Stat Con Finals Fulltext

G.R. No. 127882 LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., 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
The present petition for mandamus and prohibition assails the constitutionality of Republic Act No. 7942,5otherwise 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/transfer11and withdrawal,12 and fixes their terms.13 Similar provisions govern financial or technical assistance agreements.14
The law prescribes the qualifications of contractors15 and grants them certain rights, including timber,16 water17and 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,26and safety and environmental protection.27
The government's share in the agreements is spelled out and allocated,28 taxes and fees are imposed,29incentives 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:
I
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows
fully foreign owned corporations to explore, develop, utilize and exploit mineral resources in a manner contrary to Section 2, paragraph 4, Article XII of the
Constitution;
II
the taking of private property without the determination of public use and for just compensation;
III
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it violates
Sec. 1, Art. III of the Constitution;
IV
enjoyment by foreign citizens as well as fully foreign owned corporations of the nation's marine wealth contrary to Section 2, paragraph 2 of Article XII of the
Constitution;
V
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
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, 2002.49Its 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 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.
I
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 questions62 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,64alleging 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 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 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 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 exclusive economic zone, and reserve its use and enjoyment
exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence
fishermen and fish-workers in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.
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.89Thus, earlier
jurisprudence90 held that:
A valid and subsisting location of mineral land, made and kept up in accordance with the provisions of the statutes of the United States, has the effect of a grant
by the United States of the present and exclusive possession of the lands located, and this exclusive right of possession and enjoyment continues during the
entire life of the location. x x x.
x x x.
The discovery of minerals in the ground by one who has a valid mineral location perfects his claim and his location not only against third persons, but also
against the Government. x x x. [Italics in the original.]
The Regalian doctrine and the American system, therefore, differ in one essential respect. Under the Regalian theory, mineral rights are not included in a grant
of land by the state; under the American doctrine, mineral rights are included in a grant of land by the government.91
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.
The nationalization and conservation of the natural resources of the country was one of the fixed and dominating objectives of the 1935 Constitutional
Convention.109 One delegate relates:
There was an overwhelming sentiment in the Convention in favor of the principle of state ownership of natural resources and the adoption of the Regalian
doctrine. State ownership of natural resources was seen as a necessary starting point to secure recognition of the state's power to control their disposition,
exploitation, development, or utilization. The delegates of the Constitutional Convention very well knew that the concept of State ownership of land and natural
resources was introduced by the Spaniards, however, they were not certain whether it was continued and applied by the Americans. To remove all doubts, the
Convention approved the provision in the Constitution affirming the Regalian doctrine.
The adoption of the principle of state ownership of the natural resources and of the Regalian doctrine was considered to be a necessary starting point for the
plan of nationalizing and conserving the natural resources of the country. For with the establishment of the principle of state ownership of the natural resources,
it would not be hard to secure the recognition of the power of the State to control their disposition, exploitation, development or utilization.110
The nationalization of the natural resources was intended (1) to insure their conservation for Filipino posterity; (2) to serve as an instrument of national defense,
helping prevent the extension to the country of foreign control through peaceful economic penetration; and (3) to avoid making the Philippines a source of
international conflicts with the consequent danger to its internal security and independence.111
The same Section 1, Article XIII also adopted the concession system, expressly permitting the State to grant licenses, concessions, or leases for the exploitation,
development, or utilization of any of the natural resources. Grants, however, were limited to Filipinos or entities at least 60% of the capital of which is owned by
Filipinos.lawph!l.ne+
The swell of nationalism that suffused the 1935 Constitution was radically diluted when on November 1946, the Parity Amendment, which came in the form of
an "Ordinance Appended to the Constitution," was ratified in a plebiscite.112 The Amendment extended, from July 4, 1946 to July 3, 1974, the right to utilize and
exploit our natural resources to citizens of the United States and business enterprises owned or controlled, directly or indirectly, by citizens of the United
States:113
Notwithstanding the provision of section one, Article Thirteen, and section eight, Article Fourteen, of the foregoing Constitution, during the effectivity of the
Executive Agreement entered into by the President of the Philippines with the President of the United States on the fourth of July, nineteen hundred and forty-
six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend beyond the third of July, nineteen
hundred and seventy-four, the disposition, exploitation, development, and utilization of all agricultural, timber, and mineral lands of the public domain, waters,
minerals, coals, petroleum, and other mineral oils, all forces and sources of potential energy, and other natural resources of the Philippines, and the operation of
public utilities, shall, if open to any person, be open to citizens of the United States and to all forms of business enterprise owned or controlled, directly or
indirectly, by citizens of the United States in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or
associations owned or controlled by citizens of the Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade Agreement, also known as the Laurel-Langley Agreement, embodied in Republic
Act No. 1355.114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387,115 also known as the Petroleum Act of 1949, was approved on June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the exploitation of the nation's petroleum resources. Among the kinds of concessions it
sanctioned were exploration and exploitation concessions, which respectively granted to the concessionaire the exclusive right to explore for116 or
develop117 petroleum within specified areas.
Concessions may be granted only to duly qualified persons118 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.125Exploration126 and exploitation127 concessionaires were also required to submit work
programs.lavvphi1.net
Exploitation concessionaires, in particular, were obliged to pay an annual exploitation tax,128 the object of which is to induce the concessionaire to actually
produce petroleum, and not simply to sit on the concession without developing or exploiting it.129 These concessionaires were also bound to pay the
Government royalty, which was not less than 12½% of the petroleum produced and saved, less that consumed in the operations of the concessionaire.130 Under
Article 66, R.A. No. 387, the exploitation tax may be credited against the royalties so that if the concessionaire shall be actually producing enough oil, it would
not actually be paying the exploitation tax.131
Failure to pay the annual exploitation tax for two consecutive years,132 or the royalty due to the Government within one year from the date it becomes
due,133 constituted grounds for the cancellation of the concession. In case of delay in the payment of the taxes or royalty imposed by the law or by the
concession, a surcharge of 1% per month is exacted until the same are paid.134
As a rule, title rights to all equipment and structures that the concessionaire placed on the land belong to the exploration or exploitation concessionaire.135 Upon
termination of such concession, the concessionaire had a right to remove the same.136
The Secretary of Agriculture and Natural Resources was tasked with carrying out the provisions of the law, through the Director of Mines, who acted under the
Secretary's immediate supervision and control.137 The Act granted the Secretary the authority to inspect any operation of the concessionaire and to examine all
the books and accounts pertaining to operations or conditions related to payment of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical Board.139 The Administration Unit was charged, inter alia, with the
enforcement of the provisions of the law.140 The Technical Board had, among other functions, the duty to check on the performance of concessionaires and to
determine whether the obligations imposed by the Act and its implementing regulations were being complied with.141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development, analyzed the benefits and drawbacks of the concession system insofar as it
applied to the petroleum industry:
Advantages of Concession. Whether it emphasizes income tax or royalty, the most positive aspect of the concession system is that the State's financial
involvement is virtually risk free and administration is simple and comparatively low in cost. Furthermore, if there is a competitive allocation of the resource
leading to substantial bonuses and/or greater royalty coupled with a relatively high level of taxation, revenue accruing to the State under the concession system
may compare favorably with other financial arrangements.
Disadvantages of Concession. There are, however, major negative aspects to this system. Because the Government's role in the traditional concession is passive,
it is at a distinct disadvantage in managing and developing policy for the nation's petroleum resource. This is true for several reasons. First, even though most
concession agreements contain covenants requiring diligence in operations and production, this establishes only an indirect and passive control of the host
country in resource development. Second, and more importantly, the fact that the host country does not directly participate in resource management decisions
inhibits its ability to train and employ its nationals in petroleum development. This factor could delay or prevent the country from effectively engaging in the
development of its resources. Lastly, a direct role in management is usually necessary in order to obtain a knowledge of the international petroleum industry
which is important to an appreciation of the host country's resources in relation to those of other countries.142
Other liabilities of the system have also been noted:
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
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.161Article XIV on the National Economy and
Patrimony contained provisions similar to the 1935 Constitution with regard to Filipino participation in the nation's natural resources. Section 8, Article XIV
thereof provides:
Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, wildlife, and other natural
resources of the Philippines belong to the State. With the exception of agricultural, industrial or commercial, residential and resettlement lands of the public
domain, natural resources shall not be alienated, and no license, concession, or lease for the exploration, development, exploitation, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, renewable for not more than twenty-five years, except as to water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and the limit
of the grant.
While Section 9 of the same Article maintained the Filipino-only policy in the enjoyment of natural resources, it also allowed Filipinos, upon authority of the
Batasang Pambansa, to enter into service contracts with any person or entity for the exploration or utilization of natural resources.
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the Philippines shall be limited to citizens, or to
corporations or associations at least sixty per centum of which is owned by such citizens. The Batasang Pambansa, in the national interest, may allow such
citizens, corporations or associations to enter into service contracts for financial, technical, management, or other forms of assistance with any person or entity
for the exploration, or utilization of any of the natural resources. Existing valid and binding service contracts for financial, technical, management, or other forms
of assistance are hereby recognized as such. [Emphasis supplied.]
The concept of service contracts, according to one delegate, was borrowed from the methods followed by India, Pakistan and especially Indonesia in the
exploration of petroleum and mineral oils.162 The provision allowing such contracts, according to another, was intended to "enhance the proper development of
our natural resources since Filipino citizens lack the needed capital and technical know-how which are essential in the proper exploration, development and
exploitation of the natural resources of the country."163
The original idea was to authorize the government, not private entities, to enter into service contracts with foreign entities.164 As finally approved, however, a
citizen or private entity could be allowed by the National Assembly to enter into such service contract.165 The prior approval of the National Assembly was
deemed sufficient to protect the national interest.166 Notably, none of the laws allowing service contracts were passed by the Batasang Pambansa. Indeed, all of
them were enacted by presidential decree.
On March 13, 1973, shortly after the ratification of the new Constitution, the President promulgated Presidential Decree No. 151.167 The law allowed Filipino
citizens or entities which have acquired lands of the public domain or which own, hold or control such lands to enter into service contracts for financial,
technical, management or other forms of assistance with any foreign persons or entity for the exploration, development, exploitation or utilization of said
lands.168
Presidential Decree No. 463,169 also known as The Mineral Resources Development Decree of 1974, was enacted on May 17, 1974. Section 44 of the decree, as
amended, provided that a lessee of a mining claim may enter into a service contract with a qualified domestic or foreign contractor for the exploration,
development and exploitation of his claims and the processing and marketing of the product thereof.
Presidential Decree No. 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 forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by
the State."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution, in the second sentence of the same provision, prohibits the alienation of natural
resources, except agricultural lands.
The third sentence of the same paragraph is new: "The exploration, development and utilization of natural resources shall be under the full control and
supervision of the State." The constitutional policy of the State's "full control and supervision" over natural resources proceeds from the concept of jura regalia,
as well as the recognition of the importance of the country's natural resources, not only for national economic development, but also for its security and
national defense.178 Under this provision, the State assumes "a more dynamic role" in the exploration, development and utilization of natural resources.179
Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions authorizing the State to grant licenses, concessions, or leases for the
exploration, exploitation, development, or utilization of natural resources. By such omission, the utilization of inalienable lands of public domain through
"license, concession or lease" is no longer allowed under the 1987 Constitution.180
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 well as cooperative fish farming, with priority to subsistence
fishermen and fish-workers in rivers, lakes, bays, and lagoons.
While the second and third options are limited only to Filipino citizens or, in the case of the former, to corporations or associations at least 60% of the capital of
which is owned by Filipinos, a fourth allows the participation of foreign-owned corporations. The fourth and fifth paragraphs of Section 2 provide:
The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.
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.
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,187and 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. 7076189 (the People's Small-Scale Mining Act of 1991) and other pertinent laws.190 R.A. No. 7942 primarily concerns itself with the second and
fourth modes.
Mineral production sharing, co-production and joint venture agreements are collectively classified by R.A. No. 7942 as "mineral agreements."191 The Government
participates the least in a mineral production sharing agreement (MPSA). In an MPSA, the Government grants the contractor192 the exclusive right to conduct
mining operations within a contract area193 and shares in the gross output.194 The MPSA contractor provides the financing, technology, management and
personnel necessary for the agreement's implementation.195 The total government share in an MPSA is the excise tax on mineral products under Republic Act
No. 7729,196 amending Section 151(a) of the National Internal Revenue Code, as amended.197
In a co-production agreement (CA),198 the Government provides inputs to the mining operations other than the mineral resource,199 while in a joint venture
agreement (JVA), where the Government enjoys the greatest participation, the Government and the JVA contractor organize a company with both parties having
equity shares.200 Aside from earnings in equity, the Government in a JVA is also entitled to a share in the gross output.201 The Government may enter into a
CA202 or JVA203 with one or more contractors. The Government's share in a CA or JVA is set out in Section 81 of the law:
The share of the Government in co-production and joint venture agreements shall be negotiated by the Government and the contractor taking into
consideration the: (a) capital investment of the project, (b) the risks involved, (c) contribution of the project to the economy, and (d) other factors that will
provide for a fair and equitable sharing between the Government and the contractor. The Government shall also be entitled to compensations for its other
contributions which shall be agreed upon by the parties, and shall consist, among other things, the contractor's income tax, excise tax, special allowance,
withholding tax due from the contractor's foreign stockholders arising from dividend or interest payments to the said foreign stockholders, in case of a foreign
national and all such other taxes, duties and fees as provided for under existing laws.
All mineral agreements grant the respective contractors the exclusive right to conduct mining operations and to extract all mineral resources found in the
contract area.204 A "qualified person" may enter into any of the mineral agreements with the Government.205 A "qualified person" is
any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or cooperative organized or authorized for the purpose of
engaging in mining, with technical and financial capability to undertake mineral resources development and duly registered in accordance with law at least sixty
per centum (60%) of the capital of which is owned by citizens of the Philippines x x x.206
The fourth mode involves "financial or technical assistance agreements." An FTAA is defined as "a contract involving financial or technical assistance for large-
scale exploration, development, and utilization of natural resources."207 Any qualified person with technical and financial capability to undertake large-scale
exploration, development, and utilization of natural resources in the Philippines may enter into such agreement directly with the Government through the
DENR.208 For the purpose of granting an FTAA, a legally organized foreign-owned corporation (any corporation, partnership, association, or cooperative duly
registered in accordance with law in which less than 50% of the capital is owned by Filipino citizens)209 is deemed a "qualified person."210
Other than the difference in contractors' qualifications, the principal distinction between mineral agreements and FTAAs is the maximum contract area to which
a qualified person may hold or be granted.211 "Large-scale" under R.A. No. 7942 is determined by the size of the contract area, as opposed to the amount
invested (US $50,000,000.00), which was the standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation.212 The Government's contributions, in the form of taxes, in an FTAA is identical to its contributions in the
two mineral agreements, save that in an FTAA:
The collection of Government share in financial or technical assistance agreement shall commence after the financial or technical assistance agreement
contractor has fully recovered its pre-operating expenses, exploration, and development expenditures, inclusive.213
III
Having examined the history of the constitutional provision and statutes enacted pursuant thereto, a consideration of the substantive issues presented by the
petition is now in order.
THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279
Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did not come into effect.
E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days before the opening of Congress on July 27, 1987.214 Section 8 of the E.O.
states that the same "shall take effect immediately." This provision, according to petitioners, runs counter to Section 1 of 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,217is 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
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.
MR. GARCIA. Thank you.
I vote no. x x x.
Service contracts are given constitutional legitimization in Section 3, even when they have been proven to be inimical to the interests of the nation,
providing as they do the legal loophole for the exploitation of our natural resources for the benefit of foreign interests. They constitute a serious
negation of Filipino control on the use and disposition of the nation's natural resources, especially with regard to those which are
nonrenewable.232 [Emphasis supplied.]
xxx
MR. NOLLEDO. While there are objectionable provisions in the Article on National Economy and Patrimony, going over said provisions meticulously,
setting aside prejudice and personalities will reveal that the article contains a balanced set of provisions. I hope the forthcoming Congress will
implement such provisions taking into account that Filipinos should have real control over our economy and patrimony, and if foreign equity is
permitted, the same must be subordinated to the imperative demands of the national interest.
x x x.
It is also my understanding that service contracts involving foreign corporations or entities are resorted to only when no Filipino enterprise or Filipino-
controlled enterprise could possibly undertake the exploration or exploitation of our natural resources and that compensation under such contracts
cannot and should not equal what should pertain to ownership of capital. In other words, the service contract should not be an instrument to
circumvent the basic provision, that the exploration and exploitation of natural resources should be truly for the benefit of Filipinos.
Thank you, and I vote yes.233 [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin ang salitang "imperyalismo." Ang ibig sabihin nito ay ang sistema ng
lipunang pinaghaharian ng iilang monopolyong kapitalista at ang salitang "imperyalismo" ay buhay na buhay sa National Economy and Patrimony na
nating ginawa. Sa pamamagitan ng salitang "based on," naroroon na ang free trade sapagkat tayo ay mananatiling tagapagluwas ng hilaw na sangkap at
tagaangkat ng yaring produkto. Pangalawa, naroroon pa rin ang parity rights, ang service contract, ang 60-40 equity sa natural resources. Habang
naghihirap ang sambayanang Pilipino, ginagalugad naman ng mga dayuhan ang ating likas na yaman. Kailan man ang Article on National Economy and
Patrimony ay hindi nagpaalis sa pagkaalipin ng ating ekonomiya sa kamay ng mga dayuhan. Ang solusyon sa suliranin ng bansa ay dalawa lamang: ang
pagpapatupad ng tunay na reporma sa lupa at ang national industrialization. Ito ang tinatawag naming pagsikat ng araw sa Silangan. Ngunit ang mga
landlords and big businessmen at ang mga komprador ay nagsasabi na ang free trade na ito, ang kahulugan para sa amin, ay ipinipilit sa ating
sambayanan na ang araw ay sisikat sa Kanluran. Kailan man hindi puwedeng sumikat ang araw sa Kanluran. I vote no.234 [Emphasis supplied.]
This Court is likewise not persuaded.
As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's Article on National Economy and Patrimony. If the CONCOM
intended to retain the concept of service contracts under the 1973 Constitution, it could have simply adopted the old terminology ("service contracts") instead
of employing new and unfamiliar terms ("agreements . . . involving either technical or financial assistance"). Such a difference between the language of a
provision in a revised constitution and that of a similar provision in the preceding constitution is viewed as indicative of a difference in purpose.235 If, as
respondents suggest, the concept of "technical or financial assistance" agreements is identical to that of "service contracts," the CONCOM would not have
bothered to fit the same dog with a new collar. To uphold respondents' theory would reduce the first to a mere euphemism for the second and render the
change in phraseology meaningless.
An examination of the reason behind the change confirms that technical or financial assistance agreements are not synonymous to service contracts.
[T]he Court in construing a Constitution should bear in mind the object sought to be accomplished by its adoption, and the evils, if any, sought to be prevented
or remedied. A doubtful provision will be examined in light of the history of the times, and the condition and circumstances under which the Constitution was
framed. The object is to ascertain the reason which induced the framers of the Constitution to enact the particular provision and the purpose sought to be
accomplished thereby, in order to construe the whole as to make the words consonant to that reason and calculated to effect that purpose.236
As the following question of Commissioner Quesada and Commissioner Villegas' answer shows the drafters intended to do away with service contracts which
were used to circumvent the capitalization (60%-40%) requirement:
MS. QUESADA. The 1973 Constitution used the words "service contracts." In this particular Section 3, is there a safeguard against the possible control of
foreign interests if the Filipinos go into coproduction with them?
MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was our first attempt to avoid some of the abuses in the past regime in the use
of service contracts to go around the 60-40 arrangement. The safeguard that has been introduced – and this, of course can be refined – is found in
Section 3, lines 25 to 30, where Congress will have to concur with the President on any agreement entered into between a foreign-owned corporation
and the government involving technical or financial assistance for large-scale exploration, development and utilization of natural resources.237 [Emphasis
supplied.]
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.
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 persuasive240 and leaves no doubt as to the intention of the framers to eliminate service contracts altogether.
He writes:
Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological undertakings for which the President may enter into contracts with foreign-
owned corporations, and enunciates strict conditions that should govern such contracts. x x x.
This provision balances the need for foreign capital and technology with the need to maintain the national sovereignty. It recognizes the fact that as long as
Filipinos can formulate their own terms in their own territory, there is no danger of relinquishing sovereignty to foreign interests.
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 CONSTITUTION PROJECT PROPOSED RESOLUTION NO. 496 OF THE ARTICLE XII OF THE 1987 CONSTITUTION
CONSTITUTIONAL COMMISSION
Sec. 1. All lands of the public domain, waters, Sec. 3. All lands of the public domain, waters, Sec. 2. All lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, minerals, coal, petroleum and other mineral oils, minerals, coal, petroleum, and other mineral
all forces of potential energy, fisheries, flora and all forces of potential energy, fisheries, forests, oils, all forces of potential energy, fisheries,
fauna and other natural resources of the flora and fauna, and other natural resources are forests or timber, wildlife, flora and fauna, and
Philippines are owned by the State. With the owned by the State. With the exception of other natural resources are owned by the State.
exception of agricultural lands, all other natural agricultural lands, all other natural resources With the exception of agricultural lands, all other
resources shall not be alienated. The shall not be alienated. The exploration, natural resources shall not be alienated. The
exploration, development and utilization of development, and utilization of natural exploration, development, and utilization of
natural resources shall be under the full control resources shall be under the full control and natural resources shall be under the full control
and supervision of the State. Such activities may supervision of the State. Such activities may be and supervision of the State. The State may
be directly undertaken by the state, or it may directly undertaken by the State, or it may enter directly undertake such activities or it may enter
enter into co-production, joint venture, into co-production, joint venture, production- into co-production, joint venture, or production-
production sharing agreements with Filipino sharing agreements with Filipino citizens or sharing agreements with Filipino citizens, or
citizens or corporations or associations sixty per corporations or associations at least sixty per corporations or associations at least sixty per
cent of whose voting stock or controlling interest cent of whose voting stock or controlling interest centum of whose capital is owned by such
is owned by such citizens for a period of not is owned by such citizens. Such agreements shall citizens. Such agreements may be for a period
more than twenty-five years, renewable for not be for a period of twenty-five years, renewable not exceeding twenty-five years, renewable for
more than twenty-five years and under such for not more than twenty-five years, and under not more than twenty-five years, and under such
terms and conditions as may be provided by law. such term and conditions as may be provided by terms and conditions as may be provided by law.
In case as to water rights for irrigation, water law. In cases of water rights for irrigation, water In case of water rights for irrigation, water
supply, fisheries, or industrial uses other than supply, fisheries or industrial uses other than the supply, fisheries, or industrial uses other than
the development of water power, beneficial use development for water power, beneficial use the development of water power, beneficial use
may be the measure and limit of the grant. may be the measure and limit of the grant. may be the measure and limit of the grant.
The National Assembly may by law allow small The Congress may by law allow small-scale The State shall protect the nation's marine
scale utilization of natural resources by Filipino utilization of natural resources by Filipino wealth in its archipelagic waters, territorial sea,
citizens. citizens, as well as cooperative fish farming in and exclusive economic zone, and reserve its use
The National Assembly, may, by two-thirds vote rivers, lakes, bays, and lagoons. and enjoyment exclusively to Filipino citizens.
of all its members by special law provide the The President with the concurrence of Congress, The Congress may, by law, allow small-scale
terms and conditions under which a foreign- by special law, shall provide the terms and utilization of natural resources by Filipino
owned corporation may enter into agreements conditions under which a foreign-owned citizens, as well as cooperative fish farming, with
with the government involving either technical corporation may enter into agreements with the priority to subsistence fishermen and fish-
or financial assistance for large-scale government involving either technical or workers in rivers, lakes, bays, and lagoons.
exploration, development, or utilization of financial assistance for large-scale exploration, The President may enter into agreements with
natural resources. [Emphasis supplied.] development, and utilization of natural foreign-owned corporations involving either
resources. [Emphasis supplied.] technical or financial assistance for large-scale
exploration, development, and utilization of
minerals, petroleum, and other mineral oils
according to the general terms and conditions
provided by law, based on real contributions to
the economic growth and general welfare of the
country. In such agreements, the State shall
promote the development and use of local
scientific and technical resources. [Emphasis
supplied.]
The President shall notify the Congress of every
contract entered into in accordance with this
provision, within thirty days from its execution.
The insights of the proponents of the U.P. Law draft are, therefore, instructive in interpreting the phrase "technical or financial assistance."
In his position paper entitled Service Contracts: Old Wine in New Bottles?, Professor Pacifico A. Agabin, who was a member of the working group that prepared
the U.P. Law draft, criticized service contracts for they "lodge exclusive management and control of the enterprise to the service contractor, which is reminiscent
of the old concession regime. Thus, notwithstanding the provision of the Constitution that natural resources belong to the State, and that these shall not be
alienated, the service contract system renders nugatory the constitutional provisions cited."244 He elaborates:
Looking at the Philippine model, we can discern the following vestiges of the concession regime, thus:
1. Bidding of a selected area, or leasing the choice of the area to the interested party and then negotiating the terms and conditions of the contract;
(Sec. 5, P.D. 87)
2. Management of the enterprise vested on the contractor, including operation of the field if petroleum is discovered; (Sec. 8, P.D. 87)
3. Control of production and other matters such as expansion and development; (Sec. 8)
4. Responsibility for downstream operations – marketing, distribution, and processing may be with the contractor (Sec. 8);
5. Ownership of equipment, machinery, fixed assets, and other properties remain with contractor (Sec. 12, P.D. 87);
6. Repatriation of capital and retention of profits abroad guaranteed to the contractor (Sec. 13, P.D. 87); and
7. While title to the petroleum discovered may nominally be in the name of the government, the contractor has almost unfettered control over its
disposition and sale, and even the domestic requirements of the country is relegated to a pro rata basis (Sec. 8).
In short, our version of the service contract is just a rehash of the old concession regime x x x. Some people have pulled an old rabbit out of a magician's hat, and
foisted it upon us as a new and different animal.
The service contract as we know it here is antithetical to the principle of sovereignty over our natural resources restated in the same article of the [1973]
Constitution containing the provision for service contracts. If the service contractor happens to be a foreign corporation, the contract would also run counter to
the constitutional provision on nationalization or Filipinization, of the exploitation of our natural resources.245 [Emphasis supplied. Underscoring in the original.]
Professor Merlin M. Magallona, also a member of the working group, was harsher in his reproach of the system:
x x x the nationalistic phraseology of the 1935 [Constitution] was retained by the [1973] Charter, but the essence of nationalism was reduced to hollow rhetoric.
The 1973 Charter still provided that the exploitation or development of the country's natural resources be limited to Filipino citizens or corporations owned or
controlled by them. However, the martial-law Constitution allowed them, once these resources are in their name, to enter into service contracts with foreign
investors for financial, technical, management, or other forms of assistance. Since foreign investors have the capital resources, the actual exploitation and
development, as well as the effective disposition, of the country's natural resources, would be under their direction, and control, relegating the Filipino investors
to the role of second-rate partners in joint ventures.
Through the instrumentality of the service contract, the 1973 Constitution had legitimized at the highest level of state policy that which was prohibited under
the 1973 Constitution, namely: the exploitation of the country's natural resources by foreign nationals. The drastic impact of [this] constitutional change
becomes more pronounced when it is considered that the active party to any service contract may be a corporation wholly owned by foreign interests. In such a
case, the citizenship requirement is completely set aside, permitting foreign corporations to obtain actual possession, control, and [enjoyment] of the country's
natural resources.246 [Emphasis supplied.]
Accordingly, Professor Agabin recommends that:
Recognizing the service contract for what it is, we have to expunge it from the Constitution and reaffirm ownership over our natural resources. That is the only
way we can exercise effective control over our natural resources.
This should not mean complete isolation of the country's natural resources from foreign investment. Other contract forms which are less derogatory to our
sovereignty and control over natural resources – like technical assistance agreements, financial assistance [agreements], co-production agreements, joint
ventures, production-sharing – could still be utilized and adopted without violating constitutional provisions. In other words, we can adopt contract forms which
recognize and assert our sovereignty and ownership over natural resources, and where the foreign entity is just a pure contractor instead of the beneficial owner
of our economic resources.247 [Emphasis supplied.]
Still another member of the working group, Professor Eduardo Labitag, proposed that:
2. Service contracts as practiced under the 1973 Constitution should be discouraged, instead the government may be allowed, subject to authorization by special
law passed by an extraordinary majority to enter into either technical or financial assistance. This is justified by the fact that as presently worded in the 1973
Constitution, a service contract gives full control over the contract area to the service contractor, for him to work, manage and dispose of the proceeds or
production. It was a subterfuge to get around the nationality requirement of the constitution.248 [Emphasis supplied.]
In the annotations on the proposed Article on National Economy and Patrimony, the U.P. Law draft summarized the rationale therefor, thus:
5. The last paragraph is a modification of the service contract provision found in Section 9, Article XIV of the 1973 Constitution as amended. This 1973 provision
shattered the framework of nationalism in our fundamental law (see Magallona, "Nationalism and its Subversion in the Constitution"). Through the service
contract, the 1973 Constitution had legitimized that which was prohibited under the 1935 constitution—the exploitation of the country's natural resources by
foreign nationals. Through the service contract, acts prohibited by the Anti-Dummy Law were recognized as legitimate arrangements. Service contracts lodge
exclusive management and control of the enterprise to the service contractor, not unlike the old concession regime where the concessionaire had complete
control over the country's natural resources, having been given exclusive and plenary rights to exploit a particular resource and, in effect, having been assured of
ownership of that resource at the point of extraction (see Agabin, "Service Contracts: Old Wine in New Bottles"). Service contracts, hence, are antithetical to the
principle of sovereignty over our natural resources, as well as the constitutional provision on nationalization or Filipinization of the exploitation of our natural
resources.
Under the proposed provision, only technical assistance or financial assistance agreements may be entered into, and only for large-scale activities. These are
contract forms which recognize and assert our sovereignty and ownership over natural resources since the foreign entity is just a pure contractor and not a
beneficial owner of our economic resources. The proposal recognizes the need for capital and technology to develop our natural resources without sacrificing
our sovereignty and control over such resources by the safeguard of a special law which requires two-thirds vote of all the members of the Legislature. This will
ensure that such agreements will be debated upon exhaustively and thoroughly in the National Assembly to avert prejudice to the nation.249 [Emphasis
supplied.]
The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as grants of beneficial ownership of the country's natural resources to
foreign owned corporations. While, in theory, the State owns these natural resources – and Filipino citizens, their beneficiaries – service contracts actually
vested foreigners with the right to dispose, explore for, develop, exploit, and utilize the same. Foreigners, not Filipinos, became the beneficiaries of Philippine
natural resources. This arrangement is clearly incompatible with the constitutional ideal of nationalization of natural resources, with the Regalian doctrine, and
on a broader perspective, with Philippine sovereignty.
The proponents nevertheless acknowledged the need for capital and technical know-how in the large-scale exploitation, development and utilization of natural
resources – the second paragraph of the proposed draft itself being an admission of such scarcity. Hence, they recommended a compromise to reconcile the
nationalistic provisions dating back to the 1935 Constitution, which reserved all natural resources exclusively to Filipinos, and the more liberal 1973 Constitution,
which allowed foreigners to participate in these resources through service contracts. Such a compromise called for the adoption of a new system in the
exploration, development, and utilization of natural resources in the form of technical agreements or financial agreements which, necessarily, are distinct
concepts from service contracts.
The replacement of "service contracts" with "agreements… involving either technical or financial assistance," as well as the deletion of the phrase "management
or other forms of assistance," assumes greater significance when note is taken that the U.P. Law draft proposed other equally crucial changes that were
obviously heeded by the CONCOM. These include the abrogation of the concession system and the adoption of new "options" for the State in the exploration,
development, and utilization of natural resources. The proponents deemed these changes to be more consistent with the State's ownership of, and its "full
control and supervision" (a phrase also employed by the framers) over, such resources. The Project explained:
3. In line with the State ownership of natural resources, the State should take a more active role in the exploration, development, and utilization of natural
resources, than the present practice of granting licenses, concessions, or leases – hence the provision that said activities shall be under the full control and
supervision of the State. There are three major schemes by which the State could undertake these activities: first, directly by itself; second, by virtue of co-
production, joint venture, production sharing agreements with Filipino citizens or corporations or associations sixty per cent (60%) of the voting stock or
controlling interests of which are owned by such citizens; or third, with a foreign-owned corporation, in cases of large-scale exploration, development, or
utilization of natural resources through agreements involving either technical or financial assistance only. x x x.
At present, under the licensing concession or lease schemes, the government benefits from such benefits only through fees, charges, ad valorem taxes and
income taxes of the exploiters of our natural resources. Such benefits are very minimal compared with the enormous profits reaped by theses licensees,
grantees, concessionaires. Moreover, some of them disregard the conservation of natural resources and do not protect the environment from degradation. The
proposed role of the State will enable it to a greater share in the profits – it can also actively husband its natural resources and engage in developmental
programs that will be beneficial to them.
4. Aside from the three major schemes for the exploration, development, and utilization of our natural resources, the State may, by law, allow Filipino citizens to
explore, develop, utilize natural resources in small-scale. This is in recognition of the plight of marginal fishermen, forest dwellers, gold panners, and others
similarly situated who exploit our natural resources for their daily sustenance and survival.250
Professor Agabin, in particular, after taking pains to illustrate the similarities between the two systems, concluded that the service contract regime was but a
"rehash" of the concession system. "Old wine in new bottles," as he put it. The rejection of the service contract regime, therefore, is in consonance with the
abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the Constitution, and the adoption of other proposed changes, there is no doubt that the framers
considered and shared the intent of the U.P. Law proponents in employing the phrase "agreements . . . involving either technical or financial assistance."
While certain commissioners may have mentioned the term "service contracts" during the CONCOM deliberations, they may not have been necessarily referring
to the concept of service contracts under the 1973 Constitution. As noted earlier, "service contracts" is a term that assumes different meanings to different
people.251 The commissioners may have been using the term loosely, and not in its technical and legal sense, to refer, in general, to agreements concerning
natural resources entered into by the Government with foreign corporations. These loose statements do not necessarily translate to the adoption of the 1973
Constitution provision allowing service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in response to Sr. Tan's question, Commissioner Villegas commented that,
other than congressional notification, the only difference between "future" and "past" "service contracts" is the requirement of a general law as there were no
laws previously authorizing the same.252 However, such remark is far outweighed by his more categorical statement in his exchange with Commissioner Quesada
that the draft article "does not permit foreign investors to participate" in the nation's natural resources – which was exactly what service contracts did – except
to provide "technical or financial assistance."253
In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that the present charter prohibits service contracts.254 Commissioner
Gascon was not totally averse to foreign participation, but favored stricter restrictions in the form of majority congressional concurrence.255 On the other hand,
Commissioners Garcia and Tadeo may have veered to the extreme side of the spectrum and their objections may be interpreted as votes against any foreign
participation in our natural resources whatsoever.
WMCP cites Opinion No. 75, s. 1987,256 and Opinion No. 175, s. 1990257 of the Secretary of Justice, expressing the view that a financial or technical assistance
agreement "is no different in concept" from the service contract allowed under the 1973 Constitution. This Court is not, however, bound by this interpretation.
When an administrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre-existing law; and the administrative
interpretation of the law is at best advisory, for it is the courts that finally determine what the law means.258
In any case, the constitutional provision allowing the President to enter into FTAAs with foreign-owned corporations is an exception to the rule that participation
in the nation's natural resources is reserved exclusively to Filipinos. Accordingly, such provision must be construed strictly against their enjoyment by non-
Filipinos. As Commissioner Villegas emphasized, the provision is "very restrictive."259 Commissioner Nolledo also remarked that "entering into service contracts is
an exception to the rule on protection of natural resources for the interest of the nation and, therefore, being an exception, it should be subject, whenever
possible, to stringent rules."260 Indeed, exceptions should be strictly but reasonably construed; they extend only so far as their language fairly warrants and all
doubts should be resolved in favor of the general provision rather than the exception.261
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said Act authorizes service contracts. Although the statute employs
the phrase "financial and technical agreements" in accordance with the 1987 Constitution, it actually treats these agreements as service contracts that grant
beneficial ownership to foreign contractors contrary to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of R.A. No. 7942 states:
SEC. 33. Eligibility.—Any qualified person with technical and financial capability to undertake large-scale exploration, development, and utilization of mineral
resources in the Philippines may enter into a financial or technical assistance agreement directly with the Government through the Department. [Emphasis
supplied.]
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by geological, geochemical or geophysical surveys, remote sensing, test pitting, trending, drilling, shaft
sinking, tunneling or any other means for the purpose of determining the existence, extent, quantity and quality thereof and the feasibility of mining them for
profit.262
A legally organized foreign-owned corporation may be granted an exploration permit,263 which vests it with the right to conduct exploration for all minerals in
specified areas,264 i.e., to enter, occupy and explore the same.265Eventually, the foreign-owned corporation, as such permittee, may apply for a financial and
technical assistance agreement.266
"Development" is the work undertaken to explore and prepare an ore body or a mineral deposit for mining, including the construction of necessary
infrastructure and related facilities.267
"Utilization" "means the extraction or disposition of minerals."268 A stipulation that the proponent shall dispose of the minerals and byproducts produced at the
highest price and more advantageous terms and conditions as provided for under the implementing rules and regulations is required to be incorporated in every
FTAA.269
A foreign-owned/-controlled corporation may likewise be granted a mineral processing permit.270 "Mineral processing" is the milling, beneficiation or upgrading
of ores or minerals and rocks or by similar means to convert the same into marketable products.271
An FTAA contractor makes a warranty that the mining operations shall be conducted in accordance with the provisions of R.A. No. 7942 and its implementing
rules272 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,277provided 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;
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
(i) have the right to mortgage, charge or encumber all or part of its interest and obligations under this Agreement, the plant, equipment and
infrastructure and the Minerals produced from the Mining Operations;
x x x. 295
All materials, equipment, plant and other installations erected or placed on the Contract Area remain the property of WMCP, which has the right to deal with
and remove such items within twelve months from the termination of the FTAA.296
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology, management and personnel necessary for the Mining Operations." The
mining company binds itself to "perform all Mining Operations . . . providing all necessary services, technology and financing in connection therewith,"297 and to
"furnish all materials, labour, equipment and other installations that may be required for carrying on all Mining Operations."298> WMCP may make expansions,
improvements and replacements of the mining facilities and may add such new facilities as it considers necessary for the mining operations.299
These contractual stipulations, taken together, grant WMCP beneficial ownership over natural resources that properly belong to the State and are intended for
the benefit of its citizens. These stipulations are abhorrent to the 1987 Constitution. They are precisely the vices that the fundamental law seeks to avoid, the
evils that it aims to suppress. Consequently, the contract from which they spring must be struck down.
In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the Promotion and Protection of Investments between the Philippine and
Australian Governments, which was signed in Manila on January 25, 1995 and which entered into force on December 8, 1995.
x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and thus the fact that [WMCP's] FTAA was entered into prior to the entry
into force of the treaty does not preclude the Philippine Government from protecting [WMCP's] investment in [that] FTAA. Likewise, Article 3 (1) of the treaty
provides that "Each Party shall encourage and promote investments in its area by investors of the other Party and shall [admit] such investments in accordance
with its Constitution, Laws, regulations and investment policies" and in Article 3 (2), it states that "Each Party shall ensure that investments are accorded fair and
equitable treatment." The latter stipulation indicates that it was intended to impose an obligation upon a Party to afford fair and equitable treatment to the
investments of the other Party and that a failure to provide such treatment by or under the laws of the Party may constitute a breach of the treaty. Simply
stated, the Philippines could not, under said treaty, rely upon the inadequacies of its own laws to deprive an Australian investor (like [WMCP]) of fair and
equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered into before the enactment of RA 7942 such as those
mentioned in PD 87 or EO 279.
This becomes more significant in the light of the fact that [WMCP's] FTAA was executed not by a mere Filipino citizen, but by the Philippine Government itself,
through its President no less, which, in entering into said treaty is assumed to be aware of the existing Philippine laws on service contracts over the exploration,
development and utilization of natural resources. The execution of the FTAA by the Philippine Government assures the Australian Government that the FTAA is
in accordance with existing Philippine laws.300 [Emphasis and italics by private respondents.]
The invalidation of the subject FTAA, it is argued, would constitute a breach of said treaty which, in turn, would amount to a violation of Section 3, Article II of
the Constitution adopting the generally accepted principles of international law as part of the law of the land. One of these generally accepted principles is pacta
sunt servanda, which requires the performance in good faith of treaty obligations.
Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its assertion that "the Philippines could not . . . deprive an Australian
investor (like [WMCP]) of fair and equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered into before the
enactment of RA 7942 . . .," the annulment of the FTAA would not constitute a breach of the treaty invoked. For this decision herein invalidating the subject
FTAA forms part of the legal system of the Philippines.301 The equal protection clause302 guarantees that such decision shall apply to all contracts belonging to
the same class, hence, upholding rather than violating, the "fair and equitable treatment" stipulation in said treaty.
One other matter requires clarification. Petitioners contend that, consistent with the provisions of Section 2, Article XII of the Constitution, the President may
enter into agreements involving "either technical or financial assistance" only. The agreement in question, however, is a technical and financial assistance
agreement.
Petitioners' contention does not lie. To adhere to the literal language of the Constitution would lead to absurd consequences.303 As WMCP correctly put it:
x x x such a theory of petitioners would compel the government (through the President) to enter into contract with two (2) foreign-owned corporations, one for
financial assistance agreement and with the other, for technical assistance over one and the same mining area or land; or to execute two (2) contracts with
only one foreign-owned corporation which has the capability to provide both financial and technical assistance, one for financial assistance and another for
technical assistance, over the same mining area. Such an absurd result is definitely not sanctioned under the canons of constitutional
construction.304 [Underscoring in the original.]
Surely, the framers of the 1987 Charter did not contemplate such an absurd result from their use of "either/or." A constitution is not to be interpreted as
demanding the impossible or the impracticable; and unreasonable or absurd consequences, if possible, should be avoided.305 Courts are not to give words a
meaning that would lead to absurd or unreasonable consequences and a literal interpretation is to be rejected if it would be unjust or lead to absurd
results.306 That is a strong argument against its adoption.307 Accordingly, petitioners' interpretation must be rejected.
The foregoing discussion has rendered unnecessary the resolution of the other issues raised by the petition.
WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,
(c) Section 33 to 41,
(d) Section 56,
(e) The second and third paragraphs of Section 81, and
(f) Section 90.
(2) All provisions of Department of Environment and Natural Resources Administrative Order 96-40, s. 1996 which are not in conformity with this
Decision, and
(3) The Financial and Technical Assistance Agreement between the Government of the Republic of the Philippines and WMC Philippines, Inc.
SO ORDERED.
G.R. No. 165416 January 22, 2008
OFFICE OF THE OMBUDSMAN, petitioner,

vs.
FLORITA A. MASING and JOCELYN A. TAYACTAC, respondents.
x - - - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 165584 January 22, 2008
OFFICE OF THE OMBUDSMAN, petitioner,

vs.
FLORITA A. MASING, respondent.
x - - - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 165731 January 22, 2008
PAUL L. CANSINO, FELICIDAD MOJICA, VENERANDO MOJICA and RICARTE L. MAMPARO, petitioners,
vs.
FLORITA A. MASING and JOCELYN A. TAYACTAC, respondents.
DECISION
PUNO, C.J.:
These cases involve the issue of whether the Ombudsman may directly discipline public school teachers and employees, or merely recommend appropriate
disciplinary action to the Department of Education, Culture and Sports (DECS).
In G.R. Nos. 165416 and 165731, respondent Florita A. Masing was the former Principal of the Davao City Integrated Special School (DCISS) in Bangkal, Davao
City. Respondent Jocelyn A. Tayactac was an office clerk in the same school. In 1997, respondents were administratively charged before the Office of the
Ombudsman for Mindanao for allegedly collecting unauthorized fees, failing to remit authorized fees, and to account for public funds. The cases were docketed
as follows:
1. OMB-MIN-ADM-97-193 for grave misconduct and neglect of duty, against respondent Masing only;
2. OMB-MIN-ADM-97-249 for violation of Republic Act No. 6713, against respondent Masing and a schoolteacher;
3. OMB-MIN-ADM-97-253 for violation of Republic Act No. 6713, against respondents Masing and Tayactac, and several schoolteachers;
4. OMB-MIN-ADM-97-254 for violation of Republic Act No. 6713, against respondent Masing and several schoolteachers.
The complainants were parents of children studying at the DCISS, among whom were the petitioners in G.R. No. 165731, namely, Paul L. Cansino, Felicidad
Mojica, Venerando Mojica, and Ricarte L. Mamparo.
On July 2, 1998, respondents filed a motion to dismiss on the ground that the Ombudsman has no jurisdiction over them. Respondents alleged that the DECS has
jurisdiction over them which shall exercise the same through a committee to be constituted under Section 9 of Republic Act (R.A.) No. 4670, otherwise known as
the "The Magna Carta for Public School Teachers." The motion was denied, as well as respondents’ motion for reconsideration.
On June 30, 2000, the Ombudsman for Mindanao rendered a joint decision finding respondents Masing and Tayactac guilty, the dispositive portion of which
reads:
WHEREFORE, PREMISES CONSIDERED, this Office finds substantial evidence that:
1. Respondent Florita Masing is guilty of gross misconduct, neglect of duty and violation of Section 4, paragraphs (a), (b), and (c) of RA 6713 in relation to
the collection of unauthorized fees, non-remittance of authorized fees and failure to account for public funds; and of misconduct in relation to the
complaint of Felicidad Mojica, and she is hereby DISMISSED FROM [THE] SERVICE with all the accessory penalties including forfeiture of retirement
benefits and disqualification from holding public office; and
2. Respondent Jocelyn Tayactac is guilty of simple neglect of duty, and is hereby suspended for a period of six (6) months. A repetition of the same
offense will be met with stiffer penalty. x x x x1
Respondents filed a motion for reconsideration which the Ombudsman denied in an Order dated September 26, 2000. Respondents sought recourse to the
Court of Appeals via a petition for review under Rule 43 of the Rules of Court, docketed as CA-G.R. SP No. 61993. On February 27, 2004, the Court of Appeals
granted the petition, viz:
WHEREFORE, the joint decision of June 30, 2000 and the Order of September 26, 2000 are REVERSED and SET ASIDE; and Administrative Cases Nos. OMB-MIN-
ADM-97-193, OMB-MIN-ADM-97-249, OMB-MIN-ADM-97-253, and OMB-MIN-ADM-97-254 of the Office of the Ombudsman-Mindanao are hereby DISMISSED.
The IMMEDIATE REINSTATEMENT of the petitioners with full backwages and other benefits is further ORDERED in the interest of justice.2
On April 13, 2004, the Office of the Ombudsman, which was not impleaded as respondent in the cases, filed an Omnibus Motion to Intervene and for
Reconsideration.3 The Court of Appeals denied the omnibus motion on the grounds that (1) intervention is not proper because it is sought by the quasi-judicial
body whose judgment is on appeal, and (2) intervention, even if permissible, is belated under Section 2, Rule 19 of the Rules of Court.4Hence, the petition before
us by the Office of the Ombudsman, docketed as G.R. No. 165416.
The complainant-parents filed their own petition for review of the Court of Appeals’ decision dated February 27, 2004, docketed as G.R. No. 165731.
In G.R. No. 165584, respondent Florita A. Masing faced yet another administrative case before the Office of the Ombudsman-Mindanao filed by Erlinda P.
Tan.5 The charges were oppression, serious misconduct, discourtesy in the conduct of official duties, and physical or mental incapacity or disability due to
immoral or vicious habits.
As in the other administrative cases, respondent Masing filed a motion to dismiss on the ground that the Office of the Ombudsman has no jurisdiction over the
case. The motion was denied, as well as respondent’s motion for reconsideration.
On December 27, 1999, the Ombudsman for Mindanao found respondent Masing guilty as charged and ordered her suspension for six (6) months without pay.
The DECS Regional Director, Regional Office No. XI, was ordered to implement the decision upon its finality.
Respondent Masing filed a petition for review with the Court of Appeals, docketed as CA-G.R. SP No. 58735. On July 31, 2003, the Court of Appeals set aside the
assailed Ombudsman decision, viz:
WHEREFORE, finding merit in the herein petition, the same is hereby given due course and the decision of the agency a quo in Case No. OMB-MIN-ADM-97-282
is hereby SET ASIDE, and petitioner is further declared as entitled to her salary which she failed to receive during the period of her flawed suspension.6
The Office of the Ombudsman filed an Omnibus Motion to Intervene and for Reconsideration which the Court of Appeals denied in its Resolution dated
September 30, 2004.7 Hence, this petition by the Office of the Ombudsman, docketed as G.R. No. 165584.
We consolidated G.R. Nos. 165416 and 165584 in our Resolution dated November 9, 2005. G.R. No. 165731 was consolidated per Resolution dated June 21,
2006.
The Office of the Ombudsman contends8—
I.
THE x x x COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AND IGNORED THE CLEAR LANGUAGE OF THE CONSTITUTION, LAW AND
JURISPRUDENCE WHEN IT RULED THAT PETITIONER OFFICE OF THE OMBUDSMAN HAS NO AUTHORITY TO DISCIPLINE ERRING MEMBERS OF THE
DEPARTMENT OF EDUCATION, CULTURE AND SPORTS (DECS), THIS CONSIDERING THAT:
(A) THE TAPIADOR [TAPIADOR VS. OFFICE OF THE OMBUDSMAN, 379 SCRA 322 (2002)] CASE CITED BY THE APPELLATE COURT A QUO IS NOT
APPLICABLE, AS THE TAPIADOR OBITER DICTUM CAN NEVER BE CITED AS A VALID RATIO DECIDENDI;
(B) THE FABELLA [FABELLA VS. COURT OF APPEALS, 282 SCRA 256 (1997)] CASE, WHICH INVOLVED AN ILLEGAL CONSTITUTION OF AN
INVESTIGATING COMMITTEE IN THE DECS, IS NOT APPLICABLE TO THE DISCIPLINARY CASE AGAINST PRIVATE RESPONDENTS PUBLIC SCHOOL
PRINCIPAL AND OFFICE CLERK OF THE DECS;
(C) SECTION 9 OF REPUBLIC ACT NO. 4670 (MAGNA CARTA FOR PUBLIC SCHOOL TEACHERS) HAS NOT ADDED PUBLIC SCHOOL PRINCIPALS,
TEACHERS AND EMPLOYEES, LIKE HEREIN PRIVATE RESPONDENTS, TO THE LIST OF SPECIAL PRIVILEGED CLASSES OF PUBLIC SERVANTS
EXEMPTED FROM THE OMBUDSMAN’S ADMINISTRATIVE DISCIPLINARY AUTHORITY UNDER THE SUBSEQUENT 1987 CONSTITUTION, AND ANY
SUCH INTERPRETATION SUFFERS FROM THE VICE OF UNCONSTITUTIONALITY;
(D) THE CONCEDED ADMINISTRATIVE DISCIPLINARY JURISDICTION OF THE PETITIONER OMBUDSMAN OVER PRIVATE RESPONDENTS, A PUBLIC
SCHOOL PRINCIPAL AND AN OFFICE CLERK OF THE DECS, WHICH IS FULLY SUPPORTED BY THE 1987 CONSTITUTION, REPUBLIC ACT NO. 6770
(THE OMBUDSMAN ACT OF 1989) AND EXISTING JURISPRUDENCE, CANNOT BE SUPPLANTED BY SECTION 9 OF REPUBLIC ACT NO. 4670 (MAGNA
CARTA FOR PUBLIC SCHOOL TEACHERS); AND
(E) THE POWER OF THE OMBUDSMAN TO DISCIPLINE PUBLIC SERVANTS NOT EXEMPTED FROM ITS JURISDICTION AND TO IMPLEMENT ITS
JUDGMENTS HAS BEEN AFFIRMED IN LEDESMA VS. COURT OF APPEALS, G.R. NO. 161629, 29 JULY 2005.9
(F) THE OFFICE OF THE OMBUDSMAN HAS CONCURRENT INVESTIGATIVE AND DISCIPLINARY AUTHORITY WITH THE DECS OVER PUBLIC SCHOOL
TEACHERS, INCLUDING HEREIN PRIVATE RESPONDENT MASING, AS THERE IS SIMPLY NO REPUGNANCE BETWEEN THE LAWS CONFERRING
INVESTIGATIVE AND DISCIPLINARY JURISDICTION ON THE OFFICE OF THE OMBUDSMAN (ART. XI, 1987 CONSTITUTION AND R.A. 6770) AND THE
LAWS CONFERRING THE SAME INVESTIGATIVE AND DISCIPLINARY JURISDICTION TO DECS (R.A. 4670 [MAGNA CARTA FOR PUBLIC SCHOOL
TEACHERS] AND P.D. 807, NOW BOOK V OF E.O. 292 [CIVIL SERVICE LAW]).10
II.
CONTRARY TO THE APPELLATE COURT A QUO’S RULING, THE PETITIONER OFFICE OF THE OMBUDSMAN TIMELY AND RIGHTFULLY FILED ITS OMNIBUS
MOTION TO INTERVENE AND FOR RECONSIDERATION ON A PATENTLY ERRONEOUS DECISION OF THE COURT OF APPEALS WHICH HAS NOT YET
ATTAINED FINALITY.11
The petitioners in G.R. No. 165731 contend—
I.
TAPIADOR V. OFFICE OF THE OMBUDSMAN (379 SCRA 322) CITED BY THE COURT OF APPEALS IS NOT APPLICABLE, AS THE TAPIADOR OBITER
DICTUM CAN NEVER BE CITED AS A VALID RATIO DECIDENDI. MOREOVER, THE TAPIADOR RULING HAS EFFECTIVELY BEEN ABANDONED BY THE
HONORABLE SUPREME COURT WHEN IT UPHELD THE DISCIPLINARY AUTHORITY OF THE OMBUDSMAN IN SUBSEQUENT CASES EVEN
AS TAPIADOR FAILED TO TAKE INTO ACCOUNT THE PROPER CONSTITUTIONAL AND STATUTORY BASES OF THE OMBUDSMAN’S DISCIPLINARY POWER
OVER ALL APPOINTIVE AND ELECTIVE PUBLIC OFFICIALS AND EMPLOYEES.
II.
TO INSIST THAT PUBLIC SCHOOL TEACHERS PURSUANT TO THE RULING IN FABELLA V. COURT OF APPEALS (G.R. NO. 110379, 28 NOVEMBER 1997) CAN
ONLY BE PROCEEDED AGAINST ADMINISTRATIVELY THROUGH THE "COMMITTEE" UNDER SECTION 9 OF R.A. NO. 4670 WOULD BE AN UNDUE,
UNWARRANTED AND INVALID "CLASSIFICATION" BY JUDICIAL FIAT OF A CERTAIN GROUP OF PUBLIC SERVANTS WHICH IS VIOLATIVE OF THE EQUAL
PROTECTION CLAUSE OF THE CONSTITUTION. MOREOVER, THE SAID LAW DOES NOT CONFER JURISDICTION ON THE "COMMITTEE."
III.
SECTION 9 OF REPUBLIC ACT NO. 4670 HAS NOT ADDED PUBLIC SCHOOL TEACHERS TO THE LIST OF SPECIAL PRIVILEGED CLASSES OF PUBLIC SERVANTS
EXEMPTED FROM THE OMBUDSMAN’S ADMINISTRATIVE DISCIPLINARY AUTHORITY UNDER THE 1987 CONSTITUTION, AND ANY SUCH INTERPRETATION
SUFFERS FROM THE VICE OF UNCONSTITUTIONALITY.
IV.
THE CONCEDED ADMINISTRATIVE DISCIPLINARY JURISDICTION OF THE OMBUDSMAN OVER THE HEREIN RESPONDENTS, WHICH IS FULLY SUPPORTED BY
THE 1987 CONSTITUTION, REPUBLIC ACT NO. 6770 AND EXISTING JURISPRUDENCE CANNOT BE SUPPLANTED BY SECTION 9 OF REPUBLIC ACT NO. 4670.
In sum, the pivotal issues are (1) whether the Office of the Ombudsman may intervene and seek reconsideration of the adverse decisions rendered by the Court
of Appeals, and (2) whether the Office of the Ombudsman may directly discipline public school teachers and employees.
First, the procedural issue. The Office of the Ombudsman was not allowed by the Court of Appeals to intervene because (1) the motions to intervene were filed
after the decisions have already been rendered in CA-G.R. SP Nos. 58735 and 61993, and (2) the Office of the Ombudsman was the quasi-judicial body which
rendered the impugned decisions.
Section 2, Rule 19 of the Rules of Court provides that a motion for intervention may be filed before rendition of judgment, viz:
SECTION 2. Time to intervene.– The motion to intervene may be filed at any time before rendition of judgment by the trial court. A copy of the
pleading-in-intervention shall be attached to the motion and served on the original parties. (emphasis ours)
We have ruled however that allowance or disallowance of a motion for intervention rests on the sound discretion of the court12 after consideration of the
appropriate circumstances.13 Rule 19 of the Rules of Court is a rule of procedure whose object is to make the powers of the court fully and completely available
for justice.14 Its purpose is not to hinder or delay but to facilitate and promote the administration of justice.15 Thus, interventions have been allowed even
beyond the prescribed period in the Rule in the higher interest of justice. Interventions have been granted to afford indispensable parties, who have not been
impleaded, the right to be heard even after a decision has been rendered by the trial court,16 when the petition for review of the judgment was already
submitted for decision before the Supreme Court,17 and even where the assailed order has already become final and executory.18 In Lim v. Pacquing,19 the
motion for intervention filed by the Republic of the Philippines was allowed by this Court to avoid grave injustice and injury and to settle once and for all the
substantive issues raised by the parties.
In the cases at bar, the rulings of the Court of Appeals adversely affected the all-important jurisdiction of the Office of the Ombudsman. The rulings aggrieved
the Office of the Ombudsman for they have serious consequences on its effectiveness as the body charged by the Constitution with the prosecution of officials
and employees of the government suspected of violating our laws on graft and corruption.
In Civil Service Commission v. Dacoycoy,20 we recognized the standing of the Civil Service Commission (CSC) to appeal a decision of the Court of Appeals which
reversed its decision finding Dacoycoy guilty of nepotism and ordering his dismissal from the service. Although the CSC was the quasi-judicial body which
rendered the decision appealed to the Court of Appeals, it became the party aggrieved or adversely affected by its decision which "seriously prejudices the civil
service system."21 In Constantino-David v. Pangandaman-Gania,22 we likewise ruled that the CSC may seek a review of decisions of the Court of Appeals that are
detrimental to its constitutional mandate as the central personnel agency of the government.23
However, rather than remand the cases at bar to the Court of Appeals for a ruling on the merits of the Ombudsman’s motions for reconsideration, we shall
resolve the legal issues involved in the interest of speedy justice.
The authority of the Ombudsman to act on complaints filed against public officers and employees is explicit in Article XI, Section 12 of the 1987 Constitution, viz:
The Ombudsman and his Deputies, as protectors of the people, shall act promptly on complaints filed in any form or manner against public officials or
employees of the Government, or any subdivision, agency or instrumentality thereof, including government-owned or controlled corporations, and
shall, in appropriate cases, notify the complainants of the action taken and the result thereof. (emphasis ours)
Article XI, Section 13 of the same Constitution delineates the powers, functions and duties of the Ombudsman as follows:
(1) Investigate on its own, or on complaint by any person, any act or omission of any public official, employee, office or agency, when such act or
omission appears to be illegal, unjust, improper, or inefficient.
(2) Direct, upon complaint or at its own instance, any public official or employee of the Government, or any subdivision, agency or instrumentality
thereof, as well as of any government-owned or controlled corporation with original charter, to perform and expedite any act or duty required by law, or
to stop, prevent, and correct any abuse or impropriety in the performance of duties.
(3) Direct the officer concerned to take appropriate action against a public official or employee at fault, and recommend his removal, suspension,
demotion, fine, censure, or prosecution, and ensure compliance therewith.
(4) Direct the officer concerned, in any appropriate case, and subject to such limitations as may be provided by law, to furnish it with copies of
documents relating to contracts and transactions entered into by his office involving the disbursement or use of public funds or properties, to the
Commission on Audit for appropriate and report any irregularity action.
(5) Request any government agency for assistance and information necessary in the discharge of its responsibilities, and to examine, if necessary,
pertinent records and documents.
(6) Publicize matters covered by its investigation when circumstances so warrant and with due prudence.
(7) Determine the causes of inefficiency, red tape, mismanagement, fraud, and corruption in the Government and make recommendations for their
elimination and the observance of high standards of ethics and efficiency.
(8) Promulgate its rules and procedure and exercise such other powers or perform such functions or duties as may be provided by law.
The enumeration of these powers is non-exclusive.24 Congress enacted R.A. No. 6770,25 otherwise known as The Ombudsman Act of 1989, on November 17,
1989 giving the Office such other powers that it may need to efficiently perform the task given by the Constitution,26 viz:
Section 15. Powers, Functions and Duties.- The Office of the Ombudsman shall have the following powers, functions and duties:
(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any public officer or employee, office or agency, when
such act or omission appears to be illegal, unjust, improper or inefficient. It has primary jurisdiction over cases cognizable by the Sandiganbayan and, in
the exercise of this primary jurisdiction, it may take over, at any stage, from any investigatory agency of the Government, the investigation of such cases;
(2) Direct, upon complaint or at its own instance, any officer or employee of the Government, or of any subdivision, agency or instrumentality thereof, as
well as any government-owned or controlled corporations with original charter, to perform and expedite any act or duty required by law, or to stop,
prevent, and correct any abuse or impropriety in the performance of duties;
(3) Direct the officer concerned to take appropriate action against a public officer or employee at fault or who neglects to perform an act or discharge a
duty required by law, and recommend his removal, suspension, demotion, fine, censure, or prosecution, and ensure compliance therewith; or enforce its
disciplinary authority as provided in Section 21 of this Act; Provided, That the refusal by any officer without just cause to comply with an order of the
Ombudsman to remove, suspend, demote, fine, censure, or prosecute an officer or employee who is at fault or who neglects to perform an act or
discharge a duty required by law shall be a ground for disciplinary action against said officer;
(4) Direct the officer concerned, in any appropriate case, and subject to such limitations as it may provide in its rules of procedure, to furnish it with
copies of documents relating to contracts or transactions entered into by his office involving the disbursement or use of public funds or properties, and
report any irregularity to the Commission on Audit for appropriate action;
(5) Request any government agency for assistance and information necessary in the discharge of its responsibilities, and to examine, if necessary,
pertinent records and documents;
(6) Publicize matters covered by is investigation of the matters mentioned in paragraphs (1), (2), (3) and (4) hereof, when circumstances so warrant and
with due prudence: Provided, That the Ombudsman under its rules and regulations may determine what cases may not be made public: Provided,
further, That any publicity issued by the Ombudsman shall be balanced, fair and true;
(7) Determine the causes of inefficiency, red tape, mismanagement, fraud and corruption in the Government, and make recommendations for their
elimination and the observance of high standards of ethics and efficiency;
(8) Administer oaths, issue subpoena and subpoena duces tecum, and take testimony in any investigation or inquiry, including the power to examine and
have access to bank accounts and records;
(9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the same penalties provided therein;
(10) Delegate to the Deputies, or its investigators or representatives such authority or duty as shall ensure the effective exercise or performance of the
powers, functions, and duties herein or hereinafter provided;
(11) Investigate and initiate the proper action for the recovery of ill-gotten and/or unexplained wealth amassed after February 25, 1986 and the
prosecution of the parties involved therein. x x x x27
In fine, the manifest intent of the lawmakers was to bestow on the Office of the Ombudsman full administrative disciplinary authority in accord with the
constitutional deliberations.28 Unlike the Ombudsman-like agencies of the past the powers of which extend to no more than making findings of fact and
recommendations, and the Ombudsman or Tanodbayan under the 1973 Constitution who may file and prosecute criminal, civil or administrative cases against
public officials and employees only in cases of failure of justice, the Ombudsman under the 1987 Constitution and R.A. No. 6770 is intended to play a more active
role in the enforcement of laws on anti-graft and corrupt practices and other offenses committed by public officers and employees.29 The Ombudsman is to be
an "activist watchman," not merely a passive one.30 He is vested with broad powers to enable him to implement his own actions.31
Respondents, however, insist that the findings of the Ombudsman are mere recommendations, and that he may not directly impose administrative sanctions on
public officials and employees, citing Tapiador v. Office of the Ombudsman32 where the following statement is found, viz:
x x x x Besides, assuming arguendo, that petitioner was administratively liable, the Ombudsman has no authority to directly dismiss the petitioner from
the government service, more particularly from his position in the BID. Under Section 13, subparagraph (3), of Article XI of the 1987 Constitution, the
Ombudsman can only "recommend" the removal of the public official or employee found to be at fault, to the public official concerned.
The foregoing is now a settled issue. In Ledesma v. Court of Appeals,33 we explained Tapiador and ruled categorically that:
x x x x Under Section 13(3) of Article XI of the 1987 Constitution, it is provided:
Section 13. The Office of the Ombudsman shall have the following powers, functions, and duties:
...
(3) Direct the officer concerned to take appropriate action against a public official or employee at fault, and recommend his removal,
suspension, demotion, fine, censure, or prosecution, and ensure compliance therewith. (Emphasis supplied)
Petitioner insists that the word "recommend" be given its literal meaning; that is, that the Ombudsman’s action is only advisory in nature rather than
one having any binding effect, citing Tapiador v. Office of the Ombudsman, thus:
. . . Besides, assuming arguendo, that petitioner were administratively liable, the Ombudsman has no authority to directly dismiss the petitioner
from the government service, more particularly from his position in the BID. Under Section 13, subparagraph (3), of Article XI of the 1987
Constitution, the Ombudsman can only "recommend" the removal of the public official or employee found to be at fault, to the public official
concerned.
For their part, the Solicitor General and the Office of the Ombudsman argue that the word "recommend" must be taken in conjunction with the phrase
"and ensure compliance therewith." The proper interpretation of the Court’s statement in Tapiador should be that the Ombudsman has the authority
to determine the administrative liability of a public official or employee at fault, and direct and compel the head of the office or agency concerned to
implement the penalty imposed. In other words, it merely concerns the procedural aspect of the Ombudsman’s functions and not its jurisdiction.
We agree with the ratiocination of public respondents. Several reasons militate against a literal interpretation of the subject Constitutional provision.
Firstly, a cursory reading of Tapiador reveals that the main point of the case was the failure of the complainant therein to present substantial evidence
to prove the charges of the administrative case. The statement that made reference to the power of the Ombudsman is, at best, merely an obiter
dictum and, as it is unsupported by sufficient explanation, is susceptible to varying interpretations x x x x [h]ence, it cannot be cited as a doctrinal
declaration of this Court nor is it safe from judicial examination. (emphases ours)
We reiterated this ruling in Office of the Ombudsman v. Laja,34 where we emphasized that "the Ombudsman’s order to remove, suspend, demote, fine, censure,
or prosecute an officer or employee is not merely advisory or recommendatory but is actually mandatory."35 Implementation of the order imposing the penalty
is, however, to be coursed through the proper officer.36 Recently, in Office of the Ombudsman v. Court of Appeals,37 we also held—
While Section 15(3) of RA 6770 states that the Ombudsman has the power to "recommend x x x removal, suspension, demotion x x x" of government
officials and employees, the same Section 15(3) also states that the Ombudsman in the alternative may "enforce its disciplinary authority as provided in
Section 21" of RA 6770. (emphasis supplied)
Finally, respondent Masing contends that she may be administratively dealt with only by following the procedure prescribed in Section 9 of R.A. No. 4670 or
the The Magna Carta for Public School Teachers. She cites Fabella v. Court of Appeals.38
Section 9, R.A. No. 4670 provides—
Section 9. Administrative Charges.- Administrative charges against a teacher shall be heard initially by a committee composed of the corresponding
School Superintendent of the Division or a duly authorized representative who should at least have the rank of a division supervisor, where the teacher
belongs, as chairman, a representative of the local or, in its absence, any existing provincial or national teachers’ organization and a supervisor of the
Division, the last two to be designated by the Director of Public Schools. The Committee shall submit its findings, and recommendations to the Director
of Public Schools within thirty days from the termination of the hearings; Provided, however, That where the school superintendent is the complainant
or an interested party, all the members of the committee shall be appointed by the Secretary of Education.
In Fabella, several public schoolteachers were administratively charged by then DECS Secretary Isidro Cariño for taking part in mass actions in violation of civil
service laws and regulations. A committee was constituted to hear the charges. The teachers assailed the procedure adopted by the committee in a petition for
certiorari filed before the Regional Trial Court of Quezon City. In affirming the regional trial court’s decision which declared illegal the constitution of the
committee, we ruled—
x x x x Section 9 of RA 4670 x x x reflects the legislative intent to impose a standard and a separate set of procedural requirements in connection with
administrative proceedings involving public schoolteachers. x x x [R]ight to due process of law requires compliance with these requirements laid down by
RA 4670.39
Fabella, however, does not apply to the cases at bar. The public schoolteachers in Fabella were charged with violations of civil service laws, rules and regulations
in administrative proceedings initiated by the DECS Secretary. In contrast, herein respondents Masing and Tayactac were administratively charged in letter-
complaints duly filed before the Office of the Ombudsman for Mindanao. The charges were for violations of R.A. No. 6713, otherwise known as the Code of
Conduct and Ethical Standards for Public Officials and Employees, collecting unauthorized fees, failure to remit authorized fees, failure to account for public
funds, oppression, serious misconduct, discourtesy in the conduct of official duties, and physical or mental incapacity or disability due to immoral or vicious
habits. In short, the acts and omissions complained of relate to respondents’ conduct as public official and employee, if not to outright graft and corruption.
The authority of the Office of the Ombudsman to conduct administrative investigations is beyond cavil.40 As the principal and primary complaints and
action center41 against erring public officers and employees, it is mandated by no less than Section 13(1), Article XI of the Constitution.42 In conjunction
therewith, Section 19 of R.A. No. 6770 grants to the Ombudsman the authority to act on all administrative complaints,43 viz:
Sec. 19. Administrative complaints.— The Ombudsman shall act on all complaints relating, but not limited, to acts or omissions which:
(1) Are contrary to law or regulation;
(2) Are unreasonable, unfair, oppressive or discriminatory;
(3) Are inconsistent with the general course of an agency’s functions, though in accordance with law;
(4) Proceed from a mistake of law or an arbitrary ascertainment of facts;
(5) Are in the exercise of discretionary powers but for an improper purpose; or
(6) Are otherwise irregular, immoral or devoid of justification.
Section 23(1) of the same law provides that administrative investigations conducted by the Office of the Ombudsman shall be in accordance with its rules of
procedure and consistent with due process.
It is erroneous, therefore, for respondents to contend that R.A. No. 4670 confers an exclusive disciplinary authority on the DECS over public school teachers and
prescribes an exclusive procedure in administrative investigations involving them.44 R.A. No. 4670 was approved on June 18, 1966. On the other hand, the 1987
Constitution was ratified by the people in a plebiscite in 1987 while R.A. No. 6770 was enacted on November 17, 1989. It is basic that the 1987 Constitution
should not be restricted in its meaning by a law of earlier enactment. The 1987 Constitution and R.A. No. 6770 were quite explicit in conferring authority on the
Ombudsman to act on complaints against all public officials and employees, with the exception of officials who may be removed only by impeachment or over
members of Congress and the Judiciary.45 If an issue should ever arise, therefore, it should rather be whether the 1987 Constitution and R.A. No. 6770 have
abrogated R.A. No. 4670. However, repeals by implication are not favored, and courts have the duty to harmonize, so far as it is practicable, apparently
conflicting or inconsistent provisions. Therefore, the statement in Fabella that Section 9 of R.A. No. 4670 "reflects the legislative intent to impose a standard and
a separate set of procedural requirements in connection with administrative proceedings involving public schoolteachers" should be construed as referring only
to the specific procedure to be followed in administrative investigations conducted by the DECS.
IN VIEW WHEREOF, the petitions are GRANTED. The assailed Decisions of the Court of Appeals dated February 27, 2004 and July 31, 2003, as well as its
Resolutions dated September 27, 2004 and September 30, 2004, in CA-G.R. SP No. 61993 and CA-G.R. SP No. 58735, respectively, are REVERSED and SET ASIDE.
The Joint Decision dated June 30, 2000 of the Office of the Ombudsman for Mindanao in Administrative Case Nos. OMB-MIN-ADM-97-193, OMB-MIN-ADM-97-
249, OMB-MIN-ADM-97-253 and OMB-MIN-ADM-97-254 and its Decision dated December 27, 1999 in OMB-MIN-ADM-97-282, as well as its orders denying
reconsideration, are REINSTATED.
SO ORDERED.
G.R. No. 124293. September 24, 2003]
JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST
and PHILYARDS HOLDINGS, INC.,respondents.
RESOLUTION
PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a shipyard is a public utility whose capitalization must be sixty percent (60%) owned by
Filipinos. Our resolution of this issue will determine the fate of the shipbuilding and ship repair industry. It can either spell the industrys demise or breathe new
life to the struggling but potentially healthy partner in the countrys bid for economic growth. It can either kill an initiative yet in its infancy, or harness creativity
in the productive disposition of government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement
(JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc. (SNS)
which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330
million for the capitalization of PHILSECO in the proportion of 60%-40% respectively.[1] One of its salient features is the grant to the parties of the right of first
refusal should either of them decide to sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without giving the other under the same terms the
right of first refusal. This provision shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.[2]
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued
Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve,
manage and dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was entered into between the
National Government and the APT wherein the latter was named the trustee of the National Governments share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National Governments shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKIs shareholdings to 2.59%.[3]
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Governments share in PHILSECO to
private entities. After a series of negotiations between the APT and KAWASAKI, they agreed that the latters right of first refusal under the JVA be exchanged for
the right to top by five percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it
was a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would exercise its
right to top.[4]
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between NIDC and KAWASAKI, and of the Asset
Specific Bidding Rules (ASBR) drafted for the National Governments 87.6% equity share in PHILSECO.[5] The provisions of the ASBR were explained to the
interested bidders who were notified that the bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Governments equity in PHILSECO consisting of 896,869,942
shares of stock (representing 87.67% of PHILSECOs outstanding capital stock), which will be sold as a whole block in accordance with the rules herein
enumerated.
...
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National Governments 87.67% equity in PHILSECO is PESOS:
ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding, for the purpose of determining whether
or not it should be endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc.
and/or its nominee, Philyards Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their Option to Top
the Highest Bid by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their Option to Top the Highest Bid, they shall so notify the APT about such
exercise of their option and deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-
day period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. declaring them as
the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APTs notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise their Option to Top the Highest Bid within the thirty (30)-day period,
APT will declare the highest bidder as the winning bidder.
...
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including any addenda or amendments thereto
issued during the bidding period. The bidder shall likewise be responsible for informing itself with respect to any and all conditions concerning the PHILSECO
Shares which may, in any manner, affect the bidders proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no relief
for error or omission will be given by APT or COP. . ..[6]
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with
an acknowledgement of KAWASAKI/Philyards right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APTs recommendation based on the result of this bidding.
Should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that the highest bid is
acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from
the date of receipt of such advice from APT within which to exercise their Option to Top the Highest Bid by offering a bid equivalent to the highest bid plus five
(5%) percent thereof.[7]
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 subject to the right of Kawasaki Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules.[8]
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium
composed of Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing bidders
thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to
PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit
consortium was not estopped from questioning the proceedings.[9]
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject bidding. On February 7, 1994, the APT
notified petitioner that PHI had exercised its option to top the highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994,
the APT and PHI executed a Stock Purchase Agreement.[10] Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On
May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the
petition for mandamus was not the proper remedy to question the constitutionality or legality of the right of first refusal and the right to top that was exercised
by KAWASAKI/PHI, and that the matter must be brought by the proper party in the proper forum at the proper time and threshed out in a full blown trial. The
Court of Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner, by participating in the public
bidding, with full knowledge of the right to top granted to KASAWASAKI/Philyards is . . .estopped from questioning the validity of the award given to Philyards
after the latter exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR. Petitioner filed a Motion for
Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.[11]
On November 20, 2000, this Court rendered the now assailed Decision ruling among others that the Court of Appeals erred when it dismissed the petition
on the sole ground of the impropriety of the special civil action of mandamus because the petition was also one of certiorari.[12] It further ruled that a shipyard
like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned.[13] Consequently, the right to top granted to KAWASAKI under
the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal---not only because it violates
the rules on competitive bidding--- but more so, because it allows foreign corporations to own more than 40% equity in the shipyard.[14] It also held that
although the petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof.[15] Thus, this Court voided the transfer of the national governments 87.67% share in PHILSECO to
Philyard Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the Court of Appeals are REVERSED and SET
ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00 ), less its bid deposit plus interests upon the finality
of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECOs total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.[16]
In separate Motions for Reconsideration,[17] respondents submit three basic issues for our resolution: (1) Whether PHILSECO is a public utility; (2) Whether
under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top
granted to KAWASAKI violates the principles of competitive bidding.
I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not a public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity,
gas, water, transportation, telephone or telegraph service.[18] To constitute a public utility, the facility must be necessary for the maintenance of life and
occupation of the residents. However, the fact that a business offers services or goods that promote public good and serve the interest of the public does not
automatically make it a public utility. Public use is not synonymous with public interest. As its name indicates, the term public utility implies public
use and service to the public. The principal determinative characteristic of a public utility is that of service to, or readiness to serve, an indefinite public or
portion of the public as such which has a legal right to demand and receive its services or commodities. Stated otherwise, the owner or person in control of a
public utility must have devoted it to such use that the public generally or that part of the public which has been served and has accepted the service, has the
right to demand that use or service so long as it is continued, with reasonable efficiency and under proper charges. [19] Unlike a private enterprise which
independently determines whom it will serve, a public utility holds out generally and may not refuse legitimate demand for service.[20] Thus, in Iloilo Ice and Cold
Storage Co. vs. Public Utility Board,[21] this Court defined public use, viz:
Public use means the same as use by the public. The essential feature of the public use is that it is not confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted quality that gives it its public character. In determining whether a use is public, we must look not only to the
character of the business to be done, but also to the proposed mode of doing it. If the use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of jurisdiction of the public utility commission. There must be, in general, a right which the law compels
the owner to give to the general public. It is not enough that the general prosperity of the public is promoted. Public use is not synonymous with public
interest. The true criterion by which to judge the character of the use is whether the public may enjoy it by right or only by permission.[22] (emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a shipyard cannot be considered a public utility.
A shipyard is a place or enclosure where ships are built or repaired.[23] Its nature dictates that it serves but a limited clientele whom it may choose to serve
at its discretion. While it offers its facilities to whoever may wish to avail of its services, a shipyard is not legally obliged to render its services indiscriminately
to the public. It has no legal obligation to render the services sought by each and every client. The fact that it publicly offers its services does not give the public
a legal right to demand that such services be rendered.
There can be no disagreement that the shipbuilding and ship repair industry is imbued with public interest as it involves the maintenance of the
seaworthiness of vessels dedicated to the transportation of either persons or goods. Nevertheless, the fact that a business is affected with public interest does
not imply that it is under a duty to serve the public. While the business may be regulated for public good, the regulation cannot justify the classification of a
purely private enterprise as a public utility. The legislature cannot, by its mere declaration, make something a public utility which is not in fact such; and a
private business operated under private contracts with selected customers and not devoted to public use cannot, by legislative fiat or by order of a public
service commission, be declared a public utility, since that would be taking private property for public use without just compensation, which cannot be done
consistently with the due process clause.[24]
It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to shipyards, are not considered public utilities despite the fact
that their operations greatly impact on land and air transportation. The reason is simple. Unlike commodities or services traditionally regarded as public utilities
such as electricity, gas, water, transportation, telephone or telegraph service, automobile and aircraft manufacturing---and for that matter ship building and ship
repair--- serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the intent of any law. The succession of laws affecting the status of shipyards
ought not to obliterate, but rather, give us full picture of the intent of the legislature. The totality of the circumstances, including the contemporaneous
interpretation accorded by the administrative bodies tasked with the enforcement of the law all lead to a singular conclusion: that shipyards are not public
utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until its repeal by Commonwealth Act No. 146, establishing the
Public Service Commission (PSC), a shipyard, by legislative declaration, has been considered a public utility.[25] A Certificate of Public Convenience (CPC) from the
PSC to the effect that the operation of the said service and the authorization to do business will promote the public interests in a proper and suitable manner is
required before any person or corporation may operate a shipyard.[26] In addition, such persons or corporations should abide by the citizenship requirement
provided in Article XIII, section 8 of the 1935 Constitution,[27] viz:
Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or other entities organized under the laws of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines, nor
shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any
individual, firm or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public
interest so requires. (emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry, former President Ferdinand E. Marcos issued P.D. No. 666 granting the following
incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority shall be entitled to the following incentive benefits:
(a) Exemption from import duties and taxes.- The importation of machinery, equipment and materials for shipbuilding, ship repair and/or alteration, including
indirect import, as well as replacement and spare parts for the repair and overhaul of vessels such as steel plates, electrical machinery and electronic parts, shall
be exempt from the payment of customs duty and compensating tax: Provided, however, That the Maritime Industry Authority certifies that the item or items
imported are not produced locally in sufficient quantity and acceptable quality at reasonable prices, and that the importation is directly and actually needed and
will be used exclusively for the construction, repair, alteration, or overhaul of merchant vessels, and other watercrafts; Provided, further, That if the above
machinery, equipment, materials and spare parts are sold to non-tax exempt persons or entities, the corresponding duties and taxes shall be paid by the original
importer; Provided, finally, That local dealers and/or agents who sell machinery, equipment, materials and accessories to shipyards for shipbuilding and ship
repair are entitled to tax credits, subject to approval by the total tariff duties and compensating tax paid for said machinery, equipment, materials and
accessories.
(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of the shipbuilder and ship repairer, be depreciated for any number of years
between five years and expected economic life.
(c) Exemption from contractors percentage tax.- The gross receipts derived by shipbuilders and ship repairers from shipbuilding and ship repairing activities shall
be exempt from the Contractors Tax provided in Section 91 of the National Internal Revenue Code during the first ten years from registration with the Maritime
Industry Authority, provided that such registration is effected not later than the year 1990; Provided, That any and all amounts which would otherwise have
been paid as contractors tax shall be set aside as a separate fund, to be known as Shipyard Development Fund, by the contractor for the purpose of expansion,
modernization and/or improvement of the contractors own shipbuilding or ship repairing facilities; Provided, That, for this purpose, the contractor shall submit
an annual statement of its receipts to the Maritime Industry Authority; and Provided, further, That any disbursement from such fund for any of the purposes
hereinabove stated shall be subject to approval by the Maritime Industry Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of public utilities, thereby freeing the industry from the 60%
citizenship requirement under the Constitution and from the need to obtain Certificate of Public Convenience pursuant to section 15 of C.A No. 146. Section 1
(d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility.- The business of constructing and repairing vessels or parts thereof shall not be considered a public utility
and no Certificate of Public Convenience shall be required therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no person or
enterprise shall engage in construction and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of Registration and license for this
purpose from the Maritime Industry Authority, except those owned or operated by the Armed Forces of the Philippines or by foreign governments pursuant to a
treaty or agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666 were repealed or modified accordingly.[28] Consequently, sections
13 (b) and 15 of C.A. No. 146 were repealed in so far as the former law included shipyards in the list of public utilities and required the certificate of public
convenience for their operation. Simply stated, the repeal was due to irreconcilable inconsistency, and by definition, this kind of repeal falls under the category
of an implied repeal.[29]
On April 28, 1983, Batas Pambansa Blg. 391, also known as the Investment Incentive Policy Act of 1983, was enacted. It laid down the general policy of the
government to encourage private domestic and foreign investments in the various sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private domestic and foreign investments in industry, agriculture, mining and
other sectors of the economy which shall: provide significant employment opportunities relative to the amount of the capital being invested; increase
productivity of the land, minerals, forestry, aquatic and other resources of the country, and improve utilization of the products thereof; improve technical skills
of the people employed in the enterprise; provide a foundation for the future development of the economy; accelerate development of less developed regions
of the country; and result in increased volume and value of exports for the economy.
It is the policy of the State to extend to projects which will significantly contribute to the attainment of these objectives, fiscal incentives without which said
projects may not be established in the locales, number and/or pace required for optimum national economic development. Fiscal incentive systems shall be
devised to compensate for market imperfections, reward performance of making contributions to economic development, cost-efficient and be simple to
administer.
The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the enterprise, and shall terminate after a period of not more
than 10 years from registration or start-up of operation unless a special period is otherwise stated.
The foregoing declaration shall apply to all investment incentive schemes and in particular will supersede article 2 of Presidential Decree No. 1789. (emphases
supplied)
With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following laws, viz:
Sec. 20. The following provisions are hereby repealed:
1) Section 53, P.D. 463 (Mineral Resources Development Decree);
2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);
3) Section 6, P.D. 1101 (Radioactive Minerals);
4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d), 62, and 77. Articles 45, 46 and 48 are hereby amended only with
respect to domestic and export producers.
All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof which are inconsistent with the provisions of this Act are
hereby repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this Act may be restructured by the President so as to render them cost-
efficient and to make them conform with the other policy guidelines in the declaration of policy provided in Section 2 of this Act. (emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was expressly and categorically repealed. As a consequence, the
provisions of C.A. No. 146, which were impliedly repealed by P.D. No. 666, section 1 were revived.[30] In other words, with the enactment of Batas Pambansa Blg.
391, a shipyard reverted back to its status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas Pambansa Blg. 391 by Executive Order No. 226 issued by former President
Corazon C. Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No. 666. But more importantly, it also put a
period to the existence of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as originally written, owed their
continued existence to Batas Pambansa Blg. 391. Had the latter not repealed P.D. No. 666, the former should have been modified accordingly and shipyards
effectively removed from the list of public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13 (b) and 15
of C.A. No. 146 had no more leg to stand on. A law that has been expressly repealed ceases to exist and becomes inoperative from the moment the repealing
law becomes effective.[31] Hence, there is simply no basis in the conclusion that shipyards remain to be a public utility. A repealed statute cannot be the basis for
classifying shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not a pubic utility. A shipyard has been considered a public utility
merely by legislative declaration. Absent this declaration, there is no more reason why it should continuously be regarded as such. The fact that the legislature
did not clearly and unambiguously express its intention to include shipyards in the list of public utilities indicates that that it did not intend to do so. Thus, a
shipyard reverts back to its status as non-public utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the Board of Investments (BOI), which was entrusted by the legislature
with the preparation of annual Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the manufacturing sector and not of the
public utilities sector. The enactment of Batas Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been, as at present, classified as part
of the manufacturing and not of the public utilities sector.[32]
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the MARINA,[33] none appears to have an existing franchise. If we
continue to hold that a shipyard is a pubic utility, it is a necessary consequence that all these entities should have obtained a franchise as was the rule prior to
the enactment of P.D. No. 666. But MARINA remains without authority, pursuant to P.D. No. 474[34] to issue franchises for the operation of shipyards. Surely,
the legislature did not intend to create a vacuum by continuously treating a shipyard as a public utility without giving MARINA the power to issue a
Certificate of Public Convenience (CPC) or a Certificate of Public Convenience and Necessity (CPCN) as required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that prevents KAWASAKI from acquiring more than 40% of PHILSECOs
total capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter increase their subscription in Philseco as may be necessary and as
called by the Board of Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI respectively, up to a total subscribed and paid-up capital stock
of P312 million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed PHILSECO] to any third party without giving the other under the same
terms the right of first refusal. This provision shall not apply if the transferee is a corporation owned and controlled by the GOVERMENT [of the Philippines] or by
a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued shares of SNS [PHILSECO].[35]
Under section 1.3, the parties agreed to the amount of P330 million as the total capitalization of their joint venture. There was no mention of the amount of
their initial subscription. What is clear is that they are to infuse the needed capital from time to time until the total subscribed and paid-up capital reaches P312
million. The phrase maintaining a proportion of 60%-40% refers to their respective share of the burden each time the Board of Directors decides to increase the
subscription to reach the target paid-up capital of P312 million. It does not bind the parties to maintain the sharing scheme all throughout the existence of their
partnership.
The parties likewise agreed to arm themselves with protective mechanisms to preserve their respective interests in the partnership in the event that (a) one
party decides to sell its shares to third parties; and (b) new Philseco shares are issued.Anent the first situation, the non-selling party is given the right of first
refusal under section 1.4 to have a preferential right to buy or to refuse the selling partys shares. The right of first refusal is meant to protect the original or
remaining joint venturer(s) or shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint
venture between the Philippine Government and KAWASAKI is in the nature of a partnership[36] which, unlike an ordinary corporation, is based on delectus
personae.[37] No one can become a member of the partnership association without the consent of all the other associates. The right of first refusal thus ensures
that the parties are given control over who may become a new partner in substitution of or in addition to the original partners. Should the selling partner decide
to dispose all its shares, the non-selling partner may acquire all these shares and terminate the partnership. No person or corporation can be compelled to
remain or to continue the partnership. Of course, this presupposes that there are no other restrictions in the maximum allowable share that the non-selling
partner may acquire such as the constitutional restriction on foreign ownership in public utility. The theory that KAWASAKI can acquire, as a maximum, only 40%
of PHILSECOs shares is correct only if a shipyard is a public utility. In such instance, the non-selling partner who is an alien can acquire only a maximum of 40% of
the total capitalization of a public utility despite the grant of first refusal. The partners cannot, by mere agreement, avoid the constitutional proscription. But as
afore-discussed, PHILSECO is not a public utility and no other restriction is present that would limit the right of KAWASAKI to purchase the Governments share to
40% of Philsecos total capitalization.
Furthermore, the phrase under the same terms in section 1.4 cannot be given an interpretation that would limit the right of KAWASAKI to purchase
PHILSECO shares only to the extent of its original proportionate contribution of 40% to the total capitalization of the PHILSECO. Taken together with the whole of
section 1.4, the phrase under the same terms means that a partner to the joint venture that decides to sell its shares to a third party shall make a similar offer
to the non-selling partner. The selling partner cannot make a different or a more onerous offer to the non-selling partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the conditions attendant to the sale for it to have a guided
choice. While the right of first refusal protects the non-selling partner from the entry of third persons, it cannot also deprive the other partner the right to sell its
shares to third persons if, under the same offer, it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in the unissued shares of Philseco. Unlike the former, this
situation does not contemplate transfer of a partners shares to third parties but the issuance of new Philseco shares. The grant of preemptive rights preserves
the proportionate shares of the original partners so as not to dilute their respective interests with the issuance of the new shares. Unlike the right of first refusal,
a preemptive right gives a partner a preferential right over the newly issued shares only to the extent that it retains its original proportionate share in the joint
venture.
The case at bar does not concern the issuance of new shares but the transfer of a partners share in the joint venture. Verily, the operative protective
mechanism is the right of first refusal which does not impose any limitation in the maximum shares that the non-selling partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private respondent did not violate the rules of competitive bidding.
The word bidding in its comprehensive sense means making an offer or an invitation to prospective contractors whereby the government manifests its
intention to make proposals for the purpose of supplies, materials and equipment for official business or public use, or for public works or repair.[38] The three
principles of public bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for comparison of bids.[39] As long as these three
principles are complied with, the public bidding can be considered valid and legal. It is not necessary that the highest bid be automatically accepted. The bidding
rules may specify other conditions or the bidding process be subjected to certain reservation or qualification such as when the owner reserves to himself openly
at the time of the sale the right to bid upon the property, or openly announces a price below which the property will not be sold. Hence, where the seller
reserves the right to refuse to accept any bid made, a binding sale is not consummated between the seller and the bidder until the seller accepts the bid.
Furthermore, where a right is reserved in the seller to reject any and all bids received, the owner may exercise the right even after the auctioneer has accepted a
bid, and this applies to the auction of public as well as private property. [40] Thus:
It is a settled rule that where the invitation to bid contains a reservation for the Government to reject any or all bids, the lowest or the highest bidder, as the
case may be, is not entitled to an award as a matter of right for it does not become a ministerial duty of the Government to make such an award. Thus, it has
been held that where the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality, that all bids may be
rejected, even if arbitrarily and unwisely, or under a mistake, and that in the exercise of a sound discretion, the award may be made to another than the lowest
bidder. And so, where the Government as advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no cause to
complain nor right to dispute that choice, unless an unfairness or injustice is shown. Accordingly, he has no ground of action to compel the Government to
award the contract in his favor, nor compel it to accept his bid.[41]
In the instant case, the sale of the Government shares in PHILSECO was publicly known. All interested bidders were welcomed. The basis for comparing the
bids were laid down. All bids were accepted sealed and were opened and read in the presence of the COAs official representative and before all interested
bidders. The only question that remains is whether or not the existence of KAWASAKIs right to top destroys the essence of competitive bidding so as to say that
the bidders did not have an opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal footing. This means that all qualified bidders have an equal chance of
winning the auction through their bids. In the case at bar, all of the bidders were exposed to the same risk and were subjected to the same condition, i.e., the
existence of KAWASAKIs right to top. Under the ASBR, the Government expressly reserved the right to reject any or all bids, and manifested its intention not to
accept the highest bid should KAWASAKI decide to exercise its right to top under the ABSR. This reservation or qualification was made known to the bidders in a
pre-bidding conference held on September 28, 1993. They all expressly accepted this condition in writing without any qualification. Furthermore, when the
Committee on Privatization notified petitioner of the approval of the sale of the National Government shares of stock in PHILSECO, it specifically stated that such
approval was subject to the right of KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules. Clearly,
the approval of the sale was a conditional one. Since Philyards eventually exercised its right to top petitioners bid by 5%, the sale was not
consummated. Parenthetically, it cannot be argued that the existence of the right to top set for naught the entire public bidding. Had Philyards Holdings, Inc.
failed or refused to exercise its right to top, the sale between the petitioner and the National Government would have been consummated. In like manner, the
existence of the right to top cannot be likened to a second bidding, which is countenanced, except when there is failure to bid as when there is only one bidder
or none at all. A prohibited second bidding presupposes that based on the terms and conditions of the sale, there is already a highest bidder with the right to
demand that the seller accept its bid. In the instant case, the highest bidder was well aware that the acceptance of its bid was conditioned upon the non-exercise
of the right to top.
To be sure, respondents did not circumvent the requirements for bidding by granting KAWASAKI, a non-bidder, the right to top the highest bidder. The fact
that KAWASAKIs nominee to exercise the right to top has among its stockholders some losing bidders cannot also be deemed unfair.
It must be emphasized that none of the parties questions the existence of KAWASAKIs right of first refusal, which is concededly the basis for the grant of the
right to top. Under KAWASAKIs right of first refusal, the National Government is under the obligation to give preferential right to KAWASAKI in the event it
decides to sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the option to buy or refuse under the same terms for which it is willing
to sell the said shares to third parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the incidents of which are governed by the law on
contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only after a public bidding is held. Public bidding is the accepted method in
arriving at a fair and reasonable price and ensures that overpricing, favoritism and other anomalous practices are eliminated or minimized.[42] But the
requirement for public bidding does not negate the exercise of the right of first refusal. In fact, public bidding is an essential first step in the exercise of the right
of first refusal because it is only after the public bidding that the terms upon which the Government may be said to be willing to sell its shares to third parties
may be known. It is only after the public bidding that the Government will have a basis with which to offer KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to top, KAWASAKI would have been able to buy the National
Governments shares in PHILSECO under the same terms as offered by the highest bidder. Stated otherwise, by exercising its right of first refusal, KAWASAKI
could have bought the shares for only P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no basis in the submission that the right to top
unfairly favored KAWASAKI. In fact, with the right to top, KAWASAKI stands to pay higher than it should had it settled with its right of first refusal. The obvious
beneficiary of the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first refusal with the right to top is that KAWASAKI can name a nominee, which it is a
shareholder, to exercise the right to top. This is a valid contractual stipulation; the right to top is an assignable right and both parties are aware of the full legal
consequences of its exercise. As aforesaid, all bidders were aware of the existence of the right to top, and its possible effects on the result of the public bidding
was fully disclosed to them. The petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and question the proceedings it had fully
adhered to.[43]
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the
latters effort to raise P2.131 billion necessary in exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the ASBR that
bars the losing bidders from joining either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it
did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing bidders in the public
bidding was done with fraudulent intent. Absent any proof of fraud, the formation by Philyards of a consortium is legitimate in a free enterprise system. The
appellate court is thus correct in holding the petitioner estopped from questioning the validity of the transfer of the National Governments shares in PHILSECO
to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal because no prior approval was given by the COA for it, specifically
the provision on the right to top the highest bidder and that the public auction on December 2, 1993 was not witnessed by a COA representative. No evidence
was proffered to prove these allegations and the Court cannot make legal conclusions out of mere allegations. Regularity in the performance of official duties is
presumed[44] and in the absence of competent evidence to rebut this presumption, this Court is duty bound to uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The impugned Decision and Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.
G.R. No. L-41631 December 17, 1976

HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary to the Mayor; THE MARKET ADMINISTRATOR; and THE
MUNICIPAL BOARD OF MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of Manila, Branch XXX and the FEDERATION OF MANILA MARKET
VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
MARTIN, J.:
The chief question to be decided in this case is what law shall govern the publication of a tax ordinance enacted by the Municipal Board of Manila, the Revised
City Charter (R.A. 409, as amended), which requires publication of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No.
231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND
PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City Mayor,
Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787 before the Court of First Instance of Manila presided
over by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised
Charter of the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the enactment of the ordinance, as
envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) the ordinance would violate Presidential
Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge issued an order on March 11, 1975, denying the plea
for failure of the respondent Federation of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the nullity of Ordinance No. 7522 of the City of Manila on
the primary ground of non-compliance with the requirement of publication under the Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not published at all in two daily newspapers of general circulation in the City
of Manila before its enactment. Neither was it published in the same manner after approval, although it was posted in the legislative hall and in
all city public markets and city public libraries. There being no compliance with the mandatory requirement of publication before and after
approval, the ordinance in question is invalid and, therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is required by the Local Tax Code; and (b) private
respondent failed to exhaust all administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of Manila and the Local Tax Code on the manner of
publishing a tax ordinance enacted by the Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general circulation in the city, and shall not be discussed or enacted by
the Board until after the third day following such publication. * * * Each approved ordinance * * * shall be published in two daily newspapers of
general circulation in the city, within ten days after its approval; and shall take effect and be in force on and after the twentieth day following its
publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city, municipal and barrio ordinances levying or imposing taxes, fees or
other charges shall be published for three consecutive days in a newspaper or publication widely circulated within the jurisdiction of the local
government, or posted in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local
government. In either case, copies of all provincial, city, municipal and barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the enactment of the ordinance and after the approval thereof in two
daily newspapers of general circulation in the city, the Local Tax Code only prescribes for publication after the approval of "ordinances levying or imposing taxes,
fees or other charges" either in a newspaper or publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. Petitioners' compliance with the
Local Tax Code rather than with the Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Code is a
general law because it applies universally to all local governments. Blackstone defines general law as a universal rule affecting the entire community and special
law as one relating to particular persons or things of a class. 1 And the rule commonly said is that a prior special law is not ordinarily repealed by a subsequent
general law. The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception of the
general, one as a general law of the land, the other as the law of a particular case. 2 However, the rule readily yields to a situation where the special statute
refers to a subject in general, which the general statute treats in particular. The exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised
Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of the
City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing taxes, fees or
other charges" in particular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a particular provision. 3 Special provision
governs. 4 This is especially true where the law containing the particular provision was enacted later than the one containing the general provision. The City
Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The law-making power cannot be said to
have intended the establishment of conflicting and hostile systems upon the same subject, or to leave in force provisions of a prior law by which the new will of
the legislating power may be thwarted and overthrown. Such a result would render legislation a useless and Idle ceremony, and subject the law to the reproach
of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damages arising from the injuries he suffered when he fell
inside an uncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409)
exempting the City of Manila from any liability for damages or injury to persons or property arising from the failure of the city officers to enforce the provisions
of the charter or any other law or ordinance, or from negligence of the City Mayor, Municipal Board, or other officers while enforcing or attempting to enforce
the provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for damages for the death
of, or injury suffered by any persons by reason of the defective condition of roads, streets, bridges, public buildings, and other public works under their control
or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as its territorial application is concerned, the Revised City Charter is a
special law and the subject matter of the two laws, the Revised City Charter establishes a general rule of liability arising from negligence in general, regardless of
the object thereof, whereas the Civil Code constitutes a particular prescription for liability due to defective streets in particular. In the same manner, the Revised
Charter of the City prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a rule for the publication of "ordinance
levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or broad one. 7 A charter provision may be impliedly
modified or superseded by a later statute, and where a statute is controlling, it must be read into the charter notwithstanding any particular charter
provision. 8 A subsequent general law similarly applicable to all cities prevails over any conflicting charter provision, for the reason that a charter must not be
inconsistent with the general laws and public policy of the state. 9 A chartered city is not an independent sovereignty. The state remains supreme in all matters
not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it is to have read into it that general law which governs
the municipal corporation and which the corporation cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as part of its
charter general law of such character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been violated by private respondent in bringing a direct
suit in court. This is because Section 47 of the Local Tax Code provides that any question or issue raised against the legality of any tax ordinance, or portion
thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice,
whose decision shall be final and executory unless contested before a competent court within thirty (30) days. But, the petition below plainly shows that the
controversy between the parties is deeply rooted in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax Code that
should govern the publication of the tax ordinance. In other words, the dispute is sharply focused on the applicability of the Revised City Charter or the Local Tax
Code on the point at issue, and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is not an
absolute rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded
when it does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its application may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the imposition of rentals, permit fees, tolls and other fees
is not strictly a taxing power but a revenue-raising function, so that the procedure for publication under the Local Tax Code finds no application. The pretense
bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under Section 5, Article XI of the New Constitution, "Each local
government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be provided by law." 13 And one
of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the occupancy or use of public
markets and premises * * *." 14 They can provide for and regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can
license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30, 1972, insofar as it affects livestock and animal
products, because the said decree prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and post-mortem inspection
fees, as well as the delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural Resources." 16Clearly, even the
exception clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its
Section 31: "Local governments may collect fees for the slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in accordance with Republic Act No. 6039, an
amendment to the City Charter of Manila, providing that "the market committee shall formulate, recommend and adopt, subject to the ratification of the
municipal board, and approval of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market code" does not infect the
ordinance with any germ of invalidity. 17 The function of the committee is purely recommendatory as the underscored phrase suggests, its recommendation is
without binding effect on the Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a condition sine qua
non before the Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate remains undisturbed even in the slightest
degree. It can move in its own initiative and the Market Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the
Municipal Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of the necessary data, studies and the
collection of consensus for the proposal of ordinances regarding city markets. Much less could it be said that Republic Act 6039 intended to delegate to the
Market Committee the adoption of regulatory measures for the operation and administration of the city markets. Potestas delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the said corporation in a "Management and Operating Contract." The
assumption is of course saddled on erroneous premise. The fees collected do not go direct to the private coffers of the corporation. Ordinance No. 7522 was not
made for the corporation but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the collection of the fees does not
destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is
public or private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature or character
of the person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the
direction of an individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices Act because the increased rates of market stall fees as
levied by the ordinance will necessarily inure to the unwarranted benefit and advantage of the corporation. 19 We are concerned only with the issue whether the
ordinance in question is intra vires. Once determined in the affirmative, the measure may not be invalidated because of consequences that may arise from its
enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to
have been validly enacted. No. costs.
SO ORDERED.
Castro, C.J., Barredo, Makasiar, Antonio, Muñoz Palma, Aquino and Concepcion, Jr., JJ., concur.
Teehankee, J., reserves his vote.
Separate Opinions
FERNANDO, J., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of consequences that may arise from its enforcement."
G.R. No. L-26551 February 27, 1976
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

vs.
WENCESLAO ALMUETE FERNANDO FRONDA, FAUSTO DURION and CIPRIANO FRONDA, defendants-appellees.
Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio G. Ibarra and Solicitor Vicente A. Torres for appellant.
Emiliano D. Castellanes for appellees.
AQUINO, J.:
Wenceslao Almuete Fernando Fronda, Cipriano Fronda and Fausto Durion were charged with a violation of section 39 of the Agricultural Tenancy Law. It was
alleged in the information that in December, 1963, in Muñoz, Nueva Ecija the accused being tenants of Margarita Fernando in her riceland, without notice to her
or without her consent, pre-threshed a portion of their respective harvests of five (5) cavans of palay each to her damage in the amount of P187.50 at P12.50 a
cavan (Criminal Case No. SD-179, Court of First Instance of Nueva Ecija, Sto. Domingo Branch VI).
Upon arraignment the accused pleaded not guilty. They filed motion for a bill of particulars as to the exact date of the commission of the offense charged. The
lower court denied their motion because they had already entered their plea.
Thereafter, they -filed a motion to quash the information on that grounds (1) that it does not allege facts sufficient to constitute the crime charged; (2) that
there is no law punishing it, and (3) that the court has, no jurisdiction over the alleged time The fiscal opposed the motion.
The lower court granted the motion and dismissed the information in its order of August 11, 1966. It held that the information is basically deficient because it
does not describe t lie circumstances under which the cavans of palay were found in the possession of the accused tenants; it does not specify the date agreed
upon for the threshing of the harvests, and it does not allege that the palay found in the tenants' possession exceeded ten percent of their net share based on
the last normal harvest.
The prosecution appealed from the order of dismissal. The Solicitor General argues in his brief that the information in this case alleges all the elements of the
offense defined in section 39 of Republic Act No. 1199, as amended of Republic Act No. 2263. Sections 39 and 57 of the same law reads as follows:
SEC. 39. Prohibition on Pre-threshing. — It shall be unlawful for either the tenant or landholder, without mutual consent, to reap or thresh a portion of the crop
at any time previous to the date set for its threshing- That if the tenant n food for his family and the landholder does not or cannot furnish such and refuses to
allow the tenant to reap or thresh a portion of the crop previous to the date set for its threshing, the tenant can reap or thresh not more than ten percent of his
net share in the last normal harvest after giving notice thereof to the landholder or his representative. Any violation of this situation by either party shall be
treated and penalized in accordance with this Act and/or under the general provisions of law applicable to that act committed.
SEC. 57. Penal Provision. — Violation of the provisions of ... sections thirty-nine and forty-nine of this Act shall be punished by a fine not exceeding two thousand
pesos or imprisonment not exceeding one year, or both, in the discretion of the Court. ... *
We hold that the order of dismissal should be affirmed because as held in People vs. Adillo, L-23M, November 27, 1975, a case similar to the instant case, section
99 was impliedly repealed by the Agricultural Land Reform Code of 1963, as amended by Republic Act No. 6389 168 O.G. 915) and as implemented by
Presidential Decrees Nos. 2, 27 and 316. That Code was already in force when the act complained of was committed. The repeal may be rationalized in this
manner:
The prohibition against pre-reaping or pre-threshing found in section 39 of the Agricultural Tenancy Law of 1954 is premised on the existence of the rice share
tenancy system. The evident purpose is to prevent the tenant and the landholder from defrauding each other in the division of the harvests.
The Agricultural Land Reform Code superseded the Agricultural Tenancy Law (except as qualified in sections 4 and 35 of the Code). The Code instituted the
leasehold system and abolished share tenancy subject to certain conditions indicated in section 4 thereof. It is significant that section 39 is not reproduced in the
Agricultural Land Reform Code whose section 172 repeals "all laws or part of any law inconsistent with" its provisions.
Under the leasehold system the prohibition against pre-threshing has no, more raison d'etre because the lessee is obligated to pay a fixed rental as prescribed in
section 34 of the Agricultural Land Reform Code, or the Code of Agrarian Reforms, as redesignated in Republic Act No. 6389 which took effect on September 10,
1971. Thus, the legal maxim, cessante ratione legis, cessat ipsa lex (the reason for the law ceasing, the law itself also ceases). applies to this case.
Section 4 of the Code of Agrarian Reforms declared agricultural share tenancy throughout the country as contrary to public policy and automatically converted it
to agricultural leasehold. Presidential Decree No. 2 proclaimed the entire country "as a land reform area". Presidential Decree No. 27 emancipated the tenant
from the bondage of the soil. And Presidential Decree No. 316 interdicted the ejectment or removal of the tenant-farmer from his farmholding until the
promulgation of the rules and regulations implementing Presidential Decree No. 27. (See People vs. Adillo, supra).
The legislative intent not to punish anymore the tenant's act of pre- reaping and pre-threshing without notice to the landlord is inferable from the fact that, as
already noted, the Code of Agrarian Reforms did not reenact section 39 of the Agricultural Tenancy Law and that it abolished share tenancy which is the basis for
penalizing clandestine pre-reaping and pre-threshing.
All indications point to a deliberate and manifest legislative design to replace the Agricultural Tenancy Law with the Code of Agrarian Reforms, formerly the
Agricultural Land Reform Code, at least as far as ricelands are concerned.
As held in the Adillo case, the act of pre-reaping and pre-threshing without notice to the landlord, which is an offense under the Agricultural Tenancy Law, had
ceased to be an offense under the subsequent law, the Code of Agrarian Reforms. To prosecute it as an offense when the Code of Agrarian Reforms is already in
force would be repugnant or abhorrent to the policy and spirit of that Code and would subvert the manifest legislative intent not to punish anymore pre-reaping
and pre-threshing without notice to landholder.
It is a rule of legal hermeneutics that "an act which purports to set out in full all that it intends to contain operates as a repeal of anything omitted which was
contain in the old act and not included in the amendatory act" (Crawford, Construction of Statutes, p. 621 cited in the Adillo case).
A subsequent statute, revising the whole subject matter of a former statute, and evidently intended as a substitute for it, operates to repeal the former statute"
(82 C.J.S. 499). 'The revising statute is in effect a 'legislative declaration that whatever is embraced in the new statute shall prevail, and whatever is excluded
therefrom shall be discarded" (82 C.J.S. 500).
The repeal of appeal law deprives the courts of jurisdiction to punish persons charged with a violation of the old penal law prior to its repeal (People vs. Tamayo,
61 Phil. 225; People vs. Sindiong and Pastor, 77 Phil. 1000; People vs. Binuya, 61 Phil. 208; U.S. vs. Reyes, 10 Phil. 423; U.S. vs. Academia, 10 Phil. 431. See dissent
in Lagrimas vs. Director of Prisons, 57 Phil. 247, 252, 254).
WHEREFORE, the order of dismissal is affirmed with costs de oficio.
SO ORDERED.
G.R. No. L-32743 February 15, 1974
PRIMITIVO ESPIRITU and LEONORA A. DE ESPIRITU, petitioners,

vs.
RICARDO CIPRIANO and THE COURT OF FIRST INSTANCE, RIZAL, BRANCH XV, respondents.
Concepcion, Victorino, Sanchez and Associates for petitioners.
Jose G. Ricardo for respondent Ricardo Cipriano.

ESGUERRA, J.:p
In this petition for certiorari, petitioners seek the review and nullification of two orders of the Court of First Instance of Rizal, Branch XV, the first, dated August
4, 1970 sustaining private respondent Ricardo Cipriano's motion to dismiss "on the authority of Republic Act 6126", and the second, dated October 16, 1970,
denying the motion for reconsideration of the first order. The question before Us involves the retroactive application of the provisions of Republic Act 6126,
otherwise known as the Rental Law.
The case originated as one for unlawful detainer instituted on May 30, 1969, by plaintiffs, now petitioners, in the Municipal Court of Pasig, Rizal, against private
respondent Ricardo Cipriano for the latter's alleged failure to pay rentals. An adverse judgment having been rendered against said respondent, he appealed to
the Court of First Instance of Rizal where the case was docketed as Civil Case No. 338-M. In the said Court private respondent sought to amend his Answer filed
in the Municipal Court on the grounds that (1) for lack of time he was not able to disclose to his former counsel all the material facts surrounding his case and,
therefore, he was not able to fully determine his defenses; and (2) that prior to the hearing of the case in the lower court he wanted to cause the filing of an
amended answer but was not able to do so for his alleged failure to contact his counsel. The motion to file amended answer was denied by the Court. The
parties eventually submitted a stipulation of facts, the salient provisions of which read as follows:
1. The plaintiffs are the owners of the property in question, leased to the defendant since 1954;
2. The house of the defendant was built on the property with the knowledge and consent of the plaintiff pursuant to an oral contract of lease;
3. Before 1969 the lease of the property was on year-to-year arrangement, rentals being then payable at or before the end of the year;
4. The following are the rates of rentals:
(a) 1954 to 1957 P12.00 a year
(b) 1968 to 1959 P13.20 a year
(c) 1960 to 1961 P14.00 a year
(d) 1962 P16.00 a year
(e) 1963 to 1965 P24.70 a year
(f) 1967 to 1968 P48.00 a year
5. Effective January 1969 the lease was converted to a month-to-month basis and rental was increased to P30.00 a month by the plaintiffs;
6. The defendant has remained in possession of the property up to the present;

7. Since January 1969 the defendant has not paid rental at the present monthly rate;
8. A formal notice to vacate, dated March 22, 1969, was sent by registered mail to, and received by, defendant.
On July 7, 1970, Judge Vivencio Ruiz of the Court of First Instance of Rizal issued an order giving private respondent herein seven days within which to file his
motion to dismiss. Subsequently, on July 13, 1970, respondent moved to dismiss petitioner's complaint, invoking the prohibitory provision of Republic Act 6126,
entitled "An Act To Regulate Rentals of Dwelling Units or of Land On Which Another's Dwelling Is Located For One Year And Penalizing Violations Thereof.
Petitioners opposed the motion to dismiss but respondent Judge issued an order on August 4, 1970, which reads:
On the Authority of Republic Act 6126, this Court hereby sustains the Motion for Dismissal filed by the defendant through counsel, dated July 13,
1970.
A motion for reconsideration of said order was likewise denied by respondent Judge. Hence this petition.
Thrust upon Us, therefore, for resolution is the problem of whether Republic Act 6126 may be held applicable the case at bar. For convenience We reproduce
the pertinent provisions of law in question:
Section 1. No lessor of a dwelling unit or of land on which another's dwelling is located shall, during the period of one year from March 31, 1970,
increase the monthly rental agreed upon between the lessor and the lessee prior to the approval of this Act when said rental does not exceed
three hundred pesos (P300.00) a month.
Section 6. This Act shall take effect upon its approval.
Approved June 17, 1970.
It is the contention of respondent which was upheld by the trial court that the case at bar is covered by the aforecited law. We rule otherwise. Established and
undisputed is the fact that the increase in the rental of the lot involved was effected in January, 1969,1 while the law in question took effect on June 17, 1970, or
after a period of one year and a half after the increase in rentals had been effected. Private respondent, however, puts forward the argument that there was no
perfected contract covering the increased rate of rentals and conversion thereof into monthly payments of P30.00 effective January 1969, as he did not give his
consent thereto. In his brief he alleges:
Defendant (respondent) herein also begs to disagree with the contention of plaintiffs. We believe and respectfully submit that there would be
no impairment of obligation of contract if Republic Act 6126 were to be applied to the present case. The alleged new contract of lease and
subsequent increase in the amount of rental were not effected as of January 1969 with respect to the defendant. He did not accept the new rate
of rental. The eloquent testimonies on record to show that defendant never accepted the new rate of rental imposed upon him by the plaintiffs
were the pretrials on the case wherein defendant offered to accept the increase to the tone of 100%. Hence, the new contract of lease
increasing the rental had never been agreed upon by both the plaintiffs and the defendant because the defendant never gave his consent to the
new rate of rental. In effect, therefore, the alleged new contract of lease was not a contract at all since it did not have the consent of the other
party, the defendant.
Private respondent's contention is devoid of merit. There is nothing in the stipulation of facts to show that his consent to the increase in rentals and change in
the manner of payment was essential to its validity. There was no more subsisting yearly contract of lease at a fixed amount. It had already expired when the
increase and conversion into monthly payments took effect in January, 1969. The lessor was free to fix a higher amount than that previously paid by the lessee
(private respondent herein) and if the latter did not agree to the increased amount, he could have vacated the premises and thus rendered himself free from
liability. Respondent Cipriano, therefore, cannot invoke lack of consent on his part as basis for declaring the contract of lease ineffective.
Likewise the claim of private respondent that the act is remedial and may, therefore, be given retroactive effect is untenable. A close study of the provisions
discloses that far from being remedial, the statute affects substantive rights and hence a strict and prospective construction thereof is in order. Article 4 of the
New Civil Code ordains that laws shall have no retroactive effect unless the contrary is provided and that where the law is clear, Our duty is equally plain. We
must apply it to the facts as found.2 The law being a "temporary measure designed to meet a temporary situation",3 it had a limited period of operation as in fact
it was so worded in clear and unequivocal language that "No lessor of a dwelling unit or land ... shall, during the period of one year from March 31, 1970,
increase the monthly rental agreed upon between the lessor and lessee prior to the approval of this Act." Hence the prohibition against the increase in rentals
was effective on March, 1970, up to March, 1971. Outside and beyond that period, the law did not, by the express mandate of the Act itself, operate. The said
law, did not, by its express terms, purport to give a retroactive operation. It is a well-established rule of statutory construction that "Expressium facit cessare
tacitum"4 and, therefore, no reasonable implication that the Legislature ever intended to give the law in question a retroactive effect may be accorded to the
same. A perusal of the deliberations of Congress on House Bill 953 which became Republic Act No. 6126, as recorded its Congressional Records of March 5, 1970
reveals the sponsors of the Rental Law did not entertain for a moment that a retroactive operation would be given to this enactment. We quote pertinent
portions of the discussion:
Remarks of sponsor, Mr. Roces:
Mr. Roces — Mr. Speaker, the President is still observing the effect of the newly established floating rate. In the meantime we feel that, in line
with the policy that those who have less in life should have more in law, apartment dwellers are entitled to protection. Therefore this bill
proposes that the rentals paid today will not be increased in the next 18 months.
and on pages 66 and 72 respectively of the same Congressional Record We likewise find the following:
Mr. Gonzales — Will the gentleman from Manila interpret for us the phrase "during the period of 6 months preceding the approval of this Act" in
Section 2?5
Mr. Roces. — My interpretation is that the rent being paid during that period not before will be the one considered.
Mr. Montano — ... The term moratorium as utilized by the gentleman from Manila at the start of his sponsorship was applied not in its legal
acceptance but generally. For purposes of the bill, the term is construed as suspension of increasing rents in the meantime that we have not yet
determined the real value of the currency ... .
Respondent's tenacious insistence On the retroactive operation of Republic Act 6126 represents a last ditch effort on his part to hold on to the premises while at
the same time escaping the obligation to pay the increased rate. We can not countenance such a situation, for to permit the same to obtain would be
sanctioning a sheer absurdity and causing injustice to the petitioner herein. Well-settled is the principle that while the Legislature has the power to pass
retroactive laws which do not impair the obligation of contracts, or affect injuriously vested rights, it is equally true that statutes are not to be construed as
intended to have a retroactive effect so as to affect pending proceedings, unless such intent in expressly declared or clearly and necessarily implied from the
language of the enactment,6 Similarly, in the case of La Previsora Filipina, Mutual Building and Loan Association v. Felix Ledda, 66 Phil. 573, 577, this Court said:
It is a principle generally recognized that civil laws have no retroactive effect unless it is otherwise provided therein (Manila Trading & Supply Co.
v. Santos, G.R. No. 43861). Act No. 4118 does not state that its provisions shall have retroactive effect, wherefore, it follows, as it is hereby
declared, that it is not applicable to the contracts entered into by the parties, and, hence the trial court erred in granting possession to the
petitioner.
The petitioner contends that said law is applicable because when the property in question was sold at public auction said law was already in
force. This contention is in our opinion untenable. The date which should be taken into account in order to determine the applicability of the law
is the date when the contracts were entered into by the parties and not the date of the public sale, ... .
Under the circumstances of this case, We, therefore, rule that Republic Act 6126 is not applicable to the case at bar. As the language of the law is clear and
unambiguous, it must be held to mean what it plainly says.
WHEREFORE, the assailed orders of August 4 and October 16, 1970, are hereby nullified and set aside. The court a quo shall proceed with the prompt disposition
of Civil Case No. 338-M (12285) on the merits in accordance with Republic Act 6031 if applicable, otherwise under the prevailing procedure prescribed by the
Rules of Court.
Costs against respondent.

G.R. No. L-18919 December 29, 1962
ABELARDO JAVELLANA, TOMAS JONCO, RUDICO HABANA, EXEQUIEL GOLEZ, ALFREDO ANG, and FILIPINAS SOLEDAD, in their capacities as Councilors of the
Municipal Municipality of Buenavista, Province of Iloilo, petitioners appellees,
vs.
SUSANO TAYO, as Mayor of the Municipal Municipality of Buenavista, Iloilo, respondent-appellant.
Ramon A. Gonzales for petitioners-appellees.

Rico & Tiña for respondent-appellant.
BARRERA, J.:
This is a direct appeal taken by respondent Susano Tayo (Mayor of the Municipality of Buenavista, Iloilo) from the decision of the Court of First Instance of Iloilo
(in Civil Case No. 5558, for mandamus) declaring legal and validity the regular session held by petitioners Abelardo Javellano Tomas Jonco, Rudico Habana,
Exequiel Golez, Alfredo Ang, and Filipinas Soledad, constituting a majority of the elected councilors of said municipality, and ordering respondent to give due
course to the resolutions and or ordinances passed thereat, and to sign the payrolls corresponding to the session days of June 1, June 15, July 6, July 20, August
3, August 17, September 7, and September 21, 1960 for payment of the per diems of petitioner as councilors; to pay said Councilor Golez the sum of P100.00 as
moral damages; and to pay P100.00 as attorney' fees plus costs.
The case was submitted on the following Stipulation of Facts:
That the petitioners are duly elected and qualified a members of the Municipal Council of the Municipality of Buenavista, Province of Iloilo, Philippines;
and that the respondent at the time the acts hereinbelow complained of took place, was and still is the duly-elected and qualified Mayor of the
Municipality of Buenavista, Province of Iloilo Philippines where he resides and may be served with summons.
II
On February 8, 1960. the Municipal Council of the Municipality of Buenavista, Iloilo, unanimously approved Resolution No. 5, Series of 1960, dated
February 8, 1960, a copy of which is hereto attached to form an integral part hereon as Annex 'A', which set the regular sessions of the Municipality
Council of Buenavista on every first and third Wednesday of every month, and which resolution was duly approved by the respondent, in his capacity as
Mayor of the Municipality of Buenavista.
III
That on June 1, 1960, at the time and place set for the regular session of the Municipal Council, the Mayor, Vice-Mayor, No. 1 and No. 2 Councilors, and
the Secretary were absent.
IV
That the six councilors, who are the petitioners in this case, were present and they proceeded to elect among themselves a temporary presiding officer
and Acting Secretary to take notes of the proceedings. Having thus elected a temporary presiding officer and a secretary of the Council, they proceeded
to do business.
That on June 15. 1960, at the time and place designated in Resolution No. 5, series of 1960, dated February 8, 1960 above referred to, the petitioners
acting as duly elected and qualified councilors were present and again, in view of the absence of the Mayor, Vice-Mayor said to councilor and the
Secretary proceeded to elect a temporary presiding officer and temporary secretary from among them, and did business as a Municipal Council of
Buenavista.
VI
That again on July 6, and July 21, 1960, on August 3, and August 17, September 7, and on September 21, 1960, the petitioners met at the place and time
designated in Resolution No. 5, series of 1960, and proceeded to elect a temporary Secretary among themselves, and did business as the Municipal
Council of Buenavista, in view again of the absence of the Mayor Vice-Mayor, 2 councilors, and the Secretary.
VII
That when the minutes of the proceedings of June 1, June 15. July 6, July 20, August 17, September 7, and September 21, 1960 of the Municipal Council
were presented to the respondent for action, the respondent Mayor refused to act upon said minutes, or particularly to approve or disapprove the
resolution as approved by the municipal Council, the Mayor declaring the sessions above referred to as null and void and not in accordance with.
VIII
That the petitioners made repeated demands for payment of their per diems for the of June 1, June 15, July 6, July 20, August 3, August 17, September
7, 1960, by representing the payrolls; Provincial Forms No. 38(A) to the respondent Mayor for the latter signature, but that the respondent refused to
affix his signature to the payrolls thus presented, covering the per diems of the petitioner alleging that the proceedings were illegal due to his absence.
IX
That the petitioners, acting through Atty. Bartolome T. Tina, addressed a letter dated August 8, 1960 to the Honorable Provincial Fiscal of the Province of
Iloilo, asking of the latter's opinion on the validity of the acts of the herein petitioners, acting as the Municipal Council in the absence of the Mayor, Vice-
Mayor, said two councilors and the secretary, a copy which letter is herewith attached as Annex 'B' and made an integral part of this petition.
X
That on August 9, 1960, the Honorable Provincial Fiscal of the Province of Iloilo in his indorsement, rendered an opinion upholding the validity of the
controverted sessions of the Municipal Council, a copy, of which communication is, likewise attached herein is Annex 'C' and made an integral part of
this petition.
XI
That despite the opinion of the Provincial Fiscal, the respondent Mayor refused and still refuses to act upon the resolution petitions presented to him
and to sign the payrolls covering the per diems of the herein petitioners.
XII
That the respondent brought the matter to the attention of the Provincial Board, of the Province of Iloilo, by means of a letter questioning the legality of
the minutes of the regular possession of the Municipal Council without his presence individual that the Provincial Board resolved on September 23, 1960
to return the minutes of the regular session of the Municipal Council of Buenavista, Iloilo, informing the Mayor that per the opinion of the Legal
Assistant, said minutes is legal.
XIII
That despite the resolution of the Provincial Board, the Mayor refused and still refuses to recognize the validity of the acts of the Municipal Council and
the legality of its regular session held in his absence.
On the basis of the foregoing Stipulation of Facts (plus the testimony of Councilor Exequiel Golez), the trial court (on July 26, 1961) rendered the decision above
adverted to, partly stating:
This Court, after perusal of all the records of this case has reached the conclusion that the sessions held by the petitioner during the absence of the
respondent Mayor were perfectly valid and legal. The attendance of the Mayor is not essential to the validity of the session as long as there is quorum
constituted in accordance with law. To declare that the proceedings of the petitioners were null and void, is to encourage recalcitrant public officials
who would frustrate valid session for political end or consideration. Public interest will immensely suffer, if a mayor who belongs to one political group
refuses to call or attend a session, because the Council is controlled by another political group. In a democrats the minority should respect the majority
and inasmuch as the petitioners constitute the majority political group, it is but natural that they could validly hold a valid session, in order to devise
means for public interest.
The respondent here as Municipal Mayor should have given good example, by calling and attending regular session on the dates fixed by the Council. In
the discharge of his of official duty, he should consider the Session Hall of the Municipal Council as the sanctuary and depository of public interest and
public welfare. Any member of the Council should enter the Session Hall, not as a representative of any political part or group, but as a representative of
the people of the municipality whose interest and welfare should be safeguarded by the Council. In entering this Hall, he must lay aside his political
affiliation, interest, and consideration, because it is the sworn duty of every councilor to perform his duty with justice and impartiality. Not to attend a
meeting, constitutes an abandonment of the people's welfare. One may be in the minority group, but he can discharge his duty with honor and prestige
as a fiscalizer, to fiscalize the doings and actuations of the majority. He may be overwhelmed in his plan or project by superior numerical majority but if
he could adduce good reasons and arguments in favor of the welfare of the people, his task as a fiscalizer is thereby attained. There is no fear on
attending any session because if your project is not carried out, you may have the remedy, either by administrative or judicial relief, by questioning and
ordinance or resolution passed by the majority, which may be null and void because they are excessive and unreasonable. So, there is no reason why the
respondent in this case had refused to attend the session of the Council.
Petitioners here claim moral damages pursuant to the provisions of Article 2219, in connection with Article 21 and Article 27 of the new Civil Code. Said
Article 27 provides as follows:
'Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official
duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that my be
taken.'lawphil.net
But in support of the allegations in the petition, only petitioner Exequiel Golez was presented as a witness who prove moral damages he suffered as a
consequence of the refusal the respondent Susano Tayo to perform his official duty. such, of all the petitioners, only Exequiel Golez is entitled receive
moral damages in the sum of P100.00.
IN VIEW OF THE FOREGOING, the petition for a writ of mandamus is hereby granted, and the respondent is here ordered to give due course to the
resolutions and ordinance passed by the petitioners in the regular sessions during the absence of the respondent, to give due course and sign the
payrolls covering the periods of June 1, June 15, July 6, July 20, August 3, August 17, September 7, and September 21, 196 for the payment of per diems
of the petitioners as Municipal Councilors; to pay to said Exequiel Golez, the sum of P100.00 as moral damage, to pay the sum of P100.00 as attorney's
fee and to pay the costs of the proceeding.
SO ORDERED.
Respondent-appellant claims, in this appeal, that the trial court erred in holding that the sessions held by petitioners-appellees during his absence and during the
absence of his Vice-Mayor and the No. 1 and No. 2 Councilors the Municipal Council of Buenavista, Iloilo were valid an legal.
The claim is untenable. In the first place, there is no question that the sessions at issue were held on the days set for regular sessions of the council, as
authorized an approved in a previous resolution. Secondly, it is not disputed that a majority of the members of the council (six out of ten) were present in these
sessions. Consequently, pursuant to Section 2221 of the Revised Administrative Code which provides:
SEC. 2221. Quorum of council — Enforcing Attendance of absent members. — The majority of the council elected shall constitute a quorum to do
business; ....
there was a quorum to do business in all the sessions in question. The term "quorum" has been defined as that number of members of the body which,
when legally as assembled in their proper places, will enable the body to transact its proper business, or, in other words, that number that makes a
lawful body and gives it power to pass a law or ordinance or do any other valid corporate act. (4 McQuillin, Municipal Corporation [3rd Ed 478]; see also
State vs. Wilkesville Tp., 20 Ohio St. 288).
Appellant, however asserts that while under Section 2221 of the Revised Administrative Code, the majority of the members of the council constitutes a quorum
to do business, the council "shall be presided by the Mayor and no one else", inasmuch as it is one of the duties imposed upon him under Section 2194(d) of the
Revised Administrative Code. 1 The argument would be correct if the mayor (herein appellant) were present at the sessions in question and was prevented from
presiding therein, but not where, as in the instant case, he absented himself therefrom.
Appellant likewise invokes Section 7 (third paragraph) of Republic Act No. 9264, 2 in support of his view that the sessions in question were null and void, as they
were not presided by him or by his Vice-Mayor, or by the councilor who obtained the largest number of votes.lawphil.net
It is true that this section mentions only the vice-mayor, or in his place, the councilor who obtained the largest number of votes who could perform the duties of
the mayor, in the event of the latter's temporary incapacity to do so, except the power to appoint, suspend, or dismiss employees. Ordinarily, this enumeration
would be in interpreted as exclusive, following the general principle of inclusio unius, est exclusio alterius, but there are cogent reasons to disregard this rule in
this case, since to adopt it would cause inconvenience, hardship, and injury to public interest, as it would place in the hands of mayor, vice-mayor, and the
councilor receiving the highest number of votes an instrument to defeat the law investing the legislative power in the municipal council, by simply boycotting, as
they continuously did for 4 months, regular sessions of the council. It is to be noted that same section 7 of Republic Act No. 2264 invoked by appellant provides,
in case of permanent incapacity of mayor, vice-mayor, and the councilor obtaining the largest number of votes, to assume and perform the duties of mayor, the
councilor receiving the next largest number of votes, and so on, can assume and perform such duties. We see no strong reason why the same procedure should
not be followed in case of temporary incapacity, there being no express prohibition against its observance. The legal provision being therefore susceptible of two
in interpretations, we adopt the one in consonance with the resumed intention of the legislature to give its enactmentthe most reasonable and beneficial
construction, the that will render them operative and effective and harmonious with other provisions of law. This is imperative because, as already pointed out
heretofore, under the law "the majority of the council elected shall constitute a quorum to do business", and this would be defeated if adopt the literal
interpretation of appellant that only mayor, vice-mayor, or the councilor receiving the largest number of votes could preside the council's meeting, to legal,
irrespective of the presence of a quorum or majority of the councilors elected. Such an interpretation would, indeed, be fraught with dangerous consequences.
For it would, in effect, deprive the municipal council its function, namely, the enactment of ordinances design for the general welfare of its inhabitants. As the
trial court aptly observed, "To declare that the proceedings of thepetitioners (herein appellees) were null and void, is to encourage recalcitrant public officials
who would frustrate valid sessions for political end or consideration. Public interest will immensely suffer, if a mayor who belong to one political group refused
to call or attend a session because the council is controlled by another political group."
Lastly, appellant contests the award of moral damage to appellee councilor Exequiel Golez. We find said award proper under Article 27 of the new Civil
Code, 3 considering that according to the trial court, he (Golez) was able to prove that he suffered the same, as a consequence of appellant's refusal to perform
his official duty, not withstanding the action taken by the Provincial Fiscal an the Provincial Board upholding the validity of the session in question.
WHEREFORE, the decision appealed from is hereby affirmed with costs against respondent-appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,Paredes and Makalintal, JJ. concur.
Dizon and Regala, JJ., took no part.
1"SEC. 2194. Mayor as chief executive of municipality. ... He shall have the following duties:
xxx xxx xxx
"(d) He shall preside at the meetings of the municipal council and shall recommend to said body from time to time, such measures connected with the public
health, cleanliness or ornament of the municipality or the improvement of its finances as he shall deem expedient."
2 "SEC. 7. The city, municipal, and municipal district vice-mayor and succession to the office of mayor. — ... In the event of temporary incapacity of the mayor to
perform the duties of his office on account of absence on leave, sickness or and temporary incapacity, the vice-mayor shall perform the duties and exercise the
powers of the mayor except the power to appoint suspend or dismiss employees. In the even the vice-mayor is temporarily incapacitated to perform the duties
of the office of mayor, the councilor who obtained the largest number of votes among the incumbent councilors in the local elections immediately preceding
shall perform the duties and exercise the powers of the mayor except the power to appoint, suspend or dismiss employees. ..."
3 "Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty
may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken.
G.R. No. L-27389 March 30, 1970
SWITZERLAND GENERAL INSURANCE COMPANY, LTD., plaintiff-appellant,

vs.
REPUBLIC OF THE PHILIPPINES, defendant-appellee.
Quasha, Asperilla, Blanco, Zafra and Tayag for plaintiff-appellant.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Isidro C. Borromeo and Solicitor Adolfo J. Diaz for defendant-appellee.
FERNANDO, J.:
There cannot be the slightest doubt that the appealed order of dismissal of the lower court dated December 28, 1966 on the ground that defendant-appellee
Republic of the Philippines cannot be sued without its consent is free from the taint of any legal infirmity. The lower court had no other alternative after our
decision, promulgated eleven days earlier in Mobil Philippines Exploration, Inc. v. Customs Arrastre Service1 reiterated such a principle in the most unqualified
terms. This appeal is thus devoid of any prospect of success.
The facts, according to the brief of plaintiff-appellant Switzerland General Insurance, follow: "On or about May 29, 1964, the ocean vessel SS 'Pioneer Mart'
discharged and delivered to defendant-appellee Republic of the Philippines, through its subsidiary Customs Arrastre Service being then the operator of the
arrastre service at the Port of Manila, cargo consisting of Seven (7) Drums and Four (4) Bags Raw Materials for Paint Manufacture which was shipped by
Diethelm and Keller (U.S.A.), Limited of New York, U.S.A., consigned to the order of Ed. A. Keller & Co., Ltd. of Manila, and covered by American Pioneer Line Bill
of Lading No. 44, dated April 24, 1964. The cargo has an invoice of US$721.62 and insured with plaintiff against loss and damage."2 It was then alleged in such
brief that defendant-appellee Republic of the Philippines delivered the aforesaid cargo to its consignee, which sustained losses or damages in the amount of
P834.26.3 As plaintiff-appellee paid such amount to the consignee, it was subrogated to its rights. Notwithstanding demands made however, defendant-appellee
refused to pay. There was a suit, filed in the City Court of Manila, with plaintiff-appellant obtaining a favorable judgment. On appeal, however, to the Court of
First Instance of Manila, the case was dismissed. As above noted, such an outcome was predictable. Deference to our Mobil decision called for such a judgment.
The doctrine of non-suability recognized in this jurisdiction even prior to the effectivity of the Constitution4 is a logical corollary of the positivist concept of law
which to paraphrase Holmes negates the assertion of any legal right as against the state, in itself the source of the law on which such a right may be
predicated.5 Nor is this all. Even if such a principle does give rise to problems considering the vastly expanded role of government enabling it to engage in
business pursuits to promote the general welfare, it is not obeisance to the analytical school of thought alone that calls for its continued applicability. Why it
must continue to be so, even if the matter be viewed sociologically, was set forth in Providence Washington Insurance Co. v. Republic 6 thus: "Nonetheless, a
continued adherence to the doctrine of non-suability is not to be deplored for as against the inconvenience that may be caused private parties, the loss of
governmental efficiency and the obstacle to the performance of its multifarious functions are far greater if such a fundamental principle were abandoned and
the availability of judicial remedy were not thus restricted. With the well known propensity on the part of our people to go to court, at the least provocation, the
loss of time and energy required to defend against law suits, in the absence of such a basic principle that constitutes such an effective obstacle, could very well
be imagined."
Nor is injustice thereby caused private parties. They could still proceed to seek collection of their money claims by pursuing the statutory remedy of having the
Auditor General pass upon them subject to appeal to judicial tribunals for final adjudication.7 We could thus correctly conclude as we did in the cited Providence
Washington Insurance decision: "Thus the doctrine of non-suability of the government without its consent, as it has operated in practice, hardly lends itself to
the charge that it could be the fruitful parent of injustice, considering the vast and ever-widening scope of state activities at present being undertaken. Whatever
difficulties for private claimants may still exist, is, from an objective appraisal of all factors, minimal. In the balancing of interests, so unavoidable in the
determination of what principles must prevail if government is to satisfy the public weal, the verdict must be, as it has been these so many years, for its
continuing recognition as a fundamental postulate of constitutional law."
WHEREFORE, the order of dismissal of the lower court, dated December 28, 1966 and the order denying the motion for reconsideration, dated February 4, 1967,
are affirmed. With costs against plaintiff-appellant.
G.R. No. L- 24548 October 27, 1983
WENCESLAO VlNZONS TAN, THE DIRECTOR OF FORESTRY, APOLONIO THE SECRETARY OF AGRICULTURE AND NATURAL RESOURCES JOSE Y.
FELICIANO, respondents-appelllees,
vs.
THE DIRECTOR OF FORESTRY, APOLONIO RIVERA, THE SECRETARY OF AGRICULTURE AND N ATURAL RESOURCES JOSE Y. FELICIANO, respon dents-
appellees,RAVAGO COMMERCIAL CO., JORGE LAO HAPPICK and ATANACIO MALLARI, intervenors,
Camito V Pelianco Jr. for petitioner-appellant.
Solicitor General for respondent Director.
Estelito P. Mendoza for respondent Ravago Comm'l Co.

Anacleto Badoy for respondent Atanacio Mallari.
Mariano de Joya, Jr. for respondent Jorge Lao Happick, Jr.
MAKASIAR, J:
This is an appeal from the order dated January 20, 1965 of the then Court of First Instance of Manila, Branch VII, in Civil Case No. 56813, a petition for certiorari,
prohibition and mandamus with preliminary prohibitory injunction (p. 2. rec.), which dismissed the petition of petitioner-appellant Wenceslao Vinzons Tan on
the ground that it does not state a sufficient cause of action, and upon the respondents-appellees' (Secretary of Agriculture and Natural resources and the
Director of Forestry) motion to dismiss (p. 28, rec.).
Sometime in April 1961, the Bureau of Forestry issued Notice No. 2087, advertising for public bidding a certain tract of public forest land situated in Olongapo,
Zambales, provided tenders were received on or before May 22, 1961 (p. 15, CFI rec.). This public forest land, consisting of 6,420 hectares, is located within the
former U.S. Naval Reservation comprising 7,252 hectares of timberland, which was turned over by the United States Government to the Philippine Government
(P. 99, CFI rec.).
On May 5, 1961, petitioner-appellant Wenceslao Vinzons Tan submitted his application in due form after paying the necessary fees and posting tile required
bond therefor. Nine other applicants submitted their offers before the deadline (p. 29, rec.).
Thereafter, questions arose as to the wisdom of having the area declared as a forest reserve or allow the same to be awarded to the most qualified bidder. On
June 7, 1961, then President Carlos P. Garcia issued a directive to the Director of the Bureau of Forestry, which read as follows:
It is desired that the area formerly covered by the Naval Reservation be made a forest reserve for watershed purposes. Prepare and submit
immediately a draft of a proclamation establishing the said area as a watershed forest reserve for Olongapo, Zambales. It is also desired that the
bids received by the Bureau of Forestry for the issuance of the timber license in the area during the public bidding conducted last May 22, 1961
be rejected in order that the area may be reserved as above stated. ...
(SGD.) CARLOS P. GARCIA
(pp. 98, CFI rec.).
On August 3, 1961, Secretary Cesar M. Fortich of Agriculture and Natural Resources sustained the findings and re comendations of the Director of Forestry who
concluded that "it would be beneficial to the public interest if the area is made available for exploitation under certain conditions," and
We quote:
Respectfully forwarded to the honorable, the Executive Secretary Malacanang. Manila inviting particular attention to the comment and
recommendation of the Director of Forestry in the proceeding in indorsement in which this Of fice fully concurs.
The observations of responsible forest officials are most revealing of their zeal to promote forest conservation and watershed protection
especially in Olongapo, Zambales area. In convincing fashion, they have demonstrated that to declare the forest area involved as a forest reserve
ratify than open it for timber exploitation under license and regulation would do more harm than of to the public interest. To convert the area
into a forest reserve without an adequate forest protection force, would make of it a 'Free Zone and Logging Paradise,' to the ever 'Problem
Loggers' of Dinalupihan, Bataan . . . an open target of timber smugglers, kaingineros and other forms of forest vandals and despoilers. On the
other hand, to award the area, as planned, to a reputable and responsible licensee who shall conduct logging operations therein under the
selective logging method and who shall be obliged to employ a sufficient number of forest guards to patrol and protect the forest consecration
and watershed protection.
Worthy of mention is the fact that the Bureau of Forestry had already conducted a public bidding to determine the most qualified bidder to
whom the area advertised should be awarded. Needless to stress, the decision of the Director of Forestry to dispose of the area thusly was
arrived at after much thought and deliberation and after having been convinced that to do so would not adversely affect the watershed in that
sector. The result of the bidding only have to be announced. To be sure, some of the participating bidders like Mr. Edgardo Pascual, went to
much expense in the hope of winning a virgin forest concession. To suddenly make a turn about of this decision without strong justifiable
grounds, would cause the Bureau of Forestry and this Office no end of embarrassment.
In view of the foregoing, it is earnestly urged that the Director of Forestry be allowed to proceed with the announcement of the results of the
bidding for the subject forest area (p. 13, CFI rec.).
The Office of the President in its 4th Indorsement dated February 2, 1962, signed by Atty. Juan Cancio, Acting Legal Officer, "respectfully returned to the
Honorable Secretary of the Department of Agriculture and Natural Resources for appropriate action," the papers subject of Forestry Notice No. 2087 which was
referred to the Bureau of Forestry for decision (p. 14, CFI rec.).
Finally, of the ten persons who submitted proposed the area was awarded to herein petitioner-appellant Wenceslao Vinzons Tan, on April 15, 1963 by the
Bureau of Forestry (p. 17, CFI rec.). Against this award, bidders Ravago Commercial Company and Jorge Lao Happick filed motions for reconsideration which
were denied by the Director of Forestry on December 6, 1963.
On May 30, 1963, the Secretary of Agriculture and Natural Resources Benjamin M. Gozon — who succeeded Secretary Cesar M. Fortich in office — issued
General Memorandum Order No. 46, series of 1963, pertinent portions of which state:
xxx xxx xxx
SUBJECT: ... ... ...
(D)elegation of authority to the Director of Forestry to grant ordinary timber licenses.

1. ... ... ...
2. The Director of Forestry is hereby authorized to grant (a) new ordinary timber licenses where the area covered thereby is not more than 3,000
hectares each; and (be the extension of ordinary timber licenses for areas not exceeding 5,000 hectares each;
3. This Order shall take effect immediately (p. 267, CFI rec.).
Thereafter, Jose Y. Feliciano was appointed as Acting secretary of Agriculture and Natural Resources, replacing secretary Benjamin M. Gozon. Upon assumption
of office he Immediately promulgate on December 19, 19b3 General memorandum Order No. 60, revoking the authority delegated to the Director of Forestry,
under General Memorandum order No. 46, to grant ordinary timber licenses, which order took effect on the same day, December 19, 1963. Pertinent portions
of the said Order read as follows:
xxx xxx xxx
SUBJECT: Revocation of General Memorandum Order No 46 dated May 30, 1963 —
1. In order to acquaint the undersigned with the volume and Nature of the work of the Department, the authority delegated to the Director of
forestry under General Memorandum Order No. 46, dated May 30, 1963, to grant (a) new ordinary timber licenses where the area covered
thereby is not more than 3,000 hectares each; and (b) the extension of ordinary timber licenses for areas not exceeding 3,000 hectares each is
hereby revoked. Until further notice, the issuance of' new licenses , including amendments thereto, shall be signed by the secretary of Agriculture
and Natural Resources.
2. This Order shall take effect immediately and all other previous orders, directives, circulars, memoranda, rules and regulations inconsistent
with this Order are hereby revoked (p. 268, CFl rec.; Emphasis supplied).
On the same date that the above-quoted memorandum took effect, December 19, 1963, Ordinary Timber License No. 20-'64 (NEW) dated April 22, 1963, in the
name of Wenceslao Vinzons Tan, was signed by then Acting Director of Forestry Estanislao R. Bernal without the approval of the Secretary of Agriculture and
Natural Resources. On January 6, 1964, the license was released by the Office of the Director of Forestry (p. 30, CFI rec.; p. 77, rec.). It was not signed by the
Secretary of Agriculture and Natural Resources as required by Order No. 60 aforequoted.
On February 12, 1964, Ravago Commercial Company wrote a letter to the Secretary of Agriculture and Natural Resources shall be considered by tile Natural
Resources praying that, pending resolution of the appeal filed by Ravago Commercial Company and Jorge Lao Happick from the order of the Director of Forestry
denying their motion for reconsideration, OTI No. 20-'64 in the name of Wenceslao V. Tan be cancelled or revoked on the ground that the grant thereof was
irregular, anomalous and contrary to existing forestry laws, rules and regulations.
On March 9, 1964, acting on the said representation made by Ravago Commercial Company, the Secretary of Agriculture and Natural Resources promulgated an
order declaring Ordinary Timber License No. 20-'64 issued in the name of Wenceslao Vinzons Tan, as having been issued by the Director of Forestry without
authority, and is therefore void ab initio. The dispositive portion of said order reads as follows:
WHEREFORE, premises considered, this Office is of the opinion and so holds that O.T. License No. 20-'64 in the name of Wenceslao Vinzons Tan
should be, as hereby it is, REVOKED AND DECLARED without force and effect whatsoever from the issuance thereof.
The Director of Forestry is hereby directed to stop the logging operations of Wenceslao Vinzons Tan, if there be any, in the area in question and
shall see to it that the appellee shall not introduce any further improvements thereon pending the disposition of the appeals filed by Ravago
Commercial Company and Jorge lao Happick in this case" (pp. 30-31, CFI rec.).
Petitioner-appellant moved for a reconsideration of the order, but the Secretary of Agriculture and Natural Resources denied the motion in an Order dated
March 25, 1964, wherein this paragraph appears:
In this connection, it has been observed by the Acting Director of Forestry in his 2nd indorsement of February 12, 1964, that the area in question
composes of water basin overlooking Olongapo, including the proposed Olongapo watershed Reservation; and that the United States as well as
the Bureau of Forestry has earmarked this entire watershed for a watershed pilot forest for experiment treatment Concerning erosion and water
conservation and flood control in relation to wise utilization of the forest, denudation, shifting cultivation, increase or decrease of crop harvest
of agricultural areas influenced by the watershed, etc. .... (pp. 3839, CFI rec.; p. 78, rec.).
On April 11, 1964, the Secretary of Agriculture and Natural Resources, acting on the separate appeals filed by Jorge Lao Happick and Ravago Commercial
Company, from the order of the Director of Forestry dated April 15, 1963, awarding to Wenceslao Vinzons Tan the area under Notive No. 2087, and rejecting the
proposals of the other applicants covering the same area, promulgated an order commenting that in view of the observations of the Director of Forestry just
quoted, "to grant the area in question to any of the parties herein, would undoubtedly adversely affect public interest which is paramount to private interests,"
and concluding that, "for this reason, this Office is of the opinion and so holds, that without the necessity of discussing the appeals of the herein appellants, the
said appeals should be, as hereby they are, dismissed and this case is considered a closed matter insofar as this Office is concerned" (p. 78, rec.).
On April 18, 1964, on the basis of the denial of his motion for reconsideration by the Secretary of Agriculture and Natural Resources, petitioner-appellant filed
the instant case before tile court a quo (Court of First Instance, Manila), Special Civil Action No. 56813, a petition for certiorari, prohibition and mandamus with
preliminary prohibitory injunction (pp. 1-12, CFI rec.). Petitioner-appellant claims that the respondents-appellees "unlawfully, illegally whimsically, capriciously
and arbitrarily acted without or in excess of their jurisdiction, and/or with grave abuse of discretion by revoking a valid and existing timber license without just
cause, by denying petitioner-appellant of the equal protection of the laws, by depriving him of his constitutional right to property without due process of law,
and in effect, by impairing the obligation of contracts" (P. 6, CFI rec.). Petitioner-appellant prayed for judgment making permanent the writ of preliminary
injunction against the respondents- appellees; declaring the orders of the Secretary of Agriculture and Natural Resources dated March 9, March 25, and April 11,
1964, as well as all his acts and those of the Director of Forestry implementing said orders, and all the proceedings in connection therewith, null and void,
unlawful and of no force and effect; ordering the Director of Forestry to renew OTI No. 20-'64 upon expiration, and sentencing the respondents, jointly and
severally, to pay the petitioner-appellant the sum of Two Hundred Thousand Pesos (P200,000.000) by way of pecuniary damage, One Hundred Thousand Pesos
(P100,000.00) by way of moral and exemplary damages, and Thirty Thousand Pesos (P30,000-00) as attorney's fees and costs. The respondents-appellees
separately filed oppositions to the issuance of the writ of preliminary injunction, Ravago Commercial Company, Jorge Lao, Happick and Atanacio Mallari,
presented petitions for intervention which were granted, and they too opposed the writ.
The Director of Forestry in his motion to dismiss dated April 24, 1964, alleges the following grounds: (1) that the court has no jurisdiction; (2) that the
respondents may not be sued without their consent; (3) that the petitioner has not exhausted all available administrative remedies; (4) that the petition does
not state a cause of action; and (5) that purely administrative and discretionary functions of administrative officials may not be interfered with by the courts. The
Secretary of Agriculture and Natural Resources joined the motion to dismiss when in his answer of May 18, 1964, he avers the following special and affirmative
defenses: (1) that the court has no jurisdiction to entertain the action for certiorari, prohibition and mandamus; (2) that the petitioner has no cause of action; (3)
that venue is improperly laid; (4) that the State is immune from suit without its consent; (5) that the court has no power to interfere in purely administrative
functions; and (6) that the cancellation of petitioner's license was dictated by public policy (pp. 172-177, rec.). Intervenors also filed their respective answers in
intervention with special and affirmative defenses (pp. 78-79, rec.). A hearing was held on the petition for the issuance of writ of preliminary injunction, wherein
evidence was submitted by all the parties including the intervenors, and extensive discussion was held both orally and in writing.
After the said hearing, on January 20, 1965, the court a quo, from the evidence received, resolved not only the question on the issuance of a writ of preliminary
injunction but also the motion to dismiss, declared that the petition did not state a sufficient cause of action, and dismissed the same accordingly. To justify such
action, the trial court, in its order dismissing the petition, stated that "the court feels that the evidence presented and the extensive discussion on the issuance
of the writ of preliminary mandatory and prohibitory injunction should also be taken into consideration in resolving not only this question but also the motion to
dismiss, because there is no reason to believe that the parties will change their stand, arguments and evidence" (p. 478, CFI rec.). His motion for reconsideration
having been denied (p. 488, CFI rec.), petitioner-appellant Wenceslao Vinzons Tan appealed directly to this Court.
Petitioner-appellant now comes before this Court, claiming that the trial court erred in:
(1) holding that the petition does not state a sufficient cause of action: and
(2) dismissing the petition [p.27,rec. ].
He argues that the sole issue in the present case is, whether or not the facts in the petition constitute a sufficient cause of action (p. 31, rec.). Petitioner-
appellant, in his brief, presented a lengthy discussion on the definition of the term cause of action wherein he contended that the three essential elements
thereon, — namely, the legal right of the plaintiff, the correlative obligation of the defendants and the act or omission of the defendant in violation of that right
— are satisfied in the averments of this petition (pp. 31-32, rec.). He invoked the rule that when the ground for dismissal is that the complaint states no cause of
action, such fact can be determined only from the facts alleged in the complaint and from no other, and the court cannot consider other matters aliunde He
further invoked the rule that in a motion to dismiss based on insufficiency of cause of action, the facts alleged in the complaint are deemed hypothetically
admitted for the purpose of the motion (pp. 32-33, rec.).
A perusal of the records of the case shows that petitioner-appellant's contentions are untenable. As already observed, this case was presented to the trial court
upon a motion to dismiss for failure of the petition to state a claim upon which relief could be granted (Rule 16 [g], Revised Rules of Court), on the ground that
the timber license relied upon by the petitioner- appellant in his petition was issued by the Director of Forestry without authority and is therefore void ab initio.
This motion supplanted the general demurrer in an action at law and, as a rule admits, for the purpose of the motion, ail facts which are well pleaded however
while the court must accept as true all well pleaded facts, the motion does not admit allegations of which the court will take judicial notice are not true, nor does
the rule apply to legally impossible facts, nor to facts inadmissible in evidence, nor to facts which appear by record or document included in the pleadings to be
unfounded (Vol. 1, Moran's Comments on the Rules of Court, 1970 ed., p. 505, citing cases).
It must be noted that there was a hearing held in the instant case wherein answers were interposed and evidence introduced. In the course of the hearing,
petitioner-appellant had the opportunity to introduce evidence in support of tile allegations iii his petition, which he readily availed of. Consequently, he is
estopped from invoking the rule that to determine the sufficiency of a cause of action on a motion to dismiss, only the facts alleged in the complaint must be
considered. If there were no hearing held, as in the case of Cohen vs. U.S. CCA Minn 1942,129 F. 2d 733), "where the case was presented to District Court upon a
motion to dismiss because of alleged failure of complaint to state a claim upon which relief could be granted, and no answer was interposed and no evidence
introduced, the only facts which the court could properly consider in passing upon the motion were those facts appearing in the complaint, supplemented be
such facts as the court judicially knew.
In Llanto vs. Ali Dimaporo, et al. (16 SCRA 601, March 31, 1966), this Court, thru Justice Conrado V. Sanchez, held that the trial court can properly dismiss a
complaint on a motion to dismiss due to lack of cause of action even without a hearing, by taking into consideration the discussion in said motion and the
opposition thereto. Pertinent portion of said decision is hereby quoted:
Respondents moved to dismiss. Ground therefor is lack of cause of action. The Court below granted the motion, dismissed the petition. The
motion to reconsider failed. Offshoot is this appeal.
1. The threshold questions are these: Was the dismissal order issued without any hearing on the motion to dismiss? Is it void?
WE go to the record. The motion to dismiss was filed on February 1, 1961 and set for hearing on February 10 following. On February 8, 1961
petitioner's counsel telegraphed the court, (r)equest postponement motion dismissal till written opposition filed.' He did not appear at the
scheduled hearing. But on March 4, 1961, he followed up his wire, with his written opposition to the motion to dismiss. Adverting to the 5-page
motion to dismiss and the 6-page opposition thereto, We find that the arguments pro and con on the question of the board's power to abolish
petitioner's position to discussed the problem said profusely cited authorities. The May 15, 1961 8-page court order recited at length the said
arguments and concluded that petitioner made no case.
One good reason for the statutory requirement of hearing on a motion as to enable the suitors to adduce evidence in support of their opposing
claims. But here the motion to dismiss is grounded on lack of cause of action. Existence of a cause of action or lack of it is determined be a
reference to the facts averred in the challenged pleading. The question raised in the motion is purely one of law. This legal issue was fully
discussed in said motion and the opposition thereto. In this posture, oral arguments on the motion are reduced to an unnecessary ceremony and
should be overlooked. And, correctly so, because the other intendment of the law in requiring hearing on a motion, i.e., 'to avoid surprises upon
the opposite party and to give to the latter time to study and meet the arguments of the motion,' has been sufficiently met. And then, courts do
not exalt form over substance (Emphasis supplied).
Furthermore even if the complaint stated a valid cause of action, a motion to dismiss for- insufficiency of cause of action will be granted if documentary evidence
admitted by stipulation disclosing facts sufficient to defeat the claim enabled the court to go beyond disclosure in the complaint (LOCALS No. 1470, No. 1469,
and No. 1512 of the International Longshoremen's Association vs. Southern Pacific Co., 6 Fed. Rules Service, p. 107; U.S. Circuit Court of Appeals, Fifth Circuit,
Dec. 7, 1952; 131 F. 2d 605). Thus, although the evidence of the parties were presented on the question of granting or denying petitioner-appellant's application
for a writ of preliminary injunction, the trial court correctly applied said evidence in the resolution of the motion to dismiss. Moreover, in applying said evidence
in the resolution of the motion to dismiss, the trial court, in its order dismissing the petition, pointed out that, "there is no reason to believe that the parties will
change their stand, arguments and evidence" (p. 478, CFI rec.). Petitioner-appellant did not interpose any objection thereto, nor presented new arguments in his
motion for reconsideration (pp. 482-484, CFI rec.). This omission means conformity to said observation, and a waiver of his right to object, estopping him from
raising this question for the first time on appeal. " I question not raised in the trial court cannot be raised for the first time on appeal" (Matienzo vs. Servidad,
Sept. 10, 1981, 107 SCRA 276).
Moreover, petitioner-appellant cannot invoke the rule that, when the ground for asking dismissal is that the complaint states no cause of action, its sufficiency
must be determined only from the allegations in the complaint. "The rules of procedure are not to be applied in a very rigid, technical sense; rules of procedure
are used only to help secure substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated. Where the rules are
merely secondary in importance are made to override the ends of justice; the technical rules had been misapplied to the prejudice of the substantial right of a
party, said rigid application cannot be countenanced" (Vol. 1, Francisco, Civil Procedure, 2 ed., 1973, p. 157, citing cases).
What more can be of greater importance than the interest of the public at large, more particularly the welfare of the inhabitants of Olongapo City and Zambales
province, whose lives and properties are directly and immediately imperilled by forest denudation.
The area covered by petitioner-appellant's timber license practically comprises the entire Olongapo watershed (p. 265, CFI rec.). It is of public knowledge that
watersheds serves as a defense against soil erosion and guarantees the steady supply of water. As a matter of general policy, the Philippine Constitution
expressly mandated the conservation and proper utilization of natural resources, which includes the country's watershed. Watersheds in the Philippines had
been subjected to rampant abusive treatment due to various unscientific and destructive land use practices. Once lush watersheds were wantonly deforested
due to uncontrolled timber cutting by licensed concessionaries and illegal loggers. This is one reason why, in paragraph 27.of the rules and regulations included
in the ordinary timber license it is stated:
The terms and conditions of this license are subject to change at the discretion of the Director of Forestry, and that this license may be made to
expire at an earlier date, when public interests so require (Exh. D, p. 22, CFI rec.).
Considering the overriding public interest involved in the instant case, We therefore take judicial notice of the fact that, on April 30, 1964, the area covered by
petitioner-appellant's timber license has been established as the Olongapo Watershed Forest Reserve by virtue of Executive Proclamation No. 238 by then
President Diosdado Macapagal which in parts read as follows:
Pursuant to the provisions of Section 1824 of the Revised Administrative Code, as amended, 1, Diosdado Macapagal, President of the Philippines
do hereby withdraw from entry, sale, or settlement and establish as Olongapo Watershed Forest Reserve for watershed, soil protection, and
timber production purposes, subject to private rights, if any there be, under the administration and control of the Director of Forestry, xx the
following parcels of land of the public domain situated in the municipality of Olongapo, province of Zambales, described in the Bureau of
Forestry map No. FR-132, to wit: ... ... (60 O.G. No. 23, 3198).
Petitioner-appellant relies on Ordinary Timber License No. 20-'64 (NEW) for his alleged right over the timber concession in question. He argues thus: "The facts
alleged in the petition show: (1) the legal right of the petitioner to log in the area covered by his timber license; (2) the legal or corresponding obligation on the
part of the respondents to give effect, recognize and respect the very timber license they issued to the petitioner; and (3) the act of the respondents in
arbitrarily revoking the timber license of the petitioner without giving him his day in court and in preventing him from using and enjoying the timber license
issued to him in the regular course of official business" (p. 32, rec.).
In the light of petitioner-appellant's arguments, it is readily seen that the whole controversy hinges on the validity or invalidity of his timber license.
WE fully concur with the findings of the trial court that petitioner- appellant's timber license was signed and released without authority by then Acting Director
Estanislao R. Bernal of Forestry, and is therefore void ab initio. WE hereby quote such findings:
In the first place, in general memorandum order No. 46 dated May 30, 1963, the Director of Forestry was authorized to grant a new ordinary
timber license only where the area covered thereby was not more than 3,000 hectares; the tract of public forest awarded to the petitioner
contained 6,420 hectares (Exhs. 2-A and 2-B Ravago, embodied in Annex B; Exh. B). The petitioner contends that only 1,756 hectares of the said
area contain commercial and operable forest; the authority given to the Director of Forestry to grant a new ordinary timber license of not more
than 3,000 hectares does not state that the whole area should be commercial and operable forest. It should be taken into consideration that the
1,756 hectares containing commercial and operable forest must have been distributed in the whole area of 6,420 hectares. Besides the license
states, 'Please see attached sketch and technical description,' gives an area of 6,420 hectares and does not state what is the area covered of
commmercial and operable forest (Exh. Ravago Also Annex B of the petition, which was marked as Exhibit B, states:
Under Notice No. 2087, a tract of public forest containing 6,420 hectares located in Olongapo, Zambales was declared available
for timber utilization and development. Pursuant to this Notice, there were received bid proposals from the following persons:
...
Wherefore, confirming the findings of said Committee, the area described in Notice No. 2087 shall be awarded, as it is hereby awarded to
Wenceslao Vinzons Tan, subject to the following conditions: ... ...
In the second place, at the time it was released to the petitioner, the Acting Director of Forestry had no more authority to grant any license. The
license was signed by the Acting Director of Forestry on December 19, 1963, and released to the petitioner on January 6, 1964 (Exh. RavaGo The
authority delegated to the Director of Forestry to grant a new ordinary timber license was contained in general memorandum order No. 46
dated May 30, 1963. This was revoked by general memorandum order No. 60, which was promulgated on December 19, 1963. In view thereof,
the Director of Forestry had no longer any authority to release the license on January 6, 1964, and said license is therefore void ab initio (pp.
479480, CFI rec.).
The release of the license on January 6, 1964, gives rise to the impression that it was ante-dated to December 19, 1963 on which date the authority of the
Director of Forestry was revoked. But, what is of greatest importance is the date of the release or issuance, and not the date of the signing of the license. While
petitioner-appellant's timber license might have been signed on December 19, 1963 it was released only on January 6, 1964. Before its release, no right is
acquired by the licensee. As pointed out by the trial court, the Director of Forestry had no longer any authority to release the license on January 6, 1964.
Therefore, petitioner-appellant had not acquired any legal right under such void license. This is evident on the face of his petition as supplemented by its
annexes which includes Ordinary Timber License No. 20-'64 (NEW). Thus, in the case of World Wide Insurance & Surety Co., Inc. vs. Macrohon, et al. (105 Phil.
250, Feb. 28, 1959), this Court held that if from the face of the complaint, as supplemented by its annexes, plaintiff is not the owner, or entitled to the properties
it claims to have been levied upon and sold at public auction by the defendants and for which it now seeks indemnity, the said complaint does not give plaintiff
any right of action against the defendants. In the same case, this Court further held that, in acting on a motion to dismiss, the court cannot separate the
complaint from its annexes where it clearly appears that the claim of the plaintiff to be the A owner of the properties in question is predicated on said annexes.
Accordingly, petitioner-appellant's petition must be dismissed due to lack of cause of action.
II
Petitioner-appellant, in his petition, alleged that he has exhausted all his administrative remedies to no avail as respondents-appellees have failed, neglected,
refused and continue to refuse to allow petitioner-appellant to continue operation in the area covered by his timber license. He further alleged that he has
neither recourse by way of appeal, nor any plain, speedy and adequate remedy in the ordinary course of law except thru this special civil action, as the last
official act of the respondent-appellee Secretary of Agriculture and Natural Resources in declaring void the timber license referred to above after denying
petitioner-appellant's motion for reconsideration, is the last administrative act. Petitioner-appellant relies on the case of Demaisip vs. The Court of Appeals, et al.
(106 Phil. 237, Sept. 24, 1959), wherein it was held that the failure of the plaintiff to appeal from the adverse decision of the Secretary to the President cannot
preclude the plaintiff from taking court action in view of the theory that the Secretary of a department is merely an alter-ego of the President. The presumption
is that the action of the Secretary bears the implied sanction of the President unless the same is disapproved by the latter (Villena vs. the Secretary of Interior,
67 Phil. 451; p. 7, CFI rec.).
To this We cannot agree. Petitioner-appellant did not appeal the order of the respondent Secretary of Agriculture and Natural Resources to the President of the
Philippines, who issued Executive Proclamation No. 238 withdrawing the area from private exploitation, and establishing it as the Olongapo Watershed Forest
Reserve. Considering that the President has the power to review on appeal the orders or acts of the respondents-appellees, the failure of the petitioner-
appellant to take that appeal is failure on his part to exhaust his administrative remedies. Thus, this Court, in the case of Calo vs. Fuertes (5 SCRA 399, 400, June
29, 1962), held that:
At any rate, the appellant's contention that, as the Secretary of Agriculture and Natural Resources is the alter ego of the President and his acts or
decisions are also those of the latter, he need not appeal from the decision or opinion of the former to the latter, and that, such being the case,
after he had appealed to the Secretary of Agriculture and Natural Resources from the decision or opinion of the Director of Lands he had
exhausted the administrative remedies, is untenable.
The withdrawal of the appeal taken to the President of the Philippines is tantamount to not appealing all thereto. Such withdrawal is fatal,
because the appeal to the President is the last step he should take in an administrative case.
In 1912, in the case of Lamb vs. Phipps (22 Phil. 491-92, July 22, 1912), this Court stressed the doctrine of exhaustion of administrative remedies, thus:
When a plain, adequate and speedy remedy is afforded by and within the executive department of the government the courts will not interfere
until at least that remedy has been exhausted. Jao Igco vs. Shuster, 10 Phil. Rep. 448; Ekiu vs. U.S., 142 U.S. 651; U.S. vs. Sing Tuck, 194 U.S. 161;
U.S. vs. Ju Toy 198 U.S. 253; Chill Yow vs. U.S., 28 Sup. Ct. Rep. 201). The administrative remedies afforded by law must first be exhausted before
resort can be had to the courts, especially when the administrative remedies are by law exclusive and final. Some matters and some questions
are by law delegated entirely and absolutely to the discretion of particular branches of the executive department of the government. When the
law confers exclusive and final jurisdiction upon the executive department of the government to dispose of particular questions, their judgments
or the judgments of that particular department are no more reviewable by the courts than the final judgment or decisions of the courts are
subject to be reviewed and modified by them" (emphasis supplied).
Moreover, this being a special civil action, petitioner-appellant must allege and prove that he has no other speedy and adequate remedy (Diego vs. The Court of
Appeals, et al., 54 Off. Gaz., No. 4, 956). In the case at bar, petitioner- appellant's speedy and adequate remedy is an appeal to the President of the Philippines.
Accordingly, "it is settled to the point of being elementary that the only question involved n certiorari is jurisdiction, either want of jurisdiction or excess thereof,
and abuse of discretion shall warrant the issuance of the extraordinary remedy of certiorari when the same is so grave as when the power is exercised in an
arbitrary or despotic manner by reason of passion, prejudice or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty,
or to a virtual refusal to perform a duty enjoined, or to act at all in contemplation of law" FS Divinagracia Agro-Commercial Inc. vs. Court of Appeals, 104 SCRA
191 [April .1, 1981]). The foregoing is on the assumption that there is any irregularity, albeit there is none in the acts or omissions of the respondents-appellees.
certiorari is not a substitute for appeal as held time and again by this Court (People vs. Villanueva, 110 SCRA 465), "it being a time honored and well known
principle that before seeking judicial redress, a party must first exhaust the administrative remedies available" (Garcia vs. Teehankee, 27 SCRA 944, April 18,
1969).
Moreover, from the decision of the Secretary of Agriculture and Natural Resources complained of, petitioners had a plain, speedy and adequate remedy by
appealing therefrom to the Chief Executive. In other words, before filing the present action for certiorari in the court below, they should have availed of this
administrative remedy and their failure to do so must be deemed fatal to their case [Calo vs. Fuertes, et al., G.R. No. L-16537, June 29,1962]. To place
petitioners' case beyond the pale of this rule, they must show that their case falls — which it does not — within the cases where, in accordance with our
decisions, the aggrieved party need not exhaust administrative remedies within his reach in the ordinary course of the law [Tapales vs. The President and the
Board of Regents of the U.P., G.R. No. L-17532, March 30, 1963; Mangubat vs. Osmena, G.R. No. L- 12837, April 30, 1959; Baguio vs. Hon. Jose Rodriguez, G. R.
No. L-11078, May 27, 1959; Pascual vs. Provincial Board, G.R. No. L-11959, Oct. 31, 1959; Marinduque Iron Mines, etc. vs. Secretary of Public Works, G.R. No. L-
15982, May 31, 1963; Alzate vs. Aldaba, G.R. No. L-14407, Feb. 29, 1960 and Demaisip vs. Court of Appeals, G.R. No. L- 13000, Sept. 25, 1959] (Ganob vs. Ramas,
27 SCRA 1178, April 28, 1969).
III
Petitioner-appellant not only failed to exhaust his administrative remedies, but also failed to note that his action is a suit against the State which, under the
doctrine of State immunity from suit, cannot prosper unless the State gives its consent to be sued Kawananakoa vs. Polybank, 205 U.S. 349; Siren vs. U.S., 7 Wall.
152; Sec. 16, Art. XV, 1973 Constitution).
The respondents-appellees, in revoking the petitioner-appellant's timber license, were acting within the scope of their authority. Petitioner-appellant contends
that "this case is not a suit against the State but an application of a sound principle of law whereby administrative decisions or actuations may be reviewed by
the courts as a protection afforded the citizens against oppression" (p. 122, CFI rec.). But, piercing the shard of his contention, We find that petitioner-
appellant's action is just an attempt to circumvent the rule establishing State exemption from suits. He cannot use that principle of law to profit at the expense
and prejudice of the State and its citizens. The promotion of public welfare and the protection of the inhabitants near the public forest are property, rights and
interest of the State. Accordingly, "the rule establishing State exeraiption from suits may not be circumvented by directing the action against the officers of the
State instead of against the State itself. In such cases the State's immunity may be validly invoked against the action as long as it can be shown that the suit really
affects the property, rights, or interests of the State and not merely those of the officer nominally made party defendant" (SINCO, Phil. Political Law, 10th ed., p.
35; Salgado vs. Ramos, 64 Phil. 724; see also Angat River Irrigation System vs. Angat River Workers' Union, G.R. No. L-10943-44, Dec. 28, 1957, 102 Phil. 789, 800-
802; Mobil PhiL vs. Customs Arrastre Service, 18 SCRA 1120, 1121-1125; Bureau of Printing vs. Bureau of Printing Employees' Association, 1 SCRA 340, 341, 343).
Both the Secretary of Agriculture and Natural Resources and the Director of Forestry acted in their capacity as officers of the State, representatives of the
sovereign authority discharging governmental powers. A private individual cannot issue a timber license.
Consequently, a favorable judgment for the petitioner-appellant would result in the government losing a substantial part of its timber resources. This being the
case, petitioner-appellant's action cannot prosper unless the State gives its consent to be sued.
IV
Granting arguendo, that petitioner-appellant's timber license is valid, still respondents-appellees can validly revoke his timber license. As pointed out earlier,
paragraph 27 of the rules and regulations included in the ordinary timber license states: "The terms and conditions of this license are subject to change at the
discretion of the Director of Forestry, and that this license may be made to expire at an earlier date, when public interests so require" (Exh. D, p. 22, CFI rec.). A
timber license is an instrument by which the State regulates the utilization and disposition of forest resources to the end that public welfare is promoted. A
timber license is not a contract within the purview of the due process clause; it is only a license or privilege, which can be validly withdrawn whenever dictated
by public interest or public welfare as in this ceise
"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" (37 C.J. 168). Thus,
this Court held that the granting of license does not create irrevocable rights, neither is it property or property rights (People vs. Ong Tin 54 O.G. 7576). In the
case of Pedro vs. Provincial Board of Rizal (56 Phil. 123), it was held that:
A license authorizing the operation and exploitation of a cockpit is not property of which the holder may not be deprived without due process of
law, but a mere privilege which may be revoked when public interests so require.
The welfare of the people is the supreme law. Thus, no franchise or right can be availed of to defeat the proper exercise of police power (Surigao Electric Co., Inc.
vs. Municipality of Surigao, 24 SCRA 898, Aug. 30, 1968). The State has inherent power enabling it to prohibit all things hurtful to comfort, safety, and welfare of
society (Edu vs. Ericta, 35 SCRA 481, Oct. 24,1970).
As provided in the aforecited provision, timber licenses are subject to the authority of the Director of Forestry. The utilization and disposition of forest resources
is directly under the control and supervision of the Director of Forestry. However, "while Section 1831 of the Revised Administrative Code provides that forest
products shall be cut, gathered and removed from any forest only upon license from the Director of Forestry, it is no less true that as a subordinate officer, the
Director of Forestry is subject to the control of the Department Head or the Secretary of Agriculture and Natural Resources (See. 79[c], Rev. Adm. Code), who,
therefore, may impose reasonable regulations in the exercise of the powers of the subordinate officer" (Director of Forestry vs. Benedicto, 104 SCRA 309, May 5,
1981). The power of control of the Department Head over bureaus and offices includes the power to modify, reverse or set aside acts of subordinate officials
(Province of Pangasinan vs. Secretary of Public Works and Communications, 30 SCRA 134, Oct. 31, 1969; Montano vs. Silvosa, 97 Phil. 143, 144, 147-148).
Accordingly, respondent-appellee Secretary of Agriculture and Natural Resources has the authority to revoke, on valid grounds, timber licenses issued by the
Director of Forestry. There being supporting evidence, the revocation of petitioner-appellant's timber license was a wise exercise of the power of the
respondent- appellee (Secretary of Agriculture and Natural Resources) and therefore, valid.
Thus, "this Court had rigorously adhered to the principle of conserving forest resources, as corollary to which the alleged right to them of private individuals or
entities was meticulously inquired into and more often than not rejected. We do so again" (Director of Forestry vs. Benedicto, supra). WE reiterate Our fidelity to
the basic policy of conserving the national patrimony as ordained by the Constitution.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, THE ORDER APPEALED FROM IS HEREBY .AFFIRMED IN TOTO. COSTS AGAINST PETITIONER-APPELLANT.
SO ORDERED,
G.R. No. L-18615 December 24, 1963
AMANDO M. DIZON, plaintiff-appellant,

vs.
DEMETRIO ENCARNACION, defendant-appellee.
A.M. Dizon and Associates for plaintiff-appellant.

A.J. Fransisco and A.J. Fransisco for defendant-appellee.
CONCEPCION, J.:
Plaintiff Amando M. Dizon seeks the review of an order of the Court of FirstInstance of Pampanga dismissing the complaint herein, without costs, upon the
ground that venue had been improperly laid..
In a complaint filed with said court, plaintiff, a resident of Pampanga, seeks to recover from defendant Demetrio B. Encarnacion the aggregate sum of
P50,000.00, by way of damages allegedly suffered by the former in consequenceof the filing by the latter, in Special Proceeding No. 2025 of the Court of First
Instance of Zambales, entitled "Inestate Estate of the Deceased AgustinN. Medina," of a pleading captioned "Manifestation and Refutation,"
containingstatements which are said to be libelous and deragatory to dignity, integrity,reputation and standing of the former, as well as irrelevant to the issues
in said special proceeding..
In due course, the defendant moved to dismiss the case upon the theory that, pursuant to Art. 360 of the revised Penal Code, as ammended by Republic ActNo.
1289, plaintiff's action should be instituted in the Court of First Instance of Zambales, in which said "Manifestation and Refutation", had been filed. The motion
was granted by the Court of First Instance of Pampanga,which accordingly dismissed the present case, without prejudice to its renewalin the "proper court." A
reconsideration of the order to this effect havingbeen denied, plaintiff has brought the case to us by record on appeal..
The appeal hinges on said provision of the Revised Penal Code, as ammended by Republic Act. No. 1289, the pertinent part of which reads: ... The criminal and
civil action for damages in cases of written defamation as provided for in this chapter, shall be filed simultaneously or separately with the court of First instance
of the province or city where any of the accused or any of the offended parties resides at the time of the commission of the offense: Provided, however, That
where the libel is published, circulated, displayed, or exhibited in a province or a citywherein neither the offender or nor the offended the party resides the civil
and criminal actions may be brought in the court of first Instance thereof:Provided, furthermore, That the court where the criminal action or civil action for
damages is first filed, shall acquire jurisdiction to the exclusion of other courts; And provided, finally, That this ammendmentshall not apply to cases of written
defamations, the civil and/or criminalactions to have been filed in court at the time of the effectivity of hislaw..
which, as contendent by the defendant, was constuend by the lower court to mean: .
... that when any of the accused or any of the offended of the parties resides in a province or city where a written defamation is published,circulated, displayed
or exhibited, the action, civil or criminal, shall be filed simultaneously or separately with the court of first instance of said province or but when the offender or
any of the offenders or the offended party or any of the offended parties does not reside in a province or city, where the publication, circulation, display or
exhibition were made, such action must be interposed therein..
We find ourselves unable to concur in this view. The language of the above quoted provision is, to our mind, plain and clear. It establishes a general rule and an
exception thereto. Civil actions for damages in cases of written defamation "shall" be filed with the court of first instance of the province or city in which "any of
the accused or "any of the offended paries resides."In other words, the plaintiff is limited in his choice of venue to the court of first instance of his residence or
to that of any of the accused. Plaintiffmay not file the action elsewhere, unless the libel is published, circulated,displayed, or exhibited in a province or city
wherein neither the offender northe offended party resides, in which case "the civil criminal actions may be brought in the court of first instance thereof." The
verb "may" is permissive.Hence, it does not necessarily imply a complete abrogation of the general rule laid down in the preceeding sentence, except in sofar as
it broadens thetwo (2) alternatives therein set forth, by giving the plaintiff a third choiceof venue. .lawphil.net
Although the term "may" should be taken as "must" or "shall" when the intention of the law maker to give thereto a mandatory or compolsary meaningis patent
or manifest, no such intent appears insofar as the above provisionis concerned. On the contrary, the use of the word "may" in the first, clearlysuggest that
Congress meant the second sentence to be merely permissive, notmandatory. Indeed, when the libelous imputation has not been published or circulated in the
locality wherein either of the parties resides, the offendedparty may not wish to initiate the action therein, for the same would have the the effect of giving the
additional publicity to the derogatory, and of increasing the harm already caused to the complainant. As a consequence, he "may" prefer to file suit where the
libel had actually been published or circulated. Hence, the provision of this effect has been established, in our opinion, for his benefit, which he may waive..
Otherwise, if the complainant were a resident of Jolo and the defendant,residing in Cebu, had defamed him in Batanes, it would be necessary to bringthe action
in the latter province, thereby imposing upon the average memberof the community a serious hindrance to the vindication of his most preciouspossession - his
good name and reputation. In fact, if the theory advanced by the appellee were upheld, the defendants could purposely choose to publish and circulate their
defamatory imputations in a place far away from where they and the offended parties resides in order to make it convenient, if not well-nigh impossible for the
letter to sue the former for redress of the wrongcommitted them. Neither the language of the law nor the adduced by herein appellee warrant the belief that
Congress intended to create such obstacles to the prosecution of those guilty of the crime of libel..
WHEREFORE, the order appealed from is set aside and the case hereby remanded to the lower court further proceedings, with the costs of this instance against
the appellee. It is so ordered..

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G.R. No. 127882 LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., vs VICTOR O.

RAMOS, SECRETARY, DEPARTMENT OF ENVIRONMENT AND NATURAL

OFFICE OF THE OMBUDSMAN, petitioner,

G.R. No. 165584 January 22, 2008

OFFICE OF THE OMBUDSMAN, petitioner,

G.R. No. 165731 January 22, 2008

WHEREFORE, PREMISES CONSIDERED, this Office finds substantial evidence that:

The Office of the Ombudsman contends8—

The petitioners in G.R. No. 165731 contend—

x x x x Under Section 13(3) of Article XI of the 1987 Constitution, it is provided:

Section 9, R.A. No. 4670 provides—

(1) Are contrary to law or regulation;

(2) Are unreasonable, unfair, oppressive or discriminatory;

(4) Proceed from a mistake of law or an arbitrary ascertainment of facts;

(6) Are otherwise irregular, immoral or devoid of justification.

G.R. No. 124293. September 24, 2003]

(b) execute a Stock Purchase Agreement with petitioner;

(e) cause the cancellation of the stock certificates issued to PHI.

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

G.R. No. L-41631 December 17, 1976

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

On September 26, 1975, respondent Judge denied the motion.

We find the petition impressed with merits.

Section 43 of the Local Tax Code directs:

Teehankee, J., reserves his vote.

FERNANDO, J., concurring:

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

Emiliano D. Castellanes for appellees.

WHEREFORE, the order of dismissal is affirmed with costs de oficio.

PRIMITIVO ESPIRITU and LEONORA A. DE ESPIRITU, petitioners,

Concepcion, Victorino, Sanchez and Associates for petitioners.

Jose G. Ricardo for respondent Ricardo Cipriano.

4. The following are the rates of rentals:

(a) 1954 to 1957 P12.00 a year

(b) 1968 to 1959 P13.20 a year

(c) 1960 to 1961 P14.00 a year

(d) 1962 P16.00 a year

(e) 1963 to 1965 P24.70 a year

(f) 1967 to 1968 P48.00 a year

6. The defendant has remained in possession of the property up to the present;

Section 6. This Act shall take effect upon its approval.

Approved June 17, 1970.

Remarks of sponsor, Mr. Roces:

Costs against respondent.

Ramon A. Gonzales for petitioners-appellees.

The case was submitted on the following Stipulation of Facts:

Dizon and Regala, JJ., took no part.

SWITZERLAND GENERAL INSURANCE COMPANY, LTD., plaintiff-appellant,

Quasha, Asperilla, Blanco, Zafra and Tayag for plaintiff-appellant.

Camito V Pelianco Jr. for petitioner-appellant.

Solicitor General for respondent Director.

Estelito P. Mendoza for respondent Ravago Comm'l Co.

Mariano de Joya, Jr. for respondent Jorge Lao Happick, Jr.

(SGD.) CARLOS P. GARCIA

(pp. 98, CFI rec.).

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SUBJECT: ... ... ...

(D)elegation of authority to the Director of Forestry to grant ordinary timber licenses.

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