EN BANC

G.R. No. 127882 December 1, 2004

LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG
MIGUEL M. LUMAYONG; WIGBERTO E. TAÑADA; PONCIANO BENNAGEN; JAIME TADEO;
RENATO R. CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM
L. DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; MARCELO L.
GUSANAN; QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P. TACUAYAN;
Minors JOLY L. BUGOY, Represented by His Father UNDERO D. BUGOY and ROGER M.
DADING; Represented by His Father ANTONIO L. DADING; ROMY M. LAGARO, Represented
by His Father TOTING A. LAGARO; MIKENY JONG B. LUMAYONG, Represented by His Father
MIGUEL M. LUMAYONG; RENE T. MIGUEL, Represented by His Mother EDITHA T. MIGUEL;
ALDEMAR L. SAL, Represented by His Father DANNY M. SAL; DAISY RECARSE,
Represented by Her Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR;
MARIO L. MANGCAL; ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F.
LEONEN; JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR JR., Represented
by Their Father VIRGILIO CULAR; PAUL ANTONIO P. VILLAMOR, Represented by His Parents
JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA, Represented by
Her Father MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN, Represented by Her Father
ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III, Represented by His Mother ANNALIZA
A. VITUG, LEAN D. NARVADEZ, Represented by His Father MANUEL E. NARVADEZ JR.;
ROSERIO MARALAG LINGATING, Represented by Her Father RIO OLIMPIO A. LINGATING;
MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA MILAGROS L. SAN JOSE; Sr. SUSAN O.
BOLANIO, OND; LOLITA G. DEMONTEVERDE; BENJIE L. NEQUINTO; ROSE LILIA S.
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ROMANO; ROBERTO S. VERZOLA; EDUARDO AURELIO C. REYES; LEAN LOUEL A. PERIA,

Represented by His Father ELPIDIO V. PERIA; GREEN FORUM PHILIPPINES; GREEN FORUM
2

WESTERN VISAYAS (GF-WV); ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC);

KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN); PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT
3

SERVICES, INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF

HUMAN RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA); WOMEN'S LEGAL BUREAU
(WLB); CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND
DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG
ALTERNATIBONG LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL
RESOURCES CENTER, INC. (LRC), petitioners,
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources (DENR);
HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR); RUBEN TORRES,
Executive Secretary; and WMC (PHILIPPINES), INC., respondents.
4
 RESOLUTION

PANGANIBAN, J.:

All mineral resources are owned by the State. Their exploration, development and utilization (EDU)
must always be subject to the full control and supervision of the State. More specifically, given the
inadequacy of Filipino capital and technology in large-scale EDU activities, the State may secure the
help of foreign companies in all relevant matters -- especially financial and technical assistance --
provided that, at all times, the State maintains its right of full control. The foreign assistor or contractor
assumes all financial, technical and entrepreneurial risks in the EDU activities; hence, it may be given
reasonable management, operational, marketing, audit and other prerogatives to protect its
investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor, provided that the State
retains the power to direct overall strategy; and to set aside, reverse or modify plans and actions of
the contractor. The idea of full control is similar to that which is exercised by the board of directors of
a private corporation: the performance of managerial, operational, financial, marketing and other
functions may be delegated to subordinate officers or given to contractual entities, but the board
retains full residual control of the business.
Who or what organ of government actually exercises this power of control on behalf of the State? The
Constitution is crystal clear: the President. Indeed, the Chief Executive is the official constitutionally
mandated to "enter into agreements with foreign owned corporations." On the other hand, Congress
may review the action of the President once it is notified of "every contract entered into in accordance
with this [constitutional] provision within thirty days from its execution." In contrast to this express
mandate of the President and Congress in the EDU of natural resources, Article XII of the Constitution
is silent on the role of the judiciary. However, should the President and/or Congress gravely abuse
their discretion in this regard, the courts may -- in a proper case -- exercise their residual duty under
Article VIII. Clearly then, the judiciary should not inordinately interfere in the exercise of this
presidential power of control over the EDU of our natural resources.

The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate
economic growth or to serve narrow, parochial interests. Rather, it should be construed to grant the
President and Congress sufficient discretion and reasonable leeway to enable them to attract foreign
investments and expertise, as well as to secure for our people and our posterity the blessings of
prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the Philippine Mining
Law, its Implementing Rules and Regulations -- insofar as they relate to financial and technical
agreements -- as well as the subject Financial and Technical Assistance Agreement (FTAA). 5

Background
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1)
Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and
Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30, 1995, 6

executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP). 7

On January 27, 2004, the Court en banc promulgated its Decision granting the Petition and declaring
8

the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA
executed between the government and WMCP, mainly on the finding that FTAAs are service
contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service contracts, which, though
9

permitted under the 1973 Constitution, were subsequently denounced for being antithetical to the
10

principle of sovereignty over our natural resources, because they allowed foreign control over the
exploitation of our natural resources, to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized service contracts for, inter
alia, vesting in the foreign contractor exclusive management and control of the enterprise, including
operation of the field in the event petroleum was discovered; control of production, expansion and
development; nearly unfettered control over the disposition and sale of the products
discovered/extracted; effective ownership of the natural resource at the point of extraction; and
beneficial ownership of our economic resources. According to the Decision, the 1987 Constitution
(Section 2 of Article XII) effectively banned such service contracts.

Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated March
9, 2004, the Court required petitioners to comment thereon. In the Resolution of June 8, 2004, it set
the case for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their respective Memoranda
in amplification of their arguments. In a Resolution issued later the same day, June 29, 2004, the Court
noted, inter alia, the Manifestation and Motion (in lieu of comment) filed by the Office of the Solicitor
General (OSG) on behalf of public respondents. The OSG said that it was not interposing any objection
to the Motion for Intervention filed by the Chamber of Mines of the Philippines, Inc. (CMP) and was in
fact joining and adopting the latter's Motion for Reconsideration.

Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents, and
private respondent, dwelling at length on the three issues discussed below. Later, WMCP submitted
its Reply Memorandum, while the OSG -- in obedience to an Order of this Court -- filed a Compliance
submitting copies of more FTAAs entered into by the government.

Three Issues Identified by the Court

During the Oral Argument, the Court identified the three issues to be resolved in the present
controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent
of Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40 percent is
owned by Indophil Resources NL, an Australian company) and by the subsequent transfer and
registration of the FTAA from WMCP to Sagittarius?

2. Assuming that the case has been rendered moot, would it still be proper to resolve the
constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or Financial
Assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons
discussed below. The foregoing three issues identified by the Court shall now be taken up seriatim.
 First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA, the
majority Decision agreed with petitioners' contention that the subject FTAA had been executed in
violation of Section 2 of Article XII of the 1987 Constitution. According to petitioners, the FTAAs
entered into by the government with foreign-owned corporations are limited by the fourth paragraph
of the said provision to agreements involving only technical or financial assistance for large-scale
exploration, development and utilization of minerals, petroleum and other mineral oils. Furthermore,
the foreign contractor is allegedly permitted by the FTAA in question to fully manage and control the
mining operations and, therefore, to acquire "beneficial ownership" of our mineral resources.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on January
23, 2001, WMC had sold all its shares in WMCP to Sagittarius Mines, Inc., 60 percent of whose equity
was held by Filipinos; and (2) that the assailed FTAA had likewise been transferred from WMCP to
Sagittarius. The ponencia declared that the instant case had not been rendered moot by the transfer
11

and registration of the FTAA to a Filipino-owned corporation, and that the validity of the said transfer
remained in dispute and awaited final judicial determination. Patently therefore, the Decision is
12

anchored on the assumption that WMCP had remained a foreign corporation.

The crux of this issue of mootness is the fact that WMCP, at the time it entered into the FTAA,
happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC), which in turn was
a wholly owned subsidiary of Western Mining Corporation Holdings Ltd., a publicly listed major
Australian mining and exploration company.

The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation. Had
the FTAA been originally issued to a Filipino-owned corporation, there would have been no
constitutionality issue to speak of. Upon the other hand, the conveyance of the WMCP FTAA to a
Filipino corporation can be likened to the sale of land to a foreigner who subsequently acquires Filipino
citizenship, or who later resells the same land to a Filipino citizen. The conveyance would be validated,
as the property in question would no longer be owned by a disqualified vendee.

And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer possible
for the Court to declare it unconstitutional. The case pending in the Court of Appeals is a dispute
between two Filipino companies (Sagittarius and Lepanto), both claiming the right to purchase the
foreign shares in WMCP. So, regardless of which side eventually wins, the FTAA would still be in the
hands of a qualified Filipino company. Considering that there is no longer any justiciable controversy,
the plea to nullify the Mining Law has become a virtual petition for declaratory relief, over which this
Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become moot,
considering the invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius, and of
the transfer of the FTAA from WMCP to Sagittarius, resulting in the change of contractor in the FTAA
in question. And even assuming that the said transfers were valid, there still exists an actual case
predicated on the invalidity of RA 7942 and its Implementing Rules and Regulations (DAO 96-40).
Presently, we shall discuss petitioners' objections to the transfer of both the shares and the FTAA. We
shall take up the alleged invalidity of RA 7942 and DAO 96-40 later on in the discussion of the third
issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to Sagittarius
violates the fourth paragraph of Section 2 of Article XII of the Constitution; second, that it is contrary
to the provisions of the WMCP FTAA itself; and third, that the sale of the shares is suspect and should
therefore be the subject of a case in which its validity may properly be litigated.
On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII permits the
government to enter into FTAAs only with foreign-owned corporations. Petitioners insist that the first
paragraph of this constitutional provision limits the participation of Filipino corporations in the
exploration, development and utilization of natural resources to only three species of contracts --
production sharing, co-production and joint venture -- to the exclusion of all other arrangements or
variations thereof, and the WMCP FTAA may therefore not be validly assumed and implemented by
Sagittarius. In short, petitioners claim that a Filipino corporation is not allowed by the Constitution to
enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article XII does not support petitioners'
argument. The pertinent part of the said provision states: "Sec. 2. x x x The exploration, development
and utilization of natural resources shall be under the full control and supervision of the State. The
State may directly undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. x x x." Nowhere in the provision is there any
express limitation or restriction insofar as arrangements other than the three aforementioned
contractual schemes are concerned.

Neither can one reasonably discern any implied stricture to that effect. Besides, there is no basis to
believe that the framers of the Constitution, a majority of whom were obviously concerned with
furthering the development and utilization of the country's natural resources, could have wanted to
restrict Filipino participation in that area. This point is clear, especially in the light of the overarching
constitutional principle of giving preference and priority to Filipinos and Filipino corporations in the
development of our natural resources.
Besides, even assuming (purely for argument's sake) that a constitutional limitation barring Filipino
corporations from holding and implementing an FTAA actually exists, nevertheless, such provision
would apply only to the transfer of the FTAA to Sagittarius, but definitely not to the sale of WMC's
equity stake in WMCP to Sagittarius. Otherwise, an unreasonable curtailment of property rights without
due process of law would ensue. Petitioners' argument must therefore fail.
FTAA Not Intended
Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners -- that the FTAA was intended to
apply solely to a foreign corporation, as can allegedly be seen from the provisions therein. They
manage to cite only one WMCP FTAA provision that can be regarded as clearly intended to apply only
to a foreign contractor: Section 12, which provides for international commercial arbitration under the
auspices of the International Chamber of Commerce, after local remedies are exhausted. This
provision, however, does not necessarily imply that the WMCP FTAA cannot be transferred to and
assumed by a Filipino corporation like Sagittarius, in which event the said provision should simply be
disregarded as a superfluity.

No Need for a Separate

Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from WMC to Sagittarius; hence, the
need to litigate it in a separate case. Section 40 of RA 7942 (the Mining Law) allegedly requires the
President's prior approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. "Sec. 40.
Assignment/Transfer -- A financial or technical assistance agreement may be assigned or transferred,
in whole or in part, to a qualified person subject to the prior approval of the President: Provided, That
the President shall notify Congress of every financial or technical assistance agreement assigned or
converted in accordance with this provision within thirty (30) days from the date of the approval
thereof."

Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and transfer of
shares of stock in WMCP. Moreover, when the transferee of an FTAA is another foreign corporation,
there is a logical application of the requirement of prior approval by the President of the Republic and
notification to Congress in the event of assignment or transfer of an FTAA. In this situation, such
approval and notification are appropriate safeguards, considering that the new contractor is the subject
of a foreign government.

On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the need
for such safeguard is not critical; hence, the lack of prior approval and notification may not be deemed
fatal as to render the transfer invalid. Besides, it is not as if approval by the President is entirely absent
in this instance. As pointed out by private respondent in its Memorandum, the issue of approval is the
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subject of one of the cases brought by Lepanto against Sagittarius in GR No. 162331. That case
involved the review of the Decision of the Court of Appeals dated November 21, 2003 in CA-GR SP
No. 74161, which affirmed the DENR Order dated December 31, 2001 and the Decision of the Office
of the President dated July 23, 2002, both approving the assignment of the WMCP FTAA to
Sagittarius.

Petitioners also question the sale price and the financial capacity of the transferee. According to the
Deed of Absolute Sale dated January 23, 2001, executed between WMC and Sagittarius, the price of
the WMCP shares was fixed at US$9,875,000, equivalent to P553 million at an exchange rate of 56:1.
Sagittarius had an authorized capital stock of P250 million and a paid up capital of P60 million.
Therefore, at the time of approval of the sale by the DENR, the debt-to-equity ratio of the transferee
was over 9:1 -- hardly ideal for an FTAA contractor, according to petitioners.
However, private respondents counter that the Deed of Sale specifically provides that the payment of
the purchase price would take place only after Sagittarius' commencement of commercial production
from mining operations, if at all. Consequently, under the circumstances, we believe it would not be
reasonable to conclude, as petitioners did, that the transferee's high debt-to-equity ratio per se
necessarily carried negative implications for the enterprise; and it would certainly be improper to
invalidate the sale on that basis, as petitioners propose.
FTAA Not Void,
Thus Transferrable
To bolster further their claim that the case is not moot, petitioners insist that the FTAA is void and,
hence cannot be transferred; and that its transfer does not operate to cure the constitutional infirmity
that is inherent in it; neither will a change in the circumstances of one of the parties serve to ratify the
void contract.
While the discussion in their Final Memorandum was skimpy, petitioners in their Comment (on the
MR) did ratiocinate that this Court had declared the FTAA to be void because, at the time it was
executed with WMCP, the latter was a fully foreign-owned corporation, in which the former vested full
control and management with respect to the exploration, development and utilization of mineral
resources, contrary to the provisions of paragraph 4 of Section 2 of Article XII of the Constitution. And
since the FTAA was per se void, no valid right could be transferred; neither could it be ratified, so
petitioners conclude.

Petitioners have assumed as fact that which has yet to be established. First and foremost, the Decision
of this Court declaring the FTAA void has not yet become final. That was precisely the reason the
Court still heard Oral Argument in this case. Second, the FTAA does not vest in the foreign corporation
full control and supervision over the exploration, development and utilization of mineral resources, to
the exclusion of the government. This point will be dealt with in greater detail below; but for now, suffice
it to say that a perusal of the FTAA provisions will prove that the government has effective overall
direction and control of the mining operations, including marketing and product pricing, and that the
contractor's work programs and budgets are subject to its review and approval or disapproval.
As will be detailed later on, the government does not have to micro-manage the mining operations
and dip its hands into the day-to-day management of the enterprise in order to be considered as having
overall control and direction. Besides, for practical and pragmatic reasons, there is a need for
government agencies to delegate certain aspects of the management work to the contractor. Thus the
basis for declaring the FTAA void still has to be revisited, reexamined and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates Authority, and Halili v. CA, claiming that
14 15

the doctrines in these cases are wholly inapplicable to the instant case.
Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen sells land
to an alien who later sells the land to a Filipino, the invalidity of the first transfer is corrected by the
subsequent sale to a citizen. Similarly, where the alien who buys the land subsequently acquires
Philippine citizenship, the sale is validated since the purpose of the constitutional ban to limit land
ownership to Filipinos has been achieved. In short, the law disregards the constitutional disqualification
of the buyer to hold land if the land is subsequently transferred to a qualified party, or the buyer himself
becomes a qualified party." 16

In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the land)
was not what was assailed for alleged unconstitutionality. Rather, it was the transaction that was
assailed; hence subsequent compliance with constitutional provisions would cure its infirmity. In
contrast, in the instant case it is the FTAA itself, the object of the transfer, that is being assailed as
invalid and unconstitutional. So, petitioners claim that the subsequent transfer of a void FTAA to a
Filipino corporation would not cure the defect.
Petitioners are confusing themselves. The present Petition has been filed, precisely because the
grantee of the FTAA was a wholly owned subsidiary of a foreign corporation. It cannot be gainsaid
that anyone would have asserted that the same FTAA was void if it had at the outset been issued to
a Filipino corporation. The FTAA, therefore, is not per se defective or unconstitutional. It was
questioned only because it had been issued to an allegedly non-qualified, foreign-owned corporation.
We believe that this case is clearly analogous to Halili, in which the land acquired by a non-Filipino
was re-conveyed to a qualified vendee and the original transaction was thereby cured. Paraphrasing
Halili, the same rationale applies to the instant case: assuming arguendo the invalidity of its prior grant
to a foreign corporation, the disputed FTAA -- being now held by a Filipino corporation -- can no longer
be assailed; the objective of the constitutional provision -- to keep the exploration, development and
utilization of our natural resources in Filipino hands -- has been served.
More accurately speaking, the present situation is one degree better than that obtaining in Halili, in
which the original sale to a non-Filipino was clearly and indisputably violative of the constitutional
prohibition and thus void ab initio. In the present case, the issuance/grant of the subject FTAA to the
then foreign-owned WMCP was not illegal, void or unconstitutional at the time. The matter had to be
brought to court, precisely for adjudication as to whether the FTAA and the Mining Law had indeed
violated the Constitution. Since, up to this point, the decision of this Court declaring the FTAA void has
yet to become final, to all intents and purposes, the FTAA must be deemed valid and constitutional. 17

At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered into by
the government only with a foreign corporation, never with a Filipino enterprise. Indeed, the
nationalistic provisions of the Constitution are all anchored on the protection of Filipino interests. How
petitioners can now argue that foreigners have the exclusive right to FTAAs totally overturns the entire
basis of the Petition -- preference for the Filipino in the exploration, development and utilization of our
natural resources. 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.
Second Issue:

Whether the Court Can Still Decide the Case,

Even Assuming It Is Moot

All the protagonists are in agreement that the Court has jurisdiction to decide this controversy, even
assuming it to be moot.
Petitioners stress the following points. First, 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," what is at issue in the instant case is not only the validity of the WMCP FTAA, but also
18

the constitutionality of RA 7942 and its Implementing Rules and Regulations. Second, 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. Third, the Constitution imposes upon the Supreme Court the duty to
declare invalid any law that offends the Constitution.
Petitioners also argue that no amendatory laws have been passed to make the Mining Act of 1995
conform to constitutional strictures (assuming that, at present, it does not); that public respondents will
continue to implement and enforce the statute until this Court rules otherwise; and that the said law
continues to be the source of legal authority in accepting, processing and approving numerous
applications for mining rights.

Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with the Mines
and Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares -- spread over
Luzon, the Visayas and Mindanao -- applied for. It may be a bit far-fetched to assert, as petitioners
19

do, that each and every FTAA that was entered into under the provisions of the Mining Act "invites
potential litigation" for as long as the constitutional issues are not resolved with finality. Nevertheless,
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.
But of equal if not greater significance is the cloud of uncertainty hanging over the mining industry,
which is even now scaring away foreign investments. Attesting to this climate of 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; and that Secretary General Romulo Neri of the National
Economic Development Authority (NEDA) requested this Court to allow him to speak, during that Oral
Argument, on the economic consequences of the Decision of January 27, 2004.20
We are convinced. We now agree that the Court must recognize the exceptional character of the
situation and the paramount public interest involved, as well as the necessity for a ruling to put an end
to the uncertainties plaguing the mining industry and the affected communities as a result of doubts
cast upon the constitutionality and validity of the Mining Act, the subject FTAA and future FTAAs, and
the need to avert a multiplicity of suits. Paraphrasing Gonzales v. Commission on Elections, it is 21

evident that strong reasons of public policy demand that the constitutionality issue be resolved now. 22

In further support of the immediate resolution of the constitutionality issue, public respondents cite
Acop v. Guingona, to the effect that the courts will decide a question -- otherwise moot and academic
23

-- if it is "capable of repetition, yet evading review." Public respondents ask the Court to avoid a
24

situation in which the constitutionality issue may again arise with respect to another FTAA, the
resolution of which may not be achieved until after it has become too late for our mining industry to
grow out of its infancy. They also recall Salonga v. Cruz Paño, in which this Court declared that "(t)he
25

Court also has the duty to formulate guiding and controlling constitutional principles, precepts,
doctrines or rules. It has the symbolic function of educating the bench and bar on the extent of
protection given by constitutional guarantees. x x x."
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. The entry of the Chamber of Mines of the
26

Philippines, Inc., however, has put into focus the seriousness of the allegations of unconstitutionality
of RA 7942 and DAO 96-40 which converts the case to one for prohibition in the enforcement of the
27

said law and regulations.

Indeed, 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, not whether it was
violated by specific acts implementing RA 7942 and DAO 96-40. "[W]hen an act of the legislative
department is seriously alleged to have infringed the Constitution, settling the controversy becomes
the duty of this Court. By the mere enactment of the questioned law or the approval of the challenged
action, the dispute is said to have ripened into a judicial controversy even without any other overt act."
28

This ruling can be traced from Tañada v. Angara, in which the Court said:
29

"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution,
the petition no doubt raises a justiciable controversy. Where an action of the legislative branch is
seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty
of the judiciary to settle the dispute.
xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from or
abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse
of discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality
or department of the government." 30

Additionally, the entry of CMP into this case has also effectively forestalled any possible objections
arising from the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution of the
constitutional issues in this case.
Third Issue:
 The Proper Interpretation of the Constitutional Phrase
"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of Article XII
of the 1987 Constitution. In order to appreciate its context, Section 2 is reproduced in full:

"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino citizens or
corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-
five years, and under such terms and conditions as may be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.

"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes,
bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions provided
by law, based on real contributions to the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local scientific and technical
resources.
"The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution."
31

No Restriction of Meaning by
a Verba Legis Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the language of the Constitution
should prevail; that the primary method of interpreting it is to seek the ordinary meaning of the words
used in its provisions. They rely on rulings of this Court, such as the following:
"The fundamental principle in constitutional construction however is that the primary source from which
to ascertain constitutional intent or purpose is the language of the provision itself. The presumption is
that the words in which the constitutional provisions are couched express the objective sought to be
attained. In other words, verba legis prevails. Only when the meaning of the words used is unclear
and equivocal should resort be made to extraneous aids of construction and interpretation, such as
the proceedings of the Constitutional Commission or Convention to shed light on and ascertain the
true intent or purpose of the provision being construed." 32

Very recently, in Francisco v. The House of Representatives, this Court indeed had the occasion to
33

reiterate the well-settled principles of constitutional construction:

"First, verba legis, that is, wherever possible, the words used in the Constitution must be given their
ordinary meaning except where technical terms are employed. x x x.
xxxxxxxxx
"Second, where there is ambiguity, ratio legis est anima. The words of the Constitution should be
interpreted in accordance with the intent of its framers. x x x.
xxxxxxxxx
"Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole." 34

For ease of reference and in consonance with verba legis, we reconstruct and stratify the aforequoted
Section 2 as follows:
1. All natural resources are owned by the State. Except for agricultural lands, natural resources cannot
be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be under the full
control and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with Filipino citizens or
corporations, at least 60 percent of the capital of which is owned by such citizens
4. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils, the President may enter into
"agreements with foreign-owned corporations involving either technical or financial assistance
according to the general terms and conditions provided by law x x x."
Note that in all the three foregoing mining activities -- exploration, development and utilization -- the
State may undertake such EDU activities by itself or in tandem with Filipinos or Filipino corporations,
except in two instances: first, in small-scale utilization of natural resources, which Filipinos may be
allowed by law to undertake; and second, in large-scale EDU of minerals, petroleum and mineral oils,
which may be undertaken by the State via "agreements with foreign-owned corporations involving
either technical or financial assistance" as provided by law.
Petitioners claim that the phrase "agreements x x x involving either technical or financial assistance"
simply means technical assistance or financial assistance agreements, nothing more and nothing else.
They insist that there is no ambiguity in the phrase, and that a plain reading of paragraph 4 quoted
above leads to the inescapable conclusion that what a foreign-owned corporation may enter into with
the government is merely an agreement for either financial or technical assistance only, for the large-
scale exploration, development and utilization of minerals, petroleum and other mineral oils; such a
limitation, they argue, excludes foreign management and operation of a mining enterprise. 35

This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by the
Constitution reserving to Filipino citizens and corporations the use and enjoyment of the country's
natural resources. They maintain that this Court's Decision of January 27, 2004 correctly declared the
36

WMCP FTAA, along with pertinent provisions of RA 7942, void for allowing a foreign contractor to
have direct and exclusive management of a mining enterprise. Allowing such a privilege not only runs
counter to the "full control and supervision" that the State is constitutionally mandated to exercise over
the exploration, development and utilization of the country's natural resources; doing so also vests in
the foreign company "beneficial ownership" of our mineral resources. It will be recalled that the
Decision of January 27, 2004 zeroed in on "management or other forms of assistance" or other
activities associated with the "service contracts" of the martial law regime, since "the management or
operation of mining activities by foreign contractors, which is the primary feature of service contracts,
was precisely the evil that the drafters of the 1987 Constitution sought to eradicate."
On the other hand, the intervenor and public respondents argue that the FTAA allowed by paragraph
37

4 is not merely an agreement for supplying limited and specific financial or technical services to the
State. Rather, such FTAA is a comprehensive agreement for the foreign-owned corporation's
integrated exploration, development and utilization of mineral, petroleum or other mineral oils on a
large-scale basis. The agreement, therefore, authorizes the foreign contractor's rendition of a whole
range of integrated and comprehensive services, ranging from the discovery to the development,
utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could
inexorably lead to the conclusions arrived at in the ponencia. First, the drafters' choice of words -- their
use of the phrase agreements x x x involving either technical or financial assistance -- does not
indicate the intent to exclude other modes of assistance. The drafters opted to use involving when
they could have simply said agreements for financial or technical assistance, if that was their intention
to begin with. In this case, the limitation would be very clear and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other forms
of assistance or activities having to do with, otherwise related to or compatible with financial or
technical assistance. The word "involving" as used in this context has three connotations that can be
differentiated thus: one, the sense of "concerning," "having to do with," or "affecting"; two, "entailing,"
"requiring," "implying" or "necessitating"; and three, "including," "containing" or "comprising." 38

Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word "involving,"
when understood in the sense of "including," as in including technical or financial assistance,
necessarily implies that there are activities other than those that are being included. In other words, if
an agreement includes technical or financial assistance, there is apart from such assistance --
something else already in, and covered or may be covered by, the said agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned, could be made
part of the agreement. Thus, we are now led to the conclusion that the use of the word "involving"
implies that these agreements with foreign corporations are not limited to mere financial or technical
assistance. The difference in sense becomes very apparent when we juxtapose "agreements for
technical or financial assistance" against "agreements including technical or financial assistance."
This much is unalterably clear in a verba legis approach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or technical
assistance and nothing more, their language would have certainly been so unmistakably restrictive
and stringent as to leave no doubt in anyone's mind about their true intent. For example, they would
have used the sentence foreign corporations are absolutely prohibited from involvement in the
management or operation of mining or similar ventures or words of similar import. A search for such
stringent wording yields negative results. Thus, we come to the inevitable conclusion that there
was a conscious and deliberate decision to avoid the use of restrictive wording that bespeaks
an intent not to use the expression "agreements x x x involving either technical or financial
assistance" in an exclusionary and limiting manner.
Deletion of "Service Contracts" to
Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the conclusion that "the management or
operation of mining activities by foreign contractors, which is the primary feature of service contracts,
was precisely the evil that the drafters of the 1987 Constitution sought to eradicate." Nowhere in the
above-quoted Section can be discerned the objective to keep out of foreign hands the management
or operation of mining activities or the plan to eradicate service contracts as these were understood in
the 1973 Constitution. Still, petitioners maintain that the deletion or omission from the 1987
Constitution of the term "service contracts" found in the 1973 Constitution sufficiently proves the
drafters' intent to exclude foreigners from the management of the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively established from the mere
failure to carry the same expression or term over to the new Constitution, absent a more specific,
explicit and unequivocal statement to that effect. What petitioners seek (a complete ban on foreign
participation in the management of mining operations, as previously allowed by the earlier
Constitutions) is nothing short of bringing about a momentous sea change in the economic and
developmental policies; and the fundamentally capitalist, free-enterprise philosophy of our
government. We cannot imagine such a radical shift being undertaken by our government, to the great
prejudice of the mining sector in particular and our economy in general, merely on the basis of the
omission of the terms service contract from or the failure to carry them over to the new Constitution.
There has to be a much more definite and even unarguable basis for such a drastic reversal of policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by petitioners,
suffers from certain internal logical inconsistencies that generate ambiguities in the understanding of
the provision. As the intervenor pointed out, there has never been any constitutional or statutory
provision that reserved to Filipino citizens or corporations, at least 60 percent of which is Filipino-
owned, the rendition of financial or technical assistance to companies engaged in mining or the
development of any other natural resource. The taking out of foreign-currency or peso-denominated
loans or any other kind of financial assistance, as well as the rendition of technical assistance --
whether to the State or to any other entity in the Philippines -- has never been restricted in favor of
Filipino citizens or corporations having a certain minimum percentage of Filipino equity. Such a
restriction would certainly be preposterous and unnecessary. As a matter of fact, financial, and even
technical assistance, regardless of the nationality of its source, would be welcomed in the mining
industry anytime with open arms, on account of the dearth of local capital and the need to continually
update technological know-how and improve technical skills.
There was therefore no need for a constitutional provision specifically allowing foreign-owned
corporations to render financial or technical assistance, whether in respect of mining or some other
resource development or commercial activity in the Philippines. The last point needs to be
emphasized: if merely financial or technical assistance agreements are allowed, there would
be no need to limit them to large-scale mining operations, as there would be far greater need
for them in the smaller-scale mining activities (and even in non-mining areas). Obviously, the
provision in question was intended to refer to agreements other than those for mere financial
or technical assistance.
In like manner, there would be no need to require the President of the Republic to report to Congress,
if only financial or technical assistance agreements are involved. Such agreements are in the nature
of foreign loans that -- pursuant to Section 20 of Article VII of the 1987 Constitution -- the President
39

may contract or guarantee, merely with the prior concurrence of the Monetary Board. In turn, the Board
is required to report to Congress within thirty days from the end of every quarter of the calendar year,
not thirty days after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or technical
assistance, what is the point of requiring that they be based on real contributions to the economic
growth and general welfare of the country? For instance, how is one to measure and assess the "real
contributions" to the "economic growth" and "general welfare" of the country that may ensue from a
foreign-currency loan agreement or a technical-assistance agreement for, say, the refurbishing of an
existing power generating plant for a mining operation somewhere in Mindanao? Such a criterion
would make more sense when applied to a major business investment in a principal sector of the
industry.
The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is not to
be understood as one limited only to foreign loans (or other forms of financial support) and to technical
assistance. There is definitely more to it than that. These are provisions permitting participation
by foreign companies; requiring the President's report to Congress; and using, as yardstick,
contributions based on economic growth and general welfare. These were neither accidentally
inserted into the Constitution nor carelessly cobbled together by the drafters in lip service to
shallow nationalism. The provisions patently have significance and usefulness in a context that
allows agreements with foreign companies to include more than mere financial or technical assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific and
limited financial service or technical assistance by a foreign company. This argument begs the
question "To whom or for whom would it be rendered"? or Who is being assisted? If the answer is
"The State," then it necessarily implies that the State itself is the one directly and solely undertaking
the large-scale exploration, development and utilization of a mineral resource, so it follows that the
State must itself bear the liability and cost of repaying the financing sourced from the foreign lender
and/or of paying compensation to the foreign entity rendering technical assistance.
However, it is of common knowledge, and of judicial notice as well, that the government is and has for
many many years been financially strapped, to the point that even the most essential services have
suffered serious curtailments -- education and health care, for instance, not to mention judicial services
-- have had to make do with inadequate budgetary allocations. Thus, government has had to resort to
build-operate-transfer and similar arrangements with the private sector, in order to get vital
infrastructure projects built without any governmental outlay.
The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms what
the ordinary citizen has suspected all along. After the reality check, one will have to admit the
implausibility of a direct undertaking -- by the State itself -- of large-scale exploration, development
and utilization of minerals, petroleum and other mineral oils. Such an undertaking entails not only
humongous capital requirements, but also the attendant risk of never finding and developing
economically viable quantities of minerals, petroleum and other mineral oils. 40

It is equally difficult to imagine that such a provision restricting foreign companies to the rendition of
only financial or technical assistance to the government was deliberately crafted by the drafters of the
Constitution, who were all well aware of the capital-intensive and technology-oriented nature of large-
scale mineral or petroleum extraction and the country's deficiency in precisely those areas. To say so
41

would be tantamount to asserting that the provision was purposely designed to ladle the large-scale
development and utilization of mineral, petroleum and related resources with impossible conditions;
and to remain forever and permanently "reserved" for future generations of Filipinos.
A More Reasonable Look
at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and examining the logical
inferences. The drafters chose to emphasize and highlight agreements x x x involving either technical
or financial assistance in relation to foreign corporations' participation in large-scale EDU. The
inclusion of this clause on "technical or financial assistance" recognizes the fact that foreign business
entities and multinational corporations are the ones with the resources and know-how to provide
technical and/or financial assistance of the magnitude and type required for large-scale exploration,
development and utilization of these resources.

The drafters -- whose ranks included many academicians, economists, businessmen, lawyers,
politicians and government officials -- were not unfamiliar with the practices of foreign corporations
and multinationals.
Neither were they so naïve as to believe that these entities would provide "assistance" without
conditionalities or some quid pro quo. Definitely, as business persons well know and as a matter of
judicial notice, this matter is not just a question of signing a promissory note or executing a technology
transfer agreement. Foreign corporations usually require that they be given a say in the management,
for instance, of day-to-day operations of the joint venture. They would demand the appointment of
their own men as, for example, operations managers, technical experts, quality control heads, internal
auditors or comptrollers. Furthermore, they would probably require seats on the Board of Directors --
all these to ensure the success of the enterprise and the repayment of the loans and other financial
assistance and to make certain that the funding and the technology they supply would not go to waste.
Ultimately, they would also want to protect their business reputation and bottom lines. 42

In short, 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, gains and benefits.
Thus, by specifying such "agreements involving assistance," the drafters necessarily gave implied
assent to everything that these agreements necessarily entailed; or that could reasonably be deemed
necessary to make them tenable and effective, including management authority with respect to the
day-to-day operations of the enterprise and measures for the protection of the interests of the foreign
corporation, PROVIDED THAT Philippine sovereignty over natural resources and full control over the
enterprise undertaking the EDU activities remain firmly in the State.
Petitioners' Theory Deflated by the
Absence of Closing-Out Rules or Guidelines
Seventh and final point regarding the plain-language approach, one of the practical difficulties that
results from it is the fact that there is nothing by way of transitory provisions that would serve to confirm
the theory that the omission of the term "service contract" from the 1987 Constitution signaled the
demise of service contracts.
The framers knew at the time they were deliberating that there were various service contracts extant
and in force and effect, including those in the petroleum industry. Many of these service contracts were
long-term (25 years) and had several more years to run. If they had meant to ban service contracts
altogether, they would have had to provide for the termination or pretermination of the existing
contracts. Accordingly, 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); and of
putting in place the means to address the just claims of the contractors for compensation for their
investments, lost opportunities, and so on, if not for the recovery thereof.
If the framers had intended to put an end to service contracts, they would have at least left specific
instructions to Congress to deal with these closing-out issues, perhaps by way of general guidelines
and a timeline within which to carry them out. The following are some extant examples of such
transitory guidelines set forth in Article XVIII of our Constitution:
"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of this Constitution
shall have five years from its ratification to comply on a graduated and proportionate basis with the
minimum Filipino ownership requirement therein.
xxxxxxxxx
"Section 25. After the expiration in 1991 of the Agreement between the Republic of the Philippines
and the United States of America concerning military bases, foreign military bases, troops, or facilities
shall not be allowed in the Philippines except under a treaty duly concurred in by the Senate and,
when the Congress so requires, ratified by a majority of the votes cast by the people in a national
referendum held for that purpose, and recognized as a treaty by the other contracting State.
"Section 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain operative for not more than
eighteen months after the ratification of this Constitution. However, in the national interest, as certified
by the President, the Congress may extend such period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order
and the list of the sequestered or frozen properties shall forthwith be registered with the proper court.
For orders issued before the ratification of this Constitution, the corresponding judicial action or
proceeding shall be filed within six months from its ratification. For those issued after such ratification,
the judicial action or proceeding shall be commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is
commenced as herein provided." 43]
It is inconceivable that the drafters of the Constitution would leave such an important matter -- an
expression of sovereignty as it were -- indefinitely hanging in the air in a formless and ineffective state.
Indeed, the complete absence of even a general framework only serves to further deflate petitioners'
theory, like a child's balloon losing its air.
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, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to supply
the deficiencies of the plain-language approach, there is a need for recourse to the proceedings of the
1986 Constitutional Commission. There is a need for ratio legis et anima.

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 following exchange
between Commissioner Jamir (sponsor of the provision) and Commissioner Suarez irrefutably proves
that the "agreements involving technical or financial assistance" were none other than service
contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section 3, my
amendment by substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH
FOREIGN-OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR FINANCIAL
ASSISTANCE FOR LARGE-SCALE EXPLORATION, DEVELOPMENT AND UTILIZATION OF
NATURAL RESOURCES ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY LAW.
MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will give the
background.

MR. JAMIR. Thank you.

THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?

MR. JAMIR. Yes, Madam President.

MR. SUAREZ. This particular portion of the section has reference to what was popularly known
before as service contracts, among other things, is that correct?

MR. JAMIR. Yes, Madam President.

MR. SUAREZ. As it is formulated, the President may enter into service contracts but subject to the
guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the President, not
upon Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made strictly in
accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers situations of the
same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.

MR. JAMIR. Thank you very much. 44

The following exchange leaves no doubt that the commissioners knew exactly what they were dealing
with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment with regard to special service
contracts which was accepted by the Committee. Since the Committee has accepted it, I would like
to ask some questions.

THE PRESIDENT. Commissioner Gascon may proceed.

MR. GASCON. As it is proposed now, such service contracts will be entered into by the President
with the guidelines of a general law on service contract to be enacted by Congress. Is that correct?

MR. VILLEGAS. The Commissioner is right, Madam President.

MR. GASCON. According to the original proposal, if the President were to enter into a particular
agreement, he would need the concurrence of Congress. Now that it has been changed by the
proposal of Commissioner Jamir in that Congress will set the general law to which the President shall
comply, the President will, therefore, not need the concurrence of Congress every time he enters into
service contracts. Is that correct?

MR. VILLEGAS. That is right.

MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect contrast to my
proposed amendment, so I would like to object and present my proposed amendment to the body.

xxxxxxxxx
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service contract agreements which the
President will enter into might be too general or since we do not know the content yet of such a law, it
might be that certain agreements will be detrimental to the interest of the Filipinos. This is in direct
contrast to my proposal which provides that there be effective constraints in the implementation of
service contracts.
So instead of a general law to be passed by Congress to serve as a guideline to the President when
entering into service contract agreements, I propose that every service contract entered into by
the President would need the concurrence of Congress, so as to assure the Filipinos of their interests
with regard to the issue in Section 3 on all lands of the public domain. My alternative amendment,
which we will discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH
AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE
MEMBERS OF CONGRESS SITTING SEPARATELY.
xxxxxxxxx

MR. BENGZON. The reason we made that shift is that we realized the original proposal could breed
corruption. By the way, this is not just confined to service contracts but also to financial assistance.
If we are going to make every single contract subject to the concurrence of Congress – which,
according to the Commissioner's amendment is 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
(2) there is a great temptation that it would breed corruption because of the great lobbying that is going
to happen. And we do not want to subject our legislature to that.
Now, to answer the Commissioner's apprehension, by "general law," we do not mean statements of
motherhood. Congress can build all the restrictions that it wishes into that general law so that every
contract entered into by the President under that specific area will have to be uniform. The President
has no choice but to follow all the guidelines that will be provided by law.
MR. GASCON. But my basic problem is that we do not know as of yet the contents of such a general
law as to how much constraints there will be in it. And to my mind, although the Committee's contention
that the regular concurrence from Congress would subject Congress to extensive lobbying, I think that
is a risk we will have to take since Congress is a body of representatives of the people whose
membership will be changing regularly as there will be changing circumstances every time certain
agreements are made. It would be best then to keep in tab and attuned to the interest of the Filipino
people, whenever the President enters into any agreement with regard to such an important matter as
technical or financial assistance for large-scale exploration, development and utilization of
natural resources or service contracts, the people's elected representatives should be on top of it.
xxxxxxxxx
MR. OPLE. Madam President, we do not need to suspend the session. If Commissioner Gascon needs
a few minutes, I can fill up the remaining time while he completes his proposed amendment. I just
wanted to ask Commissioner Jamir whether he would entertain a minor amendment to his amendment,
and it reads as follows: THE PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS OF
EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW. I
think the reason is, if I may state it briefly, as Commissioner Bengzon said, Congress can always
change the general law later on to conform to new perceptions of standards that should be built into
service contracts. But the only way Congress can do this is if there were a notification requirement
from the Office of the President that such service contracts had been entered into, subject then to
the scrutiny of the Members of Congress. This pertains to a situation where the service contracts are
already entered into, and all that this amendment seeks is the reporting requirement from the Office
of the President. Will Commissioner Jamir entertain that?

MR. JAMIR. I will gladly do so, if it is still within my power.

MR. VILLEGAS. Yes, the Committee accepts the amendment.
xxxxxxxxx
SR. TAN. Madam President, may I ask a question?

THE PRESIDENT. Commissioner Tan is recognized.

SR. TAN. Am I correct in thinking that the only difference between these future service contracts and
the past service contracts under Mr. Marcos is the general law to be enacted by the legislature and
the notification of Congress by the President? That is the only difference, is it not?
MR. VILLEGAS. That is right.

SR. TAN. So those are the safeguards.

MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President. 45

More Than Mere Financial

and Technical Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently demonstrate
that the drafters knew that the agreements with foreign corporations were going to entail not mere
technical or financial assistance but, rather, foreign investment in and management of an enterprise
involved in large-scale exploration, development and utilization of minerals, petroleum, and other
mineral oils.

THE PRESIDENT. Commissioner Nolledo is recognized.

MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to speak for only
two minutes in favor of the amendment of Commissioner Gascon.

THE PRESIDENT. Commissioner Nolledo may proceed.

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

Madam President, I was one of those who refused to sign the 1973 Constitution, and one of
the reasons is that there were many provisions in the Transitory Provisions therein that favored
aliens. I was shocked when I read a provision authorizing service contracts while we, in this
Constitutional Commission, provided for Filipino control of the economy. We are, therefore,
providing for exceptional instances where aliens may circumvent Filipino control of our
economy. And one way of circumventing the rule in favor of Filipino control of the economy is
to recognize service contracts.
As far as I am concerned, if I should have my own way, I am for the complete deletion of this provision.
However, we are presenting a compromise in the sense that we are requiring a two-thirds vote of
all the Members of Congress as a safeguard. I think we should not mistrust the future Members of
Congress by saying that the purpose of this provision is to avoid corruption. We cannot claim that they
are less patriotic than we are. I think the Members of this Commission should know that entering into
service contracts is an exception to the rule on protection of natural resources for the interest of the
nation, and therefore, being an exception it should be subject, whenever possible, to stringent rules.
It seems to me that we are liberalizing the rules in favor of aliens.
I say these things with a heavy heart, Madam President. I do not claim to be a nationalist, but I love
my country. Although we need investments, we must adopt safeguards that are truly reflective of
the sentiments of the people and not mere cosmetic safeguards as they now appear in the Jamir
amendment. (Applause)
Thank you, Madam President. 46

Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr., indicates the
limitations of the scope of such service contracts -- they are valid only in regard to minerals, petroleum
and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.

MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir amendment and also
to the Ople amendment. I propose to delete "NATURAL RESOURCES" and substitute it with the
following: MINERALS, PETROLEUM AND OTHER MINERAL OILS. On the Ople amendment, I
propose to add: THE NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM
THE EXECUTION OF THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first amendment in lieu of
"NATURAL RESOURCES"?
MR. VILLEGAS. Could Commissioner Davide explain that?
MR. DAVIDE. Madam President, with the use of "NATURAL RESOURCES" here, it would necessarily
include all lands of the public domain, our marine resources, forests, parks and so on. So we would
like to limit the scope of these service contracts to those areas really where these may be needed,
the exploitation, development and exploration of minerals, petroleum and other mineral oils. And so,
we believe that we should really, if we want to grant service contracts at all, limit the same to only
those particular areas where Filipino capital may not be sufficient, and not to all natural
resources.
MR. SUAREZ. Just a point of clarification again, Madam President. When the Commissioner made
those enumerations and specifications, I suppose he deliberately did not include "agricultural land"?
MR. DAVIDE. That is precisely the reason we have to enumerate what these resources are into which
service contracts may enter. So, beyond the reach of any service contract will be lands of the public
domain, timberlands, forests, marine resources, fauna and flora, wildlife and national parks. 47

After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2 abstentions,
Commissioner Davide made the following statement, which is very relevant to our quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals, petroleum and mineral
oils. The Commission has just approved the possible foreign entry into the development, exploration
and utilization of these minerals, petroleum and other mineral oils by virtue of the Jamir amendment.
I voted in favor of the Jamir amendment because it will eventually give way to vesting in exclusively
Filipino citizens and corporations wholly owned by Filipino citizens the right to utilize the other natural
resources. This means that as a matter of policy, natural resources should be utilized and exploited
only by Filipino citizens or corporations wholly owned by such citizens. But by virtue of the Jamir
amendment, since we feel that Filipino capital may not be enough for the development and utilization
of minerals, petroleum and other mineral oils, the President can enter into service contracts with
foreign corporations precisely for the development and utilization of such resources. And so, there is
nothing to fear that we will stagnate in the development of minerals, petroleum and mineral oils
because we now allow service contracts. x x x." 48

The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing with
agreements x x x involving either technical or financial assistance, which ultimately became paragraph
4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of the ConCom were
actually debating about the martial-law-era service contracts for which they were crafting
appropriate safeguards.

In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision on
account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts, this
should always be with the concurrence of Congress and not guided only by a general law to be
promulgated by Congress." Mr. Garcia explained, "Service contracts are given constitutional
49

legitimization in Sec. 3, even when they have been proven to be inimical to the interests of the nation,
providing, as they do, the legal loophole for the exploitation of our natural resources for the benefit of
foreign interests." Likewise, Mr. Tadeo cited inter alia the fact that service contracts continued to
50

subsist, enabling foreign interests to benefit from our natural resources. It was hardly likely that
51
these gentlemen would have objected so strenuously, had the provision called for mere
technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave no room
for doubt that the service contract concept precisely underpinned the commissioners' understanding
of the "agreements involving either technical or financial assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
· In their deliberations on what was to become paragraph 4, the framers used the term service
contracts in referring to agreements x x x involving either technical or financial assistance.

· They spoke of service contracts as the concept was understood in the 1973 Constitution.
· It was obvious from their discussions that they were not about to ban or eradicate service contracts.
· Instead, they were plainly crafting provisions to put in place safeguards that would eliminate or
minimize the abuses prevalent during the marital law regime. In brief, they were going to permit service
contracts with foreign corporations as contractors, but with safety measures to prevent abuses, as an
exception to the general norm established in the first paragraph of Section 2 of Article XII. This
provision reserves or limits to Filipino citizens -- and corporations at least 60 percent of which is owned
by such citizens -- the exploration, development and utilization of natural resources.
· This provision was prompted by the perceived insufficiency of Filipino capital and the felt need for
foreign investments in the EDU of minerals and petroleum resources.
· The framers for the most part debated about the sort of safeguards that would be considered
adequate and reasonable. But some of them, having more "radical" leanings, wanted to ban service
contracts altogether; for them, the provision would permit aliens to exploit and benefit from the nation's
natural resources, which they felt should be reserved only for Filipinos.
· In the explanation of their votes, the individual commissioners were heard by the entire body. They
sounded off their individual opinions, openly enunciated their philosophies, and supported or attacked
the provisions with fervor. Everyone's viewpoint was heard.
· In the final voting, the Article on the National Economy and Patrimony -- including paragraph 4
allowing service contracts with foreign corporations as an exception to the general norm in paragraph
1 of Section 2 of the same article -- was resoundingly approved by a vote of 32 to 7, with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are

Service Contracts With Safeguards

From the foregoing, we are impelled to conclude that the phrase agreements involving either technical
or financial assistance, referred to in paragraph 4, are in fact service contracts. But unlike those of the
1973 variety, the new ones are between foreign corporations acting as contractors on the one hand;
and on the other, the government as principal or "owner" of the works. In the new service contracts,
the foreign contractors provide capital, technology and technical know-how, and managerial expertise
in the creation and operation of large-scale mining/extractive enterprises; and the government, through
its agencies (DENR, MGB), actively exercises control and supervision over the entire operation.
Such service contracts may be entered into only with respect to minerals, petroleum and other mineral
oils. The grant thereof is subject to several safeguards, among which are these requirements:

(1) The service contract shall be crafted in accordance with a general law that will set standard or
uniform terms, conditions and requirements, presumably to attain a certain uniformity in provisions
and avoid the possible insertion of terms disadvantageous to the country.
(2) The President shall be the signatory for the government because, supposedly before an agreement
is presented to the President for signature, it will have been vetted several times over at different levels
to ensure that it conforms to law and can withstand public scrutiny.
(3) Within thirty days of the executed agreement, the President shall report it to Congress to give that
branch of government an opportunity to look over the agreement and interpose timely objections, if
any.
Use of the Record of the
ConCom to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the "framers' intent" approach,
and the criticism hurled by petitioners who quote a ruling of this Court:
"While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional
convention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto
may be had only when other guides fail as said proceedings are powerless to vary the terms of the
Constitution when the meaning is clear. Debates in the constitutional convention 'are of value as
showing the views of the individual members, and as indicating the reason for their votes, but they
give us no light as to the views of the large majority who did not talk, much less the mass of our fellow
citizens whose votes at the polls gave that instrument the force of fundamental law. We think it safer
to construe the constitution from what appears upon its face.' The proper interpretation therefore
depends more on how it was understood by the people adopting it than in the framers' understanding
thereof."52

The notion that the deliberations reflect only the views of those members who spoke out and not the
views of the majority who remained silent should be clarified. We must never forget that those who
spoke out were heard by those who remained silent and did not react. If the latter were silent because
they happened not to be present at the time, they are presumed to have read the minutes and kept
abreast of the deliberations. By remaining silent, they are deemed to have signified their assent to
and/or conformity with at least some of the views propounded or their lack of objections thereto. It was
incumbent upon them, as representatives of the entire Filipino people, to follow the deliberations
closely and to speak their minds on the matter if they did not see eye to eye with the proponents of
the draft provisions.
In any event, each and every one of the commissioners had the opportunity to speak out and to vote
on the matter. Moreover, the individual explanations of votes are on record, and they show where each
delegate stood on the issues. In sum, we cannot completely denigrate the value or usefulness of
the record of the ConCom, simply because certain members chose not to speak out.

It is contended that the deliberations therein did not necessarily reflect the thinking of the voting
population that participated in the referendum and ratified the Constitution. Verily, whether we like it
or not, it is a bit too much to assume that every one of those who voted to ratify the proposed Charter
did so only after carefully reading and mulling over it, provision by provision.
Likewise, it appears rather extravagant to assume that every one of those who did in fact bother to
read the draft Charter actually understood the import of its provisions, much less analyzed it vis-à-vis
the previous Constitutions. We believe that in reality, a good percentage of those who voted in favor
of it did so more out of faith and trust. For them, it was the product of the hard work and careful
deliberation of a group of intelligent, dedicated and trustworthy men and women of integrity and
conviction, whose love of country and fidelity to duty could not be questioned.
In short, a large proportion of the voters voted "yes" because the drafters, or a majority of them,
endorsed the proposed Constitution. What this fact translates to is the inescapable conclusion that
many of the voters in the referendum did not form their own isolated judgment about the draft Charter,
much less about particular provisions therein. They only relied or fell back and acted upon the
favorable endorsement or recommendation of the framers as a group. In other words, by voting yes,
they may be deemed to have signified their voluntary adoption of the understanding and interpretation
of the delegates with respect to the proposed Charter and its particular provisions. "If it's good enough
for them, it's good enough for me;" or, in many instances, "If it's good enough for President Cory
Aquino, it's good enough for me."
And even for those who voted based on their own individual assessment of the proposed Charter,
there is no evidence available to indicate that their assessment or understanding of its provisions was
in fact different from that of the drafters. This unwritten assumption seems to be petitioners' as well.
For all we know, this segment of voters must have read and understood the provisions of the
Constitution in the same way the framers had, an assumption that would account for the favorable
votes.
Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom as a
group were supposed to represent the entire Filipino people. Thus, we cannot but regard their views
as being very much indicative of the thinking of the people with respect to the matters deliberated upon
and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following conclusion, based on the
above arguments. As written by the framers and ratified and adopted by the people, the
Constitution allows the continued use of service contracts with foreign corporations -- as
contractors who would invest in and operate and manage extractive enterprises, subject to the
full control and supervision of the State -- sans the abuses of the past regime. The purpose is
clear: to develop and utilize our mineral, petroleum and other resources on a large scale for
the immediate and tangible benefit of the Filipino people.
In view of the foregoing discussion, we should reverse the Decision of January 27, 2004, and in fact
now hold a view different from that of the Decision, which had these findings: (a) paragraph 4 of Section
2 of Article XII limits foreign involvement in the local mining industry to agreements strictly for either
financial or technical assistance only; (b) the same paragraph precludes agreements that grant to
foreign corporations the management of local mining operations, as such agreements are purportedly
in the nature of service contracts as these were understood under the 1973 Constitution; (c) these
service contracts were supposedly "de-constitutionalized" and proscribed by the omission of the term
service contracts from the 1987 Constitution; (d) since the WMCP FTAA contains provisions permitting
the foreign contractor to manage the concern, the said FTAA is invalid for being a prohibited service
contract; and (e) provisions of RA 7942 and DAO 96-40, which likewise grant managerial authority to
the foreign contractor, are also invalid and unconstitutional.
Ultimate Test: State's "Control"
Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a possible
collision of constitutional provisions. On the one hand, paragraph 1 of Section 2 of Article XII explicitly
mandates the State to exercise "full control and supervision" over the exploration, development and
utilization of natural resources. On the other hand, paragraph 4 permits safeguarded service contracts
with foreign contractors. Normally, pursuant thereto, the contractors exercise management
prerogatives over the mining operations and the enterprise as a whole. There is thus a legitimate
ground to be concerned that either the State's full control and supervision may rule out any exercise
of management authority by the foreign contractor; or, the other way around, allowing the foreign
contractor full management prerogatives may ultimately negate the State's full control and supervision.
Ut Magis Valeat
Quam Pereat

Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat quam
pereat -- every part of the Constitution is to be given effect, and the Constitution is to be read and
understood as a harmonious whole. Thus, "full control and supervision" by the State must be
understood as one that does not preclude the legitimate exercise of management prerogatives by the
foreign contractor. Before any further discussion, we must stress the primacy and supremacy of the
principle of sovereignty and State control and supervision over all aspects of exploration, development
and utilization of the country's natural resources, as mandated in the first paragraph of Section 2 of
Article XII.
But in the next breadth we have to point out that "full control and supervision" cannot be taken literally
to mean that the State controls and supervises everything involved, down to the minutest details, and
makes all decisions required in the mining operations. This strained concept of control and supervision
over the mining enterprise would render impossible the legitimate exercise by the contractors of a
reasonable degree of management prerogative and authority necessary and indispensable to their
proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale exploration,
development and utilization activities; and result in the unmitigated stagnation of this sector, to the
detriment of our nation's development. This scenario renders paragraph 4 inoperative and useless.
And as respondents have correctly pointed out, the government does not have to micro-manage the
mining operations and dip its hands into the day-to-day affairs of the enterprise in order for it to be
considered as having full control and supervision.
The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial,
53

all-encompassing control; but nevertheless sufficient to give the State the power to direct, restrain,
regulate and govern the affairs of the extractive enterprises. Control by the State may be on a macro
level, through the establishment of policies, guidelines, regulations, industry standards and similar
measures that would enable the government to control the conduct of affairs in various enterprises
and restrain activities deemed not desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the economic development and general
welfare of the country, conserve the environment, and uplift the well-being of the affected local
communities. Such a concept of control would be compatible with permitting the foreign contractor
sufficient and reasonable management authority over the enterprise it invested in, in order to ensure
that it is operating efficiently and profitably, to protect its investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and its Implementing Rules enable the
government to exercise that degree of control sufficient to direct and regulate the conduct of
affairs of individual enterprises and restrain undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of certain provisions
of the Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96-
40), as well as the WMCP FTAA.
Indeed, petitioners charge that RA 7942, as well as its Implementing Rules and Regulations, makes
54

it possible for FTAA contracts to cede full control and management of mining enterprises over to fully
foreign-owned corporations, with the result that the State is allegedly reduced to a passive regulator
dependent on submitted plans and reports, with weak review and audit powers. The State does not
supposedly act as the owner of the natural resources for and on behalf of the Filipino people; it
practically has little effective say in the decisions made by the enterprise. Petitioners then conclude
that the law, the implementing regulations, and the WMCP FTAA cede "beneficial ownership" of the
mineral resources to the foreign contractor.
A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners' claims.
Paraphrasing the Constitution, Section 4 of the statute clearly affirms the State's control thus:
"Sec. 4. Ownership of Mineral Resources. – Mineral resources are owned by the State and the
exploration, development, utilization and processing thereof shall be under its full control and
supervision. The State may directly undertake such activities or it may enter into mineral agreements
with contractors.
"The State shall recognize and protect the rights of the indigenous cultural communities to their
ancestral lands as provided for by the Constitution."
The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows:
"Sec. 2. Declaration of Policy. 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. It shall be the
responsibility of the State to promote their rational exploration, development, utilization and
conservation through the combined efforts of the Government and private sector in order to enhance
national growth in a way that effectively safeguards the environment and protects the rights of affected
communities."
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. The following
provisions thereof establish the mechanism of inspection and visitorial rights over mining operations
and institute reportorial requirements in this manner:
1. Sec. 8 which provides for the DENR's power of over-all supervision and periodic review for "the
conservation, management, development and proper use of the State's mineral resources";
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR to exercise
"direct charge in the administration and disposition of mineral resources", and empowers the MGB to
"monitor the compliance by the contractor of the terms and conditions of the mineral agreements",
"confiscate surety and performance bonds", and deputize whenever necessary any member or unit of
the Phil. National Police, barangay, duly registered non-governmental organization (NGO) or any
qualified person to police mining activities;
3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety inspections of all
installations, whether surface or underground", utilized in mining operations.
4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and warranties:
"(g) Mining operations shall be conducted in accordance with the provisions of the Act and its
IRR.
"(h) Work programs and minimum expenditures commitments.
xxxxxxxxx
"(k) Requiring proponent to effectively use appropriate anti-pollution technology and facilities to protect
the environment and restore or rehabilitate mined-out areas.
"(l) The contractors shall furnish the Government records of geologic, accounting and other relevant
data for its mining operation, and that books of accounts and records shall be open for inspection by
the government. x x x.
"(m) Requiring the proponent to dispose of the minerals at the highest price and more advantageous
terms and conditions.
"(n) x x x x x x x x x

"(o) Such other terms and conditions consistent with the Constitution and with this Act as the Secretary
may deem to be for the best interest of the State and the welfare of the Filipino people."

The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in Section 56
(g), (h), (l), (m) and (n) of the Implementing Rules, DAO 96-40.
Moreover, 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, RA 7942;
Section 60, DAO 96-40).

· The contractor must comply with the provisions pertaining to mine safety, health and environmental
protection (Chapter XI, RA 7942; Chapters XV and XVI, DAO 96-40).
· For violation of any of its terms and conditions, government may cancel an FTAA. (Chapter XVII, RA
7942; Chapter XXIV, DAO 96-40).
· An FTAA contractor is obliged to open its books of accounts and records for inspection by the
government (Section 56-m, DAO 96-40).
· An FTAA contractor has to dispose of the minerals and by-products at the highest market price and
register with the MGB a copy of the sales agreement (Section 56-n, DAO 96-40).
· MGB is mandated to monitor the contractor's compliance with the terms and conditions of the FTAA;
and to deputize, when necessary, any member or unit of the Philippine National Police, the barangay
or a DENR-accredited nongovernmental organization to police mining activities (Section 7-d and -f,
DAO 96-40).
· An FTAA cannot be transferred or assigned without prior approval by the President (Section 40, RA
7942; Section 66, DAO 96-40).
· A mining project under an FTAA cannot proceed to the construction/development/utilization stage,
unless its Declaration of Mining Project Feasibility has been approved by government (Section 24, RA
7942).
· The Declaration of Mining Project Feasibility filed by the contractor cannot be approved without
submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)

3. Environmental compliance certificate (Section 70, RA 7942)

4. Approved environmental protection and enhancement program (Section 69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70, RA 7942; Section 27, RA
7160)
6. Free and prior informed consent by the indigenous peoples concerned, including payment of
royalties through a Memorandum of Agreement (Section 16, RA 7942; Section 59, RA 8371)
· The FTAA contractor is obliged to assist in the development of its mining community, promotion of
the general welfare of its inhabitants, and development of science and mining technology (Section 57,
RA 7942).
· The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or annual basis as the
case may be; per Section 270, DAO 96-40), pertaining to the following:
1. Exploration
2. Drilling

3. Mineral resources and reserves

4. Energy consumption
5. Production
6. Sales and marketing

7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use

11. Social development

12. Explosives consumption
· An FTAA pertaining to areas within government reservations cannot be granted without a written
clearance from the government agencies concerned (Section 19, RA 7942; Section 54, DAO 96-40).
· An FTAA contractor is required to post a financial guarantee bond in favor of the government in an
amount equivalent to its expenditures obligations for any particular year. This requirement is apart
from the representations and warranties of the contractor that it has access to all the financing,
managerial and technical expertise and technology necessary to carry out the objectives of the FTAA
(Section 35-b, -e, and -f, RA 7942).
· Other reports to be submitted by the contractor, as required under DAO 96-40, are as follows: an
environmental report on the rehabilitation of the mined-out area and/or mine waste/tailing covered
area, and anti-pollution measures undertaken (Section 35-a-2); annual reports of the mining
operations and records of geologic accounting (Section 56-m); annual progress reports and final report
of exploration activities (Section 56-2).
· Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are the following:
a safety and health program (Section 144); an environmental work program (Section 168); an annual
environmental protection and enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the FTAA
contractor by the statute and regulations easily overturns petitioners' contention. The setup under RA
7942 and DAO 96-40 hardly relegates the State to the role of a "passive regulator" dependent on
submitted plans and reports. On the contrary, the government agencies concerned are empowered to
approve or disapprove -- hence, to influence, direct and change -- the various work programs and the
corresponding minimum expenditure commitments for each of the exploration, development and
utilization phases of the mining enterprise.

Once these plans and reports are approved, the contractor is bound to comply with its commitments
therein. Figures for mineral production and sales are regularly monitored and subjected to government
review, in order to ensure that the products and by-products are disposed of at the best prices possible;
even copies of sales agreements have to be submitted to and registered with MGB. And the contractor
is mandated to open its books of accounts and records for scrutiny, so as to enable the State to
determine if the government share has been fully paid.

The State may likewise compel the contractor's compliance with mandatory requirements on mine
safety, health and environmental protection, and the use of anti-pollution technology and facilities.
Moreover, the contractor is also obligated to assist in the development of the mining community and
to pay royalties to the indigenous peoples concerned.

Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or
noncompliance with statutes or regulations. This general, all-around, multipurpose sanction is no
trifling matter, especially to a contractor who may have yet to recover the tens or hundreds of millions
of dollars sunk into a mining project.

Overall, considering the provisions of the statute and the regulations just discussed, we believe that
the State definitely possesses the means by which it can have the ultimate word in the operation of
the enterprise, set directions and objectives, and detect deviations and noncompliance by the
contractor; likewise, it has the capability to enforce compliance and to impose sanctions, should the
occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away with it;
on the contrary, it will have to follow the government line if it wants to stay in the enterprise.
Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a sufficient degree
of control and supervision over the conduct of mining operations.
Section 3(aq) of RA 7942
Not Unconstitutional
An objection has been expressed that Section 3(aq) of RA 7942 -- which allows a foreign contractor
55

to apply for and hold an exploration permit -- is unconstitutional. The reasoning is that Section 2 of
Article XII of the Constitution does not allow foreign-owned corporations to undertake mining
operations directly. They may act only as contractors of the State under an FTAA; and the State, as
the party directly undertaking exploitation of its natural resources, must hold through the government
all exploration permits and similar authorizations. Hence, Section 3(aq), in permitting foreign-owned
corporations to hold exploration permits, is unconstitutional.

The objection, however, is not well-founded. While the Constitution mandates the State to exercise
full control and supervision over the exploitation of mineral resources, nowhere does it require the
government to hold all exploration permits and similar authorizations. In fact, there is no prohibition at
all against foreign or local corporations or contractors holding exploration permits. The reason is not
hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the right
to conduct exploration for all minerals in specified areas. Such a permit does not amount to an
authorization to extract and carry off the mineral resources that may be discovered. This phase
involves nothing but expenditures for exploring the contract area and locating the mineral bodies. As
no extraction is involved, there are no revenues or incomes to speak of. In short, the exploration permit
is an authorization for the grantee to spend its own funds on exploration programs that are pre-
approved by the government, without any right to recover anything should no minerals in commercial
quantities be discovered. The State risks nothing and loses nothing by granting these permits to local
or foreign firms; in fact, it stands to gain in the form of data generated by the exploration activities.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the commercial
viability of a mining area may, within the term of the permit, file with the MGB a declaration of mining
project feasibility accompanied by a work program for development. The approval of the mining project
feasibility and compliance with other requirements of RA 7942 vests in the grantee the exclusive right
to an MPSA or any other mineral agreement, or to an FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production
agreement, or an FTAA over the permit area, and the application shall be approved if the permit
grantee meets the necessary qualifications and the terms and conditions of any such agreement.
Therefore, the contractor will be in a position to extract minerals and earn revenues only when the
MPSA or another mineral agreement, or an FTAA, is granted. At that point, the contractor's rights and
obligations will be covered by an FTAA or a mineral agreement.
But prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or
prospective contractor) cannot yet be deemed to have entered into any contract or agreement with the
State, and the grantee would definitely need to have some document or instrument as evidence of its
right to conduct exploration works within the specified area. This need is met by the exploration permit
issued pursuant to Sections 3(aq), 20 and 23 of RA 7942.

In brief, the exploration permit serves a practical and legitimate purpose in that it protects the
interests and preserves the rights of the exploration permit grantee (the would-be contractor)
-- foreign or local -- during the period of time that it is spending heavily on exploration works,
without yet being able to earn revenues to recoup any of its investments and expenditures.
Minus this permit and the protection it affords, the exploration works and expenditures may end up
benefiting only claim-jumpers. Such a possibility tends to discourage investors and contractors. Thus,
Section 3(aq) of RA 7942 may not be deemed unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and
supervision:
1. The contractor is obligated to account for the value of production and sale of minerals (Clause 1.4).
2. The contractor's work program, activities and budgets must be approved by/on behalf of the State
(Clause 2.1).
3. The DENR secretary has the power to extend the exploration period (Clause 3.2-a).
4. Approval by the State is necessary for incorporating lands into the FTAA contract area (Clause 4.3-
c).
5. The Bureau of Forest Development is vested with discretion in regard to approving the inclusion of
forest reserves as part of the FTAA contract area (Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not needed for
exploration and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State (Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause 4.9).
9. The contractor is required to obtain State approval of its work programs for the succeeding two-year
periods, containing the proposed work activities and expenditures budget related to exploration
(Clause 5.1).
10. The contractor is required to obtain State approval for its proposed expenditures for exploration
activities (Clause 5.2).

11. The contractor is required to submit an annual report on geological, geophysical, geochemical and
other information relating to its explorations within the FTAA area (Clause 5.3-a).
12. The contractor is to submit within six months after expiration of exploration period a final report on
all its findings in the contract area (Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a declaration of mining feasibility,
along with a description of the area to be developed and mined, a description of the proposed mining
operations and the technology to be employed, and a proposed work program for the development
phase, for approval by the DENR secretary (Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including construction of the
production facilities, within the period stated in the approved work program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a work program covering
each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production, ore reserves, work
accomplished and work in progress, profile of its work force and management staff, and other technical
information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining facilities shall be
subject to the approval of the secretary (Clause 6.4).
18. The State has control with respect to the amount of funds that the contractor may borrow within
the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and marketing issues (Clause
10.1-a).

20. The contractor is required to ensure 60 percent Filipino equity in the contractor, within ten years
of recovering specified expenditures, unless not so required by subsequent legislation (Clause 10.1).
21. The State has the right to terminate the FTAA for the contractor's unremedied substantial breach
thereof (Clause 13.2);
22. The State's approval is needed for any assignment of the FTAA by the contractor to an entity other
than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what they mean with respect to
the State's ability to exercise full control and effective supervision over the enterprise. For instance,
throughout the initial five-year exploration and feasibility phase of the project, the contractor is
mandated by Clause 5.1 of the WMCP FTAA to submit a series of work programs (copy furnished the
director of MGB) to the DENR secretary for approval. The programs will detail the contractor's
proposed exploration activities and budget covering each subsequent period of two fiscal years.
In other words, the concerned government officials will be informed beforehand of the proposed
exploration activities and expenditures of the contractor for each succeeding two-year period, with the
right to approve/disapprove them or require changes or adjustments therein if deemed necessary.

Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend for exploration
activities during the first contract year of the exploration period was fixed at not less than P24 million;
and then for the succeeding years, the amount shall be as agreed between the DENR secretary and
the contractor prior to the commencement of each subsequent fiscal year. If no such agreement is
arrived upon, the previous year's expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a very big say in the
exploration phase of the project. This fact is not something to be taken lightly, considering that the
government has absolutely no contribution to the exploration expenditures or work activities and yet
is given veto power over such a critical aspect of the project. We cannot but construe as very significant
such a degree of control over the project and, resultantly, over the mining enterprise itself.
Following its exploration activities or feasibility studies, if the contractor believes that any part of the
contract area is likely to contain an economic mineral resource, it shall submit to the DENR secretary
a declaration of mining feasibility (per Clause 5.4 of the FTAA), together with a technical description
of the area delineated for development and production, a description of the proposed mining
operations including the technology to be used, a work program for development, an environmental
impact statement, and a description of the contributions to the economic and general welfare of the
country to be generated by the mining operations (pursuant to Clause 5.5).
The work program for development is subject to the approval of the DENR secretary. Upon its
approval, the contractor must comply with it and complete the development of the mine, including the
construction of production facilities and installation of machinery and equipment, within the period
provided in the approved work program for development (per Clause 6.1).

Thus, notably, the development phase of the project is likewise subject to the control and supervision
of the government. It cannot be emphasized enough that the proper and timely construction and
deployment of the production facilities and the development of the mine are of pivotal significance to
the success of the mining venture. Any missteps here will potentially be very costly to remedy. Hence,
the submission of the work program for development to the DENR secretary for approval is particularly
noteworthy, considering that so many millions of dollars worth of investments -- courtesy of the
contractor -- are made to depend on the State's consideration and action.
Throughout the operating period, the contractor is required to submit to the DENR secretary for
approval, copy furnished the director of MGB, work programs covering each period of three fiscal years
(per Clause 6.2). During the same period (per Clause 6.3), the contractor is mandated to submit
various quarterly and annual reports to the DENR secretary, copy furnished the director of MGB, on
the tonnages of production in terms of ores and concentrates, with corresponding grades, values and
destinations; reports of sales; total ore reserves, total tonnage of ores, work accomplished and work
in progress (installations and facilities related to mining operations), investments made or committed,
and so on and so forth.
Under Section VIII, during the period of mining operations, the contractor is also required to submit to
the DENR secretary (copy furnished the director of MGB) the work program and corresponding budget
for the contract area, describing the mining operations that are proposed to be carried out during the
period covered. The secretary is, of course, entitled to grant or deny approval of any work program or
budget and/or propose revisions thereto. Once the program/budget has been approved, the contractor
shall comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from constituting a surrender of
control and a grant of beneficial ownership of mineral resources to the contractor in question, bestow
upon the State more than adequate control and supervision over the activities of the contractor
and the enterprise.
No Surrender of Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which, they say, amount
to a relinquishment of control by the State, since it "cannot truly impose its own discretion" in respect
of the submitted work programs.

"8.2. The Secretary shall be deemed to have approved any Work Programme or Budget or variation
thereof submitted by the Contractor unless within sixty (60) days after submission by the Contractor
the Secretary gives notice declining such approval or proposing a revision of certain features and
specifying its reasons therefor ('the Rejection Notice').

8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and endeavor to agree
on amendments to the Work Programme or Budget. If the Secretary and the Contractor fail to agree
on the proposed revision within 30 days from delivery of the Rejection Notice then the Work
Programme or Budget or variation thereof proposed by the Contractor shall be deemed approved, so
as not to unnecessarily delay the performance of the Agreement.
8.4. x x x x x x x x x

8.5. So far as is practicable, the Contractor shall comply with any approved Work Programme and
Budget. It is recognized by the Secretary and the Contractor that the details of any Work Programmes
or Budgets may require changes in the light of changing circumstances. The Contractor may make
such changes without approval of the Secretary provided they do not change the general objective of
any Work Programme, nor entail a downward variance of more than twenty per centum (20percent)
of the relevant Budget. All other variations to an approved Work Programme or Budget shall be
submitted for approval of the Secretary."
From the provisions quoted above, petitioners generalize by asserting that the government does not
participate in making critical decisions regarding the operations of the mining firm. Furthermore, while
the State can require the submission of work programs and budgets, the decision of the contractor will
still prevail, if the parties have a difference of opinion with regard to matters affecting operations and
management.

We hold, however, that the foregoing provisions do not manifest a relinquishment of control. For
instance, Clause 8.2 merely provides a mechanism for preventing the business or mining operations
from grinding to a complete halt as a result of possibly over-long and unjustified delays in the
government's handling, processing and approval of submitted work programs and budgets. Anyway,
the provision does give the DENR secretary more than sufficient time (60 days) to react to submitted
work programs and budgets. It cannot be supposed that proper grounds for objecting thereto, if any
exist, cannot be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the event a
disagreement over the submitted work program or budget arises between the State and the contractor
and results in a stalemate or impasse, in order that there will be no unreasonably long delays in the
performance of the works.
These temporary or stop-gap solutions are not necessarily evil or wrong. Neither does it follow that
the government will inexorably be aggrieved if and when these temporary remedies come into play.
First, avoidance of long delays in these situations will undoubtedly redound to the benefit of the State
as well as the contractor. Second, who is to say that the work program or budget proposed by the
contractor and deemed approved under Clause 8.3 would not be the better or more reasonable or
more effective alternative? The contractor, being the "insider," as it were, may be said to be in a better
position than the State -- an outsider looking in -- to determine what work program or budget would be
appropriate, more effective, or more suitable under the circumstances.

All things considered, we take exception to the characterization of the DENR secretary as a
subservient nonentity whom the contractor can overrule at will, on account of Clause 8.3. And neither
is it true that under the same clause, the DENR secretary has no authority whatsoever to disapprove
the work program. As Respondent WMCP reasoned in its Reply-Memorandum, the State -- despite
Clause 8.3 -- still has control over the contract area and it may, as sovereign authority, prohibit work
thereon until the dispute is resolved. And ultimately, the State may terminate the agreement, pursuant
to Clause 13.2 of the same FTAA, citing substantial breach thereof. Hence, it clearly retains full and
effective control of the exploitation of the mineral resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the parties' need for flexibility, given
that no one can accurately forecast under all circumstances, or predict how situations may change.
Hence, while approved work programs and budgets are to be followed and complied with as far as
practicable, there may be instances in which changes will have to be effected, and effected rapidly,
since events may take shape and unfold with suddenness and urgency. Thus, Clause 8.5 allows the
contractor to move ahead and make changes without the express or implicit approval of the DENR
secretary. Such changes are, however, subject to certain conditions that will serve to limit or restrict
the variance and prevent the contractor from straying very far from what has been approved.
Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations, while
still guaranteeing that the approved work programs and budgets are not abandoned altogether. Clause
8.5 does not constitute proof that the State has relinquished control. And ultimately, should there be
disagreement with the actions taken by the contractor in this instance as well as under Clause 8.3
discussed above, the DENR secretary may resort to cancellation/termination of the FTAA as the
ultimate sanction.
Discretion to Select Contract
Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to select -- and the government has
no say whatsoever as to -- the parts of the contract area to be relinquished pursuant to Clause 4.6 of
the WMCP FTAA. This clause, however, does not constitute abdication of control. Rather, it is a mere
56

acknowledgment of the fact that the contractor will have determined, after appropriate exploration
works, which portions of the contract area do not contain minerals in commercial quantities sufficient
to justify developing the same and ought therefore to be relinquished. The State cannot just substitute
its judgment for that of the contractor and dictate upon the latter which areas to give up.

Moreover, we can be certain that the contractor's self-interest will propel proper and efficient
relinquishment. According to private respondent, a mining company tries to relinquish as much non-
57

mineral areas as soon as possible, because the annual occupation fees paid to the government are
based on the total hectarage of the contract area, net of the areas relinquished. Thus, the larger the
remaining area, the heftier the amount of occupation fees to be paid by the contractor. Accordingly,
relinquishment is not an issue, given that the contractor will not want to pay the annual occupation
fees on the non-mineral parts of its contract area. Neither will it want to relinquish promising sites,
which other contractors may subsequently pick up.

Government Not a Subcontractor

Petitioners further maintain that the contractor can compel the government to exercise its power of
eminent domain to acquire surface areas within the contract area for the contractor's use. Clause 10.2
(e) of the WMCP FTAA provides that the government agrees that the contractor shall "(e) have the
right to require the Government at the Contractor's own cost, to purchase or acquire surface areas for
and on behalf of the Contractor at such price and terms as may be acceptable to the contractor. At the
termination of this Agreement such areas shall be sold by public auction or tender and the Contractor
shall be entitled to reimbursement of the costs of acquisition and maintenance, adjusted for inflation,
from the proceeds of sale."

According to petitioners, "government becomes a subcontractor to the contractor" and may, on

account of this provision, be compelled "to make use of its power of eminent domain, not for public
purposes but on behalf of a private party, i.e., the contractor." Moreover, the power of the courts to
determine the amount corresponding to the constitutional requirement of just compensation has
allegedly also been contracted away by the government, on account of the latter's commitment that
the acquisition shall be at such terms as may be acceptable to the contractor.
However, private respondent has proffered a logical explanation for the provision. Section 10.2(e)
58

contemplates a situation applicable to foreign-owned corporations. WMCP, at the time of the execution
of the FTAA, was a foreign-owned corporation and therefore not qualified to own land. As contractor,
it has at some future date to construct the infrastructure -- the mine processing plant, the camp site,
the tailings dam, and other infrastructure -- needed for the large-scale mining operations. It will then
have to identify and pinpoint, within the FTAA contract area, the particular surface areas with favorable
topography deemed ideal for such infrastructure and will need to acquire the surface rights. The State
owns the mineral deposits in the earth, and is also qualified to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to own
land, identifies to the government the specific surface areas within the FTAA contract area to be
acquired for the mine infrastructure. The government then acquires ownership of the surface land
areas on behalf of the contractor, in order to enable the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows it,
after termination of the FTAA, to be reimbursed from proceeds of the sale of the surface areas, which
the government will dispose of through public bidding. It should be noted that this provision will not be
applicable to Sagittarius as the present FTAA contractor, since it is a Filipino corporation qualified to
own and hold land. As such, it may therefore freely negotiate with the surface rights owners and
acquire the surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of the
rationale for the said provision. That provision does not call for the exercise of the power of eminent
domain -- and determination of just compensation is not an issue -- as much as it calls for a qualified
party to acquire the surface rights on behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having the State do the
purchasing is a better alternative. This will at least cause the government to be aware of such
transaction/s and foster transparency in the contractor's dealings with the local property owners. The
government, then, will not act as a subcontractor of the contractor; rather, it will facilitate the
transaction and enable the parties to avoid a technical violation of the Anti-Dummy Law.

Absence of Provision
Requiring Sale at Posted
Prices Not Problematic
The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the
contractor to sell the mineral products at posted or market prices is not a problem. Apart from Clause
1.4 of the FTAA obligating the contractor to account for the total value of mineral production and the
sale of minerals, we can also look to Section 35 of RA 7942, which incorporates into all FTAAs certain
terms, conditions and warranties, including the following:

"(l) The contractors shall furnish the Government records of geologic, accounting and other relevant
data for its mining operation, and that books of accounts and records shall be open for inspection by
the government. x x x
(m) Requiring the proponent to dispose of the minerals at the highest price and more advantageous
terms and conditions."
For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose of
the minerals and by-products at the highest market price and to register with the MGB a copy of the
sales agreement. After all, the provisions of prevailing statutes as well as rules and regulations are
deemed written into contracts.
Contractor's Right to Mortgage
Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to mortgage and
encumber not only its rights and interests in the FTAA and the infrastructure and improvements
introduced, but also the mineral products extracted. Private respondents do not touch on this matter,
but we believe that this provision may have to do with the conditions imposed by the creditor-banks of
the then foreign contractor WMCP to secure the lendings made or to be made to the latter. Ordinarily,
banks lend not only on the security of mortgages on fixed assets, but also on encumbrances of goods
produced that can easily be sold and converted into cash that can be applied to the repayment of
loans. Banks even lend on the security of accounts receivable that are collectible within 90 days. 59

It is not uncommon to find that a debtor corporation has executed deeds of assignment "by way of
security" over the production for the next twelve months and/or the proceeds of the sale thereof -- or
the corresponding accounts receivable, if sold on terms -- in favor of its creditor-banks. Such deeds
may include authorizing the creditors to sell the products themselves and to collect the sales proceeds
and/or the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary or objectionable. In any case,
as will be explained below, even if it is allowed to mortgage or encumber the mineral end-products
themselves, the contractor is not freed of its obligation to pay the government its basic and additional
shares in the net mining revenue, which is the essential thing to consider.
In brief, the alarum raised over the contractor's right to mortgage the minerals is simply unwarranted.
Just the same, the contractor must account for the value of mineral production and the sales proceeds
therefrom. Likewise, under the WMCP FTAA, the government remains entitled to its sixty percent
share in the net mining revenues of the contractor. The latter's right to mortgage the minerals does
not negate the State's right to receive its share of net mining revenues.
Shareholders Free to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the contractor authority "to change its equity
structure at any time." This provision may seem somewhat unusual, but considering that WMCP then
was 100 percent foreign-owned, any change would mean that such percentage would either stay
unaltered or be decreased in favor of Filipino ownership. Moreover, the foreign-held shares may
change hands freely. Such eventuality is as it should be.
We believe it is not necessary for government to attempt to limit or restrict the freedom of the
shareholders in the contractor to freely transfer, dispose of or encumber their shareholdings,
consonant with the unfettered exercise of their business judgment and discretion. Rather, what is
critical is that, regardless of the identity, nationality and percentage ownership of the various
shareholders of the contractor -- and regardless of whether these shareholders decide to take the
company public, float bonds and other fixed-income instruments, or allow the creditor-banks to take
an equity position in the company -- the foreign-owned contractor is always in a position to render the
services required under the FTAA, under the direction and control of the government.
Contractor's Right to Ask
For Amendment Not Absolute
With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind government to
allow amendments to the FTAA if required by banks and other financial institutions as part of the
conditions for new lendings. However, we do not find anything wrong with Clause 10.4(e), which only
states that "if the Contractor seeks to obtain financing contemplated herein from banks or other
financial institutions, (the Government shall) cooperate with the Contractor in such efforts provided
that such financing arrangements will in no event reduce the Contractor's obligations or the
Government's rights hereunder." The colatilla obviously safeguards the State's interests; if breached,
it will give the government cause to object to the proposed amendments.
On the other hand, Clause 10.4(i) provides that "the Government shall favourably consider any request
from [the] Contractor for amendments of this Agreement which are necessary in order for the
Contractor to successfully obtain the financing." Petitioners see in this provision a complete
renunciation of control. We disagree.
The proviso does not say that the government shall grant any request for amendment. Clause 10.4(i)
only obliges the State to favorably consider any such request, which is not at all unreasonable, as it is
not equivalent to saying that the government must automatically consent to it. This provision should
be read together with the rest of the FTAA provisions instituting government control and supervision
over the mining enterprise. The clause should not be given an interpretation that enables the contractor
to wiggle out of the restrictions imposed upon it by merely suggesting that certain amendments are
requested by the lenders.

Rather, it is up to the contractor to prove to the government that the requested changes to the FTAA
are indispensable, as they enable the contractor to obtain the needed financing; that without such
contract changes, the funders would absolutely refuse to extend the loan; that there are no other
sources of financing available to the contractor (a very unlikely scenario); and that without the needed
financing, the execution of the work programs will not proceed. But the bottom line is, in the exercise
of its power of control, the government has the final say on whether to approve or disapprove such
requested amendments to the FTAA. In short, approval thereof is not mandatory on the part of the
government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions
sufficiently overturns petitioners' litany of objections to and criticisms of the State's alleged
lack of control.
Financial Benefits Not
Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned
in the Decision that beneficial ownership of the mineral resources had been conveyed to the
contractor. This finding was based on the underlying assumption, common to the said provisions, that
the foreign contractor manages the mineral resources in the same way that foreign contractors in
service contracts used to. "By allowing foreign contractors to manage or operate all the aspects of the
mining operation, the above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial
ownership over the nation's mineral resources to these contractors, leaving the State with nothing
but bare title thereto." As the WMCP FTAA contained similar provisions deemed by the ponente to be
60

abhorrent to the Constitution, the Decision struck down the Contract as well.
Beneficial ownership has been defined as ownership recognized by law and capable of being enforced
in the courts at the suit of the beneficial owner. Black's Law Dictionary indicates that the term is used
61

in two senses: first, to indicate the interest of a beneficiary in trust property (also called "equitable
ownership"); and second, to refer to the power of a corporate shareholder to buy or sell the shares,
though the shareholder is not registered in the corporation's books as the owner. Usually, beneficial
62

ownership is distinguished from naked ownership, which is the enjoyment of all the benefits and
privileges of ownership, as against possession of the bare title to property.
An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon WMCP
ownership, beneficial or otherwise, of the mining property it is to develop, the minerals to be produced,
or the proceeds of their sale, which can be legally asserted and enforced as against the State.
As public respondents correctly point out, 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. All lawful contracts require such mutual prestations, and the WMCP FTAA is no
different. The contractor commits to perform certain services for the government in respect of the
mining operation, and in turn it is to be compensated out of the net mining revenues generated from
the sale of mineral products. What would be objectionable is a contractual provision that unduly
benefits the contractor far in excess of the service rendered or value delivered, if any, in exchange
therefor.
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.
Equitable Sharing
of Financial Benefits
On the contrary, DAO 99-56, 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. These benefits are to be equitably shared among the government (national and
local), the FTAA contractor, and the affected communities. The purpose is to ensure sustainable
mineral resources development; and a fair, equitable, competitive and stable investment regime for
the large-scale exploration, development and commercial utilization of minerals. The general
framework or concept followed in crafting the fiscal regime of the FTAA is based on the principle that
the government expects real contributions to the economic growth and general welfare of the country,
while the contractor expects a reasonable return on its investments in the project. 63

Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its share
from the taxes and fees normally paid by a mining enterprise. On the other hand, the FTAA contractor
is granted by the government certain fiscal and non-fiscal incentives to help support the former's cash
64

flow during the most critical phase (cost recovery) and to make the Philippines competitive with other
mineral-producing countries. After the contractor has recovered its initial investment, it will pay all the
normal taxes and fees comprising the basic share of the government, plus an additional share for the
government based on the options and formulae set forth in DAO 99-56.

The said DAO spells out the financial benefits the government will receive from an FTAA, referred to
as "the Government Share," composed of a basic government share and an additional
government share.
The basic government share is comprised of all direct taxes, fees and royalties, as well as other
payments made by the contractor during the term of the FTAA. These are amounts paid directly to (i)
the national government (through the Bureau of Internal Revenue, Bureau of Customs, Mines &
Geosciences Bureau and other national government agencies imposing taxes or fees), (ii) the local
government units where the mining activity is conducted, and (iii) persons and communities directly
affected by the mining project. The major taxes and other payments constituting the basic government
share are enumerated below: 65

Payments to the National Government:

· Excise tax on minerals - 2 percent of the gross output of mining operations
· Contractor' income tax - maximum of 32 percent of taxable income for corporations
· Customs duties and fees on imported capital equipment -the rate is set by the Tariff and Customs
Code (3-7 percent for chemicals; 3-10 percent for explosives; 3-15 percent for mechanical and
electrical equipment; and 3-10 percent for vehicles, aircraft and vessels
· VAT on imported equipment, goods and services – 10 percent of value
· Royalties due the government on minerals extracted from mineral reservations, if applicable – 5
percent of the actual market value of the minerals produced
· Documentary stamp tax - the rate depends on the type of transaction
· Capital gains tax on traded stocks - 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, radio permit, firearms permit, professional fees)
· Other national taxes and fees.

Payments to Local Governments:

· Local business tax - a maximum of 2 percent of gross sales or receipts (the rate varies among
local government units)
· Real property tax - 2 percent of the fair market value of the property, based on an assessment level
set by the local government

· Special education levy - 1 percent of the basis used for the real property tax
· Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year if located in a mineral
reservation

· Community tax - maximum of PhP10,500 per year

· All other local government taxes, fees and imposts as of the effective date of the FTAA - the rate and
the type depend on the local government
Other Payments:
· Royalty to indigenous cultural communities, if any – 1 percent of gross output from mining
operations
· Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also collected from the FTAA
contractor in accordance with the second paragraph of Section 81 of RA 7942, which provides that
the government share shall be comprised of, among other things, certain taxes, duties and fees. The
subject proviso reads:
"The Government share in a financial or technical assistance agreement shall consist of, among other
things, the contractor's corporate income tax, excise tax, special allowance, withholding tax due from
the contractor's foreign stockholders arising from dividend or interest payments to the said foreign
stockholder in case of a foreign national, and all such other taxes, duties and fees as provided for
under existing laws." (Bold types supplied.)

The government, through the DENR and the MGB, has interpreted the insertion of the phrase among
other things as signifying that the government is entitled to an "additional government share" to be
paid by the contractor apart from the "basic share," in order to attain a fifty-fifty sharing of net benefits
from mining.
The additional government share is computed by using one of three options or schemes presented
in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows; (2) the share based
on excess profits; and (3) the sharing based on the cumulative net mining revenue. The particular
formula to be applied will be selected by the contractor, with a written notice to the government prior
to the commencement of the development and construction phase of the mining project. 66

Proceeds from the government shares arising from an FTAA contract are distributed to and received
by the different levels of government in the following proportions:

Natio 50
nal perce
Gove nt
rnme
nt
Provi 10
ncial perce
Gove nt
rnme
nt
Muni 20
cipal perce
Gove nt
rnme
nt
Affec 20
ted perce
Bara nt
ngay
s
The portion of revenues remaining after the deduction of the basic and additional government shares
is what goes to the contractor.
Government's Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees

In connection with the foregoing discussion on the basic and additional government shares, it is
pertinent at this juncture to mention the criticism leveled at the second paragraph of Section 81 of RA
7942, quoted earlier. The said proviso has been denounced, because, allegedly, the State's share in
FTAAs with foreign contractors has been limited to taxes, fees and duties only; in effect, the State has
been deprived of a share in the after-tax income of the enterprise. In the face of this allegation, one
has to consider that the law does not define the term among other things; and the Office of the Solicitor
General, in its Motion for Reconsideration, appears to have erroneously claimed that the phrase refers
to indirect taxes.
The law provides no definition of the term among other things, for the reason that Congress
deliberately avoided setting unnecessary limitations as to what may constitute compensation to the
State for the exploitation and use of mineral resources. But the inclusion of that phrase clearly and
unmistakably reveals the legislative intent to have the State collect more than just the usual taxes,
duties and fees. Certainly, there is nothing in that phrase -- or in the second paragraph of Section 81
-- that would suggest that such phrase should be interpreted as referring only to taxes, duties, fees
and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the phrase among other
things in the second paragraph of Section 81, the DENR structured and formulated in DAO 99-56 the
67
said additional government share. Such a share was to consist not of taxes, but of a share in the
earnings or cash flows of the mining enterprise. The additional government share was to be paid
by the contractor on top of the basic share, so as to achieve a fifty-fifty sharing -- between the
government and the contractor -- of net benefits from mining. In the Ramos-DeVera paper, the
explanation of the three options or formulas -- presented in DAO 99-56 for the computation of the
68

additional government share -- serves to debunk the claim that the government's take from an FTAA
consists solely of taxes, fees and duties.

Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data -- failed
to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the three
schemes or options for computing the additional government share presented in DAO 99-56. Had due
care been taken by the OSG, the Court would have been duly apprised of the real nature and
particulars of the additional share.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even more
abstruse mathematical jargon employed in DAO 99-56, the OSG omitted any mention of the three
options. Instead, the OSG skipped to a side discussion of the effect of indirect taxes, which had nothing
at all to do with the additional government share, to begin with. Unfortunately, this move created the
wrong impression, pointed out in Justice Antonio T. Carpio's Opinion, that the OSG had taken the
position that the additional government share consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional government share, as formulated,
has nothing to do with taxes -- direct or indirect -- or with duties, fees or charges. To repeat, it is over
and above the basic government share composed of taxes and duties. Simply put, the additional share
may be (a) an amount that will result in a 50-50 sharing of the cumulative present value of the cash
flows of the enterprise; (b) an amount equivalent to 25 percent of the additional or excess profits of
69

the enterprise, reckoned against a benchmark return on investments; or (c) an amount that will result
in a fifty-fifty sharing of the cumulative net mining revenue from the end of the recovery period up to
the taxable year in question. The contractor is required to select one of the three options or formulae
for computing the additional share, an option it will apply to all of its mining operations.
As used above, "net mining revenue" is defined as the gross output from mining operations for a
calendar year, less deductible expenses (inclusive of taxes, duties and fees). Such revenue would
roughly be equivalent to "taxable income" or income before income tax. Definitely, as compared with,
say, calculating the additional government share on the basis of net income (after income tax), the
net mining revenue is a better and much more reasonable basis for such computation, as it gives a
truer picture of the profitability of the company.

To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos and
de Vera also performed some quantifications of the government share via a financial modeling of each
of the three options discussed above. They found that the government would get the highest share
from the option that is based on the net mining revenue, as compared with the other two options,
considering only the basic and the additional shares; and that, even though production rate decreases,
the government share will actually increase when the net mining revenue and the additional profit-
based options are used.
Furthermore, it should be noted that the three options or formulae do not yet take into account the
indirect taxes and other financial contributions of mining projects. These indirect taxes and other
70 71

contributions are real and actual benefits enjoyed by the Filipino people and/or government. Now, if
some of the quantifiable items are taken into account in the computations, the financial modeling would
show that the total government share increases to 60 percent or higher -- in one instance, as much as
77 percent and even 89 percent -- of the net present value of total benefits from the project. As noted
in the Ramos-DeVera paper, these results are not at all shabby, considering that the contractor puts
in all the capital requirements and assumes all the risks, without the government having to contribute
or risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations that the
phrase among other things refers only to taxes, duties and fees. We are bewildered by his position.
On the one hand, he condemns the Mining Law for allegedly limiting the government's benefits only
to taxes, duties and fees; and on the other, he refuses to allow the State to benefit from the correct
and proper interpretation of the DENR/MGB. To remove all doubts then, we hold that the State's share
is not limited to taxes, duties and fees only and that the DENR/MGB interpretation of the phrase among
other things is correct. Definitely, this DENR/MGB interpretation is not only legally sound, but also
greatly advantageous to the government.
One last point on the subject. The legislature acted judiciously in not defining the terms among other
things and, instead, leaving it to the agencies concerned to devise and develop the various modes of
arriving at a reasonable and fair amount for the additional government share. As can be seen from
DAO 99-56, the agencies concerned did an admirable job of conceiving and developing not just one
formula, but three different formulae for arriving at the additional government share. Each of these
options is quite fair and reasonable; and, as Messrs. Ramos and De Vera stated, other alternatives or
schemes for a possible improvement of the fiscal regime for FTAAs are also being studied by the
government.
Besides, not locking into a fixed definition of the term among other things will ultimately be more
beneficial to the government, as it will have that innate flexibility to adjust to and cope with rapidly
changing circumstances, particularly those in the international markets. Such flexibility is especially
significant for the government in terms of helping our mining enterprises remain competitive in world
markets despite challenging and shifting economic scenarios.

In conclusion, we stress that we do not share the view that in FTAAs with foreign contractors
under RA 7942, the government's share is limited to taxes, fees and duties. Consequently, we
find the attacks on the second paragraph of Section 81 of RA 7942 totally unwarranted.
Collections Not Made Uncertain
by the Third Paragraph of Section 81
The third or last paragraph of Section 81 provides that the government share in FTAAs shall be
72

collected when the contractor shall have recovered its pre-operating expenses and exploration and
development expenditures. The objection has been advanced that, on account of the proviso, the
collection of the State's share is not even certain, as there is no time limit in RA 7942 for this grace
period or recovery period.
We believe that Congress did not set any time limit for the grace period, preferring to leave it to the
concerned agencies, which are, on account of their technical expertise and training, in a better position
to determine the appropriate durations for such recovery periods. After all, these recovery periods are
determined, to a great extent, by technical and technological factors peculiar to the mining industry.
Besides, with developments and advances in technology and in the geosciences, we cannot discount
the possibility of shorter recovery periods. At any rate, the concerned agencies have not been remiss
in this area. The 1995 and 1996 Implementing Rules and Regulations of RA 7942 specify that the
period of recovery, reckoned from the date of commercial operation, shall be for a period not exceeding
five years, or until the date of actual recovery, whichever comes earlier.
Approval of Pre-Operating
Expenses Required by RA 7942
Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating, exploration
and development expenses of the foreign contractors, who are in effect given unfettered discretion to
determine the amounts of such expenses. Supposedly, 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, with the result that the share of the State will be zero for the first 10
or 15 years. Moreover, under the circumstances, the government would be unable to say when it
would start to receive its share under the FTAA.

We believe that the argument is based on incorrect information as well as speculation. Obviously,
certain crucial provisions in the Mining Law were overlooked. Section 23, dealing with the rights and
obligations of the exploration permit grantee, states: "The permittee shall undertake exploration work
on the area as specified by its permit based on an approved work program." The next proviso reads:
"Any expenditure in excess of the yearly budget of the approved work program may be carried forward
and credited to the succeeding years covering the duration of the permit. x x x." (underscoring
supplied)
Clearly, even at the stage of application for an exploration permit, the applicant is required to submit -
- for approval by the government -- a proposed work program for exploration, containing a yearly
budget of proposed expenditures. The State has the opportunity to pass upon (and approve or reject)
such proposed expenditures, with the foreknowledge that -- if approved -- these will subsequently be
recorded as pre-operating expenses that the contractor will have to recoup over the grace period. That
is not all.
Under Section 24, an exploration permit holder who determines the commercial viability of a project
covering a mining area may, within the term of the permit, file with the Mines and Geosciences Bureau
a declaration of mining project feasibility. This declaration is to be accompanied by a work program
for development for the Bureau's approval, the necessary prelude for entering into an FTAA, a mineral
production sharing agreement (MPSA), or some other mineral agreement. At this stage, too, the
government obviously has the opportunity to approve or reject the proposed work program and
budgeted expenditures for development works on the project. Such expenditures will ultimately
become the pre-operating and development costs that will have to be recovered by the contractor.
Naturally, with the submission of approved work programs and budgets for the exploration and the
development/construction phases, the government will be able to scrutinize and approve or reject such
expenditures. It will be well-informed as to the amounts of pre-operating and other expenses that the
contractor may legitimately recover and the approximate period of time needed to effect such a
recovery. There is therefore no way the contractor can just randomly post any amount of pre-operating
expenses and expect to recover the same.
The aforecited provisions on approved work programs and budgets have counterparts in Section 35,
which deals with the terms and conditions exclusively applicable to FTAAs. The said provision requires
certain terms and conditions to be incorporated into FTAAs; among them, "a firm commitment x x x of
an amount corresponding to the expenditure obligation that will be invested in the contract area" and
"representations and warranties x x x to timely deploy these [financing, managerial and technical
expertise and technological] resources under its supervision pursuant to the periodic work programs
and related budgets x x x," as well as "work programs and minimum expenditures commitments."
(underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the
proposed expenditures under an FTAA and approve or reject them. It has access to all the information
it may need in order to determine in advance the amounts of pre-operating and developmental
expenses that will have to be recovered by the contractor and the amount of time needed for such
recovery.

In summary, we cannot agree that the third or last paragraph of Section 81 of RA 7942 is in any
manner unconstitutional.
No Deprivation of Beneficial Rights

It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed above),
Sections 80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights of ownership
over mineral resources; and give them away for free to private business enterprises (including foreign
owned corporations). Likewise, the said provisions have been construed as constituting, together with
Section 81, an ingenious attempt to resurrect the old and discredited system of "license, concession
or lease."
Specifically, Section 80 is condemned for limiting the State's share in a mineral production-sharing
agreement (MPSA) to just the excise tax on the mineral product. Under Section 151(A) of the Tax
Code, such tax is only 2 percent of the market value of the gross output of the minerals. The colatilla
in Section 84, the portion considered offensive to the Constitution, reiterates the same limitation made
in Section 80.73

It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and have
no application to FTAAs. These particular statutory provisions do not come within the issues that were
defined and delineated by this Court during the Oral Argument -- particularly the third issue, which
pertained exclusively to FTAAs. Neither did the parties argue upon them in their pleadings. Hence,
this Court cannot make any pronouncement in this case regarding the constitutionality of Sections 80
and 84 without violating the fundamental rules of due process. Indeed, the two provisos will have to
await another case specifically placing them in issue.
On the other hand, Section 112 is disparaged for allegedly reverting FTAAs and all mineral
74

agreements to the old and discredited "license, concession or lease" system. This Section states in
relevant part that "the provisions of Chapter XIV [which includes Sections 80 to 82] on government
share in mineral production-sharing agreement x x x shall immediately govern and apply to a mining
lessee or contractor." (underscoring supplied) This provision is construed as signifying that the 2
percent excise tax which, pursuant to Section 80, comprises the government share in MPSAs shall
now also constitute the government share in FTAAs -- as well as in co-production agreements and
joint venture agreements -- to the exclusion of revenues of any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by this Court
during the Oral Argument, and was never touched upon by the parties in their pleadings, it must also
be noted that the criticism hurled against this Section is rooted in unwarranted conclusions made
without considering other relevant provisions in the statute. Whether Section 112 may properly apply
to co-production or joint venture agreements, the fact of the matter is that it cannot be made to apply
to FTAAs.

First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being applied
to them at all is the fact that it happens to use the word "contractor." Hence, it is a bit of a stretch to
insist that it covers FTAAs as well. Second, mineral agreements, of which there are three types --
MPSAs, co-production agreements, and joint venture agreements -- are covered by Chapter V of RA
7942. On the other hand, FTAAs are covered by and in fact are the subject of Chapter VI, an entirely
different chapter altogether. The law obviously intends to treat them as a breed apart from mineral
agreements, since Section 35 (found in Chapter VI) creates a long list of specific terms, conditions,
commitments, representations and warranties -- which have not been made applicable to mineral
agreements -- to be incorporated into FTAAs.

Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the FTAA
into a mineral agreement at any time during the term if the economic viability of the contract area is
inadequate to sustain large-scale mining operations. Thus, there is no reason to think that the law
through Section 112 intends to exact from FTAA contractors merely the same government share (a 2
percent excise tax) that it apparently demands from contractors under the three forms of mineral
agreements. In brief, Section 112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court must
rule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP FTAA
contains a provision which grants the contractor unbridled and "automatic" authority to convert the
FTAA into an MPSA; and should such conversion happen, the State would be prejudiced since its
share would be limited to the 2 percent excise tax. Justice Carpio adds that there are five MPSAs
already signed just awaiting the judgment of this Court on respondents' and intervenor's Motions for
Reconsideration. We hold however that, at this point, this argument is based on pure speculation. The
Court cannot rule on mere surmises and hypothetical assumptions, without firm factual anchor. We
repeat: basic due process requires that we hear the parties who have a real legal interest in the MPSAs
(i.e. the parties who executed them) before these MPSAs can be reviewed, or worse, struck down by
the Court. Anything less than that requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is problematic. First, the contractor
must comply with the law, particularly Section 39 of RA 7942; inter alia, it must convincingly show that
the "economic viability of the contract is found to be inadequate to justify large-scale mining
operations;" second, it must contend with the President's exercise of the power of State control over
the EDU of natural resources; and third, it will have to risk a possible declaration of the
unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation in which an
FTAA has already been executed and entered into, and is presumably being implemented, when the
contractor "discovers" that the mineral ore reserves in the contract area are not sufficient to justify
large-scale mining, and thus the contractor requests the conversion of the FTAA into an MPSA. The
contractor in effect needs to explain why, despite its exploration activities, including the conduct of
various geologic and other scientific tests and procedures in the contract area, it was unable to
determine correctly the mineral ore reserves and the economic viability of the area. The contractor
must explain why, after conducting such exploration activities, it decided to file a declaration of mining
feasibility, and to apply for an FTAA, thereby leading the State to believe that the area could sustain
large-scale mining. The contractor must justify fully why its earlier findings, based on scientific
procedures, tests and data, turned out to be wrong, or were way off. It must likewise prove that its new
findings, also based on scientific tests and procedures, are correct. Right away, this puts the
contractor's technical capabilities and expertise into serious doubt. We wonder if anyone would relish
being in this situation. The State could even question and challenge the contractor's qualification and
competence to continue the activity under an MPSA.
All in all, while there may be cogent grounds to assail the aforecited Sections, this Court -- on
considerations of due process -- cannot rule upon them here. Anyway, if later on these
Sections are declared unconstitutional, such declaration will not affect the other portions since
they are clearly separable from the rest.
Our Mineral Resources Not
Given Away for Free by RA 7942

Nevertheless, if only to disabuse our minds, we should address the contention that our mineral
resources are effectively given away for free by the law (RA 7942) in general and by Sections 80, 81,
84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking away mineral
resources without paying anything. In order to get at the minerals, they have to invest huge sums of
money (tens or hundreds of millions of dollars) in exploration works first. If the exploration proves
unsuccessful, all the cash spent thereon will not be returned to the foreign investors; rather, those
funds will have been infused into the local economy, to remain there permanently. The benefits
therefrom cannot be simply ignored. And assuming that the foreign contractors are successful in
finding ore bodies that are viable for commercial exploitation, they do not just pluck out the minerals
and cart them off. They have first to build camp sites and roadways; dig mine shafts and connecting
tunnels; prepare tailing ponds, storage areas and vehicle depots; install their machinery and
equipment, generator sets, pumps, water tanks and sewer systems, and so on.

In short, they need to expend a great deal more of their funds for facilities, equipment and supplies,
fuel, salaries of local labor and technical staff, and other operating expenses. In the meantime, they
also have to pay taxes, duties, fees, and royalties. All told, the exploration, pre-feasibility, feasibility,
75

development and construction phases together add up to as many as eleven years. The contractors
76

have to continually shell out funds for the duration of over a decade, before they can commence
commercial production from which they would eventually derive revenues. All that money translates
into a lot of "pump-priming" for the local economy.
Granted that the contractors are allowed subsequently to recover their pre-operating expenses, still,
that eventuality will happen only after they shall have first put out the cash and fueled the economy.
Moreover, in the process of recouping their investments and costs, the foreign contractors do not
actually pull out the money from the economy. Rather, they recover or recoup their investments out of
actual commercial production by not paying a portion of the basic government share corresponding to
national taxes, along with the additional government share, for a period of not more than five years 77

counted from the commencement of commercial production.

It must be noted that there can be no recovery without commencing actual commercial production. In
the meantime that the contractors are recouping costs, they need to continue operating; in order to do
so, they have to disburse money to meet their various needs. In short, money is continually infused
into the economy.
The foregoing discussion should serve to rid us of the mistaken belief that, since the foreign
contractors are allowed to recover their investments and costs, the end result is that they practically
get the minerals for free, which leaves the Filipino people none the better for it.
All Businesses Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all businessmen and all business entities
in general, have to recoup their investments and costs. That is one of the first things a student learns
in business school. Regardless of its nationality, and whether or not a business entity has a five-year
cost recovery period, it will -- must -- have to recoup its investments, one way or another. This is just
common business sense. Recovery of investments is absolutely indispensable for business survival;
and business survival ensures soundness of the economy, which is critical and contributory to the
general welfare of the people. Even government corporations must recoup their investments in order
to survive and continue in operation. And, as the preceding discussion has shown, there is no business
that gets ahead or earns profits without any cost to it.

It must also be stressed that, though the State owns vast mineral wealth, such wealth is not readily
accessible or transformable into usable and negotiable currency without the intervention of the credible
mining companies. Those untapped mineral resources, hidden beneath tons of earth and rock, may
as well not be there for all the good they do us right now. They have first to be extracted and converted
into marketable form, and the country needs the foreign contractor's funds, technology and know-how
for that.
After about eleven years of pre-operation and another five years for cost recovery, the foreign
contractors will have just broken even. Is it likely that they would at that point stop their operations and
leave? Certainly not. They have yet to make profits. Thus, for the remainder of the contract term, they
must strive to maintain profitability. During this period, they pay the whole of the basic government
share and the additional government share which, taken together with indirect taxes and other
contributions, amount to approximately 60 percent or more of the entire financial benefits generated
by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral resources for free. It takes a
lot of hard cash to even begin to do what they do. And what they do in this country ultimately benefits
the local economy, grows businesses, generates employment, and creates infrastructure, as
discussed above. Hence, we definitely disagree with the sweeping claim that no FTAA under Section
81 will ever make any real contribution to the growth of the economy or to the general welfare of the
country. This is not a plea for foreign contractors. Rather, this is a question of focusing the judicial
spotlight squarely on all the pertinent facts as they bear upon the issue at hand, in order to avoid
leaping precipitately to ill-conceived conclusions not solidly grounded upon fact.
Repatriation of After-Tax Income
Another objection points to the alleged failure of the Mining Law to ensure real contributions to the
economic growth and general welfare of the country, as mandated by Section 2 of Article XII of the
Constitution. Pursuant to Section 81 of the law, the entire after-tax income arising from the exploitation
of mineral resources owned by the State supposedly belongs to the foreign contractors, which will
naturally repatriate the said after-tax income to their home countries, thereby resulting in no real
contribution to the economic growth of this country. Clearly, this contention is premised on erroneous
assumptions.
First, as already discussed in detail hereinabove, the concerned agencies have correctly interpreted
the second paragraph of Section 81 of RA 7942 to mean that the government is entitled to an additional
share, to be computed based on any one of the following factors: net mining revenues, the present
value of the cash flows, or excess profits reckoned against a benchmark rate of return on investments.
So it is not correct to say that all of the after-tax income will accrue to the foreign FTAA contractor, as
the government effectively receives a significant portion thereof.
Second, the foreign contractors can hardly "repatriate the entire after-tax income to their home
countries." Even a bit of knowledge of corporate finance will show that it will be impossible to maintain
a business as a "going concern" if the entire "net profit" earned in any particular year will be taken out
and repatriated. The "net income" figure reflected in the bottom line is a mere accounting figure not
necessarily corresponding to cash in the bank, or other quick assets. In order to produce and set aside
cash in an amount equivalent to the bottom line figure, one may need to sell off assets or immediately
collect receivables or liquidate short-term investments; but doing so may very likely disrupt normal
business operations.
In terms of cash flows, the funds corresponding to the net income as of a particular point in time are
actually in use in the normal course of business operations. Pulling out such net income disrupts the
cash flows and cash position of the enterprise and, depending on the amount being taken out, could
seriously cripple or endanger the normal operations and financial health of the business enterprise. In
short, no sane business person, concerned with maintaining the mining enterprise as a going
concern and keeping a foothold in its market, can afford to repatriate the entire after-tax income
to the home country.
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, the State
must receive at least 60 percent of the after-tax income from the exploitation of its mineral resources.
This share is the equivalent of the constitutional requirement that at least 60 percent of the capital,
and hence 60 percent of the income, of mining companies should remain in Filipino hands.

First, 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. The
argument is that the Charter requires the State's partner in a co-production agreement, joint venture
agreement or MPSA to be a Filipino corporation (at least 60 percent owned by Filipino citizens).

We question the logic of this reasoning, premised on a supposedly parallel or analogous situation. We
are, after all, dealing with an essentially different equation, one that involves different elements. The
Charter did not intend to fix an iron-clad rule on the 60 percent share, applicable to all situations
at all times and in all circumstances. If ever such was the intention of the framers, they would have
spelt it out in black and white. Verba legis will serve to dispel unwarranted and untenable conclusions.
Second, if we would bother to do the math, we might better appreciate the impact (and
reasonableness) of what we are demanding of the foreign contractor. Let us use a simplified
illustration. Let us base it on gross revenues of, say, P500. After deducting operating expenses, but
prior to income tax, suppose a mining firm makes a taxable income of P100. A corporate income tax
of 32 percent results in P32 of taxable income going to the government, leaving the mining firm with
P68. Government then takes 60 percent thereof, equivalent to P40.80, leaving only P27.20 for the
mining firm.
At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for every P100 of
taxable income, leaving the mining firm with only P27.20. But that is not all. The government has also
taken 2 percent excise tax "off the top," equivalent to another P10. Under the minimum 60 percent
proposal, the government nets around P82.80 (not counting other taxes, duties, fees and charges)
from a taxable income of P100 (assuming gross revenues of P500, for purposes of illustration). On
the other hand, the foreign contractor, which provided all the capital, equipment and labor, and took
all the entrepreneurial risks -- receives P27.20. One cannot but wonder whether such a distribution is
even remotely equitable and reasonable, considering the nature of the mining business. The amount
of P82.80 out of P100.00 is really a lot – it does not matter that we call part of it excise tax or income
tax, and another portion thereof income from exploitation of mineral resources. Some might think it
wonderful to be able to take the lion's share of the benefits. But we have to ask ourselves if we are
really serious in attracting the investments that are the indispensable and key element in generating
the monetary benefits of which we wish to take the lion's share. Fairness is a credo not only in law,
but also in business.
Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the mining
business. The reason happens to be the fact that in petroleum operations, the bulk of expenditures is
in exploration, but once the contractor has found and tapped into the deposit, subsequent investments
and expenditures are relatively minimal. The crude (or gas) keeps gushing out, and the work entailed
is just a matter of piping, transporting and storing. Not so in mineral mining. The ore body does not
pop out on its own. Even after it has been located, the contractor must continually invest in machineries
and expend funds to dig and build tunnels in order to access and extract the minerals from underneath
hundreds of tons of earth and rock.
As already stated, the numerous intrinsic differences involved in their respective operations and
requirements, cost structures and investment needs render it highly inappropriate to use petroleum
operations FTAAs as benchmarks for mining FTAAs. Verily, we cannot just ignore the realities of the
distinctly different situations and stubbornly insist on the "minimum 60 percent."
The Mining and the Oil Industries
Different From Each Other
To stress, there is no independent showing that the taking of at least a 60 percent share in the after-
tax income of a mining company operated by a foreign contractor is fair and reasonable under most if
not all circumstances. The fact that some petroleum companies like Shell acceded to such percentage
of sharing does not ipso facto mean that it is per se reasonable and applicable to non-petroleum
situations (that is, mining companies) as well. We can take judicial notice of the fact that there are,
after all, numerous intrinsic differences involved in their respective operations and equipment or
technological requirements, costs structures and capital investment needs, and product pricing and
markets.
There is no showing, for instance, that mining companies can readily cope with a 60 percent
government share in the same way petroleum companies apparently can. What we have is a
suggestion to enforce the 60 percent quota on the basis of a disjointed analogy. The only factor
common to the two disparate situations is the extraction of natural resources.
Indeed, we should take note of the fact that Congress made a distinction between mining firms and
petroleum companies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates on Metallic
and Non-Metallic Minerals and Quarry Resources, Amending for the Purpose Section 151(a) of the
National Internal Revenue Code, as amended" -- the lawmakers fixed the excise tax rate on metallic
and non-metallic minerals at two percent of the actual market value of the annual gross output at the
time of removal. However, in the case of petroleum, the lawmakers set the excise tax rate for the first
taxable sale at fifteen percent of the fair international market price thereof.
There must have been a very sound reason that impelled Congress to impose two very dissimilar
excise tax rate. We cannot assume, without proof, that our honorable legislators acted arbitrarily,
capriciously and whimsically in this instance. We cannot just ignore the reality of two distinctly different
situations and stubbornly insist on going "minimum 60 percent."
To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the net
revenues does not necessarily imply that mining contracts should likewise yield a minimum of 60
percent for the State. Jumping to that erroneous conclusion is like comparing apples with oranges.
The exploration, development and utilization of gas and oil are simply different from those of mineral
resources.
To stress again, the main risk in gas and oil is in the exploration. But once oil in commercial quantities
is struck and the wells are put in place, the risk is relatively over and black gold simply flows out
continuously with comparatively less need for fresh investments and technology.
On the other hand, even if minerals are found in viable quantities, there is still need for continuous
fresh capital and expertise to dig the mineral ores from the mines. Just because deposits of mineral
ores are found in one area is no guarantee that an equal amount can be found in the adjacent areas.
There are simply continuing risks and need for more capital, expertise and industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues -- are much more in the
mineral industry. As mines are explored and extracted, vast employment is created, roads and other
infrastructure are built, and other multiplier effects arise. On the other hand, once oil wells start
producing, there is less need for employment. Roads and other public works need not be constructed
continuously. In fine, there is no basis for saying that government revenues from the oil industry and
from the mineral industries are to be identical all the time.

Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility and tie
the hands of government, ultimately hampering the country's competitiveness in the international
market, to the detriment of the Filipino people. This "you-have-to-give-us-60-percent-of-after-tax-
income-or-we-don't-do- business-with-you" approach is quite perilous. True, this situation may not
seem too unpalatable to the foreign contractor during good years, when international market prices
are up and the mining firm manages to keep its costs in check. However, under unfavorable economic
and business conditions, with costs spiraling skywards and minerals prices plummeting, a mining firm
may consider itself lucky to make just minimal profits.
The inflexible, carved-in-granite demand for a 60 percent government share may spell the end of the
mining venture, scare away potential investors, and thereby further worsen the already dismal
economic scenario. Moreover, such an unbending or unyielding policy prevents the government from
responding appropriately to changing economic conditions and shifting market forces. This inflexibility
further renders our country less attractive as an investment option compared with other countries.
And fifth, for this Court to decree imperiously that the government's share should be not less than 60
percent of the after-tax income of FTAA contractors at all times is nothing short of dictating upon the
government. The result, ironically, is that the State ends up losing control. To avoid compromising the
State's full control and supervision over the exploitation of mineral resources, this Court must back off
from insisting upon a "minimum 60 percent" rule. It is sufficient that the State has the power and
means, should it so decide, to get a 60 percent share (or more) in the contractor's net mining revenues
or after-tax income, or whatever other basis the government may decide to use in reckoning its share.
It is not necessary for it to do so in every case, regardless of circumstances.
In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility to deal,
negotiate and transact with contractors and third parties as it sees fit; and upon terms that it ascertains
to be most favorable or most acceptable under the circumstances, even if it means agreeing to less
than 60 percent. Nothing must prevent the State from agreeing to a share less than that, should it be
deemed fit; otherwise the State will be deprived of full control over mineral exploitation that the Charter
has vested in it.
To stress again, there is simply no constitutional or legal provision fixing the minimum share of the
government in an FTAA at 60 percent of the net profit. For this Court to decree such minimum is to
wade into judicial legislation, and thereby inordinately impinge on the control power of the State. Let it
be clear: the Court is not against the grant of more benefits to the State; in fact, the more the better. If
during the FTAA negotiations, the President can secure 60 percent, or even 90 percent, then all the
78
better for our people. But, if under the peculiar circumstances of a specific contract, the President
could secure only 50 percent or 55 percent, so be it. Needless to say, the President will have to report
(and be responsible for) the specific FTAA to Congress, and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly disadvantageous to the
government, the officials responsible for entering into such a contract on its behalf will have to answer
to the courts for their malfeasance. And the contract provision voided. But this Court would abuse its
own authority should it force the government's hand to adopt the 60 percent demand of some of our
esteemed colleagues.
Capital and Expertise Provided,
Yet All Risks Assumed by Contractor
Here, we will repeat what has not been emphasized and appreciated enough: the fact that the
contractor in an FTAA provides all the needed capital, technical and managerial expertise, and
technology required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the very
outset, to make capital investments of up to US$50 million in that single mining project. WMCP claims
to have already poured in well over P800 million into the country as of February 1998, with more in
the pipeline. These resources, valued in the tens or hundreds of millions of dollars, are invested in a
mining project that provides no assurance whatsoever that any part of the investment will be ultimately
recouped.
At the same time, the contractor must comply with legally imposed environmental standards and the
social obligations, for which it also commits to make significant expenditures of funds. Throughout, the
contractor assumes all the risks of the business, as mentioned earlier. These risks are indeed very
79

high, considering that the rate of success in exploration is extremely low. The probability of finding any
mineral or petroleum in commercially viable quantities is estimated to be about 1:1,000 only. On that
slim chance rides the contractor's hope of recouping investments and generating profits. And when
the contractor has recouped its initial investments in the project, the government share increases to
sixty percent of net benefits -- without the State ever being in peril of incurring costs, expenses and
losses.
And even in the worst possible scenario -- an absence of commercial quantities of minerals to justify
development -- the contractor would already have spent several million pesos for exploration works,
before arriving at the point in which it can make that determination and decide to cut its losses. In fact,
during the first year alone of the exploration period, the contractor was already committed to spend
not less than P24 million. The FTAA therefore clearly ensures benefits for the local economy, courtesy
of the contractor.
All in all, this setup cannot be regarded as disadvantageous to the State or the Filipino people;
it certainly cannot be said to convey beneficial ownership of our mineral resources to foreign
contractors.
Deductions Allowed by the
WMCP FTAA Reasonable

Petitioners question whether the State's weak control might render the sharing arrangements
ineffective. They cite the so-called "suspicious" deductions allowed by the WMCP FTAA in arriving at
the net mining revenue, which is the basis for computing the government share. The WMCP FTAA,
for instance, allows expenditures for "development within and outside the Contract Area relating to the
Mining Operations," "consulting fees incurred both inside and outside the Philippines for work related
80
directly to the Mining Operations," and "the establishment and administration of field offices including
81

administrative overheads incurred within and outside the Philippines which are properly allocatable to
the Mining Operations and reasonably related to the performance of the Contractor's obligations and
exercise of its rights under this Agreement." 82

It is quite well known, however, that mining companies do perform some marketing activities abroad
in respect of selling their mineral products and by-products. Hence, it would not be improper to allow
the deduction of reasonable consulting fees incurred abroad, as well as administrative expenses and
overheads related to marketing offices also located abroad -- provided that these deductions are
directly related or properly allocatable to the mining operations and reasonably related to the
performance of the contractor's obligations and exercise of its rights. In any event, more facts are
needed. Until we see how these provisions actually operate, mere "suspicions" will not suffice to propel
this Court into taking action.
Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with
Section 7.9 of the WMCP FTAA. While Section 7.7 gives the government a 60 percent share in the
net mining revenues of WMCP from the commencement of commercial production, Section 7.9
deprives the government of part or all of the said 60 percent. Under the latter provision, should
WMCP's foreign shareholders -- who originally owned 100 percent of the equity -- sell 60 percent or
more of its outstanding capital stock to a Filipino citizen or corporation, the State loses its right to
receive its 60 percent share in net mining revenues under Section 7.7.
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be
reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in the Contractor
(i.e., WMCP) held by a Qualified Entity.83

Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section 7.9 without
any offsetting compensation to the State. Thus, in reality, the State has no vested right to receive any
income from the FTAA for the exploitation of its mineral resources. Worse, it would seem that what is
given to the State in Section 7.7 is by mere tolerance of WMCP's foreign stockholders, who can at any
time cut off the government's entire 60 percent share. They can do so by simply selling 60 percent of
WMCP's outstanding capital stock to a Philippine citizen or corporation. Moreover, the proceeds of
such sale will of course accrue to the foreign stockholders of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-owned
and 40 percent foreign-owned will still trigger the operation of Section 7.9. Effectively, the State will
lose its right to receive all 60 percent of the net mining revenues of WMCP; and foreign stockholders
will own beneficially up to 64 percent of WMCP, consisting of the remaining 40 percent foreign equity
therein, plus the 24 percent pro-rata share in the buyer-corporation. 84

In fact, the January 23, 2001 sale by WMCP's foreign stockholder of the entire outstanding equity in
WMCP to Sagittarius Mines, Inc. -- a domestic corporation at least 60 percent Filipino owned -- may
be deemed to have automatically triggered the operation of Section 7.9, without need of further action
by any party, and removed the State's right to receive the 60 percent share in net mining revenues.
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining
revenues of WMCP without any offset or compensation whatsoever. It is possible that the inclusion of
the offending provision was initially prompted by the desire to provide some form of incentive for the
principal foreign stockholder in WMCP to eventually reduce its equity position and ultimately divest in
favor of Filipino citizens and corporations. However, as finally structured, Section 7.9 has the
deleterious effect of depriving government of the entire 60 percent share in WMCP's net mining
revenues, without any form of compensation whatsoever. Such an outcome is completely
unacceptable.

The whole point of developing the nation's natural resources is to benefit the Filipino people, future
generations included. And the State as sovereign and custodian of the nation's natural wealth is
mandated to protect, conserve, preserve and develop that part of the national patrimony for their
benefit. Hence, the Charter lays great emphasis on "real contributions to the economic growth and
general welfare of the country" as essential guiding principles to be kept in mind when negotiating the
85

terms and conditions of FTAAs.

Earlier, we held (1) that the State must be accorded the liberty and the utmost flexibility to deal,
negotiate and transact with contractors and third parties as it sees fit, and upon terms that it ascertains
to be most favorable or most acceptable under the circumstances, even if that should mean agreeing
to less than 60 percent; (2) that it is not necessary for the State to extract a 60 percent share in every
case and regardless of circumstances; and (3) that should the State be prevented from agreeing to a
share less than 60 percent as it deems fit, it will be deprived of the full control over mineral exploitation
that the Charter has vested in it.
That full control is obviously not an end in itself; it exists and subsists precisely because of the need
to serve and protect the national interest. In this instance, national interest finds particular application
in the protection of the national patrimony and the development and exploitation of the country's
mineral resources for the benefit of the Filipino people and the enhancement of economic growth and
the general welfare of the country. Undoubtedly, such full control can be misused and abused,
as we now witness.

Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues
(provided for in Section 7.7) without anything in exchange. Moreover, this outcome constitutes unjust
enrichment on the part of the local and foreign stockholders of WMCP. By their mere divestment of up
to 60 percent equity in WMCP in favor of Filipino citizens and/or corporations, the local and foreign
stockholders get a windfall. Their share in the net mining revenues of WMCP is automatically
increased, without their having to pay the government anything for it. In short, the provision in question
is without a doubt grossly disadvantageous to the government, detrimental to the interests of the
Filipino people, and violative of public policy.
Moreover, it has been reiterated in numerous decisions that the parties to a contract may establish
86

any agreements, terms and conditions that they deem convenient; but these should not be contrary to
law, morals, good customs, public order or public policy. Being precisely violative of anti-graft
87

provisions and contrary to public policy, Section 7.9 must therefore be stricken off as invalid.
Whether the government officials concerned acceded to that provision by sheer mistake or with full
awareness of the ill consequences, is of no moment. It is hornbook doctrine that the principle of
estoppel does not operate against the government for the act of its agents, and that it is never
88

estopped by any mistake or error on their part. It is therefore possible and proper to rectify the situation
89

at this time. Moreover, we may also say that the FTAA in question does not involve mere contractual
rights; 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 Section 7.7 and the rest of the FTAA, the
90

deletion of Section 7.9 can be done without affecting or requiring the invalidation of the WMCP FTAA
itself. Such a deletion will preserve for the government its due share of the benefits. This way, the
mandates of the Constitution are complied with and the interests of the government fully protected,
while the business operations of the contractor are not needlessly disrupted.
Section 7.8(e) of the WMCP FTAA
Also Invalid and Disadvantageous
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
"7.8 The Government Share shall be deemed to include all of the following sums:

"(a) all Government taxes, fees, levies, costs, imposts, duties and royalties including excise
tax, corporate income tax, customs duty, sales tax, value added tax, occupation and regulatory
fees, Government controlled price stabilization schemes, any other form of Government
backed schemes, 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, including loans extended to the
Contractor by its stockholders;
"(b) any payments to local and regional government, including taxes, fees, levies, costs, imposts,
duties, royalties, occupation and regulatory fees and infrastructure contributions;
"(c) any payments to landowners, surface rights holders, occupiers, indigenous people or
Claimowners;
"(d) costs and expenses of fulfilling the Contractor's obligations to contribute to national development
in accordance with Clause 10.1(i) (1) and 10.1(i) (2);
"(e) 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;
"(f) all of the foregoing items which have not previously been offset against the Government Share in
an earlier Fiscal Year, adjusted for inflation." (underscoring supplied)

Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money spent by the
government for the benefit of the contractor in building roads leading to the mine site should still be
deductible from the State's share in net mining revenues. Allowing this deduction results in benefiting
the contractor twice over. It constitutes unjust enrichment on the part of the contractor at the expense
of the government, since the latter is effectively being made to pay twice for the same item. For being
91

grossly disadvantageous and prejudicial to the government and contrary to public policy, Section
7.8(e) is undoubtedly invalid and must be declared to be without effect. Fortunately, this provision can
also easily be stricken off without affecting the rest of the FTAA.
Nothing Left Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are numerous
items of deduction from the State's 60 percent share. After taking these into account, will the State
ever receive anything for its ownership of the mineral resources?
We are confident that under normal circumstances, the answer will be yes. If we examine the various
items of "deduction" listed in Section 7.8 of the WMCP FTAA, we will find that they correspond closely
to the components or elements of the basic government share established in DAO 99-56, as
discussed in the earlier part of this Opinion.
Likewise, the balance of the government's 60 percent share -- after netting out the items of deduction
listed in Section 7.8 --corresponds closely to the additional government share provided for in DAO
99-56 which, we once again stress, has nothing at all to do with indirect taxes. The Ramos-DeVera
paper concisely presents the fiscal contribution of an FTAA under DAO 99-56 in this equation:
92

Receipts from an FTAA = basic gov't share + add'l gov't share

Transposed into a similar equation, 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. 7.8 of the
FTAA + balance of Gov't share, 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, with the "balance of government share payable 4 months from end of fiscal year"
being the equivalent of the additional government share computed in accordance with the "net-
mining-revenue-based option" under DAO 99-56, as discussed above. As we have emphasized
earlier, we find each of the three options for computing the additional government share -- as
presented in DAO 99-56 -- to be sound and reasonable.
We therefore conclude that there is nothing inherently wrong in the fiscal regime of the WMCP
FTAA, and certainly nothing to warrant the invalidation of the FTAA in its entirety.
Section 3.3 of the WMCP
FTAA Constitutional

Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on the
term of FTAAs. The provision in question reads:

"3.3 This Agreement shall be renewed by the Government for a further period of twenty-five (25) years
under the same terms and conditions provided that the Contractor lodges a request for renewal with
the Government not less than sixty (60) days prior to the expiry of the initial term of this Agreement
and provided that the Contractor is not in breach of any of the requirements of this Agreement."

Allegedly, the above provision runs afoul of Section 2 of Article XII of the 1987 Constitution, which
states:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino citizens or
corporations or associations at least sixty per centum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may be provided by law. In
cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes,
bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving either technical
or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum,
and other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such agreements, the
State shall promote the development and use of local scientific and technical resources.
"The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution."
93

We hold that the term limitation of twenty-five years does not apply to FTAAs. The reason is that the
above provision is found within paragraph 1 of Section 2 of Article XII, which refers to mineral
agreements -- co-production agreements, joint venture agreements and mineral production-sharing
agreements -- which the government may enter into with Filipino citizens and corporations, at least 60
percent owned by Filipino citizens. The word "such" clearly refers to these three mineral agreements
-- CPAs, JVAs and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the Constitution.
It will be noted that there are no term limitations provided for in the said paragraphs dealing with
FTAAs. This shows that FTAAs are sui generis, in a class of their own. This omission was obviously
a deliberate move on the part of the framers. They probably realized that FTAAs would be different in
many ways from MPSAs, JVAs and CPAs. The reason the framers did not fix term limitations
applicable to FTAAs is that they preferred to leave the matter to the discretion of the legislature and/or
the agencies involved in implementing the laws pertaining to FTAAs, in order to give the latter enough
flexibility and elbow room to meet changing circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to eleven years.
Thereafter, a few more years would be gobbled up in start-up operations. It may take fifteen years
before an FTAA contractor can start earning profits. And thus, the period of 25 years may really be
short for an FTAA. Consider too that in this kind of agreement, the contractor assumes all
entrepreneurial risks. If no commercial quantities of minerals are found, the contractor bears all
financial losses. To compensate for this long gestation period and extra business risks, it would not
be totally unreasonable to allow it to continue EDU activities for another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to compel
the government to renew the WMCP FTAA for another 25 years and deprives the State of any say on
whether to renew the contract.
While we agree that Section 3.3 could have been worded so as to prevent it from favoring the
contractor, this provision does not violate any constitutional limits, since the said term limitation does
not apply at all to FTAAs. Neither can the provision be deemed in any manner to be illegal, as no law
is being violated thereby. It is certainly not illegal for the government to waive its option to refuse the
renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have said "No" to the stipulation,
but it did not. It appears that, in the process of negotiations, the other contracting party was able to
convince the government to agree to the renewal terms. Under the circumstances, it does not seem
proper for this Court to intervene and step in to undo what might have perhaps been a possible
miscalculation on the part of the State. If government believes that it is or will be aggrieved by the
effects of Section 3.3, the remedy is the renegotiation of the provision in order to provide the State the
option to not renew the FTAA.
Financial Benefits for Foreigners
Not Forbidden by the Constitution

Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief that
the Constitution somehow forbids foreign-owned corporations from deriving financial benefits from the
development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying "beneficial
interest" in the development of Philippine natural resources. The State itself need not directly
undertake exploration, development, and utilization activities. Alternatively, the Constitution authorizes
the government to enter into joint venture agreements (JVAs), co-production agreements (CPAs) and
mineral production sharing agreements (MPSAs) with contractors who are Filipino citizens or
corporations that are at least 60 percent Filipino-owned. They may do the actual "dirty work" -- the
mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or corporate non-
Filipino stakeholders obviously participate in the beneficial interest derived from the development and
utilization of our natural resources. They may receive by way of dividends, up to 40 percent of the
contractor's earnings from the mining project. Likewise, they may have a say in the decisions of the
board of directors, since they are entitled to representation therein to the extent of their equity
participation, which the Constitution permits to be up to 40 percent of the contractor's equity. Hence,
the non-Filipino stakeholders may in that manner also participate in the management of the
contractor's natural resource development work. All of this is permitted by our Constitution, for any
natural resource, and without limitation even in regard to the magnitude of the mining project or
operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or constitutionally objectionable about the
idea of foreign individuals and entities having or enjoying "beneficial interest" in -- and participating in
the management of operations relative to -- the exploration, development and utilization of our natural
resources.
FTAA More Advantageous
Than Other Schemes
Like CPA, JVA and MPSA

A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous
proposition for the government as compared with other agreements permitted by the Constitution. In
a CPA that the government enters into with one or more contractors, the government shall provide
inputs to the mining operations other than the mineral resource itself. 94

In a JVA, a JV company is organized by the government and the contractor, with both parties having
equity shares (investments); and the contractor is granted the exclusive right to conduct mining
operations and to extract minerals found in the area. On the other hand, in an MPSA, the government
95

grants the contractor the exclusive right to conduct mining operations within the contract area and
shares in the gross output; and the contractor provides the necessary financing, technology,
management and manpower.
The point being made here is that, in two of the three types of agreements under consideration, the
government has to ante up some risk capital for the enterprise. In other words, government funds
(public moneys) are withdrawn from other possible uses, put to work in the venture and placed at risk
in case the venture fails. This notwithstanding, management and control of the operations of the
enterprise are -- in all three arrangements -- in the hands of the contractor, with the government being
mainly a silent partner. The three types of agreement mentioned above apply to any natural resource,
without limitation and regardless of the size or magnitude of the project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article XII, the
FTAA is limited to large-scale projects and only for minerals, petroleum and other mineral oils. Here,
the Constitution removes the 40 percent cap on foreign ownership and allows the foreign corporation
to own up to 100 percent of the equity. Filipino capital may not be sufficient on account of the size of
the project, so the foreign entity may have to ante up all the risk capital.

Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails. In
respect of the particular FTAA granted to it, WMCP (then 100 percent foreign owned) was responsible,
as contractor, for providing the entire equity, including all the inputs for the project. It was to bear 100
percent of the risk of loss if the project failed, but its maximum potential "beneficial interest" consisted
only of 40 percent of the net beneficial interest, because the other 60 percent is the share of the
government, which will never be exposed to any risk of loss whatsoever.

In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day
management of the mining operations. Still such management is subject to the overall control and
supervision of the State in terms of regular reporting, approvals of work programs and budgets, and
so on.

So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to, and
benefits derived or to be derived from a CPA, a JVA or an MPSA vis-à-vis those pertaining to an FTAA.
It may not be realistically asserted that the foreign grantee of an FTAA is being unduly favored or
benefited as compared with a foreign stakeholder in a corporation holding a CPA, a JVA or an MPSA.
Seen the other way around, the government is definitely better off with an FTAA than a CPA, a JVA
or an MPSA.
Developmental Policy on the Mining Industry
During the Oral Argument and in their Final Memorandum, petitioners repeatedly urged the Court to
consider whether mining as an industry and economic activity deserved to be accorded priority,
preference and government support as against, say, agriculture and other activities in which Filipinos
and the Philippines may have an "economic advantage." For instance, a recent US study reportedly
96

examined the economic performance of all local US counties that were dependent on mining and 20
percent of whose labor earnings between 1970 and 2000 came from mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita
income grew about 30 percent less in mining-dependent communities in the 1980s and 25 percent
less for the entire period 1980 to 2000; the level of per capita income was also lower. Therefore, given
the slower rate of growth, the gap between these and other local counties increased.
Petitioners invite attention to the OXFAM America Report's warning to developing nations that mining
brings with it serious economic problems, including increased regional inequality, unemployment and
poverty. They also cite the final report of the Extractive Industries Review project commissioned by
97

the World Bank (the WB-EIR Report), which warns of environmental degradation, social disruption,
conflict, and uneven sharing of benefits with local communities that bear the negative social and
environmental impact. The Report suggests that countries need to decide on the best way to exploit
their natural resources, in order to maximize the value added from the development of their resources
and ensure that they are on the path to sustainable development once the resources run out.
Whatever priority or preference may be given to mining vis-à-vis other economic or non-economic
activities is a question of policy that the President and Congress will have to address; it is not for this
Court to decide. This Court declares what the Constitution and the laws say, interprets only when
necessary, and refrains from delving into matters of policy.
Suffice it to say that the State control accorded by the Constitution over mining activities assures a
proper balancing of interests. More pointedly, such control will enable the President to demand the
best mining practices and the use of the best available technologies to protect the environment and to
rehabilitate mined-out areas. Indeed, under the Mining Law, the government can ensure the protection
of the environment during and after mining. It can likewise provide for the mechanisms to protect the
rights of indigenous communities, and thereby mold a more socially-responsive, culturally-sensitive
and sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry Environmental Awards on February
6, 1997, then President Fidel V. Ramos captured the essence of balanced and sustainable mining in
these words:
"Long term, high profit mining translates into higher revenues for government, more decent jobs for
the population, more raw materials to feed the engines of downstream and allied industries, and
improved chances of human resource and countryside development by creating self-reliant
communities away from urban centers.
xxxxxxxxx
"Against a fragile and finite environment, it is sustainability that holds the key. In sustainable mining,
we take a middle ground where both production and protection goals are balanced, and where parties-
in-interest come to terms."
Neither has the present leadership been remiss in addressing the concerns of sustainable mining
operations. Recently, on January 16, 2004 and April 20, 2004, President Gloria Macapagal Arroyo
issued Executive Orders Nos. 270 and 270-A, respectively, "to promote responsible mineral resources
exploration, development and utilization, in order to enhance economic growth, in a manner that
adheres to the principles of sustainable development and with due regard for justice and equity,
sensitivity to the culture of the Filipino people and respect for Philippine sovereignty."
98

REFUTATION OF DISSENTS
The Court will now take up a number of other specific points raised in the dissents of Justices Carpio
and Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of
Western Mining Corporation (WMC) and former president of the Australian Mining Industry Council,
who spearheaded the vociferous opposition to the filing by aboriginal peoples of native title claims
against mining companies in Australia in the aftermath of the landmark Mabo decision by the
Australian High Court. According to sources quoted by our esteemed colleague, Morgan was also a
racist and a bigot. In the course of protesting Mabo, Morgan allegedly uttered derogatory remarks
belittling the aboriginal culture and race.
An unwritten caveat of this introduction is that this Court should be careful not to permit the entry of
the likes of Hugh Morgan and his hordes of alleged racist-bigots at WMC. With all due respect, such
scare tactics should have no place in the discussion of this case. We are deliberating on the
constitutionality of RA 7942, DAO 96-40 and the FTAA originally granted to WMCP, which had been
transferred to Sagittarius Mining, a Filipino corporation. We are not discussing the apparition of white
Anglo-Saxon racists/bigots massing at our gates.
2. On the proper interpretation of the phrase agreements involving either technical or financial
assistance, Justice Morales points out that at times we "conveniently omitted" the use of the disjunctive
either…or, which according to her denotes restriction; hence the phrase must be deemed to connote
restriction and limitation.
But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive phrase either
technical or financial assistance would, strictly speaking, literally mean that a foreign contractor may
provide only one or the other, but not both. And if both technical and financial assistance were required
for a project, the State would have to deal with at least two different foreign contractors -- one for
financial and the other for technical assistance. And following on that, a foreign contractor, though very
much qualified to provide both kinds of assistance, would nevertheless be prohibited from providing
one kind as soon as it shall have agreed to provide the other.

But if the Court should follow this restrictive and literal construction, can we really find two (or more)
contractors who are willing to participate in one single project -- one to provide the "financial
assistance" only and the other the "technical assistance" exclusively; it would be excellent if these two
or more contractors happen to be willing and are able to cooperate and work closely together on the
same project (even if they are otherwise competitors). And it would be superb if no conflicts would
arise between or among them in the entire course of the contract. But what are the chances things will
turn out this way in the real world? To think that the framers deliberately imposed this kind of restriction
is to say that they were either exceedingly optimistic, or incredibly naïve. This begs the question --
What laudable objective or purpose could possibly be served by such strict and restrictive literal
interpretation?
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract or
property right which merits protection by the due process clause of the Constitution, but merely a
license or privilege which may be validly revoked, rescinded or withdrawn by executive action
whenever dictated by public interest or public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority. The
latter cases dealt specifically with timber licenses only. Oposa allegedly reiterated that a license is
merely a permit or privilege to do what otherwise would be unlawful, and is not a contract between the
authority, federal, state or municipal, granting it and the person to whom it is granted; neither is it
property or a property right, nor does it create a vested right; nor is it taxation. Thus this Court held
that the granting of license does not create irrevocable rights, neither is it property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument that natural resources are
also involved in this situation? We do not think so. A grantee of a timber license, permit or license
agreement gets to cut the timber already growing on the surface; it need not dig up tons of earth to
get at the logs. In a logging concession, the investment of the licensee is not as substantial as the
investment of a large-scale mining contractor. If a timber license were revoked, the licensee packs up
its gear and moves to a new area applied for, and starts over; what it leaves behind are mainly the
trails leading to the logging site.
In contrast, the mining contractor will have sunk a great deal of money (tens of millions of dollars) into
the ground, so to speak, for exploration activities, for development of the mine site and infrastructure,
and for the actual excavation and extraction of minerals, including the extensive tunneling work to
reach the ore body. The cancellation of the mining contract will utterly deprive the contractor of its
investments (i.e., prevent recovery of investments), most of which cannot be pulled out.
To say that an FTAA is just like a mere timber license or permit and does not involve contract or
property rights which merit protection by the due process clause of the Constitution, and may therefore
be revoked or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory stance; at the very
least, it is downright dismissive of the property rights of businesspersons and corporate entities that
have investments in the mining industry, whose investments, operations and expenditures do
contribute to the general welfare of the people, the coffers of government, and the strength of the
economy. Such a pronouncement will surely discourage investments (local and foreign) which are
critically needed to fuel the engine of economic growth and move this country out of the rut of poverty.
In sum, Oposa is not applicable.
4. Justice Morales adverts to the supposedly "clear intention" of the framers of the Constitution to
reserve our natural resources exclusively for the Filipino people. She then quoted from the records of
the ConCom deliberations a passage in which then Commissioner Davide explained his vote, arguing
in the process that aliens ought not be allowed to participate in the enjoyment of our natural resources.
One passage does not suffice to capture the tenor or substance of the entire extensive deliberations
of the commissioners, or to reveal the clear intention of the framers as a group. A re-reading of the
entire deliberations (quoted here earlier) is necessary if we are to understand the true intent of the
framers.
5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation or
delay in the exploration, development or utilization of the nation's natural resources is merely
secondary to the protection and preservation of their ownership of the natural resources, so says
Justice Morales, citing Aruego. If it is true that the framers of the 1987 Constitution did not care much
about alleviating the retardation or delay in the development and utilization of our natural resources,
why did they bother to write paragraph 4 at all? Were they merely paying lip service to large-scale
exploration, development and utilization? They could have just completely ignored the subject matter
and left it to be dealt with through a future constitutional amendment. But we have to harmonize every
part of the Constitution and to interpret each provision in a manner that would give life and meaning
to it and to the rest of the provisions. It is obvious that a literal interpretation of paragraph 4 will render
it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional Commission do not support our
contention that the framers, by specifying such agreements involving financial or technical assistance,
necessarily gave implied assent to everything that these agreements implicitly entailed, or that could
reasonably be deemed necessary to make them tenable and effective, including management
authority in the day-to-day operations. As proof thereof, she quotes one single passage from the
ConCom deliberations, consisting of an exchange among Commissioners Tingson, Garcia and
Monsod.
However, the quoted exchange does not serve to contradict our argument; it even bolsters it. Comm.
Christian Monsod was quoted as saying: "xxx I think we have to make a distinction that it is not really
realistic to say that we will borrow on our own terms. Maybe we can say that we inherited unjust loans,
and we would like to repay these on terms that are not prejudicial to our own growth. But the general
statement that we should only borrow on our own terms is a bit unrealistic." Comm. Monsod is one
who knew whereof he spoke.
7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an MPSA is
after completion of the exploration phase and just before undertaking the development and
construction phase, on account of the fact that the requirement for a minimum investment of $50 million
is applicable only during the development, construction and utilization phase, but not during the
exploration phase, when the foreign contractor need merely comply with minimum ground
expenditures. Thus by converting, the foreign contractor maximizes its profits by avoiding its obligation
to make the minimum investment of $50 million.
This argument forgets that the foreign contractor is in the game precisely to make money. In order to
come anywhere near profitability, the contractor must first extract and sell the mineral ore. In order to
do that, it must also develop and construct the mining facilities, set up its machineries and equipment
and dig the tunnels to get to the deposit. The contractor is thus compelled to expend funds in order to
make profits. If it decides to cut back on investments and expenditures, it will necessarily sacrifice the
pace of development and utilization; it will necessarily sacrifice the amount of profits it can make from
the mining operations. In fact, at certain less-than-optimal levels of operation, the stream of revenues
generated may not even be enough to cover variable expenses, let alone overhead expenses; this is
a dismal situation anyone would want to avoid. In order to make money, one has to spend money.
This truism applies to the mining industry as well.
8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations is anomalous, according
to Justice Morales since the contractor was from the beginning obliged to provide all financing needed
for the mining operations. However, the mortgaging of minerals by the contractor does not necessarily
signify that the contractor is unable to provide all financing required for the project, or that it does not
have the financial capability to undertake large-scale operations. Mortgaging of mineral products, just
like the assignment (by way of security) of manufactured goods and goods in inventory, and the
assignment of receivables, is an ordinary requirement of banks, even in the case of clients with more
than sufficient financial resources. And nowadays, even the richest and best managed corporations
make use of bank credit facilities -- it does not necessarily signify that they do not have the financial
resources or are unable to provide the financing on their own; it is just a manner of maximizing the
use of their funds.
9. Does the contractor in reality acquire the surface rights "for free," by virtue of the fact that it is entitled
to reimbursement for the costs of acquisition and maintenance, adjusted for inflation? We think not.
The "reimbursement" is possible only at the end of the term of the contract, when the surface rights
will no longer be needed, and the land previously acquired will have to be disposed of, in which case
the contractor gets reimbursement from the sales proceeds. The contractor has to pay out the
acquisition price for the land. That money will belong to the seller of the land. Only if and when the
land is finally sold off will the contractor get any reimbursement. In other words, the contractor will
have been cash-out for the entire duration of the term of the contract -- 25 or 50 years, depending. If
we calculate the cost of money at say 12 percent per annum, that is the cost or opportunity loss to the
contractor, in addition to the amount of the acquisition price. 12 percent per annum for 50 years is 600
percent; this, without any compounding yet. The cost of money is therefore at least 600 percent of the
original acquisition cost; it is in addition to the acquisition cost. "For free"? Not by a long shot.
10. The contractor will acquire and hold up to 5,000 hectares? We doubt it. The acquisition by the
State of land for the contractor is just to enable the contractor to establish its mine site, build its
facilities, establish a tailings pond, set up its machinery and equipment, and dig mine shafts and
tunnels, etc. It is impossible that the surface requirement will aggregate 5,000 hectares. Much of the
operations will consist of the tunneling and digging underground, which will not require possessing or
using any land surface. 5,000 hectares is way too much for the needs of a mining operator. It simply
will not spend its cash to acquire property that it will not need; the cash may be better employed for
the actual mining operations, to yield a profit.
11. Justice Carpio claims that the phrase among other things (found in the second paragraph of
Section 81 of the Mining Act) is being incorrectly treated as a delegation of legislative power to the
DENR secretary to issue DAO 99-56 and prescribe the formulae therein on the State's share from
mining operations. He adds that the phrase among other things was not intended as a delegation of
legislative power to the DENR secretary, much less could it be deemed a valid delegation of legislative
power, since there is nothing in the second paragraph of Section 81 which can be said to grant any
delegated legislative power to the DENR secretary. And even if there were, such delegation would be
void, for lack of any standards by which the delegated power shall be exercised.

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

13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO 99-56
any time even without the approval of the President, and the secretary is the sole authority to determine
the amount of consideration that the State shall receive in an FTAA, because Section 5 of the DAO
states that "xxx any amendment of an FTAA other than the provision on fiscal regime shall require the
negotiation with the Negotiation Panel and the recommendation of the Secretary for approval of the
President xxx". Allegedly, because of that provision, if an amendment in the FTAA involves non-fiscal
matters, the amendment requires approval of the President, but if the amendment involves a change
in the fiscal regime, the DENR secretary has the final authority, and approval of the President may be
dispensed with; hence the secretary is more powerful than the President.

We believe there is some distortion resulting from the quoted provision being taken out of context.
Section 5 of DAO 99-56 reads as follows:
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this Administrative
Order shall remain valid and be recognized by the Government: Provided, That should a Contractor
desire to amend its FTAA, it shall do so by filing a Letter of Intent (LOI) to the Secretary thru the
Director. Provided, further, That if the Contractor desires to amend the fiscal regime of its FTAA, it
may do so by seeking for the amendment of its FTAA's whole fiscal regime by adopting the fiscal
regime provided hereof: Provided, finally, That any amendment of an FTAA other than the provision
on fiscal regime shall require the negotiation with the Negotiating Panel and the recommendation of
the Secretary for approval of the President of the Republic of the Philippines." (underscoring supplied)
It looks like another case of misapprehension. The proviso being objected to by Justice Carpio is
actually preceded by a phrase that requires a contractor desiring to amend the fiscal regime of its
FTAA, to amend the same by adopting the fiscal regime prescribed in DAO 99-56 -- i.e., solely in that
manner, and in no other. Obviously, since DAO 99-56 was issued by the secretary under the
authority and with the presumed approval of the President, the amendment of an FTAA by
merely adopting the fiscal regime prescribed in said DAO 99-56 (and nothing more) need not
have the express clearance of the President anymore. It is as if the same had been pre-approved.
We cannot fathom the complaint that that makes the secretary more powerful than the President, or
that the former is trying to hide things from the President or Congress.

14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved prior
to the effectivity of this Administrative Order shall remain valid and be recognized by the Government",
Justice Carpio concludes that said Administrative Order allegedly exempts FTAAs approved prior to
its effectivity -- like the WMCP FTAA -- from having to pay the State any share from their mining
income, apart from taxes, duties and fees.
We disagree. What we see in black and white is the statement that the FTAAs approved before the
DAO came into effect are to continue to be valid and will be recognized by the State. Nothing is said
about their fiscal regimes. Certainly, there is no basis to claim that the contractors under said FTAAs
were being exempted from paying the government a share in their mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from paying the government
share. The WMCP FTAA has its own fiscal regime -- Section 7.7 -- which gives the government
a 60 percent share in the net mining revenues of WMCP from the commencement of
commercial production.
For that very reason, we have never said that DAO 99-56 is the basis for claiming that the WMCP
FTAA has a consideration. Hence, we find quite out of place Justice Carpio's statement that ironically,
DAO 99-56, the very authority cited to support the claim that the WMCP FTAA has a consideration,
does not apply to the WMCP FTAA. By its own express terms, DAO 99-56 does not apply to FTAAs
executed before the issuance of DAO 99-56, like the WMCP FTAA. The majority's position has
allegedly no leg to stand on since even DAO 99-56, assuming it is valid, cannot save the WMCP FTAA
from want of consideration. Even assuming arguendo that DAO 99-56 does not apply to the WMCP
FTAA, nevertheless, the WMCP FTAA has its own fiscal regime, found in Section 7.7 thereof. Hence,
there is no such thing as "want of consideration" here.
Still more startling is this claim: The majority supposedly agrees that the provisions of the WMCP
FTAA, which grant a sham consideration to the State, are void. Since the majority agrees that the
WMCP FTAA has a sham consideration, the WMCP FTAA thus lacks the third element of a valid
contract. The Decision should declare the WMCP FTAA void for want of consideration unless it treats
the contract as an MPSA under Section 80. Indeed the only recourse of WMCP to save the validity of
its contract is to convert it into an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions grossly
disadvantageous to government and detrimental to the interests of the Filipino people, as well as
violative of public policy, and must therefore be stricken off as invalid. Since the offending provisions
are very much separable from Section 7.7 and the rest of the FTAA, the deletion of Sections 7.9 and
7.8(e) can be done without affecting or requiring the invalidation of the WMCP FTAA itself, and such
deletion will preserve for government its due share of the 60 percent benefits. Therefore, the WMCP
FTAA is NOT bereft of a valid consideration (assuming for the nonce that indeed this is the
"consideration" of the FTAA).
SUMMATION

To conclude, a summary of the key points discussed above is now in order.

The Meaning of "Agreements Involving
Either Technical or Financial Assistance"

Applying familiar principles of constitutional construction to the phrase agreements involving either
technical or financial assistance, the framers' choice of words does not indicate the intent to exclude
other modes of assistance, but rather implies that there are other things being included or possibly
being made part of the agreement, apart from financial or technical assistance. The drafters avoided
the use of restrictive and stringent phraseology; a verba legis scrutiny of Section 2 of Article XII of the
Constitution discloses not even a hint of a desire to prohibit foreign involvement in the management
or operation of mining activities, or to eradicate service contracts. Such moves would necessarily imply
an underlying drastic shift in fundamental economic and developmental policies of the State. That
change requires a much more definite and irrefutable basis than mere omission of the words "service
contract" from the new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph leads to logical inconsistencies. A
constitutional provision specifically allowing foreign-owned corporations to render financial or technical
assistance in respect of mining or any other commercial activity was clearly unnecessary; the provision
was meant to refer to more than mere financial or technical assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance, there would be no
point in requiring that they be "based on real contributions to the economic growth and general welfare
of the country." And considering that there were various long-term service contracts still in force and
effect at the time the new Charter was being drafted, the absence of any transitory provisions to govern
the termination and closing-out of the then existing service contracts strongly militates against the
theory that the mere omission of "service contracts" signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a careful
scrutiny thereof conclusively shows that the ConCom members discussed agreements involving either
technical or financial assistance in the same sense as service contracts and used the terms
interchangeably. The drafters in fact knew that the agreements with foreign corporations were going
to entail not mere technical or financial assistance but, rather, foreign investment in and management
of an enterprise for large-scale exploration, development and utilization of minerals.
The framers spoke about service contracts as the concept was understood in the 1973 Constitution.
It is obvious from their discussions that they did not intend to ban or eradicate service contracts.
Instead, they were intent on crafting provisions to put in place safeguards that would eliminate or
minimize the abuses prevalent during the martial law regime. In brief, they were going to permit
service contracts with foreign corporations as contractors, but with safety measures to prevent
abuses, as an exception to the general norm established in the first paragraph of Section 2 of
Article XII, which reserves or limits to Filipino citizens and corporations at least 60 percent
owned by such citizens the exploration, development and utilization of mineral or petroleum
resources. This was prompted by the perceived insufficiency of Filipino capital and the felt need for
foreign expertise in the EDU of mineral resources.

Despite strong opposition from some ConCom members during the final voting, the Article on the
National Economy and Patrimony -- including paragraph 4 allowing service contracts with foreign
corporations as an exception to the general norm in paragraph 1 of Section 2 of the same Article --
was resoundingly and overwhelmingly approved.

The drafters, many of whom were economists, academicians, lawyers, businesspersons and
politicians knew that foreign entities will not enter into agreements involving assistance without
requiring measures of protection to ensure the success of the venture and repayment of their
investments, loans and other financial assistance, and ultimately to protect the business reputation of
the foreign corporations. The drafters, by specifying such agreements involving assistance,
necessarily gave implied assent to everything that these agreements entailed or that could reasonably
be deemed necessary to make them tenable and effective -- including management authority with
respect to the day-to-day operations of the enterprise, and measures for the protection of the interests
of the foreign corporation, at least to the extent that they are consistent with Philippine sovereignty
over natural resources, the constitutional requirement of State control, and beneficial ownership of
natural resources remaining vested in the State.

From the foregoing, it is clear that agreements involving either technical or financial assistance referred
to in paragraph 4 are in fact service contracts, but such new service contracts are between foreign
corporations acting as contractors on the one hand, and on the other hand government as principal or
"owner" (of the works), whereby the foreign contractor provides the capital, technology and technical
know-how, and managerial expertise in the creation and operation of the large-scale mining/extractive
enterprise, and government through its agencies (DENR, MGB) actively exercises full control and
supervision over the entire enterprise.
Such service contracts may be entered into only with respect to minerals, petroleum and other mineral
oils. The grant of such service contracts is subject to several safeguards, among them: (1) that the
service contract be crafted in accordance with a general law setting standard or uniform terms,
conditions and requirements; (2) the President be the signatory for the government; and (3) the
President report the executed agreement to Congress within thirty days.

Ultimate Test: Full State Control

To repeat, the primacy of the principle of the State's sovereign ownership of all mineral resources, and
its full control and supervision over all aspects of exploration, development and utilization of natural
resources must be upheld. But "full control and supervision" cannot be taken literally to mean that the
State controls and supervises everything down to the minutest details and makes all required actions,
as this would render impossible the legitimate exercise by the contractor of a reasonable degree of
management prerogative and authority, indispensable to the proper functioning of the mining
enterprise. Also, government need not micro-manage mining operations and day-to-day affairs of the
enterprise in order to be considered as exercising full control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control sufficient to
enable the State to direct, restrain, regulate and govern the affairs of the extractive enterprises. Control
by the State may be on a macro level, through the establishment of policies, guidelines, regulations,
industry standards and similar measures that would enable government to regulate the conduct of
affairs in various enterprises, and restrain activities deemed not desirable or beneficial, with the end
in view of ensuring that these enterprises contribute to the economic development and general welfare
of the country, conserve the environment, and uplift the well-being of the local affected communities.
Such a degree of control would be compatible with permitting the foreign contractor sufficient and
reasonable management authority over the enterprise it has invested in, to ensure efficient and
profitable operation.

Government Granted Full Control

by RA 7942 and DAO 96-40
Baseless are petitioners' sweeping claims that RA 7942 and its Implementing Rules and Regulations
make it possible for FTAA contracts to cede full control and management of mining enterprises over
to fully foreign owned corporations. Equally wobbly is the assertion that the State is reduced to a
passive regulator dependent on submitted plans and reports, with weak review and audit powers and
little say in the decision-making of the enterprise, for which reasons "beneficial ownership" of the
mineral resources is allegedly ceded to the foreign contractor.

As discussed hereinabove, the State's full control and supervision over mining operations are ensured
through the following provisions in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l),
(m) and (o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as well as the following provisions of DAO
96-40: Sections7[(d) and (f)], 35(a-2), 53[(a-4) and (d)], 54, 56[(g), (h), (l), (m) and (n)], 56(2), 60, 66,
144, 168, 171 and 270, and also Chapters XV, XVI and XXIV.
Through the foregoing provisions, the government agencies concerned are empowered to approve or
disapprove -- hence, in a position to influence, direct, and change -- the various work programs and
the corresponding minimum expenditure commitments for each of the exploration, development and
utilization phases of the enterprise. Once they have been approved, the contractor's compliance with
its commitments therein will be monitored. Figures for mineral production and sales are regularly
monitored and subjected to government review, to ensure that the products and by-products are
disposed of at the best prices; copies of sales agreements have to be submitted to and registered with
MGB.
The contractor is mandated to open its books of accounts and records for scrutiny, to enable the State
to determine that the government share has been fully paid. The State may likewise compel
compliance by the contractor with mandatory requirements on mine safety, health and environmental
protection, and the use of anti-pollution technology and facilities. The contractor is also obligated to
assist the development of the mining community, and pay royalties to the indigenous peoples
concerned. And violation of any of the FTAA's terms and conditions, and/or non-compliance with
statutes or regulations, may be penalized by cancellation of the FTAA. Such sanction is significant to
a contractor who may have yet to recover the tens or hundreds of millions of dollars sunk into a mining
project.
Overall, the State definitely has a pivotal say in the operation of the individual enterprises, and can set
directions and objectives, detect deviations and non-compliances by the contractor, and enforce
compliance and impose sanctions should the occasion arise. Hence, RA 7942 and DAO 96-40 vest in
government more than a sufficient degree of control and supervision over the conduct of mining
operations.
Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a foreign contractor
to apply for and hold an exploration permit. During the exploration phase, the permit grantee (and
prospective contractor) is spending and investing heavily in exploration activities without yet being
able to extract minerals and generate revenues. The exploration permit issued under Sections 3(aq),
20 and 23 of RA 7942, which allows exploration but not extraction, serves to protect the interests and
rights of the exploration permit grantee (and would-be contractor), foreign or local. Otherwise, the
exploration works already conducted, and expenditures already made, may end up only benefiting
claim-jumpers. Thus, Section 3(aq) of RA 7942 is not unconstitutional.
WMCP FTAA Likewise Gives the
State Full Control and Supervision

The WMCP FTAA obligates the contractor to account for the value of production and sale of minerals
(Clause 1.4); requires that the contractor's work program, activities and budgets be approved by the
State (Clause 2.1); gives the DENR secretary power to extend the exploration period (Clause 3.2-a);
requires approval by the State for incorporation of lands into the contract area (Clause 4.3-c); requires
Bureau of Forest Development approval for inclusion of forest reserves as part of the FTAA contract
area (Clause 4.5); obligates the contractor to periodically relinquish parts of the contract area not
needed for exploration and development (Clause 4.6); requires submission of a declaration of mining
feasibility for approval by the State (Clause 4.6-b); obligates the contractor to report to the State the
results of its exploration activities (Clause 4.9); requires the contractor to obtain State approval for its
work programs for the succeeding two year periods, containing the proposed work activities and
expenditures budget related to exploration (Clause 5.1); requires the contractor to obtain State
approval for its proposed expenditures for exploration activities (Clause 5.2); requires the contractor
to submit an annual report on geological, geophysical, geochemical and other information relating to
its explorations within the FTAA area (Clause 5.3-a); requires the contractor to submit within six
months after expiration of exploration period a final report on all its findings in the contract area (Clause
5.3-b); requires the contractor after conducting feasibility studies to submit a declaration of mining
feasibility, along with a description of the area to be developed and mined, a description of the
proposed mining operations and the technology to be employed, and the proposed work program for
the development phase, for approval by the DENR secretary (Clause 5.4); obligates the contractor to
complete the development of the mine, including construction of the production facilities, within the
period stated in the approved work program (Clause 6.1); requires the contractor to submit for approval
a work program covering each period of three fiscal years (Clause 6.2); requires the contractor to
submit reports to the secretary on the production, ore reserves, work accomplished and work in
progress, profile of its work force and management staff, and other technical information (Clause 6.3);
subjects any expansions, modifications, improvements and replacements of mining facilities to the
approval of the secretary (Clause 6.4); subjects to State control the amount of funds that the contractor
may borrow within the Philippines (Clause 7.2); subjects to State supervisory power any technical,
financial and marketing issues (Clause 10.1-a); obligates the contractor to ensure 60 percent Filipino
equity in the contractor within ten years of recovering specified expenditures unless not so required
by subsequent legislation (Clause 10.1); gives the State the right to terminate the FTAA for
unremedied substantial breach thereof by the contractor (Clause 13.2); requires State approval for
any assignment of the FTAA by the contractor to an entity other than an affiliate (Clause 14.1).
In short, the aforementioned provisions of the WMCP FTAA, far from constituting a surrender of control
and a grant of beneficial ownership of mineral resources to the contractor in question, vest the State
with control and supervision over practically all aspects of the operations of the FTAA contractor,
including the charging of pre-operating and operating expenses, and the disposition of mineral
products.
There is likewise no relinquishment of control on account of specific provisions of the WMCP FTAA.
Clause 8.2 provides a mechanism to prevent the mining operations from grinding to a complete halt
as a result of possible delays of more than 60 days in the government's processing and approval of
submitted work programs and budgets. Clause 8.3 seeks to provide a temporary, stop-gap solution in
case a disagreement between the State and the contractor (over the proposed work program or budget
submitted by the contractor) should result in a deadlock or impasse, to avoid unreasonably long delays
in the performance of the works.
The State, despite Clause 8.3, still has control over the contract area, and it may, as sovereign
authority, prohibit work thereon until the dispute is resolved, or it may terminate the FTAA, citing
substantial breach thereof. Hence, the State clearly retains full and effective control.

Clause 8.5, which allows the contractor to make changes to approved work programs and budgets
without the prior approval of the DENR secretary, subject to certain limitations with respect to the
variance/s, merely provides the contractor a certain amount of flexibility to meet unexpected situations,
while still guaranteeing that the approved work programs and budgets are not abandoned altogether.
And if the secretary disagrees with the actions taken by the contractor in this instance, he may also
resort to cancellation/termination of the FTAA as the ultimate sanction.
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts of the contract area to
be relinquished. The State is not in a position to substitute its judgment for that of the contractor, who
knows exactly which portions of the contract area do not contain minerals in commercial quantities
and should be relinquished. Also, since the annual occupation fees paid to government are based on
the total hectarage of the contract area, net of the areas relinquished, the contractor's self-interest will
assure proper and efficient relinquishment.
Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can compel government to use
its power of eminent domain. It contemplates a situation in which the contractor is a foreign-owned
corporation, hence, not qualified to own land. The contractor identifies the surface areas needed for it
to construct the infrastructure for mining operations, and the State then acquires the surface rights on
behalf of the former. The provision does not call for the exercise of the power of eminent domain (or
determination of just compensation); it seeks to avoid a violation of the anti-dummy law.
Clause 10.2(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. Banks lend also upon the security of encumbrances on goods
produced, which can be easily sold and converted into cash and applied to the repayment of loans.
Thus, Clause 10.2(l) is not something out of the ordinary. Neither is it objectionable, because even
though the contractor is allowed to mortgage or encumber the mineral end-products themselves, the
contractor is not thereby relieved of its obligation to pay the government its basic and additional shares
in the net mining revenue. The contractor's ability to mortgage the minerals does not negate the State's
right to receive its share of net mining revenues.
Clause 10.2(k) which gives the contractor authority "to change its equity structure at any time," means
that WMCP, which was then 100 percent foreign owned, could permit Filipino equity ownership.
Moreover, what is important is that the contractor, regardless of its ownership, is always in a position
to render the services required under the FTAA, under the direction and control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required by banks and
other financial institutions as part of the conditions of new lendings. There is nothing objectionable
here, since Clause 10.4(e) also provides that such financing arrangements should in no event reduce
the contractor's obligations or the government's rights under the FTAA. Clause 10.4(i) provides that
government shall "favourably consider" any request for amendments of this agreement necessary for
the contractor to successfully obtain financing. There is no renunciation of control, as the proviso does
not say that government shall automatically grant any such request. Also, it is up to the contractor to
prove the need for the requested changes. The government always has the final say on whether to
approve or disapprove such requests.
In fine, the FTAA provisions do not reduce or abdicate State control.
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, fees and duties, and depriving the State of a
share in the after-tax income of the enterprise. However, 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, duties and fees.
Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance
Agreements," spells out the financial benefits government will receive from an FTAA, as consisting of
not only a basic government share, comprised of all direct taxes, fees and royalties, as well as other
payments made by the contractor during the term of the FTAA, but also an additional government
share, being a share in the earnings or cash flows of the mining enterprise, so as to achieve a
fifty-fifty sharing of net benefits from mining between the government and the contractor.
The additional government share is computed using one of three (3) options or schemes detailed in
DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value of cash flows; (2) the excess
profit-related additional government share; and (3) the additional sharing based on the cumulative net
mining revenue. Whichever option or computation is used, the additional government share has
nothing to do with taxes, duties, fees or charges. The portion of revenues remaining after the deduction
of the basic and additional government shares is what goes to the contractor.
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, which are real and actual benefits
enjoyed by the Filipino people; if these are taken into account, total government share increases to 60
percent or higher (as much as 77 percent, and 89 percent in one instance) of the net present value of
total benefits from the project.
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,
exploration and development expenditures. Allegedly, the collection of the State's share is rendered
uncertain, as there is no time limit in RA 7942 for this grace period or recovery period. But although
RA 7942 did not limit the grace period, the concerned agencies (DENR and MGB) in formulating the
1995 and 1996 Implementing Rules and Regulations provided that the period of recovery, reckoned
from the date of commercial operation, shall be for a period not exceeding five years, or until the date
of actual recovery, whichever comes earlier.
And since RA 7942 allegedly does not require government approval for the pre-operating, exploration
and development expenses of the foreign contractors, it is feared that such expenses could be bloated
to wipe out mining revenues anticipated for 10 years, with the result that the State's share is zero for
the first 10 years. However, the argument is based on incorrect information.
Under Section 23 of RA 7942, the applicant for exploration permit is required to submit a proposed
work program for exploration, containing a yearly budget of proposed expenditures, which the State
passes upon and either approves or rejects; if approved, the same will subsequently be recorded as
pre-operating expenses that the contractor will have to recoup over the grace period.
Under Section 24, when an exploration permittee files with the MGB a declaration of mining project
feasibility, it must submit a work program for development, with corresponding budget, for approval by
the Bureau, before government may grant an FTAA or MPSA or other mineral agreements; again,
government has the opportunity to approve or reject the proposed work program and budgeted
expenditures for development works, which will become the pre-operating and development costs that
will have to be recovered. Government is able to know ahead of time the amounts of pre-operating
and other expenses to be recovered, and the approximate period of time needed therefor. The
aforecited provisions have counterparts in Section 35, which deals with the terms and conditions
exclusively applicable to FTAAs. In sum, the third or last paragraph of Section 81 of RA 7942 cannot
be deemed defective.
Section 80 of RA 7942 allegedly limits the State's share in a mineral production-sharing agreement
(MPSA) to just the excise tax on the mineral product, i.e., only 2 percent of market value of the
minerals. The colatilla in Section 84 reiterates the same limitation in Section 80. However, these two
provisions pertain only to MPSAs, and have no application to FTAAs. These particular
provisions do not come within the issues defined by this Court. Hence, on due process
grounds, no pronouncement can be made in this case in respect of the constitutionality of
Sections 80 and 84.

Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old "license,
concession or lease" system, because it allegedly effectively reduces the government share in FTAAs
to just the 2 percent excise tax which pursuant to Section 80 comprises the government share in
MPSAs. However, Section 112 likewise does not come within the issues delineated by this Court, and
was never touched upon by the parties in their pleadings. Moreover, Section 112 may not properly
apply to FTAAs. The mining law obviously meant to treat FTAAs as a breed apart from mineral
agreements. There is absolutely no basis to believe that the law intends to exact from FTAA
contractors merely the same government share (i.e., the 2 percent excise tax) that it apparently
demands from contractors under the three forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are indeed unconstitutional, they cannot
be ruled upon here. In any event, they are separable; thus, a later finding of nullity will not affect the
rest of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to surrender financial benefits
from an FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the State
must receive at least 60 percent of the after-tax income from the exploitation of its mineral resources,
and that such share is the equivalent of the constitutional requirement that at least 60 percent of the
capital, and hence 60 percent of the income, of mining companies should remain in Filipino hands.
Even if the State is entitled to a 60 percent share from other mineral agreements (CPA, JVA and
MPSA), that would not create a parallel or analogous situation for FTAAs. We are dealing with an
essentially different equation. Here we have the old apples and oranges syndrome.

The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations,
regardless of circumstances. There is no indication of such an intention on the part of the framers.
Moreover, the terms and conditions of petroleum FTAAs cannot serve as standards for mineral mining
FTAAs, because the technical and operational requirements, cost structures and investment
needs of off-shore petroleum exploration and drilling companies do not have the remotest
resemblance to those of on-shore mining companies.

To take the position that government's share must be not less than 60 percent of after-tax income of
FTAA contractors is nothing short of this Court dictating upon the government. The State resultantly
ends up losing control. To avoid compromising the State's full control and supervision over the
exploitation of mineral resources, there must be no attempt to impose a "minimum 60 percent" rule. It
is sufficient that the State has the power and means, should it so decide, to get a 60 percent share (or
greater); and it is not necessary that the State does so in every case.
Invalid Provisions of the WMCP FTAA
Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60 percent share of WMCP's
revenues. Under Section 7.9, should WMCP's foreign stockholders (who originally owned 100 percent
of the equity) sell 60 percent or more of their equity to a Filipino citizen or corporation, the State loses
its right to receive its share in net mining revenues under Section 7.7, without any offsetting
compensation to the State. And what is given to the State in Section 7.7 is by mere tolerance of
WMCP's foreign stockholders, who can at any time cut off the government's entire share by simply
selling 60 percent of WMCP's equity to a Philippine citizen or corporation.
In fact, the sale by WMCP's foreign stockholder on January 23, 2001 of the entire outstanding equity
in WMCP to Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino owned, can be
deemed to have automatically triggered the operation of Section 7.9 and removed the State's right to
receive its 60 percent share. Section 7.9 of the WMCP FTAA has effectively given away the State's
share without anything in exchange.
Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in WMCP,
because by the mere act of divestment, the local and foreign stockholders get a windfall, as their share
in the net mining revenues of WMCP is automatically increased, without having to pay anything for it.
Being grossly disadvantageous to government and detrimental to the Filipino people, as well as
violative of public policy, Section 7.9 must therefore be stricken off as invalid. The FTAA in question
does not involve mere contractual rights but, being impressed as it is with public interest, the
contractual provisions and stipulations must yield to the common good and the national interest. Since
the offending provision is very much separable from the rest of the FTAA, the deletion of Section 7.9
can be done without affecting or requiring the invalidation of the entire WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by government
for the benefit of the contractor to be deductible from the State's share in net mining revenues, it results
in benefiting the contractor twice over. This constitutes unjust enrichment on the part of the contractor,
at the expense of government. For being grossly disadvantageous and prejudicial to government and
contrary to public policy, Section 7.8(e) must also be declared 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 multi-billion 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 co-equal and coordinate
branches of government, this Court must restrain itself from intruding into policy matters and must
allow the President and Congress maximum discretion in using the resources of our 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
99

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
100

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.
Davide Jr., C.J., Sandoval-Gutierrez, Austria-Martinez, and Garcia, JJ., concur.
Puno, J., in the result and votes to invalidate sections 3.3; 7.8 and 7.9 of the WMC FTAA.
Quisumbing, J., in the result.
Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio & J. Conchita C. Morales.
Carpio, and Carpio-Morales, JJ., see dissenting opinion.
Corona, J., certifies he voted affirmatively with the majority and he was allowed to do so although he
is on leave.
Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
Azcuna, J., took no part-same reason.
Tinga, and Chico-Nazario, JJ., concur with a separate opinion.

CONCURRING OPINION
CHICO-NAZARIO, J.:
I concur in the well-reasoned ponencia of my esteemed colleague Mr. Justice Artemio V. Panganiban.
I feel obligated, however, to add the following observations:
I. RE "FULL CONTROL AND SUPERVISION"
With all due respect, I believe that the issue of unconstitutionality of Republic Act No. 7942, its
implementing rules, and the Financial Assistance Agreement between the Philippine Government and
WMPC (Philippines) Inc. (WMPC FTAA) executed pursuant to Rep. Act No. 7942 hinges, to a large
extent, on the interpretation of the phrase in Section 2, Article XII of the 1987 Constitution, which
states:
(T)he exploration, development, and utilization of natural resources shall be under the full control
and supervision of the State. x x x. (Emphasis supplied)

Construing said phrase vis-à-vis the entire provision, it appears from the deliberations in the
Constitutional Commission that the term "control" does not have the meaning it ordinarily has in
political law which is the power of a superior to substitute his judgment for that of an inferior.1 Thus –
MR. NOLLEDO: Suppose a judicial entity is given the power to exploit natural resources and, of
course, there are decisions made by the governing board of that judicial entity, can the state change
the decisions of the governing board of that entity based on the words "full control".
MR. VILLEGAS: If it is within the context of the contract, I think the State cannot violate the laws of the
land.2
Moreover, "full control and supervision" does not mean that foreign stockholders cannot be legally
elected as members of the board of a corporation doing business under, say, a co-production, joint
venture or profit-sharing agreement, 40% of whose capital is foreign owned. Otherwise, and as
Commissioner Romulo declared, it would be unfair to the foreign stockholder3 and, per Commissioner
Padilla, "refusing them a voice in management would make a co-production, joint venture and
production sharing illusory."4

It is apparently for the foregoing reasons that there was a disapproval of the amendment proposed by
Commissioner, now Mr. Chief Justice Davide, that the governing and managing bodies of such
corporations shall be vested exclusively in citizens of the Philippines5 so that control of all corporations
involved in the business of utilizing our natural resources would always be in Filipino hands.

The disapproval must be juxtaposed with the fact that a provision substantially similar to the proposed
Davide amendment was approved with regard to educational institutions, viz:
Section 4 (2). Educational institutions, other than those established by religious groups and mission
boards, shall be owned solely by citizens of the Philippines or corporations or associations at least
sixty per centum of the capital of which is owned by such citizens. The Congress may, however, require
increased Filipino equity participation in all educational institutions.
The control and administration of educational institutions shall be vested in citizens of the
Philippines. (Emphasis supplied)
From the foregoing, it can be clearly inferred that it was NOT the intention of the framers of the
Constitution to deprive governing boards of domestic corporations with non-Filipino members, the right
to control and administer the corporation that explores, develops and utilizes natural resources insofar
as agreements with the State for co-production, joint venture and production-sharing are concerned,
otherwise the Davide amendment would have been approved and, like the prohibition in above-quoted
Section 4(2), Article XIV, control and supervision of all business involved in the exploration and
development of mineral resources would have been left solely in Filipino hands.

Accordingly, to the extent that the corporate board governs and manages the operations for the
exploration and use of natural resources, to that extent the "full control and supervision" thereof by the
State is diminished.
In effect, therefore, when the State enters into such agreements as provided in the Constitution, it
allows itself to surrender part of its sovereign right to full control and supervision of said activities, the
State having the right to partly surrender the exercise of sovereign powers under the doctrine of auto-
limitation.6
If foreigners (under joint ventures etc.) have a say in the management of the business of utilizing
natural resources as corporate directors of domestic corporations, there is no justification for holding
that foreign corporations who put in considerably large amounts of money under agreements involving
either technical or financial assistance for large scale exploration, development and utilization of
minerals, petroleum and other mineral oils are prohibited from managing such business.

Indeed, to say that the Constitution requires the State to have full and total control and supervision of
the exploration, development and utilization of minerals when undertaken in a large scale under
agreements with foreign corporations involving huge amounts of money is to divorce oneself from
reality. As Mr. Justice Panganiban said, no firm would invest funds in such enterprise unless it has a
say in the management of the business.
To paraphrase this Court in one of its landmark cases, the fundamental law does not intend an
impossible undertaking.7 It must therefore be presumed that the Constitution did not at all intend an
interpretation of Section 2, Article XII which deprives the foreign corporation engaged in large scale
mining activities a measure of control in the management and operation of such activities, and in said
manner, remove from the realm of the possible the enterprise the Constitution envisions thereunder.

This brings me to the final point raised by my esteemed colleague, Mme. Justice Conchita Carpio
Morales, that it is of no moment that the declaration of Rep. Act No. 7942 may discourage foreign
assistance and/or retard or delay the exploration, development or utilization of the nation's natural
resources as the Filipino people, as early as the 1935 Constitution, have determined such matters as
secondary to the protection and preservation of their ownership of these natural resources. With due
respect, I find such proposition not legally justifiable as it looks backward to the justification in the 1935
Constitution instead of forward under the 1987 Constitution which expressly allows foreign
participation in the exploration, development or utilization of the nation's marine wealth to allow the
State to take advantage of foreign funding or technical assistance. As long as the means employed
by such foreign assistance result in real contributions to the economic growth of our country and
enhance the general welfare of our people, the development of our mineral resources by and through
foreign corporations, such FTAAs are not unconstitutional.
II. RE: REQUIREMENT THAT FTAAs MUST BE "BASED
ON REAL CONTRIBUTIONS TO THE ECONOMIC GROWTH
AND GENERAL WELFARE OF THE COUNTRY"
The policy behind Rep. Act No. 7942 is to promote the "rational exploration, development, utilization
and conservation" of the State-owned mineral resources "through the combined efforts of government
and the private sector in order to enhance national growth in a way that effectively safe-guards the
environment and protect the rights of affected communities".8 This policy, with reference specifically
to FTAAs, is in keeping with the constitutional precept that FTAAs must be based on real contributions
to the economic growth and general welfare of the country. As has been said, "a statute derives its
vitality from the purpose for which it is enacted and to construe it in a manner that disregards or defeats
such purpose is to nullify or destroy the law."9 In this regard, much has been said about the alleged
unconstitutionality of Section 81 of Rep. Act No. 7942 as it allegedly allows for the waiver of the State's
right to receive income from the exploitation of its mineral resources as it limits the State's share in
FTAAs with foreign contractors to taxes, duties and fees. For clarity, the provision states –
SEC. 81. Government Share in Other Mineral Agreements. -- The share of the Government in co-
production and joint-venture agreements shall be negotiated by the Government and the contractor
taking into consideration the: (a) capital investment of the project, (b) risks involved, (c) contribution of
the project to the economy, and (d) other factors that will provide for a fair and equitable sharing
between the Government and the contractor. The Government shall also be entitled to compensations
for its other contributions which shall be agreed upon by the parties, and shall consist, among other
things, the contractor's income tax, excise tax, special allowance, withholding tax due from the
contractor's foreign stockholders, arising from dividend or interest payments to the said foreign
stockholders, in case of a foreign national, and all such other taxes, duties and fees as provided for
under existing laws.
The Government share in financial or technical assistance agreement shall consist of, among other
things, the contractor's corporate income tax, excise tax, special allowance, withholding tax due from
the contractor's foreign stockholders arising from dividend or interest payments to the said foreign
stockholder in case of foreign national and all such other taxes, duties and fees as provided for
under existing laws.
The collection of Government share in financial or technical assistance agreement shall commence
after the financial or technical assistance agreement contractor has fully recovered its pre-operating
expenses, exploration, and development expenditures, inclusive. (Emphasis supplied)
The controversy revolves around the proper interpretation of "among other things" stated in the second
paragraph of Section 81. Mr. Justice Carpio is of the opinion that "among other things" could only
mean "among other taxes", referring to the unnamed "other taxes, duties, and fees as provided for
under existing laws" contained in the last clause of Section 81, paragraph 2. If such were the correct
interpretation, then truly, the provision is unconstitutional as a sharing based only on taxes cannot be
considered as contributing to the economic growth and general welfare of the country. I am bothered,
however, by the interpretation that the phrase "among other things" refers to "and all such other taxes,
duties and fees as provided for under existing laws" since it would render the former phrase
superfluous. In other words, there would have been no need to include the phrase "among other
things" if all it means is "all other taxes" since the latter is already expressly stated in the provision. As
it is a truism that all terms/phrases used in a statute has relevance to the object of the law, then I find
the view of Mr. Justice Panganiban – that "all other things" means "additional government share" in
the form of "earnings or cash flow of the mining enterprise" as interpreted by the DENR -- more
compelling. Besides, such an interpretation would affirm the constitutionality of the provision which
would then be in keeping with the rudimentary principle that a law shall not be declared invalid unless
the conflict with the Constitution is clear beyond reasonable doubt.10 To justify nullification of a law,
there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative
implication.11

Finally, I wish to stress that it would appear that the constitutional mandate that large-scale mining
activities under FTAAs must be based on real contributions to the economic growth and general
welfare of the country is both a standard for the statute required to implement subject provision as well
as the vehicle for the exercise of the State's resultant residual control and supervision of the mining
activities.
In all FTAAs, the State is deemed to reserve its right to control the end to be achieved so that real
contributions to the economy can be realized and, in the final analysis, the business will redound to
the general welfare of the country.

However, the question of whether or not the FTAA will, in fact, redound to the general welfare of the
public involves a "judgment call" by our policy makers who are answerable to our people during the
appropriate electoral exercises and are not subject to judicial pronouncements based on grave abuse
of discretion.12

For the foregoing reasons, I vote to grant the motion for reconsideration.

DISSENTING OPINION
CARPIO, J.:

I dissent and vote to deny respondents' motions for reconsideration. I find that Section 3(aq), Section
39, Section 80, the second paragraph of Section 81, the proviso in Section 84, and the first proviso in
Section 112 of Republic Act No. 79421 ("RA 7942") violate Section 2, Article XII of the 1987
Constitution and are therefore unconstitutional.

In essence, these provisions of RA 7942 waive the State's ownership rights under the Constitution
over mineral resources. These provisions also abdicate the State's constitutional duty to control
and supervise fully the exploitation of mineral resources.
A. The Threshold Issue for Resolution
Petitioners claim that respondent Department of Environment and Natural Resources Secretary Victor
O. Ramos, in issuing the rules to implement RA 7942, gravely abused his discretion amounting to lack
or excess of jurisdiction. Petitioners assert that RA 7942 is unconstitutional for the following reasons:

1. RA 7942 "allows fully foreign owned corporations to explore, develop, utilize and exploit mineral
resources in a manner contrary to Section 2, paragraph 4, Article XII of the Constitution";

2. RA 7942 "allows enjoyment by foreign citizens as well as fully foreign owned corporations of the
nation's marine wealth contrary to Section 2, paragraph 2 of Article XII of the Constitution";
3. RA 7942 "violates Section 1, Article III of the Constitution";
4. RA 7942 "allows priority to foreign and fully foreign owned corporations in the exploration,
development and utilization of mineral resources contrary to Article XII of the Constitution";
5. RA 7942 "allows the inequitable sharing of wealth contrary to Section 1, paragraph 1, and
Section 2, paragraph 4, Article XII of the Constitution."2 (Emphasis supplied)

Petitioners also assail the validity of the Financial and Technical Assistance Agreement between the
Philippine Government and WMCP (Philippines), Inc. dated 2 March 19953 ("WMCP FTAA") for
violation of Section 2, Article XII of the 1987 Constitution.
The issues that petitioners raise boil down to whether RA 7942 and the WMCP FTAA violate
Section 2, Article XII of the 1987 Constitution.
B. The Constitutional Declaration and Mandate
Section 2, Article XII of the 1987 Constitution4 provides as follows:
All x x x minerals, x x x petroleum, and other mineral oils, x x x and other natural resources are owned
by the State. x x x The exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. x x x. (Emphasis supplied)
Two basic principles flow from this constitutional provision. First, the Constitution vests in the State
ownership of all mineral resources. Second, the Constitution mandates the State to exercise full
control and supervision over the exploitation of mineral resources.
The first principle reiterates the Regalian doctrine, which established State ownership of natural
resources since the arrival of the Spaniards in the Philippines in the 16th century. The 1935, 1973 and
1987 Constitutions incorporate the Regalian doctrine.5 The State, as owner of the nation's natural
resources, exercises the attributes of ownership over its natural resources.6 An important attribute of
ownership is the right to receive the income from any commercial exploitation of the natural
resources.7
The second principle insures that the benefits of State ownership of natural resources accrue to the
Filipino people. The framers of the 1987 Constitution introduced the second principle to avoid the
adverse effects of the "license, concession or lease"8 system of exploitation under the 1935 and 1973
Constitutions.9 The "license, concession or lease" system enriched the private concessionaires who
controlled the exploitation of natural resources. However, the "license, concession or lease" system
left the Filipino people impoverished, starkly exemplified by the nation's denuded forests whose
exploitation did not benefit the Filipino people.
The framers of the 1987 Constitution clearly intended to abandon the "license, concession or lease"
system prevailing under the 1935 and 1973 Constitutions. This exchange in the deliberations of the
Constitutional Commission reveals this clear intent:

MR. DAVIDE: Thank you, Mr. Vice-President. I would like to seek some clarifications.
MR. VILLEGAS: Yes.
MR. DAVIDE: Under the proposal, I notice that except for the lands of the public domain, all the other
natural resources cannot be alienated and in respect to lands of the public domain, private
corporations with the required ownership by Filipino citizens can only lease the same. Necessarily,
insofar as other natural resources are concerned, it would only be the State which can exploit,
develop, explore and utilize the same. However, the State may enter into a joint venture, co-
production or production-sharing. Is that not correct?
MR. VILLEGAS: Yes.
MR. DAVIDE: Consequently, henceforth upon the approval of this Constitution, no timber or
forest concessions, permits or authorization can be exclusively granted to any citizen of the
Philippines nor to any corporation qualified to acquire lands of the public domain?

MR. VILLEGAS: Would Commissioner Monsod like to comment on that? I think his answer is "yes."
MR. DAVIDE: So, what will happen now to licenses or concessions earlier granted by the Philippine
government to private corporations or to Filipino citizens? Would they be deemed repealed?

MR. VILLEGAS: This is not applied retroactively. They will be respected.10 (Emphasis supplied)
To carry out this intent, the 1987 Constitution uses a different phraseology from that used in the 1935
and 1973 Constitutions. The previous Constitutions used the phrase "license, concession or lease" in
referring to exploitation of natural resources. The 1987 Constitution uses the phrase "co-production,
joint venture or production-sharing agreements," with "full control and supervision" by the State. The
change in language was a clear rejection of the old system of "license, concession or lease."

The 1935 and 1973 Constitutions also used the words "belong to" in stating the Regalian doctrine,
thus declaring that natural resources "belong to the State." The 1987 Constitution uses the word
"owned," thus prescribing that natural resources are "owned" by the State. In using the word "owned,"
the 1987 Constitution emphasizes the attributes of ownership, among which is the right to the income
of the property owned.11
The State as owner of the natural resources must receive income from the exploitation of its natural
resources. The payment of taxes, fees and charges, derived from the taxing or police power of
the State, is not a substitute. The State is duty bound to secure for the Filipino people a fair share
of the income from any exploitation of the nation's precious and exhaustible natural resources. As
explained succinctly by a textbook writer:
Under the former licensing, concession, or lease schemes, the government benefited from such
activities only through fees, charges and taxes. Such benefits were very minimal compared with
the enormous profits reaped by the licensees, concessionaires or lessees who had control over the
particular resources over which they had been given exclusive right to exploit. Moreover, some of them
disregarded the conservation of natural resources. With the new role, the State will be able to obtain
a greater share in the profits. It can also actively husband our natural resources and engage in
development programs that will be beneficial to the nation.12 (Emphasis supplied)
Thus, the 1987 Constitution commands the State to exercise full control and supervision over the
exploitation of natural resources to insure that the State receives its fair share of the income. In Miners
Association of the Philippines v. Hon. Factoran, Jr., et al.,13 the Court ruled that "the old system
of exploration, development and utilization of natural resources through 'license, concession
or lease' x x x has been disallowed by Article XII, Section 2 of the 1987 Constitution." The Court
explained:
Upon the effectivity of the 1987 Constitution on February 2, 1987, the State assumed a more
dynamic role in the exploration, development and utilization of the natural resources of the
country. Article XII, Section 2 of the said Charter explicitly ordains that the exploration, development
and utilization of natural resources shall be under the full control and supervision of the State.
Consonant therewith, the exploration, development and utilization of natural resources may be
undertaken by means of direct act of the State, or it may opt to enter into co-production, joint venture,
or production-sharing agreements, or it may enter into agreements with foreign-owned corporations
involving either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. (Emphasis supplied)
The old system of "license, concession or lease" which merely gave the State a pittance in the form of
taxes, fees and charges is now buried in history. Any attempt to resurrect it is unconstitutional and
deserves outright rejection by this Court.
The Constitution prohibits the alienation of all natural resources except agricultural lands. 14 The
Constitution, however, allows the State to exploit commercially its natural resources and sell the
marketable products from such exploitation. This the State may do through a co-production, joint
venture or production-sharing arrangement with companies at least 60% Filipino owned. The
necessary implication is that the State, as owner of the natural resources, must receive a fair share
of the income from such commercial operation. The State may receive its share of the net income in
cash or in kind.
The State may also directly exploit its natural resources in either of two ways. The State may set up
its own company to engage in the exploitation of natural resources. Alternatively, the State may enter
into a financial or technical assistance agreement ("FTAA") with private companies who act as
contractors of the State. The State may seek from such contractors either financial or technical
assistance, or both, depending on the State's own needs. Under an FTAA, the contractor, foreign or
local, manages the contracted work or operations to the extent of its financial or technical contribution,
subject to the State's control and supervision.
Except in large-scale exploitation of certain minerals, the State's contractors must be 60% Filipino
owned companies. The State pays such contractors, for their technical services or financial assistance,
a share of the income from the exploitation of the natural resources. The State retains the remainder
of the income after paying the Filipino owned contractor.
In large-scale exploitation of minerals, petroleum and other mineral oils, the Constitution allows the
State to contract with "foreign-owned corporations" under an FTAA. This is still a direct
exploitation by the State but using a foreign instead of a local contractor. However, the Constitution
requires that the participation of foreign contractors must make a real contribution to the national
economy and the general welfare. The State pays the foreign contractor, for its technical services or
financial assistance, a share of the income from the exploitation of the minerals, petroleum or other
mineral oils. The State retains the rest of the income after paying the foreign contractor.

Whether the FTAA contractor is local or foreign, the State must retain its fair share of the income from
the exploitation of the natural resources that it owns. To insure it retains its fair share of the income,
the State must exercise full control and supervision over the exploitation of its natural resources. And
whether the FTAA contractor is local or foreign, the State is directly undertaking the exploitation of
its natural resources, with the FTAA contractor providing technical services or financing to the State.
Since the State is directly undertaking the exploitation, all exploration permits and similar
authorizations are in the name of the Philippine Government, which then authorizes the contractor
to act on its behalf.
The State exercises full control and supervision over the mining operations in the Philippines of the
foreign contractor. However, the State does not exercise control and supervision over the foreign
contractor itself or its board of directors. The State does not also exercise any control or supervision
over the foreign contractor's mining operations in other countries, or even its non-mining operations in
the Philippines. There is no conflict of power between the State and the foreign contractor's board of
directors. By entering into an FTAA, the foreign contractor, through its board of directors, agrees to
manage the contracted work or operations to the extent of its financial or technical contribution subject
to the State's control and supervision.
No government should contract with a corporation, local or foreign, to exploit commercially the nation's
natural resources without the State receiving any income as owner of the natural resources. Natural
resources are non-renewable and exhaustible assets of the State. Certainly, no government in its right
mind should give away for free its natural resources to private business enterprises, local or foreign,
amidst widespread poverty among its people.
In sum, two basic constitutional principles govern the exploitation of natural resources in the country.
First, the State owns the country's natural resources and must benefit as owner from any exploitation
of its natural resources. Second, to insure that it receives its fair share as owner of the natural
resources, the State must exercise full control and supervision over the exploitation of its natural
resources.

We shall subject RA 7942 to constitutional scrutiny based on these two basic principles.
C. Waiver of Beneficial Rights from Ownership of Mineral Resources
RA 7942 contains five provisions which waive the State's right to receive income from the exploitation
of its mineral resources. These provisions are Sections 39, 80, 81, 84 and 112:
Section 39. Option to Convert into a Mineral Agreement. — The contractor has the option to convert
the financial or technical assistance agreement to a mineral agreement at any time during the
term of the agreement, if the economic viability of the contract area is found to be inadequate
to justify large-scale mining operations, after proper notice to the Secretary as provided for under
the implementing rules and regulations: Provided, That the mineral agreement shall only be for the
remaining period of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the corporation,
partnership, association, or cooperative. Upon compliance with this requirement by the
contractor, the Secretary shall approve the conversion and execute the mineral production-
sharing agreement.
Section 80. Government Share in Mineral Production Sharing Agreement. — The total government
share in a mineral production sharing agreement shall be the excise tax on mineral products
as provided in Republic Act No. 7729, amending Section 151(a) of the National Internal Revenue
Code, as amended.
Section 81. Government Share in Other Mineral Agreements. — The share of the Government in co-
production and joint-venture agreements shall be negotiated by the Government and the contractor
taking into consideration the: (a) capital investment of the project, (b) risks involved, (c) contribution of
the project to the economy, and (d) other factors that will provide for a fair and equitable sharing
between the Government and the contractor. The Government shall also be entitled to compensation
for its other contributions which shall be agreed upon by the parties, and shall consist, among other
things, the contractor's income tax, excise tax, special allowance, withholding tax due from the
contractor's foreign stockholders arising from dividend or interest payments to the said foreign
stockholders, in case of a foreign national, and all such other taxes, duties and fees as provided for
under existing laws.
The Government share in financial or technical assistance agreement shall consist of, among
other things, the contractor's corporate income tax, excise tax, special allowance, withholding
tax due from the contractor's foreign stockholders arising from dividend or interest payments
to the said foreign stockholder in case of a foreign national and all such other taxes, duties
and fees as provided for under existing laws.
The collection of Government share in financial or technical assistance agreement shall
commence after the financial or technical assistance agreement contractor has fully recovered
its pre-operating expenses, exploration, and development expenditures, inclusive.
Section 84. Excise Tax on Mineral Products. — The contractor shall be liable to pay the excise tax on
mineral products as provided for under Section 151 of the National Internal Revenue Code: Provided,
however, That with respect to a mineral production sharing agreement, the excise tax on
mineral products shall be the government share under said agreement.
Section 112. Non-impairment of Existing Mining/Quarrying Rights. - All valid and existing mining
lease contracts, permits/licenses, leases pending renewal, mineral production–sharing agreements
granted under Executive Order No. 279, at the date of effectivity of this Act, shall remain valid x x x
Provided, That the provisions of Chapter XIV15 on government share in mineral production-
sharing agreement x x x shall immediately govern and apply to a mining lessee or contractor
unless the mining lessee or contractor indicates his intention to the Secretary, in writing, not to avail
of said provisions: x x x.

(Emphasis supplied)
Section 80 of RA 7942 limits to the excise tax the State's share in a mineral production-sharing
agreement ("MPSA"). Section 80 expressly states that the excise tax on mineral products shall
constitute the "total government share in a mineral production sharing agreement." Under
Section 151(A) of the Tax Code, this excise tax on metallic and non-metallic minerals is only 2% of
the market value, as follows:
Section 151. Mineral Products. —

(A) Rates of Tax. — There shall be levied, assessed and collected on minerals, mineral products and
quarry resources, excise tax as follows:
(1) On coal and coke, a tax of Ten pesos (P10.00) per metric ton;

(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual
market value of the gross output thereof at the time of removal, in the case of those locally extracted
or produced; or the value used by the Bureau of Customs in determining tariff and customs duties, net
of excise tax and value-added tax, in the case of importation.

xxx
(3) On all metallic minerals, a tax based on the actual market value of the gross output thereof at the
time of removal, in the case of those locally extracted or produced; or the value used by the Bureau
of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case
of importation, in accordance with the following schedule:
(a) Copper and other metallic minerals:
(i) On the first three (3) years upon the effectivity of Republic Act No. 7729, one percent (1%);
(ii) On the fourth and the fifth years, one and a half percent (1½%); and
(iii) On the sixth year and thereafter, two percent (2%).
(b) Gold and chromite, two percent (2%).
x x x. (Emphasis supplied)
Section 80 of RA 7942 does not allow the State to receive any income as owner of the mineral
resources. The proviso in Section 84 of RA 7942 reiterates this when it states that "the excise tax
on mineral products shall be the government share under said agreement."16 The State receives
only an excise tax flowing from its taxing power, not from its ownership of the mineral resources. The
excise tax is imposed not only on mineral products, but also on alcohol, tobacco and automobiles 17
produced by companies that do not exploit natural resources owned by the State. The excise tax is
not payment for the exploitation of the State's natural resources, but payment for the "privilege of
engaging in business."18 Clearly, under Section 80 of RA 7942, the State does not receive as owner
of the mineral resources any income from the exploitation of its mineral resources.
The second paragraph of Section 81 of RA 7942 also limits the State's share in FTAAs with foreign
contractors to taxes, duties and fees. Section 81 of RA 7942 provides that the State's share in FTAAs
with foreign contractors –
shall consist of, among other things, the contractor's corporate income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign stockholders arising from dividend or
interest payments to the said foreign stockholder in case of a foreign national and all such other taxes,
duties and fees as provided for under existing laws. (Emphasis supplied)
RA 7942 does not explain the phrase "among other things." The Solicitor General states correctly that
the phrase refers to taxes.19 The phrase is an ejusdem generis phrase, and means "among other
taxes, duties and fees" since the items specifically enumerated are all taxes, duties and fees. The last
phrase "all such other taxes, duties and fees as provided for under existing laws" at the end of the
sentence clarifies further that the phrase "among other things" refers to taxes, duties and fees.
The second paragraph of Section 81 does not require the Government and the foreign FTAA
contractor to negotiate the State's share. In contrast, the first paragraph of Section 81 expressly
provides that the "share of the Government in co-production and joint-venture agreements shall be
negotiated by the Government and the contractor" which is 60% Filipino owned.
In a co-production or joint venture agreement, the Government contributes other inputs or equity in
addition to its mineral resources.20 Thus, the first paragraph of Section 81 requires the Government
and the 60% Filipino owned company to negotiate the State's share. However, in an FTAA with a
foreign contractor under the second paragraph of Section 81, the Government's contribution is only
the mineral resources. Section 81 does not require the Government and the foreign contractor to
negotiate the State's share from the net proceeds because there is no share for the State. Section 81
does not recognize the State's contribution of mineral resources as worthy of any share of the
net proceeds from the mining operations.

Thus, in FTAAs with foreign contractors under RA 7942, the State's share is limited to taxes,
fees and duties. The taxes include "withholding tax due from the contractor's foreign stockholders
arising from dividend or interest payments." All these taxes, fees and duties are imposed pursuant to
the State's taxing power. The tax on income, including dividend and interest income, is imposed on all
taxpayers whether or not they are stockholders of mining companies. These taxes, fees and duties
are not contractual payments to the State as owner of the mineral resources but are mandatory
exactions based on the taxing power of the State.
Section 112 of RA 7942 is another provision that violates Section 2, Article XII of the 1987 Constitution.
Section 112 "immediately" reverts all mineral agreements to the old and discredited "license,
concession or lease" system outlawed by the 1987 Constitution. Section 112 states that "the
provisions of Chapter XIV21 on government share in mineral production-sharing agreement x x
x shall immediately govern and apply to a mining lessee or contractor." The contractor, local or
foreign, will now pay only the "government share in a mineral production-sharing agreement"
under RA 7942. Section 80 of RA 7942, which specifically governs MPSAs, limits the
"government share" solely to the excise tax on mineral products - 2% on metallic and non-
metallic minerals and 3% on indigenous petroleum.

In allowing the payment of the excise tax as the only share of the government in any mineral
agreement, whether co-production, joint venture or production-sharing, Section 112 of RA 7942
reinstates the old "license, concession or lease" system where the State receives only minimal taxes,
duties and fees. This clearly violates Section 2, Article XII of the Constitution and is therefore
unconstitutional. Section 112 of RA 7942 is a sweeping negation of the clear letter and intent of the
1987 Constitution that the exploitation of the State's natural resources must benefit primarily the
Filipino people.
Of course, Section 112 gives contractors the option not to avail of the benefit of Section 112. This is
in the guise that the enactment of RA 7942 shall not impair pre-existing mining rights, as the heading
of Section 112 states. It is doubtful, however, if any contractor of sound mind would refuse to receive
100% rather than only 40% of the net proceeds from the exploitation of minerals under the FTAA.
Another provision that violates Section 2, Article XII of the Constitution is Section 39 of RA 7942.
Section 39 grants the foreign contractor the option to convert the FTAA into a "mineral production-
sharing agreement" if the foreign contractor finds that the mineral deposits do not justify large-scale
mining operations. Section 39 of RA 7942 operates to deprive the State of income from the mining
operations and limits the State to the excise tax on mineral products.
Section 39 grants the foreign contractor the option to revert to the "license, concession or lease"
system which the 1987 Constitution has banned. The only requirement for the exercise of the option
is for the foreign contractor to divest 60% of its equity to a Philippine citizen or to a corporation 60%
Filipino owned. Section 39 states, "Upon compliance with this requirement by the contractor, the
Secretary shall approve the conversion and execute the mineral production-sharing
agreement." The foreign contractor only needs to give "proper notice to the Secretary as provided for
under the implementing rules and regulations" if the contractor finds the contract area not viable for
large-scale mining. Thus, Section 39 of RA 7942 is unconstitutional.
Sections 39, 80, 81, 84 and 112 of RA 7942 operate to deprive the State of the beneficial rights arising
from its ownership of mineral resources. What Section 2, Article XII of the 1987 Constitution vests in
absolute ownership to the State, Sections 80, 81, 84 and 112 of RA 7942 take away and give for free
to private business enterprises, including foreign-owned companies.
The legislature has discretion whether to tax a business or product. If the legislature chooses to tax a
business or product, it is free to determine the rate or amount of the tax, provided it is not confiscatory.22
The legislature has the discretion to impose merely a 2% excise tax on mineral products. Courts
cannot inquire into the wisdom of the amount of such tax, no matter how meager it may be. This
discretion of the legislature emanates from the State's taxing power, a power vested solely in the
legislature.

However, the legislature has no power to waive for free the benefits accruing to the State from its
ownership of mineral resources. Absent considerations of social justice, the legislature has no power
to give away for free what forms part of the national patrimony of the State. Any surrender by the
legislature of the nation's mineral resources, especially to foreign private enterprises, is repugnant to
the concept of national patrimony. Mineral resources form part of the national patrimony under Article
XII (National Economy and Patrimony) of the 1987 Constitution.
Under the last paragraph of Section 81, the collection of the State's so-called "share" (consisting of
taxes) in FTAAs with foreign contractors is not even certain. This paragraph provides that the State's
"share x x x shall commence after the financial or technical assistance agreement contractor has fully
recovered its pre-operating expenses, exploration, and development expenditures." There is no time
limit in RA 7942 for this grace period when the collection of the State's "share" does not run.23
RA 7942 itself does not require government approval for the pre-operating, exploration and
development expenses of the foreign contractor. The determination of the amount of pre-operating,
exploration and development expenses is left solely to the discretion of the foreign contractor. Nothing
prevents the foreign contractor from recording pre-operating, exploration and development expenses
equal to the mining revenues it anticipates for the first 10 years. If that happens, the State's share is
ZERO for the first 10 years.

The Government cannot tell the Filipino people when the State will start to receive its "share"
(consisting of taxes) in mining revenues under the FTAA. The Executive Department cannot correct
these deficiencies in RA 7942 through remedial implementing rules. The correction involves
substantive legislation, not merely filling in the implementing details of the law.

Taxes, fees and duties cannot constitute payment for the State's share as owner of the mineral
resources. This was the mode of payment used under the old system of "license, concession or lease"
which the 1987 Constitution abrogated. Obviously, Sections 80, 81, 84 and 112 of RA 7942
constitute an ingenious attempt to resurrect the old and discredited system, which the 1987
Constitution has now outlawed. Under the 1987 Constitution, the State must receive its fair share
as owner of the mineral resources, separate from taxes, fees and duties paid by taxpayers. The
legislature may waive taxes, fees and duties, but it cannot waive the State's share in mining operations.
Any law waiving for free the State's right to the benefits arising from its ownership of mineral resources
is unconstitutional. Such law negates Section 2, Article XII of the 1987 Constitution vesting ownership
of mineral resources in the State. Such law will not contribute to "economic growth and the general
welfare of the country" as required in the fourth paragraph of Section 2. Thus, in waiving the State's
income from the exploitation of mineral resources, Section 80, the second paragraph of Section 81,
the proviso in Section 84, and Section 112 of RA 7942 violate the Constitution and are therefore void.
D. Abdication of the State's Duty to Control and Supervise
Fully the Exploitation of Mineral Resources
The 1987 Constitution commands the State to exercise "full control and supervision" over the
exploitation of natural resources. The purpose of this mandatory directive is to insure that the State
receives its fair share in the exploitation of natural resources. The framers of the Constitution were
determined to avoid the disastrous mistakes of the past. Under the old system of "license, concession
or lease," the State gave full control to the concessionaires who enriched themselves while paying the
State minimal taxes, fees and charges.
Under the 1987 Constitution, for a co-production, joint venture or production-sharing agreement to be
valid the State must exercise full control and supervision over the mining operations. This means that
the State should approve all capital and operating expenses in the exploitation of the natural
resources. Approval of capital expenses determines how much capital is recoverable by the mining
contractor. Approval of operating expenses determines the reasonable amounts deductible from the
annual income from mining operations. Such approvals are essential because the net income from
mining operations, which is the basis of the State's share, depends on the allowable amount of capital
and operating expenses. There is approval of capital and operating expenses when the State approves
them, or if the State disapproves them and a dispute arises, when their final allowance is subject to
arbitration.
The provisions of RA 7942 on MPSAs and FTAAs do not give the State any control and supervision
over mining operations. The reason is obvious. The State's so-called "share" in a mineral production-
sharing agreement under Section 80 is limited solely to the excise tax on mineral products. This excise
tax is based on the market value of the mineral product determined without reference to the capital or
operating expenses of the mining contractor.

Likewise, the State's "share" in an FTAA under Section 81 has no relation to the capital or operating
expenses of the foreign contractor. The State's "share" constitutes the same excise tax on mineral
products, in addition to other direct and indirect taxes. The basis of the excise tax is the selling price
of the mineral product. Hence, there is no reason for the State to approve or disapprove the capital or
operating expenses of the mining contractor. Consequently, RA 7942 does not give the State any
control and supervision over mining operations contrary to the express command of the Constitution.
This makes Section 80, the second paragraph of Section 81, the proviso in Section 84, and Section
112 of RA 7942 unconstitutional.
E. RA 7942 Will Not Contribute to Economic
Growth or General Welfare of the Country

The fourth paragraph of Section 2, Article XII of the 1987 Constitution requires that FTAAs with foreign
contractors must make "real contributions to the economic growth and general welfare of the
country." Under Section 81 of RA 7942, all the net proceeds arising from the exploitation of mineral
resources accrue to the foreign contractor even if the State owns the mineral resources. The foreign
contractor will naturally repatriate the entire after-tax net proceeds to its home country. Sections 94(a)
and 94(b) of RA 7942 guarantee the foreign contractor the right to repatriate its after-tax net proceeds,
as well as its entire capital investment, after the termination of its mining operations in the country.24
Clearly, 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. The foreign contractor, after it ceases to operate in the country,
can even remit to its home country the scrap value of its capital equipment. Thus, the second
paragraph of Section 81 of RA 7942 is unconstitutional for failure to meet the constitutional
requirement that the FTAA with a foreign contractor should make a real contribution to the national
economy and general welfare.

F. Example of FTAA that Complies with Section 2, Article XII of the 1987 Constitution
The Solicitor General warns that declaring unconstitutional RA 7942 or its provisions will endanger the
Philippine Government's contract with the foreign contractor extracting petroleum in Malampaya,
Palawan.25 On the contrary, the FTAA with the foreign petroleum contractor meets the essential
constitutional requirements since the State receives a fair share of the income from the petroleum
operations. The State also exercises control and supervision over the exploitation of the petroleum.
The petroleum FTAA provides enough safeguards to insure that the petroleum operations will make a
real contribution to the national economy and general welfare.

The Service Contract dated 11 December 1990 between the Philippine Government as the first party,
and Occidental Philippines, Inc. and Shell Exploration B.V. as the second party26 ("Occidental-Shell
FTAA"), covering offshore exploitation of petroleum in Northwest Palawan, contains the following
provisions:
a. There is express recognition that the "conduct of Petroleum Operations shall be under the full
control and supervision of the Office of Energy Affairs,"27 now Department of Energy ("DOE"),
and that the "CONTRACTOR shall undertake and execute the Petroleum Operations
contemplated hereunder under the full control and supervision of the OFFICE OF ENERGY
AFFAIRS;"28

b. The State receives 60% of the net proceeds from the petroleum operations, while the foreign
contractor receives the remaining 40%;29
c. The DOE has a right to inspect and audit every year the foreign contractor's books and accounts
relating to the petroleum operations, and object in writing to any expense (operating and capital
expenses)30 within 60 days from completion of the audit, and if there is no amicable settlement,
the dispute goes to arbitration;31
d. The operating expenses in any year cannot exceed 70% of the gross proceeds from the sale of
petroleum in the same year, and any excess may be carried over in succeeding years;32
e. The Bureau of Internal Revenue ("BIR") can inspect and examine all the accounts, books and
records of the foreign contractor relating to the petroleum operations upon 24 hours written notice;33
f. The petroleum output is sold at posted or market prices;34
g. The foreign contractor pays the 32% Philippine corporate income tax on its 40% share of the net
proceeds, including withholding tax on dividends or remittances of profits.35 (Emphasis supplied)
The Occidental-Shell FTAA gives the State its fair share of the income from the petroleum operations
of the foreign contractor. There is no question that the State receives its rightful share, amounting to
60% of the net proceeds, in recognition of its ownership of the petroleum resources. In addition,
Occidental-Shell's 40% share in the net proceeds is subject to the 32% Philippine income tax. The
Occidental-Shell FTAA also gives the State, through the DOE and BIR, full control and supervision
over the petroleum operations of the foreign contractor. The foreign contractor can recover only
the capital and operating expenses approved by the DOE or by the arbitral panel.36 The
Occidental-Shell FTAA also contains other safeguards to protect the interest of the State as owner of
the petroleum resources. While the foreign contractor manages the contracted work or operations to
the extent of its financial or technical contribution, there are sufficient safeguards in the FTAA to insure
compliance with the constitutional requirements. The terms of the Occidental-Shell FTAA are fair to
the State and to Occidental-Shell.
In FTAAs with a foreign contractor, the State must receive at least 60% percent of the net proceeds
from the exploitation of its mineral resources. This share is the equivalent of the constitutional
requirement that at least 60% of the capital, and hence 60% of the income, of mining companies
should remain in Filipino hands. Intervenor CMP and even respondent WMCP agree that the State
has a 60% interest in the mining operations under an FTAA with a foreign contractor. Intervenor
CMP asserts that the Philippine Government "stands in the place of the 60% Filipino-owned
company."37 Intervenor CMP also states that "the contractor will get 40% of the financial
benefits,"38 admitting that the State, which is the owner of the mineral resources, will retain the
remaining 60% of the net proceeds.

Respondent WMCP likewise admits that the 60%-40% "sharing ratio between the Philippine
Government and the Contractor is also in accordance with the 60%-40% equity requirement for
Filipino-owned corporations."39 Respondent WMCP even adds that the 60%-40% sharing ratio is
"in line with the intent behind Section 2 of Article XII that the Filipino people, as represented
by the State, benefit primarily from the exploration, development, and utilization of the
Philippines' natural resources."40 If the State has a 60% interest in the mining operations under an
FTAA, then it must retain at least 60% of the net proceeds.
Otherwise, there is no sense exploiting the State's natural resources if all or a major part of the profits
are remitted abroad, precluding any real contribution to the national economy or the general welfare.
The constitutional requirement of full control and supervision necessarily means that the State must
receive the income that corresponds to the party exercising full control, and this logically means a
majority of the income.
The Occidental-Shell FTAA satisfies these constitutional requirements because the State receives
60% of the net proceeds and exercises full control and supervision of the petroleum operations. The
State's right to receive 60% of the net proceeds and its exercise of full control and supervision are the
essential constitutional requirements for the validity of any FTAA. The name given to the contract is
immaterial – whether a "Service Contract" or any other name - provided these two essential
constitutional requirements are present. Thus, the designation of the Occidental-Shell FTAA as a
"Service Contract" is inconsequential since the two essential constitutional requirements for the validity
of the contract as an FTAA are present.

With the State's right to receive 60% of the net proceeds, coupled with its control and supervision, the
petroleum operations in the Occidental-Shell FTAA are legally and in fact 60% owned and controlled
by Filipinos. Indeed, the State is directly undertaking the petroleum exploitation with Occidental-
Shell as the foreign contractor. The Occidental-Shell FTAA does not provide for the issuance of
exploration permits to Occidental-Shell precisely because the State itself is directly undertaking the
petroleum exploitation.
Section 3(aq) of RA 7942 allows the foreign contractor to hold the exploration permit under the FTAA.
However, Section 2, Article XII of the 1987 Constitution does not allow foreign owned corporations to
undertake directly mining operations. Foreign owned corporations can only act as contractors of the
State under the FTAA, which is one method for the State to undertake directly the exploitation of its
natural resources. The State, as the party directly undertaking the exploitation of its natural resources,
must hold through the Government all exploration permits and similar authorizations. Section 3(aq) of
RA 7942, in allowing foreign owned corporations to hold exploration permits, is unconstitutional.

The Occidental-Shell FTAA, involving a far riskier offshore venture than land-based mining operations,
is a model for emulation if foreign contractors want to comply with the constitutional requirements.
Section 112 of RA 7942, however, negates the benefits of the State from the Occidental-Shell FTAA.
Occidental-Shell can invoke Section 112 of RA 7942 and deny the State its 60% share of the net
proceeds from the exploitation of petroleum. Section 112 allows the foreign contractor to pay only the
"government share in a mineral production-sharing agreement" under RA 7942. Section 80 of
RA 7942 on MPSAs limits the "government share" solely to the excise tax – 2% on metallic and non-
metallic mineral products and 3% on petroleum. Section 112 of RA 7942 is unconstitutional since it is
contrary to Section 2, Article XII of the 1987 Constitution.
G. The WMCP FTAA Violates Section 2, Article XII of the 1987 Constitution
The WMCP FTAA41 ostensibly gives the State 60% share of the net mining revenue. In reality, this
60% share is illusory. Section 7.7 of the WMCP FTAA provides that:
From the Commencement of Commercial Production, the Contractor shall pay a government share
of sixty per centum (60%) of Net Mining Revenues, calculated in accordance with the following
provisions (the Government Share). The Contractor shall be entitled to retain the balance of all
revenues from the Mining Operations. (Emphasis supplied)
However, under Section 7.9 of the WMCP FTAA, if WMCP's foreign stockholders sell 60% of their
equity to a Philippine citizen or corporation, the State loses its right to receive its 60% share of the net
mining revenues under Section 7.7. Thus, Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7
shall be reduced by 1% of Net Mining Revenues for every 1% ownership interest in the
Contractor held by a Qualified Entity. (Emphasis supplied)
What Section 7.7 gives to the State, Section 7.9 takes away without any offsetting compensation to
the State. In reality, the State has no vested right to receive any income from the exploitation of its
mineral resources. What the WMCP FTAA gives to the State in Section 7.7 is merely by tolerance
of WMCP's foreign stockholders, who can at anytime cut off the State's entire 60% share by
selling 60% of WMCP's equity to a Philippine citizen or corporation.42 The proceeds of such sale
do not accrue to the State but belong entirely to the foreign stockholders of WMCP.
Section 2.1 of the WMCP FTAA defines a "Qualified Entity" to include a corporation 60% Filipino
owned and 40% foreign owned.43 WMCP's foreign stockholders can sell 60% of WMCP's equity to
such corporation and the sale will still trigger the operation of Section 7.9 of the WMCP FTAA. Thus,
the State will receive ZERO percent of the income but the foreign stockholders will own beneficially
64% of WMCP, consisting of their remaining 40% equity and 24% pro-rata share in the buyer-
corporation. WMCP will then invoke Section 39 of RA 7942 allowing it to convert the FTAA into an
MPSA, thus subjecting WMCP to pay only 2% excise tax on mineral products in lieu of sharing its
mining income with the State. This violates Section 2, Article XII of the 1987 Constitution requiring that
only corporations "at least sixty per centum of whose capital is owned by such citizens" can enter into
co-production, joint venture or production-sharing agreements with the State.
The State, as owner of the mineral resources, must receive a fair share of the income from any
commercial exploitation of its mineral resources. Mineral resources form part of the national patrimony,
and so are the net proceeds from such resources. The Legislature or Executive Department cannot
waive the State's right to receive a fair share of the income from such mineral resources.
The intervenor Chamber of Mines of the Philippines ("CMP") admits that under an FTAA with a foreign
contractor, the Philippine Government "stands in the place of the 60% Filipino owned company"
and hence must retain 60% of the net proceeds. Thus, intervenor CMP concedes that:
x x x In other words, in the FTAA situation, the Government stands in the place of the 60%
Filipino-owned company, and the 100% foreign-owned contractor company takes all the risks of
failure to find a commercially viable large-scale ore body or oil deposit, for which the contractor will
get 40% of the financial benefits.44 (Emphasis supplied)
For this reason, intervenor CMP asserts that the "contractor's stipulated share under the WMCP
FTAA is limited to a maximum of 40% of the net production."45 Intervenor CMP further insists that
"60% of its (contractor's) net returns from mining, if any, will go to the Government under the
WMCP FTAA."46 Intervenor CMP, however, fails to consider that the Government's 60% share is
illusory because under Section 7.9 of the WMCP FTAA the foreign stockholders of WMCP can reduce
at any time to ZERO percent the Government's share.
If WMCP's foreign stockholders do not immediately sell 60% of WMCP's equity to a Philippine citizen
or corporation, the State in the meantime receives its 60% share. However, under Section 7.10 of the
WMCP FTAA, the State shall receive its share "after the offsetting of the items referred to in
Clauses 7.8 and 7.9," namely:
7.8. The Government Share shall be deemed to include all of the following sums:
 (a) all Government taxes, fees, levies, costs, imposts, duties and royalties including excise tax,
corporate income tax, customs duty, sales tax, value added tax, occupation and regulatory
fees, Government controlled price stabilization schemes, any other form of Government
backed schemes, 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 accommodation, including loans extended to the Contractor
by its stockholders;

(b) any payments to local and regional government, including taxes, fees, levies, costs, imposts,
duties, royalties, occupation and regulatory fees and infrastructure contributions;

(c) any payments to landowners, surface rights holders, occupiers, indigenous people or Claim-
owners;
(d) costs and expenses of fulfilling the Contractor's obligations to contribute to national development
in accordance with Clause 10.1(i)(1) and 10.1(i)(2);
(e) 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;
(f) all of the foregoing items which have not previously been offset against the Government Share in
an earlier Fiscal year, adjusted for inflation.
7.9. The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall
be reduced by 1% of Net Mining Revenues for every 1% ownership interest in the Contractor held by
a Qualified Entity.
It makes no sense why under Section 7.8(e) money spent by the Government for the benefit of the
contractor, like building roads leading to the mine site, is deductible from the State's 60% share of the
Net Mining Revenues. Unless of course the purpose is solely to reduce further the State's share
regardless of any reason. In any event, the numerous deductions from the State's 60% share make
one wonder if the State will ever receive anything for its ownership of the mineral resources. Even
assuming the State will receive something, the foreign stockholders of WMCP can at anytime take it
away by selling 60% of WMCP's equity to a Philippine citizen or corporation.
In short, the State does not have any right to any share in the net income from the mining operations
under the WMCP FTAA. The stipulated 60% share of the Government is illusory. The State is left to
collect only the 2% excise tax as its sole share from the mining operations.
Indeed, on 23 January 2001, WMCP's foreign stockholders sold 100% of WMCP's equity to Sagittarius
Mines, Inc., a domestic corporation 60% Filipino owned and 40% foreign owned.47 This sale
automatically triggered the operation of Section 7.9 of the WMCP FTAA reducing the State's
share in the Net Mining Revenues to ZERO percent without any offsetting compensation to the
State. Thus, as of now, the State has no right under the WMCP FTAA to receive any share in the
mining revenues of the contractor, even though the State owns the mineral resources being exploited
under the WMCP FTAA.
Intervenor CMP anchors its arguments on the erroneous interpretation that the WMCP FTAA gives
the State 60% of the net income of the foreign contractor. Thus, intervenor CMP states that "60% of
its (WMCP's) net returns from mining, if any, will go to the Government under the WMCP FTAA." 48
This basic error in interpretation leads intervenor CMP to erroneous conclusions of law and fact.
Like intervenor CMP, respondent WMCP also maintains that under the WMCP FTAA, the State is
"guaranteed" a 60% share of the foreign contractor's Net Mining Revenues. Respondent WMCP
contends, after quoting Section 7.7 of the WMCP FTAA, that:
In other words, the State is guaranteed a sixty per centum (60%) share of the Mining Revenues,
or 60% of the actual fruits of the endeavor. This is in line with the intent behind Section 2 of
Article XII that the Filipino people, as represented by the State, benefit primarily from the
exploration, development, and utilization of the Philippines' natural resources.
Incidentally, this sharing ratio between the Philippine Government and the Contractor is also
in accordance with the 60%-40% equity requirement for Filipino-owned corporations in
Paragraph 1 of Section 2 of Article XII.49 (Italics and underscoring in the original)
This so-called "guarantee" is a sham. Respondent WMCP gravely misleads this Court. Section 7.9 of
the WMCP FTAA provides that the State's share "shall be reduced by 1% of Net Mining Revenues
for every 1% ownership interest in the Contractor held by a Qualified Entity." This reduction is
without any offsetting compensation to the State and constitutes a waiver of the State's share to
WMCP's foreign stockholders. The Executive Department cannot give away for free, especially to
foreigners, what forms part of the national patrimony. This negates the constitutionally mandated State
ownership of mineral resources for the benefit of the Filipino people.

WMCP's stockholders may also invoke Section 112 of RA 7942 allowing a mining contractor to pay
the State's share in accordance with Section 80 of RA 7942. WMCP will end up paying only the 2%
excise tax to the Philippine Government for the exploitation of the mineral resources the State owns.
In short, the old and discredited system of "license, concession or lease" will govern the WMCP
FTAA.
The WMCP FTAA is also emphatic in stating that WMCP shall have exclusive right to exploit, utilize,
process and dispose of all mineral products produced under the WMCP FTAA. Section 1.3 of the
WMCP FTAA provides:

The Contractor shall have the exclusive right to explore, exploit, utilise, process and dispose of all
Mineral products and by-products thereof that may be derived or produced from the Contract Area but
shall not, by virtue only of this Agreement, acquire any title to lands encompassed within the Contract
Area.
Under the WMCP FTAA, the contractor has exclusive right to exploit, utilize and process the
mineral resources to the exclusion of third parties and even the Philippine Government. Since
WMCP's right is exclusive, the Government has no participation in approving the operating expenses
of the foreign contractor relating to the exploitation, utilization, and processing of mineral resources.
The Government will have to accept whatever operating expenses the contractor decides to incur in
exploiting, utilizing and processing mineral resources.

Under the WMCP FTAA, the contractor has exclusive right to dispose of the minerals recovered in
the mining operations. This means that the contractor can sell the minerals to any buyer, local or
foreign, at the price and terms the contractor chooses without any intervention from the State. There
is no requirement in the WMCP FTAA that the contractor must sell the minerals at posted or market
prices. The contractor has the sole right to "mortgage, charge or encumber" the "Minerals produced
from the Mining Operations."50
Section 8.3 of the WMCP FTAA also makes a sham of the DENR Secretary's authority to approve the
foreign contractor's Work Program. Section 8.3 provides:
If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour to agree on
amendments to the Work Program or budget. If the Secretary and the Contractor fail to agree on
the proposed revision within 30 days from delivery of the Rejection Notice then the Work
Programme or Budget or variation thereof proposed by the Contractor shall be deemed
approved, so as not to unnecessarily delay the performance of the Agreement. (Emphasis supplied)

The DENR Secretary is the representative of the State which owns the mineral resources. The DENR
Secretary implements the mining laws, including RA 7942. Section 8.3, however, treats the DENR
Secretary like a subservient non-entity whom the contractor can overrule at will. Under Section 8.3 of
the WMCP FTAA, the DENR Secretary has no authority whatsoever to disapprove the Work Program.
This is not what the Constitution means by full control and supervision by the State of mining
operations.
Section 10.4(i) of the WMCP FTAA compels the Philippine Government to agree to any request
by the foreign contractor to amend the WMCP FTAA to satisfy the conditions of creditors of the
contractor. Thus, Section 10.4(i) states:
(i) the Government shall favourably consider any request, from Contractor for amendments of
this Agreement which are necessary in order for the Contractor to successfully obtain the
financing;

x x x. (Emphasis supplied)
This provision requires the Government to favorably consider any request from the contractor - which
means that the Government must render a response favorable to the contractor. In effect, the
contractor has the right to amend the WMCP FTAA even against the will of the Philippine Government
just so the contractor can borrow money from banks.
True, the preceding Section 10.4(e) of the WMCP FTAA provides that "such financing arrangements
will in no event reduce the Contractor's obligations or the Government's rights." However, Section
10.4(i) binds the Government to agree to any future amendment requested by the foreign contractor
even if the Government does not agree with the wisdom of the amendment. This provision is contrary
to the State's full control and supervision in the exploitation of mineral resources.
Clearly, under the WMCP FTAA the State has no full control and supervision over the mining
operations of the contractor. Provisions in the WMCP FTAA that grant the State full control and
supervision are negated by other provisions that take away such control and supervision.
The WMCP FTAA also violates the constitutional limits on the term of an FTAA. Section 2, Article XII
of the 1987 Constitution limits the term of a mineral agreement to "a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under such terms and conditions
as may be provided by law." The original term cannot exceed 25 years, and at the end of such term,
either the Government or the contracting party may decide not to renew the mineral agreement.
However, both the Government and the contracting party may also decide to renew the agreement, in
which case the renewal cannot exceed another 25 years. What is essential is that either party has the
option to renew or not to renew the mineral agreement at the end of the original term.
However, Section 3.3 of the WMCP FTAA binds the Philippine Government to an ironclad 50-year
term. Section 3.3 compels the Government to renew the FTAA for another 25 years after the
original 25-year term expires. Thus, Section 3.3 states:
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 a
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. (Emphasis supplied)
Under Section 3.3, the contractor has the option to renew or not to renew the agreement. The
Government has no such option and must renew the agreement once the contractor makes a request
for renewal. Section 3.3 violates the constitutional limits because it binds the Government to a 50-year
FTAA at the sole option of the contractor.
H. Arguments of the Solicitor General and the NEDA Secretary

The Solicitor General states that the "basic share" of the State in FTAAs involving large-scale
exploitation of minerals, petroleum and other mineral oils –
x x x consists of all direct taxes, fees and royalties, as well as other payments made by the Contractor
during the term of the FTAA. The amounts are paid to the (i) national government, (ii) local
governments, and (iii) persons directly affected by the mining project. Some of the major taxes paid
are as follows Section 3(g) of DAO-99-56:
A. Payments to National Government

· Excise tax on minerals – 2% of gross output of mining operations

· Contractor's income tax – 32% of taxable income for corporation
· Customs duties and fees - rate is set by Tariff and Customs Code
· VAT on imported equipment, goods and services - 10% of value

· Royalty on minerals extracted from mineral reservations, if applicable – 5% of the actual market value
of the minerals produced

· Documentary stamp tax – rate depends on the type of transaction

· Capital gains tax on traded stocks – 5 to 10% of the value
· Tax on interest payments on foreign loans – 15% of the interest
· Tax on foreign stockholders dividends - 15% of the dividend

· Wharfage and port fees

· Licensing fees (e.g., radio permit, firearms permit, professional fees)
B. Payments to Local Governments
· Local business tax - maximum of 2% of gross sale or receipt

· Real property tax - 2% of the fair market value of property based on an assessment level set by the
local government
· Local business tax - maximum of 2% of gross sale or receipt

· Special education levy - 1% of the basis used in real property tax

· Occupation tax - 50 pesos per hectare per year; 100 pesos per hectare per year if located in a mineral
concession
· Community tax - 10,500 pesos maximum per year
· Other local taxes and fees - rate and type depends on the local government
C. Other Payments

· Royalty to indigenous cultural communities, if any - not less than 1% of the gross output from mining
operations

· Special allowance – payment to claim owners or surface right owners

The Solicitor General argues that the phrase "among other things" in the second paragraph of
Section 81 of RA 7942 means that the State "is entitled to an additional government share to be paid
by the Contractor." The Solicitor General explains:
An additional government share is collected from an FTAA contractor to fulfill the intent of Section
81 of RA No. 7942, to wit:
Sec. 81. The Government share in an FTAA shall consist of, among other things, the
Contractor's corporate income tax, excise tax, special allowance, withholding tax due from the
Contractor's foreign stockholders arising from dividends or interest payments to the said
foreign stockholders in case of a foreign-owned corporation and all such other taxes, duties
and fees as provided for in existing laws. (Underscoring supplied)

The phrase "among other things" indicates that the Government is entitled to an additional share to
be paid by the Contractor, aside from the basic share in order to achieve the fifty-fifty sharing of net
benefits from mining.
By including indirect taxes and other financial contributions in the form of fuel tax; employees'
payroll and fringe benefits; various withholding taxes on royalties to land owners and claim
owners, and employees' income; value added tax on local goods, equipment, supplies and
services; and expenditures for social infrastructures in the mine site (hospitals, schools, etc.)
and development of host and neighboring communities, geosciences and mining technology,
the government share will be in the range of 60% or more of the total financial benefits. (Bold
and underscoring in the original)
The Solicitor General enumerates this "additional government share" as "indirect taxes and other
financial contributions in the form of fuel tax; employees' payroll and fringe benefits; various
withholding taxes on royalties to land owners and claim owners, and employees' income; value
added tax on local goods, equipment, supplies and services; x x x." The Solicitor General's
argument merely confirms that under Section 81 of RA 7942 the State only receives taxes, duties and
fees under the FTAA. The State does not receive, as owner of the mineral resources, any income from
the mining operations of the contractor.

In short, the "basic share" of the State consists of direct taxes by the national and local governments.
The "additional share" of the State consists of indirect taxes including even fringe benefits to
employees and compensation to private surface right owners. Direct and indirect taxes, however,
are impositions by the taxing authority, a burden borne by all taxpayers whether or not they exploit the
State's mineral resources. Fringe benefits of employees are compensation for services rendered under
an employer-employee relationship. Compensation to surface right owners is payment for the damage
suffered by private landowners arising from the mining operations. All these direct and indirect
taxes, as well as other expenses of the contractor, do not constitute payment for the share of
the State as owner of the mineral resources.
Clearly, the so-called "share" of the State consists only of direct and indirect taxes, as well as other
operating expenses not even payable to the State. The Solicitor General in effect concedes that under
the second paragraph of Section 81, the State does not receive any share of the net proceeds from
the mining operations of the FTAA contractor. Despite this, the Solicitor General insists that the State
remains the owner of the mineral resources and exercises full control over the mining operations of
the FTAA contractor. The Solicitor General has redefined the civil law concept of ownership,51 by giving
the owner full control in the exploitation of the property he owns but denying him the fruits or income
from such exploitation. The only satisfaction of the owner is that the FTAA contractor pays taxes to
the Government.
However, even this psychological satisfaction is dubious. Under the third paragraph of Section 81 of
RA 7942, the "collection of Government share in financial and technical assistance agreement shall
commence after the financial and technical assistance agreement contractor has fully recovered its
pre-operating expenses, exploration, and development expenditures, inclusive." This provision does
not defer the collection of the State's "share," but prevents the accrual of the State's "share" until the
contractor has fully recovered all its pre-operating, exploration and development expenditures. This
provision exempts for an undefined period the contractor from all existing taxes that are part
of the Government's so-called "share" under Section 81.52 The Solicitor General has interpreted
these taxes to include "other national taxes and fees" as well as "other local taxes and fees."
Secretary Romulo L. Neri of the National Economic and Development Authority ("NEDA") has warned
this Court of the supposed dire repercussions to the nation's long-term economic growth if this Court
declares the assailed provisions of RA 7942 unconstitutional.53 Under the Constitution, the NEDA is
the "independent (economic) planning agency of the government."54 However, in this case the NEDA
Secretary has joined the chorus of the foreign chambers of commerce to uphold the validity of RA
7942 as essential to entice foreign investors to exploit the nation's mineral resources.
We cannot fault the foreign chambers of commerce for driving a hard bargain to maximize the profits
of foreign investors. We are, however, saddened that the NEDA Secretary is willing to give away for
free to foreign investors the State's share of the income from its ownership of mineral resources. If the
NEDA Secretary owns the mineral resources instead of the State, will he allow the foreign contractor
to exploit his mineral resources for free, the only obligation of the foreign contractor being to pay taxes
to the Government?
Secretary Neri claims that the potential tax collection from the mining industry alone is P57 billion as
against the present collection of P2 billion. Secretary Neri adds that the potential tax collection from
incremental activities linked to mining is another P100 billion, thus putting the total potential tax
collection from mining and related industries at P157 billion.55 Secretary Neri also estimates the
"potential mining wealth in the Philippines" at P47 trillion or US$840 billion, 15 times our total
foreign debt of US$56 billion.56
If all that the State will receive from its P47 trillion potential mineral wealth is the P157 billion in direct
and indirect taxes, then the State will truly receive only a pittance. The P157 billion in taxes constitute
a mere .33% or a third of 1% of the total mineral wealth of P47 trillion. Even if the P157 billion is
collected annually over 25 years, the original term of an FTAA, the total tax collection will amount to
only P3.92 trillion, or a mere 8.35% of the total mineral wealth. The rest of the country's mineral wealth
will flow out of the country if foreign contractors exploit our mineral resources under FTAAs pursuant
to RA 7942.
Secretary Neri also warns that foreign investors who have acquired local cement factories in the last
ten years will find their investments illegal if the Court declares unconstitutional the assailed provisions
of RA 7942.57 Such specious arguments deserve scant consideration. Cement manufacturing is not a
nationalized activity. Hence, foreigners can own 100% of cement companies in this country. When the
foreign investors acquired the local cement factories, they spun off the quarry operations into separate
companies 60% owned by Filipino citizens. The foreign investors knew the constitutional requirements
of holding quarry permits.
Besides, the quarrying requirement of cement companies is just a simple surface mining of limestone.
Such activity does not constitute large-scale exploitation of mineral resources. It definitely cannot
qualify for FTAAs with foreign contractors under the fourth paragraph of Section 2, Article XII of the
Constitution. Obviously, only a company at least 60% Filipino owned can engage in such mining
activity.

The offshore Occidental-Shell FTAA shows that even in riskier ventures involving far more capital
investments, the State can negotiate and secure at least 60% of the net proceeds from the exploitation
of mineral resources. Foreign contractors like Occidental-Shell are willing to pay the State 60% of the
net proceeds from petroleum operations, in addition to paying the Government the 32% corporate
income tax on its 40% share of the net proceeds. Even intervenor CMP and respondent WMCP
agree that the State has a 60% interest in mining operations under an FTAA. I simply cannot
fathom why the NEDA Secretary is willing to accept a ZERO percent share in the income from the
exploitation of inland mineral resources.
FTAAs like the WMCP FTAA, which gives the State an illusory 60% share of the net proceeds from
mining revenues, will only impoverish further the Filipino people. The nation's potential mineral wealth
of P47 trillion will contribute to economic development only if the bulk of the wealth remains in the
country, not if remitted abroad by foreign contractors.
I. Refutation of Arguments of Majority Opinion
The majority opinion advances the following arguments:
1. DENR Department Administrative Order No. 56-99 ("DAO 56-99") is the basis for determining the
State's share in the mining income of the foreign FTAA contractor. The DENR Secretary issued DAO
56-99 pursuant to the phrase "among other things" in Section 81 of RA 7942. The majority opinion
claims that the phrase "among other things" "clearly and unmistakably reveals the legislative
intent to have the State collect more than just the usual taxes, duties and fees." The majority
opinion anchors on the phrase "among other things" its argument that RA 7942 allows the State to
collect a share in the mining income of the foreign FTAA contractor, in addition to taxes, duties and
fees. Thus, on the phrase "among other things" depends whether the State and the Filipino
people are entitled under RA 7942 to share in the vast mineral wealth of the nation, estimated
by NEDA at P47 trillion or US$840 billion.
2. FTAAs, like the WMCP FTAA, are not subject to the term limit in Section 2, Article XII of the
1987 Constitution. In short, while co-production, joint venture and production-sharing agreements
cannot exceed 25 years, renewable for another 25 years, as provided in Section 2, Article XII of the
1987 Constitution, the WMCP FTAA is not governed by the constitutional limitation. The majority
opinion states that the "constitutional term limitations do not apply to FTAAs." Thus, the majority
opinion upholds the validity of Section 3.3 of the WMCP FTAA providing for a 50-year term at the sole
option of WMCP.

3. Section 112 of RA 7942, placing "all valid and existing" mining agreements under the fiscal regime
prescribed in Section 80 of RA 7942, does not apply to FTAAs. Thus, the majority opinion states,
"[W]hether Section 112 may properly apply to co-production or joint venture agreements, the
fact of the matter is that it cannot be made to apply to FTAAs."
4. Foreign FTAA contractors and even foreign corporations can hold exploration permits, despite
Section 2, Article XII of the 1987 Constitution reserving to Philippine citizens and to corporations 60%
Filipino owned the "exploration, development and utilization of natural resources." Thus, the majority
opinion states that "there is no prohibition at all against foreign or local corporations or
contractors holding exploration permits."

5. The Constitution does not require that the State's share in FTAAs or other mineral agreements
should be at least 60% of the net mining revenues. Thus, the majority opinion states that "the Charter
did not intend to fix an iron-clad rule on the 60 percent share, applicable to all situations at all
times and in all circumstances."

I respond to the arguments of the majority opinion.

1. DAO 99-56 as Basis for Government's Share in FTAAs
The main thrust of my separate opinion is that mineral agreements under RA 7942, whether FTAAs
under Section 81 or MPSAs under Section 80, do not allow the State to receive any share from the
income of mining companies. The State can collect only taxes, duties and fees from mining companies.
The majority opinion, however, points to the phrase "among other things" in the second paragraph
of Section 81 as the authority of the State to collect in FTAAs a share in the mining income separate
from taxes, duties and fees. The majority opinion can point to no other provision in RA 7942 allowing
the State to collect any share. The majority opinion admits that limiting the State's share in any mineral
agreement to taxes, duties and fees is unconstitutional. Thus, the majority opinion's case rises or
falls on whether the phrase "among other things" allows the State to collect from FTAA
contractors any income in addition to taxes, duties and fees.
In the case of MPSAs, the majority opinion cannot point to any provision in RA 7942 allowing the State
to collect any share in MPSAs separate from taxes, duties and fees. The language of Section 80 is so
crystal clear – "the total government share in a mineral production sharing agreement shall be
the excise tax on mineral products" - that there is no dispute whatsoever about it. The majority
opinion merely states that the constitutionality of Section 80 is not in issue in the present case. Section
81, the constitutionality of which the majority opinion admits is in issue here, is intertwined with
Sections 39, 80, 84 and 112. Resolving the constitutionality of Section 81 necessarily involves a
determination of the constitutionality of Sections 39, 80, 84 and 112.
The WMCP FTAA, the constitutionality of which is certainly in issue, is governed not only by Section
81 but also by Sections 39, 80 and 112. The reason is that the WMCP FTAA is a reversible contract
that gives WMCP the absolute option at anytime to convert the FTAA into an MPSA. In short, the
WMCP FTAA is like a single coin with two sides - one an FTAA and the other an MPSA.

a. The Integrated Intent, Plan and Structure of RA 7942

The clear intent of RA 7942 is to limit the State's share from mining operations to taxes, duties and
fees, unless the State contributes equity in addition to the mineral resources. RA 7942 does not
recognize the mere contribution of mineral resources as entitling the State to receive a share in the
net mining revenues separate from taxes, duties and fees. Thus, Section 80 expressly states that the
"total government share in a mineral production sharing agreement shall be the excise tax on
mineral products." Section 84 reiterates this by stating that "with respect to mineral production
sharing agreement, the excise tax on mineral products shall be the government share under
said agreement." The only share of the State in an MPSA is the excise tax. Ironically, Sections 80
and 84 disallow the State from sharing in the production or income, even as the contract itself is called
a mineral production sharing agreement.
In co-production and joint venture agreements, where the State contributes equity in addition to the
mineral resources, the first paragraph of Section 81 expressly requires that "the share of the
government x x x shall be negotiated by the Government and the contractor." However, in
FTAAs where the State contributes only its mineral resources, the second paragraph of Section 81
states –

The Government share in financial or technical assistance agreement shall consist of, among other
things, the contractor's corporate income tax, excise tax, special allowance, withholding tax due from
the contractor's foreign stockholders arising from dividend or interest payments to the said foreign
stockholder in case of a foreign national and all such other taxes, duties and fees as provided for under
existing laws.
All the items enumerated in the second paragraph of Section 81 as comprising the "Government
share" refer to taxes, duties and fees. The phrase "all such other taxes, duties and fees as
provided for under existing laws" makes this clear.

Section 112 places "all valid and existing mining" agreements "at the date of effectivity" of RA
7942 under the fiscal regime prescribed in Section 80. Section 112 expressly states that the
"government share in mineral production sharing agreement x x x shall immediately govern
and apply to a mining lessee or contractor." Section 112 provides:

Section 112. Non-impairment of Existing Mining/Quarrying Rights. — All valid and existing mining
lease contracts, permits/licenses, leases pending renewal, mineral production-sharing agreements
granted under Executive Order No. 279, at the date of effectivity of this Act, shall remain valid,
shall not be impaired, and shall be recognized by the Government: Provided, That the provisions of
Chapter XIV on government share in mineral production-sharing agreement and of Chapter XVI
on incentives of this Act shall immediately govern and apply to a mining lessee or contractor
unless the mining lessee or contractor indicates his intention to the secretary, in writing, not to avail of
said provisions: Provided, further, That no renewal of mining lease contracts shall be made after the
expiration of its term: Provided, finally, That such leases, production-sharing agreements, financial or
technical assistance agreements shall comply with the applicable provisions of this Act and its
implementing rules and regulations. (Emphasis supplied)

Thus, Section 112 requires "all" FTAAs and MPSAs, as of the date of effectivity of RA 7942, to pay
only the excise tax - 2% on metallic and non-metallic minerals and 3% on petroleum58 - instead of the
stipulated mining income sharing, if any, in their respective FTAAs or MPSAs.
This means that Section 112 applies even to the Occidental-Shell FTAA, which was executed
before the enactment of RA 7942. This reduces the State's share in the Malampaya gas
extraction from 60% of net proceeds to 3% of the market price of the gas as provided in Section
80 of RA 7942 in relation to Section 151 of the National Internal Revenue Code. This is
disastrous to the national economy because Malampaya under the original Occidental-Shell
FTAA generates annually some US$0.5 billion to the National Treasury.
Section 112 applies to all agreements executed "under Executive Order No. 279." The WMCP
FTAA expressly states in its Section 1.1, "This Agreement is a Financial & Technical Assistance
Agreement entered into pursuant to Executive Order No. 279." Thus, Section 112 applies to the
WMCP FTAA.
Section 39 of RA 7942 grants the FTAA contractor the "option to convert" the FTAA into an MPSA
"at any time during the term" of the FTAA if the contract areas are not economically viable for large-
scale mining. Once the contractor reduces its foreign equity to not more than 40%, the Secretary
"shall approve the conversion and execute the mineral production sharing agreement. Thus,
Section 39 provides:
Section 39. Option to Convert into a Mineral Agreement. — The contractor has the option to convert
the financial or technical assistance agreement to a mineral agreement at any time during the
term of the agreement, if the economic viability of the contract area is found to be inadequate to
justify large-scale mining operations, after proper notice to the Secretary as provided for under the
implementing rules and regulations: Provided, That the mineral agreement shall only be for the
remaining period of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the corporation,
partnership, association, or cooperative. Upon compliance with this requirement by the
contractor, the Secretary shall approve the conversion and execute the mineral production-
sharing agreement. (Emphasis supplied)
The only requirement in the second paragraph of Section 39 is that the FTAA contractor shall reduce
its foreign equity to 40%. The second paragraph states, "Upon compliance with this requirement,
the Secretary shall approve the conversion and execute the mineral production sharing
agreement." The determination of the economic viability of the contract area for large-scale mining,
which is left to the foreign contractor with "proper notice" only to the DENR Secretary, is not even
made a condition for the conversion.
Under Section 3(aq) of RA 7942, the foreign contractor holds the exploration permit and conducts the
physical exploration. The foreign contractor controls the release of the technical data on the mineral
resources. The foreign contractor can easily justify the non-viability of the contract area for large-scale
mining. The Philippine Government will have to depend on the foreign contractor for technical
data on whether the contract area is viable for large-scale mining. Obviously, such a situation
gives the foreign contractor actual control in determining whether the contract area is viable for large-
scale mining.
The conversion from an FTAA into an MPSA is solely at the will of the foreign contractor because the
contractor can choose at any time to sell 60% of its equity to a Philippine citizen. The price or
consideration for the sale of the contractor's 60% equity does not go to the State but to the foreign
stockholders of the contractor. Under Section 80 of RA 7942, once the FTAA is converted into an
MPSA the only share of the State is the 2% excise tax on mineral products. Thus, under RA 7942
the FTAA contractor has the absolute option to pay the State only the 2% excise tax, despite
any other stipulated consideration in the FTAA.

Clearly, Sections 3(aq), 39, 80, 81, 84 and 112 are tightly integrated under a single intent, plan and
structure: unless the State contributes equity in addition to the mineral resources, the State shall
receive only taxes, duties and fees. The State's contribution of mineral resources is not sufficient to
entitle the State to receive any income from the mining operations separate from taxes, duties and
fees.
b. The Meaning of the Phrase "Among Other Things"
As far as the State and the Filipino people are concerned, the most important part of an FTAA is the
consideration: how much will the State receive from the exploitation of its non-renewable and
exhaustible mineral resources?
Section 81 of RA 7942 does not require the foreign FTAA contractor to pay the State any share from
the mining income apart from taxes, duties and fees. The second paragraph of Section 81, just like
Section 80, only allows the State to collect taxes, duties and fees as the State's share from the mining
operations. The intent of RA 7942 is that the State cannot share in the income from mining operations,
separate from taxes, duties and fees, based only on the mineral resources that the State contributes
to the mining operations.
This is also the position of the Solicitor General – that the State's share under Section 81 refers only
to direct and indirect taxes. Thus, the Solicitor General agrees that Section 81 does not allow
the State to collect any share from the mining income separate from taxes, duties and fees.
The majority opinion agrees that Section 81 is unconstitutional if it does not require the foreign FTAA
contractor to pay the State any share of the net mining income apart from taxes, duties and fees.
However, the majority opinion says that the phrase "among other things" in Section 81 is the
authority to require the FTAA contractor to pay a consideration separate from taxes, duties and fees.
The majority opinion cites the phrase "among other things" as the source of power of the DENR
Secretary to adopt DAO 56-9959 prescribing the formulae on the State's share from mining
operations separate from taxes, duties and fees.

In short, the majority opinion says that the phrase "among other things" is a delegation of legislative
power to the DENR Secretary to adopt the formulae on the share of the State from mining operations.
The issue now is whether the phrase "among other things" in the second paragraph of Section
81 is intended as a delegation of legislative power to the DENR Secretary. If so, the issue turns
on whether it is a valid delegation of legislative power. I reproduce again the second paragraph
of Section 81 for easy reference:

The Government share in financial or technical assistance agreement shall consist of, among other
things, the contractor's corporate income tax, excise tax, special allowance, withholding tax due
from the contractor's foreign stockholders arising from dividend or interest payments to the said foreign
stockholder in case of a foreign national and all such other taxes, duties and fees as provided for
under existing laws. (Emphasis supplied)
Section 81 of RA 7942 does not delegate any legislative power to the DENR Secretary to adopt the
formulae in determining the share of the State. There is absolutely no language in the second
paragraph of Section 81 granting the DENR Secretary any delegated legislative power. Thus,
the DENR Secretary acted without authority or jurisdiction in issuing DAO 56-99 based on a supposed
delegated power in the second paragraph of Section 81. This makes DAO 56-99 void.
Even assuming, for the sake of argument, that there is language in Section 81 delegating legislative
power to the DENR Secretary to adopt the formulae in DAO 56-99, such delegation is void. Section
81 has no standards by which the delegated power shall be exercised. There is no specification on
the minimum or maximum share that the State must receive from mining operations under FTAAs. No
parameters on the extent of the delegated power to the DENR Secretary are found in Section 81.
Neither were such parameters ever discussed even remotely by Congress when it enacted RA 7942.
In sharp contrast, the first paragraph of the same Section 81, in prescribing the State's share in co-
production and joint venture agreements, expressly specifies the standards in determining the
State's share as follows: "(a) capital investment of the project, (b) risks involved, (c) contribution of the
project to the economy, and (d) other factors that will provide for a fair and equitable sharing between
the Government and the contractor." The reason for the absence of similar standards in the
succeeding paragraph of Section 81 in determining the State's share in FTAAs is obvious - the State's
share in FTAAs is limited solely to taxes, duties and fees. Thus, such standards are inapplicable and
irrelevant.
The majority opinion now makes the formulae in DAO 56-99 the heart and soul of RA 7942 because
the formulae supposedly determine the consideration of the FTAA. The consideration is the most
important part of the FTAA as far as the State and Filipino people are concerned. The formulae in
DAO 56-99 derive life solely from the phrase "among other things." DAO 56-99 itself states that it is
issued "[P]ursuant to Section 81 and other pertinent provisions of Republic Act No. 7942." Without the
phrase "among other things," the majority opinion could not point to any other provision in RA 7942 to
support the existence of the formulae in DAO 56-99.

Thus, the phrase "among other things" determines whether the FTAA has the third element of a
valid contract – the commercial value or consideration that the State will receive. The majority opinion
in effect says that Congress made the wealth and even the future prosperity of the nation to depend
on the phrase "among other things."
The DENR Secretary can change the formulae in DAO 56-99 any time even without the approval of
the President or Congress. The DENR Secretary is the sole authority to determine the amount of
consideration that the State shall receive in an FTAA. Section 5 of DAO 56-99 states:
x x x 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 of the Republic of the Philippines. (Emphasis supplied)

Under Section 5, if the amendment in the FTAA involves non-fiscal matters, the amendment requires
the approval of the President. However, if the amendment involves a change in the fiscal regime –
referring to the consideration of the FTAA - the DENR Secretary has the final authority and approval
of the President is not required. This makes the DENR Secretary more powerful than the President.

Section 5 of DAO 56-99 violates paragraphs 4 and 5 of Section 2, Article XII of the 1987 Constitution
mandating that the President shall approve all FTAAs and send copies of all approved FTAAs to
Congress. The consideration of the FTAA is the most important part of the FTAA as far as the State
and the Filipino people are concerned. The DENR Secretary, in issuing DAO 56-99, has arrogated
to himself the power to approve FTAAs, a power vested by the Constitution solely in the
President. By not even informing the President of changes in the fiscal regime and thus preventing
such changes from reaching Congress, DAO 56-99 even seeks to hide changes in the fiscal regime
from Congress. By its provisions alone, DAO 56-99 is clearly unconstitutional and void.
Section 5 of DAO 56-99 also states that "[A]ll FTAAs approved prior to the effectivity of this
Administrative Order shall remain valid and be recognized by the Government." This means that
the fiscal regime of an FTAA executed prior to the effectivity of DAO 56-99 "shall remain valid and be
recognized." If the earlier FTAA provides for a fiscal regime different from DAO 56-99, then the fiscal
regime in the earlier FTAA shall prevail. In effect, DAO 56-99 exempts an FTAA approved prior to its
effectivity from paying the State the share prescribed in the formulae under DAO 56-99 if the earlier
FTAA provides for a different fiscal regime. Such is the case of the WMCP FTAA.

Based on the majority opinion's position that the 1987 Constitution requires payment in addition to
taxes, duties and fees, this makes DAO 56-99 unconstitutional and void. DAO 56-99 does not require
prior FTAAs to pay the State the share prescribed in the formulae under DAO 56-99 even if the
consideration in the prior FTAAs is limited only to taxes, duties and fees. DAO 56-99 recognizes such
payment of taxes, duties and fees as a "valid" consideration. Certainly, the DENR Secretary has no
authority to exempt foreign FTAA contractors from a constitutional requirement. Not even Congress
or the President can do so.
Ironically, DAO 56-99, the very authority the majority opinion cites to support its claim that the WMCP
FTAA has a consideration, does not apply to the WMCP FTAA. By its own express terms, DAO 56-
99 does not apply to FTAAs executed before the issuance of DAO 56-99, like the WMCP FTAA.
The majority opinion's position has no leg to stand on since even DAO 56-99, assuming it is valid,
cannot save the WMCP FTAA from want of consideration.

The formulae prescribed in DAO 56-99 are totally alien to the phrase "among other things." There is
no relationship whatsoever between the phrase "among other things" and the highly esoteric formulae
prescribed in DAO 56-99. No one in this Court can assure the Filipino people that the formulae in DAO
56-99 will guarantee the State 60%, or 30% or even 10% of the net proceeds from the mining
operations. And yet the majority opinion trumpets DAO 56-99 as the savior of Section 81 from certain
constitutional infirmity.
The majority opinion gives the stamp of approval and legitimacy on DAO 56-99. This assumes that
the majority understand fully the formulae in DAO 56-99. Can the majority tell the Court and the Filipino
people the minimum share that the State will receive under the formulae in DAO 56-99? The formulae
in DAO 56-99 are fuzzy since they do not guarantee the minimum share of the State, unlike the
clear and specific income sharing provisions in the Occidental-Shell FTAA or in the case of
Consolidated Mines, Inc. v. Court of Tax Appeals.60
The Solicitor General asserts that the phrase "among other things" refers to indirect taxes, an
interpretation that contradicts the DENR Secretary's interpretation under DAO 56-99. The Solicitor
General is correct. The ejusdem generis rule of statutory interpretation applies squarely to the phrase
"among other things."
In Philippine Bank of Communications v. Court of Appeals,61 the Court held:
Under the rule of ejusdem generis, where a description of things of a particular class or kind is
'accompanied by words of a generic character, the generic words will usually be limited to things of a
kindred nature with those particularly enumerated x x x.'

In Grapilon v. Municipal Council of Cigara,62 the Court construed the general word "absence" in the
phrase "absence, suspension or other temporary disability of the mayor" in Section 2195 of the
Revised Administrative Code as "on the same level as 'suspension' and 'other forms of temporary
disability'." The Court quoted with approval the following Opinion of the Secretary of Interior:
The phrase 'other temporary disability' found in section 2195 of the Code, follows the words 'absence'
and 'suspension' and is used as a modifier of the two preceding words, under the principle of statutory
construction known as ejusdem generis.
In City of Manila v. Entote,63 the Court ruled that broad expressions such as "and all others" or "any
others" or "other matters," when accompanied by an enumeration of items of the same kind or class,
"are usually to be restricted to persons or things of the same kind or class with those specifically
named" in the enumeration. Thus, the Court held:
In our jurisdiction, this Court in Ollada vs. Court of Tax Appeals, et al. applied the rule of "ejusdem
generis" to construe the purview of a general phrase "other matters" appearing after an enumeration
of specific cases decided by the Collector of Internal Revenue and appealable to the Court of Tax
Appeals found in section 7, paragraph 1, of Republic Act No. 1125, and it held that in order that a
matter may come under said general clause, it is necessary that it belongs to the same kind or class
of cases therein specifically enumerated. (Emphasis supplied)
The four requisites of the ejusdem generis rule64 are present in the phrase "among other things"
as appearing in Section 81 of RA 7942. First, the general phrase "among other things" is
accompanied by an enumeration of specific items, namely, "the contractor's corporate income tax,
excise tax, special allowance, withholding tax due from the contractor's foreign stockholders
arising from dividend or interest payments to the said foreign stockholder in case of a foreign national
and all such other taxes, duties and fees as provided for under existing laws." Second, all the items
enumerated are of the same kind or class - they are all taxes, duties and fees. Third, the enumeration
of the specific items is not exhaustive because "all such other taxes, duties and fees" are included.
Thus, the enumeration of specific items is merely illustrative. Fourth, there is no indication of legislative
intent to give the general phrase "among other things" a broader meaning. On the contrary, the
legislative intent of RA 7942 is to limit the State's share from mining operations to taxes, duties and
fees.
In short, the phrase "among other things" refers to taxes, duties and fees. The phrase "among
other things" is even followed at the end of the sentence by the phrase "and all such other taxes,
duties, and fees," reinforcing even more the restriction of the phrase "among other things" to taxes,
duties and fees. The function of the phrase "and such other taxes, duties and fees" is to clarify that
the taxes enumerated are not exhaustive but merely illustrative.
c. Formulae in DAO 56-99 a Mere Creation of DENR
The majority opinion praises the DENR for "conceiving and developing" the formulae in DAO 56-
99. Thus, the majority opinion states:
As can be seen from DAO 56-99, the agencies concerned did an admirable job of conceiving and
developing not just one formula, but three different formulas for arriving at the additional
government share. (Emphasis supplied)

Indeed, we credit the DENR for conceiving and developing on their own the formulae in DAO 56-
99. The formulae are the creation of DENR, not of Congress.

The DENR conceived and developed the formulae to save Section 81 not only from constitutional
infirmity, but also from blatantly depriving the State and Filipino people from any share in the income
of mining companies. However, the DENR's admittedly "admirable job" cannot amend Section 81 of
RA 7942. The DENR has no legislative power to correct constitutional infirmities in RA 7942. The
DENR does not also possess the constitutional power to prescribe the sharing of mining income
between the State and mining companies, the act the DENR attempts to do in adopting DAO 56-99.

d. DAO 56-99 is an Exercise in Futility

Even assuming arguendo the majority opinion is correct that the phrase "among other things"
constitutes sufficient legal basis to issue DAO 56-99, the FTAA contractor can still prevent the State
from collecting any share of the mining income. By invoking Section 39 of RA 7942 giving the foreign
FTAA contractor the option to convert the FTAA into an MPSA, the FTAA contractor can easily
place itself outside the scope of DAO 56-99 which expressly applies only to FTAAs.

Also, by invoking Section 112, the foreign contractor need not even convert its FTAA into a mineral
production agreement to place its contract under Section 80 and outside of Section 81. Section 112
automatically and immediately places all FTAAs under the fiscal regime applicable to MPSAs, forcing
the State to collect only the 2% excise tax. Thus, DAO 56-99 is an exercise in futility. This now compels
the Court to resolve the constitutionality of Sections 39 and 112 of RA 7942 in the present case.
e. Congress Prescribes the Terms and Conditions of FTAAs.
In a last-ditch attempt to justify the constitutionality of DAO 56-99, the majority opinion now claims that
the President has the prerogative to prescribe the terms and conditions of FTAAs, including
the fiscal regime of FTAAs. The majority opinion states:
x x x It is the President who is constitutionally mandated to enter into FTAAs with foreign corporations,
and in doing so, it is within the President's prerogative to specify certain terms and conditions of
the FTAAs, for example, the fiscal regime of FTAAs - i.e., the sharing of the net revenues between
the contractor and the State. (Emphasis in the original; underscoring supplied)
The majority opinion is re-writing the 1987 Constitution and even RA 7942. Paragraph 4, Section 2,
Article XII of the 1987 Constitution expressly provides:
The President may enter into agreements with foreign-owned corporations involving either technical
or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum,
and other mineral oils according to the general terms and conditions provided by law, x x x.
(Emphasis supplied)
Clearly, the 1987 Constitution mandates that the President may enter into FTAAs only "according to
the general terms and conditions provided by law." There is no doubt whatsoever that it is
Congress that prescribes the terms and conditions of FTAAs, not the President as the majority opinion
claims. The 1987 Constitution mandates the President to comply with the terms and conditions
prescribed by Congress for FTAAs.
Indeed, RA 7942 stipulates the terms and conditions for FTAAs. Section 35 of RA 7942 provides that
the "following terms, conditions, and warranties shall be incorporated in the financial or
technical assistance agreement to wit: x x x." Section 38 of RA 7942 expressly limits an FTAA to a
"term not exceeding twenty-five (25) years," which is one of the issues in the present case.
The majority opinion claims that the President has the power to prescribe "the fiscal regime of FTAAs
– i.e., the sharing of the net mining revenues between the contractor and the State." This claim
of the majority opinion renders the entire Chapter XIV of RA 7942 an act of usurpation by Congress
of Presidential power. Chapter XIV – entitled "Government Share" - prescribes the fiscal regimes
of MPSAs and FTAAs. The constitutionality of Sections 80 and 81 of Chapter XIV - whether the fiscal
regimes prescribed in these sections of RA 7942 comply with the 1987 Constitution - is the threshold
issue in this case.
The majority opinion seeks to uphold the constitutionality of Section 81 of RA 7942, an act of Congress
prescribing the fiscal regime of FTAAs. If it is the President who has the constitutional authority to
prescribe the fiscal regime of FTAAs, then Section 81 is unconstitutional for being a usurpation by
Congress of a Presidential power. The majority opinion not only re-writes the 1987 Constitution, it also
contradicts itself.
That is not all. By claiming that the President has the prerogative to prescribe the fiscal regime of
FTAAs, the majority opinion contradicts its basic theory that DAO 56-99 draws life from the phrase
"among other things" in Section 81 of RA 7942. Apparently, the majority opinion is no longer
confident of its position that DAO 56-99 draws life from the phrase "among other things." The
majority opinion now invokes a non-existent Presidential power that directly collides with the express
constitutional power of Congress to prescribe the "general terms and conditions" of FTAAs.
f. Sections 80 and 84 of RA 7942 are Void on their Face
Definitely, Section 80 of RA 7942 is constitutionally infirm even based on the reasoning of the majority
opinion. The majority opinion agrees that the 1987 Constitution requires the mining contractor to pay
the State "more than just the usual taxes, duties and fees." Under Section 80, the excise tax – 2%
for metallic and non-metallic minerals and 3% for petroleum - is the only and total share of the State
from mining operations. Section 80 provides:
Section 80. Government Share in Mineral Production Sharing Agreement. — The total government
share in a mineral production sharing agreement shall be the excise tax on mineral products
as provided in Republic Act No. 7729, amending Section 151(a) of the National Internal Revenue
Code, as amended. (Emphasis supplied)
Section 80 has no ifs or buts. Section 84 even reiterates Section 80 that "with respect to a mineral
production sharing agreement, the excise tax on mineral products shall be the government
share under said agreement." There is no ejusdem generis phrase like "among other things" in
Section 80 that the majority opinion can cling on to save it from constitutional infirmity. DAO 56-99, the
magic wand of the majority opinion, expressly applies only to FTAAs and not to MPSAs. By any legal
yardstick, even by the arguments of the majority opinion, Sections 80 and 84 are void and
unconstitutional.
g. Necessity of Resolving Constitutionality of Sections 39, 80 and 84
The majority opinion states that the constitutionality of Sections 80 and 84 of RA 7942 is not in issue
in the present case. The majority opinion forgets that petitioners have assailed the constitutionality of
RA 7942 and the WMCP FTAA for violation of Section 2, Article XII of the 1987 Constitution. Petitioner
specifically assails the "inequitable sharing of wealth" in the WMCP FTAA, which petitioners
assert is "contrary to Section 1, paragraph 1, and Section 2, paragraph 4, Article XII of the
Constitution."

Section 9.1 of the WMCP FTAA grants WMCP the absolute option, by mere notice to the DENR
Secretary, to convert the FTAA into an MPSA under Section 80. The "sharing of wealth" in Section 80
is "inequitable" and "contrary to x x x Section 2, paragraph 4, Article XII of the Constitution" because
the State will only collect the 2% excise tax in an MPSA. Such a pittance of a sharing will not make
any "real contributions to the economic growth and general welfare of the country" as required in
paragraph 4, Section 2, Article XII of the 1987 Constitution.

Section 39 of RA 7942 also grants foreign FTAA contractors the option, by mere notice to the DENR
Secretary, to convert their FTAAs into MPSAs under Section 80. Necessarily, the constitutionality of
the WMCP FTAA must be resolved in conjunction with Section 80 of RA 7942.
The WMCP FTAA is like a coin with two sides, one side is an FTAA, and the other an MPSA. By mere
notice to the DENR Secretary, WMCP can convert the contract from an FTAA to an MPSA, a copy of
which, complete with all terms and conditions, is annexed to the WMCP FTAA.65 The DENR
Secretary has no option but to sign the annexed MPSA. There are only two conditions to WMCP's
exercise of this option: the reduction of foreign equity in WMCP to 40%, and notice to the DENR
Secretary. The first condition is already fulfilled since all the equity of WMCP is now owned by a
corporation 60% Filipino owned. The notice to the DENR Secretary is solely at the will of WMCP.
What this Court is staring at right now is a dual contract - an FTAA which, by mere notice to the
DENR Secretary, immediately becomes an MPSA. The majority opinion agrees that the provisions of
the WMCP FTAA, which grant a sham consideration to the State, are void. Since the majority
opinion agrees that the WMCP FTAA has a sham consideration, the WMCP FTAA thus lacks
the third element of a valid contract. The majority opinion should declare the WMCP FTAA void
for want of consideration unless the majority opinion treats the contract as an MPSA under
Section 80. Indeed, the only recourse of WMCP to save the validity of its contract is to convert it into
an MPSA.
Thus, with the absence of consideration in the WMCP FTAA, what is actually before this Court is an
MPSA. This squarely puts in issue whether an MPSA is constitutional if the only consideration or
payment to the State is the 2% excise tax as provided in Section 80 of RA 7942.
The basic constitutional infirmity of the WMCP FTAA is the absence of a fair consideration to the State
as owner of the mineral resources. Petitioners call this the "inequitable sharing of wealth." The
constitutionality of the consideration for the WMCP FTAA cannot be resolved without determining the
validity of both Sections 80 and 81 of RA 7942 because the consideration for the WMCP FTAA is
anchored on both Sections 80 and 81.
The majority opinion refuses to face the issue of whether the WMCP contract can validly rely on
Section 80 for its consideration. If this issue is not resolved now, then the WMCP FTAA has no
consideration. The majority opinion admits that the consideration in the WMCP FTAA granting the
State 60% share in the mining revenues is a sham and thus void ab initio.
Strangely, the majority opinion claims that the share of the State in the mining revenues is not the
principal consideration of the FTAA. The majority opinion claims that the principal consideration of
the FTAA is the "development" of the minerals by the foreign contractor. The foreign contractor can
bring equipment to the mine site, tunnel the mines, and construct underground rails to bring the
minerals to the surface - in short develop the mines. What will the State and the Filipino people benefit
from such activities unless they receive a share of the mining proceeds? After the minerals are
exhausted, those equipment, tunnels and rails would be dilapidated and even obsolete. Besides, those
equipment belong to the foreign contractor even after the expiration of the FTAA.
Plainly, even a businessman with limited experience will not agree that the principal consideration in
an FTAA, as far as the State and Filipino people are concerned, is the development of the mines. It is
obvious why the majority opinion will not accept that the principal consideration is the share of the
State in the mining proceeds. Otherwise, the majority opinion will have to admit that the WMCP FTAA
lacks the third element of a valid contract - the consideration. This will compel the majority opinion to
admit that the WMCP FTAA is void ab initio.
The only way for the majority opinion to save the WMCP FTAA from nullity is to treat it as an MPSA
and thus apply Section 80 of RA 7942. This puts in issue the constitutionality of Section 80. The
majority opinion, however, refuses to treat the WMCP FTAA as an MPSA. Thus, the WMCP FTAA still
lacks a valid consideration. However, the majority opinion insists that the WMCP FTAA is valid.
If the majority opinion puts the constitutionality of Section 80 in issue, the majority opinion will have to
declare Section 80 unconstitutional. The majority opinion agrees that the 1987 Constitution requires
the State to collect "more than the usual taxes, duties and fees." Section 80 indisputably limits the
State to collect only the excise tax and nothing more.
The equivocal stance of the majority opinion will not put an end to this litigation. Once WMCP converts
its FTAA into an MPSA to avoid paying "more than the usual taxes, duties and fees," petitioners will
immediately question the validity of WMCP's MPSA as well as the constitutionality of Section 80. The
case will end up again in this Court on the same issue of whether there is a valid consideration for
such MPSA, which necessarily involves a determination of the constitutionality of Section 80. Clearly,
this Court has no recourse but to decide now the constitutionality of Section 80.
As the Solicitor General reported in his Compliance dated 20 October 2004, the DENR has signed five
MPSAs with different parties.66 These five MPSAs uniformly contain the following provision:
Share of the Government - The Government Share shall be the excise tax on mineral products
at the time of removal and at the rate provided for in Republic Act No. 7729 amending Section
151(a) of the National Internal Revenue Code, as amended, as well as other taxes, duties, and
fees levied by existing laws. (Emphasis supplied)
If the constitutionality of Section 80 is not resolved now, these five MPSAs, including the WMCP FTAA
once converted into an MPSA, will remain in limbo. There will be no implementation of these MPSAs
until the Court finally resolves this constitutional issue.
Even if evaded now, the constitutionality of Section 80 will certainly resurface, resulting in a repeat of
this litigation, most probably even between the same parties. To avoid unnecessary delay, this Court
must rule now on the constitutionality of Section 80 of RA 7942.
2. The Constitutional Term Limit Applies to FTAAs
Section 3.3 of the WMCP FTAA provides a fixed contract term of 50 years at the option of WMCP.
Thus, Section 3.3 provides:
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 a
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. (Emphasis supplied)
This provision grants WMCP the absolute right to extend the first 25-year term of the FTAA to
another 25-year term upon mere lodging of a request or notice to the Philippine Government.
WMCP has the absolute right to extend the term of the FTAA to 50 years and all that the Government
can do is to acquiesce to the wish of WMCP.
Section 3.3 of the WMCP FTAA is void because it violates Section 2, Article XII of the 1987
Constitution, the first paragraph of which provides:
All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may be provided by law. In
cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the grant. (Emphasis
supplied)
The majority opinion, however, makes the startling assertion that FTAAs are not covered by the term
limit under Section 2, Article XII of the 1987 Constitution. The majority opinion states:
I believe that the constitutional term limits do not apply to FTAAs. The reason is that the above
provision is found within paragraph 1 of Section 2 of Article XII, which refers to mineral
agreements – co-production agreements, joint venture agreements and mineral production sharing
agreements - which the government may enter into with Filipino citizens and corporations, at least 60
percent owned by Filipino citizens. (Emphasis supplied)
If the term limit does not apply to FTAAs because the term limit is found in the first paragraph of Section
2, then the other limitations in the same first paragraph of Section 2 do not also apply to FTAAs. These
limitations are three: first, that the State owns the natural resources; second, except for agricultural
lands, natural resources shall not be alienated; third, the State shall exercise full control and
supervision in the exploitation of natural resources. Under the majority opinion's interpretation,
these three limitations will no longer apply to FTAAs, leading to patently absurd results. The
majority opinion will also contradict its own admission that even in FTAAs the State must exercise full
control and supervision in the exploitation of natural resources.
Section 2, Article XII of the 1987 Constitution is a consolidation of Sections 8 and 9, Article XIV of
the 1973 Constitution, which state:
Section 8. All lands of public domain, waters, minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong to
the State. With the exception of agricultural, industrial or commercial, residential, or resettlement lands
of the public domain, natural resources shall not be alienated, and no license, concession, or lease
for the exploration, or utilization of any of the natural resources shall be granted for a period exceeding
twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses
other than development of water power, in which cases, beneficial use may be the measure and the
limit of the grant.
Section 9. The disposition, exploration, development, exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens of the Philippines, or to corporations or
associations at least sixty per centum of the capital which is owned by such citizens. The Batasang
Pambansa, in the national interest, may allow such citizens, corporations or associations to enter into
service contracts for financial, technical, management, or other forms of assistance with any foreign
person or entity for the exploration, or utilization of any of the natural resources. Existing valid and
binding service contracts for financial, technical, management, or other forms of assistance are hereby
recognized as such.
Section 9, Article XIV of the 1973 Constitution, a one-paragraph section, contained the provision
reserving the exploration, development and utilization of natural resources to Philippine
citizens or corporations 60% Filipino owned as well as the provision on FTAAs. The provision
on the 25-year term limit was found in the preceding Section 8 of Article XIV. If the 25-year term limit
under the 1973 Constitution did not apply to FTAAs, then it should not also have applied to non-FTAA
mining contracts, an interpretation that is obviously wrong. Thus, the term limit in Section 8, Article
XIV of the 1973 Constitution necessarily applied to both non-FTAA mining contracts and FTAAs in
Section 9.
What the framers of the 1987 Constitution did was to consolidate Sections 8 and 9, Article XIV of the
1973 Constitution into one section, the present Section 2, Article XII of the 1987 Constitution. The
consolidation necessitated re-arranging the sentences and paragraphs without any intention of
destroying their unity and coherence. Certainly, the consolidation did not mean that the FTAAs are no
longer subject to the 25-year term limit. If anything, the consolidation merely strengthened the need,
following the rules of statutory construction, to read and interpret together all the paragraphs, and even
the sentences, of Section 2, Article XII of the 1987 Constitution.
In his book The 1987 Constitution of the Republic of the Philippines: A Commentary, Father
Joaquin G. Bernas, S.J., who was a leading member of the 1986 Constitutional Commission,
discussed the limitations on the exploitation of natural resources. Father Bernas states:
4. Other limitations
Agreements for the exploitation of the natural resources can have a life of only twenty-five
years. This twenty-five year limit dates back to the 1935 Constitution and is considered to be a
"reasonable time to attract capital, local and foreign, and to enable them to recover their investment
and make a profit. The twenty-five year limit on the exploitation of natural resources is not applicable
to "water rights for irrigation, water supply, fisheries, or industrial uses other than the development of
water power." In these cases, "beneficial use may be the measure and the limit of the grant." But in
the case of water rights for water power, the twenty-five year limit is applicable."67 (Emphasis supplied)

The 1935, 1973 and 1987 Constitutions all limit the exploitation of natural resources to 25-year terms.
They also limit franchises for public utilities, leases of alienable lands of public domain, and water
rights for power development to 25-year terms. If a different term is intended, the Constitution
expressly says so as in water rights for uses other than power development. Under the 1973 and 1987
Constitutions, there is no separate term for FTAAs other than the 25-year term for the exploitation of
natural resources.
The WMCP FTAA draws life from Executive Order No. 279 issued on 25 July 1987 by then President
Corazon C. Aquino when she still exercised legislative powers. Section 1.1 of the WMCP FTAA
expressly states, "This Agreement is a Financial & Technical Assistance Agreement entered into
pursuant to Executive Order No. 279." Section 7 of Executive Order No. 279 provides:
Section 7. All provisions of Presidential Decree No. 463, as amended, other existing mining laws,
and their implementing rules and regulations, or parts thereof, which are not inconsistent with the
provisions of this Executive Order, shall continue in force and effect. (Emphasis supplied)
Section 40 of Presidential Decree No. 463 ("PD 463"), as amended by Presidential Decree No. 1385,
provides:
Section 40. Issuance of Mining Lease Contracts - x x x After the mining claim has been verified as to
its mineral contents and its actual location on the ground as determined through reports submitted to
the Director, the Secretary shall approve and issue the corresponding mining lease contract,
which shall be for a period not exceeding twenty-five (25) years, renewable upon the expiration
thereof for another period not exceeding twenty-five (25) years under such terms and
conditions as provided by law. (Emphasis supplied)
Thus, at the time of execution of the WMCP FTAA, statutory law limited the term of all mining contracts
to 25-year terms. PD 463 merely implemented the mandate of the 1973 Constitution on the 25-year
term limit, which is the same 25-year term limit in the 1987 Constitution. Under Section 7 of Executive
Order No. 279, Section 40 of PD 463 limiting mining contracts to a 25-year term applies to the
WMCP FTAA. Therefore, Section 3.3 of the WMCP FTAA providing for a 50-year term is void.
Then President Aquino also issued Executive Order No. 211 on 10 July 1987, a bare 17 days before
issuing Executive Order No. 279. Section 3 of Executive Order No. 211 states:

Section 3. The processing, evaluation and approval of all mining applications, declarations of locations,
operating agreements and service contracts as provided for in Section 2 above, shall be governed by
Presidential Decree No. 463, as amended, other existing mining laws, and their implementing rules
and regulations: Provided, However, that the privileges granted as well as the terms and
conditions thereof shall be subject to any and all modifications or alterations which Congress
may adopt pursuant to Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)
Section 3 of Executive Order No. 211 applies to the WMCP FTAA which was executed on 22 March
1995, more than seven years after the issuance of Executive Order No. 211. Subsequently, Congress
enacted RA 7942 to prescribe new terms and conditions for all mineral agreements. RA 7942 took
effect on 9 April 1995.
RA 7942 governs the WMCP FTAA because Executive Order No. 211 expressly makes mining
agreements like the WMCP FTAA subject to "any and all modifications or alterations which
Congress may adopt pursuant to Section 2, Article XII of the 1987 Constitution." Section 38 of
RA 7942 provides for a 25-year term limit specifically for FTAAs, thus:
Section 38. Term of Financial or Technical Assistance Agreement. — A financial or technical
assistance agreement shall have a term not exceeding twenty-five (25) years to start from the
execution thereof, renewable for not more than twenty-five (25) years under such terms and
conditions as may be provided by law. (Emphasis supplied)
Thus, the 25-year term limit specifically for FTAAs in Section 38 of RA 7942 applies to the WMCP
FTAA. Again, Section 3.3 of the WMCP FTAA providing for a 50-year term is void.

What is clear from the foregoing is that the 25-year statutory term limit on mining contracts is merely
an implementation of the 25-year constitutional term limit, whether under the 1935, 1973 or 1987
Constitutions. The majority opinion's assertion that the 25-year term in the first paragraph of Section
2, Article XII of the 1987 Constitutions does not apply to FTAAs is obviously wrong.

3. Section 112 of RA 7942 Applies to the WMCP FTAA

The majority opinion insists that Section 112 of RA 7942 does not apply to the WMCP FTAA. Section
112 provides:

Section 112. Non-impairment of Existing Mining/Quarrying Rights. — All valid and existing mining
lease contracts, permits/licenses, leases pending renewal, mineral production-sharing agreements
granted under Executive Order No. 279, at the date of effectivity of this Act, shall remain valid,
shall not be impaired, and shall be recognized by the Government: Provided, That the provisions of
Chapter XIV on government share in mineral production-sharing agreement and of Chapter XVI
on incentives of this Act shall immediately govern and apply to a mining lessee or contractor
unless the mining lessee or contractor indicates his intention to the secretary, in writing, not to avail
of said provisions: Provided, further, That no renewal of mining lease contracts shall be made after
the expiration of its term: Provided, finally, That such leases, production-sharing agreements, financial
or technical assistance agreements shall comply with the applicable provisions of this Act and its
implementing rules and regulations. (Emphasis supplied)
Section 112 "immediately" applies the fiscal regime under Section 80 on "mineral production sharing
agreement" to "all valid and existing mining" contracts, including those "granted under Executive Order
No. 279." If Section 112 applies to the WMCP FTAA, then the WMCP FTAA is subject only to the
2% excise tax under Section 80 as the "total share" of the Philippine Government.
The majority opinion states, "Whether Section 112 may properly apply to co-production or joint
venture agreements, the fact of the matter is that it cannot be made to apply to FTAAs." This
position of the majority opinion is understandable. If Section 112 applies to FTAAs, the majority opinion
would have to rule on the constitutionality of Section 80 of RA 7942. The majority opinion already
agrees that the 1987 Constitution requires the FTAA contractor to pay the State "more than the usual
taxes, duties and fees." If Section 112 applies to FTAAs, the majority opinion would have no choice
but declare unconstitutional Section 80.
Thus, the majority opinion insists that Section 112 "cannot be made to apply to FTAAs." This
insistence of the majority opinion collides with the very clear and plain language of Section
112 of RA 7942 and Section 1.1 of the WMCP FTAA. This insistence of the majority opinion will lead
to absurd results.
First, Section 112 of RA 7942 speaks of "all valid and existing mining" contracts. The phrase "all
valid and existing mining" contracts means the entire or total mining contracts in existence "at the
date of effectivity" of RA 7942 without exception. The word "all" negates any exception. This
certainly includes the WMCP FTAA, unless the majority opinion concedes that the WMCP FTAA is not
a mining contract, or if it is, that it is not a valid contract.
Second, the last proviso of Section 112 itself expressly states that "financial or technical assistance
agreements shall comply with the applicable provisions of this Act and its implementing rules
and regulations." There is no shadow of doubt whatsoever that Section 112, by its own plain, clear
and indisputable language, commands that FTAAs shall comply with RA 7942. I truly cannot fathom
how the majority opinion can assert that Section 112 cannot apply to FTAAs.
Third, Section 112 expressly refers to Chapters XIV and XVI of RA 7942. Chapter XIV refers to the
"Government Share" and covers Sections 80, 81 and 82 of RA 7942. Section 81, as the majority
opinion concedes, applies to FTAAs. Chapter XVI refers to "Incentives" and covers Section 90 to
94 of RA 7942. Section 90 states that the "contractors in mineral agreements, and financial technical
and assistance agreements shall be entitled to the fiscal and non-fiscal incentives as provided under
Executive Order No. 226 x x x." Clearly, Section 112 applies to FTAAs.
Fourth, Section 1.1 of the WMCP FTAA expressly states, "This Agreement is a Financial &
Technical Assistance Agreement entered into pursuant to Executive Order No. 279." Section
112 states in unequivocal language that "all valid and existing" agreements "granted under
Executive Order No. 279" are immediately placed under the fiscal regime of MPSAs. In short, mining
agreements granted under Executive Order No. 279 are expressly among the agreements included
in Section 112 and placed under the fiscal regime prescribed in Section 80. There is no doubt
whatsoever that Section 112 applies to the WMCP FTAA which was "entered into pursuant to
Executive Order No. 279."
Fifth, Section 3 of Executive Order No. 211 expressly subjects all mining contracts executed by the
Executive Department to the terms and conditions of new mining laws that Congress might enact in
the future. Thus, Section 3 of Executive Order No. 211 states:
Section 3. The processing, evaluation and approval of all mining applications, declarations of locations,
operating agreements and service contracts as provided for in Section 2 above, shall be governed by
Presidential Decree No. 463, as amended, other existing mining laws, and their implementing rules
and regulations: Provided, However, that the privileges granted as well as the terms and
conditions thereof shall be subject to any and all modifications or alterations which Congress
may adopt pursuant to Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)
There is no dispute that Executive Order No. 211, issued prior to the execution of the WMCP FTAA,
applies to the WMCP FTAA. There is also no dispute that RA 7942 took effect after the issuance of
Executive Order No. 211 and after the execution of the WMCP FTAA. Therefore, Section 112 of RA
7942 applies specifically to the WMCP FTAA.
Indeed, it is plain to see why Section 112 of RA 7942 applies to FTAAs, like the WMCP FTAA, that
were executed prior to the enactment of RA 7942. Section 112 is found in Chapter XX of RA 7942 on
"Transitory and Miscellaneous Provisions." The title of Section 112 refers to the "[N]on-impairment of
Existing Mining Quarrying Rights." RA 7942 is the general law governing all kinds of mineral
agreements, including FTAAs. In fact, Chapter VI of RA 7942, covering nine sections, deals
exclusively on FTAAs. The fiscal regime in FTAAs executed prior to the enactment of RA 7942 may
differ from the fiscal regime prescribed in RA 7942. Hence, Section 112 provides the transitory
provisions to resolve differences in the fiscal regimes, ostensibly to avoid impairment of contract
obligations. Clearly, Section 112 applies to FTAAs.
There are no ifs or buts in Section 112. The plain, simple and clear language of Section 112 makes
FTAAs, like the WMCP FTAA, subject to Section 112. We repeat the express words of Section 112 -
(1) "All valid and existing mining lease contracts x x x mineral production-sharing agreements
granted under Executive Order No. 279, at the date of effectivity of this Act x x x."

(2) the "x x x government share in mineral production- sharing agreement x x x shall
immediately govern and apply to a mining lessee or contractor x x x."
(3) "financial or technical assistance agreements shall comply with the applicable provisions
of this Act and its implementing rules and regulations."
With such clear and unequivocal language, how can the majority opinion blithely state that Section
112 "cannot be made to apply to FTAAs"? It defies common sense, simple logic and plain English
to assert that Section 112 does not apply to FTAAs. It defies the fundamental rule of statutory
construction as repeated again and again in jurisprudence:
Time and time again, it has been repeatedly declared by this Court that where the law speaks in clear
and categorical language, there is no room for interpretation. There is only room for application.68
For nothing is better settled than that the first and fundamental duty of courts is to apply the law as
they find it, not as they like it to be. Fidelity to such a task precludes construction or interpretation,
unless application is impossible or inadequate without it.69

Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court
has no choice but to see to it that its mandate is obeyed.70
If Section 112 of RA 7942 does not apply to FTAAs as the majority opinion asserts, what will
govern FTAAs executed before the enactment of RA 7942, like the WMCP FTAA? Section 112
expressly addresses FTAAs executed before the enactment of RA 7942, requiring these earlier FTAAs
to comply with the provisions of RA 7942 and its implementing rules. Executive Order No. 211, issued
seven years before the execution of the WMCP FTAA, requires all FTAAs subsequently executed to
comply with the terms and conditions of any future mining law that Congress may enact. That law is
RA 7942 which took effect after the execution of the WMCP FTAA.
The majority opinion allows the WMCP FTAA to become sui generis, an FTAA outside the scope of
RA 7942 which expressly governs "all" mining agreements, whether MPSAs or FTAAs. This means
that the WMCP FTAA is not even governed by Section 81 of RA 7942 and its phrase "among other
things," which the majority opinion claims is the authority to subject the WMCP FTAA to the payment
of consideration that is "more than the usual taxes, duties and fees."

This makes the majority opinion's position self-contradictory and inutile. The majority opinion claims
that the WMCP FTAA is subject to the phrase "among other things" in Section 81. At the same time,
the majority opinion asserts that Section 112, which requires earlier FTAAs to comply with Section 81
and other provisions of RA 7942, does not apply to the WMCP FTAA. The majority opinion is caught
in a web of self-contradictions.
This exemption by the majority opinion of the WMCP FTAA from Section 112 is judicial class
legislation. Why is the WMCP FTAA so special that the majority opinion wants it exempted from
Section 112 of RA 7942? Why are only "all" other FTAAs subject to the terms and conditions of RA
7942 and not the WMCP FTAA?
4. Foreign Corporations and Contractors Cannot Hold Exploration Permits
The majority opinion states that "there is no prohibition at all against foreign or local corporations
or contractors holding exploration permits." This is another assertion of the majority opinion that
directly collides with the plain language of the 1987 Constitution.
Section 2, Article XII of the 1987 Constitution expressly reserves to Philippine citizens and corporations
60% Filipino owned the "exploration, development and utilization of natural resources." The
majority opinion rationalizes its assertion in this manner:
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person
the right to conduct exploration for minerals in specified areas. Such a permit does not amount
to an authorization to extract and carry off the mineral resources that may be discovered. x x
x. (Italics in original)
The issue is not whether an exploration permit allows a foreign contractor or corporation to extract
mineral resources, for apparently by its language alone a mere exploration permit does not. There is
no dispute that an exploration permit merely means authority to explore, not to extract. The issue is
whether the issuance of an exploration permit to a foreign contractor violates the constitutional
limitation that only Philippine citizens or corporations 60% Filipino owned can engage in the
"exploration x x x of natural resources."
The plain language of Section 2, Article XII of the 1987 Constitution clearly limits to Philippine citizens
or to corporations 60% Filipino owned the right to engage in the "exploration x x x of natural
resources." To engage in "exploration" is simply to explore, not to develop, utilize or extract.
To engage in exploration one must secure an exploration permit. The mere issuance of the
exploration permit is the authority to engage in the exploration of natural resources.

This activity of exploration, which requires an exploration permit, is a reserved activity not allowed
to foreign contractors or foreign corporations. Foreign contractors and foreign corporations cannot
secure exploration permits because they cannot engage in the exploration of natural resources. If, as
the majority opinion asserts, foreign contractors or foreign corporations can secure and hold
exploration permits, then they can engage in the "exploration x x x of natural resources." This
violates Section 2, Article XII of the 1987 Constitution.
Consequently, Section 3(aq) of RA 7942, which provides that "a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting an exploration permit," is void
and unconstitutional.
However, the State may directly undertake to explore, develop and utilize the natural resources. To
do this the State may contract a foreign corporation to conduct the physical act of exploration in the
State's behalf, as in an FTAA. In such a case, the foreign FTAA contractor is merely an agent of the
State which holds the right to explore. No exploration permit is given to the foreign contractor because
it is the State that is directly undertaking the exploration, development and utilization of the natural
resources.
The requirement reserving "exploration x x x of natural resources" to Philippine citizens or to
corporations 60% Filipino owned is not a matter of constitutional whim. The State cannot allow foreign
corporations, except as contractual agents under the full control and supervision of the State, to
explore our natural resources because information derived from such exploration may have national
security implications.
If a Chinese company from the People's Republic of China is allowed to explore for oil and gas in the
Spratlys, the technical information obtained by the Chinese company may only bolster the resolve of
the Chinese Government to hold on to their occupied reefs in the Spratlys despite these reefs being
within the Exclusive Economic Zone of the Philippines. Certainly, we cannot expect the Chinese
company to disclose to the Philippine Government the important technical data obtained from such
exploration.
In Africa, foreign mining companies who have explored the mineral resources of certain countries shift
their support back and forth between government and rebel forces depending on who can give them
better terms in exploiting the mineral resources. Technical data obtained from mineral exploration have
triggered or fueled wars and rebellions in many countries. The right to explore mineral resources is
not a trivial matter as the majority opinion would want us to believe.

Even if the foreign companies come from countries with no territorial dispute with the Philippines, can
we expect them to disclose fully to the Philippine Government all the technical data they obtain on our
mineral resources? These foreign companies know that the Philippine Government will use the very
same data in negotiating from them a higher share of the mining revenues. Why will the foreign
companies give to the Philippine Government technical data justifying a higher share for the Philippine
Government and a lower share for the foreign companies? The framers of the 1935, 1973 and 1986
Constitutions were acutely aware of this problem. That is why the 1987 Constitution not only reserves
the "exploration x x x of natural resources" to Philippine citizens and to corporations 60% Filipino
owned, it also now requires the State to exercise "full control and supervision" over the "exploration
x xx of natural resources."
5. The State is Entitled to 60% Share in the Net Mining Revenues
The majority opinion claims that the Constitution does not require that the State's share in FTAAs or
other mineral agreements should be at least 60% of the net mining revenues. Thus, the majority
opinion states that "the Charter did not intend to fix an iron-clad rule on the 60 percent share,
applicable to all situations at all times and in all circumstances."
The majority opinion makes this claim despite the express admission by intervenor CMP and
respondent WMCP that the State, as owner of the natural resources, is entitled to 60% of the net
mining revenues. The intervenor CMP admits that under an FTAA, the Philippine Government "stands
in the place of the 60% Filipino owned company" and hence must retain 60% of the net income.
Thus, intervenor CMP concedes that:
x x x In other words, in the FTAA situation, the Government stands in the place of the 60%
Filipino-owned company, and the 100% foreign-owned contractor company takes all the risks of
failure to find a commercially viable large-scale ore body or oil deposit, for which the contractor will
get 40% of the financial benefits.71 (Emphasis supplied)
As applied to the WMCP FTAA, intervenor CMP asserts that the "contractor's stipulated share
under the WMCP FTAA is limited to a maximum of 40% of the net production."72 Intervenor CMP
further insists that "60% of its (contractor's) net returns from mining, if any, will go to the
Government under the WMCP FTAA."73
Like intervenor CMP, respondent WMCP also maintains that under an FTAA, the State is
"guaranteed" a 60% share of the foreign contractor's Net Mining Revenues. Respondent WMCP
admits that:
In other words, the State is guaranteed a sixty per centum (60%) share of the Mining Revenues,
or 60% of the actual fruits of the endeavor. This is in line with the intent behind Section 2 of
Article XII that the Filipino people, as represented by the State, benefit primarily from the
exploration, development, and utilization of the Philippines' natural resources.
Incidentally, this sharing ratio between the Philippine Government and the Contractor is also
in accordance with the 60%-40% equity requirement for Filipino-owned corporations in
Paragraph 1 of Section 2 of Article XII.74 (Emphasis supplied)
In short, the entire mining industry, as represented by intervenor CMP, is willing to pay the State a
share equivalent to 60% of the net mining revenues. Even the foreign contractor WMCP agrees to pay
the State 60% of its net mining revenues, albeit dishonestly.
However, the majority opinion refuses to accept that the State is entitled to what the entire mining
industry is willing to pay the State. Incredibly, the majority opinion claims that "there is no
independent showing that the taking of at least 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." Despite the willingness of the entire mining industry to pay the State a 60% share
without exception, the majority opinion insists that such sharing is not fair and reasonable to the mining
industry "under most if not all circumstances." What is the basis of the majority opinion in saying
this when the entire mining industry already admits, concedes and accepts that the State is entitled,
without exception, to 60% of the net mining revenues?

Oddly, the majority opinion cites only the personal experience of the ponente, who had previously
"been engaged in private business for many years." The majority opinion even states, in insisting that
the State should receive less than 60% share, that "[F]airness is a credo not only in law, but also
in business." The majority opinion cannot be more popish than the Pope. The majority opinion
ponente's business judgment cannot supplant the unanimous business judgment of the entire mining
industry, as manifested by intervenor CMP before this Court. What is obvious is that it is not fair to
deprive the Filipino people, many of whom live in hand to mouth existence, of what is legally their
share of the national patrimony, in light of the willingness of the entire mining industry to pay the Filipino
people their rightful share.

The majority opinion gives a "simplified illustration" to show that the State does not deserve a 60%
share of the net proceeds from mining revenues. The majority opinion states:
x x x Let us base it on gross revenues of, say, P500. After deducting operating expenses, but prior to
income tax, suppose a mining makes a taxable income of P100. A corporate income tax of 32 percent
results in P32 of taxable income going to the government, leaving the mining firm with P68.
Government then takes 60 percent thereof, equivalent to P40.80, leaving only P27.20 for the mining
firm.
The majority opinion's "simplified illustration" is indeed too simplified because it does not even consider
the exploration, development and capital expenses. The majority opinion's "simplified illustration"
deducts from gross revenues only "operating expenses." This is an egregious error that makes this
"simplified illustration" misleading. Exploration, development and other capital expenses constitute a
huge part of the deductions from gross revenues. In the early years of commercial production, the
exploration, development and capital expenses, if not subject to a cap or limitation, can wipe out the
gross revenues.
The majority opinion's operating expenses are not even taken from mining industry rates. One can
even zero out the taxable income by simply jacking up the operating expenses. A "simplified
illustration" of an income statement of an operating mining company, omitting the deduction of
amortized capital expenses, serves no purpose whatsoever. What is important is the return on the
investment of the foreign contractor. The absolute amount that goes to the contractor may be smaller
than what goes to the State. However, the amount that goes to the contractor may be a hundred times
its investment. This can only be determined if the capital expenditures of the contractor are taken into
account.
Under an FTAA, the State is directly undertaking the exploitation of mineral resources. The net
proceeds are not subject to income tax since there is no separate taxable entity. The State is an entity
but not a taxable corporate entity. The State does not pay income tax to itself, and even if it does, it is
just a book entry since it is the payor and payee at the same time. Only the 40% share of the FTAA
contractor is subject to the 32% corporate income tax. On this score alone, the majority opinion's
"simplified illustration" is wrong.
Intervenor CMP and respondent WMCP are correct in anchoring on Section 2, Article XII of the 1987
Constitution their admission that the State is entitled to 60% of the net mining revenues. Their common
position is based on the Constitution, existing laws and industry practice.

First, the State owns the mineral resources. To the owner of the mineral resources belongs the income
from any exploitation of the mineral resources. The owner may share its income with the contractor as
compensation to the contractor, which is an agent of the owner. The industry practice is the owner
receives an equal or larger share of the income as against the share of the contractor or agent.

In the Occidental-Shell FTAA covering Malampaya, where the contractor contributed all the capital
and technology, the State receives 60% of the net proceeds. In addition, Occidental-Shell's 40% share
is subject to the 32% Philippine income tax. Occidental-Shell's US$2 billion investment75 in Malampaya
is by far the single biggest foreign investment in the Philippines. The offshore Malampaya gas
extraction is also by far more capital intensive and riskier than land-based mineral extraction. Over the
20-year life of the natural gas reserves, the State will receive US$8-10 billion76 from its share in the
Occidental-Shell FTAA.
In Consolidated Mines, Inc. v. Court of Tax Appeals,77 a case decided under the 1973 Constitution,
Consolidated Mines, the concessionaire of the mines, shared equally the net mining income with
Benguet Consolidated Mines, the mining operator or contractor. Thus, as quoted in Consolidated
Mines, the agreement between the concessionaire and operator stated:
X. After Benguet has been fully reimbursed for its expenditures, advances and disbursements as
aforesaid the net profits from the operation shall be divided between Benguet and Consolidated share
and share alike, it being understood however, that the net profits as the term is used in this agreement
shall be computed by deducting from gross income all operating expenses and all disbursements of
any nature whatsoever as may be made in order to carry out the terms of this agreement. (Emphasis
supplied)

Incidentally, in Consolidated Mines the State did not receive any share in the net mining income
because of the "license, concession or lease" system under the 1935 and 1973 Constitutions. The
State and the Filipino people received only taxes, duties and fees.
Second, the State exercises "full control and supervision" over the exploitation of mineral
resources. "Full control" as used in the Constitution means more than ordinary majority control. In
corporate practice, ordinary control of a corporation means a simple majority control, or at least 50%
plus one of the total voting stock. In contrast, full or total control means two-thirds of the voting stock,
which enables the owner of the two-thirds equity to amend any provision in the charter of the
corporation. However, since foreigners can own up to 40% of the equity of mining companies, "full
control" cannot exceed the control corresponding to the State's 60% equity. Thus, the State's share in
the net proceeds of mining companies should correspond to its 60% interest and control in mining
companies.
Third, Section 2, Article XII of the 1987 Constitution requires that the FTAA must make "real
contributions to the economic growth and general welfare of the country." As respondent WMCP
aptly admits, "the intent behind Section 2 of Article XII (is) that the Filipino people, as
represented by the State, (shall) benefit primarily from the exploration, development, and
utilization of the Philippines' natural resources." For the Filipino people to benefit primarily from
the exploitation of natural resources, and for FTAAs to make real contributions to the national
economy, the majority of the net proceeds from mining operations must accrue to the State.
Fourth, the 1987 Constitution ordains the State to "conserve and develop our patrimony." The
nation's mineral resources are part of our national patrimony. The State can "conserve" our mineral
resources only if the majority of the net proceeds from the exploitation of mineral resources accrue to
the State.

In sum, only the majority opinion refuses to accept that the State has a right to receive at least 60% of
the net proceeds from mining operations. The principal parties involved in this case do not object that
the State shall receive such share. The entire mining industry and respondent WMCP admit that the
State is entitled to a 60% share of the net proceeds. The State, represented by the Government, will
certainly not object to such share.
More than anything else, the intent and language of the 1987 Constitution require that the State receive
the bulk of the income from mining operations. Only Congress, through a law, may allow a share lesser
than 60% if certain compelling conditions are present. Congress may authorize the President to
make such determination subject to standards and limitations that Congress shall prescribe.
The majority opinion wants to give the President the absolute discretion to determine the State's share
from mining revenues. The President will be hard put accepting anything less than 60% of the net
proceeds. If the President accepts less than 60%, the President is open to a charge of entering into a
manifestly and grossly disadvantageous contract to the Government because the entire mining
industry, including WMCP, has already agreed to pay 60% of the net proceeds to the State. The only
way to avoid this is for Congress to enact a law providing for the conditions when the State may receive
less than 60% of the net proceeds.
Conclusion
Let us assume that one of the Justices of this Court is the owner of mineral resources – say gold
reserves. A foreigner offers to extract the gold and pay for all development, capital and operating
expenses. How much will the good Justice demand as his or her share of the gold extracted by the
foreigner? If the Justice follows the Malampaya precedent, he or she will demand a 60% share of the
net proceeds. If the Justice follows the manifestation of intervenor CMP and respondent WMCP before
this Court, he or she will also demand a 60% share in the net proceeds. If the Justice follows the
Consolidated Mines precedent, he or she will demand no less than 50% of the net proceeds. In either
case, the 2% excise tax on the gold extracted is part of the operating expenses to be paid by the
foreigner but deducted from the gross proceeds.
Now, under the Regalian doctrine the State, not the Justice, owns the gold reserves. How much should
the State demand from the foreigner as the State's share of the gold that is extracted? If we follow
Sections 39, 80, 81, 84 and 112 of RA 7942, the State will receive only 2% excise tax as its "total
share" from the gold that is extracted.
Is this fair to the State and the Filipino people, many of whom live below the poverty line? Is this what
the 1987 Constitution mandates when it says that (a) the State must conserve and develop the nation's
patrimony, (b) the State owns all the natural resources, (c) the State must exercise full control and
supervision over the exploitation of its natural resources, and (d) FTAAs must make real contributions
to the national economy and the general welfare?
How this Court decides the present case will determine largely whether our country will remain poor,
or whether we can progress as a nation. Based on NEDA's estimates, the total mineral wealth of the
nation is P47 trillion, or US$840 billion. This is 15 times more than our US$56 billion foreign debt. Can
this Court in conscience agree that the State will receive only 2% of the P47 trillion mineral
wealth of the nation?
In Miners Association, this Court ruled that the 1987 Constitution has abandoned the old system of
"license, concession or lease" and instead installed full State control and supervision over the
exploitation of natural resources. No amount of dire warnings or media publicity should intimidate this
Court into resurrecting the old and discredited system that has caused the denudation of almost all of
the nation's virgin forests without any visible benefit to the Filipino people.

The framers of the 1987 Constitution have wisely instituted the new system to prevent a repeat of the
denudation of our forestlands that did not even make any real contribution to the economic growth of
the nation. This Court must do its solemn duty to uphold the intent and letter of the Constitution and,
in the words of the Preamble of the 1987 Constitution, "conserve and develop our patrimony" for the
benefit of the Filipino people.
This Court cannot trivialize the Filipino people's right to be the primary beneficiary of the nation's
mineral resources by ruling that the phrase "among other things" is sufficient to insure that FTAAs
will "make real contributions to the economic growth and general welfare of the country." This
Court cannot tell the Filipino people that the phrase "among other things" is sufficient to "preserve
and develop the national patrimony." This Court cannot tell the Filipino people that the phrase
"among other things" means that they will receive the bulk of mining revenues.
This Court cannot tell the Filipino people that Congress deliberately used the phrase "among other
things" to guarantee that the Filipino people will receive their equitable share from mining revenues
of foreign contractors. This Court cannot tell the Filipino people that with the phrase "among other
things," this Court has protected the national interest as mandated by the 1987 Constitution.
I therefore vote to deny the motions for reconsideration. I vote to declare unconstitutional Section
3(aq), Section 39, Section 80, the second paragraph of Section 81, the proviso in Section 84, and the
first proviso in Section 112 of RA 7942 for violation of Section 2, Article XII of the 1987 Constitution.
In issuing the rules to implement these void provisions of RA 7942, DENR Secretary Victor O. Ramos
gravely abused his discretion amounting to lack or excess of jurisdiction.
I also vote to declare unconstitutional the present WMCP FTAA for violation of the same Section 2,
Article XII of the 1987 Constitution. However, WMCP may negotiate with the Philippine Government
for a new mineral agreement covering the same area consistent with this Decision.

DISSENTING OPINION
CARPIO MORALES, J.:
Regrettably, a majority of the members of this Court has voted to reverse its January 27, 2004 Decision
in La Bugal-B'Laan Tribal Association, Inc. v. Ramos1 by which it declared certain provisions2 of the
Mining Act of 19953 on Financial or Technical Assistance Agreements (FTAAs), the related provisions
of Department of Environment and Natural Resources Administrative Order 96-40 (DAO No. 96-40),
and the March 22, 1995 Financial and Technical Assistance Agreement (FTAA) executed between
the Government of the Republic of the Philippines and WMC Philippines, Inc. (WMCP) in violation of
Section 2, Article XII of the Constitution.
Because I find that: (1) the "agreements … involving either technical or financial assistance"
contemplated by the fourth paragraph of Section 2, Article XII of the 1987 Constitution are distinct and
dissimilar from the "service contracts" under the 1973 Constitution; and (2) these certain provisions of
the Mining Act, its implementing rules, and the WMCP FTAA unconstitutionally convey beneficial
ownership and control over Philippine mineral and petroleum resources to foreign contractors, I most
respectfully dissent.
Antecedents
By motion, private respondent WMCP seeks a reconsideration of this Court's Decision, it arguing
essentially that FTAAs are the same as service contracts which were sanctioned under the 1973
Constitution.
By Resolution of June 22, 2004, this Court, upon motion,4 impleaded Philippine Chamber of Mines
(PCM), as respondent-in-intervention. Intervenor PCM argues that the "agreements" referred to in
paragraph 4 of Section 2, Article XII of the Constitution were intended to involve or include the "service
contracts" provided for in the 1973 Constitution.
The parties were, on June 29, 2004, heard on oral arguments during which two major issues were
tackled: first, the proper interpretation of the phrase "agreements… involving either technical or
financial assistance" in Section 2, Article XII of the Constitution, and second, mootness.
Thereafter, the parties submitted their respective memoranda, as required by Resolution of this Court.
However, despite the verbal request of Associate Justice Artemio V. Panganiban during the oral
arguments,5 intervenor PCM failed to submit along with its memorandum any documents to establish
international mining practices, particularly in developing countries.
Issues for Resolution
The majority opinion holds that the resolution of the Motions for Reconsideration in this case should
be confined to the issues taken up during the oral arguments on June 29, 2004. These were: (1) the
proper interpretation of the phrase "agreements… involving either technical or financial assistance" in
Section 2, Article XII of the Constitution, and (2) mootness.
It further holds that the issue of whether the Mining Act and the WMCP FTAA are manifestly
disadvantageous to the government could not be passed upon because the same was supposedly not
raised in the original petition.
These rulings, while well intentioned, cannot be accepted.
First, there is no rule of procedure, whether in Rule 52 or elsewhere, which restricts the resolution of
a case to the issues taken up in the oral arguments. The reason is obvious. The issues for resolution
in any given case are determined by the conflicting arguments of the parties as set forth in their
pleadings. On the other hand, the matters to be taken up in an oral argument may be limited, by order
of the court, to only such points as the court may deem necessary. Thus, Section 1 of Rule 49 provides:
Section 1. When allowed. – At its own instance or upon motion of a party, the court may hear the
parties in oral argument on the merits of a case, or on any material incident in connection
therewith.
The oral argument shall be limited to such matters as the court may specify in its order or
resolution (Emphasis supplied)
A narrow delimitation of matters to be taken up during oral argument is a matter of practical necessity
since often not all the relevant issues can be thoroughly discussed without unduly imposing on the
time of the Court. However, unlike a pre-trial order,6 the delimitation does not control or limit the issues
to be resolved. These issues may be subject matter of the parties' memoranda, as in this case.
Second, as noted in the Decision,7 the issue of whether the Mining Act and the WMCP FTAA afford
the State a just share in the proceeds of its natural resources was in fact raised by the petitioners, viz:
Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:
I
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act
No. 7942, the latter being unconstitutional in that it allows fully foreign owned corporations to explore,
develop, utilize and exploit mineral resources in a manner contrary to Section 2, paragraph 4, Article
XII of the Constitution;
II

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act
No. 7942, the latter being unconstitutional in that it allows the taking of private property without the
determination of public use and for just compensation;
III
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act
No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of the Constitution;
IV
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act
No. 7942, the latter being unconstitutional in that it allows enjoyment by foreign citizens as well as fully
foreign owned corporations of the nation's marine wealth contrary to Section 2, paragraph 2 of Article
XII of the Constitution;
V

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act
No. 7942, the latter being unconstitutional in that it allows priority to foreign and fully foreign owned
corporations in the exploration, development and utilization of mineral resources contrary to Article XII
of the Constitution;
VI
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows the inequitable sharing of wealth
contrary to Sections [sic] 1, paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the
Constitution;
VII
x x x in recommending approval of and implementing the Financial and Technical Assistance
Agreement between the President of the Republic of the Philippines and Western Mining Corporation
Philippines Inc. because the same is illegal and unconstitutional.8 (Emphasis and underscoring
supplied)
Indeed, this Court expressly passed upon this issue in the Decision when it held that:
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said Act
authorizes service contracts. Although the statute employs the phrase "financial and technical
agreements" in accordance with the 1987 Constitution, it actually treats these agreements as
service contracts that grant beneficial ownership to foreign contractors contrary to the
fundamental law.9 (Emphasis and underscoring supplied)
Moreover, the issue of whether the State is deprived of its just share in the proceeds from mining was
touched upon by the parties in their memoranda. Thus, respondent WMCP argues that:

Section 10.2 (a) of the COLUMBIO FTAA does not prohibit the State from partaking of the fruits
of the exploration. In fact, Section 7.7 of the COLUMBIO FTAA provides:

"7.7 Government Share

From the Commencement of Commercial Production, the Contractor shall pay a government
share of sixty per centum (60%) of Net Mining Revenues, calculated in accordance with the
following provisions (the "Government Share"). The Contractor shall be entitled to retain the
balance of all revenues from the Mining Operations."
In other words, the State is guaranteed a sixty per centum (60%) share of the Net Mining Revenues,
or 60% of the actual fruits of the endeavor. This is in line with the intent behind Section 2 of Article
XII that the Filipino people, as represented by the State, benefit primarily from the exploration,
development, and utilization of the Philippines' natural resources. 10 (Emphasis and underscoring
supplied)
while the petitioners, for their part, claim:
For instance, government share is computed on the basis of net mining revenue. Net mining revenue
is gross mining revenue less, among others, deductible expenses. Some of the allowable
deductions from the base amount to be used to compute government share are suspicious.
The WMCP FTAA contract, for instance, allows expenditures for development "outside the Contract
Area," consulting fees for work done "outside the Philippines," and the "establishment and
administration of field offices including administrative overheads incurred within and outside the
Philippines."
xxx
One mischief inherent in past service contracts was the practice of transfer pricing. UNCTAD defines
this as the "pricing of transfers of goods, services and other assets within a TNC network." If
government does not control the exploration, development and utilization of natural resources,
then the intra-transnational corporation pricing of expenditures may not become transparent.
11 (Emphasis supplied; footnotes omitted)
In fine, the majority opinion skirts an issue raised in the original Petition for Prohibition and Mandamus,
passed upon in its Decision of January 27, 2004 and argued by the parties in the present Motion for
Reconsideration.
Instead, I find that the myriad arguments raised by the parties may be grouped according to two broad
categories: first, the arguments pertaining to the constitutionality of FTAA provisions of the Mining Act;
and second, those pertaining to the validity of the WMCP FTAA. Within these categories, the following
issues are submitted for resolution: (1) whether in invalidating certain provisions of the Mining Act a
non-justiciable political question is passed upon; (2) whether the FTAAs contemplated in Section 2,
Article XII of the 1987 Constitution are identical to, or inclusive of, the "service contracts" provided for
in the 1973 Constitution; (3) whether the declaration of the unconstitutionality of certain provisions of
the Mining Act should be reconsidered; (4) whether the question of validity of the WMCP FTAA was
rendered moot before the promulgation of the Decision; and (5) whether the decision to declare the
WMCP FTAA unconstitutional and void should be reconsidered.
Following the foregoing framework of analysis, I now proceed to resolve the issues raised in the motion
for reconsideration.

I
Constitutionality of the Philippine Mining Act of 1995
The issues presented constitute
justiciable questions.
Contrary to the posture of respondent WMCP, this Court did not tread on a political question in
rendering its Decision of January 27, 2004.
The Constitution delineates the parameters of the powers of the legislative, the executive and the
judiciary.12 Whether the first and second great departments of government exceeded those parameters
is the function of the third.13 Thus, the Constitution defines judicial power to include "the duty… to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government."14
Judicial power does not extend to political questions, which are concerned with issues dependent
upon the wisdom, not the legality, of a particular measure.15 The reason is that, under our system of
government, policy issues are within the domain of the political branches of government and of the
people themselves as the repository of all state power.16 In short, the judiciary does not settle policy
issues.17
The distinction between a truly political question and an ostensible one lies in the answer to the
question of whether there are constitutionally imposed limits on powers or functions conferred upon
political bodies.18 If there are constitutionally imposed limits, then the issue is justiciable, and a court
is duty-bound to examine whether the branch or instrumentality of the government properly acted
within those limits.19
Respondent WMCP argues that the "exploration, development, and utilization of natural resources are
matters of policy, in other words, political matters or questions," over which this Court has no
jurisdiction.
Respondent is mistaken. The questions involved in this case are not political. The provisions of
paragraph 4, Section 2 of Article XII of the Constitution, including the phrase "agreements… involving
either technical or financial assistance," incorporate limitations20 on the scope of such agreements or
FTAAs. Consequently, they constitute limitations on the powers of the legislative to determine their
terms, as well as the powers of the Executive to enter into them. In its Decision, this Court found that,
by enacting the objectionable portions of the Mining Act and in entering into the subject FTAA, the
Congress and the President went beyond the constitutionally delimited scope of such agreements and
thereby transgressed the boundaries of their constitutional powers.
The "agreements" contemplated in paragraph 4, Section 2,
Article XII of the Constitution are distinct and dissimilar from the old "service contracts."
The majority and respondents share a common thesis: that the fourth paragraph of Sec. 2, Article XII
contemplates not only financial or technical assistance but, just like the service contracts which were
allowed under the 1973 Constitution, management assistance as well.
The constitutional provision in dispute reads:
Art. XII

National Economy and Patrimony

xxx
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities or it
may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-
five years, and under such terms and conditions as may be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes,
bays, and lagoons.

The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of
the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution. (Emphasis and underscoring supplied)

Its counterpart provision in Article XIV of the 1973 Constitution authorized "service contracts" as
follows:
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens, or to corporations or associations at least sixty
per centum of which is owned by such citizens. The Batasang Pambansa, in the national interest,
may allow such citizens, corporations or associations to enter into service contracts for
financial, technical, management, or other forms of assistance with any person or entity for the
exploration, development, exploration, or utilization of any of the natural resources. Existing
valid and binding service contracts for financial, technical, management, or other forms of assistance
are hereby recognized as such. (Emphasis and underscoring supplied)
Respondent WMCP contends that the fourth paragraph of Section 2 is an exception to the rule that
participation in the country's natural resources is reserved to Filipinos.21 It hastens to add, however,
that the word "may" therein is permissive not restrictive;22 and that consistent with the provision's
permissive nature, the word "involving" therein should be construed to mean "to include," such that
the assistance by foreign corporations should not be confined to technical or financial, but also to
management forms.23 And it notes that the Constitution used "involving" instead of such restrictive
terms as "solely," "only," or "limited to."24
To the Office of the Solicitor General (OSG), the intent behind the fourth paragraph is to prevent the
practice under the 1973 Constitution of allowing foreigners to circumvent the capitalization
requirement,25 as well as to address the absence of a governing law that led to the abuse of service
contracts.26 The phrase "technical or financial" is merely for emphasis, the OSG adds, that it is
descriptive, not definitive, of the forms of assistance that the State needs and which foreign
corporations may provide in the large-scale exploration, development and utilization of the specified
resources.27 Furthermore, the OSG contends that the denomination of the subject FTAA as a "financial
and technical assistance agreement" is a misnomer and should more properly be called "agreements
for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral
oils."28 It argues that the President has broad discretion to enter into any agreement, regardless of the
scope of assistance, with foreign corporations.29 Driving its point, the OSG poses: If the framers of the
Constitution intended to limit the service of foreign corporations to "passive assistance," such as
simple loan agreements, why confine them to large-scale ventures?30 Why does the Constitution
require that such agreements be based on real contributions to economic growth and general welfare
of the country?31 Why the condition in the last paragraph of Section 2 that the President report to
Congress?32 Finally, the OSG asserts that these requirements would be superfluous if the assistance
to be rendered were merely technical or financial.33 And that it would make more sense if the phrase
"agreements… involving technical or financial assistance" were construed to mean the same concept
as the service contracts under the 1973 Constitution.

The OSG's contentions are complemented by intervenor PCM which maintains that the FTAA "is an
agreement for [the] rendition of a whole range of services of an integrated and comprehensive
character, ranging from discovery through development and utilization and production of minerals or
petroleum by the foreign-owned corporation."34 In fine, intervenor posits that the change in phraseology
in the 1987 Constitution does not relate to the substance of the agreement,35 otherwise, the State itself
would be compelled to conduct the exploration, development and utilization of natural resources,
ventures that it is ill-equipped to undertake.36
Primary Concepts in Article XII of the Constitution

Before passing upon the foregoing arguments and for better clarity, it may be helpful to first examine
the concepts of (a) "beneficial ownership," (b) "full control and supervision," and (c) "real contributions
to the economic growth and general welfare of the country" which are at the heart of Section 2, Article
XII of the Constitution.
Beneficial Ownership
Beneficial ownership, as the plain meaning of the words implies, refers to the right to the gains, rewards
and advantages generated by the property.37
The concept is not new, but in fact is well entrenched in the law of trusts.38 Thus, while the trustee
holds the legal title to or ownership of the property entrusted to him, he is nevertheless not the
beneficial owner. Rather, he holds and administers the property for the benefit of another, called the
beneficiary or the cestui que trust. Hence, the profits realized from the administration and management
of the property by the trustee, who is the "naked owner," less any lawful fees due to the latter, accrue
to the cestui que trust, who is the "beneficial" or "equitable" owner.39
The foregoing concepts are directly applicable to the statement in Section 2, Article XII of the
Constitution that "[a]ll lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State."
The words "owned" and "State" should both be understood on two levels. "Owned" or "ownership"
refers to both the legal title to and the beneficial ownership of the natural resources. Similarly, "State"
should be understood as denoting both the body politic making up the Republic of the Philippines, i.e.,
the Filipino people, as well as the Government which represents them and acts on their behalf.
Thus, the phrase "natural resources are owned by the State" simultaneously vests the legal title to the
nation's natural resources in the Government, and the beneficial ownership of these resources in the
sovereign Filipino people, from whom all governmental authority emanates.40
On this point, petitioners and respondent WMCP appear to be in rare agreement. Thus, petitioners, in
their Memorandum state:
xxx With respect to exploration, development and utilization of mineral resources, the State should not
merely be concerned about passing laws. It is expected that it holds these natural resources
covered in Article XII, Section 2 in dominium and in trust for [the] Filipino people.41 (Emphasis
and underscoring supplied; italics in the original)
Respondent WMCP is even more emphatic:
The Regalian Doctrine, as embodied under the Constitution, is a recognition that sovereignty resides
in the Filipino people, and the prime duty of government or the State is to serve and protect the people.
Thus, the ownership of natural resources by the State under Section 2, Article XII of the
Constitution is actually a beneficial trust in favor of the Filipino people.
Stated differently, it is the Filipino people who own the nation's natural resources, and the State
is merely the guardian-in-trust therof.42 (Emphasis and underscoring supplied; italics in the original;
citations omitted)
Clearly, in the exploration, development and utilization of the nation's natural resources, the
Government is in a position analogous to a trustee, holding title to and managing these resources for
the benefit of the Filipino people, including future generations.43 As the trustee of the sovereign, the
Government has a fiduciary duty to ensure that the gains, rewards and advantages generated by the
Philippines' natural resources accrue to the benefit of the Filipino people. Corollary to this, the
Government cannot, without violating its sacred trust, enter into any agreement or arrangement which
effectively deprives the Filipino people of their beneficial ownership of these resources – e.g., when it
enters into an agreement whereby the vast majority of the resources, or the profit generated from the
resources, is bargained away in favor of a foreign entity.
Full Control and Supervision
In the context of its role as trustee, the Government's "full control and supervision" over the exploration,
development and utilization of the nation's natural resources, in its most basic and fundamental sense,
is accomplished by maintaining a position whereby it can carry out its fiduciary duty to protect the
beneficial interest of its cestui que trust in these resources.
Significantly, Section 2, Article XII of the Constitution provides that the Government may undertake
the exploration, development and utilization of these resources by itself or together with a third party.44
In the first case, where no third party is involved, the Government's "full control and supervision" over
the resources is easily achieved. In the second case, where the third party may naturally be expected
to seek participation in the operation of the venture and ask for compensation in proportion to its
contribution(s), the Government must still maintain a position vis-à-vis its third party partner whereby
it can adequately protect the interest of the Filipino people, who are the beneficial owners of the
resources.
By way of concrete example, the Government may enter into a joint venture agreement45 with a third
party to explore, develop or utilize certain natural resources through a jointly owned corporation,
wherein the government has the controlling interest. Under this arrangement, the Government would
clearly be in a position to protect the interest of the beneficial owners of the natural resources.
In the alternative, as suggested by the OSG,46 the Government may be allowed one or more directors
(holding nominal shares) on the governing board and executive committee(s) of the private corporation
contracted to undertake mining activities in behalf of the government. Depending on the by-laws of the
private corporation, strategic representation of the Government in its governing board and executive
committee(s) may afford sufficient protection to the interest of the people.
However, Section 2, Article XII of the Constitution does not limit the options available to the
Government, when dealing with prospective mining partners, to joint ventures or representation in the
contractor's board of directors. To be sure, the provision states that the Government may enter into
"co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations
or associations," or, for large scale exploration, development and utilization, "agreements with foreign-
owned corporations involving either technical or financial assistance." But whatever form the
agreement entered into by the Government and its third party partner(s) may take, the same must
contain, as an absolute minimum, provisions that ensure that the Government can effectively
perform its fiduciary duty to safeguard the beneficial interest of the Filipino people in their natural
resources, as mandated by the Constitution.
Real Contributions to the Economy
and the General Welfare of the Country
Section 2, Article XII likewise requires that "agreements … involving financial or technical assistance"
be "based on real contributions to the economic growth and general welfare of the country." This
provision articulates the value which the Constitution places on natural resources, and recognizes
their potential benefits. It likewise acknowledges the fact that the impact of mining operations is not
confined to the economy but, perhaps to a greater extent, affects Philippine society as a whole as well.
"Minerals, petroleum and other mineral oils," are part of the non-renewable wealth of the Filipino
people. By pursuing large scale exploration, development and utilization of these resources, the State
would be allowing the consumption or exhaustion of these resources, and thus deprive future Filipino
generations the enjoyment thereof. Mining – especially large-scale mining – often results in the
displacement of local residents. Its negative effects on the environment are well-documented.47
Thus, for benefits from the exploration, development and utilization of these resources to be real, they
must yield profits over and above 1) the capital and operating costs incurred, 2) the resulting damage
to the environment, and 3) the social costs to the people who are immediately and adversely affected
thereby.
Moreover, the State must ensure that the real benefits from the utilization of these resources are
sufficient to offset the corresponding loss of these resources to future generations. Real benefits are
intergenerational benefits because the motherland's natural resources are the birthright not only of the
present generation of Filipinos but of future generations as well.48
The requirement of real benefit is applicable even when the exploration, development and utilization
are being undertaken directly by the Government or with the aid of Filipinos or Filipino corporations.
But it takes on greater significance when a foreign entity is involved. In the latter instance, the foreign
entity would naturally expect to be compensated for its assistance. In that event, it is inescapable that
a foreigner would be benefiting from an activity (i.e. mining) which also results in numerous, serious
and long term harmful consequences to the environment and to Philippine society.
Moreover, as recognized by the 1935 Constitutional Convention, foreign involvement in the
exploitation of Philippine natural resources has serious implications on national security. As recounted
by delegate Jose Aruego:

The nationalization of the natural resources was also intended as an instrument of national defense.
The Convention felt that to permit foreigners to own or control the natural resources would be
to weaken the national defense. It would be making possible the gradual extension of foreign
influence into our politics, thereby increasing the possibility of foreign control. xxx

Not only these. The nationalization of the natural resources, it was believed, would prevent
making the Philippines a source of international conflicts with the consequent danger to its
internal security and independence. For unless the natural resources were nationalized, with the
nationals of foreign countries having the opportunity to own or control them, conflicts of interest among
them might arise inviting danger to the safety and independence of the nation.49 (Emphasis supplied)
Significantly, and contrary to the posture of the OSG, it is immaterial whether the foreign involvement
takes the form of "active" participation in the mining concern or "passive" assistance such as a foreign
mining loan or the licensing of mining technology. Whether the foreign involvement is passive or active,
the fact remains that the foreigner will expect to be compensated and, as a necessary consequence,
a fraction of the gains, rewards and advantages generated by Philippine natural resources will be
diverted to foreign hands even as the long term pernicious "side effects" of the mining activity will be
borne solely by the Filipino people.
Under such circumstances, the Executive, in determining whether or not to avail of the assistance of
a foreign corporation in the large scale exploration, development and utilization of Philippine natural
resources, must carefully weigh the costs and benefits if it is to faithfully discharge its fiduciary duty to
protect the beneficial interest of the Filipino people in these resources.
These same considerations likewise explain why the last paragraph of Section 2 mandates that the
President "notify the Congress of every contract entered into in accordance with this provision, within
thirty days from its execution." The Constitution requires that the Legislative branch, which is perceived
to be more broadly representative of the people and therefore more immediately sensitive to their
concerns, be given a timely opportunity to scrutinize and evaluate the Executive's decision.
With these concepts in mind, I now turn to what I believe to be the proper interpretation of
"agreements… involving either technical or financial assistance" in paragraph 4 of Section 2, Article
XII of the Constitution.
Construction of paragraph 4, Section 2,
Article XII of the Constitution
The suggestion that the avoidance of the term "service contracts" in the fourth paragraph is to prevent
the circumvention, prevalent under the 1973 Constitution, of the 60-40 capital requirement does not
persuade, it being too narrow an interpretation of that provision. If that were the only purpose in the
change of phraseology, this Court reiterates, there would have been no need to replace the term
"service contracts" with "agreements… involving either technical or financial assistance."
The loophole in the 1973 Constitution that sanctioned dummyism is easily plugged by the provision in
the present Constitution that the President, not Congress or the Batasan Pambansa (under the 1973
Constitution), may enter into either technical or financial agreements with foreign corporations. The
framers then could have easily employed the more traditional term "service contracts" in designating
the agreements contemplated, and thus obviated confusion, especially since the term was employed
by the legal system then prevailing50 and had a settled acceptation.
The other proffered raison d'être of the fourth paragraph, i.e. to address the absence of a governing
law that led to the abuse of service contracts, is equally unpersuasive. In truth, there were a host of
laws governing service contracts pertaining to various natural resources, as this Court noted when it
traced the history of Section 2, Article XII in its Decision.51
Respondent WMCP nevertheless correctly states that the fourth paragraph establishes an exception
to the rule limiting the exploration, development and utilization of the nation's natural resources to
Filipinos. As an exception, however, it is illogical to deduce that the provision should be
interpreted liberally, not restrictively. It bears repeating that the provision, being an exception,
should be strictly construed against foreign participation.

In any case, the constitutional provision allowing the President to enter into FTAAs with foreign-owned
corporations is an exception to the rule that participation in the nation's natural resources is reserved
exclusively to Filipinos. Accordingly, such provision must be construed strictly against their enjoyment
by non-Filipinos. As Commissioner Villegas emphasized, the provision is "very restrictive."
Commissioner Nolledo also remarked that "entering into service contracts is an exception to
the rule on protection of natural resources for the interest of the nation and, therefore, being
an exception, it should be subject, whenever possible, to stringent rules." Indeed, exceptions
should be strictly but reasonably construed; they extend only so far as their language fairly warrants
and all doubts should be resolved in favor of the general provision rather than the exception.52
(Emphasis and underscoring supplied; citations omitted).
That the fourth paragraph employs the word "may" does not make it non-restrictive. Indeed, "may"
does make the provision permissive, but only as opposed to mandatory,53 and operates to confer
discretion upon a party.54 Thus, as used in the fourth paragraph, "may" provides the President with the
option to enter into FTAAs. It is, however, not incumbent upon the President to do so for, as owner of
the natural resources, the "State [itself] may directly undertake such activities."55 If the President opts
to exercise the prerogative to enter into FTAAs, the agreement must conform to the restrictions laid
down by Section 2, including the scope of the assistance, which must be limited to financial or technical
forms.
"May" in the fourth paragraph, therefore, should be understood in the same sense as it is used in the
first paragraph, that is, that the State "may enter into… agreements with Filipino citizens, or
corporations or association at least sixty per centum of whose capital is owned by such citizens."
The majority, however, opines that the "agreements involving either technical or financial assistance"
referred to in paragraph 4 of Section 2 of Article XII of the 1987 Constitution are indeed service
contracts. In support of this conclusion, the majority maintains that the use of the phrase
"agreements… involving either technical or financial assistance" does not indicate the intent to exclude
other modes of assistance because the use of the word "involving" signifies the possibility of the
inclusion of other forms of assistance or activities. And it proffers that the word "involving" has three
connotations that can be differentiated as follows: (1) the sense of concerning, having to do with, or
affecting; (2) entailing, requiring, implying or necessitating; (3) including, containing or comprising.
None of these three connotations, it is contended, convey a sense of exclusivity. Thus, it concludes
that had the framers intended to exclude other forms of assistance, they would have simply said
"agreements for technical or financial assistance" as opposed to "agreements including technical or
financial assistance."
To interpret the term "involving" in the fourth paragraph to mean "including," as the majority contends,
would run counter to the restrictive spirit of the provision. Notably, the 1987 Constitution uses
"involving" not "including." As admitted in the majority opinion, the word "involve" may also mean
concerning, having to do with or affecting. Following the majority opinion's own methodology of
substitution, "agreements… involving either technical or financial assistance" means
"agreements…concerning either technical or financial assistance." And the word "concerning"
according to Webster's Third New International Dictionary means "regarding", "respecting" or "about."
To reiterate, these terms indicate exclusivity. More tellingly, the 1987 Constitution not only deleted the
term "management" in the 1973 Constitution, but also the catch-all phrase "or other forms of
assistance,"56 thus reinforcing the exclusivity of "either technical or financial assistance."

That the fourth paragraph does not employ the terms "solely," "only," or "limited to" to qualify "either
technical or financial assistance" does not detract from the provision's restrictive nature. Moreover,
the majority opinion's illustration conveniently omits "either… or." As Senior Associate Justice Reynato
S. Puno pointed out during the oral arguments, the use of the disjunctive "either… or" denotes
restriction.57
According to the Penguin Dictionary, the word "either" may be used as (1) an adjective or (2) a pronoun
or (3) a conjunction or (4) an adverb. As an adjective, the word "either" means (1) any one of two; one
or the other; or (2) one and the other; each. As a pronoun, the word "either" means the one or the
other. As a conjunction, the word "either" is used before two or more sentence elements of the
same class or function joined usually by "or" to indicate what immediately follows is the first
of two or more alternatives. Lastly, as an adverb, "either" is used for emphasis after a negative or
implied negation (i.e. for that matter or likewise). The traditional rule holds that "either" should be used
only to refer to one of two items and that "any" is required when more than two items are involved.58
However, modern English usage has relaxed this rule when "either" is used as a conjunction. 59 Thus,
the word "either" may indicate the choice between two or more possibilities.

"Either" in paragraph 4, section 2, Article XII, is clearly used as a conjunction, joining two (and only
two) concepts – financial and technical. The use of the word "either" clearly limits the President to only
two possibilities, financial and technical assistance. Other forms of assistance are plainly not allowed,
since only the words "financial and technical" follow the word "either."
In accordance with the intent of the provision, "agreements… involving either technical or financial" is
deemed restrictive and not just descriptive. It is a condition, a limitation, not a mere description.
The OSG's suggestion that the President may enter into "any" agreement, the scope of which may go
beyond technical or financial assistance, with a foreign-owned corporation, does not impress. The first
paragraph of Section 2 limits contracts with Filipino citizens or corporations to co-production, joint
venture or production-sharing agreements. To subscribe to the OSG's theory would allow foreign-
owned corporations participation in the country's natural resources equal to, perhaps even greater
than, that of Filipino citizens or corporations.
The OSG cites the Separate Opinion of Justice Jose C. Vitug, now retired, who proposed that, on the
premise that the State itself may undertake the exploration, development and utilization of natural
resources, a foreign-owned corporation may engage in such activities in behalf of the State:

The Constitution has not prohibited the State from itself exploring, developing, or utilizing the country's
natural resources, and, for this purpose, it may, I submit, enter into the necessary agreements with
individuals or entities in the pursuit of a feasible operation.
The fundamental law is deemed written in every contract. The FTAA entered into by the government
and WMCP recognizes this vital principle. Thus, two of the agreement's clauses provide:
"WHEREAS, the 1987 Constitution of the Republic of the Philippines provides in Article XII,
Section 2 that all lands of the public domain, waters, minerals, coal, petroleum, and other
natural resources are owned by the State, and that the exploration, development and utilization
of natural resources shall be under the full control and supervision of the State; and
"WHEREAS, the Constitution further provides that the Government may enter into agreements with
foreign-owned corporations involving either technical or financial assistance for large scale
exploration, development and utilization of minerals."
The assailed contract or its provisions must then be read in conformity with abovementioned
constitutional mandate. Hence, Section 10.2(a) of the FTAA, for instance, which states that "the
Contractor shall have the exclusive right to explore for, exploit, utilize, process, market, export and
dispose of all minerals and products and by-products thereof that may be derived or produced from
the Contract Area and to otherwise conduct Mining Operations in the Contract Area in accordance
with the terms and conditions hereof," must be taken to mean that the foregoing rights are to be
exercised by WMCP for and in behalf of the State and that WMCP, as the Contractor, would be bound
to carry out the terms and conditions of the agreement acting for and in behalf of the State. In exchange
for the financial and technical assistance, inclusive of its services, the Contractor enjoys an exclusivity
of the contract and a corresponding compensation therefor.60 (Underscoring supplied).

This proposition must be rejected since it sanctions the circumvention, if not outright violation, of the
fourth paragraph by allowing foreign corporations to render more than technical or financial assistance
on the pretext that it is an agent of the State. Quando aliquid prohibitur ex directo, prohibitur et per
obliquum. What is prohibited directly is prohibited indirectly.61 Further, the proposition lends itself to
mischievous consequences. If followed to its logical conclusion, nothing would stop the State from
engaging the services of a foreign corporation to undertake in its behalf the exploration, development
and utilization of all other natural resources, not just "minerals, petroleum and mineral oils," even on
a small scale, not just "large-scale."
The present Constitution restricts foreign involvement to large-scale activities because the idea is to
limit the participation of foreign corporations only to areas where they are needed.
MS. QUESADA. Going back to Section 3, the section suggests that:
The exploration, development, and utilization of natural resources … may be directly undertaken by
the State, or it may enter into co-production, joint venture or production-sharing agreement with …
corporations or associations at least sixty percent of whose voting stock or controlling interest is owned
by such citizens.
Lines 25 to 30 on the other hand, suggest that in the large-scale exploration, development and
utilization of natural resources, the President with the concurrence of Congress may enter into
agreements with foreign-owned corporations even for technical or financial assistance.
I wonder if this first part of Section 3 contradicts the second part. I am raising this point for
fear that foreign investors will use their enormous capital resources to facilitate the actual
exploitation or exploration, development and effective disposition of our natural resources to
the detriment of Filipino investors. I am not saying that we should not consider borrowing
money from foreign sources. What I refer to is that foreign interest should be allowed to
participate only to the extent that they lend us money and give us technical assistance with the
appropriate government permit. In this way, we can insure the enjoyment of our natural
resources by out people.

MR. VILLEGAS. Actually, the second provision about the President does not permit foreign
investors to participate. It is only technical or financial assistance – they do not own anything
– but on conditions that have to be determined by law with the concurrence of Congress. So, it is very
restrictive.

If the Commissioner will remember, this removes the possibility for service contracts which we
said yesterday were avenues used in the previous regime to go around the 60-40 requirement.62
(Emphasis and underscoring supplied)
The intent is to allow Filipinos to benefit from Filipino resources.
MR. DAVIDE. May I be allowed to explain the proposal?

MR. MAAMBONG. Subject to the three-minute rule, Madam President.

MR. DAVIDE. It will not take me three minutes.
The Commission had just approved the Preamble. In the Preamble we clearly sated there that the
Filipino people are sovereign and that one of the objectives for the creation or establishment of a
government is to conserve and develop the national patrimony. The implication is that the national
patrimony or our natural resources are exclusively reserved for the Filipino people. No alien
must be allowed to enjoy, exploit and develop our natural resources. As a matter of fact, that
principle proceeds from the fact that our natural resources are gifts from God to the Filipino
people and it would be a breach of that special blessing from God if we will allow aliens to
exploit our natural resources.
I voted in favor of the Jamir proposal because it is not really exploitation that we granted to the
alien corporations but only for them to render financial or technical assistance. It is not for
them to enjoy our natural resources. Madam President, our natural resources are depleting; our
population is increasing by leaps and bounds. Fifty years from now, if we will allow these aliens to
exploit our natural resources, there will be no more natural resources for the next generations of
Filipinos. It may last long if we will begin now. Since 1935 the aliens have been allowed to enjoy to a
certain extent the exploitation of our natural resources, and we became victims of foreign dominance
and control. The aliens are interested in coming to the Philippines because they would like to enjoy
the bounty of nature exclusively intended for the Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in the Preamble
"to preserve and develop the national patrimony for the sovereign Filipino people and for the
generations to come," we must at this time decide once and for all that our natural resources must be
reserved only to Filipino citizens.
Thank you.63 (Emphasis and underscoring supplied)
The intent loses all significance if foreign-owned corporations are likewise allowed to participate even
in small or medium-scale ventures.
Thus, in keeping with the clear intent and rationale of the Constitution, financial or technical assistance
by foreign corporations are allowable only where there is no Filipino or Filipino-owned corporation
(including corporations at least 60% of the capital of which are owned by Filipinos) which can provide
the same or similar assistance.
To reiterate, the over-arching letter and intent of the Constitution is to reserve the exploration,
development and utilization of natural resources to Filipinos.
The justification for foreign involvement in the exploration, development and utilization of natural
resources was that Filipino nationals or corporations may not possess the necessary capital, technical
knowledge or technology to mount a large scale undertaking. In the words of the "Draft of the 1986
U.P. Law Constitution Project" (U.P. Law Draft) which was taken into consideration during the
deliberation of the CONCOM:64
Under the proposed provision, only technical assistance or financial assistance agreements may
be entered into, and only for large-scale activities. These are contract forms which recognize
and assert our sovereignty and ownership over natural resources since the foreign entity is
just a pure contractor and not a beneficial owner of our economic resources. The proposal
recognizes the need for capital and technology to develop our natural resources without
sacrificing our sovereignty and control over such resources65 x x x (Emphasis and underscoring
supplied)
Thus, the contention that Section 2, Article XII allows for any agreement for assistance by a foreign
corporation "so long as such assistance requires specialized knowledge or skills, and are related to
the exploration, development and utilization of mineral resources" is erroneous.66

Where a foreign corporation does not offer financial or technological assistance beyond the capabilities
of its Philippine counterparts, an FTAA with such a corporation would be highly questionable. Similarly,
where the scope of the undertaking does not qualify as "large scale," an FTAA with a foreign
corporation is equally suspect.

"Agreements" in Section 2, Article XII

do not include "service contracts."
This Court's ruling in the Decision under reconsideration that the agreements involving either technical
or financial assistance contemplated by the 1987 Constitution are different and dissimilar from the
service contracts under the 1973 Constitution must thus be affirmed. That there is this difference, as
noted in the Decision, is gathered from the change in phraseology.67 There was no need to employ
strongly prohibitory language, like that found in the Bill of Rights.68 For the framers to expressly prohibit
"management and other forms of assistance" would be redundant inasmuch as the elimination of such
phrase serves the same purpose. The deletion is simply too significant to ignore and speaks just as
profoundly – it is an outright rejection.
It bears noting that the fourth paragraph does not employ the same language adopted in the first
paragraph, which specifically denominates the agreements that the State may enter into with Filipinos
or Filipino-owned corporations. The fourth paragraph does not state "The President may also enter
into co-production, joint venture, or production-sharing agreements with foreign-owned
corporations for large-scale exploration, development, and utilization of minerals, petroleum, and other
mineral oils…." On the other hand, the fourth paragraph cannot be construed as a grant of boundless
discretion to the President to enter into any agreement regardless of the scope of assistance because
it would result in a bias against Filipino citizens and corporations.
On this point, the following observations from the U.P. Law Draft on the odious and objectionable
features of service contracts bear restating:
5. The last paragraph is a modification of the service contract provision found in Section 9, Article XIV
of the 1973 Constitution as amended. This 1973 provision shattered the framework of nationalism in
our fundamental law (see Magallona, "Nationalism and its Subversion in the Constitution"). Through
the service contract, the 1973 Constitution had legitimized that which was prohibited under the
1935 constitution—the exploitation of the country's natural resources by foreign nationals.
Through the service contract, acts prohibited by the Anti-Dummy Law were recognized as legitimate
arrangements. Service contracts lodge exclusive management and control of the enterprise to
the service contractor, not unlike the old concession regime where the concessionaire had
complete control over the country's natural resources, having been given exclusive and
plenary rights to exploit a particular resource and, in effect, having been assured of ownership
of that resource at the point of extraction (see Agabin, "Service Contracts: Old Wine in New
Bottles"). Service contracts, hence, are antithetical to the principle of sovereignty over our natural
resources, as well as the constitutional provision on nationalization or Filipinization of the exploitation
of our natural resources.69 (Emphasis supplied)
Furthermore, Professor Pacifico A. Agabin, a member of the working group of the U.P. Law
Constitution Project and now counsel for intervenor PCM, stated in his position paper:
Recognizing the service contract for what it is, we have to expunge it from the Constitution and reaffirm
ownership over our natural resources. That is the only way we can exercise effective control over
our natural resources.
This should not mean complete isolation of the country's natural resources from foreign investment.
Other contract forms which are less derogatory to our sovereignty and control over natural resources
– like technical assistance agreements, financial assistance [agreements], co-production
agreements, joint ventures, production-sharing [agreements] – could still be utilized and adopted
without violating constitutional provisions. In other words, we can adopt contract forms which recognize
and assert our sovereignty and ownership over natural resources, and where the entity is just a pure
contractor instead of the beneficial owner of our economic resources.70 (Emphasis & underscoring
supplied),

indicating that the proposed financial or technical assistance agreements are contract forms different
from the 1973 Constitution service contracts.
Thus the phrase "agreements with foreign-owned corporations involving either technical or financial
assistance" in Section 2, Article XII of the Constitution must be interpreted as restricting foreign
involvement in the exploration, development and utilization of natural resources to large scale
undertakings requiring foreign financial or technical assistance and not, as alleged by respondents,
inclusive of any possible agreement under the sun.
The majority however argues that the deletion or omission from the 1987 Constitution of the term
"service contracts" found in the 1973 Constitution does not sufficiently prove the drafters' intent to
exclude foreigners from management since such intent cannot be definitively and conclusively
established. This argument overlooks three basic principles of statutory construction.
First, casus omisus pro omisso habendus est.71 As recently as 2001 in Commission on Audit of the
Province of Cebu v. Province of Cebu,72 this Court held that a person, object or thing omitted from an
enumeration must be held to have been omitted intentionally.73 That there is a difference between
technical or financial assistance contemplated by the 1987 Constitution and the service contracts
under the 1973 Constitution is gathered from the omission of the phrase "management or other forms
of assistance."
As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's Article on
National Economy and Patrimony. If the CONCOM intended to retain the concept of service contracts
under the 1973 Constitution, it would have simply adopted the old terminology ("service contracts")
instead of employing new and unfamiliar terms ("agreements…involving either technical or financial
assistance.") Such a difference between the language of a provision in a revised constitution
and that of a similar provision in the preceding constitution is viewed as indicative of a
difference in purpose. If, as respondents suggest, the concept of "technical or financial assistance"
agreements is identical to that of "service contracts," the CONCOM would not have bothered to fit the
same dog with a new collar. To uphold respondents' theory would reduce the first to a mere
euphemism for the second render the change in phraseology meaningless.74 (Emphasis and
underscoring supplied; citation omitted)
Second, expressio unius est exclusion alterius.75 The express mention of one person, thing, act, or
consequence excludes all others.76
Third and lastly, expressium facit cessare tacitum.77 What is expressed puts an end to that which is
implied.78 Since the constitutional provision, by its terms, is expressly limited to financial or technical
agreements, it may not, by interpretation or construction, be extended to other forms of assistance.
These three principles of statutory construction, derived from the well-settled principle of verba legis,
proceed from the premise that the Constitutional Commission would not have made specific
enumerations in the provision if it had the intention not to restrict its meaning and confine its terms to
those expressly mentioned. And this Court may not, in the guise of interpretation, enlarge the scope
of a constitutional provision and include therein situations not provided nor intended by the framers.
To do so would be to do violence to the very language of the Constitution, the same Constitution which
this Court has sworn to uphold.
The majority counters, however, that service contracts were not de-constitutionalized since the
deliberations of the members of the Constitutional Commission conclusively show that they discussed
agreements involving either technical or financial assistance in the same breath as service contracts
and used the terms interchangeably. This argument merely echoes that of private respondent WMCP
which had already been addressed in this Court's Decision of January 27, 2004, (the Decision) viz:
While certain commissioners may have mentioned the term "service contracts" during the CONCOM
deliberations, they may not have been necessarily referring to the concept of service contracts under
the 1973 Constitution. As noted earlier "service contracts" is a term that assumes different
meanings to different people. The commissioners may have been using the term loosely, and
not in its technical and legal sense, to refer, in general, to agreements concerning natural
resources entered into by the Government with foreign corporations. These loose statements
do not necessarily translate to the adoption of the 1973 Constitution provision allowing service
contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in [the] CONCOM, in response
to Sr. Tan's question, Commissioner Villegas commented that, other than congressional notification,
the only difference between "future" and "past" "service contracts" is the requirement of a general law
as there were no laws previously authorizing the same.79 However, such remark is far outweighed
by his more categorical statement in his exchange with Commissioner Quesada that the draft
article "does not permit foreign investors to participate" in the nation's natural resources –
which was exactly what service contracts did – except to provide "technical or financial
assistance."
In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that the
present charter prohibits service contracts. Commissioner Gascon was not totally averse to foreign
participation, but favored stricter restrictions in the form of majority congressional concurrence. On the
other hand, Commissioners Garcia and Tadeo may have veered to the extreme side of the spectrum
and their objections may be interpreted as votes against any foreign participation in our natural
resources whatsoever.80 (Emphasis and underscoring supplied; citations omitted)
In fact, the opinion of Commissioner Nolledo in his textbook which is cited in this Court's January 27,
2004 Decision should leave no doubt as to the intention of the framers to eliminate service contracts
altogether.

Are service contracts allowed under the new Constitution? No. Under the new Constitution, foreign
investors (fully alien-owned) can NOT participate in Filipino enterprises except to provide: (1)
Technical Assistance for highly technical enterprises; and (2) Financial Assistance for large-scale
enterprises.

The intention of this provision, as well as other provisions on foreign investments, is to prevent the
practice (prevalent in the Marcos government) of skirting the 60/40 equation using the cover of service
contracts.81
Next, the majority opinion asserts that if the framers had meant to ban service contracts altogether,
they would have provided for the termination or pre-termination of the existing service contracts.
There was no need for a constitutional provision to govern the termination or pre-termination of existing
service contracts since the intention of the framers was to apply the rule banning service contracts
prospectively.
MR. DAVIDE. Under the proposal, I notice that except for the lands of the public domain, all other
natural resources cannot be alienated and in respect to lands of the public domain, private
corporations with the required ownership by Filipino citizens can only lease the same. Necessarily,
insofar as other natural resources are concerned, it would only be the State which can exploit, develop,
explore and utilize the same. However, the State may enter into a joint venture, coproduction (sic) or
production-sharing. Is that not correct?

MR. VILLEGAS. Yes.

MR. DAVIDE. Consequently, henceforth upon the approval of this Constitution, no timber or forest
concessions, permits or authorization can be exclusively granted to any citizen of the Philippines nor
to any corporation qualified to acquire lands of the public domain?
MR. VILLEGAS. Would Commissioner Monsod like to comment on that? I think his answer is "yes."
MR. DAVIDE. So, what will happen now to licenses or concessions earlier granted by the Philippine
government to private corporations or to Filipino citizens? Would they be deemed repealed?
MR. VILLEGAS. This is not applied retroactively. They will be respected.
MR. DAVIDE. In effect, they will be deemed repealed?
MR. VILLEGAS. No.82 (Emphasis and underscoring supplied)

Besides, a service contract is only a license or privilege, not a contract or property right which merits
protection by the due process clause of the Constitution. Thus in the landmark case of Oposa v.
Factoran, Jr,83 this Court held:
x x x Needless to say, all licenses may thus be revoked or rescinded by executive action. It is
not a contract, property or a property right protected by the due process clause of the
Constitution. In Tan vs. Director of Forestry, this Court held:
"x x x A timber license is an instrument by which the State regulates the utilization and disposition of
forest resources to the end that public welfare is promoted. A timber license is not a contract within
the purview of the due process clause; it is only a license or privilege, which can be validly
withdrawn whenever dictated by public interest or public welfare as in this case.
'A license is merely a permit or privilege to do what otherwise would be unlawful, and is not a
contract between the authority, federal, state, or municipal, granting it and the person to whom
it is granted; neither is it property or a property right, nor does it create a vested right;
nor is it taxation' Thus, this Court held that the granting of license does not create
irrevocable rights, neither is it property or property rights."
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co, Inc. vs. Deputy Executive Secretary:
"x x x Timber licenses, permits and license agreements are the principal instruments by which the
State regulates the utilization and disposition of forest resources to the end that public welfare is
promoted. And it can hardly be gainsaid that they merely evidence a privilege granted by the State to
qualified entities, and do not vest in the latter a permanent or irrevocable right to the particular
concession area and the forest products therein. They may be validly amended, modified, replaced
or rescinded by the Chief Executive when national interests so require. Thus, they are not
deemed contracts within the purview of the due process clause."
Since timber licenses are not contracts, the non-impairment clause which reads:
"SEC 10. No law impairing, the obligation of contracts shall be passed."
cannot be invoked.

In the second place, even if it is to be assumed that the same are contracts, the instant case does not
involve a law or even an executive issuance declaring the cancellation or modification of existing
timber licenses. Hence, the non-impairment clause cannot as yet be invoked. Nevertheless, granting
further that a law has actually been passed mandating cancellations or modifications, the same cannot
still be stigmatized as a violation of the non-impairment clause. This is because by its very nature and
purpose, such a law could have only been passed in the exercise of the police power of the state for
the purpose of advancing the right of the people to a balanced and healthful ecology, promoting their
health and enhancing the general welfare. In Abe vs. Foster Wheeler Corp., this Court stated:
"The freedom of contract, under our system of government, is not meant to be absolute. The same is
understood to be subject to reasonable legislative regulation aimed at the promotion of public health,
moral, safety and welfare. In other words, the constitutional guaranty of non-impairment of
obligations of contract is limited by the exercise of the police power of the State, in the interest
of public health, safety, moral and general welfare."
The reason for this is emphatically set forth in Nebia vs. New York quoted in Philippine American Life
Insurance Co. vs. Auditor General, to wit:
"Under our form of government the use of property and the making of contracts are normally matters
of private and not of public concern. The general rule is that both shall be free of governmental
interference. But neither property rights nor contract rights are absolute; for government cannot exist
if the citizen may at will use his property to the detriment of his fellows, or exercise his freedom of
contract to work them harm. Equally fundamental with the private right is that of the public to regulate
it in the common interest."
In short, the non-impairment clause must yield to the police power of the state.84 (Emphasis and
underscoring supplied; citations omitted)
The majority however argues that Oposa is not applicable since the investment in a logging concession
is not as substantial an investment as that of a large scale mining contractor. Such a contention is
patently absurd. Taken to its logical conclusion, the majority would have this Court exempt firms in
highly capital intensive industries from the exercise of police power simply to protect their investment.
That would mean that the legislature would, for example, be powerless to revoke or amend legislative
franchises of public utilities, such as power and telecommunications firms, which no doubt require
huge sums of capital.
The majority opinion then proffers that the framers of the Constitution were pragmatic enough to know
that foreign entities would not enter into such agreements without requiring arrangements for the
protection of their investments, gains, and benefits or other forms of conditionalities. It goes on to
argue that "by specifying such 'agreements involving assistance,' the framers of the Constitution
necessarily gave implied assent to everything that these agreements necessarily entailed; or that could
reasonably be deemed necessary to make them tenable and effective, including management
authority with respect to the day-to-day operations of the enterprise and measures for the protection
of the interests of the foreign corporation."
The deliberations of the Constitutional Commission, however, do not support the immediately
foregoing contentions.
MR. TINGSON. Within the purview of what the Gentleman is saying, would he welcome friendly
foreigners to lend us their technical expertise in helping develop our country?
MR. GARCIA. Part 2 of this proposal, Filipino control of the economy, in fact, says that the entry of
foreign capital, technology and business enterprises into the national economy shall be effectively
regulated to ensure the protection of the interest of our people.
In other words, we welcome them but on our own terms. This is very similar to our position on
loans. We welcome loans as long as they are paid on our own terms, on our ability to pay, not
on their terms. For example, the case of Peru is instructive. They decided first to develop and grow,
and were willing to pay only 10 percent of their foreign exchange earnings. That, I think, is a very
commendable position given the economic situation of a country such as Peru. The Philippines is a
similar case, especially when we realize that the foreign debt was made by a government that was
bankrupt in its desire to serve the people.
MR. MONSOD. Mr. Vice-President, I think we have to make a distinction that it is not really realistic to
say that we will borrow on our own terms. Maybe we can say that we inherited unjust loans, and we
would like to repay these on terms that are not prejudicial to our own growth. But the general statement
that we should only borrow on our own terms is a bit unrealistic.
MR. GARCIA. Excuse me. The point I am trying to make is that we do not have to borrow. If we
have to borrow, it must be on our terms. In other words, banks do not lend out of the goodness
of their hearts. Banks lend to make a profit.
MR. TINGSON. Mr. Vice-President, I think the trouble in our country is that we have forgotten the
scriptural injunction that the borrower becomes a slave to the lender. That is the trouble with
our country; we have borrowed and borrowed but we forget that we become slaves to those
who lend us.85 (Emphasis and underscoring supplied)
By public respondent's information, "[t]he potential mining wealth in the Philippines is estimated at
$840 billion or P47 trillion or 10 times our annual GDP, and 15 times our total foreign debt of $56
billion. Globally, the Philippines ranks third in gold, fourth in copper, fifth in nickel and sixth in
chromite."86 With such high concentration of valuable minerals coupled with the Filipino people's
willingness to protect and preserve ownership of their natural resources at the expense of retarding or
postponing the exploration, development, and utilization of these resources, the Philippines clearly
has the superior bargaining position and should be able to dictate its terms. No foreign entity should
be able to bully the Philippines and intimidate the Government into conceding to certain conditions
incompatible with the Constitution.
Extent of foreign corporation's
participation in the management of an FTAA
Foreign-owned corporations, however, are not precluded from a limited participation in the
management of the exploration, development and utilization of natural resources.
Some degree of participation by the contractor in management, to assure the proper application of its
investment and/or to facilitate the technical assistance and transfer of technology may be unavoidable
and not necessarily undesirable. Thus, there is merit in respondent WMCP's contention, to which even
petitioners conceded during the oral arguments, that a foreign-owned corporation is not prevented
from having limited participation in the management assistance or participation so long as it is
incidental to the financial or technical assistance being rendered:
JUSTICE PANGANIBAN:
Alright. Going back to verba legis, you say that the FTAA's are limited to financial or technical
assistance only.
ATTY. LEONEN:
Either financial or technical assistance, yes your Honor.

ATTY. LEONEN:
Full management, your Honor.
JUSTICE PANGANIBAN:
Full management is excluded.
ATTY. LEONEN:
 Yes your Honor.
JUSTICE PANGANIBAN:
But incidental management to protect the financial or technical assistance should be
allowed.
ATTY. LEONEN:

If a mining company would get the technical expertise to bring in drilling rig your Honor,
and that is the sole contract, then we cannot imagine a situation were it is not the
technicians that we will do the actual drilling your Honor, but for the entire contract area
your Honor as it is now in the FTAA then I think that would be different.

JUSTICE PANGANIBAN:
Yes I agree. In other words, the words financial or technical may include parts of
management, isn't it? Its reasonable in other words if I may re state it, it's reasonable to
expect that entities, foreign entities who don't know anything about this country, well that is
an exaggeration, who know not too much about this country, would not just extend money,
period. They would want to have a say a little bit of say management and sometimes
even in auditing of the company, isn't it reasonable to expect.
ATTY. LEONEN:
I would qualify my answer your Honor with management of what your Honor. It means if it's
for development and utilization of the minerals.
JUSTICE PANGANIBAN:
No.

ATTY. LEONEN:
Yes your Honor, but if it's management of sub-contracted activity like a symposium then that
would be all right your Honor. Mining companies do symposiums also.

JUSTICE PANGANIBAN:
Management to protect their own investments, whether it be technical or financial.
ATTY. LEONEN:
Their investment, your Honor, which cannot be the entire mining operation from my
perspective, your Honor.
JUSTICE PANGANIBAN:
Yes I agree because there is the Constitutional provision of control and supervision,
full control and supervision to the State.
ATTY. LEONEN:

And Filipino corporations your Honor.

JUSTICE PANGANIBAN:
Or even Filipino corporation, the full control and supervision is still with the State.
ATTY. LEONEN:
Yes your Honor.
JUSTICE PANGANIBAN:

Even with Filipino citizens being the contractors, full control and supervision is still with the
State.

ATTY. LEONEN:
Yes, your Honor.
JUSTICE PANGANIBAN:
In all these contract full control and supervision is with the State.

ATTY. LEONEN:
Yes your Honor and we can only hope that the State is responsive to the people we represent.
xxx
JUSTICE PANGANIBAN:
Yes, yes. Can it also not be said reading that the Constitution that the safeguards on contracts
with foreigners was left by the Constitutional Commission or by Constitution itself to Congress
to craft out.
ATTY. LEONEN:
I can accept your Honor that there was a province of power that was given to Congress, but
it was delimited by the fact, that they removed the word management and other
arrangement and put the words either financial and technical.

JUSTICE PANGANIBAN:
Yes but you just admitted earlier that these two words would also include some form of
management or other things to protect the investment or the technology being put by
the foreign company.
ATTY. LEONEN:

Yes your Honor for so long as it's not the entire.

JUSTICE PANGANIBAN:
Yes, yes provided the State does not lose control and supervision, isn't it?
ATTY. LEONEN:

Yes your Honor.87 (Emphasis and underscoring supplied)

Thus, the degree of the foreign corporation's participation in the management of the mining concern
is co-extensive with and strictly limited to the degree of financial or technical assistance extended. The
scope of the assistance defines the limits of the participation in management.
However, to whatever extent the foreign corporation's incidental participation in the management of
the mining concern may be, full control and supervision, sufficient to protect the interest of the
Filipino people, over all aspects of mining operations must be retained by the Government.
While this does not necessarily mean that the Government must assume the role of a back seat driver,
actively second guessing every decision made by the foreign corporation, it does mean that sufficient
safeguards must be incorporated into the FTAA to insure that the people's beneficial interest in their
natural resources are protected at all times.

Moreover, the foreign contractor's limited participation in management, as the Court held in its
Decision, should not effectively grant foreign-owned corporations beneficial ownership over the
natural resources.
The opinion, submitted by the OSG, of Bernardo M. Villegas, who was a Member of the Constitutional
Commission and Chair of its Committee on National Economy and Patrimony, is not inconsistent with
the foregoing conclusion. Commissioner Villegas opined:
The phrase "service contracts" contained in the 1973 Constitution was deleted in the 1987 Constitution
because there was the general perception among the Concom members that it was used during the
Marcos regime as an instrument to circumvent the 60-40 limit in favor of Filipino ownership. There was
also the impression that the inclusion of the word "management" in the description of the service
contract concept in the 1973 Constitution was tantamount to ownership by the foreign partner.
The majority of the Concom members, however, recognized the vital need of the Philippine economy
for foreign capital and technology in the exploitation of natural resources to benefit Filipinos, especially
the poor in the countryside where the mining sites are located. For this reason, the majority voted for
"agreements involving financial or technical assistance" or FTAA.
I maintain that the majority who voted Yes to this FTAA provision realized that an FTAA involved more
than borrowing money and/or buying technology from foreigners. If an FTAA involved only a loan
and/or purchase of technology, there would not have been a need for a constitutional provision
because existing laws in the Philippines more than adequately regulate these transactions.
It can be deducted from the various comments of both those who voted Yes and No to the FTAA
provision that an FTAA also involves the participation in management of the foreign partner. What was
then assumed in 1986 is now even clearer in the way business organizations have evolved in the last
decade or so under the modern concept of good governance. There are numerous stakeholders in a
business other than the stockholders or equity owners who participate actively in the management of
a business enterprise. Not only do creditors and suppliers demand representation in boards of
directors. There are also other so-called independent directors who actively participate in
management.
In summary, the word "management" was deleted from the description of the FTAA because
some CONCOM delegates identified management with beneficial ownership. In order not to
prolong the debate, those in favor of the FTAA provision agreed not to include the word management.
But from what has been discussed above, it was clear in the minds of those who voted YES that the
FTAA included more than just a loan and/or purchase of technology from foreigners but
necessarily allowed the active participation of the foreign partners in the management of the
enterprise engaged in the exploitation of natural resources.88 (Emphasis supplied).
Under no circumstances should the execution of an FTAA be tantamount to the grant of a roving
commission whereby a foreign contractor is given blanket and unfettered discretion to do whatever it
deems necessary – denude watersheds, divert sources of water, drive communities from their homes
– in pursuit of its pecuniary goals.
Nor should the scope of an FTAA be broadened to include "managerial assistance." As discussed
extensively in the Decision,89 "managerial assistance" – a euphemism by which full control and
beneficial ownership of natural resources were vested in foreigners – is part and parcel of the martial
law era "service contracts" and the old "concession regime" which the 1987 Constitution has
consigned to the dust bin of history.

The elimination of the phrase "service contracts" effectuates another purpose. Intervenor PCM agrees
that the Constitution tries to veer away from the old concession system,90 which vested foreign-owned
corporations control and beneficial ownership over Philippine natural resources. Hence, the 1987
Constitution also deleted the provision in the 1935 and 1973 Constitutions authorizing the State to
grant licenses, concessions, or leases for the exploration, exploitation, development, or utilization of
natural resources.91
Prof. Agabin had no flattering words for the concession system, which he described in his position
paper as follows:

Under the concession system, the concessionaire makes a direct equity investment for the purpose
of exploiting a particular natural resource within a given area. Thus, the concession amounts to a
complete control by the concessionaire over the country's natural resource, for it is given
exclusive and plenary rights to exploit a particular resource and is in effect assured ownership
of that resource at the point of extraction. In consideration for the right to exploit a natural resource,
the concessionaire either pays rent or royalty which is a fixed percentage of the gross proceeds. But
looking beyond the legal significance of the concession regime, we can see that there are functional
implications which give the concessionaire great economic power arising from its exclusive
equity holding. This includes, first, appropriation of the returns of the undertaking, subject to a
modest royalty; second, exclusive management of the project; third, control of production of
the natural resource, such as volume of production, expansion, research and development;
and fourth, exclusive responsibility for downstream operations, like processing, marketing,
and distribution. In short, even if nominally, the state is the sovereign and owner of the natural
resource being exploited, it has been shorn of all elements of control over such natural
resource because of the exclusive nature of the contractual regime of the concession. The
concession system, investing as it does ownership of natural resources, constitutes a consistent
inconsistency with the principle embodied in our Constitution that natural resources belong to the State
and shall not be alienated, not to mention the fact that the concession was the bedrock of the colonial
system in the exploitation of natural resources.92 (Underscoring in the original)
Vestiges of the concession system endured in the service contract regime, including the vesting on
the contractor of the management of the enterprise, as well as the control of production and other
matters, such as expansion and development. 93 Also, while title to the resource discovered was
nominally in the name of the government, the contractor had almost unfettered control over its
disposition and sale.94
The salutary intent of the 1987 Constitution notwithstanding, these stubborn features of the concession
system persist in the Mining Act of 1995. The statute allows a foreign-owned corporation to carry out
mining operations,95 which includes the conduct of exploration,96 development97 and utilization98 of the
resources.99 The same law grants foreign contractors auxiliary mining rights, i.e., timber rights,100 water
rights,101 the right to possess explosives,102 easement rights,103 and entry into private lands and
concession areas.104 These are the very same rights granted under the old concession and
service contract systems.
The majority opinion proposes two alternative standards of Government control over FTAA operations.
Thus, in the opening paragraphs it states:
Full control is not anathema to day-to-day management by the contractor, provided that the State
retains the power to direct overall strategy; and to set aside, reverse, or modify plans and
actions of the contractor. The idea of full control is similar to that which is exercised by the
board of directors of a private corporation x x x (Emphasis and underscoring supplied)
However, the majority opinion subsequently substantially reduces the scope of its definition of "control"
in this wise:
The concept of control adopted in Section 2 of Article XII must be taken to mean less than dictatorial,
all-encompassing control; but nevertheless sufficient to give the State the power to direct,
restrain, regulate and govern the affairs of the extractive enterprises. Control by the State may
be on a macro level, through the establishment of policies, guidelines, regulations, industry
standards and similar measures that would enable the government to control the conduct of
affairs in various enterprises and restrain activities deemed not desirable or beneficial.
(Emphasis and underscoring supplied; citations omitted; italics in the original)

This second definition is apparently analogous to regulatory control which the Government is
automatically presumed to exercise over all business activities by virtue of the Police Power. This
definition of the "full control and supervision" mandated by Section 2, Article XII of the Constitution
strikes a discordant and unconvincing chord as it gives no effect to the mandated "full" character of
the State's control but merely places it at par with any other business activity or industry regulated by
the Government.

But even under this second and more limited concept of regulatory control, the provisions of the Mining
Act pertaining to FTAAs do not pass the test of constitutionality.

To be sure, the majority opinion cites a litany of documents, plans, reports and records which the
foreign FTAA contractor is obliged to submit or make available under the Mining Act and DAO 96-40.
However, the mere fact that the Act requires the submission of work programs and minimum
expenditure commitments105 does not provide adequate protection. These were also required under
the old concession106 and service contract107 systems, but did not serve to place full control and
supervision of the country's natural resources in the hands of the Government.

Conspicuously absent from the Mining Act are effective means by which the Government can protect
the beneficial interest of the Filipino people in the exploration, development and utilization of their
resources. It appears from the provisions of the Mining Act that the Government, once it has
determined that a foreign corporation is eligible for an FTAA and enters into such an agreement, has
very little say in the corporation's actual operations.
Thus, when pressed to identify the mechanism by which the Government can administratively compel
compliance with the foregoing requirements as well as the other terms and conditions of the Mining
Act, DAO 96-40 and DAO 99-56, the majority can only point to the cancellation of the agreement(s)
and/or the incentives concerned under Section 95 to 99 of the Mining Act:108
CHAPTER XVII

Ground for Cancellation, Revocation, and Termination

SECTION 95. Late or Non-filing of Requirements. — Failure of the permittee or contractor to comply
with any of the requirements provided in this Act or in its implementing rules and regulations, without
a valid reason, shall be sufficient ground for the suspension of any permit or agreement provided under
this Act.
SECTION 96. Violation of the Terms and Conditions of Permit or Agreements. — Violation of the terms
and conditions of the permits or agreements shall be a sufficient ground for cancellation of the same.
SECTION 97. Non-payment of Taxes and Fees. — Failure to pay taxes and fees due the Government
for two (2) consecutive years shall cause the cancellation of the exploration permit, mineral agreement,
financial or technical assistance agreement and other agreements and the re-opening of the area
subject thereof to new applicants.
SECTION 98. Suspension or Cancellation of Tax Incentives and Credits. — Failure to abide by the
terms and conditions of tax incentives and credits shall cause the suspension or cancellation of said
incentives and credits.
SECTION 99. Falsehood or Omission of Facts in the Statement — All statements made in the
exploration permit, mining agreement and financial or technical assistance agreement shall be
considered as conditions and essential parts thereof and any falsehood in said statements or omission
of facts therein which may alter, change or affect substantially the facts set forth in said statements
may cause the revocation and termination of the exploration permit, mining agreement and financial
or technical assistance agreement.
An examination of the foregoing fails to impress. For instance, how does cancellation of the FTAA
under Section 97 for nonpayment of taxes and fees (comprising the "basic share" of the government)
for two consecutive years facilitate the collection of the unpaid taxes and fees? How does it preserve
and protect the beneficial interest of the Filipino people? For that matter, how does the DENR
administratively compel compliance with the anti-pollution and other requirements?109 If minerals are
found to have been sold overseas at less than the most advantageous market prices, how does the
DENR obtain satisfaction from the offending foreign FTAA contractor for the difference?
In sum, the enforcement provisions of the Mining Act and its Implementing Rules are scarcely effective,
and, worse, perceptibly less than the analogous provisions of other Government Regulatory Agencies.
For instance, the Bangko Sentral Ng Pilipinas, the Central Monetary Authority mandated by the
Constitution to exercise supervision (but not full control and supervision) over banks,110 is empowered
to (1) appoint a conservator with such powers as shall be deemed necessary to take charge of the
assets, liabilities and management of a bank or quasi-bank;111 (2) under certain well defined conditions,
summarily and without need for prior hearing forbid a bank from doing business in the Philippines and
appoint the Philippine Deposit Insurance Corporation as receiver;112 and (3) impose a number of
administrative sanctions such as (a) fines not to exceed P30,000 per day for each violation, (b)
suspension of a bank's rediscounting privileges, (c) suspension of lending or foreign exchange
operations or authority to accept new deposits or make new investments, (d) suspension of interbank
clearing privileges, and (e) revocation of quasi-banking license.113
Similarly, to give effect to the Constitutional mandate to afford full protection to labor,114 the Labor
Code115 grants the Secretary of Labor the power to (1) issue compliance orders to give effect to the
labor standards provisions of the Code;116 and (2) enjoin an intended or impending strike or lockout by
assuming jurisdiction over a labor dispute in an industry determined to be indispensable to the national
interest.117
Under the Tax Code, the Commissioner of Internal Revenue has the power to (1) temporarily suspend
the business operations of a taxpayer found to have committed certain specified violations;118 (2) order
the constructive distraint of the property of a taxpayer;119 and (3) impose the summary remedies of
distraint of personal property and or levy on real property for nonpayment of taxes.120
In comparison, the Mining Act and its Implementing Rules conspicuously fail to provide the DENR with
anything remotely analogous to the foregoing regulatory and enforcement powers of other government
agencies.
In fine, the provisions of the Mining Act and its Implementing Rules give scarcely more than
lip service to the constitutional mandate for the State to exercise full control and supervision
over the exploration, development and utilization of Philippine Natural Resources. Evaluated
as a whole and in comparison with other government agencies, the provisions of the Mining
Act and its Implementing Rules fail to meet even the reduced standard of effective regulatory
control over mining operations. In effect, they abdicate control over mining operations in favor
of the foreign FTAA contractor. For this reason, the provisions of the Mining Act, insofar as
they pertain to FTAA contracts, must be declared unconstitutional and void.
The majority opinion vigorously asserts that it is the Chief Executive who exercises the power of control
on behalf of the State.

This only begs the question. How does President effectively enforce the terms and conditions of an
FTAA? What specific powers are subsumed within the constitutionally mandated "power of control?"
On these particular matters the majority opinion, like the Mining Act, is silent.
Provisions of the Mining Act pertaining to FTAAs
void for conveying beneficial ownership of
Philippine mineral resources to foreign contractors
An examination of the Mining Act reveals that the law grants the lion's share of the proceeds of the
mining operation to the foreign corporation. Thus the second and third paragraphs of Section 81 of the
law provide:
SECTION 81. Government Share in Other Mineral Agreements. — x x x
The Government share in financial or technical assistance agreement shall consist of, among
other things, the contractor's corporate income tax, excise tax, special allowance, withholding
tax due from the contractor's foreign stockholders arising from dividend or interest payments to the
said foreign stockholder in case of a foreign national and all such other taxes, duties and fees as
provided for under existing laws.

The collection of Government share in financial or technical assistance agreement shall

commence after the financial or technical assistance agreement contractor has fully recovered
its pre-operating expenses, exploration, and development expenditures, inclusive. (Emphasis
supplied)

Under the foregoing provisions, the Government does not receive a share in the proceeds of the
mining operation. All it receives are taxes and fees from the foreign corporation, just as in the old
concession121 and service contract122 regimes. The collection of taxes and fees cannot be considered
a return on the resources mined corresponding to beneficial ownership of the Filipino people. Taxes
are collected under the State's power to generate funds to finance the needs of the citizenry and to
advance the common weal.123 They are not a return on investment or property. Similarly, fees are
imposed under the police power primarily for purposes of regulation.124 Again, they do not correspond
to a return on investment or property.
Even more galling is the stipulation in the above-quoted third paragraph that the Government's share
(composed only of taxes and fees) shall not be collected until after the foreign corporation has "fully
recovered its pre-operating expenses, exploration, and development expenditures, inclusive." In one
breath this provision virtually guarantees the foreigner a return on his investment while simultaneously
leaving the Government's (and People's) share to chance.
It is, therefore, clearly evident that the foregoing provisions of the Mining Act effectively transfer the
beneficial ownership over the resources covered by the agreement to a foreigner, in contravention of
the letter and spirit of the Constitution.
Consequently, the assailed Decision inescapably concluded that:
The underlying assumption in all these provisions is that the foreign contractor manages the mineral
resources, just like the foreign contractor in a service contract.125
The Mining Act gives the foreign-owned corporation virtually complete control, not mere
"incidental" participation in management, over the entire operations.
The law is thus at its core a retention of the concession system. It still grants beneficial
ownership of the natural resources to the foreign contractor and does little to affirm the State's
ownership over them, and its supervision and control over their exploration, development and
utilization.
While agreeing that the Constitution vests the beneficial ownership of Philippine minerals with the
Filipino people, entitling them to gains, rewards and advantages generated by these minerals, the
majority opinion nevertheless maintains that the Mining Act, as implemented by DENR Administrative
Order 99-56126 (DAO 99-56), is constitutional as, so it claims, it does not "convey beneficial ownership
of any mineral resource or product to any foreign FTAA contractor." The majority opinion adds that the
State's share, as expounded by DAO 99-56, amounts to "real contributions to the economic growth
and general welfare of the country," at the same time allowing the contractor to recover "a reasonable
return on its investments in the project."
Under DAO 99-56, the "government's share" in an FTAA is divided into (1) a "basic government share"
composed of a number of taxes and fees127 and (2) an "additional government share"128 computed
according to one of three possible methods – (a) a 50-50 sharing in the cumulative present value of
cash flows,129 (b) a profit related additional government share130 or (c) an additional share based on
the cumulative net mining revenue131 – at the option of the contractor.
Thus, the majority opinion claims that the total government share, equal to the sum of the "basic
government share" and the "additional government share," will achieve "a fifty-fifty sharing – between
the government and the contractor – of net benefits from mining."
This claim is misleading and meaningless for two reasons:

First, as priorly discussed, the taxes and fees which make up the government's "basic share"
cannot be considered a return on the resources mined corresponding to the beneficial
ownership of the Filipino people. Again, they do not correspond to a return on investment or
property.

Second, and more importantly, the provisions of the Mining Act effectively allow the foreign
contractor to circumvent all the provisions of DAO 99-56, including its intended "50-50 sharing"
of the net benefits from mining, and reduce government's total share to as low as TWO percent
(2%) of the value of the minerals mined.

The foreign contractor can do this because Section 39 of the Mining Act allows it to convert its FTAA
into a Mineral Production-Sharing Agreement (MPSA) by the simple expedient of reducing its equity
in the corporation undertaking the FTAA to 40%:
SECTION 39. Option to Convert into a Mineral Agreement. — The contractor has the option to
convert the financial or technical assistance agreement to a mineral agreement at any time
during the term of the agreement, if the economic viability of the contract area is found to be
inadequate to justify large-scale mining operations, after proper notice to the Secretary as provided
for under the implementing rules and regulations: Provided, That the mineral agreement shall only be
for the remaining period of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent (40%) in the
corporation, partnership, association, or cooperative. Upon compliance with this requirement by
the contractor, the Secretary shall approve the conversion and execute the mineral production-
sharing agreement. (Emphasis and underscoring supplied)
And under Section 80 of the Mining Act, in connection with Section 151(a) of the National Internal
Revenue Code132 (Tax Code), the TOTAL GOVERNMENT SHARE in an MPSA is ONLY TWO
PERCENT (2%) of the value of the minerals. Section 80 of the Mining Act provides:

SECTION 80. Government Share in Mineral Production Sharing Agreement. — The total
government share in a mineral production sharing agreement shall be the excise tax on mineral
products as provided in Republic Act No. 7729, amending Section 151(a) of the National Internal
Revenue Code, as amended. (Emphasis supplied)

While Section 151(a) of the Tax Code reads:

Sec. 151. Mineral Products. — (a) Rates of Tax. — There shall be levied, assessed and collected
on mineral, mineral products and quarry resources, excise tax as follows:

(1) On coal and coke, a tax of ten pesos (P10.00) per metric ton.
(2) On non-metallic minerals and quarry resources, a tax of two percent (2%) based on the actual
market value of the annual gross output thereof at the time of removal, in the case of those locally
extracted or produced; or the value used by the Bureau of Customs in determining tariff and customs
duties, net of excise tax and value-added tax, in the case of importation.
(3) On all metallic minerals, a tax based on the actual market value of the gross output thereof at the
time of removal, in the case of those locally extracted or produced; or the value used by the Bureau
of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case
of importation, in accordance with the following schedule:
(a) Copper and other metallic minerals:
(i) On the first three (3) years upon the effectivity of this Act, one percent (1%);
(ii) On the fourth and fifth year, one and a half percent (1 1/2%); and

(iii) On the sixth year and thereafter, two percent (2%)

(b) Gold and chromite, two percent (2%)
(4) On indigenous petroleum, a tax of fifteen percent (15%) of the fair international market price
thereof, on the first taxable sale, such tax to be paid by the buyer or purchaser within 15 days from the
date of actual or constructive delivery to the said buyer or purchaser. The phrase 'first taxable sale,
barter, exchange or similar transaction' means the transfer of indigenous petroleum in its original state
to a first taxable transferee. The fair international market price shall be determined in consultation with
an appropriate government agency.
For the purpose of this subsection, 'indigenous petroleum' shall include locally extracted mineral oil,
hydrocarbon gas, bitumen, crude asphalt, mineral gas and all other similar or naturally associated
substances with the exception of coal, peat, bituminous shale and/or stratified mineral deposits.
(Emphasis supplied)
By taking advantage of the foregoing provisions and selling 60% of its equity to a Filipino corporation
(such as any of the members of respondent-in-intervention Philippine Chamber of Mines) a foreign
contractor can easily reduce the total government's share (held in trust for the benefit of the Filipino
People) in the minerals mined to a paltry 2% while maintaining a 40% beneficial interest in the same.
What is more, if the Filipino corporation acquiring the foreign contractor's stake is itself 60% Filipino-
owned and 40% foreign-owned (a "60-40" Filipino corporation such as Sagittarius Mines, the putative
purchaser of WMC's 100% equity in WMCP), then the total beneficial interest of foreigners in the
mineral output of the mining concern would constitute a majority of 64%133 while the beneficial
ownership of Filipinos would, at most,134 amount to 36% – 34% for the Filipino stockholders of the 60-
40 Filipino corporation and 2% for the Government (in trust for the Filipino People).
The foregoing scheme, provided for in the Mining Act itself, is no different and indeed is virtually
identical to that embodied in Section 7.9 of the WMCP FTAA which the majority opinion itself
found to be "without a doubt grossly disadvantageous to the government, detrimental to the
interests of the Filipino people, and violative of public policy:"
x x x While Section 7.7 gives the government a 60 percent share in the net mining revenues of WMCP
from the commencement of commercial production; Section 7.9 deprives the government of part
or all of the said 60 percent. Under the latter provision, should WMCP's foreign shareholders – who
originally owned 100 percent of the equity – sell 60 percent or more of its outstanding capital stock to
a Filipino citizen or corporation, the State loses its right to receive its 60 percent share in net mining
revenues under Section 7.7.
Section 7.9 provides

The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be
reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in the Contractor
(i.e., WMCP) held by a Qualified Entity.
Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section 7.9 without
any offsetting compensation to the State. Thus, in reality, the State has no vested right to receive
any income from the FTAA for the exploration of its mineral resources. Worse, it would seem
that what is given to the State in Section 7.7 is by mere tolerance of WMCP's foreign
stockholders, who can at any time cut off the government's entire 60 percent share. They can
do so by simply selling 60 percent of WMCP's outstanding stock to a Philippine citizen or
corporation. Moreover, the proceeds of such sale will of course accrue to the foreign
stockholders of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-owned
and 40 percent foreign-owned will still trigger the operation of Section 7.9. Effectively, the State will
lose its right to receive all 60 percent of the net mining revenues of WMCP; and foreign
stockholders will own beneficially up to 64 percent of WMCP, consisting of the remaining
40percent foreign equity therein, plus the 24 percent pro-rata share in the buyer-corporation.
xxx
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining
revenues of WMCP without any offset or compensation whatsoever. It is possible that the inclusion
of the offending provision was initially prompted by the desire to provide some form of
incentive for the principal foreign stockholder in WMCP to eventually reduce its equity position
and ultimately divest itself thereof in favor of Filipino citizens and corporations. However, as
finally structured, Section 7.9 has the deleterious effect of depriving government of the entire
60 percent share in WMCP's net mining revenues, without any form of compensation
whatsoever. Such an outcome is completely unacceptable.
The whole point of developing the nation's natural resources is to benefit the Filipino people, future
generations included. And the State as sovereign and custodian of the nation's natural wealth is
mandated to protect, conserve, preserve and develop that part of the national patrimony for their
benefit. Hence, the Charter lays great emphasis on "real contributions to the economic growth and
general welfare of the country" [Footnote 75 of the Dissent omitted] as essential guiding principles to
be kept in mind when negotiating the terms and conditions of FTAAs.
xxx

Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues
(provided for in Section 7.7) without anything in exchange. Moreover, this outcome constitutes
unjust enrichment on the part of local and foreign stockholders of WMCP. By their mere
divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or corporations, the
local and foreign stockholders get a windfall. Their share in the net mining revenues of WMCP is
automatically increased, without their having to pay the government anything for it. In short, the
provision in question is without a doubt grossly disadvantageous to the government,
detrimental to the interests of the Filipino people, and violative of public policy. (Emphasis
supplied; italics and underscoring in the original; footnotes omitted)

The foregoing disquisition is directly applicable to the provisions of the Mining Act. By selling 60% of
its outstanding equity to a 60% Filipino-owned and 40% foreign-owned corporation, the foreign
contractor can readily convert its FTAA into an MPSA. Effectively, the State's share in the net
benefits from mining will be automatically and drastically reduced from the theoretical 50%
anticipated under DAO 99-56 to merely 2%. What is given to the State by Section 81 and DAO
99-56 is all but eliminated by Sections 39 and 80. At the same time, foreign stockholders will
beneficially own up to 64% of the mining concern, consisting of the remaining 40% foreign
equity therein plus the 24% pro-rata share in the buyer-corporation.
It is possible that, like Section 7.9 of the WMCP FTAA, Section 39 of the Mining Act was intended to
provide some form of incentive for the foreign FTAA contractor to eventually reduce its equity position
and ultimately divest itself thereof in favor of Filipino citizens and corporations. However, the net
effect is to allow the Filipino people to be robbed of their just share in Philippine mineral
resources. Such an outcome is completely unacceptable and cannot be sanctioned by this
Court.
By this simple conversion, which may be availed of at any time, the local and foreign stockholders will
obtain a windfall at the expense of the Government, which is the trustee of the Filipino people. The
share of these stockholders in the net mining revenues from Philippine resources will be automatically
increased without their having to pay the government anything in exchange.
On this basis alone, and despite whatever other differences of opinion might exist, the majority must
concede that the provisions of the Mining Act are grossly disadvantageous to the government,
detrimental to the interests of the Filipino people, and violative of Section 2, Article XII of the
Constitution.
En passant, it is significant to note that Section 39 of the Mining Act allows an FTAA holder to covert
its agreement to an MPSA "at any time during the term of the agreement."

As any reasonable person with a modicum of business experience can readily determine, the optimal
time for the foreign contractor to convert its FTAA into an MPSA is after the completion of the
exploration phase and just before undertaking the development, construction and utilization phase.
This is because under Section 56 (a) of DAO 40-96, the requirement for a minimum investment of Fifty
Million U.S. Dollars (US$ 50,000,000.00)135 is only applicable during the development, construction
and utilization phase and NOT during the exploration phase where the foreign contractor need only
comply with the stipulated minimum ground expenditures:
SECTION 56. Terms and Conditions of an FTAA. — The following terms, conditions and warranties
shall be incorporated in the FTAA, namely:
a. A firm commitment, in the form of a sworn statement during the existence of the Agreement, that
the Contractor shall comply with minimum ground expenditures during the exploration and pre-
feasibility periods as follows:

Year US $/Hectare
12
22
38

48
5 18
6 23
and a minimum investment of Fifty Million US Dollars ($50,000,000.00) or its Philippine Peso
equivalent in the case of Filipino Contractor for infrastructure and development in the contract
area. If a Temporary/Special Exploration Permit has been issued prior to the approval of an FTAA, the
exploration expenditures incurred shall form part of the expenditures during the first year of the
exploration period of the FTAA.
In the event that the Contractor exceeds the minimum expenditure requirement in any one (1) year,
the amount in excess may be carried forward and deducted from the minimum expenditure required
in the subsequent year. In case the minimum ground expenditure commitment for a given year is not
met for justifiable reasons as determined by the Bureau/concerned Regional Office, the unexpended
amount may be spent on the subsequent year(s) of the exploration period. (Emphasis supplied)

By converting its FTAA to an MPSA just before undertaking development, construction and utilization
activities, a foreign contractor further maximizes its profits by avoiding its obligation to make a
minimum investment of US$ 50,000,000.00. Assuming an exploration term of 6 years, it will have paid
out only a little over US$ 2.4 million136 in minimum ground expenditures.

Clearly, under the terms and provisions of the Mining Act, even the promised influx of tens of
millions of dollars in direct foreign investments is merely hypothetical and ultimately illusory.
Grant of Exploration Permits to Foreign
Corporations is Unconstitutional
The majority is also convinced that Section 3(aq) of the Mining Act, defining foreign corporations as a
qualified entity for the purposes of granting exploration permits, is "not unconstitutional."

The questioned provision reads:

SECTION 3. Definition of Terms. — As used in and for purposes of this Act, the following terms,
whether in singular or plural, shall mean:

xxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or authorized for the purpose of engaging in mining,
with technical and financial capability to undertake mineral resources development and duly registered
in accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens of
the Philippines: Provided, That a legally organized foreign-owned corporation shall be deemed
a qualified person for purposes of granting an exploration permit, financial or technical
assistance agreement or mineral processing permit. (Emphasis supplied)

In support of its contention that the above-quoted provision does not offend against the Constitution,
the majority opinion states that: (1) "there is no prohibition at all against foreign or local corporations
or contractors holding exploration permits;" and (2) an "exploration permit serves a practical and
legitimate purpose in that it protects the interests and preserves the rights of the exploration permit
grantee x x x during the period of time that it is spending heavily on exploration works, without yet
being able to earn revenues x x x."
The majority opinion also characterizes an exploration permit as "an authorization for the grantee to
spend its funds on exploration programs that are pre-approved by the government." And it comments
that "[t]he State risks nothing and loses nothing by granting these permits" to foreign firms.
These contentions fail for two obvious reasons.

First, setting aside for the moment all disagreements pertaining to the construction of Section 2, Article
XII of the Constitution, the following, at the very least, may be said to have been conclusively
determined by this Court: (1) the only constitutionally sanctioned method by which a foreign entity may
participate in the natural resources of the Philippines is by virtue of paragraph 4 of Section 2, Article
XII of the Constitution; (2) said provision requires that an agreement be entered into (3) between the
President and the foreign corporation (4) for the large-scale exploration, development, and utilization
of minerals, petroleum, and other mineral oils (5) according to the general terms and conditions
provided by law, (6) based on real contributions to the economic growth and general welfare of the
country; (7) such agreements will promote the development and use of local scientific and technical
resources; and (8) the President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution.
However, by the majority opinion's express admission, the grant of an exploration permit does not
even contemplate the entry into an agreement between the State and the applicant foreign corporation
since "prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or
prospective contractor) cannot yet be deemed to have entered into any contract or agreement with the
State."
Consequently, the grant of an exploration permit – which is not an agreement – cannot possibly be
construed as being favorably sanctioned by paragraph 4 of Section 2, Article XII of the Constitution
which refers to "agreements … involving either financial or technical assistance." Not falling within the
exception embodied in paragraph 4 of Section 2, Article XII of the Constitution, the grant of such a
permit to a foreign corporation is prohibited and the proviso providing for such grant in Section 3 (aq)
of the Mining Act is void for being unconstitutional.
Second, given the foregoing discussion on the circumvention of the State's share in an FTAA, it is
clearly evident that to allow the grant of exploration permits to foreign corporations is to allow the
whole-sale circumvention of the entire system of FTAAs mandated by the Constitution.
For Chapter IV of the Mining Act on Exploration Permits grants to the permit holder, including foreign
corporations, the principal rights conferred on an FTAA contractor during the exploration phase,
including (1) the right to enter, occupy and explore the permit area under Section 23,137 and (2) the
exclusive right to an MPSA or other mineral agreements or FTAAs upon the filing of a Declaration of
Mining Project Feasibility under Sections 23 and 24;138 but requires none of the obligations of an FTAA
– not even the obligation under Section 56 of DAO 40-96 to pay the minimum ground expenditures
during the exploration and feasibility period.139
Thus, all that a foreign mining company need do to further maximize its profits and further reduce the
Government's revenue from mining operations is to apply for an exploration permit and content itself
with the "smaller" permit area of 400 meridional blocks onshore (which itself is not small considering
that it is equivalent to 32,400 hectares or 324,000,000 square meters).140 It is not obligated to pay any
minimum ground expenditures during the exploration period.

Should it discover minerals in commercial quantities, it can circumvent the Fiscal Regime in DAO 99-
56 by divesting 60% of its equity in favor of a Philippine corporation and opting to enter into an MPSA.
By doing so it automatically reduces the Government's TOTAL SHARE to merely 2% of value of the
minerals mined by operation of Section 81.

And if the Philippine corporation to which it divested its 60% foreign equity is itself a 60-40 Philippine
Corporation, then the beneficial interest of foreigners in the minerals mined would be a minimum of
64%.
In light of the foregoing, Section 3 (aq), in so far as it allows the granting of exploration permits to
foreign corporations, is patently unconstitutional, hence, null and void.
II
Invalidity of the WMCP FTAA Sale of foreign
interest in WMCP to a Filipino corporation
did not render the case moot and academic.

Respondent WMCP, now renamed Tampakan Mineral Resources Corporation, submits that the case
has been rendered moot since "[e]xcept for the nominal shares of directors, 100% of TMRC's share
are now owned by Sagittarius Mines, which is a Filipino-owned corporation. More than 60% of the
equity of Sagittarius is owned by Filipinos or Filipino-owned corporations."141 This Court initially
reserved judgment on this issue.142
Petitioner invokes by analogy the rule that where land is invalidly transferred to an alien who
subsequently becomes a Filipino citizen or transfers it to one, the infirmity in the original transaction is
considered cured and the title of the transferee is rendered valid, citing Halili v. Court of Appeals.143
The rationale for this rule is that if the ban on aliens from acquiring lands is to preserve the nation's
lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by
making lawful the acquisition of real estate by Filipino citizens.144
Respondent WMCP's analogy is fallacious. Whether the legal title to the corporate vehicle holding the
FTAA has been transferred from a foreigner to a Filipino is irrelevant. What is relevant is whether a
foreigner has improperly and illegally obtained an FTAA and has therefore benefited from the
exploration, development or utilization of Philippine natural resources in a manner contrary to the
provisions of the Constitution.

As above-stated the doctrine enunciated in Halili is based on the premise that the purpose of the
Constitution in prohibiting alien ownership of agricultural land is to retain the ownership or legal title
of the land in the hands of Filipinos. This purpose is not identical or even analogous to that in Section
2, Article XII of the Constitution. As priorly discussed, the primary purpose of the provisions on National
Patrimony is to preserve to the Filipino people the beneficial ownership of their natural resources –
i.e. the right to the gains, rewards and advantages generated by their natural resources. Except under
the terms of Section 2, Article XII, foreigners are prohibited from involving themselves in the
exploration, development or utilization of these resources, much less from profiting from them.
Divestment by a foreigner of an illegally acquired right to mine Philippine resources does not alter the
illegal character of the right being divested or sold. Indeed, such divestment or sale is obviously a
method by which the foreigner may derive pecuniary benefit from his unlawful act since he receives
payment for his illegally acquired interest in the country's natural resources.
To rule otherwise would be to condone, even to invite, foreign entities to obtain Philippine mining
interests in violation of the Constitution with the assurance that they can escape liability and at the
same time make a tidy sum by later selling these interests to Filipinos. This is nothing less than
allowing foreign speculation in Philippine natural resources. Worse, there is the very real possibility
that these foreign entities may intentionally inflate the value of their illegally–acquired mineral rights to
the detriment of their Filipino purchasers as the past Bre-X scandal145 and recent Shell oil reserve
controversy146 vividly illustrate.

To allow a foreigner to profit from illegally obtained mining rights or FTAAs subverts and circumvents
the letter and intent of Article XII of the Constitution. It facilitates rather than prevents the rape and
plunder of the nation's natural resources by unscrupulous neo-colonial entities. It thwarts, rather than
achieves, the purpose of the fundamental law.

As applied to the facts of this case, respondent WMCP, in essence, claims that now that the operation
and management of the WMCP FTAA is in the hands of a Filipino company, no serious question as
to the FTAA's validity need arise.
On the contrary, this very fact – that WMC has sold its 100% interest in WMCP to a Filipino company
for US$10,000,000.00 – directly leads to some very serious questions concerning the WMCP FTAA
and its validity. First, if a Filipino corporation is capable of undertaking the terms of the FTAA, why was
an agreement with a foreign owned corporation entered into in the first place? Second, does not the
fact that, as alleged by petitioners147 and admitted by respondent WMCP,148 Sagittarius, WMCP's
putative new owner, is capitalized at less than half the purchase price149 of WMC's shares in WMCP,
a strong indication that Sagittarius is merely acting as the dummy of WMC? Third, if indeed WMCP
has, to date, spent US$40,000,000.00 in the implementation of the FTAA, as it claims,150 why did WMC
sell 100% of its shares in WMCP for only US$10,000,000.00? Finally, considering that, as emphasized
by WMCP,151 "payment of the purchase price by Sagittarius to WMC will come only after the
commencement of commercial production," hasn't WMC effectively acquired a beneficial interest in
any minerals mined in the FTAA area to the extent of US$10,000,000.00? If so, is the acquisition of
such a beneficial interest by a foreign corporation permitted under our Constitution?
Succinctly put, the question remains: What is the validity of the FTAA by which WMC, a fully foreign
owned corporation, has acquired a more than half billion peso152 interest in Philippine mineral
resources located in a contract area of 99,387 (alleged to have later been reduced to 30,000)153
hectares of land spread across the four provinces of South Cotabato, Sultan Kudarat, Davao del
Sur and North Cotabato?

Clearly then, the issues of this case have not been rendered moot by the sale of WMC's 100% interest
in WMCP to a Filipino corporation, whether the latter be Sagittarius or Lepanto. If the FTAA is held to
be valid under the Constitution, then the sale is valid and, more importantly, WMC's US$10,000,000.00
interest in Philippine mineral deposit, arising as it did from the sale and its prior 100% ownership of
WMCP, is likewise valid. However, if the FTAA is held to be invalid, then neither WMC's interest nor
the sale which gave rise to said interest is valid for no foreigner may profit from the natural
resources of the Republic of the Philippines in a manner contrary to the terms of the Philippine
Constitution. If held unconstitutional, the WMCP FTAA is void ab initio for being contrary to the
fundamental law and no rights may arise from it, either in favor of WMC or its Filipino transferee.
Evidently, the transfer of the shares in WMCP from WMC Resources International Pty. Ltd. (WMC), a
foreign-owned corporation, to a Filipino-owned one, whether Sagittarius or Lepanto, now presently
engaged in a dispute over said shares,154 did not "cure" the FTAA nor moot the petition at bar. On the
contrary, it is the Decision in this case that rendered those pending cases moot for the invalidation of
the FTAA leaves Sagittarius and Lepanto with nothing to dispute.
Terms of the WMCP FTAA are
contrary to the Constitution and
render said FTAA null and void.
The WMCP FTAA is clearly contrary to the agreements provided for in Section 2, Article XII of the
Constitution. In the Decision under reconsideration, this Court observed:
Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,] process
and dispose of all Minerals products and by-products thereof that may be produced from the Contract
Area." The FTAA also imbues WMCP with the following rights:

(b) to extract and carry away any Mineral samples from the Contract area for the purpose of conducting
tests and studies in respect thereof;
(c) to determine the mining and treatment processes to be utilized during the Development/Operating
Period and the project facilities to be constructed during the Development and Construction Period;
(d) have the right of possession of the Contract Area, with full right of ingress and egress and the right
to occupy the same, subject to the provisions of Presidential Decree No. 512 (if applicable) and not
be prevented from entry into private lands by surface owners and/or occupants thereof when
prospecting, exploring and exploiting for minerals therein;
xxx
(f) to construct roadways, mining, drainage, power generation and transmission facilities and all other
types of works on the Contract Area;
(g) to erect, install or place any type of improvements, supplies, machinery and other equipment
relating to the Mining Operations and to use, sell or otherwise dispose of, modify, remove or diminish
any and all parts thereof;
(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties, easement
rights and the use of timber, sand, clay, stone, water and other natural resources in the Contract Area
without cost for the purposes of the Mining Operations;
xxx

(l) have the right to mortgage, charge or encumber all or part of its interest and obligations under this
Agreement, the plant, equipment and infrastructure and the Minerals produced from the Mining
Operations;
x x x.
All materials, equipment, plant and other installations erected or placed on the Contract Area remain
the property of WMCP, which has the right to deal with and remove such items within twelve months
from the termination of the FTAA.

Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology, management
and personnel necessary for the Mining Operations." The mining company binds itself to "perform all
Mining Operations . . . providing all necessary services, technology and financing in connection
therewith," and to "furnish all materials, labour, equipment and other installations that may be required
for carrying on all Mining Operations." WMCP may make expansions, improvements and
replacements of the mining facilities and may add such new facilities as it considers necessary for the
mining operations.
These contractual stipulations, taken together, grant WMCP beneficial ownership over natural
resources that properly belong to the State and are intended for the benefit of its citizens. These
stipulations are abhorrent to the 1987 Constitution. They are precisely the vices that the fundamental
law seeks to avoid, the evils that it aims to suppress. Consequently, the contract from which they
spring must be struck down.155 (Citations omitted)
Indeed, save for the fact that the contract covers a larger area, the subject FTAA is actually a mineral
production sharing agreement. Respondent WMCP admitted as much in its Memorandum.156 The first
paragraph of Section 2, Article XII of the Constitution, however, allows this type of agreement only
with Filipino citizens or corporations.
That the subject FTAA is void for having an unlawful cause bears reaffirmation. In onerous contracts
the cause is understood to be, for each contracting party, the prestation or promise of a thing or service
by the other.157 On the part of WMCP, a foreign-owned corporation, the cause was to extend not only
technical or financial assistance but management assistance as well. The management prerogatives
contemplated by the FTAA are not merely incidental to the two other forms of assistance, but virtually
grant WMCP full control over its mining operations. Thus, in Section 8.3158 of the FTAA, in case of a
dispute between the DENR and WMCP, it is WMCP's decision which will prevail.
The questioned FTAA also grants beneficial ownership over Philippine natural resources to WMCP,
which is prohibited from entering into such contracts not only by the fourth paragraph of Section 2,
Article XII of the Constitution, but also by the first paragraph, the FTAA practically being a production-
sharing agreement reserved to Filipinos.
Contracts whose cause is contrary to law or public policy are inexistent and void from the beginning.159
They produce no effect whatsoever.160 They cannot be ratified,161 and so cannot the WMCP FTAA.

The terms of the WMCP FTAA effectively give away

the Beneficial Ownership of Philippine minerals
As previously observed, the majority opinion finds Section 7.9. of the WMCP FTAA to be "grossly
disadvantageous to the government, detrimental to the interests of the Filipino people, and violative
of public policy" since it "effectively gives away the State's share of net mining revenues (provided for
in Section 7.7) without anything in exchange."
It likewise finds Section 7.8(e) of the WMCP FTAA to be invalid. Said provision states:
7.8 The Government Share shall be deemed to include all of the following sums:
xxx

(e) 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. (Emphasis supplied)
And in its own estimation:
Section 7.8(e) is out of place in the FTAA. This provision does not make any sense why, for instance,
money spent by the government for the benefit of the contractor in building roads leading to the mine
site should still be deductible from the State's share in net mining revenues. Allowing this deduction
results in benefiting the contractor twice over. To do so would constitute unjust enrichment on
the part of the contractor at the expense of the government, since the latter is effectively being
made to pay twice for the same item. For being grossly disadvantageous and prejudicial to the
government and contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be
declared to be without effect. xxx (Emphasis supplied; citations omitted; underscore in the original)

The foregoing estimation notwithstanding, the majority opinion declines to invalidate the WMCP FTAA
on the theory that Section 7.9 and 7.8 are separable from the rest of the agreement, which may
supposedly be given effect without the offending provisions.
As previously discussed, the same deleterious results are easily achieved by the foreign contractor's
conversion of its FTAA into an MPSA under the provisions of the Mining Act. Hence, merely striking
out Sections 7.9 and 7.8(e) of the WMCP FTAA will not suffice; the provisions pertaining to FTAAs in
the Mining Act must be stricken out for being unconstitutional as well.
Moreover, Section 7.8 (e) and 7.9 are not the only provisions of the WMCP FTAA which convey
beneficial ownership of mineral resources to a foreign corporation.
Under Section 10.2 (l) of the WMCP FTAA, the foreign FTAA contractor shall have the right to
mortgage and encumber, not only its rights and interests in the FTAA, but the very minerals
themselves:
10.2 Rights of Contractor

The Government agrees that the Contractor shall:-

xxx
(l) have the right to mortgage, charge or encumber all or part of its interest and obligations under this
Agreement, the plant, equipment and infrastructure and the Minerals produced from the Mining
Operations; (Emphasis supplied)

Although respondents did not proffer their own explanation, the majority opinion theorizes that the
foregoing provision is necessitated by the conditions that may be imposed by creditor-banks on the
FTAA contractor:
xxx I 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 to the latter. Ordinarily, banks lend not
only on the security of mortgages on fixed assets, but also on encumbrances of goods produced that
can easily be sold and converted into cash that can be applied to the repayment of loans. Banks even
lend on the security of accounts receivable that are collectible within 90 days. (Citations omitted;
underscore in the original)
It, however, overlooks the provision of Art. 2085 of the Civil Code which enumerates the essential
requisites of a contract of mortgage:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and
in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property. (Emphasis and underscoring supplied)
From the foregoing provision of law, it is abundantly clear that only the absolute owner of the
minerals has the right to mortgage the same, and under Section 2, Article XII of the Constitution
the absolute owner of the minerals is none other than the State. While the foreign FTAA contractor
may have an interest in the proceeds of the minerals, it does not acquire ownership over the minerals
themselves.
Put differently, the act of mortgaging the minerals is an act of ownership, which, under the
Constitution, is reserved solely to the State. In purporting to grant such power to a foreign FTAA
contractor, Section 10.2 (l) of the WMCP FTAA clearly runs afoul of the Constitution.
Moreover, it bears noting that to encumber natural resources of the State to secure a foreign FTAA
contractor's obligations is anomalous since Section 1.2 of the WMCP FTAA provides that "[a]ll
financing, technology, management and personnel necessary for the Mining Operations shall be
provided by the Contractor."
Indeed, even the provisions of the Mining Act, irredeemably flawed though they may be, require that
the FTAA contractor have the financial capability to undertake the large-scale exploration,
development and utilization of mineral resources in the Philippines;162 and, specifically, that the
contractor warrant that it has or has access to all the financing required to promptly and effectively
carry out the objectives of the FTAA.163
Under Section 10.2 (e) of the WMCP FTAA, the foreign FTAA Contractor has the power to require the
Government to acquire surface rights in its behalf at such price and terms acceptable to it:
10.2 Rights of Contractor
The Government agrees that the Contractor shall:-
xxx

(e) have the right to require the Government at the Contractor's own cost, to purchase or
acquire surface areas for and on behalf of the Contractor at such price and terms as may be
acceptable to the Contractor. At the termination of this Agreement such areas shall be sold by public
auction or tender and the Contractor shall be entitled to reimbursement of the costs of
acquisition and maintenance, adjusted for inflation, from the proceeds of sale; (Emphasis
supplied)
Petitioners, in their Memorandum, point out that pursuant to the foregoing, the foreign FTAA contractor
may compel the Government to exercise its power of eminent domain to acquire the title to the land
under which the minerals are located for and in its behalf.
The majority opinion, however, readily accepts the explanation proffered by respondent WMCP, thus:
Section 10.2 (e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to own
land, identifies to the government the specific surface areas within the FTAA contract area to be
acquired for the mine infrastructure. The government then acquires ownership of the surface land
areas on behalf of the contractor, in order to enable the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows it,
after the termination of the FTAA to be reimbursed from proceeds of the sale of the surface areas,
which the government will dispose of through public bidding.
And it concludes that "the provision does not call for the exercise of the power of eminent domain" and
the determination of just compensation.
The foregoing arguments are specious.

First, the provision in question clearly contemplates a situation where the surface area is not already
owned by the Government – i.e. when the land over which the minerals are located is owned by some
private person.
Second, the logical solution in that situation is not, as asserted by respondent WMCP, to have the
Government purchase or acquire the land, but for the foreign FTAA contractor to negotiate a lease
over the property with the private owner.
Third, it is plain that the foreign FTAA contractor would only avail of Section 10.2 (e) if, for some reason
or another, it is unable to lease the land in question at the price it is willing to pay. In that situation, it
would have the power under Section 10.2 (e) to compel the State, as the only entity which can legally
compel the landowner to involuntarily part with his property, to acquire the land at a price dictated by
the foreign FTAA contractor.
Clearly, the State's power of eminent domain is very much related to the practical workings of Section
10.2 (e) of the WMCP FTAA. It is the very instrument by which the contractor assures itself that it can
obtain the "surface right" to the property at a price of its own choosing. Moreover, under Section 60 of
DAO 40-96, the contractor may, after final relinquishment, hold up to 5,000 hectares of land in this
manner.

More. While the foreign FTAA contractor advances the purchase price for the property, in reality it
acquires the "surface right" for free since under the same provision of the WMCP FTAA it is entitled to
reimbursement of the costs of acquisition and maintenance, adjusted for inflation. And as if the
foregoing were not enough, when read together with Section 3.3,164 the foreign FTAA contractor would
have the right to hold the "surface area" for a maximum of 50 years, at its option.
In sum, by virtue of Sections 10.2 (e) and 3.3. of the WMCP FTAA, the foreign FTAA contractor is
given the power to hold inalienable mineral land of up to 5,000 hectares, with the assistance of
the State's power of eminent domain, free of charge, for a period of up to 50 years in
contravention of Section 3, Article XII of the Constitution:
Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands,
and national parks. Agricultural lands of the public domain may be further classified by law according
to the uses which they may be devoted. Alienable lands of the public domain shall be limited to
agricultural lands. Private corporations or associations may not hold such alienable lands of
the public domain except by lease, for a period not exceeding twenty-five years, renewable for
not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of
the Philippines may lease not more than five hundred hectares, or acquire not more than twelve
hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and development, and subject to the
requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public
domain which may be acquired, developed, held, or leased and the conditions therefor. (Emphasis
supplied)
Taken together, the foregoing provisions of the WMCP FTAA amount to a conveyance to a foreign
corporation of the beneficial ownership of both the minerals and the surface rights to the same in
contravention of the clear provisions of the Constitution.

The majority opinion posits that "[t]he acquisition by the State of land for the contractor is just to enable
the contractor to establish its mine site, build its facilities, establish a tailings pond, set up its machinery
and equipment, and dig mine shafts and tunnels, etc." It thus concludes that "5,000 hectares is way
too much for the needs of a mining operator."

Evidently, the majority opinion does not take into account open pit mining. Open pit or opencut mining,
as differentiated from methods that require tunneling into the earth, is a method of extracting minerals
by their removal from an open pit or borrow;165 it is a mine working in which excavation is performed
from the surface.166 It entails a surface mining operation in which blocks of earth are dug from the
surface to extract the ore contained in them. During the mining process, the surface of the land is
excavated forming a deeper and deeper pit until the end of mining operations.167 It is used extensively
in mining metal ores, copper, gold, iron, aluminum168 – the very minerals which the Philippines is
believed to possess in vast quantities; and is considered the most cost-effective mining method.169
Furthermore, considering that FTAAs deal with large scale exploration, development and utilization of
mineral resources and that the original contract area of the WMCP FTAA was 99,387 hectares, an
open pit mining operation covering a total of 5,000 hectares is not outside the realm of possibility.
In any event, regardless of what the majority opinion considers "way too much" (or too little), it is
undisputed that under Section 60 of DAO 40-96, which is among the enactments under review, the
contractor may, after final relinquishment, hold up to 5,000 hectares of land. And, under Section 3.3.
of the WMCP FTAA, it may do so for a term of 25 years automatically renewable for another 25 years,
at the option of the contractor.
The majority opinion also argues that, although entitled to reimbursement of its acquisition cost at the
end of the contract term, the FTAA contractor does not acquire its surface rights for free since "the
contractor will have been cash-out for the entire duration of the term of the contract – 25 to 50 years,
depending," thereby foregoing any interest income he might have earned. This is the "opportunity cost"
of the contractor's decision to use its money to acquire the surface rights instead of leaving it in the
bank.
The majority opinion does not consider the fact that "opportunity cost" is more theoretical rather than
actual and, for that reason, is not an allowable deduction from gross income in an income statement.
In layman's terms it is equivalent to "the value of the chickens that might have been hatched if only
the cook had not scrambled the eggs." Neither does it consider the fact that the contractor's foregone
interest income does not find its way to the pockets of either the previous land owner (in this case, the
Bugal B'Laans) or the State.
But even if the contractor does incur some opportunity cost in holding the surface rights for 35 to 50
years. The fact remains that, under the terms of the WMCP FTAA, the contractor is given the power
to hold inalienable mineral land of up to 5,000 hectares, with the assistance of the State's power
of eminent domain for a period of up to 50 years in contravention of Section 3, Article XII of the
Constitution.
Clearly, Section 3 and 10.2 (e) of the WMCP FTAA in conjunction with Section 60 of DAO 40-96,
amount to a conveyance to a foreign corporation of the beneficial ownership of both the minerals and
the surface rights over the same, in contravention of the clear provisions of the Constitution.
The terms of the WMCP FTAA abdicate all control over the
mining operation in favor of the foreign FTAA contractor
The majority opinion's defense of the constitutionality of Section 8.1, 8.2, 8.3 of the WMCP FTAA is
similarly unpersuasive. These Sections provide:
8.1 The Secretary shall be deemed to have approved any Work Programme or Budget or
variation thereof submitted by the Contractor unless within sixty (60) days after submission by
the Contractor the Secretary gives notice declining such approval or proposing a revision of
certain features and specifying its reasons therefore ("the Rejection Notice").
8.2 If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour to agree
on amendments to the Work Programme or budget. If the Secretary and the Contractor fail to agree
on the proposed revision within 30 days from delivery of the Rejection Notice then the Work
Programme or Budget or variation thereof proposed by the Contractor shall be deemed
approved so as not to unnecessarily delay the performance of this Agreement.

Even measured against the majority opinion's standards of control – i.e. either (1) the power to set
aside, reverse, or modify plans and actions of the contractor; or (2) regulatory control – the foregoing
provisions cannot pass muster. This is because, by virtue of the foregoing provisions, the foreign FTAA
contractor has unfettered discretion to countermand the orders of its putative regulator, the DENR.

Contrary to the majority's assertions, the foregoing provisions do not provide merely temporary or stop-
gap solutions. The determination of the FTAA contractor permanently reverses the "Rejection Notice"
of the DENR since, by the majority opinion's own admission, there is no available remedy for the
DENR under the agreement except to seek the cancellation of the same.

Indeed, the justification for the foregoing provisions is revealing:

xxx First, avoidance of long delays in these situations will undoubtedly redound to the benefit of the
State as well as to the contractor. Second, who is to say that the work program or budget
proposed by the contractor and deemed approved under Clause 8.3 would not be the better or
more reasonable or more effective alternative? The contractor, being the "insider," as it were,
may be said to be in a better position than the State – an outsider looking in – to determine
what work program or budget would be appropriate, more effective, or more suitable under the
circumstances. (Emphasis and underscoring supplied)

Both reasons tacitly rely on the unstated assumption that the interest of the foreign FTAA contractor
and that of the Government are identical. They are not.
Private businesses, including large foreign-owned corporations brimming with capital and technical
expertise, are primarily concerned with maximizing the pecuniary returns to their owners or
shareholders. To this extent, they can be relied upon to pursue the most efficient courses of action
which maximize their profits at the lowest possible cost.
The Government, on the other hand, is mandated to concern itself with more than just narrow self-
interest. With respect to the nation's natural wealth, as the majority opinion points out, the Government
is mandated to preserve, protect and even maximize the beneficial interest of the Filipino people in
their natural resources. Moreover, it is directed to ensure that the large-scale exploration, development
and utilization of these resources results in real contributions to the economic growth and general
welfare of the nation. To achieve these broader goals, the Constitution mandates that the State
exercise full control and supervision over the exploration, development and utilization of the country's
natural resources.
However, taking the majority opinion's reasoning to its logical conclusion, the business "insider's
opinion" would always be superior to the Government's administrative or regulatory determination with
respect to mining operations. Consequently, it is the foreign contractor's opinion that should always
prevail. Ultimately, this means that, at least for the majority, foreign private business interests outweigh
those of the State – at least with respect to the conduct of mining operations.
Indeed, in what other industry can the person regulated permanently overrule the administrative
determinations of the regulatory agency?

To any reasonable mind, the absence of an effective means to enforce even administrative
determinations over an FTAA contractor, except to terminate the contract itself, falls far too short of
the concept of "full control and supervision" as to cause the offending FTAA to fall outside the ambit
of Section 2, Article XII of the Constitution.

Verily, viewed in its entirety, the WMCP FTAA cannot withstand a rigid constitutional scrutiny
since, by its provisions, it conveys both the beneficial ownership of Philippine minerals and
control over their exploration, development and utilization to a foreign corporation. Being
contrary to both the letter and intent of Section 2, Article XII of the Constitution, the WMCP
FTAA must be declared void and of no effect whatsoever.
A Final Note
For over 350 years, the natural resources of this nation have been under the control and domination
of foreign powers – whether political or corporate. Philippine mineral wealth, viciously wrenched from
the bosom of the motherland, has enriched foreign shores while the Filipino people, to whom such
wealth justly belongs, have remained impoverished and unrecompensed.

Time and time again the Filipino people have sought an end to this intolerable situation. From 1935
they have struggled to assert their legal control and ownership over their patrimony only to have their
efforts repeatedly subverted – first, by the parity amendment to the 1935 Constitution and
subsequently by the service contract provision in the 1973 Constitution.

It is not surprising that an industry, overly dependent on foreign support and now in decline, should
implore this Court to reverse itself if only to perpetuate its otherwise economically unsustainable
conduct. It is even understandable, however regrettable, that a government, strapped for cash and in
the midst of a self-proclaimed fiscal crisis, would be inclined to turn a blind eye to the consequences
of unconstitutional legislation in the hope, however false or empty, of obtaining fabulous amounts of
hard currency.
But these considerations should not outweigh the Constitution.
As always, the one overriding consideration of this Court should be the will of the sovereign Filipino
people as embodied in their Constitution. The Constitution which gives life to and empowers this Court.
The same Constitution to which the members of this Court have sworn their unshakable loyalty and
their unwavering fidelity.
Now, the unmistakable letter and intent of the 1987 Constitution notwithstanding, the majority of this
Court has chosen to reverse its earlier Decision which, to me, would once again open the doors to
foreign control and ownership of Philippine natural resources. The task of reclaiming Filipino control
over Philippine natural resources now belongs to another generation.
ACCORDINGLY, I vote to deny respondents' Motions for Reconsideration.

SEPARATE OPINION
TINGA, J.:
The Constitution was crafted by men and women of divergent backgrounds and varying ideologies.
Understandably, the resultant document is accommodative of these distinct, at times competing
philosophies. Untidy as any mélange would seem, our fundamental law nevertheless hearkens to the
core democratic ethos over and above the obvious inconveniences it spawns.
However, when the task of judicial construction of the Constitution comes to fore, clarity is demanded
from this Court. In turn, there is a need to balance and reconcile the diverse views that animate the
provisions of the Constitution, so as to effectuate its true worth as an instrument of national unity and
progress.
The variances and consequent challenges are vividly reflected in Article XII of the Constitution on
National Patrimony, in a manner akin to Article II on Declaration of Principles and State Policies. Some
of the provisions impress as protectionist, yet there is also an undisguised accommodation of liberal
economic policies. Section 2, Article XII,1 the provision key to this case, is one such Janus-faced
creature. It seems to close the door on foreign handling of our natural resources, but at the same time
it leaves open a window for alien participation in some aspects. The central question before us is how
wide is the entry of opportunity created by the provision.
My vote on the motions for reconsideration is hinged on a renewed exegesis of Section 22 of Article
XII in conjunction with the proper understanding of the nature of the power vested on the President
under Section 2. It has to be appreciated in relation to the inherent functions of the executive branch
of government.
The Contract-Making Power of the President
While all government authority emanates from the people, the breadth and depth of such authority are
not brought to bear by direct popular action, but through representative government in accord with the
principles of republicanism.3 By investiture of the Constitution, the function of executive power is
parceled solely to the duly elected President.4 The Constitution contains several express
manifestations of executive power, such as the provision on control over all executive departments,
bureaus and offices,5 as well as the so-called "Commander-in-Chief" clause.6
Yet it has likewise been recognized in this jurisdiction that "executive power" is not limited to such
powers as are expressly granted by the Constitution. Marcos v. Manglapus7 concedes that the
President has powers other than those expressly stated under the Constitution,8 and thus implies that
these powers may be exercised without being derivative from constitutional authority.9 The precedental
value of Marcos v. Manglapus may be controvertible,10 but the cogency of its analysis of the scope of
executive power is indisputable. Neither is the concept of plenary executive power novel, as discussed
by Justice Irene Cortes in her ponencia:

It has been advanced that whatever power inherent in the government that is neither legislative nor
judicial has to be executive. Thus, in the landmark decision of Springer v. Government of the Philippine
Islands, 277 U.S. 189 (1928), on the issue of who between the Governor-General of the Philippines
and the Legislature may vote the shares of stock held by the Government to elect directors in the
National Coal Company and the Philippine National Bank, the U.S. Supreme Court, in upholding the
power of the Governor-General to do so, said:
. . . Here the members of the legislature who constitute a majority of the "board" and
"committee" respectively, are not charged with the performance of any legislative functions or
with the doing of anything which is in aid of performance of any such functions by the
legislature. Putting aside for the moment the question whether the duties devolved upon these
members are vested by the Organic Act in the Governor-General, it is clear that they are not
legislative in character, and still more clear that they are not judicial. The fact that they do not
fall within the authority of either of these two constitutes logical ground for concluding that they
do fall within that of the remaining one among which the powers of government are divided . .
. [At 202-203; emphasis supplied.]
We are not unmindful of Justice Holmes' strong dissent. But in his enduring words of dissent we find
reinforcement for the view that it would indeed be a folly to construe the powers of a branch of
government to embrace only what are specifically mentioned in the Constitution:
The great ordinances of the Constitution do not establish and divide fields of black and white.
Even the more specific of them are found to terminate in a penumbra shading gradually from
one extreme to the other. . . .

xxx xxx xxx

It does not seem to need argument to show that however we may disguise it by veiling words we do
not and cannot carry out the distinction between legislative and executive action with mathematical
precision and divide the branches into watertight compartments, were it ever so desirable to do so,
which I am far from believing that it is, or that the Constitution requires.[At 210-211.]11
Such general power has not been diminished notwithstanding the avowed intent of some of the
framers of the 1987 Constitution to limit the powers of the President as a reaction to abuses under
President Marcos, for as the Court noted, "the result was a limitation of the specific powers of the
President, particularly those relating to the commander-in-chief clause, but not a diminution of the
general grant of executive power."12 The critical perspective of this case should spring from a
recognition of this elemental fact.
Undeniably, the particular power now in question is expressly provided for by Section 2, Article XII of
the Constitution. Still, it originates from the concept of executive power that is not explicitly provided
for by the Constitution. As a necessary incident of the functions of the executive office, it can be
concluded that the President has the authority to enter into contracts in behalf of the State in matters
which are not denied him or her or not otherwise assigned to the other great branches of government,
even if such general power is not categorically recognized in the Constitution. Among these traditional
functions of the executive branch is the power to determine economic policy.
As once noted by Justice Feliciano, the Republic of the Philippines is itself a body corporate and
juridical person vested with the full panoply of powers and attributes which are compendiously
described as "legal personality."13 As "Chief of State" the President is also regarded as the head of
this body corporate,14 and thus is capacitated to represent the State when engaging with other entities.
Such executive function, in theory, does not require a constitutional provision, or even a Constitution,
in order to be operative. It is a power possessed by every duly constituted presidency starting with
Aguinaldo's. This faculty is complementary to the traditional regard of a Head of State as emblematic
of the State he/she represents.
The power to contract in behalf of the State is clearly an executive function, as opposed to legislative
or judicial. This is easily discernible through the process of exclusion. The other branches of
government — the legislative and the judiciary — are not similarly capacitated since their core
functions pertain to legislating and adjudicating respectively.
However, I am not making any pretense that such executive power to contract is unimpeachable or
limitless. The Constitution frowns on unchecked executive power, mandating in broad strokes, the
power of judicial review15 and legislative oversight.16 The Constitution itself may expressly restrict the
exercise of any sort of executive function. Section 2 undeniably constrains the exercise of the
executive power to contract in several regards.

Constitutional Limitations under Section 2, Article XII

What are the express limitations under Section 2 on the power of the executive to contract with foreign
corporations regarding the exploration, development and utilization of our natural resources?
There are two fundamental restrictions, both of which are asserted in the second paragraph of Section
2. These are that the State retains legal ownership of all natural resources,17 and that the State shall
have full control and supervision over the exploration, development and utilization of natural
resources.18 These key postulates are facially broad and warrant clarification. They also predicate
several specific restrictions laid down in the fourth paragraph of Section 2 on the power of the President
to enter into agreements with foreign corporations. These specific limitations are as follows:
First, the natural resources that may be subject of the agreement are a limited class, particularly
minerals, petroleum, and other mineral oils. Among the natural resources which are excluded from
these agreements are lands of the public domain, waters, coal, fisheries, forests or timbers, wildlife,
flora and fauna. Most notable of the exclusions are forests and timbers which are in all respects
expressly limited to Filipinos.

It is noteworthy that a previous version of the fourth paragraph of Section 2 deliberated upon during
the 1987 Constitutional Commission allowed agreements with foreign-owned corporations with
respect to all classes of natural resources.19 However, on the initiative of Commissioner (now Chief
Justice) Davide, the provision was amended to limit the scope of such agreements to minerals,
petroleum and other mineral oils, which Commissioner Davide recognized as "those particular areas
where Filipino capital may not be sufficient."20

The exclusion of timber resources from the scope of financial/technical assistance agreements
marks a significant distinction from the service contracts of old. This does not come as a
surprise, considering well-reported abuses under the old regime of issuing timber licensing
agreements, which numbered in the thousands prior to the 1987 Constitution. On the other
hand, no similar extensive collateral damage has been reported for the petroleum and mining
industry, capital-intensive industries whose potential for government revenues in billions of
pesos has long been sought after by the State.21 Hence, the variance in treatment from the
timber industry and the rest of the natural resources.
Second, these agreements with foreign-owned corporations can only be entered into for only large-
scale exploration, development and utilization of minerals, petroleum, and other mineral oils.
Third, it is only the President who may enter into these agreements. This is another pronounced
change from the 1973 Constitution, which allowed private persons to enter into service contracts with
foreign corporations.

Fourth, these agreements must be in accord with the general terms and conditions provided by law.
This proviso by itself, and more so when taken together, as it should, with another provision,22 entails
legislative intervention and affirmance in the exercise of this executive power. While it is the President
who enters into these contracts, he/she must act within such terms and conditions as may be
prescribed by Congress through legislation. The value of legislative input as a means of influencing
policy should not be discounted. Policy initiatives grounded on particular economic ideologies may
find enactment through legislation when approved by the necessary majorities in Congress. Legislative
work includes consultative processes with persons of diverse interests, assuring that economic
decisions need not be made solely from an ivory tower. There is also the possible sanction of
repudiation by the voters of legislators who prove insensate to the economic concerns of their
constituents.

Fifth, the President is mandated to base the decision of entering into these agreements on "real
contributions to the economic growth and general welfare of the country." In terms of real limitations,
this condition has admittedly little effect. The discretion as to whether or not to enter into these
agreements is vested solely by the Constitution in the President, and such exercise of discretion,
pertaining as it does to the political wisdom of a co-equal branch, generally deserves respect from the
courts.
The above conditionalities, particularly the first three, effect the desire of the framers of the 1987
Constitution to limit foreign participation in natural resource-oriented enterprises. They provide a vivid
contrast to the 1973 Constitution, which permitted private persons to enter into service contracts for
financial, technical, management, or other forms of assistance with any person or entity, including
foreigners, and for the exploration or utilization of any of the natural resources.23 These requisites
imposed by the 1987 Constitution, which are significantly more onerous than those laid down in the
1973 Constitution, warrant obeisance by the executive branch and recognition by this Court.

Not Strictly Technical or Financial Assistance

The Court's previous Decision, now for reconsideration, insisted on another restriction purportedly
imposed by the fourth paragraph of Section 2. It is argued that foreign–owned corporations are allowed
to render only technical or financial assistance in the large-scale exploration, development and
utilization of minerals, petroleum and mineral oils. This conservative view is premised on the sentiment
that the Constitution limits foreign involvement only to areas where they are needed, the overpowering
intent being to allow Filipinos to benefit from Filipino resources.24 Towards that end, the perception
arises that the power of the executive to enter into agreements with foreign-owned corporations is an
executive privilege, hampered by the limitations that generally attach to the grant of privileges.
On the fundamental nature of this power, I harbor an entirely different view. The actual art of governing
under our Constitution does not and cannot conform to judicial definitions of the power of any of its
branches based on isolated clauses or even single articles torn from context.25 The previously adopted
approach is rigidly formalist, and impervious to the traditional prerogatives of executive power.
As I stated earlier, the executive authority to contract is a right emanating from traditional executive
functions, and is connected with the power of the executive branch to determine economic policy.
Hence, the proper approach in interpreting Section 2, Article XII is to tilt in favor of asserting
the right rather than view the provision as a limitation on a privilege. To subscribe to the Court's
previous view will necessitate adopting as a fundamental premise that absent an express grant
of power, the executive branch has no capacity to contract since such capacity arises from a
privilege.

Had the provision been worded to state that the President may enter into agreements for technical or
financial assistance only, then this unambiguous limitation should be affirmed. Yet the Constitution
does not express such an intent. The controversial provision is crafted in such a way that allows any
type of agreement, so long as they involve either technical or financial assistance. In fact, the provision
does not restrict the scope of the agreement so as to pertain exclusively either to technical or financial
assistance.

The Constitution, in allowing foreign participation specifically in the large scale exploration,
development and utilization of natural resources, is cognizant of the sad truth that such activities entail
significant outlay of capital and advanced technological know-how that domestic corporations may not
yet have.26 The provision expressly adverts to "technical" and "financial" assistance in
recognition of the reality that these two facets are the indispensable requisites to qualify
foreign participants in the exploration, development, and utilization of mineral and petroleum
resources.
Had the framers chosen to restrict all aspects of all mining activities to domestic persons, the real fear
would have materialized that our mineral reserves could remain untapped for a significant period of
time, owing to the paucity of venture capital. There was a real option to heed dogmatic guns who
insisted that the mineral resources remain unutilized until the day when the domestic mining industry
becomes capacitated to undertake the extraction without need of foreign aid. Obviously, the more
pragmatic view won the day.

If indeed the foreign entity is limited only to technical or financial participation, the implication
is that it is up to the State to do all the rest. Considering the lack of know-how and financial
capital, matters which were appreciated by the framers of the Constitution, this intended effect
is preposterous. Even the State itself would hesitate to undertake such extractive activities
owing to the intensive capital and extensive training such enterprise would entail. By allowing
this expansive set-up under Section 2, the Constitution enables the minimization of risk on the
part of the State should it desire to undertake large-scale mineral extractive activities. The pay-
off though, understandably, is an atypical cession of several State prerogatives in the
development of its mineral and petroleum resources.

Perhaps there is need to be explicit and incisive about the implications of Section 2. The word
"assistance," shorn of context, implies a charitable grant offered without any quid pro quo attached.
Unconditional foreign aid may be more prevalent this day and age with the acceptance of the notion
that there are base minimum standards of decent living which all persons are entitled to. However,
such concept is alien to the mining industry. There is no such entity as an International Benevolent
Association for Extraction of Minerals. If "assistance" is to be restrictively interpreted according to
ordinary parlance, no entity would be interested in undertaking this regulated industry.
Any decision by any enterprise to assist in the exploration, development or utilization of mineral
resources does not arise from a philanthropic impulse. It is a pure and simple investment, and one
that is not engaged in unless there is the expectation or hope of a reasonable return. I hasten to add
that the deliberate incorporation of the fourth paragraph of Section 2 has created a window of
opportunity for foreign investments in the extractive enterprises involving petroleum and other mineral
oils, subject of course to limitations under the law. The term may prove discomfiting to the ideologically
committed, the sentimental nationalist or the visceral oppositionist. Still, the notion is not inconsistent
with the general power of the executive to enter into agreements for the purpose of enticing foreign
investments.
Why then the term "assistance?" Apart from its apparent political palatability in comparison with
"investment," as intimated before, the term is useful in underscoring the essential facets of the
foreign investment which is assistance in the financial or technical areas, as well as the
fundamental limitations and conditionalities of the investment. What is allowed is participation,
though limited, by foreign corporations which in turn are entitled to expect a return on their investments.
The Court had earlier premised the invalidity of several provisions of the Mining Act on the argument
that those provisions authorized service contracts. But while the 1987 Constitution does not utilize
the term "service contracts," it actually contemplates a broader expanse of agreements beyond
mere contracts for services rendered. Still, although the provision sanctions a more numerous class
of agreements, these are subjected to more stringent restrictions than what had been allowed under
the 1973 Constitution. Thus, the test should be whether the law and the contract take away the
State's full control and supervision over the exploration, development and utilization of the
country's mineral resources and negate or defeat the State's ownership thereof.
In line with the test, Section 2 should be accorded a liberal interpretation so as to recognize this
fundamental prerogative of the presidency. Such "liberal interpretation" does not equate to a wholesale
concession of mining resources to foreigners, much less to an atmosphere of complaisance, whether
from their perception or the Filipinos.' The fourth paragraph sets specific limitations on the exercise by
the President of this contract-making power. On the other hand, the second paragraph of Section 2
lays down the fundamental limitations which likewise may not be countermanded.
On the basis of the foregoing discussion, and as a necessary consequence of my view that the
agreements under Section 2 are not strictly limited to financial or technical assistance, I would consider
the following questioned provisions of Republic Act No. 7942 as valid —Sections 3 (g), 34 to 38, 40 to
41, 56 and 90. These provisions were struck down on the premise that they allowed the constitution
of "service contracts," an agreement which to my mind is still within the contemplation of Section 2,
Article XII.
State Ownership over Mineral and Petroleum Resources
There is need to clarify the specific meaning of these general limitations arising from the State's
assertion of ownership, full control and supervision.
In respect to the petition, the question of ownership has become material to the proper share the State
should receive from the exploration, development and utilization of mineral resources. I perceive that
all the members of the Court agree that such profit may not be limited to only such revenue derived
from the taxation of the mining activities. Since the right of the State to obtain a share in the net
proceeds and not merely through taxes arises as an attribute of ownership unequivocally reserved by
the Constitution for the State, such right may not be proscribed either by legislative provision or
contractual stipulation.
Yet it should be conceded that the State has the right to enter into an agreement concerning such
profits. There are, as probably should be, political consequences if the President opts to surrender all
of the State's profits to a foreign corporation, yet in bare theory, the right to bargain profits pertains to
the wisdom of a political act not ordinarily justiciable before this Court. Still, the overriding adherence
of the Constitution to the regalian doctrine should be given due respect, and an interpretation allowing
"beneficial ownership" by the foreign corporation should not be favored.
For purposes of the present judicial review, I would consider it prudent to limit myself to conceding that
the Court had previously erred in invalidating certain provisions of Rep. Act No. 7942 and the WMC
FTAA on the mistaken notion that the law and the agreement cede beneficial ownership of mineral
resources to a foreign corporation.
Section 4 of Rep. Act No. 7942 expressly recognizes State ownership over mineral resources, though
it is silent on the operational terms of such ownership. Of course, such general submission would not
be in itself curative of whatever contraventions to State ownership are contained in the same law;
hence, the need for deeper inquiry.
The dissenters wish to strike down the second paragraph of Section 81 of Rep. Act No. 7942 because
it purportedly precludes the Government from obtaining profits under the agreement from sources
other than its share in taxation. However, as the ponencia points out, the phrase "among other things"
sufficiently allows the government from demanding a share in the cash flow or earnings of the mining
enterprise. A contrary view is anchored on a rule of statutory construction that concludes that "among
other things" refers only to taxes. Yet, there is also a rule of construction that laws should be interpreted
with a view of upholding rather than destroying it. Thus, the ponencia's formulation, which achieves
the result of the minority without need of statutory invalidation, is highly preferable.
The provisions of Rep. Act No. 7942 which authorize the conversion of a financial or technical
assistance into a mineral production sharing agreement (MPSA) turned out to be just as controversial.
In this regard, the minority wishes to strike down Section 39, which in conjunction with Sections 80
and 84 of the law would purportedly allow such conversion, in that it would effectively limit the
government share in the profits to only the excise tax on mineral products under internal revenue law.
These concerns are valid and raise troubling questions. Yet equally troubling is that the Court is being
called upon to rule on a premature question. There is no such creature yet as an FTAA converted into
an MPSA, and so there is no occasion that calls for the application of Sections 39, 80 and 84. I do not
subscribe to judicial pre-emptive strikes, as they preclude the application of still undisclosed
considerations which may prove illuminating and even crucial to the proper disposition of the case. By
seeking invalidation of these "MPSA provisions," the Court is also asked to strike down an enactment
of a co-equal branch which has not given rise to an actual case or controversy. After all, such
enactment deserves due respect from this branch of government. Assuming that the provisions are
indeed invalid, the Court will not hesitate, at the proper time, to strike them down or at least impose a
proper interpretation that does not run afoul of the Constitution.27 However, in the absence of any
actual attempt to convert an FTAA to an MPSA, the time is not now.
I likewise agree with the ponencia that Section 7.9 deprives the State of its rightful share as an incident
of ownership without offsetting compensation. The provisions of the FTAA are fair game for judicial
review considering their present applicability. In fact, the invalidation of Section 7.9 becomes even
more proper now under the circumstances since the provision has become effectual considering the
sale of the foreign equity in WMCP to a domestic corporation. It is within the competence of this Court
to invalidate Section 7.9 here and now. For that matter, Section 7.8(e) of the FTAA may be similarly
invalidated as it can already serve to unduly deprive the Government of its proper share by allowing
double recovery by WMC.
 "Full Control and Supervision" of the State
The matter of "full control and supervision" emerges just as controversial. Does this grant of power
mandate that the State exercise management over the activity, or exclude the exercise of managerial
control by the foreign corporation?

I don't think it proper to construe the word "full" as implying that such control or supervision may not
be at all yielded or delegated, for reasons I shall elaborate upon. Instead, "full" should be read as
pertaining to the encompassing scope of the concerns of the State relating to the extractive enterprises
on which it may interfere or impose its will.

It must be conceded that whichever party obtains managerial control must be allowed considerable
elbow room in the exercise of management prerogatives. Management is in the most informed position
to make resources productive in the pursuit of the enterprise's objectives.28 In this age of specialization,
corporations have benefited with the devolution of operational control to specialists, rather than
generalists. The era of the buccaneer entrepreneur chartering his industry solely on gut feel is over.
The vagaries of international finance have dictated that prudent capitalists cede to the opinion of their
experts who are hired because they trained within their particular fields to know better than the persons
who employ them. The Constitution does not prescribe a particular manner of management; thus, we
can conclude that the State is not compelled to adopt outmoded methods that could tend to minimize
profits.
Still, the question as to who should exercise management is best left to the parties of the agreement,
namely the President and the foreign corporations. They would be in the best position to determine
who is best qualified to exert managerial control. This prerogative of management can be exercised
by the State if it so insists and the co-parties agree, and the wisdom of such arrogation is ultimately a
policy question this Court has little control over. And even if the State cedes management to a
different entity such as the foreign corporation, it has the duty to safeguard that the actual
exercise of managerial power does not contravene our laws and public policy.
There is barely any support of the view that only the State may exert managerial control. Even the
minority concede that these foreign corporations are not precluded from participating in the
management of the project. I think it unwise to construe "full supervision and control" to the effect that
the State's assent or opinion is necessary before any day-to-day operational questions may be
resolved. There is neither an express rule to that effect, nor any law of construction that necessitates
such interpretation. Ideally of course, the most qualified party should be allowed to manage the
enterprise, and we should not allow an interpretation that compels a possibly unsuited entity, such as
the State, to operationalize the business.29 Such a limited construction would be inconvenient and
absurd,30 not to mention potentially wasteful.
The Constitution itself concedes that the State may not have the best sense as to how to undertake
large-scale exploration, development and utilization of mineral and petroleum resources. This is
evinced by the allowance of foreign technical assistance and foreign participation in the extractive
enterprise. Had the Constitution recognized that the State was supremely qualified to undertake the
operational aspects of the activity, then it could have phrased the provision in such a way that would
strictly limit the foreign participation to monetary investment or a financial grant of assistance.
The absence of an express provision on management permits consideration of the following sensible
critique on yielding too many management prerogatives to a remote overseer such as the State. An
early United Nations report once noted that while it is theoretically possible to endow a government
department with a high degree of operating flexibility, it is in practice difficult to do so.31 It has been
proposed that the further away a decision-maker is to the market, the higher the information cost, or
the opportunity cost to the gaining of information.32 Remoteness can be achieved through the layering
of bureaucratic structure, and because of the information loss that accompanies the transmission of
information and judgments from lower levels of the hierarchy to higher levels, the ultimate basis of a
decision may be misleading at best and erroneous at worst.33
The same conclusion arises from the view that what the provision authorizes is foreign investment.
The foreign player necessarily at least has a reasonable say in how the mining venture is run. The
interest of the investor in seeing that the investment is not wasted should be recognized not only as a
right available to the investor, but from the broader view that such say would lead to a more prudent
management of the project. It must be noted that mineral and petroleum resources are non-renewable,
thus a paramount interest arises to ensure against wasteful exploitation.
Next for consideration is the situation, as in this case, if management is ceded to the foreign
corporation, or even to a private domestic corporation for that matter. What should be the proper
dichotomy, if any, between the private entity's exercise of managerial control, and the State's full
control and supervision?
The President may insist on conditions into the agreement pertaining to the State's degree of control
and supervision in the mining activity. This was certainly done with the WMC FTAA, which is replete
with stipulations delineating the State's control which are judicially enforceable, imposed presumably
at the President's call. But the FTAA itself is not the only vehicle by which State control and supervision
is exercised. These can similarly be enforced through statutes, as well as executive or administrative
issuances. The Mining Act itself is an expression of State control and supervision, implemented in
coordination with the executive and legislative branches.
As a general point, I believe that State control and supervision is unconstitutionally yielded if either of
the Mining Act or the FTAA precludes the application of the laws and regulations of the Philippines,
enunciatory as they are of State policy. Neither the Mining Act nor the WMC FTAA are flawed in that
regard. The agreements under contemplation are not beyond the ambit of our regular laws, or
regulatory enactments pertaining to such areas as environmental concerns. Violations of these laws
uttered in the name of the FTAA are punishable in this jurisdiction.
Still, the fact that the Constitution requires "full control and supervision" indicates an expectation of a
more activist role on the part of the State in the operations of the mining enterprise, perhaps to the
prejudice of the laissez-faire capitalist. Most importantly, the State cannot abdicate its traditional
functions by contractual limitations. It could compel the mining operations to comply with existing
environmental regulations, as well as with future issuances. It may compel the foreign corporation
payment of all assessable levies. It may evict officers of the foreign corporation for violation of
immigration laws. It may preclude mining operations that affect prerogatives granted by law to
indigenous peoples. It could restrict particular mining operations which are established to be disasters
or nuisances to the affected communities. The power of the State to enforce its police powers needs
no statutory grant and are certainly not limited either by the Mining Act or the WMC FTAA.

As to "business decisions," I think that the State may exercise control for the purpose of ensuring profit
of the enterprise as a whole. This may involve visitorial activity, the conduct of periodic audits, and
such powers normally attributed to an overseer of a business. Just as the foreign corporation is
expected to guard against waste of financial capital, the State is expected likewise to guard against
the waste of resource capital.
I might as well add that, in my view, the constitutional objective of maintaining full control and
supervision over the exploration, development and utilization of the country's mineral resources in the
State would be best served by the creation of a public corporation for the development and utilization
of these resources, accountable to the State for all actions in its behalf. The device of a corporation
properly utilized provides sufficient protection to the State's interests while affording flexibility and
efficiency in the conduct of mining operations.34
The creation of a public corporation could remedy a number of potential problems regarding full State
control and supervision of extractive activities concerning our mineral resources by entities which have
the funds and/or technical know-how but which cannot have a great degree of control and supervision
over such activities. Persons knowledgeable and competent in mining operations may sit in the
corporation's board of directors and craft policies which implement and further concretize the broad
aims of R.A. No. 7942, taking into consideration the nature of the mining industry. The Board would
also be in charge of studying existing contracts for mining activities, and approving proposed contracts.
The Board may also employ corporate officers and employees to take charge of the day-to-day
operations of the mining activities pursuant to the corporation's contracts with other entities.
Under such a scheme, the perceived abdication by the State of control and supervision over mining
activities in favor of the foreign entities rendering financial and/or technical assistance would be greatly
diminished. It would be the public corporation which would principally undertake mining activities and
contract with foreign entities for financial and/or technical assistance if necessary. The foreign
contractor in such cases would not have the power to determine the course of the project or the major
policies involved therein because these functions would belong to the public corporation as the agent
of the State.
A public corporation would also have the additional benefit of compelling the input of not only the
executive branch, but also that of the legislative. Such executive-legislative coordination is necessary
since public corporations may only be created through statute.
Section 3.3 of WMC FTAA Constitutional

Finally, it is argued that Section 3.3 of the WMC FTAA violates paragraph 1, Section 2, Article XII of
the Constitution, which imposes a limitation on the term of mineral agreements. I agree with the
ponencia that the constitutional provision does not pertain to FTAAs. It is clear from reading Section 1
that the agreements limited in term therein are co-production agreements, joint venture agreements,
and mineral production-sharing agreements, which are all referred to in Section 1, and not the FTAAs
mentioned only in Section 4. Accordingly, Section 3.3 of the WMC FTAA is not infirm.
Epilogue
Behind the legal issues presented by the petition are fundamental policy questions from which highly
opinionated views can develop, even from the members of this Court. The promise brought about by
the large-scale exploitation of our mineral and petroleum resources may bring in much needed
revenue, but Filipinos should properly inquire at what cost. As a Filipino, I am distressed whenever the
government crosses the line from cooperation to subservience to foreign partners in development.
Popular Western wisdom aside, what is good for General Motors is not necessarily good for the
country. The propagation of a foreign-influenced mining industry may lead to a whole slew of social
problems35 which shall be exacerbated if the government is complicit, either through active
participation or benign neglect, to abuses committed by the mining industry against the Filipino people.
Unlike the foreign corporation, the bottom line which the State should consider is not found below a
ledger, but in the socio-economic dynamic that will confront the government as a result of the large-
scale mining venture. Political capital is more fickle than financial capital.
Still, the right to vote I exercise today is that as of a member of the Court, and not that of the general
electorate. The limits of judicial power would exasperate any well-meaning judge who feels duty-bound
to affirm a constitutionally valid law or principle he or she may otherwise disagree with. My views on
how the government should act are segregate from my view on whether the government has the power
to act at all.
My conclusions are borne out of a close textual analysis of Section 2 in light of my fundamental
understanding of the constitutional powers of the executive branch. This is in line with my perception
of the judicial duty as being limited to charting the scope and boundaries of the law. The philosophy
of inclusiveness that drives my interpretation of Section 2 is bolstered not because it might lead to
benefits to the economy, but because it gives due regard to the discretion of the Executive to determine
what is good for the economy. This judicial attitude may not always ensure the economic good. But
before we carve that judicial path out of what we believe are good intentions, restraint is imperative
out of due deference to our co-equal branches, since the duty of formulating and implementing
economic policies falls exclusively within their purview.
In view of the foregoing, I concur with the opinion of Justice Panganiban.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-5279 October 31, 1955

PHILIPPINE ASSOCIATION OF COLLEGES AND UNIVERSITIES, ETC., petitioner,
vs.
SECRETARY OF EDUCATION and the BOARD OF TEXTBOOKS, respondents.
Manuel C. Briones, Vicente G. Sinco, Manuel V. Gallego and Enrique M. Fernando for petitioner.
Office of the Solicitor General Pompeyo Diaz and Assistant Solicitor General Francisco Carreon for
respondents.

BENGZON, J.:
The petitioning colleges and universities request that Act No. 2706 as amended by Act No. 3075 and
Commonwealth Act No. 180 be declared unconstitutional, because: A. They deprive owners of schools
and colleges as well as teachers and parents of liberty and property without due process of law; B.
They deprive parents of their natural rights and duty to rear their children for civic efficiency; and C.
Their provisions conferring on the Secretary of Education unlimited power and discretion to prescribe
rules and standards constitute an unlawful delegation of legislative power.
A printed memorandum explaining their position in extenso is attached to the record.
The Government's legal representative submitted a mimeographed memorandum contending that, (1)
the matter constitutes no justiciable controversy exhibiting unavoidable necessity of deciding the
constitutional questions; (2) petitioners are in estoppel to challenge the validity of the said acts; and
(3) the Acts are constitutionally valid.
Petitioners submitted a lengthy reply to the above arguments.

Act No. 2706 approved in 1917 is entitled, "An Act making the inspection and recognition of private
schools and colleges obligatory for the Secretary of Public Instruction." Under its provisions, the
Department of Education has, for the past 37 years, supervised and regulated all private schools in
this country apparently without audible protest, nay, with the general acquiescence of the general
public and the parties concerned.
It should be understandable, then, that this Court should be doubly reluctant to consider petitioner's
demand for avoidance of the law aforesaid, specially where, as respondents assert, petitioners
suffered no wrong—nor allege any—from the enforcement of the criticized statute.

It must be evident to any one that the power to declare a legislative enactment void is one which the
judge, conscious of the fallability of the human judgment, will shrink from exercising in any case where
he can conscientiously and with due regard to duty and official oath decline the responsibility. (Cooley
Constitutional Limitations, 8th Ed., Vol. I, p. 332.)
When a law has been long treated as constitutional and important rights have become dependent
thereon, the Court may refuse to consider an attack on its validity. (C. J. S. 16, p. 204.)
As a general rule, the constitutionality of a statute will be passed on only if, and to the extent that, it is
directly and necessarily involved in a justiciable controversy and is essential to the protection of the
rights of the parties concerned. (16 C. J. S., p. 207.)
In support of their first proposition petitioners contend that the right of a citizen to own and operate a
school is guaranteed by the Constitution, and any law requiring previous governmental approval or
permit before such person could exercise said right, amounts to censorship of previous restraint, a
practice abhorent to our system of law and government. Petitioners obviously refer to section 3 of Act
No. 2706 as amended which provides that before a private school may be opened to the public it must
first obtain a permit from the Secretary of Education. The Solicitor General on the other hand points
out that none of the petitioners has cause to present this issue, because all of them have permits to
operate and are actually operating by virtue of their permits.1 And they do not assert that the
respondent Secretary of Education has threatened to revoke their permits. They have suffered no
wrong under the terms of law—and, naturally need no relief in the form they now seek to obtain.
It is an established principle that to entitle a private individual immediately in danger of sustaining a
direct injury as the result of that action and it is not sufficient that he has merely a general to invoke
the judicial power to determine the validity of executive or legislative action he must show that he has
sustained or is interest common to all members of the public. (Ex parte Levitt, 302 U. S. 633 82 L. Ed.
493.)
Courts will not pass upon the constitutionality of a law upon the complaint of one who fails to show
that he is injured by its operation. (Tyler vs. Judges, 179 U. S. 405; Hendrick vs. Maryland, 235 U. S.
610; Coffman vs. Breeze Corp., 323 U. S. 316-325.)
The power of courts to declare a law unconstitutional arises only when the interests of litigant require
the use of that judicial authority for their protection against actual interference, a hypothetical threat
being insufficient. (United Public Works vs. Mitchell, 330 U .S. 75; 91 L. Ed. 754.)
Bona fide suit.—Judicial power is limited to the decision of actual cases and controversies. The
authority to pass on the validity of statutes is incidental to the decision of such cases where conflicting
claims under the Constitution and under a legislative act assailed as contrary to the Constitution are
raised. It is legitimate only in the last resort, and as necessity in the determination of real, earnest, and
vital controversy between litigants. (Tañada and Fernando, Constitution of the Philippines, p. 1138.)
Mere apprehension that the Secretary of Education might under the law withdraw the permit of one of
petitioners does not constitute a justiciable controversy. (Cf. Com. ex rel Watkins vs. Winchester
Waterworks (Ky.) 197 S. W. 2d. 771.)
And action, like this, is brought for a positive purpose, nay, to obtain actual and positive relief. (Salonga
vs. Warner Barnes, L-2245, January, 1951.) Courts do not sit to adjudicate mere academic questions
to satisfy scholarly interest therein, however intellectually solid the problem may be. This is specially
true where the issues "reach constitutional dimensions, for then there comes into play regard for the
court's duty to avoid decision of constitutional issues unless avoidance becomes evasion." (Rice vs.
Sioux City, U. S. Sup. Ct. Adv. Rep., May 23, 1995, Law Ed., Vol. 99, p. 511.)
The above notwithstanding, in view of the several decisions of the United States Supreme Court
quoted by petitioners, apparently outlawing censorship of the kind objected to by them, we have
decided to look into the matter, lest they may allege we refuse to act even in the face of clear violation
of fundamental personal rights of liberty and property.
Petitioners complain that before opening a school the owner must secure a permit from the Secretary
of Education. Such requirement was not originally included in Act No. 2706. It was introduced by
Commonwealth Act No. 180 approved in 1936. Why?
In March 1924 the Philippine Legislature approved Act No. 3162 creating a Board of Educational
Survey to make a study and survey of education in the Philippines and of all educational institutions,
facilities and agencies thereof. A Board chairmaned by Dr. Paul Munroe, Columbia University, assisted
by a staff of carefully selected technical members performed the task, made a five-month thorough
and impartial examination of the local educational system, and submitted a report with
recommendations, printed as a book of 671 pages. The following paragraphs are taken from such
report:

PRIVATE-ADVENTURE SCHOOLS
There is no law or regulation in the Philippine Islands today to prevent a person, however disqualified
by ignorance, greed, or even immoral character, from opening a school to teach the young. It it true
that in order to post over the door "Recognized by the Government," a private adventure school must
first be inspected by the proper Government official, but a refusal to grant such recognition does not
by any means result in such a school ceasing to exist. As a matter of fact, there are more such
unrecognized private schools than of the recognized variety. How many, no one knows, as the Division
of Private Schools keeps records only of the recognized type.

Conclusion.—An unprejudiced consideration of the fact presented under the caption Private Adventure
Schools leads but to one conclusion, viz.: the great majority of them from primary grade to university
are money-making devices for the profit of those who organize and administer them. The people
whose children and youth attend them are not getting what they pay for. It is obvious that the system
constitutes a great evil. That it should be permitted to exist with almost no supervision is indefensible.
The suggestion has been made with the reference to the private institutions of university grade that
some board of control be organized under legislative control to supervise their administration. The
Commission believes that the recommendations it offers at the end of this chapter are more likely to
bring about the needed reforms.
Recommendations.—The Commission recommends that legislation be enacted to prohibit the opening
of any school by an individual or organization without the permission of the Secretary of Public
Instruction. That before granting such permission the Secretary assure himself that such school
measures up to proper standards in the following respects, and that the continued existence of the
school be dependent upon its continuing to conform to these conditions:
(1) The location and construction of the buildings, the lighting and ventilation of the rooms, the nature
of the lavatories, closets, water supply, school furniture and apparatus, and methods of cleaning shall
be such as to insure hygienic conditions for both pupils and teachers.
(2) The library and laboratory facilities shall be adequate to the needs of instruction in the subjects
taught.
(3) The classes shall not show an excessive number of pupils per teacher. The Commission
recommends 40 as a maximum.
(4) The teachers shall meet qualifications equal to those of teachers in the public schools of the same
grade.
xxx xxx xxx
In view of these findings and recommendations, can there be any doubt that the Government in the
exercise of its police power to correct "a great evil" could validly establish the "previous permit" system
objected to by petitioners? This is what differentiates our law from the other statutes declared invalid
in other jurisdictions. And if any doubt still exists, recourse may now be had to the provision of our
Constitution that "All educational institutions shall be under the supervision and subject to regulation
by the State." (Art. XIV, sec. 5.) The power to regulate establishments or business occupations implies
the power to require a permit or license. (53 C. J. S. 4.)
What goes for the "previous permit" naturally goes for the power to revoke such permit on account of
violation of rules or regulations of the Department.

II. This brings us to the petitioners' third proposition that the questioned statutes "conferring on the
Secretary of Education unlimited power and discretion to prescribe rules and standards constitute an
unlawful delegation of legislative power."
This attack is specifically aimed at section 1 of Act No. 2706 which, as amended, provides:
It shall be the duty of the Secretary of Public Instruction to maintain a general standard of efficiency in
all private schools and colleges of the Philippines so that the same shall furnish adequate instruction
to the public, in accordance with the class and grade of instruction given in them, and for this purpose
said Secretary or his duly authorized representative shall have authority to advise, inspect, and
regulate said schools and colleges in order to determine the efficiency of instruction given in the same,
"Nowhere in this Act" petitioners argue "can one find any description, either general or specific, of what
constitutes a 'general standard of efficiency.' Nowhere in this Act is there any indication of any basis
or condition to ascertain what is 'adequate instruction to the public.' Nowhere in this Act is there any
statement of conditions, acts, or factors, which the Secretary of Education must take into account to
determine the 'efficiency of instruction.'"
The attack on this score is also extended to section 6 which provides:

The Department of Education shall from time to time prepare and publish in pamphlet form the
minimum standards required of primary, intermediate, and high schools, and colleges granting the
degrees of Bachelor of Arts, Bachelor of Science, or any other academic degree. It shall also from
time to time prepare and publish in pamphlet form the minimum standards required of law, medical,
dental, pharmaceutical, engineering, agricultural and other medical or vocational schools or colleges
giving instruction of a technical, vocational or professional character.
Petitioners reason out, "this section leaves everything to the uncontrolled discretion of the Secretary
of Education or his department. The Secretary of Education is given the power to fix the standard. In
plain language, the statute turns over to the Secretary of Education the exclusive authority of the
legislature to formulate standard. . . .."
It is quite clear the two sections empower and require the Secretary of Education to prescribe rules
fixing minimum standards of adequate and efficient instruction to be observed by all such private
schools and colleges as may be permitted to operate. The petitioners contend that as the legislature
has not fixed the standards, "the provision is extremely vague, indefinite and uncertain"—and for that
reason constitutionality objectionable. The best answer is that despite such alleged vagueness the
Secretary of Education has fixed standards to ensure adequate and efficient instruction, as shown by
the memoranda fixing or revising curricula, the school calendars, entrance and final examinations,
admission and accreditation of students etc.; and the system of private education has, in general, been
satisfactorily in operation for 37 years. Which only shows that the Legislature did and could, validly
rely upon the educational experience and training of those in charge of the Department of Education
to ascertain and formulate minimum requirements of adequate instruction as the basis of government
recognition of any private school.
At any rate, petitioners do not show how these standards have injured any of them or interfered with
their operation. Wherefore, no reason exists for them to assail the validity of the power nor the exercise
of the power by the Secretary of Education.
True, the petitioners assert that, the Secretary has issued rules and regulations "whimsical and
capricious" and that such discretionary power has produced arrogant inspectors who "bully heads and
teachers of private schools." Nevertheless, their remedy is to challenge those regulations specifically,
and/or to ring those inspectors to book, in proper administrative or judicial proceedings—not to
invalidate the law. For it needs no argument, to show that abuse by the officials entrusted with the
execution of a statute does not per se demonstrate the unconstitutionality of such statute.

Anyway, we find the defendants' position to be sufficiently sustained by the decision in Alegra vs.
Collector of Customs, 53 Phil., 394 upon holding the statute that authorized the Director of Agriculture
to "designate standards for the commercial grades of abaca, maguey and sisal" against vigorous
attacks on the ground of invalid delegation of legislative power.

Indeed "adequate and efficient instruction" should be considered sufficient, in the same way as "public
welfare" "necessary in the interest of law and order" "public interest" and "justice and equity and
substantial merits of the case" have been held sufficient as legislative standards justifying delegation
of authority to regulate. (See Tañada and Fernando, Constitution of the Philippines, p. 793, citing
Philippine cases.)
On this phase of the litigation we conclude that there has been no undue delegation of legislative
power.
In this connection, and to support their position that the law and the Secretary of Education have
transcended the governmental power of supervision and regulation, the petitioners appended a list of
circulars and memoranda issued by the said Department. However they failed to indicate which of
such official documents was constitutionally objectionable for being "capricious," or pain "nuisance";
and it is one of our decisional practices that unless a constitutional point is specifically raised, insisted
upon and adequately argued, the court will not consider it. (Santiago vs. Far Eastern, 73 Phil., 408.)
We are told that such list will give an idea of how the statute has placed in the hands of the Secretary
of Education complete control of the various activities of private schools, and why the statute should
be struck down as unconstitutional. It is clear in our opinion that the statute does not in express terms
give the Secretary complete control. It gives him powers to inspect private schools, to regulate their
activities, to give them official permits to operate under certain conditions, and to revoke such permits
for cause. This does not amount to complete control. If any of such Department circulars or
memoranda issued by the Secretary go beyond the bounds of regulation and seeks to establish
complete control, it would surely be invalid. Conceivably some of them are of this nature, but besides
not having before us the text of such circulars, the petitioners have omitted to specify. In any event
with the recent approval of Republic Act No. 1124 creating the National Board of Education,
opportunity for administrative correction of the supposed anomalies or encroachments is amply
afforded herein petitioners. A more expeditious and perhaps more technically competent forum exists,
wherein to discuss the necessity, convenience or relevancy of the measures criticized by them. (See
also Republic Act No. 176.)
If however the statutes in question actually give the Secretary control over private schools, the
question arises whether the power of supervision and regulation granted to the State by section 5
Article XIV was meant to include control of private educational institutions. It is enough to point out
that local educators and writers think the Constitution provides for control of Education by the State.
(See Tolentino, Government of the Philippine Constitution, Vol. II, p. 615; Benitez, Philippine Social
Life and Progress, p. 335.)
The Constitution (it) "provides for state control of all educational institutions" even as it enumerates
certain fundamental objectives of all education to wit, the development of moral character, personal
discipline, civic conscience and vocational efficiency, and instruction in the duties of citizenship.
(Malcolm & Laurel, Philippine Constitutional Law, 1936.)
The Solicitor General cities many authorities to show that the power to regulate means power to
control, and quotes from the proceedings of the Constitutional Convention to prove that State control
of private education was intended by the organic law. It is significant to note that the Constitution
grants power to supervise and to regulate. Which may mean greater power than mere regulation.
III. Another grievance of petitioners—probably the most significant—is the assessment of 1 per cent
levied on gross receipts of all private schools for additional Government expenses in connection with
their supervision and regulation. The statute is section 11-A of Act No. 2706 as amended by Republic
Act No. 74 which reads as follows:
SEC. 11-A. The total annual expense of the Office of Private Education shall be met by the regular
amount appropriated in the annual Appropriation Act: Provided, however, That for additional expenses
in the supervision and regulation of private schools, colleges and universities and in the purchase of
textbook to be sold to student of said schools, colleges and universities and President of the
Philippines may authorize the Secretary of Instruction to levy an equitable assessment from each
private educational institution equivalent to one percent of the total amount accruing from tuition and
other fees: . . . and non-payment of the assessment herein provided by any private school, college or
university shall be sufficient cause for the cancellation by the Secretary of Instruction of the permit for
recognition granted to it.

Petitioners maintain that this is a tax on the exercise of a constitutional right—the right to open a
school, the liberty to teach etc. They claim this is unconstitutional, in the same way that taxes on the
privilege of selling religious literature or of publishing a newspaper—both constitutional privileges—
have been held, in the United States, to be invalid as taxes on the exercise of a constitutional right.

The Solicitor General on the other hand argues that insofar as petitioners' action attempts to restrain
the further collection of the assessment, courts have no jurisdiction to restrain the collection of taxes
by injunction, and in so far as they seek to recover fees already paid the suit, it is one against the State
without its consent. Anyway he concludes, the action involving "the legality of any tax impost or
assessment" falls within the original jurisdiction of Courts of First Instance.
There are good grounds in support of Government's position. If this levy of 1 per cent is truly a mere
fee—and not a tax—to finance the cost of the Department's duty and power to regulate and supervise
private schools, the exaction may be upheld; but such point involves investigation and examination of
relevant data, which should best be carried out in the lower courts. If on the other hand it is a tax,
petitioners' issue would still be within the original jurisdiction of the Courts of First Instance.
The last grievance of petitioners relates to the validity of Republic Act No. 139 which in its section 1
provides:

The textbooks to be used in the private schools recognized or authorized by the government shall be
submitted to the Board (Board of Textbooks) which shall have the power to prohibit the use of any of
said textbooks which it may find to be against the law or to offend the dignity and honor of the
government and people of the Philippines, or which it may find to be against the general policies of
the government, or which it may deem pedagogically unsuitable.
This power of the Board, petitioners aver, is censorship in "its baldest form". They cite two U. S. cases
(Miss. and Minnesota) outlawing statutes that impose previous restraints upon publication of
newspapers, or curtail the right of individuals to disseminate teachings critical of government
institutions or policies.
Herein lies another important issue submitted in the cause. The question is really whether the law may
be enacted in the exercise of the State's constitutional power (Art. XIV, sec. 5) to supervise and
regulate private schools. If that power amounts to control of private schools, as some think it is, maybe
the law is valid. In this connection we do not share the belief that section 5 has added new power to
what the State inherently possesses by virtue of the police power. An express power is necessarily
more extensive than a mere implied power. For instance, if there is conflict between an express
individual right and the express power to control private education it cannot off-hand be said that the
latter must yield to the former—conflict of two express powers. But if the power to control education is
merely implied from the police power, it is feasible to uphold the express individual right, as was
probably the situation in the two decisions brought to our attention, of Mississippi and Minnesota,
states where constitutional control of private schools is not expressly produced.
However, as herein previously noted, no justiciable controversy has been presented to us. We are not
informed that the Board on Textbooks has prohibited this or that text, or that the petitioners refused or
intend to refuse to submit some textbooks, and are in danger of losing substantial privileges or rights
for so refusing.
The average lawyer who reads the above quoted section of Republic Act 139 will fail to perceive
anything objectionable. Why should not the State prohibit the use of textbooks that are illegal, or
offensive to the Filipinos or adverse to governmental policies or educationally improper? What's the
power of regulation and supervision for? But those trained to the investigation of constitutional issues
are likely to apprehend the danger to civil liberties, of possible educational dictatorship or thought
control, as petitioners' counsel foresee with obvious alarm. Much depends, however, upon the
execution and implementation of the statute. Not that constitutionality depends necessarily upon the
law's effects. But if the Board on Textbooks in its actuations strictly adheres to the letter of the section
and wisely steers a middle course between the Scylla of "dictatorship" and the Charybdis of "thought
control", no cause for complaint will arise and no occasion for judicial review will develop. Anyway,
and again, petitioners now have a more expeditious remedy thru an administrative appeal to the
National Board of Education created by Republic Act 1124.

Of course it is necessary to assure herein petitioners, that when and if, the dangers they apprehend
materialize and judicial intervention is suitably invoked, after all administrative remedies are
exhausted, the courts will not shrink from their duty to delimit constitutional boundaries and protect
individual liberties.

IV. For all the foregoing considerations, reserving to the petitioners the right to institute in the proper
court, and at the proper time, such actions as may call for decision of the issue herein presented by
them, this petition for prohibition will be denied. So ordered.
Paras, C. J., Padilla, Montemayor, Reyes, A., and Jugo, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 118577 March 7, 1995

JUANITO MARIANO, JR. et al., petitioners,
vs.
THE COMMISSION ON ELECTIONS, THE MUNICIPALITY OF MAKATI, HON. JEJOMAR BINAY,
THE MUNICIPAL TREASURER, AND SANGGUNIANG BAYAN OF MAKATI, respondents.
G.R. No. 118627 March 7, 1995
JOHN R. OSMEÑA, petitioner,
vs.
THE COMMISSION ON ELECTIONS, THE MUNICIPALITY OF MAKATI, HON. JEJOMAR BINAY,
MUNICIPAL TREASURER, AND SANGGUNIANG BAYAN OF MAKATI, respondents.

PUNO, J.:
At bench are two (2) petitions assailing certain provisions of Republic Act No. 7854 as unconstitutional.
R.A. No. 7854 as unconstitutional. R.A. No. 7854 is entitled, "An Act Converting the Municipality of
Makati Into a Highly Urbanized City to be known as the City of Makati." 1

G.R. No. 118577 involves a petition for prohibition and declaratory relief. It was filed by petitioners
Juanito Mariano, Jr., Ligaya S. Bautista, Teresita Tibay, Camilo Santos, Frankie Cruz, Ricardo
Pascual, Teresita Abang, Valentina Pitalvero, Rufino Caldoza, Florante Alba, and Perfecto Alba. Of
the petitioners, only Mariano, Jr., is a resident of Makati. The others are residents of Ibayo Ususan,
Taguig, Metro Manila. Suing as taxpayers, they assail as unconstitutional sections 2, 51, and 52 of
R.A. No. 7854 on the following grounds:
1. Section 2 of R.A. No. 7854 did not properly identify the land area or territorial jurisdiction of
Makati by metes and bounds, with technical descriptions, in violation of Section 10, Article X
of the Constitution, in relation to Sections 7 and 450 of the Local Government Code;
2. Section 51 of R.A. No. 7854 attempts to alter or restart the "three consecutive term" limit for local
elective officials, in violation of Section 8, Article X and Section 7, Article VI of the Constitution.
3. Section 52 of R.A. No. 7854 is unconstitutional for:
(a) it increased the legislative district of Makati only by special law (the Charter in
violation of the constitutional provision requiring a general reapportionment law to be
passed by Congress within three (3) years following the return of every census;
(b) the increase in legislative district was not expressed in the title of the bill; and
(c) the addition of another legislative district in Makati is not in accord with Section 5 (3), Article VI of
the Constitution for as of the latest survey (1990 census), the population of Makati stands at only
450,000.
G.R. No. 118627 was filed by the petitioner John H. Osmeña as senator, taxpayer, and concerned
citizen. Petitioner assails section 52 of R.A. No. 7854 as unconstitutional on the same grounds as
aforestated.
We find no merit in the petitions.
I
Section 2, Article I of R.A. No. 7854 delineated the land areas of the proposed city of Makati, thus:

Sec. 2. The City of Makati. — The Municipality of Makati shall be converted into a highly
urbanized city to be known as the City of Makati, hereinafter referred to as the City, which shall
comprise the present territory of the Municipality of Makati in Metropolitan Manila Area over
which it has jurisdiction bounded on the northeast by Pasig River and beyond by the City of
Mandaluyong and the Municipality of Pasig; on the southeast by the municipalities of Pateros
and Taguig; on the southwest by the City of Pasay and the Municipality of Taguig; and, on the
northwest, by the City of Manila.
The foregoing provision shall be without prejudice to the resolution by the appropriate agency or forum
of existing boundary disputes or cases involving questions of territorial jurisdiction between the City of
Makati and the adjoining local government units. (Emphasis supplied)

In G.R. No. 118577, petitioners claim that this delineation violates sections 7 and 450 of the Local
Government Code which require that the area of a local government unit should be made by metes
and bounds with technical descriptions. 2

The importance of drawing with precise strokes the territorial boundaries of a local unit of government
cannot be overemphasized. The boundaries must be clear for they define the limits of the territorial
jurisdiction of a local government unit. It can legitimately exercise powers of government only within
the limits, its acts are ultra vires. Needless to state, any uncertainty in the boundaries of local
government units will sow costly conflicts in the exercise of governmental powers which ultimately will
prejudice the people's welfare. This is the evil sought to avoided by the Local Government Code in
requiring that the land area of a local government unit must be spelled out in metes and bounds, with
technical descriptions.
Given the facts of the cases at bench, we cannot perceive how this evil can be brought about by the
description made in section 2 of R.A. No. 7854, Petitioners have not demonstrated that the delineation
of the land area of the proposed City of Makati will cause confusion as to its boundaries. We note that
said delineation did not change even by an inch the land area previously covered by Makati as a
municipality. Section 2 did not add, subtract, divide, or multiply the established land area of Makati. In
language that cannot be any clearer, section 2 stated that, the city's land area "shall comprise the
present territory of the municipality."
The deliberations of Congress will reveal that there is a legitimate reason why the land area of the
proposed City of Makati was not defined by metes and bounds, with technical descriptions. At the time
of the consideration of R.A. No. 7854, the territorial dispute between the municipalities of Makati and
Taguig over Fort Bonifacio was under court litigation. Out of a becoming sense of respect to co-equal
department of government, legislators felt that the dispute should be left to the courts to decide. They
did not want to foreclose the dispute by making a legislative finding of fact which could decide the
issue. This would have ensued if they defined the land area of the proposed city by its exact metes
and bounds, with technical descriptions. We take judicial notice of the fact that Congress has also
3

refrained from using the metes and bounds description of land areas of other local government units
with unsettled boundary disputes. 4

We hold that the existence of a boundary dispute does not per se present an insurmountable difficulty
which will prevent Congress from defining with reasonable certitude the territorial jurisdiction of a local
government unit. In the cases at bench, Congress maintained the existing boundaries of the proposed
City of Makati but as an act of fairness, made them subject to the ultimate resolution by the courts.
Considering these peculiar circumstances, we are not prepared to hold that section 2 of R.A. No. 7854
is unconstitutional. We sustain the submission of the Solicitor General in this regard, viz.:
Going now to Sections 7 and 450 of the Local Government Code, it is beyond cavil that the
requirement stated therein, viz.: "the territorial jurisdiction of newly created or converted cities
should be described by meted and bounds, with technical descriptions" — was made in order
to provide a means by which the area of said cities may be reasonably ascertained. In other
words, the requirement on metes and bounds was meant merely as tool in the establishment
of local government units. It is not an end in itself. Ergo, so long as the territorial jurisdiction of
a city may be reasonably ascertained, i.e., by referring to common boundaries with neighboring
municipalities, as in this case, then, it may be concluded that the legislative intent behind the
law has been sufficiently served.
Certainly, Congress did not intends that laws creating new cities must contain therein detailed
technical descriptions similar to those appearing in Torrens titles, as petitioners seem to imply. To
require such description in the law as a condition sine qua non for its validity would be to defeat the
very purpose which the Local Government Code to seeks to serve. The manifest intent of the Code is
to empower local government units and to give them their rightful due. It seeks to make local
governments more responsive to the needs of their constituents while at the same time serving as a
vital cog in national development. To invalidate R.A. No. 7854 on the mere ground that no cadastral
type of description was used in the law would serve the letter but defeat the spirit of the Code. It then
becomes a case of the master serving the slave, instead of the other way around. This could not be
the intendment of the law.
Too well settled is the rule that laws must be enforced when ascertained, although it may not be
consistent with the strict letter of the statute. Courts will not follow the letter of the statute when to do
so would depart from the true intent of the legislature or would otherwise yield conclusions inconsistent
with the general purpose of the act. (Torres v. Limjap, 56 Phil., 141; Tañada v. Cuenco, 103 Phil. 1051;
Hidalgo v. Hidalgo, 33 SCRA 1105). Legislation is an active instrument of government, which, for
purposes of interpretation, means that laws have ends to achieve, and statutes should be so construed
as not to defeat but to carry out such ends and purposes (Bocolbo v. Estanislao, 72 SCRA 520). The
same rule must indubitably apply to the case at bar.
II
Petitioners in G.R. No. 118577 also assail the constitutionality of section 51, Article X of R.A. No. 7854.
Section 51 states:
Sec. 51. Officials of the City of Makati. — The represent elective officials of the Municipality of
Makati shall continue as the officials of the City of Makati and shall exercise their powers and
functions until such time that a new election is held and the duly elected officials shall have
already qualified and assume their offices: Provided, The new city will acquire a new corporate
existence. The appointive officials and employees of the City shall likewise continues
 exercising their functions and duties and they shall be automatically absorbed by the city
government of the City of Makati.
They contend that this section collides with section 8, Article X and section 7, Article VI of the
Constitution which provide:

Sec. 8. The term of office of elective local officials, except barangay officials, which shall be
determined by law, shall be three years and no such official shall serve for more than three
consecutive terms. Voluntary renunciation of the office for any length of time shall not be
considered as an interruption in the continuity of his service for the full term for which he was
elected.
xxx xxx xxx
Sec. 7. The Members of the House of Representatives shall be elected for a term of three years which
shall begin, unless otherwise provided by law, at noon on the thirtieth day of June next following their
election.
No Member of the House of Representatives shall serve for more than three consecutive terms.
Voluntary renunciation of the office for any length of time shall not be considered as an interruption in
the continuity of his service for the full term for which he was elected.
Petitioners stress that under these provisions, elective local officials, including Members of the House
of Representative, have a term of three (3) years and are prohibited from serving for more than three
(3) consecutive terms. They argue that by providing that the new city shall acquire a new corporate
existence, section 51 of R.A. No. 7854 restarts the term of the present municipal elective officials of
Makati and disregards the terms previously served by them. In particular, petitioners point that section
51 favors the incumbent Makati Mayor, respondent Jejomar Binay, who has already served for two (2)
consecutive terms. They further argue that should Mayor Binay decide to run and eventually win as
city mayor in the coming elections, he can still run for the same position in 1998 and seek another
three-year consecutive term since his previous three-year consecutive term as municipal mayor would
not be counted. Thus, petitioners conclude that said section 51 has been conveniently crafted to suit
the political ambitions of respondent Mayor Binay.
We cannot entertain this challenge to the constitutionality of section 51. The requirements before a
litigant can challenge the constitutionality of a law are well delineated. They are: 1) there must be an
actual case or controversy; (2) the question of constitutionality must be raised by the proper party; (3)
the constitutional question must be raised at the earliest possible opportunity; and (4) the decision on
the constitutional question must be necessary to the determination of the case itself. 5

Petitioners have far from complied with these requirements. The petition is premised on the occurrence
of many contingent events, i.e., that Mayor Binay will run again in this coming mayoralty elections; that
he would be re-elected in said elections; and that he would seek re-election for the same position in
the 1998 elections. Considering that these contingencies may or may not happen, petitioners merely
pose a hypothetical issue which has yet to ripen to an actual case or controversy. Petitioners who are
residents of Taguig (except Mariano) are not also the proper parties to raise this abstract issue. Worse,
they hoist this futuristic issue in a petition for declaratory relief over which this Court has no jurisdiction.

III
Finally, petitioners in the two (2) cases at bench assail the constitutionality of section 52, Article X of
R.A. No. 7854. Section 52 of the Charter provides:
 Sec. 52. Legislative Districts. — Upon its conversion into a highly-urbanized city, Makati shall
thereafter have at least two (2) legislative districts that shall initially correspond to the two (2)
existing districts created under Section 3(a) of Republic Act. No. 7166 as implemented by the
Commission on Elections to commence at the next national elections to be held after the
effectivity of this Act. Henceforth, barangays Magallanes, Dasmariñas and Forbes shall be
with the first district, in lieu of Barangay Guadalupe-Viejo which shall form part of the second
district. (emphasis supplied)

They contend. that the addition of another legislative district in Makati is unconstitutional for: (1)
reapportionment cannot made by a special law, (2) the addition of a legislative district is not expressed
6

in the title of the bill and (3) Makati's population, as per the 1990 census, stands at only four hundred
7

fifty thousand (450,000).

Petitioners cannot insist that the addition of another legislative district in Makati is not in accord with
section 5(3), Article VI of the Constitution for as of the latest survey (1990 census), the population of
12

Makati stands at only four hundred fifty thousand (450,000). Said section provides, inter alia, that a
13

city with a population of at least two hundred fifty thousand (250,000) shall have at least one
representative. Even granting that the population of Makati as of the 1990 census stood at four
hundred fifty thousand (450,000), its legislative district may still be increased since it has met the
minimum population requirement of two hundred fifty thousand (250,000). In fact, section 3 of the
Ordinance appended to the Constitution provides that a city whose population has increased to more
than two hundred fifty thousand (250,000) shall be entitled to at least one congressional
representative. 14

Finally, we do not find merit in petitioners' contention that the creation of an additional legislative district
in Makati should have been expressly stated in the title of the bill. In the same case of Tobias v. Abalos,
op cit., we reiterated the policy of the Court favoring a liberal construction of the "one title-one subject"
rule so as not to impede legislation. To be sure, with Constitution does not command that the title of a
law should exactly mirror, fully index, or completely catalogue all its details. Hence, we ruled that "it
should be sufficient compliance if the title expresses the general subject and all the provisions are
germane to such general subject."
WHEREFORE, the petitions are hereby DISMISSED for lack of merit No costs.
SO ORDERED.
Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Romero, Bellosillo, Melo, Quiason, Vitug, Kapunan,
Mendoza and Francisco, JJ., concur.

Separate Opinions

DAVIDE, JR., J., concurring:

I concur in the well written opinion of Mr. Justice Reynato S. Puno. I wish, however, to add a few
observations.
 I.
Section 10, Article X of the Constitution provides that "[n]o province, city, municipality or barangay may
be created, divided, merged, abolished, or its boundary substantially altered, except in accordance
with the criteria established in the local government code and subject to the approval by a majority of
the votes cast in a plebiscite in the political units directly affected." These criteria are now set forth in
Section 7 of the Local Government Code of 1991 (R.A. No. 7160). One of these is that the territorial
jurisdiction of the local government unit to be created or converted should be properly identified by
metes and bounds with technical descriptions.
The omission of R.A. No. 7854 (An Act Converting the Municipality of Makati Into a Highly Urbanized
City to be Known as the City of Makati) to describe the territorial boundaries of the city by metes and
bounds does not make R.A. No. 7854 unconstitutional or illegal. The Constitution does not provide for
a description by metes and bounds as a condition sine qua non for the creation of a local government
unit or its conversion from one level to another. The criteria provided for in Section 7 of R.A. No. 7854
are not absolute, for, as a matter of fact, the section starts with the clause "as a general rule." The
petitioners' reliance on Section 450 of R.A. No. 7160 is unavailing Said section only applies to the
conversion of a municipality or a cluster of barangays into a COMPONENT CITY, not a highly
urbanized city. It pertinently reads as follows:
Sec. 450. Requisite for creation. — (a) A municipality or a cluster of barangays may be
converted into a component city if it has an average annual income, as certified by the
Department of Finance, of at least Twenty million pesos (P20,000,000.00) for the last two (2)
consecutive years based on 1991 constant prices, and if it has either of the following requisites:
xxx xxx xxx
(b) The territorial jurisdiction of a newly created city shall be properly identified by metes and bounds.
...
The constitution classifies cities as either highly urbanized or component. Section 12 of Article X
thereof provides:
Sec. 12. Cities that are highly urbanized, as determined by law, and component cities whose
charters prohibit their voters from voting for provincial elective officials, shall be independent
of the province. The voters of component cities within a province, whose charters contain no
such prohibition, shall not be deprived of their right to vote for elective provincial officials.
And Section 451 of R.A. No. 7160 provides:
Sec. 451. Cities Classified. — A city may either be component or highly urbanized: Provided,
however, That the criteria established in this Code shall not affect the classification and
corporate status of existing cities.
Independent component cities are those component cities whose charters prohibit their voters from
voting for provincial elective officials. Independent component cities shall be independent of the
province.
II.
Strictly speaking, the increase in the number of legislative seats for the City of Makati provided for in
R.A. No. 7854 is not an increase justified by the clause unless otherwise fixed by law in paragraph 1,
Section 5, Article VI of the Constitution. That clause contemplates of the reapportionment mentioned
in the succeeding paragraph (4) of the said Section which reads in full as follows:
 Within three years following the return of every census, the Congress shall make a
reapportionment of legislative districts based on the standards provided in this section.
In short, the clause refers to a general reapportionment law.
The increase under R.A. No. 7854 is a permissible increase under Sections 1 and 3 of the Ordinance
appended to the Constitution which reads:
Sec. 1. For purposes of the election of Members of the House of Representatives of the First
Congress of the Philippines under the Constitution proposed by the 1986 Constitutional
Commission and subsequent elections, and until otherwise provided by law, the Members
thereof shall be elected from legislative districts apportioned among the provinces, cities, and
the Metropolitan Manila Area as follows:
METROPOLITAN MANILA AREA

xxx xxx xxx

MAKATI one (1)
xxx xxx xxx
Sec. 3. Any province that may hereafter be created, or any city whose population may hereafter
increase to more than two hundred fifty thousand shall be entitled in the immediately following election
to at least one Member or such number of Members as it may be entitled to on the basis of the number
of its inhabitants and according to the standards set forth in paragraph (3), Section 5 of Article VI of
the Constitution. The number of Members apportioned to the province out of which such new province
was created, or where the city, whose population has so increased, is geographically located shall be
correspondingly adjusted by the Commission on Elections but such adjustment shall not be made
within one hundred and twenty days before the election. (Emphases supplied)

Separate Opinions
DAVIDE, JR., J., concurring:
I concur in the well written opinion of Mr. Justice Reynato S. Puno. I wish, however, to add a few
observations.
I.
Section 10, Article X of the Constitution provides that "[n]o province, city, municipality or barangay may
be created, divided, merged, abolished, or its boundary substantially altered, except in accordance
with the criteria established in the local government code and subject to the approval by a majority of
the votes cast in a plebiscite in the political units directly affected." These criteria are now set forth in
Section 7 of the Local Government Code of 1991 (R.A. No. 7160). One of these is that the territorial
jurisdiction of the local government unit to be created or converted should be properly identified by
metes and bounds with technical descriptions.
The omission of R.A. No. 7854 (An Act Converting the Municipality of Makati Into a Highly Urbanized
City to be Known as the City of Makati) to describe the territorial boundaries of the city by metes and
bounds does not make R.A. No. 7854 unconstitutional or illegal. The Constitution does not provide for
a description by metes and bounds as a condition sine qua non for the creation of a local government
unit or its conversion from one level to another. The criteria provided for in Section 7 of R.A. No. 7854
are not absolute, for, as a matter of fact, the section starts with the clause "as a general rule." The
petitioners' reliance on Section 450 of R.A. No. 7160 is unavailing Said section only applies to the
conversion of a municipality or a cluster of barangays into a COMPONENT CITY, not a highly
urbanized city. It pertinently reads as follows:
Sec. 450. Requisite for creation. — (a) A municipality or a cluster of barangays may be
converted into a component city if it has an average annual income, as certified by the
Department of Finance, of at least Twenty million pesos (P20,000,000.00) for the last two (2)
consecutive years based on 1991 constant prices, and if it has either of the following requisites:
xxx xxx xxx
(b) The territorial jurisdiction of a newly created city shall be properly identified by metes and bounds.
...
The constitution classifies cities as either highly urbanized or component. Section 12 of Article X
thereof provides:
Sec. 12. Cities that are highly urbanized, as determined by law, and component cities whose
charters prohibit their voters from voting for provincial elective officials, shall be independent
of the province. The voters of component cities within a province, whose charters contain no
such prohibition, shall not be deprived of their right to vote for elective provincial officials.
And Section 451 of R.A. No. 7160 provides:
Sec. 451. Cities Classified. — A city may either be component or highly urbanized: Provided,
however, That the criteria established in this Code shall not affect the classification and
corporate status of existing cities.
Independent component cities are those component cities whose charters prohibit their voters from
voting for provincial elective officials. Independent component cities shall be independent of the
province.
II.
Strictly speaking, the increase in the number of legislative seats for the City of Makati provided for in
R.A. No. 7854 is not an increase justified by the clause unless otherwise fixed by law in paragraph 1,
Section 5, Article VI of the Constitution. That clause contemplates of the reapportionment mentioned
in the succeeding paragraph (4) of the said Section which reads in full as follows:
Within three years following the return of every census, the Congress shall make a
reapportionment of legislative districts based on the standards provided in this section.
In short, the clause refers to a general reapportionment law.
The increase under R.A. No. 7854 is a permissible increase under Sections 1 and 3 of the Ordinance
appended to the Constitution which reads:
Sec. 1. For purposes of the election of Members of the House of Representatives of the First
Congress of the Philippines under the Constitution proposed by the 1986 Constitutional
Commission and subsequent elections, and until otherwise provided by law, the Members
thereof shall be elected from legislative districts apportioned among the provinces, cities, and
the Metropolitan Manila Area as follows:
 METROPOLITAN MANILA AREA
xxx xxx xxx
MAKATI one (1)

xxx xxx xxx

Sec. 3. Any province that may hereafter be created, or any city whose population may hereafter
increase to more than two hundred fifty thousand shall be entitled in the immediately following election
to at least one Member or such number of Members as it may be entitled to on the basis of the number
of its inhabitants and according to the standards set forth in paragraph (3), Section 5 of Article VI of
the Constitution. The number of Members apportioned to the province out of which such new province
was created, or where the city, whose population has so increased, is geographically located shall be
correspondingly adjusted by the Commission on Elections but such adjustment shall not be made
within one hundred and twenty days before the election. (Emphases supplied)
These issues have been laid to rest in the recent case of Tobias v. Abalos. In said case, we ruled that
8

reapportionment of legislative districts may be made through a special law, such as in the charter of a
new city. The Constitution clearly provides that Congress shall be composed of not more than two
9

hundred fifty (250) members, unless otherwise fixed by law. As thus worded, the Constitution did not
preclude Congress from increasing its membership by passing a law, other than a general
reapportionment of the law. This is its exactly what was done by Congress in enacting R.A. No. 7854
and providing for an increase in Makati's legislative district. Moreover, to hold that reapportionment
can only be made through a general apportionment law, with a review of all the legislative districts
allotted to each local government unit nationwide, would create an inequitable situation where a new
city or province created by Congress will be denied legislative representation for an indeterminate
period of time. The intolerable situations will deprive the people of a new city or province a particle
10

of their sovereignty. Sovereignty cannot admit of any kind of subtraction. It is indivisible. It must be
11

forever whole or it is not sovereignty.

 EN BANC

G.R. No. 152295 - July 9, 2002

ANTONIETTE V.C. MONTESCLAROS, MARICEL CARANZO, JOSEPHINE ATANGAN, RONALD

ATANGAN and CLARIZA DECENA, and OTHER YOUTH OF THE LAND SIMILARLY SITUATED,
Petitioners, vs. COMMISSION ON ELECTIONS, DEPARTMENT OF INTERIOR AND LOCAL
GOVERNMENT, DEPARTMENT OF BUDGET AND MANAGEMENT, EXECUTIVE SECRETARY of the
OFFICE OF THE PRESIDENT, SENATOR FRANKLIN DRILON in his capacity as Senate President
and SENATOR AQUILINO PIMENTEL in his capacity as Minority Leader of the Senate of the
Philippines, CONGRESSMAN JOSE DE VENECIA in his capacity as Speaker, CONGRESSMAN
AGUSTO L. SYJOCO in his capacity as Chairman of the Committee on Suffrage and Electoral
Reforms, and CONGRESSMAN EMILIO C. MACIAS II in his capacity as Chairman of the
Committee on Local Government of the House of Representatives, THE PRESIDENT OF THE
PAMBANSANG KATIPUNAN NG MGA SANGGUNIANG KABATAAN, AND ALL THEIR AGENTS AND
REPRESENTATIVES, Respondents.

CARPIO, J.:

The Case

Before us is a petition for certiorari, prohibition and mandamus with prayer for a temporary restraining
order or preliminary injunction. The petition seeks to prevent the postponement of the Sangguniang
Kabataan ("SK" for brevity) elections originally scheduled last May 6, 2002. The petition also seeks to
prevent the reduction of the age requirement for membership in the SK.

Petitioners, who are all 20 years old, filed this petition as a taxpayer's and class suit, on their own behalf
and on behalf of other youths similarly situated. Petitioners claim that they are in danger of being
disqualified to vote and be voted for in the SK elections should the SK elections on May 6, 2002 be
postponed to a later date. Under the Local Government Code of 1991 (R.A. No. 7160), membership in
the SK is limited to youths at least 15 but not more than 21 years old.

Petitioners allege that public respondents "connived, confederated and conspired" to postpone the May
6, 2002 SK elections and to lower the membership age in the SK to at least 15 but less than 18 years
of age. Petitioners assail the alleged conspiracy because youths at least 18 but not more than 21 years
old will be "summarily and unduly dismembered, unfairly discriminated, unnecessarily disenfranchised,
unjustly disassociated and obnoxiously disqualified from the SK organization."1

Thus, petitioners pray for the issuance of a temporary restraining order or preliminary injunction -

"a) To prevent, annul or declare unconstitutional any law, decree, Comelec resolution/directive and
other respondents' issuances, orders and actions and the like in postponing the May 6, 2002 SK
elections.

b) To command the respondents to continue the May 6, 2002 SK elections set by the present law and
in accordance with Comelec Resolutions No. 4713 and 4714 and to expedite the funding of the SK
elections.

c) In the alternative, if the SK elections will be postponed for whatever reason, there must be a definite
date for said elections, for example, July 15, 2002, and the present SK membership, except those
incumbent SK officers who were elected on May 6, 1996, shall be allowed to run for any SK elective
position even if they are more than 21 years old.

d) To direct the incumbent SK officers who are presently representing the SK in every sanggunian and
the NYC to vacate their post after the barangay elections."2

The Facts

The SK is a youth organization originally established by Presidential Decree No. 684 as the Kabataang
Barangay ("KB" for brevity). The KB was composed of all barangay residents who were less than 18
years old, without specifying the minimum age. The KB was organized to provide its members with the
opportunity to express their views and opinions on issues of transcendental importance. 3

The Local Government Code of 1991 renamed the KB to SK and limited SK membership to those youths
"at least 15 but not more than 21 years of age."4 The SK remains as a youth organization in every
barangay tasked to initiate programs "to enhance the social, political, economic, cultural, intellectual,
moral, spiritual, and physical development of the youth."5 The SK in every barangay is composed of a
chairperson and seven members, all elected by the Katipunan ng Kabataan. The Katipunan ng Kabataan
in every barangay is composed of all citizens actually residing in the barangay for at least six months
and who meet the membership age requirement.

The first SK elections took place on December 4, 1992. RA No. 7808 reset the SK elections to the first
Monday of May of 1996 and every three years thereafter. RA No. 7808 mandated the Comelec to
supervise the conduct of the SK elections under rules the Comelec shall promulgate. Accordingly, the
Comelec on December 4, 2001 issued Resolution Nos. 4713 6 and 47147 to govern the SK elections on
May 6, 2002.

On February 18, 2002, petitioner Antoniette V.C. Montesclaros ("Montesclaros" for brevity) sent a letter 8
to the Comelec, demanding that the SK elections be held as scheduled on May 6, 2002. Montesclaros
also urged the Comelec to respond to her letter within 10 days upon receipt of the letter, otherwise, she
will seek judicial relief.

On February 20, 2002, Alfredo L. Benipayo ("Chairman Benipayo" for brevity), then Comelec Chairman,
wrote identical letters to the Speaker of the House9 and the Senate President10 about the status of
pending bills on the SK and Barangay elections. In his letters, the Comelec Chairman intimated that it
was "operationally very difficult" to hold both elections simultaneously in May 2002. Instead, the
Comelec Chairman expressed support for the bill of Senator Franklin Drilon that proposed to hold the
Barangay elections in May 2002 and postpone the SK elections to November 2002.

Ten days lapsed without the Comelec responding to the letter of Montesclaros. Subsequently, petitioners
received a copy of Comelec En Banc Resolution No. 476311 dated February 5, 2002 recommending to
Congress the postponement of the SK elections to November 2002 but holding the Barangay elections
in May 2002 as scheduled.12

On March 6, 2002, the Senate and the House of Representatives passed their respective bills postponing
the SK elections. On March 11, 2002, the Bicameral Conference Committee ("Bicameral Committee" for
brevity) of the Senate and the House came out with a Report13 recommending approval of the reconciled
bill consolidating Senate Bill No. 2050 14 and House Bill No. 4456.15 The Bicameral Committee's
consolidated bill reset the SK and Barangay elections to July 15, 2002 and lowered the membership age
in the SK to at least 15 but not more than 18 years of age.

On March 11, 2002, petitioners filed the instant petition.

On March 11, 2002, the Senate approved the Bicameral Committee's consolidated bill and on March 13,
2002, the House of Representatives approved the same. The President signed the approved bill into law
on March 19, 2002.

The Issues
Petitioners16 raise the following grounds in support of their petition:

"I.

RESPONDENTS ACTED WHIMSICALLY, ILLEGALLY AND UNCONSTITUTIONALLY THUS CONSTITUTED

(SIC) WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN
THEY INTENDED TO POSTPONE THE SK ELECTIONS.

II.

RESPONDENTS ACTED WHIMSICALLY, ILLEGALLY AND UNCONSTITUTIONALLY THUS CONSTITUTED

(SIC) WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN
THEY INTENDED TO DISCRIMINATE, DISENFRANCHISE, SINGLE OUT AND DISMEMBER THE SK
MEMBERS WHO ARE 18 BUT NOT LESS17 (SIC) THAN 21 YEARS OLD COMPOSED OF ABOUT 7 MILLION
YOUTH.

III.

RESPONDENTS ACTED WHIMSICALLY, ILLEGALLY AND UNCONSTITUTIONALLY THUS CONSTITUTED

(SIC) WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN
THEY WILLFULLY FAILED TO FUND THE SK ELECTION PURPORTEDLY TO POSTPONE THE SAME IN ORDER
TO IMPLEMENT THEIR ILLEGAL SCHEME AND MACHINATION IN SPITE OF THE FACT THAT THERE ARE
AVAILABLE FUNDS FOR THE PURPOSE.

IV.

THE INCUMBENT SK OFFICERS WANTED TO PERPETUALLY SIT ON THEIR RESPECTIVE OFFICES

CONTRARY TO THE ENVISION (SIC) OF THE CREATION OF THE SK ORGANIZATION, HENCE, IN
VIOLATION OF LAW AND CONSTITUTION."18

The Court's Ruling

The petition is bereft of merit.

At the outset, the Court takes judicial notice of the following events that have transpired since petitioners
filed this petition:

1. The May 6, 2002 SK elections and May 13, 2002 Barangay elections were not held as scheduled.

2. Congress enacted RA No. 916419 which provides that voters and candidates for the SK elections must
be "at least 15 but less than 18 years of age on the day of the election."20 RA No. 9164 also provides
that there shall be a synchronized SK and Barangay elections on July 15, 2002.

3. The Comelec promulgated Resolution No. 4846, the rules and regulations for the conduct of the July
15, 2002 synchronized SK and Barangay elections.

Petitioners, who all claim to be 20 years old, argue that the postponement of the May 6, 2002 SK
elections disenfranchises them, preventing them from voting and being voted for in the SK elections.
Petitioners' theory is that if the SK elections were postponed to a date later than May 6, 2002, the
postponement would disqualify from SK membership youths who will turn 21 years old between May 6,
2002 and the date of the new SK elections. Petitioners claim that a reduction in the SK membership age
to 15 but less than 18 years of age from the then membership age of 15 but not more than 21 years of
age would disqualify about seven million youths. The public respondents' failure to hold the elections on
May 6, 2002 would prejudice petitioners and other youths similarly situated.

Thus, petitioners instituted this petition to: (1) compel public respondents to hold the SK elections on
May 6, 2002 and should it be postponed, the SK elections should be held not later than July 15, 2002;
(2) prevent public respondents from passing laws and issuing resolutions and orders that would lower
the membership age in the SK; and (3) compel public respondents to allow petitioners and those who
have turned more than 21 years old on May 6, 2002 to participate in any re-scheduled SK elections.
The Court's power of judicial review may be exercised in constitutional cases only if all the following
requisites are complied with, namely: (1) the existence of an actual and appropriate case or controversy;
(2) a personal and substantial interest of the party raising the constitutional question; (3) the exercise
of judicial review is pleaded at the earliest opportunity; and (4) the constitutional question is the lis
mota of the case.21

In the instant case, there is no actual controversy requiring the exercise of the power of judicial review.
While seeking to prevent a postponement of the May 6, 2002 SK elections, petitioners are nevertheless
amenable to a resetting of the SK elections to any date not later than July 15, 2002. RA No. 9164 has
reset the SK elections to July 15, 2002, a date acceptable to petitioners. With respect to the date of the
SK elections, there is therefore no actual controversy requiring judicial intervention.

Petitioners' prayer to prevent Congress from enacting into law a proposed bill lowering the membership
age in the SK does not present an actual justiciable controversy. A proposed bill is not subject to judicial
review because it is not a law. A proposed bill creates no right and imposes no duty legally enforceable
by the Court. A proposed bill, having no legal effect, violates no constitutional right or duty. The Court
has no power to declare a proposed bill constitutional or unconstitutional because that would be in the
nature of rendering an advisory opinion on a proposed act of Congress. The power of judicial review
cannot be exercised in vacuo.22 The second paragraph of Section 1, Article VIII of the Constitution states
-

"Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government." (Emphasis supplied)

Thus, there can be no justiciable controversy involving the constitutionality of a proposed bill. The Court
can exercise its power of judicial review only after a law is enacted, not before.

Under the separation of powers, the Court cannot restrain Congress from passing any law, or from
setting into motion the legislative mill according to its internal rules. Thus, the following acts of Congress
in the exercise of its legislative powers are not subject to judicial restraint: the filing of bills by members
of Congress, the approval of bills by each chamber of Congress, the reconciliation by the Bicameral
Committee of approved bills, and the eventual approval into law of the reconciled bills by each chamber
of Congress. Absent a clear violation of specific constitutional limitations or of constitutional rights of
private parties, the Court cannot exercise its power of judicial review over the internal processes or
procedures of Congress.23

The Court has also no power to dictate to Congress the object or subject of bills that Congress should
enact into law. The judicial power to review the constitutionality of laws does not include the power to
prescribe to Congress what laws to enact. The Court has no power to compel Congress by mandamus
to enact a law allowing petitioners, regardless of their age, to vote and be voted for in the July 15, 2002
SK elections. To do so would destroy the delicate system of checks and balances finely crafted by the
Constitution for the three co-equal, coordinate and independent branches of government.

Under RA No. 9164, Congress merely restored the age requirement in PD No. 684, the original charter
of the SK, which fixed the maximum age for membership in the SK to youths less than 18 years old.
Petitioners do not have a vested right to the permanence of the age requirement under Section 424 of
the Local Government Code of 1991. Every law passed by Congress is always subject to amendment or
repeal by Congress. The Court cannot restrain Congress from amending or repealing laws, for the power
to make laws includes the power to change the laws.24

The Court cannot also direct the Comelec to allow over-aged voters to vote or be voted for in an election
that is limited under RA No. 9164 to youths at least 15 but less than 18 years old. A law is needed to
allow all those who have turned more than 21 years old on or after May 6, 2002 to participate in the
July 15, 2002 SK elections. Youths from 18 to 21 years old as of May 6, 2002 are also no longer SK
members, and cannot participate in the July 15, 2002 SK elections. Congress will have to decide whether
to enact an amendatory law. Petitioners' remedy is legislation, not judicial intervention.

Petitioners have no personal and substantial interest in maintaining this suit. A party must show that he
has been, or is about to be denied some personal right or privilege to which he is lawfully entitled. 25 A
party must also show that he has a real interest in the suit. By "real interest" is meant a present
substantial interest, as distinguished from a mere expectancy or future, contingent, subordinate, or
inconsequential interest.26

In the instant case, petitioners seek to enforce a right originally conferred by law on those who were at
least 15 but not more than 21 years old. Now, with the passage of RA No. 9164, this right is limited to
those who on the date of the SK elections are at least 15 but less than 18 years old. The new law
restricts membership in the SK to this specific age group. Not falling within this classification, petitioners
have ceased to be members of the SK and are no longer qualified to participate in the July 15, 2002 SK
elections. Plainly, petitioners no longer have a personal and substantial interest in the SK elections.

This petition does not raise any constitutional issue. At the time petitioners filed this petition, RA No.
9164, which reset the SK elections and reduced the age requirement for SK membership, was not yet
enacted into law. After the passage of RA No. 9164, petitioners failed to assail any provision in RA No.
9164 that could be unconstitutional. To grant petitioners' prayer to be allowed to vote and be voted for
in the July 15, 2002 SK elections necessitates assailing the constitutionality of RA No. 9164. This,
petitioners have not done. The Court will not strike down a law unless its constitutionality is properly
raised in an appropriate action and adequately argued.27

The only semblance of a constitutional issue, albeit erroneous, that petitioners raise is their claim that
SK membership is a "property right within the meaning of the Constitution."28 Since certain public offices
are "reserved" for SK officers, petitioners also claim a constitutionally protected "opportunity" to occupy
these public offices. In petitioners' own words, they and others similarly situated stand to "lose their
opportunity to work in the government positions reserved for SK members or officers." 29 Under the Local
Government Code of 1991, the president of the federation of SK organizations in a municipality, city or
province is an ex-officio member of the municipal council, city council or provincial board, respectively. 30
The chairperson of the SK in the barangay is an ex-officio member of the Sangguniang Barangay.31 The
president of the national federation of SK organizations is an ex-officio member of the National Youth
Commission, with rank of a Department Assistant Secretary.32

Congress exercises the power to prescribe the qualifications for SK membership. One who is no longer
qualified because of an amendment in the law cannot complain of being deprived of a proprietary right
to SK membership. Only those who qualify as SK members can contest, based on a statutory right, any
act disqualifying them from SK membership or from voting in the SK elections. SK membership is not a
property right protected by the Constitution because it is a mere statutory right conferred by law.
Congress may amend at any time the law to change or even withdraw the statutory right.

A public office is not a property right. As the Constitution expressly states, a "[P]ublic office is a public
trust."33 No one has a vested right to any public office, much less a vested right to an expectancy of
holding a public office. In Cornejo v. Gabriel,34 decided in 1920, the Court already ruled:

"Again, for this petition to come under the due process of law prohibition, it would be necessary to
consider an office a "property." It is, however, well settled x x x that a public office is not property
within the sense of the constitutional guaranties of due process of law, but is a public trust or
agency. x x x The basic idea of the government x x x is that of a popular representative government,
the officers being mere agents and not rulers of the people, one where no one man or set of men has a
proprietary or contractual right to an office, but where every officer accepts office pursuant to the
provisions of the law and holds the office as a trust for the people he represents." (Emphasis supplied)

Petitioners, who apparently desire to hold public office, should realize from the very start that no one
has a proprietary right to public office. While the law makes an SK officer an ex-officio member of a
local government legislative council, the law does not confer on petitioners a proprietary right or even
a proprietary expectancy to sit in local legislative councils. The constitutional principle of a public office
as a public trust precludes any proprietary claim to public office. Even the State policy directing "equal
access to opportunities for public service"35 cannot bestow on petitioners a proprietary right to SK
membership or a proprietary expectancy to ex-officio public offices.

Moreover, while the State policy is to encourage the youth's involvement in public affairs, 36 this policy
refers to those who belong to the class of people defined as the youth. Congress has the power to define
who are the youth qualified to join the SK, which itself is a creation of Congress. Those who do not
qualify because they are past the age group defined as the youth cannot insist on being part of the
youth. In government service, once an employee reaches mandatory retirement age, he cannot invoke
any property right to cling to his office. In the same manner, since petitioners are now past the maximum
age for membership in the SK, they cannot invoke any property right to cling to their SK membership.

The petition must also fail because no grave abuse of discretion attended the postponement of the SK
elections. RA No. 9164 is now the law that prescribes the qualifications of candidates and voters for the
SK elections. This law also fixes the date of the SK elections. Petitioners are not even assailing the
constitutionality of RA No. 9164. RA No. 9164 enjoys the presumption of constitutionality and will apply
to the July 15, 2002 SK elections.

Petitioners have not shown that the Comelec acted illegally or with grave abuse of discretion in
recommending to Congress the postponement of the SK elections. The very evidence relied upon by
petitioners contradict their allegation of illegality. The evidence consist of the following: (1) Comelec en
banc Resolution No. 4763 dated February 5, 2002 that recommended the postponement of the SK
elections to 2003; (2) the letter of then Comelec Chairman Benipayo addressed to the Speaker of the
House of Representatives and the President of the Senate; and (3) the Conference Committee Report
consolidating Senate Bill No. 2050 and House Bill No. 4456.

The Comelec exercised its power and duty to "enforce and administer all laws and regulations relative
to the conduct of an election, plebiscite, initiative, referendum and recall" 37 and to "recommend to
Congress effective measures to minimize election spending." 38 The Comelec's acts enjoy the
presumption of regularity in the performance of official duties.39 These acts cannot constitute proof, as
claimed by petitioners, that there "exists a connivance and conspiracy (among) respondents in
contravention of the present law." As the Court held in Pangkat Laguna v. Comelec,40 the "Comelec, as
the government agency tasked with the enforcement and administration of elections laws, is entitled to
the presumption of regularity of official acts with respect to the elections."

The 1987 Constitution imposes upon the Comelec the duty of enforcing and administering all laws and
regulations relative to the conduct of elections. Petitioners failed to prove that the Comelec committed
grave abuse of discretion in recommending to Congress the postponement of the May 6, 2002 SK
elections. The evidence cited by petitioners even establish that the Comelec has demonstrated an
earnest effort to address the practical problems in holding the SK elections on May 6, 2002. The
presumption remains that the decision of the Comelec to recommend to Congress the postponement of
the elections was made in good faith in the regular course of its official duties.

Grave abuse of discretion is such capricious and whimsical exercise of judgment that is patent and gross
as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law.41
Public respondents having acted strictly pursuant to their constitutional powers and duties, we find no
grave abuse of discretion in their assailed acts.

Petitioners contend that the postponement of the SK elections would allow the incumbent SK officers to
perpetuate themselves in power, depriving other youths of the opportunity to serve in elective SK
positions. This argument deserves scant consideration. While RA No. 9164 contains a hold-over
provision, incumbent SK officials can remain in office only until their successors have been elected or
qualified. On July 15, 2002, when the SK elections are held, the hold-over period expires and all
incumbent SK officials automatically cease to hold their SK offices and their ex-officio public offices.
In sum, petitioners have no personal and substantial interest in maintaining this suit. This petition
presents no actual justiciable controversy. Petitioners do not cite any provision of law that is alleged to
be unconstitutional. Lastly, we find no grave abuse of discretion on the part of public respondents.

WHEREFORE, the petition is DISMISSED for utter lack of merit.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing, Ynares-Santiago,
Sandoval-Gutierrez, Austria-Martinez, and Corona, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 93100 June 19, 1997

ATLAS FERTILIZER CORPORATION, petitioner,
vs.
THE HONORABLE SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, respondent.

G.R. No. 97855 June 19, 1997

PHILIPPINE FEDERATION OF FISHFARM PRODUCERS, INC. petitioner,
vs.
THE HONORABLE SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, respondent.
RESOLUTION

ROMERO, J.:
Before this Court are consolidated petitions questioning the constitutionality of some portions of
Republic Act No. 6657 otherwise known as the Comprehensive Agrarian Reform Law. 1

Petitioners Atlas Fertilizer Corporation, Philippine Federation of Fishfarm Producers, Inc. and
2

petitioner-in-intervention Archie's Fishpond, Inc. and Arsenio Al. Acuna are engaged in the
3

aquaculture industry utilizing fishponds and prawn farms. They assail Sections 3 (b), 11, 13, 16 (d),
17 and 32 of R.A. 6657, as well as the implementing guidelines and procedures contained in
Administrative Order Nos. 8 and 10 Series of 1988 issued by public respondent Secretary of the
Department of Agrarian Reform as unconstitutional.
Petitioners claim that the questioned provisions of CARL violate the Constitution in the following
manner:
1. Sections 3 (b), 11, 13, 16 (d), 17 and 32 of CARL extend agrarian reform to aquaculture
lands even as Section 4, Article XIII of the Constitution limits agrarian reform only to agricultural
lands.
2. The questioned provisions similarly treat of aquaculture lands and agriculture lands when they are
differently situated, and differently treat aquaculture lands and other industrial lands, when they are
similarly situated in violation of the constitutional guarantee of the equal protection of the laws.

3. The questioned provisions distort employment benefits and burdens in favor of aquaculture
employees and against other industrial workers even as Section 1 and 3, Article XIII of the Constitution
mandate the State to promote equality in economic and employment opportunities.
4. The questioned provisions deprive petitioner of its government-induced investments in aquaculture
even as Sections 2 and 3, Article XIII of the Constitution mandate the State to respect the freedom of
enterprise and the right of enterprises to reasonable returns on investments and to expansion and
growth.
The constitutionality of the above-mentioned provisions has been ruled upon in the case of Luz Farms,
Inc. v. Secretary of Agrarian Reform regarding the inclusion of land devoted to the raising of livestock,
4

poultry and swine in its coverage.

The issue now before this Court is the constitutionality of the same above-mentioned provisions insofar
as they include in its coverage lands devoted to the aquaculture industry, particularly fishponds and
prawn farms.

In their first argument , petitioners contend that in the case of Luz Farms, Inc. v. Secretary of Agrarian
Reform, this Court has already ruled impliedly that lands devoted to fishing are not agricultural lands.
5

In aquaculture, fishponds and prawn farms, the use of land is only incidental to and not the principal
factor in productivity and, hence, as held in "Luz Farms," they too should be excluded from R.A. 6657
just as lands devoted to livestock, swine, and poultry have been excluded for the same reason. They
also argue that they are entitled to the full benefit of "Luz Farms" to the effect that only five percent of
the total investment in aquaculture activities, fishponds, and prawn farms, is in the form of land, and
therefore, cannot be classified as agricultural activity. Further, that in fishponds and prawn farms, there
are no farmers, nor farm workers, who till lands, and no agrarian unrest, and therefore, the
constitutionally intended beneficiaries under Section 4, Art. XIII, 1987 Constitution do not exist in
aquaculture.

In their second argument, they contend that R.A. 6657, by including in its coverage, the raising of fish
and aquaculture operations including fishponds and prawn ponds, treating them as in the same class
or classification as agriculture or farming violates the equal protection clause of the Constitution and
is, therefore, void. Further, the Constitutional Commission debates show that the intent of the
constitutional framers is to exclude "industrial" lands, to which category lands devoted to aquaculture,
fishponds, and fish farms belong.
Petitioners also claim that Administrative Order Nos. 8 and 10 issued by the Secretary of the
Department of Agrarian Reform are, likewise, unconstitutional, as held in "Luz Farms," and are
therefore void as they implement the assailed provisions of CARL.
The provisions of CARL being assailed as unconstitutional are as follows:
(a) Section 3 (b) which includes the "raising of fish in the definition of "Agricultural, Agricultural
Enterprise or Agricultural Activity." (Emphasis Supplied)
(b) Section 11 which defines "commercial farms" as private agricultural lands devoted to fishponds
and prawn ponds. . . . (Emphasis Supplied)
(c) Section 13 which calls upon petitioner to execute a production-sharing plan.
(d) Section 16(d) and 17 which vest on the Department of Agrarian reform the authority to summarily
determine the just compensation to be paid for lands covered by the comprehensive Agrarian reform
Law.
(e) Section 32 which spells out the production-sharing plan mentioned in section 13 —
. . . (W)hereby three percent (3%) of the gross sales from the production of such lands are distributed
within sixty (60) days at the end of the fiscal year as compensation to regular and other farmworkers
in such lands over and above the compensation they currently receive: Provided, That these
individuals or entities realize gross sales in excess of five million pesos per annum unless the DAR,
upon proper application, determines a lower ceiling.
In the event that the individual or entity realizes a profit, an additional ten percent (10%) of the net
profit after tax shall be distributed to said regular and other farmworkers within ninety (90) days of the
end of the fiscal year. . . .
While the Court will not hesitate to declare a law or an act void when confronted squarely with
constitutional issues, neither will it preempt the Legislative and the Executive branches of the
government in correcting or clarifying, by means of amendment, said law or act. On February 20, 1995,
Republic Act No. 7881 was approved by Congress. Provisions of said Act pertinent to the assailed
6

provisions of CARL are the following:

Sec. 1. Section 3, Paragraph (b) of Republic Act No. 6657 is hereby amended to read as
follows:

Sec. 3. Definitions. — For the purpose of this Act, unless the context indicates otherwise:
(b) Agriculture, Agricultural Enterprise or Agricultural Activity means the cultivation of the soil, planting
of crops, growing of fruit trees, including the harvesting of such farm products and other farm activities
and practices performed by a farmer in conjunction with such farming operations done by persons
whether natural or juridical.
Sec. 2. Section 10 of Republic Act No. 6657 is hereby amended to read as follows:
Sec. 10. Exemptions and Exclusions. —
xxx xxx xxx

b) Private lands actually, directly and exclusively used for prawn farms and fishponds
shall be exempt from the coverage of this Act: Provided, That said prawn farms and
fishponds have not been distributed and Certificate of Land Ownership Award (CLOA)
issued to agrarian reform beneficiaries under the Comprehensive Agrarian Reform
Program.
In cases where the fishponds or prawn farms have been subjected to the Comprehensive Agrarian
Reform Law, by voluntary offer to sell, or commercial farms deferment or notices of compulsory
acquisition, a simple and absolute majority of the actual regular workers or tenants must consent to
the exemption within one (1) year from the effectivity of this Act. when the workers or tenants do not
agree to this exemption, the fishponds or prawn farms shall be distributed collectively to the worker —
beneficiaries or tenants who shall form a cooperative or association to manage the same.
In cases where the fishponds or prawn farms have not been subjected to the Comprehensive Agrarian
Reform Law, the consent of the farm workers shall no longer be necessary, however, the provision of
Section 32-A hereof on incentives shall apply.
xxx xxx xxx
Sec. 3. Section 11, Paragraph 1 is hereby amended to read as follows:
Sec. 11. Commercial Farming. — Commercial farms, which are private agricultural
lands devoted to saltbeds, fruit farms, orchards, vegetable and cut-flower farms and
cacao, coffee and rubber plantations, shall be subject to immediate compulsory
acquisition and distribution after ten (10) years from the effectivity of this Act. In the
case of new farms, the ten-year period shall begin from the first year of commercial
 production and operation, as determined by the DAR. During the ten-year period, the
Government shall initiate steps necessary to acquire these lands, upon payment of
just compensation for the land and the improvements thereon, preferably in favor of
organized cooperatives or associations, which shall thereafter manage the said lands
for the workers — beneficiaries.

Sec. 4. There shall be incorporated after Section 32 of Republic Act No. 6657 a section to read as
follows
Sec. 32-A. Incentives. — Individuals or entities owning or operating fishponds and
prawn farms are hereby mandated to execute within six (6) months from the effectivity
of this Act, an incentive plan with their regular fishpond or prawn farm workers'
organization, if any, whereby seven point five percent (7.5%) of their net profit before
tax from the operation of the fishpond or prawn farms are distributed within sixty (60)
days at the end of the fiscal year as compensation to regular and other pond workers
in such ponds over and above the compensation they currently receive.
In order to safeguard the right of the regular fishpond or prawn farm workers under the incentive plan,
the books of the fishpond or prawn owners shall be subject to periodic audit or inspection by certified
public accountants chosen by the workers.

The foregoing provision shall not apply to agricultural lands subsequently converted to fishponds or
prawn farms provided the size of the land converted does not exceed the retention limit of the
landowner.
The above-mentioned provisions of R.A. No. 7881 expressly state that fishponds and prawn farms are
excluded from the coverage of CARL. In view of the foregoing, the question concerning the
constitutionality of the assailed provisions has become moot and academic with the passage of R.A.
No. 7881.
WHEREFORE, the petition is hereby DISMISSED.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Melo, Puno, Vitug, Mendoza, Hermosisima, Jr., Panganiban
and Torres, Jr., JJ., concur.
Padilla, Bellosillo, Kapunan and Francisco, JJ., are on leave.
 EN BANC

G.R. No. 147780 May 10, 2001

PANFILO LACSON, MICHAEL RAY B. AQUINO and CESAR O. MANCAO, petitioners,
vs.
SECRETARY HERNANDO PEREZ, P/DIRECTOR LEANDRO MENDOZA, and P/SR. SUPT.
REYNALDO BERROYA, respondents.
----------------------------------------
G.R. No. 147781 May 10, 2001
MIRIAM DEFENSOR-SANTIAGO, petitioner,
vs.
ANGELO REYES, Secretary of National Defense, ET AL., respondents.
----------------------------------------
G.R. No. 147799 May 10, 2001
RONALDO A. LUMBAO, petitioner,
vs.
SECRETARY HERNANDO PEREZ, GENERAL DIOMEDIO VILLANUEVA, P/DIRECTOR
LEANDRO MENDOZA, and P/SR. SUPT. REYNALDO BERROYA, respondents.
----------------------------------------
G.R. No. 147810 May 10, 2001

THE LABAN NG DEMOKRATIKONG PILIPINO, petitioner,

vs.
THE DEPARTMENT OF JUSTICE, SECRETARY HERNANDO PEREZ, THE ARMED FORCES OF
THE PHILIPPINES, GENERAL DIOMEDIO VILLANUEVA, THE PHILIPPINE NATIONAL POLICE,
and DIRECTOR GENERAL LEANDRO MENDOZA, respondents.
RESOLUTION

MELO, J.:
On May 1, 2001, President Macapagal-Arroyo, faced by an "angry and violent mob armed with
explosives, firearms, bladed weapons, clubs, stones and other deadly weapons" assaulting and
attempting to break into Malacañang, issued Proclamation No. 38 declaring that there was a state of
rebellion in the National Capital Region. She likewise issued General Order No. 1 directing the Armed
Forces of the Philippines and the Philippine National Police to suppress the rebellion in the National
Capital Region. Warrantless arrests of several alleged leaders and promoters of the "rebellion" were
thereafter effected.
Aggrieved by the warrantless arrests, and the declaration of a "state of rebellion," which allegedly gave
a semblance of legality to the arrests, the following four related petitions were filed before the Court –

(1) G. R. No. 147780 for prohibition, injunction, mandamus, and habeas corpus (with an urgent
application for the issuance of temporary restraining order and/or writ of preliminary injunction) filed
by Panfilio M. Lacson, Michael Ray B. Aquino, and Cezar O. Mancao; (2) G. R. No. 147781 for
mandamus and/or review of the factual basis for the suspension of the privilege of the writ of habeas
corpus, with prayer for the suspension of the privilege of the writ of habeas corpus, with prayer for a
temporary restraining order filed by Miriam Defensor-Santiago; (3) G. R. No. 147799 for prohibition
and injunction with prayer for a writ of preliminary injunction and/or restraining order filed by Ronaldo
A. Lumbao; and (4) G. R. No. 147810 for certiorari and prohibition filed by the political party Laban ng
Demokratikong Pilipino.

All the foregoing petitions assail the declaration of a state of rebellion by President Gloria Macapagal-
Arroyo and the warrantless arrests allegedly effected by virtue thereof, as having no basis both in fact
and in law. Significantly, on May 6, 2001, President Macapagal-Arroyo ordered the lifting of the
declaration of a "state of rebellion" in Metro Manila. Accordingly, the instant petitions have been
rendered moot and academic. As to petitioners' claim that the proclamation of a "state of rebellion" is
being used by the authorities to justify warrantless arrests, the Secretary of Justice denies that it has
issued a particular order to arrest specific persons in connection with the "rebellion." He states that
what is extant are general instructions to law enforcement officers and military agencies to implement
Proclamation No. 38. Indeed, as stated in respondents' Joint Comments:
[I]t is already the declared intention of the Justice Department and police authorities to obtain
regular warrants of arrests from the courts for all acts committed prior to and until May 1, 2001
which means that preliminary investigations will henceforth be conducted.
(Comment, G.R. No. 147780, p. 28; G.R. No. 147781, p. 18; G.R. No. 147799, p. 16; G.R. No.
147810, p. 24)

With this declaration, petitioners' apprehensions as to warrantless arrests should be laid to rest.
In quelling or suppressing the rebellion, the authorities may only resort to warrantless arrests of
persons suspected of rebellion, as provided under Section 5, Rule 113 of the Rules of Court, if the
circumstances so warrant. The warrantless arrest feared by petitioners is, thus, not based on the
declaration of a "state of rebellion."
Moreover, petitioners' contention in G. R. No. 147780 (Lacson Petition), 147781 (Defensor-Santiago
Petition), and 147799 (Lumbao Petition) that they are under imminent danger of being arrested without
warrant do not justify their resort to the extraordinary remedies of mandamus and prohibition, since an
individual subjected to warrantless arrest is not without adequate remedies in the ordinary course of
law. Such an individual may ask for a preliminary investigation under Rule 112 of the Rules of Court,
where he may adduce evidence in his defense, or he may submit himself to inquest proceedings to
determine whether or not he should remain under custody and correspondingly be charged in court.
Further, a person subject of a warrantless arrest must be delivered to the proper judicial authorities
within the periods provided in Article 125 of the Revised Penal Code, otherwise the arresting officer
could be held liable for delay in the delivery of detained persons. Should the detention be without legal
ground, the person arrested can charge the arresting officer with arbitrary detention. All this is without
prejudice to his filing an action for damages against the arresting officer under Article 32 of the Civil
Code. Verily, petitioners have a surfeit of other remedies which they can avail themselves of, thereby
making the prayer for prohibition and mandamus improper at this time (Section 2 and 3, Rule 65, Rules
of Court).1âwphi1.nêt
Aside from the foregoing reasons, several considerations likewise inevitably call for the dismissal of
the petitions at bar.
G.R. No. 147780
In connection with their alleged impending warrantless arrest, petitioners Lacson, Aquino, and mancao
pray that the "appropriate court before whom the informations against petitioners are filed be directed
to desist from arraigning and proceeding with the trial of the case, until the instant petition is finally
resolved." This relief is clearly premature considering that as of this date, no complaints or charges
have been filed against any of the petitioners for any crime. And in the event that the same are later
filed, this Court cannot enjoin criminal prosecution conducted in accordance with the Rules of Court,
for by that time any arrest would have been in pursuant of a duly issued warrant.
As regards petitioners' prayer that the hold departure orders issued against them be declared null and
void ab initio, it is to be noted that petitioners are not directly assailing the validity of the subject hold
departure orders in their petition. They are not even expressing intention to leave the country in the
near future. The prayer to set aside the same must be made in proper proceedings initiated for that
purpose.
Anent petitioners' allegations ex abundante ad cautelam in support of their application for the issuance
of a writ of habeas corpus, it is manifest that the writ is not called for since its purpose is to relieve
petitioners from unlawful restraint (Ngaya-an v. Balweg, 200 SCRA 149 [1991]), a matter which
remains speculative up to this very day.
G.R. No. 147781
The petition herein is denominated by petitioner Defensor-Santiago as one for mandamus. It is basic
in matters relating to petitions for mandamus that the legal right of the petitioner to the performance of
a particular act which is sought to be compelled must be clear and complete. Mandamus will not issue
unless the right to relief is clear at the time of the award (Palileo v. Ruiz Castro, 85 Phil. 272). Up to
the present time, petitioner Defensor Santiago has not shown that she is in imminent danger of being
arrested without a warrant. In point of fact, the authorities have categorically stated that petitioner will
not be arrested without a warrant.
G.R. No. 147799
Petitioner Lumbao, leader of the People's Movement against Poverty (PMAP), for his part, argues that
the declaration of a "state of rebellion" is violative of the doctrine of separation of powers, being an
encroachment on the domain of the judiciary which has the constitutional prerogative to "determine or
interpret" what took place on May 1, 2001, and that the declaration of a state of rebellion cannot be an
exception to the general rule on the allocation of the governmental powers.
We disagree. To be sure, Section 18, Article VII of the Constitution expressly provides that "[t]he
President shall be the Commander-in-Chief of all armed forces of the Philippines and whenever it
becomes necessary, he may call out such armed forces to prevent or suppress lawless violence,
invasion or rebellion…" Thus, we held in Integrated Bar of the Philippines v. Hon. Zamora, (G.R. No.
141284, August 15, 2000):
x x x The factual necessity of calling out the armed forces is not easily quantifiable and cannot be
objectively established since matters considered for satisfying the same is a combination of several
factors which are not always accessible to the courts. Besides the absence of textual standards that
the court may use to judge necessity, information necessary to arrive at such judgment might also
prove unmanageable for the courts. Certain pertinent information might be difficult to verify, or wholly
unavailable to the courts. In many instances, the evidence upon which the President might decide that
there is a need to call out the armed forces may be of a nature not constituting technical proof.

On the other hand, the President as Commander-in-Chief has a vast intelligence network to gather
information, some of which may be classified as highly confidential or affecting the security of the
state. In the exercise of the power to call, on-the-spot decisions may be imperatively necessary in
emergency situations to avert great loss of human lives and mass destruction of property. x x x

(at pp.22-23)
The Court, in a proper case, may look into the sufficiency of the factual basis of the exercise of this
power. However, this is no longer feasible at this time, Proclamation No. 38 having been lifted.

G.R. No. 147810

Petitioner Laban ng Demokratikong Pilipino is not a real party-in-interest. The rule requires that a party
must show a personal stake in the outcome of the case or an injury to himself that can be redressed
by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify the
exercise of the court's remedial powers in his behalf (KMU Labor Center v. Garcia, Jr., 239 SCRA 386
[1994]). Here, petitioner has not demonstrated any injury to itself which would justify resort to the
Court. Petitioner is a juridical person not subject to arrest. Thus, it cannot claim to be threatened by a
warrantless arrest. Nor is it alleged that its leaders, members, and supporters are being threatened
with warrantless arrest and detention for the crime of rebellion. Every action must be brought in the
name of the party whose legal right has been invaded or infringed, or whose legal right is under
imminent threat of invasion or infringement.
At best, the instant petition may be considered as an action for declaratory relief, petitioner claiming
that its right to freedom of expression and freedom of assembly is affected by the declaration of a
"state of rebellion" and that said proclamation is invalid for being contrary to the Constitution.
However, to consider the petition as one for declaratory relief affords little comfort to petitioner, this
Court not having jurisdiction in the first instance over such a petition. Section 5[1], Article VIII of the
Constitution limits the original jurisdiction of the Court to cases affecting ambassadors, other public
ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and
habeas corpus.
WHEREFORE, premises considered, the petitions are hereby DISMISSED. However, in G.R. No.
147780, 147781, and 147799, respondents, consistent and congruent with their undertaking earlier
adverted to, together with their agents, representatives, and all persons acting for and in their behalf,
are hereby enjoined from arresting petitioners therein without the required judicial warrant for all acts
committed in relation to or in connection with the may 1, 2001 siege of Malacañang.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Puno, Mendoza, Panganiban, Gonzaga-Reyes, JJ., concur.
Vitug, separate opinion.

Kapunan, dissenting opinion.

Pardo, join the dissent of J. Kapunan.
Sandoval-Gutierrez, dissenting opinion.
Quisumbing, Buena, Ynares-Santiago, De Leon, Jr., on leave.

G.R. No. 147780 May 10, 2001

PANFILO LACSON, MICHAEL RAY B. AQUINO and CESAR O. MANCAO, petitioners,

vs.
SECRETARY HERNANDO PEREZ, P/DIRECTOR LEANDRO MENDOZA, and P/SR. SUPT.
REYNALDO BERROYA, respondents.
----------------------------------------

G.R. No. 147781 May 10, 2001

MIRIAM DEFENSOR-SANTIAGO, petitioner,
vs.
ANGELO REYES, Secretary of National Defense, ET AL., respondents.
SEPARATE OPINION

VITUG, J.:
I concur insofar as the resolution enjoins any continued warrantless arrests for acts related to,
or connected with, the May 1st incident but respectfully dissent from the order of dismissal of
the petitions for being said to be moot and academic. The petitions have raised important
constitutional issues that, in my view, must likewise be fully addressed.
G.R. No. 147780 May 10, 2001
PANFILO LACSON, MICHAEL RAY B. AQUINO and CESAR O. MANCAO, petitioners,
vs.
SECRETARY HERNANDO PEREZ, P/DIRECTOR LEANDRO MENDOZA, and P/SR. SUPT.
REYNALDO BERROYA, respondents.
----------------------------------------
G.R. No. 147781 May 10, 2001

MIRIAM DEFENSOR-SANTIAGO, petitioner,

vs.
ANGELO REYES, Secretary of National Defense, ET AL., respondents.
----------------------------------------
G.R. No. 147799 May 10, 2001

RONALDO A. LUMBAO, petitioner,

vs.
SECRETARY HERNANDO PEREZ, GENERAL DIOMEDIO VILLANUEVA, P/DIRECTOR
LEANDRO MENDOZA, and P/SR. SUPT. REYNALDO BERROYA, respondents.

----------------------------------------
G.R. No. 147810 May 10, 2001
THE LABAN NG DEMOKRATIKONG PILIPINO, petitioner,
vs.
THE DEPARTMENT OF JUSTICE, SECRETARY HERNANDO PEREZ, THE ARMED FORCES OF
THE PHILIPPINES, GENERAL DIOMEDIO VILLANUEVA, THE PHILIPPINE NATIONAL POLICE,
and DIRECTOR GENERAL LEANDRO MENDOZA, respondents.

DISSENTING OPINION
KAPUNAN, J.:
The right against unreasonable searches and seizure has been characterized as belonging "in the
catalog of indispensable freedoms."
Among deprivation of rights, none is so effective in cowing a population, crushing the spirit of the
individual and putting terror in every heart. Uncontrolled search and seizure is one of the first and most
effective weapons in the arsenal of every arbitrary government. And one need only briefly to have
dwelt and worked among a people know that the human personality deteriorates and dignity and self-
reliance disappear where homes, persons and possessions are subject at any hour to unheralded
search and seizure by the police.1
Invoking the right against unreasonable searches and seizures, petitioners Panfilo Lacson, Michael
Ray Aquino and Cezar O. Mancao II now seek a temporary restraining order and/or injunction from
the Court against their impending warrantless arrests upon order of the Secretary of Justice.2 Petitioner
Laban ng Demokratikong Pilipino (LDP), likewise, seeks to enjoin the arrests of its senatorial
candidates, namely, Senator Juan Ponce-Enrile, Senator Miriam Defensor-Santiago, Senator
Gregorio B. Honasan and General Panfilo Lacson.3 Separate petitioners were also filed by Senator
Juan Ponce Enrile.4 Former Ambassador Ernesto M. Maceda,5 Senator Miriam Defensor-Santiago,6
Senator Gregorio B. Honasan,7 and the Integrated Bar of the Philippines (IBP).8
Briefly, the order for the arrests of these political opposition leaders and police officers stems from the
following facts:
On April 25, 2001, former President Joseph Estrada was arrested upon the warrant issued by the
Sandiganbayan in connection with the criminal case for plunder filed against him. Several hundreds
of policemen were deployed to effect his arrest. At the time, a number of Mr. Estrada's supporters,
who were then holding camp outside his residence in Greenhills Subdivision, sought to prevent his
arrest. A skirmish ensued between them and the police. The police had to employ batons and water
hoses to control the rock-throwing pro-Estrada rallyists and allow the sheriffs to serve the warrant. Mr.
Estrada and his son and co-accused, Mayor Jinggoy Estrada, were then brought to Camp Crame
where, with full media coverage, their fingerprints were obtained and their mug shots taken.

Later that day, and on the succeeding days, a huge gathered at the EDSA Shrine to show its support
for the deposed President. Senators Enrile, Santiago, Honasan, opposition senatorial candidates
including petitioner Lacson, as well as other political personalities, spoke before the crowd during
these rallies.

In the meantime, on April 28, 2001, Mr. Estrada and his son were brought to the Veterans memorial
Medical Center for a medical check-up. It was announced that from there, they would be transferred
to Fort Sto. Domingo in Sta. Rosa, Laguna.
In the early morning of May 1, 2001, the crowd at EDSA decided to march to Malacañang Palace. The
Armed Forces of the Philippines (AFP) was called to reinforce the Philippine National Police (PNP) to
guard the premises of the presidential residence. The marchers were able to penetrate the barricades
put up by the police at various points leading to Mendiola and were able to reach Gate 7 of Malacañan.
As they were being dispersed with warning shots, tear gas and water canons, the rallyists hurled
stones at the police authorities. A melee erupted. Scores of people, including some policemen, were
hurt.
At noon of the same day, after the crowd in Mendiola had been dispersed, President Gloria
Macapagal-Arroyo issued Proclamation No. 38 declaring a "state of rebellion" in Metro Manila:
Presidential Proclamation No. 38
DECLARING STATE OF REBELLION IN THE NATIONAL CAPITAL REGION
WHEREAS, the angry and violent mob, armed with explosives, firearms, bladed weapons, clubs,
stones and other deadly weapons, in great part coming from the mass gathering at the EDSA Shrine,
and other armed groups, having been agitated and incited and, acting upon the instigation and under
the command and direction of known and unknown leaders, have and continue to assault and attempt
to break into Malacañang with the avowed purpose of overthrowing the duly constituted Government
and forcibly seize power, and have and continue to rise publicly, shown open hostility, and take up
arms against the duly constituted Government for the purpose of removing from the allegiance to the
Government certain bodies of the Armed Forces of the Philippines and the Philippine National Police,
and to deprive the President of the Republic of the Philippines, wholly and partially, of her powers and
prerogatives which constitute the continuing crime of rebellion punishable under Article 134 of the
Revised Penal Code;
WHEREAS, armed groups recruited by known and unknown leaders, conspirators, and plotters have
continue (sic) to rise publicly by the use of arms to overthrow the duly constituted Government and
seize political power;
WHEREAS, under Article VII, Section 18 of the Constitution, whenever necessary, the President as
the Commander-in-Chief of all armed forces of the Philippines, may call out such armed forces to
suppress the rebellion;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me by law
hereby recognize and confirm the existence of an actual and on-going rebellion compelling me to
declare a state of rebellion;

In view of the foregoing, I am issuing General Order NO. 1 in accordance with Section 18, Article VII
of the Constitution calling upon the Armed Forces of the Philippines and the Philippine National police
to suppress and quell the rebellion.
City of Manila, May 1, 2001.
The President likewise issued General Order No. 1 which reads:

GENERAL ORDER NO. 1

DIRECTING THE ARMED FORCES OF THE PHILIPPIENS AND THE PHILIPPINE NATIONAL
POLICE TO SUPPRESS THE REBELLION IN THE NATIONAL CAPITAL REGION
WHEREAS, the angry and violent mob, armed with explosives, firearms, bladed weapons, clubs,
stones and other deadly weapons, in great part coming from the mass gathering at the EDSA Shrine,
and other armed groups, having been agitated and incited and, acting upon the instigation and under
the command and direction of known and unknown leaders, have and continue to assault and attempt
to break into Malacañang with the avowed purpose of overthrowing the duly constituted Government
and forcibly seize political power, and have and continue to rise publicly, show open hostility, and take
up arms against the duly constituted Government certain bodies of the Armed Forces of the Philippines
and the Philippine National Police, and to deprive the President of the Republic of the Philippines,
wholly and partially, of her powers and prerogatives which constitute the continuing crime of rebellion
punishable under Article 134 of the Revised Penal Code;

WHEREAS, armed groups recruited by known and unknown leaders, conspirators, and plotters have
continue (sic) to rise publicly by the use of arms to overthrow the duly constituted Government and
seize political power;
WHEREAS, under Article VII, Section 18 of the Constitution, whenever necessary, the President as
the Commander-in-Chief of all armed forces of the Philippines, may call out such armed forces to
suppress the rebellion;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me under
the Constitution as President of the Republic of the Philippines and Commander-in-Chief of all armed
forces of the Philippines and pursuant to Proclamation No. 38, dated May 1, 2001, do hereby call upon
the Armed Forces of the Philippines and the Philippine national police to suppress and quell the
rebellion.
I hereby direct the Chief of Staff of the Armed Forces of the Philippines and the Chief of the Philippine
National Police and the officers and men of the Armed Forces of the Philippines and the Philippine
National Police to immediately carry out the necessary and appropriate actions and measures to
suppress and quell the rebellion with due regard to constitutional rights.
City of Manila, May 1, 2001.
Pursuant to the proclamation, several key leaders of the opposition were ordered arrested. Senator
Enrile was arrested without warrant in his residence at around 4:00 in the afternoon. Likewise arrested
without warrant the following day was former Ambassador Ernesto Maceda. Senator Honasan and
Gen. Lacson were also ordered arrested but the authorities have so far failed to apprehend them.
Ambassador Maceda was temporarily released upon recognizance while Senator Ponce Enrile was
ordered released by the Court on cash bond.
The basic issue raised by the consolidated petitions is whether the arrest or impending arrest without
warrant, pursuant to a declaration of "state of rebellion" by the President of the above-mentioned
persons and unnamed other persons similarly situated suspected of having committed rebellion is
illegal, being unquestionably a deprivation of liberty and violative of the Bill of Rights under the
Constitution.
The declaration of a "state of rebellion" is supposedly based on Section 18, Article VII of the
Constitution which reads:
The President shall be the Commander-in-Chief of all armed forces of the Philippines and whenever
it becomes necessary, he may call out such armed forces to prevent or suppress lawless violence,
invasion or rebellion. In case of invasion or rebellion, when the public safety requires it, he may, for a
period not exceeding sixty days, suspend the privilege of the writ of habeas corpus or place the
Philippines or any part thereof under martial law. Within forty-eight hours from the proclamation of
martial law or the suspension of the writ of habeas corpus, the President shall submit a report in person
or in writing to the Congress. The Congress, voting jointly, by a vote of at least a majority of all its
Members in regular or special session, may revoke such proclamation or suspension, which revocation
shall not be set aside by the President. Upon the initiative of the President, the Congress may, in the
same manner, extend such proclamation or suspension for a period to be determined by the Congress
if the invasion or rebellion shall persist and public safety requires it.
The Congress, if not in session, shall, within twenty-four hours following such proclamation or
suspension, convene in accordance with its rules without need of a call.

The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of
the factual basis of the proclamation of martial law or the suspension of the privilege of the writ or the
extension thereof, and must promulgate its decision thereon within thirty days from its filing.
A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning
of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction on military
courts and agencies over civilians where civil courts are able to function, nor automatically suspend
the privilege of the writ.
The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion
or offenses inherent in or directly connected with invasion.
During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released.

Section 18 grants the President, as Commander-in-Chief, the power to call out the armed forces in
cases of (1) lawless violence, (2) rebellion and (3) invasion.9 In the latter two cases, i.e., rebellion or
invasion, the President may, when public safety requires, also (a) suspend the privilege of the writ of
habeas corpus, or (b) place the Philippines or any part thereof under martial law. However, in the
exercise of this calling out power as Commander-in-Chief of the armed forces, the Constitution does
not require the President to make a declaration of a "state of rebellion" (or, for that matter, of lawless
violence or invasion). The term "state of rebellion" has no legal significance. It is vague and amorphous
and does not give the President more power than what the Constitution says, i. e, whenever it becomes
necessary, he may call out such armed forces to prevent or suppress lawless violence, invasion or
rebellion. As Justice Mendoza observed during the hearing of this case, such a declaration is "legal
surplusage." But whatever the term means, it cannot diminish or violate constitutionally-protected
rights, such as the right to due process,10 the rights to free speech and peaceful assembly to petition
the government for redress of grievances,11 and the right against unreasonable searches and
seizures,12 among others.
In Integrated Bar of the Philippines vs. Zamora, et al.,13 the Court held that:
x x x [T]he distinction (between the calling out power, on one hand, and the power to suspend the
privilege of the write of habeas corpus and to declare martial law, on the other hand) places the calling
out power in a different category from the power to declare martial law and the power to suspend the
privilege of the writ of habeas corpus, otherwise, the framers of the Constitution would have simply
lumped together the three powers and provided for their revocation and review without any
qualification. Expressio unius est exclusio alterius.
xxx
The reason for the difference in the treatment of the aforementioned powers highlights the intent to
grant the President the widest leeway and broadest discretion in using the "calling out" power because
it is considered as the lesser and more benign power compared to the power to suspend the privilege
of the writ of habeas corpus and the power to impose martial law, both of which involve the curtailment
and suppression of certain basic civil rights and individual freedoms, and thus necessitating affirmation
by Congress and, in appropriate cases, review by this Court.
On the other hand, if the motive behind the declaration of a "state of rebellion" is to arrest persons
without warrant and detain them without bail and, thus, skirt the Constitutional safeguards for the
citizens' civil liberties, the so-called "state of rebellion" partakes the nature of martial law without
declaring on its face, yet, if it is applied and administered by public authority with an evil eye so as to
practically make it unjust and oppressive, it is within the prohibition of the Constitution.14 In an ironic
sense, a "state of rebellion" declared as a subterfuge to effect warrantless arrest and detention for an
unbailable offense places a heavier burden on the people's civil liberties than the suspension of the
privilege of the writ of habeas corpus the declaration of martial law because in the latter case, built-in
safeguards are automatically set on motion: (1) The period for martial law or suspension is limited to
a period not exceeding sixty day; (2) The President is mandated to submit a report to Congress within
forty-eight hours from the proclamation or suspension; (3) The proclamation or suspension is subject
to review by Congress, which may revoke such proclamation or suspension. If Congress is not in
session, it shall convene in 24 hours without need for call; and (4) The sufficiency of the factual basis
thereof or its extension is subject to review by the Supreme Court in an appropriate proceeding.15
No right is more fundamental than the right to life and liberty. Without these rights, all other individual
rights may not exist. Thus, the very first section in our Constitution's Bill of Rights, Article III, reads:

SECTION 1. No person shall be deprived of life, liberty, or property without due process of law, nor
shall any person be denied the equal protection of the laws.
And to assure the fullest protection of the right, more especially against government impairment,
Section 2 thereof provides:
SEC. 2. The right of the people to be secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and
no search warrant or warrant of arrest shall issue except upon probable cause to be determined
personally by the judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be searched and the persons or
things to be seized.
Indeed, there is nothing in Section 18 which authorizes the President or any person acting under her
direction to make unwarranted arrests. The existence of "lawless violence, invasion or rebellion" only
authorizes the President to call out the "armed forces to prevent or suppress lawless violence, invasion
or rebellion."
Not even the suspension of the privilege of the writ of habeas corpus or the declaration of martial law
authorizes the President to order the arrest of any person. The only significant consequence of the
suspension of the writ of habeas corpus is to divest the courts of the power to issue the writ whereby
the detention of the person is put in issue. It does not by itself authorize the President to order the
arrest of a person. And even then, the Constitution in Section 18, Article VII makes the following
qualifications:

The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion
or offenses inherent in or directly connected with invasion.
During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released.
In the instant case, the President did not suspend the writ of habeas corpus. Nor did she declare
martial law. A declaration of a "state of rebellion," at most, only gives notice to the nation that it exists,
and that the armed forces may be called to prevent or suppress it, as in fact she did. Such declaration
does not justify any deviation from the Constitutional proscription against unreasonable searches and
seizures.
As a general rule, an arrest may be made only upon a warrant issued by a court. In very circumscribed
instances, however, the Rules of Court allow warrantless arrests. Section 5, Rule 113 provides:

SEC. 5. Arrest without warrant; when lawful. – A police officer or a private person may, without a
warrant, arrest a person:
(a) When, in his presence, the person to be arrested has committed, is actually committing, or is
attempting to commit an offense;
(b) When an offense has just been committed and he has probable cause to believe based on personal
knowledge of facts or circumstances that the person to be arrested has committed it; and
xxx
In cases falling under paragraphs (a) and (b) above, the person arrested without a warrant shall be
forthwith delivered to the nearest police station or jail and shall be proceeded against in accordance
with section 7 of Rule 112.
It must be noted that the above are exceptions to the constitutional norm enshrined in the Bill of Rights
that a person may only be arrested on the strength of a warrant of arrest issued by a "judge" after
determining "personally" the existence of "probable cause" after examination under oath or affirmation
of the complainant and the witnesses he may produce. Its requirements should, therefore, be
scrupulously met:
The right of a person to be secure against any unreasonable seizure of his body and any deprivation
of his liberty is a most basic and fundamental one. The statute or rule which allows exceptions to the
requirement of warrants of arrests is strictly construed. Any exception must clearly fall within the
situations when securing a warrant would be absurd or is manifestly unnecessary as provided by the
Rule. We cannot liberally construe the rule on arrests without warrant or extend its application beyond
the cases specifically provided by law. To do so would infringe upon personal liberty and set back a
basic right so often violated and so deserving of full protection.16
A warrantless arrest may be justified only if the police officer had facts and circumstances before him
which, had they been before a judge, would constitute adequate basis for a finding of probable cause
of the commission of an offense and that the person arrested is probably guilty of committing the
offense. That is why the Rules of Criminal Procedure require that when arrested, the person "arrested
has committed, is actually committing, or is attempting to commit an offense" in the presence of the
arresting officer. Or if it be a case of an offense which had "just been committed," that the police officer
making the arrest "has personal knowledge of facts or circumstances that the person to be arrested
has committed it."
Petitioners were arrested or sought to be arrested without warrant for acts of rebellion ostensibly under
Section 5 of Rule 113. Respondents' theory is based on Umil vs. Ramos,17 where this Court held:
The crimes of rebellion, subversion, conspiracy or proposal to commit such crimes, and crimes or
offenses committed in furtherance thereof or in connection therewith constitute direct assault against
the State and are in the nature of continuing crimes.18

Following this theory, it is argued that under Section 5(a), a person who "has committed, is actually
committing, or is attempting to commit" rebellion and may be arrested without a warrant at any time
so long as the rebellion persists.
Reliance on Umil is misplaced. The warrantless arrests therein, although effected a day or days after
the commission of the violent acts of petitioners therein, were upheld by the Court because at the time
of their respective arrests, they were members of organizations such as the Communist Party of the
Philippines, the New Peoples Army and the National United Front Commission, then outlawed groups
under the Anti-Subversion Act. Their mere membership in said illegal organizations amounted to
committing the offense of subversion19 which justified their arrests without warrants.
In contrast, it has not been alleged that the persons to be arrested for their alleged participation in the
"rebellion" on May 1, 2001 are members of an outlawed organization intending to overthrow the
government. Therefore, to justify a warrantless arrest under Section 5(a), there must be a showing
that the persons arrested or to be arrested has committed, is actually committing or is attempting to
commit the offense of rebellion.20 In other words, there must be an overt act constitutive of rebellion
taking place in the presence of the arresting officer. In United States vs. Samonte,21 the term" in his
[the arresting officer's] presence" was defined thus:
An offense is said to be committed in the presence or within the view of an arresting officer or private
citizen when such officer or person sees the offense, even though at a distance, or hears the
disturbance created thereby and proceeds at once to the scene thereof; or the offense is continuing,
or has not been consummated, at the time the arrest is made.22
This requirement was not complied with particularly in the arrest of Senator Enrile. In the Court's
Resolution of May 5, 2001 in the petition for habeas corpus filed by Senator Enrile, the Court noted
that the sworn statements of the policemen who purportedly arrested him were hearsay.23 Senator
Enrile was arrested two (2) days after he delivered allegedly seditious speeches. Consequently, his
arrest without warrant cannot be justified under Section 5(b) which states that an arrest without a
warrant is lawful when made after an offense has just been committed and the arresting officer or
private person has probable cause to believe based on personal knowledge of facts and
circumstances that the person arrested has committed the offense.
At this point, it must be stressed that apart from being inapplicable to the cases at bar, Umil is not
without any strong dissents. It merely re-affirmed Garcia-Padilla vs. Enrile,24 a case decided during
the Marcos martial law regime.25 It cannot apply when the country is supposed to be under the regime
of freedom and democracy. The separate opinions of the following Justices in the motion for
reconsideration of said case26 are apropos:
FERNAN C.J., concurring and dissenting:
Secondly, warrantless arrests may not be allowed if the arresting officers are not sure what particular
provision of law had been violated by the person arrested. True it is that law enforcement agents and
even prosecutors are not all adept at the law. However, erroneous perception, not to mention
ineptitude among their ranks, especially if it would result in the violation of any right of a person, may
not be tolerated. That the arrested person has the "right to insist during the pre-trial or trial on the
merits" (Resolution, p. 18) that he was exercising a right which the arresting officer considered as
contrary to law, is beside the point. No person should be subjected to the ordeal of a trial just because
the law enforcers wrongly perceived his action.27 (Underscoring supplied)
GUTIERREZ, JR., J., concurring and dissenting opinion

Insofar as G.R. NO. 81567 is concerned, I joint the other dissenting Justices in their observations
regarding "continuing offenses." To base warrantless arrests on the doctrine of continuing offense is
to give a license for the illegal detention of persons on pure suspicion. Rebellion, insurrection, or
sedition are political offenses where the line between overt acts and simple advocacy or adherence to
a belief is extremely thin. If a court has convicted an accused of rebellion and he is found roaming
around, he may be arrested. But until a person is proved guilty, I fail to see how anybody can jump to
a personal conclusion that the suspect is indeed a rebel and must be picked up on sight whenever
seen. The grant of authority in the majority opinion is too broad. If warrantless searches are to be
validated, it should be Congress and not this Court which should draw strict and narrow standards.
Otherwise, the non-rebels who are critical, noisy, or obnoxious will be indiscriminately lumped up with
those actually taking up arms against the Government.

The belief of law enforcement authorities, no matter how well-grounded on past events, that the
petitioner would probably shoot other policemen whom he may meet does not validate warrantless
arrests. I cannot understand why the authorities preferred to bide their time, await the petitioner's
surfacing from underground, and ounce on him with no legal authority instead of securing warrants of
arrest for his apprehension.28 (Underscoring supplied)
CRUZ, J., concurring and dissenting:

I submit that the affirmation by this Court of the Garcia-Padilla decision to justify the illegal arrests
made in the cases before us is a step back to that shameful past when individual rights were wantonly
and systematically violated by the Marcos dictatorship. It seem some of us have short memories of
that repressive regime, but I for one am not one to forget so soon. As the ultimate defender of the
Constitution, this Court should not gloss over the abuses of those who, out of mistaken zeal, would
violate individual liberty in the dubious name of national security. Whatever their ideology and even if
it be hostile to ours, the petitioners are entitled to the protection of the Bill of Rights, no more and no
less than any other person in this country. That is what democracy is all about.29 (Underscoring
supplied)
FELICIANO, J., concurring and dissenting:

12. My final submission, is that, the doctrine of "continuing crimes," which has its own legitimate
function to serve in our criminal law jurisprudence, cannot be invoked for weakening and dissolving
the constitutional guarantee against warrantless arrest. Where no overt acts comprising all or some of
the elements of the offense charged are shown to have been committed by the person arrested without
warrant, the "continuing crime" doctrine should not be used to dress up the pretense that a crime,
begun or committed elsewhere, continued to be committed by the person arrested in the presence of
the arresting officer. The capacity for mischief of such a utilization of the "continuing crimes" doctrine,
is infinitely increased where the crime charged does not consist of unambiguous criminal acts with a
definite beginning and end in time and space (such as the killing or wounding of a person or kidnapping
and illegal detention or arson) but rather or such problematic offenses as membership in or affiliation
with or becoming a member of, a subversive association or organization. For in such cases, the overt
constitutive acts may be morally neutral in themselves, and the unlawfulness of the acts a function of
the aims or objectives of the organization involved. Note, for instance, the following acts which
constitute prima facie evidence of "membership in any subversive association:"

a) Allowing himself to be listed as a member in any book or any of the lists, records, correspondence,
or any other document of the organization;
b) Subjecting himself to the discipline of such or association or organization in any form whatsoever;

c) Giving financial contribution to such association or organization in dues, assessments, loans or in

any other forms;
xxx
f) Conferring with officers or other members of such association or organization in furtherance of any
plan or enterprise thereof;
xxx
g) Preparing documents, pamphlets, leaflets, books, or any other type of publication to promote the
objectives and purposes of such association or organization;
xxx
k) Participating in any way in the activities, planning action, objectives, or purposes of such association
or organization.
It may well be, as the majority implies, that the constitutional rule against warrantless arrests and
seizures makes the law enforcement work of police agencies more difficult to carry out. It is not our
Court's function, however, and the Bill of Rights was not designed, to make life easy for police forces
but rather to protect the liberties of private individuals. Our police forces must simply learn to live with
the requirements of the Bill of Rights, to enforce the law by modalities which themselves comply with
the fundamental law. Otherwise they are very likely to destroy, whether through sheer ineptness or
excess of zeal, the very freedoms which make our policy worth protecting and saving.30 (Underscoring
supplied)
It is observed that a sufficient period has lapsed between the fateful day of May 1, 2001 up to the
present. If respondents have ample evidence against petitioners, then they should forthwith file the
necessary criminal complaints in order that the regular procedure can be followed and the warrants of
arrest issued by the courts in the normal course. When practicable, resort to the warrant process is
always to be preferred because "it interposes an orderly procedure involving 'judicial impartiality'
whereby a neutral and detached magistrate can make informed and deliberate determinations on the
issue of probable cause."31
The neutrality, detachment and independence that judges are supposed to possess is precisely the
reason the framers of the 1987 Constitution have reposed upon them alone the power to issue
warrants of arrest. To vest the same to a branch of government, which is also charged with
prosecutorial powers, would make such branch the accused's adversary and accuser, his judge and
jury.32

A declaration of a state of rebellion does not relieve the State of its burden of proving probable cause.
The declaration does not constitute a substitute for proof. It does not in any way bind the courts, which
must still judge for itself the existence of probable cause. Under Section 18, Article VII, the
determination of the existence of a state of rebellion for purposes of proclaiming martial law or the
suspension of the privilege of the writ of habeas corpus rests for which the President is granted ample,
though not absolute, discretion. Under Section 2, Article III, the determination of probable cause is a
purely legal question of which courts are the final arbiters.
Justice Secretary Hernando Perez is reported to have announced that the lifting of the "state of
rebellion" on May 7, 2001 does not stop the police from making warrantless arrests.33 If this is so, the
pernicious effects of the declaration on the people's civil liberties have not abated despite the lifting
thereof. No one exactly knows who are in the list or who prepared the list of those to be arrested for
alleged complicity in the "continuing" crime of "rebellion" defined as such by executive fiat. The list of
the perceived leaders, financiers and supporters of the "rebellion" to be arrested and incarcerated
could expand depending on the appreciation of the police. The coverage and duration of effectivity of
the orders of arrest are thus so open-ended and limitless as to place in constant and continuing peril
the people's Bill of Rights. It is of no small significance that four of he petitioners are opposition
candidates for the Senate. Their campaign activities have been to a large extent immobilized. If the
arrests and orders of arrest against them are illegal, then their Constitutional right to seek public office,
as well as the right of he people to choose their officials, is violated.
In view of the transcendental importance and urgency of the issues raised in these cases affecting as
they do the basic liberties of the citizens enshrined in our Constitution, it behooves us to rule thereon
now, instead of relegating the cases to trial courts which unavoidably may come up with conflicting
dispositions, the same to reach this Court inevitably for final ruling. As we aptly pronounced in Salonga
vs. Cruz Paño:34
The Court also has the duty to formulate guiding and controlling constitutional principles, precepts,
doctrines, or rules. It has the symbolic function of educating bench and bar on the extent of protection
given by constitutional guarantees.
Petitioners look up in urgent supplication to the Court, considered the last bulwark of democracy, for
relief. If we do not act promptly, justly and fearlessly, to whom will they turn to?
WHEREFORE, I vote as follows:
(1) Give DUE COURSE to and GRANT the petitions;

(2) Declare as NULL and VOID the orders of arrest issued against petitioners;
(3) Issue a WRIT OF INJUNCTION enjoining respondents, their agents and all other persons acting
for and in their behalf from effecting warrantless arrests against petitioners and all other persons
similarly situated on the basis of Proclamation No. 38 and General Order No. 1 of the President.
SO ORDERED.

Footnote
1 Dissention Opinion, J. Jackson, in Brinegar vs. United States, 338 U.S. 2084 (1949).
2 G.R. No. 147780, for Prohibition, Injunction, Mandamus and Habeas Corpus.
3 G.R. No. 147810, for Certiorari and Prohibition.
4 G.R. No. 147785, for Habeas Corpus.
5 G.R. No. 147787, for Habeas Corpus.
6 G.R. No. 147781, for Mandamus.
7 G.R. No. 147818, for Injunction.
8 G.R. No. 147819, for Certiorari and Mandamus.
9 Integrated Bar of the Philippines vs. Zamora, et al. G.R. No. 141284, August 15, 2000.
10 Constitution, Article III, Section 1.
11 Constitution, Article III, Section 4.
12 Constitution, Article III, Section 2.
13 G.R. No. 141284, supra.
14 See Yick Wo vs. Hopkins, 118 U.S. 356.
15 Id., at Article VII, Section 18.
16 People vs. Burgos, 144 SCRA 1, 14 (1986).
17 187 SCRA 311 (1990).
18 Id., at 318.
19 187 SCRA 311, 318, 321, 323-24. (1990).
20Under Article 134 of the Revised Penal Code, these acts would involve rising publicly and taking up
arms against the Government: (1) to remove from the allegiance of the Government or its laws, the
entire, or a portion of Philippine territory, or any body of land, naval or other armed forces, or (2) to
deprive the Chief Executive or the Legislature, wholly or partially, of any of their powers or
prerogatives.
21 16 Phil 516 (1910).
22 Id., at 519.
23 G.R. No. 147785.
24 121 SCRA 472 (1983).
25See Note 396 in Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary,
p. 180.
26
Umil vs. Ramos, 202 SCRA 251 (1991).
27 Id., at 274.
28 Id., at 279.
29 Id., at 284.
30 Id., at 293-295.
31LAFAVE, I SEARCH AND SEIZURE: A TREATISE ON THE FOURTH AMENDMENT (1987), pp.
548-549. Citations omitted.
32 Presidential Anti-Dollar Salting Task Force vs. CA, 171 SCRA 348 (1989).
33Manila Bulletin issue of May 8, 2001 under the heading "Warrantless arrest continue" by Rey G.
Panaligan:
Justice Secretary Hernando Perez said yesterday the lifting of the state of rebellion in Metro Manila
does not ban the police from making warrantless arrest of suspected leaders of the failed May 1
Malacañang siege.

In a press briefing, Perez said, "we can make warrantless arrest because that is provided for in the
Rules of Court," citing Rule 113.
34 134 SCRA 438 (1985).
G.R. No. 147780 May 10, 2001
PANFILO LACSON, MICHAEL RAY B. AQUINO and CESAR O. MANCAO, petitioners,
vs.
SECRETARY HERNANDO PEREZ, P/DIRECTOR LEANDRO MENDOZA, and P/SR. SUPT.
REYNALDO BERROYA, respondents.
----------------------------------------
G.R. No. 147781 May 10, 2001

MIRIAM DEFENSOR-SANTIAGO, petitioner,

vs.
ANGELO REYES, Secretary of National Defense, ET AL., respondents.
----------------------------------------
G.R. No. 147799 May 10, 2001
RONALDO A. LUMBAO, petitioner,
vs.
SECRETARY HERNANDO PEREZ, GENERAL DIOMEDIO VILLANUEVA, P/DIRECTOR LEANDRO
MENDOZA, and P/SR. SUPT. REYNALDO BERROYA, respondents.

----------------------------------------
G.R. No. 147810 May 10, 2001
THE LABAN NG DEMOKRATIKONG PILIPINO, petitioner,
vs.
THE DEPARTMENT OF JUSTICE, SECRETARY HERNANDO PEREZ, THE ARMED FORCES OF
THE PHILIPPINES, GENERAL DIOMEDIO VILLANUEVA, THE PHILIPPINE NATIONAL POLICE,
and DIRECTOR GENERAL LEANDRO MENDOZA, respondents.
DISSENTING OPINION
SANDOVAL-GUTIERREZ, J.:
The exercise of certain powers by the President in an atmosphere of civil unrest may sometimes raise
constitutional issues. If such powers are used arbitrarily and capriciously, they may degenerate into
the worst form of despotism.

It is on this premise that I express my dissent.

The chain of events which led to the present constitutional crisis are as follows:
On March 2, 2001, the Supreme Court rendered the landmark decision that would bar further questions
on the legitimacy of Gloria Macapagal-Arroyo's presidency.1 In a unanimous decision, the Court
declared that Joseph Ejercito Estrada had effectively resigned his post and that Macapagal-Arroyo is
the legitimate President of the Philippines. Estrada was stripped of all his powers and presidential
immunity from suit.

Knowing that a warrant of arrest may at any time be issued against Estrada, his loyalists rushed to his
residence in Polk Street, North Greenhills Subdivision, San Juan, Metro Manila. They conducted vigil
in the vicinity swearing that no one can take away their "president."
Then the dreadful day for the Estrada loyalists came.
On April 25, 2001, the Third Division of the Sandiganbayan issued warrants of arrest against Estrada,
his son Jinggoy, Charlie "Atong" Ang, Edward Serapio, Yolanda Ricaforte, Alma Alfaro, Eleuterio Tan
and Delia Rajas.2 Emotions ran high as an estimated 10,000 Estrada loyalists, ranging from tattooed
teenagers of Tondo to well-heeled Chinese, gathered in Estrada's neighborhood.3 Supporters turned
hysterical. Newspapers captured pictures of raging men and wailing women.4 When policemen came,
riots erupted. Police had to use their batons as well as water hoses to control the rock-throwing Estrada
loyalists.5
It took the authorities about four hours to implement the warrant of arrest. At about 3:30 o'clock in the
afternoon of the same day, Philippine National Police (PNP) Chief, Director General Leandro R.
Mendoza, with the aid of PNP's Special Action Force and reinforcements from the Philippine Army
and Marines, implemented the warrant of arrest against Estrada.6
Like a common criminal, Estrada was fingerprinted and had his mug shots taken at the detention
center of the former Presidential Anti-Organized Task Force at Camp Crame. The shabby treatment,
caught on live TV cameras nationwide, had sparked off a wave of protest all over the country. Even
international news agencies like CNN and BBC were appalled over the manner of Estrada's arrest
calling it "overkill." In a taped message aired over radio and television, Estrada defended himself and
said, "I followed the rule of law to the letter. I asked our people now to tell the powers to respect our
constitution and the rule of law."

Being loyal to the end, the supporters of Estrada followed him to Camp Crame. About 3,000 of them
massed up in front of the camp. They were shouting "Edsa Three! Edsa Three! They vowed not to
leave the place until Estrada is released. When asked how long they planned to stay, the protesters
said, "Kahit isang buwan, kahit isang taon.7

At about 6:00 o' clock in the afternoon, also of the same day, the PNP's anti-riot squads dispersed
them. Thus, they proceeded to the Edsa Shrine in Mandaluyong City where they joined forces with
hundreds more who came from North Greenhills.8 Hordes of Estrada loyalists began gathering at the
historic shrine.

On April 27, 2001, the crowd at Edsa begun to swell in great magnitude. Estrada loyalists from various
sectors, most of them obviously belonging to the "masses," brought with them placards and streamers
denouncing the manner of arrest done to the former president.9 In the afternoon, buses loaded with
loyalists from the nearby provinces arrived at the Edsa Shrine. One of their leaders said that the
Estrada supporters will stay at Edsa Shrine until the former president gets justice from the present
administration.10
An estimated 1,500 PNP personnel from the different parts of the metropolis were deployed to secure
the area.11 On April 28, 2001, the PNP and the Armed Forces declared a "nationwide red alert." 12
Counter-intelligence agents checked on possible defectors from the military top officials. Several
senators were linked to an alleged junta plot.
During the rally, several Puwersa Ng Masa candidates delivered speeches before the crowd. Among
those who showed up at the rally were Senators Miriam Defensor-Santiago, Gregorio Honasan, Juan
Ponce Enrile, Edgardo Angara, Vicente Sotto and former PNP Director General Panfilo Lacson and
former Ambassador Ernesto Maceda.13
On April 30, 2001, the government started to prepare its forces. A 2,000-strong military force backed
up by helicopter gunships, Scorpion tanks and armored combat vehicles stood ready to counter any
attempt by Estrada loyalists to mount a coup. And to show that it meant business, the task force parked
two MG-520 attack helicopters armed to the teeth with rockets on the parade ground at Camp
Aguinaldo, Quezon City. Also deployed were two armored personnel carriers and troops in camouflage
uniforms.14 Over 2,500 soldiers from the army, navy, and air force were formed into Task Force Libra
to quell the indignant Estrada loyalists.15
On May 1, 2001, at about 1:30 o'clock in the morning, the huge crowd at Edsa started their march to
Malacañang.16 Along the way, they overran the barricades set up by the members of the PNP Crowd
Dispersal Control Management.17
Shortly past 5:00 o'clock in the morning of the same day, the marchers were at the gates of
Malacañang chanting, dancing, singing and waving flags.18
At around 10:00 o'clock in the morning, the police, with the assistance of combat-ready soldiers,
conducted dispersal operations. Some members of the dispersal team were unceasingly firing their
high-powered firearms in the air, while the police, armed with truncheons and shields, were slowly
pushing the protesters away from the gates of Malacañang. Television footages showed protesters
hurling stones and rocks on the advancing policemen, shouting invectives against them and attacking
them with clubs. They burned police cars, a motorcycle, three pick-ups owned by a television station,
construction equipment and a traffic police outpost along Mendiola Street.19 They also attacked Red
Cross vans, destroyed traffic lights, and vandalized standing structures. Policemen were seen
clubbing protesters, hurling back stones, throwing teargas under the fierce midday sun, and firing guns
towards the sky. National Security Adviser Roilo Golez said the Street had to be bleared of rioters at
all costs because "this is like an arrow, a dagger going all the way to (Malacañang) Gate 7."20
Before noontime of that same day, the Estrada loyalists were driven away.

The violent street clashes prompted President Macapagal-Arroyo to place Metro Manila under a "state
of rebellion."
Presidential Spokesperson Rigoberto Tiglao told reporters, "We are in a state of rebellion. This is not
an ordinary demonstration."21 After the declaration, there were threats of arrests against those
suspected of instigating the march to Malacañang.
At about 3:30 o'clock in the afternoon, Senator Juan Ponce Enrile was arrested in his house in
Dasmariñas Village, Makati City by a group led by Reynaldo Berroya, Chief of the Philippine National
Police Intelligence Group.22 Thereafter, Berroya and his men proceeded to hunt re-electionist Senator
Gregorio Honasan, former PNP Chief Panfilo Lacson, former Ambassador Ernesto Maceda, Brig. Gen.
Jake Malajakan, Senior Superintendents Michael Ray Aquino and Cesar Mancao II, Ronald Lumbao
and Cesar Tanega of the People's Movement Against Poverty (PMAP).23 Justice Secretary Hernando
Perez said that he was "studying" the possibility of placing Senator Miriam Defensor – Santiago "under
the Witness protection program."
Director Victor Batac,24 former Chief of the PNP Directorate for Police Community Relations, and
Senior Superintendent Diosdado Valeroso, of the Philippine Center for Transnational Crime,
surrendered to Berroya. Both denied having plotted the siege.

On May 2, 2001, former Ambassador Ernesto Maceda was arrested.

The above scenario presents three crucial queries: First, is President Macapagal-Arroyo's declaration
of a "state of rebellion" constitutional? Second, was the implementation of the warrantless arrests on
the basis of the declaration of a "state of rebellion" constitutional? And third, did the rallyists commit
rebellion at the vicinity of Malacañang Palace on May 1, 2001?
The first and second queries involve constitutional issues, hence, the basic yardstick is the 1987
Constitution of the Philippines. The third query requires a factual analysis of the events which
culminated in the declaration of a state of rebellion, hence, an examination of Article 134 of the Revised
Penal Code is in order.
On May 7, 2001, President Macapagal-Arroyo issued Proclamation No. 39, "DECLARING THAT THE
STATE OF REBELLION IN THE NATIONAL CAPITAL REGION HAS CEASED TO EXIST", which in
effect, has lifted the previous Proclamation No. 38.
I beg to disagree with the majority opinion in ruling that the instant petitions have been rendered moot
and academic with the lifting by the President of the declaration of a "state of rebellion".
I believe that such lifting should not render moot and academic the very serious and unprecedented
constitutional issues at hand, considering their grave implications involving the basic human rights and
civil liberties of our people. A resolution of these issues becomes all the more necessary since, as
reported in the papers, there are saturation drives (sonas) being conducted by the police wherein
individuals in Metro Manila are picked up without warrants of arrest.
Moreover, the acts sought to be declared illegal and unconstitutional are capable of being repeated
by the respondents. In Salva v. Makalintat (G.R. No. 132603, Sept. 18, 2000), this Court held that
"courts will decide a question otherwise moot and academic if it is 'capable of repetition, yet evading
review' …"
I & II – President Macapagal-Arroyo's declaration of a "state of rebellion" and the
implementation of the warrantless arrests premised on the said declaration are
unconstitutional.
Nowhere in the Constitution can be found a provision which grants upon the executive the power to
declare a "state of rebellion," much more, to exercise on the basis of such declaration the prerogatives
which a president may validly do under a state of martial law. President-Macapagal-Arroyo committed
a constitutional short cut. She disregarded the clear provisions of the Constitution which provide:
"Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines and
whenever it becomes necessary, he may call out such armed forces to prevent or suppress lawless
violence, invasion or rebellion. In case of invasion or rebellion, when the public safety requires it, he
may, for a period not exceeding sixty days, suspend the privilege of the writ of habeas corpus or place
the Philippines or any part thereof under martial law. Within forty-eight hours from the proclamation of
martial law or the suspension of the privilege of the writ of habeas corpus, the President shall submit
a report in person or in writing to the Congress. The Congress, voting jointly, by a vote of at least a
majority of all its Members in regular or special session, may revoke such proclamation or suspension,
which revocation shall not be set aside by the President. Upon the initiative of the President, the
Congress may, in the same manner, extend such proclamation or suspension for a period to be
determined by the Congress, if the invasion or rebellion shall persist and public safety requires it.
The Congress, if not in session, shall within twenty-four hours following such proclamation or
suspension, convene in accordance with its rules without need of a call.
The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of
the factual bases of the proclamation of martial law or the suspension of the privilege of the writ or the
extension thereof, and must promulgate its decision thereon within thirty days from its filing.
A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning
of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction on military
courts and agencies over civilians where civil courts are able to function, nor automatically suspend
the privilege of the writ.
The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion
or offenses inherent in or directly connected with invasion.

During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released."25
Obviously, the power of the President in cases when she assumed the existence of rebellion is
properly laid down by the Constitution. I see no reason or justification for the President's deviation
from the concise and plain provisions. To accept the theory that the President could disregard the
applicable statutes, particularly that which concerns arrests, searches and seizures, on the mere
declaration of a "state of rebellion" is in effect to place the Philippines under martial law without
a declaration of the executive to that effect and without observing the proper procedure. This
should not be countenanced. In a society which adheres to the rule of law, resort to extra-constitutional
measures is unnecessary where the law has provided everything for any emergency or contingency.
For even if it may be proven beneficial for a time, the precedent it sets is pernicious as the law may,
in a little while, be disregarded again on the same pretext but for evil purposes. Even in time of
emergency, government action may vary in breath and intensity from more normal times, yet
it need not be less constitutional.26
My fear is rooted in history. Our nation had seen the rise of a dictator into power. As a matter of fact,
the changes made by the 1986 Constitutional Commission on the martial law text of the Constitution
were to a large extent a reaction against the direction which the Supreme Court took during the regime
of President Marcos.27 Now, if this Court would take a liberal view, and consider that the declaration
of a "state of rebellion" carries with it the prerogatives given to the President during a "state of martial
law," then, I say, the Court is traversing a very dangerous path. It will open the way to those who, in
the end, would turn our democracy into a totalitarian rule. History must not be allowed to repeat itself.
Any act which gears towards possible dictatorship must be severed at its inception.
The implementation of warrantless arrests premised on the declaration of a "state of rebellion" is
unconstitutional and contrary to existing laws. The Constitution provides that "the right of the people
to be secure in their persons, houses, papers and effects against unreasonable searches and seizure
of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of arrest
shall issue except upon probable cause to be determined personally by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce, and particularly
describing the place to be searched and the persons or things to be seized."28 If a state of martial law
"does not suspend the operation of the Constitution, nor supplant the functioning of the civil courts or
legislative assemblies, nor authorize the conferment of jurisdiction on military courts and agencies
over civilians, where civil courts are able to function, nor automatically suspend the privilege of the
writ,"28(a) then it is with more reason, that a mere declaration of a state of rebellion could not bring about
the suspension of the operation of the Constitution or of the writ of habeas corpus.
Neither can we find the implementation of the warrantless arrests justified under the Revised Rules
on Criminal Procedure. Pertinent is Section 5, Rule 113, thus:
"Sec. 5. Arrest without warrant, when lawful. – A peace officer or a private person may, without a
warrant, arrest a person:
(a) When, in his presence, the person to be arrested has committed, is actually committing, or is
attempting to commit an offense.
(b) When an offense has just been committed and he has probable cause to believe based on personal
knowledge of facts and circumstances that the person to be arrested has committed it; and
x x x."
Petitioners cannot be considered "to have committed, is actually committing, or is attempting to commit
an offense" at the time they were hunted by Berroya for the implementation of the warrantless arrests.
None of them participated in the riot which took place in the vicinity of the Malacañang Palace. Some
of them were on their respective houses performing innocent acts such as watching television, resting
etc. The sure fact however is that they were not in the presence of Berroya. Clearly, he did not see
whether they had committed, were committing or were attempting to commit the crime of rebellion. But
of course, I cannot lose sight of the legal implication of President Macapagal-Arroyo's declaration of a
"state of rebellion." Rebellion is a continuing offense and a suspected insurgent or rebel may be
arrested anytime as he is considered to be committing the crime. Nevertheless, assuming ex gratia
argumenti that the declaration of a state of rebellion is constitutional, it is imperative that the said
declaration be reconsidered. In view of the changing times, the dissenting opinion of the noted jurist,
Justice Isagani Cruz, in Umil v. Ramos,29 quoted below must be given a second look.

"I dissent insofar as the ponencia affirms the ruling in Garcia-Padilla vs. Enrile that subversion is a
continuing offense, to justify the arrest without warrant of any person at any time as long as the
authorities say he has been placed under surveillance on suspicion of the offense. That is a dangerous
doctrine. A person may be arrested when he is doing the most innocent acts, as when he is only
washing his hands, or taking his supper, or even when he is sleeping, on the ground that he is
committing the 'continuing' offense of subversion. Libertarians were appalled when that doctrine was
imposed during the Marcos regime. I am alarmed that even now this new Court is willing to sustain it.
I strongly urge my colleagues to discard it altogether as one of the disgraceful vestiges of the past
dictatorship and uphold the rule guaranteeing the right of the people against unreasonable searches
and seizures. We can do no less if we are really to reject the past oppression and commit ourselves
to the true freedom. Even if it be argued that the military should be given every support in our fight
against subversion, I maintain that fight must be waged honorably, in accordance with the Bill of
Rights. I do not believe that in fighting the enemy we must adopt the ways of the enemy, which are
precisely what we are fighting against. I submit that our more important motivation should be what are
we fighting for."
I need not belabor that at the time some of the suspected instigators were arrested, (the others are
still at-large), a long interval of time already passed and hence, it cannot be legally said that they had
just committed an offense. Neither can it be said that Berroya or any of his men had "personal
knowledge of facts or circumstances that the persons to be arrested have committed a crime." That
would be far from reality.

III – The acts of the rallyists at the vicinity of Malacañang Palace on May 1, 2001 do not
constitute rebellion.

Article 134 of the Revised Penal Code reads:

"ART. 134. Rebellion or insurrection – How committed. – The crime of rebellion or insurrection is
committed by rising publicly and taking arms against the Government for the purpose of removing from
the allegiance to said Government or its laws, the territory of the Republic of the Philippines or any
part thereof, of any body of land, naval or other armed forces, or depriving the Chief Executive or the
Legislature, wholly or partially, of any of their powers or prerogatives." (As amended by RA No. 6968,
O.G. 52, p. 9864, 1990)
From the foregoing provisions, the elements o the crime of rebellion may be deduced, thus: first, that
there be (a) public uprising and (b) taking arms against the government; second, that the purpose
of the uprising or movement is either (a) to remove from the allegiance to said government or its laws
(1) the territory of the Philippines or any part thereof; or (2) anybody of land, naval or other armed
forces; or (b) to deprive the Chief Executive or Congress, wholly or partially, of any of their powers or
prerogatives.30
Looking at the events on a magnified scale, I am convinced that the two elements of the crime of
rebellion are lacking.
First, there was no "taking of arms" against the government. To my mind, "taking arms" connotes the
multitude's deliberate and conscious resort to arms or weapons for the purpose of aiding them in
accomplishing any of the purposes of rebellion. Admittedly, the Estrada loyalists pelted the policemen
with rocks and stones and attacked them with sticks and clubs, but such was merely a result of the
heightening tension between opposite camps during the period of dispersal. The stones, rocks, sticks,
clubs and other improvised weapons were not deliberately resorted to by the Estrada loyalists to
further any of the purposes of rebellion. They availed of them, at the precise moment of dispersal (this
explains why their weapons were those which could be easily gathered on the street) and only for the
purpose of stopping the policemen from dispersing them. In this age of modernity, one who intends to
overthrow the government will not only settle for stones, woods, rocks, sticks or clubs as means to
disable the government. It will be extremely pathetic and the result will only be in vain. Unlike a true
rebellion which is organized, what happened at the vicinity of Malacañang was merely a riot, a mob
violence, or a tumultuous uprising. At this juncture, it bears stressing that the crime of rebellion is a
vast movement of men and a complex net of intrigues and plots.31 It must be distinguished from riot
and offenses connected with mob violence. In rebellion/insurrection, there is an organized and armed
uprising against authority.32
Second, the purpose of the Estrada loyalists was neither (a) to remove from the allegiance to the
government or its laws (1) the territory of the Philippines or any part thereof; or (2) any part of land,
naval or other armed forces; nor (b) to deprive the Chief Executive or Congress, wholly or partially, of
any of their powers or prerogatives. I looked at the chronology of events, and one thing surfaced – the
Estrada loyalists mainly demanded that their beloved "president" should not be incarcerated. The
crowd at Edsa swelled in great magnitude on April 25, 2001, the day Estrada was arrested. In fact,
when they followed Erap at Camp Crame, they were shouting "Edsa! Edsa! And they vowed not to
leave until Estrada is released."33
One must not be swayed by the theory of respondents that the purpose of those people who gathered
in Edsa and marched to Malacañang was to commit rebellion. For sure, there were a thousand and
one reasons why they proceeded to Edsa. In determining their purpose, one must trace the roots, -
what prompted them to go to Edsa? They were the Estrada loyalists who wanted him to be freed. If
indeed there were minorities who advocated another cause, the same should not be considered as
the prevailing one in the determination of what crime was committed. Facts should not be stretched
just to build a case of rebellion. This runs counter to the principle of due process.
As a final word, I subscribe to the principle that the rule of law implies the precept that similar cases
be treated similarly. Men can not regulate their actions by means of rule if this precept is not followed.
Edsa I, Edsa II and Edsa III are all public uprisings. Statements urging people to overthrow the
government were uttered in all these occasions. Injuries were sustained, policemen were attacked,
standing structures were vandalized… in all these scenarios, one cannot be said to be extremely away
from the other. The only difference is that the first two succeeded, while the last failed. This should not
result to an unbridled or unlimited exercise of power by the duly constituted authorities. It is during
these trying times that fealty to the Constitution is strongly demanded from all, especially the
authorities concerned.
WHEREFORE, I vote to give DUE COURSE to the petitions and GRANT the same and to enjoin the
respondents from arresting the petitioners in G.R. Nos. 147780, 147781, and 147799 without the
corresponding warrants.
SO ORDERED.
 EN BANC

G.R. No. 159085 February 3, 2004

SANLAKAS, represented by REP. J.V. Bautista, and PARTIDO NG MANGGAGAWA,
represented by REP. RENATO MAGTUBO petitioners,
vs
EXECUTIVE SECRETARY SECRETARY ANGELO REYES, GENERAL NARCISO ABAYA, DIR.
GEN. HERMOGENES EBDANE, respondents.
x------------------------x

G.R. No. 159103 February 3, 2004

SOCIAL JUSTICE SOCIETY (SJS) OFFICERS/MEMBERS namely, SAMSON S. ALCANTARA,
ED VINCENT S. ALBANO, RENE B. GOROSPE, EDWIN R. SANDOVAL and RODOLFO D.
MAPILE, petitioners,
vs
HON. EXECUTIVE SECRETARY ALBERTO G. ROMULO, HON. SECRETARY OF JUSTICE
SIMEON DATUMANONG, HON. SECRETARY OF NATIONAL DEFENSE ANGELO REYES, and
HON. SECRETARY JOSE LINA, JR., respondents.

x------------------------x
G.R. No. 159185 February 3, 2004
REP. ROLEX T. SUPLICO, REP. CARLOS M. PADILLA, REP. CELSO L. LOBREGAT, REP.
HUSSIN U. AMIN, REP. ABRAHAM KAHLIL B. MITRA, REP. EMMYLOU J. TALINO-SANTOS,
and REP. GEORGILU R. YUMUL-HERMIDA, petitioners,
vs
PRESIDENT GLORIA MACAPAGAL-ARROYO; and EXECUTIVE SECRETARY ALBERTO G.
ROMULO, respondents.
x------------------------x

G.R. No. 159196 February 3, 2004

AQUILINO Q. PIMENTEL, JR. as a Member of the Senate, petitioner,
vs
SECRETARY ALBERTO ROMULO, AS EXECUTIVE SECRETARY; SECRETARY ANGELO
REYES, AS SECRETARY OF NATIONAL DEFENSE; GENERAL NARCISO ABAYA, AS CHIEF OF
STAFF OF THE ARMED FORCES; SECRETARY JOSE LINA, et al., respondents.
DECISION
TINGA, J.:
They came in the middle of the night. Armed with high-powered ammunitions and explosives, some
three hundred junior officers and enlisted men of the Armed Forces of the Philippines (AFP) stormed
into the Oakwood Premiere apartments in Makati City in the wee hours of July 27, 2003. Bewailing the
corruption in the AFP, the soldiers demanded, among other things, the resignation of the President,
the Secretary of Defense and the Chief of the Philippine National Police (PNP).1

In the wake of the Oakwood occupation, the President issued later in the day Proclamation No. 427
and General Order No. 4, both declaring "a state of rebellion" and calling out the Armed Forces to
suppress the rebellion. Proclamation No. 427 reads in full:
PROCLAMATION NO. 427
DECLARING A STATE OF REBELLION
WHEREAS, certain elements of the Armed Forces of the Philippines, armed with high-powered
firearms and explosives, acting upon the instigation and command and direction of known and
unknown leaders, have seized a building in Makati City, put bombs in the area, publicly declared
withdrawal of support for, and took arms against the duly constituted Government, and continue to
rise publicly and show open hostility, for the purpose of removing allegiance to the Government certain
bodies of the Armed Forces of the Philippines and the Philippine National Police, and depriving the
President of the Republic of the Philippines, wholly or partially, of her powers and prerogatives which
constitute the crime of rebellion punishable under Article 134 of the Revised Penal Code, as amended;
WHEREAS, these misguided elements of the Armed Forces of the Philippines are being supported,
abetted and aided by known and unknown leaders, conspirators and plotters in the government service
and outside the government;
WHEREAS, under Section 18, Article VII of the present Constitution, whenever it becomes necessary,
the President, as the Commander-in-Chief of the Armed Forces of the Philippines, may call out such
Armed Forces to suppress the rebellion;

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me by

law, hereby confirm the existence of an actual and on-going rebellion, compelling me to declare a state
of rebellion.
In view of the foregoing, I am issuing General Order No. 4 in accordance with Section 18, Article VII
of the Constitution, calling out the Armed Forces of the Philippines and the Philippine National Police
to immediately carry out the necessary actions and measures to suppress and quell the rebellion with
due regard to constitutional rights.
General Order No. 4 is similarly worded:
GENERAL ORDER NO. 4

DIRECTING THE ARMED FORCES OF THE PHILIPPINES AND THE PHILIPPINE NATIONAL
POLICE TO SUPPRESS REBELLION
WHEREAS, certain elements of the Armed Forces of the Philippines, armed with high-powered
firearms and explosives, acting upon the instigation and command and direction of known and
unknown leaders, have seized a building in Makati City, put bombs in the area, publicly declared
withdrawal of support for, and took arms against the duly constituted Government, and continue to
rise publicly and show open hostility, for the purpose of removing allegiance to the Government certain
bodies of the Armed Forces of the Philippines and the Philippine National Police, and depriving the
President of the Republic of the Philippines, wholly or partially, of her powers and prerogatives which
constitute the crime of rebellion punishable under Article 134 et seq. of the Revised Penal Code, as
amended;
WHEREAS, these misguided elements of the Armed Forces of the Philippines are being supported,
abetted and aided by known and unknown leaders, conspirators and plotters in the government service
and outside the government;
WHEREAS, under Section 18, Article VII of the present Constitution, whenever it becomes necessary,
the President, as the Commander-in-Chief of all Armed Forces of the Philippines, may call out such
Armed Forces to suppress the rebellion;

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me by the

Constitution as President of the Republic of the Philippines and Commander-in-Chief of all the armed
forces of the Philippines and pursuant to Proclamation No. 427 dated July 27, 2003, do hereby call
upon the Armed Forces of the Philippines and the Philippine National Police to suppress and quell the
rebellion.
I hereby direct the Chief of the Armed Forces of the Philippines and the Chief of the Philippine National
Police and the officers and men of the Armed Forces of the Philippines and the Philippine National
Police to immediately carry out the necessary and appropriate actions and measures to suppress and
quell the rebellion with due regard to constitutional rights.
By the evening of July 27, 2003, the Oakwood occupation had ended. After hours-long negotiations,
the soldiers agreed to return to barracks. The President, however, did not immediately lift the
declaration of a state of rebellion and did so only on August 1, 2003, through Proclamation No. 435:

DECLARING THAT THE STATE OF REBELLION HAS CEASED TO EXIST

WHEREAS, by virtue of Proclamation No. 427 dated July 27, 2003, a state of rebellion was declared;
WHEREAS, by virtue of General Order No. 4 dated July 27, 2003, which was issued on the basis of
Proclamation No. 427 dated July 27, 2003, and pursuant to Article VII, Section 18 of the Constitution,
the Armed Forces of the Philippines and the Philippine National Police were directed to suppress and
quell the rebellion;
WHEREAS, the Armed Forces of the Philippines and the Philippine National Police have effectively
suppressed and quelled the rebellion.
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, by virtue of
the powers vested in me by law, hereby declare that the state of rebellion has ceased to exist.
In the interim, several petitions were filed before this Court challenging the validity of Proclamation No.
427 and General Order No. 4.

In G.R. No. 159085 (Sanlakas and PM v. Executive Secretary, et al.),2 party-list organizations
Sanlakas and Partido ng Manggagawa (PM), contend that Section 18, Article VII of the Constitution
does not require the declaration of a state of rebellion to call out the armed forces.3 They further submit
that, because of the cessation of the Oakwood occupation, there exists no sufficient factual basis for
the proclamation by the President of a state of rebellion for an indefinite period.4
Petitioners in G.R. No. 159103 (SJS Officers/Members v. Hon. Executive Secretary, et al.) are
officers/members of the Social Justice Society (SJS), "Filipino citizens, taxpayers, law professors and
bar reviewers."5 Like Sanlakas and PM, they claim that Section 18, Article VII of the Constitution does
not authorize the declaration of a state of rebellion.6 They contend that the declaration is a
"constitutional anomaly" that "confuses, confounds and misleads" because "[o]verzealous public
officers, acting pursuant to such proclamation or general order, are liable to violate the constitutional
right of private citizens."7 Petitioners also submit that the proclamation is a circumvention of the report
requirement under the same Section 18, Article VII, commanding the President to submit a report to
Congress within 48 hours from the proclamation of martial law.8 Finally, they contend that the
presidential issuances cannot be construed as an exercise of emergency powers as Congress has
not delegated any such power to the President.9

In G.R. No. 159185 (Rep. Suplico et al. v. President Macapagal-Arroyo and Executive Secretary
Romulo), petitioners brought suit as citizens and as Members of the House of Representatives whose
rights, powers and functions were allegedly affected by the declaration of a state of rebellion.10
Petitioners do not challenge the power of the President to call out the Armed Forces.11 They argue,
however, that the declaration of a state of rebellion is a "superfluity," and is actually an exercise of
emergency powers.12 Such exercise, it is contended, amounts to a usurpation of the power of
Congress granted by Section 23 (2), Article VI of the Constitution.13
In G.R. No. 159196 (Pimentel v. Romulo, et al.), petitioner Senator assails the subject presidential
issuances as "an unwarranted, illegal and abusive exercise of a martial law power that has no basis
under the Constitution."14 In the main, petitioner fears that the declaration of a state of rebellion "opens
the door to the unconstitutional implementation of warrantless arrests" for the crime of rebellion.15
Required to comment, the Solicitor General argues that the petitions have been rendered moot by the
lifting of the declaration.16 In addition, the Solicitor General questions the standing of the petitioners to
bring suit.17
The Court agrees with the Solicitor General that the issuance of Proclamation No. 435, declaring that
the state of rebellion has ceased to exist, has rendered the case moot. As a rule, courts do not
adjudicate moot cases, judicial power being limited to the determination of "actual controversies."18
Nevertheless, courts will decide a question, otherwise moot, if it is "capable of repetition yet evading
review."19 The case at bar is one such case.
Once before, the President on May 1, 2001 declared a state of rebellion and called upon the AFP and
the PNP to suppress the rebellion through Proclamation No. 38 and General Order No. 1. On that
occasion, "'an angry and violent mob armed with explosives, firearms, bladed weapons, clubs, stones
and other deadly weapons' assaulted and attempted to break into Malacañang."20 Petitions were filed
before this Court assailing the validity of the President's declaration. Five days after such declaration,
however, the President lifted the same. The mootness of the petitions in Lacson v. Perez and
accompanying cases21 precluded this Court from addressing the constitutionality of the declaration.
To prevent similar questions from reemerging, we seize this opportunity to finally lay to rest the validity
of the declaration of a state of rebellion in the exercise of the President's calling out power, the
mootness of the petitions notwithstanding.

Only petitioners Rep. Suplico et al. and Sen. Pimentel, as Members of Congress, have standing to
challenge the subject issuances. In Philippine Constitution Association v. Enriquez,22 this Court
recognized that:
To the extent the powers of Congress are impaired, so is the power of each member thereof, since
his office confers a right to participate in the exercise of the powers of that institution.
An act of the Executive which injures the institution of Congress causes a derivative but nonetheless
substantial injury, which can be questioned by a member of Congress. In such a case, any member
of Congress can have a resort to the courts.
Petitioner Members of Congress claim that the declaration of a state of rebellion by the President is
tantamount to an exercise of Congress' emergency powers, thus impairing the lawmakers' legislative
powers. Petitioners also maintain that the declaration is a subterfuge to avoid congressional scrutiny
into the President's exercise of martial law powers.
Petitioners Sanlakas and PM, and SJS Officers/Members, have no legal standing or locus standi to
bring suit. "Legal standing" or locus standi has been defined as a personal and substantial interest in
the case such that the party has sustained or will sustain direct injury as a result of the governmental
act that is being challenged…. The gist of the question of standing is whether a party alleges "such
personal stake in the outcome of the controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court depends for illumination of difficult
constitutional questions."23
Petitioners Sanlakas and PM assert that:
2. As a basic principle of the organizations and as an important plank in their programs, petitioners
are committed to assert, defend, protect, uphold, and promote the rights, interests, and welfare of the
people, especially the poor and marginalized classes and sectors of Philippine society. Petitioners are
committed to defend and assert human rights, including political and civil rights, of the citizens.
3. Members of the petitioner organizations resort to mass actions and mobilizations in the exercise of
their Constitutional rights to peaceably assemble and their freedom of speech and of expression under
Section 4, Article III of the 1987 Constitution, as a vehicle to publicly ventilate their grievances and
legitimate demands and to mobilize public opinion to support the same.24 [Emphasis in the original.]
Petitioner party-list organizations claim no better right than the Laban ng Demokratikong Pilipino,
whose standing this Court rejected in Lacson v. Perez:
… petitioner has not demonstrated any injury to itself which would justify the resort to the Court.
Petitioner is a juridical person not subject to arrest. Thus, it cannot claim to be threatened by a
warrantless arrest. Nor is it alleged that its leaders, members, and supporters are being threatened
with warrantless arrest and detention for the crime of rebellion. Every action must be brought in the
name of the party whose legal rights has been invaded or infringed, or whose legal right is under
imminent threat of invasion or infringement.
At best, the instant petition may be considered as an action for declaratory relief, petitioner claiming
that it[']s right to freedom of expression and freedom of assembly is affected by the declaration of a
"state of rebellion" and that said proclamation is invalid for being contrary to the Constitution.
However, to consider the petition as one for declaratory relief affords little comfort to petitioner, this
Court not having jurisdiction in the first instance over such a petition. Section 5 [1], Article VIII of the
Constitution limits the original jurisdiction of the court to cases affecting ambassadors, other public
ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and
habeas corpus.25
Even assuming that petitioners are "people's organizations," this status would not vest them with the
requisite personality to question the validity of the presidential issuances, as this Court made clear in
Kilosbayan v. Morato:26
The Constitution provides that "the State shall respect the role of independent people's organizations
to enable the people to pursue and protect, within the democratic framework, their legitimate and
collective interests and aspirations through peaceful and lawful means," that their right to "effective
and reasonable participation at all levels of social, political, and economic decision-making shall not
be abridged." (Art. XIII, §§15-16)
These provisions have not changed the traditional rule that only real parties in interest or those with
standing, as the case may be, may invoke the judicial power. The jurisdiction of this Court, even in
cases involving constitutional questions, is limited by the "case and controversy" requirement of Art.
VIII, §5. This requirement lies at the very heart of the judicial function. It is what differentiates
decisionmaking in the courts from decisionmaking in the political departments of the government and
bars the bringing of suits by just any party.27
That petitioner SJS officers/members are taxpayers and citizens does not necessarily endow them
with standing. A taxpayer may bring suit where the act complained of directly involves the illegal
disbursement of public funds derived from taxation.28 No such illegal disbursement is alleged.
On the other hand, a citizen will be allowed to raise a constitutional question only when he can show
that he has personally suffered some actual or threatened injury as a result of the allegedly illegal
conduct of the government; the injury is fairly traceable to the challenged action; and the injury is likely
to be redressed by a favorable action.29 Again, no such injury is alleged in this case.
Even granting these petitioners have standing on the ground that the issues they raise are of
transcendental importance, the petitions must fail.
It is true that for the purpose of exercising the calling out power the Constitution does not require the
President to make a declaration of a state of rebellion. Section 18, Article VII provides:
Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines and
whenever it becomes necessary, he may call out such armed forces to prevent or suppress
lawless violence, invasion or rebellion. In case of invasion or rebellion, when the public safety
requires it, he may, for a period not exceeding sixty days, suspend the privilege of the writ of habeas
corpus or place the Philippines or any part thereof under martial law. Within forty-eight hours from the
proclamation of martial law or the suspension of the writ of habeas corpus, the President shall submit
a report in person or in writing to the Congress. The Congress, voting jointly, by a vote of at least a
majority of all its Members in regular or special session, may revoke such proclamation or suspension,
which revocation shall not be set aside by the President. Upon the initiative of the President, the
Congress may, in the same manner, extend such proclamation or suspension for a period to be
determined by the Congress, if the invasion or rebellion shall persist and public safety requires it.
The Congress, if not in session, shall, within twenty-four hours following such proclamation or
suspension, convene in accordance with its rules without need of a call.
The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of
the factual basis for the proclamation of martial law or the suspension of the privilege of the writ of
habeas corpus or the extension thereof, and must promulgate its decision thereon within thirty days
from its filing.
A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning
of the civil courts or legislative assemblies, nor authorize the conferment of the jurisdiction on military
courts and agencies over civilians where civil courts are able to function, nor automatically suspend
the privilege of the writ.
The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion
or offenses inherent in or directly connected with invasion.
During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released. [Emphasis supplied.]
The above provision grants the President, as Commander-in-Chief, a "sequence" of "graduated
power[s]."30 From the most to the least benign, these are: the calling out power, the power to suspend
the privilege of the writ of habeas corpus, and the power to declare martial law. In the exercise of the
latter two powers, the Constitution requires the concurrence of two conditions, namely, an actual
invasion or rebellion, and that public safety requires the exercise of such power.31 However, as we
observed in Integrated Bar of the Philippines v. Zamora,32 "[t]hese conditions are not required in the
exercise of the calling out power. The only criterion is that 'whenever it becomes necessary,' the
President may call the armed forces 'to prevent or suppress lawless violence, invasion or rebellion.'"
Nevertheless, it is equally true that Section 18, Article VII does not expressly prohibit the President
from declaring a state of rebellion. Note that the Constitution vests the President not only with
Commander-in-Chief powers but, first and foremost, with Executive powers.

Section 1, Article VII of the 1987 Philippine Constitution states: "The executive power shall be vested
in the President…." As if by exposition, Section 17 of the same Article provides: "He shall ensure that
the laws be faithfully executed." The provisions trace their history to the Constitution of the United
States.

The specific provisions of the U.S. Constitution granting the U.S. President executive and commander-
in-chief powers have remained in their original simple form since the Philadelphia Constitution of 1776,
Article II of which states in part:
Section 1. 1. The Executive Power shall be vested in a President of the United States of America . . .
.
....
Section 2. 1. The President shall be Commander in Chief of the Army and Navy of the United States.
...
....
Section 3. … he shall take care that the laws be faithfully executed…. [Article II – Executive Power]
Recalling in historical vignettes the use by the U.S. President of the above-quoted provisions, as
juxtaposed against the corresponding action of the U.S. Supreme Court, is instructive. Clad with the
prerogatives of the office and endowed with sovereign powers, which are drawn chiefly from the
Executive Power and Commander-in-Chief provisions, as well as the presidential oath of office, the
President serves as Chief of State or Chief of Government, Commander-in-Chief, Chief of Foreign
Relations and Chief of Public Opinion.33

First to find definitive new piers for the authority of the Chief of State, as the protector of the people,
was President Andrew Jackson. Coming to office by virtue of a political revolution, Jackson, as
President not only kept faith with the people by driving the patricians from power. Old Hickory, as he
was fondly called, was the first President to champion the indissolubility of the Union by defeating
South Carolina's nullification effort.34
The Federal Tariff Acts of 1828 and 1832 that Congress enacted did not pacify the hotspurs from
South Carolina. Its State Legislature ordered an election for a convention, whose members quickly
passed an Ordinance of Nullification. The Ordinance declared the Tariff Acts unconstitutional,
prohibited South Carolina citizens from obeying them after a certain date in 1833, and threatened
secession if the Federal Government sought to oppose the tariff laws. The Legislature then
implemented the Ordinance with bristling punitive laws aimed at any who sought to pay or collect
customs duties.35
Jackson bided his time. His task of enforcement would not be easy. Technically, the President might
send troops into a State only if the Governor called for help to suppress an insurrection, which would
not occur in the instance. The President could also send troops to see to it that the laws enacted by
Congress were faithfully executed. But these laws were aimed at individual citizens, and provided no
enforcement machinery against violation by a State. Jackson prepared to ask Congress for a force
bill.36

In a letter to a friend, the President gave the essence of his position. He wrote: ". . . when a faction in
a State attempts to nullify a constitutional law of Congress, or to destroy the Union, the balance of the
people composing this Union have a perfect right to coerce them to obedience." Then in a
Proclamation he issued on December 10, 1832, he called upon South Carolinians to realize that there
could be no peaceable interference with the execution of the laws, and dared them, "disunion by armed
force is treason. Are you ready to incur its guilt?"37

The Proclamation frightened nullifiers, non-nullifiers and tight-rope walkers. Soon, State Legislatures
began to adopt resolutions of agreement, and the President announced that the national voice from
Maine on the north to Louisiana on the south had declared nullification and accession "confined to
contempt and infamy."38

No other President entered office faced with problems so formidable, and enfeebled by personal and
political handicaps so daunting, as Abraham Lincoln.

Lincoln believed the President's power broad and that of Congress explicit and restricted, and sought
some source of executive power not failed by misuse or wrecked by sabotage. He seized upon the
President's designation by the Constitution as Commander-in-Chief, coupled it to the executive power
provision — and joined them as "the war power" which authorized him to do many things beyond the
competence of Congress.39
Lincoln embraced the Jackson concept of the President's independent power and duty under his oath
directly to represent and protect the people. In his Message of July 4, 1861, Lincoln declared that "the
Executive found the duty of employing the war power in defense of the government forced upon him.
He could not but perform the duty or surrender the existence of the Government . . . ." This concept
began as a transition device, to be validated by Congress when it assembled. In less than two-years,
it grew into an independent power under which he felt authorized to suspend the privilege of the writ
of habeas corpus, issue the Emancipation Proclamation, and restore reoccupied States.40
Lincoln's Proclamation of April 15, 1861, called for 75,000 troops. Their first service, according to the
proclamation, would be to recapture forts, places and property, taking care "to avoid any devastation,
any destruction of or interference with property, or any disturbance of peaceful citizens."41
Early in 1863, the U.S. Supreme Court approved President Lincoln's report to use the war powers
without the benefit of Congress. The decision was handed in the celebrated Prize Cases42 which
involved suits attacking the President's right to legally institute a blockade. Although his Proclamation
was subsequently validated by Congress, the claimants contended that under international law, a
blockade could be instituted only as a measure of war under the sovereign power of the State. Since
under the Constitution only Congress is exclusively empowered to declare war, it is only that body that
could impose a blockade and all prizes seized before the legislative declaration were illegal. By a 5 to
4 vote, the Supreme Court upheld Lincoln's right to act as he had.43
In the course of time, the U.S. President's power to call out armed forces and suspend the privilege of
the writ of habeas corpus without prior legislative approval, in case of invasion, insurrection, or
rebellion came to be recognized and accepted. The United States introduced the expanded
presidential powers in the Philippines through the Philippine Bill of 1902.44 The use of the power was
put to judicial test and this Court held that the case raised a political question and said that it is beyond
its province to inquire into the exercise of the power.45 Later, the grant of the power was incorporated
in the 1935 Constitution.46

Elected in 1884, Grover Cleveland took his ascent to the presidency to mean that it made him the
trustee of all the people. Guided by the maxim that "Public office is a public trust," which he practiced
during his incumbency, Cleveland sent federal troops to Illinois to quell striking railway workers who
defied a court injunction. The injunction banned all picketing and distribution of handbills. For leading
the strikes and violating the injunction, Debs, who was the union president, was convicted of contempt
of court. Brought to the Supreme Court, the principal issue was by what authority of the Constitution
or statute had the President to send troops without the request of the Governor of the State.47
In In Re: Eugene Debs, et al,48 the Supreme Court upheld the contempt conviction. It ruled that it is
not the government's province to mix in merely individual present controversies. Still, so it went on,
"whenever wrongs complained of are such as affect the public at large, and are in respect of matters
which by the Constitution are entrusted to the care of the Nation and concerning which the Nation
owes the duty to all citizens of securing to them their common rights, then the mere fact that the
Government has no pecuniary interest in the controversy is not sufficient to exclude it from the Courts,
or prevent it from taking measures therein to fully discharge those constitutional duties."49 Thus,
Cleveland's course had the Court's attest.
Taking off from President Cleveland, President Theodore Roosevelt launched what political scientists
dub the "stewardship theory." Calling himself "the steward of the people," he felt that the executive
power "was limited only by the specific restrictions and prohibitions appearing in the Constitution, or
impleaded by Congress under its constitutional powers."50
The most far-reaching extension of presidential power "T.R." ever undertook to employ was his plan
to occupy and operate Pennsylvania's coal mines under his authority as Commander-in-Chief. In the
issue, he found means other than force to end the 1902 hard-coal strike, but he had made detailed
plans to use his power as Commander-in-Chief to wrest the mines from the stubborn operators, so
that coal production would begin again.51
Eventually, the power of the State to intervene in and even take over the operation of vital utilities in
the public interest was accepted. In the Philippines, this led to the incorporation of Section 6,52 Article
XIII of the 1935 Constitution, which was later carried over with modifications in Section 7,53 Article XIV
of the 1973 Constitution, and thereafter in Section 18,54 Article XII of the 1987 Constitution.
The lesson to be learned from the U.S. constitutional history is that the Commander-in-Chief powers
are broad enough as it is and become more so when taken together with the provision on executive
power and the presidential oath of office. Thus, the plenitude of the powers of the presidency equips
the occupant with the means to address exigencies or threats which undermine the very existence of
government or the integrity of the State.
In The Philippine Presidency A Study of Executive Power, the late Mme. Justice Irene R. Cortes,
proposed that the Philippine President was vested with residual power and that this is even greater
than that of the U.S. President. She attributed this distinction to the "unitary and highly centralized"
nature of the Philippine government. She noted that, "There is no counterpart of the several states of
the American union which have reserved powers under the United States constitution." Elaborating on
the constitutional basis for her argument, she wrote:
…. The [1935] Philippine [C]onstitution establishes the three departments of the government in this
manner: "The legislative power shall be vested in a Congress of the Philippines which shall consist of
a Senate and a House of Representatives." "The executive power shall be vested in a President of
the Philippines." The judicial powers shall be vested in one Supreme Court and in such inferior courts
as may be provided by law." These provisions not only establish a separation of powers by actual
division but also confer plenary legislative, executive, and judicial powers. For as the Supreme Court
of the Philippines pointed out in Ocampo v. Cabangis, "a grant of legislative power means a grant of
all the legislative power; and a grant of the judicial power means a grant of all the judicial power which
may be exercised under the government." If this is true of the legislative power which is exercised by
two chambers with a combined membership [at that time] of more than 120 and of the judicial power
which is vested in a hierarchy of courts, it can equally if not more appropriately apply to the executive
power which is vested in one official – the president. He personifies the executive branch. There is a
unity in the executive branch absent from the two other branches of government. The president is not
the chief of many executives. He is the executive. His direction of the executive branch can be more
immediate and direct than the United States president because he is given by express provision of the
constitution control over all executive departments, bureaus and offices.55
The esteemed Justice conducted her study against the backdrop of the 1935 Constitution, the framers
of which, early on, arrived at a general opinion in favor of a strong Executive in the Philippines."56 Since
then, reeling from the aftermath of martial law, our most recent Charter has restricted the President's
powers as Commander-in-Chief. The same, however, cannot be said of the President's powers as
Chief Executive.
In her ponencia in Marcos v. Manglapus, Justice Cortes put her thesis into jurisprudence. There, the
Court, by a slim 8-7 margin, upheld the President's power to forbid the return of her exiled predecessor.
The rationale for the majority's ruling rested on the President's
… unstated residual powers which are implied from the grant of executive power and which are
necessary for her to comply with her duties under the Constitution. The powers of the President are
not limited to what are expressly enumerated in the article on the Executive Department and in
scattered provisions of the Constitution. This is so, notwithstanding the avowed intent of the members
of the Constitutional Commission of 1986 to limit the powers of the President as a reaction to the
abuses under the regime of Mr. Marcos, for the result was a limitation of specific powers of the
President, particularly those relating to the commander-in-chief clause, but not a diminution of the
general grant of executive power.57 [Underscoring supplied. Italics in the original.]
Thus, the President's authority to declare a state of rebellion springs in the main from her powers as
chief executive and, at the same time, draws strength from her Commander-in-Chief powers. Indeed,
as the Solicitor General accurately points out, statutory authority for such a declaration may be found
in Section 4, Chapter 2 (Ordinance Power), Book III (Office of the President) of the Revised
Administrative Code of 1987, which states:

SEC. 4. Proclamations. – Acts of the President fixing a date or declaring a status or condition of public
moment or interest, upon the existence of which the operation of a specific law or regulation is
made to depend, shall be promulgated in proclamations which shall have the force of an executive
order. [Emphasis supplied.]
The foregoing discussion notwithstanding, in calling out the armed forces, a declaration of a state of
rebellion is an utter superfluity.58 At most, it only gives notice to the nation that such a state exists and
that the armed forces may be called to prevent or suppress it.59 Perhaps the declaration may wreak
emotional effects upon the perceived enemies of the State, even on the entire nation. But this Court's
mandate is to probe only into the legal consequences of the declaration. This Court finds that such a
declaration is devoid of any legal significance. For all legal intents, the declaration is deemed not
written.

Should there be any "confusion" generated by the issuance of Proclamation No. 427 and General
Order No. 4, we clarify that, as the dissenters in Lacson correctly pointed out, the mere declaration of
a state of rebellion cannot diminish or violate constitutionally protected rights.60 Indeed, if a state of
martial law does not suspend the operation of the Constitution or automatically suspend the privilege
of the writ of habeas corpus,61 then it is with more reason that a simple declaration of a state of rebellion
could not bring about these conditions.62 At any rate, the presidential issuances themselves call for
the suppression of the rebellion "with due regard to constitutional rights."
For the same reasons, apprehensions that the military and police authorities may resort to warrantless
arrests are likewise unfounded. In Lacson vs. Perez, supra, majority of the Court held that "[i]n quelling
or suppressing the rebellion, the authorities may only resort to warrantless arrests of persons
suspected of rebellion, as provided under Section 5, Rule 113 of the Rules of Court, 63 if the
circumstances so warrant. The warrantless arrest feared by petitioners is, thus, not based on the
declaration of a 'state of rebellion.'"64 In other words, a person may be subjected to a warrantless arrest
for the crime of rebellion whether or not the President has declared a state of rebellion, so long as the
requisites for a valid warrantless arrest are present.

It is not disputed that the President has full discretionary power to call out the armed forces and to
determine the necessity for the exercise of such power. While the Court may examine whether the
power was exercised within constitutional limits or in a manner constituting grave abuse of discretion,
none of the petitioners here have, by way of proof, supported their assertion that the President acted
without factual basis.65
The argument that the declaration of a state of rebellion amounts to a declaration of martial law and,
therefore, is a circumvention of the report requirement, is a leap of logic. There is no indication that
military tribunals have replaced civil courts in the "theater of war" or that military authorities have taken
over the functions of civil government. There is no allegation of curtailment of civil or political rights.
There is no indication that the President has exercised judicial and legislative powers. In short, there
is no illustration that the President has attempted to exercise or has exercised martial law powers.
Nor by any stretch of the imagination can the declaration constitute an indirect exercise of emergency
powers, which exercise depends upon a grant of Congress pursuant to Section 23 (2), Article VI of the
Constitution:
Sec. 23. (1) ….
(2) In times of war or other national emergency, the Congress may, by law, authorize the President,
for a limited period and subject to such restrictions as it may prescribe, to exercise powers necessary
and proper to carry out a declared national policy. Unless sooner withdrawn by resolution of the
Congress, such powers shall cease upon the next adjournment thereof.
The petitions do not cite a specific instance where the President has attempted to or has exercised
powers beyond her powers as Chief Executive or as Commander-in-Chief. The President, in declaring
a state of rebellion and in calling out the armed forces, was merely exercising a wedding of her Chief
Executive and Commander-in-Chief powers. These are purely executive powers, vested on the
President by Sections 1 and 18, Article VII, as opposed to the delegated legislative powers
contemplated by Section 23 (2), Article VI.
WHEREFORE, the petitions are hereby DISMISSED.
SO ORDERED.
Carpio, Corona, and Carpio-Morales, JJ., concur.
Davide, Jr., C.J., in the result.
Puno, J., in the result.
Vitug, J., see separate opinion.
Panganiban, J., see separate opinion.
Quisumbing, J., joins J. Panganiban's Opinion.
Ynares-Santiago, J., see separate opinion.
Sandoval-Gutierrez, J., please see dissenting opinion.
Austria-Martinez, J., concur in the result.
Callejo, Sr., J., concurs in the separate opinion of J. Panganiban.
Azcuna, J., on official leave.
Separate Opinions

PANGANIBAN, J.:
Petitioners challenge the constitutionality of the "state of rebellion" declared by the President through
Proclamation No. 427 and General Order No. 4 in the wake of the so-called "Oakwood Incident." The
questioned issuances, however, were subsequently lifted by her on August 1, 2003, when she issued
Proclamation No. 435. Hence, as of today, there is no more extant proclamation or order that can be
declared valid or void.
For this reason, I believe that the Petitions should be dismissed on the ground of mootness.
The judicial power to declare a law or an executive order unconstitutional, according to Justice Jose
P. Laurel, is "limited to actual cases and controversies to be exercised after full opportunity of argument
by the parties, and limited further to the constitutional question raised or the very lis mota presented."1
Following this long-held principle, the Court has thus always been guided by these fourfold requisites
in deciding constitutional law issues: 1) there must be an actual case or controversy involving a conflict
of rights susceptible of judicial determination; 2) the constitutional question must be raised by a proper
party; 3) the constitutional question must be raised at the earliest opportunity; and 4) adjudication of
the constitutional question must be indispensable to the resolution of the case.2
Unquestionably, the first and the forth requirements are absent in the present case.
Absence of Case and Controversy

The first requirement, the existence of a live case or controversy, means that an existing litigation is
ripe for resolution and susceptible of judicial determination; as opposed to one that is conjectural or
anticipatory,3 hypothetical or feigned.4 A justiciable controversy involves a definite and concrete
dispute touching on the legal relations of parties having adverse legal interests.5 Hence, it admits of
specific relief through a decree that is conclusive in character, in contrast to an opinion which only
advises what the law would be upon a hypothetical state of facts.6

As a rule, courts have no authority to pass upon issues through advisory opinions or friendly suits
between parties without real adverse interests.7 Neither do courts sit to adjudicate academic questions
–– no matter how intellectually challenging8 –– because without a justiciable controversy, an
adjudication would be of no practical use or value.9
While the Petitions herein have previously embodied a live case or controversy, they now have been
rendered extinct by the lifting of the questioned issuances. Thus, nothing is gained by breathing life
into a dead issue.
Moreover, without a justiciable controversy, the Petitions10 have become pleas for declaratory relief,
over which the Supreme Court has no original jurisdiction. Be it remembered that they were filed
directly with this Court and thus invoked its original jurisdiction.11

On the theory that the "state of rebellion" issue is "capable of repetition yet evading review," I
respectfully submit that the question may indeed still be resolved even after the lifting of the
Proclamation and Order, provided the party raising it in a proper case has been and/or continue
to be prejudiced or damaged as a direct result of their issuance.

In the present case, petitioners have not shown that they have been or continue to be directly and
pecuniarily prejudiced or damaged by the Proclamation and Order. Neither have they shown that this
Court has original jurisdiction over petitions for declaratory relief. I would venture to say that, perhaps,
if this controversy had emanated from an appealed judgment from a lower tribunal, then this Court
may still pass upon the issue on the theory that it is "capable of repetition yet evading review," and the
case would not be an original action for declaratory relief.
In short, the theory of "capable of repetition yet evading review" may be invoked only when this Court
has jurisdiction over the subject matter. It cannot be used in the present controversy for declaratory
relief, over which the Court has no original jurisdiction.
The Resolution of the Case on Other Grounds
The fourth requisite, which relates to the absolute necessity of deciding the constitutional issue, means
that the Court has no other way of resolving the case except by tackling an unavoidable constitutional
question. It is a well-settled doctrine that courts will not pass upon a constitutional question unless it
is the lis mota of the case, or if the case can be disposed on some other grounds.12
With due respect, I submit that the mootness of the Petitions has swept aside the necessity of ruling
on the validity of Proclamation No. 427 and General order No. 4. In the wake of its mootness, the
constitutionality issue has ceased to be the lis mota of the case or to be an unavoidable question in
the resolution thereof. Hence, the dismissal of the Petitions for mootness is justified.13
WHEREFORE, I vote to DISMISS the Petitions. On the constitutionality of a "state of rebellion," I
reserve my judgment at the proper time and in the proper case.
YNARES-SANTIAGO, J.:

The fundamental issue in the petitions is the legality of Proclamation No. 427 issued by the President
on July 27, 2003 declaring a "state of rebellion".
The majority affirmed the declaration is legal because the President was only exercising a wedding of
the "Chief Executive" and "Commander-in-Chief" powers. U.S. jurisprudence and commentators are
cited discussing the awesome powers exercised by the U.S. President during moments of crisis 1 and
that these powers are also available to the Philippine President.2 Although the limits cannot be
precisely defined, the majority concluded that there are enough "residual powers" to serve as the basis
to support the Presidential declaration of a "state of rebellion".3 The majority, however, emphasized
that the declaration cannot diminish or violate constitutionally protected rights.4 They affirmed the
legality of warrantless arrests of persons who participated in the rebellion, if circumstances so warrant5
with this clarification: "[i]n other words, a person may be subjected to a warrantless arrests for the
crime of rebellion whether or not the President has declared a state of rebellion, so long as the
requisites for a valid warrantless arrest are present."6
If the requisites for a warrantless arrests must still be present for an arrest to be made, then the
declaration is a superfluity. I therefore shudder when a blanket affirmation is given to the President to
issue declarations of a "state of rebellion" which in fact may not be the truth or which may be in affect
even after the rebellion has ended.
Proclamation No. 427 was issued at 1:00 p.m. on July 27, 2003, at the height of the occupation of the
Oakwood Premier Apartments in Ayala Center, Makati City, by 323 junior officers and enlisted men
(Oakwood Incident),7 which began in the early morning of July 27, 2003.8 Shortly after, the President
issued General Order No. 4, ordering the Armed Forces of the Philippines and the Philippine National
Police to use reasonable force, and pay due regard to constitutional rights, in putting down the
rebellion.9 The Oakwood incident ended peacefully that same evening when the militant soldiers
surrendered after negotiations.

From July 27 to August 1, 2003, "search and recovery" operations were conducted. Throughout the
Oakwood Incident, searches were conducted in the non-occupied areas,10 and, with the recovery of
evidence, staging points for the Oakwood Incident were found in Cavite, Makati and Mandaluyong.11
After the soldiers left at around 11:00 in the evening of July 27, a search was conducted around the
Oakwood premises.12 These searches expanded in scope on the basis of recovered evidence.13
Ramon Cardenas, Assistant Executive Secretary in the previous administration, was arrested,
presented to the media in handcuffs and brought for inquest proceedings before the Department of
Justice ("DOJ") in the morning of July 28.14 He was initially detained at the Office of the Anti-Organized
Crime Division of the Criminal Investigation and Detection Group ("CIDG"), and brought to the DOJ in
the afternoon of July 28.15 Cardenas was later charged with the crime of rebellion,16 but as of this
writing has been allowed bail.
On July 31, 2003, 4 days after the militant group had surrendered peacefully, an official spokesperson
from the DOJ declared that the President's "indefinite" imposition of the "state of rebellion" would make
"warrantless arrests" a valid exercise of executive power.
The Court can take judicial notice that the police authorities were releasing to media "evidence found"
purporting to link personalities in the political opposition, the most prominent of whom was Senator
Gringo Honasan. Even Senator Loi Ejercito and Mayor JV Ejercito's names were being linked to the
attempted uprising.
On August 1, 2003, the President issued Proclamation No. 435, declaring that the Armed Forces of
the Philippines and the Philippine National Police had effectively suppressed and quelled the rebellion,
and, accordingly, that the "state of rebellion" had ceased on that date.
The majority discussed only the abstract nature of the powers exercised by the Chief Executive,
without considering if there was sufficient factual basis for the President's declaration of a "state of
rebellion" and when it ended. In taking this position, the majority is returning, if not expanding, the
doctrine enunciated in Garcia-Padilla v. Enrile,17 which overturned the landmark doctrine in Lansang
v. Garcia.18 In Lansang, the Supreme Court upheld its authority to inquire into the factual bases for the
suspension of the privilege of the writ of habeas corpus, and held that this inquiry raises a judicial
rather than a political question. In Garcia-Padilla, on the other hand, the ponencia held that Lansang
was no longer authoritative, and that the President's decision to suspend the privilege is final and
conclusive upon the courts and all other persons.
These two cases were decided prior to the 1987 Constitution, which requires this Court not only to
settle actual controversies involving rights which are legally demandable and enforceable, but also to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of government.19 This provision in the 1987
Constitution was precisely meant to check abuses of executive power. Martial Law was still fresh in
the minds of the delegates in 1987!lawphi1.nêt
The majority ignored the fact that the "state of rebellion" declared by the President was in effect five
days after the peaceful surrender of the militant group.
The President's proclamation cites Section 18, Article VII of the Constitution as the basis for the
declaration of the "state of rebellion.".

Section 18 authorizes the President, as Commander-in-Chief, to call out the Armed Forces, in order
to suppress one of three conditions: (1) lawless violence, (2) rebellion or (3) invasion.20 In the latter
two cases, i.e., rebellion or invasion, the President may, when public safety requires, also (1) suspend
the privilege of the writ of habeas corpus, or (2) place the Philippines or any part thereof under martial
law.
The majority made it clear that exercise of the President's Commander-in-Chief powers does not
require the declaration of a "state of rebellion" or a declaration of a "state of lawless violence" or a
"state of invasion". When any of these conditions exist, the President may call out the armed forces to
suppress the danger.
Thus, the declaration of a "state of rebellion" does not have any legal meaning or consequence. This
declaration does not give the President any extra powers. It does not have any good purpose.
If the declaration is used to justify warrantless arrests even after the rebellion has ended, as in the
case of Cardenas, such declaration or, at the least, the warrantless arrests, must be struck down.
Clearly defined in Article 134 of the Revised Penal Code is the crime of rebellion or insurrection, to
wit:

ART. 134. Rebellion or insurrection – How committed. – The crime of rebellion or insurrection is
committed by rising publicly and taking up arms against the Government for the purpose of removing
from the allegiance to said Government or its laws, the territory of the Republic of the Philippines or
any part thereof, of any body of land, naval or other armed forces, or depriving the Chief Executive or
the legislature, wholly or partially, of any of their powers or prerogatives.
On the other hand, a coup d' etat is defined as follows:

ART. 134-A. Coup d' etat. – How committed. – The crime of coup d' etat is a swift attack accompanied
by violence, intimidation, threat, strategy or stealth, directed against the duly constituted authorities of
the Republic of the Philippines, or any military camp or installation, communications networks, public
utilities or other facilities needed for the exercise and continued possession of power, singly or
simultaneously carried out anywhere in the Philippines by any person or persons, belonging to the
military or police or holding any public office or employment, with or without civilian support or
participation, for the purpose of seizing or diminishing state power.
Under these provisions, the crime of rebellion or insurrection is committed only by "rising publicly or
taking up arms against the Government". A coup d' etat, on the other hand, takes place only when
there is a "swift attack accompanied by violence." Once the act of "rising publicly and taking up arms
against the Government" ceases, the commission of the crime of rebellion ceases. Similarly, when the
"swift attack" ceases, the crime of coup d' etat is no longer being committed.
Rebellion has been held to be a continuing crime,21 and the authorities may resort to warrantless
arrests of persons suspected of rebellion, as provided under Section 5, Rule 113 of the Rules of
Court.22 However, this doctrine should be applied to its proper context – i.e., relating to subversive
armed organizations, such as the New People's Army, the avowed purpose of which is the armed
overthrow of the organized and established government. Only in such instance should rebellion be
considered a continuing crime.

When the soldiers surrendered peacefully in the evening of July 27, the rebellion or the coup d' etat
ended. The President, however, did not lift the declaration of the "state of rebellion" until 5 days later,
on August 1, 2003.
After the peaceful surrender, no person suspected of having conspired with the soldiers or participated
in the Oakwood incident could be arrested without a warrant of arrest. Section 5, Rule 113 of the
Revised Rules of Court, which governs arrest without warrant, provides as follows:
SEC. 5. Arrest without warrant; when lawful. – A peace officer or a private person may, without a
warrant, arrest a person:
(a) When, in his presence, the person to be arrested has committed, is actually committing, or is
attempting to commit an offense;
(b) When an offense has just been committed and he has probable cause to believe based on personal
knowledge of facts or circumstances that the person to be arrested has committed it; and
xxxxxxxxx
In cases falling under paragraphs (a) and (b) above, the person arrested without a warrant shall be
forthwith delivered to the nearest police station or jail and shall be proceeded against in accordance
with section 7 of Rule 112.

Rule 113, Section 5, pars. (a) and (b) of the Rules of Court are exceptions to the due process clause
in the Constitution. Section 5, par. (a) relates to a situation where a crime is committed or attempted
in the presence of the arresting officer.
Section 5, par. (b), on the other hand, presents the requirement of "personal knowledge", on the part
of the arresting officer, of facts indicating that an offense had "just been committed", and that the
person to be arrested had committed that offense.
After the peaceful surrender of the soldiers on July 27, 2003, there was no crime that was being
"attempted", "being committed", or "had just been committed." There should, therefore, be no occasion
to effect a valid warrantless arrest in connection with the Oakwood Incident.
The purpose of the declaration and its duration as far as the overeager authorities were concerned
was only to give legal cover to effect warrantless arrests even if the "state of rebellion" or the instances
stated in Rule 113, Section 5 of the Rules are absent or no longer exist.
Our history had shown the dangers when too much power is concentrated in the hands of one person.
Unless specifically defined, it is risky to concede and acknowledge the "residual powers" to justify the
validity of the presidential issuances. This can serve as a blank check for other issuances and open
the door to abuses. The majority cite the exercise of strong executive powers by U.S. President
Andrew Jackson. Was it not President Jackson who is said to have cynically defied the U.S. Supreme
Court's ruling (under Chief Justice Marshall) against the forcible removal of the American Indians from
the tribal lands by saying: "The Chief Justice has issued his Decision, now let him try to enforce it?"
Others quote Madison as having gone further with: "With what army will the Chief Justice enforce his
Decision?"

WHEREFORE, I vote for Proclamation No. 427 and General Order No. 4, issued on July 27, 2003 by
Respondent President Gloria Macapagal-Arroyo, to be declared NULL and VOID for having been
issued with grave abuse of discretion amounting to lack of jurisdiction. All other orders issued and
action taken based on those issuances, especially after the Oakwood incident ended in the evening
of July 27, 2003, e.g., warrantless arrests, should also be declared null and void.

Dissenting Opinion

SANDOVAL-GUTIERREZ, J.:
"Courts will decide a question otherwise moot and academic if it is 'capable of repetition, yet evading
review.'"1 On this premise, I stood apart from my colleagues in dismissing the petition in Lacson vs.
Perez.2 Their reason was that President Gloria Macapagal-Arroyo's lifting of the declaration of a "state
of rebellion" rendered moot and academic the issue of its constitutionality. Looking in retrospect, my
fear then was the repetition of the act sought to be declared unconstitutional.

No more than three (3) years have passed, and here we are again haunted by the same issue.
I
A brief restatement of the facts is imperative.
In the wee hours of July 27, 2003, three hundred twenty-three (323) junior officers and enlisted men
of the Armed Forces of the Philippines (AFP) took over the Oakwood Premier Apartments, Ayala
Center, Makati City. Introducing themselves as the "Magdalo Group," they claimed that they went to
Oakwood to air their grievances about graft and corruption in the military, the sale of arms and
ammunitions to the "enemies" of the state, the bombings in Davao City allegedly ordered by Gen.
Victor Corpus, then Chief of the Intelligence Service of the Armed Forces of the Philippines (ISAFP),
the increased military assistance from the United States, and "micromanagement" in the AFP by Gen.
Angelo Reyes, then Secretary of the Department of National Defense.3 The military men demanded
the resignation of the President, the Secretary of National Defense and the Chief of the Philippine
National Police.
At about 9:00 A.M. of the same day, President Arroyo gave the Magdalo Group until 5:00 P.M. to give
up their positions peacefully and return to the barracks. At around 1:00 P.M., she issued Proclamation
No. 427 and General Order No. 4 declaring the existence of a "state of rebellion" and calling out the
AFP to suppress the rebellion.
Shortly before the 5:00 P.M. deadline, President Arroyo announced an extension until 7:00 P.M.
During the two-hour reprieve, negotiations between the Magdalo Group and various personalities took
place. The rebels agreed to return to the barracks. They left the Oakwood premises at 11:00 P.M.
On July 28, 2003, Agents of the National Bureau of Investigation (NBI) searched the house owned by
Ramon Cardenas at 2177 Paraiso St., Dasmariñas Village, Makati City. After the raid and the recovery
of evidence claimed to link him to rebellion, Cardenas, accompanied by Atty. Rene Saguisag, went to
the CIDG in Camp Crame. On the same day, Cardenas was brought to the Department of Justice for
inquest proceeding. He was later charged with the crime of rebellion.

The Mandaluyong City Police likewise searched the townhouses belonging to Laarni Enriquez,
allegedly used as staging areas by the Magdalo Group.
On August 1, 2003, President Arroyo lifted her declaration of a state of rebellion through
Proclamation No. 435.
Meanwhile, on August 4, 2003, Secretary Jose Lina, Jr. of the Department of the Interior and Local
Government, forwarded to the DOJ the affidavit-complaint for coup d'etat of PC Chief Superintendent
Eduardo Matillano against Senator Gregorio Honasan, Ernesto Macahiya, George Duldulao and
several "John and Jane Does" numbering about 1,000.
On August 8, 2003, PNP Chief Inspector Jesus Fernandez of the Eastern Police District referred to
the DOJ an investigation report recommending that Enriquez and a certain Romy Escalona be
prosecuted for rebellion and insurrection.

II
I regret that I cannot give my assent to the ponencia of Mr. Justice Dante O. Tinga even as I admire it
for its lucidity and historical accuracy. The passage of time has not changed my Opinion in Lacson vs.
Perez – that President Arroyo's declaration of a "state of rebellion" is unconstitutional.
I cannot subscribe to the majority's view that the declaration of a "state of rebellion" is justified under
Article VII of the 1987 Constitution granting her "Executive" and "Commander-in-Chief" powers.
III
Consistent with my previous stand, it is my view that nowhere in the Constitution can be found a
provision which grants to the President the authority to declare a "state of rebellion," or exercise
powers, which may be legally allowed only under a state of martial law. President Arroyo, in declaring
a "state of rebellion," deviated from the following provisions of the Constitution:
"Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines and
whenever if becomes necessary, he may call out such armed forces to prevent or suppress lawless
violence, invasion or rebellion. In case of invasion or rebellion, when the public safety requires it, he
may, for a period not exceeding sixty days, suspend the privilege of the writ of habeas corpus or place
the Philippines or any part thereof under martial law. Within forty-eight hours from the proclamation of
martial law or the suspension of the privilege of the writ of habeas corpus, the President shall submit
a report in person or in writing to the Congress. The Congress, voting jointly, by a vote of at least a
majority of all its Members in regular or special session, may revoke such proclamation or suspension,
which revocation shall not be set aside by the President. Upon the initiative of the President, the
Congress may, in the same manner, extend such proclamation or suspension for a period to be
determined by the Congress, if the invasion or rebellion shall persist and public safety requires it.
The Congress, if not in session, shall within twenty-four hours following such proclamation or
suspension, convene in accordance with its rules without need of a call.lawphil.net
The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of
the factual bases of the proclamation of martial law or the suspension of the privilege of the writ or the
extension thereof, and must promulgate its decision thereon within thirty days from its filing.
A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning
of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction on military
courts and agencies over civilians where civil courts are able to function, nor automatically suspend
the privilege of the writ.
The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion
or offenses inherent in or directly connected with invasion.
During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released."4
The powers of the President when she assumed the existence of rebellion are laid down by the
Constitution. She may (1) call the armed forces to prevent or suppress lawless violence, invasion or
rebellion; (2) suspend the privilege of the writ of habeas corpus; or (3) place the Philippines or any
part thereof under martial law. Now, why did President Arroyo declare a "state of rebellion" when she
has no such power under the Constitution?

If President Arroyo's only purpose was merely to exercise her "calling out power," then she could have
simply ordered the AFP to prevent or suppress what she perceived as an invasion or rebellion. Such
course raises no constitutional objection, it being provided for by the above-quoted provisions.
However, adopting an unorthodox measure unbounded and not canalized by the language of the
Constitution is dangerous. It leaves the people at her mercy and that of the military, ignorant of their
rights under the circumstances and wary of their settled expectations. One good illustration is precisely
in the case of invasion or rebellion. Under such situation, the President has the power to suspend the
privilege of the writ of habeas corpus or to declare martial law. Such power is not a plenary one, as
shown by the numerous limitations imposed thereon by the Constitution, some of which are: (1) the
public safety requires it; (2) it does not exceed sixty (60) days; (3) within forty-eight (48) hours, she
shall submit a report, in writing or in person, to Congress; (4) The Congress, by a vote of at least a
majority of all its members, may revoke such proclamation or suspension. All these limitations form
part of the citizens' settled expectations. If the President exceeds the set limitations, the citizens know
that they may resort to this Court through appropriate proceeding to question the sufficiency of the
factual bases of the proclamation of martial law or the suspension of the privilege of the writ. In turn,
this Court shall promulgate its Decision within thirty days from the filing of the proper pleading. All the
foregoing guarantees and limitations are absent in the declaration of a "state of rebellion." It is not
subject to clear legal restraints. How then can the citizens determine the propriety of the President's
acts committed pursuant to such declaration? How can excess of power be curtailed at its inception?
Indeed, I see no reason for the President to deviate from the concise and plain provisions of the
Constitution. In a society which adheres to the rule of law, resort to extra-constitutional measures is
unnecessary where the law has provided everything for any emergency or contingency. For even if it
may be proven beneficial for a time, the precedent it sets is pernicious as the law may, in a little while,
be disregarded again on the same pretext but for questionable purposes. Even in time of emergency,
government action may vary in breath and intensity from more normal times, yet it need not be less
constitutional.5 Extraordinary conditions may call for extraordinary remedies. But it cannot justify action
which lies outside the sphere of constitutional authority. Extraordinary conditions do not create or
enlarge constitutional power.6
I cannot simply close my eyes to the dangers that lurk behind the seemingly harmless declaration of
a "state of rebellion." Still fresh from my memory is the May 1, 2001 civil unrest. On such date,
President Arroyo placed Metro Manila under a "state of rebellion" because of the violent street clashes
involving the loyalists of former President Joseph Estrada and the police authorities. Presidential
Spokesperson Rigoberto Tiglao told reporters, "We are in a state of rebellion. This is not an ordinary
demonstration."7 Immediately thereafter, there were threats of arrests against those suspected of
instigating the march to Malacañang. At about 3:30 in the afternoon, Senator Juan Ponce Enrile was
arrested in his house in Dasmariñas Village, Makati City by a group led by Gen. Reynaldo Berroya,
Chief of the Philippine National Police Intelligence Group.8 Thereafter, he and his men proceeded to
hunt re-electionist Senator Gregorio Honasan, former PNP Chief, now Senator Panfilo Lacson, former
Ambassador Ernesto Maceda, Brig. Gen. Jake Malajakan, Senior Superintendents Michael Ray
Aquino and Cesar Mancao II, Ronald Lumbao and Cesar Tanega of the People's Movement Against
Poverty (PMAP).9 Former Justice Secretary Hernando Perez said that he was "studying" the possibility
of placing Senator Miriam Defensor-Santiago "under the Witness Protection Program." Director Victor
Batac, former Chief of the PNP Directorate for Police Community Relations, and Senior
Superintendent Diosdado Valeroso, of the Philippine Center for Transnational Crime, surrendered to
Gen. Berroya. Both denied having plotted the siege. On May 2, 2001, former Ambassador Ernesto
Maceda was arrested.
On President Arroyo's mere declaration of a "state of rebellion," police authorities arrested without
warrants the above-mentioned personalities. In effect, she placed the Philippines under martial law
without a declaration to that effect and without observing the proper procedure. This is a very
dangerous precedent. The Constitution provides that "the right of the people to be secure in their
persons, houses, papers and effects against unreasonable searches and seizure of whatever nature
and for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except
upon probable cause to be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing the place
to be searched and the persons or things to be seized."10 Obviously, violation of this constitutional
provision cannot be justified by reason of the declaration of a "state of rebellion" for such declaration,
as earlier mentioned, is unconstitutional.
Even under Section 5, Rule 113 of the Revised Rules on Criminal Procedure11 the warrantless arrests
effected by President Arroyo's men are not justified. The above-mentioned personalities cannot be
considered "to have committed, are actually committing, or are attempting to commit an offense" at
the time they were arrested without warrants. None of them participated in the riot which took place in
the vicinity of the Malacañang Palace. Some of them were in their respective houses performing
innocent acts. The sure fact is –– they were not in the presence of Gen. Berroya. Clearly, he did not
see whether they had committed, were committing or were attempting to commit the crime of
rebellion.12 It bears mentioning that at the time some of the suspected instigators were arrested, a long
interval of time already passed and hence, it cannot be legally said that they had just committed an
offense. Neither can it be said that Gen. Berroya or any of his men had "personal knowledge of facts
or circumstances that the persons to be arrested have committed a crime." That would be far from
reality.1awphil.net
The circumstances that arose from President Arroyo's resort to the declaration of a "state of rebellion"
to suppress what she perceived as the May 1, 2001 rebellion are the very evils that we should prevent
from happening again. This can only be done if we strike such unusual measure as unconstitutional.
Significantly, while the Oakwood event ended peacefully on the night of July 27, 2003, President
Arroyo's declaration of a "state of rebellion" continued until the lifting thereof on August 1, 2003. This
means that although the alleged rebellion had ceased, the President's declaration continued to be in
effect. As it turned out, several searches and seizures took place during the extended period.
Generally, the power of the President in times of war, invasion or rebellion and during other emergency
situations should be exercised jointly with Congress. This is to insure the correctness and propriety of
authorizing our armed forces to quell such hostilities. Such collective judgment is to be effected by
"heightened consultation" between the President and Congress. Thus, as can be gleaned from the
provisions of the Constitution, when the President proclaims martial law or suspends the privilege of
the writ, he shall "submit a report in person or in writing to the Congress. The Congress, voting jointly,
by a vote of at least a majority of all its Members in regular or special session, may revoke such
proclamation or suspension, which revocation shall not be set aside by the President." Not only that,
Section 23, Article VI of the Constitution provides that: "The Congress, by a vote of two-thirds of both
Houses in joint session assembled, voting separately, shall have the sole power to declare the
existence of a state of war. In times of war or other national emergency, the Congress may, by law,
authorize the President, for a limited period and subject to such restrictions as it may prescribe, to
exercise powers necessary and proper to carry out a declared national policy." Clearly, the
Constitution has not extended excessive authority in military, defense and emergency matters to the
President. Though the President is designated as the Commander-in-Chief of all armed forces of the
Philippines, the textual reed does not suffice to support limitless authority. Born by the nation's past
experiences, the concurrence of the Congress is required as a measure to ward-off totalitarian rule.
By declaring a "state of rebellion," President Arroyo effectively disregarded such concurrent power of
Congress. At this point, let it be stressed that the accumulation of both the executive and legislative
powers in the same hands constitutes the very definition of tyranny.
By sustaining the unusual course taken by President Arroyo, we are traversing a very dangerous path.
We are opening the way to those who, in the end, would turn our democracy into a totalitarian rule.
While it may not plunge us straightway into dictatorship, however, it is a step towards a wrong direction.
History must not be allowed to repeat itself. Any act which gears towards possible dictatorship must
be severed at its inception. As I have stated in my previous dissent, our nation had seen the rise of a
dictator into power. As a matter of fact, the changes made by the 1986 Constitutional Commission in
the martial law text of the Constitution were to a large extent a reaction against the direction which this
Court took during the regime of President Marcos.13 In ruling that the declaration of a "state of rebellion"
is a prerogative of the President, then, I say, our country is tracing the same dangerous road of the
past.

IV
The majority cited U.S. cases in support of their stand that the President's proclamation of "state of
rebellion" is in accordance with the Constitutional provisions granting her "powers as chief executive."
I find that In re Debs14 and Prize Cases15 illustrate an executive power much larger than is indicated
by the rudimentary constitutional provisions. Clearly, these cases cannot support the majority's
conclusion that: "The lesson to be learned from the U.S. constitutional history is that the Commander-
in-Chief powers are broad enough as it is and become more so when taken together with the provision
on executive power and the presidential oath of office. Thus, the plenitude of the powers of the
presidency equips the occupant with the means to address exigencies or threats which undermine the
very existence of government or the integrity of the State."
There are reasons why I find the above conclusion of the majority naccurate. From a survey of U.S.
jurisprudence, the outstanding fact remains that every specific proposal to confer uncontrollable power
upon the President is rejected.16 In re Debs,17 the U.S. Supreme Court Decision upheld the power of
President Grover Cleveland to prevent the strike of railway workers on the ground that it threatened
interference with interstate commerce and with the free flow of mail. The basic theory underlying this
case – that the President has inherent power to act for the nation in cases of major public need – was
eroded by the Youngstown Sheet & Tube Co. vs. Sawyer, also known as the Steel Seizure Case.18
This case aroused great public interest, largely because of its important implications concerning the
boundaries of presidential powers. The seven separate opinions consist of 128 pages in the Reports
and contain a great deal of important date on the powers of the Chief Executive. The same case
demonstrates well that executive powers, even during an alleged emergency, may still be subject to
judicial control. The decision constitutes a "dramatic vindication" of the American constitutional
government.19 Mr. Justice Andrew Jackson, concurring in the judgment and opinion of the Court,
eloquently expounded on the "executive" and "commander-in-chief" powers, thus:
"The Solicitor general seeks the power of seizure in three clauses of the Executive Article, the first
reading, 'The executive Power shall be vested in a President of the United States of America.' Lest I
be thought to exaggerate, I quote the interpretation which his brief puts upon it: 'In our view, this clause
constitutes a grant of all the executive powers of which the Government is capable.' If that be true, it
is difficult to see why the forefathers bothered to add several specific items, including some trifling
ones.

The example of such unlimited executive power that must have most impressed the forefathers was
the prerogative exercised by George III, and the description of its evils in the Declaration of
Independence leads me to doubt that they were creating their new Executive in his image. Continental
European examples were no more appealing. And if we seek instruction from our own times, we can
match it only from the executive powers in those governments were disparingly describe as totalitarian.
I cannot accept the view that this clause is a grant in bulk of all conceivable executive powers but
regard it as an allocation to the presidential office of the generic powers thereafter stated.
The clause on which the Government next relies is that 'The President shall be Commander in Chief
of the Army and Navy of the United States…' These cryptic words have given rise to some of the most
persistent controversies in our constitutional history. Of course, they imply something more than an
empty title. But just what authority goes with the name has plagued presidential advisers who would
not waive or narrow it by non-assertion yet cannot say where it begins or ends.
xxxxxx
The third clause in which the Solicitor General finds seizure powers is that 'he shall take care that the
laws be faithfully executed…' That authority must be matched against words of the Fifth Amendment
that 'No person shall be…deprived of life, liberty or property, without due process of law…' One gives
a governmental authority that reaches so far as there is law, the other gives a private right that authority
shall go no farther. These signify about all there is of the principle that ours is a governmental of laws,
not of men, and that we submit ourselves to rulers only if under rules."
Further, Mr. Justice Jackson referred to the discussion of inherent executive powers as "loose and
irresponsible use of adjectives." His wrath could be seen as reserved for those who use the word
"inherent" to mean "unlimited."20 Thus:
"The Solicitor General lastly grounds support of the seizure upon nebulous, inherent powers never
expressly granted but said to have accrued to the office from the customs and claims of preceding
administrations. The plea is for a resulting power to deal with a crisis or an emergency according to
the necessities of the case, the unarticulated assumption being that necessity knows no law.
Loose and irresponsible use of adjectives colors all non-legal and much legal discussion of presidential
powers. 'Inherent' powers, 'implied' powers, 'incidental' powers, 'plenary' powers, 'war' powers and
'emergency' powers are used, often interchangeably and without fixed or ascertainable meanings.
The vagueness and generality of the clauses that set forth presidential powers afford a plausible basis
for pressures within and without an administration for presidential action beyond that supported by
those whose responsibility it is to defend his actions in court. The claim of inherent and unrestricted
presidential powers has long been a persuasive dialectical weapon in political controversy. While it is
not surprising that counsel should grasp support from such unadjudicated claims of power, a judge
cannot accept self-serving press statements of the attorney for one of the interested parties as
authority in answering a constitutional question, even if the advocate was himself. But prudence has
counseled that actual reliance on such nebulous claims stop short of provoking a judicial test…"
In re Debs also received a serious blow in United States vs. United States District Court.21 The
Supreme Court Justices unanimously rejected the inherent executive authority to engage in
warrantless electronic surveillance in domestic security cases. Thus, where a substantial personal
interest in life, liberty or property is threatened by presidential action, In re Debs is regarded more as
an anachronism than authority.
In Prizes Cases, by a vote of 5 to 4, the U.S. Supreme Court upheld President Abraham Lincoln's
authority to impose a blockade. Under the U.S. Constitution, only Congress, empowered to declare a
war, could impose a blockade. It must be emphasized, however, that there is a distinction between
the role of the U.S. President in domestic affairs and in foreign affairs. The patterns in the foreign and
domestic realms are quite different. The federal regulation of domestic affairs has its constitutional
origins in the people and the states, and its initiation is allocated primarily to Congress (not the
Executive). The constitutional role for the executive in domestic matters is thus largely ancillary to that
of Congress.22 Thus, while it is recognized that executive power is predominant in foreign affairs, it is
not so in the domestic sphere. This distinction should be considered in invoking U.S. jurisprudence.
Clearly, the trail of U.S. jurisprudence does not support the view that the "Executive and Commander-
in-Chief clauses" of the Constitution grant the President such broad power as to give her the option of
disregarding the other restrictive provisions of the Constitution. The purpose of the Constitution is not
only to grant power, but to keep it from getting out of hand. The policy should be –– where the
Constitution has laid down specific procedures on how the President should deal with a crisis, it is
imperative that he must follow those procedures in meeting the crisis. These procedures serve as
limitations to what would otherwise be an unbounded exercise of power.
V
In fine, may I state that every presidential claim to a power must be scrutinized with caution, for what
is at stake is the equilibrium established by our constitutional system. The powers of the President are
not as particularized as are those of Congress. Enumerated powers do not include undefined powers,
as what the majority would want to point out. I state once more that there is no provision in our
Constitution authorizing the President to declare "a state of rebellion." Not even the constitutional
powers vested upon her include such power.
WHEREFORE, I vote to GRANT the petitions. Proclamation No. 427 and General Order No. 4 are
declared UNCONSTITUTIONAL.
 Republic of the Philippines
SUPREME COURT
EN BANC
G.R. No. 164978 October 13, 2005
AQUILINO Q. PIMENTEL, JR., EDGARDO J. ANGARA, JUAN PONCE ENRILE, LUISA P.
EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY
A.S. MADRIGAL, and SERGIO R. OSMEÑA III, Petitioners
vs.
EXEC. SECRETARY EDUARDO R. ERMITA, FLORENCIO B. ABAD, AVELINO J. CRUZ, JR.,
MICHAEL T. DEFENSOR, JOSEPH H. DURANO, RAUL M. GONZALEZ, ALBERTO G. ROMULO,
RENE C. VILLA, and ARTHUR C. YAP, Respondents.
DECISION
CARPIO, J.:

The Case
This is a petition for certiorari and prohibition1 with a prayer for the issuance of a writ of preliminary
injunction to declare unconstitutional the appointments issued by President Gloria Macapagal-Arroyo
("President Arroyo") through Executive Secretary Eduardo R. Ermita ("Secretary Ermita") to Florencio
B. Abad, Avelino J. Cruz, Jr., Michael T. Defensor, Joseph H. Durano, Raul M. Gonzalez, Alberto G.
Romulo, Rene C. Villa, and Arthur C. Yap ("respondents") as acting secretaries of their respective
departments. The petition also seeks to prohibit respondents from performing the duties of department
secretaries.

Antecedent Facts
The Senate and the House of Representatives ("Congress") commenced their regular session on 26
July 2004. The Commission on Appointments, composed of Senators and Representatives, was
constituted on 25 August 2004.
Meanwhile, President Arroyo issued appointments2 to respondents as acting secretaries of their
respective departments.
Appointee, Department, Date of Appointment
Arthur C. Yap, Agriculture, 15 August 2004

Alberto G. Romulo, Foreign Affairs, 23 August 2004

Raul M. Gonzalez, Justice, 23 August 2004
Florencio B. Abad, Education, 23 August 2004
Avelino J. Cruz, Jr., National Defense, 23 August 2004

Rene C. Villa, Agrarian Reform, 23 August 2004

Joseph H. Durano, Tourism, 23 August 2004
Michael T. Defensor, Environment and Natural Resources, 23 August 2004
The appointment papers are uniformly worded as follows:
Sir:
Pursuant to the provisions of existing laws, you are hereby appointed ACTING SECRETARY,
DEPARTMENT OF (appropriate department) vice (name of person replaced).
By virtue hereof, you may qualify and enter upon the performance of the duties and functions of the
office, furnishing this Office and the Civil Service Commission with copies of your Oath of Office.
(signed)
Gloria Arroyo
Respondents took their oath of office and assumed duties as acting secretaries.

On 8 September 2004, Aquilino Q. Pimentel, Jr. ("Senator Pimentel"), Edgardo J. Angara ("Senator
Angara"), Juan Ponce Enrile ("Senator Enrile"), Luisa P. Ejercito-Estrada ("Senator Ejercito-Estrada"),
Jinggoy E. Estrada ("Senator Estrada"), Panfilo M. Lacson ("Senator Lacson"), Alfredo S. Lim
("Senator Lim"), Jamby A.S. Madrigal ("Senator Madrigal"), and Sergio R. Osmeña, III ("Senator
Osmeña") ("petitioners") filed the present petition as Senators of the Republic of the Philippines.
Congress adjourned on 22 September 2004. On 23 September 2004, President Arroyo issued ad
interim appointments3 to respondents as secretaries of the departments to which they were previously
appointed in an acting capacity. The appointment papers are uniformly worded as follows:

Sir:
Pursuant to the provisions of existing laws, you are hereby appointed SECRETARY [AD INTERIM],
DEPARTMENT OF (appropriate department).

By virtue hereof, you may qualify and enter upon the performance of the duties and functions of the
office, furnishing this Office and the Civil Service Commission with copies of your oath of office.

(signed)
Gloria Arroyo
Issue
The petition questions the constitutionality of President Arroyo’s appointment of respondents as acting
secretaries without the consent of the Commission on Appointments while Congress is in session.
The Court’s Ruling
The petition has no merit.

Preliminary Matters
On the Mootness of the Petition
The Solicitor General argues that the petition is moot because President Arroyo had extended to
respondents ad interim appointments on 23 September 2004 immediately after the recess of
Congress.

As a rule, the writ of prohibition will not lie to enjoin acts already done.4 However, as an exception to
the rule on mootness, courts will decide a question otherwise moot if it is capable of repetition yet
evading review.5
In the present case, the mootness of the petition does not bar its resolution. The question of the
constitutionality of the President’s appointment of department secretaries in an acting capacity while
Congress is in session will arise in every such appointment.
On the Nature of the Power to Appoint

The power to appoint is essentially executive in nature, and the legislature may not interfere with the
exercise of this executive power except in those instances when the Constitution expressly allows it
to interfere.6 Limitations on the executive power to appoint are construed strictly against the
legislature.7 The scope of the legislature’s interference in the executive’s power to appoint is limited to
the power to prescribe the qualifications to an appointive office. Congress cannot appoint a person to
an office in the guise of prescribing qualifications to that office. Neither may Congress impose on the
President the duty to appoint any particular person to an office.8
However, even if the Commission on Appointments is composed of members of Congress, the
exercise of its powers is executive and not legislative. The Commission on Appointments does not
legislate when it exercises its power to give or withhold consent to presidential appointments. Thus:
xxx The Commission on Appointments is a creature of the Constitution. Although its membership is
confined to members of Congress, said Commission is independent of Congress. The powers of the
Commission do not come from Congress, but emanate directly from the Constitution. Hence, it is not
an agent of Congress. In fact, the functions of the Commissioner are purely executive in nature. xxx9
On Petitioners’ Standing
The Solicitor General states that the present petition is a quo warranto proceeding because, with the
exception of Secretary Ermita, petitioners effectively seek to oust respondents for unlawfully exercising
the powers of department secretaries. The Solicitor General further states that petitioners may not
claim standing as Senators because no power of the Commission on Appointments has been
"infringed upon or violated by the President. xxx If at all, the Commission on Appointments as a body
(rather than individual members of the Congress) may possess standing in this case."10
Petitioners, on the other hand, state that the Court can exercise its certiorari jurisdiction over
unconstitutional acts of the President.11 Petitioners further contend that they possess standing
because President Arroyo’s appointment of department secretaries in an acting capacity while
Congress is in session impairs the powers of Congress. Petitioners cite Sanlakas v. Executive
Secretary12 as basis, thus:
To the extent that the powers of Congress are impaired, so is the power of each member thereof,
since his office confers a right to participate in the exercise of the powers of that institution.

An act of the Executive which injures the institution of Congress causes a derivative but nonetheless
substantial injury, which can be questioned by a member of Congress. In such a case, any member
of Congress can have a resort to the courts.
Considering the independence of the Commission on Appointments from Congress, it is error for
petitioners to claim standing in the present case as members of Congress. President Arroyo’s issuance
of acting appointments while Congress is in session impairs no power of Congress. Among the
petitioners, only the following are members of the Commission on Appointments of the 13th Congress:
Senator Enrile as Minority Floor Leader, Senator Lacson as Assistant Minority Floor Leader, and
Senator Angara, Senator Ejercito-Estrada, and Senator Osmeña as members.
Thus, on the impairment of the prerogatives of members of the Commission on Appointments, only
Senators Enrile, Lacson, Angara, Ejercito-Estrada, and Osmeña have standing in the present petition.
This is in contrast to Senators Pimentel, Estrada, Lim, and Madrigal, who, though vigilant in protecting
their perceived prerogatives as members of Congress, possess no standing in the present petition.
The Constitutionality of President Arroyo’s Issuance
of Appointments to Respondents as Acting Secretaries
Petitioners contend that President Arroyo should not have appointed respondents as acting
secretaries because "in case of a vacancy in the Office of a Secretary, it is only an Undersecretary
who can be designated as Acting Secretary."13 Petitioners base their argument on Section 10, Chapter
2, Book IV of Executive Order No. 292 ("EO 292"),14 which enumerates the powers and duties of the
undersecretary. Paragraph 5 of Section 10 reads:
SEC. 10. Powers and Duties of the Undersecretary. - The Undersecretary shall:
xxx
(5) Temporarily discharge the duties of the Secretary in the latter’s absence or inability to discharge
his duties for any cause or in case of vacancy of the said office, unless otherwise provided by law.
Where there are more than one Undersecretary, the Secretary shall allocate the foregoing powers and
duties among them. The President shall likewise make the temporary designation of Acting Secretary
from among them; and
xxx
Petitioners further assert that "while Congress is in session, there can be no appointments, whether
regular or acting, to a vacant position of an office needing confirmation by the Commission on
Appointments, without first having obtained its consent."15

In sharp contrast, respondents maintain that the President can issue appointments in an acting
capacity to department secretaries without the consent of the Commission on Appointments even
while Congress is in session. Respondents point to Section 16, Article VII of the 1987 Constitution.
Section 16 reads:

SEC. 16. The President shall nominate and, with the consent of the Commission on Appointments,
appoint the heads of the executive departments, ambassadors, other public ministers and consuls, or
officers of the armed forces from the rank of colonel or naval captain, and other officers whose
appointments are vested in him in this Constitution. He shall also appoint all other officers of the
Government whose appointments are not otherwise provided for by law, and those whom he may be
authorized by law to appoint. The Congress may, by law, vest the appointment of other officers lower
in rank in the President alone, in the courts, or in the heads of departments, agencies, commissions,
or boards.
The President shall have the power to make appointments during the recess of the Congress, whether
voluntary or compulsory, but such appointments shall be effective only until disapproval by the
Commission on Appointments or until the next adjournment of the Congress.
Respondents also rely on EO 292, which devotes a chapter to the President’s power of appointment.
Sections 16 and 17, Chapter 5, Title I, Book III of EO 292 read:
SEC. 16. Power of Appointment. — The President shall exercise the power to appoint such
officials as provided for in the Constitution and laws.
SEC. 17. Power to Issue Temporary Designation. — (1) The President may temporarily designate
an officer already in the government service or any other competent person to perform the
functions of an office in the executive branch, appointment to which is vested in him by law,
when: (a) the officer regularly appointed to the office is unable to perform his duties by reason
of illness, absence or any other cause; or (b) there exists a vacancy[.]
(2) The person designated shall receive the compensation attached to the position, unless he is
already in the government service in which case he shall receive only such additional compensation
as, with his existing salary, shall not exceed the salary authorized by law for the position filled. The
compensation hereby authorized shall be paid out of the funds appropriated for the office or agency
concerned.
(3) In no case shall a temporary designation exceed one (1) year. (Emphasis supplied)
Petitioners and respondents maintain two diametrically opposed lines of thought. Petitioners assert
that the President cannot issue appointments in an acting capacity to department secretaries while
Congress is in session because the law does not give the President such power. In contrast,
respondents insist that the President can issue such appointments because no law prohibits such
appointments.
The essence of an appointment in an acting capacity is its temporary nature. It is a stop-gap measure
intended to fill an office for a limited time until the appointment of a permanent occupant to the office.16
In case of vacancy in an office occupied by an alter ego of the President, such as the office of a
department secretary, the President must necessarily appoint an alter ego of her choice as acting
secretary before the permanent appointee of her choice could assume office.
Congress, through a law, cannot impose on the President the obligation to appoint automatically the
undersecretary as her temporary alter ego. An alter ego, whether temporary or permanent, holds a
position of great trust and confidence. Congress, in the guise of prescribing qualifications to an office,
cannot impose on the President who her alter ego should be.
The office of a department secretary may become vacant while Congress is in session. Since a
department secretary is the alter ego of the President, the acting appointee to the office must
necessarily have the President’s confidence. Thus, by the very nature of the office of a department
secretary, the President must appoint in an acting capacity a person of her choice even while Congress
is in session. That person may or may not be the permanent appointee, but practical reasons may
make it expedient that the acting appointee will also be the permanent appointee.
The law expressly allows the President to make such acting appointment. Section 17, Chapter 5, Title
I, Book III of EO 292 states that "[t]he President may temporarily designate an officer already in the
government service or any other competent person to perform the functions of an office in the
executive branch." Thus, the President may even appoint in an acting capacity a person not yet in the
government service, as long as the President deems that person competent.
Petitioners assert that Section 17 does not apply to appointments vested in the President by the
Constitution, because it only applies to appointments vested in the President by law. Petitioners forget
that Congress is not the only source of law. "Law" refers to the Constitution, statutes or acts of
Congress, municipal ordinances, implementing rules issued pursuant to law, and judicial decisions.17
Finally, petitioners claim that the issuance of appointments in an acting capacity is susceptible to
abuse. Petitioners fail to consider that acting appointments cannot exceed one year as expressly
provided in Section 17(3), Chapter 5, Title I, Book III of EO 292. The law has incorporated this
safeguard to prevent abuses, like the use of acting appointments as a way to circumvent confirmation
by the Commission on Appointments.
In distinguishing ad interim appointments from appointments in an acting capacity, a noted textbook
writer on constitutional law has observed:
Ad-interim appointments must be distinguished from appointments in an acting capacity. Both of them
are effective upon acceptance. But ad-interim appointments are extended only during a recess of
Congress, whereas acting appointments may be extended any time there is a vacancy. Moreover ad-
interim appointments are submitted to the Commission on Appointments for confirmation or rejection;
acting appointments are not submitted to the Commission on Appointments. Acting appointments are
a way of temporarily filling important offices but, if abused, they can also be a way of circumventing
the need for confirmation by the Commission on Appointments.18

However, we find no abuse in the present case. The absence of abuse is readily apparent from
President Arroyo’s issuance of ad interim appointments to respondents immediately upon the recess
of Congress, way before the lapse of one year.
WHEREFORE, we DISMISS the present petition for certiorari and prohibition.
SO ORDERED.
ANTONIO T. CARPIO

Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice

REYNATO S. PUNOAssociate Justice, ARTEMIO V. PANGANIBANAssociate Justice,

LEONARDO A. QUISUMBINGAssociate Justice, CONSUELO YNARES-SANTIAGOAssociate
Justice,
ANGELINA SANDOVAL-GUTIERREZAssociate Justice, MA. ALICIA AUSTRIA-
MARTINEZAssociate Justice,

RENATO C. CORONAAssociate Justice, CONCHITA CARPIO MORALESAssociate Justice,

ROMEO J. CALLEJO, SR.Associate Justice, ADOLFO S. AZCUNAAssociate Justice,
DANTE O. TINGAAssociate Justice, MINITA V. CHICO-NAZARIOAssociate Justice,
HILARIO G. DAVIDE, JR.

Chief Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the opinion
of the Court.
HILARIO G. DAVIDE, JR.
Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 96541 August 24, 1993

DEAN JOSE JOYA, CARMEN GUERRERO NAKPIL, ARMIDA SIGUION REYNA, PROF.
RICARTE M. PURUGANAN, IRMA POTENCIANO, ADRIAN CRISTOBAL, INGRID SANTAMARIA,
CORAZON FIEL, AMBASSADOR E. AGUILAR CRUZ, FLORENCIO R. JACELA, JR., MAURO
MALANG, FEDERICO AGUILAR ALCUAZ, LUCRECIA R. URTULA, SUSANO GONZALES,
STEVE SANTOS, EPHRAIM SAMSON, SOLER SANTOS, ANG KIU KOK, KERIMA POLOTAN,
LUCRECIA KASILAG, LIGAYA DAVID PEREZ, VIRGILIO ALMARIO, LIWAYWAY A. ARCEO,
CHARITO PLANAS, HELENA BENITEZ, ANNA MARIA L. HARPER, ROSALINDA OROSA,
SUSAN CALO MEDINA, PATRICIA RUIZ, BONNIE RUIZ, NELSON NAVARRO, MANDY
NAVASERO, ROMEO SALVADOR, JOSEPHINE DARANG, and PAZ VETO PLANAS, petitioners,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), CATALINO MACARAIG, JR.,
in his official capacity, and/or the Executive Secretary, and CHAIRMAN MATEO A.T. CAPARAS,
respondents.

M.M. Lazaro & Associates for petitioners.

The Solicitor General for respondents.

BELLOSILLO, J.:
All thirty-five (35) petitioners in this Special Civil Action for Prohibition and Mandamus with Prayer for
Preliminary Injunction and/or Restraining Order seek to enjoin the Presidential Commission on Good
Government (PCGG) from proceeding with the auction sale scheduled on 11 January 1991 by
Christie's of New York of the Old Masters Paintings and 18th and 19th century silverware seized from
Malacañang and the Metropolitan Museum of Manila and placed in the custody of the Central Bank.
The antecedents: On 9 August 1990, Mateo A.T. Caparas, then Chairman of PCGG, wrote then
President Corazon C. Aquino, requesting her for authority to sign the proposed Consignment
Agreement between the Republic of the Philippines through PCGG and Christie, Manson and Woods
International, Inc. (Christie's of New York, or CHRISTIE'S) concerning the scheduled sale on 11
January 1991 of eighty-two (82) Old Masters Paintings and antique silverware seized from
Malacañang and the Metropolitan Museum of Manila alleged to be part of the ill-gotten wealth of the
late President Marcos, his relatives and cronies.
On 14 August 1990, then President Aquino, through former Executive Secretary Catalino Macaraig,
Jr., authorized Chairman Caparas to sign the Consignment Agreement allowing Christie's of New York
to auction off the subject art pieces for and in behalf of the Republic of the Philippines.
On 15 August 1990, PCGG, through Chairman Caparas, representing the Government of the Republic
of the Philippines, signed the Consignment Agreement with Christie's of New York. According to the
agreement, PCGG shall consign to CHRISTIE'S for sale at public auction the eighty-two (82) Old
Masters Paintings then found at the Metropolitan Museum of Manila as well as the silverware
contained in seventy-one (71) cartons in the custody of the Central Bank of the Philippines, and such
other property as may subsequently be identified by PCGG and accepted by CHRISTIE'S to be subject
to the provisions of the agreement. 1

On 26 October 1990, the Commission on Audit (COA) through then Chairman Eufemio C. Domingo
submitted to President Aquino the audit findings and observations of COA on the Consignment
Agreement of 15 August 1990 to the effect that: (a) the authority of former PCGG Chairman Caparas
to enter into the Consignment Agreement was of doubtful legality; (b) the contract was highly
disadvantageous to the government; (c) PCGG had a poor track record in asset disposal by auction
in the U.S.; and, (d) the assets subject of auction were historical relics and had cultural significance,
hence, their disposal was prohibited by law. 2

On 15 November 1990, PCGG through its new Chairman David M. Castro, wrote President Aquino
defending the Consignment Agreement and refuting the allegations of COA Chairman Domingo. On 3

the same date, Director of National Museum Gabriel S. Casal issued a certification that the items
subject of the Consignment Agreement did not fall within the classification of protected cultural
properties and did not specifically qualify as part of the Filipino cultural heritage. Hence, this petition
4

originally filed on 7 January 1991 by Dean Jose Joya, Carmen Guerrero Nakpil, Armida Siguion
Reyna, Prof. Ricarte M. Puruganan, Irma Potenciano, Adrian Cristobal, Ingrid Santamaria, Corazon
Fiel, Ambassador E. Aguilar Cruz, Florencio R. Jacela, Jr., Mauro Malang, Federico Aguilar Alcuaz,
Lucrecia R. Urtula, Susano Gonzales, Steve Santos, Ephraim Samson, Soler Santos, Ang Kiu Kok,
Kerima Polotan, Lucrecia Kasilag, Ligaya David Perez, Virgilio Almario and Liwayway A. Arceo.
After the oral arguments of the parties on 9 January 1991, we issued immediately our resolution
denying the application for preliminary injunction to restrain the scheduled sale of the artworks on the
ground that petitioners had not presented a clear legal right to a restraining order and that proper
parties had not been impleaded.
On 11 January 1991, the sale at public auction proceeded as scheduled and the proceeds of
$13,302,604.86 were turned over to the Bureau of Treasury. 5

On 5 February 1991, on motion of petitioners, the following were joined as additional petitioners:
Charito Planas, Helena Benitez, Ana Maria L. Harper, Rosalinda Orosa, Susan Carlo Medina, Patricia
Ruiz, Bonnie Ruiz, Nelson Navarro, Mandy Navasero, Romeo Salvador, Josephine Darang and Paz
Veto Planas.
On the other hand, Catalino Macaraig, Jr., in his capacity as former Executive Secretary, the
incumbent Executive Secretary, and Chairman Mateo A.T. Caparas were impleaded as additional
respondents.
Petitioners raise the following issues: (a) whether petitioners have legal standing to file the instant
petition; (b) whether the Old Masters Paintings and antique silverware are embraced in the phrase
"cultural treasure of the nation" which is under the protection of the state pursuant to the 1987
Constitution and/or "cultural properties" contemplated under R.A. 4846, otherwise known as "The
Cultural Properties Preservation and Protection Act;" (c) whether the paintings and silverware are
properties of public dominion on which can be disposed of through the joint concurrence of the
President and Congress;
(d) whether respondent, PCGG has the jurisdiction and authority to enter into an agreement with
Christie's of New York for the sale of the artworks; (e) whether, PCGG has complied with the due
process clause and other statutory requirements for the exportation and sale of the subject items; and,
(f) whether the petition has become moot and academic, and if so, whether the above issues warrant
resolution from this Court.
The issues being interrelated, they will be discussed jointly hereunder. However, before proceeding,
we wish to emphasize that we admire and commend petitioners' zealous concern to keep and preserve
within the country great works of art by well-known old masters. Indeed, the value of art cannot be
gainsaid. For, by serving as a creative medium through which man can express his innermost thoughts
and unbridled emotions while, at the same time, reflecting his deep-seated ideals, art has become a
true expression of beauty, joy, and life itself. Such artistic creations give us insights into the artists'
cultural heritage — the historic past of the nation and the era to which they belong — in their
triumphant, glorious, as well as troubled and turbulent years. It must be for this reason that the framers
of the 1987 Constitution mandated in Art. XIV, Sec. 14, that is the solemn duty of the state to "foster
the preservation, enrichment, and dynamic evolution of a Filipino national culture based on the
principle of unity in diversity in a climate of free artistic and intellectual expression." And, in urging this
Court to grant their petition, petitioners invoke this policy of the state on the protection of the arts.
But, the altruistic and noble purpose of the petition notwithstanding, there is that basic legal question
which must first be resolved: whether the instant petition complies with the legal requisites for this
Court to exercise its power of judicial review over this case.
The rule is settled that no question involving the constitutionality or validity of a law or governmental
act may be heard and decided by the court unless there is compliance with the legal requisites for
judicial inquiry, namely: that the question must be raised by the proper party; that there must be an
actual case or controversy; that the question must be raised at the earliest possible opportunity; and,
that the decision on the constitutional or legal question must be necessary to the determination of the
case itself. But the most important are the first two (2) requisites.
6

On the first requisite, we have held that one having no right or interest to protect cannot invoke the
jurisdiction of the court as party-plaintiff in an
action. This is premised on Sec. 2, Rule 3, of the Rules of Court which provides that every action must
7

be prosecuted and defended in the name of the real party-in-interest, and that all persons having
interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs.
The Court will exercise its power of judicial review only if the case is brought before it by a party who
has the legal standing to raise the constitutional or legal question. "Legal standing" means a personal
and substantial interest in the case such that the party has sustained or will sustain direct injury as a
result of the governmental act that is being challenged. The term "interest" is material interest, an
interest in issue and to be affected by the decree, as distinguished from mere interest in the question
involved, or a mere incidental interest. Moreover, the interest of the party plaintiff must be personal
8

and not one based on a desire to vindicate the constitutional right of some third and related party. 9

There are certain instances however when this Court has allowed exceptions to the rule on legal
standing, as when a citizen brings a case for mandamus to procure the enforcement of a public duty
for the fulfillment of a public right recognized by the Constitution, and when a taxpayer questions the
10

validity of a governmental act authorizing the disbursement of public funds. 11

Petitioners claim that as Filipino citizens, taxpayers and artists deeply concerned with the preservation
and protection of the country's artistic wealth, they have the legal personality to restrain respondents
Executive Secretary and PCGG from acting contrary to their public duty to conserve the artistic
creations as mandated by the 1987 Constitution, particularly Art. XIV, Secs. 14 to 18, on Arts and
Culture, and R.A. 4846 known as "The Cultural Properties Preservation and Protection Act," governing
the preservation and disposition of national and important cultural properties. Petitioners also anchor
their case on the premise that the paintings and silverware are public properties collectively owned by
them and by the people in general to view and enjoy as great works of art. They allege that with the
unauthorized act of PCGG in selling the art pieces, petitioners have been deprived of their right to
public property without due process of law in violation of the Constitution. 12

Petitioners' arguments are devoid of merit. They lack basis in fact and in law. They themselves allege
that the paintings were donated by private persons from different parts of the world to the Metropolitan
Museum of Manila Foundation, which is a non-profit and non-stock corporations established to
promote non-Philippine arts. The foundation's chairman was former First Lady Imelda R. Marcos, while
its president was Bienvenido R. Tantoco. On this basis, the ownership of these paintings legally
belongs to the foundation or corporation or the members thereof, although the public has been given
the opportunity to view and appreciate these paintings when they were placed on exhibit.
Similarly, as alleged in the petition, the pieces of antique silverware were given to the Marcos couple
as gifts from friends and dignitaries from foreign countries on their silver wedding and anniversary, an
occasion personal to them. When the Marcos administration was toppled by the revolutionary
government, these paintings and silverware were taken from Malacañang and the Metropolitan
Museum of Manila and transferred to the Central Bank Museum. The confiscation of these properties
by the Aquino administration however should not be understood to mean that the ownership of these
paintings has automatically passed on the government without complying with constitutional and
statutory requirements of due process and just compensation. If these properties were already
acquired by the government, any constitutional or statutory defect in their acquisition and their
subsequent disposition must be raised only by the proper parties — the true owners thereof — whose
authority to recover emanates from their proprietary rights which are protected by statutes and the
Constitution. Having failed to show that they are the legal owners of the artworks or that the valued
pieces have become publicly owned, petitioners do not possess any clear legal right whatsoever to
question their alleged unauthorized disposition.
Further, although this action is also one of mandamus filed by concerned citizens, it does not fulfill the
criteria for a mandamus suit. In Legaspi v. Civil Service Commission, this Court laid down the rule
13

that a writ of mandamus may be issued to a citizen only when the public right to be enforced and the
concomitant duty of the state are unequivocably set forth in the Constitution. In the case at bar,
petitioners are not after the fulfillment of a positive duty required of respondent officials under the 1987
Constitution. What they seek is the enjoining of an official act because it is constitutionally infirmed.
Moreover, petitioners' claim for the continued enjoyment and appreciation by the public of the artworks
is at most a privilege and is unenforceable as a constitutional right in this action for mandamus.
Neither can this petition be allowed as a taxpayer's suit. Not every action filed by a taxpayer can qualify
to challenge the legality of official acts done by the government. A taxpayer's suit can prosper only if
the governmental acts being questioned involve disbursement of public funds upon the theory that the
expenditure of public funds by an officer of the state for the purpose of administering an
unconstitutional act constitutes a misapplication of such funds, which may be enjoined at the request
of a taxpayer. Obviously, petitioners are not challenging any expenditure involving public funds but
14

the disposition of what they allege to be public properties. It is worthy to note that petitioners admit
that the paintings and antique silverware were acquired from private sources and not with public
money.
Anent the second requisite of actual controversy, petitioners argue that this case should be resolved
by this Court as an exception to the rule on moot and academic cases; that although the sale of the
paintings and silver has long been consummated and the possibility of retrieving the treasure trove is
nil, yet the novelty and importance of the issues raised by the petition deserve this Court's attention.
They submit that the resolution by the Court of the issues in this case will establish future guiding
principles and doctrines on the preservation of the nation's priceless artistic and cultural possessions
for the benefit of the public as a whole. 15

For a court to exercise its power of adjudication, there must be an actual case of controversy — one
which involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial
resolution; the case must not be moot or academic or based on extra-legal or other similar
considerations not cognizable by a court of justice. A case becomes moot and academic when its
16

purpose has become stale, such as the case before us. Since the purpose of this petition for
17

prohibition is to enjoin respondent public officials from holding the auction sale of the artworks on a
particular date — 11 January 1991 — which is long past, the issues raised in the petition have become
moot and academic.
At this point, however, we need to emphasize that this Court has the discretion to take cognizance of
a suit which does not satisfy the requirements of an actual case or legal standing when paramount
public interest is involved. We find however that there is no such justification in the petition at bar to
18

warrant the relaxation of the rule.

Section 2 of R.A. 4846, as amended by P.D. 374, declares it to be the policy of the state to preserve
and protect the important cultural properties and national cultural treasures of the nation and to
safeguard their intrinsic value. As to what kind of artistic and cultural properties are considered by the
State as involving public interest which should therefore be protected, the answer can be gleaned from
reading of the reasons behind the enactment of R.A. 4846:

WHEREAS, the National Museum has the difficult task, under existing laws and regulations,
of preserving and protecting the cultural properties of the nation;

WHEREAS, inumerable sites all over the country have since been excavated for cultural relics, which
have passed on to private hands, representing priceless cultural treasure that properly belongs to the
Filipino people as their heritage;
WHEREAS, it is perhaps impossible now to find an area in the Philippines, whether government or
private property, which has not been disturbed by commercially-minded diggers and collectors, literally
destroying part of our historic past;
WHEREAS, because of this the Philippines has been charged as incapable of preserving and
protecting her cultural legacies;
WHEREAS, the commercialization of Philippine relics from the contact period, the Neolithic Age, and
the Paleolithic Age, has reached a point perilously placing beyond reach of savants the study and
reconstruction of Philippine prehistory; and

WHEREAS, it is believed that more stringent regulation on movement and a limited form of registration
of important cultural properties and of designated national cultural treasures is necessary, and that
regardless of the item, any cultural property exported or sold locally must be registered with the
National Museum to control the deplorable situation regarding our national cultural properties and to
implement the Cultural Properties Law (emphasis supplied).
Clearly, the cultural properties of the nation which shall be under the protection of the state are
classified as the "important cultural properties" and the "national cultural treasures." "Important cultural
properties" are cultural properties which have been singled out from among the innumerable cultural
properties as having exceptional historical cultural significance to the Philippines but are not sufficiently
outstanding to merit the classification of national cultural treasures. On the other hand, a "national
19

cultural treasures" is a unique object found locally, possessing outstanding historical, cultural, artistic
and/or scientific value which is highly significant and important to this country and nation. This Court
20

takes note of the certification issued by the Director of the Museum that the Italian paintings and
silverware subject of this petition do not constitute protected cultural properties and are not among
those listed in the Cultural Properties Register of the National Museum.
We agree with the certification of the Director of the Museum. Under the law, it is the Director of the
Museum who is authorized to undertake the inventory, registration, designation or classification, with
the aid of competent experts, of important cultural properties and national cultural treasures. Findings
21

of administrative officials and agencies who have acquired expertise because their jurisdiction is
confined to specific matters are generally accorded not only respect but at times even finality if such
findings are supported by substantial evidence and are controlling on the reviewing authorities
because of their acknowledged expertise in the fields of specialization to which they are assigned. 22

In view of the foregoing, this Court finds no compelling reason to grant the petition. Petitioners have
failed to show that respondents Executive Secretary and PCGG exercised their functions with grave
abuse of discretion or in excess of their jurisdiction.
WHEREFORE, for lack of merit, the petition for prohibition and mandamus is DISMISSED.
SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon,
Melo, Quiason, Puno and Vitug, JJ., concur.
 EN BANC

G.R. No. 155001 May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL
ANTONIO B. BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON,
CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C.
HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and
PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and
SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT
SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, MIASCOR
AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION,
petitioners-in-intervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,

vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT
OF PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as
Head of the Department of Transportation and Communications, and SECRETARY SIMEON A.
DATUMANONG, in his capacity as Head of the Department of Public Works and Highways,
respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON
VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON,
and BENASING O. MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V.
GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD
SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA
SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, respondents.

PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the
Revised Rules of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the
Department of Transportation and Communications (DOTC) and its Secretary from implementing the
following agreements executed by the Philippine Government through the DOTC and the MIAA and
the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed
on July 12, 1997, (2) the Amended and Restated Concession Agreement dated November 26, 1999,
(3) the First Supplement to the Amended and Restated Concession Agreement dated August 27,
1999, (4) the Second Supplement to the Amended and Restated Concession Agreement dated
September 4, 2000, and (5) the Third Supplement to the Amended and Restated Concession
Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).
The facts are as follows:

In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the
present airport can cope with the traffic development up to the year 2010. The study consisted of two
parts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements, proposed master
plans and development plans; and second, presentation of the preliminary design of the passenger
terminal building. The ADP submitted a Draft Final Report to the DOTC in December 1989.

Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy,
Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore
the possibility of investing in the construction and operation of a new international airport terminal. To
signify their commitment to pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC)
which was registered with the Securities and Exchange Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the
DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III) under a
build-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law).1

On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids
and Awards Committee (PBAC) for the implementation of the NAIA IPT III project.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National
Economic and Development Authority (NEDA). A revised proposal, however, was forwarded by the
DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA Investment Coordinating
Council (NEDA ICC) – Technical Board favorably endorsed the project to the ICC – Cabinet Committee
which approved the same, subject to certain conditions, on January 19, 1996. On February 13, 1996,
the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project.

On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an
invitation for competitive or comparative proposals on AEDC's unsolicited proposal, in accordance
with Sec. 4-A of RA 6957, as amended. The alternative bidders were required to submit three (3)
sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first envelope should contain
the Prequalification Documents, the second envelope the Technical Proposal, and the third envelope
the Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents
and the submission of the comparative bid proposals. Interested firms were permitted to obtain the
Request for Proposal Documents beginning June 28, 1996, upon submission of a written application
and payment of a non-refundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must have
adequate capability to sustain the financing requirement for the detailed engineering, design,
construction, operation, and maintenance phases of the project. The proponent would be evaluated
based on its ability to provide a minimum amount of equity to the project, and its capacity to secure
external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference
on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The
following amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial
proposal an additional percentage of gross revenue share of the Government, as follows:

i. First 5 5.0
years %
ii. Next 7.5
10 %
years
iii. Next 10.
10 0
years %
b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge.
Proponent may offer an Annual Guaranteed Payment which need not be of equal amount, but payment
of which shall start upon site possession.
c. The project proponent must have adequate capability to sustain the financing requirement for the
detailed engineering, design, construction, and/or operation and maintenance phases of the project
as the case may be. For purposes of pre-qualification, this capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the consortium to provide the
minimum amount of equity for the project; and
ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members of
the consortium are banking with them, that the project proponent and/or the members are of good
financial standing, and have adequate resources.

d. The basis for the prequalification shall be the proponent's compliance with the minimum technical
and financial requirements provided in the Bid Documents and the IRR of the BOT Law. The minimum
amount of equity shall be 30% of the Project Cost.
e. Amendments to the draft Concession Agreement shall be issued from time to time. Said
amendments shall only cover items that would not materially affect the preparation of the proponent's
proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made.
Upon the request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the
PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the
BOT Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be
revealed to AEDC, and that the challengers' technical and financial proposals would remain
confidential. The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the
Bid Documents was merely indicative and that other revenue sources may be included by the
proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees
and charges denominated as Public Utility Fees would be subject to regulation, and those charges
which would be actually deemed Public Utility Fees could still be revised, depending on the outcome
of PBAC's query on the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries and the PBAC's
responses were as follows:
1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as
prescribed in Section 8.3.4 of the Bid Documents considering that the capitalization of each member
company is so structured to meet the requirements and needs of their current respective business
undertaking/activities. In order to comply with this equity requirement, Paircargo is requesting PBAC
to just allow each member of (sic) corporation of the Joint Venture to just execute an agreement that
embodies a commitment to infuse the required capital in case the project is awarded to the Joint
Venture instead of increasing each corporation's current authorized capital stock just for
prequalification purposes.
In prequalification, the agency is interested in one's financial capability at the time of prequalification,
not future or potential capability.

A commitment to put up equity once awarded the project is not enough to establish that "present"
financial capability. However, total financial capability of all member companies of the Consortium, to
be established by submitting the respective companies' audited financial statements, shall be
acceptable.

2. At present, Paircargo is negotiating with banks and other institutions for the extension of a
Performance Security to the joint venture in the event that the Concessions Agreement (sic) is
awarded to them. However, Paircargo is being required to submit a copy of the draft concession as
one of the documentary requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished
copy of the approved negotiated agreement between the PBAC and the AEDC at the soonest possible
time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes
would be made known to prospective challengers through bid bulletins. However, a final version will
be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with the
required Bid Security.

On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium) submitted their competitive proposal to the PBAC. On September
23, 1996, the PBAC opened the first envelope containing the prequalification documents of the
Paircargo Consortium. On the following day, September 24, 1996, the PBAC prequalified the
Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that
Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification
purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the
operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised
by the latter, and that based on the documents submitted by Paircargo and the established
prequalification criteria, the PBAC had found that the challenger, Paircargo, had prequalified to
undertake the project. The Secretary of the DOTC approved the finding of the PBAC.

The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium
which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial
capability, in view of the restrictions imposed by Section 21-B of the General Banking Act and Sections
1380 and 1381 of the Manual Regulations for Banks and Other Financial Intermediaries. On October
7, 1996, AEDC again manifested its objections and requested that it be furnished with excerpts of the
PBAC meeting and the accompanying technical evaluation report where each of the issues they raised
were addressed.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals. Both proponents offered to build the NAIA
Passenger Terminal III for at least $350 million at no cost to the government and to pay the
government: 5% share in gross revenues for the first five years of operation, 7.5% share in gross
revenues for the next ten years of operation, and 10% share in gross revenues for the last ten years
of operation, in accordance with the Bid Documents. However, in addition to the foregoing, AEDC
offered to pay the government a total of P135 million as guaranteed payment for 27 years while
Paircargo Consortium offered to pay the government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the
Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996 within which to
match the said bid, otherwise, the project would be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure
to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport
Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its
objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of
the NEDA-ICC.

On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity
of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman of
the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman
of the PBAC Technical Committee.

On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-
objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum
gathered only four (4) of the required six (6) signatures, the NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" (1997
Concession Agreement). The Government granted PIATCO the franchise to operate and maintain the
said terminal during the concession period and to collect the fees, rentals and other charges in
accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for twenty-five (25) years commencing from the in-service
date, and may be renewed at the option of the Government for a period not exceeding twenty-five (25)
years. At the end of the concession period, PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession
Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that were amended by
the ARCA were: Sec. 1.11 pertaining to the definition of "certificate of completion"; Sec. 2.05 pertaining
to the Special Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given to
the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its interest in the
Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec.
5.10 with respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes,
duties and other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards the periodic
adjustment of public utility fees and charges; the entire Article VIII concerning the provisions on the
termination of the contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in
case a dispute or controversy arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the
Third Supplement on June 22, 2001 (collectively, Supplements).

The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross
Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds
for the upkeep, maintenance, repair and/or replacement of all airport facilities and equipment which
are owned or operated by MIAA; and further providing additional special obligations on the part of
GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First Supplement also
provided a stipulation as regards the construction of a surface road to connect NAIA Terminal II and
Terminal III in lieu of the proposed access tunnel crossing Runway 13/31; the swapping of obligations
between GRP and PIATCO regarding the improvement of Sales Road; and the changes in the
timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees;
Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA
referring to the Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing, removal,
demolition or disposal of subterranean structures uncovered or discovered at the site of the
construction of the terminal by the Concessionaire. It defined the scope of works; it provided for the
procedure for the demolition of the said structures and the consideration for the same which the GRP
shall pay PIATCO; it provided for time extensions, incremental and consequential costs and losses
consequent to the existence of such structures; and it provided for some additional obligations on the
part of PIATCO as regards the said structures.

Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the
construction of the surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I
and II, had existing concession contracts with various service providers to offer international airline
airport services, such as in-flight catering, passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing, and other services, to several
international airlines at the NAIA. Some of these service providers are the Miascor Group, DNATA-
Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia, together
with Philippine Airlines (PAL), are the dominant players in the industry with an aggregate market share
of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming that they
stand to lose their employment upon the implementation of the questioned agreements, filed before
this Court a petition for prohibition to enjoin the enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion
for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed
a similar petition with this Court.3
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of
the various agreements.4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes,
Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast
Abayon and Benasing O. Macaranbon, moved to intervene in the case as Respondents-Intervenors.
They filed their Comment-In-Intervention defending the validity of the assailed agreements and praying
for the dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November
29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacañang Palace, stated that
she will not "honor (PIATCO) contracts which the Executive Branch's legal offices have concluded (as)
null and void."5
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The
Office of the Solicitor General and the Office of the Government Corporate Counsel filed their
respective Comments in behalf of the public respondents.

On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court
then resolved in open court to require the parties to file simultaneously their respective Memoranda in
amplification of the issues heard in the oral arguments within 30 days and to explore the possibility of
arbitration or mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the
Government Corporate Counsel prayed that the present petitions be given due course and that
judgment be rendered declaring the 1997 Concession Agreement, the ARCA and the Supplements
thereto void for being contrary to the Constitution, the BOT Law and its Implementing Rules and
Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO
commenced arbitration proceedings before the International Chamber of Commerce, International
Court of Arbitration (ICC) by filing a Request for Arbitration with the Secretariat of the ICC against the
Government of the Republic of the Philippines acting through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated issues made
difficult by their intersecting legal and economic implications. The Court is aware of the far reaching
fall out effects of the ruling which it makes today. For more than a century and whenever the exigencies
of the times demand it, this Court has never shirked from its solemn duty to dispense justice and
resolve "actual controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction."6 To be sure, this Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will
bar the resolution of the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers7 having separate
concession contracts with MIAA and continuing service agreements with various international airlines
to provide in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and
provisions, cargo handling and warehousing and other services. Also included as petitioners are labor
unions MIASCOR Workers Union-National Labor Union and Philippine Airlines Employees
Association. These petitioners filed the instant action for prohibition as taxpayers and as parties whose
rights and interests stand to be violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine
laws engaged in the business of providing in-flight catering, passenger handling, ramp and ground
support, aircraft maintenance and provisions, cargo handling and warehousing and other services to
several international airlines at the Ninoy Aquino International Airport. Petitioners-Intervenors allege
that as tax-paying international airline and airport-related service operators, each one of them stands
to be irreparably injured by the implementation of the PIATCO Contracts. Each of the petitioners-
intervenors have separate and subsisting concession agreements with MIAA and with various
international airlines which they allege are being interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa
Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive bargaining
agent of all the employees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the
contracts entered into by the Government and PIATCO regarding the build-operate-and-transfer of the
NAIA IPT III. They filed the petition as taxpayers and persons who have a legitimate interest to protect
in the implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which
directly contravene numerous provisions of the Constitution, specific provisions of the BOT Law and
its Implementing Rules and Regulations, and public policy. Petitioners contend that the DOTC and the
MIAA, by entering into said contracts, have committed grave abuse of discretion amounting to lack or
excess of jurisdiction which can be remedied only by a writ of prohibition, there being no plain, speedy
or adequate remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which
grant PIATCO the exclusive right to operate a commercial international passenger terminal within the
Island of Luzon, except those international airports already existing at the time of the execution of the
agreement. The contracts further provide that upon the commencement of operations at the NAIA IPT
III, the Government shall cause the closure of Ninoy Aquino International Airport Passenger Terminals
I and II as international passenger terminals. With respect to existing concession agreements between
MIAA and international airport service providers regarding certain services or operations, the 1997
Concession Agreement and the ARCA uniformly provide that such services or operations will not be
carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except
through a separate agreement duly entered into with PIATCO.8
With respect to the petitioning service providers and their employees, upon the commencement of
operations of the NAIA IPT III, they allege that they will be effectively barred from providing
international airline airport services at the NAIA Terminals I and II as all international airlines and
passengers will be diverted to the NAIA IPT III. The petitioning service providers will thus be compelled
to contract with PIATCO alone for such services, with no assurance that subsisting contracts with
MIAA and other international airlines will be respected. Petitioning service providers stress that despite
the very competitive market, the substantial capital investments required and the high rate of fees,
they entered into their respective contracts with the MIAA with the understanding that the said
contracts will be in force for the stipulated period, and thereafter, renewed so as to allow each of the
petitioning service providers to recoup their investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the
other hand allege that with the closure of the NAIA Terminals I and II as international passenger
terminals under the PIATCO Contracts, they stand to lose employment.
The question on legal standing is whether such parties have "alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the presentation
of issues upon which the court so largely depends for illumination of difficult constitutional questions."9
Accordingly, it has been held that the interest of a person assailing the constitutionality of a statute
must be direct and personal. He must be able to show, not only that the law or any government act is
invalid, but also that he sustained or is in imminent danger of sustaining some direct injury as a result
of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that
the person complaining has been or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or
act complained of.10
We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have
a direct and substantial interest to protect by reason of the implementation of the PIATCO Contracts.
They stand to lose their source of livelihood, a property right which is zealously protected by the
Constitution. Moreover, subsisting concession agreements between MIAA and petitioners-intervenors
and service contracts between international airlines and petitioners-intervenors stand to be nullified or
terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The financial prejudice
brought about by the PIATCO Contracts on petitioners and petitioners-intervenors in these cases are
legitimate interests sufficient to confer on them the requisite standing to file the instant petitions.
b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of
Representatives, citizens and taxpayers. They allege that as members of the House of
Representatives, they are especially interested in the PIATCO Contracts, because the contracts
compel the Government and/or the House of Representatives to appropriate funds necessary to
comply with the provisions therein.11 They cite provisions of the PIATCO Contracts which require
disbursement of unappropriated amounts in compliance with the contractual obligations of the
Government. They allege that the Government obligations in the PIATCO Contracts which compel
government expenditure without appropriation is a curtailment of their prerogatives as legislators,
contrary to the mandate of the Constitution that "[n]o money shall be paid out of the treasury except in
pursuance of an appropriation made by law."12
Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by
parties who have been personally injured by the operation of a law or any other government act but
by concerned citizens, taxpayers or voters who actually sue in the public interest. Although we are not
unmindful of the cases of Imus Electric Co. v. Municipality of Imus13 and Gonzales v. Raquiza14
wherein this Court held that appropriation must be made only on amounts immediately demandable,
public interest demands that we take a more liberal view in determining whether the petitioners
suing as legislators, taxpayers and citizens have locus standi to file the instant petition. In
Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the liberal policy of this Court on locus
standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit
civic organizations were allowed to initiate and prosecute actions before this Court to question the
constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies
or instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid
of discretion as to whether or not it should be entertained."17 As such ". . . even if, strictly speaking,
they [the petitioners] are not covered by the definition, it is still within the wide discretion of the Court
to waive the requirement and so remove the impediment to its addressing and resolving the serious
constitutional questions raised."18 In view of the serious legal questions involved and their impact on
public interest, we resolve to grant standing to the petitioners.

Other Procedural Matters

Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases
as factual issues are involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges
that submission of this controversy to this Court at the first instance is a violation of the rule on
hierarchy of courts. They contend that trial courts have concurrent jurisdiction with this Court with
respect to a special civil action for prohibition and hence, following the rule on hierarchy of courts,
resort must first be had before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the view that the
crux of the instant controversy involves significant legal questions. The facts necessary to resolve
these legal questions are well established and, hence, need not be determined by a trial court.

The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the
cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify availment of a remedy
within and calling for the exercise of this Court's primary jurisdiction.19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation
of the rule. Both petitioners and respondents agree that these cases are of transcendental
importance as they involve the construction and operation of the country's premier international
airport. Moreover, the crucial issues submitted for resolution are of first impression and they entail the
proper legal interpretation of key provisions of the Constitution, the BOT Law and its Implementing
Rules and Regulations. Thus, considering the nature of the controversy before the Court, procedural
bars may be lowered to give way for the speedy disposition of the instant cases.

Legal Effect of the Commencement

of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware that arbitration
proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent
PIATCO. Again, we hold that the arbitration step taken by PIATCO will not oust this Court of its
jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration clause in
the Distributorship Agreement in question is valid and the dispute between the parties is arbitrable,
this Court affirmed the trial court's decision denying petitioner's Motion to Suspend Proceedings
pursuant to the arbitration clause under the contract. In so ruling, this Court held that as contracts
produce legal effect between the parties, their assigns and heirs, only the parties to the Distributorship
Agreement are bound by its terms, including the arbitration clause stipulated therein. This Court ruled
that arbitration proceedings could be called for but only with respect to the parties to the contract in
question. Considering that there are parties to the case who are neither parties to the Distributorship
Agreement nor heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr.
v. Laperal Realty Corporation,21 held that to tolerate the splitting of proceedings by allowing arbitration
as to some of the parties on the one hand and trial for the others on the other hand would, in effect,
result in multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus, we ruled that
the interest of justice would best be served if the trial court hears and adjudicates the case in a single
and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests in the
resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be
bound by the arbitration clause provided for in the ARCA and hence, cannot be compelled to submit
to arbitration proceedings. A speedy and decisive resolution of all the critical issues in the
present controversy, including those raised by petitioners, cannot be made before an arbitral
tribunal. The object of arbitration is precisely to allow an expeditious determination of a dispute. This
objective would not be met if this Court were to allow the parties to settle the cases by arbitration as
there are certain issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will
not be equipped to resolve.
Now, to the merits of the instant controversy.
I

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-
qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to
meet the financial capability required under the BOT Law and the Bid Documents. They allege that in
computing the ability of the Paircargo Consortium to meet the minimum equity requirements for the
project, the entire net worth of Security Bank, a member of the consortium, should not be
considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued
by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have
a combined net worth of P3,900,000,000.00, sufficient to meet the equity requirements of the project.
The said Memorandum was in response to a letter from Mr. Antonio Henson of AEDC to President
Fidel V. Ramos questioning the financial capability of the Paircargo Consortium on the ground that it
does not have the financial resources to put up the required minimum equity of P2,700,000,000.00.
This contention is based on the restriction under R.A. No. 337, as amended or the General Banking
Act that a commercial bank cannot invest in any single enterprise in an amount more than 15% of its
net worth. In the said Memorandum, Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will
be evaluated based on total financial capability of all the member companies of the [Paircargo]
Consortium. In this connection, the Challenger was found to have a combined net worth of
P3,926,421,242.00 that could support a project costing approximately P13 Billion.
It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement now
will be nothing less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial capability. As
stated in Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued
by reputable banks. The Challenger has complied with this requirement.

To recap, net worth reflected in the Financial Statement should not be taken as the amount of the
money to be used to answer the required thirty percent (30%) equity of the challenger but rather to be
used in establishing if there is enough basis to believe that the challenger can comply with the required
30% equity. In fact, proof of sufficient equity is required as one of the conditions for award of contract
(Section 12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the same document).23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be
awarded to the bidder "who, having satisfied the minimum financial, technical, organizational and
legal standards" required by the law, has submitted the lowest bid and most favorable terms of the
project.24 Further, the 1994 Implementing Rules and Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx xxx xxx

c. Financial Capability: The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction and/or operation and maintenance
phases of the project, as the case may be. For purposes of pre-qualification, this capability shall be
measured in terms of (i) proof of the ability of the project proponent and/or the consortium to
provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable
banks attesting that the project proponent and/or members of the consortium are banking with
them, that they are in good financial standing, and that they have adequate resources. The
government agency/LGU concerned shall determine on a project-to-project basis and before pre-
qualification, the minimum amount of equity needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending
the financial capability requirements for pre-qualification of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance of the proponent to the minimum
technical and financial requirements provided in the Bid Documents and in the IRR of the BOT Law,
R.A. No. 6957, as amended by R.A. 7718.

The minimum amount of equity to which the proponent's financial capability will be based shall be
thirty percent (30%) of the project cost instead of the twenty percent (20%) specified in Section
3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in
Section 2.01a of the draft concession agreement. The debt portion of the project financing should not
exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the
unsolicited proposal of AEDC has to show that it possesses the requisite financial capability to
undertake the project in the minimum amount of 30% of the project cost through (i) proof of the
ability to provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable
banks attesting that the project proponent or members of the consortium are banking with them, that
they are in good financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00,25
the Paircargo Consortium had to show to the satisfaction of the PBAC that it had the ability to provide
the minimum equity for the project in the amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of
P2,783,592.00 and P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of 1995
indicate that it has approximately P26,735,700.00 to invest as its equity for the project.27 Security
Bank's Audited Financial Statements as of 1995 show that it has a net worth equivalent to its capital
funds in the amount of P3,523,504,377.00.28
We agree with public respondents that with respect to Security Bank, the entire amount of its net
worth could not be invested in a single undertaking or enterprise, whether allied or non-allied in
accordance with the provisions of R.A. No. 337, as amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary
Board, whenever it shall deem appropriate and necessary to further national development objectives
or support national priority projects, may authorize a commercial bank, a bank authorized to
provide commercial banking services, as well as a government-owned and controlled bank, to
operate under an expanded commercial banking authority and by virtue thereof exercise, in
addition to powers authorized for commercial banks, the powers of an Investment House as
provided in Presidential Decree No. 129, invest in the equity of a non-allied undertaking, or own
a majority or all of the equity in a financial intermediary other than a commercial bank or a bank
authorized to provide commercial banking services: Provided, That (a) the total investment in equities
shall not exceed fifty percent (50%) of the net worth of the bank; (b) the equity investment in any
one enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of the net
worth of the bank; (c) the equity investment of the bank, or of its wholly or majority-owned subsidiary,
in a single non-allied undertaking shall not exceed thirty-five percent (35%) of the total equity in the
enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the
equity investment in other banks shall be deducted from the investing bank's net worth for purposes
of computing the prescribed ratio of net worth to risk assets.
xxx xxx xxx
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions. — The following limitations and restrictions shall
also apply regarding equity investments of banks.
a. In any single enterprise. — The equity investments of banks in any single enterprise shall not exceed
at any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and
Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only
P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the
Paircargo Consortium, after considering the maximum amounts that may be validly invested by each
of its members is P558,384,871.55 or only 6.08% of the project cost,29 an amount substantially less
than the prescribed minimum equity investment required for the project in the amount of
P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the
ability of the bidder to undertake the project. Thus, with respect to the bidder's financial capacity at the
pre-qualification stage, the law requires the government agency to examine and determine the ability
of the bidder to fund the entire cost of the project by considering the maximum amounts that each
bidder may invest in the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity in the
minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-equity ratio
prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC should
determine the maximum amounts that each member of the consortium may commit for the
construction, operation and maintenance of the NAIA IPT III project at the time of pre-qualification.
With respect to Security Bank, the maximum amount which may be invested by it would only be 15%
of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding the
investment ceilings provided by applicable law would not result in a proper evaluation of whether or
not a bidder is pre-qualified to undertake the project as for all intents and purposes, such ceiling or
legal restriction determines the true maximum amount which a bidder may invest in the project.
Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires
an evaluation of the financial capacity of the said bidder at the time the bid is submitted based on
the required documents presented by the bidder. The PBAC should not be allowed to speculate on
the future financial ability of the bidder to undertake the project on the basis of documents submitted.
This would open doors to abuse and defeat the very purpose of a public bidding. This is especially
true in the case at bar which involves the investment of billions of pesos by the project proponent. The
relevant government authority is duty-bound to ensure that the awardee of the contract possesses the
minimum required financial capability to complete the project. To allow the PBAC to estimate the
bidder's future financial capability would not secure the viability and integrity of the project. A restrictive
and conservative application of the rules and procedures of public bidding is necessary not only to
protect the impartiality and regularity of the proceedings but also to ensure the financial and technical
reliability of the project. It has been held that:

The basic rule in public bidding is that bids should be evaluated based on the required documents
submitted before and not after the opening of bids. Otherwise, the foundation of a fair and competitive
public bidding would be defeated. Strict observance of the rules, regulations, and guidelines of
the bidding process is the only safeguard to a fair, honest and competitive public bidding.30
Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids
are submitted falls short of the minimum amounts required to be put up by the bidder, said bidder
should be properly disqualified. Considering that at the pre-qualification stage, the maximum amounts
which the Paircargo Consortium may invest in the project fell short of the minimum amounts prescribed
by the PBAC, we hold that Paircargo Consortium was not a qualified bidder. Thus the award of the
contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of the instant controversy, as the legal
effects of the disqualification of respondent PIATCO's predecessor would come into play and
necessarily result in the nullity of all the subsequent contracts entered by it in pursuance of the project,
the Court feels that it is necessary to discuss in full the pressing issues of the present controversy for
a complete resolution thereof.

II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it
contains provisions that substantially depart from the draft Concession Agreement included in the Bid
Documents. They maintain that a substantial departure from the draft Concession Agreement is a
violation of public policy and renders the 1997 Concession Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is
intended to be a draft, i.e., subject to change, alteration or modification, and that this intention was
clear to all participants, including AEDC, and DOTC/MIAA. It argued further that said intention is
expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments
shall only cover items that would not materially affect the preparation of the proponent's proposal.
By its very nature, public bidding aims to protect the public interest by giving the public the best
possible advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law, competition
requires, not only `bidding upon a common standard, a common basis, upon the same thing, the same
subject matter, the same undertaking,' but also that it be legitimate, fair and honest; and not
designed to injure or defraud the government.31
An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not
simply in terms of application of the procedural rules and regulations imposed by the relevant
government agency, but more importantly, on the contract bidded upon. Each bidder must be able to
bid on the same thing. The rationale is obvious. If the winning bidder is allowed to later include or
modify certain provisions in the contract awarded such that the contract is altered in any material
respect, then the essence of fair competition in the public bidding is destroyed. A public bidding would
indeed be a farce if after the contract is awarded, the winning bidder may modify the contract and
include provisions which are favorable to it that were not previously made available to the other
bidders. Thus:
It is inherent in public biddings that there shall be a fair competition among the bidders. The
specifications in such biddings provide the common ground or basis for the bidders. The specifications
should, accordingly, operate equally or indiscriminately upon all bidders.32
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a contract for
public work to the lowest responsible bidder, the proposals and specifications therefore must be so
framed as to permit free and full competition. Nor can they enter into a contract with the best
bidder containing substantial provisions beneficial to him, not included or contemplated in the
terms and specifications upon which the bids were invited.33

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft
concession agreement is subject to amendment, the pertinent portion of which was quoted above, the
PBAC also clarified that "[s]aid amendments shall only cover items that would not materially
affect the preparation of the proponent's proposal."

While we concede that a winning bidder is not precluded from modifying or amending certain
provisions of the contract bidded upon, such changes must not constitute substantial or material
amendments that would alter the basic parameters of the contract and would constitute a
denial to the other bidders of the opportunity to bid on the same terms. Hence, the determination
of whether or not a modification or amendment of a contract bidded out constitutes a substantial
amendment rests on whether the contract, when taken as a whole, would contain substantially different
terms and conditions that would have the effect of altering the technical and/or financial proposals
previously submitted by other bidders. The alterations and modifications in the contract executed
between the government and the winning bidder must be such as to render such executed contract to
be an entirely different contract from the one that was bidded upon.
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval
the ruling of the trial court that an amendment to a contract awarded through public bidding, when
such subsequent amendment was made without a new public bidding, is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract
after public bidding is a limitation upon the right of the contracting parties to alter or amend it without
another public bidding, for otherwise what would a public bidding be good for if after the execution
of a contract after public bidding, the contracting parties may alter or amend the contract, or
even cancel it, at their will? Public biddings are held for the protection of the public, and to give the
public the best possible advantages by means of open competition between the bidders. He who bids
or offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection
and best possible advantages to the public will disappear if the parties to a contract executed after
public bidding may alter or amend it without another previous public bidding.35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement
that was offered for public bidding, i.e., the draft Concession Agreement attached to the Bid
Documents? A close comparison of the draft Concession Agreement attached to the Bid Documents
and the 1997 Concession Agreement reveals that the documents differ in at least two material
respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be

collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and
the 1997 Concession Agreement may be classified into three distinct categories: (1) fees which are
subject to periodic adjustment of once every two years in accordance with a prescribed parametric
formula and adjustments are made effective only upon written approval by MIAA; (2) fees other than
those included in the first category which maybe adjusted by PIATCO whenever it deems necessary
without need for consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by
PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The
glaring distinctions between the draft Concession Agreement and the 1997 Concession Agreement lie
in the types of fees included in each category and the extent of the supervision and regulation which
MIAA is allowed to exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment in accordance
with a prescribed parametric formula and effective only upon written approval by MIAA, the draft
Concession Agreement includes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;

(5) check-in counter rentals; and

(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon
MIAA approval are classified as "Public Utility Revenues" and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;

(3) check-in counter fees; and

(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is best appreciated
in relation to fees included in the second category identified above. Under the 1997 Concession
Agreement, fees which PIATCO may adjust whenever it deems necessary without need for consent
of DOTC/MIAA are "Non-Public Utility Revenues" and is defined as "all other income not classified as
Public Utility Revenues derived from operations of the Terminal and the Terminal Complex."38 Thus,
under the 1997 Concession Agreement, ground handling fees, rentals from airline offices and
porterage fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate
(1) lobby and vehicular parking fees and (2) other new fees and charges that may be imposed by
PIATCO. Such regulation may be made by periodic adjustment and is effective only upon written
approval of MIAA. The full text of said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees,
aircraft tacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and
porterage fees shall be allowed only once every two years and in accordance with the Parametric
Formula attached hereto as Annex F. Provided that adjustments shall be made effective only after the
written express approval of the MIAA. Provided, further, that such approval of the MIAA, shall be
contingent only on the conformity of the adjustments with the above said parametric formula. The first
adjustment shall be made prior to the In-Service Date of the Terminal.
The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby
and vehicular parking fees and other new fees and charges as contemplated in paragraph 2 of
Section 6.01 if in its judgment the users of the airport shall be deprived of a free option for the
services they cover.39
On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
xxx xxx xxx

(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public
Utility Revenues in order to ensure that End Users are not unreasonably deprived of services. While
the vehicular parking fee, porterage fee and greeter/well wisher fee constitute Non-Public Utility
Revenues of Concessionaire, GRP may intervene and require Concessionaire to explain and
justify the fee it may set from time to time, if in the reasonable opinion of GRP the said fees have
become exorbitant resulting in the unreasonable deprivation of End Users of such services.40

Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage
fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and justify
the fees set by PIATCO. In the draft Concession Agreement, vehicular parking fee is subject to
MIAA regulation and approval under the second paragraph of Section 6.03 thereof while porterage fee
is covered by the first paragraph of the same provision. There is an obvious relaxation of the extent of
control and regulation by MIAA with respect to the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO,
i.e., new fees and charges that may be imposed by PIATCO which have not been previously imposed
or collected at the Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03 of the
draft Concession Agreement MIAA has reserved the right to regulate the same under the same
conditions that MIAA may regulate fees under the first category, i.e., periodic adjustment of once every
two years in accordance with a prescribed parametric formula and effective only upon written approval
by MIAA. However, under the 1997 Concession Agreement, adjustment of fees under the third
category is not subject to MIAA regulation.
With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was included
within the category of "Public Utility Revenues" under the 1997 Concession Agreement. This
classification is significant because under the 1997 Concession Agreement, "Public Utility
Revenues" are subject to an "Interim Adjustment" of fees upon the occurrence of certain extraordinary
events specified in the agreement.42 However, under the draft Concession Agreement, terminal fees
are not included in the types of fees that may be subject to "Interim Adjustment."43
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are
denominated in US Dollars44 while payments to the Government are in Philippine Pesos. In the draft
Concession Agreement, no such stipulation was included. By stipulating that "Public Utility
Revenues" will be paid to PIATCO in US Dollars while payments by PIATCO to the Government are
in Philippine currency under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits
of depreciations of the Philippine Peso, while being effectively insulated from the detrimental effects
of exchange rate fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction
in the types of fees that are subject to MIAA regulation and the relaxation of such regulation with
respect to other fees are significant amendments that substantially distinguish the draft Concession
Agreement from the 1997 Concession Agreement. The 1997 Concession Agreement, in this
respect, clearly gives PIATCO more favorable terms than what was available to other bidders
at the time the contract was bidded out. It is not very difficult to see that the changes in the 1997
Concession Agreement translate to direct and concrete financial advantages for PIATCO which
were not available at the time the contract was offered for bidding. It cannot be denied that under the
1997 Concession Agreement only "Public Utility Revenues" are subject to MIAA regulation.
Adjustments of all other fees imposed and collected by PIATCO are entirely within its control.
Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is further
subject to "Interim Adjustments" not previously stipulated in the draft Concession Agreement. Finally,
the change in the currency stipulated for "Public Utility Revenues" under the 1997 Concession
Agreement, except terminal fees, gives PIATCO an added benefit which was not available at the time
of bidding.
b. Assumption by the

Government of the liabilities of

PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who
have provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption
by the Government of these liabilities. In fact, nowhere in the said contract does default of PIATCO's
loans figure in the agreement. Such default does not directly result in any concomitant right or
obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default
has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated
date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of
such default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice
of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume
the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as
concessionaire and operator of the Development Facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this Agreement; Provided that if at the end of the 180-day
period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice,
GRP shall be deemed to have elected to take over the Development Facility with the concomitant
assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire,
the latter shall form and organize a concession company qualified to take over the operation of the
Development Facility. If the concession company should elect to designate an operator for the
Development Facility, the concession company shall in good faith identify and designate a qualified
operator acceptable to GRP within one hundred eighty (180) days from receipt of GRP's written notice.
If the concession company, acting in good faith and with due diligence, is unable to designate a
qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take
over the Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of
the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant Liabilities,"
default by PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence
of certain events that leads to the assumption by the Government of the liability for the loans.
Only in one instance may the Government escape the assumption of PIATCO's liabilities, i.e., when
the Government so elects and allows a qualified operator to take over as Concessionaire. However,
this circumstance is dependent on the existence and availability of a qualified operator who is
willing to take over the rights and obligations of PIATCO under the contract, a circumstance
that is not entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of
the 1997 Concession Agreement may be considered a form of security for the loans PIATCO has
obtained to finance the project, an option that was not made available in the draft Concession
Agreement. Section 4.04 is an important amendment to the 1997 Concession Agreement because it
grants PIATCO a financial advantage or benefit which was not previously made available during
the bidding process. This financial advantage is a significant modification that translates to better
terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft
Concession Agreement is subject to amendment because the Bid Documents permit financing or
borrowing. They claim that it was the lenders who proposed the amendments to the draft Concession
Agreement which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project
proponent or the winning bidder to obtain financing for the project, especially in this case which
involves the construction, operation and maintenance of the NAIA IPT III. Expectedly, compliance by
the project proponent of its undertakings therein would involve a substantial amount of investment. It
is therefore inevitable for the awardee of the contract to seek alternate sources of funds to support the
project. Be that as it may, this Court maintains that amendments to the contract bidded upon should
always conform to the general policy on public bidding if such procedure is to be faithful to its real
nature and purpose. By its very nature and characteristic, competitive public bidding aims to protect
the public interest by giving the public the best possible advantages through open competition.45 It has
been held that the three principles in public bidding are (1) the offer to the public; (2) opportunity for
competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which excludes
any of these factors destroys the distinctive character of the system and thwarts the purpose of its
adoption.46 These are the basic parameters which every awardee of a contract bidded out must
conform to, requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing
that, as in this case, the contract signed by the government and the contract-awardee is an entirely
different contract from the contract bidded, courts should not hesitate to strike down said contract in
its entirety for violation of public policy on public bidding. A strict adherence on the principles, rules
and regulations on public bidding must be sustained if only to preserve the integrity and the faith of
the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service and for
furnishing supplies and other materials. It aims to secure for the government the lowest possible price
under the most favorable terms and conditions, to curtail favoritism in the award of government
contracts and avoid suspicion of anomalies and it places all bidders in equal footing. 47 Any
government action which permits any substantial variance between the conditions under
which the bids are invited and the contract executed after the award thereof is a grave abuse
of discretion amounting to lack or excess of jurisdiction which warrants proper judicial action.

In view of the above discussion, the fact that the foregoing substantial amendments were made on the
1997 Concession Agreement renders the same null and void for being contrary to public policy.
These amendments convert the 1997 Concession Agreement to an entirely different agreement
from the contract bidded out or the draft Concession Agreement. It is not difficult to see that the
amendments on (1) the types of fees or charges that are subject to MIAA regulation or control and the
extent thereof and (2) the assumption by the Government, under certain conditions, of the liabilities of
PIATCO directly translates concrete financial advantages to PIATCO that were previously not
available during the bidding process. These amendments cannot be taken as merely supplements
to or implementing provisions of those already existing in the draft Concession Agreement. The
amendments discussed above present new terms and conditions which provide financial benefit to
PIATCO which may have altered the technical and financial parameters of other bidders had they
known that such terms were available.
III
Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement
provides:

Section 4.04 Assignment

xxx xxx xxx
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the
default resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated
date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of
such default. GRP shall within one hundred eighty (180) days from receipt of the joint written notice of
the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume
the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as
concessionaire and operator of the Development facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this Agreement; Provided, that if at the end of the 180-day
period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice,
GRP shall be deemed to have elected to take over the Development Facility with the
concomitant assumption of Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter
shall form and organize a concession company qualified to takeover the operation of the Development
Facility. If the concession company should elect to designate an operator for the Development Facility,
the concession company shall in good faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of GRP's written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified operator within
the aforesaid period, then GRP shall at the end of the 180-day period take over the Development
Facility and assume Attendant Liabilities.
….

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books
of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.48
It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in
its loan obligations, is obligated to pay "all amounts recorded and from time to time outstanding
from the books" of PIATCO which the latter owes to its creditors.49 These amounts include "all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other
related expenses."50 This obligation of the Government to pay PIATCO's creditors upon PIATCO's
default would arise if the Government opts to take over NAIA IPT III. It should be noted, however, that
even if the Government chooses the second option, which is to allow PIATCO's unpaid creditors
operate NAIA IPT III, the Government is still at a risk of being liable to PIATCO's creditors should the
latter be unable to designate a qualified operator within the prescribed period.51 In effect, whatever
option the Government chooses to take in the event of PIATCO's failure to fulfill its loan
obligations, the Government is still at a risk of assuming PIATCO's outstanding loans. This is
due to the fact that the Government would only be free from assuming PIATCO's debts if the unpaid
creditors would be able to designate a qualified operator within the period provided for in the contract.
Thus, the Government's assumption of liability is virtually out of its control. The Government
under the circumstances provided for in the 1997 Concession Agreement is at the mercy of the
existence, availability and willingness of a qualified operator. The above contractual provisions
constitute a direct government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct
the infrastructure and development projects necessary for economic growth and development. This is
why private sector resources are being tapped in order to finance these projects. The BOT law allows
the private sector to participate, and is in fact encouraged to do so by way of incentives, such as
minimizing the unstable flow of returns,52 provided that the government would not have to
unnecessarily expend scarcely available funds for the project itself. As such, direct guarantee, subsidy
and equity by the government in these projects are strictly prohibited.53 This is but logical for if the
government would in the end still be at a risk of paying the debts incurred by the private entity
in the BOT projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee — An agreement whereby the government or any of its agencies or
local government units assume responsibility for the repayment of debt directly incurred by the
project proponent in implementing the project in case of a loan default.

Clearly by providing that the Government "assumes" the attendant liabilities, which consists of
PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct government guarantee
for the debts incurred by PIATCO in the implementation of the NAIA IPT III project. It is of no moment
that the relevant sections are subsumed under the title of "assignment". The provisions providing for
direct government guarantee which is prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect.
Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:

Section 4.04 Security

xxx xxx xxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into
direct agreement with the Senior Lenders, or with an agent of such Senior Lenders (which
agreement shall be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may
be reasonably acceptable to both GRP and Senior Lenders, with regard, inter alia, to the following
parameters:

xxx xxx xxx

(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior
Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate the Senior
Loans, the Senior Lenders shall have the right to notify GRP of the same, and without prejudice to any
other rights of the Senior Lenders or any Senior Lenders' agent may have (including without limitation
under security interests granted in favor of the Senior Lenders), to either in good faith identify and
designate a nominee which is qualified under sub-clause (viii)(y) below to operate the Development
Facility [NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights and obligations under this
Agreement to a transferee which is qualified under sub-clause (viii) below;
xxx xxx xxx

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a
nominee or effect a transfer in terms and conditions satisfactory to the Senior Lenders within one
hundred eighty (180) days after giving GRP notice as referred to respectively in (iv) or (v) above, then
GRP and the Senior Lenders shall endeavor in good faith to enter into any other arrangement relating
to the Development Facility [NAIA Terminal 3] (other than a turnover of the Development Facility [NAIA
Terminal 3] to GRP) within the following one hundred eighty (180) days. If no agreement relating to
the Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within the
said 180-day period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be
transferred by the Concessionaire [PIATCO] to GRP or its designee and GRP shall make a
termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter
defined) of the Development Facility [NAIA Terminal 3] or the sum of the Attendant Liabilities,
if greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed terminated upon
the transfer of the Development Facility [NAIA Terminal 3] to GRP pursuant hereto;
xxx xxx xxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time
to time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or
any other persons or entities who have provided, loaned, or advanced funds or provided financial
facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, without
limitation, all principal, interest, associated fees, charges, reimbursements, and other related
expenses (including the fees, charges and expenses of any agents or trustees of such persons or
entities), whether payable at maturity, by acceleration or otherwise, and further including amounts
owed by Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors
and sub-contractors.54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan
obligations to its Senior Lenders, the Government is obligated to directly negotiate and enter into an
agreement relating to NAIA IPT III with the Senior Lenders, should the latter fail to appoint a qualified
nominee or transferee who will take the place of PIATCO. If the Senior Lenders and the Government
are unable to enter into an agreement after the prescribed period, the Government must then pay
PIATCO, upon transfer of NAIA IPT III to the Government, termination payment equal to the appraised
value of the project or the value of the attendant liabilities whichever is greater. Attendant liabilities
as defined in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not only to
the Senior Lenders with whom PIATCO has defaulted in its loan obligations but to all other persons
who may have loaned, advanced funds or provided any other type of financial facilities to PIATCO for
NAIA IPT III. The amount of PIATCO's debt that the Government would have to pay as a result of
PIATCO's default in its loan obligations -- in case no qualified nominee or transferee is appointed by
the Senior Lenders and no other agreement relating to NAIA IPT III has been reached between the
Government and the Senior Lenders -- includes, but is not limited to, "all principal, interest, associated
fees, charges, reimbursements, and other related expenses . . . whether payable at maturity, by
acceleration or otherwise."55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the government
to pay PIATCO's loans not only to its Senior Lenders but all other entities who provided
PIATCO funds or services upon PIATCO's default in its loan obligation with its Senior Lenders.
The fact that the Government's obligation to pay PIATCO's lenders for the latter's obligation would
only arise after the Senior Lenders fail to appoint a qualified nominee or transferee does not detract
from the fact that, should the conditions as stated in the contract occur, the ARCA still obligates the
Government to pay any and all amounts owed by PIATCO to its lenders in connection with NAIA IPT
III. Worse, the conditions that would make the Government liable for PIATCO's debts is triggered by
PIATCO's own default of its loan obligations to its Senior Lenders to which loan contracts the
Government was never a party to. The Government was not even given an option as to what course
of action it should take in case PIATCO defaulted in the payment of its senior loans. The Government,
upon PIATCO's default, would be merely notified by the Senior Lenders of the same and it is the Senior
Lenders who are authorized to appoint a qualified nominee or transferee. Should the Senior Lenders
fail to make such an appointment, the Government is then automatically obligated to "directly deal and
negotiate" with the Senior Lenders regarding NAIA IPT III. The only way the Government would not
be liable for PIATCO's debt is for a qualified nominee or transferee to be appointed in place of PIATCO
to continue the construction, operation and maintenance of NAIA IPT III. This "pre-condition", however,
will not take the contract out of the ambit of a direct guarantee by the government as the existence,
availability and willingness of a qualified nominee or transferee is totally out of the government's
control. As such the Government is virtually at the mercy of PIATCO (that it would not default on
its loan obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified
nominee or transferee or agree to some other arrangement with the Government) and the existence
of a qualified nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT
III.
The proscription against government guarantee in any form is one of the policy considerations
behind the BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for all
loans, advances and obligations arising out of financial facilities extended to PIATCO for the
implementation of the NAIA IPT III project should PIATCO default in its loan obligations to its Senior
Lenders and the latter fails to appoint a qualified nominee or transferee. This in effect would make the
Government liable for PIATCO's loans should the conditions as set forth in the ARCA arise. This is a
form of direct government guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT
project may be accepted, the following conditions must first be met: (1) the project involves a new
concept in technology and/or is not part of the list of priority projects, (2) no direct government
guarantee, subsidy or equity is required, and (3) the government agency or local government unit
has invited by publication other interested parties to a public bidding and conducted the same. 56 The
failure to meet any of the above conditions will result in the denial of the proposal. It is further provided
that the presence of direct government guarantee, subsidy or equity will "necessarily disqualify a
proposal from being treated and accepted as an unsolicited proposal."57 The BOT Law clearly and
strictly prohibits direct government guarantee, subsidy and equity in unsolicited proposals that the
mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands to
reason therefore that if a proposal can be denied by reason of the existence of direct government
guarantee, then its inclusion in the contract executed after the said proposal has been accepted is
likewise sufficient to invalidate the contract itself. A prohibited provision, the inclusion of which would
result in the denial of a proposal cannot, and should not, be allowed to later on be inserted in the
contract resulting from the said proposal. The basic rules of justice and fair play alone militate against
such an occurrence and must not, therefore, be countenanced particularly in this instance where the
government is exposed to the risk of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be done directly
cannot be done indirectly.58 To declare the PIATCO contracts valid despite the clear statutory
prohibition against a direct government guarantee would not only make a mockery of what the
BOT Law seeks to prevent -- which is to expose the government to the risk of incurring a
monetary obligation resulting from a contract of loan between the project proponent and its
lenders and to which the Government is not a party to -- but would also render the BOT Law
useless for what it seeks to achieve –- to make use of the resources of the private sector in the
"financing, operation and maintenance of infrastructure and development projects"59 which are
necessary for national growth and development but which the government, unfortunately,
could ill-afford to finance at this point in time.
IV
Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the State may, during
the emergency and under reasonable terms prescribed by it, temporarily take over or direct the
operation of any privately owned public utility or business affected with public interest.
The above provision pertains to the right of the State in times of national emergency, and in the
exercise of its police power, to temporarily take over the operation of any business affected with public
interest. In the 1986 Constitutional Commission, the term "national emergency" was defined to include
threat from external aggression, calamities or national disasters, but not strikes "unless it is of such
proportion that would paralyze government service."60 The duration of the emergency itself is the
determining factor as to how long the temporary takeover by the government would last.61 The
temporary takeover by the government extends only to the operation of the business and not to the
ownership thereof. As such the government is not required to compensate the private entity-
owner of the said business as there is no transfer of ownership, whether permanent or temporary.
The private entity-owner affected by the temporary takeover cannot, likewise, claim just compensation
for the use of the said business and its properties as the temporary takeover by the government is in
exercise of its police power and not of its power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
….

(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire
or any part thereof, become the subject matter of or be included in any notice, notification, or
declaration concerning or relating to acquisition, seizure or appropriation by GRP in times of war or
national emergency, GRP shall, by written notice to Concessionaire, immediately take over the
operations of the Terminal and/or the Terminal Complex. During such take over by GRP, the
Concession Period shall be suspended; provided, that upon termination of war, hostilities or national
emergency, the operations shall be returned to Concessionaire, at which time, the Concession period
shall commence to run again. Concessionaire shall be entitled to reasonable compensation for
the duration of the temporary take over by GRP, which compensation shall take into account
the reasonable cost for the use of the Terminal and/or Terminal Complex, (which is in the
amount at least equal to the debt service requirements of Concessionaire, if the temporary take
over should occur at the time when Concessionaire is still servicing debts owed to project lenders),
any loss or damage to the Development Facility, and other consequential damages. If the parties
cannot agree on the reasonable compensation of Concessionaire, or on the liability of GRP as
aforesaid, the matter shall be resolved in accordance with Section 10.01 [Arbitration]. Any amount
determined to be payable by GRP to Concessionaire shall be offset from the amount next payable by
Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on
temporary government takeover and obligate the government to pay "reasonable cost for the
use of the Terminal and/or Terminal Complex."63 Article XII, section 17 of the 1987 Constitution
envisions a situation wherein the exigencies of the times necessitate the government to "temporarily
take over or direct the operation of any privately owned public utility or business affected with public
interest." It is the welfare and interest of the public which is the paramount consideration in determining
whether or not to temporarily take over a particular business. Clearly, the State in effecting the
temporary takeover is exercising its police power. Police power is the "most essential, insistent, and
illimitable of powers."64 Its exercise therefore must not be unreasonably hampered nor its exercise be
a source of obligation by the government in the absence of damage due to arbitrariness of its
exercise.65 Thus, requiring the government to pay reasonable compensation for the reasonable use of
the property pursuant to the operation of the business contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies,
consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a
particular article, or control the sale of a particular commodity."66 The 1987 Constitution strictly
regulates monopolies, whether private or public, and even provides for their prohibition if public
interest so requires. Article XII, Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid
the government in carrying on an enterprise or to aid in the performance of various services and
functions in the interest of the public.67 Nonetheless, a determination must first be made as to
whether public interest requires a monopoly. As monopolies are subject to abuses that can inflict
severe prejudice to the public, they are subject to a higher level of State regulation than an ordinary
business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the
"exclusive right to operate a commercial international passenger terminal within the Island of Luzon"
at the NAIA IPT III.68 This is with the exception of already existing international airports in Luzon such
as those located in the Subic Bay Freeport Special Economic Zone ("SBFSEZ"), Clark Special
Economic Zone ("CSEZ") and in Laoag City.69 As such, upon commencement of PIATCO's operation
of NAIA IPT III, Terminals 1 and 2 of NAIA would cease to function as international passenger
terminals. This, however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger
terminals or in any other manner as it may deem appropriate except those activities that would
compete with NAIA IPT III in the latter's operation as an international passenger terminal.70 The right
granted to PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five (25) years
from the In-Service Date71 and renewable for another twenty-five (25) years at the option of the
government.72 Both the 1997 Concession Agreement and the ARCA further provide that, in view
of the exclusive right granted to PIATCO, the concession contracts of the service providers
currently servicing Terminals 1 and 2 would no longer be renewed and those concession
contracts whose expiration are subsequent to the In-Service Date would cease to be effective
on the said date.73
The operation of an international passenger airport terminal is no doubt an undertaking imbued with
public interest. In entering into a Build–Operate-and-Transfer contract for the construction, operation
and maintenance of NAIA IPT III, the government has determined that public interest would be served
better if private sector resources were used in its construction and an exclusive right to operate be
granted to the private entity undertaking the said project, in this case PIATCO. Nonetheless, the
privilege given to PIATCO is subject to reasonable regulation and supervision by the Government
through the MIAA, which is the government agency authorized to operate the NAIA complex, as well
as DOTC, the department to which MIAA is attached.74
This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be
regulated.75 While it is the declared policy of the BOT Law to encourage private sector participation by
"providing a climate of minimum government regulations,"76 the same does not mean that Government
must completely surrender its sovereign power to protect public interest in the operation of a public
utility as a monopoly. The operation of said public utility can not be done in an arbitrary manner to the
detriment of the public which it seeks to serve. The right granted to the public utility may be exclusive
but the exercise of the right cannot run riot. Thus, while PIATCO may be authorized to exclusively
operate NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has
the right and the duty to ensure that it is done in accord with public interest. PIATCO's right to operate
NAIA IPT III cannot also violate the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxx xxx xxx
(e) GRP confirms that certain concession agreements relative to certain services and operations
currently being undertaken at the Ninoy Aquino International Airport passenger Terminal I have a
validity period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms that
these services and operations shall not be carried over to the Terminal and the Concessionaire is
under no legal obligation to permit such carry-over except through a separate agreement duly
entered into with Concessionaire. In the event Concessionaire becomes involved in any litigation
initiated by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire
free and harmless on full indemnity basis from and against any loss and/or any liability resulting from
any such litigation, including the cost of litigation and the reasonable fees paid or payable to
Concessionaire's counsel of choice, all such amounts shall be fully deductible by way of an offset from
any amount which the Concessionaire is bound to pay GRP under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for
G.R. No. 155001 stated that there are two service providers whose contracts are still existing and
whose validity extends beyond the In-Service Date. One contract remains valid until 2008 and the
other until 2010.77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an
absolute right for the renewal or the extension of their respective contracts, those contracts whose
duration extends beyond NAIA IPT III's In-Service-Date should not be unduly prejudiced. These
contracts must be respected not just by the parties thereto but also by third parties. PIATCO cannot,
by law and certainly not by contract, render a valid and binding contract nugatory. PIATCO, by the
mere expedient of claiming an exclusive right to operate, cannot require the Government to break its
contractual obligations to the service providers. In contrast to the arrastre and stevedoring service
providers in the case of Anglo-Fil Trading Corporation v. Lazaro78 whose contracts consist of
temporary hold-over permits, the affected service providers in the cases at bar, have a valid and
binding contract with the Government, through MIAA, whose period of effectivity, as well as the other
terms and conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the
1997 Concession Agreement and the ARCA did not strip government, thru the MIAA, of its right to
supervise the operation of the whole NAIA complex, including NAIA IPT III. As the primary government
agency tasked with the job,79 it is MIAA's responsibility to ensure that whoever by contract is given the
right to operate NAIA IPT III will do so within the bounds of the law and with due regard to the rights
of third parties and above all, the interest of the public.
VI
CONCLUSION

In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo
Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the
construction, operation and maintenance of the NAIA IPT III is null and void. Further, considering that
the 1997 Concession Agreement contains material and substantial amendments, which amendments
had the effect of converting the 1997 Concession Agreement into an entirely different agreement from
the contract bidded upon, the 1997 Concession Agreement is similarly null and void for being contrary
to public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997
Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute
a direct government guarantee expressly prohibited by, among others, the BOT Law and its
Implementing Rules and Regulations are also null and void. The Supplements, being accessory
contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement
and the Supplements thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, and
Carpio-Morales, JJ., concur.
Vitug, J., see separate (dissenting) opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.
Carpio, J., no part.
Callejo, Sr., J., also concur in the separate opinion of J. Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug.

SEPARATE OPINIONS
VITUG, J.:
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that the
Supreme Court shall exercise original jurisdiction over, among other actual controversies, petitions for
certiorari, prohibition, mandamus, quo warranto, and habeas corpus.1 The cases in question, although
denominated to be petitions for prohibition, actually pray for the nullification of the PIATCO contracts
and to restrain respondents from implementing said agreements for being illegal and unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
"When the proceedings of any tribunal, corporation, board, officer or person, whether exercising
judicial, quasi-judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any
other plain, speedy and adequate remedy in the ordinary course of law, a person aggrieved thereby
may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment
be rendered commanding the respondent to desist from further proceedings in the action or matter
specified therein, or otherwise granting such incidental reliefs as law and justice may require."
The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation, board, officer
or person, exercising judicial, quasi-judicial or ministerial functions. What the petitions seek from
respondents do not involve judicial, quasi-judicial or ministerial functions. In prohibition, only legal
issues affecting the jurisdiction of the tribunal, board or officer involved may be resolved on the basis
of undisputed facts.2 The parties allege, respectively, contentious evidentiary facts. It would be difficult,
if not anomalous, to decide the jurisdictional issue on the basis of the contradictory factual submissions
made by the parties.3 As the Court has so often exhorted, it is not a trier of facts.

The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the Rules of
Court. The Rules provide that any person interested under a contract may, before breach or violation
thereof, bring an action in the appropriate Regional Trial Court to determine any question of
construction or validity arising, and for a declaration of his rights or duties thereunder.4 The Supreme
Court assumes no jurisdiction over petitions for declaratory relief which are cognizable by regional trial
courts.5
As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs. Guingona,
Jr.7 , the Supreme Court should not be thought of as having been tasked with the awesome
responsibility of overseeing the entire bureaucracy. Pervasive and limitless, such as it may seem to
be under the 1987 Constitution, judicial power still succumbs to the paramount doctrine of separation
of powers. The Court may not at good liberty intrude, in the guise of sovereign imprimatur, into every
affair of government. What significance can still then remain of the time-honored and widely acclaimed
principle of separation of powers if, at every turn, the Court allows itself to pass upon at will the
disposition of a co-equal, independent and coordinate branch in our system of government. I dread to
think of the so varied uncertainties that such an undue interference can lead to.

Accordingly, I vote for the dismissal of the petition.

Quisumbing, and Azcuna, JJ., concur.

PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino International Airport (NAIA)
Terminal III, the subject of the consolidated Petitions before the Court, are replete with outright
violations of law, public policy and the Constitution. The only proper thing to do is declare them all null
and void ab initio and let the chips fall where they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia. I shall not burden the
readers with a retelling thereof. Instead, I will cut to the chase and directly address the two sets of gut
issues:
1. The first issue is procedural: Does the Supreme Court have original jurisdiction to hear and decide
the Petitions? Corollarily, do petitioners have locus standi and should this Court decide the cases
without any mandatory referral to arbitration?
2. The second one is substantive in character: Did the subject contracts violate the Constitution, the
laws, and public policy to such an extent as to render all of them void and inexistent?
My answer to all the above questions is a firm "Yes."
The Procedural Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these Petitions are clearly of transcendental importance
and of national interest. The subject contracts pertain to the construction and the operation of the
country's premiere international airport terminal - an ultramodern world-class public utility that will play
a major role in the country's economic development and serve to project a positive image of our
country abroad. The five build-operate-&-transfer (BOT) contracts, while entailing the investment of
billions of pesos in capital and the availment of several hundred millions of dollars in loans, contain
provisions that tend to establish a monopoly, require the disbursements of public funds sans
appropriations, and provide government guarantees in violation of statutory prohibitions, as well as
other provisions equally offensive to law, public policy and the Constitution. Public interest will
inevitably be affected thereby.

Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for
arbitration prior to court action, and (c) the alleged lack of sufficient personality, standing or interest,
being in the main procedural matters, must now be set aside, as they have been in past cases. This
Court must be permitted to perform its constitutional duty of determining whether the other agencies
of government have acted within the limits of the Constitution and the laws, or if they have gravely
abused the discretion entrusted to them.1
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government contracts ought to
be settled without delay.2 This holding applies with greater force to the instant cases. Respondent
Piatco is partly correct in averring that petitioners can obtain relief from the regional trial courts via an
action to annul the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and the finality of any
such judgment would be a prolonged state of uncertainty that would be prejudicial to the nation, the
parties and the general public. And, in light of the feared loss of jobs of the petitioning workers,
consequent to the inevitable pretermination of contracts of the petitioning service providers that will
follow upon the heels of the impending opening of NAIA Terminal III, the need for relief is patently
urgent, and therefore, direct resort to this Court through the special civil action of prohibition is thus
justified.3
Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will require delving
into factual questions,4 I submit that their disposition ultimately turns on questions of law.5 Further,
many of the significant and relevant factual questions can be easily addressed by an examination of
the documents submitted by the parties. In any event, the Petitions raise some novel questions
involving the application of the amended BOT Law, which this Court has seen fit to tackle.

Arbitration
Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco claims that
Section 10.02 of the Amended and Restated Concession Agreement (ARCA) provides for arbitration
under the auspices of the International Chamber of Commerce to settle any dispute or controversy or
claim arising in connection with the Concession Agreement, its amendments and supplements. The
government disagrees, however, insisting that there can be no arbitration based on Section 10.02 of
the ARCA, since all the Piatco contracts are void ab initio. Therefore, all contractual provisions,
including Section 10.02 of the ARCA, are likewise void, inexistent and inoperative. To support its stand,
the government cites Chavez v. Presidential Commission on Good Government:6 "The void agreement
will not be rendered operative by the parties' alleged performance (partial or full) of their respective
prestations. A contract that violates the Constitution and the law is null and void ab initio and vests no
rights and creates no obligations. It produces no legal effect at all."
As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, a resort
to the aforesaid provision on arbitration is unavailing. Besides, petitioners and petitioners-in-
intervention have pointed out that, even granting arguendo that the arbitration clause remained a valid
provision, it still cannot bind them inasmuch as they are not parties to the Piatco contracts. And in the
final analysis, it is unarguable that the arbitration process provided for under Section 10.02 of the
ARCA, to be undertaken by a panel of three (3) arbitrators appointed in accordance with the Rules of
Arbitration of the International Chamber of Commerce, will not be able to address, determine and
definitively resolve the constitutional and legal questions that have been raised in the Petitions before
us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will seriously doubt that, being
taxpayers and members of the House of Representatives, Petitioners Baterina et al. have locus standi
to bring the Petition in GR No. 155547. In Albano v. Reyes,7 this Court held that the petitioner therein,
suing as a citizen, taxpayer and member of the House of Representatives, was sufficiently clothed
with standing to bring the suit questioning the validity of the assailed contract. The Court cited the fact
that public interest was involved, in view of the important role of the Manila International Container
Terminal (MICT) in the country's economic development and the magnitude of the financial
consideration. This, notwithstanding the fact that expenditure of public funds was not required under
the assailed contract.
In the cases presently under consideration, petitioners' personal and substantial interest in the
controversy is shown by the fact that certain provisions in the Piatco contracts create obligations on
the part of government (through the DOTC and the MIAA) to disburse public funds without prior
congressional appropriations.
Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are adversely
affected as taxpayers on account of the illegal disbursement of public funds; and (2) they are
prejudiced qua legislators, since the contractual provisions requiring the government to incur
expenditures without appropriations also operate as limitations upon the exclusive power and
prerogative of Congress over the public purse. As members of the House of Representatives, they are
actually deprived of discretion insofar as the inclusion of those items of expenditure in the budget is
concerned. To prevent such encroachment upon the legislative privilege and obviate injury to the
institution of which they are members, petitioners-legislators have locus standi to bring suit.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing to
challenge the illegal disbursement of public funds. Messrs. Agan et al., in particular, are employees
(or representatives of employees) of various service providers that have (1) existing concession
agreements with the MIAA to provide airport services necessary to the operation of the NAIA and (2)
service agreements to furnish essential support services to the international airlines operating at the
NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs. Agan
et al. and Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and
losing their means of livelihood when their employer-companies are forced to shut down or otherwise
retrench and cut back on manpower. Such development would result from the imminent
implementation of certain provisions in the contracts that tend toward the creation of a monopoly in
favor of Piatco, its subsidiaries and related companies.

Petitioners-in-intervention are service providers in the business of furnishing airport-related services

to international airlines and passengers in the NAIA and are therefore competitors of Piatco as far as
that line of business is concerned. On account of provisions in the Piatco contracts, petitioners-in-
intervention have to enter into a written contract with Piatco so as not to be shut out of NAIA Terminal
III and barred from doing business there. Since there is no provision to ensure or safeguard free and
fair competition, they are literally at its mercy. They claim injury on account of their deprivation of
property (business) and of the liberty to contract, without due process of law.
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal standing,
I have at the outset already established that, given its impact on the public and on national interest,
this controversy is laden with transcendental importance and constitutional significance. Hence, I do
not hesitate to adopt the same position as was enunciated in Kilosbayan v. Guingona Jr.8 that "in
cases of transcendental importance, the Court may relax the standing requirements and allow a suit
to prosper even when there is no direct injury to the party claiming the right of judicial review."9

The Substantive Issue:

Violations of the Constitution and the Laws
From the Outset, the Bidding Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties, I have no doubt that,
right at the outset, Piatco was not qualified to participate in the bidding process for the Terminal III
project, but was nevertheless permitted to do so. It even won the bidding and was helped along by
what appears to be a series of collusive and corrosive acts.
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes under the
category of an "unsolicited proposal," which is the subject of Section 4-A of the BOT Law.10 The
unsolicited proposal was originally submitted by the Asia's Emerging Dragon Corporation (AEDC) to
the Department of Transportation and Communications (DOTC) and the Manila International Airport
Authority (MIAA), which reviewed and approved the proposal.

The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was endorsed
to the National Economic Development Authority (NEDA-ICC), which in turn reviewed it on the basis
of its scope, economic viability, financial indicators and risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft
Concession Agreement, and published invitations for public bidding, i.e., for the submission of
comparative or competitive proposals. Piatco's predecessor-in-interest, the Paircargo Consortium,
was the only company that submitted a competitive bid or price challenge.
At this point, I must emphasize that the law requires the award of a BOT project to the bidder that has
satisfied the minimum requirements; and met the technical, financial, organizational and legal
standards provided in the BOT Law. Section 5 of this statute states:
"Sec. 5. Public bidding of projects. - . . .

"In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder
who, having satisfied the minimum financial, technical, organizational and legal standards
required by this Act, has submitted the lowest bid and most favorable terms for the project, based
on the present value of its proposed tolls, fees, rentals and charges over a fixed term for the facility to
be constructed, rehabilitated, operated and maintained according to the prescribed minimum design
and performance standards, plans and specifications. . . ." (Emphasis supplied.)
The same provision requires that the price challenge via public bidding "must be conducted under a
two-envelope/two-stage system: the first envelope to contain the technical proposal and the second
envelope to contain the financial proposal." Moreover, the 1994 Implementing Rules and Regulations
(IRR) provide that only those bidders that have passed the prequalification stage are permitted to have
their two envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their prequalification documents for
evaluation; and only the pre-qualified bidders would be entitled to have their bids opened, evaluated
and appreciated. On the other hand, disqualified bidders are to be informed of the reason for their
disqualification. This procedure was confirmed and reiterated in the Bid Documents, which I quote
thus: "Prequalified proponents will be considered eligible to move to second stage technical proposal
evaluation. The second and third envelopes of pre-disqualified proponents will be returned."11

Aside from complying with the legal and technical requirements (track record or experience of the firm
and its key personnel), a project proponent desiring to prequalify must also demonstrate its financial
capacity to undertake the project. To establish such capability, a proponent must prove that it is able
to raise the minimum amount of equity required for the project and to procure the loans or financing
needed for it. Section 5.4(c) of the 1994 IRR provides:
"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must comply with the
following requirements:
xxx xxx xxx
"c. Financial Capability. The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction, and/or operation and maintenance
phases of the project, as the case may be. For purposes of prequalification, this capability shall be
measured in terms of: (i) proof of the ability of the project proponent and/or the consortium to provide
a minimum amount of equity to the project, and (ii) a letter testimonial from reputable banks attesting
that the project proponent and/or members of the consortium are banking with them, that they are in
good financial standing, and that they have adequate resources. The government Agency/LGU
concerned shall determine on a project-to-project basis, and before prequalification, the minimum
amount of equity needed. . . . ." (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent12 of the minimum project
cost of US$350 million, the minimum amount of equity required of any proponent stood at US$105
million. Converted to pesos at the exchange rate then of P26.239 to US$1.00 (as quoted by the
Bangko Sentral ng Pilipinas), the peso equivalent of the minimum equity was P2,755,095,000.
However, the combined equity or net worth of the Paircargo consortium stood at only
P558,384,871.55.13 This amount was only slightly over 6 percent of the minimum project cost and very
much short of the required minimum equity, which was equivalent to 30 percent of the project cost.
Such deficiency should have immediately caused the disqualification of the Paircargo consortium. This
matter was brought to the attention of the Prequalification and Bidding Committee (PBAC).

Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent chair of the
PBAC, declared in a Memorandum dated 14 October 1996 that "the Challenger (Paircargo consortium)
was found to have a combined net worth of P3,926,421,242.00 that could support a project costing
approximately P13 billion." To justify his conclusion, he asserted: "It is not a requirement that the
networth must be `unrestricted'. To impose this as a requirement now will be nothing less than unfair."
He further opined, "(T)he networth reflected in the Financial Statement should not be taken as the
amount of money to be used to answer the required thirty (30%) percent equity of the challenger but
rather to be used in establishing if there is enough basis to believe that the challenger can comply with
the required 30% equity. In fact, proof of sufficient equity is required as one of the conditions for award
of contract (Sec. 12.1 of IRR of the BOT Law) but not for prequalification (Sec. 5.4 of same document)."

On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed prequalified
and thus permitted to proceed to the other stages of the bidding process.

By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's findings in
effect relieved the consortium of the need to comply with the financial capability requirement imposed
by the BOT Law and IRR. This position is unmistakably and squarely at odds with the Supreme Court's
consistent doctrine emphasizing the strict application of pertinent rules, regulations and guidelines for
the public bidding process, in order to place each bidder - actual or potential - on the same footing.
Thus, it is unarguably irregular and contrary to the very concept of public bidding to permit a variance
between the conditions under which bids are invited and those under which proposals are submitted
and approved.
Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to the conditions
that impose some duty upon it, that bidder is not contracting in fair competition with those bidders that
propose to be bound by all conditions. The essence of public bidding is, after all, an opportunity for
fair competition and a basis for the precise comparison of bids.15 Thus, each bidder must bid under
the same conditions; and be subject to the same guidelines, requirements and limitations. The desired
result is to be able to determine the best offer or lowest bid, all things being equal.
Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30 percent
of the minimum project cost, it should not have been prequalified or allowed to participate further in
the bidding. The Prequalification and Bidding Committee (PBAC) should therefore not have opened
the two envelopes of the consortium containing its technical and financial proposals; required AEDC
to match the consortium's bid; 16 or awarded the Concession Agreement to the consortium's
successor-in-interest, Piatco.

As there was effectively no public bidding to speak of, the entire bidding process having been flawed
and tainted from the very outset, therefore, the award of the concession to Paircargo's successor
Piatco was void, and the Concession Agreement executed with the latter was likewise void ab initio.
For this reason, Piatco cannot and should not be allowed to benefit from that Agreement.17

AEDC Was Deprived of the Right to Match PIATCO's Price Challenge

In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes of matching
the price challenge of Piatco, AEDC as originator of the unsolicited proposal would be permitted
access only to the schedule of proposed Annual Guaranteed Payments submitted by Piatco, and not
to the latter's financial and technical proposals that constituted the basis for the price challenge in the
first place. This was supposedly in keeping with Section 11.6 of the 1994 IRR, which provides that
proprietary information is to be respected, protected and treated with utmost confidentiality, and is
therefore not to form part of the bidding/tender and related documents.

This pronouncement, I believe, was a grievous misapplication of the mentioned provision. The
"proprietary information" referred to in Section 11.6 of the IRR pertains only to the proprietary
information of the originator of an unsolicited proposal, and not to those belonging to a challenger. The
reason for the protection accorded proprietary information at all is the fact that, according to Section
4-A of the BOT Law as amended, a proposal qualifies as an "unsolicited proposal" when it pertains to
a project that involves "a new concept or technology", and/or a project that is not on the government's
list of priority projects.
To be considered as utilizing a new concept or technology, a project must involve the possession of
exclusive rights (worldwide or regional) over a process; or possession of intellectual property rights
over a design, methodology or engineering concept.18 Patently, the intent of the BOT Law is to
encourage individuals and groups to come up with creative innovations, fresh ideas and new
technology. Hence, the significance and necessity of protecting proprietary information in connection
with unsolicited proposals. And to make the encouragement real, the law also extends to such
individuals and groups what amounts to a "right of first refusal" to undertake the project they
conceptualized, involving the use of new technology or concepts, through the mechanism of matching
a price challenge.
A competing bid is never just any figure conjured from out of the blue; it is arrived at after studying
economic, financial, technical and other, factors; it is likewise based on certain assumptions as to the
nature of the business, the market potentials, the probable demand for the product or service, the
future behavior of cost items, political and other risks, and so on. It is thus self-evident that in order to
be able to intelligently match a bid or price challenge, a bidder must be given access to the
assumptions and the calculations that went into crafting the competing bid.
In this instance, the financial and technical proposals of Piatco would have provided AEDC with the
necessary information to enable it to make a reasonably informed matching bid. To put it more simply,
a bidder unable to access the competitor's assumptions will never figure out how the competing bid
came about; requiring him to "counter-propose" is like having him shoot at a target in the dark while
blindfolded.

By withholding from AEDC the challenger's financial and technical proposals containing the critical
information it needed, Undersecretary Cal actually and effectively deprived AEDC of the ability to
match the price challenge. One could say that AEDC did not have the benefit of a "level playing field."
It seems to me, though, that AEDC was actually shut out of the game altogether.

At the end of the day, the bottom line is that the validity and the propriety of the award to Piatco had
been irreparably impaired.
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR

Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within which the
winner of the bidding (and therefore the prospective awardee) shall submit the prescribed performance
security, proof of commitment of equity contributions, and indications of sources of financing (loans);
and, in the case of joint ventures, an agreement showing that the members are jointly and severally
responsible for the obligations of the project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the aforementioned
requirements is not only to prevent delays in the project implementation, but also to expose and weed
out unqualified proponents, who might have unceremoniously slipped through the earlier
prequalification process, by compelling them to put their money where their mouths are, so to speak.
Nevertheless, this provision can be easily circumvented by merely postponing the actual issuance of
the Notice of Award, in order to give the favored proponent sufficient time to comply with the
requirements. Hence, to avert or minimize the manipulation of the post-bidding process, the IRR not
only set out the precise sequence of events occurring between the completion of the evaluation of the
technical bids and the issuance of the Notice of Award, but also specified the timetables for each such
event. Definite allowable extensions of time were provided for, as were the consequences of a failure
to meet a particular deadline.
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the time the
second-stage evaluation shall have been completed, the Committee must come to a decision whether
or not to award the contract and, within 7 days therefrom, the Notice of Award must be approved by
the head of agency or local government unit (LGU) concerned, and its issuance must follow within
another 7 days thereafter.

Section 9.2 of the IRR set the procedure applicable to projects involving substantial government
undertakings as follows: Within 7 days after the decision to award is made, the draft contract shall be
submitted to the ICC for clearance on a no-objection basis. If the draft contract includes government
undertakings already previously approved, then the submission shall be for information only.

However, should there be additional or new provisions different from the original government
undertakings, the draft shall have to be reviewed and approved. The ICC has 15 working days to act
thereon, and unless otherwise specified, its failure to act on the contract within the specified time frame
signifies that the agency or LGU may proceed with the award. The head of agency or LGU shall
approve the Notice of Award within seven days of the clearance by the ICC on a no-objection basis,
and the Notice itself has to be issued within seven days thereafter.
The highly regulated time-frames within which the agents of government were to act evinced the intent
to impose upon them the duty to act expeditiously throughout the process, to the end that the project
be prosecuted and implemented without delay. This regulated scenario was likewise intended to
discourage collusion and substantially reduce the opportunity for agents of government to abuse their
discretion in the course of the award process.

Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays occurred
in the award process, as can be observed from the presentation made by the counsel for public
respondents,19 quoted hereinbelow:
"11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC failed to match
and that negotiations preparatory to Notice of Award should be commenced. This was the decision
to award that should have commenced the running of the 7-day period to approve the Notice of Award,
as per Section 9.1 of the IRR, or to submit the draft contract to the ICC for approval conformably with
Section 9.2.

"01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession Agreement be
submitted to the NEDA for clearance on a no-objection basis. This resolution came more than 3
months too late as it should have been made on the 20th of December 1996 at the latest.
"16 April 1997 - The PBAC resolved that the period of signing the Concession Agreement be extended
by 15 days.
"18 April 1997 - NEDA approved the Concession Agreement. Again this is more than 3 months too
late as the NEDA's decision should have been released on the 16th of January 1997 or fifteen days
after it should have been submitted to it for review.
"09 July 1997 - The Notice of Award was issued to PIATCO. Following the provisions of the IRR, the
Notice of Award should have been issued fourteen days after NEDA's approval, or the 28th of January
1997. In any case, even if it were to be assumed that the release of NEDA's approval on the 18th of
April was timely, the Notice of Award should have been issued on the 9th of May 1997. In both cases,
therefore, the release of the Notice of Award occurred in a decidedly less than timely fashion."
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the persons in
charge of the award process for the time limitations prescribed by the IRR. Their attitude flies in the
face of this Court's solemn pronouncement in Republic v. Capulong,20 that "strict observance of the
rules, regulations and guidelines of the bidding process is the only safeguard to a fair, honest and
competitive public bidding."
From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and its IRR
were repeatedly violated with unmitigated impunity - and by agents of government, no less! On account
of such violation, the award of the contract to Piatco, which undoubtedly gained time and benefited
from the delays, must be deemed null and void from the beginning.
Further Amendments Resulted in a Substantially Different Contract, Awarded Without Public
Bidding
But the violations and desecrations did not stop there. After the PBAC made its decision on December
11, 1996 to award the contract to Piatco, the latter negotiated changes to the Contract bidded out and
ended up with what amounts to a substantially new contract without any public bidding. This Contract
was subsequently further amended four more times through negotiation and without any bidding. Thus,
the contract actually executed between Piatco and DOTC/MIAA on July 12, 1997 (the Concession
Agreement or "CA") differed from the contract bidded out (the draft concession agreement or "DCA")
in the following very significant respects:
1. The CA inserted stipulations creating a monopoly in favor of Piatco in the business of providing
airport-related services for international airlines and passengers.21

2. The CA provided that government is to answer for Piatco's unpaid loans and debts (lumped under
the term Attendant Liabilities) in the event Piatco fails to pay its senior lenders.22
3. The CA provided that in case of termination of the contract due to the fault of government,
government shall pay all expenses that Piatco incurred for the project plus the appraised value of the
Terminal.23
4. The CA imposed new and special obligations on government, including delivery of clean possession
of the site for the terminal; acquisition of additional land at the government's expense for construction
of road networks required by Piatco's approved plans and specifications; and assistance to Piatco in
securing site utilities, as well as all necessary permits, licenses and authorizations.24
5. Where Section 3.02 of the DCA requires government to refrain from competing with the contractor
with respect to the operation of NAIA Terminal III, Section 3.02(b) of the CA excludes and prohibits
everyone, including government, from directly or indirectly competing with Piatco, with respect to the
operation of, as well as operations in, NAIA Terminal III. Operations in is sufficiently broad to
encompass all retail and other commercial business enterprises operating within Terminal III, inclusive
of the businesses of providing various airport-related services to international airlines, within the scope
of the prohibition.

6. Under Section 6.01 of the DCA, the following fees are subject to the written approval of MIAA:
lease/rental charges, concession privilege fees for passenger services, food services, transportation
utility concessions, groundhandling, catering and miscellaneous concession fees, porterage fees,
greeter/well-wisher fees, carpark fees, advertising fees, VIP facilities fees and others. Moreover,
adjustments to the groundhandling fees, rentals and porterage fees are permitted only once every two
years and in accordance with a parametric formula, per DCA Section 6.03. However, the CA as
executed with Piatco provides in Section 6.06 that all the aforesaid fees, rentals and charges may be
adjusted without MIAA's approval or intervention. Neither are the adjustments to these fees and
charges subject to or limited by any parametric formula.25
7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees, aircraft parking fees,
check-in counter fees and other fees are to be quoted and paid in Philippine pesos. But per Section
1.33 of the CA, all the aforesaid fees save the terminal fee are denominated in US Dollars.
8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities pertinent to NAIA
Terminal III, such as payment of lease rentals and performance of other obligations under the Land
Lease Agreement; the obligations under the Tenant Agreements; and payment of all taxes, fees,
charges and assessments of whatever kind that may be imposed on NAIA Terminal III or parts thereof.
But in Section 1.06 of the CA, Attendant Liabilities refers to unpaid debts of Piatco: "All amounts
recorded and from time to time outstanding in the books of (Piatco) as owing to Unpaid Creditors who
have provided, loaned or advanced funds actually used for the Project, including all interests,
penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by [Piatco] to its suppliers, contractors and
subcontractors."
9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the contractors breach,
rescind the contract and select one of four options: (a) take over the terminal and assume all its
attendant liabilities; (b) allow the contractor's creditors to assign the Project to another entity
acceptable to DOTC/MIAA; (c) pay the contractor rent for the facilities and equipment the DOTC may
utilize; or (d) purchase the terminal at a price established by independent appraisers. Depending on
the option selected, government may take immediate possession and control of the terminal and its
operations. Government will be obligated to compensate the contractor for the "equivalent or
proportionate contract costs actually disbursed," but only where government is the one in breach of
the contract. But under Section 8.06(a) of the CA, whether on account of Piatco's breach of contract
or its inability to pay its creditors, government is obliged to either (a) take over Terminal III and assume
all of Piatco's debts or (b) permit the qualified unpaid creditors to be substituted in place of Piatco or
to designate a new operator. And in the event of government's breach of contract, Piatco may compel
it to purchase the terminal at fair market value, per Section 8.06(b) of the CA.
10. Under the DCA, any delay by Piatco in the payment of the amounts due the government constitutes
breach of contract. However, under the CA, such delay does not necessarily constitute breach of
contract, since Piatco is permitted to suspend payments to the government in order to first satisfy the
claims of its secured creditors, per Section 8.04(d) of the CA.
It goes without saying that the amendment of the Contract bidded out (the DCA or draft concession
agreement) - in such substantial manner, without any public bidding, and after the bidding process
had been concluded on December 11, 1996 - is violative of public policy on public biddings, as well as
the spirit and intent of the BOT Law. The whole point of going through the public bidding exercise was
completely lost. Its very rationale was totally subverted by permitting Piatco to amend the contract for
which public bidding had already been concluded. Competitive bidding aims to obtain the best deal
possible by fostering transparency and preventing favoritism, collusion and fraud in the awarding of
contracts. That is the reason why procedural rules pertaining to public bidding demand strict
observance.26
In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that substantive
amendments to a contract for which a public bidding has already been finished should only be awarded
after another public bidding:
"The due execution of a contract after public bidding is a limitation upon the right of the contracting
parties to alter or amend it without another public bidding, for otherwise what would a public bidding
be good for if after the execution of a contract after public bidding, the contracting parties may alter or
amend the contract, or even cancel it, at their will? Public biddings are held for the protection of the
public, and to give the public the best possible advantages by means of open competition between
the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is
obvious that such protection and best possible advantages to the public will disappear if the parties to
a contract executed after public bidding may alter or amend it without another previous public
bidding."28
The aforementioned case dealt with the unauthorized amendment of a contract executed after public
bidding; in the situation before us, the amendments were made also after the bidding, but prior to
execution. Be that as it may, the same rationale underlying Caltex applies to the present situation with
equal force. Allowing the winning bidder to renegotiate the contract for which the bidding process has
ended is tantamount to permitting it to put in anything it wants. Here, the winning bidder (Piatco) did
not even bother to wait until after actual execution of the contract before rushing to amend it. Perhaps
it believed that if the changes were made to a contract already won through bidding (DCA) instead of
waiting until it is executed, the amendments would not be noticed or discovered by the public.
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:
"It is true that modification of government contracts, after the same had been awarded after a public
bidding, is not allowed because such modification serves to nullify the effects of the bidding and
whatever advantages the Government had secured thereby and may also result in manifest injustice
to the other bidders. This prohibition, however, refers to a change in vital and essential particulars of
the agreement which results in a substantially new contract."

Piatco's counter-argument may be summed up thus: There was nothing in the 1994 IRR that prohibited
further negotiations and eventual amendments to the DCA even after the bidding had been concluded.
In fact, PBAC Bid Bulletin No. 3 states: "[A]mendments to the Draft Concession Agreement shall be
issued from time to time. Said amendments will only cover items that would not materially affect the
preparation of the proponent's proposal."
I submit that accepting such warped argument will result in perverting the policy underlying public
bidding. The BOT Law cannot be said to allow the negotiation of contractual stipulations resulting in a
substantially new contract after the bidding process and price challenge had been concluded. In fact,
the BOT Law, in recognition of the time, money and effort invested in an unsolicited proposal, accords
its originator the privilege of matching the challenger's bid.

Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a competing bidder; and
to the right of the original proponent "to match the price" of the challenger. Thus, only the price
proposals are in play. The terms, conditions and stipulations in the contract for which public bidding
has been concluded are understood to remain intact and not be subject to further negotiation.
Otherwise, the very essence of public bidding will be destroyed - there will be no basis for an exact
comparison between bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The phrase
amendments . . . from time to time refers only to those amendments to the draft concession agreement
issued by the PBAC prior to the submission of the price challenge; it certainly does not include or
permit amendments negotiated for and introduced after the bidding process, has been terminated.
Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without Public Bidding
Not satisfied with the Concession Agreement, Piatco - once more without bothering with public bidding
- negotiated with government for still more substantial changes. The result was the Amended and
Restated Concession Agreement (ARCA) executed on November 26, 1998. The following changes
were introduced:
1. The definition of Attendant Liabilities was further amended with the result that the unpaid loans of
Piatco, for which government may be required to answer, are no longer limited to only those loans
recorded in Piatco's books or loans whose proceeds were actually used in the Terminal III project.30

2. Although the contract may be terminated due to breach by Piatco, it will not be liable to pay the
government any Liquidated Damages if a new operator is designated to take over the operation of the
terminal.31
3. The Liquidated Damages which government becomes liable for in case of its breach of contract
were substantially increased.32
4. Government's right to appoint a comptroller for Piatco in case the latter encounters liquidity problems
was deleted.33

5. Government is made liable for Incremental and Consequential Costs and Losses in case it fails to
comply or cause any third party under its direct or indirect control to comply with the special obligations
imposed on government.34
6. The insurance policies obtained by Piatco covering the terminal are now required to be assigned to
the Senior Lenders as security for the loans; previously, their proceeds were to be used to repair and
rehabilitate the facility in case of damage.35
7. Government bound itself to set the initial rate of the terminal fee, to be charged when Terminal III
begins operations, at an amount higher than US$20.36
8. Government waived its defense of the illegality of the contract and even agreed to be liable to pay
damages to Piatco in the event the contract was declared illegal.37
9. Even though government may be entitled to terminate the ARCA on account of breach by Piatco,
government is still liable to pay Piatco the appraised value of Terminal III or the Attendant Liabilities,
if the termination occurs before the In-Service Date.38 This condition contravenes the BOT Law
provision on termination compensation.
10. Government is obligated to take the administrative action required for Piatco's imposition,
collection and application of all Public Utility Revenues.39 No such obligation existed previously.
11. Government is now also obligated to perform and cause other persons and entities under its direct
or indirect control to perform all acts necessary to perfect the security interests to be created in favor
of Piatco's Senior Lenders.40 No such obligation existed previously.
12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility Revenues
become exorbitant or excessive has been removed.41
13. The illegality and unenforceability of the ARCA or any of its material provisions was made an event
of default on the part of government only, thus constituting a ground for Piatco to terminate the ARCA.42
14. Amounts due from and payable by government under the contract were made payable on demand
- net of taxes, levies, imposts, duties, charges or fees of any kind except as required by law.43
15. The Parametric Formula in the contract, which is utilized to compute for adjustments/increases to
the public utility revenues (i.e., aircraft parking and tacking fees, check-in counter fee and terminal
fee), was revised to permit Piatco to input its more costly short-term borrowing rates instead of the
longer-terms rates in the computations for adjustments, with the end result that the changes will
redound to its greater financial benefit.
16. The Certificate of Completion simply deleted the successful performance-testing of the terminal
facility in accordance with defined performance standards as a pre-condition for government's
acceptance of the terminal facility.44
In sum, the foregoing revisions and amendments as embodied in the ARCA constitute very material
alterations of the terms and conditions of the CA, and give further manifestly undue advantage to
Piatco at the expense of government. Piatco claims that the changes to the CA were necessitated by
the demands of its foreign lenders. However, no proof whatsoever has been adduced to buttress this
claim.
In any event, it is quite patent that the sum total of the aforementioned changes resulted in drastically
weakening the position of government to a degree that seems quite excessive, even from the
standpoint of a businessperson who regularly transacts with banks and foreign lenders, is familiar with
their mind-set, and understands what motivates them. On the other hand, whatever it was that impelled
government officials concerned to accede to those grossly disadvantageous changes, I can only
hazard a guess.
There is no question in my mind that the ARCA was unauthorized and illegal for lack of public bidding
and for being patently disadvantageous to government.
The Three Supplements Imposed New Obligations on Government, Also Without Prior Public
Bidding

After Piatco had managed to breach the protective rampart of public bidding, it recklessly went on a
rampage of further assaults on the ARCA.
The First Supplement Is as Void as the ARCA

In the First Supplement ("FS") executed on August 27, 1999, the following changes were made to the
ARCA:

1. The amounts payable by Piatco to government were reduced by allowing additional exceptions to
the Gross Revenues in which government is supposed to participate.45
2. Made part of the properties which government is obliged to construct and/or maintain and keep in
good repair are (a) the access road connecting Terminals II and III - the construction of this access
road is the obligation of Piatco, in lieu of its obligation to construct an Access Tunnel connecting
Terminals II and III; and (b) the taxilane and taxiway - these are likewise part of Piatco's obligations,
since they are part and parcel of the project as described in Clause 1.3 of the Bid Documents .46
3. The MIAA is obligated to provide funding for the maintenance and repair of the airports and facilities
owned or operated by it and by third persons under its control. It will also be liable to Piatco for the
latter's losses, expenses and damages as well as liability to third persons, in case MIAA fails to perform
such obligations. In addition, MIAA will also be liable for the incremental and consequential costs of
the remedial work done by Piatco on account of the former's default.47

4. The FS also imposed on government ten (10) "Additional Special Obligations," including the
following:
(a) Working for the removal of the general aviation traffic from the NAIA airport complex48

(b) Providing through MIAA the land required by Piatco for the taxilane and one taxiway at no cost to
Piatco49
(c) Implementing the government's existing storm drainage master plan50

(d) Coordinating with DPWH the financing, the implementation and the completion of the following
works before the In-Service Date: three left-turning overpasses (EDSA to Tramo St., Tramo to
Andrews Ave., and Manlunas Road to Sales Ave.);51 and a road upgrade and improvement program
involving widening, repair and resurfacing of Sales Road, Andrews Avenue and Manlunas Road;
improvement of Nichols Interchange; and removal of squatters along Andrews Avenue.52
(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or right of way for
the road upgrade and improvement program.53
5. Government is required to work for the immediate reversion to MIAA of the Nayong Pilipino National
Park.54
6. Government's share in the terminal fees collected was revised from a flat rate of P180 to 36 percent
thereof; together with government's percentage share in the gross revenues of Piatco, the amount will
be remitted to government in pesos instead of US dollars.55 This amendment enables Piatco to benefit
from the further erosion of the peso-dollar exchange rate, while preventing government from building
up its foreign exchange reserves.
7. All payments from Piatco to government are now to be invoiced to MIAA, and payments are to
accrue to the latter's exclusive benefit.56 This move appears to be in support of the funds MIAA
advanced to DPWH.
I must emphasize that the First Supplement is void in two respects. First, it is merely an amendment
to the ARCA, upon which it is wholly dependent; therefore, since the ARCA is void, inexistent and not
capable of being ratified or amended, it follows that the FS too is void, inexistent and inoperative.
Second, even assuming arguendo that the ARCA is somehow remotely valid, nonetheless the FS, in
imposing significant new obligations upon government, altered the fundamental terms and stipulations
of the ARCA, thus necessitating a public bidding all over again. That the FS was entered into sans
public bidding renders it utterly void and inoperative.
The Second Supplement Is Similarly Void and Inexistent
The Second Supplement ("SS") was executed between the government and Piatco on September 4,
2000. It calls for Piatco, acting not as concessionaire of NAIA Terminal III but as a public works
contractor, to undertake - in the government's stead - the clearing, removal, demolition and disposal
of improvements, subterranean obstructions and waste materials at the project site.57
The scope of the works, the procedures involved, and the obligations of the contractor are provided
for in Parts II and III of the SS. Section 4.1 sets out the compensation to be paid, listing specific rates
per cubic meter of materials for each phase of the work - excavation, leveling, removal and disposal,
backfilling and dewatering. The amounts collectible by Piatco are to be offset against the Annual
Guaranteed Payments it must pay government.
Though denominated as Second Supplement, it was nothing less than an entirely new public works
contract. Yet it, too, did not undergo any public bidding, for which reason it is also void and inoperative.

Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm reputedly
owned by a former high-ranking DOTC official. But that is another story altogether.
The Third Supplement Is Likewise Void and Inexistent

The Third Supplement ("TS"), executed between the government and Piatco on June 22, 2001, passed
on to the government certain obligations of Piatco as Terminal III concessionaire, with respect to the
surface road connecting Terminals II and III.
By way of background, at the inception of and forming part of the NAIA Terminal III project was the
proposed construction of an access tunnel crossing Runway 13/31, which. would connect Terminal III
to Terminal II. The Bid Documents in Section 4.1.2.3[B][i] declared that the said access tunnel was
subject to further negotiation; but for purposes of the bidding, the proponent should submit a bid for it
as well. Therefore, the tunnel was supposed to be part and parcel of the Terminal III project.

However, in Section 5 of the First Supplement, the parties declared that the access tunnel was not
economically viable at that time. In lieu thereof, the parties agreed that a surface access road (now
called the T2-T3 Road) was to be constructed by Piatco to connect the two terminals. Since it was
plainly in substitution of the tunnel, the surface road construction should likewise be considered part
and parcel of the same project, and therefore part of Piatco's obligation as well. While the access
tunnel was estimated to cost about P800 million, the surface road would have a price tag in the vicinity
of about P100 million, thus producing significant savings for Piatco.
Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 Road, nevertheless
shifted to government some of the obligations pertaining to the former, as follows:
1. Government is now obliged to remove at its own expense all tenants, squatters, improvements
and/or waste materials on the site where the T2-T3 road is to be constructed.58 There was no similar
obligation on the part of government insofar as the access tunnel was concerned.
2. Should government fail to carry out its obligation as above described, Piatco may undertake it on
government's behalf, subject to the terms and conditions (including compensation payments)
contained in the Second Supplement.59

3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.60
The TS depends upon and is intended to supplement the ARCA as well as the First Supplement, both
of which are void and inexistent and not capable of being ratified or amended. It follows that the TS is
likewise void, inexistent and inoperative. And even if, hypothetically speaking, both ARCA and FS are
valid, still, the Third Supplement - imposing as it does significant new obligations upon government -
would in effect alter the terms and stipulations of the ARCA in material respects, thus necessitating
another public bidding. Since the TS was not subjected to public bidding, it is consequently utterly void
as well. At any rate, the TS created new monetary obligations on the part of government, for which
there were no prior appropriations. Hence it follows that the same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to the present, I noted
that the whole process was riddled with significant lapses, if not outright irregularity and wholesale
violations of law and public policy. The rationale of beginning at the beginning, so to speak, will become
evident when the question of what to do with the five Piatco contracts is discussed later on.
In the meantime, I shall take up specific, provisions or changes in the contracts and highlight the more
prominent objectionable features.
Government Directly Guarantees Piatco Debts
Certainly the most discussed provision in the parties' arguments is the one creating an unauthorized,
direct government guarantee of Piatco's obligations in favor of the lenders.
Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the NAIA Terminal
III Project, may be accepted by government provided inter alia that no direct government guarantee,
subsidy or equity is required. In short, such guarantee is prohibited in unsolicited proposals. Section
2(n) of the same legislation defines direct government guarantee as "an agreement whereby the
government or any of its agencies or local government units (will) assume responsibility for the
repayment of debt directly incurred by the project proponent in implementing the project in case of a
loan default."
Both the CA and the ARCA have provisions that undeniably create such prohibited government
guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section 4.04 of the CA, provides
thus:
"(iv) that if Concessionaire is in default under a payment obligation owed to the Senior Lenders, and
as a result thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior
Lenders shall have the right to notify GRP of the same . . .;

(v) . . . the Senior Lenders may after written notification to GRP, transfer the Concessionaire's rights
and obligations to a transferee . . .;
(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and the Senior Lenders
shall endeavor . . . to enter into any other arrangement relating to the Development Facility . . . If no
agreement relating to the Development Facility is arrived at by GRP and the Senior Lenders within the
said 180-day period, then at the end thereof the Development Facility shall be transferred by the
Concessionaire to GRP or its designee and GRP shall make a termination payment to Concessionaire
equal to the Appraised Value (as hereinafter defined) of the Development Facility or the sum of the
Attendant Liabilities, if greater. . . ."

In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:
"Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to
time owed or which may become, owing by Concessionaire to Senior Lenders or any other persons
or entities who have provided, loaned or advanced funds or provided financial facilities to
Concessionaire for the Project, including, without limitation, all principal, interest, associated fees,
charges, reimbursements, and other related expenses (including the fees, charges and expenses of
any agents or trustees of such persons or entities), whether payable at maturity, by acceleration or
otherwise, and further including amounts owed by Concessionaire to its professional consultants and
advisers, suppliers, contractors and sub-contractors."
Government's agreement to pay becomes effective in the event of a default by Piatco on any of its
loan obligations to the Senior Lenders, and the amount to be paid by government is the greater of
either the Appraised Value of Terminal III or the aggregate amount of the moneys owed by Piatco
- whether to the Senior Lenders or to other entities, including its suppliers, contractors and
subcontractors. In effect, therefore, this agreement already constitutes the prohibited assumption by
government of responsibility for repayment of Piatco's debts in case of a loan default. In fine, a direct
government guarantee.
It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and (vi) that
would require, first, an attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco's rights
to a transferee of their choice; and, second, an effort (equally unsuccessful) to "enter into any other
arrangement" with the government regarding the Terminal III facility, before government is required to
make good on its guarantee. What is abundantly clear is the fact that, in the devious labyrinthine
process detailed in the aforesaid section, it is entirely within the Senior Lenders' power, prerogative
and control - exercisable via a mere refusal or inability to agree upon "a transferee" or "any other
arrangement" regarding the terminal facility - to push the process forward to the ultimate contractual
cul-de-sac, wherein government will be compelled to abjectly surrender and make good on its
guarantee of payment.

Piatco also argues that there is no proviso requiring government to pay the Senior Lenders in the
event of Piatco's default. This is literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of
government making the termination payment to Piatco, not to the lenders. However, it is almost a
certainty that the Senior Lenders will already have made Piatco sign over to them, ahead of time, its
right to receive such payments from government; and/or they may already have had themselves
appointed its attorneys-in-fact for the purpose of collecting and receiving such payments.

Nevertheless, as petitioners-in-intervention pointed out in their Memorandum,61 the termination

payment is to be made to Piatco, not to the lenders; and there is no provision anywhere in the contract
documents to prevent it from diverting the proceeds to its own benefit and/or to ensure that it will
necessarily use the same to pay off the Senior Lenders and other creditors, in order to avert the
foreclosure of the mortgage and other liens on the terminal facility. Such deficiency puts the interests
of government at great risk. Indeed, if the unthinkable were to happen, government would be paying
several hundreds of millions of dollars, but the mortgage liens on the facility may still be foreclosed by
the Senior Lenders just the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to adequately protect
government's interests. More accurately, the contracts would consistently weaken and do away with
protection of government interests. As such, they are therefore grossly lopsided in favor of Piatco
and/or its Senior Lenders.
While on this subject, it is well to recall the earlier discussion regarding a particularly noticeable
alteration of the concept of "Attendant Liabilities." In Section 1.06 of the CA defining the term, the
Piatco debts to be assumed/paid by government were qualified by the phrases recorded and from time
to time outstanding in the books of the Concessionaire and actually used for the project. These
phrases were eliminated from the ARCA's definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible justification for such a
drastic change, the only conclusion, possible is that it intends to have all of its debts covered by the
guarantee, regardless of whether or not they are disclosed in its books. This has particular reference
to those borrowings which were obtained in violation of the loan covenants requiring Piatco to maintain
a minimum 70:30 debt-to-equity ratio, and even if the loan proceeds were not actually used for the
project itself.

This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the amount which
government has guaranteed to pay as termination payment is the greater of either (i) the Appraised
Value of the terminal facility or (ii) the aggregate of the Attendant Liabilities. Given that the Attendant
Liabilities may include practically any Piatco debt under the sun, it is highly conceivable that their sum
may greatly exceed the appraised value of the facility, and government may end up paying very much
more than the real worth of Terminal III. (So why did government have to bother with public bidding
anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with the spirit and
the intent of the BOT Law. The law meant to mobilize private resources (the private sector) to take on
the burden and the risks of financing the construction, operation and maintenance of relevant
infrastructure and development projects for the simple reason that government is not in a position to
do so. By the same token, government guarantee was prohibited, since it would merely defeat the
purpose and raison d'être of a build-operate-and-transfer project to be undertaken by the private
sector.
To the extent that the project proponent is able to obtain loans to fund the project, those risks are
shared between the project proponent on the one hand, and its banks and other lenders on the other.
But where the proponent or its lenders manage to cajol or coerce the government into extending a
guarantee of payment of the loan obligations, the risks assumed by the lenders are passed right back
to government. I cannot understand why, in the instant case, government cheerfully assented to re-
assuming the risks of the project when it gave the prohibited guarantee and thus simply negated the
very purpose of the BOT Law and the protection it gives the government.
Contract Termination Provisions in the Piatco Contracts Are Void
The BOT Law as amended provides for contract termination as follows:
"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or terminated by the
government through no fault of the project proponent or by mutual agreement, the Government shall
compensate the said project proponent for its actual expenses incurred in the project plus a reasonable
rate of return thereon not exceeding that stated in the contract as of the date of such revocation,
cancellation or termination: Provided, That the interest of the Government in this instances [sic] shall
be duly insured with the Government Service Insurance System or any other insurance entity duly
accredited by the Office of the Insurance Commissioner: Provided, finally, That the cost of the
insurance coverage shall be included in the terms and conditions of the bidding referred to above.
"In the event that the government defaults on certain major obligations in the contract and such failure
is not remediable or if remediable shall remain unremedied for an unreasonable length of time, the
project proponent/contractor may, by prior notice to the concerned national government agency or
local government unit specifying the turn-over date, terminate the contract. The project
proponent/contractor shall be reasonably compensated by the Government for equivalent or
proportionate contract cost as defined in the contract."
The foregoing statutory provision in effect provides for the following limited instances when termination
compensation may be allowed:
1. Termination by the government through no fault of the project proponent
2. Termination upon the parties' mutual agreement
3. Termination by the proponent due to government's default on certain major contractual obligations

To emphasize, the law does not permit compensation for the project proponent when contract
termination is due to the proponent's own fault or breach of contract.

This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that government is to
pay termination compensation to Piatco even when termination is initiated by government for the
following causes:
"(i) Failure of Concessionaire to finish the Works in all material respects in accordance with the Tender
Design and the Timetable;
(ii) Commission by Concessionaire of a material breach of this Agreement . . .;
(iii) . . . a change in control of Concessionaire arising from the sale, assignment, transfer or other
disposition of capital stock which results in an ownership structure violative of statutory or constitutional
limitations;
(iv) A pattern of continuing or repeated non-compliance, willful violation, or non-performance of other
terms and conditions hereof which is hereby deemed a material breach of this Agreement . . ."62
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase "Subject to
Section 4.04." The effect of this insertion is that in those instances where government may terminate
the contract on account of Piatco's breach, and it is nevertheless required under the ARCA to make
termination compensation to Piatco even though unauthorized by law, such compensation is to be
equivalent to the payment amount guaranteed by government - either a) the Appraised Value of the
terminal facility or (b) the aggregate of the Attendant Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a project
proponent to recover the actual expenses it incurred in the prosecution of the project plus a reasonable
rate of return not in excess of that provided in the contract; or to be compensated for the equivalent or
proportionate contract cost as defined in the contract, in case the government is in default on certain
major contractual obligations.
Furthermore, in those instances where such termination compensation is authorized by the BOT Law,
it is indispensable that the interest of government be duly insured. Section 5.08 the ARCA mandates
insurance coverage for the terminal facility; but all insurance policies are to be assigned, and all
proceeds are payable, to the Senior Lenders. In brief, the interest being secured by such coverage is
that of the Senior Lenders, not that of government. This can hardly be considered compliance with
law.
In essence, the ARCA provisions on termination compensation result in another unauthorized
government guarantee, this time in favor of Piatco.
A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on the National
Honor

Still another contractual provision offensive to law and public policy is Section 8.01(d) of the ARCA,
which is a "bolder and badder" version of Section 8.04(d) of the CA.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct government
guarantees, but likewise a direct government subsidy for unsolicited proposals. Section 13.2. b. iii. of
the 1999 IRR defines a direct government subsidy as encompassing "an agreement whereby the
Government . . . will . . . postpone any payments due from the proponent."
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:

"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of preventing a disruption
of the operations in the Terminal and/or Terminal Complex, in the event that at any time
Concessionaire is of the reasonable opinion that it shall be unable to meet a payment obligation owed
to the Senior Lenders, Concessionaire shall give prompt notice to GRP, through DOTC/MIAA and to
the Senior Lenders. In such circumstances, the Senior Lenders (or the Senior Lenders'
Representative) may ensure that after making provision for administrative expenses and depreciation,
the cash resources of Concessionaire shall first be used and applied to meet all payment obligations
owed to the Senior Lenders. Any excess cash, after meeting such payment obligations, shall be
earmarked for the payment of all sums payable by Concessionaire to GRP under this Agreement. If
by reason of the foregoing GRP should be unable to collect in full all payments due to GRP under this
Agreement, then the unpaid balance shall be payable within a 90-day grace period counted from the
relevant due date, with interest per annum at the rate equal to the average 91-day Treasury Bill Rate
as of the auction date immediately preceding the relevant due date. If payment is not effected by
Concessionaire within the grace period, then a spread of five (5%) percent over the applicable 91-day
Treasury Bill Rate shall be added on the unpaid amount commencing on the expiry of the grace period
up to the day of full payment. When the temporary illiquidity of Concessionaire shall have been
corrected and the cash position of Concessionaire should indicate its ability to meet its maturing
obligations, then the provisions set forth under this Section 8.01(d) shall cease to apply. The foregoing
remedial measures shall be applicable only while there remains unpaid and outstanding amounts
owed to the Senior Lenders." (Emphasis supplied)
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly mandates the
indefinite postponement of payment of all of Piatco's obligations to the government, in order to ensure
that Piatco's obligations to the Senior Lenders are paid in full first. That is nothing more or less than
the direct government subsidy prohibited by the BOT Law and the IRR. The fact that Piatco will pay
interest on the unpaid amounts owed to government does not change the situation or render the
prohibited subsidy any less unacceptable.
But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier, I
mentioned that Section 8.01(d) of the ARCA completely eliminated the proviso in Section 8.04(d) of
the CA which gave government the right to appoint a financial controller to manage the cash position
of Piatco during situations of financial distress. Not only has government been deprived of any means
of monitoring and managing the situation; worse, as can be seen from Section 8.01(d) above-quoted,
the Senior Lenders have effectively locked in on the right to exercise financial controllership over
Piatco and to allocate its cash resources to the payment of all amounts owed to the Senior Lenders
before allowing any payment to be made to government.

In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the power and
the authority to determine how much (if at all) and when the Philippine government (as grantor of the
franchise) may be allowed to receive from Piatco. In that situation, government will be at the mercy of
the foreign lenders. This is a situation completely contrary to the rationale of the BOT Law and to
public policy.
The aforesaid provision rouses mixed emotions - shame and disgust at the parties' (especially
the government officials') docile submission and abject servitude and surrender to the
imperious and excessive demands of the foreign lenders, on the one hand; and vehement
outrage at the affront to the sovereignty of the Republic and to the national honor, on the other.
It is indeed time to put an end to such an unbearable, dishonorable situation.

The Piatco Contracts Unarguably Violate Constitutional Injunctions

I will now discuss the manner in which the Piatco Contracts offended the Constitution.
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the Constitution
While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and maintain the
Terminal Complex," Section 3.02(a) of the same ARCA granted to Piatco, for the entire term of the
concession agreement, "the exclusive right to operate a commercial international passenger terminal
within the Island of Luzon" with the exception of those three terminals already existing63 at the time of
execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate, or any other
form of authorization for the operation of a public utility" that is "exclusive in character."
In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA Terminal III which
. . . is a 'terminal for public use' is a public utility." Consequently, the constitutional prohibition against
the exclusivity of a franchise applies to the franchise for the operation of NAIA Terminal III as well.
What was granted to Piatco was not merely a franchise, but an "exclusive right" to operate an
international passenger terminal within the "Island of Luzon." What this grant effectively means is that
the government is now estopped from exercising its inherent power to award any other person another
franchise or a right to operate such a public utility, in the event public interest in Luzon requires it. This
restriction is highly detrimental to government and to the public interest. Former Secretary of Justice
Hernando B. Perez expressed this point well in his Memorandum for the President dated 21 May 2002:
"Section 3.02 on 'Exclusivity'

"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a commercial
international airport within the Island of Luzon with the exception of those already existing at the time
of the execution of the Agreement, such as the airports at Subic, Clark and Laoag City. In the case of
the Clark International Airport, however, the provision restricts its operation beyond its design capacity
of 850,000 passengers per annum and the operation of new terminal facilities therein until after the
new NAIA Terminal III shall have consistently reached or exceeded its design capacity of ten (10)
million passenger capacity per year for three (3) consecutive years during the concession period.
"This is an onerous and disadvantageous provision. It effectively grants PIATCO a monopoly in Luzon
and ties the hands of government in the matter of developing new airports which may be found
expedient and necessary in carrying out any future plan for an inter-modal transportation system in
Luzon.
"Additionally, it imposes an unreasonable restriction on the operation of the Clark International Airport
which could adversely affect the operation and development of the Clark Special Economic Zone to
the economic prejudice of the local constituencies that are being benefited by its operation." (Emphasis
supplied)
While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute a
monopoly on account of the very nature of its business and the absence of competition, such a
situation does not however constitute justification to violate the constitutional prohibition and grant an
exclusive franchise or exclusive right to operate a public utility.
Piatco's contention that the Constitution does not actually prohibit monopolies is beside the point. As
correctly argued,64 the existence of a monopoly by a public utility is a situation created by
circumstances that do not encourage competition. This situation is different from the grant of a
franchise to operate a public utility, a privilege granted by government. Of course, the grant of a
franchise may result in a monopoly. But making such franchise exclusive is what is expressly
proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; it also
guaranteed that the government will not improve or expand the facilities at Clark - and in fact is required
to put a cap on the latter's operations - until after Terminal III shall have been operated at or beyond
its peak capacity for three consecutive years.65 As counsel for public respondents pointed out, in the
real world where the rate of influx of international passengers can fluctuate substantially from year to
year, it may take many years before Terminal III sees three consecutive years' operations at peak
capacity. The Diosdado Macapagal International Airport may thus end up stagnating for a long time.
Indeed, in order to ensure greater profits for Piatco, the economic progress of a region has had to be
sacrificed.
The Piatco Contracts Violate the Time Limitation on Franchises
Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or any other
form of authorization for the operation of a public utility shall be . . . for a longer period than fifty years."
After all, a franchise held for an unreasonably long time would likely give rise to the same evils as a
monopoly.
The Piatco Contracts have come up with an innovative way to circumvent the prohibition and obtain
an extension. This fact can be gleaned from Section 8.03(b) of the ARCA, which I quote thus:
"Sec. 8.03. Termination Procedure and Consequences of Termination. -
a) x x x xxx xxx
b) In the event the Agreement is terminated pursuant to Section 8.01 (b) hereof, Concessionaire shall
be entitled to collect the Liquidated Damages specified in Annex 'G'. The full payment by GRP to
Concessionaire of the Liquidated Damages shall be a condition precedent to the transfer by
Concessionaire to GRP of the Development Facility. Prior to the full payment of the Liquidated
Damages, Concessionaire shall to the extent practicable continue to operate the Terminal and the
Terminal Complex and shall be entitled to retain and withhold all payments to GRP for the purpose of
offsetting the same against the Liquidated Damages. Upon full payment of the Liquidated Damages,
Concessionaire shall immediately transfer the Development Facility to GRP on 'as-is-where-is' basis."
The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables
government to avoid having to make outright payment of an obligation that will likely run into billions
of pesos, this easy payment plan will nevertheless cost government considerable loss of income,
which it would earn if it were to operate Terminal III by itself. Inasmuch as payments to the
concessionaire (Piatco) will be on "installment basis," interest charges on the remaining unpaid
balance would undoubtedly cause the total outstanding balance to swell. Piatco would thus be entitled
to remain in the driver's seat and keep operating the terminal for an indefinite length of time.

The Contracts Create Two Monopolies for Piatco

By way of background, two monopolies were actually created by the Piatco contracts. The first and
more obvious one refers to the business of operating an international passenger terminal in Luzon,
the business end of which involves providing international airlines with parking space for their aircraft,
and airline passengers with the use of departure and arrival areas, check-in counters, information
systems, conveyor systems, security equipment and paraphernalia, immigrations and customs
processing areas; and amenities such as comfort rooms, restaurants and shops.
In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be
the only facility to be operated as an international passenger terminal;66 that NAIA Terminals I and II
will no longer be operated as such;67 and that no one (including the government) will be allowed to
compete with Piatco in the operation of an international passenger terminal in the NAIA Complex.68
Given that, at this time, the government and Piatco are the only ones engaged in the business of
operating an international passenger terminal, I am not acutely concerned with this particular
monopolistic situation.

There was however another monopoly within the NAIA created by the subject contracts for Piatco - in
the business of providing international airlines with the following: groundhandling, in-flight catering,
cargo handling, and aircraft repair and maintenance services. These are lines of business activity in
which are engaged many service providers (including the petitioners-in-intervention), who will be
adversely affected upon full implementation of the Piatco Contracts, particularly Sections 3.01(d)69 and
(e)70 of both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international passenger
terminal at the NAIA, and therefore the only place within the NAIA Complex where the business of
providing airport-related services to international airlines may be conducted. On the other hand,
Section 3.01(d) of the ARCA requires government, through the MIAA, not to allow service providers
with expired MIAA contracts to renew or extend their contracts to render airport-related services to
airlines. Meanwhile, Section 3.01(e) of the ARCA requires government, through the DOTC and MIAA,
not to allow service providers - those with subsisting concession agreements for services and
operations being conducted at Terminal I - to carry over their concession agreements, services and
operations to Terminal III, unless they first enter into a separate agreement with Piatco.
The aforementioned provisions vest in Piatco effective and exclusive control over which service
provider may and may not operate at Terminal III and render the airport-related services needed by
international airlines. It thereby possesses the power to exclude competition. By necessary implication,
it also has effective control over the fees and charges that will be imposed and collected by these
service providers.
This intention is exceedingly clear in the declaration by Piatco that it is "completely within its rights to
exclude any party that it has not contracted with from NAIA Terminal III."71
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, control or regulate
the concessionaire's discretion and power to reject any service provider and/or impose any term or
condition it may see fit in any contract it enters into with a service provider. In brief, there is no
safeguard whatsoever to ensure free and fair competition in the service-provider sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business
opportunity. It announced72 that it has accredited three groundhandlers for Terminal III. Aside from the
Philippine Airlines, the other accredited entities are the Philippine Airport and Ground Services
Globeground, Inc. ("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground
is a wholly-owned subsidiary of the Philippine Airport and Ground Services, Inc. or PAGS,73 while Orbit
is a wholly-owned subsidiary of Friendship Holdings, Inc.,74 which is in turn owned 80 percent by
PAGS.75 PAGS is a service provider owned 60 percent by the Cheng Family;76 it is a stockholder of 35
percent of Piatco77 and is the latter's designated contractor-operator for NAIA Terminal III.78
Such entry into and domination of the airport-related services sector appear to be very much in line
with the following provisions contained in the First Addendum to the Piatco Shareholders Agreement,79
executed on July 6, 1999, which appear to constitute a sort of master plan to create a monopoly and
combinations in restraint of trade:
"11. The Shareholders shall ensure:
a. x x x xxx x x x.;

b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates shall, at all times
during the Concession Period, be exclusively authorized by (PIATCO) to engage in the provision of
ground-handling, catering and fueling services within the Terminal Complex.
c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession Period, be the only
entities authorized to construct and operate a warehouse for all cargo handling and related services
within the Site."
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being fostered by
the Piatco Contracts through the erection of barriers to the entry of other service providers into
Terminal III. In Tatad v. Secretary of the Department of Energy,80 the Court ruled:
". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or unfair
competition shall be allowed.'
"A monopoly is a privilege or peculiar advantage vested in one or more persons or companies,
consisting in the exclusive right or power to carry on a particular business or trade, manufacture a
particular article, or control the sale or the whole supply of a particular commodity. It is a form of market
structure in which one or only a few firms dominate the total sales of a product or service. On the other
hand, a combination in restraint of trade is an agreement or understanding between two or more
persons, in the form of a contract, trust, pool, holding company, or other form of association, for the
purpose of unduly restricting competition, monopolizing trade and commerce in a certain commodity,
controlling its production, distribution and price, or otherwise interfering with freedom of trade without
statutory authority. Combination in restraint of trade refers to the means while monopoly refers to the
end.
"x x x xxx xxx
"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition.
The desirability of competition is the reason for the prohibition against restraint of trade, the reason for
the interdiction of unfair competition, and the reason for regulation of unmitigated monopolies.
Competition is thus the underlying principle of [S]ection 19, Article XII of our Constitution, . . ."81
Gokongwei Jr. v. Securities and Exchange Commission82 elucidates the criteria to be employed: "A
'monopoly' embraces any combination the tendency of which is to prevent competition in the broad
and general sense, or to control prices to the detriment of the public. In short, it is the concentration of
business in the hands of a few. The material consideration in determining its existence is not that
prices are raised and competition actually excluded, but that power exists to raise prices or exclude
competition when desired."83 (Emphasis supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless
power over the charging of fees, rentals and so forth. What little "oversight function" the government
might be able and minded to exercise is less than sufficient to protect the public interest, as can be
gleaned from the following provisions:
"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges

"For fees, rentals and charges constituting Non-Public Utility Revenues, Concessionaire may make
any adjustments it deems appropriate without need for the consent of GRP or any government agency
subject to Sec. 6.03(c)."
Section 6.03(c) in turn provides:
"(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public
Utility Revenues in order to ensure that End Users are not unreasonably deprived of services. While
the vehicular parking fee, porterage fee and greeter/wellwisher fee constitute Non-Public Utility
Revenues of Concessionaire, GRP may require Concessionaire to explain and justify the fee it may
set from time to time, if in the reasonable opinion of GRP the said fees have become exorbitant
resulting in the unreasonable deprivation of End Users of such services."
It will be noted that the above-quoted provision has no teeth, so the concessionaire can defy the
government without fear of any sanction. Moreover, Section 6.06 - taken together with Section 6.03(c)
of the ARCA - falls short of the standard set by the BOT Law as amended, which expressly requires
in Section 2(b) that the project proponent is "allowed to charge facility users appropriate tolls, fees,
rentals and charges not exceeding those proposed in its bid or as negotiated and incorporated
in the contract x x x."

The Piatco Contracts Violate Constitutional Prohibitions Against

Impairment of Contracts and Deprivation of Property Without Due Process
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires government, through
DOTC/MIAA, not to permit the carry-over to Terminal III of the services and operations of certain
service providers currently operating at Terminal I with subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an international
passenger terminal at the NAIA;85 thus, Terminals I and II shall no longer operate as such,86 and no
one shall be allowed to compete with Piatco in the operation of an international passenger terminal in
the NAIA.87 The bottom line is that, as of the In-Service Date, Terminal III will be the only terminal
where the business of providing airport-related services to international airlines and passengers may
be conducted at all.
Consequently, government through the DOTC/MIAA will be compelled to cease honoring existing
contracts with service providers after the In-Service Date, as they cannot be allowed to operate in
Terminal III.
In short, the CA and the ARCA obligate and constrain government to break its existing contracts with
these service providers.
Notably, government is not in a position to require Piatco to accommodate the displaced service
providers, and it would be unrealistic to think that these service providers can perform their service
contracts in some other international airport outside Luzon. Obviously, then, these displaced service
providers are - to borrow a quaint expression - up the river without a paddle. In plainer terms, they will
have lost their businesses entirely, in the blink of an eye.
What we have here is a set of contractual provisions that impair the obligation of contracts and
contravene the constitutional prohibition against deprivation of property without due process of law.88

Moreover, since the displaced service providers, being unable to operate, will be forced to close shop,
their respective employees - among them Messrs. Agan and Lopez et al. - have very grave cause for
concern, as they will find themselves out of employment and bereft of their means of livelihood. This
situation comprises still another violation of the constitution prohibition against deprivation of property
without due process.
True, doing business at the NAIA may be viewed more as a privilege than as a right. Nonetheless,
where that privilege has been availed of by the petitioners-in-intervention service providers for years
on end, a situation arises, similar to that in American Inter-fashion v. GTEB.89 We held therein that a
privilege enjoyed for seven years "evolved into some form of property right which should not be
removed x x x arbitrarily and without due process." Said pronouncement is particularly relevant and
applicable to the situation at bar because the livelihood of the employees of petitioners-intervenors
are at stake.
The Piatco Contracts Violate Constitutional Prohibition
Against Deprivation of Liberty Without Due Process
The Piatco Contracts by locking out existing service providers from entry into Terminal III and
restricting entry of future service providers, thereby infringed upon the freedom - guaranteed to and
heretofore enjoyed by international airlines - to contract with local service providers of their choice,
and vice versa.
Both the service providers and their client airlines will be deprived of the right to liberty, which includes
the right to enter into all contracts,90 and/or the right to make a contract in relation to one's business.91

By Creating New Financial Obligations for Government,

Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation
Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury, except in
pursuance of an appropriation made by law.92 The immediate effect of this constitutional ban is that all
the various agencies of government are constrained to limit their expenditures to the amounts
appropriated by law for each fiscal year; and to carefully count their cash before taking on contractual
commitments. Giving flesh and form to the injunction of the fundamental law, Sections 46 and 47 of
Executive Order 292, otherwise known as the Administrative Code of 1987, provide as follows:
"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the expenditure of
public funds shall be entered into unless there is an appropriation therefor, the unexpended balance
of which, free of other obligations, is sufficient to cover the proposed expenditure; and . .
"Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in the case of a contract for
personal service, for supplies for current consumption or to be carried in stock not exceeding the
estimated consumption for three (3) months, or banking transactions of government-owned or
controlled banks, no contract involving the expenditure of public funds by any government agency
shall be entered into or authorized unless the proper accounting official of the agency concerned shall
have certified to the officer entering into the obligation that funds have been duly appropriated for the
purpose and that the amount necessary to cover the proposed contract for the current calendar year
is available for expenditure on account thereof, subject to verification by the auditor concerned. The
certificate signed by the proper accounting official and the auditor who verified it, shall be attached to
and become an integral part of the proposed contract, and the sum so certified shall not thereafter be
available for expenditure for any other purpose until the obligation of the government agency
concerned under the contract is fully extinguished."
Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from the tenor of
the language of the law that the existence of appropriations and the availability of funds are
indispensable pre-requisites to or conditions sine qua non for the execution of government contracts.
The obvious intent is to impose such conditions as a priori requisites to the validity of the proposed
contract."93

Notwithstanding the constitutional ban, statutory mandates and Jurisprudential precedents, the three
Supplements to the ARCA, which were not approved by NEDA, imposed on government the additional
burden of spending public moneys without prior appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements were imposed on
the government:
• To construct, maintain and keep in good repair and operating condition all airport support services,
facilities, equipment and infrastructure owned and/or operated by MIAA, which are not part of the
Project or which are located outside the Site, even though constructed by Concessionaire - including
the access road connecting Terminals II and III and the taxilane, taxiways and runways
• To obligate the MIAA to provide funding for the upkeep, maintenance and repair of the airports and
facilities owned or operated by it and by third persons under its control in order to ensure compliance
with international standards; and holding MIAA liable to Piatco for the latter's losses, expenses and
damages as well as for the latter's liability to third persons, in case MIAA fails to perform such
obligations; in addition, MIAA will also be liable for the incremental and consequential costs of the
remedial work done by Piatco on account of the former's default.
• Section 4 of the FS imposed on government ten (10) "Additional Special Obligations," including the
following:

• Providing thru MIAA the land required by Piatco for the taxilane and one taxiway, at
no cost to Piatco
• Implementing the government's existing storm drainage master plan
• Coordinating with DPWH the financing, implementation and completion of the
following works before the In-Service Date: three left-turning overpasses (Edsa to
Tramo St., Tramo to Andrews Ave., and Manlunas Road to Sales Ave.) and a road
upgrade and improvement program involving widening, repair and resurfacing of
 Sales Road, Andrews Avenue and Manlunas Road; improvement of Nichols
Interchange; and removal of squatters along Andrews Avenue
• Dealing directly with BCDA and the Philippine Air Force in acquiring additional land
or right of way for the road upgrade and improvement program
• Requiring government to work for the immediate reversion to MIAA of the Nayong
Pilipino National Park, in order to permit the building of the second west parallel
taxiway

• • Section 5 of the FS also provides that in lieu of the access tunnel, a surface access road (T2-
T3) will be constructed. This provision requires government to expend funds to purchase
additional land from Nayong Pilipino and to clear the same in order to be able to deliver clean
possession of the site to Piatco, as required in Section 5(c) of the FS.
On the other hand, the Third Supplement ("TS") obligates the government to deliver, within 120 days
from date thereof, clean possession of the land on which the T2-T3 Road is to be constructed.
The foregoing contractual stipulations undeniably impose on government the expenditures of public
funds not included in any congressional appropriation or authorized by any other statute. Piatco
however attempts to take these stipulations out of the ambit of Sections 46 and 47 of the Administrative
Code by characterizing them as stipulations for compliance on a "best-efforts basis" only.
To determine whether the additional obligations under the Supplements may really be undertaken on
a best-efforts basis only, the nature of each of these obligations must be examined in the context of
its relevance and significance to the Terminal III Project, as well as of any adverse impact that may
result if such obligation is not performed or undertaken on time. In short, the criteria for determining
whether the best-efforts basis will apply is whether the obligations are critical to the success of the
Project and, accordingly, whether failure to perform them (or to perform them on time) could result in
a material breach of the contract.
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS take on a different
aspect. In particular, each of the following may all be deemed to play a major role in the successful
and timely prosecution of the Terminal III Project: the obtention of land required by PIATCO for the
taxilane and taxiway; the implementation of government's existing storm drainage master plan; and
coordination with DPWH for the completion of the three left-turning overpasses before the In-Service
Date, as well as acquisition and delivery of additional land for the construction of the T2-T3 access
road.

Conversely, failure to deliver on any of these obligations may conceivably result in substantial
prejudice to the concessionaire, to such an extent as to constitute a material breach of the Piatco
Contracts. Whereupon, the concessionaire may outrightly terminate the Contracts pursuant to Section
8.01(b)(i) and (ii) of the ARCA and seek payment of Liquidated Damages in accordance with Section
8.02(a) of the ARCA; or the concessionaire may instead require government to pay the Incremental
and Consequential Losses under Section 1.23 of the ARCA.94 The logical conclusion then is that the
obligations in the Supplements are not to be performed on a best-efforts basis only, but are unarguably
mandatory in character.
Regarding MIAA's obligation to coordinate with the DPWH for the complete implementation of the road
upgrading and improvement program for Sales, Andrews and Manlunas Roads (which provide access
to the Terminal III site) prior to the In-Service Date, it is essential to take note of the fact that there was
a pressing need to complete the program before the opening of Terminal III.95 For that reason, the
MIAA was compelled to enter into a memorandum of agreement with the DPWH in order to ensure
the timely completion of the road widening and improvement program. MIAA agreed to advance the
total amount of P410.11 million to DPWH for the works, while the latter was committed to do the
following:
"2.2.8. Reimburse all advance payments to MIAA including but not limited to interest, fees, plus other
costs of money within the periods CY2004 and CY2006 with payment of no less than One Hundred
Million Pesos (PhP100M) every year.
"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget allocation the
repayments for the advances made by MIAA, to ensure that the advances are fully repaid by CY2006.
For this purpose, DPWH shall include the amounts to be appropriated for reimbursement to MIAA in
the "Not Needing Clearance" column of their Agency Budget Matrix (ABM) submitted to the
Department of Budget and Management."
It can be easily inferred, then, that DPWH did not set aside enough funds to be able to complete the
upgrading program for the crucially situated access roads prior to the targeted opening date of
Terminal III; and that, had MIAA not agreed to lend the P410 Million, DPWH would not have been able
to complete the program on time. As a consequence, government would have been in breach of a
material obligation. Hence, this particular undertaking of government may likewise not be construed
as being for best-efforts compliance only.
They also Infringe on the Legislative Prerogative and Power Over the Public Purse
But the particularly sad thing about this transaction between MIAA and DPWH is the fact that both
agencies were maneuvered into (or allowed themselves to be maneuvered into) an agreement that
would ensure delivery of upgraded roads for Piatco's benefit, using funds not allocated for that
purpose. The agreement would then be presented to Congress as a done deal. Congress would thus
be obliged to uphold the agreement and support it with the necessary allocations and appropriations
for three years, in order to enable DPWH to deliver on its committed repayments to MIAA. The net
result is an infringement on the legislative power over the public purse and a diminution of Congress'
control over expenditures of public funds - a development that would not have come about, were it not
for the Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?
In the final analysis, there remains but one ultimate question, which I raised during the Oral Argument
on December 10, 2002: What do we do with the Piatco Contracts and Terminal III?96 (Feeding
directly into the resolution of the decisive question is the other nagging issue: Why should we bother
with determining the legality and validity of these contracts, when the Terminal itself has already been
built and is practically complete?)

Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without exception,
are void ab initio, and therefore inoperative. Even the very process by which the contracts came into
being - the bidding and the award - has been riddled with irregularities galore and blatant violations of
law and public policy, far too many to ignore. There is thus no conceivable way, as proposed by some,
of saving one (the original Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement (referred to in the
various pleadings as the Contract Bidded Out) as the contract that should be kept in force and effect
to govern the situation, inasmuch as it was never executed by the parties. What Piatco and the
government executed was the Concession Agreement which is entirely different from the Draft
Concession Agreement.
Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable mutilation of
public policy and an insult to ourselves if we opt to keep in place a contract - any contract - for to do
so would assume that we agree to having Piatco continue as the concessionaire for Terminal III.
Despite all the insidious contraventions of the Constitution, law and public policy Piatco perpetrated,
keeping Piatco on as concessionaire and even rewarding it by allowing it to operate and profit from
Terminal III - instead of imposing upon it the stiffest sanctions permissible under the laws - is
unconscionable.
It is no exaggeration to say that Piatco may not really mind which contract we decide to keep in place.
For all it may care, we can do just as well without one, if we only let it continue and operate the facility.
After all, the real money will come not from building the Terminal, but from actually operating it for fifty
or more years and charging whatever it feels like, without any competition at all. This scenario must
not be allowed to happen.
If the Piatco contracts are junked altogether as I think they should be, should not AEDC automatically
be considered the winning bidder and therefore allowed to operate the facility? My answer is a stone-
cold 'No'. AEDC never won the bidding, never signed any contract, and never built any facility. Why
should it be allowed to automatically step in and benefit from the greed of another?
Should government pay at all for reasonable expenses incurred in the construction of the Terminal?
Indeed it should, otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular,
its funders, contractors and investors - both local and foreign. After all, there is no question that the
State needs and will make use of Terminal III, it being part and parcel of the critical infrastructure and
transportation-related programs of government.

In Melchor v. Commission on Audit,97 this Court held that even if the contract therein was void, the
principle of payment by quantum meruit was found applicable, and the contractor was allowed to
recover the reasonable value of the thing or services rendered (regardless of any agreement as to the
supposed value), in order to avoid unjust enrichment on the part of government. The principle of
quantum meruit was likewise applied in Eslao v. Commission on Audit,98 because to deny payment for
a building almost completed and already occupied would be to permit government to unjustly enrich
itself at the expense of the contractor. The same principle was applied in Republic v. Court of
Appeals.99
One possible practical solution would be for government - in view of the nullity of the Piatco contracts
and of the fact that Terminal III has already been built and is almost finished - to bid out the operation
of the facility under the same or analogous principles as build-operate-and-transfer projects. To be
imposed, however, is the condition that the winning bidder must pay the builder of the facility a price
fixed by government based on quantum meruit; on the real, reasonable - not inflated - value of the
built facility.
How the payment or series of payments to the builder, funders, investors and contractors will be
staggered and scheduled, will have to be built into the bids, along with the annual guaranteed
payments to government. In this manner, this whole sordid mess could result in something truly
beneficial for all, especially for the Filipino people.
WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL and VOID.
The DBM expounded that Section 78 of the general provisions of the General Appropriations Act FY
1998, which the CHR heavily relies upon to justify its reclassification scheme, explicitly provides that
"no organizational unit or changes in key positions shall be authorized unless provided by law or
directed by the President." Here, the DBM discerned that there is no law authorizing the creation of a
Finance Management Office and a Public Affairs Office in the CHR. Anent CHR's proposal to upgrade
twelve positions of Attorney VI, SG-26 to Director IV, SG-28, and four positions of Director III, SG-27
to Director IV, SG-28, in the Central Office, the DBM denied the same as this would change the context
from support to substantive without actual change in functions.
This view of the DBM, as the law's designated body to implement and administer a unified
compensation system, is beyond cavil. The interpretation of an administrative government agency,
which is tasked to implement a statute is accorded great respect and ordinarily controls the
construction of the courts. In Energy Regulatory Board v. Court of Appeals, we echoed the basic rule
28

that the courts will not interfere in matters which are addressed to the sound discretion of government
agencies entrusted with the regulation of activities coming under the special technical knowledge and
training of such agencies.
To be sure, considering his expertise on matters affecting the nation's coffers, the Secretary of the
DBM, as the President's alter ego, knows from where he speaks inasmuch as he has the front seat
view of the adverse effects of an unwarranted upgrading or creation of positions in the CHR in
particular and in the entire government in general.
WHEREFORE, the petition is GRANTED, the Decision dated 29 November 2001 of the Court of
Appeals in CA-G.R. SP No. 59678 and its Resolution dated 11 September 2002 are hereby
REVERSED and SET ASIDE. The ruling dated 29 March 1999 of the Civil Service Commision-National
Capital Region is REINSTATED. The Commission on Human Rights Resolution No. A98-047 dated
04 September 1998, Resolution No. A98-055 dated 19 October 1998 and Resolution No. A98-062
dated 17 November 1998 without the approval of the Department of Budget and Management are
disallowed. No pronouncement as to costs.
SO ORDERED.
Puno, Acting C.J., Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
 SECOND DIVISION

G.R. No. 155336 November 25, 2004

COMMISSION ON HUMAN RIGHTS EMPLOYEES' ASSOCIATION (CHREA) Represented by its

President, MARCIAL A. SANCHEZ, JR., petitioner,
vs.
COMMISSION ON HUMAN RIGHTS, respondent.

DECISION

CHICO-NAZARIO, J.:

Can the Commission on Human Rights lawfully implement an upgrading and reclassification of
personnel positions without the prior approval of the Department of Budget and Management?

Before this Court is a petition for review filed by petitioner Commission on Human Rights Employees'
Association (CHREA) challenging the Decision1 dated 29 November 2001 of the Court of Appeals in
CA-G.R. SP No. 59678 affirming the Resolutions2 dated 16 December 1999 and 09 June 2000 of the
Civil Service Commission (CSC), which sustained the validity of the upgrading and reclassification of
certain personnel positions in the Commission on Human Rights (CHR) despite the disapproval
thereof by the Department of Budget and Management (DBM). Also assailed is the resolution dated
11 September 2002 of the Court of Appeals denying the motion for reconsideration filed by
petitioner.

The antecedent facts which spawned the present controversy are as follows:

On 14 February 1998, Congress passed Republic Act No. 8522, otherwise known as the General
Appropriations Act of 1998. It provided for Special Provisions Applicable to All Constitutional Offices
Enjoying Fiscal Autonomy. The last portion of Article XXXIII covers the appropriations of the CHR.
These special provisions state:

1. Organizational Structure. Any provision of law to the contrary notwithstanding and within
the limits of their respective appropriations as authorized in this Act, the Constitutional
Commissions and Offices enjoying fiscal autonomy are authorized to formulate and
implement the organizational structures of their respective offices, to fix and determine the
 salaries, allowances, and other benefits of their personnel, and whenever public interest so
requires, make adjustments in their personal services itemization including, but not limited to,
the transfer of item or creation of new positions in their respective offices: PROVIDED, That
officers and employees whose positions are affected by such reorganization or adjustments
shall be granted retirement gratuities and separation pay in accordance with existing laws,
which shall be payable from any unexpended balance of, or savings in the appropriations of
their respective offices: PROVIDED, FURTHER, That the implementation hereof shall be in
accordance with salary rates, allowances and other benefits authorized under compensation
standardization laws.

2. Use of Savings. The Constitutional Commissions and Offices enjoying fiscal autonomy are
hereby authorized to use savings in their respective appropriations for: (a) printing and/or
publication of decisions, resolutions, and training information materials; (b) repair,
maintenance and improvement of central and regional offices, facilities and equipment; (c)
purchase of books, journals, periodicals and equipment; (d) necessary expenses for the
employment of temporary, contractual and casual employees; (e) payment of extraordinary
and miscellaneous expenses, commutable representation and transportation allowances,
and fringe benefits for their officials and employees as may be authorized by law; and (f)
other official purposes, subject to accounting and auditing rules and regulations. (Emphases
supplied)

on the strength of these special provisions, the CHR, through its then Chairperson Aurora P.
Navarette-Reciña and Commissioners Nasser A. Marohomsalic, Mercedes V. Contreras, Vicente P.
Sibulo, and Jorge R. Coquia, promulgated Resolution No. A98-047 on 04 September 1998, adopting
an upgrading and reclassification scheme among selected positions in the Commission, to wit:

WHEREAS, the General Appropriations Act, FY 1998, R.A. No. 8522 has provided special
provisions applicable to all Constitutional Offices enjoying Fiscal Autonomy, particularly on
organizational structures and authorizes the same to formulate and implement the
organizational structures of their respective offices to fix and determine the salaries,
allowances and other benefits of their personnel and whenever public interest so requires,
make adjustments in the personnel services itemization including, but not limited to, the
transfer of item or creation of new positions in their respective offices: PROVIDED, That
officers and employees whose positions are affected by such reorganization or adjustments
shall be granted retirement gratuities and separation pay in accordance with existing laws,
which shall be payable from any unexpanded balance of, or savings in the appropriations of
their respective offices;

Whereas, the Commission on Human Rights is a member of the Constitutional Fiscal

Autonomy Group (CFAG) and on July 24, 1998, CFAG passed an approved Joint Resolution
No. 49 adopting internal rules implementing the special provisions heretoforth mentioned;

NOW THEREFORE, the Commission by virtue of its fiscal autonomy hereby approves and
authorizes the upgrading and augmentation of the commensurate amount generated from
savings under Personal Services to support the implementation of this resolution effective
Calendar Year 1998;

Let the Human Resources Development Division (HRDD) prepare the necessary Notice of
Salary Adjustment and other appropriate documents to implement this resolution; . . .
.3 (Emphasis supplied)
Annexed to said resolution is the proposed creation of ten additional plantilla positions, namely: one
Director IV position, with Salary Grade 28 for the Caraga Regional Office, four Security Officer II with
Salary Grade 15, and five Process Servers, with Salary Grade 5 under the Office of the
Commissioners. 4

On 19 October 1998, CHR issued Resolution No. A98-0555 providing for the upgrading or raising of
salary grades of the following positions in the Commission:

Number Position Salary Grade Total Salary

of Requirements
Positions Title
From To From To

12 Attorney VI Director IV 26 28 P229,104.00

(In the
Regional
Field Offices)
4 Director III Director IV 27 28 38,928.00
1 Financial & Director IV 24 28 36,744.00
Management
Officer II
1 Budget Budget 18 24 51,756.00
Officer III Officer IV
1 Accountant Chief 18 24 51,756.00
III Accountant
1 Cashier III Cashier V 18 24 51,756.00
1 Information Director IV 24 28 36,744.006
Officer V

It, likewise, provided for the creation and upgrading of the following positions:

A. Creation

Number of Position Title Salary Grade Total Salary

Positions Requirements
4 Security Officer II 15 684,780.00
(Coterminous)

B. Upgrading

Number of Position Title Salary Grade Total Salary

Positions Requirements
From To From To

1 Attorney V Director IV 25 28 P28,092.00

2 Security Security 11 15 57,456.00
Officer I Officer II
 ----------------

Total 3 P 85,548.007

To support the implementation of such scheme, the CHR, in the same resolution, authorized the
augmentation of a commensurate amount generated from savings under Personnel Services.

By virtue of Resolution No. A98-062 dated 17 November 1998, the CHR "collapsed" the vacant
positions in the body to provide additional source of funding for said staffing modification. Among the
positions collapsed were: one Attorney III, four Attorney IV, one Chemist III, three Special
Investigator I, one Clerk III, and one Accounting Clerk II.8

The CHR forwarded said staffing modification and upgrading scheme to the DBM with a request for
its approval, but the then DBM secretary Benjamin Diokno denied the request on the following
justification:

… Based on the evaluations made the request was not favorably considered as it effectively
involved the elevation of the field units from divisions to services.

The present proposal seeks further to upgrade the twelve (12) positions of Attorney VI, SG-26 to
Director IV, SG-28. This would elevate the field units to a bureau or regional office, a level even
higher than the one previously denied.

The request to upgrade the three (3) positions of Director III, SG-27 to Director IV, SG-28, in the
Central Office in effect would elevate the services to Office and change the context from support to
substantive without actual change in functions.

In the absence of a specific provision of law which may be used as a legal basis to elevate the level
of divisions to a bureau or regional office, and the services to offices, we reiterate our previous stand
denying the upgrading of the twelve (12) positions of Attorney VI, SG-26 to Director III, SG-27 or
Director IV, SG-28, in the Field Operations Office (FOO) and three (3) Director III, SG-27 to Director
IV, SG-28 in the Central Office.

As represented, President Ramos then issued a Memorandum to the DBM Secretary dated 10
December 1997, directing the latter to increase the number of Plantilla positions in the CHR both
Central and Regional Offices to implement the Philippine Decade Plan on Human Rights Education,
the Philippine Human Rights Plan and Barangay Rights Actions Center in accordance with existing
laws. (Emphasis in the original)

Pursuant to Section 78 of the General Provisions of the General Appropriations Act (GAA) FY 1998,
no organizational unit or changes in key positions shall be authorized unless provided by law or
directed by the President, thus, the creation of a Finance Management Office and a Public Affairs
Office cannot be given favorable recommendation.

Moreover, as provided under Section 2 of RA No. 6758, otherwise known as the Compensation
Standardization Law, the Department of Budget and Management is directed to establish and
administer a unified compensation and position classification system in the government. The
Supreme Court ruled in the case of Victorina Cruz vs. Court of Appeals, G.R. No. 119155, dated
January 30, 1996, that this Department has the sole power and discretion to administer the
compensation and position classification system of the National Government.
Being a member of the fiscal autonomy group does not vest the agency with the authority to
reclassify, upgrade, and create positions without approval of the DBM. While the members of the
Group are authorized to formulate and implement the organizational structures of their respective
offices and determine the compensation of their personnel, such authority is not absolute and must
be exercised within the parameters of the Unified Position Classification and Compensation System
established under RA 6758 more popularly known as the Compensation Standardization Law. We
therefore reiterate our previous stand on the matter.9 (Emphases supplied)

In light of the DBM's disapproval of the proposed personnel modification scheme, the CSC-National
Capital Region Office, through a memorandum dated 29 March 1999, recommended to the CSC-
Central Office that the subject appointments be rejected owing to the DBM's disapproval of the
plantilla reclassification.

Meanwhile, the officers of petitioner CHREA, in representation of the rank and file employees of the
CHR, requested the CSC-Central Office to affirm the recommendation of the CSC-Regional Office.
CHREA stood its ground in saying that the DBM is the only agency with appropriate authority
mandated by law to evaluate and approve matters of reclassification and upgrading, as well as
creation of positions.

The CSC-Central Office denied CHREA's request in a Resolution dated 16 December 1999, and
reversed the recommendation of the CSC-Regional Office that the upgrading scheme be censured.
The decretal portion of which reads:

WHEREFORE, the request of Ronnie N. Rosero, Hubert V. Ruiz, Flordeliza A. Briones,

George Q. Dumlao [and], Corazon A. Santos-Tiu, is hereby denied.10

CHREA filed a motion for reconsideration, but the CSC-Central Office denied the same on
09 June 2000.

Given the cacophony of judgments between the DBM and the CSC, petitioner CHREA
elevated the matter to the Court of Appeals. The Court of Appeals affirmed the
pronouncement of the CSC-Central Office and upheld the validity of the upgrading, retitling,
and reclassification scheme in the CHR on the justification that such action is within the
ambit of CHR's fiscal autonomy. The fallo of the Court of Appeals decision provides:

IN VIEW OF ALL THE FOREGOING, the instant petition is ordered DISMISSED and the
questioned Civil Service Commission Resolution No. 99-2800 dated December 16, 1999 as
well as No. 001354 dated June 9, 2000, are hereby AFFIRMED. No cost.11

Unperturbed, petitioner filed this petition in this Court contending that:

A.

…THE COURT OF APPEALS GRAVELY ERRED WHEN IT HELD THAT UNDER THE 1987
CONSTITUTION, THE COMMISSION ON HUMAN RIGHTS ENJOYS FISCAL AUTONOMY.

B.

…THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE

CONSTRUCTION OF THE COMMISSION ON HUMAN RIGHTS OF REPUBLIC ACT NO.
8522 (THE GENERAL APPROPRIATIONS ACT FOR THE FISCAL YEAR 1998) DESPITE
 ITS BEING IN SHARP CONFLICT WITH THE 1987 CONSTITUTION AND THE STATUTE
ITSELF.

C.

…THE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN AFFIRMING THE

VALIDITY OF THE CIVIL SERVICE COMMISSION RESOLUTION NOS. 992800 AND
001354 AS WELL AS THAT OF THE OPINION OF THE DEPARTMENT OF JUSTICE IN
STATING THAT THE COMMISSION ON HUMAN RIGHTS ENJOYS FISCAL AUTONOMY
UNDER THE 1987 CONSTITUTION AND THAT THIS FISCAL AUTONOMY INCLUDES
THE ACTION TAKEN BY IT IN COLLAPSING, UPGRADING AND RECLASSIFICATION OF
POSITIONS THEREIN.12

The central question we must answer in order to resolve this case is: Can the Commission on
Human Rights validly implement an upgrading, reclassification, creation, and collapsing of plantilla
positions in the Commission without the prior approval of the Department of Budget and
Management?

Petitioner CHREA grouses that the Court of Appeals and the CSC-Central Office both erred in
sanctioning the CHR's alleged blanket authority to upgrade, reclassify, and create positions
inasmuch as the approval of the DBM relative to such scheme is still indispensable. Petitioner
bewails that the CSC and the Court of Appeals erroneously assumed that CHR enjoys fiscal
autonomy insofar as financial matters are concerned, particularly with regard to the upgrading and
reclassification of positions therein.

Respondent CHR sharply retorts that petitioner has no locus standi considering that there exists no
official written record in the Commission recognizing petitioner as a bona fide organization of its
employees nor is there anything in the records to show that its president, Marcial A. Sanchez, Jr.,
has the authority to sue the CHR. The CHR contends that it has the authority to cause the
upgrading, reclassification, plantilla creation, and collapsing scheme sans the approval of the DBM
because it enjoys fiscal autonomy.

After a thorough consideration of the arguments of both parties and an assiduous scrutiny of the
records in the case at bar, it is the Court's opinion that the present petition is imbued with merit.

On petitioner's personality to bring this suit, we held in a multitude of cases that a proper party is one
who has sustained or is in immediate danger of sustaining an injury as a result of the act complained
of.13 Here, petitioner, which consists of rank and file employees of respondent CHR, protests that the
upgrading and collapsing of positions benefited only a select few in the upper level positions in the
Commission resulting to the demoralization of the rank and file employees. This sufficiently meets
the injury test. Indeed, the CHR's upgrading scheme, if found to be valid, potentially entails eating up
the Commission's savings or that portion of its budgetary pie otherwise allocated for Personnel
Services, from which the benefits of the employees, including those in the rank and file, are derived.

Further, the personality of petitioner to file this case was recognized by the CSC when it took
cognizance of the CHREA's request to affirm the recommendation of the CSC-National Capital
Region Office. CHREA's personality to bring the suit was a non-issue in the Court of Appeals when it
passed upon the merits of this case. Thus, neither should our hands be tied by this technical
concern. Indeed, it is settled jurisprudence that an issue that was neither raised in the complaint nor
in the court below cannot be raised for the first time on appeal, as to do so would be offensive to the
basic rules of fair play, justice, and due process.14
We now delve into the main issue of whether or not the approval by the DBM is a condition
precedent to the enactment of an upgrading, reclassification, creation and collapsing of plantilla
positions in the CHR.

Germane to our discussion is Rep. Act No. 6758, An Act Prescribing a Revised Compensation and
Position Classification System in the Government and For Other Purposes, or the Salary
Standardization Law, dated 01 July 1989, which provides in Sections 2 and 4 thereof that it is the
DBM that shall establish and administer a unified Compensation and Position Classification System.
Thus:

SEC. 2. Statement of Policy. -- It is hereby declared the policy of the State to provide equal
pay for substantially equal work and to base differences in pay upon substantive differences
in duties and responsibilities, and qualification requirements of the positions. In determining
rates of pay, due regard shall be given to, among others, prevailing rates in the private sector
for comparable work. For this purpose, the Department of Budget and Management (DBM) is
hereby directed to establish and administer a unified Compensation and Position
Classification System, hereinafter referred to as the System as provided for in Presidential
Decree No. 985, as amended, that shall be applied for all government entities, as mandated
by the Constitution. (Emphasis supplied.)

SEC. 4. Coverage. – The Compensation and Position Classification System herein provided
shall apply to all positions, appointive or elective, on full or part-time basis, now existing or
hereafter created in the government, including government-owned or controlled corporations
and government financial institutions.

The term "government" refers to the Executive, the Legislative and the Judicial Branches and the
Constitutional Commissions and shall include all, but shall not be limited to, departments, bureaus,
offices, boards, commissions, courts, tribunals, councils, authorities, administrations, centers,
institutes, state colleges and universities, local government units, and the armed forces. The term
"government-owned or controlled corporations and financial institutions" shall include all corporations
and financial institutions owned or controlled by the National Government, whether such
corporations and financial institutions perform governmental or proprietary functions. (Emphasis
supplied.)

The disputation of the Court of Appeals that the CHR is exempt from the long arm of the Salary
Standardization Law is flawed considering that the coverage thereof, as defined above,
encompasses the entire gamut of government offices, sans qualification.

This power to "administer" is not purely ministerial in character as erroneously held by the Court of
Appeals. The word to administer means to control or regulate in behalf of others; to direct or
superintend the execution, application or conduct of; and to manage or conduct public affairs, as to
administer the government of the state.15

The regulatory power of the DBM on matters of compensation is encrypted not only in law, but in
jurisprudence as well. In the recent case of Philippine Retirement Authority (PRA) v. Jesusito L.
Buñag,16 this Court, speaking through Mr. Justice Reynato Puno, ruled that compensation,
allowances, and other benefits received by PRA officials and employees without the requisite
approval or authority of the DBM are unauthorized and irregular. In the words of the Court –

Despite the power granted to the Board of Directors of PRA to establish and fix a compensation and
benefits scheme for its employees, the same is subject to the review of the Department of Budget
and Management. However, in view of the express powers granted to PRA under its charter, the
extent of the review authority of the Department of Budget and Management is limited. As stated in
Intia, the task of the Department of Budget and Management is simply to review the compensation
and benefits plan of the government agency or entity concerned and determine if the same complies
with the prescribed policies and guidelines issued in this regard. The role of the Department of
Budget and Management is supervisorial in nature, its main duty being to ascertain that the
proposed compensation, benefits and other incentives to be given to PRA officials and employees
adhere to the policies and guidelines issued in accordance with applicable laws.

In Victorina Cruz v. Court of Appeals,17 we held that the DBM has the sole power and discretion to
administer the compensation and position classification system of the national government.

In Intia, Jr. v. Commission on Audit,18 the Court held that although the charter19 of the Philippine Postal
Corporation (PPC) grants it the power to fix the compensation and benefits of its employees and
exempts PPC from the coverage of the rules and regulations of the Compensation and Position
Classification Office, by virtue of Section 6 of P.D. No. 1597, the compensation system established
by the PPC is, nonetheless, subject to the review of the DBM. This Court intoned:

It should be emphasized that the review by the DBM of any PPC resolution affecting the
compensation structure of its personnel should not be interpreted to mean that the DBM can dictate
upon the PPC Board of Directors and deprive the latter of its discretion on the matter. Rather, the
DBM's function is merely to ensure that the action taken by the Board of Directors complies with the
requirements of the law, specifically, that PPC's compensation system "conforms as closely as
possible with that provided for under R.A. No. 6758." (Emphasis supplied.)

As measured by the foregoing legal and jurisprudential yardsticks, the imprimatur of the DBM must
first be sought prior to implementation of any reclassification or upgrading of positions in
government. This is consonant to the mandate of the DBM under the Revised Administrative Code
of 1987, Section 3, Chapter 1, Title XVII, to wit:

SEC. 3. Powers and Functions. – The Department of Budget and Management shall assist
the President in the preparation of a national resources and expenditures budget,
preparation, execution and control of the National Budget, preparation and maintenance of
accounting systems essential to the budgetary process, achievement of more economy and
efficiency in the management of government operations, administration of compensation and
position classification systems, assessment of organizational effectiveness and review and
evaluation of legislative proposals having budgetary or organizational implications.
(Emphasis supplied.)

Irrefragably, it is within the turf of the DBM Secretary to disallow the upgrading, reclassification, and
creation of additional plantilla positions in the CHR based on its finding that such scheme lacks legal
justification.

Notably, the CHR itself recognizes the authority of the DBM to deny or approve the proposed
reclassification of positions as evidenced by its three letters to the DBM requesting approval thereof.
As such, it is now estopped from now claiming that the nod of approval it has previously sought from
the DBM is a superfluity.

The Court of Appeals incorrectly relied on the pronouncement of the CSC-Central Office that the
CHR is a constitutional commission, and as such enjoys fiscal autonomy.20

Palpably, the Court of Appeals' Decision was based on the mistaken premise that the CHR belongs
to the species of constitutional commissions. But, Article IX of the Constitution states in no uncertain
terms that only the CSC, the Commission on Elections, and the Commission on Audit shall be
tagged as Constitutional Commissions with the appurtenant right to fiscal autonomy. Thus:

Sec. 1. The Constitutional Commissions, which shall be independent, are the Civil Service
Commission, the Commission on Elections, and the Commission on Audit.

Sec. 5. The Commission shall enjoy fiscal autonomy. Their approved annual appropriations
shall be automatically and regularly released.

Along the same vein, the Administrative Code, in Chapter 5, Sections 24 and 26 of Book II on
Distribution of Powers of Government, the constitutional commissions shall include only the Civil
Service Commission, the Commission on Elections, and the Commission on Audit, which are
granted independence and fiscal autonomy. In contrast, Chapter 5, Section 29 thereof, is silent on
the grant of similar powers to the other bodies including the CHR. Thus:

SEC. 24. Constitutional Commissions. – The Constitutional Commissions, which shall be

independent, are the Civil Service Commission, the Commission on Elections, and the
Commission on Audit.

SEC. 26. Fiscal Autonomy. – The Constitutional Commissions shall enjoy fiscal autonomy.
The approved annual appropriations shall be automatically and regularly released.

SEC. 29. Other Bodies. – There shall be in accordance with the Constitution, an Office of the
Ombudsman, a Commission on Human Rights, and independent central monetary authority,
and a national police commission. Likewise, as provided in the Constitution, Congress may
establish an independent economic and planning agency. (Emphasis ours.)

From the 1987 Constitution and the Administrative Code, it is abundantly clear that the CHR is not
among the class of Constitutional Commissions. As expressed in the oft-repeated maxim expressio
unius est exclusio alterius, the express mention of one person, thing, act or consequence excludes
all others. Stated otherwise, expressium facit cessare tacitum – what is expressed puts an end to
what is implied.21

Nor is there any legal basis to support the contention that the CHR enjoys fiscal autonomy. In
essence, fiscal autonomy entails freedom from outside control and limitations, other than those
provided by law. It is the freedom to allocate and utilize funds granted by law, in accordance with
law, and pursuant to the wisdom and dispatch its needs may require from time to time.22 In Blaquera
v. Alcala and Bengzon v. Drilon,23 it is understood that it is only the Judiciary, the Civil Service
Commission, the Commission on Audit, the Commission on Elections, and the Office of the
Ombudsman, which enjoy fiscal autonomy. Thus, in Bengzon,24 we explained:

As envisioned in the Constitution, the fiscal autonomy enjoyed by the Judiciary, the Civil
Service Commission, the Commission on Audit, the Commission on Elections, and the Office
of the Ombudsman contemplates a guarantee of full flexibility to allocate and utilize their
resources with the wisdom and dispatch that their needs require. It recognizes the power and
authority to levy, assess and collect fees, fix rates of compensation not exceeding the
highest rates authorized by law for compensation and pay plans of the government and
allocate and disburse such sums as may be provided by law or prescribed by them in the
course of the discharge of their functions.

...
 The Judiciary, the Constitutional Commissions, and the Ombudsman must have the
independence and flexibility needed in the discharge of their constitutional duties. The
imposition of restrictions and constraints on the manner the independent constitutional
offices allocate and utilize the funds appropriated for their operations is anathema to fiscal
autonomy and violative not only of the express mandate of the Constitution but especially as
regards the Supreme Court, of the independence and separation of powers upon which the
entire fabric of our constitutional system is based. In the interest of comity and cooperation,
the Supreme Court, [the] Constitutional Commissions, and the Ombudsman have so far
limited their objections to constant reminders. We now agree with the petitioners that this
grant of autonomy should cease to be a meaningless provision. (Emphasis supplied.)

Neither does the fact that the CHR was admitted as a member by the Constitutional Fiscal
Autonomy Group (CFAG) ipso facto clothed it with fiscal autonomy. Fiscal autonomy is a
constitutional grant, not a tag obtainable by membership.

We note with interest that the special provision under Rep. Act No. 8522, while cited under the
heading of the CHR, did not specifically mention CHR as among those offices to which the special
provision to formulate and implement organizational structures apply, but merely states its coverage
to include Constitutional Commissions and Offices enjoying fiscal autonomy. In contrast, the Special
Provision Applicable to the Judiciary under Article XXVIII of the General Appropriations Act of 1998
specifically mentions that such special provision applies to the judiciary and had categorically
authorized the Chief Justice of the Supreme Court to formulate and implement the organizational
structure of the Judiciary, to wit:

1. Organizational Structure. Any provision of law to the contrary notwithstanding and within
the limits of their respective appropriations authorized in this Act, the Chief Justice of the
Supreme Court is authorized to formulate and implement organizational structure of the
Judiciary, to fix and determine the salaries, allowances, and other benefits of their personnel,
and whenever public interest so requires, make adjustments in the personal services
itemization including, but not limited to, the transfer of item or creation of new positions in the
Judiciary; PROVIDED, That officers and employees whose positions are affected by such
reorganization or adjustments shall be granted retirement gratuities and separation pay in
accordance with existing law, which shall be payable from any unexpended balance of, or
savings in the appropriations of their respective offices: PROVIDED, FURTHER, That the
implementation hereof shall be in accordance with salary rates, allowances and other
benefits authorized under compensation standardization laws. (Emphasis supplied.)

All told, the CHR, although admittedly a constitutional creation is, nonetheless, not included in the
genus of offices accorded fiscal autonomy by constitutional or legislative fiat.

Even assuming en arguendo that the CHR enjoys fiscal autonomy, we share the stance of the DBM
that the grant of fiscal autonomy notwithstanding, all government offices must, all the same, kowtow
to the Salary Standardization Law. We are of the same mind with the DBM on its standpoint, thus-

Being a member of the fiscal autonomy group does not vest the agency with the authority to
reclassify, upgrade, and create positions without approval of the DBM. While the members of the
Group are authorized to formulate and implement the organizational structures of their respective
offices and determine the compensation of their personnel, such authority is not absolute and must
be exercised within the parameters of the Unified Position Classification and Compensation System
established under RA 6758 more popularly known as the Compensation Standardization
Law.25 (Emphasis supplied.)
The most lucid argument against the stand of respondent, however, is the provision of Rep. Act No.
8522 "that the implementation hereof shall be in accordance with salary rates, allowances and other
benefits authorized under compensation standardization laws."26

Indeed, the law upon which respondent heavily anchors its case upon has expressly provided that
any form of adjustment in the organizational structure must be within the parameters of the Salary
Standardization Law.

The Salary Standardization Law has gained impetus in addressing one of the basic causes of
discontent of many civil servants.27 For this purpose, Congress has delegated to the DBM the power
to administer the Salary Standardization Law and to ensure that the spirit behind it is observed. This
power is part of the system of checks and balances or system of restraints in our government. The
DBM's exercise of such authority is not in itself an arrogation inasmuch as it is pursuant to the
paramount law of the land, the Salary Standardization Law and the Administrative Code.

In line with its role to breathe life into the policy behind the Salary Standardization Law of "providing
equal pay for substantially equal work and to base differences in pay upon substantive differences in
duties and responsibilities, and qualification requirements of the positions," the DBM, in the case
under review, made a determination, after a thorough evaluation, that the reclassification and
upgrading scheme proposed by the CHR lacks legal rationalization.

The DBM expounded that Section 78 of the general provisions of the General Appropriations Act FY
1998, which the CHR heavily relies upon to justify its reclassification scheme, explicitly provides that
"no organizational unit or changes in key positions shall be authorized unless provided by law or
directed by the President." Here, the DBM discerned that there is no law authorizing the creation of a
Finance Management Office and a Public Affairs Office in the CHR. Anent CHR's proposal to
upgrade twelve positions of Attorney VI, SG-26 to Director IV, SG-28, and four positions of Director
III, SG-27 to Director IV, SG-28, in the Central Office, the DBM denied the same as this would
change the context from support to substantive without actual change in functions.

This view of the DBM, as the law's designated body to implement and administer a unified
compensation system, is beyond cavil. The interpretation of an administrative government agency,
which is tasked to implement a statute is accorded great respect and ordinarily controls the
construction of the courts. In Energy Regulatory Board v. Court of Appeals,28 we echoed the basic
rule that the courts will not interfere in matters which are addressed to the sound discretion of
government agencies entrusted with the regulation of activities coming under the special technical
knowledge and training of such agencies.

To be sure, considering his expertise on matters affecting the nation's coffers, the Secretary of the
DBM, as the President's alter ego, knows from where he speaks inasmuch as he has the front seat
view of the adverse effects of an unwarranted upgrading or creation of positions in the CHR in
particular and in the entire government in general.

WHEREFORE, the petition is GRANTED, the Decision dated 29 November 2001 of the Court of
Appeals in CA-G.R. SP No. 59678 and its Resolution dated 11 September 2002 are hereby
REVERSED and SET ASIDE. The ruling dated 29 March 1999 of the Civil Service Commision-
National Capital Region is REINSTATED. The Commission on Human Rights Resolution No. A98-
047 dated 04 September 1998, Resolution No. A98-055 dated 19 October 1998 and Resolution No.
A98-062 dated 17 November 1998 without the approval of the Department of Budget and
Management are disallowed. No pronouncement as to costs.

SO ORDERED.
Puno, Acting C.J., Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.