filed with the Mines and Geosciences Bureau (MGB), with an
The matter had to be brought to court, precisely for adjudication as to aggregate area of 2,064,908.65 hectares -- spread over Luzon, the Visayas
whether the FTAA and the Mining Law had indeed violated the Constitution. and Mindanao19 -- applied for. It may be a bit far-fetched to assert, as
Since, up to this point, the decision of this Court declaring the FTAA void has petitioners do, that each and every FTAA that was entered into under the
yet to become final, to all intents and purposes, the FTAA must be deemed provisions of the Mining Act "invites potential litigation" for as long as the
valid and constitutional.17 constitutional issues are not resolved with finality. Nevertheless, we must
concede that there exists the distinct possibility that one or more of the future
At bottom, we find completely outlandish petitioners' contention that an FTAA FTAAs will be the subject of yet another suit grounded on constitutional
could be entered into by the government only with a foreign corporation, issues.
never with a Filipino enterprise. Indeed, the nationalistic provisions of the
Constitution are all anchored on the protection of Filipino interests. How But of equal if not greater significance is the cloud of uncertainty hanging
petitioners can now argue that foreigners have the exclusive right to FTAAs over the mining industry, which is even now scaring away foreign
totally overturns the entire basis of the Petition -- preference for the Filipino in investments. Attesting to this climate of anxiety is the fact that the Chamber
the exploration, development and utilization of our natural resources. It does of Mines of the Philippines saw the urgent need to intervene in the case and
not take deep knowledge of law and logic to understand that what the to present its position during the Oral Argument; and that Secretary General
Constitution grants to foreigners should be equally available to Filipinos. Romulo Neri of the National Economic Development Authority (NEDA)
requested this Court to allow him to speak, during that Oral Argument, on the
Second Issue: economic consequences of the Decision of January 27, 2004.20

Whether the Court Can Still Decide the Case, We are convinced. We now agree that the Court must recognize the
Even Assuming It Is Moot exceptional character of the situation and the paramount public interest
involved, as well as the necessity for a ruling to put an end to the
uncertainties plaguing the mining industry and the affected communities as a
All the protagonists are in agreement that the Court has jurisdiction to decide
result of doubts cast upon the constitutionality and validity of the Mining Act,
this controversy, even assuming it to be moot.
the subject FTAA and future FTAAs, and the need to avert a multiplicity of

71
suits. Paraphrasing Gonzales v. Commission on Elections,21 it is evident xxxxxxxxx
that strong reasons of public policy demand that the constitutionality issue be
resolved now.22 "As this Court has repeatedly and firmly emphasized in many cases,
it will not shirk, digress from or abandon its sacred duty and authority
In further support of the immediate resolution of the constitutionality issue, to uphold the Constitution in matters that involve grave abuse of
public respondents cite Acop v. Guingona,23 to the effect that the courts will discretion brought before it in appropriate cases, committed by any
decide a question -- otherwise moot and academic -- if it is "capable of officer, agency, instrumentality or department of the government."30
repetition, yet evading review."24 Public respondents ask the Court to avoid
a situation in which the constitutionality issue may again arise with respect to Additionally, the entry of CMP into this case has also effectively forestalled
another FTAA, the resolution of which may not be achieved until after it has any possible objections arising from the standing or legal interest of the
become too late for our mining industry to grow out of its infancy. They also original parties.
recall Salonga v. Cruz Pao,25 in which this Court declared that "(t)he Court
also has the duty to formulate guiding and controlling constitutional
For all the foregoing reasons, we believe that the Court should proceed to a
principles, precepts, doctrines or rules. It has the symbolic function of
resolution of the constitutional issues in this case.
educating the bench and bar on the extent of protection given by
constitutional guarantees. x x x."
Third Issue:
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 The Proper Interpretation of the Constitutional Phrase
more justiciable controversy and the plea to nullify the Mining Law has "Agreements Involving Either Technical or Financial Assistance"
become a virtual petition for declaratory relief.26 The entry of the Chamber of
Mines of the Philippines, Inc., however, has put into focus the seriousness of The constitutional provision at the nucleus of the controversy is paragraph 4
the allegations of unconstitutionality of RA 7942 and DAO 96-40 which of Section 2 of Article XII of the 1987 Constitution. In order to appreciate its
converts the case to one for prohibition27 in the enforcement of the said law context, Section 2 is reproduced in full:
and regulations.
"Sec. 2. All lands of the public domain, waters, minerals, coal,
Indeed, this CMP entry brings to fore that the real issue in this case is petroleum, and other mineral oils, all forces of potential energy,
whether paragraph 4 of Section 2 of Article XII of the Constitution is fisheries, forests or timber, wildlife, flora and fauna, and other natural
contravened by RA 7942 and DAO 96-40, not whether it was violated by resources are owned by the State. With the exception of agricultural
specific acts implementing RA 7942 and DAO 96-40. "[W]hen an act of the lands, all other natural resources shall not be alienated. The
legislative department is seriously alleged to have infringed the Constitution, exploration, development and utilization of natural resources shall be
settling the controversy becomes the duty of this Court. By the mere under the full control and supervision of the State. The State may
enactment of the questioned law or the approval of the challenged action, the directly undertake such activities, or it may enter into co-production,
dispute is said to have ripened into a judicial controversy even without any joint venture or production-sharing agreements with Filipino citizens
other overt act."28 This ruling can be traced from Taada v. Angara,29 in or corporations or associations at least sixty per centum of whose
which the Court said: capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than
"In seeking to nullify an act of the Philippine Senate on the ground twenty-five years, and under such terms and conditions as may be
that it contravenes the Constitution, the petition no doubt raises a provided by law. In cases of water rights for irrigation, water supply,
justiciable controversy. Where an action of the legislative branch is fisheries, or industrial uses other than the development of water
seriously alleged to have infringed the Constitution, it becomes not power, beneficial use may be the measure and limit of the grant.
only the right but in fact the duty of the judiciary to settle the dispute.

72
"The State shall protect the nation's marine wealth in its archipelagic Very recently, in Francisco v. The House of Representatives,33 this Court
waters, territorial sea, and exclusive economic zone, and reserve its indeed had the occasion to reiterate the well-settled principles of
use and enjoyment exclusively to Filipino citizens. constitutional construction:

"The Congress may, by law, allow small-scale utilization of natural "First, verba legis, that is, wherever possible, the words used in the
resources by Filipino citizens, as well as cooperative fish farming, Constitution must be given their ordinary meaning except where
with priority to subsistence fishermen and fish-workers in rivers, technical terms are employed. x x x.
lakes, bays and lagoons.
xxxxxxxxx
"The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for "Second, where there is ambiguity, ratio legis est anima. The words
large-scale exploration, development, and utilization of of the Constitution should be interpreted in accordance with the
minerals, petroleum, and other mineral oils according to the intent of its framers. x x x.
general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the
xxxxxxxxx
country. In such agreements, the State shall promote the
development and use of local scientific and technical resources.
"Finally, ut magis valeat quam pereat. The Constitution is to be
interpreted as a whole."34
"The President shall notify the Congress of every contract entered
into in accordance with this provision, within thirty days from its
execution."31 For ease of reference and in consonance with verba legis, we reconstruct
and stratify the aforequoted Section 2 as follows:
No Restriction of Meaning by
a Verba Legis Interpretation 1. All natural resources are owned by the State. Except for
agricultural lands, natural resources cannot be alienated by the
State.
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 2. The exploration, development and utilization (EDU) of natural
provisions. They rely on rulings of this Court, such as the following: resources shall be under the full control and supervision of the State.

"The fundamental principle in constitutional construction however is 3. The State may undertake these EDU activities through either of
that the primary source from which to ascertain constitutional intent the following:
or purpose is the language of the provision itself. The presumption is
that the words in which the constitutional provisions are couched (a) By itself directly and solely
express the objective sought to be attained. In other words, verba
legis prevails. Only when the meaning of the words used is unclear (b) By (i) co-production; (ii) joint venture; or (iii) production
and equivocal should resort be made to extraneous aids of sharing agreements with Filipino citizens or corporations, at
construction and interpretation, such as the proceedings of the least 60 percent of the capital of which is owned by such
Constitutional Commission or Convention to shed light on and citizens
ascertain the true intent or purpose of the provision being
construed."32 4. Small-scale utilization of natural resources may be allowed by law
in favor of Filipino citizens.

73
5. For large-scale EDU of minerals, petroleum and other mineral oils, On the other hand, the intervenor37 and public respondents argue that the
the President may enter into "agreements with foreign-owned FTAA allowed by paragraph 4 is not merely an agreement for supplying
corporations involving either technical or financial assistance limited and specific financial or technical services to the State. Rather, such
according to the general terms and conditions provided by law x x x." FTAA is a comprehensive agreement for the foreign-owned corporation's
integrated exploration, development and utilization of mineral, petroleum or
Note that in all the three foregoing mining activities -- exploration, other mineral oils on a large-scale basis. The agreement, therefore,
development and utilization -- the State may undertake such EDU activities authorizes the foreign contractor's rendition of a whole range of integrated
by itself or in tandem with Filipinos or Filipino corporations, except in two and comprehensive services, ranging from the discovery to the development,
instances: first, in small-scale utilization of natural resources, which Filipinos utilization and production of minerals or petroleum products.
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 We do not see how applying a strictly literal or verba legis interpretation of
via "agreements with foreign-owned corporations involving either technical or paragraph 4 could inexorably lead to the conclusions arrived at in the
financial assistance" as provided by law. ponencia. First, the drafters' choice of words -- their use of the phrase
agreements x x x involving either technical or financial assistance -- does
Petitioners claim that the phrase "agreements x x x involving either technical not indicate the intent to exclude other modes of assistance. The drafters
or financial assistance" simply means technical assistance or financial opted to use involving when they could have simply said agreements for
assistance agreements, nothing more and nothing else. They insist that there financial or technical assistance, if that was their intention to begin with. In
is no ambiguity in the phrase, and that a plain reading of paragraph 4 quoted this case, the limitation would be very clear and no further debate would
above leads to the inescapable conclusion that what a foreign-owned ensue.
corporation may enter into with the government is merely an agreement for
either financial or technical assistance only, for the large-scale exploration, In contrast, the use of the word "involving" signifies the possibility of the
development and utilization of minerals, petroleum and other mineral oils; inclusion of other forms of assistance or activities having to do with,
such a limitation, they argue, excludes foreign management and operation of otherwise related to or compatible with financial or technical assistance. The
a mining enterprise.35 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
This restrictive interpretation, petitioners believe, is in line with the general "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and
policy enunciated by the Constitution reserving to Filipino citizens and three, "including," "containing" or "comprising."38
corporations the use and enjoyment of the country's natural resources. They
maintain that this Court's Decision36 of January 27, 2004 correctly declared Plainly, none of the three connotations convey a sense of exclusivity.
the WMCP FTAA, along with pertinent provisions of RA 7942, void for Moreover, the word "involving," when understood in the sense of "including,"
allowing a foreign contractor to have direct and exclusive management of a as in including technical or financial assistance, necessarily implies that there
mining enterprise. Allowing such a privilege not only runs counter to the "full are activities other than those that are being included. In other words, if an
control and supervision" that the State is constitutionally mandated to agreement includes technical or financial assistance, there is apart from such
exercise over the exploration, development and utilization of the country's assistance -- something else already in, and covered or may be covered by,
natural resources; doing so also vests in the foreign company "beneficial the said agreement.
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 In short, it allows for the possibility that matters, other than those explicitly
other activities associated with the "service contracts" of the martial law mentioned, could be made part of the agreement. Thus, we are now led to
regime, since "the management or operation of mining activities by foreign the conclusion that the use of the word "involving" implies that these
contractors, which is the primary feature of service contracts, was precisely agreements with foreign corporations are not limited to mere financial or
the evil that the drafters of the 1987 Constitution sought to eradicate." technical assistance. The difference in sense becomes very apparent when
we juxtapose "agreements for technical or financial assistance" against

74
"agreements including technical or financial assistance." This much is from or the failure to carry them over to the new Constitution. There has to be
unalterably clear in a verba legis approach. a much more definite and even unarguable basis for such a drastic reversal
of policies.
Second, if the real intention of the drafters was to confine foreign
corporations to financial or technical assistance and nothing more, their Fourth, a literal and restrictive interpretation of paragraph 4, such as that
language would have certainly been so unmistakably restrictive and proposed by petitioners, suffers from certain internal logical inconsistencies
stringent as to leave no doubt in anyone's mind about their true intent. For that generate ambiguities in the understanding of the provision. As the
example, they would have used the sentence foreign corporations are intervenor pointed out, there has never been any constitutional or statutory
absolutely prohibited from involvement in the management or operation of provision that reserved to Filipino citizens or corporations, at least 60 percent
mining or similar ventures or words of similar import. A search for such of which is Filipino-owned, the rendition of financial or technical assistance to
stringent wording yields negative results. Thus, we come to the inevitable companies engaged in mining or the development of any other natural
conclusion that there was a conscious and deliberate decision to avoid resource. The taking out of foreign-currency or peso-denominated loans or
the use of restrictive wording that bespeaks an intent not to use the any other kind of financial assistance, as well as the rendition of technical
expression "agreements x x x involving either technical or financial assistance -- whether to the State or to any other entity in the Philippines --
assistance" in an exclusionary and limiting manner. has never been restricted in favor of Filipino citizens or corporations having a
certain minimum percentage of Filipino equity. Such a restriction would
Deletion of "Service Contracts" to certainly be preposterous and unnecessary. As a matter of fact, financial,
Avoid Pitfalls of Previous Constitutions, and even technical assistance, regardless of the nationality of its source,
Not to Ban Service Contracts Per Se 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
Third, we do not see how a verba legis approach leads to the conclusion that technological know-how and improve technical skills.
"the management or operation of mining activities by foreign contractors,
which is the primary feature of service contracts, was precisely the evil that There was therefore no need for a constitutional provision specifically
the drafters of the 1987 Constitution sought to eradicate." Nowhere in the allowing foreign-owned corporations to render financial or technical
above-quoted Section can be discerned the objective to keep out of foreign assistance, whether in respect of mining or some other resource
hands the management or operation of mining activities or the plan to development or commercial activity in the Philippines. The last point needs
eradicate service contracts as these were understood in the 1973 to be emphasized: if merely financial or technical assistance
Constitution. Still, petitioners maintain that the deletion or omission from the agreements are allowed, there would be no need to limit them to large-
1987 Constitution of the term "service contracts" found in the 1973 scale mining operations, as there would be far greater need for them in
Constitution sufficiently proves the drafters' intent to exclude foreigners from the smaller-scale mining activities (and even in non-mining areas).
the management of the affected enterprises. Obviously, the provision in question was intended to refer to
agreements other than those for mere financial or technical assistance.
To our mind, however, such intent cannot be definitively and conclusively
established from the mere failure to carry the same expression or term over In like manner, there would be no need to require the President of the
to the new Constitution, absent a more specific, explicit and unequivocal Republic to report to Congress, if only financial or technical assistance
statement to that effect. What petitioners seek (a complete ban on foreign agreements are involved. Such agreements are in the nature of foreign loans
participation in the management of mining operations, as previously allowed that -- pursuant to Section 20 of Article VII39 of the 1987 Constitution -- the
by the earlier Constitutions) is nothing short of bringing about a momentous President may contract or guarantee, merely with the prior concurrence of
sea change in the economic and developmental policies; and the the Monetary Board. In turn, the Board is required to report to Congress
fundamentally capitalist, free-enterprise philosophy of our government. We within thirty days from the end of every quarter of the calendar year, not thirty
cannot imagine such a radical shift being undertaken by our government, to days after the agreement is entered into.
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

75
And if paragraph 4 permits only agreements for loans and other forms of The very recent brouhaha over the gargantuan "fiscal crisis" or "budget
financial, or technical assistance, what is the point of requiring that they be deficit" merely confirms what the ordinary citizen has suspected all along.
based on real contributions to the economic growth and general welfare of After the reality check, one will have to admit the implausibility of a direct
the country? For instance, how is one to measure and assess the "real undertaking -- by the State itself -- of large-scale exploration, development
contributions" to the "economic growth" and "general welfare" of the country and utilization of minerals, petroleum and other mineral oils. Such an
that may ensue from a foreign-currency loan agreement or a technical- undertaking entails not only humongous capital requirements, but also the
assistance agreement for, say, the refurbishing of an existing power attendant risk of never finding and developing economically viable quantities
generating plant for a mining operation somewhere in Mindanao? Such a of minerals, petroleum and other mineral oils.40
criterion would make more sense when applied to a major business
investment in a principal sector of the industry. It is equally difficult to imagine that such a provision restricting foreign
companies to the rendition of only financial or technical assistance to the
The conclusion is clear and inescapable -- a verba legis construction shows government was deliberately crafted by the drafters of the Constitution, who
that paragraph 4 is not to be understood as one limited only to foreign loans were all well aware of the capital-intensive and technology-oriented nature of
(or other forms of financial support) and to technical assistance. There is large-scale mineral or petroleum extraction and the country's deficiency in
definitely more to it than that. These are provisions permitting precisely those areas.41 To say so would be tantamount to asserting that the
participation by foreign companies; requiring the President's report to provision was purposely designed to ladle the large-scale development and
Congress; and using, as yardstick, contributions based on economic utilization of mineral, petroleum and related resources with impossible
growth and general welfare. These were neither accidentally inserted conditions; and to remain forever and permanently "reserved" for future
into the Constitution nor carelessly cobbled together by the drafters in generations of Filipinos.
lip service to shallow nationalism. The provisions patently have
significance and usefulness in a context that allows agreements with foreign A More Reasonable Look
companies to include more than mere financial or technical assistance. at the Charter's Plain Language

Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a Sixth, we shall now look closer at the plain language of the Charter and
rendition of specific and limited financial service or technical assistance by a examining the logical inferences. The drafters chose to emphasize and
foreign company. This argument begs the question "To whom or for whom highlight agreements x x x involving either technical or financial assistance in
would it be rendered"? or Who is being assisted? If the answer is "The relation to foreign corporations' participation in large-scale EDU. The
State," then it necessarily implies that the State itself is the one directly and inclusion of this clause on "technical or financial assistance" recognizes the
solely undertaking the large-scale exploration, development and utilization of fact that foreign business entities and multinational corporations are the ones
a mineral resource, so it follows that the State must itself bear the liability and with the resources and know-how to provide technical and/or financial
cost of repaying the financing sourced from the foreign lender and/or of assistance of the magnitude and type required for large-scale exploration,
paying compensation to the foreign entity rendering technical assistance. development and utilization of these resources.

However, it is of common knowledge, and of judicial notice as well, that the The drafters -- whose ranks included many academicians, economists,
government is and has for many many years been financially strapped, to the businessmen, lawyers, politicians and government officials -- were not
point that even the most essential services have suffered serious unfamiliar with the practices of foreign corporations and multinationals.
curtailments -- education and health care, for instance, not to mention judicial
services -- have had to make do with inadequate budgetary allocations.
Neither were they so nave as to believe that these entities would provide
Thus, government has had to resort to build-operate-transfer and similar "assistance" without conditionalities or some quid pro quo. Definitely, as
arrangements with the private sector, in order to get vital infrastructure business persons well know and as a matter of judicial notice, this matter is
projects built without any governmental outlay. 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
76
venture. They would demand the appointment of their own men as, for If the framers had intended to put an end to service contracts, they would
example, operations managers, technical experts, quality control heads, have at least left specific instructions to Congress to deal with these closing-
internal auditors or comptrollers. Furthermore, they would probably require out issues, perhaps by way of general guidelines and a timeline within which
seats on the Board of Directors -- all these to ensure the success of the to carry them out. The following are some extant examples of such transitory
enterprise and the repayment of the loans and other financial assistance and guidelines set forth in Article XVIII of our Constitution:
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 "Section 23. Advertising entities affected by paragraph (2), Section
and bottom lines.42 11 of Article XVI of this Constitution shall have five years from its
ratification to comply on a graduated and proportionate basis with the
In short, the drafters will have to be credited with enough pragmatism and minimum Filipino ownership requirement therein.
savvy to know that these foreign entities will not enter into such "agreements
involving assistance" without requiring arrangements for the protection of xxxxxxxxx
their investments, gains and benefits.
"Section 25. After the expiration in 1991 of the Agreement between
Thus, by specifying such "agreements involving assistance," the drafters the Republic of the Philippines and the United States of America
necessarily gave implied assent to everything that these agreements concerning military bases, foreign military bases, troops, or facilities
necessarily entailed; or that could reasonably be deemed necessary to make shall not be allowed in the Philippines except under a treaty duly
them tenable and effective, including management authority with respect to concurred in by the Senate and, when the Congress so requires,
the day-to-day operations of the enterprise and measures for the protection ratified by a majority of the votes cast by the people in a national
of the interests of the foreign corporation, PROVIDED THAT Philippine referendum held for that purpose, and recognized as a treaty by the
sovereignty over natural resources and full control over the enterprise other contracting State.
undertaking the EDU activities remain firmly in the State.
"Section 26. The authority to issue sequestration or freeze orders
Petitioners' Theory Deflated by the under Proclamation No. 3 dated March 25, 1986 in relation to the
Absence of Closing-Out Rules or Guidelines recovery of ill-gotten wealth shall remain operative for not more than
eighteen months after the ratification of this Constitution. However, in
Seventh and final point regarding the plain-language approach, one of the the national interest, as certified by the President, the Congress may
practical difficulties that results from it is the fact that there is nothing by way extend such period.
of transitory provisions that would serve to confirm the theory that the
omission of the term "service contract" from the 1987 Constitution signaled A sequestration or freeze order shall be issued only upon showing of
the demise of service contracts. a prima facie case. The order and the list of the sequestered or
frozen properties shall forthwith be registered with the proper court.
The framers knew at the time they were deliberating that there were various For orders issued before the ratification of this Constitution, the
service contracts extant and in force and effect, including those in the corresponding judicial action or proceeding shall be filed within six
petroleum industry. Many of these service contracts were long-term (25 months from its ratification. For those issued after such ratification,
years) and had several more years to run. If they had meant to ban service the judicial action or proceeding shall be commenced within six
contracts altogether, they would have had to provide for the termination or months from the issuance thereof.
pretermination of the existing contracts. Accordingly, they would have
supplied the specifics and the when and how of effecting the extinguishment The sequestration or freeze order is deemed automatically lifted if no
of these existing contracts (or at least the mechanics for determining them); judicial action or proceeding is commenced as herein provided." 43]
and of putting in place the means to address the just claims of the
contractors for compensation for their investments, lost opportunities, and so
It is inconceivable that the drafters of the Constitution would leave such an
on, if not for the recovery thereof.
important matter -- an expression of sovereignty as it were -- indefinitely
77
hanging in the air in a formless and ineffective state. Indeed, the complete MR. JAMIR. Thank you.
absence of even a general framework only serves to further deflate
petitioners' theory, like a child's balloon losing its air. THE PRESIDENT. Commissioner Suarez is recognized.

Under the circumstances, the logical inconsistencies resulting from MR. SUAREZ. Thank you, Madam President.
petitioners' literal and purely verba legis approach to paragraph 4 of Section
2 of Article XII compel a resort to other aids to interpretation. Will Commissioner Jamir answer a few clarificatory questions?

Petitioners' Posture Also Negated


MR. JAMIR. Yes, Madam President.
by Ratio Legis Et Anima
MR. SUAREZ. This particular portion of the section has reference to
Thus, in order to resolve the inconsistencies, incongruities and ambiguities what was popularly known before as service contracts, among
encountered and to supply the deficiencies of the plain-language approach,
other things, is that correct?
there is a need for recourse to the proceedings of the 1986 Constitutional
Commission. There is a need for ratio legis et anima.
MR. JAMIR. Yes, Madam President.
Service Contracts Not
"Deconstitutionalized" MR. SUAREZ. As it is formulated, the President may enter into
service contracts but subject to the guidelines that may be
promulgated by Congress?
Pertinent portions of the deliberations of the members of the Constitutional
Commission (ConCom) conclusively show that they discussed agreements
involving either technical or financial assistance in the same breadth as MR. JAMIR. That is correct.
service contracts and used the terms interchangeably. The following
exchange between Commissioner Jamir (sponsor of the provision) and MR. SUAREZ. Therefore, that aspect of negotiation and
Commissioner Suarez irrefutably proves that the "agreements involving consummation will fall on the President, not upon Congress?
technical or financial assistance" were none other than service contracts.
MR. JAMIR. That is also correct, Madam President.
THE PRESIDENT. Commissioner Jamir is recognized. We are still
on Section 3. MR. SUAREZ. Except that all of these contracts, service or
otherwise, must be made strictly in accordance with guidelines
MR. JAMIR. Yes, Madam President. With respect to the second prescribed by Congress?
paragraph of Section 3, my amendment by substitution reads: THE
PRESIDENT MAY ENTER INTO AGREEMENTS WITH FOREIGN- MR. JAMIR. That is also correct.
OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR
FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION, MR. SUAREZ. And the Gentleman is thinking in terms of a law that
DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES uniformly covers situations of the same nature?
ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY
LAW.
MR. JAMIR. That is 100 percent correct.
MR. VILLEGAS. The Committee accepts the amendment.
MR. SUAREZ. I thank the Commissioner.
Commissioner Suarez will give the background.
MR. JAMIR. Thank you very much.44
78
The following exchange leaves no doubt that the commissioners knew that there be effective constraints in the implementation of service
exactly what they were dealing with: service contracts. contracts.

THE PRESIDENT. Commissioner Gascon is recognized. So instead of a general law to be passed by Congress to serve as a
guideline to the President when entering into service contract
MR. GASCON. Commissioner Jamir had proposed an amendment agreements, I propose that every service contract entered into by
with regard to special service contracts which was accepted by the the President would need the concurrence of Congress, so as to
Committee. Since the Committee has accepted it, I would like to ask assure the Filipinos of their interests with regard to the issue in
some questions. 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
THE PRESIDENT. Commissioner Gascon may proceed.
WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE
MEMBERS OF CONGRESS SITTING SEPARATELY.
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? xxxxxxxxx

MR. VILLEGAS. The Commissioner is right, Madam President. 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 contracts but also to financial assistance.
MR. GASCON. According to the original proposal, if the President If we are going to make every single contract subject to the
were to enter into a particular agreement, he would need the concurrence of Congress which, according to the Commissioner's
concurrence of Congress. Now that it has been changed by the amendment is the concurrence of two-thirds of Congress voting
proposal of Commissioner Jamir in that Congress will set the general separately then (1) there is a very great chance that each contract
law to which the President shall comply, the President will, therefore, will be different from another; and (2) there is a great temptation that
not need the concurrence of Congress every time he enters into it would breed corruption because of the great lobbying that is going
service contracts. Is that correct? to happen. And we do not want to subject our legislature to that.

MR. VILLEGAS. That is right. Now, to answer the Commissioner's apprehension, by "general law,"
we do not mean statements of motherhood. Congress can build all
MR. GASCON. The proposed amendment of Commissioner Jamir is the restrictions that it wishes into that general law so that every
in indirect contrast to my proposed amendment, so I would like to contract entered into by the President under that specific area will
object and present my proposed amendment to the body. have to be uniform. The President has no choice but to follow all the
guidelines that will be provided by law.
xxxxxxxxx
MR. GASCON. But my basic problem is that we do not know as of
MR. GASCON. Yes, it will be up to the body. 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
I feel that the general law to be set by Congress as regard service contention that the regular concurrence from Congress would subject
contract agreements which the President will enter into might be Congress to extensive lobbying, I think that is a risk we will have to
too general or since we do not know the content yet of such a law, it take since Congress is a body of representatives of the people
might be that certain agreements will be detrimental to the interest of whose membership will be changing regularly as there will be
the Filipinos. This is in direct contrast to my proposal which provides changing circumstances every time certain agreements are made. It
would be best then to keep in tab and attuned to the interest of the
79
Filipino people, whenever the President enters into any agreement MR. VILLEGAS. That is right.
with regard to such an important matter as technical or financial
assistance for large-scale exploration, development and SR. TAN. So those are the safeguards.
utilization of natural resources or service contracts, the people's
elected representatives should be on top of it. MR. VILLEGAS. Yes. There was no law at all governing service
contracts before.
xxxxxxxxx
SR. TAN. Thank you, Madam President.45
MR. OPLE. Madam President, we do not need to suspend the
session. If Commissioner Gascon needs a few minutes, I can fill up More Than Mere Financial
the remaining time while he completes his proposed amendment. I and Technical Assistance
just wanted to ask Commissioner Jamir whether he would entertain a Entailed by the Agreements
minor amendment to his amendment, and it reads as follows: THE
PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS OF
EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE The clear words of Commissioner Jose N. Nolledo quoted below explicitly
WITH THE GENERAL LAW. I think the reason is, if I may state it and eloquently demonstrate that the drafters knew that the agreements with
briefly, as Commissioner Bengzon said, Congress can always foreign corporations were going to entail not mere technical or financial
change the general law later on to conform to new perceptions of assistance but, rather, foreign investment in and management of an
standards that should be built into service contracts. But the only enterprise involved in large-scale exploration, development and utilization of
way Congress can do this is if there were a notification requirement minerals, petroleum, and other mineral oils.
from the Office of the President that such service contracts had
been entered into, subject then to the scrutiny of the Members of THE PRESIDENT. Commissioner Nolledo is recognized.
Congress. This pertains to a situation where the service contracts
are already entered into, and all that this amendment seeks is the MR. NOLLEDO. Madam President, I have the permission of the
reporting requirement from the Office of the President. Will Acting Floor Leader to speak for only two minutes in favor of the
Commissioner Jamir entertain that? amendment of Commissioner Gascon.

MR. JAMIR. I will gladly do so, if it is still within my power. THE PRESIDENT. Commissioner Nolledo may proceed.

MR. VILLEGAS. Yes, the Committee accepts the amendment. MR. NOLLEDO. With due respect to the members of the Committee
and Commissioner Jamir, I am in favor of the objection of
xxxxxxxxx Commissioner Gascon.

SR. TAN. Madam President, may I ask a question? Madam President, I was one of those who refused to sign
the 1973 Constitution, and one of the reasons is that there
THE PRESIDENT. Commissioner Tan is recognized. 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
SR. TAN. Am I correct in thinking that the only difference between
Constitutional Commission, provided for Filipino control of
these future service contracts and the past service contracts
the economy. We are, therefore, providing for exceptional
under Mr. Marcos is the general law to be enacted by the legislature
instances where aliens may circumvent Filipino control of our
and the notification of Congress by the President? That is the only economy. And one way of circumventing the rule in favor of
difference, is it not?

80
Filipino control of the economy is to recognize service THE PRESIDENT. What does the Committee say with respect to the
contracts. first amendment in lieu of "NATURAL RESOURCES"?

As far as I am concerned, if I should have my own way, I am MR. VILLEGAS. Could Commissioner Davide explain that?
for the complete deletion of this provision. However, we are
presenting a compromise in the sense that we are MR. DAVIDE. Madam President, with the use of "NATURAL
requiring a two-thirds vote of all the Members of Congress RESOURCES" here, it would necessarily include all lands of the
as a safeguard. I think we should not mistrust the future public domain, our marine resources, forests, parks and so on. So
Members of Congress by saying that the purpose of this we would like to limit the scope of these service contracts to those
provision is to avoid corruption. We cannot claim that they areas really where these may be needed, the exploitation,
are less patriotic than we are. I think the Members of this development and exploration of minerals, petroleum and other
Commission should know that entering into service mineral oils. And so, we believe that we should really, if we want to
contracts is an exception to the rule on protection of natural grant service contracts at all, limit the same to only those
resources for the interest of the nation, and therefore, being particular areas where Filipino capital may not be sufficient, and
an exception it should be subject, whenever possible, to not to all natural resources.
stringent rules. It seems to me that we are liberalizing the
rules in favor of aliens.
MR. SUAREZ. Just a point of clarification again, Madam President.
When the Commissioner made those enumerations and
I say these things with a heavy heart, Madam President. I do specifications, I suppose he deliberately did not include "agricultural
not claim to be a nationalist, but I love my country. Although land"?
we need investments, we must adopt safeguards that are
truly reflective of the sentiments of the people and not mere
MR. DAVIDE. That is precisely the reason we have to enumerate
cosmetic safeguards as they now appear in the Jamir what these resources are into which service contracts may enter.
amendment. (Applause) So, beyond the reach of any service contract will be lands of the
public domain, timberlands, forests, marine resources, fauna and
Thank you, Madam President.46 flora, wildlife and national parks.47

Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. After the Jamir amendment was voted upon and approved by a vote of 21 to
Davide Jr., indicates the limitations of the scope of such service contracts -- 10 with 2 abstentions, Commissioner Davide made the following statement,
they are valid only in regard to minerals, petroleum and other mineral oils, which is very relevant to our quest:
not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized
MR. DAVIDE. Thank you, Madam President. This is an amendment minerals, petroleum and mineral oils. The Commission has just
to the Jamir amendment and also to the Ople amendment. I propose approved the possible foreign entry into the development,
to delete "NATURAL RESOURCES" and substitute it with the exploration and utilization of these minerals, petroleum and other
following: MINERALS, PETROLEUM AND OTHER MINERAL OILS. mineral oils by virtue of the Jamir amendment. I voted in favor of the
On the Ople amendment, I propose to add: THE NOTIFICATION TO Jamir amendment because it will eventually give way to vesting in
CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE exclusively Filipino citizens and corporations wholly owned by
EXECUTION OF THE SERVICE CONTRACT. 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
81
by such citizens. But by virtue of the Jamir amendment, since we feel At this point, we sum up the matters established, based on a careful reading
that Filipino capital may not be enough for the development and of the ConCom deliberations, as follows:
utilization of minerals, petroleum and other mineral oils, the
President can enter into service contracts with foreign corporations In their deliberations on what was to become paragraph 4, the
precisely for the development and utilization of such resources. And framers used the term service contracts in referring to agreements x
so, there is nothing to fear that we will stagnate in the development x x involving either technical or financial assistance.
of minerals, petroleum and mineral oils because we now allow
service contracts. x x x."48 They spoke of service contracts as the concept was understood in
the 1973 Constitution.
The foregoing are mere fragments of the framers' lengthy discussions of the
provision dealing with agreements x x x involving either technical or financial
It was obvious from their discussions that they were not about to
assistance, which ultimately became paragraph 4 of Section 2 of Article XII of
ban or eradicate service contracts.
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. 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
In the voting that led to the approval of Article XII by the ConCom, the
service contracts with foreign corporations as contractors, but with
explanations given by Commissioners Gascon, Garcia and Tadeo indicated safety measures to prevent abuses, as an exception to the general
that they had voted to reject this provision on account of their objections to norm established in the first paragraph of Section 2 of Article XII.
the "constitutionalization" of the "service contract" concept.
This provision reserves or limits to Filipino citizens -- and
corporations at least 60 percent of which is owned by such citizens --
Mr. Gascon said, "I felt that if we would constitutionalize any provision on the exploration, development and utilization of natural resources.
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.
This provision was prompted by the perceived insufficiency of
Garcia explained, "Service contracts are given constitutional legitimization
Filipino capital and the felt need for foreign investments in the EDU
in Sec. 3, even when they have been proven to be inimical to the interests of
of minerals and petroleum resources.
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 The framers for the most part debated about the sort of safeguards
foreign interests to benefit from our natural resources.51 It was hardly likely that would be considered adequate and reasonable. But some of
that these gentlemen would have objected so strenuously, had the them, having more "radical" leanings, wanted to ban service
provision called for mere technical or financial assistance and nothing contracts altogether; for them, the provision would permit aliens to
more. exploit and benefit from the nation's natural resources, which they
felt should be reserved only for Filipinos.
The deliberations of the ConCom and some commissioners' explanation of
their votes leave no room for doubt that the service contract concept In the explanation of their votes, the individual commissioners were
precisely underpinned the commissioners' understanding of the "agreements heard by the entire body. They sounded off their individual opinions,
involving either technical or financial assistance." openly enunciated their philosophies, and supported or attacked the
provisions with fervor. Everyone's viewpoint was heard.
Summation of the
Concom Deliberations 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

82
paragraph 1 of Section 2 of the same article -- was resoundingly ConCom to Ascertain Intent
approved by a vote of 32 to 7, with 2 abstentions.
At this juncture, we shall address, rather than gloss over, the use of the
Agreements Involving Technical "framers' intent" approach, and the criticism hurled by petitioners who quote
a ruling of this Court:
or Financial Assistance Are
"While it is permissible in this jurisdiction to consult the debates and
Service Contracts With Safeguards 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
From the foregoing, we are impelled to conclude that the phrase agreements
powerless to vary the terms of the Constitution when the meaning is
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 clear. Debates in the constitutional convention 'are of value as
ones are between foreign corporations acting as contractors on the one 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
hand; and on the other, the government as principal or "owner" of the works.
large majority who did not talk, much less the mass of our fellow
In the new service contracts, the foreign contractors provide capital,
citizens whose votes at the polls gave that instrument the force of
technology and technical know-how, and managerial expertise in the creation
fundamental law. We think it safer to construe the constitution from
and operation of large-scale mining/extractive enterprises; and the
what appears upon its face.' The proper interpretation therefore
government, through its agencies (DENR, MGB), actively exercises control
depends more on how it was understood by the people adopting it
and supervision over the entire operation.
than in the framers' understanding thereof."52
Such service contracts may be entered into only with respect to minerals,
petroleum and other mineral oils. The grant thereof is subject to several The notion that the deliberations reflect only the views of those members
safeguards, among which are these requirements: 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
(1) The service contract shall be crafted in accordance with a general they happened not to be present at the time, they are presumed to have read
law that will set standard or uniform terms, conditions and the minutes and kept abreast of the deliberations. By remaining silent, they
requirements, presumably to attain a certain uniformity in provisions are deemed to have signified their assent to and/or conformity with at least
and avoid the possible insertion of terms disadvantageous to the some of the views propounded or their lack of objections thereto. It was
country. 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
(2) The President shall be the signatory for the government because, did not see eye to eye with the proponents of the draft provisions.
supposedly before an agreement is presented to the President for
signature, it will have been vetted several times over at different In any event, each and every one of the commissioners had the opportunity
levels to ensure that it conforms to law and can withstand public to speak out and to vote on the matter. Moreover, the individual explanations
scrutiny. 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
(3) Within thirty days of the executed agreement, the President shall of the record of the ConCom, simply because certain members chose
report it to Congress to give that branch of government an not to speak out.
opportunity to look over the agreement and interpose timely
objections, if any. It is contended that the deliberations therein did not necessarily reflect the
thinking of the voting population that participated in the referendum and
Use of the Record of the ratified the Constitution. Verily, whether we like it or not, it is a bit too much to
83
assume that every one of those who voted to ratify the proposed Charter did contractors who would invest in and operate and manage extractive
so only after carefully reading and mulling over it, provision by provision. enterprises, subject to the full control and supervision of the State --
sans the abuses of the past regime. The purpose is clear: to develop
Likewise, it appears rather extravagant to assume that every one of those and utilize our mineral, petroleum and other resources on a large scale
who did in fact bother to read the draft Charter actually understood the import for the immediate and tangible benefit of the Filipino people.
of its provisions, much less analyzed it vis--vis the previous Constitutions.
We believe that in reality, a good percentage of those who voted in favor of it In view of the foregoing discussion, we should reverse the Decision of
did so more out of faith and trust. For them, it was the product of the hard January 27, 2004, and in fact now hold a view different from that of the
work and careful deliberation of a group of intelligent, dedicated and Decision, which had these findings: (a) paragraph 4 of Section 2 of Article XII
trustworthy men and women of integrity and conviction, whose love of limits foreign involvement in the local mining industry to agreements strictly
country and fidelity to duty could not be questioned. for either financial or technical assistance only; (b) the same paragraph
precludes agreements that grant to foreign corporations the management of
In short, a large proportion of the voters voted "yes" because the drafters, or local mining operations, as such agreements are purportedly in the nature of
a majority of them, endorsed the proposed Constitution. What this fact service contracts as these were understood under the 1973 Constitution; (c)
translates to is the inescapable conclusion that many of the voters in the these service contracts were supposedly "de-constitutionalized" and
referendum did not form their own isolated judgment about the draft Charter, proscribed by the omission of the term service contracts from the 1987
much less about particular provisions therein. They only relied or fell back Constitution; (d) since the WMCP FTAA contains provisions permitting the
and acted upon the favorable endorsement or recommendation of the foreign contractor to manage the concern, the said FTAA is invalid for being
framers as a group. In other words, by voting yes, they may be deemed to a prohibited service contract; and (e) provisions of RA 7942 and DAO 96-40,
have signified their voluntary adoption of the understanding and which likewise grant managerial authority to the foreign contractor, are also
interpretation of the delegates with respect to the proposed Charter and its invalid and unconstitutional.
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 Ultimate Test: State's "Control"
good enough for me." Determinative of Constitutionality

And even for those who voted based on their own individual assessment of But we are not yet at the end of our quest. Far from it. It seems that we are
the proposed Charter, there is no evidence available to indicate that their confronted with a possible collision of constitutional provisions. On the one
assessment or understanding of its provisions was in fact different from that hand, paragraph 1 of Section 2 of Article XII explicitly mandates the State to
of the drafters. This unwritten assumption seems to be petitioners' as well. exercise "full control and supervision" over the exploration, development and
For all we know, this segment of voters must have read and understood the utilization of natural resources. On the other hand, paragraph 4 permits
provisions of the Constitution in the same way the framers had, an safeguarded service contracts with foreign contractors. Normally, pursuant
assumption that would account for the favorable votes. thereto, the contractors exercise management prerogatives over the mining
operations and the enterprise as a whole. There is thus a legitimate ground
Fundamentally speaking, in the process of rewriting the Charter, the to be concerned that either the State's full control and supervision may rule
members of the ConCom as a group were supposed to represent the entire out any exercise of management authority by the foreign contractor; or, the
Filipino people. Thus, we cannot but regard their views as being very much other way around, allowing the foreign contractor full management
indicative of the thinking of the people with respect to the matters deliberated prerogatives may ultimately negate the State's full control and supervision.
upon and to the Charter as a whole.
Ut Magis Valeat
It is therefore reasonable and unavoidable to make the following Quam Pereat
conclusion, based on the above arguments. As written by the framers
and ratified and adopted by the people, the Constitution allows the Under the third principle of constitutional construction laid down in Francisco
continued use of service contracts with foreign corporations -- as -- ut magis valeat quam pereat -- every part of the Constitution is to be given
84
effect, and the Constitution is to be read and understood as a harmonious The question to be answered, then, is whether RA 7942 and its
whole. Thus, "full control and supervision" by the State must be understood Implementing Rules enable the government to exercise that degree of
as one that does not preclude the legitimate exercise of management control sufficient to direct and regulate the conduct of affairs of
prerogatives by the foreign contractor. Before any further discussion, we individual enterprises and restrain undesirable activities.
must stress the primacy and supremacy of the principle of sovereignty and
State control and supervision over all aspects of exploration, development On the resolution of these questions will depend the validity and
and utilization of the country's natural resources, as mandated in the first constitutionality of certain provisions of the Philippine Mining Act of 1995 (RA
paragraph of Section 2 of Article XII. 7942) and its Implementing Rules and Regulations (DAO 96-40), as well as
the WMCP FTAA.
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 Indeed, petitioners charge54 that RA 7942, as well as its Implementing Rules
everything involved, down to the minutest details, and makes all decisions and Regulations, makes it possible for FTAA contracts to cede full control
required in the mining operations. This strained concept of control and and management of mining enterprises over to fully foreign-owned
supervision over the mining enterprise would render impossible the legitimate corporations, with the result that the State is allegedly reduced to a passive
exercise by the contractors of a reasonable degree of management regulator dependent on submitted plans and reports, with weak review and
prerogative and authority necessary and indispensable to their proper audit powers. The State does not supposedly act as the owner of the natural
functioning. resources for and on behalf of the Filipino people; it practically has little
effective say in the decisions made by the enterprise. Petitioners then
For one thing, such an interpretation would discourage foreign entry into conclude that the law, the implementing regulations, and the WMCP FTAA
large-scale exploration, development and utilization activities; and result in cede "beneficial ownership" of the mineral resources to the foreign
the unmitigated stagnation of this sector, to the detriment of our nation's contractor.
development. This scenario renders paragraph 4 inoperative and useless.
And as respondents have correctly pointed out, the government does not A careful scrutiny of the provisions of RA 7942 and its Implementing Rules
have to micro-manage the mining operations and dip its hands into the day- belies petitioners' claims. Paraphrasing the Constitution, Section 4 of the
to-day affairs of the enterprise in order for it to be considered as having full statute clearly affirms the State's control thus:
control and supervision.
"Sec. 4. Ownership of Mineral Resources. Mineral resources are
The concept of control53 adopted in Section 2 of Article XII must be taken to owned by the State and the exploration, development, utilization and
mean less than dictatorial, all-encompassing control; but nevertheless processing thereof shall be under its full control and supervision. The
sufficient to give the State the power to direct, restrain, regulate and govern State may directly undertake such activities or it may enter into
the affairs of the extractive enterprises. Control by the State may be on a mineral agreements with contractors.
macro level, through the establishment of policies, guidelines, regulations,
industry standards and similar measures that would enable the government "The State shall recognize and protect the rights of the indigenous
to control the conduct of affairs in various enterprises and restrain activities cultural communities to their ancestral lands as provided for by the
deemed not desirable or beneficial. Constitution."

The end in view is ensuring that these enterprises contribute to the economic
The aforequoted provision is substantively reiterated in Section 2 of DAO 96-
development and general welfare of the country, conserve the environment,
40 as follows:
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 "Sec. 2. Declaration of Policy. All mineral resources in public and
order to ensure that it is operating efficiently and profitably, to protect its private lands within the territory and exclusive economic zone of the
investments and to enable it to succeed. Republic of the Philippines are owned by the State. It shall be the
responsibility of the State to promote their rational exploration,
85
development, utilization and conservation through the combined "(k) Requiring proponent to effectively use appropriate anti-
efforts of the Government and private sector in order to enhance pollution technology and facilities to protect the environment
national growth in a way that effectively safeguards the environment and restore or rehabilitate mined-out areas.
and protects the rights of affected communities."
"(l) The contractors shall furnish the Government records of
Sufficient Control Over Mining geologic, accounting and other relevant data for its mining
Operations Vested in the State operation, and that books of accounts and records shall be
by RA 7942 and DAO 96-40 open for inspection by the government. x x x.

RA 7942 provides for the State's control and supervision over mining "(m) Requiring the proponent to dispose of the minerals at
operations. The following provisions thereof establish the mechanism of the highest price and more advantageous terms and
inspection and visitorial rights over mining operations and institute reportorial conditions.
requirements in this manner:
"(n) x x x x x x x x x
1. Sec. 8 which provides for the DENR's power of over-all
supervision and periodic review for "the conservation, management, "(o) Such other terms and conditions consistent with the
development and proper use of the State's mineral resources"; Constitution and with this Act as the Secretary may deem to
be for the best interest of the State and the welfare of the
2. Sec. 9 which authorizes the Mines and Geosciences Bureau Filipino people."
(MGB) under the DENR to exercise "direct charge in the
administration and disposition of mineral resources", and empowers The foregoing provisions of Section 35 of RA 7942 are also
the MGB to "monitor the compliance by the contractor of the terms reflected and implemented in Section 56 (g), (h), (l), (m) and
and conditions of the mineral agreements", "confiscate surety and (n) of the Implementing Rules, DAO 96-40.
performance bonds", and deputize whenever necessary any member
or unit of the Phil. National Police, barangay, duly registered non-
Moreover, RA 7942 and DAO 96-40 also provide various stipulations
governmental organization (NGO) or any qualified person to police
confirming the government's control over mining enterprises:
mining activities;
The contractor is to relinquish to the government those portions of
3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction
the contract area not needed for mining operations and not covered
over safety inspections of all installations, whether surface or
by any declaration of mining feasibility (Section 35-e, RA 7942;
underground", utilized in mining operations.
Section 60, DAO 96-40).

4. Sec. 35, which incorporates into all FTAAs the following terms,
The contractor must comply with the provisions pertaining to mine
conditions and warranties:
safety, health and environmental protection (Chapter XI, RA 7942;
Chapters XV and XVI, DAO 96-40).
"(g) Mining operations shall be conducted in accordance with
the provisions of the Act and its IRR. For violation of any of its terms and conditions, government may
cancel an FTAA. (Chapter XVII, RA 7942; Chapter XXIV, DAO 96-
"(h) Work programs and minimum expenditures 40).
commitments.

xxxxxxxxx

86
An FTAA contractor is obliged to open its books of accounts and 6. Free and prior informed consent by the indigenous
records for inspection by the government (Section 56-m, DAO 96- peoples concerned, including payment of royalties through a
40). Memorandum of Agreement (Section 16, RA 7942; Section
59, RA 8371)
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 The FTAA contractor is obliged to assist in the development of its
sales agreement (Section 56-n, DAO 96-40). mining community, promotion of the general welfare of its
inhabitants, and development of science and mining technology
MGB is mandated to monitor the contractor's compliance with the (Section 57, RA 7942).
terms and conditions of the FTAA; and to deputize, when necessary,
any member or unit of the Philippine National Police, the barangay or The FTAA contractor is obliged to submit reports (on quarterly,
a DENR-accredited nongovernmental organization to police mining semi-annual or annual basis as the case may be; per Section 270,
activities (Section 7-d and -f, DAO 96-40). DAO 96-40), pertaining to the following:

An FTAA cannot be transferred or assigned without prior approval 1. Exploration


by the President (Section 40, RA 7942; Section 66, DAO 96-40).
2. Drilling
A mining project under an FTAA cannot proceed to the
construction/development/utilization stage, unless its Declaration of 3. Mineral resources and reserves
Mining Project Feasibility has been approved by government
(Section 24, RA 7942).
4. Energy consumption

The Declaration of Mining Project Feasibility filed by the contractor


5. Production
cannot be approved without submission of the following documents:
6. Sales and marketing
1. Approved mining project feasibility study (Section 53-d,
DAO 96-40)
7. Employment
2. Approved three-year work program (Section 53-a-4, DAO
96-40) 8. Payment of taxes, royalties, fees and other Government
Shares
3. Environmental compliance certificate (Section 70, RA
7942) 9. Mine safety, health and environment

4. Approved environmental protection and enhancement 10. Land use


program (Section 69, RA 7942)
11. Social development
5. Approval by the Sangguniang
Panlalawigan/Bayan/Barangay (Section 70, RA 7942; 12. Explosives consumption
Section 27, RA 7160)

87
An FTAA pertaining to areas within government reservations of accounts and records for scrutiny, so as to enable the State to determine if
cannot be granted without a written clearance from the government the government share has been fully paid.
agencies concerned (Section 19, RA 7942; Section 54, DAO 96-40).
The State may likewise compel the contractor's compliance with mandatory
An FTAA contractor is required to post a financial guarantee bond requirements on mine safety, health and environmental protection, and the
in favor of the government in an amount equivalent to its use of anti-pollution technology and facilities. Moreover, the contractor is also
expenditures obligations for any particular year. This requirement is obligated to assist in the development of the mining community and to pay
apart from the representations and warranties of the contractor that it royalties to the indigenous peoples concerned.
has access to all the financing, managerial and technical expertise
and technology necessary to carry out the objectives of the FTAA Cancellation of the FTAA may be the penalty for violation of any of its terms
(Section 35-b, -e, and -f, RA 7942). and conditions and/or noncompliance with statutes or regulations. This
general, all-around, multipurpose sanction is no trifling matter, especially to a
Other reports to be submitted by the contractor, as required under contractor who may have yet to recover the tens or hundreds of millions of
DAO 96-40, are as follows: an environmental report on the dollars sunk into a mining project.
rehabilitation of the mined-out area and/or mine waste/tailing
covered area, and anti-pollution measures undertaken (Section 35-a- Overall, considering the provisions of the statute and the regulations just
2); annual reports of the mining operations and records of geologic discussed, we believe that the State definitely possesses the means by
accounting (Section 56-m); annual progress reports and final report which it can have the ultimate word in the operation of the enterprise, set
of exploration activities (Section 56-2). directions and objectives, and detect deviations and noncompliance by the
contractor; likewise, it has the capability to enforce compliance and to impose
Other programs required to be submitted by the contractor, sanctions, should the occasion therefor arise.
pursuant to DAO 96-40, are the following: a safety and health
program (Section 144); an environmental work program (Section In other words, the FTAA contractor is not free to do whatever it
168); an annual environmental protection and enhancement program pleases and get away with it; on the contrary, it will have to follow the
(Section 171). 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
The foregoing gamut of requirements, regulations, restrictions and limitations degree of control and supervision over the conduct of mining
imposed upon the FTAA contractor by the statute and regulations easily operations.
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 Section 3(aq) of RA 7942
submitted plans and reports. On the contrary, the government agencies Not Unconstitutional
concerned are empowered to approve or disapprove -- hence, to influence,
direct and change -- the various work programs and the corresponding An objection has been expressed that Section 3(aq)55 of RA 7942 -- which
minimum expenditure commitments for each of the exploration, development allows a foreign contractor to apply for and hold an exploration permit -- is
and utilization phases of the mining enterprise.
unconstitutional. The reasoning is that Section 2 of Article XII of the
Constitution does not allow foreign-owned corporations to undertake mining
Once these plans and reports are approved, the contractor is bound to operations directly. They may act only as contractors of the State under an
comply with its commitments therein. Figures for mineral production and FTAA; and the State, as the party directly undertaking exploitation of its
sales are regularly monitored and subjected to government review, in order natural resources, must hold through the government all exploration permits
to ensure that the products and by-products are disposed of at the best and similar authorizations. Hence, Section 3(aq), in permitting foreign-owned
prices possible; even copies of sales agreements have to be submitted to corporations to hold exploration permits, is unconstitutional.
and registered with MGB. And the contractor is mandated to open its books

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The objection, however, is not well-founded. While the Constitution mandates the exploration permit issued pursuant to Sections 3(aq), 20 and 23 of RA
the State to exercise full control and supervision over the exploitation of 7942.
mineral resources, nowhere does it require the government to hold all
exploration permits and similar authorizations. In fact, there is no prohibition In brief, the exploration permit serves a practical and legitimate
at all against foreign or local corporations or contractors holding exploration purpose in that it protects the interests and preserves the rights of the
permits. The reason is not hard to see. exploration permit grantee (the would-be contractor) -- foreign or local -
- during the period of time that it is spending heavily on exploration
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a works, without yet being able to earn revenues to recoup any of its
qualified person the right to conduct exploration for all minerals in specified investments and expenditures. Minus this permit and the protection it
areas. Such a permit does not amount to an authorization to extract and affords, the exploration works and expenditures may end up benefiting only
carry off the mineral resources that may be discovered. This phase involves claim-jumpers. Such a possibility tends to discourage investors and
nothing but expenditures for exploring the contract area and locating the contractors. Thus, Section 3(aq) of RA 7942 may not be deemed
mineral bodies. As no extraction is involved, there are no revenues or unconstitutional.
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- The Terms of the WMCP FTAA
approved by the government, without any right to recover anything should no
minerals in commercial quantities be discovered. The State risks nothing and A Deference to State Control
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.
A perusal of the WMCP FTAA also reveals a slew of stipulations providing for
State control and supervision:
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 1. The contractor is obligated to account for the value of production
accompanied by a work program for development. The approval of the and sale of minerals (Clause 1.4).
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 2. The contractor's work program, activities and budgets must be
agreement, or to an FTAA. approved by/on behalf of the State (Clause 2.1).

Thus, the permit grantee may apply for an MPSA, a joint venture agreement, 3. The DENR secretary has the power to extend the exploration
a co-production agreement, or an FTAA over the permit area, and the period (Clause 3.2-a).
application shall be approved if the permit grantee meets the necessary
qualifications and the terms and conditions of any such agreement. 4. Approval by the State is necessary for incorporating lands into the
Therefore, the contractor will be in a position to extract minerals and earn FTAA contract area (Clause 4.3-c).
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 5. The Bureau of Forest Development is vested with discretion in
by an FTAA or a mineral agreement. regard to approving the inclusion of forest reserves as part of the
FTAA contract area (Clause 4.5).
But prior to the issuance of such FTAA or mineral agreement, the exploration
permit grantee (or prospective contractor) cannot yet be deemed to have 6. The contractor is obliged to relinquish periodically parts of the
entered into any contract or agreement with the State, and the grantee would contract area not needed for exploration and development (Clause
definitely need to have some document or instrument as evidence of its right 4.6).
to conduct exploration works within the specified area. This need is met by

89
7. A Declaration of Mining Feasibility must be submitted for approval 17. Any expansions, modifications, improvements and replacements
by the State (Clause 4.6-b). of mining facilities shall be subject to the approval of the secretary
(Clause 6.4).
8. The contractor is obligated to report to the State its exploration
activities (Clause 4.9). 18. The State has control with respect to the amount of funds that
the contractor may borrow within the Philippines (Clause 7.2).
9. The contractor is required to obtain State approval of its work
programs for the succeeding two-year periods, containing the 19. The State has supervisory power with respect to technical,
proposed work activities and expenditures budget related to financial and marketing issues (Clause 10.1-a).
exploration (Clause 5.1).
20. The contractor is required to ensure 60 percent Filipino equity in
10. The contractor is required to obtain State approval for its the contractor, within ten years of recovering specified expenditures,
proposed expenditures for exploration activities (Clause 5.2). unless not so required by subsequent legislation (Clause 10.1).

11. The contractor is required to submit an annual report on 21. The State has the right to terminate the FTAA for the contractor's
geological, geophysical, geochemical and other information relating unremedied substantial breach thereof (Clause 13.2);
to its explorations within the FTAA area (Clause 5.3-a).
22. The State's approval is needed for any assignment of the FTAA
12. The contractor is to submit within six months after expiration of by the contractor to an entity other than an affiliate (Clause 14.1).
exploration period a final report on all its findings in the contract area
(Clause 5.3-b). 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
13. The contractor, after conducting feasibility studies, shall submit a effective supervision over the enterprise. For instance, throughout the initial
declaration of mining feasibility, along with a description of the area five-year exploration and feasibility phase of the project, the contractor is
to be developed and mined, a description of the proposed mining mandated by Clause 5.1 of the WMCP FTAA to submit a series of work
operations and the technology to be employed, and a proposed work programs (copy furnished the director of MGB) to the DENR secretary for
program for the development phase, for approval by the DENR approval. The programs will detail the contractor's proposed exploration
secretary (Clause 5.4). activities and budget covering each subsequent period of two fiscal years.

14. The contractor is obliged to complete the development of the In other words, the concerned government officials will be informed
mine, including construction of the production facilities, within the beforehand of the proposed exploration activities and expenditures of the
period stated in the approved work program (Clause 6.1). contractor for each succeeding two-year period, with the right to
approve/disapprove them or require changes or adjustments therein if
15. The contractor is obligated to submit for approval of the DENR deemed necessary.
secretary a work program covering each period of three fiscal years
(Clause 6.2). 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
16. The contractor is to submit reports to the DENR secretary on the exploration period was fixed at not less than P24 million; and then for the
production, ore reserves, work accomplished and work in progress, succeeding years, the amount shall be as agreed between the DENR
profile of its work force and management staff, and other technical secretary and the contractor prior to the commencement of each subsequent
information (Clause 6.3). fiscal year. If no such agreement is arrived upon, the previous year's
expenditure commitment shall apply.

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This provision alone grants the government through the DENR secretary a sales; total ore reserves, total tonnage of ores, work accomplished and work
very big say in the exploration phase of the project. This fact is not something in progress (installations and facilities related to mining operations),
to be taken lightly, considering that the government has absolutely no investments made or committed, and so on and so forth.
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 Under Section VIII, during the period of mining operations, the contractor is
as very significant such a degree of control over the project and, resultantly, also required to submit to the DENR secretary (copy furnished the director of
over the mining enterprise itself. MGB) the work program and corresponding budget for the contract area,
describing the mining operations that are proposed to be carried out during
Following its exploration activities or feasibility studies, if the contractor the period covered. The secretary is, of course, entitled to grant or deny
believes that any part of the contract area is likely to contain an economic approval of any work program or budget and/or propose revisions thereto.
mineral resource, it shall submit to the DENR secretary a declaration of Once the program/budget has been approved, the contractor shall comply
mining feasibility (per Clause 5.4 of the FTAA), together with a technical therewith.
description of the area delineated for development and production, a
description of the proposed mining operations including the technology to be In sum, the above provisions of the WMCP FTAA taken together, far from
used, a work program for development, an environmental impact statement, constituting a surrender of control and a grant of beneficial ownership of
and a description of the contributions to the economic and general welfare of mineral resources to the contractor in question, bestow upon the State
the country to be generated by the mining operations (pursuant to Clause more than adequate control and supervision over the activities of the
5.5). contractor and the enterprise.

The work program for development is subject to the approval of the DENR No Surrender of Control
secretary. Upon its approval, the contractor must comply with it and complete Under the WMCP FTAA
the development of the mine, including the construction of production
facilities and installation of machinery and equipment, within the period
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP
provided in the approved work program for development (per Clause 6.1). 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
Thus, notably, the development phase of the project is likewise subject to the work programs.
control and supervision of the government. It cannot be emphasized enough
that the proper and timely construction and deployment of the production "8.2. The Secretary shall be deemed to have approved any Work
facilities and the development of the mine are of pivotal significance to the Programme or Budget or variation thereof submitted by the
success of the mining venture. Any missteps here will potentially be very Contractor unless within sixty (60) days after submission by the
costly to remedy. Hence, the submission of the work program for Contractor the Secretary gives notice declining such approval or
development to the DENR secretary for approval is particularly noteworthy, proposing a revision of certain features and specifying its reasons
considering that so many millions of dollars worth of investments -- courtesy therefor ('the Rejection Notice').
of the contractor -- are made to depend on the State's consideration and
action.
8.3. If the Secretary gives a Rejection Notice, the Parties shall
promptly meet and endeavor to agree on amendments to the Work
Throughout the operating period, the contractor is required to submit to the
Programme or Budget. If the Secretary and the Contractor fail to
DENR secretary for approval, copy furnished the director of MGB, work agree on the proposed revision within 30 days from delivery of the
programs covering each period of three fiscal years (per Clause 6.2). During Rejection Notice then the Work Programme or Budget or variation
the same period (per Clause 6.3), the contractor is mandated to submit thereof proposed by the Contractor shall be deemed approved, so as
various quarterly and annual reports to the DENR secretary, copy furnished not to unnecessarily delay the performance of the Agreement.
the director of MGB, on the tonnages of production in terms of ores and
concentrates, with corresponding grades, values and destinations; reports of
8.4. x x x x x x x x x
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8.5. So far as is practicable, the Contractor shall comply with any program or budget would be appropriate, more effective, or more suitable
approved Work Programme and Budget. It is recognized by the under the circumstances.
Secretary and the Contractor that the details of any Work
Programmes or Budgets may require changes in the light of All things considered, we take exception to the characterization of the DENR
changing circumstances. The Contractor may make such changes secretary as a subservient nonentity whom the contractor can overrule at will,
without approval of the Secretary provided they do not change the on account of Clause 8.3. And neither is it true that under the same clause,
general objective of any Work Programme, nor entail a downward the DENR secretary has no authority whatsoever to disapprove the work
variance of more than twenty per centum (20percent) of the relevant program. As Respondent WMCP reasoned in its Reply-Memorandum, the
Budget. All other variations to an approved Work Programme or State -- despite Clause 8.3 -- still has control over the contract area and it
Budget shall be submitted for approval of the Secretary." may, as sovereign authority, prohibit work thereon until the dispute is
resolved. And ultimately, the State may terminate the agreement, pursuant to
From the provisions quoted above, petitioners generalize by asserting that Clause 13.2 of the same FTAA, citing substantial breach thereof. Hence, it
the government does not participate in making critical decisions regarding clearly retains full and effective control of the exploitation of the mineral
the operations of the mining firm. Furthermore, while the State can require resources.
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 On the other hand, Clause 8.5 is merely an acknowledgment of the parties'
matters affecting operations and management. need for flexibility, given that no one can accurately forecast under all
circumstances, or predict how situations may change. Hence, while approved
We hold, however, that the foregoing provisions do not manifest a work programs and budgets are to be followed and complied with as far as
relinquishment of control. For instance, Clause 8.2 merely provides a practicable, there may be instances in which changes will have to be
mechanism for preventing the business or mining operations from grinding to effected, and effected rapidly, since events may take shape and unfold with
a complete halt as a result of possibly over-long and unjustified delays in the suddenness and urgency. Thus, Clause 8.5 allows the contractor to move
government's handling, processing and approval of submitted work programs ahead and make changes without the express or implicit approval of the
and budgets. Anyway, the provision does give the DENR secretary more DENR secretary. Such changes are, however, subject to certain conditions
than sufficient time (60 days) to react to submitted work programs and that will serve to limit or restrict the variance and prevent the contractor from
budgets. It cannot be supposed that proper grounds for objecting thereto, if straying very far from what has been approved.
any exist, cannot be discovered within a period of two months.
Clause 8.5 provides the contractor a certain amount of flexibility to meet
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap unexpected situations, while still guaranteeing that the approved work
solution in the event a disagreement over the submitted work program or programs and budgets are not abandoned altogether. Clause 8.5 does not
budget arises between the State and the contractor and results in a constitute proof that the State has relinquished control. And ultimately,
stalemate or impasse, in order that there will be no unreasonably long delays should there be disagreement with the actions taken by the contractor in this
in the performance of the works. 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.
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 Discretion to Select Contract
when these temporary remedies come into play. First, avoidance of long Area Not an Abdication of Control
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 Next, petitioners complain that the contractor has full discretion to select --
budget proposed by the contractor and deemed approved under Clause 8.3 and the government has no say whatsoever as to -- the parts of the contract
would not be the better or more reasonable or more effective alternative? area to be relinquished pursuant to Clause 4.6 of the WMCP FTAA.56 This
The contractor, being the "insider," as it were, may be said to be in a better clause, however, does not constitute abdication of control. Rather, it is a
position than the State -- an outsider looking in -- to determine what work mere acknowledgment of the fact that the contractor will have determined,
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after appropriate exploration works, which portions of the contract area do foreign-owned corporation and therefore not qualified to own land. As
not contain minerals in commercial quantities sufficient to justify developing contractor, it has at some future date to construct the infrastructure -- the
the same and ought therefore to be relinquished. The State cannot just mine processing plant, the camp site, the tailings dam, and other
substitute its judgment for that of the contractor and dictate upon the latter infrastructure -- needed for the large-scale mining operations. It will then
which areas to give up. have to identify and pinpoint, within the FTAA contract area, the particular
surface areas with favorable topography deemed ideal for such infrastructure
Moreover, we can be certain that the contractor's self-interest will propel and will need to acquire the surface rights. The State owns the mineral
proper and efficient relinquishment. According to private respondent,57 a deposits in the earth, and is also qualified to own land.
mining company tries to relinquish as much non-mineral areas as soon as
possible, because the annual occupation fees paid to the government are Section 10.2(e) sets forth the mechanism whereby the foreign-owned
based on the total hectarage of the contract area, net of the areas contractor, disqualified to own land, identifies to the government the specific
relinquished. Thus, the larger the remaining area, the heftier the amount of surface areas within the FTAA contract area to be acquired for the mine
occupation fees to be paid by the contractor. Accordingly, relinquishment is infrastructure. The government then acquires ownership of the surface land
not an issue, given that the contractor will not want to pay the annual areas on behalf of the contractor, in order to enable the latter to proceed to
occupation fees on the non-mineral parts of its contract area. Neither will it fully implement the FTAA.
want to relinquish promising sites, which other contractors may subsequently
pick up. 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
Government Not a Subcontractor 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
Petitioners further maintain that the contractor can compel the government to applicable to Sagittarius as the present FTAA contractor, since it is a Filipino
exercise its power of eminent domain to acquire surface areas within the corporation qualified to own and hold land. As such, it may therefore freely
contract area for the contractor's use. Clause 10.2 (e) of the WMCP FTAA negotiate with the surface rights owners and acquire the surface property in
provides that the government agrees that the contractor shall "(e) have the its own right.
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 Clearly, petitioners have needlessly jumped to unwarranted conclusions,
terms as may be acceptable to the contractor. At the termination of this without being aware of the rationale for the said provision. That provision
Agreement such areas shall be sold by public auction or tender and the does not call for the exercise of the power of eminent domain -- and
Contractor shall be entitled to reimbursement of the costs of acquisition and determination of just compensation is not an issue -- as much as it calls for a
maintenance, adjusted for inflation, from the proceeds of sale." qualified party to acquire the surface rights on behalf of a foreign-owned
contractor.
According to petitioners, "government becomes a subcontractor to the
contractor" and may, on account of this provision, be compelled "to make use Rather than having the foreign contractor act through a dummy corporation,
of its power of eminent domain, not for public purposes but on behalf of a having the State do the purchasing is a better alternative. This will at least
private party, i.e., the contractor." Moreover, the power of the courts to cause the government to be aware of such transaction/s and foster
determine the amount corresponding to the constitutional requirement of just transparency in the contractor's dealings with the local property owners. The
compensation has allegedly also been contracted away by the government, government, then, will not act as a subcontractor of the contractor; rather, it
on account of the latter's commitment that the acquisition shall be at such will facilitate the transaction and enable the parties to avoid a technical
terms as may be acceptable to the contractor. violation of the Anti-Dummy Law.

However, private respondent has proffered a logical explanation for the Absence of Provision
provision.58 Section 10.2(e) contemplates a situation applicable to foreign- Requiring Sale at Posted
owned corporations. WMCP, at the time of the execution of the FTAA, was a Prices Not Problematic
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The supposed absence of any provision in the WMCP FTAA directly and Seen in this context, Clause 10.2(l) is not something out of the ordinary or
explicitly requiring the contractor to sell the mineral products at posted or objectionable. In any case, as will be explained below, even if it is allowed to
market prices is not a problem. Apart from Clause 1.4 of the FTAA obligating mortgage or encumber the mineral end-products themselves, the contractor
the contractor to account for the total value of mineral production and the is not freed of its obligation to pay the government its basic and additional
sale of minerals, we can also look to Section 35 of RA 7942, which shares in the net mining revenue, which is the essential thing to consider.
incorporates into all FTAAs certain terms, conditions and warranties,
including the following: In brief, the alarum raised over the contractor's right to mortgage the
minerals is simply unwarranted. Just the same, the contractor must account
"(l) The contractors shall furnish the Government records of geologic, for the value of mineral production and the sales proceeds therefrom.
accounting and other relevant data for its mining operation, and that Likewise, under the WMCP FTAA, the government remains entitled to its
books of accounts and records shall be open for inspection by the sixty percent share in the net mining revenues of the contractor. The latter's
government. x x x right to mortgage the minerals does not negate the State's right to receive its
share of net mining revenues.
(m) Requiring the proponent to dispose of the minerals at the highest
price and more advantageous terms and conditions." Shareholders Free to Sell Their Stocks

For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA Petitioners likewise criticize Clause 10.2(k), which gives the contractor
contractor to dispose of the minerals and by-products at the highest market authority "to change its equity structure at any time." This provision may
price and to register with the MGB a copy of the sales agreement. After all, seem somewhat unusual, but considering that WMCP then was 100 percent
the provisions of prevailing statutes as well as rules and regulations are foreign-owned, any change would mean that such percentage would either
deemed written into contracts. stay unaltered or be decreased in favor of Filipino ownership. Moreover, the
foreign-held shares may change hands freely. Such eventuality is as it
Contractor's Right to Mortgage should be.
Not Objectionable Per Se
We believe it is not necessary for government to attempt to limit or restrict
Petitioners also question the absolute right of the contractor under Clause the freedom of the shareholders in the contractor to freely transfer, dispose
10.2 (l) to mortgage and encumber not only its rights and interests in the of or encumber their shareholdings, consonant with the unfettered exercise
FTAA and the infrastructure and improvements introduced, but also the of their business judgment and discretion. Rather, what is critical is that,
mineral products extracted. Private respondents do not touch on this matter, regardless of the identity, nationality and percentage ownership of the
but we believe that this provision may have to do with the conditions imposed various shareholders of the contractor -- and regardless of whether these
by the creditor-banks of the then foreign contractor WMCP to secure the shareholders decide to take the company public, float bonds and other fixed-
lendings made or to be made to the latter. Ordinarily, banks lend not only on income instruments, or allow the creditor-banks to take an equity position in
the security of mortgages on fixed assets, but also on encumbrances of the company -- the foreign-owned contractor is always in a position to render
goods produced that can easily be sold and converted into cash that can be the services required under the FTAA, under the direction and control of the
applied to the repayment of loans. Banks even lend on the security of government.
accounts receivable that are collectible within 90 days.59
Contractor's Right to Ask
It is not uncommon to find that a debtor corporation has executed deeds of For Amendment Not Absolute
assignment "by way of security" over the production for the next twelve
months and/or the proceeds of the sale thereof -- or the corresponding With respect to Clauses 10.4(e) and (i), petitioners complain that these
accounts receivable, if sold on terms -- in favor of its creditor-banks. Such provisions bind government to allow amendments to the FTAA if required by
deeds may include authorizing the creditors to sell the products themselves banks and other financial institutions as part of the conditions for new
and to collect the sales proceeds and/or the accounts receivable. lendings. However, we do not find anything wrong with Clause 10.4(e), which
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only states that "if the Contractor seeks to obtain financing contemplated One of the main reasons certain provisions of RA 7942 were struck down
herein from banks or other financial institutions, (the Government shall) was the finding mentioned in the Decision that beneficial ownership of the
cooperate with the Contractor in such efforts provided that such financing mineral resources had been conveyed to the contractor. This finding was
arrangements will in no event reduce the Contractor's obligations or the based on the underlying assumption, common to the said provisions, that the
Government's rights hereunder." The colatilla obviously safeguards the foreign contractor manages the mineral resources in the same way that
State's interests; if breached, it will give the government cause to object to foreign contractors in service contracts used to. "By allowing foreign
the proposed amendments. 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
On the other hand, Clause 10.4(i) provides that "the Government shall ownership over the nation's mineral resources to these contractors, leaving
favourably consider any request from [the] Contractor for amendments of this the State with nothing but bare title thereto."60 As the WMCP FTAA
Agreement which are necessary in order for the Contractor to successfully contained similar provisions deemed by the ponente to be abhorrent to the
obtain the financing." Petitioners see in this provision a complete Constitution, the Decision struck down the Contract as well.
renunciation of control. We disagree.
Beneficial ownership has been defined as ownership recognized by law and
The proviso does not say that the government shall grant any request for capable of being enforced in the courts at the suit of the beneficial owner.61
amendment. Clause 10.4(i) only obliges the State to favorably consider any Black's Law Dictionary indicates that the term is used in two senses: first, to
such request, which is not at all unreasonable, as it is not equivalent to indicate the interest of a beneficiary in trust property (also called "equitable
saying that the government must automatically consent to it. This provision ownership"); and second, to refer to the power of a corporate shareholder to
should be read together with the rest of the FTAA provisions instituting buy or sell the shares, though the shareholder is not registered in the
government control and supervision over the mining enterprise. The clause corporation's books as the owner.62 Usually, beneficial ownership is
should not be given an interpretation that enables the contractor to wiggle out distinguished from naked ownership, which is the enjoyment of all the
of the restrictions imposed upon it by merely suggesting that certain benefits and privileges of ownership, as against possession of the bare title
amendments are requested by the lenders. to property.

Rather, it is up to the contractor to prove to the government that the An assiduous examination of the WMCP FTAA uncovers no indication that it
requested changes to the FTAA are indispensable, as they enable the confers upon WMCP ownership, beneficial or otherwise, of the mining
contractor to obtain the needed financing; that without such contract property it is to develop, the minerals to be produced, or the proceeds of their
changes, the funders would absolutely refuse to extend the loan; that there sale, which can be legally asserted and enforced as against the State.
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 As public respondents correctly point out, any interest the contractor may
programs will not proceed. But the bottom line is, in the exercise of its power have in the proceeds of the mining operation is merely the equivalent of the
of control, the government has the final say on whether to approve or consideration the government has undertaken to pay for its services. All
disapprove such requested amendments to the FTAA. In short, approval lawful contracts require such mutual prestations, and the WMCP FTAA is no
thereof is not mandatory on the part of the government. different. The contractor commits to perform certain services for the
government in respect of the mining operation, and in turn it is to be
In fine, the foregoing evaluation and analysis of the aforementioned compensated out of the net mining revenues generated from the sale of
FTAA provisions sufficiently overturns petitioners' litany of objections mineral products. What would be objectionable is a contractual provision that
to and criticisms of the State's alleged lack of control. unduly benefits the contractor far in excess of the service rendered or value
delivered, if any, in exchange therefor.
Financial Benefits Not
Surrendered to the Contractor 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 any foreign FTAA contractor.

95
Equitable Sharing Excise tax on minerals - 2 percent of the gross output of
of Financial Benefits mining operations

On the contrary, DAO 99-56, entitled "Guidelines Establishing the Fiscal Contractor' income tax - maximum of 32 percent of taxable
Regime of Financial or Technical Assistance Agreements" aims to ensure an income for corporations
equitable sharing of the benefits derived from mineral resources. These
benefits are to be equitably shared among the government (national and Customs duties and fees on imported capital equipment -
local), the FTAA contractor, and the affected communities. The purpose is to the rate is set by the Tariff and Customs Code (3-7 percent
ensure sustainable mineral resources development; and a fair, equitable, for chemicals; 3-10 percent for explosives; 3-15 percent for
competitive and stable investment regime for the large-scale exploration, mechanical and electrical equipment; and 3-10 percent for
development and commercial utilization of minerals. The general framework vehicles, aircraft and vessels
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
VAT on imported equipment, goods and services 10
growth and general welfare of the country, while the contractor expects a
percent of value
reasonable return on its investments in the project.63
Royalties due the government on minerals extracted from
Specifically, under the fiscal regime, the government's expectation is, inter
mineral reservations, if applicable 5 percent of the actual
alia, the receipt of its share from the taxes and fees normally paid by a
market value of the minerals produced
mining enterprise. On the other hand, the FTAA contractor is granted by the
government certain fiscal and non-fiscal incentives64 to help support the
former's cash flow during the most critical phase (cost recovery) and to make Documentary stamp tax - the rate depends on the type of
the Philippines competitive with other mineral-producing countries. After the transaction
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 Capital gains tax on traded stocks - 5 to 10 percent of the
share for the government based on the options and formulae set forth in value of the shares
DAO 99-56.
Withholding tax on interest payments on foreign loans -15
The said DAO spells out the financial benefits the government will receive percent of the amount of interest
from an FTAA, referred to as "the Government Share," composed of a basic
government share and an additional government share. Withholding tax on dividend payments to foreign
stockholders 15 percent of the dividend
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 Wharfage and port fees
of the FTAA. These are amounts paid directly to (i) the national government
(through the Bureau of Internal Revenue, Bureau of Customs, Mines & Licensing fees (for example, radio permit, firearms permit,
Geosciences Bureau and other national government agencies imposing professional fees)
taxes or fees), (ii) the local government units where the mining activity is
conducted, and (iii) persons and communities directly affected by the mining
Other national taxes and fees.
project. The major taxes and other payments constituting the basic
government share are enumerated below:65
Payments to Local Governments:
Payments to the National Government:

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Local business tax - a maximum of 2 percent of gross sales is entitled to an "additional government share" to be paid by the contractor
or receipts (the rate varies among local government units) apart from the "basic share," in order to attain a fifty-fifty sharing of net
benefits from mining.
Real property tax - 2 percent of the fair market value of the
property, based on an assessment level set by the local The additional government share is computed by using one of three
government 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
Special education levy - 1 percent of the basis used for the profits; and (3) the sharing based on the cumulative net mining revenue. The
real property tax 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
Occupation fees - PhP50 per hectare per year; PhP100 per
hectare per year if located in a mineral reservation
Proceeds from the government shares arising from an FTAA contract are
distributed to and received by the different levels of government in the
Community tax - maximum of PhP10,500 per year
following proportions:
All other local government taxes, fees and imposts as of
the effective date of the FTAA - the rate and the type depend National Government 50 percent
on the local government
Provincial Government 10 percent
Other Payments:
Municipal Government 20 percent
Royalty to indigenous cultural communities, if any 1 Affected Barangays 20 percent
percent of gross output from mining operations

Special allowance - payment to claim owners and surface The portion of revenues remaining after the deduction of the basic and
rights holders additional government shares is what goes to the contractor.

Apart from the basic share, an additional government share is also Government's Share in an
collected from the FTAA contractor in accordance with the second paragraph FTAA Not Consisting Solely
of Section 81 of RA 7942, which provides that the government share shall be of Taxes, Duties and Fees
comprised of, among other things, certain taxes, duties and fees. The subject
proviso reads: In connection with the foregoing discussion on the basic and additional
government shares, it is pertinent at this juncture to mention the criticism
"The Government share in a financial or technical assistance agreement leveled at the second paragraph of Section 81 of RA 7942, quoted earlier.
shall consist of, among other things, the contractor's corporate income tax, The said proviso has been denounced, because, allegedly, the State's share
excise tax, special allowance, withholding tax due from the contractor's in FTAAs with foreign contractors has been limited to taxes, fees and duties
foreign stockholders arising from dividend or interest payments to the said only; in effect, the State has been deprived of a share in the after-tax income
foreign stockholder in case of a foreign national, and all such other taxes, of the enterprise. In the face of this allegation, one has to consider that the
duties and fees as provided for under existing laws." (Bold types supplied.) 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 government, through the DENR and the MGB, has interpreted the
insertion of the phrase among other things as signifying that the government
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The law provides no definition of the term among other things, for the reason the cumulative present value of the cash flows69 of the enterprise; (b) an
that Congress deliberately avoided setting unnecessary limitations as to what amount equivalent to 25 percent of the additional or excess profits of the
may constitute compensation to the State for the exploitation and use of enterprise, reckoned against a benchmark return on investments; or (c) an
mineral resources. But the inclusion of that phrase clearly and unmistakably amount that will result in a fifty-fifty sharing of the cumulative net mining
reveals the legislative intent to have the State collect more than just the usual revenue from the end of the recovery period up to the taxable year in
taxes, duties and fees. Certainly, there is nothing in that phrase -- or in the question. The contractor is required to select one of the three options or
second paragraph of Section 81 -- that would suggest that such phrase formulae for computing the additional share, an option it will apply to all of its
should be interpreted as referring only to taxes, duties, fees and the like. mining operations.

Precisely for that reason, to fulfill the legislative intent behind the inclusion of As used above, "net mining revenue" is defined as the gross output from
the phrase among other things in the second paragraph of Section 81,67 the mining operations for a calendar year, less deductible expenses (inclusive of
DENR structured and formulated in DAO 99-56 the said additional taxes, duties and fees). Such revenue would roughly be equivalent to
government share. Such a share was to consist not of taxes, but of a share "taxable income" or income before income tax. Definitely, as compared with,
in the earnings or cash flows of the mining enterprise. The additional say, calculating the additional government share on the basis of net
government share was to be paid by the contractor on top of the basic share, income (after income tax), the net mining revenue is a better and much more
so as to achieve a fifty-fifty sharing -- between the government and the reasonable basis for such computation, as it gives a truer picture of the
contractor -- of net benefits from mining. In the Ramos-DeVera paper, the profitability of the company.
explanation of the three options or formulas68 -- presented in DAO 99-56
for the computation of the additional government share -- serves to debunk To demonstrate that the three options or formulations will operate as
the claim that the government's take from an FTAA consists solely of taxes, intended, Messrs. Ramos and de Vera also performed some quantifications
fees and duties. 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
Unfortunately, the Office of the Solicitor General -- although in possession of share from the option that is based on the net mining revenue, as compared
the relevant data -- failed to fully replicate or echo the pertinent elucidation in with the other two options, considering only the basic and the additional
the Ramos-DeVera paper regarding the three schemes or options for shares; and that, even though production rate decreases, the government
computing the additional government share presented in DAO 99-56. Had share will actually increase when the net mining revenue and the additional
due care been taken by the OSG, the Court would have been duly apprised profit-based options are used.
of the real nature and particulars of the additional share.
Furthermore, it should be noted that the three options or formulae do not yet
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera take into account the indirect taxes70 and other financial contributions71 of
paper, and the even more abstruse mathematical jargon employed in DAO mining projects. These indirect taxes and other contributions are real and
99-56, the OSG omitted any mention of the three options. Instead, the OSG actual benefits enjoyed by the Filipino people and/or government. Now, if
skipped to a side discussion of the effect of indirect taxes, which had nothing some of the quantifiable items are taken into account in the computations,
at all to do with the additional government share, to begin with. Unfortunately, the financial modeling would show that the total government share increases
this move created the wrong impression, pointed out in Justice Antonio T. to 60 percent or higher -- in one instance, as much as 77 percent and even
Carpio's Opinion, that the OSG had taken the position that the additional 89 percent -- of the net present value of total benefits from the project. As
government share consisted of indirect taxes. noted in the Ramos-DeVera paper, these results are not at all shabby,
considering that the contractor puts in all the capital requirements and
In any event, what is quite evident is the fact that the additional assumes all the risks, without the government having to contribute or risk
government share, as formulated, has nothing to do with taxes -- direct or anything.
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 Despite the foregoing explanation, Justice Carpio still insisted during the
additional share may be (a) an amount that will result in a 50-50 sharing of Court's deliberations that the phrase among other things refers only to taxes,

98
duties and fees. We are bewildered by his position. On the one hand, he We believe that Congress did not set any time limit for the grace period,
condemns the Mining Law for allegedly limiting the government's benefits preferring to leave it to the concerned agencies, which are, on account of
only to taxes, duties and fees; and on the other, he refuses to allow the State their technical expertise and training, in a better position to determine the
to benefit from the correct and proper interpretation of the DENR/MGB. To appropriate durations for such recovery periods. After all, these recovery
remove all doubts then, we hold that the State's share is not limited to taxes, periods are determined, to a great extent, by technical and technological
duties and fees only and that the DENR/MGB interpretation of the phrase factors peculiar to the mining industry. Besides, with developments and
among other things is correct. Definitely, this DENR/MGB interpretation is not advances in technology and in the geosciences, we cannot discount the
only legally sound, but also greatly advantageous to the government. possibility of shorter recovery periods. At any rate, the concerned agencies
have not been remiss in this area. The 1995 and 1996 Implementing Rules
One last point on the subject. The legislature acted judiciously in not defining and Regulations of RA 7942 specify that the period of recovery, reckoned
the terms among other things and, instead, leaving it to the agencies from the date of commercial operation, shall be for a period not exceeding
concerned to devise and develop the various modes of arriving at a five years, or until the date of actual recovery, whichever comes earlier.
reasonable and fair amount for the additional government share. As can
be seen from DAO 99-56, the agencies concerned did an admirable job of Approval of Pre-Operating
conceiving and developing not just one formula, but three different formulae Expenses Required by RA 7942
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 Still, RA 7942 is criticized for allegedly not requiring government approval of
alternatives or schemes for a possible improvement of the fiscal regime for pre-operating, exploration and development expenses of the foreign
FTAAs are also being studied by the government. contractors, who are in effect given unfettered discretion to determine the
amounts of such expenses. Supposedly, nothing prevents the contractors
Besides, not locking into a fixed definition of the term among other things will from recording such expenses in amounts equal to the mining revenues
ultimately be more beneficial to the government, as it will have that innate anticipated for the first 10 or 15 years of commercial production, with the
flexibility to adjust to and cope with rapidly changing circumstances, result that the share of the State will be zero for the first 10 or 15 years.
particularly those in the international markets. Such flexibility is especially Moreover, under the circumstances, the government would be unable to say
significant for the government in terms of helping our mining enterprises when it would start to receive its share under the FTAA.
remain competitive in world markets despite challenging and shifting
economic scenarios. We believe that the argument is based on incorrect information as well as
speculation. Obviously, certain crucial provisions in the Mining Law were
In conclusion, we stress that we do not share the view that in FTAAs overlooked. Section 23, dealing with the rights and obligations of the
with foreign contractors under RA 7942, the government's share is exploration permit grantee, states: "The permittee shall undertake exploration
limited to taxes, fees and duties. Consequently, we find the attacks on work on the area as specified by its permit based on an approved work
the second paragraph of Section 81 of RA 7942 totally unwarranted. program." The next proviso reads: "Any expenditure in excess of the yearly
budget of the approved work program may be carried forward and credited to
Collections Not Made Uncertain the succeeding years covering the duration of the permit. x x x."
by the Third Paragraph of Section 81 (underscoring supplied)

The third or last paragraph of Section 8172 provides that the government Clearly, even at the stage of application for an exploration permit, the
share in FTAAs shall be collected when the contractor shall have recovered applicant is required to submit -- for approval by the government -- a
its pre-operating expenses and exploration and development expenditures. proposed work program for exploration, containing a yearly budget of
The objection has been advanced that, on account of the proviso, the proposed expenditures. The State has the opportunity to pass upon (and
collection of the State's share is not even certain, as there is no time limit in approve or reject) such proposed expenditures, with the foreknowledge that -
RA 7942 for this grace period or recovery period. - if approved -- these will subsequently be recorded as pre-operating

99
expenses that the contractor will have to recoup over the grace period. That In summary, we cannot agree that the third or last paragraph of Section
is not all. 81 of RA 7942 is in any manner unconstitutional.

Under Section 24, an exploration permit holder who determines the No Deprivation of Beneficial Rights
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 It is also claimed that aside from the second and the third paragraphs of
mining project feasibility. This declaration is to be accompanied by a work Section 81 (discussed above), Sections 80, 84 and 112 of RA 7942 also
program for development for the Bureau's approval, the necessary prelude operate to deprive the State of beneficial rights of ownership over mineral
for entering into an FTAA, a mineral production sharing agreement (MPSA), resources; and give them away for free to private business enterprises
or some other mineral agreement. At this stage, too, the government (including foreign owned corporations). Likewise, the said provisions have
obviously has the opportunity to approve or reject the proposed work been construed as constituting, together with Section 81, an ingenious
program and budgeted expenditures for development works on the project. attempt to resurrect the old and discredited system of "license, concession or
Such expenditures will ultimately become the pre-operating and development lease."
costs that will have to be recovered by the contractor.
Specifically, Section 80 is condemned for limiting the State's share in a
Naturally, with the submission of approved work programs and budgets for mineral production-sharing agreement (MPSA) to just the excise tax on the
the exploration and the development/construction phases, the government mineral product. Under Section 151(A) of the Tax Code, such tax is only 2
will be able to scrutinize and approve or reject such expenditures. It will be percent of the market value of the gross output of the minerals. The colatilla
well-informed as to the amounts of pre-operating and other expenses that the in Section 84, the portion considered offensive to the Constitution, reiterates
contractor may legitimately recover and the approximate period of time the same limitation made in Section 80.73
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 It should be pointed out that Section 80 and the colatilla in Section 84 pertain
recover the same. 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
The aforecited provisions on approved work programs and budgets have this Court during the Oral Argument -- particularly the third issue, which
counterparts in Section 35, which deals with the terms and conditions pertained exclusively to FTAAs. Neither did the parties argue upon them in
exclusively applicable to FTAAs. The said provision requires certain terms their pleadings. Hence, this Court cannot make any pronouncement in this
and conditions to be incorporated into FTAAs; among them, "a firm case regarding the constitutionality of Sections 80 and 84 without violating
commitment x x x of an amount corresponding to the expenditure obligation the fundamental rules of due process. Indeed, the two provisos will have to
that will be invested in the contract area" and "representations and await another case specifically placing them in issue.
warranties x x x to timely deploy these [financing, managerial and technical
expertise and technological] resources under its supervision pursuant to the
On the other hand, Section 11274 is disparaged for allegedly reverting
periodic work programs and related budgets x x x," as well as "work
FTAAs and all mineral agreements to the old and discredited "license,
programs and minimum expenditures commitments." (underscoring supplied) concession or lease" system. This Section states in relevant part that "the
provisions of Chapter XIV [which includes Sections 80 to 82] on government
Unarguably, given the provisions of Section 35, the State has every share in mineral production-sharing agreement x x x shall immediately
opportunity to pass upon the proposed expenditures under an FTAA and govern and apply to a mining lessee or contractor." (underscoring supplied)
approve or reject them. It has access to all the information it may need in This provision is construed as signifying that the 2 percent excise tax which,
order to determine in advance the amounts of pre-operating and pursuant to Section 80, comprises the government share in MPSAs shall
developmental expenses that will have to be recovered by the contractor and now also constitute the government share in FTAAs -- as well as in co-
the amount of time needed for such recovery. production agreements and joint venture agreements -- to the exclusion of
revenues of any other nature or from any other source.

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Apart from the fact that Section 112 likewise does not come within the issues reviewed, or worse, struck down by the Court. Anything less than that
delineated by this Court during the Oral Argument, and was never touched requirement would be arbitrary and capricious.
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 In any event, the conversion of the present FTAA into an MPSA is
without considering other relevant provisions in the statute. Whether Section problematic. First, the contractor must comply with the law, particularly
112 may properly apply to co-production or joint venture agreements, the fact Section 39 of RA 7942; inter alia, it must convincingly show that the
of the matter is that it cannot be made to apply to FTAAs. "economic viability of the contract is found to be inadequate to justify large-
scale mining operations;" second, it must contend with the President's
First, Section 112 does not specifically mention or refer to FTAAs; the only exercise of the power of State control over the EDU of natural resources; and
reason it is being applied to them at all is the fact that it happens to use the third, it will have to risk a possible declaration of the unconstitutionality (in a
word "contractor." Hence, it is a bit of a stretch to insist that it covers FTAAs proper case) of Sections 80, 84 and 112.
as well. Second, mineral agreements, of which there are three types --
MPSAs, co-production agreements, and joint venture agreements -- are The first requirement is not as simple as it looks. Section 39 contemplates a
covered by Chapter V of RA 7942. On the other hand, FTAAs are covered by situation in which an FTAA has already been executed and entered into, and
and in fact are the subject of Chapter VI, an entirely different chapter is presumably being implemented, when the contractor "discovers" that the
altogether. The law obviously intends to treat them as a breed apart from mineral ore reserves in the contract area are not sufficient to justify large-
mineral agreements, since Section 35 (found in Chapter VI) creates a long scale mining, and thus the contractor requests the conversion of the FTAA
list of specific terms, conditions, commitments, representations and into an MPSA. The contractor in effect needs to explain why, despite its
warranties -- which have not been made applicable to mineral agreements -- exploration activities, including the conduct of various geologic and other
to be incorporated into FTAAs. scientific tests and procedures in the contract area, it was unable to
determine correctly the mineral ore reserves and the economic viability of the
Third, under Section 39, the FTAA contractor is given the option to area. The contractor must explain why, after conducting such exploration
"downgrade" -- to convert the FTAA into a mineral agreement at any time activities, it decided to file a declaration of mining feasibility, and to apply for
during the term if the economic viability of the contract area is inadequate to an FTAA, thereby leading the State to believe that the area could sustain
sustain large-scale mining operations. Thus, there is no reason to think that large-scale mining. The contractor must justify fully why its earlier findings,
the law through Section 112 intends to exact from FTAA contractors merely based on scientific procedures, tests and data, turned out to be wrong, or
the same government share (a 2 percent excise tax) that it apparently were way off. It must likewise prove that its new findings, also based on
demands from contractors under the three forms of mineral agreements. In scientific tests and procedures, are correct. Right away, this puts the
brief, Section 112 does not apply to FTAAs. contractor's technical capabilities and expertise into serious doubt. We
wonder if anyone would relish being in this situation. The State could even
Notwithstanding the foregoing explanation, Justices Carpio and Morales question and challenge the contractor's qualification and competence to
maintain that the Court must rule now on the constitutionality of Sections 80, continue the activity under an MPSA.
84 and 112, allegedly because the WMCP FTAA contains a provision which
grants the contractor unbridled and "automatic" authority to convert the FTAA All in all, while there may be cogent grounds to assail the aforecited
into an MPSA; and should such conversion happen, the State would be Sections, this Court -- on considerations of due process -- cannot rule
prejudiced since its share would be limited to the 2 percent excise tax. upon them here. Anyway, if later on these Sections are declared
Justice Carpio adds that there are five MPSAs already signed just awaiting unconstitutional, such declaration will not affect the other portions
the judgment of this Court on respondents' and intervenor's Motions for since they are clearly separable from the rest.
Reconsideration. We hold however that, at this point, this argument is based
on pure speculation. The Court cannot rule on mere surmises and Our Mineral Resources Not
hypothetical assumptions, without firm factual anchor. We repeat: basic due Given Away for Free by RA 7942
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

101
Nevertheless, if only to disabuse our minds, we should address the disburse money to meet their various needs. In short, money is continually
contention that our mineral resources are effectively given away for free by infused into the economy.
the law (RA 7942) in general and by Sections 80, 81, 84 and 112 in
particular. The foregoing discussion should serve to rid us of the mistaken belief that,
since the foreign contractors are allowed to recover their investments and
Foreign contractors do not just waltz into town one day and leave the next, costs, the end result is that they practically get the minerals for free, which
taking away mineral resources without paying anything. In order to get at the leaves the Filipino people none the better for it.
minerals, they have to invest huge sums of money (tens or hundreds of
millions of dollars) in exploration works first. If the exploration proves All Businesses Entitled
unsuccessful, all the cash spent thereon will not be returned to the foreign to Cost Recovery
investors; rather, those funds will have been infused into the local economy,
to remain there permanently. The benefits therefrom cannot be simply Let it be put on record that not only foreign contractors, but all businessmen
ignored. And assuming that the foreign contractors are successful in finding and all business entities in general, have to recoup their investments and
ore bodies that are viable for commercial exploitation, they do not just pluck costs. That is one of the first things a student learns in business school.
out the minerals and cart them off. They have first to build camp sites and
Regardless of its nationality, and whether or not a business entity has a five-
roadways; dig mine shafts and connecting tunnels; prepare tailing ponds,
year cost recovery period, it will -- must -- have to recoup its investments,
storage areas and vehicle depots; install their machinery and equipment,
one way or another. This is just common business sense. Recovery of
generator sets, pumps, water tanks and sewer systems, and so on.
investments is absolutely indispensable for business survival; and business
survival ensures soundness of the economy, which is critical and contributory
In short, they need to expend a great deal more of their funds for facilities, to the general welfare of the people. Even government corporations must
equipment and supplies, fuel, salaries of local labor and technical staff, and recoup their investments in order to survive and continue in operation. And,
other operating expenses. In the meantime, they also have to pay taxes,75 as the preceding discussion has shown, there is no business that gets ahead
duties, fees, and royalties. All told, the exploration, pre-feasibility, feasibility, or earns profits without any cost to it.
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
It must also be stressed that, though the State owns vast mineral wealth,
of over a decade, before they can commence commercial production from
such wealth is not readily accessible or transformable into usable and
which they would eventually derive revenues. All that money translates into a
negotiable currency without the intervention of the credible mining
lot of "pump-priming" for the local economy.
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
Granted that the contractors are allowed subsequently to recover their pre- have first to be extracted and converted into marketable form, and the
operating expenses, still, that eventuality will happen only after they shall country needs the foreign contractor's funds, technology and know-how for
have first put out the cash and fueled the economy. Moreover, in the process that.
of recouping their investments and costs, the foreign contractors do not
actually pull out the money from the economy. Rather, they recover or
After about eleven years of pre-operation and another five years for cost
recoup their investments out of actual commercial production by not paying a recovery, the foreign contractors will have just broken even. Is it likely that
portion of the basic government share corresponding to national taxes, along
they would at that point stop their operations and leave? Certainly not. They
with the additional government share, for a period of not more than five
have yet to make profits. Thus, for the remainder of the contract term, they
years77 counted from the commencement of commercial production.
must strive to maintain profitability. During this period, they pay the whole of
the basic government share and the additional government share which,
It must be noted that there can be no recovery without commencing actual taken together with indirect taxes and other contributions, amount to
commercial production. In the meantime that the contractors are recouping approximately 60 percent or more of the entire financial benefits generated
costs, they need to continue operating; in order to do so, they have to by the mining venture.

102
In sum, we can hardly talk about foreign contractors taking our mineral In terms of cash flows, the funds corresponding to the net income as of a
resources for free. It takes a lot of hard cash to even begin to do what they particular point in time are actually in use in the normal course of business
do. And what they do in this country ultimately benefits the local economy, operations. Pulling out such net income disrupts the cash flows and cash
grows businesses, generates employment, and creates infrastructure, as position of the enterprise and, depending on the amount being taken out,
discussed above. Hence, we definitely disagree with the sweeping claim that could seriously cripple or endanger the normal operations and financial
no FTAA under Section 81 will ever make any real contribution to the growth health of the business enterprise. In short, no sane business person,
of the economy or to the general welfare of the country. This is not a plea for concerned with maintaining the mining enterprise as a going concern
foreign contractors. Rather, this is a question of focusing the judicial spotlight and keeping a foothold in its market, can afford to repatriate the entire
squarely on all the pertinent facts as they bear upon the issue at hand, in after-tax income to the home country.
order to avoid leaping precipitately to ill-conceived conclusions not solidly
grounded upon fact. The State's Receipt of Sixty
Percent of an FTAA Contractor's
Repatriation of After-Tax Income After-Tax Income Not Mandatory

Another objection points to the alleged failure of the Mining Law to ensure We now come to the next objection which runs this way: In FTAAs with a
real contributions to the economic growth and general welfare of the country, foreign contractor, the State must receive at least 60 percent of the after-tax
as mandated by Section 2 of Article XII of the Constitution. Pursuant to income from the exploitation of its mineral resources. This share is the
Section 81 of the law, the entire after-tax income arising from the exploitation equivalent of the constitutional requirement that at least 60 percent of the
of mineral resources owned by the State supposedly belongs to the foreign capital, and hence 60 percent of the income, of mining companies should
contractors, which will naturally repatriate the said after-tax income to their remain in Filipino hands.
home countries, thereby resulting in no real contribution to the economic
growth of this country. Clearly, this contention is premised on erroneous First, we fail to see how we can properly conclude that the Constitution
assumptions. mandates the State to extract at least 60 percent of the after-tax income from
a mining company run by a foreign contractor. The argument is that the
First, as already discussed in detail hereinabove, the concerned agencies Charter requires the State's partner in a co-production agreement, joint
have correctly interpreted the second paragraph of Section 81 of RA 7942 to venture agreement or MPSA to be a Filipino corporation (at least 60 percent
mean that the government is entitled to an additional share, to be computed owned by Filipino citizens).
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 We question the logic of this reasoning, premised on a supposedly parallel or
of return on investments. So it is not correct to say that all of the after-tax analogous situation. We are, after all, dealing with an essentially different
income will accrue to the foreign FTAA contractor, as the government equation, one that involves different elements. The Charter did not intend
effectively receives a significant portion thereof. to fix an iron-clad rule on the 60 percent share, applicable to all
situations at all times and in all circumstances. If ever such was the
Second, the foreign contractors can hardly "repatriate the entire after-tax intention of the framers, they would have spelt it out in black and white.
income to their home countries." Even a bit of knowledge of corporate Verba legis will serve to dispel unwarranted and untenable conclusions.
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 Second, if we would bother to do the math, we might better appreciate the
out and repatriated. The "net income" figure reflected in the bottom line is a impact (and reasonableness) of what we are demanding of the foreign
mere accounting figure not necessarily corresponding to cash in the bank, or contractor. Let us use a simplified illustration. Let us base it on gross
other quick assets. In order to produce and set aside cash in an amount revenues of, say, P500. After deducting operating expenses, but prior to
equivalent to the bottom line figure, one may need to sell off assets or income tax, suppose a mining firm makes a taxable income of P100. A
immediately collect receivables or liquidate short-term investments; but doing corporate income tax of 32 percent results in P32 of taxable income going to
so may very likely disrupt normal business operations. the government, leaving the mining firm with P68. Government then takes 60
103
percent thereof, equivalent to P40.80, leaving only P27.20 for the mining To stress, there is no independent showing that the taking of at least a 60
firm. 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.
At this point the government has pocketed P32.00 plus P40.80, or a total of The fact that some petroleum companies like Shell acceded to such
P72.80 for every P100 of taxable income, leaving the mining firm with only percentage of sharing does not ipso facto mean that it is per se reasonable
P27.20. But that is not all. The government has also taken 2 percent excise and applicable to non-petroleum situations (that is, mining companies) as
tax "off the top," equivalent to another P10. Under the minimum 60 percent well. We can take judicial notice of the fact that there are, after all, numerous
proposal, the government nets around P82.80 (not counting other taxes, intrinsic differences involved in their respective operations and equipment or
duties, fees and charges) from a taxable income of P100 (assuming gross technological requirements, costs structures and capital investment needs,
revenues of P500, for purposes of illustration). On the other hand, the foreign and product pricing and markets.
contractor, which provided all the capital, equipment and labor, and took all
the entrepreneurial risks -- receives P27.20. One cannot but wonder whether There is no showing, for instance, that mining companies can readily cope
such a distribution is even remotely equitable and reasonable, considering with a 60 percent government share in the same way petroleum companies
the nature of the mining business. The amount of P82.80 out of P100.00 is apparently can. What we have is a suggestion to enforce the 60 percent
really a lot it does not matter that we call part of it excise tax or income tax, quota on the basis of a disjointed analogy. The only factor common to the
and another portion thereof income from exploitation of mineral resources. two disparate situations is the extraction of natural 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 Indeed, we should take note of the fact that Congress made a distinction
the investments that are the indispensable and key element in generating the between mining firms and petroleum companies. In Republic Act No. 7729 --
monetary benefits of which we wish to take the lion's share. Fairness is a "An Act Reducing the Excise Tax Rates on Metallic and Non-Metallic
credo not only in law, but also in business. Minerals and Quarry Resources, Amending for the Purpose Section 151(a) of
the National Internal Revenue Code, as amended" -- the lawmakers fixed the
Third, the 60 percent rule in the petroleum industry cannot be insisted upon excise tax rate on metallic and non-metallic minerals at two percent of the
at all times in the mining business. The reason happens to be the fact that in actual market value of the annual gross output at the time of removal.
petroleum operations, the bulk of expenditures is in exploration, but once the However, in the case of petroleum, the lawmakers set the excise tax rate for
contractor has found and tapped into the deposit, subsequent investments the first taxable sale at fifteen percent of the fair international market price
and expenditures are relatively minimal. The crude (or gas) keeps gushing thereof.
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 There must have been a very sound reason that impelled Congress to
after it has been located, the contractor must continually invest in impose two very dissimilar excise tax rate. We cannot assume, without proof,
machineries and expend funds to dig and build tunnels in order to access that our honorable legislators acted arbitrarily, capriciously and whimsically in
and extract the minerals from underneath hundreds of tons of earth and rock. this instance. We cannot just ignore the reality of two distinctly different
situations and stubbornly insist on going "minimum 60 percent."
As already stated, the numerous intrinsic differences involved in their
respective operations and requirements, cost structures and investment To repeat, the mere fact that gas and oil exploration contracts grant the State
needs render it highly inappropriate to use petroleum operations FTAAs as 60 percent of the net revenues does not necessarily imply that mining
benchmarks for mining FTAAs. Verily, we cannot just ignore the realities of contracts should likewise yield a minimum of 60 percent for the State.
the distinctly different situations and stubbornly insist on the "minimum 60 Jumping to that erroneous conclusion is like comparing apples with oranges.
percent." The exploration, development and utilization of gas and oil are simply
different from those of mineral resources.
The Mining and the Oil Industries
Different From Each Other 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
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relatively over and black gold simply flows out continuously with compromising the State's full control and supervision over the exploitation of
comparatively less need for fresh investments and technology. 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,
On the other hand, even if minerals are found in viable quantities, there is still should it so decide, to get a 60 percent share (or more) in the contractor's net
need for continuous fresh capital and expertise to dig the mineral ores from mining revenues or after-tax income, or whatever other basis the government
the mines. Just because deposits of mineral ores are found in one area is no may decide to use in reckoning its share. It is not necessary for it to do so in
guarantee that an equal amount can be found in the adjacent areas. There every case, regardless of circumstances.
are simply continuing risks and need for more capital, expertise and industry
all the time. 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
Note, however, that the indirect benefits -- apart from the cash revenues -- parties as it sees fit; and upon terms that it ascertains to be most favorable or
are much more in the mineral industry. As mines are explored and extracted, most acceptable under the circumstances, even if it means agreeing to less
vast employment is created, roads and other infrastructure are built, and than 60 percent. Nothing must prevent the State from agreeing to a share
other multiplier effects arise. On the other hand, once oil wells start less than that, should it be deemed fit; otherwise the State will be deprived of
producing, there is less need for employment. Roads and other public works full control over mineral exploitation that the Charter has vested in it.
need not be constructed continuously. In fine, there is no basis for saying
that government revenues from the oil industry and from the mineral To stress again, there is simply no constitutional or legal provision fixing the
industries are to be identical all the time. 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
Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to thereby inordinately impinge on the control power of the State. Let it be clear:
limit the flexibility and tie the hands of government, ultimately hampering the the Court is not against the grant of more benefits to the State; in fact, the
country's competitiveness in the international market, to the detriment of the more the better. If during the FTAA negotiations, the President can secure 60
Filipino people. This "you-have-to-give-us-60-percent-of-after-tax-income-or- percent,78 or even 90 percent, then all the better for our people. But, if under
we-don't-do- business-with-you" approach is quite perilous. True, this the peculiar circumstances of a specific contract, the President could secure
situation may not seem too unpalatable to the foreign contractor during good only 50 percent or 55 percent, so be it. Needless to say, the President will
years, when international market prices are up and the mining firm manages have to report (and be responsible for) the specific FTAA to Congress, and
to keep its costs in check. However, under unfavorable economic and eventually to the people.
business conditions, with costs spiraling skywards and minerals prices
plummeting, a mining firm may consider itself lucky to make just minimal Finally, if it should later be found that the share agreed to is grossly
profits. 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
The inflexible, carved-in-granite demand for a 60 percent government share malfeasance. And the contract provision voided. But this Court would abuse
may spell the end of the mining venture, scare away potential investors, and its own authority should it force the government's hand to adopt the 60
thereby further worsen the already dismal economic scenario. Moreover, percent demand of some of our esteemed colleagues.
such an unbending or unyielding policy prevents the government from
responding appropriately to changing economic conditions and shifting Capital and Expertise Provided,
market forces. This inflexibility further renders our country less attractive as Yet All Risks Assumed by Contractor
an investment option compared with other countries.
Here, we will repeat what has not been emphasized and appreciated
And fifth, for this Court to decree imperiously that the government's share enough: the fact that the contractor in an FTAA provides all the needed
should be not less than 60 percent of the after-tax income of FTAA capital, technical and managerial expertise, and technology required to
contractors at all times is nothing short of dictating upon the government. The undertake the project.
result, ironically, is that the State ends up losing control. To avoid
105
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor the Mining Operations,"81 and "the establishment and administration of field
committed, at the very outset, to make capital investments of up to US$50 offices including administrative overheads incurred within and outside the
million in that single mining project. WMCP claims to have already poured in Philippines which are properly allocatable to the Mining Operations and
well over P800 million into the country as of February 1998, with more in the reasonably related to the performance of the Contractor's obligations and
pipeline. These resources, valued in the tens or hundreds of millions of exercise of its rights under this Agreement."82
dollars, are invested in a mining project that provides no assurance
whatsoever that any part of the investment will be ultimately recouped. It is quite well known, however, that mining companies do perform some
marketing activities abroad in respect of selling their mineral products and
At the same time, the contractor must comply with legally imposed by-products. Hence, it would not be improper to allow the deduction of
environmental standards and the social obligations, for which it also commits reasonable consulting fees incurred abroad, as well as administrative
to make significant expenditures of funds. Throughout, the contractor expenses and overheads related to marketing offices also located abroad --
assumes all the risks79 of the business, as mentioned earlier. These risks provided that these deductions are directly related or properly allocatable to
are indeed very high, considering that the rate of success in exploration is the mining operations and reasonably related to the performance of the
extremely low. The probability of finding any mineral or petroleum in contractor's obligations and exercise of its rights. In any event, more facts
commercially viable quantities is estimated to be about 1:1,000 only. On that are needed. Until we see how these provisions actually operate, mere
slim chance rides the contractor's hope of recouping investments and "suspicions" will not suffice to propel this Court into taking action.
generating profits. And when the contractor has recouped its initial
investments in the project, the government share increases to sixty percent Section 7.9 of the WMCP FTAA
of net benefits -- without the State ever being in peril of incurring costs, Invalid and Disadvantageous
expenses and losses.
Having defended the WMCP FTAA, we shall now turn to two defective
And even in the worst possible scenario -- an absence of commercial provisos. Let us start with Section 7.9 of the WMCP FTAA. While Section 7.7
quantities of minerals to justify development -- the contractor would already gives the government a 60 percent share in the net mining revenues of
have spent several million pesos for exploration works, before arriving at the WMCP from the commencement of commercial production, Section 7.9
point in which it can make that determination and decide to cut its losses. In deprives the government of part or all of the said 60 percent. Under the latter
fact, during the first year alone of the exploration period, the contractor was provision, should WMCP's foreign shareholders -- who originally owned 100
already committed to spend not less than P24 million. The FTAA therefore percent of the equity -- sell 60 percent or more of its outstanding capital stock
clearly ensures benefits for the local economy, courtesy of the contractor. 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.
All in all, this setup cannot be regarded as disadvantageous to the
State or the Filipino people; it certainly cannot be said to convey Section 7.9 provides:
beneficial ownership of our mineral resources to foreign contractors.
The percentage of Net Mining Revenues payable to the Government
Deductions Allowed by the pursuant to Clause 7.7 shall be reduced by 1percent of Net Mining
WMCP FTAA Reasonable Revenues for every 1percent ownership interest in the Contractor
(i.e., WMCP) held by a Qualified Entity.83
Petitioners question whether the State's weak control might render the
sharing arrangements ineffective. They cite the so-called "suspicious" Evidently, what Section 7.7 grants to the State is taken away in the next
deductions allowed by the WMCP FTAA in arriving at the net mining breath by Section 7.9 without any offsetting compensation to the State. Thus,
revenue, which is the basis for computing the government share. The WMCP in reality, the State has no vested right to receive any income from the FTAA
FTAA, for instance, allows expenditures for "development within and outside for the exploitation of its mineral resources. Worse, it would seem that what
the Contract Area relating to the Mining Operations,"80 "consulting fees is given to the State in Section 7.7 is by mere tolerance of WMCP's foreign
incurred both inside and outside the Philippines for work related directly to stockholders, who can at any time cut off the government's entire 60 percent
106
share. They can do so by simply selling 60 percent of WMCP's outstanding most acceptable under the circumstances, even if that should mean agreeing
capital stock to a Philippine citizen or corporation. Moreover, the proceeds of to less than 60 percent; (2) that it is not necessary for the State to extract a
such sale will of course accrue to the foreign stockholders of WMCP, not to 60 percent share in every case and regardless of circumstances; and (3) that
the State. 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
The sale of 60 percent of WMCP's outstanding equity to a corporation that is that the Charter has vested in it.
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 That full control is obviously not an end in itself; it exists and subsists
60 percent of the net mining revenues of WMCP; and foreign stockholders precisely because of the need to serve and protect the national interest. In
will own beneficially up to 64 percent of WMCP, consisting of the remaining this instance, national interest finds particular application in the protection of
40 percent foreign equity therein, plus the 24 percent pro-rata share in the the national patrimony and the development and exploitation of the country's
buyer-corporation.84 mineral resources for the benefit of the Filipino people and the enhancement
of economic growth and the general welfare of the country. Undoubtedly,
In fact, the January 23, 2001 sale by WMCP's foreign stockholder of the such full control can be misused and abused, as we now witness.
entire outstanding equity in WMCP to Sagittarius Mines, Inc. -- a domestic
corporation at least 60 percent Filipino owned -- may be deemed to have Section 7.9 of the WMCP FTAA effectively gives away the State's share of
automatically triggered the operation of Section 7.9, without need of further net mining revenues (provided for in Section 7.7) without anything in
action by any party, and removed the State's right to receive the 60 percent exchange. Moreover, this outcome constitutes unjust enrichment on the part
share in net mining revenues. of the local and foreign stockholders of WMCP. By their mere divestment of
up to 60 percent equity in WMCP in favor of Filipino citizens and/or
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent corporations, the local and foreign stockholders get a windfall. Their share in
share in the net mining revenues of WMCP without any offset or the net mining revenues of WMCP is automatically increased, without their
compensation whatsoever. It is possible that the inclusion of the offending having to pay the government anything for it. In short, the provision in
provision was initially prompted by the desire to provide some form of question is without a doubt grossly disadvantageous to the government,
incentive for the principal foreign stockholder in WMCP to eventually reduce detrimental to the interests of the Filipino people, and violative of public
its equity position and ultimately divest in favor of Filipino citizens and policy.
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 Moreover, it has been reiterated in numerous decisions86 that the parties to
mining revenues, without any form of compensation whatsoever. Such an a contract may establish any agreements, terms and conditions that they
outcome is completely unacceptable. deem convenient; but these should not be contrary to law, morals, good
customs, public order or public policy.87 Being precisely violative of anti-graft
The whole point of developing the nation's natural resources is to benefit the provisions and contrary to public policy, Section 7.9 must therefore be
Filipino people, future generations included. And the State as sovereign and stricken off as invalid.
custodian of the nation's natural wealth is mandated to protect, conserve,
preserve and develop that part of the national patrimony for their benefit. Whether the government officials concerned acceded to that provision by
Hence, the Charter lays great emphasis on "real contributions to the sheer mistake or with full awareness of the ill consequences, is of no
economic growth and general welfare of the country"85 as essential guiding moment. It is hornbook doctrine that the principle of estoppel does not
principles to be kept in mind when negotiating the terms and conditions of operate against the government for the act of its agents,88 and that it is
FTAAs. never estopped by any mistake or error on their part.89 It is therefore
possible and proper to rectify the situation at this time. Moreover, we may
Earlier, we held (1) that the State must be accorded the liberty and the also say that the FTAA in question does not involve mere contractual rights;
utmost flexibility to deal, negotiate and transact with contractors and third being impressed as it is with public interest, the contractual provisions and
parties as it sees fit, and upon terms that it ascertains to be most favorable or stipulations must yield to the common good and the national interest.

107
Since the offending provision is very much separable90 from Section 7.7 and or to financial or technical assistance agreement contractors
the rest of the FTAA, the deletion of Section 7.9 can be done without in general;
affecting or requiring the invalidation of the WMCP FTAA itself. Such a
deletion will preserve for the government its due share of the benefits. This "(f) all of the foregoing items which have not previously been
way, the mandates of the Constitution are complied with and the interests of offset against the Government Share in an earlier Fiscal
the government fully protected, while the business operations of the Year, adjusted for inflation." (underscoring supplied)
contractor are not needlessly disrupted.
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for
Section 7.8(e) of the WMCP FTAA instance, money spent by the government for the benefit of the contractor in
Also Invalid and Disadvantageous building roads leading to the mine site should still be deductible from the
State's share in net mining revenues. Allowing this deduction results in
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus: benefiting the contractor twice over. It constitutes unjust enrichment on the
part of the contractor at the expense of the government, since the latter is
"7.8 The Government Share shall be deemed to include all of the effectively being made to pay twice for the same item.91 For being grossly
following sums: disadvantageous and prejudicial to the government and contrary to public
policy, Section 7.8(e) is undoubtedly invalid and must be declared to be
"(a) all Government taxes, fees, levies, costs, imposts, duties without effect. Fortunately, this provision can also easily be stricken off
and royalties including excise tax, corporate income tax, without affecting the rest of the FTAA.
customs duty, sales tax, value added tax, occupation and
regulatory fees, Government controlled price stabilization Nothing Left Over
schemes, any other form of Government backed schemes, After Deductions?
any tax on dividend payments by the Contractor or its
Affiliates in respect of revenues from the Mining Operations In connection with Section 7.8, an objection has been raised: Specified in
and any tax on interest on domestic and foreign loans or Section 7.8 are numerous items of deduction from the State's 60 percent
other financial arrangements or accommodations, including share. After taking these into account, will the State ever receive anything for
loans extended to the Contractor by its stockholders; its ownership of the mineral resources?

"(b) any payments to local and regional government, We are confident that under normal circumstances, the answer will be yes. If
including taxes, fees, levies, costs, imposts, duties, royalties, we examine the various items of "deduction" listed in Section 7.8 of the
occupation and regulatory fees and infrastructure WMCP FTAA, we will find that they correspond closely to the components or
contributions; elements of the basic government share established in DAO 99-56, as
discussed in the earlier part of this Opinion.
"(c) any payments to landowners, surface rights holders,
occupiers, indigenous people or Claimowners; Likewise, the balance of the government's 60 percent share -- after netting
out the items of deduction listed in Section 7.8 --corresponds closely to the
"(d) costs and expenses of fulfilling the Contractor's additional government share provided for in DAO 99-56 which, we once
obligations to contribute to national development in again stress, has nothing at all to do with indirect taxes. The Ramos-DeVera
accordance with Clause 10.1(i) (1) and 10.1(i) (2); paper92 concisely presents the fiscal contribution of an FTAA under DAO 99-
56 in this equation:
"(e) an amount equivalent to whatever benefits that may be
extended in the future by the Government to the Contractor Receipts from an FTAA = basic gov't share + add'l gov't share

108
Transposed into a similar equation, the fiscal payments system from the exploration, development and utilization of natural resources shall be
WMCP FTAA assumes the following formulation: under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production,
Government's 60 percent share in net mining revenues of WMCP = joint venture or production-sharing agreements with Filipino citizens
items listed in Sec. 7.8 of the FTAA + balance of Gov't share, or corporations or associations at least sixty per centum of whose
payable 4 months from the end of the fiscal year capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more
It should become apparent that the fiscal arrangement under the WMCP than twenty-five years, and under such terms and conditions as
may be provided by law. In cases of water rights for irrigation,
FTAA is very similar to that under DAO 99-56, with the "balance of
water supply, fisheries, or industrial uses other than the development
government share payable 4 months from end of fiscal year" being the
of water power, beneficial use may be the measure and limit of the
equivalent of the additional government share computed in accordance
grant.
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 - "The State shall protect the nation's marine wealth in its archipelagic
- to be sound and reasonable. waters, territorial sea, and exclusive economic zone, and reserve its
use and enjoyment exclusively to Filipino citizens.
We therefore conclude that there is nothing inherently wrong in the
fiscal regime of the WMCP FTAA, and certainly nothing to warrant the "The Congress may, by law, allow small-scale utilization of natural
invalidation of the FTAA in its entirety. resources by Filipino citizens, as well as cooperative fish farming,
with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays and lagoons.
Section 3.3 of the WMCP
FTAA Constitutional
"The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for
Section 3.3 of the WMCP FTAA is assailed for violating supposed
large-scale exploration, development, and utilization of minerals,
constitutional restrictions on the term of FTAAs. The provision in question
petroleum, and other mineral oils according to the general terms and
reads:
conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such
"3.3 This Agreement shall be renewed by the Government for a agreements, the State shall promote the development and use of
further period of twenty-five (25) years under the same terms and local scientific and technical resources.
conditions provided that the Contractor lodges a request for renewal
with the Government not less than sixty (60) days prior to the expiry
"The President shall notify the Congress of every contract entered
of the initial term of this Agreement and provided that the Contractor
is not in breach of any of the requirements of this Agreement." into in accordance with this provision, within thirty days from its
execution."93
Allegedly, the above provision runs afoul of Section 2 of Article XII of the
We hold that the term limitation of twenty-five years does not apply to FTAAs.
1987 Constitution, which states:
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
"Sec. 2. All lands of the public domain, waters, minerals, coal, agreements, joint venture agreements and mineral production-sharing
petroleum, and other mineral oils, all forces of potential energy, agreements -- which the government may enter into with Filipino citizens and
fisheries, forests or timber, wildlife, flora and fauna, and other natural corporations, at least 60 percent owned by Filipino citizens. The word "such"
resources are owned by the State. With the exception of agricultural clearly refers to these three mineral agreements -- CPAs, JVAs and MPSAs -
lands, all other natural resources shall not be alienated. The - not to FTAAs.
109
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article 3.3, the remedy is the renegotiation of the provision in order to provide the
XII of the Constitution. It will be noted that there are no term limitations State the option to not renew the FTAA.
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 Financial Benefits for Foreigners
deliberate move on the part of the framers. They probably realized that Not Forbidden by the Constitution
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
Before leaving this subject matter, we find it necessary for us to rid ourselves
they preferred to leave the matter to the discretion of the legislature and/or of the false belief that the Constitution somehow forbids foreign-owned
the agencies involved in implementing the laws pertaining to FTAAs, in order corporations from deriving financial benefits from the development of our
to give the latter enough flexibility and elbow room to meet changing
natural or mineral resources.
circumstances.
The Constitution has never prohibited foreign corporations from acquiring
Note also that, as previously stated, the exploratory phrases of an FTAA and enjoying "beneficial interest" in the development of Philippine natural
lasts up to eleven years. Thereafter, a few more years would be gobbled up resources. The State itself need not directly undertake exploration,
in start-up operations. It may take fifteen years before an FTAA contractor
development, and utilization activities. Alternatively, the Constitution
can start earning profits. And thus, the period of 25 years may really be short
authorizes the government to enter into joint venture agreements (JVAs), co-
for an FTAA. Consider too that in this kind of agreement, the contractor
production agreements (CPAs) and mineral production sharing agreements
assumes all entrepreneurial risks. If no commercial quantities of minerals are
(MPSAs) with contractors who are Filipino citizens or corporations that are at
found, the contractor bears all financial losses. To compensate for this long least 60 percent Filipino-owned. They may do the actual "dirty work" -- the
gestation period and extra business risks, it would not be totally mining operations.
unreasonable to allow it to continue EDU activities for another twenty five
years.
In the case of a 60 percent Filipino-owned corporation, the 40 percent
individual and/or corporate non-Filipino stakeholders obviously participate in
In any event, the complaint is that, in essence, Section 3.3 gives the the beneficial interest derived from the development and utilization of our
contractor the power to compel the government to renew the WMCP FTAA
natural resources. They may receive by way of dividends, up to 40 percent of
for another 25 years and deprives the State of any say on whether to renew
the contractor's earnings from the mining project. Likewise, they may have a
the contract.
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
While we agree that Section 3.3 could have been worded so as to prevent it Constitution permits to be up to 40 percent of the contractor's equity. Hence,
from favoring the contractor, this provision does not violate any constitutional the non-Filipino stakeholders may in that manner also participate in the
limits, since the said term limitation does not apply at all to FTAAs. Neither management of the contractor's natural resource development work. All of
can the provision be deemed in any manner to be illegal, as no law is being this is permitted by our Constitution, for any natural resource, and without
violated thereby. It is certainly not illegal for the government to waive its limitation even in regard to the magnitude of the mining project or operations
option to refuse the renewal of a commercial contract. (see paragraph 1 of Section 2 of Article XII).

Verily, the government did not have to agree to Section 3.3. It could have It is clear, then, that there is nothing inherently wrong with or constitutionally
said "No" to the stipulation, but it did not. It appears that, in the process of objectionable about the idea of foreign individuals and entities having or
negotiations, the other contracting party was able to convince the enjoying "beneficial interest" in -- and participating in the management of
government to agree to the renewal terms. Under the circumstances, it does operations relative to -- the exploration, development and utilization of our
not seem proper for this Court to intervene and step in to undo what might natural resources.
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

110
FTAA More Advantageous potential "beneficial interest" consisted only of 40 percent of the net
Than Other Schemes beneficial interest, because the other 60 percent is the share of the
Like CPA, JVA and MPSA government, which will never be exposed to any risk of loss whatsoever.

A final point on the subject of beneficial interest. We believe the FTAA is a In consonance with the degree of risk assumed, the FTAA vested in WMCP
more advantageous proposition for the government as compared with other the day-to-day management of the mining operations. Still such management
agreements permitted by the Constitution. In a CPA that the government is subject to the overall control and supervision of the State in terms of
enters into with one or more contractors, the government shall provide inputs regular reporting, approvals of work programs and budgets, and so on.
to the mining operations other than the mineral resource itself.94
So, one needs to consider in relative terms, the costs of inputs for, degree of
In a JVA, a JV company is organized by the government and the contractor, risk attendant to, and benefits derived or to be derived from a CPA, a JVA or
with both parties having equity shares (investments); and the contractor is an MPSA vis--vis those pertaining to an FTAA. It may not be realistically
granted the exclusive right to conduct mining operations and to extract asserted that the foreign grantee of an FTAA is being unduly favored or
minerals found in the area.95 On the other hand, in an MPSA, the benefited as compared with a foreign stakeholder in a corporation holding a
government grants the contractor the exclusive right to conduct mining CPA, a JVA or an MPSA. Seen the other way around, the government is
operations within the contract area and shares in the gross output; and the definitely better off with an FTAA than a CPA, a JVA or an MPSA.
contractor provides the necessary financing, technology, management and
manpower. Developmental Policy on the Mining Industry

The point being made here is that, in two of the three types of agreements During the Oral Argument and in their Final Memorandum, petitioners
under consideration, the government has to ante up some risk capital for the repeatedly urged the Court to consider whether mining as an industry and
enterprise. In other words, government funds (public moneys) are withdrawn economic activity deserved to be accorded priority, preference and
from other possible uses, put to work in the venture and placed at risk in government support as against, say, agriculture and other activities in which
case the venture fails. This notwithstanding, management and control of the Filipinos and the Philippines may have an "economic advantage." For
operations of the enterprise are -- in all three arrangements -- in the hands of instance, a recent US study96 reportedly examined the economic
the contractor, with the government being mainly a silent partner. The three performance of all local US counties that were dependent on mining and 20
types of agreement mentioned above apply to any natural resource, without percent of whose labor earnings between 1970 and 2000 came from mining
limitation and regardless of the size or magnitude of the project or enterprises.
operations.
The study -- covering 100 US counties in 25 states dependent on mining --
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of showed that per capita income grew about 30 percent less in mining-
Section 2 of Article XII, the FTAA is limited to large-scale projects and only dependent communities in the 1980s and 25 percent less for the entire
for minerals, petroleum and other mineral oils. Here, the Constitution period 1980 to 2000; the level of per capita income was also lower.
removes the 40 percent cap on foreign ownership and allows the foreign Therefore, given the slower rate of growth, the gap between these and other
corporation to own up to 100 percent of the equity. Filipino capital may not be local counties increased.
sufficient on account of the size of the project, so the foreign entity may have
to ante up all the risk capital. Petitioners invite attention to the OXFAM America Report's warning to
developing nations that mining brings with it serious economic problems,
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of including increased regional inequality, unemployment and poverty. They
loss if the project fails. In respect of the particular FTAA granted to it, WMCP also cite the final report97 of the Extractive Industries Review project
(then 100 percent foreign owned) was responsible, as contractor, for commissioned by the World Bank (the WB-EIR Report), which warns of
providing the entire equity, including all the inputs for the project. It was to environmental degradation, social disruption, conflict, and uneven sharing of
bear 100 percent of the risk of loss if the project failed, but its maximum benefits with local communities that bear the negative social and
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environmental impact. The Report suggests that countries need to decide on growth, in a manner that adheres to the principles of sustainable
the best way to exploit their natural resources, in order to maximize the value development and with due regard for justice and equity, sensitivity to the
added from the development of their resources and ensure that they are on culture of the Filipino people and respect for Philippine sovereignty."98
the path to sustainable development once the resources run out.
REFUTATION OF DISSENTS
Whatever priority or preference may be given to mining vis--vis other
economic or non-economic activities is a question of policy that the President The Court will now take up a number of other specific points raised in the
and Congress will have to address; it is not for this Court to decide. This dissents of Justices Carpio and Morales.
Court declares what the Constitution and the laws say, interprets only when
necessary, and refrains from delving into matters of policy.
1. Justice Morales introduced us to Hugh Morgan, former president and chief
executive officer of Western Mining Corporation (WMC) and former president
Suffice it to say that the State control accorded by the Constitution over of the Australian Mining Industry Council, who spearheaded the vociferous
mining activities assures a proper balancing of interests. More pointedly, opposition to the filing by aboriginal peoples of native title claims against
such control will enable the President to demand the best mining practices mining companies in Australia in the aftermath of the landmark Mabo
and the use of the best available technologies to protect the environment and decision by the Australian High Court. According to sources quoted by our
to rehabilitate mined-out areas. Indeed, under the Mining Law, the esteemed colleague, Morgan was also a racist and a bigot. In the course of
government can ensure the protection of the environment during and after protesting Mabo, Morgan allegedly uttered derogatory remarks belittling the
mining. It can likewise provide for the mechanisms to protect the rights of aboriginal culture and race.
indigenous communities, and thereby mold a more socially-responsive,
culturally-sensitive and sustainable mining industry. 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
Early on during the launching of the Presidential Mineral Industry racist-bigots at WMC. With all due respect, such scare tactics should have no
Environmental Awards on February 6, 1997, then President Fidel V. Ramos place in the discussion of this case. We are deliberating on the
captured the essence of balanced and sustainable mining in these words: constitutionality of RA 7942, DAO 96-40 and the FTAA originally granted to
WMCP, which had been transferred to Sagittarius Mining, a Filipino
"Long term, high profit mining translates into higher revenues for corporation. We are not discussing the apparition of white Anglo-Saxon
government, more decent jobs for the population, more raw materials racists/bigots massing at our gates.
to feed the engines of downstream and allied industries, and
improved chances of human resource and countryside development 2. On the proper interpretation of the phrase agreements involving either
by creating self-reliant communities away from urban centers. technical or financial assistance, Justice Morales points out that at times we
"conveniently omitted" the use of the disjunctive eitheror, which according
xxxxxxxxx to her denotes restriction; hence the phrase must be deemed to connote
restriction and limitation.
"Against a fragile and finite environment, it is sustainability that holds
the key. In sustainable mining, we take a middle ground where both But, as Justice Carpio himself pointed out during the Oral Argument, the
production and protection goals are balanced, and where parties-in- disjunctive phrase either technical or financial assistance would, strictly
interest come to terms." 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
Neither has the present leadership been remiss in addressing the concerns required for a project, the State would have to deal with at least two different
of sustainable mining operations. Recently, on January 16, 2004 and April foreign contractors -- one for financial and the other for technical assistance.
20, 2004, President Gloria Macapagal Arroyo issued Executive Orders Nos. And following on that, a foreign contractor, though very much qualified to
270 and 270-A, respectively, "to promote responsible mineral resources provide both kinds of assistance, would nevertheless be prohibited from
exploration, development and utilization, in order to enhance economic providing one kind as soon as it shall have agreed to provide the other.
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But if the Court should follow this restrictive and literal construction, can we excavation and extraction of minerals, including the extensive tunneling work
really find two (or more) contractors who are willing to participate in one to reach the ore body. The cancellation of the mining contract will utterly
single project -- one to provide the "financial assistance" only and the other deprive the contractor of its investments (i.e., prevent recovery of
the "technical assistance" exclusively; it would be excellent if these two or investments), most of which cannot be pulled out.
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). To say that an FTAA is just like a mere timber license or permit and does not
And it would be superb if no conflicts would arise between or among them in involve contract or property rights which merit protection by the due process
the entire course of the contract. But what are the chances things will turn out clause of the Constitution, and may therefore be revoked or cancelled in the
this way in the real world? To think that the framers deliberately imposed this blink of an eye, is to adopt a well-nigh confiscatory stance; at the very least, it
kind of restriction is to say that they were either exceedingly optimistic, or is downright dismissive of the property rights of businesspersons and
incredibly nave. This begs the question -- What laudable objective or corporate entities that have investments in the mining industry, whose
purpose could possibly be served by such strict and restrictive literal investments, operations and expenditures do contribute to the general
interpretation? welfare of the people, the coffers of government, and the strength of the
economy. Such a pronouncement will surely discourage investments (local
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service and foreign) which are critically needed to fuel the engine of economic
contract is not a contract or property right which merits protection by the due growth and move this country out of the rut of poverty. In sum, Oposa is not
process clause of the Constitution, but merely a license or privilege which applicable.
may be validly revoked, rescinded or withdrawn by executive action
whenever dictated by public interest or public welfare. 4. Justice Morales adverts to the supposedly "clear intention" of the framers
of the Constitution to reserve our natural resources exclusively for the Filipino
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive people. She then quoted from the records of the ConCom deliberations a
Secretary as authority. The latter cases dealt specifically with timber passage in which then Commissioner Davide explained his vote, arguing in
licenses only. Oposa allegedly reiterated that a license is merely a permit or the process that aliens ought not be allowed to participate in the enjoyment
privilege to do what otherwise would be unlawful, and is not a contract of our natural resources. One passage does not suffice to capture the tenor
between the authority, federal, state or municipal, granting it and the person or substance of the entire extensive deliberations of the commissioners, or to
to whom it is granted; neither is it property or a property right, nor does it reveal the clear intention of the framers as a group. A re-reading of the entire
create a vested right; nor is it taxation. Thus this Court held that the granting deliberations (quoted here earlier) is necessary if we are to understand the
of license does not create irrevocable rights, neither is it property or property true intent of the framers.
rights.
5. Since 1935, the Filipino people, through their Constitution, have decided
Should Oposa be deemed applicable to the case at bar, on the argument that that the retardation or delay in the exploration, development or utilization of
natural resources are also involved in this situation? We do not think so. A the nation's natural resources is merely secondary to the protection and
grantee of a timber license, permit or license agreement gets to cut the preservation of their ownership of the natural resources, so says Justice
timber already growing on the surface; it need not dig up tons of earth to get Morales, citing Aruego. If it is true that the framers of the 1987 Constitution
at the logs. In a logging concession, the investment of the licensee is not as did not care much about alleviating the retardation or delay in the
substantial as the investment of a large-scale mining contractor. If a timber development and utilization of our natural resources, why did they bother to
license were revoked, the licensee packs up its gear and moves to a new write paragraph 4 at all? Were they merely paying lip service to large-scale
area applied for, and starts over; what it leaves behind are mainly the trails exploration, development and utilization? They could have just completely
leading to the logging site. 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
In contrast, the mining contractor will have sunk a great deal of money (tens Constitution and to interpret each provision in a manner that would give life
of millions of dollars) into the ground, so to speak, for exploration activities, and meaning to it and to the rest of the provisions. It is obvious that a literal
for development of the mine site and infrastructure, and for the actual interpretation of paragraph 4 will render it utterly inutile and inoperative.

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6. According to Justice Morales, the deliberations of the Constitutional 8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations
Commission do not support our contention that the framers, by specifying is anomalous, according to Justice Morales since the contractor was from the
such agreements involving financial or technical assistance, necessarily gave beginning obliged to provide all financing needed for the mining operations.
implied assent to everything that these agreements implicitly entailed, or that However, the mortgaging of minerals by the contractor does not necessarily
could reasonably be deemed necessary to make them tenable and effective, signify that the contractor is unable to provide all financing required for the
including management authority in the day-to-day operations. As proof project, or that it does not have the financial capability to undertake large-
thereof, she quotes one single passage from the ConCom deliberations, scale operations. Mortgaging of mineral products, just like the assignment
consisting of an exchange among Commissioners Tingson, Garcia and (by way of security) of manufactured goods and goods in inventory, and the
Monsod. assignment of receivables, is an ordinary requirement of banks, even in the
case of clients with more than sufficient financial resources. And nowadays,
However, the quoted exchange does not serve to contradict our argument; it even the richest and best managed corporations make use of bank credit
even bolsters it. Comm. Christian Monsod was quoted as saying: "xxx I think facilities -- it does not necessarily signify that they do not have the financial
we have to make a distinction that it is not really realistic to say that we will resources or are unable to provide the financing on their own; it is just a
borrow on our own terms. Maybe we can say that we inherited unjust loans, manner of maximizing the use of their funds.
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 9. Does the contractor in reality acquire the surface rights "for free," by virtue
terms is a bit unrealistic." Comm. Monsod is one who knew whereof he of the fact that it is entitled to reimbursement for the costs of acquisition and
spoke. 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
7. Justice Morales also declares that the optimal time for the conversion of will no longer be needed, and the land previously acquired will have to be
an FTAA into an MPSA is after completion of the exploration phase and just disposed of, in which case the contractor gets reimbursement from the sales
before undertaking the development and construction phase, on account of proceeds. The contractor has to pay out the acquisition price for the land.
the fact that the requirement for a minimum investment of $50 million is That money will belong to the seller of the land. Only if and when the land is
applicable only during the development, construction and utilization phase, finally sold off will the contractor get any reimbursement. In other words, the
but not during the exploration phase, when the foreign contractor need contractor will have been cash-out for the entire duration of the term of the
merely comply with minimum ground expenditures. Thus by converting, the contract -- 25 or 50 years, depending. If we calculate the cost of money at
foreign contractor maximizes its profits by avoiding its obligation to make the say 12 percent per annum, that is the cost or opportunity loss to the
minimum investment of $50 million. 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
This argument forgets that the foreign contractor is in the game precisely to cost of money is therefore at least 600 percent of the original acquisition
make money. In order to come anywhere near profitability, the contractor cost; it is in addition to the acquisition cost. "For free"? Not by a long shot.
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 10. The contractor will acquire and hold up to 5,000 hectares? We doubt it.
equipment and dig the tunnels to get to the deposit. The contractor is thus The acquisition by the State of land for the contractor is just to enable the
compelled to expend funds in order to make profits. If it decides to cut back contractor to establish its mine site, build its facilities, establish a tailings
on investments and expenditures, it will necessarily sacrifice the pace of pond, set up its machinery and equipment, and dig mine shafts and tunnels,
development and utilization; it will necessarily sacrifice the amount of profits etc. It is impossible that the surface requirement will aggregate 5,000
it can make from the mining operations. In fact, at certain less-than-optimal hectares. Much of the operations will consist of the tunneling and digging
levels of operation, the stream of revenues generated may not even be underground, which will not require possessing or using any land surface.
enough to cover variable expenses, let alone overhead expenses; this is a 5,000 hectares is way too much for the needs of a mining operator. It simply
dismal situation anyone would want to avoid. In order to make money, one will not spend its cash to acquire property that it will not need; the cash may
has to spend money. This truism applies to the mining industry as well. be better employed for the actual mining operations, to yield a profit.

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11. Justice Carpio claims that the phrase among other things (found in the from Congress, and reserved for the President. In determining the sharing of
second paragraph of Section 81 of the Mining Act) is being incorrectly treated mining benefits, i.e., in specifying what the phrase among other things
as a delegation of legislative power to the DENR secretary to issue DAO 99- include, the President (through the secretary acting in his/her behalf) was not
56 and prescribe the formulae therein on the State's share from mining determining the amount or rate of taxes, duties and fees, but rather the
operations. He adds that the phrase among other things was not intended as amount of INCOME to be derived from minerals to be extracted and sold,
a delegation of legislative power to the DENR secretary, much less could it income which belongs to the State as owner of the mineral resources. We
be deemed a valid delegation of legislative power, since there is nothing in may say that, in the second paragraph of Section 81, the legislature in a
the second paragraph of Section 81 which can be said to grant any sense intruded partially into the President's sphere of authority when the
delegated legislative power to the DENR secretary. And even if there were, former provided that
such delegation would be void, for lack of any standards by which the
delegated power shall be exercised. "The Government share in financial or technical assistance
agreement shall consist of, among other things, the contractor's
While there is nothing in the second paragraph of Section 81 which can corporate income tax, excise tax, special allowance, withholding tax
directly be construed as a delegation of legislative power to the DENR due from the contractor's foreign stockholders arising from dividend
secretary, it does not mean that DAO 99-56 is invalid per se, or that the or interest payments to the said foreign stockholder in case of a
secretary acted without any authority or jurisdiction in issuing DAO 99-56. As foreign national and all such other taxes, duties and fees as provided
we stated earlier in our Prologue, "Who or what organ of government actually for under existing laws." (Italics supplied)
exercises this power of control on behalf of the State? The Constitution is
crystal clear: the President. Indeed, the Chief Executive is the official But it did not usurp the President's authority since the provision merely
constitutionally mandated to 'enter into agreements with foreign owned included the enumerated items as part of the government share, without
corporations.' On the other hand, Congress may review the action of the foreclosing or in any way preventing (as in fact Congress could not validly
President once it is notified of 'every contract entered into in accordance with prevent) the President from determining what constitutes the State's
this [constitutional] provision within thirty days from its execution.'" It is the compensation derived from FTAAs. In this case, the President in effect
President who is constitutionally mandated to enter into FTAAs with foreign directed the inclusion or addition of "other things," viz., INCOME for the
corporations, and in doing so, it is within the President's prerogative to owner of the resources, in the government's share, while adopting the items
specify certain terms and conditions of the FTAAs, for example, the fiscal enumerated by Congress as part of the government share also.
regime of FTAAs -- i.e., the sharing of the net mining revenues between the
contractor and the State. 12. Justice Carpio's insistence on applying the ejusdem generis rule of
statutory construction to the phrase among other things is therefore useless,
Being the President's alter ego with respect to the control and supervision of and must fall by the wayside. There is no point trying to construe that phrase
the mining industry, the DENR secretary, acting for the President, is in relation to the enumeration of taxes, duties and fees found in paragraph 2
necessarily clothed with the requisite authority and power to draw up of Section 81, precisely because "the constitutional power to prescribe
guidelines delineating certain terms and conditions, and specifying therein the sharing of mining income between the State and mining
the terms of sharing of benefits from mining, to be applicable to FTAAs in companies," to quote Justice Carpio pursuant to an FTAA is
general. It is important to remember that DAO 99-56 has been in existence constitutionally lodged with the President, not with Congress. It thus
for almost six years, and has not been amended or revoked by the President. makes no sense to persist in giving the phrase among other things a
restricted meaning referring only to taxes, duties and fees.
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 13. Strangely, Justice Carpio claims that the DENR secretary can change the
nature, extent and composition of the items that would come under the formulae in DAO 99-56 any time even without the approval of the President,
phrase among other things. The legislature's power pertains to the imposition and the secretary is the sole authority to determine the amount of
of taxes, duties and fees. This power was not delegated to the DENR consideration that the State shall receive in an FTAA, because Section 5 of
secretary. But the power to negotiate and enter into FTAAs was withheld the DAO states that "xxx any amendment of an FTAA other than the

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provision on fiscal regime shall require the negotiation with the Negotiation the State any share from their mining income, apart from taxes, duties and
Panel and the recommendation of the Secretary for approval of the President fees.
xxx". Allegedly, because of that provision, if an amendment in the FTAA
involves non-fiscal matters, the amendment requires approval of the We disagree. What we see in black and white is the statement that the
President, but if the amendment involves a change in the fiscal regime, the FTAAs approved before the DAO came into effect are to continue to be valid
DENR secretary has the final authority, and approval of the President may be and will be recognized by the State. Nothing is said about their fiscal
dispensed with; hence the secretary is more powerful than the President. 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
We believe there is some distortion resulting from the quoted provision being mining incomes.
taken out of context. Section 5 of DAO 99-56 reads as follows:
For the record, the WMCP FTAA is NOT and has never been exempt from
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to paying the government share. The WMCP FTAA has its own fiscal regime
the effectivity of this Administrative Order shall remain valid and be -- Section 7.7 -- which gives the government a 60 percent share in the
recognized by the Government: Provided, That should a Contractor net mining revenues of WMCP from the commencement of commercial
desire to amend its FTAA, it shall do so by filing a Letter of Intent production.
(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 For that very reason, we have never said that DAO 99-56 is the basis for
so by seeking for the amendment of its FTAA's whole fiscal regime claiming that the WMCP FTAA has a consideration. Hence, we find quite out
by adopting the fiscal regime provided hereof: Provided, finally, That of place Justice Carpio's statement that ironically, DAO 99-56, the very
any amendment of an FTAA other than the provision on fiscal regime authority cited to support the claim that the WMCP FTAA has a
shall require the negotiation with the Negotiating Panel and the consideration, does not apply to the WMCP FTAA. By its own express terms,
recommendation of the Secretary for approval of the President of the DAO 99-56 does not apply to FTAAs executed before the issuance of DAO
Republic of the Philippines." (underscoring supplied) 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
It looks like another case of misapprehension. The proviso being objected to FTAA from want of consideration. Even assuming arguendo that DAO 99-56
by Justice Carpio is actually preceded by a phrase that requires a contractor does not apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its
desiring to amend the fiscal regime of its FTAA, to amend the same by own fiscal regime, found in Section 7.7 thereof. Hence, there is no such thing
adopting the fiscal regime prescribed in DAO 99-56 -- i.e., solely in that as "want of consideration" here.
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 Still more startling is this claim: The majority supposedly agrees that the
President, the amendment of an FTAA by merely adopting the fiscal provisions of the WMCP FTAA, which grant a sham consideration to the
regime prescribed in said DAO 99-56 (and nothing more) need not have State, are void. Since the majority agrees that the WMCP FTAA has a sham
the express clearance of the President anymore. It is as if the same had consideration, the WMCP FTAA thus lacks the third element of a valid
been pre-approved. We cannot fathom the complaint that that makes the contract. The Decision should declare the WMCP FTAA void for want of
secretary more powerful than the President, or that the former is trying to consideration unless it treats the contract as an MPSA under Section 80.
hide things from the President or Congress. Indeed the only recourse of WMCP to save the validity of its contract is to
convert it into an MPSA.
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 To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are
remain valid and be recognized by the Government", Justice Carpio provisions grossly disadvantageous to government and detrimental to the
concludes that said Administrative Order allegedly exempts FTAAs interests of the Filipino people, as well as violative of public policy, and must
approved prior to its effectivity -- like the WMCP FTAA -- from having to pay 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
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Sections 7.9 and 7.8(e) can be done without affecting or requiring the mere omission of "service contracts" signaled their prohibition by the new
invalidation of the WMCP FTAA itself, and such deletion will preserve for Constitution.
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 Resort to the deliberations of the Constitutional Commission is therefore
indeed this is the "consideration" of the FTAA). unavoidable, and a careful scrutiny thereof conclusively shows that the
ConCom members discussed agreements involving either technical or
SUMMATION financial assistance in the same sense as service contracts and used the
terms interchangeably. The drafters in fact knew that the agreements with
To conclude, a summary of the key points discussed above is now in order. 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
The Meaning of "Agreements Involving
Either Technical or Financial Assistance" minerals.

The framers spoke about service contracts as the concept was understood in
Applying familiar principles of constitutional construction to the phrase
agreements involving either technical or financial assistance, the framers' 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
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 crafting provisions to put in place safeguards that would eliminate or
minimize the abuses prevalent during the martial law regime. In brief, they
possibly being made part of the agreement, apart from financial or technical
were going to permit service contracts with foreign corporations as
assistance. The drafters avoided the use of restrictive and stringent
contractors, but with safety measures to prevent abuses, as an
phraseology; a verba legis scrutiny of Section 2 of Article XII of the
exception to the general norm established in the first paragraph of
Constitution discloses not even a hint of a desire to prohibit foreign
Section 2 of Article XII, which reserves or limits to Filipino citizens and
involvement in the management or operation of mining activities, or to
corporations at least 60 percent owned by such citizens the
eradicate service contracts. Such moves would necessarily imply an
exploration, development and utilization of mineral or petroleum
underlying drastic shift in fundamental economic and developmental policies
resources. This was prompted by the perceived insufficiency of Filipino
of the State. That change requires a much more definite and irrefutable basis
capital and the felt need for foreign expertise in the EDU of mineral
than mere omission of the words "service contract" from the new
resources.
Constitution.

Furthermore, a literal and restrictive interpretation of this paragraph leads to Despite strong opposition from some ConCom members during the final
logical inconsistencies. A constitutional provision specifically allowing foreign- voting, the Article on the National Economy and Patrimony -- including
paragraph 4 allowing service contracts with foreign corporations as an
owned corporations to render financial or technical assistance in respect of
exception to the general norm in paragraph 1 of Section 2 of the same Article
mining or any other commercial activity was clearly unnecessary; the
-- was resoundingly and overwhelmingly approved.
provision was meant to refer to more than mere financial or technical
assistance.
The drafters, many of whom were economists, academicians, lawyers,
businesspersons and politicians knew that foreign entities will not enter into
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 agreements involving assistance without requiring measures of protection to
contributions to the economic growth and general welfare of the country." ensure the success of the venture and repayment of their investments, loans
And considering that there were various long-term service contracts still in and other financial assistance, and ultimately to protect the business
force and effect at the time the new Charter was being drafted, the absence reputation of the foreign corporations. The drafters, by specifying such
agreements involving assistance, necessarily gave implied assent to
of any transitory provisions to govern the termination and closing-out of the
everything that these agreements entailed or that could reasonably be
then existing service contracts strongly militates against the theory that the
deemed necessary to make them tenable and effective -- including

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management authority with respect to the day-to-day operations of the regulations, industry standards and similar measures that would enable
enterprise, and measures for the protection of the interests of the foreign government to regulate the conduct of affairs in various enterprises, and
corporation, at least to the extent that they are consistent with Philippine restrain activities deemed not desirable or beneficial, with the end in view of
sovereignty over natural resources, the constitutional requirement of State ensuring that these enterprises contribute to the economic development and
control, and beneficial ownership of natural resources remaining vested in general welfare of the country, conserve the environment, and uplift the well-
the State. being of the local affected communities. Such a degree of control would be
compatible with permitting the foreign contractor sufficient and reasonable
From the foregoing, it is clear that agreements involving either technical or management authority over the enterprise it has invested in, to ensure
financial assistance referred to in paragraph 4 are in fact service contracts, efficient and profitable operation.
but such new service contracts are between foreign corporations acting as
contractors on the one hand, and on the other hand government as principal Government Granted Full Control
or "owner" (of the works), whereby the foreign contractor provides the capital, by RA 7942 and DAO 96-40
technology and technical know-how, and managerial expertise in the creation
and operation of the large-scale mining/extractive enterprise, and Baseless are petitioners' sweeping claims that RA 7942 and its Implementing
government through its agencies (DENR, MGB) actively exercises full control Rules and Regulations make it possible for FTAA contracts to cede full
and supervision over the entire enterprise. control and management of mining enterprises over to fully foreign owned
corporations. Equally wobbly is the assertion that the State is reduced to a
Such service contracts may be entered into only with respect to minerals, passive regulator dependent on submitted plans and reports, with weak
petroleum and other mineral oils. The grant of such service contracts is review and audit powers and little say in the decision-making of the
subject to several safeguards, among them: (1) that the service contract be enterprise, for which reasons "beneficial ownership" of the mineral resources
crafted in accordance with a general law setting standard or uniform terms, is allegedly ceded to the foreign contractor.
conditions and requirements; (2) the President be the signatory for the
government; and (3) the President report the executed agreement to As discussed hereinabove, the State's full control and supervision over
Congress within thirty days. 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,
Ultimate Test: Full State Control 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),
To repeat, the primacy of the principle of the State's sovereign ownership of (l), (m) and (n)], 56(2), 60, 66, 144, 168, 171 and 270, and also Chapters XV,
all mineral resources, and its full control and supervision over all aspects of XVI and XXIV.
exploration, development and utilization of natural resources must be upheld.
But "full control and supervision" cannot be taken literally to mean that the Through the foregoing provisions, the government agencies concerned are
State controls and supervises everything down to the minutest details and empowered to approve or disapprove -- hence, in a position to influence,
makes all required actions, as this would render impossible the legitimate direct, and change -- the various work programs and the corresponding
exercise by the contractor of a reasonable degree of management minimum expenditure commitments for each of the exploration, development
prerogative and authority, indispensable to the proper functioning of the and utilization phases of the enterprise. Once they have been approved, the
mining enterprise. Also, government need not micro-manage mining contractor's compliance with its commitments therein will be monitored.
operations and day-to-day affairs of the enterprise in order to be considered Figures for mineral production and sales are regularly monitored and
as exercising full control and supervision. 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
Control, as utilized in Section 2 of Article XII, must be taken to mean a submitted to and registered with MGB.
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 The contractor is mandated to open its books of accounts and records for
be on a macro level, through the establishment of policies, guidelines, scrutiny, to enable the State to determine that the government share has
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been fully paid. The State may likewise compel compliance by the contractor of its exploration activities (Clause 4.9); requires the contractor to obtain
with mandatory requirements on mine safety, health and environmental State approval for its work programs for the succeeding two year periods,
protection, and the use of anti-pollution technology and facilities. The containing the proposed work activities and expenditures budget related to
contractor is also obligated to assist the development of the mining exploration (Clause 5.1); requires the contractor to obtain State approval for
community, and pay royalties to the indigenous peoples concerned. And its proposed expenditures for exploration activities (Clause 5.2); requires the
violation of any of the FTAA's terms and conditions, and/or non-compliance contractor to submit an annual report on geological, geophysical,
with statutes or regulations, may be penalized by cancellation of the FTAA. geochemical and other information relating to its explorations within the
Such sanction is significant to a contractor who may have yet to recover the FTAA area (Clause 5.3-a); requires the contractor to submit within six
tens or hundreds of millions of dollars sunk into a mining project. 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
Overall, the State definitely has a pivotal say in the operation of the individual feasibility studies to submit a declaration of mining feasibility, along with a
enterprises, and can set directions and objectives, detect deviations and non- description of the area to be developed and mined, a description of the
compliances by the contractor, and enforce compliance and impose proposed mining operations and the technology to be employed, and the
sanctions should the occasion arise. Hence, RA 7942 and DAO 96-40 vest in proposed work program for the development phase, for approval by the
government more than a sufficient degree of control and supervision over the DENR secretary (Clause 5.4); obligates the contractor to complete the
conduct of mining operations. 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
Section 3(aq) of RA 7942 was objected to as being unconstitutional for
three fiscal years (Clause 6.2); requires the contractor to submit reports to
allowing a foreign contractor to apply for and hold an exploration permit.
During the exploration phase, the permit grantee (and prospective contractor) the secretary on the production, ore reserves, work accomplished and work
is spending and investing heavily in exploration activities without yet being in progress, profile of its work force and management staff, and other
technical information (Clause 6.3); subjects any expansions, modifications,
able to extract minerals and generate revenues. The exploration permit
improvements and replacements of mining facilities to the approval of the
issued under Sections 3(aq), 20 and 23 of RA 7942, which allows exploration
secretary (Clause 6.4); subjects to State control the amount of funds that the
but not extraction, serves to protect the interests and rights of the exploration
permit grantee (and would-be contractor), foreign or local. Otherwise, the contractor may borrow within the Philippines (Clause 7.2); subjects to State
exploration works already conducted, and expenditures already made, may supervisory power any technical, financial and marketing issues (Clause
10.1-a); obligates the contractor to ensure 60 percent Filipino equity in the
end up only benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not
contractor within ten years of recovering specified expenditures unless not so
unconstitutional.
required by subsequent legislation (Clause 10.1); gives the State the right to
terminate the FTAA for unremedied substantial breach thereof by the
WMCP FTAA Likewise Gives the contractor (Clause 13.2); requires State approval for any assignment of the
State Full Control and Supervision FTAA by the contractor to an entity other than an affiliate (Clause 14.1).

The WMCP FTAA obligates the contractor to account for the value of In short, the aforementioned provisions of the WMCP FTAA, far from
production and sale of minerals (Clause 1.4); requires that the contractor's constituting a surrender of control and a grant of beneficial ownership of
work program, activities and budgets be approved by the State (Clause 2.1); mineral resources to the contractor in question, vest the State with control
gives the DENR secretary power to extend the exploration period (Clause and supervision over practically all aspects of the operations of the FTAA
3.2-a); requires approval by the State for incorporation of lands into the contractor, including the charging of pre-operating and operating expenses,
contract area (Clause 4.3-c); requires Bureau of Forest Development and the disposition of mineral products.
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); There is likewise no relinquishment of control on account of specific
requires submission of a declaration of mining feasibility for approval by the 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
State (Clause 4.6-b); obligates the contractor to report to the State the results
delays of more than 60 days in the government's processing and approval of
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submitted work programs and budgets. Clause 8.3 seeks to provide a the repayment of loans. Thus, Clause 10.2(l) is not something out of the
temporary, stop-gap solution in case a disagreement between the State and ordinary. Neither is it objectionable, because even though the contractor is
the contractor (over the proposed work program or budget submitted by the allowed to mortgage or encumber the mineral end-products themselves, the
contractor) should result in a deadlock or impasse, to avoid unreasonably contractor is not thereby relieved of its obligation to pay the government its
long delays in the performance of the works. basic and additional shares in the net mining revenue. The contractor's ability
to mortgage the minerals does not negate the State's right to receive its
The State, despite Clause 8.3, still has control over the contract area, and it share of net mining revenues.
may, as sovereign authority, prohibit work thereon until the dispute is
resolved, or it may terminate the FTAA, citing substantial breach thereof. Clause 10.2(k) which gives the contractor authority "to change its equity
Hence, the State clearly retains full and effective control. structure at any time," means that WMCP, which was then 100 percent
foreign owned, could permit Filipino equity ownership. Moreover, what is
Clause 8.5, which allows the contractor to make changes to approved work important is that the contractor, regardless of its ownership, is always in a
programs and budgets without the prior approval of the DENR secretary, position to render the services required under the FTAA, under the direction
subject to certain limitations with respect to the variance/s, merely provides and control of the government.
the contractor a certain amount of flexibility to meet unexpected situations,
while still guaranteeing that the approved work programs and budgets are Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if
not abandoned altogether. And if the secretary disagrees with the actions required by banks and other financial institutions as part of the conditions of
taken by the contractor in this instance, he may also resort to new lendings. There is nothing objectionable here, since Clause 10.4(e) also
cancellation/termination of the FTAA as the ultimate sanction. provides that such financing arrangements should in no event reduce the
contractor's obligations or the government's rights under the FTAA. Clause
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts 10.4(i) provides that government shall "favourably consider" any request for
of the contract area to be relinquished. The State is not in a position to amendments of this agreement necessary for the contractor to successfully
substitute its judgment for that of the contractor, who knows exactly which obtain financing. There is no renunciation of control, as the proviso does not
portions of the contract area do not contain minerals in commercial quantities say that government shall automatically grant any such request. Also, it is up
and should be relinquished. Also, since the annual occupation fees paid to to the contractor to prove the need for the requested changes. The
government are based on the total hectarage of the contract area, net of the government always has the final say on whether to approve or disapprove
areas relinquished, the contractor's self-interest will assure proper and such requests.
efficient relinquishment.
In fine, the FTAA provisions do not reduce or abdicate State control.
Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can
compel government to use its power of eminent domain. It contemplates a No Surrender of Financial Benefits
situation in which the contractor is a foreign-owned corporation, hence, not
qualified to own land. The contractor identifies the surface areas needed for it The second paragraph of Section 81 of RA 7942 has been denounced for
to construct the infrastructure for mining operations, and the State then allegedly limiting the State's share in FTAAs with foreign contractors to just
acquires the surface rights on behalf of the former. The provision does not taxes, fees and duties, and depriving the State of a share in the after-tax
call for the exercise of the power of eminent domain (or determination of just income of the enterprise. However, the inclusion of the phrase "among other
compensation); it seeks to avoid a violation of the anti-dummy law. things" in the second paragraph of Section 81 clearly and unmistakably
reveals the legislative intent to have the State collect more than just the usual
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage taxes, duties and fees.
and encumber the mineral products extracted may have been a result of
conditions imposed by creditor-banks to secure the loan obligations of Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of
WMCP. Banks lend also upon the security of encumbrances on goods Financial or Technical Assistance Agreements," spells out the financial
produced, which can be easily sold and converted into cash and applied to benefits government will receive from an FTAA, as consisting of not only a
120
basic government share, comprised of all direct taxes, fees and royalties, Under Section 23 of RA 7942, the applicant for exploration permit is required
as well as other payments made by the contractor during the term of the to submit a proposed work program for exploration, containing a yearly
FTAA, but also an additional government share, being a share in the budget of proposed expenditures, which the State passes upon and either
earnings or cash flows of the mining enterprise, so as to achieve a fifty- approves or rejects; if approved, the same will subsequently be recorded as
fifty sharing of net benefits from mining between the government and the pre-operating expenses that the contractor will have to recoup over the grace
contractor. period.

The additional government share is computed using one of three (3) Under Section 24, when an exploration permittee files with the MGB a
options or schemes detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of declaration of mining project feasibility, it must submit a work program for
cumulative present value of cash flows; (2) the excess profit-related development, with corresponding budget, for approval by the Bureau, before
additional government share; and (3) the additional sharing based on the government may grant an FTAA or MPSA or other mineral agreements;
cumulative net mining revenue. Whichever option or computation is used, the again, government has the opportunity to approve or reject the proposed
additional government share has nothing to do with taxes, duties, fees or work program and budgeted expenditures for development works, which will
charges. The portion of revenues remaining after the deduction of the basic become the pre-operating and development costs that will have to be
and additional government shares is what goes to the contractor. recovered. Government is able to know ahead of time the amounts of pre-
operating and other expenses to be recovered, and the approximate period
The basic government share and the additional government share do not yet of time needed therefor. The aforecited provisions have counterparts in
take into account the indirect taxes and other financial contributions of mining Section 35, which deals with the terms and conditions exclusively applicable
projects, which are real and actual benefits enjoyed by the Filipino people; if to FTAAs. In sum, the third or last paragraph of Section 81 of RA 7942
these are taken into account, total government share increases to 60 percent cannot be deemed defective.
or higher (as much as 77 percent, and 89 percent in one instance) of the net
present value of total benefits from the project. 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
The third or last paragraph of Section 81 of RA 7942 is slammed for deferring product, i.e., only 2 percent of market value of the minerals. The colatilla in
the payment of the government share in FTAAs until after the contractor shall Section 84 reiterates the same limitation in Section 80. However, these two
have recovered its pre-operating expenses, exploration and development provisions pertain only to MPSAs, and have no application to FTAAs.
expenditures. Allegedly, the collection of the State's share is rendered These particular provisions do not come within the issues defined by
uncertain, as there is no time limit in RA 7942 for this grace period or this Court. Hence, on due process grounds, no pronouncement can be
recovery period. But although RA 7942 did not limit the grace period, the made in this case in respect of the constitutionality of Sections 80 and
concerned agencies (DENR and MGB) in formulating the 1995 and 1996 84.
Implementing Rules and Regulations provided that the period of recovery,
reckoned from the date of commercial operation, shall be for a period not Section 112 is disparaged for reverting FTAAs and all mineral agreements to
exceeding five years, or until the date of actual recovery, whichever comes the old "license, concession or lease" system, because it allegedly effectively
earlier. reduces the government share in FTAAs to just the 2 percent excise tax
which pursuant to Section 80 comprises the government share in MPSAs.
And since RA 7942 allegedly does not require government approval for the However, Section 112 likewise does not come within the issues delineated
pre-operating, exploration and development expenses of the foreign by this Court, and was never touched upon by the parties in their pleadings.
contractors, it is feared that such expenses could be bloated to wipe out Moreover, Section 112 may not properly apply to FTAAs. The mining law
mining revenues anticipated for 10 years, with the result that the State's obviously meant to treat FTAAs as a breed apart from mineral agreements.
share is zero for the first 10 years. However, the argument is based on There is absolutely no basis to believe that the law intends to exact from
incorrect information. 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.

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While there is ground to believe that Sections 80, 84 and 112 are indeed without any offsetting compensation to the State. And what is given to the
unconstitutional, they cannot be ruled upon here. In any event, they are State in Section 7.7 is by mere tolerance of WMCP's foreign stockholders,
separable; thus, a later finding of nullity will not affect the rest of RA 7942. 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 fine, the challenged provisions of RA 7942 cannot be said to
surrender financial benefits from an FTAA to the foreign contractors. 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
Moreover, there is no concrete basis for the view that, in FTAAs with a corporation at least 60 percent Filipino owned, can be deemed to have
foreign contractor, the State must receive at least 60 percent of the after-tax automatically triggered the operation of Section 7.9 and removed the State's
income from the exploitation of its mineral resources, and that such share is right to receive its 60 percent share. Section 7.9 of the WMCP FTAA has
the equivalent of the constitutional requirement that at least 60 percent of the effectively given away the State's share without anything in exchange.
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 Moreover, it constitutes unjust enrichment on the part of the local and foreign
from other mineral agreements (CPA, JVA and MPSA), that would not create stockholders in WMCP, because by the mere act of divestment, the local and
a parallel or analogous situation for FTAAs. We are dealing with an foreign stockholders get a windfall, as their share in the net mining revenues
essentially different equation. Here we have the old apples and oranges of WMCP is automatically increased, without having to pay anything for it.
syndrome.
Being grossly disadvantageous to government and detrimental to the Filipino
The Charter did not intend to fix an iron-clad rule of 60 percent share, people, as well as violative of public policy, Section 7.9 must therefore be
applicable to all situations, regardless of circumstances. There is no stricken off as invalid. The FTAA in question does not involve mere
indication of such an intention on the part of the framers. Moreover, the terms contractual rights but, being impressed as it is with public interest, the
and conditions of petroleum FTAAs cannot serve as standards for mineral contractual provisions and stipulations must yield to the common good and
mining FTAAs, because the technical and operational requirements, cost the national interest. Since the offending provision is very much separable
structures and investment needs of off-shore petroleum exploration from the rest of the FTAA, the deletion of Section 7.9 can be done without
and drilling companies do not have the remotest resemblance to those affecting or requiring the invalidation of the entire WMCP FTAA itself.
of on-shore mining companies.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the
To take the position that government's share must be not less than 60 sums spent by government for the benefit of the contractor to be deductible
percent of after-tax income of FTAA contractors is nothing short of this Court from the State's share in net mining revenues, it results in benefiting the
dictating upon the government. The State resultantly ends up losing control. contractor twice over. This constitutes unjust enrichment on the part of the
To avoid compromising the State's full control and supervision over the contractor, at the expense of government. For being grossly
exploitation of mineral resources, there must be no attempt to impose a disadvantageous and prejudicial to government and contrary to public policy,
"minimum 60 percent" rule. It is sufficient that the State has the power and Section 7.8(e) must also be declared without effect. It may likewise be
means, should it so decide, to get a 60 percent share (or greater); and it is stricken off without affecting the rest of the FTAA.
not necessary that the State does so in every case.
EPILOGUE
Invalid Provisions of the WMCP FTAA
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous
Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60 agreement in the Court upon the key principle that the State must exercise
percent share of WMCP's revenues. Under Section 7.9, should WMCP's full control and supervision over the exploration, development and utilization
foreign stockholders (who originally owned 100 percent of the equity) sell 60 of mineral resources.
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,
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The crux of the controversy is the amount of discretion to be accorded the The Constitution of the Philippines is the supreme law of the land. It is the
Executive Department, particularly the President of the Republic, in respect repository of all the aspirations and hopes of all the people. We fully
of negotiations over the terms of FTAAs, particularly when it comes to the sympathize with the plight of Petitioner La Bugal B'laan and other tribal
government share of financial benefits from FTAAs. The Court believes that it groups, and commend their efforts to uplift their communities. However, we
is not unconstitutional to allow a wide degree of discretion to the Chief cannot justify the invalidation of an otherwise constitutional statute along with
Executive, given the nature and complexity of such agreements, the its implementing rules, or the nullification of an otherwise legal and binding
humongous amounts of capital and financing required for large-scale mining FTAA contract.
operations, the complicated technology needed, and the intricacies of
international trade, coupled with the State's need to maintain flexibility in its We must never forget that it is not only our less privileged brethren in tribal
dealings, in order to preserve and enhance our country's competitiveness in and cultural communities who deserve the attention of this Court; rather, all
world markets. parties concerned -- including the State itself, the contractor (whether Filipino
or foreign), and the vast majority of our citizens -- equally deserve the
We are all, in one way or another, sorely affected by the recently reported protection of the law and of this Court. To stress, the benefits to be derived
scandals involving corruption in high places, duplicity in the negotiation of by the State from mining activities must ultimately serve the great majority of
multi-billion peso government contracts, huge payoffs to government officials, our fellow citizens. They have as much right and interest in the proper and
and other malfeasances; and perhaps, there is the desire to see some well-ordered development and utilization of the country's mineral resources
measures put in place to prevent further abuse. However, dictating upon as the petitioners.
the 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 Whether we consider the near term or take the longer view, we cannot
reduction if not deprivation of the State's control. The remedy may be worse overemphasize the need for an appropriate balancing of interests and
than the problem it was meant to address. In any event, provisions in such needs -- the need to develop our stagnating mining industry and extract what
future agreements which may be suspected to be grossly disadvantageous NEDA Secretary Romulo Neri estimates is some US$840 billion (approx.
or detrimental to government may be challenged in court, and the culprits PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order
haled before the bar of justice. to jumpstart our floundering economy on the one hand, and on the other, the
need to enhance our nationalistic aspirations, protect our indigenous
Verily, under the doctrine of separation of powers and due respect for co- communities, and prevent irreversible ecological damage.
equal and coordinate branches of government, this Court must restrain itself
from intruding into policy matters and must allow the President and Congress This Court cannot but be mindful that any decision rendered in this case will
maximum discretion in using the resources of our country and in securing the ultimately impact not only the cultural communities which lodged the instant
assistance of foreign groups to eradicate the grinding poverty of our people Petition, and not only the larger community of the Filipino people now
and answer their cry for viable employment opportunities in the country. struggling to survive amidst a fiscal/budgetary deficit, ever increasing prices
of fuel, food, and essential commodities and services, the shrinking value of
"The judiciary is loath to interfere with the due exercise by coequal branches the local currency, and a government hamstrung in its delivery of basic
of government of their official functions."99 As aptly spelled out seven services by a severe lack of resources, but also countless future generations
decades ago by Justice George Malcolm, "Just as the Supreme Court, as the of Filipinos.
guardian of constitutional rights, should not sanction usurpations by any
other department of government, so should it as strictly confine its own For this latter group of Filipinos yet to be born, their eventual access to
sphere of influence to the powers expressly or by implication conferred on it education, health care and basic services, their overall level of well-being,
by the Organic Act."100 Let the development of the mining industry be the the very shape of their lives are even now being determined and affected
responsibility of the political branches of government. And let not this Court partly by the policies and directions being adopted and implemented by
interfere inordinately and unnecessarily. government today. And in part by the this Resolution rendered by this Court
today.

123
Verily, the mineral wealth and natural resources of this country are meant to
benefit not merely a select group of people living in the areas locally affected
by mining activities, but the entire Filipino nation, present and future, to
whom the mineral wealth really belong. This Court has 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.

WHEREFORE, the Court RESOLVES to GRANT the respondents' and the


intervenors' Motions for Reconsideration; to REVERSE and SET ASIDE this
Court's January 27, 2004 Decision; 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 and technical assistance agreements referred to in
paragraph 4 of Section 2 of Article XII of the Constitution; and (3) the
Financial and Technical Assistance Agreement (FTAA) dated March 30,
1995 executed by the government and Western Mining Corporation
Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject FTAA
which are hereby INVALIDATED for being contrary to public policy and for
being grossly disadvantageous to the government.

SO ORDERED.

124
G.R. No. 135385 December 6, 2000 represented by her father TONY MALID, ARIEL M. EVANGELISTA,
represented by her mother LINAY BALBUENA, EDWARD M. EMUY, SR.,
ISAGANI CRUZ and CESAR EUROPA, petitioners, SUSAN BOLANIO, OND, PULA BATO B'LAAN TRIBAL FARMER'S
vs. ASSOCIATION, INTER-PEOPLE'S EXCHANGE, INC. and GREEN
SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES, FORUM-WESTERN VISAYAS, intervenors.
SECRETARY OF BUDGET AND MANAGEMENT and CHAIRMAN and COMMISSION ON HUMAN RIGHTS, intervenor.
COMMISSIONERS OF THE NATIONAL COMMISSION ON INDIGENOUS IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION FOR
PEOPLES, respondents. THE CONSERVATION OF NATURAL RESOURCES, INC., intervenor.
HON. JUAN M .FLAVIER, HON. PONCIANO BENNAGEN, BAYANI
ASCARRAGA, EDTAMI MANSAYANGAN, BASILIO WANDAG, EVELYN RESOLUTION
DUNUAN, YAOM TUGAS, ALFREMO CARPIANO, LIBERATO A. GABIN,
MATERNIDAD M. COLAS, NARCISA M. DALUPINES, BAI KIRAM- PER CURIAM:
CONNIE SATURNO, BAE MLOMO-BEATRIZ T. ABASALA, DATU
BALITUNGTUNG-ANTONIO D. LUMANDONG, DATU MANTUMUKAW
Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition
TEOFISTO SABASALES, DATU EDUAARDO BANDA, DATU JOEL
and mandamus as citizens and taxpayers, assailing the constitutionality of
UNAD, DATU RAMON BAYAAN, TIMUAY JOSE ANOY, TIMUAY
certain provisions of Republic Act No. 8371 (R.A. 8371), otherwise known as
MACARIO D. SALACAO, TIMUAY EDWIN B. ENDING, DATU
the Indigenous Peoples Rights Act of 1997 (IPRA), and its Implementing
SAHAMPONG MALANAW VI, DATU BEN PENDAO CABIGON, BAI
Rules and Regulations (Implementing Rules).
NANAPNAY-LIZA SAWAY, BAY INAY DAYA-MELINDA S. REYMUNDO,
BAI TINANGHAGA HELINITA T. PANGAN, DATU MAKAPUKAW
ADOLINO L. SAWAY, DATU MAUDAYAW-CRISPEN SAWAY, VICKY In its resolution of September 29, 1998, the Court required respondents to
MAKAY, LOURDES D. AMOS, GILBERT P. HOGGANG, TERESA comment.1 In compliance, respondents Chairperson and Commissioners of
GASPAR, MANUEL S. ONALAN, MIA GRACE L. GIRON, ROSEMARIE G. the National Commission on Indigenous Peoples (NCIP), the government
PE, BENITO CARINO, JOSEPH JUDE CARANTES, LYNETTE agency created under the IPRA to implement its provisions, filed on October
CARANTES-VIVAL, LANGLEY SEGUNDO, SATUR S. BUGNAY, 13, 1998 their Comment to the Petition, in which they defend the
CARLING DOMULOT, ANDRES MENDIOGRIN, LEOPOLDO ABUGAN, constitutionality of the IPRA and pray that the petition be dismissed for lack
VIRGILIO CAYETANO, CONCHITA G. DESCAGA, LEVY ESTEVES, of merit.
ODETTE G. ESTEVEZ, RODOLFO C. AGUILAR, MAURO VALONES,
PEPE H. ATONG, OFELIA T. DAVI, PERFECTO B. GUINOSAO, WALTER On October 19, 1998, respondents Secretary of the Department of
N. TIMOL, MANUEL T. SELEN, OSCAR DALUNHAY, RICO O. SULATAN, Environment and Natural Resources (DENR) and Secretary of the
RAFFY MALINDA, ALFREDO ABILLANOS, JESSIE ANDILAB, Department of Budget and Management (DBM) filed through the Solicitor
MIRLANDO H. MANGKULINTAS, SAMIE SATURNO, ROMEO A. General a consolidated Comment. The Solicitor General is of the view that
LINDAHAY, ROEL S. MANSANG-CAGAN, PAQUITO S. LIESES, FILIPE the IPRA is partly unconstitutional on the ground that it grants ownership
G. SAWAY, HERMINIA S. SAWAY, JULIUS S. SAWAY, LEONARDA over natural resources to indigenous peoples and prays that the petition be
SAWAY, JIMMY UGYUB, SALVADOR TIONGSON, VENANCIO APANG, granted in part.
MADION MALID, SUKIM MALID, NENENG MALID, MANGKATADONG
AUGUSTO DIANO, JOSEPHINE M. ALBESO, MORENO MALID, MARIO On November 10, 1998, a group of intervenors, composed of Sen. Juan
MANGCAL, FELAY DIAMILING, SALOME P. SARZA, FELIPE P. BAGON, Flavier, one of the authors of the IPRA, Mr. Ponciano Bennagen, a member
SAMMY SALNUNGAN, ANTONIO D. EMBA, NORMA MAPANSAGONOS, of the 1986 Constitutional Commission, and the leaders and members of 112
ROMEO SALIGA, SR., JERSON P. GERADA, RENATO T. BAGON, JR., groups of indigenous peoples (Flavier, et. al), filed their Motion for Leave to
SARING MASALONG, SOLEDAD M. GERARDA, ELIZABETH L. MENDI, Intervene. They join the NCIP in defending the constitutionality of IPRA and
MORANTE S. TIWAN, DANILO M. MALUDAO, MINORS MARICEL MALID, praying for the dismissal of the petition.
represented by her father CORNELIO MALID, MARCELINO M. LADRA,
represented by her father MONICO D. LADRA, JENNYLYN MALID,
125
On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a (5) Section 8 which recognizes and enumerates the rights of the indigenous
Motion to Intervene and/or to Appear as Amicus Curiae. The CHR asserts peoples over the ancestral lands;
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 "(6) Section 57 which provides for priority rights of the indigenous peoples in
are at a serious disadvantage like indigenous peoples. For this reason it the harvesting, extraction, development or exploration of minerals and other
prays that the petition be dismissed. natural resources within the areas claimed to be their ancestral domains, and
the right to enter into agreements with nonindigenous peoples for the
On March 23, 1999, another group, composed of the Ikalahan Indigenous development and utilization of natural resources therein for a period not
People and the Haribon Foundation for the Conservation of Natural exceeding 25 years, renewable for not more than 25 years; and
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 "(7) Section 58 which gives the indigenous peoples the responsibility to
IPRA is consistent with the Constitution and pray that the petition for maintain, develop, protect and conserve the ancestral domains and portions
prohibition and mandamus be dismissed. thereof which are found to be necessary for critical watersheds, mangroves,
wildlife sanctuaries, wilderness, protected areas, forest cover or
The motions for intervention of the aforesaid groups and organizations were reforestation."2
granted.
Petitioners also content that, by providing for an all-encompassing definition
Oral arguments were heard on April 13, 1999. Thereafter, the parties and of "ancestral domains" and "ancestral lands" which might even include
intervenors filed their respective memoranda in which they reiterate the private lands found within said areas, Sections 3(a) and 3(b) violate the rights
arguments adduced in their earlier pleadings and during the hearing. of private landowners.3

Petitioners assail the constitutionality of the following provisions of the IPRA In addition, petitioners question the provisions of the IPRA defining the
and its Implementing Rules on the ground that they amount to an unlawful powers and jurisdiction of the NCIP and making customary law applicable to
deprivation of the States ownership over lands of the public domain as well the settlement of disputes involving ancestral domains and ancestral lands
as minerals and other natural resources therein, in violation of the regalian on the ground that these provisions violate the due process clause of the
doctrine embodied in Section 2, Article XII of the Constitution: Constitution.4

"(1) Section 3(a) which defines the extent and coverage of ancestral These provisions are:
domains, and Section 3(b) which, in turn, defines ancestral lands;
"(1) sections 51 to 53 and 59 which detail the process of delineation
"(2) Section 5, in relation to section 3(a), which provides that ancestral and recognition of ancestral domains and which vest on the NCIP
domains including inalienable public lands, bodies of water, mineral and the sole authority to delineate ancestral domains and ancestral
other resources found within ancestral domains are private but community lands;
property of the indigenous peoples;
"(2) Section 52[i] which provides that upon certification by the NCIP
"(3) Section 6 in relation to section 3(a) and 3(b) which defines the that a particular area is an ancestral domain and upon notification to
composition of ancestral domains and ancestral lands; the following officials, namely, the Secretary of Environment and
Natural Resources, Secretary of Interior and Local Governments,
"(4) Section 7 which recognizes and enumerates the rights of the indigenous Secretary of Justice and Commissioner of the National Development
peoples over the ancestral domains; Corporation, the jurisdiction of said officials over said area
terminates;

126
"(3) Section 63 which provides the customary law, traditions and "(5) The issuance of a writ of mandamus commanding the Secretary
practices of indigenous peoples shall be applied first with respect to of Environment and Natural Resources to comply with his duty of
property rights, claims of ownership, hereditary succession and carrying out the States constitutional mandate to control and
settlement of land disputes, and that any doubt or ambiguity in the supervise the exploration, development, utilization and conservation
interpretation thereof shall be resolved in favor of the indigenous of Philippine natural resources."7
peoples;
After due deliberation on the petition, the members of the Court voted as
"(4) Section 65 which states that customary laws and practices shall follows:
be used to resolve disputes involving indigenous peoples; and
Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion,
"(5) Section 66 which vests on the NCIP the jurisdiction over all which the Chief Justice and Justices Bellosillo, Quisumbing, and Santiago
claims and disputes involving rights of the indigenous peoples."5 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
Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the law with the exception of Section 1, Part II, Rule III of NCIP Administrative
NCIP Administrative Order No. 1, series of 1998, which provides that "the Order No. 1, series of 1998, the Rules and Regulations Implementing the
administrative relationship of the NCIP to the Office of the President is IPRA, and Section 57 of the IPRA which he contends should be interpreted
characterized as a lateral but autonomous relationship for purposes of policy as dealing with the large-scale exploitation of natural resources and should
and program coordination." They contend that said Rule infringes upon the be read in conjunction with Section 2, Article XII of the 1987 Constitution. On
Presidents power of control over executive departments under Section 17, the other hand, Justice Mendoza voted to dismiss the petition solely on the
Article VII of the Constitution.6 ground that it does not raise a justiciable controversy and petitioners do not
have standing to question the constitutionality of R.A. 8371.
Petitioners pray for the following:
Seven (7) other members of the Court voted to grant the petition. Justice
"(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 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
and 66 and other related provisions of R.A. 8371 are unconstitutional
unconstitutional. He reserves judgment on the constitutionality of Sections
and invalid;
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.
"(2) The issuance of a writ of prohibition directing the Chairperson Justice Vitug also filed a separate opinion expressing the view that Sections
and Commissioners of the NCIP to cease and desist from 3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo, Pardo,
implementing the assailed provisions of R.A. 8371 and its Buena, Gonzaga-Reyes, and De Leon join in the separate opinions of
Implementing Rules; Justices Panganiban and Vitug.

"(3) The issuance of a writ of prohibition directing the Secretary of As the votes were equally divided (7 to 7) and the necessary majority was
the Department of Environment and Natural Resources to cease and not obtained, the case was redeliberated upon. However, after redeliberation,
desist from implementing Department of Environment and Natural the voting remained the same. Accordingly, pursuant to Rule 56, Section 7 of
Resources Circular No. 2, series of 1998; the Rules of Civil Procedure, the petition is DISMISSED.

"(4) The issuance of a writ of prohibition directing the Secretary of Attached hereto and made integral parts thereof are the separate opinions of
Budget and Management to cease and desist from disbursing public Justices Puno, Vitug, Kapunan, Mendoza, and Panganiban.
funds for the implementation of the assailed provisions of R.A. 8371;
and
SO ORDERED.

127
G.R. No. 177131 June 7, 2011 xxxx

BOY SCOUTS OF THE PHILIPPINES, Petitioner, BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision,
vs. the Boy Scouts of the Philippines shall be classified among the government
COMMISSION ON AUDIT, Respondent. corporations belonging to the Educational, Social, Scientific, Civic and
Research Sector under the Corporate Audit Office I, to be audited, similar to
DECISION the subsidiary corporations, by employing the team audit approach.8
(Emphases supplied.)
LEONARDO-DE CASTRO, J.:
The BSP sought reconsideration of the COA Resolution in a letter 9 dated
November 26, 1999 signed by the BSP National President Jejomar C. Binay,
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of
the Philippines (BSP) is the subject matter of this controversy that reached who is now the Vice President of the Republic, wherein he wrote:
us via petition for prohibition1 filed by the BSP under Rule 65 of the 1997
Rules of Court. In this petition, the BSP seeks that the COA be prohibited It is the position of the BSP, with all due respect, that it is not subject to the
from implementing its June 18, 2002 Decision,2 its February 21, 2007 Commissions jurisdiction on the following grounds:
Resolution,3 as well as all other issuances arising therefrom, and that all of
the foregoing be rendered null and void. 4 1. We reckon that the ruling in the case of Boy Scouts of the
Philippines vs. National Labor Relations Commission, et al. (G.R.
Antecedent Facts and Background of the Case No. 80767) classifying the BSP as a government-controlled
corporation is anchored on the "substantial Government
participation" in the National Executive Board of the BSP. It is to be
This case arose when the COA issued Resolution No. 99-0115 on August 19,
1999 ("the COA Resolution"), with the subject "Defining the Commissions noted that the case was decided when the BSP Charter is defined by
policy with respect to the audit of the Boy Scouts of the Philippines." In its Commonwealth Act No. 111 as amended by Presidential Decree
460.
whereas clauses, the COA Resolution stated that the BSP was created as a
public corporation under Commonwealth Act No. 111, as amended by
Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts However, may we humbly refer you to Republic Act No. 7278 which
of the Philippines v. National Labor Relations Commission,6 the Supreme amended the BSPs charter after the cited case was decided. The most
Court ruled that the BSP, as constituted under its charter, was a salient of all amendments in RA No. 7278 is the alteration of the composition
"government-controlled corporation within the meaning of Article IX(B)(2)(1) of the National Executive Board of the BSP.
of the Constitution"; and that "the BSP is appropriately regarded as a
government instrumentality under the 1987 Administrative Code."7 The COA The said RA virtually eliminated the "substantial government participation" in
Resolution also cited its constitutional mandate under Section 2(1), Article IX the National Executive Board by removing: (i) the President of the Philippines
(D). Finally, the COA Resolution reads: and executive secretaries, with the exception of the Secretary of Education,
as members thereof; and (ii) the appointment and confirmation power of the
NOW THEREFORE, in consideration of the foregoing premises, the President of the Philippines, as Chief Scout, over the members of the said
COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY Board.
RESOLVE, to conduct an annual financial audit of the Boy Scouts of the
Philippines in accordance with generally accepted auditing standards, and The BSP believes that the cited case has been superseded by RA 7278.
express an opinion on whether the financial statements which include the Thereby weakening the cases conclusion that the BSP is a government-
Balance Sheet, the Income Statement and the Statement of Cash Flows controlled corporation (sic). The 1987 Administrative Code itself, of which the
present fairly its financial position and results of operations. BSP vs. NLRC relied on for some terms, defines government-owned and
controlled corporations as agencies organized as stock or non-stock
corporations which the BSP, under its present charter, is not.
128
Also, the Government, like in other GOCCs, does not have funds invested in General Counsel. In said Memorandum, the COA General Counsel opined
the BSP. What RA 7278 only provides is that the Government or any of its that Republic Act No. 7278 did not supersede the Courts ruling in Boy
subdivisions, branches, offices, agencies and instrumentalities can from time Scouts of the Philippines v. National Labor Relations Commission, even
to time donate and contribute funds to the BSP. though said law eliminated the substantial government participation in the
selection of members of the National Executive Board of the BSP. The
xxxx Memorandum further provides:

Also the BSP respectfully believes that the BSP is not "appropriately Analysis of the said case disclosed that the substantial government
regarded as a government instrumentality under the 1987 Administrative participation is only one (1) of the three (3) grounds relied upon by the Court
Code" as stated in the COA resolution. As defined by Section 2(10) of the in the resolution of the case. Other considerations include the character of
said code, instrumentality refers to "any agency of the National Government, the BSPs purposes and functions which has a public aspect and the
not integrated within the department framework, vested with special functions statutory designation of the BSP as a "public corporation". These grounds
or jurisdiction by law, endowed with some if not all corporate powers, have not been deleted by R.A. No. 7278. On the contrary, these were
administering special funds, and enjoying operational autonomy, usually strengthened as evidenced by the amendment made relative to BSPs
through a charter." purposes stated in Section 3 of R.A. No. 7278.

The BSP is not an entity administering special funds. It is not even included On the argument that BSP is not appropriately regarded as "a government
in the DECS National Budget. x x x instrumentality" and "agency" of the government, such has already been
answered and clarified. The Supreme Court has elucidated this matter in the
BSP case when it declared that BSP is regarded as, both a "government-
It may be argued also that the BSP is not an "agency" of the Government.
controlled corporation with an original charter" and as an "instrumentality" of
The 1987 Administrative Code, merely referred the BSP as an "attached
the Government. Likewise, it is not disputed that the Administrative Code of
agency" of the DECS as distinguished from an actual line agency of
1987 designated the BSP as one of the attached agencies of DECS. Being
departments that are included in the National Budget. The BSP believes that
an "attached agency" is different from an "agency." Agency, as defined in an attached agency, however, it does not change its nature as a
government-controlled corporation with original charter and, necessarily,
Section 2(4) of the Administrative Code, is defined as any of the various units
subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the
of the Government including a department, bureau, office, instrumentality,
Constitution provides that COA shall have the power, authority, and duty to
government-owned or controlled corporation or local government or distinct
examine, audit and settle all accounts pertaining to the revenue and receipts
unit therein.
of, and expenditures or uses of funds and property, owned or held in trust by,
or pertaining to, the Government, or any of its subdivisions, agencies or
Under the above definition, the BSP is neither a unit of the Government; a instrumentalities, including government-owned or controlled corporations with
department which refers to an executive department as created by law original charters.14
(Section 2[7] of the Administrative Code); nor a bureau which refers to any
principal subdivision or unit of any department (Section 2[8], Administrative
Code).10 Based on the Memorandum of the COA General Counsel, Director Sunico
wrote:
Subsequently, requests for reconsideration of the COA Resolution were also
In view of the points clarified by said Memorandum upholding COA
made separately by Robert P. Valdellon, Regional Scout Director, Western
Resolution No. 99-011, we have to comply with the provisions of the latter,
Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive
of Calbayog City.11 among which is to conduct an annual financial audit of the Boy Scouts of the
Philippines.15
In a letter12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate
In a letter dated November 20, 2000 signed by Director Amorsonia B.
Audit Officer (CAO) I of the COA, furnished the BSP with a copy of the
Escarda, CAO I, the COA informed the BSP that a preliminary survey of its
Memorandum13 dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA
129
organizational structure, operations and accounting system/records shall be Philippine government, and that its operations are financed chiefly from
conducted on November 21 to 22, 2000.16 membership dues of the Boy Scouts themselves as well as from property
rentals; and that "the BSP may correctly be characterized as non-
Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP governmental, and hence, beyond the audit jurisdiction of the COA." It further
then filed a Petition for Review with Prayer for Preliminary Injunction and/or claims that the designation by the Court of the BSP as a government agency
Temporary Restraining Order before the COA. This was denied by the COA or instrumentality is mere obiter dictum.20
in its questioned Decision, which held that the BSP is under its audit
jurisdiction. The BSP moved for reconsideration but this was likewise denied The BSP maintains that the provisions of Republic Act No. 7278 suggest that
under its questioned Resolution.17 "governance of BSP has come to be overwhelmingly a private affair or
nature, with government participation restricted to the seat of the Secretary of
This led to the filing by the BSP of this petition for prohibition with preliminary Education, Culture and Sports."21 It cites Philippine Airlines Inc. v.
injunction and temporary restraining order against the COA. Commission on Audit22 wherein the Court declared that, "PAL, having
ceased to be a government-owned or controlled corporation is no longer
The Issue under the audit jurisdiction of the COA."23 Claiming that the amendments
introduced by Republic Act No. 7278 constituted a supervening event that
changed the BSPs corporate identity in the same way that the governments
As stated earlier, the sole issue to be resolved in this case is whether the privatization program changed PALs, the BSP makes the case that the
BSP falls under the COAs audit jurisdiction. government no longer has control over it; thus, the COA cannot use the Boy
Scouts of the Philippines v. National Labor Relations Commission as its
The Parties Respective Arguments basis for the exercise of its jurisdiction and the issuance of COA Resolution
No. 99-011.24 The BSP further claims as follows:
The BSP contends that Boy Scouts of the Philippines v. National Labor
Relations Commission is inapplicable for purposes of determining the audit It is not far-fetched, in fact, to concede that BSPs funds and assets are
jurisdiction of the COA as the issue therein was the jurisdiction of the private in character. Unlike ordinary public corporations, such as provinces,
National Labor Relations Commission over a case for illegal dismissal and cities, and municipalities, or government-owned and controlled corporations,
unfair labor practice filed by certain BSP employees.18 such as Land Bank of the Philippines and the Development Bank of the
Philippines, the assets and funds of BSP are not derived from any
While the BSP concedes that its functions do relate to those that the government grant. For its operations, BSP is not dependent in any way on
government might otherwise completely assume on its own, it avers that this any government appropriation; as a matter of fact, it has not even been
alone was not determinative of the COAs audit jurisdiction over it. The BSP included in any appropriations for the government. To be sure, COA has not
further avers that the Court in Boy Scouts of the Philippines v. National Labor alleged, in its Resolution No. 99-011 or in the Memorandum of its General
Relations Commission "simply stated x x x that in respect of functions, the Counsel, that BSP received, receives or continues to receive assets and
BSP is akin to a public corporation" but this was not synonymous to holding funds from any agency of the government. The foregoing simply point to the
that the BSP is a government corporation or entity subject to audit by the private nature of the funds and assets of petitioner BSP.
COA. 19
xxxx
The BSP contends that Republic Act No. 7278 introduced crucial
amendments to its charter; hence, the findings of the Court in Boy Scouts of As stated in petitioners third argument, BSPs assets and funds were never
the Philippines v. National Labor Relations Commission are no longer valid acquired from the government. Its operations are not in any way financed by
as the government has ceased to play a controlling influence in it. The BSP the government, as BSP has never been included in any appropriations act
claims that the pronouncements of the Court therein must be taken only for the government. Neither has the government invested funds with BSP.
within the context of that case; that the Court had categorically found that its BSP, has not been, at any time, a user of government property or funds; nor
assets were acquired from the Boy Scouts of America and not from the have properties of the government been held in trust by BSP. This is

130
precisely the reason why, until this time, the COA has not attempted to The COA concludes that being a government agency, the funds and property
subject BSP to its audit jurisdiction. x x x.25 owned or held by the BSP are subject to the audit authority of the COA
pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.
To summarize its other arguments, the BSP contends that it is not a
government-owned or controlled corporation; neither is it an instrumentality, In support of its arguments, the COA cites The Veterans Federation of the
agency, or subdivision of the government. Philippines (VFP) v. Reyes,30 wherein the Court held that among the reasons
why the VFP is a public corporation is that its charter, Republic Act No. 2640,
In its Comment,26 the COA argues as follows: designates it as one. Furthermore, the COA quotes the Court as saying in
that case:
1. The BSP is a public corporation created under Commonwealth Act
No. 111 dated October 31, 1936, and whose functions relate to the In several cases, we have dealt with the issue of whether certain specific
fostering of public virtues of citizenship and patriotism and the activities can be classified as sovereign functions. These cases, which deal
general improvement of the moral spirit and fiber of the youth. The with activities not immediately apparent to be sovereign functions, upheld the
manner of creation and the purpose for which the BSP was created public sovereign nature of operations needed either to promote social justice
indubitably prove that it is a government agency. or to stimulate patriotic sentiments and love of country.

2. Being a government agency, the funds and property owned or xxxx


held in trust by the BSP are subject to the audit authority of
respondent Commission on Audit pursuant to Section 2 (1), Article Petitioner claims that its funds are not public funds because no budgetary
IX-D of the 1987 Constitution. appropriations or government funds have been released to the VFP directly
or indirectly from the DBM, and because VFP funds come from membership
3. Republic Act No. 7278 did not change the character of the BSP as dues and lease rentals earned from administering government lands
a government-owned or controlled corporation and government reserved for the VFP.
instrumentality.27
The fact that no budgetary appropriations have been released to the VFP
The COA maintains that the functions of the BSP that include, among others, does not prove that it is a private corporation. The DBM indeed did not see it
the teaching to the youth of patriotism, courage, self-reliance, and kindred fit to propose budgetary appropriations to the VFP, having itself believed that
virtues, are undeniably sovereign functions enshrined under the Constitution the VFP is a private corporation. If the DBM, however, is mistaken as to its
and discussed by the Court in Boy Scouts of the Philippines v. National conclusion regarding the nature of VFP's incorporation, its previous
Labor Relations Commission. The COA contends that any attempt to classify assertions will not prevent future budgetary appropriations to the VFP. The
the BSP as a private corporation would be incomprehensible since no less erroneous application of the law by public officers does not bar a subsequent
than the law which created it had designated it as a public corporation and its correct application of the law.31 (Citations omitted.)
statutory mandate embraces performance of sovereign functions.28
The COA points out that the government is not precluded by law from
The COA claims that the only reason why the BSP employees fell within the extending financial support to the BSP and adding to its funds, and that "as a
scope of the Civil Service Commission even before the 1987 Constitution government instrumentality which continues to perform a vital function
was the fact that it was a government-owned or controlled corporation; that imbued with public interest and reflective of the governments policy to
as an attached agency of the Department of Education, Culture and Sports stimulate patriotic sentiments and love of country, the BSPs funds from
(DECS), the BSP is an agency of the government; and that the BSP is a whatever source are public funds, and can be used solely for public purpose
chartered institution under Section 1(12) of the Revised Administrative Code in pursuance of the provisions of Republic Act No. [7278]."32
of 1987, embraced under the term government instrumentality. 29
The COA claims that the fact that it has not yet audited the BSPs funds may
not bar the subsequent exercise of its audit jurisdiction.
131
The BSP filed its Reply33 on August 29, 2007 maintaining that its statutory created by special law falling within the ambit of the constitutional prohibition
designation as a "public corporation" and the public character of its purpose x x x."43 The BSP further alleges:
and functions are not determinative of the COAs audit jurisdiction; reiterating
its stand that Boy Scouts of the Philippines v. National Labor Relations Petitioners purpose is embodied in Section 3 of C.A. No. 111, as amended
Commission is not applicable anymore because the aspect of government by Section 1 of R.A. No. 7278, thus:
ownership and control has been removed by Republic Act No. 7278; and
concluding that the funds and property that it either owned or held in trust are
xxxx
not public funds and are not subject to the COAs audit jurisdiction.
A reading of the foregoing provision shows that petitioner was created to
Thereafter, considering the BSPs claim that it is a private corporation, this
advance the interest of the youth, specifically of young boys, and to mold
Court, in a Resolution34 dated July 20, 2010, required the parties to file,
them into becoming good citizens. Ultimately, the creation of petitioner
within a period of twenty (20) days from receipt of said Resolution, their
redounds to the benefit, not only of those boys, but of the public good or
respective comments on the issue of whether Commonwealth Act No. 111, welfare. Hence, it can be said that petitioners purpose and functions are
as amended by Republic Act No. 7278, is constitutional. more of a public rather than a private character. Petitioner caters to all boys
who wish to join the organization without any distinction. It does not limit its
In compliance with the Courts resolution, the parties filed their respective membership to a particular class of boys. Petitioners members are trained in
Comments. scoutcraft and taught patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values,
In its Comment35 dated October 22, 2010, the COA argues that the preparing them to become model citizens and outstanding leaders of the
constitutionality of Commonwealth Act No. 111, as amended, is not country.44
determinative of the resolution of the present controversy on the COAs audit
jurisdiction over petitioner, and in fact, the controversy may be resolved on The BSP reiterates its stand that the public character of its purpose and
other grounds; thus, the requisites before a judicial inquiry may be made, as functions do not place it within the ambit of the audit jurisdiction of the COA
set forth in Commissioner of Internal Revenue v. Court of Tax Appeals,36 as it lacks the government ownership or control that the Constitution requires
have not been fully met.37 Moreover, the COA maintains that behind every before an entity may be subject of said jurisdiction.45 It avers that it merely
law lies the presumption of constitutionality.38 The COA likewise argues that stated in its Reply that the withdrawal of government control is akin to
contrary to the BSPs position, repeal of a law by implication is not favored. 39 privatization, but it does not necessarily mean that petitioner is a private
Lastly, the COA claims that there was no violation of Section 16, Article XII of corporation.46 The BSP claims that it has a unique characteristic which
the 1987 Constitution with the creation or declaration of the BSP as a "neither classifies it as a purely public nor a purely private corporation"; 47 that
government corporation. Citing Philippine Society for the Prevention of it is not a quasi-public corporation; and that it may belong to a different class
Cruelty to Animals v. Commission on Audit,40 the COA further alleges: altogether.48

The true criterion, therefore, to determine whether a corporation is public or The BSP claims that assuming arguendo that it is a private corporation, its
private is found in the totality of the relation of the corporation to the State. If creation is not contrary to the purpose of Section 16, Article XII of the
the corporation is created by the State as the latters own agency or Constitution; and that the evil sought to be avoided by said provision is
instrumentality to help it in carrying out its governmental functions, then that inexistent in the enactment of the BSPs charter,49 as, (i) it was not created
corporation is considered public; otherwise, it is private. x x x. 41 for any pecuniary purpose; (ii) those who will primarily benefit from its
creation are not its officers but its entire membership consisting of boys being
For its part, in its Comment42 filed on December 3, 2010, the BSP submits trained in scoutcraft all over the country; (iii) it caters to all boys who wish to
that its charter, Commonwealth Act No. 111, as amended by Republic Act join the organization without any distinction; and (iv) it does not limit its
No. 7278, is constitutional as it does not violate Section 16, Article XII of the membership to a particular class or group of boys. Thus, the enactment of its
Constitution. The BSP alleges that "while [it] is not a public corporation within charter confers no special privilege to particular individuals, families, or
the purview of COAs audit jurisdiction, neither is it a private corporation groups; nor does it bring about the danger of granting undue favors to certain
132
groups to the prejudice of others or of the interest of the country, which are number of individuals from the private sector; (g) the National President of
the evils sought to be prevented by the constitutional provision involved. 50 the Girl Scouts of the Philippines; (h) one Scout of Senior age from each
Scout Region to represent the boy membership; and (i) three representatives
Finally, the BSP states that the presumption of constitutionality of a of the cultural minorities. Except for the Regional Chairman who shall be
legislative enactment prevails absent any clear showing of its repugnancy to elected by the Regional Scout Councils during their annual meetings, and the
the Constitution.51 Scouts of their respective regions, all members of the National Executive
Board shall be either by appointment or cooption, subject to ratification and
The Ruling of the Court confirmation by the Chief Scout, who shall be the Head of State. Vacancies
in the Executive Board shall be filled by a majority vote of the remaining
members, subject to ratification and confirmation by the Chief Scout. The by-
After looking at the legislative history of its amended charter and carefully laws may prescribe the number of members of the National Executive Board
studying the applicable laws and the arguments of both parties, we find that necessary to constitute a quorum of the board, which number may be less
the BSP is a public corporation and its funds are subject to the COAs audit than a majority of the whole number of the board. The National Executive
jurisdiction. Board shall have power to make and to amend the by-laws, and, by a two-
thirds vote of the whole board at a meeting called for this purpose, may
The BSP Charter (Commonwealth Act No. 111, approved on October 31, authorize and cause to be executed mortgages and liens upon the property
1936), entitled "An Act to Create a Public Corporation to be Known as the of the corporation.
Boy Scouts of the Philippines, and to Define its Powers and Purposes"
created the BSP as a "public corporation" to serve the following public Subsequently, on March 24, 1992, Republic Act No. 7278 further amended
interest or purpose: Commonwealth Act No. 111 "by strengthening the volunteer and democratic
character" of the BSP and reducing government representation in its
Sec. 3. The purpose of this corporation shall be to promote through governing body, as follows:
organization and cooperation with other agencies, the ability of boys to do
useful things for themselves and others, to train them in scoutcraft, and to Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is
inculcate in them patriotism, civic consciousness and responsibility, courage, hereby amended to read as follows:
self-reliance, discipline and kindred virtues, and moral values, using the
method which are in common use by boy scouts.
"Sec. 2. The said corporation shall have the powers of perpetual succession,
to sue and be sued; to enter into contracts; to acquire, own, lease, convey
Presidential Decree No. 460, approved on May 17, 1974, amended and dispose of such real and personal estate, land grants, rights and choses
Commonwealth Act No. 111 and provided substantial changes in the BSP in action as shall be necessary for corporate purposes, and to accept and
organizational structure. Pertinent provisions are quoted below: receive funds, real and personal property by gift, devise, bequest or other
means, to conduct fund-raising activities; to adopt and use a seal, and the
Section II. Section 5 of the said Act is also amended to read as follows: same to alter and destroy; to have offices and conduct its business and
affairs in Metropolitan Manila and in the regions, provinces, cities,
The governing body of the said corporation shall consist of a National municipalities, and barangays of the Philippines, to make and adopt by-laws,
Executive Board composed of (a) the President of the Philippines or his rules and regulations not inconsistent with this Act and the laws of the
representative; (b) the charter and life members of the Boy Scouts of the Philippines, and generally to do all such acts and things, including the
Philippines; (c) the Chairman of the Board of Trustees of the Philippine establishment of regulations for the election of associates and successors,
Scouting Foundation; (d) the Regional Chairman of the Scout Regions of the as may be necessary to carry into effect the provisions of this Act and
Philippines; (e) the Secretary of Education and Culture, the Secretary of promote the purposes of said corporation: Provided, That said corporation
Social Welfare, the Secretary of National Defense, the Secretary of Labor, shall have no power to issue certificates of stock or to declare or pay
the Secretary of Finance, the Secretary of Youth and Sports, and the dividends, its objectives and purposes being solely of benevolent character
Secretary of Local Government and Community Development; (f) an equal and not for pecuniary profit of its members.

133
"Sec. 3. The purpose of this corporation shall be to promote through "(g) At least ten (10) but not more than fifteen (15) additional
organization and cooperation with other agencies, the ability of boys to do members from the private sector who shall be elected by the
useful things for themselves and others, to train them in scoutcraft, and to members of the National Executive Board referred to in the
inculcate in them patriotism, civic consciousness and responsibility, courage, immediately preceding paragraphs (a), (b), (c), (d), (e) and (f) at the
self-reliance, discipline and kindred virtues, and moral values, using the organizational meeting of the newly reconstituted National Executive
method which are in common use by boy scouts." Board which shall be held immediately after the meeting of the
National Council wherein the twelve (12) regular members and the
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby one (1) charter member were elected.
repealed and in lieu thereof, Section 4 shall read as follows:
xxxx
"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy
Scouts of the Philippines." "Sec. 8. Any donation or contribution which from time to time may be made
to the Boy Scouts of the Philippines by the Government or any of its
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, subdivisions, branches, offices, agencies or instrumentalities or by a foreign
are hereby amended to read as follows: government or by private, entities and individuals shall be expended by the
National Executive Board in pursuance of this Act.
"Sec. 5. The governing body of the said corporation shall consist of a
National Executive Board, the members of which shall be Filipino citizens of The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code
good moral character. The Board shall be composed of the following:
There are three classes of juridical persons under Article 44 of the Civil Code
"(a) One (1) charter member of the Boy Scouts of the Philippines and the BSP, as presently constituted under Republic Act No. 7278, falls
who shall be elected by the members of the National Council at its under the second classification. Article 44 reads:
meeting called for this purpose;
Art. 44. The following are juridical persons:
"(b) The regional chairmen of the scout regions who shall be elected
by the representatives of all the local scout councils of the region (1) The State and its political subdivisions;
during its meeting called for this purpose: Provided, That a candidate
for regional chairman need not be the chairman of a local scout (2) Other corporations, institutions and entities for public
council; interest or purpose created by law; their personality begins as
soon as they have been constituted according to law;
"(c) The Secretary of Education, Culture and Sports;
(3) Corporations, partnerships and associations for private interest
"(d) The National President of the Girl Scouts of the Philippines; or purpose to which the law grants a juridical personality, separate
and distinct from that of each shareholder, partner or member.
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao (Emphases supplied.)
areas, to be elected by the senior scout delegates of the local scout
councils to the scout youth forums in their respective areas, in its The BSP, which is a corporation created for a public interest or purpose, is
meeting called for this purpose, to represent the boy scout subject to the law creating it under Article 45 of the Civil Code, which
membership; provides:

"(f) Twelve (12) regular members to be elected by the members of Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding
the National Council in its meeting called for this purpose; article are governed by the laws creating or recognizing them.
134
Private corporations are regulated by laws of general application on the (13) Girl Scouts of the Philippines.
subject.
The administrative relationship of an attached agency to the department is
Partnerships and associations for private interest or purpose are governed by defined in the Administrative Code of 1987 as follows:
the provisions of this Code concerning partnerships. (Emphasis and
underscoring supplied.) BOOK IV
THE EXECUTIVE BRANCH
The purpose of the BSP as stated in its amended charter shows that it was
created in order to implement a State policy declared in Article II, Section 13 Chapter 7 ADMINISTRATIVE RELATIONSHIP
of the Constitution, which reads:
SEC. 38. Definition of Administrative Relationship. Unless otherwise
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES expressly stated in the Code or in other laws defining the special
relationships of particular agencies, administrative relationships shall be
Section 13. The State recognizes the vital role of the youth in nation-building categorized and defined as follows:
and shall promote and protect their physical, moral, spiritual, intellectual, and
social well-being. It shall inculcate in the youth patriotism and nationalism, xxxx
and encourage their involvement in public and civic affairs.
(3) Attachment. (a) This refers to the lateral relationship between the
Evidently, the BSP, which was created by a special law to serve a public department or its equivalent and the attached agency or corporation for
purpose in pursuit of a constitutional mandate, comes within the class of purposes of policy and program coordination. The coordination may be
"public corporations" defined by paragraph 2, Article 44 of the Civil Code and accomplished by having the department represented in the governing board
governed by the law which creates it, pursuant to Article 45 of the same of the attached agency or corporation, either as chairman or as a member,
Code. with or without voting rights, if this is permitted by the charter; having the
attached corporation or agency comply with a system of periodic reporting
The BSPs Classification Under the Administrative Code of 1987 which shall reflect the progress of programs and projects; and having the
department or its equivalent provide general policies through its
The public, rather than private, character of the BSP is recognized by the fact representative in the board, which shall serve as the framework for the
that, along with the Girl Scouts of the Philippines, it is classified as an internal policies of the attached corporation or agency. (Emphasis ours.)
attached agency of the DECS under Executive Order No. 292, or the
Administrative Code of 1987, which states: As an attached agency, the BSP enjoys operational autonomy, as long as
policy and program coordination is achieved by having at least one
TITLE VI EDUCATION, CULTURE AND SPORTS representative of government in its governing board, which in the case of the
BSP is the DECS Secretary. In this sense, the BSP is not under government
control or "supervision and control." Still this characteristic does not make the
Chapter 8 Attached Agencies
attached chartered agency a private corporation covered by the constitutional
proscription in question.
SEC. 20. Attached Agencies. The following agencies are hereby attached
to the Department:
Art. XII, Sec. 16 of the Constitution refers to "private corporations"
created by government for proprietary or economic/business purposes
xxxx

(12) Boy Scouts of the Philippines;

135
At the outset, it should be noted that the provision of Section 16 in issue is provision should not be construed so as to prohibit the creation of public
found in Article XII of the Constitution, entitled "National Economy and corporations or a corporate agency or instrumentality of the government
Patrimony." Section 1 of Article XII is quoted as follows: intended to serve a public interest or purpose, which should not be measured
on the basis of economic viability, but according to the public interest or
SECTION 1. The goals of the national economy are a more equitable purpose it serves as envisioned by paragraph (2), of Article 44 of the Civil
distribution of opportunities, income, and wealth; a sustained increase in the Code and the pertinent provisions of the Administrative Code of 1987.
amount of goods and services produced by the nation for the benefit of the
people; and an expanding productivity as the key to raising the quality of life The BSP is a Public Corporation Not Subject to the Test of Government
for all, especially the underprivileged. Ownership or Control and Economic Viability

The State shall promote industrialization and full employment based on The BSP is a public corporation or a government agency or instrumentality
sound agricultural development and agrarian reform, through industries that with juridical personality, which does not fall within the constitutional
make full and efficient use of human and natural resources, and which are prohibition in Article XII, Section 16, notwithstanding the amendments to its
competitive in both domestic and foreign markets. However, the State shall charter. Not all corporations, which are not government owned or controlled,
protect Filipino enterprises against unfair foreign competition and trade are ipso facto to be considered private corporations as there exists another
practices. distinct class of corporations or chartered institutions which are otherwise
known as "public corporations." These corporations are treated by law as
In the pursuit of these goals, all sectors of the economy and all regions of the agencies or instrumentalities of the government which are not subject to the
country shall be given optimum opportunity to develop. Private enterprises, tests of ownership or control and economic viability but to different criteria
including corporations, cooperatives, and similar collective organizations, relating to their public purposes/interests or constitutional policies and
shall be encouraged to broaden the base of their ownership. objectives and their administrative relationship to the government or any of
its Departments or Offices.
The scope and coverage of Section 16, Article XII of the Constitution can be
seen from the aforementioned declaration of state policies and goals which Classification of Corporations Under Section 16, Article XII of the Constitution
pertains to national economy and patrimony and the interests of the people in on National Economy and Patrimony
economic development.
The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of
Section 16, Article XII deals with "the formation, organization, or regulation of cases, insists that the Constitution recognizes only two classes of
private corporations,"52 which should be done through a general law enacted corporations: private corporations under a general law, and government-
by Congress, provides for an exception, that is: if the corporation is owned or controlled corporations created by special charters.
government owned or controlled; its creation is in the interest of the common
good; and it meets the test of economic viability. The rationale behind Article We strongly disagree. Section 16, Article XII should not be construed so as
XII, Section 16 of the 1987 Constitution was explained in Feliciano v. to prohibit Congress from creating public corporations. In fact, Congress has
Commission on Audit,53 in the following manner: enacted numerous laws creating public corporations or government agencies
or instrumentalities vested with corporate powers. Moreover, Section 16,
The Constitution emphatically prohibits the creation of private corporations Article XII, which relates to National Economy and Patrimony, could not have
except by a general law applicable to all citizens. The purpose of this tied the hands of Congress in creating public corporations to serve any of the
constitutional provision is to ban private corporations created by special constitutional policies or objectives.
charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens.54 (Emphasis added.) In his dissent, Justice Carpio contends that this ponente introduces "a totally
different species of corporation, which is neither a private corporation nor a
It may be gleaned from the above discussion that Article XII, Section 16 bans government owned or controlled corporation" and, in so doing, is missing the
the creation of "private corporations" by special law. The said constitutional fact that the BSP, "which was created as a non-stock, non-profit corporation,
136
can only be either a private corporation or a government owned or controlled It thus appears that the BSP may be regarded as both a "government
corporation." controlled corporation with an original charter" and as an "instrumentality" of
the Government within the meaning of Article IX (B) (2) (1) of the
Note that in Boy Scouts of the Philippines v. National Labor Relations Constitution. x x x.55 (Emphases supplied.)
Commission, the BSP, under its former charter, was regarded as both a
government owned or controlled corporation with original charter and a The existence of public or government corporate or juridical entities or
"public corporation." The said case pertinently stated: chartered institutions by legislative fiat distinct from private corporations and
government owned or controlled corporation is best exemplified by the 1987
While the BSP may be seen to be a mixed type of entity, combining aspects Administrative Code cited above, which we quote in part:
of both public and private entities, we believe that considering the character
of its purposes and its functions, the statutory designation of the BSP as "a Sec. 2. General Terms Defined. Unless the specific words of the text, or
public corporation" and the substantial participation of the Government in the the context as a whole, or a particular statute, shall require a different
selection of members of the National Executive Board of the BSP, the BSP, meaning:
as presently constituted under its charter, is a government-controlled
corporation within the meaning of Article IX (B) (2) (1) of the Constitution. xxxx

We are fortified in this conclusion when we note that the Administrative Code (10) "Instrumentality" refers to any agency of the National Government, not
of 1987 designates the BSP as one of the attached agencies of the integrated within the department framework, vested with special functions or
Department of Education, Culture and Sports ("DECS"). An "agency of the jurisdiction by law, endowed with some if not all corporate powers,
Government" is defined as referring to any of the various units of the administering special funds, and enjoying operational autonomy, usually
Government including a department, bureau, office, instrumentality, through a charter. This term includes regulatory agencies, chartered
government-owned or -controlled corporation, or local government or distinct institutions and government-owned or controlled corporations.
unit therein. "Government instrumentality" is in turn defined in the 1987
Administrative Code in the following manner:
xxxx
Instrumentality - refers to any agency of the National Government, not
(12) "Chartered institution" refers to any agency organized or operating under
integrated within the department framework, vested with special functions or
a special charter, and vested by law with functions relating to specific
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy usually constitutional policies or objectives. This term includes the state universities
and colleges and the monetary authority of the State.
through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.
(13) "Government-owned or controlled corporation" refers to any agency
organized as a stock or non-stock corporation, vested with functions relating
The same Code describes a "chartered institution" in the following terms:
to public needs whether governmental or proprietary in nature, and owned by
the Government directly or through its instrumentalities either wholly, or,
Chartered institution - refers to any agency organized or operating under a where applicable as in the case of stock corporations, to the extent of at least
special charter, and vested by law with functions relating to specific fifty-one (51) per cent of its capital stock: Provided, That government-owned
constitutional policies or objectives. This term includes the state universities or controlled corporations may be further categorized by the Department of
and colleges, and the monetary authority of the State. the Budget, the Civil Service Commission, and the Commission on Audit for
purposes of the exercise and discharge of their respective powers, functions
We believe that the BSP is appropriately regarded as "a government and responsibilities with respect to such corporations.
instrumentality" under the 1987 Administrative Code.

137
Assuming for the sake of argument that the BSP ceases to be owned or Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with
controlled by the government because of reduction of the number of the "common good," this becomes a restraint on future enthusiasts for state
representatives of the government in the BSP Board, it does not follow that it capitalism to excuse themselves from the responsibility of meeting the
also ceases to be a government instrumentality as it still retains all the market test so that they become viable. x x x.
characteristics of the latter as an attached agency of the DECS under the
Administrative Code. Vesting corporate powers to an attached agency or xxxx
instrumentality of the government is not constitutionally prohibited and is
allowed by the above-mentioned provisions of the Civil Code and the 1987 THE PRESIDENT. Commissioner Quesada is recognized.
Administrative Code.
MS. QUESADA. Madam President, may we be clarified by the committee on
Economic Viability and Ownership and Control Tests Inapplicable to Public
what is meant by economic viability?
Corporations
THE PRESIDENT. Please proceed.
As presently constituted, the BSP still remains an instrumentality of the
national government. It is a public corporation created by law for a public
purpose, attached to the DECS pursuant to its Charter and the Administrative MR. MONSOD. Economic viability normally is determined by cost-benefit
Code of 1987. It is not a private corporation which is required to be owned or ratio that takes into consideration all benefits, including economic external as
controlled by the government and be economically viable to justify its well as internal benefits. These are what they call externalities in economics,
existence under a special law. so that these are not strictly financial criteria. Economic viability involves
what we call economic returns or benefits of the country that are not
quantifiable in financial terms. x x x.
The dissent of Justice Carpio also submits that by recognizing "a new class
of public corporation(s)" created by special charter that will not be subject to
the test of economic viability, the constitutional provision will be xxxx
circumvented.
MS. QUESADA. So, would this particular formulation now really limit the
However, a review of the Record of the 1986 Constitutional Convention entry of government corporations into activities engaged in by corporations?
reveals the intent of the framers of the highest law of our land to distinguish
between government corporations performing governmental functions and MR. MONSOD. Yes, because it is also consistent with the economic
corporations involved in business or proprietary functions: philosophy that this Commission approved that there should be minimum
government participation and intervention in the economy.
THE PRESIDENT. Commissioner Foz is recognized.
MS. QUESDA. Sometimes this Commission would just refer to Congress to
MR. FOZ. Madam President, I support the proposal to insert "ECONOMIC provide the particular requirements when the government would get into
VIABILITY" as one of the grounds for organizing government corporations. x corporations. But this time around, we specifically mentioned economic
x x. viability. x x x.

MR. OPLE. Madam President, the reason for this concern is really that when MR. VILLEGAS. Commissioner Ople will restate the reason for his
the government creates a corporation, there is a sense in which this introducing that amendment.
corporation becomes exempt from the test of economic performance. We
know what happened in the past. If a government corporation loses, then it MR. OPLE. I am obliged to repeat what I said earlier in moving for this
makes its claim upon the taxpayers money through new equity infusions particular amendment jointly with Commissioner Foz. During the past three
from the government and what is always invoked is the common good. x x x decades, there had been a proliferation of government corporations, very few
of which have succeeded, and many of which are now earmarked by the
138
Presidential Reorganization Commission for liquidation because they failed corporations that are involved in business functions. As we said earlier, there
the economic test. x x x. are two criteria that should be followed for corporations that want to go into
business. First is for government corporations to first prove that they can be
xxxx efficient in the areas of their proper functions. This is one of the problems
now because they go into all kinds of activities but are not even efficient in
their proper functions. Secondly, they should not go into activities that the
MS. QUESADA. But would not the Commissioner say that the reason why
private sector can do better.
many of the government-owned or controlled corporations failed to come up
with the economic test is due to the management of these corporations, and
not the idea itself of government corporations? It is a problem of efficiency MR. PADILLA. There is no question about corporations performing
and effectiveness of management of these corporations which could be governmental functions or functions that are impressed with public interest.
remedied, not by eliminating government corporations or the idea of getting But the question is with regard to matters that are covered, perhaps not
into state-owned corporations, but improving management which our exhaustively, by private enterprise. It seems that under this provision the only
technocrats should be able to do, given the training and the experience. qualification is economic viability and common good, but shall government,
through government-controlled corporations, compete with private
enterprise?
MR. OPLE. That is part of the economic viability, Madam President.

MR. MONSOD. No, Madam President. As we said, the government should


MS. QUESADA. So, is the Commissioner saying then that the Filipinos will
benefit more if these government-controlled corporations were given to not engage in activities that private enterprise is engaged in and can do
private hands, and that there will be more goods and services that will be better. x x x.56 (Emphases supplied.)
affordable and within the reach of the ordinary citizens?
Thus, the test of economic viability clearly does not apply to public
corporations dealing with governmental functions, to which category the BSP
MR. OPLE. Yes. There is nothing here, Madam President, that will prevent
the formation of a government corporation in accordance with a special belongs. The discussion above conveys the constitutional intent not to apply
charter given by Congress. However, we are raising the standard a little bit this constitutional ban on the creation of public corporations where the
economic viability test would be irrelevant. The said test would only apply if
so that, in the future, corporations established by the government will meet
the corporation is engaged in some economic activity or business function for
the test of the common good but within that framework we should also build a
the government.
certain standard of economic viability.

It is undisputed that the BSP performs functions that are impressed with
xxxx
public interest. In fact, during the consideration of the Senate Bill that
eventually became Republic Act No. 7278, which amended the BSP Charter,
THE PRESIDENT. Commissioner Padilla is recognized. one of the bills sponsors, Senator Joey Lina, described the BSP as follows:

MR. PADILLA. This is an inquiry to the committee. With regard to Senator Lina. Yes, I can only think of two organizations involving the masses
corporations created by a special charter for government-owned or controlled of our youth, Mr. President, that should be given this kind of a privilege the
corporations, will these be in the pioneer fields or in places where the private Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside
enterprise does not or cannot enter? Or is this so general that these of these two groups, I do not think there are other groups similarly situated.
government corporations can compete with private corporations organized
under a general law?
The Boy Scouts of the Philippines has a long history of providing value
formation to our young, and considering how huge the population of the
MR. MONSOD. Madam President, x x x. There are two types of government young people is, at this point in time, and also considering the importance of
corporations those that are involved in performing governmental functions, having an organization such as this that will inculcate moral uprightness
like garbage disposal, Manila waterworks, and so on; and those government among the young people, and further considering that the development of
139
these young people at that tender age of seven to sixteen is vital in the policy measures that were enunciated with the enactment or promulgation by
development of the country producing good citizens, I believe that we can the President before of Presidential Decree No. 460 which we feel is the
make an exception of the Boy Scouting movement of the Philippines from culprit of the ills that is flagging the Boy Scout Movement today. And so, this
this general prohibition against providing tax exemption and privileges. 57 is specifically what we are attacking, Mr. Chairman, the disenfranchisement
of the National Council in the election of the national board. x x x. And so,
Furthermore, this Court cannot agree with the dissenting opinion which this is what we would like to be appraised of by the officers of the Boy
equates the changes introduced by Republic Act No. 7278 to the BSP [Scouts] of the Philippines whom we are also confident, have the best
Charter as clear manifestation of the intent of Congress "to return the BSP to interest of the Boy Scout Movement at heart and it is in this spirit, Mr.
the private sector." It was not the intent of Congress in enacting Republic Act Chairman, that we see no impediment towards working together, the Boy
No. 7278 to give up all interests in this basic youth organization, which has Scout of the Philippines officers working together with the House of
been its partner in forming responsible citizens for decades. Representatives in coming out with a measure that will put back the vigor
and enthusiasm of the Boy Scout Movement. x x x.59 (Emphasis ours.)
In fact, as may be seen in the deliberation of the House Bills that eventually
resulted to Republic Act No. 7278, Congress worked closely with the BSP to The following is another excerpt from the discussion on the House version of
rejuvenate the organization, to bring it back to its former glory reached under the bill, in the Committee on Government Enterprises:
its original charter, Commonwealth Act No. 111, and to correct the perceived
ills introduced by the amendments to its Charter under Presidential Decree HON. AQUINO: x x x Well, obviously, the two bills as well as the previous
No. 460. The BSP suffered from low morale and decrease in number laws that have created the Boy Scouts of the Philippines did not provide for
because the Secretaries of the different departments in government who any direct government support by way of appropriation from the national
were too busy to attend the meetings of the BSPs National Executive Board budget to support the activities of this organization. The point here is, and at
("the Board") sent representatives who, as it turned out, changed from the same time they have been subjected to a governmental intervention,
meeting to meeting. Thus, the Scouting Councils established in the provinces which to their mind has been inimical to the objectives and to the institution
and cities were not in touch with what was happening on the national level, per se, that is why they are seeking legislative fiat to restore back the original
but they were left to implement what was decided by the Board.58 mandate that they had under Commonwealth Act 111. Such having been the
experience in the hands of government, meaning, there has been negative
A portion of the legislators discussion is quoted below to clearly show their interference on their part and inasmuch as their mandate is coming from a
intent: legislative fiat, then shouldnt it be, this rhetorical question, shouldnt it be
better for this organization to seek a mandate from, lets say, the government
HON. DEL MAR. x x x I need not mention to you the value and the the Corporation Code of the Philippines and register with the SEC as non-
tremendous good that the Boy Scout Movement has done not only for the profit non-stock corporation so that government intervention could be very
very minimal. Maybe thats a rhetorical question, they may or they may not
youth in particular but for the country in general. And that is why, if we look
answer, ano. I dont know what would be the benefit of a charter or a
around, our past and present national leaders, prominent men in the various
mandate being provided for by way of legislation versus a registration with
fields of endeavor, public servants in government offices, and civic leaders in
the SEC under the Corporation Code of the Philippines inasmuch as they
the communities all over the land, and not only in our country but all over the
world many if not most of them have at one time or another been dont get anything from the government anyway insofar as direct funding. In
beneficiaries of the Scouting Movement. And so, it is along this line, Mr. fact, the only thing that they got from government was intervention in their
affairs. Maybe we can solicit some commentary comments from the resource
Chairman, that we would like to have the early approval of this measure if
persons. Incidentally, dont take that as an objection, Im not objecting. Im all
only to pay back what we owe much to the Scouting Movement. Now, going
for the objectives of these two bills. It just occurred to me that since you have
to the meat of the matter, Mr. Chairman, if I may just the Scouting
had very bad experience in the hands of government and you will always be
Movement was enacted into law in October 31, 1936 under Commonwealth
Act No. 111. x x x [W]e were acknowledged as the third biggest scouting open to such possible intervention even in the future as long as you have a
organization in the world x x x. And to our mind, Mr. Chairman, this erratic legislative mandate or your mandate or your charter coming from legislative
action.
growth and this decrease in membership [number] is because of the bad

140
xxxx The ownership and control test is likewise irrelevant for a public corporation
like the BSP. To reiterate, the relationship of the BSP, an attached agency, to
MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy the government, through the DECS, is defined in the Revised Administrative
Scouts of the Philippines will be required to register with the SEC. If we are Code of 1987. The BSP meets the minimum statutory requirement of an
registered with the SEC, there could be a danger of proliferation of scout attached government agency as the DECS Secretary sits at the BSP Board
organization. Anybody can organize and then register with the SEC. If there ex officio, thus facilitating the policy and program coordination between the
will be a proliferation of this, then the organization will lose control of the BSP and the DECS.
entire organization. Another disadvantage, Mr. Chairman, anybody can file a
complaint in the SEC against the Boy Scouts of the Philippines and the SEC Requisites for Declaration of Unconstitutionality Not Met in this Case
may suspend the operation or freeze the assets of the organization and
hamper the operation of the organization. I dont know, Mr. Chairman, how The dissenting opinion of Justice Carpio improperly raised the issue of
you look at it but there could be a danger for anybody filing a complaint unconstitutionality of certain provisions of the BSP Charter. Even if the
against the organization in the SEC and the SEC might suspend the parties were asked to Comment on the validity of the BSP charter by the
registration permit of the organization and we will not be able to operate. Court, this alone does not comply with the requisites for judicial review, which
were clearly set forth in a recent case:
HON. AQUINO: Well, that I think would be a problem that will not be
exclusive to corporations registered with the SEC because even if you are When questions of constitutional significance are raised, the Court can
government corporation, court action may be taken against you in other exercise its power of judicial review only if the following requisites are
judicial bodies because the SEC is simply another quasi-judicial body. But, I present: (1) the existence of an actual and appropriate case; (2) the
think, the first point would be very interesting, the first point that you raised. existence of personal and substantial interest on the part of the party raising
In effect, what you are saying is that with the legislative mandate creating the constitutional question; (3) recourse to judicial review is made at the
your charter, in effect, you have been given some sort of a franchise with this earliest opportunity; and (4) the constitutional question is the lis mota of the
movement. case.61 (Emphasis added.)

MR. ESCUDERO: Yes. Thus, when it comes to the exercise of the power of judicial review, the
constitutional issue should be the very lis mota, or threshold issue, of the
HON. AQUINO: Exclusive franchise of that movement? case, and that it should be raised by either of the parties. These
requirements would be ignored under the dissents rather overreaching view
MR. ESCUDERO: Yes. of how this case should have been decided. True, it was the Court that asked
the parties to comment, but the Court cannot be the one to raise a
constitutional issue. Thus, the Court chooses to once more exhibit restraint in
HON. AQUINO: Well, thats very well taken so I will proceed with other
the exercise of its power to pass upon the validity of a law.
issues, Mr. Chairman. x x x.60 (Emphases added.)

Re: the COAs Jurisdiction


Therefore, even though the amended BSP charter did away with most of the
governmental presence in the BSP Board, this was done to more strongly
promote the BSPs objectives, which were not supported under Presidential Regarding the COAs jurisdiction over the BSP, Section 8 of its amended
Decree No. 460. The BSP objectives, as pointed out earlier, are consistent charter allows the BSP to receive contributions or donations from the
with the public purpose of the promotion of the well-being of the youth, the government. Section 8 reads:
future leaders of the country. The amendments were not done with the view
of changing the character of the BSP into a privatized corporation. The BSP Section 8. Any donation or contribution which from time to time may be made
remains an agency attached to a department of the government, the DECS, to the Boy Scouts of the Philippines by the Government or any of its
and it was not at all stripped of its public character. subdivisions, branches, offices, agencies or instrumentalities shall be
expended by the Executive Board in pursuance of this Act.lawph!1
141
The sources of funds to maintain the BSP were identified before the House instrumentalities, which would be difficult if the Boy Scouts is registered as a
Committee on Government Enterprises while the bill was being deliberated, private corporation with the Securities and Exchange Commission.
and the pertinent portion of the discussion is quoted below: Government bodies would be estopped from making donations to the Boy
Scouts, which at present is not the case because there is the Boy Scouts
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds charter, this Commonwealth Act 111 as amended by PD 463.
of the organization. First, Mr. Chairman, the Boy Scouts of the Philippines do
not receive annual allotment from the government. The organization has to xxxx
raise its own funds through fund drives and fund campaigns or fund raising
activities. Aside from this, we have some revenue producing projects in the HON. AMATONG: Mr. Chairman, in connection with that.
organization that gives us funds to support the operation. x x x From time to
time, Mr. Chairman, when we have special activities we request for
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
assistance or financial assistance from government agencies, from private
business and corporations, but this is only during special activities that the
Boy Scouts of the Philippines would conduct during the year. Otherwise, we HON. AMATONG: There is no auditing being made because theres no
have to raise our own funds to support the organization.62 money put in the organization, but how about donated funds to this
organization? What are the remedies of the donors of how will they know
how their money are being spent?
The nature of the funds of the BSP and the COAs audit jurisdiction were
likewise brought up in said congressional deliberations, to wit:
MR. ESCUDERO: May I answer, Mr. Chairman?
HON. AQUINO: x x x Insofar as this organization being a government
created organization, in fact, a government corporation classified as such, THE CHAIRMAN: Yes, gentleman.
are your funds or your finances subjected to the COA audit?
MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We and by the charter we are required to submit a financial report at the end of
dont fall under the jurisdiction of the COA. each year to the National Executive Board. So all the funds donated or
otherwise is accounted for at the end of the year by our external auditor. In
this case the SGV.63
HON. AQUINO: All right, but before were you?
Historically, therefore, the BSP had been subjected to government audit in so
MR. ESCUDERO: No, Mr. Chairman.
far as public funds had been infused thereto. However, this practice should
not preclude the exercise of the audit jurisdiction of COA, clearly set forth
MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was under the Constitution, which pertinently provides:
written by then Secretary Jorge Vargas and before and up to the middle of
the Martial Law years, the BSP was receiving a subsidy in the form of an
Section 2. (1) The Commission on Audit shall have the power, authority, and
annual a one draw from the Sweepstakes. And, this was the case also with
duty to examine, audit, and settle all accounts pertaining to the revenue and
the Girl Scouts at the Anti-TB, but then this was and the Boy Scouts then
receipts of, and expenditures or uses of funds and property, owned or held in
because of this funding partly from government was being subjected to audit trust by, or pertaining to, the Government, or any of its subdivisions,
in the contributions being made in the part of the Sweepstakes. But this was agencies, or instrumentalities, including government-owned and controlled
removed later during the Martial Law years with the creation of the Human
corporations with original charters, and on a post-audit basis: (a)
Settlements Commission. So the situation right now is that the Boy Scouts
constitutional bodies, commissions and offices that have been granted fiscal
does not receive any funding from government, but then in the case of the
autonomy under this Constitution; (b) autonomous state colleges and
local councils and this legislative charter, so to speak, enables the local
universities; (c) other government-owned or controlled corporations with
councils even the national headquarters in view of the provisions in the original charters and their subsidiaries; and (d) such non-governmental
existing law to receive donations from the government or any of its
142
entities receiving subsidy or equity, directly or indirectly, from or through the
Government, which are required by law of the granting institution to submit to
such audit as a condition of subsidy or equity. x x x. 64

Since the BSP, under its amended charter, continues to be a public


corporation or a government instrumentality, we come to the inevitable
conclusion that it is subject to the exercise by the COA of its audit jurisdiction
in the manner consistent with the provisions of the BSP Charter.

WHEREFORE, premises considered, the instant petition for prohibition is


DISMISSED.

SO ORDERED.

143
G.R. No. 157485 heirs claim that a 41,231-square meter-portion of the property they inherited
had been usurped by ANCF, creating a cloud of doubt with respect to their
REPUBLIC OF THE PHILIPPINES represented by AKLAN NATIONAL ownership over the parcel of land they wish to remove from the ANCF
COLLEGE OF FISHERIES (ANCF) and DR. ELENITA R. ANDRADE, in reservation.
her capacity as ANCF Superintendent, Petitioner,
vs. The ANCF Superintendent countered that the parcel of land being claimed by
HEIRS OF MAXIMA LACHICA SIN, namely: SALVACION L. SIN, respondents was the subject of Proclamation No. 2074 of then President
ROSARIO S. ENRIQUEZ, FRANCISCO L. SIN, MARIA S. YUCHINTAT, Ferdinand E. Marcos allocating 24.0551 hectares of land within the area,
MANUEL L. SIN, JAIME CARDINAL SIN, RAMON L. SIN, and CEFERINA which included said portion of private respondents alleged property, as civil
S. VITA, Respondents. reservation for educational purposes of ANCF. The ANCF Superintendent
furthermore averred that the subject parcel of land is timberland and
DECISION therefore not susceptible of private ownership.

LEONARDO-DE CASTRO, J.: Subsequently, the complaint was amended to include ANCF as a party
defendant and Lucio Arquisola, who retired from the service during the
pendency of the case, was substituted by Ricardo Andres, then the
This is a Petition for Review assailing the Decision1 of the Court of Appeals
designated Officer-in-Charge of ANCF.
in CA-G.R. SP No. 65244 dated February 24, 2003, which upheld the
Decisions of the Regional Trial Court (RTC) of Kalibo, Aklan in Civil Case No.
6130 and the First Municipal Circuit Trial Court (MCTC) of New Washington The RTC remanded the case to the MCTC of New Washington and Batan,
and Batan, Aklan in Civil Case No. 1181, segregating from the Aklan Aklan, in view of the enactment of Republic Act No. 7659 which expanded
National College of Fisheries (ANCF) reservation the portion of land being the jurisdiction of first-level courts. The case was docketed as Civil Case No.
claimed by respondents. 1181 (4390).

Petitioner in this case is the Republic of the Philippines, represented by Before the MCTC, respondent heirs presented evidence that they inherited a
ANCF and Dr. Elenita R. Andrade, in her capacity as Superintendent of bigger parcel of land from their mother, Maxima Sin, who died in the year
ANCF. Respondents claim that they are the lawful heirs of the late Maxima 1945 in New Washington, Capiz (now Aklan). Maxima Sin acquired said
Lachica Sin who was the owner of a parcel of land situated at Barangay bigger parcel of land by virtue of a Deed of Sale (Exhibit "B"), and then
Tambac, New Washington, Aklan, and more particularly described as developed the same by planting coconut trees, banana plants, mango trees
follows: and nipa palms and usufructing the produce of said land until her death in
1945.
A parcel of cocal, nipal and swampy land, located at Barangay Tambac, New
Washington, Aklan, containing an approximate area of FIFTY[-]EIGHT In the year 1988, a portion of said land respondents inherited from Maxima
THOUSAND SIX HUNDRED SIX (58,606) square meters, more or less, as Sin was occupied by ANCF and converted into a fishpond for educational
per survey by Geodetic Engineer Reynaldo L. Lopez. Bounded on the North purpose. Respondent heirs of Maxima Sin asserted that they were previously
by Dumlog Creek; on the East by Adriano Melocoton; on the South by Mabilo in possession of the disputed land in the concept of an owner. The disputed
Creek; and on the West by Amado Cayetano and declared for taxation area was a swampy land until it was converted into a fishpond by the ANCF.
purposes in the name of Maxima L. Sin (deceased) under Tax Declaration To prove possession, respondents presented several tax declarations, the
No. 10701 (1985) with an assessed value of Php1,320.00.2 earliest of which was in the year 1945.

On August 26, 1991, respondent heirs instituted in the RTC of Kalibo, Aklan On June 19, 2000, the MCTC rendered its Decision in favor of respondents,
a complaint against Lucio Arquisola, in his capacity as Superintendent of the dispositive portion of which reads:
ANCF (hereinafter ANCF Superintendent), for recovery of possession,
quieting of title, and declaration of ownership with damages. Respondent
144
WHEREFORE, judgment is rendered declaring plaintiffs [respondent heirs The MCTC thus ruled that the claim of respondent heirs over the disputed
herein] the owner and possessor of the land in question in this case and for land by virtue of their and their predecessors open, continuous, exclusive
the defendants to cause the segregation of the same from the Civil and notorious possession amounts to an imperfect title, which should be
Reservation of the Aklan National College of Fisheries, granted under respected and protected.
Proclamation No. 2074 dated March 31, 1981.
Petitioner, through the Solicitor General, appealed to the RTC of Kalibo,
It is further ordered, that defendants jointly and severally pay the plaintiffs Aklan, where the case was docketed as Civil Case No. 6130.
actual damages for the unearned yearly income from nipa plants uprooted by
the defendants [on] the land in question when the same has been converted On May 2, 2001, the RTC rendered its Decision affirming the MCTC
by the defendants into a fishpond, in the amount of Php3,500.00 yearly judgment with modification:
beginning the year 1988 until plaintiffs are fully restored to the possession of
the land in question.
WHEREFORE, premises considered, the assailed decision is modified
absolving Appellant Ricardo Andres from the payment of damages and
It is finally ordered, that defendants jointly and severally pay the plaintiffs the attorneys fees. All other details of the appealed decision are affirmed in
sum of Php10,000.00 for attorneys fees and costs of this suit.3 toto.5

According to the MCTC, the sketch made by the Court Commissioner in his The RTC stressed that Proclamation No. 2074 recognizes vested rights
report (Exh. "LL") shows that the disputed property is an alienable and acquired by private individuals prior to its issuance on March 31, 1981.
disposable land of the public domain. Furthermore, the land covered by Civil
Reservation under Proclamation No. 2074 was classified as timberland only
The RTC added that the findings of facts of the MCTC may not be disturbed
on December 22, 1960 (Exh. "4-D"). The MCTC observed that the phrase
on appeal unless the court below has overlooked some facts of substance
"Block II Alien or Disp. LC 2415" was printed on the Map of the Civil
that may alter the results of its findings. The RTC, however, absolved the
Reservation for ANCF established under Proclamation No. 2074 (Exh. "6"), Superintendent of the ANCF from liability as there was no showing on record
indicating that the disputed land is an alienable and disposable land of the that he acted with malice or in bad faith in the implementation of
public domain.
Proclamation No. 2074.6

The MCTC likewise cited a decision of this Court in the 1976 case of
Petitioner Republic, represented by the ANCF and Dr. Elenita R. Andrade, in
Republic v. Court of Appeals4 where it was pronounced that: her capacity as the new Superintendent of the ANCF, elevated the case to
the Court of Appeals through a Petition for Review. The petition was
Lands covered by reservation are not subject to entry, and no lawful docketed as CA-G.R. SP No. 65244.
settlement on them can be acquired. The claims of persons who have settled
on, occupied, and improved a parcel of public land which is later included in On February 24, 2003, the Court of Appeals rendered its Decision dismissing
a reservation are considered worthy of protection and are usually respected, the petition for lack of merit. In addition to the findings of the MCTC and the
but where the President, as authorized by law, issues a proclamation
RTC, the Court of Appeals held:
reserving certain lands, and warning all persons to depart therefrom, this
terminates any rights previously acquired in such lands by a person who has
settled thereon in order to obtain a preferential right of purchase. And patents Moreover, petitioner had not shown by competent evidence that the subject
for lands which have been previously granted, reserved from sale, or land was likewise declared a timberland before its formal classification as
appropriated are void. (Underscoring from the MCTC, citations omitted.) such in 1960. Considering that lands adjoining to that of the private
respondents, which are also within the reservation area, have been issued
original certificates of title, the same affirms the conclusion that the area of
Noting that there was no warning in Proclamation No. 2074 requiring all
the subject land was agricultural, and therefore disposable, before its
persons to depart from the reservation, the MCTC concluded that the
declaration as a timberland in 1960.
reservation was subject to private rights if there are any.
145
It should be noted that Maxima Lachica Sin acquired, through purchase and The MCTC, the RTC and the Court of Appeals unanimously held that
sale, the subject property from its previous owners spouses Sotera respondents retain private rights to the disputed property, thus preventing the
Melocoton and Victor Garcia on January 15, 1932, or 28 years before the application of the above proclamation thereon. The private right referred to is
said landholding was declared a timberland on December 22, 1960. Tacking, an alleged imperfect title, which respondents supposedly acquired by
therefore, the possession of the previous owners and that of Maxima Lachica possession of the subject property, through their predecessors-in-interest, for
Sin over the disputed property, it does not tax ones imagination to conclude 30 years before it was declared as a timberland on December 22, 1960.
that the subject property had been privately possessed for more than 30
years before it was declared a timberland. This being the case, the said At the outset, it must be noted that respondents have not filed an application
possession has ripened into an ownership against the State, albeit an for judicial confirmation of imperfect title under the Public Land Act or the
imperfect one. Nonetheless, it is our considered opinion that this should Property Registration Decree. Nevertheless, the courts a quo apparently
come under the meaning of "private rights" under Proclamation No. 2074 treated respondents complaint for recovery of possession, quieting of title
which are deemed segregated from the mass of civil reservation granted to and declaration of ownership as such an application and proceeded to
petitioner.7 (Citation omitted.) determine if respondents complied with the requirements therefor.

Hence, this Petition for Review, anchored on the following grounds: The requirements for judicial confirmation of imperfect title are found in
Section 48(b) of the Public Land Act, as amended by Presidential Decree No.
I 1073, as follows:

THE COURT OF APPEALS GRAVELY ERRED ON A QUESTION OF LAW Sec. 48. The following described citizens of the Philippines, occupying lands
IN UPHOLDING RESPONDENTS CLAIM TO SUPPOSED "PRIVATE of the public domain or claiming to own any such lands or an interest therein,
RIGHTS" OVER SUBJECT LAND DESPITE THE DENR CERTIFICATION but whose titles have not been perfected or completed, may apply to the
THAT IT IS CLASSIFIED AS TIMBERLAND. 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,
II under the Land Registration Act, to wit:

THE COURT OF APPEALS GRAVELY ERRED ON A QUESTION OF LAW xxxx


IN AFFIRMING THE DECISIONS OF THE REGIONAL TRIAL COURT AND
THE MUNICIPAL CIRCUIT TRIAL COURTS RELEASING THE SUBJECT (b) Those who by themselves or through their predecessors in interest have
LAND BEING CLAIMED BY RESPONDENTS FROM THE MASS OF been in the open, continuous, exclusive, and notorious possession and
PUBLIC DOMAIN AND AWARDING DAMAGES TO THEM.8 occupation of alienable and disposable lands of the public domain, under a
bona fide claim of acquisition or ownership, since June 12, 1945, or earlier,
The central dispute in the case at bar is the interpretation of the first immediately preceding the filing of the application for confirmation of title
paragraph of Proclamation No. 2074: 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
Upon recommendation of the Director of Forest Development, approved by
chapter.
the Minister of Natural Resources and by virtue of the powers vested in me
by law, I, FERDINAND E. MARCOS, President of the Philippines, do hereby
set aside as Civil Reservation for Aklan National College of Fisheries, subject An equivalent provision is found in Section 14(1) of the Property Registration
to private rights, if any there be, parcels of land, containing an aggregate Decree, which provides:
area of 24.0551 hectares, situated in the Municipality of New Washington,
Province of Aklan, Philippines, designated Parcels I and II on the attached SECTION 14. Who may apply. The following persons may file in the proper
BFD Map CR-203, x x x [.]9 Court of First Instance an application for registration of title to land, whether
personally or through their duly authorized representatives:
146
(1) those who by themselves or through their predecessors-in- interest have There must be a positive act declaring land of the public domain as alienable
been in open, continuous, exclusive and notorious possession and and disposable.1wphi1 To prove that the land subject of an application for
occupation of alienable and disposable lands of the public domain under a registration is alienable, the applicant must establish the existence of a
bona fide claim of ownership since June 12, 1945, or earlier. positive act of the government, such as a presidential proclamation or an
executive order; an administrative action; investigation reports of Bureau of
This Court has thus held that there are two requisites for judicial confirmation Lands investigators; and a legislative act or a statute. The applicant may also
of imperfect or incomplete title under CA No. 141, namely: (1) open, secure a certification from the government that the land claimed to have
continuous, exclusive, and notorious possession and occupation of the been possessed for the required number of years is alienable and
subject land by himself or through his predecessors-in-interest under a bona disposable. (Citations omitted.)
fide claim of ownership since time immemorial or from June 12, 1945; and
This Court reached the same conclusion in Secretary of the Department of
(2) the classification of the land as alienable and disposable land of the Environment and Natural Resources v. Yap,13 which presents a similar issue
public domain.10 with respect to another area of the same province of Aklan. On November
10, 1978, President Marcos issued Proclamation No. 1801 declaring Boracay
Island, among other islands, caves and peninsulas of the Philippines, as
With respect to the second requisite, the courts a quo held that the disputed
tourist zones and marine reserves under the administration of the Philippine
property was alienable and disposable before 1960, citing petitioners failure
Tourism Authority (PTA). On September 3, 1982, PTA Circular 3-82 was
to show competent evidence that the subject land was declared a timberland
issued to implement Proclamation No. 1801. The respondents-claimants in
before its formal classification as such on said year.11 Petitioner
emphatically objects, alleging that under the Regalian Doctrine, all lands of said case filed a petition for declaratory relief with the RTC of Kalibo, Aklan,
the public domain belong to the State and that lands not appearing to be claiming that Proclamation No. 1801 and PTA Circular 3-82 precluded them
from filing an application for judicial confirmation of imperfect title or survey of
clearly within private ownership are presumed to belong to the State.
land for titling purposes. The respondents claim that through their
predecessors-in-interest, they have been in open, continuous, exclusive and
After a thorough review of the records, we agree with petitioner. As this Court notorious possession and occupation of their lands in Boracay since June 12,
held in the fairly recent case of Valiao v. Republic12: 1945 or earlier since time immemorial.

Under the Regalian doctrine, which is embodied in our Constitution, all lands On May 22, 2006, during the pendency of the petition for review of the above
of the public domain belong to the State, which is the source of any asserted case with this Court, President Gloria Macapagal-Arroyo issued Proclamation
right to any ownership of land. All lands not appearing to be clearly within No. 1064 classifying Boracay Island into four hundred (400) hectares of
private ownership are presumed to belong to the State. Accordingly, public reserved forest land (protection purposes) and six hundred twenty-eight and
lands not shown to have been reclassified or released as alienable 96/100 (628.96) hectares of agricultural land (alienable and disposable).
agricultural land or alienated to a private person by the State remain part of Petitioner-claimants and other landowners in Boracay filed with this Court an
the inalienable public domain. Unless public land is shown to have been original petition for prohibition, mandamus and nullification of Proclamation
reclassified as alienable or disposable to a private person by the State, it No. 1064, alleging that it infringed on their "prior vested right" over portions of
remains part of the inalienable public domain. Property of the public domain Boracay which they allege to have possessed since time immemorial. This
is beyond the commerce of man and not susceptible of private appropriation petition was consolidated with the petition for review concerning
and acquisitive prescription. Occupation thereof in the concept of owner no Proclamation No. 1801 and PTA Circular 3- 82.
matter how long cannot ripen into ownership and be registered as a title. The
burden of proof in overcoming the presumption of State ownership of the
This Court, discussing the Regalian Doctrine vis--vis the right of the
lands of the public domain is on the person applying for registration (or
claiming ownership), who must prove that the land subject of the application claimants to lands they claim to have possessed since time immemorial,
is alienable or disposable. To overcome this presumption, incontrovertible held:
evidence must be established that the land subject of the application (or
claim) is alienable or disposable.
147
A positive act declaring land as alienable and disposable is required. In leads to the same result. In the absence of the classification as mineral or
keeping with the presumption of State ownership, the Court has time and timber land, the land remains unclassified land until released and rendered
again emphasized that there must be a positive act of the government, such open to disposition. x x x. (Emphasis supplied, citation deleted.)
as an official proclamation, declassifying inalienable public land into
disposable land for agricultural or other purposes. In fact, Section 8 of CA The requirements for judicial confirmation of imperfect title in Section 48(b) of
No. 141 limits alienable or disposable lands only to those lands which have the Public Land Act, as amended, and the equivalent provision in Section
been "officially delimited and classified." 14(1) of the Property Registration Decree was furthermore painstakingly
debated upon by the members of this Court in
The burden of proof in overcoming the presumption of State ownership of the
lands of the public domain is on the person applying for registration (or Heirs of Mario Malabanan v. Republic.16 In Malabanan, the members of this
claiming ownership), who must prove that the land subject of the application Court were in disagreement as to whether lands declared alienable or
is alienable or disposable. To overcome this presumption, incontrovertible disposable after June 12, 1945 may be subject to judicial confirmation of
evidence must be established that the land subject of the application (or imperfect title. There was, however, no disagreement that there must be a
claim) is alienable or disposable. There must still be a positive act declaring declaration to that effect.
land of the public domain as alienable and disposable. To prove that the land
subject of an application for registration is alienable, the applicant must
In the case at bar, it is therefore the respondents which have the burden to
establish the existence of a positive act of the government such as a
identify a positive act of the government, such as an official proclamation,
presidential proclamation or an executive order; an administrative action;
declassifying inalienable public land into disposable land for agricultural or
investigation reports of Bureau of Lands investigators; and a legislative act or other purposes. Since respondents failed to do so, the alleged possession by
a statute. The applicant may also secure a certification from the government them and by their predecessors-in-interest is inconsequential and could
that the land claimed to have been possessed for the required number of
never ripen into ownership. Accordingly, respondents cannot be considered
years is alienable and disposable.
to have private rights within the purview of Proclamation No. 2074 as to
prevent the application of said proclamation to the subject property. We are
In the case at bar, no such proclamation, executive order, administrative thus constrained to reverse the rulings of the courts a quo and grant the
action, report, statute, or certification was presented to the Court. The prayer of petitioner Republic to dismiss Civil Case No. 1181 (4390) for lack of
records are bereft of evidence showing that, prior to 2006, the portions of merit.
Boracay occupied by private claimants were subject of a government
proclamation that the land is alienable and disposable. Absent such well-nigh
WHEREFORE, premises considered, the Petition for Review is GRANTED.
incontrovertible evidence, the Court cannot accept the submission that lands The Decision of the Court of Appeals in CA-G.R. SP No. 65244 dated
occupied by private claimants were already open to disposition before 2006. February 24, 2003, which upheld the Decisions of the Regional Trial Court of
Matters of land classification or reclassification cannot be assumed. They call
Kalibo, Aklan in Civil Case No. 6130 and the First Municipal Circuit Trial
for proof.14 (Emphases in the original; citations omitted.)
Court of New Washington and Batan, Aklan in Civil Case No. 1181 (4390),
segregating from the Aklan National College of Fisheries reservation the
Accordingly, in the case at bar, the failure of petitioner Republic to show portion of land being claimed by respondents is REVERSED and SET
competent evidence that the subject land was declared a timberland before ASIDE. Civil Case No. 1181 (4390) of the First Municipal Circuit Trial Court
its formal classification as such in 1960 does not lead to the presumption that of New Washington and Batan, Aklan is hereby DISMISSED.
said land was alienable and disposable prior to said date. On the contrary,
the presumption is that unclassified lands are inalienable public lands. Such
SO ORDERED.
was the conclusion of this Court in Heirs of the Late Spouses Pedro S.
Palanca and Soterranea Rafols v. Republic,15 wherein we held:

While it is true that the land classification map does not categorically state
that the islands are public forests, the fact that they were unclassified lands

148
G.R. No. 183789 August 24, 2011 Australias offer and they entered into a long-term contract, dated 20 October
1987, denominated as "Contract for the Purchase of Fly Ash of Batangas
POWER SECTOR ASSETS AND lIABILITIES MANAGEMENT Coal-Fired Thermal Power Plant Luzon" (the Batangas Contract).9
CORPORATION, Petitioner,
vs. Under Article I of the contract, NPC, referred to therein as the
POZZOLANIC PHILIPPINES INCORPORATED, Respondent. "CORPORATION," granted Pozzolanic Australia, the "PURCHASER," a right
of first refusal to purchase the fly ash generated by the coal-fired plants that
DECISION may be put up by NPC in the future. The specific provision of the contract
states:
PEREZ, J.:
PURCHASER has first option to purchase Fly Ash under similar terms and
The Case conditions as herein contained from the second unit of Batangas Coal-Fired
Thermal Plant that the CORPORATION may construct. PURCHASER may
also exercise the right of first refusal to purchase fly ash from any new coal-
This petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil fired plants which will be put up by CORPORATION.10
Procedure assails (1) the Decision2 dated 30 April 2008 of the Regional Trial
Court of Quezon City, Branch 96, upholding the validity of respondents right
of first refusal and holding such right binding on petitioner, and (2) the Order 3 In 1988, while the necessary clearances and approvals were being obtained
dated 27 June 2008 of the same court, denying petitioners Motion for by Pozzolanic Australia in connection with the operation of its fly ash
business in the Philippines, its major stockholders decided that it would be
Reconsideration and Supplemental Motion for Reconsideration of the 30
more advantageous for the company to organize a Philippine corporation and
April 2008 Decision of the trial court in Civil Case No. Q-00-40731.
to assign to such corporation Pozzolanic Australias rights to the commercial
use of fly ash in the Philippines. Accordingly, in April 1989, respondent
The Antecedents Pozzolanic was formally incorporated to take over Pozzolanic Australias
business in the Philippines.11 Respondent then commenced to exercise its
Petitioner Power Sector Assets and Liabilities Management Corporation rights under the Batangas contract in June, 1989.12
(PSALM) is a government-owned and controlled corporation created by
virtue of Republic Act No. 9136, otherwise known as the Electric Power In 1998, the Masinloc Coal-Fired Thermal Power Plant (Masinloc Plant)
Industry Reform Act (EPIRA) of 2001.4 Its principal purpose is to manage the started operations to provide power for NPC. Late that year, respondent
orderly sale, disposition, and privatization of the National Power began the installation of its fly ash processing equipment in the Masinloc
Corporations (NPCs) generation assets, real estate and other disposable Plant and began off taking the fly ash produced therein. 13
assets, and Independent Power Producer (IPP) contracts, with the objective
of liquidating all NPC financial obligations and stranded contract costs in an
optimal manner.5 Subsequently, on 15 February 1999, NPC and respondent, on an interim
basis and prior to the conduct of a public bidding for the contract to purchase
the Masinloc Plants fly ash, executed a contract whereby respondent was
Respondent Pozzolanic Philippines Incorporated (Pozzolanic) is the local given the right to purchase the said fly ash for a period of one year.14 The
subsidiary of Pozzolanic Australia Pty. Ltd. (Pozzolanic Australia),6 an fourth and fifth "WHEREAS" clauses of the contract provide:
Australian corporation which claims to have perfected the techniques in the
processing of fly ash for use in the making of cement.7
WHEREAS, under the Contract for the Purchase of the Fly Ash of Batangas
Coal-Fired Thermal Power Plant dated 20 October 1987, PURCHASER was
In 1986, Pozzolanic Australia won the public bidding for the purchase of the granted the right of first refusal over any and all fly ash that may be produced
fly ash generated by NPCs power plant in Batangas.8 Pozzolanic Australia by any of NPCs coal-fired power plants in the Philippines;
then negotiated with NPC for a long-term contract for the purchase of all fly
ash to be produced by NPCs future power plants. NPC accepted Pozzolanic

149
WHEREAS, NPC intends to bid out the long term contract for the Fly Ash The litigation became more complicated when petitioner, NPC, and the
that may be produced by the (Masinloc Coal Fired Thermal Power) Plant Department of Energy entered into a Memorandum of Agreement with the
subject to the second paragraph of Article I of the original contract between Provincial Government of Zambales and several local government units of
the parties which was signed on 20 October 1987 giving PURCHASER the Zambales, pursuant to which the Provincial Government of Zambales was
right of first refusal.15 awarded the exclusive right to withdraw the fly ash from the Masinloc Plant.26
With this development, respondent filed a Third Supplementary Complaint
In October 1999, the Sual Coal-Fired Power Plant started providing electricity seeking the annulment of the aforesaid Memorandum of Agreement and
in the Luzon region.16 NPC thereafter caused to be published in the other documents related thereto.27 This complaint was dismissed by the trial
Philippine Star and the Manila Bulletin17 an "Invitation to Pre-Qualify and to court on the ground of forum shopping, it appearing that the Province of
Bid," inviting all interested buyers to pre-qualify for the purchase of fly ash Zambales, et al. had previously filed a case against respondent and NPC,
from the Masinloc and/or Sual Power Plants.18 claiming exclusive right to withdraw the fly ash of the Masinloc Plant.28

As a result, respondent sent letters to NPC calling its attention to Respondent appealed the order of dismissal to the Court of Appeals.
respondents right of first refusal under the Batangas Contract. It also
demanded that any tender documents to be issued in connection with the On 18 July 2007, while the appeal was pending, respondent and the
bidding on the right to purchase the Masinloc and Sual Plants fly ash include Provincial Government of Zambales executed an "Agreement"29 (the
notices informing prospective bidders of respondents right of first refusal. Masinloc Contract) by virtue of which the Province of Zambales awarded to