Fulltext

NATURAL RESOURCES: FULL TEXT
G.R. No. 135385 December 6, 2000
ISAGANI CRUZ and CESAR EUROPA, petitioners,

vs.
SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES, SECRETARY OF BUDGET AND
MANAGEMENT and CHAIRMAN and COMMISSIONERS OF THE NATIONAL COMMISSION ON
INDIGENOUS PEOPLES, respondents.
HON. JUAN M .FLAVIER, HON. PONCIANO BENNAGEN, BAYANI ASCARRAGA, EDTAMI
MANSAYANGAN, BASILIO WANDAG, EVELYN DUNUAN, YAOM TUGAS, ALFREMO
CARPIANO, LIBERATO A. GABIN, MATERNIDAD M. COLAS, NARCISA M. DALUPINES, BAI
KIRAM-CONNIE SATURNO, BAE MLOMO-BEATRIZ T. ABASALA, DATU BALITUNGTUNG-
ANTONIO D. LUMANDONG, DATU MANTUMUKAW TEOFISTO SABASALES, DATU EDUAARDO
BANDA, DATU JOEL UNAD, DATU RAMON BAYAAN, TIMUAY JOSE ANOY, TIMUAY MACARIO
D. SALACAO, TIMUAY EDWIN B. ENDING, DATU SAHAMPONG MALANAW VI, DATU BEN
PENDAO CABIGON, BAI NANAPNAY-LIZA SAWAY, BAY INAY DAYA-MELINDA S. REYMUNDO,
BAI TINANGHAGA HELINITA T. PANGAN, DATU MAKAPUKAW ADOLINO L. SAWAY, DATU
MAUDAYAW-CRISPEN SAWAY, VICKY MAKAY, LOURDES D. AMOS, GILBERT P. HOGGANG,
TERESA GASPAR, MANUEL S. ONALAN, MIA GRACE L. GIRON, ROSEMARIE G. PE, BENITO
CARINO, JOSEPH JUDE CARANTES, LYNETTE CARANTES-VIVAL, LANGLEY SEGUNDO,
SATUR S. BUGNAY, CARLING DOMULOT, ANDRES MENDIOGRIN, LEOPOLDO ABUGAN,
VIRGILIO CAYETANO, CONCHITA G. DESCAGA, LEVY ESTEVES, ODETTE G. ESTEVEZ,
RODOLFO C. AGUILAR, MAURO VALONES, PEPE H. ATONG, OFELIA T. DAVI, PERFECTO B.
GUINOSAO, WALTER N. TIMOL, MANUEL T. SELEN, OSCAR DALUNHAY, RICO O. SULATAN,
RAFFY MALINDA, ALFREDO ABILLANOS, JESSIE ANDILAB, MIRLANDO H. MANGKULINTAS,
SAMIE SATURNO, ROMEO A. LINDAHAY, ROEL S. MANSANG-CAGAN, PAQUITO S. LIESES,
FILIPE G. SAWAY, HERMINIA S. SAWAY, JULIUS S. SAWAY, LEONARDA SAWAY, JIMMY
UGYUB, SALVADOR TIONGSON, VENANCIO APANG, MADION MALID, SUKIM MALID,
NENENG MALID, MANGKATADONG AUGUSTO DIANO, JOSEPHINE M. ALBESO, MORENO
MALID, MARIO MANGCAL, FELAY DIAMILING, SALOME P. SARZA, FELIPE P. BAGON, SAMMY
SALNUNGAN, ANTONIO D. EMBA, NORMA MAPANSAGONOS, ROMEO SALIGA, SR., JERSON
P. GERADA, RENATO T. BAGON, JR., SARING MASALONG, SOLEDAD M. GERARDA,
ELIZABETH L. MENDI, MORANTE S. TIWAN, DANILO M. MALUDAO, MINORS MARICEL MALID,
represented by her father CORNELIO MALID, MARCELINO M. LADRA, represented by her
father MONICO D. LADRA, JENNYLYN MALID, represented by her father TONY MALID, ARIEL
M. EVANGELISTA, represented by her mother LINAY BALBUENA, EDWARD M. EMUY, SR.,
SUSAN BOLANIO, OND, PULA BATO B'LAAN TRIBAL FARMER'S ASSOCIATION, INTER-
PEOPLE'S EXCHANGE, INC. and GREEN FORUM-WESTERN VISAYAS, intervenors.
COMMISSION ON HUMAN RIGHTS, intervenor.
IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION FOR THE CONSERVATION OF
NATURAL RESOURCES, INC., intervenor.
RESOLUTION
PER CURIAM:
Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and mandamus as citizens
and taxpayers, assailing the constitutionality of certain provisions of Republic Act No. 8371 (R.A.
8371), otherwise known as the Indigenous Peoples Rights Act of 1997 (IPRA), and its Implementing
Rules and Regulations (Implementing Rules).
In its resolution of September 29, 1998, the Court required respondents to comment. 1 In compliance,
respondents Chairperson and Commissioners of the National Commission on Indigenous Peoples
(NCIP), the government agency created under the IPRA to implement its provisions, filed on October
13, 1998 their Comment to the Petition, in which they defend the constitutionality of the IPRA and pray
that the petition be dismissed for lack of merit.
On October 19, 1998, respondents Secretary of the Department of Environment and Natural
Resources (DENR) and Secretary of the Department of Budget and Management (DBM) filed through
1
the Solicitor General a consolidated Comment. The Solicitor General is of the view that the IPRA is
partly unconstitutional on the ground that it grants ownership over natural resources to indigenous
peoples and prays that the petition be granted in part.
On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier, one of the authors of
the IPRA, Mr. Ponciano Bennagen, a member of the 1986 Constitutional Commission, and the
leaders and members of 112 groups of indigenous peoples (Flavier, et. al), filed their Motion for Leave
to Intervene. They join the NCIP in defending the constitutionality of IPRA and praying for the
dismissal of the petition.
On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a Motion to Intervene
and/or to Appear as Amicus Curiae. The CHR asserts that IPRA is an expression of the principle of
parens patriae and that the State has the responsibility to protect and guarantee the rights of those
who are at a serious disadvantage like indigenous peoples. For this reason it prays that the petition be
dismissed.
On March 23, 1999, another group, composed of the Ikalahan Indigenous People and the Haribon
Foundation for the Conservation of Natural Resources, Inc. (Haribon, et al.), filed a motion to
Intervene with attached Comment-in-Intervention. They agree with the NCIP and Flavier, et al. that
IPRA is consistent with the Constitution and pray that the petition for prohibition and mandamus be
dismissed.
The motions for intervention of the aforesaid groups and organizations were granted.
Oral arguments were heard on April 13, 1999. Thereafter, the parties and intervenors filed their
respective memoranda in which they reiterate the arguments adduced in their earlier pleadings and
during the hearing.
Petitioners assail the constitutionality of the following provisions of the IPRA and its Implementing
Rules on the ground that they amount to an unlawful deprivation of the State’s ownership over lands
of the public domain as well as minerals and other natural resources therein, in violation of the
regalian doctrine embodied in Section 2, Article XII of the Constitution:
"(1) Section 3(a) which defines the extent and coverage of ancestral domains, and Section 3(b) which,
in turn, defines ancestral lands;
"(2) Section 5, in relation to section 3(a), which provides that ancestral domains including inalienable
public lands, bodies of water, mineral and other resources found within ancestral domains are private
but community property of the indigenous peoples;
"(3) Section 6 in relation to section 3(a) and 3(b) which defines the composition of ancestral domains
and ancestral lands;
"(4) Section 7 which recognizes and enumerates the rights of the indigenous peoples over the
ancestral domains;
(5) Section 8 which recognizes and enumerates the rights of the indigenous peoples over the
ancestral lands;
"(6) Section 57 which provides for priority rights of the indigenous peoples in the harvesting,
extraction, development or exploration of minerals and other natural resources within the areas
claimed to be their ancestral domains, and the right to enter into agreements with nonindigenous
peoples for the development and utilization of natural resources therein for a period not exceeding 25
years, renewable for not more than 25 years; and
"(7) Section 58 which gives the indigenous peoples the responsibility to maintain, develop, protect and
conserve the ancestral domains and portions thereof which are found to be necessary for critical
watersheds, mangroves, wildlife sanctuaries, wilderness, protected areas, forest cover or
reforestation."2
2
Petitioners also content that, by providing for an all-encompassing definition of "ancestral domains"
and "ancestral lands" which might even include private lands found within said areas, Sections 3(a)
and 3(b) violate the rights of private landowners.3
In addition, petitioners question the provisions of the IPRA defining the powers and jurisdiction of the
NCIP and making customary law applicable to the settlement of disputes involving ancestral domains
and ancestral lands on the ground that these provisions violate the due process clause of the
Constitution.4
These provisions are:
"(1) sections 51 to 53 and 59 which detail the process of delineation and recognition of ancestral
domains and which vest on the NCIP the sole authority to delineate ancestral domains and ancestral
lands;
"(2) Section 52[i] which provides that upon certification by the NCIP that a particular area is an
ancestral domain and upon notification to the following officials, namely, the Secretary of Environment
and Natural Resources, Secretary of Interior and Local Governments, Secretary of Justice and
Commissioner of the National Development Corporation, the jurisdiction of said officials over said
area terminates;
"(3) Section 63 which provides the customary law, traditions and practices of indigenous peoples shall
be applied first with respect to property rights, claims of ownership, hereditary succession and
settlement of land disputes, and that any doubt or ambiguity in the interpretation thereof shall be
resolved in favor of the indigenous peoples;
"(4) Section 65 which states that customary laws and practices shall be used to resolve disputes
involving indigenous peoples; and
"(5) Section 66 which vests on the NCIP the jurisdiction over all claims and disputes involving rights of
the indigenous peoples."5
Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP Administrative Order
No. 1, series of 1998, which provides that "the administrative relationship of the NCIP to the Office of
the President is characterized as a lateral but autonomous relationship for purposes of policy and
program coordination." They contend that said Rule infringes upon the President’s power of control
over executive departments under Section 17, Article VII of the Constitution. 6
Petitioners pray for the following:
"(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 and 66 and other related
provisions of R.A. 8371 are unconstitutional and invalid;
"(2) The issuance of a writ of prohibition directing the Chairperson and Commissioners of the NCIP to
cease and desist from implementing the assailed provisions of R.A. 8371 and its Implementing Rules;
"(3) The issuance of a writ of prohibition directing the Secretary of the Department of Environment and
Natural Resources to cease and desist from implementing Department of Environment and Natural
Resources Circular No. 2, series of 1998;
"(4) The issuance of a writ of prohibition directing the Secretary of Budget and Management to cease
and desist from disbursing public funds for the implementation of the assailed provisions of R.A. 8371;
and
"(5) The issuance of a writ of mandamus commanding the Secretary of Environment and Natural
Resources to comply with his duty of carrying out the State’s constitutional mandate to control and
supervise the exploration, development, utilization and conservation of Philippine natural resources." 7
After due deliberation on the petition, the members of the Court voted as follows:
Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the Chief Justice and
Justices Bellosillo, Quisumbing, and Santiago join, sustaining the validity of the challenged provisions
3
of R.A. 8371. Justice Puno also filed a separate opinion sustaining all challenged provisions of the law
with the exception of Section 1, Part II, Rule III of NCIP Administrative Order No. 1, series of 1998, the
Rules and Regulations Implementing the IPRA, and Section 57 of the IPRA which he contends should
be interpreted as dealing with the large-scale exploitation of natural resources and should be read in
conjunction with Section 2, Article XII of the 1987 Constitution. On the other hand, Justice Mendoza
voted to dismiss the petition solely on the ground that it does not raise a justiciable controversy and
petitioners do not have standing to question the constitutionality of R.A. 8371.
Seven (7) other members of the Court voted to grant the petition. Justice Panganiban filed a separate
opinion expressing the view that Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related provisions of R.A.
8371 are unconstitutional. He reserves judgment on the constitutionality of Sections 58, 59, 65, and
66 of the law, which he believes must await the filing of specific cases by those whose rights may
have been violated by the IPRA. Justice Vitug also filed a separate opinion expressing the view that
Sections 3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo, Pardo, Buena, Gonzaga-
Reyes, and De Leon join in the separate opinions of Justices Panganiban and Vitug.
As the votes were equally divided (7 to 7) and the necessary majority was not obtained, the case was
redeliberated upon. However, after redeliberation, the voting remained the same. Accordingly,
pursuant to Rule 56, Section 7 of the Rules of Civil Procedure, the petition is DISMISSED.
Attached hereto and made integral parts thereof are the separate opinions of Justices Puno, Vitug,
Kapunan, Mendoza, and Panganiban.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Melo, Quisumbing, Pardo, Buena, Gonzaga-Reyes, Ynares-Santiago, and
De Leon, Jr., JJ., concur.
Puno, Vitug, Kapunan, Mendoza and Panganiban JJ., see separate opinion
Footnotes
1
Rollo, p. 114.
2
Petition, Rollo, pp. 16-23.
3
Id. at 23-25.
4
Section 1, Article III of the Constitution states: "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."
5
Rollo, pp. 25-27.
6
Id. at 27-28.
7
Transcript of Stenographic Notes of the hearing held on April 13, 1999, pp. 5-6.
The Lawphil Project - Arellano Law Foundation
SEPARATE OPINION
PUNO, J.:
PRECIS
4
A classic essay on the utility of history was written in 1874 by Friedrich Nietzsche entitled "On the
Uses and Disadvantages of History for Life." Expounding on Nietzsche's essay, Judge Richard
Posner1 wrote:2
"Law is the most historically oriented, or if you like the most backward-looking, the most 'past-
dependent,' of the professions. It venerates tradition, precedent, pedigree, ritual, custom, ancient
practices, ancient texts, archaic terminology, maturity, wisdom, seniority, gerontocracy, and
interpretation conceived of as a method of recovering history. It is suspicious of innovation,
discontinuities, 'paradigm shifts,' and the energy and brashness of youth. These ingrained attitudes
are obstacles to anyone who wants to re-orient law in a more pragmatic direction. But, by the same
token, pragmatic jurisprudence must come to terms with history."
When Congress enacted the Indigenous Peoples Rights Act (IPRA), it introduced radical concepts

into the Philippine legal system which appear to collide with settled constitutional and jural precepts
on state ownership of land and other natural resources. The sense and subtleties of this law cannot
be appreciated without considering its distinct sociology and the labyrinths of its history. This Opinion
attempts to interpret IPRA by discovering its soul shrouded by the mist of our history. After all, the
IPRA was enacted by Congress not only to fulfill the constitutional mandate of protecting the
indigenous cultural communities' right to their ancestral land but more importantly, to correct a grave
historical injustice to our indigenous people.
This Opinion discusses the following:
I. The Development of the Regalian Doctrine in the Philippine Legal System.
A. The Laws of the Indies
B. Valenton v. Murciano
C. The Public Land Acts and the Torrens System
D. The Philippine Constitutions
II. The Indigenous Peoples Rights Act (IPRA).
A. Indigenous Peoples
1. Indigenous Peoples: Their History
2. Their Concept of Land
III. The IPRA is a Novel Piece of Legislation.
A. Legislative History
IV. The Provisions of the IPRA Do Not Contravene the Constitution.
A. Ancestral domains and ancestral lands are the private property of indigenous peoples and do not
constitute part of the land of the public domain.
1. The right to ancestral domains and ancestral lands: how acquired
2. The concept of native title
(a) Cariño v. Insular Government
(b) Indian Title to land
(c) Why the Cariño doctrine is unique
3. The option of securing a torrens title to the ancestral land
B. The right of ownership and possession by the ICCs/IPs to their ancestral domains is a limited form
of ownership and does not include the right to alienate the same.
5
1. The indigenous concept of ownership and customary law
C. Sections 7 (a), 7 (b) and 57 of the IPRA do not violate the Regalian Doctrine enshrined in Section
2, Article XII of the 1987 Constitution.
1. The rights of ICCs/IPs over their ancestral domains and lands
2. The right of ICCs/IPs to develop lands and natural resources within the ancestral domains does not
deprive the State of ownership over the natural resources, control and supervision in their
development and exploitation.
(a) Section 1, Part II, Rule III of the Implementing Rules goes beyond the parameters of Section 7(a)
of the law on ownership of ancestral domains and is ultra vires.
(b) The small-scale utilization of natural resources in Section 7 (b) of the IPRA is allowed under
Paragraph 3, Section 2, Article XII of the 1987 Consitution.
(c) The large-scale utilization of natural resources in Section 57 of the IPRA may be harmonized with
Paragraphs 1 and 4, Section 2, Article XII of the 1987 Constitution.
V. The IPRA is a Recognition of Our Active Participation in the International Indigenous Movement.
DISCUSSION
I. THE DEVELOPMENT OF THE REGALIAN DOCTRINE IN THE PHILIPPINE LEGAL SYSTEM.
A. The Laws of the Indies
The capacity of the State to own or acquire property is the state's power of dominium.3 This was the
foundation for the early Spanish decrees embracing the feudal theory of jura regalia. The "Regalian
Doctrine" or jura regalia is a Western legal concept that was first introduced by the Spaniards into
the country through the Laws of the Indies and the Royal Cedulas. The Laws of the Indies, i.e.,
more specifically, Law 14, Title 12, Book 4 of the Novisima Recopilacion de Leyes de las Indias, set
the policy of the Spanish Crown with respect to the Philippine Islands in the following manner:
"We, having acquired full sovereignty over the Indies, and all lands, territories, and possessions not
heretofore ceded away by our royal predecessors, or by us, or in our name, still pertaining to the royal
crown and patrimony, it is our will that all lands which are held without proper and true deeds of grant
be restored to us as they belong to us, in order that after reserving before all what to us or to our
viceroys, audiencias, and governors may seem necessary for public squares, ways, pastures, and
commons in those places which are peopled, taking into consideration not only their present
condition, but also their future and their probable increase, and after distributing to the natives what
may be necessary for tillage and pasturage, confirming them in what they now have and giving them
more if necessary, all the rest of said lands may remain free and unencumbered for us to dispose of
as we may wish.
We therefore order and command that all viceroys and presidents of pretorial courts designate at such
time as shall to them seem most expedient, a suitable period within which all possessors of tracts,
farms, plantations, and estates shall exhibit to them and to the court officers appointed by them for
this purpose, their title deeds thereto. And those who are in possession by virtue of proper deeds and
receipts, or by virtue of just prescriptive right shall be protected, and all the rest shall be restored to us
to be disposed of at our will."4
The Philippines passed to Spain by virtue of "discovery" and conquest. Consequently, all lands
became the exclusive patrimony and dominion of the Spanish Crown. The Spanish Government took
charge of distributing the lands by issuing royal grants and concessions to Spaniards, both military
and civilian.5 Private land titles could only be acquired from the government either by purchase or by
the various modes of land grant from the Crown.6
The Laws of the Indies were followed by the Ley Hipotecaria, or the Mortgage Law of 1893.7 The
Spanish Mortgage Law provided for the systematic registration of titles and deeds as well as
6
possessory claims. The law sought to register and tax lands pursuant to the Royal Decree of 1880.
The Royal Decree of 1894, or the "Maura Law," was partly an amendment of the Mortgage Law as
well as the Laws of the Indies, as already amended by previous orders and decrees. 8 This was the
last Spanish land law promulgated in the Philippines. It required the "adjustment" or registration of all
agricultural lands, otherwise the lands shall revert to the state.
Four years later, by the Treaty of Paris of December 10, 1898, Spain ceded to the government of
the United States all rights, interests and claims over the national territory of the Philippine Islands. In
1903, the United States colonial government, through the Philippine Commission, passed Act No.
926, the first Public Land Act.
B. Valenton v. Murciano
In 1904, under the American regime, this Court decided the case of Valenton v. Murciano.9
Valenton resolved the question of which is the better basis for ownership of land: long-time
occupation or paper title. Plaintiffs had entered into peaceful occupation of the subject land in 1860.
Defendant's predecessor-in-interest, on the other hand, purchased the land from the provincial
treasurer of Tarlac in 1892. The lower court ruled against the plaintiffs on the ground that they had lost
all rights to the land by not objecting to the administrative sale. Plaintiffs appealed the judgment,
asserting that their 30-year adverse possession, as an extraordinary period of prescription in
the Partidas and the Civil Code, had given them title to the land as against everyone, including the
State; and that the State, not owning the land, could not validly transmit it.
The Court, speaking through Justice Willard, decided the case on the basis of "those special laws
which from earliest time have regulated the disposition of the public lands in the colonies." 10 The
question posed by the Court was: "Did these special laws recognize any right of prescription as
against the State as to these lands; and if so, to what extent was it recognized?"
Prior to 1880, the Court said, there were no laws specifically providing for the disposition of land in the
Philippines. However, it was understood that in the absence of any special law to govern a specific
colony, the Laws of the Indies would be followed. Indeed, in the Royal Order of July 5, 1862, it was
decreed that until regulations on the subject could be prepared, the authorities of the Philippine
Islands should follow strictly the Laws of the Indies, the Ordenanza of the Intendentes of 1786, and
the Royal Cedula of 1754.11
Quoting the preamble of Law 14, Title 12, Book 4 of the Recopilacion de Leyes de las Indias, the
court interpreted it as follows:
"In the preamble of this law there is, as is seen, a distinct statement that all those lands belong to the
Crown which have not been granted by Philip, or in his name, or by the kings who preceded him. This
statement excludes the idea that there might be lands not so granted, that did not belong to
the king. It excludes the idea that the king was not still the owner of all ungranted lands,
because some private person had been in the adverse occupation of them. By the mandatory part of
the law all the occupants of the public lands are required to produce before the authorities named,
and within a time to be fixed by them, their title papers. And those who had good title or showed
prescription were to be protected in their holdings. It is apparent that it was not the intention of the law
that mere possession for a length of time should make the possessors the owners of the land
possessed by them without any action on the part of the authorities." 12
The preamble stated that all those lands which had not been granted by Philip, or in his name, or by
the kings who preceded him, belonged to the Crown. 13 For those lands granted by the king, the
decree provided for a system of assignment of such lands. It also ordered that all possessors of
agricultural land should exhibit their title deed, otherwise, the land would be restored to the Crown. 14
The Royal Cedula of October 15, 1754 reinforced the Recopilacion when it ordered the Crown's
principal subdelegate to issue a general order directing the publication of the Crown's instructions:
"x x x to the end that any and all persons who, since the year 1700, and up to the date of the
promulgation and publication of said order, shall have occupied royal lands, whether or not x x x
7
cultivated or tenanted, may x x x appear and exhibit to said subdelegates the titles and patents by
virtue of which said lands are occupied. x x x. Said subdelegates will at the same time warn the
parties interested that in case of their failure to present their title deeds within the term designated,
without a just and valid reason therefor, they will be deprived of and evicted from their lands, and they
will be granted to others."15
On June 25, 1880, the Crown adopted regulations for the adjustment of lands "wrongfully occupied"
by private individuals in the Philippine Islands. Valenton construed these regulations together with
contemporaneous legislative and executive interpretations of the law, and concluded that plaintiffs'
case fared no better under the 1880 decree and other laws which followed it, than it did under the
earlier ones. Thus as a general doctrine, the Court stated:
"While the State has always recognized the right of the occupant to a deed if he proves a possession
for a sufficient length of time, yet it has always insisted that he must make that proof before the
proper administrative officers, and obtain from them his deed, and until he did that the State
remained the absolute owner."16
In conclusion, the Court ruled: "We hold that from 1860 to 1892 there was no law in force in these
Islands by which the plaintiffs could obtain the ownership of these lands by prescription, without any
action by the State."17 Valenton had no rights other than those which accrued to mere possession.
Murciano, on the other hand, was deemed to be the owner of the land by virtue of the grant by the
provincial secretary. In effect, Valenton upheld the Spanish concept of state ownership of public land.
As a fitting observation, the Court added that "[t]he policy pursued by the Spanish Government
from earliest times, requiring settlers on the public lands to obtain title deeds therefor from the
State, has been continued by the American Government in Act No. 926."18
C. The Public Land Acts and the Torrens System
Act No. 926, the first Public Land Act, was passed in pursuance of the provisions of the the Philippine
Bill of 1902. The law governed the disposition of lands of the public domain. It prescribed rules and
regulations for the homesteading, selling, and leasing of portions of the public domain of the
Philippine Islands, and prescribed the terms and conditions to enable persons to perfect their titles to
public lands in the Islands. It also provided for the "issuance of patents to certain native settlers upon
public lands," for the establishment of town sites and sale of lots therein, for the completion of
imperfect titles, and for the cancellation or confirmation of Spanish concessions and grants in the
Islands." In short, the Public Land Act operated on the assumption that title to public lands in the
Philippine Islands remained in the government; 19 and that the government's title to public land sprung
from the Treaty of Paris and other subsequent treaties between Spain and the United States. 20 The
term "public land" referred to all lands of the public domain whose title still remained in the
government and are thrown open to private appropriation and settlement, 21 and excluded the
patrimonial property of the government and the friar lands. 22
Act No. 926 was superseded in 1919 by Act 2874, the second Public Land Act. This new law was
passed under the Jones Law. It was more comprehensive in scope but limited the exploitation of
agricultural lands to Filipinos and Americans and citizens of other countries which gave Filipinos the
same privileges.23 After the passage of the 1935 Constitution, Act 2874 was amended in 1936
by Commonwealth Act No. 141. Commonwealth Act No. 141 remains the present Public Land Law
and it is essentially the same as Act 2874. The main difference between the two relates to the
transitory provisions on the rights of American citizens and corporations during the Commonwealth
period at par with Filipino citizens and corporations.24
Grants of public land were brought under the operation of the Torrens system under Act 496,
or the Land Registration Law of 1903. Enacted by the Philippine Commission, Act 496 placed all
public and private lands in the Philippines under the Torrens system. The law is said to be almost a
verbatim copy of the Massachussetts Land Registration Act of 1898, 25 which, in turn, followed the
principles and procedure of the Torrens system of registration formulated by Sir Robert Torrens who
patterned it after the Merchant Shipping Acts in South Australia. The Torrens system requires that the
government issue an official certificate of title attesting to the fact that the person named is the owner
8
of the property described therein, subject to such liens and encumbrances as thereon noted or the law
warrants or reserves.26 The certificate of title is indefeasible and imprescriptible and all claims to the
parcel of land are quieted upon issuance of said certificate. This system highly facilitates land
conveyance and negotiation.27
D. The Philippine Constitutions
The Regalian doctrine was enshrined in the 1935 Constitution. One of the fixed and dominating
objectives of the 1935 Constitutional Convention was the nationalization and conservation of the
natural resources of the country. 28 There was an overwhelming sentiment in the Convention in
favor of the principle of state ownership of natural resources and the adoption of the Regalian
doctrine.29 State ownership of natural resources was seen as a necessary starting point to secure
recognition of the state's power to control their disposition, exploitation, development, or
utilization.30 The delegates to the Constitutional Convention very well knew that the concept of State
ownership of land and natural resources was introduced by the Spaniards, however, they were not
certain whether it was continued and applied by the Americans. To remove all doubts, the Convention
approved the provision in the Constitution affirming the Regalian doctrine. 31
Thus, the 1935 Constitution, in Section 1 of Article XIII on "Conservation and Utilization of Natural
Resources," reads as follows:
"Sec. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of
the Philippines belong to the State, and their disposition, exploitation, development, or
utilization shall be limited to citizens of the Philippines, or to corporations or associations at
least sixty per centum of the capital of which is owned by such citizens, subject to any
existing right, grant, lease, or concession at the time of the inauguration of the Government
established under this Constitution. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation,
development, or utilization of any of the natural resources shall be granted for a period exceeding
twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which cases beneficial use may be the measure and
the limit of the grant."
The 1973 Constitution reiterated the Regalian doctrine in Section 8, Article XIV on the "National
Economy and the Patrimony of the Nation," to wit:
"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the
Philippines belong to the State. With the exception of agricultural, industrial or commercial,
residential, and resettlement lands of the public domain, natural resources shall not be
alienated, and no license, concession, or lease for the exploration, development, exploitation,
or utilization of any of the natural resources shall be granted for a period exceeding twenty-
five years, renewable for not more than twenty-five years, except as to water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of water power, in which cases
beneficial use may be the measure and the limit of the grant."
The 1987 Constitution reaffirmed the Regalian doctrine in Section 2 of Article XII on "National

Economy and Patrimony," to wit:
"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
9
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.
x x x."
Simply stated, all lands of the public domain as well as all natural resources enumerated therein,
whether on public or private land, belong to the State. It is this concept of State ownership that
petitioners claim is being violated by the IPRA.
II. THE INDIGENOUS PEOPLES RIGHTS ACT.
Republic Act No. 8371 is entitled "An Act to Recognize, Protect and Promote the Rights of
Indigenous Cultural Communities/ Indigenous Peoples, Creating a National Commission on
Indigenous Peoples, Establishing Implementing Mechanisms, Appropriating Funds Therefor, and for
Other Purposes." It is simply known as "The Indigenous Peoples Rights Act of 1997" or the
IPRA.
The IPRA recognizes the existence of the indigenous cultural communities or indigenous
peoples (ICCs/IPs) as a distinct sector in Philippine society. It grants these people the ownership
and possession of their ancestral domains and ancestral lands, and defines the extent of these
lands and domains. The ownership given is the indigenous concept of ownership under
customary law which traces its origin to native title.
Other rights are also granted the ICCs/IPs, and these are:
- the right to develop lands and natural resources;
- the right to stay in the territories;
- the right in case of displacement;
- the right to safe and clean air and water;
- the right to claim parts of reservations;
- the right to resolve conflict;32
- the right to ancestral lands which include
a. the right to transfer land/property to/among members of the same ICCs/IPs, subject to customary
laws and traditions of the community concerned;
b. the right to redemption for a period not exceeding 15 years from date of transfer, if the transfer is to
a non-member of the ICC/IP and is tainted by vitiated consent of the ICC/IP, or if the transfer is for an
unconscionable consideration.33
Within their ancestral domains and ancestral lands, the ICCs/IPs are given the right to self-
governance and empowerment,34 social justice and human rights,35 the right to preserve and protect
their culture, traditions, institutions and community intellectual rights, and the right to develop their
own sciences and technologies.36
To carry out the policies of the Act, the law created the National Commission on Indigenous Peoples
(NCIP). The NCIP is an independent agency under the Office of the President and is composed of
seven (7) Commissioners belonging to ICCs/IPs from each of the ethnographic areas- Region I and
the Cordilleras; Region II; the rest of Luzon; Island groups including Mindoro, Palawan, Romblon,
Panay and the rest of the Visayas; Northern and Western Mindanao; Southern and Eastern
Mindanao; and Central Mindanao. 37 The NCIP took over the functions of the Office for Northern
Cultural Communities and the Office for Southern Cultural Communities created by former President
Corazon Aquino which were merged under a revitalized structure. 38
10
Disputes involving ICCs/IPs are to be resolved under customary laws and practices. When still
unresolved, the matter may be brought to the NCIP, which is granted quasi-judicial powers. 39 The
NCIP's decisions may be appealed to the Court of Appeals by a petition for review.
Any person who violates any of the provisions of the Act such as, but not limited to, unauthorized
and/or unlawful intrusion upon ancestral lands and domains shall be punished in accordance with
customary laws or imprisoned from 9 months to 12 years and/or fined from ₱100,000.00 to
₱500,000.00 and obliged to pay damages.40
A. Indigenous Peoples
The IPRA is a law dealing with a specific group of people, i.e., the Indigenous Cultural Communities
(ICCs) or the Indigenous Peoples (IPs). The term "ICCs" is used in the 1987 Constitution while that of
"IPs" is the contemporary international language in the International Labor Organization (ILO)
Convention 16941 and the United Nations (UN) Draft Declaration on the Rights of Indigenous
Peoples.42
ICCs/IPs are defined by the IPRA as:
"Sec. 3 [h]. Indigenous Cultural Communities/ Indigenous Peoples- refer to a group of people or
homogeneous societies identified by self-ascription and ascription by others, who have continuously
lived as organized community on communally bounded and defined territory, and who have, under
claims of ownership since time immemorial, occupied, possessed and utilized such territories, sharing
common bonds of language, customs, traditions and other distinctive cultural traits, or who have,
through resistance to political, social and cultural inroads of colonization, non-indigenous religions and
cultures, became historically differentiated from the majority of Filipinos. ICCs/IPs shall likewise
include peoples who are regarded as indigenous on account of their descent from the populations
which inhabited the country, at the time of conquest or colonization, or at the time of inroads of non-
indigenous religions and cultures, or the establishment of present state boundaries, who retain some
or all of their own social, economic, cultural and political institutions, but who may have been
displaced from their traditional domains or who may have resettled outside their ancestral domains."
Indigenous Cultural Communities or Indigenous Peoples refer to a group of people or

homogeneous societies who have continuously lived as an organized community on
communally bounded and defined territory. These groups of people have actually occupied,
possessed and utilized their territories under claim of ownership since time immemorial. They share
common bonds of language, customs, traditions and other distinctive cultural traits, or, they, by their
resistance to political, social and cultural inroads of colonization, non-indigenous religions and
cultures, became historically differentiated from the Filipino majority. ICCs/IPs also include
descendants of ICCs/IPs who inhabited the country at the time of conquest or colonization, who retain
some or all of their own social, economic, cultural and political institutions but who may have been
displaced from their traditional territories or who may have resettled outside their ancestral domains.
1. Indigenous Peoples: Their History
Presently, Philippine indigenous peoples inhabit the interiors and mountains of Luzon, Mindanao,
Mindoro, Negros, Samar, Leyte, and the Palawan and Sulu group of islands. They are composed of
110 tribes and are as follows:
1. In the Cordillera Autonomous Region- Kankaney, Ibaloi, Bontoc, Tinggian or Itneg, Ifugao, Kalinga,
Yapayao, Aeta or Agta or Pugot, and Bago of Ilocos Norte and Pangasinan; Ibanag of Isabela,
Cagayan; Ilongot of Quirino and Nueva Vizcaya; Gaddang of Quirino, Nueva Vizcaya, Itawis of
Cagayan; Ivatan of Batanes, Aeta of Cagayan, Quirino and Isabela.
2. In Region III- Aetas.
3. In Region IV- Dumagats of Aurora, Rizal; Remontado of Aurora, Rizal, Quezon; Alangan or
Mangyan, Batangan, Buid or Buhid, Hanunuo and Iraya of Oriental and Occidental Mindoro;
Tadyawan of Occidental Mindoro; Cuyonon, Palawanon, Tagbanua and Tao't bato of Palawan.
11
4. In Region V- Aeta of Camarines Norte and Camarines Sur; Aeta-Abiyan, Isarog, and Kabihug of
Camarines Norte; Agta, and Mayon of Camarines Sur; Itom of Albay, Cimaron of Sorsogon; and the
Pullon of Masbate and Camarines Sur.
5. In Region VI- Ati of Negros Occidental, Iloilo and Antique, Capiz; the Magahat of Negros
Occidental; the Corolano and Sulod.
6. In Region VII- Magahat of Negros Oriental and Eskaya of Bohol.
7. In Region IX- the Badjao numbering about 192,000 in Tawi-Tawi, Zamboanga del Sur; the
Kalibugan of Basilan, the Samal, Subanon and Yakat.
8. Region X- Numbering 1.6 million in Region X alone, the IPs are: the Banwaon, Bukidnon,
Matigsalog, Talaanding of Bukidnon; the Camiguin of Camiguin Island; the Higa-unon of Agusan del
Norte, Agusan del Sur, Bukidnon and Misamis Occidental; the Tigwahanon of Agusan del Sur,
Misamis Oriental and and Misamis Occidental, the Manobo of the Agusan provinces, and the
Umayamnon of Agusan and Bukidnon.
9. In Region XI- There are about 1,774,065 IPs in Region XI. They are tribes of the Dibabaon,
Mansaka of Davao del Norte; B'laan, Kalagan, Langilad, T'boli and Talaingod of Davao del Sur;
Mamamanua of Surigao del Sur; Mandaya of the Surigao provinces and Davao Oriental; Manobo Blit
of South Cotabato; the Mangguangon of Davao and South Cotabato; Matigsalog of Davao del Norte
and Del Sur; Tagakaolo, Tasaday and Ubo of South Cotabato; and Bagobo of Davao del sur and
South Cotabato.
10. In Region XII- Ilianen, Tiruray, Maguindanao, Maranao, Tausug, Yakan/Samal, and Iranon. 43
How these indigenous peoples came to live in the Philippines goes back to as early as 25,000
to 30,000 B.C.
Before the time of Western contact, the Philippine archipelago was peopled largely by the Negritos,
Indonesians and Malays.44 The strains from these groups eventually gave rise to common cultural
features which became the dominant influence in ethnic reformulation in the archipelago. Influences
from the Chinese and Indian civilizations in the third or fourth millenium B.C. augmented these ethnic
strains. Chinese economic and socio-cultural influences came by way of Chinese porcelain, silk and
traders. Indian influence found their way into the religious-cultural aspect of pre-colonial society. 45
The ancient Filipinos settled beside bodies of water. Hunting and food gathering became
supplementary activities as reliance on them was reduced by fishing and the cultivation of the
soil.46 From the hinterland, coastal, and riverine communities, our ancestors evolved an essentially
homogeneous culture, a basically common way of life where nature was a primary
factor. Community life throughout the archipelago was influenced by, and responded to, common
ecology. The generally benign tropical climate and the largely uniform flora and fauna favored
similarities, not differences.47 Life was essentially subsistence but not harsh.48
The early Filipinos had a culture that was basically Malayan in structure and form. They had
languages that traced their origin to the Austronesian parent-stock and used them not only as media
of daily communication but also as vehicles for the expression of their literary moods. 49 They
fashioned concepts and beliefs about the world that they could not see, but which they sensed to be
part of their lives.50 They had their own religion and religious beliefs. They believed in the immortality
of the soul and life after death. Their rituals were based on beliefs in a ranking deity whom they called
Bathalang Maykapal, and a host of other deities, in the environmental spirits and in soul spirits. The
early Filipinos adored the sun, the moon, the animals and birds, for they seemed to consider the
objects of Nature as something to be respected. They venerated almost any object that was close to
their daily life, indicating the importance of the relationship between man and the object of nature. 51
The unit of government was the "barangay," a term that derived its meaning from the Malay word
"balangay," meaning, a boat, which transported them to these shores. 52 The barangay was basically a
family-based community and consisted of thirty to one hundred families. Each barangay was different
and ruled by a chieftain called a "dato." It was the chieftain's duty to rule and govern his subjects and
12
promote their welfare and interests. A chieftain had wide powers for he exercised all the functions of
government. He was the executive, legislator and judge and was the supreme commander in time of
war.53
Laws were either customary or written. Customary laws were handed down orally from
generation to generation and constituted the bulk of the laws of the barangay. They were
preserved in songs and chants and in the memory of the elder persons in the community. 54 The
written laws were those that the chieftain and his elders promulgated from time to time as the
necessity arose.55 The oldest known written body of laws was the Maragtas Code by Datu Sumakwel
at about 1250 A.D. Other old codes are the Muslim Code of Luwaran and the Principal Code of
Sulu.56 Whether customary or written, the laws dealt with various subjects, such as inheritance,
divorce, usury, loans, partnership, crime and punishment, property rights, family relations and
adoption. Whenever disputes arose, these were decided peacefully through a court composed by the
chieftain as "judge" and the barangay elders as "jury." Conflicts arising between subjects of different
barangays were resolved by arbitration in which a board composed of elders from neutral barangays
acted as arbiters.57
Baranganic society had a distinguishing feature: the absence of private property in land. The
chiefs merely administered the lands in the name of the barangay. The social order was an extension
of the family with chiefs embodying the higher unity of the community. Each individual, therefore,
participated in the community ownership of the soil and the instruments of production as a member of
the barangay.58 This ancient communalism was practiced in accordance with the concept of mutual
sharing of resources so that no individual, regardless of status, was without sustenance. Ownership
of land was non-existent or unimportant and the right of usufruct was what regulated the
development of lands.59 Marine resources and fishing grounds were likewise free to all. Coastal
communities depended for their economic welfare on the kind of fishing sharing concept similar to
those in land communities.60 Recognized leaders, such as the chieftains and elders, by virtue of their
positions of importance, enjoyed some economic privileges and benefits. But their rights, related to
either land and sea, were subject to their responsibility to protect the communities from danger and to
provide them with the leadership and means of survival. 61
Sometime in the 13th century, Islam was introduced to the archipelago in Maguindanao. The
Sultanate of Sulu was established and claimed jurisdiction over territorial areas represented today by
Tawi-tawi, Sulu, Palawan, Basilan and Zamboanga. Four ethnic groups were within this jurisdiction:
Sama, Tausug, Yakan and Subanon.62 The Sultanate of Maguindanao spread out from Cotabato
toward Maranao territory, now Lanao del Norte and Lanao del Sur. 63
The Muslim societies evolved an Asiatic form of feudalism where land was still held in
common but was private in use. This is clearly indicated in the Muslim Code of Luwaran. The Code
contains a provision on the lease of cultivated lands. It, however, has no provision for the acquisition,
transfer, cession or sale of land.64
The societies encountered by Magellan and Legaspi therefore were primitive economies where most
production was geared to the use of the producers and to the fulfillment of kinship obligations. They
were not economies geared to exchange and profit. 65 Moreover, the family basis of barangay
membership as well as of leadership and governance worked to splinter the population of the islands
into numerous small and separate communities.66
When the Spaniards settled permanently in the Philippines in 1565, they found the Filipinos
living in barangay settlements scattered along water routes and river banks. One of the first
tasks imposed on the missionaries and the encomenderos was to collect all scattered Filipinos
together in a reduccion.67 As early as 1551, the Spanish government assumed an unvarying solicitous
attitude towards the natives. 68 The Spaniards regarded it a sacred "duty to conscience and humanity
to civilize these less fortunate people living in the obscurity of ignorance" and to accord them the
"moral and material advantages" of community life and the "protection and vigilance afforded them by
the same laws."69
13
The Spanish missionaries were ordered to establish pueblos where the church and convent would be
constructed. All the new Christian converts were required to construct their houses around the church
and the unbaptized were invited to do the same. 70 With the reduccion, the Spaniards attempted to
"tame" the reluctant Filipinos through Christian indoctrination using the convento/casa
real/plaza complex as focal point. The reduccion, to the Spaniards, was a "civilizing" device to make
the Filipinos law-abiding citizens of the Spanish Crown, and in the long run, to make them ultimately
adopt Hispanic culture and civilization.71
All lands lost by the old barangays in the process of pueblo organization as well as all lands
not assigned to them and the pueblos, were now declared to be crown lands or realengas,
belonging to the Spanish king. It was from the realengas that land grants were made to non-
Filipinos.72
The abrogation of the Filipinos' ancestral rights in land and the introduction of the concept of
public domain were the most immediate fundamental results of Spanish colonial theory and
law.73 The concept that the Spanish king was the owner of everything of value in the Indies or
colonies was imposed on the natives, and the natives were stripped of their ancestral rights to
land.74
Increasing their foothold in the Philippines, the Spanish colonialists, civil and religious, classified the
Filipinos according to their religious practices and beliefs, and divided them into three types . First
were the Indios, the Christianized Filipinos, who generally came from the lowland populations.
Second, were the Moros or the Muslim communities, and third, were the infieles or the indigenous
communities.75
The Indio was a product of the advent of Spanish culture. This class was favored by the Spaniards
and was allowed certain status although below the Spaniards. The Moros and infieles were regarded
as the lowest classes.76
The Moros and infieles resisted Spanish rule and Christianity. The Moros were driven from
Manila and the Visayas to Mindanao; while the infieles, to the hinterlands. The Spaniards did not
pursue them into the deep interior. The upland societies were naturally outside the immediate concern
of Spanish interest, and the cliffs and forests of the hinterlands were difficult and inaccessible,
allowing the infieles, in effect, relative security.77 Thus, the infieles, which were peripheral to colonial
administration, were not only able to preserve their own culture but also thwarted the Christianization
process, separating themselves from the newly evolved Christian community. 78 Their own political,
economic and social systems were kept constantly alive and vibrant.
The pro-Christian or pro-Indio attitude of colonialism brought about a generally mutual feeling of
suspicion, fear, and hostility between the Christians on the one hand and the non-Christians on the
other. Colonialism tended to divide and rule an otherwise culturally and historically related populace
through a colonial system that exploited both the virtues and vices of the Filipinos. 79
President McKinley, in his instructions to the Philippine Commission of April 7, 1900,

addressed the existence of the infieles:
"In dealing with the uncivilized tribes of the Islands, the Commission should adopt the same
course followed by Congress in permitting the tribes of our North American Indians to
maintain their tribal organization and government, and under which many of those tribes are now
living in peace and contentment, surrounded by civilization to which they are unable or unwilling to
conform. Such tribal government should, however, be subjected to wise and firm regulation; and,
without undue or petty interference, constant and active effort should be exercised to prevent
barbarous practices and introduce civilized customs." 80
Placed in an alternative of either letting the natives alone or guiding them in the path of civilization, the
American government chose "to adopt the latter measure as one more in accord with humanity and
with the national conscience."81
14
The Americans classified the Filipinos into two: the Christian Filipinos and the non-Christian

Filipinos. The term "non-Christian" referred not to religious belief, but to a geographical area, and
more directly, "to natives of the Philippine Islands of a low grade of civilization, usually living in tribal
relationship apart from settled communities."82
Like the Spaniards, the Americans pursued a policy of assimilation. In 1903, they passed Act
No. 253 creating the Bureau of Non-Christian Tribes (BNCT). Under the Department of the
Interior, the BNCT's primary task was to conduct ethnographic research among unhispanized
Filipinos, including those in Muslim Mindanao, with a "special view to determining the most practicable
means for bringing about their advancement in civilization and prosperity." The BNCT was modeled
after the bureau dealing with American Indians. The agency took a keen anthropological interest in
Philippine cultural minorities and produced a wealth of valuable materials about them. 83
The 1935 Constitution did not carry any policy on the non-Christian Filipinos. The raging issue
then was the conservation of the national patrimony for the Filipinos.
In 1957, the Philippine Congress passed R.A. No. 1888, an "Act to effectuate in a more rapid and
complete manner the economic, social, moral and political advancement of the non-Christian Filipinos
or national cultural minorities and to render real, complete, and permanent the integration of all said
national cultural minorities into the body politic, creating the Commission on National
Integration charged with said functions." The law called for a policy of integration of indigenous
peoples into the Philippine mainstream and for this purpose created the Commission on National
Integration (CNI).84 The CNI was given, more or less, the same task as the BNCT during the
American regime. The post-independence policy of integration was like the colonial policy of
assimilation understood in the context of a guardian-ward relationship. 85
The policy of assimilation and integration did not yield the desired result. Like the Spaniards and
Americans, government attempts at integration met with fierce resistance. Since World War II, a
tidal wave of Christian settlers from the lowlands of Luzon and the Visayas swamped the highlands
and wide open spaces in Mindanao. 86 Knowledge by the settlers of the Public Land Acts and the
Torrens system resulted in the titling of several ancestral lands in the settlers' names. With
government initiative and participation, this titling displaced several indigenous peoples from
their lands. Worse, these peoples were also displaced by projects undertaken by the national
government in the name of national development.87
It was in the 1973 Constitution that the State adopted the following provision:
"The State shall consider the customs, traditions, beliefs, and interests of national cultural
communities in the formulation and implementation of State policies." 88
For the first time in Philippine history, the "non-Christian tribes" or the "cultural minorities"
were addressed by the highest law of the Republic, and they were referred to as "cultural
communities." More importantly this time, their "uncivilized" culture was given some recognition and
their "customs, traditions, beliefs and interests" were to be considered by the State in the formulation
and implementation of State policies. President Marcos abolished the CNI and transferred its
functions to the Presidential Adviser on National Minorities (PANAMIN). The PANAMIN was
tasked to integrate the ethnic groups that sought full integration into the larger community, and at the
same time "protect the rights of those who wish to preserve their original lifeways beside the larger
community."89 In short, while still adopting the integration policy, the decree recognized the
right of tribal Filipinos to preserve their way of life. 90
In 1974, President Marcos promulgated P.D. No. 410, otherwise known as the Ancestral Lands

Decree. The decree provided for the issuance of land occupancy certificates to members of the
national cultural communities who were given up to 1984 to register their claims. 91 In 1979,
the Commission on the Settlement of Land Problems was created under E.O. No. 561 which
provided a mechanism for the expeditious resolution of land problems involving small settlers,
landowners, and tribal Filipinos.92
15
Despite the promulgation of these laws, from 1974 to the early 1980's, some 100,000 Kalingas and
Bontoks of the Cordillera region were displaced by the Chico River dam project of the National Power
Corporation (NPC). The Manobos of Bukidnon saw their land bulldozed by the Bukidnon Sugar
Industries Company (BUSCO). In Agusan del Sur, the National Development Company was
authorized by law in 1979 to take approximately 40,550 hectares of land that later became the NDC-
Guthrie plantation in Agusan del Sur. Most of the land was possessed by the Agusan
natives.93 Timber concessions, water projects, plantations, mining, and cattle ranching and other
projects of the national government led not only to the eviction of the indigenous peoples from their
land but also to the reduction and destruction of their natural environment. 94
The Aquino government signified a total shift from the policy of integration to one of
preservation. Invoking her powers under the Freedom Constitution, President Aquino created
the Office of Muslim Affairs, Office for Northern Cultural Communities and the Office for
Southern Cultural Communities all under the Office of the President. 95
The 1987 Constitution carries at least six (6) provisions which insure the right of tribal
Filipinos to preserve their way of life. 96 This Constitution goes further than the 1973
Constitution by expressly guaranteeing the rights of tribal Filipinos to their ancestral domains
and ancestral lands. By recognizing their right to their ancestral lands and domains, the State
has effectively upheld their right to live in a culture distinctly their own.
2. Their Concept of Land
Indigenous peoples share distinctive traits that set them apart from the Filipino mainstream. They
are non-Christians. They live in less accessible, marginal, mostly upland areas. They have a system
of self-government not dependent upon the laws of the central administration of the Republic of the
Philippines. They follow ways of life and customs that are perceived as different from those of the rest
of the population.97 The kind of response the indigenous peoples chose to deal with colonial threat
worked well to their advantage by making it difficult for Western concepts and religion to erode their
customs and traditions. The "infieles societies" which had become peripheral to colonial
administration, represented, from a cultural perspective, a much older base of archipelagic culture.
The political systems were still structured on the patriarchal and kinship oriented arrangement of
power and authority. The economic activities were governed by the concepts of an ancient
communalism and mutual help. The social structure which emphasized division of labor and
distinction of functions, not status, was maintained. The cultural styles and forms of life portraying the
varieties of social courtesies and ecological adjustments were kept constantly vibrant. 98
Land is the central element of the indigenous peoples' existence. There is no traditional concept
of permanent, individual, land ownership. Among the Igorots, ownership of land more accurately
applies to the tribal right to use the land or to territorial control. The people are the secondary owners
or stewards of the land and that if a member of the tribe ceases to work, he loses his claim of
ownership, and the land reverts to the beings of the spirit world who are its true and primary owners.
Under the concept of "trusteeship," the right to possess the land does not only belong to the present
generation but the future ones as well.99
Customary law on land rests on the traditional belief that no one owns the land except the gods and
spirits, and that those who work the land are its mere stewards. 100 Customary law has a strong
preference for communal ownership, which could either be ownership by a group of individuals or
families who are related by blood or by marriage, 101 or ownership by residents of the same locality
who may not be related by blood or marriage. The system of communal ownership under customary
laws draws its meaning from the subsistence and highly collectivized mode of economic production.
The Kalingas, for instance, who are engaged in team occupation like hunting, foraging for forest
products, and swidden farming found it natural that forest areas, swidden farms, orchards, pasture
and burial grounds should be communally-owned. 102 For the Kalingas, everybody has a common right
to a common economic base. Thus, as a rule, rights and obligations to the land are shared in
common.
16
Although highly bent on communal ownership, customary law on land also sanctions
individual ownership. The residential lots and terrace rice farms are governed by a limited system
of individual ownership. It is limited because while the individual owner has the right to use and
dispose of the property, he does not possess all the rights of an exclusive and full owner as defined
under our Civil Code.103 Under Kalinga customary law, the alienation of individually-owned land is
strongly discouraged except in marriage and succession and except to meet sudden financial needs
due to sickness, death in the family, or loss of crops. 104 Moreover, and to be alienated should first be
offered to a clan-member before any village-member can purchase it, and in no case may land be
sold to a non-member of the ili.105
Land titles do not exist in the indigenous peoples' economic and social system. The concept
of individual land ownership under the civil law is alien to them. Inherently colonial in origin,
our national land laws and governmental policies frown upon indigenous claims to ancestral
lands. Communal ownership is looked upon as inferior, if not inexistent. 106
III. THE IPRA IS A NOVEL PIECE OF LEGISLATION.
A. The Legislative History of the IPRA
It was to address the centuries-old neglect of the Philippine indigenous peoples that the Tenth
Congress of the Philippines, by their joint efforts, passed and approved R.A. No. 8371, the
Indigenous Peoples Rights Act (IPRA) of 1997. The law was a consolidation of two Bills- Senate
Bill No. 1728 and House Bill No. 9125.
Principally sponsored by Senator Juan M. Flavier,107 Senate Bill No. 1728 was a consolidation of

four proposed measures referred to the Committees on Cultural Communities, Environment and
Natural Resources, Ways and Means, as well as Finance. It adopted almost en toto the
comprehensive version of Senate Bill Nos. 1476 and 1486 which was a result of six regional
consultations and one national consultation with indigenous peoples nationwide. 108 At the
Second Regular Session of the Tenth Congress, Senator Flavier, in his sponsorship speech, gave a
background on the situation of indigenous peoples in the Philippines, to wit:
"The Indigenous Cultural Communities, including the Bangsa Moro, have long suffered from the
dominance and neglect of government controlled by the majority. Massive migration of their Christian
brothers to their homeland shrunk their territory and many of the tribal Filipinos were pushed to the
hinterlands. Resisting the intrusion, dispossessed of their ancestral land and with the massive
exploitation of their natural resources by the elite among the migrant population, they became
marginalized. And the government has been an indispensable party to this insidious conspiracy
against the Indigenous Cultural Communities (ICCs). It organized and supported the resettlement of
people to their ancestral land, which was massive during the Commonwealth and early years of the
Philippine Republic. Pursuant to the Regalian Doctrine first introduced to our system by Spain through
the Royal Decree of 13 February 1894 or the Maura Law, the government passed laws to legitimize
the wholesale landgrabbing and provide for easy titling or grant of lands to migrant homesteaders
within the traditional areas of the ICCs."109
Senator Flavier further declared:
"The IPs are the offsprings and heirs of the peoples who have first inhabited and cared for the land
long before any central government was established. Their ancestors had territories over which they
ruled themselves and related with other tribes. These territories- the land- include people, their
dwelling, the mountains, the water, the air, plants, forest and the animals. This is their environment in
its totality. Their existence as indigenous peoples is manifested in their own lives through political,
economic, socio-cultural and spiritual practices. The IPs culture is the living and irrefutable proof to
this.
Their survival depends on securing or acquiring land rights; asserting their rights to it; and depending
on it. Otherwise, IPs shall cease to exist as distinct peoples."110
17
To recognize the rights of the indigenous peoples effectively, Senator Flavier proposed a bill based
on two postulates: (1) the concept of native title; and (2) the principle of parens patriae.
According to Senator Flavier, "[w]hile our legal tradition subscribes to the Regalian Doctrine reinstated
in Section 2, Article XII of the 1987 Constitution," our "decisional laws" and jurisprudence passed by
the State have "made exception to the doctrine." This exception was first laid down in the case
of Cariño v. Insular Government where:
"x x x the court has recognized long occupancy of land by an indigenous member of the cultural
communities as one of private ownership, which, in legal concept, is termed "native title." This ruling
has not been overturned. In fact, it was affirmed in subsequent cases." 111
Following Cariño, the State passed Act No. 926, Act No. 2874, C.A. No. 141, P.D. 705, P.D. 410,
P.D. 1529, R.A. 6734 (the Organic Act for the Autonomous Region of Muslim Mindanao). These laws,
explicitly or implicitly, and liberally or restrictively, recognized "native title" or "private right" and the
existence of ancestral lands and domains. Despite the passage of these laws, however, Senator
Flavier continued:
"x x x the executive department of government since the American occupation has not implemented
the policy. In fact, it was more honored in its breach than in its observance, its wanton disregard
shown during the period unto the Commonwealth and the early years of the Philippine Republic when
government organized and supported massive resettlement of the people to the land of the ICCs."
Senate Bill No. 1728 seeks to genuinely recognize the IPs right to own and possess their ancestral
land. The bill was prepared also under the principle of parens patriae inherent in the supreme power
of the State and deeply embedded in Philippine legal tradition. This principle mandates that persons
suffering from serious disadvantage or handicap, which places them in a position of actual inequality
in their relation or transaction with others, are entitled to the protection of the State.
Senate Bill No. 1728 was passed on Third Reading by twenty-one (21) Senators voting in favor
and none against, with no abstention.112
House Bill No. 9125 was sponsored by Rep. Zapata, Chairman of the Committee on Cultural
Communities. It was originally authored and subsequently presented and defended on the floor
by Rep. Gregorio Andolana of North Cotabato.113
Rep. Andolana's sponsorhip speech reads as follows:
"This Representation, as early as in the 8th Congress, filed a bill of similar implications that would
promote, recognize the rights of indigenous cultural communities within the framework of national
unity and development.
Apart from this, Mr. Speaker, is our obligation, the government's obligation to assure and ascertain
that these rights shall be well-preserved and the cultural traditions as well as the indigenous laws that
remained long before this Republic was established shall be preserved and promoted. There is a
need, Mr. Speaker, to look into these matters seriously and early approval of the substitute bill shall
bring into reality the aspirations, the hope and the dreams of more than 12 million Filipinos that they
be considered in the mainstream of the Philippine society as we fashion for the year 2000." 114
Rep. Andolana stressed that H.B. No. 9125 is based on the policy of preservation as mandated in the
Constitution. He also emphasized that the rights of IPs to their land was enunciated in Cariño v.
Insular Government which recognized the fact that they had vested rights prior to the establishment
of the Spanish and American regimes.115
After exhaustive interpellation, House Bill No. 9125, and its corresponding amendments, was
approved on Second Reading with no objections.
IV. THE PROVISIONS OF THE IPRA DO NOT CONTRAVENE THE CONSTITUTION.
A. Ancestral Domains and Ancestral Lands are the Private Property of Indigenous Peoples and
Do Not Constitute Part of the Land of the Public Domain.
18
The IPRA grants to ICCs/IPs a distinct kind of ownership over ancestral domains and ancestral
lands. Ancestral lands are not the same as ancestral domains. These are defined in Section 3 [a] and
[b] of the Indigenous Peoples Right Act, viz:
"Sec. 3 a) Ancestral Domains. - Subject to Section 56 hereof, refer to all areas generally belonging
to ICCs/IPs comprising lands, inland waters, coastal areas, and natural resources therein, held under
a claim of ownership, occupied or possessed by ICCs/IPs by themselves or through their ancestors,
communally or individually since time immemorial, continuously to the present except when
interrupted by war, force majeure or displacement by force, deceit, stealth or as a consequence of
government projects or any other voluntary dealings entered into by government and private
individuals/corporations, and which are necessary to ensure their economic, social and cultural
welfare. It shall include ancestral lands, forests, pasture, residential, agricultural, and other lands
individually owned whether alienable and disposable or otherwise, hunting grounds, burial grounds,
worship areas, bodies of water, mineral and other natural resources, and lands which may no longer
be exclusively occupied by ICCs/IPs but from which they traditionally had access to for their
subsistence and traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic
and/or shifting cultivators;
b) Ancestral Lands.- Subject to Section 56 hereof, refers to land occupied, possessed and utilized by
individuals, families and clans who are members of the ICCs/IPs since time immemorial, by
themselves or through their predecessors-in-interest, under claims of individual or traditional group
ownership, continuously, to the present except when interrupted by war, force majeure or
displacement by force, deceit, stealth, or as a consequence of government projects and other
voluntary dealings entered into by government and private individuals/corporations, including, but not
limited to, residential lots, rice terraces or paddies, private forests, swidden farms and tree lots."
Ancestral domains are all areas belonging to ICCs/IPs held under a claim of ownership, occupied or
possessed by ICCs/IPs by themselves or through their ancestors, communally or individually since
time immemorial, continuously until the present, except when interrupted by war, force majeure or
displacement by force, deceit, stealth or as a consequence of government projects or any other
voluntary dealings with government and/or private individuals or corporations. Ancestral domains
comprise lands, inland waters, coastal areas, and natural resources therein and includes
ancestral lands, forests, pasture, residential, agricultural, and other lands individually owned
whether alienable or not, hunting grounds, burial grounds, worship areas, bodies of water,
mineral and other natural resources. They also include lands which may no longer be exclusively
occupied by ICCs/IPs but from which they traditionally had access to for their subsistence and
traditional activities, particularly the home ranges of ICCs/IPs who are still nomadic and/or shifting
cultivators.116
Ancestral lands are lands held by the ICCs/IPs under the same conditions as ancestral domains
except that these are limited to lands and that these lands are not merely occupied and possessed
but are also utilized by the ICCs/IPs under claims of individual or traditional group ownership. These
lands include but are not limited to residential lots, rice terraces or paddies, private forests, swidden
farms and tree lots.117
The procedures for claiming ancestral domains and lands are similar to the procedures embodied in
Department Administrative Order (DAO) No. 2, series of 1993, signed by then Secretary of the
Department of Environment and Natural Resources (DENR) Angel Alcala. 118 DAO No. 2 allowed the
delineation of ancestral domains by special task forces and ensured the issuance of Certificates of
Ancestral Land Claims (CALC's) and Certificates of Ancestral Domain Claims (CADC's) to IPs.
The identification and delineation of these ancestral domains and lands is a power conferred by the
IPRA on the National Commission on Indigenous Peoples (NCIP). 119 The guiding principle in
identification and delineation is self-delineation. 120 This means that the ICCs/IPs have a decisive role
in determining the boundaries of their domains and in all the activities pertinent thereto. 121
19
The procedure for the delineation and recognition of ancestral domains is set forth in Sections 51
and 52 of the IPRA. The identification, delineation and certification of ancestral lands is in Section 53
of said law.
Upon due application and compliance with the procedure provided under the law and upon finding by
the NCIP that the application is meritorious, the NCIP shall issue a Certificate of Ancestral Domain
Title (CADT) in the name of the community concerned. 122 The allocation of lands within the
ancestral domain to any individual or indigenous corporate (family or clan) claimants is left to the
ICCs/IPs concerned to decide in accordance with customs and traditions. 123 With respect to
ancestral lands outside the ancestral domain, the NCIP issues a Certificate of Ancestral Land Title
(CALT).124
CADT's and CALT's issued under the IPRA shall be registered by the NCIP before the Register of
Deeds in the place where the property is situated.125
(1) Right to Ancestral Domains and Ancestral Lands: How Acquired
The rights of the ICCs/IPs to their ancestral domains and ancestral lands may be acquired in two
modes: (1) by native title over both ancestral lands and domains; or (2) by torrens title under
the Public Land Act and the Land Registration Act with respect to ancestral lands only.
(2) The Concept of Native Title
Native title is defined as:
"Sec. 3 [l]. Native Title- refers to pre-conquest rights to lands and domains which, as far back as
memory reaches, have been held under a claim of private ownership by ICCs/IPs, have never been
public lands and are thus indisputably presumed to have been held that way since before the
Spanish Conquest."126
Native title refers to ICCs/IPs' preconquest rights to lands and domains held under a claim of private
ownership as far back as memory reaches. These lands are deemed never to have been public lands
and are indisputably presumed to have been held that way since before the Spanish Conquest. The
rights of ICCs/IPs to their ancestral domains (which also include ancestral lands) by virtue of native
title shall be recognized and respected. 127 Formal recognition, when solicited by ICCs/IPs concerned,
shall be embodied in a Certificate of Ancestral Domain Title (CADT), which shall recognize the title of
the concerned ICCs/IPs over the territories identified and delineated. 128
Like a torrens title, a CADT is evidence of private ownership of land by native title. Native title,
however, is a right of private ownership peculiarly granted to ICCs/IPs over their ancestral lands and
domains. The IPRA categorically declares ancestral lands and domains held by native title as never
to have been public land. Domains and lands held under native title are, therefore, indisputably
presumed to have never been public lands and are private.
(a) Cariño v. Insular Government129
The concept of native title in the IPRA was taken from the 1909 case of Cariño v. Insular
Government.130 Cariño firmly established a concept of private land title that existed irrespective of
any royal grant from the State.
In 1903, Don Mateo Cariño, an Ibaloi, sought to register with the land registration court 146 hectares
of land in Baguio Municipality, Benguet Province. He claimed that this land had been possessed and
occupied by his ancestors since time immemorial; that his grandfather built fences around the
property for the holding of cattle and that his father cultivated some parts of the land. Cariño inherited
the land in accordance with Igorot custom. He tried to have the land adjusted under the Spanish land
laws, but no document issued from the Spanish Crown. 131 In 1901, Cariño obtained a possessory title
to the land under the Spanish Mortgage Law. 132 The North American colonial government, however,
ignored his possessory title and built a public road on the land prompting him to seek a Torrens title to
his property in the land registration court. While his petition was pending, a U.S. military
20
reservation133 was proclaimed over his land and, shortly thereafter, a military detachment was detailed
on the property with orders to keep cattle and trespassers, including Cariño, off the land. 134
In 1904, the land registration court granted Cariño's application for absolute ownership to the land.
Both the Government of the Philippine Islands and the U.S. Government appealed to the C.F.I. of
Benguet which reversed the land registration court and dismissed Cariño's application. The Philippine
Supreme Court135 affirmed the C.F.I. by applying the Valenton ruling. Cariño took the case to the U.S.
Supreme Court.136 On one hand, the Philippine government invoked the Regalian doctrine and
contended that Cariño failed to comply with the provisions of the Royal Decree of June 25, 1880,
which required registration of land claims within a limited period of time. Cariño, on the other, asserted
that he was the absolute owner of the land jure gentium, and that the land never formed part of the
public domain.
In a unanimous decision written by Justice Oliver Wendell Holmes, the U.S. Supreme Court held:
"It is true that Spain, in its earlier decrees, embodied the universal feudal theory that all lands were
held from the Crown, and perhaps the general attitude of conquering nations toward people not
recognized as entitled to the treatment accorded to those in the same zone of civilization with
themselves. It is true, also, that in legal theory, sovereignty is absolute, and that, as against foreign
nations, the United States may assert, as Spain asserted, absolute power. But it does not follow that,
as against the inhabitants of the Philippines, the United States asserts that Spain had such power.
When theory is left on one side, sovereignty is a question of strength, and may vary in degree. How
far a new sovereign shall insist upon the theoretical relation of the subjects to the head in the past,
and how far it shall recognize actual facts, are matters for it to decide." 137
The U.S. Supreme Court noted that it need not accept Spanish doctrines. The choice was with the
new colonizer. Ultimately, the matter had to be decided under U.S. law.
The Cariño decision largely rested on the North American constitutionalist's concept of "due process"
as well as the pronounced policy "to do justice to the natives." 138 It was based on the strong mandate
extended to the Islands via the Philippine Bill of 1902 that "No law shall be enacted in said islands
which shall deprive any person of life, liberty, or property without due process of law, or deny to any
person therein the equal protection of the laws." The court declared:
"The acquisition of the Philippines was not like the settlement of the white race in the United States.
Whatever consideration may have been shown to the North American Indians, the dominant purpose
of the whites in America was to occupy land. It is obvious that, however stated, the reason for our
taking over the Philippines was different. No one, we suppose, would deny that, so far as consistent
with paramount necessities, our first object in the internal administration of the islands is to do justice
to the natives, not to exploit their country for private gain. By the Organic Act of July 1, 1902, chapter
1369, section 12 (32 Statutes at Large, 691), all the property and rights acquired there by the United
States are to be administered 'for the benefit of the inhabitants thereof.' It is reasonable to suppose
that the attitude thus assumed by the United States with regard to what was unquestionably its own is
also its attitude in deciding what it will claim for its own. The same statute made a bill of rights,
embodying the safeguards of the Constitution, and, like the Constitution, extends those safeguards to
all. It provides that 'no law shall be enacted in said islands which shall deprive any person of life,
liberty, or property without due process of law, or deny to any person therein the equal protection of
the laws.' In the light of the declaration that we have quoted from section 12, it is hard to believe that
the United States was ready to declare in the next breath that "any person" did not embrace the
inhabitants of Benguet, or that it meant by "property" only that which had become such by ceremonies
of which presumably a large part of the inhabitants never had heard, and that it proposed to treat as
public land what they, by native custom and by long association,- of the profoundest factors in human
thought,- regarded as their own."139
The Court went further:
"Every presumption is and ought to be against the government in a case like the present. It might,
perhaps, be proper and sufficient to say that when, as far back as testimony or memory goes,
the land has been held by individuals under a claim of private ownership, it will be presumed
21
to have been held in the same way from before the Spanish conquest, and never to have been
public land. Certainly in a case like this, if there is doubt or ambiguity in the Spanish law, we ought to
give the applicant the benefit of the doubt." 140
The court thus laid down the presumption of a certain title held (1) as far back as testimony or
memory went, and (2) under a claim of private ownership. Land held by this title is presumed to
"never have been public land."
Against this presumption, the U.S. Supreme Court analyzed the Spanish decrees upheld in the 1904
decision of Valenton v. Murciano. The U.S. Supreme Court found no proof that the Spanish decrees
did not honor native title. On the contrary, the decrees discussed in Valenton appeared to recognize
that the natives owned some land, irrespective of any royal grant. The Regalian doctrine declared in
the preamble of the Recopilacion was all "theory and discourse" and it was observed that titles were
admitted to exist beyond the powers of the Crown, viz:
"If the applicant's case is to be tried by the law of Spain, we do not discover such clear proof
that it was bad by that law as to satisfy us that he does not own the land. To begin with, the
older decrees and laws cited by the counsel for the plaintiff in error seem to indicate pretty
clearly that the natives were recognized as owning some lands, irrespective of any royal
grant. In other words, Spain did not assume to convert all the native inhabitants of the Philippines into
trespassers or even into tenants at will. For instance, Book 4, title 12, Law 14 of the the Recopilacion
de Leyes de las Indias, cited for a contrary conclusion in Valenton v. Murciano, 3 Philippine 537, while
it commands viceroys and others, when it seems proper, to call for the exhibition of grants, directs
them to confirm those who hold by good grants or justa prescripcion. It is true that it begins by the
characteristic assertion of feudal overlordship and the origin of all titles in the King or his
predecessors. That was theory and discourse. The fact was that titles were admitted to exist
that owed nothing to the powers of Spain beyond this recognition in their books." (Emphasis
supplied).141
The court further stated that the Spanish "adjustment" proceedings never held sway over
unconquered territories. The wording of the Spanish laws were not framed in a manner as to convey
to the natives that failure to register what to them has always been their own would mean loss of such
land. The registration requirement was "not to confer title, but simply to establish it;" it was "not
calculated to convey to the mind of an Igorot chief the notion that ancient family possessions were in
danger, if he had read every word of it."
By recognizing this kind of title, the court clearly repudiated the doctrine of Valenton. It was frank
enough, however, to admit the possibility that the applicant might have been deprived of his land
under Spanish law because of the inherent ambiguity of the decrees and concomitantly, the various
interpretations which may be given them. But precisely because of the ambiguity and of the
strong "due process mandate" of the Constitution, the court validated this kind of title. 142 This
title was sufficient, even without government administrative action, and entitled the holder to a Torrens
certificate. Justice Holmes explained:
"It will be perceived that the rights of the applicant under the Spanish law present a problem not
without difficulties for courts of a legal tradition. We have deemed it proper on that account to notice
the possible effect of the change of sovereignty and the act of Congress establishing the fundamental
principles now to be observed. Upon a consideration of the whole case we are of the opinion that law
and justice require that the applicant should be granted what he seeks, and should not be deprived of
what, by the practice and belief of those among whom he lived, was his property, through a refined
interpretation of an almost forgotten law of Spain." 143
Thus, the court ruled in favor of Cariño and ordered the registration of the 148 hectares in
Baguio Municipality in his name.144
Examining Cariño closer, the U.S. Supreme Court did not categorically refer to the title it upheld as
"native title." It simply said:
22
"The Province of Benguet was inhabited by a tribe that the Solicitor-General, in his argument,
characterized as a savage tribe that never was brought under the civil or military government
of the Spanish Crown. It seems probable, if not certain, that the Spanish officials would not
have granted to anyone in that province the registration to which formerly the plaintiff was
entitled by the Spanish Laws, and which would have made his title beyond question
good. Whatever may have been the technical position of Spain it does not follow that, in the view of
the United States, he had lost all rights and was a mere trespasser when the present government
seized his land. The argument to that effect seems to amount to a denial of native titles through an
important part of the Island of Luzon, at least, for the want of ceremonies which the Spaniards would
not have permitted and had not the power to enforce."145
This is the only instance when Justice Holmes used the term "native title" in the entire length of
the Cariño decision. It is observed that the widespread use of the term "native title" may be traced to
Professor Owen James Lynch, Jr., a Visiting Professor at the University of the Philippines College of
Law from the Yale University Law School. In 1982, Prof. Lynch published an article in the Philippine
Law Journal entitled Native Title, Private Right and Tribal Land Law.146 This article was made after
Professor Lynch visited over thirty tribal communities throughout the country and studied the origin
and development of Philippine land laws. 147 He discussed Cariño extensively and used the term
"native title" to refer to Cariño's title as discussed and upheld by the U.S. Supreme Court in said case.
(b) Indian Title
In a footnote in the same article, Professor Lynch stated that the concept of "native title" as defined by
Justice Holmes in Cariño "is conceptually similar to "aboriginal title" of the American Indians. 148 This is
not surprising, according to Prof. Lynch, considering that during the American regime, government
policy towards ICCs/IPs was consistently made in reference to native Americans. 149 This was clearly
demonstrated in the case of Rubi v. Provincial Board of Mindoro.150
In Rubi, the Provincial Board of Mindoro adopted a Resolution authorizing the provincial governor to
remove the Mangyans from their domains and place them in a permanent reservation in Sitio Tigbao,
Lake Naujan. Any Mangyan who refused to comply was to be imprisoned. Rubi and some Mangyans,
including one who was imprisoned for trying to escape from the reservation, filed for habeas corpus
claiming deprivation of liberty under the Board Resolution. This Court denied the petition on the
ground of police power. It upheld government policy promoting the idea that a permanent settlement
was the only successful method for educating the Mangyans, introducing civilized customs, improving
their health and morals, and protecting the public forests in which they roamed. 151 Speaking through
Justice Malcolm, the court said:
"Reference was made in the President's instructions to the Commission to the policy adopted by the
United States for the Indian Tribes. The methods followed by the Government of the Philippine Islands
in its dealings with the so-called non-Christian people is said, on argument, to be practically identical
with that followed by the United States Government in its dealings with the Indian tribes. Valuable
lessons, it is insisted, can be derived by an investigation of the American-Indian policy.
From the beginning of the United States, and even before, the Indians have been treated as "in a
state of pupilage." The recognized relation between the Government of the United States and the
Indians may be described as that of guardian and ward. It is for the Congress to determine when and
how the guardianship shall be terminated. The Indians are always subject to the plenary authority of
the United States.152
x x x.
As to the second point, the facts in the Standing Bear case and the Rubi case are not exactly
identical. But even admitting similarity of facts, yet it is known to all that Indian reservations do exist in
the United States, that Indians have been taken from different parts of the country and placed on
these reservations, without any previous consultation as to their own wishes, and that, when once so
located, they have been made to remain on the reservation for their own good and for the general
good of the country. If any lesson can be drawn from the Indian policy of the United States, it is that
the determination of this policy is for the legislative and executive branches of the government and
23
that when once so decided upon, the courts should not interfere to upset a carefully planned
governmental system. Perhaps, just as many forceful reasons exist for the segregation of the
Manguianes in Mindoro as existed for the segregation of the different Indian tribes in the United
States."153
Rubi applied the concept of Indian land grants or reservations in the Philippines. An Indian
reservation is a part of the public domain set apart by proper authority for the use and occupation of a
tribe or tribes of Indians.154 It may be set apart by an act of Congress, by treaty, or by executive order,
but it cannot be established by custom and prescription. 155
Indian title to land, however, is not limited to land grants or reservations. It also covers the
"aboriginal right of possession or occupancy." 156 The aboriginal right of possession depends on
the actual occupancy of the lands in question by the tribe or nation as their ancestral home, in the
sense that such lands constitute definable territory occupied exclusively by the particular tribe or
nation.157 It is a right which exists apart from any treaty, statute, or other governmental action,
although in numerous instances treaties have been negotiated with Indian tribes, recognizing their
aboriginal possession and delimiting their occupancy rights or settling and adjusting their
boundaries.158
American jurisprudence recognizes the Indians' or native Americans' rights to land they have
held and occupied before the "discovery" of the Americas by the Europeans. The earliest
definitive statement by the U.S. Supreme Court on the nature of aboriginal title was made in
1823 in Johnson & Graham's Lessee v. M'Intosh.159
In Johnson, the plaintiffs claimed the land in question under two (2) grants made by the chiefs of two
(2) Indian tribes. The U.S. Supreme Court refused to recognize this conveyance, the plaintiffs being
private persons. The only conveyance that was recognized was that made by the Indians to the
government of the European discoverer. Speaking for the court, Chief Justice Marshall pointed out
that the potentates of the old world believed that they had made ample compensation to the
inhabitants of the new world by bestowing civilization and Christianity upon them; but in addition, said
the court, they found it necessary, in order to avoid conflicting settlements and consequent war, to
establish the principle that discovery gives title to the government by whose subjects, or by
whose authority, the discovery was made, against all other European governments, which title
might be consummated by possession.160 The exclusion of all other Europeans gave to the nation
making the discovery the sole right of acquiring the soil from the natives and establishing settlements
upon it. As regards the natives, the court further stated that:
"Those relations which were to exist between the discoverer and the natives were to be regulated by
themselves. The rights thus acquired being exclusive, no other power could interpose between them.
In the establishment of these relations, the rights of the original inhabitants were, in no instance,

entirely disregarded; but were necessarily, to a considerable extent, impaired. They were admitted to
be the rightful occupants of the soil, with a legal as well as just claim to retain possession of it,
and to use it according to their own discretion; but their rights to complete sovereignty, as
independent nations, were necessarily diminished, and their power to dispose of the soil at their own
will, to whomsoever they pleased, was denied by the fundamental principle that discovery gave
exclusive title to those who made it.
While the different nations of Europe respected the right of the natives as occupants, they
asserted the ultimate dominion to be in themselves; and claimed and exercised, as a
consequence of this ultimate dominion, a power to grant the soil, while yet in possession of
the natives. These grants have been understood by all to convey a title to the grantees, subject
only to the Indian right of occupancy."161
Thus, the discoverer of new territory was deemed to have obtained the exclusive right to acquire
Indian land and extinguish Indian titles. Only to the discoverer- whether to England, France, Spain or
Holland- did this right belong and not to any other nation or private person. The mere acquisition of
the right nonetheless did not extinguish Indian claims to land. Rather, until the discoverer, by
purchase or conquest, exercised its right, the concerned Indians were recognized as the "rightful
24
occupants of the soil, with a legal as well as just claim to retain possession of it." Grants made by the
discoverer to her subjects of lands occupied by the Indians were held to convey a title to the grantees,
subject only to the Indian right of occupancy. Once the discoverer purchased the land from the
Indians or conquered them, it was only then that the discoverer gained an absolute title unrestricted
by Indian rights.
The court concluded, in essence, that a grant of Indian lands by Indians could not convey a title
paramount to the title of the United States itself to other parties, saying:
"It has never been contended that the Indian title amounted to nothing. Their right of possession
has never been questioned. The claim of government extends to the complete ultimate title,
charged with this right of possession, and to the exclusive power of acquiring that right." 162
It has been said that the history of America, from its discovery to the present day, proves the universal
recognition of this principle.163
The Johnson doctrine was a compromise. It protected Indian rights and their native lands without
having to invalidate conveyances made by the government to many U.S. citizens. 164
Johnson was reiterated in the case of Worcester v. Georgia.165 In this case, the State of Georgia
enacted a law requiring all white persons residing within the Cherokee nation to obtain a license or
permit from the Governor of Georgia; and any violation of the law was deemed a high misdemeanor.
The plaintiffs, who were white missionaries, did not obtain said license and were thus charged with a
violation of the Act.
The U.S. Supreme Court declared the Act as unconstitutional for interfering with the treaties
established between the United States and the Cherokee nation as well as the Acts of Congress
regulating intercourse with them. It characterized the relationship between the United States
government and the Indians as:
"The Indian nations were, from their situation, necessarily dependent on some foreign potentate for
the supply of their essential wants, and for their protection from lawless and injurious intrusions into
their country. That power was naturally termed their protector. They had been arranged under the
protection of Great Britain; but the extinguishment of the British power in their neighborhood, and the
establishment of that of the United States in its place, led naturally to the declaration, on the part of
the Cherokees, that they were under the protection of the United States, and of no other power. They
assumed the relation with the United States which had before subsisted with Great Britain.
This relation was that of a nation claiming and receiving the protection of one more powerful, not that
of individuals abandoning their national character, and submitting as subjects to the laws of a
master."166
It was the policy of the U.S. government to treat the Indians as nations with distinct territorial
boundaries and recognize their right of occupancy over all the lands within their domains. Thus:
"From the commencement of our government Congress has passed acts to regulate trade and
intercourse with the Indians; which treat them as nations, respect their rights, and manifest a firm
purpose to afford that protection which treaties stipulate. All these acts, and especially that of 1802,
which is still in force, manifestly consider the several Indian nations as distinct political
communities, having territorial boundaries, within which their authority is exclusive, and
having a right to all the lands within those boundaries, which is not only acknowledged, but
guaranteed by the United States.
x x x.
"The Indian nations had always been considered as distinct, independent political
communities, retaining their original natural rights, as the undisputed possessors of the soil
from time immemorial, with the single exception of that imposed by irresistible power, which
excluded them from intercourse with any other European potentate than the first discoverer of the
coast of the particular region claimed: and this was a restriction which those European potentates
25
imposed on themselves, as well as on the Indians. The very term "nation," so generally applied to
them, means "a people distinct from others." x x x.167
The Cherokee nation, then, is a distinct community, occupying its own territory, with boundaries
accurately described, in which the laws of Georgia can have no force, and which the citizens of
Georgia have no right to enter but with the assent of the Cherokees themselves or in conformity with
treaties and with the acts of Congress. The whole intercourse between the United States and this
nation is, by our Constitution and laws, vested in the government of the United States." 168
The discovery of the American continent gave title to the government of the discoverer as against all
other European governments. Designated as the naked fee, 169 this title was to be consummated by
possession and was subject to the Indian title of occupancy. The discoverer acknowledged the
Indians' legal and just claim to retain possession of the land, the Indians being the original inhabitants
of the land. The discoverer nonetheless asserted the exclusive right to acquire the Indians' land-
either by purchase, "defensive" conquest, or cession- and in so doing, extinguish the Indian title. Only
the discoverer could extinguish Indian title because it alone asserted ultimate dominion in itself. Thus,
while the different nations of Europe respected the rights of the natives as occupants, they all
asserted the ultimate dominion and title to be in themselves. 170
As early as the 19th century, it became accepted doctrine that although fee title to the lands
occupied by the Indians when the colonists arrived became vested in the sovereign- first the
discovering European nation and later the original 13 States and the United States- a right of
occupancy in the Indian tribes was nevertheless recognized. The Federal Government continued
the policy of respecting the Indian right of occupancy, sometimes called Indian title, which it accorded
the protection of complete ownership.171 But this aboriginal Indian interest simply constitutes
"permission" from the whites to occupy the land, and means mere possession not specifically
recognized as ownership by Congress.172 It is clear that this right of occupancy based upon aboriginal
possession is not a property right. 173 It is vulnerable to affirmative action by the federal government
who, as sovereign, possessed exclusive power to extinguish the right of occupancy at will. 174 Thus,
aboriginal title is not the same as legal title. Aboriginal title rests on actual, exclusive and
continuous use and occupancy for a long time. 175 It entails that land owned by Indian title must be
used within the tribe, subject to its laws and customs, and cannot be sold to another sovereign
government nor to any citizen.176 Such title as Indians have to possess and occupy land is in the tribe,
and not in the individual Indian; the right of individual Indians to share in the tribal property usually
depends upon tribal membership, the property of the tribe generally being held in communal
ownership.177
As a rule, Indian lands are not included in the term "public lands," which is ordinarily used to
designate such lands as are subject to sale or other disposal under general laws. 178 Indian land which
has been abandoned is deemed to fall into the public domain. 179 On the other hand, an Indian
reservation is a part of the public domain set apart for the use and occupation of a tribe of
Indians.180 Once set apart by proper authority, the reservation ceases to be public land, and until the
Indian title is extinguished, no one but Congress can initiate any preferential right on, or restrict the
nation's power to dispose of, them.181
The American judiciary struggled for more than 200 years with the ancestral land claims of
indigenous Americans.182 And two things are clear. First, aboriginal title is recognized. Second,
indigenous property systems are also recognized. From a legal point of view, certain benefits can be
drawn from a comparison of Philippine IPs to native Americans. 183 Despite the similarities between
native title and aboriginal title, however, there are at present some misgivings on whether
jurisprudence on American Indians may be cited authoritatively in the Philippines. The U.S.
recognizes the possessory rights of the Indians over their land; title to the land, however, is deemed to
have passed to the U.S. as successor of the discoverer. The aboriginal title of ownership is not
specifically recognized as ownership by action authorized by Congress. 184 The protection of aboriginal
title merely guards against encroachment by persons other than the Federal Government. 185 Although
there are criticisms against the refusal to recognize the native Americans' ownership of these
lands,186 the power of the State to extinguish these titles has remained firmly entrenched. 187
26
Under the IPRA, the Philippine State is not barred form asserting sovereignty over the ancestral
domains and ancestral lands.188 The IPRA, however, is still in its infancy and any similarities between
its application in the Philippines vis-à-vis American Jurisprudence on aboriginal title will depend on the
peculiar facts of each case.
(c) Why the Cariño doctrine is unique
In the Philippines, the concept of native title first upheld in Cariño and enshrined in the IPRA grants
ownership, albeit in limited form, of the land to the ICCs/IPs. Native title presumes that the land is
private and was never public. Cariño is the only case that specifically and categorically
recognizes native title. The long line of cases citing Cariño did not touch on native title and the
private character of ancestral domains and lands. Cariño was cited by the succeeding cases to
support the concept of acquisitive prescription under the Public Land Act which is a different
matter altogether. Under the Public Land Act, land sought to be registered must be public
agricultural land. When the conditions specified in Section 48 [b] of the Public Land Act are complied
with, the possessor of the land is deemed to have acquired, by operation of law, a right to a grant of
the land.189 The land ceases to be part of the public domain, 190 ipso jure,191 and is converted to private
property by the mere lapse or completion of the prescribed statutory period.
It was only in the case of Oh Cho v. Director of Lands 192 that the court declared that the rule that all
lands that were not acquired from the government, either by purchase or grant, belong to the public
domain has an exception. This exception would be any land that should have been in the possession
of an occupant and of his predecessors-in-interest since time immemorial. It is this kind of possession
that would justify the presumption that the land had never been part of the public domain or that it had
been private property even before the Spanish conquest. 193 Oh Cho, however, was decided under the
provisions of the Public Land Act and Cariño was cited to support the applicant's claim of acquisitive
prescription under the said Act.
All these years, Cariño had been quoted out of context simply to justify long, continuous, open and
adverse possession in the concept of owner of public agricultural land. It is this long, continuous, open
and adverse possession in the concept of owner of thirty years both for ordinary citizens 194 and
members of the national cultural minorities 195 that converts the land from public into private and
entitles the registrant to a torrens certificate of title.
(3) The Option of Securing a Torrens Title to the Ancestral Land Indicates that the Land is
Private.
The private character of ancestral lands and domains as laid down in the IPRA is
further strengthened by the option given to individual ICCs/IPs over their individually-owned
ancestral lands. For purposes of registration under the Public Land Act and the Land
Registration Act, the IPRA expressly converts ancestral land into public agricultural land
which may be disposed of by the State. The necessary implication is that ancestral land is
private. It, however, has to be first converted to public agricultural land simply for registration
purposes. To wit:
"Sec. 12. Option to Secure Certificate of Title Under Commonwealth Act 141, as amended, or the
Land Registration Act 496- Individual members of cultural communities, with respect to their
individually-owned ancestral lands who, by themselves or through their predecessors-in-interest, have
been in continuous possession and occupation of the same in the concept of owner since time
immemorial or for a period of not less than thirty (30) years immediately preceding the approval of this
Act and uncontested by the members of the same ICCs/IPs shall have the option to secure title to
their ancestral lands under the provisions of Commonwealth Act 141, as amended, or the Land
Registration Act 496.
For this purpose, said individually-owned ancestral lands, which are agricultural in character and
actually used for agricultural, residential, pasture, and tree farming purposes, including those with a
slope of eighteen percent (18%) or more, are hereby classified as alienable and disposable
agricultural lands.
27
The option granted under this section shall be exercised within twenty (20) years from the approval of
this Act."196
ICCs/IPs are given the option to secure a torrens certificate of title over their individually-owned
ancestral lands. This option is limited to ancestral lands only, not domains, and such lands must be
individually, not communally, owned.
Ancestral lands that are owned by individual members of ICCs/IPs who, by themselves or through
their predecessors-in-interest, have been in continuous possession and occupation of the same in the
concept of owner since time immemorial 197 or for a period of not less than 30 years, which claims are
uncontested by the members of the same ICCs/IPs, may be registered under C.A. 141, otherwise
known as the Public Land Act, or Act 496, the Land Registration Act. For purposes of registration, the
individually-owned ancestral lands are classified as alienable and disposable agricultural lands of the
public domain, provided, they are agricultural in character and are actually used for agricultural,
residential, pasture and tree farming purposes. These lands shall be classified as public agricultural
lands regardless of whether they have a slope of 18% or more.
The classification of ancestral land as public agricultural land is in compliance with the requirements
of the Public Land Act and the Land Registration Act. C.A. 141, the Public Land Act, deals specifically
with lands of the public domain.198 Its provisions apply to those lands "declared open to disposition or
concession" x x x "which have not been reserved for public or quasi-public purposes, nor appropriated
by the Government, nor in any manner become private property, nor those on which a private right
authorized and recognized by this Act or any other valid law x x x or which having been reserved or
appropriated, have ceased to be so."199 Act 496, the Land Registration Act, allows registration only of
private lands and public agricultural lands. Since ancestral domains and lands are private, if the
ICC/IP wants to avail of the benefits of C.A. 141 and Act 496, the IPRA itself converts his
ancestral land, regardless of whether the land has a slope of eighteen per cent (18%) or
over,200 from private to public agricultural land for proper disposition.
The option to register land under the Public Land Act and the Land Registration Act has nonetheless
a limited period. This option must be exercised within twenty (20) years from October 29, 1997, the
date of approval of the IPRA.
Thus, ancestral lands and ancestral domains are not part of the lands of the public domain.
They are private and belong to the ICCs/IPs. Section 3 of Article XII on National Economy and
Patrimony of the 1987 Constitution classifies lands of the public domain into four categories: (a)
agricultural, (b) forest or timber, (c) mineral lands, and (d) national parks. Section 5 of the same
Article XII mentions ancestral lands and ancestral domains but it does not classify them under any of
the said four categories. To classify them as public lands under any one of the four classes will
render the entire IPRA law a nullity. The spirit of the IPRA lies in the distinct concept of ancestral
domains and ancestral lands. The IPRA addresses the major problem of the ICCs/IPs which is loss of
land. Land and space are of vital concern in terms of sheer survival of the ICCs/IPs. 201
The 1987 Constitution mandates the State to "protect the rights of indigenous cultural
communities to their ancestral lands" and that "Congress provide for the applicability of
customary laws x x x in determining the ownership and extent of ancestral domain." 202 It is the
recognition of the ICCs/IPs distinct rights of ownership over their ancestral domains and lands
that breathes life into this constitutional mandate.
B. The right of ownership and possession by the ICCs/IPs of their ancestral domains is a
limited form of ownership and does not include the right to alienate the same.
Registration under the Public Land Act and Land Registration Act recognizes the concept of
ownership under the civil law. This ownership is based on adverse possession for a specified period,
and harkens to Section 44 of the Public Land Act on administrative legalization (free patent) of
imperfect or incomplete titles and Section 48 (b) and (c) of the same Act on the judicial confirmation of
imperfect or incomplete titles. Thus:
28
"Sec. 44. Any natural-born citizen of the Philippines who is not the owner of more than twenty-four
hectares and who since July fourth, 1926 or prior thereto, has continuously occupied and cultivated,
either by himself or through his predecessors-in-interest, a tract or tracts of agricultural public lands
subject to disposition, or who shall have paid the real estate tax thereon while the same has not been
occupied by any person shall be entitled, under the provisions of this chapter, to have a free patent
issued to him for such tract or tracts of such land not to exceed twenty-four hectares.
A member of the national cultural minorities who has continuously occupied and cultivated,
either by himself or through his predecessors-in-interest, a tract or tracts of land, whether
disposable or not since July 4, 1955, shall be entitled to the right granted in the preceding
paragraph of this section: Provided, That at the time he files his free patent application he is
not the owner of any real property secured or disposable under the provision of the Public
Land Law.203
x x x.
"Sec. 48. The following described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title therefor, under the Land
Registration Act, to wit:
(a) [perfection of Spanish titles] xxx.
(b) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive, and notorious possession and occupation of agricultural lands of the public
domain, under a bona fide claim of acquisition or ownership, for at least thirty years immediately
preceding the filing of the application for confirmation of title except when prevented by war or force
majeure. These shall be conclusively presumed to have performed all the conditions essential to a
Government grant and shall be entitled to a certificate of title under the provisions of this Chapter.
(c) Members of the national cultural minorities who by themselves or through their

predecessors-in-interest have been in open, continuous, exclusive and notorious possession
and occupation of lands of the public domain suitable to agriculture, whether disposable or
not, under a bona fide claim of ownership for at least 30 years shall be entitled to the rights
granted in sub-section (b) hereof."204
Registration under the foregoing provisions presumes that the land was originally public agricultural
land but because of adverse possession since July 4, 1955 (free patent) or at least thirty years
(judicial confirmation), the land has become private. Open, adverse, public and continuous
possession is sufficient, provided, the possessor makes proper application therefor. The possession
has to be confirmed judicially or administratively after which a torrens title is issued.
A torrens title recognizes the owner whose name appears in the certificate as entitled to all the rights
of ownership under the civil law. The Civil Code of the Philippines defines ownership in Articles 427,
428 and 429. This concept is based on Roman Law which the Spaniards introduced to the Philippines
through the Civil Code of 1889. Ownership, under Roman Law, may be exercised over things or
rights. It primarily includes the right of the owner to enjoy and dispose of the thing owned. And the
right to enjoy and dispose of the thing includes the right to receive from the thing what it
produces,205 the right to consume the thing by its use,206 the right to alienate, encumber, transform or
even destroy the thing owned,207 and the right to exclude from the possession of the thing owned by
any other person to whom the owner has not transmitted such thing. 208
1. The Indigenous Concept of Ownership and Customary Law.
Ownership of ancestral domains by native title does not entitle the ICC/IP to a torrens title but to a
Certificate of Ancestral Domain Title (CADT). The CADT formally recognizes the indigenous concept
of ownership of the ICCs/IPs over their ancestral domain. Thus:
29
"Sec. 5. Indigenous concept of ownership.- Indigenous concept of ownership sustains the view that
ancestral domains and all resources found therein shall serve as the material bases of their cultural
integrity. The indigenous concept of ownership generally holds that ancestral domains are the
ICCs/IPs private but community property which belongs to all generations and therefore cannot be
sold, disposed or destroyed. It likewise covers sustainable traditional resource rights."
The right of ownership and possession of the ICCs/IPs to their ancestral domains is held
under the indigenous concept of ownership. This concept maintains the view that ancestral
domains are the ICCs/IPs private but community property. It is private simply because it is not
part of the public domain. But its private character ends there. The ancestral domain is owned
in common by the ICCs/IPs and not by one particular person. The IPRA itself provides that areas
within the ancestral domains, whether delineated or not, are presumed to be communally
held.209 These communal rights, however, are not exactly the same as co-ownership rights
under the Civil Code.210 Co-ownership gives any co-owner the right to demand partition of the
property held in common. The Civil Code expressly provides that "no co-owner shall be obliged to
remain in the co-ownership." Each co-owner may demand at any time the partition of the thing in
common, insofar as his share is concerned. 211 To allow such a right over ancestral domains may be
destructive not only of customary law of the community but of the very community itself. 212
Communal rights over land are not the same as corporate rights over real property, much less
corporate condominium rights. A corporation can exist only for a maximum of fifty (50) years
subject to an extension of another fifty years in any single instance. 213 Every stockholder has the right
to disassociate himself from the corporation. 214 Moreover, the corporation itself may be dissolved
voluntarily or involuntarily.215
Communal rights to the land are held not only by the present possessors of the land but
extends to all generations of the ICCs/IPs, past, present and future, to the domain. This is the
reason why the ancestral domain must be kept within the ICCs/IPs themselves. The domain cannot
be transferred, sold or conveyed to other persons. It belongs to the ICCs/IPs as a community.
Ancestral lands are also held under the indigenous concept of ownership. The lands are
communal. These lands, however, may be transferred subject to the following limitations: (a) only to
the members of the same ICCs/IPs; (b) in accord with customary laws and traditions; and (c) subject
to the right of redemption of the ICCs/IPs for a period of 15 years if the land was transferred to a non-
member of the ICCs/IPs.
Following the constitutional mandate that "customary law govern property rights or relations in
determining the ownership and extent of ancestral domains," 216 the IPRA, by legislative fiat,
introduces a new concept of ownership. This is a concept that has long existed under
customary law.217
Custom, from which customary law is derived, is also recognized under the Civil Code as a
source of law.218 Some articles of the Civil Code expressly provide that custom should be applied in
cases where no codal provision is applicable. 219 In other words, in the absence of any applicable
provision in the Civil Code, custom, when duly proven, can define rights and liabilities. 220
Customary law is a primary, not secondary, source of rights under the IPRA and uniquely applies to
ICCs/IPs. Its recognition does not depend on the absence of a specific provision in the civil
law. The indigenous concept of ownership under customary law is specifically acknowledged and
recognized, and coexists with the civil law concept and the laws on land titling and land registration. 221
To be sure, the indigenous concept of ownership exists even without a paper title. The CADT is
merely a "formal recognition" of native title. This is clear from Section 11 of the IPRA, to wit:
"Sec. 11. Recognition of Ancestral Domain Rights.- The rights of ICCs/IPs to their ancestral domains
by virtue of Native Title shall be recognized and respected. Formal recognition, when solicited by
ICCs/IPs concerned shall be embodied in a Certificate of Ancestral Domain Title, which shall
recognize the title of the concerned ICCs/IPs over the territories identified and delineated."
30
The moral import of ancestral domain, native land or being native is "belongingness" to the land,
being people of the land- by sheer force of having sprung from the land since time beyond recall, and
the faithful nurture of the land by the sweat of one's brow. This is fidelity of usufructuary relation to the
land- the possession of stewardship through perduring, intimate tillage, and the mutuality of blessings
between man and land; from man, care for land; from the land, sustenance for man. 222
C. Sections 7 (a), 7 (b) and 57 of the IPRA Do Not Violate the Regalian Doctrine Enshrined in
Section 2, Article XII of the 1987 Constitution.
1. The Rights of ICCs/IPs Over Their Ancestral Domains and Lands
The IPRA grants the ICCs/IPs several rights over their ancestral domains and ancestral lands.
Section 7 provides for the rights over ancestral domains:
"Sec. 7. Rights to Ancestral Domains.- The rights of ownership and possession of ICCs/IPs to their
ancestral domains shall be recognized and protected. Such rights include:
a) Right of Ownership.- The right to claim ownership over lands, bodies of water traditionally and
actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all
improvements made by them at any time within the domains;
b) Right to Develop Lands and Natural Resources.- Subject to Section 56 hereof, the right to
develop, control and use lands and territories traditionally occupied, owned, or used; to
manage and conserve natural resources within the territories and uphold the responsibilities
for future generations; to benefit and share the profits from allocation and utilization of the
natural resources found therein; the right to negotiate the terms and conditions for the
exploration of natural resources in the areas for the purpose of ensuring ecological,
environmental protection and the conservation measures, pursuant to national and customary
laws; the right to an informed and intelligent participation in the formulation and implementation of any
project, government or private, that will affect or impact upon the ancestral domains and to receive
just and fair compensation for any damages which they may sustain as a result of the project; and the
right to effective measures by the government to prevent any interference with, alienation and
encroachment upon these rights;"
c) Right to Stay in the Territories.- The right to stay in the territory and not to be removed therefrom.
No ICCs/IPs will be relocated without their free and prior informed consent, nor through any means
other than eminent domain. x x x;
d) Right in Case of Displacement.- In case displacement occurs as a result of natural catastrophes,

the State shall endeavor to resettle the displaced ICCs/IPs in suitable areas where they can have
temporary life support systems: x x x;
e) Right to Regulate the Entry of Migrants.- Right to regulate the entry of migrant settlers and
organizations into their domains;
f) Right to Safe and Clean Air and Water.-For this purpose, the ICCs/IPs shall have access to
integrated systems for the management of their inland waters and air space;
g) Right to Claim Parts of Reservations.- The right to claim parts of the ancestral domains which have
been reserved for various purposes, except those reserved and intended for common and public
welfare and service;
h) Right to Resolve Conflict.- Right to resolve land conflicts in accordance with customary laws of the
area where the land is located, and only in default thereof shall the complaints be submitted to
amicable settlement and to the Courts of Justice whenever necessary."
Section 8 provides for the rights over ancestral lands:
"Sec. 8. Rights to Ancestral Lands.- The right of ownership and possession of the ICCs/IPs to their
ancestral lands shall be recognized and protected.
31
a) Right to transfer land/property.- Such right shall include the right to transfer land or property rights
to/among members of the same ICCs/IPs, subject to customary laws and traditions of the community
concerned.
b) Right to Redemption.- In cases where it is shown that the transfer of land/property rights by virtue
of any agreement or devise, to a non-member of the concerned ICCs/IPs is tainted by the vitiated
consent of the ICCs/IPs, or is transferred for an unconscionable consideration or price, the transferor
ICC/IP shall have the right to redeem the same within a period not exceeding fifteen (15) years from
the date of transfer."
Section 7 (a) defines the ICCs/IPs the right of ownership over their ancestral domains which covers
(a) lands, (b) bodies of water traditionally and actually occupied by the ICCs/IPs, (c) sacred places, (d)
traditional hunting and fishing grounds, and (e) all improvements made by them at any time within the
domains. The right of ownership includes the following rights: (1) the right to develop lands and
natural resources; (b) the right to stay in the territories; (c) the right to resettlement in case of
displacement; (d) the right to regulate the entry of migrants; (e) the right to safe and clean air and
water; (f) the right to claim parts of the ancestral domains as reservations; and (g) the right to resolve
conflict in accordance with customary laws.
Section 8 governs their rights to ancestral lands. Unlike ownership over the ancestral domains,
Section 8 gives the ICCs/IPs also the right to transfer the land or property rights to members of the
same ICCs/IPs or non-members thereof. This is in keeping with the option given to ICCs/IPs to secure
a torrens title over the ancestral lands, but not to domains.
2. The Right of ICCs/IPs to Develop Lands and Natural Resources Within the Ancestral Domains
Does Not Deprive the State of Ownership Over the Natural Resources and Control and Supervision in
their Development and Exploitation.
The Regalian doctrine on the ownership, management and utilization of natural resources is declared
in Section 2, Article XII of the 1987 Constitution, viz:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or, it may enter into co-production, joint venture, or production-
sharing agreements with Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms
and conditions as may be provided by law. In cases of water rights for irrigation, water supply,
fisheries, water supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino

citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in
rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either technical
or financial assistance for large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms and conditions provided by law,
based on real contributions to the economic growth and general welfare of the country. In such
agreements, the state shall promote the development and use of local scientific and technical
resources.
32
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution."223
All lands of the public domain and all natural resources- waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna,
and other natural resources- are owned by the State. The Constitution provides that in the
exploration, development and utilization of these natural resources, the State exercises full control
and supervision, and may undertake the same in four (4) modes:
1. The State may directly undertake such activities; or
2. The State may enter into co-production, joint venture or production-sharing agreements with
Filipino citizens or qualified corporations;
3. Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens;
4. For the large-scale exploration, development and utilization of minerals, petroleum and other
mineral oils, the President may enter into agreements with foreign-owned corporations involving
technical or financial assistance.
As owner of the natural resources, the State is accorded primary power and responsibility in
the exploration, development and utilization of these natural resources. The State may directly
undertake the exploitation and development by itself, or, it may allow participation by the private
sector through co-production,224 joint venture,225 or production-sharing agreements. 226 These
agreements may be for a period of 25 years, renewable for another 25 years. The State, through
Congress, may allow the small-scale utilization of natural resources by Filipino citizens. For the large-
scale exploration of these resources, specifically minerals, petroleum and other mineral oils, the State,
through the President, may enter into technical and financial assistance agreements with foreign-
owned corporations.
Under the Philippine Mining Act of 1995, (R.A. 7942) and the People's Small-Scale Mining Act of 1991
(R.A. 7076) the three types of agreements, i.e., co-production, joint venture or production-sharing,
may apply to both large-scale227 and small-scale mining.228 "Small-scale mining" refers to "mining
activities which rely heavily on manual labor using simple implements and methods and do not use
explosives or heavy mining equipment."229
Examining the IPRA, there is nothing in the law that grants to the ICCs/IPs ownership over the
natural resources within their ancestral domains. The right of ICCs/IPs in their ancestral domains
includes ownership, but this "ownership" is expressly defined and limited in Section 7 (a) as:
"Sec. 7. a) Right of ownership- The right to claim ownership over lands, bodies of water traditionally
and actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all
improvements made by them at any time within the domains;"
The ICCs/IPs are given the right to claim ownership over "lands, bodies of water traditionally and
actually occupied by ICCs/IPs, sacred places, traditional hunting and fishing grounds, and all
improvements made by them at any time within the domains." It will be noted that this enumeration
does not mention bodies of water not occupied by the
ICCs/IPs, minerals, coal, wildlife, flora and fauna in the traditional hunting grounds, fish in the
traditional fishing grounds, forests or timber in the sacred places, etc. and all other natural resources
found within the ancestral domains. Indeed, the right of ownership under Section 7 (a) does not
cover "waters, minerals, coal, petroleum and other mineral oils, all forces of potential
energy, fisheries, forests or timber, wildlife, flora and fauna and all other natural resources"
enumerated in Section 2, Article XII of the 1987 Constitution as belonging to the State.
The non-inclusion of ownership by the ICCs/IPs over the natural resources in Section 7(a) complies
with the Regalian doctrine.
(a) Section 1, Part II, Rule III of the Implementing Rules Goes Beyond the Parameters of Sec. 7
(a) of the IPRA And is Unconstitutional.
33
The Rules Implementing the IPRA230 in Section 1, Part II, Rule III reads:
"Section 1. Rights of Ownership. ICCs/IPs have rights of ownership over lands, waters, and natural
resources and all improvements made by them at any time within the ancestral domains/ lands. These
rights shall include, but not limited to, the right over the fruits, the right to possess, the right to use,
right to consume, right to exclude and right to recover ownership, and the rights or interests over land
and natural resources. The right to recover shall be particularly applied to lands lost through fraud or
any form or vitiated consent or transferred for an unconscionable price."
Section 1 of the Implementing Rules gives the ICCs/IPs rights of ownership over "lands, waters and
natural resources." The term "natural resources" is not one of those expressly mentioned in Section 7
(a) of the law. Our Constitution and jurisprudence clearly declare that the right to claim ownership over
land does not necessarily include the right to claim ownership over the natural resources found on or
under the land.231 The IPRA itself makes a distinction between land and natural resources.
Section 7 (a) speaks of the right of ownership only over the land within the ancestral domain. It
is Sections 7 (b) and 57 of the law that speak of natural resources, and these provisions, as
shall be discussed later, do not give the ICCs/IPs the right of ownership over these resources.
The constitutionality of Section 1, Part II, Rule III of the Implementing Rules was not specifically and
categorically challenged by petitioners. Petitioners actually assail the constitutionality of the
Implementing Rules in general.232 Nevertheless, to avoid any confusion in the implementation of the
law, it is necessary to declare that the inclusion of "natural resources" in Section 1, Part II, Rule III of
the Implementing Rules goes beyond the parameters of Section 7 (b) of the law and is contrary to
Section 2, Article XII of the 1987 Constitution.
(b) The Small-Scale Utilization of Natural Resources In Sec. 7 (b) of the IPRA Is Allowed Under
Paragraph 3, Section 2 of Article XII of the Constitution.
Ownership over natural resources remain with the State and the IPRA in Section 7 (b) merely grants
the ICCs/IPs the right to manage them, viz:
"Sec. 7 (b) Right to Develop Lands and Natural Resources.- Subject to Section 56 hereof, right to
develop, control and use lands and territories traditionally occupied, owned, or used; to manage and
conserve natural resources within the territories and uphold the responsibilities for future
generations; to benefit and share the profits from allocation and utilization of the natural resources
found therein; the right to negotiate the terms and conditions for the exploration of natural resources in
the areas for the purpose of ensuring ecological, environmental protection and the conservation
measures, pursuant to national and customary laws; the right to an informed and intelligent
participation in the formulation and implementation of any project, government or private, that will
affect or impact upon the ancestral domains and to receive just and fair compensation for any
damages which they may sustain as a result of the project; and the right to effective measures by the
government to prevent any interference with, alienation and encroachment upon these rights;"
The right to develop lands and natural resources under Section 7 (b) of the IPRA enumerates the
following rights:
a) the right to develop, control and use lands and territories traditionally occupied;
b) the right to manage and conserve natural resources within the territories and uphold the
responsibilities for future generations;
c) the right to benefit and share the profits from the allocation and utilization of the natural
resources found therein;
d) the right to negotiate the terms and conditions for the exploration of natural resources for the
purpose of ensuring ecological, environmental protection and the conservation measures, pursuant to
national and customary laws;
34
e) the right to an informed and intelligent participation in the formulation and implementation of any
project, government or private, that will affect or impact upon the ancestral domains and to receive
just and fair compensation for any damages which they may sustain as a result of the project;
f) the right to effective measures by the government to prevent any interference with, alienation and
encroachment upon these rights.233
Ownership over the natural resources in the ancestral domains remains with the State and the
ICCs/IPs are merely granted the right to "manage and conserve" them for future generations,
"benefit and share" the profits from their allocation and utilization, and "negotiate the terms
and conditions for their exploration" for the purpose of "ensuring ecological and
environmental protection and conservation measures." It must be noted that the right to negotiate
the terms and conditions over the natural resources covers only their exploration which must be for
the purpose of ensuring ecological and environmental protection of, and conservation measures in the
ancestral domain. It does not extend to the exploitation and development of natural resources.
Simply stated, the ICCs/IPs' rights over the natural resources take the form of management or
stewardship. For the ICCs/IPs may use these resources and share in the profits of their utilization or
negotiate the terms for their exploration. At the same time, however, the ICCs/IPs must ensure that
the natural resources within their ancestral domains are conserved for future generations and that the
"utilization" of these resources must not harm the ecology and environment pursuant to national and
customary laws.234
The limited rights of "management and use" in Section 7 (b) must be taken to contemplate
small-scale utilization of natural resources as distinguished from large-scale. Small-scale
utilization of natural resources is expressly allowed in the third paragraph of Section 2, Article
XII of the Constitution "in recognition of the plight of forest dwellers, gold panners, marginal
fishermen and others similarly situated who exploit our natural resources for their daily sustenance
and survival."235 Section 7 (b) also expressly mandates the ICCs/IPs to manage and conserve these
resources and ensure environmental and ecological protection within the domains, which duties, by
their very nature, necessarily reject utilization in a large-scale.
(c) The Large-Scale Utilization of Natural Resources In Section 57 of the IPRA Is Allowed Under
Paragraphs 1 and 4, Section 2, Article XII of the 1987 Constitution.
Section 57 of the IPRA provides:
"Sec. 57. Natural Resources within Ancestral Domains.- The ICCs/IPs shall have priority rights in
the harvesting, extraction, development or exploitation of any natural resources within the
ancestral domains. A non-member of the ICCs/IPs concerned may be allowed to take part in the
development and utilization of the natural resources for a period of not exceeding twenty-five (25)
years renewable for not more than twenty-five (25) years: Provided, That a formal and written
agreement is entered into with the ICCs/IPs concerned or that the community, pursuant to its own
decision-making process, has agreed to allow such operation: Provided finally, That the NCIP may
exercise visitorial powers and take appropriate action to safeguard the rights of the ICCs/IPs under
the same contract."
Section 57 speaks of the "harvesting, extraction, development or exploitation of natural resources

within ancestral domains" and "gives the ICCs/IPs 'priority rights' therein." The terms "harvesting,
extraction, development or exploitation" of any natural resources within the ancestral domains
obviously refer to large-scale utilization. It is utilization not merely for subsistence but for
commercial or other extensive use that require technology other than manual labor. 236 The law
recognizes the probability of requiring a non-member of the ICCs/IPs to participate in the development
and utilization of the natural resources and thereby allows such participation for a period of not more
than 25 years, renewable for another 25 years. This may be done on condition that a formal written
agreement be entered into by the non-member and members of the ICCs/IPs.
Section 57 of the IPRA does not give the ICCs/IPs the right to "manage and conserve" the natural
resources. Instead, the law only grants the ICCs/IPs "priority rights" in the development or exploitation
35
thereof. Priority means giving preference. Having priority rights over the natural resources does not
necessarily mean ownership rights. The grant of priority rights implies that there is a superior
entity that owns these resources and this entity has the power to grant preferential rights over the
resources to whosoever itself chooses.
Section 57 is not a repudiation of the Regalian doctrine. Rather, it is an affirmation of the said doctrine
that all natural resources found within the ancestral domains belong to the State. It incorporates by
implication the Regalian doctrine, hence, requires that the provision be read in the light of Section 2,
Article XII of the 1987 Constitution. Interpreting Section 2, Article XII of the 1987 Constitution 237 in
relation to Section 57 of IPRA, the State, as owner of these natural resources, may directly
undertake the development and exploitation of the natural resources by itself, or in the
alternative, it may recognize the priority rights of the ICCs/IPs as owners of the land on which
the natural resources are found by entering into a co-production, joint venture, or production-
sharing agreement with them. The State may likewise enter into any of said agreements with a
non-member of the ICCs/IPs, whether natural or juridical, or enter into agreements with
foreign-owned corporations involving either technical or financial assistance for the large-
scale exploration, development and utilization of minerals, petroleum, and other mineral oils,
or allow such non-member to participate in its agreement with the ICCs/IPs. If the State decides
to enter into an agreement with a non-ICC/IP member, the National Commission on Indigenous
Peoples (NCIP) shall ensure that the rights of the ICCs/IPs under the agreement shall be protected.
The agreement shall be for a period of 25 years, renewable for another 25 years.
To reiterate, in the large-scale utilization of natural resources within the ancestral domains, the State,
as owner of these resources, has four (4) options: (1) it may, of and by itself, directly undertake the
development and exploitation of the natural resources; or (2) it may recognize the priority rights of the
ICCs/IPs by entering into an agreement with them for such development and exploitation; or (3) it may
enter into an agreement with a non-member of the ICCs/IPs, whether natural or juridical, local or
foreign; or (4) it may allow such non-member to participate in the agreement with the ICCs/IPs.
The rights granted by the IPRA to the ICCs/IPs over the natural resources in their ancestral
domains merely gives the ICCs/IPs, as owners and occupants of the land on which the
resources are found, the right to the small-scale utilization of these resources, and at the same
time, a priority in their large-scale development and exploitation. Section 57 does not mandate
the State to automatically give priority to the ICCs/IPs. The State has several options and it is
within its discretion to choose which option to pursue. Moreover, there is nothing in the law that
gives the ICCs/IPs the right to solely undertake the large-scale development of the natural resources
within their domains. The ICCs/IPs must undertake such endeavour always under State supervision
or control. This indicates that the State does not lose control and ownership over the resources even
in their exploitation. Sections 7 (b) and 57 of the law simply give due respect to the ICCs/IPs who, as
actual occupants of the land where the natural resources lie, have traditionally utilized these
resources for their subsistence and survival.
Neither is the State stripped of ownership and control of the natural resources by the following
provision:
"Section 59. Certification Precondition.- All departments and other governmental agencies shall
henceforth be strictly enjoined from issuing, renewing or granting any concession, license or lease, or
entering into any production-sharing agreement. without prior certification from the NCIP that the area
affected does not overlap with any ancestral domain. Such certification shall only be issued after a
field-based investigation is conducted by the Ancestral Domains Office of the area
concerned: Provided, That no certification shall be issued by the NCIP without the free and prior
informed and written consent of the ICCs/IPs concerned: Provided, further, That no department,
government agency or government-owned or -controlled corporation may issue new concession,
license, lease, or production sharing agreement while there is a pending application for a
CADT: Provided, finally, That the ICCs/IPs shall have the right to stop or suspend, in accordance with
this Act, any project that has not satisfied the requirement of this consultation process."
36
Concessions, licenses, lease or production-sharing agreements for the exploitation of natural

resources shall not be issued, renewed or granted by all departments and government agencies
without prior certification from the NCIP that the area subject of the agreement does not overlap with
any ancestral domain. The NCIP certification shall be issued only after a field-based investigation
shall have been conducted and the free and prior informed written consent of the ICCs/IPs obtained.
Non-compliance with the consultation requirement gives the ICCs/IPs the right to stop or suspend any
project granted by any department or government agency.
As its subtitle suggests, this provision requires as a precondition for the issuance of any concession,
license or agreement over natural resources, that a certification be issued by the NCIP that the area
subject of the agreement does not lie within any ancestral domain. The provision does not vest the
NCIP with power over the other agencies of the State as to determine whether to grant or deny any
concession or license or agreement. It merely gives the NCIP the authority to ensure that the
ICCs/IPs have been informed of the agreement and that their consent thereto has been obtained.
Note that the certification applies to agreements over natural resources that do not necessarily lie
within the ancestral domains. For those that are found within the said domains, Sections 7(b) and 57
of the IPRA apply.
V. THE IPRA IS A RECOGNITION OF OUR ACTIVE PARTICIPATION IN THE INDIGENOUS

INTERNATIONAL MOVEMENT.
The indigenous movement can be seen as the heir to a history of anti-imperialism stretching back to
prehistoric times. The movement received a massive impetus during the 1960's from two sources.
First, the decolonization of Asia and Africa brought into the limelight the possibility of peoples
controlling their own destinies. Second, the right of self-determination was enshrined in the UN
Declaration on Human Rights.238 The rise of the civil rights movement and anti-racism brought to the
attention of North American Indians, Aborigines in Australia, and Maori in New Zealand the possibility
of fighting for fundamental rights and freedoms.
In 1974 and 1975, international indigenous organizations were founded, 239 and during the 1980's,
indigenous affairs were on the international agenda. The people of the Philippine Cordillera were the
first Asians to take part in the international indigenous movement. It was the Cordillera People's
Alliance that carried out successful campaigns against the building of the Chico River Dam in 1981-82
and they have since become one of the best-organized indigenous bodies in the world. 240
Presently, there is a growing concern for indigenous rights in the international scene. This came as a
result of the increased publicity focused on the continuing disrespect for indigenous human rights and
the destruction of the indigenous peoples' environment, together with the national governments'
inability to deal with the situation.241 Indigenous rights came as a result of both human rights and
environmental protection, and have become a part of today's priorities for the international agenda. 242
International institutions and bodies have realized the necessity of applying policies, programs and
specific rules concerning IPs in some nations. The World Bank, for example, first adopted a policy on
IPs as a result of the dismal experience of projects in Latin America. 243 The World Bank now seeks to
apply its current policy on IPs to some of its projects in Asia. This policy has provided an influential
model for the projects of the Asian Development Bank. 244
The 1987 Philippine Constitution formally recognizes the existence of ICCs/IPs and declares as a
State policy the promotion of their rights within the framework of national unity and
development.245 The IPRA amalgamates the Philippine category of ICCs with the international
category of IPs,246 and is heavily influenced by both the International Labor Organization (ILO)
Convention 169 and the United Nations (UN) Draft Declaration on the Rights of Indigenous
Peoples.247
ILO Convention No. 169 is entitled the "Convention Concerning Indigenous and Tribal Peoples in
Independent Countries"248 and was adopted on June 27, 1989. It is based on the Universal
Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights, the
International Covenant on Civil and Political Rights, and many other international instruments on the
prevention of discrimination.249 ILO Convention No. 169 revised the "Convention Concerning the
37
Protection and Integration of Indigenous and Other Tribal and Semi-Tribal Populations in Independent
Countries" (ILO No. 107) passed on June 26, 1957. Developments in international law made it
appropriate to adopt new international standards on indigenous peoples "with a view to removing the
assimilationist orientation of the earlier standards," and recognizing the aspirations of these peoples
to exercise control over their own institutions, ways of life and economic development." 250
CONCLUSION
The struggle of the Filipinos throughout colonial history had been plagued by ethnic and religious
differences. These differences were carried over and magnified by the Philippine government through
the imposition of a national legal order that is mostly foreign in origin or derivation. 251 Largely
unpopulist, the present legal system has resulted in the alienation of a large sector of society,
specifically, the indigenous peoples. The histories and cultures of the indigenes are relevant to the
evolution of Philippine culture and are vital to the understanding of contemporary problems. 252 It is
through the IPRA that an attempt was made by our legislators to understand Filipino society not in
terms of myths and biases but through common experiences in the course of history. The Philippines
became a democracy a centennial ago and the decolonization process still continues. If the evolution
of the Filipino people into a democratic society is to truly proceed democratically, i.e., if the Filipinos
as a whole are to participate fully in the task of continuing democratization, 253 it is this Court's duty to
acknowledge the presence of indigenous and customary laws in the country and affirm their co-
existence with the land laws in our national legal system.
With the foregoing disquisitions, I vote to uphold the constitutionality of the Indigenous Peoples Rights
Act of 1997.
G.R. No. 127882 January 27, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., 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, 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,1 ROSE LILIA S. ROMANO, ROBERTO S. VERZOLA,
38
EDUARDO AURELIO C. REYES, LEAN LOUEL A. PERIA, represented by his father ELPIDIO V.
PERIA,2 GREEN FORUM PHILIPPINES, GREEN FORUM WESTERN VISAYAS, (GF-WV),
ENVIRONMETAL LEGAL ASSISTANCE CENTER (ELAC), PHILIPPINE KAISAHAN TUNGO SA
KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN), 3 KAISAHAN
TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN),
PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES, INC.
(PARRDS), PHILIPPINE PART`NERSHIP 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), 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.4 respondents.
DECISION
CARPIO-MORALES, J.:
The present petition for mandamus and prohibition assails the constitutionality of Republic Act No.
7942,5 otherwise known as the PHILIPPINE MINING ACT OF 1995, along with the Implementing
Rules and Regulations issued pursuant thereto, Department of Environment and Natural Resources
(DENR) Administrative Order 96-40, and of the Financial and Technical Assistance Agreement
(FTAA) entered into on March 30, 1995 by the Republic of the Philippines and WMC (Philippines), Inc.
(WMCP), a corporation organized under Philippine laws.
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No.
2796 authorizing the DENR Secretary to accept, consider and evaluate proposals from foreign-owned
corporations or foreign investors for contracts or agreements involving either technical or financial
assistance for large-scale exploration, development, and utilization of minerals, which, upon
appropriate recommendation of the Secretary, the President may execute with the foreign proponent.
In entering into such proposals, the President shall consider the real contributions to the economic
growth and general welfare of the country that will be realized, as well as the development and use of
local scientific and technical resources that will be promoted by the proposed contract or agreement.
Until Congress shall determine otherwise, large-scale mining, for purpose of this Section, shall mean
those proposals for contracts or agreements for mineral resources exploration, development, and
utilization involving a committed capital investment in a single mining unit project of at least Fifty
Million Dollars in United States Currency (US $50,000,000.00). 7
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern the exploration,
development, utilization and processing of all mineral resources." 8 R.A. No. 7942 defines the modes
of mineral agreements for mining operations, 9 outlines the procedure for their filing and
approval,10 assignment/transfer11 and withdrawal,12 and fixes their terms.13 Similar provisions govern
financial or technical assistance agreements.14
The law prescribes the qualifications of contractors 15 and grants them certain rights, including
timber,16 water17 and easement18 rights, and the right to possess explosives. 19 Surface owners,
occupants, or concessionaires are forbidden from preventing holders of mining rights from entering
private lands and concession areas.20 A procedure for the settlement of conflicts is likewise provided
for.21
The Act restricts the conditions for exploration, 22 quarry23 and other24 permits. It regulates the
transport, sale and processing of minerals, 25 and promotes the development of mining communities,
science and mining technology,26 and safety and environmental protection.27
39
The government's share in the agreements is spelled out and allocated, 28 taxes and fees are
imposed,29 incentives granted.30 Aside from penalizing certain acts,31 the law likewise specifies
grounds for the cancellation, revocation and termination of agreements and permits. 32
On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and Manila Times,
two newspapers of general circulation, R.A. No. 7942 took effect. 33 Shortly before the effectivity of
R.A. No. 7942, however, or on March 30, 1995, the President entered into an FTAA with WMCP
covering 99,387 hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato.34
On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order
(DAO) No. 95-23, s. 1995, otherwise known as the Implementing Rules and Regulations of R.A. No.
7942. This was later repealed by DAO No. 96-40, s. 1996 which was adopted on December 20, 1996.
On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary demanding that the
DENR stop the implementation of R.A. No. 7942 and DAO No. 96-40, 35 giving the DENR fifteen days
from receipt36 to act thereon. The DENR, however, has yet to respond or act on petitioners' letter. 37
Petitioners thus filed the present petition for prohibition and mandamus, with a prayer for a temporary
restraining order. They allege that at the time of the filing of the petition, 100 FTAA applications had
already been filed, covering an area of 8.4 million hectares, 38 64 of which applications are by fully
foreign-owned corporations covering a total of 5.8 million hectares, and at least one by a fully foreign-
owned mining company over offshore areas.39
Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:
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
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
No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of the Constitution;
IV
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;
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
40
No. 7942, the latter being unconstitutional in that it allows the inequitable sharing of wealth contrary to
Sections [sic] 1, paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the Constitution;
VII
x x x in recommending approval of and implementing the Financial and Technical Assistance

Agreement between the President of the Republic of the Philippines and Western Mining Corporation
Philippines Inc. because the same is illegal and unconstitutional. 40
They pray that the Court issue an order:
(a) Permanently enjoining respondents from acting on any application for Financial or Technical
Assistance Agreements;
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as unconstitutional and null
and void;
(c) Declaring the Implementing Rules and Regulations of the Philippine Mining Act contained in DENR
Administrative Order No. 96-40 and all other similar administrative issuances as unconstitutional and
null and void; and
(d) Cancelling the Financial and Technical Assistance Agreement issued to Western Mining
Philippines, Inc. as unconstitutional, illegal and null and void. 41
Impleaded as public respondents are Ruben Torres, the then Executive Secretary, Victor O. Ramos,
the then DENR Secretary, and Horacio Ramos, Director of the Mines and Geosciences Bureau of the
DENR. Also impleaded is private respondent WMCP, which entered into the assailed FTAA with the
Philippine Government. WMCP is owned by WMC Resources International Pty., Ltd. (WMC), "a
wholly owned subsidiary of Western Mining Corporation Holdings Limited, a publicly listed major
Australian mining and exploration company." 42 By WMCP's information, "it is a 100% owned
subsidiary of WMC LIMITED."43
Respondents, aside from meeting petitioners' contentions, argue that the requisites for judicial inquiry
have not been met and that the petition does not comply with the criteria for prohibition and
mandamus. Additionally, respondent WMCP argues that there has been a violation of the rule on
hierarchy of courts.
After petitioners filed their reply, this Court granted due course to the petition. The parties have since
filed their respective memoranda.
WMCP subsequently filed a Manifestation dated September 25, 2002 alleging that on January 23,
2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc. (Sagittarius), a corporation
organized under Philippine laws.44 WMCP was subsequently renamed "Tampakan Mineral Resources
Corporation."45 WMCP claims that at least 60% of the equity of Sagittarius is owned by Filipinos
and/or Filipino-owned corporations while about 40% is owned by Indophil Resources NL, an
Australian company.46 It further claims that by such sale and transfer of shares, "WMCP has ceased
to be connected in any way with WMC."47
By virtue of such sale and transfer, the DENR Secretary, by Order of December 18, 2001, 48 approved
the transfer and registration of the subject FTAA from WMCP to Sagittarius. Said Order, however,
was appealed by Lepanto Consolidated Mining Co. (Lepanto) to the Office of the President which
upheld it by Decision of July 23, 2002.49 Its motion for reconsideration having been denied by the
Office of the President by Resolution of November 12, 2002, 50 Lepanto filed a petition for
review51 before the Court of Appeals. Incidentally, two other petitions for review related to the approval
of the transfer and registration of the FTAA to Sagittarius were recently resolved by this Court. 52
It bears stressing that this case has not been rendered moot either by the transfer and registration of
the FTAA to a Filipino-owned corporation or by the non-issuance of a temporary restraining order or a
preliminary injunction to stay the above-said July 23, 2002 decision of the Office of the
41
President.53 The validity of the transfer remains in dispute and awaits final judicial determination. This
assumes, of course, that such transfer cures the FTAA's alleged unconstitutionality, on which
question judgment is reserved.
WMCP also points out that the original claimowners of the major mineralized areas included in the
WMCP FTAA, namely, Sagittarius, Tampakan Mining Corporation, and Southcot Mining Corporation,
are all Filipino-owned corporations, 54 each of which was a holder of an approved Mineral Production
Sharing Agreement awarded in 1994, albeit their respective mineral claims were subsumed in the
WMCP FTAA;55 and that these three companies are the same companies that consolidated their
interests in Sagittarius to whom WMC sold its 100% equity in WMCP. 56 WMCP concludes that in the
event that the FTAA is invalidated, the MPSAs of the three corporations would be revived and the
mineral claims would revert to their original claimants.57
These circumstances, while informative, are hardly significant in the resolution of this case, it involving
the validity of the FTAA, not the possible consequences of its invalidation.
Of the above-enumerated seven grounds cited by petitioners, as will be shown later, only the first and
the last need be delved into; in the latter, the discussion shall dwell only insofar as it questions the
effectivity of E. O. No. 279 by virtue of which order the questioned FTAA was forged.
Before going into the substantive issues, the procedural questions posed by respondents shall first be
tackled.
REQUISITES FOR JUDICIAL REVIEW
When an issue of constitutionality is raised, this Court can exercise its power of judicial review only if
the following requisites are present:
(1) The existence of an actual and appropriate case;
(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. 58
Respondents claim that the first three requisites are not present.
Section 1, Article VIII of the Constitution states that "(j)udicial power includes the duty of the courts of
justice to settle actual controversies involving rights which are legally demandable and enforceable."
The power of judicial review, therefore, is limited to the determination of actual cases and
controversies.59
An actual case or controversy means an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory, 60 lest the decision of the court would amount to an
advisory opinion.61 The power does not extend to hypothetical questions 62 since any attempt at
abstraction could only lead to dialectics and barren legal questions and to sterile conclusions
unrelated to actualities.63
"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,64 alleging more than a generalized grievance.65 The gist of the question of standing
is whether a party alleges "such personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions." 66 Unless a person is injuriously affected in any of his
constitutional rights by the operation of statute or ordinance, he has no standing. 67
Petitioners traverse a wide range of sectors. Among them are La Bugal B'laan Tribal Association, Inc.,
a farmers and indigenous people's cooperative organized under Philippine laws representing a
community actually affected by the mining activities of WMCP, members of said cooperative, 68 as well
42
as other residents of areas also affected by the mining activities of WMCP. 69 These petitioners have
standing to raise the constitutionality of the questioned FTAA as they allege a personal and
substantial injury. They claim that they would suffer "irremediable displacement" 70 as a result of the
implementation of the FTAA allowing WMCP to conduct mining activities in their area of residence.
They thus meet the appropriate case requirement as they assert an interest adverse to that of
respondents who, on the other hand, insist on the FTAA's validity.
In view of the alleged impending injury, petitioners also have standing to assail the validity of E.O. No.
279, by authority of which the FTAA was executed.
Public respondents maintain that petitioners, being strangers to the FTAA, cannot sue either or both
contracting parties to annul it.71 In other words, they contend that petitioners are not real parties in
interest in an action for the annulment of contract.
Public respondents' contention fails. The present action is not merely one for annulment of contract
but for prohibition and mandamus. Petitioners allege that public respondents acted without or in
excess of jurisdiction in implementing the FTAA, which they submit is unconstitutional. As the case
involves constitutional questions, this Court is not concerned with whether petitioners are real parties
in interest, but with whether they have legal standing. As held in Kilosbayan v. Morato: 72
x x x. "It is important to note . . . that standing because of its constitutional and public policy
underpinnings, is very different from questions relating to whether a particular plaintiff is the real party
in interest or has capacity to sue. Although all three requirements are directed towards ensuring that
only certain parties can maintain an action, standing restrictions require a partial consideration of the
merits, as well as broader policy concerns relating to the proper role of the judiciary in certain areas.["]
(FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985])
Standing is a special concern in constitutional law because in some cases suits are brought not by
parties who have been personally injured by the operation of a law or by official action taken, but by
concerned citizens, taxpayers or voters who actually sue in the public interest. Hence, the question in
standing is whether such parties have "alleged such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues upon
which the court so largely depends for illumination of difficult constitutional questions." (Baker v. Carr,
369 U.S. 186, 7 L.Ed.2d 633 [1962].)
As earlier stated, petitioners meet this requirement.
The challenge against the constitutionality of R.A. No. 7942 and DAO No. 96-40 likewise fulfills the
requisites of justiciability. Although these laws were not in force when the subject FTAA was entered
into, the question as to their validity is ripe for adjudication.
The WMCP FTAA provides:
14.3 Future Legislation
Any term and condition more favourable to Financial &Technical Assistance Agreement contractors
resulting from repeal or amendment of any existing law or regulation or from the enactment of a law,
regulation or administrative order shall be considered a part of this Agreement.
It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain provisions that are more favorable to
WMCP, hence, these laws, to the extent that they are favorable to WMCP, govern the FTAA.
In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing agreements.
SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. – x x x That the provisions of Chapter
XIV on government share in mineral production-sharing agreement and of Chapter XVI on incentives
of this Act shall immediately govern and apply to a mining lessee or contractor unless the mining
lessee or contractor indicates his intention to the secretary, in writing, not to avail of said provisions x
x x Provided, finally, That such leases, production-sharing agreements, financial or technical
43
assistance agreements shall comply with the applicable provisions of this Act and its implementing
rules and regulations.
As there is no suggestion that WMCP has indicated its intention not to avail of the provisions of
Chapter XVI of R.A. No. 7942, it can safely be presumed that they apply to the WMCP FTAA.
Misconstruing the application of the third requisite for judicial review – that the exercise of the review
is pleaded at the earliest opportunity – WMCP points out that the petition was filed only almost two
years after the execution of the FTAA, hence, not raised at the earliest opportunity.
The third requisite should not be taken to mean that the question of constitutionality must be raised
immediately after the execution of the state action complained of. That the question of constitutionality
has not been raised before is not a valid reason for refusing to allow it to be raised later. 73 A contrary
rule would mean that a law, otherwise unconstitutional, would lapse into constitutionality by the mere
failure of the proper party to promptly file a case to challenge the same.
PROPRIETY OF PROHIBITION AND MANDAMUS
Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of Rule 65 read:
SEC. 2. Petition for prohibition. – When the proceedings of any tribunal, corporation, board, or person,
whether exercising functions judicial or ministerial, are without or in excess of its or his jurisdiction, or
with grave abuse of discretion, and there is no appeal or any other plain, speedy, and adequate
remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court alleging the facts with certainty and praying that judgment be rendered commanding the
defendant to desist from further proceeding in the action or matter specified therein.
Prohibition is a preventive remedy.74 It seeks a judgment ordering the defendant to desist from
continuing with the commission of an act perceived to be illegal. 75
The petition for prohibition at bar is thus an appropriate remedy. While the execution of the contract
itself may be fait accompli, its implementation is not. Public respondents, in behalf of the Government,
have obligations to fulfill under said contract. Petitioners seek to prevent them from fulfilling such
obligations on the theory that the contract is unconstitutional and, therefore, void.
The propriety of a petition for prohibition being upheld, discussion of the propriety of the mandamus
aspect of the petition is rendered unnecessary.
HIERARCHY OF COURTS
The contention that the filing of this petition violated the rule on hierarchy of courts does not likewise
lie. The rule has been explained thus:
Between two courts of concurrent original jurisdiction, it is the lower court that should initially pass
upon the issues of a case. That way, as a particular case goes through the hierarchy of courts, it is
shorn of all but the important legal issues or those of first impression, which are the proper subject of
attention of the appellate court. This is a procedural rule borne of experience and adopted to improve
the administration of justice.
This Court has consistently enjoined litigants to respect the hierarchy of courts. Although this Court
has concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to issue writs of
certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence
does not give a party unrestricted freedom of choice of court forum. The resort to this Court's primary
jurisdiction to issue said writs shall be allowed only where the redress desired cannot be obtained in
the appropriate courts or where exceptional and compelling circumstances justify such invocation. We
held in People v. Cuaresma that:
A becoming regard for judicial hierarchy most certainly indicates that petitions for the issuance of
extraordinary writs against first level ("inferior") courts should be filed with the Regional Trial Court,
and those against the latter, with the Court of Appeals. A direct invocation of the Supreme Court's
original jurisdiction to issue these writs should be allowed only where there are special and important
44
reasons therefor, clearly and specifically set out in the petition. This is established policy. It is a policy
necessary to prevent inordinate demands upon the Court's time and attention which are better
devoted to those matters within its exclusive jurisdiction, and to prevent further over-crowding of the
Court's docket x x x.76 [Emphasis supplied.]
The repercussions of the issues in this case on the Philippine mining industry, if not the national
economy, as well as the novelty thereof, constitute exceptional and compelling circumstances to
justify resort to this Court in the first instance.
In all events, this Court has the discretion to take cognizance of a suit which does not satisfy the
requirements of an actual case or legal standing when paramount public interest is involved. 77 When
the issues raised are of paramount importance to the public, this Court may brush aside technicalities
of procedure.78
II
Petitioners contend that E.O. No. 279 did not take effect because its supposed date of effectivity
came after President Aquino had already lost her legislative powers under the Provisional
Constitution.
And they likewise claim that the WMC FTAA, which was entered into pursuant to E.O. No. 279,
violates Section 2, Article XII of the Constitution because, among other reasons:
(1) It allows foreign-owned companies to extend more than mere financial or technical assistance to
the State in the exploitation, development, and utilization of minerals, petroleum, and other mineral
oils, and even permits foreign owned companies to "operate and manage mining activities."
(2) It allows foreign-owned companies to extend both technical and financial assistance, instead of
"either technical or financial assistance."
To appreciate the import of these issues, a visit to the history of the pertinent constitutional provision,
the concepts contained therein, and the laws enacted pursuant thereto, is in order.
Section 2, Article XII reads in full:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development, and utilization of natural resources shall be
under the full control and supervision of the State. The State may directly undertake such activities or
it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be provided by law. In cases of water
rights for irrigation, water supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
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.
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.
45
provision, within thirty days from its execution.
THE SPANISH REGIME AND THE REGALIAN DOCTRINE
The first sentence of Section 2 embodies the Regalian doctrine or jura regalia. Introduced by Spain
into these Islands, this feudal concept is based on the State's power of dominium, which is the
capacity of the State to own or acquire property.79
In its broad sense, the term "jura regalia" refers to royal rights, or those rights which the King has by
virtue of his prerogatives. In Spanish law, it refers to a right which the sovereign has over anything in
which a subject has a right of property or propriedad. These were rights enjoyed during feudal times
by the king as the sovereign.
The theory of the feudal system was that title to all lands was originally held by the King, and while the
use of lands was granted out to others who were permitted to hold them under certain conditions, the
King theoretically retained the title. By fiction of law, the King was regarded as the original proprietor
of all lands, and the true and only source of title, and from him all lands were held. The theory of jura
regalia was therefore nothing more than a natural fruit of conquest. 80
The Philippines having passed to Spain by virtue of discovery and conquest, 81 earlier Spanish
decrees declared that "all lands were held from the Crown."82
The Regalian doctrine extends not only to land but also to "all natural wealth that may be found in the
bowels of the earth."83 Spain, in particular, recognized the unique value of natural resources, viewing
them, especially minerals, as an abundant source of revenue to finance its wars against other
nations.84 Mining laws during the Spanish regime reflected this perspective. 85
THE AMERICAN OCCUPATION AND THE CONCESSION REGIME
By the Treaty of Paris of December 10, 1898, Spain ceded "the archipelago known as the Philippine
Islands" to the United States. The Philippines was hence governed by means of organic acts that
were in the nature of charters serving as a Constitution of the occupied territory from 1900 to
1935.86 Among the principal organic acts of the Philippines was the Act of Congress of July 1, 1902,
more commonly known as the Philippine Bill of 1902, through which the United States Congress
assumed the administration of the Philippine Islands. 87 Section 20 of said Bill reserved the disposition
of mineral lands of the public domain from sale. Section 21 thereof allowed the free and open
exploration, occupation and purchase of mineral deposits not only to citizens of the Philippine Islands
but to those of the United States as well:
Sec. 21. That all valuable mineral deposits in public lands in the Philippine Islands, both surveyed and
unsurveyed, are hereby declared to be free and open to exploration, occupation and purchase, and
the land in which they are found, to occupation and purchase, by citizens of the United States or of
said Islands: Provided, That when on any lands in said Islands entered and occupied as agricultural
lands under the provisions of this Act, but not patented, mineral deposits have been found, the
working of such mineral deposits is forbidden until the person, association, or corporation who or
which has entered and is occupying such lands shall have paid to the Government of said Islands
such additional sum or sums as will make the total amount paid for the mineral claim or claims in
which said deposits are located equal to the amount charged by the Government for the same as
mineral claims.
Unlike Spain, the United States considered natural resources as a source of wealth for its nationals
and saw fit to allow both Filipino and American citizens to explore and exploit minerals in public lands,
and to grant patents to private mineral lands. 88 A person who acquired ownership over a parcel of
private mineral land pursuant to the laws then prevailing could exclude other persons, even the State,
from exploiting minerals within his property.89 Thus, earlier jurisprudence90 held that:
A valid and subsisting location of mineral land, made and kept up in accordance with the provisions of
the statutes of the United States, has the effect of a grant by the United States of the present and
46
exclusive possession of the lands located, and this exclusive right of possession and enjoyment
continues during the entire life of the location. x x x.
x x x.
The discovery of minerals in the ground by one who has a valid mineral location perfects his claim
and his location not only against third persons, but also against the Government. x x x. [Italics in the
original.]
The Regalian doctrine and the American system, therefore, differ in one essential respect. Under the
Regalian theory, mineral rights are not included in a grant of land by the state; under the American
doctrine, mineral rights are included in a grant of land by the government. 91
Section 21 also made possible the concession (frequently styled "permit", license" or
"lease")92 system.93 This was the traditional regime imposed by the colonial administrators for the
exploitation of natural resources in the extractive sector (petroleum, hard minerals, timber, etc.). 94
Under the concession system, the concessionaire makes a direct equity investment for the purpose of
exploiting a particular natural resource within a given area. 95 Thus, the concession amounts to
complete control by the concessionaire over the country's natural resource, for it is given exclusive
and plenary rights to exploit a particular resource at the point of extraction. 96 In consideration for the
right to exploit a natural resource, the concessionaire either pays rent or royalty, which is a fixed
percentage of the gross proceeds.97
Later statutory enactments by the legislative bodies set up in the Philippines adopted the contractual
framework of the concession.98 For instance, Act No. 2932, 99 approved on August 31, 1920, which
provided for the exploration, location, and lease of lands containing petroleum and other mineral oils
and gas in the Philippines, and Act No. 2719, 100 approved on May 14, 1917, which provided for the
leasing and development of coal lands in the Philippines, both utilized the concession system. 101
THE 1935 CONSTITUTION AND THE NATIONALIZATION OF NATURAL RESOURCES
By the Act of United States Congress of March 24, 1934, popularly known as the Tydings-McDuffie
Law, the People of the Philippine Islands were authorized to adopt a constitution. 102 On July 30, 1934,
the Constitutional Convention met for the purpose of drafting a constitution, and the Constitution
subsequently drafted was approved by the Convention on February 8, 1935. 103 The Constitution was
submitted to the President of the United States on March 18, 1935. 104 On March 23, 1935, the
President of the United States certified that the Constitution conformed substantially with the
provisions of the Act of Congress approved on March 24, 1934. 105 On May 14, 1935, the Constitution
was ratified by the Filipino people.106
The 1935 Constitution adopted the Regalian doctrine, declaring all natural resources of the
Philippines, including mineral lands and minerals, to be property belonging to the State. 107 As adopted
in a republican system, the medieval concept of jura regalia is stripped of royal overtones and
ownership of the land is vested in the State.108
Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935 Constitution
provided:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be
limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at
the time of the inauguration of the Government established under this Constitution. Natural resources,
with the exception of public agricultural land, shall not be alienated, and no license, concession, or
lease for the exploitation, development, or utilization of any of the natural resources shall be granted
for a period exceeding twenty-five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in which cases beneficial use
may be the measure and the limit of the grant.
47
The nationalization and conservation of the natural resources of the country was one of the fixed and
dominating objectives of the 1935 Constitutional Convention. 109 One delegate relates:
There was an overwhelming sentiment in the Convention in favor of the principle of state ownership of
natural resources and the adoption of the Regalian doctrine. State ownership of natural resources
was seen as a necessary starting point to secure recognition of the state's power to control their
disposition, exploitation, development, or utilization. The delegates of the Constitutional Convention
very well knew that the concept of State ownership of land and natural resources was introduced by
the Spaniards, however, they were not certain whether it was continued and applied by the
Americans. To remove all doubts, the Convention approved the provision in the Constitution affirming
the Regalian doctrine.
The adoption of the principle of state ownership of the natural resources and of the Regalian doctrine
was considered to be a necessary starting point for the plan of nationalizing and conserving the
natural resources of the country. For with the establishment of the principle of state ownership of the
natural resources, it would not be hard to secure the recognition of the power of the State to control
their disposition, exploitation, development or utilization. 110
The nationalization of the natural resources was intended (1) to insure their conservation for Filipino
posterity; (2) to serve as an instrument of national defense, helping prevent the extension to the
country of foreign control through peaceful economic penetration; and (3) to avoid making the
Philippines a source of international conflicts with the consequent danger to its internal security and
independence.111
The same Section 1, Article XIII also adopted the concession system, expressly permitting the State
to grant licenses, concessions, or leases for the exploitation, development, or utilization of any of the
natural resources. Grants, however, were limited to Filipinos or entities at least 60% of the capital of
which is owned by Filipinos.lawph!l.ne+
The swell of nationalism that suffused the 1935 Constitution was radically diluted when on November
1946, the Parity Amendment, which came in the form of an "Ordinance Appended to the Constitution,"
was ratified in a plebiscite. 112 The Amendment extended, from July 4, 1946 to July 3, 1974, the right to
utilize and exploit our natural resources to citizens of the United States and business enterprises
owned or controlled, directly or indirectly, by citizens of the United States: 113
Notwithstanding the provision of section one, Article Thirteen, and section eight, Article Fourteen, of
the foregoing Constitution, during the effectivity of the Executive Agreement entered into by the
President of the Philippines with the President of the United States on the fourth of July, nineteen
hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred
and thirty-three, but in no case to extend beyond the third of July, nineteen hundred and seventy-four,
the disposition, exploitation, development, and utilization of all agricultural, timber, and mineral lands
of the public domain, waters, minerals, coals, petroleum, and other mineral oils, all forces and sources
of potential energy, and other natural resources of the Philippines, and the operation of public utilities,
shall, if open to any person, be open to citizens of the United States and to all forms of business
enterprise owned or controlled, directly or indirectly, by citizens of the United States in the same
manner as to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade Agreement, also
known as the Laurel-Langley Agreement, embodied in Republic Act No. 1355. 114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387, 115 also known as the Petroleum Act of 1949, was approved on
June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the exploitation of the nation's
petroleum resources. Among the kinds of concessions it sanctioned were exploration and exploitation
48
concessions, which respectively granted to the concessionaire the exclusive right to explore for 116 or
develop117 petroleum within specified areas.
Concessions may be granted only to duly qualified persons 118 who have sufficient finances,
organization, resources, technical competence, and skills necessary to conduct the operations to be
undertaken.119
Nevertheless, the Government reserved the right to undertake such work itself. 120 This proceeded
from the theory that all natural deposits or occurrences of petroleum or natural gas in public and/or
private lands in the Philippines belong to the State. 121 Exploration and exploitation concessions did not
confer upon the concessionaire ownership over the petroleum lands and petroleum
deposits.122 However, they did grant concessionaires the right to explore, develop, exploit, and utilize
them for the period and under the conditions determined by the law. 123
Concessions were granted at the complete risk of the concessionaire; the Government did not
guarantee the existence of petroleum or undertake, in any case, title warranty. 124
Concessionaires were required to submit information as maybe required by the Secretary of

Agriculture and Natural Resources, including reports of geological and geophysical examinations, as
well as production reports.125 Exploration126 and exploitation127 concessionaires were also required to
submit work programs.lavvphi1.net
Exploitation concessionaires, in particular, were obliged to pay an annual exploitation tax, 128 the object
of which is to induce the concessionaire to actually produce petroleum, and not simply to sit on the
concession without developing or exploiting it.129 These concessionaires were also bound to pay the
Government royalty, which was not less than 12½% of the petroleum produced and saved, less that
consumed in the operations of the concessionaire. 130 Under Article 66, R.A. No. 387, the exploitation
tax may be credited against the royalties so that if the concessionaire shall be actually producing
enough oil, it would not actually be paying the exploitation tax. 131
Failure to pay the annual exploitation tax for two consecutive years, 132 or the royalty due to the
Government within one year from the date it becomes due, 133 constituted grounds for the cancellation
of the concession. In case of delay in the payment of the taxes or royalty imposed by the law or by the
concession, a surcharge of 1% per month is exacted until the same are paid. 134
As a rule, title rights to all equipment and structures that the concessionaire placed on the land belong
to the exploration or exploitation concessionaire. 135 Upon termination of such concession, the
concessionaire had a right to remove the same.136
The Secretary of Agriculture and Natural Resources was tasked with carrying out the provisions of the
law, through the Director of Mines, who acted under the Secretary's immediate supervision and
control.137 The Act granted the Secretary the authority to inspect any operation of the concessionaire
and to examine all the books and accounts pertaining to operations or conditions related to payment
of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical
Board.139 The Administration Unit was charged, inter alia, with the enforcement of the provisions of the
law.140 The Technical Board had, among other functions, the duty to check on the performance of
concessionaires and to determine whether the obligations imposed by the Act and its implementing
regulations were being complied with.141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development, analyzed the
benefits and drawbacks of the concession system insofar as it applied to the petroleum industry:
Advantages of Concession. Whether it emphasizes income tax or royalty, the most positive aspect of
the concession system is that the State's financial involvement is virtually risk free and administration
is simple and comparatively low in cost. Furthermore, if there is a competitive allocation of the
resource leading to substantial bonuses and/or greater royalty coupled with a relatively high level of
taxation, revenue accruing to the State under the concession system may compare favorably with
other financial arrangements.
49
Disadvantages of Concession. There are, however, major negative aspects to this system. Because
the Government's role in the traditional concession is passive, it is at a distinct disadvantage in
managing and developing policy for the nation's petroleum resource. This is true for several reasons.
First, even though most concession agreements contain covenants requiring diligence in operations
and production, this establishes only an indirect and passive control of the host country in resource
development. Second, and more importantly, the fact that the host country does not directly
participate in resource management decisions inhibits its ability to train and employ its nationals in
petroleum development. This factor could delay or prevent the country from effectively engaging in the
development of its resources. Lastly, a direct role in management is usually necessary in order to
obtain a knowledge of the international petroleum industry which is important to an appreciation of the
host country's resources in relation to those of other countries. 142
Other liabilities of the system have also been noted:
x x x 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.143
Eventually, the concession system failed for reasons explained by Dimagiba:
Notwithstanding the good intentions of the Petroleum Act of 1949, the concession system could not
have properly spurred sustained oil exploration activities in the country, since it assumed that such a
capital-intensive, high risk venture could be successfully undertaken by a single individual or a small
company. In effect, concessionaires' funds were easily exhausted. Moreover, since the concession
system practically closed its doors to interested foreign investors, local capital was stretched to the
limits. The old system also failed to consider the highly sophisticated technology and expertise
required, which would be available only to multinational companies. 144
A shift to a new regime for the development of natural resources thus seemed imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION AND THE SERVICE CONTRACT
SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87, 145 otherwise known as The
Oil Exploration and Development Act of 1972 signaled such a transformation. P.D. No. 87 permitted
the government to explore for and produce indigenous petroleum through "service contracts." 146
"Service contracts" is a term that assumes varying meanings to different people, and it has carried
many names in different countries, like "work contracts" in Indonesia, "concession agreements" in
Africa, "production-sharing agreements" in the Middle East, and "participation agreements" in Latin
America.147 A functional definition of "service contracts" in the Philippines is provided as follows:
A service contract is a contractual arrangement for engaging in the exploitation and development of
petroleum, mineral, energy, land and other natural resources by which a government or its agency, or
a private person granted a right or privilege by the government authorizes the other party (service
contractor) to engage or participate in the exercise of such right or the enjoyment of the privilege, in
that the latter provides financial or technical resources, undertakes the exploitation or production of a
given resource, or directly manages the productive enterprise, operations of the exploration and
exploitation of the resources or the disposition of marketing or resources. 148
50
In a service contract under P.D. No. 87, service and technology are furnished by the service
contractor for which it shall be entitled to the stipulated service fee. 149 The contractor must be
technically competent and financially capable to undertake the operations required in the contract. 150
Financing is supposed to be provided by the Government to which all petroleum produced

belongs.151 In case the Government is unable to finance petroleum exploration operations, the
contractor may furnish services, technology and financing, and the proceeds of sale of the petroleum
produced under the contract shall be the source of funds for payment of the service fee and the
operating expenses due the contractor.152 The contractor shall undertake, manage and execute
petroleum operations, subject to the government overseeing the management of the
operations.153 The contractor provides all necessary services and technology and the requisite
financing, performs the exploration work obligations, and assumes all exploration risks such that if no
petroleum is produced, it will not be entitled to reimbursement. 154 Once petroleum in commercial
quantity is discovered, the contractor shall operate the field on behalf of the government. 155
P.D. No. 87 prescribed minimum terms and conditions for every service contract. 156 It also granted the
contractor certain privileges, including exemption from taxes and payment of tariff duties, 157 and
permitted the repatriation of capital and retention of profits abroad. 158
Ostensibly, the service contract system had certain advantages over the concession regime. 159 It has
been opined, though, that, in the Philippines, our concept of a service contract, at least in the
petroleum industry, was basically a concession regime with a production-sharing element. 160
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of a new
Constitution.161 Article XIV on the National Economy and Patrimony contained provisions similar to the
1935 Constitution with regard to Filipino participation in the nation's natural resources. Section 8,
Article XIV thereof provides:
Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong to
the State. With the exception of agricultural, industrial or commercial, residential and resettlement
lands of the public domain, natural resources shall not be alienated, and no license, concession, or
lease for the exploration, development, exploitation, or utilization of any of the natural resources shall
be granted for a period exceeding twenty-five years, renewable for not more than twenty-five years,
except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases beneficial use may be the measure and the limit of the
grant.
While Section 9 of the same Article maintained the Filipino-only policy in the enjoyment of natural
resources, it also allowed Filipinos, upon authority of the Batasang Pambansa, to enter into service
contracts with any person or entity for the exploration or utilization of natural resources.
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens, or to corporations or associations at least sixty
per centum of which is owned by such citizens. The Batasang Pambansa, in the national interest, may
allow such citizens, corporations or associations to enter into service contracts for financial, technical,
management, or other forms of assistance with any person or entity for the exploration, or utilization of
any of the natural resources. Existing valid and binding service contracts for financial, technical,
management, or other forms of assistance are hereby recognized as such. [Emphasis supplied.]
The concept of service contracts, according to one delegate, was borrowed from the methods
followed by India, Pakistan and especially Indonesia in the exploration of petroleum and mineral
oils.162 The provision allowing such contracts, according to another, was intended to "enhance the
proper development of our natural resources since Filipino citizens lack the needed capital and
technical know-how which are essential in the proper exploration, development and exploitation of the
natural resources of the country."163
The original idea was to authorize the government, not private entities, to enter into service contracts
with foreign entities.164 As finally approved, however, a citizen or private entity could be allowed by the
51
National Assembly to enter into such service contract. 165 The prior approval of the National Assembly
was deemed sufficient to protect the national interest. 166 Notably, none of the laws allowing service
contracts were passed by the Batasang Pambansa. Indeed, all of them were enacted by presidential
decree.
On March 13, 1973, shortly after the ratification of the new Constitution, the President promulgated
Presidential Decree No. 151.167 The law allowed Filipino citizens or entities which have acquired lands
of the public domain or which own, hold or control such lands to enter into service contracts for
financial, technical, management or other forms of assistance with any foreign persons or entity for
the exploration, development, exploitation or utilization of said lands. 168
Presidential Decree No. 463,169 also known as The Mineral Resources Development Decree of 1974,
was enacted on May 17, 1974. Section 44 of the decree, as amended, provided that a lessee of a
mining claim may enter into a service contract with a qualified domestic or foreign contractor for the
exploration, development and exploitation of his claims and the processing and marketing of the
product thereof.
Presidential Decree No. 704170 (The Fisheries Decree of 1975), approved on May 16, 1975, allowed
Filipinos engaged in commercial fishing to enter into contracts for financial, technical or other forms of
assistance with any foreign person, corporation or entity for the production, storage, marketing and
processing of fish and fishery/aquatic products.171
Presidential Decree No. 705172 (The Revised Forestry Code of the Philippines), approved on May 19,
1975, allowed "forest products licensees, lessees, or permitees to enter into service contracts for
financial, technical, management, or other forms of assistance . . . with any foreign person or entity for
the exploration, development, exploitation or utilization of the forest resources." 173
Yet another law allowing service contracts, this time for geothermal resources, was Presidential
Decree No. 1442,174 which was signed into law on June 11, 1978. Section 1 thereof authorized the
Government to enter into service contracts for the exploration, exploitation and development of
geothermal resources with a foreign contractor who must be technically and financially capable of
undertaking the operations required in the service contract.
Thus, virtually the entire range of the country's natural resources –from petroleum and minerals to
geothermal energy, from public lands and forest resources to fishery products – was well covered by
apparent legal authority to engage in the direct participation or involvement of foreign persons or
corporations (otherwise disqualified) in the exploration and utilization of natural resources through
service contracts.175
THE 1987 CONSTITUTION AND TECHNICAL OR FINANCIAL ASSISTANCE AGREEMENTS
After the February 1986 Edsa Revolution, Corazon C. Aquino took the reins of power under a
revolutionary government. On March 25, 1986, President Aquino issued Proclamation No.
3,176 promulgating the Provisional Constitution, more popularly referred to as the Freedom
Constitution. By authority of the same Proclamation, the President created a Constitutional
Commission (CONCOM) to draft a new constitution, which took effect on the date of its ratification on
February 2, 1987.177
The 1987 Constitution retained the Regalian doctrine. The first sentence of Section 2, Article XII
states: "All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
resources are owned by the State."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution, in the second sentence of the
same provision, prohibits the alienation of natural resources, except agricultural lands.
The third sentence of the same paragraph is new: "The exploration, development and utilization of
natural resources shall be under the full control and supervision of the State." The constitutional policy
of the State's "full control and supervision" over natural resources proceeds from the concept of jura
regalia, as well as the recognition of the importance of the country's natural resources, not only for
52
national economic development, but also for its security and national defense. 178 Under this provision,
the State assumes "a more dynamic role" in the exploration, development and utilization of natural
resources.179
Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions authorizing the
State to grant licenses, concessions, or leases for the exploration, exploitation, development, or
utilization of natural resources. By such omission, the utilization of inalienable lands of public domain
through "license, concession or lease" is no longer allowed under the 1987 Constitution. 180
Having omitted the provision on the concession system, Section 2 proceeded to introduce "unfamiliar
language":181
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.
Consonant with the State's "full supervision and control" over natural resources, Section 2 offers the
State two "options."182 One, the State may directly undertake these activities itself; or two, it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens, or entities at
least 60% of whose capital is owned by such citizens.
A third option is found in the third paragraph of the same section:
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
lakes, bays, and lagoons.
While the second and third options are limited only to Filipino citizens or, in the case of the former, to
corporations or associations at least 60% of the capital of which is owned by Filipinos, a fourth allows
the participation of foreign-owned corporations. The fourth and fifth paragraphs of Section 2 provide:
provision, within thirty days from its execution.
Although Section 2 sanctions the participation of foreign-owned corporations in the exploration,

development, and utilization of natural resources, it imposes certain limitations or conditions to
agreements with such corporations.
First, the parties to FTAAs. Only the President, in behalf of the State, may enter into these
agreements, and only with corporations. By contrast, under the 1973 Constitution, a Filipino citizen,
corporation or association may enter into a service contract with a "foreign person or entity."
Second, the size of the activities: only large-scale exploration, development, and utilization is allowed.
The term "large-scale usually refers to very capital-intensive activities." 183
Third, the natural resources subject of the activities is restricted to minerals, petroleum and other
mineral oils, the intent being to limit service contracts to those areas where Filipino capital may not be
sufficient.184
Fourth, consistency with the provisions of statute. The agreements must be in accordance with the
terms and conditions provided by law.
Fifth, Section 2 prescribes certain standards for entering into such agreements. The agreements must
be based on real contributions to economic growth and general welfare of the country.
53
Sixth, the agreements must contain rudimentary stipulations for the promotion of the development and
use of local scientific and technical resources.
Seventh, the notification requirement. The President shall notify Congress of every financial or
technical assistance agreement entered into within thirty days from its execution.
Finally, the scope of the agreements. While the 1973 Constitution referred to "service contracts for
financial, technical, management, or other forms of assistance" the 1987 Constitution provides for
"agreements. . . involving either financial or technical assistance." It bears noting that the phrases
"service contracts" and "management or other forms of assistance" in the earlier constitution have
been omitted.
By virtue of her legislative powers under the Provisional Constitution, 185 President Aquino, on July 10,
1987, signed into law E.O. No. 211 prescribing the interim procedures in the processing and approval
of applications for the exploration, development and utilization of minerals. The omission in the 1987
Constitution of the term "service contracts" notwithstanding, the said E.O. still referred to them in
Section 2 thereof:
Sec. 2. Applications for the exploration, development and utilization of mineral resources, including
renewal applications and applications for approval of operating agreements and mining service
contracts, shall be accepted and processed and may be approved x x x. [Emphasis supplied.]
The same law provided in its Section 3 that the "processing, evaluation and approval of all mining
applications . . . operating agreements and service contracts . . . shall be governed by Presidential
Decree No. 463, as amended, other existing mining laws, and their implementing rules and
regulations. . . ."
As earlier stated, on the 25th also of July 1987, the President issued E.O. No. 279 by authority of
which the subject WMCP FTAA was executed on March 30, 1995.
On March 3, 1995, President Ramos signed into law R.A. No. 7942. Section 15 thereof declares that
the Act "shall govern the exploration, development, utilization, and processing of all mineral
resources." Such declaration notwithstanding, R.A. No. 7942 does not actually cover all the modes
through which the State may undertake the exploration, development, and utilization of natural
resources.
The State, being the owner of the natural resources, is accorded the primary power and responsibility
in the exploration, development and utilization thereof. As such, it may undertake these activities
through four modes:
The State may directly undertake such activities.
(2) The State may enter into co-production, joint venture or production-sharing agreements with
Filipino citizens or qualified corporations.
(3) Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens.
(4) For the large-scale exploration, development and utilization of minerals, petroleum and other
mineral oils, the President may enter into agreements with foreign-owned corporations involving
technical or financial assistance.186
Except to charge the Mines and Geosciences Bureau of the DENR with performing researches and
surveys,187 and a passing mention of government-owned or controlled corporations, 188 R.A. No. 7942
does not specify how the State should go about the first mode. The third mode, on the other hand, is
governed by Republic Act No. 7076 189 (the People's Small-Scale Mining Act of 1991) and other
pertinent laws.190 R.A. No. 7942 primarily concerns itself with the second and fourth modes.
Mineral production sharing, co-production and joint venture agreements are collectively classified by
R.A. No. 7942 as "mineral agreements." 191 The Government participates the least in a mineral
production sharing agreement (MPSA). In an MPSA, the Government grants the contractor 192 the
exclusive right to conduct mining operations within a contract area 193 and shares in the gross
54
output.194 The MPSA contractor provides the financing, technology, management and personnel
necessary for the agreement's implementation. 195 The total government share in an MPSA is the
excise tax on mineral products under Republic Act No. 7729, 196 amending Section 151(a) of the
National Internal Revenue Code, as amended.197
In a co-production agreement (CA),198 the Government provides inputs to the mining operations other
than the mineral resource,199 while in a joint venture agreement (JVA), where the Government enjoys
the greatest participation, the Government and the JVA contractor organize a company with both
parties having equity shares.200 Aside from earnings in equity, the Government in a JVA is also
entitled to a share in the gross output. 201 The Government may enter into a CA 202 or JVA203 with one or
more contractors. The Government's share in a CA or JVA is set out in Section 81 of the law:
The share of the Government in co-production and joint venture agreements shall be negotiated by
the Government and the contractor taking into consideration the: (a) capital investment of the project,
(b) the risks involved, (c) contribution of the project to the economy, and (d) other factors that will
provide for a fair and equitable sharing between the Government and the contractor. The Government
shall also be entitled to compensations for its other contributions which shall be agreed upon by the
parties, and shall consist, among other things, the contractor's income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign stockholders arising from dividend or
interest payments to the said foreign stockholders, in case of a foreign national and all such other
taxes, duties and fees as provided for under existing laws.
All mineral agreements grant the respective contractors the exclusive right to conduct mining
operations and to extract all mineral resources found in the contract area. 204 A "qualified person" may
enter into any of the mineral agreements with the Government. 205 A "qualified person" is
any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or
cooperative organized or authorized for the purpose of engaging in mining, with technical and
financial capability to undertake mineral resources development and duly registered in accordance
with law at least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines
x x x.206
The fourth mode involves "financial or technical assistance agreements." An FTAA is defined as "a
contract involving financial or technical assistance for large-scale exploration, development, and
utilization of natural resources."207 Any qualified person with technical and financial capability to
undertake large-scale exploration, development, and utilization of natural resources in the Philippines
may enter into such agreement directly with the Government through the DENR. 208 For the purpose of
granting an FTAA, a legally organized foreign-owned corporation (any corporation, partnership,
association, or cooperative duly registered in accordance with law in which less than 50% of the
capital is owned by Filipino citizens)209 is deemed a "qualified person."210
Other than the difference in contractors' qualifications, the principal distinction between mineral
agreements and FTAAs is the maximum contract area to which a qualified person may hold or be
granted.211 "Large-scale" under R.A. No. 7942 is determined by the size of the contract area, as
opposed to the amount invested (US $50,000,000.00), which was the standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation. 212 The Government's contributions, in the form
of taxes, in an FTAA is identical to its contributions in the two mineral agreements, save that in an
FTAA:
The collection of Government share in financial or technical assistance agreement shall commence
after the financial or technical assistance agreement contractor has fully recovered its pre-operating
expenses, exploration, and development expenditures, inclusive. 213
III
Having examined the history of the constitutional provision and statutes enacted pursuant thereto, a
consideration of the substantive issues presented by the petition is now in order.
THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279
55
Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did not
come into effect.
E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days before the
opening of Congress on July 27, 1987.214 Section 8 of the E.O. states that the same "shall take effect
immediately." This provision, according to petitioners, runs counter to Section 1 of E.O. No.
200,215 which provides:
SECTION 1. Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is
otherwise provided.216 [Emphasis supplied.]
On that premise, petitioners contend that E.O. No. 279 could have only taken effect fifteen days after
its publication at which time Congress had already convened and the President's power to legislate
had ceased.
Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in Miners
Association of the Philippines v. Factoran, supra. This is of course incorrect for the issue in Miners
Association was not the validity of E.O. No. 279 but that of DAO Nos. 57 and 82 which were issued
pursuant thereto.
Nevertheless, petitioners' contentions have no merit.
It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking effect on a date
other than – even before – the 15-day period after its publication. Where a law provides for its own
date of effectivity, such date prevails over that prescribed by E.O. No. 200. Indeed, this is the very
essence of the phrase "unless it is otherwise provided" in Section 1 thereof. Section 1, E.O. No. 200,
therefore, applies only when a statute does not provide for its own date of effectivity.
What is mandatory under E.O. No. 200, and what due process requires, as this Court held in Tañada
v. Tuvera,217 is the publication of the law for without such notice and publication, there would be no
basis for the application of the maxim "ignorantia legis n[eminem] excusat." It would be the height of
injustice to punish or otherwise burden a citizen for the transgression of a law of which he had no
notice whatsoever, not even a constructive one.
While the effectivity clause of E.O. No. 279 does not require its publication, it is not a ground for its
invalidation since the Constitution, being "the fundamental, paramount and supreme law of the
nation," is deemed written in the law. 218 Hence, the due process clause, 219 which, so Tañada held,
mandates the publication of statutes, is read into Section 8 of E.O. No. 279. Additionally, Section 1 of
E.O. No. 200 which provides for publication "either in the Official Gazette or in a newspaper of general
circulation in the Philippines," finds suppletory application. It is significant to note that E.O. No. 279
was actually published in the Official Gazette220 on August 3, 1987.
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and Tañada v. Tuvera,
this Court holds that E.O. No. 279 became effective immediately upon its publication in the Official
Gazette on August 3, 1987.
That such effectivity took place after the convening of the first Congress is irrelevant. At the time
President Aquino issued E.O. No. 279 on July 25, 1987, she was still validly exercising legislative
powers under the Provisional Constitution. 221 Article XVIII (Transitory Provisions) of the 1987
Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress
is convened.
The convening of the first Congress merely precluded the exercise of legislative powers by President
Aquino; it did not prevent the effectivity of laws she had previously enacted.
There can be no question, therefore, that E.O. No. 279 is an effective, and a validly enacted, statute.
THE CONSTITUTIONALITY OF THE WMCP FTAA
56
Petitioners submit that, in accordance with the text of Section 2, Article XII of the Constitution, FTAAs
should be limited to "technical or financial assistance" only. They observe, however, that, contrary to
the language of the Constitution, the WMCP FTAA allows WMCP, a fully foreign-owned mining
corporation, to extend more than mere financial or technical assistance to the State, for it permits
WMCP to manage and operate every aspect of the mining activity. 222
Petitioners' submission is well-taken. It is a cardinal rule in the interpretation of constitutions that the
instrument must be so construed as to give effect to the intention of the people who adopted it. 223 This
intention is to be sought in the constitution itself, and the apparent meaning of the words is to be taken
as expressing it, except in cases where that assumption would lead to absurdity, ambiguity, or
contradiction.224 What the Constitution says according to the text of the provision, therefore, compels
acceptance and negates the power of the courts to alter it, based on the postulate that the framers
and the people mean what they say. 225 Accordingly, following the literal text of the Constitution,
assistance accorded by foreign-owned corporations in the large-scale exploration, development, and
utilization of petroleum, minerals and mineral oils should be limited to "technical" or "financial"
assistance only.
WMCP nevertheless submits that the word "technical" in the fourth paragraph of Section 2 of E.O. No.
279 encompasses a "broad number of possible services," perhaps, "scientific and/or technological in
basis."226 It thus posits that it may also well include "the area of management or operations . . . so long
as such assistance requires specialized knowledge or skills, and are related to the exploration,
development and utilization of mineral resources."227
This Court is not persuaded. As priorly pointed out, the phrase "management or other forms of
assistance" in the 1973 Constitution was deleted in the 1987 Constitution, which allows only "technical
or financial assistance." Casus omisus pro omisso habendus est. A person, object or thing omitted
from an enumeration must be held to have been omitted intentionally. 228 As will be shown later, 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.
Respondents insist that "agreements involving technical or financial assistance" is just another term
for service contracts. They contend that the proceedings of the CONCOM indicate "that although the
terminology 'service contract' was avoided [by the Constitution], the concept it represented was not."
They add that "[t]he concept is embodied in the phrase 'agreements involving financial or technical
assistance.'"229 And point out how members of the CONCOM referred to these agreements as
"service contracts." For instance:
SR. TAN. Am I correct in thinking that the only difference between these future service contracts and
the past service contracts under Mr. Marcos is the general law to be enacted by the legislature and
the notification of Congress by the President? That is the only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards[?]
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.230 [Emphasis supplied.]
WMCP also cites the following statements of Commissioners Gascon, Garcia, Nolledo and Tadeo
who alluded to service contracts as they explained their respective votes in the approval of the draft
Article:
MR. GASCON. Mr. Presiding Officer, I vote no primarily because of two reasons: One, the provision
on service contracts. I felt that if we would constitutionalize any provision on service contracts, this
should always be with the concurrence of Congress and not guided only by a general law to be
promulgated by Congress. x x x.231 [Emphasis supplied.]
x x x.
57
MR. GARCIA. Thank you.
I vote no. x x x.
Service contracts are given constitutional legitimization in Section 3, even when they have been
proven to be inimical to the interests of the nation, providing as they do the legal loophole for the
exploitation of our natural resources for the benefit of foreign interests. They constitute a serious
negation of Filipino control on the use and disposition of the nation's natural resources, especially with
regard to those which are nonrenewable.232 [Emphasis supplied.]
xxx
MR. NOLLEDO. While there are objectionable provisions in the Article on National Economy and
Patrimony, going over said provisions meticulously, setting aside prejudice and personalities will
reveal that the article contains a balanced set of provisions. I hope the forthcoming Congress will
implement such provisions taking into account that Filipinos should have real control over our
economy and patrimony, and if foreign equity is permitted, the same must be subordinated to the
imperative demands of the national interest.
x x x.
It is also my understanding that service contracts involving foreign corporations or entities are
resorted to only when no Filipino enterprise or Filipino-controlled enterprise could possibly undertake
the exploration or exploitation of our natural resources and that compensation under such contracts
cannot and should not equal what should pertain to ownership of capital. In other words, the service
contract should not be an instrument to circumvent the basic provision, that the exploration and
exploitation of natural resources should be truly for the benefit of Filipinos.
Thank you, and I vote yes.233 [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin ang salitang
"imperyalismo." Ang ibig sabihin nito ay ang sistema ng lipunang pinaghaharian ng iilang
monopolyong kapitalista at ang salitang "imperyalismo" ay buhay na buhay sa National Economy and
Patrimony na nating ginawa. Sa pamamagitan ng salitang "based on," naroroon na ang free trade
sapagkat tayo ay mananatiling tagapagluwas ng hilaw na sangkap at tagaangkat ng yaring produkto.
Pangalawa, naroroon pa rin ang parity rights, ang service contract, ang 60-40 equity sa natural
resources. Habang naghihirap ang sambayanang Pilipino, ginagalugad naman ng mga dayuhan ang
ating likas na yaman. Kailan man ang Article on National Economy and Patrimony ay hindi nagpaalis
sa pagkaalipin ng ating ekonomiya sa kamay ng mga dayuhan. Ang solusyon sa suliranin ng bansa
ay dalawa lamang: ang pagpapatupad ng tunay na reporma sa lupa at ang national industrialization.
Ito ang tinatawag naming pagsikat ng araw sa Silangan. Ngunit ang mga landlords and big
businessmen at ang mga komprador ay nagsasabi na ang free trade na ito, ang kahulugan para sa
amin, ay ipinipilit sa ating sambayanan na ang araw ay sisikat sa Kanluran. Kailan man hindi
puwedeng sumikat ang araw sa Kanluran. I vote no. 234 [Emphasis supplied.]
This Court is likewise not persuaded.
As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's Article on
National Economy and Patrimony. If the CONCOM intended to retain the concept of service contracts
under the 1973 Constitution, it could have simply adopted the old terminology ("service contracts")
instead of employing new and unfamiliar terms ("agreements . . . involving either technical or financial
assistance"). Such a difference between the language of a provision in a revised constitution and that
of a similar provision in the preceding constitution is viewed as indicative of a difference in
purpose.235 If, as respondents suggest, the concept of "technical or financial assistance" agreements
is identical to that of "service contracts," the CONCOM would not have bothered to fit the same dog
58
with a new collar. To uphold respondents' theory would reduce the first to a mere euphemism for the
second and render the change in phraseology meaningless.
An examination of the reason behind the change confirms that technical or financial assistance
agreements are not synonymous to service contracts.
[T]he Court in construing a Constitution should bear in mind the object sought to be accomplished by
its adoption, and the evils, if any, sought to be prevented or remedied. A doubtful provision will be
examined in light of the history of the times, and the condition and circumstances under which the
Constitution was framed. The object is to ascertain the reason which induced the framers of the
Constitution to enact the particular provision and the purpose sought to be accomplished thereby, in
order to construe the whole as to make the words consonant to that reason and calculated to effect
that purpose.236
As the following question of Commissioner Quesada and Commissioner Villegas' answer shows the
drafters intended to do away with service contracts which were used to circumvent the capitalization
(60%-40%) requirement:
MS. QUESADA. The 1973 Constitution used the words "service contracts." In this particular Section
3, is there a safeguard against the possible control of foreign interests if the Filipinos go into
coproduction with them?
MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was our first attempt to
avoid some of the abuses in the past regime in the use of service contracts to go around the 60-40
arrangement. The safeguard that has been introduced – and this, of course can be refined – is found
in Section 3, lines 25 to 30, where Congress will have to concur with the President on any agreement
entered into between a foreign-owned corporation and the government involving technical or financial
assistance for large-scale exploration, development and utilization of natural resources. 237 [Emphasis
supplied.]
In a subsequent discussion, Commissioner Villegas allayed the fears of Commissioner Quesada

regarding the participation of foreign interests in Philippine natural resources, which was supposed to
be restricted to Filipinos.
MS. QUESADA. Another point of clarification is the phrase "and utilization of natural resources shall
be under the full control and supervision of the State." In the 1973 Constitution, this was limited to
citizens of the Philippines; but it was removed and substituted by "shall be under the full control and
supervision of the State." Was the concept changed so that these particular resources would be
limited to citizens of the Philippines? Or would these resources only be under the full control and
supervision of the State; meaning, noncitizens would have access to these natural resources? Is that
the understanding?
MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next sentence, it states:
Such activities may be directly undertaken by the State, or it may enter into co-production, joint
venture, production-sharing agreements with Filipino citizens.
So we are still limiting it only to Filipino citizens.
x x x.
MS. QUESADA. Going back to Section 3, the section suggests that:
The exploration, development, and utilization of natural resources… may be directly undertaken by
the State, or it may enter into co-production, joint venture or production-sharing agreement with . . .
corporations or associations at least sixty per cent of whose voting stock or controlling interest is
owned by such citizens.
Lines 25 to 30, on the other hand, suggest that in the large-scale exploration, development and
utilization of natural resources, the President with the concurrence of Congress may enter into
agreements with foreign-owned corporations even for technical or financial assistance.
59
I wonder if this part of Section 3 contradicts the second part. I am raising this point for fear that foreign
investors will use their enormous capital resources to facilitate the actual exploitation or exploration,
development and effective disposition of our natural resources to the detriment of Filipino investors. I
am not saying that we should not consider borrowing money from foreign sources. What I refer to is
that foreign interest should be allowed to participate only to the extent that they lend us money and
give us technical assistance with the appropriate government permit. In this way, we can insure the
enjoyment of our natural resources by our own people.
MR. VILLEGAS. Actually, the second provision about the President does not permit foreign investors
to participate. It is only technical or financial assistance – they do not own anything – but on
conditions that have to be determined by law with the concurrence of Congress. So, it is very
restrictive.
If the Commissioner will remember, this removes the possibility for service contracts which we said
yesterday were avenues used in the previous regime to go around the 60-40
requirement.238 [Emphasis supplied.]
The present Chief Justice, then a member of the CONCOM, also referred to this limitation in scope in
proposing an amendment to the 60-40 requirement:
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 three minutes.
The Commission had just approved the Preamble. In the Preamble we clearly stated that the Filipino
people are sovereign and that one of the objectives for the creation or establishment of a government
is to conserve and develop the national patrimony. The implication is that the 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 Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in the Preamble
"to preserve and develop the national patrimony for the sovereign Filipino people and for the
generations to come," we must at this time decide once and for all that our natural resources must be
reserved only to Filipino citizens.
Thank you.239 [Emphasis supplied.]
The opinion of another member of the CONCOM is persuasive 240 and leaves no doubt as to the
intention of the framers to eliminate service contracts altogether. He writes:
Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological undertakings for

which the President may enter into contracts with foreign-owned corporations, and enunciates strict
conditions that should govern such contracts. x x x.
60
This provision balances the need for foreign capital and technology with the need to maintain the
national sovereignty. It recognizes the fact that as long as Filipinos can formulate their own terms in
their own territory, there is no danger of relinquishing sovereignty to foreign interests.
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 intent 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.241 [Emphasis supplied.]
Furthermore, it appears that Proposed Resolution No. 496, 242 which was the draft Article on National
Economy and Patrimony, adopted the concept of "agreements . . . involving either technical or
financial assistance" contained in 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. 243 The former, as
well as Article XII, as adopted, employed the same terminology, as the comparative table below
shows:
DRAFT OF THE UP LAW PROPOSED RESOLUTION ARTICLE XII OF THE 1987

CONSTITUTION PROJECT NO. 496 OF THE CONSTITUTION
CONSTITUTIONAL
COMMISSION
Sec. 1. All lands of the public Sec. 3. All lands of the public Sec. 2. All lands of the public
domain, waters, minerals, coal, domain, waters, minerals, coal, domain, waters, minerals, coal,
petroleum and other mineral petroleum and other mineral petroleum, and other mineral
oils, all forces of potential oils, all forces of potential oils, all forces of potential
energy, fisheries, flora and energy, fisheries, forests, flora energy, fisheries, forests or
fauna and other natural and fauna, and other natural timber, wildlife, flora and fauna,
resources of the Philippines resources are owned by the and other natural resources
are owned by the State. With State. With the exception of are owned by the State. With
the exception of agricultural agricultural lands, all other the exception of agricultural
lands, all other natural natural resources shall not be lands, all other natural
resources shall not be alienated. The exploration, resources shall not be
alienated. The exploration, development, and utilization of alienated. The exploration,
development and utilization of natural resources shall be development, and utilization of
natural resources shall be under the full control and natural resources shall be
under the full control and supervision of the State. Such under the full control and
supervision of the State. Such activities may be directly supervision of the State. The
activities may be directly undertaken by the State, or it State may directly undertake
undertaken by the state, or it may enter into co-production, such activities or it may enter
may enter into co-production, joint venture, production- into co-production, joint
joint venture, production sharing agreements with venture, or production-sharing
sharing agreements with Filipino citizens or corporations agreements with Filipino
Filipino citizens or corporations or associations at least sixty citizens, or corporations or
or associations sixty per cent per cent of whose voting stock associations at least sixty per
of whose voting stock or or controlling interest is owned centum of whose capital is
controlling interest is owned by by such citizens. Such owned by such citizens. Such
such citizens for a period of not agreements shall be for a agreements may be for a
more than twenty-five years, period of twenty-five years, period not exceeding twenty-
renewable for not more than renewable for not more than five years, renewable for not
twenty-five years and under twenty-five years, and under more than twenty-five years,
such terms and conditions as such term and conditions as and under such terms and
may be provided by law. In may be provided by law. In conditions as may be provided
61
case as to water rights for cases of water rights for by law. In case of water rights
irrigation, water supply, irrigation, water supply, for irrigation, water supply,
fisheries, or industrial uses fisheries or industrial uses fisheries, or industrial uses
other than the development of other than the development for other than the development of
water power, beneficial use water power, beneficial use water power, beneficial use
may be the measure and limit may be the measure and limit may be the measure and limit
of the grant. of the grant. of the grant.
The National Assembly may by The Congress may by law The State shall protect the
law allow small scale utilization allow small-scale utilization of nation's marine wealth in its
of natural resources by Filipino natural resources by Filipino archipelagic waters, territorial
citizens. citizens, as well as cooperative sea, and exclusive economic
fish farming in rivers, lakes, zone, and reserve its use and
The National Assembly, may, bays, and lagoons. enjoyment exclusively to
by two-thirds vote of all its Filipino citizens.
members by special law The President with the
provide the terms and concurrence of Congress, by The Congress may, by law,
conditions under which a special law, shall provide the allow small-scale utilization of
foreign-owned corporation may terms and conditions under natural resources by Filipino
enter into agreements with the which a foreign-owned citizens, as well as cooperative
government involving either corporation may enter into fish farming, with priority to
technical or financial agreements with the subsistence fishermen and
assistance for large-scale government involving either fish-workers in rivers, lakes,
exploration, development, or technical or financial bays, and lagoons.
utilization of natural resources. assistance for large-scale
[Emphasis supplied.] exploration, development, and The President may enter into
utilization of natural resources. agreements with foreign-
[Emphasis supplied.] 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. [Emphasis
supplied.]
The President shall notify the

Congress of every contract
entered into in accordance with
this provision, within thirty days
from its execution.
The insights of the proponents of the U.P. Law draft are, therefore, instructive in interpreting the
phrase "technical or financial assistance."
In his position paper entitled Service Contracts: Old Wine in New Bottles?, Professor Pacifico A.
Agabin, who was a member of the working group that prepared the U.P. Law draft, criticized service
contracts for they "lodge exclusive management and control of the enterprise to the service
62
contractor, which is reminiscent of the old concession regime. Thus, notwithstanding the provision of
the Constitution that natural resources belong to the State, and that these shall not be alienated, the
service contract system renders nugatory the constitutional provisions cited." 244 He elaborates:
Looking at the Philippine model, we can discern the following vestiges of the concession regime, thus:
1. Bidding of a selected area, or leasing the choice of the area to the interested party and then
negotiating the terms and conditions of the contract; (Sec. 5, P.D. 87)
2. Management of the enterprise vested on the contractor, including operation of the field if petroleum
is discovered; (Sec. 8, P.D. 87)
3. Control of production and other matters such as expansion and development; (Sec. 8)
4. Responsibility for downstream operations – marketing, distribution, and processing may be with the
contractor (Sec. 8);
5. Ownership of equipment, machinery, fixed assets, and other properties remain with contractor
(Sec. 12, P.D. 87);
6. Repatriation of capital and retention of profits abroad guaranteed to the contractor (Sec. 13, P.D.
87); and
7. While title to the petroleum discovered may nominally be in the name of the government, the
contractor has almost unfettered control over its disposition and sale, and even the domestic
requirements of the country is relegated to a pro rata basis (Sec. 8).
In short, our version of the service contract is just a rehash of the old concession regime x x x. Some
people have pulled an old rabbit out of a magician's hat, and foisted it upon us as a new and different
animal.
The service contract as we know it here is antithetical to the principle of sovereignty over our natural
resources restated in the same article of the [1973] Constitution containing the provision for service
contracts. If the service contractor happens to be a foreign corporation, the contract would also run
counter to the constitutional provision on nationalization or Filipinization, of the exploitation of our
natural resources.245 [Emphasis supplied. Underscoring in the original.]
Professor Merlin M. Magallona, also a member of the working group, was harsher in his reproach of
the system:
x x x the nationalistic phraseology of the 1935 [Constitution] was retained by the [1973] Charter, but
the essence of nationalism was reduced to hollow rhetoric. The 1973 Charter still provided that the
exploitation or development of the country's natural resources be limited to Filipino citizens or
corporations owned or controlled by them. However, the martial-law Constitution allowed them, once
these resources are in their name, to enter into service contracts with foreign investors for financial,
technical, management, or other forms of assistance. Since foreign investors have the capital
resources, the actual exploitation and development, as well as the effective disposition, of the
country's natural resources, would be under their direction, and control, relegating the Filipino
investors to the role of second-rate partners in joint ventures.
Through the instrumentality of the service contract, the 1973 Constitution had legitimized at the
highest level of state policy that which was prohibited under the 1973 Constitution, namely: the
exploitation of the country's natural resources by foreign nationals. The drastic impact of [this]
constitutional change becomes more pronounced when it is considered that the active party to any
service contract may be a corporation wholly owned by foreign interests. In such a case, the
citizenship requirement is completely set aside, permitting foreign corporations to obtain actual
possession, control, and [enjoyment] of the country's natural resources. 246 [Emphasis supplied.]
Accordingly, Professor Agabin recommends that:
63
Recognizing the service contract for what it is, we have to expunge it from the Constitution and
reaffirm ownership over our natural resources. That is the only way we can exercise effective control
over our natural resources.
This should not mean complete isolation of the country's natural resources from foreign investment.
Other contract forms which are less derogatory to our sovereignty and control over natural resources
– like technical assistance agreements, financial assistance [agreements], co-production agreements,
joint ventures, production-sharing – could still be utilized and adopted without violating constitutional
provisions. In other words, we can adopt contract forms which recognize and assert our sovereignty
and ownership over natural resources, and where the foreign entity is just a pure contractor instead of
the beneficial owner of our economic resources.247 [Emphasis supplied.]
Still another member of the working group, Professor Eduardo Labitag, proposed that:
2. Service contracts as practiced under the 1973 Constitution should be discouraged, instead the
government may be allowed, subject to authorization by special law passed by an extraordinary
majority to enter into either technical or financial assistance. This is justified by the fact that as
presently worded in the 1973 Constitution, a service contract gives full control over the contract area
to the service contractor, for him to work, manage and dispose of the proceeds or production. It was a
subterfuge to get around the nationality requirement of the constitution. 248 [Emphasis supplied.]
In the annotations on the proposed Article on National Economy and Patrimony, the U.P. Law draft
summarized the rationale therefor, thus:
5. The last paragraph is a modification of the service contract provision found in Section 9, Article XIV
of the 1973 Constitution as amended. This 1973 provision shattered the framework of nationalism in
our fundamental law (see Magallona, "Nationalism and its Subversion in the Constitution"). Through
the service contract, the 1973 Constitution had legitimized that which was prohibited under the 1935
constitution—the exploitation of the country's natural resources by foreign nationals. Through the
service contract, acts prohibited by the Anti-Dummy Law were recognized as legitimate
arrangements. Service contracts lodge exclusive management and control of the enterprise to the
service contractor, not unlike the old concession regime where the concessionaire had complete
control over the country's natural resources, having been given exclusive and plenary rights to exploit
a particular resource and, in effect, having been assured of ownership of that resource at the point of
extraction (see Agabin, "Service Contracts: Old Wine in New Bottles"). Service contracts, hence, are
antithetical to the principle of sovereignty over our natural resources, as well as the constitutional
provision on nationalization or Filipinization of the exploitation of our natural resources.
Under the proposed provision, only technical assistance or financial assistance agreements may be
entered into, and only for large-scale activities. These are contract forms which recognize and assert
our sovereignty and ownership over natural resources since the foreign entity is just a pure contractor
and not a beneficial owner of our economic resources. The proposal recognizes the need for capital
and technology to develop our natural resources without sacrificing our sovereignty and control over
such resources by the safeguard of a special law which requires two-thirds vote of all the members of
the Legislature. This will ensure that such agreements will be debated upon exhaustively and
thoroughly in the National Assembly to avert prejudice to the nation. 249 [Emphasis supplied.]
The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as grants of
beneficial ownership of the country's natural resources to foreign owned corporations. While, in
theory, the State owns these natural resources – and Filipino citizens, their beneficiaries – service
contracts actually vested foreigners with the right to dispose, explore for, develop, exploit, and utilize
the same. Foreigners, not Filipinos, became the beneficiaries of Philippine natural resources. This
arrangement is clearly incompatible with the constitutional ideal of nationalization of natural resources,
with the Regalian doctrine, and on a broader perspective, with Philippine sovereignty.
The proponents nevertheless acknowledged the need for capital and technical know-how in the large-
scale exploitation, development and utilization of natural resources – the second paragraph of the
proposed draft itself being an admission of such scarcity. Hence, they recommended a compromise to
reconcile the nationalistic provisions dating back to the 1935 Constitution, which reserved all natural
64
resources exclusively to Filipinos, and the more liberal 1973 Constitution, which allowed foreigners to
participate in these resources through service contracts. Such a compromise called for the adoption of
a new system in the exploration, development, and utilization of natural resources in the form of
technical agreements or financial agreements which, necessarily, are distinct concepts from service
contracts.
The replacement of "service contracts" with "agreements… involving either technical or financial
assistance," as well as the deletion of the phrase "management or other forms of assistance,"
assumes greater significance when note is taken that the U.P. Law draft proposed other equally
crucial changes that were obviously heeded by the CONCOM. These include the abrogation of the
concession system and the adoption of new "options" for the State in the exploration, development,
and utilization of natural resources. The proponents deemed these changes to be more consistent
with the State's ownership of, and its "full control and supervision" (a phrase also employed by the
framers) over, such resources. The Project explained:
3. In line with the State ownership of natural resources, the State should take a more active role in the
exploration, development, and utilization of natural resources, than the present practice of granting
licenses, concessions, or leases – hence the provision that said activities shall be under the full
control and supervision of the State. There are three major schemes by which the State could
undertake these activities: first, directly by itself; second, by virtue of co-production, joint venture,
production sharing agreements with Filipino citizens or corporations or associations sixty per cent
(60%) of the voting stock or controlling interests of which are owned by such citizens; or third, with a
foreign-owned corporation, in cases of large-scale exploration, development, or utilization of natural
resources through agreements involving either technical or financial assistance only. x x x.
At present, under the licensing concession or lease schemes, the government benefits from such
benefits only through fees, charges, ad valorem taxes and income taxes of the exploiters of our
natural resources. Such benefits are very minimal compared with the enormous profits reaped by
theses licensees, grantees, concessionaires. Moreover, some of them disregard the conservation of
natural resources and do not protect the environment from degradation. The proposed role of the
State will enable it to a greater share in the profits – it can also actively husband its natural resources
and engage in developmental programs that will be beneficial to them.
4. Aside from the three major schemes for the exploration, development, and utilization of our natural
resources, the State may, by law, allow Filipino citizens to explore, develop, utilize natural resources
in small-scale. This is in recognition of the plight of marginal fishermen, forest dwellers, gold panners,
and others similarly situated who exploit our natural resources for their daily sustenance and
survival.250
Professor Agabin, in particular, after taking pains to illustrate the similarities between the two systems,
concluded that the service contract regime was but a "rehash" of the concession system. "Old wine in
new bottles," as he put it. The rejection of the service contract regime, therefore, is in consonance
with the abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the Constitution, and the adoption of other
proposed changes, there is no doubt that the framers considered and shared the intent of the U.P.
Law proponents in employing the phrase "agreements . . . involving either technical or financial
assistance."
While certain commissioners may have mentioned the term "service contracts" during the CONCOM
deliberations, they may not have been necessarily referring to the concept of service contracts under
the 1973 Constitution. As noted earlier, "service contracts" is a term that assumes different meanings
to different people.251 The commissioners may have been using the term loosely, and not in its
technical and legal sense, to refer, in general, to agreements concerning natural resources entered
into by the Government with foreign corporations. These loose statements do not necessarily
translate to the adoption of the 1973 Constitution provision allowing service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in response to
Sr. Tan's question, Commissioner Villegas commented that, other than congressional notification, the
65
only difference between "future" and "past" "service contracts" is the requirement of a general law as
there were no laws previously authorizing the same. 252 However, such remark is far outweighed by his
more categorical statement in his exchange with Commissioner Quesada that the draft article "does
not permit foreign investors to participate" in the nation's natural resources – which was exactly what
service contracts did – except to provide "technical or financial assistance." 253
In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that the
present charter prohibits service contracts. 254 Commissioner Gascon was not totally averse to foreign
participation, but favored stricter restrictions in the form of majority congressional concurrence. 255 On
the other hand, Commissioners Garcia and Tadeo may have veered to the extreme side of the
spectrum and their objections may be interpreted as votes against any foreign participation in our
natural resources whatsoever.
WMCP cites Opinion No. 75, s. 1987, 256 and Opinion No. 175, s. 1990 257 of the Secretary of Justice,
expressing the view that a financial or technical assistance agreement "is no different in concept" from
the service contract allowed under the 1973 Constitution. This Court is not, however, bound by this
interpretation. When an administrative or executive agency renders an opinion or issues a statement
of policy, it merely interprets a pre-existing law; and the administrative interpretation of the law is at
best advisory, for it is the courts that finally determine what the law means. 258
In any case, the constitutional provision allowing the President to enter into FTAAs with foreign-owned
corporations is an exception to the rule that participation in the nation's natural resources is reserved
exclusively to Filipinos. Accordingly, such provision must be construed strictly against their enjoyment
by non-Filipinos. As Commissioner Villegas emphasized, the provision is "very
restrictive."259 Commissioner Nolledo also remarked that "entering into service contracts is an
exception to the rule on protection of natural resources for the interest of the nation and, therefore,
being an exception, it should be subject, whenever possible, to stringent rules." 260 Indeed, exceptions
should be strictly but reasonably construed; they extend only so far as their language fairly warrants
and all doubts should be resolved in favor of the general provision rather than the exception. 261
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said Act
authorizes service contracts. Although the statute employs the phrase "financial and technical
agreements" in accordance with the 1987 Constitution, it actually treats these agreements as service
contracts that grant beneficial ownership to foreign contractors contrary to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of R.A.
No. 7942 states:
SEC. 33. Eligibility.—Any qualified person with technical and financial capability to undertake large-
scale exploration, development, and utilization of mineral resources in the Philippines may enter into a
financial or technical assistance agreement directly with the Government through the Department.
[Emphasis supplied.]
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by geological, geochemical or geophysical
surveys, remote sensing, test pitting, trending, drilling, shaft sinking, tunneling or any other means for
the purpose of determining the existence, extent, quantity and quality thereof and the feasibility of
mining them for profit.262
A legally organized foreign-owned corporation may be granted an exploration permit, 263 which vests it
with the right to conduct exploration for all minerals in specified areas, 264 i.e., to enter, occupy and
explore the same.265 Eventually, the foreign-owned corporation, as such permittee, may apply for a
financial and technical assistance agreement.266
"Development" is the work undertaken to explore and prepare an ore body or a mineral deposit for
mining, including the construction of necessary infrastructure and related facilities. 267
"Utilization" "means the extraction or disposition of minerals." 268 A stipulation that the proponent shall
dispose of the minerals and byproducts produced at the highest price and more advantageous terms
66
and conditions as provided for under the implementing rules and regulations is required to be
incorporated in every FTAA.269
A foreign-owned/-controlled corporation may likewise be granted a mineral processing

permit.270 "Mineral processing" is the milling, beneficiation or upgrading of ores or minerals and rocks
or by similar means to convert the same into marketable products. 271
An FTAA contractor makes a warranty that the mining operations shall be conducted in accordance
with the provisions of R.A. No. 7942 and its implementing rules 272 and for work programs and
minimum expenditures and commitments.273 And it obliges itself to furnish the Government records of
geologic, accounting, and other relevant data for its mining operation. 274
"Mining operation," as the law defines it, means mining activities involving exploration, feasibility,
development, utilization, and processing.275
The underlying assumption in all these provisions is that the foreign contractor manages the mineral
resources, just like the foreign contractor in a service contract.
Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs the same auxiliary mining
rights that it grants contractors in mineral agreements (MPSA, CA and JV). 276 Parenthetically,
Sections 72 to 75 use the term "contractor," without distinguishing between FTAA and mineral
agreement contractors. And so does "holders of mining rights" in Section 76. A foreign contractor may
even convert its FTAA into a mineral agreement if the economic viability of the contract area is found
to be inadequate to justify large-scale mining operations, 277 provided that it reduces its equity in the
corporation, partnership, association or cooperative to forty percent (40%). 278
Finally, under the Act, an FTAA contractor warrants that it "has or has access to all the financing,
managerial, and technical expertise. . . ." 279 This suggests that an FTAA contractor is bound to provide
some management assistance – a form of assistance that has been eliminated and, therefore,
proscribed by the present Charter.
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.
Moreover, the same provisions, whether by design or inadvertence, permit a circumvention of the
constitutionally ordained 60%-40% capitalization requirement for corporations or associations
engaged in the exploitation, development and utilization of Philippine natural resources.
In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of Section 2, Article XII
of the Constitution:
(1) The proviso in Section 3 (aq), which defines "qualified person," to wit:
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.
(2) Section 23,280 which specifies the rights and obligations of an exploration permittee, insofar as said
section applies to a financial or technical assistance agreement,
(3) Section 33, which prescribes the eligibility of a contractor in a financial or technical assistance
agreement;
(4) Section 35,281 which enumerates the terms and conditions for every financial or technical
assistance agreement;
(5) Section 39,282 which allows the contractor in a financial and technical assistance agreement to
convert the same into a mineral production-sharing agreement;
(6) Section 56,283 which authorizes the issuance of a mineral processing permit to a contractor in a
financial and technical assistance agreement;
67
The following provisions of the same Act are likewise void as they are dependent on the foregoing
provisions and cannot stand on their own:
(1) Section 3 (g),284 which defines the term "contractor," insofar as it applies to a financial or technical
assistance agreement.
Section 34,285 which prescribes the maximum contract area in a financial or technical assistance
agreements;
Section 36,286 which allows negotiations for financial or technical assistance agreements;
Section 37,287 which prescribes the procedure for filing and evaluation of financial or technical
assistance agreement proposals;
Section 38,288 which limits the term of financial or technical assistance agreements;
Section 40,289 which allows the assignment or transfer of financial or technical assistance agreements;
Section 41,290 which allows the withdrawal of the contractor in an FTAA;
The second and third paragraphs of Section 81, 291 which provide for the Government's share in a
financial and technical assistance agreement; and
Section 90,292 which provides for incentives to contractors in FTAAs insofar as it applies to said
contractors;
When the parts of the statute are so mutually dependent and connected as conditions, considerations,
inducements, or compensations for each other, as to warrant a belief that the legislature intended
them as a whole, and that if all could not be carried into effect, the legislature would not pass the
residue independently, then, if some parts are unconstitutional, all the provisions which are thus
dependent, conditional, or connected, must fall with them. 293
There can be little doubt that the WMCP FTAA itself is a service contract.
Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,] process
and dispose of all Minerals products and by-products thereof that may be produced from the Contract
Area."294 The FTAA also imbues WMCP with the following rights:
(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 utilised 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 ands 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
68
(i) have the right to mortgage, charge or encumber all or part of its interest and obligations under this
Agreement, the plant, equipment and infrastructure and the Minerals produced from the Mining
Operations;
x x x. 295
All materials, equipment, plant and other installations erected or placed on the Contract Area remain
the property of WMCP, which has the right to deal with and remove such items within twelve months
from the termination of the FTAA.296
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology, management
and personnel necessary for the Mining Operations." The mining company binds itself to "perform all
Mining Operations . . . providing all necessary services, technology and financing in connection
therewith,"297 and to "furnish all materials, labour, equipment and other installations that may be
required for carrying on all Mining Operations." 298> WMCP may make expansions, improvements and
replacements of the mining facilities and may add such new facilities as it considers necessary for the
mining operations.299
These contractual stipulations, taken together, grant WMCP beneficial ownership over natural
resources that properly belong to the State and are intended for the benefit of its citizens. These
stipulations are abhorrent to the 1987 Constitution. They are precisely the vices that the fundamental
law seeks to avoid, the evils that it aims to suppress. Consequently, the contract from which they
spring must be struck down.
In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the Promotion and
Protection of Investments between the Philippine and Australian Governments, which was signed in
Manila on January 25, 1995 and which entered into force on December 8, 1995.
x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and thus the fact
that [WMCP's] FTAA was entered into prior to the entry into force of the treaty does not preclude the
Philippine Government from protecting [WMCP's] investment in [that] FTAA. Likewise, Article 3 (1) of
the treaty provides that "Each Party shall encourage and promote investments in its area by investors
of the other Party and shall [admit] such investments in accordance with its Constitution, Laws,
regulations and investment policies" and in Article 3 (2), it states that "Each Party shall ensure that
investments are accorded fair and equitable treatment." The latter stipulation indicates that it was
intended to impose an obligation upon a Party to afford fair and equitable treatment to the investments
of the other Party and that a failure to provide such treatment by or under the laws of the Party may
constitute a breach of the treaty. Simply stated, the Philippines could not, under said treaty, rely upon
the inadequacies of its own laws to deprive an Australian investor (like [WMCP]) of fair and equitable
treatment by invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered into
before the enactment of RA 7942 such as those mentioned in PD 87 or EO 279.
This becomes more significant in the light of the fact that [WMCP's] FTAA was executed not by a
mere Filipino citizen, but by the Philippine Government itself, through its President no less, which, in
entering into said treaty is assumed to be aware of the existing Philippine laws on service contracts
over the exploration, development and utilization of natural resources. The execution of the FTAA by
the Philippine Government assures the Australian Government that the FTAA is in accordance with
existing Philippine laws.300 [Emphasis and italics by private respondents.]
The invalidation of the subject FTAA, it is argued, would constitute a breach of said treaty which, in
turn, would amount to a violation of Section 3, Article II of the Constitution adopting the generally
accepted principles of international law as part of the law of the land. One of these generally accepted
principles is pacta sunt servanda, which requires the performance in good faith of treaty obligations.
Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its assertion that
"the Philippines could not . . . deprive an Australian investor (like [WMCP]) of fair and equitable
treatment by invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered into
before the enactment of RA 7942 . . .," the annulment of the FTAA would not constitute a breach of
the treaty invoked. For this decision herein invalidating the subject FTAA forms part of the legal
69
system of the Philippines.301 The equal protection clause 302 guarantees that such decision shall apply
to all contracts belonging to the same class, hence, upholding rather than violating, the "fair and
equitable treatment" stipulation in said treaty.
One other matter requires clarification. Petitioners contend that, consistent with the provisions of
Section 2, Article XII of the Constitution, the President may enter into agreements involving "either
technical or financial assistance" only. The agreement in question, however, is a technical and
financial assistance agreement.
Petitioners' contention does not lie. To adhere to the literal language of the Constitution would lead to
absurd consequences.303 As WMCP correctly put it:
x x x such a theory of petitioners would compel the government (through the President) to enter into
contract with two (2) foreign-owned corporations, one for financial assistance agreement and with the
other, for technical assistance over one and the same mining area or land; or to execute two (2)
contracts with only one foreign-owned corporation which has the capability to provide both financial
and technical assistance, one for financial assistance and another for technical assistance, over the
same mining area. Such an absurd result is definitely not sanctioned under the canons of
constitutional construction.304 [Underscoring in the original.]
Surely, the framers of the 1987 Charter did not contemplate such an absurd result from their use of
"either/or." A constitution is not to be interpreted as demanding the impossible or the impracticable;
and unreasonable or absurd consequences, if possible, should be avoided. 305 Courts are not to give
words a meaning that would lead to absurd or unreasonable consequences and a literal interpretation
is to be rejected if it would be unjust or lead to absurd results. 306 That is a strong argument against its
adoption.307 Accordingly, petitioners' interpretation must be rejected.
The foregoing discussion has rendered unnecessary the resolution of the other issues raised by the
petition.
WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,
(c) Section 33 to 41,
(d) Section 56,
(e) The second and third paragraphs of Section 81, and
(f) Section 90.
(2) All provisions of Department of Environment and Natural Resources Administrative Order 96-40, s.
1996 which are not in conformity with this Decision, and
(3) The Financial and Technical Assistance Agreement between the Government of the Republic of
the Philippines and WMC Philippines, Inc.
SO ORDERED.
[G.R. NO. 127882 : February 1, 2005]
Supplemental Agenda for February 1, 2005, Item No. 123
LA BUGAL BLAAN TRIBAL ASSOCIATION et al. v. RAMOS et al.
70
RESOLUTION
Before the Court is petitioners' 38-page Motion for Reconsideration praying for the reversal of this
Court's Resolution promulgated on December 1, 2004, on the following grounds:Ï‚Î·Î±Ã±rÎ¿blÎµÅ¡
Î½Î¹râ€ Ï…Î±l lÎ±Ï‰ lÎ¹brÎ±rÃ¿
The assumption that Filipino-owned corporations cannot put up the capital and that foreign-owned
corporations are not willing to provide large amounts of financial assistance are belied by the very
facts of this case.
II
The interpretation of paragraph four, section 2, article XII of the Constitution practically negates the
operation of the first paragraph, section 2, article XII of the Constitution.
III
The interpretation in the Decision violates the constitutional requirement of equitable sharing.
IV
The 'control test in the Decision is not in consonance with the requirement of 'full control and
supervision required of the state considering that the kind of service contracts during Martial Law has
been reestablished and reinstated.
The alleged transfer of the FTAA to TMRC is null and void because it violates the fourth paragraph,
section 2, article XII of the Constitution.
VI
The provisions of the FTAA which were invalidated by the Decision dated December 1, 2004 are not
separable and are intrinsic to the agreements.
VII
The 'closing out theory of interpretation is not valid.
A close perusal of the above issues and the discussions thereof shows that they are a mere rehash of
arguments and positions already raised and discussed extensively in the 246-page Resolution of
December 1, 2004, penned by Justice Artemio V. Panganiban; as well as in the 125-page Dissenting
Opinion of Justice Antonio T. Carpio, the 100-page Dissenting Opinion of Justice Conchita Carpio
Morales, the 29-page Separate Opinion of Justice Dante O. Tinga, and the 10-page Concurring
Opinion of Justice Minita V. Chico-Nazario.
Further discussion of these issues would not serve any useful purpose, as it would merely repeat the
same justifications and reasons already taken up in the foregoing Opinions, which tackled precisely
those matters and even more; any further elucidations, disquisitions and disputations would merely
reiterate the same points already passed upon.
In regard to the present Dissenting Opinion of Justice Carpio, which in the main attacks RA 7942 (the
Mining Law), DAO 56-99 and the subject FTAA for allegedly limiting 'the equitable share of the State
from the mining profits of the foreign contractor (p. 46), suffice it to reiterate that 'the development of
the mining industry [is] the responsibility of the political branches of government. And let not this Court
interfere inordinately and unnecessarily. The issue of how much 'profit the nation should or could
derive from the exploration, development and utilization of the country's mineral resources is a policy
matter, over which we '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, (pp.
71
240-241, Resolution dated December 1, 2004). That the aforementioned law, executive issuance and
contract had been declared constitutional will not prevent Congress or the President or the parties to
the FTAA from amending or modifying them, if indeed, in their opinion they are unwise or wanting in
any respect.
In any event, after a thorough deliberation on the Motion, none of the members of this Court have
changed their opinions or votes. Indeed, all the conceivable aspects of this litigation -- factual,
constitutional, legal, philosophical, technical, financial, ecological, environmental and technological --
have all been extensively taken up and addressed during the Court's lengthy and purposeful debates
and deliberations.
WHEREFORE, the Motion is DENIED with finality. The prayer for oral argument is likewise DENIED.
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.
72
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; 1 ROSE LILIA S.
ROMANO; ROBERTO S. VERZOLA; EDUARDO AURELIO C. REYES; LEAN LOUEL A. PERIA,
Represented by His Father ELPIDIO V. PERIA; 2 GREEN FORUM PHILIPPINES; GREEN FORUM
WESTERN VISAYAS (GF-WV); ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC);
KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN);3 PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT
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.,4 respondents.
RESOLUTION
PANGANIBAN, J.:
All mineral resources are owned by the State. Their exploration, development and utilization (EDU)
must always be subject to the full control and supervision of the State. More specifically, given the
inadequacy of Filipino capital and technology in large-scale EDU activities, the State may secure the
help of foreign companies in all relevant matters -- especially financial and technical assistance --
provided that, at all times, the State maintains its right of full control. The foreign assistor or contractor
assumes all financial, technical and entrepreneurial risks in the EDU activities; hence, it may be given
reasonable management, operational, marketing, audit and other prerogatives to protect its
investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor, provided that the State
retains the power to direct overall strategy; and to set aside, reverse or modify plans and actions of
the contractor. The idea of full control is similar to that which is exercised by the board of directors of a
private corporation: the performance of managerial, operational, financial, marketing and other
73
functions may be delegated to subordinate officers or given to contractual entities, but the board
retains full residual control of the business.
Who or what organ of government actually exercises this power of control on behalf of the State? The
Constitution is crystal clear: the President. Indeed, the Chief Executive is the official constitutionally
mandated to "enter into agreements with foreign owned corporations." On the other hand, Congress
may review the action of the President once it is notified of "every contract entered into in accordance
with this [constitutional] provision within thirty days from its execution." In contrast to this express
mandate of the President and Congress in the EDU of natural resources, Article XII of the Constitution
is silent on the role of the judiciary. However, should the President and/or Congress gravely abuse
their discretion in this regard, the courts may -- in a proper case -- exercise their residual duty under
Article VIII. Clearly then, the judiciary should not inordinately interfere in the exercise of this
presidential power of control over the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate
economic growth or to serve narrow, parochial interests. Rather, it should be construed to grant the
President and Congress sufficient discretion and reasonable leeway to enable them to attract foreign
investments and expertise, as well as to secure for our people and our posterity the blessings of
prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the Philippine Mining
Law, its Implementing Rules and Regulations -- insofar as they relate to financial and technical
agreements -- as well as the subject Financial and Technical Assistance Agreement (FTAA). 5
Background
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1)
Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and
Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30,
1995,6 executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP). 7
On January 27, 2004, the Court en banc promulgated its Decision8 granting the Petition and declaring
the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA
executed between the government and WMCP, mainly on the finding that FTAAs are service
contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service contracts, 9 which, though
permitted under the 1973 Constitution,10 were subsequently denounced for being antithetical to the
principle of sovereignty over our natural resources, because they allowed foreign control over the
exploitation of our natural resources, to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized service contracts for, inter
alia, vesting in the foreign contractor exclusive management and control of the enterprise, including
operation of the field in the event petroleum was discovered; control of production, expansion and
development; nearly unfettered control over the disposition and sale of the products
discovered/extracted; effective ownership of the natural resource at the point of extraction; and
beneficial ownership of our economic resources. According to the Decision, the 1987 Constitution
(Section 2 of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated March
9, 2004, the Court required petitioners to comment thereon. In the Resolution of June 8, 2004, it set
the case for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their respective Memoranda
in amplification of their arguments. In a Resolution issued later the same day, June 29, 2004, the
Court noted, inter alia, the Manifestation and Motion (in lieu of comment) filed by the Office of the
Solicitor General (OSG) on behalf of public respondents. The OSG said that it was not interposing any
objection to the Motion for Intervention filed by the Chamber of Mines of the Philippines, Inc. (CMP)
and was in fact joining and adopting the latter's Motion for Reconsideration.
74
Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents, and
private respondent, dwelling at length on the three issues discussed below. Later, WMCP submitted
its Reply Memorandum, while the OSG -- in obedience to an Order of this Court -- filed a Compliance
submitting copies of more FTAAs entered into by the government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be resolved in the present
controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent
of Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40 percent is
owned by Indophil Resources NL, an Australian company) and by the subsequent transfer and
registration of the FTAA from WMCP to Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper to resolve the
constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or Financial
Assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons
discussed below. The foregoing three issues identified by the Court shall now be taken up seriatim.
First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA, the
majority Decision agreed with petitioners' contention that the subject FTAA had been executed in
violation of Section 2 of Article XII of the 1987 Constitution. According to petitioners, the FTAAs
entered into by the government with foreign-owned corporations are limited by the fourth paragraph of
the said provision to agreements involving only technical or financial assistance for large-scale
exploration, development and utilization of minerals, petroleum and other mineral oils. Furthermore,
the foreign contractor is allegedly permitted by the FTAA in question to fully manage and control the
mining operations and, therefore, to acquire "beneficial ownership" of our mineral resources.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on January
23, 2001, WMC had sold all its shares in WMCP to Sagittarius Mines, Inc., 60 percent of whose equity
was held by Filipinos; and (2) that the assailed FTAA had likewise been transferred from WMCP to
Sagittarius.11 The ponencia declared that the instant case had not been rendered moot by the transfer
and registration of the FTAA to a Filipino-owned corporation, and that the validity of the said transfer
remained in dispute and awaited final judicial determination. 12 Patently therefore, the Decision is
anchored on the assumption that WMCP had remained a foreign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC), which in turn
was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd., a publicly listed major
Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation. Had
the FTAA been originally issued to a Filipino-owned corporation, there would have been no
constitutionality issue to speak of. Upon the other hand, the conveyance of the WMCP FTAA to a
Filipino corporation can be likened to the sale of land to a foreigner who subsequently acquires
Filipino citizenship, or who later resells the same land to a Filipino citizen. The conveyance would be
validated, as the property in question would no longer be owned by a disqualified vendee.
75
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
76
Equally barren of merit is the second ground cited by petitioners -- that the FTAA was intended to
apply solely to a foreign corporation, as can allegedly be seen from the provisions therein. They
manage to cite only one WMCP FTAA provision that can be regarded as clearly intended to apply
only to a foreign contractor: Section 12, which provides for international commercial arbitration under
the auspices of the International Chamber of Commerce, after local remedies are exhausted. This
provision, however, does not necessarily imply that the WMCP FTAA cannot be transferred to and
assumed by a Filipino corporation like Sagittarius, in which event the said provision should simply be
disregarded as a superfluity.
No Need for a Separate

Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from WMC to Sagittarius; hence, the
need to litigate it in a separate case. Section 40 of RA 7942 (the Mining Law) allegedly requires the
President's prior approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. "Sec.

40. Assignment/Transfer -- A financial or technical assistance agreement may be assigned or
transferred, in whole or in part, to a qualified person subject to the prior approval of the President:
Provided, That the President shall notify Congress of every financial or technical assistance
agreement assigned or converted in accordance with this provision within thirty (30) days from the
date of the approval thereof."
Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and transfer of
shares of stock in WMCP. Moreover, when the transferee of an FTAA is another foreign corporation,
there is a logical application of the requirement of prior approval by the President of the Republic and
notification to Congress in the event of assignment or transfer of an FTAA. In this situation, such
approval and notification are appropriate safeguards, considering that the new contractor is the
subject of a foreign government.
On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the need for
such safeguard is not critical; hence, the lack of prior approval and notification may not be deemed
fatal as to render the transfer invalid. Besides, it is not as if approval by the President is entirely
absent in this instance. As pointed out by private respondent in its Memorandum,13 the issue of
approval is the subject of one of the cases brought by Lepanto against Sagittarius in GR No. 162331.
That case involved the review of the Decision of the Court of Appeals dated November 21, 2003 in
CA-GR SP No. 74161, which affirmed the DENR Order dated December 31, 2001 and the Decision of
the Office of the President dated July 23, 2002, both approving the assignment of the WMCP FTAA to
Sagittarius.
Petitioners also question the sale price and the financial capacity of the transferee. According to the
Deed of Absolute Sale dated January 23, 2001, executed between WMC and Sagittarius, the price of
the WMCP shares was fixed at US$9,875,000, equivalent to P553 million at an exchange rate of 56:1.
Sagittarius had an authorized capital stock of P250 million and a paid up capital of P60 million.
Therefore, at the time of approval of the sale by the DENR, the debt-to-equity ratio of the transferee
was over 9:1 -- hardly ideal for an FTAA contractor, according to petitioners.
However, private respondents counter that the Deed of Sale specifically provides that the payment of
the purchase price would take place only after Sagittarius' commencement of commercial production
from mining operations, if at all. Consequently, under the circumstances, we believe it would not be
reasonable to conclude, as petitioners did, that the transferee's high debt-to-equity ratio per se
necessarily carried negative implications for the enterprise; and it would certainly be improper to
invalidate the sale on that basis, as petitioners propose.
FTAA Not Void,

Thus Transferrable
To bolster further their claim that the case is not moot, petitioners insist that the FTAA is void and,
hence cannot be transferred; and that its transfer does not operate to cure the constitutional infirmity
77
that is inherent in it; neither will a change in the circumstances of one of the parties serve to ratify the
void contract.
While the discussion in their Final Memorandum was skimpy, petitioners in their Comment (on the
MR) did ratiocinate that this Court had declared the FTAA to be void because, at the time it was
executed with WMCP, the latter was a fully foreign-owned corporation, in which the former vested full
control and management with respect to the exploration, development and utilization of mineral
resources, contrary to the provisions of paragraph 4 of Section 2 of Article XII of the Constitution. And
since the FTAA was per se void, no valid right could be transferred; neither could it be ratified, so
petitioners conclude.
Petitioners have assumed as fact that which has yet to be established. First and foremost, the
Decision of this Court declaring the FTAA void has not yet become final. That was precisely the
reason the Court still heard Oral Argument in this case. Second, the FTAA does not vest in the foreign
corporation full control and supervision over the exploration, development and utilization of mineral
resources, to the exclusion of the government. This point will be dealt with in greater detail below; but
for now, suffice it to say that a perusal of the FTAA provisions will prove that the government has
effective overall direction and control of the mining operations, including marketing and product
pricing, and that the contractor's work programs and budgets are subject to its review and approval or
disapproval.
As will be detailed later on, the government does not have to micro-manage the mining operations
and dip its hands into the day-to-day management of the enterprise in order to be considered as
having overall control and direction. Besides, for practical and pragmatic reasons, there is a need for
government agencies to delegate certain aspects of the management work to the contractor. Thus the
basis for declaring the FTAA void still has to be revisited, reexamined and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates Authority,14 and Halili v. CA,15 claiming that
the doctrines in these cases are wholly inapplicable to the instant case.
Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen sells land
to an alien who later sells the land to a Filipino, the invalidity of the first transfer is corrected by the
subsequent sale to a citizen. Similarly, where the alien who buys the land subsequently acquires
Philippine citizenship, the sale is validated since the purpose of the constitutional ban to limit land
ownership to Filipinos has been achieved. In short, the law disregards the constitutional
disqualification of the buyer to hold land if the land is subsequently transferred to a qualified party, or
the buyer himself becomes a qualified party."16
In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the 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.
78
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,"18 what is at issue in the instant case is not only the validity of the WMCP FTAA, but also
the constitutionality of RA 7942 and its Implementing Rules and Regulations. 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 19 -- applied for. It may be a bit far-fetched to assert, as petitioners
do, that each and every FTAA that was entered into under the provisions of the Mining Act "invites
potential litigation" for as long as the constitutional issues are not 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
79
the need to avert a multiplicity of suits. Paraphrasing Gonzales v. Commission on Elections,21 it is

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,23 to the effect that the courts will decide a question -- otherwise moot and
academic -- if it is "capable of repetition, yet evading review."24 Public respondents ask the Court to
avoid a situation in which the constitutionality issue may again arise with respect to 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,25 in which this Court declared
that "(t)he Court also has the duty to formulate guiding and controlling constitutional principles,
precepts, doctrines or rules. It has the symbolic function of educating the bench and bar on the extent
of protection given by constitutional guarantees. x x x."
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. 26 The entry of the Chamber of Mines of
the Philippines, Inc., however, has put into focus the seriousness of the allegations of
unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for prohibition 27 in the
enforcement of the 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,29 in which the Court said:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution,
the petition no doubt raises a justiciable controversy. Where an action of the legislative branch is
seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty of
the judiciary to settle the dispute.
xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from or
abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse
of discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality
or department of the government."30
Additionally, the entry of CMP into this case has also effectively forestalled any possible objections
arising from the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution of the
constitutional issues in this case.
Third Issue:
The Proper Interpretation of the Constitutional Phrase

"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of Article XII
of the 1987 Constitution. In order to appreciate its context, Section 2 is reproduced in full:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
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
80
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
"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
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
No Restriction of Meaning by
a Verba Legis Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the language of the Constitution
should prevail; that the primary method of interpreting it is to seek the ordinary meaning of the words
used in its provisions. They rely on rulings of this Court, such as the following:
"The fundamental principle in constitutional construction however is that the primary source from
which to ascertain constitutional intent or purpose is the language of the provision itself. The
presumption is that the words in which the constitutional provisions are couched express the objective
sought to be attained. In other words, verba legis prevails. Only when the meaning of the words used
is unclear and equivocal should resort be made to extraneous aids of construction and interpretation,
such as the proceedings of the Constitutional Commission or Convention to shed light on and
ascertain the true intent or purpose of the provision being construed." 32
Very recently, in Francisco v. The House of Representatives,33 this Court indeed had the occasion to
reiterate the well-settled principles of constitutional construction:
"First, verba legis, that is, wherever possible, the words used in the Constitution must be given
their ordinary meaning except where technical terms are employed. x x x.
xxxxxxxxx
"Second, where there is ambiguity, ratio legis est anima. The words of the Constitution should be
interpreted in accordance with the intent of its framers. x x x.
xxxxxxxxx
"Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole."34
For ease of reference and in consonance with verba legis, we reconstruct and stratify the aforequoted
Section 2 as follows:
1. All natural resources are owned by the State. Except for agricultural lands, natural resources
cannot be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be under the full
control and supervision of the State.
81
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 36 of January 27, 2004 correctly declared
the WMCP FTAA, along with pertinent provisions of RA 7942, void for allowing a foreign contractor to
have direct and exclusive management of a mining enterprise. Allowing such a privilege not only runs
counter to the "full control and supervision" that the State is constitutionally mandated to exercise over
the exploration, development and utilization of the country's natural resources; doing so also vests in
the foreign company "beneficial ownership" of our mineral resources. It will be recalled that the
Decision of January 27, 2004 zeroed in on "management or other forms of assistance" or other
activities associated with the "service contracts" of the martial law regime, since "the management or
operation of mining activities by foreign contractors, which is the primary feature of service contracts,
was precisely the evil that the drafters of the 1987 Constitution sought to eradicate."
On the other hand, the intervenor37 and public respondents argue that the FTAA allowed by paragraph
4 is not merely an agreement for supplying limited and specific financial or technical services to the
State. Rather, such FTAA is a comprehensive agreement for the foreign-owned
corporation's integrated exploration, development and utilization of mineral, petroleum or other
mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractor's
rendition of a whole range of integrated and comprehensive services, ranging from the discovery to
the development, utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could
inexorably lead to the conclusions arrived at in the ponencia. First, the drafters' choice of words --
their use of the phrase agreements x x x involving either technical or financial assistance -- does not
indicate the intent to exclude other modes of assistance. The drafters opted to use involving when
they could have simply said agreements for financial or technical assistance, if that was their
intention to begin with. In this case, the limitation would be very clear and no further debate would
ensue.
82
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-
83
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 39 of the 1987 Constitution -- the President
may contract or guarantee, merely with the prior concurrence of the Monetary Board. In turn, the
Board is required to report to Congress within thirty days from the end of every quarter of the calendar
year, not thirty days after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or technical
assistance, what is the point of requiring that they be based on real contributions to the economic
growth and general welfare of the country? For instance, how is one to measure and assess the "real
contributions" to the "economic growth" and "general welfare" of the country that may ensue from a
foreign-currency loan agreement or a technical-assistance agreement for, say, the refurbishing of an
existing power generating plant for a mining operation somewhere in Mindanao? Such a criterion
would make more sense when applied to a major business investment in a principal sector of the
industry.
The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is not to
be understood as one limited only to foreign loans (or other forms of financial support) and to
technical assistance. There is definitely more to it than that. These are provisions permitting
participation by foreign companies; requiring the President's report to Congress; and using,
as yardstick, contributions based on economic growth and general welfare. These were
neither accidentally inserted into the Constitution nor carelessly cobbled together by the
drafters in lip service to shallow nationalism. The provisions patently have significance and
usefulness in a context that allows agreements with foreign companies to include more than mere
financial or technical assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific and
limited financial service or technical assistance by a foreign company. This argument begs the
question "To whom or for whom would it be rendered"? or Who is being assisted? If the answer is
"The State," then it necessarily implies that the State itself is the one directly and solely undertaking
the large-scale exploration, development and utilization of a mineral resource, so it follows that the
State must itself bear the liability and cost of repaying the financing sourced from the foreign lender
and/or of paying compensation to the foreign entity rendering technical assistance.
However, it is of common knowledge, and of judicial notice as well, that the government is and has for
many many years been financially strapped, to the point that even the most essential services have
suffered serious curtailments -- education and health care, for instance, not to mention judicial
services -- have had to make do with inadequate budgetary allocations. Thus, government has had to
84
resort to build-operate-transfer and similar arrangements with the private sector, in order to get vital
infrastructure projects built without any governmental outlay.
The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms what
the ordinary citizen has suspected all along. After the reality check, one will have to admit the
implausibility of a direct undertaking -- by the State itself -- of large-scale exploration, development
and utilization of minerals, petroleum and other mineral oils. Such an undertaking entails not only
humongous capital requirements, but also the attendant risk of never finding and developing
economically viable quantities of minerals, petroleum and other mineral oils. 40
It is equally difficult to imagine that such a provision restricting foreign companies to the rendition of
only financial or technical assistance to the government was deliberately crafted by the drafters of the
Constitution, who were all well aware of the capital-intensive and technology-oriented nature of large-
scale mineral or petroleum extraction and the country's deficiency in precisely those areas. 41 To say
so would be tantamount to asserting that the provision was purposely designed to ladle the large-
scale development and utilization of mineral, petroleum and related resources with impossible
conditions; and to remain forever and permanently "reserved" for future generations of Filipinos.
A More Reasonable Look

at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and examining the logical
inferences. The drafters chose to emphasize and highlight agreements x x x involving either technical
or financial assistance in relation to foreign corporations' participation in large-scale EDU. The
inclusion of this clause on "technical or financial assistance" recognizes the fact that foreign business
entities and multinational corporations are the ones with the resources and know-how to provide
technical and/or financial assistance of the magnitude and type required for large-scale exploration,
development and utilization of these resources.
The drafters -- whose ranks included many academicians, economists, businessmen, lawyers,
politicians and government officials -- were not unfamiliar with the practices of foreign corporations
and multinationals.
Neither were they so naïve as to believe that these entities would provide "assistance" without
conditionalities or some quid pro quo. Definitely, as business persons well know and as a matter of
judicial notice, this matter is not just a question of signing a promissory note or executing a technology
transfer agreement. Foreign corporations usually require that they be given a say in the management,
for instance, of day-to-day operations of the joint venture. They would demand the appointment of
their own men as, for example, operations managers, technical experts, quality control heads, internal
auditors or comptrollers. Furthermore, they would probably require seats on the Board of Directors --
all these to ensure the success of the enterprise and the repayment of the loans and other financial
assistance and to make certain that the funding and the technology they supply would not go to
waste. Ultimately, they would also want to protect their business reputation and bottom lines. 42
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
85
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.
86
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.
87
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. 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
88
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?
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.
89
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.
90
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals, petroleum and mineral
oils. The Commission has just approved the possible foreign entry into the development, exploration
and utilization of these minerals, petroleum and other mineral oils by virtue of the Jamir amendment. I
voted in favor of the Jamir amendment because it will eventually give way to vesting in exclusively
Filipino citizens and corporations wholly owned by Filipino citizens the right to utilize the other natural
resources. This means that as a matter of policy, natural resources should be utilized and exploited
only by Filipino citizens or corporations wholly owned by such citizens. But by virtue of the Jamir
amendment, since we feel that Filipino capital may not be enough for the development and utilization
of minerals, petroleum and other mineral oils, the President can enter into service contracts with
foreign corporations precisely for the development and utilization of such resources. And so, there is
nothing to fear that we will stagnate in the development of minerals, petroleum and mineral
oils because we now allow service contracts. x x x."48
The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing
with agreements x x x involving either technical or financial assistance, which ultimately became
paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of the
ConCom were actually debating about the martial-law-era service contracts for which they were
crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision on
account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts, this
should always be with the concurrence of Congress and not guided only by a general law to be
promulgated by Congress."49 Mr. Garcia explained, "Service contracts are given constitutional
legitimization in Sec. 3, even when they have been proven to be inimical to the interests of the nation,
providing, as they do, the legal loophole for the exploitation of our natural resources for the benefit of
foreign interests."50 Likewise, Mr. Tadeo cited inter alia the fact that service contracts continued to
subsist, enabling foreign interests to benefit from our natural resources. 51 It was hardly likely that
these gentlemen would have objected so strenuously, had the provision called for mere
technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave no room
for doubt that the service contract concept precisely underpinned the commissioners' understanding
of the "agreements involving either technical or financial assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
· In their deliberations on what was to become paragraph 4, the framers used the term service
contracts in referring to agreements x x x involving either technical or financial assistance.
· They spoke of service contracts as the concept was understood in the 1973 Constitution.
· It was obvious from their discussions that they were not about to ban or eradicate service contracts.
· Instead, they were plainly crafting provisions to put in place safeguards that would eliminate or
minimize the abuses prevalent during the marital law regime. In brief, they were going to permit
service contracts with foreign corporations as contractors, but with safety measures to prevent
abuses, as an exception to the general norm established in the first paragraph of Section 2 of Article
XII. This provision reserves or limits to Filipino citizens -- and corporations at least 60 percent of which
is owned by such citizens -- the exploration, development and utilization of natural resources.
· This provision was prompted by the perceived insufficiency of Filipino capital and the felt need for
foreign investments in the EDU of minerals and petroleum resources.
91
· 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
92
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.
93
In view of the foregoing discussion, we should reverse the Decision of January 27, 2004, and in fact
now hold a view different from that of the Decision, which had these findings: (a) paragraph 4 of
Section 2 of Article XII limits foreign involvement in the local mining industry to agreements strictly for
either financial or technical assistance only; (b) the same paragraph precludes agreements that grant
to foreign corporations the management of local mining operations, as such agreements are
purportedly in the nature of service contracts as these were understood under the 1973 Constitution;
(c) these service contracts were supposedly "de-constitutionalized" and proscribed by the omission of
the term service contracts from the 1987 Constitution; (d) since the WMCP FTAA contains provisions
permitting the foreign contractor to manage the concern, the said FTAA is invalid for being a
prohibited service contract; and (e) provisions of RA 7942 and DAO 96-40, which likewise grant
managerial authority to the foreign contractor, are also invalid and unconstitutional.
Ultimate Test: State's "Control"

Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a possible
collision of constitutional provisions. On the one hand, paragraph 1 of Section 2 of Article XII explicitly
mandates the State to exercise "full control and supervision" over the exploration, development and
utilization of natural resources. On the other hand, paragraph 4 permits safeguarded service contracts
with foreign contractors. Normally, pursuant thereto, the contractors exercise management
prerogatives over the mining operations and the enterprise as a whole. There is thus a legitimate
ground to be concerned that either the State's full control and supervision may rule out any exercise
of management authority by the foreign contractor; or, the other way around, allowing the foreign
contractor full management prerogatives may ultimately negate the State's full control and
supervision.
Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat quam
pereat -- every part of the Constitution is to be given effect, and the Constitution is to be read and
understood as a harmonious whole. Thus, "full control and supervision" by the State must be
understood as one that does not preclude the legitimate exercise of management prerogatives by the
foreign contractor. Before any further discussion, we must stress the primacy and supremacy of the
principle of sovereignty and State control and supervision over all aspects of exploration, development
and utilization of the country's natural resources, as mandated in the first paragraph of Section 2 of
Article XII.
But in the next breadth we have to point out that "full control and supervision" cannot be taken literally
to mean that the State controls and supervises everything involved, down to the minutest details, and
makes all decisions required in the mining operations. This strained concept of control and
supervision over the mining enterprise would render impossible the legitimate exercise by the
contractors of a reasonable degree of management prerogative and authority necessary and
indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale exploration,
development and utilization activities; and result in the unmitigated stagnation of this sector, to the
detriment of our nation's development. This scenario renders paragraph 4 inoperative and useless.
And as respondents have correctly pointed out, the government does not have to micro-manage the
mining operations and dip its hands into the day-to-day affairs of the enterprise in order for it to be
considered as having full control and supervision.
The concept of control53 adopted in Section 2 of Article XII must be taken to mean less than dictatorial,
all-encompassing control; but nevertheless sufficient to give the State the power to direct, restrain,
regulate and govern the affairs of the extractive enterprises. Control by the State may be on a macro
level, through the establishment of policies, guidelines, regulations, industry standards and similar
measures that would enable the government to control the conduct of affairs in various enterprises
and restrain activities deemed not desirable or beneficial.
94
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 charge54 that RA 7942, as well as its Implementing Rules and Regulations, makes
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
95
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).
96
· 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).
97
· Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are the
following: a safety and health program (Section 144); an environmental work program (Section 168);
an annual environmental protection and enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the FTAA
contractor by the statute and regulations easily overturns petitioners' contention. The setup under RA
7942 and DAO 96-40 hardly relegates the State to the role of a "passive regulator" dependent on
submitted plans and reports. On the contrary, the government agencies concerned are empowered to
approve or disapprove -- hence, to influence, direct and change -- the various work programs and the
corresponding minimum expenditure commitments for each of the exploration, development and
utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its commitments
therein. Figures for mineral production and sales are regularly monitored and subjected to
government review, in order to ensure that the products and by-products are disposed of at the best
prices possible; even copies of sales agreements have to be submitted to and registered with MGB.
And the contractor is mandated to open its books of accounts and records for scrutiny, so as to
enable the State to determine if the government share has been fully paid.
The State may likewise compel the contractor's compliance with mandatory requirements on mine
safety, health and environmental protection, and the use of anti-pollution technology and facilities.
Moreover, the contractor is also obligated to assist in the development of the mining community and
to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or
noncompliance with statutes or regulations. This general, all-around, multipurpose sanction is no
trifling matter, especially to a contractor who may have yet to recover the tens or hundreds of millions
of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe that
the State definitely possesses the means by which it can have the ultimate word in the operation of
the enterprise, set directions and objectives, and detect deviations and noncompliance by the
contractor; likewise, it has the capability to enforce compliance and to impose sanctions, should the
occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away with it;
on the contrary, it will have to follow the government line if it wants to stay in the enterprise.
Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a sufficient degree
of control and supervision over the conduct of mining operations.
Section 3(aq) of RA 7942

Not Unconstitutional
An objection has been expressed that Section 3(aq) 55 of RA 7942 -- which allows a foreign contractor
to apply for and hold an exploration permit -- is unconstitutional. The reasoning is that Section 2 of
Article XII of the Constitution does not allow foreign-owned corporations to undertake mining
operations directly. They may act only as contractors of the State under an FTAA; and the State, as
the party directly undertaking exploitation of its natural resources, must hold through the government
all exploration permits and similar authorizations. Hence, Section 3(aq), in permitting foreign-owned
corporations to hold exploration permits, is unconstitutional.
The objection, however, is not well-founded. While the Constitution mandates the State to exercise full
control and supervision over the exploitation of mineral resources, nowhere does it require the
government to hold all exploration permits and similar authorizations. In fact, there is no prohibition at
all against foreign or local corporations or contractors holding exploration permits. The reason is not
hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the right
to conduct exploration for all minerals in specified areas. Such a permit does not amount to an
98
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).
99
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.
100
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').
101
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
102
secretary. Such changes are, however, subject to certain conditions that will serve to limit or restrict
the variance and prevent the contractor from straying very far from what has been approved.
Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations, while
still guaranteeing that the approved work programs and budgets are not abandoned altogether.
Clause 8.5 does not constitute proof that the State has relinquished control. And ultimately, should
there be disagreement with the actions taken by the contractor in this instance as well as under
Clause 8.3 discussed above, the DENR secretary may resort to cancellation/termination of the FTAA
as the ultimate sanction.
Discretion to Select Contract

Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to select -- and the government has
no say whatsoever as to -- the parts of the contract area to be relinquished pursuant to Clause 4.6 of
the WMCP FTAA.56 This clause, however, does not constitute abdication of control. Rather, it is a
mere acknowledgment of the fact that the contractor will have determined, after appropriate
exploration works, which portions of the contract area do not contain minerals in commercial
quantities sufficient to justify developing the same and ought therefore to be relinquished. The State
cannot just substitute its judgment for that of the contractor and dictate upon the latter which areas to
give up.
Moreover, we can be certain that the contractor's self-interest will propel proper and efficient
relinquishment. According to private respondent, 57 a mining company tries to relinquish as much non-
mineral areas as soon as possible, because the annual occupation fees paid to the government are
based on the total hectarage of the contract area, net of the areas relinquished. Thus, the larger the
remaining area, the heftier the amount of occupation fees to be paid by the contractor. Accordingly,
relinquishment is not an issue, given that the contractor will not want to pay the annual occupation
fees on the non-mineral parts of its contract area. Neither will it want to relinquish promising sites,
which other contractors may subsequently pick up.
Government Not a Subcontractor
Petitioners further maintain that the contractor can compel the government to exercise its power of
eminent domain to acquire surface areas within the contract area for the contractor's use. Clause 10.2
(e) of the WMCP FTAA provides that the government agrees that the contractor shall "(e) have the
right to require the Government at the Contractor's own cost, to purchase or acquire surface areas for
and on behalf of the Contractor at such price and terms as may be acceptable to the contractor. At
the termination of this Agreement such areas shall be sold by public auction or tender and the
Contractor shall be entitled to reimbursement of the costs of acquisition and maintenance, adjusted
for inflation, from the proceeds of sale."
According to petitioners, "government becomes a subcontractor to the contractor" and may, on

account of this provision, be compelled "to make use of its power of eminent domain, not for public
purposes but on behalf of a private party, i.e., the contractor." Moreover, the power of the courts to
determine the amount corresponding to the constitutional requirement of just compensation has
allegedly also been contracted away by the government, on account of the latter's commitment that
the acquisition shall be at such terms as may be acceptable to the contractor.
However, private respondent has proffered a logical explanation for the provision. 58 Section 10.2(e)
contemplates a situation applicable to foreign-owned corporations. WMCP, at the time of the
execution of the FTAA, was a foreign-owned corporation and therefore not qualified to own land. As
contractor, it has at some future date to construct the infrastructure -- the mine processing plant, the
camp site, the tailings dam, and other infrastructure -- needed for the large-scale mining operations. It
will then have to identify and pinpoint, within the FTAA contract area, the particular surface areas with
favorable topography deemed ideal for such infrastructure and will need to acquire the surface rights.
The State owns the mineral deposits in the earth, and is also qualified to own land.
103
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
104
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
105
sources of financing available to the contractor (a very unlikely scenario); and that without the needed
financing, the execution of the work programs will not proceed. But the bottom line is, in the exercise
of its power of control, the government has the final say on whether to approve or disapprove such
requested amendments to the FTAA. In short, approval thereof is not mandatory on the part of the
government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions
sufficiently overturns petitioners' litany of objections to and criticisms of the State's alleged
lack of control.
Financial Benefits Not

Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned
in the Decision that beneficial ownership of the mineral resources had been conveyed to the
contractor. This finding was based on the underlying assumption, common to the said provisions, that
the foreign contractor manages the mineral resources in the same way that foreign contractors in
service contracts used to. "By allowing foreign contractors to manage or operate all the aspects of the
mining operation, the above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial
ownership over the nation's mineral resources to these contractors, leaving the State with nothing
but bare title thereto."60 As the WMCP FTAA contained similar provisions deemed by the ponente to
be abhorrent to the Constitution, the Decision struck down the Contract as well.
Beneficial ownership has been defined as ownership recognized by law and capable of being
enforced in the courts at the suit of the beneficial owner. 61 Black's Law Dictionary indicates that the
term is used in two senses: first, to indicate the interest of a beneficiary in trust property (also called
"equitable ownership"); and second, to refer to the power of a corporate shareholder to buy or sell the
shares, though the shareholder is not registered in the corporation's books as the owner. 62 Usually,
beneficial ownership is distinguished from naked ownership, which is the enjoyment of all the benefits
and privileges of ownership, as against possession of the bare title 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
106
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 64 to help support the former's
cash flow during the most critical phase (cost recovery) and to make the Philippines competitive with
other mineral-producing countries. 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
107
· Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year if located in a mineral
reservation
· Community tax - maximum of PhP10,500 per year
· All other local government taxes, fees and imposts as of the effective date of the FTAA - the rate and
the type depend on the local government
Other Payments:
· Royalty to indigenous cultural communities, if any – 1 percent of gross output from mining operations
· Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also collected from the FTAA
contractor in accordance with the second paragraph of Section 81 of RA 7942, which provides that
the government share shall be comprised of, among other things, certain taxes, duties and fees. The
subject proviso reads:
"The Government share in a financial or technical assistance agreement shall consist of, among
other things, the contractor's corporate income tax, excise tax, special allowance, withholding tax
due from the contractor's foreign stockholders arising from dividend or interest payments to the said
foreign stockholder in case of a foreign national, and all such other taxes, duties and fees as provided
for under existing laws." (Bold types supplied.)
The government, through the DENR and the MGB, has interpreted the insertion of the phrase among
other things as signifying that the government is entitled to an "additional government share" to be
paid by the contractor apart from the "basic share," in order to attain a fifty-fifty sharing of net benefits
from mining.
The additional government share is computed by using one of three options or schemes presented
in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows; (2) the share
based on excess profits; and (3) the sharing based on the cumulative net mining revenue. The
particular formula to be applied will be selected by the contractor, with a written notice to the
government prior to the commencement of the development and construction phase of the mining
project.66
Proceeds from the government shares arising from an FTAA contract are distributed to and received
by the different levels of government in the following proportions:
National Government 50 percent
Provincial Government 10 percent
Municipal Government 20 percent
Affected Barangays 20 percent
The portion of revenues remaining after the deduction of the basic and additional government shares
is what goes to the contractor.
Government's Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees
In connection with the foregoing discussion on the basic and additional government shares, it is

pertinent at this juncture to mention the criticism leveled at the second paragraph of Section 81 of RA
7942, quoted earlier. The said proviso has been denounced, because, allegedly, the State's share in
FTAAs with foreign contractors has been limited to taxes, fees and duties only; in effect, the State has
been deprived of a share in the after-tax income of the enterprise. In the face of this allegation, one
has to consider that the law does not define the term among other things; and the Office of the
108
Solicitor General, in its Motion for Reconsideration, appears to have erroneously claimed that the
phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the reason that Congress
deliberately avoided setting unnecessary limitations as to what may constitute compensation to the
State for the exploitation and use of mineral resources. But the inclusion of that phrase clearly and
unmistakably reveals the legislative intent to have the State collect more than just the usual taxes,
duties and fees. Certainly, there is nothing in that phrase -- or in the second paragraph of Section 81
-- that would suggest that such phrase should be interpreted as referring only to taxes, duties, fees
and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the phrase among other
things in the second paragraph of Section 81, 67 the DENR structured and formulated in DAO 99-56 the
said additional government share. Such a share was to consist not of taxes, but of a share in the
earnings or cash flows of the mining enterprise. The additional government share was to be paid
by the contractor on top of the basic share, so as to achieve a fifty-fifty sharing -- between the
government and the contractor -- of net benefits from mining. In the Ramos-DeVera paper, the
explanation of the three options or formulas68 -- presented in DAO 99-56 for the computation of the
additional government share -- serves to debunk the claim that the government's take from an FTAA
consists solely of taxes, fees and duties.
Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data -- failed
to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the three
schemes or options for computing the additional government share presented in DAO 99-56. Had due
care been taken by the OSG, the Court would have been duly apprised of the real nature and
particulars of the additional share.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even more
abstruse mathematical jargon employed in DAO 99-56, the OSG omitted any mention of the three
options. Instead, the OSG skipped to a side discussion of the effect of indirect taxes, which
had nothing at all to do with the additional government share, to begin with. Unfortunately, this move
created the wrong impression, pointed out in Justice Antonio T. Carpio's Opinion, that the OSG had
taken the position that the additional government share consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional government share, as formulated,
has nothing to do with taxes -- direct or indirect -- or with duties, fees or charges. To repeat, it is over
and above the basic government share composed of taxes and duties. Simply put, the additional
share may be (a) an amount that will result in a 50-50 sharing of the cumulative present value of
the cash flows69 of the enterprise; (b) an amount equivalent to 25 percent of the additional or excess
profits of the enterprise, reckoned against a benchmark return on investments; or (c) an amount that
will result in a fifty-fifty sharing of the cumulative net mining revenue from the end of the recovery
period up to the taxable year in question. The contractor is required to select one of the three options
or formulae for computing the additional share, an option it will apply to all of its mining operations.
As used above, "net mining revenue" is defined as the gross output from mining operations for a
calendar year, less deductible expenses (inclusive of taxes, duties and fees). Such revenue would
roughly be equivalent to "taxable income" or income before income tax. Definitely, as compared with,
say, calculating the additional government share on the basis of net income (after income tax), the
net mining revenue is a better and much more reasonable basis for such computation, as it gives a
truer picture of the profitability of the company.
To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos and
de Vera also performed some quantifications of the government share via a financial modeling of
each of the three options discussed above. They found that the government would get the highest
share from the option that is based on the net mining revenue, as compared with the other two
options, considering only the basic and the additional shares; and that, even though production rate
decreases, the government share will actually increase when the net mining revenue and the
additional profit-based options are used.
109
Furthermore, it should be noted that the three options or formulae do not yet take into account the
indirect taxes70 and other financial contributions 71 of mining projects. These indirect taxes and other
contributions are real and actual benefits enjoyed by the Filipino people and/or government. Now, if
some of the quantifiable items are taken into account in the computations, the financial modeling
would show that the total government share increases to 60 percent or higher -- in one instance, as
much as 77 percent and even 89 percent -- of the net present value of total benefits from the project.
As noted in the Ramos-DeVera paper, these results are not at all shabby, considering that the
contractor puts in all the capital requirements and assumes all the risks, without the government
having to contribute or risk anything.
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 72 provides that the government share in FTAAs shall be
collected when the contractor shall have recovered its pre-operating expenses and exploration and
development expenditures. The objection has been advanced that, on account of the proviso, the
collection of the State's share is not even certain, as there is no time limit in RA 7942 for this grace
period or recovery period.
We believe that Congress did not set any time limit for the grace period, preferring to leave it to the
concerned agencies, which are, on account of their technical expertise and training, in a better
position to determine the appropriate durations for such recovery periods. After all, these recovery
periods are determined, to a great extent, by technical and technological factors peculiar to the mining
industry. Besides, with developments and advances in technology and in the geosciences, we cannot
discount the possibility of shorter recovery periods. At any rate, the concerned agencies have not
been remiss in this area. The 1995 and 1996 Implementing Rules and Regulations of RA 7942 specify
that the period of recovery, reckoned from the date of commercial operation, shall be for a period not
exceeding five years, or until the date of actual recovery, whichever comes earlier.
Approval of Pre-Operating
Expenses Required by RA 7942
110
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
111
It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed
above), Sections 80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights of
ownership over mineral resources; and give them away for free to private business enterprises
(including foreign owned corporations). Likewise, the said provisions have been construed as
constituting, together with Section 81, an ingenious attempt to resurrect the old and discredited
system of "license, concession or lease."
Specifically, Section 80 is condemned for limiting the State's share in a mineral production-sharing
agreement (MPSA) to just the excise tax on the mineral product. Under Section 151(A) of the Tax
Code, such tax is only 2 percent of the market value of the gross output of the minerals.
The colatilla in Section 84, the portion considered offensive to the Constitution, reiterates the same
limitation made in Section 80.73
It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and
have no application to FTAAs. These particular statutory provisions do not come within the issues that
were defined and delineated by this Court during the Oral Argument -- particularly the third issue,
which pertained exclusively to FTAAs. Neither did the parties argue upon them in their pleadings.
Hence, this Court cannot make any pronouncement in this case regarding the constitutionality of
Sections 80 and 84 without violating the fundamental rules of due process. Indeed, the two provisos
will have to await another case specifically placing them in issue.
On the other hand, Section 112 74 is disparaged for allegedly reverting FTAAs and all mineral
agreements to the old and discredited "license, concession or lease" system. This Section states in
relevant part that "the provisions of Chapter XIV [which includes Sections 80 to 82] on government
share in mineral production-sharing agreement x x x shall immediately govern and apply to a mining
lessee or contractor." (underscoring supplied) This provision is construed as signifying that the 2
percent excise tax which, pursuant to Section 80, comprises the government share in MPSAs shall
now also constitute the government share in FTAAs -- as well as in co-production agreements and
joint venture agreements -- to the exclusion of revenues of any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by this Court
during the Oral Argument, and was never touched upon by the parties in their pleadings, it must also
be noted that the criticism hurled against this Section is rooted in unwarranted conclusions made
without considering other relevant provisions in the statute. Whether Section 112 may properly apply
to co-production or joint venture agreements, the fact of the matter is that it cannot be made to apply
to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being applied
to them at all is the fact that it happens to use the word "contractor." Hence, it is a bit of a stretch to
insist that it covers FTAAs as well. Second, mineral agreements, of which there are three types --
MPSAs, co-production agreements, and joint venture agreements -- are covered by Chapter V of RA
7942. On the other hand, FTAAs are covered by and in fact are the subject of Chapter VI, an entirely
different chapter altogether. The law obviously intends to treat them as a breed apart from mineral
agreements, since Section 35 (found in Chapter VI) creates a long list of specific terms, conditions,
commitments, representations and warranties -- which have not been made applicable to mineral
agreements -- to be incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the
FTAA into a mineral agreement at any time during the term if the economic viability of the contract
area is inadequate to sustain large-scale mining operations. Thus, there is no reason to think that the
law through Section 112 intends to exact from FTAA contractors merely the same government share
(a 2 percent excise tax) that it apparently demands from contractors under the three forms of mineral
agreements. In brief, Section 112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court must
rule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP FTAA
contains a provision which grants the contractor unbridled and "automatic" authority to convert the
FTAA into an MPSA; and should such conversion happen, the State would be prejudiced since its
112
share would be limited to the 2 percent excise tax. Justice Carpio adds that there are five MPSAs
already signed just awaiting the judgment of this Court on respondents' and intervenor's Motions for
Reconsideration. We hold however that, at this point, this argument is based on pure speculation. The
Court cannot rule on mere surmises and hypothetical assumptions, without firm factual anchor. We
repeat: basic due process requires that we hear the parties who have a real legal interest in the
MPSAs (i.e. the parties who executed them) before these MPSAs can be reviewed, or worse, struck
down by the Court. Anything less than that requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is problematic. First, the contractor
must comply with the law, particularly Section 39 of RA 7942; inter alia, it must convincingly show that
the "economic viability of the contract is found to be inadequate to justify large-scale mining
operations;" second, it must contend with the President's exercise of the power of State control over
the EDU of natural resources; and third, it will have to risk a possible declaration of the
unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation in which an
FTAA has already been executed and entered into, and is presumably being implemented, when the
contractor "discovers" that the mineral ore reserves in the contract area are not sufficient to justify
large-scale mining, and thus the contractor requests the conversion of the FTAA into an MPSA. The
contractor in effect needs to explain why, despite its exploration activities, including the conduct of
various geologic and other scientific tests and procedures in the contract area, it was unable to
determine correctly the mineral ore reserves and the economic viability of the area. The contractor
must explain why, after conducting such exploration activities, it decided to file a declaration of mining
feasibility, and to apply for an FTAA, thereby leading the State to believe that the area could sustain
large-scale mining. The contractor must justify fully why its earlier findings, based on scientific
procedures, tests and data, turned out to be wrong, or were way off. It must likewise prove that
its new findings, also based on scientific tests and procedures, are correct. Right away, this puts the
contractor's technical capabilities and expertise into serious doubt. We wonder if anyone would relish
being in this situation. The State could even question and challenge the contractor's qualification and
competence to continue the activity under an MPSA.
All in all, while there may be cogent grounds to assail the aforecited Sections, this Court -- on
considerations of due process -- cannot rule upon them here. Anyway, if later on these
Sections are declared unconstitutional, such declaration will not affect the other portions
since they are clearly separable from the rest.
Our Mineral Resources Not

Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the contention that our mineral
resources are effectively given away for free by the law (RA 7942) in general and by Sections 80, 81,
84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking away mineral
resources without paying anything. In order to get at the minerals, they have to invest huge sums of
money (tens or hundreds of millions of dollars) in exploration works first. If the exploration proves
unsuccessful, all the cash spent thereon will not be returned to the foreign investors; rather, those
funds will have been infused into the local economy, to remain there permanently. The benefits
therefrom cannot be simply ignored. And assuming that the foreign contractors are successful in
finding ore bodies that are viable for commercial exploitation, they do not just pluck out the minerals
and cart them off. They have first to build camp sites and roadways; dig mine shafts and connecting
tunnels; prepare tailing ponds, storage areas and vehicle depots; install their machinery and
equipment, generator sets, pumps, water tanks and sewer systems, and so on.
In short, they need to expend a great deal more of their funds for facilities, equipment and supplies,
fuel, salaries of local labor and technical staff, and other operating expenses. In the meantime, they
also have to pay taxes,75 duties, fees, and royalties. All told, the exploration, pre-feasibility, feasibility,
development and construction phases together add up to as many as eleven years. 76 The contractors
113
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
years77 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
114
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
115
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,
116
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
117
be clear: the Court is not against the grant of more benefits to the State; in fact, the more the better. If
during the FTAA negotiations, the President can secure 60 percent, 78 or even 90 percent, then all the
better for our people. But, if under the peculiar circumstances of a specific contract, the President
could secure only 50 percent or 55 percent, so be it. Needless to say, the President will have to report
(and be responsible for) the specific FTAA to Congress, and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly disadvantageous to the
government, the officials responsible for entering into such a contract on its behalf will have to answer
to the courts for their malfeasance. And the contract provision voided. But this Court would abuse its
own authority should it force the government's hand to adopt the 60 percent demand of some of our
esteemed colleagues.
Capital and Expertise Provided,

Yet All Risks Assumed by Contractor
Here, we will repeat what has not been emphasized and appreciated enough: the fact that the
contractor in an FTAA provides all the needed capital, technical and managerial expertise, and
technology required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the very
outset, to make capital investments of up to US$50 million in that single mining project. WMCP claims
to have already poured in well over P800 million into the country as of February 1998, with more in
the pipeline. These resources, valued in the tens or hundreds of millions of dollars, are invested in a
mining project that provides no assurance whatsoever that any part of the investment will be
ultimately recouped.
At the same time, the contractor must comply with legally imposed environmental standards and the
social obligations, for which it also commits to make significant expenditures of funds. Throughout, the
contractor assumes all the risks79 of the business, as mentioned earlier. These risks are indeed very
high, considering that the rate of success in exploration is extremely low. The probability of finding any
mineral or petroleum in commercially viable quantities is estimated to be about 1:1,000 only. On that
slim chance rides the contractor's hope of recouping investments and generating profits. And when
the contractor has recouped its initial investments in the project, the government share increases to
sixty percent of net benefits -- without the State ever being in peril of incurring costs, expenses and
losses.
And even in the worst possible scenario -- an absence of commercial quantities of minerals to justify
development -- the contractor would already have spent several million pesos for exploration works,
before arriving at the point in which it can make that determination and decide to cut its losses. In fact,
during the first year alone of the exploration period, the contractor was already committed to spend
not less than P24 million. The FTAA therefore clearly ensures benefits for the local economy, courtesy
of the contractor.
All in all, this setup cannot be regarded as disadvantageous to the State or the Filipino people;
it certainly cannot be said to convey beneficial ownership of our mineral resources to foreign
contractors.
Deductions Allowed by 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,"80 "consulting fees incurred both inside and outside the Philippines for work
related directly to the Mining Operations," 81 and "the establishment and administration of field offices
including administrative overheads incurred within and outside the Philippines which are properly
allocatable to the Mining Operations and reasonably related to the performance of the Contractor's
obligations and exercise of its rights under this Agreement." 82
118
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
119
general welfare of the country" 85 as essential guiding principles to be kept in mind when negotiating
the terms and conditions of FTAAs.
Earlier, we held (1) that the State must be accorded the liberty and the utmost flexibility to deal,
negotiate and transact with contractors and third parties as it sees fit, and upon terms that it
ascertains to be most favorable or most acceptable under the circumstances, even if that should
mean agreeing to less than 60 percent; (2) that it is not necessary for the State to extract a 60 percent
share in every case and regardless of circumstances; and (3) that should the State be prevented from
agreeing to a share less than 60 percent as it deems fit, it will be deprived of the full control over
mineral exploitation that the Charter has vested in it.
That full control is obviously not an end in itself; it exists and subsists precisely because of the need to
serve and protect the national interest. In this instance, national interest finds particular application in
the protection of the national patrimony and the development and exploitation of the country's mineral
resources for the benefit of the Filipino people and the enhancement of economic growth and the
general welfare of the country. Undoubtedly, such full control can be misused and abused, as we
now witness.
Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues
(provided for in Section 7.7) without anything in exchange. Moreover, this outcome constitutes unjust
enrichment on the part of the local and foreign stockholders of WMCP. By 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 86 that the parties to a contract may establish
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. 87 Being precisely violative of anti-graft
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, 88 and that it is never
estopped by any mistake or error on their part. 89 It is therefore possible and proper to rectify the
situation at this time. Moreover, we may 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 90 from Section 7.7 and the rest of the FTAA, the
deletion of Section 7.9 can be done without affecting or requiring the invalidation of 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;
120
"(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. 91 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. 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
paper92 concisely presents the fiscal contribution of an FTAA under DAO 99-56 in this equation:
Receipts from an FTAA = basic gov't share + add'l gov't share
Transposed into a similar equation, 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
121
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
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
"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
lakes, bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving either technical
"The President shall notify the Congress of every contract entered into in accordance with this
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
122
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
123
A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous
proposition for the government as compared with other agreements permitted by the Constitution. In a
CPA that the government enters into with one or more contractors, the government shall provide
inputs to the mining operations other than the mineral resource itself. 94
In a JVA, a JV company is organized by the government and the contractor, with both parties having
equity shares (investments); and the contractor is granted the exclusive right to conduct mining
operations and to extract minerals found in the area. 95 On the other hand, in an MPSA, the
government grants the contractor the exclusive right to conduct mining operations within the contract
area and shares in the gross output; and the contractor provides the necessary financing, technology,
management and manpower.
The point being made here is that, in two of the three types of agreements under consideration,
the government has to ante up some risk capital for the enterprise. In other words, government funds
(public moneys) are withdrawn from other possible uses, put to work in the venture and placed at risk
in case the venture fails. This notwithstanding, management and control of the operations of the
enterprise are -- in all three arrangements -- in the hands of the contractor, with the government being
mainly a silent partner. The three types of agreement mentioned above apply to any natural resource,
without limitation and regardless of the size or magnitude of the project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article XII, the
FTAA is limited to large-scale projects and only for minerals, petroleum and other mineral oils. Here,
the Constitution removes the 40 percent cap on foreign ownership and allows the foreign corporation
to own up to 100 percent of the equity. Filipino capital may not be sufficient on account of the size of
the project, so the foreign entity may have to ante up all the risk capital.
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails. In
respect of the particular FTAA granted to it, WMCP (then 100 percent foreign owned) was
responsible, as contractor, for providing the entire equity, including all the inputs for the project. It was
to bear 100 percent of the risk of loss if the project failed, but its maximum potential "beneficial
interest" consisted only of 40 percent of the net beneficial interest, because the other 60 percent is the
share of the government, which will never be exposed to any risk of loss whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day
management of the mining operations. Still such management is subject to the overall control and
supervision of the State in terms of regular reporting, approvals of work programs and budgets, and
so on.
So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to, and
benefits derived or to be derived from a CPA, a JVA or an MPSA vis-à-vis those pertaining to an
FTAA. It may not be realistically asserted that the foreign grantee of an FTAA is being unduly favored
or benefited as compared with a foreign stakeholder in a corporation holding a CPA, a JVA or an
MPSA. Seen the other way around, the government is definitely better off with an FTAA than a CPA, a
JVA or an MPSA.
Developmental Policy on the Mining Industry
During the Oral Argument and in their Final Memorandum, petitioners repeatedly urged the Court to
consider whether mining as an industry and economic activity deserved to be accorded priority,
preference and government support as against, say, agriculture and other activities in which Filipinos
and the Philippines may have an "economic advantage." For instance, a recent US study 96 reportedly
examined the economic performance of all local US counties that were dependent on mining and 20
percent of whose labor earnings between 1970 and 2000 came from mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita
income grew about 30 percent less in mining-dependent communities in the 1980s and 25 percent
less for the entire period 1980 to 2000; the level of per capita income was also lower. Therefore, given
the slower rate of growth, the gap between these and other local counties increased.
124
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 report97 of the Extractive Industries Review project commissioned by
the World Bank (the WB-EIR Report), which warns of environmental degradation, social disruption,
conflict, and uneven sharing of benefits with local communities that bear the negative social and
environmental impact. The Report suggests that countries need to decide on the best way to exploit
their natural resources, in order to maximize the value added from the development of their resources
and ensure that they are on the path to sustainable development once the resources run out.
Whatever priority or preference may be given to mining vis-à-vis other economic or non-economic
activities is a question of policy that the President and Congress will have to address; it is not for this
Court to decide. This Court declares what the Constitution and the laws say, interprets only when
necessary, and refrains from delving into matters of policy.
Suffice it to say that the State control accorded by the Constitution over mining activities assures a
proper balancing of interests. More pointedly, such control will enable the President to demand the
best mining practices and the use of the best available technologies to protect the environment and to
rehabilitate mined-out areas. Indeed, under the Mining Law, the government can ensure the
protection of the environment during and after mining. It can likewise provide for the mechanisms to
protect the rights of indigenous communities, and thereby mold a more socially-responsive, culturally-
sensitive and sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry Environmental Awards on February
6, 1997, then President Fidel V. Ramos captured the essence of balanced and sustainable mining in
these words:
"Long term, high profit mining translates into higher revenues for government, more decent jobs for
the population, more raw materials to feed the engines of downstream and allied industries, and
improved chances of human resource and countryside development by creating self-reliant
communities away from urban centers.
xxxxxxxxx
"Against a fragile and finite environment, it is sustainability that holds the key. In sustainable mining,
we take a middle ground where both production and protection goals are balanced, and where
parties-in-interest come to terms."
Neither has the present leadership been remiss in addressing the concerns of sustainable mining
operations. Recently, on January 16, 2004 and April 20, 2004, President Gloria Macapagal Arroyo
issued Executive Orders Nos. 270 and 270-A, respectively, "to promote responsible mineral
resources exploration, development and utilization, in order to enhance economic growth, in a manner
that adheres to the principles of sustainable development and with due regard for justice and equity,
sensitivity to the culture of the Filipino people and respect for Philippine sovereignty." 98
REFUTATION OF DISSENTS
The Court will now take up a number of other specific points raised in the dissents of Justices Carpio
and Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of
Western Mining Corporation (WMC) and former president of the Australian Mining Industry Council,
who spearheaded the vociferous opposition to the filing by aboriginal peoples of native title claims
against mining companies in Australia in the aftermath of the landmark Mabo decision by the
Australian High Court. According to sources quoted by our esteemed colleague, Morgan was also
a racist and a bigot. In the course of protesting Mabo, Morgan allegedly uttered derogatory remarks
belittling the aboriginal culture and race.
An unwritten caveat of this introduction is that this Court should be careful not to permit the entry
of the likes of Hugh Morgan and his hordes of alleged racist-bigots at WMC. With all due respect,
such scare tactics should have no place in the discussion of this case. We are deliberating on the
125
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
126
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
127
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.
128
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
129
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
130
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
131
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
132
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
133
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
134
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
135
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.
136
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
137
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."99 As aptly spelled out seven decades ago by Justice George Malcolm, "Just as the
Supreme Court, as the guardian of constitutional rights, should not sanction usurpations by any other
department of government, so should it as strictly confine its own sphere of influence to the powers
expressly or by implication conferred on it by the Organic Act."100 Let the development of the mining
industry be the responsibility of the political branches of government. And let not this Court interfere
inordinately and unnecessarily.
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
138
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.
139

Fulltext

Uploaded by

Copyright:

Available Formats

Fulltext

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fulltext

Uploaded by

Copyright:

Available Formats

NATURAL RESOURCES: FULL TEXT

G.R. No. 135385 December 6, 2000

ISAGANI CRUZ and CESAR EUROPA, petitioners,

These provisions are:

Petitioners pray for the following:

The Lawphil Project - Arellano Law Foundation

When Congress enacted the Indigenous Peoples Rights Act (IPRA), it introduced radical concepts

This Opinion discusses the following:

I. The Development of the Regalian Doctrine in the Philippine Legal System.

A. The Laws of the Indies

C. The Public Land Acts and the Torrens System

D. The Philippine Constitutions

II. The Indigenous Peoples Rights Act (IPRA).

1. Indigenous Peoples: Their History

2. Their Concept of Land

III. The IPRA is a Novel Piece of Legislation.

IV. The Provisions of the IPRA Do Not Contravene the Constitution.

1. The right to ancestral domains and ancestral lands: how acquired

2. The concept of native title

(a) Cariño v. Insular Government

(b) Indian Title to land

(c) Why the Cariño doctrine is unique

3. The option of securing a torrens title to the ancestral land

1. The indigenous concept of ownership and customary law

1. The rights of ICCs/IPs over their ancestral domains and lands

I. THE DEVELOPMENT OF THE REGALIAN DOCTRINE IN THE PHILIPPINE LEGAL SYSTEM.

A. The Laws of the Indies

C. The Public Land Acts and the Torrens System

D. The Philippine Constitutions

The 1987 Constitution reaffirmed the Regalian doctrine in Section 2 of Article XII on "National

II. THE INDIGENOUS PEOPLES RIGHTS ACT.

- the right to develop lands and natural resources;

- the right to stay in the territories;

- the right in case of displacement;

- the right to safe and clean air and water;

- the right to claim parts of reservations;

- the right to resolve conflict;32

- the right to ancestral lands which include

ICCs/IPs are defined by the IPRA as:

Indigenous Cultural Communities or Indigenous Peoples refer to a group of people or

1. Indigenous Peoples: Their History

2. In Region III- Aetas.

6. In Region VII- Magahat of Negros Oriental and Eskaya of Bohol.

President McKinley, in his instructions to the Philippine Commission of April 7, 1900,

The Americans classified the Filipinos into two: the Christian Filipinos and the non-Christian

It was in the 1973 Constitution that the State adopted the following provision:

In 1974, President Marcos promulgated P.D. No. 410, otherwise known as the Ancestral Lands

2. Their Concept of Land

III. THE IPRA IS A NOVEL PIECE OF LEGISLATION.

A. The Legislative History of the IPRA

Principally sponsored by Senator Juan M. Flavier,107 Senate Bill No. 1728 was a consolidation of

Senator Flavier further declared:

Rep. Andolana's sponsorhip speech reads as follows:

IV. THE PROVISIONS OF THE IPRA DO NOT CONTRAVENE THE CONSTITUTION.

(1) Right to Ancestral Domains and Ancestral Lands: How Acquired

(2) The Concept of Native Title

Native title is defined as:

(a) Cariño v. Insular Government129