Republic of the Philippines the establishment of a petrochemical plant in Batangas does not

SUPREME COURT
Manila
EN BANC
G.R. No. 92024 November 9, 1990
CONGRESSMAN ENRIQUE T. GARCIA (Second District of
Bataan), petitioner,  reconsideration was denied.
vs.
THE BOARD OF INVESTMENTS, THE DEPARTMENT OF TRADE
AND INDUSTRY, LUZON PETROCHEMICAL CORPORATION, and
PILIPINAS SHELL CORPORATION, respondents.
Abraham C. La Vina for petitioner.
Sycip, Salazar, Hernandez & Gatmaitan for Luzon Petrochemical
Corporation.
violate P.D. No. 949 and P.D. No. 1803.
Our resolution skirted the issue of whether the investor given the initial
inducements and other circumstances surrounding its first choice of
plant site may change it simply because it has the final choice on the
matter. The Court merely ruled that the petitioner appears to have lost
interest in the case by his failure to appear at the hearing that was set
by the BOI after receipt of the decision, so he may be deemed to have
waived the fruit of the judgment. On this ground, the motion for partial
A motion for reconsideration of said resolution was filed by the
petitioner asking that we resolve the basic issue of whether or not the
foreign investor has the right of final choice of plant site; that the non-
attendance of the petitioner at the hearing was because the decision
was not yet final and executory; and that the petitioner had not therefor
waived the right to a hearing before the BOI.
In the Court's resolution dated January 17, 1990, we stated:

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
Pilipinas Shell Petroleum Corporation.
GUTIERREZ, JR., J.:
This is a petition to annul and set aside the decision of the Board of
Investments (BOI)/Department of Trade and Industry (DTI) approving
the transfer of the site of the proposed petrochemical plant from
Bataan to Batangas and the shift of feedstock for that plant from
naphtha only to naphtha and/or liquefied petroleum gas (LPG).
This petition is a sequel to the petition in G.R. No. 88637 entitled
"Congressman Enrique T. Garcia v. the Board of Investments",
September 7, 1989, where this Court issued a decision, ordering the
BOI as follows:
WHEREFORE, the petition for certiorari is
granted. The Board of Investments is ordered: (1)
to publish the amended application for registration
of the Bataan Petrochemical Corporation, (2) to
allow the petitioner to have access to its records
on the original and amended applications for
registration, as a petrochemical manufacturer, of
the respondent Bataan Petrochemical
Corporation, excluding, however, privileged
papers containing its trade secrets and other
business and financial information, and (3) to set
for hearing the petitioner's opposition to the
amended application in order that he may present
at such hearing all the evidence in his possession
in support of his opposition to the transfer of the
site of the BPC petrochemical plant to Batangas
province. The hearing shall not exceed a period of
ten (10) days from the date fixed by the BOI,
notice of which should be served by personal
service to the petitioner through counsel, at least
three (3) days in advance. The hearings may be
held from day to day for a period of ten (10) days
without postponements. The petition for a writ of
prohibition or preliminary injunction is denied. No
costs. (Rollo, pages 450-451)
However, acting on the petitioner's motion for partial reconsideration
asking that we rule on the import of P.D. Nos. 949 and 1803 and on
the foreign investor's claim of right of final choice of plant site, in the
light of the provisions of the Constitution and the Omnibus Investments
Code of 1987, this Court on October 24, 1989, made the observation
that P.D. Nos. 949 and 1803 "do not provide that the Limay site should
be the only petrochemical zone in the country, nor prohibit the
establishment of a petrochemical plant elsewhere in the country, that
Does the investor have a "right of final choice" of
plant site? Neither under the 1987 Constitution nor
in the Omnibus Investments Code is there such a
'right of final choice.' In the first place, the
investor's choice is subject to processing and
approval or disapproval by the BOI (Art. 7,
Chapter II, Omnibus Investments Code). By
submitting its application and amended application
to the BOI for approval, the investor recognizes
the sovereign prerogative of our Government,
through the BOI, to approve or disapprove the
same after determining whether its proposed
project will be feasible, desirable and beneficial to
our country. By asking that his opposition to the
LPC's amended application be heard by the BOI,
the petitioner likewise acknowledges that the BOI,
not the investor, has the last word or the "final
choice" on the matter.
Secondly, as this case has shown, even a choice
that had been approved by the BOI may not be
'final', for supervening circumstances and changes
in the conditions of a place may dictate a
corresponding change in the choice of plant site in
order that the project will not fail. After all, our
country will benefit only when a project succeeds,
not when it fails. (Rollo, pp. 538-539)
Nevertheless, the motion for reconsideration of the petitioner was
denied.
A minority composed of Justices Melencio-Herrera, Gancayco,
Sarmiento and this ponente voted to grant the motion for
reconsideration stating that the hearing set by the BOI was premature
as the decision of the Court was not yet final and executory; that as
contended by the petitioner the Court must first rule on whether or not
the investor has the right of final choice of plant site for if the ruling is in
the affirmative, the hearing would be a useless exercise; that in the
October 19, 1989 resolution, the Court while upholding validity of the
transfer of the plant site did not rule on the issue of who has the final
choice; that they agree with the observation of the majority that "the
investor has no final choice either under the 1987 Constitution or in the
Omnibus Investments Code and that it is the BOI who decides for the
government" and that the plea of the petitioner should be granted to
give him the chance to show the justness of his claim and to enable
the BOI to give a second hard look at the matter.
Thus, the herein petition which relies on the ruling of the Court in the
resolution of January 17, 1990 in G.R. No. 88637 that the investor has
no right of final choice under the 1987 Constitution and the Omnibus
Investments Code.
Under P.D. No. 1803 dated January 16, 1981, 576 hectares of the
public domain located in Lamao, Limay, Bataan were reserved for the
Petrochemical Industrial Zone under the administration, management,
and ownership of the Philippine National Oil Company (PNOC).
The Bataan Refining Corporation (BRC) is a wholly government owned
corporation, located at Bataan. It produces 60% of the national output
of naphtha.
should be located. The BOI recognizes and
respect the principle that the final chouce is still
with the proponent who would in the final analysis
provide the funding or risk capital for the
project. (Petition, P. 13; Annex D to the petition)
This position has not been denied by BOI in its pleadings in G.R. No.
88637 and in the present petition.

Taiwanese investors in a petrochemical project formed the Bataan Section 1, Article VIII of the 1987 Constitution provides:
Petrochemical Corporation (BPC) and applied with BOI for registration
as a new domestic producer of petrochemicals. Its application
SECTION 1. The judicial power shall be vested in
specified Bataan as the plant site. One of the terms and conditions for
one Supreme Court and in such lower courts as
registration of the project was the use of "naphtha cracker" and
may be established by law.
"naphtha" as feedstock or fuel for its petrochemical plant. The
petrochemical plant was to be a joint venture with PNOC. BPC was
issued a certificate of registration on February 24, 1988 by BOI. Judicial power includes the duty of the courts of
justice to settle actual controversies involving
rights which are legally demandable and
BPC was given pioneer status and accorded fiscal and other incentives
enforceable, and to determine whether or not
by BOI, like: (1) exemption from taxes on raw materials, (2) repatriation
there has been a grave abuse of discretion
of the entire proceeds of liquidation investments in currency originally
amounting to lack or excess of jurisdiction on the
made and at the exchange rate obtaining at the time of repatriation;
part of any branch or instrumentality of the
and (3) remittance of earnings on investments. As additional incentive,
Government.
the House of Representatives approved a bill introduced by the
petitioner eliminating the 48%ad valorem tax on naphtha if and when it
is used as raw materials in the petrochemical plant. (G.R. No. 88637, There is before us an actual controversy whether the petrochemical
September 7, 1989, pp. 2-3. Rollo, pp. 441-442) plant should remain in Bataan or should be transferred to Batangas,
and whether its feedstock originally of naphtha only should be changed
to naphtha and/or liquefied petroleum gas as the approved amended
However, in February, 1989, A.T. Chong, chairman of USI Far East
application of the BPC, now Luzon Petrochemical Corporation (LPC),
Corporation, the major investor in BPC, personally delivered to Trade
shows. And in the light of the categorical admission of the BOI that it is
Secretary Jose Concepcion a letter dated January 25, 1989 advising
the investor who has the final choice of the site and the decision on the
him of BPC's desire to amend the original registration certification of its
feedstock, whether or not it constitutes a grave abuse of discretion for
project by changing the job site from Limay, Bataan, to Batangas. The
the BOI to yield to the wishes of the investor, national interest
reason adduced for the transfer was the insurgency and unstable labor
notwithstanding.
situation, and the presence in Batangas of a huge liquefied petroleum
gas (LPG) depot owned by the Philippine Shell Corporation.
We rule that the Court has a constitutional duty to step into this
controversy and determine the paramount issue. We grant the petition.
The petitioner vigorously opposed the proposal and no less than
President Aquino expressed her preference that the plant be
established in Bataan in a conference with the Taiwanese investors, First, Bataan was the original choice as the plant site of the BOI to
the Secretary of National Defense and The Chief of Staff of the Armed which the BPC agreed. That is why it organized itself into a corporation
Forces. bearing the name Bataan. There is available 576 hectares of public
land precisely reserved as the petrochemical zone in Limay, Bataan
under P.D. No. 1803. There is no need to buy expensive real estate for
Despite speeches in the Senate and House opposing the Transfer of
the site unlike in the proposed transfer to Batangas. The site is the
the project to Batangas, BPC filed on April 11, 1989 its request for
result of careful study long before any covetous interests intruded into
approval of the amendments. Its application is as follows: "(l)
the choice. The site is ideal. It is not unduly constricted and allows for
increasing the investment amount from US $220 million to US $320
expansion. The respondents have not shown nor reiterated that the
million; (2) increasing the production capacity of its naphtha cracker,
alleged peace and order situation in Bataan or unstable labor situation
polythylene plant and polypropylene plant; (3) changing the feedstock
warrant a transfer of the plant site to Batangas. Certainly, these were
from naphtha only to "naphtha and/or liquefied petroleum gas;" and (4)
taken into account when the firm named itself Bataan Petrochemical
transferring the job site from Limay, Bataan, to Batangas. (Annex B to
Corporation. Moreover, the evidence proves the contrary.
Petition; Rollo, p. 25)

Second, the BRC, a government owned Filipino corporation, located in

Notwithstanding opposition from any quarters and the request of the
petitioner addressed to Secretary Concepcion to be furnished a copy
of the proposed amendment with its attachments which was denied by
the BOI on May 25, 1989, BOI approved the revision of the registration
of BPC's petrochemical project. (Petition, Annex F; Rollo, p. 32; See
pp. 4 to 6, Decision in G.R. No. 88637; supra.)
BOI Vice-Chairman Tomas I. Alcantara testifying before the Committee
on Ways and Means of the Senate asserted that:
The BOI has taken a public position preferring
Bataan over Batangas as the site of the
petrochemical complex, as this would provide a
better distribution of industries around the Metro
Manila area. ... In advocating the choice of Bataan
as the project site for the petrochemical complex,
the BOI, however, made it clear, and I would like
to repeat this that the BOI made it clear in its view
that the BOI or the government for that matter
could only recomend as to where the project
Bataan produces 60% of the national output of naphtha which can be
used as feedstock for the plant in Bataan. It can provide the feedstock
requirement of the plant. On the other hand, the country is short of
LPG and there is need to import the same for use of the plant in
Batangas. The local production thereof by Shell can hardly supply the
needs of the consumers for cooking purposes. Scarce dollars will be
diverted, unnecessarily, from vitally essential projects in order to feed
the furnaces of the transferred petrochemical plant.
Third, naphtha as feedstock has been exempted by law from the ad
valorem tax by the approval of Republic Act No. 6767 by President
Aquino but excluding LPG from exemption from ad valorem tax. The
law was enacted specifically for the petrochemical industry. The policy
determination by both Congress and the President is clear. Neither
BOI nor a foreign investor should disregard or contravene expressed
policy by shifting the feedstock from naphtha to LPG.
Fourth, under Section 10, Article XII of the 1987 Constitution, it is the
duty of the State to "regulate and exercise authority over foreign
investments within its national jurisdiction and in accordance with its
national goals and priorities." The development of a self-reliant and
independent national economy effectively controlled by Filipinos is
mandated in Section 19, Article II of the Constitution.
In Article 2 of the Omnibus Investments Code of 1987 "the sound
development of the national economy in consonance with the
principles and objectives of economic nationalism" is the set goal of
government.
Fifth, with the admitted fact that the investor is raising the greater
portion of the capital for the project from local sources by way of loan
which led to the so-called "petroscam scandal", the capital
requirements would be greatly minimized if LPC does not have to buy
the land for the project and its feedstock shall be limited to naphtha
which is certainly more economical, more readily available than LPG,
and does not have to be imported.
Sixth, if the plant site is maintained in Bataan, the PNOC shall be a
partner in the venture to the great benefit and advantage of the
government which shall have a participation in the management of the
project instead of a firm which is a huge multinational corporation.
In the light of all the clear advantages manifest in the plant's remaining
in Bataan, practically nothing is shown to justify the transfer to
Batangas except a near-absolute discretion given by BOI to investors
not only to freely choose the site but to transfer it from their own first
choice for reasons which remain murky to say the least.
And this brings us to a prime consideration which the Court cannot
rightly ignore.
Section 1, Article XII of the Constitution provides that:
x x x           x x x          x x x
The State shall promote industrialization and full
employment based on sound agricultural
development and agrarian reform, through
industries that make full and efficient use of
human and natural resources, and which are
competitive in both domestic and foreign markets.
However, the State shall protect Filipino
enterprises against unfair foreign competition and
trade practices.
xxx xxx xxx
Every provision of the Constitution on the national economy and
patrimony is infused with the spirit of national interest. The non-
alienation of natural resources, the State's full control over the
development and utilization of our scarce resources, agreements with
foreigners being based on real contributions to the economic growth
and general welfare of the country and the regulation of foreign
investments in accordance with national goals and priorities are too
explicit not to be noticed and understood.
A petrochemical industry is not an ordinary investment opportunity. It
should not be treated like a garment or embroidery firm, a shoe-making
venture, or even an assembler of cars or manufacturer of computer
chips, where the BOI reasoning may be accorded fuller faith and credit.
The petrochemical industry is essential to the national interest. In other
ASEAN countries like Indonesia and Malaysia, the government
superintends the industry by controlling the upstream or cracker
facility.
In this particular BPC venture, not only has the Government given
unprecedented favors, among them:
(1) For an initial authorized capital of only P20
million, the Central Bank gave an eligible relending
credit or relending facility worth US $50 million and
a debt to swap arrangement for US $30 million or
a total accommodation of US $80 million which at
current exchange rates is around P2080 million.
(2) A major part of the company's capitalization
shall not come from foreign sources but from
loans, initially a Pl Billion syndicated loan, to be
given by both government banks and a consortium
of Philippine private banks or in common parlance,
a case of 'guiniguisa sa sariling manteca.'
(3) Tax exemptions and privileges were given as
part of its 'preferred pioneer status.'
(4) Loan applications of other Philippine firms will
be crowded out of the Asian Development Bank
portfolio because of the petrochemical firm's
massive loan request. (Taken from the
proceedings before the Senate Blue Ribbon
Committee).
but through its regulatory agency, the BOI, it surrenders even the
power to make a company abide by its initial choice, a choice free from
any suspicion of unscrupulous machinations and a choice which is
undoubtedly in the best interests of the Filipino people.
The Court, therefore, holds and finds that the BOI committed a grave
abuse of discretion in approving the transfer of the petrochemical plant
from Bataan to Batangas and authorizing the change of feedstock from
naphtha only to naphtha and/or LPG for the main reason that the final
say is in the investor all other circumstances to the contrary
notwithstanding. No cogent advantage to the government has been
shown by this transfer. This is a repudiation of the independent policy
of the government expressed in numerous laws and the Constitution to
run its own affairs the way it deems best for the national interest.
One can but remember the words of a great Filipino leader who in part
said he would not mind having a government run like hell by Filipinos
than one subservient to foreign dictation. In this case, it is not even a
foreign government but an ordinary investor whom the BOI allows to
dictate what we shall do with our heritage.
WHEREFORE, the petition is hereby granted. The decision of the
respondent Board of Investments approving the amendment of the
certificate of registration of the Luzon Petrochemical Corporation on
May 23, 1989 under its Resolution No. 193, Series of 1989, (Annex F
to the Petition) is SET ASIDE as NULL and VOID. The original
certificate of registration of BPC' (now LPC) of February 24, 1988 with
Bataan as the plant site and naphtha as the feedstock is, therefore,
ordered maintained.
SO ORDERED.
Cruz, Gancayco, Padilla, Bidin, Sarmiento and Medialdea, JJ., concur.
Fernan, C.J., Paras, JJ., took no part.
Feliciano, J., is on leave.
Separate Opinions
GRIÑO-AQUINO, J., dissenting Opinion:
This is the petitioner's second petition for certiorari and prohibition with
application for a temporary restraining order or preliminary injunction
against the respondents Board of Investments (BOI), Department of
Trade and Industry (DTI), the Luzon Petrochemical Corporation (LPC),
formerly Bataan Petrochemical Corporation, and Pilipinas Shell
Corporation (SHELL) on the transfer of the LPC petrochemical plant
site from Bataan to Batangas. The first case was docketed in this Court
as G.R. No. 88637 and was decided on September 7, 1989.
Consistent with my opinion in the first case, I vote once more to deny
the petition.
The petitioner filed this second petition supposedly "upon the authority
and strength" of this Court's statement in its Resolution of January 9,
1990 in G.R. No. 88637 that the foreign investor (LPC) does not have
a right of final choice of plant site because its choice is subject to
approval or disapproval by the BOI (p. 3, Rollo). Ergo, the BOI has the
"final choice."
Petitioner contends that since the BOI had earlier approved Bataan as
the plant site of the LPG petrochemical complex, and of "naphtha only"
as the feedstock, that approval was "final" and may not be changed.
Hence, the BOI allegedly abused its discretion: (1) in approving the
transfer of the LPC's plant site from Bataan to Batangas (in spite of the
BOI's initial preference for Bataan) "upon the false and unlawful thesis
that the foreign investor has the right of final choice by plant site" (p.
13, Rollo), and (2) in allowing the LPC to shift feedstock from naphtha
only, to naphtha and/or LPG, despite the disadvantages of using LPG.
Petitioner prays the Court to annul the BOI's action and prohibit LPC
from transferring its plant site to Batangas and shifting feedstock to
naphtha and/ or LPG (p. 22, Rollo).
The petition is not well-taken. There is no provision in the 1987
Investments Code prohibiting the amendment of the investor's
application for registration of its project, such as, in this case, its plant
site, the feedstock to be used, and the capitalization of the project.
Neither does the law prohibit the BOI from approving the amended
application.
Since the investor may amend its application and the BOI may approve
or disapprove the amendments, when may the BOI be deemed to have
made a "final choice" regarding those aspects of the project which
have been changed?
Only the BOI or the Chief Executive is competent to answer that
question, for the matter of choosing an appropriate site for the
investor's project is a political and economic decision which, under our
system of separation of powers, only the executive branch, as
implementor of policy formulated by the legislature (in this case, the
policy of encouraging and inviting foreign investments into our
country), is empowered to make. It is not for this Court to determine
what is, or should be, the BOI's "final choice" of plant site and
feedstock, for, as we said in our decision in G.R. No. 88637:
This Court ... does not possess the necessary
technology and scientific expertise to detail e
whether the transfer of the proposed BPC (now
LPC) petrochemical complex from Bataan to
Batangas and the change of fuel from 'naphtha
only to naphtha and/or LPG' will be best for the
project and for our country. This Court is not about
to delve into the economics and politics of this
case. It is concerned simply with the alleged
violation of due process and the alleged extra
limitation of power and discretion on the part of the
public respondents in approving the transfer of the
project to Batangas without giving due notice and
an opportunity to be heard to the vocal opponents
of that move." (pp. 445-446, Rollo of G.R. No.
88637.)
Although we did say in our decision in G.R. No. 88637 that the BOI,
not the foreign investor, has the right of "final choice" of plant site for
the LPC project, the Court would be overstepping the bounds of its
jurisdiction were it to usurp the prerogative of the BOI to make that
choice or change it.
The petitioner's contention that the BOI abused its discretion in
approving the transfer of the LPC plant site to Batangas because the
BOI, in effect, yielded to the investor's choice, is not well taken. The
record shows that the BOI approved the transfer because "the BOI
recognizes the justification given by the proponent of the project (p. 30,
Rollo). The fact that the petitioner disagrees with the BOI's decision
does not make it wrong. The petitioner's recourse against the BOI's
action is by an appeal to the President (Sec. 36, 1987 Investments
Code), not to this Court.
This Court, in the exercise of its judicial power, may review and annul
executive as well as legislative actions when they clash with the
Constitution or with existing laws, or when any branch or
instrumentality of the Government has acted with grave abuse of
discretion amounting to lack or excess of jurisdiction (Sec. 1, Art. VIII,
1987 Constitution) but the Court may not do more than that. It may not
make the decisions that the executive should have made nor pass the
laws that the legislature should have passed. Not even the much
publicized "petroscam" involving the financial arrangements (not the
issue in this case) for the LPC project would justify the intervention of
this court in a matter that pertains to the exclusive domain of the
executive department. The court does not have a panacea for all the
ills that afflict our country nor a solution for every problem that besets
it.
Did the BOI gravely abuse its discretion in approving the LPC's
amended application for registration of its petrochemical project to
warrant the intervention of this Court? Grave abuse of discretion
implies such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction (Abad Santos vs. Prov. of Tarlac, 67
Phil. 480; Alafriz vs. Nable, 70 Phil. 278).
In light of the LPC's justifications for the transfer of its project site and
the shift from one kind of feedstock to two, we are not prepared to hold
that the BOI's decision to approve the changes was the product of a
capricious and arbitrary exercise of judgment on its part, despite the
seemingly impressive arguments of the petitioner showing the
advantages of establishing the petrochemical plant in Bataan and of
using naphtha only as feedstock. We are not prepared to substitute the
judgment of the BOI on this matter with one crafted by this Court.
With regard to the scandalously liberal financial accommodations that
local banks have allegedly agreed to grant to the LPC (the so-called
"petroscam") to enable it to raise a major part of its capital
requirements from local sources (hence, a betrayal of the people's
expectation that foreign investors will bring in foreign exchange to
finance their projects in this country) it is significant that the petitioner
has not led an outcry for the disapproval and cancellation of the project
on this score. Apparently, the petitioner is not seriously disturbed by
the moral implications of the "scam" provided the petrochemical plant
is set up in Bataan.
The decision of the BOI to allow the transfer of the LPC petrochemical
project to Batangas and shift feedstock from naphtha only to naphtha
and/or LPG, may appear to the petitioner to be extremely unwise and
inadvisable, but the Court may not, for that reason annul the BOI's
action or prohibit it from acting on a matter that lies within its particular
sphere of competence, for the Court is not a judge of the wisdom and
soundness of the actions of the two other co-equal branches of the
Government, but only of their legality and constitutionality.
WHEREFORE, I vote to deny the petition for certiorari and prohibition
for lack of merit.
Melencio-Herrera, Narvasa and Regalado, JJ., concur.
MELENCIO-HERRERA, J., dissenting:
Consistent with my dissent in G.R. No. 88637, the first petition, I
concur in the dissent herein of Mme. Justice Aquino and merely wish
to add that in its Decision, the majority has actually imposed its own
views on matters falling within the competence of a policy-making body
of the Government. It decided upon the wisdom of the transfer of the
site of the proposed project (pp. 8-9); the reasonableness of the
feedstock to be used (pp. 8-9); the undesirability of the capitalization
aspect of the project (p. 10), and injected its own concept of the
national interest as regards the establishment of a basic industry of
strategic importance to the country (p. 13).

It is true that the judicial power embodied in Article VIII of the 1987
Constitution speaks of the duty of Courts of justice to determine
whether or not there has been grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government. By no means, however, does it vest
in the Courts the power to enter the realm of policy considerations
under the guise of the commission of grave abuse of discretion.

But this is exactly what the majority Decision has resulted in. It has
made a sweeping policy determination and has unwittingly transformed
itself into what might be termed a "government by the Judiciary,"
something never intended by the framers of the Constitution when they
provided for separation of powers among the three co-equal branches
of government and excluded the Judiciary from policy-making.
 EN BANC
[G.R. NO. 127882 : December 1, 2004]
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by
its Chairman F'LONG MIGUEL M. LUMAYONG; WIGBERTO E.
TAÑADA; PONCIANO BENNAGEN; JAIME TADEO; RENATO R.
CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P.
AMLOY; RAQIM L. DABIE; SIMEON H. DOLOJO; IMELDA M.
GANDON; LENY B. GUSANAN; MARCELO L. GUSANAN;
QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P.
TACUAYAN; Minors JOLY L. BUGOY, Represented by His Father
UNDERO D. BUGOY and ROGER M. DADING; Represented by His
Father ANTONIO L. DADING; ROMY M. LAGARO, Represented by
His Father TOTING A. LAGARO; MIKENY JONG B. LUMAYONG,
Represented by His Father MIGUEL M. LUMAYONG; RENE T.
MIGUEL, Represented by His Mother EDITHA T. MIGUEL;
ALDEMAR L. SAL, Represented by His Father DANNY M. SAL;
DAISY RECARSE, Represented by Her Mother LYDIA S. SANTOS;
EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L. MANGCAL;
ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR; MARVIC
M.V.F. LEONEN; JULIA REGINA CULAR, GIAN CARLO CULAR,
VIRGILIO CULAR JR., Represented by Their Father VIRGILIO
CULAR; PAUL ANTONIO P. VILLAMOR, Represented by His
Parents JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA
GININA R. TALJA, Represented by Her Father MARIO JOSE B.
TALJA; SHARMAINE R. CUNANAN, Represented by Her Father
ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III,
Represented by His Mother ANNALIZA A. VITUG, LEAN D.
NARVADEZ, Represented by His Father MANUEL E. NARVADEZ
JR.; ROSERIO MARALAG LINGATING, Represented by Her Father
RIO OLIMPIO A. LINGATING; MARIO JOSE B. TALJA; DAVID E.
DE VERA; MARIA MILAGROS L. SAN JOSE; Sr. SUSAN O.
BOLANIO, OND; LOLITA G. DEMONTEVERDE; BENJIE L.
NEQUINTO;1 ROSE LILIA S. ROMANO; ROBERTO S. VERZOLA;
EDUARDO AURELIO C. REYES; LEAN LOUEL A. PERIA,
Represented by His Father ELPIDIO V. PERIA;2 GREEN FORUM
PHILIPPINES; GREEN FORUM WESTERN VISAYAS (GF-WV);
ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC);
KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT
REPORMANG PANSAKAHAN (KAISAHAN);3 PARTNERSHIP FOR
AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES,
INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR THE
DEVELOPMENT OF HUMAN RESOURCES IN THE RURAL AREAS,
INC. (PHILDHRRA); WOMEN'S LEGAL BUREAU (WLB); CENTER
FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI);
UPLAND DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN
FOUNDATION, INC.; SENTRO NG ALTERNATIBONG LINGAP
PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL
RESOURCES CENTER, INC. (LRC), Petitioners, v. VICTOR O.
RAMOS, Secretary, Department of Environment and Natural
Resources (DENR); HORACIO RAMOS, Director, Mines and
Geosciences Bureau (MGB-DENR); RUBEN TORRES, Executive
Secretary; and WMC (PHILIPPINES), INC.,4 Respondents.
RESOLUTION
PANGANIBAN, J.:
All mineral resources are owned by the State. Their exploration,
development and utilization (EDU) must always be subject to the full
control and supervision of the State. More specifically, given the
inadequacy of Filipino capital and technology in large-scale EDU
activities, the State may secure the help of foreign companies in all
relevant matters - - especially financial and technical assistance - -
provided that, at all times, the State maintains its right of full control.
The foreign assistor or contractor assumes all financial, technical and
entrepreneurial risks in the EDU activities; hence, it may be given
reasonable management, operational, marketing, audit and other
prerogatives to protect its investments and to enable the business to
succeed.
Full control is not anathematic to day-to-day management by the
contractor, provided that the State retains the power to direct overall
strategy; and to set aside, reverse or modify plans and actions of the
contractor. The idea of full control is similar to that which is exercised
by the board of directors of a private corporation: the performance of
managerial, operational, financial, marketing and other functions may
be delegated to subordinate officers or given to contractual entities, but
the board retains full residual control of the business.
Who or what organ of government actually exercises this power of
control on behalf of the State? The Constitution is crystal clear:
the President. Indeed, the Chief Executive is the official
constitutionally mandated to "enter into agreements with foreign owned
corporations." On the other hand, Congress may review the action of
the President once it is notified of "every contract entered into in
accordance with this [constitutional] provision within thirty days from its
execution." In contrast to this express mandate of the President and
Congress in the EDU of natural resources, Article XII of the
Constitution is silent on the role of the judiciary. However, should the
President and/or Congress gravely abuse their discretion in this
regard, the courts may - - in a proper case - - exercise their residual
duty under Article VIII. Clearly then, the judiciary should not
inordinately interfere in the exercise of this presidential power of
control over the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should
not be used to strangulate economic growth or to serve narrow,
parochial interests. Rather, it should be construed to grant the
President and Congress sufficient discretion and reasonable leeway to
enable them to attract foreign investments and expertise, as well as to
secure for our people and our posterity the blessings of prosperity and
peace.
On the basis of this control standard, this Court upholds the
constitutionality of the Philippine Mining Law, its Implementing Rules
and Regulations - - insofar as they relate to financial and technical
agreements - - as well as the subject Financial and Technical
Assistance Agreement (FTAA).5
Background
The Petition for Prohibition and Mandamus before the Court
challenges the constitutionality of (1) Republic Act No. [RA] 7942 (The
Philippine Mining Act of 1995); (2) its Implementing Rules and
Regulations (DENR Administrative Order No. [DAO] 96-40); and (3)
the FTAA dated March 30, 1995, 6executed by the government with
Western Mining Corporation (Philippines), Inc. (WMCP).7
On January 27, 2004, the Court en banc promulgated its
Decision8 granting the Petition and declaring the unconstitutionality of
certain provisions of RA 7942, DAO 96-40, as well as of the entire
FTAA executed between the government and WMCP, mainly on the
finding that FTAAs are service contracts prohibited by the 1987
Constitution.
The Decision struck down the subject FTAA for being similar to service
contracts,9 which, though permitted under the 1973 Constitution, 10 were
subsequently denounced for being antithetical to the principle of
sovereignty over our natural resources, because they allowed foreign
control over the exploitation of our natural resources, to the prejudice
of the Filipino nation.
The Decision quoted several legal scholars and authors who had
criticized service contracts for, inter alia, vesting in the foreign
contractor exclusive management and control of the enterprise,
including operation of the field in the event petroleum was discovered;
control of production, expansion and development; nearly unfettered
control over the disposition and sale of the products
discovered/extracted; effective ownership of the natural resource at the
point of extraction; and beneficial ownership of our economic
resources. According to the Decision, the 1987 Constitution (Section 2
of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration.
In a Resolution dated March 9, 2004, the Court required petitioners to
comment thereon. In the Resolution of June 8, 2004, it set the case for
Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to
submit their respective Memoranda in amplification of their arguments.
In a Resolution issued later the same day, June 29, 2004, the Court
noted, inter alia, the Manifestation and Motion (in lieu of comment) filed
by the Office of the Solicitor General (OSG) on behalf of public
respondents. The OSG said that it was not interposing any objection to
the Motion for Intervention filed by the Chamber of Mines of the
Philippines, Inc. (CMP) and was in fact joining and adopting the latter's
Motion for Reconsideration.
Memoranda were accordingly filed by the intervenor as well as by
petitioners, public respondents, and private respondent, dwelling at
length on the three issues discussed below. Later, WMCP submitted
its Reply Memorandum, while the OSG - - in obedience to an Order of
this Court - - filed a Compliance submitting copies of more FTAAs
entered into by the government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be
resolved in the present controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in
WMCP to Sagittarius (60 percent of Sagittarius' equity is owned by
Filipinos and/or Filipino-owned corporations while 40 percent is owned
by Indophil Resources NL, an Australian company) and by the
subsequent transfer and registration of the FTAA from WMCP to
Sagittarius?chanroblesvirtualawlibrary
2. Assuming that the case has been rendered moot, would it still be
proper to resolve the constitutionality of the assailed provisions of the
Mining Law, DAO 96-40 and the WMCP FTAA?
chanroblesvirtualawlibrary
3. What is the proper interpretation of the phrase Agreements
Involving Either Technical or Financial Assistance contained in
paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be
granted, for the reasons discussed below. The foregoing three issues
identified by the Court shall now be taken up seriatim.
First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-
40, and the WMCP FTAA, the majority Decision agreed with
petitioners' contention that the subject FTAA had been executed in
violation of Section 2 of Article XII of the 1987 Constitution. According
to petitioners, the FTAAs entered into by the government with foreign-
owned corporations are limited by the fourth paragraph of the said
provision to agreements involving only technical or financial
assistance for large-scale exploration, development and utilization of
minerals, petroleum and other mineral oils. Furthermore, the foreign
contractor is allegedly permitted by the FTAA in question to fully
manage and control the mining operations and, therefore, to acquire
"beneficial ownership" of our mineral resources.
The Decision merely shrugged off the Manifestation by WMPC
informing the Court (1) that on January 23, 2001, WMC had sold all its
shares in WMCP to Sagittarius Mines, Inc., 60 percent of whose equity
was held by Filipinos; and (2) that the assailed FTAA had likewise
been transferred from WMCP to Sagittarius. 11 The ponencia declared
that the instant case had not been rendered moot by the transfer and
registration of the FTAA to a Filipino-owned corporation, and that the
validity of the said transfer remained in dispute and awaited final
judicial determination.12 Patently therefore, the Decision is anchored on
the assumption that WMCP had remained a foreign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it
entered into the FTAA,happened to be wholly owned by WMC
Resources International Pty., Ltd. (WMC), which in turn was a wholly
owned subsidiary of Western Mining Corporation Holdings Ltd., a
publicly listed major Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor
being a foreign corporation. Had the FTAA been originally issued to a
Filipino-owned corporation, there would have been no constitutionality
issue to speak of. Upon the other hand, the conveyance of the WMCP
FTAA to a Filipino corporation can be likened to the sale of land to a
foreigner who subsequently acquires Filipino citizenship, or who later
resells the same land to a Filipino citizen. The conveyance would be
validated, as the property in question would no longer be owned by a
disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino
corporation, it is no longer possible for the Court to declare it
unconstitutional. The case pending in the Court of Appeals is a dispute
between two Filipino companies (Sagittarius and Lepanto), both
claiming the right to purchase the foreign shares in WMCP. So,
regardless of which side eventually wins, the FTAA would still be in the
hands of a qualified Filipino company. Considering that there is no
longer any justiciable controversy, the plea to nullify the Mining Law
has become a virtual petition for declaratory relief, over which this
Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case
has not become moot, considering the invalidity of the alleged sale of
the shares in WMCP from WMC to Sagittarius, and of the transfer of
the FTAA from WMCP to Sagittarius, resulting in the change of
contractor in the FTAA in question. And even assuming that the said
transfers were valid, there still exists an actual case predicated on the
invalidity of RA 7942 and its Implementing Rules and Regulations
(DAO 96-40). Presently, we shall discuss petitioners' objections to the
transfer of both the shares and the FTAA. We shall take up the alleged
invalidity of RA 7942 and DAO 96-40 later on in the discussion of the
third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the
WMCP shares to Sagittarius violates the fourth paragraph of Section 2
of Article XII of the Constitution; second, that it is contrary to the
provisions of the WMCP FTAA itself; and third, that the sale of the
shares is suspect and should therefore be the subject of a case in
which its validity may properly be litigated.
On the first ground, petitioners assert that paragraph 4 of Section 2 of
Article XII permits the government to enter into FTAAs only with
foreign-owned corporations. Petitioners insist that the first paragraph of
this constitutional provision limits the participation of Filipino
corporations in the exploration, development and utilization of natural
resources to only three species of contracts - - production sharing, co-
production and joint venture - - to the exclusion of all other
arrangements or variations thereof, and the WMCP FTAA may
therefore not be validly assumed and implemented by Sagittarius. In
short, petitioners claim that a Filipino corporation is not allowed by the
Constitution to enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article
XII does not support petitioners' argument. The pertinent part of the
said provision states: "Sec. 2. x x x The exploration, development and
utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by
such citizens. x x x." Nowhere in the provision is there any express
limitation or restriction insofar as arrangements other than the three
aforementioned contractual schemes are concerned.
Neither can one reasonably discern any implied stricture to that effect.
Besides, there is no basis to believe that the framers of the
Constitution, a majority of whom were obviously concerned with
furthering the development and utilization of the country's natural
resources, could have wanted to restrict Filipino participation in that
area. This point is clear, especially in the light of the overarching
constitutional principle of giving preference and priority to Filipinos and
Filipino corporations in the development of our natural resources.
Besides, even assuming (purely for argument's sake) that a
constitutional limitation barring Filipino corporations from holding and
implementing an FTAA actually exists, nevertheless, such provision
would apply only to the transfer of the FTAA to Sagittarius, but
definitely not to the sale of WMC's equity stake in WMCP to
Sagittarius. Otherwise, an unreasonable curtailment of property rights
without due process of law would ensue. Petitioners' argument must
therefore fail.
FTAA Not Intended
Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners - - that
the FTAA was intended to apply solely to a foreign corporation, as can
allegedly be seen from the provisions therein. They manage to cite
only one WMCP FTAA provision that can be regarded as clearly
intended to apply only to a foreign contractor: Section 12, which
provides for international commercial arbitration under the auspices of
the International Chamber of Commerce, after local remedies are
exhausted. This provision, however, does not necessarily imply that
the WMCP FTAA cannot be transferred to and assumed by a Filipino
corporation like Sagittarius, in which event the said provision should
simply be disregarded as a superfluity.
No Need for a Separate
Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from
WMC to Sagittarius; hence, the need to litigate it in a separate case.
Section 40 of RA 7942 (the Mining Law) allegedly requires the
President's prior approval of a transfer.
A re-reading of the said provision, however, leads to a different
conclusion. "Sec. 40.Assignment/Transfer - - A financial or technical
assistance agreement may be assigned or transferred, in whole or in
part, to a qualified person subject to the prior approval of the
President: Provided, That the President shall notify Congress of every
financial or technical assistance agreement assigned or converted in
accordance with this provision within thirty (30) days from the date of
the approval thereof."
Section 40 expressly applies to the assignment or transfer of the
FTAA, not to the sale and transfer of shares of stock in WMCP.
Moreover, when the transferee of an FTAA is
another foreign corporation, there is a logical application of the
requirement of prior approval by the President of the Republic and
notification to Congress in the event of assignment or transfer of an
FTAA. In this situation, such approval and notification are appropriate
safeguards, considering that the new contractor is the subject of a
foreign government.
On the other hand, when the transferee of the FTAA happens to be
a Filipino corporation, the need for such safeguard is not critical;
hence, the lack of prior approval and notification may not be deemed
fatal as to render the transfer invalid. Besides, it is not as if approval by
the President is entirely absent in this instance. As pointed out by
private respondent in its Memorandum, 13 the issue of approval is the
subject of one of the cases brought by Lepanto against Sagittarius in
GR No. 162331. That case involved the review of the Decision of the
Court of Appeals dated November 21, 2003 in CA-GR SP No. 74161,
which affirmed the DENR Order dated December 31, 2001 and the
Decision of the Office of the President dated July 23, 2002,
both approving the assignment of the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the financial capacity of the
transferee. According to the Deed of Absolute Sale dated January 23,
2001, executed between WMC and Sagittarius, the price of the WMCP
shares was fixed at US$9,875,000, equivalent to P553 million at an
exchange rate of 56:1. Sagittarius had an authorized capital stock
of P250 million and a paid up capital of P60 million. Therefore, at the
time of approval of the sale by the DENR, the debt-to-equity ratio of the
transferee was over 9:1 - - hardly ideal for an FTAA contractor,
according to petitioners.
However, private respondents counter that the Deed of Sale
specifically provides that the payment of the purchase price would take
place only after Sagittarius' commencement of commercial production
from mining operations, if at all. Consequently, under the
circumstances, we believe it would not be reasonable to conclude, as
petitioners did, that the transferee's high debt-to-equity ratio per se
necessarily carried negative implications for the enterprise; and it
would certainly be improper to invalidate the sale on that basis, as
petitioners propose.
FTAA Not Void,
Thus Transferrable
To bolster further their claim that the case is not moot, petitioners insist
that the FTAA is void and, hence cannot be transferred; and that its
transfer does not operate to cure the constitutional infirmity that is
inherent in it; neither will a change in the circumstances of one of the
parties serve to ratify the void contract.
While the discussion in their Final Memorandum was skimpy,
petitioners in their Comment (on the MR) did ratiocinate that this Court
had declared the FTAA to be void because, at the time it was executed
with WMCP, the latter was a fully foreign-owned corporation, in which
the former vested full control and management with respect to the
exploration, development and utilization of mineral resources, contrary
to the provisions of paragraph 4 of Section 2 of Article XII of the
Constitution. And since the FTAA was per se void, no valid right could
be transferred; neither could it be ratified, so petitioners conclude.
Petitioners have assumed as fact that which has yet to be
established. First and foremost, the Decision of this Court declaring the
FTAA void has not yet become final. That was precisely the reason the
Court still heard Oral Argument in this case. Second, the FTAA does
not vest in the foreign corporation full control and supervision over the
exploration, development and utilization of mineral resources, to the
exclusion of the government. This point will be dealt with in greater
detail below; but for now, suffice it to say that a perusal of the FTAA
provisions will prove that the government has effective overall direction
and control of the mining operations, including marketing and product
pricing, and that the contractor's work programs and budgets are
subject to its review and approval or disapproval.
As will be detailed later on, the government does not have to micro-
manage the mining operations and dip its hands into the day-to-day
management of the enterprise in order to be considered as having
overall control and direction. Besides, for practical and pragmatic
reasons, there is a need for government agencies to delegate certain
aspects of the management work to the contractor. Thus the basis for
declaring the FTAA void still has to be revisited, reexamined and
reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates
Authority ,14 and Halili v. CA,15 claiming that the doctrines in these
cases are wholly inapplicable to the instant case.
Chavez clearly teaches: "Thus, the Court has ruled consistently that
where a Filipino citizen sells land to an alien who later sells the land to
a Filipino, the invalidity of the first transfer is corrected by the
subsequent sale to a citizen. Similarly, where the alien who buys the
land subsequently acquires Philippine citizenship, the sale is validated
since the purpose of the constitutional ban to limit land ownership to
Filipinos has been achieved. In short, the law disregards the
constitutional disqualification of the buyer to hold land if the land is
subsequently transferred to a qualified party, or the buyer himself
becomes a qualified party." 16
In their Comment, petitioners contend that in Chavez and Halili, the
object of the transfer (the land) was not what was assailed for alleged
unconstitutionality. Rather, it was the transaction that was assailed;
hence subsequent compliance with constitutional provisions would
cure its infirmity. In contrast, in the instant case it is the FTAA itself, the
object of the transfer, that is being assailed as invalid and
unconstitutional. So, petitioners claim that the subsequent transfer of a
void FTAA to a Filipino corporation would not cure the defect.
Petitioners are confusing themselves. The present Petition has been
filed, precisely because the grantee of the FTAA was a wholly owned
subsidiary of a foreign corporation. It cannot be gainsaid that anyone
would have asserted that the same FTAA was void if it had at the
outset been issued to a Filipino corporation. The FTAA, therefore, is
not per se defective or unconstitutional. It was questioned only
because it had been issued to an allegedly non-qualified, foreign-
owned corporation.
We believe that this case is clearly analogous to Halili, in which the
land acquired by a non-Filipino was re-conveyed to a qualified vendee
and the original transaction was thereby cured. Paraphrasing Halili,the
same rationale applies to the instant case: assuming arguendo the
invalidity of its prior grant to a foreign corporation, the disputed FTAA -
- being now held by a Filipino corporation - - can no longer be assailed;
the objective of the constitutional provision - - to keep the exploration,
development and utilization of our natural resources in Filipino hands -
- has been served.
More accurately speaking, the present situation is one degree better
than that obtaining in Halili, in which the original sale to a non-Filipino
was clearly and indisputably violative of the constitutional prohibition
and thus void ab initio. In the present case, the issuance/grant of the
subject FTAA to the then foreign-owned WMCP was not illegal, void or
unconstitutional at the time. The matter had to be brought to court,
precisely for adjudication as to whether the FTAA and the Mining Law
had indeed violated the Constitution. Since, up to this point, the
decision of this Court declaring the FTAA void has yet to become final,
to all intents and purposes, the FTAA must be deemed valid and
constitutional.17
At bottom, we find completely outlandish petitioners' contention that an
FTAA could be entered into by the government only with a foreign
corporation, never with a Filipino enterprise. Indeed, the nationalistic
provisions of the Constitution are all anchored on the protection of
Filipino interests. How petitioners can now argue that foreigners have
the exclusive right to FTAAs totally overturns the entire basis of the
Petition - - preference for the Filipino in the exploration, development
and utilization of our natural resources. It does not take deep
knowledge of law and logic to understand that what the Constitution
grants to foreigners should be equally available to Filipinos.
Second Issue:
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot
All the protagonists are in agreement that the Court has jurisdiction to
decide this controversy, even assuming it to be moot.
Petitioners stress the following points. First, while a case becomes
moot and academic when "there is no more actual controversy
between the parties or no useful purpose can be served in passing
upon the merits," 18 what is at issue in the instant case is not only the
validity of the WMCP FTAA, but also the constitutionality of RA 7942
and its Implementing Rules and Regulations. Second, the acts of
private respondent cannot operate to cure the law of its alleged
unconstitutionality or to divest this Court of its jurisdiction to
decide. Third, the Constitution imposes upon the Supreme Court the
duty to declare invalid any law that offends the Constitution.
Petitioners also argue that no amendatory laws have been passed to
make the Mining Act of 1995 conform to constitutional strictures
(assuming that, at present, it does not); that public respondents will
continue to implement and enforce the statute until this Court rules
otherwise; and that the said law continues to be the source of legal
authority in accepting, processing and approving numerous
applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA
applications had been filed with the Mines and Geosciences Bureau
(MGB), with an aggregate area of 2,064,908.65 hectares - - spread
over Luzon, the Visayas and Mindanao 19 - - applied for. It may be a bit
far-fetched to assert, as petitioners do, that each and every FTAA that
was entered into under the provisions of the Mining Act "invites
potential litigation" for as long as the constitutional issues are not
resolved with finality. Nevertheless,we must concede that there exists
the distinct possibility that one or more of the future FTAAs will be the
subject of yet another suit grounded on constitutional issues.
But of equal if not greater significance is the cloud of uncertainty
hanging over the mining industry, which is even now scaring away
foreign investments. Attesting to this climate of anxiety is the fact that
the Chamber of Mines of the Philippines saw the urgent need to
intervene in the case and to present its position during the Oral
Argument; and that Secretary General Romulo Neri of the National
Economic Development Authority (NEDA) requested this Court to allow
him to speak, during that Oral Argument, on the economic
consequences of the Decision of January 27, 2004. 20
We are convinced. We now agree that the Court must recognize the
exceptional character of the situation and the paramount public
interest involved, as well as the necessity for a ruling to put an end to
the uncertainties plaguing the mining industry and the affected
communities as a result of doubts cast upon the constitutionality and
validity of the Mining Act, the subject FTAA and future FTAAs, and the
need to avert a multiplicity of suits. Paraphrasing Gonzales v.
Commission on Elections, 21 it is evident that strong reasons of public
policy demand that the constitutionality issue be resolved now.22
In further support of the immediate resolution of the constitutionality
issue, public respondents citeAcop v. Guingona, 23 to the effect that the
courts will decide a question - - otherwise moot and academic - - if it
is "capable of repetition, yet evading review." 24 Public respondents ask
the Court to avoid a situation in which the constitutionality issue may
again arise with respect to another FTAA, the resolution of which may
not be achieved until after it has become too late for our mining
industry to grow out of its infancy. They also recall Salonga v. Cruz
Paño, 25 in which this Court declared that "(t)he Court also has the
duty to formulate guiding and controlling constitutional principles,
precepts, doctrines or rules. It has the symbolic function of educating
the bench and bar on the extent of protection given by constitutional
guarantees. x x x."
The mootness of the case in relation to the WMCP FTAA led the
undersigned ponente to state in his dissent to the Decision that there
was no more justiciable controversy and the plea to nullify the Mining
Law has become a virtual petition for declaratory relief. 26 The entry of
the Chamber of Mines of the Philippines, Inc., however, has put into
focus the seriousness of the allegations of unconstitutionality of RA
7942 and DAO 96-40 which converts the case to one for
prohibition27 in the enforcement of the said law and regulations.
Indeed, this CMP entry brings to fore that the real issue in this case is
whether paragraph 4 of Section 2 of Article XII of the Constitution is
contravened by RA 7942 and DAO 96-40, not whether it was violated
by specific acts implementing RA 7942 and DAO 96-40. "[W]hen an act
of the legislative department is seriously alleged to have infringed the
Constitution, settling the controversy becomes the duty of this Court.
By the mere enactment of the questioned law or the approval of the
challenged action, the dispute is said to have ripened into a judicial
controversy even without any other overt act." 28 This ruling can be
traced from Tañada v. Angara,29 in which the Court said:
"In seeking to nullify an act of the Philippine Senate on the ground that
it contravenes the Constitution, the petition no doubt raises a
justiciable controversy. Where an action of the legislative branch is
seriously alleged to have infringed the Constitution, it becomes not
only the right but in fact the duty of the judiciary to settle the dispute.
xxx
"As this Court has repeatedly and firmly emphasized in many cases, it
will not shirk, digress from or abandon its sacred duty and authority to
uphold the Constitution in matters that involve grave abuse of
discretion brought before it in appropriate cases, committed by any
officer, agency, instrumentality or department of the government." 30
Additionally, the entry of CMP into this case has also effectively
forestalled any possible objections arising from the standing or legal
interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed
to a resolution of the constitutional issues in this case.
Third Issue:
The Proper Interpretation of the Constitutional Phrase
"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is
paragraph 4 of Section 2 of Article XII of the 1987 Constitution. In order
to appreciate its context, Section 2 is reproduced in full:
"Sec. 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The
exploration, development and utilization of natural resources shall be
under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production,
joint venture or production-sharing agreements with Filipino citizens or
corporations or associations at least sixty per centum of whose capital
is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five
years, and under such terms and conditions as may be provided by
law. In cases of water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, beneficial
use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic
waters, territorial sea, and exclusive economic zone, and reserve its
use and enjoyment exclusively to Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural
resources by Filipino citizens, as well as cooperative fish farming, with
priority to subsistence fishermen and fish-workers in rivers, lakes, bays
and lagoons.
"The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for
large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oilsaccording to the general terms and
conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local
scientific and technical resources.
"The President shall notify the Congress of every contract entered into
in accordance with this provision, within thirty days from its
execution." 31
No Restriction of Meaning by
a  Verba Legis  Interpretation
To interpret the foregoing provision, petitioners adamantly assert that
the language of the Constitution should prevail; that the primary
method of interpreting it is to seek the ordinary meaning of the words
used in its provisions. They rely on rulings of this Court, such as the
following:
"The fundamental principle in constitutional construction however is
that the primary source from which to ascertain constitutional intent or
purpose is the language of the provision itself. The presumption is that
the words in which the constitutional provisions are couched express
the objective sought to be attained. In other words, verba legisprevails.
Only when the meaning of the words used is unclear and equivocal
should resort be made to extraneous aids of construction and
interpretation, such as the proceedings of the Constitutional
Commission or Convention to shed light on and ascertain the true
intent or purpose of the provision being construed." 32
Very recently, in Francisco v. The House of Representatives , 33 this
Court indeed had the occasion to reiterate the well-settled principles of
constitutional construction:
"First, verba legis, that is, wherever possible, the words used in the
Constitution must be given their ordinary meaning except where
technical terms are employed. x x x.
xxx
"Second, where there is ambiguity, ratio legis est anima. The words of
the Constitution should be interpreted in accordance with the intent of
its framers. x x x.
xxx
"Finally, ut magis valeat quam pereat. The Constitution is to be
interpreted as a whole."34
For ease of reference and in consonance with verba legis, we
reconstruct and stratify the aforequoted Section 2 as follows:
1. All natural resources are owned by the State. Except for agricultural
lands, natural resources cannot be alienated by the State.
2. The exploration, development and utilization (EDU) of natural
resources shall be under the full control and supervision of the State.
3. The State may undertake these EDU activities through either of the
following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing
agreements with Filipino citizens or corporations, at least 60 percent of
the capital of which is owned by such citizens
4. Small-scale utilization of natural resources may be allowed by law in
favor of Filipino citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils,
the President may enter into "agreements with foreign-owned
corporations involving either technical or financial assistance according
to the general terms and conditions provided by law x x x."
Note that in all the three foregoing mining activities - - exploration,
development and utilization - - the State may undertake such EDU
activities by itself or in tandem with Filipinos or Filipino corporations,
except in two instances: first, in small-scale utilization of natural
resources, which Filipinos may be allowed by law to undertake;
and second, in large-scale EDU of minerals, petroleum and mineral
oils, which may be undertaken by the State via "agreements with
foreign-owned corporations involving either technical or financial
assistance" as provided by law.
Petitioners claim that the phrase "agreements x x x involving either
technical or financial assistance"simply means technical assistance or
financial assistance agreements, nothing more and nothing else. They
insist that there is no ambiguity in the phrase, and that a plain reading
of paragraph 4 quoted above leads to the inescapable conclusion that
what a foreign-owned corporation may enter into with the government
is merely an agreement for either financial or technical assistance only,
for the large-scale exploration, development and utilization of minerals,
petroleum and other mineral oils; such a limitation, they argue,
excludes foreign management and operation of a mining enterprise. 35
This restrictive interpretation, petitioners believe, is in line with the
general policy enunciated by the Constitution reserving to Filipino
citizens and corporations the use and enjoyment of the country's
natural resources. They maintain that this Court's Decision 36 of January
27, 2004 correctly declared the WMCP FTAA, along with pertinent
provisions of RA 7942, void for allowing a foreign contractor to have
direct and exclusive management of a mining enterprise. Allowing such
a privilege not only runs counter to the "full control and supervision"
that the State is constitutionally mandated to exercise over the
exploration, development and utilization of the country's natural
resources; doing so also vests in the foreign company "beneficial
ownership" of our mineral resources. It will be recalled that the
Decision of January 27, 2004 zeroed in on "management or other
forms of assistance" or other activities associated with the "service
contracts" of the martial law regime, since "the management or
operation of mining activities by foreign contractors, which is the
primary feature of service contracts, was precisely the evil that the
drafters of the 1987 Constitution sought to eradicate."
On the other hand, the intervenor 37 and public respondents argue that
the FTAA allowed by paragraph 4 is not merely an agreement for
supplying limited and specific financial or technical services to the
State. Rather, such FTAA is a comprehensive agreement for the
foreign-owned corporation's integrated exploration, development and
utilization of mineral, petroleum or other mineral oils on a large-scale
basis. The agreement, therefore, authorizes the foreign contractor's
rendition of a whole range of integrated and comprehensive services,
ranging from the discovery to the development, utilization and
production of minerals or petroleum products.
We do not see how applying a strictly literal or verba
legis interpretation of paragraph 4 could inexorably lead to the
conclusions arrived at in the ponencia. First, the drafters' choice of
words - - their use of the phrase agreements x x x involving either
technical or financial assistance - - does not indicate the intent
to exclude other modes of assistance. The drafters opted to
use involving when they could have simply
said agreements for financial or technical assistance, if that was their
intention to begin with. In this case, the limitation would be very clear
and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of
the inclusion of other forms of assistance or activities having to do
with, otherwise related to or compatible with financial or technical
assistance. The word "involving" as used in this context has three
connotations that can be differentiated thus: one, the sense of
"concerning," "having to do with," or "affecting"; two, "entailing,"
"requiring," "implying" or "necessitating"; and three, "including,"
"containing" or "comprising."38
Plainly, none of the three connotations convey a sense of exclusivity.
Moreover, the word "involving," when understood in the sense of
"including," as in including technical or financial assistance,necessarily
implies that there are activities other than those that are being
included. In other words, if an agreement includes technical or financial
assistance, there is apart from such assistance - - something else
already in, and covered or may be covered by, the said agreement.
In short, it allows for the possibility that matters, other than those
explicitly mentioned, could be made part of the agreement. Thus, we
are now led to the conclusion that the use of the word "involving"
implies that these agreements with foreign corporations are not limited
to mere financial or technical assistance. The difference in sense
becomes very apparent when we juxtapose "agreements fortechnical
or financial assistance" against "agreements including technical or
financial assistance." This much is unalterably clear in a verba
legis approach.
Second, if the real intention of the drafters was to confine foreign
corporations to financial or technical assistance and nothing more,
their language would have certainly been so unmistakably restrictive
and stringent as to leave no doubt in anyone's mind about their true
intent. For example, they would have used the sentence foreign
corporations are absolutely prohibited from involvement in the
management or operation of mining or similar ventures or words of
similar import. A search for such stringent wording yields negative
results. Thus, we come to the inevitable conclusion that there was
a conscious and deliberate decision to avoid the use of restrictive
wording that bespeaks an intent not to use the expression
"agreements x x x involving either technical or financial
assistance" in an exclusionary and limiting manner.
Deletion of "Service Contracts" to
Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the
conclusion that "the management or operation of mining activities by
foreign contractors, which is the primary feature of service contracts,
was precisely the evil that the drafters of the 1987 Constitution sought
to eradicate." Nowhere in the above-quoted Section can be discerned
the objective to keep out of foreign hands the management or
operation of mining activities or the plan to eradicate service contracts
as these were understood in the 1973 Constitution. Still, petitioners
maintain that the deletion or omission from the 1987 Constitution of the
term "service contracts" found in the 1973 Constitution sufficiently
proves the drafters' intent to exclude foreigners from the management
of the affected enterprises.
To our mind, however, such intent cannot be definitively and
conclusively established from the mere failure to carry the same
expression or term over to the new Constitution, absent a more
specific, explicit and unequivocal statement to that effect. What
petitioners seek (a complete ban on foreign participation in the
management of mining operations, as previously allowed by the earlier
Constitutions) is nothing short of bringing about a momentous sea
change in the economic and developmental policies; and the
fundamentally capitalist, free-enterprise philosophy of our
government. We cannot imagine such a radical shift being undertaken
by our government, to the great prejudice of the mining sector in
particular and our economy in general, merely on the basis of
the omission of the terms service contract from or the failure to carry
them over to the new Constitution. There has to be a much more
definite and even unarguable basis for such a drastic reversal of
policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as
that proposed by petitioners, suffers from certain internal logical
inconsistencies that generate ambiguities in the understanding of the
provision. As the intervenor pointed out, there has never been any
constitutional or statutory provision that reserved to Filipino citizens or
corporations, at least 60 percent of which is Filipino-owned, the
rendition of financial or technical assistance to companies engaged in
mining or the development of any other natural resource. The taking
out of foreign-currency or peso-denominated loans or any other kind of
financial assistance, as well as the rendition of technical assistance - -
whether to the State or to any other entity in the Philippines - - has
never been restricted in favor of Filipino citizens or corporations having
a certain minimum percentage of Filipino equity. Such a restriction
would certainly be preposterous and unnecessary. As a matter of fact,
financial, and even technical assistance, regardless of the nationality of
its source, would be welcomed in the mining industry anytime with
open arms, on account of the dearth of local capital and the need to
continually update technological know-how and improve technical
skills.
There was therefore no need for a constitutional provision specifically
allowing foreign-owned corporations to render financial or technical
assistance, whether in respect of mining or some other resource
development or commercial activity in the Philippines. The last point
needs to be emphasized: if merely financial or technical
assistance agreements are allowed, there would be no need to
limit them to large-scale mining operations, as there would be far
greater need for them in the smaller-scale mining activities (and
even in non-mining areas). Obviously, the provision in question
was intended to refer to agreements other than those for mere
financial or technical assistance.
In like manner, there would be no need to require the President of the
Republic to report to Congress, if only financial or technical assistance
agreements are involved. Such agreements are in the nature of foreign
loans that - - pursuant to Section 20 of Article VII 39 of the 1987
Constitution - - the President may contract or guarantee, merely with
the prior concurrence of the Monetary Board. In turn, the Board is
required to report to Congress within thirty days from the end of every
quarter of the calendar year, not thirty days after the agreement is
entered into.
And if paragraph 4 permits only agreements for loans and other forms
of financial, or technical assistance, what is the point of requiring that
they be based on real contributions to the economic growth and
general welfare of the country? For instance, how is one to measure
and assess the "real contributions" to the "economic growth" and
"general welfare" of the country that may ensue from a foreign-
currency loan agreement or a technical-assistance agreement for, say,
the refurbishing of an existing power generating plant for a mining
operation somewhere in Mindanao? Such a criterion would make more
sense when applied to a major business investment in a principal
sector of the industry.
The conclusion is clear and inescapable - - a verba legis construction
shows that paragraph 4 is not to be understood as one limited only to
foreign loans (or other forms of financial support) and to technical
assistance. There is definitely more to it than that. These are
provisions permitting participation by foreign companies;
requiring the President's report to Congress; and using, as
yardstick, contributions based on economic growth and general
welfare. These were neither accidentally inserted into the
Constitution nor carelessly cobbled together by the drafters in lip
service to shallow nationalism. The provisions patently have
significance and usefulness in a context that allows agreements with
foreign companies to include more than mere financial or technical
assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more
than a rendition of specific and limited financial service or technical
assistance by a foreign company. This argument begs the question "To
whom or for whom would it be rendered"? or Who is being assisted? If
the answer is "The State," then it necessarily implies that the State
itself is the one directly and solely undertaking the large-scale
exploration, development and utilization of a mineral resource, so it
follows that the State must itself bear the liability and cost of repaying
the financing sourced from the foreign lender and/or of paying
compensation to the foreign entity rendering technical assistance.
However, it is of common knowledge, and of judicial notice as well, that
the government is and has for many many years been financially
strapped, to the point that even the most essential services have
suffered serious curtailments - - education and health care, for
instance, not to mention judicial services - - have had to make do with
inadequate budgetary allocations. Thus, government has had to resort
to build-operate-transfer and similar arrangements with the private
sector, in order to get vital infrastructure projects built without any
governmental outlay.
The very recent brouhaha over the gargantuan "fiscal crisis" or "budget
deficit" merely confirms what the ordinary citizen has suspected all
along. After the reality check, one will have to admit the implausibility
of a direct undertaking - - by the State itself - - of large-
scale exploration, development and utilization of minerals, petroleum
and other mineral oils. Such an undertaking entails not only
humongous capital requirements, but also the attendant risk of never
finding and developing economically viable quantities of minerals,
petroleum and other mineral oils.40
It is equally difficult to imagine that such a provision restricting foreign
companies to the rendition of only financial or technical assistance to
the government was deliberately crafted by the drafters of the
Constitution, who were all well aware of the capital-intensive and
technology-oriented nature of large-scale mineral or petroleum
extraction and the country's deficiency in precisely those areas. 41 To
say so would be tantamount to asserting that the provision was
purposely designed to ladle the large-scale development and utilization
of mineral, petroleum and related resources with impossible conditions;
and to remain forever and permanently "reserved" for future
generations of Filipinos.
A More Reasonable Look
at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and
examining the logical inferences. The drafters chose to emphasize and
highlight agreements x x x involving either technical or financial
assistance in relation to foreign corporations' participation in large-
scale EDU. The inclusion of this clause on "technical or financial
assistance" recognizes the fact that foreign business entities and
multinational corporations are the ones with the resources and know-
how to provide technical and/or financial assistance of the magnitude
and type required for large-scale exploration, development and
utilization of these resources.
The drafters - - whose ranks included many academicians,
economists, businessmen, lawyers, politicians and government
officials - - were not unfamiliar with the practices of foreign
corporations and multinationals.
Neither were they so naïve as to believe that these entities would
provide "assistance" without conditionalities or some quid pro quo.
Definitely, as business persons well know and as a matter of judicial
notice, this matter is not just a question of signing a promissory note or
executing a technology transfer agreement. Foreign corporations
usually require that they be given a say in the management, for
instance, of day-to-day operations of the joint venture. They would
demand the appointment of their own men as, for example, operations
managers, technical experts, quality control heads, internal auditors or
comptrollers. Furthermore, they would probably require seats on the
Board of Directors - - all these to ensure the success of the enterprise
and the repayment of the loans and other financial assistance and to
make certain that the funding and the technology they supply would
not go to waste. Ultimately, they would also want to protect their
business reputation and bottom lines.42
In short, the drafters will have to be credited with enough pragmatism
and savvy to know that these foreign entities will not enter into such
"agreements involving assistance" without requiring arrangements for
the protection of their investments, gains and benefits.
Thus, by specifying such "agreements involving assistance," the
drafters necessarily gave implied assent to everything that these
agreements necessarily entailed; or that could reasonably be deemed
necessary to make them tenable and effective, including management
authority with respect to the day-to-day operations of the enterprise
and measures for the protection of the interests of the foreign
corporation, PROVIDED THAT Philippine sovereignty over natural
resources and full control over the enterprise undertaking the EDU
activities remain firmly in the State.
Petitioners' Theory Deflated by the
Absence of Closing-Out Rules or Guidelines
Seventh and final point regarding the plain-language approach, one of
the practical difficulties that results from it is the fact that there is
nothing by way of transitory provisions that would serve to confirm the
theory that the omission of the term "service contract" from the 1987
Constitution signaled the demise of service contracts.
The framers knew at the time they were deliberating that there were
various service contracts extant and in force and effect, including those
in the petroleum industry. Many of these service contracts were long-
term (25 years) and had several more years to run. If they had meant
to ban service contracts altogether, they would have had to provide for
the termination or pretermination of the existing contracts. Accordingly,
they would have supplied the specifics and the when and how of
effecting the extinguishment of these existing contracts (or at least the
mechanics for determining them); and of putting in place the means to
address the just claims of the contractors for compensation for their
investments, lost opportunities, and so on, if not for the recovery
thereof.
If the framers had intended to put an end to service contracts, they
would have at least left specific instructions to Congress to deal with
these closing-out issues, perhaps by way of general guidelines and a
timeline within which to carry them out. The following are some extant
examples of such transitory guidelines set forth in Article XVIII of our
Constitution:
"Section 23. Advertising entities affected by paragraph (2), Section 11
of Article XVI of this Constitution shall have five years from its
ratification to comply on a graduated and proportionate basis with the
minimum Filipino ownership requirement therein.
xxx
"Section 25. After the expiration in 1991 of the Agreement between the
Republic of the Philippines and the United States of America
concerning military bases, foreign military bases, troops, or facilities
shall not be allowed in the Philippines except under a treaty duly
concurred in by the Senate and, when the Congress so requires,
ratified by a majority of the votes cast by the people in a national
referendum held for that purpose, and recognized as a treaty by the
other contracting State.
"Section 26. The authority to issue sequestration or freeze orders
under Proclamation No. 3 dated March 25, 1986 in relation to the
recovery of ill-gotten wealth shall remain operative for not more than
eighteen months after the ratification of this Constitution. However, in
the national interest, as certified by the President, the Congress may
extend such period.
A sequestration or freeze order shall be issued only upon showing of
a prima facie case. The order and the list of the sequestered or frozen
properties shall forthwith be registered with the proper court. For
orders issued before the ratification of this Constitution, the
corresponding judicial action or proceeding shall be filed within six
months from its ratification. For those issued after such ratification, the
judicial action or proceeding shall be commenced within six months
from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no
judicial action or proceeding is commenced as herein provided." 43]
It is inconceivable that the drafters of the Constitution would leave such
an important matter - - an expression of sovereignty as it were - -
indefinitely hanging in the air in a formless and ineffective state.
Indeed, the complete absence of even a general framework only
serves to further deflate petitioners' theory, like a child's balloon losing
its air.
Under the circumstances, the logical inconsistencies resulting from
petitioners' literal and purely verba legis approach to paragraph 4 of
Section 2 of Article XII compel a resort to other aids to interpretation.
Petitioners' Posture Also Negated 
by  Ratio Legis Et Anima
Thus, in order to resolve the inconsistencies, incongruities and
ambiguities encountered and to supply the deficiencies of the plain-
language approach, there is a need for recourse to the proceedings of
the 1986 Constitutional Commission. There is a need for ratio legis et
anima.
Service Contracts Not
"Deconstitutionalized"
Pertinent portions of the deliberations of the members of the
Constitutional Commission (ConCom) conclusively show that they
discussed agreements involving either technical or financial
assistance in the same breadth as service contracts and used the
terms interchangeably. The following exchange between
Commissioner Jamir (sponsor of the provision) and Commissioner
Suarez irrefutably proves that the "agreements involving technical or
financial assistance" were none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on
Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second
paragraph of Section 3, my amendment by substitution reads: THE
PRESIDENT MAY ENTER INTO AGREEMENTS WITH FOREIGN-
OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR
FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION,
DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES
ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY
LAW.
MR. VILLEGAS. The Committee accepts the amendment.
Commissioner Suarez will give the background.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
chanroblesvirtualawlibrary
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference
to what was popularly known before as service contracts, among
other things, is that correct?chanroblesvirtualawlibrary
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service
contracts but subject to the guidelines that may be promulgated by
Congress?chanroblesvirtualawlibrary
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and
consummation will fall on the President, not upon Congress?
chanroblesvirtualawlibrary
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or
otherwise, must be made strictly in accordance with guidelines
prescribed by Congress?chanroblesvirtualawlibrary
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that
uniformly covers situations of the same nature?
chanroblesvirtualawlibrary
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.44
The following exchange leaves no doubt that the commissioners knew
exactly what they were dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment
with regard to specialservice contracts which was accepted by the
Committee. Since the Committee has accepted it, I would like to ask
some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. As it is proposed now, such service contracts will be
entered into by the President with the guidelines of a general law
on service contract to be enacted by Congress. Is that correct?
chanroblesvirtualawlibrary
MR. VILLEGAS. The Commissioner is right, Madam President.
MR. GASCON. According to the original proposal, if the President
were to enter into a particular agreement, he would need the
concurrence of Congress. Now that it has been changed by the
proposal of Commissioner Jamir in that Congress will set the general
law to which the President shall comply, the President will, therefore,
not need the concurrence of Congress every time he enters
into service contracts. Is that correct?chanroblesvirtualawlibrary
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in
indirect contrast to my proposed amendment, so I would like to object
and present my proposed amendment to the body.
xxx
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service
contract agreements which the President will enter into might be too
general or since we do not know the content yet of such a law, it might
be that certain agreements will be detrimental to the interest of the
Filipinos. This is in direct contrast to my proposal which provides that
there be effective constraints in the implementation of service
contracts.
So instead of a general law to be passed by Congress to serve as a
guideline to the President when entering into service contract
agreements, I propose that everyservice contract entered into by the
President would need the concurrence of Congress, so as to assure
the Filipinos of their interests with regard to the issue in Section 3 on
all lands of the public domain. My alternative amendment, which we
will discuss later, reads: THAT THE PRESIDENT SHALL ENTER
INTO SUCH AGREEMENTS ONLY WITH THE CONCURRENCE OF
TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS
SITTING SEPARATELY.
xxx
MR. BENGZON. The reason we made that shift is that we realized the
original proposal could breed corruption. By the way, this is not just
confined to service contracts but also to financial assistance. If we
are going to make every single contract subject to the concurrence of
Congress - which, according to the Commissioner's amendment is the
concurrence of two-thirds of Congress voting separately - then (1)
there is a very great chance that each contract will be different from
another; and (2) there is a great temptation that it would breed
corruption because of the great lobbying that is going to happen. And
we do not want to subject our legislature to that.
Now, to answer the Commissioner's apprehension, by "general law,"
we do not mean statements of motherhood. Congress can build all the
restrictions that it wishes into that general law so that every contract
entered into by the President under that specific area will have to be
uniform. The President has no choice but to follow all the guidelines
that will be provided by law.
MR. GASCON. But my basic problem is that we do not know as of yet
the contents of such a general law as to how much constraints there
will be in it. And to my mind, although the Committee's contention that
the regular concurrence from Congress would subject Congress to
extensive lobbying, I think that is a risk we will have to take since
Congress is a body of representatives of the people whose
membership will be changing regularly as there will be changing
circumstances every time certain agreements are made. It would be
best then to keep in tab and attuned to the interest of the Filipino
people, whenever the President enters into any agreement with regard
to such an important matter as technical or financial assistance for
large-scale exploration, development and utilization of natural
resources or service contracts, the people's elected representatives
should be on top of it.
xxx
MR. OPLE. Madam President, we do not need to suspend the session.
If Commissioner Gascon needs a few minutes, I can fill up the
remaining time while he completes his proposed amendment. I just
wanted to ask Commissioner Jamir whether he would entertain a minor
amendment to his amendment, and it reads as follows: THE
PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS OF
EVERY SERVICE CONTRACTENTERED INTO IN ACCORDANCE
WITH THE GENERAL LAW. I think the reason is, if I may state it
briefly, as Commissioner Bengzon said, Congress can always change
the general law later on to conform to new perceptions of standards
that should be built intoservice contracts. But the only way Congress
can do this is if there were a notification requirement from the Office of
the President that such service contracts had been entered into,
subject then to the scrutiny of the Members of Congress. This pertains
to a situation where the service contracts are already entered into,
and all that this amendment seeks is the reporting requirement from
the Office of the President. Will Commissioner Jamir entertain that?
chanroblesvirtualawlibrary
MR. JAMIR. I will gladly do so, if it is still within my power.
MR. VILLEGAS. Yes, the Committee accepts the amendment.
xxx
SR. TAN. Madam President, may I ask a question?
chanroblesvirtualawlibrary
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Am I correct in thinking that the only difference between
these future service contracts and the past service contracts under
Mr. Marcos is the general law to be enacted by the legislature and the
notification of Congress by the President? That is the only difference,
is it not?chanroblesvirtualawlibrary
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards.
MR. VILLEGAS. Yes. There was no law at all governing service
contracts before.
SR. TAN. Thank you, Madam President. 45
More Than Mere Financial
and Technical Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below
explicitly and eloquently demonstrate that the drafters knew that the
agreements with foreign corporations were going to entail not mere
technical or financial assistance but, rather, foreign investment in and
management of an enterprise involved in large-scale
exploration, development and utilization of minerals, petroleum, and
other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting
Floor Leader to speak for only two minutes in favor of the amendment
of Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee
and Commissioner Jamir, I am in favor of the objection of
Commissioner Gascon.
Madam President, I was one of those who refused to sign the 1973
Constitution, and one of the reasons is that there were many
provisions in the Transitory Provisions therein that favored aliens. I
was shocked when I read a provision authorizing service
contracts while we, in this Constitutional Commission, provided for
Filipino control of the economy. We are, therefore, providing for
exceptional instances where aliens may circumvent Filipino control of
our economy. And one way of circumventing the rule in favor of Filipino
control of the economy is to recognize service contracts.
As far as I am concerned, if I should have my own way, I am for the
complete deletion of this provision. However, we are presenting a
compromise in the sense that we are requiring a two-thirds vote of all
the Members of Congress as a safeguard. I think we should not
mistrust the future Members of Congress by saying that the purpose of
this provision is to avoid corruption. We cannot claim that they are less
patriotic than we are. I think the Members of this Commission should
know that entering into service contracts is an exception to the rule
on protection of natural resources for the interest of the nation, and
therefore, being an exception it should be subject, whenever possible,
to stringent rules. It seems to me that we are liberalizing the rules in
favor of aliens.
I say these things with a heavy heart, Madam President. I do not claim
to be a nationalist, but I love my country. Although we need
investments, we must adopt safeguards that are truly reflective of
the sentiments of the people and not mere cosmetic safeguards as
they now appear in the Jamir amendment. (Applause)
Thank you, Madam President.46
Another excerpt, featuring then Commissioner (now Chief Justice)
Hilario G. Davide Jr., indicates the limitations of the scope of such
service contracts - - they are valid only in regard to minerals,
petroleum and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to
the Jamir amendment and also to the Ople amendment. I propose to
delete "NATURAL RESOURCES" and substitute it with the following:
MINERALS, PETROLEUM AND OTHER MINERAL OILS. On the Ople
amendment, I propose to add: THE NOTIFICATION TO CONGRESS
SHALL BE WITHIN THIRTY DAYS FROM THE EXECUTION OF THE
SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the
first amendment in lieu of "NATURAL RESOURCES"?
chanroblesvirtualawlibrary
MR. VILLEGAS. Could Commissioner Davide explain that?
chanroblesvirtualawlibrary
MR. DAVIDE. Madam President, with the use of "NATURAL
RESOURCES" here, it would necessarily include all lands of the public
domain, our marine resources, forests, parks and so on. So we would
like to limit the scope of these service contracts to those areas really
where these may be needed, the exploitation, development and
exploration of minerals, petroleum and other mineral oils. And so, we
believe that we should really, if we want to grant service contracts at
all, limit the same to only those particular areas where Filipino
capital may not be sufficient, and not to all natural resources.
MR. SUAREZ. Just a point of clarification again, Madam President.
When the Commissioner made those enumerations and specifications,
I suppose he deliberately did not include "agricultural land"?
chanroblesvirtualawlibrary
MR. DAVIDE. That is precisely the reason we have to enumerate what
these resources are into which service contracts may enter. So,
beyond the reach of any service contract will be lands of the public
domain, timberlands, forests, marine resources, fauna and flora,
wildlife and national parks.47
After the Jamir amendment was voted upon and approved by a vote of
21 to 10 with 2 abstentions, Commissioner Davide made the following
statement, which is very relevant to our quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized
minerals, petroleum and mineral oils. The Commission has just
approved the possible foreign entry into the development, exploration
and utilization of these minerals, petroleum and other mineral oils by
virtue of the Jamir amendment. I voted in favor of the Jamir
amendment because it will eventually give way to vesting in exclusively
Filipino citizens and corporations wholly owned by Filipino citizens the
right to utilize the other natural resources. This means that as a matter
of policy, natural resources should be utilized and exploited only by
Filipino citizens or corporations wholly owned by such citizens. But by
virtue of the Jamir amendment, since we feel that Filipino capital may
not be enough for the development and utilization of minerals,
petroleum and other mineral oils, the President can enter into service
contracts with foreign corporations precisely for the development and
utilization of such resources. And so, there is nothing to fear that we
will stagnate in the development of minerals, petroleum and mineral
oils because we now allow service contracts. x x x."48
The foregoing are mere fragments of the framers' lengthy discussions
of the provision dealing withagreements x x x involving either technical
or financial assistance, which ultimately became paragraph 4 of
Section 2 of Article XII of the Constitution. Beyond any doubt, the
members of the ConCom were actually debating about the martial-law-
era service contracts for which they were crafting appropriate
safeguards.
In the voting that led to the approval of Article XII by the ConCom, the
explanations given by Commissioners Gascon, Garcia and Tadeo
indicated that they had voted to reject this provision on account of their
objections to the "constitutionalization" of the "service contract"
concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision
on service contracts, this should always be with the concurrence of
Congress and not guided only by a general law to be promulgated by
Congress." 49 Mr. Garcia explained, "Service contracts are given
constitutional legitimization in Sec. 3, even when they have been
proven to be inimical to the interests of the nation, providing, as they
do, the legal loophole for the exploitation of our natural resources for
the benefit of foreign interests." 50 Likewise, Mr. Tadeo cited inter
alia the fact that service contracts continued to subsist, enabling
foreign interests to benefit from our natural resources. 51 It was hardly
likely that these gentlemen would have objected so strenuously,
had the provision called for mere technical or financial assistance
and nothing more.
The deliberations of the ConCom and some commissioners'
explanation of their votes leave no room for doubt that the service
contract concept precisely underpinned the commissioners'
understanding of the "agreements involving either technical or financial
assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful
reading of the ConCom deliberations, as follows:
'In their deliberations on what was to become paragraph 4, the framers
used the termservice contracts in referring to agreements x x x
involving either technical or financial assistance.
'They spoke of service contracts as the concept was understood in the
1973 Constitution.
'It was obvious from their discussions that they were not about to ban
or eradicateservice contracts.
'Instead, they were plainly crafting provisions to put in place
safeguards that would eliminate or minimize the abuses prevalent
during the marital law regime. In brief, they were going to permit
service contracts with foreign corporations as contractors, but with
safety measures to prevent abuses, as an exception to the general
norm established in the first paragraph of Section 2 of Article XII. This
provision reserves or limits to Filipino citizens - - and corporations at
least 60 percent of which is owned by such citizens - - the exploration,
development and utilization of natural resources.
'This provision was prompted by the perceived insufficiency of Filipino
capital and the felt need for foreign investments in the EDU of minerals
and petroleum resources.
'The framers for the most part debated about the sort of safeguards
that would be considered adequate and reasonable. But some of them,
having more "radical" leanings, wanted to ban service contracts
altogether; for them, the provision would permit aliens to exploit and
benefit from the nation's natural resources, which they felt should be
reserved only for Filipinos.
'In the explanation of their votes, the individual commissioners were
heard by the entire body. They sounded off their individual opinions,
openly enunciated their philosophies, and supported or attacked the
provisions with fervor. Everyone's viewpoint was heard.
'In the final voting, the Article on the National Economy and Patrimony
- - including paragraph 4 allowing service contracts with foreign
corporations as an exception to the general norm in paragraph 1 of
Section 2 of the same article - - was resoundingly approved by a vote
of 32 to 7, with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the
phrase agreements involving either technical or financial
assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign
corporations acting as contractors on the one hand; and on the other,
the government as principal or "owner" of the works. In the new service
contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and
operation of large-scale mining/extractive enterprises; and the
government, through its agencies (DENR, MGB), actively exercises
control and supervision over the entire operation.
Such service contracts may be entered into only with respect to
minerals, petroleum and other mineral oils. The grant thereof is subject
to several safeguards, among which are these requirements:
(1) The service contract shall be crafted in accordance with a general
law that will set standard or uniform terms, conditions and
requirements, presumably to attain a certain uniformity in provisions
and avoid the possible insertion of terms disadvantageous to the
country.
(2) The President shall be the signatory for the government because,
supposedly before an agreement is presented to the President for
signature, it will have been vetted several times over at different levels
to ensure that it conforms to law and can withstand public scrutiny.
(3) Within thirty days of the executed agreement, the President shall
report it to Congress to give that branch of government an opportunity
to look over the agreement and interpose timely objections, if any.
Use of the Record of the
ConCom to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the
"framers' intent" approach, and the criticism hurled by petitioners who
quote a ruling of this Court:
"While it is permissible in this jurisdiction to consult the debates and
proceedings of the constitutional convention in order to arrive at the
reason and purpose of the resulting Constitution, resort thereto may be
had only when other guides fail as said proceedings are powerless to
vary the terms of the Constitution when the meaning is clear. Debates
in the constitutional convention - are of value as showing the views of
the individual members, and as indicating the reason for their votes,
but they give us no light as to the views of the large majority who did
not talk, much less the mass of our fellow citizens whose votes at the
polls gave that instrument the force of fundamental law. We think it
safer to construe the constitution from what appears upon its
face.' The proper interpretation therefore depends more on how it was
understood by the people adopting it than in the framers'
understanding thereof." 52
The notion that the deliberations reflect only the views of those
members who spoke out and not the views of the majority who
remained silent should be clarified. We must never forget that those
who spoke out were heard by those who remained silent and did not
react. If the latter were silent because they happened not to be present
at the time, they are presumed to have read the minutes and kept
abreast of the deliberations. By remaining silent, they are deemed to
have signified their assent to and/or conformity with at least some of
the views propounded or their lack of objections thereto. It was
incumbent upon them, as representatives of the entire Filipino people,
to follow the deliberations closely and to speak their minds on the
matter if they did not see eye to eye with the proponents of the draft
provisions.
In any event, each and every one of the commissioners had the
opportunity to speak out and to vote on the matter. Moreover, the
individual explanations of votes are on record, and they show where
each delegate stood on the issues. In sum, we cannot completely
denigrate the value or usefulness of the record of the ConCom,
simply because certain members chose not to speak out.
It is contended that the deliberations therein did not necessarily reflect
the thinking of the voting population that participated in the referendum
and ratified the Constitution. Verily, whether we like it or not, it is a bit
too much to assume that every one of those who voted to ratify the
proposed Charter did so only after carefully reading and mulling over it,
provision by provision.
Likewise, it appears rather extravagant to assume that every one of
those who did in fact bother to read the draft Charter actually
understood the import of its provisions, much less analyzed it vis - Ã
-vis the previous Constitutions. We believe that in reality, a good
percentage of those who voted in favor of it did so more out of faith
and trust. For them, it was the product of the hard work and careful
deliberation of a group of intelligent, dedicated and trustworthy men
and women of integrity and conviction, whose love of country and
fidelity to duty could not be questioned.
In short, a large proportion of the voters voted "yes" because the
drafters, or a majority of them, endorsed the proposed Constitution.
What this fact translates to is the inescapable conclusion that many of
the voters in the referendum did not form their own isolated judgment
about the draft Charter, much less about particular provisions therein.
They only relied or fell back and acted upon the favorable
endorsement or recommendation of the framers as a group. In other
words, by votingyes, they may be deemed to have signified
their voluntary adoption of the understanding and interpretation of the
delegates with respect to the proposed Charter and its particular
provisions. "If it's good enough for them, it's good enough for me;" or,
in many instances, "If it's good enough for President Cory Aquino, it's
good enough for me."
And even for those who voted based on their own individual
assessment of the proposed Charter, there is no evidence available to
indicate that their assessment or understanding of its provisions was in
fact different from that of the drafters. This unwritten assumption
seems to be petitioners' as well. For all we know, this segment of
voters must have read and understood the provisions of the
Constitution in the same way the framers had, an assumption that
would account for the favorable votes.
Fundamentally speaking, in the process of rewriting the Charter, the
members of the ConCom as a group were supposed to represent the
entire Filipino people. Thus, we cannot but regard their views as being
very much indicative of the thinking of the people with respect to the
matters deliberated upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following
conclusion, based on the above arguments. As written by the
framers and ratified and adopted by the people, the Constitution
allows the continued use of service contracts with foreign
corporations - - as contractors who would invest in and operate
and manage extractive enterprises, subject to the full control and
supervision of the State - - sans the abuses of the past regime.
The purpose is clear: to develop and utilize our mineral,
petroleum and other resources on a large scale for the immediate
and tangible benefit of the Filipino people.
In view of the foregoing discussion, we should reverse the Decision of
January 27, 2004, and in fact now hold a view different from that of the
Decision, which had these findings: (a) paragraph 4 of Section 2 of
Article XII limits foreign involvement in the local mining industry to
agreements strictly for either financial or technical assistance only; (b)
the same paragraph precludes agreements that grant to foreign
corporations the management of local mining operations, as such
agreements are purportedly in the nature of service contracts as these
were understood under the 1973 Constitution; (c) these service
contracts were supposedly "de-constitutionalized" and proscribed by
the omission of the term service contracts from the 1987 Constitution;
(d) since the WMCP FTAA contains provisions permitting the foreign
contractor to manage the concern, the said FTAA is invalid for being a
prohibited service contract; and (e) provisions of RA 7942 and DAO
96-40, which likewise grant managerial authority to the foreign
contractor, are also invalid and unconstitutional.
Ultimate Test: State's "Control"
Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we
are confronted with a possible collision of constitutional provisions. On
the one hand, paragraph 1 of Section 2 of Article XII explicitly
mandates the State to exercise "full control and supervision" over the
exploration, development and utilization of natural resources. On the
other hand, paragraph 4 permits safeguarded service contracts with
foreign contractors. Normally, pursuant thereto, the contractors
exercise management prerogatives over the mining operations and the
enterprise as a whole. There is thus a legitimate ground to be
concerned that either the State's full control and supervision may rule
out any exercise of management authority by the foreign contractor; or,
the other way around, allowing the foreign contractor full management
prerogatives may ultimately negate the State's full control and
supervision.
Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down
in Francisco - - ut magis valeat quam pereat - - every part of the
Constitution is to be given effect, and the Constitution is to be read and
understood as a harmonious whole. Thus, "full control and
supervision" by the State must be understood as one that does not
preclude the legitimate exercise of management prerogatives by the
foreign contractor. Before any further discussion, we must stress the
primacy and supremacy of the principle of sovereignty and State
control and supervision over all aspects of exploration, development
and utilization of the country's natural resources, as mandated in the
first paragraph of Section 2 of Article XII.
But in the next breadth we have to point out that "full control and
supervision" cannot be taken literally to mean that the State controls
and supervises everything involved, down to the minutest details, and
makes all decisions required in the mining operations. This strained
concept of control and supervision over the mining enterprise would
render impossible the legitimate exercise by the contractors of a
reasonable degree of management prerogative and authority
necessary and indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry
into large-scale exploration, development and utilization activities; and
result in the unmitigated stagnation of this sector, to the detriment of
our nation's development. This scenario renders paragraph 4
inoperative and useless. And as respondents have correctly pointed
out, the government does not have to micro-manage the mining
operations and dip its hands into the day-to-day affairs of the
enterprise in order for it to be considered as having full control and
supervision.
The concept of control 53 adopted in Section 2 of Article XII must be
taken to mean less than dictatorial, all-encompassing control; but
nevertheless sufficient to give the State the power to direct, restrain,
regulate and govern the affairs of the extractive enterprises. Control by
the State may be on a macro level, through the establishment of
policies, guidelines, regulations, industry standards and similar
measures that would enable the government to control the conduct of
affairs in various enterprises and restrain activities deemed not
desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the
economic development and general welfare of the country, conserve
the environment, and uplift the well-being of the affected local
communities. Such a concept of control would be compatible with
permitting the foreign contractor sufficient and reasonable
management authority over the enterprise it invested in, in order to
ensure that it is operating efficiently and profitably, to protect its Police, barangay, duly registered non-governmental organization
investments and to enable it to succeed. (NGO) or any qualified person to police mining activities;

The question to be answered, then, is whether RA 7942 and its 3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction
Implementing Rules enable the government to exercise that over safety inspections of all installations, whether surface or
degree of control sufficient to direct and regulate the conduct of underground", utilized in mining operations.
affairs of individual enterprises and restrain undesirable
activities.
4. Sec. 35, which incorporates into all FTAAs the following terms,
conditions and warranties:
On the resolution of these questions will depend the validity and
constitutionality of certain provisions of the Philippine Mining Act of
"(g) Mining operations shall be conducted in accordance with the
1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96-
provisions of the Act and its IRR.
40), as well as the WMCP FTAA.

"(h) Work programs and minimum expenditures commitments.

Indeed, petitioners charge54 that RA 7942, as well as its Implementing
Rules and Regulations, makes it possible for FTAA contracts to cede
full control and management of mining enterprises over to fully foreign- xxx
owned corporations, with the result that the State is allegedly reduced
to a passive regulator dependent on submitted plans and reports, with
"(k) Requiring proponent to effectively use appropriate anti-pollution
weak review and audit powers. The State does not supposedly act as
technology and facilities to protect the environment and restore or
the owner of the natural resources for and on behalf of the Filipino
rehabilitate mined-out areas.
people; it practically has little effective say in the decisions made by
the enterprise. Petitioners then conclude that the law, the implementing
regulations, and the WMCP FTAA cede "beneficial ownership" of the "(l) The contractors shall furnish the Government records of geologic,
mineral resources to the foreign contractor. accounting and other relevant data for its mining operation, and that
books of accounts and records shall be open for inspection by the
government. x x x.
A careful scrutiny of the provisions of RA 7942 and its Implementing
Rules belies petitioners' claims. Paraphrasing the Constitution, Section
4 of the statute clearly affirms the State's control thus: "(m) Requiring the proponent to dispose of the minerals at the highest
price and more advantageous terms and conditions.
"Sec. 4. Ownership of Mineral Resources. - Mineral resources are
owned by the State and the exploration, development, utilization and "(n) x x x x x x x x x
processing thereof shall be under its full control and supervision. The
State may directly undertake such activities or it may enter into mineral
agreements with contractors. "(o) Such other terms and conditions consistent with the Constitution
and with this Act as the Secretary may deem to be for the best interest
of the State and the welfare of the Filipino people."
"The State shall recognize and protect the rights of the indigenous
cultural communities to their ancestral lands as provided for by the
Constitution." The foregoing provisions of Section 35 of RA 7942 are also reflected
and implemented in Section 56 (g), (h), (l), (m) and (n) of the
Implementing Rules, DAO 96-40.
The aforequoted provision is substantively reiterated in Section 2 of
DAO 96-40 as follows:
Moreover, RA 7942 and DAO 96-40 also provide various stipulations
confirming the government's control over mining enterprises:
"Sec. 2. Declaration of Policy. All mineral resources in public and
private lands within the territory and exclusive economic zone of the
Republic of the Philippines are owned by the State. It shall be the 'The contractor is to relinquish to the government those portions of the
responsibility of the State to promote their rational exploration, contract area not needed for mining operations and not covered by any
development, utilization and conservation through the combined efforts declaration of mining feasibility (Section 35-e, RA 7942; Section 60,
of the Government and private sector in order to enhance national DAO 96-40).
growth in a way that effectively safeguards the environment and
protects the rights of affected communities." 'The contractor must comply with the provisions pertaining to mine
safety, health and environmental protection (Chapter XI, RA 7942;
Sufficient Control Over Mining Chapters XV and XVI, DAO 96-40).
Operations Vested in the State
by RA 7942 and DAO 96-40 'For violation of any of its terms and conditions, government may
cancel an FTAA. (Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
RA 7942 provides for the State's control and supervision over mining
operations. The following provisions thereof establish the mechanism 'An FTAA contractor is obliged to open its books of accounts and
of inspection and visitorial rights over mining operations and institute records for inspection by the government (Section 56-m, DAO 96-40).
reportorial requirements in this manner:
'An FTAA contractor has to dispose of the minerals and by-products at
1. Sec. 8 which provides for the DENR's power of over-all supervision the highest market price and register with the MGB a copy of the sales
and periodic review for "the conservation, management, development agreement (Section 56-n, DAO 96-40).
and proper use of the State's mineral resources";
'MGB is mandated to monitor the contractor's compliance with the
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) terms and conditions of the FTAA; and to deputize, when necessary,
under the DENR to exercise "direct charge in the administration and any member or unit of the Philippine National Police, the barangay or a
disposition of mineral resources", and empowers the MGB to "monitor DENR-accredited nongovernmental organization to police mining
the compliance by the contractor of the terms and conditions of the activities (Section 7-d and -f, DAO 96-40).
mineral agreements", "confiscate surety and performance bonds", and
deputize whenever necessary any member or unit of the Phil. National
'An FTAA cannot be transferred or assigned without prior approval by
the President (Section 40, RA 7942; Section 66, DAO 96-40).
'A mining project under an FTAA cannot proceed to the
construction/development/utilization stage, unless its Declaration of
Mining Project Feasibility has been approved by government (Section
24, RA 7942).
'The Declaration of Mining Project Feasibility filed by the contractor
cannot be approved without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program
(Section 69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay
(Section 70, RA 7942; Section 27, RA 7160)
6. Free and prior informed consent by the indigenous peoples
concerned, including payment of royalties through a Memorandum of
Agreement (Section 16, RA 7942; Section 59, RA 8371)
'The FTAA contractor is obliged to assist in the development of its
mining community, promotion of the general welfare of its inhabitants,
and development of science and mining technology (Section 57, RA
7942).
'The FTAA contractor is obliged to submit reports (on quarterly, semi-
annual or annual basis as the case may be; per Section 270, DAO 96-
40), pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
'An FTAA pertaining to areas within government reservations cannot
be granted without a written clearance from the government agencies
concerned (Section 19, RA 7942; Section 54, DAO 96-40).
'An FTAA contractor is required to post a financial guarantee bond in
favor of the government in an amount equivalent to its expenditures
obligations for any particular year. This requirement is apart from the
representations and warranties of the contractor that it has access to
all the financing, managerial and technical expertise and technology
necessary to carry out the objectives of the FTAA (Section 35-b, -e,
and -f, RA 7942).
'Other reports to be submitted by the contractor, as required under
DAO 96-40, are as follows: an environmental report on the
rehabilitation of the mined-out area and/or mine waste/tailing covered
area, and anti-pollution measures undertaken (Section 35-a-2); annual
reports of the mining operations and records of geologic accounting
(Section 56-m); annual progress reports and final report of exploration
activities (Section 56-2).
'Other programs required to be submitted by the contractor, pursuant
to DAO 96-40, are the following: a safety and health program (Section
144); an environmental work program (Section 168); an annual
environmental protection and enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and
limitations imposed upon the FTAA contractor by the statute and
regulations easily overturns petitioners' contention. The setup under
RA 7942 and DAO 96-40 hardly relegates the State to the role of a
"passive regulator" dependent on submitted plans and reports. On the
contrary, the government agencies concerned are empowered to
approve or disapprove - - hence, to influence, direct and change - - the
various work programs and the corresponding minimum expenditure
commitments for each of the exploration, development and utilization
phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to
comply with its commitments therein. Figures for mineral production
and sales are regularly monitored and subjected to government review,
in order to ensure that the products and by-products are disposed of at
the best prices possible; even copies of sales agreements have to be
submitted to and registered with MGB. And the contractor is mandated
to open its books of accounts and records for scrutiny, so as to enable
the State to determine if the government share has been fully paid.
The State may likewise compel the contractor's compliance with
mandatory requirements on mine safety, health and environmental
protection, and the use of anti-pollution technology and facilities.
Moreover, the contractor is also obligated to assist in the development
of the mining community and to pay royalties to the indigenous peoples
concerned.
Cancellation of the FTAA may be the penalty for violation of any of its
terms and conditions and/or noncompliance with statutes or
regulations. This general, all-around, multipurpose sanction is no
trifling matter, especially to a contractor who may have yet to recover
the tens or hundreds of millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations
just discussed, we believe that the State definitely possesses the
means by which it can have the ultimate word in the operation of the
enterprise, set directions and objectives, and detect deviations and
noncompliance by the contractor; likewise, it has the capability to
enforce compliance and to impose sanctions, should the occasion
therefor arise.
In other words, the FTAA contractor is not free to do whatever it
pleases and get away with it; on the contrary, it will have to follow
the government line if it wants to stay in the enterprise.
Ineluctably then, RA 7942 and DAO 96-40 vest in the government
more than a sufficient degree of control and supervision over the
conduct of mining operations.
Section 3(aq) of RA 7942
Not Unconstitutional
An objection has been expressed that Section 3(aq) 55 of RA 7942 - -
which allows a foreign contractor to apply for and hold an exploration
permit - - is unconstitutional. The reasoning is that Section 2 of Article
XII of the Constitution does not allow foreign-owned corporations to
undertake mining operations directly. They may act only as contractors
of the State under an FTAA; and the State, as the party directly
undertaking exploitation of its natural resources, must hold through the
government all exploration permits and similar authorizations. Hence,
Section 3(aq), in permitting foreign-owned corporations to hold
exploration permits, is unconstitutional.
The objection, however, is not well-founded. While the Constitution
mandates the State to exercise full control and supervision over the
exploitation of mineral resources, nowhere does it require the
government to hold all exploration permits and similar
authorizations. In fact, there is no prohibition at all against foreign or
local corporations or contractors holding exploration permits. The
reason is not hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely
grants to a qualified person the right to conduct exploration for all
minerals in specified areas. Such a permit does not amount to an
authorization to extract and carry off the mineral resources that may be
discovered. This phase involves nothing but expenditures for exploring
the contract area and locating the mineral bodies. As no extraction is
involved, there are no revenues or incomes to speak of. In short, the
exploration permit is an authorization for the grantee to spend its own
funds on exploration programs that are pre-approved by the
government, without any right to recover anything should no minerals
in commercial quantities be discovered. The State risks nothing and
loses nothing by granting these permits to local or foreign firms; in fact,
it stands to gain in the form of data generated by the exploration
activities.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who
determines the commercial viability of a mining area may, within the
term of the permit, file with the MGB a declaration of mining project
feasibility accompanied by a work program for development. The
approval of the mining project feasibility and compliance with other
requirements of RA 7942 vests in the grantee the exclusive right to an
MPSA or any other mineral agreement, or to an FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture
agreement, a co-production agreement, or an FTAA over the permit
area, and the application shall be approved if the permit grantee meets
the necessary qualifications and the terms and conditions of any such
agreement. Therefore, the contractor will be in a position to extract
minerals and earn revenues only when the MPSA or another mineral
agreement, or an FTAA, is granted. At that point, the contractor's rights
and obligations will be covered by an FTAA or a mineral agreement.
But prior to the issuance of such FTAA or mineral agreement, the
exploration permit grantee (or prospective contractor) cannot yet be
deemed to have entered into any contract or agreement with the State,
and the grantee would definitely need to have some document or
instrument as evidence of its right to conduct exploration works within
the specified area. This need is met by the exploration permit issued
pursuant to Sections 3(aq), 20 and 23 of RA 7942.
In brief, the exploration permit serves a practical and legitimate
purpose in that it protects the interests and preserves the rights
of the exploration permit grantee (the would-be contractor) - -
foreign or local - - during the period of time that it is spending
heavily on exploration works, without yet being able to earn
revenues to recoup any of its investments and
expenditures. Minus this permit and the protection it affords, the
exploration works and expenditures may end up benefiting only claim-
jumpers. Such a possibility tends to discourage investors and
contractors. Thus, Section 3(aq) of RA 7942 may not be deemed
unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations
providing for State control and supervision:
1. The contractor is obligated to account for the value of production
and sale of minerals (Clause 1.4).
2. The contractor's work program, activities and budgets must be
approved by/on behalf of the State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period
(Clause 3.2-a).
4. Approval by the State is necessary for incorporating lands into the
FTAA contract area (Clause 4.3-c).
5. The Bureau of Forest Development is vested with discretion in
regard to approving the inclusion of forest reserves as part of the FTAA
contract area (Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the
contract area not needed for exploration and development (Clause
4.6).
7. A Declaration of Mining Feasibility must be submitted for approval
by the State (Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration
activities (Clause 4.9).
9. The contractor is required to obtain State approval of its work
programs for the succeeding two-year periods, containing the
proposed work activities and expenditures budget related to
exploration (Clause 5.1).
10. The contractor is required to obtain State approval for its proposed
expenditures for exploration activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological,
geophysical, geochemical and other information relating to its
explorations within the FTAA area (Clause 5.3-a).
12. The contractor is to submit within six months after expiration of
exploration period a final report on all its findings in the contract area
(Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a
declaration of mining feasibility, along with a description of the area to
be developed and mined, a description of the proposed mining
operations and the technology to be employed, and a proposed work
program for the development phase, for approval by the DENR
secretary (Clause 5.4).
14. The contractor is obliged to complete the development of the mine,
including construction of the production facilities, within the period
stated in the approved work program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR
secretary a work program covering each period of three fiscal years
(Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the
production, ore reserves, work accomplished and work in progress,
profile of its work force and management staff, and other technical
information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of
mining facilities shall be subject to the approval of the secretary
(Clause 6.4).
18. The State has control with respect to the amount of funds that the
contractor may borrow within the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial
and marketing issues (Clause 10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in
the contractor, within ten years of recovering specified expenditures,
unless not so required by subsequent legislation (Clause 10.1).
21. The State has the right to terminate the FTAA for the contractor's
unremedied substantial breach thereof (Clause 13.2);
22. The State's approval is needed for any assignment of the FTAA by
the contractor to an entity other than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and
what they mean with respect to the State's ability to exercise full
control and effective supervision over the enterprise. For instance,
throughout the initial five-year exploration and feasibility phase of the
project, the contractor is mandated by Clause 5.1 of the WMCP FTAA
to submit a series of work programs (copy furnished the director of
MGB) to the DENR secretary for approval. The programs will detail the
contractor's proposed exploration activities and budget covering each
subsequent period of two fiscal years.
In other words, the concerned government officials will be informed
beforehand of the proposed exploration activities and expenditures of
the contractor for each succeeding two-year period, with the right to
approve/disapprove them or require changes or adjustments therein if
deemed necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was
supposed to spend for exploration activities during the first contract
year of the exploration period was fixed at not less than P24 million;
and then for the succeeding years, the amount shall be as agreed
between the DENR secretary and the contractor prior to the
commencement of each subsequent fiscal year. If no such agreement
is arrived upon, the previous year's expenditure commitment shall
apply.
This provision alone grants the government through the DENR
secretary a very big say in the exploration phase of the project. This
fact is not something to be taken lightly, considering that
thegovernment has absolutely no contribution to the exploration
expenditures or work activities and yet is given veto power over such a
critical aspect of the project. We cannot but construe as very significant
such a degree of control over the project and, resultantly, over the
mining enterprise itself.
Following its exploration activities or feasibility studies, if the contractor
believes that any part of the contract area is likely to contain an
economic mineral resource, it shall submit to the DENR secretary a
declaration of mining feasibility (per Clause 5.4 of the FTAA), together
with a technical description of the area delineated for development and
production, a description of the proposed mining operations including
the technology to be used, a work program for development, an
environmental impact statement, and a description of the contributions
to the economic and general welfare of the country to be generated by
the mining operations (pursuant to Clause 5.5).
The work program for development is subject to the approval of the
DENR secretary. Upon its approval, the contractor must comply with it
and complete the development of the mine, including the construction
of production facilities and installation of machinery and equipment,
within the period provided in the approved work program for
development (per Clause 6.1).
Thus, notably, the development phase of the project is likewise subject
to the control and supervision of the government. It cannot be
emphasized enough that the proper and timely construction and
deployment of the production facilities and the development of the
mine are of pivotal significance to the success of the mining venture.
Any missteps here will potentially be very costly to remedy. Hence, the
submission of the work program for development to the DENR
secretary for approval is particularly noteworthy, considering that so
many millions of dollars worth of investments - - courtesy of the
contractor - - are made to depend on the State's consideration and
action.
Throughout the operating period, the contractor is required to submit to
the DENR secretary for approval, copy furnished the director of MGB,
work programs covering each period of three fiscal years (per Clause
6.2). During the same period (per Clause 6.3), the contractor is
mandated to submit various quarterly and annual reports to the DENR
secretary, copy furnished the director of MGB, on the tonnages of
production in terms of ores and concentrates, with corresponding
grades, values and destinations; reports of sales; total ore reserves,
total tonnage of ores, work accomplished and work in progress
(installations and facilities related to mining operations), investments
made or committed, and so on and so forth.
Under Section VIII, during the period of mining operations, the
contractor is also required to submit to the DENR secretary (copy
furnished the director of MGB) the work program and corresponding
budget for the contract area, describing the mining operations that are
proposed to be carried out during the period covered. The secretary is,
of course, entitled to grant or deny approval of any work program or
budget and/or propose revisions thereto. Once the program/budget
has been approved, the contractor shall comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far
from constituting a surrender of control and a grant of beneficial
ownership of mineral resources to the contractor in question, bestow
upon the State more than adequate control and supervision over
the activities of the contractor and the enterprise.
No Surrender of Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the
WMCP FTAA which, they say, amount to a relinquishment of control by
the State, since it "cannot truly impose its own discretion" in respect of
the submitted work programs.
"8.2. The Secretary shall be deemed to have approved any Work
Programme or Budget or variation thereof submitted by the Contractor
unless within sixty (60) days after submission by the Contractor the
Secretary gives notice declining such approval or proposing a revision
of certain features and specifying its reasons therefor ('the Rejection
Notice').
8.3. If the Secretary gives a Rejection Notice, the Parties shall
promptly meet and endeavor to agree on amendments to the Work
Programme or Budget. If the Secretary and the Contractor fail to
agree on the proposed revision within 30 days from delivery of the
Rejection Notice then the Work Programme or Budget or variation
thereof proposed by the Contractor shall be deemed approved, so as
not to unnecessarily delay the performance of the Agreement.
8.4. x x x x x x x x x
8.5. So far as is practicable, the Contractor shall comply with any
approved Work Programme and Budget. It is recognized by the
Secretary and the Contractor that the details of any Work Programmes
or Budgets may require changes in the light of changing
circumstances. The Contractor may make such changes without
approval of the Secretary provided they do not change the general
objective of any Work Programme, nor entail a downward variance of
more than twenty per centum (20percent) of the relevant Budget. All
other variations to an approved Work Programme or Budget shall be
submitted for approval of the Secretary."
From the provisions quoted above, petitioners generalize by asserting
that the government does not participate in making critical decisions
regarding the operations of the mining firm. Furthermore, while the
State can require the submission of work programs and budgets, the
decision of the contractor will still prevail, if the parties have a
difference of opinion with regard to matters affecting operations and
management.
We hold, however, that the foregoing provisions do not manifest a
relinquishment of control. For instance, Clause 8.2 merely provides a
mechanism for preventing the business or mining operations from
grinding to a complete halt as a result of possibly over-long and
unjustified delays in the government's handling, processing and
approval of submitted work programs and budgets. Anyway, the
provision does give the DENR secretary more than sufficient time (60
days) to react to submitted work programs and budgets. It cannot be
supposed that proper grounds for objecting thereto, if any exist, cannot
be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap
solution in the event a disagreement over the submitted work program
or budget arises between the State and the contractor and results in a
stalemate or impasse, in order that there will be no unreasonably long
delays in the performance of the works.
These temporary or stop-gap solutions are not necessarily evil or
wrong. Neither does it follow that the government will inexorably be
aggrieved if and when these temporary remedies come into play.First,
avoidance of long delays in these situations will undoubtedly redound
to the benefit of the State as well as the contractor. Second, who is to
say that the work program or budget proposed by the contractor and
deemed approved under Clause 8.3 would not be the better or more
reasonable or more effective alternative? The contractor, being the
"insider," as it were, may be said to be in a better position than the
State - - an outsider looking in - - to determine what work program or
budget would be appropriate, more effective, or more suitable under
the circumstances.
All things considered, we take exception to the characterization of the
DENR secretary as a subservient nonentity whom the contractor can
overrule at will, on account of Clause 8.3. And neither is it true that
under the same clause, the DENR secretary has no authority
whatsoever to disapprove the work program. As Respondent WMCP
reasoned in its Reply-Memorandum, the State - - despite Clause 8.3 - -
still has control over the contract area and it may, as sovereign
authority, prohibit work thereon until the dispute is resolved. And
ultimately, the State may terminate the agreement, pursuant to Clause
13.2 of the same FTAA, citing substantial breach thereof. Hence, it
clearly retains full and effective control of the exploitation of the mineral
resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the
parties' need for flexibility, given that no one can accurately forecast
under all circumstances, or predict how situations may change. Hence,
while approved work programs and budgets are to be followed and
complied with as far as practicable, there may be instances in which
changes will have to be effected, and effected rapidly, since events
may take shape and unfold with suddenness and urgency. Thus,
Clause 8.5 allows the contractor to move ahead and make changes
without the express or implicit approval of the DENR secretary. Such
changes are, however, subject to certain conditions that will serve to
limit or restrict the variance and prevent the contractor from straying
very far from what has been approved.
Clause 8.5 provides the contractor a certain amount of flexibility to
meet unexpected situations, while still guaranteeing that the approved
work programs and budgets are not abandoned altogether. Clause 8.5
does not constitute proof that the State has relinquished control. And
ultimately, should there be disagreement with the actions taken by the
contractor in this instance as well as under Clause 8.3 discussed
above, the DENR secretary may resort to cancellation/termination of
the FTAA as the ultimate sanction.
Discretion to Select Contract
Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to
select - - and the government has no say whatsoever as to - - the parts
of the contract area to be relinquished pursuant to Clause 4.6 of the
WMCP FTAA.56 This clause, however, does not constitute abdication of
control. Rather, it is a mere acknowledgment of the fact that the
contractor will have determined, after appropriate exploration works,
which portions of the contract area do not contain minerals in
commercial quantities sufficient to justify developing the same and
ought therefore to be relinquished. The State cannot just substitute its
judgment for that of the contractor and dictate upon the latter which
areas to give up.
Moreover, we can be certain that the contractor's self-interest will
propel proper and efficient relinquishment. According to private
respondent,57 a mining company tries to relinquish as much non-
mineral areas as soon as possible, because the annual occupation
fees paid to the government are based on the total hectarage of the
contract area, net of the areas relinquished. Thus, the larger the
remaining area, the heftier the amount of occupation fees to be paid by
the contractor. Accordingly, relinquishment is not an issue, given that
the contractor will not want to pay the annual occupation fees on the
non-mineral parts of its contract area. Neither will it want to relinquish
promising sites, which other contractors may subsequently pick up.
Government Not a Subcontractor
Petitioners further maintain that the contractor can compel the
government to exercise its power of eminent domain to acquire surface
areas within the contract area for the contractor's use. Clause 10.2 (e)
of the WMCP FTAA provides that the government agrees that the
contractor shall "(e) have the right to require the Government at the
Contractor's own cost, to purchase or acquire surface areas for and on
behalf of the Contractor at such price and terms as may be acceptable
to the contractor. At the termination of this Agreement such areas shall
be sold by public auction or tender and the Contractor shall be entitled
to reimbursement of the costs of acquisition and maintenance,
adjusted for inflation, from the proceeds of sale."
According to petitioners, "government becomes a subcontractor to the
contractor" and may, on account of this provision, be compelled "to
make use of its power of eminent domain, not for public purposes but
on behalf of a private party, i.e., the contractor." Moreover, the power
of the courts to determine the amount corresponding to the
constitutional requirement of just compensation has allegedly also
been contracted away by the government, on account of the latter's
commitment that the acquisition shall be at such terms as may be
acceptable to the contractor.
However, private respondent has proffered a logical explanation for the
provision.58 Section 10.2(e) contemplates a situation applicable to
foreign-owned corporations. WMCP, at the time of the execution of the
FTAA, was a foreign-owned corporation and therefore not qualified to
own land. As contractor, it has at some future date to construct the
infrastructure - - the mine processing plant, the camp site, the tailings
dam, and other infrastructure - - needed for the large-scale mining
operations. It will then have to identify and pinpoint, within the FTAA
contract area, the particular surface areas with favorable topography
deemed ideal for such infrastructure and will need to acquire the
surface rights. The State owns the mineral deposits in the earth, and is
also qualified to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned
contractor, disqualified to own land, identifies to the government the
specific surface areas within the FTAA contract area to be acquired for
the mine infrastructure. The government then acquires ownership of
the surface land areas on behalf of the contractor, in order to enable
the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land.
Hence, the provision allows it, after termination of the FTAA, to be
reimbursed from proceeds of the sale of the surface areas, which the
government will dispose of through public bidding. It should be noted
that this provision will not be applicable to Sagittarius as the present
FTAA contractor, since it is a Filipino corporation qualified to own and
hold land. As such, it may therefore freely negotiate with the surface
rights owners and acquire the surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted
conclusions, without being aware of the rationale for the said provision.
That provision does not call for the exercise of the power of eminent
domain - - and determination of just compensation is not an issue - - as
much as it calls for a qualified party to acquire the surface rights on
behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy
corporation, having the State do the purchasing is a better alternative.
This will at least cause the government to be aware of such
transaction/s and foster transparency in the contractor's dealings with
the local property owners. The government, then, will not act as a
subcontractor of the contractor; rather, it will facilitate the transaction
and enable the parties to avoid a technical violation of the Anti-Dummy
Law.
Absence of Provision
Requiring Sale at Posted
Prices Not Problematic
The supposed absence of any provision in the WMCP FTAA directly
and explicitly requiring the contractor to sell the mineral products at
posted or market prices is not a problem. Apart from Clause 1.4 of the
FTAA obligating the contractor to account for the total value of mineral
production and the sale of minerals, we can also look to Section 35 of
RA 7942, which incorporates into all FTAAs certain terms, conditions
and warranties, including the following:
"(l) The contractors shall furnish the Government records of geologic,
accounting and other relevant data for its mining operation, and
that books of accounts and records shall be open for inspection by the
government. x x x
(m) Requiring the proponent to dispose of the minerals at the highest
price and more advantageous terms and conditions."
For that matter, Section 56(n) of DAO 99-56 specifically obligates an
FTAA contractor to dispose of the minerals and by-products at the
highest market price and to register with the MGB a copy of the sales
agreement. After all, the provisions of prevailing statutes as well as
rules and regulations are deemed written into contracts.
Contractor's Right to Mortgage
Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under
Clause 10.2 (l) to mortgage and encumber not only its rights and
interests in the FTAA and the infrastructure and improvements
introduced, but also the mineral products extracted. Private
respondents do not touch on this matter, but we believe that this
provision may have to do with the conditions imposed by the creditor-
banks of the then foreign contractor WMCP to secure the lendings
made or to be made to the latter. Ordinarily, banks lend not only on the
security of mortgages on fixed assets, but also on encumbrances
of goods produced that can easily be sold and converted into cash that
can be applied to the repayment of loans. Banks even lend on the
security of accounts receivable that are collectible within 90 days.59
It is not uncommon to find that a debtor corporation has executed
deeds of assignment "by way of security" over the production for the
next twelve months and/or the proceeds of the sale thereof - - or the
corresponding accounts receivable, if sold on terms - - in favor of its
creditor-banks. Such deeds may include authorizing the creditors to
sell the products themselves and to collect the sales proceeds and/or
the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary
or objectionable. In any case, as will be explained below, even if it is
allowed to mortgage or encumber the mineral end-products
themselves, the contractor is not freed of its obligation to pay the
government its basic and additional shares in the net mining revenue,
which is the essential thing to consider.
In brief, the alarum raised over the contractor's right to mortgage the
minerals is simply unwarranted. Just the same, the contractor must
account for the value of mineral production and the sales proceeds
therefrom. Likewise, under the WMCP FTAA, the government remains
entitled to its sixty percent share in the net mining revenues of the
contractor. The latter's right to mortgage the minerals does not negate
the State's right to receive its share of net mining revenues.
Shareholders Free to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the contractor
authority "to change its equity structure at any time." This provision
may seem somewhat unusual, but considering that WMCP then was
100 percent foreign-owned, any change would mean that such
percentage would either stay unaltered or be decreased in favor of
Filipino ownership. Moreover, the foreign-held shares may change
hands freely. Such eventuality is as it should be.
We believe it is not necessary for government to attempt to limit or
restrict the freedom of the shareholders in the contractor to freely
transfer, dispose of or encumber their shareholdings, consonant with
the unfettered exercise of their business judgment and discretion.
Rather, what is critical is that, regardless of the identity, nationality and
percentage ownership of the various shareholders of the contractor - -
and regardless of whether these shareholders decide to take the
company public, float bonds and other fixed-income instruments, or
allow the creditor-banks to take an equity position in the company - -
the foreign-owned contractor is always in a position to render the
services required under the FTAA, under the direction and control of
the government.
Contractor's Right to Ask
For Amendment Not Absolute
With respect to Clauses 10.4(e) and (i), petitioners complain that these
provisions bind government to allow amendments to the FTAA if
required by banks and other financial institutions as part of the
conditions for new lendings. However, we do not find anything wrong
with Clause 10.4(e), which only states that "if the Contractor seeks to
obtain financing contemplated herein from banks or other financial
institutions, (the Government shall) cooperate with the Contractor in
such efforts provided that such financing arrangements will in no event
reduce the Contractor's obligations or the Government's rights
hereunder." The colatilla obviously safeguards the State's interests; if
breached, it will give the government cause to object to the proposed
amendments.
On the other hand, Clause 10.4(i) provides that "the Government shall
favourably consider any request from [the] Contractor for amendments
of this Agreement which are necessary in order for the Contractor to
successfully obtain the financing." Petitioners see in this provision a
complete renunciation of control. We disagree.
The proviso does not say that the government shall grant any request
for amendment. Clause 10.4(i) only obliges the State to
favorably consider any such request, which is not at all unreasonable,
as it is not equivalent to saying that the government must automatically
consent to it. This provision should be read together with the rest of the
FTAA provisions instituting government control and supervision over
the mining enterprise. The clause should not be given an interpretation
that enables the contractor to wiggle out of the restrictions imposed
upon it by merely suggesting that certain amendments are requested
by the lenders.
Rather, it is up to the contractor to prove to the government that the
requested changes to the FTAA are indispensable, as they enable the
contractor to obtain the needed financing; that without such contract
changes, the funders would absolutely refuse to extend the loan; that
there are no other sources of financing available to the contractor (a
very unlikely scenario); and that without the needed financing, the
execution of the work programs will not proceed. But the bottom line is,
in the exercise of its power of control, the government has the final
say on whether to approve or disapprove such requested amendments
to the FTAA. In short, approval thereof is not mandatory on the part of
the government.
In fine, the foregoing evaluation and analysis of the
aforementioned FTAA provisions sufficiently overturns
petitioners' litany of objections to and criticisms of the State's
alleged lack of control.
Financial Benefits
Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck
down was the finding mentioned in the Decision that beneficial
ownership of the mineral resources had been conveyed to the
contractor. This finding was based on the underlying assumption,
common to the said provisions, that the foreign contractor manages
the mineral resources in the same way that foreign contractors in
service contracts used to. "By allowing foreign contractors to manage
or operate all the aspects of the mining operation, the above-cited
provisions of R.A. No. 7942 have in effect conveyed beneficial
ownership over the nation's mineral resources to these contractors,
leaving the State with nothing but bare title thereto." 60 As the WMCP
FTAA contained similar provisions deemed by the ponente to be
abhorrent to the Constitution, the Decision struck down the Contract as
well.
Beneficial ownership has been defined as ownership recognized by
law and capable of being enforced in the courts at the suit of the
beneficial owner.61 Black's Law Dictionary indicates that the term is
used in two senses: first, to indicate the interest of a beneficiary in trust
property (also called "equitable ownership"); and second, to refer to the
power of a corporate shareholder to buy or sell the shares, though the
shareholder is not registered in the corporation's books as the
owner.62 Usually, beneficial ownership is distinguished from naked
ownership, which is the enjoyment of all the benefits and privileges of
ownership, as against possession of the bare title to property.
An assiduous examination of the WMCP FTAA uncovers no indication
that it confers upon WMCP ownership, beneficial or otherwise, of the
mining property it is to develop, the minerals to be produced, or the
proceeds of their sale, which can be legally asserted and enforced as
against the State.
As public respondents correctly point out, any interest the contractor
may have in the proceeds of the mining operation is merely the
equivalent of the consideration the government has undertaken to pay
for its services. All lawful contracts require such mutual prestations,
and the WMCP FTAA is no different. The contractor commits to
perform certain services for the government in respect of the mining
operation, and in turn it is to be compensated out of the net mining
revenues generated from the sale of mineral products. What would be
objectionable is a contractual provision that unduly benefits the
contractor far in excess of the service rendered or value delivered, if
any, in exchange therefor.
A careful perusal of the statute itself and its implementing rules reveals
that neither RA 7942 nor DAO 99-56 can be said to convey beneficial
ownership of any mineral resource or product to any foreign FTAA
contractor.
Equitable Sharing
of Financial Benefits
On the contrary, DAO 99-56, entitled "Guidelines Establishing the
Fiscal Regime of Financial or Technical Assistance Agreements" aims
to ensure an equitable sharing of the benefits derived from mineral
resources. These benefits are to be equitably shared among the
government (national and local), the FTAA contractor, and the affected
communities. The purpose is to ensure sustainable mineral resources
development; and a fair, equitable, competitive and stable investment
regime for the large-scale exploration, development and commercial
utilization of minerals. The general framework or concept followed in
crafting the fiscal regime of the FTAA is based on the principle that the
government expects real contributions to the economic growth and
general welfare of the country, while the contractor expects a
reasonable return on its investments in the project. 63
Specifically, under the fiscal regime, the government's expectation
is, inter alia, the receipt of its share from the taxes and fees normally
paid by a mining enterprise. On the other hand, the FTAA contractor is
granted by the government certain fiscal and non-fiscal incentives 64 to
help support the former's cash flow during the most critical phase (cost
Not
recovery) and to make the Philippines competitive with other mineral-
producing countries. After the contractor has recovered its initial
investment, it will pay all the normal taxes and fees comprising the
basic share of the government, plus an additional share for the
government based on the options and formulae set forth in DAO 99-56.
The said DAO spells out the financial benefits the government will
receive from an FTAA, referred to as "the Government Share,"
composed of a basic government share and an additional
government share.
The basic government share is comprised of all direct taxes, fees
and royalties, as well as other payments made by the contractor during
the term of the FTAA. These are amounts paid directly to (i) the
national government (through the Bureau of Internal Revenue, Bureau
of Customs, Mines & Geosciences Bureau and other national
government agencies imposing taxes or fees), (ii) the local government
units where the mining activity is conducted, and (iii) persons and
communities directly affected by the mining project. The major taxes
and other payments constituting the basic government share are
enumerated below:65
Payments to the National Government:
'Excise tax on minerals - 2 percent of the gross output of mining
operations
'Contractor' income tax - maximum of 32 percent of taxable income for
corporations
'Customs duties and fees on imported capital equipment -the rate is set
by the Tariff and Customs Code (3-7 percent for chemicals; 3-10
percent for explosives; 3-15 percent for mechanical and electrical
equipment; and 3-10 percent for vehicles, aircraft and vessels
'VAT on imported equipment, goods and services - 10 percent of value
'Royalties due the government on minerals extracted from mineral
reservations, if applicable - 5 percent of the actual market value of the
minerals produced
'Documentary stamp tax - the rate depends on the type of transaction
'Capital gains tax on traded stocks - 5 to 10 percent of the value of the
shares
'Withholding tax on interest payments on foreign loans -15 percent of
the amount of interest
'Withholding tax on dividend payments to foreign stockholders - 15
percent of the dividend
'Wharfage and port fees
'Licensing fees (for example, radio permit, firearms permit, professional
fees)
'Other national taxes and fees.
Payments to Local Governments:
'Local business tax - a maximum of 2 percent of gross sales or receipts
(the rate varies among local government units)
'Real property tax - 2 percent of the fair market value of the property,
based on an assessment level set by the local government
'Special education levy - 1 percent of the basis used for the real
property tax
'Occupation fees - PhP50 per hectare per year; PhP100 per hectare
per year if located in a mineral reservation
'Community tax - maximum of PhP10,500 per year
'All other local government taxes, fees and imposts as of the effective
date of the FTAA - the rate and the type depend on the local
government
Other Payments:
'Royalty to indigenous cultural communities, if any - 1 percent of gross
output from mining operations
'Special allowance - payment to claim owners and surface rights
holders
Apart from the basic share, an additional government share is also
collected from the FTAA contractor in accordance with the second
paragraph of Section 81 of RA 7942, which provides that the
government share shall be comprised of, among other things, certain
taxes, duties and fees. The subject proviso reads:
"The Government share in a financial or technical assistance
agreement shall consist of, among other things, the contractor's
corporate income tax, excise tax, special allowance, withholding tax
due from the contractor's foreign stockholders arising from dividend or
interest payments to the said foreign stockholder in case of a foreign
national, and all such other taxes, duties and fees as provided for
under existing laws." (Bold types supplied.)
The government, through the DENR and the MGB, has interpreted the
insertion of the phrase among other things as signifying that the
government is entitled to an "additional government share" to be paid
by the contractor apart from the "basic share," in order to attain a fifty-
fifty sharing of net benefits from mining.
The additional government share is computed by using one of three
options or schemes presented in DAO 99-56: (1) a fifty-fifty sharing in
the cumulative present value of cash flows; (2) the share based on
excess profits; and (3) the sharing based on the cumulative net mining
revenue. The particular formula to be applied will be selected by the
contractor, with a written notice to the government prior to the
commencement of the development and construction phase of the
mining project.66
Proceeds from the government shares arising from an FTAA contract
are distributed to and received by the different levels of government in
the following proportions:
National Government 50 percent
Provincial Government 10 percent
Municipal Government 20 percent
Affected Barangays 20 percent
The portion of revenues remaining after the deduction of the basic and
additional government shares is what goes to the contractor.
Government's Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees
In connection with the foregoing discussion on the basic and
additional government shares, it is pertinent at this juncture to
mention the criticism leveled at the second paragraph of Section 81 of
RA 7942, quoted earlier. The said proviso has been denounced,
because, allegedly, the State's share in FTAAs with foreign contractors
has been limited to taxes, fees and duties only; in effect, the State has
been deprived of a share in the after-tax income of the enterprise. In
the face of this allegation, one has to consider that the law does not
define the term among other things; and the Office of the Solicitor
General, in its Motion for Reconsideration, appears to have
erroneously claimed that the phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the
reason that Congress deliberately avoided setting unnecessary
limitations as to what may constitute compensation to the State for the
exploitation and use of mineral resources. But the inclusion of that
phrase clearly and unmistakably reveals the legislative intent to have
the State collect more than just the usual taxes, duties and fees.
Certainly, there is nothing in that phrase - - or in the second paragraph
of Section 81 - - that would suggest that such phrase should be
interpreted as referring only to taxes, duties, fees and the like.
Precisely for that reason, to fulfill the legislative intent behind the
inclusion of the phrase among other things in the second paragraph of
Section 81,67 the DENR structured and formulated in DAO 99-56 the
said additional government share. Such a share was to consist not
of taxes, but of a share in the earnings or cash flows of the mining
enterprise. The additional government share was to be paid by the
contractor on top of the basic share, so as to achieve a fifty-fifty
sharing - - between the government and the contractor - - of net
benefits from mining. In the Ramos-DeVera paper, the explanation of
the three options or formulas 68 - - presented in DAO 99-56 for the
computation of the additional government share - - serves to debunk
the claim that the government's take from an FTAA consists solely of
taxes, fees and duties.
Unfortunately, the Office of the Solicitor General - - although in
possession of the relevant data - - failed to fully replicate or echo the
pertinent elucidation in the Ramos-DeVera paper regarding the three
schemes or options for computing the additional government share
presented in DAO 99-56. Had due care been taken by the OSG, the
Court would have been duly apprised of the real nature and particulars
of the additional share.
But, perhaps, on account of the esoteric discussion in the Ramos-
DeVera paper, and the even more abstruse mathematical jargon
employed in DAO 99-56, the OSG omitted any mention of the three
options. Instead, the OSG skipped to a side discussion of the effect
of indirect taxes, which hadnothing at all to do with the additional
government share, to begin with. Unfortunately, this move created the
wrong impression, pointed out in Justice Antonio T. Carpio's Opinion,
that the OSG had taken the position that the additional government
share consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional
government share, as formulated, has nothing to do with taxes - -
direct or indirect - - or with duties, fees or charges. To repeat, it is over
and above the basic government share composed of taxes and duties.
Simply put, the additional share may be (a) an amount that will result in
a 50-50 sharing of the cumulative present value of the cash flows 69 of
the enterprise; (b) an amount equivalent to 25 percent of the additional
or excess profits of the enterprise, reckoned against a benchmark
return on investments; or (c) an amount that will result in a fifty-fifty
sharing of the cumulative net mining revenue from the end of the
recovery period up to the taxable year in question. The contractor is
required to select one of the three options or formulae for computing
the additional share, an option it will apply to all of its mining
operations.
As used above, "net mining revenue" is defined as the gross output
from mining operations for a calendar year, less deductible expenses
(inclusive of taxes, duties and fees). Such revenue would roughly be
equivalent to "taxable income" or income before income tax. Definitely,
as compared with, say, calculating the additional government
share on the basis of net income (after income tax), the net mining
revenue is a better and much more reasonable basis for such
computation, as it gives a truer picture of the profitability of the
company.
To demonstrate that the three options or formulations will operate as
intended, Messrs. Ramos and de Vera also performed some
quantifications of the government share via a financial modeling of
each of the three options discussed above. They found that the
government would get the highest share from the option that is based
on the net mining revenue, as compared with the other two options,
considering only the basic and the additional shares; and that, even
though production rate decreases, the government share will actually
increase when the net mining revenue and the additional profit-based
options are used.
Furthermore, it should be noted that the three options or formulae do
not yet take into account the indirect taxes 70 and other financial
contributions 71 of mining projects. These indirect taxes and other
contributions are real and actual benefits enjoyed by the Filipino
people and/or government. Now, if some of the quantifiable items are
taken into account in the computations, the financial modeling would
show that the total government share increases to 60 percent or
higher - - in one instance, as much as 77 percent and even 89 percent
- - of the net present value of total benefits from the project. As noted
in the Ramos-DeVera paper, these results are not at all shabby,
considering that the contractor puts in all the capital requirements and
assumes all the risks, without the government having to contribute or
risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during
the Court's deliberations that the phrase among other things refers
only to taxes, duties and fees. We are bewildered by his position. On
the one hand, he condemns the Mining Law for allegedly limiting the
government's benefits only to taxes, duties and fees; and on the other,
he refuses to allow the State to benefit from the correct and proper
interpretation of the DENR/MGB. To remove all doubts then, we hold
that the State's share is not limited to taxes, duties and fees only and
that the DENR/MGB interpretation of the phrase among other things is
correct. Definitely, this DENR/MGB interpretation is not only legally
sound, but also greatly advantageous to the government.
One last point on the subject. The legislature acted judiciously in not
defining the terms among other things and, instead, leaving it to the
agencies concerned to devise and develop the various modes of
arriving at a reasonable and fair amount for the additional
government share. As can be seen from DAO 99-56, the agencies
concerned did an admirable job of conceiving and developing not just
one formula, but three different formulae for arriving at the additional
government share. Each of these options is quite fair and reasonable;
and, as Messrs. Ramos and De Vera stated, other alternatives or
schemes for a possible improvement of the fiscal regime for FTAAs are
also being studied by the government.
Besides, not locking into a fixed definition of the term among other
things will ultimately be more beneficial to the government, as it will
have that innate flexibility to adjust to and cope with rapidly changing
circumstances, particularly those in the international markets. Such
flexibility is especially significant for the government in terms of helping
our mining enterprises remain competitive in world markets despite
challenging and shifting economic scenarios.
In conclusion, we stress that we do not share the view that in
FTAAs with foreign contractors under RA 7942, the government's
share is limited to taxes, fees and duties. Consequently, we find
the attacks on the second paragraph of Section 81 of RA 7942
totally unwarranted.
Collections Not Made Uncertain
by the Third Paragraph of Section 81
The third or last paragraph of Section 8172 provides that the
government share in FTAAs shall be collected when the contractor
shall have recovered its pre-operating expenses and exploration and
development expenditures. The objection has been advanced that, on
account of the proviso, the collection of the State's share is not even
certain, as there is no time limit in RA 7942 for this grace period or
recovery period.
We believe that Congress did not set any time limit for the grace
period, preferring to leave it to the concerned agencies, which are, on
account of their technical expertise and training, in a better position to
determine the appropriate durations for such recovery periods. After
all, these recovery periods are determined, to a great extent, by
technical and technological factors peculiar to the mining industry.
Besides, with developments and advances in technology and in the
geosciences, we cannot discount the possibility of shorter recovery
periods. At any rate, the concerned agencies have not been remiss in
this area. The 1995 and 1996 Implementing Rules and Regulations of
RA 7942 specify that the period of recovery, reckoned from the date of
commercial operation, shall be for a period not exceeding five years,
or until the date of actual recovery, whichever comes earlier.
Approval of Pre-Operating
Expenses Required by RA 7942
Still, RA 7942 is criticized for allegedly not requiring government
approval of pre-operating, exploration and development expenses of
the foreign contractors, who are in effect given unfettered discretion to
determine the amounts of such expenses. Supposedly, nothing
prevents the contractors from recording such expenses in amounts
equal to the mining revenues anticipated for the first 10 or 15 years of
commercial production, with the result that the share of the State will
be zero for the first 10 or 15 years. Moreover, under the
circumstances, the government would be unable to say when it would
start to receive its share under the FTAA.
We believe that the argument is based on incorrect information as well
as speculation. Obviously, certain crucial provisions in the Mining Law
were overlooked. Section 23, dealing with the rights and obligations of
the exploration permit grantee, states: "The permittee shall undertake
exploration work on the area as specified by its permit based on
an approved work program." The next proviso reads:"Any expenditure
in excess of the yearly budget of the approved work program may be
carried forward and credited to the succeeding years covering the
duration of the permit. x x x."(underscoring supplied)
Clearly, even at the stage of application for an exploration permit, the
applicant is required to submit - - for approval by the government - - a
proposed work program for exploration, containing a yearly budget of
proposed expenditures. The State has the opportunity to pass upon
(and approve or reject) such proposed expenditures, with the
foreknowledge that - - if approved - - these will subsequently be
recorded as pre-operating expenses that the contractor will have to
recoup over the grace period. That is not all.
Under Section 24, an exploration permit holder who determines the
commercial viability of a project covering a mining area may, within the
term of the permit, file with the Mines and Geosciences Bureaua
declaration of mining project feasibility. This declaration is to be
accompanied by a work program for development for the Bureau's
approval, the necessary prelude for entering into an FTAA, a mineral
production sharing agreement (MPSA), or some other mineral
agreement. At this stage, too, the government obviously has the
opportunity to approve or reject the proposed work program and
budgeted expenditures for development works on the project. Such
expenditures will ultimately become the pre-operating and
development costs that will have to be recovered by the contractor.
Naturally, with the submission of approved work programs and budgets
for the exploration and the development/construction phases, the
government will be able to scrutinize and approve or rejectsuch
expenditures. It will be well-informed as to the amounts of pre-
operating and other expenses that the contractor may legitimately
recover and the approximate period of time needed to effect such a
recovery. There is therefore no way the contractor can just randomly
post any amount of pre-operating expenses and expect to recover the
same.
The aforecited provisions on approved work programs and budgets
have counterparts in Section 35, which deals with the terms and
conditions exclusively applicable to FTAAs. The said provision requires
certain terms and conditions to be incorporated into FTAAs; among
them, "a firm commitment x x x of an amount corresponding to
the expenditure obligation that will be invested in the contract
area" and"representations and warranties x x x to timely deploy
these [financing, managerial and technical expertise and
technological] resources under its supervision pursuant to the periodic
work programs and related budgets x x x," as well as "work
programs and minimum expenditures commitments."(underscoring
supplied)
Unarguably, given the provisions of Section 35, the State has every
opportunity to pass upon the proposed expenditures under an FTAA
and approve or reject them. It has access to all the information it may
need in order to determine in advance the amounts of pre-operating
and developmental expenses that will have to be recovered by the
contractor and the amount of time needed for such recovery.
In summary, we cannot agree that the third or last paragraph of
Section 81 of RA 7942 is in any manner unconstitutional.
No Deprivation of Beneficial Rights
It is also claimed that aside from the second and the third paragraphs
of Section 81 (discussed above), Sections 80, 84 and 112 of RA 7942
also operate to deprive the State of beneficial rights of ownership over
mineral resources; and give them away for free to private business
enterprises (including foreign owned corporations). Likewise, the said
provisions have been construed as constituting, together with Section
81, an ingenious attempt to resurrect the old and discredited system of
"license, concession or lease."
Specifically, Section 80 is condemned for limiting the State's share in a
mineral production-sharing agreement (MPSA) to just the excise tax on
the mineral product. Under Section 151(A) of the Tax Code, such tax is
only 2 percent of the market value of the gross output of the minerals.
The colatillain Section 84, the portion considered offensive to the
Constitution, reiterates the same limitation made in Section 80. 73
It should be pointed out that Section 80 and the colatilla in Section
84 pertain only to MPSAs and have no application to FTAAs. These
particular statutory provisions do not come within the issues that were
defined and delineated by this Court during the Oral Argument - -
particularly the third issue, which pertained exclusively to FTAAs.
Neither did the parties argue upon them in their pleadings. Hence, this
Court cannot make any pronouncement in this case regarding the
constitutionality of Sections 80 and 84 without violating the
fundamental rules of due process. Indeed, the two provisos will have to
await another case specifically placing them in issue.
On the other hand, Section 112 74 is disparaged for allegedly reverting
FTAAs and all mineral agreements to the old and discredited "license,
concession or lease" system. This Section states in relevant part
that "the provisions of Chapter XIV [which includes Sections 80 to
82] on government share in mineral production-sharing agreement x x
x shall immediately govern and apply to a mining lessee or
contractor." (underscoring supplied) This provision is construed as
signifying that the 2 percent excise tax which, pursuant to Section 80,
comprises the government share in MPSAs shall now also constitute
the government share in FTAAs - - as well as in co-production
agreements and joint venture agreements - - to the exclusion of
revenues of any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the
issues delineated by this Court during the Oral Argument, and was
never touched upon by the parties in their pleadings, it must also be
noted that the criticism hurled against this Section is rooted in
unwarranted conclusions made without considering other relevant
provisions in the statute. Whether Section 112 may properly apply to
co-production or joint venture agreements, the fact of the matter is
that it cannot be made to apply to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the
only reason it is being applied to them at all is the fact that it happens
to use the word "contractor." Hence, it is a bit of a stretch to insist that
it covers FTAAs as well. Second, mineral agreements, of which there
are three types - - MPSAs, co-production agreements, and joint
venture agreements - - are covered by Chapter V of RA 7942. On the
other hand, FTAAs are covered by and in fact are the subject of
Chapter VI, an entirely different chapter altogether. The law obviously
intends to treat them as a breed apart from mineral agreements, since
Section 35 (found in Chapter VI) creates a long list of specific terms,
conditions, commitments, representations and warranties - - which
have not been made applicable to mineral agreements - - to be
incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to
"downgrade" - - to convert the FTAA into a mineral agreement at any
time during the term if the economic viability of the contract area is
inadequate to sustain large-scale mining operations. Thus, there is no
reason to think that the law through Section 112 intends to exact from
FTAA contractors merely the same government share (a 2 percent
excise tax) that it apparently demands from contractors under the three
forms of mineral agreements. In brief, Section 112 does not apply to
FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and
Morales maintain that the Court must rule now on the constitutionality
of Sections 80, 84 and 112, allegedly because the WMCP FTAA
contains a provision which grants the contractor unbridled and
"automatic" authority to convert the FTAA into an MPSA; and should
such conversion happen, the State would be prejudiced since its share
would be limited to the 2 percent excise tax. Justice Carpio adds that
there are five MPSAs already signed just awaiting the judgment of this
Court on respondents' and intervenor's Motions for Reconsideration.
We hold however that, at this point, this argument is based on pure
speculation. The Court cannot rule on mere surmises and hypothetical
assumptions, without firm factual anchor. We repeat: basic due
process requires that we hear the parties who have a real legal interest
in the MPSAs (i.e. the parties who executed them) before these
MPSAs can be reviewed, or worse, struck down by the Court. Anything
less than that requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is
problematic. First, the contractor must comply with the law, particularly
Section 39 of RA 7942; inter alia, it must convincingly show that the
"economic viability of the contract is found to be inadequate to justify
large-scale mining operations;" second, it must contend with the
President's exercise of the power of State control over the EDU of
natural resources; and third, it will have to risk a possible declaration of
the unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39
contemplates a situation in which an FTAA has already been executed
and entered into, and is presumably being implemented, when the
contractor "discovers" that the mineral ore reserves in the contract
area are not sufficient to justify large-scale mining, and thus the
contractor requests the conversion of the FTAA into an MPSA. The
contractor in effect needs to explain why, despite its exploration
activities, including the conduct of various geologic and other scientific
tests and procedures in the contract area, it was unable to determine
correctly the mineral ore reserves and the economic viability of the
area. The contractor must explain why, after conducting such
exploration activities, it decided to file a declaration of mining
feasibility, and to apply for an FTAA, thereby leading the State to
believe that the area could sustain large-scale mining. The contractor
must justify fully why its earlier findings, based on scientific
procedures, tests and data, turned out to be wrong, or were way off. It
must likewise prove that itsnew findings, also based on scientific tests
and procedures, are correct. Right away, this puts the contractor's
technical capabilities and expertise into serious doubt. We wonder if
anyone would relish being in this situation. The State could even
question and challenge the contractor's qualification and competence
to continue the activity under an MPSA.
All in all, while there may be cogent grounds to assail the
aforecited Sections, this Court - - on considerations of due
process - - cannot rule upon them here. Anyway, if later on these
Sections are declared unconstitutional, such declaration will not
affect the other portions since they are clearly separable from the
rest.
Our Mineral Resources Not
Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the
contention that our mineral resources are effectively given away for
free by the law (RA 7942) in general and by Sections 80, 81, 84 and
112 in particular.
Foreign contractors do not just waltz into town one day and leave the
next, taking away mineral resources without paying anything. In order
to get at the minerals, they have to invest huge sums of money (tens or
hundreds of millions of dollars) in exploration works first. If the
exploration proves unsuccessful, all the cash spent thereon will not be
returned to the foreign investors; rather, those funds will have been
infused into the local economy, to remain there permanently. The
benefits therefrom cannot be simply ignored. And assuming that the
foreign contractors are successful in finding ore bodies that are viable
for commercial exploitation, they do not just pluck out the minerals and
cart them off. They have first to build camp sites and roadways; dig
mine shafts and connecting tunnels; prepare tailing ponds, storage
areas and vehicle depots; install their machinery and equipment,
generator sets, pumps, water tanks and sewer systems, and so on.
In short, they need to expend a great deal more of their funds for
facilities, equipment and supplies, fuel, salaries of local labor and
technical staff, and other operating expenses. In the meantime, they
also have to pay taxes, 75 duties, fees, and royalties. All told, the
exploration, pre-feasibility, feasibility, development and construction
phases together add up to as many as eleven years. 76 The contractors
have to continually shell out funds for the duration of over a decade,
before they can commence commercial production from which they
would eventually derive revenues. All that money translates into a lot of
"pump-priming" for the local economy.
Granted that the contractors are allowed subsequently to recover their
pre-operating expenses, still, that eventuality will happen only after
they shall have first put out the cash and fueled the economy.
Moreover, in the process of recouping their investments and costs, the
foreign contractors do not actually pull out the money from the
economy. Rather, they recover or recoup their investments out of
actual commercial production by not paying a portion of the basic
government share corresponding to national taxes, along with the
additional government share, for a period of not more than five
years77 counted from the commencement of commercial production.
It must be noted that there can be no recovery without commencing
actual commercial production. In the meantime that the contractors are
recouping costs, they need to continue operating; in order to do so,
they have to disburse money to meet their various needs. In short,
money is continually infused into the economy.
The foregoing discussion should serve to rid us of the mistaken belief
that, since the foreign contractors are allowed to recover their
investments and costs, the end result is that they practically get the
minerals for free, which leaves the Filipino people none the better for it.
All Businesses Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all
businessmen and all business entities in general, have to recoup their
investments and costs. That is one of the first things a student learns in
business school. Regardless of its nationality, and whether or not a
business entity has a five-year cost recovery period, it will - - must - -
have to recoup its investments, one way or another. This is just
common business sense. Recovery of investments is absolutely
indispensable for business survival; and business survival ensures
soundness of the economy, which is critical and contributory to the
general welfare of the people. Even government corporations must
recoup their investments in order to survive and continue in
operation. And, as the preceding discussion has shown, there is no
business that gets ahead or earns profits without any cost to it.
It must also be stressed that, though the State owns vast mineral
wealth, such wealth is not readily accessible or transformable into
usable and negotiable currency without the intervention of the credible
mining companies. Those untapped mineral resources, hidden
beneath tons of earth and rock, may as well not be there for all the
good they do us right now. They have first to be extracted and
converted into marketable form, and the country needs the foreign
contractor's funds, technology and know-how for that.
After about eleven years of pre-operation and another five years for
cost recovery, the foreign contractors will have just broken even. Is it
likely that they would at that point stop their operations and leave?
Certainly not. They have yet to make profits. Thus, for the remainder of
the contract term, they must strive to maintain profitability. During this
period, they pay the whole of the basic government share and the
additional government share which, taken together with indirect taxes
and other contributions, amount to approximately 60 percent or more
of the entire financial benefits generated by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral
resources for free. It takes a lot of hard cash to even begin to do what
they do. And what they do in this country ultimately benefits the local
economy, grows businesses, generates employment, and creates
infrastructure, as discussed above. Hence, we definitely disagree with
the sweeping claim that no FTAA under Section 81 will ever make any
real contribution to the growth of the economy or to the general welfare
of the country. This is not a plea for foreign contractors. Rather, this is
a question of focusing the judicial spotlight squarely on all the pertinent
facts as they bear upon the issue at hand, in order to avoid leaping
precipitately to ill-conceived conclusions not solidly grounded upon
fact.
Repatriation of After-Tax Income
Another objection points to the alleged failure of the Mining Law to
ensure real contributions to the economic growth and general welfare
of the country, as mandated by Section 2 of Article XII of the
Constitution. Pursuant to Section 81 of the law, the entire after-tax
income arising from the exploitation of mineral resources owned by the
State supposedly belongs to the foreign contractors, which will
naturally repatriate the said after-tax income to their home countries,
thereby resulting in no real contribution to the economic growth of this
country. Clearly, this contention is premised on erroneous
assumptions.
First, as already discussed in detail hereinabove, the concerned
agencies have correctly interpreted the second paragraph of Section
81 of RA 7942 to mean that the government is entitled to an additional
share, to be computed based on any one of the following factors: net
mining revenues, the present value of the cash flows, or excess profits
reckoned against a benchmark rate of return on investments. So it is
not correct to say that all of the after-tax income will accrue to the
foreign FTAA contractor, as the government effectively receives a
significant portion thereof.
Second, the foreign contractors can hardly "repatriate the entire after-
tax income to their home countries." Even a bit of knowledge of
corporate finance will show that it will be impossible to maintain a
business as a "going concern" if the entire "net profit" earned in any
particular year will be taken out and repatriated. The "net income"
figure reflected in the bottom line is a mere accounting figure not
necessarily corresponding to cash in the bank, or other quick assets. In
order to produce and set aside cash in an amount equivalent to the
bottom line figure, one may need to sell off assets or immediately
collect receivables or liquidate short-term investments; but doing so
may very likely disrupt normal business operations.
In terms of cash flows, the funds corresponding to the net income as of
a particular point in time areactually in use in the normal course of
business operations. Pulling out such net income disrupts the cash
flows and cash position of the enterprise and, depending on the
amount being taken out, could seriously cripple or endanger the
normal operations and financial health of the business enterprise. In
short, no sane business person, concerned with maintaining the
mining enterprise as a going concern and keeping a foothold in
its market, can afford to repatriate the entire after-tax income to
the home country.
The State's Receipt of Sixty
Percent of an FTAA Contractor's
After-Tax Income Not Mandatory
We now come to the next objection which runs this way: In FTAAs with
a foreign contractor, the State must receive at least 60 percent of the
after-tax income from the exploitation of its mineral resources. This
share is the equivalent of the constitutional requirement that at least 60
percent of the capital, and hence 60 percent of the income, of mining
companies should remain in Filipino hands.
First, we fail to see how we can properly conclude that the Constitution
mandates the State to extract at least 60 percent of the after-tax
income from a mining company run by a foreign contractor. The
argument is that the Charter requires the State's partner in a co-
production agreement, joint venture agreement or MPSA to be a
Filipino corporation (at least 60 percent owned by Filipino citizens).
We question the logic of this reasoning, premised on a supposedly
parallel or analogous situation. We are, after all, dealing with an
essentially different equation, one that involves different elements. The
Charter did not intend to fix an iron-clad rule on the 60 percent
share, applicable to all situations at all times and in all
circumstances. If ever such was the intention of the framers, they
would have spelt it out in black and white. Verba legis will serve to
dispel unwarranted and untenable conclusions.
Second, if we would bother to do the math, we might better appreciate
the impact (and reasonableness) of what we are demanding of the
foreign contractor. Let us use a simplifiedillustration. Let us base it on
gross revenues of, say, P500. After deducting operating expenses, but
prior to income tax, suppose a mining firm makes a taxable
income of P100. A corporate income tax of 32 percent results in P32 of
taxable income going to the government, leaving the mining firm
withP68. Government then takes 60 percent thereof, equivalent
to P40.80, leaving only P27.20 for the mining firm.
At this point the government has pocketed P32.00 plus P40.80, or a
total of P72.80 for every P100 of taxable income, leaving the mining
firm with only P27.20. But that is not all. The government has also
taken 2 percent excise tax "off the top," equivalent to another P10.
Under the minimum 60 percent proposal, the government nets
around P82.80 (not counting other taxes, duties, fees and charges)
from a taxable income of P100 (assuming gross revenues of P500, for
purposes of illustration). On the other hand, the foreign
contractor, which provided all the capital, equipment and labor, and
took all the entrepreneurial risks - - receives P27.20. One cannot but
wonder whether such a distribution is even remotely equitable and
reasonable, considering the nature of the mining business. The
amount of P82.80 out of P100.00 is really a lot - it does not matter that
we call part of it excise tax or income tax, and another portion
thereof income from exploitation of mineral resources. Some might
think it wonderful to be able to take the lion's share of the benefits. But
we have to ask ourselves if we are really serious in attracting the
investments that are the indispensable and key element in generating
the monetary benefits of which we wish to take the lion's
share. Fairness is a credo not only in law, but also in business.
Third, the 60 percent rule in the petroleum industry cannot be insisted
upon at all times in the mining business. The reason happens to be the
fact that in petroleum operations, the bulk of expenditures is in
exploration, but once the contractor has found and tapped into the
deposit, subsequent investments and expenditures are relatively
minimal. The crude (or gas) keeps gushing out, and the work entailed
is just a matter of piping, transporting and storing. Not so in mineral
mining. The ore body does not pop out on its own. Even after it has
been located, the contractor must continually invest in machineries and
expend funds to dig and build tunnels in order to access and extract
the minerals from underneath hundreds of tons of earth and rock.
As already stated, the numerous intrinsic differences involved in their
respective operations and requirements, cost structures and
investment needs render it highly inappropriate to use petroleum
operations FTAAs as benchmarks for mining FTAAs. Verily, we cannot
just ignore the realities of thedistinctly different situations and
stubbornly insist on the "minimum 60 percent."
The Mining and the Oil Industries
Different From Each Other
To stress, there is no independent showing that the taking of at least a
60 percent share in the after-tax income of a mining company
operated by a foreign contractor is fair and reasonable under most if
not all circumstances. The fact that some petroleum companies like
Shell acceded to such percentage of sharing does not ipso facto mean
that it is per se reasonable and applicable to non-petroleum situations
(that is, mining companies) as well. We can take judicial notice of the
fact that there are, after all, numerous intrinsic differences involved in
their respective operations and equipment or technological
requirements, costs structures and capital investment needs, and
product pricing and markets.
There is no showing, for instance, that mining companies can readily
cope with a 60 percent government share in the same way petroleum
companies apparently can. What we have is a suggestion to enforce
the 60 percent quota on the basis of a disjointed analogy. The only
factor common to the two disparate situations is the extraction of
natural resources.
Indeed, we should take note of the fact that Congress made a
distinction between mining firms and petroleum companies. In
Republic Act No. 7729 - - "An Act Reducing the Excise Tax Rates on
Metallic and Non-Metallic Minerals and Quarry Resources, Amending
for the Purpose Section 151(a) of the National Internal Revenue Code,
as amended" - - the lawmakers fixed the excise tax rate on metallic
and non-metallic minerals at two percent of the actual market value of
the annual gross output at the time of removal. However, in the case of
petroleum, the lawmakers set the excise tax rate for the first taxable
sale at fifteen percent of the fair international market price thereof.
There must have been a very sound reason that impelled Congress to
impose two very dissimilar excise tax rate. We cannot assume, without
proof, that our honorable legislators acted arbitrarily, capriciously and
whimsically in this instance. We cannot just ignore the reality of two
distinctly different situations and stubbornly insist on going "minimum
60 percent."
To repeat, the mere fact that gas and oil exploration contracts grant the
State 60 percent of the net revenues does not necessarily imply that
mining contracts should likewise yield a minimum of 60 percent for the
State. Jumping to that erroneous conclusion is like comparing apples
with oranges. The exploration, development and utilization of gas and
oil are simply different from those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But
once oil in commercial quantities is struck and the wells are put in
place, the risk is relatively over and black gold simply flows out
continuously with comparatively less need for fresh investments and
technology.
On the other hand, even if minerals are found in viable quantities, there
is still need for continuous fresh capital and expertise to dig the mineral
ores from the mines. Just because deposits of mineral ores are found
in one area is no guarantee that an equal amount can be found in the
adjacent areas. There are simply continuing risks and need for more
capital, expertise and industry all the time.
Note, however, that the indirect benefits - - apart from the cash
revenues - - are much more in the mineral industry. As mines are
explored and extracted, vast employment is created, roads and other
infrastructure are built, and other multiplier effects arise. On the other
hand, once oil wells start producing, there is less need for employment.
Roads and other public works need not be constructed continuously. In
fine, there is no basis for saying that government revenues from the oil
industry and from the mineral industries are to be identical all the time.
Fourth, to our mind, the proffered "minimum 60 percent" suggestion
tends to limit the flexibility and tie the hands of government, ultimately
hampering the country's competitiveness in the international market, to
the detriment of the Filipino people. This "you-have-to-give-us-60-
percent-of-after-tax-income-or-we-don't-do - business-with-you"
approach is quite perilous. True, this situation may not seem too
unpalatable to the foreign contractor during good years, when
international market prices are up and the mining firm manages to
keep its costs in check. However, under unfavorable economic and
business conditions, with costs spiraling skywards and minerals prices
plummeting, a mining firm may consider itself lucky to make just
minimal profits.
The inflexible, carved-in-granite demand for a 60 percent government
share may spell the end of the mining venture, scare away potential
investors, and thereby further worsen the already dismal economic
scenario. Moreover, such an unbending or unyielding policy prevents
the government from responding appropriately to changing economic
conditions and shifting market forces. This inflexibility further renders
our country less attractive as an investment option compared with
other countries.
And fifth, for this Court to decree imperiously that the government's
share should be not less than 60 percent of the after-tax income of
FTAA contractors at all times is nothing short of dictating upon the
government. The result, ironically, is that the State ends up losing
control. To avoid compromising the State's full control and supervision
over the exploitation of mineral resources, this Court must back off
from insisting upon a "minimum 60 percent" rule. It is sufficient that the
State has the power and means, should it so decide, to get a 60
percent share (or more) in the contractor's net mining revenues or
after-tax income, or whatever other basis the government may decide
to use in reckoning its share. It is not necessary for it to do so in every
case, regardless of circumstances.
In fact, the government must be trusted, must be accorded the liberty
and the utmost flexibility to deal, negotiate and transact with
contractors and third parties as it sees fit; and upon terms that it
ascertains to be most favorable or most acceptable under the
circumstances, even if it means agreeing to less than 60 percent.
Nothing must prevent the State from agreeing to a share less than that,
should it be deemed fit; otherwise the State will be deprived of full
control over mineral exploitation that the Charter has vested in it.
To stress again, there is simply no constitutional or legal provision
fixing the minimum share of the government in an FTAAat 60 percent
of the net profit. For this Court to decree such minimum is to wade into
judicial legislation, and thereby inordinately impinge on the control
power of the State. Let it be clear: the Court is not against the grant of
more benefits to the State; in fact, the more the better. If during the
FTAA negotiations, the President can secure 60 percent,78 or even 90
percent, then all the better for our people. But, if under the peculiar
circumstances of a specific contract, the President could secure only
50 percent or 55 percent, so be it. Needless to say, the President will
have to report (and be responsible for) the specific FTAA to Congress,
and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly
disadvantageous to the government, the officials responsible for
entering into such a contract on its behalf will have to answer to the
courts for their malfeasance. And the contract provision voided. But
this Court would abuse its own authority should it force the
government's hand to adopt the 60 percent demand of some of our
esteemed colleagues.
Capital and Expertise Provided,
Yet All Risks Assumed by Contractor
Here, we will repeat what has not been emphasized and appreciated
enough: the fact that the contractor in an FTAA provides all the
needed capital, technical and managerial expertise, and technology
required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as
contractor committed, at the very outset, to make capital investments
of up to US$50 million in that single mining project. WMCP claims to
have already poured in well over P800 million into the country as of
February 1998, with more in the pipeline. These resources, valued in
the tens or hundreds of millions of dollars, are invested in a mining
project that provides no assurance whatsoever that any part of the
investment will be ultimately recouped.
At the same time, the contractor must comply with legally imposed
environmental standards and the social obligations, for which it also
commits to make significant expenditures of funds. Throughout, the
contractor assumes all the risks79 of the business, as mentioned
earlier. These risks are indeed very high, considering that the rate of
success in exploration is extremely low. The probability of finding any
mineral or petroleum in commercially viable quantities is estimated to
be about 1:1,000 only. On that slim chance rides the contractor's hope
of recouping investments and generating profits. And when the
contractor has recouped its initial investments in the project, the
government share increases to sixty percent of net benefits - - without
the State ever being in peril of incurring costs, expenses and losses.
And even in the worst possible scenario - - an absence of commercial
quantities of minerals to justify development - - the contractor would
already have spent several million pesos for exploration works, before
arriving at the point in which it can make that determination and decide
to cut its losses. In fact, during the first year alone of the exploration
period, the contractor was already committed to spend not less
than P24 million. The FTAA therefore clearly ensures benefits for the
local economy, courtesy of the contractor.
All in all, this setup cannot be regarded as disadvantageous to
the State or the Filipino people; it certainly cannot be said to
convey beneficial ownership of our mineral resources to foreign
contractors.
Deductions Allowed by the
WMCP FTAA Reasonable
Petitioners question whether the State's weak control might render the
sharing arrangements ineffective. They cite the so-called
"suspicious" deductions allowed by the WMCP FTAA in arriving at the
net mining revenue, which is the basis for computing the government
share. The WMCP FTAA, for instance, allows expenditures for
"development within and outside the Contract Area relating to the
Mining Operations,"80 "consulting fees incurred both inside and outside
the Philippines for work related directly to the Mining
Operations,"81 and "the establishment and administration of field offices
including administrative overheads incurred within and outside the
Philippines which are properly allocatable to the Mining Operations
and reasonably related to the performance of the Contractor's
obligations and exercise of its rights under this Agreement." 82
It is quite well known, however, that mining companies do perform
some marketing activities abroad in respect of selling their mineral
products and by-products. Hence, it would not be improper to allow the
deduction of reasonable consulting fees incurred abroad, as well as
administrative expenses and overheads related to marketing offices
also located abroad - - provided that these deductions are directly
related or properly allocatable to the mining operations and reasonably
related to the performance of the contractor's obligations and exercise
of its rights. In any event, more facts are needed. Until we see how
these provisions actually operate, mere "suspicions" will not suffice to
propel this Court into taking action.
Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective
provisos. Let us start with Section 7.9 of the WMCP FTAA. While
Section 7.7 gives the government a 60 percent share in the net mining
revenues of WMCP from the commencement of commercial
production, Section 7.9 deprives the government of part or all of the
said 60 percent. Under the latter provision, should WMCP's foreign
shareholders - - who originally owned 100 percent of the equity - - sell
60 percent or more of its outstanding capital stock to a Filipino citizen
or corporation, the State loses its right to receive its 60 percent share
in net mining revenues under Section 7.7.
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government
pursuant to Clause 7.7 shall be reduced by 1percent of Net Mining
Revenues for every 1percent ownership interest in the Contractor (i.e.,
WMCP) held by a Qualified Entity.83
Evidently, what Section 7.7 grants to the State is taken away in the
next breath by Section 7.9 without any offsetting compensation to the
State. Thus, in reality, the State has no vested right to receive any
income from the FTAA for the exploitation of its mineral resources.
Worse, it would seem that what is given to the State in Section 7.7
is by mere tolerance of WMCP's foreign stockholders, who can at any
time cut off the government's entire 60 percent share. They can do so
by simply selling 60 percent of WMCP's outstanding capital stock to a
Philippine citizen or corporation. Moreover, the proceeds of such sale
will of course accrue to the foreign stockholders of WMCP, not to the
State.
The sale of 60 percent of WMCP's outstanding equity to a corporation
that is 60 percent Filipino-owned and 40 percent foreign-owned will still
trigger the operation of Section 7.9. Effectively, the State will lose its
right to receive all 60 percent of the net mining revenues of WMCP;
and foreign stockholders will own beneficially up to 64 percent of
WMCP, consisting of the remaining 40 percent foreign equity therein,
plus the 24 percent pro-rata share in the buyer-corporation. 84
In fact, the January 23, 2001 sale by WMCP's foreign stockholder of
the entire outstanding equity in WMCP to Sagittarius Mines, Inc. - - a
domestic corporation at least 60 percent Filipino owned - - may be
deemed to have automatically triggered the operation of Section 7.9,
without need of further action by any party, and removed the State's
right to receive the 60 percent share in net mining revenues.
At bottom, Section 7.9 has the effect of depriving the State of its 60
percent share in the net mining revenues of WMCP without any offset
or compensation whatsoever. It is possible that the inclusion of the
offending provision was initially prompted by the desire to provide
some form of incentive for the principal foreign stockholder in WMCP
to eventually reduce its equity position and ultimately divest in favor of
Filipino citizens and corporations. However, as finally structured,
Section 7.9 has the deleterious effect of depriving government of the
entire 60 percent share in WMCP's net mining revenues, without any
form of compensation whatsoever. Such an outcome is completely
unacceptable.
The whole point of developing the nation's natural resources is to
benefit the Filipino people, future generations included. And the State
as sovereign and custodian of the nation's natural wealth is mandated
to protect, conserve, preserve and develop that part of the national
patrimony for their benefit. Hence, the Charter lays great emphasis on
"real contributions to the economic growth and general welfare of the
country"85 as essential guiding principles to be kept in mind when
negotiating the terms and conditions of FTAAs.
Earlier, we held (1) that the State must be accorded the liberty and the
utmost flexibility to deal, negotiate and transact with contractors and
third parties as it sees fit, and upon terms that it ascertains to be most
favorable or most acceptable under the circumstances, even if that
should mean agreeing to less than 60 percent; (2) that it is not
necessary for the State to extract a 60 percent share in every case and
regardless of circumstances; and (3) that should the State be
prevented from agreeing to a share less than 60 percent as it deems
fit, it will be deprived of the full control over mineral exploitation that the
Charter has vested in it.
That full control is obviously not an end in itself; it exists and subsists
precisely because of the need to serve and protect the national
interest. In this instance, national interest finds particular application in
the protection of the national patrimony and the development and
exploitation of the country's mineral resources for the benefit of the
Filipino people and the enhancement of economic growth and the
general welfare of the country. Undoubtedly, such full control can
be misused and abused, as we now witness.
Section 7.9 of the WMCP FTAA effectively gives away the State's
share of net mining revenues (provided for in Section 7.7) without
anything in exchange. Moreover, this outcome constitutes unjust
enrichment on the part of the local and foreign stockholders of WMCP.
By their mere divestment of up to 60 percent equity in WMCP in favor
of Filipino citizens and/or corporations, the local and foreign
stockholders get a windfall. Their share in the net mining revenues of
WMCP is automatically increased, without their having to pay the
government anything for it. In short, the provision in question is without
a doubt grossly disadvantageous to the government, detrimental to the
interests of the Filipino people, and violative of public policy.
Moreover, it has been reiterated in numerous decisions 86 that the
parties to a contract may establish any agreements, terms and
conditions that they deem convenient; but these should not be contrary
to law, morals, good customs, public order or public policy. 87 Being
precisely violative of anti-graft provisions and contrary to public policy,
Section 7.9 must therefore be stricken off as invalid.
Whether the government officials concerned acceded to that provision
by sheer mistake or with full awareness of the ill consequences, is of
no moment. It is hornbook doctrine that the principle of estoppel does
not operate against the government for the act of its agents, 88 and that
it is never estopped by any mistake or error on their part. 89 It is
therefore possible and proper to rectify the situation at this time.
Moreover, we may also say that the FTAA in question does not involve
mere contractual rights; being impressed as it is with public interest,
the contractual provisions and stipulations must yield to the common
good and the national interest.
Since the offending provision is very much separable 90 from Section
7.7 and the rest of the FTAA, the deletion of Section 7.9 can be done
without affecting or requiring the invalidation of the WMCP FTAA itself.
Such a deletion will preserve for the government its due share of the
benefits. This way, the mandates of the Constitution are complied with
and the interests of the government fully protected, while the business
operations of the contractor are not needlessly disrupted.
Section 7.8(e) of the WMCP FTAA
Also Invalid and Disadvantageous
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
"7.8 The Government Share shall be deemed to include all of the
following sums:
"(a) all Government taxes, fees, levies, costs, imposts, duties and
royalties including excise tax, corporate income tax, customs duty,
sales tax, value added tax, occupation and regulatory fees,
Government controlled price stabilization schemes, any other form of
Government backed schemes, any tax on dividend payments by the
Contractor or its Affiliates in respect of revenues from the Mining
Operations and any tax on interest on domestic and foreign loans or
other financial arrangements or accommodations, including loans
extended to the Contractor by its stockholders;
"(b) any payments to local and regional government, including taxes,
fees, levies, costs, imposts, duties, royalties, occupation and regulatory
fees and infrastructure contributions;
"(c) any payments to landowners, surface rights holders, occupiers,
indigenous people or Claimowners;
"(d) costs and expenses of fulfilling the Contractor's obligations to
contribute to national development in accordance with Clause 10.1(i)
(1) and 10.1(i) (2);
"(e) an amount equivalent to whatever benefits that may be extended
in the future by the Government to the Contractor or to financial or
technical assistance agreement contractors in general;
"(f) all of the foregoing items which have not previously been offset
against the Government Share in an earlier Fiscal Year, adjusted for
inflation." (underscoring supplied)
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for
instance, money spent by the government for the benefit of the
contractor in building roads leading to the mine site should still be
deductible from the State's share in net mining revenues. Allowing this
deduction results in benefiting the contractor twice over. It
constitutes unjust enrichment on the part of the contractor at the
expense of the government, since the latter is effectively being made
to pay twice for the same item. 91 For being grossly disadvantageous
and prejudicial to the government and contrary to public policy, Section
7.8(e) is undoubtedly invalid and must be declared to be without effect.
Fortunately, this provision can also easily be stricken off without
affecting the rest of the FTAA.
Nothing Left Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified
in Section 7.8 are numerous items of deduction from the State's 60
percent share. After taking these into account, will the State ever
receive anything for its ownership of the mineral resources?
chanroblesvirtualawlibrary
We are confident that under normal circumstances, the answer will
be yes. If we examine the various items of "deduction" listed in Section
7.8 of the WMCP FTAA, we will find that they correspond closely to the
components or elements of the basic government share established
in DAO 99-56, as discussed in the earlier part of this Opinion.
Likewise, the balance of the government's 60 percent share - - after
netting out the items of deduction listed in Section 7.8 - -corresponds
closely to the additional government share provided for in DAO 99-
56 which, we once again stress, has nothing at all to do with indirect
taxes. The Ramos-DeVera paper92 concisely presents the fiscal
contribution of an FTAA under DAO 99-56 in this equation:
Receipts from an FTAA = basic gov't share + add'l gov't share
Transposed into a similar equation, the fiscal payments system from
the WMCP FTAA assumes the following formulation:
Government's 60 percent share in net mining revenues of WMCP =
items listed in Sec. 7.8 of the FTAA + balance of Gov't share, payable
4 months from the end of the fiscal year
It should become apparent that the fiscal arrangement under the
WMCP FTAA is very similar to that under DAO 99-56, with the
"balance of government share payable 4 months from end of fiscal
year" being the equivalent of the additional government
share computed in accordance with the "net-mining-revenue-based
option" under DAO 99-56, as discussed above. As we have
emphasized earlier, we find each of the three options for computing
the additional government share - - as presented in DAO 99-56 - - to
be sound and reasonable.
We therefore conclude that there is nothing inherently wrong in
the fiscal regime of the WMCP FTAA, and certainly nothing to
warrant the invalidation of the FTAA in its entirety.
Section 3.3 of the WMCP
FTAA Constitutional
Section 3.3 of the WMCP FTAA is assailed for violating supposed
constitutional restrictions on the term of FTAAs. The provision in
question reads:
"3.3 This Agreement shall be renewed by the Government for a further
period of twenty-five (25) years under the same terms and conditions
provided that the Contractor lodges a request for renewal with the
Government not less than sixty (60) days prior to the expiry of the
initial term of this Agreement and provided that the Contractor is not in
breach of any of the requirements of this Agreement."
Allegedly, the above provision runs afoul of Section 2 of Article XII of
the 1987 Constitution, which states:
"Sec. 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The
exploration, development and utilization of natural resources shall be
under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production,
joint venture or production-sharing agreements with Filipino citizens or
corporations or associations at least sixty per centum of whose capital
is owned by such citizens. Such agreements may be for a period
not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may
be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of
water power, beneficial use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic
waters, territorial sea, and exclusive economic zone, and reserve its
use and enjoyment exclusively to Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural
resources by Filipino citizens, as well as cooperative fish farming, with
priority to subsistence fishermen and fish-workers in rivers, lakes, bays
and lagoons.
"The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large-
scale exploration, development, and utilization of minerals, petroleum,
and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth
and general welfare of the country. In such agreements, the State shall
promote the development and use of local scientific and technical
resources.
"The President shall notify the Congress of every contract entered into
in accordance with this provision, within thirty days from its
execution." 93
We hold that the term limitation of twenty-five years does not apply to
FTAAs. The reason is that the above provision is found within
paragraph 1 of Section 2 of Article XII, which refers to mineral
agreements - - co-production agreements, joint venture agreements
and mineral production-sharing agreements - - which the government
may enter into with Filipino citizens and corporations, at least 60
percent owned by Filipino citizens. The word "such" clearly refers to
these three mineral agreements - - CPAs, JVAs and MPSAs - - not to
FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of
Article XII of the Constitution. It will be noted that there are no term
limitations provided for in the said paragraphs dealing with FTAAs.
This shows that FTAAs are sui generis, in a class of their own. This
omission was obviously a deliberate move on the part of the framers.
They probably realized that FTAAs would be different in many ways
from MPSAs, JVAs and CPAs. The reason the framers did not fix term
limitations applicable to FTAAs is that they preferred to leave the
matter to the discretion of the legislature and/or the agencies involved
in implementing the laws pertaining to FTAAs, in order to give the latter
enough flexibility and elbow room to meet changing circumstances.
Note also that, as previously stated, the exploratory phrases of an
FTAA lasts up to eleven years. Thereafter, a few more years would be
gobbled up in start-up operations. It may take fifteen years before an
FTAA contractor can start earning profits. And thus, the period of 25
years may really be short for an FTAA. Consider too that in this kind of
agreement, the contractor assumes all entrepreneurial risks. If no
commercial quantities of minerals are found, the contractor bears all
financial losses. To compensate for this long gestation period and
extra business risks, it would not be totally unreasonable to allow it to
continue EDU activities for another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the
contractor the power to compel the government to renew the WMCP
FTAA for another 25 years and deprives the State of any say on
whether to renew the contract.
While we agree that Section 3.3 could have been worded so as to
prevent it from favoring the contractor, this provision does not violate
any constitutional limits, since the said term limitation does not apply at
all to FTAAs. Neither can the provision be deemed in any manner to be
illegal, as no law is being violated thereby. It is certainly not illegal for
the government to waive its option to refuse the renewal of a
commercial contract.
Verily, the government did not have to agree to Section 3.3. It could
have said "No" to the stipulation, but it did not. It appears that, in the
process of negotiations, the other contracting party was able to
convince the government to agree to the renewal terms. Under the
circumstances, it does not seem proper for this Court to intervene and
step in to undo what might have perhaps been a possible
miscalculation on the part of the State. If government believes that it is
or will be aggrieved by the effects of Section 3.3, the remedy is the
renegotiation of the provision in order to provide the State the option to
not renew the FTAA.
Financial Benefits for Foreigners
Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid
ourselves of the false belief that the Constitution somehow forbids
foreign-owned corporations from deriving financial benefits from the
development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from
acquiring and enjoying "beneficial interest" in the development of
Philippine natural resources. The State itself need not directly
undertake exploration, development, and utilization activities.
Alternatively, the Constitution authorizes the government to enter into
joint venture agreements (JVAs), co-production agreements (CPAs)
and mineral production sharing agreements (MPSAs) with contractors
who are Filipino citizens or corporations that are at least 60 percent
Filipino-owned. They may do the actual "dirty work" - - the mining
operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent
individual and/or corporatenon-Filipino stakeholders obviously
participate in the beneficial interest derived from the development and
utilization of our natural resources. They may receive by way of
dividends, up to 40 percent of the contractor's earnings from the mining
project. Likewise, they may have a say in the decisions of the board of
directors, since they are entitled to representation therein to the extent
of their equity participation, which the Constitution permits to be up to
40 percent of the contractor's equity. Hence, the non-Filipino
stakeholders may in that manner also participate in the management of
the contractor's natural resource development work. All of this is
permitted by our Constitution, for any natural resource, and without
limitation even in regard to the magnitude of the mining project or
operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or
constitutionally objectionable about the idea of foreign individuals and
entities having or enjoying "beneficial interest" in - - and participating in
the management of operations relative to - - the exploration,
development and utilization of our natural resources.
FTAA More Advantageous
Than Other Schemes
Like CPA, JVA and MPSA
A final point on the subject of beneficial interest. We believe the FTAA
is a more advantageous proposition for the government as compared
with other agreements permitted by the Constitution. In a CPA that the
government enters into with one or more contractors, the
government shall provide inputs to the mining operations other than
the mineral resource itself. 94
In a JVA, a JV company is organized by the government and the
contractor, with both parties having equity shares (investments); and
the contractor is granted the exclusive right to conduct mining
operations and to extract minerals found in the area. 95 On the other
hand, in an MPSA, the government grants the contractor the exclusive
right to conduct mining operations within the contract area and shares
in the gross output; and the contractor provides the necessary
financing, technology, management and manpower.
The point being made here is that, in two of the three types of
agreements under consideration, thegovernment has to ante up some
risk capital for the enterprise. In other words, government funds (public
moneys) are withdrawn from other possible uses, put to work in the
venture and placed at risk in case the venture fails. This
notwithstanding, management and control of the operations of the
enterprise are - - in all three arrangements - - in the hands of the
contractor, with the government being mainly a silent partner. The
three types of agreement mentioned above apply to any natural
resource, without limitation and regardless of the size or magnitude of
the project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph
4 of Section 2 of Article XII, the FTAA is limited to large-scale projects
and only for minerals, petroleum and other mineral oils. Here, the
Constitution removes the 40 percent cap on foreign ownership and
allows the foreign corporation to own up to 100 percent of the equity.
Filipino capital may not be sufficient on account of the size of the
project, so the foreign entity may have to ante up all the risk capital.
Correlatively, the foreign stakeholder bears up to 100 percent of the
risk of loss if the project fails. In respect of the particular FTAA granted
to it, WMCP (then 100 percent foreign owned) was responsible, as
contractor, for providing the entire equity, including all the inputs for the
project. It was to bear 100 percent of the risk of loss if the project
failed, but its maximum potential "beneficial interest" consisted only of
40 percent of the net beneficial interest, because the other 60 percent "Long term, high profit mining translates into higher revenues for
is the share of the government, which will never be exposed to any risk government, more decent jobs for the population, more raw materials
of loss whatsoever. to feed the engines of downstream and allied industries, and improved
chances of human resource and countryside development by creating
self-reliant communities away from urban centers.
In consonance with the degree of risk assumed, the FTAA vested in
WMCP the day-to-day management of the mining operations. Still such
management is subject to the overall control and supervision of the xxx
State in terms of regular reporting, approvals of work programs and
budgets, and so on.
"Against a fragile and finite environment, it is sustainability that holds
the key. In sustainable mining, we take a middle ground where both
So, one needs to consider in relative terms, the costs of inputs for, production and protection goals are balanced, and where parties-in-
degree of risk attendant to, and benefits derived or to be derived from interest come to terms."
a CPA, a JVA or an MPSA vis - Ã -vis those pertaining to an FTAA. It
may not be realistically asserted that the foreign grantee of an FTAA is
Neither has the present leadership been remiss in addressing the
being unduly favored or benefited as compared with a foreign
concerns of sustainable mining operations. Recently, on January 16,
stakeholder in a corporation holding a CPA, a JVA or an MPSA. Seen
2004 and April 20, 2004, President Gloria Macapagal Arroyo issued
the other way around, the government is definitely better off with an
Executive Orders Nos. 270 and 270-A, respectively, "to
FTAA than a CPA, a JVA or an MPSA.
promote responsible mineral resources exploration, development and
utilization, in order to enhance economic growth, in a manner that
Developmental Policy on the Mining Industry adheres to the principles of sustainable development and with due
regard for justice and equity, sensitivity to the culture of the Filipino
people and respect for Philippine sovereignty." 98
During the Oral Argument and in their Final Memorandum, petitioners
repeatedly urged the Court to consider whether mining as an industry
and economic activity deserved to be accorded priority, preference and REFUTATION OF DISSENTS
government support as against, say, agriculture and other activities in
which Filipinos and the Philippines may have an "economic
The Court will now take up a number of other specific points raised in
advantage." For instance, a recent US study 96 reportedly examined the
the dissents of Justices Carpio and Morales.
economic performance of all local US counties that were dependent on
mining and 20 percent of whose labor earnings between 1970 and
2000 came from mining enterprises. 1. Justice Morales introduced us to Hugh Morgan, former president
and chief executive officer of Western Mining Corporation (WMC) and
former president of the Australian Mining Industry Council, who
The study - - covering 100 US counties in 25 states dependent on
spearheaded the vociferous opposition to the filing by aboriginal
mining - - showed that per capita income grew about 30 percent less in
peoples of native title claims against mining companies in Australia in
mining-dependent communities in the 1980s and 25 percent less for
the aftermath of the landmark Mabo decision by the Australian High
the entire period 1980 to 2000; the level of per capita income was also
Court. According to sources quoted by our esteemed colleague,
lower. Therefore, given the slower rate of growth, the gap between
Morgan was also aracist and a bigot. In the course of
these and other local counties increased.
protesting Mabo, Morgan allegedly uttered derogatory remarks
belittling the aboriginal culture and race.
Petitioners invite attention to the OXFAM America Report's warning to
developing nations that mining brings with it serious economic
An unwritten caveat of this introduction is that this Court should be
problems, including increased regional inequality, unemployment and
careful not to permit the entry ofthe likes of Hugh Morgan and his
poverty. They also cite the final report 97 of the Extractive Industries
hordes of alleged racist-bigots at WMC. With all due respect, such
Review project commissioned by the World Bank (the WB-EIR Report),
scare tactics should have no place in the discussion of this case. We
which warns of environmental degradation, social disruption, conflict,
are deliberating on the constitutionality of RA 7942, DAO 96-40 and
and uneven sharing of benefits with local communities that bear the
the FTAA originally granted to WMCP, which had been transferred to
negative social and environmental impact. The Report suggests that
Sagittarius Mining, a Filipino corporation. We are not discussing the
countries need to decide on the best way to exploit their natural
apparition of white Anglo-Saxon racists/bigots massing at our gates.
resources, in order to maximize the value added from the development
of their resources and ensure that they are on the path to sustainable
development once the resources run out. 2. On the proper interpretation of the phrase agreements involving
either technical or financial assistance, Justice Morales points out that
at times we "conveniently omitted" the use of the disjunctive either
Whatever priority or preference may be given to mining vis - Ã -vis
or, which according to her denotes restriction; hence the phrase must
other economic or non-economic activities is a question of policy that
be deemed to connote restriction and limitation.
the President and Congress will have to address; it is not for this Court
to decide. This Court declares what the Constitution and the laws say,
interprets only when necessary, and refrains from delving into matters But, as Justice Carpio himself pointed out during the Oral Argument,
of policy. the disjunctive phrase either technical or financial assistance would,
strictly speaking, literally mean that a foreign contractor mayprovide
only one or the other, but not both. And if both technical and financial
Suffice it to say that the State control accorded by the Constitution over
assistance were required for a project, the State would have to deal
mining activities assures a proper balancing of interests. More
with at least two different foreign contractors - - one for financial and
pointedly, such control will enable the President to demand the best
the other for technical assistance. And following on that, a foreign
mining practices and the use of the best available technologies to
contractor, though very much qualified to provide both kinds of
protect the environment and to rehabilitate mined-out areas. Indeed,
assistance, would nevertheless be prohibited from providing one kind
under the Mining Law, the government can ensure the protection of the
as soon as it shall have agreed to provide the other.
environment during and after mining. It can likewise provide for the
mechanisms to protect the rights of indigenous communities, and
thereby mold a more socially-responsive, culturally-sensitive and But if the Court should follow this restrictive and literal construction,
sustainable mining industry. can we really find two (or more) contractors who are willing to
participate in one single project - - one to provide the "financial
assistance" only and the other the "technical assistance" exclusively; it
Early on during the launching of the Presidential Mineral Industry
would be excellent if these two or more contractors happen to be
Environmental Awards on February 6, 1997, then President Fidel V.
willing and are able to cooperate and work closely together on the
Ramos captured the essence of balanced and sustainable mining in
same project (even if they are otherwise competitors). And it would be
these words:
superb if no conflicts would arise between or among them in the entire
course of the contract. But what are the chances things will turn out the 1987 Constitution did not care much about alleviating the
this way in the real world? To think that the framers deliberately retardation or delay in the development and utilization of our natural
imposed this kind of restriction is to say that they were either resources,why did they bother to write paragraph 4 at all? Were they
exceedingly optimistic, or incredibly naïve. This begs the question - - merely paying lip service to large-scale exploration, development and
What laudable objective or purpose could possibly be served by such utilization? They could have just completely ignored the subject matter
strict and restrictive literal interpretation?chanroblesvirtualawlibrary and left it to be dealt with through a future constitutional amendment.
But we have to harmonize every part of the Constitution and to
interpret each provision in a manner that would give life and meaning
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service
to it and to the rest of the provisions. It is obvious that a literal
contract is not a contract or property right which merits protection by
interpretation of paragraph 4 will render it utterly inutile and
the due process clause of the Constitution, but merely a license or
inoperative.
privilege which may be validly revoked, rescinded or withdrawn by
executive action whenever dictated by public interest or public welfare.
6. According to Justice Morales, the deliberations of the Constitutional
Commission do not support our contention that the framers, by
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy
specifying such agreements involving financial or technical assistance,
Executive Secretary as authority. The latter cases dealt specifically
necessarily gave implied assent to everything that these agreements
with timber licenses only. Oposa allegedly reiterated that a license is
implicitly entailed, or that could reasonably be deemed necessary to
merely a permit or privilege to do what otherwise would be unlawful,
make them tenable and effective, including management authority in
and is not a contract between the authority, federal, state or municipal,
the day-to-day operations. As proof thereof, she quotes one single
granting it and the person to whom it is granted; neither is it property or
passage from the ConCom deliberations, consisting of an exchange
a property right, nor does it create a vested right; nor is it taxation.
among Commissioners Tingson, Garcia and Monsod.
Thus this Court held that the granting of license does not create
irrevocable rights, neither is it property or property rights.
However, the quoted exchange does not serve to contradict our
argument; it even bolsters it. Comm. Christian Monsod was quoted as
Should Oposa be deemed applicable to the case at bar, on the
saying: "xxx I think we have to make a distinction that it is not really
argument that natural resources are also involved in this situation? We
realistic to say that we will borrow on our own terms. Maybe we can
do not think so. A grantee of a timber license, permit or license
say that we inherited unjust loans, and we would like to repay these on
agreement gets to cut the timber already growing on the surface; it
terms that are not prejudicial to our own growth. But the general
need not dig up tons of earth to get at the logs. In a logging
statement that we should only borrow on our own terms is a bit
concession, the investment of the licensee is not as substantial as the
unrealistic." Comm. Monsod is one who knew whereof he spoke.
investment of a large-scale mining contractor. If a timber license were
revoked, the licensee packs up its gear and moves to a new area
applied for, and starts over; what it leaves behind are mainly the trails 7. Justice Morales also declares that the optimal time for the
leading to the logging site. conversion of an FTAA into an MPSA is after completion of the
exploration phase and just before undertaking the development and
construction phase, on account of the fact that the requirement for a
In contrast, the mining contractor will have sunk a great deal of money
minimum investment of $50 million is applicable only during the
(tens of millions of dollars) into the ground, so to speak, for exploration
development, construction and utilization phase, but not during the
activities, for development of the mine site and infrastructure, and for
exploration phase, when the foreign contractor need merely comply
the actual excavation and extraction of minerals, including the
with minimum ground expenditures. Thus by converting, the foreign
extensive tunneling work to reach the ore body. The cancellation of the
contractor maximizes its profits by avoiding its obligation to make the
mining contract will utterly deprive the contractor of its investments
minimum investment of $50 million.
(i.e., prevent recovery of investments), most of which cannot be pulled
out.
This argument forgets that the foreign contractor is in the game
precisely to make money. In order to come anywhere near profitability,
To say that an FTAA is just like a mere timber license or permit and
the contractor must first extract and sell the mineral ore. In order to do
does not involve contract or property rights which merit protection by
that, it must also develop and construct the mining facilities, set up its
the due process clause of the Constitution, and may therefore be
machineries and equipment and dig the tunnels to get to the deposit.
revoked or cancelled in the blink of an eye, is to adopt a well-nigh
The contractor is thus compelled to expend funds in order to make
confiscatory stance; at the very least, it is downright dismissive of the
profits. If it decides to cut back on investments and expenditures, it will
property rights of businesspersons and corporate entities that have
necessarily sacrifice the pace of development and utilization; it will
investments in the mining industry, whose investments, operations and
necessarily sacrifice the amount of profits it can make from the mining
expenditures do contribute to the general welfare of the people, the
operations. In fact, at certain less-than-optimal levels of operation, the
coffers of government, and the strength of the economy. Such a
stream of revenues generated may not even be enough to cover
pronouncement will surely discourage investments (local and foreign)
variable expenses, let alone overhead expenses; this is a dismal
which are critically needed to fuel the engine of economic growth and
situation anyone would want to avoid. In order to make money, one
move this country out of the rut of poverty. In sum, Oposa is not
has to spend money. This truism applies to the mining industry as well.
applicable.

8. Mortgaging the minerals to secure a foreign FTAA contractor's

4. Justice Morales adverts to the supposedly "clear intention" of the
obligations is anomalous, according to Justice Morales since the
framers of the Constitution to reserve our natural resources exclusively
contractor was from the beginning obliged to provide all financing
for the Filipino people. She then quoted from the records of the
needed for the mining operations. However, the mortgaging of
ConCom deliberations a passage in which then Commissioner Davide
minerals by the contractor does not necessarily signify that the
explained his vote, arguing in the process that aliens ought not be
contractor is unable to provide all financing required for the project, or
allowed to participate in the enjoyment of our natural resources. One
that it does not have the financial capability to undertake large-scale
passage does not suffice to capture the tenor or substance of the
operations. Mortgaging of mineral products, just like the assignment
entire extensive deliberations of the commissioners, or to reveal the
(by way of security) of manufactured goods and goods in inventory,
clear intention of the framers as a group. A re-reading of the entire
and the assignment of receivables, is an ordinary requirement of
deliberations (quoted here earlier) is necessary if we are to understand
banks, even in the case of clients with more than sufficient financial
the true intent of the framers.
resources. And nowadays, even the richest and best managed
corporations make use of bank credit facilities - - it does not
5. Since 1935, the Filipino people, through their Constitution, have necessarily signify that they do not have the financial resources or are
decided that the retardation or delay in the exploration, development or unable to provide the financing on their own; it is just a manner of
utilization of the nation's natural resources is merely secondary to the maximizing the use of their funds.
protection and preservation of their ownership of the natural resources,
so says Justice Morales, citing Aruego. If it is true that the framers of
9. Does the contractor in reality acquire the surface rights "for free," by
virtue of the fact that it is entitled to reimbursement for the costs of
acquisition and maintenance, adjusted for inflation? We think not. The
"reimbursement" is possible only at the end of the term of the contract,
when the surface rights will no longer be needed, and the land
previously acquired will have to be disposed of, in which case the
contractor gets reimbursement from the sales proceeds. The
contractor has to pay out the acquisition price for the land. That money
will belong to the seller of the land. Only if and when the land is finally
sold off will the contractor get any reimbursement. In other words, the
contractor will have been cash-out for the entire duration of the term of
the contract - - 25 or 50 years, depending. If we calculate the cost of
money at say 12 percent per annum, that is the cost or opportunity loss
to the contractor, in addition to the amount of the acquisition price. 12
percent per annum for 50 years is 600 percent; this, without any
compounding yet. The cost of money is therefore at least 600 percent
of the original acquisition cost; it is in addition to the acquisition
cost. "For free"? Not by a long shot.
10. The contractor will acquire and hold up to 5,000 hectares? We
doubt it. The acquisition by the State of land for the contractor is just to
enable the contractor to establish its mine site, build its facilities,
establish a tailings pond, set up its machinery and equipment, and dig
mine shafts and tunnels, etc. It is impossible that the surface
requirement will aggregate 5,000 hectares. Much of the operations will
consist of the tunneling and digging underground, which will not require
possessing or using any land surface. 5,000 hectares is way too much
for the needs of a mining operator. It simply will not spend its cash to
acquire property that it will not need; the cash may be better employed
for the actual mining operations, to yield a profit.
pertains to the imposition oftaxes, duties and fees. This power was not
delegated to the DENR secretary. But the power to negotiate and enter
into FTAAs was withheld from Congress, and reserved for the
President. In determining the sharing of mining benefits, i.e., in
specifying what the phrase among other thingsinclude, the President
(through the secretary acting in his/her behalf) was not determining the
amount or rate of taxes, duties and fees, but rather the amount of
INCOME to be derived from minerals to be extracted and sold, income
which belongs to the State as owner of the mineral resources. We may
say that, in the second paragraph of Section 81, the legislature in a
sense intruded partially into the President's sphere of authority when
the former provided that
"The Government share in financial or technical assistance agreement
shall consist of, among other things, the contractor's corporate income
tax, excise tax, special allowance, withholding tax due from the
contractor's foreign stockholders arising from dividend or interest
payments to the said foreign stockholder in case of a foreign national
and all such other taxes, duties and fees as provided for under existing
laws."(Italics supplied)
But it did not usurp the President's authority since the provision merely
included the enumerated items as part of the government share,
without foreclosing or in any way preventing (as in fact Congress could
not validly prevent) the President from determining what constitutes the
State's compensation derived from FTAAs. In this case, the President
in effect directed the inclusion or addition of "other
things," viz., INCOME for the owner of the resources, in the
government's share, while adopting the items enumerated by
Congress as part of the government share also.

11. Justice Carpio claims that the phrase among other things (found in

12. Justice Carpio's insistence on applying the ejusdem generis rule of
the second paragraph of Section 81 of the Mining Act) is being
statutory construction to the phrase among other things is therefore
incorrectly treated as a delegation of legislative power to the DENR
useless, and must fall by the wayside. There is no point trying to
secretary to issue DAO 99-56 and prescribe the formulae therein on
construe that phrase in relation to the enumeration of taxes, duties and
the State's share from mining operations. He adds that the
fees found in paragraph 2 of Section 81, precisely because "the
phrase among other things was not intended as a delegation of
constitutional power to prescribe the sharing of mining income
legislative power to the DENR secretary, much less could it be deemed
between the State and mining companies," to quote Justice Carpio
a valid delegation of legislative power, since there is nothing in the
pursuant to an FTAA is constitutionally lodged with the President,
second paragraph of Section 81 which can be said to grant any
not with Congress. It thus makes no sense to persist in giving the
delegated legislative power to the DENR secretary. And even if there
phrase among other things a restricted meaning referring only to taxes,
were, such delegation would be void, for lack of any standards by
duties and fees.
which the delegated power shall be exercised.

13. Strangely, Justice Carpio claims that the DENR secretary can
While there is nothing in the second paragraph of Section 81 which
change the formulae in DAO 99-56 any time even without the approval
can directly be construed as a delegation of legislative power to the
of the President, and the secretary is the sole authority to determine
DENR secretary, it does not mean that DAO 99-56 is invalid per se, or
the amount of consideration that the State shall receive in an FTAA,
that the secretary acted without any authority or jurisdiction in issuing
because Section 5 of the DAO states that "xxx any amendment of an
DAO 99-56. As we stated earlier in our Prologue, "Who or what organ
FTAA other than the provision on fiscal regime shall require the
of government actually exercises this power of control on behalf of the
negotiation with the Negotiation Panel and the recommendation of the
State? The Constitution is crystal clear: the President. Indeed, the
Secretary for approval of the President xxx". Allegedly, because of that
Chief Executive is the official constitutionally mandated to 'enter into
provision, if an amendment in the FTAA involves non-fiscal matters,
agreements with foreign owned corporations.' On the other hand,
the amendment requires approval of the President, but if the
Congress may review the action of the President once it is notified of
amendment involves a change in the fiscal regime, the DENR
'every contract entered into in accordance with this [constitutional]
secretary has the final authority, and approval of the President may be
provision within thirty days from its execution.'" It is the President who
dispensed with; hence the secretary is more powerful than the
is constitutionally mandated to enter into FTAAs with foreign
President.
corporations, and in doing so, it is within the President's prerogative to
specify certain terms and conditions of the FTAAs, for example, the
fiscal regime of FTAAs - - i.e., the sharing of the net mining revenues We believe there is some distortion resulting from the quoted provision
between the contractor and the State. being taken out of context. Section 5 of DAO 99-56 reads as follows:

Being the President's alter ego with respect to the control and
supervision of the mining industry, the DENR secretary, acting for the
President, is necessarily clothed with the requisite authority and power
to draw up guidelines delineating certain terms and conditions, and
specifying therein the terms of sharing of benefits from mining, to be
applicable to FTAAs in general. It is important to remember that DAO
99-56 has been in existence for almost six years, and has not been
amended or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated
legislative power. The legislature did not delegate the power to
determine the nature, extent and composition of the items that would
come under the phrase among other things. The legislature's power
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the
effectivity of this Administrative Order shall remain valid and be
recognized by the Government: Provided, That should a Contractor
desire to amend its FTAA, it shall do so by filing a Letter of Intent (LOI)
to the Secretary thru the Director. Provided, further, That if the
Contractor desires to amend the fiscal regime of its FTAA, it may do so
by seeking for the amendment of its FTAA's whole fiscal regime by
adopting the fiscal regime provided hereof: Provided, finally, That any
amendment of an FTAA other than the provision on fiscal regime shall
require the negotiation with the Negotiating Panel and the
recommendation of the Secretary for approval of the President of the
Republic of the Philippines." (underscoring supplied)
It looks like another case of misapprehension. The proviso being
objected to by Justice Carpio is actually preceded by a phrase that
requires a contractor desiring to amend the fiscal regime of its FTAA,
to amend the same by adopting the fiscal regime prescribed in DAO
99-56 - - i.e., solely in that manner,  and in no other. Obviously, since
DAO 99-56 was issued by the secretary under the authority and
with the presumed approval of the President, the amendment of
an FTAA by merely adopting the fiscal regime prescribed in said
DAO 99-56 (and nothing more) need not have the express
clearance of the President anymore. It is as if the same had been
pre-approved. We cannot fathom the complaint that that makes the
secretary more powerful than the President, or that the former is trying
to hide things from the President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which
states "[A]ll FTAAs approved prior to the effectivity of this
Administrative Order shall remain valid and be recognized by the
Government", Justice Carpio concludes that said Administrative Order
allegedly exempts FTAAs approved prior to its effectivity - - like the
WMCP FTAA - - from having to pay the State any share from their
mining income, apart from taxes, duties and fees.
We disagree. What we see in black and white is the statement that the
FTAAs approved before the DAO came into effect are to continue to be
valid and will be recognized by the State. Nothing is said about their
fiscal regimes. Certainly, there is no basis to claim that the contractors
under said FTAAs were being exempted from paying the government a
share in their mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt
from paying the government share. The WMCP FTAA has its own
fiscal regime - - Section 7.7 - - which gives the government a 60
percent share in the net mining revenues of WMCP from the
commencement of commercial production.
For that very reason, we have never said that DAO 99-56 is the basis
for claiming that the WMCP FTAA has a consideration. Hence, we find
quite out of place Justice Carpio's statement that ironically, DAO 99-
56, the very authority cited to support the claim that the WMCP FTAA
has a consideration, does not apply to the WMCP FTAA. By its own
express terms, DAO 99-56 does not apply to FTAAs executed before
the issuance of DAO 99-56, like the WMCP FTAA. The majority's
position has allegedly no leg to stand on since even DAO 99-56,
assuming it is valid, cannot save the WMCP FTAA from want of
consideration. Even assuming arguendo that DAO 99-56 does not
apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own
fiscal regime, found in Section 7.7 thereof. Hence, there is no such
thing as "want of consideration" here.
Still more startling is this claim: The majority supposedly agrees that
the provisions of the WMCP FTAA, which grant a sham consideration
to the State, are void. Since the majority agrees that the WMCP FTAA
has a sham consideration, the WMCP FTAA thus lacks the third
element of a valid contract. The Decision should declare the WMCP
FTAA void for want of consideration unless it treats the contract as an
MPSA under Section 80. Indeed the only recourse of WMCP to save
the validity of its contract is to convert it into an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are
provisions grossly disadvantageous to government and detrimental to
the interests of the Filipino people, as well as violative of public policy,
and must therefore be stricken off as invalid. Since the offending
provisions are very much separable from Section 7.7 and the rest of
the FTAA, the deletion of Sections 7.9 and 7.8(e) can be done without
affecting or requiring the invalidation of the WMCP FTAA itself, and
such deletion will preserve for government its due share of the 60
percent benefits. Therefore, the WMCP FTAA is NOT bereft of a valid
consideration (assuming for the nonce that indeed this is the
"consideration" of the FTAA).
SUMMATION
To conclude, a summary of the key points discussed above is now in
order.
The Meaning of "Agreements Involving
Either Technical or Financial Assistance"
Applying familiar principles of constitutional construction to the
phrase agreements involving either technical or financial assistance,
the framers' choice of words does not indicate the intent to exclude
other modes of assistance, but rather implies that there are other
things being included or possibly being made part of the agreement,
apart from financial or technical assistance. The drafters avoided the
use of restrictive and stringent phraseology; a verba legis scrutiny of
Section 2 of Article XII of the Constitution discloses not even a hint of a
desire to prohibit foreign involvement in the management or operation
of mining activities, or to eradicate service contracts. Such moves
would necessarily imply an underlying drastic shift in fundamental
economic and developmental policies of the State. That change
requires a much more definite and irrefutable basis than mere
omission of the words "service contract" from the new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph
leads to logical inconsistencies. A constitutional provision specifically
allowing foreign-owned corporations to render financial or
technicalassistance in respect of mining or any other commercial
activity was clearly unnecessary; the provision was meant to refer to
more than mere financial or technical assistance.
Also, if paragraph 4 permits only agreements for financial or technical
assistance, there would be no point in requiring that they be "based on
real contributions to the economic growth and general welfare of the
country." And considering that there were various long-term service
contracts still in force and effect at the time the new Charter was being
drafted, the absence of any transitory provisions to govern the
termination and closing-out of the then existing service contracts
strongly militates against the theory that the mere omission of "service
contracts" signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is
therefore unavoidable, and a careful scrutiny thereof conclusively
shows that the ConCom members discussed agreements involving
either technical or financial assistance in the same sense as service
contracts and used the terms interchangeably. The drafters in fact
knew that the agreements with foreign corporations were going to
entail not mere technical or financial assistance but, rather, foreign
investment in and management of an enterprise for large-
scale exploration, development and utilization of minerals.
The framers spoke about service contracts as the concept was
understood in the 1973 Constitution. It is obvious from their
discussions that they did not intend to ban or eradicate service
contracts. Instead, they were intent on crafting provisions to put in
place safeguards that would eliminate or minimize the abuses
prevalent during the martial law regime. In brief, they were going to
permit service contracts with foreign corporations as contractors,
but with safety measures to prevent abuses, as an exception to
the general norm established in the first paragraph of Section 2 of
Article XII, which reserves or limits to Filipino citizens and
corporations at least 60 percent owned by such citizens the
exploration, development and utilization of mineral or petroleum
resources. This was prompted by the perceived insufficiency of
Filipino capital and the felt need for foreign expertise in the EDU of
mineral resources.
Despite strong opposition from some ConCom members during the
final voting, the Article on the National Economy and Patrimony - -
including paragraph 4 allowing service contracts with foreign
corporations as an exception to the general norm in paragraph 1 of
Section 2 of the same Article - - was resoundingly and overwhelmingly
approved.
The drafters, many of whom were economists, academicians, lawyers,
businesspersons and politicians knew that foreign entities will not enter
into agreements involving assistance without requiring measures of
protection to ensure the success of the venture and repayment of their
investments, loans and other financial assistance, and ultimately to
protect the business reputation of the foreign corporations. The
drafters, by specifying such agreements involving assistance,
necessarily gave implied assent to everything that these agreements
entailed or that could reasonably be deemed necessary to make them
tenable and effective - - including management authority with respect
to the day-to-day operations of the enterprise, and measures for the
protection of the interests of the foreign corporation, at least to the
extent that they are consistent with Philippine sovereignty over natural
resources, the constitutional requirement of State control, and
beneficial ownership of natural resources remaining vested in the
State.
From the foregoing, it is clear that agreements involving either
technical or financial assistancereferred to in paragraph 4 are in
fact service contracts, but such new service contracts are between
foreign corporations acting as contractors on the one hand, and on the
other hand government as principal or "owner" (of the works), whereby
the foreign contractor provides the capital, technology and technical
know-how, and managerial expertise in the creation and operation of
the large-scale mining/extractive enterprise, and government through
its agencies (DENR, MGB) actively exercises full control and
supervision over the entire enterprise.
Such service contracts may be entered into only with respect to
minerals, petroleum and other mineral oils. The grant of such service
contracts is subject to several safeguards, among them: (1) that the
service contract be crafted in accordance with a general law setting
standard or uniform terms, conditions and requirements; (2) the
President be the signatory for the government; and (3) the President
report the executed agreement to Congress within thirty days.
Ultimate Test: Full State Control
To repeat, the primacy of the principle of the State's sovereign
ownership of all mineral resources, and its full control and supervision
over all aspects of exploration, development and utilization of natural
resources must be upheld. But "full control and supervision" cannot be
taken literally to mean that the State controls and
supervises everything down to the minutest details and makes all
required actions, as this would render impossible the legitimate
exercise by the contractor of a reasonable degree of management
prerogative and authority, indispensable to the proper functioning of
the mining enterprise. Also, government need not micro-manage
mining operations and day-to-day affairs of the enterprise in order to
be considered as exercising full control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a
degree of control sufficient to enable the State to direct, restrain,
regulate and govern the affairs of the extractive enterprises. Control by
the State may be on a macro level, through the establishment of
policies, guidelines, regulations, industry standards and similar
measures that would enable government to regulate the conduct of
affairs in various enterprises, and restrain activities deemed not
desirable or beneficial, with the end in view of ensuring that these
enterprises contribute to the economic development and general
welfare of the country, conserve the environment, and uplift the well-
being of the local affected communities. Such a degree of control
would be compatible with permitting the foreign contractor sufficient
and reasonable management authority over the enterprise it has
invested in, to ensure efficient and profitable operation.
Government Granted Full Control
by RA 7942 and DAO 96-40
Baseless are petitioners' sweeping claims that RA 7942 and its
Implementing Rules and Regulations make it possible for FTAA
contracts to cede full control and management of mining enterprises
over to fully foreign owned corporations. Equally wobbly is the
assertion that the State is reduced to a passive regulator dependent on
submitted plans and reports, with weak review and audit powers and
little say in the decision-making of the enterprise, for which reasons
"beneficial ownership" of the mineral resources is allegedly ceded to
the foreign contractor.
As discussed hereinabove, the State's full control and supervision over
mining operations are ensured through the following provisions in RA
7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l), (m) and
(o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as well as the
following provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2),
53[(a-4) and (d)], 54, 56[(g), (h), (l), (m) and (n)], 56(2), 60, 66, 144,
168, 171 and 270, and also Chapters XV, XVI and XXIV.
Through the foregoing provisions, the government agencies concerned
are empowered to approve or disapprove - - hence, in a position to
influence, direct, and change - - the various work programs and the
corresponding minimum expenditure commitments for each of the
exploration, development and utilization phases of the enterprise.
Once they have been approved, the contractor's compliance with its
commitments therein will be monitored. Figures for mineral production
and sales are regularly monitored and subjected to government review,
to ensure that the products and by-products are disposed of at the best
prices; copies of sales agreements have to be submitted to and
registered with MGB.
The contractor is mandated to open its books of accounts and records
for scrutiny, to enable the State to determine that the government
share has been fully paid. The State may likewise compel compliance
by the contractor with mandatory requirements on mine safety, health
and environmental protection, and the use of anti-pollution technology
and facilities. The contractor is also obligated to assist the
development of the mining community, and pay royalties to the
indigenous peoples concerned. And violation of any of the FTAA's
terms and conditions, and/or non-compliance with statutes or
regulations, may be penalized by cancellation of the FTAA. Such
sanction is significant to a contractor who may have yet to recover the
tens or hundreds of millions of dollars sunk into a mining project.
Overall, the State definitely has a pivotal say in the operation of the
individual enterprises, and can set directions and objectives, detect
deviations and non-compliances by the contractor, and enforce
compliance and impose sanctions should the occasion arise. Hence,
RA 7942 and DAO 96-40 vest in government more than a sufficient
degree of control and supervision over the conduct of mining
operations.
Section 3(aq) of RA 7942 was objected to as being unconstitutional for
allowing a foreign contractor to apply for and hold an exploration
permit. During the exploration phase, the permit grantee (and
prospective contractor) is spending and investing heavily in exploration
activities without yet being able to extract minerals and generate
revenues. The exploration permit issued under Sections 3(aq), 20 and
23 of RA 7942, which allows exploration but not extraction, serves to
protect the interests and rights of the exploration permit grantee (and
would-be contractor), foreign or local. Otherwise, the exploration works
already conducted, and expenditures already made, may end up only
benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not
unconstitutional.
WMCP FTAA Likewise Gives the
State Full Control and Supervision
The WMCP FTAA obligates the contractor to account for the value of
production and sale of minerals (Clause 1.4); requires that the
contractor's work program, activities and budgets be approved by the
State (Clause 2.1); gives the DENR secretary power to extend the
exploration period (Clause 3.2-a); requires approval by the State for
incorporation of lands into the contract area (Clause 4.3-c); requires
Bureau of Forest Development approval for inclusion of forest reserves
as part of the FTAA contract area (Clause 4.5); obligates the contractor
to periodically relinquish parts of the contract area not needed for
exploration and development (Clause 4.6); requires submission of a
declaration of mining feasibility for approval by the State (Clause 4.6-
b); obligates the contractor to report to the State the results of its
exploration activities (Clause 4.9); requires the contractor to obtain
State approval for its work programs for the succeeding two year
periods, containing the proposed work activities and expenditures
budget related to exploration (Clause 5.1); requires the contractor to
obtain State approval for its proposed expenditures for exploration
activities (Clause 5.2); requires the contractor to submit an annual
report on geological, geophysical, geochemical and other information
relating to its explorations within the FTAA area (Clause 5.3-a);
requires the contractor to submit within six months after expiration of
exploration period a final report on all its findings in the contract area
(Clause 5.3-b); requires the contractor after conducting feasibility
studies to submit a declaration of mining feasibility, along with a
description of the area to be developed and mined, a description of the
proposed mining operations and the technology to be employed, and
the proposed work program for the development phase, for approval
by the DENR secretary (Clause 5.4); obligates the contractor to
complete the development of the mine, including construction of the
production facilities, within the period stated in the approved work
program (Clause 6.1); requires the contractor to submit for approval a
work program covering each period of three fiscal years (Clause 6.2);
requires the contractor to submit reports to the secretary on the
production, ore reserves, work accomplished and work in progress,
profile of its work force and management staff, and other technical
information (Clause 6.3); subjects any expansions, modifications,
improvements and replacements of mining facilities to the approval of
the secretary (Clause 6.4); subjects to State control the amount of
funds that the contractor may borrow within the Philippines (Clause
7.2); subjects to State supervisory power any technical, financial and
marketing issues (Clause 10.1-a); obligates the contractor to ensure 60
percent Filipino equity in the contractor within ten years of recovering
specified expenditures unless not so required by subsequent
legislation (Clause 10.1); gives the State the right to terminate the
FTAA for unremedied substantial breach thereof by the contractor
(Clause 13.2); requires State approval for any assignment of the FTAA
by the contractor to an entity other than an affiliate (Clause 14.1).
In short, the aforementioned provisions of the WMCP FTAA, far from
constituting a surrender of control and a grant of beneficial ownership
of mineral resources to the contractor in question, vest the State with
control and supervision over practically all aspects of the operations of
the FTAA contractor,including the charging of pre-operating and
operating expenses, and the disposition of mineral products.
There is likewise no relinquishment of control on account of specific
provisions of the WMCP FTAA. Clause 8.2 provides a mechanism to
prevent the mining operations from grinding to a complete halt as a
result of possible delays of more than 60 days in the government's
processing and approval of submitted work programs and budgets.
Clause 8.3 seeks to provide a temporary, stop-gap solution in case a
disagreement between the State and the contractor (over the proposed
work program or budget submitted by the contractor) should result in a
deadlock or impasse, to avoid unreasonably long delays in the
performance of the works.
The State, despite Clause 8.3, still has control over the contract area,
and it may, as sovereign authority, prohibit work thereon until the
dispute is resolved, or it may terminate the FTAA, citing substantial
breach thereof. Hence, the State clearly retains full and effective
control.
Clause 8.5, which allows the contractor to make changes to approved
work programs and budgets without the prior approval of the DENR
secretary, subject to certain limitations with respect to the variance/s,
merely provides the contractor a certain amount of flexibility to meet
unexpected situations, while still guaranteeing that the approved work
programs and budgets are not abandoned altogether. And if the
secretary disagrees with the actions taken by the contractor in this
instance, he may also resort to cancellation/termination of the FTAA as
the ultimate sanction.
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select
parts of the contract area to be relinquished. The State is not in a
position to substitute its judgment for that of the contractor, who knows
exactly which portions of the contract area do not contain minerals in
commercial quantities and should be relinquished. Also, since the
annual occupation fees paid to government are based on the total
hectarage of the contract area, net of the areas relinquished, the
contractor's self-interest will assure proper and efficient relinquishment.
Clause 10.2(e) of the WMCP FTAA does not mean that the contractor
can compel government to use its power of eminent domain. It
contemplates a situation in which the contractor is a foreign-owned
corporation, hence, not qualified to own land. The contractor identifies
the surface areas needed for it to construct the infrastructure for mining
operations, and the State then acquires the surface rights on behalf of
the former. The provision does not call for the exercise of the power of
eminent domain (or determination of just compensation); it seeks to
avoid a violation of the anti-dummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to
mortgage and encumber the mineral products extracted may have
been a result of conditions imposed by creditor-banks to secure the
loan obligations of WMCP. Banks lend also upon the security of
encumbrances on goods produced, which can be easily sold and
converted into cash and applied to the repayment of loans. Thus,
Clause 10.2(l) is not something out of the ordinary. Neither is it
objectionable, because even though the contractor is allowed to
mortgage or encumber the mineral end-products themselves, the
contractor is not thereby relieved of its obligation to pay the
government its basic and additional shares in the net mining revenue.
The contractor's ability to mortgage the minerals does not negate the
State's right to receive its share of net mining revenues.
Clause 10.2(k) which gives the contractor authority "to change its
equity structure at any time," means that WMCP, which was then 100
percent foreign owned, could permit Filipino equity ownership.
Moreover, what is important is that the contractor, regardless of its
ownership, is always in a position to render the services required under
the FTAA, under the direction and control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the
FTAA if required by banks and other financial institutions as part of the
conditions of new lendings. There is nothing objectionable here, since
Clause 10.4(e) also provides that such financing arrangements should
in no event reduce the contractor's obligations or the government's
rights under the FTAA. Clause 10.4(i) provides that government shall
"favourably consider" any request for amendments of this agreement
necessary for the contractor to successfully obtain financing. There is
no renunciation of control, as the proviso does not say that government
shall automatically grant any such request. Also, it is up to the
contractor to prove the need for the requested changes. The
government always has the final say on whether to approve or
disapprove such requests.
In fine, the FTAA provisions do not reduce or abdicate State
control.
No Surrender of Financial Benefits
The second paragraph of Section 81 of RA 7942 has been denounced
for allegedly limiting the State's share in FTAAs with foreign
contractors to just taxes, fees and duties, and depriving the State of
ashare in the after-tax income of the enterprise. However, the inclusion
of the phrase "among other things" in the second paragraph of Section
81 clearly and unmistakably reveals the legislative intent to have the
State collect more than just the usual taxes, duties and fees.
Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of
Financial or Technical Assistance Agreements," spells out the financial
benefits government will receive from an FTAA, as consisting of not
only a basic government share, comprised of all direct taxes, fees
and royalties, as well as other payments made by the contractor during
the term of the FTAA, but also an additional government share,
being a share in the earnings or cash flows of the mining
enterprise, so as to achieve a fifty-fifty sharing of net benefits from
mining between the government and the contractor.
The additional government share is computed using one of three (3)
options or schemes detailed in DAO 99-56, viz., (1) the fifty-fifty
sharing of cumulative present value of cash flows; (2) the excess profit-
related additional government share; and (3) the additional sharing
based on the cumulative net mining revenue. Whichever option or
computation is used, the additional government share has nothing to
do with taxes, duties, fees or charges. The portion of revenues
remaining after the deduction of the basic and additional government
shares is what goes to the contractor.
The basic government share and the additional government share do
not yet take into account the indirect taxes and other financial
contributions of mining projects, which are real and actual benefits
enjoyed by the Filipino people; if these are taken into account, total
government share increases to 60 percent or higher (as much as 77
percent, and 89 percent in one instance) of the net present value of
total benefits from the project.
The third or last paragraph of Section 81 of RA 7942 is slammed for
deferring the payment of the government share in FTAAs until after the
contractor shall have recovered its pre-operating expenses, exploration
and development expenditures. Allegedly, the collection of the State's
share is rendered uncertain, as there is no time limit in RA 7942 for this
grace period or recovery period. But although RA 7942 did not limit the
grace period, the concerned agencies (DENR and MGB) in formulating
the 1995 and 1996 Implementing Rules and Regulations provided that
the period of recovery, reckoned from the date of commercial
operation, shall be for a period not exceeding five years, or until the
date of actual recovery, whichever comes earlier.
And since RA 7942 allegedly does not require government approval for
the pre-operating, exploration and development expenses of the
foreign contractors, it is feared that such expenses could be bloated to
wipe out mining revenues anticipated for 10 years, with the result that
the State's share is zero for the first 10 years. However, the argument
is based on incorrect information.
Under Section 23 of RA 7942, the applicant for exploration permit is
required to submit a proposed work program for exploration, containing
a yearly budget of proposed expenditures, which the State passes
upon and either approves or rejects; if approved, the same will
subsequently be recorded as pre-operating expenses that the
contractor will have to recoup over the grace period.
Under Section 24, when an exploration permittee files with the MGB a
declaration of mining project feasibility, it must submit a work program
for development, with corresponding budget, for approval by the
Bureau, before government may grant an FTAA or MPSA or other
mineral agreements; again, government has the opportunity to approve
or reject the proposed work program and budgeted expenditures
for development works, which will become the pre-operating and
development costs that will have to be recovered. Government is able
to know ahead of time the amounts of pre-operating and other
expenses to be recovered, and the approximate period of time needed
therefor. The aforecited provisions have counterparts in Section 35,
which deals with the terms and conditions exclusively applicable to
FTAAs. In sum, the third or last paragraph of Section 81 of RA 7942
cannot be deemed defective.
Section 80 of RA 7942 allegedly limits the State's share in a mineral
production-sharing agreement (MPSA) to just the excise tax on the
mineral product, i.e., only 2 percent of market value of the minerals.
The colatilla in Section 84 reiterates the same limitation in Section
80. However, these two provisions pertain only to MPSAs, and
have no application to FTAAs. These particular provisions do not
come within the issues defined by this Court. Hence, on due
process grounds, no pronouncement can be made in this case in
respect of the constitutionality of Sections 80 and 84.
Section 112 is disparaged for reverting FTAAs and all mineral
agreements to the old "license, concession or lease" system, because
it allegedly effectively reduces the government share in FTAAs to just
the 2 percent excise tax which pursuant to Section 80 comprises the
government share in MPSAs. However, Section 112 likewise does not
come within the issues delineated by this Court, and was never
touched upon by the parties in their pleadings. Moreover, Section 112
may not properly apply to FTAAs. The mining law obviously meant to
treat FTAAs as a breed apart from mineral agreements. There is
absolutely no basis to believe that the law intends to exact from FTAA
contractors merely the same government share (i.e., the 2 percent
excise tax) that it apparently demands from contractors under the three
forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are
indeed unconstitutional, they cannot be ruled upon here. In any event,
they are separable; thus, a later finding of nullity will not affect the rest
of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to
surrender financial benefits from an FTAA to the foreign
contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a
foreign contractor, the State must receive at least 60 percent of the
after-tax income from the exploitation of its mineral resources, and that
such share is the equivalent of the constitutional requirement that at
least 60 percent of the capital, and hence 60 percent of the income, of
mining companies should remain in Filipino hands. Even if the State is
entitled to a 60 percent share from other mineral agreements (CPA,
JVA and MPSA), that would not create a parallel or analogous situation
for FTAAs. We are dealing with an essentially different equation. Here
we have the old apples and oranges syndrome.
The Charter did not intend to fix an iron-clad rule of 60 percent share,
applicable to all situations, regardless of circumstances. There is no
indication of such an intention on the part of the framers. Moreover, the
terms and conditions of petroleum FTAAs cannot serve as standards
for mineral mining FTAAs, because the technical and operational
requirements, cost structures and investment needs of off-shore
petroleum exploration and drilling companies do not have the
remotest resemblance to those of on-shore mining companies.
To take the position that government's share must be not less than 60
percent of after-tax income of FTAA contractors is nothing short of this
Court dictating upon the government. The State resultantly ends up
losing control. To avoid compromising the State's full control and
supervision over the exploitation of mineral resources, there must be
no attempt to impose a "minimum 60 percent" rule. It is sufficient that
the State has the power and means, should it so decide, to get a 60
percent share (or greater); and it is not necessary that the State does
so in every case.
Invalid Provisions of the WMCP FTAA
Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60
percent share of WMCP's revenues. Under Section 7.9, should
WMCP's foreign stockholders (who originally owned 100 percent of the
equity) sell 60 percent or more of their equity to a Filipino citizen or
corporation, the State loses its right to receive its share in net mining
revenues under Section 7.7, without any offsetting compensation to the
State. And what is given to the State in Section 7.7 is by mere
tolerance of WMCP's foreign stockholders, who can at any time cut off
the government's entire share by simply selling 60 percent of WMCP's
equity to a Philippine citizen or corporation.
In fact, the sale by WMCP's foreign stockholder on January 23, 2001 of
the entire outstanding equity in WMCP to Sagittarius Mines, Inc., a
domestic corporation at least 60 percent Filipino owned, can be
deemed to have automatically triggered the operation of Section 7.9
and removed the State's right to receive its 60 percent share. Section
7.9 of the WMCP FTAA has effectively given away the State's
share without anything in exchange.
Moreover, it constitutes unjust enrichment on the part of the local and
foreign stockholders in WMCP, because by the mere act of divestment,
the local and foreign stockholders get a windfall, as their share in the
net mining revenues of WMCP is automatically increased, without
having to pay anything for it.
Being grossly disadvantageous to government and detrimental to the
Filipino people, as well as violative of public policy, Section 7.9 must
therefore be stricken off as invalid. The FTAA in question does not
involve mere contractual rights but, being impressed as it is with public
interest, the contractual provisions and stipulations must yield to the
common good and the national interest. Since the offending provision
is very much separable from the rest of the FTAA, the deletion of
Section 7.9 can be done without affecting or requiring the invalidation
of the entire WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing
the sums spent by government for the benefit of the contractor to be
deductible from the State's share in net mining revenues, it results in
benefiting the contractor twice over. This constitutes unjust
enrichment on the part of the contractor, at the expense of
government. For being grossly disadvantageous and prejudicial to
government and contrary to public policy, Section 7.8(e) must also be
declared without effect. It may likewise be stricken off without affecting
the rest of the FTAA.
EPILOGUE
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous
agreement in the Court upon the key principle that the State must
exercise full control and supervision over the exploration, development
and utilization of mineral resources.
The crux of the controversy is the amount of discretion to be accorded
the Executive Department, particularly the President of the Republic, in
respect of negotiations over the terms of FTAAs, particularly when it
comes to the government share of financial benefits from FTAAs. The
Court believes that it is not unconstitutional to allow a wide degree of
discretion to the Chief Executive, given the nature and complexity of
such agreements, the humongous amounts of capital and financing
required for large-scale mining operations, the complicated technology
needed, and the intricacies of international trade, coupled with the
State's need to maintain flexibility in its dealings, in order to preserve
and enhance our country's competitiveness in world markets.
We are all, in one way or another, sorely affected by the recently
reported scandals involving corruption in high places, duplicity in the
negotiation of multi-billion peso government contracts, huge payoffs to
government officials, and other malfeasances; and perhaps, there is
the desire to see some measures put in place to prevent further
abuse. However, dictating upon the President what minimum
share to get from an FTAA is not the solution. It sets a bad
precedent since such a move institutionalizes the very reduction if not
deprivation of the State's control. The remedy may be worse than the
problem it was meant to address. In any event, provisions in such
future agreements which may be suspected to be grossly
disadvantageous or detrimental to government may be challenged in
court, and the culprits haled before the bar of justice.
Verily, under the doctrine of separation of powers and due respect for
co-equal and coordinate branches of government, this Court must
restrain itself from intruding into policy matters and must allow the
President and Congress maximum discretion in using the resources of
our country and in securing the assistance of foreign groups to
eradicate the grinding poverty of our people and answer their cry for
viable employment opportunities in the country.
"The judiciary is loath to interfere with the due exercise by coequal
branches of government of their official functions."99 As aptly spelled
out seven decades ago by Justice George Malcolm, "Just as the
Supreme Court, as the guardian of constitutional rights, should not
sanction usurpations by any other department of government, so
should it as strictly confine its own sphere of influence to the powers
expressly or by implication conferred on it by the Organic Act."100 Let
the development of the mining industry be the responsibility of the
political branches of government. And let not this Court interfere
inordinately and unnecessarily.
The Constitution of the Philippines is the supreme law of the land. It is
the repository of all the aspirations and hopes of all the people. We
fully sympathize with the plight of Petitioner La Bugal B'laan and other
tribal groups, and commend their efforts to uplift their communities.
However, we cannot justify the invalidation of an otherwise
constitutional statute along with its implementing rules, or the
nullification of an otherwise legal and binding FTAA contract.
We must never forget that it is not only our less privileged brethren in
tribal and cultural communities who deserve the attention of this Court;
rather, all parties concerned - - including the State itself, the contractor
(whether Filipino or foreign), and the vast majority of our citizens - -
equally deserve the protection of the law and of this Court. To stress,
the benefits to be derived by the State from mining activities must
ultimately serve the great majority of our fellow citizens. They have as
much right and interest in the proper and well-ordered development
and utilization of the country's mineral resources as the petitioners.
Whether we consider the near term or take the longer view, we cannot
overemphasize the need for an appropriate balancing of interests
and needs - - the need to develop our stagnating mining industry and
extract what NEDA Secretary Romulo Neri estimates is some US$840
billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden
in the ground, in order to jumpstart our floundering economy on the
one hand, and on the other, the need to enhance our nationalistic
aspirations, protect our indigenous communities, and prevent
irreversible ecological damage.
This Court cannot but be mindful that any decision rendered in this
case will ultimately impact not only the cultural communities which
lodged the instant Petition, and not only the larger community of the
Filipino people now struggling to survive amidst a fiscal/budgetary
deficit, ever increasing prices of fuel, food, and essential commodities
and services, the shrinking value of the local currency, and a
government hamstrung in its delivery of basic services by a severe
lack of resources, but also countless future generations of Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to
education, health care and basic services, their overall level of well-
being, the very shape of their lives are even now being determined and
affected partly by the policies and directions being adopted and
implemented by government today. And in part by the this Resolution
rendered by this Court today.
Verily, the mineral wealth and natural resources of this country are
meant to benefit not merely a select group of people living in the areas
locally affected by mining activities, but the entire Filipino
nation, present and future, to whom the mineral wealth really belong.
This Court has therefore weighed carefully the rights and interests of
all concerned, and decided for the greater good of the greatest
number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE
PRESENT AND THE FUTURE, not just for the here and now.
WHEREFORE, the Court RESOLVES to GRANT the respondents' and
the intervenors' Motions for Reconsideration; to REVERSE and SET
ASIDEthis Court's January 27, 2004 Decision; to DISMISS the Petition;
and to issue this new judgment declaring CONSTITUTIONAL (1)
Republic Act No. 7942 (the Philippine Mining Law), (2) its
Implementing Rules and Regulations contained in DENR
Administrative Order (DAO) No. 9640 - - insofar as they relate to
financial and technical assistance agreements referred to in paragraph
4 of Section 2 of Article XII of the Constitution; and (3) the Financial
and Technical Assistance Agreement (FTAA) dated March 30, 1995
executed by the government and Western Mining Corporation
Philippines Inc. (WMCP), except Sections 7.8 and 7.9 of the subject
FTAA which are hereby INVALIDATED for being contrary to public
policy and for being grossly disadvantageous to the government.
SO ORDERED.
Davide Jr., C.J., Sandoval-Gutierrez, Austria-Martinez, and
Garcia, JJ., concur.
Puno, J., in the result and votes to invalidate sections 3.3; 7.8 and
7.9 of the WMC FTAA.
Quisumbing, J., in the result.
Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio
& J. Conchita C. Morales.
Carpio, and Carpio-Morales, JJ., see dissenting opinion.
Corona, J., certifies he voted affirmatively with the majority and
he was allowed to do so although he is on leave.
Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
Azcuna, J., took no part-same reason.
TINGA, and Chico-Nazario, JJ., concur with a separate opinion.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-30389 December 27, 1972
PEDRO LEE HONG HOK, SIMEON LEE HONG HOK, ROSITA LEE
HONG HOK and LEONCIO LEE HONG HOK,petitioners,  On such finding of facts, the attempt of petitioners to elicit a different
vs.
ANIANO DAVID, THE HON. SECRETARY OF AGRICULTURE AND
NATURAL RESOURCES, THE DIRECTOR OF LANDS and COURT
OF APPEALS, respondents.
Augusto A. Pardalis for petitioners.
Luis General, Jr. for respondent Aniano David.
Office of the Solicitor General for other respondents.
FERNANDO, J.:p
Petitioners 1 in this appeal by certiorari would have us reverse a
decision of respondent Court of Appeals affirming a lower court
judgment dismissing their complaint to have the Torrens Title 2 of
respondent Aniano David declared null and void. What makes the task
for petitioners quite difficult is that their factual support for their
pretension to ownership of such disputed lot through accretion was
rejected by respondent Court of Appeals. Without such underpinning,
they must perforce rely on a legal theory, which, to put it mildly, is
distinguished by unorthodoxy and is therefore far from persuasive. A
grant by the government through the appropriate public
officials 3 exercising the competence duly vested in them by law is not
to be set at naught on the premise, unexpressed but implied, that land
not otherwise passing into private ownership may not be disposed of
by the state. Such an assumption is at war with settled principles of
constitutional law. It cannot receive our assent. We affirm.
The decision of respondent Court of Appeals following that of the lower
court makes clear that there is no legal justification for nullifying the
right of respondent Aniano David to the disputed lot arising from the
grant made in his favor by respondent officials. As noted in the
decision under review, he "acquired lawful title thereby pursuant to his
miscellaneous sales application in accordance with which an order of
award and for issuance of a sales patent was made by the Director of
Lands on June 18, 1958, covering Lot 2892 containing an area of 226
square meters, which is a portion of Lot 2863 of the Naga Cadastre.
On the basis of the order of award of the Director of Lands the
Undersecretary of Agriculture and Natural Resources issued on August
26, 1959, Miscellaneous Sales Patent No. V-1209 pursuant to which
OCT No. 510 was issued by the Register of Deeds of Naga City to
defendant-appellee Aniano David on October 21, 1959. According to
the Stipulation of Facts, since the filing of the sales application of
Aniano David and during all the proceedings in connection with said
application, up to the actual issuance of the sales patent in his favor,
the plaintiffs-appellants did not put up any opposition or adverse claim
thereto. This is fatal to them because after the registration and
issuance of the certificate and duplicate certificate of title based on a
public land patent, the land covered thereby automatically comes
under the operation of Republic Act 496 subject to all the safeguards
provided therein.... Under Section 38 of Act 496 any question
concerning the validity of the certificate of title based on fraud should
be raised within one year from the date of the issuance of the patent.
Thereafter the certificate of title based thereon becomes
indefeasible.... In this case the land in question is not a private property
as the Director of Lands and the Secretary of Agriculture and Natural
Resources have always sustained the public character thereof for
having been formed by reclamation.... The only remedy therefore,
available to the appellants is an action for reconveyance on the ground
of fraud. In this case we do not see any fraud committed by defendant-
appellant Aniano David in applying for the purchase of the land
involved through his Miscellaneous Sales Application No. MSA-V-
26747, entered in the records of the Bureau of Lands [Miscellaneous
Sales] Entry No. V-9033, because everything was done in the open.
The notices regarding the auction sale of the land were published, the
actual sale and award thereof to Aniano David were not clandestine
but open and public official acts of an officer of the Government. The
application was merely a renewal of his deceased wife's application,
and the said deceased occupied the land since 1938." 4
conclusion is likely to be attended with frustration. The first error
assigned predicated an accretion having taken place, notwithstanding
its rejection by respondent Court of Appeals, would seek to disregard
what was accepted by respondent Court as to how the disputed lot
came into being, namely by reclamation. It does not therefore call for
any further consideration. Neither of the other two errors imputed to
respondent Court, as to its holding that authoritative doctrines preclude
a party other than the government to dispute the validity of a grant and
the recognition of the indefeasible character of a public land patent
after one year, is possessed of merit. Consequently, as set forth at the
outset, there is no justification for reversal.
1. More specifically, the shaft of criticism was let loose by petitioner
aimed at this legal proposition set forth in the exhaustive opinion of
then Justice Salvador Esguerra of the Court of Appeals, now a
member of this Court: "There is, furthermore, a fatal defect of parties to
this action. Only the Government, represented by the Director of
Lands, or the Secretary of Agriculture and Natural Resources, can
bring an action to cancel a void certificate of title issued pursuant to a
void patent (Lucas vs. Durian, 102 Phil. 1157; Director of Lands vs.
Heirs of Ciriaco Carlo, G.R. No. L-12485, July 31, 1959). This was not
done by said officers but by private parties like the plaintiffs, who
cannot claim that the patent and title issued for the land involved are
void since they are not the registered owners thereof nor had they
been declared as owners in the cadastral proceedings of Naga
Cadastre after claiming it as their private property. The cases cited by
appellants are not in point as they refer to private registered lands or
public lands over which vested rights have been acquired but
notwithstanding such fact the Land Department subsequently granted
patents to public land applicants." 5 Petitioner ought to have known
better. The above excerpt is invulnerable to attack. It is a restatement
of a principle that dates back to Maninang v. Consolacion, 6 a 1908
decision. As was there categorically stated: "The fact that the grant
was made by the government is undisputed. Whether the grant was in
conformity with the law or not is a question which the government may
raise, but until it is raised by the government and set aside, the
defendant can not question it. The legality of the grant is a question
between the grantee and the government." 7 The above citation was
repeated ipsissimis verbis inSalazar v. Court of Appeals.8 Bereft as
petitioners were of the right of ownership in accordance with the
findings of the Court of Appeals, they cannot, in the language of Reyes
v. Rodriguez, 9 "question the [title] legally issued." 10The second
assignment of error is thus disposed of.
2. As there are overtones indicative of skepticism, if not of outright
rejection, of the well-known distinction in public law between the
government authority possessed by the state which is appropriately
embraced in the concept of sovereignty, and its capacity to own or
acquire property, it is not inappropriate to pursue the matter further.
The former comes under the heading of imperium and the latter
of dominium. The use of this term is appropriate with reference to
lands held by the state in its proprietary character. In such capacity, it
may provide for the exploitation and use of lands and other natural
resources, including their disposition, except as limited by the
Constitution. Dean Pound did speak of the confusion that existed
during the medieval era between such two concepts, but did note the
existence of res publicae as a corollary to dominium." 11 As far as the
Philippines was concerned, there was a recognition by Justice Holmes
in Cariño v. Insular Government, 12 a case of Philippine origin, that
"Spain in its earlier decrees embodied the universal feudal theory that
all lands were held from the Crown...." 13 That was a manifestation of and effect of a Torrens Title, but in addition the person to whom it is
the concept of jura regalia, 14 which was adopted by the present granted has likewise in his favor the right to repurchase within a period
Constitution, ownership however being vested in the state as such of five years." 33 It is quite apparent, therefore, that petitioners' stand is
rather than the head thereof. What was stated by Holmes served to legally indefensible.
confirm a much more extensive discussion of the matter in the leading
case of Valenton v. Murciano, 15 decided in 1904. One of the royal
WHEREFORE, the decision of respondent Court of Appeals of January
decrees cited was incorporated in the Recopilacion de Leyes de las
31, 1969 and its resolution of March 14, 1969 are affirmed. With costs
Indias 16 in these words: "We having acquired full sovereignty over the
against petitioners-appellants.
Indies and all lands, territories, and possessions not heretofore ceded
away by our royal predecessors, or by us, or in our name, still
pertaining to the royal crown and patrimony, it is our will that all lands Concepcion, C.J., Makalintal, Zaldivar, Castro, Teehankee Barredo,
which are held without proper and true deeds of grant be restored to us Makasiar, Antonio and Esguerra, JJ., concur.
according as they belong to us, in order that after reserving before all
what to us or to our viceroys audiences, and governors may seem
necessary for public squares, ways, pastures, and commons in those
places which are peopled, taking into consideration not only their
present condition, but also their future and their probable increase, and
after distributing to the natives what may be necessary for tillage and
pasturage, confirming them in what they now have and giving them
more if necessary, all the rest of said lands may remain free and
unencumbered for us to dispose of as we may wish." 17

It could therefore be affirmed in Montano v. Insular Government" 18 that

"as to the unappropriated public lands constituting the public domain
the sole power of legislation is vested in Congress, ..." 19 They continue
to possess that character until severed therefrom by state
grant. 20 Where, as in this case, it was found by the Court of Appeals
that the disputed lot was the result of reclamation, its being correctly
categorized as public land is undeniable. 21 What was held in Heirs
of Datu Pendatun v. Director of Lands  22 finds application. Thus:
"There being no evidence whatever that the property in question was
ever acquired by the applicants or their ancestors either by
composition title from the Spanish Government or by possessory
information title or by any other means for the acquisition of public
lands, the property must be held to be public domain." 23 For it is well-
settled "that no public land can be acquired by private persons without
any grant, express or implied, from the government." 24 It is
indispensable then that there be a showing of a title from the state or
any other mode of acquisition recognized by law. 25 The most recent
restatement of the doctrine, found in an opinion of Justice J.B.L.
Reyes, follows: 26 "The applicant, having failed to establish his right or
title over the northern portion of Lot No. 463 involved in the present
controversy, and there being no showing that the same has been
acquired by any private person from the Government, either by
purchase or by grant, the property is and remains part of the public
domain." 27 To repeat, the second assignment of error is devoid of
merit.

3. The last error assigned would take issue with this portion of the
opinion of Justice Esguerra: "According to the Stipulation of Facts,
since the filing of the sales application of Aniano David and during all
the proceedings in connection with said application, up to the actual
issuance of the sales patent in his favor, the 
plaintiffs-appellants did not put up any opposition or adverse claim
thereto. This is fatal to them because after the registration and
issuance of the certificate and duplicate certificate of title based on a
public land patent, the land covered thereby automatically comes
under the operation of Republic Act 496 subject to all the safeguards
provided therein ... Under Section 38 of Act 496 any question
concerning the validity of the certificate of title based on fraud should
be raised within one year from the date of the issuance of the patent.
Thereafter the certificate of title based thereon becomes
indefeasible ..." 28 Petitioners cannot reconcile themselves to the view
that respondent David's title is impressed with the quality of
indefeasibility. In thus manifesting such an attitude, they railed to
accord deference to controlling precedents. As far back as 1919,
in Aquino v. Director of 
Lands, 29 Justice Malcolm, speaking for the Court, stated: "The
proceedings under the Land Registration Law and under the provisions
of Chapter VI of the Public Land Law are the same in that both are
against the whole world, both take the nature of judicial proceedings,
and for both the decree of registration issued is conclusive and
final."30 Such a view has been followed since then. 31 The latest case in
point is Cabacug v. Lao. 32 There is this revealing excerpt appearing in
that decision: "It is said, and with reason, that a holder of a land
acquired under a free patent is more favorably situated than that of an
owner of registered property. Not only does a free patent have a force

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-43938 April 15, 1988
REPUBLIC OF THE PHILIPPINES (DIRECTOR OF FOREST
DEVELOPMENT), petitioner,  Harrison and Reynolds on December 25, 1930, and recorded on
vs.
HON. COURT OF APPEALS (THIRD DIVISION) and JOSE Y. DE LA
ROSA, respondents.
G.R. No. L-44081 April 15, 1988
BENGUET CONSOLIDATED, INC., petitioner,  The location of the mineral claims was made in accordance with
vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORIA,
BENJAMIN and EDUARDO, all surnamed DE LA ROSA,
represented by their father JOSE Y. DE LA ROSA, respondents.
G.R. No. L-44092 April 15, 1988
ATOK-BIG WEDGE MINING COMPANY, petitioner,  purchase by the citizens of the United States, or of
vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORlA,
BENJAMIN and EDUARDO, all surnamed DE LA ROSA,
represented by their father, JOSE Y. DE LA ROSA, respondents.
CRUZ, J.:
The Regalian doctrine reserves to the State all natural wealth that may
be found in the bowels of the earth even if the land where the
discovery is made be private. 1 In the cases at bar, which have been
consolidated because they pose a common issue, this doctrine was
not correctly applied.
These cases arose from the application for registration of a parcel of
land filed on February 11, 1965, by Jose de la Rosa on his own behalf
and on behalf of his three children, Victoria, Benjamin and Eduardo.
The land, situated in Tuding, Itogon, Benguet Province, was divided
into 9 lots and covered by plan Psu-225009. According to the
application, Lots 1-5 were sold to Jose de la Rosa and Lots 6-9 to his
children by Mamaya Balbalio and Jaime Alberto, respectively, in
1964. 2
The application was separately opposed by Benguet Consolidated, Inc.
as to Lots 1-5, Atok Big Wedge Corporation, as to Portions of Lots 1-5
and all of Lots 6-9, and by the Republic of the Philippines, through the
Bureau of Forestry Development, as to lots 1-9. 3
In support of the application, both Balbalio and Alberto testified that
they had acquired the subject land by virtue of prescription Balbalio
claimed to have received Lots 1-5 from her father shortly after the
Liberation. She testified she was born in the land, which was
possessed by her parents under claim of ownership. 4 Alberto said he
received Lots 6-9 in 1961 from his mother, Bella Alberto, who declared
that the land was planted by Jaime and his predecessors-in-interest to
bananas, avocado, nangka and camote, and was enclosed with a
barbed-wire fence. She was corroborated by Felix Marcos, 67 years
old at the time, who recalled the earlier possession of the land by
Alberto's father. 5 Balbalio presented her tax declaration in 1956 and
the realty tax receipts from that year to 1964, 6 Alberto his tax
declaration in 1961 and the realty tax receipts from that year to 1964. 7
Benguet opposed on the ground that the June Bug mineral claim
covering Lots 1-5 was sold to it on September 22, 1934, by the
successors-in-interest of James Kelly, who located the claim in
September 1909 and recorded it on October 14, 1909. From the date
of its purchase, Benguet had been in actual, continuous and exclusive
possession of the land in concept of owner, as evidenced by its
construction of adits, its affidavits of annual assessment, its geological
mappings, geological samplings and trench side cuts, and its payment
of taxes on the land. 8
For its part, Atok alleged that a portion of Lots 1-5 and all of Lots 6-9
were covered by the Emma and Fredia mineral claims located by
January 2, 1931, in the office of the mining recorder of Baguio. These
claims were purchased from these locators on November 2, 1931, by
Atok, which has since then been in open, continuous and exclusive
possession of the said lots as evidenced by its annual assessment
work on the claims, such as the boring of tunnels, and its payment of
annual taxes thereon.9
Section 21 of the Philippine Bill of 1902 which provided that:
SEC. 21. 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
said islands.
The Bureau of Forestry Development also interposed its objection,
arguing that the land sought to be registered was covered by the
Central Cordillera Forest Reserve under Proclamation No. 217 dated
February 16, 1929. Moreover, by reason of its nature, it was not
subject to alienation under the Constitutions of 1935 and 1973. 10
The trial court * denied the application, holding that the applicants had
failed to prove their claim of possession and ownership of the land
sought to be registered. 11 The applicants appealed to the respondent
court, * which reversed the trial court and recognized the claims of the
applicant, but subject to the rights of Benguet and Atok respecting their
mining claims. 12 In other words, the Court of Appeals affirmed the
surface rights of the de la Rosas over the land while at the same time
reserving the sub-surface rights of Benguet and Atok by virtue of their
mining claims.
Both Benguet and Atok have appealed to this Court, invoking their
superior right of ownership. The Republic has filed its own petition for
review and reiterates its argument that neither the private respondents
nor the two mining companies have any valid claim to the land
because it is not alienable and registerable.
It is true that the subject property was considered forest land and
included in the Central Cordillera Forest Reserve, but this did not
impair the rights already vested in Benguet and Atok at that time. The
Court of Appeals correctly declared that:
There is no question that the 9 lots applied for are
within the June Bug mineral claims of Benguet and
the "Fredia and Emma" mineral claims of Atok.
The June Bug mineral claim of plaintiff Benguet
was one of the 16 mining claims of James E.
Kelly, American and mining locator. He filed his
declaration of the location of the June Bug mineral
and the same was recorded in the Mining
Recorder's Office on October 14, 1909. All of the
Kelly claims ha subsequently been acquired by
Benguet Consolidated, Inc. Benguet's evidence is
that it had made improvements on the June Bug
mineral claim consisting of mine tunnels prior to
1935. It had submitted the required affidavit of
annual assessment. After World War II, Benguet
introduced improvements on mineral claim June
Bug, and also conducted geological mappings,
geological sampling and trench side cuts. In 1948,
Benguet redeclared the "June Bug" for taxation
and had religiously paid the taxes.
The Emma and Fredia claims were two of the
several claims of Harrison registered in 1931, and
which Atok representatives acquired. Portions of
Lots 1 to 5 and all of Lots 6 to 9 are within the
Emma and Fredia mineral claims of Atok Big
Wedge Mining Company.
The June Bug mineral claim of Benguet and the
Fredia and Emma mineral claims of Atok having
been perfected prior to the approval of the
Constitution of the Philippines of 1935, they were
removed from the public domain and had become
private properties of Benguet and Atok.
It is not disputed that the
location of the mining claim
under consideration was
perfected prior to November
15, 1935, when the
Government of the
Commonwealth was
inaugurated; and according to
the laws existing at that time,
as construed and applied by
this court in McDaniel v.
Apacible and Cuisia (42 Phil.
749), a valid location of a
mining claim segregated the
area from the public domain.
Said the court in that case:
The moment the locator
discovered a valuable mineral
deposit on the lands located,
and perfected his location in
accordance with law, the
power of the United States
Government to deprive him of
the exclusive right to the
possession and enjoyment of
the located claim was gone,
the lands had become mineral
lands and they were
exempted from lands that
could be granted to any other
person. The reservations of
public lands cannot be made
so as to include prior mineral
perfected locations; and, of
course, if a valid mining
location is made upon public
lands afterwards included in a
reservation, such inclusion or
reservation does not affect the
validity of the former location.
By such location and
perfection, the land located is
segregated from the public
domain even as against the
Government. (Union Oil Co. v.
Smith, 249 U.S. 337; Van
Mess v. Roonet, 160 Cal. 131;
27 Cyc. 546).
"The legal effect of a valid
location of a mining claim is
not only to segregate the area
from the public domain, but to
grant to the locator the
beneficial ownership of the
claim and the right to a patent
therefor upon compliance with
the terms and conditions
prescribed by law. Where
there is a valid location of a
mining claim, the area
becomes segregated from the
public domain and the
property of the locator." (St.
Louis Mining & Milling Co. v.
Montana Mining Co., 171 U.S.
650; 655; 43 Law ed., 320,
322.) "When a location of a
mining claim is perfected it
has the effect of a grant by
the United States of the right
of present and exclusive
possession, with the right to
the exclusive enjoyment of all
the surface ground as well as
of all the minerals within the
lines of the claim, except as
limited by the extralateral right
of adjoining locators; and this
is the locator's right before as
well as after the issuance of
the patent. While a lode
locator acquires a vested
property right by virtue of his
location made in compliance
with the mining laws, the fee
remains in the government
until patent issues."(18 R.C.L.
1152) (Gold Creek Mining
Corporation v. Hon. Eulogio
Rodriguez, Sec. of Agriculture
and Commerce, and Quirico
Abadilla, Director of the
Bureau of Mines, 66 Phil. 259,
265-266)
It is of no importance whether Benguet and Atok
had secured a patent for as held in the Gold Creek
Mining Corp. Case, for all physical purposes of
ownership, the owner is not required to secure a
patent as long as he complies with the provisions
of the mining laws; his possessory right, for all
practical purposes of ownership, is as good as
though secured by patent.
We agree likewise with the oppositors that having
complied with all the requirements of the mining
laws, the claims were removed from the public
domain, and not even the government of the
Philippines can take away this right from them.
The reason is obvious. Having become the private
properties of the oppositors, they cannot be
deprived thereof without due process of law. 13
Such rights were not affected either by the stricture in the
Commonwealth Constitution against the alienation of all lands of the
public domain except those agricultural in nature for this was made
subject to existing rights. Thus, in its Article XIII, Section 1, it was
categorically provided that:
SEC. 1. All agricultural, timber and mineral lands
of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of
potential energy and other natural resources of the
Philipppines 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 Under the theory of the respondent court, the surface owner will be
least 60% of the capital of which is owned by such planting on the land while the mining locator will be boring tunnels
citizens, subject to any existing right, grant, lease underneath. The farmer cannot dig a well because he may interfere
or concession at the time of the inauguration of the with the operations below and the miner cannot blast a tunnel lest he
government established under this Constitution. destroy the crops above. How deep can the farmer, and how high can
Natural resources with the exception of public the miner, go without encroaching on each other's rights? Where is the
agricultural lands, shall not be alienated, and no dividing line between the surface and the sub-surface rights?
license, concession, or lease for the exploitation,
development or utilization of any of the natural
The Court feels that the rights over the land are indivisible and that the
resources shall be granted for a period exceeding
land itself cannot be half agricultural and half mineral. The
25 years, except as to water rights for irrigation,
classification must be categorical; the land must be either completely
water supply, fisheries, or industrial uses other
mineral or completely agricultural. In the instant case, as already
than the development of water power, in which
observed, the land which was originally classified as forest land
case beneficial use may be the measure and the
ceased to be so and became mineral — and completely mineral —
limit of the grant.
once the mining claims were perfected. 20 As long as mining operations
were being undertaken thereon, or underneath, it did not cease to be
Implementing this provision, Act No. 4268, approved on November 8, so and become agricultural, even if only partly so, because it was
1935, declared: enclosed with a fence and was cultivated by those who were unlawfully
occupying the surface.
Any provision of existing laws, executive order,
proclamation to the contrary notwithstanding, all What must have misled the respondent court is Commonwealth Act
locations of mining claim made prior to February 8, No. 137, providing as follows:
1935 within lands set apart as forest reserve under
Sec. 1826 of the Revised Administrative Code
Sec. 3. All mineral lands of the public domain and
which would be valid and subsisting location
minerals belong to the State, and their disposition,
except to the existence of said reserve are hereby
exploitation, development or utilization, shall be
declared to be valid and subsisting locations as of
limited to citizens of the Philippines, or to
the date of their respective locations.
corporations, or associations, at least 60% of the
capital of which is owned by such citizens, subject
The perfection of the mining claim converted the property to mineral to any existing right, grant, lease or concession at
land and under the laws then in force removed it from the public the time of the inauguration of government
domain. 14 By such act, the locators acquired exclusive rights over the established under the Constitution.
land, against even the government, without need of any further act
such as the purchase of the land or the obtention of a patent over
SEC. 4. The ownership of, and the right to the use
it. 15 As the land had become the private property of the locators, they
of land for agricultural, industrial, commercial,
had the right to transfer the same, as they did, to Benguet and Atok.
residential, or for any purpose other than mining
does not include the ownership of, nor the right to
It is true, as the Court of Appeals observed, that such private property extract or utilize, the minerals which may be found
was subject to the "vicissitudes of ownership," or even to forfeiture by on or under the surface.
non-user or abandonment or, as the private respondents aver, by
acquisitive prescription. However, the method invoked by the de la
SEC. 5. The ownership of, and the right to extract
Rosas is not available in the case at bar, for two reasons.
and utilize, the minerals included within all areas
for which public agricultural land patents are
First, the trial court found that the evidence of open, continuous, granted are excluded and excepted from all such
adverse and exclusive possession submitted by the applicants was patents.
insufficient to support their claim of ownership. They themselves had
acquired the land only in 1964 and applied for its registration in 1965,
SEC. 6. The ownership of, and the right to extract
relying on the earlier alleged possession of their predecessors-in-
and utilize, the minerals included within all areas
interest. 16 The trial judge, who had the opportunity to consider the
for which Torrens titles are granted are excluded
evidence first-hand and observe the demeanor of the witnesses and
and excepted from all such titles.
test their credibility was not convinced. We defer to his judgment in the
absence of a showing that it was reached with grave abuse of
discretion or without sufficient basis. 17 This is an application of the Regalian doctrine which, as its name
implies, is intended for the benefit of the State, not of private persons.
The rule simply reserves to the State all minerals that may be found in
Second, even if it be assumed that the predecessors-in-interest of the
public and even private land devoted to "agricultural, industrial,
de la Rosas had really been in possession of the subject property, their
commercial, residential or (for) any purpose other than mining." Thus, if
possession was not in the concept of owner of the mining claim but of
a person is the owner of agricultural land in which minerals are
the property asagricultural land, which it was not. The property was
discovered, his ownership of such land does not give him the right to
mineral land, and they were claiming it as agricultural land. They were
extract or utilize the said minerals without the permission of the State
not disputing the lights of the mining locators nor were they seeking to
to which such minerals belong.
oust them as such and to replace them in the mining of the land. In
fact, Balbalio testified that she was aware of the diggings being
undertaken "down below" 18 but she did not mind, much less protest, The flaw in the reasoning of the respondent court is in supposing that
the same although she claimed to be the owner of the said land. the rights over the land could be used for both mining and non-mining
purposes simultaneously. The correct interpretation is that once
minerals are discovered in the land, whatever the use to which it is
The Court of Appeals justified this by saying there is "no conflict of
being devoted at the time, such use may be discontinued by the State
interest" between the owners of the surface rights and the owners of
to enable it to extract the minerals therein in the exercise of its
the sub-surface rights. This is rather doctrine, for it is a well-known
sovereign prerogative. The land is thus converted to mineral land and
principle that the owner of piece of land has rights not only to its
may not be used by any private party, including the registered owner
surface but also to everything underneath and the airspace above it up
thereof, for any other purpose that will impede the mining operations to
to a reasonable height. 19 Under the aforesaid ruling, the land is
be undertaken therein, For the loss sustained by such owner, he is of
classified as mineral underneath and agricultural on the surface,
course entitled to just compensation under the Mining Laws or in
subject to separate claims of title. This is also difficult to understand,
appropriate expropriation proceedings. 21
especially in its practical application.
Our holding is that Benguet and Atok have exclusive rights to the
property in question by virtue of their respective mining claims which
they validly acquired before the Constitution of 1935 prohibited the
alienation of all lands of the public domain except agricultural lands,
subject to vested rights existing at the time of its adoption. The land
was not and could not have been transferred to the private
respondents by virtue of acquisitive prescription, nor could its use be
shared simultaneously by them and the mining companies for
agricultural and mineral purposes.

WHEREFORE, the decision of the respondent court dated April 30,

1976, is SET ASIDE and that of the trial court dated March 11, 1969, is
REINSTATED, without any pronouncement as to costs.

SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Griño-Aquino, JJ., concur.


EN BANC
G.R. No. 133250           July 9, 2002
FRANCISCO I. CHAVEZ, petitioner,  square meters." Subsequently, on April 9, 1988, the Register of Deeds
vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY
DEVELOPMENT CORPORATION, respondents.
CARPIO, J.:
This is an original Petition for Mandamus with prayer for a writ of
preliminary injunction and a temporary restraining order. The petition
seeks to compel the Public Estates Authority ("PEA" for brevity) to
disclose all facts on PEA's then on-going renegotiations with Amari
Coastal Bay and Development Corporation ("AMARI" for brevity) to
reclaim portions of Manila Bay. The petition further seeks to enjoin
PEA from signing a new agreement with AMARI involving such
reclamation.
The Facts
On November 20, 1973, the government, through the Commissioner of
Public Highways, signed a contract with the Construction and
Development Corporation of the Philippines ("CDCP" for brevity) to
reclaim certain foreshore and offshore areas of Manila Bay. The
contract also included the construction of Phases I and II of the Manila-
Cavite Coastal Road. CDCP obligated itself to carry out all the works in
consideration of fifty percent of the total reclaimed land.
On February 4, 1977, then President Ferdinand E. Marcos issued
Presidential Decree No. 1084 creating PEA. PD No. 1084 tasked PEA
"to reclaim land, including foreshore and submerged areas," and "to
develop, improve, acquire, x x x lease and sell any and all kinds of
lands."1 On the same date, then President Marcos issued Presidential
Decree No. 1085 transferring to PEA the "lands reclaimed in the
foreshore and offshore of the Manila Bay" 2 under the Manila-Cavite
Coastal Road and Reclamation Project (MCCRRP).
On December 29, 1981, then President Marcos issued a memorandum
directing PEA to amend its contract with CDCP, so that "[A]ll future
works in MCCRRP x x x shall be funded and owned by PEA."
Accordingly, PEA and CDCP executed a Memorandum of Agreement
dated December 29, 1981, which stated:
"(i) CDCP shall undertake all reclamation, construction, and
such other works in the MCCRRP as may be agreed upon
by the parties, to be paid according to progress of works on
a unit price/lump sum basis for items of work to be agreed
upon, subject to price escalation, retention and other terms
and conditions provided for in Presidential Decree No. 1594.
All the financing required for such works shall be provided by
PEA.
xxx
(iii) x x x CDCP shall give up all its development rights and
hereby agrees to cede and transfer in favor of PEA, all of the
rights, title, interest and participation of CDCP in and to all
the areas of land reclaimed by CDCP in the MCCRRP as of
December 30, 1981 which have not yet been sold,
transferred or otherwise disposed of by CDCP as of said
date, which areas consist of approximately Ninety-Nine
Thousand Four Hundred Seventy Three (99,473) square
meters in the Financial Center Area covered by land pledge
No. 5 and approximately Three Million Three Hundred Eighty
Two Thousand Eight Hundred Eighty Eight (3,382,888)
square meters of reclaimed areas at varying elevations
above Mean Low Water Level located outside the Financial
Center Area and the First Neighborhood Unit."3
On January 19, 1988, then President Corazon C. Aquino issued
Special Patent No. 3517, granting and transferring to PEA "the parcels
of land so reclaimed under the Manila-Cavite Coastal Road and
Reclamation Project (MCCRRP) containing a total area of one million
nine hundred fifteen thousand eight hundred ninety four (1,915,894)
of the Municipality of Parañaque issued Transfer Certificates of Title
Nos. 7309, 7311, and 7312, in the name of PEA, covering the three
reclaimed islands known as the "Freedom Islands" located at the
southern portion of the Manila-Cavite Coastal Road, Parañaque City.
The Freedom Islands have a total land area of One Million Five
Hundred Seventy Eight Thousand Four Hundred and Forty One
(1,578,441) square meters or 157.841 hectares.
On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA"
for brevity) with AMARI, a private corporation, to develop the Freedom
Islands. The JVA also required the reclamation of an additional 250
hectares of submerged areas surrounding these islands to complete
the configuration in the Master Development Plan of the Southern
Reclamation Project-MCCRRP. PEA and AMARI entered into the JVA
through negotiation without public bidding. 4 On April 28, 1995, the
Board of Directors of PEA, in its Resolution No. 1245, confirmed the
JVA.5On June 8, 1995, then President Fidel V. Ramos, through then
Executive Secretary Ruben Torres, approved the JVA.6
On November 29, 1996, then Senate President Ernesto Maceda
delivered a privilege speech in the Senate and denounced the JVA as
the "grandmother of all scams." As a result, the Senate Committee on
Government Corporations and Public Enterprises, and the Committee
on Accountability of Public Officers and Investigations, conducted a
joint investigation. The Senate Committees reported the results of their
investigation in Senate Committee Report No. 560 dated September
16, 1997.7 Among the conclusions of their report are: (1) the reclaimed
lands PEA seeks to transfer to AMARI under the JVA are lands of the
public domain which the government has not classified as alienable
lands and therefore PEA cannot alienate these lands; (2) the
certificates of title covering the Freedom Islands are thus void, and (3)
the JVA itself is illegal.
On December 5, 1997, then President Fidel V. Ramos issued
Presidential Administrative Order No. 365 creating a Legal Task Force
to conduct a study on the legality of the JVA in view of Senate
Committee Report No. 560. The members of the Legal Task Force
were the Secretary of Justice, 8 the Chief Presidential Legal
Counsel,9 and the Government Corporate Counsel. 10 The Legal Task
Force upheld the legality of the JVA, contrary to the conclusions
reached by the Senate Committees. 11
On April 4 and 5, 1998, the Philippine Daily
Inquirer and Today published reports that there were on-going
renegotiations between PEA and AMARI under an order issued by
then President Fidel V. Ramos. According to these reports, PEA
Director Nestor Kalaw, PEA Chairman Arsenio Yulo and retired Navy
Officer Sergio Cruz composed the negotiating panel of PEA.
On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition
for Prohibition with Application for the Issuance of a Temporary
Restraining Order and Preliminary Injunction docketed as G.R. No.
132994 seeking to nullify the JVA. The Court dismissed the petition "for
unwarranted disregard of judicial hierarchy, without prejudice to the
refiling of the case before the proper court." 12
On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity)
as a taxpayer, filed the instant Petition for Mandamus with Prayer for
the Issuance of a Writ of Preliminary Injunction and Temporary
Restraining Order. Petitioner contends the government stands to lose
billions of pesos in the sale by PEA of the reclaimed lands to AMARI.
Petitioner prays that PEA publicly disclose the terms of any
renegotiation of the JVA, invoking Section 28, Article II, and Section 7,
Article III, of the 1987 Constitution on the right of the people to
information on matters of public concern. Petitioner assails the sale to
AMARI of lands of the public domain as a blatant violation of Section 3,
Article XII of the 1987 Constitution prohibiting the sale of alienable
lands of the public domain to private corporations. Finally, petitioner
asserts that he seeks to enjoin the loss of billions of pesos in
properties of the State that are of public dominion.
After several motions for extension of time, 13 PEA and AMARI filed
their Comments on October 19, 1998 and June 25, 1998, respectively.
Meanwhile, on December 28, 1998, petitioner filed an Omnibus
Motion: (a) to require PEA to submit the terms of the renegotiated
PEA-AMARI contract; (b) for issuance of a temporary restraining order;
and (c) to set the case for hearing on oral argument. Petitioner filed a
Reiterative Motion for Issuance of a TRO dated May 26, 1999, which
the Court denied in a Resolution dated June 22, 1999.
In a Resolution dated March 23, 1999, the Court gave due course to
the petition and required the parties to file their respective memoranda.
On March 30, 1999, PEA and AMARI signed the Amended Joint
Venture Agreement ("Amended JVA," for brevity). On May 28, 1999,
the Office of the President under the administration of then President
Joseph E. Estrada approved the Amended JVA.
Due to the approval of the Amended JVA by the Office of the
President, petitioner now prays that on "constitutional and statutory
grounds the renegotiated contract be declared null and void." 14
The Issues
The issues raised by petitioner, PEA15 and AMARI16 are as follows:
I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN
THE PETITION ARE MOOT AND ACADEMIC BECAUSE
OF SUBSEQUENT EVENTS;
II. WHETHER THE PETITION MERITS DISMISSAL FOR
FAILING TO OBSERVE THE PRINCIPLE GOVERNING
THE HIERARCHY OF COURTS;
III. WHETHER THE PETITION MERITS DISMISSAL FOR
NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES;
IV. WHETHER PETITIONER HAS LOCUS STANDI TO
BRING THIS SUIT;
V. WHETHER THE CONSTITUTIONAL RIGHT TO
INFORMATION INCLUDES OFFICIAL INFORMATION ON
ON-GOING NEGOTIATIONS BEFORE A FINAL
AGREEMENT;
VI. WHETHER THE STIPULATIONS IN THE AMENDED
JOINT VENTURE AGREEMENT FOR THE TRANSFER TO
AMARI OF CERTAIN LANDS, RECLAIMED AND STILL TO
BE RECLAIMED, VIOLATE THE 1987 CONSTITUTION;
AND
VII. WHETHER THE COURT IS THE PROPER FORUM
FOR RAISING THE ISSUE OF WHETHER THE AMENDED
JOINT VENTURE AGREEMENT IS GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT.
The Court's Ruling
First issue: whether the principal reliefs prayed for in the petition
are moot and academic because of subsequent events.
The petition prays that PEA publicly disclose the "terms and conditions
of the on-going negotiations for a new agreement." The petition also
prays that the Court enjoin PEA from "privately entering into, perfecting
and/or executing any new agreement with AMARI."
PEA and AMARI claim the petition is now moot and academic because
AMARI furnished petitioner on June 21, 1999 a copy of the signed
Amended JVA containing the terms and conditions agreed upon in the
renegotiations. Thus, PEA has satisfied petitioner's prayer for a public
disclosure of the renegotiations. Likewise, petitioner's prayer to enjoin
the signing of the Amended JVA is now moot because PEA and
AMARI have already signed the Amended JVA on March 30, 1999.
Moreover, the Office of the President has approved the Amended JVA
on May 28, 1999.
Petitioner counters that PEA and AMARI cannot avoid the
constitutional issue by simply fast-tracking the signing and approval of
the Amended JVA before the Court could act on the issue. Presidential
approval does not resolve the constitutional issue or remove it from the
ambit of judicial review.
We rule that the signing of the Amended JVA by PEA and AMARI and
its approval by the President cannot operate to moot the petition and
divest the Court of its jurisdiction. PEA and AMARI have still to
implement the Amended JVA. The prayer to enjoin the signing of the
Amended JVA on constitutional grounds necessarily includes
preventing its implementation if in the meantime PEA and AMARI have
signed one in violation of the Constitution. Petitioner's principal basis in
assailing the renegotiation of the JVA is its violation of Section 3,
Article XII of the Constitution, which prohibits the government from
alienating lands of the public domain to private corporations. If the
Amended JVA indeed violates the Constitution, it is the duty of the
Court to enjoin its implementation, and if already implemented, to
annul the effects of such unconstitutional contract.
The Amended JVA is not an ordinary commercial contract but one
which seeks to transfer title and ownership to 367.5 hectares of
reclaimed lands and submerged areas of Manila Bay to a single
private corporation. It now becomes more compelling for the Court to
resolve the issue to insure the government itself does not violate a
provision of the Constitution intended to safeguard the national
patrimony. Supervening events, whether intended or accidental,
cannot prevent the Court from rendering a decision if there is a grave
violation of the Constitution. In the instant case, if the Amended JVA
runs counter to the Constitution, the Court can still prevent the transfer
of title and ownership of alienable lands of the public domain in the
name of AMARI. Even in cases where supervening events had made
the cases moot, the Court did not hesitate to resolve the legal or
constitutional issues raised to formulate controlling principles to guide
the bench, bar, and the public.17
Also, the instant petition is a case of first impression. All previous
decisions of the Court involving Section 3, Article XII of the 1987
Constitution, or its counterpart provision in the 1973
Constitution,18 covered agricultural landssold to private corporations
which acquired the lands from private parties. The transferors of the
private corporations claimed or could claim the right to judicial
confirmation of their imperfect titles19 under Title II of
Commonwealth Act. 141 ("CA No. 141" for brevity). In the instant case,
AMARI seeks to acquire from PEA, a public corporation, reclaimed
lands and submerged areas for non-agricultural purposes
by purchase under PD No. 1084 (charter of PEA) and Title III of CA
No. 141. Certain undertakings by AMARI under the Amended JVA
constitute the consideration for the purchase. Neither AMARI nor PEA
can claim judicial confirmation of their titles because the lands covered
by the Amended JVA are newly reclaimed or still to be reclaimed.
Judicial confirmation of imperfect title requires open, continuous,
exclusive and notorious occupation of agricultural lands of the public
domain for at least thirty years since June 12, 1945 or earlier. Besides,
the deadline for filing applications for judicial confirmation of imperfect
title expired on December 31, 1987.20
Lastly, there is a need to resolve immediately the constitutional issue
raised in this petition because of the possible transfer at any time by
PEA to AMARI of title and ownership to portions of the reclaimed
lands. Under the Amended JVA, PEA is obligated to transfer to AMARI
the latter's seventy percent proportionate share in the reclaimed areas
as the reclamation progresses. The Amended JVA even allows AMARI
to mortgage at any time the entirereclaimed area to raise financing for
the reclamation project.21
Second issue: whether the petition merits dismissal for failing to
observe the principle governing the hierarchy of courts.
PEA and AMARI claim petitioner ignored the judicial hierarchy by
seeking relief directly from the Court. The principle of hierarchy of
courts applies generally to cases involving factual questions. As it is
not a trier of facts, the Court cannot entertain cases involving factual
issues. The instant case, however, raises constitutional issues of
transcendental importance to the public. 22 The Court can resolve this
case without determining any factual issue related to the case. Also,
the instant case is a petition for mandamus which falls under the
original jurisdiction of the Court under Section 5, Article VIII of the
Constitution. We resolve to exercise primary jurisdiction over the
instant case.
Third issue: whether the petition merits dismissal for non-
exhaustion of administrative remedies.
PEA faults petitioner for seeking judicial intervention in compelling PEA
to disclose publicly certain information without first asking PEA the
needed information. PEA claims petitioner's direct resort to the Court
violates the principle of exhaustion of administrative remedies. It also
violates the rule that mandamus may issue only if there is no other
plain, speedy and adequate remedy in the ordinary course of law.
PEA distinguishes the instant case from Tañada v. Tuvera23 where the
Court granted the petition for mandamus even if the petitioners there
did not initially demand from the Office of the President the publication
of the presidential decrees. PEA points out that in Tañada, the
Executive Department had an affirmative statutory duty under Article
2 of the Civil Code24 and Section 1 of Commonwealth Act No. 638 25 to
publish the presidential decrees. There was, therefore, no need for the
petitioners in Tañada to make an initial demand from the Office of the
President. In the instant case, PEA claims it has no affirmative
statutory duty to disclose publicly information about its renegotiation of
the JVA. Thus, PEA asserts that the Court must apply the principle of
exhaustion of administrative remedies to the instant case in view of the
failure of petitioner here to demand initially from PEA the needed
information.
The original JVA sought to dispose to AMARI public lands held by
PEA, a government corporation. Under Section 79 of the Government
Auditing Code,26 the disposition of government lands to private parties
requires public bidding. PEA was under a positive legal duty to
disclose to the public the terms and conditions for the sale of its
lands. The law obligated PEA to make this public disclosure even
without demand from petitioner or from anyone. PEA failed to make
this public disclosure because the original JVA, like the Amended JVA,
was the result of a negotiated contract, not of a public bidding.
Considering that PEA had an affirmative statutory duty to make the
public disclosure, and was even in breach of this legal duty, petitioner
had the right to seek direct judicial intervention.
Moreover, and this alone is determinative of this issue, the principle of
exhaustion of administrative remedies does not apply when the issue
involved is a purely legal or constitutional question. 27 The principal
issue in the instant case is the capacity of AMARI to acquire lands held
by PEA in view of the constitutional ban prohibiting the alienation of
lands of the public domain to private corporations. We rule that the
principle of exhaustion of administrative remedies does not apply in the
instant case.
Fourth issue: whether petitioner has locus standi to bring this
suit
PEA argues that petitioner has no standing to
institute mandamus proceedings to enforce his constitutional right to
information without a showing that PEA refused to perform an
affirmative duty imposed on PEA by the Constitution. PEA also claims
that petitioner has not shown that he will suffer any concrete injury
because of the signing or implementation of the Amended JVA. Thus,
there is no actual controversy requiring the exercise of the power of
judicial review.
The petitioner has standing to bring this taxpayer's suit because the
petition seeks to compel PEA to comply with its constitutional duties.
There are two constitutional issues involved here. First is the right of
citizens to information on matters of public concern. Second is the
application of a constitutional provision intended to insure the equitable
distribution of alienable lands of the public domain among Filipino
citizens. The thrust of the first issue is to compel PEA to disclose
publicly information on the sale of government lands worth billions of
pesos, information which the Constitution and statutory law mandate
PEA to disclose. The thrust of the second issue is to prevent PEA from
alienating hundreds of hectares of alienable lands of the public domain
in violation of the Constitution, compelling PEA to comply with a
constitutional duty to the nation.
Moreover, the petition raises matters of transcendental importance to
the public. In Chavez v. PCGG,28 the Court upheld the right of a citizen
to bring a taxpayer's suit on matters of transcendental importance to
the public, thus -
"Besides, petitioner emphasizes, the matter of recovering the
ill-gotten wealth of the Marcoses is an issue of
'transcendental importance to the public.' He asserts that
ordinary taxpayers have a right to initiate and prosecute
actions questioning the validity of acts or orders of
government agencies or instrumentalities, if the issues
raised are of 'paramount public interest,' and if they
'immediately affect the social, economic and moral well
being of the people.'
Moreover, the mere fact that he is a citizen satisfies the
requirement of personal interest, when the proceeding
involves the assertion of a public right, such as in this case.
He invokes several decisions of this Court which have set
aside the procedural matter of locus standi, when the subject
of the case involved public interest.
xxx
In Tañada v. Tuvera, the Court asserted that when the issue
concerns a public right and the object of mandamus is to
obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is
sufficient that petitioner is a citizen and as such is interested
in the execution of the laws, he need not show that he has
any legal or special interest in the result of the action. In the
aforesaid case, the petitioners sought to enforce their right to
be informed on matters of public concern, a right then
recognized in Section 6, Article IV of the 1973 Constitution,
in connection with the rule that laws in order to be valid and
enforceable must be published in the Official Gazette or
otherwise effectively promulgated. In ruling for the
petitioners' legal standing, the Court declared that the right
they sought to be enforced 'is a public right recognized by no
less than the fundamental law of the land.'
Legaspi v. Civil Service Commission, while reiterating
Tañada, further declared that 'when a mandamus
proceeding involves the assertion of a public right, the
requirement of personal interest is satisfied by the mere fact
that petitioner is a citizen and, therefore, part of the general
'public' which possesses the right.'
Further, in Albano v. Reyes, we said that while expenditure
of public funds may not have been involved under the
questioned contract for the development, management and
operation of the Manila International Container Terminal,
'public interest [was] definitely involved considering the
 important role [of the subject contract] . . . in the economic issues and have access to information relating thereto can
development of the country and the magnitude of the such bear fruit."
financial consideration involved.' We concluded that, as a
consequence, the disclosure provision in the Constitution
PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going
would constitute sufficient authority for upholding the
negotiations the right to information is limited to "definite propositions
petitioner's standing.
of the government." PEA maintains the right does not include access to
"intra-agency or inter-agency recommendations or communications
Similarly, the instant petition is anchored on the right of the during the stage when common assertions are still in the process of
people to information and access to official records, being formulated or are in the 'exploratory stage'."
documents and papers — a right guaranteed under Section
7, Article III of the 1987 Constitution. Petitioner, a former
Also, AMARI contends that petitioner cannot invoke the right at the
solicitor general, is a Filipino citizen. Because of the
pre-decisional stage or before the closing of the transaction. To
satisfaction of the two basic requisites laid down by
support its contention, AMARI cites the following discussion in the
decisional law to sustain petitioner's legal standing, i.e. (1)
1986 Constitutional Commission:
the enforcement of a public right (2) espoused by a Filipino
citizen, we rule that the petition at bar should be allowed."
"Mr. Suarez. And when we say 'transactions' which should
be distinguished from contracts, agreements, or treaties or
We rule that since the instant petition, brought by a citizen, involves the
whatever, does the Gentleman refer to the steps leading to
enforcement of constitutional rights - to information and to the
the consummation of the contract, or does he refer to the
equitable diffusion of natural resources - matters of transcendental
contract itself?
public importance, the petitioner has the requisite locus standi.

Mr. Ople: The 'transactions' used here, I suppose is

Fifth issue: whether the constitutional right to information
generic and therefore, it can cover both steps leading to
includes official information on on-going negotiations before a
a contract and already a consummated contract, Mr.
final agreement.
Presiding Officer.

Section 7, Article III of the Constitution explains the people's right to

Mr. Suarez: This contemplates inclusion of negotiations
information on matters of public concern in this manner:
leading to the consummation of the transaction.

"Sec. 7. The right of the people to information on matters of

public concern shall be recognized. Access to official
records, and to documents, and papers pertaining to
official acts, transactions, or decisions, as well as to
government research data used as basis for policy
development, shall be afforded the citizen, subject to such
limitations as may be provided by law." (Emphasis supplied)
The State policy of full transparency in all transactions involving public
interest reinforces the people's right to information on matters of public
concern. This State policy is expressed in Section 28, Article II of the
Constitution, thus:
"Sec. 28. Subject to reasonable conditions prescribed by
law, the State adopts and implements a policy of full public
disclosure of all its transactions involving public
interest." (Emphasis supplied)
These twin provisions of the Constitution seek to promote transparency
in policy-making and in the operations of the government, as well as
provide the people sufficient information to exercise effectively other
constitutional rights. These twin provisions are essential to the exercise
of freedom of expression. If the government does not disclose its
official acts, transactions and decisions to citizens, whatever citizens
say, even if expressed without any restraint, will be speculative and
amount to nothing. These twin provisions are also essential to hold
public officials "at all times x x x accountable to the people," 29 for
unless citizens have the proper information, they cannot hold public
officials accountable for anything. Armed with the right information,
citizens can participate in public discussions leading to the formulation
of government policies and their effective implementation. An informed
citizenry is essential to the existence and proper functioning of any
democracy. As explained by the Court inValmonte v. Belmonte,
Jr.30 –
"An essential element of these freedoms is to keep open a
continuing dialogue or process of communication between
the government and the people. It is in the interest of the
State that the channels for free political discussion be
maintained to the end that the government may perceive and
be responsive to the people's will. Yet, this open dialogue
can be effective only to the extent that the citizenry is
informed and thus able to formulate its will intelligently. Only
when the participants in the discussion are aware of the
Mr. Ople: Yes, subject only to reasonable safeguards on
the national interest.
Mr. Suarez: Thank you."32 (Emphasis supplied)
AMARI argues there must first be a consummated contract before
petitioner can invoke the right. Requiring government officials to reveal
their deliberations at the pre-decisional stage will degrade the quality of
decision-making in government agencies. Government officials will
hesitate to express their real sentiments during deliberations if there is
immediate public dissemination of their discussions, putting them
under all kinds of pressure before they decide.
We must first distinguish between information the law on public bidding
requires PEA to disclose publicly, and information the constitutional
right to information requires PEA to release to the public. Before the
consummation of the contract, PEA must, on its own and without
demand from anyone, disclose to the public matters relating to the
disposition of its property. These include the size, location, technical
description and nature of the property being disposed of, the terms and
conditions of the disposition, the parties qualified to bid, the minimum
price and similar information. PEA must prepare all these data and
disclose them to the public at the start of the disposition process, long
before the consummation of the contract, because the Government
Auditing Code requires public bidding. If PEA fails to make this
disclosure, any citizen can demand from PEA this information at any
time during the bidding process.
Information, however, on on-going evaluation or review of bids or
proposals being undertaken by the bidding or review committee is not
immediately accessible under the right to information. While the
evaluation or review is still on-going, there are no "official acts,
transactions, or decisions" on the bids or proposals. However, once the
committee makes its official recommendation, there arises
a "definite proposition" on the part of the government. From this
moment, the public's right to information attaches, and any citizen can
access all the non-proprietary information leading to such definite
proposition. In Chavez v. PCGG,33 the Court ruled as follows:
"Considering the intent of the framers of the Constitution, we
believe that it is incumbent upon the PCGG and its officers,
as well as other government representatives, to disclose
sufficient public information on any proposed settlement they
 have decided to take up with the ostensible owners and
holders of ill-gotten wealth. Such information, though, must
pertain to definite propositions of the government, not
necessarily to intra-agency or inter-agency
recommendations or communications during the stage when
common assertions are still in the process of being
formulated or are in the "exploratory" stage. There is need,
of course, to observe the same restrictions on disclosure of
information in general, as discussed earlier – such as on
matters involving national security, diplomatic or foreign
relations, intelligence and other classified information."
(Emphasis supplied)
Contrary to AMARI's contention, the commissioners of the 1986
Constitutional Commission understood that the right to
information "contemplates inclusion of negotiations leading to the
consummation of the transaction." Certainly, a consummated
contract is not a requirement for the exercise of the right to information.
Otherwise, the people can never exercise the right if no contract is
consummated, and if one is consummated, it may be too late for the
public to expose its defects.1âwphi1.nêt
Requiring a consummated contract will keep the public in the dark until
the contract, which may be grossly disadvantageous to the
government or even illegal, becomes a fait accompli. This negates the
State policy of full transparency on matters of public concern, a
situation which the framers of the Constitution could not have intended.
Such a requirement will prevent the citizenry from participating in the
public discussion of any proposedcontract, effectively truncating a
basic right enshrined in the Bill of Rights. We can allow neither an
emasculation of a constitutional right, nor a retreat by the State of its
avowed "policy of full disclosure of all its transactions involving public
interest."
The right covers three categories of information which are "matters of
public concern," namely: (1) official records; (2) documents and papers
pertaining to official acts, transactions and decisions; and (3)
government research data used in formulating policies. The first
category refers to any document that is part of the public records in the
custody of government agencies or officials. The second category
refers to documents and papers recording, evidencing, establishing,
confirming, supporting, justifying or explaining official acts, transactions
or decisions of government agencies or officials. The third category
refers to research data, whether raw, collated or processed, owned by
the government and used in formulating government policies.
The information that petitioner may access on the renegotiation of the
JVA includes evaluation reports, recommendations, legal and expert
opinions, minutes of meetings, terms of reference and other
documents attached to such reports or minutes, all relating to the JVA.
However, the right to information does not compel PEA to prepare lists,
abstracts, summaries and the like relating to the renegotiation of the
JVA.34 The right only affords access to records, documents and
papers, which means the opportunity to inspect and copy them. One
who exercises the right must copy the records, documents and papers
at his expense. The exercise of the right is also subject to reasonable
regulations to protect the integrity of the public records and to minimize
disruption to government operations, like rules specifying when and
how to conduct the inspection and copying. 35
The right to information, however, does not extend to matters
recognized as privileged information under the separation of
powers.36 The right does not also apply to information on military and
diplomatic secrets, information affecting national security, and
information on investigations of crimes by law enforcement agencies
before the prosecution of the accused, which courts have long
recognized as confidential. 37 The right may also be subject to other
limitations that Congress may impose by law.
There is no claim by PEA that the information demanded by petitioner
is privileged information rooted in the separation of powers. The
information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings
which, like internal deliberations of the Supreme Court and other
collegiate courts, or executive sessions of either house of
Congress,38 are recognized as confidential. This kind of information
cannot be pried open by a co-equal branch of government. A frank
exchange of exploratory ideas and assessments, free from the glare of
publicity and pressure by interested parties, is essential to protect the
independence of decision-making of those tasked to exercise
Presidential, Legislative and Judicial power.39 This is not the situation
in the instant case.
We rule, therefore, that the constitutional right to information includes
official information on on-going negotiations before a final contract.
The information, however, must constitute definite propositions by the
government and should not cover recognized exceptions like privileged
information, military and diplomatic secrets and similar matters
affecting national security and public order.40 Congress has also
prescribed other limitations on the right to information in several
legislations.41
Sixth issue: whether stipulations in the Amended JVA for the
transfer to AMARI of lands, reclaimed or to be reclaimed, violate
the Constitution.
The Regalian Doctrine
The ownership of lands reclaimed from foreshore and submerged
areas is rooted in the Regalian doctrine which holds that the State
owns all lands and waters of the public domain. Upon the Spanish
conquest of the Philippines, ownership of all "lands, territories and
possessions" in the Philippines passed to the Spanish Crown. 42 The
King, as the sovereign ruler and representative of the people, acquired
and owned all lands and territories in the Philippines except those he
disposed of by grant or sale to private individuals.
The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine
substituting, however, the State, in lieu of the King, as the owner of all
lands and waters of the public domain. The Regalian doctrine is the
foundation of the time-honored principle of land ownership that "all
lands that were not acquired from the Government, either by purchase
or by grant, belong to the public domain." 43 Article 339 of the Civil Code
of 1889, which is now Article 420 of the Civil Code of 1950,
incorporated the Regalian doctrine.
Ownership and Disposition of Reclaimed Lands
The Spanish Law of Waters of 1866 was the first statutory law
governing the ownership and disposition of reclaimed lands in the
Philippines. On May 18, 1907, the Philippine Commission enacted Act
No. 1654 which provided for the lease, but not the sale, of
reclaimed lands of the government to corporations and
individuals. Later, on November 29, 1919, the Philippine Legislature
approved Act No. 2874, the Public Land Act, which authorized the
lease, but not the sale, of reclaimed lands of the government to
corporations and individuals. On November 7, 1936, the National
Assembly passed Commonwealth Act No. 141, also known as the
Public Land Act, which authorized the lease, but not the sale, of
reclaimed lands of the government to corporations and
individuals. CA No. 141 continues to this day as the general law
governing the classification and disposition of lands of the public
domain.
The Spanish Law of Waters of 1866 and the Civil Code of 1889
Under the Spanish Law of Waters of 1866, the shores, bays, coves,
inlets and all waters within the maritime zone of the Spanish territory
belonged to the public domain for public use. 44 The Spanish Law of
Waters of 1866 allowed the reclamation of the sea under Article 5,
which provided as follows:
"Article 5. Lands reclaimed from the sea in consequence of
works constructed by the State, or by the provinces, pueblos
or private persons, with proper permission, shall become the
property of the party constructing such works, unless
otherwise provided by the terms of the grant of authority."
Under the Spanish Law of Waters, land reclaimed from the sea public purposes will be leased for commercial and
belonged to the party undertaking the reclamation, provided the business purposes, x x x.
government issued the necessary permit and did not reserve
ownership of the reclaimed land to the State.
xxx

Article 339 of the Civil Code of 1889 defined property of public

(e) The leases above provided for shall be disposed of
dominion as follows:
to the highest and best bidder therefore, subject to such
regulations and safeguards as the Governor-General may by
"Art. 339. Property of public dominion is – executive order prescribe." (Emphasis supplied)

1. That devoted to public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State,
riverbanks, shores, roadsteads, and that of a similar
character;
2. That belonging exclusively to the State which, without
being of general public use, is employed in some public
service, or in the development of the national wealth, such
as walls, fortresses, and other works for the defense of the
territory, and mines, until granted to private individuals."
Act No. 1654 mandated that the government should retain title to all
lands reclaimed by the government. The Act also vested in the
government control and disposition of foreshore lands. Private parties
could lease lands reclaimed by the government only if these lands
were no longer needed for public purpose. Act No. 1654
mandated public bidding in the lease of government reclaimed lands.
Act No. 1654 made government reclaimed lands sui generis in that
unlike other public lands which the government could sell to private
parties, these reclaimed lands were available only for lease to private
parties.

Act No. 1654, however, did not repeal Section 5 of the Spanish Law of
Property devoted to public use referred to property open for use by the
Waters of 1866. Act No. 1654 did not prohibit private parties from
public. In contrast, property devoted to public service referred to
reclaiming parts of the sea under Section 5 of the Spanish Law of
property used for some specific public service and open only to those
Waters. Lands reclaimed from the sea by private parties with
authorized to use the property.
government permission remained private lands.

Property of public dominion referred not only to property devoted to

Act No. 2874 of the Philippine Legislature
public use, but also to property not so used but employed to develop
the national wealth. This class of property constituted property of
public dominion although employed for some economic or commercial On November 29, 1919, the Philippine Legislature enacted Act No.
activity to increase the national wealth. 2874, the Public Land Act. 46 The salient provisions of Act No. 2874, on
reclaimed lands, were as follows:
Article 341 of the Civil Code of 1889 governed the re-classification of
property of public dominion into private property, to wit: "Sec. 6. The Governor-General, upon the
recommendation of the Secretary of Agriculture and
Natural Resources, shall from time to time classify the
"Art. 341. Property of public dominion, when no longer
lands of the public domain into –
devoted to public use or to the defense of the territory, shall
become a part of the private property of the State."
(a) Alienable or disposable,
This provision, however, was not self-executing. The legislature, or the
executive department pursuant to law, must declare the property no (b) Timber, and
longer needed for public use or territorial defense before the
government could lease or alienate the property to private parties.45
(c) Mineral lands, x x x.

Act No. 1654 of the Philippine Commission

On May 8, 1907, the Philippine Commission enacted Act No. 1654
which regulated the lease of reclaimed and foreshore lands. The
salient provisions of this law were as follows:
"Section 1. The control and disposition of the
foreshore as defined in existing law, and the title to all
Government or public lands made or reclaimed by the
Government by dredging or filling or otherwise throughout
the Philippine Islands, shall be retained by the
Government without prejudice to vested rights and without
prejudice to rights conceded to the City of Manila in the
Luneta Extension.
Section 2. (a) The Secretary of the Interior shall cause all
Government or public lands made or reclaimed by the
Government by dredging or filling or otherwise to be divided
into lots or blocks, with the necessary streets and alleyways
located thereon, and shall cause plats and plans of such
surveys to be prepared and filed with the Bureau of Lands.
Sec. 7. For the purposes of the government and disposition
of alienable or disposable public lands, the Governor-
General, upon recommendation by the Secretary of
Agriculture and Natural Resources, shall from time to
time declare what lands are open to disposition or
concession under this Act."
Sec. 8. Only those lands shall be declared open to
disposition or concession which have been officially
delimited or classified x x x.
xxx
Sec. 55. Any tract of land of the public domain which, being
neither timber nor mineral land, shall be classified
as suitable for residential purposes or for commercial,
industrial, or other productive purposes other than
agricultural purposes, and shall be open to disposition or
concession, shall be disposed of under the provisions of this
chapter, and not otherwise.

Sec. 56. The lands disposable under this title shall be

(b) Upon completion of such plats and plans the Governor-
classified as follows:
General shall give notice to the public that such parts of
the lands so made or reclaimed as are not needed for
 (a) Lands reclaimed by the Government by
dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water
bordering upon the shores or banks of navigable
lakes or rivers;
(d) Lands not included in any of the foregoing
classes.
x x x.
Sec. 58. The lands comprised in classes (a), (b), and (c)
of section fifty-six shall be disposed of to private parties
by lease only and not otherwise, as soon as the
Governor-General, upon recommendation by the
Secretary of Agriculture and Natural Resources, shall
declare that the same are not necessary for the public
service and are open to disposition under this
chapter. The lands included in class (d) may be disposed
of by sale or lease under the provisions of this Act."
(Emphasis supplied)
Section 6 of Act No. 2874 authorized the Governor-General to "classify
lands of the public domain into x x x alienable or disposable" 47 lands.
Section 7 of the Act empowered the Governor-General to "declare
what lands are open to disposition or concession." Section 8 of the Act
limited alienable or disposable lands only to those lands which have
been "officially delimited and classified."
Section 56 of Act No. 2874 stated that lands "disposable under this
title48 shall be classified" as government reclaimed, foreshore and
marshy lands, as well as other lands. All these lands, however, must
be suitable for residential, commercial, industrial or other
productive non-agricultural purposes. These provisions vested upon
the Governor-General the power to classify inalienable lands of the
public domain into disposable lands of the public domain. These
provisions also empowered the Governor-General to classify further
such disposable lands of the public domain into government reclaimed,
foreshore or marshy lands of the public domain, as well as other non-
agricultural lands.
Section 58 of Act No. 2874 categorically mandated that disposable
lands of the public domain classified as government reclaimed,
foreshore and marshy lands "shall be disposed of to private parties
by lease only and not otherwise." The Governor-General, before
allowing the lease of these lands to private parties, must formally
declare that the lands were "not necessary for the public service." Act
No. 2874 reiterated the State policy to lease and not to sell
government reclaimed, foreshore and marshy lands of the public
domain, a policy first enunciated in 1907 in Act No. 1654. Government
reclaimed, foreshore and marshy lands remained sui generis, as the
only alienable or disposable lands of the public domain that the
government could not sell to private parties.
The rationale behind this State policy is obvious. Government
reclaimed, foreshore and marshy public lands for non-agricultural
purposes retain their inherent potential as areas for public service. This
is the reason the government prohibited the sale, and only allowed the
lease, of these lands to private parties. The State always reserved
these lands for some future public service.
Act No. 2874 did not authorize the reclassification of government
reclaimed, foreshore and marshy lands into other non-agricultural
lands under Section 56 (d). Lands falling under Section 56 (d) were the
only lands for non-agricultural purposes the government could sell to
private parties. Thus, under Act No. 2874, the government could not
sell government reclaimed, foreshore and marshy lands to private
parties, unless the legislature passed a law allowing their sale.49
Act No. 2874 did not prohibit private parties from reclaiming parts of
the sea pursuant to Section 5 of the Spanish Law of Waters of 1866.
Lands reclaimed from the sea by private parties with government
permission remained private lands.
Dispositions under the 1935 Constitution
On May 14, 1935, the 1935 Constitution took effect upon its ratification
by the Filipino people. The 1935 Constitution, in adopting the Regalian
doctrine, declared in Section 1, Article XIII, that –
"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, renewable for another 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 limit of the grant." (Emphasis supplied)
The 1935 Constitution barred the alienation of all natural resources
except public agricultural lands, which were the only natural resources
the State could alienate. Thus, foreshore lands, considered part of the
State's natural resources, became inalienable by constitutional fiat,
available only for lease for 25 years, renewable for another 25 years.
The government could alienate foreshore lands only after these lands
were reclaimed and classified as alienable agricultural lands of the
public domain. Government reclaimed and marshy lands of the public
domain, being neither timber nor mineral lands, fell under the
classification of public agricultural lands. 50 However, government
reclaimed and marshy lands, although subject to classification as
disposable public agricultural lands, could only be leased and not sold
to private parties because of Act No. 2874.
The prohibition on private parties from acquiring ownership of
government reclaimed and marshy lands of the public domain was only
a statutory prohibition and the legislature could therefore remove such
prohibition. The 1935 Constitution did not prohibit individuals and
corporations from acquiring government reclaimed and marshy lands
of the public domain that were classified as agricultural lands under
existing public land laws. Section 2, Article XIII of the 1935 Constitution
provided as follows:
"Section 2. No private corporation or association may
acquire, lease, or hold public agricultural lands in
excess of one thousand and twenty four hectares, nor
may any individual acquire such lands by purchase in
excess of one hundred and forty hectares, or by lease in
excess of one thousand and twenty-four hectares, or by
homestead in excess of twenty-four hectares. Lands
adapted to grazing, not exceeding two thousand hectares,
may be leased to an individual, private corporation, or
association." (Emphasis supplied)
Still, after the effectivity of the 1935 Constitution, the legislature did not
repeal Section 58 of Act No. 2874 to open for sale to private parties
government reclaimed and marshy lands of the public domain. On the
contrary, the legislature continued the long established State policy of
retaining for the government title and ownership of government
reclaimed and marshy lands of the public domain.
Commonwealth Act No. 141 of the Philippine National Assembly
On November 7, 1936, the National Assembly approved
Commonwealth Act No. 141, also known as the Public Land Act, which
compiled the then existing laws on lands of the public domain. CA No.
141, as amended, remains to this day the existing general
law governing the classification and disposition of lands of the public
domain other than timber and mineral lands.51
Section 6 of CA No. 141 empowers the President to classify lands of
the public domain into "alienable or disposable"52 lands of the public
domain, which prior to such classification are inalienable and outside
the commerce of man. Section 7 of CA No. 141 authorizes the
President to "declare what lands are open to disposition or
concession." Section 8 of CA No. 141 states that the government can
declare open for disposition or concession only lands that are "officially
delimited and classified." Sections 6, 7 and 8 of CA No. 141 read as
follows:
"Sec. 6. The President, upon the recommendation of the
Secretary of Agriculture and Commerce, shall from time
to time classify the lands of the public domain into –
(a) Alienable or disposable,
(b) Timber, and
(c) Mineral lands,
and may at any time and in like manner transfer such lands
from one class to another, 53 for the purpose of their
administration and disposition.
Sec. 7. For the purposes of the administration and
disposition of alienable or disposable public lands, the
President, upon recommendation by the Secretary of
Agriculture and Commerce, shall from time to time
declare what lands are open to disposition or
concession under this Act.
Sec. 8. Only those lands shall be declared open to
disposition or concession which have been officially
delimited and classified and, when practicable,
surveyed, and which have not been reserved for public
or quasi-public uses, nor appropriated by the Government,
nor in any manner become private property, nor those on
which a private right authorized and recognized by this Act
or any other valid law may be claimed, or which, having
been reserved or appropriated, have ceased to be so. x x x."
Thus, before the government could alienate or dispose of lands of the
public domain, the President must first officially classify these lands as
alienable or disposable, and then declare them open to disposition or
concession. There must be no law reserving these lands for public or
quasi-public uses.
The salient provisions of CA No. 141, on government reclaimed,
foreshore and marshy lands of the public domain, are as follows:
"Sec. 58. Any tract of land of the public domain which,
being neither timber nor mineral land, is intended to be
used for residential purposes or for commercial,
industrial, or other productive purposes other than
agricultural, and is open to disposition or concession,
shall be disposed of under the provisions of this
chapter and not otherwise.
Sec. 59. The lands disposable under this title shall be
classified as follows:
(a) Lands reclaimed by the Government by
dredging, filling, or other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water
bordering upon the shores or banks of navigable
lakes or rivers;
(d) Lands not included in any of the foregoing
classes.
Sec. 60. Any tract of land comprised under this title may be
leased or sold, as the case may be, to any person,
corporation, or association authorized to purchase or lease
public lands for agricultural purposes. x x x.
Sec. 61. The lands comprised in classes (a), (b), and (c)
of section fifty-nine shall be disposed of to private
parties by lease only and not otherwise, as soon as the
President, upon recommendation by the Secretary of
Agriculture, shall declare that the same are not
necessary for the public service and are open to
disposition under this chapter. The lands included in class
(d) may be disposed of by sale or lease under the
provisions of this Act." (Emphasis supplied)
Section 61 of CA No. 141 readopted, after the effectivity of the 1935
Constitution, Section 58 of Act No. 2874 prohibiting the sale of
government reclaimed, foreshore and marshy disposable lands of the
public domain. All these lands are intended for residential, commercial,
industrial or other non-agricultural purposes. As before, Section 61
allowed only the lease of such lands to private parties. The
government could sell to private parties only lands falling under
Section 59 (d) of CA No. 141, or those lands for non-agricultural
purposes not classified as government reclaimed, foreshore and
marshy disposable lands of the public domain. Foreshore lands,
however, became inalienable under the 1935 Constitution which only
allowed the lease of these lands to qualified private parties.
Section 58 of CA No. 141 expressly states that disposable lands of the
public domain intended for residential, commercial, industrial or other
productive purposes other than agricultural "shall be disposed of
under the provisions of this chapter and not otherwise." Under
Section 10 of CA No. 141, the term "disposition" includes lease of the
land. Any disposition of government reclaimed, foreshore and marshy
disposable lands for non-agricultural purposes must comply with
Chapter IX, Title III of CA No. 141, 54 unless a subsequent law amended
or repealed these provisions.
In his concurring opinion in the landmark case of Republic Real
Estate Corporation v. Court of Appeals,55Justice Reynato S. Puno
summarized succinctly the law on this matter, as follows:
"Foreshore lands are lands of public dominion intended for
public use. So too are lands reclaimed by the government by
dredging, filling, or other means. Act 1654 mandated that the
control and disposition of the foreshore and lands under
water remained in the national government. Said law allowed
only the 'leasing' of reclaimed land. The Public Land Acts of
1919 and 1936 also declared that the foreshore and lands
reclaimed by the government were to be "disposed of to
private parties by lease only and not otherwise." Before
leasing, however, the Governor-General, upon
recommendation of the Secretary of Agriculture and Natural
Resources, had first to determine that the land reclaimed
was not necessary for the public service. This requisite must
have been met before the land could be disposed of. But
even then, the foreshore and lands under water were not
to be alienated and sold to private parties. The
disposition of the reclaimed land was only by lease. The
land remained property of the State." (Emphasis supplied)
As observed by Justice Puno in his concurring opinion,
"Commonwealth Act No. 141 has remained in effect at present."
The State policy prohibiting the sale to private parties of government
reclaimed, foreshore and marshy alienable lands of the public domain,
first implemented in 1907 was thus reaffirmed in CA No. 141 after the
1935 Constitution took effect. The prohibition on the sale of foreshore
lands, however, became a constitutional edict under the 1935
Constitution. Foreshore lands became inalienable as natural resources
of the State, unless reclaimed by the government and classified as
agricultural lands of the public domain, in which case they would fall
under the classification of government reclaimed lands.
After the effectivity of the 1935 Constitution, government reclaimed and
marshy disposable lands of the public domain continued to be only
leased and not sold to private parties.56 These lands remained sui
generis, as the only alienable or disposable lands of the public domain
the government could not sell to private parties.
Since then and until now, the only way the government can sell to
private parties government reclaimed and marshy disposable lands of
the public domain is for the legislature to pass a law authorizing such
sale. CA No. 141 does not authorize the President to reclassify
government reclaimed and marshy lands into other non-agricultural
lands under Section 59 (d). Lands classified under Section 59 (d) are
the only alienable or disposable lands for non-agricultural purposes
that the government could sell to private parties.
Moreover, Section 60 of CA No. 141 expressly requires congressional
authority before lands under Section 59 that the government previously
transferred to government units or entities could be sold to private
parties. Section 60 of CA No. 141 declares that –
"Sec. 60. x x x The area so leased or sold shall be such as
shall, in the judgment of the Secretary of Agriculture and
Natural Resources, be reasonably necessary for the
purposes for which such sale or lease is requested, and
shall not exceed one hundred and forty-four hectares:
Provided, however, That this limitation shall not apply to
grants, donations, or transfers made to a province,
municipality or branch or subdivision of the Government for
the purposes deemed by said entities conducive to the
public interest;but the land so granted, donated, or
transferred to a province, municipality or branch or
subdivision of the Government shall not be alienated,
encumbered, or otherwise disposed of in a manner
affecting its title, except when authorized by Congress: x
x x." (Emphasis supplied)
The congressional authority required in Section 60 of CA No. 141
mirrors the legislative authority required in Section 56 of Act No. 2874.
One reason for the congressional authority is that Section 60 of CA No.
141 exempted government units and entities from the maximum area
of public lands that could be acquired from the State. These
government units and entities should not just turn around and sell
these lands to private parties in violation of constitutional or statutory
limitations. Otherwise, the transfer of lands for non-agricultural
purposes to government units and entities could be used to circumvent
constitutional limitations on ownership of alienable or disposable lands
of the public domain. In the same manner, such transfers could also be
used to evade the statutory prohibition in CA No. 141 on the sale of
government reclaimed and marshy lands of the public domain to
private parties. Section 60 of CA No. 141 constitutes by operation of
law a lien on these lands. 57
In case of sale or lease of disposable lands of the public domain
falling under Section 59 of CA No. 141, Sections 63 and 67 require a
public bidding. Sections 63 and 67 of CA No. 141 provide as follows:
"Sec. 63. Whenever it is decided that lands covered by this
chapter are not needed for public purposes, the Director of
Lands shall ask the Secretary of Agriculture and Commerce
(now the Secretary of Natural Resources) for authority to
dispose of the same. Upon receipt of such authority, the
Director of Lands shall give notice by public advertisement in
the same manner as in the case of leases or sales of
agricultural public land, x x x.
Sec. 67. The lease or sale shall be made by oral bidding;
and adjudication shall be made to the highest bidder. x x
x." (Emphasis supplied)
Thus, CA No. 141 mandates the Government to put to public auction
all leases or sales of alienable or disposable lands of the public
domain.58
Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not
repeal Section 5 of the Spanish Law of Waters of 1866. Private parties
could still reclaim portions of the sea with government permission.
However, the reclaimed land could become private land only if
classified as alienable agricultural land of the public domain open
to disposition under CA No. 141. The 1935 Constitution prohibited the
alienation of all natural resources except public agricultural lands.
The Civil Code of 1950
The Civil Code of 1950 readopted substantially the definition of
property of public dominion found in the Civil Code of 1889. Articles
420 and 422 of the Civil Code of 1950 state that –
"Art. 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth.
x x x.
Art. 422. Property of public dominion, when no longer
intended for public use or for public service, shall form part
of the patrimonial property of the State."
Again, the government must formally declare that the property of public
dominion is no longer needed for public use or public service, before
the same could be classified as patrimonial property of the State. 59 In
the case of government reclaimed and marshy lands of the public
domain, the declaration of their being disposable, as well as the
manner of their disposition, is governed by the applicable provisions of
CA No. 141.
Like the Civil Code of 1889, the Civil Code of 1950 included as
property of public dominion those properties of the State which, without
being for public use, are intended for public service or the
"development of the national wealth." Thus, government reclaimed
and marshy lands of the State, even if not employed for public use or
public service, if developed to enhance the national wealth, are
classified as property of public dominion.
Dispositions under the 1973 Constitution
The 1973 Constitution, which took effect on January 17, 1973, likewise
adopted the Regalian doctrine. Section 8, Article XIV of the 1973
Constitution stated that –
"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." (Emphasis supplied)
The 1973 Constitution prohibited the alienation of all natural resources
with the exception of "agricultural, industrial or commercial, residential,
and resettlement lands of the public domain." In contrast, the 1935
Constitution barred the alienation of all natural resources except
"public agricultural lands." However, the term "public agricultural lands"
in the 1935 Constitution encompassed industrial, commercial,
residential and resettlement lands of the public domain. 60 If the land of
public domain were neither timber nor mineral land, it would fall under
the classification of agricultural land of the public domain. Both the
1935 and 1973 Constitutions, therefore, prohibited the alienation
of all natural resources except agricultural lands of the public
domain.
The 1973 Constitution, however, limited the alienation of lands of the
public domain to individuals who were citizens of the Philippines.
Private corporations, even if wholly owned by Philippine citizens, were
no longer allowed to acquire alienable lands of the public domain
unlike in the 1935 Constitution. Section 11, Article XIV of the 1973
Constitution declared that –
"Sec. 11. The Batasang Pambansa, taking into account
conservation, ecological, and development requirements of
the natural resources, shall determine by law the size of land
of the public domain which may be developed, held or
acquired by, or leased to, any qualified individual,
corporation, or association, and the conditions therefor. No
private corporation or association may hold alienable
lands of the public domain except by lease not to exceed
one thousand hectares in area nor may any citizen hold such
lands by lease in excess of five hundred hectares or acquire
by purchase, homestead or grant, in excess of twenty-four
hectares. No private corporation or association may hold by
lease, concession, license or permit, timber or forest lands
and other timber or forest resources in excess of one
hundred thousand hectares. However, such area may be
increased by the Batasang Pambansa upon
recommendation of the National Economic and Development
Authority." (Emphasis supplied)
Thus, under the 1973 Constitution, private corporations could hold
alienable lands of the public domain only through lease. Only
individuals could now acquire alienable lands of the public domain,
and private corporations became absolutely barred from
acquiring any kind of alienable land of the public domain. The
constitutional ban extended to all kinds of alienable lands of the public
domain, while the statutory ban under CA No. 141 applied only to
government reclaimed, foreshore and marshy alienable lands of the
public domain.
PD No. 1084 Creating the Public Estates Authority
On February 4, 1977, then President Ferdinand Marcos issued
Presidential Decree No. 1084 creating PEA, a wholly government
owned and controlled corporation with a special charter. Sections 4
and 8 of PD No. 1084, vests PEA with the following purposes and
powers:
"Sec. 4. Purpose. The Authority is hereby created for the
following purposes:
(a) To reclaim land, including foreshore and submerged
areas, by dredging, filling or other means, or to acquire
reclaimed land;
(b) To develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of
lands, buildings, estates and other forms of real property,
owned, managed, controlled and/or operated by the
government;
(c) To provide for, operate or administer such service as may
be necessary for the efficient, economical and beneficial
utilization of the above properties.
Sec. 5. Powers and functions of the Authority. The Authority
shall, in carrying out the purposes for which it is created,
have the following powers and functions:
(a)To prescribe its by-laws.
xxx
(i) To hold lands of the public domain in excess of the
area permitted to private corporations by statute.
(j) To reclaim lands and to construct work across, or
otherwise, any stream, watercourse, canal, ditch, flume x x
x.
xxx
(o) To perform such acts and exercise such functions as
may be necessary for the attainment of the purposes and
objectives herein specified." (Emphasis supplied)
PD No. 1084 authorizes PEA to reclaim both foreshore and submerged
areas of the public domain. Foreshore areas are those covered and
uncovered by the ebb and flow of the tide. 61 Submerged areas are
those permanently under water regardless of the ebb and flow of the
tide.62 Foreshore and submerged areas indisputably belong to the
public domain63 and are inalienable unless reclaimed, classified as
alienable lands open to disposition, and further declared no longer
needed for public service.
The ban in the 1973 Constitution on private corporations from
acquiring alienable lands of the public domain did not apply to PEA
since it was then, and until today, a fully owned government
corporation. The constitutional ban applied then, as it still applies now,
only to "private corporations and associations." PD No. 1084 expressly
empowers PEA "to hold lands of the public domain" even "in
excess of the area permitted to private corporations by statute." Thus,
PEA can hold title to private lands, as well as title to lands of the
public domain.
In order for PEA to sell its reclaimed foreshore and submerged
alienable lands of the public domain, there must be legislative authority
empowering PEA to sell these lands. This legislative authority is
necessary in view of Section 60 of CA No.141, which states –
"Sec. 60. x x x; but the land so granted, donated or
transferred to a province, municipality, or branch or
subdivision of the Government shall not be alienated,
encumbered or otherwise disposed of in a manner affecting
its title, except when authorized by Congress; x x x."
(Emphasis supplied)
Without such legislative authority, PEA could not sell but only lease its
reclaimed foreshore and submerged alienable lands of the public
domain. Nevertheless, any legislative authority granted to PEA to sell
its reclaimed alienable lands of the public domain would be subject to
the constitutional ban on private corporations from acquiring alienable
lands of the public domain. Hence, such legislative authority could only
benefit private individuals.
Dispositions under the 1987 Constitution
The 1987 Constitution, like the 1935 and 1973 Constitutions before it,
has adopted the Regalian doctrine. The 1987 Constitution declares
that all natural resources are "owned by the State," and except for
alienable agricultural lands of the public domain, natural resources
cannot be alienated. Sections 2 and 3, Article XII of the 1987
Constitution state that –
"Section 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. x x x.
Section 3. Lands of the public domain are classified into
agricultural, forest or timber, mineral lands, and national
parks. Agricultural lands of the public domain may be further
classified by law according to the uses which they may be
devoted. Alienable lands of the public domain shall be
limited to agricultural lands. Private corporations or
associations may not hold such alienable lands of the
public domain except by lease, for a period not
exceeding twenty-five years, renewable for not more
than twenty-five years, and not to exceed one thousand
hectares in area. Citizens of the Philippines may lease not
more than five hundred hectares, or acquire not more than
twelve hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation,
ecology, and development, and subject to the requirements
of agrarian reform, the Congress shall determine, by law, the
size of lands of the public domain which may be acquired,
developed, held, or leased and the conditions therefor."
(Emphasis supplied)
The 1987 Constitution continues the State policy in the 1973
Constitution banning private corporations fromacquiring any kind of
alienable land of the public domain. Like the 1973 Constitution, the
1987 Constitution allows private corporations to hold alienable lands of
the public domain only through lease. As in the 1935 and 1973
Constitutions, the general law governing the lease to private
corporations of reclaimed, foreshore and marshy alienable lands of the
public domain is still CA No. 141.
The Rationale behind the Constitutional Ban
The rationale behind the constitutional ban on corporations from
acquiring, except through lease, alienable lands of the public domain is
not well understood. During the deliberations of the 1986 Constitutional
Commission, the commissioners probed the rationale behind this ban,
thus:
"FR. BERNAS: Mr. Vice-President, my questions have
reference to page 3, line 5 which says:
`No private corporation or association may hold alienable
lands of the public domain except by lease, not to exceed
one thousand hectares in area.'
If we recall, this provision did not exist under the 1935
Constitution, but this was introduced in the 1973
Constitution. In effect, it prohibits private corporations from
acquiring alienable public lands. But it has not been very
clear in jurisprudence what the reason for this is. In
some of the cases decided in 1982 and 1983, it was
indicated that the purpose of this is to prevent large
landholdings. Is that the intent of this provision?
MR. VILLEGAS: I think that is the spirit of the provision.
FR. BERNAS: In existing decisions involving the Iglesia ni
Cristo, there were instances where the Iglesia ni Cristo was
not allowed to acquire a mere 313-square meter land where
a chapel stood because the Supreme Court said it would be
in violation of this." (Emphasis supplied)
In Ayog v. Cusi,64 the Court explained the rationale behind this
constitutional ban in this way:
"Indeed, one purpose of the constitutional prohibition against
purchases of public agricultural lands by private corporations
is to equitably diffuse land ownership or to encourage
'owner-cultivatorship and the economic family-size farm' and
to prevent a recurrence of cases like the instant case. Huge
landholdings by corporations or private persons had
spawned social unrest."
However, if the constitutional intent is to prevent huge landholdings,
the Constitution could have simply limited the size of alienable lands of
the public domain that corporations could acquire. The Constitution
could have followed the limitations on individuals, who could acquire
not more than 24 hectares of alienable lands of the public domain
under the 1973 Constitution, and not more than 12 hectares under the
1987 Constitution.
If the constitutional intent is to encourage economic family-size farms,
placing the land in the name of a corporation would be more effective
in preventing the break-up of farmlands. If the farmland is registered in
the name of a corporation, upon the death of the owner, his heirs
would inherit shares in the corporation instead of subdivided parcels of
the farmland. This would prevent the continuing break-up of farmlands
into smaller and smaller plots from one generation to the next.
In actual practice, the constitutional ban strengthens the constitutional
limitation on individuals from acquiring more than the allowed area of
alienable lands of the public domain. Without the constitutional ban,
individuals who already acquired the maximum area of alienable lands
of the public domain could easily set up corporations to acquire more
alienable public lands. An individual could own as many corporations
as his means would allow him. An individual could even hide his
ownership of a corporation by putting his nominees as stockholders of
the corporation. The corporation is a convenient vehicle to circumvent
the constitutional limitation on acquisition by individuals of alienable
lands of the public domain.
The constitutional intent, under the 1973 and 1987 Constitutions, is to
transfer ownership of only a limited area of alienable land of the public
domain to a qualified individual. This constitutional intent is
safeguarded by the provision prohibiting corporations from acquiring
alienable lands of the public domain, since the vehicle to circumvent
the constitutional intent is removed. The available alienable public
lands are gradually decreasing in the face of an ever-growing
population. The most effective way to insure faithful adherence to this
constitutional intent is to grant or sell alienable lands of the public
domain only to individuals. This, it would seem, is the practical benefit
arising from the constitutional ban.
The Amended Joint Venture Agreement
The subject matter of the Amended JVA, as stated in its second
Whereas clause, consists of three properties, namely:
1. "[T]hree partially reclaimed and substantially eroded
islands along Emilio Aguinaldo Boulevard in Paranaque and
Las Pinas, Metro Manila, with a combined titled area of
1,578,441 square meters;"
2. "[A]nother area of 2,421,559 square meters contiguous to
the three islands;" and
 3. "[A]t AMARI's option as approved by PEA, an additional
350 hectares more or less to regularize the configuration of
the reclaimed area."65
PEA confirms that the Amended JVA involves "the development of the
Freedom Islands and further reclamation of about 250 hectares x x x,"
plus an option "granted to AMARI to subsequently reclaim another 350
hectares x x x."66
In short, the Amended JVA covers a reclamation area of 750
hectares. Only 157.84 hectares of the 750-hectare reclamation
project have been reclaimed, and the rest of the 592.15 hectares
are still submerged areas forming part of Manila Bay.
Under the Amended JVA, AMARI will reimburse PEA the sum of
P1,894,129,200.00 for PEA's "actual cost" in partially reclaiming the
Freedom Islands. AMARI will also complete, at its own expense, the
reclamation of the Freedom Islands. AMARI will further shoulder all the
reclamation costs of all the other areas, totaling 592.15 hectares, still
to be reclaimed. AMARI and PEA will share, in the proportion of 70
percent and 30 percent, respectively, the total net usable area which is
defined in the Amended JVA as the total reclaimed area less 30
percent earmarked for common areas. Title to AMARI's share in the
net usable area, totaling 367.5 hectares, will be issued in the name of
AMARI. Section 5.2 (c) of the Amended JVA provides that –
"x x x, PEA shall have the duty to execute without delay the
necessary deed of transfer or conveyance of the title
pertaining to AMARI's Land share based on the Land
Allocation Plan. PEA, when requested in writing by
AMARI, shall then cause the issuance and delivery of
the proper certificates of title covering AMARI's Land
Share in the name of AMARI, x x x; provided, that if more
than seventy percent (70%) of the titled area at any given
time pertains to AMARI, PEA shall deliver to AMARI only
seventy percent (70%) of the titles pertaining to AMARI, until
such time when a corresponding proportionate area of
additional land pertaining to PEA has been titled." (Emphasis
supplied)
Indisputably, under the Amended JVA AMARI will acquire and
own a maximum of 367.5 hectares of reclaimed land which will be
titled in its name.
To implement the Amended JVA, PEA delegated to the unincorporated
PEA-AMARI joint venture PEA's statutory authority, rights and
privileges to reclaim foreshore and submerged areas in Manila Bay.
Section 3.2.a of the Amended JVA states that –
"PEA hereby contributes to the joint venture its rights and
privileges to perform Rawland Reclamation and Horizontal
Development as well as own the Reclamation Area, thereby
granting the Joint Venture the full and exclusive right,
authority and privilege to undertake the Project in
accordance with the Master Development Plan."
The Amended JVA is the product of a renegotiation of the original JVA
dated April 25, 1995 and its supplemental agreement dated August 9,
1995.
The Threshold Issue
The threshold issue is whether AMARI, a private corporation, can
acquire and own under the Amended JVA 367.5 hectares of reclaimed
foreshore and submerged areas in Manila Bay in view of Sections 2
and 3, Article XII of the 1987 Constitution which state that:
"Section 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. x x x.
xxx
Section 3. x x x Alienable lands of the public domain shall be
limited to agricultural lands. Private corporations or
associations may not hold such alienable lands of the
public domain except by lease, x x x."(Emphasis supplied)
Classification of Reclaimed Foreshore and Submerged Areas
PEA readily concedes that lands reclaimed from foreshore or
submerged areas of Manila Bay are alienable or disposable lands of
the public domain. In its Memorandum,67 PEA admits that –
"Under the Public Land Act (CA 141, as
amended), reclaimed lands are classified as alienable
and disposable lands of the public domain:
'Sec. 59. The lands disposable under this title shall
be classified as follows:
(a) Lands reclaimed by the government by
dredging, filling, or other means;
x x x.'" (Emphasis supplied)
Likewise, the Legal Task Force68 constituted under Presidential
Administrative Order No. 365 admitted in its Report and
Recommendation to then President Fidel V. Ramos, "[R]eclaimed
lands are classified as alienable and disposable lands of the
public domain."69 The Legal Task Force concluded that –
"D. Conclusion
Reclaimed lands are lands of the public domain. However,
by statutory authority, the rights of ownership and disposition
over reclaimed lands have been transferred to PEA, by
virtue of which PEA, as owner, may validly convey the same
to any qualified person without violating the Constitution or
any statute.
The constitutional provision prohibiting private corporations
from holding public land, except by lease (Sec. 3, Art.
XVII,70 1987 Constitution), does not apply to reclaimed lands
whose ownership has passed on to PEA by statutory grant."
Under Section 2, Article XII of the 1987 Constitution, the foreshore and
submerged areas of Manila Bay are part of the "lands of the public
domain, waters x x x and other natural resources" and consequently
"owned by the State." As such, foreshore and submerged areas "shall
not be alienated," unless they are classified as "agricultural lands" of
the public domain. The mere reclamation of these areas by PEA does
not convert these inalienable natural resources of the State into
alienable or disposable lands of the public domain. There must be a
law or presidential proclamation officially classifying these reclaimed
lands as alienable or disposable and open to disposition or
concession. Moreover, these reclaimed lands cannot be classified as
alienable or disposable if the law has reserved them for some public or
quasi-public use.71
Section 8 of CA No. 141 provides that "only those lands shall be
declared open to disposition or concession which have been officially
delimited and classified."72 The President has the authority to classify
inalienable lands of the public domain into alienable or disposable
lands of the public domain, pursuant to Section 6 of CA No. 141. In
Laurel vs. Garcia,73 the Executive Department attempted to sell the
Roppongi property in Tokyo, Japan, which was acquired by the
Philippine Government for use as the Chancery of the Philippine
Embassy. Although the Chancery had transferred to another location
thirteen years earlier, the Court still ruled that, under Article 422 74of the
Civil Code, a property of public dominion retains such character until
formally declared otherwise. The Court ruled that –
"The fact that the Roppongi site has not been used for a long
time for actual Embassy service does not automatically
convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use
(Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481
[1975]. A property continues to be part of the public
domain, not available for private appropriation or
ownership 'until there is a formal declaration on the part
of the government to withdraw it from being
such' (Ignacio v. Director of Lands, 108 Phil. 335 [1960]."
(Emphasis supplied)
PD No. 1085, issued on February 4, 1977, authorized the issuance of
special land patents for lands reclaimed by PEA from the foreshore or
submerged areas of Manila Bay. On January 19, 1988 then President
Corazon C. Aquino issued Special Patent No. 3517 in the name of
PEA for the 157.84 hectares comprising the partially reclaimed
Freedom Islands. Subsequently, on April 9, 1999 the Register of
Deeds of the Municipality of Paranaque issued TCT Nos. 7309, 7311
and 7312 in the name of PEA pursuant to Section 103 of PD No. 1529
authorizing the issuance of certificates of title corresponding to land
patents. To this day, these certificates of title are still in the name of
PEA.
PD No. 1085, coupled with President Aquino's actual issuance of a
special patent covering the Freedom Islands, is equivalent to an official
proclamation classifying the Freedom Islands as alienable or
disposable lands of the public domain. PD No. 1085 and President
Aquino's issuance of a land patent also constitute a declaration that the
Freedom Islands are no longer needed for public service. The
Freedom Islands are thus alienable or disposable lands of the
public domain, open to disposition or concession to qualified
parties.
At the time then President Aquino issued Special Patent No. 3517,
PEA had already reclaimed the Freedom Islands although
subsequently there were partial erosions on some areas. The
government had also completed the necessary surveys on these
islands. Thus, the Freedom Islands were no longer part of Manila Bay
but part of the land mass. Section 3, Article XII of the 1987 Constitution
classifies lands of the public domain into "agricultural, forest or timber,
mineral lands, and national parks." Being neither timber, mineral, nor
national park lands, the reclaimed Freedom Islands necessarily fall
under the classification of agricultural lands of the public domain.
Under the 1987 Constitution, agricultural lands of the public domain
are the only natural resources that the State may alienate to qualified
private parties. All other natural resources, such as the seas or bays,
are "waters x x x owned by the State" forming part of the public
domain, and are inalienable pursuant to Section 2, Article XII of the
1987 Constitution.
AMARI claims that the Freedom Islands are private lands because
CDCP, then a private corporation, reclaimed the islands under a
contract dated November 20, 1973 with the Commissioner of Public
Highways. AMARI, citing Article 5 of the Spanish Law of Waters of
1866, argues that "if the ownership of reclaimed lands may be given to
the party constructing the works, then it cannot be said that reclaimed
lands are lands of the public domain which the State may not
alienate."75 Article 5 of the Spanish Law of Waters reads as follows:
"Article 5. Lands reclaimed from the sea in consequence of
works constructed by the State, or by the provinces, pueblos
or private persons, with proper permission, shall become the
property of the party constructing such works, unless
otherwise provided by the terms of the grant of
authority." (Emphasis supplied)
Under Article 5 of the Spanish Law of Waters of 1866, private parties
could reclaim from the sea only with "proper permission" from the
State. Private parties could own the reclaimed land only if not
"otherwise provided by the terms of the grant of authority." This clearly
meant that no one could reclaim from the sea without permission from
the State because the sea is property of public dominion. It also meant
that the State could grant or withhold ownership of the reclaimed land
because any reclaimed land, like the sea from which it emerged,
belonged to the State. Thus, a private person reclaiming from the sea
without permission from the State could not acquire ownership of the
reclaimed land which would remain property of public dominion like the
sea it replaced.76 Article 5 of the Spanish Law of Waters of 1866
adopted the time-honored principle of land ownership that "all lands
that were not acquired from the government, either by purchase or by
grant, belong to the public domain." 77
Article 5 of the Spanish Law of Waters must be read together with laws
subsequently enacted on the disposition of public lands. In particular,
CA No. 141 requires that lands of the public domain must first be
classified as alienable or disposable before the government can
alienate them. These lands must not be reserved for public or quasi-
public purposes.78 Moreover, the contract between CDCP and the
government was executed after the effectivity of the 1973 Constitution
which barred private corporations from acquiring any kind of alienable
land of the public domain. This contract could not have converted the
Freedom Islands into private lands of a private corporation.
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all
laws authorizing the reclamation of areas under water and revested
solely in the National Government the power to reclaim lands. Section
1 of PD No. 3-A declared that –
"The provisions of any law to the contrary
notwithstanding, the reclamation of areas under water,
whether foreshore or inland, shall be limited to the
National Government or any person authorized by it
under a proper contract. (Emphasis supplied)
x x x."
PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866
because reclamation of areas under water could now be undertaken
only by the National Government or by a person contracted by the
National Government. Private parties may reclaim from the sea only
under a contract with the National Government, and no longer by grant
or permission as provided in Section 5 of the Spanish Law of Waters of
1866.
Executive Order No. 525, issued on February 14, 1979, designated
PEA as the National Government's implementing arm to undertake "all
reclamation projects of the government," which "shall be undertaken
by the PEA or through a proper contract executed by it with any
person or entity." Under such contract, a private party receives
compensation for reclamation services rendered to PEA. Payment to
the contractor may be in cash, or in kind consisting of portions of the
reclaimed land, subject to the constitutional ban on private
corporations from acquiring alienable lands of the public domain. The
reclaimed land can be used as payment in kind only if the reclaimed
land is first classified as alienable or disposable land open to
disposition, and then declared no longer needed for public service.
The Amended JVA covers not only the Freedom Islands, but also an
additional 592.15 hectares which are still submerged and forming part
of Manila Bay. There is no legislative or Presidential act
classifying these submerged areas as alienable or disposable
lands of the public domain open to disposition. These submerged
areas are not covered by any patent or certificate of title. There can be
no dispute that these submerged areas form part of the public domain,
and in their present state are inalienable and outside the commerce
of man. Until reclaimed from the sea, these submerged areas are,
under the Constitution, "waters x x x owned by the State," forming part
of the public domain and consequently inalienable. Only when actually
reclaimed from the sea can these submerged areas be classified as
public agricultural lands, which under the Constitution are the only
natural resources that the State may alienate. Once reclaimed and
transformed into public agricultural lands, the government may then
officially classify these lands as alienable or disposable lands open to
disposition. Thereafter, the government may declare these lands no
longer needed for public service. Only then can these reclaimed lands
be considered alienable or disposable lands of the public domain and
within the commerce of man.
The classification of PEA's reclaimed foreshore and submerged lands
into alienable or disposable lands open to disposition is necessary
because PEA is tasked under its charter to undertake public services
that require the use of lands of the public domain. Under Section 5 of
PD No. 1084, the functions of PEA include the following: "[T]o own or
operate railroads, tramways and other kinds of land transportation, x x
x; [T]o construct, maintain and operate such systems of sanitary
sewers as may be necessary; [T]o construct, maintain and operate
such storm drains as may be necessary." PEA is empowered to issue
"rules and regulations as may be necessary for the proper use by
private parties of any or all of the highways, roads, utilities,
buildings and/or any of its properties and to impose or collect fees
or tolls for their use." Thus, part of the reclaimed foreshore and
submerged lands held by the PEA would actually be needed for public
use or service since many of the functions imposed on PEA by its
charter constitute essential public services.
Moreover, Section 1 of Executive Order No. 525 provides that PEA
"shall be primarily responsible for integrating, directing, and
coordinating all reclamation projects for and on behalf of the National
Government." The same section also states that "[A]ll reclamation
projects shall be approved by the President upon recommendation of
the PEA, and shall be undertaken by the PEA or through a proper
contract executed by it with any person or entity; x x x." Thus, under
EO No. 525, in relation to PD No. 3-A and PD No.1084, PEA became
the primary implementing agency of the National Government to
reclaim foreshore and submerged lands of the public domain. EO No.
525 recognized PEA as the government entity "to undertake the
reclamation of lands and ensure their maximum utilization
in promoting public welfare and interests."79 Since large portions of
these reclaimed lands would obviously be needed for public service,
there must be a formal declaration segregating reclaimed lands no
longer needed for public service from those still needed for public
service.1âwphi1.nêt
Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA
"shall belong to or be owned by the PEA," could not automatically
operate to classify inalienable lands into alienable or disposable lands
of the public domain. Otherwise, reclaimed foreshore and submerged
lands of the public domain would automatically become alienable once
reclaimed by PEA, whether or not classified as alienable or disposable.
The Revised Administrative Code of 1987, a later law than either PD
No. 1084 or EO No. 525, vests in the Department of Environment and
Natural Resources ("DENR" for brevity) the following powers and
functions:
"Sec. 4. Powers and Functions. The Department shall:
(1) x x x
xxx
(4) Exercise supervision and control over forest
lands, alienable and disposable public lands, mineral
resources and, in the process of exercising such control,
impose appropriate taxes, fees, charges, rentals and any
such form of levy and collect such revenues for the
exploration, development, utilization or gathering of such
resources;
xxx
(14) Promulgate rules, regulations and guidelines on the
issuance of licenses, permits, concessions, lease
agreements and such other privileges concerning the
development, exploration and utilization of the country's
marine, freshwater, and brackish water and over all
aquatic resources of the country and shall continue to
oversee, supervise and police our natural resources;
cancel or cause to cancel such privileges upon failure, non-
compliance or violations of any regulation, order, and for all
other causes which are in furtherance of the conservation of
natural resources and supportive of the national interest;
(15) Exercise exclusive jurisdiction on the management
and disposition of all lands of the public domain and
serve as the sole agency responsible for classification,
sub-classification, surveying and titling of lands in
consultation with appropriate agencies."80 (Emphasis
supplied)
As manager, conservator and overseer of the natural resources of the
State, DENR exercises "supervision and control over alienable and
disposable public lands." DENR also exercises "exclusive jurisdiction
on the management and disposition of all lands of the public domain."
Thus, DENR decides whether areas under water, like foreshore or
submerged areas of Manila Bay, should be reclaimed or not. This
means that PEA needs authorization from DENR before PEA can
undertake reclamation projects in Manila Bay, or in any part of the
country.
DENR also exercises exclusive jurisdiction over the disposition of all
lands of the public domain. Hence, DENR decides whether reclaimed
lands of PEA should be classified as alienable under Sections 6 81 and
782 of CA No. 141. Once DENR decides that the reclaimed lands
should be so classified, it then recommends to the President the
issuance of a proclamation classifying the lands as alienable or
disposable lands of the public domain open to disposition. We note
that then DENR Secretary Fulgencio S. Factoran, Jr. countersigned
Special Patent No. 3517 in compliance with the Revised Administrative
Code and Sections 6 and 7 of CA No. 141.
In short, DENR is vested with the power to authorize the reclamation of
areas under water, while PEA is vested with the power to undertake
the physical reclamation of areas under water, whether directly or
through private contractors. DENR is also empowered to classify lands
of the public domain into alienable or disposable lands subject to the
approval of the President. On the other hand, PEA is tasked to
develop, sell or lease the reclaimed alienable lands of the public
domain.
Clearly, the mere physical act of reclamation by PEA of foreshore or
submerged areas does not make the reclaimed lands alienable or
disposable lands of the public domain, much less patrimonial lands of
PEA. Likewise, the mere transfer by the National Government of lands
of the public domain to PEA does not make the lands alienable or
disposable lands of the public domain, much less patrimonial lands of
PEA.
Absent two official acts – a classification that these lands are alienable
or disposable and open to disposition and a declaration that these
lands are not needed for public service, lands reclaimed by PEA
remain inalienable lands of the public domain. Only such an official
classification and formal declaration can convert reclaimed lands into
alienable or disposable lands of the public domain, open to disposition
under the Constitution, Title I and Title III 83of CA No. 141 and other
applicable laws.84
PEA's Authority to Sell Reclaimed Lands
PEA, like the Legal Task Force, argues that as alienable or disposable
lands of the public domain, the reclaimed lands shall be disposed of in
accordance with CA No. 141, the Public Land Act. PEA, citing Section
60 of CA No. 141, admits that reclaimed lands transferred to a branch
or subdivision of the government "shall not be alienated, encumbered,
or otherwise disposed of in a manner affecting its title, except when
authorized by Congress: x x x."85 (Emphasis by PEA)
In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised
Administrative Code of 1987, which states that –
"Sec. 48. Official Authorized to Convey Real Property.
Whenever real property of the Government is authorized
by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following: x x x."
Thus, the Court concluded that a law is needed to convey any real
property belonging to the Government. The Court declared that -
"It is not for the President to convey real property of the
government on his or her own sole will. Any such
conveyance must be authorized and approved by a law
enacted by the Congress. It requires executive and
legislative concurrence." (Emphasis supplied)
PEA contends that PD No. 1085 and EO No. 525 constitute the
legislative authority allowing PEA to sell its reclaimed lands. PD No.
1085, issued on February 4, 1977, provides that –
"The land reclaimed in the foreshore and offshore area
of Manila Bay pursuant to the contract for the reclamation
and construction of the Manila-Cavite Coastal Road Project
between the Republic of the Philippines and the
Construction and Development Corporation of the
Philippines dated November 20, 1973 and/or any other
contract or reclamation covering the same area is hereby
transferred, conveyed and assigned to the ownership
and administration of the Public Estates
Authority established pursuant to PD No. 1084; Provided,
however, That the rights and interests of the Construction
and Development Corporation of the Philippines pursuant to
the aforesaid contract shall be recognized and respected.
Henceforth, the Public Estates Authority shall exercise the
rights and assume the obligations of the Republic of the
Philippines (Department of Public Highways) arising from, or
incident to, the aforesaid contract between the Republic of
the Philippines and the Construction and Development
Corporation of the Philippines.
In consideration of the foregoing transfer and assignment,
the Public Estates Authority shall issue in favor of the
Republic of the Philippines the corresponding shares of
stock in said entity with an issued value of said shares of
stock (which) shall be deemed fully paid and non-
assessable.
The Secretary of Public Highways and the General Manager
of the Public Estates Authority shall execute such contracts
or agreements, including appropriate agreements with the
Construction and Development Corporation of the
Philippines, as may be necessary to implement the above.
Special land patent/patents shall be issued by the
Secretary of Natural Resources in favor of the Public
Estates Authority without prejudice to the subsequent
transfer to the contractor or his assignees of such
portion or portions of the land reclaimed or to be
reclaimed as provided for in the above-mentioned
contract. On the basis of such patents, the Land
Registration Commission shall issue the corresponding
certificate of title." (Emphasis supplied)
On the other hand, Section 3 of EO No. 525, issued on February 14,
1979, provides that -
"Sec. 3. All lands reclaimed by PEA shall belong to or be
owned by the PEA which shall be responsible for its
administration, development, utilization or disposition in
accordance with the provisions of Presidential Decree No.
1084. Any and all income that the PEA may derive from the
sale, lease or use of reclaimed lands shall be used in
accordance with the provisions of Presidential Decree No.
1084."
There is no express authority under either PD No. 1085 or EO No. 525
for PEA to sell its reclaimed lands. PD No. 1085 merely transferred
"ownership and administration" of lands reclaimed from Manila Bay to
PEA, while EO No. 525 declared that lands reclaimed by PEA "shall
belong to or be owned by PEA." EO No. 525 expressly states that PEA
should dispose of its reclaimed lands "in accordance with the
provisions of Presidential Decree No. 1084," the charter of PEA.
PEA's charter, however, expressly tasks PEA "to develop, improve,
acquire, administer, deal in, subdivide, dispose, lease and sell any
and all kinds of lands x x x owned, managed, controlled and/or
operated by the government."87 (Emphasis supplied) There is,
therefore, legislative authority granted to PEA to sell its lands,
whether patrimonial or alienable lands of the public domain. PEA
may sell to private parties its patrimonial properties in accordance
with the PEA charter free from constitutional limitations. The
constitutional ban on private corporations from acquiring alienable
lands of the public domain does not apply to the sale of PEA's
patrimonial lands.
PEA may also sell its alienable or disposable lands of the public
domain to private individuals since, with the legislative authority, there
is no longer any statutory prohibition against such sales and the
constitutional ban does not apply to individuals. PEA, however, cannot
sell any of its alienable or disposable lands of the public domain to
private corporations since Section 3, Article XII of the 1987
Constitution expressly prohibits such sales. The legislative authority
benefits only individuals. Private corporations remain barred from
acquiring any kind of alienable land of the public domain, including
government reclaimed lands.
The provision in PD No. 1085 stating that portions of the reclaimed
lands could be transferred by PEA to the "contractor or his assignees"
(Emphasis supplied) would not apply to private corporations but only to
individuals because of the constitutional ban. Otherwise, the provisions
of PD No. 1085 would violate both the 1973 and 1987 Constitutions.
The requirement of public auction in the sale of reclaimed lands
Assuming the reclaimed lands of PEA are classified as alienable or
disposable lands open to disposition, and further declared no longer
needed for public service, PEA would have to conduct a public bidding
in selling or leasing these lands. PEA must observe the provisions of
Sections 63 and 67 of CA No. 141 requiring public auction, in the
absence of a law exempting PEA from holding a public
auction.88 Special Patent No. 3517 expressly states that the patent is
issued by authority of the Constitution and PD No. 1084,
"supplemented by Commonwealth Act No. 141, as amended." This is
an acknowledgment that the provisions of CA No. 141 apply to the
disposition of reclaimed alienable lands of the public domain unless
otherwise provided by law. Executive Order No. 654, 89 which
authorizes PEA "to determine the kind and manner of payment for the
transfer" of its assets and properties, does not exempt PEA from the
requirement of public auction. EO No. 654 merely authorizes PEA to
decide the mode of payment, whether in kind and in installment, but
does not authorize PEA to dispense with public auction.
Moreover, under Section 79 of PD No. 1445, otherwise known as the
Government Auditing Code, the government is required to sell valuable
government property through public bidding. Section 79 of PD No.
1445 mandates that –
"Section 79. When government property has become
unserviceable for any cause, or is no longer needed, it shall,
upon application of the officer accountable therefor, be
inspected by the head of the agency or his duly authorized
representative in the presence of the auditor concerned and,
if found to be valueless or unsaleable, it may be destroyed in
their presence. If found to be valuable, it may be sold at
 public auction to the highest bidder under the supervision Section 302 of the Local Government Code, also mentioned by PEA
of the proper committee on award or similar body in the and AMARI, authorizes local governments in land reclamation projects
presence of the auditor concerned or other authorized to pay the contractor or developer in kind consisting of a percentage of
representative of the Commission, after advertising by the reclaimed land, to wit:
printed notice in the Official Gazette, or for not less than
three consecutive days in any newspaper of general
"Section 302. Financing, Construction, Maintenance,
circulation, or where the value of the property does not
Operation, and Management of Infrastructure Projects by the
warrant the expense of publication, by notices posted for a
Private Sector. x x x
like period in at least three public places in the locality where
the property is to be sold. In the event that the public
auction fails, the property may be sold at a private sale xxx
at such price as may be fixed by the same committee or
body concerned and approved by the Commission."
In case of land reclamation or construction of industrial
estates, the repayment plan may consist of the grant of a
It is only when the public auction fails that a negotiated sale is allowed, portion or percentage of the reclaimed land or the industrial
in which case the Commission on Audit must approve the selling estate constructed."
price.90 The Commission on Audit implements Section 79 of the
Government Auditing Code through Circular No. 89-296 91 dated
Although Section 302 of the Local Government Code does not contain
January 27, 1989. This circular emphasizes that government assets
a proviso similar to that of the BOT Law, the constitutional restrictions
must be disposed of only through public auction, and a negotiated sale
on land ownership automatically apply even though not expressly
can be resorted to only in case of "failure of public auction."
mentioned in the Local Government Code.

At the public auction sale, only Philippine citizens are qualified to bid
Thus, under either the BOT Law or the Local Government Code, the
for PEA's reclaimed foreshore and submerged alienable lands of the
contractor or developer, if a corporate entity, can only be paid with
public domain. Private corporations are barred from bidding at the
leaseholds on portions of the reclaimed land. If the contractor or
auction sale of any kind of alienable land of the public domain.
developer is an individual, portions of the reclaimed land, not
exceeding 12 hectares 96 of non-agricultural lands, may be conveyed to
PEA originally scheduled a public bidding for the Freedom Islands on him in ownership in view of the legislative authority allowing such
December 10, 1991. PEA imposed a condition that the winning bidder conveyance. This is the only way these provisions of the BOT Law and
should reclaim another 250 hectares of submerged areas to regularize the Local Government Code can avoid a direct collision with Section 3,
the shape of the Freedom Islands, under a 60-40 sharing of the Article XII of the 1987 Constitution.
additional reclaimed areas in favor of the winning bidder. 92No one,
however, submitted a bid. On December 23, 1994, the Government
Registration of lands of the public domain
Corporate Counsel advised PEA it could sell the Freedom Islands
through negotiation, without need of another public bidding, because of
the failure of the public bidding on December 10, 1991.93 Finally, PEA theorizes that the "act of conveying the ownership of the
reclaimed lands to public respondent PEA transformed such lands of
the public domain to private lands." This theory is echoed by AMARI
However, the original JVA dated April 25, 1995 covered not only the
which maintains that the "issuance of the special patent leading to the
Freedom Islands and the additional 250 hectares still to be reclaimed,
eventual issuance of title takes the subject land away from the land of
it also granted an option to AMARI to reclaim another 350 hectares.
public domain and converts the property into patrimonial or private
The original JVA, a negotiated contract, enlarged the reclamation area
property." In short, PEA and AMARI contend that with the issuance of
to 750 hectares.94 The failure of public bidding on December 10, 1991,
Special Patent No. 3517 and the corresponding certificates of titles, the
involving only 407.84 hectares, 95 is not a valid justification for a
157.84 hectares comprising the Freedom Islands have become private
negotiated sale of 750 hectares, almost double the area publicly
lands of PEA. In support of their theory, PEA and AMARI cite the
auctioned. Besides, the failure of public bidding happened on
following rulings of the Court:
December 10, 1991, more than three years before the signing of the
original JVA on April 25, 1995. The economic situation in the country
had greatly improved during the intervening period. 1. Sumail v. Judge of CFI of Cotabato,97 where the Court
held –
Reclamation under the BOT Law and the Local Government Code
"Once the patent was granted and the corresponding
certificate of title was issued, the land ceased to be part of
The constitutional prohibition in Section 3, Article XII of the 1987
the public domain and became private property over which
Constitution is absolute and clear: "Private corporations or associations
the Director of Lands has neither control nor jurisdiction."
may not hold such alienable lands of the public domain except by
lease, x x x." Even Republic Act No. 6957 ("BOT Law," for brevity),
cited by PEA and AMARI as legislative authority to sell reclaimed lands 2. Lee Hong Hok v. David,98 where the Court declared -
to private parties, recognizes the constitutional ban. Section 6 of RA
No. 6957 states –
"After the registration and issuance of the certificate and
duplicate certificate of title based on a public land patent, the
"Sec. 6. Repayment Scheme. - For the financing, land covered thereby automatically comes under the
construction, operation and maintenance of any operation of Republic Act 496 subject to all the safeguards
infrastructure projects undertaken through the build-operate- provided therein."3. Heirs of Gregorio Tengco v. Heirs of
and-transfer arrangement or any of its variations pursuant to Jose Aliwalas,99 where the Court ruled -
the provisions of this Act, the project proponent x x x may
likewise be repaid in the form of a share in the revenue of
the project or other non-monetary payments, such as, but "While the Director of Lands has the power to review
not limited to, the grant of a portion or percentage of the homestead patents, he may do so only so long as the land
reclaimed land, subject to the constitutional remains part of the public domain and continues to be under
requirements with respect to the ownership of the land: his exclusive control; but once the patent is registered and a
x x x." (Emphasis supplied) certificate of title is issued, the land ceases to be part of the
public domain and becomes private property over which the
Director of Lands has neither control nor jurisdiction."
A private corporation, even one that undertakes the physical
reclamation of a government BOT project, cannot acquire reclaimed
alienable lands of the public domain in view of the constitutional ban.
 4. Manalo v. Intermediate Appellate Court,100 where the Court
held –
"When the lots in dispute were certified as disposable on
May 19, 1971, and free patents were issued covering the
same in favor of the private respondents, the said lots
ceased to be part of the public domain and, therefore, the
Director of Lands lost jurisdiction over the same."
5.Republic v. Court of Appeals,101 where the Court stated –
"Proclamation No. 350, dated October 9, 1956, of President
Magsaysay legally effected a land grant to the Mindanao
Medical Center, Bureau of Medical Services, Department of
Health, of the whole lot, validly sufficient for initial registration
under the Land Registration Act. Such land grant is
constitutive of a 'fee simple' title or absolute title in favor of
petitioner Mindanao Medical Center. Thus, Section 122 of
the Act, which governs the registration of grants or patents
involving public lands, provides that 'Whenever public lands
in the Philippine Islands belonging to the Government of the
United States or to the Government of the Philippines are
alienated, granted or conveyed to persons or to public or
private corporations, the same shall be brought forthwith
under the operation of this Act (Land Registration Act, Act
496) and shall become registered lands.'"
The first four cases cited involve petitions to cancel the land patents
and the corresponding certificates of titlesissued to private parties.
These four cases uniformly hold that the Director of Lands has no
jurisdiction over private lands or that upon issuance of the certificate of
title the land automatically comes under the Torrens System. The fifth
case cited involves the registration under the Torrens System of a
12.8-hectare public land granted by the National Government to
Mindanao Medical Center, a government unit under the Department of
Health. The National Government transferred the 12.8-hectare public
land to serve as the site for the hospital buildings and other facilities of
Mindanao Medical Center, which performed a public service. The
Court affirmed the registration of the 12.8-hectare public land in the
name of Mindanao Medical Center under Section 122 of Act No. 496.
This fifth case is an example of a public land being registered under
Act No. 496 without the land losing its character as a property of public
dominion.
hereby granted and conveyed unto the Public Estates
Authority the aforesaid tracts of land containing a total area
of one million nine hundred fifteen thousand eight hundred
ninety four (1,915,894) square meters; the technical
description of which are hereto attached and made an
integral part hereof." (Emphasis supplied)
Thus, the provisions of CA No. 141 apply to the Freedom Islands on
matters not covered by PD No. 1084. Section 60 of CA No. 141
prohibits, "except when authorized by Congress," the sale of alienable
lands of the public domain that are transferred to government units or
entities. Section 60 of CA No. 141 constitutes, under Section 44 of PD
No. 1529, a "statutory lien affecting title" of the registered land even if
not annotated on the certificate of title.104Alienable lands of the public
domain held by government entities under Section 60 of CA No. 141
remain public lands because they cannot be alienated or encumbered
unless Congress passes a law authorizing their disposition. Congress,
however, cannot authorize the sale to private corporations of reclaimed
alienable lands of the public domain because of the constitutional ban.
Only individuals can benefit from such law.
The grant of legislative authority to sell public lands in accordance with
Section 60 of CA No. 141 does not automatically convert alienable
lands of the public domain into private or patrimonial lands. The
alienable lands of the public domain must be transferred to qualified
private parties, or to government entities not tasked to dispose of
public lands, before these lands can become private or patrimonial
lands. Otherwise, the constitutional ban will become illusory if
Congress can declare lands of the public domain as private or
patrimonial lands in the hands of a government agency tasked to
dispose of public lands. This will allow private corporations to acquire
directly from government agencies limitless areas of lands which, prior
to such law, are concededly public lands.
Under EO No. 525, PEA became the central implementing agency of
the National Government to reclaim foreshore and submerged areas of
the public domain. Thus, EO No. 525 declares that –
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the Agency
Primarily Responsible for all Reclamation Projects

Whereas, there are several reclamation projects which are

In the instant case, the only patent and certificates of title issued are
ongoing or being proposed to be undertaken in various parts
those in the name of PEA, a wholly government owned corporation
of the country which need to be evaluated for consistency
performing public as well as proprietary functions. No patent or
with national programs;
certificate of title has been issued to any private party. No one is
asking the Director of Lands to cancel PEA's patent or certificates of
title. In fact, the thrust of the instant petition is that PEA's certificates of Whereas, there is a need to give further institutional support
title should remain with PEA, and the land covered by these to the Government's declared policy to provide for a
certificates, being alienable lands of the public domain, should not be coordinated, economical and efficient reclamation of lands;
sold to a private corporation.
Whereas, Presidential Decree No. 3-A requires that all
Registration of land under Act No. 496 or PD No. 1529 does not vest in reclamation of areas shall be limited to the National
the registrant private or public ownership of the land. Registration is Government or any person authorized by it under proper
not a mode of acquiring ownership but is merely evidence of ownership contract;
previously conferred by any of the recognized modes of acquiring
ownership. Registration does not give the registrant a better right than
Whereas, a central authority is needed to act on behalf
what the registrant had prior to the registration. 102 The registration of
of the National Government which shall ensure a
lands of the public domain under the Torrens system, by itself, cannot
coordinated and integrated approach in the reclamation
convert public lands into private lands. 103
of lands;

Jurisprudence holding that upon the grant of the patent or issuance of

Whereas, Presidential Decree No. 1084 creates the
the certificate of title the alienable land of the public domain
Public Estates Authority as a government corporation to
automatically becomes private land cannot apply to government units
undertake reclamation of lands and ensure their
and entities like PEA. The transfer of the Freedom Islands to PEA was
maximum utilization in promoting public welfare and
made subject to the provisions of CA No. 141 as expressly stated in
interests; and
Special Patent No. 3517 issued by then President Aquino, to wit:

Whereas, Presidential Decree No. 1416 provides the

"NOW, THEREFORE, KNOW YE, that by authority of the
President with continuing authority to reorganize the national
Constitution of the Philippines and in conformity with the
government including the transfer, abolition, or merger of
provisions of Presidential Decree No. 1084, supplemented
functions and offices.
by Commonwealth Act No. 141, as amended, there are
 NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the powers vested
in me by the Constitution and pursuant to Presidential
Decree No. 1416, do hereby order and direct the following:
Section 1. The Public Estates Authority (PEA) shall be
primarily responsible for integrating, directing, and
coordinating all reclamation projects for and on behalf
of the National Government. All reclamation projects shall
be approved by the President upon recommendation of the
PEA, and shall be undertaken by the PEA or through a
proper contract executed by it with any person or entity;
Provided, that, reclamation projects of any national
government agency or entity authorized under its charter
shall be undertaken in consultation with the PEA upon
approval of the President.
x x x ."
As the central implementing agency tasked to undertake reclamation
projects nationwide, with authority to sell reclaimed lands, PEA took
the place of DENR as the government agency charged with leasing or
selling reclaimed lands of the public domain. The reclaimed lands
being leased or sold by PEA are not private lands, in the same manner
that DENR, when it disposes of other alienable lands, does not dispose
of private lands but alienable lands of the public domain. Only when
qualified private parties acquire these lands will the lands become
private lands. In the hands of the government agency tasked and
authorized to dispose of alienable of disposable lands of the
public domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold
lands of the public domain" as well as "any and all kinds of lands."
PEA can hold both lands of the public domain and private lands. Thus,
the mere fact that alienable lands of the public domain like the
Freedom Islands are transferred to PEA and issued land patents or
certificates of title in PEA's name does not automatically make such
lands private.
To allow vast areas of reclaimed lands of the public domain to be
transferred to PEA as private lands will sanction a gross violation of the
constitutional ban on private corporations from acquiring any kind of
alienable land of the public domain. PEA will simply turn around,  as
PEA has now done under the Amended JVA, and transfer several
hundreds of hectares of these reclaimed and still to be reclaimed lands
to a single private corporation in only one transaction. This scheme will
effectively nullify the constitutional ban in Section 3, Article XII of the
1987 Constitution which was intended to diffuse equitably the
ownership of alienable lands of the public domain among Filipinos,
now numbering over 80 million strong.
This scheme, if allowed, can even be applied to alienable agricultural
lands of the public domain since PEA can "acquire x x x any and all
kinds of lands." This will open the floodgates to corporations and even
individuals acquiring hundreds of hectares of alienable lands of the
public domain under the guise that in the hands of PEA these lands
are private lands. This will result in corporations amassing huge
landholdings never before seen in this country - creating the very evil
that the constitutional ban was designed to prevent. This will
completely reverse the clear direction of constitutional development in
this country. The 1935 Constitution allowed private corporations to
acquire not more than 1,024 hectares of public lands. 105 The 1973
Constitution prohibited private corporations from acquiring any kind of
public land, and the 1987 Constitution has unequivocally reiterated this
prohibition.
The contention of PEA and AMARI that public lands, once registered
under Act No. 496 or PD No. 1529, automatically become private lands
is contrary to existing laws. Several laws authorize lands of the public
domain to be registered under the Torrens System or Act No. 496, now
PD No. 1529, without losing their character as public lands. Section
122 of Act No. 496, and Section 103 of PD No. 1529, respectively,
provide as follows:
Act No. 496
"Sec. 122. Whenever public lands in the Philippine Islands
belonging to the x x x Government of the Philippine Islands
are alienated, granted, or conveyed to persons or the public
or private corporations, the same shall be brought
forthwith under the operation of this Act and shall become
registered lands."
PD No. 1529
"Sec. 103. Certificate of Title to Patents. Whenever public
land is by the Government alienated, granted or conveyed
to any person, the same shall be brought forthwith under
the operation of this Decree." (Emphasis supplied)
Based on its legislative history, the phrase "conveyed to any person" in
Section 103 of PD No. 1529 includes conveyances of public lands to
public corporations.
Alienable lands of the public domain "granted, donated, or transferred
to a province, municipality, or branch or subdivision of the
Government," as provided in Section 60 of CA No. 141, may be
registered under the Torrens System pursuant to Section 103 of PD
No. 1529. Such registration, however, is expressly subject to the
condition in Section 60 of CA No. 141 that the land "shall not be
alienated, encumbered or otherwise disposed of in a manner
affecting its title, except when authorized by Congress." This
provision refers to government reclaimed, foreshore and marshy lands
of the public domain that have been titled but still cannot be alienated
or encumbered unless expressly authorized by Congress. The need for
legislative authority prevents the registered land of the public domain
from becoming private land that can be disposed of to qualified private
parties.
The Revised Administrative Code of 1987 also recognizes that lands of
the public domain may be registered under the Torrens System.
Section 48, Chapter 12, Book I of the Code states –
"Sec. 48. Official Authorized to Convey Real Property.
Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) x x x
(2) For property belonging to the Republic of the
Philippines, but titled in the name of any political
subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality." (Emphasis supplied)
Thus, private property purchased by the National Government for
expansion of a public wharf may be titled in the name of a government
corporation regulating port operations in the country. Private property
purchased by the National Government for expansion of an airport may
also be titled in the name of the government agency tasked to
administer the airport. Private property donated to a municipality for
use as a town plaza or public school site may likewise be titled in the
name of the municipality.106 All these properties become properties of
the public domain, and if already registered under Act No. 496 or PD
No. 1529, remain registered land. There is no requirement or provision
in any existing law for the de-registration of land from the Torrens
System.
Private lands taken by the Government for public use under its power
of eminent domain become unquestionably part of the public domain.
Nevertheless, Section 85 of PD No. 1529 authorizes the Register of
Deeds to issue in the name of the National Government new
certificates of title covering such expropriated lands. Section 85 of PD
No. 1529 states –
 "Sec. 85. Land taken by eminent domain. Whenever any
registered land, or interest therein, is expropriated or taken
by eminent domain, the National Government, province, city
or municipality, or any other agency or instrumentality
exercising such right shall file for registration in the proper
Registry a certified copy of the judgment which shall state
definitely by an adequate description, the particular property
or interest expropriated, the number of the certificate of title,
and the nature of the public use. A memorandum of the right
or interest taken shall be made on each certificate of title by
the Register of Deeds, and where the fee simple is taken, a
new certificate shall be issued in favor of the National
Government, province, city, municipality, or any other
agency or instrumentality exercising such right for the land
so taken. The legal expenses incident to the memorandum
of registration or issuance of a new certificate of title shall be
for the account of the authority taking the land or interest
therein." (Emphasis supplied)
Consequently, lands registered under Act No. 496 or PD No. 1529 are
not exclusively private or patrimonial lands. Lands of the public domain
may also be registered pursuant to existing laws.
AMARI makes a parting shot that the Amended JVA is not a sale to
AMARI of the Freedom Islands or of the lands to be reclaimed from
submerged areas of Manila Bay. In the words of AMARI, the Amended
JVA "is not a sale but a joint venture with a stipulation for
reimbursement of the original cost incurred by PEA for the earlier
reclamation and construction works performed by the CDCP under its
1973 contract with the Republic." Whether the Amended JVA is a sale
or a joint venture, the fact remains that the Amended JVA requires
PEA to "cause the issuance and delivery of the certificates of title
conveying AMARI's Land Share in the name of AMARI."107
This stipulation still contravenes Section 3, Article XII of the 1987
Constitution which provides that private corporations "shall not hold
such alienable lands of the public domain except by lease." The
transfer of title and ownership to AMARI clearly means that AMARI will
"hold" the reclaimed lands other than by lease. The transfer of title and
ownership is a "disposition" of the reclaimed lands, a transaction
considered a sale or alienation under CA No. 141, 108 the Government
Auditing Code,109 and Section 3, Article XII of the 1987 Constitution.
The Regalian doctrine is deeply implanted in our legal system.
Foreshore and submerged areas form part of the public domain and
are inalienable. Lands reclaimed from foreshore and submerged areas
also form part of the public domain and are also inalienable, unless
converted pursuant to law into alienable or disposable lands of the
public domain. Historically, lands reclaimed by the government are sui
generis, not available for sale to private parties unlike other alienable
public lands. Reclaimed lands retain their inherent potential as areas
for public use or public service. Alienable lands of the public domain,
increasingly becoming scarce natural resources, are to be distributed
equitably among our ever-growing population. To insure such equitable
distribution, the 1973 and 1987 Constitutions have barred private
corporations from acquiring any kind of alienable land of the public
domain. Those who attempt to dispose of inalienable natural resources
of the State, or seek to circumvent the constitutional ban on alienation
of lands of the public domain to private corporations, do so at their own
risk.
We can now summarize our conclusions as follows:
until classified as alienable or disposable lands open to
disposition and declared no longer needed for public service.
The government can make such classification and
declaration only after PEA has reclaimed these submerged
areas. Only then can these lands qualify as agricultural lands
of the public domain, which are the only natural resources
the government can alienate. In their present state, the
592.15 hectares of submerged areas are inalienable and
outside the commerce of man.
3. Since the Amended JVA seeks to transfer to AMARI, a
private corporation, ownership of 77.34 hectares 110 of the
Freedom Islands, such transfer is void for being contrary to
Section 3, Article XII of the 1987 Constitution which prohibits
private corporations from acquiring any kind of alienable land
of the public domain.
4. Since the Amended JVA also seeks to transfer to AMARI
ownership of 290.156 hectares 111 of still submerged areas of
Manila Bay, such transfer is void for being contrary to
Section 2, Article XII of the 1987 Constitution which prohibits
the alienation of natural resources other than agricultural
lands of the public domain. PEA may reclaim these
submerged areas. Thereafter, the government can classify
the reclaimed lands as alienable or disposable, and further
declare them no longer needed for public service. Still, the
transfer of such reclaimed alienable lands of the public
domain to AMARI will be void in view of Section 3, Article XII
of the 1987 Constitution which prohibits private corporations
from acquiring any kind of alienable land of the public
domain.
Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article
XII of the 1987 Constitution. Under Article 1409 112 of the Civil Code,
contracts whose "object or purpose is contrary to law," or whose
"object is outside the commerce of men," are "inexistent and void from
the beginning." The Court must perform its duty to defend and uphold
the Constitution, and therefore declares the Amended JVA null and
void ab initio.
Seventh issue: whether the Court is the proper forum to raise the
issue of whether the Amended JVA is grossly disadvantageous to
the government.
Considering that the Amended JVA is null and void ab initio, there is no
necessity to rule on this last issue. Besides, the Court is not a trier of
facts, and this last issue involves a determination of factual matters.
WHEREFORE, the petition is GRANTED. The Public Estates Authority
and Amari Coastal Bay Development Corporation
are PERMANENTLY ENJOINED from implementing the Amended
Joint Venture Agreement which is hereby
declared NULL and VOID ab initio.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Puno, Vitug, Kapunan, Mendoza,
Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez,
Austria-Martinez, and Corona, JJ., concur.

1. The 157.84 hectares of reclaimed lands comprising the

Freedom Islands, now covered by certificates of title in the
name of PEA, are alienable lands of the public domain.
PEA may lease these lands to private corporations but may
not sell or transfer ownership of these lands to private
corporations. PEA may only sell these lands to Philippine
citizens, subject to the ownership limitations in the 1987
Constitution and existing laws.

2. The 592.15 hectares of submerged areas of Manila Bay

remain inalienable natural resources of the public domain

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-48321             August 31, 1946
OH CHO, applicant-appellee,  transmissible to the applicant. The only right, if it may thus be called, is
vs.
THE DIRECTOR OF LANDS, oppositor-appellant.
Office of the Solicitor General Roman Ozaeta and Assistant
Solicitor General Rafael Amparo for appellant.
Vicente Constantino for appellee.
Ferrier, Gomez and Sotelo and J. T. Chuidian as amici curiae.
PADILLA, J.:
This is an appeal from a judgment decreeing the registration of a
residential lot located in the municipality of Guinayangan, Province of
Tayabas in the name of the applicant.
The opposition of the Director of Lands is based on the applicant's lack
of title to the lot, and on his disqualification, as alien, from acquiring
lands of the public domain.
The applicant, who is an alien, and his predecessors in interest have
been in open, continuous, exclusive and notorious possession of the
lot from 1880 to filing of the application for registration on January 17,
1940.
The Solicitor General reiterates the second objection of the opponent
and adds that the lower court, committed an error in not declaring null
and void the sale of the lot to the applicant.
The applicant invokes the Land Registration Act (Act No. 496), or
should it not be applicable to the case, then he would apply for the
benefits of the Public Land Act (C.A. No. 141).
The applicant failed to show that he has title to the lot that may be
confirmed under the Land Registration Act. He failed to show that he or
any of his predecessors in interest had acquired the lot from the
Government, either by purchase or by grant, under the laws, orders
and decrease promulgated by the Spanish Government in the
Philippines, or by possessory information under the Mortgaged Law
(section 19, Act 496). All lands that were not acquired from the
Government, either by purchase or by grant below to the public
domain. An exception to the rule would be any land that should have
been in the possession of an occupant and of his predecessors in
interest since time immemorial, for such possession would justify the
presumption that the land had never been part of the public domain or
that it had been a private property even before the Spanish conquest.
(Cariño vs. InsularGovernment, 212 U.S., 449; 53 Law. Ed., 594.) The
applicant does not come under the exception, for the earliest
possession of the lot by his first predecessors in interest begun in
1880.
As the applicant failed to show title to the lot, the next question is
whether he is entitled to decree or registration of the lot, because he is
alien disqualified from acquiring lands of the public domain (sections
48, 49, C.A. No. 141).
As the applicant failed to show the title to the lot, and has invoked the
provisions of the Public Land Act, it seems unnecessary to make
pronouncement in this case on the nature or classifications of the
sought to be registered.
It may be argued that under the provisions of the Public Land Act the
applicant immediate predecessor in interest would have been entitled
to a decree of registration of the lot had they applied for its registration;
and that he having purchased or acquired it, the right of his immediate
predecessor in interest to a decree of registration must be deemed
also to have been acquired by him. The benefits provided in the Public
Land Act for applicant's immediate predecessors in interest should
comply with the condition precedent for the grant of such benefits. The
condition precedent is to apply for the registration of the land of which
they had been in possession at least since July 26, 1894. This the
applicant's immediate predecessors in interest failed to do. They did
not have any vested right in the lot amounting to the title which was
their possession of the lot which, tacked to that of their predecessors in
interest, may be availed of by a qualified person to apply for its
registration but not by a person as the applicant who is disqualified.
It is urged that the sale of the lot to the applicant should have been
declared null and void. In a suit between vendor and vendee for the
annulment of the sale, such pronouncement would be necessary, if the
court were of the opinion that it is void. It is not necessary in this case
where the vendors do not even object to the application filed by the
vendee.
Accordingly, judgment is reversed and the application for registration
dismissed, without costs.
Moran, C.J., Feria, Pablo, Hilado and Bengzon, JJ., concur.
Separate Opinions
PERFECTO, J., concurring:
Oh Cho, a citizen of the Republic of China, purchased in 1938 from
Antonio, Luis and Rafael Lagdameo a parcel of land located in the
residential district of Guinayangan, Tayabas, which has been in the
continuous, public, and adverse possession of their predecessors in
interest as far back as 1880. on June 17, 1940, Oh Cho applied for the
registration of said parcel of land. The Director of Lands opposed the
application because, among other grounds, the Constitution prohibits
aliens from acquiring public or private agricultural lands.
One of the witnesses for the applicant, on cross-examination,
expressly admitted that the land in question is susceptible of cultivation
and may be converted into an orchard or garden. Rodolfo Tiquia,
inspector of the Bureau of Lands, testifying as a witness for the
government, stated that the land, notwithstanding the use to which it is
actually devoted, is agricultural land in accordance with an opinion
rendered in 1939 by the Secretary of Justice. The pertinent part of said
opinion, penned by Secretary Jose Abad Santos, later Chief Justice of
the Supreme Court, is as follows:
 1. Whether or not the "public agricultural land" in section 1,
Article XII, of the Constitution may be interpreted to include
residential, commercial or industrial lots for purposes of their
disposition.
1. Section 1, Article XII of the Constitution classifies lands of
the public domain in the Philippines into agricultural, timber
and mineral. This is the basic classification adopted since
the enactment of the Act of Congress of July 1, 1902, known
as the Philippine Bill. At the time of the adoption of the
Constitution of the Philippines, the term "agricultural public
lands" had, therefor, acquired a technical meaning in our
public laws. The Supreme Court of the Philippines in the
leading case of Mapa vs. Insular Government, 10 Phil., 175,
held that the phrase "agricultural public lands" means those
public lands acquired from Spain which are neither timber
nor mineral lands. This definition has been followed by our
Supreme Court in many subsequent cases.
(Montano vs. Ins. Gov't 12 Phil., 572, 574; Santiago vs. Ins.
Gov't., 12, Phil., 593; Ibañes de Aldecoa vs. Ins. Gov't., 13
Phil., 159; Ins. Gov't., vs. Aldecoa & Co., 19 Phil., 505, 516
Mercado vs.Collector of Internal Revenue, 32 Phil., 271,
276; Molina 175, 181; Jocson vs. Director of Forestry, 39
Phil., 560, 564; and Ankron vs. Government of the
Philippines, 40 Phil., 10, 14.)
Residential, commercial or industrial lots forming part of the
public domain must have to be included in one or more of
these classes. Clearly, they are neither timber nor mineral, of
necessity, therefore, they must be classified as agricultural.
Viewed from the another angle, it has been held that in
determining whether lands are agricultural or not, the
character of the lands is the test (Odell vs. Durant 62 N. W.,
524; Lerch vs. Missoula Brick & Tile Co., 123 p., 25). In other
words, it is the susceptibility of the land to cultivation for
agricultural or not (State vs.Stewart, 190, p.,129).
Judge Pedro Magsalin, of the Court First Instance of Tayabas,
rendered a decision on August 15, 1940, overruling the opposition
without must explanation and decreeing the registration prayed for the
applicant. The Director of Lands appealed from the decision, and the
Solicitor General appearing for appellant, maintains that the applicant,
not being a citizen of the Philippines, is disqualified to buy or acquire
the parcel of land in question and that the purchase made in question
and that the purchase made in 1938 is null and void.
This is the question squarely reversing to us for decision. The majority,
although reversing the lower court's decision and dismissing the
application with we agree, abstained from the declaring null and void
the purchase made by Oh Cho in 1938 as prayed for the appellant. We
deem it necessary to state our opinion on the important question
raised, it must be squarely decided.
The Solicitor General argued in his brief as follows:
I. The lower court erred decreeing the registration of the lot
in question in favor of the applicant who, according to his
own voluntary admission, is a citizen of the Chinese
Republic.
(a) The phrase "agricultural land" as used in the Act of the
Congress of July 1, 1902, in the Public Land Act includes
residential lots.
In this jurisdiction lands of public domain suitable for
residential purposes are considered agricultural lands under
the Public Land Law. The phrase "agricultural public lands"
has well settled judicial definition. It was used for the first
time in the Act of Congress of July 1, 1902, known as the
Philippine Bill. Its means those public lands acquired form
Spain which are neither mineral nor timber lands
(Mapa vs. Insular Government, 12 Phil., 572; Ibañes de
Aldecoa vs. Insular Government 13 Phil., 159;
Ramos vs. Director of Lands, 39 Phil., 175;
Jocson vs. Director of Forestry, 39 Phil., 560;
Ankron vs. Government of the Philippine Islands, 40 Phil.,
10). In the case of Mapa vs. Insular Government, supra, the
Supreme Court, in defining the meaning and scope of that
phrase from the context of the sections 13 and 15 of that
Act, said:
The phrase "agricultural public lands" as defined by the Act
of Congress of July 1, 1902, which phrase is also to be
found in several sections of the Public Land Act (No. 926)
means those public lands acquired from Spain which are
neither mineral timber lands.
xxx     xxx     xxx
"We hold that there is to be found in the act of
Congress a definition of the phrase "agricultural
public lands," and after careful consideration of the
question we are satisfied that only definition which
exists in said Act is the definition adopted by the
court below. Section 13 say that the Government
shall "make and rules and regulations for the
lease, sale, or other dispositions of public lands
other than timber or mineral lands," To our minds
that is only definition that can be said to be given
agricultural lands. In other words, that the phrase
"agricultural lands" as used in Act No. 926 means
those public lands acquired from Spain which are
not timber or mineral lands. . . ." Mapa vs. Insular
Government, 10 Phil., 175, 178, 182, emphasis
added.)
"This phrase "agricultural public lands" was subsequently
used in Act No. 926, which is the first public land law of the
Philippines. As therein used, the phrase was expressly given
by the Philippine Commission the same meaning intended
for it by Congress as interpreted in the case of Mapa vs.
Insular Government,supra. This is a self-evident from a
reading of section 1, 10, 32, and 64 (subsection 6 of Act No.
926). Whenever the phrase "agricultural public lands" is
used in any of said sections, it is invariably by the
qualification "as defined by said Act of Congress of July first,
nineteen hundred and two."
"More specially, in the case of Ibañez de Aldecoa vs. Insular
Government, supra, the Supreme Court held that a
residential or building lot, forming part of the public domain,
is agricultural land, irrespective of the fact that it is not
actually used for purposes of agriculture for the simple
reason that it is susceptible of cultivation and may be
converted into a rural estate, and because when a land is
not mineral or forestal in its nature it must necessarily be
included within the classification of a agricultural land.
Because of the special applicability of the doctrine laid down
in said case, we quote at some length from the decision
therein rendered:
"The question set up in these proceedings by virtue of the
appeal interposed by counsel for Juan Ibañez de Aldecoa, is
whether or not a parcel of land that is susceptible of being
cultivated, and ceasing to be agricultural land, was
converted into a building lot, is subject to the legal provisions
in force regarding Government public lands which may be
alienated in favor of private individuals or corporations. . . .
xxx     xxx     xxx
"Hence, any parcel of land or building lot is
susceptible of cultivation, and may converted into
a field, and planted with all kinds of vegetation ; for
this reason, where land is not mining or forestal in
its nature, it must necessarily be included within
 the classification of agriculture land, not because it public agricultural lands are the only natural resources of the
is actually used for the purposes of agriculture, but country which are the only natural resources of the country
because it was originally agricultural and may which are subject to alienation or deposition.
again become so under other circumstances;
besides the Act of Congress (of July 1, 1902)
"Section 9 of Commonwealth Act No. 141 provide that the
contains only three classifications, and makes no
alienable or disposable public lands shall be classified,
special provision with respect to building lots or
according to use or purposes to which they are destined, into
urban land that have ceased to be agricultural
a agricultural, residential, commercial, industrial, etc., lands.
land. . . .
At first blush it would seem that under this classification
residential land is different from agricultural land. The
xxx     xxx     xxx difference however, is more apparent than real. 'Public
agricultural land ' as that phrase is used in the Constitution
means alienable lands of the public domain and therefore
"From the language of the foregoing provisions of
this phrase is equivalent to the lands classified by the
the law, it is deduced that, with the exception of
Commonwealth Act No. 141 as alienable or disposable. The
those comprised within the mineral and timber
classification provided in section 9 is only for purposes
zone, all lands owned by State or by the sovereign
administration and disposition, according to the purposes to
nation are public in character, and per
which said lands are especially adopted. But notwithstanding
se alienable and, provided they are not destine to
this of all said lands are essentially agricultural public lands
the use of public in general or reserved by the
because only agricultural public lands are subject to
Government in accordance with law, they may be
alienation or disposition under section 1, Article XII of the
acquired by any private or juridical person; and
Constitution. A contrary view would necessarily create a
considering their origin and primitive state and the
conflict between Commonwealth Act No. 141 and section 1
general uses to which they are accorded, they are
of Article XII of the Constitution, and such conflict should be
called agricultural lands, urbans lands and building
avoided , if possible, and said Act construed in the light of
lots being included in this classification for the
the fundamental provisions of the Constitution and in entire
purpose of distinguishing rural and urban estates
harmony therewith.
from mineral and timber lands; the transformation
they may have undergone is no obstacle to such
classification as the possessors thereof may again "Another universal principles applied in
convert them into rural estates." (Ibañez de considering constitutional question is, that an Act
Aldecoa vs. Insular Government 13 Phil., 161, 163 will be so construed, if possible, as to avoid
164, 165, 166; emphasis added.). conflict with the Constitution, although such a
construction may not be the most obvious or
natural one. "The Court may resort to an
(b) Under the Constitution and
implication to sustain a statute, but not to destroy
Commonwealth Act No. 141 (Public
it." But the courts cannot go beyond the province
Land Act), the phrase (Public Land Act),
of legitimate construction, in order to save a
the phrase "public agricultural land"
statute; and where the meaning is plain, words
includes lands of the public domain
cannot to be read into it or out of it for that
suitable for residential purposes.
purpose." ( 1 Sutherland, Statutory Construction,
pp. 135, 136.)
"Section 1, Article XII of the Constitution, reads as follows:
"In view of the fact that more than one than one year after
"All agricultural timber, and mineral lands of the adoption of the Constitution the National Assembly
the public domain waters, minerals, coal, revised the Public Land Law and passed Commonwealth Act
petroleum and other mineral oils, all forces of No. 141, which a compilation of the laws relative to the lands
potential energy, and other natural resources of of the public domain and the amendments thereto, form to
the Philippines belong to the State, and the Constitution.
disposition, exploitation, development, or
utilization shall be limited to citizens of the
"Where the legislature has revised a statute after
Philippines, or to corporations or associations at
a Constitution has been adopted, such a revision
least sixty per centum of the capital of which is
is to be regarded as a legislative construction that
owned by such citizens, subject to any existing
the statute so revised conforms to the
right, grant lease, or concession at the time of the
Constitution." (59 C.J., 1102; emphasis added.)
inauguration of the Government established under
this Constitution. Natural resources, with the
exception of public agricultural land, shall not be "By the way of illustration, let us supposed that a piece or
alienated . . ." (Emphasis added.). tract of public land has been classified pursuant to section 9
of Commonwealth Act No. 141 as residential land. If, by
reason of this classification, it is maintained that said land
"Under the above-quote provision, the disposition
has ceased to be agricultural public land, it will no longer be
exploitation, development or utilization of the natural
subject to alienation or disposition by reason of the
resources, including agricultural lands of the public domain is
constitutional provision that only agricultural lands are
limited to citizens of the Philippines or to the corporations or
alienable; and yet such residential lot is alienable under
associations therein mentioned. It also clearly appears from
section 58, 59, and 60 of Commonwealth Act No. 141 to
said provision that natural resources, with the exception of
citizens of the Philippines or to corporations or associations
public agricultural land, are not subject to alienation.
mentioned in section 1, Article XII of the Constitution.
Therefore, the classification of public agricultural lands into
"On November 7, 1936, or more than one year after the various subdivisions is only for purposes of administration,
adoption of the Constitution, Commonwealth Act No. 141, alienation or disposition, but it does not destroy the inherent
known as the Public Land Act, was approved. Under this Act nature of all such lands as a public agricultural lands.
the lands of the public have been classified into three
divisions: (a) alienable or disposable, (b) timber, and (c)
"(c) Judicial interpretation of doubtful clause or phrase use in
mineral lands. The lands designated alienable or disposable
the law, controlling.
correspond to lands designated in the Constitution as public
agricultural lands, because under section 1, Article XII,
"The judicial interpretation given to the phrase "public
agricultural land" is a sufficient authority for giving the same
interpretation to the phrase as used in subsequent
legislation, and this is especially so in view of the length of
time during which this interpretation has been maintained by
the courts. On this point Sutherland has the following to say:
"When a judicial interpretation has once been put
upon a clause, expressed in a vague manner by
the legislature, and difficult to be understood, that
ought of itself to be sufficient authority for adopting
the same construction. Buller J., said: "We find
solemn determination of these doubtful
expressions in the statute, and as that now put
another construction has since prevailed, there is
no reason why we should now put another
construction of the act on account of any suppose
change of convenience." This rule of construction
will hold good even if the court be opinion that the
practical erroneous; so that if the matter were res
integra the court would adopt a different
construction. Lord Cairns said: "I think that with
regard to statutes ... it is desirable not so much
that the principle of the decision should be capable
at all times of justification, as that the law should
be settled, and should, when once settled, be
maintained without any danger of vacillation or
uncertainty. "Judicial usage and practice will have
weight, and when continued for a long time will be
sustained though carried beyond the pair purport
of the statute."(II Lewis' Sutherland Statutory
Construction, pp. 892, 893.) .
"An important consideration affecting the weight of
contemporary judicial construction is the length of
time it has continued. It is adopted, and derives
great force from being adopted, soon after the
enactment of the law. It may be, and is presumed,
that the legislative sense of its policy, and of its
true scope and meaning, permeates the judiciary
and controls its exposition. Having received at that
time a construction which is for the time settled,
accepted, and thereafter followed or acted upon, it
has the sanction of the of the authority appointed
to expound the law, just and correct conclusions,
when reached, they are, moreover, within the
strongest reasons on which founded the maxim
of stare decisis. Such a construction is public
given, and the subsequent silence of the
legislature is strong evidence of acquiescence,
though not conclusive. . . . (II Lewis Sutherland
Statutory Construction, pp. 894, 895.)
"Furthermore, when the phrase "public agricultural land" was
used in section 1 of Article XII of the Constitution, it is
presumed that it was so used with the same judicial meaning
therefor given to it and therefor the meaning of the phrase,
as used in the Constitution, includes residential lands and
another lands of the public domain, but excludes mineral and
timber lands.
"Adoption of provisions previously
construed — ad. Previous construction by Courts.
— Where a statute that has been construed by the
courts of the last resort has been reenacted in
same, or substantially the same, terms, the
legislature is presumed to have been familiar with
its construction, and to have adopted it is part of
the law, unless a contrary intent clearly appears,
or a different construction is expressly provided
for; and the same rule applies in the construction
of a statute enacted after a similar or cognate
statute has been judicially construed. So where
words or phrases employed in a new statute have
been construed by the court to have been used in
a particular sense in a previous statute on the
same subject, or one analogous to it, they are
presumed, in the a absence of clearly expressed
intent to the contrary, to be used in the same
sense in the statute as in the previous statute." (59
C.J., 1061-1063.).
"Legislative adoption of judicial construction. — In
the adoption of the code, the legislature is
presumed to have known the judicial construction
which have been placed on the former statutes;
and therefore the reenactment in the code or
general revision of provisions substantially the
same as those contained in the former statutes is
a legislative adoption of their known judicial
constructions, unless a contrary intent is clearly
manifest. So the fact that the revisers eliminated
statutory language after it had been judicially
construed shows that they had such construction
in view." (59 C. J., 1102.)
"II. The lower court erred in not declaring null and void the
sale of said land to the appellant (appellee).
"Granting that the land in question has ceased to be a part of
the lands of the public domain by reason of the long
continuous,, public adverse possession of the applicant's
predecessors in interest, and that the latter had performed
all the conditions essential to a Government grant and were
entitled to a certificate of title under section 48, subsection
(b), of Commonwealth Act No. 141, still the sale of said land
of December 8, 1938, to the applicant as evidenced by
Exhibits B and C, was null and void for being contrary to
section 5, Article XII of the Constitution, which reads as
follows:
"Save in cases of hereditary succession, no
private agricultural land shall be transferred or
assignedexcept to individuals, corporations, or
associations qualified to acquire or hold lands of
the public domain of the Philippines."
"The applicant, being a Chinese citizen, is disqualified to
acquire or hold lands of the public domain (section 1, Article
XII of the Constitution; section 12, 22, 23, 33, 44, 48,
Commonwealth Act No. 141 ), and consequently also
disqualified to buy and acquire private agriculture land.
"In view of the well settled judicial meaning of the phrase
public agricultural land,' as hereinbefore demonstrated, the
phrase 'private agricultural land,' as used in the above
quoted provision, can only mean land of private ownership,
whether agricultural, residential, commercial or industrial.
And this necessarily so, because the phrase 'agricultural
land used in the Constitution and in the Public Land Law
must be given the same uniform meaning to wit, any land of
the public domain or any land of private ownership, which is
neither mineral or forestal.
"A word or phrase repeated in a statute will bear
the same meaning throughout the statute, unless
a different intention appears. ... Where words have
being long used in a technical sense and have
been judicially construed to have a certain
meaning, and have been adopted by the
legislature as having a certain meaning prior to a
particular statute in which they are used, the rule
of construction requires that the words used in
such statute should be construed according to the
sense may vary from the strict literal meaning of
the words." (II Sutherland, Statutory Construction.,
p. 758.) .
"This interpretation is in harmony with the nationalistic policy,
spirit and purpose of our Constitution and laws, to wit, `to
 conserve and develop the patrimony of the nation,' as
solemnly enunciated in the preamble to the Constitution.
"A narrow and literal interpretation of the phrase 'private
agriculture land' would impair and defeat the nationalistic aim
and general policy of our laws and would allow a gradual,
steady, and unlimited accumulation in alien hands of a
substantial portion of our patrimonial estates, to the
detriment of our national solidarity, stability, and
independence. Nothing could prevent the acquisition of a
great portion or the whole of a city by subjects of a foreign
power. And yet a city or urban area is more strategical than
a farm or rural land.
"The mere literal construction of section in a
statute ought not to prevail if it is opposed to the
intention of the legislature apparent by the statute;
and if the words are sufficiently flexible to admit of
some other construction it is to be adopted to
effectuate that intention. The intent prevails over
the letter, and the letter will, if possible be so read
as to conform to the spirit of the act. While the
intention of the legislature must be ascertained
from the words used to express it, the manifest
reason and the obvious purpose of the law should
not be sacrificed to a liberal interpretation of such
words." (II Sutherland, Stat. Construction, pp. 721,
722.)
"We conclude, therefore, that the residential lot which the
applicant seeks to register in his name falls within the
meaning of private agricultural land as this phrase is used in
our Constitution and, consequently, is not subject to
acquisition by foreigners except by hereditary succession."
. . . In the preface to its report, the committee on
nationalization and preservation of lands and other natural
resources said;
"International complications have often resulted from the
existence of alien ownership of land and natural resources in
a weak country. Because of this danger, it is best that aliens
should be restricted in the acquisition of land and other
natural resources. An example is afforded by the case of
Texas. This state was originally province of Mexico. In order
to secure its rapid settlements and development, the
Mexican government offered free land to settlers in Texas.
Americans responded more rapidly than the Mexicans, and
soon they organized a revolt against Mexican rule, and then
secured annexation to the United States. A new increase of
alien landholding in Mexico has brought about the desire a
prevent a repetition of the Texas affair. Accordingly the
Mexican constitution of 1917 contains serious limitation on
the right of aliens to hold lands and mines in Mexico. The
Filipinos should profit from this example."
xxx     xxx     xxx
It was primarily for these reasons that the Convention
approved readily the proposed principle of prohibiting aliens
to acquire, exploit, develop, or utilize 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. For
the same reasons the Convention approved equally readily
the proposed principle of prohibiting the transfer of
assignment to aliens of private agricultural land, save in the
case of hereditary succession. (2 Aruego, Framing of the
Philippine Constitution, pp. 604, 605, 606.).

The argument hold water. It expresses a correct interpretation of the
Constitution and the real intent of the Constitutional Convention.
One of our fellow members therein, Delegate Montilla, said:
All the foregoing show why we, having been a member of the
Constitutional Convention, agree with Solicitor General's position and
concur in the result in this case, although we would go as far as the
outright pronouncement that the purchase made by appelle is null and
void.

The constitutional precepts that I believe will ultimately lead

us to our desired goal are; (1) the complete nationalization of
our lands and natural resources; (2) the nationalization of
our commerce and industry compatible with good
international practices. With the complete nationalization of
our lands and natural resources it is to be understood that
our God-given birthright should be one hundred per cent in
Filipino hands. ... Lands and natural resources are
immovable and as such can be compared to the vital organs
of a person's body, the lack of possession of which may
cause instant death or the shortening of life. If we do not
completely nationalize these two of our most important
belongings, I am afraid that the time will come when we shall
be sorry for the time we were born. Our independence will
be just a mockery, for what kind of independence are we
going to have if a part of our country is not in our hands but
in those of foreigner? (2 Aruego, The Framing of the
Philippine Constitution, p. 592.).

From the same book of Delegate Aruego, we quote:

The nationalization of the natural resources of the country

was intended (1) to insure their conservation for Filipino
posterity; (2) to serve as an instrument of national defense,
helping prevent the extension into the country of foreign
control through peaceful economic penetration; and (3) to
prevent making the Philippines a source of international
conflict with the consequent danger to its internal security
and independence.

xxx     xxx     xxx

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27594 November 28, 1975
THE DIRECTOR OF LANDS, THE DIRECTOR OF FORESTRY, and
the ARMED FORCES OF THE PHILIPPINES,petitioners,  On November 19, 1966, the lower court rendered decision holding that
vs.
HON. SALVADOR C. REYES, as Judge of the Court of First
Instance of Nueva Ecija, Branch III, PARAÑAQUE INVESTMENT
and DEVELOPMENT CORPORATION, ROMAN C. TAMAYO, THE
COMMISIONER OF THE LAND REGISTRATION COMMISSION and
the REGISTER OF DEEDS OF NUEVA ECIJA, respondents.
G.R. No. L-28144 November 28, 1975
ALIPIO ALINSUNURIN, now substituted by PARAÑAQUE
INVESTMENT and DEVELOPMENT CORPORATION,applicant-
appellee,  Forestry and the Armed Forces of the Philippines filed a Notice of
vs.
THE DIRECTOR OF LANDS, THE DIRECTOR OF FORESTRY and
the ARMED FORCES OF THE PHILIPPINES,oppositors-appellants.
Acting Solicitor General Hugo E. Gutierrez, Jr. and Assistant
Solicitor General Reynato S. Puno for The Director of Lands, etc.
Jaime B. Lumasag Jr. and Jose J. Roy and Associates Law Office
for Roman C. Tamayo.
Nemesio P. Diaz and Celso B. Fernandez, Jr. for Alipio
Alinsunurin, etc.
ANTONIO, J.:
These cases are interrelated, and so are decided jointly.
In his application originally filed on February 24, 1964 with the Court of
First Instance of Nueva Ecija, the applicant Alipio Alinsunurin, claiming
ownership in fee simple by inheritance from the late Maria Padilla,
sought the registration of title under Act 496, as amended, of a vast
tract of land, containing an area of 16,800 hectares, more or less,
situated at the municipality of Laur, province of Nueva Ecija, admittedly
inside the boundary of the military reservation of Fort Magsaysay. 1
On May 5, 1966, the Director of Lands, Director of Forestry, and the
Armed Forces of the Philippines opposed the application, claiming that
the applicant was without sufficient title and was not in open, exclusive,
continuous and notorious possession and occupation of the land in
question for at least thirty (30) years immediately preceding the filing of
the application; that approximately 13,957 hectares of said land consist
of the military reservation of Fort Magsaysay established under
Proclamation No. 237, dated December 10, 1955 of the President. 2
On May 10, 1966, the applicant Alipio Alinsunurin filed a motion for
substitution of parties, requesting that the Parañaque Investment and
Development Corporation be considered as the applicant in his place,
it having acquired all his rights, interests, ownership and dominion over
the property subject matter of the application. 3 The motion was granted
by the lower court in its order dated June 10, 1966. 4
It is beyond dispute that the land subject of the application is included
within the area reserved for military purposes under Proclamation No.
237, dated December 19, 1955, of the President. The land is largely
uncultivated, mountainous and thickly forested with a heavy growth of
timber of commercial quantities. 5 Except for a small area cultivated for
vegetation by homesteaders issued patents by the Director of Lands,
there were no occupants on the land.6
It is claimed by the applicant that Melecio Padilla acquired the land by
virtue of a possessory information title issued during the Spanish
regime on March 5, 1895, and upon his death in 1900, he transmitted
the ownership and possession thereof to his daughter and sole heir,
Maria Padilla. The latter in turn continued to cultivate the land thru
tenants and utilized portions for pasture, until her death sometime in
1944.
the parcel of land applied for, described in the technical description
Plan II-6752, is adjudicated to and ordered to be registered in favor of
(a) Parañaque Investment and Development Corporation, a Philippine
corporation wholly owned by Filipino citizens, with address at Manila,
Philippines, two-thirds (2/3) portion, subject to the rights of Ariosto
Santos per Joint Manifestation of Alipio Alinsunurin and Encarnacion
Caballero-Alinsunurin, Ariosto Santos and Parañaque Investment and
Development Corporation dated July 19, 1966 and marked as Exhibit
"AA-4 "7 and (b) Roman C. Tamayo, Filipino citizen, married, resident
of Cullit, Lallo, Cagayan, one-third (1/3) portion of the said property.
On December 12, 1966, the oppositors Director of Lands, Director of
Appeal from the said decision to the Supreme Court, 8 copy of which
notice was furnished counsel for the applicant Parañaque Investment
and Development Corporation; however, no copy was furnished to
counsel for Roman C. Tamayo, to whom one-third (1/3) portion of the
land was adjudicated.
On January 18, 1967, within the extended period granted by the court,
the oppositors-appellants filed the corresponding Record on Appeal,
copy of which was duly served upon appellees Parañaque Investment
and Development Corporation and Roman C. Tamayo.
By an order dated March 8, 1967, the lower court required the
Provincial Fiscal to file an Amended Record on Appeal, so as to
include therein certain orders and pleadings, within ten (10) days from
receipt of the order. 9
On March 16, 1967, the Amended Record on Appeal was duly filed
and copies served upon the appellees.
Pending the approval of the Record on Appeal, the applicant
Parañaque Investment and Development Corporation filed a motion for
the issuance of a decree of registration pending appeal. Likewise,
Roman C. Tamayo, thru counsel, filed a motion for the issuance of a
decree of registration. Both motions were opposed by the Government.
On March 11, 1967, the lower court, ruling that its decision of
November 19, 1966 had become final as to the share of Roman C.
Tamayo, directed the issuance of a decree of registration of the entire
land, one-third (1/3)pro-indiviso in favor of Roman C. Tamayo, and
two-thirds (2/3) pro indiviso in favor of Parañaque Investment and
Development Corporation, subject to the final outcome of the appeal.
On March 14, 1967, the Commissioner of Land Registration forthwith
issued Decree No. 113485 pursuant to the said order, and, on March
15, 1967, the Register of Deeds issued Original Certificate of Title No.
0-3151 of the Register of Deeds of the Province of Nueva Ecija.
On April 12, 1967, the lower court approved the Amended Record on
Appeal which, together with the evidence and transcripts, was
forwarded to this Court in due course of appeal.
As the lower court denied reconsideration of the order directing the
issuance of a decree of registration, on May 29, 1967, the Director of
Lands, Director of Forestry and the Armed Forces of the Philippines
instituted before this Court a special civil action for certiorari and
mandamus with preliminary injunction (L-27594), seeking to nullify the
order dated March 11, 1967, the decree of registration issued pursuant
thereto (Decree No. 113485 dated March 14, 1967) and Original
Certificate of Title No. 0-3151 of the Register of Deeds for the province
of Nueva Ecija, and to command the respondent court to certify the
entire proceedings and to allow appeal to the Supreme Court from its
decision in toto in LRC Case No. N-675, LRC Rec. No. N-25545.
On June 5, 1967, We issued a writ of preliminary injunction as follows:
NOW, THEREFORE, until further orders from this
Court, You (respondent Judge) are hereby
restrained from issuing a writ of possession in
Land Registration Case No. N-675, LRC Rec. No.
25545 of the Court of First Instance of Nueva
Ecija, entitled "Parañaque Investment and
Development Corporation versus Director of
Lands, et al."; You (respondent Parañaque
Investment and Development Corporation and
Roman C. Tamayo), your agents or
representatives are hereby restrained from taking
possession and/or excercising acts of ownership,
occupancy or possession over the property in
question subject matter of Land Registration Case
No. N-675, LRC Rec. No. N-25545; and You
(respondent Register of Deeds) are hereby
restrained from accepting for registration
documents referring to the subject land until
petitioners shall have filed a notice of lis
pendens as to the title certificates of Roman
Tamayo and Parañaque Investment and
Development Corporation, under Sec. 24, Rule 14,
Rules of Court, subject of the above-mentioned
Land Registration Case No. N-675, LRC Rec. No.
N-25545.
Accordingly, petitioners-appellants caused the entry of a notice of lis
pendens to be duly inscribed in the primary entry book of the Registry
of Deeds of Nueva Ecija and annotated in the memorandum of
encumbrances in Original Certificate of Title No. 0-3151.
In due time, the respondents filed their answers to the petition
for certiorari. The parties having filed their respective memoranda, the
case is deemed submitted for decision.
At the outset, We shall resolve the petition
for certiorari and mandamus 
(L-27594).
I
Under the circumstances of this case, the failure of the appellants to
serve a copy of their Notice of Appeal to the counsel for adjudicatee
Roman C. Tamayo is not fatal to the appeal because, admittedly, he
was served with a copy of the original, as well as the Amended Record
on Appeal in both of which the Notice of Appeal is embodied. 10
Hence, such failure cannot impair the right of appeal. 11
What is more, the appeal taken by the Government was from the entire
decision, which is not severable. Thus, the appeal affects the whole
decision. 12
In any event, We rule that execution pending appeal is not applicable
in a land registration proceeding. It is fraught with dangerous
consequences. Innocent purchasers may be misled into purchasing
real properties upon reliance on a judgment which may be reversed on
appeal.
A Torrens title issued on the basis of a judgment that is not final is a
nullity, as it is violative of the explicit provisions of the Land
Registration Act which requires that a decree shall be issued only after
the decision adjudicating the title becomes final and executory, and it is
on the basis of said decree that the Register of Deeds concerned
issues the corresponding certificate of title.
Consequently, the lower court acted without jurisdiction or exceeded its
jurisdiction in ordering the issuance of a decree of registration despite
the appeal timely taken from the entire decision a quo.
II
In the instant case, as a precaution, oppositors-appellants caused
notice of lis pendens to be duly inscribed in Original Certificate of Title
No. 0-3151 of the Register of Deeds of Nueva Ecija, thereby keeping
the whole land subject matter of the appeal within the power of the
court until the litigation is terminated. 13
Such entry of notice of lis pendens cannot be cancelled until the final
termination of the litigation. The notice of lis pendens must be carried
over in all titles subsequently issued, which will yield to the ultimate
result of the appeal.14
During the pendency of the appeal, it appears that Honofre A.
Andrada, et al., filed with the Court of First Instance of Nueva Ecija
(Branch I, not the land registration court), a complaint against the
appellee Parañaque Investment and Development Corporation,
Rodolfo A. Cenidoza and Roman C. Tamayo, for reconveyance of a
portion of the land in question (Civil Case No. 4696). The trial court
assumed jurisdiction over the case despite the pendency of the appeal
involving the same land, and decided the case in favor of plaintiffs. In
violation of Our injunction adverted to above, Parañaque Investment
and Development Corporation executed a subdivision plan of the
original single parcel of land subject of the land registration
proceedings covered by Original Certificate of Title No. 
0-3151, and deeded over six (6) lots of the subdivision plan to plaintiffs
Honofre A. Andrada and Nemesio P. Diaz. By an order dated
September 23, 1968, entered in Civil Case No. 4696, the Register of
Deeds of Nueva Ecija was directed to cancel Original Certificate of title
No. 0-3151 and to issue new titles to the above-named transferees
"free from all liens and encumbrances." Immediately, transfer
certificates of title were issued to them and other transferees in which
the Register of Deeds of Nueva Ecija did not carry over the notice of lis
pendens originally inscribed in Original Certificate of Title No. 0-3151.
Subsequently, other transactions were entered into involving portions
of the land reconveyed in Civil Case No. 4696, including a transfer of
about 4,000 hectares to the Land Bank of the Philippines in
consideration of P8,940,000.00.
We find the order to cancel Original Certificate of Title No. 03151 and
to issue subsequent titles free from all liens and encumbrances to be
void ab initio.
Civil Case No. 4696 is an action in personam to which the appellants
are not parties; its object was to decree reconveyance to plaintiffs of a
portion of the area adjudicated to the Parañaque Investment and
Development Corporation and Roman C. Tamayo in Land Registration
Case No. N-675, LRC Rec. No. N-25545, which is subject to the
outcome of the appeal. Such action is barred by the pendency of the
appeal. In that case, the court is without jurisdiction to order the
Register of Deeds to cancel Original Certificate of title No. 0-3151 and
to issue titles to transferees "free from all liens and
encumbrances ." 15 Nor can such order be construed to authorize the
Register of Deeds to cancel the notice of lis pendens, which was not
entered by virtue of the reconveyance case. Thus, the Register of
Deeds was duty bound to carry over the said notice of lis pendens on
all titles subsequently issued. But, in plain violation of lis pendens in
said titles; such act constitutes misfeasance in the performance of his
duties for which he may be held civilly and even criminally liable for
any prejudice caused to innocent third parties, but cannot affect the
petitioners-appellants who are protected by Our writ of injunction and
the notice of lis pendens inscribed in the original title. It must be
remembered that Our injunction restrained the Register of Deeds "from
accepting for registration documents referring to the subject land until
the petitioners shall have filed a notice of lis pendens as to the title
certificates of Roman C. Tamayo and Parañaque Investment and
Development Corporation under section 24, Rule 14, Rules of Court,
subject of the above-mentioned Land Registration Case No. N-675,
LRC Rec. No. 25545." Its plain meaning is to enjoin registration of
documents and transactions unless the notice of lis pendens is
annotated and so subject the same to the outcome of the litigation. In
such case, subsequent transferees cannot be considered innocent
purchasers for value.
On the other hand, the lower court's order dated September 23, 1968,
in Civil Case No. 4696, cannot overrule an injunction of this Court (in L-
27594). As a result, We consider the notice of lis pendens entered in
virtue of this litigation to remain in full force and effect, and affects all
subsequent transferees of the title of the land subject of this appeal.
At any rate, it is well-settled that entry of the notice of lis pendens in
the day book (primary entry book) is sufficient to constitute registration
and such entry is notice to all persons of such adverse claim. 16
III
We now consider the appeal on the merits.
1. To begin with, the original tracing cloth plan of the land applied for,
which must be approved by the Director of Lands, was not submitted in
evidence. The submission of such plan is a statutory requirement of
mandatory character. 17 Unless a plan and its technical description are
duly approved by the Director of Lands, the same are not of much
value. 18
It is true that blueprints of two survey plans were presented before the
trial court (both marked Exhibit "D"). The first blueprint copy of a plan
of land as surveyed for Maria Padilla (Exhibit "D", p. 4, Exhibits of
Applicant), was not formally offered in evidence. The second plan of
the land, as surveyed for Parañaque Investment and Development
Corporation (also marked as Exhibit "D", p. 3, Exhibits of Applicant)
was submitted by the said applicant, but it lacks the approval of the
Director of Lands.
Of course, the applicant attempts to justify the non-submission of the
original tracing cloth plan by claiming that the same must be with the
Land Registration Commission which checked or verified the survey
plan and the technical descriptions thereof. It is not the function of the
LRC to check the original survey plan as it has no authority to approve
original survey plans. If, for any reason, the original tracing cloth plan
was forwarded there, the applicant may easily retrieve the same
therefrom and submit the same in evidence. This was not done.
It is also asserted that a blue print copy of the plan (Exhibit "D", p. 5,
Exhibits of Applicant) was superimposed in the military plan of the
reservation under Proclamation No. 237, which military plan was
presented in evidence by the oppositors-appellants (Exhibit "6"), and it
was agreed by the parties that the plan, Exhibit "D", superimposed in
the plan of the area covered by the proclamation, is the plan of the
land applied for (p. 15, Brief for Applicant-Appellee).
Obviously, the superimposition of the copy of the survey plan of land
as surveyed for applicant in the military map of the area under
Proclamation No. 237 was for the sole purpose of showing that the
land applied for is situated within the area covered by the military
reservation of Fort Magsaysay appropriately indicated in the perimeter
map of said reservation (Exhibit "6"). But the applicant is not relieved
from the original tracing cloth plan approved by the Director of Lands
as required by law. One of the distinguishing marks of the Torrens
System is the absolute certainty of the identity of a registered land.
Consequently the primary purpose of the aforesaid requirement is to fix
the exact or definite identity of the land as shown in the plan and
technical descriptions. Hence, the applicant is not relieved of his duty
of submitting the original tracing cloth of the survey plan of the land
duly approved by the Director of Lands.
It will be noticed that the plan (Exhibit "D", p. 5, Exhibits of Applicant)
does not bear the approval of any officer authorized by law.
In similar manner, the surveyor's certificate, also required in original
land registration proceedings, was not offered in evidence.
2. We next consider the question of whether the applicant has a
registerable title to the land applied for.
The applicant relies on a purported titulo de informacion
posesoria issued in the name of Melecio Padilla (Exhibit "T" pp. 64-68,
Exhibits of Applicant). However, neither the original of the said titulo de
informacion posesoria, nor a duly authenticated copy thereof, was
submitted in evidence, and there are serious flaws on the faces of the
alleged copies of the document, as in the circumstances surrounding
their execution. Thus, the two (2) purported photostat copies of the
said informacion posesoria title materially differ on the date when
said informacion posesoria was issued. One copy showed that the said
document was issued on March 5, 1895 (Exhibit "T") while the other
indicated that it was issued twelve (12) years earlier, or on March 5,
1883 (Exhibit "2").
Moreover, according to the official records of the Register of Deeds of
Nueva Ecija, on the basis of the "List of Possessory Information Titles
(Spanish Titles) of Nueva Ecija", the corresponding supporting
documents of which are kept in the vault of said office, the name of
Melecio Padilla does not appear among those listed as holders
ofinformacion posesoria titles as of the year 1898 covering lands
situated in Santor (now Laur) Nueva Ecija. According to said
document, the name Melecio Padilla appears only in the list of holders
of possessory information titles over lands situated in Peñaranda,
Nueva Ecija, but of a substantially smaller acreage. 19 Thus, the seven
(7) parcels recorded in the name of Melecio Padilla covered only a
total area of 49 hectares, 18 acres and 325 centares. 20 In addition, the
list of property owners in Santor (now Laur), Nueva Ecija existing in the
Division of Archives does not include the name of Melecio Padilla.  21 It
is true that an alleged copy of an informacion posesoria in the name of
Melecio Padilla, was recorded in the office of the Register of Deeds on
November 10, 1942 by one Rodolfo Baltazar, Register of Deeds
(Exhibit "H"), but the Register of Deeds of Nueva Ecija could not certify
to its veracity, as the supposed document does not exist in their
records. 22 There is another factor which weighs heavily against the
claim of the applicant. The alleged informacion posesoria covers an
area of "seis mil quiñiones, poco mas e menos" or an equivalent of
16,800 hectares. Under the Royal Decrees in force at the time of the
supposed acquisition, no one could acquire public land in excess of
1,000 hectares. Thus, the Royal Decrees of November 25, 1880 and
October 26, 1881, prohibited any grant of public land in excess of one
thousand (1,000) hectares. 23
Besides, the document described in Exhibit "H" is not the titulo de
informacion posesoria, because it was merely a certification of
possession of Melecio Padilla over the property, and was issued
without prejudice to a third party or parties having a better 
right. 24 Thus, it states: "En su virtud habiendo examinado el Registro
nuevamente formado por la perdida o destruccion del mismo y no
hallando en ningun asiento contrario a lo relacionado reinscribe la
posesion de la finca de este numero a favor de Don Melecio Padilla sin
perjuicio de tercero que puede tener mejor derecho a la propiedad."
Under Spanish law, in order that an informacion posesoria may be
considered as title of ownership, it must be proven that the holder it was assessed. Neither applicant Parañaque Investment and
thereof has complied with the provisions of Article 393 of the Spanish Development Corporation nor its predecessor, Alipio Alinsunurin had
Mortgage Law. submitted any tax declaration supporting its/his claim over the
property. It is true that tax receipts and declarations of ownership for
taxation purposes are not incontrovertible evidence of ownership, but
It cannot be claimed that the registration of possession has been
they constitute at least proof that the holder had a claim of title over the
legally converted into a registration of ownership because Melecio
property.
Padilla had not complied with the requirements of Article 393 of the
Spanish Mortgage Law, to wit: "that the applicant has been in open
possession of the land; that an application to this effect be filed after It is obvious that the applicant has failed to submit convincing proof of
the expiration of 20 years from the date of such registration; that such actual, peaceful and adverse possession in the concept of owner of the
conversion be announced by means of a proclamation in a proper entire area in question during the period required by law. This is
official bulletin; that the Court order the conversion of the registration of especially true in view of the basic presumption that lands of whatever
possession into a record of ownership; and that the Registrar make the classification belong to the State and evidence of a land grant must be
proper record thereof in the Registry." 25 Evidently, Melecio Padilla, "well-nigh incontrovertible." 32
having died on February 9, 1900, barely five (5) years after the
inscription of the informacion posesoria, could not have converted the
Even more important, Section 48[b] of CA No. 141, as amended,
same into a record of ownership twenty (20) years after such
applies exclusively to public agricultural land. Forest lands or areas
inscription, pursuant to Article 393 of the Spanish Mortgage Law.
covered with forest are excluded. 33 It is well-settled that forest land is
incapable of registration; and its inclusion in a title, whether such title
One year after the promulgation of the Maura Law, or on April 17, be one issued during the Spanish sovereignty or under the present
1895, the right to perfect possessory information title under the law Torrens system of registration, nullifies the title. 34
expired. After that date, full property right of the land reverted to the
government and the right of the cultivator and possessor to obtain
Finally, the applicant urges that Proclamation No. 237 recognizes the
gratuitous title was extinguished. 26
existence of private property within the military reservation. It is true
that the proclamation states that the same is subject "to private rights,
Before the military reservation was established, the evidence is if any there be", but applicant must prove its private rights over the
inconclusive as to possession, for it is shown by the evidence that the property, which said party failed to do. 35 For it is well-settled that,
land involved is largely mountainous and forested. As a matter of fact, unless the applicant has shown by clear and convincing evidence that
at the time of the hearing, it was conceded that approximately 13,957 the property in question was ever acquired by the applicant or his
hectares of said land consist of public forest. During the lifetime of ancestors either by composition title from the Spanish Government or
Melecio Padilla, only a small portion thereof was cleared and cultivated by possessory information title, or any other means for the acquisition
under the "kaingin" system, while some portions were used as grazing of public lands, the property must be held to be part of the public
land. After his death, his daughter, Maria Padilla, caused the planting domain. 36
of vegetables and had about forty (40) tenants for the
purpose. 27 During the Japanese occupation, Maria Padilla died. Alipio
WHEREFORE, decision in the above case is hereby rendered:
Alinsunurin and Encarnacion Caballero took possession of the land
approximately in 1950, but they had to abandon the place due to the
unsettled peace and order conditions in the area. In 1955, entry by (1) in G. R. No. L-27594, the petition for certiorari is granted; the order
them was prevented by the Army. dated March 11, 1967 in LRC Case No. N-675, LRC Rec. No. N-
25545, the decree of registration issued pursuant thereto (Decree No.
113485 dated March 14, 1967), and Original Certificate of Title No. 0-
It seems obvious, on the basis of the facts in the record, that neither
3151 of the Registry of Deeds of Nueva Ecija are all declared void; the
applicant Parañaque Investment and Development Corporation nor
Registry of Deeds of Nueva Ecija is ordered to recall and cancel all
Alipio Alinsunurin nor the latter's predecessors-in-interest have been
transfer certificates of title, including owners' duplicates and
"in open, continuous, exclusive, and notorious possession and
mortgagees' copies, if any, arising out of Original Certificate of Title No.
occupation" of the property in question, "under a bona fideclaim of
0-3151; the preliminary injunction issued on June 5, 1967 and the
acquisition or ownership, for at least thirty years immediately preceding
temporary restraining order issued on June 1, 1973 are made final and
the filing of the application for confirmation of title." 28
permanent, with costs against respondents (except respondent Judge);
and
A mere casual cultivation of portions of the land by the claimant, and
the raising thereon of cattle, do not constitute possession under claim
(2) in G. R. No. L-28144, the appealed decision is hereby reversed and
of ownership. In that sense, possession is not exclusive and notorious
set aside, and judgment is rendered dismissing the application for
so as to give rise to a presumptive grant from the State. 29 While
registration. Costs against appellee.
grazing livestock over land is of course to be considered with other
acts of dominion to show possession, the mere occupancy of land by
grazing livestock upon it, without substantial inclosures or other Makalintal, C.J., Fernando, Teehankee, Esguerra, Muñoz Palma,
permanent improvements, is not sufficient to support a claim of title Aquino, Concepcion, Jr., and Martin, JJ., concur.
thru acquisitive prescription. 30 The possession of public land, however
long the period may have extended, never confers title thereto upon
Castro J, concurs in the result.
the possessor because the statute of limitations with regard to public
land does not operate against the State, unless the occupant can
prove possession and occupation of the same under claim of Barredo and Makasiar, JJ., took no part.
ownership for the required number of years to constitute a grant from
the State. 31

Apart from the aforesaid inconclusive evidence of possession to

support the applicant's claim of title, it does not appear that the said
property has ever been declared for taxation purposes by either
applicant or applicant's predecessors-in-interest. Thus, the only tax
declarations submitted were those of Mamerto Garcia and Honofre
Andrada, et al. (Exhibit "G", Tax Declaration No. 5576, covering an
area of 7,340 hectares) and Mamerto Garcia, et al. (Exhibit "H-1", Tax
Declaration No. 5577, over an area of 9,547 hectares) but both were
filed only in 1958. The latter declaration contains an annotation that the
property described therein is an unidentified property, as the declarant
failed to identify the same, and it "was only through his insistence" that

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 161881               July 31, 2008
NICASIO I. ALCANTARA, Petitioner,  opposition from private respondents, petitioner was able to renew
vs.
DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES,
DENR SECRETARY ELISEA G. GOZUN, REGIONAL EXECUTIVE
DIRECTOR MUSA C. SARUANG, DENR CENRO ANDREW B.
PATRICIO, andRespondents.
HEIRS OF DATU ABDUL B. PENDATUN, represented by DATU
NASSER B. PENDATUN, AL HAJ, HEIRS OF SABAL MULA and
GAWAN CLAN, represented by TRIBAL CHIEF-TAIN LORETO
GAWAN, Respondents-Intervenors,
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court, seeking a reversal of the Decision 1 of the Court of
Appeals (CA) dated September 24, 2003 which affirmed the orders of
the Department of Environment and Natural Resources (DENR),
cancelling the Forest Land Grazing Lease Agreement (FLGLA) with
Nicasio A. Alcantara (petitioner), ordering him to vacate the land
subject of the cancelled FLGLA and directing the installation of
members of a group composed of B’laan and Maguindanaoans,
represented by Rolando Paglangan (private respondents) in the area;
as well as the CA Resolution2 dated January 23, 2004 denying
petitioner's Motion for Reconsideration.
The antecedent facts are as follows:
Petitioner is a lessee under FLGLA No. 542, issued by the DENR, of
nine hundred twenty-three (923) hectares of public forest land3 (subject
land) located in the vicinity of Sitio Lanton, Barrio Apopong, General
Santos City.4
The subject land, however, is being claimed as the ancestral land of
the indigenous B'laan and Maguindanao people, who maintain that
they and their predecessors have been cultivating, possessing and
occupying it since time immemorial.5 They claim that Christian settlers
(settlers) started occupying the area only after World War II. As a
result, there was constant friction between the indigenous inhabitants
and the settlers, with the disputes, at times, erupting in violence.
Overpowered, the indigenous people eventually lost physical control of
much of the land.6
Petitioner, a son of one of the settlers, used to hold a pasture permit
over the subject land, which was later on converted into FLGLA No.
542 covering the subject property. 7 Petitioner claims that FLGLA No.
542 has been subsisting since 1983. 8
On April 10, 1990, private respondents, representing the B'laan and
Maguindanao tribes, filed a complaint 9against petitioner before the
Commission on the Settlement of Land Problems (COSLAP) seeking
the cancellation of FLGLA No. 542 and the reversion of the land to the
indigenous communities.10
Private respondents, the Heirs of Datu Abdul B. Pendatun and the
Heirs of the Sabal Mula Gawan Clan (respondents-intervenors),
claiming to represent the B’laan and Maguindanaoan tribes, aver that
they have always possessed the land until the first settlers occupied
the area.11 They claim that among those who took the land by force
was petitioner’s predecessor, Conrado Alcantara. They narrate that in
1962, some of their tribal leaders tried to re-take the land, but failed
because the well-armed settlers repelled them.12 The incident, in fact,
led to the killing of two of their leaders.13
Petitioner filed an answer to the complaint questioning the authority of
the COSLAP and alleged that it was the secretary of the DENR who
should have jurisdiction to administer and dispose of public
lands.14 Petitioner also contended that the COSLAP should suspend
the hearing of the case, as the DENR was then hearing a similar
controversy.15
In 1993, despite the pendency of the COSLAP case, and despite
FLGLA No. 542 when it expired that year. 16 The renewal given to
petitioner was for another 25 years, or until December 31, 2018.17
Meanwhile, on October 29, 1997, Congress passed Republic Act No.
8371, or the Indigenous People's Rights Act (IPRA), which was
intended to recognize and promote all the rights of the country's
Indigenous Cultural Communities/Indigenous Peoples (ICCs/IPs)
within the framework of the Constitution. 18
On August 3, 1998, the COSLAP rendered its decision, the dispositive
portion of which reads as follows:
WHEREFORE, the foregoing considered, judgment is hereby
RENDERED in favour of the complainants and against the
Respondents as follows:
1. Recommends to the Hon. Secretary of DENR the
cancellation of respondent’s renewed Forest Land Grazing
Lease Agreement (FLGLA) No. 542;
2. Recommending to the DENR to the immediate
segregation of the Three Hundred (300) hectares requested
by complainants from the Nine Hundred Twenty Three (923)
Hectares;
3. Recommending to the DENR to declare the entire area of
the Nine Hundred Twenty Three (923) Hectares, the
ancestral lands of the B’laans;
4. Recommending to the DENR after the Cancellation of
FLGLA No. 542, to place in possession the petitioners in
order to start cultivation and plant crops for their food and
solve the on-going famine and hunger being experience[d] at
present by the Lumads.19
In addition, the COSLAP made the following factual findings:
a) The subject land is the ancestral domain of the
complainant indigenous people, whose possession was
merely interrupted by the forcible and violent takeover of
outside settlers.20
 b) FLGLA No. 542 was issued by the DENR without giving
due process to the indigenous communities as oppositors
and in violation of existing laws such as Presidential Decree
(P.D.) No. 410 and the Constitution. 21
The COSLAP maintained that it had jurisdiction over the case by virtue
of Executive Order (E.O.) No. 561, the law creating the COSLAP,
which provides:
Sec. 3. Powers and Functions. - The Commission shall have the
following powers and functions:
xxxx
2. Refer and follow-up for immediate action by the agency having
appropriate jurisdiction any land problem or dispute referred to the
Commission: Provided, That the Commission may, in the following
cases, assume jurisdiction and resolve land problems or disputes
which are critical and explosive in nature considering, for instance, the
large number of the parties involved, the presence or emergence of
social tension or unrest, or other similar critical situations requiring
immediate action:
(a) Between occupants/squatters and pasture lease agreement holders
or timber concessioners;
(b) Between occupants/squatters and government reservation
grantees;
(c) Between occupants/squatters and public land claimants or
applicants;
(d) Petitions for classification, release and/or subdivision of lands of the
public domain; and
(e) Other similar land problems of grave urgency and magnitude. 22
Disagreeing with the ruling of COSLAP, petitioner filed a motion for
reconsideration of the decision, which COSLAP denied.
Petitioner then filed before the CA a petition 23 for certiorari under Rule
65 to question the decision of the COSLAP. The CA, in its Decision
dated June 22, 2000, affirmed in toto the decision of the COSLAP.24
Aggrieved, petitioner filed a petition for review on certiorari before the
Court, docketed as G.R. No. 145838.
The Court, in its Decision dated July 20, 2001, upheld the CA and the
COSLAP, holding that a) COSLAP had jurisdiction to decide the case;
b) FLGLA No. 542 was issued in violation of the law, and; c) the 923
hectares covered by FLGLA No. 542 were ancestral land of the private
respondents.25
When the decision of the Court attained finality, private respondents
filed a motion for execution of the COSLAP's decision. Petitioner filed
his opposition to the motion.
On July 29, 2002, the COSLAP issued a writ of execution of its
decision, wherein it ordered the Secretary of the DENR to implement
the August 3, 1998 decision as affirmed by the Supreme Court.26
In a memorandum dated October 19, 2001, the Secretary of the DENR
Heherson Alvarez (Sec. Alvarez), upon receipt of the writ of execution
and before cancelling FLGLA No. 542, ordered the Office of the
Regional Executive Director of DENR Region XII, in Koronadal City, to
conduct a review and investigation of FLGLA No. 542. 27 In compliance,
the Officer in Charge (OIC)-Regional Executive Director conducted an
investigation and review of the lease under the said FLGLA. One of the
participants in the investigation was a representative of
petitioner.28Following the investigation, the team released its
report,29 dated February 13, 2002, which found violations by petitioner
of the terms of the FLGLA, as follows:
1. Failure to establish a food production area within the
leased area;
2. Failure to undertake forage improvement within the leased
area;
3. Failure to pay the full and or on time Annual Rental/User's
Fee/ Government Share pursuant to section 28 and 29 of
DAO No. 99-36 dated August 10, 1999 Re: Revised Rules
and Regulations Governing the Administration,
Management, Development and Disposition of Forest Lands
Used for Grazing Purposes. Instead the lessee pay (sic) a
partial payment of Php18,566 per O.R. [No.] 9640117 dated
December 29, 2000 and Php147,680 per O.R. [No.]
9640246 dated February 1, 2001.
4. The 7-years (sic) Grazing Management Plan for CY 1987-
1993 of the said lessee was expired. During our
investigation, the lessee had failed to present the revised 7-
years [sic] Grazing Management Plan for CY 1994-2000 and
thereafter pursuant to item No. 23 of the aforesaid contract.
5. Annual report for year 2001 submitted by the lessee
revealed that cattle stock of the leased area is only 249
heads; however, the investigation team observed that there
were an excess of cattle stock present in the grazing area.
The said excess cattle were (sic) allegedly came from [an]
adjacent ranch own (sic) by Alejandro Alcantara.
6. The team noticed the presence of squatters within the
leased area by [a] certain Asonto et al. and Jumawan et al.
7. FLGLA no. 542 having [sic] an area of 923 hectares which
exceed to (sic) the limit of 500 hectares for individual holder
[sic] pursuant to Section 3 Article XII of [the] 1987 Philippine
Constitution as implemented by DAO No. 99-36 series of
1999.
8. Pursuant to Memorandum dated December 5, 2001 of the
team leader Wahid Amella of CLCSI No. 6 the 478.08
hectares out of the 923 hectares of the leased area is portion
of PMD 5338 reverting it to the category of Forest Land.
However, no Forestry Administrative Order issued. x x x30
Thus, on August 15, 2002, Sec. Alvarez issued an order cancelling
FLGLA No. 542 and subjecting the area under the DENR's authority
pending final distribution to the concerned communities by the National
Commission on Indigenous Peoples (NCIP) or the COSLAP.31
Petitioner filed a motion for reconsideration of the order of cancellation.
In an order dated November 21, 2002,32Sec. Alvarez denied the motion
for reconsideration and affirmed the order of cancellation dated August
15, 2002.
On November 22, 2002, Sec. Alvarez issued a memorandum to the
Regional Executive Director of DENR Region XII, in Koronadal City, to
implement the four recommendations of the COSLAP contained in its
Order dated August 3, 1998; and issue the corresponding survey
authority.33
On November 26, 2002, Community Environment and Natural
Resources Officer (CENRO) Andrew B. Patricio Jr. sent a letter to
petitioner, advising him to vacate and remove all improvements in the
area within 10 days from receipt of the letter. 34 On even date, CENRO
Patricio sent another letter which amended the first letter and advised
petitioner to vacate the land immediately, instead of within 10 days as
earlier advised.35
On November 27, 2002, CENRO Patricio issued an Installation Order,
which directed the immediate installation and occupation of the area,
covered by the cancelled FLGLA No. 542, by the private respondents’
indigenous communities.36
On December 3, 2002, petitioner filed a petition for certiorari before the
CA, docketed as CA G.R. SP No. 74166, praying for the annulment
and setting aside of the orders of the public respondents, enumerated
as follows:
1) The Order dated August 15, 2002 by Sec. Alvarez, which
cancelled the FLGLA No. 542 issued to petitioner;
2) The Order dated November 21, 2002 by Sec. Alvarez
denying petitioner's motion for reconsideration of the order of
cancellation;
3) The Memorandum dated November 22, 2002 by Sec.
Alvarez which orders Regional Office XII of the DENR to
implement COSLAP's recommendations and to issue the
corresponding survey authority;
4) The two Letters dated November 26, 2002 of CENRO
Patricio ordering petitioner to immediately vacate and
remove improvements in the subject area.
5) The Installation Order dated November 27, 2002 of
CENRO Patricio authorizing the installation and occupation
of the subject area by private respondents.
On September 24, 2003, the CA rendered its decision, dismissing the
petition filed by petitioner Alcantara and ruling that the issues and
arguments it raised had all been addressed squarely in the Supreme
Court's decision in G.R. No. 145838 which upheld the COSLAP's
decision and which had long become final and executory. The CA
stated further that the petition was barred by the decision in that case,
as both shared the same parties, the same subject matter and the
same cause of action.
Hence, herein petition.
Petitioner alleges that when he filed the petition for certiorari before the
CA below (CA G.R. SP No 74166), questioning the orders of
respondents DENR officials, he "did not seek to have the cancellation
of its FLGLA No. 542 reconsidered or reopened, precisely because
such cancellation was already covered by a final decision of the
Supreme Court." He insists that what he sought was to have a "clear
determination of his residual rights after such cancellation in the
context of the provisions of the IPRA Law x x x considering that the
right to 'lands of the ancestral domain' arose only in view of the IPRA
Law and cultural minorities had priorly no right to recover their
ancestral lands."37
Petitioner's arguments are centered on the following two main issues:
Whether petitioner may continue his enjoyment of the land up to the
expiration of FLGA No. 542, or December 31, 2018, based on his
alleged residual rights.
Whether respondents DENR officials committed grave abuse of
discretion in implementing the COSLAP's decision, which has been
upheld by the Supreme Court.
The petition lacks merit.
Petitioner may not enjoy possession and use of the land up to the
expiration of FLGLA No. 542, or December 31, 2018, based on his
alleged residual rights.
Petitioner’s claim that he has residual rights to remain on the property
is based on Section 56 of the IPRA, which states:
SEC. 56. Existing Property Rights Regimes. – Property rights within
the ancestral domains already existing and/or vested upon effectivity of
this Act, shall be recognized and respected.
The contention of petitioner has no merit. As stated in the Court's
decision in G.R. No. 145838, 38 the legal dispute surrounding
petitioner's FLGLA No. 542 began in 1990, which was before the
IPRA's passage in 1997, and even before the FLGLA was renewed in
1993. Thus, the case is not covered by IPRA, but by other laws
existing at the time the COSLAP took cognizance of the case. IPRA
also did not cure the legal defects and infirmities of FLGLA No. 542,
which were already the subject of controversy by the time the law was
passed.
Petitioner further calls for IPRA's application, since "the right to lands
of the ancestral domain arose only in view of the IPRA Law and
cultural minorities had priorly no right to recover their ancestral
lands."39 Petitioner is utterly mistaken or misinformed. Before IPRA, the
right of ICCs/IPs to recover their ancestral land was governed by
Presidential Decree (P.D.) No. 410, 40 which declared ancestral lands of
national cultural communities as alienable and disposable, and E.O.
No. 561,41 which created the COSLAP. These laws were the bases of
the Court's decision in G.R. No. 145838. That the rights of most
ICCs/IPs went largely unrecognized despite these laws was not due to
the laws' inadequacies, but due to government indifference and the
political inertia in their implementation. 42
It is also clear that when this Court, in G.R. No. 145838, declared
FLGLA No. 542 as illegal and upheld COSLAP's recommendation of its
cancellation, petitioner had no right to the land, and consequently, had
no right to remain in the use and possession of the subject land. Sec.
Alvarez's cancellation of FLGLA No. 542 merely conformed with the
Court’s findings. The cancellation made by the DENR merely sealed
the fact that FLGLA No. 542 should not have been issued in favour of
petitioner, in the first place. The COSLAP decision has the force and
effect of a regular administrative resolution; hence, it must be
implemented and is binding on all parties to the case.43
The question whether FLGLA No. 542 is valid has been settled
conclusively in G.R. No. 145838 in which the Court made the final
finding that FLGLA No. 542 was issued illegally, and that it was made
in violation of prevailing laws; and that it was proper for it to be
cancelled. The Court ruled, thus:
The Court of Appeals also stated that based on the records, the land
area being claimed by private respondents belongs to the B’laan
indigenous cultural community since they have been in possession of,
and have been occupying and cultivating the same since time
immemorial, a fact which has not been disputed by petitioner. It was
likewise declared by the appellate court that FLGLA No. 542 granted to
petitioner violated Section 1 of Presidential Decree No. 410 which
states that all unappropriated agricultural lands forming part of the
public domain are declared part of the ancestral lands of the
indigenous cultural groups occupying the same, and these lands are
further declared alienable and disposable, to be distributed
exclusively among the members of the indigenous cultural group
concerned.
The Court finds no reason to depart from such finding by the appellate
court, it being a settled rule that findings of fact of the Court of Appeals
are binding and conclusive upon the Supreme Court absent any
showing that such findings are not supported by the evidence on
record.44 (Emphasis supplied)
Petitioner himself admits the finality of that decision, as he states in the
petition that he does not "seek to have the cancellation of FLGLA No.
542 reconsidered or reopened, x x x but a clear determination of his
residual rights after such cancellation in the context of the provisions of
the IPRA Law." However, it appears from a reading of the entire
petition that what petitioner means by his "residual rights" is for him to
continue enjoying exclusive use of the land until the expiration of (1) a former final judgment that was rendered on the merits;
FLGLA No. 542 on December 31, 2018. 45
(2) the court in the former judgment had jurisdiction over the
Again, the decision in G.R. No. 145838 brings out the futility of subject matter and the parties; and,
petitioner's arguments. In no uncertain terms, that decision declared
that FLGLA No. 542 was illegally issued. Therefore, from that illegal
(3) identity of parties, subject matter and cause of action
issuance only flowed an invalid FLGLA, as it is axiomatic in our legal
between the first and second actions;52
system that acts executed against the laws are void,46 and that
administrative or executive acts, orders and regulations that are
contrary to the laws or the Constitution are invalid. 47 Petitioner has no On the other hand, for the second concept to operate, or for there to be
right or interest to speak of, because it is also axiomatic that no vested conclusiveness of judgment, there must be identity of parties and
or acquired right can arise from illegal acts or those that infringe upon subject matter in the first and second cases, but no identity of causes
the rights of others.48 of action.53 If a particular point or question is in issue in the second
action, and the judgment will depend on the determination of that
particular point or question, a former judgment between the same
Petitioner's proposition that despite the lengthy litigation that
parties will be final and conclusive in the second if that same point or
culminated in the invalidation of FLGLA No. 542, he still has the
question was in issue and adjudicated in the first suit; but the
"residual right" to enjoy use of the land until December 31, 2018 is
adjudication of an issue in the first case is not conclusive of an entirely
absolutely unacceptable. His stance invites anomaly at best, or ridicule
different and distinct issue arising in the second. 54 Under the doctrine
at worst, for it asks this Court to render useless its own final decision in
of conclusiveness of judgment, facts and issues actually and directly
G.R. No. 145838. It also solicits disrespect of all judicial decisions and
resolved in a former suit cannot again be raised in any future case
processes. Instead of ending the litigation, it mocks the painstaking
between the same parties, even if the latter suit may involve a different
process undertaken by the courts and administrative agencies to arrive
claim or cause of action.55
at the decision in that case. Petitioner’s alleged "residual right" has no
legal basis and contradicts his admission that FLGLA No. 542 has
been declared invalid by the Court in its decision in G.R. No. 145838. Consequently, the present petition is already barred by res
Petitioner has had no residue of any right and no entitlement to the judicata under the first concept, since the first and second cases share
land, from the very beginning. identical parties, subject matter and cause of action. The shared cause
of action is the alleged violation of petitioner's right to remain on the
subject land until the expiry date of FLGLA No. 542 on December 31,
Petitioner's concern over his alleged rights under the IPRA have all
2018. As this issue has been settled, there is no more reason to revisit
been addressed in G.R. No. 145838. The IPRA was enacted on
it in the present case. There is no reason for an illegal and cancelled
October 29, 1997. The decision in G.R. No. 145838 was promulgated
FLGLA to continue in effect or confer any rights on anyone until it
on July 20, 2001. On that later date, the Court was already aware of
expires on December 31, 2018.
IPRA; and when it rendered the decision, it could have expressly
declared that petitioner had residual rights under that law if such was
the case.49 The Court applied P.D. No. 410, the law in effect before the Even if the Court accepts petitioner's contention that in the present
IPRA, in finding that FLGLA No. 542 was illegal. This finally disposes case, he introduces another cause of action, which is the alleged
of petitioner's claim that he has rights under the IPRA. violation of his right to due process by the haphazard implementation
of the COSLAP decision by the respondent DENR officials, it is
severely limited by the second concept of res judicata, i.e.,
In fact, the Court sees petitioner's filing of the present petition as
conclusiveness of judgment. Since it is now conclusive and binding in
outright forum-shopping, as it seeks to revisit what has become a final
this case that FLGLA No. 542 is illegal and should be cancelled, per
and executory decision. As explained in earlier cases, the hallmarks of
the decision in G.R. No. 145838, petitioner could no longer deny that
forum-shopping are:
the respondent DENR officials acted legally in cancelling FLGLA No.
542 and in ordering petitioner to vacate the subject land. The public
Forum-shopping exists where the elements of litis pendentia are respondents merely acted to implement the COSLAP decision as
present, and where a final judgment in one case will amount to res upheld by the Supreme Court.
judicata in the other. Thus, there is forum-shopping when, between an
action pending before this Court and another one, there exist: "a)
Thus, petitioner is left to prove only whether the public respondents
identity of parties, or at least such parties as represent the same
acted with grave abuse of discretion in their execution of COSLAP's
interests in both actions, b) identity of rights asserted and relief prayed
decision.
for, the relief being founded on the same facts, and c) the identity of
the two preceding particulars is such that any judgment rendered in the
other action, will, regardless of which party is successful amount to res There was no grave abuse of discretion in public respondents'
judicata in the action under consideration; said requisites also implementation of the COSLAP decision.
constitutive of the requisites for auter action pendant or lis pendens."
Another case elucidates the consequence of forum-shopping: "[W]here
The Court finds that no grave abuse of discretion was committed by
a litigant sues the same party against whom another action or actions
respondent DENR officials in their implementation of the COSLAP
for the alleged violation of the same right and the enforcement of the
decision.
same relief is/are still pending, the defense of litis pendentia in one
case is a bar to the others; and, a final judgment in one would
constitute res judicata and thus would cause the dismissal of the It must be emphasized that FLGLA No. 542 is a mere license or
rest."50 privilege granted by the State to petitioner for the use or exploitation of
natural resources and public lands over which the State has sovereign
ownership under the Regalian Doctrine.56 Like timber or mining
Thus, when petitioner raised the issue on whether he should be
licenses, a forest land grazing lease agreement is a mere permit
allowed to remain on the subject land until the expiration of FLGLA No.
which, by executive action, can be revoked, rescinded, cancelled,
542, based on his alleged residual rights, he re-opened an issue
amended or modified, whenever public welfare or public interest so
already discussed and settled in an earlier case. His use of cleverly
requires.57 The determination of what is in the public interest is
disguised language does not hide this fact. Clearly, the Supreme Court
necessarily vested in the State as owner of the country's natural
decision, in G.R. No. 145838, is res judicata in the present case.
resources.58 Thus, a privilege or license is not in the nature of a
Therefore, his filing of the present case despite the finality of an earlier
contract that enjoys protection under the due process and non-
identical case makes the present one subject to dismissal.
impairment clauses of the Constitution.59 In cases in which the license
or privilege is in conflict with the people's welfare, the license or
It has been held that res judicata has two concepts: bar by prior privilege must yield to the supremacy of the latter, as well as to the
judgment and conclusiveness of judgement. 51The elements under the police power of the State. 60 Such a privilege or license is not even a
first concept are the following:
property or property right, nor does it create a vested right; as Pursuant to Section 13, Article VIII of the Constitution, and the Division
such, no irrevocable rights are created in its issuance.61 Chairperson’s Attestation, it is hereby certified that the conclusions in
the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
FLGLA No. 542 has not only been withdrawn by executive action to
further the public welfare, it has also been declared illegal or unlawful
by judicial authorities for clearly violating actual provisions of law. REYNATO S. PUNO
Thus, the DENR was under obligation to effect the cancellation Chief Justice
accordingly.

We likewise find no irregularity in the procedure followed by

respondent DENR officials in their cancellation of FLGLA No. 542 and
their orders for petitioner to vacate the subject land. Petitioner claims
that the public respondents were "haphazard" in their cancellation of
the FLGLA, thus denying him due process.62 Contrary to the portrayals
by the petitioner, however, the officials were not precipitate in their
cancellation of the license and in ordering petitioner to vacate the land.
Instead of immediately cancelling FLGLA No. 542, Sec. Alvarez first
ordered the Regional Executive Director of DENR to conduct a review
and investigation of FLGLA No. 542. 63 Following that investigation,
attended by petitioner's representative, it was found that petitioner
committed several violations of the terms of the FLGLA. 64 It was only
then that Sec. Alvarez issued the cancellation order.

It is clear from the investigation report that petitioner's FLGLA No. 542
is not only illegal per se, for having been issued contrary to the
provisions of P.D. No. 410; it has also been rendered illegal by
petitioner's blatant violations of DENR regulations and the FLGLA's
very own terms and conditions. Thus, the DENR had compelling
reasons to cancel the FLGLA.

In conclusion, the Court, in G.R. No. 145838, recognized the inherent

right of ICCs/IPs to recover their ancestral land from outsiders and
usurpers. Seen by many as a victory attained by the private
respondents only after a long and costly effort, the Court, as a
guardian and instrument of social justice, abhors a further delay in the
resolution of this controversy and brings it to its fitting conclusion by
denying the petition.

WHEREFORE, the decision appealed from is AFFIRMED. Double

costs against petitioner.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MINITA V. CHICO-NAZARIO RUBEN T. REYES

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO*

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion
of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

EN BANC
G.R. No. 135385               December 6, 2000
ISAGANI CRUZ and CESAR EUROPA, petitioners,  Environment and Natural Resources (DENR) and Secretary of the
vs.
SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES,
SECRETARY OF BUDGET AND MANAGEMENT and CHAIRMAN
and COMMISSIONERS OF THE NATIONAL COMMISSION ON
INDIGENOUS PEOPLES, respondents.
HON. JUAN M .FLAVIER, HON. PONCIANO BENNAGEN, BAYANI
ASCARRAGA, EDTAMI MANSAYANGAN, BASILIO WANDAG,
EVELYN DUNUAN, YAOM TUGAS, ALFREMO CARPIANO,
LIBERATO A. GABIN, MATERNIDAD M. COLAS, NARCISA M.
DALUPINES, BAI KIRAM-CONNIE SATURNO, BAE MLOMO-
BEATRIZ T. ABASALA, DATU BALITUNGTUNG-ANTONIO D.
LUMANDONG, DATU MANTUMUKAW TEOFISTO SABASALES,
DATU EDUAARDO BANDA, DATU JOEL UNAD, DATU RAMON
BAYAAN, TIMUAY JOSE ANOY, TIMUAY MACARIO D. SALACAO,
TIMUAY EDWIN B. ENDING, DATU SAHAMPONG MALANAW VI,
DATU BEN PENDAO CABIGON, BAI NANAPNAY-LIZA SAWAY,
BAY INAY DAYA-MELINDA S. REYMUNDO, BAI TINANGHAGA
HELINITA T. PANGAN, DATU MAKAPUKAW ADOLINO L. SAWAY,
DATU MAUDAYAW-CRISPEN SAWAY, VICKY MAKAY, LOURDES
D. AMOS, GILBERT P. HOGGANG, TERESA GASPAR, MANUEL S.
ONALAN, MIA GRACE L. GIRON, ROSEMARIE G. PE, BENITO
CARINO, JOSEPH JUDE CARANTES, LYNETTE CARANTES-
VIVAL, LANGLEY SEGUNDO, SATUR S. BUGNAY, CARLING
DOMULOT, ANDRES MENDIOGRIN, LEOPOLDO ABUGAN,
VIRGILIO CAYETANO, CONCHITA G. DESCAGA, LEVY ESTEVES,
ODETTE G. ESTEVEZ, RODOLFO C. AGUILAR, MAURO
VALONES, PEPE H. ATONG, OFELIA T. DAVI, PERFECTO B.
GUINOSAO, WALTER N. TIMOL, MANUEL T. SELEN, OSCAR
DALUNHAY, RICO O. SULATAN, RAFFY MALINDA, ALFREDO
ABILLANOS, JESSIE ANDILAB, MIRLANDO H. MANGKULINTAS,
SAMIE SATURNO, ROMEO A. LINDAHAY, ROEL S. MANSANG-
CAGAN, PAQUITO S. LIESES, FILIPE G. SAWAY, HERMINIA S.
SAWAY, JULIUS S. SAWAY, LEONARDA SAWAY, JIMMY UGYUB,
SALVADOR TIONGSON, VENANCIO APANG, MADION MALID,
SUKIM MALID, NENENG MALID, MANGKATADONG AUGUSTO
DIANO, JOSEPHINE M. ALBESO, MORENO MALID, MARIO
MANGCAL, FELAY DIAMILING, SALOME P. SARZA, FELIPE P.
BAGON, SAMMY SALNUNGAN, ANTONIO D. EMBA, NORMA
MAPANSAGONOS, ROMEO SALIGA, SR., JERSON P. GERADA,
RENATO T. BAGON, JR., SARING MASALONG, SOLEDAD M.
GERARDA, ELIZABETH L. MENDI, MORANTE S. TIWAN, DANILO
M. MALUDAO, MINORS MARICEL MALID, represented by her
father CORNELIO MALID, MARCELINO M. LADRA, represented by
her father MONICO D. LADRA, JENNYLYN MALID, represented by
her father TONY MALID, ARIEL M. EVANGELISTA, represented by
her mother LINAY BALBUENA, EDWARD M. EMUY, SR., SUSAN
BOLANIO, OND, PULA BATO B'LAAN TRIBAL FARMER'S
ASSOCIATION, INTER-PEOPLE'S EXCHANGE, INC. and GREEN
FORUM-WESTERN VISAYAS, intervenors.
COMMISSION ON HUMAN RIGHTS, intervenor.
IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION
FOR THE CONSERVATION OF NATURAL RESOURCES,
INC., intervenor.
RESOLUTION
PER CURIAM:
Petitioners Isagani Cruz and Cesar Europa brought this suit for
prohibition and mandamus as citizens and taxpayers, assailing the
constitutionality of certain provisions of Republic Act No. 8371 (R.A.
8371), otherwise known as the Indigenous Peoples Rights Act of 1997
(IPRA), and its Implementing Rules and Regulations (Implementing
Rules).
In its resolution of September 29, 1998, the Court required
respondents to comment.1 In compliance, respondents Chairperson
and Commissioners of the National Commission on Indigenous
Peoples (NCIP), the government agency created under the IPRA to
implement its provisions, filed on October 13, 1998 their Comment to
the Petition, in which they defend the constitutionality of the IPRA and
pray that the petition be dismissed for lack of merit.
On October 19, 1998, respondents Secretary of the Department of
Department of Budget and Management (DBM) filed through the
Solicitor General a consolidated Comment. The Solicitor General is of
the view that the IPRA is partly unconstitutional on the ground that it
grants ownership over natural resources to indigenous peoples and
prays that the petition be granted in part.
On November 10, 1998, a group of intervenors, composed of Sen.
Juan Flavier, one of the authors of the IPRA, Mr. Ponciano Bennagen,
a member of the 1986 Constitutional Commission, and the leaders and
members of 112 groups of indigenous peoples (Flavier, et. al), filed
their Motion for Leave to Intervene. They join the NCIP in defending
the constitutionality of IPRA and praying for the dismissal of the
petition.
On March 22, 1999, the Commission on Human Rights (CHR) likewise
filed a Motion to Intervene and/or to Appear as Amicus Curiae. The
CHR asserts that IPRA is an expression of the principle of parens
patriae and that the State has the responsibility to protect and
guarantee the rights of those who are at a serious disadvantage like
indigenous peoples. For this reason it prays that the petition be
dismissed.
On March 23, 1999, another group, composed of the Ikalahan
Indigenous People and the Haribon Foundation for the Conservation of
Natural Resources, Inc. (Haribon, et al.), filed a motion to Intervene
with attached Comment-in-Intervention. They agree with the NCIP and
Flavier, et al. that IPRA is consistent with the Constitution and pray that
the petition for prohibition and mandamus be dismissed.
The motions for intervention of the aforesaid groups and organizations
were granted.
Oral arguments were heard on April 13, 1999. Thereafter, the parties
and intervenors filed their respective memoranda in which they
reiterate the arguments adduced in their earlier pleadings and during
the hearing.
Petitioners assail the constitutionality of the following provisions of the
IPRA and its Implementing Rules on the ground that they amount to an
unlawful deprivation of the State’s ownership over lands of the public
domain as well as minerals and other natural resources therein, in
violation of the regalian doctrine embodied in Section 2, Article XII of
the Constitution:
"(1) Section 3(a) which defines the extent and coverage of ancestral
domains, and Section 3(b) which, in turn, defines ancestral lands;
"(2) Section 5, in relation to section 3(a), which provides that ancestral
domains including inalienable public lands, bodies of water, mineral
and other resources found within ancestral domains are private but
community property of the indigenous peoples;
"(3) Section 6 in relation to section 3(a) and 3(b) which defines the
composition of ancestral domains and ancestral lands;
"(4) Section 7 which recognizes and enumerates the rights of the
indigenous peoples over the ancestral domains;
(5) Section 8 which recognizes and enumerates the rights of the
indigenous peoples over the ancestral lands;
"(6) Section 57 which provides for priority rights of the indigenous
peoples in the harvesting, extraction, development or exploration of
minerals and other natural resources within the areas claimed to be
their ancestral domains, and the right to enter into agreements with
nonindigenous peoples for the development and utilization of natural
resources therein for a period not exceeding 25 years, renewable for
not more than 25 years; and
"(7) Section 58 which gives the indigenous peoples the responsibility to
maintain, develop, protect and conserve the ancestral domains and
portions thereof which are found to be necessary for critical
watersheds, mangroves, wildlife sanctuaries, wilderness, protected
areas, forest cover or reforestation."2
Petitioners also content that, by providing for an all-encompassing
definition of "ancestral domains" and "ancestral lands" which might
even include private lands found within said areas, Sections 3(a) and
3(b) violate the rights of private landowners. 3
In addition, petitioners question the provisions of the IPRA defining the
powers and jurisdiction of the NCIP and making customary law
applicable to the settlement of disputes involving ancestral domains
and ancestral lands on the ground that these provisions violate the due
process clause of the Constitution.4
These provisions are:
"(1) sections 51 to 53 and 59 which detail the process of
delineation and recognition of ancestral domains and which
vest on the NCIP the sole authority to delineate ancestral
domains and ancestral lands;
"(2) Section 52[i] which provides that upon certification by
the NCIP that a particular area is an ancestral domain and
upon notification to the following officials, namely, the
Secretary of Environment and Natural Resources, Secretary
of Interior and Local Governments, Secretary of Justice and
Commissioner of the National Development Corporation, the
jurisdiction of said officials over said area terminates;
"(3) Section 63 which provides the customary law, traditions
and practices of indigenous peoples shall be applied first
with respect to property rights, claims of ownership,
hereditary succession and settlement of land disputes, and
that any doubt or ambiguity in the interpretation thereof shall
be resolved in favor of the indigenous peoples;
"(4) Section 65 which states that customary laws and
practices shall be used to resolve disputes involving
indigenous peoples; and
"(5) Section 66 which vests on the NCIP the jurisdiction over
all claims and disputes involving rights of the indigenous
peoples."5
Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of
the NCIP Administrative Order No. 1, series of 1998, which provides
that "the administrative relationship of the NCIP to the Office of the
President is characterized as a lateral but autonomous relationship for
purposes of policy and program coordination." They contend that said
Rule infringes upon the President’s power of control over executive
departments under Section 17, Article VII of the Constitution. 6
Petitioners pray for the following:
"(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59,
63, 65 and 66 and other related provisions of R.A. 8371 are
unconstitutional and invalid;
"(2) The issuance of a writ of prohibition directing the
Chairperson and Commissioners of the NCIP to cease and
desist from implementing the assailed provisions of R.A.
8371 and its Implementing Rules;
"(3) The issuance of a writ of prohibition directing the
Secretary of the Department of Environment and Natural
Resources to cease and desist from implementing
Department of Environment and Natural Resources Circular
No. 2, series of 1998;
"(4) The issuance of a writ of prohibition directing the
Secretary of Budget and Management to cease and desist
from disbursing public funds for the implementation of the
assailed provisions of R.A. 8371; and
"(5) The issuance of a writ of mandamus commanding the
Secretary of Environment and Natural Resources to comply
with his duty of carrying out the State’s constitutional
mandate to control and supervise the exploration,
development, utilization and conservation of Philippine
natural resources."7
After due deliberation on the petition, the members of the Court voted
as follows:
Seven (7) voted to dismiss the petition. Justice Kapunan filed an
opinion, which the Chief Justice and Justices Bellosillo, Quisumbing,
and Santiago join, sustaining the validity of the challenged provisions
of R.A. 8371. Justice Puno also filed a separate opinion sustaining all
challenged provisions of the law with the exception of Section 1, Part
II, Rule III of NCIP Administrative Order No. 1, series of 1998, the
Rules and Regulations Implementing the IPRA, and Section 57 of the
IPRA which he contends should be interpreted as dealing with the
large-scale exploitation of natural resources and should be read in
conjunction with Section 2, Article XII of the 1987 Constitution. On the
other hand, Justice Mendoza voted to dismiss the petition solely on the
ground that it does not raise a justiciable controversy and petitioners
do not have standing to question the constitutionality of R.A. 8371.
Seven (7) other members of the Court voted to grant the petition.
Justice Panganiban filed a separate opinion expressing the view that
Sections 3 (a)(b), 5, 6, 7 (a)(b), 8, and related provisions of R.A. 8371
are unconstitutional. He reserves judgment on the constitutionality of
Sections 58, 59, 65, and 66 of the law, which he believes must await
the filing of specific cases by those whose rights may have been
violated by the IPRA. Justice Vitug also filed a separate opinion
expressing the view that Sections 3(a), 7, and 57 of R.A. 8371 are
unconstitutional. Justices Melo, Pardo, Buena, Gonzaga-Reyes, and
De Leon join in the separate opinions of Justices Panganiban and
Vitug.
As the votes were equally divided (7 to 7) and the necessary majority
was not obtained, the case was redeliberated upon. However, after
redeliberation, the voting remained the same. Accordingly, pursuant to
Rule 56, Section 7 of the Rules of Civil Procedure, the petition is
DISMISSED.
Attached hereto and made integral parts thereof are the separate
opinions of Justices Puno, Vitug, Kapunan, Mendoza, and
Panganiban.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Melo, Quisumbing, Pardo, Buena,

Gonzaga-Reyes, Ynares-Santiago, and De Leon, Jr., JJ., concur.
Puno, Vitug, Kapunan, Mendoza and Panganiban JJ., see separate
opinion

SEPARATE OPINION

PUNO, J.:

PRECIS

A classic essay on the utility of history was written in 1874 by

Friedrich Nietzsche entitled "On the Uses and Disadvantages of
History for Life." Expounding on Nietzsche's essay, Judge Richard
Posner1 wrote:2

"Law is the most historically oriented, or if you like the most backward-
looking, the most 'past-dependent,' of the professions. It venerates
tradition, precedent, pedigree, ritual, custom, ancient practices, ancient
texts, archaic terminology, maturity, wisdom, seniority, gerontocracy,
and interpretation conceived of as a method of recovering history. It is
suspicious of innovation, discontinuities, 'paradigm shifts,' and the
energy and brashness of youth. These ingrained attitudes are
obstacles to anyone who wants to re-orient law in a more pragmatic
direction. But, by the same token, pragmatic jurisprudence must
come to terms with history."

When Congress enacted the Indigenous Peoples Rights Act (IPRA),

it introduced radical concepts into the Philippine legal system which
appear to collide with settled constitutional and jural precepts on state
ownership of land and other natural resources. The sense and
subtleties of this law cannot be appreciated without considering its
distinct sociology and the labyrinths of its history. This Opinion
attempts to interpret IPRA by discovering its soul shrouded by the mist
of our history. After all, the IPRA was enacted by Congress not only to
fulfill the constitutional mandate of protecting the indigenous cultural
communities' right to their ancestral land but more importantly, to
correct a grave historical injustice to our indigenous people.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 183591 - THE PROVINCE OF NORTH COTABATO, ET
AL. v. THE GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES PEACE PANEL ON ANCESTRAL DOMAIN (GRP), ET
AL.
G.R. No. 183752 - CITY GOVERNMENT OF ZAMBOANGA, ET
AL. v. THE GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES PEACE PANEL ON ANCESTRAL DOMAIN (GRP), ET
AL.
G.R. No. 183893 - THE CITY OF ILIGAN, duly represented by CITY
MAYOR LAURENCE LLUCH CRUZ v. THE GOVERNMENT OF THE
REPUBLIC OF THE PHILIPPINES PEACE PANEL ON ANCESTRAL
DOMAIN (GRP), ET AL.
G.R. No. 183951 - THE PROVINCIAL GOVERNMENT OF
ZAMBOANGA DEL NORTE, as represented by HON. ROLANDO E.
YEBES, ET AL. v. THE GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES PEACE PANEL ON ANCESTRAL DOMAIN (GRP), ET
AL.
x----------------------------------x
FRANKLIN M. DRILON and ADEL ABBAS TAMANO, petitioners-in-
intervention.
x----------------------------------x
MUNICIPALITY OF LINAMON duly represented by its Municipal
Mayor NOEL N. DEANO, petitioner-in-intervention.
x----------------------------------x
THE CITY OF ISABELA, BASILAN PROVINCE, represented by
MAYOR CHERRYLYN P. SANTOS-AKBAR,petitioner-in-
intervention.
x----------------------------------x
THE PROVINCE OF SULTAN KUDARAT, represented by HON.
SUHARTO T. MANGUDDATU, in his capacity as Provincial
Governor and a resident of the Province of Sultan
Kudarat, petitioner-in-intervention.
x----------------------------------x
RUY ELIAS LOPEZ, petitioner-in-intervention.
x----------------------------------x
CARLO B. GOMEZ, ET AL., petitioner-in-intervention.
x-------------------------------------------------x
SEPARATE OPINION
CHICO-NAZARIO, J.:
The piece of writing being assailed in these consolidated Petitions is a
peace negotiation document, namely theMemorandum of Agreement
on the Ancestral Domain Aspect of the GRP-MILF Tripoli
Agreement of Peace of 2001 (MOA). The Solicitor General explained
that this document, prepared by the joint efforts of the Government of
the Republic of the Philippines (GRP) Peace Panel and the Moro
Islamic Liberation Front (MILF) Peace Panel, was merely a codification
of consensus points reached between both parties and the aspirations
of the MILF to have a Bangsamoro homeland. 1 Subsequently, the
Solicitor General moved for the dismissal of the consolidated cases at
bar based on changed circumstances as well as developments which
have rendered them moot, particularly the Executive Department's
statement that it would no longer sign the questioned peace
negotiation document.2 Nonetheless, several parties to the case, as
well as other sectors, continue to push for what they call a "complete
determination" of the constitutional issues raised in the present
Petitions.
I believe that in light of the pronouncement of the Executive
Department to already abandon the MOA, the issue of its
constitutionality has obviously become moot.
The rule is settled that no question involving the constitutionality or
validity of a law or governmental act may be heard and decided by the
court unless there is compliance with the legal requisites for judicial
inquiry, namely: that the question must be raised by the proper party;
that there must be an actual case or controversy; that the question
must be raised at the earliest possible opportunity; and, that the
decision on the constitutional or legal question must be necessary to
the determination of the case itself. But the most important are the first
two requisites.3
For a court to exercise its power of adjudication, there must be an
actual case or controversy — one which involves a conflict of legal
rights, an assertion of opposite legal claims susceptible of judicial
resolution; the case must not be moot or academic or based on
extra-legal or other similar considerations not cognizable by a court
of justice. A case becomes moot and academic when its purpose has
become stale.4 An action is considered "moot" when it no longer
presents a justiciable controversy because the issues involved have
become academic or dead or when the matter in dispute has already
been resolved and hence, one is not entitled to judicial intervention
unless the issue is likely to be raised again between the parties. Simply
stated, there is nothing for the court to resolve as the determination
thereof has been overtaken by subsequent events. 5
Such is the case here.
The MOA has not even been signed, and will never be. Its provisions
will not at all come into effect. The MOA will forever remain a draft that
has never been finalized. It is now nothing more than a piece of paper,
with no legal force or binding effect. It cannot be the source of, nor be
capable of violating, any right. The instant Petitions, therefore, and all
other oppositions to the MOA, have no more leg to stand on. They no
longer present an actual case or a justiciable controversy for resolution
by this Court.
An actual case or controversy exists when there is a conflict of legal
rights or an assertion of opposite legal claims, which can be resolved
on the basis of existing law and jurisprudence. A justiciable
controversy is distinguished from a hypothetical or abstract difference
or dispute, in that the former involves a definite and concrete dispute
touching on the legal relations of parties having adverse legal interests.
A justiciable controversy admits of specific relief through a decree that
is conclusive in character, whereas an opinion only advises what the
law would be upon a hypothetical state of facts.6
For the Court to still rule upon the supposed unconstitutionality of the
MOA will merely be an academic exercise. It would, in effect, only be
delivering an opinion or advice on what are now hypothetical or
abstract violations of constitutional rights.
In Abbas v. Commission on Elections,7 the 1976 Tripoli Agreement and
Republic Act No. 6734 (the Organic Act for the Autonomous Region in
Muslim Mindanao) were challenged for purported violations of the
provisions of the Constitution on freedom of religion. The Court held
therein that it should not inquire into the constitutionality of a peace
agreement which was already consummated (the 1976 Tripoli
Agreement) and an Organic Act which was already passed into law
(R.A. No. 6734) just because of potential conflicts with the Constitution.
Then, with more reason should this Court desist from ruling on the
constitutionality of the MOA which is unsigned, and now entirely
abandoned, and as such, cannot even have any potential conflict with
the Constitution.
The Court should not feel constrained to rule on the Petitions at bar
just because of the great public interest these cases have generated.
We are, after all, a court of law, and not of public opinion. The power of
judicial review of this Court is for settling real and existent dispute, it is
not for allaying fears or addressing public clamor. In acting on
supposed abuses by other branches of government, the Court must be
careful that it is not committing abuse itself by ignoring the fundamental
principles of constitutional law.
The Executive Department has already manifested to this Court,
through the Solicitor General, that it will not sign the MOA in its
present form or in any other form. It has declared the same intent to
the public. For this Court to insist that the issues raised in the instant
Petitions cannot be moot for they are still capable of repetition is to
totally ignore the assurance given by the Executive Department that it
will not enter into any other form of the MOA in the future. The Court
cannot doubt the sincerity of the Executive Department on this matter.
The Court must accord a co-equal branch of the government nothing
less than trust and the presumption of good faith.
Moreover, I deem it beyond the power of this Court to enjoin the
Executive Department from entering into agreements similar to the
MOA in the future, as what petitioners and other opponents of the
MOA pray for. Such prayer once again requires this Court to make a
definitive ruling on what are mere hypothetical facts. A decree granting
the same, without the Court having seen or considered the actual
agreement and its terms, would not only be premature, but also too
general to make at this point. It will perilously tie the hands of the
Executive Department and limit its options in negotiating peace for
Mindanao.
Upon the Executive Department falls the indisputably difficult
responsibility of diffusing the highly volatile situation in Mindanao
resulting from the continued clashes between the Philippine military
and Muslim rebel groups. In negotiating for peace, the Executive
Department should be given enough leeway and should not be
prevented from offering solutions which may be beyond what the
present Constitution allows, as long as such solutions are agreed upon
subject to the amendment of the Constitution by completely legal
means.
Peace negotiations are never simple. If neither party in such
negotiations thinks outside the box, all they would arrive at is a
constant impasse. Thus, a counsel for one of the intervenors who
assert the unconstitutionality of the MOA 8 had no choice but to agree
as follows:
ASSOCIATE JUSTICE QUISUMBING: Well, we realize the
constitutional constraints of sovereignty, integrity and the
like, but isn't there a time that surely will come and the life of
our people when they have to transcend even these
limitations?
DEAN AGABIN: Yes, we have seen it happen in several
instances, Your Honor.
xxx
ASSOCIATE JUSTICE QUISUMBING: And in pursuit of that
purpose, the Supreme Court cannot look beyond the horizon
and look for more satisfying result?
DEAN AGABIN: Well, if you mean by looking beyond the
horizon, it would mean a violation of the provisions of the
Constitution, then it should not be, Your Honor.
ASSOCIATE JUSTICE QUISUMBING: In some part, we
have gone to Malaysia. We have gone to the OIC, and we
have even gone to Libya.
DEAN AGABIN: Yes, Your Honor. But in all these, we have
always insisted on preserving the territorial integrity of the
country.
ASSOCIATE JUSTICE QUISUMBING: And this dicta or
[dogma] is unassailable forever. There cannot be an
exception.
DEAN AGABIN: It is unassailable under the present
Constitution, Your Honor.
ASSOCIATE JUSTICE QUISUMBING: But, at least, you can
also agree that the Constitution ought to be changed in order
for a country to fulfill its internal obligation as a matter of
necessity.
DEAN AGABIN: Yes, if the people so will it, your Honor.
ASSOCIATE JUSTICE QUISUMBING: You remember how
the emperor of Japan lost his divinity? They just changed
their Constitution, isn't it?
DEAN AGABIN: Yes, it was enforced upon him by Mr.
McArthur, and they have no choice.
ASSOCIATE JUSTICE QUISUMBING: Isn't that a very good
example of thinking outside the box? That one day even
those who are underground may have to think. But frankly
now Dean, before I end, may I ask, is it possible to meld or
modify our Constitutional Order in order to have some room
for the newly developing international notions on Associative
Governance Regulation Movement and Human Rights?
DEAN AGABIN: Yes. It is possible, Your Honor, with the
consent of the people.
ASSOCIATE JUSTICE QUISUMBING: And, therefore, we
vote it to a referendum or any consultation beforehand?
DEAN AGABIN: If there is such a proposal for or
amendment or revision of the Constitution, yes, Your Honor.
 ASSOCIATE JUSTICE QUISUMBING: So, either initiative or
CHA-CHA or CON-AS?

DEAN AGABIN: Yes, Your Honor.9

It must be noted that the Constitution has been in force for three
decades now, yet, peace in Mindanao still remained to be elusive
under its present terms. There is the possibility that the solution to the
peace problem in the Southern Philippines lies beyond the present
Constitution. Exploring this possibility and considering the necessary
amendment of the Constitution are not per se unconstitutional. The
Constitution itself implicitly allows for its own amendment by
describing, under Article XVII, the means and requirements therefor.
In Tan v. Macapagal,10 where petitioners claim that the Constitutional
Convention was without power to consider, discuss, or adopt proposals
which seek to revise the Constitution through the adoption of a form of
government other than the form outlined in the then governing
Constitution, the Court ruled that:

[A]s long as any proposed amendment is still unacted on by

[the Convention], there is no room for the interposition of
judicial oversight. Only after it has made concrete what it
intends to submit for ratification may the appropriate case be
instituted. Until then, the Courts are devoid of jurisdiction. x x
x.

At this point, there is far from a concrete proposed amendment to the

Constitution which the Court can take cognizance of, much less render
a pronouncement upon.

At most, the Court can only exhort the Executive Department to keep
in mind that it must negotiate and secure peace in Mindanao under
terms which are most beneficial for the country as a whole, and not just
one group of Muslim insurgents. Transparency and consultation with
all major players, which necessarily include affected local government
units and their constituents, are essential to arrive at a more viable and
acceptable peace plan. The nature and extent of any future written
agreements should be clearly established from the very beginning, and
the terms thereof carefully drafted and clearly worded, to avoid
misunderstandings or misconstructions by the parties and the public. If
a document is meant to be a list of consensus points still subject to
further negotiations, then it should just simply state so.

As a final note, I find it necessary to stress that the Court must not
allow itself to be mired in controversies affecting each step of the
peace process in Mindanao. It is not within the province or even the
competence of the Judiciary to tell the Executive Department exactly
what and what not, how and how not, to negotiate for peace with
insurgents. Given this kind of situation where war and peace hang in
the balance, where people's lives are at stake, and the Executive
Department, under its residual powers, is tasked to make political
decisions in order to find solutions to the insurgency problem, the
Court should respect the political nature of the issues at bar and
exercise judicial restraint until an actual controversy is brought before
it.

In view of the foregoing, I vote for the GRANT of the Motion to Dismiss

filed by the Solicitor General and, accordingly, for the DISMISSAL of
the Petitions at bar for being MOOT and ACADEMIC.

MINITA V. CHICO-NAZARIO
Associate Justice

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 167707              October 8, 2008
THE SECRETARY OF THE DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES, THE REGIONAL EXECUTIVE DIRECTOR,
DENR-REGION VI, REGIONAL TECHNICAL DIRECTOR FOR
LANDS, LANDS MANAGEMENT BUREAU, REGION VI
PROVINCIAL ENVIRONMENT AND NATURAL RESOURCES
OFFICER OF KALIBO, AKLAN, REGISTER OF DEEDS, DIRECTOR
OF LAND REGISTRATION AUTHORITY, DEPARTMENT OF
TOURISM SECRETARY, DIRECTOR OF PHILIPPINE TOURISM
AUTHORITY, petitioners,  Mayor Jose S. Yap, Jr., Libertad Talapian, Mila Y. Sumndad, and
vs.
MAYOR JOSE S. YAP, LIBERTAD TALAPIAN, MILA Y. SUMNDAD,
and ANICETO YAP, in their behalf and in behalf of all those
similarly situated, respondents.
x------------------------- ------------------------
x June 12, 1945, or earlier since time immemorial. They declared their
G.R. No. G.R. No. 173775              October 8, 2008
DR. ORLANDO SACAY and WILFREDO GELITO, joined by THE
LANDOWNERS OF BORACAY SIMILARLY SITUATED NAMED IN A
LIST, ANNEX "A" OF THIS PETITION, petitioners,  Act, they had the right to have the lots registered in their names
vs.
THE SECRETARY OF THE DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES, THE REGIONAL TECHNICAL DIRECTOR
FOR LANDS, LANDS MANAGEMENT BUREAU, REGION VI,
PROVINCIAL ENVIRONMENT AND NATURAL RESOURCES
OFFICER, KALIBO, AKLAN, respondents.
DECISION
REYES, R.T., J.:
AT stake in these consolidated cases is the right of the present
occupants of Boracay Island to secure titles over their occupied lands.
There are two consolidated petitions. The first is G.R. No. 167707, a
petition for review on certiorari of the Decision1 of the Court of Appeals
(CA) affirming that2 of the Regional Trial Court (RTC) in Kalibo, Aklan,
which granted the petition for declaratory relief filed by respondents-
claimants Mayor Jose Yap, et al. and ordered the survey of Boracay
for titling purposes. The second is G.R. No. 173775, a petition for
prohibition, mandamus, and nullification of Proclamation No.
10645">[3] issued by President Gloria Macapagal-Arroyo classifying
Boracay into reserved forest and agricultural land.
The Antecedents
G.R. No. 167707
Boracay Island in the Municipality of Malay, Aklan, with its powdery
white sand beaches and warm crystalline waters, is reputedly a
premier Philippine tourist destination. The island is also home to
12,003 inhabitants4 who live in the bone-shaped island’s
three barangays.5
On April 14, 1976, the Department of Environment and Natural
Resources (DENR) approved the National Reservation Survey of
Boracay
Island,6 which identified several lots as being occupied or claimed by
named persons.7
On November 10, 1978, then President Ferdinand Marcos issued
Proclamation No. 18018 declaring Boracay Island, among other
islands, caves and peninsulas in the Philippines, as tourist zones and
marine reservesunder the administration of the Philippine Tourism
Authority (PTA). President Marcos later approved the issuance of PTA
Circular 3-829 dated September 3, 1982, to implement Proclamation
No. 1801.
Claiming that Proclamation No. 1801 and PTA Circular No 3-82
precluded them from filing an application for judicial confirmation of
imperfect title or survey of land for titling purposes, respondents-
claimants 
Aniceto Yap filed a petition for declaratory relief with the RTC in Kalibo,
Aklan.
In their petition, respondents-claimants alleged that Proclamation No.
1801 and PTA Circular No. 3-82 raised doubts on their right to secure
titles over their occupied lands. They declared that they themselves, or
through their predecessors-in-interest, had been in open, continuous,
exclusive, and notorious possession and occupation in Boracay since
lands for tax purposes and paid realty taxes on them.10
Respondents-claimants posited that Proclamation No. 1801 and its
implementing Circular did not place Boracay beyond the commerce of
man. Since the Island was classified as a tourist zone, it was
susceptible of private ownership. Under Section 48(b) of
Commonwealth Act (CA) No. 141, otherwise known as the Public Land
through judicial confirmation of imperfect titles.
The Republic, through the Office of the Solicitor General (OSG),
opposed the petition for declaratory relief. The OSG countered that
Boracay Island was an unclassified land of the public domain. It
formed part of the mass of lands classified as "public forest," which
was not available for disposition pursuant to Section 3(a) of
Presidential Decree (PD) No. 705 or the Revised Forestry Code, 11 as
amended.
The OSG maintained that respondents-claimants’ reliance on PD No.
1801 and PTA Circular No. 3-82 was misplaced. Their right to judicial
confirmation of title was governed by CA No. 141 and PD No. 705.
Since Boracay Island had not been classified as alienable and
disposable, whatever possession they had cannot ripen into
ownership.
During pre-trial, respondents-claimants and the OSG stipulated on the
following facts: (1) respondents-claimants were presently in
possession of parcels of land in Boracay Island; (2) these parcels of
land were planted with coconut trees and other natural growing trees;
(3) the coconut trees had heights of more or less twenty (20) meters
and were planted more or less fifty (50) years ago; and (4)
respondents-claimants declared the land they were occupying for tax
purposes.12
The parties also agreed that the principal issue for resolution was
purely legal: whether Proclamation No. 1801 posed any legal
hindrance or impediment to the titling of the lands in Boracay. They
decided to forego with the trial and to submit the case for resolution
upon submission of their respective memoranda.13
The RTC took judicial notice 14 that certain parcels of land in Boracay
Island, more particularly Lots 1 and 30, Plan PSU-5344, were covered
by Original Certificate of Title No. 19502 (RO 2222) in the name of the
Heirs of Ciriaco S. Tirol. These lots were involved in Civil Case Nos.
5222 and 5262 filed before the RTC of Kalibo, Aklan. 15 The titles were
issued on
August 7, 1933.16
RTC and CA Dispositions
On July 14, 1999, the RTC rendered a decision in favor of
respondents-claimants, with a fallo reading:
WHEREFORE, in view of the foregoing, the Court declares that
Proclamation No. 1801 and PTA Circular No. 3-82 pose no legal
obstacle to the petitioners and those similarly situated to acquire title to
their lands in Boracay, in accordance with the applicable laws and in
the manner prescribed therein; and to have their lands surveyed and
approved by respondent Regional Technical Director of Lands as the
approved survey does not in itself constitute a title to the land.
SO ORDERED.17
The RTC upheld respondents-claimants’ right to have their occupied
lands titled in their name. It ruled that neither Proclamation No. 1801
nor PTA Circular No. 3-82 mentioned that lands in Boracay were
inalienable or could not be the subject of disposition. 18 The Circular
itself recognized private ownership of lands. 19 The trial court cited
Sections 8720 and 5321 of the Public Land Act as basis for
acknowledging private ownership of lands in Boracay and that only
those forested areas in public lands were declared as part of the forest
reserve.22
The OSG moved for reconsideration but its motion was denied. 23 The
Republic then appealed to the CA.
On December 9, 2004, the appellate court affirmed in toto the RTC
decision, disposing as follows:
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered by us DENYING the appeal filed in this case and
AFFIRMING the decision of the lower court.24
The CA held that respondents-claimants could not be prejudiced by a
declaration that the lands they occupied since time immemorial were
part of a forest reserve.
Again, the OSG sought reconsideration but it was similarly
denied.25 Hence, the present petition under Rule 45.
G.R. No. 173775
On May 22, 2006, during the pendency of G.R. No. 167707, President
Gloria Macapagal-Arroyo issued Proclamation No. 1064 26 classifying
Boracay Island into four hundred (400) hectares of reserved forest land
(protection purposes) and six hundred twenty-eight and 96/100
(628.96) hectares of agricultural land (alienable and disposable). The
Proclamation likewise provided for a fifteen-meter buffer zone on each
side of the centerline of roads and trails, reserved for right-of-way and
which shall form part of the area reserved for forest land protection
purposes.
On August 10, 2006, petitioners-claimants Dr. Orlando
Sacay,27 Wilfredo Gelito, 28 and other landowners29 in Boracay filed with
this Court an original petition for prohibition, mandamus, and
nullification of Proclamation No. 1064. 30 They allege that the
Proclamation infringed on their "prior vested rights" over portions of
Boracay. They have been in continued possession of their respective
lots in Boracay since time immemorial. They have also invested billions
of pesos in developing their lands and building internationally
renowned first class resorts on their lots.31
Petitioners-claimants contended that there is no need for a
proclamation reclassifying Boracay into agricultural land. Being
classified as neither mineral nor timber land, the island
is deemed agricultural pursuant to the Philippine Bill of 1902 and Act
No. 926, known as the first Public Land Act. 32 Thus, their possession in
the concept of owner for the required period entitled them to judicial
confirmation of imperfect title.
Opposing the petition, the OSG argued that petitioners-claimants do
not have a vested right over their occupied portions in the island.
Boracay is an unclassified public forest land pursuant to Section 3(a) of
PD No. 705. Being public forest, the claimed portions of the island are
inalienable and cannot be the subject of judicial confirmation of
imperfect title. It is only the executive department, not the courts, which
has authority to reclassify lands of the public domain into alienable and
disposable lands. There is a need for a positive government act in
order to release the lots for disposition.
On November 21, 2006, this Court ordered the consolidation of the two
petitions as they principally involve the same issues on the land
classification of Boracay Island. 33
Issues
G.R. No. 167707
The OSG raises the lone issue of whether Proclamation No. 1801 and
PTA Circular No. 3-82 pose any legal obstacle for respondents, and all
those similarly situated, to acquire title to their occupied lands in
Boracay Island.34
G.R. No. 173775
Petitioners-claimants hoist five (5) issues, namely:
I.
AT THE TIME OF THE ESTABLISHED POSSESSION OF
PETITIONERS IN CONCEPT OF OWNER OVER THEIR
RESPECTIVE AREAS IN BORACAY, SINCE TIME IMMEMORIAL OR
AT THE LATEST SINCE 30 YRS. PRIOR TO THE FILING OF THE
PETITION FOR DECLARATORY RELIEF ON NOV. 19, 1997, WERE
THE AREAS OCCUPIED BY THEM PUBLIC AGRICULTURAL LANDS
AS DEFINED BY LAWS THEN ON JUDICIAL CONFIRMATION OF
IMPERFECT TITLES OR PUBLIC FOREST AS DEFINED BY SEC.
3a, PD 705?
II.
HAVE PETITIONERS OCCUPANTS ACQUIRED PRIOR VESTED
RIGHT OF PRIVATE OWNERSHIPOVER THEIR OCCUPIED
PORTIONS OF BORACAY LAND, DESPITE THE FACT THAT THEY
HAVE NOT APPLIED YET FOR JUDICIAL CONFIRMATION OF
IMPERFECT TITLE?
III.
IS THE EXECUTIVE DECLARATION OF THEIR AREAS AS
ALIENABLE AND DISPOSABLE UNDER SEC 6, CA 141 [AN]
INDISPENSABLE PRE-REQUISITE FOR PETITIONERS TO OBTAIN
TITLEUNDER THE TORRENS SYSTEM?
IV.
IS THE ISSUANCE OF PROCLAMATION 1064 ON MAY 22, 2006,
VIOLATIVE OF THE PRIOR VESTED RIGHTS TO PRIVATE
OWNERSHIP OF PETITIONERS OVER THEIR LANDS IN
BORACAY, PROTECTED BY THE DUE PROCESS CLAUSE OF THE
CONSTITUTION OR IS PROCLAMATION 1064 CONTRARY TO SEC.
8, CA 141, OR SEC. 4(a) OF RA 6657.
V.
CAN RESPONDENTS BE COMPELLED BY MANDAMUS TO ALLOW
THE SURVEY AND TO APPROVE THE SURVEY PLANS FOR
PURPOSES OF THE APPLICATION FOR TITLING OF THE LANDS
OF PETITIONERS IN BORACAY? 35 (Underscoring supplied)
In capsule, the main issue is whether private claimants (respondents-
claimants in G.R. No. 167707 and petitioners-claimants in G.R. No.
173775) have a right to secure titles over their occupied portions in
Boracay. The twin petitions pertain to their right, if any, to judicial
confirmation of imperfect title under CA No. 141, as amended. They do
not involve their right to secure title under other pertinent laws.
Our Ruling
Regalian Doctrine and power of the executive
to reclassify lands of the public domain
Private claimants rely on three (3) laws and executive acts in their bid
for judicial confirmation of imperfect title, namely: (a) Philippine Bill of
190236 in relation to Act No. 926, later amended and/or superseded by
Act No. 2874 and CA No. 141; 37 (b) Proclamation No. 180138 issued by
then President Marcos; and (c) Proclamation No. 1064 39 issued by
President Gloria Macapagal-Arroyo. We shall proceed to determine
their rights to apply for judicial confirmation of imperfect title under
these laws and executive acts.
But first, a peek at the Regalian principle and the power of the
executive to reclassify lands of the public domain.
The 1935 Constitution classified lands of the public domain into
agricultural, forest or timber.40 Meanwhile, the 1973 Constitution
provided the following divisions: agricultural, industrial or commercial,
residential, resettlement, mineral, timber or forest and grazing lands,
and such other classes as may be provided by law, 41 giving the
government great leeway for classification. 42 Then the 1987
Constitution reverted to the 1935 Constitution classification with one
addition: national parks.43 Of these, only agricultural lands may be
alienated.44 Prior to Proclamation No. 1064 of May 22, 2006, Boracay
Island had never been expressly and administratively classified under
any of these grand divisions. Boracay was an unclassified land of the
public domain.
The Regalian Doctrine dictates that all lands of the public domain
belong to the State, that the State is the source of any asserted right to
ownership of land and charged with the conservation of such
patrimony.45 The doctrine has been consistently adopted under the
1935, 1973, and 1987 Constitutions.46
All lands not otherwise appearing to be clearly within private ownership
are presumed to belong to the State. 47Thus, all lands that have not
been acquired from the government, either by purchase or by grant,
belong to the State as part of the inalienable public
domain.48 Necessarily, it is up to the State to determine if lands of the
public domain will be disposed of for private ownership. The
government, as the agent of the state, is possessed of the plenary
power as the persona in law to determine who shall be the favored
recipients of public lands, as well as under what terms they may be
granted such privilege, not excluding the placing of obstacles in the
way of their exercise of what otherwise would be ordinary acts of
ownership.49
Our present land law traces its roots to the Regalian Doctrine. Upon
the Spanish conquest of the Philippines, ownership of all lands,
territories and possessions in the Philippines passed to the Spanish
Crown.50 The Regalian doctrine was first introduced in the Philippines
through the Laws of the Indies and the Royal Cedulas,which laid the
foundation that "all lands that were not acquired from the Government,
either by purchase or by grant, belong to the public domain."51
The Laws of the Indies was followed by the Ley Hipotecaria or the
Mortgage Law of 1893. The Spanish Mortgage Law provided for the
systematic registration of titles and deeds as well as possessory
claims.52
The Royal Decree of 1894 or the Maura Law 53 partly amended the
Spanish Mortgage Law and the Laws of the Indies. It established
possessory information as the method of legalizing possession of
vacant Crown land, under certain conditions which were set forth in
said decree.54 Under Section 393 of the Maura Law, an informacion
posesoria or possessory information title,55 when duly inscribed in the
Registry of Property, is converted into a title of ownership only after the
lapse of twenty (20) years of uninterrupted possession which must be
actual, public, and adverse, 56 from the date of its
inscription.57 However, possessory information title had to be perfected
one year after the promulgation of the Maura Law, or until April 17,
1895. Otherwise, the lands would revert to the State.58
In sum, private ownership of land under the Spanish regime could only
be founded on royal concessions which took various forms, namely:
(1) titulo real or royal grant; (2) concesion especial or special grant;
(3) composicion con el estado or adjustment title; (4) titulo de
compra or title by purchase; and (5) informacion posesoria or
possessory information title.59>
The first law governing the disposition of public lands in the
Philippines under American rule was embodied in the Philippine Bill
of 1902.60 By this law, lands of the public domain in the Philippine
Islands were classified into three (3) grand divisions, to wit:
agricultural, mineral, and timber or forest lands. 61 The act provided for,
among others, the disposal of mineral lands by means of absolute
grant (freehold system) and by lease (leasehold system). 62 It also
provided the definition by exclusion of "agricultural public
lands."63 Interpreting the meaning of "agricultural lands" under the
Philippine Bill of 1902, the Court declared in Mapa v. Insular
Government:64
x x x In other words, that the phrase "agricultural land" as used in Act
No. 926 means those public lands acquired from Spain which are
not timber or mineral lands. x x x65 (Emphasis Ours)
On February 1, 1903, the Philippine Legislature passed Act
No. 496, otherwise known as the Land Registration Act. The act
established a system of registration by which recorded title becomes
absolute, indefeasible, and imprescriptible. This is known as the
Torrens system.66
Concurrently, on October 7, 1903, the Philippine Commission passed
Act No. 926, which was the first Public Land Act. The Act introduced
the homestead system and made provisions for judicial and
administrative confirmation of imperfect titles and for the sale or lease
of public lands. It permitted corporations regardless of the nationality of
persons owning the controlling stock to lease or purchase lands of the
public domain.67 Under the Act, open, continuous, exclusive, and
notorious possession and occupation of agricultural lands for the next
ten (10) years preceding July 26, 1904 was sufficient for judicial
confirmation of imperfect title.68
On November 29, 1919, Act No. 926 was superseded by Act
No. 2874, otherwise known as the second Public Land Act. This new,
more comprehensive law limited the exploitation of agricultural lands to
Filipinos and Americans and citizens of other countries which gave
Filipinos the same privileges. For judicial confirmation of title,
possession and occupation en concepto dueño since time immemorial,
or since July 26, 1894, was required. 69
After the passage of the 1935 Constitution, CA No. 141 amended Act
No. 2874 on December 1, 1936. To this day, CA No. 141, as
amended, remains as the existing general law governing the
classification and disposition of lands of the public domain other than
timber and mineral lands, 70 and privately owned lands which reverted
to the State.71
Section 48(b) of CA No. 141 retained the requirement under Act No.
2874 of possession and occupation of lands of the public domain since
time immemorial or since July 26, 1894. However, this provision was
superseded by Republic Act (RA) No. 1942, 72 which provided for a
simple thirty-year prescriptive period for judicial confirmation of
imperfect title. The provision was last amended by PD No.
1073,73 which now provides for possession and occupation of the land
applied for since June 12, 1945, or earlier. 74
The issuance of PD No. 89275 on February 16, 1976 discontinued the
use of Spanish titles as evidence in land registration
proceedings.76 Under the decree, all holders of Spanish titles or grants
should apply for registration of their lands under Act No. 496 within six
(6) months from the effectivity of the decree on February 16, 1976.
Thereafter, the recording of all unregistered lands77 shall be governed
by Section 194 of the Revised Administrative Code, as amended by
Act No. 3344.
On June 11, 1978, Act No. 496 was amended and updated by PD No.
1529, known as the Property Registration Decree. It was enacted to
codify the various laws relative to registration of property. 78 It governs
registration of lands under the Torrens system as well as unregistered
lands, including chattel mortgages.79
A positive act declaring land as alienable and disposable is
required. In keeping with the presumption of State ownership, the
Court has time and again emphasized that there must be a positive
act of the government, such as an official
proclamation,80 declassifying inalienable public land into disposable
land for agricultural or other purposes. 81 In fact, Section 8 of CA No.
141 limits alienable or disposable lands only to those lands which have
been "officially delimited and classified." 82
The burden of proof in overcoming the presumption of State ownership
of the lands of the public domain is on the person applying for
registration (or claiming ownership), who must prove that the land
subject of the application is alienable or disposable. 83 To overcome this
presumption, incontrovertible evidence must be established that the
land subject of the application (or claim) is alienable or
disposable.84 There must still be a positive act declaring land of the
public domain as alienable and disposable. To prove that the land
subject of an application for registration is alienable, the applicant must
establish the existence of a positive act of the government such as a
presidential proclamation or an executive order; an administrative
action; investigation reports of Bureau of Lands investigators; and a
legislative act or a statute.85 The applicant may also secure a
certification from the government that the land claimed to have been
possessed for the required number of years is alienable and
disposable.86
In the case at bar, no such proclamation, executive order,
administrative action, report, statute, or certification was presented to
the Court. The records are bereft of evidence showing that, prior to
2006, the portions of Boracay occupied by private claimants were
subject of a government proclamation that the land is alienable and
disposable. Absent such well-nigh incontrovertible evidence, the Court
cannot accept the submission that lands occupied by private claimants
were already open to disposition before 2006. Matters of land
classification or reclassification cannot be assumed. They call for
proof.87
Ankron and De Aldecoa did not make the whole of Boracay
Island, or portions of it, agricultural lands.Private claimants posit
that Boracay was already an agricultural land pursuant to the old
cases Ankron v. Government of the Philippine Islands (1919) 88 and De
Aldecoa v. The Insular Government (1909).89 These cases were
decided under the provisions of the Philippine Bill of 1902 and Act No.
926. There is a statement in these old cases that "in the absence of
evidence to the contrary, that in each case the lands are agricultural
lands until the contrary is shown."90
Private claimants’ reliance on Ankron and De Aldecoa is misplaced.
These cases did not have the effect of converting the whole of Boracay
Island or portions of it into agricultural lands. It should be stressed that
the Philippine Bill of 1902 and Act No. 926 merely provided the manner
through which land registration courts would classify lands of the public
domain. Whether the land would be classified as timber, mineral, or
agricultural depended on proof presented in each case.
Ankron and De Aldecoa were decided at a time when the President of
the Philippines had no power to classify lands of the public domain into
mineral, timber, and agricultural. At that time, the courts were free to
make corresponding classifications in justiciable cases, or were vested
with implicit power to do so, depending upon the preponderance of the
evidence.91 This was the Court’s ruling in Heirs of the Late Spouses
Pedro S. Palanca and Soterranea Rafols Vda. De Palanca v.
Republic,92 in which it stated, through Justice Adolfo Azcuna, viz.:
x x x Petitioners furthermore insist that a particular land need not be
formally released by an act of the Executive before it can be deemed
open to private ownership, citing the cases of Ramos v. Director of
Lands and Ankron v. Government of the Philippine Islands.
xxxx
Petitioner’s reliance upon Ramos v. Director of Lands and Ankron v.
Government is misplaced. These cases were decided under the
Philippine Bill of 1902 and the first Public Land Act No. 926 enacted by
the Philippine Commission on October 7, 1926, under which there was
no legal provision vesting in the Chief Executive or President of the
Philippines the power to classify lands of the public domain into
mineral, timber and agricultural so that the courts then were free to
make corresponding classifications in justiciable cases, or were vested
with implicit power to do so, depending upon the preponderance of the
evidence.93
To aid the courts in resolving land registration cases under Act No.
926, it was then necessary to devise a presumption on land
classification. Thus evolved the dictum in Ankron that "the courts have
a right to presume, in the absence of evidence to the contrary, that in
each case the lands are agricultural lands until the contrary is
shown."94
But We cannot unduly expand the presumption in Ankron and De
Aldecoa to an argument that all lands of the public domain had been
automatically reclassified as disposable and alienable agricultural
lands. By no stretch of imagination did the presumption convert all
lands of the public domain into agricultural lands.
If We accept the position of private claimants, the Philippine Bill of
1902 and Act No. 926 would have automatically made all lands in the
Philippines, except those already classified as timber or mineral land,
alienable and disposable lands. That would take these lands out of
State ownership and worse, would be utterly inconsistent with and
totally repugnant to the long-entrenched Regalian doctrine.
The presumption in Ankron and De Aldecoa attaches only to land
registration cases brought under the provisions of Act No. 926, or more
specifically those cases dealing with judicial and administrative
confirmation of imperfect titles. The presumption applies to an
applicant for judicial or administrative conformation of imperfect title
under Act No. 926. It certainly cannot apply to landowners, such as
private claimants or their predecessors-in-interest, who failed to avail
themselves of the benefits of Act No. 926. As to them, their land
remained unclassified and, by virtue of the Regalian doctrine,
continued to be owned by the State.
In any case, the assumption in Ankron and De Aldecoa was not
absolute. Land classification was, in the end, dependent on proof. If
there was proof that the land was better suited for non-agricultural
uses, the courts could adjudge it as a mineral or timber land despite
the presumption. In Ankron, this Court stated:
In the case of Jocson vs. Director of Forestry (supra), the Attorney-
General admitted in effect that whether the particular land in question
belongs to one class or another is a question of fact. The mere fact
that a tract of land has trees upon it or has mineral within it is not of
itself sufficient to declare that one is forestry land and the other,
mineral land. There must be some proof of the extent and present or
future value of the forestry and of the minerals. While, as we have just
said, many definitions have been given for "agriculture," "forestry," and
"mineral" lands, and that in each case it is a question of fact, we think it
is safe to say that in order to be forestry or mineral land the proof must
show that it is more valuable for the forestry or the mineral which it
contains than it is for agricultural purposes. (Sec. 7, Act No. 1148.) It is
not sufficient to show that there exists some trees upon the land or that
it bears some mineral. Land may be classified as forestry or mineral
today, and, by reason of the exhaustion of the timber or mineral, be
classified as agricultural land tomorrow. And vice-versa, by reason of
the rapid growth of timber or the discovery of valuable minerals, lands
classified as agricultural today may be differently classified
tomorrow. Each case must be decided upon the proof in that
particular case, having regard for its present or future value for
one or the other purposes. We believe, however, considering the fact
that it is a matter of public knowledge that a majority of the lands in the
Philippine Islands are agricultural lands that the courts have a right to
presume, in the absence of evidence to the contrary, that in each case
the lands are agricultural lands until the contrary is shown. Whatever
the land involved in a particular land registration case is forestry
or mineral land must, therefore, be a matter of proof. Its superior
value for one purpose or the other is a question of fact to be
settled by the proof in each particular case. The fact that the land is
a manglar [mangrove swamp] is not sufficient for the courts to decide
whether it is agricultural, forestry, or mineral land. It may perchance
belong to one or the other of said classes of land. The Government, in
the first instance, under the provisions of Act No. 1148, may, by
reservation, decide for itself what portions of public land shall be
considered forestry land, unless private interests have intervened
before such reservation is made. In the latter case, whether the land is
agricultural, forestry, or mineral, is a question of proof. Until private
interests have intervened, the Government, by virtue of the terms of
said Act (No. 1148), may decide for itself what portions of the "public
domain" shall be set aside and reserved as forestry or mineral land.
(Ramos vs. Director of Lands, 39 Phil. 175; Jocson vs. Director of
Forestry, supra)95 (Emphasis ours)
Since 1919, courts were no longer free to determine the classification
of lands from the facts of each case, except those that have already
became private lands.96 Act No. 2874, promulgated in 1919 and
reproduced in Section 6 of CA No. 141, gave the Executive
Department, through the President, the exclusive prerogative to
classify or reclassify public lands into alienable or disposable, mineral
or forest.96-a Since then, courts no longer had the authority, whether
express or implied, to determine the classification of lands of the public
domain.97
Here, private claimants, unlike the Heirs of Ciriaco Tirol who were
issued their title in 1933, 98 did not present a justiciable case for
determination by the land registration court of the property’s land
classification. Simply put, there was no opportunity for the courts then
to resolve if the land the Boracay occupants are now claiming were
agricultural lands. When Act No. 926 was supplanted by Act No. 2874
in 1919, without an application for judicial confirmation having been
filed by private claimants or their predecessors-in-interest, the courts
were no longer authorized to determine the property’s land
classification. Hence, private claimants cannot bank on Act No. 926.
We note that the RTC decision 99 in G.R. No. 167707
mentioned Krivenko v. Register of Deeds of Manila,100 which was
decided in 1947 when CA No. 141, vesting the Executive with the sole
power to classify lands of the public domain was already in
effect. Krivenko cited the old cases Mapa v. Insular Government, 101 De
Aldecoa v. The Insular Government, 102 and Ankron v. Government of
the Philippine Islands. 103
Krivenko, however, is not controlling here because it involved a totally
different issue. The pertinent issue inKrivenko was whether residential
lots were included in the general classification of agricultural lands; and
if so, whether an alien could acquire a residential lot. This Court ruled
that as an alien, Krivenko was prohibited by the 1935
Constitution104 from acquiring agricultural land, which included
residential lots. Here, the issue is whether unclassified lands of the
public domain are automatically deemed agricultural.
Notably, the definition of "agricultural public lands" mentioned
in Krivenko relied on the old cases decided prior to the enactment of
Act No. 2874, including Ankron and De Aldecoa.105 As We have
already stated, those cases cannot apply here, since they were
decided when the Executive did not have the authority to classify lands
as agricultural, timber, or mineral.
Private claimants’ continued possession under Act No. 926 does
not create a presumption that the land is alienable. Private
claimants also contend that their continued possession of portions of
Boracay Island for the requisite period of ten (10) years under Act No.
926106 ipso facto converted the island into private ownership. Hence,
they may apply for a title in their name.
A similar argument was squarely rejected by the Court in Collado v.
Court of Appeals. 107 Collado, citing the separate opinion of now Chief
Justice Reynato S. Puno in Cruz v. Secretary of Environment and
Natural Resources,107-a ruled:
"Act No. 926, the first Public Land Act, was passed in pursuance of the
provisions of the Philippine Bill of 1902. The law governed the
disposition of lands of the public domain. It prescribed rules and
regulations for the homesteading, selling and leasing of portions of the
public domain of the Philippine Islands, and prescribed the terms and
conditions to enable persons to perfect their titles to public lands in the
Islands. It also provided for the "issuance of patents to certain native
settlers upon public lands," for the establishment of town sites and sale
of lots therein, for the completion of imperfect titles, and for the
cancellation or confirmation of Spanish concessions and grants in the
Islands." In short, the Public Land Act operated on the assumption that
title to public lands in the Philippine Islands remained in the
government; and that the government’s title to public land sprung from
the Treaty of Paris and other subsequent treaties between Spain and
the United States. The term "public land" referred to all lands of the
public domain whose title still remained in the government and are
thrown open to private appropriation and settlement, and excluded the
patrimonial property of the government and the friar lands."
Thus, it is plain error for petitioners to argue that under the
Philippine Bill of 1902 and Public Land Act No. 926, mere
possession by private individuals of lands creates the legal
presumption that the lands are alienable and
disposable.108 (Emphasis Ours)
Except for lands already covered by existing titles, Boracay was
an unclassified land of the public domain prior to Proclamation
No. 1064. Such unclassified lands are considered public forest
under PD No. 705. The DENR109 and the National Mapping and
Resource Information Authority 110 certify that Boracay Island is an
unclassified land of the public domain.
PD No. 705 issued by President Marcos categorized all unclassified
lands of the public domain as public forest. Section 3(a) of PD No. 705
defines a public forest as "a mass of lands of the public domain
which has not been the subject of the present system of
classification for the determination of which lands are needed for forest
purpose and which are not." Applying PD No. 705, all unclassified
lands, including those in Boracay Island, are ipso factoconsidered
public forests. PD No. 705, however, respects titles already existing
prior to its effectivity.
The Court notes that the classification of Boracay as a forest land
under PD No. 705 may seem to be out of touch with the present
realities in the island. Boracay, no doubt, has been partly stripped of its
forest cover to pave the way for commercial developments. As a
premier tourist destination for local and foreign tourists, Boracay
appears more of a commercial island resort, rather than a forest land.
Nevertheless, that the occupants of Boracay have built multi-million
peso beach resorts on the island; 111 that the island has already been
stripped of its forest cover; or that the implementation of Proclamation
No. 1064 will destroy the island’s tourism industry, do not negate its
character as public forest.
Forests, in the context of both the Public Land Act and the
Constitution112 classifying lands of the public domain into "agricultural,
forest or timber, mineral lands, and national parks," do not necessarily
refer to large tracts of wooded land or expanses covered by dense
growths of trees and underbrushes.113 The discussion in Heirs of
Amunategui v. Director of Forestry114 is particularly instructive:
A forested area classified as forest land of the public domain does not
lose such classification simply because loggers or settlers may have
stripped it of its forest cover. Parcels of land classified as forest land
may actually be covered with grass or planted to crops by kaingin
cultivators or other farmers. "Forest lands" do not have to be on
mountains or in out of the way places. Swampy areas covered by
mangrove trees, nipa palms, and other trees growing in brackish or
sea water may also be classified as forest land. The classification is
descriptive of its legal nature or status and does not have to be
descriptive of what the land actually looks like. Unless and until the
land classified as "forest" is released in an official proclamation to that
effect so that it may form part of the disposable agricultural lands of the
public domain, the rules on confirmation of imperfect title do not
apply.115 (Emphasis supplied)
There is a big difference between "forest" as defined in a dictionary
and "forest or timber land" as a classification of lands of the public
domain as appearing in our statutes. One is descriptive of what
appears on the land while the other is a legal status, a classification for
legal purposes.116 At any rate, the Court is tasked to determine
thelegal status of Boracay Island, and not look into its physical layout.
Hence, even if its forest cover has been replaced by beach resorts,
restaurants and other commercial establishments, it has not been
automatically converted from public forest to alienable agricultural land.
Private claimants cannot rely on Proclamation No. 1801 as basis
for judicial confirmation of imperfect title. The proclamation did
not convert Boracay into an agricultural land. However, private
claimants argue that Proclamation No. 1801 issued by then President
Marcos in 1978 entitles them to judicial confirmation of imperfect title.
The Proclamation classified Boracay, among other islands, as a tourist
zone. Private claimants assert that, as a tourist spot, the island is
susceptible of private ownership.
Proclamation No. 1801 or PTA Circular No. 3-82 did not convert the
whole of Boracay into an agricultural land. There is nothing in the law
or the Circular which made Boracay Island an agricultural land. The
reference in Circular No. 3-82 to "private lands" 117 and "areas declared
as alienable and disposable" 118 does not by itself classify the entire
island as agricultural. Notably, Circular No. 3-82 makes reference not
only to private lands and areas but also to public forested lands. Rule
VIII, Section 3 provides:
No trees in forested private lands may be cut without prior authority
from the PTA. All forested areas in public lands are declared forest
reserves. (Emphasis supplied)
Clearly, the reference in the Circular to both private and public lands
merely recognizes that the island can be classified by the Executive
department pursuant to its powers under CA No. 141. In fact, Section 5
of the Circular recognizes the then Bureau of Forest Development’s
authority to declare areas in the island as alienable and disposable
when it provides:
Subsistence farming, in areas declared as alienable and disposable by
the Bureau of Forest Development.
Therefore, Proclamation No. 1801 cannot be deemed the positive act
needed to classify Boracay Island as alienable and disposable land. If
President Marcos intended to classify the island as alienable and
disposable or forest, or both, he would have identified the specific
limits of each, as President Arroyo did in Proclamation No. 1064. This
was not done in Proclamation No. 1801.
The Whereas clauses of Proclamation No. 1801 also explain the
rationale behind the declaration of Boracay Island, together with other
islands, caves and peninsulas in the Philippines, as a tourist zone and
marine reserve to be administered by the PTA – to ensure the
concentrated efforts of the public and private sectors in the
development of the areas’ tourism potential with due regard for
ecological balance in the marine environment. Simply put, the
proclamation is aimed at administering the islands for tourism and
ecological purposes. It does not address the areas’ alienability.119
More importantly, Proclamation No. 1801 covers not only Boracay
Island, but sixty-four (64) other islands, coves, and peninsulas in the
Philippines, such as Fortune and Verde Islands in Batangas, Port
Galera in Oriental Mindoro, Panglao and Balicasag Islands in Bohol,
Coron Island, Puerto Princesa and surrounding areas in Palawan,
Camiguin Island in Cagayan de Oro, and Misamis Oriental, to name a
few. If the designation of Boracay Island as tourist zone makes it
alienable and disposable by virtue of Proclamation No. 1801, all the
other areas mentioned would likewise be declared wide open for
private disposition. That could not have been, and is clearly beyond,
the intent of the proclamation.
It was Proclamation No. 1064 of 2006 which positively declared
part of Boracay as alienable and opened the same to private
ownership. Sections 6 and 7 of CA No. 141 120 provide that it is only
the President, upon the recommendation of the proper department
head, who has the authority to classify the lands of the public domain
into alienable or disposable, timber and mineral lands. 121
In issuing Proclamation No. 1064, President Gloria Macapagal-Arroyo
merely exercised the authority granted to her to classify lands of the
public domain, presumably subject to existing vested rights.
Classification of public lands is the exclusive prerogative of the
Executive Department, through the Office of the President. Courts
have no authority to do so. 122 Absent such classification, the land
remains unclassified until released and rendered open to disposition.123
Proclamation No. 1064 classifies Boracay into 400 hectares of
reserved forest land and 628.96 hectares of agricultural land. The
Proclamation likewise provides for a 15-meter buffer zone on each side
of the center line of roads and trails, which are reserved for right of way
and which shall form part of the area reserved for forest land protection
purposes.
Contrary to private claimants’ argument, there was nothing invalid or
irregular, much less unconstitutional, about the classification of
Boracay Island made by the President through Proclamation No. 1064.
It was within her authority to make such classification, subject to
existing vested rights.
Proclamation No. 1064 does not violate the Comprehensive
Agrarian Reform Law. Private claimants further assert that
Proclamation No. 1064 violates the provision of the Comprehensive
Agrarian Reform Law (CARL) or RA No. 6657 barring conversion of
public forests into agricultural lands. They claim that since Boracay is a
public forest under PD No. 705, President Arroyo can no longer
convert it into an agricultural land without running afoul of Section 4(a)
of RA No. 6657, thus:
SEC. 4. Scope. – The Comprehensive Agrarian Reform Law of 1988
shall cover, regardless of tenurial arrangement and commodity
produced, all public and private agricultural lands as provided in
Proclamation No. 131 and Executive Order No. 229, including other
lands of the public domain suitable for agriculture.
More specifically, the following lands are covered by the
Comprehensive Agrarian Reform Program:
(a) All alienable and disposable lands of the public domain devoted to
or suitable for agriculture. No reclassification of forest or mineral
lands to agricultural lands shall be undertaken after the approval of this
Act until Congress, taking into account ecological, developmental and
equity considerations, shall have determined by law, the specific limits
of the public domain.
an agricultural land. The island remained an unclassified land of the
public domain and, applying the Regalian doctrine, is considered State
property.
Private claimants’ bid for judicial confirmation of imperfect title, relying
on the Philippine Bill of 1902, Act No. 926, and Proclamation No. 1801,
must fail because of the absence of the second element of alienable
and disposable land. Their entitlement to a government grant under
our present Public Land Act presupposes that the land possessed and
applied for is already alienable and disposable. This is clear from the
wording of the law itself.129Where the land is not alienable and
disposable, possession of the land, no matter how long, cannot confer
ownership or possessory rights.130
Neither may private claimants apply for judicial confirmation of
imperfect title under Proclamation No. 1064, with respect to those
lands which were classified as agricultural lands. Private claimants
failed to prove the first element of open, continuous, exclusive, and
notorious possession of their lands in Boracay since June 12, 1945.

That Boracay Island was classified as a public forest under PD No. 705
We cannot sustain the CA and RTC conclusion in the petition for
did not bar the Executive from later converting it into agricultural land.
declaratory relief that private claimants complied with the requisite
Boracay Island still remained an unclassified land of the public domain
period of possession.
despite PD No. 705.

The tax declarations in the name of private claimants are insufficient to

In Heirs of the Late Spouses Pedro S. Palanca and Soterranea Rafols
prove the first element of possession. We note that the earliest of the
v. Republic,124 the Court stated that unclassified lands are public
tax declarations in the name of private claimants were issued in 1993.
forests.
Being of recent dates, the tax declarations are not sufficient to
convince this Court that the period of possession and occupation
While it is true that the land classification map does not commenced on June 12, 1945.
categorically state that the islands are public forests, the fact that
they were unclassified lands leads to the same result. In the
Private claimants insist that they have a vested right in Boracay,
absence of the classification as mineral or timber land, the land
having been in possession of the island for a long time. They have
remains unclassified land until released and rendered open to
invested millions of pesos in developing the island into a tourist spot.
disposition.125 (Emphasis supplied)
They say their continued possession and investments give them a
vested right which cannot be unilaterally rescinded by Proclamation
Moreover, the prohibition under the CARL applies only to a No. 1064.
"reclassification" of land. If the land had never been previously
classified, as in the case of Boracay, there can be no prohibited
The continued possession and considerable investment of private
reclassification under the agrarian law. We agree with the opinion of
claimants do not automatically give them a vested right in Boracay. Nor
the Department of Justice126 on this point:
do these give them a right to apply for a title to the land they are
presently occupying. This Court is constitutionally bound to decide
Indeed, the key word to the correct application of the prohibition in cases based on the evidence presented and the laws applicable. As
Section 4(a) is the word "reclassification." Where there has been no the law and jurisprudence stand, private claimants are ineligible to
previous classification of public forest [referring, we repeat, to the apply for a judicial confirmation of title over their occupied portions in
mass of the public domain which has not been the subject of the Boracay even with their continued possession and considerable
present system of classification for purposes of determining which are investment in the island.
needed for forest purposes and which are not] into permanent forest or
forest reserves or some other forest uses under the Revised Forestry
One Last Note
Code, there can be no "reclassification of forest lands" to speak of
within the meaning of Section 4(a).
The Court is aware that millions of pesos have been invested for the
development of Boracay Island, making it a by-word in the local and
Thus, obviously, the prohibition in Section 4(a) of the CARL against the
international tourism industry. The Court also notes that for a number
reclassification of forest lands to agricultural lands without a prior law
of years, thousands of people have called the island their home. While
delimiting the limits of the public domain, does not, and cannot, apply
the Court commiserates with private claimants’ plight, We are bound to
to those lands of the public domain, denominated as "public forest"
apply the law strictly and judiciously. This is the law and it should
under the Revised Forestry Code, which have not been previously
prevail. Ito ang batas at ito ang dapat umiral.
determined, or classified, as needed for forest purposes in accordance
with the provisions of the Revised Forestry Code. 127
All is not lost, however, for private claimants. While they may not be
eligible to apply for judicial confirmation of imperfect title under Section
Private claimants are not entitled to apply for judicial
48(b) of CA No. 141, as amended, this does not denote their automatic
confirmation of imperfect title under CA No. 141. Neither do they
ouster from the residential, commercial, and other areas they possess
have vested rights over the occupied lands under the said
now classified as agricultural. Neither will this mean the loss of their
law. There are two requisites for judicial confirmation of imperfect or
substantial investments on their occupied alienable lands. Lack of title
incomplete title under CA No. 141, namely: (1) open, continuous,
does not necessarily mean lack of right to possess.
exclusive, and notorious possession and occupation of the subject land
by himself or through his predecessors-in-interest under a bona
fide claim of ownership since time immemorial or from June 12, 1945; For one thing, those with lawful possession may claim good faith as
and (2) the classification of the land as alienable and disposable land builders of improvements. They can take steps to preserve or protect
of the public domain.128 their possession. For another, they may look into other modes of
applying for original registration of title, such as by homestead 131 or
sales patent,132 subject to the conditions imposed by law.
As discussed, the Philippine Bill of 1902, Act No. 926, and
Proclamation No. 1801 did not convert portions of Boracay Island into
More realistically, Congress may enact a law to entitle private
claimants to acquire title to their occupied lots or to exempt them from
certain requirements under the present land laws. There is one such (On official leave) CONCHITA CARPIO
bill133 now pending in the House of Representatives. Whether that bill RENATO C. CORONA* MORALES
or a similar bill will become a law is for Congress to decide. Associate Justice Associate Justice

In issuing Proclamation No. 1064, the government has taken the step
necessary to open up the island to private ownership. This gesture
may not be sufficient to appease some sectors which view the ADOLFO S. AZCUNA DANTE O. TINGA
classification of the island partially into a forest reserve as absurd. That Associate Justice Associate Justice
the island is no longer overrun by trees, however, does not becloud the
vision to protect its remaining forest cover and to strike a healthy
balance between progress and ecology. Ecological conservation is as
important as economic progress. MINITA V. CHICO- PRESBITERO J.
NAZARIO VELASCO, JR.
To be sure, forest lands are fundamental to our nation’s survival. Their Associate Justice Associate Justice
promotion and protection are not just fancy rhetoric for politicians and
activists. These are needs that become more urgent as destruction of
our environment gets prevalent and difficult to control. As aptly
observed by Justice Conrado Sanchez in 1968 in Director of Forestry ANTONIO EDUARDO B. TERESITA J.
v. Munoz:134 NACHURA** LEONARDO-DE CASTRO
Associate Justice Associate Justice
The view this Court takes of the cases at bar is but in adherence to
public policy that should be followed with respect to forest lands. Many
have written much, and many more have spoken, and quite often, ARTURO D. BRION
about the pressing need for forest preservation, conservation, Associate Justice
protection, development and reforestation. Not without justification.
For, forests constitute a vital segment of any country's natural
resources. It is of common knowledge by now that absence of the
necessary green cover on our lands produces a number of adverse or
ill effects of serious proportions. Without the trees, watersheds dry up;
rivers and lakes which they supply are emptied of their contents. The
fish disappear. Denuded areas become dust bowls. As waterfalls CERTIFICATION
cease to function, so will hydroelectric plants. With the rains, the fertile
topsoil is washed away; geological erosion results. With erosion come Pursuant to Section 13, Article VIII of the Constitution, I certify that the
the dreaded floods that wreak havoc and destruction to property – conclusions in the above Decision had been reached in consultation
crops, livestock, houses, and highways – not to mention precious before the case was assigned to the writer of the opinion of the Court.
human lives. Indeed, the foregoing observations should be written
down in a lumberman’s decalogue. 135
REYNATO S. PUNO
Chief Justice
WHEREFORE, judgment is rendered as follows:

1. The petition for certiorari in G.R. No. 167707 is GRANTED and the

Court of Appeals Decision in CA-G.R. CV No. 71118 REVERSED AND
SET ASIDE.

2. The petition for certiorari in G.R. No. 173775 is DISMISSED for lack

of merit.

SO ORDERED.

RUBEN T. REYES
Associate Justice

WE CONCUR:.

REYNATO S. PUNO
Chief Justice
Chairperson

LEONARDO A. CONSUELO YNARES-

QUISUMBING SANTIAGO
Associate Justice Associate Justice

MA. ALICIA AUSTRIA-

ANTONIO T. CARPIO
MARTINEZ
Associate Justice
Associate Justice

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-29663 August 20, 1990
GREGORIO LLANTINO and BELINDA LLANTINO assisted by
husband Napoleon Barba, plaintiffs-appellants, 
vs.
CO LIONG CHONG alias JUAN MOLINA, defendant-appellee.
Delfin de Vera for plaintiffs-appellants.
Antonio G. Sosito for defendant-appellee.
PARAS, J.:
This is an appeal perfected before the effectivity of Republic Act 5440,
from the decision * of the Court of First Instance of Catanduanes in
Civil Case No. 611, to quiet title with damages, entitled Gregorio
Llantino, et al. vs. Cong Liong Chong alias Juan Molina, dismissing the
complaint and declaring that the contract of lease entered into between
the plaintiffs and the defendant valid and in accordance with law.
The facts of the case as summarized by the trial court are as follows:
Plaintiffs (petitioners herein) aver that they are the owners of a
commercial-residential land situated in the municipality of Virac,
Catanduanes, described in paragraph 2 of the complaint, which
sometime in 1954 they leased to the defendant (private respondent)
who was then a Chinese national and went by the name of Co Liong
Chong for a period of thirteen (13) years for the sum of P6,150.00 for
the whole period. The defendant was placed in possession of the
property but knowing that the period of the least would end with the
year 1967, petitioners requested private respondent for a conference
but the latter did not honor the request and instead he informed the
petitioners that he had already constructed a commercial building on
the land worth P50,000.00; that the lease contract was for a period of
sixty (60) years, counted from 1954; and that he is already a Filipino
citizen. The claim of Chong came as a surprise to the Llantinos
because they did not remember having agreed to a sixty-year lease
agreement as that would virtually make Chong the owner of the realty
which, as a Chinese national, he had no right to own and neither could
he have acquired such ownership after naturalization subsequent to
1954. On December 16, 1967, in order to avoid a court litigation the
Llantinos once more invited Chong to a conference about the matter
but again Chong ignored the invitation. (Rollo, p. 48; Appellant's Brief,
p. 12)
Hence, on January 10, 1968, the Llantinos filed their complaint to quiet
title with damages before the Court of First Instance of Catanduanes
(Rollo, p. 12; Record on Appeal, pp. 1-4).
After Chong has filed an answer to the complaint and the Llantinos
their reply, (Rollo, p. 12; Record on Appeal, pp. 9-10) the trial court set
the case for pre-trial and trial for April 2, 1968 (Rollo, p. 12; Record on
Appeal, pp. 10-11).
At the pre-trial, both parties agreed upon the identity of the land as
described in the complaint. It was mutually admitted that the
defendants original name was Co Liong Chong who was then a
Chinese national in 1954, when he approached the plaintiffs and
offered to lease the land in question. It was also admitted by the
counsel for the defendant that prior to the filing of the case, the
plaintiffs have in fact invited the defendant to a conference about the
matter (Rollo, p. 12; Record on Appeal; p. 14).
Chong's counsel produced the carbon original of the contract of lease
entered into between Chong and the Llantinos and the existence of the
contract of lease as a public instrument was admitted (Rollo, p. 12;
Record on Appeal, pp. 14-15).
It was also admitted that Chong had in fact constructed a building of
strong materials on the land worth P40,000.00 (Rollo, p. 12; Record on
Appeal, p. 15); that Chong has become a naturalized Filipino citizen in
1961 and that his name is no longer Co Liong Chong but Juan Molina
(Rollo, p. 12; Record on Appeal, p. 15).
On May 17, 1968, the trial court rendered a Decision the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing
considerations, the Court finds the contract of
lease entered into between the plaintiffs and the
defendant on October 5, 1954, valid and in
accordance with law and the complaint is
dismissed with costs against the plaintiffs.
The Court, however, feels that there is no
sufficient ground to award moral damages or
attorney's fees as claimed by the defendant
because the Court is fairly convinced that the
institution of the suit sprung from an honest
conviction on the part of the plaintiffs that on
account of the period fixed in the contract of lease
and the fact that the defendant was a Chinese
national at the time of its celebration constituted
valid grounds for annulment.
SO ORDERED. (Rollo, p. 12; Record on Appeal,
p. 24).
From this judgment, plaintiffs appealed directly to this Court on a pure
question of law (Rollo, p. 12; Record on Appeal, pp. 24-25).
The plaintiffs-appellants filed their brief on May 26, 1969 (Rollo, p. 48).
The defendant-appellee filed his corresponding brief on July 22, 1969
(Rollo, p. 59).
The appellants raised the following assignment of errors:
I
THE LOWER COURT ERRED IN DECLARING THE CONTRACT
ENTERED INTO BY AND BETWEEN THE APPELLANTS AND THE
DEFENDANTS ON OCTOBER 5, 1954 VALID.
II
THE LOWER COURT ERRED IN REFUSING TO DECLARE THAT
CONTRACT NOT A LEASE.
Stripping the case of irrelevant allegations, the pivotal issue in this
case is whether or not the contract of lease entered into by and
between the petitioners including Virgilio Llantino now deceased and
private respondent on October 5, 1954 for a period of sixty (60) years
is valid.
Petitioners contend that when the contract which is sought to be
declared void was entered into by and between the parties, private
respondent was still a Chinese national (Rollo, p. 48; Appellants' Brief,
p. 2). However, petitioners also stated that they do not dispute the right
of private respondent to hold the landholding in dispute under a
contract of lease but they cannot fathom how Congress could have
thought of a lease contract which shall be for an indefinite period and
yet say that the period to be valid should not exceed 99 years (Rollo, p.
48; Appellant's Brief, p. 4; Article 1643 of the New Civil Code of the
Philippines).
On the other hand, private respondent argued that even though he was
still an alien when he entered into the contract of lease (on October 5,
1954), he was not prohibited by law to do so. In fact, prior to his
becoming a naturalized Filipino citizen in 1961, the appellants did not
question his right to enter into that contract so that the parties are in
pari delicto. He constructed a building on the property worth
P40,000.00 and prays that he be awarded P30,000.00 for moral
damages and P2,000.00 for Attorney's fees. (Rollo, p. 48; Appellant's
Brief, p. 2).
vs. Lui She, 21 SCRA 52 [1967], citing Krivenko vs. Register of Deeds,
79 Phil. 461 [1947]).
The only instance where a contract of lease may be considered invalid
is, if there are circumstances attendant to its execution, which are used
as a scheme to circumvent the constitutional prohibition.
If an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to
enjoy the land (jus possidendi, jus utendi, jus fruendi, and jus abutendi)
— rights, the sum of which make up ownership. It is just as if today the
possession is transferred, tomorrow the use, the next day the
disposition, and so on, until ultimately all the rights of which ownership
is made up are consolidated in an alien (Philippine Banking
Corporation vs. Lui She, 21 SCRA 52 [1967]).
Coming back to the case at bar, even assuming, arguendo, that the
subject contract is prohibited, the same can no longer be questioned
presently upon the acquisition by the private respondent of Filipino
citizenship. It was held that sale of a residential land to an alien which
is now in the hands of a naturalized Filipino citizen is valid (De Castro
vs. Tan, 129 SCRA 85 [1984]).
A contract is the law between the contracting parties, and when there
is nothing in it which is contrary to law, morals, good customs, public
policy or public order, the validity of the contract must be sustained
(Marimperio Compania Naviera, S.A. vs. Court of Appeals, 156 SCRA
358 [1987]).
The issue of the nature of the contract in the case at bar was never
raised in the basic pleadings or in the pre-trial (Rollo, p. 59-1;
Appellee's Brief, p. 22).
It is too late to raise an issue on appeal in the Supreme Court when it
has not been raised in the lower court (Espadera vs. Court of Appeals,
165 SCRA 364 [1988]).

Moreover, contracts which are not ambiguous are to be interpreted

The position of private respondent is well taken.
The lower court correctly ruled that the defendant-appellee Chong had
at the time of the execution of the contract, the right to hold by lease
the property involved in the case although at the time of the execution
of the contract, he was still a Chinese national (Rollo, p. 59; Appellee's
Brief, pp. 10-11).
according to their literal meaning and should not be interpreted beyond
their obvious intendment (Plastic Town Center Corporation vs. NLRC,
172 SCRA 580 [1989]; Herrera vs. Petrophil Corp., 146 SCRA 385
[1986]).
PREMISES CONSIDERED, the decision appealed from is hereby
AFFIRMED with costs against the plaintiffs-appellants.

In the present case, it has been established that there is only one
SO ORDERED.
contract and there is no option to buy the leased property in favor of
Chong. There is nothing in the record, either in the lease contract or in
the complaint itself, to indicate any scheme to circumvent the Melencio-Herrera (Chairperson), Padilla and Regalado, JJ., concur.
constitutional prohibition. On the contrary, the Llantinos themselves
admit openly that right from the start and before entering into the
Sarmiento, J., is on leave.
contract, Chong had merely asked them for a lease of the premises to
which they agreed. Admittedly under the terms of the contract there is
nothing to prevent the Llantinos from disposing of their title to the land
to any qualified party but subject to the rights of the lessee Chong.
Neither is there under the terms of the said contract to indicate that the
ownership of the Llantinos of the leased premises has been virtually
transferred to the lessee (Rollo, p. 59; Appellee's Brief, p. 14).

Under the circumstances, a lease to an alien for a reasonable period is

valid. So is an option giving an alien the right to buy real property on
condition that he is granted Philippine citizenship. Aliens are not
completely excluded by the Constitution from use of lands for
residential purposes. Since their residence in the Philippines is
temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they desire
to remain here forever and share our fortune and misfortune, Filipino
citizenship is not impossible to acquire (Philippine Banking Corporation

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 74833             January 21, 1991
THOMAS C. CHEESMAN, petitioner,  Estelita M. Padilla, and ordering the delivery of the property to Thomas
vs.
INTERMEDIATE APPELLATE COURT and ESTELITA
PADILLA, respondents.
Estanislao L. Cesa, Jr. for petitioner.
Benjamin I. Fernandez for private respondent.
NARVASA, J.:
This appeal concerns the attempt by an American citizen (petitioner
Thomas Cheesman) to annul — for lack of consent on his part — the
sale by his Filipino wife (Criselda) of a residential lot and building to
Estelita Padilla, also a Filipino.
Thomas Cheesman and Criselda P. Cheesman were married on
December 4, 1970 but have been separated since February 15,1981.1
On June 4, 1974, a "Deed of Sale and Transfer of Possessory Rights"
was executed by Armando Altares conveying a parcel of unregistered
land and the house thereon (at No. 7 Neptune Street, Gordon Heights,
Olongapo City) in favor of "Criselda P. Cheesman, of legal age, Filipino
citizen, married to Thomas Cheesman, and residing at Lot No. 1, Blk.
8, Filtration Road, Sta. Rita, Olongapo City . . ." 2 Thomas Cheesman,
although aware of the deed, did not object to the transfer being made
only to his wife.3
Thereafter—and again with the knowledge of Thomas Cheesman and
also without any protest by him—tax declarations for the property
purchased were issued in the name only of Criselda Cheesman and
Criselda assumed exclusive management and administration of said
property, leasing it to tenants.4
On July 1, 1981, Criselda Cheesman sold the property to Estelita M.
Padilla, without the knowledge or consent of Thomas Cheesman. 5 The
deed described Criselda as being" . . . of legal age, married to an
American citizen,. . ."6
Thirty days later, or on July 31, 1981, Thomas Cheesman brought suit
in the Court of First Instance at Olongapo City against his wife,
Criselda, and Estelita Padilla, praying for the annulment of the sale on
the ground that the transaction had been executed without his
knowledge and consent.7 An answer was filed in the names of both
defendants, alleging that (1) the property sold was paraphernal, having
been purchased by Criselda with funds exclusively belonging to her
("her own separate money"); (2) Thomas Cheesman, being an
American, was disqualified to have any interest or right of ownership in
the land; and (3) Estelita Padilla was a buyer in good faith.8
During the pre-trial conference, the parties agreed upon certain facts
which were subsequently set out in a pre-trial Order dated October 22,
1981,9 as follows:
1. Both parties recognize the existence of the Deed of Sale
over the residential house located at No. 7 Granada St.,
Gordon Heights, Olongapo City, which was acquired from
Armando Altares on June 4, 1974 and sold by defendant
Criselda Cheesman to Estelita Padilla on July 12, 1981; and
2. That the transaction regarding the transfer of their
property took place during the existence of their marriage as
the couple were married on December 4, 1970 and the
questioned property was acquired sometime on June
4,1974.
The action resulted in a judgment dated June 24, 1982, 10 declaring
void ab initio the sale executed by Criselda Cheesman in favor of
Cheesman as administrator of the conjugal partnership property, and
the payment to him of P5,000.00 as attorney's fees and expenses of
litigation.11
The judgment was however set aside as regards Estelita Padilla on a
petition for relief filed by the latter, grounded on "fraud, mistake and/or
excusable negligence" which had seriously impaired her right to
present her case adequately. 12 "After the petition for relief from
judgment was given due course," according to petitioner, "a new judge
presided over the case."13
Estelita Padilla filed a supplemental pleading on December 20, 1982
as her own answer to the complaint, and a motion for summary
judgment on May 17, 1983. Although there was initial opposition by
Thomas Cheesman to the motion, the parties ultimately agreed on the
rendition by the court of a summary judgment after entering into a
stipulation of facts, at the hearing of the motion on June 21, 1983, the
stipulation being of the following tenor:14
(1) that the property in question was bought during the
existence of the marriage between the plaintiff and the
defendant Criselda P. Cheesman;
(2) that the property bought during the marriage was
registered in the name of Criselda Cheesman and that the
Deed of Sale and Transfer of Possessory Rights executed
by the former owner-vendor Armando Altares in favor of
Criselda Cheesman made no mention of the plaintiff;
(3) that the property, subject of the proceedings, was sold by
defendant Criselda Cheesman in favor of the other
defendant Estelita M. Padilla, without the written consent of
the plaintiff.
Obviously upon the theory that no genuine issue existed any longer "in order to avoid payment of more obligation to
and there was hence no need of a trial, the parties having in fact the government;"19
submitted, as also stipulated, their respective memoranda each
praying for a favorable verdict, the Trial Court 15 rendered a "Summary
3) to decline to declare that the evidence did not warrant the grant of
Judgment" dated August 3, 1982 declaring "the sale executed by . . .
Estelita Padilla's petition for relief on the ground of "fraud, mistake
Criselda Cheesman in favor of . . . Estelita Padilla to be valid,"
and/or excusable negligence;"20
dismissing Thomas Cheesman's complaint and ordering him "to
immediately turn over the possession of the house and lot subject of . .
. (the) case to . . . Estelita Padilla . . ."16 4) to hold that Thomas Cheesman had waived his objection to
Estelita's petition for relief by failing to appeal from the order granting
the same;
The Trial Court found that —

5) to accord to Estelita Padilla a relief other than that she had

1) the evidence on record satisfactorily overcame the
specifically prayed for in her petition for relief, ie., "the restoration of the
disputable presumption in Article 160 of the Civil Code—that
purchase price which Estelita allegedly paid to Criselda;"21 and
all property of the marriage belongs to the conjugal
partnership "unless it be proved that it pertains exclusively to
the husband or to the wife"—and that the immovable in 6) to fail to declare that Thomas Cheesman's citizenship is not a bar to
question was in truth Criselda's paraphernal property; his action to recover the lot and house for the conjugal partnership. 22

2) that moreover, said legal presumption in Article 160 could
not apply "inasmuch as the husband-plaintiff is an American
citizen and therefore disqualified under the Constitution to
acquire and own real properties; and
3) that the exercise by Criselda of exclusive acts of dominion
with the knowledge of her husband "had led . . . Estelita
Padilla to believe that the properties were the exclusive
properties of Criselda Cheesman and on the faith of such a
belief she bought the properties from her and for value," and
therefore, Thomas Cheesman was, under Article 1473 of the
Civil Code, estopped to impugn the transfer to Estelita
Padilla.
Thomas Cheesman appealed to the Intermediate Appellate Court.
There he assailed the Trial Court acts (1) of granting Estelita Padilla's
petition for relief, and its resolution of matters not subject of said
petition; (2) of declaring valid the sale to Estelita Padilla despite the
lack of consent thereto by him, and the presumption of the conjugal
character of the property in question pursuant to Article 160 of the Civil
Code; (3) of disregarding the judgment of June 24, 1982 which, not
having been set aside as against Criselda Cheesman, continued to be
binding on her; and (4) of making findings of fact not supported by
evidence. All of these contentions were found to be without merit by
the Appellate Tribunal which, on January 7, 1986, promulgated a
decision (erroneously denominated, "Report")17 affirming the
"Summary Judgment complained of," "having found no reversible
error" therein.
Once more, Thomas Cheesman availed of the remedy of appeal, this
time to this Court. Here, he argues that it was reversible error for the
Intermediate Appellate Court —
1) to find that the presumption that the property in question is conjugal
in accordance with Article 160 had been satisfactorily overcome by
Estelita Padilla;18
2) to rule that Estelita Padilla was a purchaser of said property in good
faith, it appearing:
a) that the deed by which the property was
conveyed to Criselda Cheesman described her as
"married to Thomas C. Cheesman," as well as the
deed by which the property was later conveyed to
Estelita Padilla by Criselda Cheesman also
described her as "married to an American citizen,"
and both said descriptions had thus "placed
Estelita on knowledge of the conjugal nature of the
property;" and
Such conclusions as that (1) fraud, mistake or excusable negligence
existed in the premises justifying relief to Estelita Padilla under Rule 38
of the Rules of Court, or (2) that Criselda Cheesman had used money
she had brought into her marriage to Thomas Cheesman to purchase
the lot and house in question, or (3) that Estelita Padilla believed in
good faith that Criselda Cheesman was the exclusive owner of the
property that she (Estelita) intended to and did in fact buy—derived
from the evidence adduced by the parties, the facts set out in the
pleadings or otherwise appearing on record—are conclusions or
findings of fact. As distinguished from a question of law—which exists
"when the doubt or difference arises as to what the law is on a certain
state of facts" — "there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts;" 23 or
when the "query necessarily invites calibration of the whole evidence
considering mainly the credibility of witnesses, existence and relevancy
of specific surrounding circumstances, their relation; to each other and
to the whole and the probabilities of the situation." 24
Now, it is axiomatic that only questions of law, distinctly set forth, may
be raised in a petition for the review oncertiorari of a decision of the
Court of Appeals presented to this Court. 25 As everyone knows or
ought to know, the appellate jurisdiction of this Court is limited to
reviewing errors of law, accepting as conclusive the factual findings of
the lower court upon its own assessment of the evidence. 26 The
creation of the Court of Appeals was precisely intended to take away
from the Supreme Court the work of examining the evidence, and
confine its task to the determination of questions which do not call for
the reading and study of transcripts containing the testimony of
witnesses.27 The rule of conclusiveness of the factual findings or
conclusions of the Court of Appeals is, to be sure, subject to certain
exceptions,28 none of which however obtains in the case at bar.
It is noteworthy that both the Trial Court and the Intermediate Appellate
Court reached the same conclusions on the three (3) factual matters
above set forth, after assessment of the evidence and determination of
the probative value thereof. Both Courts found that the facts on record
adequately proved fraud, mistake or excusable negligence by which
Estelita Padilla's rights had been substantially impaired; that the funds
used by Criselda Cheesman was money she had earned and saved
prior to her marriage to Thomas Cheesman, and that Estelita Padilla
did believe in good faith that Criselda Cheesman was the sole owner of
the property in question. Consequently, these determinations of fact
will not be here disturbed, this Court having been cited to no reason for
doing so.
These considerations dispose of the first three (3) points that petitioner
Cheesman seeks to make in his appeal.1âwphi1They also make
unnecessary an extended discussion of the other issues raised by him.
As to them, it should suffice to restate certain fundamental
propositions.

An order of a Court of First Instance (now Regional Trial Court)

b) that furthermore, Estelita had admitted to
granting a petition for relief under Rule 38 is interlocutory and is not
stating in the deed by which she acquired the
appealable. Hence, the failure of the party who opposed the petition to
property a price much lower than that actually paid
appeal from said order, or his participation in the proceedings
subsequently had, cannot be construed as a waiver of his objection to
the petition for relief so as to preclude his raising the same question on
appeal from the judgment on the merits of the main case. Such a party
need not repeat his objections to the petition for relief, or perform any
act thereafter (e.g., take formal exception) in order to preserve his right
to question the same eventually, on appeal, it being sufficient for this
purpose that he has made of record "the action which he desires the
court to take or his objection to the action of the court and his grounds
therefor."29

Again, the prayer in a petition for relief from judgment under Rule 38 is
not necessarily the same prayer in the petitioner's complaint, answer or
other basic pleading. This should be obvious. Equally obvious is that
once a petition for relief is granted and the judgment subject thereof
set aside, and further proceedings are thereafter had, the Court in its
judgment on the merits may properly grant the relief sought in the
petitioner's basic pleadings, although different from that stated in his
petition for relief.

Finally, the fundamental law prohibits the sale to aliens of residential

land. Section 14, Article XIV of the 1973 Constitution ordains that,
"Save in cases of hereditary succession, no private land shall be
transferred or conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public
domain."30 Petitioner Thomas Cheesman was, of course, charged with
knowledge of this prohibition. Thus, assuming that it was his intention
that the lot in question be purchased by him and his wife, he acquired
no right whatever over the property by virtue of that purchase; and in
attempting to acquire a right or interest in land, vicariously and
clandestinely, he knowingly violated the Constitution; the sale as to him
was null and void.31 In any event, he had and has no capacity or
personality to question the subsequent sale of the same property by
his wife on the theory that in so doing he is merely exercising the
prerogative of a husband in respect of conjugal property. To sustain
such a theory would permit indirect controversion of the constitutional
prohibition. If the property were to be declared conjugal, this would
accord to the alien husband a not insubstantial interest and right over
land, as he would then have a decisive vote as to its transfer or
disposition. This is a right that the Constitution does not permit him to
have.

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

WHEREFORE, the appealed decision is AFFIRMED, with costs

against petitioner.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

 The factual antecedents, as narrated by Respondent Court, are not
disputed by the parties. We reproduce them in part, as follows:

Simeon de Guzman, an American citizen, died

sometime in 1968, leaving real properties in the
Philippines. His forced heirs were his widow,
defendant appellee [herein private respondent]
Helen Meyers Guzman, and his son, defendant
appellee [also herein private respondent] David
Rey Guzman, both of whom are also American
citizens. On August 9, 1989, Helen executed a
deed of quitclaim (Annex A-Complaint), assigning
[,] transferring and conveying to David Rey all her
rights, titles and interests in and over six parcels of
land which the two of them inherited from Simeon.

Among the said parcels of land is that now in

litigation, . . . situated in Bagbaguin, Sta. Maria,
Bulacan, containing an area of 6,695 square
meters, covered by Transfer Certificate of Title No.
T-170514 of the Registry of Deeds of Bulacan.
The quitclaim having been registered, TCT No. T-
170514 was cancelled and TCT No. T-120259
was issued in the name of appellee David Rey
Guzman.

On February 5, 1991, David Rey Guzman sold

said parcel of land to defendant-appellee [also
herein private respondent] Emiliano Cataniag,
upon which TCT No. T-120259 was cancelled and
TCT No. T-130721(M) was issued in the latter's
name.4
Republic of the Philippines
SUPREME COURT
Manila Petitioners, who are owners of the adjoining lot, filed a complaint
before the Regional Trial Court of Malolos, Bulacan, questioning the
constitutionality and validity of the two conveyances — between Helen
FIRST DIVISION
Guzman and David Rey Guzman, and between the latter and Emiliano
Cataniag — and claiming ownership thereto based on their right of
legal redemption under Art. 1621 5 of the Civil Code.

G.R. No. 113539 March 12, 1998 In its decision6 dated March 10, 1992, 7 the trial court dismissed the
complaint. It ruled that Helen Guzman's waiver of her inheritance
in favor of her son was not contrary to the constitutional
CELSO R. HALILI and ARTHUR R. HALILI, petitioners, 
prohibition against the sale of land to an alien, since the purpose
vs.
of the waiver was simply authorize David Rey Guzman to dispose
COURT OF APPEALS, HELEN MEYERS GUZMAN, DAVID REY
of their properties in accordance with the Constitution and the
GUZMAN and EMILIANO CATANIAG,respondents.
laws of the Philippines, and not to subvert them. On the second
issue, it held that the subject land was urban; hence, petitioners
had no reason to invoke their right of redemption under Art. 1621
of the Civil Code.
PANGANIBAN, J.:
The Halilis sought a reversal from the Court of Appeals which,
however, denied their appeal. Respondent Court affirmed the
The factual findings of a trial court, when affirmed by the Court of
factual finding of the trial court that the subject land was urban.
Appeals, may no longer be reviewed and reversed by this Court in a
CitingTejido vs. Zamacoma,8 and Yap vs. Grageda,9 it further held
petition for review under Rule 45 of the Rules of Court. The transfer of
that, although the transfer of the land to David Rey may have
an interest in a piece of land to an alien may no longer be assailed on
been invalid for being contrary to the Constitution, there was no
constitutional grounds after the entire parcel has been sold to a
more point in allowing herein petitioners to recover the property,
qualified citizen.
since it has passed on to and was thus already owned by a
qualified person.
The Case
Hence, this petition. 10
These familiar and long-settled doctrines are applied by this Court in
denying this petition under Rule 45 to set aside the Decision 1 of the
Issues
Court of Appeals 2 in CA-GR CV No. 37829 promulgated on
September 14, 1993, the dispositive portion of which states: 3
The petition submits the following assignment of errors:
WHEREFORE, and upon all the foregoing, the
Decision of the court below dated March 10, 1992 . . . the Honorable Court of Appeals —
dismissing the complaint for lack of merit is
AFFIRMED without pronouncement as to costs.
1. Erred in affirming the conclusion of the trial
court that the land in question is urban, not
The Facts rural
 2. Erred in denying petitioners' right of
redemption under Art. 1621 of the Civil Code
3. Having considered the conveyance from
Helen Meyers Guzman to her son David Rey
Guzman illegal, erred in not declaring the same
null and void[.] 11
The Court's Ruling
The petition has no merit.
First Issue: The Land Is Urban;
Thus, No Right of Redemption
The first two errors assigned by petitioners being interrelated —
the determination of the first being a prerequisite to the resolution
of the second — shall be discussed together
Subject Land Is Urban
Whether the land in dispute is rural or urban is a factual question
which, as a rule, is not reviewable by this Court. 12 Basic and long-
settled is the doctrine that findings of fact of a trial judge, when
affirmed by the Court of Appeals, are binding upon the Supreme
Court. This admits of only a few exceptions, such as when the
findings are grounded entirely on speculation, surmises or
conjectures; when an inference made by the appellate court from
its factual findings is manifestly mistaken, absurd or impossible;
when there is grave abuse of discretion in the appreciation of
facts; when the findings of the appellate court go beyond the
issues of the case, run contrary to the admissions of the parties
to the case or fail to notice certain relevant facts which, if
properly considered, will justify a different conclusion; when
there is a misappreciation of facts; when the findings of fact are
conclusions without mention of the specific evidence on which
they are based, are premised on the absence of evidence or are
contradicted by evidence on record. 13
The instant case does not fall within any of the aforecited
exceptions. In fact, the conclusion of the trial court — that the
subject property is urban land — is based on clear and
convincing evidence, as shown in its decision which disposed
thus:
. . . As observed by the court, almost all the
roadsides along the national ghighway [sic] of
Bagbaguin, Sta. Maria, Bulacan, are lined up
with residential, commercial or industrial
establishments. Lined up along the Bagbaguin
Road are factories of feeds, woodcrafts [sic]
and garments, commercial stores for tires,
upholstery materials, feeds supply and spare
parts. Located therein likewise were the Pepsi-
Cola Warehouse, the Cruz Hospital, three
gasoline stations, apartment buildings for
commercial purposes and construction firms.
There is no doubt, therefore, that the
community is a commercial area thriving in
business activities. Only a short portion of
said road [is] vacant. It is to be noted that in
the Tax Declaration in the name of Helen
Meyers Guzman[,] the subject land is termed
agricultural[,] while in the letter addressed to
defendant Emiliano Cataniag, dated October 3,
1991, the Land Regulatory Board attested that
the subject property is commercial and the
trend of development along the road is
commercial. The Board's classification is
based on the present condition of the property
and the community thereat. Said classification
is far more later [sic] than the tax declaration.14
No Ground to Invoke
Right of Redemption
In view of the finding that the subject land is urban in character,
petitioners have indeed no right to invoke Art. 1621 of the Civil
Code, which presupposes that the land sought to be redeemed is
rural. The provision is clearly worded and admits of no ambiguity
in construction:
Art. 1621. The owners of adjoining lands shall
also have the right of redemption when a piece
of rural land, the area of which does not
exceed one hectare, is alienated, unless the
grantee does not own any rural land.
x x x           x x x          x x x
Under this article, both lands — that sought to be redeemed and
the adjacent lot belonging to the person exercising the right of
redemption — must be rural. If one or both are urban, the right
cannot be invoked.15 The purpose of this provision, which is
limited in scope to rural lands not exceeding one hectare, is to
favor agricultural development.16 The subject land not being rural
and, therefore, not agricultural, this purpose would not be served
if petitioners are granted the right of redemption under Art. 1621.
Plainly, under the circumstances, they cannot invoke it.
Second Issue: Sale to Cataniag Valid
Neither do we find any reversible error in the appellate court's
holding that the sale of the subject land to Private Respondent
Cataniag renders moot any question on the constitutionally of the
prior transfer made by Helen Guzman to her son David Rey.
True, Helen Guzman's deed of quitclaim — in which she assigned,
transferred and conveyed to David Rey all her rights, titles and
interests over the property she had inherited from her husband —
collided with the Constitution, Article XII, Section 7 of which
provides:
Sec. 7. Save in cases of hereditary succession,
no private lands shall be transferred or
conveyed except to individuals, corporations,
or associations qualified to acquire or hold
lands of the public domain.
The landmark case of Krivenko vs. Register of Deeds  17 settled
the issue as to who are qualified (and disqualified) to own public
as well as private lands in the Philippines. Following a long
discourse maintaining that the "public agricultural lands"
mentioned in Section 1, Article XIII of the 1935 Constitution,
include residential, commercial and industrial lands, the Court
then stated:
Under section 1 of Article XIII [now Sec. 2, Art.
XII] of the Constitution, "natural resources,
with the exception of public agricultural land,
shall not be alienated," and with respect to
public agricultural lands, their alienation is
limited to Filipino citizens. But this
constitutional purpose conserving agricultural
resources in the hands of Filipino citizens may
easily be defeated by the Filipino citizens
themselves who may alienate their agricultural
lands in favor of aliens. It is partly to prevent
this result that section 5 is included in Article
XIII, and it reads as follows:
Sec. 5. Save in cases of hereditary succession,
no private agricultural land will be transferred
or assigned except to individuals, corporations
 or associations qualified to acquire or hold
lands of the public domain in the Philippines.
This constitutional provision closes the only
remaining avenue through which agricultural
resources may leak into aliens' hands. It would
certainly be futile to prohibit the alienation of
public agricultural lands to aliens if, after all,
they may be freely so alienated upon their
becoming private agricultural lands in the
hands of Filipino citizens. Undoubtedly, as
above indicated, section 5 [now Sec. 7] is
intended to insure the policy of nationalization
contained in section 1 [now Sec. 2]. Both
sections must, therefore, be read together for
they have the same purpose and the same
subject matter. It must be noticed that the
persons against whom the prohibition is
directed in section 5 [now Sec. 7] are the very
same persons who under section 1 [now Sec.
2] are disqualified "to acquire or hold lands of
the public domain in the Philippines." And the
subject matter of both sections is the same,
namely, the non transferability of "agricultural
land" to aliens . . . .18
The Krivenko rule was recently reiterated in Ong Ching Po
vs. Court of Appeals,  19 which involves a sale of land to a Chinese
citizen. The Court sad:
The present case is similar to De Castro vs. Tan. 24 In that case, a
residential lot was sold to a Chinese. Upon his death, his widow
and children executed an extrajudicial settlement, whereby said
lot was allotted to one of his sons who became a naturalized
Filipino. The Court did not allow the original vendor to have the
sale annulled and to recover the property, for the reason that the
land has since become the property of a naturalized Filipino
citizen who is constitutionally qualified to own land.
Likewise, in the cases of Sarsosa vs. Cuenco, 25 Godinez vs. Pak
Luen, 26 Vasquez vs. Li Seng Giap 27 andHerrera vs. Luy Kim
Guan, 28 which similarly involved the sale of land to an alien who
thereafter sold the same to a Filipino citizen, the Court again
applied the rule that the subsequent sale can no longer be
impugned on the basis of the invalidity of the initial transfer.
The rationale of this principle was explained in Vasquez vs. Li
Seng Giap thus:
. . . [I]f the ban on aliens from acquiring not
only agricultural but also urban lands, as
construed by this Court in the Krivenko case,
is to preserve the nation's lands for future
generations of Filipinos, that aim or purpose
would not be thwarted but achieved by making
lawful the acquisition of real estate by aliens
who became Filipino citizens by
naturalization.29

Accordingly, since the disputed land is now owned by Private

The capacity to acquire private land is made
Respondent Cataniag, a Filipino citizen, the prior invalid transfer
dependent upon the capacity to acquire or
can no longer be assailed. The objective of the constitutional
hold lands of the public domain. Private land
provision — to keep our land in Filipino hands — has been
may be transferred or conveyed only to
served.
individuals or entities "qualified to acquire
lands of the public domain" (II Bernas, The
Constitution of the Philippines 439-440 [1988 WHEREFORE, the petition is hereby DENIED. The challenged
ed.]). Decision is AFFIRMED. Costs against petitioner.

The 1935 Constitution reserved the right to SO ORDERED.

participate in the "disposition, exploitation,
development and utilization" of all "lands of
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.
the public domain and other natural resources
of the Philippines" for Filipino citizens or
corporations at least sixty percent of the
capital of which was owned by Filipinos.
Aliens, whether individuals or corporations,
have been disqualified from acquiring public
lands; hence, they have also been disqualified
from acquiring private lands. 20

In fine, non-Filipinos cannot acquire or hold title to private lands

or to lands of the public domain, except only by way of legal
succession. 21

But what is the effect of a subsequent sale by the disqualified

alien vendee to a qualified Filipino citizen? This is not a novel
question. Jurisprudence is consistent that "if land is invalidly
transferred to an alien who subsequently becomes a citizen or
transfers it to a citizen, the flaw in the original transaction is
considered cured and the title of the transferee is rendered
valid." 22

Thus, in United Church Board of Word Ministries

vs. Sebastian, 23 in which an alien resident who owned properties
in the Philippines devised to an American non-stock corporation
part of his shares of stock in a Filipino corporation that owned a
tract of land in Davao del Norte, the Court sustained the invalidity
of such legacy. However, upon proof that ownership of the
American corporation has passed on to a 100 percent Filipino
corporation, the Court ruled that the defect in the will was
"rectified by the subsequent transfer of the property."

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-34672 March 30,1988
UNITED CHURCH BOARD FOR WORLD MINISTRIES, as owner of
BROKENSHIRE MEMORIAL HOSPITAL,petitioner, 
vs.
HON. JUDGE ALEJANDRO E. SEBASTIAN, as Presiding Judge of
the CFI of Davao del Norte, and MELENCIO B. DELENA and
MAURO GEMENTIZA as Co-Executors of the Testate Estate of
DAVID, Jacobson, respondents.
CRUZ, J.:
This case is unusual because it arose not out of greed but of
generosity. The only question to be resolved is the Identity and
eligibility of the beneficiary in the light of the pertinent constitutional
provisions and the evidence of record.
David Jacobson was an American citizen who had been a resident of
the Philippines for more than thirty years and up to the time of his
death in 1970. 1 He left a will in which he "devised and bequeathed" to
the Brokenshire Memorial Hospital 60% of his shares of stocks in the
Tagdangua Plantation Co., inc. which was incorporated under
Philippine law in 1948. 2 This corporation was the registered owner of a
tract of land in Pantuhan Davao del Norte, with a total area of about
445 hectares acquired by virtue of a sales patent issued to it in
11953 . 3
In Special Proceeding No. 1695 of the Court of First Instance of Davao
del Norte, Judge Alejandro E. Sebastian disallowed the above-
described legacy on the ground that it was in effect an alienation of
private agricultural land in favor of a transferee which was not qualified
under the Constitution of 1935. 4 The finding was that the Brokenshire
Memorial Hospital was owned by the United Church Board for World
Ministries (UCBWM) ,the herein petitioner, which was a non-stock
corporation organized in the United States by virtue of a charter
granted by the state legislature of Massachussets . 5
The basis of this ruling was Article XII, Sections I and 5 of the 1935
Constitution, which barred foreigners, including Americans, from
acquiring agricultural lands in this country except only by hereditary
succession. The court directed that a copy of its order be sent to the
Solicitor General so he could take the proper action, in view of the
invalidity of the transfer, for the escheat of the subject property to the
State. 6
Its motion for reconsideration having been denied, the petitioner came
to this Court, contending that the above-cited constitutional provisions
were not applicable because the object of the legacy was not land but
shares of stocks. Moreover, even assuming that what was really
involved was a transfer of land, the petitioner was nonetheless
qualified to acquire it under the provisions of the Parity Amendment
and the Laurel-Langley Agreement.
The Solicitor General disagreed at first, insisting that the legacy was
prohibited by the 1935 Constitution and did not come under any of the
allowed exceptions. During the protracted exchange of pleadings
among the parties, however, certain events transpired to considerably
change the original situation and, consequently, also the position of
government.
It now appears from the voluminous documents submitted in this case
that at the time the will was executed in 1966, the land on which the
Brokenshire Memorial Hospital was situated was already registered in
the name of the Mindanao District Conference, an affiliate of the United
Church of Christ in the Philippines (PUCC). 7 It was this non-stock
corporation, organized in 1949 under Philippine law with a 100%
Filipino membership, that owned and was operating the Hospital at the
time of Jacobson's death. 8 Later, the Brokenshire Memorial Hospital
was itself incorporated as a charitable institution, with Filipinos
constituting the majority of its membership, 9 and on December
16,1970, became the successor-in-interest of the UCCP to the devised
parcel of land.10
In proof of these circumstances, the new counsel for Brokenshire
presented, among many other documents, the articles of incorporation
of the UCCP and the Hospital and their corresponding certificates of
registration issued by the Securities and Exchange Commission, the
licenses issued by the Board of Medical Sciences for the operation of
the Hospital to the UCCP from 1968 to 1972 and to the Brokenshire
Memorial Hospital, Inc. from 1973 to 1974, and the certificate of title
over the subject land in the name of the "Mindanao District
Conference, commonly known as the Brokenshire Memorial
Hospital."11
These facts were not brought earlier to the attention of the probate
court by the former counsel of the Hospital, Atty. Juan V. Faune for
reasons that do not appear in the record. It was for such omission (the
new counsel would call it "misrepresentation") that Atty. Faune was
replaced by Atty. Rodolfo D. de la Cruz, who disavowed his
predecessor's representations. At any rate, the above-stated
documents have now made it clear that the United Church for Christ in
the Philippines and not the United Church Board for World Ministries
was the owner of the Hospital at the time of the execution of the win in
1966 and of the testator's death in 1970. It is also not disputed that
such ownership passed to the Brokenshire Memorial Hospital itself
upon its incorporation in 1970 when it thus became the proper party-in-
interest to claim the property directly devised by Jacobson to it.
That the United Church Board for World Ministries no longer claims the
subject property (if indeed it really did claim it before), is manifest in its
sur rejoinder to the rejoinder of the movant Brokenshire Memorial
Hospital, Inc., which had asked to be substituted for the former as
petitioner in this case. The body of this pleading is reproduced in full as
follows:
PETITIONER, by the Undersigned Counsel, to this
Honorable Court most respectfully states:
l. That upon its organization in 1948 the United
Church of Christ in the Philippines succeeded to
the religious work, service and mission of the
United Church Board for World Ministries and
other religion boards in the United States of
America;
2. It was the intention, following the independence
of the Philippines from the U.S.A. the constitution
of an independent and autonomous United Church
of Christ in the Philippines, to eventually transfer
all properties, schools, and hospitals established
by said mission boards, to the United Church of
Christ in the Philippines;
3. That the United Church Board for World
Ministries had, in fact, transferred the ownership of
most of its properties in the Philippines to the
United Church of Christ in the Philippines, its
religious organizations and/or instrumentalities;
4. That when the Brokenshire Memorial Hospital
was destroyed by fire in 1964, reconstruction
efforts and responsibilities was assumed by the
United Church of Christ in the Philippines, it was
the intention of the United Church Board for World
Ministries to relinquish the rights, interests and
ownership to the Brokenshire Memorial Hospital,
now Brokenshire Memorial Hospital, Inc. and
considered it so relinquished, with continuing
funding assistance from the United Church Board
for World Ministries and other mission boards
overseas;
5. The United Church Board for World Ministries
continues to this date, with its fraternal and
cooperative relationship with the United Church of
Christ in the Philippines;
6. That as has already been stated, the United
Church Board for World Ministries does not intend
to take, possess, or enjoy the legacy of David
Jacobson and has manifested and mandated that
all properties that may be derived therefrom shall
be used entirely and exclusively for the work of the
Brokenshire Memorial Hospital and its School of
Nursing in accordance with the wishes of David
Jacobson;
7. Considering the clear intention of David
Jacobson to support the life and work of
Brokenshire Memorial Hospital and its School of
Nursing, and further considering that what was
bequeathed are shares of stocks in a corporation,,
there exists no legal and moral impediment for the
legacy to be delivered to the Brokenshire
Memorial Hospital, Inc., an instrumentality of the
United Church of Christ in the Philippines, that has
succeeded to the ownership of and the
humanitarian, and charitable service of said
Hospital.
Respectfully submitted.
September 3, 1983, Davao City, Philippines.
(Sgd.) JUAN V. FAUNE
Counsel for Petitioner
United Church Board for
World Ministries
185-B Anda Street, Davao
City
WITH OUR CONCURRENCE:
UNITED CHURCH BOARD FOR
WORLD MINISTRIES
by:
(Sgd.) BYRON W. CLARK
Treasurer
NO OBJECTION TO THE DELIVERY
OF THE LEGACY TO BROKENSHIRE
MEMORIAL HOSPITAL, INC.
(Sgd.) MELENCIO B. DELENA (Sgd.) DARIO C.
RAMA
Executor-Respondent Counsel for the Estate
and Respondents
Melencio Delena and
the late Mauro
Gementiza
(deceased-Executor)
Security Bank Bldg.
Magsaysay Ave., Davao City
(Sgd.) DEAN CLAIR (Sgd.) ROSALINO D. ISIDRO
Executor Counsel for the Estate
and Executor Dean Clair
205 Aldavinco Bldg.,
C.M. Recto Ave., Davao City
12
Parenthetically, it should be observed, in fairness to Judge Sebastian,
that he was unaware of these circumstances when he declared the
legacy invalid to enforce the nationalistic provisions of Article XIII of the
1935 Constitution. For his vigilance in the protection of the national
patrimony, he should be, as he is hereby, commenced.
Even on the assumption that the UCBWN was really the owner of the
Hospital at the time of the effectivity of the will and that the devise was
for that reason unenforceable, the defect in the will should be deemed
rectified by the subsequent transfer of the property to the Brokenshire
Memorial Hospital, Inc. Our consistent ruling on this matter is that if
land is invalidly transferred to an alien who subsequently becomes a
citizen or transfers it to a ctitizen, the flaw in the original transaction is
considered cured and the title of the transferee is rendered valid.
Thus, in Sarsosa vda. de Barsobia v. Cuenco, 13 where a Filipino
citizen sold her land to an alien who later sold it to a Filipino, we held
that the invalidity of the initial transfer to the alien was corrected by the
subsequent transfer of the property to a citizen. A similar ruling was
made in Godinez v. Fong Pak Luen, 14 involving a similar set of facts,
where we also cited Vasquez v. Li Seng Giap, 15 and Herrera v. Luy
King Guan.16 In Yap v. Maravillas,17we validated the sale of agricultural
land to an alien who, after the purchase, was naturalized as a Filipino or on November 18, 1962, his heirs executed an extra-judicial
and so became qualified to acquire it. The facts were slightly different settlement of estate with sale, whereby the disputed lot in its entirety
in De Castro v. Teng, 18 where, upon the death of an alien who had was alloted to Joaquin.
purchased a residential lot, his heirs entered into an extrajudicial
partition of his estate and transferred the land to one of his sons who
On July 15, 1968, petitioner commenced suit against the heirs of Tan
was a naturalized Filipino. We also sustained the sale.
Tai for annulment of the sale for alleged violation of the 1935
Constitution prohibiting the sale of land to aliens.
This action has been pending for quite some time now because of the
confusion regarding the status of the Brokenshire Memorial Hospital as
Except for respondent Tan Teng Bio who filed an answer to the
the ultimate beneficiary of the challenged legacy. The curious thing is
complaint, respondents moved to dismiss the complaint on the
that this case was mired in factual and legal complications caused by
grounds of (a) lack of cause of action, the plaintiff being in pari
needless misunderstanding among the parties which, it now appears,
delicto with the vendee, and the land being already owned by a
were never in any substantial disagreement over the ownership of the
Philippine citizen; (b) laches; and (c) acquisitive prescription.
Hospital. Their common concern for its welfare, in line with the
charitable spirit and purposes of the testator, should have avoided all
this tedious and acrimonious dispute. Over the opposition of petitioner, the court a quo dismissed the
complaint, sustaining the first two grounds invoked by the movants. It
is this order of dismissal that is now the subject of this review.
WHEREFORE, the Brokenshire Memorial Hospital, Inc. is hereby
substituted for the United Church Board for World Ministries as
petitioner in this case and DECLARED to be qualified to accept the The assailed order must be sustained.
legacy of the late David Jacobson. The petition as thus modified is
GRANTED. The order of the respondent judge dated December 9,
Independently of the doctrine of pari delicto, the petitioner cannot have
1971, and his Resolution dated December 9, 1971, are SET ASIDE.
the sale annulled and recover the lot she herself has sold. While the
This decision is immediately executory. No costs.
vendee was an alien at the time of the sale, the land has since become
the property, of respondent Joaquin Teng, a naturalized Philippine
SO ORDERED. citizen, who is constitutionally qualified to own land.têñ.£îhqwâ£

... The litigated property is now in the hands of a

naturalized Filipino. It is no longer owned by a
disqualified vendee. Respondent, as a naturalized
citizen, was constitutionally qualified to own the
subject property. There would be no more public
Republic of the Philippines policy to be served in allowing petitioner Epifania
SUPREME COURT to recover the land as it is already in the hands of
Manila a qualified person. Applying by analogy the ruling
of this Court in Vasquez vs. Giap and Li Seng
Giap & Sons:têñ.£îhqwâ£
FIRST DIVISION

... if the ban on aliens from

G.R. No. L-31956 April 30, 1984 acquiring not only agricultural
but also urban lands, as
FILOMENA GERONA DE CASTRO, petitioner,  construed by this Court in the
vs. Krivenko case, is to preserve
JOAQUIN TENG QUEEN TAN, TAN TENG BIO, DOLORES TAN, the nation's lands for future
ROSARIO TAN HUA ING, and TO O. HIAP,respondents. generations of Filipinos, that
aim or purpose would not be
thwarted but achieved by
Pascual G. Mier for petitioner. making lawful the acquisition
of real estate by aliens who
Eddie Tamondong for respondent Joaquin Teng Queen Tan. became Filipino citizens by
naturalization. (Sarsosa Vda.
de Barsobia vs. Cuenco, 113
Carlos Buenviaje for respondent Tan Teng Bio. SCRA 547, at 553.)

Arnulfo L. Perete for respondent Ong Shi (To O. Hiap). Laches also militates against petitioner's cause. She sold the disputed
lot in 1938. She instituted the action to annul the sale only on July 15,
1968. What the Court said in the cited Sarsosa case applies with equal
force to the petitioner.têñ.£îhqwâ£

PLANA, J.:ñé+.£ªwph!1
... it is likewise inescapable that petitioner Epifania
had slept on her rights for 26 years from 1936 to
Review on certiorari of the order of the former Court of First Instance of 1962. By her long inaction of inexcusable neglect,
Sorsogon dismissing petitioner's action for annulment of contract with she should be held barred from asserting her
damages. claim to the litigated property (Sotto vs. Teves, 86
SCRA 157 [1978]).têñ.£îhqwâ£
In 1938, petitioner Filomena Gerona de Castro sold a 1,258 sq. m.
residential lot in Bulan, Sorsogon to Tan Tai, a Chinese. In 1956, Tan Laches has been defined as
Tai died leaving herein respondents — his widow, To O. Hiap, and the failure or neglect, for an
children Joaquin Teng Queen Tan, Tan Teng Bio, Dolores Tan and unreasonable and
Rosario Tan Hua Ing. unexplained length of time, to
do that which by exercising
Before the death of Tan Tai or on August 11, 1956, one of his sons, due diligence could or should
Joaquin, became a naturalized Filipino. Six years after Tan Tai's death, have been done earlier; it is
negligence or omission to
 assert a right within a
reasonable time, warranting a
presumption that the party
entitled to assert it either has
abandoned it or declined to
assert it. (Tijam, et al. vs.
Sibonghanoy, et al., No. L-
21450, April 15, 1968, 23
SCRA 29, 35). (cited in Sotto
vs. Teves, 86 SCRA 154
[1978]).
Respondent, therefore, must be declared to be the
rightful owner of the property. (p. 553.)
WHEREFORE, the appealed order is affirmed. Costs against
petitioner.
SO ORDERED.1äwphï1.ñët
Teehankee (Chairman), Melencio-Herrera, Relova, Gutierrez, Jr. and
De la Fuente, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17587             September 12, 1967
PHILIPPINE BANKING CORPORATION, representing the estate of
JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-
appellant,  into with Wong, but in a codicil (Plff Exh. 17) of a later date (November
vs.
LUI SHE in her own behalf and as administratrix of the intestate
estate of Wong Heng, deceased,defendant-appellant.
Nicanor S. Sison for plaintiff-appellant.
Ozaeta, Gibbs & Ozaeta for defendant-appellant.
CASTRO, J.:
Justina Santos y Canon Faustino and her sister Lorenzo were the
owners in common of a piece of land in Manila. This parcel, with an
area of 2,582.30 square meters, is located on Rizal Avenue and opens
into Florentino Torres street at the back and Katubusan street on one
side. In it are two residential houses with entrance on Florentino Torres
street and the Hen Wah Restaurant with entrance on Rizal Avenue.
The sisters lived in one of the houses, while Wong Heng, a Chinese,
lived with his family in the restaurant. Wong had been a long-time
lessee of a portion of the property, paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the
entire property as her sister died with no other heir. Then already well
advanced in years, being at the time 90 years old, blind, crippled and
an invalid, she was left with no other relative to live with. Her only
companions in the house were her 17 dogs and 8 maids. Her
otherwise dreary existence was brightened now and then by the visits
of Wong's four children who had become the joy of her life. Wong
himself was the trusted man to whom she delivered various amounts
for safekeeping, including rentals from her property at the corner of
Ongpin and Salazar streets and the rentals which Wong himself paid
as lessee of a part of the Rizal Avenue property. Wong also took care
of the payment; in her behalf, of taxes, lawyers' fees, funeral expenses,
masses, salaries of maids and security guard, and her household
expenses.
"In grateful acknowledgment of the personal services of the lessee to
her," Justina Santos executed on November 15, 1957 a contract of
lease (Plff Exh. 3) in favor of Wong, covering the portion then already
leased to him and another portion fronting Florentino Torres street. The
lease was for 50 years, although the lessee was given the right to
withdraw at any time from the agreement; the monthly rental was
P3,120. The contract covered an area of 1,124 square meters. Ten
days later (November 25), the contract was amended (Plff Exh. 4) so
as to make it cover the entire property, including the portion on which
the house of Justina Santos stood, at an additional monthly rental of
P360. For his part Wong undertook to pay, out of the rental due from
him, an amount not exceeding P1,000 a month for the food of her dogs
and the salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7) giving
Wong the option to buy the leased premises for P120,000, payable
within ten years at a monthly installment of P1,000. The option, written
in Tagalog, imposed on him the obligation to pay for the food of the
dogs and the salaries of the maids in her household, the charge not to
exceed P1,800 a month. The option was conditioned on his obtaining
Philippine citizenship, a petition for which was then pending in the
Court of First Instance of Rizal. It appears, however, that this
application for naturalization was withdrawn when it was discovered
that he was not a resident of Rizal. On October 28, 1958 she filed a
petition to adopt him and his children on the erroneous belief that
adoption would confer on them Philippine citizenship. The error was
discovered and the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one (Plff
Exh. 5) extending the term of the lease to 99 years, and another (Plff
Exh. 6) fixing the term of the option of 50 years. Both contracts are
written in Tagalog.
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 &
279), she bade her legatees to respect the contracts she had entered
4, 1959) she appears to have a change of heart. Claiming that the
various contracts were made by her because of machinations and
inducements practiced by him, she now directed her executor to
secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First
Instance of Manila. The complaint alleged that the contracts were
obtained by Wong "through fraud, misrepresentation, inequitable
conduct, undue influence and abuse of confidence and trust of and
(by) taking advantage of the helplessness of the plaintiff and were
made to circumvent the constitutional provision prohibiting aliens from
acquiring lands in the Philippines and also of the Philippine
Naturalization Laws." The court was asked to direct the Register of
Deeds of Manila to cancel the registration of the contracts and to order
Wong to pay Justina Santos the additional rent of P3,120 a month from
November 15, 1957 on the allegation that the reasonable rental of the
leased premises was P6,240 a month.
In his answer, Wong admitted that he enjoyed her trust and confidence
as proof of which he volunteered the information that, in addition to the
sum of P3,000 which he said she had delivered to him for safekeeping,
another sum of P22,000 had been deposited in a joint account which
he had with one of her maids. But he denied having taken advantage
of her trust in order to secure the execution of the contracts in
question. As counterclaim he sought the recovery of P9,210.49 which
he said she owed him for advances.
Wong's admission of the receipt of P22,000 and P3,000 was the cue
for the filing of an amended complaint. Thus on June 9, 1960, aside
from the nullity of the contracts, the collection of various amounts
allegedly delivered on different occasions was sought. These amounts
and the dates of their delivery are P33,724.27 (Nov. 4, 1957);
P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957); P22,000 and
P3,000 (as admitted in his answer). An accounting of the rentals from
the Ongpin and Rizal Avenue properties was also demanded.
In the meantime as a result of a petition for guardianship filed in the
Juvenile and Domestic Relations Court, the Security Bank & Trust Co.
was appointed guardian of the properties of Justina Santos, while
Ephraim G. Gochangco was appointed guardian of her person.
In his answer, Wong insisted that the various contracts were freely and
voluntarily entered into by the parties. He likewise disclaimed
knowledge of the sum of P33,724.27, admitted receipt of P7,344.42
and P10,000, but contended that these amounts had been spent in
accordance with the instructions of Justina Santos; he expressed
readiness to comply with any order that the court might make with
respect to the sums of P22,000 in the bank and P3,000 in his
possession.
The case was heard, after which the lower court rendered judgment as
follows:
[A]ll the documents mentioned in the first cause of action,
with the exception of the first which is the lease contract of
15 November 1957, are declared null and void; Wong Heng
is condemned to pay unto plaintiff thru guardian of her
property the sum of P55,554.25 with legal interest from the
date of the filing of the amended complaint; he is also
ordered to pay the sum of P3,120.00 for every month of his
occupation as lessee under the document of lease herein
sustained, from 15 November 1959, and the moneys he has
consigned since then shall be imputed to that; costs against
Wong Heng.
cancellation of a contract in accordance with conditions
agreed upon beforehand is fulfillment.2
And so it was held in Melencio v. Dy Tiao Lay  3 that a "provision in a
lease contract that the lessee, at any time before he erected any
building on the land, might rescind the lease, can hardly be regarded
as a violation of article 1256 [now art. 1308] of the Civil Code."
The case of Singson Encarnacion v. Baldomar  4 cannot be cited in
support of the claim of want of mutuality, because of a difference in
factual setting. In that case, the lessees argued that they could occupy
the premises as long as they paid the rent. This is of course untenable,
for as this Court said, "If this defense were to be allowed, so long as
defendants elected to continue the lease by continuing the payment of
the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue the
lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment of
the rentals." Here, in contrast, the right of the lessee to continue the
lease or to terminate it is so circumscribed by the term of the contract
that it cannot be said that the continuance of the lease depends upon
his will. At any rate, even if no term had been fixed in the agreement,
this case would at most justify the fixing of a period 5 but not the
annulment of the contract.
Nor is there merit in the claim that as the portion of the property
formerly owned by the sister of Justina Santos was still in the process
of settlement in the probate court at the time it was leased, the lease is
invalid as to such portion. Justina Santos became the owner of the
entire property upon the death of her sister Lorenzo on September 22,
1957 by force of article 777 of the Civil Code. Hence, when she leased
the property on November 15, she did so already as owner thereof. As
this Court explained in upholding the sale made by an heir of a
property under judicial administration:

That the land could not ordinarily be levied upon while

From this judgment both parties appealed directly to this Court. After
in custodia legis does not mean that one of the heirs may not
the case was submitted for decision, both parties died, Wong Heng on
sell the right, interest or participation which he has or might
October 21, 1962 and Justina Santos on December 28, 1964. Wong
have in the lands under administration. The ordinary
was substituted by his wife, Lui She, the other defendant in this case,
execution of property in custodia legis is prohibited in order
while Justina Santos was substituted by the Philippine Banking
to avoid interference with the possession by the court. But
Corporation.
the sale made by an heir of his share in an inheritance,
subject to the result of the pending administration, in no wise
Justina Santos maintained — now reiterated by the Philippine Banking stands in the way of such administration.6
Corporation — that the lease contract (Plff Exh. 3) should have been
annulled along with the four other contracts (Plff Exhs. 4-7) because it
It is next contended that the lease contract was obtained by Wong in
lacks mutuality; because it included a portion which, at the time, was
violation of his fiduciary relationship with Justina Santos, contrary to
in custodia legis; because the contract was obtained in violation of the
article 1646, in relation to article 1941 of the Civil Code, which
fiduciary relations of the parties; because her consent was obtained
disqualifies "agents (from leasing) the property whose administration or
through undue influence, fraud and misrepresentation; and because
sale may have been entrusted to them." But Wong was never an agent
the lease contract, like the rest of the contracts, is absolutely
of Justina Santos. The relationship of the parties, although admittedly
simulated.
close and confidential, did not amount to an agency so as to bring the
case within the prohibition of the law.
Paragraph 5 of the lease contract states that "The lessee may at any
time withdraw from this agreement." It is claimed that this stipulation
Just the same, it is argued that Wong so completely dominated her life
offends article 1308 of the Civil Code which provides that "the contract
and affairs that the contracts express not her will but only his. Counsel
must bind both contracting parties; its validity or compliance cannot be
for Justina Santos cites the testimony of Atty. Tomas S. Yumol who
left to the will of one of them."
said that he prepared the lease contract on the basis of data given to
him by Wong and that she told him that "whatever Mr. Wong wants
We have had occasion to delineate the scope and application of article must be followed."7
1308 in the early case of Taylor v. Uy Tieng Piao.1 We said in that
case:
The testimony of Atty. Yumol cannot be read out of context in order to
warrant a finding that Wong practically dictated the terms of the
Article 1256 [now art. 1308] of the Civil Code in our opinion contract. What this witness said was:
creates no impediment to the insertion in a contract for
personal service of a resolutory condition permitting the
Q Did you explain carefully to your client, Doña Justina, the
cancellation of the contract by one of the parties. Such a
contents of this document before she signed it?
stipulation, as can be readily seen, does not make either the
validity or the fulfillment of the contract dependent upon the
will of the party to whom is conceded the privilege of A I explained to her each and every one of these conditions
cancellation; for where the contracting parties have agreed and I also told her these conditions were quite onerous for
that such option shall exist, the exercise of the option is as her, I don't really know if I have expressed my opinion, but I
much in the fulfillment of the contract as any other act which told her that we would rather not execute any contract
may have been the subject of agreement. Indeed, the
 anymore, but to hold it as it was before, on a verbal month to
month contract of lease.
Q But, she did not follow your advice, and she went with the
contract just the same?
A She agreed first . . .
Q Agreed what?
A Agreed with my objectives that it is really onerous and that
I was really right, but after that, I was called again by her and
she told me to follow the wishes of Mr. Wong Heng.
xxx     xxx     xxx
Q So, as far as consent is concerned, you were satisfied that
this document was perfectly proper?
xxx     xxx     xxx
A Your Honor, if I have to express my personal opinion, I
would say she is not, because, as I said before, she told me
— "Whatever Mr. Wong wants must be followed."8
Wong might indeed have supplied the data which Atty. Yumol
embodied in the lease contract, but to say this is not to detract from the
binding force of the contract. For the contract was fully explained to
Justina Santos by her own lawyer. One incident, related by the same
witness, makes clear that she voluntarily consented to the lease
contract. This witness said that the original term fixed for the lease was
99 years but that as he doubted the validity of a lease to an alien for
that length of time, he tried to persuade her to enter instead into a
lease on a month-to-month basis. She was, however, firm and
unyielding. Instead of heeding the advice of the lawyer, she ordered
him, "Just follow Mr. Wong Heng." 9 Recounting the incident, Atty.
Yumol declared on cross examination:
Considering her age, ninety (90) years old at the time and
her condition, she is a wealthy woman, it is just natural when
she said "This is what I want and this will be done." In
particular reference to this contract of lease, when I said
"This is not proper," she said — "You just go ahead, you
prepare that, I am the owner, and if there is any illegality, I
am the only one that can question the illegality."10
Atty. Yumol further testified that she signed the lease contract in the
presence of her close friend, Hermenegilda Lao, and her maid,
Natividad Luna, who was constantly by her side. 11 Any of them could
have testified on the undue influence that Wong supposedly wielded
over Justina Santos, but neither of them was presented as a witness.
The truth is that even after giving his client time to think the matter
over, the lawyer could not make her change her mind. This persuaded
the lower court to uphold the validity of the lease contract against the
claim that it was procured through undue influence.
Indeed, the charge of undue influence in this case rests on a mere
inference12 drawn from the fact that Justina Santos could not read (as
she was blind) and did not understand the English language in which
the contract is written, but that inference has been overcome by her
own evidence.
Nor is there merit in the claim that her consent to the lease contract, as
well as to the rest of the contracts in question, was given out of a
mistaken sense of gratitude to Wong who, she was made to believe,
had saved her and her sister from a fire that destroyed their house
during the liberation of Manila. For while a witness claimed that the
sisters were saved by other persons (the brothers Edilberto and
Mariano Sta. Ana)13 it was Justina Santos herself who, according to her
own witness, Benjamin C. Alonzo, said "very emphatically" that she
and her sister would have perished in the fire had it not been for
Wong.14 Hence the recital in the deed of conditional option (Plff Exh. 7)
that "[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang
magkapatid sa halos ay tiyak na kamatayan", and the equally emphatic
avowal of gratitude in the lease contract (Plff Exh. 3).
As it was with the lease contract (Plff Exh. 3), so it was with the rest of
the contracts (Plff Exhs. 4-7) — the consent of Justina Santos was
given freely and voluntarily. As Atty. Alonzo, testifying for her, said:
[I]n nearly all documents, it was either Mr. Wong Heng or
Judge Torres and/or both. When we had conferences, they
used to tell me what the documents should contain. But, as I
said, I would always ask the old woman about them and
invariably the old woman used to tell me: "That's okay. It's all
right."15
But the lower court set aside all the contracts, with the exception of the
lease contract of November 15, 1957, on the ground that they are
contrary to the expressed wish of Justina Santos and that their
considerations are fictitious. Wong stated in his deposition that he did
not pay P360 a month for the additional premises leased to him,
because she did not want him to, but the trial court did not believe him.
Neither did it believe his statement that he paid P1,000 as
consideration for each of the contracts (namely, the option to buy the
leased premises, the extension of the lease to 99 years, and the fixing
of the term of the option at 50 years), but that the amount was returned
to him by her for safekeeping. Instead, the court relied on the
testimony of Atty. Alonzo in reaching the conclusion that the contracts
are void for want of consideration.
Atty. Alonzo declared that he saw no money paid at the time of the
execution of the documents, but his negative testimony does not rule
out the possibility that the considerations were paid at some other time
as the contracts in fact recite. What is more, the consideration need
not pass from one party to the other at the time a contract is executed
because the promise of one is the consideration for the other. 16
With respect to the lower court's finding that in all probability Justina
Santos could not have intended to part with her property while she was
alive nor even to lease it in its entirety as her house was built on it,
suffice it to quote the testimony of her own witness and lawyer who
prepared the contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:
The ambition of the old woman, before her death, according
to her revelation to me, was to see to it that these properties
be enjoyed, even to own them, by Wong Heng because
Doña Justina told me that she did not have any relatives,
near or far, and she considered Wong Heng as a son and
his children her grandchildren; especially her consolation in
life was when she would hear the children reciting prayers in
Tagalog.17
She was very emphatic in the care of the seventeen (17)
dogs and of the maids who helped her much, and she told
me to see to it that no one could disturb Wong Heng from
those properties. That is why we thought of the ninety-nine
(99) years lease; we thought of adoption, believing that thru
adoption Wong Heng might acquire Filipino citizenship;
being the adopted child of a Filipino citizen.18
This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid.
For the testimony just quoted, while dispelling doubt as to the intention
of Justina Santos, at the same time gives the clue to what we view as
a scheme to circumvent the Constitutional prohibition against the
transfer of lands to aliens. "The illicit purpose then becomes the
illegal causa"19 rendering the contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but
considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, a lease
to an alien for a reasonable period is valid. So is an option giving an
alien the right to buy real property on condition that he is granted
Philippine citizenship. As this Court said in Krivenko v. Register of
Deeds:20
[A]liens are not completely excluded by the Constitution from
the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is
not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes,
Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property,21 this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to
enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it ( jus disponendi) — rights
the sum total of which make up ownership. It is just as if today the
possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership
is made up are consolidated in an alien. And yet this is just exactly
what the parties in this case did within the space of one year, with the
result that Justina Santos' ownership of her property was reduced to a
hollow concept. If this can be done, then the Constitutional ban against
alien landholding in the Philippines, as announced in Krivenko v.
Register of Deeds,22 is indeed in grave peril.
It does not follow from what has been said, however, that because the
parties are in pari delicto they will be left where they are, without relief.
For one thing, the original parties who were guilty of a violation of the
fundamental charter have died and have since been substituted by
their administrators to whom it would be unjust to impute their
guilt.23 For another thing, and this is not only cogent but also important,
article 1416 of the Civil Code provides, as an exception to the rule
on pari delicto, that "When the agreement is not illegal per se but is
merely prohibited, and the prohibition by law is designed for the
protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered." The Constitutional provision
that "Save in cases of hereditary succession, no private agricultural
land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the
public domain in the Philippines" 24 is an expression of public policy to
conserve lands for the Filipinos. As this Court said in Krivenko:
It is well to note at this juncture that in the present case we
have no choice. We are construing the Constitution as it is
and not as we may desire it to be. Perhaps the effect of our
construction is to preclude aliens admitted freely into the
Philippines from owning sites where they may build their
homes. But if this is the solemn mandate of the Constitution,
we will not attempt to compromise it even in the name of
amity or equity . . . .
For all the foregoing, we hold that under the Constitution
aliens may not acquire private or public agricultural lands,
including residential lands, and, accordingly, judgment is
affirmed, without costs.25
That policy would be defeated and its continued violation sanctioned if,
instead of setting the contracts aside and ordering the restoration of
the land to the estate of the deceased Justina Santos, this Court
should apply the general rule of pari delicto. To the extent that our
ruling in this case conflicts with that laid down in Rellosa v. Gaw Chee
Hun  26 and subsequent similar cases, the latter must be considered
as pro tanto qualified.
The claim for increased rentals and attorney's fees, made in behalf of
Justina Santos, must be denied for lack of merit.
And what of the various amounts which Wong received in trust from
her? It appears that he kept two classes of accounts, one pertaining to
amount which she entrusted to him from time to time, and another
pertaining to rentals from the Ongpin property and from the Rizal
Avenue property, which he himself was leasing.
With respect to the first account, the evidence shows that he received
P33,724.27 on November 8, 1957 (Plff Exh. 16); P7,354.42 on
December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957 (Plff
Exh. 14) ; and P18,928.50 on August 26, 1959 (Def. Exh. 246), or a
total of P70,007.19. He claims, however, that he settled his accounts
and that the last amount of P18,928.50 was in fact payment to him of
what in the liquidation was found to be due to him.
He made disbursements from this account to discharge Justina Santos'
obligations for taxes, attorneys' fees, funeral services and security
guard services, but the checks (Def Exhs. 247-278) drawn by him for
this purpose amount to only P38,442.84. 27 Besides, if he had really
settled his accounts with her on August 26, 1959, we cannot
understand why he still had P22,000 in the bank and P3,000 in his
possession, or a total of P25,000. In his answer, he offered to pay this
amount if the court so directed him. On these two grounds, therefore,
his claim of liquidation and settlement of accounts must be rejected.
After subtracting P38,442.84 (expenditures) from P70,007.19
(receipts), there is a difference of P31,564 which, added to the amount
of P25,000, leaves a balance of P56,564.35 28 in favor of Justina
Santos.
As to the second account, the evidence shows that the monthly income
from the Ongpin property until its sale in Rizal Avenue July, 1959 was
P1,000, and that from the Rizal Avenue property, of which Wong was
the lessee, was P3,120. Against this account the household expenses
and disbursements for the care of the 17 dogs and the salaries of the 8
maids of Justina Santos were charged. This account is contained in a
notebook (Def. Exh. 6) which shows a balance of P9,210.49 in favor of
Wong. But it is claimed that the rental from both the Ongpin and Rizal
Avenue properties was more than enough to pay for her monthly
expenses and that, as a matter of fact, there should be a balance in
her favor. The lower court did not allow either party to recover against
the other. Said the court:
[T]he documents bear the earmarks of genuineness; the
trouble is that they were made only by Francisco Wong and
Antonia Matias, nick-named Toning, — which was the way
she signed the loose sheets, and there is no clear proof that
Doña Justina had authorized these two to act for her in such
liquidation; on the contrary if the result of that was a deficit
as alleged and sought to be there shown, of P9,210.49, that
was not what Doña Justina apparently understood for as the
Court understands her statement to the Honorable Judge of
the Juvenile Court . . . the reason why she preferred to stay
in her home was because there she did not incur in any
debts . . . this being the case, . . . the Court will not
adjudicate in favor of Wong Heng on his counterclaim; on
the other hand, while it is claimed that the expenses were
much less than the rentals and there in fact should be a
superavit, . . . this Court must concede that daily expenses
are not easy to compute, for this reason, the Court faced
with the choice of the two alternatives will choose the middle
course which after all is permitted by the rules of proof, Sec.
69, Rule 123 for in the ordinary course of things, a person
will live within his income so that the conclusion of the Court
will be that there is neither deficit nor superavit and will let
the matter rest here.
Both parties on appeal reiterate their respective claims but we agree
with the lower court that both claims should be denied. Aside from the
reasons given by the court, we think that the claim of Justina Santos
totalling P37,235, as rentals due to her after deducting various
expenses, should be rejected as the evidence is none too clear about
the amounts spent by Wong for food 29 masses30 and salaries of her
maids.31 His claim for P9,210.49 must likewise be rejected as his
averment of liquidation is belied by his own admission that even as late
as 1960 he still had P22,000 in the bank and P3,000 in his possession.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled
and set aside; the land subject-matter of the contracts is ordered
returned to the estate of Justina Santos as represented by the
Philippine Banking Corporation; Wong Heng (as substituted by the
defendant-appellant Lui She) is ordered to pay the Philippine Banking
Corporation the sum of P56,564.35, with legal interest from the date of
the filing of the amended complaint; and the amounts consigned in
court by Wong Heng shall be applied to the payment of rental from
November 15, 1959 until the premises shall have been vacated by his
heirs. Costs against the defendant-appellant.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P.,
Zaldivar, Sanchez and Angeles, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 101083 July 30, 1993
JUAN ANTONIO, ANNA ROSARIO and JOSE ALFONSO, all
surnamed OPOSA, minors, and represented by their parents
ANTONIO and RIZALINA OPOSA, ROBERTA NICOLE SADIUA,
minor, represented by her parents CALVIN and ROBERTA
SADIUA, CARLO, AMANDA SALUD and PATRISHA, all surnamed
FLORES, minors and represented by their parents ENRICO and
NIDA FLORES, GIANINA DITA R. FORTUN, minor, represented by
her parents SIGRID and DOLORES FORTUN, GEORGE II and MA.
CONCEPCION, all surnamed MISA, minors and represented by
their parents GEORGE and MYRA MISA, BENJAMIN ALAN V.
PESIGAN, minor, represented by his parents ANTONIO and ALICE
PESIGAN, JOVIE MARIE ALFARO, minor, represented by her
parents JOSE and MARIA VIOLETA ALFARO, MARIA
CONCEPCION T. CASTRO, minor, represented by her parents
FREDENIL and JANE CASTRO, JOHANNA DESAMPARADO,  representatives and other persons acting in his
minor, represented by her parents JOSE and ANGELA
DESAMPRADO, CARLO JOAQUIN T. NARVASA, minor,
represented by his parents GREGORIO II and CRISTINE CHARITY
NARVASA, MA. MARGARITA, JESUS IGNACIO, MA. ANGELA and
MARIE GABRIELLE, all surnamed SAENZ, minors, represented by
their parents ROBERTO and AURORA SAENZ, KRISTINE, MARY
ELLEN, MAY, GOLDA MARTHE and DAVID IAN, all surnamed
KING, minors, represented by their parents MARIO and HAYDEE
KING, DAVID, FRANCISCO and THERESE VICTORIA, all
surnamed ENDRIGA, minors, represented by their parents
BALTAZAR and TERESITA ENDRIGA, JOSE MA. and REGINA
MA., all surnamed ABAYA, minors, represented by their parents
ANTONIO and MARICA ABAYA, MARILIN, MARIO, JR. and
MARIETTE, all surnamed CARDAMA, minors, represented by their
parents MARIO and LINA CARDAMA, CLARISSA, ANN MARIE,
NAGEL, and IMEE LYN, all surnamed OPOSA, minors and
represented by their parents RICARDO and MARISSA OPOSA,
PHILIP JOSEPH, STEPHEN JOHN and ISAIAH JAMES, all
surnamed QUIPIT, minors, represented by their parents JOSE
MAX and VILMI QUIPIT, BUGHAW CIELO, CRISANTO, ANNA,
DANIEL and FRANCISCO, all surnamed BIBAL, minors,
represented by their parents FRANCISCO, JR. and MILAGROS
BIBAL, and THE PHILIPPINE ECOLOGICAL NETWORK,
INC., petitioners, 
vs.
THE HONORABLE FULGENCIO S. FACTORAN, JR., in his
capacity as the Secretary of the Department of Environment and
Natural Resources, and THE HONORABLE ERIBERTO U.
ROSARIO, Presiding Judge of the RTC, Makati, Branch
66, respondents.
Oposa Law Office for petitioners.
The Solicitor General for respondents.
DAVIDE, JR., J.:
In a broader sense, this petition bears upon the right of Filipinos to a
balanced and healthful ecology which the petitioners dramatically
associate with the twin concepts of "inter-generational responsibility"
and "inter-generational justice." Specifically, it touches on the issue of
whether the said petitioners have a cause of action to "prevent the
misappropriation or impairment" of Philippine rainforests and "arrest
the unabated hemorrhage of the country's vital life support systems
and continued rape of Mother Earth."
The controversy has its genesis in Civil Case No. 90-77 which was
filed before Branch 66 (Makati, Metro Manila) of the Regional Trial
Court (RTC), National Capital Judicial Region. The principal plaintiffs
therein, now the principal petitioners, are all minors duly represented
and joined by their respective parents. Impleaded as an additional
plaintiff is the Philippine Ecological Network, Inc. (PENI), a domestic,
non-stock and non-profit corporation organized for the purpose of, inter
alia, engaging in concerted action geared for the protection of our
environment and natural resources. The original defendant was the
Honorable Fulgencio S. Factoran, Jr., then Secretary of the
Department of Environment and Natural Resources (DENR). His
substitution in this petition by the new Secretary, the Honorable Angel
C. Alcala, was subsequently ordered upon proper motion by the
petitioners.1 The complaint2was instituted as a taxpayers' class
suit3 and alleges that the plaintiffs "are all citizens of the Republic of
the Philippines, taxpayers, and entitled to the full benefit, use and
enjoyment of the natural resource treasure that is the country's virgin
tropical forests." The same was filed for themselves and others who
are equally concerned about the preservation of said resource but are
"so numerous that it is impracticable to bring them all before the
Court." The minors further asseverate that they "represent their
generation as well as generations yet unborn." 4Consequently, it is
prayed for that judgment be rendered:
. . . ordering defendant, his agents,
behalf to —
(1) Cancel all existing timber license agreements
in the country;
(2) Cease and desist from receiving, accepting,
processing, renewing or approving new timber
license agreements.
and granting the plaintiffs ". . . such other reliefs just and equitable
under the premises."5
The complaint starts off with the general averments that the Philippine
archipelago of 7,100 islands has a land area of thirty million
(30,000,000) hectares and is endowed with rich, lush and verdant
rainforests in which varied, rare and unique species of flora and fauna
may be found; these rainforests contain a genetic, biological and
chemical pool which is irreplaceable; they are also the habitat of
indigenous Philippine cultures which have existed, endured and
flourished since time immemorial; scientific evidence reveals that in
order to maintain a balanced and healthful ecology, the country's land
area should be utilized on the basis of a ratio of fifty-four per cent
(54%) for forest cover and forty-six per cent (46%) for agricultural,
residential, industrial, commercial and other uses; the distortion and
disturbance of this balance as a consequence of deforestation have
resulted in a host of environmental tragedies, such as (a) water
shortages resulting from drying up of the water table, otherwise known
as the "aquifer," as well as of rivers, brooks and streams, (b)
salinization of the water table as a result of the intrusion therein of salt
water, incontrovertible examples of which may be found in the island of
Cebu and the Municipality of Bacoor, Cavite, (c) massive erosion and
the consequential loss of soil fertility and agricultural productivity, with
the volume of soil eroded estimated at one billion (1,000,000,000)
cubic meters per annum — approximately the size of the entire island
of Catanduanes, (d) the endangering and extinction of the country's
unique, rare and varied flora and fauna, (e) the disturbance and
dislocation of cultural communities, including the disappearance of the
Filipino's indigenous cultures, (f) the siltation of rivers and seabeds and
consequential destruction of corals and other aquatic life leading to a
critical reduction in marine resource productivity, (g) recurrent spells of
drought as is presently experienced by the entire country, (h)
increasing velocity of typhoon winds which result from the absence of
windbreakers, (i) the floodings of lowlands and agricultural plains
arising from the absence of the absorbent mechanism of forests, (j) the
siltation and shortening of the lifespan of multi-billion peso dams
constructed and operated for the purpose of supplying water for
domestic uses, irrigation and the generation of electric power, and (k)
the reduction of the earth's capacity to process carbon dioxide gases
which has led to perplexing and catastrophic climatic changes such as
the phenomenon of global warming, otherwise known as the
"greenhouse effect."
Plaintiffs further assert that the adverse and detrimental consequences
of continued and deforestation are so capable of unquestionable
demonstration that the same may be submitted as a matter of judicial
notice. This notwithstanding, they expressed their intention to present
expert witnesses as well as documentary, photographic and film
evidence in the course of the trial.
As their cause of action, they specifically allege that:
CAUSE OF ACTION
7. Plaintiffs replead by reference the foregoing
allegations.
8. Twenty-five (25) years ago, the Philippines had
some sixteen (16) million hectares of rainforests
constituting roughly 53% of the country's land
mass.
9. Satellite images taken in 1987 reveal that there
remained no more than 1.2 million hectares of said
rainforests or four per cent (4.0%) of the country's
land area.
10. More recent surveys reveal that a mere
850,000 hectares of virgin old-growth rainforests
are left, barely 2.8% of the entire land mass of the
Philippine archipelago and about 3.0 million
hectares of immature and uneconomical
secondary growth forests.
11. Public records reveal that the defendant's,
predecessors have granted timber license
agreements ('TLA's') to various corporations to cut
the aggregate area of 3.89 million hectares for
commercial logging purposes.
A copy of the TLA holders and the corresponding
areas covered is hereto attached as Annex "A".
12. At the present rate of deforestation, i.e. about
200,000 hectares per annum or 25 hectares per
hour — nighttime, Saturdays, Sundays and
holidays included — the Philippines will be bereft
of forest resources after the end of this ensuing
decade, if not earlier.
13. The adverse effects, disastrous
consequences, serious injury and irreparable
damage of this continued trend of deforestation to
the plaintiff minor's generation and to generations
yet unborn are evident and incontrovertible. As a
matter of fact, the environmental damages
enumerated in paragraph 6 hereof are already
being felt, experienced and suffered by the
generation of plaintiff adults.
14. The continued allowance by defendant of TLA
holders to cut and deforest the remaining forest
stands will work great damage and irreparable
injury to plaintiffs — especially plaintiff minors and
their successors — who may never see, use,
benefit from and enjoy this rare and unique natural
resource treasure.
This act of defendant constitutes a
misappropriation and/or impairment of the natural
resource property he holds in trust for the benefit
of plaintiff minors and succeeding generations.
15. Plaintiffs have a clear and constitutional right
to a balanced and healthful ecology and are
entitled to protection by the State in its capacity as
the parens patriae.
16. Plaintiff have exhausted all administrative
remedies with the defendant's office. On March 2,
1990, plaintiffs served upon defendant a final
demand to cancel all logging permits in the
country.
A copy of the plaintiffs' letter dated March 1, 1990
is hereto attached as Annex "B".
17. Defendant, however, fails and refuses to
cancel the existing TLA's to the continuing serious
damage and extreme prejudice of plaintiffs.
18. The continued failure and refusal by defendant
to cancel the TLA's is an act violative of the rights
of plaintiffs, especially plaintiff minors who may be
left with a country that is desertified (sic), bare,
barren and devoid of the wonderful flora, fauna
and indigenous cultures which the Philippines had
been abundantly blessed with.
19. Defendant's refusal to cancel the
aforementioned TLA's is manifestly contrary to the
public policy enunciated in the Philippine
Environmental Policy which, in pertinent part,
states that it is the policy of the State —
 (a) to create, develop, maintain and improve
conditions under which man and nature can thrive
in productive and enjoyable harmony with each
other;
(b) to fulfill the social, economic and other
requirements of present and future generations of
Filipinos and;
(c) to ensure the attainment of an environmental
quality that is conductive to a life of dignity and
well-being. (P.D. 1151, 6 June 1977)
20. Furthermore, defendant's continued refusal to
cancel the aforementioned TLA's is contradictory
to the Constitutional policy of the State to —
a. effect "a more equitable distribution of
opportunities, income and wealth" and "make full
and efficient use of natural resources (sic)."
(Section 1, Article XII of the Constitution);
b. "protect the nation's marine wealth." (Section
2, ibid);
c. "conserve and promote the nation's cultural
heritage and resources (sic)" (Section 14, Article
XIV,id.);
d. "protect and advance the right of the people to a
balanced and healthful ecology in accord with the
rhythm and harmony of nature." (Section 16,
Article II, id.)
21. Finally, defendant's act is contrary to the
highest law of humankind — the natural law —
and violative of plaintiffs' right to self-preservation
and perpetuation.
22. There is no other plain, speedy and adequate
remedy in law other than the instant action to
arrest the unabated hemorrhage of the country's
vital life support systems and continued rape of
Mother Earth. 6
On 22 June 1990, the original defendant, Secretary Factoran, Jr., filed
a Motion to Dismiss the complaint based on two (2) grounds, namely:
(1) the plaintiffs have no cause of action against him and (2) the issue
raised by the plaintiffs is a political question which properly pertains to
the legislative or executive branches of Government. In their 12 July
1990 Opposition to the Motion, the petitioners maintain that (1) the
complaint shows a clear and unmistakable cause of action, (2) the
motion is dilatory and (3) the action presents a justiciable question as it
involves the defendant's abuse of discretion.
On 18 July 1991, respondent Judge issued an order granting the
aforementioned motion to dismiss.7 In the said order, not only was the
defendant's claim — that the complaint states no cause of action
against him and that it raises a political question — sustained, the
respondent Judge further ruled that the granting of the relief prayed for
would result in the impairment of contracts which is prohibited by the
fundamental law of the land.
Plaintiffs thus filed the instant special civil action for certiorari under
Rule 65 of the Revised Rules of Court and ask this Court to rescind
and set aside the dismissal order on the ground that the respondent
Judge gravely abused his discretion in dismissing the action. Again,
the parents of the plaintiffs-minors not only represent their children, but
have also joined the latter in this case.8
On 14 May 1992, We resolved to give due course to the petition and
required the parties to submit their respective Memoranda after the
Office of the Solicitor General (OSG) filed a Comment in behalf of the
respondents and the petitioners filed a reply thereto.
Petitioners contend that the complaint clearly and unmistakably states
a cause of action as it contains sufficient allegations concerning their
right to a sound environment based on Articles 19, 20 and 21 of the
Civil Code (Human Relations), Section 4 of Executive Order (E.O.) No.
192 creating the DENR, Section 3 of Presidential Decree (P.D.) No.
1151 (Philippine Environmental Policy), Section 16, Article II of the
1987 Constitution recognizing the right of the people to a balanced and
healthful ecology, the concept of generational genocide in Criminal
Law and the concept of man's inalienable right to self-preservation and
self-perpetuation embodied in natural law. Petitioners likewise rely on
the respondent's correlative obligation per Section 4 of E.O. No. 192,
to safeguard the people's right to a healthful environment.
It is further claimed that the issue of the respondent Secretary's alleged
grave abuse of discretion in granting Timber License Agreements
(TLAs) to cover more areas for logging than what is available involves
a judicial question.
Anent the invocation by the respondent Judge of the Constitution's
non-impairment clause, petitioners maintain that the same does not
apply in this case because TLAs are not contracts. They likewise
submit that even if TLAs may be considered protected by the said
clause, it is well settled that they may still be revoked by the State
when the public interest so requires.
On the other hand, the respondents aver that the petitioners failed to
allege in their complaint a specific legal right violated by the
respondent Secretary for which any relief is provided by law. They see
nothing in the complaint but vague and nebulous allegations
concerning an "environmental right" which supposedly entitles the
petitioners to the "protection by the state in its capacity as parens
patriae." Such allegations, according to them, do not reveal a valid
cause of action. They then reiterate the theory that the question of
whether logging should be permitted in the country is a political
question which should be properly addressed to the executive or
legislative branches of Government. They therefore assert that the
petitioners' resources is not to file an action to court, but to lobby
before Congress for the passage of a bill that would ban logging totally.
As to the matter of the cancellation of the TLAs, respondents submit
that the same cannot be done by the State without due process of law.
Once issued, a TLA remains effective for a certain period of time —
usually for twenty-five (25) years. During its effectivity, the same can
neither be revised nor cancelled unless the holder has been found,
after due notice and hearing, to have violated the terms of the
agreement or other forestry laws and regulations. Petitioners'
proposition to have all the TLAs indiscriminately cancelled without the
requisite hearing would be violative of the requirements of due
process.
Before going any further, We must first focus on some procedural
matters. Petitioners instituted Civil Case No. 90-777 as a class suit.
The original defendant and the present respondents did not take issue
with this matter. Nevertheless, We hereby rule that the said civil case
is indeed a class suit. The subject matter of the complaint is of
common and general interest not just to several, but to all citizens of
the Philippines. Consequently, since the parties are so numerous, it,
becomes impracticable, if not totally impossible, to bring all of them
before the court. We likewise declare that the plaintiffs therein are
numerous and representative enough to ensure the full protection of all
concerned interests. Hence, all the requisites for the filing of a valid
class suit under Section 12, Rule 3 of the Revised Rules of Court are
present both in the said civil case and in the instant petition, the latter
being but an incident to the former.
This case, however, has a special and novel element. Petitioners
minors assert that they represent their generation as well as
generations yet unborn. We find no difficulty in ruling that they can, for
themselves, for others of their generation and for the succeeding
generations, file a class suit. Their personality to sue in behalf of the
succeeding generations can only be based on the concept of
intergenerational responsibility insofar as the right to a balanced and
healthful ecology is concerned. Such a right, as hereinafter
expounded, considers 
the "rhythm and harmony of nature." Nature means the created world
9 This right unites with the right to health which is
in its entirety.  Such rhythm and harmony indispensably include, inter
alia, the judicious disposition, utilization, management, renewal and
conservation of the country's forest, mineral, land, waters, fisheries,
wildlife, off-shore areas and other natural resources to the end that
their exploration, development and utilization be equitably accessible
to the present as well as future generations. 10 Needless to say, every
generation has a responsibility to the next to preserve that rhythm and
harmony for the full enjoyment of a balanced and healthful ecology.
Put a little differently, the minors' assertion of their right to a sound
environment constitutes, at the same time, the performance of their
obligation to ensure the protection of that right for the generations to
come.
The locus standi of the petitioners having thus been addressed, We
shall now proceed to the merits of the petition.
After a careful perusal of the complaint in question and a meticulous
consideration and evaluation of the issues raised and arguments
adduced by the parties, We do not hesitate to find for the petitioners
and rule against the respondent Judge's challenged order for having
been issued with grave abuse of discretion amounting to lack of
jurisdiction. The pertinent portions of the said order reads as follows:
xxx xxx xxx
After a careful and circumspect evaluation of the
Complaint, the Court cannot help but agree with
the defendant. For although we believe that
plaintiffs have but the noblest of all intentions, it
(sic) fell short of alleging, with sufficient
definiteness, a specific legal right they are seeking
to enforce and protect, or a specific legal wrong
they are seeking to prevent and redress (Sec. 1,
Rule 2, RRC). Furthermore, the Court notes that
the Complaint is replete with vague assumptions
and vague conclusions based on unverified data.
In fine, plaintiffs fail to state a cause of action in its
Complaint against the herein defendant.
Furthermore, the Court firmly believes that the
matter before it, being impressed with political
color and involving a matter of public policy, may
not be taken cognizance of by this Court without
doing violence to the sacred principle of
"Separation of Powers" of the three (3) co-equal
branches of the Government.
The Court is likewise of the impression that it
cannot, no matter how we stretch our jurisdiction,
grant the reliefs prayed for by the plaintiffs, i.e., to
cancel all existing timber license agreements in
the country and to cease and desist from
receiving, accepting, processing, renewing or
approving new timber license agreements. For to
do otherwise would amount to "impairment of
contracts" abhored (sic) by the fundamental law. 11
Sec. 16. The State shall protect and advance the
right of the people to a balanced and healthful
ecology in accord with the rhythm and harmony of
nature.
provided for in the preceding section of the same
article:
Sec. 15. The State shall protect and promote the
right to health of the people and instill health
consciousness among them.
While the right to a balanced and healthful ecology is to be found
under the Declaration of Principles and State Policies and not under
the Bill of Rights, it does not follow that it is less important than any of
the civil and political rights enumerated in the latter. Such a right
belongs to a different category of rights altogether for it concerns
nothing less than self-preservation and self-perpetuation — aptly and
fittingly stressed by the petitioners — the advancement of which may
even be said to predate all governments and constitutions. As a matter
of fact, these basic rights need not even be written in the Constitution
for they are assumed to exist from the inception of humankind. If they
are now explicitly mentioned in the fundamental charter, it is because
of the well-founded fear of its framers that unless the rights to a
balanced and healthful ecology and to health are mandated as state
policies by the Constitution itself, thereby highlighting their continuing
importance and imposing upon the state a solemn obligation to
preserve the first and protect and advance the second, the day would
not be too far when all else would be lost not only for the present
generation, but also for those to come — generations which stand to
inherit nothing but parched earth incapable of sustaining life.
The right to a balanced and healthful ecology carries with it the
correlative duty to refrain from impairing the environment. During the
debates on this right in one of the plenary sessions of the 1986
Constitutional Commission, the following exchange transpired between
Commissioner Wilfrido Villacorta and Commissioner Adolfo Azcuna
who sponsored the section in question:
MR. VILLACORTA:
Does this section mandate the
State to provide sanctions
against all forms of pollution
— air, water and noise
pollution?
MR. AZCUNA:
Yes, Madam President. The
right to healthful (sic)
environment necessarily
carries with it the correlative
duty of not impairing the same
and, therefore, sanctions may
be provided for impairment of
environmental balance. 12
The said right implies, among many other things, the judicious
management and conservation of the country's forests.

We do not agree with the trial court's conclusions that the plaintiffs
Without such forests, the ecological or environmental
failed to allege with sufficient definiteness a specific legal right involved
balance would be irreversiby disrupted.
or a specific legal wrong committed, and that the complaint is replete
with vague assumptions and conclusions based on unverified data. A
reading of the complaint itself belies these conclusions. Conformably with the enunciated right to a balanced and healthful
ecology and the right to health, as well as the other related provisions
of the Constitution concerning the conservation, development and
The complaint focuses on one specific fundamental legal right — the
utilization of the country's natural resources, 13 then President Corazon
right to a balanced and healthful ecology which, for the first time in our
C. Aquino promulgated on 10 June 1987 E.O. No. 192, 14Section 4 of
nation's constitutional history, is solemnly incorporated in the
which expressly mandates that the Department of Environment and
fundamental law. Section 16, Article II of the 1987 Constitution
Natural Resources "shall be the primary government agency
explicitly provides:
responsible for the conservation, management, development and
proper use of the country's environment and natural resources,
specifically forest and grazing lands, mineral, resources, including
those in reservation and watershed areas, and lands of the public
domain, as well as the licensing and regulation of all natural resources
as may be provided for by law in order to ensure equitable sharing of
the benefits derived therefrom for the welfare of the present and future
generations of Filipinos." Section 3 thereof makes the following
statement of policy:
Sec. 3. Declaration of Policy. — It is hereby
declared the policy of the State to ensure the
sustainable use, development, management,
renewal, and conservation of the country's forest,
mineral, land, off-shore areas and other natural
resources, including the protection and
enhancement of the quality of the environment,
and equitable access of the different segments of
the population to the development and the use of
the country's natural resources, not only for the
present generation but for future generations as
well. It is also the policy of the state to recognize
and apply a true value system including social and
environmental cost implications relative to their
utilization, development and conservation of our
natural resources.
This policy declaration is substantially re-stated it Title XIV, Book IV of
the Administrative Code of 1987, 15specifically in Section 1 thereof
which reads:
Sec. 1. Declaration of Policy. — (1) The State
shall ensure, for the benefit of the Filipino people,
the full exploration and development as well as the
judicious disposition, utilization, management,
renewal and conservation of the country's forest,
mineral, land, waters, fisheries, wildlife, off-shore
areas and other natural resources, consistent with
the necessity of maintaining a sound ecological
balance and protecting and enhancing the quality
of the environment and the objective of making the
exploration, development and utilization of such
natural resources equitably accessible to the
different segments of the present as well as future
generations.
(2) The State shall likewise recognize and apply a
true value system that takes into account social
and environmental cost implications relative to the
utilization, development and conservation of our
natural resources.
The above provision stresses "the necessity of maintaining a sound
ecological balance and protecting and enhancing the quality of the
environment." Section 2 of the same Title, on the other hand,
specifically speaks of the mandate of the DENR; however, it makes
particular reference to the fact of the agency's being subject to law and
higher authority. Said section provides:
Sec. 2. Mandate. — (1) The Department of
Environment and Natural Resources shall be
primarily responsible for the implementation of the
foregoing policy.
(2) It shall, subject to law and higher authority, be
in charge of carrying out the State's constitutional
mandate to control and supervise the exploration,
development, utilization, and conservation of the
country's natural resources.
Both E.O. NO. 192 and the Administrative Code of 1987 have set the
objectives which will serve as the bases for policy formulation, and
have defined the powers and functions of the DENR.
It may, however, be recalled that even before the ratification of the
1987 Constitution, specific statutes already paid special attention to the
"environmental right" of the present and future generations. On 6 June
1977, P.D. No. 1151 (Philippine Environmental Policy) and P.D. No.
1152 (Philippine Environment Code) were issued. The former
"declared a continuing policy of the State (a) to create, develop,
maintain and improve conditions under which man and nature can
thrive in productive and enjoyable harmony with each other, (b) to fulfill
the social, economic and other requirements of present and future
generations of Filipinos, and (c) to insure the attainment of an
environmental quality that is conducive to a life of dignity and well-
being." 16 As its goal, it speaks of the "responsibilities of each
generation as trustee and guardian of the environment for succeeding
generations." 17The latter statute, on the other hand, gave flesh to the
said policy.
Thus, the right of the petitioners (and all those they represent) to a
balanced and healthful ecology is as clear as the DENR's duty —
under its mandate and by virtue of its powers and functions under E.O.
No. 192 and the Administrative Code of 1987 — to protect and
advance the said right.
A denial or violation of that right by the other who has the corelative
duty or obligation to respect or protect the same gives rise to a cause
of action. Petitioners maintain that the granting of the TLAs, which they
claim was done with grave abuse of discretion, violated their right to a
balanced and healthful ecology; hence, the full protection thereof
requires that no further TLAs should be renewed or granted.
A cause of action is defined as:
. . . an act or omission of one party in violation of
the legal right or rights of the other; and its
essential elements are legal right of the plaintiff,
correlative obligation of the defendant, and act or
omission of the defendant in violation of said legal
right. 18
It is settled in this jurisdiction that in a motion to dismiss based on the
ground that the complaint fails to state a cause of action, 19 the
question submitted to the court for resolution involves the sufficiency of
the facts alleged in the complaint itself. No other matter should be
considered; furthermore, the truth of falsity of the said allegations is
beside the point for the truth thereof is deemed hypothetically admitted.
The only issue to be resolved in such a case is: admitting such alleged
facts to be true, may the court render a valid judgment in accordance
with the prayer in the complaint? 20 In Militante vs. Edrosolano, 21 this
Court laid down the rule that the judiciary should "exercise the utmost
care and circumspection in passing upon a motion to dismiss on the
ground of the absence thereof [cause of action] lest, by its failure to
manifest a correct appreciation of the facts alleged and deemed
hypothetically admitted, what the law grants or recognizes is effectively
nullified. If that happens, there is a blot on the legal order. The law
itself stands in disrepute."
After careful examination of the petitioners' complaint, We find the
statements under the introductory affirmative allegations, as well as the
specific averments under the sub-heading CAUSE OF ACTION, to be
adequate enough to show, prima facie, the claimed violation of their
rights. On the basis thereof, they may thus be granted, wholly or partly,
the reliefs prayed for. It bears stressing, however, that insofar as the
cancellation of the TLAs is concerned, there is the need to implead, as
party defendants, the grantees thereof for they are indispensable
parties.
The foregoing considered, Civil Case No. 90-777 be said to raise a
political question. Policy formulation or determination by the executive
or legislative branches of Government is not squarely put in issue.
What is principally involved is the enforcement of a right vis-a-
vis policies already formulated and expressed in legislation. It must,
nonetheless, be emphasized that the political question doctrine is no
longer, the insurmountable obstacle to the exercise of judicial power or
the impenetrable shield that protects executive and legislative actions
from judicial inquiry or review. The second paragraph of section 1,
Article VIII of the Constitution states that:
Judicial power includes the duty of the courts of
justice to settle actual controversies involving
rights which are legally demandable and
enforceable, and to determine whether or not
there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the
Government.
Commenting on this provision in his book, Philippine Political
Law, 22 Mr. Justice Isagani A. Cruz, a distinguished member of this
Court, says:
The first part of the authority represents the
traditional concept of judicial power, involving the
settlement of conflicting rights as conferred as law.
The second part of the authority represents a
broadening of judicial power to enable the courts
of justice to review what was before forbidden
territory, to wit, the discretion of the political
departments of the government.
As worded, the new provision vests in the
judiciary, and particularly the Supreme Court, the
power to rule upon even the wisdom of the
decisions of the executive and the legislature and
to declare their acts invalid for lack or excess of
jurisdiction because tainted with grave abuse of
discretion. The catch, of course, is the meaning of
"grave abuse of discretion," which is a very elastic
phrase that can expand or contract according to
the disposition of the judiciary.
In Daza vs. Singson, 23 Mr. Justice Cruz, now speaking for this Court,
noted:
In the case now before us, the jurisdictional
objection becomes even less tenable and
decisive. The reason is that, even if we were to
assume that the issue presented before us was
political in nature, we would still not be precluded
from revolving it under the expanded jurisdiction
conferred upon us that now covers, in proper
cases, even the political question. Article VII,
Section 1, of the Constitution clearly provides: . . .
The last ground invoked by the trial court in dismissing the complaint is
the non-impairment of contracts clause found in the Constitution. The
court a quo declared that:
The Court is likewise of the impression that it
cannot, no matter how we stretch our jurisdiction,
grant the reliefs prayed for by the plaintiffs, i.e., to
cancel all existing timber license agreements in
the country and to cease and desist from
receiving, accepting, processing, renewing or
approving new timber license agreements. For to
do otherwise would amount to "impairment of
contracts" abhored (sic) by the fundamental law. 24
We are not persuaded at all; on the contrary, We are amazed, if not
shocked, by such a sweeping pronouncement. In the first place, the
respondent Secretary did not, for obvious reasons, even invoke in his
motion to dismiss the non-impairment clause. If he had done so, he
would have acted with utmost infidelity to the Government by providing
undue and unwarranted benefits and advantages to the timber license
holders because he would have forever bound the Government to
strictly respect the said licenses according to their terms and
conditions regardless of changes in policy and the demands of public
interest and welfare. He was aware that as correctly pointed out by the
petitioners, into every timber license must be read Section 20 of the
Forestry Reform Code (P.D. No. 705) which provides:
. . . Provided, That when the national interest so
requires, the President may amend, modify,
replace or rescind any contract, concession,
permit, licenses or any other form of privilege
granted herein . . .
Needless to say, all licenses may thus be revoked or
rescinded by executive action. It is not a contract, property or
a property right protested by the due process clause of the
Constitution. In Tan vs. Director of Forestry, 25 this Court
held:
. . . A timber license is an instrument by which the
State regulates the utilization and disposition of
forest resources to the end that public welfare is
promoted. A timber license is not a contract within
the purview of the due process clause; it is only a
license or privilege, which can be validly
withdrawn whenever dictated by public interest or
public welfare as in this case.
A license is merely a permit or privilege to do what
otherwise would be unlawful, and is not a contract
between the authority, federal, state, or municipal,
granting it and the person to whom it is granted;
neither is it property or a property right, nor does it
create a vested right; nor is it taxation (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).
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs.
Deputy Executive Secretary: 26
. . . Timber licenses, permits and license
agreements are the principal instruments by which
the State regulates the utilization and disposition
of forest resources to the end that public welfare is
promoted. And it can hardly be gainsaid that they
merely evidence a privilege granted by the State
to qualified entities, and do not vest in the latter a
permanent or irrevocable right to the particular
concession area and the forest products therein.
They may be validly amended, modified, replaced
or rescinded by the Chief Executive when national
interests so require. Thus, they are not deemed
contracts within the purview of the due process of
law clause [See Sections 3(ee) and 20 of Pres.
Decree No. 705, as amended. Also, Tan v.
Director of Forestry, G.R. No. L-24548, October
27, 1983, 125 SCRA 302].
Since timber licenses are not contracts, the non-impairment clause,
which reads:
Sec. 10. No law impairing, the obligation of
contracts shall be passed. 27
cannot be invoked.
In the second place, even if it is to be assumed that the same are
contracts, the instant case does not involve a law or even an executive
issuance declaring the cancellation or modification of existing timber
licenses. Hence, the non-impairment clause cannot as yet be invoked.
Nevertheless, granting further that a law has actually been passed
mandating cancellations or modifications, the same cannot still be
stigmatized as a violation of the non-impairment clause. This is
because by its very nature and purpose, such as law could have only
been passed in the exercise of the police power of the state for the
purpose of advancing the right of the people to a balanced and
healthful ecology, promoting their health and enhancing the general
welfare. In Abe vs. Foster Wheeler 
Corp. 28 this Court stated:

The freedom of contract, under our system of

government, is not meant to be absolute. The
same is understood to be subject to reasonable
legislative regulation aimed at the promotion of
public health, moral, safety and welfare. In other
words, the constitutional guaranty of non-
impairment of obligations of contract is limited by
the exercise of the police power of the State, in the
interest of public health, safety, moral and general
welfare.

The reason for this is emphatically set forth in Nebia vs. New
York, 29 quoted in Philippine American Life Insurance Co. vs. Auditor
General,30 to wit:

Under our form of government the use of property

and the making of contracts are normally matters
of private and not of public concern. The general
rule is that both shall be free of governmental
interference. But neither property rights nor
contract rights are absolute; for government
cannot exist if the citizen may at will use his
property to the detriment of his fellows, or exercise
his freedom of contract to work them harm.
Equally fundamental with the private right is that of
the public to regulate it in the common interest.

In short, the non-impairment clause must yield to the police power of

the state. 31

Finally, it is difficult to imagine, as the trial court did, how the non-
impairment clause could apply with respect to the prayer to enjoin the
respondent Secretary from receiving, accepting, processing, renewing
or approving new timber licenses for, save in cases of renewal, no
contract would have as of yet existed in the other instances. Moreover,
with respect to renewal, the holder is not entitled to it as a matter of
right.

WHEREFORE, being impressed with merit, the instant Petition is

hereby GRANTED, and the challenged Order of respondent Judge of
18 July 1991 dismissing Civil Case No. 90-777 is hereby set aside.
The petitioners may therefore amend their complaint to implead as
defendants the holders or grantees of the questioned timber license
agreements.

No pronouncement as to costs.

SO ORDERED.

Cruz, Padilla, Bidin, Griño-Aquino, Regalado, Romero, Nocon,

Bellosillo, Melo and Quiason, JJ., concur.

Narvasa, C.J., Puno and Vitug, JJ., took no part.

 The Facts

Batangas City is a local government unit created by virtue of its

charter, Republic Act No. 5495 (RA 5495). Under RA 5495, Batangas
City constitutes a political body corporate, and is endowed with powers
which pertain to a municipal corporation. 9 The Sangguniang
Panlungsod is the legislative body of Batangas City.

Philippine Shell Petroleum Corporation (PSPC) is a duly organized

Philippine corporation engaged in the business of manufacturing,
refining and distribution of petroleum products. 10 PSPC owns and
operates a refinery situated in Tabangao, Batangas City (Tabangao
Refinery). 11

Shell Philippines Exploration, B.V. (SPEX) is a foreign corporation

licensed to do business in the Philippines. 12 In furtherance of the
mandate of Presidential Decree No. 87 (PD 87) to promote the
discovery and production of indigenous petroleum, the Department of
Energy (DOE) executed Service Contract No. 38 (SC 38) with SPEX
under which SPEX was tasked to explore and develop possible
petroleum sources in North Western Palawan. 13SPEX's exploration led
to the discovery of an abundant source of natural gas in the
Malampaya field off the shores of Palawan, which thereafter gave rise
to the Malampaya Project. The Malampaya Project required the
construction of a 504-kilometer offshore pipeline for the transport of
natural gas from Malampaya field to Batangas, for treatment in PSPC's
Tabangao Refinery. 14

On May 28, 2001, the Sangguniang Panlungsod enacted the Assailed

Ordinance which requires heavy industries operating along the
portions of Batangas Bay within the territorial jurisdiction of Batangas
City to construct desalination plants to facilitate the use of seawater as
coolant for their industrial facilities. 15 The pertinent portions of the
Assailed Ordinance state:

SECTION 3. - MANDATORY REQUIREMENT FOR THE APPROVAL

FIRST DIVISION
OF HEAVY INDUSTRIES ALONG THE BATANGAS CITY PORTION
OF BATANGAS BAY AND OTHER AREAS. - In addition to the
June 7, 2017 requirements provided by laws and ordinances, the City Government
shall not grant permit or clearance or its approval for any project or
program involving the construction or establishment of heavy industries
G.R. No. 195003
along the Batangas City portion of the Batangas Bay and other areas
delineated as Heavy Industrial Zone without the required
CITY OF BATANGAS, represented by Hon. Severina Vilma DESALINATION PLANT for use of sea water instead of underground
Abaya, 1 in her capacity as City Mayor of Batangas, Petitioner  fresh water for cooling system and industrial purposes.
vs.
PHILIPPINE SHELL PETROLEUM CORPORATION and SHELL
SECTION 4. - GRACE PERIOD PROVIDED FOR HEAVY
PHILIPPINES EXPLORATION B.V., Respondents
INDUSTRIES. - All heavy industries already established or approved
by the City Government prior to the enactment of this Ordinance,
DECISION including those to be established, are granted a period of five (5)
years, counted from the date of approval of this Ordinance, to install [a]
desalination plant.
CAGUIOA, J.:

SECTION 5. - AUTHORITY TO GRANT EXEMPTION FROM THE

The policy of ensuring the autonomy of local governments was not
CONSTRUCTION OF DESALINATION PLANT. - The City Mayor with
intended to create an imperium in imperio and install intra-sovereign
the concurrence of the Sangguniang Panlungsod may grant exemption
political subdivisions independent of the sovereign state. 2 As agents of
for a given period to an industry from installation or construction of
the state, local governments should· bear in mind that the police power
DESALINATION PLANT on the basis of the following conditions:
devolved to them by law must be, at all times, exercised in a manner
consistent with the will of their principal.
5.1. The exemption will not adversely affect the environment, public
health, public safety and the welfare of the people, more particularly,
The Case
the local aquifers, as shown by a comprehensive ground water
assessment or comprehensive hydrological study conducted by the
This is a petition for review on certiorari3 (Petition) filed under Rule 45 industry and presented by the industry applying for exemption.
of the Rules of Court against the Decision4dated May 25, 2010
(Assailed Decision) and Resolution 5 dated December 30, 2010
5.2. The industry or proposed project will support economic-based
(Assailed Resolution) in CA-G.R. CV No. 90373 rendered by the Tenth
activities and provide livelihood, employment, vital community services
Division of the Court of Appeals (CA). The Assailed Decision and
and facilities while at the same time posing no adverse effect on the
Resolution stem from an appeal from the Decision 6 dated June 29,
community.
2007 rendered by the Regional Trial Court of Batangas City (RTC),
Branch 84 in SP. Civil Case Nos. 7924-7925, declaring as invalid
Ordinance No. 3, series of 2001, 7 (Assailed Ordinance), enacted by 5.3. A public hearing is conducted.
the Sangguniang Panlungsod (Sangguniang Panlungsod) of the City
of Batangas (Batangas City).8
5.4. Such other reasonable conditions which the City Mayor may
require with the concurrence of the Sangguniang Panlungsod.
x x xx
SECTION 7. PENAL CLAUSE. -Any person who shall authorize the
start of the construction, development or operation of any project
considered as heavy industry without the approval of the government
authorities herein mentioned shall suffer an imprisonment of not less
than six (6) months nor more than one (1) year and a fine of
₱5,000.00.
If the violator is a juridical person or association, the penalty shall be
imposed upon the owner, President, project manager and/or persons
directly in charge of the construction, development and operation of the
project.
SECTION 8. POWER OF THE CITY MAYOR TO ISSUE A CEASE
AND DESIST ORDER. - The City Mayor, upon knowledge of the
violation of this ordinance shall issue a cease and desist order for the
stoppage of the construction, development or operation of the project
or industry and shall exercise all powers necessary to give effect to the
said order.
SECTION 9. ADMINISTRATIVE FINE. - An administrative fine/penalty
of ₱5,000.00 per day of violation of this ordinance shall be imposed
upon the owner, President, project manager, and/or persons directly in
charge of the construction, development and operation of the project or
industry. 16
The Assailed Ordinance was approved by the city mayor on June 7,
2001.
Heavy industries subject of the Assailed Ordinance had until May 28,
2006 to comply with its provisions. 17 Among the facilities affected by
the Assailed Ordinance is PSPC's Tabangao Refinery.
Proceedings before the RTC
On May 23, 2006, PSPC filed against Batangas City and
the Sangguniang Panlungsod a Petition for Declaration of Nullity
(PSPC Petition) before the RTC praying that the Assailed Ordinance
be declared null and void. The PSPC Petition was raffled to Branch 84,
and docketed as SP Civil Case No. 7924. 18 Thereafter, SPEX filed a
petition-in-intervention (Intervention) praying for the same relief. 19
JG Summit Petrochemical Corporation (JG Summit) and First Gas
Power Corporation (First Gas) filed similar petitions docketed as SP
Civil Case Nos. 7925 (JG Summit Petition) and 7926 (First Gas
Petition), respectively. 20These petitions were likewise raffled to Branch
84, and consolidated with the PSPC Petition for joint trial.21
For its part, PSPC averred that the Assailed Ordinance constitutes an
invalid exercise of police power as it failed to meet the substantive
requirements for validity.22 Particularly, PSPC argued that the
Assailed Ordinance contravenes the Water Code of the Philippines
(Water Code), and encroaches upon the power of the National Water
Resources Board (NWRB) to regulate and control the Philippines'
water resources. 23 In addition, Batangas City and the Sangguniang
Panlungsod failed to sufficiently show the factual or technical basis for
its enactment. 24In this connection, PSPC
alleged that the Assailed Ordinance unduly singles out heavy
industries, and holds them solely accountable for the loss of water and
destruction of aquifers without basis, resulting in the deprivation of their
property rights without due process of law.25
On the procedural aspect, PSPC contended that the Assailed
Ordinance was not posted or published in a newspaper of general
circulation in the province, nor were public hearings or consultations
involving concerned parties conducted thereon. 26 Further, there are no
records showing that the Assailed Ordinance, as approved by
the Sangguniang Panlungsod, was forwarded to the Sangguniang
Panlalawigan of the Province of Batangas after it was approved by the
city mayor, as required by Section 56 of the Local Government Code
(LGC).27
SPEX essentially adopted the allegations of PSPC and prayed for the
same relief, asserting that it possesses material and direct interest in
the subject matter of the PSPC Petition.28
In response, Batangas City and the Sangguniang
Panlungsod maintained that they have the power to enact the Assailed
Ordinance pursuant to the general welfare clause under the
LGC.29 According to them, the rationale of the Assailed Ordinance is to
stop PSPC and other industries similarly situated from relying "too
much" on ground water as coolants for their machineries, and
alternatively promote the use of seawater for such purpose,
considering that fresh ground water is a "perishable
commodity."30 Further, Batangas City and the Sangguniang
Panlungsod countered that the "regulation or prohibition" on the use of
ground water is merely incidental to the main purpose of the Assailed
Ordinance, which is to compel heavy industries such as PSPC to
construct desalination plants. Hence, provisions having regulatory and
prohibitive effect may be taken out of the Assailed Ordinance without
entirely impairing its validity.31
Further, Batangas City and the Sangguniang Panlungsod took
exception to PSPC's allegations and asserted that the Assailed
Ordinance had been published in Dyaryo Veritas, a newspaper of
general circulation in the area. Moreover, Batangas City and
the Sangguniang Panlungsod claimed that a joint public hearing on the
Assailed Ordinance had in fact been conducted by the Sangguniang
Panlungsod and Sangguniang Panlalawigan, where PSPC was duly
represented. 32 In addition, Batangas City and the Sangguniang
Panlungsod argued that the requirement of referral of ordinances to
the Sangguniang Panlalawigan applies only to tax and other revenue
measures. 33
Finally, Batangas City and the Sangguniang Panlungsod averred that
since PSPC and SPEX, along with other concerned heavy industries,
essentially question the former' s authority to regulate and prohibit the
use of fresh ground water, they should have first referred their
grievances to NWRB by filing a complaint for adjudication on the
threatened revocation of their existing water permits. 34
On June 21, 2007, the RTC resolved the First Gas Petition by issuing a
Decision declaring the Assailed Ordinance null and void. 35
Subsequently, on June 29, 2007 the RTC rendered a Decision, 36 this
time resolving the PSPC and JG Summit petitions. The dispositive
portion of said Decision reads:
It is evident that from foregoing factual milieu and parameters, the
questioned ordinance is INVALID, as it is hereby declared INVALID, in
its entirety for want of necessity and for not conducting prior public
hearing, and for violating the due process clause of the Constitution
with respect to its (sic) Sec. 8, City Ordinance No. 3, [s]. 2001. No
pronouncement as to costs.
SO ORDERED.37
The RTC gave credence to the testimony of PSPC's witness Engineer
Joeffrey Caranto (Engineer Caranto) who conducted a hydrogeology
study on the Tabangao-Malitam watershed from which PSPC sources
fresh ground water.38 The RTC summarized the findings of said study
in this wise:
1. A water balance x x x calculation of the Tabangao-Malitam
groundwater system shows that the natural recharge (replenishment)
rate far exceeds the current demand for water in the area. Hence,
there is no threat of depletion of the groundwater resource[s] in the
Tabangao-Malitam [w]atershed that purportedly may result from
PSPC's deep well pumping.
2. Water levels in the PSPC wells have not lowered significantly over
the last three (3) decades, indicating that there is no substantial
diminution of the supply of groundwater.
3. Among the four PSPC wells, only one [1] well shows very slightly
elevated levels of chloride at 300 milligrams per liter which however is
very low compared to seawater (which measures 20,000 milligrams of
chloride per liter). The chloride levels in the other nearby PSPC wells
are all within drinking water standards and have not increased in the
last four (4) decades of usage. This indicates that salt water intrusion is
not occurring in the PSPC wells.39 (Emphasis supplied)
The RTC also noted that the Sangguniang Panlungsod failed to
consult the NWRB before enacting the Assailed Ordinance, thereby
encroaching upon its authority.40
Anent Section 8, the RTC concluded that the power granted to the city
mayor to cause the issuance of cease and desist orders against the
use of ground water without prior notice and hearing constitutes a
violation of the due process clause.41
Proceedings before the CA
Batangas City and the Sangguniang Panlungsod filed separate notices
of appeal from the decisions resolving the PSPC, JG Summit and First
Gas petitions.42
The appeals against JG Summit and First Gas were raffled to the
Fourth Division (CA Fourth Division) and were docketed as CA-G.R.
CV Nos. 90324 (JG Summit Appeal) and 90365 (First Gas Appeal),
respectively. Meanwhile, the appeal filed against PSPC and SPEX was
raffled to the Tenth Division (CA Tenth Division), and docketed as CA-
G.R. CV No. 90373 (PSPC Appeal).
In the PSPC Appeal, Batangas City and the Sangguniang
Panlungsod, as appellants, averred that the R TC failed to consider
the testimonies of barangay captains Joel Caaway and Calixto Villena
of Barangays Tabangao Aplaya and Pinamucan, respectively, who
testified that some wells in their areas had dried up, while others had
begun to produce salt water. 43 These testimonies, according to
Batangas City and the Sangguniang Panlungsod, serve as sufficient
factual bases for the enactment of the Assailed Ordinance, as "there
could be no higher degree of evidence than the actual experience of
the inhabitants in the area."44
On May 28, 2009, the CA Fourth Division issued a Joint
Decision45 resolving the JG Summit and First Gas appeals. The Joint
Decision affirmed the RTC's decisions in SP Civil Case Nos. 7924-
7925 (involving JG Summit and PSPC) and 7926 (involving First
Gas).46
On October 15, 2009, the CA Tenth Division directed Batangas City
and the Sangguniang Panlungsod on one hand, and PSPC and SPEX
on the other, to file their respective memoranda on the filing of
separate appeals, and the implications of the Joint Decision of the CA
Fourth Division on the resolution of the PSPC Appeal. 47
In their Joint Memorandum, 48 PSPC and SPEX averred that the Joint
Decision in the JG Summit and First Gas appeals bars a contrary
decision in the PSPC Appeal, pursuant to the principle of judicial
stability.49 PSPC and SPEX further contended that the filing of multiple
appeals involving the same issues and parties was tantamount to
forum shopping. 50
In their defense, Batangas City and the Sangguniang
Panlungsod claimed that the filing of separate appeals was made
necessary by the fact that the separate decisions of the RTC in SP
Civil Case Nos. 7924-7925 and 7926 were issued more than fifteen
(15) days apart.51
On the basis of the submissions of the parties, the CA Tenth Division
issued the Assailed Decision dismissing the appeal filed against PSPC
and SPEX for lack of merit. The relevant portions of the Assailed
Decision read:
City Ordinance No. 3, S.2001 contravenes Presidential Decree No.
1067, better known as "The Water Code of the Philippines" as it is an
encroachment into the authority of the [NWRB]. The use of water
resources is under the regulatory power of the national government.
This is explicit from the provisions of the Water Code which states that
-
"The utilization, explo[i]tation, development, conservation and
protection of water resources shall be subject to the control and
regulation of the government through the [NWRB]".
Although respondents-appellants insist that the city ordinance is not an
absolute prohibition but merely a regulation on the use of fresh
groundwater for cooling systems and industrial purposes the argument
cannot justify the attempt to usurp the NWRB' s power to regulate and
control water resources. Moreover, not only does the city ordinance
prohibit or regulate the use of fresh groundwater in disregard of
previously granted water permits from the NWRB but also directs the
installation of desalination plants for purposes of utilizing sea water,
without the requisite water permit from the NWRB.
x x x The police power of the Sangguniang Panglungsod is
subordinate to the constitutional limitations that its exercise must be
reasonable and for the public good. Without the concurrence of these
two requisites, the ordinance will not muster the test of a valid police
measure and should be struck down. The trial court aptly examined the
city ordinance against the requirement of reasonable necessity and
correctly concluded that the subject ordinance failed to prove that it
was reasonably necessary to prohibit heavy industries from using
ground water and requiring them instead to construct desalination
plants. There must be a reasonable relation between the purposes of
the police measure and the means employed for its accomplishment.
Arbitrary invasion of personal rights and those pertaining to private
property will not be allowed even under the guise of protecting public
interest. It has not been sufficiently demonstrated that there exists no
other means less intrusive of private rights that would equally be
effective for the accomplishment of the same purpose.
With the foregoing premises considered, there is no more necessity to
address the other errors raised in the instant appeal.
WHEREFORE, the appeal is DISMISSED. The Decision dated 29
June 2007 rendered by the Regional Trial Court of Batangas City,
Branch 84, in SP Civil Case No. 7924, declaring invalid City Ordinance
No. 3, S.2001 is hereby AFFIRMED.
SO ORDERED. 52 (Emphasis supplied)
Batangas City and the Sangguniang Panlungsod filed a Motion for
Reconsideration53 (MR) dated June 21, 2010, which the CA Tenth
Division subsequently denied through the Assailed Resolution. The CA
Tenth Division found that the MR merely reiterated the arguments
relied upon in the appeal, which were already passed upon in the
Assailed Decision. 54
Batangas City and the Sangguniang Panlungsod received a copy of
the Assailed Resolution on January 13, 2011.
On January 25, 2011, Batangas City filed the present
Petition. 55 Notably, the Petition does not name theSangguniang
Panlungsod as party,56 and only the signature of then city mayor
Severina Vilma Abaya appears on the Verification and Certification of
Non-Forum Shopping attached thereto.57
PSPC and SPEX filed a Motion for Additional Time 58 dated April 1,
2011, praying for a period of ten (10) days therefrom to file their
comment.
Thereafter, PSPC and SPEX filed a Second Motion for Additional
Time59 dated April 11, 2011, praying for an additional period of seven
(7) days to file said comment. Finally, PSPC and SPEX filed their Joint
Comment on and/or Opposition to the Petition for Review
on Certiorarz-  60 (Joint Comment/Opposition) dated April 25, 2011 on
even date.
Batangas City failed to timely file its reply to the Joint
Comment/Opposition, prompting them to file a Manifestation and
Motion for Extension of Time to File a Reply (Manifestation and
Motion) dated December 12, 2011. 61 The Manifestation and Motion
prayed that it be granted twenty (20) days therefrom to file its
reply.62 Accordingly, Batangas City filed its Reply dated December 21,
2011 on even date. 63
The Issue
The sole issue for this Court's determination is whether the CA erred in
affirming the RTC Decision which declared the Assailed Ordinance
invalid.
The Court's Ruling
Batangas City contends that it has the legal authority to enact
ordinances in the exercise of its police power for the purpose of
promoting the general welfare of its inhabitants. 64 Thus, it asserts that
it has the power to regulate PSPC's and SPEX's right to use ground
water, as continued use would be injurious to public interest. 65
Further, Batangas City insists that there is factual basis to justify the
enactment of the Assailed Ordinance. 66 As testified to by barangay
captains Joel Caaway and Calixto Villena, a gradual change in the
quality and quantity of ground water had taken place due to the
increase in the number of industrial plants along Batangas
Bay.67According to Batangas City, these testimonies should be given
more weight, since they are based on "actual facts and experience." 68
These assertions lack merit.
The amendment of the Petition should be allowed in the interest of
justice.
At the outset, the Court notes that Batangas City erroneously referred
to the 'Joint Decision issued by the CA Fourth Division in the JG
Summit and First Gas appeals as the subject of this Petition, instead of
the Decision issued by the CA Tenth Division resolving the PSPC
Appeal. Batangas City sought to correct this error in its Reply, thus:
1. After diligent and careful review [of] the Petition for Review
submitted by the undersigned, it was found out that there was an error
which was inadvertently committed in the first paragraph of the fifth
(5th) page of the Petition;
2. The first paragraph on page 5 of the Petition for Review
on Certiorari x x x;
xxxx
Should be amended to appear as:
"On June 13, 2007, herein Petitioner City Government of Batangas
received the decision of the Regional Trial Court (RTC), Branch 84 of
Batangas City ruling in favor of Respondents, [PSPC] and Intervenor
[SPEX] x x x. Petitioner filed its Notice of Appeal x x x on 26 July 2007.
The case was elevated to the Court of Appeals and the Tenth Division
rendered the 25 May 2010 favoring [PSPC] and SPEx x x x. The City
Government of Batangas filed a Motion for Reconsideration x x x. The
motion was denied by the Tenth Division of the Court of Appeals in its
resolution dated 30 December 2010 x x x. Hence, now this
Petition."69 (Emphasis omitted)
Considering the nature of the issues involved in the present Petition,
and the lack of any evidence showing that Batangas City's error
resulted from anything more than inadvertence, the Court resolves to
permit the amendment of the Petition in the interest of substantial
justice.
The Assailed Ordinance is void for being ultra vires, for being contrary
to existing law, and for lack of evidence showing the existence of
factual basis for its enactment.
The requisites for a valid ordinance are well established. Time and
again, the Court has ruled that in order for an ordinance to be valid, it
must not only be within the corporate powers of the concerned LGU to
enact, but must also be passed in accordance with the procedure
prescribed by law. Moreover, substantively, the ordinance (i) must not
contravene the Constitution or any statute; (ii) must not be unfair or
oppressive; (iii) must not be partial or discriminatory; (iv) must not
prohibit, but may regulate trade; (v) must be general and consistent
with public policy; and (vi) must not be unreasonable. 70
Batangas City claims that the enactment of the Assailed Ordinance
constitutes a valid exercise of its police power. This claim is erroneous.
Police power is the power to prescribe regulations to promote the
health, morals, peace, education, good order, safety, and general
welfare of the people. 71 As an inherent attribute of sovereignty, police
power primarily rests with the State. In furtherance of the State's policy
to foster genuine and meaningful local autonomy, the national
legislature delegated the exercise of police power to local government
units (LGUs) as agents of the State. 72 Such delegation can be found in
Section 1673 of the LGC, which embodies the general welfare clause. 74
Since LGUs exercise delegated police power as agents of the State, it
is incumbent upon them to act in conformity to the will of their principal,
the State.75 Necessarily, therefore, ordinances enacted pursuant to the
general welfare clause may not subvert the State's will by contradicting
national statutes. Thus, in Batangas CATV, Inc. v. Court of
Appeals,  76 the Court struck down an ordinance enacted by Batangas
City which granted the Sangguniang Panlungsod the power to fix
subscriber rates charged by CATV providers operating within the
former's territory, as this directly violated a general law which grants
such power exclusively to the National Telecommunications
Commission. In so ruling, the Court stressed that municipalities are
precluded from regulating conduct already covered by a statute
involving the same subject matter, hence:
In De la Cruz vs. Paraz, we laid the general rule "that ordinances
passed by virtue of the implied power found in the general welfare
clause must be reasonable, consonant with the general powers and
purposes of the corporation, and not inconsistent with the laws or
policy of the State."
xxxx
In this regard, it is appropriate to stress that where the state legislature
has made provision for the regulation of conduct, it has manifested its
intention that the subject matter shall be fully covered by the statute,
and that a municipality, under its general powers, cannot regulate the
same conduct.1avvphi1 InKeller vs. State, it was held that: "Where
there is no express power in the charter of a municipality authorizing it
to adopt ordinances regulating certain matters which are specifically
covered by a general statute, a municipal ordinance, insofar as it
attempts to regulate the subject which is completely covered by a
general statute of the legislature, may be rendered invalid. x x x Where
the subject is of statewide concern, and the legislature has
appropriated the field and declared the rule, its declaration is binding
throughout the State." A reason advanced for this view is that such
ordinances are in excess of the powers granted to the municipal
corporation.
Since E.O. No. 205, a general law, mandates that the regulation of
CATV operations shall be exercised by the NTC, an LGU cannot enact
an ordinance or approve a resolution in violation of the said law.
It is a fundamental principle that municipal ordinances are inferior in
status and subordinate to the laws of the state. An ordinance in conflict
with a state law of general character and statewide application is
universally held to be invalid. The principle is frequently expressed in
the declaration that municipal authorities, under a general grant of
power, cannot adopt ordinances which infringe the spirit of a state law
or repugnant to the general policy of the state. In every power to pass
ordinances given to a municipality, there is an implied restriction that
the ordinances shall be consistent with the general law.x x
x77 (Emphasis and underscoring supplied)
In this Petition, the Court is called upon to determine whether the
control and regulation of the use of water may be made subject of a
city ordinance under the regime of the Water Code - a national statute
governing the same subject matter.
The Water Code governs the ownership, appropriation, utilization,
exploitation, development, conservation and protection of water
resources. 78 Under Article 3 thereof, water resources are placed under
the control and regulation of the government through the National
Water Resources Council, now the NWRB. 79 In turn, the privilege to
appropriate and use water is one which is exclusively granted and
regulated by the State through water permits issued by the
NWRB.80 Once granted, these water permits continue to be valid save
only for reasons spelled out under the Water Code itself.81
Conversely, the power to modify, suspend, cancel or revoke water
permits already issued also rests with NWRB.82
who merely made its conclusion that the drying up of wells or its
salination was due to the "heavy industries"' use of groundwater.
In addition, if appellants were convinced that those industries
adversely affect the environment and specifically the water resource in
Batangas City, there would be no exemptions, as provided in Section 5
of the Ordinance, as it would negate the purpose of the Jaw.
It thus becomes apparent that the ordinance was come up with in an
arbitrary manner, if not based purely on emotive or flawed premises.
There was no scientific standard or any acceptable standard at all that
the ordinance was based on. x x x85
While the Joint Decision resolves the JG Summit and First Gas
appeals, these cases, pertain to the same appeal filed by Batangas
City and the Sangguniang Panlungsod from the Decision of the RTC
nullifying the Assailed Ordinance. As aptly put by the CA in the present
case:
The factual antecedents and legal issues in the present CA-G.R. CV
No. 90373 are identical to those of CA-G.R. CV Nos. 90324 and
90365. The assignment of errors in the present appeal are but a
restatement of the errors raised in the two consolidated appeals cases,
which errors have already been exhaustively passed upon by the
Court's Fourth Division in its Joint Decision dated May 28, 2009,
weighing pieces of evidence that are now the very same pieces of
evidence presented for consideration in this appeal. x x x86 (Emphasis
supplied)

On the other hand, the avowed purpose of the Assailed Ordinance, as

This Court, not being a trier of facts, accords the highest degree of
stated in its whereas clauses, is the protection of local aquifers for the
respect to the findings of fact of the trial court, especially where, as
benefit of the inhabitants of Batangas City. 83 Accordingly, the Assailed
here, they have been affirmed by the CA; accordingly, these findings
Ordinance mandates all heavy industries operating along Batangas
will not be disturbed. To be sure, such findings are binding and
Bay to use seawater in the operation of their respective facilities, and
conclusive upon this Court, 87 and it is not the Court's function in a
install desalination plants for this purpose. Failure to comply with this
petition for review on certiorari to examine, evaluate or weigh anew the
mandatory requirement would have the effect of precluding continuous
probative value of the evidence presented before the trial
operation, and exposing noncompliant parties to penal and
court. 88 While there are recognized exceptions to this rule, the Court
administrative sanctions. 84
finds that none is present in this case.

There is no doubt, therefore, that the Assailed Ordinance effectively

contravenes the provisions of the Water Code as it arrogates unto
Batangas City the power to control and regulate the use of ground
water which, by virtue of the provisions of the Water Code, pertains
solely to the NWRB. By enacting the Assailed Ordinance, Batangas
City acted in excess of the powers granted to it as an LGU, rendering
the Assailed Ordinance ultra vzres.
Being ultra vires, the Assailed Ordinance, in its entirety, is null and
void. Thus, it becomes unnecessary to still determine if it complies with
the other substantive requirements for a valid ordinance - i.e., that the
ordinance is fair and reasonable.
In any case, it bears emphasizing that the measure of the substantive
validity of an ordinance is the underlying factual basis for which it was
enacted. Hence, without factual basis, an ordinance will necessarily fail
the substantive test for validity.
Batangas City's failure to prove the existence of factual basis to justify
the enactment of the Assailed Ordinance had already been passed
upon by the lower courts.1âwphi1 The Court quotes, with approval, the
Joint Decision of the CA Fourth Division:
To prohibit an act or to compel something to be done, there must be a
shown reason for the same. The purpose must also be cogent to the
means adopted by the law to attain it. In this case, as seen in the
"whereas clause," the purpose of the ordinance is to protect the
environment and prevent ecological imbalance, especially the drying
up of the aquifers of Batangas City. In effect, the drying up of aquifers
is being blamed on the establishments and industries such as
petitioners-appellees here. It would have been acceptable had there
been a specific study or findings that the local government conducted
(sic) and not just its reliance on the complaints of some constituents
Consequently, since it has been established that Batangas City did not
have factual basis to justify the purpose of the Assailed Ordinance,
Batangas City cannot invoke the presumption of validity. As held
in Ermita-Ma/ate Hotel and Motel Operators Association, Inc. v. City
Mayor of Manila,  89 which Batangas City itself cites in its Petition, the
presumption of validity ascribed to an ordinance prevails only in
the absence of some factual foundation of record sufficient to
overthrow the assailed issuance.90 In this case, the presumption of
validity ascribed to the Assailed Ordinance had been overturned by
documentary and testimonial evidence showing that no substantial
diminution in the supply of ground water in the TabangaoMalitam
watershed had occurred in the last three (3) decades, and that no
threat of depletion of ground water resources in said watershed
existed.91
Final Note
While the Assailed Ordinance has been struck down as invalid, the
pronouncements hereunder should not be misconstrued by heavy
industries to be carte blanche to abuse their respective water rights at
the expense of the health and safety of the inhabitants of Batangas
City, the environment within which these inhabitants live, and the
resources upon which these inhabitants rely. The Court recognizes
fresh ground water as an invaluable natural resource, and deems it
necessary to emphasize that Batangas City is not precluded from
exercising its right to protect its inhabitants from injurious effects which
may result from the misuse of natural water resources within its
territorial jurisdiction, should these effects later arise, provided that
such exercise is done within the framework of applicable national law,
particularly, the Water Code.
WHEREFORE, premises considered, the petition for review
on certiorari is DENIED. The Decision dated May 25, 2010 and
Resolution dated December 30, 2010 of the Court of Appeals in CA- CHICO-NAZARIO, J.:
G.R. CV No. 90373 are AFFIRMED.
The cause of action of PICOP Resources, Inc. (PICOP) in its Petition
SO ORDERED. for Mandamus with the trial court is clear: the government is bound by
contract, a 1969 Document signed by then President Ferdinand
Marcos, to enter into an Integrated Forest Management Agreement
ALFREDO BENJAMIN S. CAGUIOA
(IFMA) with PICOP. Since the remedy of mandamus lies only to
Associate Justice
compel an officer to perform a ministerial duty, and since the 1969
Document itself has a proviso requiring compliance with the laws and
WE CONCUR: the Constitution, the issues in this Motion for Reconsideration are the
following: (1) firstly, is the 1969 Document a contract enforceable
under the Non-Impairment Clause of the Constitution, so as to make
MARIA LOURDES P.A. SERENO the signing of the IFMA a ministerial duty? (2) secondly, did PICOP
Chief Justice comply with all the legal and constitutional requirements for the
Chairperson issuance of an IFMA?

TERESITA J. LEONARDO-DE To recall, PICOP filed with the Department of Environment and Natural
MARIANO C. DEL CASTILLO
CASTRO Resources (DENR) an application to have its Timber License
Associate Justice
Associate Justice Agreement (TLA) No. 43 converted into an IFMA. In the middle of the
processing of PICOP’s application, however, PICOP refused to attend
ESTELA M. PERLAS-BERNABE further meetings with the DENR. Instead, on 2 September 2002,
Associate Justice PICOP filed before the Regional Trial Court (RTC) of Quezon City a
Petition for Mandamus 1 against then DENR Secretary Heherson T.
Alvarez. PICOP seeks the issuance of a privileged writ of mandamus
CERTIFICATION to compel the DENR Secretary to sign, execute and deliver an IFMA to
PICOP, as well as to –
Pursuant to the Section 13, Article VIII of the Constitution, I certify that
the conclusions in the above Decision had been reached in [I]ssue the corresponding IFMA assignment number on the area
consultation before the case was assigned to the writer of the opinion covered by the IFMA, formerly TLA No. 43, as amended; b) to issue
of the Court’s Division. the necessary permit allowing petitioner to act and harvest timber from
the said area of TLA No. 43, sufficient to meet the raw material
MARIA LOURDES P.A. SERENO requirements of petitioner’s pulp and paper mills in accordance with
Chief Justice the warranty and agreement of July 29, 1969 between the government
and PICOP’s predecessor-in-interest; and c) to honor and respect the
Government Warranties and contractual obligations to PICOP strictly in
Republic of the Philippines accordance with the warranty and agreement dated July 29, [1969]
SUPREME COURT between the government and PICOP’s predecessor-in-interest. x x x.2
Manila
On 11 October 2002, the RTC rendered a Decision granting PICOP’s
EN BANC Petition for Mandamus, thus:

G.R. No. 162243               December 3, 2009 WHEREFORE, premises considered, the Petition for Mandamus is
hereby GRANTED.
HON. HEHERSON ALVAREZ substituted by HON. ELISEA G.
GOZUN, in her capacity as Secretary of the Department of The Respondent DENR Secretary Hon. Heherson Alvarez is hereby
Environment and Natural Resources, Petitioner,  ordered:
vs.
PICOP RESOURCES, INC., Respondent.
1. to sign, execute and deliver the IFMA contract and/or
documents to PICOP and issue the corresponding IFMA
x - - - - - - - - - - - - - - - - - - - - - - -x assignment number on the area covered by the IFMA,
formerly TLA No. 43, as amended;
G.R. No. 164516
2. to issue the necessary permit allowing petitioner to act
PICOP RESOURCES, INC., Petitioner,  and harvest timber from the said area of TLA No. 43,
vs. sufficient to meet the raw material requirements of
HON. HEHERSON ALVAREZ substituted by HON. ELISEA G. petitioner’s pulp and paper mills in accordance with the
GOZUN, in her capacity as Secretary of the Department of warranty and agreement of July 29, 1969 between the
Environment and Natural Resources Respondent. government and PICOP’s predecessor-in-interest; and

x - - - - - - - - - - - - - - - - - - - - - - -x 3. to honor and respect the Government Warranties and

contractual obligations to PICOP strictly in accordance with
the warranty and agreement dated July 29, 1999 (sic)
G.R. No. 171875 between the government and PICOP’s predecessor-in-
interest (Exhibits "H", "H-1" to "H-5", particularly the
THE HON. ANGELO T. REYES (formerly Hon. Elisea G. Gozun), in following:
his capacity as Secretary of the Department of Environment and
Natural Resources (DENR), Petitioner,  a) the area coverage of TLA No. 43, which forms
vs. part and parcel of the government warranties;
PAPER INDUSTRIES CORP. OF THE PHILIPPINES
(PICOP), Respondent.
b) PICOP tenure over the said area of TLA No. 43
and exclusive right to cut, collect and remove
RESOLUTION sawtimber and pulpwood for the period ending on
 April 26, 1977; and said period to be renewable for
[an]other 25 years subject to compliance with
constitutional and statutory requirements as well
as with existing policy on timber concessions; and
c) The peaceful and adequate enjoyment by
PICOP of the area as described and specified in
the aforesaid amended Timber License
Agreement No. 43.
The Respondent Secretary Alvarez is likewise ordered to pay petitioner
the sum of ₱10 million a month beginning May 2002 until the
conversion of TLA No. 43, as amended, to IFMA is formally effected
and the harvesting from the said area is granted. 3
On 25 October 2002, the DENR Secretary filed a Motion for
Reconsideration.4 In a 10 February 2003 Order, the RTC denied the
DENR Secretary’s Motion for Reconsideration and granted PICOP’s
Motion for the Issuance of Writ of Mandamus and/or Writ of Mandatory
Injunction.5 The fallo of the 11 October 2002 Decision was practically
copied in the 10 February 2003 Order, although there was no mention
of the damages imposed against then DENR Secretary Alvarez. 6 The
DENR Secretary filed a Notice of Appeal 7 from the 11 October 2002
Decision and the 10 February 2003 Order.
On 19 February 2004, the Seventh Division of the Court of Appeals
affirmed8 the Decision of the RTC, to wit:
WHEREFORE, the appealed Decision is hereby AFFIRMED with
modification that the order directing then DENR Secretary Alvarez "to
pay petitioner-appellee the sum of P10 million a month beginning May,
2002 until the conversion to IFMA of TLA No. 43, as amended, is
formally effected and the harvesting from the said area is granted" is
hereby deleted. 9
Challenging the deletion of the damages awarded to it, PICOP filed a
Motion for Partial Reconsideration 10 of this Decision, which was denied
by the Court of Appeals in a 20 July 2004 Resolution.11
The DENR Secretary and PICOP filed with this Court separate
Petitions for Review of the 19 February 2004 Court of Appeals
Decision. These Petitions were docketed as G.R. No. 162243 and No.
164516, respectively. These cases were consolidated with G.R. No.
171875, which relates to the lifting of a Writ of Preliminary Injunction
enjoining the execution pending appeal of the foregoing Decision.
On 29 November 2006, this Court rendered the assailed Decision on
the Consolidated Petitions:
WHEREFORE, the Petition in G.R. No. 162243 is GRANTED. The
Decision of the Court of Appeals insofar as it affirmed the RTC
Decision granting the Petition for Mandamus filed by Paper Industries
Corp. of the Philippines (PICOP) is hereby REVERSED and SET
ASIDE. The Petition in G.R. No. 164516 seeking the reversal of the
same Decision insofar as it nullified the award of damages in favor of
PICOP is DENIED for lack of merit. The Petition in G.R. No. 171875,
assailing the lifting of the Preliminary Mandatory Injunction in favor of
the Secretary of Environment and Natural Resources is DISMISSED
on the ground of mootness.12
On 18 January 2006, PICOP filed the instant Motion for
Reconsideration, based on the following grounds:
I.
THE HONORABLE COURT ERRED IN HOLDING THAT THE
CONTRACT WITH PRESIDENTIAL WARRANTY SIGNED BY THE
PRESIDENT OF THE REPUBLIC ON 29 JUNE 1969 ISSUED TO
PICOP IS A MERE PERMIT OR LICENSE AND IS NOT A
CONTRACT, PROPERTY OR PROPERTY RIGHT PROTECTED BY
THE DUE PROCESS CLAUSE OF THE CONSTITUTION
II.
THE EVALUATION OF PICOP’S MANAGEMENT OF THE TLA 43
NATURAL FOREST CLEARLY SHOWED SATISFACTORY
PERFORMANCE FOR KEEPING THE NATURAL FOREST
GENERALLY INTACT AFTER 50 YEARS OF FOREST
OPERATIONS. THIS COMPLETES THE REQUIREMENT FOR
AUTOMATIC CONVERSION UNDER SECTION 9 OF DAO 99-53.
III.
WITH DUE RESPECT, THE HONORABLE COURT, IN REVERSING
THE FINDINGS OF FACTS OF THE TRIAL COURT AND THE
COURT OF APPEALS, MISAPPRECIATED THE EVIDENCE,
TESTIMONIAL AND DOCUMENTARY, WHEN IT RULED THAT:
i.
PICOP FAILED TO SUBMIT A FIVE-YEAR FOREST PROTECTION
PLAN AND A SEVEN-YEAR REFORESTATION PLAN FOR THE
YEARS UNDER REVIEW.
ii.
PICOP FAILED TO COMPLY WITH THE PAYMENT OF FOREST
CHARGES.
iii.
PICOP DID NOT COMPLY WITH THE REQUIREMENT FOR A
CERTIFICATION FROM THE NCIP THAT THE AREA OF TLA 43
DOES NOT OVERLAP WITH ANY ANCESTRAL DOMAIN.
iv.
PICOP FAILED TO HAVE PRIOR CONSULTATION WITH AND
APPROVAL FROM THE SANGUNIAN CONCERNED, AS REQUIRED
BY SECTION 27 OF THE REPUBLIC ACT NO. 7160, OTHERWISE
KNOWN AS THE LOCAL GOVERNMENT CODE OF 1991.
v.
PCIOP FAILED TO SECURE SOCIAL ACCEPTABILITY UNDER
PRESIDENTIAL DECREE NO. 1586.
IV
THE MOTIVATION OF ALVAREZ IN RECALLING THE CLEARANCE
FOR AUTOMATIC CONVERSION HE ISSUED ON 25 OCTOBER
2001 WAS NOT DUE TO ANY SHORTCOMING FROM PICOP BUT
DUE TO HIS DETERMINATION TO EXCLUDE 28,125 HECTARES
FROM THE CONVERSION AND OTHER THINGS.
On 15 December 2008, on Motion by PICOP, the Third Division of this
Court resolved to refer the consolidated cases at bar to the Court en
banc. On 16 December 2008, this Court sitting en banc resolved to
accept the said cases and set them for oral arguments. Oral
arguments were conducted on 10 February 2009.
PICOP’s Cause of Action: Matters PICOP Should Have Proven to Be
Entitled to a Writ of Mandamus
In seeking a writ of mandamus to compel the issuance of an IFMA in
its favor, PICOP relied on a 29 July 1969 Document, the so-called
Presidential Warranty approved by then President Ferdinand E.
Marcos in favor of PICOP’s predecessor-in-interest, Bislig Bay Lumber
Company, Inc. (BBLCI). PICOP’s cause of action is summarized in
paragraphs 1.6 and 4.19 of its Petition for Mandamus:
1.6 Respondent Secretary impaired the obligation of contract under the
said Warranty and Agreement of 29 July 1969 by refusing to respect
the tenure; and its renewal for another twenty five (25) years, of PICOP
over the area covered by the said Agreement which consists of
permanent forest lands with an aggregate area of 121,587 hectares
and alienable and disposable lands with an aggregate area of
approximately 21,580 hectares, and petitioner’s exclusive right to cut,
collect and remove sawtimber and pulpwood therein and the peaceful
and adequate enjoyment of the said area as described and specified in
petitioner’s Timber License Agreement (TLA) No. 43 guaranteed by the
Government, under the Warranty and Agreement of 29 July 1969. 13
4.19 Respondent is in violation of the Constitution and has impaired
the obligation of contract by his refusal to respect: a) the tenurial rights
of PICOP over the forest area covered by TLA No. 43, as amended
and its renewal for another twenty five (25) years; b) the exclusive right
of PICOP to cut, collect and remove sawtimber and pulpwood therein;
and c) PICOP’s peaceful and adequate enjoyment of the said area
which the government guaranteed under the Warranty and Agreement
of 29 July 1969.14
The grounds submitted by PICOP in its Petition for Mandamus are as
follows:
I
Respondent secretary has unlawfully refused and/or neglected to sign
and execute the IFMA contract of PICOP even as the latter has
complied with all the legal requirements for the automatic conversion of
TLA No. 43, as amended, into an IFMA.
II
Respondent Secretary acted with grave abuse of discretion and/or in
excess of jurisdiction in refusing to sign and execute PICOP’s IFMA
contract, notwithstanding that PICOP had complied with all the
requirements for Automatic Conversion under DAO 99-53, as in fact
Automatic Conversion was already cleared in October, 2001, and was
a completed process.
III
Respondent Secretary has impaired the obligation of contract under a
valid and binding warranty and agreement of 29 July 1969 between the
government and PICOP’s predecessor-in-interest, by refusing to
respect: a) the tenure of PICOP, and its renewal for another twenty five
(25) years, over the TLA No.43 area covered by said agreement; b) the
exclusive right to cut, collect and remove sawtimber and pulpwood
timber; and c) the peaceful and adequate enjoyment of the said area.
IV
As a result of respondent Secretary’s unlawful refusal and/or neglect to
sign and deliver the IFMA contract, and violation of the constitutional
rights of PICOP against non-impairment of the obligation of contract
(Sec. 10, Art. III, 1997 [sic] Constitution), PICOP suffered grave and
irreparable damages.15
Petitions for Mandamus are governed by Rule 65 of the Rules of Court,
Section 3 of which provides:
SEC. 3. Petition for mandamus.—When any tribunal, corporation,
board, officer or person unlawfully neglects the performance of an act
which the law specifically enjoins as a duty resulting from an office,
trust, or station, or unlawfully excludes another from the use and
enjoyment of a right or office to which such other is entitled, and there
is no other plain, speedy and adequate remedy in the ordinary course
of law, the person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment
be rendered commanding the respondent, immediately or at some
other time to be specified by the court, to do the act required to be
done to protect the rights of the petitioner, and to pay the damages
sustained by the petitioner by reason of the wrongful acts of the
respondent. (Emphasis supplied.)
PICOP is thus asking this Court to conclude that the DENR Secretary
is specifically enjoined by law to issue an IFMA in its favor. An IFMA,
as defined by DENR Administrative Order (DAO) No. 99-53,16 is -
[A] production-sharing contract entered into by and between the DENR
and a qualified applicant wherein the DENR grants to the latter the
exclusive right to develop, manage, protect and utilize a specified area
of forestland and forest resource therein for a period of 25 years and
may be renewed for another 25-year period, consistent with the
principle of sustainable development and in accordance with an
approved CDMP, and under which both parties share in its produce. 17
PICOP stresses the word "automatic" in Section 9 of this DAO No. 99-
53:
Sec. 9. Qualifications of Applicants. – The applicants for IFMA shall be:
(a) A Filipino citizen of legal age; or,
(b) Partnership, cooperative or corporation whether public or
private, duly registered under Philippine laws.
However, in the case of application for conversion of TLA into IFMA,
an automatic conversion after proper evaluation shall be allowed,
provided the TLA holder shall have signified such intention prior to the
expiry of the TLA, PROVIDED further, that the TLA holder has showed
satisfactory performance and have complied in the terms of condition
of the TLA and pertinent rules and regulations. (Emphasis supplied.) 18
This administrative regulation provision allowing automatic conversion
after proper evaluation can hardly qualify as a law, much less a law
specifically enjoining the execution of a contract. To enjoin is "to order
or direct with urgency; to instruct with authority; to
command."19 "‘Enjoin’ is a mandatory word, in legal parlance, always;
in common parlance, usually." 20 The word "allow," on the other hand, is
not equivalent to the word "must," and is in no sense a command.21
As an extraordinary writ, the remedy of mandamus lies only to compel
an officer to perform a ministerial duty, not a discretionary one;
mandamus will not issue to control the exercise of discretion of a public
officer where the law imposes upon him the duty to exercise his
judgment in reference to any manner in which he is required to act,
because it is his judgment that is to be exercised and not that of the
court.22
The execution of agreements, in itself, involves the exercise of
discretion. Agreements are products of negotiations and mutual
concessions, necessitating evaluation of their provisions on the part of
both parties. In the case of the IFMA, the evaluation on the part of the
government is specifically mandated in the afore-quoted Section 3 of
DAO No. 99-53. This evaluation necessarily involves the exercise of
discretion and judgment on the part of the DENR Secretary, who is
tasked not only to negotiate the sharing of the profit arising from the
IFMA, but also to evaluate the compliance with the requirements on
the part of the applicant.
Furthermore, as shall be discussed later, the period of an IFMA that
was merely automatically converted from a TLA in accordance with
Section 9, paragraph 2 of DAO No. 99-53 would only be for the
remaining period of the TLA. Since the TLA of PICOP expired on 26
April 2002, the IFMA that could have been granted to PICOP via the
automatic conversion provision in DAO No. 99-53 would have expired
on the same date, 26 April 2002, and the PICOP’s Petition for
Mandamus would have become moot.
This is where the 1969 Document, the purported Presidential
Warranty, comes into play. When PICOP’s application was brought to
a standstill upon the evaluation that PICOP had yet to comply with the
requirements for such conversion, PICOP refused to attend further
meetings with the DENR and instead filed a Petition for Mandamus,
insisting that the DENR Secretary had impaired the obligation of
contract by his refusal to respect: a) the tenurial rights of PICOP over
the forest area covered by TLA No. 43, as amended, and its renewal
for another twenty-five (25) years; b) the exclusive right of PICOP to
cut, collect and remove sawtimber and pulpwood therein; and c)
PICOP’s peaceful and adequate enjoyment of the said area which the
government guaranteed under the Warranty and Agreement of 29 July
1969. 23
PICOP is, thus, insisting that the government is obligated by contract
to issue an IFMA in its favor because of the 1969 Document.
A contract, being the law between the parties, can indeed, with respect
to the State when it is a party to such contract, qualify as a law
specifically enjoining the performance of an act. Hence, it is possible
that a writ of mandamus may be issued to PICOP, but only if it
proves both of the following:
1) That the 1969 Document is a contract recognized under
the non-impairment clause; and
2) That the 1969 Document specifically enjoins the
government to issue the IFMA.
If PICOP fails to prove any of these two matters, the grant of a
privileged writ of mandamus is not warranted. This was why we
pronounced in the assailed Decision that the overriding controversy
involved in the Petition was one of law.24 If PICOP fails to prove any of
these two matters, more significantly its assertion that the 1969
Document is a contract, PICOP fails to prove its cause of action. 25 Not
even the satisfactory compliance with all legal and administrative
requirements for an IFMA would save PICOP’s Petition for Mandamus.
The reverse, however, is not true. The 1969 Document expressly
states that the warranty as to the tenure of PICOP is "subject to
compliance with constitutional and statutory requirements as well as
with existing policy on timber concessions." Thus, if PICOP proves the
two above-mentioned matters, it still has to prove compliance with
statutory and administrative requirements for the conversion of its TLA
into an IFMA.
Exhaustion of Administrative Remedies
PICOP uses the same argument –– that the government is bound by
contract to issue the IFMA –– in its refusal to exhaust all administrative
remedies by not appealing the alleged illegal non-issuance of the IFMA
to the Office of the President. PICOP claimed in its Petition for
Mandamus with the trial court that:
1.10 This petition falls as an exception to the exhaustion of
administrative remedies. The acts of respondent DENR Secretary
complained of in this petition are patently illegal; in derogation of the
constitutional rights of petitioner against non-impairment of the
obligation of contracts; without jurisdiction, or in excess of jurisdiction
or so capriciously as to constitute an abuse of discretion amounting to
excess or lack of jurisdiction; and moreover, the failure or refusal of a
high government official such as a Department head from whom relief
is brought to act on the matter was considered equivalent to
exhaustion of administrative remedies (Sanoy v. Tantuico, 50 SCRA
455 [1973]), and there are compelling and urgent reasons for judicial
intervention (Bagatsing v. Ramirez, 74 SCRA 306 [1976]).
Thus, if there has been no impairment of the obligation of contracts in
the DENR Secretary’s non-issuance of the IFMA, the proper remedy of
PICOP in claiming that it has complied with all statutory and
administrative requirements for the issuance of the IFMA should have
been with the Office of the President. This makes the issue of the
enforceability of the 1969 Document as a contract even more
significant.
The Nature and Effects of the Purported 29 July 1969 Presidential
Warranty
Base Metals Case
PICOP challenges our ruling that the 1969 Document is not a contract.
Before we review this finding, however, it must be pointed out that one
week after the assailed Decision, another division of this Court
promulgated a Decision concerning the very same 1969 Document.
Thus, in PICOP Resources, Inc. v. Base Metals Mineral Resources
Corporation,26 five other Justices who were still unaware of this
Division’s Decision,27 came up with the same conclusion as regards the
same issue of whether former President Marcos’s Presidential
Warranty is a contract:
Finally, we do not subscribe to PICOP’s argument that the Presidential
Warranty dated September 25, 1968 is a contract protected by the
non-impairment clause of the 1987 Constitution.
An examination of the Presidential Warranty at once reveals that it
simply reassures PICOP of the government’s commitment to uphold
the terms and conditions of its timber license and guarantees PICOP’s
peaceful and adequate possession and enjoyment of the areas which
are the basic sources of raw materials for its wood processing
complex. The warranty covers only the right to cut, collect, and remove
timber in its concession area, and does not extend to the utilization of
other resources, such as mineral resources, occurring within the
concession.
The Presidential Warranty cannot be considered a contract distinct
from PTLA No. 47 and FMA No. 35. We agree with the OSG’s position
that it is merely a collateral undertaking which cannot amplify PICOP’s
rights under its timber license. Our definitive ruling in Oposa v.
Factoran that a timber license is not a contract within the purview of
the non-impairment clause is edifying. We declared:
Needless to say, all licenses may thus be revoked or rescinded by
executive action. It is not a contract, property or a property right
protected by the due process clause of the Constitution. In Tan vs.
Director of Forestry, this Court held:
"x x x A timber license is an instrument by which the State regulates
the utilization and disposition of forest resources to the end that public
welfare is promoted. A timber license is not a contract within the
purview of the due process clause; it is only a license or a privilege,
which can be validly withdrawn whenever dictated by public interest or
public welfare as in this case.
‘A license is merely a permit or privilege to do what otherwise would be
unlawful, and is not a contract between the authority, federal, state, or
municipal, granting it and the person to whom it is granted; neither is it
a property or a property right, nor does it create a vested right; nor is it
taxation' (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). x x x"
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs.
Deputy Executive Secretary:
"x x x Timber licenses, permits and license agreements are the
principal instruments by which the State regulates the utilization and
disposition of forest resources to the end that public welfare is
promoted. And it can hardly be gainsaid that they merely evidence a
privilege granted by the State to qualified entities, and do not vest in
the latter a permanent or irrevocable right to the particular concession
area and the forest products therein. They may be validly amended,
modified, replaced or rescinded by the Chief Executive when national
interests so require. Thus, they are not deemed contracts within the
purview of the due process of law clause [See Sections 3(ee) and 20
of Pres. Decree No. 705, as amended. Also, Tan v. Director of
Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302]."
Since timber licenses are not contracts, the non-impairment clause, the Mining Act of 1995 as well as the Department Order of DENR does
which reads: not disallow mining activity under a forest reserve.

"SEC. 10. No law impairing the obligation of contracts shall be JUSTICE TINGA:
passed."
But it was PICOP itself which raised the claim that a Presidential
cannot be invoked. Warranty is a contract. And therefore be, should be protected on the
under the non-impairment clause of the Constitution.
The Presidential Warranty cannot, in any manner, be construed as a
contractual undertaking assuring PICOP of exclusive possession and ATTY. AGABIN:
enjoyment of its concession areas. Such an interpretation would result
in the complete abdication by the State in favor of PICOP of the
Yes, Your Honor. Except that…
sovereign power to control and supervise the exploration, development
and utilization of the natural resources in the area.28
JUSTICE TINGA:
The Motion for Reconsideration was denied with finality on 14
February 2007. A Second Motion for Reconsideration filed by PICOP So, how can you say now that the Court merely uttered, declared, laid
was denied on 23 May 2007. down an obiter dictum in saying that the Presidential Warranty is not a
contract, and it is not being a contract, it is not prohibited by the non-
impairment clause.
PICOP insists that the pronouncement in Base Metals is a mere obiter
dictum, which would not bind this Court in resolving this Motion for
Reconsideration. In the oral arguments, however, upon questioning ATTY. AGABIN:
from the ponente himself of Base Metals, it was agreed that the issue
of whether the 1969 Document is a contract was necessary in the
This Honorable Court could have just ruled, held that the mining law
resolution of Base Metals:
allows mining activities under a forest reserve without deciding on that
issue that was raised by PICOP, your Honor, and therefore we
JUSTICE TINGA: believe….

And do you confirm that one of the very issues raised by PICOP in that JUSTICE TINGA:
case [PICOP Resources Inc. v. Base Metal Mineral Resources
Corporation] revolves around its claim that a Presidential Warranty is
It could have been better if PICOP has not raised that issue and had
protected by the non-impairment c[l]ause of the Constitution.
not claimed that the Presidential Warranty is not a contract.

ATTY. AGABIN:
ATTY. AGABIN:

Yes, I believe that statement was made by the Court, your Honor.
Well, that is correct, your Honor except that the Court could have just
avoided that question. Because…
JUSTICE TINGA:
JUSTICE TINGA:
Yes. And that claim on the part of PICOP necessarily implies that the
Presidential Warranty according to PICOP is a contract protected by
Why[?]
the non-impairment clause.

ATTY. AGABIN:
ATTY. AGABIN:

It already settled the issue, the basic issue.

Yes, Your Honor.

JUSTICE TINGA:
JUSTICE TINGA:

Yes, because the Court in saying that merely reiterated a number of

Essentially, the PICOP raised the issue of whether the Presidential
rulings to the effect that the Presidential Warranty, a Timber License
Warranty is a contract or not.
for that matter is not a contract protected by the non-impairment laws.

ATTY. AGABIN:
ATTY. AGABIN:

Yes, Your Honor.

JUSTICE TINGA:
And therefore any ruling on the part of the Court on that issue could
not be an obiter dictum.
ATTY. AGABIN:
Your Honor, actually we believe that the basic issue in that case was
whether or not Base Metals could conduct mining activities underneath
the forest reserve allotted to PICOP and the Honorable Court ruled that
Well, it is our submission, your Honor, that it is obiter because, that
issue even a phrase by PICOP was not really fully argued by the
parties for the Honorable Court and it seems from my reading at least it
was just an aside given by the Honorable Court to decide on that issue
raised by PICOP but it was not necessary to the decision of the court.
JUSTICE TINGA:
It was not necessary[?]
ATTY. AGABIN:
To the decision of the Court. It is in the public interest to promote industries that will enhance the
proper conservation of our forest resources as well as insure the
maximum utilization thereof to the benefit of the national economy. The
JUSTICE TINGA:
administration feels that the PICOP project is one such industry which
should enjoy priority over the usual logging operations hitherto
It was. practiced by ordinary timber licensees: For this reason, we are pleased
to consider favorably the request.
ATTY. AGABIN:
We confirm that your Timber License Agreement No. 43, as amended
(copy of which is attached as Annex "A" hereof which shall form part
It was not necessary. and parcel of this warranty) definitely establishes the boundary lines of
your concession area which consists of permanent forest lands with an
JUSTICE TINGA: aggregate area of 121,587 hectares and alienable or disposable lands
with an aggregate area of approximately 21,580 hectares.
It was.
We further confirm that your tenure over the area and exclusive right to
cut, collect and remove sawtimber and pulpwood shall be for the
ATTY. AGABIN: period ending on April 26, 1977; said period to be renewable for other
25 years subject to compliance with constitutional and statutory
Yes. requirements as well as with existing policy on timber concessions.

JUSTICE TINGA:
And PICOP devoted quite a number of pages in [its] memorandum to
that issue and so did the Court [in its Decision].
The peaceful and adequate enjoyment by you of your area as
described and specified in your aforesaid amended Timber License
Agreement No. 43 is hereby warranted provided that pertinent laws,
regulations and the terms and conditions of your license agreement
are observed.

ATTY. AGABIN:

Anyway, your Honor, we beg the Court to revisit, not to…29 Very truly yours,

Interpretation of the 1969 Document That Would Be in Harmony with (Sgd.) FERNANDO LOPEZ
the Constitution Secretary of Agriculture
and Natural Resources
To remove any doubts as to the contents of the 1969 Document, the
purported Presidential Warranty, below is a complete text thereof: Encl.:

Republic of the Philippines RECOMMENDED BY:

Department of Agriculture and Natural Resources
OFFICE OF THE SECRETARY
Diliman, Quezon City (Sgd.) JOSE VIADO
Acting Director of Forestry
D-53, Licenses (T.L.A. No. 43)
Bislig Bay Lumber Co., Inc. APPROVED:
(Bislig, Surigao)
(Sgd.) FERDINAND E. MARCOS
July 29, 1969 President of the Philippines

Bislig Bay Lumber Co., Inc.  ACCEPTED:

[unreadable word] Bldg.
Makati, Rizal BISLIG BAY LBR. CO., INC.

S i r s: By:

This has reference to the request of the Board of Investments through
its Chairman in a letter dated July 16, 1969 for a warranty on the
boundaries of your concession area under Timber License Agreement
No. 43, as amended.
We are made to understand that your company is committed to
support the first large scale integrated wood processing complex
hereinafter called: "The Project") and that such support will be provided
not only in the form of the supply of pulpwood and other wood
materials from your concession but also by making available funds
generated out of your own operations, to supplement PICOP’s
operational sources of funds and other financial arrangements made
by him. In order that your company may provide such support
effectively, it is understood that you will call upon your stockholders to
take such steps as may be necessary to effect a unification of
managerial, technical, economic and manpower resources between
your company and PICOP.
(Sgd.) JOSE E. SORIANO
President
PICOP interprets this document in the following manner:
6.1 It is clear that the thrust of the government warranty is to establish
a particular area defined by boundary lines of TLA No. 43 for the
PICOP Project. In consideration for PICOP’s commitment to pursue
and establish the project requiring huge investment/funding from
stockholders and lending institutions, the government provided a
warranty that ensures the continued and exclusive right of PICOP to
source its raw materials needs from the forest and renewable trees
within the areas established.
6.2 As a long-term support, the warranty covers the initial twenty five
(25) year period and is renewable for periods of twenty five (25) years
provided the project continues to exist and operate. Very notably, the
wording of the Presidential Warranty connotes that for as long as the
holder complies with all the legal requirements, the term of the
warranty is not limited to fifty (50) years but other twenty five (25)
years.
Any interpretation extending the application of the 1969 Document
beyond 26 April 2002 and any concession that may be granted to
PICOP beyond the said date would violate the Constitution, and no
amount of legal hermeneutics can change that. Attempts of PICOP to
explain its way out of this Constitutional provision only led to
absurdities, as exemplified in the following excerpt from the oral
arguments:

6.3 Note must be made that the government warranted that PICOP’s JUSTICE CARPIO:
tenure over the area and exclusive right to cut, collect and remove saw
timber and pulpwood shall be for the period ending on 26 April 1977
The maximum trend of agreement to develop and utilize natural
and said period to be renewable for other 25 years subject to
resources like forest products is 25 years plus another 25 years or a
"compliance with constitutional and statutory requirements as well as
total of 50 years correct?
existing policy on timber requirements". It is clear that the renewal for
other 25 years, not necessarily for another 25 years is guaranteed.
This explains why on 07 October 1977, TLA No. 43, as amended, was ATTY. AGABIN
automatically renewed for another period of twenty five (25) years to
expire on 26 April 2002.30
Yes, Your Honor.

PICOP’s interpretation of the 1969 Document cannot be sustained.

JUSTICE CARPIO:
PICOP’s claim that the term of the warranty is not limited to fifty years,
but that it extends to other fifty years, perpetually, violates Section 2,
Article XII of the Constitution which provides: That is true for the 1987, 1973, 1935 Constitution, correct?

Section 2. All lands of the public domain, waters, minerals, coal, ATTY. AGABIN:
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 Yes, Your Honor.
lands, all other natural resources shall not be alienated. The
exploration, development, and utilization of natural resources shall be JUSTICE CARPIO:
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, The TLA here, TLA 43, expired, the first 25 years expired in 1977,
or corporations or associations at least sixty per centum of whose correct?
capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than ATTY. AGABIN:
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, Yes, Your Honor.
beneficial use may be the measure and limit of the grant.
JUSTICE CARPIO:
Mr. Justice Dante O. Tinga’s interpretation of the 1969 Document is
much more in accord with the laws and the Constitution. What one And it was renewed for another 25 years until 2002, the 50th year?
cannot do directly, he cannot do indirectly. Forest lands cannot be
alienated in favor of private entities. Granting to private entities, via a
contract, a permanent, irrevocable, and exclusive possession of and ATTY. AGABIN:
right over forest lands is tantamount to granting ownership thereof.
PICOP, it should be noted, claims nothing less than having exclusive, Yes, Your Honor.
continuous and uninterrupted possession of its concession
areas,31 where all other entrants are illegal, 32 and where so-called
"illegal settlers and squatters" are apprehended.33 JUSTICE CARPIO:

IFMAs are production-sharing agreements concerning the Now, could PICOP before the end of the 50th year let’s say in 2001,
development and utilization of natural resources. As such, these one year before the expiration, could it have asked for an extension of
agreements "may be for a period not exceeding twenty-five years, another 25 years of its TLA agreement[?]
renewable for not more than twenty-five years, and under such terms
and conditions as may be provided by law." Any superior "contract" ATTY. AGABIN:
requiring the State to issue TLAs and IFMAs whenever they expire
clearly circumvents Section 2, Article XII of the Constitution, which
provides for the only permissible schemes wherein the full control and I believe so, Your Honor.
supervision of the State are not derogated: co-production, joint
venture, or production-sharing agreements within the time limit of JUSTICE CARPIO:
twenty-five years, renewable for another twenty-five years.

But the Constitution says, maximum of fifty years. How could you ask
On its face, the 1969 Document was meant to expire on 26 April 2002, for another 25 years of its TLA.
upon the expiration of the expected extension of the original TLA
period ending on 26 April 1977:
ATTY. AGABIN:
We further confirm that your tenure over the area and exclusive right to
cut, collect and remove sawtimber and pulpwood shall be for the Well, your Honor, we believe on a question like this, this Honorable
period ending on April 26, 1977; said period to be renewable for other Court should balance the interest.
25 years subject to compliance with constitutional and statutory
requirements as well as with existing policy on timber JUSTICE CARPIO:
concessions.1avvphi1
The Constitution is very clear, you have only a maximum of 50 years,
25 plus another 25. PICOP could never have applied for an extension,
for a third 25-year term whether under the 1935 Constitution, the 1973
Constitution and the 1987 Constitution, correct?
ATTY. AGABIN:
Your Honor, except that we are invoking the warranty, the terms of the
warranty….
JUSTICE CARPIO:
Can the warranty prevail over the Constitution?
ATTY. AGABIN:
Well, it is a vested right, your Honor.
JUSTICE CARPIO:
Yes, but whatever it is, can it prevail over the Constitution?
ATTY. AGABIN:
The Constitution itself provides that vested rights should be ….
JUSTICE CARPIO:
If it is not in violation of specific provision of the Constitution. The
Constitution says, 25 years plus another 25 years, that’s the end of it.
You mean to say that a President of the Philippines can give
somebody 1,000 years license?
ATTY. AGABIN:
Well, that is not our position, Your Honor. Because our position is that
….
JUSTICE CARPIO:
My question is, what is the maximum term, you said 50 years. So, my
next question is, can PICOP apply for an extension of another 25 years
after 2002, the 50th year?
ATTY. AGABIN:
Yes, based on the contract of warranty, Your Honor, because the
contract of warranty….
JUSTICE CARPIO:
But in the PICOP license it is very clear, it says here, provision 28, it
says the license agreement is for a total of 50 years. I mean it is very
simple, the President or even Congress cannot pass a law extending
the license, whatever kind of license to utilize natural resources for
more than fifty year[s]. I mean even the law cannot do that. It cannot
prevail over the Constitution. Is that correct, Counsel?
ATTY. AGABIN:
It is correct, Your Honor, except that in this case, what is actually our
application is that the law provides for the conversion of existing TLA
into IFMA.
JUSTICE CARPIO:
So, they file the petition for conversion before the end of the 50th year
for IFMA.
ATTY. AGABIN:
Yes, Your Honor.
JUSTICE CARPIO:
But IFMA is the same, it is based on Section 2, Article 12 of the
Constitution, develop and utilize natural resources because as you
said when the new constitution took effect we did away with the old
licensing regime, we have now co-production, a production sharing,
joint venture, direct undertaking but still the same developing and
utilizing the natural resources, still comes from section 2, Art. 12 of the
Constitution. It is still a license but different format now.
ATTY. AGABIN:
It is correct, Your Honor, except that the regimes of joint venture, co-
production and production sharing are what is referred to in the
constitution, Your Honor, and still covered…
JUSTICE CARPIO:
Yes, but it is covered by same 25 year[s], you mean to say people now
can circumvent the 50 year maximum term by calling their TLA as
IFMA and after fifty years calling it ISMA, after another 50 years call it
MAMA.
ATTY. AGABIN:
Yes, Your Honor. Because…
JUSTICE CARPIO:
It can be done.
ATTY. AGABIN:
That is provided for by the department itself.34
PICOP is, in effect, arguing that the DENR issued DAO No. 99-53 in
order to provide a way to circumvent the provisions of the Constitution
limiting agreements for the utilization of natural resources to a
maximum period of fifty years. Official duties are, however, disputably
considered to be regularly performed, 35 and good faith is always
presumed.
DAO No. 99-53 was issued to change the means by which the
government enters into an agreement with private entities for the
utilization of forest products. DAO No. 99-53 is a late response to the
change in the constitutional provisions on natural resources from the
1973 Constitution, which allowed the granting of licenses to private
entities,36 to the present Constitution, which provides for co-production,
joint venture, or production-sharing agreements as the permissible
schemes wherein private entities may participate in the utilization of
forest products. Since the granting of timber licenses ceased to be a
permissible scheme for the participation of private entities under the
present Constitution, their operations should have ceased upon the
issuance of DAO No. 99-53, the rule regulating the schemes under the
present Constitution. This would be iniquitous to those with existing
TLAs that would not have expired yet as of the issuance of DAO No.
99-53, especially those with new TLAs that were originally set to expire
after 10 or even 20 or more years. The DENR thus inserted a provision
in DAO No. 99-53 allowing these TLA holders to finish the period of
their TLAs, but this time as IFMAs, without the rigors of going through
a new application, which they have probably just gone through a few
years ago.
Such an interpretation would not only make DAO No. 99-53 consistent
with the provisions of the Constitution, but would also prevent possible
discrimination against new IFMA applicants:
ASSOCIATE JUSTICE DE CASTRO:
I ask this question because of your interpretation that the period of the
IFMA, if your TLA is converted into IFMA, would cover a new a fresh
period of twenty-five years renewable by another period of twenty-five
years.
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE DE CASTRO:
Don’t you think that will, in effect, be invidious discrimination with
respect to other applicants if you are granted a fresh period of twenty-
five years extendible to another twenty-five years?
DEAN AGABIN:
I don’t think it would be, Your Honor, considering that the IFMA is
different regime from the TLA. And not only that, there are
considerations of public health and ecology which should come into
play in this case, and which we had explained in our opening
statement and, therefore the provision of the Constitution on the
twenty-five limits for renewal of co-production, joint venture and
production sharing agreements, should be balanced with other values
stated in the Constitution, like the value of balanced ecology, which
should be in harmony with the rhythm of nature, or the policy of forest
preservation in Article XII, Section 14 of the Constitution. These are all
important policy considerations which should be balanced against the
term limits in Article II of the Constitution.
ASSOCIATE JUSTICE DE CASTRO:
The provision of this Administrative Order regarding automatic
conversion may be reasonable, if, I want to know if you agree with me,
if we limit this automatic conversion to the remaining period of the TLA,
because in that case there will be a valid ground to make a distinction
between those with existing TLA and those who are applying for the
first time for IFMA?
DEAN AGABIN:
Well, Your Honor, we beg to disagree, because as I said TLA’s are
completely different from IFMA. The TLA has no production sharing or
co-production agreement or condition. All that the licensee has to do is,
to pay forest charges, taxes and other impositions from the local and
national government. On the other hand, the IFMAs contained terms
and conditions which are completely different, and that they either
impose co-production, production sharing or joint venture terms. So it’s
a completely different regime, Your Honor.
ASSOCIATE JUSTICE DE CASTRO:
Precisely, that is the reason why there should be an evaluation of what
you mentioned earlier of the development plan.
DEAN AGABIN:
Yes, Your Honor.
ASSOCIATE JUSTICE DE CASTRO:
So it will be reasonable to convert a TLA into an IFMA without
considering the development plan submitted by other applicants or the
development plan itself of one seeking conversion into IFMA if it will
only be limited to the period, the original period of the TLA. But once
you go beyond the period of the TLA, then you will be, the DENR is I
think should evaluate the different proposals of the applicants if we are
thinking of a fresh period of twenty-five years, and which is renewable
under the Constitution by another twenty-five years. So the
development plan will be important in this case, the submission of the
development plan of the different applicants must be considered. So I
don’t understand why you mentioned earlier that the development plan
will later on be a subject matter of negotiation between the IFMA
grantee and the government. So it seems that it will be too late in the
day to discuss that if you have already converted the TLA into IFMA or
if the government has already granted the IFMA, and then it will later
on study the development plan, whether it is viable or not, or it is
sustainable or not, and whether the development plan of the different
applicants are, are, which of the development plan of the different
applicants is better or more advantageous to the government.37
PICOP insists that the alleged Presidential Warranty, having been
signed on 29 July 1969, could not have possibly considered the
limitations yet to be imposed by future issuances, such as the 1987
Constitution. However, Section 3, Article XVIII of said Constitution,
provides:
Section 3. All existing laws, decrees, executive orders, proclamations,
letters of instructions, and other executive issuances not inconsistent
with this Constitution shall remain operative until amended, repealed,
or revoked.
In the recent case Sabio v. Gordon, 38 we ruled that "(t)he clear import
of this provision is that all existing laws, executive orders,
proclamations, letters of instructions and other executive issuances
inconsistent or repugnant to the Constitution are repealed."
When a provision is susceptible of two interpretations, "the one that will
render them operative and effective and harmonious with other
provisions of law"39 should be adopted. As the interpretations in the
assailed Decision and in Mr. Justice Tinga’s ponencia are the ones
that would not make the subject Presidential Warranty unconstitutional,
these are what we shall adopt.
Purpose of the 1969 Document: Assurance That the Boundaries of Its
Concession Area Would Not Be Altered Despite the Provision in the
TLA that the DENR Secretary Can Amend Said Boundaries
In the assailed Decision, we ruled that the 1969 Document cannot be
considered a contract that would bind the government regardless of
changes in policy and the demands of public interest and social
welfare. PICOP claims this conclusion "did not take into consideration
that PICOP already had a valid and current TLA before the contract
with warranty was signed in 1969." 40 PICOP goes on: "The TLA is a
license that equips any TLA holder in the country for harvesting of
timber. A TLA is signed by the Secretary of the DANR now DENR. The
Court ignored the significance of the need for another contract with the
Secretary of the DANR but this time with the approval of the President
of the Republic."41 PICOP then asks us: "If PICOP/BBLCI was only an
ordinary TLA holder, why will it go through the extra step of securing
another contract just to harvest timber when the same can be served
by the TLA signed only by the Secretary and not requiring the approval
of the President of the Republic(?)"42
The answer to this query is found in TLA No. 43 itself wherein,
immediately after the boundary lines of TLA No. 43 were established,
the following conditions were given:
This license is granted to the said party of the second part upon the
following express conditions:
I. That authority is granted hereunder to the party of the
second part43 to cut, collect or remove firewood or other
 minor forest products from the area embraced in this license
agreement except as hereinafter provided.
II. That the party of the first part 44 may amend or alter the
description of the boundaries of the area covered by this
license agreement to conform with official surveys and that
the decision of the party of the first part as to the exact
location of the said boundaries shall be final.
III. That if the party of the first part deems it necessary to
establish on the ground the boundary lines of the area
granted under this license agreement, the party of the
second part shall furnish to the party of the first part or its
representatives as many laborers as it needs and all the
expenses to be incurred on the work including the wages of
such laborers shall be paid by the party of the second part.45
Thus, BBLCI needed an assurance that the boundaries of its
concession area, as established in TLA No. 43, as amended, would
not be altered despite this provision. Hence, BBLCI endeavored to
obtain the 1969 Document, which provides:
We confirm that your Timber License Agreement No. 43, as amended
(copy of which is attached as Annex "A" hereof which shall form part
and parcel of this warranty) definitely establishes the boundary lines of
your concession area which consists of permanent forest lands with an
aggregate area of 121,587 hectares and alienable or disposable lands
with an aggregate area of approximately 21,580 hectares.
We further confirm that your tenure over the area and exclusive right to
cut, collect and remove sawtimber and pulpwood shall be for the
period ending on April 26, 1977; said period to be renewable for other
25 years subject to compliance with constitutional and statutory
requirements as well as with existing policy on timber concessions.
The peaceful and adequate enjoyment by you of your area as
described and specified in your aforesaid amended Timber License
Agreement No. 43 is hereby warranted provided that pertinent laws,
regulations and the terms and conditions of your license agreement
are observed.46
In Koa v. Court of Appeals, 47 we ruled that a warranty is a collateral
undertaking and is merely part of a contract. As a collateral
undertaking, it follows the principal wherever it goes. When this was
pointed out by the Solicitor General, PICOP changed its designation of
the 1969 Document from "Presidential Warranty" or "government
warranty" in all its pleadings prior to our Decision, to "contract with
warranty" in its Motion for Reconsideration. This, however, is belied by
the statements in the 29 July 1969 Document, which refers to itself as
"this warranty."
Re: Allegation That There Were Mutual Contract Considerations
Had the 29 July 1969 Document been intended as a contract, it could
have easily said so. More importantly, it could have clearly defined the
mutual considerations of the parties thereto. It could have also easily
provided for the sanctions for the breach of the mutual considerations
specified therein. PICOP had vigorously argued that the 1969
Document was a contract because of these mutual considerations,
apparently referring to the following paragraph of the 1969 Document:
We are made to understand that your company is committed to
support the first large scale integrated wood processing complex
hereinafter called: "The Project") and that such support will be provided
not only in the form of the supply of pulpwood and other wood
materials from your concession but also by making available funds
generated out of your own operations, to supplement PICOP’s
operational surces (sic) of funds and other financial arrangements
made by him. In order that your company may provide such support
effectively, it is understood that you will call upon your stockholders to
take such steps as may be necessary to effect a unification of
managerial, technical, economic and manpower resources between
your company and PICOP.1avvphi1
This provision hardly evinces a contract consideration (which, in
PICOP’s interpretation, is in exchange for the exclusive and perpetual
tenure over 121,587 hectares of forest land and 21,580 hectares of
alienable and disposable lands). As elucidated by PICOP itself in
bringing up the Investment Incentives Act which we shall discuss later,
and as shown by the tenor of the 1969 Document, the latter document
was more of a conferment of an incentive for BBLCI’s investment
rather than a contract creating mutual obligations on the part of the
government, on one hand, and BBLCI, on the other. There was no
stipulation providing for sanctions for breach if BBLCI’s being
"committed to support the first large scale integrated wood processing
complex" remains a commitment. Neither did the 1969 Document give
BBLCI a period within which to pursue this commitment.
According to Article 1350 of the Civil Code, "(i)n onerous contracts the
cause is understood to be, for each contracting party, the prestation or
promise of a thing or service by the other." 48 Private investments for
one’s businesses, while indeed eventually beneficial to the country and
deserving to be given incentives, are still principally and predominantly
for the benefit of the investors. Thus, the "mutual" contract
considerations by both parties to this alleged contract would be both
for the benefit of one of the parties thereto, BBLCI, which is not
obligated by the 1969 Document to surrender a share in its proceeds
any more than it is already required by its TLA and by the tax laws.
PICOP’s argument that its investments can be considered as contract
consideration derogates the rule that "a license or a permit is not a
contract between the sovereignty and the licensee or permittee, and is
not a property in the constitutional sense, as to which the constitutional
proscription against the impairment of contracts may extend." All
licensees obviously put up investments, whether they are as small as a
tricycle unit or as big as those put up by multi-billion-peso corporations.
To construe these investments as contract considerations would be to
abandon the foregoing rule, which would mean that the State would be
bound to all licensees, and lose its power to revoke or amend these
licenses when public interest so dictates.
The power to issue licenses springs from the State’s police power,
known as "the most essential, insistent and least limitable of powers,
extending as it does to all the great public needs." 49 Businesses
affecting the public interest, such as the operation of public utilities and
those involving the exploitation of natural resources, are mandated by
law to acquire licenses. This is so in order that the State can regulate
their operations and thereby protect the public interest. Thus, while
these licenses come in the form of "agreements," e.g., "Timber License
Agreements," they cannot be considered contracts under the non-
impairment clause.50
PICOP found this argument "lame," arguing, thus:
43. It is respectfully submitted that the aforesaid pronouncement in the
Decision is an egregious and monumental error.
44. The Decision could not dismiss as "preposterous" the mutual
covenants in the Presidential Warranty which calls for a huge
investment of Php500 million at that time in 1969 out of which
Php268,440,000 raised from domestic foreign lending institution to
establish the first large scale integrated wood processing complex in
the Philippines.
45. The Decision puts up a lame explanation that "all licensees put up
investments in pursuing their business"
46. Now there are about a hundred timber licenses issued by the
Government thru the DENR, but these are ordinary timber licenses
which involve the mere cutting of timber in the concession area, and
nothing else. Records in the DENR shows that no timber licensee has
put up an integrated large wood processing complex in the Philippines
except PICOP.51
PICOP thus argues on the basis of quantity, and wants us to
distinguish between the investment of the tricycle driver and that of the
multi-billion corporation. However, not even billions of pesos in
investment can change the fact that natural resources and, therefore, reason. None of the 24 incentives enumerated therein relates to, or
public interest are involved in PICOP’s venture, consequently even remotely suggests that, PICOP’s proposition that the 1969
necessitating the full control and supervision by the State as mandated Document is a contract.
by the Constitution. Not even billions of pesos in investment can buy
forest lands, which is practically what PICOP is asking for by
PICOP could indeed argue that the enumeration is not exclusive.
interpreting the 1969 Document as a contract giving it perpetual and
Certainly, granting incentives to investors, whether included in the
exclusive possession over such lands. Among all TLA holders in the
enumeration or not, would be an implementation of this policy.
Philippines, PICOP has, by far, the largest concession area at 143,167
However, it is presumed that whatever incentives may be given to
hectares, a land area more than the size of two Metro Manilas. 52 How
investors should be within the bounds of the laws and the Constitution.
can it not expect to also have the largest investment?
The declaration of policy in Section 2 cannot, by any stretch of the
imagination, be read to provide an exception to either the laws or,
Investment Incentives Act heaven forbid, the Constitution. Exceptions are never presumed and
should be convincingly proven. Section 2 of the Investment Incentives
Act cannot be read as exempting investors from the Constitutional
PICOP then claims that the contractual nature of the 1969 Document
provisions (1) prohibiting private ownership of forest lands; (2)
was brought about by its issuance in accordance with and pursuant to
providing for the complete control and supervision by the State of
the Investment Incentives Act. According to PICOP:
exploitation activities; or (3) limiting exploitation agreements to twenty-
five years, renewable for another twenty-five years.
The conclusion in the Decision that to construe PICOP’s investments
as a consideration in a contract would be to stealthily render ineffective
Section 4(d) and (e), on the other hand, is a recognition of rights
the principle that a license is not a contract between the sovereignty
already guaranteed under the Constitution. Freedom from
and the licensee is so flawed since the contract with the warranty
expropriation is granted under Section 9 of Article III 55 of the
dated 29 July 1969 was issued by the Government in accordance with
Constitution, while the provision on requisition is a negative
and pursuant to Republic Act No. 5186, otherwise known as "The
restatement of Section 6, Article XII.56
Investment Incentives Act."53

Refusal to grant perpetual and exclusive possession to PICOP of its

PICOP then proceeds to cite Sections 2 and 4(d) and (e) of said act:
concession area would not result in the expropriation or requisition of
PICOP’s property, as these forest lands belong to the State, and not to
Section 2. Declaration of Policy – To accelerate the sound PICOP. This is not changed by PICOP’s allegation that:
development of the national economy in consonance with the
principles and objectives of economic nationalism, and in pursuance of
Since it takes 35 years before the company can go back and harvest
a planned, economically feasible and practicable dispersal of
their residuals in a logged-over area, it must be assured of tenure in
industries, under conditions which will encourage competition and
order to provide an inducement for the company to manage and
discharge monopolies, it is hereby declared to be the policy of the state
preserve the residuals during their growth period. This is a commitment
to encourage Filipino and foreign investments, as hereinafter set out, in
of resources over a span of 35 years for each plot for each cycle. No
projects to develop agricultural, mining and manufacturing industries
company will undertake the responsibility and cost involved in policing,
which increase national income most at the least cost, increase
preserving and managing residual forest areas until it were sure that it
exports, bring about greater economic stability, provide more
had firm title to the timber.57
opportunities for employment, raise the standards of living of the
people, and provide for an equitable distribution of wealth. It is further
declared to be the policy of the state to welcome and encourage The requirement for logging companies to preserve and maintain forest
foreign capital to establish pioneer enterprises that are capital intensive areas, including the reforestation thereof, is one of the prices a logging
and would utilize a substantial amount of domestic raw materials, in company must pay for the exploitation thereof. Forest lands are meant
joint venture with substantial Filipino capital, whenever available. to be enjoyed by countless future generations of Filipinos, and not just
by one logging company. The requirements of reforestation and
preservation of the concession areas are meant to protect them, the
Section 4. Basic Rights and Guarantees. – All investors and
future generations, and not PICOP. Reforestation and preservation of
enterprises are entitled to the basic rights and guarantees provided in
the concession areas are not required of logging companies so that
the constitution. Among other rights recognized by the Government of
they would have something to cut again, but so that the forest would
the Philippines are the following:
remain intact after their operations. That PICOP would not accept the
responsibility to preserve its concession area if it is not assured of
xxxx tenure thereto does not speak well of its corporate policies.

d) Freedom from Expropriation. – There shall be no expropriation by Conclusion

the government of the property represented by investments or of the
property of enterprises except for public use or in the interest of
In sum, PICOP was not able to prove either of the two things it needed
national welfare and defense and upon payment of just compensation.
to prove to be entitled to a Writ of Mandamus against the DENR
x x x.
Secretary. The 1969 Document is not a contract recognized under the
non-impairment clause and, even if we assume for the sake of
e) Requisition of Investment. – There shall be no requisition of the argument that it is, it did not enjoin the government to issue an IFMA in
property represented by the investment or of the property of 2002 either. These are the essential elements in PICOP’s cause of
enterprises, except in the event of war or national emergency and only action, and the failure to prove the same warrants a dismissal of
for the duration thereof. Just compensation shall be determined and PICOP’s Petition for Mandamus, as not even PICOP’s compliance with
paid either at the time of requisition or immediately after cessation of all the administrative and statutory requirements can save its Petition
the state of war or national emergency. Payments received as now.
compensation for the requisitioned property may be remitted in the
currency in which the investment was originally made and at the
Whether PICOP Has Complied with the Statutory and Administrative
exchange rate prevailing at the time of remittance, subject to the
Requirements for the Conversion of the TLA to an IFMA
provisions of Section seventy-four of republic Act Numbered Two
hundred sixty-five.
In the assailed Decision, our ruling was based on two distinct grounds,
each one being sufficient in itself for us to rule that PICOP was not
Section 2 speaks of the policy of the State to encourage Filipino and
entitled to a Writ of Mandamus: (1) the 1969 Document, on which
foreign investments. It does not speak of how this policy can be
PICOP hinges its right to compel the issuance of an IFMA, is not a
implemented. Implementation of this policy is tackled in Sections 5 to
12 of the same law,54which PICOP failed to mention, and for a good
contract; and (2) PICOP has not complied with all administrative and
statutory requirements for the issuance of an IFMA.
When a court bases its decision on two or more grounds, each is as
authoritative as the other and neither is obiter dictum. 58 Thus, both
grounds on which we based our ruling in the assailed Decision would
become judicial dictum, and would affect the rights and interests of the
parties to this case unless corrected in this Resolution on PICOP’s
Motion for Reconsideration. Therefore, although PICOP would not be
entitled to a Writ of Mandamus even if the second issue is resolved in
its favor, we should nonetheless resolve the same and determine
whether PICOP has indeed complied with all administrative and
statutory requirements for the issuance of an IFMA.
While the first issue (on the nature of the 1969 Document) is entirely
legal, this second issue (on PICOP’s compliance with administrative
and statutory requirements for the issuance of an IFMA) has both legal
and factual sub-issues. Legal sub-issues include whether PICOP is
legally required to (1) consult with and acquire an approval from the
Sanggunian concerned under Sections 26 and 27 of the Local
Government Code; and (2) acquire a Certification from the National
Commission on Indigenous Peoples (NCIP) that the concession area
does not overlap with any ancestral domain. Factual sub-issues
include whether, at the time it filed its Petition for Mandamus, PICOP
had submitted the required Five-Year Forest Protection Plan and
Seven-Year Reforestation Plan and whether PICOP had paid all forest
charges.
For the factual sub-issues, PICOP invokes the doctrine that factual
findings of the trial court, especially when upheld by the Court of
Appeals, deserve great weight. However, deserving of even greater
weight are the factual findings of administrative agencies that have the
expertise in the area of concern. The contentious facts in this case
relate to the licensing, regulation and management of forest resources,
the determination of which belongs exclusively to the DENR:
SECTION 4. Mandate. – The Department shall be the primary
government agency responsible for the conservation, management,
development and proper use of the country’s environment and natural
resources, specifically forest and grazing lands, mineral resources,
including those in reservation and watershed areas, and lands of the
public domain, as well as the licensing and regulation of all natural
resources as may be provided for by law in order to ensure equitable
sharing of the benefits derived therefrom for the welfare of the present
and future generations of Filipinos. 59
When parties file a Petition for Certiorari against judgments of
administrative agencies tasked with overseeing the implementation of
laws, the findings of such administrative agencies are entitled to great
weight. In the case at bar, PICOP could not have filed a Petition for
Certiorari, as the DENR Secretary had not yet even determined
whether PICOP should be issued an IFMA. As previously mentioned,
when PICOP’s application was brought to a standstill upon the
evaluation that PICOP had yet to comply with the requirements for the
issuance of an IFMA, PICOP refused to attend further meetings with
the DENR and instead filed a Petition for Mandamus against the latter.
By jumping the gun, PICOP did not diminish the weight of the DENR
Secretary’s initial determination.
Forest Protection and Reforestation Plans
The Performance Evaluation Team tasked to appraise PICOP’s
performance on its TLA No. 43 found that PICOP had not submitted its
Five-Year Forest Protection Plan and its Seven-Year Reforestation
Plan.60
In its Motion for Reconsideration, PICOP asserts that, in its Letter of
Intent dated 28 August 2000 and marked as Exhibit L in the trial court,
there was a reference to a Ten-Year Sustainable Forest Management
Plan (SFMP), in which a Five-Year Forest Protection Plan and a
Seven-Year Reforestation Plan were allegedly incorporated. PICOP
submitted a machine copy of a certified photocopy of pages 50-67 and
104-110 of this SFMP in its Motion for Reconsideration. PICOP claims
that the existence of this SFMP was repeatedly asserted during the
IFMA application process.61
Upon examination of the portions of the SFMP submitted to us, we
cannot help but notice that PICOP’s concept of forest protection is the
security of the area against "illegal" entrants and settlers. There is no
mention of the protection of the wildlife therein, as the focus of the
discussion of the silvicultural treatments and the SFMP itself is on the
protection and generation of future timber harvests. We are particularly
disturbed by the portions stating that trees of undesirable quality shall
be removed.
However, when we required the DENR Secretary to comment on
PICOP’s Motion for Reconsideration, the DENR Secretary did not
dispute the existence of this SFMP, or question PICOP’s assertion that
a Ten-Year Forest Protection Plan and a Ten-Year Reforestation Plan
are already incorporated therein. Hence, since the agency tasked to
determine compliance with IFMA administrative requirements chose to
remain silent in the face of allegations of compliance, we are
constrained to withdraw our pronouncement in the assailed Decision
that PICOP had not submitted a Five-Year Forest Protection Plan and
a Seven-Year Reforestation Plan for its TLA No. 43. As previously
mentioned, the licensing, regulation and management of forest
resources are the primary responsibilities of the DENR.62
The compliance discussed above is, of course, only for the purpose of
determining PICOP’s satisfactory performance as a TLA holder, and
covers a period within the subsistence of PICOP’s TLA No. 43. This
determination, therefore, cannot prohibit the DENR from requiring
PICOP, in the future, to submit proper forest protection and
reforestation plans covering the period of the proposed IFMA.
Forest Charges
In determining that PICOP did not have unpaid forest charges, the
Court of Appeals relied on the assumption that if it were true that
PICOP had unpaid forest charges, it should not have been issued an
approved Integrated Annual Operation Plan (IAOP) for the year 2001-
2002 by Secretary Alvarez himself.63
In the assailed Decision, we held that the Court of Appeals had been
selective in its evaluation of the IAOP, as it disregarded the part
thereof that shows that the IAOP was approved subject to several
conditions, not the least of which was the submission of proof of the
updated payment of forest charges from April 2001 to June 2001. 64 We
also held that even if we considered for the sake of argument that the
IAOP should not have been issued if PICOP had existing forestry
accounts, the issuance of the IAOP could not be considered proof that
PICOP had paid the same. Firstly, the best evidence of payment is the
receipt thereof. PICOP has not presented any evidence that such
receipts were lost or destroyed or could not be produced in
court.65 Secondly, the government cannot be estopped by the acts of
its officers. If PICOP has been issued an IAOP in violation of the law,
allegedly because it may not be issued if PICOP had existing forestry
accounts, the government cannot be estopped from collecting such
amounts and providing the necessary sanctions therefor, including the
withholding of the IFMA until such amounts are paid.
We therefore found that, as opposed to the Court of Appeals’ findings,
which were based merely on estoppel of government officers, the
positive and categorical evidence presented by the DENR Secretary
was more convincing with respect to the issue of payment of forestry
charges:
1. Forest Management Bureau (FMB) Senior Forest
Management Specialist (SFMS) Ignacio M. Evangelista
testified that PICOP had failed to pay its regular forest
charges covering the period from 22 September 2001 to 26
April 2002 in the total amount of ₱15,056,054.05 66 PICOP
also allegedly paid late most of its forest charges from 1996
onwards, by reason of which, PICOP is liable for a surcharge
of 25% per annum on the tax due and interest of 20% per
annum which now amounts to ₱150,169,485.02. 67 Likewise,
PICOP allegedly had overdue and unpaid silvicultural fees in
 the amount of ₱2,366,901.00 as of 30 August
2002.68Summing up the testimony, therefore, it was alleged
that PICOP had unpaid and overdue forest charges in the
sum of ₱167,592,440.90 as of 10 August 2002.69
2. Collection letters were sent to PICOP, but no official
receipts are extant in the DENR record in Bislig City
evidencing payment of the overdue amount stated in the
said collection letters.70 There were no official receipts for the
period covering 22 September 2001 to 26 April 2002.
We also considered these pieces of evidence more convincing than
the other ones presented by PICOP:
1. PICOP presented the certification of Community
Environment and Natural Resources Office (CENRO) Officer
Philip A. Calunsag, which refers only to PICOP’s alleged
payment of regular forest charges covering the period from
14 September 2001 to 15 May 2002. 71 We noted that it does
not mention similar payment of the penalties, surcharges
and interests that PICOP incurred in paying late several
forest charges, which fact was not rebutted by PICOP.
2. The 27 May 2002 Certification by CENRO Calunsag
specified only the period covering 14 September 2001 to 15
May 2002 and the amount of P53,603,719.85 paid by PICOP
without indicating the corresponding volume and date of
production of the logs. This is in contrast to the findings of
SFMS Evangelista, which cover the period from CY 1996 to
30 August 2002 and includes penalties, interests, and
surcharges for late payment pursuant to DAO 80, series of
1987.
3. The 21 August 2002 PICOP-requested certification issued
by Bill Collector Amelia D. Arayan, and attested to by
CENRO Calunsag himself, shows that PICOP paid only
regular forest charges for its log production covering 1 July
2001 to 21 September 2001. However, there were log
productions after 21 September 2001, the regular forest
charges for which have not been paid, amounting to
₱15,056,054.05.72The same certification shows delayed
payment of forest charges, thereby corroborating the
testimony of SFMS Evangelista and substantiating the
imposition of penalties and surcharges.
In its Motion for Reconsideration, PICOP claims that SFMS
Evangelista is assigned to an office that has nothing to do with the
collection of forest charges, and that he based his testimony on the
Memoranda of Forest Management Specialist II (FMS II) Teofila
Orlanes and DENR, Bislig City Bill Collector Amelia D. Arayan, neither
of whom was presented to testify on his or her Memorandum. PICOP
also submitted an Addendum to Motion for Reconsideration, wherein it
appended certified true copies of CENRO Summaries with attached
Official Receipts tending to show that PICOP had paid a total of
₱81,184,747.70 in forest charges for 10 January 2001 to 20 December
2002, including the period during which SFMS Evangelista claims
PICOP did not pay forest charges (22 September 2001 to 26 April
2002).
Before proceeding any further, it is necessary for us to point out that,
as with our ruling on the forest protection and reforestation plans, this
determination of compliance with the payment of forest charges is
exclusively for the purpose of determining PICOP’s satisfactory
performance on its TLA No. 43. This cannot bind either party in a
possible collection case that may ensue.
An evaluation of the DENR Secretary’s position on this matter shows a
heavy reliance on the testimony of SFMS Evangelista, making it
imperative for us to strictly scrutinize the same with respect to its
contents and admissibility.
PICOP claims that SFMS Evangelista’s office has nothing to do with
the collection of forest charges. According to PICOP, the entity having
administrative jurisdiction over it is CENRO, Bislig City by virtue of
DENR Administrative Order No. 96-36, dated 20 November 1996,
which states:
1. In order for the DENR to be able to exercise closer and more
effective supervision, management and control over the forest
resources within the areas covered by TLA No. 43, PTLA No. 47 and
IFMA No. 35 of the PICOP Resources, Inc., (PRI) and, at the same
time, provide greater facility in the delivery of DENR services to various
publics, the aforesaid forest holdings of PRI are hereby placed under
the exclusive jurisdiction of DENR Region No. XIII with the CENR
Office at Bislig, Surigao del Sur, as directly responsible thereto. x x x.
We disagree. Evangelista is an SFMS assigned at the Natural Forest
Management Division of the FMB, DENR. In Evangelista’s
aforementioned affidavit submitted as part of his direct examination,
Evangelista enumerated his duties and functions as SFMS:
1. As SFMS, I have the following duties and functions:
a) To evaluate and act on cases pertaining to
forest management referred to in the Natural
forest Management Division;
b) To monitor, verify and validate forest
management and related activities by timber
licences as to their compliance to approved plans
and programs;
c) To conduct investigation and verification of
compliance by timber licenses/permittees to
existing DENR rules and regulations;
d) To gather field data and information to be used
in the formulation of forest policies and
regulations; and
e) To perform other duties and responsibilities as
may be directed by superiors.73
PICOP also alleges that the testimony of SFMS Evangelista
was based on the aforementioned Memoranda of Orlanes
and Arayan and that, since neither Orlanes nor Arayan was
presented as a witness, SFMS Evangelista’s testimony
should be deemed hearsay. SFMS Evangelista’s 1 October
2002 Affidavit,74 which was offered as part of his testimony,
provides:
2. Sometime in September, 2001 the DENR Secretary was
furnished a copy of forest Management Specialist II (FMS II)
Teofila L. Orlanes’ Memorandum dated September 24, 2001
concerning unopaid forest charges of PICOP. Attached to
the said Memorandum was a Memorandum dated
September 19, 2001 of Amelia D. Arayan, Bill collector of the
DENR R13-14, Bislig City. Copies of the said Memoranda
are attached as Annexes 1 and 2, respectively.
3. The said Memoranda were referred to the FMB Director
for appropriate action.
4. Thus, on August 5, 2002, I was directed by the FMB
Director to proceed to Region 13 to gather forestry-related
data and validate the report contained in the Memoranda of
Ms. Orlanes and Arayan.
5. On August 6, 2002, I proceeded to DENR Region 13 in
Bislig City. A copy of my Travel Order is attached as Annex
3.
 6. Upon my arrival at CENRO, Bislig, surigao del Sur, I
coordinated with CENRO Officer Philip A. Calunsag and
requested him to make available to me the records regarding
the forest products assessments of PICOP.
7. After I was provided with the requested records, I
evaluated and collected the data.
8. After the evaluation, I found that the unpaid forest charges
adverted to in the Memoranda of Mr. Orlanes and Arayan
covering the period from May 8, 2001 to July 7, 2001 had
already been paid but late. I further found out that PICOP
had not paid its forest charges covering the period from
September 22, 2001 to April 26, 2002 in the total amount of
₱15,056,054.05.
9. I also discovered that from 1996 up to august 30, 2002,
PICOP paid late some of its forest charges in 1996 and
consistently failed to pay late its forest charges from 1997 up
to the present time.
10. Under Section 7.4 of DAO No. 80 Series of 197\87 and
Paragraph (4a), Section 10 of BIR revenue Regulations No.
2-81 dated November 18, 1980, PICOP is mandated to pay
a surcharge of 25% per annum of the tax due and interest of
20% per annum for late payment of forest charges.
11. The overdue unpaid forest charges of PICOP as shown
in the attached tabulation marked as Annex 4 hereof is
₱150,169,485.02. Likewise, PICOP has overdue and unpaid
silvicultural fees in the amount of ₱2,366,901.00 from 1996
to the present.
12. In all, PICOP has an outstanding and overdue total
obligation of ₱167,592,440.90 as of August 30, 2002 based
on the attached tabulation which is marked as Annex 5
hereof.75
Clearly, SFMS Evangelista had not relied on the Memoranda of
Orlanes and Arayan. On the contrary, he traveled to Surigao del Sur in
order to verify the contents of these Memoranda. SFMS Evangelista, in
fact, revised the findings therein, as he discovered that certain forest
charges adverted to as unpaid had already been paid.
This does not mean, however, that SFMS Evangelista’s testimony was
not hearsay. A witness may testify only on facts of which he has
personal knowledge; that is, those derived from his perception, except
in certain circumstances allowed by the Rules.76 Otherwise, such
testimony is considered hearsay and, hence, inadmissible in
evidence.77
SFMS Evangelista, while not relying on the Memoranda of Orlanes and
Arayan, nevertheless relied on records, the preparation of which he did
not participate in.78 These records and the persons who prepared them
were not presented in court, either. As such, SFMS Evangelista’s
testimony, insofar as he relied on these records, was on matters not
derived from his own perception, and was, therefore, hearsay.
Section 44, Rule 130 of the Rules of Court, which speaks of entries in
official records as an exception to the hearsay rule, cannot excuse the
testimony of SFMS Evangelista. Section 44 provides:
SEC. 44. Entries in official records. – Entries in official records made in
the performance of his duty by a public officer of the Philippines, or by
a person in the performance of a duty specially enjoined by law, are
prima facie evidence of the facts therein stated.
In Africa v. Caltex,79 we enumerated the following requisites for the
admission of entries in official records as an exception to the hearsay
rule: (1) the entries were made by a public officer or a private person in
the performance of a duty; (2) the performance of the duty is especially
enjoined by law; (3) the public officer or the private person had
sufficient knowledge of the facts stated by him, which must have been
acquired by him personally or through official information.
The presentation of the records themselves would, therefore, have
been admissible as an exception to the hearsay rule even if the public
officer/s who prepared them was/were not presented in court, provided
the above requisites could be adequately proven. In the case at bar,
however, neither the records nor the persons who prepared them were
presented in court. Thus, the above requisites cannot be sufficiently
proven. Also, since SFMS Evangelista merely testified based on what
those records contained, his testimony was hearsay evidence twice
removed, which was one step too many to be covered by the official-
records exception to the hearsay rule.
SFMS Evangelista’s testimony of nonpayment of forest charges was,
furthermore, based on his failure to find official receipts corresponding
to billings sent to PICOP. As stated above, PICOP attached official
receipts in its Addendum to Motion for Reconsideration to this Court.
While this course of action is normally irregular in judicial proceedings,
we merely stated in the assailed Decision that "the DENR Secretary
has adequately proven that PICOP has, at this time, failed to comply
with administrative and statutory requirements for the conversion of
TLA No. 43 into an IFMA," 80 and that "this disposition confers another
chance to comply with the foregoing requirements." 81
In view of the foregoing, we withdraw our pronouncement that PICOP
has unpaid forestry charges, at least for the purpose of determining
compliance with the IFMA requirements.
NCIP Certification
The Court of Appeals held that PICOP need not comply with Section
59 of Republic Act No. 8371, which requires prior certification from the
NCIP that the areas affected do not overlap with any ancestral domain
before any IFMA can be entered into by the government. According to
the Court of Appeals, Section 59 should be interpreted to refer to
ancestral domains that have been duly established as such by the
continuous possession and occupation of the area concerned by
indigenous peoples since time immemorial up to the present. The
Court of Appeals held that PICOP had acquired property rights over
TLA No. 43 areas, being in exclusive, continuous and uninterrupted
possession and occupation of these areas since 1952 up to the
present.
In the assailed Decision, we reversed the findings of the Court of
Appeals. Firstly, the Court of Appeals ruling defies the settled
jurisprudence we have mentioned earlier, that a TLA is neither a
property nor a property right, and that it does not create a vested
right.82
Secondly, the Court of Appeals’ resort to statutory construction is
misplaced, as Section 59 of Republic Act No. 8379 is clear and
unambiguous:
SEC. 59. Certification Precondition. – All departments and other
governmental agencies shall henceforth be strictly enjoined from
issuing, renewing or granting any concession, license or lease, or
entering into any production-sharing agreement, without prior
certification from the NCIP that the area affected does not overlap with
any ancestral domain. Such certification shall only be issued after a
field-based investigation is conducted by the Ancestral Domains Office
of the area concerned: Provided, That no certification shall be issued
by the NCIP without the free and prior informed and written consent of
the ICCs/IPs concerned: Provided, further, That no department,
government agency or government-owned or controlled corporation
may issue new concession, license, lease, or production sharing
agreement while there is a pending application for a CADT: Provided,
finally, That the ICCs/IPs shall have the right to stop or suspend, in
accordance with this Act, any project that has not satisfied the
requirement of this consultation process.
PICOP had tried to put a cloud of ambiguity over Section 59 of
Republic Act No. 8371 by invoking the definition of Ancestral Domains
in Section 3(a) thereof, wherein the possesssion by Indigenous
Cultural Communities/Indigenous Peoples (ICCs/IPs) must have been
continuous to the present. However, we noted the exception found in
the very same sentence invoked by PICOP:
a) Ancestral domains – Subject to Section 56 hereof, refers to all areas
generally belonging to ICCs/IPs comprising lands, inland waters,
coastal areas, and natural resources therein, held under a claim of
ownership, occupied or possessed by ICCs/IPs, by themselves or
through their ancestors, communally or individually since time
immemorial, continuously to the present except when interrupted by
war, force majeure or displacement by force, deceit, stealth or as a
consequence of government projects or any other voluntary dealings
entered into by government and private individuals/corporations, and
which are necessary to ensure their economic, social and cultural
welfare. It shall include ancestral lands, forests, pasture, residential,
agricultural, and other lands individually owned whether alienable and
disposable or otherwise, hunting grounds, burial grounds, worship
areas, bodies of water, mineral and other natural resources, and lands
which may no longer be exclusively occupied by ICCs/IPs but from
which they traditionally had access to for their subsistence and
traditional activities, particularly the home ranges of ICCs/IPs who are
still nomadic and/or shifting cultivators;
Ancestral domains, therefore, remain as such even when possession
or occupation of these areas has been interrupted by causes provided
under the law, such as voluntary dealings entered into by the
government and private individuals/corporations. Consequently, the
issuance of TLA No. 43 in 1952 did not cause the ICCs/IPs to lose
their possession or occupation over the area covered by TLA No. 43.
Thirdly, we held that it was manifestly absurd to claim that the subject
lands must first be proven to be part of ancestral domains before a
certification that the lands are not part of ancestral domains can be
required, and invoked the separate opinion of now Chief Justice
Reynato Puno in Cruz v. Secretary of DENR83:
As its subtitle suggests, [Section 59 of R.A. No. 8371] requires as a
precondition for the issuance of any concession, license or agreement
over natural resources, that a certification be issued by the NCIP that
the area subject of the agreement does not lie within any ancestral
domain. The provision does not vest the NCIP with power over the
other agencies of the State as to determine whether to grant or deny
any concession or license or agreement. It merely gives the NCIP the
authority to ensure that the ICCs/IPs have been informed of the
agreement and that their consent thereto has been obtained. Note
that the certification applies to agreements over natural resources that
do not necessarily lie within the ancestral domains. For those that are
found within the said domains, Sections 7(b) and 57 of the IPRA apply.
PICOP rejects the entire disposition of this Court on the matter, relying
on the following theory:
84. It is quite clear that Section 59 of R.A. 8371 does not apply to the
automatic conversion of TLA 43 to IFMA.
First, the automatic conversion of TLA 43 to an IFMA is not a new
project. It is a mere continuation of the harvesting process in an area
that PICOP had been managing, conserving and reforesting for the last
50 years since 1952. Hence any pending application for a CADT within
the area, cannot affect much less hold back the automatic conversion.
That the government now wishes to change the tenurial system to an
IFMA could not change the PICOP project, in existence and operating
for the last 30 (sic) years, into a new one. 84
PICOP’s position is anything but clear. What is clearly provided for in
Section 59 is that it covers "issuing, renewing or granting (of) any
concession, license or lease, or entering into any production sharing
agreement." PICOP is implying that, when the government changed
the tenurial system to an IFMA, PICOP’s existing TLA would just be
upgraded or modified, but would be the very same agreement, hence,
dodging the inclusion in the word "renewing." However, PICOP is
conveniently leaving out the fact that its TLA expired in 2002. If PICOP
really intends to pursue the argument that the conversion of the TLA
into an IFMA would not create a new agreement, but would only be a
modification of the old one, then it should be willing to concede that the
IFMA expired as well in 2002. An automatic modification would not
alter the terms and conditions of the TLA except when they are
inconsistent with the terms and conditions of an IFMA. Consequently,
PICOP’s concession period under the renewed TLA No. 43, which is
from the year 1977 to 2002, would remain the same.
PICOP cannot rely on a theory of the case whenever such theory is
beneficial to it, but refute the same whenever the theory is damaging to
it. In the same way, PICOP cannot claim that the alleged Presidential
Warranty is "renewable for other 25 years" and later on claim that what
it is asking for is not a renewal. Extensions of agreements must
necessarily be included in the term renewal. Otherwise, the inclusion of
"renewing" in Section 59 would be rendered inoperative.
PICOP further claims:
85. Verily, in interpreting the term "held under claim of ownership," the
Supreme Court could not have meant to include claims that had just
been filed and not yet recognized under the provisions of DENR
Administrative Order No. 2 Series of 1993, nor to any other
community / ancestral domain program prior to R.A. 8371.
xxxx
87. One can not imagine the terrible damage and chaos to the country,
its economy, its people and its future if a mere claim filed for the
issuance of a CADC or CADT will already provide those who filed the
application, the authority or right to stop the renewal or issuance of any
concession, license or lease or any production-sharing agreement. The
same interpretation will give such applicants through a mere
application the right to stop or suspend any project that they can cite
for not satisfying the requirements of the consultation process of R.A.
8371. If such interpretation gets enshrined in the statures of the land,
the unscrupulous and the extortionists can put any ongoing or future
project or activity to a stop in any part of the country citing their right
from having filed an application for issuance of a CADC or CADT claim
and the legal doctrine established by the Supreme Court in this PICOP
case.85
We are not sure whether PICOP’s counsels are deliberately trying to
mislead us, or are just plainly ignorant of basic precepts of law. The
term "claim" in the phrase "claim of ownership" is not a document of
any sort. It is an attitude towards something. The phrase "claim of
ownership" means "the possession of a piece of property with the
intention of claiming it in hostility to the true owner." 86 It is also defined
as "a party’s manifest intention to take over land, regardless of title or
right."87 Other than in Republic Act No. 8371, the phrase "claim of
ownership" is thoroughly discussed in issues relating to acquisitive
prescription in Civil Law.
Before PICOP’s counsels could attribute to us an assertion that a mere
attitude or intention would stop the renewal or issuance of any
concession, license or lease or any production-sharing agreement, we
should stress beforehand that this attitude or intention must be clearly
shown by overt acts and, as required by Section 3(a), should have
been in existence "since time immemorial, continuously to the present
except when interrupted by war, force majeure or displacement by
force, deceit, stealth or as a consequence of government projects or
any other voluntary dealings entered into by government and private
individuals/corporations."
Another argument of PICOP involves the claim itself that there was no
overlapping:
Second, there could be no overlapping with any Ancestral Domain as
proven by the evidence presented and testimonies rendered during the
hearings in the Regional Trial Court. x x x.
x x x x.
88. The DENR issued a total of 73 CADCs as of December 11, 1996.
The DENR Undersecretary for Field Operations had recommended
another 11 applications for issuance of CADCs. None of the CADCs
overlap the TLA 43 area.
89. However former DENR Secretary Alvarez, in a memorandum dated
13 September, 2002 addressed to PGMA, insisted that PICOP had to
comply with the requirement to secure a Free and Prior Informed
Concent because CADC 095 was issued covering 17,112 hectares of
TLA 43.
90. This CADC 095 is a fake CADC and was not validly released by
the DENR. While the Legal Department of the DENR was still in the
process of receiving the filings for applicants and the oppositors to the
CADC application, PICOP came across filed copies of a CADC 095
with the PENRO of Davao Oriental as part of their application for a
Community Based Forest Management Agreement (CBFMA). Further
research came across the same group filing copies of the alleged
CADC 095 with the Mines and Geosciences Bureau in Davao City for a
mining agreement application. The two applications had two different
versions of the CADCs second page. One had Mr. Romeo T. Acosta
signing as the Social reform Agenda Technical Action Officer, while the
other had him signing as the Head, Community-Based Forest
Management Office. One had the word "Eight" crossed out and
"Seven" written to make it appear that the CADC was issued on
September 25, 1997, the other made it appear that there were no
alterations and the date was supposed to be originally 25 September
1997.
What is required in Section 59 of Republic Act No. 8379 is a
Certification from the NCIP that there was no overlapping with any
Ancestral Domain. PICOP cannot claim that the DENR gravely abused
its discretion for requiring this Certification, on the ground that there
was no overlapping. We reiterate that it is manifestly absurd to claim
that the subject lands must first be proven to be part of ancestral
domains before a certification that they are not can be required. As
discussed in the assailed Decision, PICOP did not even seek any
certification from the NCIP that the area covered by TLA No. 43,
subject of its IFMA conversion, did not overlap with any ancestral
domain.88
Sanggunian Consultation and Approval
While PICOP did not seek any certification from the NCIP that the
former’s concession area did not overlap with any ancestral domain,
PICOP initially sought to comply with the requirement under Sections
26 and 27 of the Local Government Code to procure prior approval of
the Sanggunians concerned. However, only one of the many provinces
affected approved the issuance of an IFMA to PICOP. Undaunted,
PICOP nevertheless submitted to the DENR the purported
resolution89 of the Province of Surigao del Sur indorsing the approval of
PICOP’s application for IFMA conversion, apparently hoping either that
the disapproval of the other provinces would go unnoticed, or that the
Surigao del Sur approval would be treated as sufficient compliance.
Surprisingly, the disapproval by the other provinces did go unnoticed
before the RTC and the Court of Appeals, despite the repeated
assertions thereof by the Solicitor General. When we pointed out in the
assailed Decision that the approval must be by all the Sanggunians
concerned and not by only one of them, PICOP changed its theory of
the case in its Motion for Reconsideration, this time claiming that they
are not required at all to procure Sanggunian approval.
Sections 2(c), 26 and 27 of the Local Government Code provide:
SEC. 2. x x x.
xxxx
(c) It is likewise the policy of the State to require all national agencies
and offices to conduct periodic consultations with appropriate local
government units, nongovernmental and people’s organizations, and
other concerned sectors of the community before any project or
program is implemented in their respective jurisdictions.
SEC. 26. Duty of National Government Agencies in the Maintenance of
Ecological Balance. – It shall be the duty of every national agency or
government-owned or controlled corporation authorizing or involved in
the planning and implementation of any project or program that may
cause pollution, climatic change, depletion of non-renewable
resources, loss of crop land, rangeland, or forest cover, and extinction
of animal or plant species, to consult with the local government units,
nongovernmental organizations, and other sectors concerned and
explain the goals and objectives of the project or program, its impact
upon the people and the community in terms of environmental or
ecological balance, and the measures that will be undertaken to
prevent or minimize the adverse effects thereof.
SEC. 27. Prior Consultations Required. – No project or program shall
be implemented by government authorities unless the consultations
mentioned in Sections 2(c) and 26 hereof are complied with, and prior
approval of the sanggunian concerned is obtained: Provided, That
occupants in areas where such projects are to be implemented shall
not be evicted unless appropriate relocation sites have been provided,
in accordance with the provisions of the Constitution.
As stated in the assailed Decision, the common evidence of the DENR
Secretary and PICOP, namely, the 31 July 2001 Memorandum of
Regional Executive Director (RED) Elias D. Seraspi, Jr., enumerated
the local government units and other groups which had expressed their
opposition to PICOP’s application for IFMA conversion:
7. During the conduct of the performance evaluation of TLA No. 43
issues complaints against PRI were submitted thru Resolutions and
letters. It is important that these are included in this report for
assessment of what are their worth, viz:
xxxx
7.2 Joint Resolution (unnumbered), dated March 19, 2001 of the
Barangay Council and Barangay Tribal Council of Simulao, Boston,
Davao Oriental (ANNEX F) opposing the conversion of TLA No. 43 into
IFMA over the 17,112 hectares allegedly covered with CADC No. 095.
7.3 Resolution Nos. 10, s-2001 and 05, s-2001 (ANNEXES G & H) of
the Bunawan Tribal Council of Elders (BBMTCE) strongly demanding
none renewal of PICOP TLA. They claim to be the rightful owner of the
area it being their alleged ancestral land.
7.4 Resolution No. 4, S-2001 of Sitio Linao, San Jose, Bislig City
(ANNEX I) requesting not to renew TLA 43 over the 900 hectares
occupied by them.
7.5 Resolution No. 22, S-2001 (ANNEX J) of the Sanguniang Bayan,
Lingig, Surigao del Sur not to grant the conversion of TLA 43 citing the
plight of former employees of PRI who were forced to enter and farm
portion of TLA No. 43, after they were laid off.
7.6 SP Resolution No. 2001-113 and CDC Resolution Nos. 09-2001 of
the Sanguniang Panglungsod of Bislig City (ANNEXES K & L)
requesting to exclude the area of TLA No. 43 for watershed purposes.
7.7 Resolution No. 2001-164, dated June 01, 2001 (ANNEX M)
Sanguniang Panglungsod of Bislig City opposing the conversion of
TLA 43 to IFMA for the reason that IFMA do not give revenue benefits
to the City.90
PICOP had claimed that it complied with the Local Government Code
requirement of obtaining prior approval of the Sanggunian concerned
by submitting a purported resolution 91 of the Province of Surigao del
Sur indorsing the approval of PICOP’s application for IFMA conversion.
We ruled that this cannot be deemed sufficient compliance with the
foregoing provision. Surigao del Sur is not the only province affected
by the area covered by the proposed IFMA. As even the Court of
Appeals found, PICOP’s TLA No. 43 traverses the length and breadth
not only of Surigao del Sur but also of Agusan del Sur, Compostela
Valley and Davao Oriental.92
On Motion for Reconsideration, PICOP now argues that the
requirement under Sections 26 and 27 does not apply to it:
97. PICOP is not a national agency. Neither is PICOP government
owned or controlled. Thus Section 26 does not apply to PICOP.
98. It is very clear that Section 27 refers to projects or programs to be
implemented by government authorities or government-owned and
controlled corporations. PICOP’s project or the automatic conversion is
a purely private endevour. First the PICOP project has been
implemented since 1969. Second, the project was being implemented
by private investors and financial institutions.
99. The primary government participation is to warrant and ensure that
the PICOP project shall have peaceful tenure in the permanent forest
allocated to provide raw materials for the project. To rule now that a
project whose foundations were commenced as early as 1969 shall
now be subjected to a 1991 law is to apply the law retrospectively in
violation of Article 4 of the Civil Code that laws shall not be applied
retroactively.
100. In addition, under DAO 30, Series of 1992, TLA and IFMA
operations were not among those devolved function from the National
Government / DENR to the local government unit. Under its Section
03, the devolved function cover only:
a) Community Based forestry projects.
b) Communal forests of less than 5000 hectares
c) Small watershed areas which are sources of local water
supply.93
We have to remind PICOP again of the contents of Section 2, Article
XII of the Constitution:
Section 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.
All projects relating to the exploration, development and utilization of
natural resources are projects of the State. While the State 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 these citizens, such as PICOP,
the projects nevertheless remain as State projects and can never be
purely private endeavors.
Also, despite entering into co-production, joint venture, or production-
sharing agreements, the State remains in full control and supervision
over such projects. PICOP, thus, cannot limit government participation
in the project to being merely its bouncer, whose primary participation
is only to "warrant and ensure that the PICOP project shall have
peaceful tenure in the permanent forest allocated to provide raw
materials for the project."
PICOP is indeed neither a national agency nor a government-owned or
controlled corporation. The DENR, however, is a national agency and
is the national agency prohibited by Section 27 from issuing an IFMA
without the prior approval of the Sanggunian concerned. As previously
discussed, PICOP’s Petition for Mandamus can only be granted if the
DENR Secretary is required by law to issue an IFMA. We, however,
see here the exact opposite: the DENR Secretary was actually
prohibited by law from issuing an IFMA, as there had been no prior
approval by all the other Sanggunians concerned.
As regards PICOP’s assertion that the application to them of a 1991
law is in violation of the prohibition against the non-retroactivity
provision in Article 4 of the Civil Code, we have to remind PICOP that it
is applying for an IFMA with a term of 2002 to 2027. Section 2, Article
XII of the Constitution allows exploitation agreements to last only "for a
period not exceeding twenty-five years, renewable for not more than
twenty-five years." PICOP, thus, cannot legally claim that the project’s
term started in 1952 and extends all the way to the present.
Finally, the devolution of the project to local government units is not
required before Sections 26 and 27 would be applicable. Neither
Section 26 nor 27 mentions such a requirement. Moreover, it is not
only the letter, but more importantly the spirit of Sections 26 and 27,
that shows that the devolution of the project is not required. The
approval of the Sanggunian concerned is required by law, not because
the local government has control over such project, but because the
local government has the duty to protect its constituents and their
stake in the implementation of the project. Again, Section 26 states
that it applies to projects that "may cause pollution, climatic change,
depletion of non-renewable resources, loss of crop land, rangeland, or
forest cover, and extinction of animal or plant species." The local
government should thus represent the communities in such area, the
very people who will be affected by flooding, landslides or even
climatic change if the project is not properly regulated, and who
likewise have a stake in the resources in the area, and deserve to be
adequately compensated when these resources are exploited.
Indeed, it would be absurd to claim that the project must first be
devolved to the local government before the requirement of the
national government seeking approval from the local government can
be applied. If a project has been devolved to the local government, the
local government itself would be implementing the project. That the
local government would need its own approval before implementing its
own project is patently silly.
EPILOGUE AND DISPOSITION
PICOP’c cause of action consists in the allegation that the DENR
Secretary, in not issuing an IFMA, violated its constitutional right
against non-impairment of contracts. We have ruled, however, that the
1969 Document is not a contract recognized under the non-impairment
clause, much less a contract specifically enjoining the DENR Secretary
to issue the IFMA. The conclusion that the 1969 Document is not a
contract recognized under the non-impairment clause has even been
disposed of in another case decided by another division of this Court,
PICOP Resources, Inc. v. Base Metals Mineral Resources
Corporation,94 the Decision in which case has become final and
executory. PICOP’s Petition for Mandamus should, therefore, fail.
Furthermore, even if we assume for the sake of argument that the
1969 Document is a contract recognized under the non-impairment
clause, and even if we assume for the sake of argument that the same
is a contract specifically enjoining the DENR Secretary to issue an
IFMA, PICOP’s Petition for Mandamus must still fail. The 1969
Document expressly states that the warranty as to the tenure of PICOP
is "subject to compliance with constitutional and statutory requirements
as well as with existing policy on timber concessions." Thus, if PICOP
proves the two above-mentioned matters, it still has to prove
compliance with statutory and administrative requirements for the
conversion of its TLA into an IFMA.
While we have withdrawn our pronouncements in the assailed
Decision that (1) PICOP had not submitted the required forest
protection and reforestation plans, and that (2) PICOP had unpaid
forestry charges, thus effectively ruling in favor of PICOP on all factual
issues in this case, PICOP still insists that the requirements of an NCIP
certification and Sanggunian consultation and approval do not apply to
it. To affirm PICOP’s position on these matters would entail nothing
less than rewriting the Indigenous Peoples’ Rights Act and the Local
Government Code, an act simply beyond our jurisdiction.

WHEREFORE, the Motion for Reconsideration of PICOP Resources,

Inc. is DENIED.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO PRESBITERO J.

MORALES VELASCO, JR.
Associate Justice Associate Justice

No part
TERESITA J.
ANTONIO EDUARDO B.
LEONARDO-DE CASTRO
NACHURA*
Associate Justice
Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

MARIANO C. DEL
LUCAS P. BERSAMIN
CASTILLO
Associate Justice
Associate Justice

MARTIN S. VILLARAMA,
ROBERTO A. ABAD
JR.
Associate Justice
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby

certified that the conclusions in the above Resolution were reached in
consultation before the case was assigned to the writer of the opinion
of the Court.

REYNATO S. PUNO
Chief Justice

FIRST DIVISION
[G.R. No. 120865-71. December 7, 1995.]
LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v.
COURT OF APPEALS; HON. JUDGE HERCULANO TECH,
PRESIDING JUDGE, BRANCH 70, REGIONAL TRIAL COURT OF
BINANGONAN RIZAL; FLEET DEVELOPMENT, INC. and CARLITO
ARROYO; THE MUNICIPALITY OF BINANGONAN and/or MAYOR
ISIDRO B. PACIS, Respondents.
[G.R. No. 120866. December 7, 1995.]
LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v.
COURT OF APPEALS; HON. JUDGE AURELIO C. TRAMPE,
PRESIDING JUDGE, BRANCH 163, REGIONAL TRIAL COURT OF
PASIG; MANILA MARINE LIFE BUSINESS RESOURCES, INC.
represented by, MR. TOBIAS REYNALD M. TIANGCO;
MUNICIPALITY OF TAGUIG, METRO MANILA and/or MAYOR
RICARDO D. PAPA, JR.,Respondents.
[G.R. No. 120867. December 7, 1995.]
LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v.
COURT OF APPEALS; HON. JUDGE ALEJANDRO A. MARQUEZ,
PRESIDING JUDGE, BRANCH 79, REGIONAL TRIAL COURT OF
MORONG, RIZAL; GREENFIELD VENTURES INDUSTRIAL
DEVELOPMENT CORPORATION and R. J. ORION DEVELOPMENT
CORPORATION; MUNICIPALITY OF JALA-JALA and/or MAYOR
WALFREDO M. DE LA VEGA, Respondents.
[G.R. No. 120868. December 7, 1995.]
LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v.
COURT OF APPEALS; HON. JUDGE MANUEL S. PADOLINA,
PRESIDING JUDGE, BRANCH 162, REGIONAL TRIAL COURT OF
PASIG, METRO MANILA; IRMA FISHING & TRADING CORP.;
ARTM FISHING CORP.; BDR CORPORATION, MIRT
CORPORATION and TRIM CORPORATION; MUNICIPALITY OF
BINANGONAN and/or MAYOR ISIDRO B. PACIS, Respondents.
[G.R. No. 120869. December 7, 1995.]
LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE,
PRESIDING JUDGE, BRANCH 78, REGIONAL TRIAL COURT OF
MORONG, RIZAL; BLUE LAGOON FISHlNG CORP. and ALCRIS
CHICKEN GROWERS, INC.; MUNICIPALITY OF JALA-JALA and/or
MAYOR WALFREDO M. DE LA VEGA, Respondents.
[G.R. No. 120870. December 7, 1995.]
LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE,
PRESIDING JUDGE, BRANCH 78, REGIONAL TRIAL COURT OF
MORONG, RIZAL; AGP FISH VENTURES, INC., represented by its
PRESIDENT ALFONSO PUYAT; MUNICIPALITY OF JALA-JALA
and/or MAYOR WALFREDO M. DE LA VEGA, Respondents.
[G.R. No. 120871. December 7, 1995.]
LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v.
COURT OF APPEALS; HON. JUDGE EUGENIO S. LABITORIA,
PRESIDING JUDGE, BRANCH 161, REGIONAL TRIAL COURT OF
PASIG, METRO MANILA; SEA MAR TRADING CO. INC.; EASTERN
LAGOON FISHING CORP.; MINAMAR FISHING CORP.;
MUNICIPALITY OF BINANGONAN and/or MAYOR ISIDRO B.
PACIS,Respondents.
DECISION
HERMOSISIMA, JR., J.:
It is difficult for a man, scavenging on the garbage dump created by
affluence and profligate consumption and extravagance of the rich or
fishing in the murky waters of the Pasig River and the Laguna Lake or
making a clearing in the forest so that he can produce food for his
family, to understand why protecting birds, fish, and trees is more
important than protecting him and keeping his family
alive.chanroblesvirtual|awlibrary
How do we strike a balance between environmental protection, on the
one hand, and the individual personal interests of people, on the
other?
Towards environmental protection and ecology, navigational safety,
and sustainable development, Republic Act No. 4850 created the
"Laguna Lake Development Authority." This Government Agency is
supposed to carry out and effectuate the aforesaid declared policy, so
as to accelerate the development and balanced growth of the Laguna
Lake area and the surrounding provinces, cities and towns, in the act
clearly named, within the context of the national and regional plans and
policies for social and economic development.
Presidential Decree No. 813 of former President Ferdinand E. Marcos
amended certain sections of Republic Act No. 4850 because of the
concern for the rapid expansion of Metropolitan Manila, the suburbs
and the lakeshore towns of Laguna de Bay, combined with current and
prospective uses of the lake for municipal-industrial water supply,
irrigation, fisheries, and the like. Concern on the part of the
Government and the general public over: — the environment impact of
development on the water quality and ecology of the lake and its
related river Systems; the inflow of polluted water from the Pasig River,
industrial, domestic and agricultural wastes from developed areas
around the lake; the increasing urbanization which induced the
deterioration of the lake, since water quality studies have shown that
the lake will deteriorate further if steps are not taken to check the
same; and the floods in Metropolitan Manila area and the lakeshore
towns which will influence the hydraulic system of Laguna de Bay,
since any scheme of controlling the floods will necessarily involve the
lake and its river systems, — likewise gave impetus to the creation of
the Authority.
Section 1 of Republic Act No. 4850 was amended to read as
follows:jgc:chanrobles.com.ph
"SECTION 1. Declaration of Policy. — It is hereby declared to be the
national policy to promote, and accelerate the development and
balanced growth of the Laguna Lake area and the surrounding
provinces, cities and towns hereinafter referred to as the region, within
the context of the national and regional plans and policies for social
and economic development and to carry out the development of the
Laguna Lake region with due regard and adequate provisions for
environmental management and control, preservation of the quality of
human life and ecological systems, and the prevention of undue
ecological disturbances, deterioration and pollution."
Special powers of the Authority, pertinent to the issues in this case,
include:jgc:chanrobles.com.ph
to be completely effective, the Chief Executive, feeling that the land
and waters of the Laguna Lake Region are limited natural resources
requiring judicious management to their optimal utilization to insure
renewability and to preserve the ecological balance, the competing
options for the use of such resources and conflicting jurisdictions over
such uses having created undue constraints on the institutional
capabilities of the Authority in the light of the limited powers vested in it
1  by its charter, Order No. 927 further defined and enlarged the functions
and powers of the Authority and named and enumerated the towns,
cities and provinces encompassed by the term "Laguna de Bay
Region" .

"SEC. 3. Section 4 of the same Act is hereby further amended by
adding thereto seven new paragraphs to be known as paragraphs (j),
(k), (1), (m), (n), (o), and (p) which shall read as follows:chanrob1es
virtual 1aw library
x       x       x
‘(j) The provisions of existing laws to the contrary notwithstanding, to
engage in fish production and other aqua-culture projects in Laguna de
Bay and other bodies of water within its jurisdiction and in pursuance
thereof to conduct studies and make experiments, whenever
necessary, with the collaboration and assistance of the Bureau of
Fisheries and Aquatic Resources, with the end in view of improving
present techniques and practices. Provided, that until modified, altered
or amended by the procedure provided in the following sub-paragraph,
the present laws, rules and permits or authorizations remain in force;
(k) For the purpose of effectively regulating and monitoring activities in
Laguna de Bay, the Authority shall have exclusive jurisdiction to issue
new permit for the use of the lake waters for any projects or activities in
or affecting the said lake including navigation. construction, and
operation of fishpens, fish enclosures, fish corrals and the like, and to
impose necessary safeguards for lake quality control and management
and to collect necessary fees for said activities and projects: Provided,
That the fees collected for fisheries may be shared between the
Authority and other government agencies and political sub-divisions in
such proportion as may be determined by the President of the
Philippines upon recommendation of the Authority’s Board: Provided,
further, That the Authority’s Board may determine new areas of fishery
development or activities which it may place under the supervision of
the Bureau of Fisheries and Aquatic Resources taking into account the
overall development plans and programs for Laguna de Bay and
related bodies of water: Provided, finally, That the Authority shall
subject to the approval of the President of the Philippines promulgate
such rules and regulations which shall govern fisheries development
activities in Laguna de Bay which shall take into consideration among
others the following: socio-economic amelioration of bonafide resident
fishermen whether individually or collectively in the form of
cooperatives, lakeshore town development, a master plan for fishpen
construction and operation, communal fishing ground for lake shore
town residents, and preference to lake shore town residents in hiring
laborers for fishery projects;
(l) To require the cities and municipalities embraced within the region
to pass appropriate zoning ordinances and other regulatory measures
necessary to carry out the objectives of the Authority and enforce the
same with the assistance of the Authority;
(m) The provisions of existing laws to the contrary notwithstanding, to
exercise water rights over public waters within the Laguna de Bay
region whenever necessary to carry out the Authority’s projects;
(n) To act in coordination with existing governmental agencies in
establishing water quality standards for industrial, agricultural and
municipal waste discharges into the lake and to cooperate with said
existing agencies of the government of the Philippines in enforcing
such standards, or to separately pursue enforcement and penalty
actions as provided for in Section 4 (d) and Section 39-A of this Act:
Provided, That in case of conflict on the appropriate water quality
standard to be enforced such conflict shall be resolved thru the NEDA
Board;’" 2  waters and impose rental fees or charges therefor in accordance with
To more effectively perform the role of the Authority under Republic
Act No. 4850, as though Presidential Decree No. 813 were not thought
Also, pertinent to the issues in this case are the following provisions of
Executive Order No. 927 which include in particular the sharing of
fees:jgc:chanrobles.com.ph
"SEC 2. Water Rights Over Laguna de Bay and Other Bodies of Water
within the Lake Region: To effectively regulate and monitor activities in
the Laguna de Bay region, the Authority shall have exclusive
jurisdiction to issue permit for the use of all surface water for any
projects or activities in or affecting the said region including navigation,
construction, and operation of fishpens, fish enclosures, fish corrals
and the like.
For the purpose of this Executive Order, the term ‘Laguna de Bay
Region’ shall refer to the Provinces of Rizal and Laguna; the Cities of
San Pablo, Pasay, Caloocan, Quezon, Manila and Tagaytay; the towns
of Tanauan, Sto. Tomas and Malvar in Batangas Province; the towns
of Silang and Carmona in Cavite Province; the town of Lucban in
Quezon Province; and the towns of Marikina, Pasig, Taguig,
Muntinlupa, and Pateros in Metro Manila.
SEC. 3. Collection of Fees. — The Authority is hereby empowered to
collect fees for the use of the lake water and its tributaries for all
beneficial purposes including but not limited to fisheries, recreation,
municipal, industrial, agricultural, navigation, irrigation, and waste
disposal purpose; Provided, that the rates of the fees to be collected,
and the sharing with other government agencies and political
subdivisions, if necessary, shall be subject to the approval of the
President of the Philippines upon recommendation of the Authority’s
Board, except fishpen fee, which will be shared in the following
manner: 20 percent of the fee shall go to the lakeshore local
governments, 5 percent shall go to the Project Development Fund
which shall be administered by a Council and the remaining 75 percent
shall constitute the share of LLDA. However, after the implementation
within the three-year period of the Laguna Lake Fishery Zoning and
Management Plan the sharing will be modified as follows: 35 percent
of the fishpen fee goes to the lakeshore local governments, 5 percent
goes to the Project Development Fund and the remaining 60 percent
shall be retained by LLDA; Provided, however, that the share of LLDA
shall form part of its corporate funds and shall not be remitted to the
National Treasury as an exception to the provisions of Presidential
Decree No. 1234." (Emphasis supplied)
It is important to note that Section 29 the term "Laguna Lake" in this
manner:jgc:chanrobles.com.ph
"SECTION 41. Definition of Terms.
(11) Laguna Lake or Lake. Whenever Laguna Lake or lake is used in
this Act Laguna de Bay which is that a water when it is at the average
level of elevation 12.50 meters, 10.00 meters below mean lower low
Lands located at and below such elevation are public lands which form
part of the bed of said lake."cralaw virtua1aw library
Then came Republic Act No. 7160, the Local Government Code of
1991. The municipalities in the Laguna Lake Region interpreted the
provisions of this law to mean that the newly passed law gave
municipal governments the exclusive jurisdiction to issue fishing
privileges within their municipal waters because R.A. 7160
provides:jgc:chanrobles.com.ph
"Sec. 149. Fishery Rentals; Fees and Charges. (a) Municipalities shall
have the exclusive authority to grant fishery privileges in the municipal
the provisions of this Section.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
(b) The Sangguniang Bayan may:chanrob1es virtual 1aw library
(1) Grant fishing privileges to erect fish corrals oyster, mussel or other
aquatic beds or bangus fry areas within a definite zone of the municipal
waters, as determined by it; . .
(2) Grant privilege to gather, take or catch bangus fry, prawn fry or
kawag-kawag or fry of other species and fish from the municipal waters
by nets, traps or other fishing gears to marginal fishermen free from
any rental fee, charges or any other imposition whatsoever.
x       x       x
Sec. 447. Power, Duties, Functions and Compensation. . . .,
(1) . .
(2) . .
(XI) Subject to the provisions of Book II of this Code, grant exclusive
privileges of constructing fish corrals or fishpens, or the taking or
catching of bangus fry, prawn fry or kawag-kawag or fry of any species
or fish within the municipal waters.
x       x       x"  Rizal, filed by Greenfields Ventures Industrial Corp. and R.J. Orion
Municipal governments thereupon assumed the authority to issue
fishing privileges and fishpen permits. Big fishpen operators took
advantage of the occasion to establish fishpens and fishcages to the
consternation of the Authority. Unregulated fishpens and fishcages, as
of July, 1995, occupied almost one-third the entire lake water surface
area, increasing the occupation drastically from 7,000 hectares in 1990
to almost 21,000 hectares in 1995. The Mayor’s permit to construct
fishpens and fishcages were all undertaken in violation of the policies
adopted by the Authority on fishpen zoning and the Laguna Lake
carrying capacity.
To be sure, the implementation by the lakeshore municipalities of
separate independent policies in the operation of fishpens and
fishcages within their claimed territorial municipal waters in the lake
and their indiscriminate grant of fishpens permits have already
saturated the lake area with fishpens, thereby aggravating the current
environmental problems and ecological stress of Laguna Lake.
In view of the foregoing circumstances, the Authority served notice to
the general public that:jgc:chanrobles.com.ph
"In compliance with the instructions of His Excellency PRESIDENT
FIDEL V. RAMOS given on June 23, 1993 at Pila, Laguna, pursuant to
Republic Act 4850 as amended by Presidential Decree 813 and
Executive Order 927 series of 1983 and in line with the policies and
programs of the Presidential Task Force on Illegal Fishpens and Illegal
Fishing, the general public is hereby notified that:chanrob1es virtual
1aw library
1. All fishpens, fishcages and other aqua-culture structures in the
Laguna de Bay Region, which were not registered or to which no
application for registration and/or permit has been filed with Laguna
Lake Development Authority as of March 31, 1993 are hereby declared
outrightly as illegal.
2. All fishpens; fishcages and other aqua-culture structures so declared
as illegal shall be subject to demolition which shall be undertaken by
the Presidential Task Force for illegal Fishpen and Illegal Fishing.
3. Owners of fishpens, fishcages and other aqua-culture structures
declared as illegal shall, without prejudice to demolition of their
structures be criminally charged in accordance with Section 39-A of
Republic Act 4850 as amended by P.D. 813 for violation of the same
laws. Violations of these laws carries a penalty of imprisonment of not
exceeding 3 years or a fine not exceeding Five Thousand Pesos or
both at the discretion of the court.
All operators of fishpens, fishcages and other aqua-culture structures
declared as illegal in accordance with the foregoing Notice shall have
one (1) month on or before 27 October 1993 to show cause before the
LLDA why their said fishpens, fishcages and other aqua-culture
structures should not be demolished/dismantled." chanrobles virtual
lawlibrary
. One month, thereafter, the Authority sent notices to the concerned
owners of the illegally constructed fishpens, fishcages and other aqua-
culture structures advising them to dismantle their respective
structures within 10 days from receipt thereof, otherwise, demolition
shall be effected.
Reacting thereto, the affected fishpen owners filed injunction cases
against the Authority before various regional trial courts, to wit: (a) Civil
Case No. 759-B, for Prohibition, Injunction and Damages, Regional
Trial Court, Branch 70, Binangonan, Rizal, filed by Fleet Development,
Inc. and Carlito Arroyo; (b) Civil Case No. 64049, for Injunction,
Regional Trial Court, Branch 162, Pasig, filed by IRMA Fishing and
Trading Corp., ARTM Fishing Corp., BDR Corp., MIRT Corp. and
. TRIM Corp.; (c) Civil Case No. 566, for Declaratory Relief and
Injunction, Regional Trial Court, Branch 163, Pasig, filed by Manila
. Marine Life Business Resources, Inc. and Tobias Reynaldo M. Tianco;
(d) Civil Case No. 556-M, for Prohibition, Injunction and Damages,
Regional Trial Court, Branch 78, Morong, Rizal, filed by AGP Fishing
Ventures, Inc.; (e) Civil Case No. 522-M, for Prohibition, Injunction and
Damages, Regional Trial Court, Branch 78, Morong, Rizal, filed by
Blue Lagoon and Alcris Chicken Growers, Inc.; (f) Civil Case No. 554-,
for Certiorari and Prohibition, Regional Trial Court, Branch 79, Morong,
Development Corp.; and (g) Civil Case No. 64124, for Injunction,
Regional Trial Court, Branch 15, Pasig, filed by SEA-MAR Trading Co.,
Inc. and Eastern Lagoon Fishing Corp. and Minamar Fishing
Corporation.
The Authority filed motions to dismiss the cases against it on
jurisdictional grounds. The motions to dismiss were invariably denied.
Meanwhile, temporary restraining order/writs of preliminary mandatory
injunction were issued in Civil Cases Nos. 64124, 759 and 566
enjoining the Authority from demolishing the fishpens and similar
structures in question.
Hence, the herein petition for certiorari, prohibition and injunction, G.R
Nos. 120865-71, were filed by the Authority with this court. Impleaded
as parties-respondents are concerned regional trial courts and
respective private parties, and the municipalities and/or respective
Mayors of Binangonan, Taguig and Jala-jala, who issued permits for
the construction and operation of fishpens in Laguna de Bay. The
Authority sought the following reliefs, viz.:jgc:chanrobles.com.ph
"(A) Nullification of the temporary restraining order/writs of preliminary
injunction issued in civil Cases Nos. 64125, 759 and 566;
(B) Permanent prohibition against the regional trial courts from
exercising jurisdiction over cases involving the Authority which is a co-
equal body;
(C) Judicial pronouncement that R.A. 7610 (Local Government Code of
1991) did not repeal, after or modify the provisions of R.A. 4850, as
amended, empowering the Authority to issue permits for fishpens,
fishcages and other aqua-culture structures in Laguna de Bay and that,
the Authority the government agency vested with exclusive authority to
issue said permits."cralaw virtua1aw library
By this Court’s resolution of May 2, 1994, the Authority’s consolidated
petitions were referred to the Court of Appeals.
In a Decision, dated June 29, 1995, the Court of Appeals dismissed
the Authority’s consolidated petitions, the Court of Appeals holding
that: (A) LLDA is not among those quasi-judicial agencies of
government appealable only to the Court of Appeals; (B) the LLDA
charter does vest LLDA with quasi-judicial functions insofar as fishpens
are concerned; (C) the provisions of the LLDA charter insofar as
fishing privileges in Laguna de Bay are concerned had been repealed
by the Local Government Code of 1991; (D) in view of the aforesaid
repeal, the power to grant permits devolved to respective local
government units concerned.
Not satisfied with the Court of Appeals decision to this Court charging
the following errors:jgc:chanrobles.com.ph
"1. THE HONORABLE COURT OF APPEALS PROBABLY
COMMITTED AN ERROR WHEN IT RULED THAT THE LAGUNA
LAKE DEVELOPMENT AUTHORITY IS NOT A QUASI-JUDICIAL
AGENCY.
2. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERROR WHEN IT RULED THAT R.A. 4850 AS AMENDED BY P.D.
813 AND E.O. 927 SERIES OF 1983 HAS BEEN REPEALED BY
REPUBLIC ACT 7160. THE SAID RULING IS CONTRARY TO
ESTABLISHED PRINCIPLES AND JURISPRUDENCE OF
STATUTORY CONSTRUCTION.
3. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERROR WHEN IT RULED THAT THE POWER TO ISSUE FISHPEN
PERMITS IN LAGUNA DE BAY HAS BEEN DEVOLVED TO
CONCERNED (LAKESHORE) LOCAL GOVERNMENT UNITS."cralaw
virtua1aw library
We take a simplistic view of the controversy. Actually, the main and
only use posed is: Which agency of the Government - the Laguna Lake
Development Authority or the towns and municipalities comprising the
region — should exercise jurisdiction over the Laguna Lake and its
environs insofar as the issuance of permits for fishery privileges is
concerned?
Section 4 (k) of the charter of the Laguna Lake Development Authority,
Republic Act No. 4850, the provisions of Presidential Decree No. 813,
and Section 2 of Executive Order No. 927, cited above, specifically
provide that the Laguna Lake Development Authority shall have
exclusive jurisdiction to issue permits for the use or all surface water
for any projects or activities in or affecting the said region, including
navigation, construction, and operation of fishpens, fish enclosures,
fish corrals and the like. On the other hand, Republic Act No. 7160, the
Local Government Code of 1991, has granted to the municipalities the
exclusive authority to grant fishery privileges in municipal waters. The
Sangguniang Bayan may grant fishery privileges to erect fish corrals,
oyster, mussels or other aquatic beds or bangus fry area within a
definite zone of the municipal waters.chanroblesvirtualawlibrary
We hold that the provisions of Republic Act No. 7160 do not
necessarily repeal the aforementioned laws creating the Laguna Lake
Development Authority and granting the latter water rights authority
over Laguna de Bay and the lake region.
The Local Government Code of 1991 does not contain any express
provision which categorically expressly repeal the charter of the
Authority. It has to be conceded that there was no intent on the part of
the legislature to repeal Republic Act No. 4850 and its amendments.
The repeal of laws should be made clear and expressed.
It has to be conceded that the charter of the Laguna Lake
Development Authority constitutes a special law. Republic Act No.
7160, the Local Government Code of 1991, is a general law. It is basic
is basic in statutory construction that the enactment of a later
legislation which is a general law cannot be construed to have
repealed a special law. It is a well-settled rule in this jurisdiction that "a
special statute, provided for a particular case or class of cases, is not
repealed by a subsequent statute, general in its terms, provisions and
application, unless the intent to repeal or alter is manifest, although the
terms of the general law are broad enough to include the cases
embraced in the special law."
Where there is a conflict between a general law and a special statute,
the special statute should prevail since it evinces the legislative intent
more clearly that the general statute. The special law is to be taken as
an exception to the general law in the absence of special
circumstances forcing a contrary conclusion. This is because implied
repeals are not favored and as much as possible, given to all
enactments of the legislature. A special law cannot be repealed,
amended or altered by a subsequent general law by mere implication.
4  As a general rule, the adjudication of pollution cases generally pertains
Thus, it has to be concluded that the charter of the Authority should
prevail over the Local Government Code of 1991.
Considering the reasons behind the establishment of the Authority,
which are environmental protection, navigational safety, and
sustainable development, there is every indication that the legislative
intent is for the Authority to proceed with its mission.
We are on all fours with the manifestation of petitioner Laguna Lake
Development Authority that "Laguna de Bay, like any other single body
of water has its own unique natural ecosystem. The 900 km2 lake
surface water, the eight (8) major river tributaries and several other
smaller rivers that drain into the lake, the 2,920 km2 basin or
watershed transcending the boundaries of Laguna and Rizal
provinces, constitute one integrated delicate natural ecosystem that
needs to be protected with uniform set of policies; if we are to be
serious in our aims of attaining sustainable development. This is an
exhaustible natural resource — a very limited one — which requires
judicious management and optimal utilization to ensure renewability
and preserve its ecological integrity and balance."cralaw virtua1aw
library
"Managing the lake resources would mean the implementation of a
national policy geared towards the protection, conservation, balanced
growth and sustainable development of the region with due regard to
the inter-generational use of its resources by the inhabitants in this part
of the earth. The authors of Republic Act 4850 have foreseen this need
when they passed this LLDA law — the special law designed to govern
the management of our Laguna de Bay lake resources."cralaw
virtua1aw library
"Laguna de Bay therefore cannot be subjected to fragmented concepts
of management policies where lakeshore local government units
exercise exclusive dominion over specific portions of the lake water.
The garbage thrown or sewage discharged into the lake, abstraction of
water therefrom or construction of fishpens by enclosing its certain
area, affect not only that specific portion but the entire 900 km2 of lake
water. The implementation of a cohesive and integrated lake water
resource management policy, therefore, is necessary to conserve,
protect and sustainably develop Laguna de Bay." 5
The power of the local government units to issue fishing privileges was
clearly granted for revenue purposes. This is evident from the fact that
Section 149 of the New Local Government Code empowering local
governments to issue fishing permits is embodied in Chapter 2, Book
II, of Republic Act No. 7160 under the heading, "Specific Provisions On
The Taxing And Other Revenue Raising Power of Local Government
Units."cralaw virtua1aw library
On the other hand, the power of the Authority to grant permits for
fishpens, fishcages and other aqua-culture structures is for the
purpose of effectively regulating and monitoring activities in the Laguna
de Bay region (Section 2, Executive Order No. 927) and for lake quality
control and management. 6 It does partake of the nature of police
power which is the most pervasive, the least limitable and the most
demanding of all State powers including the power of taxation.
Accordingly, the charter of the Authority which embodies a valid
exercise of police power should prevail over the Local Government
Code of 1991 on matters affecting Laguna de Bay.
There should be no quarrel over permit fees for fishpens, fishcages
and other aqua-culture structures in the Laguna de Bay area. Section 3
of Executive Order No. 927 provides for the proper sharing of fees
collected.
In respect to the question as to whether the Authority is a quasi-judicial
3  agency or not, it is our holding that, considering the provisions of
Section 4 of Republic Act No. 4850 and Section 4 of Executive Order
No. 927, series of 1983, and the ruling of this Court in Laguna Lake
Development Authority v. Court of Appeals, 231 SCRA 304, 306, which
we quote:chanrob1es virtual 1aw library
x       x       x
to the Pollution Adjudication Board (PAR), except in cases where the
special law provides for another forum It must be recognized in this
regard that the LLDA, as a specialized administrative agency, is
specifically mandated under Republic Act No. 4850 and its amendatory
laws to carry out and make effective the declared national policy of
promoting and accelerating the development and balanced growth of
the Laguna Lake area and the surrounding provinces of Rizal and
Laguna and the cities of San Pablo, Manila, Pasay, Quezon and
Caloocan with due regard and adequate provisions for environmental
management and control, preservation of the quality of human life and
ecological systems, and the prevention of undue ecological
disturbances, deterioration and pollution. Under such a broad grant of
power and authority, the LLDA, by virtue of its special charter,
obviously has the responsibility to protect the inhabitants of the Laguna
Lake region from the deleterious effects of pollutants emanating from
the discharge of wastes from the surrounding areas. In carrying out the
aforementioned declared policy, the LLDA is mandated, among others,
to pass upon and approve or disapprove all plans, programs, and
projects proposed by local government offices/agencies within the
region, public corporations, and private persons or enterprises where
such plans, programs and/or projects are related to those of the LLDA
for the development of the region.
x       x       x
The fishpens, fishcages and other aqua-culture structures put up by
operators by virtue of permits issued by Municipal Mayors within the
Laguna Lake Region, specifically, permits issued to Fleet
Development, Inc. and Carlito Arroyo; Manila Marine Life Business
Resources, Inc., represented by, Mr. Tobias Reynald M. Tiangco;
Greenfield Ventures Industrial Development Corporation and R.J.
Orion Development Corporation; IRMA Fishing And Trading
Corporation, ARTM Fishing Corporation, BDR Corporation, Mirt
Corporation and Trim Corporation; Blue Lagoon Fishing Corporation
and ALCRIS Chicken Growers, Inc.; AGP Fish Ventures, Inc.,
represented by its President Alfonso Puyat; SEA MAR Trading Co.,
Inc., Eastern Lagoon Fishing Corporation, and MINAMAR Fishing
Corporation, are hereby declared illegal structures subject to
demolition by the Laguna Lake Development Authority.
SO ORDERED.
Davide, Jr., Bellosillo and Kapunan, JJ., concur.

. . . While it is a fundamental rule that an administrative agency has Separate Opinions

only such powers as are expressly granted to it by law, it is likewise a
settled rule that an administrative agency has also such powers as are
necessarily implied in the exercise of its express powers. In the
exercise, therefore, of its express powers under its charter, as a
regulatory and quasi-judicial body with respect to pollution cases in the
Laguna Lake region, the authority of the LLDA to issue a ‘cease and
desist order’ is, perforce, implied Otherwise, it may well be reduced to
a ‘toothless’ paper agency." chanroblesvirtuallawlibrary:red
there is no question that the Authority has express powers as a
regulatory a quasi-judicial body in respect to pollution cases with
authority to issue a "cease a desist order" and on matters affecting the
construction of illegal fishpens, fishcages and other aqua-culture
structures in Laguna de Bay. The Authority’s pretense, however, that it
is co-equal to the Regional Trial Courts such that all actions against it
may only be instituted before the Court of Appeals cannot be
sustained. On actions necessitating the resolution of legal questions
affecting the powers of the Authority as provided for in its charter, the
Regional Trial Courts have jurisdiction.
PADILLA, J., concurring:chanrob1es virtual 1aw library
I fully concur with the decision written by Mr. Justice R. Hermosisima,
Jr.. I would only like to stress what the decision already states, i.e., that
the local government units in the Laguna Lake area are not precluded
from imposing permits on fishery operations for revenue raising
purposes of such local government units. In other words, while the
exclusive jurisdiction to determine whether or not projects or activities
in the lake area should be allowed, as well as their regulation, is with
the Laguna Lake Development Authority, once the Authority grants a
permit, the permittee may still be subjected to an additional local permit
or license for revenue purposes of the local government units
concerned. This approach would clearly harmonize the special law,
Rep. Act No. 4850, as amended, with Rep. Act No. 7160, the Local
Government Code. It will also enable small towns and municipalities in
the lake area, like Jala-Jala, to rise to some level of economic viability.

In view of the foregoing, this Court holds that Section 149 of Republic
Act No. 7160, otherwise known as the Local Government Code of
1991, has not repealed the provisions of the charter of the Laguna
Lake Development Authority, Republic Act No. 4850, as amended.
Thus, the Authority has the exclusive jurisdiction to issue permits for
the enjoyment of fishery privileges in Laguna de Bay to the exclusion
of municipalities situated therein and the authority to exercise such
powers as are by its charter vested on it.

Removal from the Authority of the aforesaid licensing authority will

render nugatory its avowed purpose of protecting and developing the
Laguna Lake Region. Otherwise stated, the abrogation of this power
would render useless its reason for being and will in effect denigrate, if
not abolish, the Laguna Lake Development Authority. This, the Local
Government Code of 1991 had never intended to do. 

WHEREFORE, the petitions for prohibition, certiorari and injunction are

hereby granted, insofar as they relate to the authority of the Laguna
Lake Development Authority to grant fishing privileges within the
Laguna Lake Region.

The restraining orders and/or writs of injunction issued by Judge Arturo

Marave, RTC, Branch 78, Morong, Rizal; Judge Herculano Tech, RTC,
Branch 70, Binangonan, Rizal; and Judge Aurelio Trampe, RTC,
Branch 163, Pasig, Metro Manila, are hereby declared null and void
and ordered set aside for having been issued with grave abuse of
discretion.

The Municipal Mayors of the Laguna Lake Region are hereby

prohibited from issuing permits to construct and operate fishpens,
fishcages and other aqua-culture structures within the Laguna Lake
Region, their previous issuances being declared null and void. Thus,
the fishing permits issued by Mayors Isidro B. Pacis, Municipality of
Binangonan; Ricardo D. Papa, Municipality of Taguig; and Walfredo M.
de Ia Vega, Municipality of Jala-jala, specifically, are likewise declared
null and void and ordered cancelled.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 110120 March 16, 1994
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner, 
vs.
COURT OF APPEALS, HON. MANUEL JN. SERAPIO, Presiding
Judge RTC, Branch 127, Caloocan City, HON. MACARIO A.
ASISTIO, JR., City Mayor of Caloocan and/or THE CITY
GOVERNMENT OF CALOOCAN,respondents.
Alberto N. Hidalgo and Ma. Teresa T. Oledan for petitioner.
The City Legal Officer & Chief, Law Department for Mayor Macario
A. Asistio, Jr. and the City Government of Caloocan.
ROMERO, J.:
The clash between the responsibility of the City Government of
Caloocan to dispose off the 350 tons of garbage it collects daily and
the growing concern and sensitivity to a pollution-free environment of
the residents of Barangay Camarin, Tala Estate, Caloocan City where
these tons of garbage are dumped everyday is the hub of this
controversy elevated by the protagonists to the Laguna Lake
Development Authority (LLDA) for adjudication.
The instant case stemmed from an earlier petition filed with this Court
by Laguna Lake Development Authority (LLDA for short) docketed as
G.R.  On September 25, 1992, the Executive Judge of the Regional Trial
No. 107542 against the City Government of Caloocan, et al. In the
Resolution of November 10, 1992, this Court referred G.R. No. 107542
to the Court of Appeals for appropriate disposition. Docketed therein as
CA-G.R. SP 
No. 29449, the Court of Appeals, in a decision 1 promulgated on
January 29, 1993 ruled that the LLDA has no power and authority to
issue a cease and desist order enjoining the dumping of garbage in
Barangay Camarin, Tala Estate, Caloocan City. The LLDA now seeks,
in this petition, a review of the decision of the Court of Appeals.
The facts, as disclosed in the records, are undisputed.
On March 8, 1991, the Task Force Camarin Dumpsite of Our Lady of
Lourdes Parish, Barangay Camarin, Caloocan City, filed a letter-
complaint2 with the Laguna Lake Development Authority seeking to
stop the operation of the 8.6-hectare open garbage dumpsite in Tala
Estate, Barangay Camarin, Caloocan City due to its harmful effects on
the health of the residents and the possibility of pollution of the water
content of the surrounding area.
On November 15, 1991, the LLDA conducted an on-site investigation,
monitoring and test sampling of the leachate 3 that seeps from said
dumpsite to the nearby creek which is a tributary of the Marilao River.
The LLDA Legal and Technical personnel found that the City
Government of Caloocan was maintaining an open dumpsite at the
Camarin area without first securing an Environmental Compliance
Certificate (ECC) from the Environmental Management Bureau (EMB)
of the Department of Environment and Natural Resources, as required
under Presidential Decree No. 1586, 4 and clearance from LLDA as
required under Republic Act No. 4850, 5 as amended by Presidential
Decree No. 813 and Executive Order No. 927, series of 1983.6
After a public hearing conducted on December 4, 1991, the LLDA,
acting on the complaint of Task Force Camarin Dumpsite, found that
the water collected from the leachate and the receiving streams could
considerably affect the quality, in turn, of the receiving waters since it
indicates the presence of bacteria, other than coliform, which may
have contaminated the sample during collection or handling. 7 On
December 5, 1991, the LLDA issued a Cease and Desist
Order8 ordering the City Government of Caloocan, Metropolitan Manila
Authority, their contractors, and other entities, to completely halt, stop
and desist from dumping any form or kind of garbage and other waste
matter at the Camarin dumpsite.
The dumping operation was forthwith stopped by the City Government
of Caloocan. However, sometime in August 1992 the dumping
operation was resumed after a meeting held in July 1992 among the
City Government of Caloocan, the representatives of Task Force
Camarin Dumpsite and LLDA at the Office of Environmental
Management Bureau Director Rodrigo U. Fuentes failed to settle the
problem.
After an investigation by its team of legal and technical personnel on
August 14, 1992, the LLDA issued another order reiterating the
December 5, 1991, order and issued an Alias Cease and Desist Order
enjoining the City Government of Caloocan from continuing its
dumping operations at the Camarin area.
On September 25, 1992, the LLDA, with the assistance of the
Philippine National Police, enforced its Alias Cease and Desist Order
by prohibiting the entry of all garbage dump trucks into the Tala Estate,
Camarin area being utilized as a dumpsite.
Pending resolution of its motion for reconsideration earlier filed on
September 17, 1992 with the LLDA, the City Government of Caloocan
filed with the Regional Trial Court of Caloocan City an action for the
declaration of nullity of the cease and desist order with prayer for the
issuance of writ of injunction, docketed as Civil Case No. C-15598. In
its complaint, the City Government of Caloocan sought to be declared
as the sole authority empowered to promote the health and safety and
enhance the right of the people in Caloocan City to a balanced ecology
within its territorial jurisdiction. 9
Court of Caloocan City issued a temporary restraining order enjoining
the LLDA from enforcing its cease and desist order. Subsequently, the
case was raffled to the Regional Trial Court, Branch 126 of Caloocan
which, at the time, was presided over by Judge Manuel Jn. Serapio of
the Regional Trial Court, Branch 127, the pairing judge of the recently-
retired presiding judge.
The LLDA, for its part, filed on October 2, 1992 a motion to dismiss on
the ground, among others, that under Republic Act No. 3931, as
amended by Presidential Decree No. 984, otherwise known as the
Pollution Control Law, the cease and desist order issued by it which is
the subject matter of the complaint is reviewable both upon the law and
the facts of the case by the Court of Appeals and not by the Regional
Trial Court. 10
On October 12, 1992 Judge Manuel Jn. Serapio issued an order
consolidating Civil Case No. C-15598 with Civil Case No. C-15580, an
earlier case filed by the Task Force Camarin Dumpsite entitled "Fr.
John Moran, et al. vs. Hon. Macario Asistio." The LLDA, however,
maintained during the trial that the foregoing cases, being independent
of each other, should have been treated separately.
It was agreed at the conference that the LLDA had until December 15,
1992 to finish its study and review of respondent's technical plan with
respect to the dumping of its garbage and in the event of a rejection of
respondent's technical plan or a failure of settlement, the parties will
submit within 10 days from notice their respective memoranda on the
merits of the case, after which the petition shall be deemed submitted
for resolution.15 Notwithstanding such efforts, the parties failed to settle
the dispute.
On April 30, 1993, the Court of Appeals promulgated its decision
holding that: (1) the Regional Trial Court has no jurisdiction on appeal
to try, hear and decide the action for annulment of LLDA's cease and
desist order, including the issuance of a temporary restraining order
and preliminary injunction in relation thereto, since appeal therefrom is
within the exclusive and appellate jurisdiction of the Court of Appeals
under Section 9, par. (3), of Batas Pambansa Blg. 129; and (2) the
Laguna Lake Development Authority has no power and authority to
issue a cease and desist order under its enabling law, Republic Act
No. 4850, as amended by P.D. No. 813 and Executive Order 
No. 927, series of 1983.

On October 16, 1992, Judge Manuel Jn. Serapio, after hearing the
motion to dismiss, issued in the consolidated cases an order 11 denying
LLDA's motion to dismiss and granting the issuance of a writ of
preliminary injunction enjoining the LLDA, its agent and all persons
acting for and on its behalf, from enforcing or implementing its cease
and desist order which prevents plaintiff City of Caloocan from
dumping garbage at the Camarin dumpsite during the pendency of this
case and/or until further orders of the court.
On November 5, 1992, the LLDA filed a petition for certiorari,
prohibition and injunction with prayer for restraining order with the
Supreme Court, docketed as G.R. No. 107542, seeking to nullify the
aforesaid order dated October 16, 1992 issued by the Regional Trial
Court, Branch 127 of Caloocan City denying its motion to dismiss.
The Court of Appeals thus dismissed Civil Case No. 15598 and the
preliminary injunction issued in the said case was set aside; the cease
and desist order of LLDA was likewise set aside and the temporary
restraining order enjoining the City Mayor of Caloocan and/or the City
Government of Caloocan to cease and desist from dumping its
garbage at the Tala Estate, Barangay Camarin, Caloocan City was
lifted, subject, however, to the condition that any future dumping of
garbage in said area, shall be in conformity with the procedure and
protective works contained in the proposal attached to the records of
this case and found on pages 152-160 of the Rollo, which was thereby
adopted by reference and made an integral part of the decision, until
the corresponding restraining and/or injunctive relief is granted by the
proper Court upon LLDA's institution of the necessary legal
proceedings.

The Court, acting on the petition, issued a Resolution 12 on November
10, 1992 referring the case to the Court of Appeals for proper
disposition and at the same time, without giving due course to the
petition, required the respondents to comment on the petition and file
the same with the Court of Appeals within ten (10) days from notice. In
the meantime, the Court issued a temporary restraining order, effective
immediately and continuing until further orders from it, ordering the
respondents: (1) Judge Manuel Jn. Serapio, Presiding Judge, Regional
Trial Court, Branch 127, Caloocan City to cease and desist from
exercising jurisdiction over the case for declaration of nullity of the
cease and desist order issued by the Laguna Lake Development
Authority (LLDA); and (2) City Mayor of Caloocan and/or the City
Government of Caloocan to cease and desist from dumping its
garbage at the Tala Estate, Barangay Camarin, Caloocan City.
Hence, the Laguna Lake Development Authority filed the instant
petition for review on certiorari, now docketed as G.R. No. 110120,
with prayer that the temporary restraining order lifted by the Court of
Appeals be re-issued until after final determination by this Court of the
issue on the proper interpretation of the powers and authority of the
LLDA under its enabling law.
On July, 19, 1993, the Court issued a temporary restraining
order16 enjoining the City Mayor of Caloocan and/or the City
Government of Caloocan to cease and desist from dumping its
garbage at the Tala Estate, Barangay Camarin, Caloocan City,
effective as of this date and containing until otherwise ordered by the
Court.

It is significant to note that while both parties in this case agree on the
Respondents City Government of Caloocan and Mayor Macario A.
need to protect the environment and to maintain the ecological balance
Asistio, Jr. filed on November 12, 1992 a motion for reconsideration
of the surrounding areas of the Camarin open dumpsite, the question
and/or to quash/recall the temporary restraining order and an urgent
as to which agency can lawfully exercise jurisdiction over the matter
motion for reconsideration alleging that ". . . in view of the calamitous
remains highly open to question.
situation that would arise if the respondent city government fails to
collect 350 tons of garbage daily for lack of dumpsite (i)t is therefore,
imperative that the issue be resolved with dispatch or with sufficient The City Government of Caloocan claims that it is within its power, as
leeway to allow the respondents to find alternative solutions to this a local government unit, pursuant to the general welfare provision of
garbage problem." the Local Government Code, 17 to determine the effects of the
operation of the dumpsite on the ecological balance and to see that
such balance is maintained. On the basis of said contention, it
On November 17, 1992, the Court issued a Resolution 13 directing the
questioned, from the inception of the dispute before the Regional Trial
Court of Appeals to immediately set the case for hearing for the
Court of Caloocan City, the power and authority of the LLDA to issue a
purpose of determining whether or not the temporary restraining order
cease and desist order enjoining the dumping of garbage in the
issued by the Court should be lifted and what conditions, if any, may
Barangay Camarin over which the City Government of Caloocan has
be required if it is to be so lifted or whether the restraining order should
territorial jurisdiction.
be maintained or converted into a preliminary injunction.

The Court of Appeals sustained the position of the City of Caloocan on

The Court of Appeals set the case for hearing on November 27, 1992,
the theory that Section 7 of Presidential Decree No. 984, otherwise
at 10:00 in the morning at the Hearing Room, 3rd Floor, New Building,
known as the Pollution Control law, authorizing the defunct National
Court of Appeals.14 After the oral argument, a conference was set on
Pollution Control Commission to issue an ex-parte cease and desist
December 8, 1992 at 10:00 o'clock in the morning where the Mayor of
order was not incorporated in Presidential Decree No. 813 nor in
Caloocan City, the General Manager of LLDA, the Secretary of DENR
Executive Order No. 927, series of 
or his duly authorized representative and the Secretary of DILG or his
1983. The Court of Appeals ruled that under Section 4, par. (d), of
duly authorized representative were required to appear.
Republic Act No. 4850, as amended, the LLDA is instead required "to
institute the necessary legal proceeding against any person who shall
commence to implement or continue implementation of any project,
plan or program within the Laguna de Bay region without previous
clearance from the Authority."
The LLDA now assails, in this partition for review, the abovementioned
ruling of the Court of Appeals, contending that, as an administrative
agency which was granted regulatory and adjudicatory powers and
functions by Republic Act No. 4850 and its amendatory laws,
Presidential Decree No. 813 and Executive Order No. 927, series of
1983, it is invested with the power and authority to issue a cease and
desist order pursuant to Section 4 par. (c), (d), (e), (f) and (g) of
Executive Order No. 927 series of 1983 which provides, thus:
Sec. 4. Additional Powers and Functions. The
authority shall have the following powers and
functions:
xxx xxx xxx
(c) Issue orders or decisions to compel
compliance with the provisions of this Executive
Order and its implementing rules and regulations
only after proper notice and hearing.
(d) Make, alter or modify orders requiring the
discontinuance of pollution specifying the
conditions and the time within which such
discontinuance must be accomplished.
(e) Issue, renew, or deny permits, under such
conditions as it may determine to be reasonable,
for the prevention and abatement of pollution, for
the discharge of sewage, industrial waste, or for
the installation or operation of sewage works and
industrial disposal system or parts thereof.
(f) After due notice and hearing, the Authority may
also revoke, suspend or modify any permit issued
under this Order whenever the same is necessary
to prevent or abate pollution.
(g) Deputize in writing or request assistance of
appropriate government agencies or
instrumentalities for the purpose of enforcing this
Executive Order and its implementing rules and
regulations and the orders and decisions of the
Authority.
The LLDA claims that the appellate court deliberately suppressed and
totally disregarded the above provisions of Executive Order No. 927,
series of 1983, which granted administrative quasi-judicial functions to
LLDA on pollution abatement cases.
In light of the relevant environmental protection laws cited which are
applicable in this case, and the corresponding overlapping jurisdiction
of government agencies implementing these laws, the resolution of the
issue of whether or not the LLDA has the authority and power to issue
an order which, in its nature and effect was injunctive, necessarily
requires a determination of the threshold question: Does the Laguna
Lake Development Authority, under its Charter and its amendatory
laws, have the authority to entertain the complaint against the dumping
of garbage in the open dumpsite in Barangay Camarin authorized by
the City Government of Caloocan which is allegedly endangering the
health, safety, and welfare of the residents therein and the sanitation
and quality of the water in the area brought about by exposure to
pollution caused by such open garbage dumpsite?
The matter of determining whether there is such pollution of the
environment that requires control, if not prohibition, of the operation of
a business establishment is essentially addressed to the
Environmental Management Bureau (EMB) of the DENR which, by
virtue of Section 16 of Executive Order No. 192, series of 1987, 18 has
assumed the powers and functions of the defunct National Pollution
Control Commission created under Republic Act No. 3931. Under said
Executive Order, a Pollution Adjudication Board (PAB) under the Office
of the DENR Secretary now assumes the powers and functions of the
National Pollution Control Commission with respect to adjudication of
pollution cases. 19
As a general rule, the adjudication of pollution cases generally pertains
to the Pollution Adjudication Board (PAB), except in cases where the
special law provides for another forum. It must be recognized in this
regard that the LLDA, as a specialized administrative agency, is
specifically mandated under Republic Act No. 4850 and its amendatory
laws to carry out and make effective the declared national policy 20 of
promoting and accelerating the development and balanced growth of
the Laguna Lake area and the surrounding provinces of Rizal and
Laguna and the cities of San Pablo, Manila, Pasay, Quezon and
Caloocan21 with due regard and adequate provisions for environmental
management and control, preservation of the quality of human life and
ecological systems, and the prevention of undue ecological
disturbances, deterioration and pollution. Under such a broad grant
and power and authority, the LLDA, by virtue of its special charter,
obviously has the responsibility to protect the inhabitants of the Laguna
Lake region from the deleterious effects of pollutants emanating from
the discharge of wastes from the surrounding areas. In carrying out the
aforementioned declared policy, the LLDA is mandated, among others,
to pass upon and approve or disapprove all plans, programs, and
projects proposed by local government offices/agencies within the
region, public corporations, and private persons or enterprises where
such plans, programs and/or projects are related to those of the LLDA
for the development of the region. 22
In the instant case, when the complainant Task Force Camarin
Dumpsite of Our Lady of Lourdes Parish, Barangay Camarin,
Caloocan City, filed its letter-complaint before the LLDA, the latter's
jurisdiction under its charter was validly invoked by complainant on the
basis of its allegation that the open dumpsite project of the City
Government of Caloocan in Barangay Camarin was undertaken
without a clearance from the LLDA, as required under Section 4, par.
(d), of Republic Act. No. 4850, as amended by P.D. No. 813 and
Executive Order No. 927. While there is also an allegation that the said
project was without an Environmental Compliance Certificate from the
Environmental Management Bureau (EMB) of the DENR, the primary
jurisdiction of the LLDA over this case was recognized by the
Environmental Management Bureau of the DENR when the latter acted
as intermediary at the meeting among the representatives of the City
Government of Caloocan, Task Force Camarin Dumpsite and LLDA
sometime in July 1992 to discuss the possibility of 
re-opening the open dumpsite.
Having thus resolved the threshold question, the inquiry then narrows
down to the following issue: Does the LLDA have the power and
authority to issue a "cease and desist" order under Republic Act No.
4850 and its amendatory laws, on the basis of the facts presented in
this case, enjoining the dumping of garbage in Tala Estate, Barangay
Camarin, Caloocan City.
The irresistible answer is in the affirmative.
The cease and desist order issued by the LLDA requiring the City
Government of Caloocan to stop dumping its garbage in the Camarin
open dumpsite found by the LLDA to have been done in violation of
Republic Act No. 4850, as amended, and other relevant environment
laws,23 cannot be stamped as an unauthorized exercise by the LLDA of
injunctive powers. By its express terms, Republic Act No. 4850, as
amended by P.D. No. 813 and Executive Order No. 927, series of
1983, authorizes the LLDA to "make, alter or modify order requiring the
discontinuance or pollution." 24 (Emphasis supplied) Section 4, par. (d)
explicitly authorizes the LLDA to makewhatever order may be
necessary in the exercise of its jurisdiction.
To be sure, the LLDA was not expressly conferred the power "to issue
and ex-parte cease and desist order" in a language, as suggested by
the City Government of Caloocan, similar to the express grant to the
defunct National Pollution Control Commission under Section 7 of P.D. been complied with by the City Government of Caloocan as it did in the
No. 984 which, admittedly was not reproduced in P.D. No. 813 and first instance, no further legal steps would have been necessary.
E.O. No. 927, series of 1983. However, it would be a mistake to draw
therefrom the conclusion that there is a denial of the power to issue the
The charter of LLDA, Republic Act No. 4850, as amended, instead of
order in question when the power "to make, alter or modify orders
conferring upon the LLDA the means of directly enforcing such orders,
requiring the discontinuance of pollution" is expressly and clearly
has provided under its Section 4 (d) the power to institute "necessary
bestowed upon the LLDA by Executive Order No. 927, series of 1983.
legal proceeding against any person who shall commence to
implement or continue implementation of any project, plan or program
Assuming arguendo that the authority to issue a "cease and desist within the Laguna de Bay region without previous clearance from the
order" were not expressly conferred by law, there is jurisprudence LLDA."
enough to the effect that the rule granting such authority need not
necessarily be express.25While it is a fundamental rule that an
Clearly, said provision was designed to invest the LLDA with
administrative agency has only such powers as are expressly granted
sufficiently broad powers in the regulation of all projects initiated in the
to it by law, it is likewise a settled rule that an administrative agency
Laguna Lake region, whether by the government or the private sector,
has also such powers as are necessarily implied in the exercise of its
insofar as the implementation of these projects is concerned. It was
express powers.26 In the exercise, therefore, of its express powers
meant to deal with cases which might possibly arise where decisions
under its charter as a regulatory and quasi-judicial body with respect to
or orders issued pursuant to the exercise of such broad powers may
pollution cases in the Laguna Lake region, the authority of the LLDA to
not be obeyed, resulting in the thwarting of its laudabe objective. To
issue a "cease and desist order" is, perforce, implied. Otherwise, it
meet such contingencies, then the writs of mandamus and injunction
may well be reduced to a "toothless" paper agency.
which are beyond the power of the LLDA to issue, may be sought from
the proper courts.
In this connection, it must be noted that in Pollution Adjudication Board
v. Court of Appeals, et al.,27 the Court ruled that the Pollution
Insofar as the implementation of relevant anti-pollution laws in the
Adjudication Board (PAB) has the power to issue an ex-parte cease
Laguna Lake region and its surrounding provinces, cities and towns
and desist order when there is prima facie evidence of an
are concerned, the Court will not dwell further on the related issues
establishment exceeding the allowable standards set by the anti-
raised which are more appropriately addressed to an administrative
pollution laws of the country. The ponente, Associate Justice
agency with the special knowledge and expertise of the LLDA.
Florentino P. Feliciano, declared:

WHEREFORE, the petition is GRANTED. The temporary restraining

Ex parte cease and desist orders are permitted by
order issued by the Court on July 19, 1993 enjoining the City Mayor of
law and regulations in situations like that here
Caloocan and/or the City Government of Caloocan from dumping their
presented precisely because stopping the
garbage at the Tala Estate, Barangay Camarin, Caloocan City is
continuous discharge of pollutive and untreated
hereby made permanent.
effluents into the rivers and other inland waters of
the Philippines cannot be made to wait until
protracted litigation over the ultimate correctness SO ORDERED.
or propriety of such orders has run its full course,
including multiple and sequential appeals such as
those which Solar has taken, which of course may
take several years. The relevant pollution control Feliciano, Bidin, Melo and Vitug, JJ., concur .
statute and implementing regulations were
enacted and promulgated in the exercise of that
pervasive, sovereign power to protect the safety,
health, and general welfare and comfort of the
public, as well as the protection of plant and
animal life, commonly designated as the police
power. It is a constitutional commonplace that the
ordinary requirements of procedural due process
yield to the necessities of protecting vital public
interests like those here involved, through the
exercise of police power. . . .

The immediate response to the demands of "the necessities of

protecting vital public interests" gives vitality to the statement on
ecology embodied in the Declaration of Principles and State Policies or
the 1987 Constitution. Article II, Section 16 which provides:

The State shall protect and advance the right of

the people to a balanced and healthful ecology in
accord with the rhythm and harmony of nature.

As a constitutionally guaranteed right of every person, it carries the

correlative duty of non-impairment. This is but in consonance with the
declared policy of the state "to protect and promote the right to health
of the people and instill health consciousness among them." 28 It is to
be borne in mind that the Philippines is party to the Universal
Declaration of Human Rights and the Alma Conference Declaration of
1978 which recognize health as a fundamental human right. 29

The issuance, therefore, of the cease and desist order by the LLDA, as
a practical matter of procedure under the circumstances of the case, is
a proper exercise of its power and authority under its charter and its
amendatory laws. Had the cease and desist order issued by the LLDA