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LAW ON NATURAL RESOURCES
All lands of public domain, waters, minerals, coal,
petroleum, forests are
and other mineral oils, all forces of potential energy, fisheries,
or timber, wildlife, flora and fauna, and other natural resources owned by the State.1 Basic in the law of
natural resources is Jura Regalia or Regalian
doctrine. Enshrined in the Constitution, it simply means that all natural resources are owned by the State. The case of Secretary of DENR, et. al. vs. Yap, et. al. G.R. No. 167707, October 8, 2008 explicitly discusses this doctrine, to wit:
The Regalian Doctrine dictates that all lands of the public domain belong to the State, that the State is the source of any asserted right to ownership of land and charged with the conservation of such patrimony. The doctrine has been consistently adopted under the 1935, 1973, and 1987 Constitutions. All lands not otherwise appearing to be clearly within private ownership are presumed to belong to the State. Thus, all lands that have not been acquired from the government, either by purchase or by grant, belong to the State as part of the inalienable public domain. Necessarily, it is up to the State to determine if lands of the public domain will be disposed of for private ownership. The government, as the agent of the state, is possessed of the plenary power as the persona in law to determine who shall be the favored recipients of public lands, as well as under what terms they may be granted such privilege, not excluding the placing of obstacles in the way of their exercise of what otherwise would be ordinary acts of ownership. Our present land law traces its roots to the Regalian Doctrine. Upon the Spanish conquest of the Philippines, ownership of all lands, territories and possessions in the Philippines passed to the Spanish Crown. The Regalian doctrine was first introduced in the Philippines through the Laws of the Indies and the Royal Cedulas, which laid the foundation that “all lands that were not acquired from the Government, either by purchase or by grant, belong to the public domain.” The Laws of the Indies was followed by the Ley Hipotecaria or the Mortgage Law of 1893. The Spanish Mortgage Law provided for the systematic registration of titles and deeds as well as possessory claims. The Royal Decree of 1894 or the Maura Law partly amended the Spanish Mortgage Law and the Laws of the Indies. It established possessory information as the method of legalizing possession of vacant Crown land, under certain conditions which were set forth in said decree. Under Section 393 of the Maura Law, an informacion posesoria or possessory information title, when duly inscribed in the Registry of
Sec. 2, Article XII, 1987 Constitution
Page |2 Property, is converted into a title of ownership only after the lapse of twenty (20) years of uninterrupted possession which must be actual, public, and adverse, from the date of its inscription. However, possessory information title had to be perfected one year after the promulgation of the Maura Law, or until April 17, 1895. Otherwise, the lands would revert to the State. In sum, private ownership of land under the Spanish regime could only be founded on royal concessions which took various forms, namely: (1) titulo real or royal grant; (2) concesion especial or special grant; (3) composicion con el estado or adjustment title; (4) titulo de compra or title by purchase; and (5) informacion posesoria or possessory information title. The first law governing the disposition of public lands in the Philippines under American rule was embodied in the Philippine Bill of 1902. By this law, lands of the public domain in the Philippine Islands were classified into three (3) grand divisions, to wit: agricultural, mineral, and timber or forest lands. The act provided for, among others, the disposal of mineral lands by means of absolute grant (freehold system) and by lease (leasehold system). It also provided the definition by exclusion of “agricultural public lands.” Interpreting the meaning of “agricultural lands” under the Philippine Bill of 1902, the Court declared in Mapa v. Insular Government: x x x In other words, that the phrase “agricultural land” as used in Act No. 926 means those public lands acquired from Spain which are not timber or mineral lands. x x x (Emphasis Ours) On February 1, 1903, the Philippine Legislature passed Act No. 496, otherwise known as the Land Registration Act. The act established a system of registration by which recorded title becomes absolute, indefeasible, and imprescriptible. This is known as the Torrens system. Concurrently, on October 7, 1903, the Philippine Commission passed Act No. 926, which was the first Public Land Act. The Act introduced the homestead system and made provisions for judicial and administrative confirmation of imperfect titles and for the sale or lease of public lands. It permitted corporations regardless of the nationality of persons owning the controlling stock to lease or purchase lands of the public domain. Under the Act, open, continuous, exclusive, and notorious possession and occupation of agricultural lands for the next ten (10) years preceding July 26, 1904 was sufficient for judicial confirmation of imperfect title. On November 29, 1919, Act No. 926 was superseded by Act No. 2874, otherwise known as the second Public Land Act. This new, more comprehensive law limited the exploitation of agricultural lands to Filipinos and Americans and citizens of other countries which gave Filipinos the same privileges. For judicial confirmation of title, possession and occupation en concepto dueño since time immemorial, or since July 26, 1894, was required. After the passage of the 1935 Constitution, CA No. 141 amended Act No. 2874 on December 1, 1936. To this day, CA No. 141, as amended, remains as the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands, and privately owned lands which reverted to the State. Section 48(b) of CA No. 141 retained the requirement under Act No. 2874 of possession and occupation of lands of the public domain since time immemorial or since July 26, 1894. However, this provision was superseded by Republic Act (RA) No. 1942, which provided for a simple thirty-year prescriptive period for judicial confirmation of imperfect title. The provision was last amended by PD No. 1073, which now provides for possession and occupation of the land applied for since June 12, 1945, or earlier. The issuance of PD No. 892 on February 16, 1976 discontinued the use of Spanish titles as evidence in land registration proceedings. Under the decree, all holders of Spanish titles or grants should apply for registration of their lands under Act No. 496 within six (6) months from the effectivity of the decree on February 16, 1976. Thereafter, the recording of all unregistered lands shall be governed by Section 194 of the Revised Administrative Code, as amended by Act No. 3344. On June 11, 1978, Act No. 496 was amended and updated by PD No. 1529, known as the Property Registration Decree. It was enacted to codify the various laws
Page |3 relative to registration of property. It governs registration of lands under the Torrens system as well as unregistered lands, including chattel mortgages. A positive act declaring land as alienable and disposable is required. In keeping with the presumption of State ownership, the Court has time and again emphasized that there must be a positive act of the government, such as an official proclamation, declassifying inalienable public land into disposable land for agricultural or other purposes. In fact, Section 8 of CA No. 141 limits alienable or disposable lands only to those lands which have been “officially delimited and classified.” The burden of proof in overcoming the presumption of State ownership of the lands of the public domain is on the person applying for registration (or claiming ownership), who must prove that the land subject of the application is alienable or disposable. To overcome this presumption, incontrovertible evidence must be established that the land subject of the application (or claim) is alienable or disposable. There must still be a positive act declaring land of the public domain as alienable and disposable. To prove that the land subject of an application for registration is alienable, the applicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order; an administrative action; investigation reports of Bureau of Lands investigators; and a legislative act or a statute. The applicant may also secure a certification from the government that the land claimed to have been possessed for the required number of years is alienable and disposable. In the case at bar, no such proclamation, executive order, administrative action, report, statute, or certification was presented to the Court. The records are bereft of evidence showing that, prior to 2006, the portions of Boracay occupied by private claimants were subject of a government proclamation that the land is alienable and disposable. Absent such well-nigh incontrovertible evidence, the Court cannot accept the submission that lands occupied by private claimants were already open to disposition before 2006. Matters of land classification or reclassification cannot be assumed. They call for proof.
Upon Spanish conquest, ownership of all “lands, territories and possessions” in Philippines passed to Spanish Crown. The King, as the sovereign ruler and representative of the people, acquired and owned all lands and territories in the Philippines except those he disposed of by grant or sale to private individuals. The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting however, the State, in lieu of the King, as the owner of all lands and waters of the public domain. The Regalian doctrine is the foundation of the timehonored principle of land ownership that “all lands that were not acquired from the Government, either by purchase or by grant, belong to the public domain.”
shores. no matter how long. National Development Authority. G. it remains part of the inalienable public domain. G.” 3 Chavez vs. canals. G.R. 191 SCRA 71. 2006. .R. July 9. 2001. roadsteads.6 2 Article 420 of NCC: “The following things are property of public dominion: (1) Those intended for public use. cannot ripen into ownership and be registered as a title. 2002. The mere fact that a title was issued by the Director of Lands does not confer any validity on such title if the property covered by the title or patent is part of the public forest. incorporated the Regalian doctrine. timber. Thus. without any proof that a land presumption is that it belongs to the State.’ To overcome such presumption. Absent incontrovertible evidence must be shown such evidence. 133250. torrents. No. ‘occupation thereof in the concept of owner.3 Presumption of State Ownership Certainly. ports and bridges constructed by the State. No. 1990. David. Public Estates Authority. Sayo.R. and mineral lands to the dominion of the State. January 29. Naguiat. rivers.5 Our adherence to the Regalian doctrine subjects all agricultural. No. January 24. before any land may be declassified from the forest group and converted into alienable or disposable land for agricultural or other purposes. No. banks. Court of Appeals. there must be a positive act from the government. 4 Republic vs. and others of similar character. Indeed. such as roads. and Lee Hong Kok vs. the Unless public land is shown to have been reclassified or alienated to a private person by the State. 4 is privately owned. 48 SCRA 372. L-50464.Page |4 Article 339 of the Civil Code of 1889. by the applicant. 129401. 134209. G. and are intended for some public service or for the development of the national wealth. and Republic vs. February 2. which is now Article 420 2 of the Civil Code of 1950. 5 Seville vs.R. Even rules on the confirmation of imperfect titles do not apply unless and until the land classified as forest land is released in an official proclamation to that effect so that it may form part of the disposable agricultural lands of the public domain. without being for public use. 6 Sunbeam Convenience Food vs. the land sought to be registered remains inalienable. (2) Those which belong to the State.
we note that respondent also failed to prove that the subject property has been declared alienable and disposable by the President or the Secretary of the Department of Environment and Natural Resources.Page |5 Proof of Alienability Emphatically. No. and that the land subject of the application for registration falls within the approved area per verification through survey by the PENRO or CENRO. to R. (3)Administrative Order by the Secretary of DENR. Inc. June 22.A. 2009. . 7 The following may constitute as proof of such official declaration: positive act or (1)Presidential Proclamation (PP). In addition.N.”8 (4) Legislation. the Courts It is beyond the competence and jurisdiction of land from the unclassified category. 1984. These facts must be established to prove that the land is alienable and disposable.. Pursuant. T. Ruby Lee Tsai. G. No. Court of Appeals. the Court said: [T]he applicant for land registration must prove that the DENR Secretary had approved the land classification and released the land of the public domain as alienable and disposable. (2)Executive Order (EO) of the President. In Republic v.R. a positive act or official classification of the State is necessary to segregate a land from the inalienable public domain into the disposable land.R. particularly by the 7 Director of Lands and Director of Forest Development vs. 8 Republic vs. June 22. the applicant for land registration must present a copy of the original classification approved by the DENR Secretary and certified as a true copy by the legal custodian of the official records. G. 168184. It should be pointed that the power to classify public lands is an exclusive prerogative of the Executive Department of the Government and not of the Court. No. the land remains as unclassified land until it is released therefrom and rendered open to disposition. however. In the to release a absence of such classification. “Finally. Properties. L-58867. 3990 which establishes a central experiment station for the use of the UP in connection with its research and extension functions.A.
R. L-66866. subject only to the existing concession. 9 (5)Investigation Reports of Bureau of Lands Field Investigator. 637 dated March 1. all its rights as grantor of the license were effectively assigned. Villena. 1991. of the Philippines vs. the authority and jurisdiction of the Bureau of Forestry over it were likewise terminated.A. . 1546. in effect. G.” 10 Not Sufficient Proofs to Establish Declassification or Alienability (1) The recommendation of the District Forester for release of subject property from the unclassified region is not the ultimate word on the matter (or not an evidence of de-classification). G.R. This is further home out by Section 3 of R. College of Veterinary Medicine and College of Arts and Sciences. And the fact that BF Map LC No. and that of Lot No." When it ceded and transferred the property to UP. it divested itself of its rights and title thereto and relinquished and conveyed the same to the UP. De Porkan. No. No. August 13. 1927 showing subject property to be within the unclassified region was not presented in evidence will not operate against the State considering the stipulation between the parties and under the well-settled rule that the State cannot be 9 International Hardwood and Veneer Co.Page |6 College of Agriculture. the above "reserved" area was "ceded and transferred in full ownership to the University of the Philippines subject to any existing concessions. inter alia. University of the Philippines. more particularly Lot No. converted into a registered private woodland. the Republic of the Philippines completely removed it from the public domain and. if any. removed and segregated it from a public forest. as one found inside an "agricultural zone". junior public land inspector of the Bureau of Lands [Davao] is binding on the courts inasmuch as it is the exclusive prerogative of the Executive Department of the Government to classify public lands. more specifically. ceded and conveyed to UP as a consequence of the above transfer of full ownership. 1987. 10 Republic vs. Having been effectively segregated and removed from the public domain or from a public forest and. which were categorically stated in the separate investigation reports in 1953 of Vicente J. in respect to the areas covered by the timber license of petitioner. “The nature and character of said tract of public land. No. and made the latter the absolute owner thereof. 3990 which provides. L-52518. June 18. as one suitable for rice cultivation. that "any incidental receipts or income therefrom shall pertain to the general fund of the University of the Philippines. 1099. xxxx insofar as the Republic of the Philippines is concerned.
80 SCRA 623). 1984. Court of Appeals. There must first be a formal Government 11 Director of Lands and Director of Forest Development vs. (3) The conversion of subject property into a fishpond by applicants. No. much less private property. the survey plan (Plan Psu-43639) for Salming Piraso. Assuming that a public officer erroneously approves the sketch plan. L-58867. The existence of a sketch plan of real property even if approved by the Bureau of Lands is no proof in itself of ownership of the land covered by the plan. if omission there was. mistake or error of its officials or agents. (Gimeno v. Applicants' remedy lies in the release of the property from its present classification. A survey made in a cadastral proceeding merely identifies each lot preparatory to a judicial proceeding for adjudication of title to any of the lands upon claim of interested parties. or the alleged titling of properties around it.11 (4) There is no factual basis for the conclusion of the appellate court that the property in question was no longer part of the public land when the Government through the Director of Lands approved on March 6. . it does not follow that all lands comprised therein are automatically released as alienable. June 22. Besides.Page |7 estopped by the omission. in fact. G.R. such approval is null and void. it would be beyond the jurisdiction of the Cadastral Court to register it under the Torrens System. The fact that a claimant or a possessor has a sketch plan or a survey map prepared for a parcel of land which forms part of the country's forest reserves does not convert such land into alienable land. (2)While it may be that the Municipality of Obando has been cadastrally surveyed in 1961. if land is within the jurisdiction of the Bureau of Forest Development. Court of Appeals. does not automatically render the property as alienable and disposable. 1925.
Rivas. Cagayan.000 hectares of land in question as for "pasture exclusively". C. 2263. Solana and Amulong. Cagayan.249 hectares. L-61539." The reservation was made prior to the instant 1968 application for registration.923 hectares as pasture land. L-56948. and thus.R. It is not disposable public agricultural land. Similarly. the 1960 and 1962 tax declarations submitted in evidence by oppositor Pascua describe 790 or 767 hectares of the land as "pasture land. It is included in the Bureau of Forestry Map L. 15- A of Enrile. (d) Tax Declaration Describing the Land “Pasture Exclusively:” The 1960 and 1968 tax declarations of Rivas describe the 2.” Ancestral Domain as Exception to Regalian Doctrine 12 Republic vs. Portions of the land had been the object of pasture lease agreements with the Bureau of Forestry.Page |8 declaration that the forest land has been re-classified into alienable and disposable agricultural land which may then be acquired by private persons in accordance with the various modes of acquiring public agricultural lands. inalienable: (a) Land Classification Map: It is part of Timberland Project No. It cannot be appropriated by private persons. 1986. February 14. G. . containing an area of 8. the following may establish the land as public grazing land within forest reserve. comprising the Timberland of the Cagayan Land Classification. meaning it is grazing land.R. It is intended for "wood production watershed soil protection and other forest uses. No. 1967. 1987. (b) Presidential Proclamation: Said land is a part of the forest reserve under Presidential Proclamation No.12 (5) In the case of Director of Lands vs. (c) Pasture Lease Agreement with Bureau of Forestry: Rivas and oppositor Pascua and their predecessors have always treated the 1. situated in Enrile. Court of Appeals. September 30. G. 159 dated February 13. It is non-registerable. No.
but who may have been displaced from their traditional domains or who may have resettled outside their ancestral domains x x x. Centuries of colonial rule and neocolonial domination have created a discernible distinction between the cultural majority and the group of cultural minorities. Though Filipinos today are essentially of the same stock as the indigenous peoples. relentlessly fighting for their lands. Today. the (h) Indigenous peoples/Indigenous cultural communities. these native inhabitants resisted foreign invasion. Mindoro and Mindanao. became historically differentiated from the majority of Filipinos. refer to a group of people or homogenous societies identified by self-ascription and ascription by others. our national culture exhibits only the last vestiges of this native culture. the indigenous peoples are one of the poorest sectors of Philippine society. accounting for more than seventeen per centum of the estimated seventy million Filipinos in our country. who have continuously lived as organized community on communally bounded and defined territory.R. or the establishment of present State boundaries. or who have. G. Long before the Spaniards set foot in these islands. The 13 Cruz vs. its indigenous roots were replaced by foreign cultural elements that are decidedly pronounced. the culture of the minorities has retained its essentially native character. to Palawan. 3. through resistance to political.-following terms shall mean: For purposes of this Act. the lands of their forefathers. Sadly. Indigenous peoples shall likewise include peoples who are regarded as indigenous on account of their descent from the populations which inhabited the country at the time of conquest or colonization. social and cultural inroads of colonization. or at the time of inroads of non-indigenous religions and cultures. possessed and utilized such territories. Definition of Terms. practicing a native culture. The extant Philippine national culture is the culture of the majority. from the remote uplands of Northern Luzon. non-indigenous religions and cultures. The incidence of poverty and malnutrition among them is significantly higher than the national average. who were the original inhabitants of our archipelago. 8371 (Indigenous Peoples Rights Act of 1997) or IPRA with Justice Kapunan filing an opinion.Page |9 The Supreme Court sustained13 the validity and constitutionality of R. who retain some or all of their own social. were. if not dominant. to wit: Drawing inspiration from both our fundamental law and international law. The Filipinos of Aeta and Malay stock. traditions. and other distinctive cultural traits. 2000 . the indigenous peoples continue to live on and cultivate their ancestral lands. While the culture of the majority reoriented itself to Western influence. 135385. under claims of ownership since time immemorial. sharing common bonds of language. One of every six Filipinos is a member of an indigenous cultural community. December 6. at that time. and who have. economic. No.A. the indigenous peoples were already plowing our soil and hunting in our forests. customs. From the time the Spaniards arrived up to the early part of the American regime. Around twelve million Filipinos are members of the one hundred and ten or so indigenous cultural communities. IPRA now employs the politically-correct conjunctive term “indigenous peoples/indigenous cultural communities” as follows: Sec. Secretary of DENR. cultural and political institutions. occupied.
The term “ancestral lands” under the statute refers to lands occupied by individuals. shall protect the rights of indigenous cultural communities to their ancestral lands to ensure their economic. The Congress may provide for the applicability of customary laws governing property rights and relations in determining the ownership and extent of ancestral domains. the State shall regulate the acquisition. The Congress may create a consultative body to advise the President on policies affecting indigenous cultural communities. 22. 1. and remove cultural inequities by equitably diffusing wealth and political power for the common good. in the disposition and utilization of other natural resources. Perhaps because of their inability to speak the language of law and power. These lands are required to have been “occupied. and cultural wellbeing. Sec. and protect the rights of indigenous cultural communities to preserve and develop their cultures. They have little. indigenous peoples may obtain the recognition of their right of ownership over ancestral lands and ancestral domains by virtue of native title. possessed and utilized” by them or through their ancestors “since time immemorial. they have been relegated to the fringes of society. It shall consider these rights in the formulation of national plans and policies. and institutions. families and clans who are members of indigenous cultural communities. rice terraces or paddies. and the rights of indigenous communities to their ancestral lands. The Congress shall give the highest priority to the enactment of measures that protect and enhance the right of all the people to human dignity. The State shall apply the principles of agrarian reform or stewardship. x x x x x x x x x x Under IPRA. to wit: Sec. The State recognizes and promotes the rights of indigenous peoples within the framework of national unity and development. “ancestral domains” is defined as areas . use and disposition of property and its increments. including residential lots. Sec. On the other hand. swidden farms and tree lots. if any. homestead rights of small settlers. The State shall recognize. reduce social. social. 6. continuously to the present”. ownership. To this end. 5. economic and political inequalities. the majority of the members of which shall come from such communities. 17. private forests.P a g e | 10 indigenous peoples are also among the most powerless. whenever applicable in accordance with law. subject to the provisions of this Constitution and national development policies and programs. traditions. 12. subject to prior rights. Sec. respect. The State. Sec. including lands of the public domain under lease or concession. Sec. voice in national politics and enjoy the least protection from economic exploitation. The Constitutional Policies on Indigenous Peoples The framers of the 1987 Constitution xxx incorporated in the fundamental law several provisions recognizing and protecting the rights and interests of the indigenous peoples.
” Ownership is the crux of the issue of whether the provisions of IPRA pertaining to ancestral lands. hunting grounds. such native title was extinguished upon the ratification of the 1935 Constitution. petitioners and the Solicitor General concede that the Cariño doctrine exists. petitioners maintain that the doctrine merely states that title to lands of the public domain may be acquired by prescription. However. Second.A. including ancestral lands. The provisions of IPRA recognizing the ownership of indigenous peoples over the ancestral lands and ancestral domains are not unconstitutional. The Solicitor General. coastal areas and natural resources therein. They invoke the theory of jura regalia which imputes to the State the ownership of all lands and makes the State the original source of all private titles. cannot be extended to other lands of the public domain such as forest or timber. They argue that the Philippine State. pursuant to Section 2. In support of their theory that ancestral lands and ancestral domains are part of the public domain and. Article XII of the Constitution to protect that rights of indigenous peoples to their ancestral lands and ancestral domains. argues that the doctrine applies only to alienable lands of the public domain and. They contend that the Spanish King under the theory of jura regalia. thus. which was introduced into Philippine law upon Spanish conquest in 1521. Third. and natural resources are unconstitutional. Article XII of the Constitution. Ancestral domains also include inland waters. the recognition and protection under R. occupied or possessed by ICCs/IPs. ancestral domains. they contend that the mandate is subject to Section 2. communally or individually since time immemorial. the same are required to have been “held under a claim of ownership. between the State and the indigenous peoples. Again. However.P a g e | 11 generally belonging to indigenous cultural communities. Fifth. petitioners and the Solicitor General advance the following arguments: First. according to petitioners. by themselves or through their ancestors. acquired title to all the lands in the archipelago. property rights within the ancestral domains already existing and/or vested upon effectivity of said law “shall be recognized and respected. as successor to Spain and the United States. Article XII and the theory of jura regalia embodied therein. who. particularly the home ranges of indigenous cultural communities who are still nomadic or shifting cultivators. petitioners and the Solicitor General submit that ancestral lands and ancestral domains are owned by the State. The fundamental question is. Fourth. 8371 of the right of ownership over ancestral lands and ancestral domains is far in excess of the legislative power and . for his part. and lands no longer occupied exclusively by indigenous cultural communities but to which they had traditional access. and national parks. continuously to the present”. thus. are the rightful owners of these properties? x x x x x x x x x A. pasture. petitioners admit that Congress is mandated under Section 5. mineral lands. the Solicitor General asserts that even assuming that native title over ancestral lands and ancestral domains existed by virtue of the Cariño doctrine. owned by the State. worship areas. Under Section 56. is the source of any asserted right of ownership in land. residential and agricultural lands. the King of Spain under international law acquired exclusive dominion over the Philippines by virtue of discovery and conquest. forests. According to petitioners.
from the Spanish Crown or its successors. invoking the theory of jura regalia. I am not persuaded by these contentions. In Cariño. petitioners posit that R.P a g e | 12 constitutional mandate of Congress. and the true and only source of title. reversing the decision of the pre-war Philippine Supreme Court. it refers to a right which the sovereign has over anything in which a subject has a right of property or propriedad. or those rights which the King has by virtue of his prerogatives. In its broad sense. By fiction of law. and thereafter. The theory of the feudal system was that title to all lands was originally held by the King. express or implied. the Philippine Republic. and never to have been public land. the American Colonial government. On appeal. as an exception to the theory of jura regalia. The applicant established that he and his ancestors had lived on the land. however. the term “jura regalia” refers to royal rights. the King was regarded as the original proprietor of all lands. it will be presumed to have been held in the same way from before the Spanish conquest. It might. The government opposed the application for registration. x x x (Emphasis supplied. The Regalian theory. Article XII of the Constitution which prohibits the alienation of nonagricultural lands of the public domain and other natural resources. Insular Government the United States Supreme Court. as far back as testimony or memory goes. In Spanish law. an Igorot by the name of Mateo Cariño applied for registration in his name of an ancestral land located in Benguet.) The above ruling institutionalized the recognition of the existence of native title to land. 8371 violates Section 2. on the premise that ancestral lands and ancestral domains are owned by the State. under the concept of jura regalia. made the following pronouncement: x x x Every presumption is and ought to be taken against the Government in a case like the present. The theory of jura regalia was therefore nothing more than a natural fruit of conquest. private title to land must be traced to some grant. xxxxxxxxxxx Generally. the King theoretically retained the title. perhaps. the United States Supreme Court held that the applicant was entitled to the registration of his native title to their . and from him all lands were held. or ownership of land by Filipinos by virtue of possession under a claim of ownership since time immemorial and independent of any grant from the Spanish Crown. In the landmark case of Cariño vs. the land has been held by individuals under a claim of private ownership. had cultivated it. He also proved that they had all been recognized as owners. These were rights enjoyed during feudal times by the king as the sovereign. The belief that the Spanish Crown is the origin of all land titles in the Philippines has persisted because title to land must emanate from some source for it cannot issue forth from nowhere.A. Finally. and had used it as far they could remember. and while the use of lands was granted out to others who were permitted to hold them under certain conditions. does not negate native title to lands held in private ownership since time immemorial. However. neither he nor his ancestors had any document of title from the Spanish Crown. the land having been passed on by inheritance according to native custom. be proper and sufficient to say that when.
the United States and the Philippine Government. the Solicitor General’s thesis that native title under Cariño applies only to lands of the public domain is erroneous.” The Solicitor General. mineral lands. where we stated that “[a]ll lands that were not acquired from the Government either by purchase or by grant. Legal history supports the Cariño doctrine. forest or timber. for such possession would justify the presumption that the land had never been part of the public domain or that it had been private property even before the Spanish conquest. They conclude that the doctrine cannot be the basis for decreeing “by mere legislative fiat…that ownership of vast tracts of land belongs to [indigenous peoples] without judicial confirmation. We applied the Cariño doctrine in the 1946 case of Oh Cho vs. A proper reading of Cariño would show that the doctrine enunciated therein applies only to lands which have always been considered as private. claims that the Cariño doctrine applies only to alienable lands of the public domain and. Spain or its successors-ininterest.S. When Spain acquired sovereignty over the Philippines by virtue of . Consequently.” Petitioners however aver that the U. In effect. and national parks under the Constitution is irrelevant to the application of the Cariño doctrine because the Regalian doctrine which vests in the State ownership of lands of the public domain does not cover ancestral lands and ancestral domains. as original owner. petitioners suggest that title to the ancestral land applied for by Cariño was transferred from the State. Supreme Court’s ruling in Cariño was premised on the fact that the applicant had complied with the requisites of acquisitive prescription. A distinction must be made between ownership of land under native title and ownership by acquisitive prescription against the State. but [a]n exception to the rule would be any land that should have been in the possession of an occupant and of his predecessors in interest since time immemorial. Ownership by virtue of native title presupposes that the land has been held by its possessor and his predecessors-ininterest in the concept of an owner since time immemorial . which presupposes a transfer of title from the State to a private person. In contrast. and national parks. the classification of lands of the public domain into agricultural. Since native title assumes that the property covered by it is private land and is deemed never to have been part of the public domain. that is. Supreme Court in 1909. to Cariño by virtue of prescription. at a time when decisions of the U. belong to the public domain. Court were binding as precedent in our jurisdiction. There is no merit in these contentions. whether alienable or otherwise. Cariño was decided by the U.S. for his part.S. mineral lands. Director of Lands. and not to lands of the public domain.P a g e | 13 ancestral land. having established that he and his predecessors-in-interest had been in possession of the property since time immemorial. There has been no transfer of title from the State as the land has been regarded as private in character as far back as memory goes. The land is not acquired from the State. as such. cannot be extended to other lands of the public domain such as forest or timber. ownership of land by acquisitive prescription against the State involves a conversion of the character of the property from alienable public land to private land.
Miguel Lopez de Legazpi was under instruction of the Spanish King to do no harm to the natives and to their property. the Spanish Crown was considered to have acquired dominion only over the unoccupied and unclaimed portions of our islands. Thus. The Philippine Bill of 1902 provided that property and rights acquired by the US through cession from Spain were to be administered for the benefit of the Filipinos. the cession of the Philippines did not impair any right to property existing at the time. Philip II envisaged a bloodless pacification of the archipelago. Despite the harsh wording of the Maura Law. as well as the Philippine Bill of 1902. Francisco de Vitoria. dated February 13. but for which adjustment was not sought. an authority on the early Spanish colonial period in the Philippines wrote: The government of [the King of Spain] Philip II regarded the Philippines as a challenging opportunity to avoid a repetition of the sanguinary conquests of Mexico and Peru. In this regard. The discovery and occupation by the European States. In sending the first expedition to the Philippines. Spain did not intend to deprive the natives of their property. contained a bill of rights embodying the safeguards . the Recopilación de Leyes de las Indias expressly conferred ownership of lands already held by the natives. Spanish colonial laws recognized and respected Filipino landholdings including native land occupancy. The royal decrees of 1880 and 1894 did not extinguish native title to land in the Philippines. declared that titles that were capable of adjustment under the royal decree of 1880. the Americas and Africa were considered as terra nullius although already populated by other peoples. the royal instructions admonished the commander to commit no aggressive act which might arouse native hostility. who commanded the expedition. The Spaniards intended to live among them in peace and in friendship and "to explain to them the law of Jesus Christ by which they will be saved. it was held in the case of Cariño that the royal decree of 1894 should not be construed as confiscation of title. Under the Treaty of Paris of December 10. By virtue of the colonial laws of Spain. including the latter’s rights over lands of the public domain. even protected. who were then considered as the only members of the international community of civilized nations. but merely as the withdrawal of the privilege of registering such title. In his written instructions for the Adelantado Legazpi. native title to land was respected. 1880. were forfeited. The King instructed Legazpi to inform the natives that the Spaniards had come to do no harm to their persons or to their property. During the American colonial regime. This extraordinary document could have been lifted almost verbatim from the lectures of the Dominican theologian. McKinley’s Instructions. delivered in the University of Salamanca. provided that all those in “unlawful possession of royal lands” must legalize their possession by means of adjustment proceedings. The earlier royal decree. Although Spain was deemed to have acquired sovereignty over the Philippines. the continents of Asia. and within the period specified. otherwise known as the Maura Law. In obvious adherence to libertarian principles. of lands in the said continents were deemed sufficient to create title under international law. dated June 25. Neither was native title disturbed by the Spanish cession of the Philippines to the United States. 1894. this did not mean that it acquired title to all lands in the archipelago.P a g e | 14 its discovery and occupation thereof in the 16th century and the Treaty of Tordesillas of 1494 which it entered into with Portugal. contrary to petitioners’ assertion that the US merely succeeded to the rights of Spain. 1898." Although the Spanish expedition could defend themselves if attacked. The later royal decree.
and other natural resources of the Philippines belong to the State. Through the mandate of the Constitutions that have been adopted. It simply declares that “all agricultural. the State. Nonetheless. has the power to restructure the consolidation of rights inherent in ownership in the State. and other mineral oils. rather than impairment or extinguishment. was that “no person shall be deprived of life. include the right of ownership by indigenous peoples over their ancestral lands and domains. x x x Time-immemorial possession does not create private ownership in cases of natural resources that have been found from generation to generation to be critical to the survival of the Sovereign and its agent.” including those which are not part of the public domain. the State has wrested control of those portions of the natural resources it deems absolutely necessary for social welfare and existence. Resultantly. grant. shall thereafter be owned by the State. through the 1935 Constitution.P a g e | 15 of the US Constitution. the Solicitor General’s argument is that the State. all forces of potential energy. It has been held that the State may impair vested rights through a legitimate exercise of police power. title to all lands. lease. all in the guise of “wrest[ing] control of those portions of the natural resources [which the State] deems absolutely necessary for social welfare and existence. The text of the provision of the 1935 Constitution invoked by the Solicitor General. or concessions. petroleum. waters. as the source of all titles to land. To allow otherwise is to invite havoc in the established social system. the provision should be interpreted in favor of the preservation. Stated otherwise. If there is any room for constitutional construction.” These vested rights safeguarded by the Philippine Bill of 1902 were in turn expressly protected by the due process clause of the 1935 Constitution. Article XII of the 1935 Constitution cannot be construed to mean that vested right which had existed then were extinguished and that the landowners were divested of their lands.” On the contrary. while embodying the theory of jura regalia. and the term “existing .” He advances the following arguments: The Sovereign. is too clear for any misunderstanding. Section 1. One of these rights.” The “existing rights” that were intended to be protected must. had the power to re-vest in itself. liberty. Stated simply. perforce. including ancestral lands and ancestral domains. said Section restated the fundamental rule against the diminution of existing rights by expressly providing that the ownership of lands of the public domain and other natural resources by the State is “subject to any existing right. Vested rights do not prohibit the Sovereign from performing acts not only essential to but determinative of social welfare and existence. and mineral lands of the public domain. he reasons out that even vested rights of ownership over ancestral lands and ancestral domains are not absolute and may be impaired by the legitimate exercise of police power. While the Solicitor General admits that such a theory would necessarily impair vested rights. which served as an inviolable rule upon every division and branch of the American colonial government in the Philippines. timber. or property without due process of law. property rights of the indigenous peoples over their ancestral lands and ancestral domains were firmly established in law. I cannot agree. of vested rights. coal. The words of the law should be given their ordinary or usual meaning. minerals. the Solicitor General takes the view that the vested rights of indigenous peoples to their ancestral lands and domains were “abated by the direct act by the sovereign Filipino people of ratifying the 1935 Constitution.” Nowhere does it state that certain lands which are “absolutely necessary for social welfare and existence. which is the source of all rights including ownership.
which is proscribed under Section 2. For this reason. Section 5. is instructive: MR. That is exactly the reason. Nonetheless. or any just and legal claim to hold. since such recognition and protection amount to the alienation of lands of the public domain. "right" includes any interest in or title to an object. Madam President. May I seek some clarifications from either Commissioner Bennagen or Commissioner Davide regarding this phrase “CONGRESS SHALL PROVIDE FOR THE APPLICABILITY OF CUSTOMARY LAWS GOVERNING PROPERTY RIGHTS OR RELATIONS in determining the ownership and extent of the ancestral domain. which recognize the right of ownership of the indigenous peoples over ancestral lands.” because ordinarily it is the law on ownership and the extent thereof which determine the property rights or relations arising therefrom. REGALADO.” In its general and ordinary sense. I assume there must be a certain difference in the customary laws and our regular civil laws on property. Article XII of the Constitution. or clans within the community. It is a power. I was thinking if Commissioner Bennagen could give us an example of such a customary law wherein it is the property rights and relations that determine the ownership and the extent of that ownership.P a g e | 16 rights” cannot be assigned an unduly restrictive definition. families. Article XII also grants Congress the power to “provide for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domains. does Congress have the power to determine whether the “extent” of ancestral domains shall include the natural resources found therein? It is readily apparent from the constitutional records that the framers of the Constitution did not intend Congress to decide whether ancestral domains shall be public or private property. Rather. faculty or demand inherent in one person and incident upon another. why we will leave it to Congress to make the necessary exception to the general law on property relations. privilege. REGALADO. MR. they acknowledged that ancestral domains shall be treated as private property. unlike the basic fundamental rule that it is the ownership and the extent of ownership which determine the property rights and relations arising therefrom and . the term “right” refers to any legally enforceable claim.” In light of this provision. When used in relation to property. Said provision in the Constitution cannot. be interpreted to exclude the protection of the right of ownership over such ancestral lands. Regalado and Bennagen and Mr. specifically Sections 7(a) and 8. use and enjoy it. The discussion below between Messrs. they contend that the recognition and protection under IPRA of the right of ownership of indigenous peoples over ancestral lands and ancestral domains are far in excess of the legislative power and constitutional mandate of the Congress. On the other hand. Article XII of the 1987 Constitution to protect the rights of indigenous peoples to their ancestral lands and ancestral domains. Thank you. and that customary laws shall merely determine whether such private ownership is by the entire indigenous cultural community. Chief Justice Davide. then members of the 1986 Constitutional Commission. or by individuals. does Congress have the power to decide whether ancestral domains shall be private property or part of the public domain? Also. Madame President. Petitioners concede that Congress is mandated under Section 5. by any reasonable construction. Article XII of the Constitution expresses the sovereign intent to “protect the rights of indigenous peoples to their ancestral lands. DAVIDE. MR. Congress cannot be said to have exceeded its constitutional mandate and power in enacting the provisions of IPRA. in this proposed amendment the phraseology is that it is the property rights or relations which shall be used as the basis in determining the ownership and extent of the ancestral domain. The second paragraph of Section 5.
This means that the State will set aside the ancestral domain and there is a separate law for that. MR. The concept of customary laws is that it is considered as ownership by private individuals. And the thinking expressed in the consultation is that this should be codified and should be recognized in relation to existing national laws. Petitioners interpret the phrase “subject to the provisions of this Constitution and national development policies and programs” in Section 5. That is essentially the concept. the IPRA. they did not intend to adopt the concept of native title to land.” which vests in the State ownership of all lands of the public domain.P a g e | 17 consequent thereto. by affirming or acknowledging such ownership through its various provisions. This proposition is untenable. these customary laws may have a different provision or thrust so that we could make the corresponding suggestions also by way of an amendment. There would be ownership based on individuals. mineral lands and other natural resources. Article XII of the Constitution to mean “as subject to the provision of Section 2. and courts should take these doctrines into consideration in construing the Constitution. There is a range of customary laws governing certain types of ownership.) It cannot be correctly argued that. That is exactly my own perception.) The intention to treat ancestral domains as private property is also apparent from the following exchange between Messrs. merely abides by the constitutional mandate and does not suffer any vice of unconstitutionality. Section 2. When we speak of customary laws governing property rights or relations in determining the ownership and extent of the ancestral domain. A close perusal of the records of the 1986 Constitutional Commission reveals that the framers of the Constitution inserted the phrase “subject to the provisions of this Constitution” mainly to prevent the impairment of Torrens titles and other prior rights in the determination of what constitutes ancestral lands and ancestral domains. on clan or lineage. or on community. So. Following this interpretation. BENNAGEN. Individuals and groups within the ancestral domain. were presumed to be aware of the prevailing judicial doctrines concerning the subject of constitutional provisions. Within the ancestral domain it could accept more specific ownership in terms of individuals within the ancestral lands. BENNAGEN. as well as the people adopting it. and is of paramount importance to our national economy and patrimony. (Emphasis supplied. Having thus recognized that ancestral domains under the Constitution are considered as private property of indigenous peoples. because the framers of the Constitution never expressly mentioned Cariño in their deliberations. MR. I want to clear this section . or that they were unaware of native title as an exception to the theory of jura regalia. to wit: MR. Let me put it this way. are we thinking in terms of the tribal ownership or community ownership or of private ownership within the ancestral lands or ancestral domain? MR. NATIVIDAD. MR. petitioners maintain that ancestral lands and ancestral domains are the property of the State. there will be two aspects to this situation. SUAREZ. (Emphasis supplied. Suarez and Bennagen: MR. DAVIDE. Just one question. BENNAGEN. Perhaps. SUAREZ. Article XII of the Constitution. clans and even communities. Article XII reiterates the declarations made in the 1935 and 1973 Constitutions on the state policy of conservation and nationalization of lands of the public domain and natural resources. The framers of the Constitution. MR. Indeed.
Definitely. Section 1. these two have to be respected. homestead rights of small settlers. Again. the provisions of the Constitution on State ownership of public lands. and wealth. The framers of the Constitution did not. NATIVIDAD. Article XVI. the first goal of the national economy is the more equitable distribution of opportunities. directing the application of the principles of agrarian reform or stewardship in the disposition and utilization of other natural resources. Article XIII. decreeing that the State shall recognize. BENNAGEN. and the rights of indigenous communities to their ancestral lands. the parts could be considered as ancestral domain in relation to the whole population of Cordillera but not in relation to certain individuals or certain groups. The Commissioner means that the whole Baguio City is considered as ancestral land? MR. mineral lands and other natural resources should be read together with the other provisions thereof which firmly recognize the rights of the indigenous peoples. BENNAGEN. Article XII. and Section 12. authorizing the Congress to create a consultative body to advise the President on policies affecting indigenous cultural communities. as articulated in the Constitution. the phrase “subject to the provisions of this Constitution” was intended by the framers of the Constitution as a reiteration of the constitutional guarantee that no person shall be deprived of property without due process of law.P a g e | 18 protecting ancestral lands. MR. Article XIV. by the phrase “subject to the provisions of this Constitution and national . Section 17. i Thus. I think that was also discussed in the committee hearings and we did say that in cases where due process is clearly established in terms of prior rights. as set forth hereinbefore. Yes. Article II. But is clear that the prior rights will be respected. Thus. or sell it. They could be regarded as such. These. the whole Constitution is examined in order to determine the meaning of any provision. economic. calling for the protection of the rights of indigenous cultural communities to their ancestral lands to ensure their economic. and institutions. NATIVIDAD. subject to prior rights. and cultural well-being. Section 5. and protect the rights of indigenous cultural communities to preserve and develop their cultures. directing the removal or reduction of social. BENNAGEN. The other point is: How vast is this ancestral land? Is it true that parts of Baguio City are considered as ancestral lands? MR. MR. Equity is given prominence as the first objective of national economic development. social. If the Commissioner still recalls. in one of the publications that I provided the Commissioners. BENNAGEN. There is another reason why Section 5 of Article XII mandating the protection of rights of the indigenous peoples to their ancestral lands cannot be construed as subject to Section 2 of the same Article ascribing ownership of all public lands to the State. Section 6. Article XIII. and for the applicability of customary laws governing property rights and relations in determining the ownership and extent of ancestral domains. utilize. How does this affect the Torrens title and other prior rights? MR. MR. NATIVIDAD. It is a rule that when construction is proper. include: Section 22. That construction should be used which would give effect to the entire instrument. in the sense that it belongs to Cordillera or in the same manner that Filipinos can speak of the Philippine archipelago as ancestral land. The Constitution must be construed as a whole. political and cultural inequities and inequalities by equitably diffusing wealth and political power for the common good. but not in terms of the right of a particular person or particular group to exploit. traditions. respect. MR. income. providing that the State recognizes and promotes the rights of indigenous peoples within the framework of national unity and development.
I would like to know which is the controlling concept here. it was not their objective to make certain interests primary or paramount. all forces of potential energy. Section 3(a) serves only as a yardstick which points out what properties are within the ancestral domains. Petitioners posit that IPRA deprives the State of its ownership over mineral lands of the public domain and other natural resources. to our mind. That is what we seek to attain. or to create absolute limitations or outright prohibitions. social and cultural well-being.A. I would like to ask: When the Commissioner proposed this amendment. The provisions of R. in part. Section 5 in relation to Section 3(a) cannot . Similarly. which was the controlling concept? I ask this because sometimes the rights of cultural minorities are precisely transgressed in the interest of national development policies and programs. and the rights of cultural or tribal communities to their ancestral lands. In Commissioner Davide’s formulation of the first sentence. 8371 do not infringe upon the State’s ownership over the natural resources within the ancestral domains. he says: “The State. waters. that “[a]ll lands of the public domain. We have to balance the interests taking into account the specific needs and the specific interests also of these cultural communities in like manner that we did so in the autonomous regions.” They would have the Court declare as unconstitutional Section 3(a) of IPRA because the inclusion of natural resources in the definition of ancestral domains purportedly results in the abdication of State ownership over these resources. the idea is towards the balancing of interests: BISHOP BACANI. I am not convinced. 5. Article XII of the Constitution which states. flora and fauna. coal. Is it the rights of indigenous peoples to their ancestral lands or is it national development policies and programs. and describes the extent. The mere fact that Section 3(a) defines ancestral domains to include the natural resources found therein does not ipso facto convert the character of such natural resources as private property of the indigenous peoples.) B. It does not confer or recognize any right of ownership over the natural resources to the indigenous peoples.. The concept introduced here is really the balancing of interests. and 7 of IPRA as violative of Section 2. The specification of what areas belong to the ancestral domains is. Hence. Specifically. et cetera. In other words. important to ensure that no unnecessary encroachment on private properties outside the ancestral domains will result during the delineation process. petroleum. Section 3(a) merely defines the coverage of ancestral domains. As explained by then Commissioner (now Chief Justice) Hilario G. fisheries. DAVIDE. wildlife. They are the concepts of national development policies and programs. Jr. (Emphasis supplied. petitioners and the Solicitor General assail Sections 3 (a). development and utilization of natural resources. as well as the State’s full control and supervision over the exploration. limit and composition of ancestral domains by setting forth the standards and guidelines in determining whether a particular area is to be considered as part of and within the ancestral domains.” intend to establish a hierarchy of constitutional norms. and other mineral oils. Davide. MR. SUBJECT TO THE provisions of this Constitution AND NATIONAL DEVELOPMENT POLICIES AND PROGRAMS shall guarantee the rights of cultural or tribal communities to their ancestral lands to insure their economic. It is not really a question of which is primary or which is more paramount. forests or timber.P a g e | 19 development policies and programs. minerals. Its purpose is definitional and not declarative of a right or title. rather.” There are at least two concepts here which receive different weights very often. and other natural resources are owned by the State.
encumber. First of all there is a line that gives priority use for the indigenous people where they are. DOMINGUEZ. traditional hunting and fishing grounds. HON. thank you. if there could be. In fact. Chairman. jus disponendi or the power to alienate. I second that. to wit: CHAIRMAN FLAVIER. By virtue of the communal character of ownership. Thank you. Chairman. we have decided to remove the provisions on natural resources because we all agree that that belongs to the State. DOMINGUEZ.” The civil law concept of ownership has the following attributes: jus utendi or the right to receive from the thing that which it produces. bodies of water traditionally and actually occupied by indigenous peoples. in terms of the mines there is a need for prior consultation of source which is here already. very well taken but to the best of my recollection both are already considered in subsequent sections which we are now looking for. Number two. transform and even destroy that which is owned and jus vidicandi or the right to exclude other persons from the possession the thing owned. Okay. anyway it is on the record that you want to make sure that the secretariat takes note of those two issues and my assurance is that it is already there and I will make sure that they cross check. “ownership” is the “independent and general power of a person over a thing for purposes recognized by law and within the limits established thereby. In contrast. CHAIRMAN FLAVIER. jus abutendi or the right to consume the thing by its use. the plight or the rights of those indigenous communities living in forest and areas where it could be exploited by mining. sacred places. Section 8 rights to ancestral domain. which enumerates certain rights of the indigenous peoples over the natural resources found within their ancestral domains. Accepted. and all improvements made by them at any time within the domains. CHAIRMAN FLAVIER. there is a Senate version you do not have and if you agree we will adopt that. Mr. So we now move to Section 8. In Civil Law. the indigenous peoples’ concept of ownership emphasizes the importance of communal or group ownership. so can we not also provide a provision to give little protection or either rights for them to be consulted before any mining areas should be done in their areas. Mr.” The phrase “private but community property” is merely descriptive of the indigenous peoples’ concept of ownership as distinguished from that provided in the Civil Code.P a g e | 20 be construed as a source of ownership rights of indigenous people over the natural resources simply because it recognizes ancestral domains as their “private but community property. . any logging done in their areas or any dam construction because this has been disturbing our people especially in the Cordilleras.) Further. CHAIRMAN FLAVIER. disposed or destroyed” because it was meant to benefit the whole indigenous community and not merely the individual member. That IPRA is not intended to bestow ownership over natural resources to the indigenous peoples is also clear from the deliberations of the bicameral conference committee on Section 7 which recites the rights of indigenous peoples over their ancestral domains. Section 7 makes no mention of any right of ownership of the indigenous peoples over the natural resources. if I maybe allowed to make a very short Statement. this is where we transferred the other provision but here itself --- HON. Mr. Section 7(a) merely recognizes the “right to claim ownership over lands. Yes. (Emphasis supplied. So.” Neither does Section 7(b). ADAMAT. So. Chairman. HON. by dams. contain any recognition of ownership vis-a-vis the natural resources. Now. the property held in common “cannot be sold. if our lawyers or the secretariat could just propose a provision for incorporation here so that maybe the right to consultation and the right to be compensated when there are damages within their ancestral lands. Earlier.
Spain. Hence. were considered by Spain as an abundant source of revenue to finance its battles in wars against other nations. and to grant patents to private mineral lands. has not been recognized in the Philippines. the Court did not recognize native title to natural resources. Natural resources. Section 52[i] provides: . even the State. the Court deems it necessary to clarify that the jurisdiction of the NCIP with respect to ancestral domains under Section 52 [i] of IPRA extends only to the lands and not to the natural resources therein. Although the United States made a distinction between minerals found in public lands and those found in private lands. Fianza in support of their thesis that native title to natural resources has been upheld in this jurisdiction. contrary to the position of NCIP and Flavier. a judicious examination of Reavies reveals that. including the preservation of the ecological balance therein and the need to ensure that the indigenous peoples will not be unduly displaced when State-approved activities involving the natural resources located therein are undertaken. recognized the separability of title over lands and that over minerals which may be found therein. As the owner of natural resources over the Philippines after the latter’s cession from Spain. unlike native title to land. While as previously discussed. The declaration of State ownership and control over minerals and other natural resources in the 1935 Constitution was reiterated in both the 1973 and 1987 Constitutions. et al. and to avoid situations whereby the Philippines would become a source of international conflicts. from exploiting minerals within his property. to prevent foreign control of the country through economic domination. Having ruled that the natural resources which may be found within the ancestral domains belong to the State. the United States saw it fit to allow both Filipino and American citizens to explore and exploit minerals in public lands. there was no similar favorable treatment as regards natural resources.” However. NCIP and Flavier.P a g e | 21 What is evident is that the IPRA protects the indigenous peoples’ rights and welfare in relation to the natural resources found within their ancestral domains. The unique value of natural resources has been acknowledged by the State and is the underlying reason for its consistent assertion of ownership and control over said natural resources from the Spanish regime up to the present. Rather. especially minerals. native title to land or private ownership by Filipinos of land by virtue of time immemorial possession in the concept of an owner was acknowledged and recognized as far back during the Spanish colonization of the Philippines. et al. by asserting its ownership over minerals wherever these may be found. title in these minerals was in all cases sourced from the State. Finally. On the other hand. whether in public or private lands. the concept of native title to natural resources. A person who acquired ownership over a parcel of private mineral land pursuant to the laws then prevailing could exclude other persons. They insist that “it is possible for rights over natural resources to vest on a private (as opposed to a public) holder if these were held prior to the 1935 Constitution. it merely upheld the right of the indigenous peoples to claim ownership of minerals under the Philippine Bill of 1902. The framers of the 1935 Constitution found it necessary to maintain the State’s ownership over natural resources to insure their conservation for future generations of Filipinos.. thereby posing danger to its internal security and independence. invoke the case of Reavies v. the United States viewed natural resources as a source of wealth for its nationals.
which is the owner thereof. wildlife sanctuaries. and the Department of Environment and Natural Resources with respect to timber. Nevertheless. either directly or indirectly through co-production. The provisions of IPRA pertaining to the utilization of natural resources are not unconstitutional. forest cover. Department of Interior and Local Government. extraction. on the other hand. The statute also grants them priority rights in the harvesting. In return. and to negotiate the terms and conditions for the exploration of such natural resources. jurisdiction of the government agency or agencies concerned over lands forming part thereof ceases. the jurisdiction of government agencies over the natural resources within the ancestral domains does not terminate by such certification because said agencies are mandated under existing laws to administer the natural resources for the State. forest and mineral lands. Undoubtedly. through the government agencies concerned. certain areas that are claimed as ancestral domains may still be under the administration of other agencies of the Government. with respect to agricultural lands. allege that under the Constitution the exploration. the Commissioner of the National Development Corporation. and any other government agency claiming jurisdiction over the area shall be notified thereof. C. protected areas. They likewise submit that by vesting ownership of ancestral lands and ancestral domains in the indigenous peoples. The IPRA provides that indigenous peoples shall have the right to manage and conserve the natural resources found on the ancestral domains. joint venture. or grant of any concession. to the prejudice of the State. Section 2. Petitioners. to benefit from and share in the profits from the allocation and utilization of these resources. -. . wilderness. protect and conserve the ancestral domains or portions thereof which are found to be necessary for critical watersheds. or for the perfection of any productionsharing agreement the prior informed written consent of the indigenous peoples concerned must be obtained.The Chairperson of the NCIP shall certify that the area covered is an ancestral domain. license or lease. the indigenous peoples are given the responsibility to maintain. or production-sharing agreements. IPRA necessarily gives them control over the use and enjoyment of such natural resources. develop. To construe Section 52[i] as divesting the State. Department of Environment and Natural Resources. Such notification shall terminate any legal basis for the jurisdiction previously claimed. mangroves. Before the NCIP can issue a certification for the renewal. To petitioners. such as the Department of Agrarian Reform. of jurisdiction over the natural resources within the ancestral domains would be inconsistent with the established doctrine that all natural resources are owned by the State. The Solicitor General argues that these provisions deny the State an active and dominant role in the utilization of our country’s natural resources. development and utilization of natural resources must be under the full control and supervision of the State. or reforestation. development and utilization of natural resources may only be undertaken by the State. development or exploitation of any natural resources within the ancestral domains. Upon the certification of these areas as ancestral domain following the procedure outlined in Sections 51 to 53 of the IPRA. no other method is allowed by the Constitution. The secretaries of the Department of Agrarian Reform. Article XII of the Constitution provides in paragraph 1 thereof that the exploration.P a g e | 22 Turnover of Areas Within Ancestral Domains Managed by Other Government Agencies. and Department of Justice.
to apply the principles of agrarian reform or stewardship. 7942). royalties shall be paid to them by the parties to the mining to the contract. or to be considered alone. Article XII. pursuant to national and customary laws. The Constitution must be regarded as consistent with itself throughout. the members of the indigenous peoples living within said area shall be given priority in the awarding of small-scale mining contracts. however. allow small-scale utilization of natural resources by its citizens. and in harmony with the other provisions of the Constitution rather as a sequestered pronouncement.P a g e | 23 which may directly undertake such activities or enter into co-production.” It must be noted that the right to negotiate terms and conditions granted under Section 7(b) pertains only to the exploration of natural resources. and the right to effective measures by the government to prevent any interference with.A. whether done on small-scale basis or otherwise. environmental protection and the conservation measures. all provisions bearing upon a particular subject are to be brought into view and to be so interpreted as to effectuate the great purposes of the fundamental law. The term “exploration” refers only to the search or prospecting . such as the Small-Scale Mining Act of 1991 (R. cannot be construed as a prohibition against any and all forms of utilization of natural resources without the State’s direct participation. This provision. should not be read in isolation to avoid a mistaken interpretation that any and all forms of utilization of natural resources other than the foregoing are prohibited. to negotiate the terms and conditions for the exploration of natural resources in the areas for the purpose of ensuring ecological. Section 2 of Article XII. In addition to the means of exploration. 7076 expressly provides that should an ancestral land be declared as a people’s small-scale mining area. alienation and encroachment of these rights. pro-poor philosophy of our fundamental law. R. Section 2. or production-sharing agreements. R. directs the State. that will affect or impact upon the ancestral domains and to receive just and fair compensation for any damages which they may sustain as a result of the project.A. to benefit and share the profits from allocation and utilization of the natural resources found therein. development and utilization of the country’s natural resources stated in paragraph 1. when interpreted in view of the pro-Filipino. development and utilization of the natural resources under existing laws. to an informed and intelligent participation in the formulation and implementation of any project.A. a careful reading of Section 7(b) would reveal that the rights given to the indigenous peoples are duly circumscribed. The rights given to the indigenous peoples regarding the exploitation of natural resources under Sections 7(b) and 57 of IPRA amplify what has been granted to them under existing laws. No constitutional provision is to be separated from all the others. the State retains full control over such activities. In any case.A. by law. Through the imposition of certain requirements and conditions for the exploration. the Constitution itself states in the third paragraph of the same section that Congress may. joint venture. Article XIII mandates the State to protect the rights of subsistence fishermen to the preferential use of marine and fishing resources. Section 6. Section 7. Further. 7076) and the Philippine Mining Act of 1995 (R. Clearly. government or private. Similarly. These rights are limited only to the following: “to manage and conserve natural resources within territories and uphold it for future generations. Article XIII. in the disposition and utilization of natural resources. 7942 declares that no ancestral land shall be opened for mining operations without the prior consent of the indigenous cultural community concerned and in the event that the members of such indigenous cultural community give their consent to mining operations within their ancestral land.
which owns these resources. Section 57. As previously mentioned. IPRA requires that the prior informed consent of the indigenous peoples be obtained. 7942 since it is not they but the State. In a situation where the State intends to directly or indirectly undertake such activities. For example. Priority rights does not mean exclusive rights. Nor does the law negate the exercise of sound discretion by government entities. the indigenous peoples must show that they live in the area and that they are in the best position to undertake the required utilization. both inland and offshore. rather. as between the State and the indigenous peoples. which is merely a preliminary activity. or entering into coproduction. Several factors still have to be considered. the act of the State of giving preferential right to a particular sector in the utilization of natural resources is nothing new. grants the indigenous peoples “priority rights” in the utilization of natural resources and not absolute ownership thereof. the need for the prior informed consent of the indigenous peoples before any search for or utilization of the natural resources within their ancestral domains is undertaken. especially of local communities. or any other means for the purpose of determining the existence and the feasibility of mining them for profit. Moreover. to create a hierarchy of values. Hence. Article XIII of the Constitution mandates the protection by the State of “the rights of subsistence fishermen. to the preferential use of communal marine and fishing resources.” Section 57 further recognizes the possibility that the exploration and exploitation of natural resources within the ancestral domains may disrupt the natural environment as well as the traditional activities of the indigenous peoples therein. To do so would unduly limit the ownership rights of the State over the natural resources. There is nothing in the assailed law which implies an automatic or mechanical character in the grant of concessions. The exploration.P a g e | 24 of mineral resources. such as R. as a matter of policy and law. Section 7. the extent and nature of utilization and the consequent impact on the environment and on the indigenous peoples’ way of life are important considerations. cannot be equated with the entire process of “exploration. What is granted is merely the right of preference or first consideration in the award of privileges provided by existing laws and regulations. The State must. To be sure. The utilization of said natural resources is always subject to compliance by the indigenous peoples with existing laws. Neither does the grant of priority rights to the indigenous peoples exclude non-indigenous peoples from undertaking the same activities within the ancestral domains upon authority granted by the proper governmental agency. It also bears stressing that the grant of priority rights does not preclude the State from undertaking activities.A. the object is to balance the interests of the State for national development and those of the indigenous peoples. 7076 and R. with due regard to the needs and welfare of indigenous peoples living in the area. to utilize the natural resources which may be located within the ancestral domains. development and utilization” of natural resources which under the Constitution belong to the State.A. There is no intention. consult the indigenous peoples in accordance with the . joint venture or production-sharing agreements with private entities. It must be emphasized that the grant of said priority rights to indigenous peoples is not a blanket authority to disregard pertinent laws and regulations. on the other hand.
the prior informed consent takes the form of a formal and written agreement between the indigenous peoples and non-members under the proviso in Section 57 in case the State enters into a co-production. liberty. The clear intent of the law is to protect the rights and interests of the indigenous peoples which may be adversely affected by the operation of such entities or licensees. They argue that the inclusion of private lands in the ancestral lands and ancestral domains violates the due process clause. but not those who are not members of such communities. Corollary Issues A.P a g e | 25 intent of the framers of the Constitution that national development policies and programs should involve a systematic consultation to balance local needs as well as national plans. or property without due process of law. This requirement is not peculiar to IPRA. IPRA.” Petitioners maintain that the broad definition of ancestral lands and ancestral domains under Section 3(a) and 3(b) of IPRA includes private lands. – Property rights within the ancestral domains already existing and/or vested upon effectivity of this Act. contend that Section 56 aims to protect only the vested rights of indigenous peoples. not as a grant of the power to control the exploration. however.” which reads: Sec. nor shall any person be deprived the equal protection of the laws. or production-sharing agreement with Filipino citizens. the Environmental Impact System. Existing laws and regulations such as the Philippine Environmental Policy. renewal. license or lease. To this end. Following their interpretation. under Section 56. Petitioners. As may be gathered from the discussion of the framers of the Constitution on this point. shall be recognized and protected. Petitioners’ contention is erroneous. the national plan presumably takes into account the requirements of the region after thorough consultation. The requirement in Section 59 that prior written informed consent of the indigenous peoples must be procured before the NCIP can issue a certification for the “issuance. IPRA does not violate the Due Process clause. IPRA grants to the indigenous peoples the right to an informed and intelligent participation in the formulation and implementation of any project. or corporations. 56. Sections 3(a) and 3(b) expressly provide that the definition of ancestral lands and ancestral domains are “subject to Section 56. subject to the vested rights of the same communities to such ancestral lands and ancestral domains. recognizes the rights of indigenous peoples to their ancestral lands and ancestral domains. or grant of any concession. the Local Government Code and the Philippine Mining Act of 1995 already require increased consultation and participation of stakeholders. and the right not to be removed therefrom without their free and prior informed consent. but merely the imposition of an additional requirement for such concession or agreement. Such . As to non-members. Article III of the Constitution. government or private. or to the perfection of any production-sharing agreement. Existing Property Rights Regimes. which provides that “no person shall be deprived of life.” must be interpreted. The first corollary issue raised by petitioners is whether IPRA violates Section 1. joint venture. such as indigenous peoples. in the planning of activities with significant environment impact. development and utilization of natural resources.
whether or not he is member of an indigenous cultural community. third. and that the NCIP shall have jurisdiction over all claims and disputes involving indigenous peoples. The “property rights” referred to in Section 56 belong to those acquired by individuals. or motu proprio by the NCIP. of delivering justice to the non-indigenous peoples. investigation and inspection by the ADO. or will appear to be so incapable. In all proceedings for delineation of ancestral lands and ancestral domains. [because those who are not indigenous peoples] do not know what these customary laws are. a resolution of such a dispute based on customary laws. Congress did not purport to annul any and all Torrens titles within areas claimed as ancestral lands or ancestral domains. . because a party who is not a member of an indigenous cultural community “who must defend his case against [one who is] before judges who are all members of [indigenous peoples] cannot but harbor a suspicion that they do not have the cold neutrality of an impartial judge. second. second. . petition by an indigenous cultural community.” Petitioners’ concerns are unfounded. we cannot sustain the arguments of the petitioners that the law affords no protection to those who are not indigenous peoples. They assert that “[w]hen the dispute involves a member of an [indigenous cultural community and another who is not]. lastly. third. . evaluation by the NCIP upon submission of a report by the ADO. Further. would clearly be a denial of due process. They merely contend that the NCIP will not appear to be impartial.P a g e | 26 interpretation is obviously incorrect. including even disputes between a member of such communities and one who is not a member. the following procedure is mandatory: first. Petitioners clarify that they do not claim that the members of the NCIP are incapable of being fair and impartial judges. and that such laws shall likewise be used in disputes involving indigenous peoples. posting and publication. application.” In addition. posting and publication. fourth. With regard to ancestral domains. The statute imposes strict procedural requirements for the proper delineation of ancestral lands and ancestral domains as safeguards against the fraudulent deprivation of any landowner of his land. Neither do the questioned sections of IPRA on the composition and powers and jurisdiction of the NCIP and the application of customary law. petitioners claim that IPRA prescribes that customary laws shall be applied first in disputes involving property. With regard to ancestral lands. Hence. violate the due process clause of the Constitution. What IPRA only requires is that these “property rights” already exist and/or vested upon its effectivity. delineation. Where the law does not distinguish. as well as over disputes in the delineation of ancestral domains. the Director of Lands shall appear to represent the interest of the Republic of the Philippines. fourth. preliminary report by the ADO. The fact that the NCIP is composed of members of the indigenous peoples does not mean that it (the NCIP) is incapable. whether indigenous or non-indigenous peoples. A person’s possession of the trait . and lastly. investigation and census by the Ancestral domains Office ("ADO") of the NCIP. . succession and land. by the enactment of IPRA. unless such lands are within an ancestral domain. Said provision makes no distinction as to the ethnic origins of the ownership of these “property rights. the statute imposes the following procedural requirements: first. evaluation by the NCIP upon submission of the final report of the ADO. Petitioners point out that IPRA provides that the NCIP shall be composed exclusively of members of indigenous peoples.” The IPRA thus recognizes and respects “vested rights” regardless of whether they pertain to indigenous or non-indigenous peoples. the courts should not distinguish.
Rule IX of the Implementing Rules which states: RULE IX. This interpretation is supported by Section 1. . Under the Civil Code. for the law speaks merely of primacy of use. where all the parties involved are members of indigenous peoples.“ Notably. suffice it to say that such is allowed under paragraph 2. “The Congress may provide for the applicability of customary laws governing property rights and relations in determining the ownership and extent of the ancestral domains. the application of customary law is not required. who are members of the same indigenous group. All conflicts related to the ancestral domains or lands where one of the parties is a non-ICC/IP or where the dispute could not be resolved through customary law shall be heard and adjudicated in accordance with the Rules on Pleadings. It therefore follows that when one of the parties to a dispute is a non-member of an indigenous group. certainly. The regular remedies under our rules of procedure are likewise available to any party aggrieved by the decision of the NCIP. JURISDICTION AND PROCEDURES FOR ENFORCEMENT OF RIGHTS Section 1. the indigenous peoples are as capable of rendering justice as the non-indigenous peoples for.) The application of customary law is limited to disputes concerning property rights or relations in determining the ownership and extent of the ancestral domains. Moreover. Anent the use of customary laws in determining the ownership and extent of ancestral domains. such as but not limited to conflicting claims and boundary disputes. as long as it is proved as a fact according to the rules of evidence. of the same indigenous group. All conflicts related to ancestral domains and lands. Primacy of Customary Law. Section 5 of Article XII of the Constitution. This law admits the operation of customary laws in the settling of disputes if such are ordinarily used in barangays where majority of the inhabitants are members of indigenous peoples. Said provision states. use of customary law is sanctioned. Like any other law. the use of customary laws under IPRA is not absolute. In any case. The IPRA prescribes the application of such customary laws where these present a workable solution acceptable to the parties. (Emphasis supplied. or when the indigenous peoples involved belong to different groups. The utilization of customary laws is in line with the constitutional policy of recognizing the application thereof through legislation passed by Congress. Furthermore. and it is not contrary to law. there are sufficient checks in the law against any abuse by the NCIP of its quasi-judicial powers. specifically. the recognition and use of customary law is not a novel idea in this jurisdiction. Practice and Procedures Before the NCIP to be adopted hereafter. In this wise. involving ICCs/IPs. public order or public policy. the latter have no monopoly of the concept of justice. shall be resolved by the concerned parties through the application of customary laws in the area where the disputed ancestral domain or land is located. Section 67 states that the decision of the NCIP shall be appealable to the Court of Appeals by petition for review. the Local Government Code of 1991 calls for the recognition and application of customary laws to the resolution of issues involving members of indigenous peoples.P a g e | 27 of impartiality desirable of a judge has nothing to do with his or her ethnic roots. the objective of IPRA in prescribing the primacy of customary law in disputes concerning ancestral lands and domains where all parties involved are indigenous peoples is justice.
. the NCIP. although independent to a certain degree. like those of the National Labor Relations Commission (NLRC) and the Securities and Exchange Commission (SEC). Part II. which provides that the decisions of the NCIP in the exercise of its quasi-judicial functions shall be appealable to the Court of Appeals. The NCIP has been designated under IPRA as the primary government agency responsible for the formulation and implementation of policies.for purposes of policy and program coordination. Article VII of the Constitution. The diverse nature of the NCIP’s functions renders it impossible to place said agency entirely under the control of only one branch of government and this. promote and protect the rights and well-being of indigenous peoples. quasi-legislative and quasi-judicial powers to carry out its mandate. (2) it must obtain the President’s approval . Rule VII of the Implementing Rules characterize the NCIP as an independent agency under the Office of the President. plans and programs to promote and protect the rights and well being of the indigenous peoples and the recognition of their ancestral domain as well as their rights thereto. He shall ensure that the laws be faithfully executed. apparently. The National Commission on Indigenous Peoples (NCIP) xxx Part II: NCIP as an Independent Agency Under the Office of the President Section 1. It has been granted administrative. The NCIP is the primary agency of government for the formulation and implementation of policies. This relationship shall be carried out through a system of periodic reporting. As such. Article VII of the Constitution with respect to its performance of administrative functions.P a g e | 28 B. The assailed provision of the Implementing Rules provides: Rule VII. such characterization does not remove said body from the President’s control and supervision.” Although both Section 40 of the IPRA and Section 1. as distinguished from a “subordinate agency” or an administrative body whose action is subject to administrative review or revision. is the reason for its characterization by Congress as an independent agency. which provides that: The President shall have control of all the executive departments. Matters of day-to-day administration or all those pertaining to internal operations shall be left to the discretion of the Chairperson of the Commission. That Congress did not intend to place the NCIP under the control of the President in all instances is evident in the IPRA itself. as such. It shall be an independent agency under the Office of the President. An “independent agency” is defined as an administrative body independent of the executive branch or one not subject to a superior head of department. and offices. as the Chief Executive Officer. was placed by Congress “under the office of the President” and. The second corollary issue is whether the Implementing Rules of IPRA violate Section 17. Nevertheless. Petitioners asseverate that the aforecited rule infringes upon the power of control of the President over the NCIP by characterizing the relationship of the NCIP to the Office of the President as “lateral but autonomous. such as the following: (1) the NCIP must secure the President’s approval in obtaining loans to finance its projects. the administrative relationship of the NCIP to the Office of the President is characterized as a lateral but autonomous relationship for purposes of policy and program coordination. plans and programs to recognize. Part II. is still subject to the President’s power of control and supervision granted under Section 17. Rule VII of the Implementing Rules of IPRA does not infringe upon the President’s power of control over the Executive Department. bureaus.. Section 1.
as well as priority rights in the harvesting. 58 and 59 of the IPRA which grant certain rights to the indigenous peoples over the natural resources found within the ancestral domains. such as the SmallScale Mining Act of 1991 and the Philippine Mining Act of 1995. (3) While the IPRA recognizes the rights of indigenous peoples with regard to their ancestral lands and domains. insofar as the decisions of the NCIP in the exercise of its quasi-judicial powers are concerned. mineral lands and other natural resources in the State is not violated by Sections 3. because said ancestral lands and domains are considered as private land. it also protects the vested rights of persons. 62. who may have acquired rights of ownership lands or rights to explore and exploit natural resources within the ancestral lands and domains. through the imposition of requirements and conditions for the utilization of natural resources under existing laws. and (4) it shall exercise such other powers as may be directed by the President. The fact the NCIP is composed wholly of indigenous peoples does not mean that it is incapable of being impartial.g. (4) The Due Process Clause of the Constitution is not violated by the provisions (Sections 40. However. The State retains full control over the exploration. the same are . and advise the latter on all matters relating to the indigenous peoples. e. 57.. extraction. and therefore under the President’s control and supervision with respect to its administrative functions. (2) The constitutional provision vesting ownership over minerals. among others. since said provision as well as Section 40 of the IPRA expressly places the NCIP under the Office of the President. 6. the use of customary laws is sanctioned by paragraph 2. and never to have been part of the public domain. 56. 51-54. Insular Government. and prescribe the application of customary law in certain disputes involving indigenous peoples. ii To recapitulate: (1) The provisions of the IPRA (specifically Sections 3.P a g e | 29 for any negotiation for funds and for the acceptance of gifts and/or properties in whatever from and from whatever source. development or exploitation thereof. 7. Article VII of the Constitution. 65 and 66) of the IPRA which. Section 5 of Article XII of the Constitution. and 8) affirming the ownership by the indigenous peoples of their ancestral lands and domains by virtue of native title do not diminish the State’s ownership of lands of the public domain. 5. following the doctrine laid down in Cariño vs. 7. 5. (3) the NCIP shall submit annual reports of its operations and achievements to the President. Moreover. 63. and (5) The provision of the Implementing Rules characterizing the NCIP as an independent agency under the Office of the President does not infringe upon the President’s power of control under Section 17. paragraphs (a) and (b). whether indigenous or non-indigenous peoples. to benefit from and share in the profits from the allocation and utilization of the same. development and utilization of natural resources even with the grant of said rights to the indigenous peoples. establish the composition of the NCIP. The President is also given the power to appoint the Commissioners of the NCIP as well as to remove them from office for cause motu proprio or upon the recommendation of any indigenous community. the rights granted to indigenous peoples for the utilization of natural resources within their ancestral domains merely amplify what has been earlier granted to them under the aforesaid laws. Moreover.
like those of the NLRC and the SEC. . In view of the foregoing.P a g e | 30 reviewable by the Court of Appeals. I vote to DISMISS the petition.
forests or timber. and other mineral oils according to the general terms and conditions provided by law. . Such agreements may be for a period not exceeding twenty-five years. fluvial and aerial domains. including its territorial sea. all forces of potential energy. and all other territories over which the Philippines has sovereignty or jurisdiction. ARTICLE XII NATIONAL ECONOMY AND PATRIMONY Section 2. fisheries. and under such terms and conditions as may provided by law. and exclusive economic zone. beneficial use may be the measure and limit of the grant. all other natural resources shall not be alienated. flora and fauna. waters. form part of the internal waters of the Philippines. bays. based on real contributions to the economic growth and general welfare of the country. All lands of the public domain. development. the subsoil. or industrial uses other than the development of waterpower. and lagoons. and other natural resources are owned by the State. renewable for not more than twenty-five years. with priority to subsistence fishermen and fish workers in rivers. or corporations or associations at least 60 per centum of whose capital is owned by such citizens. fisheries. allow small-scale utilization of natural resources by Filipino citizens. With the exception of agricultural lands. coal. consisting of its terrestrial. between. as well as cooperative fish farming. development. wildlife. and utilization of natural resources shall be under the full control and supervision of the State. In cases of water rights for irrigation. The exploration. joint venture. by law. or production-sharing agreements with Filipino citizens. regardless of their breadth and dimensions. lakes. and connecting the islands of the archipelago. Article XII of 1987 Constitution: ARTICLE I NATIONAL TERRITORY The national territory comprises the Philippine archipelago. In such agreements. the State shall promote the development and use of local scientific and technical resources. Constitutional Provisions on Natural Resources 1. petroleum. territorial sea.i Governing Laws on Natural Resources A. The waters around. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration. minerals. or it may enter into co-production. The Congress may. The State shall protect the nations marine wealth in its archipelagic waters. with all the islands and waters embraced therein. water supply. The State may directly undertake such activities. the seabed. the insular shelves. and reserve its use and enjoyment exclusively to Filipino citizens. and other mineral oils. and other submarine areas. petroleum. and utilization of minerals.
Section 3. 1975 or the 5. or associations qualified to acquire or hold lands of the public domain. Section 8.The President shall notify the Congress of every contract entered into in accordance with this provision. Citizens of the Philippines may lease not more than five hundred hectares. The Congress may provide for the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domain. homestead. shall protect the rights of indigenous cultural communities to their ancestral lands to ensure their economic. (2) Republic Act No. developed. Section 5. The State. and not to exceed one thousand hectares in area. the Congress shall determine. 387 of January 18. 7076 of June 27. Section 4. mineral lands and national parks. Notwithstanding the provisions of Section 7 of this Article. Alienable lands of the public domain shall be limited to agricultural lands. Save in cases of hereditary succession. as soon as possible. Taking into account the requirements of conservation. held. such forest lands and national parks shall be conserved and may not be increased nor diminished. the specific limits of forest lands and national parks. by purchase. renewable for not more than twenty-five years. Statutes: 1. within thirty days from its execution. 2. 141 of November 7. 4. 1995 or the Philippine Mining Act of 1995. 1976 or the Water Code. 705 of Forest Reform Code. by law. May 19. 1936 or the Public Land Act. For Fisheries Presidential Decree No. subject to limitations provided by law. 1067 of December 1. 704 of May 16. For Minerals (1) Republic Act 7942 of Marc 3. corporations. Section 7. subject to the provisions of this Constitution and national development policies and programs. and cultural wellbeing. B. forest or timber. Private corporations or associations may not hold such alienable lands of the public domain except by lease. 1949 or the Petroleum Act of 1949. by law. 3. or grant. except by law. and development. The Congress shall. no private lands shall be transferred or conveyed except to individuals. For Forest Presidential Decree No. or leased and the conditions therefor. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. 1975 or the Revised Fisheries Decree of 1975. For Lands of Public Domain (LPD) Commonwealth Act (CA) No. For Waters Presidential Decree No. For Petroleum Republic Act No. . ecology. Thereafter. marking clearly their boundaries on the ground. and subject to the requirements of agrarian reform. determine. for a period not exceeding twenty-five years. a naturalborn citizen of the Philippines who has lost his Philippine citizenship may be a transferee of private lands. the size of lands of the public domain which may be acquired. or acquire not more than twelve hectares thereof. Lands of the public domain are classified into agricultural. social. measures to prohibit logging in endangered forests and watershed areas. 1991 or the People’s Small Scale Mining Act of 1991. 6. The Congress shall provide for such period as it may determine.
the 1987 Constitution provides that the State has full control and supervision and in the activities (EDU) of of the EXPLORATION.. based on real contributions to the economic growth and general welfare of the country.. 127882. December 1. Jurisprudence: On Exploration. (Sec.especially financial and technical assistance -. vs. Inc. resources. G. or corporations or associations at least sixty (60%) per centum of whose capital is owned by Filipino citizens. Their exploration. production-sharing agreements Filipino citizens.. the State shall promote the development and use of local scientific and technical resources. Constitution). either joint directly venture undertake or these EDU or enter into production. 2. Secretary of DENR. development. the State maintains its right of . al. development and utilization (EDU) must always be subject to the full control and supervision of the State. and other mineral oils according to the general terms and conditions provided by law. 2004. given the inadequacy of Filipino capital and technology in large-scale EDU activities.C. More specifically. al. Ramos. petroleum. Art. the State may secure the help of foreign companies in all relevant matters -. to quote: All mineral resources are owned by the State. It is also provided that the President may enter into AGREEMENTS with Foreign-Owned Corporations involving either TECHNICAL or FINANCIAL ASSISTANCE for large-scale exploration.provided that. In such agreements. et. 1987 The interpretation of EDU and FTAA (Financial Technical Assistance Agreement) in the Constitution is explained in La Bugal-B’laan Tribal Association. Development and Utilization (EDU) of Natural Resources: In adherence to Regalian doctrine. Such agreements may be for a period not exceeding 25 years. renewable for not more than 25 years and such terms and conditions as may be provided by law. at all times. State may DEVELOPMENT UTILIZATION natural the cowith And in furtherance of its full control and supervision. and utilization of minerals. No. Victor O. et.R. XII.
operational. should the President and/or Congress gravely abuse their discretion in this regard. the judiciary should not inordinately interfere in the exercise of this presidential power of control over the EDU of our natural resources. as well as to secure for our people and our posterity the blessings of prosperity and peace. financial. parochial interests. It should not be used to strangulate economic growth or to serve narrow.as well as the subject Financial and Technical Assistance Agreement (FTAA). which. were subsequently denounced for being antithetical to the principle of sovereignty over our natural resources. (2) its Implementing Rules and Regulations (DENR Administrative Order No. The idea of full control is similar to that which is exercised by the board of directors of a private corporation: the performance of managerial. inter alia. including operation of the field in the . However.” On the other hand. Full control is not anathematic to day-to-day management by the contractor. the Chief Executive is the official constitutionally mandated to “enter into agreements with foreign owned corporations. marketing and other functions may be delegated to subordinate officers or given to contractual entities. hence.insofar as they relate to financial and technical agreements -. The Constitution should be read in broad. but the board retains full residual control of the business. its Implementing Rules and Regulations -. because they allowed foreign control over the exploitation of our natural resources. The Decision struck down the subject FTAA for being similar to service contracts. [DAO] 96-40). reverse or modify plans and actions of the contractor. it should be construed to grant the President and Congress sufficient discretion and reasonable leeway to enable them to attract foreign investments and expertise. Who or what organ of government actually exercises this power of control on behalf of the State? The Constitution is crystal clear: the President. [RA] 7942 (The Philippine Mining Act of 1995). The Decision quoted several legal scholars and authors who had criticized service contracts for. provided that the State retains the power to direct overall strategy.” In contrast to this express mandate of the President and Congress in the EDU of natural resources. The foreign assistor or contractor assumes all financial. mainly on the finding that FTAAs are service contracts prohibited by the 1987 Constitution. executed by the government with Western Mining Corporation (Philippines). technical and entrepreneurial risks in the EDU activities.full control. Indeed. as well as of the entire FTAA executed between the government and WMCP. Inc. Clearly then. 1995. to the prejudice of the Filipino nation.in a proper case -exercise their residual duty under Article VIII. Article XII of the Constitution is silent on the role of the judiciary. vesting in the foreign contractor exclusive management and control of the enterprise. DAO 96-40. life-giving strokes. and to set aside. (WMCP). audit and other prerogatives to protect its investments and to enable the business to succeed. though permitted under the 1973 Constitution. Congress may review the action of the President once it is notified of “every contract entered into in accordance with this [constitutional] provision within thirty days from its execution. this Court upholds the constitutionality of the Philippine Mining Law. the Court en banc promulgated its Decision granting the Petition and declaring the unconstitutionality of certain provisions of RA 7942. operational. it may be given reasonable management. Rather. 2004. marketing. Background The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1) Republic Act No. the courts may -. and (3) the FTAA dated March 30. On January 27. On the basis of this control standard.
First Issue: .event petroleum was discovered. dwelling at length on the three issues discussed below. What is the proper interpretation of the phrase Agreements Involving Either Technical or Financial Assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution? Should the Motion for Reconsideration Be Granted? Respondents’ and intervenor’s Motions for Reconsideration should be granted. the Court noted. while the OSG -. Later. According to the Decision.in obedience to an Order of this Court -. public respondents. and private respondent. June 29. 2004. 2004. inter alia. Memoranda were accordingly filed by the intervenor as well as by petitioners. the Manifestation and Motion (in lieu of comment) filed by the Office of the Solicitor General (OSG) on behalf of public respondents. the Court required petitioners to comment thereon. 2004. Subsequently. In a Resolution dated March 9. In the Resolution of June 8. for the reasons discussed below. control of production. respondents filed separate Motions for Reconsideration. Three Issues Identified by the Court During the Oral Argument. the 1987 Constitution (Section 2 of Article XII) effectively banned such service contracts. would it still be proper to resolve the constitutionality of the assailed provisions of the Mining Law. In a Resolution issued later the same day.filed a Compliance submitting copies of more FTAAs entered into by the government. Assuming that the case has been rendered moot. After hearing the opposing sides. the Court required the parties to submit their respective Memoranda in amplification of their arguments. 2004. DAO 96-40 and the WMCP FTAA? 3. The foregoing three issues identified by the Court shall now be taken up seriatim. an Australian company) and by the subsequent transfer and registration of the FTAA from WMCP to Sagittarius? 2. as follows: 1. (CMP) and was in fact joining and adopting the latter’s Motion for Reconsideration. The OSG said that it was not interposing any objection to the Motion for Intervention filed by the Chamber of Mines of the Philippines. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent of Sagittarius’ equity is owned by Filipinos and/or Filipino-owned corporations while 40 percent is owned by Indophil Resources NL. and beneficial ownership of our economic resources. Inc. the Court identified the three issues to be resolved in the present controversy. nearly unfettered control over the disposition and sale of the products discovered/extracted. effective ownership of the natural resource at the point of extraction. WMCP submitted its Reply Memorandum. expansion and development. it set the case for Oral Argument on June 29.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on January 23. we shall discuss petitioners’ objections to the transfer of both the shares and the FTAA. the FTAA would still be in the hands of a qualified Filipino company. No Transgression of the Constitution . petroleum and other mineral oils. inasmuch as the FTAA is to be implemented now by a Filipino corporation. (WMC). and (2) that the assailed FTAA had likewise been transferred from WMCP to Sagittarius. Presently. considering the invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius. happened to be wholly owned by WMC Resources International Pty. however. Furthermore. both claiming the right to purchase the foreign shares in WMCP. And. or who later resells the same land to a Filipino citizen. and that the validity of the said transfer remained in dispute and awaited final judicial determination. over which this Court has no original jurisdiction. it is no longer possible for the Court to declare it unconstitutional.. and of the transfer of the FTAA from WMCP to Sagittarius. the Decision is anchored on the assumption that WMCP had remained a foreign corporation. We shall take up the alleged invalidity of RA 7942 and DAO 96-40 later on in the discussion of the third issue. Patently therefore. Upon the other hand. WMC had sold all its shares in WMCP to Sagittarius Mines. a publicly listed major Australian mining and exploration company.. therefore. petitioners argue that the case has not become moot. 60 percent of whose equity was held by Filipinos. The conveyance would be validated. to acquire “beneficial ownership” of our mineral resources. and the WMCP FTAA. The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation. the FTAAs entered into by the government with foreign-owned corporations are limited by the fourth paragraph of the said provision to agreements involving only technical or financial assistance for large-scale exploration. And even assuming that the said transfers were valid. The case pending in the Court of Appeals is a dispute between two Filipino companies (Sagittarius and Lepanto). DAO 96-40. the plea to nullify the Mining Law has become a virtual petition for declaratory relief. which in turn was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd. The crux of this issue of mootness is the fact that WMCP. as the property in question would no longer be owned by a disqualified vendee. regardless of which side eventually wins. the conveyance of the WMCP FTAA to a Filipino corporation can be likened to the sale of land to a foreigner who subsequently acquires Filipino citizenship. According to petitioners.Mootness In declaring unconstitutional certain provisions of RA 7942. 2001. there still exists an actual case predicated on the invalidity of RA 7942 and its Implementing Rules and Regulations (DAO 96-40). at the time it entered into the FTAA. The ponencia declared that the instant case had not been rendered moot by the transfer and registration of the FTAA to a Filipino-owned corporation. the foreign contractor is allegedly permitted by the FTAA in question to fully manage and control the mining operations and.. In their Final Memorandum. the majority Decision agreed with petitioners’ contention that the subject FTAA had been executed in violation of Section 2 of Article XII of the 1987 Constitution. Inc. So. development and utilization of minerals. Ltd. Had the FTAA been originally issued to a Filipino-owned corporation. resulting in the change of contractor in the FTAA in question. Considering that there is no longer any justiciable controversy. there would have been no constitutionality issue to speak of.
even assuming (purely for argument’s sake) that a constitutional limitation barring Filipino corporations from holding and implementing an FTAA actually exists. development and utilization of natural resources shall be under the full control and supervision of the State. after local remedies are exhausted. Petitioners insist that the first paragraph of this constitutional provision limits the participation of Filipino corporations in the exploration. . there is no basis to believe that the framers of the Constitution. Otherwise.” Nowhere in the provision is there any express limitation or restriction insofar as arrangements other than the three aforementioned contractual schemes are concerned. FTAA Not Intended Solely for Foreign Corporation Equally barren of merit is the second ground cited by petitioners -. but definitely not to the sale of WMC’s equity stake in WMCP to Sagittarius. petitioners claim that a Filipino corporation is not allowed by the Constitution to enter into an FTAA with the government. first. a majority of whom were obviously concerned with furthering the development and utilization of the country’s natural resources. In short. that the sale of the shares is suspect and should therefore be the subject of a case in which its validity may properly be litigated. This provision. x x x. This point is clear. especially in the light of the overarching constitutional principle of giving preference and priority to Filipinos and Filipino corporations in the development of our natural resources.production sharing. a textual analysis of the first paragraph of Section 2 of Article XII does not support petitioners’ argument. does not necessarily imply that the WMCP FTAA cannot be transferred to and assumed by a Filipino corporation like Sagittarius. Besides. They manage to cite only one WMCP FTAA provision that can be regarded as clearly intended to apply only to a foreign contractor: Section 12. On the first ground. The pertinent part of the said provision states: “Sec.that the FTAA was intended to apply solely to a foreign corporation. However. and the WMCP FTAA may therefore not be validly assumed and implemented by Sagittarius. and third. nevertheless. as can allegedly be seen from the provisions therein. that the alleged invalidity of the transfer of the WMCP shares to Sagittarius violates the fourth paragraph of Section 2 of Article XII of the Constitution. or corporations or associations at least sixty per centum of whose capital is owned by such citizens. could have wanted to restrict Filipino participation in that area. petitioners assert that paragraph 4 of Section 2 of Article XII permits the government to enter into FTAAs only with foreign-owned corporations. such provision would apply only to the transfer of the FTAA to Sagittarius. co-production and joint venture -.to the exclusion of all other arrangements or variations thereof. joint venture. Petitioners’ argument must therefore fail. second. Besides. however. development and utilization of natural resources to only three species of contracts -.by the Transfer of the WMCP Shares Petitioners claim. The State may directly undertake such activities. that it is contrary to the provisions of the WMCP FTAA itself. Neither can one reasonably discern any implied stricture to that effect. x x x The exploration. which provides for international commercial arbitration under the auspices of the International Chamber of Commerce. or it may enter into co-production. in which event the said provision should simply be disregarded as a superfluity. an unreasonable curtailment of property rights without due process of law would ensue. or production-sharing agreements with Filipino citizens. 2.
Section 40 of RA 7942 (the Mining Law) allegedly requires the President’s prior approval of a transfer. A re-reading of the said provision.000. Thus Transferrable To bolster further their claim that the case is not moot. and it would certainly be improper to invalidate the sale on that basis. hence. equivalent to P553 million at an exchange rate of 56:1. the debt-to-equity ratio of the transferee was over 9:1 -. Moreover. there is a logical application of the requirement of prior approval by the President of the Republic and notification to Congress in the event of assignment or transfer of an FTAA. 74161.875. leads to a different conclusion. if at all. that the transferee’s high debt-toequity ratio per se necessarily carried negative implications for the enterprise. when the transferee of the FTAA happens to be a Filipino corporation. the need for such safeguard is not critical.hardly ideal for an FTAA contractor. the price of the WMCP shares was fixed at US$9. it is not as if approval by the President is entirely absent in this instance. at the time of approval of the sale by the DENR. Assignment/Transfer -. to a qualified person subject to the prior approval of the President: Provided. the need to litigate it in a separate case. such approval and notification are appropriate safeguards. 2003 in CAGR SP No. as petitioners propose.A financial or technical assistance agreement may be assigned or transferred. however. and that its transfer does not operate to cure the constitutional infirmity that is inherent in it. Besides. 162331. 40. hence cannot be transferred. executed between WMC and Sagittarius. “Sec. Therefore. under the circumstances. petitioners insist that the FTAA is void and. private respondents counter that the Deed of Sale specifically provides that the payment of the purchase price would take place only after Sagittarius’ commencement of commercial production from mining operations.” Section 40 expressly applies to the assignment or transfer of the FTAA. according to petitioners. the issue of approval is the subject of one of the cases brought by Lepanto against Sagittarius in GR No. the lack of prior approval and notification may not be deemed fatal as to render the transfer invalid. On the other hand. both approving the assignment of the WMCP FTAA to Sagittarius. hence. as petitioners did.No Need for a Separate Litigation of the Sale of Shares Petitioners claim as third ground the “suspicious” sale of shares from WMC to Sagittarius. in whole or in part. 2001 and the Decision of the Office of the President dated July 23. Sagittarius had an authorized capital stock of P250 million and a paid up capital of P60 million. which affirmed the DENR Order dated December 31. neither will a change in the circumstances of one of the parties serve to ratify the void . Consequently. However. we believe it would not be reasonable to conclude. 2002. As pointed out by private respondent in its Memorandum. In this situation. when the transferee of an FTAA is another foreign corporation. 2001. FTAA Not Void. That case involved the review of the Decision of the Court of Appeals dated November 21. not to the sale and transfer of shares of stock in WMCP. According to the Deed of Absolute Sale dated January 23. Petitioners also question the sale price and the financial capacity of the transferee. considering that the new contractor is the subject of a foreign government. That the President shall notify Congress of every financial or technical assistance agreement assigned or converted in accordance with this provision within thirty (30) days from the date of the approval thereof.
the object of the transfer (the land) was not what was assailed for alleged unconstitutionality. Rather. In short. Thus the basis for declaring the FTAA void still has to be revisited.” In their Comment. hence subsequent compliance with constitutional provisions would cure its infirmity. where the alien who buys the land subsequently acquires Philippine citizenship. the government does not have to micro-manage the mining operations and dip its hands into the day-to-day management of the enterprise in order to be considered as having overall control and direction. therefore. petitioners claim that the subsequent transfer of a void FTAA to a Filipino corporation would not cure the defect. While the discussion in their Final Memorandum was skimpy. reexamined and reconsidered. and that the contractor’s work programs and budgets are subject to its review and approval or disapproval. contrary to the provisions of paragraph 4 of Section 2 of Article XII of the Constitution. claiming that the doctrines in these cases are wholly inapplicable to the instant case. It was questioned only because it had been issued to an allegedly non-qualified. First and foremost. And since the FTAA was per se void. The present Petition has been filed. no valid right could be transferred. the Court has ruled consistently that where a Filipino citizen sells land to an alien who later sells the land to a Filipino. Petitioners sniff at the citation of Chavez v. in which the former vested full control and management with respect to the exploration. it was the transaction that was assailed. Besides. for practical and pragmatic reasons. Second. precisely because the grantee of the FTAA was a wholly owned subsidiary of a foreign corporation. We believe that this case is clearly analogous to Halili. foreign-owned corporation. the Decision of this Court declaring the FTAA void has not yet become final. that is being assailed as invalid and unconstitutional. So. in which the land acquired by a non-Filipino was re-conveyed to a qualified vendee and the original transaction was thereby cured. The FTAA. the same rationale . This point will be dealt with in greater detail below. In contrast. Chavez clearly teaches: “Thus. but for now. petitioners in their Comment (on the MR) did ratiocinate that this Court had declared the FTAA to be void because. the object of the transfer. That was precisely the reason the Court still heard Oral Argument in this case. the invalidity of the first transfer is corrected by the subsequent sale to a citizen. or the buyer himself becomes a qualified party. Paraphrasing Halili. the law disregards the constitutional disqualification of the buyer to hold land if the land is subsequently transferred to a qualified party. As will be detailed later on. the latter was a fully foreign-owned corporation. development and utilization of mineral resources. Petitioners are confusing themselves. It cannot be gainsaid that anyone would have asserted that the same FTAA was void if it had at the outset been issued to a Filipino corporation. at the time it was executed with WMCP. Similarly. in the instant case it is the FTAA itself. Public Estates Authority. Petitioners have assumed as fact that which has yet to be established. the sale is validated since the purpose of the constitutional ban to limit land ownership to Filipinos has been achieved. suffice it to say that a perusal of the FTAA provisions will prove that the government has effective overall direction and control of the mining operations. petitioners contend that in Chavez and Halili. development and utilization of mineral resources. to the exclusion of the government. neither could it be ratified. the FTAA does not vest in the foreign corporation full control and supervision over the exploration. and Halili v. CA. there is a need for government agencies to delegate certain aspects of the management work to the contractor. is not per se defective or unconstitutional. so petitioners conclude.contract. including marketing and product pricing.
Even Assuming It Is Moot All the protagonists are in agreement that the Court has jurisdiction to decide this controversy. Since. Indeed. to all intents and purposes. Indeed. the issuance/grant of the subject FTAA to the then foreignowned WMCP was not illegal. development and utilization of our natural resources in Filipino hands -.” what is at issue in the instant case is not only the validity of the WMCP FTAA. we find completely outlandish petitioners’ contention that an FTAA could be entered into by the government only with a foreign corporation. More accurately speaking. while a case becomes moot and academic when “there is no more actual controversy between the parties or no useful purpose can be served in passing upon the merits. we must concede that there exists the distinct possibility that one or more of the future FTAAs will be the subject of yet another suit grounded on constitutional issues.applies to the instant case: assuming arguendo the invalidity of its prior grant to a foreign corporation. . it does not). with an aggregate area of 2. never with a Filipino enterprise. The matter had to be brought to court. at present.spread over Luzon.preference for the Filipino in the exploration. Petitioners stress the following points. up to this point. How petitioners can now argue that foreigners have the exclusive right to FTAAs totally overturns the entire basis of the Petition -.65 hectares -. Third. in which the original sale to a non-Filipino was clearly and indisputably violative of the constitutional prohibition and thus void ab initio. the Visayas and Mindanao -. the acts of private respondent cannot operate to cure the law of its alleged unconstitutionality or to divest this Court of its jurisdiction to decide. the decision of this Court declaring the FTAA void has yet to become final.has been served. the objective of the constitutional provision -. In the present case. the Constitution imposes upon the Supreme Court the duty to declare invalid any law that offends the Constitution. First. Petitioners also argue that no amendatory laws have been passed to make the Mining Act of 1995 conform to constitutional strictures (assuming that. precisely for adjudication as to whether the FTAA and the Mining Law had indeed violated the Constitution. void or unconstitutional at the time. Nevertheless. 2002. processing and approving numerous applications for mining rights. Second Issue: Whether the Court Can Still Decide the Case.applied for. as petitioners do.being now held by a Filipino corporation -. that each and every FTAA that was entered into under the provisions of the Mining Act “invites potential litigation” for as long as the constitutional issues are not resolved with finality. even assuming it to be moot.908. that public respondents will continue to implement and enforce the statute until this Court rules otherwise. it appears that as of June 30. and that the said law continues to be the source of legal authority in accepting. some 43 FTAA applications had been filed with the Mines and Geosciences Bureau (MGB). Second. It does not take deep knowledge of law and logic to understand that what the Constitution grants to foreigners should be equally available to Filipinos. It may be a bit far-fetched to assert. the nationalistic provisions of the Constitution are all anchored on the protection of Filipino interests. the disputed FTAA -.can no longer be assailed. the FTAA must be deemed valid and constitutional. but also the constitutionality of RA 7942 and its Implementing Rules and Regulations. At bottom. the present situation is one degree better than that obtaining in Halili.064. development and utilization of our natural resources.to keep the exploration.
Commission on Elections it is evident that strong reasons of public policy demand that the constitutionality issue be resolved now. precepts. digress from or abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse of discretion brought before it in appropriate cases. and that Secretary General Romulo Neri of the National Economic Development Authority (NEDA) requested this Court to allow him to speak. Inc.” Additionally. Attesting to this climate of anxiety is the fact that the Chamber of Mines of the Philippines saw the urgent need to intervene in the case and to present its position during the Oral Argument.” The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state in his dissent to the Decision that there was no more justiciable controversy and the plea to nullify the Mining Law has become a virtual petition for declaratory relief. Indeed. the resolution of which may not be achieved until after it has become too late for our mining industry to grow out of its infancy. however. Where an action of the legislative branch is seriously alleged to have infringed the Constitution. committed by any officer. Angara. In further support of the immediate resolution of the constitutionality issue. By the mere enactment of the questioned law or the approval of the challenged action. it becomes not only the right but in fact the duty of the judiciary to settle the dispute. yet evading review. public respondents cite Acop v. xxx xxx xxx “As this Court has repeatedly and firmly emphasized in many cases. the petition no doubt raises a justiciable controversy.. We now agree that the Court must recognize the exceptional character of the situation and the paramount public interest involved. in which the Court said: “In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution.” This ruling can be traced from Tañada v. 2004. not whether it was violated by specific acts implementing RA 7942 and DAO 96-40. in which this Court declared that “(t)he Court also has the duty to formulate guiding and controlling constitutional principles.” Public respondents ask the Court to avoid a situation in which the constitutionality issue may again arise with respect to another FTAA. during that Oral Argument. we believe that the Court should proceed to a resolution of the constitutional issues in this case. It has the symbolic function of educating the bench and bar on the extent of protection given by constitutional guarantees. They also recall Salonga v. We are convinced. doctrines or rules. settling the controversy becomes the duty of this Court. Paraphrasing Gonzales v. . the subject FTAA and future FTAAs. agency. Guingona. instrumentality or department of the government. the dispute is said to have ripened into a judicial controversy even without any other overt act.otherwise moot and academic -.But of equal if not greater significance is the cloud of uncertainty hanging over the mining industry. For all the foregoing reasons. which is even now scaring away foreign investments. on the economic consequences of the Decision of January 27. the entry of CMP into this case has also effectively forestalled any possible objections arising from the standing or legal interest of the original parties. 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 result of doubts cast upon the constitutionality and validity of the Mining Act. “[W]hen an act of the legislative department is seriously alleged to have infringed the Constitution. to the effect that the courts will decide a question -. x x x. and the need to avert a multiplicity of suits.if it is “capable of repetition. this CMP entry brings to fore that the real issue in this case is whether paragraph 4 of Section 2 of Article XII of the Constitution is contravened by RA 7942 and DAO 96-40. The entry of the Chamber of Mines of the Philippines. it will not shirk. has put into focus the seriousness of the allegations of unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for prohibition in the enforcement of the said law and regulations. Cruz Paño.
They rely on rulings of this Court. In order to appreciate its context. the words used in the Constitution must be given their ordinary meaning except where technical terms are employed.” Very recently. flora and fauna. water supply. With the exception of agricultural lands. based on real contributions to the economic growth and general welfare of the country. that the primary method of interpreting it is to seek the ordinary meaning of the words used in its provisions.” No Restriction of Meaning by a Verba Legis Interpretation To interpret the foregoing provision. such as the proceedings of the Constitutional Commission or Convention to shed light on and ascertain the true intent or purpose of the provision being construed.Third Issue: The Proper Interpretation of the Constitutional Phrase “Agreements Involving Either Technical or Financial Assistance” The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of Article XII of the 1987 Constitution. verba legis. bays and lagoons. territorial sea. In such agreements. and utilization of minerals. x x x. or industrial uses other than the development of water power. verba legis prevails. in Francisco v. minerals. Section 2 is reproduced in full: “Sec. “The State shall protect the nation’s marine wealth in its archipelagic waters. Such agreements may be for a period not exceeding twenty-five years. The State may directly undertake such activities. with priority to subsistence fishermen and fish-workers in rivers. The House of Representatives. beneficial use may be the measure and limit of the grant. all forces of potential energy. this Court indeed had the occasion to reiterate the well-settled principles of constitutional construction: “First. coal. such as the following: “The fundamental principle in constitutional construction however is that the primary source from which to ascertain constitutional intent or purpose is the language of the provision itself. “The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration. the State shall promote the development and use of local scientific and technical resources. The exploration. and under such terms and conditions as may be provided by law. In other words. joint venture or production-sharing agreements with Filipino citizens or corporations or associations at least sixty per centum of whose capital is owned by such citizens. petroleum. and reserve its use and enjoyment exclusively to Filipino citizens. Only when the meaning of the words used is unclear and equivocal should resort be made to extraneous aids of construction and interpretation. development. that is. The presumption is that the words in which the constitutional provisions are couched express the objective sought to be attained. waters. and exclusive economic zone. . fisheries. within thirty days from its execution. forests or timber. “The Congress may. or it may enter into co-production. and other natural resources are owned by the State. all other natural resources shall not be alienated. In cases of water rights for irrigation. and other mineral oils according to the general terms and conditions provided by law. All lands of the public domain. wherever possible. wildlife. petitioners adamantly assert that the language of the Constitution should prevail. and other mineral oils. “The President shall notify the Congress of every contract entered into in accordance with this provision. fisheries. allow small-scale utilization of natural resources by Filipino citizens. renewable for not more than twenty-five years. lakes. by law. petroleum. 2. development and utilization of natural resources shall be under the full control and supervision of the State. as well as cooperative fish farming.
3. void for allowing a foreign contractor to have direct and exclusive management of a mining enterprise. development and utilization -. in large-scale EDU of minerals. 2004 correctly declared the WMCP FTAA.” On the other hand. nothing more and nothing else. for the large-scale exploration. 2. or (iii) production sharing agreements with Filipino citizens or corporations. Rather. For large-scale EDU of minerals. “Finally. development and utilization of the country’s natural resources. they argue. and second.exploration. 5. The words of the Constitution should be interpreted in accordance with the intent of its framers. where there is ambiguity. Except for agricultural lands.” Note that in all the three foregoing mining activities -. doing so also vests in the foreign company “beneficial ownership” of our mineral resources.the State may undertake such EDU activities by itself or in tandem with Filipinos or Filipino corporations. petroleum and mineral oils. All natural resources are owned by the State. The Constitution is to be interpreted as a whole. (ii) joint venture. the intervenor and public respondents argue that the FTAA allowed by paragraph 4 is not merely an agreement for supplying limited and specific financial or technical services to the State. ut magis valeat quam pereat. The exploration. Allowing such a privilege not only runs counter to the “full control and supervision” that the State is constitutionally mandated to exercise over the exploration. except in two instances: first. we reconstruct and stratify the aforequoted Section 2 as follows: 1. petitioners believe.” For ease of reference and in consonance with verba legis. natural resources cannot be alienated by the State. development and utilization (EDU) of natural resources shall be under the full control and supervision of the State. development and utilization of minerals. It will be recalled that the Decision of January 27. along with pertinent provisions of RA 7942. petroleum and other mineral oils. which may be undertaken by the State via “agreements with foreign-owned corporations involving either technical or financial assistance” as provided by law. at least 60 percent of the capital of which is owned by such citizens 4. and that a plain reading of paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-owned corporation may enter into with the government is merely an agreement for either financial or technical assistance only. such a limitation. Petitioners claim that the phrase “agreements x x x involving either technical or financial assistance” simply means technical assistance or financial assistance agreements. in small-scale utilization of natural resources. petroleum and other mineral oils. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens. which is the primary feature of service contracts. This restrictive interpretation. x x x. The State may undertake these EDU activities through either of the following: (a) By itself directly and solely (b) By (i) co-production. such FTAA is a . the President may enter into “agreements with foreign-owned corporations involving either technical or financial assistance according to the general terms and conditions provided by law x x x.xxx xxx xxx xxx xxx xxx “Second. since “the management or operation of mining activities by foreign contractors. 2004 zeroed in on “management or other forms of assistance” or other activities associated with the “service contracts” of the martial law regime. ratio legis est anima. excludes foreign management and operation of a mining enterprise. which Filipinos may be allowed by law to undertake. They maintain that this Court’s Decision of January 27. was precisely the evil that the drafters of the 1987 Constitution sought to eradicate. They insist that there is no ambiguity in the phrase. is in line with the general policy enunciated by the Constitution reserving to Filipino citizens and corporations the use and enjoyment of the country’s natural resources.
comprehensive agreement for the foreign-owned corporation’s integrated exploration, development and utilization of mineral, petroleum or other mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractor’s rendition of a whole range of integrated and comprehensive services, ranging from the discovery to the development, utilization and production of minerals or petroleum products. We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could inexorably lead to the conclusions arrived at in the ponencia. First, the drafters’ choice of words -- their use of the phrase agreements x x x involving either technical or financial assistance -- does not indicate the intent to exclude other modes of assistance. The drafters opted to use involving when they could have simply said agreements for financial or technical assistance, if that was their intention to begin with. In this case, the limitation would be very clear and no further debate would ensue. In contrast, the use of the word “involving” signifies the possibility of the inclusion of other forms of assistance or activities having to do with, otherwise related to or compatible with financial or technical assistance. The word “involving” as used in this context has three connotations that can be differentiated thus: one, the sense of “concerning,” “having to do with,” or “affecting”; two, “entailing,” “requiring,” “implying” or “necessitating”; and three, “including,” “containing” or “comprising.” Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word “involving,” when understood in the sense of “including,” as in including technical or financial assistance, necessarily implies that there are activities other than those that are being included. In other words, if an agreement includes technical or financial assistance, there is apart from such assistance -- something else already in, and covered or may be covered by, the said agreement. In short, it allows for the possibility that matters, other than those explicitly mentioned, could be made part of the agreement. Thus, we are now led to the conclusion that the use of the word “involving” implies that these agreements with foreign corporations are not limited to mere financial or technical assistance. The difference in sense becomes very apparent when we juxtapose “agreements for technical or financial assistance” against “agreements including technical or financial assistance.” This much is unalterably clear in a verba legis approach. Second, if the real intention of the drafters was to confine foreign corporations to financial or technical assistance and nothing more, their language would have certainly been so unmistakably restrictive and stringent as to leave no doubt in anyone’s mind about their true intent. For example, they would have used the sentence foreign corporations are absolutely prohibited from involvement in the management or operation of mining or similar ventures or words of similar import. A search for such stringent wording yields negative results. Thus, we come to the inevitable conclusion that there was a conscious and deliberate decision to avoid the use of restrictive wording that bespeaks an intent not to use the expression “agreements x x x involving either technical or financial assistance” in an exclusionary and limiting manner. Deletion of “Service Contracts” to Avoid Pitfalls of Previous Constitutions, Not to Ban Service Contracts Per Se Third, we do not see how a verba legis approach leads to the conclusion that “the management or operation of mining activities by foreign contractors, which is the primary feature of service contracts, was precisely the evil that the drafters of the 1987 Constitution sought to eradicate.” Nowhere in the above-
quoted Section can be discerned the objective to keep out of foreign hands the management or operation of mining activities or the plan to eradicate service contracts as these were understood in the 1973 Constitution. Still, petitioners maintain that the deletion or omission from the 1987 Constitution of the term “service contracts” found in the 1973 Constitution sufficiently proves the drafters’ intent to exclude foreigners from the management of the affected enterprises. To our mind, however, such intent cannot be definitively and conclusively established from the mere failure to carry the same expression or term over to the new Constitution, absent a more specific, explicit and unequivocal statement to that effect. What petitioners seek (a complete ban on foreign participation in the management of mining operations, as previously allowed by the earlier Constitutions) is nothing short of bringing about a momentous sea change in the economic and developmental policies; and the fundamentally capitalist, freeenterprise philosophy of our government. We cannot imagine such a radical shift being undertaken by our government, to the great prejudice of the mining sector in particular and our economy in general, merely on the basis of the omission of the terms service contract from or the failure to carry them over to the new Constitution. There has to be a much more definite and even unarguable basis for such a drastic reversal of policies. Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by petitioners, suffers from certain internal logical inconsistencies that generate ambiguities in the understanding of the provision. As the intervenor pointed out, there has never been any constitutional or statutory provision that reserved to Filipino citizens or corporations, at least 60 percent of which is Filipino-owned, the rendition of financial or technical assistance to companies engaged in mining or the development of any other natural resource. The taking out of foreign-currency or peso-denominated loans or any other kind of financial assistance, as well as the rendition of technical assistance -- whether to the State or to any other entity in the Philippines -- has never been restricted in favor of Filipino citizens or corporations having a certain minimum percentage of Filipino equity. Such a restriction would certainly be preposterous and unnecessary. As a matter of fact, financial, and even technical assistance, regardless of the nationality of its source, would be welcomed in the mining industry anytime with open arms, on account of the dearth of local capital and the need to continually update technological know-how and improve technical skills. There was therefore no need for a constitutional provision specifically allowing foreign-owned corporations to render financial or technical assistance, whether in respect of mining or some other resource development or commercial activity in the Philippines. The last point needs to be emphasized: if merely financial or technical assistance agreements are allowed, there would be no need to limit them to large-scale mining operations, as there would be far greater need for them in the smallerscale mining activities (and even in non-mining areas). Obviously, the provision in question was intended to refer to agreements other than those for mere financial or technical assistance. In like manner, there would be no need to require the President of the Republic to report to Congress, if only financial or technical assistance agreements are involved. Such agreements are in the nature of foreign loans that -- pursuant to Section 20 of Article VII of the 1987 Constitution -- the President may contract or guarantee, merely with the prior concurrence of the Monetary Board. In turn, the Board is required to report to Congress within thirty days from the end of every quarter of the calendar year, not thirty days after the agreement is entered into. And if paragraph 4 permits only agreements for loans and other forms of financial, or technical assistance, what is the point of requiring that they be based on real contributions to the economic growth and general welfare of the country? For instance, how is one to measure and assess the “real contributions” to the “economic growth” and “general welfare” of the country that
may ensue from a foreign-currency loan agreement or a technical-assistance agreement for, say, the refurbishing of an existing power generating plant for a mining operation somewhere in Mindanao? Such a criterion would make more sense when applied to a major business investment in a principal sector of the industry. The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is not to be understood as one limited only to foreign loans (or other forms of financial support) and to technical assistance. There is definitely more to it than that. These are provisions permitting participation by foreign companies; requiring the President’s report to Congress; and using, as yardstick, contributions based on economic growth and general welfare. These were neither accidentally inserted into the Constitution nor carelessly cobbled together by the drafters in lip service to shallow nationalism. The provisions patently have significance and usefulness in a context that allows agreements with foreign companies to include more than mere financial or technical assistance. Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific and limited financial service or technical assistance by a foreign company. This argument begs the question “To whom or for whom would it be rendered”? or Who is being assisted? If the answer is “The State,” then it necessarily implies that the State itself is the one directly and solely undertaking the large-scale exploration, development and utilization of a mineral resource, so it follows that the State must itself bear the liability and cost of repaying the financing sourced from the foreign lender and/or of paying compensation to the foreign entity rendering technical assistance. However, it is of common knowledge, and of judicial notice as well, that the government is and has for many many years been financially strapped, to the point that even the most essential services have suffered serious curtailments -education and health care, for instance, not to mention judicial services -- have had to make do with inadequate budgetary allocations. Thus, government has had to resort to build-operate-transfer and similar arrangements with the private sector, in order to get vital infrastructure projects built without any governmental outlay. The very recent brouhaha over the gargantuan “fiscal crisis” or “budget deficit” merely confirms what the ordinary citizen has suspected all along. After the reality check, one will have to admit the implausibility of a direct undertaking -- by the State itself -- of large-scale exploration, development and utilization of minerals, petroleum and other mineral oils. Such an undertaking entails not only humongous capital requirements, but also the attendant risk of never finding and developing economically viable quantities of minerals, petroleum and other mineral oils. It is equally difficult to imagine that such a provision restricting foreign companies to the rendition of only financial or technical assistance to the government was deliberately crafted by the drafters of the Constitution, who were all well aware of the capital-intensive and technology-oriented nature of large-scale mineral or petroleum extraction and the country’s deficiency in precisely those areas. To say so would be tantamount to asserting that the provision was purposely designed to ladle the large-scale development and utilization of mineral, petroleum and related resources with impossible conditions; and to remain forever and permanently “reserved” for future generations of Filipinos. A More Reasonable Look at the Charter’s Plain Language Sixth, we shall now look closer at the plain language of the Charter and examining the logical inferences. The drafters chose to emphasize and
they would probably require seats on the Board of Directors -. The inclusion of this clause on “technical or financial assistance” recognizes the fact that foreign business entities and multinational corporations are the ones with the resources and know-how to provide technical and/or financial assistance of the magnitude and type required for large-scale exploration. Foreign corporations usually require that they be given a say in the management.whose ranks included many academicians. Thus. as business persons well know and as a matter of judicial notice. technical experts. Neither were they so naïve as to believe that these entities would provide “assistance” without conditionalities or some quid pro quo. development and utilization of these resources. . they would have supplied the specifics and the when and how of effecting the extinguishment of these existing contracts (or at least the mechanics for determining them). Accordingly. The drafters -. for example. one of the practical difficulties that results from it is the fact that there is nothing by way of transitory provisions that would serve to confirm the theory that the omission of the term “service contract” from the 1987 Constitution signaled the demise of service contracts. of day-to-day operations of the joint venture. lawyers. Definitely. lost opportunities. economists. In short. Ultimately. internal auditors or comptrollers. they would also want to protect their business reputation and bottom lines. this matter is not just a question of signing a promissory note or executing a technology transfer agreement. by specifying such “agreements involving assistance. Many of these service contracts were long-term (25 years) and had several more years to run. or that could reasonably be deemed necessary to make them tenable and effective. quality control heads. including management authority with respect to the day-to-day operations of the enterprise and measures for the protection of the interests of the foreign corporation.all these to ensure the success of the enterprise and the repayment of the loans and other financial assistance and to make certain that the funding and the technology they supply would not go to waste. PROVIDED THAT Philippine sovereignty over natural resources and full control over the enterprise undertaking the EDU activities remain firmly in the State. Furthermore. They would demand the appointment of their own men as. they would have had to provide for the termination or pretermination of the existing contracts. and so on.” the drafters necessarily gave implied assent to everything that these agreements necessarily entailed. businessmen. gains and benefits. if not for the recovery thereof.were not unfamiliar with the practices of foreign corporations and multinationals. for instance. and of putting in place the means to address the just claims of the contractors for compensation for their investments. If they had meant to ban service contracts altogether. operations managers. including those in the petroleum industry. politicians and government officials -. The framers knew at the time they were deliberating that there were various service contracts extant and in force and effect.highlight agreements x x x involving either technical or financial assistance in relation to foreign corporations’ participation in large-scale EDU. Petitioners’ Theory Deflated by the Absence of Closing-Out Rules or Guidelines Seventh and final point regarding the plain-language approach. the drafters will have to be credited with enough pragmatism and savvy to know that these foreign entities will not enter into such “agreements involving assistance” without requiring arrangements for the protection of their investments.
For those issued after such ratification. With respect to the second paragraph of Section 3. The following exchange between Commissioner Jamir (sponsor of the provision) and Commissioner Suarez irrefutably proves that the “agreements involving technical or financial assistance” were none other than service contracts. like a child’s balloon losing its air. 3 dated March 25.If the framers had intended to put an end to service contracts. the judicial action or proceeding shall be commenced within six months from the issuance thereof. as certified by the President. After the expiration in 1991 of the Agreement between the Republic of the Philippines and the United States of America concerning military bases. in order to resolve the inconsistencies. when the Congress so requires. the Congress may extend such period. We are still on Section 3. A sequestration or freeze order shall be issued only upon showing of a prima facie case. Madam President. The authority to issue sequestration or freeze orders under Proclamation No. Advertising entities affected by paragraph (2). perhaps by way of general guidelines and a timeline within which to carry them out. and recognized as a treaty by the other contracting State.”  It is inconceivable that the drafters of the Constitution would leave such an important matter -. MR. The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein provided. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. Section 11 of Article XVI of this Constitution shall have five years from its ratification to comply on a graduated and proportionate basis with the minimum Filipino ownership requirement therein. my amendment by substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER . The following are some extant examples of such transitory guidelines set forth in Article XVIII of our Constitution: “Section 23. “Section 26. Under the circumstances. the logical inconsistencies resulting from petitioners’ literal and purely verba legis approach to paragraph 4 of Section 2 of Article XII compel a resort to other aids to interpretation. Petitioners’ Posture Also Negated by Ratio Legis Et Anima Thus. there is a need for recourse to the proceedings of the 1986 Constitutional Commission. ratified by a majority of the votes cast by the people in a national referendum held for that purpose. For orders issued before the ratification of this Constitution. troops. foreign military bases. However. There is a need for ratio legis et anima. Yes. the corresponding judicial action or proceeding shall be filed within six months from its ratification. they would have at least left specific instructions to Congress to deal with these closing-out issues. 1986 in relation to the recovery of ill-gotten wealth shall remain operative for not more than eighteen months after the ratification of this Constitution. Service Contracts Not “Deconstitutionalized” 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 service contracts and used the terms interchangeably. the complete absence of even a general framework only serves to further deflate petitioners’ theory.an expression of sovereignty as it were -. in the national interest. THE PRESIDENT. xxx xxx xxx “Section 25. Indeed. or facilities shall not be allowed in the Philippines except under a treaty duly concurred in by the Senate and. incongruities and ambiguities encountered and to supply the deficiencies of the plain-language approach. JAMIR.indefinitely hanging in the air in a formless and ineffective state. Commissioner Jamir is recognized.
The Commissioner is right. Yes. if the President were to enter into a particular agreement. This is in direct contrast to my proposal which provides that there be effective constraints in the implementation of service contracts. JAMIR. service or otherwise. VILLEGAS. Is that correct? MR. MR. Yes. MR. Madam President. THE PRESIDENT. Madam President. This particular portion of the section has reference to what was popularly known before as service contracts. JAMIR. The reason we made that shift is that we realized the original proposal could breed corruption. Madam President. SUAREZ. Commissioner Suarez is recognized. Thank you very much. the President will. JAMIR. If we are going to make every single contract subject to the concurrence of Congress – which. MR. JAMIR. MR. Thank you. As it is proposed now. And the Gentleman is thinking in terms of a law that uniformly covers situations of the same nature? MR. among other things. Commissioner Suarez will give the background. GASCON. MR. xxx xxx xxx MR. 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. Madam President. Will Commissioner Jamir answer a few clarificatory questions? MR. SUAREZ. That is correct. reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS SITTING SEPARATELY. VILLEGAS. it might be that certain agreements will be detrimental to the interest of the Filipinos. GASCON. SUAREZ. MR. I propose that every service contract entered into by the President would need the concurrence of Congress. so I would like to object and present my proposed amendment to the body. VILLEGAS. therefore. That is also correct. MR. According to the original proposal. is that correct? MR. MR. That is 100 percent correct. must be made strictly in accordance with guidelines prescribed by Congress? MR. DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY LAW. GASCON. I thank the Commissioner. Is that correct? MR. GASCON. xxx xxx xxx MR. this is not just confined to service contracts but also to financial assistance.TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION. Since the Committee has accepted it. THE PRESIDENT. so as to assure the Filipinos of their interests with regard to the issue in Section 3 on all lands of the public domain. The proposed amendment of Commissioner Jamir is in indirect contrast to my proposed amendment. SUAREZ. Yes. Except that all of these contracts. Therefore. Commissioner Gascon is recognized. That is also correct. SUAREZ. Commissioner Gascon may proceed. JAMIR. By the way. THE PRESIDENT. GASCON. the President may enter into service contracts but subject to the guidelines that may be promulgated by Congress? MR. which we will discuss later. MR. SUAREZ. I would like to ask some questions. The following exchange leaves no doubt that the commissioners knew exactly what they were dealing with: service contracts. MR. Now that it has been changed by the proposal of Commissioner Jamir in that Congress will set the general law to which the President shall comply. Madam President. MR. My alternative amendment. MR. As it is formulated. BENGZON. JAMIR. Thank you. that aspect of negotiation and consummation will fall on the President. Commissioner Jamir had proposed an amendment with regard to special service contracts which was accepted by the Committee. JAMIR. So instead of a general law to be passed by Congress to serve as a guideline to the President when entering into service contract agreements. he would need the concurrence of Congress. it will be up to the body. not upon Congress? MR. JAMIR. MR. not need the concurrence of Congress every time he enters into service contracts. according to the Commissioner’s amendment is . SUAREZ. That is right. The Committee accepts the amendment. I feel that the general law to be set by Congress as regard service contract agreements which the President will enter into might be too general or since we do not know the content yet of such a law. MR.
GASCON. I just wanted to ask Commissioner Jamir whether he would entertain a minor amendment to his amendment. whenever the President enters into any agreement with regard to such an important matter as technical or financial assistance for large-scale exploration. may I ask a question? THE PRESIDENT. MR. SR. and it reads as follows: THE PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS OF EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW. TAN. VILLEGAS. I will gladly do so. we do not need to suspend the session. as Commissioner Bengzon said. rather. although the Committee’s contention that the regular concurrence from Congress would subject Congress to extensive lobbying. TAN. I can fill up the remaining time while he completes his proposed amendment. Marcos is the general law to be enacted by the legislature and the notification of Congress by the President? That is the only difference. Madam President. Congress can always change the general law later on to conform to new perceptions of standards that should be built into service contracts. and (2) there is a great temptation that it would breed corruption because of the great lobbying that is going to happen. If Commissioner Gascon needs a few minutes. to answer the Commissioner’s apprehension. It would be best then to keep in tab and attuned to the interest of the Filipino people. foreign investment in and management of an enterprise involved in large-scale exploration. This pertains to a situation where the service contracts are already entered into. TAN. subject then to the scrutiny of the Members of Congress. Yes. Nolledo quoted below explicitly and eloquently demonstrate that the drafters knew that the agreements with foreign corporations were going to entail not mere technical or financial assistance but. and all that this amendment seeks is the reporting requirement from the Office of the President. Madam President. I think the reason is. development and utilization of minerals. if I may state it briefly. petroleum. But the only way Congress can do this is if there were a notification requirement from the Office of the President that such service contracts had been entered into. the people’s elected representatives should be on top of it. . and other mineral oils. Commissioner Tan is recognized. MR. OPLE. I am in favor of the objection of Commissioner Gascon. Commissioner Nolledo may proceed. Thank you. THE PRESIDENT.” we do not mean statements of motherhood. if it is still within my power. SR. Congress can build all the restrictions that it wishes into that general law so that every contract entered into by the President under that specific area will have to be uniform. Will Commissioner Jamir entertain that? MR. Madam President. Yes. by “general law. MR. Commissioner Nolledo is recognized. Now. development and utilization of natural resources or service contracts. TAN. xxx xxx xxx SR. xxx xxx xxx MR. SR. the Committee accepts the amendment. That is right. Am I correct in thinking that the only difference between these future service contracts and the past service contracts under Mr. THE PRESIDENT. VILLEGAS. VILLEGAS. The President has no choice but to follow all the guidelines that will be provided by law. NOLLEDO. MR. There was no law at all governing service contracts before. So those are the safeguards. With due respect to the members of the Committee and Commissioner Jamir. NOLLEDO. And we do not want to subject our legislature to that. Madam President. MR. JAMIR. I have the permission of the Acting Floor Leader to speak for only two minutes in favor of the amendment of Commissioner Gascon. But my basic problem is that we do not know as of yet the contents of such a general law as to how much constraints there will be in it.the concurrence of two-thirds of Congress voting separately – then (1) there is a very great chance that each contract will be different from another. And to my mind. I think that is a risk we will have to take since Congress is a body of representatives of the people whose membership will be changing regularly as there will be changing circumstances every time certain agreements are made. More Than Mere Financial and Technical Assistance Entailed by the Agreements The clear words of Commissioner Jose N. is it not? MR.
I propose to delete “NATURAL RESOURCES” and substitute it with the following: MINERALS.Madam President. our marine resources. So. I propose to add: THE NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE EXECUTION OF THE SERVICE CONTRACT. THE PRESIDENT. we believe that we should really. When the Commissioner made those enumerations and specifications. development and exploration of minerals. So we would like to limit the scope of these service contracts to those areas really where these may be needed. and one of the reasons is that there were many provisions in the Transitory Provisions therein that favored aliens. Madam President. to stringent rules. MR. the exploitation. petroleum and other mineral oils. petroleum and mineral oils. But by virtue of the Jamir amendment. petroleum and other mineral oils by virtue of the Jamir amendment. Commissioner Davide is recognized. Thank you. with the use of “NATURAL RESOURCES” here. Madam President. we must adopt safeguards that are truly reflective of the sentiments of the people and not mere cosmetic safeguards as they now appear in the Jamir amendment. This is an amendment to the Jamir amendment and also to the Ople amendment. However. Madam President. beyond the reach of any service contract will be lands of the public domain. PETROLEUM AND OTHER MINERAL OILS. the President can enter into service contracts with foreign corporations precisely . parks and so on. After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2 abstentions. DAVIDE. DAVIDE. And one way of circumventing the rule in favor of Filipino control of the economy is to recognize service contracts. indicates the limitations of the scope of such service contracts -they are valid only in regard to minerals. And so. Commissioner Davide made the following statement. Just a point of clarification again. exploration and utilization of these minerals. MR. forests. DAVIDE. (Applause) Thank you. VILLEGAS. It seems to me that we are liberalizing the rules in favor of aliens. petroleum and other mineral oils. timberlands. I voted in favor of the Jamir amendment because it will eventually give way to vesting in exclusively Filipino citizens and corporations wholly owned by Filipino citizens the right to utilize the other natural resources. On the Ople amendment. What does the Committee say with respect to the first amendment in lieu of “NATURAL RESOURCES”? MR. Madam President. I am very glad that Commissioner Padilla emphasized minerals. MR. I think the Members of this Commission should know that entering into service contracts is an exception to the rule on protection of natural resources for the interest of the nation. We cannot claim that they are less patriotic than we are.. in this Constitutional Commission. petroleum and other mineral oils. not to all natural resources. fauna and flora. provided for Filipino control of the economy. This means that as a matter of policy. featuring then Commissioner (now Chief Justice) Hilario G. I say these things with a heavy heart. it would necessarily include all lands of the public domain. I do not claim to be a nationalist. if we want to grant service contracts at all. I am for the complete deletion of this provision. wildlife and national parks. since we feel that Filipino capital may not be enough for the development and utilization of minerals. we are presenting a compromise in the sense that we are requiring a two-thirds vote of all the Members of Congress as a safeguard. being an exception it should be subject. Commissioner Davide is recognized. I suppose he deliberately did not include “agricultural land”? MR. Although we need investments. Davide Jr. Madam President. I was shocked when I read a provision authorizing service contracts while we. providing for exceptional instances where aliens may circumvent Filipino control of our economy. marine resources. We are. therefore. limit the same to only those particular areas where Filipino capital may not be sufficient. Another excerpt. natural resources should be utilized and exploited only by Filipino citizens or corporations wholly owned by such citizens. The Commission has just approved the possible foreign entry into the development. DAVIDE. and therefore. I think we should not mistrust the future Members of Congress by saying that the purpose of this provision is to avoid corruption. and not to all natural resources. if I should have my own way. I was one of those who refused to sign the 1973 Constitution. SUAREZ. THE PRESIDENT. Could Commissioner Davide explain that? MR. As far as I am concerned. but I love my country. which is very relevant to our quest: THE PRESIDENT. That is precisely the reason we have to enumerate what these resources are into which service contracts may enter. forests. whenever possible.
based on a careful reading of the ConCom deliberations. the members of the ConCom were actually debating about the martial-law-era service contracts for which they were crafting appropriate safeguards.” Mr.the exploration.and corporations at least 60 percent of which is owned by such citizens -. In brief. The deliberations of the ConCom and some commissioners’ explanation of their votes leave no room for doubt that the service contract concept precisely underpinned the commissioners’ understanding of the “agreements involving either technical or financial assistance. they were plainly crafting provisions to put in place safeguards that would eliminate or minimize the abuses prevalent during the marital law regime . Garcia explained.” Summation of the Concom Deliberations At this point. Garcia and Tadeo indicated that they had voted to reject this provision on account of their objections to the “constitutionalization” of the “service contract” concept. And so. This provision reserves or limits to Filipino citizens -.”  The foregoing are mere fragments of the framers’ lengthy discussions of the provision dealing with agreements x x x involving either technical or financial assistance. • Instead. • They spoke of service contracts as the concept was understood in the 1973 Constitution. but with safety measures to prevent abuses. Gascon said. as follows: • In their deliberations on what was to become paragraph 4. Beyond any doubt. It was hardly likely that these gentlemen would have objected so strenuously. the provision would permit aliens to exploit and benefit from the nation’s natural . But some of them.for the development and utilization of such resources. Mr. even when they have been proven to be inimical to the interests of the nation. Tadeo cited inter alia the fact that service contracts continued to subsist. there is nothing to fear that we will stagnate in the development of minerals. as an exception to the general norm established in the first paragraph of Section 2 of Article XII. the framers used the term service contracts in referring to agreements x x x involving either technical or financial assistance. enabling foreign interests to benefit from our natural resources. as they do. which ultimately became paragraph 4 of Section 2 of Article XII of the Constitution. Mr. • The framers for the most part debated about the sort of safeguards that would be considered adequate and reasonable. In the voting that led to the approval of Article XII by the ConCom. this should always be with the concurrence of Congress and not guided only by a general law to be promulgated by Congress. the explanations given by Commissioners Gascon. had the provision called for mere technical or financial assistance and nothing more. we sum up the matters established. wanted to ban service contracts altogether. development and utilization of natural resources. the legal loophole for the exploitation of our natural resources for the benefit of foreign interests. 3. for them. providing. “Service contracts are given constitutional legitimization in Sec. petroleum and mineral oils because we now allow service contracts . “I felt that if we would constitutionalize any provision on service contracts. • This provision was prompted by the perceived insufficiency of Filipino capital and the felt need for foreign investments in the EDU of minerals and petroleum resources. having more “radical” leanings. x x x. • It was obvious from their discussions that they were not about to ban or eradicate service contracts. they were going to permit service contracts with foreign corporations as contractors.” Likewise.
and as indicating the reason for their votes. the individual commissioners were heard by the entire body. it will have been vetted several times over at different levels to ensure that it conforms to law and can withstand public scrutiny. which they felt should be reserved only for Filipinos. much less the mass of our fellow citizens whose votes at the polls gave that instrument the force of fundamental law. referred to in paragraph 4. They sounded off their individual opinions. and on the other. The grant thereof is subject to several safeguards. the use of the “framers’ intent” approach. Such service contracts may be entered into only with respect to minerals. the President shall report it to Congress to give that branch of government an opportunity to look over the agreement and interpose timely objections. conditions and requirements. But unlike those of the 1973 variety. and the government. Use of the Record of the ConCom to Ascertain Intent At this juncture. rather than gloss over. the government as principal or “owner” of the works. Debates in the constitutional convention ‘are of value as showing the views of the individual members. We think it safer to construe the constitution from what appears upon its face. petroleum and other mineral oils. Everyone’s viewpoint was heard. technology and technical know-how. we shall address. (2) The President shall be the signatory for the government because. if any. but they give us no light as to the views of the large majority who did not talk. presumably to attain a certain uniformity in provisions and avoid the possible insertion of terms disadvantageous to the country. the new ones are between foreign corporations acting as contractors on the one hand. among which are these requirements: (1) The service contract shall be crafted in accordance with a general law that will set standard or uniform terms.” The notion that the deliberations reflect only the views of those members who spoke out and not the views of the majority who remained silent should be . and managerial expertise in the creation and operation of large-scale mining/extractive enterprises.’ The proper interpretation therefore depends more on how it was understood by the people adopting it than in the framers’ understanding thereof.• • resources. the Article on the National Economy and Patrimony -including paragraph 4 allowing service contracts with foreign corporations as an exception to the general norm in paragraph 1 of Section 2 of the same article -was resoundingly approved by a vote of 32 to 7. In the explanation of their votes. are in fact service contracts. with 2 abstentions. openly enunciated their philosophies. In the new service contracts. Agreements Involving Technical or Financial Assistance Are Service Contracts With Safeguards From the foregoing. the foreign contractors provide capital. we are impelled to conclude that the phrase agreements involving either technical or financial assistance. In the final voting. and the criticism hurled by petitioners who quote a ruling of this Court: “While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional convention in order to arrive at the reason and purpose of the resulting Constitution. supposedly before an agreement is presented to the President for signature. and supported or attacked the provisions with fervor. actively exercises control and supervision over the entire operation. resort thereto may be had only when other guides fail as said proceedings are powerless to vary the terms of the Constitution when the meaning is clear. through its agencies (DENR. (3) Within thirty days of the executed agreement. MGB).
” or. simply because certain members chose not to speak out. it was the product of the hard work and careful deliberation of a group of intelligent. or a majority of them. we cannot completely denigrate the value or usefulness of the record of the ConCom. it’s good enough for me.” And even for those who voted based on their own individual assessment of the proposed Charter. “If it’s good enough for them. Fundamentally speaking. an assumption that would account for the favorable votes. For them. It was incumbent upon them. dedicated and trustworthy men and women of integrity and conviction. They only relied or fell back and acted upon the favorable endorsement or recommendation of the framers as a group. it appears rather extravagant to assume that every one of those who did in fact bother to read the draft Charter actually understood the import of its provisions. much less analyzed it vis-à-vis the previous Constitutions. It is therefore reasonable and unavoidable to make the following conclusion. Thus. Moreover.sans the abuses of the past . whether we like it or not. the individual explanations of votes are on record. It is contended that the deliberations therein did not necessarily reflect the thinking of the voting population that participated in the referendum and ratified the Constitution. in the process of rewriting the Charter. subject to the full control and supervision of the State -. For all we know. each and every one of the commissioners had the opportunity to speak out and to vote on the matter.as contractors who would invest in and operate and manage extractive enterprises. by voting yes. a large proportion of the voters voted “yes” because the drafters. Likewise. As written by the framers and ratified and adopted by the people. the members of the ConCom as a group were supposed to represent the entire Filipino people. Verily. provision by provision. this segment of voters must have read and understood the provisions of the Constitution in the same way the framers had. “If it’s good enough for President Cory Aquino. In short. a good percentage of those who voted in favor of it did so more out of faith and trust. they may be deemed to have signified their voluntary adoption of the understanding and interpretation of the delegates with respect to the proposed Charter and its particular provisions. endorsed the proposed Constitution. based on the above arguments. it is a bit too much to assume that every one of those who voted to ratify the proposed Charter did so only after carefully reading and mulling over it. By remaining silent. What this fact translates to is the inescapable conclusion that many of the voters in the referendum did not form their own isolated judgment about the draft Charter. We must never forget that those who spoke out were heard by those who remained silent and did not react. we cannot but regard their views as being very much indicative of the thinking of the people with respect to the matters deliberated upon and to the Charter as a whole. and they show where each delegate stood on the issues . there is no evidence available to indicate that their assessment or understanding of its provisions was in fact different from that of the drafters. In sum. We believe that in reality. In any event. the Constitution allows the continued use of service contracts with foreign corporations -. they are deemed to have signified their assent to and/or conformity with at least some of the views propounded or their lack of objections thereto. it’s good enough for me. This unwritten assumption seems to be petitioners’ as well. as representatives of the entire Filipino people. in many instances. whose love of country and fidelity to duty could not be questioned. In other words.clarified. to follow the deliberations closely and to speak their minds on the matter if they did not see eye to eye with the proponents of the draft provisions. much less about particular provisions therein. If the latter were silent because they happened not to be present at the time. they are presumed to have read the minutes and kept abreast of the deliberations.
Ultimate Test: State’s “Control” Determinative of Constitutionality But we are not yet at the end of our quest. In view of the foregoing discussion. For one thing. paragraph 1 of Section 2 of Article XII explicitly mandates the State to exercise “full control and supervision” over the exploration. Ut Magis Valeat Quam Pereat Under the third principle of constitutional construction laid down in Francisco -. and in fact now hold a view different from that of the Decision. On the other hand. Normally. 2004. down to the minutest details. On the one hand. and (e) provisions of RA 7942 and DAO 96-40. or. development and utilization of natural resources. such an interpretation would discourage foreign entry into large-scale exploration. petroleum and other resources on a large scale for the immediate and tangible benefit of the Filipino people. pursuant thereto. the other way around. “full control and supervision” by the State must be understood as one that does not preclude the legitimate exercise of management prerogatives by the foreign contractor.ut magis valeat quam pereat -. and makes all decisions required in the mining operations.every part of the Constitution is to be given effect. (b) the same paragraph precludes agreements that grant to foreign corporations the management of local mining operations. Before any further discussion. development and utilization activities. But in the next breadth we have to point out that “full control and supervision” cannot be taken literally to mean that the State controls and supervises everything involved. allowing the foreign contractor full management prerogatives may ultimately negate the State’s full control and supervision. which likewise grant managerial authority to the foreign contractor. There is thus a legitimate ground to be concerned that either the State’s full control and supervision may rule out any exercise of management authority by the foreign contractor. as mandated in the first paragraph of Section 2 of Article XII. It seems that we are confronted with a possible collision of constitutional provisions. we must stress the primacy and supremacy of the principle of sovereignty and State control and supervision over all aspects of exploration. (c) these service contracts were supposedly “de-constitutionalized” and proscribed by the omission of the term service contracts from the 1987 Constitution. Thus. the contractors exercise management prerogatives over the mining operations and the enterprise as a whole. and result in the . development and utilization of the country’s natural resources. The purpose is clear: to develop and utilize our mineral. (d) since the WMCP FTAA contains provisions permitting the foreign contractor to manage the concern. Far from it. paragraph 4 permits safeguarded service contracts with foreign contractors. we should reverse the Decision of January 27. This strained concept of control and supervision over the mining enterprise would render impossible the legitimate exercise by the contractors of a reasonable degree of management prerogative and authority necessary and indispensable to their proper functioning. which had these findings: (a) paragraph 4 of Section 2 of Article XII limits foreign involvement in the local mining industry to agreements strictly for either financial or technical assistance only. as such agreements are purportedly in the nature of service contracts as these were understood under the 1973 Constitution. and the Constitution is to be read and understood as a harmonious whole.regime. are also invalid and unconstitutional. the said FTAA is invalid for being a prohibited service contract.
industry standards and similar measures that would enable the government to control the conduct of affairs in various enterprises and restrain activities deemed not desirable or beneficial. “The State shall recognize and protect the rights of the indigenous cultural communities to their ancestral lands as provided for by the Constitution.” The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows: “Sec. with weak review and audit powers. the government does not have to micro-manage the mining operations and dip its hands into the day-to-day affairs of the enterprise in order for it to be considered as having full control and supervision. – Mineral resources are owned by the State and the exploration. as well as its Implementing Rules and Regulations. through the establishment of policies.unmitigated stagnation of this sector. It shall be the responsibility of the State to promote their rational exploration. to the detriment of our nation’s development. conserve the environment. Control by the State may be on a macro level. This scenario renders paragraph 4 inoperative and useless. to protect its investments and to enable it to succeed. it practically has little effective say in the decisions made by the enterprise. The State does not supposedly act as the owner of the natural resources for and on behalf of the Filipino people. The question to be answered. regulations. all-encompassing control. Petitioners then conclude that the law. makes it possible for FTAA contracts to cede full control and management of mining enterprises over to fully foreign-owned corporations. guidelines. is whether RA 7942 and its Implementing Rules enable the government to exercise that degree of control sufficient to direct and regulate the conduct of affairs of individual enterprises and restrain undesirable activities. 4. Declaration of Policy. Indeed. utilization and processing thereof shall be under its full control and supervision. petitioners charge that RA 7942. Section 4 of the statute clearly affirms the State’s control thus: “Sec. A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners’ claims. The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial. the implementing regulations.  The end in view is ensuring that these enterprises contribute to the economic development and general welfare of the country.” . On the resolution of these questions will depend the validity and constitutionality of certain provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96-40). utilization and conservation through the combined efforts of the Government and private sector in order to enhance national growth in a way that effectively safeguards the environment and protects the rights of affected 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. Ownership of Mineral Resources. with the result that the State is allegedly reduced to a passive regulator dependent on submitted plans and reports. Paraphrasing the Constitution. The State may directly undertake such activities or it may enter into mineral agreements with contractors. 2. All mineral resources in public and private lands within the territory and exclusive economic zone of the Republic of the Philippines are owned by the State. regulate and govern the affairs of the extractive enterprises. development. then. in order to ensure that it is operating efficiently and profitably. restrain. And as respondents have correctly pointed out. development. and the WMCP FTAA cede “beneficial ownership” of the mineral resources to the foreign contractor. as well as the WMCP FTAA. but nevertheless sufficient to give the State the power to direct. and uplift the well-being of the affected local communities.
(h). Sec. 8 which provides for the DENR’s power of over-all supervision and periodic review for “the conservation. which incorporates into all FTAAs the following terms. Sec. duly registered non-governmental organization (NGO) or any qualified person to police mining activities. The following provisions thereof establish the mechanism of inspection and visitorial rights over mining operations and institute reportorial requirements in this manner: 1. and to deputize. RA 7942. (Chapter XVII. An FTAA contractor is obliged to open its books of accounts and records for inspection by the government (Section 56-m. government may cancel an FTAA. Section 60. Requiring the proponent to dispose of the minerals at the highest price and more advantageous terms and conditions. development and proper use of the State’s mineral resources”. and deputize whenever necessary any member or unit of the Phil. and that books of accounts and records shall be open for inspection by the government. Moreover. Sec. any member or unit of the Philippine National Police. (l). DAO 96-40). RA 7942. barangay. Work programs and minimum expenditures commitments. health and environmental protection (Chapter XI. Chapter XXIV. “confiscate surety and performance bonds”. MGB is mandated to monitor the contractor’s compliance with the terms and conditions of the FTAA. RA 7942 and DAO 96-40 also provide various stipulations confirming the government’s control over mining enterprises: • • • • • • The contractor is to relinquish to the government those portions of the contract area not needed for mining operations and not covered by any declaration of mining feasibility (Section 35-e. An FTAA contractor has to dispose of the minerals and by-products at the highest market price and register with the MGB a copy of the sales agreement (Section 56-n. RA 7942. National Police. when necessary. For violation of any of its terms and conditions. DAO 96-40). The contractor must comply with the provisions pertaining to mine safety. DAO 96-40. (m) and (n) of the Implementing Rules. 66 which vests in the Regional Director ”exclusive jurisdiction over safety inspections of all installations. “(g) “(h) “(k) “(l) “(m) “(n) “(o) The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in Section 56 (g). whether surface or underground”. and empowers the MGB to “monitor the compliance by the contractor of the terms and conditions of the mineral agreements”. DAO 96-40). xxx xxx xxx Such other terms and conditions consistent with the Constitution and with this Act as the Secretary may deem to be for the best interest of the State and the welfare of the Filipino people. Chapters XV and XVI. The contractors shall furnish the Government records of geologic. DAO 96-40).” 3.Sufficient Control Over Mining Operations Vested in the State by RA 7942 and DAO 96-40 RA 7942 provides for the State’s control and supervision over mining operations. utilized in mining operations. management. xxx xxx xxx Requiring proponent to effectively use appropriate anti-pollution technology and facilities to protect the environment and restore or rehabilitate mined-out areas. Sec. x x x. the barangay or a DENR-accredited . 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR to exercise “direct charge in the administration and disposition of mineral resources”. 35. accounting and other relevant data for its mining operation. 4. conditions and warranties: Mining operations shall be conducted in accordance with the provisions of the Act and its IRR. 2. DAO 96-40).
4. annual progress reports and final report of exploration activities (Section 56-2). Exploration 2.• • • 1. DAO 96-40) Environmental compliance certificate (Section 70. Land use 11. regulations. Free and prior informed consent by the indigenous peoples concerned. an annual environmental protection and enhancement program (Section 171). per Section 270. promotion of the general welfare of its inhabitants. as required under DAO 96-40. Explosives consumption • • • • An FTAA pertaining to areas within government reservations cannot be granted without a written clearance from the government agencies concerned (Section 19. annual reports of the mining operations and records of geologic accounting (Section 56-m). Payment of taxes. The FTAA contractor is obliged to submit reports (on quarterly. Section 59. Other reports to be submitted by the contractor. unless its Declaration of Mining Project Feasibility has been approved by government (Section 24. 3. RA 7160) 6. royalties. restrictions and limitations imposed upon the FTAA contractor by the statute and regulations easily overturns petitioners’ contention. DAO 96-40). Mineral resources and reserves 4. DAO 96-40). RA 8371) • • The FTAA contractor is obliged to assist in the development of its mining community. DAO 96-40) Approved three-year work program (Section 53-a-4. 2. and development of science and mining technology (Section 57. RA 7942. semi-annual or annual basis as the case may be. an environmental work program (Section 168). Section 66. 5. pertaining to the following: 1. are as follows: an environmental report on the rehabilitation of the mined-out area and/or mine waste/tailing covered area. DAO 96-40). Sales and marketing 7. pursuant to DAO 96-40. -e. RA 7942. The foregoing gamut of requirements. Section 54. RA 7942) Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70. RA 7942). and anti-pollution measures undertaken (Section 35-a-2). An FTAA cannot be transferred or assigned without prior approval by the President (Section 40. Employment 8. Section 27. including payment of royalties through a Memorandum of Agreement (Section 16. On the contrary. Production 6. RA 7942). An FTAA contractor is required to post a financial guarantee bond in favor of the government in an amount equivalent to its expenditures obligations for any particular year. Social development 12. RA 7942) Approved environmental protection and enhancement program (Section 69. the government agencies . fees and other Government Shares 9. RA 7942). This requirement is apart from the representations and warranties of the contractor that it has access to all the financing. managerial and technical expertise and technology necessary to carry out the objectives of the FTAA (Section 35-b. A mining project under an FTAA cannot proceed to the construction/development/utilization stage. are the following: a safety and health program (Section 144). Other programs required to be submitted by the contractor. DAO 96-40). nongovernmental organization to police mining activities (Section 7-d and -f. RA 7942. health and environment 10. Mine safety. The setup under RA 7942 and DAO 9640 hardly relegates the State to the role of a “passive regulator” dependent on submitted plans and reports. RA 7942. and -f. Drilling 3. Energy consumption 5. The Declaration of Mining Project Feasibility filed by the contractor cannot be approved without submission of the following documents: Approved mining project feasibility study (Section 53-d.
Pursuant to Section 20 of RA 7942. to influence. it will have to follow the government line if it wants to stay in the enterprise.the various work programs and the corresponding minimum expenditure commitments for each of the exploration. direct and change -. Section 3(aq) of RA 7942 Not Unconstitutional An objection has been expressed that Section 3(aq) of RA 7942 -. Such a permit does not amount to an authorization to extract and carry . we believe that the State definitely possesses the means by which it can have the ultimate word in the operation of the enterprise. nowhere does it require the government to hold all exploration permits and similar authorizations. multipurpose sanction is no trifling matter. The State may likewise compel the contractor’s compliance with mandatory requirements on mine safety. the contractor is bound to comply with its commitments therein. is not well-founded. The reason is not hard to see. Overall. The reasoning is that Section 2 of Article XII of the Constitution does not allow foreign-owned corporations to undertake mining operations directly. Once these plans and reports are approved. Moreover. Figures for mineral production and sales are regularly monitored and subjected to government review. Section 3(aq). all-around. should the occasion therefor arise. so as to enable the State to determine if the government share has been fully paid. In other words.which allows a foreign contractor to apply for and hold an exploration permit -. RA 7942 and DAO 96-40 vest in the government more than a sufficient degree of control and supervision over the conduct of mining operations. must hold through the government all exploration permits and similar authorizations. in permitting foreign-owned corporations to hold exploration permits. Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or noncompliance with statutes or regulations. however. set directions and objectives. on the contrary.concerned are empowered to approve or disapprove -. Ineluctably then. it has the capability to enforce compliance and to impose sanctions. the contractor is also obligated to assist in the development of the mining community and to pay royalties to the indigenous peoples concerned. an exploration permit merely grants to a qualified person the right to conduct exploration for all minerals in specified areas. is unconstitutional.is unconstitutional. even copies of sales agreements have to be submitted to and registered with MGB. as the party directly undertaking exploitation of its natural resources. While the Constitution mandates the State to exercise full control and supervision over the exploitation of mineral resources. And the contractor is mandated to open its books of accounts and records for scrutiny. considering the provisions of the statute and the regulations just discussed. and the State. and detect deviations and noncompliance by the contractor. The objection. development and utilization phases of the mining enterprise. Hence. in order to ensure that the products and by-products are disposed of at the best prices possible. This general. In fact. especially to a contractor who may have yet to recover the tens or hundreds of millions of dollars sunk into a mining project. there is no prohibition at all against foreign or local corporations or contractors holding exploration permits. They may act only as contractors of the State under an FTAA. the FTAA contractor is not free to do whatever it pleases and get away with it. and the use of anti-pollution technology and facilities.hence. likewise. health and environmental protection.
The Bureau of Forest Development is vested with discretion in regard to approving the inclusion of forest reserves as part of the FTAA contract area (Clause 4.5). Pursuant to Section 24 of RA 7942. the exploration permit grantee (or prospective contractor) cannot yet be deemed to have entered into any contract or agreement with the State. But prior to the issuance of such FTAA or mineral agreement. In short. 4. and the grantee would definitely need to have some document or instrument as evidence of its right to conduct exploration works within the specified area. The State risks nothing and loses nothing by granting these permits to local or foreign firms. a joint venture agreement. activities and budgets must be approved by/on behalf of the State (Clause 2. The contractor is obliged to relinquish periodically parts of the contract area not needed for exploration and development (Clause 4. A Declaration of Mining Feasibility must be submitted for approval by the State (Clause 4. there are no revenues or incomes to speak of. the permit grantee may apply for an MPSA. the contractor will be in a position to extract minerals and earn revenues only when the MPSA or another mineral agreement. the contractor’s rights and obligations will be covered by an FTAA or a mineral agreement. Such a possibility tends to discourage investors and contractors. the exploration works and expenditures may end up benefiting only claim-jumpers. a co-production agreement. or to an FTAA. without any right to recover anything should no minerals in commercial quantities be discovered. within the term of the permit. The DENR secretary has the power to extend the exploration period (Clause 3. is granted. 20 and 23 of RA 7942. or an FTAA over the permit area. Thus. Therefore. the exploration permit is an authorization for the grantee to spend its own funds on exploration programs that are pre-approved by the government. and the application shall be approved if the permit grantee meets the necessary qualifications and the terms and conditions of any such agreement. without yet being able to earn revenues to recoup any of its investments and expenditures. the exploration permit serves a practical and legitimate purpose in that it protects the interests and preserves the rights of the exploration permit grantee (the would-be contractor) -. 6.off the mineral resources that may be discovered. Approval by the State is necessary for incorporating lands into the FTAA contract area (Clause 4. . 5.1). an exploration permit grantee who determines the commercial viability of a mining area may. The contractor’s work program. or an FTAA. Thus. 3. As no extraction is involved.3-c). in fact. The contractor is obligated to account for the value of production and sale of minerals (Clause 1. Minus this permit and the protection it affords.2-a). 2. The Terms of the WMCP FTAA A Deference to State Control A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and supervision: 1.4). At that point. it stands to gain in the form of data generated by the exploration activities. The approval of the mining project feasibility and compliance with other requirements of RA 7942 vests in the grantee the exclusive right to an MPSA or any other mineral agreement.6-b). 7.6). This phase involves nothing but expenditures for exploring the contract area and locating the mineral bodies. file with the MGB a declaration of mining project feasibility accompanied by a work program for development. This need is met by the exploration permit issued pursuant to Sections 3(aq).foreign or local -during the period of time that it is spending heavily on exploration works. In brief. Section 3(aq) of RA 7942 may not be deemed unconstitutional.
The contractor is obligated to report to the State its exploration activities (Clause 4. The contractor is obliged to complete the development of the mine. 20. 10. geophysical. the contractor is mandated by Clause 5. Likewise. 16. and then for the succeeding years. ore reserves. This fact is not something to be taken lightly. 18.1). We should elaborate a little on the work programs and budgets.2). For instance. a description of the proposed mining operations and the technology to be employed. resultantly. The contractor.8.3-a). the amount shall be as agreed between the DENR secretary and the contractor prior to the commencement of each subsequent fiscal year. the previous year’s expenditure commitment shall apply. 17. for approval by the DENR secretary (Clause 5.1). within ten years of recovering specified expenditures. improvements and replacements of mining facilities shall be subject to the approval of the secretary (Clause 6.3-b). work accomplished and work in progress. 21. The State has the right to terminate the FTAA for the contractor’s unremedied substantial breach thereof (Clause 13.2).1-a). 13.2). 15. with the right to approve/disapprove them or require changes or adjustments therein if deemed necessary. 22. The State has supervisory power with respect to technical. and other technical information (Clause 6.9). geochemical and other information relating to its explorations within the FTAA area (Clause 5. financial and marketing issues (Clause 10. We cannot but construe as very significant such a degree of control over the project and. The contractor is obligated to submit for approval of the DENR secretary a work program covering each period of three fiscal years (Clause 6. Any expansions. 9. shall submit a declaration of mining feasibility. The contractor is required to obtain State approval of its work programs for the succeeding two-year periods. unless not so required by subsequent legislation (Clause 10. over . the concerned government officials will be informed beforehand of the proposed exploration activities and expenditures of the contractor for each succeeding two-year period.1 of the WMCP FTAA to submit a series of work programs (copy furnished the director of MGB) to the DENR secretary for approval. throughout the initial five-year exploration and feasibility phase of the project. including construction of the production facilities. the amount that the contractor was supposed to spend for exploration activities during the first contract year of the exploration period was fixed at not less than P24 million. modifications. containing the proposed work activities and expenditures budget related to exploration (Clause 5.4). This provision alone grants the government through the DENR secretary a very big say in the exploration phase of the project. 14. after conducting feasibility studies. The contractor is to submit reports to the DENR secretary on the production. The State’s approval is needed for any assignment of the FTAA by the contractor to an entity other than an affiliate (Clause 14.1). under Clause 5. If no such agreement is arrived upon. 11. The contractor is to submit within six months after expiration of exploration period a final report on all its findings in the contract area (Clause 5. 19. The contractor is required to obtain State approval for its proposed expenditures for exploration activities (Clause 5. along with a description of the area to be developed and mined. In other words. and what they mean with respect to the State’s ability to exercise full control and effective supervision over the enterprise.1). within the period stated in the approved work program (Clause 6. considering that the government has absolutely no contribution to the exploration expenditures or work activities and yet is given veto power over such a critical aspect of the project.2(a). The contractor is required to ensure 60 percent Filipino equity in the contractor. The programs will detail the contractor’s proposed exploration activities and budget covering each subsequent period of two fiscal years. 12.4). The State has control with respect to the amount of funds that the contractor may borrow within the Philippines (Clause 7. The contractor is required to submit an annual report on geological.3). profile of its work force and management staff. and a proposed work program for the development phase.2).
considering that so many millions of dollars worth of investments -. the contractor must comply with it and complete the development of the mine. of course. “8. together with a technical description of the area delineated for development and production. the above provisions of the WMCP FTAA taken together.5). the submission of the work program for development to the DENR secretary for approval is particularly noteworthy. The work program for development is subject to the approval of the DENR secretary. work accomplished and work in progress (installations and facilities related to mining operations). an environmental impact statement. a description of the proposed mining operations including the technology to be used. The secretary is. values and destinations. bestow upon the State more than adequate control and supervision over the activities of the contractor and the enterprise. Under Section VIII. the contractor is also required to submit to the DENR secretary (copy furnished the director of MGB) the work program and corresponding budget for the contract area. far from constituting a surrender of control and a grant of beneficial ownership of mineral resources to the contractor in question. total ore reserves. and so on and so forth. It cannot be emphasized enough that the proper and timely construction and deployment of the production facilities and the development of the mine are of pivotal significance to the success of the mining venture. they say. however. since it “cannot truly impose its own discretion” in respect of the submitted work programs. No Surrender of Control Under the WMCP FTAA Petitioners. amount to a relinquishment of control by the State. Upon its approval. Thus. the contractor shall comply therewith. with corresponding grades. within the period provided in the approved work program for development (per Clause 6.4 of the FTAA). Any missteps here will potentially be very costly to remedy. the development phase of the project is likewise subject to the control and supervision of the government. Hence. reports of sales. 8.courtesy of the contractor -are made to depend on the State’s consideration and action. Following its exploration activities or feasibility studies.2. Throughout the operating period. describing the mining operations that are proposed to be carried out during the period covered. the contractor is required to submit to the DENR secretary for approval. Once the program/budget has been approved.2). a work program for development. copy furnished the director of MGB. copy furnished the director of MGB. if the contractor believes that any part of the contract area is likely to contain an economic mineral resource.the mining enterprise itself.3. work programs covering each period of three fiscal years (per Clause 6.1). In sum. total tonnage of ores.2.3). and a description of the contributions to the economic and general welfare of the country to be generated by the mining operations (pursuant to Clause 5. on the tonnages of production in terms of ores and concentrates. including the construction of production facilities and installation of machinery and equipment.5 of the WMCP FTAA which. and 8. investments made or committed. notably. The Secretary shall be deemed to have approved any Work Programme or Budget or variation thereof submitted by the Contractor unless within sixty (60) days after . During the same period (per Clause 6. during the period of mining operations. take aim at Clause 8. the contractor is mandated to submit various quarterly and annual reports to the DENR secretary. it shall submit to the DENR secretary a declaration of mining feasibility (per Clause 5. entitled to grant or deny approval of any work program or budget and/or propose revisions thereto.
Hence. stop-gap solution in the event a disagreement over the submitted work program or budget arises between the State and the contractor and results in a stalemate or impasse. First.2 of the same FTAA. On the other hand. while the State can require the submission of work programs and budgets. the decision of the contractor will still prevail. All other variations to an approved Work Programme or Budget shall be submitted for approval of the Secretary.” From the provisions quoted above.2 merely provides a mechanism for preventing the business or mining operations from grinding to a complete halt as a result of possibly over-long and unjustified delays in the government’s handling. more effective. If the Secretary gives a Rejection Notice. If the Secretary and the Contractor fail to agree on the proposed revision within 30 days from delivery of the Rejection Notice then the Work Programme or Budget or variation thereof proposed by the Contractor shall be deemed approved. And neither is it true that under the same clause.3 seeks to provide a temporary. For instance.submission by the Contractor the Secretary gives notice declining such approval or proposing a revision of certain features and specifying its reasons therefor (‘the Rejection Notice’). being the “insider.an outsider looking in -.4.3. so as not to unnecessarily delay the performance of the Agreement. may be said to be in a better position than the State -. We hold. the Contractor shall comply with any approved Work Programme and Budget. or more suitable under the circumstances. All things considered. on account of Clause 8. petitioners generalize by asserting that the government does not participate in making critical decisions regarding the operations of the mining firm. Second. citing substantial breach thereof. the State may terminate the agreement.still has control over the contract area and it may. So far as is practicable.” as it were. as sovereign authority. It is recognized by the Secretary and the Contractor that the details of any Work Programmes or Budgets may require changes in the light of changing circumstances. As Respondent WMCP reasoned in its Reply-Memorandum. the State -. 8. given that no one can accurately forecast under all . cannot be discovered within a period of two months.5 is merely an acknowledgment of the parties’ need for flexibility. pursuant to Clause 13.3 would not be the better or more reasonable or more effective alternative? The contractor. who is to say that the work program or budget proposed by the contractor and deemed approved under Clause 8. Neither does it follow that the government will inexorably be aggrieved if and when these temporary remedies come into play. we take exception to the characterization of the DENR secretary as a subservient nonentity whom the contractor can overrule at will. Furthermore.to determine what work program or budget would be appropriate. Clause 8. the provision does give the DENR secretary more than sufficient time (60 days) to react to submitted work programs and budgets. 8. These temporary or stop-gap solutions are not necessarily evil or wrong. It cannot be supposed that proper grounds for objecting thereto. it clearly retains full and effective control of the exploitation of the mineral resources. in order that there will be no unreasonably long delays in the performance of the works. Anyway. prohibit work thereon until the dispute is resolved.3. Clause 8. avoidance of long delays in these situations will undoubtedly redound to the benefit of the State as well as the contractor. On the other hand. if any exist. however. nor entail a downward variance of more than twenty per centum (20percent) of the relevant Budget. Clause 8.5. The Contractor may make such changes without approval of the Secretary provided they do not change the general objective of any Work Programme. And ultimately. xxx xxx xxx 8. the Parties shall promptly meet and endeavor to agree on amendments to the Work Programme or Budget.despite Clause 8. if the parties have a difference of opinion with regard to matters affecting operations and management. that the foregoing provisions do not manifest a relinquishment of control. processing and approval of submitted work programs and budgets.3 -. the DENR secretary has no authority whatsoever to disapprove the work program.
and effected rapidly. Government Not a Subcontractor Petitioners further maintain that the contractor can compel the government to exercise its power of eminent domain to acquire surface areas within the contract area for the contractor’s use. should there be disagreement with the actions taken by the contractor in this instance as well as under Clause 8. This clause. after appropriate exploration works. Accordingly. however. Clause 8. Such changes are. adjusted for inflation. net of the areas relinquished. Hence. there may be instances in which changes will have to be effected. which portions of the contract area do not contain minerals in commercial quantities sufficient to justify developing the same and ought therefore to be relinquished. the heftier the amount of occupation fees to be paid by the contractor. According to private respondent.5 does not constitute proof that the State has relinquished control. not for public purposes but on behalf of a private . And ultimately. petitioners complain that the contractor has full discretion to select -and the government has no say whatsoever as to -. a mining company tries to relinquish as much non-mineral areas as soon as possible. At the termination of this Agreement such areas shall be sold by public auction or tender and the Contractor shall be entitled to reimbursement of the costs of acquisition and maintenance. Thus. while still guaranteeing that the approved work programs and budgets are not abandoned altogether. relinquishment is not an issue. be compelled “to make use of its power of eminent domain. to purchase or acquire surface areas for and on behalf of the Contractor at such price and terms as may be acceptable to the contractor. from the proceeds of sale. since events may take shape and unfold with suddenness and urgency. Clause 8. The State cannot just substitute its judgment for that of the contractor and dictate upon the latter which areas to give up. Neither will it want to relinquish promising sites. subject to certain conditions that will serve to limit or restrict the variance and prevent the contractor from straying very far from what has been approved. the DENR secretary may resort to cancellation/termination of the FTAA as the ultimate sanction.the parts of the contract area to be relinquished pursuant to Clause 4.6 of the WMCP FTAA. “government becomes a subcontractor to the contractor” and may.” According to petitioners. on account of this provision. because the annual occupation fees paid to the government are based on the total hectarage of the contract area. Rather. or predict how situations may change. which other contractors may subsequently pick up.2 (e) of the WMCP FTAA provides that the government agrees that the contractor shall “(e) have the right to require the Government at the Contractor’s own cost. we can be certain that the contractor’s self-interest will propel proper and efficient relinquishment.5 provides the contractor a certain amount of flexibility to meet unexpected situations. Clause 8.3 discussed above. the larger the remaining area. Moreover. Discretion to Select Contract Area Not an Abdication of Control Next. Clause 10. while approved work programs and budgets are to be followed and complied with as far as practicable. does not constitute abdication of control. given that the contractor will not want to pay the annual occupation fees on the non-mineral parts of its contract area. however. Thus.5 allows the contractor to move ahead and make changes without the express or implicit approval of the DENR secretary. it is a mere acknowledgment of the fact that the contractor will have determined.circumstances.
 Section 10. then. to be reimbursed from proceeds of the sale of the surface areas. However. and that books of accounts and records shall be open for inspection by the government.. the power of the courts to determine the amount corresponding to the constitutional requirement of just compensation has allegedly also been contracted away by the government. which incorporates into all FTAAs certain terms. Section 10. The contractor.e. the tailings dam.” . Hence. Apart from Clause 1. x x x (m) Requiring the proponent to dispose of the minerals at the highest price and more advantageous terms and conditions. at the time of the execution of the FTAA. the contractor. private respondent has proffered a logical explanation for the provision. without being aware of the rationale for the said provision.party. The government then acquires ownership of the surface land areas on behalf of the contractor. Rather than having the foreign contractor act through a dummy corporation. including the following: “(l) The contractors shall furnish the Government records of geologic. the camp site. disqualified to own land.4 of the FTAA obligating the contractor to account for the total value of mineral production and the sale of minerals. will not act as a subcontractor of the contractor. the particular surface areas with favorable topography deemed ideal for such infrastructure and will need to acquire the surface rights. was a foreign-owned corporation and therefore not qualified to own land. Clearly. having the State do the purchasing is a better alternative.the mine processing plant.as much as it calls for a qualified party to acquire the surface rights on behalf of a foreign-owned contractor. we can also look to Section 35 of RA 7942. which the government will dispose of through public bidding. This will at least cause the government to be aware of such transaction/s and foster transparency in the contractor’s dealings with the local property owners. of course. It will then have to identify and pinpoint. As such. The State owns the mineral deposits in the earth. it may therefore freely negotiate with the surface rights owners and acquire the surface property in its own right. conditions and warranties. in order to enable the latter to proceed to fully implement the FTAA. shoulders the purchase price of the land. i. it has at some future date to construct the infrastructure -. identifies to the government the specific surface areas within the FTAA contract area to be acquired for the mine infrastructure. rather. That provision does not call for the exercise of the power of eminent domain -. WMCP. since it is a Filipino corporation qualified to own and hold land. and other infrastructure -needed for the large-scale mining operations. on account of the latter’s commitment that the acquisition shall be at such terms as may be acceptable to the contractor. The government. petitioners have needlessly jumped to unwarranted conclusions. It should be noted that this provision will not be applicable to Sagittarius as the present FTAA contractor. within the FTAA contract area. it will facilitate the transaction and enable the parties to avoid a technical violation of the Anti-Dummy Law. As contractor.2(e) contemplates a situation applicable to foreignowned corporations.and determination of just compensation is not an issue -.2(e) sets forth the mechanism whereby the foreign-owned contractor.” Moreover. Absence of Provision Requiring Sale at Posted Prices Not Problematic The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the contractor to sell the mineral products at posted or market prices is not a problem. accounting and other relevant data for its mining operation. and is also qualified to own land. the provision allows it. after termination of the FTAA.
Moreover. consonant with the unfettered exercise of their business judgment and discretion. We believe it is not necessary for government to attempt to limit or restrict the freedom of the shareholders in the contractor to freely transfer. but also the mineral products extracted.2 (l) to mortgage and encumber not only its rights and interests in the FTAA and the infrastructure and improvements introduced. In any case.and regardless of whether these shareholders decide to take the company public. as will be explained below. the provisions of prevailing statutes as well as rules and regulations are deemed written into contracts. Likewise. even if it is allowed to mortgage or encumber the mineral end-products themselves. In brief. the contractor is not freed of its obligation to pay the government its basic and additional shares in the net mining revenue. nationality and percentage ownership of the various shareholders of the contractor -.2(l) is not something out of the ordinary or objectionable. banks lend not only on the security of mortgages on fixed assets. dispose of or encumber their shareholdings. the alarum raised over the contractor’s right to mortgage the minerals is simply unwarranted. but also on encumbrances of goods produced that can easily be sold and converted into cash that can be applied to the repayment of loans. Rather. which gives the contractor authority “to change its equity structure at any time.in favor of its creditor-banks. float bonds and other fixed-income instruments. Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose of the minerals and by-products at the highest market price and to register with the MGB a copy of the sales agreement. Banks even lend on the security of accounts receivable that are collectible within 90 days. Just the same.or the corresponding accounts receivable. but considering that WMCP then was 100 percent foreignowned. Clause 10. Private respondents do not touch on this matter. The latter’s right to mortgage the minerals does not negate the State’s right to receive its share of net mining revenues. Ordinarily. regardless of the identity. After all. what is critical is that. under the direction and control of the government. under the WMCP FTAA.” This provision may seem somewhat unusual. Shareholders Free to Sell Their Stocks Petitioners likewise criticize Clause 10. which is the essential thing to consider. Contractor’s Right to Mortgage Not Objectionable Per Se Petitioners also question the absolute right of the contractor under Clause 10. the contractor must account for the value of mineral production and the sales proceeds therefrom. if sold on terms -.2(k). the foreignheld shares may change hands freely. any change would mean that such percentage would either stay unaltered or be decreased in favor of Filipino ownership. . but we believe that this provision may have to do with the conditions imposed by the creditor-banks of the then foreign contractor WMCP to secure the lendings made or to be made to the latter. It is not uncommon to find that a debtor corporation has executed deeds of assignment “by way of security” over the production for the next twelve months and/or the proceeds of the sale thereof -. or allow the creditor-banks to take an equity position in the company -. Such deeds may include authorizing the creditors to sell the products themselves and to collect the sales proceeds and/or the accounts receivable.For that matter. the government remains entitled to its sixty percent share in the net mining revenues of the contractor. Such eventuality is as it should be. Seen in this context.the foreignowned contractor is always in a position to render the services required under the FTAA.
the foregoing evaluation and analysis of the aforementioned FTAA provisions sufficiently overturns petitioners’ litany of objections to and criticisms of the State’s alleged lack of control.” The colatilla obviously safeguards the State’s interests. common to the said provisions. Financial Benefits Not Surrendered to the Contractor One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned in the Decision that beneficial ownership of the mineral resources had been conveyed to the contractor. No. as it is not equivalent to saying that the government must automatically consent to it.” As the WMCP FTAA contained similar provisions deemed by the ponente to be abhorrent to the Constitution. as they enable the contractor to obtain the needed financing. approval thereof is not mandatory on the part of the government. Clause 10. and that without the needed financing. Beneficial ownership has been defined as ownership recognized by law and capable of being enforced in the courts at the suit of the beneficial owner. the Decision struck down the Contract as well. In short. in the exercise of its power of control. (the Government shall) cooperate with the Contractor in such efforts provided that such financing arrangements will in no event reduce the Contractor’s obligations or the Government’s rights hereunder.4(i) only obliges the State to favorably consider any such request. In fine. which only states that “if the Contractor seeks to obtain financing contemplated herein from banks or other financial institutions.4(e).4(e) and (i).Contractor’s Right to Ask For Amendment Not Absolute With respect to Clauses 10. which is not at all unreasonable. This provision should be read together with the rest of the FTAA provisions instituting government control and supervision over the mining enterprise. it is up to the contractor to prove to the government that the requested changes to the FTAA are indispensable. leaving the State with nothing but bare title thereto. if breached. that there are no other sources of financing available to the contractor (a very unlikely scenario).” Petitioners see in this provision a complete renunciation of control. On the other hand. Rather. However.A. we do not find anything wrong with Clause 10. to indicate the interest of a beneficiary in trust property (also called “equitable . But the bottom line is. the above-cited provisions of R. it will give the government cause to object to the proposed amendments.4(i) provides that “the Government shall favourably consider any request from [the] Contractor for amendments of this Agreement which are necessary in order for the Contractor to successfully obtain the financing. We disagree. the government has the final say on whether to approve or disapprove such requested amendments to the FTAA. “By allowing foreign contractors to manage or operate all the aspects of the mining operation. The proviso does not say that the government shall grant any request for amendment. that without such contract changes. petitioners complain that these provisions bind government to allow amendments to the FTAA if required by banks and other financial institutions as part of the conditions for new lendings. that the foreign contractor manages the mineral resources in the same way that foreign contractors in service contracts used to. The clause should not be given an interpretation that enables the contractor to wiggle out of the restrictions imposed upon it by merely suggesting that certain amendments are requested by the lenders. Black’s Law Dictionary indicates that the term is used in two senses: first. Clause 10. the funders would absolutely refuse to extend the loan. This finding was based on the underlying assumption. 7942 have in effect conveyed beneficial ownership over the nation’s mineral resources to these contractors. the execution of the work programs will not proceed.
 Usually. As public respondents correctly point out. while the contractor expects a reasonable return on its investments in the project. Specifically. 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. DAO 99-56. On the other hand. The general framework or concept followed in crafting the fiscal regime of the FTAA is based on the principle that the government expects real contributions to the economic growth and general welfare of the country. beneficial or otherwise. The major taxes and other payments constituting the basic government share are enumerated below: Payments to the National Government: • • Excise tax on minerals . the receipt of its share from the taxes and fees normally paid by a mining enterprise. and a fair. which can be legally asserted and enforced as against the State. fees and royalties. Mines & Geosciences Bureau and other national government agencies imposing taxes or fees). or the proceeds of their sale. and (iii) persons and communities directly affected by the mining project. The contractor commits to perform certain services for the government in respect of the mining operation. referred to as “the Government Share. These benefits are to be equitably shared among the government (national and local). as against possession of the bare title to property. in exchange therefor. of the mining property it is to develop. These are amounts paid directly to (i) the national government (through the Bureau of Internal Revenue. and in turn it is to be compensated out of the net mining revenues generated from the sale of mineral products. and the affected communities. as well as other payments made by the contractor during the term of the FTAA. (ii) the local government units where the mining activity is conducted. All lawful contracts require such mutual prestations.2 percent of the gross output of mining operations Contractor’ income tax . which is the enjoyment of all the benefits and privileges of ownership. equitable. competitive and stable investment regime for the large-scale exploration. the minerals to be produced. inter alia. plus an additional share for the government based on the options and formulae set forth in DAO 99-56. An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon WMCP ownership. After the contractor has recovered its initial investment. The said DAO spells out the financial benefits the government will receive from an FTAA. What would be objectionable is a contractual provision that unduly benefits the contractor far in excess of the service rendered or value delivered. it will pay all the normal taxes and fees comprising the basic share of the government.ownership”). the FTAA contractor is granted by the government certain fiscal and non-fiscal incentives to help support the former’s cash flow during the most critical phase (cost recovery) and to make the Philippines competitive with other mineral-producing countries. though the shareholder is not registered in the corporation’s books as the owner.maximum of 32 percent of taxable income for corporations . to refer to the power of a corporate shareholder to buy or sell the shares. Bureau of Customs.” composed of a basic government share and an additional government share. development and commercial utilization of minerals. under the fiscal regime. The basic government share is comprised of all direct taxes. and second. the government’s expectation is. Equitable Sharing of Financial Benefits On the contrary. the FTAA contractor. and the WMCP FTAA is no different. if any. entitled “Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance Agreements” aims to ensure an equitable sharing of the benefits derived from mineral resources. The purpose is to ensure sustainable mineral resources development. beneficial ownership is distinguished from naked ownership. any interest the contractor may have in the proceeds of the mining operation is merely the equivalent of the consideration the government has undertaken to pay for its services.
certain taxes. aircraft and vessels VAT on imported equipment.) The government.the rate depends on the type of transaction Capital gains tax on traded stocks . which provides that the government share shall be comprised of. PhP100 per hectare per year if located in a mineral reservation Community tax .1 percent of the basis used for the real property tax Occupation fees . the contractor’s corporate income tax. among other things. 3-10 percent for explosives. and (3) the sharing based on the cumulative net mining revenue. Payments to Local Governments: Local business tax . fees and imposts as of the effective date of the FTAA . duties and fees as provided for under existing laws.maximum of PhP10. radio permit.” in order to attain a fifty-fifty sharing of net benefits from mining.the rate and the type depend on the local government Other Payments: Royalty to indigenous cultural communities.2 percent of the fair market value of the property. among other things. and 3-10 percent for vehicles. special allowance. duties and fees.payment to claim owners and surface rights holders Apart from the basic share. 3-15 percent for mechanical and electrical equipment. goods and services – 10 percent of value Royalties due the government on minerals extracted from mineral reservations. has interpreted the insertion of the phrase among other things as signifying that the government is entitled to an “additional government share” to be paid by the contractor apart from the “basic share. (2) the share based on excess profits.” (Bold types supplied. firearms permit. Proceeds from the government shares arising from an FTAA contract are distributed to and received by the different levels of government in the following proportions: National Government 50 percent Provincial Government 10 percent Municipal Government 20 percent Affected Barangays 20 percent The portion of revenues remaining after the deduction of the basic and additional government shares is what goes to the contractor.PhP50 per hectare per year. if any – 1 percent of gross output from mining operations Special allowance . excise tax. with a written notice to the government prior to the commencement of the development and construction phase of the mining project.5 to 10 percent of the value of the shares Withholding tax on interest payments on foreign loans -15 percent of the amount of interest Withholding tax on dividend payments to foreign stockholders – 15 percent of the dividend Wharfage and port fees Licensing fees (for example. based on an assessment level set by the local government Special education levy .a maximum of 2 percent of gross sales or receipts (the rate varies among local government units) Real property tax . professional fees) Other national taxes and fees. Government’s Share in an . withholding tax due from the contractor’s foreign stockholders arising from dividend or interest payments to the said foreign stockholder in case of a foreign national.• • • • • • • • • • • • • • • • • • Customs duties and fees on imported capital equipment -the rate is set by the Tariff and Customs Code (3-7 percent for chemicals. The particular formula to be applied will be selected by the contractor.500 per year All other local government taxes. The additional government share is computed by using one of three options or schemes presented in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows. if applicable – 5 percent of the actual market value of the minerals produced Documentary stamp tax . The subject proviso reads: “The Government share in a financial or technical assistance agreement shall consist of. through the DENR and the MGB. and all such other taxes. an additional government share is also collected from the FTAA contractor in accordance with the second paragraph of Section 81 of RA 7942.
Definitely. duties. duties and fees). duties and fees. the explanation of the three options or formulas -. as compared with. an option it will apply to all of its mining operations.serves to debunk the claim that the government’s take from an FTAA consists solely of taxes. In any event. the additional share may be (a) an amount that will result in a 50-50 sharing of the cumulative present value of the cash flows of the enterprise.failed to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the three schemes or options for computing the additional government share presented in DAO 99-56. reckoned against a benchmark return on investments. Such a share was to consist not of taxes. what is quite evident is the fact that the additional government share. the OSG omitted any mention of the three options.direct or indirect -. Carpio’s Opinion. pointed out in Justice Antonio T. and the even more abstruse mathematical jargon employed in DAO 9956. and the Office of the Solicitor General.that would suggest that such phrase should be interpreted as referring only to taxes. Precisely for that reason. Such revenue would roughly be equivalent to “taxable income” or income before income tax. the State has been deprived of a share in the after-tax income of the enterprise. so as to achieve a fifty-fifty sharing -. which had nothing at all to do with the additional government share. to fulfill the legislative intent behind the inclusion of the phrase among other things in the second paragraph of Section 81. But. The additional government share was to be paid by the contractor on top of the basic share. the Court would have been duly apprised of the real nature and particulars of the additional share. Unfortunately. The contractor is required to select one of the three options or formulae for computing the additional share. this move created the wrong impression. there is nothing in that phrase -.or with duties. quoted earlier. perhaps. The said proviso has been denounced. the State’s share in FTAAs with foreign contractors has been limited to taxes. the Office of the Solicitor General -.  the DENR structured and formulated in DAO 99-56 the said additional government share. it is pertinent at this juncture to mention the criticism leveled at the second paragraph of Section 81 of RA 7942. fees and duties only. Instead. appears to have erroneously claimed that the phrase refers to indirect taxes. “net mining revenue” is defined as the gross output from mining operations for a calendar year. In the Ramos-DeVera paper.although in possession of the relevant data -. fees or charges. for the reason that Congress deliberately avoided setting unnecessary limitations as to what may constitute compensation to the State for the exploitation and use of mineral resources.between the government and the contractor -of net benefits from mining. that the OSG had taken the position that the additional government share consisted of indirect taxes. Unfortunately. To repeat. allegedly. on account of the esoteric discussion in the Ramos-DeVera paper. in effect. calculating the additional government share on the basis of net income (after . In the face of this allegation. less deductible expenses (inclusive of taxes. it is over and above the basic government share composed of taxes and duties. Duties and Fees In connection with the foregoing discussion on the basic and additional government shares. As used above. as formulated. to begin with.or in the second paragraph of Section 81 -. But the inclusion of that phrase clearly and unmistakably reveals the legislative intent to have the State collect more than just the usual taxes. but of a share in the earnings or cash flows of the mining enterprise. fees and duties.presented in DAO 99-56 for the computation of the additional government share -. say. fees and the like. Had due care been taken by the OSG.FTAA Not Consisting Solely of Taxes. one has to consider that the law does not define the term among other things. in its Motion for Reconsideration. or (c) an amount that will result in a fifty-fifty sharing of the cumulative net mining revenue from the end of the recovery period up to the taxable year in question. the OSG skipped to a side discussion of the effect of indirect taxes. Certainly. The law provides no definition of the term among other things. Simply put. has nothing to do with taxes -. (b) an amount equivalent to 25 percent of the additional or excess profits of the enterprise . because.
Consequently. Ramos and De Vera stated. as much as 77 percent and even 89 percent -. and on the other. not locking into a fixed definition of the term among other things will ultimately be more beneficial to the government. these results are not at all shabby. Ramos and de Vera also performed some quantifications of the government share via a financial modeling of each of the three options discussed above. duties and fees. These indirect taxes and other contributions are real and actual benefits enjoyed by the Filipino people and/or government. if some of the quantifiable items are taken into account in the computations. Such flexibility is especially significant for the government in terms of helping our mining enterprises remain competitive in world markets despite challenging and shifting economic scenarios. fees and duties. but also greatly advantageous to the government. he refuses to allow the State to benefit from the correct and proper interpretation of the DENR/MGB. particularly those in the international markets. Furthermore. Besides. the agencies concerned did an admirable job of conceiving and developing not just one formula. as it will have that innate flexibility to adjust to and cope with rapidly changing circumstances. On the one hand. this DENR/MGB interpretation is not only legally sound. even though production rate decreases. the collection of the State’s share is not even certain. on account of the proviso.in one instance. without the government having to contribute or risk anything.of the net present value of total benefits from the project. it should be noted that the three options or formulae do not yet take into account the indirect taxes and other financial contributions of mining projects. the net mining revenue is a better and much more reasonable basis for such computation. considering only the basic and the additional shares. As can be seen from DAO 99-56. As noted in the RamosDeVera paper. as it gives a truer picture of the profitability of the company. but three different formulae for arriving at the additional government share. considering that the contractor puts in all the capital requirements and assumes all the risks. we stress that we do not share the view that in FTAAs with foreign contractors under RA 7942. We are bewildered by his position. he condemns the Mining Law for allegedly limiting the government’s benefits only to taxes. and. leaving it to the agencies concerned to devise and develop the various modes of arriving at a reasonable and fair amount for the additional government share. Definitely. instead. duties and fees only and that the DENR/MGB interpretation of the phrase among other things is correct. other alternatives or schemes for a possible improvement of the fiscal regime for FTAAs are also being studied by the government. Despite the foregoing explanation. One last point on the subject. and that. the government share will actually increase when the net mining revenue and the additional profit-based options are used. To remove all doubts then. Each of these options is quite fair and reasonable. The objection has been advanced that. as compared with the other two options.income tax). the financial modeling would show that the total government share increases to 60 percent or higher -. the government’s share is limited to taxes. duties and fees. as Messrs. The legislature acted judiciously in not defining the terms among other things and. Messrs. Collections Not Made Uncertain by the Third Paragraph of Section 81 The third or last paragraph of Section 81 provides that the government share in FTAAs shall be collected when the contractor shall have recovered its pre-operating expenses and exploration and development expenditures. To demonstrate that the three options or formulations will operate as intended. we find the attacks on the second paragraph of Section 81 of RA 7942 totally unwarranted. They found that the government would get the highest share from the option that is based on the net mining revenue. as there is no time limit in RA 7942 for this . we hold that the State’s share is not limited to taxes. In conclusion. Justice Carpio still insisted during the Court’s deliberations that the phrase among other things refers only to taxes. Now.
which are. with the foreknowledge that -. too. At any rate. a mineral production sharing agreement (MPSA). This declaration is to be accompanied by a work program for development for the Bureau’s approval. these recovery periods are determined. The 1995 and 1996 Implementing Rules and Regulations of RA 7942 specify that the period of recovery. or some other mineral agreement. It will be wellinformed as to the amounts of pre-operating and other expenses that the contractor may legitimately recover and the approximate period of time needed to effect such a recovery. with the submission of approved work programs and budgets for the exploration and the development/construction phases. That is not all. file with the Mines and Geosciences Bureau a declaration of mining project feasibility. the government will be able to scrutinize and approve or reject such expenditures. on account of their technical expertise and training. whichever comes earlier. preferring to leave it to the concerned agencies. Under Section 24. even at the stage of application for an exploration permit. reckoned from the date of commercial operation. Naturally. nothing prevents the contractors from recording such expenses in amounts equal to the mining revenues anticipated for the first 10 or 15 years of commercial production. Moreover. in a better position to determine the appropriate durations for such recovery periods. containing a yearly budget of proposed expenditures. certain crucial provisions in the Mining Law were overlooked. At this stage. We believe that Congress did not set any time limit for the grace period. Section 23. shall be for a period not exceeding five years. the concerned agencies have not been remiss in this area. .if approved -these will subsequently be recorded as pre-operating expenses that the contractor will have to recoup over the grace period. dealing with the rights and obligations of the exploration permit grantee. Besides. Obviously. the necessary prelude for entering into an FTAA. or until the date of actual recovery. the government obviously has the opportunity to approve or reject the proposed work program and budgeted expenditures for development works on the project. x x x. states: “The permittee shall undertake exploration work on the area as specified by its permit based on an approved work program. exploration and development expenses of the foreign contractors. to a great extent. Approval of Pre-Operating Expenses Required by RA 7942 Still. the government would be unable to say when it would start to receive its share under the FTAA. under the circumstances. who are in effect given unfettered discretion to determine the amounts of such expenses.” (underscoring supplied) Clearly. the applicant is required to submit -. with the result that the share of the State will be zero for the first 10 or 15 years.a proposed work program for exploration. Supposedly. The State has the opportunity to pass upon (and approve or reject) such proposed expenditures. within the term of the permit. by technical and technological factors peculiar to the mining industry. with developments and advances in technology and in the geosciences. There is therefore no way the contractor can just randomly post any amount of pre-operating expenses and expect to recover the same. RA 7942 is criticized for allegedly not requiring government approval of pre-operating. After all. an exploration permit holder who determines the commercial viability of a project covering a mining area may. We believe that the argument is based on incorrect information as well as speculation. we cannot discount the possibility of shorter recovery periods. Such expenditures will ultimately become the pre-operating and development costs that will have to be recovered by the contractor.” The next proviso reads: “Any expenditure in excess of the yearly budget of the approved work program may be carried forward and credited to the succeeding years covering the duration of the permit.for approval by the government -.grace period or recovery period.
reiterates the same limitation made in Section 80. Likewise. this Court cannot make any pronouncement in this case regarding the constitutionality of Sections 80 and 84 without violating the fundamental rules of due process. concession or lease” system. This Section states in relevant part that “the provisions of Chapter XIV [which includes Sections 80 to 82] on government share in mineral production-sharing agreement x x x shall immediately govern and apply to a mining lessee or contractor. the State has every opportunity to pass upon the proposed expenditures under an FTAA and approve or reject them.” (underscoring supplied) This provision is construed as signifying that the 2 percent excise tax which. Neither did the parties argue upon them in their pleadings.as well as in co-production agreements and joint venture agreements -.” (underscoring supplied) Unarguably. the portion considered offensive to the Constitution. which deals with the terms and conditions exclusively applicable to FTAAs. Sections 80.The aforecited provisions on approved work programs and budgets have counterparts in Section 35. and was never touched upon by the parties in their pleadings. Indeed. Section 112 is disparaged for allegedly reverting FTAAs and all mineral agreements to the old and discredited “license. Hence. comprises the government share in MPSAs shall now also constitute the government share in FTAAs -. concession or lease. It has access to all the information it may need in order to determine in advance the amounts of pre-operating and developmental expenses that will have to be recovered by the contractor and the amount of time needed for such recovery. the two provisos will have to await another case specifically placing them in issue. together with Section 81. pursuant to Section 80. which pertained exclusively to FTAAs. we cannot agree that the third or last paragraph of Section 81 of RA 7942 is in any manner unconstitutional.” as well as “work programs and minimum expenditures commitments. and give them away for free to private business enterprises (including foreign owned corporations).particularly the third issue. managerial and technical expertise and technological] resources under its supervision pursuant to the periodic work programs and related budgets x x x. the said provisions have been construed as constituting. given the provisions of Section 35. “a firm commitment x x x of an amount corresponding to the expenditure obligation that will be invested in the contract area” and “representations and warranties x x x to timely deploy these [financing. No Deprivation of Beneficial Rights It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed above). the fact of . On the other hand. 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights of ownership over mineral resources. Whether Section 112 may properly apply to co-production or joint venture agreements. These particular statutory provisions do not come within the issues that were defined and delineated by this Court during the Oral Argument -. it must also be noted that the criticism hurled against this Section is rooted in unwarranted conclusions made without considering other relevant provisions in the statute. The said provision requires certain terms and conditions to be incorporated into FTAAs.” Specifically. The colatilla in Section 84. Under Section 151(A) of the Tax Code. In summary.to the exclusion of revenues of any other nature or from any other source. among them. Section 80 is condemned for limiting the State’s share in a mineral production-sharing agreement (MPSA) to just the excise tax on the mineral product. an ingenious attempt to resurrect the old and discredited system of “license. such tax is only 2 percent of the market value of the gross output of the minerals. It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and have no application to FTAAs. Apart from the fact that Section 112 likewise does not come within the issues delineated by this Court during the Oral Argument.
the parties who executed them) before these MPSAs can be reviewed. based on scientific procedures. since Section 35 (found in Chapter VI) creates a long list of specific terms. when the contractor “discovers” that the mineral ore reserves in the contract area are not sufficient to justify large-scale mining. tests and data. thereby leading the State to believe that the area could sustain large-scale mining. First. First.on considerations of due process -. We repeat: basic due process requires that we hear the parties who have a real legal interest in the MPSAs (i. allegedly because the WMCP FTAA contains a provision which grants the contractor unbridled and “automatic” authority to convert the FTAA into an MPSA. or worse. Section 112 does not apply to FTAAs. Anyway. it is a bit of a stretch to insist that it covers FTAAs as well. 84 and 112. under Section 39.” second. it must convincingly show that the “economic viability of the contract is found to be inadequate to justify large-scale mining operations. particularly Section 39 of RA 7942. The contractor must explain why. despite its exploration activities. the only reason it is being applied to them at all is the fact that it happens to use the word “contractor. and is presumably being implemented.are covered by Chapter V of RA 7942. Right away. The Court cannot rule on mere surmises and hypothetical assumptions. mineral agreements. inter alia. and thus the contractor requests the conversion of the FTAA into an MPSA. also based on scientific tests and procedures. at this point. The law obviously intends to treat them as a breed apart from mineral agreements. It must likewise prove that its new findings. or were way off. this Court -. and should such conversion happen. Section 39 contemplates a situation in which an FTAA has already been executed and entered into. representations and warranties -. turned out to be wrong. The contractor must justify fully why its earlier findings. if later on these Sections are declared . commitments. and to apply for an FTAA. Anything less than that requirement would be arbitrary and capricious. struck down by the Court. co-production agreements. conditions. The first requirement is not as simple as it looks. On the other hand. the conversion of the present FTAA into an MPSA is problematic. In brief. an entirely different chapter altogether.the matter is that it cannot be made to apply to FTAAs.which have not been made applicable to mineral agreements -. The contractor in effect needs to explain why. this puts the contractor’s technical capabilities and expertise into serious doubt.” Hence.cannot rule upon them here. The State could even question and challenge the contractor’s qualification and competence to continue the activity under an MPSA. without firm factual anchor. the State would be prejudiced since its share would be limited to the 2 percent excise tax.MPSAs. while there may be cogent grounds to assail the aforecited Sections. All in all. it will have to risk a possible declaration of the unconstitutionality (in a proper case) of Sections 80. Second. of which there are three types -.to be incorporated into FTAAs. We hold however that. including the conduct of various geologic and other scientific tests and procedures in the contract area. FTAAs are covered by and in fact are the subject of Chapter VI.e. the FTAA contractor is given the option to “downgrade” -. it decided to file a declaration of mining feasibility. it was unable to determine correctly the mineral ore reserves and the economic viability of the area. are correct. In any event. Thus. Justice Carpio adds that there are five MPSAs already signed just awaiting the judgment of this Court on respondents’ and intervenor’s Motions for Reconsideration. 84 and 112. after conducting such exploration activities. the contractor must comply with the law. We wonder if anyone would relish being in this situation. this argument is based on pure speculation. Third. and third. Notwithstanding the foregoing explanation.to convert the FTAA into a mineral agreement at any time during the term if the economic viability of the contract area is inadequate to sustain large-scale mining operations. and joint venture agreements -. it must contend with the President’s exercise of the power of State control over the EDU of natural resources. Section 112 does not specifically mention or refer to FTAAs. Justices Carpio and Morales maintain that the Court must rule now on the constitutionality of Sections 80. there is no reason to think that the law through Section 112 intends to exact from FTAA contractors merely the same government share (a 2 percent excise tax) that it apparently demands from contractors under the three forms of mineral agreements.
must -. and royalties. and so on. all the cash spent thereon will not be returned to the foreign investors. This is just common business sense. they do not just pluck out the minerals and cart them off. If the exploration proves unsuccessful. to remain there permanently. they have to disburse money to meet their various needs. it will -. they need to continue operating. generator sets. The benefits therefrom cannot be simply ignored. we should address the contention that our mineral resources are effectively given away for free by the law (RA 7942) in general and by Sections 80. Recovery of investments is absolutely indispensable for business survival. in order to do so. along with the additional government share. All told. duties. Rather. install their machinery and equipment. but all businessmen and all business entities in general. It must be noted that there can be no recovery without commencing actual commercial production. pre-feasibility. feasibility. they have to invest huge sums of money (tens or hundreds of millions of dollars) in exploration works first. Foreign contractors do not just waltz into town one day and leave the next. In order to get at the minerals. such declaration will not affect the other portions since they are clearly separable from the rest. and other operating expenses. they also have to pay taxes. if only to disabuse our minds. taking away mineral resources without paying anything. The foregoing discussion should serve to rid us of the mistaken belief that. Our Mineral Resources Not Given Away for Free by RA 7942 Nevertheless. All Businesses Entitled to Cost Recovery Let it be put on record that not only foreign contractors. rather. 84 and 112 in particular. storage areas and vehicle depots. In short. one way or another. in the process of recouping their investments and costs. they need to expend a great deal more of their funds for facilities. since the foreign contractors are allowed to recover their investments and costs. pumps. the exploration. In the meantime that the contractors are recouping costs. the end result is that they practically get the minerals for free. And assuming that the foreign contractors are successful in finding ore bodies that are viable for commercial exploitation. salaries of local labor and technical staff. that eventuality will happen only after they shall have first put out the cash and fueled the economy. development and construction phases together add up to as many as eleven years. before they can commence commercial production from which they would eventually derive revenues. prepare tailing ponds. In the meantime. they recover or recoup their investments out of actual commercial production by not paying a portion of the basic government share corresponding to national taxes. fees. The contractors have to continually shell out funds for the duration of over a decade. That is one of the first things a student learns in business school. equipment and supplies. fuel. Moreover.unconstitutional. money is continually infused into the economy. still. those funds will have been infused into the local economy. dig mine shafts and connecting tunnels. Regardless of its nationality. water tanks and sewer systems. All that money translates into a lot of “pump-priming” for the local economy. and whether or not a business entity has a five-year cost recovery period. have to recoup their investments and costs. which leaves the Filipino people none the better for it. for a period of not more than five years  counted from the commencement of commercial production. Granted that the contractors are allowed subsequently to recover their preoperating expenses. the foreign contractors do not actually pull out the money from the economy.have to recoup its investments. 81. In short. They have first to build camp sites and roadways. and business survival ensures soundness .
as mandated by Section 2 of Article XII of the Constitution. the foreign contractors will have just broken even. In sum. Clearly. grows businesses. may as well not be there for all the good they do us right now. and creates infrastructure. It takes a lot of hard cash to even begin to do what they do. this contention is premised on erroneous assumptions. Second. there is no business that gets ahead or earns profits without any cost to it. the present value of the cash flows. the concerned agencies have correctly interpreted the second paragraph of Section 81 of RA 7942 to mean that the government is entitled to an additional share. this is a question of focusing the judicial spotlight squarely on all the pertinent facts as they bear upon the issue at hand. So it is not correct to say that all of the after-tax income will accrue to the foreign FTAA contractor. Repatriation of After-Tax Income Another objection points to the alleged failure of the Mining Law to ensure real contributions to the economic growth and general welfare of the country. Those untapped mineral resources. they must strive to maintain profitability. taken together with indirect taxes and other contributions. And what they do in this country ultimately benefits the local economy. or other quick assets. And. First. to be computed based on any one of the following factors: net mining revenues. Pursuant to Section 81 of the law. Hence. In terms of cash flows. they pay the whole of the basic government share and the additional government share which. in order to avoid leaping precipitately to ill-conceived conclusions not solidly grounded upon fact. During this period. though the State owns vast mineral wealth. such wealth is not readily accessible or transformable into usable and negotiable currency without the intervention of the credible mining companies. for the remainder of the contract term. thereby resulting in no real contribution to the economic growth of this country. which will naturally repatriate the said after-tax income to their home countries.of the economy. technology and know-how for that. we definitely disagree with the sweeping claim that no FTAA under Section 81 will ever make any real contribution to the growth of the economy or to the general welfare of the country. Thus. They have yet to make profits. but doing so may very likely disrupt normal business operations. the foreign contractors can hardly “repatriate the entire after-tax income to their home countries. They have first to be extracted and converted into marketable form. amount to approximately 60 percent or more of the entire financial benefits generated by the mining venture. one may need to sell off assets or immediately collect receivables or liquidate short-term investments. which is critical and contributory to the general welfare of the people. as already discussed in detail hereinabove. as the preceding discussion has shown. as the government effectively receives a significant portion thereof. generates employment. The “net income” figure reflected in the bottom line is a mere accounting figure not necessarily corresponding to cash in the bank. as discussed above. In order to produce and set aside cash in an amount equivalent to the bottom line figure. Is it likely that they would at that point stop their operations and leave? Certainly not. the funds corresponding to the net income as of a particular point in time are actually in use in the normal course of business .” Even a bit of knowledge of corporate finance will show that it will be impossible to maintain a business as a “going concern” if the entire “net profit” earned in any particular year will be taken out and repatriated. After about eleven years of pre-operation and another five years for cost recovery. Rather. This is not a plea for foreign contractors. Even government corporations must recoup their investments in order to survive and continue in operation. hidden beneath tons of earth and rock. the entire after-tax income arising from the exploitation of mineral resources owned by the State supposedly belongs to the foreign contractors. It must also be stressed that. or excess profits reckoned against a benchmark rate of return on investments. and the country needs the foreign contractor’s funds. we can hardly talk about foreign contractors taking our mineral resources for free.
After deducting operating expenses. Let us base it on gross revenues of. no sane business person. Verba legis will serve to dispel unwarranted and untenable conclusions.80. Third.” equivalent to another P10.20 for the mining firm. Government then takes 60 percent thereof. A corporate income tax of 32 percent results in P32 of taxable income going to the government. but once the contractor has found and tapped into the deposit. At this point the government has pocketed P32. depending on the amount being taken out. of mining companies should remain in Filipino hands. leaving the mining firm with P68. say.receives P27. Let us use a simplified illustration. duties. Fairness is a credo not only in law. We question the logic of this reasoning.20. the State must receive at least 60 percent of the after-tax income from the exploitation of its mineral resources. Second. and took all the entrepreneurial risks -. or a total of P72. If ever such was the intention of the framers.00 plus P40. premised on a supposedly parallel or analogous situation. The argument is that the Charter requires the State’s partner in a co-production agreement. P500. fees and charges) from a taxable income of P100 (assuming gross revenues of P500. and another portion thereof income from exploitation of mineral resources. joint venture agreement or MPSA to be a Filipino corporation (at least 60 percent owned by Filipino citizens). First. could seriously cripple or endanger the normal operations and financial health of the business enterprise. On the other hand. In short. equivalent to P40. Under the minimum 60 percent proposal. This share is the equivalent of the constitutional requirement that at least 60 percent of the capital. The reason happens to be the fact that in petroleum operations. One cannot but wonder whether such a distribution is even remotely equitable and reasonable. We are. and . and hence 60 percent of the income. for purposes of illustration).80 for every P100 of taxable income. leaving the mining firm with only P27. if we would bother to do the math. The amount of P82. The government has also taken 2 percent excise tax “off the top. But we have to ask ourselves if we are really serious in attracting the investments that are the indispensable and key element in generating the monetary benefits of which we wish to take the lion’s share. the bulk of expenditures is in exploration. Pulling out such net income disrupts the cash flows and cash position of the enterprise and. but also in business. can afford to repatriate the entire after-tax income to the home country. concerned with maintaining the mining enterprise as a going concern and keeping a foothold in its market. we fail to see how we can properly conclude that the Constitution mandates the State to extract at least 60 percent of the after-tax income from a mining company run by a foreign contractor. leaving only P27. The Charter did not intend to fix an iron-clad rule on the 60 percent share. the foreign contractor. the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the mining business. The State’s Receipt of Sixty Percent of an FTAA Contractor’s After-Tax Income Not Mandatory We now come to the next objection which runs this way: In FTAAs with a foreign contractor.80 out of P100.80 (not counting other taxes. considering the nature of the mining business. one that involves different elements. subsequent investments and expenditures are relatively minimal.20. which provided all the capital.00 is really a lot – it does not matter that we call part of it excise tax or income tax. applicable to all situations at all times and in all circumstances. but prior to income tax. But that is not all. they would have spelt it out in black and white. The crude (or gas) keeps gushing out.80. dealing with an essentially different equation. after all.operations. the government nets around P82. we might better appreciate the impact (and reasonableness) of what we are demanding of the foreign contractor. Some might think it wonderful to be able to take the lion’s share of the benefits. suppose a mining firm makes a taxable income of P100. equipment and labor.
What we have is a suggestion to enforce the 60 percent quota on the basis of a disjointed analogy. The exploration. However. that our honorable legislators acted arbitrarily. expertise and industry all the time. we cannot just ignore the realities of the distinctly different situations and stubbornly insist on the “minimum 60 percent. however. We cannot just ignore the reality of two distinctly different situations and stubbornly insist on going “minimum 60 percent. the numerous intrinsic differences involved in their respective operations and requirements. Even after it has been located. There is no showing. we should take note of the fact that Congress made a distinction between mining firms and petroleum companies. after all. the risk is relatively over and black gold simply flows out continuously with comparatively less need for fresh investments and technology. without proof. and other . development and utilization of gas and oil are simply different from those of mineral resources. there is no independent showing that the taking of at least a 60 percent share in the after-tax income of a mining company operated by a foreign contractor is fair and reasonable under most if not all circumstances . that mining companies can readily cope with a 60 percent government share in the same way petroleum companies apparently can. As mines are explored and extracted. Jumping to that erroneous conclusion is like comparing apples with oranges. even if minerals are found in viable quantities. roads and other infrastructure are built. costs structures and capital investment needs. for instance. We cannot assume. The ore body does not pop out on its own. Not so in mineral mining. Indeed. Just because deposits of mineral ores are found in one area is no guarantee that an equal amount can be found in the adjacent areas. the lawmakers set the excise tax rate for the first taxable sale at fifteen percent of the fair international market price thereof. the contractor must continually invest in machineries and expend funds to dig and build tunnels in order to access and extract the minerals from underneath hundreds of tons of earth and rock. the mere fact that gas and oil exploration contracts grant the State 60 percent of the net revenues does not necessarily imply that mining contracts should likewise yield a minimum of 60 percent for the State. as amended” -.” The Mining and the Oil Industries Different From Each Other To stress. transporting and storing. and product pricing and markets. Note. The fact that some petroleum companies like Shell acceded to such percentage of sharing does not ipso facto mean that it is per se reasonable and applicable to non-petroleum situations (that is. The only factor common to the two disparate situations is the extraction of natural resources. There must have been a very sound reason that impelled Congress to impose two very dissimilar excise tax rate. the main risk in gas and oil is in the exploration. cost structures and investment needs render it highly inappropriate to use petroleum operations FTAAs as benchmarks for mining FTAAs.apart from the cash revenues -are much more in the mineral industry. 7729 -“An Act Reducing the Excise Tax Rates on Metallic and Non-Metallic Minerals and Quarry Resources. there is still need for continuous fresh capital and expertise to dig the mineral ores from the mines. that the indirect benefits -. As already stated. On the other hand. Amending for the Purpose Section 151(a) of the National Internal Revenue Code.the lawmakers fixed the excise tax rate on metallic and non-metallic minerals at two percent of the actual market value of the annual gross output at the time of removal. We can take judicial notice of the fact that there are. To stress again. mining companies) as well. There are simply continuing risks and need for more capital. But once oil in commercial quantities is struck and the wells are put in place.” To repeat. capriciously and whimsically in this instance. In Republic Act No. Verily. vast employment is created. numerous intrinsic differences involved in their respective operations and equipment or technological requirements. in the case of petroleum.the work entailed is just a matter of piping.
 or even 90 percent. But. This “you-have-to-give-us-60-percent-of-after-tax-income-orwe-don’t-do. carved-in-granite demand for a 60 percent government share may spell the end of the mining venture. negotiate and transact with contractors and third parties as it sees fit. scare away potential investors. And the contract provision voided. And fifth. This inflexibility further renders our country less attractive as an investment option compared with other countries. this situation may not seem too unpalatable to the foreign contractor during good years. and eventually to the people. is that the State ends up losing control. the proffered “minimum 60 percent” suggestion tends to limit the flexibility and tie the hands of government. there is no basis for saying that government revenues from the oil industry and from the mineral industries are to be identical all the time. with costs spiraling skywards and minerals prices plummeting. otherwise the State will be deprived of full control over mineral exploitation that the Charter has vested in it. should it be deemed fit. there is simply no constitutional or legal provision fixing the minimum share of the government in an FTAA at 60 percent of the net profit. the President will have to report (and be responsible for) the specific FTAA to Congress. the government must be trusted. Yet All Risks Assumed by Contractor . this Court must back off from insisting upon a “minimum 60 percent” rule.multiplier effects arise. in fact. when international market prices are up and the mining firm manages to keep its costs in check. if it should later be found that the share agreed to is grossly disadvantageous to the government. ultimately hampering the country’s competitiveness in the international market. for this Court to decree imperiously that the government’s share should be not less than 60 percent of the after-tax income of FTAA contractors at all times is nothing short of dictating upon the government. to our mind. It is sufficient that the State has the power and means. However. If during the FTAA negotiations. the more the better. and upon terms that it ascertains to be most favorable or most acceptable under the circumstances. On the other hand. regardless of circumstances. once oil wells start producing. to get a 60 percent share (or more) in the contractor’s net mining revenues or after-tax income. Capital and Expertise Provided. In fine. so be it. Needless to say. such an unbending or unyielding policy prevents the government from responding appropriately to changing economic conditions and shifting market forces. For this Court to decree such minimum is to wade into judicial legislation.business-with-you” approach is quite perilous. under unfavorable economic and business conditions. a mining firm may consider itself lucky to make just minimal profits. if under the peculiar circumstances of a specific contract. there is less need for employment. the President could secure only 50 percent or 55 percent. then all the better for our people. should it so decide. the President can secure 60 percent. The inflexible. To stress again. the officials responsible for entering into such a contract on its behalf will have to answer to the courts for their malfeasance. ironically. even if it means agreeing to less than 60 percent. and thereby further worsen the already dismal economic scenario. To avoid compromising the State’s full control and supervision over the exploitation of mineral resources. Let it be clear: the Court is not against the grant of more benefits to the State. The result. In fact. But this Court would abuse its own authority should it force the government’s hand to adopt the 60 percent demand of some of our esteemed colleagues. Finally. or whatever other basis the government may decide to use in reckoning its share. and thereby inordinately impinge on the control power of the State. Moreover. Fourth. to the detriment of the Filipino people. must be accorded the liberty and the utmost flexibility to deal. It is not necessary for it to do so in every case. True. Roads and other public works need not be constructed continuously. Nothing must prevent the State from agreeing to a share less than that.
as mentioned earlier. as well as administrative expenses and overheads related to marketing offices also located abroad -. and technology required to undertake the project. technical and managerial expertise. mere “suspicions” will not suffice to propel this Court into taking action. before arriving at the point in which it can make that determination and decide to cut its losses. Deductions Allowed by the WMCP FTAA Reasonable Petitioners question whether the State’s weak control might render the sharing arrangements ineffective. more facts are needed. this setup cannot be regarded as disadvantageous to the State or the Filipino people.000 only. And when the contractor has recouped its initial investments in the project.an absence of commercial quantities of minerals to justify development -. during the first year alone of the exploration period. The WMCP FTAA. In any event. The probability of finding any mineral or petroleum in commercially viable quantities is estimated to be about 1:1. These resources. it certainly cannot be said to convey beneficial ownership of our mineral resources to foreign contractors. valued in the tens or hundreds of millions of dollars. WMCP claims to have already poured in well over P800 million into the country as of February 1998.” and “the establishment and administration of field offices including administrative overheads incurred within and outside the Philippines which are properly allocatable to the Mining Operations and reasonably related to the performance of the Contractor’s obligations and exercise of its rights under this Agreement. however. Section 7. courtesy of the contractor. at the very outset. In regard to the WMCP FTAA.” “consulting fees incurred both inside and outside the Philippines for work related directly to the Mining Operations. They cite the so-called “suspicious” deductions allowed by the WMCP FTAA in arriving at the net mining revenue.provided that these deductions are directly related or properly allocatable to the mining operations and reasonably related to the performance of the contractor’s obligations and exercise of its rights.Here. the contractor must comply with legally imposed environmental standards and the social obligations. The FTAA therefore clearly ensures benefits for the local economy. that mining companies do perform some marketing activities abroad in respect of selling their mineral products and byproducts.without the State ever being in peril of incurring costs. the government share increases to sixty percent of net benefits -. the contractor was already committed to spend not less than P24 million. Throughout. the then foreign-owned WMCP as contractor committed. These risks are indeed very high. we will repeat what has not been emphasized and appreciated enough: the fact that the contractor in an FTAA provides all the needed capital. In fact. On that slim chance rides the contractor’s hope of recouping investments and generating profits. considering that the rate of success in exploration is extremely low.” It is quite well known. At the same time. which is the basis for computing the government share. for which it also commits to make significant expenditures of funds. the contractor assumes all the risks of the business. it would not be improper to allow the deduction of reasonable consulting fees incurred abroad. expenses and losses. Hence. with more in the pipeline. And even in the worst possible scenario -.9 of the WMCP FTAA Invalid and Disadvantageous . for instance. Until we see how these provisions actually operate. to make capital investments of up to US$50 million in that single mining project.the contractor would already have spent several million pesos for exploration works. All in all. allows expenditures for “development within and outside the Contract Area relating to the Mining Operations. are invested in a mining project that provides no assurance whatsoever that any part of the investment will be ultimately recouped.
Worse. Section 7. 2001 sale by WMCP’s foreign stockholder of the entire outstanding equity in WMCP to Sagittarius Mines. future generations included. even if that should mean agreeing to less than 60 percent. In fact. it exists and subsists precisely because of the need to serve and protect the national interest. However. Section 7. It is possible that the inclusion of the offending provision was initially prompted by the desire to provide some form of incentive for the principal foreign stockholder in WMCP to eventually reduce its equity position and ultimately divest in favor of Filipino citizens and corporations. Evidently.9 has the effect of depriving the State of its 60 percent share in the net mining revenues of WMCP without any offset or compensation whatsoever. And the State as sovereign and custodian of the nation’s natural wealth is mandated to protect. The sale of 60 percent of WMCP’s outstanding equity to a corporation that is 60 percent Filipino-owned and 40 percent foreign-owned will still trigger the operation of Section 7. That full control is obviously not an end in itself. consisting of the remaining 40 percent foreign equity therein.Having defended the WMCP FTAA.9.9. WMCP) held by a Qualified Entity. The whole point of developing the nation’s natural resources is to benefit the Filipino people.9 provides: The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.may be deemed to have automatically triggered the operation of Section 7. preserve and develop that part of the national patrimony for their benefit. as finally structured.a domestic corporation at least 60 percent Filipino owned -. negotiate and transact with contractors and third parties as it sees fit. At bottom. the State will lose its right to receive all 60 percent of the net mining revenues of WMCP. we shall now turn to two defective provisos. -. should WMCP’s foreign shareholders -. without need of further action by any party. conserve. and foreign stockholders will own beneficially up to 64 percent of WMCP.9 deprives the government of part or all of the said 60 percent. the State loses its right to receive its 60 percent share in net mining revenues under Section 7. and (3) that should the State be prevented from agreeing to a share less than 60 percent as it deems fit. In this .e. the proceeds of such sale will of course accrue to the foreign stockholders of WMCP. not to the State. Hence. what Section 7.7 gives the government a 60 percent share in the net mining revenues of WMCP from the commencement of commercial production.sell 60 percent or more of its outstanding capital stock to a Filipino citizen or corporation. it would seem that what is given to the State in Section 7. They can do so by simply selling 60 percent of WMCP’s outstanding capital stock to a Philippine citizen or corporation. Let us start with Section 7. Such an outcome is completely unacceptable. the January 23. in reality. While Section 7. plus the 24 percent pro-rata share in the buyercorporation. Earlier. and upon terms that it ascertains to be most favorable or most acceptable under the circumstances. (2) that it is not necessary for the State to extract a 60 percent share in every case and regardless of circumstances.7 grants to the State is taken away in the next breath by Section 7. Thus.9 without any offsetting compensation to the State. Under the latter provision.7 shall be reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in the Contractor (i.9 has the deleterious effect of depriving government of the entire 60 percent share in WMCP’s net mining revenues.who originally owned 100 percent of the equity -. we held (1) that the State must be accorded the liberty and the utmost flexibility to deal.7.9 of the WMCP FTAA. Inc. Section 7. Section 7..7 is by mere tolerance of WMCP’s foreign stockholders. it will be deprived of the full control over mineral exploitation that the Charter has vested in it. who can at any time cut off the government’s entire 60 percent share. and removed the State’s right to receive the 60 percent share in net mining revenues. the Charter lays great emphasis on “real contributions to the economic growth and general welfare of the country” as essential guiding principles to be kept in mind when negotiating the terms and conditions of FTAAs. Effectively. the State has no vested right to receive any income from the FTAA for the exploitation of its mineral resources. Moreover. without any form of compensation whatsoever.
9 can be done without affecting or requiring the invalidation of the WMCP FTAA itself. Section 7. any tax on dividend payments by the Contractor or its Affiliates in respect of revenues from the Mining Operations and any tax on interest on domestic and foreign loans or other financial arrangements or accommodations. the provision in question is without a doubt grossly disadvantageous to the government. costs. without their having to pay the government anything for it. any payments to local and regional government.8(e) of the WMCP FTAA is likewise invalid. imposts. duties. surface rights holders. Whether the government officials concerned acceded to that provision by sheer mistake or with full awareness of the ill consequences. being impressed as it is with public interest. we may also say that the FTAA in question does not involve mere contractual rights. including loans extended to the Contractor by its stockholders. is of no moment.1(i) (1) and 10. costs. It is therefore possible and proper to rectify the situation at this time.8(e) of the WMCP FTAA Also Invalid and Disadvantageous Section 7. This way. occupiers. imposts. customs duty.1(i) (2). fees. public order or public policy. Moreover. terms and conditions that they deem convenient.9 of the WMCP FTAA effectively gives away the State’s share of net mining revenues (provided for in Section 7. as we now witness. the local and foreign stockholders get a windfall. national interest finds particular application in the protection of the national patrimony and the development and exploitation of the country’s mineral resources for the benefit of the Filipino people and the enhancement of economic growth and the general welfare of the country. morals. Moreover. good customs. levies. fees.9 must therefore be stricken off as invalid. such full control can be misused and abused. the mandates of the Constitution are complied with and the interests of the government fully protected. Their share in the net mining revenues of WMCP is automatically increased. Since the offending provision is very much separable from Section 7. Such a deletion will preserve for the government its due share of the benefits. including taxes. royalties. Being precisely violative of anti-graft provisions and contrary to public policy. Section 7.8 The Government Share shall be deemed to include all of the following sums: all Government taxes.7) without anything in exchange. In short. It is hornbook doctrine that the principle of estoppel does not operate against the government for the act of its agents. detrimental to the interests of the Filipino people. By their mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or corporations. occupation and regulatory fees and infrastructure contributions. Undoubtedly. the deletion of Section 7.instance. Section 7.7 and the rest of the FTAA. costs and expenses of fulfilling the Contractor’s obligations to contribute to national development in accordance with Clause 10. Moreover. while the business operations of the contractor are not needlessly disrupted. Government controlled price stabilization schemes. It provides thus: “(a) “7. an amount equivalent to whatever benefits that may be extended in the future by the Government to the Contractor or to financial or technical assistance agreement contractors in general.” (underscoring supplied) “(b) “(c) “(d) “(e) “(f) . but these should not be contrary to law. adjusted for inflation. occupation and regulatory fees. duties and royalties including excise tax. and violative of public policy. it has been reiterated in numerous decisions that the parties to a contract may establish any agreements. sales tax. all of the foregoing items which have not previously been offset against the Government Share in an earlier Fiscal Year. any payments to landowners. levies. corporate income tax. any other form of Government backed schemes. value added tax. the contractual provisions and stipulations must yield to the common good and the national interest. this outcome constitutes unjust enrichment on the part of the local and foreign stockholders of WMCP. and that it is never estopped by any mistake or error on their part. indigenous people or Claimowners.
3 This Agreement shall be renewed by the Government for a further period of twenty-five (25) years under the same terms and conditions provided that the Contractor lodges a request for renewal with the Government not less than sixty (60) days prior to the expiry of the initial term of this Agreement and provided that the Contractor is not in breach of any of the requirements of this Agreement. After taking these into account.after netting out the items of deduction listed in Section 7. the above provision runs afoul of Section 2 of Article XII of the 1987 Constitution. We therefore conclude that there is nothing inherently wrong in the fiscal regime of the WMCP FTAA. Section 3.8(e) is out of place in the FTAA. we find each of the three options for computing the additional government share -. with the “balance of government share payable 4 months from end of fiscal year” being the equivalent of the additional government share computed in accordance with the “net-miningrevenue-based option” under DAO 99-56. this provision can also easily be stricken off without affecting the rest of the FTAA. payable 4 months from the end of the fiscal year It should become apparent that the fiscal arrangement under the WMCP FTAA is very similar to that under DAO 99-56. If we examine the various items of “deduction” listed in Section 7. as discussed above. since the latter is effectively being made to pay twice for the same item. It makes no sense why.3 of the WMCP FTAA Constitutional Section 3. the answer will be yes.8(e) is undoubtedly invalid and must be declared to be without effect. an objection has been raised: Specified in Section 7. which states: . For being grossly disadvantageous and prejudicial to the government and contrary to public policy.8 are numerous items of deduction from the State’s 60 percent share. Fortunately. Section 7. As we have emphasized earlier.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on the term of FTAAs. Likewise.as presented in DAO 99-56 -.8 of the FTAA + balance of Gov’t share. for instance. The provision in question reads: “3. Nothing Left Over After Deductions? In connection with Section 7. will the State ever receive anything for its ownership of the mineral resources? We are confident that under normal circumstances. Allowing this deduction results in benefiting the contractor twice over.to be sound and reasonable. the fiscal payments system from the WMCP FTAA assumes the following formulation: Government’s 60 percent share in net mining revenues of WMCP = items listed in Sec.8 --corresponds closely to the additional government share provided for in DAO 99-56 which. money spent by the government for the benefit of the contractor in building roads leading to the mine site should still be deductible from the State’s share in net mining revenues. as discussed in the earlier part of this Opinion.” Allegedly. It constitutes unjust enrichment on the part of the contractor at the expense of the government. The Ramos-DeVera paper concisely presents the fiscal contribution of an FTAA under DAO 99-56 in this equation: Receipts from an FTAA = basic gov’t share + add’l gov’t share Transposed into a similar equation.8 of the WMCP FTAA. we will find that they correspond closely to the components or elements of the basic government share established in DAO 99-56.8. the balance of the government’s 60 percent share -.Section 7. 7. we once again stress. and certainly nothing to warrant the invalidation of the FTAA in its entirety. has nothing at all to do with indirect taxes.
Consider too that in this kind of agreement. this provision does not violate any constitutional limits.3 could have been worded so as to prevent it from favoring the contractor. joint venture or production-sharing agreements with Filipino citizens or corporations or associations at least sixty per centum of whose capital is owned by such citizens. And thus. with priority to subsistence fishermen and fish-workers in rivers. beneficial use may be the measure and limit of the grant. waters. in the process of negotiations. and other natural resources are owned by the State. the period of 25 years may really be short for an FTAA. If no commercial quantities of minerals are found. and exclusive economic zone. petroleum. the other contracting party was able to convince the government to . “The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration. joint venture agreements and mineral production-sharing agreements -. In any event. wildlife. The reason the framers did not fix term limitations applicable to FTAAs is that they preferred to leave the matter to the discretion of the legislature and/or the agencies involved in implementing the laws pertaining to FTAAs. This omission was obviously a deliberate move on the part of the framers. Verily. lakes. All lands of the public domain. fisheries. FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the Constitution. With the exception of agricultural lands.3 gives the contractor the power to compel the government to renew the WMCP FTAA for another 25 years and deprives the State of any say on whether to renew the contract. Note also that. They probably realized that FTAAs would be different in many ways from MPSAs. within thirty days from its execution. renewable for not more than twenty-five years.co-production agreements. allow small-scale utilization of natural resources by Filipino citizens. Such agreements may be for a period not exceeding twenty-five years.“Sec. flora and fauna. It appears that. the State shall promote the development and use of local scientific and technical resources. It will be noted that there are no term limitations provided for in the said paragraphs dealing with FTAAs. by law. Specifically. minerals. at least 60 percent owned by Filipino citizens. “The Congress may.3. forests or timber. Neither can the provision be deemed in any manner to be illegal. in a class of their own. To compensate for this long gestation period and extra business risks. the exploratory phrases of an FTAA lasts up to eleven years. fisheries. It is certainly not illegal for the government to waive its option to refuse the renewal of a commercial contract. as previously stated. While we agree that Section 3. The exploration. the contractor bears all financial losses. In cases of water rights for irrigation. In such agreements. It may take fifteen years before an FTAA contractor can start earning profits. It could have said “No” to the stipulation. and other mineral oils according to the general terms and conditions provided by law. development. all other natural resources shall not be alienated. The reason is that the above provision is found within paragraph 1 of Section 2 of Article XII. which refers to mineral agreements -. a few more years would be gobbled up in start-up operations. “The State shall protect the nation’s marine wealth in its archipelagic waters. JVAs and MPSAs -not to FTAAs. the complaint is that. and other mineral oils. as well as cooperative fish farming. petroleum. in order to give the latter enough flexibility and elbow room to meet changing circumstances.which the government may enter into with Filipino citizens and corporations. coal.CPAs. the government did not have to agree to Section 3.” We hold that the term limitation of twenty-five years does not apply to FTAAs. since the said term limitation does not apply at all to FTAAs. as no law is being violated thereby. in essence. development and utilization of natural resources shall be under the full control and supervision of the State. Section 3. or it may enter into co-production. bays and lagoons. and utilization of minerals. The State may directly undertake such activities. based on real contributions to the economic growth and general welfare of the country. it would not be totally unreasonable to allow it to continue EDU activities for another twenty five years. territorial sea. and reserve its use and enjoyment exclusively to Filipino citizens. The word “such” clearly refers to these three mineral agreements -. JVAs and CPAs. and under such terms and conditions as may be provided by law. all forces of potential energy. Thereafter. but it did not. “The President shall notify the Congress of every contract entered into in accordance with this provision. This shows that FTAAs are sui generis. or industrial uses other than the development of water power. 2. the contractor assumes all entrepreneurial risks. water supply.
The Constitution has never prohibited foreign corporations from acquiring and enjoying “beneficial interest” in the development of Philippine natural resources. they may have a say in the decisions of the board of directors. The point being made here is that. the government has to ante up some risk capital for the enterprise. All of this is permitted by our Constitution. that there is nothing inherently wrong with or constitutionally objectionable about the idea of foreign individuals and entities having or enjoying “beneficial interest” in -. which the Constitution permits to be up to 40 percent of the contractor’s equity. with both parties having equity shares (investments). Under the circumstances. In other words. and without limitation even in regard to the magnitude of the mining project or operations (see paragraph 1 of Section 2 of Article XII). in two of the three types of agreements under consideration. government funds (public moneys) are withdrawn from other possible uses.and participating in the management of operations relative to -. Likewise. the 40 percent individual and/or corporate non-Filipino stakeholders obviously participate in the beneficial interest derived from the development and utilization of our natural resources. We believe the FTAA is a more advantageous proposition for the government as compared with other agreements permitted by the Constitution. we find it necessary for us to rid ourselves of the false belief that the Constitution somehow forbids foreignowned corporations from deriving financial benefits from the development of our natural or mineral resources. management and manpower. the government shall provide inputs to the mining operations other than the mineral resource itself.agree to the renewal terms. The State itself need not directly undertake exploration. If government believes that it is or will be aggrieved by the effects of Section 3. Hence. in an MPSA. It is clear. then. the government grants the contractor the exclusive right to conduct mining operations within the contract area and shares in the gross output. for any natural resource. They may do the actual “dirty work” -. and the contractor provides the necessary financing. co-production agreements (CPAs) and mineral production sharing agreements (MPSAs) with contractors who are Filipino citizens or corporations that are at least 60 percent Filipino-owned. On the other hand.the mining operations. technology. development and utilization of our natural resources.the exploration.3. and utilization activities. and the contractor is granted the exclusive right to conduct mining operations and to extract minerals found in the area. In a JVA. the non-Filipino stakeholders may in that manner also participate in the management of the contractor’s natural resource development work. since they are entitled to representation therein to the extent of their equity participation. JVA and MPSA A final point on the subject of beneficial interest. the Constitution authorizes the government to enter into joint venture agreements (JVAs). put to work in the venture and placed at risk in case . development. a JV company is organized by the government and the contractor. Financial Benefits for Foreigners Not Forbidden by the Constitution Before leaving this subject matter. Alternatively. up to 40 percent of the contractor’s earnings from the mining project. In the case of a 60 percent Filipino-owned corporation. it does not seem proper for this Court to intervene and step in to undo what might have perhaps been a possible miscalculation on the part of the State. the remedy is the renegotiation of the provision in order to provide the State the option to not renew the FTAA. FTAA More Advantageous Than Other Schemes Like CPA. In a CPA that the government enters into with one or more contractors. They may receive by way of dividends.
the costs of inputs for.” For instance. a JVA or an MPSA vis-à-vis those pertaining to an FTAA. In respect of the particular FTAA granted to it. degree of risk attendant to. say. a recent US study reportedly examined the economic performance of all local US counties that were dependent on mining and 20 percent of whose labor earnings between 1970 and 2000 came from mining enterprises. and uneven sharing of benefits with local communities that bear the negative social and environmental impact. which will never be exposed to any risk of loss whatsoever. They also cite the final report of the Extractive Industries Review project commissioned by the World Bank (the WB-EIR Report). Therefore. Seen the other way around. in order to maximize the value added from the development of their resources and ensure that they are on the path to sustainable development once the resources run out. given the slower rate of growth. as contractor. the FTAA is limited to large-scale projects and only for minerals.the venture fails. for providing the entire equity. petitioners repeatedly urged the Court to consider whether mining as an industry and economic activity deserved to be accorded priority. So. Developmental Policy on the Mining Industry During the Oral Argument and in their Final Memorandum . but its maximum potential “beneficial interest” consisted only of 40 percent of the net beneficial interest. In contrast to the foregoing arrangements. conflict. approvals of work programs and budgets. the level of per capita income was also lower. In consonance with the degree of risk assumed. so the foreign entity may have to ante up all the risk capital. without limitation and regardless of the size or magnitude of the project or operations. a JVA or an MPSA. one needs to consider in relative terms. It may not be realistically asserted that the foreign grantee of an FTAA is being unduly favored or benefited as compared with a foreign stakeholder in a corporation holding a CPA. social disruption. The study -. the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails. including increased regional inequality. It was to bear 100 percent of the risk of loss if the project failed. because the other 60 percent is the share of the government. The Report suggests that countries need to decide on the best way to exploit their natural resources. with the government being mainly a silent partner. preference and government support as against. petroleum and other mineral oils. Correlatively.in the hands of the contractor.covering 100 US counties in 25 states dependent on mining -showed that per capita income grew about 30 percent less in mining-dependent communities in the 1980s and 25 percent less for the entire period 1980 to 2000. This notwithstanding. and benefits derived or to be derived from a CPA. management and control of the operations of the enterprise are -. the gap between these and other local counties increased. the Constitution removes the 40 percent cap on foreign ownership and allows the foreign corporation to own up to 100 percent of the equity. Still such management is subject to the overall control and supervision of the State in terms of regular reporting. a JVA or an MPSA. agriculture and other activities in which Filipinos and the Philippines may have an “economic advantage. WMCP (then 100 percent foreign owned) was responsible. the FTAA vested in WMCP the day-to-day management of the mining operations. Filipino capital may not be sufficient on account of the size of the project. unemployment and poverty. and so on. Whatever priority or preference may be given to mining vis-à-vis other economic or non-economic activities is a question of policy that the President . and pursuant to paragraph 4 of Section 2 of Article XII.in all three arrangements -. which warns of environmental degradation. The three types of agreement mentioned above apply to any natural resource. Petitioners invite attention to the OXFAM America Report’s warning to developing nations that mining brings with it serious economic problems. Here. including all the inputs for the project. the government is definitely better off with an FTAA than a CPA.
We are not discussing the apparition of white Anglo-Saxon racists/bigots massing at our gates. and improved chances of human resource and countryside development by creating self-reliant communities away from urban centers. 2. a Filipino corporation. and where parties-in-interest come to terms. and refrains from delving into matters of policy. Early on during the launching of the Presidential Mineral Industry Environmental Awards on February 6. Morgan was also a racist and a bigot. Ramos captured the essence of balanced and sustainable mining in these words: “Long term. In sustainable mining. which had been transferred to Sagittarius Mining. under the Mining Law. This Court declares what the Constitution and the laws say. According to sources quoted by our esteemed colleague. And if both technical and financial assistance were required for a project. which according to her denotes restriction. xxx xxx xxx “Against a fragile and finite environment. strictly speaking. “to promote responsible mineral resources exploration. Suffice it to say that the State control accorded by the Constitution over mining activities assures a proper balancing of interests. On the proper interpretation of the phrase agreements involving either technical or financial assistance. Indeed. more decent jobs for the population. former president and chief executive officer of Western Mining Corporation (WMC) and former president of the Australian Mining Industry Council. 270 and 270-A. culturally-sensitive and sustainable mining industry. literally mean that a foreign contractor may provide only one or the other. in order to enhance economic growth. respectively.” Neither has the present leadership been remiss in addressing the concerns of sustainable mining operations. 1997. it is sustainability that holds the key. but not both. President Gloria Macapagal Arroyo issued Executive Orders Nos. it is not for this Court to decide. then President Fidel V. It can likewise provide for the mechanisms to protect the rights of indigenous communities. in a manner that adheres to the principles of sustainable development and with due regard for justice and equity. on January 16. 1. the government can ensure the protection of the environment during and after mining. high profit mining translates into higher revenues for government. Morgan allegedly uttered derogatory remarks belittling the aboriginal culture and race. In the course of protesting Mabo. who spearheaded the vociferous opposition to the filing by aboriginal peoples of native title claims against mining companies in Australia in the aftermath of the landmark Mabo decision by the Australian High Court. we take a middle ground where both production and protection goals are balanced. Justice Morales points out that at times we “conveniently omitted” the use of the disjunctive either…or. such scare tactics should have no place in the discussion of this case. as Justice Carpio himself pointed out during the Oral Argument. sensitivity to the culture of the Filipino people and respect for Philippine sovereignty. the State would have to deal with at least two different foreign . more raw materials to feed the engines of downstream and allied industries. development and utilization. hence the phrase must be deemed to connote restriction and limitation. and thereby mold a more socially-responsive. Recently.and Congress will have to address. DAO 96-40 and the FTAA originally granted to WMCP. 2004. With all due respect. But. 2004 and April 20. More pointedly. An unwritten caveat of this introduction is that this Court should be careful not to permit the entry of the likes of Hugh Morgan and his hordes of alleged racist-bigots at WMC.” REFUTATION OF DISSENTS The Court will now take up a number of other specific points raised in the dissents of Justices Carpio and Morales. We are deliberating on the constitutionality of RA 7942. Justice Morales introduced us to Hugh Morgan. interprets only when necessary. the disjunctive phrase either technical or financial assistance would. such control will enable the President to demand the best mining practices and the use of the best available technologies to protect the environment and to rehabilitate mined-out areas.
at the very least. and the strength of the economy. it need not dig up tons of earth to get at the logs. But what are the chances things will turn out this way in the real world? To think that the framers deliberately imposed this kind of restriction is to say that they were either exceedingly optimistic. permit or license agreement gets to cut the timber already growing on the surface.contractors -. Justice Morales claims that a service contract is not a contract or property right which merits protection by the due process clause of the Constitution. In contrast. the licensee packs up its gear and moves to a new area applied for. a foreign contractor. and starts over. prevent recovery of investments). If a timber license were revoked. it would be excellent if these two or more contractors happen to be willing and are able to cooperate and work closely together on the same project (even if they are otherwise competitors). the investment of the licensee is not as substantial as the investment of a large-scale mining contractor. most of which cannot be pulled out. Such a pronouncement will surely discourage investments (local and foreign) which are critically needed to fuel the engine of economic growth and move this country out of the rut of poverty. Director of Forestry and Ysmael v. 4.What laudable objective or purpose could possibly be served by such strict and restrictive literal interpretation? 3. arguing in the process that aliens ought not be allowed to participate in the enjoyment of our natural resources. nor does it create a vested right. on the argument that natural resources are also involved in this situation? We do not think so. for development of the mine site and infrastructure. Thus this Court held that the granting of license does not create irrevocable rights. though very much qualified to provide both kinds of assistance. or to reveal the clear intention of the framers as a group. Oposa is not applicable. Oposa allegedly reiterated that a license is merely a permit or privilege to do what otherwise would be unlawful. the coffers of government. neither is it property or a property right. To say that an FTAA is just like a mere timber license or permit and does not involve contract or property rights which merit protection by the due process clause of the Constitution. rescinded or withdrawn by executive action whenever dictated by public interest or public welfare. and for the actual excavation and extraction of minerals. state or municipal. neither is it property or property rights. In sum. In a logging concession. Citing Oposa v.one for financial and the other for technical assistance. so to speak. Deputy Executive Secretary as authority.one to provide the “financial assistance” only and the other the “technical assistance” exclusively.. for exploration activities. can we really find two (or more) contractors who are willing to participate in one single project -. But if the Court should follow this restrictive and literal construction. Should Oposa be deemed applicable to the case at bar. it is downright dismissive of the property rights of businesspersons and corporate entities that have investments in the mining industry.. A grantee of a timber license. or incredibly naïve. whose investments. And it would be superb if no conflicts would arise between or among them in the entire course of the contract. including the extensive tunneling work to reach the ore body. Oposa cites Tan v. nor is it taxation. This begs the question -. would nevertheless be prohibited from providing one kind as soon as it shall have agreed to provide the other. A re-reading of the entire . operations and expenditures do contribute to the general welfare of the people. granting it and the person to whom it is granted. Factoran Jr. and is not a contract between the authority. The latter cases dealt specifically with timber licenses only. and may therefore be revoked or cancelled in the blink of an eye. what it leaves behind are mainly the trails leading to the logging site. Justice Morales adverts to the supposedly “clear intention” of the framers of the Constitution to reserve our natural resources exclusively for the Filipino people. She then quoted from the records of the ConCom deliberations a passage in which then Commissioner Davide explained his vote. One passage does not suffice to capture the tenor or substance of the entire extensive deliberations of the commissioners.e. federal. The cancellation of the mining contract will utterly deprive the contractor of its investments (i. the mining contractor will have sunk a great deal of money (tens of millions of dollars) into the ground. And following on that. is to adopt a well-nigh confiscatory stance. but merely a license or privilege which may be validly revoked.
Justice Morales also declares that the optimal time for the conversion of an FTAA into an MPSA is after completion of the exploration phase and just before undertaking the development and construction phase. Since 1935. one has to spend money. It is obvious that a literal interpretation of paragraph 4 will render it utterly inutile and inoperative. on account of the fact that the requirement for a minimum investment of $50 million is applicable only during the development. The contractor is thus compelled to expend funds in order to make profits. necessarily gave implied assent to everything that these agreements implicitly entailed. Maybe we can say that we inherited unjust loans. by specifying such agreements involving financial or technical assistance. when the foreign contractor need merely comply with minimum ground expenditures. Mortgaging the minerals to secure a foreign FTAA contractor’s obligations is anomalous. according to Justice Morales since the contractor was from the beginning obliged to provide all financing needed for the mining operations. development and utilization? They could have just completely ignored the subject matter and left it to be dealt with through a future constitutional amendment. As proof thereof. development or utilization of the nation’s natural resources is merely secondary to the protection and preservation of their ownership of the natural resources. citing Aruego. it will necessarily sacrifice the pace of development and utilization. 8. However. so says Justice Morales.deliberations (quoted here earlier) is necessary if we are to understand the true intent of the framers. But we have to harmonize every part of the Constitution and to interpret each provision in a manner that would give life and meaning to it and to the rest of the provisions. set up its machineries and equipment and dig the tunnels to get to the deposit. even the richest and best managed corporations make use of bank credit facilities -. Comm. the mortgaging of minerals by the contractor does not necessarily signify that the contractor is unable to provide all financing required for the project. consisting of an exchange among Commissioners Tingson. but not during the exploration phase. Christian Monsod was quoted as saying: “xxx I think we have to make a distinction that it is not really realistic to say that we will borrow on our own terms. the stream of revenues generated may not even be enough to cover variable expenses. through their Constitution. it must also develop and construct the mining facilities. is an ordinary requirement of banks. If it decides to cut back on investments and expenditures. In order to make money. Thus by converting. In order to do that. even in the case of clients with more than sufficient financial resources. In order to come anywhere near profitability. But the general statement that we should only borrow on our own terms is a bit unrealistic. In fact. Garcia and Monsod. Mortgaging of mineral products. just like the assignment (by way of security) of manufactured goods and goods in inventory. it even bolsters it. the Filipino people. 6. including management authority in the day-to-day operations. the contractor must first extract and sell the mineral ore. Monsod is one who knew whereof he spoke. the quoted exchange does not serve to contradict our argument. 5. 7. the deliberations of the Constitutional Commission do not support our contention that the framers. If it is true that the framers of the 1987 Constitution did not care much about alleviating the retardation or delay in the development and utilization of our natural resources. According to Justice Morales. And nowadays. or that could reasonably be deemed necessary to make them tenable and effective. she quotes one single passage from the ConCom deliberations. it will necessarily sacrifice the amount of profits it can make from the mining operations. and the assignment of receivables. or that it does not have the financial capability to undertake large-scale operations. This truism applies to the mining industry as well. and we would like to repay these on terms that are not prejudicial to our own growth. However. why did they bother to write paragraph 4 at all? Were they merely paying lip service to large-scale exploration.it does not . at certain less-than-optimal levels of operation.” Comm. construction and utilization phase. let alone overhead expenses. have decided that the retardation or delay in the exploration. this is a dismal situation anyone would want to avoid. This argument forgets that the foreign contractor is in the game precisely to make money. the foreign contractor maximizes its profits by avoiding its obligation to make the minimum investment of $50 million.
and the land previously acquired will have to be disposed of. adjusted for inflation? We think not. That money will belong to the seller of the land. acting for the President.. the Chief Executive is the official constitutionally mandated to ‘enter into agreements with foreign owned corporations. 5. the sharing of the net mining revenues between the contractor and the State. it is just a manner of maximizing the use of their funds. In other words. the contractor will have been cash-out for the entire duration of the term of the contract -. that is the cost or opportunity loss to the contractor. it is in addition to the acquisition cost. for lack of any standards by which the delegated power shall be exercised. and specifying therein the terms of sharing of benefits from mining. it is within the President’s prerogative to specify certain terms and conditions of the FTAAs. without any compounding yet. 9. Indeed. establish a tailings pond.000 hectares? We doubt it. The legislature did not delegate the power to determine the . Being the President’s alter ego with respect to the control and supervision of the mining industry.25 or 50 years. The issuance of DAO 99-56 did not involve the exercise of delegated legislative power. depending. The contractor has to pay out the acquisition price for the land. And even if there were. 11. this. 10. Justice Carpio claims that the phrase among other things (found in the second paragraph of Section 81 of the Mining Act) is being incorrectly treated as a delegation of legislative power to the DENR secretary to issue DAO 99-56 and prescribe the formulae therein on the State’s share from mining operations. in which case the contractor gets reimbursement from the sales proceeds.’” It is the President who is constitutionally mandated to enter into FTAAs with foreign corporations.e. or that the secretary acted without any authority or jurisdiction in issuing DAO 99-56. when the surface rights will no longer be needed. As we stated earlier in our Prologue. to be applicable to FTAAs in general.’ On the other hand.000 hectares. It simply will not spend its cash to acquire property that it will not need. and has not been amended or revoked by the President. the cash may be better employed for the actual mining operations. set up its machinery and equipment. the fiscal regime of FTAAs -. and in doing so.000 hectares is way too much for the needs of a mining operator. He adds that the phrase among other things was not intended as a delegation of legislative power to the DENR secretary. since there is nothing in the second paragraph of Section 81 which can be said to grant any delegated legislative power to the DENR secretary. It is important to remember that DAO 99-56 has been in existence for almost six years. The cost of money is therefore at least 600 percent of the original acquisition cost. 12 percent per annum for 50 years is 600 percent. “For free”? Not by a long shot. Does the contractor in reality acquire the surface rights “for free. The acquisition by the State of land for the contractor is just to enable the contractor to establish its mine site. to yield a profit. in addition to the amount of the acquisition price. The “reimbursement” is possible only at the end of the term of the contract. it does not mean that DAO 99-56 is invalid per se. While there is nothing in the second paragraph of Section 81 which can directly be construed as a delegation of legislative power to the DENR secretary. It is impossible that the surface requirement will aggregate 5. build its facilities. is necessarily clothed with the requisite authority and power to draw up guidelines delineating certain terms and conditions. “Who or what organ of government actually exercises this power of control on behalf of the State? The Constitution is crystal clear: the President. which will not require possessing or using any land surface. much less could it be deemed a valid delegation of legislative power. Only if and when the land is finally sold off will the contractor get any reimbursement.i. Much of the operations will consist of the tunneling and digging underground. and dig mine shafts and tunnels. etc. The contractor will acquire and hold up to 5. Congress may review the action of the President once it is notified of ‘every contract entered into in accordance with this [constitutional] provision within thirty days from its execution. the DENR secretary. If we calculate the cost of money at say 12 percent per annum.necessarily signify that they do not have the financial resources or are unable to provide the financing on their own.” by virtue of the fact that it is entitled to reimbursement for the costs of acquisition and maintenance. such delegation would be void. for example.
in the second paragraph of Section 81.i. and the secretary is the sole authority to determine the amount of consideration that the State shall receive in an FTAA. duties and fees found in paragraph 2 of Section 81.” viz. hence the secretary is more powerful than the President. That if the Contractor desires to amend the fiscal regime of its FTAA. the DENR secretary has the final authority. it shall do so by filing a Letter of Intent (LOI) to the Secretary thru the Director. In determining the sharing of mining benefits. We believe there is some distortion resulting from the quoted provision being taken out of context.e. special allowance. Allegedly. the President (through the secretary acting in his/her behalf) was not determining the amount or rate of taxes. We may say that. the President in effect directed the inclusion or addition of “other things. in the government’s share. because of that provision. to amend the same by adopting the fiscal regime prescribed in DAO 99-56 -. All FTAAs approved prior to the effectivity of this Administrative Order shall remain valid and be recognized by the Government: Provided. among other things. further. and approval of the President may be dispensed with. it may do so by seeking for the amendment of its FTAA’s whole fiscal regime by adopting the fiscal regime provided hereof: Provided. duties and fees as provided for under existing laws. because Section 5 of the DAO states that “xxx any amendment of an FTAA other than the provision on fiscal regime shall require the negotiation with the Negotiation Panel and the recommendation of the Secretary for approval of the President xxx”. and reserved for the President. That any amendment of an FTAA other than the provision on fiscal regime shall require the negotiation with the Negotiating Panel and the recommendation of the Secretary for approval of the President of the Republic of the Philippines. This power was not delegated to the DENR secretary. while adopting the items enumerated by Congress as part of the government share also. solely in that manner. INCOME for the owner of the resources. That should a Contractor desire to amend its FTAA. since DAO 99-56 was issued by the secretary under the authority and with the presumed approval of the President.nature.. duties and fees. But the power to negotiate and enter into FTAAs was withheld from Congress. Justice Carpio claims that the DENR secretary can change the formulae in DAO 99-56 any time even without the approval of the President. excise tax.. Obviously. the legislature in a sense intruded partially into the President’s sphere of authority when the former provided that “The Government share in financial or technical assistance agreement shall consist of.” (underscoring supplied) It looks like another case of misapprehension. Justice Carpio’s insistence on applying the ejusdem generis rule of statutory construction to the phrase among other things is therefore useless. precisely because “the constitutional power to prescribe the sharing of mining income between the State and mining companies. There is no point trying to construe that phrase in relation to the enumeration of taxes. Provided. the amendment requires approval of the President. extent and composition of the items that would come under the phrase among other things. Status of Existing FTAAs. the contractor’s corporate income tax. without foreclosing or in any way preventing (as in fact Congress could not validly prevent) the President from determining what constitutes the State’s compensation derived from FTAAs.e. Section 5 of DAO 99-56 reads as follows: “Section 5. and must fall by the wayside. in specifying what the phrase among other things include.. income which belongs to the State as owner of the mineral resources. In this case. the .” to quote Justice Carpio pursuant to an FTAA is constitutionally lodged with the President. i. not with Congress. The legislature’s power pertains to the imposition of taxes. if an amendment in the FTAA involves non-fiscal matters. and in no other. The proviso being objected to by Justice Carpio is actually preceded by a phrase that requires a contractor desiring to amend the fiscal regime of its FTAA. It thus makes no sense to persist in giving the phrase among other things a restricted meaning referring only to taxes. duties and fees. Strangely. duties and fees.” (Italics supplied) But it did not usurp the President’s authority since the provision merely included the enumerated items as part of the government share. but if the amendment involves a change in the fiscal regime. but rather the amount of INCOME to be derived from minerals to be extracted and sold. withholding tax due from the contractor’s foreign stockholders arising from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes. finally. 13. 12.
Hence.from having to pay the State any share from their mining income. we have never said that DAO 99-56 is the basis for claiming that the WMCP FTAA has a consideration.9 and 7.7 and the rest of the FTAA. 14. DAO 99-56. To clarify. For that very reason. the WMCP FTAA is NOT bereft of a valid consideration (assuming for the nonce that indeed this is the “consideration” of the FTAA). apart from taxes. We disagree. By its own express terms. cannot save the WMCP FTAA from want of consideration. The WMCP FTAA has its own fiscal regime -Section 7. Therefore. a summary of the key points discussed above is now in order. assuming it is valid. or that the former is trying to hide things from the President or Congress. Hence.amendment of an FTAA by merely adopting the fiscal regime prescribed in said DAO 99-56 (and nothing more) need not have the express clearance of the President anymore. which grant a sham consideration to the State.7 thereof. Indeed the only recourse of WMCP to save the validity of its contract is to convert it into an MPSA. The Decision should declare the WMCP FTAA void for want of consideration unless it treats the contract as an MPSA under Section 80. Nothing is said about their fiscal regimes. Even assuming arguendo that DAO 99-56 does not apply to the WMCP FTAA.like the WMCP FTAA -.8(e) of the WMCP FTAA are provisions grossly disadvantageous to government and detrimental to the interests of the Filipino people. duties and fees. we said that Sections 7. the WMCP FTAA is NOT and has never been exempt from paying the government share. nevertheless. and such deletion will preserve for government its due share of the 60 percent benefits. For the record. the WMCP FTAA thus lacks the third element of a valid contract. We cannot fathom the complaint that that makes the secretary more powerful than the President. Justice Carpio concludes that said Administrative Order allegedly exempts FTAAs approved prior to its effectivity -. are void. Since the offending provisions are very much separable from Section 7.8(e) can be done without affecting or requiring the invalidation of the WMCP FTAA itself. the WMCP FTAA has its own fiscal regime. we find quite out of place Justice Carpio’s statement that ironically. like the WMCP FTAA. the deletion of Sections 7.which gives the government a 60 percent share in the net mining revenues of WMCP from the commencement of commercial production. SUMMATION To conclude. The Meaning of “Agreements Involving Either Technical or Financial Assistance” . does not apply to the WMCP FTAA.9 and 7. What we see in black and white is the statement that the FTAAs approved before the DAO came into effect are to continue to be valid and will be recognized by the State. and must therefore be stricken off as invalid. Since the majority agrees that the WMCP FTAA has a sham consideration. Still more startling is this claim: The majority supposedly agrees that the provisions of the WMCP FTAA. the very authority cited to support the claim that the WMCP FTAA has a consideration. as well as violative of public policy. It is as if the same had been pre-approved. Based on the first sentence of Section 5 of DAO 99-56. Certainly. which states “[A]ll FTAAs approved prior to the effectivity of this Administrative Order shall remain valid and be recognized by the Government”.7 -. DAO 99-56 does not apply to FTAAs executed before the issuance of DAO 99-56. found in Section 7. there is no such thing as “want of consideration” here. The majority’s position has allegedly no leg to stand on since even DAO 99-56. there is no basis to claim that the contractors under said FTAAs were being exempted from paying the government a share in their mining incomes.
That change requires a much more definite and irrefutable basis than mere omission of the words “service contract” from the new Constitution. but with safety measures to prevent abuses. The drafters avoided the use of restrictive and stringent phraseology. The drafters. apart from financial or technical assistance. a verba legis scrutiny of Section 2 of Article XII of the Constitution discloses not even a hint of a desire to prohibit foreign involvement in the management or operation of mining activities. which reserves or limits to Filipino citizens and corporations at least 60 percent owned by such citizens the exploration. businesspersons and politicians knew that foreign entities will not enter into agreements involving assistance without requiring measures of protection to ensure the success of the venture and repayment of their investments. Despite strong opposition from some ConCom members during the final voting. by specifying such agreements involving assistance. The drafters. It is obvious from their discussions that they did not intend to ban or eradicate service contracts.was resoundingly and overwhelmingly approved. but rather implies that there are other things being included or possibly being made part of the agreement. development and utilization of mineral or petroleum resources. there would be no point in requiring that they be “based on real contributions to the economic growth and general welfare of the country. and a careful scrutiny thereof conclusively shows that the ConCom members discussed agreements involving either technical or financial assistance in the same sense as service contracts and used the terms interchangeably. the provision was meant to refer to more than mere financial or technical assistance. necessarily gave implied assent to everything that these agreements entailed or that could reasonably be deemed necessary to make them tenable and effective -. and measures for the protection of the .including paragraph 4 allowing service contracts with foreign corporations as an exception to the general norm in paragraph 1 of Section 2 of the same Article -. as an exception to the general norm established in the first paragraph of Section 2 of Article XII. lawyers. Such moves would necessarily imply an underlying drastic shift in fundamental economic and developmental policies of the State. development and utilization of minerals.Applying familiar principles of constitutional construction to the phrase agreements involving either technical or financial assistance. a literal and restrictive interpretation of this paragraph leads to logical inconsistencies. The framers spoke about service contracts as the concept was understood in the 1973 Constitution.” And considering that there were various long-term service contracts still in force and effect at the time the new Charter was being drafted. loans and other financial assistance. Resort to the deliberations of the Constitutional Commission is therefore unavoidable. the absence of any transitory provisions to govern the termination and closing-out of the then existing service contracts strongly militates against the theory that the mere omission of “service contracts” signaled their prohibition by the new Constitution. if paragraph 4 permits only agreements for financial or technical assistance. they were going to permit service contracts with foreign corporations as contractors. academicians. the Article on the National Economy and Patrimony -.including management authority with respect to the day-to-day operations of the enterprise. Also. A constitutional provision specifically allowing foreignowned corporations to render financial or technical assistance in respect of mining or any other commercial activity was clearly unnecessary. the framers’ choice of words does not indicate the intent to exclude other modes of assistance. This was prompted by the perceived insufficiency of Filipino capital and the felt need for foreign expertise in the EDU of mineral resources. they were intent on crafting provisions to put in place safeguards that would eliminate or minimize the abuses prevalent during the martial law regime. Instead. many of whom were economists. Furthermore. In brief. The drafters in fact knew that the agreements with foreign corporations were going to entail not mere technical or financial assistance but. foreign investment in and management of an enterprise for large-scale exploration. and ultimately to protect the business reputation of the foreign corporations. or to eradicate service contracts. rather.
through the establishment of policies. as utilized in Section 2 of Article XII. regulate and govern the affairs of the extractive enterprises. government need not micro-manage mining operations and day-to-day affairs of the enterprise in order to be considered as exercising full control and supervision. as this would render impossible the legitimate exercise by the contractor of a reasonable degree of management prerogative and authority. among them: (1) that the service contract be crafted in accordance with a general law setting standard or uniform terms.interests of the foreign corporation. and on the other hand government as principal or “owner” (of the works). whereby the foreign contractor provides the capital. industry standards and similar measures that would enable government to regulate the conduct of affairs in various enterprises. and government through its agencies (DENR. conditions and requirements. but such new service contracts are between foreign corporations acting as contractors on the one hand. Government Granted Full Control by RA 7942 and DAO 96-40 Baseless are petitioners’ sweeping claims that RA 7942 and its Implementing Rules and Regulations make it possible for FTAA contracts to cede full control and management of mining enterprises over to fully foreign owned corporations. to ensure efficient and profitable operation. for which reasons “beneficial ownership” of the mineral resources is allegedly ceded to the foreign contractor. The grant of such service contracts is subject to several safeguards. MGB) actively exercises full control and supervision over the entire enterprise. must be taken to mean a degree of control sufficient to enable the State to direct. indispensable to the proper functioning of the mining enterprise. the constitutional requirement of State control. and its full control and supervision over all aspects of exploration. technology and technical know-how. development and utilization of natural resources must be upheld. Such service contracts may be entered into only with respect to minerals. Control by the State may be on a macro level. the primacy of the principle of the State’s sovereign ownership of all mineral resources. conserve the environment. From the foregoing. and managerial expertise in the creation and operation of the large-scale mining/extractive enterprise. regulations. As discussed hereinabove. and (3) the President report the executed agreement to Congress within thirty days. Also. and beneficial ownership of natural resources remaining vested in the State. Control. it is clear that agreements involving either technical or financial assistance referred to in paragraph 4 are in fact service contracts. with weak review and audit powers and little say in the decision-making of the enterprise. (2) the President be the signatory for the government. Equally wobbly is the assertion that the State is reduced to a passive regulator dependent on submitted plans and reports. petroleum and other mineral oils. But “full control and supervision” cannot be taken literally to mean that the State controls and supervises everything down to the minutest details and makes all required actions. restrain. at least to the extent that they are consistent with Philippine sovereignty over natural resources. with the end in view of ensuring that these enterprises contribute to the economic development and general welfare of the country. Such a degree of control would be compatible with permitting the foreign contractor sufficient and reasonable management authority over the enterprise it has invested in. guidelines. the State’s full control and supervision over mining operations are ensured through the following provisions in RA 7942: . and uplift the well-being of the local affected communities. Ultimate Test: Full State Control To repeat. and restrain activities deemed not desirable or beneficial.
56(2). requires the contractor to obtain State approval for its proposed expenditures for exploration activities (Clause 5. and the use of anti-pollution technology and facilities. (h). and enforce compliance and impose sanctions should the occasion arise. The exploration permit issued under Sections 3(aq).9). 144. and pay royalties to the indigenous peoples concerned. 56[(g). Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a foreign contractor to apply for and hold an exploration permit.3-c). Such sanction is significant to a contractor who may have yet to recover the tens or hundreds of millions of dollars sunk into a mining project. The contractor is also obligated to assist the development of the mining community. (l). (f). (h). (k).2-a). 54. and Chapters XI and XVII. Otherwise. 35(a-2). 66. WMCP FTAA Likewise Gives the State Full Control and Supervision The WMCP FTAA obligates the contractor to account for the value of production and sale of minerals (Clause 1. copies of sales agreements have to be submitted to and registered with MGB. direct. Overall. and expenditures already made. Once they have been approved. and can set directions and objectives. 66. foreign or local. (m) and (o)].2). the exploration works already conducted. The contractor is mandated to open its books of accounts and records for scrutiny.6). which allows exploration but not extraction. 20 and 23 of RA 7942. 9. obligates the contractor to report to the State the results of its exploration activities (Clause 4. (l). 69. the State definitely has a pivotal say in the operation of the individual enterprises. 53[(a-4) and (d)]. and/or non-compliance with statutes or regulations. 168. the permit grantee (and prospective contractor) is spending and investing heavily in exploration activities without yet being able to extract minerals and generate revenues. (e). Thus. serves to protect the interests and rights of the exploration permit grantee (and would-be contractor). the government agencies concerned are empowered to approve or disapprove -. Hence.the various work programs and the corresponding minimum expenditure commitments for each of the exploration. may end up only benefiting claim-jumpers.4). 60. 40. detect deviations and non-compliances by the contractor. (m) and (n)]. to enable the State to determine that the government share has been fully paid. 171 and 270. to ensure that the products and by-products are disposed of at the best prices. 70. and change -.1). 57. 35[(b). requires the contractor to obtain State approval for its work programs for the succeeding two year periods. 16. . During the exploration phase. activities and budgets be approved by the State (Clause 2. requires submission of a declaration of mining feasibility for approval by the State (Clause 4. 24. gives the DENR secretary power to extend the exploration period (Clause 3. 19. (g).Sections 8. requires that the contractor’s work program. as well as the following provisions of DAO 9640: Sections7[(d) and (f)].6-b). the contractor’s compliance with its commitments therein will be monitored. obligates the contractor to periodically relinquish parts of the contract area not needed for exploration and development (Clause 4. containing the proposed work activities and expenditures budget related to exploration (Clause 5. health and environmental protection. in a position to influence. XVI and XXIV. and also Chapters XV.5).hence.1). The State may likewise compel compliance by the contractor with mandatory requirements on mine safety. requires approval by the State for incorporation of lands into the contract area (Clause 4. Section 3(aq) of RA 7942 is not unconstitutional. may be penalized by cancellation of the FTAA. requires the contractor to submit an annual report on geological. requires Bureau of Forest Development approval for inclusion of forest reserves as part of the FTAA contract area (Clause 4. development and utilization phases of the enterprise. Figures for mineral production and sales are regularly monitored and subjected to government review. RA 7942 and DAO 96-40 vest in government more than a sufficient degree of control and supervision over the conduct of mining operations. Through the foregoing provisions. And violation of any of the FTAA’s terms and conditions.
Clause 8. In short. work accomplished and work in progress. financial and marketing issues (Clause 10.4).5. The State. merely provides the contractor a certain amount of flexibility to meet unexpected situations. requires the contractor to submit reports to the secretary on the production. he may also resort to cancellation/termination of the FTAA as the ultimate sanction. profile of its work force and management staff. Clause 8.3-b). the contractor’s self-interest will assure proper and efficient relinquishment.3). Clause 8.2). subjects to State control the amount of funds that the contractor may borrow within the Philippines (Clause 7. and it may. citing substantial breach thereof.2). obligates the contractor to complete the development of the mine. net of the areas relinquished.1). including the charging of pre-operating and operating expenses. or it may terminate the FTAA. still has control over the contract area. It contemplates a situation in which the contractor is a foreign-owned corporation. requires State approval for any assignment of the FTAA by the contractor to an entity other than an affiliate (Clause 14. modifications.3-a).1).1). obligates the contractor to ensure 60 percent Filipino equity in the contractor within ten years of recovering specified expenditures unless not so required by subsequent legislation (Clause 10. including construction of the production facilities. subjects any expansions. since the annual occupation fees paid to government are based on the total hectarage of the contract area. along with a description of the area to be developed and mined. subjects to State supervisory power any technical. despite Clause 8.3.2). subject to certain limitations with respect to the variance/s. not .geophysical. The State is not in a position to substitute its judgment for that of the contractor. gives the State the right to terminate the FTAA for unremedied substantial breach thereof by the contractor (Clause 13. prohibit work thereon until the dispute is resolved.4). geochemical and other information relating to its explorations within the FTAA area (Clause 5.6 of the WMCP FTAA gives the contractor discretion to select parts of the contract area to be relinquished. hence. the aforementioned provisions of the WMCP FTAA. Clause 4. ore reserves. within the period stated in the approved work program (Clause 6. a description of the proposed mining operations and the technology to be employed. improvements and replacements of mining facilities to the approval of the secretary (Clause 6. requires the contractor after conducting feasibility studies to submit a declaration of mining feasibility. and other technical information (Clause 6. which allows the contractor to make changes to approved work programs and budgets without the prior approval of the DENR secretary. far from constituting a surrender of control and a grant of beneficial ownership of mineral resources to the contractor in question.2(e) of the WMCP FTAA does not mean that the contractor can compel government to use its power of eminent domain. vest the State with control and supervision over practically all aspects of the operations of the FTAA contractor. for approval by the DENR secretary (Clause 5.1-a). while still guaranteeing that the approved work programs and budgets are not abandoned altogether. and the disposition of mineral products. who knows exactly which portions of the contract area do not contain minerals in commercial quantities and should be relinquished. Also. stop-gap solution in case a disagreement between the State and the contractor (over the proposed work program or budget submitted by the contractor) should result in a deadlock or impasse. And if the secretary disagrees with the actions taken by the contractor in this instance. requires the contractor to submit for approval a work program covering each period of three fiscal years (Clause 6. requires the contractor to submit within six months after expiration of exploration period a final report on all its findings in the contract area (Clause 5.2 provides a mechanism to prevent the mining operations from grinding to a complete halt as a result of possible delays of more than 60 days in the government’s processing and approval of submitted work programs and budgets. Hence. the State clearly retains full and effective control. to avoid unreasonably long delays in the performance of the works. There is likewise no relinquishment of control on account of specific provisions of the WMCP FTAA.3 seeks to provide a temporary. Clause 10. as sovereign authority. and the proposed work program for the development phase.
fees or charges. The additional government share is computed using one of three (3) options or schemes detailed in DAO 99-56. is always in a position to render the services required under the FTAA.” spells out the financial benefits government will receive from an FTAA.4(i) provides that government shall “favourably consider” any request for amendments of this agreement necessary for the contractor to successfully obtain financing. There is no renunciation of control. being a share in the earnings or cash flows of the mining enterprise.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the mineral products extracted may have been a result of conditions imposed by creditor-banks to secure the loan obligations of WMCP. comprised of all direct taxes. Neither is it objectionable. Thus. which can be easily sold and converted into cash and applied to the repayment of loans. and depriving the State of a share in the after-tax income of the enterprise. the contractor is not thereby relieved of its obligation to pay the government its basic and additional shares in the net mining revenue. Banks lend also upon the security of encumbrances on goods produced. could permit Filipino equity ownership. and (3) the additional sharing based on the cumulative net mining revenue.qualified to own land. The provision does not call for the exercise of the power of eminent domain (or determination of just compensation).4(e) and (i) bind government to allow amendments to the FTAA if required by banks and other financial institutions as part of the conditions of new lendings. which was then 100 percent foreign owned. under the direction and control of the government. Whichever option or computation is used. the inclusion of the phrase “among other 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 taxes. Clause 10. No Surrender of Financial Benefits The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the State’s share in FTAAs with foreign contractors to just taxes. the “Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance Agreements. (2) the excess profit-related additional government share. but also an additional government share.” means that WMCP. DAO 99-56. There is nothing objectionable here. fees and royalties. viz. . duties. as consisting of not only a basic government share. it is up to the contractor to prove the need for the requested changes. regardless of its ownership. The government always has the final say on whether to approve or disapprove such requests. In fine.4(e) also provides that such financing arrangements should in no event reduce the contractor’s obligations or the government’s rights under the FTAA. the FTAA provisions do not reduce or abdicate State control. The contractor’s ability to mortgage the minerals does not negate the State’s right to receive its share of net mining revenues. However. Clause 10. The portion of revenues remaining after the deduction of the basic and additional government shares is what goes to the contractor. duties and fees. Clause 10. fees and duties.2(k) which gives the contractor authority “to change its equity structure at any time. Also. because even though the contractor is allowed to mortgage or encumber the mineral end-products themselves. the additional government share has nothing to do with taxes.. as the proviso does not say that government shall automatically grant any such request. Moreover. so as to achieve a fifty-fifty sharing of net benefits from mining between the government and the contractor. since Clause 10. The contractor identifies the surface areas needed for it to construct the infrastructure for mining operations. and the State then acquires the surface rights on behalf of the former. as well as other payments made by the contractor during the term of the FTAA. Clauses 10. Thus.2(l) is not something out of the ordinary. (1) the fifty-fifty sharing of cumulative present value of cash flows. Clause 10. what is important is that the contractor. it seeks to avoid a violation of the anti-dummy law.
. or until the date of actual recovery. on due process grounds. and the approximate period of time needed therefor. However. In sum. the collection of the State’s share is rendered uncertain. the concerned agencies (DENR and MGB) in formulating the 1995 and 1996 Implementing Rules and Regulations provided that the period of recovery. it is feared that such expenses could be bloated to wipe out mining revenues anticipated for 10 years. Allegedly.e. In fine. they are separable. Hence. In any event. These particular provisions do not come within the issues defined by this Court. exploration and development expenditures. they cannot be ruled upon here. The mining law obviously meant to treat FTAAs as a breed apart from mineral agreements. Section 112 likewise does not come within the issues delineated by this Court. total government share increases to 60 percent or higher (as much as 77 percent. Section 80 of RA 7942 allegedly limits the State’s share in a mineral production-sharing agreement (MPSA) to just the excise tax on the mineral product. before government may grant an FTAA or MPSA or other mineral agreements. However. The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the payment of the government share in FTAAs until after the contractor shall have recovered its pre-operating expenses. the third or last paragraph of Section 81 of RA 7942 cannot be deemed defective. the applicant for exploration permit is required to submit a proposed work program for exploration. Section 112 may not properly apply to FTAAs. no pronouncement can be made in this case in respect of the constitutionality of Sections 80 and 84. again. and was never touched upon by the parties in their pleadings. it must submit a work program for development. concession or lease” system. But although RA 7942 did not limit the grace period. government has the opportunity to approve or reject the proposed work program and budgeted expenditures for development works. Government is able to know ahead of time the amounts of pre-operating and other expenses to be recovered. exploration and development expenses of the foreign contractors. and 89 percent in one instance) of the net present value of total benefits from the project. with the result that the State’s share is zero for the first 10 years. which are real and actual benefits enjoyed by the Filipino people. as there is no time limit in RA 7942 for this grace period or recovery period. for approval by the Bureau. if approved. Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old “license. a later finding of nullity will not affect the rest of RA 7942. which the State passes upon and either approves or rejects. There is absolutely no basis to believe that the law intends to exact from FTAA contractors merely the same government share (i. The colatilla in Section 84 reiterates the same limitation in Section 80. Moreover. 84 and 112 are indeed unconstitutional. with corresponding budget. the 2 percent excise tax) that it apparently demands from contractors under the three forms of mineral agreements. only 2 percent of market value of the minerals. shall be for a period not exceeding five years. which deals with the terms and conditions exclusively applicable to FTAAs. reckoned from the date of commercial operation. Under Section 23 of RA 7942.The basic government share and the additional government share do not yet take into account the indirect taxes and other financial contributions of mining projects.. if these are taken into account. And since RA 7942 allegedly does not require government approval for the pre-operating. i. and have no application to FTAAs. However. whichever comes earlier. because it allegedly effectively reduces the government share in FTAAs to just the 2 percent excise tax which pursuant to Section 80 comprises the government share in MPSAs. thus. The aforecited provisions have counterparts in Section 35. the challenged provisions of RA 7942 cannot be said to surrender financial benefits from an FTAA to the foreign contractors. when an exploration permittee files with the MGB a declaration of mining project feasibility. the argument is based on incorrect information. Under Section 24. While there is ground to believe that Sections 80.. the same will subsequently be recorded as preoperating expenses that the contractor will have to recoup over the grace period. which will become the preoperating and development costs that will have to be recovered. containing a yearly budget of proposed expenditures.e. these two provisions pertain only to MPSAs.
Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the State must receive at least 60 percent of the after-tax income from the exploitation of its mineral resources, and that such share is the equivalent of the constitutional requirement that at least 60 percent of the capital, and hence 60 percent of the income, of mining companies should remain in Filipino hands. Even if the State is entitled to a 60 percent share from other mineral agreements (CPA, JVA and MPSA), that would not create a parallel or analogous situation for FTAAs. We are dealing with an essentially different equation. Here we have the old apples and oranges syndrome. The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations, regardless of circumstances. There is no indication of such an intention on the part of the framers. Moreover, the terms and conditions of petroleum FTAAs cannot serve as standards for mineral mining FTAAs, because the technical and operational requirements, cost structures and investment needs of off-shore petroleum exploration and drilling companies do not have the remotest resemblance to those of onshore mining companies. To take the position that government’s share must be not less than 60 percent of after-tax income of FTAA contractors is nothing short of this Court dictating upon the government. The State resultantly ends up losing control. To avoid compromising the State’s full control and supervision over the exploitation of mineral resources, there must be no attempt to impose a “minimum 60 percent” rule. It is sufficient that the State has the power and means, should it so decide, to get a 60 percent share (or greater); and it is not necessary that the State does so in every case. Invalid Provisions of the WMCP FTAA Section 7.9 of the WMCP FTAA clearly renders illusory the State’s 60 percent share of WMCP’s revenues. Under Section 7.9, should WMCP’s foreign stockholders (who originally owned 100 percent of the equity) sell 60 percent or more of their equity to a Filipino citizen or corporation, the State loses its right to receive its share in net mining revenues under Section 7.7, without any offsetting compensation to the State. And what is given to the State in Section 7.7 is by mere tolerance of WMCP’s foreign stockholders, who can at any time cut off the government’s entire share by simply selling 60 percent of WMCP’s equity to a Philippine citizen or corporation. In fact, the sale by WMCP’s foreign stockholder on January 23, 2001 of the entire outstanding equity in WMCP to Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino owned, can be deemed to have automatically triggered the operation of Section 7.9 and removed the State’s right to receive its 60 percent share. Section 7.9 of the WMCP FTAA has effectively given away the State’s share without anything in exchange. Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in WMCP, because by the mere act of divestment, the local and foreign stockholders get a windfall, as their share in the net mining revenues of WMCP is automatically increased, without having to pay anything for it. Being grossly disadvantageous to government and detrimental to the Filipino people, as well as violative of public policy, Section 7.9 must therefore be stricken off as invalid. The FTAA in question does not involve mere contractual rights but, being impressed as it is with public interest, the contractual provisions and stipulations must yield to the common good and the national interest. Since the offending provision is very much separable from the rest of the FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidation of the entire WMCP FTAA itself. Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by government for the benefit of the contractor to be deductible from the State’s share in net mining revenues, it results in benefiting the contractor twice over. This constitutes unjust enrichment on the part of the contractor, at the expense of government. For being grossly disadvantageous and prejudicial
to government and contrary to public policy, Section 7.8(e) must also be declared without effect. It may likewise be stricken off without affecting the rest of the FTAA. EPILOGUE AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the Court upon the key principle that the State must exercise full control and supervision over the exploration, development and utilization of mineral resources. The crux of the controversy is the amount of discretion to be accorded the Executive Department, particularly the President of the Republic, in respect of negotiations over the terms of FTAAs, particularly when it comes to the government share of financial benefits from FTAAs. The Court believes that it is not unconstitutional to allow a wide degree of discretion to the Chief Executive, given the nature and complexity of such agreements, the humongous amounts of capital and financing required for large-scale mining operations, the complicated technology needed, and the intricacies of international trade, coupled with the State’s need to maintain flexibility in its dealings, in order to preserve and enhance our country’s competitiveness in world markets. We are all, in one way or another, sorely affected by the recently reported scandals involving corruption in high places, duplicity in the negotiation of multibillion peso government contracts, huge payoffs to government officials, and other malfeasances; and perhaps, there is the desire to see some measures put in place to prevent further abuse. However, dictating upon 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 reduction if not deprivation of the State’s control. The remedy may be worse than the problem it was meant to address. In any event, provisions in such future agreements which may be suspected to be grossly disadvantageous or detrimental to government may be challenged in court, and the culprits haled before the bar of justice. Verily, under the doctrine of separation of powers and due respect for coequal and coordinate branches of government, this Court must restrain itself from intruding into policy matters and must allow the President and Congress maximum discretion in using the resources of our country and in securing the assistance of foreign groups to eradicate the grinding poverty of our people and answer their cry for viable employment opportunities in the country. “The judiciary is loath to interfere with the due exercise by coequal branches of government of their official functions.” As aptly spelled out seven decades ago by Justice George Malcolm, “Just as the Supreme Court, as the guardian of constitutional rights, should not sanction usurpations by any other department of government, so should it as strictly confine its own sphere of influence to the powers expressly or by implication conferred on it by the Organic Act .” Let the development of the mining industry be the responsibility of the political branches of government. And let not this Court interfere inordinately and unnecessarily. The Constitution of the Philippines is the supreme law of the land. It is the repository of all the aspirations and hopes of all the people. We fully sympathize with the plight of Petitioner La Bugal B’laan and other tribal groups, and commend their efforts to uplift their communities. However, we cannot justify the invalidation of an otherwise constitutional statute along with its implementing rules, or the nullification of an otherwise legal and binding FTAA contract. We must never forget that it is not only our less privileged brethren in tribal and cultural communities who deserve the attention of this Court; rather, all parties concerned -- including the State itself, the contractor (whether Filipino or foreign), and the vast majority of our citizens -- equally deserve the protection of the law and of this Court. To stress, the benefits to be derived by the State from mining activities must ultimately serve the great majority of our fellow citizens. They have as much right and interest in the proper and well-ordered development and utilization of the country’s mineral resources as the
petitioners. Whether we consider the near term or take the longer view, we cannot overemphasize the need for an appropriate balancing of interests and needs -- the need to develop our stagnating mining industry and extract what NEDA Secretary Romulo Neri estimates is some US$840 billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order to jumpstart our floundering economy on the one hand, and on the other, the need to enhance our nationalistic aspirations, protect our indigenous communities, and prevent irreversible ecological damage. This Court cannot but be mindful that any decision rendered in this case will ultimately impact not only the cultural communities which lodged the instant Petition, and not only the larger community of the Filipino people now struggling to survive amidst a fiscal/budgetary deficit, ever increasing prices of fuel, food, and essential commodities and services, the shrinking value of the local currency, and a government hamstrung in its delivery of basic services by a severe lack of resources, but also countless future generations of Filipinos. For this latter group of Filipinos yet to be born, their eventual access to education, health care and basic services, their overall level of well-being, the very shape of their lives are even now being determined and affected partly by the policies and directions being adopted and implemented by government today. And in part by the this Resolution rendered by this Court today. 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.
iiLands of Public Domain
enumerated in Section 2, Art. XII of the 1987 Constitution. The term “public domain” is synonymous to public dominion or public ownership, as
distinguished from private ownership.
The 1987 Constitution provides four (4) classifications of LPD.] Alienable or disposable lands. forest or timber. c.] Timber lands. Agricultural lands remain to be the only class of LPD that may be alienable or disposable.] Mineral lands. forest or timber. and national parks. and The the alienable or disposable which is the agricultural land. On November 7. case of Alba vs. 1999 is enlightening. Thus. G. But in Public Land Act. It remains to this day the existing general law on classification and disposition of land of public domain other than timber and mineral lands. industrial or for similar productive purposes. mineral lands and national parks. mineral and national parks. and they are agricultural. Classification Lands of the public domain are classified into agricultural.Governing Law Commonwealth Act No. and. For purposes of administration and disposition.] Residential. or the Public Land Act. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. b. the rest are otherwise. September 9. 2. commercial.] Agricultural. and. 1936. as amended. 120066. the lands of the public domain classified as "disposable" or "alienable" are further sub-classified into a. 141. mineral. Non-disposable public lands or those not susceptible of private appropriation include a. there are only three (3) classifications. forest or timber. Court of Appeals. is the governing law of public land. 141 which compiled existing laws on public domain. No.] Educational. and mineral. lands. the National Assembly (then legislature) approved CA No.] Inalienable or non-disposable public lands. LPD may be generally classified as either the inalienable or non-disposable lands which are the timber or forest. b. .R. Alienable lands of the public domain shall be limited to agricultural agricultural. as follows: Public lands are broadly classified into 1.
(2) Those which belong to the State. and d. Properties of the State or its political subdivision could either be (1) property of public dominion which are those enumerated in immediately preceding paragraph.charitable or other similar purposes. Property subdivision in of public dominion is held or by the State or its political the its governmental sovereign capacity while patrimonial property in its proprietary or private capacity. public agricultural land may be defined as those alienable portions of the public domain which are neither timber nor mineral lands. things are property of dominion: (1) Those intended for public use. ports and bridges constructed by the State. which is not for public use.g. property is And the following or private ownership. and are intended for some public service or for development of the national wealth. and municipalities. either individually or collectively. provinces.] Reservations for town sites and for public and quasi-public purposes. roadsteads. without being for public use. commercial and industrial lands for the reason that these lands are neither timber nor mineral lands. torrents. either of public dominion Accordingly. Land is a property. and it is thus worth taking the classification of the New Civil Code as to ownership of property. e. Classification an Executive Prerogative . public service and for development of national wealth. shores. consists of all property belonging to private persons. From the foregoing classifications. rivers. or the (2) patrimonial property which consists of all other property of State. canals. cities. Thus the term includes residential. banks. such as roads. those for public use. Property of private ownership. and others of similar character. besides the patrimonial property of the State. public service and for development of national wealth.
who public domain into alienable or Before the government could alienate or dispose LPD. (b) Timber. shall from time to time declare what lands are open to disposition or concession. namely: Mineral. For disposable purposes of the administration the President. Thus. Stated other way. the State could not dispose or alienate mineral and forest lands or national parks while they are still in that status. the Secretary of DENR. The power of the President to re-classify LPD from inalienable or nondisposable to alienable or disposable status is provided in as follows: “The President. 6-7) which states that it is only the President. o . recommendation Secretary of the DENR.Lands of the public domain are classified under three main categories. and then declare them open to disposition or d p concession. Forest and only Disposable agricultural or Alienable lands are Lands. and may at any time and in a like manner transfer such lands from one class to another. upon the recommendation of has the authority to classify lands of disposable. and (c) Mineral land. for the purposes of their administration and disposition. 141 (Secs. d the proper department head. the President For the must first officially re- classify them into agricultural lands because the Constitution provides that alienable lands are limited only to agricultural lands. State to dispose or alienate them. and upon disposition of alienable of or the public lands. the President must first officially classify these lands as alienable or disposable. The disposition of alienable or agricultural lands is provided in forest and mineral lands or national Commonwealth Act No. alienated. The classification is a prerogative of the executive department and not the courts. shall from time to time classify the lands of the public domain into: (a) Alienable or disposable. upon recommendation of Public Land Act. . disposable or alienable lands of public domain necessarily refer only to agricultural lands. allowed Under to be Commonwealth Constitution. timber and mineral lands. not parks.
as follows: (a) Agricultural. No. having been reserved or appropriated. or may. nor appropriated by the Government. transfer lands from one class to another. industrial. suspend their concession or disposition until they are again declared open to concession or disposition by proclamation duly published or by act of Congress. 141. charitable. nor those which a private right authorized and recognized by CA No. language of Public Land Act. for reasons of public interest. have ceased to be. commercial. Once an LPD is re-classified as alienable or open to disposition. . However. at any time and in a similar manner. the land of the public domain alienable or open to disposition shall be classified. according to the use or purposes to which such lands are destined.Only those lands shall be declared open to disposition or concession which have been officially delimited or classified and. as amended. for the same reason. (b) Residential. use or benefit of the lands of the public domain other than timber or mineral lands. or other similar purposes. Meaning of Alienation The words “Alienation. or which. 141 or any other valid law may be claimed. and may. and which have not been reserved for public or quasi-public uses. upon recommendation by the Secretary of the DENR. the President may.A. 10n of Public Land Act or C.” “Disposition” or “Concession” as used in Sec. lease. shall from time to time make such classification. declare lands of the public domain open to disposition before the same have had their boundaries established or been surveyed. surveyed. as follows: “For the This is the their purpose of administration and disposition. shall mean any of the methods authorized by said Act for the acquisition. and (d) Reservation for town sites and for public and quasi-public uses. (c) Educational. The President. or for similar productive purposes. when practicable. nor in any manner become private property. it may be further classified according to their use or purposes.
they are imprescriptible. ports. 116 SCRA 505). 421). (Art. they are inalienable or non-disposable. is patrimonial. 1992 SCRA 121. (Art. shall form part of the patrimonial property of the State. (Vallanta vs. when no longer needed for public use or for public service. Intermediate Appellate Inalienable lands are non-registrable properties: They could not be owned privately. (Director of Forest Administration vs Fernandez. such as roads.Meaning of Inalienability Inalienable or non-disposable lands are those not susceptible of private appropriation or ownership and hence. . hence. Court. Court of Appeals. 192 SCRA 121. without being for public use. 126 SCRA 69. not in the character of foregoing. Director of Forest Administration vs. 420). They are: 1) Property of Public Dominion under NCC They are under the New Civil Code (1) those intended for public use. Director of Forestry. and (2) those which belong to the State. A tax declaration secured over a land that is forested does not vest ownership to the declarant. 135). and others of similar character. 151 SCRA 679). Property of public dominion. torrents. Fernandez. Their possession however long cannot ripen into private ownership. All other property of the State. rivers. banks. They are not registrable. 2) Forest or Timber Lands The fact that no trees could be found within the area does not divest the piece of land of its classification as timber or forest land as the classification is descriptive of its legal nature or status and does not have to be taken descriptive of what the land actually looks like. (Heirs of Amunategui vs. no private person or entity anational parks. They cannot be acquired by prescription. (Republic vs. and are intended for some public service or for the development of the national wealth. 422). roadsteads. canals. 135). they could not be registered under Torrens system of registration. (Art. and bridges constructed by the State. 1990. shores.
A forested area classified as forest land of the public domain does not lose such classification simply because loggers or settlers may have stripped it of its forest cover. Parcels of land classified as forest land may actually be covered with grass or planted to crops by kaingin cultivators or others farmers. ‘Forest lands’ do not have to be in mountains or in out of the way places. Swampy areas covered by mangrove trees, nipa palms, and other trees growing in brackish or sea water may also be classified as forest land. The classification is descriptive of its legal nature or status and does not have to be descriptive of what the land actually looks like. Unless and until the land classified as ‘forest’ is released in an official proclamation to that effects so that it may form part of the disposable agricultural lands of the public domain, the rules on confirmation of imperfect title do not apply,
(Amunategui vs. Director of Forestry, G.R. No. L-27873, November 29, 1983).
Conversely, “the mere fact that a tract of land has trees upon it or has mineral within it is not of itself sufficient to declare that one is forestry land and the other, mineral land. There must be some proof of the extent and present or future value of the forestry and of the minerals. While, as we have just said, many definitions have been given to ‘agriculture’, ‘forestry’ and ‘mineral’ lands, and that in each case it is a question of fact, we think it is safe to say that in order to be forestry or mineral land the proof must show that it is more valuable for the forestry or the mineral which it contains than it is for agricultural purposes. It is not sufficient to show that there exists some trees upon the land or that it bears some mineral. Land may be classified as forestry or mineral today, and by reason of the exhaustion of the timber or mineral, be classified as agricultural land tomorrow. And vice-versa, be reason of rapid growth of timber or the discovery of valuable minerals, lands classified as agricultural today may be differently classified tomorrow. Each case must be decided upon the proof in that particular case, having regard for its present or future value for one or the other purposes.” (Ankron vs. Government of the Philippine Islands,
G.R.No. 14213, Aug. 23, 1919, 40 Phil.)
This is defined as an area drained by a river and its tributaries and enclosed by a boundary or divide which separates it from adjacent watersheds. (Sta.
Rosa Development Corporation vs. 2001, 367 SCRA 175). Court of Appeals, G.R.N. 112526, Oct. 12,
4. Mangrove Swamps Mangrove swamps or manglaves is a community of intertidal plants including all species of trees, shrubs, vines, and herbs found on coasts, swamp or border camps (Sec. 4, R.A. No. 8550 or the Fisheries Code of 1998). They form part of the public forests of the Philippines as defined in Section 1820 of the Administrative Code of 1917, and are not subject to private ownership until and unless they are first released as forest land and classified as alienable agricultural land, (Director of Forestry vs. Villareal, 170
5. Mineral Lands
They are governed by special laws, not Public Land Law. Mineral lands mean any areas where mineral resources are found. Mineral resources mean any concentration of mineral rocks with potential economic value. Ownership by a person of agricultural land in which minerals are discovered does not give him the right to extract or utilize the minerals without permission of the State. (Republic vs. Court of Appeals, G.R. No. L-43938, April
6. National Parks
Cham vs. Pizarro A.C. No. 5499, Aug. 16, 2005;
7. Military or Naval Reservation
Republic vs. Marcos, G.R.No. L-32941, july 31, 1973; Republic vs. Southside Homeowners Association, Inc. G.R.No. 156951, September 22, 2006.
8. Foreshore Lands and Reclaimed Lands
Foreshore Land has been defined as that part of the land which is between high and low water and left dry by the flux and reflux of the tides. It is the strip of the land that lies between the high and low water marks and that is alternatively wet and dry according to the flow of the tide. If the submergence, however, of the land is due to precipitation (rainfall), it does not become foreshore despite its proximity to the waters. (Republic vs. Alagad, 169 SCRA 455, 462, 464 (1989). Foreshore land, seashore, and/or portions of the territorial waters and beaches, cannot be registered for they are public land belonging to the State. Even alluvial formation along the seashore is part of the public domain and, therefore, not open to acquisition by adverse possession by private persons. Such accretion is outside the commerce of man, unless declared by either the executive or legislative branch of the government as disposable. Their inclusion in a certificate of title does not convert the same into properties of private ownership or confer title upon the registrant, (DIZON VS Rodriguez, 13 SCRA
704; Republic vs. Vda. De Castillo, 163 SCRA 286).
That the foreshore area had been reclaimed does not remove it from its classification of foreshore area subject to the preferential right to lease of the littoral owner. (SIAN Enterprises, Inc. vs. F.F. Cruz & Co., Inc. G.R.No.
146616, Aug. 31, 2006).
9. Submerged Areas
In Chavez vs. Public Estates Authority, G.R.No. 133250, July 9, 2002 , it is held:
“The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural resources of the public domain until classified as alienable or disposable lands open to disposition and declared no longer needed for public service. The government can make such classification and declaration only after PEA has reclaimed these submerged areas. Only then can these lands qualify as agricultural lands of the public domain, which are the only natural resources the government can alienate. In their present state, the 592.15 hectares of submerged areas are inalienable and outside the commerce of man.” “Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156 hectares of still submerged areas of Manila Bay, such transfer is void for being contrary to Section 2, Article XII of the 1987 Constitution which prohibits the alienation of natural resources other than agricultural lands of the public domain. PEA may reclaimed these submerged areas. Thereafter, the government can classify the reclaimed lands as alienable or disposable, and further declare them no longer needed for public service. Clearly the amended JVA violates glaringly Section 2 and 3, Article XII of the 1987 Constitution. Under Article 1409 of the Civil Code, contracts whose “object or purpose is contrary to law,” or whose “object is outside the commerce of men” are “inexistent and void from the beginning.” The court must perform its duty to defend and uphold the Constitution, and therefore declares the Amended JVA null and void ab initio.” Otherwise said, submerged areas form part of public domain, and in that state, are inalienable and outside the commerce of man. Until reclaimed from the sea, these submerged areas are, under the Constitution, “water… owned by the State,” forming part of the public domain and consequently inalienable. Only when actually reclaimed from the sea can these submerged areas be classified as public agricultural lands, which under the Constitution are the only natural resources that the State may alienate. Once reclaimed and transformed into public agricultural lands, the government may then officially classify these lands as alienable or disposable lands open to disposition. Thereafter, the government may declare these lands no longer needed for public service. Only then can these reclaimed lands be considered alienable or disposable lands of the public domain and within the commerce of man. (p.37, Law on Natural
Resources, Oswaldo D. Agcaoili, 2007 ed).
Areas forming part of the L:aguna de Bay, which is a lake, are neither agricultural nor disposable lands of the public domain. Any title issued over non-disposable lots like lakes, even in the hands of the alleged purchaser for value, shall be cancelled. (Pelbel Manufacturing Corp. vs. Court of Appeals,
G.R.No. 141325, July 31, 2006).
11) Navigable Rivers
If the land forms part of the bed of the navigable stream, creek or river, the decree and title in the name of the applicants would not give them any right or title to it. (Republic vs. Sioson, G.R. No. L-13687, Nov. 29,1 963).
Court of Appeals. 2003). September 30. 141. cultivation and exclusive and adverse possession can be counted for purposes of an imperfect title. August 10. 2006). (Sec. Unless the President issues a proclamation withdrawing public airports from public use. October 15. 1976).R. Reyes. Court of Appeals. and no lawful settlement on them can be acquired. No. possession of. G. these properties remain properties of public dominion and are inalienable.12) Creeks A creek is a recess or arm extending from a river and participating in the ebb and flow of the sea.R. As a public water. public agricultural these are methods of legitimizing lands suitable for agricultural (3) purposes. 11627. these are modes of disposition or alienation or grant of. . (MIAA vs. (Republic vs.No. does not alter or change the nature of the creek as a property of the public domain.R. Land covered by reservation for a medical center is not subject to entry. 13) Reservations for Public and Semi-public Purposes Lands reserved by the President for a specific public purpose are non-alienable and shall not be subject to sale or other disposition until again declared alienable. Each mode of disposition is appropriately covered by separate chapters of the Public Land Act because there are specific requirements and applicable procedure for every mode. July 20. 1937). 142595. The construction of irrigation dikes on a creek which prevents the water from flowing. 45768. their but for private persons or entities.R. as amended). G. And they are (1) for Homestead Settlement. G. by itself. L-40912. Modes of Disposition of Public Lands (Public Grant) For the State. by Lease. it cannot be registered under the Torrens system of registration in the name of any individual. R. (2) by Sale. G. 155650. alter its inalienable character. Manaog. 11. (Mercado vs. 1918). (Celestial vs. G. December 23. Cachopero. No. or converts it into fishpond. (Mangaldan vs. It is only after the government has declared the land to be alienable and disposable agricultural land that the year of entry. that a portion of the creek had dried up does not. Absent any declaration by the government. CA No. No. (4) by Confirmation of Imperfect or Incomplete Titles which are further (a) Judicial Legalization and (b) by Administrative Legalization (Free Patent).
in short. 2002). G. 1934). No. 37435. (Padilla vs. lease. as amended. 1942 and P. May 26. Intermediate Appellate Court. One claiming “private rights” must prove that he has complied with the Public Land Act which prescribes the substantive as well as the procedural requirements for acquisition of public lands. 11 of Public Land. Homestead Settlement (Patent) . 194 SCRA 745-752. as amended by R. Court of Appeals. 48 (b) of the Public Land Law. (Collado vs. 2005).R. express or implied. doing nothing because if another claimant comes along and takes actual possession of the land.(Republic vs. or confirmation of imperfect or incomplete title by judicial legalization under Sec. (Ybanez vs. he might lose it by prescription. Reyes. He cannot just sit tight. or by administrative legalization (free patent) under Sec. Importance of Legitimizing Possession of Public Agricultural Lands It is the duty of any claimant to take positive steps to legitimize before the Bureau of Lands his claim of possession and cultivation of the public land. He must. that. No. The claimant may do this either by applying for homestead settlement. “no public land can be acquired by private persons without any grant. from the government. No. October 4.D. G. affirmatively declare his prior and earlier possession and cultivation and prove that he actually possessed and cultivated the entire area of land to the exclusion of other claimants who stand on equal footing under the Public Land Law as any other pioneering claimants.” There must be a showing of a title from the State. Be it noted. 1991). November 28. 1073.R.R. sale patent. 107764. G. 156117.A. Herbieto.
18 Fla. 14). 12 CA No. The applicant must have continuous resident at least one year in the municipality where the land lies and cultivation of at least one-fifth (Sec. 5. 338). Over 18 years old or head of family. Only Filipino citizen.Concept: By homestead is meant the home. Art. 141. (Patricio vs. Rep. 2. Soriano. Homestead Act is a social legislation enacted for the welfare and protection of the poor. the Director of Lands shall authorize the applicant to take possession of the land upon payment of entry fee. 45 Phil. Bayog. 825. 13) 3. with the land and buildings surrounding the main house. due notice shall be given to the public and homesteader. The applicant to notify the Director of Lands of his readiness to present final proof of compliance of cultivation and resident and other requirements. Does not own more than 12 hectares of land in the Philippines. (Sec. as amended by Sec. 13) 2. The purpose of the law is to give to the homesteader a place to live in with his family so that he may become a happy citizen and a useful member of our society. the house and the adjoining land where the head of the family dwells. XII of the 1987 Constitution) Procedures: 1. stating among things . the home farm. the applicant must begin cultivation of the homestead lot. Upon approval of the application. (Jocson vs. (Oliver vs. Within six (6) months from approval of the application. (Sec. or else he shall lose his prior right to the land. Before hearing in the Director of Lands of such final proof. 43 Am. or has not had the benefit of any gratuitous allotments of more than 12 hectares of land since the occupation of the Philippines by USA. 112 SCRA 42). Qualifications: 1. the fixed residence of the head of a family. 4. 375). Snowden. He must cultivate at least one-fifth of the land for a period of not less than one nor more than five years from date of approval of the application (Sec. 13). 3. Filing of Homestead application with Director of Lands (Sec. 6. 3. (Sec 14) (Proof of this notice may be in the form of Joint Affidavit of applicant and witnesses).
Intermediate Appellate Court.the nature of the application. unaffected by the fact that the paramount title to the land is still in the Government. the Director of Lands shall order the survey of the land by the surveyor of the Bureau of Lands and the corresponding plan thereof to be prepared. a perfected homestead property is a property right in the fullest sense. and the time and place at which such proof will be presented (Sec. 195 SCRA 268). (Sec. Even without a patent. Intermediate Appellate Court. (Balboa vs. The applicant must have possessed and cultivated the land subject of the Homestead application. 16). (Quinsay vs. vs. Vested rights over the land applied under a homestead application can only be validly claimed by a claimant after the approval by the Director of Lands of his final proof for a homestead patent. Vested Rights of Homestead Before Issuance of Patent When a homesteader has complied with all the terms and conditions which entitled him to a patent for a particular tract of public land. 617). This is now the condition sine qua non for the existence of such vested right. Certified copy of the Patent is sent to the Register of Deeds for registration. 498. Thereupon an Original Certificate of Title is issued to the patentee in accordance with Section 122 of Act No. 61 Phil. . 118 SCRA 492). Cusi. 14). (Davao Grains Inc. he acquires a vested right and interest therein. Ayog vs. 8. 171 SCRA 612. 141. The approval of the application for the homestead has the effect of segregating the land from the public domain and divesting the Bureau of Lands of the control and possession of same land. no certificate of title shall be issued. If no cultivation of at least 1/5 of the land. The Bureau of Lands shall prepare the Homestead Patent issued in the name of the Republic of the Philippines under the signature of the President. 7. in relation to CA No. Farrales. and 9. Upon satisfaction of the proofs of application. and is to be regarded as the equitable owner thereof. 496.
The purchaser must show actual occupancy. Only Filipino citizen. may order the survey of the land. Procedures: 1. Note: No private corporation or association may purchase alienable public lands or hold such land except by lease not exceeding 25 years for not more than 1. To purchase not more than 12 hectares. enclosing cash or certified check. or head of family. The Director of requirements of plan thereof is the Homestead Lands. as well as in the barrio council building. 1987 Constitution. treasury warrant. Judge Bartolome.Sales Patent Qualifications: 1. 114 SCRA 799. Filing of application with Director of Lands. 3 Art. 7. 5. Same notice to be posted in the bulletin board of the Bureau of Lands in Manila and in three conspicuous places in the provincial and municipal buildings of the situs of the land. and when the finished. 2. . Publication of the Notice of Sale by the Director of Lands once a week for three consecutive weeks in Official Gazette and in two newspaper once published in Manila and the other in the locality. 10. 9. Opening of bids and award to highest bidder. Of lawful age. Certified copy is sent to the Register of Deeds for issuance of the corresponding Original Certificate of Title. Submission of Sealed Bids to the Director of Lands.000 hectares (Sec. Appraisal of the value of land by Director of Land with Secretary of the DENR. 4. and 3. 6. satisfied that the purchaser has complied the law. XII. 1982). 2. The purchaser cultivates not less than one-fifth of the property within five years after the date of award. 8. Payment of the Purchase Price may be in full upon award or paid in ten equal annual installments from date of award. cultivation and improvements of at least one-fifth of the land applied for until the date of final payment. approval of the 3. to postal money order for an amount equivalent to 10% of the bid. Meralco vs. the sales patent is prepared and issued like Patent.
It is a legal prerequisite that the purchaser must show that he has occupied and has broken and cultivated at least one-fifth of the land within five years after date of award. Court of Appeals. But this approval merely authorizes the applicant to take possession of the land so that he can comply with the requirements of occupation and cultivation before a final sales patent can be issued in his favor. it was only then the government was divested of its ownership and the land was segregated from the mass of public domain. (Sec. it is shown that the purchaser has voluntarily abandoned the land for more than one year at any time or has otherwise failed to comply the requirements of occupation and cultivation. then the land shall revert to the State. If at any time after the award and before the issuance of sales patent. (Sec. the award to the highest bidder marks the approval of sales application. as in fact the application can still be cancelled and the land awarded to another applicant. 28). Hence. when the Bureau of Lands did not take action on the sales application but instead issued the free patent.Prerequisite to Issuance of Sales Patent The mere fact of having succeeded in the bidding and paid for the full price is not sufficient to entitle the purchaser to the immediate issuance of the sales patent. (Javier vs. 30). 231 SCRA 498). if it be shown that said requirements of occupation and cultivation have not been complied with. Meanwhile. converting into private property. In simple. the government still remains the owner thereof. No sales paten shall be issued unless the land purchased has been surveyed and an accurate plan made thereof by the Bureau of Lands . and all prior payments made by the purchaser and all improvements existing thereon shall be forfeited. Restrictions on Purchased Lands 1.
112). railroads. telegraph and telephone lines and similar works as the government or any public or quasi-public service or enterprise. The land shall be subject to a right of way not exceeding sixty meters in width for public highways. Occupying lands of public domain or claiming to own any such lands or any interest therein. The land shall be subject to the same public servitudes as are imposed on lands owned by private persons.(Sec. including mining or forest concessionaires. 48) 1. if such applicants or grantees and their heirs have occupied and cultivated said lands continuously since filing of their applications. or for any other cause. irrgigation ditches. with or without default upon their part. (a) Those who prior to the transfer of sovereignty from Spain to USA have applied for the purchase. But whose titles have not yet been perfected or completed. 3. may reasonably require for carrying on their business. and notorious possession and occupation of agricultural lands of the public domain. but have. . (Sec 111). not received title therefor. composition or other form of grant of lands of the public domain under the laws and royal decrees then in force and have instituted and prosecuted the proceedings in the connection therewith. since June 12. Confirmation of Imperfect or Incomplete Title (A) Judicial Legalization This is also called Judicial Confirmation of Imperfect or Incomplete Titles. under a bona fide claim of acquisition or ownership. or 5. 2. with damages for the improvements only. Patents or certificates of title issued shall not include nor convey title to mineral deposits contained in the land granted inasmuch as minerals remain property of the State. aqueducts. 108). 1945. including those with reference to the littoral of the sea and the banks of navigable rivers upon which rafting may be done. continuous. 3. (Sec. Qualifications of Applicant (Sec. 2. and 4. Only citizens of the Philippines. 4. exclusive. Those who by themselves or through their predecessors-in-interest have been in open. (Sec 110).
praying that the validity of the alleged title or claim be inquired into and that a certificate of title be issued to them under the provisions of Land Registration Act. together with a . under bona fide claim of ownership since June 12. Conformity to applications under Land Registration Act or Act No. 2. Form of Application (Sec. Venue of Application: The application shall be filed with the Regional Trial Court of the province or city where the lies. or through their predecessors-in-interest have been in open. 496. 50). 496. except that a notice of all such applications. must in every case present an application to the RTC. continuous. 1945. Members of the national cultural minorities who by themselves. 50) 1. (Sec. claiming any lands or interest in lands. full nature of the claim. or their legal representatives or successors in right. 50) Legal Representatives or Successors in Right: Any person or persons. Accompanied by a plan of the land and all documents evidencing a right on the land claimed. or 6. Procedure (Sec. (Sec. 3. whether disposable or not. State citizenship. 51) The procedure is similar to the provisions of Land Registration Act or Act No. Those shall be conclusively presumed to have performed all the conditions essential to a government grant and shall be entitled to a certificate of title. except when prevented by war or force majeure.immediately preceding the filing of application for confirmation of title. exclusive and notorious possession and occupation of the land of public domain suitable to agriculture.
141. to wit: “No title or right be to. if he deems if advisable for the interests of the Government. in which case the claimant files with the Court. 57 of CA No. 687). vs. This equally applies to lands of public domain which cannot also be acquired via prescription. any lands or of by the public domain may hereafter acquired prescription adverse possession or occupancy. 1113. an answer to the petition of the Director of Lands. shall be immediately forwarded to the Director of Lands who may appear as a party in such cases. in order that he may. Exception to the Rule is provided in Sec. Rule on Prescription: General Rule is that “property of the State or any of its subdivision.” (Art. shall not be the object of prescription. (Sec. or equity by in. that prior to the public publication for hearing. 41 of Land Registration Act. Director of Lands. 52). The final decree of the court shall in every case be the basis for the original certificate of title in favor of the persons entitled to the property under the procedure prescribed in Sec. investigate all of the facts alleged in the application or otherwise brought to his attention. New Civil Code).plan of the lands claimed. (Li Seng Giap and Co. not patrimonial in character. 59 Phil. The Solicitor General shall return such papers to the clerk as soon as practicable within three months. If the land sought to be applied is embraced in cadastral proceedings instituted by the government. provided. The filing of such answer has the same effect of an application for confirmation of an imperfect or incomplete title to public agricultural land. or under or by virtue of any law in effect prior to American . all of the papers in said case shall be transmitted by the clerk of court to the Solicitor General or officer acting in his stead. instead of an application.
it is not enough to simply declare one’s possession and that of the applicant’s predecessors-in-interest to have been “adverse. open. ceases to be public land and becomes private property. The applicant then should present specific facts that would show such nature of possession.” Public Land Act was enacted in 1936. To prove that kind of possession. 48 thereof provides acquisitive prescription or adverse possession since June 12. Very obvious from this enactment. 152 SCRA 369). . a government grant. 1945. a right to a grant.” And the “possessor is deemed to have acquired by operation of law. who may even forego to cross-examine witnesses. upon completion of the requisite period ipso jure and without need of judicial or other sanctions. exclusive and undisputed possession of alienable public land for the period prescribed by law creates a legal fiction whereby the land. Such general statement or phrase is a mere conclusion of law than factual evidence of possession. rightly after American occupation. as a basis of claim of ownership. the burden of proof is not shifter to the oppositor.occupation. the State has consented to yield to prescription under special circumstance like this one. peaceful and in the concept of the owner” for the required number of years. And Sec. without the necessity of a certificate of title being issued. If the testimony is such bare. public. continuous. Bengzon. except as expressly provided by laws enacted after said occupation of the Philippines by USA. Proof of Adverse Possession or Prescription: The established rule is “that open. (Director of Lands vs.
vs. for the same to be acquired through judicial confirmation of imperfect title. requires the possession of land of the public domain must be from June 12. (Republic vs. 10.” But this applies only where there is privity between the successive possessors.R. No. 79 SCRA 525.Period of Posssesion Under RA No. Tacking of Possession to that of Predecessor Article 1138 of the New Civil Code provides that “in the computation of time necessary for prescription xxx the present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor or predecessor-in-interests. 700).R. (Ruiz vs. Republic. 132963. But if the land was formerly within the forest zone. 1945 or earlier. 1942 dated June 22. 2006). The law as presently phrased. 1073 dated January 25. G. No. December 6. Court of Appeals. Inc. . and could not ripen into private ownership. Court of Appeals. The possession of the land by the applicant prior to such release or reclassification cannot be credited as part of the requisite period. G. 1977. 1957. 148 SCRA 480). Carrascoso. (Republic vs. Republic vs. 185 SCRA 693. it should be since June 12. 143491. it is only from the date it was released as an agricultural land for disposition under the Public Land Act that the period of occupancy for the purpose of confirmation of imperfect or incomplete title may be counted. 1945 or earlier. the required possession was “at least 30 years immediately preceding the filing of the application. Sept. The commencement of adverse possession presents no problem where the land applied for registration was not formerly part of forest land. however long it was. 1998.” But under PD No. South City Homes. Doldol.
. . a right to a grant. 24066. Dec. RA No. application is a mere formality. without the necessity of a certificate of title being issued. without substantial enclosures. i. Reyes. 48 Phil. 9176 was enacted (a) extending the period to file an application for judicial legalization of titles to December 31. is not sufficient to support a claim of title through prescription. RA No. possession in the manner and for the period required by law (adverse possession). the lack of which does not affect the legal sufficiency of the title as would be evidenced by the patent and the Torrens title to be issued upon the strength of said patent. the possessor is deemed to have acquired. and the raising therein of cattle. Where all the requirements for a government grant are complied with. Jan. Where applicant acquires a right to government grant. 2020. or other permanent improvements. (Director of Lands vs. (Susi vs. the land ipso jure ceases to be public land and becomes private property. (Herico vs. The application for confirmation is a mere formality.e.Insufficient Proofs of Possession A mere casual or occational cultivation of portions of the land by the claimant. In that sense. 9. the mere occupancy by grazing livestock upon it. 68 SCRA 170). by operation of law. Razon. possession is not exclusive and notorious so as to give rise to a presumptive grant from the State. 2002. 424). When the conditions specified in Section 48 (b) of CA 141 are complied with. do not constitute possession under claim of ownership. Dar. Xxx While grazing livestock over land is of course to be considered with other acts of dominion to show possession. 9176 On November 13. and (b) limited the area applied to 12 hectares. GR No. The land therefore ceases to be of a public domain and beyond the authority of the Director to dispose of. L-23265. 1925. GR No.
(3)Action upon the application: Upon the expiration of the period provided in the notices.28. and . a tract of land. either by himself or predecessors-in-interest. XII. 1955. has continuously occupied and cultivated. (B) Administrative Legalization of Free Patent This is also called Administrative Confirmation of Imperfect or Incomplete Titles. Procedures: (Sec. if any. whether disposable or not. then the DoL. 1980). the municipality and the barrio where the land is situated for 2 consecutive weeks. 3. Qualification of Applicant (Sec. orders the survey of the land. (a) Since July 4. such public lands.46) (1)Filing of application with the DoL. 1987 Consti). or (b) Paid the real estate tax thereon while the same has not been occupied by any other person entitled thereto. before the applications is granted. Only natural-born Filipino Citizen. and there being no valid objections of adverse claims presented. 1945. requiring in said notices everyone who has any interest in the land involved to present his objections or adverse claims. and the DoL after due investigation being satisfied of the truth of the allegation in the application and in the supporting affidavits. homestead or grant is limited to 12 hectares only. or (c) A member of national cultural minorities who has continuously occupied and cultivated. 2. and 3. or prior thereto. Limited as to Area: Acquisition by purchase. (Art. since July 4. Not the owner of more than 12 hectares of land. 44): 1. satisfied the applicant has complied the requirements of law. Sec. with affidavits of two disinterested persons residing in the same municipality of barrio where the land lies. either by himself or through his predecessors-in-interest. (2)Posting of Notice: The DoL upon receipt of application shall cause to be posted the notices of the application in conspicuous places in the capital of the province. accompanied with a map and the technical description of the land occupied.
nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period. or homestead shall not be subject of encumbrance or alienation. 6940 the period for the filing of free patent applications ends on December 31. (2) improvements or crops on the land may be mortgaged or pledged to qualified persons. issued and registered in the same manner as homestead patent. 45). associations. (b) the same lands not liable to the satisfaction contracted prior to the expiration of 5 year period.No. Notes: Under R.A. but the improvements or crops on the land may be mortgaged or pledged to qualified persons. 9176 amends Section 45 of CA No. 118) . transfer or conveyance of any homestead after five years and before 25 years after issuance of title shall be valid without the approval of SDENR. RA No. units or any institutions. of any debt 2. 141 that “the time to be fixed in the entire Archipelago for the filing of applications for Free Patent shall not extent beyond 31 December 2020. Exception: (1) alienation or encumbrance is in favor to Government or any of its branches. 2000. or conveyance of any homestead land without the approval of SDENR.(4)When the plan is finished. the free patent is prepared. or legally constituted banking corporations. This period of filing application of free patent may further be extended by subsequent legislation. which approval shall not be denied except on constitutional and legal grounds. except in favor of the government or any of its branches. units or institutions. “From the date of the approval of the application and for a term of five years from and after the date of issuance of the patent of grant. Presently. associations.” Sec. (Sec. transfer. lands acquired under free patent. or corporations. or corporations. No alienation. For both Homestead and Free Patents: Within 5 years from issuance of patent or grant: (a) No alienation or encumbrance of lands under free patent or homestead patent.” Restrictions: 1. The approval not be denied except on constitutional and legal grounds. or or legally constituted banking corporations. For Homestead Patent: after issuance of title: After the 5-year period and before 25 years (a) No alienation.
G. G.The five year period of prohibition on alienation or encumbrance restrictively begins from the date of the issuance of the patent. (Flores vs. For the purpose of computing the 5-year prohibition against alienation or encumbrance.R. and there is no need for him or his heirs to repurchase the same from the vendee. Director of Lands. and where the homesteader vendor died the recovery may be pursued as a claim . L-6628.G. Where a homestead was sold after the expiration of 25 years. Delos Santos vs. 45 O. However. 313. 1006). 25. In fact. The rule on pari delicto does not apply to homestead.G. transfer of conveyance of homestead lot after 5 years and before 25 years without approval of SDENR is merely directory which can be complied with at any time the future.R. (Angeles vs. Plasina. Roman Catholic Church of Midasayap. Such sale is illegal. O. 1954). (Pascua vs. from the issuance of the patent. Galanza vs. 102 Phil. 103 Phil. Iriola. 122 SCRA 843. L5567). 72 Phil. (Decolongon vs. Montano. No. (Felices vs. O. (Register of Deeds of Nueva Ecija vs. and null and void ab initio. because the purpose of the law is to promote a definite public policy. the failure to secure the requisite approval from SDENR does not render the sale null and void. 1588. the patent is deemed issued upon promulgation of the order for the issuance thereof by DoL. February 12.G. 1954). Of course. August 31. the purchaser may recover the price which he has paid. 413. which is to preserve and keep in the family of the homesteader that portion of public land which the state has gratuitously given to them. No. the vendor never lost his title or ownership over the homestead. 9th Supp. The action to declare the existence of such contract will not prescribe. 1954). 1073. CA. or for the latter to execute a deed of reconveyance. the provision of the law which prohibits the sale or encumbrance of the homestead within 5 years after the grant of the patent is MANDATORY. 125). inexistent. 849) The prohibition of alienation. Nuesa. (Evangelista vs. Court of Appeals. Talens. Feb. this cannot be obviated even if official approval is granted beyond the expiration of the period.
Any sale and encumbrance made in violation thereof shall be null and void and shall produce the effect of annulling the acquisition and reverting the property and all rights thereto to the State.A. or legal heirs. Reason for the Prohibition and Right to Repurchase: It is based on the fundamental policy of the State to preserve and keep in the family of the public land grantee that portion of the public domain which the State has gratuitously given to him. For Sales Patent: Within 10 years from cultivation (of at least 1/5 portion of purchased land of public domain) or grant (marked by the award to highest bidder). 6819. without prejudice to any right or interest of the government on the land. 66 Phil. corporation or association.against the estate. Oct. 141 gives the owner-vendor of lands acquired under free patent or homestead patent. 2. 179 SCRA 619). But as to the improvements that the vendee has introduced on the land. he forfeits them without any right to reimbursement in accordance with Art. p. his widows. and after title has been granted: (a) The purchaser may not convey or encumber or dispose the lands or rights thereon to any person. 43. 119 of C. 449 of the New Civil Code. Delos Santos. A contract of antichresis is also an encumbrance. Arcay. and hence if it involves a homestead. within 5 years from conveyance. . (PNB vs. is within the prohibition of Public Land Law. (Labrador vs. and all payments on the purchase price theretofore made to the Government shall be forfeited. the right to repurchase the land. (Bucol vs. Delos Reyes. 61 O.G. 3. (Sec. 29). (Felices vs. 1965). 579). Sec. Iriola).
C.Right of Redemption Every conveyance of land acquired under the free patent or homestead provisions of the Public Land Act. the Property Registration Decree. patent or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the . Actual conveyance of such lands is to be effective only upon such registration which shall be the operative act to convey and affect the lands. his widow or legal heirs. whereupon a certificate of title shall be entered as in other cases of registered land. (Enervida vs. within a period of 5 years from the date of conveyance. (Sec. Mangente. and to be there registered like other deeds and conveyance. 103 of PD No. (Vallangca vs. 496 MANDATORY The law expressly requires that all patents or certificates for lands of public domain that may be granted be registered in accordance with Sec. 1529. 103 of PD 1529. 57). The deed. the same shall brought forthwith under the operation of this Decree. now Sec.A. Talens. when proper. granted ort conveyed to any person. 119). grant. The period is reckoned from the date of sale not from registration of sale in the RoD. “Sec. (Galanza vs. Registration of Patents Under Act. grant. (Ferrer vs. (Pascua vs. The right to repurchase cannot be waived and waiver clause in a deed of sale of such property is null and void. 173 SCRA 42. he alone has the right of redemption. It shall be the duty of the official issuing the instrument of the alienation. 50 SCRA 424). 792). 95 Phil. and an owner’s duplicate issued to the grantee. But if he died. 80 Phils. patent or to be filed with the Registrar of Deeds of the province or city where the land lies. Nuesa. his widow and his legal heirs have that right. Dela Torre. 122 of Act 496. shall be subject to repurchase by the applicant. Whenever public land is by the Government alienated. 713). The right to repurchase can be exercised even in the absence of any stipulation in the deed of sale. 55 SCRA 339). If the vendor is still living.
Absent such registration. Explanations: All land patents must be registered since the conveyance of the land covered thereby is effective only upon such registration. free patent or sales. Intermediate Appellate Court. 51 PD 1529). for the purpose of fixing the one year period to review the patent and ascertaining the indefeasibility of the patent. but shall operate only as a contract between the Government and the grantee as evidence of authority to the Registrar of Deeds to make registration. may not be considered as perfected and perforce not indefeasible. and the patent issued by DoL equally and finally grants. and in all cases under the Decree. The certificate of title becomes indefeasible and incontrovertible upon the expiration of one year from . such land shall be deemed to be registered land to all intents and purposes under this Decree. (Ortegas vs. awards and conveys the land applied for the applicant. 641). This registration is mandatory to affect third parties (Sec. whether it be by homestead. The original certificate of title issued pursuant to a public land patent partakes of the nature of a certificate of title issued in a judicial proceeding. The fees for registration shall be paid by the grantee. registration shall be made in the Office of the Registrar of Deeds of the province or city where the land lies. In this case the Supreme Court held that the date of issuance of public patents by DoL and approved by SDENR corresponds to the date of the issuance of the decree in ordinary registration cases. title to the land covered thereby. 749). Indefeasibility of Homestead Patent A homestead or sales patent or other public patents.land. becomes as indefeasible as a Torrens title and cannot thereafter be the subject for determination or judgment in a cadastral case. It is the act of registration that shall be the operative act to affect and convey the land. 198 SCRA 635. After due registration and issuance of the title. once registered under the Land Registration Act. because the decree finally awards the land applied for registration to the party entitled to it. (Ybanez vs. as long as the land covered is really part of the public domain. 194 SCRA 743. Hidalgo.
(Sec. 1. ( Pamintuan vs. 1987 Consti.A. Corporation or association with 60% Filipino capital holding and incorporated under Philippine laws. or to proceed to the partition thereof if it is owned by two or more co-owners. Payment of Rental: (Secs. 2. and Sec. Submission of Sealed Bids to Director of Lands with cash. C. Any new title which the cadastral court may order to be issued is null and void and should be cancelled. for a sum equivalent to rental at least first 3 months of lease. 168 SCRA 503. 33. Publication and Announcement of said Notice like sale. 1987 Consti. For corporations or associations. 3.the date of the issuance of the order for the issuance of the patent. 141. XII. 2. and 2. (Secs. CA.) Procedure for Lease: (practically same as Sales) 1. For Filipino citizen. 37 and 100) Paid yearly in advance from the date of approval of the lease and payable in the Bureau of Lands before the execution of the lease contract. 204 ). Opening of the Bids at Auction. or certified check. Art. Heirs of Jose Aliwalas. and this prescription cannot operate against the registered owner. 168 SCRA 198. (Sec. Lease of Public Agricultural Lands Qualified to Lease: 1. 558. or Post Office money order. 43 Phil. Filipino citizen. Art. Lands covered by such title may no longer be the subject matter of a cadastral proceeding. 561).000 has. 3. 511).) Limitation of Land Area: 1. 4. Issuance of Notice of Date and Place of Auction of the right to lease. San Agustin. 34-37). All that the cadastral court may do is to make corrections of technical errors in the description of the property contained in its title. . (Heirs of Gregorio Tengco vs. 3. Treasury Warrant.XII. 203. nor can it be decreed to another person. 500 has. (Gomez vs.
40). Consti. Restriction on Lessee: No subsequent assignment. servitudes. 38) and (Sec. easements.Period of Lease: Not exceeding 25 years. 103-114). XII. 3. mines and water rights. renewable for 25 years. encumbrance or sublease without approval of SDENR (Sec.) Cultivation Requirement: Essential requirement for lessee to cultivate at least 1/3 of the land within 5 years form and after approval of lease. (Sec. Same restriction with sales patents on taxes. Art. . (Sec.
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